The Federal Communications Commission (FCC), in a 3-2 decision with both Republican Commissioners dissenting, ruled for Tennis Channel in its program carriage complaint against Comcast. The FCC’s decision largely upheld the Initial Decision of its Administrative Law Judge (ALJ) and required Comcast, within 45 days, to carry Tennis Channel on the same programming tier as Comcast’s affiliated sports channels, Golf Channel and NBC Sports Network (formerly known as Versus). Comcast was also ordered to pay a forfeiture of $375,000 to the U.S. Treasury and in the event that Comcast complies with the decision by carrying Tennis Channel on a more widely distributed tier, Comcast must pay Tennis Channel any additional carriage fees that are due under the parties’ contract.

Background. On July 5, 2010, Tennis Channel filed a complaint with the FCC alleging that Comcast discriminated against Tennis Channel on the basis of affiliation in violation of the Communications Act and the FCC’s program carriage rules. Tennis Channel argued that such discrimination took the form of disparate distribution of Tennis Channel and Comcast’s affiliate sports channels Golf Channel and Versus. Tennis Channel is distributed on Comcast’s Sports Tier, a programming tier with narrower distribution for which subscribers had to pay an additional fee, while Golf Channel and Versus are included without an additional charge on more widely distributed tiers.

The FCC’s Media Bureau issued a Hearing Designation Order (HDO) in October 2010 finding that Tennis Channel had made a prima facie case of program carriage. On December 16, 2011, following a full evidentiary hearing, the ALJ issued an Initial Decision finding that Comcast’s carriage of Tennis Channel violated the program carriage rules. The ALJ’s decision imposed a $375,000 forfeiture on Comcast and required Comcast to carry Tennis Channel on the same tier as Golf Channel and Versus. The ALJ also required Tennis Channel to be carried on a comparable channel position in relation to Golf Channel and Versus. Comcast filed exceptions to the Initial Decision in January of 2012 arguing that the ALJ misapplied the program carriage rules and that the remedy imposed violated the First Amendment. Comcast also filed an Application for Review of the Media Bureau’s October 2010 HDO, asserting that Tennis Channel’s complaint was barred by the statute of limitations.

Decision. The FCC’s order denying Comcast’s challenges finds that the ALJ correctly decided that Comcast discriminated against Tennis Channel on the basis of non-affiliation and discriminated in favor of Golf Channel and Versus on the basis of affiliation, both of which, standing alone, are violations of the Commission’s program carriage regime. The FCC found circumstantial evidence existed to conclude that: 1) Comcast had a general practice of favoring affiliates over non-affiliates; 2) Tennis Channel was similarly situated to Golf Channel and Versus; and 3) Comcast treated Tennis Channel differently from Golf Channel and Versus on the basis of affiliation.

Key to the first finding were past statements by Comcast executives that affiliates were “treated like siblings as opposed to like strangers” when being evaluated. The record also showed that Comcast moved NHL Network and MLB Network off of the Sports Tier (where Tennis Channel was located) and onto a more widely-distributed tier when Comcast acquired an equity interest in both. According to the Commission, this evidence undercut Comcast’s claims that Tennis Channel was carried on a less widely-distributed tier for legitimate business reasons.

The FCC’s order holds that the three networks were similarly situated because all show sports programming, target similar demographics, have significant overlap in advertisers, and earn nearly identical ratings. The FCC was unpersuaded by Comcast’s claim that other MVPDs also treated Golf Channel and Versus more favorably than Tennis Channel. Citing data that was redacted from the public version of the decision, the FCC found that some MVPDs carried Tennis Channel more broadly than Comcast while other MVPDs carried Golf Channel and Versus less broadly than Comcast. The FCC also held that Comcast’s failure to carry Tennis Channel on a more widely-distributed tier created a “ripple effect” that influenced other MVPDs with smaller market share than Comcast to follow Comcast’s lead in their distribution of Tennis Channel. Comcast argued that it had engaged in a cost-benefit analysis to determine the placement of Tennis Channel on the Sports Tier, but the FCC found the claimed analysis had failed to truly consider the benefits of wider distribution of Tennis Channel.

