The Federal Communications Commission (FCC) has issued a Notice of Proposed Rulemaking (NPRM) in which it proposes satellite television “market modification” rules to implement Section 102 of the Satellite Television Extension and Localism Act Reauthorization Act of 2014 (STELAR).  STELAR amends the Communications Act and the Copyright Act to give the FCC authority to modify a commercial television broadcast station’s local television market for purposes of satellite carriage rights.  The FCC previously had such authority to modify markets only in the cable carriage context.  The FCC also proposes to change the factors relevant to the market modification process.  Below, we list some of the tentative conclusions and interpretations on which the FCC seeks comment.

The main effect of a market modification is to expand or contract the areas in which a station may elect mandatory carriage under the must-carry rules.  To the extent that a station’s network affiliation or other agreements authorize a station to grant retransmission consent only in the station’s Nielsen DMA, a market modification petition granted by the FCC would not alter the boundaries of that DMA.   However, for stations that have elected retransmission consent, a market modification may have implications with respect to the areas in which such stations’ signals may be carried as “local” signals under the copyright laws.

Requests for Modification.  The FCC proposes to allow either the affected commercial broadcast station or satellite carrier to file a satellite market modification request.  It asserts that only these entities have carriage rights or obligations at stake, giving them a legitimate basis for filing such requests.  (In the cable market modification context, only the cable operator or the station may file a market modification petition.)  The FCC proposes to require broadcasters and satellite carriers to file market modification requests for satellite carriage purposes in accordance with the procedures for filing Special Relief petitions already in place in the cable market modification context.

Statutory Factors and Evidentiary Requirements.  Under the existing cable market modification process, the FCC evaluates several factors to decide whether a market modification is warranted, such as historical carriage patterns, the station’s service to the affected community, and viewing data.  These same factors will be relevant for satellite market modifications.  STELAR adds a new factor that the FCC must consider when deciding requests for market modifications in both the cable and the satellite context:  whether modifying the local market of the television station would promote consumers’ access to television broadcast station signals that originate in their state of residence.  The FCC tentatively concludes that this new factor is intended to favor a market modification to add a community if doing so would increase consumer access to in-state programming — such as in cases where a county located within one state is assigned to a DMA served by stations from an adjacent state.  The FCC also tentatively concludes that this factor is not intended to bar a market modification simply because it would not result in increased consumer access to in-state programming.

The FCC further tentatively concludes that the detailed evidentiary requirements currently required in its rules for cable market modifications continue to be appropriate to support and evaluate market modification petitions, but the FCC seeks comment on what evidence could be used to demonstrate the new statutory factor.  The FCC proposes that during the pendency of a market modification petition, satellite carriers be required to maintain the status quo with regard to signal carriage and not be permitted to delete from carriage the signal of an affected commercial television station.

Market Determination.  The FCC interprets the statute to require that market modifications in the satellite carriage context will be limited to the specific station or stations identified in the market modification request and to the specific satellite community or communities referenced in the request.  The FCC proposes to consider market modification requests separately in the cable and satellite context; in other words, a cable market modification would not affect a station’s “market” for satellite carriage purposes, and vice versa.  The FCC also proposes that market modification requests will only apply to the satellite carrier or carriers named in the request — so a petition filed by or with respect to only DirecTV would not affect DISH, and vice versa.

With respect to carriage after a market modification, the FCC tentatively concludes that television broadcast stations that become eligible for mandatory carriage with a satellite carrier as a result of a change in the market definition may elect retransmission consent or mandatory carriage with that carrier within 30 days and that a satellite carrier must commence mandatory carriage within 90 days of receiving a must-carry request.

Technical or Economic Infeasibility Exception for Satellite Carriers.  The FCC proposes to implement statutory language clarifying that a market modification “shall not create additional carriage obligations for a satellite carrier if it is not technically and economically feasible for such carrier to accomplish such carriage by means of its satellites in operation at the time of the determination.”  The FCC interprets the statutory text as requiring a satellite carrier to raise and prove any technical or economic impediments in the market modification proceeding.

No Effect on Eligibility to Receive Distant Signals via Satellite.  The FCC also seeks to implement statutory language providing that “[n]o modification of a commercial television broadcast station’s local market . . . shall have any effect on the eligibility of households in the community affected by such modification to receive distant signals . . . .”  In general, the availability of an in-market network station’s signal can limit the eligibility of satellite subscribers to receive the signal of an out-of-market station affiliated with that same network.  The FCC explains that under its proposed reading of STELAR, the addition of a new local station to a local television market by operation of a market modification would not disqualify an otherwise eligible satellite subscriber from receiving the signal of a distant station affiliated with the same network.

Comments are due 30 days after publication of the NPRM in the Federal Register, which has not yet occurred.  The FCC must issue final rules in this proceeding no later than September 4, 2015.