FOR FCC RECORD ONLY //$ Letter, Black Entertainment Television, DA 94-1473//$ /$ 76.922(d)(3)(x) Rates for the basic service tier and the cable programming services tier /$ DA 94-1473 December 19, 1994 Released: December 21, 1994 Black Entertainment Television, Inc. c/o Maurita K. Coley, Esq. Senior Vice President, Legal Affairs 1232 31st Street, N.W. Washington, D.C. 20007 Dear Ms. Coley: This is in response to your letter of July 11, 1994 on behalf of Black Entertainment Television, Inc. ("BET"), seeking clarification of Section 76.922(d)(3)(X) of the Commission's rules governing offset requirements by cable operators of revenues received from programmers in exchange for carriage on the cable system, as applied to BET's planned new program service called BET on Jazz. You state that, because of a current widespread shortage of channel capacity on cable systems, BET plans to introduce BET on Jazz on a part-time basis until it can secure its own 24-hour channel. You indicate that BET on Jazz, therefore, is considering "piggy-backing" or sharing a single cable channel on some systems with other program services, including shop-at-home services such as the Home Shopping Network and QVC. First, you note that Section 76.922(d)(3)(X) of our rules requires cable operators to offset against programming costs for services any revenues received from programmers in exchange for carriage when calculating costs that may be passed-through to subscribers as external costs. You also note that we have clarified that this requirement may be fulfilled if offsetting is applied on a "channel-by-channel" basis, under which any payments in consideration of carriage from a programmer will be applied to payments from the operator to that programmer. In addition, we stated that, where, as in the case of home shopping services, payments are only made from the programmer to the operator, or, where the payments from the programmer exceed payments from the operator, the operator may receive the benefit of the payments without decreasing or increasing charges to subscribers. You argue, however, that these rulings do not address how a cable operator may fulfill offset requirements when a single cable channel is shared between a home shopping service that generates revenues for the operator and a new, non-shopping program service for which the operator pays a license fee. You assert that if our clarification permitting "channel-by-channel" offsetting is interpreted such that cable operators are required to offset the sales commissions from the incumbent home shopping service against the programming costs for BET on Jazz, and thus are prohibited from passing through the aggregate programming cost of adding BET on Jazz, operators simply will not add the new service. You thus seek clarification that a cable operator introducing BET on Jazz part-time onto a channel on which a traditional home shopping service already is carried, will not become subject to Section 76.922(d)(3)(X) of our rules. The offset requirement of Section 76.922(d)(3)(X) is designed to protect subscribers by assuring that programming costs that may be passed through to subscribers fully reflect any compensation received by the operator from the programmer in consideration of carriage, such as home shopping sales commissions. In our letters permitting regulated cable systems to carry the Home Shopping Network and the QVC Network without offsetting, we stated that, "[u]nder a channel-by-channel offset, any rebates or payments in consideration of carriage from a programmer will be applied to payments from the operator to that programmer, but will not offset payments to other programmers." We now clarify that, where a single cable channel is shared by different program services, the channel-by-channel standard for offsetting may be applied on a programmer-specific basis. Under this approach, the fulfillment of offset requirements by a cable operator with respect to one programmer on a particular channel will not bear on that operator's offset requirements with respect to the other programmer sharing the same channel -- that is -- the program services sharing the same channel may be treated as two distinct channels for purposes of offsetting and pass- through requirements. We believe that this approach will maintain incentives for cable operators to add diverse programming to their service offerings, and will preserve operators' latitude to organize these offerings on their channel line-ups as they see fit given market forces. The underlying purpose of Section 76.922(d)(3)(X) of our rules is to ensure that subscribers pay fair rates based only on cable operators' net costs of obtaining programming. In this light, we are concerned that allowing operators to share a single channel between one program service that generates revenues for the operator and another service for which the operator pays a license fee, without offsetting the respective revenues and costs, could lead to artificially unreasonable rates for consumers if both services are provided by the same programmer. We believe that the results of such an arrangement, in which subscribers essentially would reimburse the operator for fees paid to a programmer while the operator simultaneously receives revenues from that programmer, would be inconsistent with the goals of the offset rule. Therefore, we will limit application of the clarification described in this letter to those situations where the program services sharing the same channel are provided by different programmers, i.e., where the programmers are ultimately controlled by separate and distinct entities. For example, if one party owned a majority of the voting stock in the program service that charges cable operators a license fee, while a different party owned a majority of the voting stock in the company that provides the home shopping channel, we would be satisfied that the sharing of a single cable channel between these program services, without offsetting, would not present a serious risk of harm to consumers. We believe that clarifying our Section 76.922(d)(3)(X) of our rules, as described in this letter, merely extends our prior clarification concerning channel-by-channel offsetting in light of cable operators' practical considerations when arranging their channel line-ups to maximize subscribership and viewership. We further believe that this clarification fairly balances the interests of programmers in securing carriage on cable operators' systems with subscribers' interests in reasonable rates. Accordingly, we clarify that cable operators may share a single cable channel between such home shopping services as the Home Shopping Network or QVC and BET's planned service called BET on Jazz, without offsetting the revenues and the programming costs of the respective services, pursuant to Section 76.922(d)(3)(X) of our rules. We limit this clarification to the conditions described in your letter. Sincerely, Meredith J. Jones Chief, Cable Services Bureau