ORAL ARGUMENT NOT YET SCHEDULED Case No.

08-1114 ______________________________________________ UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT ______________________________________________

COMCAST CORPORATION, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and the UNITED STATES OF AMERICA, Respondents. ______________________________________________ On Petition for Review of an Order of the Federal Communications Commission ______________________________________________ BRIEF OF AMICUS CURIAE Supporting Petitioner and Vacatur of the FCC’s Order ______________________________________________ W. Kenneth Ferree Berin M. Szoka THE PROGRESS & FREEDOM FOUNDATION 1444 Eye Street N.W., Suite 500 Washington, D.C. 20005 TEL: 202.989.8928 FAX: 202.289.6079

CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES All parties, intervenors, and amici appearing in this court are listed in the Brief for Petitioner Comcast Corporation, as are references to the rulings and related cases. IDENTITY OF THE AMICUS CURIAE The parties have consented to the filing of this brief. Amicus curiae The Progress & Freedom Foundation (PFF) is a non-profit research and educational institution, as defined by Section 501(c)(3) of the Internal Revenue Code. Founded in 1993, PFF’s principal mission is to study the impact of the digital and electronic revolution and its implications for public policy. PFF has no parent companies, subsidiaries, or affiliates. No publicly held corporation has an ownership stake of 10% or more in PFF. Petitioner Comcast Corporation and Amicus Verizon are among over two dozen companies, trade associations and foundations that provide general support for PFF’s research and educational work. i But no counsel or party to this case has made a monetary contribution intended to fund the preparation or submission of this brief, nor has any counsel or party to this case authored this brief in whole or in part. PFF filed comments in the FCC proceeding underlying this case ii and has produced extensive scholarship on the legal, technological and economic issues involved, including Media Metrics: The True State of the Modern Media Marketplace, an exhaustive study of media competition showing that consumers have more media choices, more media competition, and more media diversity today than ever before. iii

i ii

See Supporters of The Progress & Freedom Foundation, www.pff.org/about/supporters.html.

Comments of The Progress & Freedom Foundation, The Commission’s Cable Horizontal and Vertical Ownership Limits, MM Docket No. 92-264 (September 8, 2005). Adam Thierer & Grant Eskelsen, Media Metrics: The True State of the Modern Media Marketplace, Version 1.0 (July 15, 2008), www.pff.org/mediametrics/.
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TABLE OF CONTENTS Tables of Authorities...................................................................................................................... iii Statutes and Regulations ................................................................................................................ iv Glossary ......................................................................................................................................... iv Statement of Issues Presented..........................................................................................................4 Summary of Argument ....................................................................................................................1 Argument .........................................................................................................................................1 I. The statute is facially unconstitutional. ...................................................................1 A. B. C. The Court should reconsider whether cable possesses bottleneck/gatekeeper power. ......................................................................3 The FCC’s open-field model does not show that cable operators have bottleneck/gatekeeper power...............................................................4 The evidence suggests that Congress’s fears about cable’s bottleneck/gatekeeper power are outdated...................................................6 1. 2. 3. 4. D. II. The number of programmers has exploded. ....................................6 Vertical integration between cable operators and programmers has plummeted...........................................................6 Consumers have more MVPD choices today than ever before. ......7 New digital distribution channels offer programmers alternative means to reach viewers. .................................................7

The statute cannot survive strict scrutiny.....................................................9

The statute as applied violates the First Amendment. ...........................................10 A. B. C. The rule cannot survive strict scrutiny.......................................................10 The rule cannot even survive intermediate scrutiny. .................................11 The Court should require the FCC to develop a new model capable of assessing cable’s purported bottleneck power and the need for a new cap..............................................................12

Conclusion .....................................................................................................................................13 Certificate of Compliance with Rule 32(a)....................................................................................13 Addendum......................................................................................................................................14 Certificate of Service .....................................................................................................................15 ii

