E-Alert Case Updates

Time Warner Deemed to have Legitimate Business Reasons for Not Including Mid-Atlantic Sports Network in its North Carolina Cable Distribution

TCR Sports Broadcasting Holding v. Federal Communications Commission, et al.
Case No.: 11-1151 (U.S. Court of Appeals for the Fourth Circuit, May 14, 2012)
by Eric M. Leppo, Associate
Semmes, Bowen & Semmes (www.semmes.com)

In this recently issued Memorandum Opinion from the U.S. Court of Appeals for the Fourth Circuit, the Court determined a decision in favor of Time Warner Cable (Time Warner) by the Federal Communications Commission (FCC) was neither arbitrary nor capricious, and as such, affirmed the agency action.

This case presented a dispute between a cable television provider, Time Warner, and TCR Sports Broadcasting Holding d/b/a the Mid-Atlantic Sports Network (MASN). This dispute was in regard to MASN’s desire to be included in Time Warner’s cable distribution throughout the state of North Carolina. MASN is an unaffiliated regional sports network (RSN) that owns the rights to produce and broadcast nearly all the Major League Baseball games of the Baltimore Orioles and Washington Nationals. Time Warner owns multiple cable systems in several states and is the largest provider of pay television service in North Carolina.

In 1993, pursuant to the 1992 Cable Act, the FCC established rules to prevent cable television providers (or other multichannel video programming distributors) from taking undue advantage of programming vendors. They were concerned about practices such as coercing vendors to grant ownership interests or exclusive distribution rights to distributors in exchange for being carried on the cable system. 9 F.C.C. Rcd. 2642, 2643, ¶ 1 (1993). The FCC recognized the legislative intent to prohibit unfair or anticompetitive activity without precluding legitimate business practices common to a competitive marketplace. Id.

In 2006, Time Warner and Comcast purchased Adelphia Communications’ cable systems. In approving the sale, the FCC recognized the deal had the potential to give Time Warner an incentive to deny carriage to rival unaffiliated RSNs’ with the intent of forcing the RSNs out of business since it would also have some affiliated sports networks. As such, a separate avenue of redress was created for alleged carriage violations including a commercial arbitration within thirty (30) days of any denial.

In 2007, MASN sought to be included on Time Warner’s standard cable distribution throughout North Carolina. Negotiations between Time Warner and MASN broke down, and MASN sought arbitration alleging that Time Warner engaged in discrimination by denying MASN carriage which Time Warner offered to its affiliated RSNs. The arbitrator agreed, and Time Warner sought review from the FCC. Time Warner alleged that it had a legitimate business decision for denying MASN carriage throughout the state.

The FCC agreed with Time Warner, finding that “very few cable subscribers in North Carolina were interested in watching the games of professional teams from Baltimore and Washington.” TCR Sports Holdings at *9. The FCC found further that Time Warner would incur costs of approximately $10 million per year to carry MASN. It determined that Time Warner had not engaged in impermissible discrimination, but a legitimate business decision.

MASN appealed the ruling to the Fourth Circuit. The Administrative Procedure Act ("APA") requires the appellate court to affirm agency action unless the decision is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(a). Under that extremely deferential standard, the Fourth Circuit upheld the FCC ruling. Specifically, the Court determined that the FCC had properly considered sworn statements of Time Warner executives regarding why MASN was not being carried, despite the fact those statements were written after litigation was initiated.

The Fourth Circuit agreed that there was substantial evidence on which the FCC could base a decision that Time Warner had made a legitimate business decision in declining carriage of MASN. Particularly, that the interest in Orioles and Nationals baseball in North Carolina was simply not sufficient to justify the costs associated with carrying the channel.