******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. 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.) File No. CSR-4873-P ) RAINBOW PROGRAMMING ) HOLDINGS, INC. ) MEMORANDUM OPINION AND ORDER Adopted: September 22, 1997 Released: September 23, 1997 By the Chief, Cable Services Bureau: 1. Corporate Media Partners d/b/a/ Americast ("Americast") and Ameritech New Media, Inc. ("Ameritech New Media") have filed the captioned program access complaint ("Complaint") pursuant to  628(b) and 628(c)(2)(B) of the Communications Act of 1934, as amended ("Communications Act") and  76.1002(b) of the Commission's rules against Rainbow Programming Holdings, Inc. ("Rainbow"). Americast and Ameritech New Media allege that Rainbow has engaged in price discrimination and discrimination in marketing requirements and other terms and conditions in agreements between Rainbow and Americast. Rainbow answered denying discrimination and asking that the Commission dismiss the Complaint with prejudice. Americast and Ameritech New Media, Inc. replied asking for relief without further fact-finding or procedural steps. For the reasons discussed below, the Complaint is granted with respect to claims of price discrimination and discrimination in marketing requirements and dismissed with respect to claims of discrimination in other terms and conditions. I. BACKGROUND 2. Congress enacted the 1992 Cable Act to promote competition, with the view that regulation would be transitional until the video programming distribution market becomes competitive. In enacting the program access provisions, which are codified in  628 of the Communications Act, Congress was concerned about the market power of wired cable companies and vertically integrated cable programmers. The program access provisions were designed to ensure that competition to cable develops and to encourage nascent competition from emerging competitors. Consistent with this purpose, Congress sought to minimize the incentive and ability of vertically integrated program suppliers to favor affiliated cable operators over nonaffiliated cable operators. 3. To achieve this purpose, Congress instructed the Commission, inter alia, to promulgate regulations that prohibit discrimination by a satellite cable programming vendor in which a cable operator has an attributable interest in the prices, terms, and conditions of sale or delivery of satellite cable programming among or between cable systems, cable operators, or other multichannel video programming distributors ("MVPDs") or their agents or buying groups. Congress provided limited exceptions to this prohibition. A satellite cable programming vendor in which a cable operator has an attributable interest is not prohibited from: (i) imposing reasonable requirements for creditworthiness, offering of service, and financial stability and standards regarding character and technical quality; (ii) establishing different prices, terms, and conditions to take into account actual and reasonable differences in the cost of creation, sale, delivery, or transmission of satellite cable programming . . .; (iii) establishing different prices, terms, and conditions which take into account economies of scale, cost savings, or other direct and legitimate economic benefits reasonably attributable to the number of subscribers served by the distributor; or (iv) entering into an exclusive contract that is permitted [if the Commission finds that such contract is in the public interest pursuant to criteria set forth in the statute]. The Commission adopted implementing regulations and explanatory notes in  76.1002(b) of its rules and regulations and set forth procedures for adjudicating complaints in  76.1003. 4. The Commission stated in Implementation of Sections 12 and 19 of the Cable Television Consumer Protection and Competition Act of 1992, MM Docket No. 92-265, First Report and Order ("Program Access Order"), that discrimination exists "when the same or essentially the same programming service is sold to competing distributors at different prices or pursuant to different terms or conditions. Such discrimination is prohibited if not justified under one or more of the specific factors listed in the statute." 5. Before filing a discrimination complaint, an aggrieved MVPD must give the programming vendor notice of its belief that discriminatory behavior has occurred and must include sufficient detail so that the vendor can determine the specific nature of the complaint. In Program Access Order adopting the program access regulations, the Commission stated that complaints failing to include evidence of this notice will be dismissed. 6. The Program Access Order places the burden on the complainant to make a prima facie showing that there is a difference between the prices terms, or conditions charged or offered to the complainant and its competitor by a vertically integrated satellite cable programming vendor that meets the Commission's attribution test. To make this showing, the complainant must establish that: (1) the defendant is a satellite cable programming vendor meeting the attribution standards; (2) the complainant competes with the MVPD to which it seeks comparison; and (3) the vendor has provided or offered different terms and conditions, or different prices to the complainant and its competitor. The complainant can establish different prices, terms, and conditions using a rate card, other generally available information, or the current contract between the vendor and complainant's competitor. If a complainant lacking access to comparative information seeks such information from the vendor by certified mail and is refused that information, it can file a complaint based on information and belief of an impermissible price, term, or condition. 