THE 1984 CABLE FLIP FLOP: FROM CAPITAL CITIES CABLE, INC. V. CRISP TO THE CABLE COMMUNICATIONS POLICY ACT

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1 THE 1984 CABLE FLIP FLOP: FROM CAPITAL CITIES CABLE, INC. V. CRISP TO THE CABLE COMMUNICATIONS POLICY ACT INTRODUCTION The extent and scope of the Federal Communications Commission's (FCC or Commission) regulation of the cable television industry' has diminished drastically in recent years. 2 When the Commission eliminated its remaining distant signal carriage and syndicated exclusivity rules in 1980, 3 regulation of the cable indus- 1. Cable television developed in the 1940's as a service to enhance the quality of television signals in communities unable to receive adequate reception because of terrain or distance from television stations. See BROADCASTING PUBLICATIONS, INC., BROADCASTING/CABLECASTING YEARBOOK 1984 D-1. The first cable system began operating in Astoria, Oregon in H.R. REP. No. 934, 98th Cong., 2d Sess. 20 (1984). The first commercial cable system started the next year in Lansford, Pennsylvania, a small community located about 65 miles from Philadelphia. See id A master antenna was built on a mountain top to pick up the faint signals from Philadelphia stations. These signals were then amplified and fed into coaxial cables that were ultimately connected to the homes of subscribers. V. Mosco, BROADCASTING IN THE UNITED STATES 87 (1979). Because early cable systems only retransmitted the TV signals from broadcast stations, the FCC generally referred to cable as "community antenna television" or "CATV." See Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, 2701 n.7 (1984). As the cable industry expanded beyond mere retransmission of broadcast signals, the FCC and Congress adopted the more inclusive term "cable television." See In re Amendment of Part 74, Subpart K, of the Comm'n's Rules and Regs. Relative to Community Antenna Television Sys.; and Inquiry Into the Dev. of Communications Technology and Servs. to Formulate Regulatory Policy and Rulemaking and/or Legislative Proposals (Cable Television Report and Order), 36 F.C.C.2d 143, 144 n.9 (1972), afd sub nom. American Civil Liberties Union v. FCC, 523 F.2d 1344 (9th Cir. 1975); H.R. REP. No. 1476, 94th Cong., 2d Sess. 88 (1976). Today, cable operators provide subscribers with a variety of broadcast and nonbroadcast signals typically obtained from three sources-over-the-air broadcast signals, communications satellites, and microwave relay systems. See Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. at See Fowler, The Boom Goes Bust, The Bust Goes Boom, 6 CoM. & L. 23 (1984) (reprint of speech to International Radio and Television Society outlining FCC's deregulatory actions). For a comprehensive discussion of the FCC's deregulation of cable television, see infra notes and accompanying text. The Commission based its deregulatory efforts on the belief that the marketplace can provide more efficient regulation than the government. Yesterday's Marketplace, or Tomorrows?, BROADCASTING, Feb. 8, 1982, at 36, See In re Cable Television Syndicated Program Exclusivity Rules, 79 F.C.C.2d 652 (1980) (repealing rules on distant signal carriage and syndicated program exclusivity), a fd sub non. Malrite T.V., Inc. v. FCC, 652 F.2d 1140 (2d Cir. 1981), cert. denied, 454 U.S (1982). Distant signals are the broadcast stations that cable systems carry that are not available 557

2 558 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:557 try began to shift from the federal government to state and local governments, 4 and commentators considered the era of FCC regulation of cable television programming to be over. 5 In 1984, however, the United States Supreme Court held that the FCC has exclusive authority to regulate cable television content and the Commission's authority preempts state and local regulation. 6 In Capital Cities Cable, Inc. v. Crisp 7 the Court struck down an Oklahoma law requiring cable operators to delete all wine advertisements from out-of-state broadcast programming retransmitted to in-state cable subscribers. 8 The Court's language in Crisp was so sweeping that some communications lawyers felt that the FCC could preempt all state and local cable regulation. 9 Less than four months after the Supreme Court's decision in Crisp, and partially in response to Crisp,' 0 Congress passed its first comprehensive cable television legislation-the Cable Communicaover-the-air in a local community. See Brief for Petitioner at 12 n.15, Turner Broadcasting Sys. v. FCC, No (D.C. Cir. filed May 29, 1984). The syndicated exclusivity rules authorized a local television station that had purchased exclusive rights to a program to demand that a local cable system delete that program from distant signals, whether or not the local station was simultaneously showing, or planning to show, the program. See Syndicated Program Exclusivity: Extent of Protection, 37 Fed. Reg (1972) (repealed 45 Fed. Reg. 60,299 (1980)). For a further explanation of the distant signal carriage and syndicated exclusivity rules, see infra notes and accompanying text. 4. See Besen & Crandall, The Deregulation of Cable Television, 44 LAw & Corzmp. PROBS. 77, 121 (1981). 5. Id. at See Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984) (affirming FCC preemption of all signal carriage regulation); see also Supreme Court Limits States'Rights to Regulate Cable, BROADCASTING, June 25, 1984, at 27, 27 (discussing effect of Crisp on local regulatory authority). After Crisp the Commission specifically preempted municipalities from regulating the rates of nonbasic cable programming and local franchise authorities from collecting franchise fees in excess of five percent of a cable operator's gross revenues. See In re Community Cable TV, Inc. (Nevada II), 56 RAn. REG.2d (P & F) 735 (1984) (rate regulation); In re City of Miami, No (FCC Mass Media Bureau June 28, 1984) (franchise fee collection); see also infra notes and accompanying text (discussing Nevada II and Miami). The Commission based its preemptive action on the theory that subjecting cable operators to the regulatory constraints of more than 15,000 local cable franchising entities would distort market forces and inevitably create barriers to service growth and diversity. See In re Community Cable TV, Inc., 56 RAD. REG.2d (P & F) at S. Ct (1984). 8. Id. at For a detailed discussion of Crisp, see infra notes and accompanying text. 9. See Supreme Court Limits States' Rights to Regulate Cable, supra note 6, at 27. Writing for the Court, Justice Brennan stated, "[I]f the FCC has resolved to pre-empt an area of cable television regulation and if this determination 'represents a reasonable accommodation of conflicting policies' that are within the agency's domain, [citation omitted] we must conclude that all conflicting state regulations have been precluded." Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, 2701 (1984) (quoting United States v. Shimer, 367 U.S. 374, 383 (1961)). 10. See 130 CONG. REC. H10444 (daily ed. Oct. 1, 1984) (statement of Rep. Markey that if Congress failed to enact cable legislation, Supreme Court would create laws covering cable operation).

3 1985] THE 1984 CABLE FLIP FLOP 559 tions Policy Act of 1984 (Cable Policy Act or Act). "1 The Act reflects the Commission's goal to establish a national cable policy to insure that the industry can compete in the marketplace, 12 but preserves the regulatory role of state and local authorities. 13 This Comment discusses the cycle of FCC cable regulation, deregulation, and reassertion of jurisdiction that culminated in Congress' enactment of the Cable Policy Act. In particular, this Comment discusses the partition of cable regulatory responsibility between federal and local authorities after Crisp and the Act. Part I examines the history of cable regulation in the United States and the relevant law prior to the decision in Crisp. Part II discusses and analyzes the Court's decision in Crisp. Part III explores the 1984 cable legislation, its effect on Crisp, and its implications for cable television. This Comment concludes that although federal legislation is a positive step toward the congressional goal of ensuring a healthy cable industry, the Cable Policy Act's "national cable policy" is actually more local in nature, and may, therefore, inhibit the industry's continued development. I. HISTORY OF CABLE REGULATION A. FCC Regulation of the Cable Industry 1. FCC's assertion ofjurisdiction In the late 1950's the FCC, in the absence of express statutory authority, 14 declined to assert jurisdiction to regulate the emerging cable industry.' 5 The Commission, however, indirectly regulated 11. Pub. L. No , 1984 U.S. CODE CONG. & AD. NEws (98 Stat.) I 601(1), (98 Stat.) at 2780; see also 130 CONG. REC. S14283 (daily ed. Oct. 11, 1984) (statement of Sen. Packwood discussing need for national cable policy). 13. Cable Communications Policy Act of 1984, Pub. L. No , 601(3), 1984 U.S. CODE CONG. & AD. NEWS (98 Stat.) 2779, 2780 (purpose of Act to preserve federal, state, and local regulatory roles). 14. The Communications Act of 1934, ch. 652, 48 Stat (1934) (current version at 47 U.S.C (1982)), the enabling act of the FCC, did not specifically address cable television because Congress drafted the legislation 15 years before the first cable system began operation. See supra note 1 (discussing origins of cable industry). 15. See In re Inquiry Into the Impact of Community Antenna Sys., TV Translators, TV "Satellite" Stations, and TV "Repeaters" on the Orderly Dev. of Television Broadcasting (Orderly Dev. of Broadcasting), 26 F.C.C. 403, (1958) (declining to assert jurisdiction over cable operators as broadcasters because cable signals are transmitted by wire, not airwaves); Frontier Broadcasting Co. v. Collier, 24 F.C.C. 251, 256 (1958) (refusing to assert jurisdiction over cable operators as common carriers because operators, not the subscribers, decide what signals are carried). In Orderly Dev. of Broadcasting the Commission determined that 325(a) of the Communications Act, 47 U.S.C. 325(a) (1982), does not expressly grant jurisdiction over the cable industry. Section 325(a) prohibits a broadcasting station from rebroadcasting a program of another broadcasting station without the station's consent. Id The Commission also declined to assert plenary power over the cable industry simply because of the industry's potential