According to the FCC, Comcast unreasonably restrained Tennis Channel’s ability to compete by harming its ability to gain advertisers and denying it the resources needed to obtain programming that also was sought by Comcast’s affiliated networks. Comcast harmed Tennis Channel not just by limiting its distribution but also by discriminating in favor of Comcast’s affiliated networks, which competed directly against Tennis Channel. Furthermore, Comcast’s dominant market position and possibly the ripple effect served to amplify these competitive harms.

The FCC agreed with the ALJ that requiring carriage of Tennis Channel on the same tier as Golf Channel and Versus was an appropriate remedy to cure the discriminatory harms in the case. The decision does not restrict Comcast’s ability to place Golf Channel and Versus (now NBC Sports Network) on a different tier from where the channels are presently carried, but does require that Tennis Channel be placed on that same tier. To the extent that Comcast’s carriage agreement with Tennis Channel requires additional payments to Tennis Channel as a result of wider distribution, the FCC states that Comcast is expected to make such payments in the event Comcast complies with the decision by more widely distributing Tennis Channel. While the ALJ had also required that Tennis Channel be placed on a comparable channel to Golf Channel and Versus, the FCC did not adopt that portion of the ALJ’s ruling, finding that Tennis Channel had not requested such relief nor did the record provide enough evidence to justify a channel placement requirement.

With respect to the First Amendment, the FCC found, unlike the ALJ, that Comcast’s First Amendment rights were implicated in the case. However, the FCC found the program carriage rules and remedy imposed were permissible, non-content based regulation that survived intermediate scrutiny. Likening the program carriage rules to the rules that prohibit cable operators from discriminating when selling or delivering affiliated programming, which were previously upheld by the D.C. Circuit, the Commission found that while the rules may require some examination of content in determining whether there has been a violation, ultimately the rules regulate anti-competitive conduct and are not intended to encourage or discourage any particular type of content. The remedy imposed was proper under intermediate scrutiny as it did not burden more speech than necessary to further the important government interest of promoting competition in the video distribution market.

Finally, the FCC also dismissed Comcast’s Application for Review alleging that Tennis Channel’s complaint was barred by the statute of limitations. Comcast argued that Tennis Channel had one year to bring a complaint from the date the parties entered into their carriage agreement in March 2005. The FCC rejected Comcast’s argument, finding that the statute of limitations began to run in 2009, when Tennis Channel’s request for different tier placement was rejected by Comcast. Because Tennis Channel’s complaint was brought less than a year after this rejection, the complaint was not barred by the statute of limitations.

Dissent. The two Republican commissioners issued a joint dissent that harshly criticized the Commission’s majority opinion. The dissent argued that there was no violation of the program carriage rules; Comcast’s carriage of Tennis Channel was “within the industry mainstream,” with every “major” MVPD distributing both Golf Channel and Versus more widely than Tennis Channel. The dissent also noted that when Comcast’s distribution of Tennis Channel was compared to other MVPDs that had no ownership interest in Tennis Channel, there was virtually no difference. The concept of the “ripple effect” was derided by the dissent, which argued that MVPDs would not blindly follow another MVPD’s distribution methods, even one as large as Comcast, if there was a competitive advantage in choosing a different method of distribution. The dissent also criticized the requirement that Comcast pay additional carriage fees to Tennis Channel if it complied with the decision by giving the channel wider distribution. Such a requirement would, according to the dissent, ultimately harm consumers by causing MVPDs to protect themselves against future complaints by paying more to more widely distribute less appealing networks. With respect to the First Amendment question, the dissent submitted that the imposed remedy did not further the government interest in question, promotion of competition, because it had the effect of forcing Comcast to treat Tennis Channel more favorably than Comcast’s MVPD competitors.

Going Forward. Comcast has indicated that it intends to appeal the FCC’s decision in the federal courts. Because Comcast must comply with the decision’s ordered remedies within 45 days, Comcast will likely seek a stay with the FCC and if that fails, in federal court.