7. To avoid a decision in favor of complainant where the vendor has offered different prices, terms, and conditions to complainant's competitor, the vendor must show either that the difference is justified by the factors set forth in the statute for permitted differentials, or that the complainant and the competitor are not similarly situated. If arguing that the complainant and its competitor are not sufficiently similar, the vendor can state its reasons for this conclusion and submit an alternative contract for comparison with an MVPD it believes is similarly situated to the complainant and that uses the same distribution technology as the competitor selected by the complainant. 8. Ameritech New Media operates cable systems in the Chicago, Illinois and Cleveland, Ohio, markets and in and around Columbus, Ohio (collectively, the "Affected Markets") The parties agree that the franchise areas served by Ameritech New Media are also served by other competing cable operators. Americast, a partnership of telephone company subsidiaries and The Walt Disney Company, acquires, packages, develops, and markets programs, programming services, and other forms of content for distribution over multichannel video distribution systems being constructed and operated by its telephone company subsidiary partners, including Ameritech New Media, an affiliate of Ameritech Corporation. Disney TeleVentures, a subsidiary of The Walt Disney Company, negotiates on behalf of Americast to purchase cable programming. 9. Rainbow is the managing partner of satellite cable programming vendors as defined by the Communications Act and the Commission's rules. SportsChannel Chicago Associates and SportsChannel Ohio Associates (collectively "SportsChannel" and respectively "SportsChannel Chicago" and "SportsChannel Ohio") provide regional sports programming, and American Movie Classics Company ("AMCC") and Bravo Company ("Bravo"), provide national programming. These programming services are available to subscribers of systems competing with Ameritech New Media in the Affected Markets. Rainbow in turn is a wholly owned subsidiary of Cablevision Systems Corporation ("Cablevision"), a "cable operator" as defined by the Communications Act and the Commission's rules, which operates numerous cable systems throughout the United States. Cablevision owns, operates, or manages systems with approximately 2.6 million subscribers, including the Cleveland market communities of Berea and North Olmsted, Ohio in which Ameritech New Media competes. 10. Americast executed affiliation agreements on February 28, 1996 with SportsChannel Chicago on behalf of Ameritech New Media's Chicago market franchise areas of Naperville and Glendale Heights, Illinois and on June 5, 1996 with SportsChannel Ohio on behalf Ameritech New Media's Columbus and nearby Upper Arlington, Ohio franchise areas. On September 6, 1996, Americast executed an amendment to the SportsChannel Ohio affiliation agreement to include Ameritech New Media's Cleveland market franchise areas of Berea and North Olmsted, Ohio. 11. On February 28, 1996, Americast also entered into separate agreements with AMCC and Bravo for carriage of their respective national programming services in Ameritech New Media's Chicago market franchise areas. Those agreements were later amended to include Ameritech New Media's systems in the Cleveland and Columbus markets. 12. In a letter dated October 3, 1996, Benjamin A. Bellinson, Vice President of Network Licensing for Disney TeleVentures, which negotiates program contracts on behalf of Americast, advised Rainbow of his concern about both the SportsChannel rate structure and the marketing requirements in the agreements for SportsChannel and the AMCC and Bravo national services. Bellinson requested rate cards and applicable discounts and comparative marketing requirements for Ameritech New Media's competitors. Neither Rainbow, SportsChannel, AMCC nor Bravo provided this information. On October 30, 1996, Americast President and Chief Executive Officer, Stephen A. Weiswasser, gave Rainbow notice pursuant to 47 C.F.R.  76.1003(a) of Americast's concerns about the rates and marketing requirements for SportsChannel and the AMCC and Bravo national services. After discussions, Rainbow sent a letter to Disney TeleVentures with a proposal that Disney TeleVentures found unacceptable. This program access complaint followed. II. PLEADINGS 13. The Complaint alleges that Rainbow has violated the Commission's program access rules by engaging in prohibited discrimination in prices, terms, and conditions in the sale of satellite cable programming for Ameritech New Media in the Affected Markets. The Complaint alleges that Rainbow uses different prices for SportsChannel programming for Ameritech New Media than for the established operators competing with Ameritech New Media in the Affected Markets, resulting in discriminatory prices. The Complaint also alleges that the SportsChannel, AMCC, and Bravo agreements impose more stringent marketing requirements and other terms and conditions on Americast and Ameritech New Media than on Ameritech New Media's competitors. The Complaint seeks rates for the SportsChannel programming that are equivalent to actual or effective rates paid by competing distributors and terms and conditions in both regional and national programming equivalent to the terms and conditions included in agreements with their competitors. The Complaint is based on information and belief of an impermissible price differential, describes the basis for this belief, and includes supporting affidavits and a statement that Rainbow had refused to provide any further specific comparative information. 