4 560 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:557 the industry through its licensing of the microwave common carriers that relay television broadcast signals to many cable operators.' 6 The basis of the Commission's authority for this indirect regulation was the provisions of the Communications Act of 1934 (Communications Act or 1934 Act) 17 that authorized the regulation of common carriers."' Although it failed in its attempts to have legislation enacted in 1959 and 1966 that would have provided express authority to regulate the cable industry,' 9 the FCC began direct regulation of the industry by establishing regulations for cable systems receiving microwave signal service 20 and subsequently comprehensive regulations for all cable systems. 2 ' Contrary to its earliest view that it did not have authority to assert jurisdiction over the cable industry, 22 adverse impact on broadcasting. See Orderly Dev. of Broadcasting, 26 F.C.C. at In limiting the scope of its jurisdiction to common carriers and broadcasters, the FCC concluded that it was serving the public interest by providing a greater opportunity for choice of service, the benefits of competition, and diversity of expression. Id. at 437; see also Besen & Crandall, supra note 4, at (discussing FCC's early views on cable regulation). But see M. HAMBURG, ALL ABOUT CABLE 6 (1979) (suggesting FCC decided not to assert jurisdiction for pragmatic as opposed to legal reasons); infra note 16 and accompanying text (discussing beginnings of FCC regulation of cable). 16. See Carter Mountain Transmission Corp. v. FCC, 32 F.C.C. 459 (1962) (denying microwave carrier's application to relay distant signals to cable systems), afd, 321 F.2d 359 (D.C. Cir.), cert. denied, 375 U.S. 951 (1963). A common carrier service, such as the telephone company, offers its communications facilities to all members of the public, who may communicate or transmit messages of their own design and choosing. See FCC v. Midwest Video Corp. (Midwest II), 440 U.S. 689, 701 (1979). The Communications Act grants the FCC power to regulate common carriers. See 47 U.S.C (1982). A microwave common carrier serves as a relay link between a distant broadcast station and a cable operator. See BROADCASTING PUBLICATIONS, INC., supra note 1, at D-1. The microwave carrier transmits to the cable operator's antenna only those signals that the operator wants to receive. Id. In Carter Mountain Transmission Corp. the FCC found that a microwave carrier's proposed service to transmit distant signals to cable operators would facilitate the duplication of local television programming and adversely affect the local station's economic viability and ability to serve the public. See Carter Mountain Transmission Corp. v. FCC, 32 F.C.C. at Ch. 652, 48 Stat (1934) (current version at 47 U.S.C (1982)). 18. See id , 48 Stat. at (codified as amended at47 U.S.C (1982)). 19. See United States v. Southwestern Cable Co., 392 U.S. 157, 170 & nn.[ 0-31 (1968) (discussing Congress' failure to pass bills granting FCC cable regulatory authority). 20. See In re Amendment of Subpart L, Part 11, to Adopt Rules and Regs. to Govern the Grant of Authorization in the Business Radio Serv. for Microwave Stations to Relay Television Signals to Community Antenna Sys. (Rules re Microwave-Served CATV), 38 F.C.C. 683 (1965) (imposing FCC's first cable regulations only on operators that received microwave signals). 21. See In re Amendment of Subpart L, Part 91, to Adopt Rules and Regs. to Govern the Grant of Authorizations in the Business Radio Serv. for Microwave Stations to Relay Television Signals to Community Antenna Sys. (Microwave Relay Authorization), 2 F.C.C.2d 725 (1966) (requiring all cable systems to carry local TV stations, and prohibiting systems from duplicating local programming and from importing distant signals into the 100 major television markets without a hearing on the probable effect on local broadcasting). 22. See supra note 15 and accompanying text (discussing FCC's initial refusal to assert jurisdiction over cable industry).

5 1985] THE 1984 CABLE FLIP FLOP 561 the Commission concluded that the Communications Act implicitly authorized direct cable regulation. 23 Despite the FCC's lack of express statutory jurisdiction over cable, in 1968 the Supreme Court upheld the Commission's implicit authority to regulate the cable industry in United States v. Southwestern Cable Co. 24 The Court recognized that the Communications Act did not explicitly empower the Commission with regulatory authority over cable television. 25 It noted, however, that the FCC had broad authority to regulate broadcasting and other forms of telecommunication pursuant to the Communications Act's mandate to the FCC to direct "all interstate and foreign communication by wire or radio." 26 The Court agreed with the Commission's conclusion that the FCC must have jurisdiction to regulate cable in order to perform effectively its responsibility to provide widely dispersed radio and television service that is equitably and efficiently distributed among the states and communities. 27 The Court, however, restricted the scope of the Commission's cable jurisdiction under the Communications Act to matters "reasonably ancillary" to the fulfillment of the FCC's statutory responsibility to the broadcasting industry. 28 Until its recent decision in Capital Cities Cable, Inc. v. Crisp, 29 the Court had continued to limit the Commission's cable jurisdiction under the reasonably ancillary doctrine Comprehensive regulation The FCC's initial direct regulation of the cable industry focused on the competitive relationship between cable systems and television broadcast stations. 31 The Commission's primary concern was that competition from cable systems importing broadcast signals from distant stations into the service areas of local television sta- 23. See Rules re Microwave-Served CATV, 38 F.C.C. 683, 685 (1965) U.S. 157 (1968). 25. See id at Id (quoting 47 U.S.C. 152(a) (1968) (current version at id 152(a) (1982)). Respondents did not argue that cable systems were not within the term "communication by wire or radio," and the Court did not question whether cable systems engaged in interstate communication. Id at Id at (quoting 47 U.S.C. 307(b) (1968) (current version at 47 U.S.C. 307(b) (1982)); S. REP. No. 923, 86th Cong., 1st Sess. 7 (1959)). 28. United States v. Southwestern Cable Co., 392 U.S. 157, 178 (1968) S. Ct (1984). 30. See, e.g., FCC v. Midwest Video Corp. (Midwest II), 440 U.S. 689, 691 (1979) (finding FCC rules requiring cable systems to develop minimum 20-channel capacity and to provide access channels not reasonably ancillary to broadcast regulation); United States v. Midwest Video Corp. (Midwest 1), 406 U.S. 649, (1972) (plurality opinion) (holding that FCC rule prohibiting cable systems from carrying broadcast signals unless the systems also originated programming was reasonably ancillary to broadcast regulation). 31. See G. CHRISTENSEN, CABLE TELEVISION IN A NEW ERA 95 (1983).

6 562 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:557 tions might seriously damage local television broadcast service. 3 2 Consequently, the FCC initially imposed two anticompetitive restrictions on cable systems served by microwave facilities. 38 One restriction required cable systems to carry the signals of all local TV stations-the must-carry rule. 3 4 The other restriction prohibited cable systems from duplicating the programs of local stations during a fifteen-day period before or after the local broadcast-the nonduplication rule. 35 The FCC considered these rules to be necessary to ensure that cable systems performed a valuable supplementary role that did not impede the growth of local television broadcast service. 36 In 1966 the Commission extended its must-carry and nonduplica- 32. See Orderly Dev. of Broadcasting, 26 F.C.C. 403, (1959) (discussing cable's potential adverse effects on broadcast television). Throughout the 1950's, the FCC had emphasized the establishment of a nationwide television service. See V. Mosco, supra note 1, at 88. The Commission did not want cable to interfere with its goals for broadcast television. See id 33. See Rules re Microwave-Served CATV, 38 F.C.C. 683, (1965). The FCC noted that the purpose of its restrictions on cable systems that received microwave signals was to accommodate the needs of local broadcast services and not to block cable development. Id. at Id at The must-carry rules, 47 C.F.R , 76.59, (1984), which are still in effect, establish a system of priorities for signal carriage. See id.; see also Brief for Petitioner at 7, Turner Broadcasting Sys. v. FCC, No (D.C. Cir. filed May 29, 1984) (discussing effects of must-carry rules on cable operators). The FCC's must-carry rules require cable operators to carry at least all local broadcast signals. See 47 C.F.R (a), 76.59(a), 76.61(a) (1984). In addition, an operator may carry any additional signals within the cable system's channel capacity. Cf. id 76.57(b), 76.59(b), 76.61(b) (permitting cable operators to carry signals in addition to local broadcast signals). Despite recent publicity surrounding the proposed channel systems of a few urban cable operators, more than 35% of United States cable systems have 12 or fewer channels, and an additional 20% have 20 channels or less. Brief for Petitioner at 16, Turner Broadcasting Sys. v. F.C.C., No (D.C. Cir. filed May 29, 1984). Because of their limited channel capacity, cable operators believe that the requirements of the must-carry rules interfere with their ability to carry diverse, special interest programming. Id. at See Rules re Microwave-Served CATV, 38 F.C.C. 683, (1965). The FCC reasoned that the nonduplication rule preserved "competitive exclusivity," and was appropriate because cable systems carried broadcast signals without the consent of the originating station or the producers of its programs. Id at 720. The current version of the nonduplication rule is not as restrictive as the 1965 rule. See 47 C.F.R (1984); see also infra notes 37 & 48 and accompanying text (describing progression of nonduplication rule). 36. Rules re Microwave-Served CATV, 38 F.C.C. 683, 713 (1965). In 1965 the FCC articulated a two-fold rationale for the must-carry rules: that cable television is supplementary to, rather than a substitute for, off-the-air television service; and that mandatory carriage of local signals would prevent "unfair" competition between cable television and local broadcast stations. IdL at The Commission reasoned that cable competition would fragment audiences and reduce viewer access to "free" TV programming. Id. The decrease in viewers of local stations would inevitably result in a fatal loss of advertising revenues for over-the-air broadcasters. Id Three years after the FCC adopted the must-carry rules, the United States Court of Appeals for the Eighth Circuit upheld the constitutionality of the rules as a valid effort to preserve local broadcasting. See Black Hills Video Corp. v. FCC, 399 F.2d 65 (8th Cir. 1968).

7 19851 THE 1984 CABLE FLIP FLOP 563 tion rules to all cable systems 3 7 and prohibited cable systems in the top one hundred television markets from importing distant broadcast signals without an FCC hearing examining the probable effect of the distant signals on local television service. 38 This hearing process proved unworkable, 3 9 however, and in 1968 the Commission sought major changes in its cable regulatory program. 40 In an interim procedure, the FCC abandoned the hearing requirement and permitted cable operators to carry unlimited distant signals only if they obtained retransmission consent from the originating station. 4 1 This consent requirement effectively froze the cable industry's growth because few originating stations granted retransmission permission. 42 As a result of its continuing concern for the broadcasting industry, 43 the FCC promulgated comprehensive cable regulations in These regulations included a new must-carry rule requiring cable operators to carry the signals of all commercial television stations within thirty-five miles of the cable community, 45 various other 37. See Microwave Relay Authorization, 2 F.C.C.2d 725, 728 (1966). The 1966 rule reduced the 15-day nonduplication protection to a ban on same-day cable duplication of local broadcast programming. Ia at IA at 782. The hearings established in the 1966 rules required cable operators to show that the distant signal carriage would be consistent with the public interest and with the establishment and maintenance of UHF (ultra high frequency) television broadcasting services in order to obtain FCC permission to import distant signals. 1d Many independent UHF stations were failing in the mid-1960's, and the Commission concluded that the cable industry was hindering UHF prospects. l The Commission found that the top 100 markets accounted for approximately 90% of America's television homes. See id at See Besen & Crandall, supra note 4, at 90. The procedure caused a significant backlog in FCC importation hearings and began to drain the Commission's resources. Id.; M. HAMBURG, supra note 15, at See In re Amendment of Part 74, Subpart K, of the Comm'n's Rules and Regs. Relative to Community Antenna Television Sys.; and Inquiry Into the Dev. of Communications Technology and Servs. to Formulate Regulatory Policy and Rulemaking and/or Legislative Proposals (Communications Technology Dev.), 15 F.C.C.2d 417 (1968). 41. Id. 42. See G. CHRISTENSEN, supra note 31, at 98; cf. V. Mosco, supra note 1, at 96 (Commission staff's inability to handle hearing petitions resulted in cable freeze): Besen & Crandall, supra note 4, at 90 (attributing cable freeze of major market penetration to FCC hearing requirement). 43. See V. Mosco, supra note 1, at See Cable Television Report and Order, 36 F.C.C.2d 143 (codified at 47 C.F.R , 76.59, (1984)), aff'd sub noam. American Civil Liberties Union v. FCC, 523 F.2d 1344 (9th Cir. 1975) C.F.R (a)(1), 76.61(a)(1) (1984). The 35 mile must-carry specification often requires cable operators to provide duplicative service. See Brief for Petitioner at 8, Turner Broadcasting Sys. v. FCC, No (D.C. Cir. filed May 29, 1984). For example, the current must-carry rules require a cable operator in Columbia, Md. to rebroadcast the CBS, NBC, and ABC signals from both Washington, D.C. and Baltimore, Md. stations. l The 35 mile must-carry specification does not apply to a cable system that operates in a community wholly located between a "smaller television market," see 47 C.F.R. 76.5(i)

8 564 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:557 stations in the same market, 46 and any other "significantly viewed" stations in the cable community. 47 In addition, the 1972 rules narrowed the nonduplication rule to prohibit only the simultaneous duplication of the programs of local stations. 48 Other provisions of the 1972 rules addressed the problems of the cable-copyright controversy that had evolved in the early 1960's. 49 This copyright controversy arose because the retransmission of broadcast programming by distant cable operators exposed copyrighted material to audiences that were not specified in copyright agreements between local broadcasters and program suppliers. 50 Although the broadcasters were obligated to pay copyright royalty fees to programmers, cable operators were under no such obligation. 5 1 Before Congress took action to resolve the cable-copyright problem, 52 the FCC promulgated, as part of its 1972 rules, interim regu- (1984), and a "major television market," see itd 76.5(g), but other specifications do apply. See id 76.57(a)(l)-(3). 46. See 47 C.F.R (a)(2)-(5), (a)(2)-(4) (1984). 47. See id (a)(4), 76.59(a)(6), 76.61(a)(5). A station is a "significantly viewed" station if it is on the 1972 FCC list of significantly viewed stations, id 76.54(a), or if it demonstrates by an independent survey that it is currently significantly viewed. See id (b)-(d); see also id. 76.5(k) (defining percentages for determining if station is significantly viewed). The 1972 list of significantly viewed signals on a countywide basis appears in Cable Television Report and Order, 36 F.C.C.2d 143 (1972) (appendix A), a /'d sub nom. American Civil Liberties Union v. FCC, 523 F.2d 1344 (9th Cir. 1975). Even if a station no longer obtains even a marginal audience within the cable community, the FCC will not delete the station from its 1972 list. See KCST-TV, Inc. v. FCC, 699 F.2d 1185 (D.C. Cir. 1983). 48. See Cable Television Report and Order, 36 F.C.C.2d 143, 166 (1972), afd sub nom. American Civil Liberties Union v. FCC, 523 F.2d 1344 (9th Cir. 1975). The previous nonduplication rule required cable operators to black out any network programming from distant stations that duplicated programming of a local station on the same day. Id.; see supra note 37 (discussing 1966 nonduplication rule). 49. See Cable Television Report and Order, 36 F.C.C.2d 143, (1972), afd sub nom. American Civil Liberties Union v. FCC, 523 F.2d 1344 (9th Cir. 1975); see also Brotman, Cable Television and Copyright: Legislation and the Marketplace Mode 2 COMM/ENT LJ. 477, 478 (1980) (discussing FCC response to copyright controversy, which developed when cable operators began importing distant broadcasters' television signals). 50. H.R. REP. No. 1476, 94th Cong., 2d Sess. 89 (1976). 51. See Brotman, supra note 49, at See Copyright Revision Act, Pub. L. No , 90 Stat (1976) (codified at 17 U.S.C (1982)). Congress enacted the Copyright Revision Act, which establishes a system in which cable operators make payments based on gross revenues and the number of distant signals carried to a royalty pool that is divided among copyright owners, 17 U.S.C. 111 (c) (1982), after the Supreme Court, in two cases, held that cable operators were not subject to copyright liability. See Teleprompter Corp. v. CBS, Inc., 415 U.S. 394 (1974); Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390 (1968). For a discussion of congressional response to Teleprompter and Fortnightly, see Brotman, supra note 49, at In addition to creating a royalty fund, the Copyright Revision Act subjects cable operators to a compulsory licensing system that enables them to retransmit television signals without the copyright owner's permission. See 17 U.S.C. 111(d) (1982). To obtain a compulsory license, a cable operator must comply with a set of requirements. See id. 111 (d)(1), (d)(2)(a) (reporting requirements); id 11 1(d)(2)(B)-(D), (3) (payment of royalties to central fund); id. 11 1(c)(3) (refraining from deleting or altering commercial advertisements on transmitted

