In light of Saturday’s announcement that the new joint venture between Comcast Corporation and NBC Universal, Inc. (“Comcast-NBCU”) is open for business, it is an opportune time to consider how this new media force will affect the competitive marketplace for retransmission consent – i.e., broadcasters’ statutory right to obtain compensation for their content by granting or withholding consent to carriage of their programming by cable companies, satellite operators and other multichannel video programming distributors (“MVPDs”). The Comcast-NBCU deal has some strings attached – by virtue of the merger review process by the Federal Communications Commission and the U.S. Department of Justice – that will affect not just Comcast-NBCU but also broadcasters who compete in the video programming marketplace.

First, a few words about these strings.  The FCC’s approval of Comcast-NBCU venture represents only the latest instance of the FCC using its merger review process to advance broader public interest objectives not readily achievable through the FCC’s general rulemaking procedures. This is nothing new. Over the years, the Commission has used its merger-review process to elicit “voluntary” commitments and to impose merger conditions to achieve its goals.  This has been the case regardless of whether Republicans or Democrats comprised the majority of the Commissioners and regardless of any conditions imposed by DOJ. Ask AT&T and BellSouth, for example.

Conditions attached to the FCC’s approval of Comcast-NBCU will affect the marketplace in many ways, particularly given that they will be in place for up to seven years.  That said, focus for now on retransmission consent. The Comcast-NBCU joint venture presents a special case because it combines a distribution network with substantial programming assets, including TV stations, cable channels and a major broadcast network. Many fear that this degree of vertical integration could distort the competitive marketplace through the extensive aggregation of content with distribution. For example, the FCC expressed concern that Comcast-NBCU would attempt to disadvantage rival MVPDs by withholding Comcast-NBCU programming or by raising programming costs.  As a result, the FCC, by conditionally approving the Comcast-NBCU deal, has made clear its willingness to take steps to intervene in the marketplace when it fears that a proposed transaction would increase an entity’s ability and incentive to reduce competition from rival video programming vendors by withholding carriage or imposing unreasonable terms and conditions on carriage deals.

Some of these conditions may have consequences for TV broadcasters other than NBCU. Specifically: 

• Arbitration and Standstill Remedies for MVPDs. Competing MVPDs may negotiate with Comcast-NBCU for access to Comcast-NBCU video programming, but if a dispute arises about prices, terms or conditions, the FCC has deemed that MVPDs may invoke a commercial arbitration process to resolve the dispute. The FCC’s order sets forth a baseball-style arbitration process, and Comcast will be required to continue to supply the programming that is the subject of the dispute until the dispute is resolved. This standstill requirement is designed to preserve the status quo pending resolution of the dispute.
• Network affiliation and retransmission consent remedies. By combining network and distribution assets, Comcast-NBCU raises the potential for interference with the retransmission consent process. As a result, NBCU and Comcast have entered into two agreements relating to network affiliation and retransmission consent.  In the first agreement, Comcast-NBCU have agreed among other things 1) that the NBC Network will be solely responsible for negotiating network affiliate agreements with local NBC affiliates, while Comcast and/or its affiliates will be solely responsible for negotiating retransmission consent agreements with individual local NBC affiliates; 2) nondiscrimination provisions will apply with respect to network affiliation and retransmission consent agreements, 3) Comcast will honor NBC’s agreements to preserve network nonduplication to prevent importation of another affiliate’s broadcast station signal into an NBC affiliate’s market, 4) decisions regarding exclusivity will be left to the NBC Network, 5) in connection with any carriage negotiations between NBC affiliates and Comcast, Comcast is prohibited from applying a direct feed to its systems in the station’s market; and 6) Comcast will not seek repeal of the current retransmission consent regime.  In the second agreement, Comcast has agreed generally to separate its retransmission negotiations from the knowledge and influence of NBCU and to not discriminate against ABC, CBS and Fox affiliates in favor of any NBCU-owned or affiliated station.

So how would the presence of baseball-style arbitration and standstill requirements in disputes among MVPDs affect the market for retransmission consent for broadcasters?  The answer is in the tea leaves.  In applying these conditions to Comcast-NBCU, the FCC is signaling an increased willingness to require arbitration of carriage disputes – arbitration that is not required in the case of retransmission consent disagreements between a broadcaster and an MVPD – and to, via standstill, prevent parties from withholding programming pending the outcome of a carriage dispute.  The arbitration/standstill remedies apply only with respect to MVPD complaints against Comcast-NBCU; however, an ongoing rulemaking proceeding considers whether similar tools should be available in retransmission consent disputes.

This is problematic – mandating arbitration or requiring interim carriage should not be applied to thwart broadcasters’ retransmission consent rights.  Questions have been raised about the FCC’s authority to impose such an arbitration requirement absent Congressional action. The standstill provision however, makes it less likely that agreements will be reached. The incentive to game the FCC process to achieve private contractual advantages will be too great to resist. Contrary to the FCC’s assertions, a standstill is likely to increase the number of disputes that go to arbitration rather than pushing parties towards agreement.

What about the significance of the second set of conditions, relating to network affiliation and the retransmission consent process? One key point is that Comcast will not be allowed to bypass the local NBC affiliates to deliver its programming directly to advantage itself in a retransmission consent negotiation with its affiliates. If allowed, this bypass would effectively reduce Comcast’s incentive to reach an agreement. Time Warner Cable opposed imposition of that condition, and the FCC did not extend it to any other MVPDs. As a result, NBC affiliates now have added bargaining power over Comcast in their retransmission consent negotiations. In addition, the “structural separations” are enforceable conditions that also should benefit other broadcasters in a market – provided that they are Fox, ABC or CBS affiliates – by shielding Comcast’s retransmission consent negotiations with those affiliates from the influence of NBCU.  

Clearly, the FCC is sending a message that it is not willing to wait for failures in the video programming marketplace before taking steps to involve itself in private contractual arrangements.