[Federal Register: March 23, 2000 (Volume 65, Number 57)]
[Rules and Regulations]
[Page 15559-15576]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23mr00-17]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[CS Docket No. 99-363; FCC 00-99]
Implementation of the Satellite Home Viewer Improvement Act of
1999, Retransmission Consent Issues: Good Faith Negotiation and
Exclusivity
AGENCY: Federal Communications Commission.
ACTION: Final rule; procedures.
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SUMMARY: This document implements aspects of the Satellite Home Viewer
Improvement Act of 1999, enacted on November 29, 1999, and adopts
regulations and procedures governing the negotiation of agreements in
connection with the retransmission of television broadcast station
signals by multichannel video programming distributors (``MVPDs''),
including satellite carriers and cable systems. It establishes the
standards for implementing a good faith negotiation requirement of
broadcasters to MVPDs to ensure that negotiations are conducted in an
atmosphere of honesty, purpose and clarity of process. This proceeding
also adopts implementing rules and provides clarification regarding the
prohibition against exclusive retransmission consent agreements. In
addition, this document provides that voluntary mediation is an option
that can be utilized by parties in protracted negotiations to aid in
facilitating retransmission consent. We also establish that existing
Commission complaint procedures provide an appropriate framework for
parties alleging violations of the good faith negotiation requirement
and the prohibition against exclusive agreements. Pursuant to the
provisions of section 325(b)(3)(C) of the Communications Act, this
document also concludes that the prohibitions on exclusive
retransmission consent agreements and the good faith negotiation
requirement terminate on January 1, 2006.
DATES: Effective March 23, 2000.
ADDRESSES: Federal Communications Commission, 445 12th Street, SW,
[[Page 15560]]
Washington, DC 20554. In addition to filing comments with the
Secretary, a copy of any comments on the information collections
contained herein should be submitted to Judy Boley, Federal
Communications Commission, Room 1-C804, 12th Street, SW, Washington DC
20554, or via the Internet at jboley@fcc.gov.
FOR FURTHER INFORMATION CONTACT: Steve Broeckaert at (202) 418-7200 or
via internet at sbroecka@fcc.gov. For additional information concerning
the information collection(s) contained in this document, contact Judy
Boley at (202) 418-0214, or via the Internet at jboley@fcc.gov.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's First
Report and Order, FCC 00-99, adopted March 14, 2000; released March 16,
2000. The full text of the Commission's First Report and Order is
available for inspection and copying during normal business hours in
the FCC Reference Center (Room CY-A257) at its headquarters, 445 12th
Street, SW, Washington DC 20554, or may be purchased from the
Commission's copy contractor, International Transcription Service,
Inc., (202) 857-3800, 1231 20th Street, NW, Washington, DC 20036, or
may be reviewed via Internet at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.fcc.gov/csb/.
Synopsis of the First Report and Order
I. Introduction
1. In this First Report and Order (``Order''), we adopt rules
implementing certain aspects of the Satellite Home Viewer Improvement
Act of 1999 (``SHVIA''). SHVIA authorizes satellite carriers to add
more local and national broadcast programming to their offerings, and
to make that programming available to subscribers who previously have
been prohibited from receiving broadcast fare via satellite under
compulsory licensing provisions of the copyright law. The legislation
generally seeks to place satellite carriers on an equal footing with
local cable operators when it comes to the availability of broadcast
programming, and thus give consumers more and better choices in
selecting a multichannel video program distributor (``MVPD'').
2. Among other things, section 325(b)(3)(C) of the Communications
Act requires satellite carriers to obtain retransmission consent for
the local broadcast signals they carry, requires broadcasters, until
2006, to negotiate in good faith with satellite carriers and other
MVPDs with respect to their retransmission of the broadcasters'
signals, and prohibits broadcasters from entering into exclusive
retransmission consent agreements. Section 325(b)(3)(C) required the
Commission to commence a rulemaking within 45 days of the enactment of
SHVIA and to complete all actions necessary to prescribe regulations
within 1 year after such date of enactment. The Commission issued a
Notice of Proposed Rulemaking (``Notice'') on December 22, 1999 (64 FR
72985). The Commission received numerous comments and reply comments to
the Notice. We conclude the good faith negotiation and exclusivity
portion of this rulemaking well ahead of our statutory deadlines for
doing so because of the importance of implementing these provisions to
MVPD competition and the growth of satellite service.
II. Background
3. In 1988, Congress passed the Satellite Home Viewer Act (``1988
SHVA'') in order to provide people in unserved areas of the country
with access to broadcast programming via satellite. The 1988 SHVA
enabled satellite carriers to provide broadcast programming to those
satellite subscribers who were unable to obtain broadcast network
programming over-the-air. As a general matter, however, the 1988 SHVA
did not permit satellite carriers to retransmit local broadcast
television signals directly to consumers.
4. The Cable Television Consumer Protection and Competition Act of
1992 (``1992 Cable Act'') amended the Communications Act, inter alia,
to include section 325, which provides television stations with certain
carriage rights on local market cable television systems. Within local
market areas, commercial television stations may elect cable carriage
under either the retransmission consent or mandatory carriage
requirements. Section 325 as initially enacted contained no standards
pursuant to which broadcasters were required to negotiate with MVPDs.
The Commission established rules related to the retransmission/
mandatory carriage election cycle, but did not adopt rules governing
the negotiation process of retransmission consent.
5. SHVIA revises the 1988 SHVA and reflects changes not only
involving the satellite industry and subscribers, but television
broadcast stations and terrestrial MVPDs. SHVIA adopts changes in
several areas, including retransmission consent, must-carry, and
retransmission of local broadcast signals. In particular, SHVIA
addresses several limitations previously placed on satellite carriers,
including the issue of satellite carrier retransmission of local
broadcast programming.
III. Summary of Decision
6. The Order determines that the statute does not intend to subject
retransmission consent negotiation to detailed substantive oversight by
the Commission. Instead, the order concludes that Congress intended
that the Commission follow established precedent, particularly in the
field of labor law, in implementing the good faith retransmission
consent negotiation requirement. Consistent with this conclusion, the
Order adopts a two-part test for good faith. The first part of the test
consists of a brief, objective list of negotiation standards. First, a
broadcaster may not refuse to negotiate with an MVPD regarding
retransmission consent. Second, a broadcaster must appoint a
negotiating representative with authority to bargain on retransmission
consent issues. Third, a broadcaster must agree to meet at reasonable
times and locations and cannot act in a manner that would unduly delay
the course of negotiations. Fourth, a broadcaster may not put forth a
single, unilateral proposal. Fifth, a broadcaster, in responding to an
offer proposed by an MVPD, must provide considered reasons for
rejecting any aspects of the MVPD's offer. Sixth, a broadcaster is
prohibited from entering into an agreement with any party conditioned
upon denying retransmission consent to any MVPD. Finally, a broadcaster
must agree to execute a written retransmission consent agreement that
sets forth the full agreement between the broadcaster and the MVPD.
7. The second part of the good faith test is based on a totality of
the circumstances standard. Under this standard, an MVPD may present
facts to the Commission which, even though they do not allege a
violation of the specific standards enumerated above, given the
totality of the circumstances constitute a failure to negotiate in good
faith.
8. The Order concludes that it is not practicably possible to
discern objective competitive marketplace factors that broadcasters
must discover and base any negotiations and offers on, and that it is
the retransmission consent negotiations that take place that are the
market through which the relative benefits and costs to the broadcaster
and MVPD are established. The Order provides examples of negotiation
proposals that presumptively are consistent and inconsistent with
``competitive marketplace considerations.'' At the same time, the Order
provides that it is implicit in section 325(b)(3)(C) that any effort to
further anti-competitive ends
[[Page 15561]]
through the negotiation process would not meet the good faith
negotiation requirement. Considerations that are designed to frustrate
the functioning of a competitive market are not ``competitive
marketplace considerations.'' Conduct that is violative of national
policies favoring competition--that is, for example, intended to gain
or sustain a monopoly, is an agreement not to compete or to fix prices,
or involves the exercise of market power in one market in order to
foreclose competitors from participation in another market--is not
within the competitive marketplace considerations standard included in
the statute. The Commission's rules regarding the good faith
negotiation requirement sunset on January 1, 2006.
9. As for the prohibition on exclusivity, the Order interprets the
phrase ``engaging in'' broadly. Thus, the Order would prohibit not only
entering into exclusive retransmission consent agreements, but also
negotiating exclusive agreements that would take effect after the
sunset of the prohibition. The Commission's rules regarding exclusive
retransmission consent agreements sunset on January 1, 2006.
10. An MVPD believing itself to be aggrieved under section
325(b)(3)(C) may file a complaint with the Commission. The Order
provides that the procedural provisions of 47 CFR 76.7 will govern good
faith and exclusivity complaints. The Order directs Commission staff to
expedite resolution of good faith and exclusivity complaints. The Order
provides that the burden of proof with regard to such complaints is on
the MVPD complainant.
IV. Good Faith Negotiation Requirement
A. Congressional Intent in Amending Section 325 of the Communications
Act
11. In SHVIA, Congress amended section 325(b) of the Communications
Act, requiring the Commission to revise its regulations so that they
shall:
* * * until January 1, 2006, prohibit a television broadcast
station that provides retransmission consent from * * * failing to
negotiate in good faith, and it shall not be a failure to negotiate in
good faith if the television broadcast station enters into
retransmission consent agreements containing different terms and
conditions, including price terms, with different multichannel video
programming distributors if such different terms and conditions are
based on competitive marketplace considerations.
The Joint Explanatory Statement of the Committee of Conference
(``Conference Report'') does not explain or clarify the statutory
language, merely stating that:
The regulations would, until January 1, 2006, prohibit a
television broadcast station from * * * refusing to negotiate in
good faith regarding retransmission consent agreements. A television
station may generally offer different retransmission consent terms
or conditions, including price terms, to different distributors. The
[Commission] may determine that such different terms represent a
failure to negotiate in good faith only if they are not based on
competitive marketplace considerations.
The Notice sought comment on the correct interpretation of the good
faith negotiation requirement of section 325(b)(3)(C).
12. At the outset of our discussion, we note that section
325(b)(2)(E) of the Communications Act grants satellite carriers a six-
month period during which they may retransmit the signals of local
broadcasters without a broadcaster's express retransmission consent. As
discussed in further detail below, section 325 also requires strict
enforcement of, and severe penalties for, satellite carrier
retransmission of local broadcast signals without consent after this
six-month period expires. We have adopted these rules before the end of
the six-month period provided by section 325(b)(2)(E) so that MVPDs,
particularly satellite carriers, and broadcasters understand their
rights and obligations under section 325(b)(3)(C) before that period
expires. These rules will provide a framework under which broadcasters
and satellite carriers can achieve retransmission consent before the
expiration of the six-month period set forth in section 325(b)(2)(E) so
as to avoid the highly undesirable interruption of local broadcast
signals that satellite carriers have begun to provide to their
subscribers in many cities across the nation. On an ongoing basis, we
intend these rules to govern the negotiation of retransmission consent
between broadcasters and all MVPDs.
13. The statute does not appear to contemplate an intrusive role
for the Commission with regard to retransmission consent. Section
325(b)(3)(C) instructs the Commission to ``revise the regulations
governing the exercise by television broadcast stations of the right to
grant retransmission consent under this subsection. . . .'' The fact
that Congress instructed the Commission to ``revise'' its existing
retransmission consent regulations, coupled with the determinedly brief
discussion of section 325(b)(3)(C) in the Conference Report, leads us
to conclude that, in addition to the guidance that can be gleaned from
SHVIA, we should also look for guidance in the legislative history of
the retransmission consent provisions of the 1992 Cable Act. When
Congress first applied retransmission consent to MVPDs in 1992, it
stated that ``it is the Committee's intention to establish a
marketplace for the disposition of the rights to retransmit broadcast
signals; it is not the Committee's intention in this bill to dictate
the outcome of the ensuing marketplace negotiations.''
14. Based on this language, the Commission concluded in the
Broadcast Signal Carriage Order that Congress did not intend that the
Commission should intrude in the negotiation of retransmission consent.