9 1985] THE 1984 CABLE FLIP FLOP 565 lations designed to minimize the problem. 53 The regulations limited the use of copyrighted material by restricting the number of distant signals that cable operators could import. 54 In addition, the regulations guaranteed exclusivity of non-network programming for systems in the top one hundred markets. 55 The 1972 rules also contained federal cable requirements for a minimum twenty channel capacity; 56 the capability for two-way communication; 57 and access channels for public, educational, governmental (PEG), and leased-access programming for systems in the top one hundred television markets. 58 In 1976 the FCC promulgated additional rules mandating that all but the smallest cable systems set aside channels for public access. 59 These rules required signals). A cable operator's failure to comply with these conditions results in forfeiture of the protections of the licensing system. See Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, (1984). 53. See Cable Television Report and Order, 36 F.C.C.2d 143, (1972), af 'd sub nom. American Civil Liberties Union, 523 F.2d 1344 (9th Cir. 1975). 54. See id at 177. Under the regulations, cable systems in the top 50 television markets could carry three network stations and three independent stations; systems in the second 50 markets could carry three networks and two independents, and smaller television markets could carry three networks and one independent. Id. In establishing standards for television service that varied according to market size, the FCC was attempting to minimize the impact on local broadcasting yet provide for diversified programming. Id The regulations permitted systems in major markets that filled their independent station quota by carrying local market stations to import two "bonus" distant independent stations if the systems did not "leapfrog"-bypass a local broadcast signal in favor of more popular stations in more distant television markets. Id. at Id at 181. The exclusivity rules prohibited cable systems from showing feature films from two to ten years after the release date and sporting events that were telecast in the community on a nonsubscription basis during the previous two years. Id. at 182. This exclusivity was guaranteed for the term of the contract between the broadcaster and copyright owner. Id. at 181. The regulations also limited the showing of feature films and sporting events to 907o or less of the total programming hours. Id at 182. In addition, they protected series programming of any type. Id The exclusivity restrictions effectively precluded the development of pay cable services. See G. CHRISTENSEN, supra note 31, at 100. Pay cable is programming offered for a fee on a perprogram or per-channel basis to complement basic cable service. Home Box Office v. FCC, 567 F.2d 9, 13 (D.C. Cir.), cert. denied, 434 U.S. 829 (1977). Basic cable service is a package of programming provided to all subscribers without additional charge. See BROADCASTING PUBLI- CATIONS, INC., supra note 1, at viii. 56. See Cable Television Report and Order, 36 F.C.C.2d 143, 190 (1972), afd sub noma. American Civil Liberties Union v. FCC, 523 F.2d 1344 (9th Cir. 1975). 57. Id at The rules required cable companies to build into their systems the capacity for return communication at least on a nonvoice basis. Id. The Commission hoped such devices would be useful for surveys, marketing services, burglar alarm systems, and educational feedback. Id. 58. See id. at 190. Leased access channels are channels set aside for commercial leasing as opposed to PEG use. H.R. REP. No. 934, 98th Cong., 2d Sess (1984). Franchise agreements generally stipulate that the cable operators must provide PEG access channels at no cost to the access user. Id at 48. Leased access use, on the other hand, results from a commercial arrangement between the cable operator and the programmer that establishes the rates, terms, and conditions of the use of the access channel. Id. For further discussion of access channels and the effect of the Cable Communications Policy Act of 1984 on them, see infra notes and accompanying text. 59. See In re Amendment of Part 76 of the Comm'n's Rules and Regs. Concerning the

10 566 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:557 cable operators to provide PEG and leased access channels 60 from their available channels. 61 In addition to providing access channels, the FCC also required cable operators to provide access programmers the use of a studio and recording equipment for reasonable fees. 62 The Commission concluded that the public benefits associated with the provision of access channels and the means to use these channels outweighed the direct and opportunity costs that the cable operators would incur Deregulation In late 1972 there were more than three thousand cable systems in operation, and the Commission could not consistently enforce its complex rules. 64 The Commission, therefore, began to deregulate the cable industry in late Although the FCC's initial deregulatory efforts had inconsequential effects on the industry, 6 6 subse- Cable Television Channel Capacity and Access Channel Requirements of Section (Access Channel Amendment) 59 F.C.C.2d 294 (1976). Cable companies with fewer than 3,500 subscribers were exempt from the 1976 access rules. Id at 301. The FCC eliminated its access rules in 1980 pursuant to the Supreme Court's decision in Midwest Video Corp. v. FCC (Midwest II), 440 U.S. 689 (1979). See 45 Fed. Reg. 76, 178 (1980). For a discussion of Midwest II, see infra notes and accompanying text. 60. See Access Channel Amendment, 59 F.C.C.2d 294, 327 (1976). The public access channels were available on a first-come first-served, nondiscriminatory basis. Id Other than the enforcement of the Commission's prohibition against advertising and obscene programming, cable operators had no control over the content of the programs. Id. 61. See id at 315. To calculate the number of channels available to a cable operator, the Commission subtracted from the total number of channels in the operator's cable system the number of channels the operator used to carry television broadcast signals and pay programming. Id The FCC deemed local origination channels that an operator offered to subscribers at no charge to be available for public access use. Id. at Further, the access rules restricted cable operators from converting any channel available for public access use to new pay programming use. Id at If, however, the cable system had insufficient activated channel capacity, or if programmers did not demand full-time use of the channels, operators could combine one or more required access channels. Id. at The FCC defined sufficent demand on access channel use as 80% of the weekdays or 80% of the time during any consecutive three-hour period for six consecutive weeks. Id. at Id A cable operator could not, however, charge a public access programmer for live programming that was less than five minutes in length. li In addition, the rules required cable operators to reserve at least one public access channel for use without charge. Id. 63. See id at 296. The FCC reasoned that public access channels would open new outlets for local expression, promote diversity in television programming, restore a sense of community to cable subscribers and a sense of openness and participation to the video medium, aid in the functioning of democratic institutions, and improve informational and educational communications resources. Id 64. See Besen & Crandall, supra note 4, at See In re Amendment of Part of the Comm'n's Rules and Regs. Relative to Carriage of Late-Night Television Programming by Cable Television Sys., 48 F.C.C.2d 699 (1974) (permitting cable systems to import unlimited signals during late-night periods when local stations not broadcasting). 66. I; see, e.g., In re Amendment of Part 76, Subparts A and D of the Comm'n's Rules and Regs. Relative to Adding a New Definition for "Specialty Stations" and "Specialty Format Programming" and Amending the Appropriate Signal Carriage Rules, 58 F.C.C.2d 442 (1976) (allowing unlimited importation of foreign language and religious stations); In re

11 1985] THE 1984 CABLE FLIP FLOP 567 quent regulatory changes had a significant impact on cable operations. For example, in 1976 the FCC eliminated its restrictions on leapfrogging, which prohibited cable operators from bypassing the signals of a distant independent station to import those of a popular more distant station. 6 7 In addition, the Commission acted to exempt cable systems with fewer than one thousand subscribers from all exclusivity and signal carriage rules. 68 Before each of these rulemakings, the FCC invited broadcasters to demonstrate potential injury from the prospective liberalization of the rule in question. 6 9 Commentators have suggested that because broadcasters were unable to show any potential injury, the FCC continued to relax its cable regulations. 70 With each ruling, the Commission moved away from its presumption that cable regulation was necessary to protect local broadcasters. 71 The courts also contributed to the deregulation of the cable industry. 72 In Home Box Office v. FCC 73 the United States Court of Appeals for the District of Columbia Circuit vacated the Commission's pay cable rules, 74 which had sharply limited the ability of cable systems to offer feature films and sporting events on subscription chan- Amendment of Part 76 of the Comm'n's Rules and Regs. Relative to Cable Television Sys. and the Carriage of Network News Programs on Cable Television Sys., 57 F.C.C.2d 68 (1976) (permitting cable operators to retransmit network news that the originating stations did not broadcast). For a discussion of the limited effects of the Commission's initial deregulatory efforts, see Besen & Crandall, supra note 4, at See In re Amendment of Subpart D of Part 76 of the Comm'n's Rules and Regs. with Respect to Selection of Television Signals for Cable Television Carriage, 57 F.C.C.2d 625 (1976). 68. See In re Amendment of Part 76 of the Comm'n's Rules and Regs. with Respect to the Definition of a Cable Television Sys. and the Creation of Classes of Cable Sys., 63 F.C.C.2d 956 (1977). The exclusivity exemption is currently codified at 47 C.F.R (b) (1984). 69. See Besen & Crandall, supra note 4, at 100. Suggestions for changes to FCC rules and regulations can come from outside the Commission by formal petition, informal suggestion, legislation, or court decision. See 47 C.F.R (1984) (requirements for formal petition); id 1.41 (provision for informal requests); FEDERAL COMMUNICAnONS COMMISSION DOCKETS BRANCH, How F.C.C. RuLEs ARE MADE 1 (1982) (legislation or court derisions may suggest change in FCC rules). The FCC may also initiate its own rulemaking. See 47 C.F.R (1984). The requirements and procedures for FCC rulemakings are codified at 47 C.F.R (1984). See generally FEDERAL COMMUNICATIONS COMMISSION DoCET BRANCH, supra, (consumer guide to FCC rulemaking procedures). 70. See Besen & Crandall, supra note 4, at See In re Cable Television Syndicated Program Exclusivity Rules, 79 F.C.C.2d 652, 665 (eliminating distant signal carriage and syndicated exclusivity rules after concluding elimination would benefit public without injuring broadcast service), ajfd sub nom. Malrite T.V., Inc. v. FCC, 652 F.2d 1140 (2d Cir. 1980), cert. denied, 454 U.S (1982). The Commission based its conclusions on an economic study of its distant signal carriage and syndicated exclusivity rules. See In re Cable Television Syndicated Program Exclusivity, 65 F.C.C.2d 9 (1977). 72. See FCC v. Midwest Video Corp. (Midwest II), 440 U.S. 689 (1979) (overturning FCC public access rules); Home Box Office v. FCC, 567 F.2d 9 (D.C. Cir.) (overturning FCC pay cable rules), cert. deniea 434 U.S. 829 (1977) F.2d 9 (D.C. Cir.), cert. denied, 434 U.S. 829 (1977). 74. Id at 60.

12 568 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:557 nels. 7 5 According to commentators, the Commission had been in effect regulating a nonbroadcasting activity, pay cable, in order to provide protection to broadcasters. 76 The court questioned whether the rules were reasonably ancillary to the effective performance of the Commission's broadcast responsibilities"7 and concluded that the restrictions were greater than necessary to protect broadcasters. 78 The Supreme Court contributed to the deregulation of cable with its decision in Midwest Video Corp. v. FCC (Midwest II). 79 In Midwest II the Court overturned the FCC's 1976 access regulations that required cable operators to make channels available for use on a nondiscriminatory basis. 80 The Court invalidated the regulations because it found that the Commission's public access rules imposed common carrier status on cable systems, 81 and that the Communications Act of 1934 barred the Commission from compelling broadcasters, including cable operators, to act as common carriers. 8 2 After Midwest II there were no federal rules prohibiting cable operators from controlling access to all of their channels. 8 3 Until the Supreme Court's recent decision in Crisp, the FCC and the courts had significantly deregulated the cable industry. At that time the extent of federal regulation of the cable industry was limited to requiring local broadcast signal carriage-the must-carry rule, 8 4 network program nonduplication protection, 85 franchise fee 75. See Besen & Crandall, supra note 4, at 101. Before Home Box Office, the Commission had limited the showing of sporting events and feature films on cable systems to prevent the siphoning of programming from broadcast systems to cable systems. Id 76. Id 77. See Home Box Office v. FCC, 567 F.2d 9, (D.C. Cir.), cert. denied, 434 U.S. 829 (1977). For a discussion of the FCC's reasonably ancillary jurisdiction over cable, see supra notes and accompanying text. 78. See Home Box Office v. FCC, 567 F.2d 9, 50 (D.C. Cir.), cert. denied, 434 U.S. 829 (1977) U.S. 689 (1979). 80. Id. at , 708; see supra notes and accompanying text (discussing FCC's regulations for public access channels). In overturning the Commission's public access regulations, the Court noted that the FCC may have had jurisdiction to promulgate less intrusive access regulations. See Midwest Video Corp. v. FCC (Midwest 11), 440 U.S. 689, 703 n.14 (1979). The Court also overturned the FCC's minimum 20-channel capacity rule. Id at 692, 708; see supra note 56 and accompanying text (discussing FCC's minimum co-channel rule). For a discussion of public access regulation under the Cable Policy Act, see infra notes and accompanying text. 81. Midwest Video Corp. v. FCC (Midwest II), 440 U.S. 689, 701 (1979). 82. See id at 706; cf. 47 U.S.C. 153(h) (1982) (person engaged in radio broadcasting shall not be deemed common carrier). For a general discussion of FCC regulation of common carriers, see supra note See Midwest Video Corp. v. FCC (Midwest II), 440 U.S. 689, 706 (1979). 84. See supra notes and accompanying text (discussing must-carry rules). 85. See 47 C.F.R (1984). The FCC affords nonduplication protection to a local television network station if a cable system does not duplicate the same program carried simultaneously on a distant station of the same network. See id

13 1985] THE 1984 CABLE FLIP FLOP 569 limitations, 8 6 and sports program blackouts. 87 Cable systems producing original programming had to comply with FCC regulations on cablecasts by candidates for public office, the Fairness Doctrine with respect to issues of public importance, lotteries, obscenity, and sponsorship identification. 88 B. State and Local Regulation of Cable Television After it acknowledged in 1972 that federal licensing of cable operators would be an unmanageable burden, 89 the Commission adopted provisions dividing federal and state cable responsibilities. 90 The Commission's regulatory plan allowed state and local authorities to select a cable company, issue a franchise, and create regulations for any areas not preempted by FCC action. 91 Municipal authorities have historically controlled decisions involving the award of a cable franchise. 92 Typically, a local government seeking a cable franchise will issue a "request for proposals" designating the requirements a cable operator must meet to win the franchise. 93 Cable companies then bid against one another for the 86. See id (outlining FCC's franchise fee provisions) (repealed 50 Fed. Reg. 18,637, 18,661 (1985)). The franchise fee limitations did not apply to cable systems with less than 1,000 subscribers. Id (repealed 50 Fed. Reg. 18,637, 18,661 (1985)). For a discussion of the Cable Policy Act's franchise fee provisions, see infra notes and accompanying text. 87. See 47 C.F.R (1984). If a request is made by the station with the broadcast rights of a sports event that is taking place within the station's licensed community, a cable operator cannot carry the live sporting event unless it is already available on a broadcast signal the operator is required to carry by the must-carry rules. Id 76.67(a). 88. See id Various other technical, reporting, employment, and ownership standards exist. Id See Cable Television Report and.order, 36 F.C.C.2d 143, 207 (1972), ard sub nom. American Civil Liberties Union v. FCC, 523 F.2d 1344 (9th Cir. 1975). 90. Id at The Commission recognized that localities have a legitimate regulatory interest because cable operators use public streets and rights-of-way. Id. at 207. Furthermore, local authorities are in a better position than federal authorities to follow up service complaints. Id 91. I at After Cable Television Report and Order, however, the FCC noted that signal carriage is an area of federal preemption. In re Amendment of Part 76 of the Comm'n's Rules and Regs. Relative to the Advisability of Fed. Preemption of Cable Television Technical Standards or the Imposition of a Moratorium on Non-Fed. Standards (Clarification of Cable Rules), F.C.C.2d 175, 178 (1974), afd sub nom Brookhaven Cable T.V. v. Kelly, 573 F.2d 765 (2d Cir. 1978), cerl. deniead 441 U.S. 904 (1979). Emphasizing its preemptive jurisdiction over all signal carriage regulation, the Commission stated that local franchising authorities do not have jurisdiction relating to signal carriage and cannot delineate in franchise agreements the signals that the franchise cable operator must carry. Id.; see Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, (1984) (finding that Oklahoma state officials did not have authority to require cable operators to delete alcoholic beverage advertisements from retransmission of out of state signals) (quoting Clarification of Cable Rules, 46 F.C.C.2d at 178). 92. H.R. REP. No. 934, 98th Cong., 2d Sess. 23 (1984). 93. Ia A request for proposals or renewal generally addresses channel capacity, services and service rates, franchise fees, public and leased access channels, ownership, enforcement, length of the franchise, and renewal procedures. Id

14 570 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:557 chance to "wire" the city. 94 When the agreement of a franchise that was previously awarded comes up for renewal, the city may also specify additional requirements and may consider proposals from cable operators other than the incumbent operator. 95 In addition, some states also regulate the cable franchise process with direct review of municipal franchise actions. 96 In New York, for example, a state statute details the requirements for the municipal franchise process, and a state agency approves every franchise award. 97 Other states indirectly regulate the franchise process through statutes that limit the terms on which a municipality may grant and enforce a franchise. 98 A Massachusetts statute, for example, permits a municipality to regulate franchise rates only under limited circumstances. 99 The FCC at one time had minimum standards relating to the franchisee selection process, franchise duration and fees, establishment of construction timetables, and procedures for regulating rates and handling subscriber complaints. 00 In 1976 the Commission eliminated most of these franchise standards,' 0 ' and suggested that states and municipalities use the standards on a voluntary or guideline basis After the 1976 revision, the only remaining federal franchise standards were the limitation on franchise fees 103 and the 94. Id. 95. Id. 96. Id Alaska, Arkansas, Connecticut, Delaware, Hawaii, Massachusetts, Minnesota, Nevada, NewJersey, New York, Rhode Island, Vermont, and Virginia regulate the award of cable franchises on a comprehensive basis through a state agency. See BROADCASTING PUBLICATIONS, INC., supra note 1, at A See N.Y. ExEc. LAw (McKinney 1982 & Supp. 1984). 98. H.R. REP. No. 934, 98th Cong., 2d Sess. 23 (1984) (discussing franchising authority and need for legislation to clarify federal and state regulatory roles). 99. See MAss. ANN. LAws ch. 166A, 15 (Michie/Law. Co-op & Supp. 1984) See Cable Television Report and Order, 36 F.C.C.2d 143, (1972), a ]'d sub nom. American Civil Liberties Union v. FCC, 523 F.2d 1344 (9th Cir. 1975) BROADCASTING PUBUCATICNS, INC., supra note 1, at D-2; H.R. REP. No. 934, 98th Cong., 2d Sess. 23 (1984) For an example of franchise guidelines, see 47 C.F.R (1984) (note) (repealed 50 Fed. Reg. 18,637, 18,661 (1985)) See 47 C.F.R (1984) (repealed 50 Fed. Reg. 18,661 (1985). Franchise fees are the amount the cable operator pays annually to the local franchising authority. Id. F.C.C. regulations limited franchise fees to three percent of the cable system's gross revenues, or five percent on a showing of adequate need. Id In 1977, because of the increased popularity of pay cable, the Commission amended its franchise rule to permit the franchise fee to be levied on a system's gross revenues rather than simply on its basic subscriber revenues. See In re City of Miami, Mimeo No. 5153, slip op. at I n.l (FCC Mass Media Bureau June 28, 1984). This amendment effectively doubled the fees payable to franchise authorities. Id. The franchise fee rule was intended to strike a balance that recognizes that a local government is entitled to be compensated for the use of local rights of way and for the cost of regulation, but also that cable television is engaged in interstate communications and local burdens have "extraterritorial" effects that constrain the national development of cable services. See id, slip op. at 2. Section 622(b) of the Cable Communications Policy Act of 1984 increases the amount of franchise fees from three to five percent of a cable operator's gross revenues. Pub. L. No. 98-

15 1985] THE 1984 CABLE FLIP FLOP preemption of rate regulation of pay cable services such as HBO After the Supreme Court struck down the FCC's public access rules in Midwest II, 105 several states enacted their own access requirements.' 0 6 At least one cable operator, however, has challenged locally imposed access regulations on first amendment grounds The Supreme Court has never addressed the constitutionality of local cable access regulations, nor has it approved local bans imposed in various communities on sexually explicit films, certain kinds of advertising, and religious programming.' , 622(b), 1984 U.S. CODE CONG. & AD. NEWS (98 Stat.) 2779, Because of the Act's explicit language, the FCC deleted its franchise fee rules. See Implementation of the Provisions of the Cable Communications Policy Act of 1984 (Cable Policy Act Statement), 50 Fed. Reg. 18,637, 18,661 (1985). For a discussion of the franchise fee provisions of the Act, see infra notes and accompanying text See In re Amendment of Subparts B and C of Part 76 of the Comm'n's Rules Pertaining to Applications for Certificates of Compliance and Fed.-State/Local Regulatory Relationships, 66 F.C.C.2d 380, 402 n.21 (1977); see also In re Community Cable TV, Inc. (Nevada I), 95 F.C.C.2d 1205, (1983) (preempting local rate regulation of satellite-delivered programming), quoted in, Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, 2703 n.9 (1984); Clarification of Cable Rules, 46 F.C.C.2d 175, (1974) (concluding that there should be no rate regulation of cable at any government level), afd sub nor. Brookhaven Cable T.V. v. Kelly, 573 F.2d 765 (2d Cir. 1978), cert. denied 441 U.S. 904 (1979). Local authorities can, however, regulate rates for basic cable service. See Nevada, 95 F.C.C.2d at (1983). Basic service consists of service regularly provided to all cable subscribers. See Clarification of Cable Rules, 46 F.C.C.2d at 199; Cable Television Report and Order, 36 F.C.C.2d 143, 209 (1972), a'd sub nom. American Civil Liberties Union v. FCC, 523 F.2d 1344 (9th Cir. 1975). Most systems charge a monthly fee, averaging about $8, for basic cable television service. See BROADCASTING PUBLICATIONS, INC., supra note 1, at D-2. Cable operators group nonbasic service, such as all movie or sports channels, into tiers that are then offered to subscribers for an additional fee. See In re Community Cable T.V., Inc. (Nevada II), 56 RAD. REG.2d (P & F) 735, 736 n.2 (1984). The FCC excludes local governments from pay cable rate regulation. Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, 2702 (1984); Clarification of Cable Rules, 46 F.C.C.2d 175, (1974), a fd sub noam. Brookhaven Cable TV v. Kelly, 573 F.2d 765, (2d Cir. 1978), cert. dnied, 441 U.S. 904 (1979). Channels mandated by the Commission's must-carry rules are automatically included in the system's basic service. See Nevada I, 56 RAD. REG.2d (P & F) at 739 n.6. Any discretionary channels included in the basic tier, however, are subject to local rate regulation. Id. For a discussion of the rate regulation provisions of the Cable Policy Act, see infra notes and accompanying text Midwest Video Corp. v. FCC (Midwest II), 440 U.S. 689 (1979). For a discussion of the Court's analysis in Midwest II, see supra notes and accompanying text See, e.g., CONN. GEN. STAT (c) (Supp. 1981) (requiring at least one noncommercial public access channel); MINN. STAT. ANN (b) (1982) (requiring access channels for educational, governmental, and general public use). California permits cable companies to be free from rate regulations only if certain criteria are met, one of which is the provision of public access channels. See CAL. Gov'T CODE (West Supp. 1984). For an excellent discussion of state cable access requirements, see Harrison, Access and Pay Cable Rates: Off-Limits to Regulators After Midwest Video II?, 16 CoLuM.J.L. & Soc. PROBS. 591, (1981) See Berkshire Cablevision of R.I., Inc. v. Burke, 571 F. Supp. 976, 984 n.7 (D.R.I. 1983) (upheld state imposed mandatory access channels), appeal docketed, No (Ist Cir. Oct. 27, 1983). For a discussion of the district court's opinion in Berkshire, see infra note See High Court Limits Local Cable Contro4 CABLE TV FRANCHISING, June 22, 1984, at 1. Cities such as Escondido, Cal.; Lansing, Mich.; Miami, Fla.; Roy, Utah; and Vernon Hills, Ill. among others have recently attempted to impose programming bans on cable operators. Id.

