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FCC wants to shield independent nets from 'unfair' contract clauses

TheFCC is looking for ways to make negotiations between big pay TV providers andsmaller network owners a little easier.

Despitestrong objections from the two Republican commissioners, the FCC on Sept. 29issued a notice ofproposed rulemaking outlining rules that would prohibit the use of certainclauses in pay TV programming distribution contracts.

Inparticular, the proposed rules would prevent pay TV providers from including"unconditional" most favored nation clauses and"unreasonable" alternative distribution method clauses in theircontracts with independent programmers.

Asdefined by the FCC, an "unconditional" MFN clause allows a pay TVprovider to receive the same favorable contract terms that a programmer hasgiven to another distributor, without requiring the pay TV provider in questionto assume any of the obligations stipulated in the other distributionagreement.

DemocraticCommissioner Mignon Clyburn explained that often, a smaller independent programmereager to grow its subscribers will sign an agreement with one pay TV providerwhere the programmer accepts "a lower rate per subscriber in exchange for,say, better channel placement." But then a second distributor will comealong and say that because of that previous deal, this second distributor"will not only take your discounted rate but put your channel in a tierwith just a quarter of the subscribers you thought you negotiating for. Nowjust how fair does that sound?" Clyburn mused.

AnADM clause, meanwhile, generally prohibits or limits a programmer from puttingits programming on alternative video distribution platforms, such as onlinestreaming services.

Notably,in approving the combination of Charter Communications Inc. and , the FCCprohibited the new Charter from seeking or implementing either unconditionalMFNs or unreasonable ADMs in its distribution contracts.

RepublicanCommissioner Michael O'Rielly said he was voting against the proposal notbecause he had no sympathy for smaller operators but because he thought thegovernment should not get involved in private contract negotiations between twobusinesses.

"To argue that these are notfree negotiations because it is an unbalanced negotiating table completelyignores the fact that such circumstances exist in so many other parts of oureconomy," he said, noting that a small business owner trying to get his orher product distributed at Wal-Mart faces similar challenges.

RepublicanCommissioner Ajit Pai, meanwhile, objected because he felt the proposal wasreally an order masquerading as an NPRM.

"This is a notice littered instatements indicating that the commission has already decided many of the mostimportant issues about which we are seeking comment. This is a notice thatdoesn't include many questions that could yield answers the commission mightfind inconvenient. And this is a notice that I cannot support," he said, addingthat he also has concerns that the FCC lacks the legal authority to prohibitunconditional MFNs or unreasonable ADMs.

Despitethese objections, the notice was advanced with a 3-2 vote.

Followingthe news, the American Cable Association saluted the proposal, saying it raisesimportant questions about common industry practices.

"Weare especially glad to hear that the rulemaking solicits comment on variousways that the FCC could curb bundling that prevents small cable operators fromoffering independent and diverse programming to their customers," ACAPresident and CEO Matthew Polka said in a statement.

Inexplaining the close relationship between smaller operators and programmers, hesaid, "Small cable operators and independent and diverse programmers haverecognized that we're individually stronger when supporting the other in themarket, particularly in a market that is increasingly controlled by [a] smallnumber of large players."

Alsoat the Sept. 29 meeting, the commission unanimously to adopt a report and order aimedat streamlining the rules and procedures for broadcast licensees to seekapproval for foreign ownership. Following the order, the rules for broadcasterswill be more in line with those for wireless operators, with broadcast-specificmodifications.

Insupporting the measure, Democratic Commissioner Jessica Rosenworcel noted thattoo often, the laws governing the broadcast sector "have a distinctlyvintage quality." She explained that part of the reason for this isbecause many of these laws were "put in place to prevent foreign powersfrom interrupting ship to shore communications in warfare."

Nowthough, these laws only serve to "create artificial constraints that makeit tough for broadcasters to access funding on a global scale," she said.

Followingthe vote, National Association of Broadcasters spokesman Dennis Wharton saidthe FCC had "taken an important step in allowing broadcasters to morefreely and fairly compete for investment dollars."

OnSept. 29, the FCC also adopted rules to update the Wireless Emergency Alertssystem, which delivers critical warnings and information to Americans on theirwireless phones. The updated rules are intended to promote the wider use andeffectiveness of the service, especially for state and local authorities.

Signaling, perhaps, that a compromise could not be reachedin time, the FCC said ahead of the meeting that a vote on FCC Chairman TomWheeler's set-top box proposal had been postponed.