Enforcement Staff Respond to Application of Clue By Four to Head

After the very public tongue-lashing from FCC Commissioner McDowell as part of deciding the Comcast/TW/Adelphia transaction, the “lazy and indolent bureaucracy” charged with processing cable complaints has finally issued an Order designating for hearing MASN’s complaint that Comcast refuses to air the DC Nationals games violates the law. Sort of. There are a few interesting little oddities, as well as a big, heapin’ WHAT THE HECK TOOK SO LONG!

We’ll have to see if they now move to the other proceedings — such as the leased access rulemaking — promised in the Adelphia Order, or if this is just a one shot because Washington Nationals coverage (or lack thereof) has become such a sore point for folks here in DC. But it gives some modest hope that (at least for the moment) the FCC has some genuine interest in actually enforcing the laws already on the books that limit the ability of cable operators to abuse their market power.

Back in June 2005, the Mid Atlantic Sports Network (MASN) filed a lengthy and detailed complaint with the FCC. MASN controls the television rights to the Washington Nationals and the Baltimore Oriels. According to MASN, Comcast — which controls most of the cable subscribers (and therefore most television viewers) in the Washington National’s viewing area — refused to carry MASN because MASN would not give Comcast an ownership interest in MASN and refused to sign exclusive deals that would prevent MASN from selling programming to Comcast’s direct competitors like RCN, DIRECTV, and DISH (aka Echostar).

In response, Comcast maintained that MASN had a contractual obligation to give it Nationals programming as an exclusive until 2007, and then was required to enter into negotiation for a ten year extension. Comcast had acquired the remainder of a ten year contract for Oriels games starting in 1996, with a condition that Comcast could match the best third party offer if the Oriels did not wish to renew. MASN is owned by Peter Angelos, who owns the Oriels (and therefore the television rights to the Oriels).

In other words, Comcast argues that MASN (which didn’t exist in 1996) had to give it Nationals programming under the same terms that the Oriels gave in 1996 because they have the same owner. But then Comcast was entitled to match MASN’s “offer” to itself for the rights to both Oriels and Nationals after 2006 because, for purposes of the clause giving Comcast a right of refusal, MASN is a “third party” (even though it is the “same party” for determining Nationals TV rights).

I should say that a Maryland judge has dismissed Comcast’s breach of contract claim, and the matter is on appeal to the Maryland Court of Appeals.

But getting back to the complaint at the FCC…Under federal law (47 USC Sec. 536), it is illegal for a cable company to demand an equity stake in a programming network as a condition of carriage, and it is illegal for a cable operator to use the threat of non-carriage to influence whether unaffiliated programming networks offer programming to competitors (and if so, under what terms). Congress passed this law as part of the 1992 Cable Act to stop the practice of cable companies extorting equity shares from unaffiliated programming networks and to stop cable cos from using market power over programmers to drive up costs of programming to rivals.

But Congress also accepted the arguments from cable companies that programming networks might want to “give” cable operators equity stakes for “perfectly legitimate business reasons,” and might also have reasons to “give” exclusive carriage to cable operators. So negotiating for equity shares or exclusive distribution is not illegal in and of itself. Nor is simple refusal to carry an unaffiliated network. After all, some networks just stink, regardless of affiliation, and only so many networks fit on a cable system (at least back in 1992). It only becomes ilegal if the FCC determines that the cable operator went from negotiating to demanding equity or exclusivity as a condition of carriage, and refused to carry the unaffiliated programming network because it refused to allow the MSO to have its wicked way with it.

As one might imagine, determining when negotiations become demands and when refusal to carry crosses the line from editorial judgment to leveraging market power presents difficulties. Under FCC rules implementing this law, a programmer filing a complaint needs to make a prima facie case that the cable operator crossed the line. i.e. A complaint must allege enough facts and show enough supporting evidence to show that there’s good reason to believe the cable operator stepped over the line from permissible negotiation and refusal to carry because of editorial judgment and thus violated the law. Once the complainant makes such a case on paper, the staff refer the matter to an administrative law judge empowered to hold a hearing, authorize depositions, compel production of evidence, and generally do all that trial stuff that determines which side is telling the truth and what remedies to impose if the ALJ finds the cable operator broke the law.

So a prima facie case is supposed to lie somewhere between proving the whole case by preponderance of the evidence and just making an allegation that “cable company won’t carry me because I won’t give them a piece of me.” The idea is to recognize that a complainant will often need a hearing to present evidence and argument (including cross examination of witnesses to show that the purported reasons for rejecting the programming network are a sham) while not allowing programming networks to bring frivolous cases and possible force their way onto systems with the threat of a meritless complaint.