We do not interpret the good faith requirement of SHVIA to alter this
settled course and require that the Commission assume a substantive
role in the negotiation of the terms and conditions of retransmission
consent. We note that Congress considered and explicitly rejected a
comprehensive regime that required the Commission to:
prohibit television broadcast stations that provide
retransmission consent from engaging in discriminatory practices,
understandings, arrangements, and activities, including exclusive
contracts for carriage, that prevent a multichannel video
programming distributor from obtaining retransmission consent from
such stations.
Where Congress expressly considers and rejects such an approach, the
rules of statutory construction do not favor interpreting a subsequent
statutory provision to require the rejected alternative. Given the
express congressional rejection of this anti-discrimination provision,
we will not adopt rules to recreate this provision by regulation.
15. In support of the position that intrusive Commission action is
unnecessary to implement the good faith negotiation requirement,
commenters point to the fact that thousands of retransmission consent
agreements have been successfully concluded between local broadcasters
and MVPDs since adoption of the 1992 Cable Act. In addition, commenters
note that within days after enactment of SHVIA, DIRECTV and EchoStar
announced that they had entered into retransmission consent agreements
with the owned-and-operated affiliates of several of the major
television networks. As a result, these commenters argue that it would
be wholly inappropriate to impose ``shotgun wedding'' style regulations
on a marketplace that is already functioning. DIRECTV, however, argues
that the existence of
[[Page 15562]]
these agreements does not ensure that agreements that have yet to be
completed will progress as smoothly.
16. One commenter maintains that the purpose of the good faith
requirement is merely to bring the parties to the bargaining table,
stating that ``Congress signaled its desire only that broadcasters,
having once made the decision to provide retransmission consent, should
be required to negotiate with all interested MVPDs and not engage in an
outright refusal to deal.'' Several broadcast commenters assert that
Congress merely intended the Commission to revise its existing
regulations to account for retransmission consent agreements between
broadcasters and satellite carriers that now qualify for compulsory
copyright license to provide local television stations to satellite
subscribers.
17. ALTV advises the Commission to focus on Congress' overarching
purpose in enacting section 325 in the 1992 Cable Act--assuring
broadcasters the opportunity to secure compensation for the value of
the retransmission of their signals by MVPDs. Conversely, other
commenters assert that Congress intended the Commission to begin with
the premise that television broadcast programming is an indispensable
component of any MVPD's service package and that alternative MVPDs
cannot compete effectively with incumbent cable operators if they are
denied full and fair access to that programming in local markets.
18. We find instructive the legislative history of a previous
version of SHVIA that was considered, but not enacted, by Congress.
During the consideration of the House version of SHVIA, Representative
Tauzin explained to Representative Dingell that the House bill, which
included a detailed, anti-discrimination provision, would permit:
[A] broadcast station * * * for example, [to] negotiate a cash
payment from one video distributor for retransmission consent and
reach an agreement with other distributors operating in the same
market that contains different prices or other terms * * * [Indeed],
as long as a station does not refuse to deal with any particular
distributor, a station's insistence on different terms and
conditions in retransmission agreements based on marketplace
considerations is not intended to be prohibited by this bill * * *
if a station negotiates in good faith with a distributor, the
failure to reach an agreement with that distributor would not
constitute a discriminatory act that is intended to be barred by
this section.
In discussing this same previous version of SHVIA, Representative
Berman echoed a similar sentiment stating ``[W]hile it is important
that MVPDs have the opportunity to negotiate for retransmission
consent, we do not in this bill subject the prices or other terms and
conditions of nonexclusive retransmission consent agreements to
[Commission] scrutiny.'' Again, these statements reflect consideration
of the more onerous House version of SHVIA and its anti-discrimination
requirement. We find it difficult to reconcile commenters arguments
that SHVIA as enacted contains a broad grant of Commission authority to
analyze and prohibit the substantive terms of retransmission consent
with these statements.
19. Commenters argue that the statutory imposition of a good faith
negotiation requirement is in derogation of the long-standing common
law right to contract and therefore the duty, though statutorily
imposed, must be narrowly construed. Commenters assert that even a
statutory duty to negotiate in good faith does not require parties to
do anything contrary to their own self-interest or make any particular
concessions. Accordingly, argues Disney, the Commission is not
empowered to become involved in the substance of retransmission consent
negotiations.
20. We agree with those commenters that assert that section
325(b)(3)(C) should be narrowly construed. As commenters indicate,
congressional language in derogation of the common law should be
interpreted to implement the express directives of Congress and no
further. The United States Supreme Court has reiterated this rule of
statutory construction on several occasions, holding that [s]tatutes
which invade the common law* * * are to be read with a presumption
favoring the retention of long-established and familiar principles,
except when a statutory purpose to the contrary is evident.'' In
addition, the Court has stated that, when a statutory provision does
derogate from the common law, it ``must be strictly construed for no
statute is to be construed as altering the common law, farther [sic]
than its words import.''
21. Commenters state that, in other contexts, the good faith
standard has a well understood meaning that Congress must be presumed
to have intended, particularly, where, as here, nothing in the statute
or the legislative history suggests that Congress intended the
Commission to develop its own definition of good faith. These
commenters argue that SHVIA cannot be read to grant the Commission new,
wholesale authority to define good faith or engage in a detailed case-
by-case review of the retransmission terms offered to one MVPD as
compared to another. These commenters assert that the most appropriate
statutory example to follow is that of the good faith requirement of
section 8(d) of the Taft-Hartley Act.
22. Given the dearth of guidance in the statute and legislative
history, we believe that Congress signaled that the good faith
negotiation requirement adopted in section 325(b)(3)(C) was
sufficiently well understood that further explication was unnecessary.
In such situations, we believe that Congress intends the Commission
look to analogous statutory standards from which to draw guidance.
While commenters offer various sources on which to rely, we agree with
those commenters suggesting that the good faith bargaining requirement
of section 8(d) of the Taft-Hartley Act is the most appropriate source
of guidance. Section 8(d) of the Taft-Hartley Act details the
collective bargaining duty of both employers and labor representatives,
providing that:
To bargain collectively is the performance of the mutual
obligation of the employer and the representative of the employees
to meet at reasonable times and confer in good faith with respect to
wages, hours, and other terms and conditions of employment* * * but
such obligation does not compel either party to agree to a proposal
or require the making of a concession.
There are significant parallels between the congressional policy
goal of good faith negotiation underlying both section 325(b)(3)(C) and
section 8(d) of the Taft-Hartley Act. In this regard, there is
substantial National Labor Relations Board (``NLRB'') precedent that
the good faith negotiation requirement applies solely to the process of
the negotiations and does not permit the NLRB to require agreement or
impose terms or conditions on collective bargaining agreements. The
Supreme Court has made this determination with force and clarity,
stating that:
It was recognized from the beginning that agreement might be
impossible, and it was never intended that the Government would in
such cases step in, become a party to the negotiations and impose
its own views of a desirable settlement.
23. Congress clearly did not intend the Commission to sit in
judgement of the terms of every retransmission consent agreement
executed between a broadcaster and an MVPD. Even if the Commission had
the resources to accomplish such a delegation, we can divine no intent
in either the statute or its legislative history to achieve such a
result. As commenters indicated, when Congress intends the Commission
to
[[Page 15563]]
directly insert itself in the marketplace for video programming, it
does so with specificity. Despite the arguments of the satellite
industry and other MVPDs, we find nothing supporting a construction of
section 325(b)(3)(C) that would grant the Commission authority to
impose a complex and intrusive regulatory regime similar to the program
access provisions or the interconnection requirements of section 251 of
the Communications Act. While the Commission generally will not intrude
into the substance of particular retransmission consent negotiations
and agreements, we note that section 325(b)(3)(C) sanctions only those
retransmission consent agreements containing different terms and
conditions, including price terms, with different MVPDs if such
different terms and conditions are based upon competitive marketplace
considerations.
24. Having reached this conclusion, we do not interpret section
325(b)(3)(C) as ``largely hortatory'' as suggested by some commenters.
As we stated in the Notice, ``Congress has signaled its intention to
impose some heightened duty of negotiation on broadcasters in the
retransmission consent process.'' In other words, Congress intended
that the parties to retransmission consent have negotiation obligations
greater than those under common law. Absent fraudulent intent, common
law imposes no obligation on parties to negotiate in good faith prior
to the formation of a contract. We believe that, by imposing the good
faith obligation, Congress intended that the Commission develop and
enforce a process that ensures that broadcasters and MVPDs meet to
negotiate retransmission consent and that such negotiations are
conducted in an atmosphere of honesty, purpose and clarity of process.
B. Mutual Good Faith Negotiation Requirement
25. As a preliminary matter, we must determine to whom the ``good
faith'' negotiation obligation applies. The Notice requested comment on
whether the duty of good faith negotiation applies equally to the
broadcaster and MVPD negotiating a retransmission consent agreement.
Several commenters assert that the good faith negotiation requirement
is a mutual obligation and that the Commission must consider and weigh
the conduct of the MVPD in assessing whether the broadcaster has failed
to satisfy the good faith negotiation requirement. Only DIRECTV asserts
that the good faith negotiation requirement applies solely to
broadcasters. DIRECTV argues that the language of section 325(b)(3)(C)
applies solely to ``broadcast television stations'' and in no way,
express or implied, is imposed on MVPDs.
26. We agree with DIRECTV that the language of section 325(b)(3)(C)
on its face applies only to ``television broadcast station[s].'' To
read the provision as a mutual obligation would contradict the express
language of the statute and controvert Congress' intent. Moreover,
Congress has demonstrated its ability to expressly impose a good faith
negotiation obligation on both parties in other provisions of the
Communications Act. Accordingly, we conclude that the good faith
negotiation requirement in section 325(b)(3)(C) was intended to apply
only to broadcasters. However, we caution MVPDs that seek
retransmission consent that their conduct is relevant in determining
whether a broadcaster has complied with its obligation to negotiate
retransmission consent in good faith. Insistence by an MVPD on
unreasonable terms and conditions or negotiating procedures will be
taken into account by the Commission in assessing a broadcaster's
observance of its good faith negotiation obligations.
C. Definition of Good Faith
27. The Notice sought comment on the criteria that should be
employed to define ``good faith'' and sought comment on whether the
Commission should explicitly define what constitutes good faith under
section 325(b)(3)(C). The Notice requested comment on whether to adopt
a two-part test for good faith similar to that embraced by the NLRB and
by the Commission pursuant to section 251 of the Communications Act.
The Commission also sought comment on any other specific legal
precedent upon which we should rely and any other regulatory approach
that might appropriately implement the good faith negotiation
requirement of section 325(b)(3)(C) of the Communications Act.
28. Several commenters argue that both the NLRB and the section 251
good faith negotiation regimes are based upon the premise that one
party to the negotiation may not have an interest in reaching an
agreement. These commenters argue that, because broadcasters want their
programming transmitted to the widest possible audience to increase
advertising revenue and MVPDs desire valuable broadcast programming,
both broadcasters and MVPDs have strong incentives for reaching
retransmission consent. Several commenters support a two-part test to
determine good faith similar to that suggested in the Notice. Fox
asserts that, if the Commission adopts a two-part test for determining
good faith, the specific actions that would constitute lack of good
faith should be ``narrowly drawn to encompass only the most obvious and
egregious breaches of good faith negotiating practices, and the
Commission should always examine the factual context in which each
alleged prohibition occurred.''
29. Time Warner proposes that the Commission adopt a ``zone of
reasonableness'' standard for good faith in which, even if the
broadcaster satisfies all of the procedural indicia of good faith, the
Commission could determine that it violated its duty to negotiate in
good faith ``if it insists [on] a level of consideration that is so
plainly uneconomic that an MVPD would suffer greater financial harm
from accepting the broadcaster's terms than from refusing to carry the
station.'' NBC maintains that the Commission should contrive no
standards before the fact. Instead, to the extent standards are
appropriate, they should be developed out of actual experience in
adjudicated controversies. Several commenters argue that the Commission
should judge the conduct of the parties only by examining the totality
of the circumstances.
30. We will adopt a two part test for good faith negotiation as
proposed in the Notice. We believe that this test best implements
Congress' intent in adopting the good faith negotiation requirement. A
two-part test follows well established precedent in the field of labor
law. In addition, the Commission has used a similar test in
implementing its statutory obligations under section 251 of the
Communications Act. Through the objective standards, this approach
gives immediate guidance to the parties to retransmission consent
negotiations that certain conduct will not be tolerated. Through the
broader, totality of the circumstances test, the Commission will have
the ability to prohibit conduct that, while not constituting a failure
of good faith in all circumstances, does violate the good faith
negotiation requirement in the context of a given negotiation. The
totality of the circumstances test will also enable the Commission to
continue refining and clarifying the responsibilities of parties to
retransmission consent negotiations.
