FOR FCC RECORD ONLY //$ Letter, Gospel Music Television, DA 95-57//$ /$ 76.922(d)(3)(x) Rates for the basic service tier and the cable programming services tier /$ January 17, 1995 DA 95-57 Released: January 18, 1995 Mr. Harold Brown, President Gospel Music Television Network, Inc. 216 East Camden-Wyoming Avenue Camden, DE 19934 Dear Mr. Brown: This is in response to your letter dated November 16, 1994, asking that we amend a waiver of Section 76.922(d)(3)(x) of our rules granted previously by the Commission to the Gospel Music Television Network ("GMT"). That subsection requires cable operators to offset revenues received from programmers against programming costs in measuring programming expenses that may treated as external costs. First, you seek an extension of the waiver from the permitted five months to a total of 12 to 36 months. Second, you ask permission to pay operators sales commissions based on the amount of home shopping sales in each operator's zip code area rather than on the number of each operator's subscribers, as prescribed in GMT's Waiver Letter. For the reasons described below, we will grant in part and deny in part your request. In support of your request that we extend GMT's waiver of offset requirements to a total of 12 to 36 months, you first note that the Commission possesses broad powers to grant experimental authorizations to develop marketing and other information toward the provision of new video or other services. Second, you point out that we granted GMT's waiver subject to the same conditions as that governing a similar waiver granted previously to MTV Networks, Inc. ("MTV"), including the five month limitation. You argue, however, that the shopping experiments of MTV and GMT fundamentally differ in that MTV is an established network with approximately 58 million subscribers while GMT has not yet launched its service. You thus argue that GMT requires a waiver of more than five months in order to generate viewership sufficient for GMT to follow through on its "new idea" to a "logical conclusion." The Commission agrees that any waiver of offset requirements granted to GMT must provide GMT with sufficient opportunity to achieve its purpose, namely, to gather constructive data on the potential for home shopping of Christian products, as indicated in your letter. We are convinced that the previous waiver we granted to GMT of five months duration will not be adequate given your projection that you will not have a valid sample size of viewers until four months after your initial launch date. We note that you indicate in your letter that, assuming GMT launches service on January 15, 1995, the "logical starting point for [the home shopping] test" will be May 15, 1995, or four months later, because GMT will not be able to enlist a number of subscribers sufficient to properly conduct its marketing test until that date. Therefore, we will extend your waiver of offset requirements to a total of nine months, commencing upon GMT's introduction of home shopping programming. We have arrived at this period by adding five months, or the period initially granted to GMT as well as to MTV, to the four-month period you state GMT requires before it can logically begin its marketing experiment. We believe that tailoring your waiver in this manner will remove any remaining constraints on your ability to conduct the experiment. In support of your request that we change the manner in which GMT may calculate the home shopping sales commissions, you again argue that the Commission has erred in placing restrictions on GMT's waiver based on the conditions and restrictions related to MTV's shopping experiment. Specifically, you assert that by requiring GMT to calculate sales commissions on an equal share per subscriber basis, as required of MTV, the Commission failed to recognize the "unique ability" of GMT, presumably to pay sales commissions based on sales amounts in each operator's zip code area. Finally, you argue that GMT's experiment will not cause harm to subscribers because the amount of commissions resulting from GMT's home shopping programming will be less than those generated by MTV's experiment. The offset requirement of Section 76.922(d)(3)(x) of our rules is designed to protect subscribers' interests by assuring that any operator expenses permitted to be passed-through to subscribers as external costs reflect only the operator's net costs of obtaining programming. Notwithstanding that purpose, we determined in GMT's Waiver Letter that, given several important pre-conditions of your proposal and subject to certain restrictions, GMT's home shopping experiment would not be detrimental to consumers and therefore warranted a brief, limited waiver of offset requirements for a period of five months. In requiring GMT to pay cable operators sales commissions on an equal share per subscriber basis, rather than based on sales commissions in each operator's zip code area, we again emphasized that this restriction helps to assure that GMT's proposal is not intended as a permanent plan to compensate operators for carriage of GMT. We believe that payment of sales commissions based on a cable operator's level of participation in the shopping test (i.e., sales amounts in the operator's area), without being subject to offset requirements, may undercut the purpose of Section 76.922(d)(3)(x) of our rules that requires offsetting of launch or carriage incentives paid by programmers to operators. We believe that requiring sales commissions from experimental part-time home shopping programming be based on an equal per subscriber share serves to protect subscribers' interests in fair rates by helping to ensure that the ultimate purpose of the payments is not simply to provide operators with compensation tied to their carriage of the program service or their level of participation in the market test. We note, however, that our existing rules permit new program services to reimburse cable operators for verifiable and reasonable promotional expenses associated with introducing the new program service. The reimbursements must be part of a reasonable marketing plan and it must not appear that the operator and the programmer have significantly altered reimbursement practices primarily in order to avoid offsetting. The Commission traditionally weighs the potential benefits against the potential detriments when considering requests for waivers of our rules, and seeks to place reasonable boundaries on the scope of any such waivers in order to ensure that the waiver is narrowly drawn and consistent with the statutory policy of the Cable Act. In the context of requests for waivers of the offset requirements under our cable service rate regulations, we have repeatedly noted the potential harm to subscribers of allowing operators to receive sales commissions without having to offset those payments when calculating subscribers' rates. In this light, we believe that the restrictions on your waiver described above achieve the necessary balance among the interests of subscribers, operators, and programmers. Accordingly, we will grant in part and deny in part your request for amendment to the waiver of Section 76.922(d)(3)(x) granted November 14, 1994 by the Commission to GMT. Sincerely, Meredith J. Jones Chief, Cable Services Bureau