TABLES OF AUTHORITIES

Cases
AT&T v. FCC, 236 F.3d 729 (D.C. Cir. 2001) ............................................................................. 11 Chevron v. NRDC, 405 U.S. 837 (1984)....................................................................................... 11 Leathers v. Medlock, 499 U.S. 439 (1991) ..................................................................................... 3 Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575 (1983) ........... 1 National Lime Association v. EPA, 627 F.2d 416 (D.C. Cir. 1980) ............................................. 12 Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506 (D.C. Cir. 1983) ................ 12 * * * Time Warner Entm't Co., L.P. v. FCC, 240 F.3d 1126 (D.C. Cir. 2001) (Time Warner II)..... 3, 11 Time Warner Entm't Co., L.P. v. U.S., 211 F.3d 1313 (D.C. Cir. 2000) (Time Warner I) ..... 2, 3, 4 Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622 (1994) ........................................... 1, 2, 3

Statutes
47 U.S.C. § 533(f)(1)(A)................................................................................................................. 1 47 U.S.C. § 533(f)(2)(C)............................................................................................................... 11 47 U.S.C. § 533(f)(2)(E) ............................................................................................................... 11 The Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, § 2(a)(4) ................................................................................................... 6 The Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 § 2(a)(2)........................................................................... 7 The Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 § 2(a)(5)........................................................................... 7 The Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 § 2(a)(6)........................................................................... 9

Other Authorities
Adam Thierer & Grant Eskelsen, Media Metrics: The True State of the Modern Media Marketplace, Version 1.0 (July 15, 2008)................................................................................... i Calvin Azuri, SNL Kagan: Cable Operator Revenues Poised for Growth, Cable.TMCnet.com (September 15, 2008) ................................................................................................................. 3 Comments of The Progress & Freedom Foundation, The Commission’s Cable Horizontal and Vertical Ownership Limits........................................................................................................... i Ex Parte of Comcast, Inc., Implementation of Section 11(c) of the [1992 Cable Act], MM Dkt. No. 92-264 at 3 (filed December 14, 2007) ............................................................................... 4 Formal Complaint of Free Press and Public Knowledge Against Comcast Corporation, Memorandum Opinion and Order, 23 F.C.C.R. 13028 (Aug. 20, 2008) ................................... 9 iii

* *

Implementation of Section 11(c) of [1992 Cable Act], Fourth Report and Order, 23 F.C.C.R. 2134 (Feb. 11, 2008) (Fourth Report).................................................................... 4, 5, 8, 10, 11 In re Annual Assessment of Video Competition, Twelfth Annual Report, 21 F.C.C.R. 2503 (Mar. 3, 2006)....................................................................................................................................... 7 Keith S. Brown, A Survival Analysis of Cable Networks, Media Bureau Staff Research Paper No. 2004-1 (Media Bureau Survival Study) (rel. Dec. 7, 2004)) ................................................ 5, 11

*

Nick Wingfield, Turn On, Tune Out, Click Here: TV Viewers Cut Cable's Cord; Here's What They're Watching Online Instead, The Wall Street Journal, Oct. 3, 2008 ............................. 8, 9

STATUTES AND REGULATIONS All applicable statutes are contained in the Brief for Appellant Comcast Corporation. GLOSSARY • • • • • DBS – Direct Broadcast Satellite IVPD – Internet Video Programming Distributor MVPD – Multichannel Video Programming Distributor OTA – Over-the-Air broadcast television Telco Video – Telephone company video services

STATEMENT OF ISSUES PRESENTED 1. If some special characteristic of cable exists, can the Government show that a cap is the least restrictive means available to satisfy a compelling governmental interest? 2. If no such characteristic exists, does this particular cap reflect the intent of Congress and properly reasoned decision-making?

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SUMMARY OF ARGUMENT Because no special characteristic of cable justifies the 1992 Cable Act’s unique limitations upon the size of a cable operator’s audience, the Court should apply strict scrutiny to these provisions. The Court should strike down these provisions as facially unconstitutional because there are ample less-restrictive means available to satisfy the government’s interest in ensuring that cable operators do not unfairly impede the flow of video programming. Failing that, the Court should vacate the rule. ARGUMENT I. The statute is facially unconstitutional. Any restriction, whatever its motivation, that “singles out the press, or that targets individual publications within the press, places a heavy burden on the State to justify its action.” 1 The level of constitutional scrutiny required for the subscriber limits provisions of the 1992 Cable Act, 2 hinges upon whether cable retains some “special characteristic” shared by no other form of video programming distribution. 3 In its 1994 Turner I decision, the Supreme Court applied intermediate scrutiny to the “must-carry provisions” of the Cable Act, which also impose a unique burden on the speech of cable operators, because the Court concluded that cable operators possessed “bottleneck, or gatekeeper, control over most (if not all) of the television programming … channeled into the subscriber’s home,” allowing a cable operator to “prevent its

1 2

Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 592-93 (1983).

The Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385 (Cable Act), Section 633(f)(1)(A), 106 Stat. 1460, codified at 47 U.S.C. § 533(f)(1)(A). See Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 660-61 (1994) (Turner I) (“heightened scrutiny is unwarranted when the differential treatment is ‘justified by some special characteristic of’ the particular medium being regulated”) (quoting Minneapolis Star, 460 U.S. at 585).
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subscribers from obtaining access to programming it chooses to exclude.” 4 In its 2000 Time Warner I decision, this Court applied intermediate scrutiny to the subscriber limits provisions at issue here because cable’s “bottleneck power … arguably threaten[ed] diversity and competition in the provision of cable programming.” 5 While perhaps not fully apparent when Time Warner I was argued in 1999, cable’s bottleneck/gatekeeper power was already in sharp decline due to, among other factors, the increasing competitiveness of the Multichannel Video Programming Distribution (MVPD) market and the steady decline in vertical integration between cable operators and programmers. Even as the market shares of the largest cable operators have grown larger, the number of programmers has grown explosively. In recent years, enormous reductions in production and distribution costs have democratized the means of communication, destroying the decades-old programmer/operator paradigm that underlies the subscriber limits provisions, offering platforms to a larger number of speakers than ever before, and giving consumers access to an astounding quantity and variety of content. In a world of media abundance and vibrant platform

competition, the government cannot meet its burden of demonstrating that cable retains unique bottleneck/gatekeeper power—which distinguishes this case from Turner I, Time Warner I and Time Warner II. Further distinguishing this case from Turner I is the fact that, while the mustcarry provisions apply equally to “all but the smallest cable systems,” 6 the subscriber limits provisions effectively prevent only the two largest cable operators from expanding their

4 5 6

Turner I, 512 U.S. at 656. Time Warner Entm't Co., L.P. v. U.S., 211 F.3d 1313, 1317-18 (D.C. Cir. 2000) (Time Warner I). Turner I, 512 U.S. at 632.

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audience. 7 Thus, the Court should review the constitutionality of these provisions using strict scrutiny; the statute cannot survive such review. A. The Court should reconsider whether cable possesses bottleneck/gatekeeper power.

This Court has yet to grapple with the true state of today’s media marketplace, which has changed dramatically since Time Warner I, and which would have been unimaginable when Congress passed the Cable Act in 1992. In Time Warner II, Time Warner made, and won, its challenge to the 30% cap first issued by the FCC in 1999 under intermediate scrutiny, so no reexamination of cable’s bottleneck power was required. 8 In Time Warner I, the Court applied intermediate scrutiny to the statute, but only because it concluded that cable’s bottleneck power “arguably threaten[ed] diversity” based on the court’s “examination of the statute, the Senate Report that accompanied it, and the Supreme Court’s analysis of the must-carry provision at issue in Turner I.” 9 In fact, because Turner I includes no substantial re-assessment of the media marketplace, the Time Warner I court relied primarily on Congress’s original assessment of the media marketplace when it passed the Cable Act in 1992—based on even older data. Only in passing did the court acknowledge more current data: “[Direct Broadcast Satellite (DBS)

Cf. Turner I, 512 U.S. at 660-61 (citing Leathers v. Medlock, 499 U.S. 439, 444, 452 (1991)). The 30% cap prevents Comcast (with a 25.1% market share) and Time Warner (13.6%) from merging with each other, and Comcast from acquiring more than one or two of the other top eight systems. See National Cable & Telecommunications Association, Top 25 MSOs As of June 2008, www.ncta.com/Statistic/Statistic/Top25MSOs.aspx (listing subscribers) and Calvin Azuri, SNL Kagan: Cable Operator Revenues Poised for Growth, Cable.TMCnet.com (September 15, 2008), cable.tmcnet.com/topics/cable/articles/39876-snl-kagan-cable-operator-revenues-poised-growth.htm (reporting 97.7 million MVPD subscribers in June 2008).
8 9

7

Time Warner Entm't Co., L.P. v. FCC, 240 F.3d 1126, 1130 (D.C. Cir. 2001) (Time Warner II). Time Warner I, 211 F.3d at 1318.

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operators] lack the bottleneck power of cable operators; nor do they reach nearly as many households as does cable.” 10 B. The FCC’s open-field model does not show that cable operators have bottleneck/gatekeeper power.

The “open-field” model behind the FCC’s decision to re-issue the 30% cap struck down in Time Warner II implies a broad claim about bottleneck/gatekeeper power: Any MVPD with more than 28% of the MVPD market 11 could, “by simply refusing to carry a programming network, cause it to fail.” 12 But even if this were true, this would not be a special characteristic of cable distinct from other MVPDs: The cap does not prevent a merger of the second and third largest MVPDs, DBS operators DirecTV and EchoStar, whose combined market share is now 33%. 13 Moreover, because the open-field model is based on flawed assumptions about the nature of competition for video programming, it does not accurately reflect cable’s present (or future) bottleneck power. The Fourth Report acknowledged that (i) “competition from DBS and other MVPDs limits … a cable operator’s ability to force programmers to accept low prices;”14 (ii) competition from telephone companies providing video service (Telco Video) “may also have a significant effect on the role that cable operators play in the distribution of video programming;” and (iii) “Programming networks can gain subscribers not only through distribution by cable

10 11

Id.

While its calculations produced a cap of 28%, the FCC rounded up the cap to 30% for the sake of continuity. Implementation of Section 11(c) of the [1992 Cable Act], Fourth Report and Order, 23 F.C.C.R. 2134, 2167 ¶ 68 (Feb. 11, 2008) (Fourth Report).
12 13

Id. at 2154 ¶ 40.

See Ex Parte of Comcast, Inc., Implementation of Section 11(c) of the [1992 Cable Act], MM Dkt. No. 92-264 at 3 (filed December 14, 2007).
14

Id. at 2150 ¶ 33.

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operators but also through distribution by DBS operators and other MVPDs.” 15 These changes undermine whatever bottleneck power cable once had, not merely by increasing the “field” that would be left open even if, hypothetically, a single company held all of cable’s declining overall market share, but also by increasing the market power of programmers relative to cable operators. The FCC claims its open-field model “account[s] for the large and growing presence of competitors,” 16 merely by basing the cap on the number of all MVPD subscribers, rather than only cable subscribers. This change of denominator does indeed prevent the cap from falling in tandem with cable’s declining market share, but a model that truly reflected the competitive pressure on cable operators would actually produce a gradually higher cap as cable’s market share continues to fall. In fact, the open-field model reflects only the FCC’s questionable calculation of what it takes for a programming network to have a 70% likelihood of surviving its first five years (“Minimum Viable Scale”) and the fraction of a cable operator’s “subscribers [that] a programming network is likely to have access to at any point in its lifecycle” (the “Subscriber Penetration Rate”). 17 The FCC asserts that “any competitive pressure from DBS that makes a cable operator’s refusal to carry a particular programming network more costly will be reflected in an increase in the odds of network survival.” 18 But this statement assumes the very thing in question: that network survival rates are the product of unfair “impedance” by cable operators, rather than market forces and consumer preferences. Thus, no matter how far

15 16 17 18

Id. at 2155 ¶ 43. Id. at 2154 ¶ 41. Id. at 2157-62 ¶¶ 49-57.

See id. at 2159-60 ¶ 52. Nor do the underlying studies explain this assertion. See Keith S. Brown, A Survival Analysis of Cable Networks, Media Bureau Staff Research Paper No. 2004-1 (Media Bureau Survival Study) (rel. Dec. 7, 2004)).

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cable’s market share might fall, it is not clear whether the model will ever indicate when the exercise of bottleneck power by a cable operator has become impossible. This model cannot, therefore, be the basis for determining the existence of a special characteristic of cable. C. The evidence suggests that Congress’s fears about cable’s bottleneck/gatekeeper power are outdated.

By re-examining each of Congress’s key findings underlying the Cable Act in light of the modern media marketplace, the Court will see that cable no longer possesses any special characteristic that justifies applying anything less than strict scrutiny to the subscriber limits provisions. 1. The number of programmers has exploded.

The Cable Act includes the Congressional finding that “[t]he potential effects of [a high degree of concentration in the cable industry] are barriers to entry for new programmers and a reduction in the number of media voices available to consumers.” 19 Yet far from restricting output, the increased horizontal concentration of the cable industry has been accompanied by a proliferation of video programming services: from roughly 100 in 1993 to 565 in 2005. 20 2. Vertical integration between cable operators and programmers has plummeted.

Congress expressed concern in the Cable Act that cable operators owning cable programmers would “have the incentive and ability to favor their affiliated programmers,” which would “make it more difficult for noncable-affiliated programmers to secure carriage on cable

19 20

Cable Act § 2(a)(4). See Exhibit A.

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systems.” 21 In fact, the percentage of programming services affiliated with cable operators has plummeted from 53% in 1992 to less than 10%. 22 3. Consumers have more MVPD choices today than ever before.

The subscriber limits provisions of the Cable Act rest on one further key Congressional finding:
most cable television subscribers have no opportunity to select between competing cable systems. Without the presence of another multichannel video programming distributor, a cable system faces no local competition. The result is undue market power for the cable operator as compared to that of consumers and video programmers. 23

Today, virtually all homes in the country are “passed” by at least three MVPDs—cable and the two DBS providers—while a growing number can subscribe to a fourth MVPD service, Telco Video. 24 Cable’s market share has fallen to reflect this competition, from 95% in 1992 to 64% today, and is expected to fall to 58.8% by 2012 under pressure from both Telco Video and DBS. 25 4. New digital distribution channels offer programmers alternative means to reach viewers.

The FCC’s view of media markets takes little, if any, account of the accelerating movement of video programming away from an architecture of mass, analog distribution of

21 22

Cable Act § 2(a)(5).

With the Thirteenth and Fourteenth Video Competition Reports long overdue from the FCC, the precise percentage of programming services currently affiliated with a cable operator is unknown. The 10% estimate is the result of removing from the 2005 data those networks affiliated with Time Warner to reflect the fact that Time Warner Cable is now independent of Time Warner, Inc. Given the persistent decline in affiliation rates over time, today’s actual rate is likely to be even lower.
23 24

Cable Act § 2(a)(2).

In re Annual Assessment of Video Competition, Twelfth Annual Report, 21 F.C.C.R. 2503, 2506 ¶ 5 (Mar. 3, 2006).
25

See Exhibit B.

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scheduled content towards a converged, consumer-centric, digital cornucopia wherein content is decoupled from distribution platforms and is available on demand, shows are unbundled from networks, and distinctions among media providers blur. The FCC acknowledged (to some degree) the relevance of DBS and Telco Video by including them in the total subscriber count denominator for its calculation, but decided, based on 2005 data, to exclude video distributed via the Internet and other channels such as mobile telephones because (i) there was “scant evidence in the record whether and how these alternative outlets affect the viability of a cable programmer” and (ii) “many of these alternative outlets operate based upon the existing popularity of the content, which is gained only through widespread distribution via MVPDs.” 26 The last two years have seen growing numbers of Americans increasingly substituting consumption of online video for MVPD video and the Internet driving popularity of MVPD content, rather than vice versa.27 But only in the last year, since the adoption of the Fourth Report, has the large-scale delivery of television content online become a reality, as large numbers of programmers have begun distributing increasing numbers of complete episodes and entire series through their own websites and/or through a new class of rapidly-growing Internet Video Programming Distributor (IVPD) websites such as Netflix, Hulu, Amazon Video on Demand, iTunes, Vuze, Sony Playstation Store, the Microsoft Xbox 360 Marketplace, Joost and Veoh. These IVPDs already offer a staggering, and growing, library of currently-airing and

26 27

Fourth Report at 2156 ¶ 44.

Nick Wingfield, Turn On, Tune Out, Click Here: TV Viewers Cut Cable's Cord; Here's What They're Watching Online Instead, The Wall Street Journal, Oct. 3, 2008, online.wsj.com/article/SB122299231747100497.html.

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archived content—as much as 90% of broadcast shows and 20% of cable shows. 28 These sites are supported by a growing number of set-top devices (e.g., Netflix Player by Roku, TiVo) and wildly popular game consoles (e.g., Microsoft Xbox 360, Sony PlayStation 3) that allow users to play IVPD content from broadcast and cable programmers on demand on their television, while TiVo allows users to seamlessly switch between IVPD, MVPD and OTA content. In August 2008, the FCC even cited this trend in support of its claim of jurisdiction over Comcast’s broadband network management practices (because of alleged harm to an IVPD that distributes content through peer-to-peer file sharing): “consumers with [broadband] service will have available a source of video programming (much of it free) that could rapidly become an alternative to cable television.” 29 But the immediate competitive impact of IVPDs comes not from the fact that some IVPD users are already canceling their MVPD subscriptions, but in the ease with which IVPDs can supplement an MVPD subscription—because most IVPDs are free, while those that charge for content do so on a per-episode/show basis. Furthermore, IVPDs have little—if any—incentive not to offer a particular program because they are not subject to the same capacity constraints as MVPDs. Thus, even if IVPD video consumption remains relatively small in its early years, IVPDs already offer programmers a strong alternative distribution channel capable of reaching all broadband users. D. The statute cannot survive strict scrutiny.

There are ample less-restrictive means available to satisfy the government’s stated interest in having a “diversity of views provided through multiple technology media.” 30 First, as

28 29

Id.

Formal Complaint of Free Press and Public Knowledge Against Comcast Corporation, Memorandum Opinion and Order, 23 F.C.C.R. 13028, 13037 ¶ 16 (Aug. 20, 2008).
30

Cable Act § 2(a)(6).

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discussed above, market forces and technological innovation have already achieved this goal beyond what anyone in 1992 could have imagined—and there is no apparent reason to think they will not continue to do so. Second, as noted by Commissioner McDowell in his dissent from the Fourth Report, “should a programmer find that a cable operator is unfairly excluding its content from carriage, and all other private sector avenues for resolution have failed, then the statute and our regulations allow that programmer to pursue a complaint [at the FCC]. But, to date, only two such complaints have been filed.” 31 Third, the government’s interest could be achieved through existing antitrust laws and the FCC merger review process. Fourth, the FCC could impose special obligations on cable operators with more than 30% of the MVPD market to ensure that they do not unfairly impede the flow of video programming. II. The statute as applied violates the First Amendment. If the Court upholds, or passes on, the constitutionality of the subscriber limitation provisions, it should nonetheless strike down the 30% cap rule promulgated by the FCC as unconstitutional. A. The rule cannot survive strict scrutiny.

If the Court concludes, in applying strict scrutiny to the statute, that some cap could be the least restrictive means available, the Court should not accept that a rule premised on such a flawed model is the least restrictive means available. The Court need not specify what cap would constitute the least restrictive means, but it should require the FCC to produce a model based on data that reflect current market realities.

31

Fourth Report at 2228.

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B.

The rule cannot even survive intermediate scrutiny.

Even under intermediate scrutiny, the Court should not accept the 30% cap for two reasons. First, the FCC has failed to “give effect to the unambiguously expressed intent of Congress” 32 by pretermitting the Cable Act’s requirement that the FCC “take particular account [in setting the cable subscriber limit] of the market structure, ownership patterns, and other relationships of the cable television industry, including the nature and market power of … video programmers.” 33 The FCC has not taken into account the competitive impact of MVPD

competition or new digital distribution channels. Nor does the FCC’s model satisfy the Cable Act’s requirement that the cap “reflect the dynamic nature of the communications marketplace,” 34 because the critical ingredient in the open-field model—minimum viable scale— is based on 1984-2001 market data. 35 Moreover, the FCC has not satisfied the Court’s

interpretation of the statute as requiring that the agency “assess the determinants of market power in the cable industry and … draw a connection between market power and the limit set.” 36 The Time Warner II court held that “market power depends not only on … [market share], but also on … the availability of competition,” 37 yet the FCC’s model understates the importance of the availability of DBS and Telco Video, while completely ignoring the importance of newer distribution channels.

32 33 34 35

See Chevron v. NRDC, 405 U.S. 837, 842-43 (1984). 47 U.S.C. § 533(f)(2)(C). Id. § 533(f)(2)(E).

Fourth Report at 2160 n. 182 (citing Media Bureau Survival Study). The Media Bureau Survival Study is based on 1984-2001 data. Id. at 7.
36 37

Time Warner II at 1134. Id. (citing AT&T v. FCC, 236 F.3d 729, 736 (D.C. Cir. 2001)).

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Second, the FCC has not engaged in reasoned decision-making because it has not met the duty established by this Court “to examine key assumptions as part of its affirmative burden of promulgating and explaining a non-arbitrary, non-capricious rule.” 38 The FCC’s limit is

“designed to ensure that a large cable operator cannot unilaterally condemn a cable network by refusing carriage,” yet the FCC has not explained its key assumption that ensuring the flow of video programming requires protecting programming networks rather than programmers generally. As noted above, the FCC has also not explained how its model adequately reflects competition from other distributors. C. The Court should require the FCC to develop a new model capable of assessing cable’s purported bottleneck power and the need for a new cap.

If the Court vacates the statute as applied, it should require the FCC to develop a model for determining whether cable retains bottleneck/gatekeeper power and, if so, what minimum cap is required to prevent a cable operator from unfairly impeding the flow of video programming. The Court should clarify that the Cable Act requires only that the FCC promulgate a cap not later than 1993, not that a cap be maintained perpetually, thus allowing the FCC to decide not to issue when cable has finally lost the bottleneck/gatekeeper power the Cable Act was intended to remedy.

Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506, 534 (D.C. Cir. 1983) (citing National Lime Association v. EPA, 627 F.2d 416, 433 (D.C. Cir. 1980)).

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CONCLUSION The Court should strike down the statute under strict scrutiny as either facially unconstitutional or unconstitutional as applied.

Respectfully Submitted,

/s/ Kenneth Ferree W. Kenneth Ferree Berin M. Szoka The Progress & Freedom Foundation 1444 Eye Street N.W., Suite 500 Washington, D.C. 20005 TEL: 202.989.8928 FAX: 202.289.6079

CERTIFICATE OF COMPLIANCE WITH RULE 32(A) This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because it contains 3,496 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

/s/ Kenneth Ferree Attorney for The Progress & Freedom Foundation Dated: December 2, 2008

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ADDENDUM Exhibit A: Video Choices & Vertical Integration in the Multichannel Video Marketplace
600
565

60%

53% 51% 50% 500

Services not owned by cable operators
44% 40%

531

50%

# of Programming Services (Cable-owned, total)

% of Programming Services (Cableowned/Total)

39% 37% 35% 35%
339 308 294 283 281 388

400

40%

% of Services Owned by Cable Operators
300
245

32% 30% 22% 23%

30%

200

Cable-owned services
172 145 129 106

20%

15% 10%

100
70 95 35 56 66 64 68 104 99 104 92 110 116 89 84

0
1990 1991‐1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

0%

Y ear of F C C  Video C ompetition R eport

Sources: FCC Video Competition Reports, 1994-2006 (reprinted from Media Metrics at 55, Exhibit 41).

Exhibit B: Increasing Competition in the MVPD Marketplace
100.00% 90.00% 80.00% Percent of MVPD Market 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 1991 1993 1995 1997 1999 2001 Year 2003 2005 2007 2009 2011 Cable (FCC) Satellite (FCC) Other (FCC) Cable (Bernstein) Satellite (Bernstein) Telco (Bernstein)

Sources: FCC Video Competition Reports, 1994-2006; and Craig Moffett, Bernstein Market Research, U.S. Telecom, Cable & Satellite: A Value Migration Roadmap at 15, Exhibit 21, Feb. 4, 2008. (Note that the Bernstein data does not include the “Other” MVPDs previously tracked by the FCC).

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CERTIFICATE OF SERVICE I hereby certify that on this 2nd day of December, 2008, I caused a true and correct copy of the foregoing BRIEF OF AMICUS CURIAE THE PROGRESS & FREEDOM FOUNDATION to be served upon the following by First Class U.S. Mail:
Miguel A. Estrada Theodore B. Olson David Debold Cynthia Richman Tyler R. Green Gibson, Dunn & Crutcher LLP 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 Helgi C. Walker Eve Klindera Reed Jamie A. Aycock Wiley Rein LLP 1776 K Street, N.W. Washington D.C. 20006 James M. Carr Matthew B. Berry Daniel M. Armstrong Office of the General Counsel Federal Communications Commission Room 8-A741 445 12th Street, S.W. Washington D.C. 20554 Daniel L. Brenner Neil M. Goldberg National Cable & Telecommunications Association 25 Massachusetts Avenue, N.W., Suite 1000 Washington, D.C. 20001-1431 Wesley R. Heppler Robert G. Scott, Jr. Davis Wright Tremaine LLP 1919 Pennsylvania Avenue, N.W., Suite 200 Washington, D.C. 20006-3402 Nancy Caroline Garrison Catherine O’Sullivan Robert J. Wiggers U.S. Department of Justice 950 Pennsylvania Avenue, N.W., Room 3224 Washington, D.C. 20540-2000 Henk J. Brands Paul, Weiss, Rifkind, Wharton & Garrison 1615 L Street, N.W., Suite 1300 Washington, D.C. 20036-5694 Bruce Douglass Sokler Robert G. Kidwell Mintz Levin Cohn Ferris Glovsky and Popeo PC 701 Pennsylvania Avenue, N.W., Suite 900 Washington, D.C. 20004-2608 Howard J. Symons Mintz Levin Cohn Ferris Glovsky and Popeo PC 701 Pennsylvania Avenue, N.W., Suite 900 Washington, D.C. 20004-2608 Harold J. Feld Media Access Project 1625 K Street, N.W., Suite 1000 Washington, D.C. 20006 Patrick F. Philbin Gregory L. Skidmore Kirkland & Ellis LLP 655 15th Street, N.W., Suite 1200 Washington, D.C. 20005

/s/ Kenneth Ferree Attorney for The Progress & Freedom Foundation

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