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FCC Commences Rulemaking Proceeding Regarding DBS Carriage of “Significantly Viewed” Signals

July 29 , 2010
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The Federal Communications Commission (FCC) has issued a Notice of Proposed Rulemaking (NPRM) to implement certain provisions of the “Satellite Television Extension and Localism Act of 2010” (STELA) relating to the carriage by DBS operators of “significantly viewed” broadcast stations. As described below, the changes in the law, as interpreted by the FCC, not only will expand the class of subscribers eligible to receive a significantly viewed signal, but also may make it possible for DBS to provide such signals in circumstances where cable operators, because of network non-duplication obligations, would be unable to do so.

Background: On May 27, 2010, the President signed STELA into law. STELA’s principal purpose was to extend certain provisions of the Copyright and Communications Acts governing the DBS retransmission of distant signals that were scheduled to expire. In addition to extending the expiring provisions, STELA made several other changes to the Communications Act and Copyright Act provisions governing the carriage of broadcast signals by DBS (and, to a lesser extent, cable). Among the provisions of existing law that were modified by STELA were those relating to the carriage of “significantly viewed” signals by DBS.

Significantly viewed signals are out-of-market broadcast stations that the FCC has determined, based on measures of over-the-air viewership, to be considered “local” for certain purposes. In the case of cable television systems, significantly viewed signals have long been treated as royalty free for copyright purposes and also are exempt from having to be blacked out under the network non-duplication and syndicated exclusivity rules. In the case of DBS, significantly viewed status has only been relevant since 2004, when Congress amended the Communications and Copyright Acts to allow DBS to carry significantly viewed signals on a royalty-free basis if certain conditions were met. Both DBS and cable are required to obtain retransmission consent from significantly viewed stations.

While carriage of significantly viewed signals is copyright royalty-free for both cable and DBS, until the enactment of STELA, there were certain limitations imposed on DBS carriage of such stations that did not apply to cable. Specifically, as interpreted by the FCC, the Communications Act permitted DBS operators to carry a significantly viewed signal only if (i) the DBS operator was offering local-into-local service to subscribers in the area where the station was significantly viewed; (ii) the subscriber receiving a significantly viewed network-affiliated station also was receiving the local affiliate of the same network (assuming there was one assigned to the DMA in which the subscriber resides); and (iii) the DBS operator provided the local and significantly viewed signals with “equivalent bandwidth.”

STELA modifies these preconditions for DBS carriage of significantly viewed signals. First, STELA replaces the “equivalent bandwidth” requirement (which was so burdensome that it effectively prevented DBS carriage of significantly viewed signals in most instances) with a provision allowing a DBS operator to carry a significantly viewed network-affiliated station’s high definition signal even during times when the local affiliate is broadcasting in standard definition so long as the DBS operator carries the local station in high definition whenever it broadcasts in such format. Second, and more significantly for cable operators, STELA modifies the language on which the Commission had based its conclusion that only DBS subscribers actually receiving a local affiliate could be provided a significantly viewed station affiliated with the same network.

Significance of Changes. Generally speaking, STELA’s modifications to the provisions of the Copyright and Communications Act regarding DBS carriage of significantly viewed signals will make it easier for DBS to offer such signals to their customers, meaning that cable may lose an advantage it had over DBS in some markets where significantly viewed signals are important. More importantly, however, the changes in the law may not merely give DBS “parity” with cable – in some situation it may give DBS an advantage, particularly in connection with retransmission consent negotiations.

Specifically, under current law, if a cable operator and a local station cannot reach a retransmission consent agreement and there is a significantly viewed affiliate of the same network, the operator in theory can try to play that station and the local station off against each other. DBS operators, until now, have not been able to do this because they could only carry the significantly viewed station if they were actually carrying the local station as well.

Although not without some ambiguity, the FCC’s interpretation of the law as modified by STELA would appear to give DBS operators the right to carry at least a standard definition version of a significantly viewed station even if the local affiliate is not being carried. This will allow DBS operators to counter unreasonable retransmission consent demands from a local station by seeking to cut a deal for carriage of the station with a significantly viewed station. At first blush, this would seem to create greater “parity” between cable and DBS; however, in practice it actually may give DBS a slight advantage in dealing with retransmission consent impasses. This is because broadcasters are increasingly seeking and obtaining waivers of the rule that exempts cable operators from having to blackout significantly viewed stations under the network non-duplication and syndicated exclusivity rules. Such waivers allow the local network affiliate to preserve its retransmission consent leverage vis-à-vis the cable operator since it remains the only source of network programming. In contrast, these waivers do not have any impact on DBS since DBS carriage of network stations is not subject to network non-duplication or syndicated exclusivity blackouts.

The actual extent of the advantage that the changes in the law will convey on DBS over cable is difficult to predict. First, while waivers of the blackout exemption are being sought by broadcasters with increasing frequency, they may not be available in every case. Second, both cable and DBS face the hurdle of obtaining retransmission consent from a significantly viewed station because of contractual limitations imposed on stations by their network affiliation agreements.

Comments on the NPRM are due on August 17, 2010; the deadline for reply comments is August 27, 2010.

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