The Fox/Cablevision Retrans Mess And FCC Learned Helplessness — The Insanely Long Version

[This is a much longer, wonkier version of a post I did on the Public Knowledge blog, for those who can’t get enough explanation of Section 325.]

I feel a good deal of sympathy for FCC Chairman Julius Genachowski over the ongoing fight between Fox and Cablevision. My brother the educator likes to say that “responsibility without authority is trauma.” Or, in other words, if you are responsible for something, but don’t actually have the authority to do anything about it, then the only thing you can do is suffer when things go wrong. So it is for Genachowski and Fox/Cablevision — under the FCC’s current rules. But here’s the funny thing. The FCC actually has fairly strong statutory authority to take action. So while Genachowski is in a bind, he can actually fix the problem. He even has a vehicle all teed up and waiting in the form of Public Knowledge’s Petition to change the “retransmission consent” rules (I’ll explain what those are below).

So how on Earth did the FCC get reduced from the “cop on the beat” to pathetically tweeting the playoffs? The answer lies with over 15 years of deliberately learned helplessness and rulemaking that I can only charitably describe as auto-castration. Twice, in 1992 and 1999, Congress explicitly directed the FCC to make sure that broadcasters don’t abuse the retransmission consent negotiation process (or as we telecom policy wonks like to call it, “retrans”). Each time, the FCC went out of its way to develop rules that systemically divested itself of all capability to act. So although Congress gave the FCC the job of consumer protection cop, the FCC kept angling for the job of “palace eunuch” to the Media Barons. For 15 years, the FCC has loooooovvvved its job as Palace Eunuch for the Media Barons, wearing a very impressive Palace Eunuch uniform with those great big baggy pants and the cute little fez and toy sword it waves impressively when it tells members of the public to move along and stop trying to hold big media companies accountable for their public interest obligations.

Happily for Genachowski, he can trade in the silly, baggy Eunuch pants for bold, powerful “man pants” the Republican women keep talking about as the fashion accessory for the season. Or Genachowski could do nothing, which will give him time to go shopping for a nice pair of those little pointy shoes with the bells on the toes to go with the baggy Eunuch pants.

Wonky legal details below . . . .

“I will explain. No, that would take too long. I will sum up.” — Inigo Montoya, The Princess Bride

The problem for understanding media policy is that you are jumping in on the nth iteration of a lot of illogical nonsense that has been bubbling along for 75 years. So my effort to sum this up briefly runs slightly over 8 pages. Unfortunately, the details are important, so please bear with me.

OK, Start Explaining. What’s Retransmission Consent?

Until 1992, cable operators could pay a mechanical license to the copyright holder of programming and retransmit the broadcast signal of any station. Notably, this money did not go to the broadcast licensee. Our broadcast system operates under the idea that broadcasters get these valuable federal monopolies to transmit on certain frequencies in exchange for providing service to the public — notably in the form of free broadcasting. Broadcasters are “trustees of the public airwaves” with a responsibility to “operate in the public interest” yadda yadda yadda. While folks may snicker, broadcasters never tire of pointing all this out and waxing eloquent about it anytime they want favors from the federal government (which does not stop them from getting all Uber Free Market when they want to get derregulated, consistency not being a particularly valuable virtue here in the Sausage Factory). So cable operators would pick and chose whether to carry a local broadcast station and the local broadcast licensee got nothing for its troubles. OTOH, if cable operators decided not to carry a broadcast station, it lost half its audience.

In 1992, Congress — which still thought of itself as having a responsibility to protect consumers and stuff — decided reign in the more obnoxious cable monopoly habits and passed the Cable Act of 1992. Along the way, broadcasters convinced Congress that they needed to protect helpless local broadcasters (which actually used to exist back then) by creating cable “must carry.” Under this rule, a local station can tell the cable operator “carry me!” and the cable operator has to do it. OTOH, broadcasters also complained that for popular television stations, it was unfair to allow cable operators to get the broadcast signal for free. Why, when broadcasters get free licenses so they could do free broadcasting did they suddenly deserve to get paid for the retransmission of their broadcast signal (as distinct from mechanical royalties paid to actual copyright holders)? Good question. Apparently Congress got a good enough answer, because they responded by creating “retransmission consent.”

