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FCC Approves MVPD Bulk Billing and Exclusive Marketing Arrangements

March 5 , 2010
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This week, the Federal Communications Commission (FCC) adopted a Report and Order (“Order”) approving the practices of bulk billing and exclusive marketing arrangements by Multichannel Video Program Distributors (MVPDs). The Order was the second adopted in the proceeding dealing with MVPD practices in Multiple Dwelling Units (MDUs) such as apartment and condominium buildings.

In the Commission’s First Report and Order in the proceeding, adopted in 2007, the FCC prohibited MVPDs and MDUs from entering into exclusive contracts for an MVPD to provide service. That order survived a court challenge in the D.C. Circuit in 2009. Included along with the First Report and Order was a Further Notice of Proposed Rulemaking that inquired about the practices of bulk billing and exclusive marketing arrangements. The second order released this week also rejected a petition for reconsideration of the First Report and Order’s exclusivity ban that sought an exemption for private cable operators (PCOs).

Bulk Billing

In a typical bulk billing arrangement, an MDU subscribes to one MVPD’s service and pays the MVPD a monthly fee. The MDU then will usually include the cost of MVPD service as part of the rent, condominium fee or HOA dues. According to the Commission, the practice is common, but does not occur in the majority of MDUs.

Upon review of the record, the FCC concludes that the benefits of bulk billing outweighed any potential harms. The FCC determined that bulk billing potentially leads to the following benefits:

Lower prices for video and other services, which often allow individuals that would otherwise not be able to afford MVPD service
Programming tailored to the particular interests/needs of an MDU (i.e.¸ closed circuit channels and community channels)
Less burden on residents who do not have to search the market for MVPD service or individually deal with installation or other technical issues
Assists the competitive real estate market by allowing MDUs to distinguish themselves by offering MVPD service
Does not prohibit MDU residents from subscribing to competing MVPD services

The Commission did note that bulk billing was not without its potential harms. Specifically, the FCC acknowledged the concern that competing MVPDs would have less incentive to offer service in a building subject to bulk billing. Some commenters argued that bulk billing MVPDs have no incentive to offer competitive pricing or service. The Commission also acknowledged concerns in the record regarding the practice of building developers entering into bulk billing arrangements for homes before those homes were sold, thereby subjecting the eventual homeowner to a binding arrangement for MVPD service.

In the final analysis, however, the FCC concluded that the “pro-consumer” benefits of bulk billing outweighed its potential harms. According to the Commission, a “key consideration” was that bulk billing did not actually prevent a competitive MVPD from offering service in the MDU, and the record showed that MDU residents with bulk billing did subscribe to competitive MVPD service. With respect to the building developer bulk billing arrangements, the FCC suggested that such situations were rare and that in some cases, state law might provide relief to homeowners seeking to void those contracts.

Exclusive Marketing Arrangements

The FCC defines an exclusive marketing arrangement as an arrangement, written or in practice, between an MDU owner and an MVPD that gives the MVPD the exclusive right to market its service to residents in the MDU. Like bulk billing, the record showed that the practice is common, but does not occur in the majority of MDUs.

The Commission concluded that the record “clearly shows that marketing exclusivity arrangements have some modest beneficial effects for consumers and no significantly harmful ones.” Among the beneficial effects were: the possibility that the MVPD might provide lower rates in exchange for marketing exclusivity, the potential for MDU owners to offset the cost of MVPD building wiring in exchange for marketing exclusivity and the informational benefit of marketing materials for MDU residents. Like bulk billing, the FCC concluded that exclusive marketing did not prevent, nor did it demonstrably deter, competing MVPDs from offering service in MDUs with exclusive marketing arrangements. The FCC also acknowledged the benefit for smaller and private cable operators to advertise their services to building residents without using more expensive media.

MDU-MVPD Exclusivity Ban Applies to PCOs

Finally, the Order rejected a petition by a PCO that sought to exempt PCOs not relying on public rights-of-way to deliver video service from the ban on exclusive contracts between MDUs and MVPDs. The FCC concluded that there was no statutory basis under Section 629(j) of the Communications Act to carve out such an exemption. The Commission also rejected a request to forbear from applying the exclusivity rules to PCOs on the grounds that the request was not procedurally compliant. However, the FCC did note that it would at least entertain a request for forbearance if it was sufficiently supported by the record.

We would be pleased to respond to any questions regarding these matters.