Friday, 31 May 2013

D.C. Circuit Sides with Comcast in Dispute with Tennis Channel

This week's D.C. Circuit ruling siding with Comcast in its carriage dispute with Tennis Channel came as little surprise. It ruled that the Federal Communications Commission failed to justify its conclusion that the cable provider (known as a "multichannel video programmer distributor" in today's parlance) discriminated against the Tennis Channel (not owned by Comcast) by placing it in a more expensive tier than the Golf Channel and Versus (now the NBC Sports Network). The ruling is available here.

For cable services, the ruling will come as a big relief. The opinion concluded that the FCC's determination Comcast's disparate treatment of the Tennis Channel by tiering it in a more expensive package was not discriminatory under sec. 616 of the 1992 Cable Act, and rejected the Commission's factual basis for making that determination. Judge Williams, writing for the court, stated that the FCC failed to provide "adequate evidence" to bolster its claims of discrimination. He did not address the more fundamental argument made by Comcast -- that the statute, or at least its application, was a First Amendment violation of the free speech rights of the cable provider. Basically, the court found that there were valid reasons for placing the Golf Channel and Versus on a lower, cheaper and more widely distributed tier than Tennis Channel and that there was no evidence that this differentiation was based on the fact that Tennis Channel was not a part of Comcast. Additionally, there was no evidence presented that Comcast would gain any financial benefit by placing Tennis on that same tier of service as the others, noting that no expert witnesses, or written studies were provided. That lack of evidence of any potential financial game was crucial in the court's determination. So, the court essentially rejected the FCC's emphasis on the similarities of the programming on the Golf, Versus and Tennis Channels and the disparate treatment of them, without anything more.

There were two concurring opinions. Judge Edwards discussed procedural issues (not the focus here), but Judge Kavanaugh produced an analysis of sec. 616 in terms of antitrust jurisprudence, with a passing reference to First Amendment standards. As to the antitrust issue, he opined that sec. 616 violations should be based on the same standards of proof as antitrust claims involving vertical concentration because sec, 616(a)(3) requires that the FCC enact regulations that prevent the cable operators from discriminatory conduct which "unreasonably restrains" the ability of the unaffiliated service to fairly compete.  In so doing, he found that there was no per se violation and there was no evidence of undue market power on the part of Comcast (a point that is debatable, given the general monopoly nature of cable operators). Therefore such vertical restraints (as found with the connection between Comcast and Golf/Versus) was presumptively pro-competitive.

Judge Kavanaugh then pushes what I think is a speculative connection between antitrust the First Amendment principles. He states: "applying sec. 616 to a video programming distributor that lacks market power would violate the First Amendment as it has been interpreted by the Supreme Court." Cases that generally applied an intermediate scrutiny test that has been upheld by the "monopolistic characteristics" of cable programmers and the need for access. I am not convinced at the connection and there is no specific mention of such a connection in Turner v. FCC,  512 U.S. 622 (1994) which upheld mandatory carriage requirements under an intermediate scrutiny test. He also that technological changes have weakened any undue market power of cable operators, inferring that the today, unlike the 1990s, cable regulations such as sec. 616 would be harder to justify today.

The majority did not wade into this territory, but nonetheless gave Comcast a big win. It would be more difficult for independent sports channels to provide discrimination, at least in the DC Circuit.

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