Congress modified Section 325 (47 U.S.C. 325) to require that before any cable operator or other subscription television provider (usually referred to as a “multichannel video programming distributor” or “MVPD”) can retransmit the broadcast signal of a commercial full-power broadcast licensee the MVPD must first obtain the consent of the broadcaster. So if the broadcaster does not elect “must carry,” the cable operator or other MVPD must negotiate with the broadcaster to get access to the signal.

So How Did The FCC Get Into This?

There seems to be a lot of confusion these days about how administrative law and Congressional delegation of authority to agencies actual works, so bear with me while I restate the obvious. When Congress passes a law that delegates authority to an agency, it wants the agency to actually have authority to implement the law and deal with things. This goes back to a time when we believed that Congress couldn’t possibly keep up with everything and therefore relied on “expert agencies” to implement the broad authority Congress gave it. So when Congress passed the 1992 Cable Act, it actually intended that the FCC should have authority to implement the statutory provisions and carry them out. In fact, Congress insisted — as one of the reasons Congress passed the 1992 Cable Act was because the FCC kept doing nothing other than stare blankly whenever consumers screamed about how awful their cable service was.
So in Section 325(b)(3)(A), Congress told the FCC in no uncertain terms to have a freaking rulemaking to implement the retrans law. Congress also explained to the FCC that it has a responsibility to consumers in formulating the retrans regulations:

The Commission shall consider in such proceeding the impact that the grant of retransmission consent by television stations may have on the rates for the basic service tier and shall ensure that the regulations prescribed under this subsection do not conflict with the obligation under Section 623(b)(1) [47 U.S.C. 543] to ensure that the rates for the basic service tier are reasonable. (emphasis added)

That seems pretty clear, at least to us lawyers who speak lawyer speak, that Congress wanted the FCC to set up a retrans system that — while not overly intrusive — had at least some safeguards to protect consumers in case broadcasters tried to leverage their newly-given right to extract humungo payments that cable providers would pass on to customers as rate increases. For one thing, Congress used “shall,” which in legislative speak means it is not discretionary and the FCC does not have a choice. The rules need to “ensure” that retrans doesn’t make the basic service tier rate “unreasonable.” Period. No question about it.

So how did the FCC handle this direct command from Congress to set some safeguards in the retrans rules? In the Order implementing the whole “must carry/retrans” scheme, 8 FCC Rcd 2965 par 176-78, the FCC pretty much gave this a pass. The three paragraphs addressing this Congressional mandate to set some safeguards for consumers boil down to the following:

(1) We really don’t know how this whole “retrans market” thing is going to work out.
(2) We don’t really have any evidence in the record to figure it out.
(3) We have authority to regulate rates directly under Section 623, so we really don’t need to do anything here.
(4) Lets go back to staring blankly ahead.

Mind you, the FCC’s “lets see how it all turns out” rationale was at least plausible in 1993. More to the point, the FCC NEVER said it didn’t have actual authority to make rules governing retrans to keep basic tier rates reasonable. One would expect, therefore, that if the FCC started to see evidence of retrans issues impacting basic tier service rates (ahem!), it would revisit its 1993 decision to wait and see how the “retrans market” evolves — especially since the Telecom Act of 1996 essentially eliminated the FCC’s ability to regulate the basic tier rate directly, thus eliminating the primary safeguard the FCC relied on to keep the basic tier rate reasonable in 1993.

So Where Did This Whole “The FCC Lacks Authority To Actually Do Anything” Come From?

For that, we must flash forward to 1999. By now, a number of the changes imposed by the 1992 Cable Act, such as the program access rules, made it possible for Direct Broadcast Satellite (DBS) service to launch. But DBS providers ran into problems negotiating for the right to carry broadcast signals. Sometimes the problem was that the local broadcaster was being a little piggy. Sometimes it was that the DBS provider did not want to carry a station that wasn’t a major network affiliate. Sometimes it was that local broadcasters had signed deals with local incumbent cable companies not to consent to allow a competitor to retransmit their signal. The FCC, of course, did what it did best — stare blankly ahead. Occasionally, they would muster a slightly puzzled or irritated look when someone came around asking them to actually do something about the problem. But that was pretty much it.

So in 1999, Congress passed the Satellite Home Viewer Improvement Act of 1999 (SHVIA). Of relevance here, Congress further amended Section 325 by adding Section 325(b)(3)(C). This section prohibited exclusive contracts for retransmission consent and required broadcasters to negotiate retransmission consent agreements in “good faith.” (This provision was originally set to expire in 2006, but Congress kept extending it, and it is now set to expire on Dec. 31, 2014, because 4 years from now we will have sooooo much more competition that we won’t need any kind of regulation to ensure good faith retrans negotiations).

The FCC issued an Order implementing the new “good faith” negotiation requirement in 2000 (15 FCC Rcd 5445). It is, in its own sick and twisted way, the Good Faith Negotiation Order is a true work of art — an apex of regulatory auto-castration. The Order employs misdirection, false analogies, nonsequitors masquerading as reasoned conclusions, and statements that are just outright outrageous to reach the conclusion that Congress passed a law, directed the FCC to create rules implementing it, but intended to deny the FCC the authority to actually do anything to enforce the law. You read through this and you find yourself muttering things like “labor law? labor law!?! How the heck did the FCC decide that retrans negotiations are like labor law? And even if Congress intended “good faith” to mean the same thing here — rather than what it means in the much more closely related Section 628 of the Communications Act — how the heck did the FCC conclude that Congres intended the FCC to treat negotiations between multibillion dollar media companies that have impact on millions of consumers like some freakin’ labor contract dispute?” Mind you, if you pointed this out the FCC staff during the rule making, they would resort to staring blankly at you.

For those who accuse me of being too harsh with the FCC media staff of a decade ago, allow me to quote the two critical paragraphs of the Order involving remedies. Keep in mind when reading this that Congress delegated the FCC general authority to enforce the provisions of the Communications Act, including Section 325.

Par. 81 of the Order states:

Congress did not empower the Commission to sit in judgment 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. (emphasis added)

In other words, the FCC concluded that (a) Congress had reason to believe that broadcasters might not negotiate retrans in good faith, i.e., that the broadcaster might not actually try to reach an agreement; (b) Congress wanted broadcasters to negotiate retrans in good faith; (c) So Congress told the FCC to make sure broadcasters negotiate in good faith; but, (d) the only thing Congress authorized the FCC to do if it found a broadcaster negotiating in bad faith is to order it to keep negotiating. Furthermore, Congress intended that the FCC would never require the broadcaster to actually reach an agreement, even though refusal to reach an agreement is the very definition of negotiating in bad faith.  Of course, the fact that this is exactly what a broadcaster negotiating in bad faith would want — endless, never ending negotiations — only re-enforces the FCC’s certainty that there can be no other possible reading of the statute. Makes perfect sense, right?

Of course, you could ask the FCC “If Congress wanted broadcasters to negotiate in good faith, why did they strip the FCC of any authority to enforce the requirement or force an agreement? Did Congress think that a broadcaster negotiating in bad faith would magically change its mind because the FCC said ‘you are so negotiating in bad faith! Not acceptable!’” But if you ask, the FCC will stare blankly at you, perhaps favoring you with a vaguely puzzled look.

But even the auto-castrating genius of Par. 81 pales before the utter in-your-face self-contradiction of the next paragraph. For Paragraph 82 alone, the 2000 Good Faith Negotiation Order would deserve a spot in the Auto-Castration Hall of Fame:

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). (emphasis added)

Did you notice how the highlighted sections totally contradict each other? How the last sentence totally contradicted the first sentence? It takes real cojones to be that blatant about how you’re cutting off your own cojones. For those whose eyes glazed over during all the legalbabble (which is what lawyers use in place of technobabble), allow me to summarize:

“Because the specific statute (Sec. 325 (b)(3)(C)) does not explicitly give us authority, we decide we have no authority, even though our general authority to punish people for violating our rules would actually give us authority — if we wanted to have it, which we don’t.”

