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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) ) CORPORATE MEDIA PARTNERS ) d/b/a AMERICAST and ) AMERITECH NEW MEDIA, INC. ) ) v. ) CSR 4690-P ) CONTINENTAL CABLEVISION, INC. ) and HOME BOX OFFICE, a division ) of Time Warner Entertainment ) Company, L.P. ) ) Program Access Complaint: Exclusivity) MEMORANDUM OPINION AND ORDER Adopted: March 13, 1997 Released: March 17, 1997 By the Commission: I. Introduction 1. On August 2, 1996, Corporate Media Partners d/b/a Americast ("Americast") and Ameritech New Media, Inc. ("New Media") filed an Application for Review of the Bureau Orderreleased in this proceeding on July 3, 1996 pursuant to Sections 1.115 and 76.1003(p) of the Commission's rules. The Bureau Order denied a complaint filed under the program access provisions of Section 628 of the Communications Act of 1934, as amended, against Continental Cablevision, Inc. ("Continental") and Home Box Office, a division of Time Warner Entertainment Company, L.P. ("HBO"). The complaint alleges that Americast has been denied access to HBO programming for distribution on cable systems in certain Michigan communities through enforcement of a video program distribution exclusivity clause contained in a contract between Continental and HBO, and that such exclusivity clause is prohibited by Section 628. Continental and HBO filed a joint opposition to the application for review on August 19, 1996, asserting that enforcement of the exclusivity clause is permitted by the "grandfather" provisions of Section 628(h). Section 628(h) provides an exemption to the general prohibition against contracts containing program distribution exclusivity clauses, as follows: EXEMPTIONS FOR PRIOR CONTRACTS. -- (1) IN GENERAL. -- Nothing in this section shall affect any contract that grants exclusive distribution rights to any person with respect to satellite cable programming and that was entered into on or before June 1, 1990, except that the provisions of subsection (c)(2)(C) shall apply for distribution to persons in areas not served by a cable operator. (2) LIMITATION ON RENEWALS. -- A contract that was entered into on or before June 1, 1990, but that is renewed or extended after the date of enactment of this section shall not be exempt under paragraph (1). Americast filed a reply on August 29, 1996. 2. The facts giving rise to the instant matter are not in dispute and are set forth in some detail in the Bureau Order. For present purposes, it is sufficient to state that Continental and HBO entered into a Network Affiliation Agreement (the "Affiliation Agreement") in March, 1979 allowing Continental to distribute HBO programming throughout its cable systems. The Affiliation Agreement covers certain Continental cable systems identified in a schedule attached to the Affiliation Agreement. The Affiliation Agreement also contains a clause, referred to as the after- acquired system clause, which permits the inclusion of -- any additional Cable Television System which [Continental] desires to add to [the schedule], so long as [Continental] controls [or] owns at least thirty- three and one-third percent of the outstanding shares of the voting common stock of, or manages and for which [Continental] is willing to and shall undertake full responsibility for all the obligations, representations and warranties of [Continental] set forth in [the Affiliation Agreement]. A 1988 amendment of the contract added a program distribution exclusivity clause granting Continental the right to "be the exclusive wireline distributor of HBO and CINEMAX in its franchise territories for the life of this contract and any extension thereof." The 1988 amendment also extended the Affiliation Agreement through December 31, 1996. The record shows that Continental is the only HBO affiliate that currently has exclusive distribution rights for HBO programming. A 1989 further amendment provided that upon expiration of the Affiliation Agreement, it "shall be automatically renewed for an additional year," i.e., to the end of 1997. 3. Pursuant to discussions Americast initiated in July 1995, HBO offered to provide Americast with distribution rights for HBO programming on its franchised cable systems in Michigan, except in areas served by certain cable systems acquired by Continental through purchases completed in two steps in 1992 and 1995. HBO claimed that the N-COM systems acquired by Continental were entitled to exclusive distribution rights to HBO programming by virtue of the program distribution exclusivity and after-acquired system clauses contained in the Affiliation Agreement between Continental and HBO. HBO took the position that the Affiliation Agreement antedated the cut-off date of June 1, 1990 contained in the grandfather provisions of Section 628(h) and that the program distribution exclusivity clause was therefore exempted from the general prohibitions of Section 628. HBO and Americast subsequently entered into an affiliation agreement limited to areas not served by the N-COM systems. Thus barred from HBO programming in areas in Michigan served by the N-COM systems, Americast filed its complaint with the Commission shortly thereafter. 