E. FCC, Courts Affirm Rules To Carry Local TV on Satellites

     In return, however, another provision, codified at 47 U.S.C. Sec. 338,  requires carriers, by Jan. 1, 2002, to carry upon request the signals of all local television broadcast stations in those local markets in which the satellite carrier carries at least one such signal (local-into-local service) pursuant to the statutory license.  SHVIA is intended to allow satellite carriers to compete more effectively with cable television operators.  In 2001 this “carry one / carry all” rule and related must-carry provisions survived court challenges and were reaffirmed by the FCC.

     Satellite carriers, through their trade association, brought a facial constitutional challenge to SHVIA’s must-carry provisions, arguing mainly that they infringe upon the carriers’ First Amendment right to control program content.  In particular, the plaintiffs argued that the government cannot condition a copyright license upon the requirement that carriers retransmit the governmentally favored speech of local television stations.

     In June 2001, a federal district court rejected these claims.  Satellite Broadcasting & Communications Association of America v. FCC, 146 F. Supp. 2d 803 (E.D. Va. 2001).  The court found that neither the language nor the purpose of the challenged provisions is content based, and therefore applied intermediate scrutiny.  On that standard the court ruled that the provisions further important and substantial governmental objectives unrelated to the suppression of free expression.

     These interrelated interests are the same as the basis for the cable must-carry rules upheld in Turner Broadcasting: “(1) preserving the benefits of free, over-the-air local broadcast television, (2) promoting the widespread dissemination of information from a multiplicity of sources, and (3) promoting fair competition in the market for television programming.” Satellite Broadcasting, 146 F. Supp. 2d at 826 (quoting Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 662 (1994)).

     Moreover, any incidental restriction on satellite carriers’ First Amendment freedoms is no greater than necessary to further the government’s interests.  Indeed, “SHVIA’s must-carry obligations are even less burdensome than the cable must-carry obligations upheld in Turner II.”  Satellite Broadcasting, 146 F. Supp. 2d at 827 (citing Turner Broadcasting System, Inc. v. FCC, 520 U.S. 180 (1997)).

     In September 2001, the FCC issued its reconsideration of its original order implementing the must-carry provisions of SHVIA.  In the Matter of Implementation of the Satellite Home Viewer Improvement Act of 1999 - Broadcast Signal Carriage Issues, Report and Order, 16 FCC Rcd. 1918 (2000), Order on Reconsideration, CS Docket No. 00-96, FCC 01-249 (rel. Sept. 5, 2001) (Reconsideration Order).  On reconsideration the Commission took the following actions, among others, in accord with its “attempt to place satellite carriers on an equal footing with cable operators regarding the provision of local broadcast programming.”  The Commission took into account “key distinctions made in recognition of the statutory and practical constraints that result from differences in satellite and cable technologies.”  Reconsideration Order at paras. 1, 5.

Affirmed its rule that satellite carriers carry all non-duplicative noncommercial educational stations in markets where they provide local-into-local service, declining to limit this carriage obligation to only one such qualified station per market.  Id. at paras. 11-12.

Affirmed its rule that this carriage obligation for noncommercial educational stations is in addition to the statutory requirement that satellite television providers preserve 4 percent of their channel capacity exclusively for noncommercial educational or informational programming.  Id. at para. 15.

Denied a request from the Association of Local Television Stations that the Commission prohibit satellite carriers from offering local signals to subscribers individually on an a-la-carte basis at comparable rates as opposed to only as a single, unitary package of all local stations.  Id. at para. 48.

Clarified that satellite carriers must have a good-faith, reasonable basis for rejecting a broadcast station’s request for carriage, and cannot shift the initial burden to the station requesting carriage to prove it is entitled to carriage.  Id. at para. 61.

     In early December 2001, the U.S. Court of Appeals for the Fourth Circuit issued its opinion in consolidated cases raising various constitutional challenges to SHVIA, including appeal of the district court’s June decision in Satellite Broadcasting.  In an especially clear, thorough, and informative analysis, the court held that the carry one / carry all rule is constitutional and that the FCC’s a-la-carte rule is not arbitrary, capricious, or contrary to law.  Satellite Broadcasting & Communications Association of America v. FCC, 275 F.3d 337 (4th Cir. 2001).

     The Fourth Circuit began by noting that, unlike cable systems that operate locally, satellite television is primarily a national service.  As the court described current technology, each of the two satellite companies, EchoStar and DirecTV, can carry between 450 and 500 channels across the country.  Every such channel is beamed to all subscribers, with those channels an individual subscriber does not pay to receive blocked out by software in the subscriber’s home satellite equipment.  See id. at 345, 359.

     There is, however, a difference in the technological channel capacity of cable and satellite that accounts for the difference in their must-carry provisions.  The satellite companies cannot accommodate all of the country’s roughly 1,600 local broadcast stations (distributed over about 210 distinctly defined television markets in the United States).  If satellite carriers could simply exercise a station-by-station copyright license, free of any mandatory carriage obligations, they could “cherry-pick” the stations they wanted in each local market.  This likely would result in their carriage of only the major network affiliates in as many markets as possible from the largest to the smallest as capacity allows. 

     Congress was concerned about the adverse effect on non-carried stations and their audiences.  Congress thus adopted the carry one / carry all rule so that a satellite carrier would have to pick up an entire local market where the carrier wished to avail itself of the statutory copyright license (rather than negotiated retransmission consent) for a particular station it wanted to carry.  Id. at 350-51. 