31. The first part of the test will consist of a brief, objective
list of negotiation standards. Because the list consists of per se
standards, of necessity, the standards must be concise, clear and
constitute a violation of the good faith standard in all possible
instances. Should an MVPD demonstrate to the Commission that a
[[Page 15564]]
broadcaster, in the conduct of a retransmission consent negotiation,
has engaged in actions violative of an objective negotiation standard,
the Commission would find that the broadcaster has breached its duty to
negotiate in good faith. We disagree with those commenters who assert
that the Commission should only define violations on a prospective
adjudicatory basis. Given the short, six-month, period in which
satellite carriers have to negotiate retransmission consent before
expiration of the compulsory license of section 325(b)(2)(E), we
believe it incumbent upon us to provide as much initial guidance as
possible through which the parties may pursue negotiations.
32. The second part of the test is a totality of the circumstances
standard. Under this standard, an MVPD may present facts to the
Commission which, even though they do not allege a violation of the
objective standards, given the totality of the circumstances reflect an
absence of a sincere desire to reach an agreement that is acceptable to
both parties and thus constitute a failure to negotiate in good faith.
We do not intend the totality of the circumstances test to serve as a
``back door'' inquiry into the substantive terms negotiated between the
parties. While the Commission will not ordinarily address the substance
of proposed terms and conditions or the terms of actual retransmission
consent agreements, we will entertain complaints under the totality of
the circumstances test alleging that specific retransmission consent
proposals are sufficiently outrageous, or evidence that differences
among MVPD agreements are not based on competitive marketplace
considerations, as to breach a broadcaster's good faith negotiation
obligation. However, complaints which merely reflect commonplace
disagreements encountered by negotiating parties in the everyday
business world will be promptly dismissed by the Commission.
33. The Commission sought comment on specific actions or practices
that would constitute per se violations of the duty to negotiate in
good faith in accordance with section 325(b)(3)(C). In addition to any
other actions or practices, the Commission asked commenters to address
whether it would be appropriate to include in any such list provisions
similar to the violations of the obligation to negotiate
interconnection agreements in good faith set forth in 47 CFR 51.301.
The Commission acknowledged, however, that the good faith standard of
SHVIA is different in significant respects to that contained in 47 CFR
51.301.
34. Commenters proposed numerous standards that the Commission
should consider in adopting rules to enforce the good faith negotiation
requirement. Broadcasters generally argue that, to the extent it does
anything, the Commission should adopt streamlined rules that apply only
to the process of the negotiations between broadcasters and MVPDs. The
other group, consisting of satellite carriers, small cable operators
and alternative MVPDs, argues that the only way the Commission can
effectively enforce the good faith negotiation requirement is to
involve itself in the substantive terms of retransmission consent
agreements as well as the process of negotiations. These commenters
propose that the Commission adopt an extensive list of substantive
terms and conditions that should be prohibited as violations of the
obligation to negotiate retransmission consent agreements in good
faith.
35. Broadcast commenters propose several standards based on
experience gathered in the NLRB field, the absence of which indicates a
lack of good faith, including: (1) a party must have a sincere desire
to reach agreement, (2) a party's negotiator must have authority to
conclude a deal, (3) a party must offer to meet at reasonable times and
convenient places, and (4) a party must agree to execute a written
agreement once all terms have been agreed on. NBC proposes that
extrinsic evidence that a party never intended to reach agreement, or
extrinsic evidence of an understanding with a third party that the
negotiating party will not enter into a retransmission consent
agreement, should also evidence violations of the good faith
negotiation requirement. Other commenters would prohibit a broadcaster
from insisting on terms so unreasonable that they are tantamount to a
refusal to deal. EchoStar argues that such procedural violations are
meaningless because ``no bad faith actor would be so inept or so
artless as to display its bad faith by not agreeing to a convenient
time and place to meet, not appointing a representative to negotiate,
and not committing to writing a retransmission agreement once a deal
has been reached.''
36. DIRECTV proposes the following list of good faith negotiation
standards based upon examples from labor law precedent, the
Commission's program access rules, the interconnection provisions of
the 1996 Act, and recognized marketplace dynamics. DIRECTV, supported
by other commenters, proposes that, during the negotiation of a
retransmission consent agreement, a broadcaster may not:
(a) Intentionally seek to mislead or coerce the MVPD into reaching
an agreement it would not otherwise have made;
(b) Unreasonably obstruct or delay negotiations or resolutions of
disputes;
(c) Refuse to designate a representative with authority to make
binding representations if such refusal significantly delays resolution
of issues;
(d) Refuse to negotiate in fact;
(e) Refuse to provide the satellite carrier with a high quality,
direct feed of the broadcast signal;
(f) Engage in discrimination in the price, terms or conditions of
retransmission consent afforded an MVPD relative to any other MVPD,
unless such discrimination is related to ``competitive marketplace
conditions'' as defined by the Commission * * *;
(g) Offer unreasonable positions, including, but not limited to:
1. a unilateral requirement that retransmission consent for a given
broadcast station be conditioned on carriage under retransmission
consent of another broadcast station, either in the same or a different
geographic market;
2. A unilateral requirement that retransmission consent be
conditioned on the exclusion of carriage under retransmission consent
of other broadcast channels in a given market;
3. A unilateral requirement that retransmission consent be
conditioned on a broadcaster obtaining channel positioning rights on
the satellite carrier's system;
4. A unilateral requirement that the satellite carrier (i) commit
to purchase advertising on the broadcast station or broadcaster
affiliated media, or (ii) that a specified share of advertising dollars
spent in a broadcaster's market be spent on that broadcaster;
5. A unilateral requirement that retransmission consent be
conditioned on a satellite carrier not retransmitting distant network
signals to qualified subscribers in the market, or a satellite carrier
``capping'' the number of qualified subscribers in the market who may
receive distant network signals, thus depriving eligible subscribers of
their statutory right to subscribe to distant network signals;
6. A unilateral requirement that retransmission consent be
conditioned on the satellite carrier's carriage of digital signals.
To this list EchoStar, would add: (i) Insisting on an unreasonably
short contract duration; (ii) threatening to run anti-satellite
advertising; and (iii) refusal to deal, whether explicit or disguised
under requests for
[[Page 15565]]
extortionate terms. Several commenters would include the imposition of
non-optional tying arrangements requiring an MVPD to carry the
affiliated programming of the broadcaster in exchange for
retransmission consent. Other commenters suggest a standard requiring
parties to provide information necessary to reach agreement.
37. Several commenters propose a standard prohibiting instances in
which a broadcaster seeks higher consideration from an MVPD for any
affiliated cable network programming in exchange for retransmission
consent than it obtains from the incumbent cable operator, unless the
broadcaster justifies that such higher consideration is cost-based or
does not produce anti-competitive market conditions. In addition,
BellSouth urges the Commission to find a violation when a broadcaster
ties retransmission consent to minimum subscriber penetration levels.
Another commenter would also brand as a good faith violation a demand
of a nondisclosure agreement, a demand that the MVPD attest that the
agreement complies with all applicable laws, or the refusal to include
a provision permitting the agreement to be amended to reflect
subsequent changes in the law.
38. Several broadcast commenters assert that the list of violations
proposed by DIRECTV, EchoStar and others is so extensive and one-sided
as to render any notion of equality at the bargaining table
meaningless. Other commenters assert that, since the adoption of the
1992 Cable Act, carriage of additional programming as compensation for
retransmission consent is most often the compensation agreed upon by
broadcasters and MVPDs in their retransmission consent agreements.
Disney argues that the legislative history of the 1992 Cable Act
expressly endorsed such compensation and that, had Congress wished to
prohibit the practice, it would have done so expressly. Disney further
argues that no commenter offers a sustainable legal basis for presuming
on a blanket basis that a request for additional programming carriage
as consideration for retransmission consent would be illegal under
current law or anti-competitive.
39. Consistent with our determination that Congress intended that
the Commission should enforce the process of good faith negotiation and
that the substance of the agreements generally should be left to the
market, we will not adopt the suggestions of certain commenters that we
prohibit proposals of certain substantive terms, such as offering
retransmission consent in exchange for the carriage of other
programming such as a cable channel, another broadcast signal, or a
broadcaster's digital signal. Instead, we believe that the good faith
negotiation requirement of SHVIA is best implemented through the
following standards derived from NLRB precedent, commenter's proposals
and the section 251 interconnection requirements. These standards are
intended to identify those situations in which a broadcaster did not
enter into negotiations with the sincere intent of trying to reach an
agreement acceptable to both parties.
40. First, a broadcaster may not refuse to negotiate with an MVPD
regarding retransmission consent. Section 325(b)(3)(C) affirmatively
requires that broadcasters negotiate retransmission consent in good
faith. This requirement goes to the very heart of Congress' purpose in
enacting the good faith negotiation requirement. Outright refusal to
negotiate clearly violates the requirement of section 325(b)(3)(C).
Broadcasters must participate in retransmission consent negotiations
with the intent of reaching agreement. Provided that the parties
negotiate in good faith in accordance with the Commission's standards,
failure to reach agreement does not violate section 325(b)(3)(C). Given
the economic incentive for each side to reach agreement, we are hopeful
that such impasses will be rare and short-lived.
41. Second, a broadcaster must appoint a negotiating representative
with authority to bargain on retransmission consent issues. Failure to
appoint a negotiating representative vested with authority to bargain
on retransmission consent issues indicates that a broadcaster is not
interested in reaching an agreement. This standard is the norm in NLRB
precedent as well as our interconnection rules implementing section
251. This requirement does not empower MVPDs to demand that specific
officers or directors of a broadcaster attend negotiation sessions.
Provided that a negotiating representative is vested with the authority
to make offers on behalf of the broadcaster and respond to
counteroffers made by MVPDs to the broadcaster, this standard is
satisfied.
42. Third, a broadcaster must agree to meet at reasonable times and
locations and cannot act in a manner that would unduly delay the course
of negotiations. Refusal to meet at reasonable times and locations
belies a good faith intent to negotiate. This requirement does not
preclude negotiations conducted via telephone, facsimile, or by letter.
Reasonable response times and unreasonable delays will be gauged by the
breadth and complexity of the issues contained in an offer. The
Commission is aware that, in many cases, time will be of the essence in
retransmission consent negotiations, particularly as we approach the
end of the six-month period provided for in section 325(b)(2)(E)--May
29, 2000. We advise broadcasters that, in examining violations of this
standard, we will consider the proximity of the termination of
retransmission consent and the consequent service disruptions to
consumers. At the same time, we caution MVPDs that waiting until the
eleventh hour to initiate negotiations will also be taken into account
in enforcing this standard.
43. Fourth, a broadcaster may not put forth a single, unilateral
proposal and refuse to discuss alternate terms or counter-proposals.
``Take it, or leave it'' bargaining is not consistent with an
affirmative obligation to negotiate in good faith. For example, a
broadcaster might initially propose that, in exchange for carriage of
its signal, an MVPD carry a cable channel owned by, or affiliated with,
the broadcaster. The MVPD might reject such offer on the reasonable
grounds that it has no vacant channel capacity and request to
compensate the broadcaster in some other way. Good faith negotiation
requires that the broadcaster at least consider some form of
consideration other than carriage of affiliated programming. This
standard does not, in any way, require a broadcaster to reduce the
amount of consideration it desires for carriage of its signal. This
standard only requires that broadcasters be open to discussing more
than one form of consideration in seeking compensation for
retransmission of its signal by MVPDs.
44. Fifth, a broadcaster, in responding to an offer proposed by an
MVPD, must provide reasons for rejecting any aspects of the MVPD's
offer. Blanket rejection of an offer without explaining the reasons for
such rejection does not constitute good faith negotiation. This
provision merely ensures that MVPDs are not negotiating in a vacuum and
understand why certain terms are unacceptable to the broadcaster so
that the MVPD can respond to the broadcaster's concerns. We reiterate
that good faith negotiation requires a broadcaster's affirmative
participation. However, this standard is not intended as an information
sharing or discovery mechanism. Broadcasters are not required to
justify their explanations by document or evidence.