16 572 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:557 After state and local franchising authorities began to fill the regulatory void that the FCC's deregulation of the cable industry created, the Supreme Court, encouraged by the FCC, severely limited the cable regulatory role of nonfederal authorities in its decision in Capital Cities Cable, Inc. v. Crisp. 109 Four months later, however, Congress passed the Cable Communications Policy Act of 1984,110 curtailing the effect of Crisp and reestablishing the boundaries of cable regulatory authority in favor of localities."' II. Capital Cities Cable, Inc. v. Crisp A. Procedural and Factual History In March of 1980 the Oklahoma Attorney General extended to cable television the state's ban on the advertisement of alcoholic beverages on television broadcasts. 1 2 The decision placed Oklahoma cable operators in a precarious situation: FCC regulations and federal copyright law prohibited them from altering the television signals they relayed to subscribers,' '3 but they faced state S. Ct (1984) Pub. L. No , 1984 U.S. CODE CONG. & AD. NEws (98 Stat.) See infra notes and accompanying text (discussing effects of selected provisions of Act on Crisp and cable industry) See Op. Okla. Att'y Gen. No (Mar. 19, 1980). The Oklahoma Constitution makes it "unlawful for any person, firm or corporation to advertise the sale of alcoholic beverage" within the state. OKLA. CONsT. art. XXVII, 5. This stringent rule allows one sign at the retail liquor outlet bearing the words "Retail Alcoholic Liquor Store" in three by four inch letters. Oklahoma Alcoholic Beverage Control Board Act, OKLA. STAT. tit. 37, 516 (1981). For a comprehensive discussion of Oklahoma's alcohol regulatory history, see Brief for Respondent at 1-10, Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984). The Supreme Court of Oklahoma has interpreted the Alcoholic Beverage Control Board Act as prohibiting Oklahoma television broadcast stations from using wine advertisements in locally produced programming and requiring broadcasters to delete similar advertising from national network programming. See Alcoholic Beverage Control Bd. v. Heublein Wines Int'l, 566 P.2d 1158, 1160 (Okla. 1977). The court noted that such deletion is technically feasible because networks provide sufficient advance notice of such commercials to their affiliates. Id See Copyright Act of 1976, 17 U.S.C. 111 (c)(3) (1982) (establishing that secondary transmission of broadcast signals cannot be "in any way willfully altered by the cable system through changes, deletions, or additions"); 47 C.F.R (b) (1984) (stating that television broadcast signals "shall be carried in full, without deletion or alteration of any portion"). The FCC nondeletion rule applies to commercial advertisements as well as regular programming. See In re Garland B. Pugh, 68 F.C.C.2d 997, 999 (1978) (denying petition to permit substitution of locally sold commercials for original commercials from distant stations); In re WAPA-TV Broadcasting Corp., 59 F.C.C.2d 263, 272 (1976) (finding modification of commercial messages violation of FCC rule); Communications Technology Dev., 15 F.C.C.2d 417, 444 (1968) (discussing rule that made it violation to delete or alter signals); Microwave Relay Authorization, 2 F.C.C.2d 725, 753, 756 (1966) (discussing implicit rule barring cable operators from altering or deleting signals they transmit). The only way that a cable operator could adhere to the liquor advertising ban without altering or deleting the broadcast signals would be to cease carrying the signals that contained liquor advertisements. Failing to carry the distant signals, however, would violate the FCC's must-carry rules. See supra notes and accompanying text (discussing must-carry rules). At the trial level of the Crisp proceedings, the district court found there was no feasible way for cable operators to block out the problematic liquor advertisements. See Cable-Com Gen.,

17 1985] THE 1984 CABLE FLIP FLOP 573 criminal prosecution if they failed to delete liquor advertising from imported programming.' 14 Several Oklahoma cable operators brought a suit against Richard Crisp, director of the state's Alcoholic Beverage Control Board (Control Board), seeking declaratory and injunctive relief from enforcement of the advertising ban. 115 They contended that the ban violated their first amendment right of freedom of speech.' 16 Crisp moved to dismiss the case, arguing that the twenty-first amendment granted the state broad power to regulate the liquor industry, 1 7 and that this interest outweighed the limited first amendment protection afforded commercial speech."1 8 Inc. v. Crisp, No. Civ W, slip op. at 41a (W.D. Okla. Feb. 10, 1982), rev'd sub nom. Oklahoma Telecasters Ass'n v. Crisp, 699 F.2d 490 (10th Cir. 1983), rev'd sub nom. Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984). Unlike television broadcast stations, which FCC regulations require to have operator-supervised transmissions, see 47 C.F.R (a) (1984), cable systems are often fully automated with no regular operator on duty. SeeJoint Appendix at 15, 24, Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984) (cable system equipment often unattended) (testimony of Ronald L. Marnell, Multimedia Cablevision, Inc., Preliminary Injunction Hearing, Mar. 6, 1981). In addition, cable operators have no control over the programming or advertising included in out-of-state television signals and receive no advance notice from the stations concerning the scheduling of wine commercials. Id at 24. Because cable reception and retransmission of the television signals occur simultaneously, as a practical matter, cable operators cannot delete an entire commercial. lid at 30. Furthermore, although a television broadcast station transmits only one signal, a cable system normally transmits more than 12. See Brief of the Federal Communications Commission as Amicus Curiae Supporting Petitioners at 16, Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984). Constant monitoring by a cable operator of all of the system's signals would be burdensome and costly, requiring a tremendous increase in staff and equipment. Id See Letter of Caution from Alcoholic Beverage Control Board (Jan. 14, 1981), reprinted in Joint Appendix at 11, Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984). Oklahoma cable operators received letters from Crisp notifying them of advertising violations and threatening prosecution for future noncompliance with the advertising ban. Id 115. See Cable-Com Gen., Inc. v. Crisp, No. Civ W, slip op. at 34a (W.D. Okla. Feb. 10, 1982), rev'd sub nom. Oklahoma Telecasters Ass'n v. Crisp, 699 F.2d 490 (1Oth Cir. 1983), rev'd sub noi. Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984) Id. at 35a. The cable operators also asserted an equal protection claim based on the state's inconsistent treatment of broadcast and print media, but the trial court did not address the argument. Id at 39-40a. Newspapers and magazines published outside Oklahoma, but circulated within the state, are permitted to carry alcohol beverage advertising. See Oklahoma Telecasters Ass'n v. Crisp, 699 F.2d 490,493 n.1 (10th Cir. 1983), rev'd sub nom. Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984); see also Op. Okla. Att'y Gen. No (Nov. 24, 1976) (stating that advertising ban not applicable to out-of-state print media) See Cable-Corn Gen., Inc. v. Crisp, No. Civ W, slip op. at 35a (W.D. Okla. Feb. 10, 1982), rev'd sub nom. Oklahoma Telecasters Ass'n v. Crisp, 699 F.2d 490 (10th Cir. 1983), rev'd sub nora. Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984). Section 2 of the 21st amendment provides: "The transportation or importation into any State,... for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited." U.S. CoNsT. amend. XXI, 2. Under the 21st amendment, states have the power to prohibit liquor sales within their boundaries and the concomitant power to regulate the times, places, and circumstances under which liquor may be sold. See New York State Liquor Auth. v. Bellanca, 452 U.S. 714, 715 (1981). The district court in Crisp noted, however, that fundamental constitutional rights such as due process, equal protection, and freedom of speech cannot be "swallowed up" by the 21st amendment. See Cable-Com Gen., Inc. v. Crisp, No. Civ W, slip op. at 46a (W.D. Okla. Feb. 10, 1982), rev'd sub nom. Oklahoma Telecasters Ass'n v. Crisp, 699 F.2d 490 (10th Cir. 1983), rev'd sub nom. Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984) Cable-Coin Gen., Inc. v. Crisp, No. Civ W, slip op. at 45a (W.D. Okla. Feb.

