Leased Access Reform Hits A Major Speed Bump.

I had hoped to be able to tell all my friends at the National Conference on Media Reform in the beginning of June about the fantastic opportunity to put independent progressive programming, minority-oriented programming, and local programming on cable when the new rates and improved rules for cable leased access became effective June 1. Unfortunately, due to a decision by the Federal Court of Appeals for the Sixth Circuit granting the cable request for a stay pending resolution of the challenges to the rules, that won’t happen. While not a total loss (the Sixth Circuit rejected the NCTA’s motion to transfer the case to the D.C. Circuit) and not preventing programmers from trying to take advantage of leased access now, this is a serious bummer for a lot of reasons — not the least of which is the anticipated crowing by the cable guys (ah well, we all endure our share of professional hazards).

But mostly, I am disappointed that the cable operators will continue to withold the real rates under the new formula. As part of the stay request to the FCC (and subsequently to the 6th Cir.), the cable operators had submitted affidavits claiming that under the leased access rate formula adopted by the Commission, the new rate would be FREE!!! and they would have to drop C-Span and any other programming you like as a result. Since the cable operators always claim that the impact of any regulation is that they will need to charge higher rates, drop C-Span, stop deploying broadband, etc., etc., I am not terribly inclined to believe them this time and had looked forward to either their releasing real rates or putting programmers on for free. But since cable operators uniformly refuse to make the new rates available before the new rules go into effect (another reason I disbelieve the “the rate will be zero” claim), and because they control all the information relevant to the rate calculation, I can’t actually prove they are blowing smoke. Now it looks like we will have to win the court case (which will likely take a year or more) before we find out the real leased access rates.

Mind you, leased access had already hit a few roadblocks, owing to the inexplicable delay in sending the rules to the Office of Management and Budget (OMB). Although the rules were approved in November ’07, released on February 1, 2008, and published in Fed Reg on February 28, the order was not sent to OMB for the mandatory review under the Paperwork Reduction Act until April 28. I might almost think the cable folks in the Bureau were less than enthusiastic about supporting leased access reform. OTOH, since it also took the broadcast enhanced disclosure rules a a few months to get to OMB, it may just be the natural slowness of the process. After all, by federal law, the carrier pigeons used to take the text in little scraps from FCC across town to OMB can fly no more than two flights a day.

But to return to the critical point, what does the court ruling mean for leased access reform and the hope that local programmers, progressive programmers, minority programmers and others could have an effective means of routing around the cable stranglehold on programming?

See below . . . .

Sadly, while the Cable Show began with a rebuke by the D.C. Circuit for overreaching, it ends with the cable guys dodging a bullet yet again — at least for now.

How We Got Here

First, allow me to bring folks up to date. As regular readers may recall, at the November ’07 FCC cable smackdown meeting, the Commission adopted an Order changing the rules for cable leased access. As I explained awhile back when this came up, federal law requires that cable operators set aside up to 15% of their capacity to lease to independent programmers on a first come first serve basis. Under the law as modified in 1992, the FCC is supposed to set a price and terms of service that make this a useful way for independent programmers to get around the cable chokehold on what programming to pass through to subscribers. Previous FCC’s, being primarily interested in “servicing” the cable industry rather than regulating it, did a fairly crappy job implementing it — as my employer Media Access Project observed at the time. So, despite the fact that I hear constant complaints from people wanting to offer progressive programming, minority-oriented programming, local programming, and other forms of programming not offered by cable, very few entities have taken advantage of leased access (in fact, most people have never even heard of it). True, PEG provides some relief, but not if you want to offer commercial programming or if there is no available PEG capacity. As a result, the primary users of leased access (who use only a fraction of the capacity mandated by Congress as available under leased access) are low power television broadcasters (who use it as a substitute for must carry), religious broadcasters, infomercial users, providers of adult content, and a bunch of intrepid independent programmers trying to do local or independent programming despite the high prices and roadblocks the cable operators keep throwing in their way. (You can find out more at the Leased Access Programmers Association.)

Mind you, the cable guys dispute this. They argue that the economics for leased access just doesn’t work. The usual model is that cable networks charge license fees for carriage, which they need to survive because advertising alone won’t pay the cost of producing decent quality programming. Of course, cable operators also say that if you lower the rate too much they will be swarmed with leased access programmers and they will need to drop C-Span, local news channels, and anything else you might actually want to watch to make room for all the perverts and infomercials. But consistency is not not required when lobbying the FCC or Congress.

