STELAR Redux: FCC Launches Market Mod Rulemaking

Some old, some new standards likely for MVPD, satellite market modification proceedings, thanks to Congress

When you think of satellite TV, with its nation-wide reach, you may not immediately think of "local" service. But local service is an important element of Sat TV, and the FCC is now developing a way to tweak local TV markets for satellite carriage purposes.

Carriage of a TV station's signal, whether by terrestrial MVPD's or by satellite services (i.e., DISH and DirecTV), is dependent to a significant degree on the market to which the station is assigned. A station's local market affects both its claim to mandatory carriage and the MVPD/satellite operator's ability to take advantage of the compulsory copyright license. But the market to which a station is technically assigned by Nielsen - whose DMAs are used by the FCC to define TV markets for carriage purposes - does not always reflect the station's actual audience. In order to insure the ability of stations to better serve their local communities, the Commission has long provided a process for "market modification", a process by which a station's community of license can be added to or deleted from a particular Nielsen DMA. But that process has thus far been available only with respect to cable carriage.

Now the FCC is proposing a market modification process for satellite carriage as well.

This development doesn't come as a surprise. Late in 2014 (as we reported), Congress passed the STELA Reauthorization Act of 2014 (STELAR), in which Congress spelled out how changes to local stations' markets should be determined for satellite carriage. Congress ordered the Commission to adopt rules implementing Congress's specifications. The FCC's proposal would do just that.

The rules that Congress devised and the Commission has now proposed would treat market modifications in the satellite context largely as such modification have been treated in the cable context. Under current cable market modification rules, the Commission considers four factors in assessing a market mod request:

1. Whether the station, or other stations in the same area, have been historically carried on the cable and/or satellite systems serving the community;
2. Whether the station provides local service to the community;
3. Whether any other station eligible to be carried by the cable or satellite system covers local news and events of interest to the community; and
4. Evidence of over-the-air viewership in the community.

While the proposed satellite rules include these four factors, the proposal also incorporates a few significant changes, some affecting both cable and satellite market modification requests, and some applicable only to satellite market modifications.

First, a fifth factor would be included in both cable and satellite market modification proceedings. That new factor would require the Commission to determine whether the proposed modification would "promote consumers' access to television broadcast station signals that originate in their State of residence." In its Notice of Proposed Rulemaking (NPRM)the Commission tentatively concludes that this establishes a preference for market modifications to add communities where doing so would increase access to in-state programming. The Commission further tentatively concludes that no negative inference should be drawn in cases where the modification would not increase in-state access; in such instances this factor would simply be inapplicable.

Second, STELAR provided that satellite market modifications would not affect any subscribers' ability to receive distant signals. Following that direction, the Commission proposes that viewers previously deemed to be "unserved" for purposes of the distant signal rules would continue to be treated as "unserved" even if a market modification allows those viewers to receive a new "local" signal. In other words, a viewer would still be able to receive the signal of a distant affiliate of the same network of a station added to that subscriber's "local" market by modification.

Third, and potentially most importantly, STELAR provided that, regardless of other factors, a satellite provider would not be required to carry a station if it was "not technically and economically feasible" to do so using its existing satellites. That provision affords satellite operators an obvious opportunity to avoid carriage of stations regardless of any market modifications. Perhaps recognizing that this exception could, if not applied carefully, swallow the entire rule, the Commission proposes a number of conditions that would (in theory) protect broadcasters' ability to enforce market modifications.

In particular, the Commission proposes that the "feasibility" defense will be available only in the context of a market modification proceeding - it could not otherwise be raised to deny carriage requests. Also, the satellite operator will bear the burden of demonstrating that implementing a modification would not be feasible. (In the NPRM the Commission requests comment on what types of evidence should be required to meet that burden.) Further, recognizing that the validity of a "feasibility" claim may be eliminated by eventual technical developments, the Commission requests comment on whether a satellite operator who obtains a "feasibility" exemption should be required to periodically report to the Commission, or the broadcast station, as to whether carriage of the station (pursuant to the market modification) in fact remains infeasible.

In analyzing the four (soon to be five) statutory factors applicable to market modification requests, the Commission has developed a standardized approach, specifying particular evidence that parties requesting (or opposing) modifications must present. The Commission largely proposes to use the same standardized evidence requirements with respect to satellite market modifications, with a couple of modifications. In light of the new fifth statutory factor favoring delivery of in-state programming, the Commission requests comment on whether there is any factual information which would be particularly applicable to that analysis (and which, therefore, proponents should be required to tender).

In what should be a non-controversial proposal, the Commission also proposes to update Section 76.69 (the market modification rule) to refer to the noise-limited service contour (NLSC), rather than the "Grade B" contour. The term "Grade B" contour defines the service area of an analog TV station. For digital stations, the NLSC is the relevant contour. The inclusion of "NLSC" in the rule is thus a housekeeping matter designed to keep the rule current. (Because the concept of "Grade B" contour remains relevant to some LPTV stations, that term will remain in the rule.)

Historically, only two types of parties have been entitled to file market modification proposals on the cable side: the broadcasters and cable operators who would be affected by the mod. The FCC is inclined to keep it that way for satellite proceedings as well, although comments disagreeing with that approach are invited. The Commission does contemplate that local governments, franchising authorities and the like would be able participate - whether in support or opposition - in satellite modification proceedings, even if such entities aren't permitted to initiate such proceedings.

Any party filing a satellite market mod request would be required to serve copies of the request on all "interested parties", a universe that includes any MVPD operator, broadcast licensee (or permittee, or applicant) or anybody else "likely to be directly affected" if the proposed mod were to be granted. The Commission asks whether franchising authorities and/or local governments should be deemed "interested parties" for this purpose. It's especially interested in comments as to whether satellite market modification requests should be required to be served on local franchising authorities, since such authorities have no role in satellite regulation. (Obviously, the same isn't true when it comes to cable.)

The proposed rules would also prohibit a satellite operation from dropping carriage of a commercial station or otherwise altering the status quo during the pendency of a market mod proceeding.

STELAR also authorized the FCC to revisit its definition of "community" for market modification purposes. Historically, that term - or, more precisely, the term "cable community" - has been defined (somewhat circularly) in Section 76.5(dd) of the rules. The same definition has been used for significant viewing purposes in the satellite context although, in areas where there is no pre-existing "cable community", the separate term "satellite community" applies. "Satellite community" is defined as "a separate and distinct community or municipal entity (including unincorporated communities within unincorporated areas and including single, discrete unincorporated areas). The boundaries of any such unincorporated community may be defined by one or more adjacent five-digit zip code areas."

Given Congress's suggestion that the FCC can take another look at the definition of "community", the Commission asks whether it should take the same approach for market modification purposes, i.e., using the "cable community" definition unless no such community is involved, in which event the zip code-based "satellite community" concept would apply. Alternatively, the FCC suggests that it might instead use a zip code-based definition - or some other definition entirely - for all satellite market mods. The Commission's goal is to come up with a definition of community that "will most effectively promote consumer access to in-state programming". Comments on these alternatives are invited.

Comment deadlines in this proceeding have not yet been established. Anyone interested in letting the Commission know their thoughts should check back here for updates.