45. Sixth, a broadcaster is prohibited from entering into an
agreement with any party a condition of which is to deny retransmission
consent to any MVPD. For example, Broadcaster A is
[[Page 15566]]
prohibited from agreeing with MVPD B that it will not reach
retransmission consent with MVPD C. It is impossible for a broadcaster
to engage in good faith negotiation with an MVPD regarding
retransmission consent when it has a contractual obligation not to
reach agreement with that MVPD.
46. Finally, once the parties reach agreement on the terms of
retransmission consent, the broadcaster must agree to execute a written
retransmission consent agreement that sets forth the full agreement.
Because the Commission may be called upon in certain instances to
determine whether the totality of the circumstances involved in the
negotiation of a particular retransmission consent agreement complies
with section 325(b)(3)(C), it is vital that the parties reduce their
entire agreement to writing. In addition, this requirement also
minimizes subsequent misunderstandings between the parties related to
their respective obligations.
47. We do not believe that we should at this time adopt further
objective standards as proposed by the commenters. In appropriate
instances, we will consider the conduct at the heart of such proposed
standards when we examine a particular retransmission consent
negotiation under the totality of the circumstances test.
48. The Notice further observed that section 325(b)(3)(C) provides
that: it shall not be a failure to negotiate in good faith if the
television broadcast station enters into retransmission consent
agreements containing different terms and conditions, including price
terms, with different multichannel video programming distributors if
such different terms and conditions are based on competitive
marketplace considerations.
The Notice sought comment on what constitutes a competitive
marketplace consideration. The Notice also observed that the Commission
has adopted non-discrimination standards in both the program access and
open video system contexts and sought comment on the relevance, if any,
of these standards to what constitutes a ``competitive market
consideration.'' In addition, the Notice sought comment on any other
factors or approaches to determining what constitutes competitive
marketplace considerations under section 325(b)(3)(C).
49. A number of commenting parties urge that the competitive
marketplace considerations language be interpreted as a requirement
that the Commission judge the good faith of all retransmission consent
offers based on whether they are based on ``competitive marketplace
considerations.'' DIRECTV and EchoStar, for example, claim that
competitive marketplace considerations would permit a broadcaster to
discriminate between providers only in scenarios where Congress and the
Commission have recognized that certain variance in price, terms or
conditions correspond to legitimate behavior that may occur in the
marketplace for video programming.
50. EchoStar asserts that, generally where a broadcaster has
received any consideration for retransmission consent, it has been non-
monetary, carriage of cable networks affiliated with the broadcaster,
and argues that:
The general rule, therefore, should be that broadcaster demands
deviating from that formula, such as demands for money, demands for
carriage of additional cable networks beyond those involved in the
retransmission-for-carriage agreements with cable operators, or
demands for retransmission of additional broadcast stations (beyond
those owned and operated by the same network), should be
presumptively viewed as not based on competitive marketplace
considerations.
51. NAB argues that satellite carriers are not nascent businesses
that need government protection, but instead are well-financed,
powerfully-backed competitors in the multichannel marketplace.
Commenters argue that satellite companies not only use local stations
to increase the attractiveness of their overall product, but also sell
the stations to viewers at substantial prices. One commenter notes that
the fact that satellite carriers are able to charge a fee for
retransmitted local signals demonstrates that these signals have value
for which broadcasters must be compensated. EchoStar counters that
``the only reason * * * consumers purchase a satellite carrier's local
signal offering is for value that the satellite carrier provides,
including increased quality, convenience, and aesthetics (i.e., lack of
off-air antenna).''
52. Commenters assert that, in the early 1990s, when the
retransmission consent provisions of the 1992 Cable Act first became
effective, cable systems were effectively the only distributors from
whom broadcasters could seek consideration through retransmission
consent. Broadcasters assert that they were at a tremendous
disadvantage because only a single buyer was prepared to bid for their
product. Broadcast commenters state that, today, the existence of
multiple MVPDs in at least some markets creates a more competitive
marketplace for the sale of retransmission rights, and one that
provides more opportunity for stations seeking to obtain compensation
for granting these valuable rights. NAB states that the existence of
multiple buyers is obviously a very important competitive marketplace
consideration in this market, as in any market. EchoStar counters that
multiple competitors in a market only serve to increase a broadcaster's
ability to play one MVPD distributor against another in retransmission
negotiations, an ability Congress sought to restrain by imposing the
good faith and competitive marketplace considerations requirements on
retransmission consent.
53. As discussed above, we do not believe, as a general matter,
that section 325(b)(3)(C) was intended to subject retransmission
consent negotiation to detailed substantive oversight by the Commission
or indeed that there exist objective competitive marketplace factors
that broadcasters must ascertain and base any negotiations and offers
on. Indeed, in the aggregate, retransmission consent negotiations are
the market through which the relative benefits and costs to the
broadcaster and MVPD are established. Although some parties earnestly
suggest, for example, that broadcasters should be entitled to zero
compensation in return for retransmission consent or that the forms of
compensation for carriage should be otherwise limited, this seems to us
precisely the judgment that Congress generally intended the parties to
resolve through their own interactions and through the efforts of each
to advance its own economic self interest.
54. EchoStar suggests an economic paradigm against which
retransmission terms might be compared to determine if they are based
on ``competitive marketplace considerations.'' It suggests that in the
ideal competitive market setting, revenues will be just sufficient to
compensate providers for the costs of program creation, duplication,
and distribution so that all participants are earning a fair rate of
return. Further, having already noted that the marketplace may be
distorted through the exercise of market power by cable operators,
EchoStar urges that retransmission consent term outcomes for the cable
industry provide a benchmark or threshold that should not be exceeded
in the case of satellite carriage of broadcast signals. Further, it
asserts that considerations extracted from certain cable operators (for
example carriage of digital signals) would be inappropriate and not
based on competitive marketplace consideration if they were
significantly costlier to accede to for satellite carriers.
55. In our view this type of regulatory analysis and comparison is
not what was intended through the enactment of
[[Page 15567]]
section 325(b)(3)(C). It is both internally inconsistent and not
capable of administration in any reasonably timely fashion. The
proposal is internally inconsistent in that it acknowledges that among
the market participants, cable operators might be the most likely to
have market power. If this were the case, using their negotiations as a
proxy for a competitive market setting would not be logical. Under this
analysis, broadcasters, already the hypothesized victims of an exercise
of market power, would be obligated to continue in that role with other
participants in the market. Further, EchoStar finds one of the most
common features of these agreements--payment for carriage through the
devotion of channel capacity to other affiliated services--
presumptively a measure of bad faith. Acceptance of the cash rate but
not the other currency of the negotiation could hardly be a replication
of a competitive market. Even if these problems could be overcome,
however, it seems unlikely that the data needed to measure a
transaction against the economic model proposed would be available
either to the parties in the course of their negotiations or to the
Commission in the course of trying to judge their compliance with the
standard of review proposed.
56. We also believe that to arbitrarily limit the range or type of
proposals that the parties may raise in the context of retransmission
consent will make it more difficult for broadcasters and MVPDs to reach
agreement. By allowing the greatest number of avenues to agreement, we
give the parties latitude to craft solutions to the problem of reaching
retransmission consent. The comments filed in this proceeding have
called into question the legitimacy of a number of bargaining proposals
as reflecting a failure of good faith or as presumptively not based on
competitive marketplace considerations. As discussed, it is important
that we provide the parties with as much initial guidance as possible.
We believe that the following examples of bargaining proposals
presumptively are consistent with competitive marketplace
considerations and the good faith negotiation requirement:
1. Proposals for compensation above that agreed to with other MVPDs
in the same market;
2. Proposals for compensation that are different from the
compensation offered by other broadcasters in the same market;
3. Proposals for carriage conditioned on carriage of any other
programming, such as a broadcaster's digital signals, an affiliated
cable programming service, or another broadcast station either in the
same or a different market;
4. Proposals for carriage conditioned on a broadcaster obtaining
channel positioning or tier placement rights;
5. Proposals for compensation in the form of commitments to
purchase advertising on the broadcast station or broadcast-affiliated
media; and 6. Proposals that allow termination of retransmission
consent agreement based on the occurrence of a specific event, such as
implementation of SHVIA's satellite must carry requirements.
Each of the proposals reflect presumptively legitimate terms and
conditions or forms of consideration that broadcasters may find impart
value in exchange for the grant of retransmission consent to an MVPD.
We do not find anything to suggest that, for example, requesting an
MVPD to carry an affiliated channel, another broadcast signal in the
same or another market, or digital broadcast signals is impermissible
or other than a competitive marketplace consideration. Prior to passage
of the 1992 Cable Act, the compensation paid by MVPDs for broadcast
signal programming carriage was established under the copyright laws
through a governmental adjudicatory process. After passage of the 1992
Cable Act, Congress left the negotiation of retransmission consent to
the give and take of the competitive marketplace. In SHVIA, absent
conduct that is violative of national policies favoring competition, we
believe Congress intended this same give and take to govern
retransmission consent. In addition, we point out that these are
bargaining proposals which an MVPD is free to accept, reject or counter
with a proposal of its own.
57. We find it more difficult to develop a similar list of
proposals that indicate an automatic absence of competitive marketplace
considerations. Because the size and relative bargaining power of
broadcasters and MVPDs range from satellite master antenna television
(``SMATV'') operators and low power television broadcast stations to
national cable entities and major-market, network affiliate broadcast
television stations, the dynamics of specific retransmission consent
negotiations will span a considerable spectrum. In these instances, we
will generally rely on the totality of the circumstances test to
determine compliance with section 325(b)(3)(C).
58. At the same time, it is implicit in section 325(b)(3)(C) that
any effort to stifle competition through the negotiation process would
not meet the good faith negotiation requirement. Considerations that
are designed to frustrate the functioning of a competitive market are
not ``competitive marketplace considerations.'' Conduct that is
violative of national policies favoring competition--that is, for
example, intended to gain or sustain a monopoly, is an agreement not to
compete or to fix prices, or involves the exercise of market power in
one market in order to foreclose competitors from participation in
another market--is not within the competitive marketplace
considerations standard included in the statute. Following this
reasoning, we believe that the following examples of bargaining
proposals presumptively are not consistent with competitive marketplace
considerations and the good faith negotiation requirement:
1. Proposals that specifically foreclose carriage of other
programming services by the MVPD that do not substantially duplicate
the proposing broadcaster's programming;
2. Proposals involving compensation or carriage terms that result
from an exercise of market power by a broadcast station or that result
from an exercise of market power by other participants in the market
(e.g., other MVPDs) the effect of which is to hinder significantly or
foreclose MVPD competition;
3. Proposals that result from agreements not to compete or to fix
prices; and
4. Proposals for contract terms that would foreclose the filing of
complaints with the Commission.
D. Carriage While a Complaint is Pending
59. Several MVPD commenters argue that where a MVPD shows a
willingness to negotiate for continued carriage of a local broadcast
station, the station should have an affirmative duty to negotiate terms
for such carriage and should not be permitted to withhold
retransmission consent while such negotiations are pending. Other
commenters assert that the Commission should prohibit a broadcaster
from withdrawing existing retransmission consent given to an MVPD until
an exclusivity or good faith complaint is denied by the Cable Services
Bureau and, if reconsideration is requested, the full Commission. These
commenters note that local television stations enjoy similar protection
when a cable operator seeks to drop the broadcaster via the
Commission's market modification process. NAB and Network Affiliates
assert that Congress expressly rejected this approach in SHVIA by
requiring that upon the expiration of the six-month grace period
outlined in section 325(b)(2)(E), satellite carriers must obtain
consent prior to retransmitting
[[Page 15568]]
any programming or face stiff penalties, including mandatory civil
liability of $25,000 per station, per day.