4. The Bureau Order finds Section 628(h) to be clear and unambiguous and concludes that the Commission is required to give effect to that unambiguous expression. Noting that Section 628(h)(1) states, "Nothing in this section shall affect any contract that grants exclusive distribution rights to any person with respect to satellite cable programming and that was entered into on or before June 1, 1990 . . . ," the Bureau Order finds that Section 628(h) contains a straightforward mandate to the Commission and that there is no caveat with regard to what provisions such exempted contract can and cannot contain. Pointing out that after-acquired systems provisions such as that contained in the instant contract were commonplace throughout the 1980s and are still common today, the Bureau Order states that the Congress easily could have drafted Section 628(h) to limit exclusive contracts to those systems subject to an exclusivity provision as of June 1, 1990 had it so intended, but it did not. Instead, the Bureau Order concludes, Congress "applied Section 628(h) to contracts, regardless of their content, in place as of that date," and parties to an exclusive contract may enforce an exclusivity provision with respect to newly-acquired systems, where the contract included an after-acquired systems provision that was made part of the contract prior to June 1, 1990. 5. The Bureau Order finds further that, because the Affiliation Agreement is exempted under Section 628(h), the public interest criteria of Section 628(c)(4), which apply solely to exclusive contracts entered into after June 1, 1990 in areas served by a cable operator, are inapposite. The Bureau Order also finds that the Affiliation Agreement, as amended and extended, terminates on December 31, 1997, not on December 31, 1996 as Americast contended. II. THE PLEADINGS 6. The application for review states that two questions are presented for review: (1) Whether the grandfather provision of Section 628(h) of the Communications Act immunizes the inclusion in 1992 of after- acquired and previously non-exclusive cable systems within the scope of a pre-1990 grandfathered contract; and (2) Whether a contract extension which, by its terms, is not effective until 1996 is precluded from grandfather protection by virtue of Section 628(h)(2) of the Communications Act. Americast asserts that the application for review presents the issue of whether a new competitive entrant into the cable television markets in Michigan can be denied important programming rights, i.e., access to HBO programming, by virtue of the grandfather provision of Section 628(h). Americast states that the Bureau Order's interpretation of the grandfather provision transforms N- COM systems, which were not subject to any exclusive contractual rights on the June 1, 1990 cut-off date specified in Section 628(h), into exclusive systems from the time of their acquisition by Continental during 1992 and 1995. Americast argues that this interpretation is anti-competitive, contrary to Congressional intent, and in violation of law, and has far-reaching importance for the Commission's statutory mandate to develop and ensure a strong competitive market for the delivery of television programming. 7. Americast argues that the text of Section 628 (h) is ambiguous on whether a program distribution exclusivity clause contained in a pre-June 1, 1990 contract could be extended after June 1, 1990 to cable systems that previously had been served on a non-exclusive basis. It argues further that, even if the Bureau Order were correct that Section 628(h) is not ambiguous, the "plain meaning" rule for statutory construction requires an interpretation that is not out of context and which does not disregard the overall structure of the statutory provision being construed and the basic purposes that underlie its enactment. 8. Americast contends that the focus of the Bureau Order on the plain meaning rule ignores a more directly relevant principle of statutory construction -- that grandfather provisions be narrowly construed. Grandfather provisions are exceptions to otherwise generally applicable statutory provisions designed to enhance the public welfare, and, Americast contends, an overly expansive reading of a grandfather provision such as that adopted by the Bureau Order frustrates the broader remedial purposes of Section 628. Americast asserts that the Bureau Order permits a program distribution exclusivity clause that covered a discrete and identifiable number of cable service areas on the grandfather provision's cut-off date, to be expanded to other cable systems thereafter, without limit, by virtue of the after-acquired system clause of the Affiliation Agreement. Americast argues that this interpretation allows the grandfather provision's exception to the statutory general rule to virtually swallow the general rule, and defeats the otherwise clear and explicit Congressional goal of opening up new competition among cable operators by prohibiting program distribution exclusivity arrangements that deny new entrants access to important programming. 