Anyone familiar with civil rights and sexual harassment litigation will recognize the legal standards and its respective merits and pitfalls. Place the burden on complainants too high and you make it impossible for complaints to go forward, discouraging anyone from using the process. Place the burden too low and you may end up with a flood of disgruntled programmers with no real case.

As for the FCC, guess where they fit on the sliding scale? I’ll give you a hint — in the entire history of the FCC since it adopted this rule, it has designated only one complaint for a hearing. Now it’s possible that cable operators are right when they say that this is because the constant carping by disappointed programmers is just so much sour grapes and all the independent programmers that get on the system are treated well and completely happy. But the treatment by FCC staff of the MASN complaint suggests a different explanation.

MASN presented some fairly detailed allegations and evidence to support its claim. Notably, they introduced evidence that an “independent” investment banker who claimed to represent major league baseball, but whose firm also represented Comcast on some purely unrelated matters, “happened” to have several proposals for MASN to consider with regard to giving Comcast an equity stake in exchange for carriage. Said “indepedent” insisted that Comcast would “only” settle for at least a 50% share, and that if MASN wanted carriage, MASN had better pony up and play along like other regional sports networks carried by Comcast. MASN also produced letters sent by Comcast to other incumbent cable operators in the region warning them not to carry MASN until it resolved its “dispute” with Comcast or face possible legal consequences for supporting MASN’s “breach of contract.”

Comcast denies all knowledge of said independent, and don’t know where he got such crazy ideas.

One would think that it doesn’t get much better than this in prima facie case land short of some secret recording of Brian Roberts (head of Comcast) doing stereotypical evil monologue on how he will “crush MASN and make them pay for thwarting my bid for Nationals television. Mwhahahahahha!” Sure, Comcast may have been the innocent victim of a “helpful” independent trying to ingratiate himself with Comcast and drum up business for himself. But that’s what a hearing is for, figuring out who to believe.

MASN filed its complaint on June 14, 2005. MASN also observed that it was losing tons of money and most people in Washington were denied seeing their new baseball team because of this complaint, and therefore requested expedited processing of the complaint. Comcast filed a timely denial, and MASN filed more supporting evidence.

And there the matter sat. And sat. And sat.

At which point you have to ask yourself, “maybe there’s a reason the FCC has only ever granted one carriage complaint, and why nobody shows up to complain.” Because, as noted above, the MASN complaint is about as good as it is ever going to get for a program carriage complaint. It’s clear people want the programming. And, since Comcast made every effort to acquire the programming before MLB gave it to Peter Angelos, Comcast clearly doesn’t have any editorial objection. Why the heck not refer it to an administrative law judge (ALJ) and let the wheels of justice do their wheel thingy? Or, if FCC staff didn’t think MASN made a good enough prima facie case, why didn’t they dismiss the complaint and let MASN appeal to a federal court.

Instead, Staff let the complaint sit. And sit. And sit….

Until they got whupped up the side of the head by Commissioner McDowell and the rest of the Commission.

So now we have an order affirming that, yup, MASN met its burden to show a prima facie case. But the Order has some noteworthy things about it beyond the mere fact that it came out at all.

1) The Order comes from the Commission, rather than from the Media Bureau. In the general course of things, one would expect a hearing designation to come from the Bureau level (as happened in the one other carriage complaint case ever resolved by the FCC), with an appeal to the full Commission after a hearing.

I’m not sure exactly what this means. Certainly the Commission is making it clear that they give resolution of the MASN complaint a very high priority.

2) The Order sets a 45 day limit for an ALJ to come back with a decision, unless the parties opt for alternate dispute resolution under the Commission’s rules (the rules give parties ten days to mutually agree to go to private arbitration rather than an ALJ). In addition, MASN can opt to use the procedures the Commission adopted separately in the Adelphia Order.

Again, the Commission seems pretty serious about getting this done NOW. While it is almost certainly too late to salvage the 2006 season, I expect that DC Comcast subscribers will get to see the Nationals in 2007.

So is this just a one-shot, because folks here in DC, including members of Congress, made such a huge fuss? Or is the Commission still lighting a fire under staff’s tail to get stuff done and actually start enforcing complaints against cable companies?

Well, if you’re someone who has been afraid to go to the FCC because they don’t want to help you and won’t protect you when the cable industry retaliates, I expect you’ll want a little more proof that Chairman Martin and the other Commissioners have put the fear of God into staff. (I’ll say this for Martin, he knows how to get staff to respond.) Now we have to see if the FCC delivers on its promises to start new proceedings on leased access and reforming the complaint process generally.

But eventually, someone else will have to take the plunge and file another complaint. Hopefully, staff will now feel a bit more motivated to respond in a timely manner.

Stay tuned . . . .

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