Comcast Corp. v. F.C.C.

• Decision Date: 28 August 2009
• Docket Number: No. 08-1114.,08-1114.
• Citation: 579 F.3d 1
• Parties: COMCAST CORPORATION, Petitioner National Cable & Telecommunications Association et al., Intervenors v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents CCTV Center for Media & Democracy et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

579 F.3d 1

COMCAST CORPORATION, Petitioner National Cable & Telecommunications Association et al., Intervenors v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents

CCTV Center for Media & Democracy et al., Intervenors.

No. 08-1114.

United States Court of Appeals, District of Columbia Circuit.

Argued April 24, 2009.

Decided August 28, 2009.

On Petition for Review of an Order of the Federal Communications Commission.

Miguel A. Estrada argued the cause for petitioner. With him on the briefs were Theodore B. Olson, David Debold, Tyler R. Green, Helgi C. Walker, Eve Klindera Reed, Arthur J. Burke, and David P. Murray.

Mark D. Schneider argued the cause for intervenors National Cable & Telecommunications Association et al. in support of petitioner. With him on the briefs were Michelle A. Groman, Bruce Douglas Sokler, Robert G. Kidwell, Howard J. Symons, Daniel L. Brenner, Neal M. Goldberg, Michael S. Schooler, Henk J. Brands, Wesley R. Heppler, and Robert G. Scott, Jr.

Michael E. Glover, Edward Shakin, William H. Johnson, Patrick F. Philbin, and Gregory L. Skidmore were on the brief for amicus curiae Verizon Communications, Inc. in support of petitioner.

W. Kenneth Ferree was on the brief for amicus curiae the Progress & Freedom Foundation in support of petitioner.

James M. Carr, Counsel, Federal Communications Commission, argued the cause for respondent. With him on the brief were Deborah A. Garza, Acting Assistant Attorney General, Catherine G. O'Sullivan and Robert J. Wiggers, Attorneys, Matthew B. Berry, General Counsel, Federal Communications Commission, Joseph R. Palmore, Deputy General Counsel, Richard K. Welch, Deputy Associate General Counsel, and Joel Marcus, Counsel. Daniel M. Armstrong, Associate General Counsel, entered an appearance.

Andrew J. Schwartzman argued the cause for intervenors CCTV Center for Media & Democracy et al. in support of respondent. With him on the brief was Harold Feld.

Before: GINSBURG and KAVANAUGH, Circuit Judges, and RANDOLPH, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge GINSBURG.

Separate opinion concurring except as to Part II.C filed by Senior Circuit Judge RANDOLPH.

GINSBURG, Circuit Judge:

Comcast Corporation and several intervenors involved in the cable television industry petition for review of a rule in which the Federal Communications Commission capped at 30% of all subscribers the market share any single cable television operator may serve. We agree with Comcast that the 30% subscriber limit is arbitrary and capricious. We therefore grant the petition and vacate the Rule.

I. Background

The Cable Television Consumer Protection and Competition Act of 1992 directed the FCC, "[i]n order to enhance effective competition," 47 U.S.C. § 533(f)(1), to

prescrib[e] rules and regulations ... [to] ensure that no cable operator or group of cable operators can unfairly impede, either because of the size of any individual operator or because of joint actions by a group of operators of sufficient size, the flow of video programming from the video programmer to the consumer.

Id. § 533(f)(2)(A). The Commission is to "make such rules and regulations reflect the dynamic nature of the communications marketplace." Id. § 533(f)(2)(E).

Several cable operators immediately challenged certain provisions of the Act, in particular arguing the subscriber limit provision was facially unconstitutional as a content-based restriction of speech. See Daniels Cablevision, Inc. v. United States, 835 F.Supp. 1 (D.D.C.1993), rev'd in part sub nom. Time Warner Entm't Co. v. United States (Time Warner I), 211 F.3d 1313 (D.C.Cir.2000). We "conclude[d] that the subscriber limits provision is not content-based." Time Warner I, 211 F.3d at 1318. Applying "intermediate, rather than strict scrutiny," id., we upheld the relevant provision of the Act because the plaintiff "ha[d] not demonstrated that the subscriber limits provision is on its face either unnecessary or unnecessarily overburdensome" to speech protected by the First Amendment to the Constitution of the United States, id. at 1320.

In 1993 the Commission first exercised its rulemaking authority and set the subscriber limit at 30%. Much has changed in the subscription television industry since 1993: The number of networks has increased five-fold and satellite television companies, which were bit players in the early '90s, now serve one-third of all subscribers. Meanwhile, the FCC has twice changed the formula it uses to determine the maximum number of subscribers a cable operator may serve, but the subscriber limit has always remained at 30%.

