States Are Lobbied to Intervene in Cable Programming Decisions

Published July 1, 2008

Several state legislatures are being asked to consider adopting legislation proposed by the NFL Network that would compel vertically integrated cable operators to submit carriage disputes with independent programmers to commercial arbitration if the parties fail to agree on program carriage deals.

The impetus for such legislation was a series of complaints from the NFL Network that vertically integrated cable operators who own competing programming are treating the network unfairly by seeking to place it on a sports programming tier instead of a widely distributed basic, digital programming tier. Subscribers have to pay extra for the sports tier.

Although characterized as “arbitration bills,” the legislative proposals go well beyond private dispute resolution. Instead, they effectively require vertically integrated cable operators to carry every sports, news, or entertainment programming service at a price set by an arbitrator on terms and conditions of carriage proposed by the programmer.

In contrast to the federal requirement that the programmer demonstrate discrimination and competitive harm, this legislation would permit a programmer to demand arbitration merely if it believes it is being treated unfairly. And instead of placing review of program carriage complaints with an expert agency such as the Federal Communications Commission (FCC), as the federal requirement does, the proposals before the states would likely result in all disputes going to private arbitration.

Usurping Programming Decisions

Under the legislation proposed in several states–including Illinois, Indiana, North Carolina, Ohio, South Carolina, Texas, and Wisconsin–each independent programming supplier that competes in the same “programming category” as the channel owned by a vertically integrated cable operator has the right to request commercial arbitration if it has “reason to believe that it has not been treated in a fair, reasonable, and non-discriminatory manner concerning carriage of a competing programming channel” on the operator’s expanded basic tier.

The “programming categories” that trigger the obligation are quite broadly defined to include sports, news and public affairs, entertainment, or “any other category identified by the American Arbitration Association.” As a result, virtually every unaffiliated video programmer will be able to assert “comparability” to something owned by the cable operator.

Under the proposals, the cable operator loses not only the ability to negotiate the all-important terms and conditions of carriage, but also the very basic right to exclude programming it determines it may not want on the price, terms, and conditions offered.

The bills virtually ensure submission of carriage disputes to arbitration by the independent programmer, because they contain absolutely no incentive for the programmer to continue to negotiate if its initial offer is rejected. In the race to the arbitrator’s door, the first party to file wins all of its terms and conditions; the issue to be arbitrated is solely the price to be paid by the cable operator.

Worse than ‘Must Carry’

A requirement to carry a channel or be brought to arbitration and then forced to carry it at a rate determined by a third party is a “must carry” obligation no matter what it is labeled.

But unlike the federal “must carry” obligation for local television station signals, which obligates the cable operator only to carry the programming for free, the new “must carry or arbitrate and carry” proposals obligate the cable operator not only to carry the programming on the terms sought by the independent programmer, but also to pay for the privilege of doing so at prices set by a third party.

It is hard to imagine how the arbitrator is to choose a price best reflecting the “fair market value” of programming carriage rights when the terms and conditions of carriage are set solely by the programming supplier.

Market Should Decide

The mandatory arbitration legislation would effectively turn vertically integrated cable operators into video programming common carriers. They would be unable to decline carriage to any independent programmer who could plausibly allege their programming content is “comparable” to the operator’s affiliated programming, and they would be required to pay that programmer a rate determined not to be “just and reasonable” by the expert agency, the FCC, but by an arbitrator whose sole choices would be the “final offers” submitted by the complaining programmer and the defending distributor.

This would be a common carriage obligation, but without any guarantee that the result would be just, reasonable, and in the public interest. It should not be the subject of serious legislative attention at any level of government.

The sooner government officials let the NFL Network know they cannot and will not succeed in obtaining inappropriate government intervention, the sooner commercial negotiations between the network and its would-be distributors will resume. The NFL Network set the original asking price and terms and conditions of the carriage it sought, and it owns the content and can adjust its demands to achieve the widespread distribution it seeks.

The market, not the legislature, is the right place to decide this matter.

Barbara S. Esbin ([email protected]) is director of the Center for Communications and Competition at the Progress and Freedom Foundation in Washington, DC. A longer version of this article originally appeared at the PFF Web site. Reprinted with permission.