Cable’s Edge Is Technology, Not Programming, Some Say

Cable industry marketing hasn’t highlighted programming for years, analyst and former industry executive Bruce Leichtman said: “Core programming has not been an advantage for many years because there is no exclusivity.” Technology, such as cable’s ability to offer VoD where DBS can’t, is where cable’s advantage lies, he said. And few customers are willing to sign with a multichannel video programming distributor (MVPD) based solely on the access to one or 2 programming choices, he said. Even NFL Sunday Ticket serves a niche audience, he said.

The just-opened review of FCC program access rules on vertically integrated programming, which force cable operators to sell programming networks they own to competitors, isn’t as high a priority for the industry as something like the ban on integrated security in set-top boxes, a cable lawyer said. The rules sunset in Oct. “It’s important, but people are realistic about what would happen if the rules stay the same for the next few years,” the lawyer said.

Cable operators and programmers aren’t clamoring for exclusivity, the lawyer said: “When DirecTV and baseball start talking about exclusive deals, people kind of get bent out of shape… but exclusivity doesn’t seem to be as important to people and, frankly, the programmers aren’t that interested in it.” Letting the rules expire would signal that the FCC sees how the MVPD marketplace has changed since the 1992 Cable Act, the lawyer said.

Access to quality programs is key for new entrants, a lawyer who supports some extension of the rules said: “If you're an MVPD with crappy programming, you might as well not bother.” Even as program access has expanded the number of affiliates carrying programming, cable operators have invested in programming networks, creating more vertically integrated networks, the lawyer said. Letting the rules expire now could lead to a huge jump in exclusive programming deals, particularly among regional sports networks, the lawyer said: “Clearly there’s a value in the programming, otherwise these distributors wouldn’t be investing.”

Conventional wisdom among many communications lawyers holds that the FCC will keep most program access rules for at least several years, perhaps 5. That hasn’t stopped some from hoping rules will be junked or seeking change. Wild cards in Commission review include VoD programming and Internet video providers, said industry officials. Pay-TV providers are split on what they want the FCC to do. EchoStar wants reform permitting speedier resolution via arbitration of carriage disputes. Comcast officials have said the program exclusivity ban seems unfair since it doesn’t apply to DBS.

Growing use of video on PCs and mobile phones, PVRs and VoD shows new technology eclipsing programming restrictions, Willkie Farr’s Michael Hammer told a Fri. FCBA cable lunch. Bell entry into video intensifies competition, making exclusivity bans a regulatory relic, he said. Verizon has gotten hundreds of municipal franchises for its FiOS fiber TV service, and AT&T is selling U-verse IPTV in 13 markets on a limited basis. “When you've got mobile phones [with video], you've got a fundamentally different market,” Hammer, who has represented Comcast, said: “I think VoD is another factor that rarely gets enough attention.”

Scope of the Rules

Cable operators will have to respond to questions about defining the term MVPD, lawyers said. “Inevitably there will be discussion of scope in this proceeding,” even though the Commission didn’t address it in its notice opening the proceeding, one lawyer said. Virtual Digital Cable, an online start-up that sells monthly subscription service, is hoping to use the program access rules to help it get programming contracts (CD Feb 22 p5). VDC needs the rules to persist if it hopes to benefit from them, the lawyer said: “You can expect VDC or others to jump in on this.”

Redefining MVPD to include web-based services would up the stakes for cable, an industry lawyer said: “If you start redefining what is an MVPD too broadly, it becomes and even greater concern.” It’s unclear how the Commission and Chmn. Martin would come down on such a question, the lawyer said. Cable also will fight attempts to expand the rules in other ways, the lawyer said: “Nobody wants the rules extended into new areas like non-vertically integrated or terrestrially delivered programming.”

Wider use of the Web to distribute video is a reason to keep the ban on exclusive cable programming deals, Media Access Project Pres. Andrew Schwartzman told FCBA: “It certainly argues for maintaining the rules for the foreseeable future.” He and other panelists said they are uncertain how to apply the rules to Internet video distributors. An online video provider should be considered a pay-TV company under FCC rules only if it sells broadcast- quality programming, Hammer said: “This is probably the most interesting question out there: Is it video programming?” The FCC should consider rules, but with caution, he added: “The implications are truly profound if all you have to have is a website” to get program access, so “we have to slow down and pause.” He said it’s unclear how myriad rules would apply to online video companies considered pay-TV providers, including those on programming quality, closed captioning and customer service.

VoD program access remains an area unaddressed by the FCC, agreed the 3 FCBA panelists. Schwartzman said he has asked the Commission for clarification, while EchoStar Law & Regulation Vp Linda Kinney said cable operators should be prevented from withholding VoD content from rivals. “Vertically integrated companies [can] evade the program access rules… where they can have an exclusive arrangement with their affiliated network” to put it on VoD, Kinney said. She called that “stealth discrimination.” Hammer disagreed. “VoD use is growing explosively, and it provides enormous opportunities for programming from new networks,” he said. Independent networks have started out as VoD providers and expanded to full-time cable channels, he said.