So when the FCC moved forward with a rulemaking, we pushed hard for real changes that could make a difference. And, owing to the confluence of circumstances that include Democrats interested in promoting programming diversity and a Republican Chairman willing to believe cable operators have market power, we got a 3-2 vote for an Order that dramatically lowered the rate (from an average of about 45 cents/subscriber to a maximum of 10 cents/subscriber unless the cable operator can demonstrate that the cost of providing leased access is higher) and went a long way (although not as far as we wanted) toward curbing the abuses of cable operators. (More details on what the Order actually said further down.) The Order was released February 1, published in Fed Reg February 28, and various parties challenged in various circuits. We went to the Sixth Circuit (where our client United Church of Christ is), the National Cable Telecommunications Association (NCTA) went to the D.C. Circuit, and a few others filed as well. We won the lottery and the cases were consolidated in the Sixth Circuit, whereupon NCTA filed a motion to send it all back to the D.C. Circuit because: (a) the D.C. Circuit had reviewed the two previous cases on leased access, albeit over ten yeas ago and this case had no relationship to the previous cases; (b) whatever injury UCC or other programmers and would-be programmers claimed to sffer, it could not possibly compare to the injury done to cable operators by the new FCC rules; and, (c) the new rules are all part of an evil vendetta by Kevin Martin against the cable industry, so this case should be consolidated with the other Kevin Martin evil vendetta cases.

The NCTA also sought a stay of the rules, first from the FCC and then from the Sixth Circuit. NCTA argued that: (a) they were clearly going to win (you need to argue that you are likely to win to get a stay) because the FCC’s order was obviously a violation of the statute and violated due process because the FCC did not publish the proposed rules for comment; (b) if the Order goes into effect, NCTA will suffer irreparable harm because under the new rate formula, the rate will be free, cable operators will drop C-Span and any other good channels you can think of, and the only thing on television will be real estate infommercials, pornography, and people speaking in tongues; (c) the leased access programmers aren’t going to suffer any real harm by staying the rule changes because the rules are already so wnderful; and, (d) therefore the public interest favors a stay until the court gets this all straightened out. NCTA’s motion was subsequently joined and supported by cable operators, telcos like Verizon, and a bunch of cable programming nets like C-Span. And, as usual, the cable ops claimed any regulation was a violation of their First Amendment rights.

Needless to say, MAP and others filed oppositions. We argued: (a) The cable operators will lose because they failed to exhaust their administrative remedies by not filing a Petition for Reconsideration first, especially with regard to their argument that the rate will be free; (b) even without that, they will lose anyway because the rule changes are reasonable, supported by the evidence, and do not violate either the relevant statute or the First Amendment; (c) while the cable guys think they are the end all and be all of the universe and no one else matters, we think our getting ripped off or substantially blocked from providing programming is a mucking big injury; and therefore, (d) it would not serve the public interest to grant a stay.

What Do the New Rules Actually Require, Anyway? How Could the Rate Be ‘Free?’

Under the Order the FCC released at the beginning of February, the FCC adjusted the rate from the “average implicit fee” (where you determine the rate based on the average licensing fee for channels on a per subscriber basis) to the “marginal implicit fee” — which used the lowest quartile to determine the cost. The implicit fee idea was adopted by the FCC back in 1993 when it first had to come up with something, and is based on the notion that the price cable operators pay for programming is a reflection of the value of the programming. By taking the average of the lowest quartile of programming rather than the average of all programming, the Commission reasoned that the price will be more stable and more accurately reflect true cost rather than the additional value of “must have” programming. As a further protection against manipulation and funny math by cable ops, the Commission also capped the rate at 10 cents a subscriber (average cost is around 45 cents/sub, with variances going much higher to a low of 13 cents/sub). However, recognizing that this was only a proxy for cost and that real cost might be higher than 10 cents/sub, any cable operator can opt to set a higher rate if it can prove to the Media Bureau that the cost of providing leased access is more than what would be legal to charge under the formula.

The cable operators claimed that taking the bottom quartile of programming to determine the “marginal implicit fee” would yield a rate of zero because, apparently, cable operators don’t pay for this programming. I should point out that this comes a big shock to those of us who keep hearing that cable rates are going up because of programming costs, although recently Comcast abandoned even this pathetic fig leaf and admitted they just raise prices because they can. More precisely, cable operators claim that because they do big deals with programmers over large bundles for a lump sum it is impossible to give the specific price of the lowest rated channels in the bundle and the FCC’s new rules therefore treat that as a licensing fee of zero. Again, this rather severely undercuts the argument that cable rates rise because ESPN costs so much, since apparently assigning the entire licensing fee to ESPN and assigning a cost of zero to ToonDisney5 is a fiction for purposes of accounting. But hey, it’s not like anyone is likely to remember what the cable guys say in sworn statements when the subject of cable rates comes up again.