In 2001 we considered a petition for review of a then newly revised version of the 30% subscriber limit. Time Warner Entm't Co. v. FCC (Time Warner II), 240 F.3d 1126 (2001). Then, as now, the Commission established the subscriber limit through an "open field" analysis, in which the agency "determines whether a programming network would have access to alternative [video programming distributors] of sufficient size to allow it to successfully enter the market, if it were denied carriage by one or more of the largest cable operators." Fourth Report and Order and Further Notice of Proposed Rulemaking, 23 F.C.C.R. 2134, 2143, 73 Fed. Reg. 11,048 (2008) (Fourth Report). In Time Warner II we described the formula then used by the FCC:

[T]he FCC determines that the average cable network needs to reach 15 million subscribers to be economically viable. This is 18.56% of the roughly 80 million ... subscribers, and the FCC rounds it up to 20% of such subscribers. The FCC then divines that the average cable programmer will succeed in reaching only about 50% of the subscribers linked to cable companies that agree to carry its programming, because of channel capacity, programming tastes of particular cable operators, or other factors. The average programmer therefore requires an open field of 40% of the market to be viable (.20/.50 = .40).

Finally, to support the 30% limit that it says is necessary to assure this minimum, the Commission reasons as follows: With a 30% limit, a programmer has an open field of 40% of the market even if the two largest cable companies deny carriage, acting individually or collusively.

240 F.3d at 1131 (internal citations and quotation marks omitted). As is apparent from this description, in order to use the open field approach, the Commission must assign values to three variables: (1) The "minimum viable scale," which is the number of viewers a network must reach to be economically viable; (2) the relevant market, which is the total number of subscribers; and (3) the "penetration rate," which is the percentage of viewers the average cable network reaches once a cable operator decides to carry it.

In establishing the subscriber limit we reviewed in Time Warner II, the Commission had sought to ensure a minimum open field of 40% and reasoned that a 30% cap, rather than the seemingly obvious 60% cap, was necessary because the Commission was concerned about the viability of a video programming network if the two largest cable operators denied it carriage. Id. at 1132. We granted the petition because the record contained no evidence of cable operators' colluding to deny a video programmer carriage and "the legitimate, independent editorial choices" of two or more cable operators, id. at 1135, could not be said to "unfairly impede, either because of the size of any individual operator or because of joint actions by a group of operators of sufficient size, the flow of video programming from the video programmer to the consumer," 47 U.S.C. § 533(f)(2)(A). We directed the agency on remand to consider how the increasing market share of direct broadcast satellite (DBS) companies, such as DirecTV and Dish Network, diminished cable operators' ability to determine the economic fate of programming networks. Time Warner II, 240 F.3d at 1134.

On remand, the Commission adopted the current version of the 30% subscriber limit. The Rule here under review was designed to ensure that no single cable operator "can, by simply refusing to carry a programming network, cause it to fail." Fourth Report, 23 F.C.C.R. at 2154. Based upon the record before the court in Time Warner II, the subscriber limit under this standard could not have been lower than 60%. 240 F.3d at 1136. Based upon the present record, however, the Commission concluded no cable operator could safely be allowed to serve — mirabile dictu — more than 30% of all subscribers. Plus ça change, plus c'est la même chose?

In re-calculating the minimum viable scale, the Commission relied upon a study's finding regarding the number of viewers a cable network needed to reach in order to have a 70% chance of survival after five years, using data on the survival of cable networks between 1984 and 2001. Fourth Report, 23 F.C.C.R. at 2162. Based upon the study, the FCC found the minimum viable scale was 19.03 million subscribers, about four million more than the agency had found were necessary in 1999.

To determine the total number of subscribers, the FCC counted all cable subscribers and DBS customers, totaling approximately 96 million (up from 80 million in 1999). Id. at 2166-67. In re-calculating the penetration rate, the Commission observed, "many, if not most, new cable net-works are placed on a digital tier. A consequence of being placed on a digital tier versus one of the basic levels of service ... is a much lower penetration rate." Id. at 2163. Using an in-house study of the tiering and subscribership data for a sample of cable operators and a linear regression model, the Commission determined the penetration rate of the average network was 27.42%, or slightly more than half the 50% penetration rate it found in 1999. Id. at 2164.^*

From these data, the Commission calculated that a video programming network, to be viable, required an open field of 70% (up from 40% in 1999). Therefore, no...