The opinion of the court was delivered by: COTE
A. History and Statutory Structure of Federal Cable Law
1. The Cable Communications Policy Act of 1984
c. Legislative History of the Cable Act
2. Post-1984 Cable Act Legislation
3. Other Uses of "Educational" in Telecommunications Law
B. "Public," "Educational," and "Governmental" in Practice: Nationally and in New York City
2. The History of Educational and Governmental Channels in New York City
3. Current Use of Educational and Governmental Channels: Crosswalks
C. Time Warner's New York Cable Systems
D. Franchise Agreements Between Time Warner and the City Regarding PEG
E. Facts Underlying the Current Dispute
1. Time Warner's Merger and Application to the City in Connection with the Merger
2. DoITT and Time Warner Worked Together in the Ensuing Weeks.
3. Time Warner's Choice of MSNBC
4. The City's Reaction to Time Warner's Rejection of Fox
5. The Aftermath of Time Warner's Refusal to Carry Fox News
6. Summary of Factual Conclusions
A. Preliminary Injunction Standard
B. The City's Actions Violate the Cable Act.
1. The City's Actions Are at Odds With the Broad Purposes of PEG and the Structure of the Cable Act.
2. The City's Actions Violate the Governmental Use Provision of Section 531(a).
3. The City's Actions Violate the Franchise Agreements.
4. The City's Actions Violate Section 544(f)(1).
C. The City's Actions Violate Time Warner's First Amendment Rights.
1. First Amendment Jurisprudence
2. Applying the First Amendment
a. Time Warner's First Amendment Rights in the PEG Channels
b. Time Warner's First Amendment Rights in the Commercial Channels
ii. Likelihood of Success
(b) Applying Strict Scrutiny
DENISE COTE, District Judge:
This case concerns the power of a city to influence, control, and even coerce the programming decisions of an operator of a cable television system. It therefore goes to the heart of First Amendment concerns.
The pivotal event in this case occurred on October 1, 1996. On that date, the City of New York ("City") proposed to Time Warner Entertainment Company, L.P. ("Time Warner")
-- a group of cable operators that provide cable service pursuant to franchise agreements with the City -- a plan that called for the City to abandon one of its cable channels designated for public, educational and governmental use ("PEG") if Time Warner would place the new Fox News program on one of Time Warner's commercial cable channels. Time Warner refused to "swap" channels with the City in order to accommodate Fox News. Unwilling to accept Time Warner's decision, a decision protected by the First Amendment and a federal statute, the City raised the ante over the ensuing days in an effort to convince Time Warner to change its mind. This campaign culminated on October 10, 1996, when the City placed Bloomberg Information Television ("BIT") on one of its PEG channels -- specifically, a channel set aside for educational or governmental use -- and prepared to place Fox News on another PEG channel. This action, intended to compel Time Warner to capitulate, instead has brought the parties before this Court.
So long as there remains a limitation on the number of cable channels, and intense competition over access to this valuable resource, there is a potential for a dispute of this nature to arise. Fortunately, however, the exercise of government power at issue here is without precedent. Given the irregularity of the City's actions in this case, I need not definitively decide each of the difficult issues, including a fine determination about the appropriate use of PEG channels under the Cable Communications Policy Act of 1984 ("Cable Act"). Pub. L. No. 98-549, 98 Stat. 2779 (codified at 47 U.S.C. § 521 et seq.). Nonetheless, I do find that the City's actions are far beyond acceptable PEG use, that the City acted in contravention of the legislative purposes of the Cable Act, and, specifically, violated the provisions relating to PEG use and the editorial autonomy of a cable operator. Most importantly, I find that by engaging in an effort to compel Time Warner to alter its constitutionally-protected editorial decision not to carry Fox News, the City has violated Time Warner's First Amendment rights.
Time Warner brought this action for preliminary injunction against the City on October 10, 1996. Defendant City is a municipal corporation organized under the laws of the State of New York. Defendant-intervenor Bloomberg L.P. ("Bloomberg") intervened in the action on October 16, 1996. Bloomberg is a news service that specializes in covering financial news and produces BIT.
Time Warner's complaint alleges that the City's actions violate the franchise agreements, the Cable Act, and the First Amendment. The complaint also alleges that if the City's actions are allowed under the Cable Act, then the Act violates the First Amendment as applied. Finally, the complaint alleges that the City's actions violate the Takings Clause of the Fifth Amendment, New York State law, the New York State Constitution, and the New York City Charter.
On October 11, 1996, this Court held a hearing on Time Warner's application for a temporary restraining order ("TRO") enjoining the City from continuing to show BIT and from placing Fox News on the Crosswalks Network ("Crosswalks"), a group of cable channels set aside for educational and governmental use and supervised by the City. After hearing the parties, this Court granted Time Warner's motion for a TRO.
A hearing on Time Warner's application for a preliminary injunction was set for October 23, 1996, and at the City's request an extension was subsequently granted to October 28. The parties agreed, pursuant to this Court's rules, to have the direct testimony of all witnesses presented by affidavit. Prior to the hearing, the parties were to designate which witnesses they wished to cross-examine in person.
Time Warner submitted affidavits from Richard Aurelio, President of New York City Cable Group
; Allan J. Arffa, outside counsel to Time Warner; Fred Dressler, Senior Vice President of Programming at Time Warner Cable; Spencer B. Hays, Vice President and Deputy General Counsel of Time Warner; Robert S. Jacobs, General Counsel of Time Warner's New York City Cable Group; Stuart J. Lipson, an independent consultant specializing in developing competitive strategies, particularly in the cable industry; Gary McBride, President and CEO of GEMS International Television; Gregory Moore, Executive Director of Northwest Community Television; George William Nichols, President and CEO of Kaleidoscope Network, Inc.; Richard D. Parsons, President of Time Warner; Barry Rosenblum, President of Time Warner Cable of New York City; George C. Stoney, professor of film and television at NYU; and Lynn Yaeger, Senior Vice President of Corporate Affairs for Time Warner Cable.