14. Rainbow argues that it is not properly a party here because it is not a signatory to the agreements at issue. Rainbow also argues that it has not engaged in prohibited discrimination, although it acknowledges that there are differences in pricing and marketing requirements in the agreements for Ameritech New Media and its competitors. Rainbow admits that it does not incur higher costs to deliver or sell SportsChannel programming for Ameritech New Media as compared to other distributors in the same markets. It explains the pricing difference as an adaptation to its business strategy for maturing video markets, and states that the Complainants are new entrants to the video marketplace that, unlike earlier distributors, have not contributed to developing the value of SportsChannel products. It argues that the Communications Act and the Commission's rules provide programmers "with the flexibility to set its prices, terms, and conditions in any business manner that does not unlawfully discriminate." It further argues that Complainants entered the agreements with full knowledge of the market conditions they faced, accepted the prices after negotiations, and lacked factual support for their claim that they are charged discriminatory rates. Rainbow, therefore, asks that the Commission dismiss the Complaint with prejudice. 15. In reply, Ameritech New Media continues to argue that its competitors receive Rainbow programming on more favorable terms, impairing Complainants' ability to compete effectively and benefit the public. Contending that Rainbow has not justified its pricing practices pursuant to the factors specified in the Communications Act and the Commission's rules, Ameritech New Media argues that "[t]he acid test is that in these circumstances that conduct results in a grossly discriminatory price differential." III. DISCUSSION 16. As a threshold matter, the complainants provided Rainbow with sufficient notice of their concerns about the SportsChannel prices and the marketing requirements in the regional and national contracts to satisfy the notice requirement in  76.1003(a) of the Commission's rules. The notice made no mention of the other terms and conditions addressed in the Complaint and did not afford Rainbow an opportunity to address and resolve any dispute as to those terms and conditions without involving the Commission. For this reason, the Complaint is being considered with respect to charges of price discrimination in the SportsChannel agreements and discrimination in marketing requirements in the SportsChannel, AMCC, and Bravo agreements and is dismissed without prejudice with respect to charges regarding other terms and conditions. Rainbow is cautioned, however, that discrimination in terms and conditions among competing distributors is prohibited if not justified pursuant to the factors provided in  628(c)(2)(B) of the Communications Act and  76.1002(b) of the Commission's rules. 17. Both Ameritech New Media and Rainbow are properly parties to this proceeding. Ameritech New Media, the complaining cable operator, has established that it is a multichannel video distributor competing against established cable operators in the Cleveland, Columbus, and Chicago markets. Americast entered into the agreements at issue here on behalf of Ameritech New Media. Rainbow contends that the complaint was improperly brought against it because it was not a signatory to the carriage agreements at issue and is not a satellite cable programming vendor. Although the complaint should technically have been directed to SportsChannel, Bravo and AMCC, we find no prejudice here. Rainbow admits that it is the managing partner of SportsChannel Chicago, SportsChannel Ohio, AMCC, and Bravo, which it describes as satellite cable programming vendors. According to the Cablevision Systems Corporation Form 10-K, Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1995 ("Cablevision Form 10-K"), Rainbow is a wholly owned Cablevision subsidiary. Cablevision conducts its programming activities through Rainbow and Rainbow subsidiaries in partnership with unaffiliated entities. The Rainbow businesses include SportsChannel services, AMCC, and Bravo. Rainbow officials have negotiated with Complainants about the carriage agreements at issue. Rainbow, as the managing partner of the partnerships that distribute SportsChannel Chicago, SportsChannel Ohio, AMCC, and Bravo, is a satellite cable programming vendor as that term is defined in  628(i)(2) of the Communications Act and  76.1000(i) of the Commission's rules. Because it is a wholly owned subsidiary of Cablevision, it meets the attributable interest standard specified in  76.1000(b) and the notes to  76.501 of the Commission's rules. 18. Rainbow argues that the complaint is facially defective for failing to provide facts, which, if true, would constitute price discrimination, but it acknowledges the disparate pricing treatment and admits the disparate marketing treatment in the agreements for Ameritech New Media and Ameritech New Media's competitors. The dispute here is whether that disparate treatment constitutes prohibited discrimination. Ameritech New Media has satisfied the pleading requirements of  76.1003 of the Commission's rules, and the burden shifts to Rainbow to justify the differences under the criteria set forth in  628(c)(2)(B) of the Communications Act and  76.1002(b) of the Commission's rules. 