18 574 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:557 To balance the parties' constitutional rights, the United States District Court for the Western District of Oklahoma used a test that the Supreme Court had enunciated in Central Hudson Gas and Electric Corp. v. Public Service Commission. 119 Applying the Central Hudson test, the district court concluded that the wine advertisements were neither misleading nor related to unlawful activity, and that the asserted governmental interest of protecting the health and welfare of the people was substantial. 120 The court held, however, that the advertising ban was only an indirect means of advancing the state's substantial interest and was more extensive than necessary.'21 Consequently, the district court granted summary judgment for the cable operators and permanently enjoined the Control Board authorities from enforcing the advertising ban. 122 It also entered a declaratory judgment holding that the advertising prohibition violated plaintiffs' first amendment rights. 123 On appeal, the United States Court of Appeals for the Tenth Circuit dissolved the permanent injunction against the statute's enforcement The court held that the district court erred in its application of the Central Hudson test and that the advertising ban 10, 1982), re'd sub nom. Oklahoma Telecasters Ass'n v. Crisp, 699 F.2d 490 (10th Cir. 1983), rev'dsub nom. Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984). Prior to 1975, purely commercial advertisements were outside the protection of the first amendment. See, e.g., Valentine v. Chrestensen, 316 U.S. 52 (1942) (upholding city ordinance prohibiting distribution of commercial handbills). In a more recent decision, however, the Supreme Court gave commercial speech limited protection. See Ohralik v. Ohio State Bar Ass'n, 436 U.S. 447, 456 (1978) (state continues to have power to regulate any commercial activity, including speech, deemed harmful to public). A state may regulate commercial speech if the restriction furthers a substantial state interest. See Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n, 447 U.S. 556, 566 (1980) See Cable-Coin Gen., Inc. v. Crisp, No. Civ W, slip op. at 47a (W.D. Okla. Feb. 10, 1982) (citing Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n, 447 U.S. 556, 566 (1980)), rev'd sub nom. Oklahoma Telecasters Ass'n v. Crisp, 699 F.2d 490 (10th Cir. 1983), rev'd sub nom. Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984). The district court stated that the Central Hudson test is a four-part test. Id. First, the first amendment must protect the expression in question-it must concern lawful activity and not be misleading. Id. Second, the asserted governmental -interest must be substantial. Id. Third, the regulation must directly advance the asserted interest. Id Fourth, the regulation must not be more extensive than necessary to serve that interest. Id 120. Id. at 47-48a Id. at 49a. The court noted that the purpose of the ban was to reduce consumption of alcoholic beverages and its related problems. Id at 42a. The court, however, determined that the state could employ less restrictive means to accomplish this goal, such as alcohol education programs emphasizing the physical and psychological effects of alcohol. Id. at 48a Id. at 50a Id See Oklahoma Telecasters Ass'n v. Crisp, 699 F.2d 490, 502 (10th Cir. 1983), rev 'dsub nom. Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984). The Tenth Circuit's decision also disposed of the first amendment claims of local television broadcasters, the Oklahoma Telecasters Association (OTA), in a consolidated case. See id. The OTA did not petition the Supreme Court for certiorari.

19 1985] THE 1984 CABLE FLIP FLOP 575 was a valid restriction on commercial speech. 125 The court reasoned that the test enunciated in Central Hudson did not require the legislature to choose the best means of advancing its goals, but required only that the means chosen directly further the asserted state interest.' 26 Although the court recognized the conflict between the Oklahoma advertising ban and federal regulations, it did not discuss the possibility that the regulations preempted enforcement of the ban. 127 B. Holding and Rationale of Supreme Court In a unanimous decision, the Supreme Court reversed the Tenth Circuit and struck down the application of Oklahoma's advertising ban to cable television operators.1 28 The Court concluded that federal law preempted the state regulation and, therefore, did not address the first amendment issues that the lower courts had considered.' Id. at See id at See Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, 2699 (1984) Id at Id at The Court has never ruled on the scope of first amendment protection afforded members of the cable industry. In its most recent major cable content decision, FCC v. Midwest Video Corp. (Midwest II), 440 U.S. 689 (1979), the Court dismissed the first amendment questions in a footnote. Id. at 709 n.19. One week after its decision in Crisp the Court denied a petition for certiorari to review a circuit court decision that upheld a state law that significantly restricts liquor advertisements by local media. See Dunagin v. City of Oxford, 104 S, Ct (1984), denying cert. to 718 F.2d 738 (5th Cir. 1983). Although the laws in both Crisp and Dunagin involved bans on advertising alcoholic beverages, the relevant law in Dunagin applied only to advertisements originating within the state, see Miss. CODE ANN (e) (1973), and therefore, did not restrict the importation of cable signals. See Dunagin v. City of Oxford, 718 F.2d 738, 741 (5th Cir. 1983), cert. denied, 104 S. Ct (1984). In Crisp the Court may have delayed ruling on the merits of the first amendment issue because it is considering major revisions in first amendment policy. One week after its decision in Crisp, the Court indicated that it will reconsider the scarcity doctrine, the theory on which broadcast regulation is based. See FCC v. League of Women Voters, 104 S. Ct (1984) (granting public broadcasters right to editorialize). The theory of broadcast regulation is premised on the idea that the electromagnetic spectrum is a valuable public resource in scarce supply. See B. OWEN, EcONOMICS AND FREEDOM OF EXPRESSION (1975) (criticizing theory of broadcast regulation). Under the theory, government regulation, which creates a fiduciary relationship between broadcasters and the community that they serve, is necessary to prevent airwave congestion. Id at 103. In League of Women Voters the Court speculated that with the advent of cable and satellite television technology, communities may now have access to such a wide variety of programming that the scarcity doctrine is obsolete. FCC v. League of Women Voters, 104 S. Ct. at nn.11 & 12. The Court, therefore, may soon afford broadcasters and cablecasters broad first amendment protection. For a comprehensive discussion of the scarcity doctrine and its relationship to the emergent communications industry, see Fowler & Brenner, A Marketplace Approach to Broadcast Regulation, 60 TEX. L. REv. 207, (1982). In reaching its conclusion in Crisp, the Court deviated from its customary practice of addressing only those issues considered by the lower courts. See Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, 2699 (1984). The Court noted that even though the lower courts did not consider the preemption issue, the petitioner's complaint raised the issue of a conflict between state and federal law, the lower courts acknowledged the conflict, the district court

20 576 THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:557 The Court's preemption analysis focused on whether the Oklahoma statute actually conflicted with federal law and the effect that the twenty-first amendment should have on resolving any existing conflict.' 30 The Court emphasized three specific points: that federal law can preempt state law in a variety of circumstances, 13 1 that federal regulations have no less preemptive effect than federal statutes, 132 and that the FCC clearly had authority to regulate cable television.' 33 Crisp, the respondent, conceded that enforcement of the Oklahoma advertising ban conflicted with both FCC regulations and federal copyright law.' 3 4 He argued, however, that the Oklahoma statute should prevail in this conflict because of the state's broad power under the twenty-first amendment to regulate intoxicating liquor The Court agreed that the states enjoy broad regulatory powers under the twenty-first amendment, 3 6 but concluded that this power was not preeminent to the FCC's regulatory authority.' 3 7 Interpreting its decision in Southwestern Cable Co. as finding that the FCC has comprehensive authority to regulate cable systems,' 3 8 the Court explained that the Commission's regulatory powers encompass all actions necessary to ensure fulfillment of the Commission's statutory responsibilities.' 3 9 It reasoned, therefore, that any FCC determination to preempt an area of cable regulation and to accommodate in a reasonable manner any conflicting policies would made all the factual findings necessary to resolve the issue, and the parties briefed and argued the issue. I, at It was the FCC, however, that suggested that the Court have the parties brief and argue the preemption question. See Memorandum of the Federal Communications Commission as Amicus Curiae at 14, Capital Cities Cable, Inc. v. Crisp, 104 S. Ct (1984); see also Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 66 (1983) (granting certiorari and ordering parties to argue and brief preemption issue) See Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, 2700 (1984) (citing California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980) (California wine pricing program violated Sherman Act notwithstanding state's reliance upon 21st amendment defense)) Id The Court interpreted the supremacy clause, U.S. CONST., art. VI, cl. 2, to require federal preemption of state laws in the following situations: when there is clear congrcssional intent to preempt, when Congress has comprehensively legislated in a certain area, when compliance with both state and federal law is impossible, or when the state law hinders congressional objectives. Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, 2700 (1984) Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, 2700 (1984) (citing Fidelity Fed. Sav. & Loan Ass'n v. De La Cuesta, 458 U.S. 141 (1982)) Id at Id at For a discussion of the conflict between the Oklahoma advertising ban and federal regulation and copyright law, see supra note 113 and accompanying text Capital Cities Cable, Inc. v. Crisp, 104 S. Ct. 2694, 2700 (1984) Id. at Id at Id at 2701 (citing United States v. Southwestern Cable Co., 392 U.S. 157, (1968)) Id

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