60. Two equally unambiguous provisions of SHVIA foreclose the
approach advanced by MVPD commenters. First, section 325(b)(1) of the
Communications Act provides that ``No cable system or other
multichannel video programming distributor shall retransmit the signal
of the broadcasting station, or any part thereof, except * * * with the
express authority of the originating station * * * .'' This language
clearly prohibits an MVPD, except during the six-month period allowed
under section 325(b)(2)(E), from retransmitting a broadcasters signal
if it has not obtained express retransmission consent. Second, section
325(e) of the Communications Act establishes a streamlined complaint
procedure through which broadcasters may seek redress for allegedly
illegal retransmission of local broadcast signals by satellite
carriers. The procedures established by section 325(e) provide only
four defenses that a satellite carrier may raise: (1) the satellite
carrier did not retransmit the broadcaster's signal to any person in
the local market of the broadcaster during the time period specified in
the complaint; (2) the broadcaster had in writing expressly allowed the
satellite carrier to retransmit the broadcaster's signal to the
broadcaster's local market for the entire period specified in the
complaint; (3) the retransmission was made after January 1, 2002 and
the broadcaster elected to assert the right to must carry against the
satellite carrier under section 338 for the entire period specified in
the complaint; and (4) the station being retransmitted is a
noncommercial television broadcast station. Against the backdrop of the
express language of these provisions, we see no latitude for the
Commission to adopt regulations permitting retransmission during good
faith negotiation or while a good faith or exclusivity complaint is
pending before the Commission where the broadcaster has not consented
to such retransmission.
61. Having reached this conclusion, we must also express our
concern regarding the service disruptions and consumer outrage that
will inevitably result should MVPDs that are entitled to retransmit
local signals subsequently lose such authorization. Because the market
has functioned adequately since the advent of retransmission consent in
the early 1990's, we expect such instances to be the exception, rather
than the norm. We are encouraged by the retransmission consent
agreements that have been reached between broadcasters and satellite
carriers prior to the enactment of our rules. In addition, we strongly
encourage that broadcasters and MVPDs that are engaged in protracted
retransmission consent negotiations agree to short-term retransmission
consent extensions so that consumers' access to broadcast stations will
not be interrupted while the parties continue their negotiations.
E. Existing and Subsequent Retransmission Consent Agreements
62. In the Notice, the Commission acknowledged the existence of
retransmission consent agreements between satellite carriers and
television broadcast stations that predate enactment of section
325(b)(3)(C). In addition, the Notice acknowledged that agreements have
been executed since the enactment of SHVIA. The Notice sought comment
on the impact of these agreements on the duty to negotiate in good
faith.
63. Network Affiliates state that the fact that broadcasters and
satellite carriers have already reached arms length retransmission
consent agreements is an indication that they were negotiated in good
faith. Otherwise, in the face of impending legislation and Commission
action, they assert the parties would not have finalized such
agreements. Another commenter argues that the rules adopted by the
Commission should have prospective effect applying only to
retransmission consent negotiations that occur after the effective date
of the Commission's rules. One commenter urges the Commission to give
its rules retroactive application to preexisting retransmission consent
agreements.
64. We will not apply the rules adopted herein to retransmission
consent agreements that predate the effective date of this Order.
Section 325(b)(3)(C) provides that:
Within 45 days after the date of the enactment of [SHVIA], the
Commission shall commence a rulemaking proceeding to revise the
regulations governing the exercise by television broadcast stations
of the right to grant retransmission consent under this subsection,
and such other regulations as are necessary to administer the
limitations contained in paragraph (2) * * * Such regulations shall
* * * until January 1, 2006, prohibit a television broadcast station
that provides retransmission consent from engaging in exclusive
contracts for carriage or failing to negotiate in good faith * * * .
As the quoted language indicates, section 325 is not a self-
effectuating provision. It has substance and structure only after the
Commission has concluded its rulemaking to implement the good faith and
exclusivity limitations of section 325(b)(3)(C). Moreover, we need not
apply SHVIA retroactively to ensure that such preexisting agreements do
not contain impermissible exclusivity provisions. 47 CFR 76.64(m) has
been in effect since 1993 and expressly prohibits exclusive
retransmission consent agreements. If any MVPD believes that a
broadcaster and an MVPD entered into a prohibited exclusive
retransmission consent agreement prior to adoption of SHVIA, that party
may file a petition for special relief alleging that a broadcaster and
MVPD have violated 47 CFR 76.64(m). Accordingly, the rules applicable
to good faith and exclusivity adopted herein will apply only to
retransmission consent agreements adopted after the effective date of
this Order.
V. Exclusive Retransmission Consent Agreements
65. SHVIA amends section 325(b) of the Communications Act by
directing the Commission to promulgate rules that would
until January 1, 2006, prohibit a television broadcast station
that provides retransmission consent from engaging in exclusive
contracts * * * .
The accompanying Joint Explanatory Statement of the Committee of
Conference contains no language to clarify or explain the prohibition,
stating only that:
The regulations would, until January 1, 2006, prohibit a
television broadcast station from entering into an exclusive
retransmission consent agreement with a multichannel video
programming distributor * * *
The Commission, by rule, established a similar prohibition following
passage of the 1992 Cable Act. There, the Commission was directed by
Congress to establish regulations governing the right of television
broadcast stations to grant retransmission consent. The Commission
found that exclusive retransmission consent arrangements between a
television broadcast station and any multichannel video programming
distributor were contrary to the intent of the 1992 Cable Act.
66. In the Notice, we sought to determine what activities would
constitute ``engaging in exclusive contracts.'' We also sought to
determine whether there was significance to the difference between the
language in the statute (prohibiting ``engaging in'') and the language
in the Conference Report (prohibiting ``entering into''). We sought to
determine whether parties were prohibited from negotiating exclusive
contracts that would take effect after the date of January 1, 2006. We
also sought
[[Page 15569]]
comment on whether any such contracts already existed, and if so, what
effect the statute would have on such contracts. Finally, we sought
comment on how to effectively enforce such a prohibition, and how to
determine whether such agreements existed.
67. SHVIA prohibits a television broadcast station that provides
retransmission consent from ``engaging in'' exclusive contracts until
January 1, 2006. The Conference Report refers to a prohibition on
``entering into'' exclusive retransmission consent agreements. Several
commentators argue that the phrases ``entering into'' and ``engaging
in'' are synonymous. Representatives of the satellite industry argue
that the Commission should rely on the broader language of the statute
(``engaging in'') rather than the arguably narrower Conference Report
language. Commenters supporting this interpretation posit that the use
of the language ``engaging in'' demonstrates an intent to prohibit a
broad range of practices. SBCA believes that the use of the phrase
``engaging in'' prohibits ``both express and implied, de jure and de
facto, exclusionary conduct, including literal or effective refusals to
deal with a particular MVPD distributor.'' Two other commenters argue
that broadcasters can impose unaffordable demands on smaller MVPDs, and
that these demands can result in prohibited de facto exclusivity. Thus,
according to this argument, the Commission should expand its
prohibition to explicitly forbid these types of arrangements. LTVS
supports an expansive definition of exclusive practices and argues that
a broad range of actions should be prohibited.
68. While the satellite industry supports a broad reading of the
statute, broadcast commenters argue that Congress intended to prohibit
exclusive contracts, not ``undefined exclusive `exercise practices' nor
. . . of any de facto exclusivity.'' Network Affiliates assert that the
use of the phrase ``engaging in'' does not demonstrate Congressional
intent to ``increase the number of prohibited activities.'' Indeed,
these commenters argue that by using the phrase ``engaging in'' as
opposed to the phrase ``entering in,'' Congress ``intended to allow
parties to negotiate and enter into exclusive retransmission consent
agreements as long as those agreements are not effective until after
the sunset of this prohibition on January 1, 2006.'' Under this theory,
the statute only prohibits ``engaging in exclusive contracts.'' Thus,
according to broadcasting representatives, SHVIA does not prohibit
undefined exclusive practices or the exercise of de facto exclusivity.
69. In determining the intended scope of the prohibition on
exclusive retransmission consent agreements, we believe that Congress
intended that all activity associated with exclusive retransmission
consent agreements be prohibited until January 1, 2006. Absent such a
comprehensive prohibition, marketplace distortions could occur that
would adversely influence the continuing development of a competitive
marketplace for multichannel video programming services. For example,
if an MVPD negotiates an exclusive retransmission consent agreement
with a television broadcaster that will take effect after January 1,
2006, such MVPD undoubtedly would use that agreement in advertising or
marketing strategies during the prohibition on exclusive retransmission
consent agreements. The MVPD could market its services by stating that
it will be the only MVPD providing a particular television broadcast
station or stations after January 1, 2006. Given the overall pro-
competitive mandate of SHVIA, we believe that Congress did not intend
that we permit this type of market distortion while the section
325(b)(3)(C) prohibitions are in effect. As such, we interpret the
phrase ``engaging in'' to proscribe not only entering into exclusive
agreements, but also negotiation and execution of agreements granting
exclusive retransmission consent after the prohibition expires.
70. As for the exercise of de facto exclusivity, we believe that
the statute's good faith requirement sufficiently addresses concerns
voiced by commenters. The good faith requirements of the statute and
the Commission's rules adopted in this Order should adequately address
behavior that would lead to de facto exclusivity.
71. On its face, the prohibition on exclusive retransmission
consent agreements appears to have immediate effect. The Commission
sought comment on the existence of exclusive satellite carrier
retransmission consent agreements that either predate the enactment of
SHVIA or under the Commission's rules implementing section
325(b)(3)(C)(ii). One commenter argues that the Commission should
nullify any exclusive retransmission consent agreements that existed
prior to SHVIA. The commenter suggests that the Commission's authority
to nullify any such agreements stems from the requirements of the
Commission's rules. Another commenter argues that the Commission should
apply rules implementing the SHVIA prohibition on exclusive
retransmission consent agreements retroactively. Some commenters from
the broadcasting industry argue that any such agreements that were in
existence prior to the enactment of SHVIA should be grandfathered.
72. Prior to the enactment of SHVIA, 47 CFR 76.64(m) prohibited all
exclusive retransmission consent agreements. After its enactment, SHVIA
prohibits all exclusive retransmission consent agreements prior to
January 1, 2006. Thus, to the extent that any prohibited exclusive
retransmission consent agreements exist between television broadcast
stations and MVPDs, such agreements are prohibited either by Commission
rule prior to SHVIA, or by SHVIA's express terms thereafter.
VI. Retransmission Consent and Exclusivity Complaint Procedures
A. Voluntary Mediation
73. The Notice sought comment on whether there are circumstances in
which the use of alternative dispute resolution (``ADR'') services
would assist in determining whether a television broadcast station
negotiated in good faith as defined by section 325(b)(3)(C) and the
Commission's rules adopted thereunder. Several commenters argue that a
dispute resolution mechanism is not necessary and contrary to the goal
of swift resolution of such complaints. By contrast, Time Warner
supports a mediation requirement that must be satisfied prior to the
filing of a complaint with the Commission. Under Time Warner's
proposal, the parties would have 60 days to negotiate in good faith. If
an agreement has not been reached 30 days or less prior to the
termination of retransmission consent, either party can require that
the matter be submitted to mediation.
74. We will not, at this time, adopt Time Warner's mandatory
mediation proposal. There has not been a sufficient demonstration that
such a measure is necessary to implement the good faith provision of
section 325(b)(3)(C). We believe, however, that voluntary mediation can
play an important part in the facilitation of retransmission consent
and encourage parties involved in protracted retransmission consent
negotiations to pursue mediation on a voluntary basis. The Commission
would favorably consider a broadcaster's willingness to participate in
a mediation procedure in determining whether such broadcaster complied
with its good faith negotiation obligations. We emphasize,
[[Page 15570]]
however, that refusal to engage in voluntary mediation will not be
considered probative of a failure to negotiate in good faith. We will
revisit the issue of mandatory retransmission consent mediation if our
experience in enforcing the good faith provision indicates that such a
measure is necessary.
B. Commission Procedures
75. The Notice sought comment on what procedures the Commission
should employ to enforce the provisions adopted pursuant to section
325(b)(3)(C). We asked commenters to state whether the same set of
enforcement procedures should apply to both the exclusivity prohibition
and the good faith negotiation requirement, or whether the Commission
should adopt different procedures tailored to each prohibition.
Specifically, we sought comment regarding whether special relief
procedures of the type found in 47 CFR 76.7 provide an appropriate
framework for addressing issues arising under section 325(b)(3)(C).