19. Although acknowledging the disparate treatment of Ameritech New Media and its competitors, Rainbow has not attempted to justify the different prices and marketing requirements under the factors specified in  76.1002(b), as required by  76.1003(d)(6) of the Commission's rules. Rainbow has failed to provide information for evaluating the price differences in the Affected Market communities at issue or any factual basis showing that comparison with a similarly situated distributor other than Ameritech New Media's competitors would be appropriate. Rainbow's proffered explanation for the pricing differences between Complainants and their competitors is that Rainbow is seeking to rationalize its revised business strategy, but Rainbow does not address this explanation to circumstances in the Affected Markets or the factors set forth in  76.1002(b). Rainbow makes a general comparison between new entrants and incumbent cable operators, but does not show why this distinction would affect prices for the systems at issue here. Rainbow admits that there are no cost differences in serving Ameritech New Media and its competitors. It references  76.1002(b) only to make the general argument that programmers have flexibility to set prices in any business manner that does not unlawfully discriminate. 20. Rainbow's arguments regarding the differences in marketing requirements also are unsupported and unresponsive. If Rainbow is relying on Ameritech New Media's status as a new entrant to distinguish Ameritech New Media from its competitors and justify different treatment, Rainbow must show the relevance of this status to one of the four factors in  76.1002(b). Rainbow has not done so. In addition, Rainbow fails to address the magnitude of the differences. A general concern that others have established markets and value for Rainbow's programming from which Ameritech New Media could benefit or that Ameritech New Media might not respond like its competitors does not justify imposing costs on Ameritech New Media not currently not imposed on its competitors. 21. Therefore, Rainbow has failed to offer evidence pursuant to  76.1002(b) that would justify the discrimination in the SportsChannel prices charged to Ameritech New Media for its Cleveland, Columbus, and Chicago market systems. Rainbow also has failed to offer evidence pursuant to  76.1002(b) that would justify the discrimination with respect to the marketing requirements in the SportsChannel, AMCC, and Bravo agreements for Ameritech New Media. Because Rainbow has not justified this discrimination in prices, terms and conditions pursuant to the factors cognizable under the Communications Act and the Commission's program access rules, this discrimination is prohibited. 22. In order to eliminate this prohibited discrimination, Rainbow, SportsChannel, AMCC, and Bravo must revise the programming agreements covering the franchise areas of Naperville and Glendale Heights, Illinois, and Columbus, Upper Arlington, Berea, and North Olmsted, Ohio in the Affected Markets to eliminate differences in prices for SportsChannel programming and marketing requirements for SportsChannel, AMCC and Bravo programming between Ameritech New Media and its competitors that are not justified by the factors in  628(c)(2)(B) of the Communications Act and  76.1002(b) of the Commission's rules. These revisions must be completed within forty-five (45) days of the release of this Memorandum Opinion and Order. V. ORDERING CLAUSES 23. ACCORDINGLY, IT IS ORDERED that the Program Access Complaint, Corporate Media Partners d/b/a Americast and Ameritech New Media, Inc. v. Rainbow Programming Holdings, Inc., CSR- 4873-P, IS GRANTED IN PART AND DISMISSED IN PART as provided herein. 24. IT IS FURTHER ORDERED that Rainbow Programming Holdings, Inc., SportsChannel Chicago Associates and SportsChannel Ohio Associates revise the agreements with Americast and Ameritech New Media, Inc. for Ameritech New Media, Inc.'s cable systems operating in Naperville and Glendale Heights, Illinois; Columbus and Upper Arlington, Ohio; and Berea and North Olmsted, Ohio within forty-five (45) days from the date of release of this Memorandum Opinion and Order in order to provide nondiscriminatory rates or license fees in accordance with the terms of this Memorandum Opinion and Order. 25. IT IS FURTHER ORDERED that Rainbow Programming Holdings, Inc., SportsChannel Chicago Associates, SportsChannel Ohio Associates, American Movie Classics Company, and Bravo Company revise agreements with Americast and Ameritech New Media, Inc. for Ameritech New Media, Inc.'s cable systems operating in Naperville and Glendale Heights, Illinois; Columbus and Upper Arlington, Ohio; and Berea and North Olmsted, Ohio within forty-five (45) days from the date of release of this Memorandum Opinion and Order in order to provide nondiscriminatory terms and conditions with respect to marketing requirements in accordance with the terms of this Memorandum Opinion and Order. 26. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by  0.321 of the Commission's Rules. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau APPENDIX SUMMARY OF CONFIDENTIAL MATERIAL AND CONCLUSIONS This Appendix summarizes and discusses information which the parties have asserted is proprietary and confidential pursuant to 47 C.F.R.  76.1003(h). This information has been redacted from the published item.