9. Americast also asserts that, even if the Commission concludes that the exclusivity clause may be enforced, those exclusivity rights should expire at the end of 1996, and not at the end of 1997, as found in the Bureau Order. Americast argues that, because such extension will occur by its terms "upon expiration" of the Affiliation Agreement on December 31, 1996, this is a contract extension that occurs after October 5, 1992 (the date of enactment of the 1992 Act), and thus is not grandfathered. Ameritech concludes that Section 628(h)(2) does not permit the exclusivity clause to be enforced during 1997. 10. Continental and HBO support the conclusion of the Bureau Order that the language of Section 628(h) is clear and unambiguous in its exemption of "contracts," and argue that, since the contract, including the 1988 and 1989 additions of the program distribution exclusivity and after- acquired system clauses, was entered into before the June 1, 1990 cut-off date contained in Section 628(h), Continental's after-acquired systems (including the N-Com systems) fall within the protection of the grandfather provision and have Continental's exclusive distribution rights to HBO programming. Continental and HBO contend that Americast's efforts to overcome the plain meaning of Section 628(h) with arguments concerning Congressional intent are without merit. They assert that the plain language of Section 628(h) makes clear that the statute clearly exempts "contracts" entered into prior to June 1, 1990, without any restrictions with regard to after-acquired system provisions. Continental and HBO cite language from the legislative history of Section 628 as demonstrating Congress' belief that grandfathered exclusivity contracts might have pro-competitive effects. Continental and HBO also dispute Americast's argument that the Bureau Order fails to give a narrow reading to the grandfather provisions, arguing that the narrow interpretation rule, "such as it may be," cannot take precedence here over the plain language of the grandfather provision. Finally, Continental and HBO assert that the Bureau Order correctly concludes that the Affiliation Agreement and its program distribution exclusivity clause survive through December 31, 1997. Continental and HBO contend that, even if the language used to effect the contract extension leaves room for doubt, both of them understood in 1989 when it was written that exclusivity was extended through 1997. 11. In reply, Americast acknowledges that Congress clearly indicated that the grandfather provision would not apply in unserved areas (citing Section 628(h)(1)), and created a limited window for grandfathering in served areas (citing Section 628(h)(2)), but argues that, absent an additional restriction to exclude after-acquired systems, the grandfather provision "makes no sense." Americast also argues that the Affiliation Agreement must, in any case, expire on December 31, 1996, not December 31, 1997, as the extension "comes to life" at the end of 1996, and it is this factor, rather than the date of the amendment to extend the Affiliation Agreement, that determines that this extension is invalid under Section 628(h)(2). III. DISCUSSION AND ANALYSIS 12. Section 628 of the Communications Act prohibits certain unfair or discriminatory practices in the sale of satellite cable and satellite broadcast programming. The stated purpose of Section 628 is: to promote the public interest, convenience, and necessity by increasing competition and diversity in the multichannel video programming market, to increase the availability of satellite cable programming and satellite broadcast programming to persons in rural and other areas not currently able to receive such programming, and to spur the development of communications technologies. Section 628(c)(2)(D) required the Commission to adopt regulations which provided that exclusive contracts entered into after June 1, 1990, or revised or extended after October 5, 1992, and applicable to areas served by cable were not strictly prohibited, but could be approved by the Commission if it made a determination that such contract served the public interest, taking into consideration certain statutory factors set forth in Section 628(c)(4). Section 628(h) of the Communications Act sets forth an exemption to the general prohibitions of Section 628(c) to contracts containing program distribution exclusivity clauses. 13. This case presents the question of whether the Bureau Order properly interpreted Section 628(h) in the context of the program distribution exclusivity clause contained in the Affiliation Agreement between Continental and HBO. Resolving this purely legal dispute over the meaning of Section 628(h) begins with the language of that section itself. If the language of Section 628(h) is clear, we must enforce it according to its terms. 14. We begin our analysis by noting that the application for review presents no argument that was not previously considered in the Bureau Order, nor does it suggest that the Bureau Order contains any erroneous findings as to important or material question of fact. Briefly stated, the application for review requests that we reject the conclusions reached in the Bureau Order that the language of Section 628(h) is clear and unambiguous and that the Commission is therefore required to give effect to that unambiguous expression. 