On Wednesday, November 19, 2014, the House of Representatives passed H.R. 5728, a revised bill reauthorizing the Satellite Television Extension and Localism Act of 2010 (STELA). In addition to extending the expiring STELA provisions for another five years, the bill, which is entitled the STELA Reauthorization Act of 2014 (STELAR), takes a number of other actions on matters of interest to the cable, satellite and broadcast industries, including market modifications, retransmission consent negotiations (including the “good faith” standard), integrated set-top boxes, the compulsory license for LPTV station carriage, small system effective competition showings, and broadcast ownership limits. The bill now moves to the Senate, where it is hoped it will be acted on before the end of the year. 

Summary. The House-passed STELAR largely melds together provisions previously approved by the full House in July and by the Senate Commerce Committee in September (see our client advisories of May 13, 2014September 16, 2014 and September 18, 2014) , as follows:

  1. Extension of Expiring STELA Provisions. The provisions of the retransmission consent section of the Communications Act (Section 325) barring exclusive retransmission consent agreements, requiring that retransmission consent negotiations be conducted in “good faith,” and exempting the DBS industry from having to obtain retransmission consent for the carriage of distant network signals to “unserved households” are scheduled to expire at the end of 2014. STELAR extends each of those provisions for another five years (until the end of 2019). In addition, the bill extends for five years an expiring Copyright Act provision that gives satellite carriers a compulsory copyright license for the carriage of distant signals. 
  2. Market Modifications for DBS and Cable Carriage. The Communications Act currently provides a mechanism that allows cable operators and broadcasters to petition the FCC to modify a station’s local market (by adding or deleting communities) for purposes of the cable must carry and retransmission consent rules. However, there is no parallel provision allowing for modification to the local markets of television stations for purposes of the DBS carriage rules. STELAR rectifies that disparity by adding language giving DBS operators and broadcast stations the right to seek market modifications based on factors similar to those applicable to cable market modification petitions. In addition, the bill
    • adds a new factor to be considered by the FCC in deciding both cable and DBS market modification petitions – whether granting the requested market modification “would promote consumers’ access to in-state television stations”; 
    • instructs the FCC to consider a station’s historical carriage by either cable or DBS (rather than just by cable) in deciding DBS and cable market modification petitions; 
    • addresses DBS industry concerns about the limits of their spot beams by exempting satellite carriers from having to carry a signal pursuant to a market modification if “it is not technically and economically feasible for [the DBS operator] to accomplish such carriage by means of its satellites in operation” at the time of the market modification decision; 
    • clarifies that a market modification will not impact the eligibility of satellite households to receive distant signals under the DBS “if local, no distant” rule; 
    • requires the FCC, in implementing the revised market modification procedures, to ensure that procedures for filing and consideration of market modification requests “fully effectuate the purposes of the amendments” made by the bill; and 
    • directs the FCC to update what it considers a “community” for purposes of cable and DBS market modifications (thereby seeking to address the fact that the FCC currently equates a “community” with a franchise area for purposes of a cable market modification).

STELAR instructs the FCC to make information explaining the market modification process available on its website, including who may petition for a market to be modified and the factors that the FCC takes into account in deciding such petitions. The bill gives the FCC nine months to implement the revisions to the market modification rules.