The order did not explicitly prohibit any of the abusive practices we complained about, such as randomly moving programmers from one channel to another, only offering digital tier instead of letting leased access programmers choose a tier, although it did require cable operators to include information in electronic programming guides wherever feasible. Rather, the Order requires that cable operators treat leased access programmers in a way comparable with other programmers. Since that still allows cable ops to put leased access programmers up in digital Hell somewhere around channel three-zillion, we were not happy.

What the Court Did

So yesterday, the Sixth Circuit issued its ruling on the NCTA motion to transfer to the D.C. Circuit and the motion to stay the FCC’s rules. The court rejected the transfer motion, but granted the stay motion. The order is pretty terse, coming to about five pages in all (I’ll post a link when I have one), so teasing out substance from the ruling is difficult — which is not atypical of such orders but is annoying for those of us stuck with them.

On the transfer motion, the court found that just because the D.C. Circuit reviewed the previous leased access cases didn’t mean they had a permanent lock on all leased access cases. This is an entirely separate proceeding, so the usual rules apply. The court also rejected the Kevin Martin conspiracy argument and the argument that only the cable operators matter with the brusque statement that NCTA failed to prove that any cable cases pending before the D.C. Cir. are sufficiently related to warrant transfer, and the NCTA’s preferences for the D.C. Cir. “do not support a transfer.”

Moving on to the stay motion, the court recounted the four factors for a stay: likelihood of success on the merits, possibility of irreparable injury, effect of a stay on other parties, and general public interest considerations. The court also recounted the arguments given for a stay by the cable cos and the reasons for opposition provided by us.

The court concluded that NCTA was not barred from filing because it had failed to file a Petition for Reconsideration. Although the court did not indicate whether specific arguments were or were not precluded by a failure to raise them before the FCC, the court concluded that “the FCC had an opportunity to pass on many of the objections raised by NCTA, and that NCTA has raised some substantial appellate issues.” The court also concluded that the NCTA had “demonstrated some likelihood of irreparable harm” and that “[t]he balance of the harms and the public interest, as well as NCTA’s potential of success on the merits, supports a stay pending review of the FCC’s order.”

The court concluded by ordering the clerk “to expedite these appeals for submission to the court.”

So What Does It Mean?

In the short term, it means that the new leased access rates, the rules preventing the abuse of leased access programmers, and the reporting requirement that cable operators provide regular statistics on how leased access is used on their systems is on hold. Orders like this are not generally subject to review or appeal, and there is nothing in the language of the Order that suggests that any evidence of current abuse or game playing by cable ops toward leased access programmers is likely to change the court’s mind. So the stay will likely stay in effect until we win the case — assuming, of course, we win.

More longer term, it clearly shows that the court is somewhat sympathetic toward the cable position and thinks they have some real arguments to raise on appeal. Obviously, it would have been a lot better from my perspective if the court had told the cable operators to get over themselves and denied the stay.

In the silver lining department, the court’s analysis is pretty tepid, and may reflect nothing more than a preference for maintaining the status quo where significant financial interests are at stake until it has a chance to do a review of the merits. Notably, the court does not suggest that the cable First Amendment arguments weigh heavily or some such that would raise serious concerns. Indeed, the vagueness of the court with regard to the nature of the arguments raised that may prevail may reflect nothing more than a desire by the court to see specific arguments before concluding that NCTA has nothing that it can raise against the Commission.

Also, the fact that the court directed the clerk to expedite the matter shows at least a trace of sympathy for the leased access programmers, in that the court clearly regards the harm suffered by them as requiring a quick resolution of the matter so that if the FCC does prevail, the rules will go into effect sooner rather than later. Given that the 6th Cir. has a reputation for speed, we should hopefully have an answer in less than a year.

OTOH, the court shows little other sympathy for leased access programmers or would-be leased access programmers. And while the court does not quantify NCTA’s “potential for success” other than to say it raises “substantial” arguments, you can’t ignore the fact that a “likelihood of success on the merits” is one of the four factors in granting a stay.

To resort to the inevitable sports analogy, it is rather like losing the opening game in the play offs. It is hardly fatal, but it clearly puts us one down with a need to make up for lost ground in the briefing stage.

Stay tuned . . . .