On June 25, the Federal Communications Commission (“FCC”) issued a Notice of Apparent Liability for Forfeiture and Order in the amount of $2,250,000 against TV Max, Inc., a Houston cable system serving multiple-dwelling unit buildings (MDU), for retransmitting the signals of six broadcast stations without their consent in violation of Section 325 of the Communications Act and Section 76.64 of the FCC’s rules. This order followed a December 2012 letter from the Media Bureau explaining its initial findings that TV Max had and continued to “willfully and repeatedly” violate the retransmission consent rules and noted that the Bureau would recommend that the FCC issue a notice of apparent liability.

Background. TV Max serves around 10,000 subscribers in 245 Houston-area MDUs. TV Max and six Houston DMA broadcast stations had retransmission consent agreements that expired between December 31, 2011 and March 2, 2012, and the parties never extended or signed new agreements. The broadcast stations informed TV Max that they had elected retransmission consent and, in the absence of an agreement, TV Max was not permitted to carry the stations. TV Max nonetheless refused to cease its carriage of these stations, even after the stations filed complaints and the Media Bureau made an initial determination that such carriage violated the law.

Discussion. Agreements to retransmit broadcast television signals are required under Section 325 of the Communications Act and the FCC has stated that retransmission without consent is grounds for forfeiture. Section 503 of the Communications Act provides additional grounds for forfeiture for willful or repeated violations of the Communications Act or FCC rules.

TV Max conceded that it has carried the six stations in question without their consent, but argued that it should not be held liable for violating the retransmission consent rules because its retransmission of these signals fell into the exception for master antenna television (“MATV”) facilities in Section 76.64 of the FCC’s rules. This rule exempts multichannel video program distributors (“MVPDs”) from the requirement to obtain retransmission consent when broadcast signals are provided without charge to MDU residents and are received by a “master antenna” that is owned or under the control of the subscriber or building owner.

However, as the FCC makes clear, TV Max admitted that it had not installed MATV facilities on all of the MDUs to which it provided the broadcast signals until July 2012; moreover, even after completing the installation of MATV facilities, TV Max continued to deliver broadcast signals to these MDUs over its fiber optic network. TV Max argued that the fact it used its fiber ring to deliver signals to the MATV did not disqualify it from the MATV exemption because subscribers were not charged for receiving those signals. The FCC responded that the MATV exemption does not apply to an MVPD while the MVPD is in the process of installing MATV systems and that, in any event, the MATV exemption applies only when an operator merely facilitates a subscriber’s access to an over-the-air television signal received by a MATV antenna (not to signals retransmitted from an off-site MVPD headend facility) and where the signal made available without charge to subscribers is the same over-the-air signal received by the MATV antenna.

TV Max also apparently sought to avoid responsibility by assigning its cable operations and fiber network to two affiliated companies under common control with TV Max between July 1 and October 23, 2012, allowing TV Max to claim that it was no longer transmitting the broadcast signals over its fiber network. The FCC rejected this argument, citing its practice of treating affiliated entities as one “when necessary to ensure compliance with the Communications Act and Commission policies and regulations.” Indeed, the FCC suggested that TV Max’s representations in this regard were lacking in candor.

In light of the extended period of time during which TV Max continued to carry the signals in question without retransmission consent and the fact that this carriage continued after the Media Bureau made its initial finding that such carriage was unlawful, the FCC suggested that behavior was egregious and constituted a “very serious” violation that would ordinarily warrant an upward adjustment of the base forfeiture amount of $7,500 per violation. However, noting that TV Max has only 10,000 subscribers and operates in only one market, the FCC decided such an upward adjustment would lead to an inappropriately high forfeiture amount. Therefore, the FCC concluded that a forfeiture of $2,250,000 would act as a sufficient deterrent to future violations and ensure that the forfeiture is not considered an affordable cost of doing business.