  1. Joint Retransmission Consent Negotiations. Earlier this year, the FCC adopted new rules barring joint retransmission consent negotiations by two or more of the four most highly rated stations in a DMA where those stations are not commonly owned. As passed by the House, STELAR broadens that prohibition, directing the FCC to adopt (within nine months) new rules prohibiting any stations in the same DMA (not just the four most highly rated stations) that are not under “common de jure” control (i.e., more than 50 percent common ownership) from coordinating retransmission consent negotiations or conducting such negotiations jointly. 
  2. Protection for Significantly Viewed and Other Television Signals. STELAR gives the FCC nine months to adopt rules prohibiting a television station from limiting an MVPD’s ability to carry a non-commonly owned significantly viewed signal or any other non-commonly-owned station that the MVPD is “authorized to carry” under the Communications Act provisions governing the carriage of broadcast signals by cable and DBS operators. This provision raises some interesting issues.
    • This provision plainly benefits both cable and DBS by barring broadcasters from including in retransmission consent agreements provisions that would prevent the cable operator or DBS provider from carrying a non-commonly owned significantly viewed signal or local signal. 
    • It also benefits DBS by prohibiting stations from insisting that a DBS operator forego the right to import a distant signal that it is otherwise authorized to carry. There is some ambiguity as to whether the same relief applies to cable’s carriage of distant signals. 
    • Finally, while it could be argued that this provision also bars networks from contractually limiting an affiliate’s ability to grant retransmission consent for its signal to be carried in areas where it is significantly viewed or (in the case of DBS) is distant, it is likely the broadcasters would challenge such an interpretation of the language.
  3. Update to Good Faith Negotiation Rules. STELAR, as passed by the House, directs the FCC, within one year, to complete a rulemaking to review the “totality of the circumstances” test for finding a good faith violation. This is a somewhat weaker provision than the version approved by the Senate Commerce Committee last September; that provision required the FCC to “review and update” the totality of the circumstances test. The earlier version also expressly directed the FCC to “ensure that such test encourages” parties to present bona fide proposals on material retransmission consent terms and to engage in timely negotiations to reach an agreement. 
  4. Delayed Application of JSA Attribution Rule. At the same time that the FCC prohibited certain joint retransmission consent negotiations (see above), it also revised its rules to restrain broadcasters from using Joint Services Agreements (JSAs) to evade the local broadcast ownership limits. STELAR extends by six months the two year period that the FCC has given broadcasters with existing JSAs to come into compliance with the FCC revised rules. 
  5. Sweeps Period Repeal. Current law bars cable operators from repositioning or deleting a local station during a sweeps period. The FCC has interpreted this provision as preventing a cable operator from dropping a signal during a sweeps period, but not preventing a broadcaster from demanding that its signal be dropped. STELAR repeals the provision in its entirety and directs the FCC to conform its rules accordingly. 
  6. Integration Ban Repeal and Downloadable Security Working Group. The most controversial provision of the House-passed bill addresses the existing law’s ban on cable’s deployment of integrated set-top boxes. STELAR carries forward the Senate Commerce Committee provision terminating the integration ban, but shortens the effective date of the repeal from two years to one year after the bill is enacted. The FCC is required to implement that repeal by revising its rules within 180 days after the repeal takes effect. The bill adds a new provision extending waivers of the integrated set-top ban that are currently in effect or granted after the date of STELAR’s enactment until the end of 2015. Finally, not later than 45 days after enactment of STELAR (not 60 as originally proposed), the FCC is to convene a working group of technical experts to identify, report, and recommend performance objectives, technical capabilities, and technical standards for a technology and platform-neutral, software-based downloadable security system that will promote the competitive availability of navigation devices. The working group is required to meet within 90 days of the date of enactment and to submit its report within nine months of enactment. 
  7. Streamlined Effective Competition Process for Small Cable Operators. STELAR gives the FCC 180 days to establish a streamlined process for small cable operators (particularly those serving rural markets) to file effective competition petitions. A small cable operator for these purposes is an operator that, directly or through an affiliate, serves in the aggregate fewer than one percent of the all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250 million. 
  8. Revision of LPTV Local Service Area for Cable Compulsory License. The House-passed bill contains an amendment elimintaing a disparity in the compulsory license provisions applicable to the carriage of low power TV stations (LPTV) by cable and satellite. Satellite carriers currently have a royalty-free compulsory license to carry an LPTV station throughout the station’s DMA; however, the cable compulsory license limits the local area of an LPTV station to 35 or 20 miles, depending on the size of the SMSA in which the station is located. The amendment redefines the local service area of an LPTV for purposes of the cable compulsory license so that it includes not only the 35 or 20 mile zone, but also the DMA in which the station’s community of license is located. The amendment also restores language (inadvertently deleted by STELA) that defines the term “low power television station” by reference to the FCC’s rules and regulations. This amendment, which was proposed by Senator Durbin in September but not included in the Senate bill at that time, is intended only to address an LPTV station’s status for purposes of the compulsory license and not to give rise to any inference that the carriage rights of an LPTV station under the Communications Act should be expanded or otherwise amended. 
  9. Reports. As passed by the House, STELAR carries forward several reports that were originally proposed in the July House bill and the September Senate bill. These include the following:
    • Communications Implications of Statutory Licensing Modifications. Picking up a provision that was in the July House bill (but not in September’s Senate bill), STELAR requires the GAO to update the study it conducted pursuant to STELA on the changes to the carriage requirements imposed on MVPDs that would be required or beneficial to consumers if Congress phased out the cable and DBS compulsory copyright licenses and, in particular, the impact the phase out and changes in carriage requirements would have on consumer prices and access to programming. 
    • Local Network Channel Broadcast Reports. Another provision carried over to STELAR from the earlier House bill requires satellite carriers to submit (for the next five years) an annual report to the FCC setting forth information about the markets in which they retransmit local broadcast stations. 
    • Designated Market Areas. The FCC is required to submit a report to Congress (within 18 months of the date of enactment) analyzing the extent to which consumers in each local market have access to broadcast programming from stations located outside their local DMA and whether there are technologically and economically feasible alternatives to the use of DMAs to define markets that would provide consumers with more programming options and the potential such alternatives would have on localism. The FCC also is directed to provide recommendations on how to foster increased localism in counties served by out-of-state DMAs. 
    • Update to Cable Rates Report to Include Retransmission Consent Data. The bill requires the FCC to include in its annual cable price reports information regarding the “average aggregate total amount” of retransmission consent compensation paid by cable operators. It does not provide for the collection or reporting of such information with respect to DBS operators.