     With this helpful background, the Fourth Circuit addressed the two legal issues before it.

     The court began the legal discussion by acknowledging that satellite carriers, like cable operators, engage in speech protected by the First Amendment when they exercise editorial discretion in choosing the menu of programming they offer subscribers.  The carry one / carry all rule is a government attempt to influence that discretion and so is subject to First Amendment challenge.  But, the court noted, this rule impacts fewer speech interests than the cable must-carry rules upheld in the Turner cases.

     The cable must-carry rules burden the speech of cable programmers (and their audiences) that must be dropped from some cable systems to make room for local broadcast stations.  But satellite carriers do not claim that they have to drop any non-broadcast programmers.  Under the carry one / carry all rule, the only burden on speech is that the satellite carriers are induced to carry a different set of local broadcasters than they would have preferred.  Id. at 353.

     The court thus determined, first, that the carry one / carry all rule is content neutral on its face because its obligation is triggered only by a satellite carrier’s choice to use one economic arrangement -- the statutory license -- rather than another -- a privately negotiated deal -- to transmit certain content.  The rule’s purpose also is not content based, although it benefits primarily independent broadcast stations, because, as the Supreme Court found in Turner, Congress was not favoring particular television programming for its content but merely wished to preserve free, local broadcasting for its intrinsic value.  Thus, the court applied intermediate First Amendment scrutiny under O’Brien.

     Relying again on Turner, the Fourth Circuit summarized the government’s interest as “preserving a multiplicity of broadcast outlets for over-the-air viewers.”  Id. at 352.  The question then became whether this interest is materially advanced by the carry one / carry all rule. For this evaluation the court relied heavily on three factual predictions made by Congress: (1) that satellite carriers would soon become a significant force and would drive down cable rates; (2) that without must-carry, satellite operators would refuse to carry many independent stations (a prediction supported by the carriers’ cherry-picking track record); and (3) those independent stations not carried would suffer losses in audience, ratings, advertising revenues, and program quality.  See id. at 358-61.

     The court then determined that the carry one / carry all rule materially addresses a real threat to the government’s interest in preserving a multiplicity of broadcast outlets for over-the-air viewers.  The court agreed with Congress that cable and satellite must be considered together in weighing the cumulative effects of subscription services on broadcast stations.  That analysis easily justified imposing the carry one / carry all rule.

     The court also found the rule justified by a second interest, that of protecting broadcasters themselves (not just their viewers), by preventing satellite carriers from undermining competition in local markets for broadcast television advertising.

     The final part of the O’Brien analysis required the court to find that the carry one / carry all rule is a narrowly tailored means of advancing the government’s two interests.  But here, under Turner, the questions are only whether those interests would be achieved less effectively absent the rule and whether the rule burdens more speech than is necessary to further those interests.  Given the satellite carriers’ conceded desire to cherry-pick local markets if they can, and the fact that SHVIA allows them to choose when and where to become subject to the rule, the court found the rule consistent with the First Amendment.

     Satellite carriers lost their battle against the carry one / carry all rule, but broadcasters lost their argument against the FCC’s determination that carriers can give their subscribers two basic options: buy all local stations in a given market as one package, or buy the individual stations on an a-la-carte basis at comparable prices.  The FCC clarified in its Reconsideration Order that it will not permit subset packages, such as a package of the four major network affiliates.

     SHVIA requires satellite carriers offering local-into-local service to “provide access to [a local television] station’s signals at a nondiscriminatory price and in a nondiscriminatory manner.” 47 U.S.C. Sec. 338(d).  Broadcasters who want all stations in a local market offered only as part of one viewing package argued that, under the Administrative Procedure Act, the FCC’s a-la-carte approach is an unreasonable agency interpretation of the statute’s nondiscrimination requirement.  Applying Chevron analysis, the court found that Congress had not clearly expressed its intentions on this issue but that the FCC’s a-la-carte interpretation of the statute is a reasonable one.  Moreover, the a-la-carte rule is not arbitrary or capricious because the FCC plausibly explained that this rule promotes consumer choice.  Id. at 368-70.

*             *            *

     The Fourth Circuit denied a stay of its ruling pending possible Supreme Court review, so the carry one / carry all rule became effective Jan. 1, 2002.  Following Turner the court broke no new First Amendment ground, but other dynamic industry events may modify the effect of the court’s opinion.

     First, as the court itself recognized, 275 F.3d at 350 n.5, satellite companies may soon develop spot beam satellites with much smaller footprints than their current full CONUS satellites.  This will enable the carriers to reuse their allotted spectrum frequencies in different geographic areas and increase their channel capacity for local-into-local service.  This may make the carry one / carry all rule less of an issue, at least until a significant number of broadcast stations begin transmitting multiple signals in their transition from analog to digital.

     Second, the major issue for the satellite industry in 2002 will be whether EchoStar will be allowed to acquire DirecTV, forming one company with about 90 percent of the national satellite television market.  Significant antitrust concerns threaten approval of the merger, at least as presently structured.  After the Fourth Circuit’s ruling, however, EchoStar may argue that, without spot beam technology, only such a combined company will have the capacity to carry most of the nation’s local television stations, especially as the digital transition proceeds.