As expected, the FCC has voted unanimously to repeal the cable and DBS “sports blackout rule.” The repeal of the sports blackout rule had been proposed by a group representing sports fans and had garnered support from a number of elected officials. In reality, however, the repeal of the rule is unlikely to have any immediate impact on cable and DBS providers or on the availability of sports programming on television. It may, however, give rise to a proceeding before the Copyright Royalty Board to consider whether the royalty rates that cable operators pay for distant signals should be adjusted upwards, or subjected to a surcharge, to reflect the repeal of the rule.
Background. The sports blackout rule, which was first adopted in 1975, generally provides that, upon request of the holder of the local broadcast rights to a sporting event (e.g., the local team) that is not being broadcast on a local television station, a cable system is barred from importing a distant signal that is broadcasting that sporting event. Thus, for example, if the Washington Nationals baseball team is playing at home against the New York Mets and the game is not being broadcast on a local Washington DC television station, the Nationals could prevent cable systems serving Washington DC (and neighboring communities) from importing a station from New York that was broadcasting the Nationals-Mets contest. A similar rule applies to DBS.
The purpose of the rule was to “ensur[e] the overall availability of sports telecasts to the general public” by giving teams the flexibility to contract with broadcasters and, through those contracts, control the terms on which events are displayed on broadcast television stations, cable systems and DBS services. When the rules were initially adopted, gate receipts were a primary source of revenue for sports teams, and so contracts between teams or leagues and broadcasters frequently limited the airing of home games in the local market to encourage attendance at the stadium. The sports blackout rule prevented cable operators from circumventing these local blackouts by importing a distant signal.
Discussion and analysis. The Commission offered several reasons to justify its repeal of the sports blackout rule. First, the Commission concluded that, in light of changes occurring in the sports industry since 1975, the rule is no longer needed to ensure that sports programming is widely available to viewers. Second, the Commission concluded that elimination of the rule will serve the public interest by removing unnecessary regulation and removing “regulatory reinforcement” of the NFL’s blackout policy which, according to the Commission, prevents many consumers who have subsidized the NFL (through publicly-funded stadiums and other tax benefits) from watching locally blacked out games. Third, the Commission concluded that repeal of the rule will not adversely impact broadcasters, consumers, or local businesses. The Commission also rejected arguments that it lacked the statutory authority to repeal the rule.
While the Commission stated that, over time, the sports blackout rule had lost its relevance in all contexts except NFL games, the reality is that even NFL broadcasts are largely unaffected by the rule as a practical matter. As the Commission concedes, the NFL can continue its policy of requiring local broadcast blackouts when games aren’t sold out and the requirement that a cable operator wanting to fill the void with a distant station that carries the locally blacked out game will find it impractical, and probably impossible, to obtain a grant of retransmission consent from the distant station allowing the system to carry it. Furthermore, carrying an additional distant signal for any length of time will trigger compulsory copyright license royalty payment obligations. These royalty obligations could be quite significant, particularly if the imported station is a Fox affiliate and is subject to a royalty rate of 3.75 percent of the system’s gross revenues.
Chairman Wheeler and each of the Commissioners attached separate statements to the decision repealing the sports blackout rule. These statements reiterated that the repeal of the rule would not necessarily end the local blackout of sporting events, especially NFL games. But the Commissioners nonetheless applauded themselves on the grounds that the FCC would no longer “be complicit in preventing sports fans from watching their favorite teams on TV.”
Implications. Notwithstanding threats by the NFL and other sports leagues that the repeal of the sports blackout rule will accelerate the migration of sporting events from free, over-the-air television stations to national or regional “pay” cable networks, the fact that many of the major sports rights are tied up in long term contracts makes it unlikely that the leagues will carry out such threats any time soon. To the extent migration occurs, it will a financial decision that is not likely to be impacted directly by decision to repeal the sports blackout rule.
However, one potential bump in the road for cable operators and their customers is the possibility that the royalty fees currently paid for distant signals under the cable compulsory copyright license could be adjusted upward to account for the repeal of the sports blackout rule. Under Sections 801(b)(2)(C) and 804(b)(1)(B), the copyright owners have 12 months from the date of any change in the sports blackout rule to petition the Copyright Royalty Board to commence a formal proceeding to adjust the royalty fees to assure that they are reasonable in light of the change in the rule. By statute, any such adjustment can apply only to the carriage of stations affected by the change and thus, arguably, would rarely if ever be triggered since it is unlikely (for the reasons described above) that cable operators will be able to carry additional distant signals to take advantage of the sports blackout rule repeal. That being said, it should be noted that the outcome of past rate adjustment proceedings has been unpredictable and often produced results antithetical to the interests of cable operators and their customers.