76. There is general consensus among the commenters that the
general pleading provisions of 47 CFR 76.7 provide appropriate
procedural rules for good faith and exclusivity complaints. No
commenters justified a departure from the Commission's general pleading
rules for matters filed with the Cable Services Bureau. We agree with
these commenters urging the use of the 47 CFR 76.7 provisions and
direct complainants to follow these provisions in filing retransmission
consent complaints. Consistent with the requirements of 47 CFR 76.7,
complaints alleging violations of the prohibition on exclusive
retransmission consent agreements should: (1) identify the broadcaster
and MVPD alleged to be parties to the prohibited exclusive agreement;
(2) provide evidence that the complainant can or does serve the area of
availability, or portions thereof, of the signal of the broadcaster
named in the complaint; and (3) provide evidence that the complainant
has requested retransmission consent to which the broadcaster has
refused or failed to respond. Following the filing of a complaint, the
defendant broadcaster must file an answer that specifically admits or
denies the complainants allegation of the existence of an exclusive
retransmission consent agreement.
77. We agree with those commenters who argue that some aspects of
the program access procedural rules would assist the Commission in
effectively processing and resolving retransmission consent complaints.
We believe that it is necessary to impose a limitations period on the
filing of retransmission consent complaints. In the program access,
program carriage and open video system contexts, the Commission has
established a one-year limitations period within which an aggrieved
party must file a complaint with the Commission. Given that
retransmission consent complaints are likely to be highly fact-specific
and dependent on individual recollection, a similar limitations period
is fair and appropriate with regard to retransmission consent
complaints. Moreover, a limitations period lends finality and certainty
to retransmission consent agreements after affording MVPDs an
appropriate interval to challenge alleged violations of section
325(b)(3)(C). Accordingly, a complaint filed pursuant to section
325(b)(3)(C) must be filed within one year of the date any of the
following occur: (a) a complainant MVPD enters into a retransmission
consent agreement with a broadcaster that the complainant MVPD alleges
violate one or more of the rules adopted herein; or (b) a broadcaster
engages in retransmission consent negotiations with a complainant MVPD
that the complainant MVPD alleges violate one or more of the rules
adopted herein, and such negotiation is unrelated to any existing
contract between the complainant MVPD and the broadcaster; or (c) the
complainant MVPD has notified the broadcaster that it intends to file a
complaint with the Commission based on a request to negotiate
retransmission consent that has been denied, unreasonably delayed, or
unacknowledged in violation of one or more of the rules adopted herein.
C. Discovery
78. Several commenters urge the Commission to provide discovery as-
of-right in retransmission consent complaint proceedings. Disney
observes that since there is no automatic right to discovery in the
more procedurally complex program access regime--a fortiori there
should be no discovery in the context of retransmission consent
proceedings. One commenter asserts that retransmission consent
agreements and the negotiations surrounding them constitute
confidential business information that must be protected by strong
nondisclosure agreements if subject to Commission-directed discovery
procedures. This commenter offers three limitations on Commission-
directed discovery: (1) the complainant must have made a prima facie
showing of evidence supporting its claim that a violation has taken
place; (2) the Commission's discovery order must be narrowly-tailored
to avoid fishing expeditions; and (3) the Commission must permit mutual
discovery.
79. We decline the invitation of several commenters to apply
discovery as-of-right to the retransmission complaint procedures.
Interested parties should not interpret our decision as meaning that
discovery will play no part in the section 325 complaint process.
Because MVPDs will be present at negotiations, we generally anticipate
that evidence of a violation of the good faith standard will be
accessible by the MVPD complainant. Where complainants can demonstrate
that such information is not available (e.g., agreements entered into
with other MVPDs) and that discovery is necessary to the proper conduct
and resolution of a proceeding, the Commission will consider, where
necessary, the imposition of discovery to develop a more complete
record and resolve complaints. In this regard, parties are free to
raise appropriate discovery requests in their pleadings. We will
protect proprietary information, where necessary, pursuant to 47 CFR
76.9. Accordingly, we will employ Commission-controlled discovery as
contemplated in the 47 CFR 76.7 procedures.
D. Remedies
80. With regard to the appropriate measures for the Commission to
take after a finding that a broadcaster has violated the good faith
negotiation requirement, several commenters argue that the sole remedy
is a Commission directive to engage in further negotiation consistent
with the Commission's decision. In this regard, other commenters note
that, in the labor law context, the Supreme Court has determined that
the NLRB has no power to order parties to enter into a particular
agreement, or even agree to individual terms. EchoStar argues that this
is not the limit of the Commission's remedial authority and that the
Commission should order a broadcaster that has been found to violate
the Commission's prohibitions to conclude a retransmission consent
agreement that ``does not include any discriminatory terms not based on
competitive marketplace considerations.'' Other commenters argue that
the Commission should adopt a liberal policy of allowing damages, both
as a deterrent to unlawful conduct and as compensation to injured
parties. Commenters opposing the imposition of damages note that, while
Congress granted the Commission express authority to order appropriate
remedies in the program access context, Congress did not grant such
express
[[Page 15571]]
authority in the context of the good faith negotiation requirement.
81. Congress did not empower the Commission to sit in judgement of
the substantive terms and conditions of retransmission consent
agreements. Therefore, in situations in which a broadcaster is
determined to have failed to negotiate in good faith, the Commission
will instruct the parties to renegotiate the agreement in accordance
with the Commission's rules and section 325(b)(3)(C). We reiterate,
however, that the Commission will not require any party to a
retransmission consent agreement to offer or accept a specific term or
condition or even to reach agreement as part of such renegotiation.
82. Although several commenters strongly favor the imposition of
damages for adjudicated violations of section 325(b)(3)(C), we can
divine no statutory grant of authority to take such action. Congress
instructed the Commission to revise its regulations governing
retransmission consent to prohibit exclusive agreements and require
good faith negotiation. We can divine no intent in section 325(b)(3)(C)
to impose damages for violations thereof. This is especially true where
later in the same statutory provision, Congress expressly granted the
District Courts of the United States the authority to impose statutory
damages of up to $25,000 per violation, per day following a Commission
determination of a retransmission consent violation by a satellite
carrier. Commenters' reliance on the program access provisions as
support for a damages remedy in this context is misplaced. The
Commission's authority to impose damages for program access violations
is based upon a statutory grant of authority. We note, however, that,
as with all violations of the Communications Act or the Commission's
rules, the Commission has the authority to impose forfeitures for
violations of section 325(b)(3)(C).
E. Expedited Resolution
83. The Notice requested comment on whether expedited procedures
are necessary to the appropriate resolution of either exclusivity or
good faith proceedings. Several commenters argue that, in section
325(e) of the Communications Act, Congress expressly required expedited
processing of broadcasters' complaints that satellite carriers have
illegally retransmitted local broadcaster signals without consent.
Given this express directive by Congress, these commenters argue that
the lack of an express directive to expedite good faith negotiation
complaints indicates Congress' decision that such complaints should not
receive expedited treatment. U S West, however, notes that the
Commission has wide discretion to manage its procedures ``as will best
conduce to the proper dispatch of business and to the ends of
justice.'' Disney asserts that the Commission must ensure that good
faith negotiation complaints are resolved expeditiously. In this
regard, several commenters suggest various time limits within which the
Commission should resolve complaints related to the good faith
negotiation requirement and the exclusivity prohibition.
84. Commenters generally favor expedited action by the Commission
regarding complaints filed pursuant to section 325(b)(3)(C). Because we
conclude that, upon expiration of an MVPD's carriage rights under the
section 325(b)(2)(E) six-month compulsory license period or an existing
retransmission consent agreement, an MVPD may not continue carriage of
a broadcaster's signal while a retransmission consent complaint is
pending at the Commission, it is incumbent upon the Commission to
expedite the resolution of these claims. We are mindful that Congress
has imposed no express time limits for Commission resolution of
retransmission consent complaints, whereas it has done so in other
provisions of SHVIA and the Communications Act. We believe, however,
that expeditious resolution of section 325(b)(3)(C) complaints is
entirely consistent with Congress' statutory scheme. We believe that,
to ensure efficient functioning of the retransmission consent process,
and to avoid protracted loss of service to subscribers, expedited
action on these claims is necessary.
85. While commenters propose various time periods within which the
Commission should resolve retransmission consent complaints, we believe
the spectrum of issues that may be involved in these proceedings does
not lend itself to selecting one time period by which the Commission
should resolve all complaints brought under section 325(b)(3)(C). For
example, it would be inefficient and arbitrary to apply the same time
period to a clear violation, such as outright refusal to negotiate, and
a violation of the test involving analysis of the totality of the
circumstances. Bearing in mind that the Commission must give maximum
priority to matters involving statutory time limits, we instruct
Commission staff to give priority to section 325(b)(3)(C) complaints
and resolve them in an expeditious manner, considering the complexity
of the issues raised. We will monitor the resolution times of
individual retransmission consent complaints and, if necessary, we will
revisit this issue in the future.
F. Burden of Proof
86. The Notice sought comment on how the burden of proof should be
allocated. In this regard, we asked for comment on whether the burden
should rest with the complaining party until it has made a prima facie
showing and then shift to the defending party and what would constitute
a prima facie showing sufficient to shift the burden to the defending
party.
87. Arguing that, consistent with NLRB cases in which the party
claiming bad faith bears the burden of proof, several commenters
counsel the Commission to provide that the burden of proof should
always be on the MVPD complainant. Indeed, several commenters assert
that the Commission should adopt procedural rules that permit it to
dismiss retransmission consent complaints summarily if the MVPD fails
to satisfy a specified threshold standard.
88. Other commenters support a shifting of the burden of proof
after a prima facie demonstration. Commenters assert that such a
shifting is appropriate because of the difficulty of conclusively
establishing the existence of an exclusive agreement or lack of good
faith. For exclusivity complaints, DIRECTV and EchoStar suggest that a
complaining party only provide affidavits or other documentary evidence
to support its belief that a prohibited exclusive contract exists, and
the burden of proof then shifts to the defendant to refute the
existence of such agreement. For good faith complaints, DIRECTV and
EchoStar suggest that the complaining party should provide a
description of the conduct complained of, including conduct alleged to
violate any of the good faith negotiation standards supported by any
documentary evidence or an affidavit signed by an officer of the
complaining MVPD setting forth the basis for the complainant's
allegations. After the burden has shifted to the broadcaster,
commenters urge the Commission to require the broadcaster to include
with its answer a copy of any retransmission consent agreement the
complainant alleges to contain unlawfully different terms and
conditions, subject to Commission confidentiality protections. Several
commenters maintain that the Commission should impose sanctions against
filers of frivolous complaints. Network Affiliates argue that the
adoption of a shifting burden mechanism will encourage the filing of
frivolous complaints during the
[[Page 15572]]
negotiation period in order to intimidate broadcasters.
89. Commenters advance cogent arguments both for and against
shifting the burden to the broadcaster after a prima facie showing by a
complaining MVPD. However, as in labor law context, we believe the
burden should rest with the MVPD complainant to establish a violation
of section 325(b)(3)(C). This conclusion is also consistent with our
belief that generally the evidence of a violation of the good faith
standard will be accessible by the complainant. This should not be
interpreted as permitting a broadcaster to remain mute in the face of
allegations of a section 325(b)(3)(C) violation. After service of a
complaint, a broadcaster must file an answer as required by 47 CFR
76.7, which advises the parties and the Commission fully and completely
of any and all defenses, responds specifically to all material
allegations of the complaint, and admits or denies the averments on
which the party relies. In addition, where necessary, the Commission
has discretion to impose discovery requests on a defendant to a section
325(b)(3)(C) complaint. However, in the end, the complainant must bear
the burden of proving that a violation occurred.
G. Sunset of Rules
90. Section 325(b)(3)(C) directs that the regulations adopted by
the Commission prohibit exclusive carriage agreements and require good
faith negotiation of retransmission consent agreements ``until January
1, 2006.'' The Commission sought comment on whether the Commission's
rules regarding exclusive carriage agreements and good faith
negotiation should automatically sunset on this date. On its face, this
provision would seem to sunset the prohibition on exclusive
retransmission consent agreements and good faith negotiation for all
MVPDs. Under this reading of the statute, the Commission's rule
prohibiting exclusive retransmission consent agreements for cable
operators would be deemed abrogated as of January 1, 2006.
91. The broadcast industry argues that this is the correct
interpretation of SHVIA. One commenter states that ``[b]ecause the
statutory language is plain on its face, and because Congress acted
with knowledge of the existing regulatory prohibition, it is clear that
Congress intended to abrogate the Commission's existing rule
prohibiting exclusive retransmission consent agreements with cable
operators.'' This commenter additionally argues that the prohibition on
exclusive retransmission consent agreements was meant to correct
imbalances in the marketplace, and thus was established as a temporary
solution.
