Contract Clauses Hinder Pay-TV Efforts to Show ESPN Tying
Privacy clauses in contracts hinder pay-TV companies from showing the FCC and Congress that cable programmers, including ESPN, require the purchase of their online offerings along with their cable channels, pay-TV executives said. Non-disclosure provisions in subscription TV carriage contracts mean groups including the American Cable Association, National Telecommunications Cooperative Association and Organization for Promotion and Advancement of Small Telecommunications Companies (OPASTCO) have a harder time making their case, they told us.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
But a Disney executive said ESPN doesn’t force any company to carry some channels or content to get other programming. “We don’t force anybody to carry anything. Period,” said Executive Vice President David Preschlack of Disney & ESPN Media Networks. “We've testified as much at the FCC, but for whatever reason it keeps coming up.” A USTelecom representative said it’s unclear whether the FCC has authority over subscription video site ESPN360.com, unlike the clear-cut authority it has over withholding of channels owned by cable operators from rivals (CD Aug 27 p7). A spokesman for the NCTA declined to comment.
“These agreements are always cloaked in confidentiality, big block letters in the back of the agreement: ‘You, cable operator, shall not disclose under penalty of legal action,'” said President Matt Polka of the American Cable Association. “That has a bite to it, because a small cable operator weighing business decisions knowing that they need to carry the valuable must-see programming of the content holder, they sign it.” The commission, Government Accountability Office or congressional committee should issue subpoenas so the contracts’ terms can be disclosed, he said. “I don’t think Washington is really going to get it, to really see the harm to consumers that we see everyday, until they really pierce the veil” of secrecy.
The NTCA hasn’t surveyed its members on ESPN360.com’s business practices and even if it did it wouldn’t be able to tell regulators or legislators which programmers engage in allegedly anti-competitive conduct, said Vice President Dan Mitchell. Non-disclosure agreements prevent trade groups, “from just doing basic surveys,” he said, “absolutely” making it harder for his group and others to demonstrate what’s occurring. “It’s chicken and egg with these NDAs,” said Steve Pastorkovich, OPASTCO business development director. “It makes it impractical to bring this evidence to light. The only way to do it is with a filing or a procedure that is not economical, it’s the classic case of Goliath having David over the barrel.”
The groups also complained that ESPN360.com makes ISPs pay a fee for every broadband subscriber to have access to the site regardless of whether customers want it, in order to provide the access to anyone. Although ESPN can’t force small and mid-sized cable operators and telcos to distribute ESPN360.com, because the site has popular content the distributors often pay up and must pass on the cost to all broadband subscribers, the executives said. “Our prices will go up and we will have a hard time getting our take rates up,” said President John Rose of OPASTCO. “We think that the person who takes broadband ought to have access to the applications, to the content, to whatever legal content they can get. This flips the model and puts the cable-television model on the Internet.”
There would be no way to pay for the 3,500 live events shown annually on ESPN360.com without charging a company for all of its broadband subscribers to have access to it, said Preschlack. “You wouldn’t see those live events online if it weren’t for our business model,” with the site available to about two-thirds of all U.S. fast-Internet subscribers, he said. “Certain groups are trying to procure this very valuable content for free for their constituents,” Preschlack said. “The licensing arrangement that we have with ISP providers has nothing to do with any other arrangement that we have with any other distributor.”
But executives of the ACA, NTCA and OPASTCO said they've heard otherwise from members, though they have no documentation of such tying. Distributors are told that, if they refuse to pay for ESPN360, “then their access on the subscription video side to ESPN and their related channels is jeopardized and that’s must-have content,” said Pastorkovich. “Neither the consumer nor the carrier has a choice in this.” ESPN360 often isn’t “a choice, but rather it is a demand of Disney based on continued carriage of other ESPN linear programming that cable operators want,” said Polka.
USTelecom believes ESPN360 is “fundamentally different than in the case of vertically tied programming because there is no direct use of this content for potentially anticompetitive purposes here” since the programmer isn’t also a pay-TV provider, said Vice President Glenn Reynolds. “It’s obviously a very different framework and [you have] much more complex legal issues here [and] FCC jurisdictional issues here. Does the commission have legal jurisdiction over ESPN here because ESPN is not a cable carrier or a broadcaster?”