It is from this fetid piece of results driven legal “analysis” that the myth that the FCC “lacks authority to deal with retransmission issues” was born, despite the fact that even in this Order the FCC conceded that yes, it actually does have authority. Because, as the Commission well understands — and indeed relies on for just about every other statute, which I suspect is why the FCC’s General Counsel made them stick that last sentence in — Congress gave the Commission broad general authority to make rules and punish people who make these rules. That’s how big, comprehensive statutes like the Communications Act work. Section 4(i) says the FCC “may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this Act, as may be necessary in the extension of its functions.” Section 303(r) gives the Commission authority to “make such rules and regulations and prescribe such restrictions and conditions, not inconsistent with law, as may be necessary to carry out the provisions of this Act.” Section 501 provides that anyone “who willfully and knowingly omits or fails to do any act, matter, or thing in this in this Act required to be done” — such as fail to negotiate retrans in good faith — may be fined up to $10,000. Section 502 permits the FCC to punish anyone who “willfully and knowingly violates any rule, regulation, restriction, or condition made or imposed by the Commission under the authority of this Act” $500 a day.

But despite these and other provisions giving the FCC general authority to enforce the provisions of the Communications Act, its own rules, and to regulate the conduct of broadcasters, the 2000 Good Faith Negotiation Order determined that for the good faith negotiation requirement of Section 325(b)(3)(C) — uniquely in all the provisions of the Communications Act — the failure of Congress to explicitly authorize the FCC to rely on the general authority Congress gave it CAN ONLY MEAN that Congress intended for the FCC to have NO AUTHORITY WHATSOEVER to require good faith negotiation or punish broadcasters that negotiate in bad faith (except for the last sentence of Par 82 finding that the even the FCC understands that the entire preceding paragraph is total baloney, but we hope by sticking it at the end no one will notice).

Mind you, even if you can accept the Good Faith Negotiation Order logic without your heading exploding, and bring yourself to utterly ignore the last glaring sentence of Par. 82 which shows that even the FCC knew it was lying out its ass, that would not address the FCC’s authority under Section 325(b)(3)(A), which (as you may recall from several pages back) requires the FCC to regulate the retransmission consent process to “ensure that the rates for the basic service tier are reasonable.”

Has Anyone Pointed This Out To The FCC Lately?

Funny you should ask. My employer Public Knowledge and New America Foundation, backed by a bunch of cable companies and other subscription television providers (Rule 1: when you take on the Media Barons, always bring a posse), filed a Petition with the FCC asking the FCC to review its retrans rules. We asked the FCC to modify the rules to reflect the current marketplace realities and give the FCC tools to protect consumers when the retrans fights rage out of control.

So What Happened?

The FCC put the Petition out on public notice. It’s MB Docket No. 10-71, if you want to follow it at the FCC. Unfortunately, last time I did the rounds at the Commission, folks were insisting they did not have authority to do anything and that Congress needed to pass yet-another-statute to tell the FCC that yes, really, we want you to use the authority we already granted you to enforce the law we passed to address precisely the situation we have with Fox/Cablevision. I tried to explain they actually do have authority, but they –

Just Stare Blankly At You With A Vaguely Puzzled Look?

Yeah.

So What Can Genachowski Actually DO then?

Genachowski certainly has a weak hand at the moment, given the total lameness of the FCC’s existing rules. But he’s not helpless. Genachowski could act pursuant to Section 325(b)(3)(A) and Section 403 and find that the FCC must take action to “ensure” that Cablevision’s basic tier rates remain “reasonable.” That action could include a requirement to go to mandatory arbitration and/or ordering Fox to permit Cablevision to retransmit its broadcast signal while negotiations continue.

But I doubt Genachowski even has to go that far. I imagine that if Genachowski said: “Wow, this retrans stuff really seems to be getting out of hand. We should include PK’s Retrans Petition on the next agenda meeting,” that Fox would suddenly become a heck of a lot more reasonable. I suspect it would be a heck of a lot more effective than tweeting the World Series.

Think Genachowski Will Go For It?

Beats me. All we can do here at Wetmachine is –

Stay tuned . . . . ?

Yup.

Stay tuned . . . .