92. The satellite industry and other MVPD representatives disagree
with this interpretation of the statute. Two commenters argue that the
date set out in the statute establishes a minimum time frame on the
prohibition of exclusive retransmission consent agreements and the good
faith negotiation requirement. Others state that interpreting the
statute as sunsetting the Commission's prohibitions on exclusive
retransmission consent agreements runs contrary to the intent of
Congress. Specifically, they argue that nothing in the legislative
history demonstrates an intent to sunset section 325(b)(3)(C), and
without an affirmative statement of intent, no such intent may be
inferred. Commenters argue that to sunset the prohibition would result
in anti-competitive behavior, and would thus undermine the goals of
SHVIA. Finally, many commenters from the satellite industry and the
MVPD industry argue that the Commission has authority to extend the
prohibition on exclusive retransmission consent agreements beyond
January 1, 2006, if the Commission determines that such an extension
would be in the public interest.
93. A third approach to this issue is advanced by some
representatives of the satellite industry and the cable industry. Time
Warner argues that the Commission should make no determination at this
point over whether to sunset the prohibition, but rather should make a
decision closer to the expiration date set out in the statute.
94. We believe that the statute is clear on its face, and that the
correct interpretation of the language ``until January 1, 2006'' is
that the prohibitions on exclusive retransmission consent agreements
and the good faith negotiation requirement terminate on that date. We
agree with commentators who argue that the provisions of section
325(b)(3)(C) are meant to foster competition. However, in the absence
of guidance from Congress as to the Commission's authority after this
date, we can not assume that Congress was establishing a minimum time
frame and that the Commission has authority to promulgate rules
prohibiting exclusive retransmission consent agreements and requiring
good faith negotiation beyond January 1, 2006. Congress has
demonstrated its ability to craft legislation that established a sunset
date which the Commission has express authority to extend. Such
language is not contained in SHVIA. The statute clearly states that the
provisions would last ``until January 1, 2006.'' The legislative
history does not express any intent to extend such provisions. Thus, we
must interpret section 325(b)(3)(C) as written and that January 1, 2006
is meant to be the sunset date for the prohibition of exclusive
retransmission consent agreements and the rules on good faith
retransmission consent negotiations.
VII. Administrative Matters
95. Final Regulatory Flexibility Analysis. As required by the
Regulatory Flexibility Act (``RFA''), see 5 U.S.C. 603, an Initial
Regulatory Flexibility Analysis (``IRFA'') was incorporated in the
Notice. The Commission sought written public comments on the possible
significant economic impact of the proposed policies and rules on small
entities in the Notice, including comments on the IRFA. Pursuant to the
RFA, see 5 U.S.C. 604, a Final Regulatory Flexibility Analysis is
contained in this document.
96. Paperwork Reduction Act of 1995 Analysis. The actions herein
have been analyzed with respect to the Paperwork Reduction Act of 1995
and found to impose no new or modified reporting and recordkeeping
requirements or burdens on the public.
97. Effective Date. As discussed, section 325(b)(2)(E) of the
Communications Act grants satellite carriers a six-month period during
which they may retransmit the signals of local broadcasters without a
broadcaster's express retransmission consent. We have adopted these
rules before the end of the six-month period provided by section
325(b)(2)(E) so that MVPDs, particularly satellite carriers, and
broadcasters understand their rights and obligations under section
325(b)(3)(C) before that period expires. To afford parties the maximum
amount of time to negotiate retransmission consent in good faith and to
file complaints pursuant to section 325(b)(3)(C) before the expiration
of the six-month period, this First Report and Order will be effective
upon publication in the Federal Register. We find good cause exists
under the Administrative Procedure Act (``APA'') to have the rules
adopted in this First Report and Order be effective March 23, 2000
pursuant to section 553(d)(3) of the APA. Prompt effectiveness of these
rules will provide a framework under which broadcasters and satellite
carriers can achieve retransmission consent before the expiration of
the six-month period set forth in section 325(b)(2)(E).
[[Page 15573]]
Final Regulatory Flexibility Analysis
a. As required by the Regulatory Flexibility Act (``RFA''), an
Initial Regulatory Flexibility Analysis (``IRFA'') was incorporated in
the Notice of Proposed Rulemaking (``Notice'') in CS Docket No. 99-363,
FCC 99-406. The Commission sought written public comments on the
proposals in the Notice, including comment on the IRFA. This Final
Regulatory Flexibility Analysis (``FRFA'') conforms to the RFA.
b. Need for, and Objectives of, this Report and Order. Section 1009
of the Satellite Home Viewer Improvement Act (``SHVIA''), codified as
section 325 of the Communications Act of 1934, as amended (``Act''), 47
U.S.C. 325, instructs the Commission to revise the regulations
governing the exercise by television broadcast stations of the right to
grant retransmission consent. Congress directed the Commission to
devise regulations, procedures, and standards implementing a good faith
requirement in the negotiation of agreements in connection with the
transmission of television broadcast station signals by multichannel
video programming distributors (``MVPDs''). This Report and Order
adopts rules governing negotiation of retransmission consent between
broadcasters and all MVPDs which will help to ensure that negotiations
are conducted in an atmosphere of honesty, clarity of process and good
faith. In particular, this proceeding provides a clear framework under
which broadcasters and satellite carriers can achieve retransmission
consent before expiration and interruption of local broadcast signals
that satellite carriers have begun to provide their subscribers in many
cities across the nation since the enactment of the SHVIA. Further,
pursuant to the SHVIA, this proceeding also addresses implementing
rules prohibiting exclusive retransmission consent agreements. Finally,
the Report and Order adopts a complaint process to assist the
Commission in enforcing the statutory obligations related to section
325(b)(3)(C).
c. Summary of Significant Issues Raised by Public Comments in
Response to the IRFA. We received one comment in direct response to the
IRFA. The American Cable Association (``ACA'') argues that smaller
cable systems play an important role in the distribution of local
signals in rural America and smaller communities and that competitive
imbalances from broadcaster abuses relating to retransmission consent
threatens this role. In particular, ACA states that the ``IFRA remains
devoid of any meaningful analysis of how any retransmission consent
rules that may result would impact smaller cable businesses and their
systems, nor does it propose alternative relief to accommodate the
unique needs of those businesses. Instead, the Commission generally
believes that entity size has no bearing on the issues raised in the
Notice.'' We note, however, that in the IFRA we discussed the
retransmission consent election process and the possibility that
differences among MVPDs might justify different election schemes. We
stated that we had not proposed to treat small entities differently in
this regard, but sought comment on the possibility. We also sought
comment on four specific alternatives that might lessen the compliance
burden on small entities: (1) the establishment of differing compliance
or reporting requirements or timetables that take into account the
resources available to small entities; (2) the clarification,
consolidation, or simplification of compliance or reporting
requirements under the rule for small entities; (3) the use of
performance, rather than design standards: and (4) an exemption from
coverage of the rule, or any part thereof, for small entities. None of
the other parties in this proceeding filed comments on how issues
raised in the Notice would impact small entities. Below, in the section
of the FRFA titled, ``Steps Taken to Minimize Significant Impact on
Small Entities, and Significant Alternatives Considered,'' we discuss
further ACA's comment concerning the possible impact on small entities.
d. Description and Estimate of the Number of Small Entities To
Which the Rules Will Apply. The RFA directs the Commission to provide a
description of and, where feasible, an estimate of the number of small
entities that will be affected by the proposed rules. The RFA defines
the term ``small entity'' as having the same meaning as the terms
``small business,'' ``small organization,'' and ``small business
concern'' under Section 3 of the Small Business Act. Under the Small
Business Act, a small business concern is one which: (1) is
independently owned and operated; (2) is not dominant in its field of
operation; and (3) satisfies any additional criteria established by the
Small Business Administration (``SBA''). The rules we adopt as a result
of the Report and Order will affect television station licensees, cable
operators, and other MVPDs.
e. Television Stations. The Small Business Administration defines a
television broadcasting station that has no more than $10.5 million in
annual receipts as a small business. Television broadcasting stations
consist of establishments primarily engaged in broadcasting visual
programs by television to the public, except cable and other pay
television services. Included in this industry are commercial,
religious, educational, and other television stations. Also included
are establishments primarily engaged in television broadcasting and
which produce taped television program materials. Separate
establishments primarily engaged in producing taped television program
materials are classified under another SIC number. There were 1,509
television stations operating in the nation in 1992. That number has
remained fairly constant as indicated by the approximately 1,579
operating full power television broadcasting stations in the nation as
of May 31, 1998.
f. Thus, the rules will affect many of the approximately 1,579
television stations; approximately 1,200 of those stations are
considered small businesses. These estimates may overstate the number
of small entities since the revenue figures on which they are based do
not include or aggregate revenues from non-television affiliated
companies.
g. In addition to owners of operating television stations, any
entity that seeks or desires to obtain a television broadcast license
may be affected by the rules contained in this item. The number of
entities that may seek to obtain a television broadcast license is
unknown.
h. Small MVPDs: SBA has developed a definition of small entities
for cable and other pay television services, which includes all such
companies generating $11 million or less in annual receipts. This
definition includes cable system operators, direct broadcast satellite
services, multipoint distribution systems, satellite master antenna
systems and subscription television services. According to the Census
Bureau data from 1992, there were 1,758 total cable and other pay
television services and 1,423 had less than $11 million in revenue. We
address below services individually to provide a more precise estimate
of small entities.
i. Cable Systems: The SBA has developed a definition of small
entities for cable and other pay television services under Standard
Industrial Classification 4841 (SIC 4841), which covers subscription
television services, which includes all such companies with annual
gross revenues of $11 million or less. This definition includes cable
systems operators, closed circuit
[[Page 15574]]
television services, direct broadcast satellite services, multipoint
distribution systems, satellite master antenna systems and subscription
television services. According to the Census Bureau, there were 1,323
such cable and other pay television services generating less than $11
million in revenue that were in operation for at least one year at the
end of 1992.
j. The Commission has developed, with SBA's approval, its own
definition of a small cable system operator for the purposes of rate
regulation. Under the Commission's rules, a ``small cable company'' is
one serving fewer than 400,000 subscribers nationwide. Based on our
most recent information, we estimate that there were 1439 cable
operators that qualified as small cable companies at the end of 1995.
Since then, some of those companies may have grown to serve over
400,000 subscribers, and others may have been involved in transactions
that caused them to be combined with other cable operators. The
Commission's rules also define a ``small system,'' for the purposes of
cable rate regulation, as a cable system with 15,000 or fewer
subscribers. We do not request nor do we collect information concerning
cable systems serving 15,000 or fewer subscribers and thus are unable
to estimate at this time the number of small cable systems nationwide.
k. The Communications Act also contains a definition of a small
cable system operator, which is ``a cable operator that, directly or
through an affiliate, serves in the aggregate fewer than 1% of all
subscribers in the United States and is not affiliated with any entity
or entities whose gross annual revenues in the aggregate exceed
$250,000,000.'' The Commission has determined that there are 61,700,000
subscribers in the United States. Therefore, an operator serving fewer
than 617,000 subscribers shall be deemed a small operator, if its
annual revenues, when combined with the total annual revenues of all of
its affiliates, do not exceed $250 million in the aggregate. Based on
available data, we find that the number of cable operators serving
617,000 subscribers or less totals approximately 1450. Although it
seems certain that some of these cable system operators are affiliated
with entities whose gross annual revenues exceed $250,000,000, we are
unable at this time to estimate with greater precision the number of
cable system operators that would qualify as small cable operators
under the definition in the Communications Act. It should be further
noted that recent industry estimates project that there will be a total
64,000,000 subscribers and we have based our fee revenue estimates on
that figure.
l. Open Video System (``OVS''): The Commission has certified eleven
OVS operators. Of these eleven, only two are providing service.
