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Policy

Martin Has Eye On Cable Networks

8/30/2008 5:24 AM Eastern

Washington— Under Federal Communications Commission chairman Kevin Martin, cable operators have felt the lash of regulation.

Cable programmers could be next.

Egged on by consumer groups and small cable operators, Martin has the agency studying whether to prevent cable programmers from grouping channels in packages and then requiring their pay TV distributors to license either an entire package or nothing at all.

Wholesale a la carte or bundling would mean, for example, that the industry's major programmers -- The Walt Disney Co., Viacom, Time Warner Inc., News Corp., NBC Universal -- would have to let cable operators and satellite providers purchase each channel on a standalone basis.

Martin has said that wholesale bundling leads to higher retail cable rates because operators are required to license channels that they would prefer not to distribute — a point repeatedly made by the American Cable Association, a trade group for small cable companies.

At the same time, Martin has said that no one at the agency is working to develop wholesale a la carte rules. But few people believe that because Martin's staff continues to meet with proponents of new regulation.

“I do not believe for one minute anything the chairman has to say about this issue being dead because he has kept it alive his entire tenure,” said Adam Thierer, senior fellow at the Progress & Freedom Foundation. “There is no way that Chairman Ahab is going to let this whale get away.”

Martin, who became chairman in March 2005, began his cable choice advocacy by focusing on the retail side of the business; namely, whether consumers should be allowed to buy channels from a cable operator one at a time. But he never tried to adopt rules, claiming the FCC lacked legal authority to force cable operators to break up their programming packages.

Now, he's focusing on the wholesale market, which exposes many cable networks to government regulation for the first time.

In the 1992 Cable Act, Congress clearly authorized the FCC to regulate cable networks owned by cable operators, concerned that vertical integration was injuring competition.

As a result, Congress barred cable operators from withholding any of their satellite-delivered cable networks from other pay TV distributors. But the law did not include independent cable networks — i.e., channels not owned by cable operators — into the forced-sale regime.

Nevertheless, public-interest law firm Media Access Project and Consumers Union have encouraged the FCC to move forward with wholesale a la carte mandates, arguing Congress gave the agency ample authority to determine how cable networks are marketed to distributors.

“The FCC should empower cable operators to make the choices that their consumers demand, by requiring programmers to offer their content on a stand-alone basis at reasonable rates, terms and conditions. This would allow [pay TV distributors] to use their capacity in a way that reflects the needs and wishes of their subscribers,” Consumers Union said in an Aug. 12 FCC filing.

The notion that the FCC thinks it has legal authority to force wholesale a la carte mandates on independent programmers is being strongly challenged by Viacom, which sold off its cable systems many years ago.

“Even a cursory reading [of the law] makes clear that [it] applies only to vertically integrated cable programmers, not independently owned networks such as those owned by Viacom,” Viacom said in Aug. 21 legal analysis filed at the FCC.

Viacom is a large cable-programming supplier, owing such marquee names as BET, MTV, VH1, Nickelodeon and Comedy Central.

In its FCC filing, Viacom alleged that proponents of wholesale unbundling have acknowledged that many programmers do in fact provide their channels individually but they don't like the per channel prices offered.

ACA and others that seek FCC intervention have the “true goal” of “government price regulation for the wholesale programming market,” Viacom said.

“We have never advocated price regulation. That statement by Viacom is categorically false,” ACA president Matt Polka said. ACA, however, supports allowing the FCC to adjudicate disputes over the reasonableness of wholesale a la carte rates.

Polka said he was hoping for an FCC vote in September or October.

Paul Gallant, senior vice president of telecommunications and media at the Stanford Group Co., questioned whether wholesale a la carte mandates would work if the FCC won't ensure reasonable per-channel rates.

“Any new rules would have to have real teeth because programmers might be able to price around the regulations,” Gallant said. “If you sell all the channels individually at a very high rate but the bundle is the only sensible option, does anything change?”

September