15. As the Bureau Order stated, in ascertaining the intent of Congress, the Commission may be guided by Chevron U.S.A., Inc. v. Natural Resources Defense Council, in which the Supreme Court put forth a two-part test for statutory interpretation. In Chevron, the Court said: [f]irst, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. . . . if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute. 16. The application for review fails to convince us that Section 628(h) is not clear and unambiguous. Americast argues that the Bureau Order permits the extension of exclusivity as provided in the Affiliation Agreement to cable systems not now subject to exclusivity. Indeed, the statutory language permits this result. Section 628(h)(1) clearly states: "Nothing in this section shall affect any contract that grants exclusive distribution rights to any person with respect to satellite cable programming and that was entered into on or before June 1, 1990 . . . ." This statutory language provides a clear directive to the Commission. As the Bureau Order stated, if Section 628(h) were interpreted as Americast wishes, we would be construing Section 628(h) as applying not to exclusive "contracts," but to "cable systems subject to exclusive contracts." An interpretation such as is sought by Americast "does not read the words of the statute; it rewrites them." 17. The application for review does not refute the observations of the Bureau Order that after-acquired systems provisions were commonplace throughout the 1980s and are still common today. We agree with the Bureau that, had Congress so intended, it could easily have drafted Section 628(h) to limit exclusive contracts to those systems subject to an exclusivity provision as of June 1, 1990. However, Congress did not do so. Instead, it applied Section 628(h) to contracts that were in place as of that date, regardless of their content. Accordingly, the unambiguous expression of Section 628(h) must be given its intended effect and cannot be trumped by the principle that grandfather clauses should be narrowly construed. 18. In view of the undisputed fact that the Affiliation Agreement between Continental and HBO, as amended and extended from time to time, was entered into before June 1, 1990 and was not amended or extended after October 5, 1992, we affirm the conclusion of the Bureau Order that the Affiliation Agreement is exempted under Section 628(h) of the Communications Act. We also affirm the conclusion that Continental may enforce this exclusivity agreement, and may deny HBO programming to Americast in the affected communities. 19. The Affiliation Agreement was amended in 1989 by a clause in an HBO "Standard Form SGIP Agreement," which stated, in pertinent part, "[i]f the term of the [Affiliation] Agreement currently expires after December 31, 1991, upon expiration of such term, the [Affiliation] Agreement shall be automatically renewed for an additional year." Since the Affiliation Agreement was amended in 1988 to terminate on December 31, 1996, this 1989 clause established a termination date of December 31, 1997. Americast contends that, even if the Affiliation Agreement is grandfathered by Section 628(h)(1), the extension of it contemplated by the 1989 clause is not exempted by the provisions of Section 628(h)(2). Section 628(h)(2) provides, "[a] contract that was entered into on or before June 1, 1990, but that is renewed or extended after the date of enactment of this section shall not be exempt under paragraph (1)." Americast argues that such extension will occur by its terms "upon expiration" of the Affiliation Agreement on December 31, 1996, and that the exclusivity clause cannot be enforced during 1997. 20. We affirm the Bureau's rejection of this argument. The Affiliation Agreement, including both the after-acquired systems clause and the extension clause, was complete prior to June 1, 1990. The one-year extension, to December 31, 1997, occurred when the agreement was amended, in 1989, not when the extension "comes to life" on December 31, 1996. Accordingly, we conclude that the Affiliation Agreement, as amended and extended, terminates on December 31, 1997. Section 628(h)(2) of the Communications Act precludes Continental and HBO from extending the termination date of the exclusivity provision of the Affiliation Agreement beyond December 31, 1997 without first obtaining a Commission determination consistent with the five criteria set forth in Section 628(c)(4) that such extension serves the public interest. Absent such a request and favorable public interest determination, Americast should not be denied access to HBO programming in the affected communities after December 31, 1997. IV. ORDERING CLAUSE 21. Accordingly, IT IS ORDERED, pursuant to Sections 1, 4(i), 5(c), 405, and 628(h) of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 155(c), 405, and 548(h)), that the Application for Review filed by Corporate Media Partners d/b/a Americast and Ameritech New Media, Inc. IS DENIED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary