U.S. court backs ban on some cable TV program deals

By Jeremy Pelofsky

WASHINGTON (Reuters) - A U.S. appeals court upheld on Friday a Federal Communications Commission ban that prevents cable companies like Comcast Corp from cutting exclusive deals for affiliated television programing.

The prohibition was poised to end in October 2007 unless the FCC acted, but the FCC decided to extend the ban for five more years, expressing concerns that competition and diversity in the marketplace would be harmed if it were lifted.

The ban was meant to ensure that satellite television providers like DirecTV Group Inc and DISH Network Corp, as well as smaller cable operators and new entrants into the subscription television business like phone company Verizon Communications Inc, could get popular content from cable programmers like movie channels or sports networks.

Comcast, the biggest U.S. cable operator, and Cablevision Systems Corp had challenged the FCC decision, arguing that it was arbitrary and capricious and violated free speech rights, and that the agency had misinterpreted the underlying law.

"We hold that the Commission's interpretation of its statutory mandate was reasonable," the U.S. Court of Appeals for the District of Columbia Circuit said in a 2-1 decision rejecting the cable operators' multiple arguments.

The court did note that the market for subscription television was evolving quickly and the FCC could eventually conclude that the exclusivity prohibition was no longer necessary.

The ruling also noted that the FCC does have a procedure for cable operators to seek exemptions from the prohibition.

The dissenting judge, Brett Kavanaugh, said that the "exclusivity ban fails because it no longer serves an important government interest and it burdens more speech than essential to achieve its aims."

Cable providers expressed disappointment with the decision, including Cablevision, which was recently entangled in a contentious fight over access to Walt Disney Co's ABC broadcast network channel for its New York-area subscribers.

"In today's highly competitive video marketplace these rules do nothing but tilt the playing field in favor of phone companies and broadcasters to the detriment of fair competition and consumers," Cablevision said in a statement.

Comcast, which is in the process of acquiring a 51 percent interest in General Electric Co affiliate NBC Universal, also said it was disappointed but said that it was prepared to discuss the rules with the FCC in the context of the deal.

Meanwhile, the ruling was hailed by competitors and FCC Chairman Julius Genachowski, who said that the ban has "played a vital role in making diverse and attractive video programing available to cable and satellite TV viewers."

"I'm pleased that the D.C. Circuit court has confirmed the Commission's authority to prevent vertically integrated cable companies from denying critical television programing to their competitors and consumers," he said.

(Additional reporting by Yinka Adegoke in New York and John Poirier in Washington, editing by Gerald E. McCormick)