Affiliates of Residential Communications Network, Inc. (``RCN'')
received approval to operate OVS systems in New York City, Boston,
Washington, D.C. and other areas. RCN has sufficient revenues to assure
us that they do not qualify as small business entities. Little
financial information is available for the other entities authorized to
provide OVS that are not yet operational. Given that other entities
have been authorized to provide OVS service but have not yet begun to
generate revenues, we conclude that at least some of the OVS operators
qualify as small entities.
m. Multichannel Multipoint Distribution Service (``MMDS''): The
Commission refined the definition of ``small entity'' for the auction
of MMDS as an entity that together with its affiliates has average
gross annual revenues that are not more than $40 million for the
proceeding three calendar years. This definition of a small entity in
the context of the Commission's Report and Order concerning MMDS
auctions that has been approved by the SBA.
n. The Commission completed its MMDS auction in March, 1996 for
authorizations in 493 basic trading areas (``BTAs''). Of 67 winning
bidders, 61 qualified as small entities. Five bidders indicated that
they were minority-owned and four winners indicated that they were
women-owned businesses. MMDS is an especially competitive service, with
approximately 1,573 previously authorized and proposed MMDS facilities.
Information available to us indicates that no MDS facility generates
revenue in excess of $11 million annually. We conclude that there are
approximately 1,634 small MMDS providers as defined by the SBA and the
Commission's auction rules.
o. DBS: There are four licenses of DBS services under part 100 of
the Commission's Rules. Three of those licensees are currently
operational. Two of the licensees which are operational have annual
revenues which may be in excess of the threshold for a small business.
The Commission, however, does not collect annual revenue data for DBS
and, therefore, is unable to ascertain the number of small DBS
licensees that could be impacted by these proposed rules. DBS service
requires a great investment of capital for operation, and we
acknowledge that there are entrants in this field that may not yet have
generated $11 million in annual receipts, and therefore may be
categorized as a small business, if independently owned and operated.
p. HSD: The market for HSD service is difficult to quantify.
Indeed, the service itself bears little resemblance to other MVPDs. HSD
owners have access to more than 265 channels of programming placed on
C-band satellites by programmers for receipt and distribution by MVPDs,
of which 115 channels are scrambled and approximately 150 are
unscrambled. HSD owners can watch unscrambled channels without paying a
subscription fee. To receive scrambled channels, however, an HSD owner
must purchase an integrated receiver-decoder from an equipment dealer
and pay a subscription fee to an HSD programming package. Thus, HSD
users include: (1) viewers who subscribe to a packaged programming
service, which affords them access to most of the same programming
provided to subscribers of other MVPDs; (2) viewers who receive only
non-subscription programming; and (3) viewers who receive satellite
programming services illegally without subscribing. Because scrambled
packages of programming are most specifically intended for retail
consumers, these are the services most relevant to this discussion.
q. According to the most recently available information, there are
approximately 30 program packages nationwide offering packages of
scrambled programming to retail consumers. These program packages
provide subscriptions to approximately 2,314,900 subscribers
nationwide. This is an average of about 77,163 subscribers per program
package. This is substantially smaller than the 400,000 subscribers
used in the commission's definition of a small MSO. Furthermore,
because this is an average, it is likely that some program packages may
be substantially smaller.
r. SMATVs: Industry sources estimate that approximately 5,200 SMATV
operators were providing service as of December, 1995. Other estimates
indicate that SMATV operators serve approximately 1.05 million
residential subscribers as of September, 1996. The ten largest SMATV
operators together pass 815,740 units. If we assume that these SMATV
operators serve 50% of the units passed, the ten largest SMATV
operators serve approximately 40% of the total number of SMATV
subscribers. Because these operators are not rate regulated, they are
not required to file financial data with the Commission. Furthermore,
we are not aware of any privately published financial
[[Page 15575]]
information regarding these operators. Based on the estimated number of
operators and the estimated number of units served by the largest ten
SMATVs, we tentatively conclude that a substantial number of SMATV
operators qualify as small entities.
s. Description of Projected Reporting, Recordkeeping and other
Compliance Requirements. This Report and Order establishes a series of
rules implementing good faith guidelines in connection with
retransmission consent agreements between television broadcast stations
and all MVPDs. The good faith negotiation requirement applies only to
broadcasters, however the conduct of MVPDs that seek retransmission
consent is not irrelevant to the Commission in determining whether a
broadcaster has complied with its obligation to negotiate
retransmission consent in good faith. During the process of developing
and negotiating retransmission consent, parties will be guided by the
principles and provisions established in this Report and Order. While
the substance of the agreements should be left to the market, the
Commission is responsible for enforcing the process of good faith
negotiation. We have established standards, practices, and conduct,
derived principally from NLRB precedent, that will be applicable to all
retransmission consent negotiations. First among the negotiation
standards is that a broadcaster may not refuse to negotiate with an
MVPD regarding retransmission consent. Additional standards outline
broadcaster conduct required to meet the good faith standard in
retransmission consent negotiation.
t. Pursuant to the directive by Congress, this proceeding also
describes and explains the limits relating to exclusivity agreements
and implements rules in that regard. Specifically, the SHVIA prohibits
all exclusive retransmission agreements for television broadcast
stations and MVPDs prior to January 1, 2006. We interpret the phrase
``engaging in'' to proscribe not only entering into exclusive
agreements, but also negotiation and execution of agreements granting
exclusive retransmission consent. The Commission also establishes
complaint procedures and sets forth the requirements of complainants to
address situations where there is evidence of exclusive retransmission
consent agreements.
u. In the event that the good faith negotiation obligation
provisions are not adhered to, enforcement procedures also have been
established to report concerns and complaints and address disputes
between parties. An MVPD believing itself aggrieved, may file a
complaint with the Commission. Based upon pleadings filed, a
determination will be made by the Commission on the issue of good
faith.
v. Steps Taken to Minimize Significant Impact on Small Entities,
and Significant Alternatives Considered. In this Report and Order, of
major importance is the principle of sustaining an environment where
there will be fairness, fair dealings, and true competition between
parties in the process of developing agreements on retransmission
consent. This proceeding develops a definite framework for
retransmission consent agreements so that television broadcast stations
and MVPDs are aware of their rights and obligations under section
325(b)(3)(C).
w. As noted, American Cable Association (``ACA'') asserts that
because retransmission consent agreements have been largely
unrestricted, broadcasters have tried to extract unreasonable
concessions in return for retransmission consent from smaller cable
systems and will continue to do so. It states that the Commission must
establish sufficient safeguards to protect individual smaller cable
businesses. ACA suggests that the Commission should articulate its
expectations regarding good faith negotiations and extend those
obligations to all retransmission consent negotiations, including
cable. We do not believe it necessary to develop specific rules for
particular subsets of the MVPD market. The good faith negotiation
requirement applies to a broadcaster's negotiations with all MVPDs,
including small cable operators. The Report and Order adopts rules to
implement this obligation with regard to all broadcaster negotiations
with all MVPDs. For example, we set forth good faith negotiations
standards, which proscribe the actions or practices that would violate
a broadcast television station's duty to negotiate retransmission
consent agreements in good faith. Further, procedures to address
exclusivity complaints are also established. Small businesses are
subject to these provisions and will benefit from the protection
provided. We believe this sufficiently ameliorates ACA's concerns.
x. Report to Congress: The Commission will send a copy of this
Report and Order, including this FRFA, in a report to Congress pursuant
to the Small Business Regulatory Enforcement Fairness Act of 1996, 5
U.S.C. 801(a)(1)(A). A copy of this Report and Order and FRFA (or
summary thereof) will also be published in the Federal Register,
pursuant to 5 U.S.C. 604(b), and will be sent to the Chief Counsel for
Advocacy of the Small Business Administration.
VIII. Ordering Clauses
98. Pursuant to authority found in sections 4(i) 4(j), 303(r) and
325 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i),
154(j), 303(r) and 325, the Commission's rules are hereby amended as
set forth.
99. The rule amendments set forth will become effective March 23,
2000.
100. The Consumer Information Bureau, Reference Information Center
shall send this First Report and Order, including the Final Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
List of Subjects in 47 CFR Part 76 Cable Television Service.
Federal Communications Commission.
Magalie Roman Salas,
Secretary.
Rule Changes
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR part 76 as follows:
PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE
1. The authority citation for Part 76 continues to read as follows:
Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a,
307, 308, 309, 312, 315, 317, 325, 503, 521, 522, 531, 532, 533,
534, 535, 536, 537, 543, 544, 544a, 545, 548, 549, 552, 554, 556,
558, 560, 561, 571, 572, 573.
2. In Sec. 76.64 paragraph (m) is revised to read as follows:
Sec. 76.64 Retransmission Consent.
* * * * *
(m) Exclusive retransmission consent agreements are prohibited. No
television broadcast station shall make or negotiate and agreement with
one multichannel video programming distributor for carriage to the
exclusion of other multichannel video programming distributors. This
paragraph shall terminate at midnight on December 31, 2005.
* * * * *
3. Section 76.65 is added to Subpart D to read as follows:
Sec. 76.65 Good faith and exclusive retransmission consent complaints.
(a) Duty to negotiate in good faith. Television broadcast stations
that provide retransmission consent shall negotiate in good faith the
terms and conditions of such agreements to fulfill the duties
established by section
[[Page 15576]]
325(b)(3)(C) of the Communciations Act 47 U.S.C. 325; provided,
however, that it shall not be a failure to negotiate in good faith if
the television broadcast station proposes or enters into retransmission
consent agreements containing different terms and conditions, including
price terms, with different multichannel video programming distributors
if such different terms and conditions are based on competitive
marketplace considerations. If a television broadcast station
negotiates with multichannel video programming distributors in
accordance with the rules and procedures set forth in this section,
failure to reach an agreement is not an indication of a failure to
negotiate in good faith.
(b) Good faith negotiation.--(1) Standards. The following actions
or practices violate a broadcast television station's duty to negotiate
retransmission consent agreements in good faith:
(i) Refusal by a television broadcast station to negotiate
retransmission consent with any multichannel video programming
distributor;
(ii) Refusal by a television broadcast station to designate a
representative with authority make binding representations on
retransmission consent;
(iii) Refusal by a television broadcast station to meet and
negotiate retransmission consent at reasonable times and locations, or
acting in a manner that unreasonably delays retransmission consent
negotiations;
(iv) Refusal by a television broadcast station to put forth more
than a single, unilateral proposal.
(v) Failure of a television broadcast station to respond to a
retransmission consent proposal of a multichannel video programming
distributor, including the reasons for the rejection of any such
proposal;
(vi) Execution by a television broadcast station of an agreement
with any party, a term or condition of which, requires that such
television broadcast station not enter into a retransmission consent
agreement with any multichannel video programming distributor; and
(vii) Refusal by a television broadcast station to execute a
written retransmission consent agreement that sets forth the full
understanding of the television broadcast station and the multichannel
video programming distributor.
(2) Totality of the circumstances. In addition to the standards set
forth in section 76.65(b)(1), a multichannel video programming
distributor may demonstrate, based on the totality of the circumstances
of a particular retransmission consent negotiation, that a television
broadcast station breached its duty to negotiate in good faith as set
forth in section 76.65(a).
(c) Good faith negotiation and exclusivity complaints. Any
multichannel video programming distributor aggrieved by conduct that it
believes constitutes a violation of the regulations set forth in this
Sec. 76.64(m) may commence an adjudicatory proceeding at the Commission
to obtain enforcement of the rules through the filing of a complaint.
The complaint shall be filed and responded to in accordance with the
procedures specified in Sec. 76.7.
(d) Burden of proof. In any complaint proceeding brought under this
section, the burden of proof as to the existence of a violation shall
be on the complainant.
(e) Time limit on filing of complaints. Any complaint filed
pursuant to this subsection must be filed within one year of the date
on which one of the following events occurs:
(1) A complainant multichannel video programming provider enters
into a retransmission consent agreement with a television broadcast
station that the complainant alleges to violate one or more of the
rules contained in this subpart; or
(2) A television broadcast station engages in retransmission
consent negotiations with a complainant that the complainant alleges to
violate one or more of the rules contained in this subpart, and such
negotiation is unrelated to any existing contract between the
complainant and the television broadcast station; or
(3) The complainant has notified the television broadcast station
that it intends to file a complaint with the Commission based on a
request to negotiate retransmission consent that has been denied,
unreasonably delayed, or unacknowledged in violation of one or more of
the rules contained in this subpart.
(f) Termination of rules. This section shall terminate at midnight
on December 31, 2005.
[FR Doc. 00-7163 Filed 3-22-00; 8:45 am]
BILLING CODE 6712-01-P