FCC Makes Leased Access Rules More Cable Operator Friendly, Opens the Door to Eliminating Them

On June 7, 2019, the Federal Communications Commission ("FCC" or the "Commission") released a Report and Order ("R&O") revising the Commission's rules under which independent programmers may lease cable TV channels to retransmit their programming ("Leased Access Rules"). Leased Access has rarely been used, due to concerns by both cable operators and programmers, and the recent revisions may make Leased Access even less attractive to programmers. Furthermore, in a Second Further Notice of Proposed Rulemaking ("FNPRM") attached to the R&O, the Commission seems to be opening up a proceeding to eliminate the Leased Access Rules in their entirety based on the widespread availability of Internet platforms for distribution of video programming.

Congress established commercial leased access as part of the Cable Communications Policy Act of 1984 (1984 Act). Cable operators are required to set aside capacity for use by unaffiliated programmers. Cable operators with more activated channels are required to set aside a greater number of leased access channels than those cable operators with fewer activated channels. Congress created commercial leased access to "promote competition in the delivery of diverse sources of video programming and to assure that the widest possible diversity of information sources are made available to the public from cable systems in a manner consistent with growth and development of cable systems."

In addition to establishing a requirement to set aside channels, Congress subsequently required the Commission to adopt maximum reasonable rates that cable TV operators could charge for providing Leased Access. The Commission created complex rate rules whereby operators had to calculate the "average implicit fee" that they charge other programmers for channel space. These rates were never satisfactory to cable operators (who claimed the rates were too low to recover their full costs), or to programmers, who generally thought that the rates were too high to make leasing economically feasible. As a result, there has been little actual use of Leased Access, to the chagrin of potential programmers, and the satisfaction of cable operators.

In 2008, the Commission revised the rules to, among other things, modify the rate formula to lower rates for many programmers, and shortened the deadline for cable operators to respond to access requests from programmers. The Office of Management and Budget ("OMB") declined to approve the rules, finding that the FCC had failed to make the required showings under the Paperwork Reduction Act. As a result, the rules remained in limbo for almost 11 years. Implementation of those new rules was then stayed as a result of an appeal in the U.S. Court of Appeals for the Sixth Circuit, and that stay remained in effect until now. (The FCC is now asking the Court to dismiss the appeal as moot.) In addition, The FCC's recent R&O addresses the pending remand and OMB disapproval by vacating the 2008 Order.

The recent R&O modifies the existing Leased Access rules:

• The Commission eliminated the requirement that cable operators make Leased Access channels available on a part-time basis. Instead, they may choose to lease channels only to programmers that purchase channel capacity on a full-time basis for at least a one-year contract term. The Commission concluded that the costs to cable operators from part-time leasing are not outweighed by the rates recovered.
• The Commission revises section 76.970(i) of the rules to provide that all cable operators, and not just those that qualify as "small systems" under that rule, are required to respond only to bona fide requests from prospective leased access programmers. "Bona Fide Requests" are those from a prospective programmer that include: "(i) the desired length of a contract term; (ii) the anticipated commencement date for carriage; and (iii) the nature of the programming." In essence, the Commission extended this relief from small operators to big ones.
• In response to those bona fide requests, the Commission also extended the timeframe within which cable operators must respond to prospective leased access programmers, from 15 calendar days to 30 calendar days for cable operators generally, and from 30 calendar days to 45 calendar days for operators of small systems.
• The new rules also permit cable operators to impose a maximum leased access application fee of $100 per system-specific bona fide request, payable before the operator must respond to the request, but the rules also require cable operators to provide potential leased access programmers with contact information for the person responsible for leased access matters.
• The R&O deems as reasonable under the Commission's rules, a security deposit or prepayment equivalent of up to 60 days of the applicable lease fee. This has been a heated issue for years, with programmers claiming that unnecessarily high deposits (and insurance requirements) are barriers to entry, and cable operators claiming that they need reasonable protection in the case of programmers who fail to pay lease fees once their programming is carried. The Commission refused, however, to give cable operators the right to charge "closing fees" upon finalization of a lease, or to refuse to enter into an agreement with a programmer that had previously been dropped for non-payment. The Commission also refused a proposal by programmers to enact a specific limit on the amount of insurance that programmers must have as part of the leasing arrangement.
• The R&O declined to require cable systems to carry Leased Access programs in high definition (HD) format and declined to require operators to carry Leased Access programming on only a portion of their system (and thus reduce lease fees).

The new rules will be effective July 22, 2019, except for the requirement that cable operators provide contract information for leasing requirements and a new 30-day deadline for cable operators to respond to complaints, both of which must be approved by the Office of Management and Budget.

The First Amendment, and the Future of Leased Access

Any government regulations that require a speaker (here, a cable TV operator) to deliver the content of others (here, independent programmers seeking Leased Access) triggers First Amendment freedom of speech concerns. But, as the R&O explains, "[w]hen leased access was first mandated in 1984, consumers had access only to a single pay television service, and Congress and the courts recognized cable's monopoly power in this regard. Today, in contrast, the marketplace has become far more competitive. Media platforms, including online platforms that programmers can utilize for free to distribute their content, have multiplied. As a result, consumers are able to access video programming via means other than traditional broadcast and cable television, and the Internet is widely available for this purpose." According to the cable operators and the Commission, we must now recognize that with the presence of YouTube, Facebook, Vimeo, Roku, and Apple TV, along with proprietary websites and apps, cable TV no longer has the same dominant position as a platform for programming. Thus, cable operators and the Commission have called for a re-evaluation of whether the impact of Leased Access requirements on cable operators' First Amendment rights is still necessary to promote the stated governmental interest in promoting competition and diversity through the distribution of programming from independent programmers.

In the FNPRM, the Commission seeks comments (due July 22, 2019, with replies due August 5) on this First Amendment question, but in reality, the R&O explicitly endorses the position that Leased Access Rules can no longer be justified under the First Amendment. So, while commenters are invited to argue otherwise, it certainly appears that the FCC or at least its majority will conclude in the next Order in this proceeding that the Leased Access rules must be eliminated.

Please contact us if you have questions about the Leased Access rules.