The Federal Communications Commission wants to know if it should have an ongoing role in the enforcement of network non-duplication and syndicated exclusivity agreements.  In a Further Notice of Proposed Rulemaking (FNPRM), the FCC asks whether exclusivity rules remain necessary and whether the agency should continue enforcing these agreements or whether a different enforcement mechanism would be more appropriate.  Comments and reply comments in response to the FNPRM are due May 12 and June 9, 2014, respectively.

The Commission’s network non-duplication and syndicated exclusivity rules provide broadcasters with an “extra-contractual” mechanism to enforce private exclusivity rights against MVPDs, given that MVPDs are not parties to the program license agreements that give rise to the exclusivity.  Programmers of network and syndicated content frequently grant to local broadcasters exclusive rights within a certain geographic territory.  Under the cable network non-duplication rule, a local television broadcaster may enforce against a cable operator exclusive rights that it has obtained from a broadcast network within a limited geographic area (a 35 mile radius in large markets and a 55 mile radius in small markets).  A similar rule applies to direct broadcast satellite providers, but that rule only applies to content carried by a “superstation” (such as TBS and WGN America).  The syndicated exclusivity rules provide a similar mechanism for enforcing contractually-provided exclusivity for syndicated programming.

The FCC previously sought comment on whether to modify its network non-duplication and syndicated exclusivity rules as part of a 2011 Notice of Proposed Rulemaking (NPRM) on broader retransmission consent issues.  The NPRM responded to Petitions for Rulemaking submitted in 2005 and 2010 by the American Cable Association—a trade association for smaller cable operators.  In the FNPRM, the Commission stated that “the record in this proceeding to date does not provide a sufficient basis on which to make a determination whether the exclusivity rules are still needed in today’s video marketplace and whether these rules should be eliminated.”  Thus, the FNPRM aims to supplement and update the record.

The FNPRM seeks comment on a number of issues relating to the network non-duplication and syndicated exclusivity rules, including:

  • Whether the FCC Has Legal Authority to Amend or Repeal the Exclusivity Rules.  The FNPRM tentatively concludes that the Commission does have authority to eliminate the cable exclusivity rules, observing that the agency adopted the rules without a specific mandate from Congress and that no statute requires the FCC to maintain the rules in their current form.  In response to an argument from broadcasters that eliminating the rules is inconsistent with Congressional intent in the 1992 Cable Act, the FNPRM notes that: (1) this concern is not reflected in the statutory text; and (2) that any concern about “importation of distant programming that would compete with local programming the system carries . . . arguably does not extend to retransmission consent negotiating impasses, where a cable system deletes a local broadcast station’s signal.”  The FNPRM also tentatively concludes that the FCC has the ability to modify or eliminate the exclusivity rules for DBS and open video systems because those rules are extensions of the cable exclusivity rules.
  • Whether the Importation of Distant Signals Continues to Pose a Competitive Threat to Local Broadcasters.  According to the FNPRM, the exclusivity rules “were both intended in part to facilitate broadcasters’ ability to compete in the video marketplace by protecting their exclusive contractual rights . . . from cable systems’ importation of distant signals.”  Thus, the FNPRM asks how changes in the marketplace have affected the ability of broadcasters to compete with cable operations and other MVPDs.  In particular, the FNPRM asks whether the statutory prohibition on unauthorized retransmission by an MVPD of a broadcast signal adequately addresses the Commission’s goals—particularly if MVPDs are only likely to import a distant signal during a retransmission dispute.  The FNPRM asks whether network/affiliate agreements prohibit a distant broadcaster from granting such retransmission consent and whether judicial enforcement of exclusivity agreements would provide a sufficient remedy.  It also inquires whether the higher cost of importing a distant signal—either due to retransmission costs or higher copyright fees—would discourage importation of duplicative programming.  Finally, the FNPRM solicits comment about  how any diversion of a local station’s audience to a distant station would affect revenues and whether changes in the source of local broadcast revenues (including retransmission consent and website advertising) provide any new basis for either the abolition or retention of the exclusivity rules.
  • Whether the Balance of Power Between Broadcasters and MVPDs Has Changed Since the FCC Adopted Its Exclusivity Rules.  The FNPRM states that another basis for the Commission’s exclusivity rules was a concern that “broadcasters and cable systems were on an unequal footing with respect to the market for programming.”  Thus, the agency asks whether those concerns remain valid and how the growth in the number of video programming options available to consumers since the exclusivity rules were adopted affects the need for the exclusivity rules.  In particular, the FNPRM focuses on whether higher retransmission consent fees paid to broadcasters demonstrates an increase in broadcasters’ leverage and how any increase in leverage shapes the need for exclusivity rules.
  • Whether Exclusivity Rules Promote Development of Network and Syndicated Programming.  The FNPRM notes that when the FCC reinstated its syndicated exclusivity rules in 1988, the agency concluded that the rules increase the financial incentives for program suppliers to develop new programming.  In the FNPRM, the Commission asks whether the rules still are necessary to achieve that goal or whether alternative remedies can produce the same result.  The FNPRM specifically seeks input from suppliers of syndicated programing on how elimination of the exclusivity rules would alter their incentive to produce programming and how programming suppliers currently “dilute” exclusivity rights by distributing programming on multiple platforms.
  • What Are The Costs of Eliminating the Exclusivity Rules?  The FNPRM asks about the costs and benefits of eliminating the exclusivity rules and whether “any costs associated with eliminating the exclusivity rules outweigh the benefits of eliminating unnecessary or obsolete rules.”  Additionally, the FNPRM asks whether the Commission should weigh the costs and benefits differently for any subset, such as small market stations.
  • How Eliminating the Exclusivity Rules Would Affect Retransmission Consent Negotiations.  The FNPRM seeks information about “the relationship between exclusivity protection and the retransmission consent regime and whether elimination of the rules would be ‘inconsistent with the regulatory structure’” created in the 1992 Cable Act.  Further, the Commission asks whether elimination of the exclusivity rules would lead to DMA-wide exclusivity and whether such an expansion of exclusivity argues in favor of or against elimination.
  • The Viability of Judicial Enforcement as a Substitute for FCC Exclusivity Rules.  The FNPRM also requests input on how eliminating the exclusivity rules would affect existing contracts and, specifically, why judicial enforcement would be too difficult or costly.  The FNPRM asks how the lack of privity between broadcasters and MVPDs would affect the availability of a judicial remedy and whether there is an alternative to either agency enforcement or judicial enforcement.  It also asks whether, as Time Warner Cable has suggested, exclusivity agreements constitute an unreasonable restraint on trade and, if so, how this should affect the retention of the FCC’s exclusivity rules.
  • How Eliminating the Rules Would Affect Existing Contracts.  The FNPRM asks how existing programming agreements account for potential changes in the exclusivity rules and whether the agency should grandfather existing agreements if it were to modify or eliminate the rules.  The FNPRM also asks whether the provisions contained in many agreements that reference existing Commission rules would be voided if the FCC eliminated the rules.
  • Whether Eliminating the Rules Would Reduce Localism.  The FNPRM seeks comment on whether, as broadcasters have argued, eliminating the exclusivity rules would have a negative impact on localism.  In particular, the FNPRM asks whether, if MVPDs are only likely to import distant programming during a retransmission consent dispute, localism truly would suffer if the agency eliminates the rules.  The Commission asks commenters to “quantify as specifically as possible the economic impact, if any, of the elimination of the exclusivity rules on broadcasters’ ability to provide news and other locally responsive programming.”  Further, the FNPRM inquires whether eliminating the exclusivity rules would lead to a migration of network and syndicated programming to non-broadcast networks.
  • Whether the FCC Should Modify, Rather Than Eliminate, Its Exclusivity Rules.  The FNPRM asks whether and how the Commission should modify the exclusivity rules if the agency decides to retain them.  Specifically, the FNPRM seeks comment on a proposal by the ACA and BCI Broadband to exempt from the network non-duplication rule any station that places a Grade B signal over the cable community.  Additionally, the FNPRM asks whether the exclusivity rules only should apply if the broadcaster has provided retransmission consent to and is carried by the MVPD.  Finally, the FNPRM asks whether the agency should modify the exclusivity rules to facilitate post-incentive auction channel sharing, as envisioned by the Spectrum Act.

Although the FNPRM does not reach any tentative conclusions regarding whether the FCC should revise or rescind its exclusivity rules, it is clear from the tone and the questions asked that the Commission is seriously considering its options.  Accordingly, broadcasters that have negotiated for network and/or syndicated exclusivity rights or that may do so in the future should strongly consider filing comments.