Time Warner submitted deposition excerpts from Allan Arffa; Richard Aurelio; Walter de la Cruz, Director of Cable Television Franchises and Policy at the City Department of Information Technology and Telecommunications ("DoITT"); Fred Dressler; Barry R. Forbes, Executive Director of the Alliance for Community Media; James Honiotes, Vice President of Distribution for Jones Education Company, the producer of Knowledge TV; Robert S. Jacobs; David B. Klasfeld, Chief of Staff to Fran Reiter; Gary S. Lutzker, Telecommunications Counsel at DoITT; Randy Mastro, Deputy Mayor for Operations; Gary McBride; John T. McCormick, Assistant Commissioner of DoITT; Gregory Moore; Craig Muraskin, Special Assistant to Fran Reiter; George William Nichols; Alex Quinn, Executive Director and President of Manhattan Neighborhood Network; Bruce Regal, an attorney in the New York City Law Department; Elaine S. Reiss, General Counsel of DoITT; Fran Reiter, Deputy Mayor for Economic Development and Planning; Ted Turner, Vice Chairman of Time Warner; Salvador C. Uy, former Assistant Commissioner for Cable Television and Telecommunications Policy for DoITT; and Lynn Yaeger.
The City submitted affidavits or affirmations from Paul A. Crotty, Corporation Counsel for the City; David B. Klasfeld; Craig Muraskin; Burt Neuborne, professor of constitutional law at NYU
; Elaine S. Reiss; Fran Reiter; and Salvador C. Uy. The City submitted deposition excerpts from Richard Aurelio, Walter de la Cruz, Fred Dressler, Spencer B. Hays, Robert S. Jacobs, Gary S. Lutzker, Randy Mastro, John T. McCormick, Craig Muraskin, Bruce Regal, Elaine Reiss, Fran Reiter, Barry Rosenblum, Ted Turner, Salvador C. Uy, and Lynn Yaeger.
Bloomberg submitted affidavits from Michael R. Bloomberg, President of Bloomberg L.P.; Leon Friedman, constitutional law professor at Hofstra Law School
; Joseph D. LaRocco, Television and Cable Services Manager for television station KACT in Aurora, Colorado
; Michael I. Meyerson, communications law professor at the University of Baltimore School of Law
; and Dean Smits, Director of the Office of Telecommunications for the City and County of Denver, Colorado. Bloomberg submitted deposition excerpts from Richard Aurelio, Walter de la Cruz, Fred Dressler, Barry Forbes, James Honiotes, Robert S. Jacobs, David B. Klasfeld, Gary S. Lutzker, Gary McBride, John T. McCormick, Gregory Moore, George William Nichols, Elaine S. Reiss, Bruce Regal, Barry Rosenblum, Dean Smits, Ted Turner, and Lynn Yaeger.
The hearing on the preliminary injunction took place from October 28 to 30, 1996. The parties chose not to call any witnesses for cross examination. Based on the testimony and the exhibits admitted into evidence, I make the following findings of fact and conclusions of law.
A. History and Statutory Structure of Federal Cable Law
Cable television systems were first built in the late 1940s to carry broadcast television signals to remote or mountainous areas. Turner Broadcasting Sys., Inc. v. FCC, 512 U.S. 622, 114 S. Ct. 2445, 2451, 129 L. Ed. 2d 497 (1994). The intent of these systems -- called community antenna television (CATV) systems -- was to extend the range of television services, not compete with them. Id. By the 1970s, however, cable television systems began developing and carrying their own programming in addition to broadcast channels. H.R. Rep. No. 98-934, at 20-21 (1984), reprinted in 1984 U.S.C.C.A.N. 4655, 4658.
In contrast to broadcast television, which relies on electromagnetic signals transmitted from a central antenna and received by individual antennas in consumers' homes, cable systems rely on a physical connection: a signal is carried through a conventional or optical fiber cable that functions much like a telephone line. Time Warner Entertainment Co. v. FCC, 320 U.S. App. D.C. 294, 93 F.3d 957, 962 (D.C. Cir. 1996). Indeed, cable television lines must be laid in the ground and attached to poles in the same manner as telephone lines. To lay these cables, operators must obtain rights-of-way and easements from local governments. 93 F.3d at 962.
As a result of these physical exigencies, cable television is regulated at the local level. Operators negotiate franchise agreements with local governments -- "franchising authorities" in the telecommunications lexicon -- to obtain the rights-of-way necessary to lay the cable wires. H.R. Rep. No. 98-934 supra, at 19, creprinted in 1984 U.S.C.C.A.N. at 4656. While the regulatory landscape of the cable industry changed with the advent of federal legislation in 1984 -- amended by two subsequent acts in 1992 and 1996 -- local franchise agreements still determine much of the delivery of cable services, subject to these federal laws which define and limit local governments' authority. Id. at 19, reprinted in 1984 U.S.C.C.A.N. at 4656.
Currently, the industry is comprised of cable operators, who own the physical assets and franchises and transmit the signals, and cable programmers, who produce programs and sell them to the operators. Operators and programmers often have ownership interests in the other and are thus "vertically integrated" entities. Time Warner, 93 F.3d at 963. A cable operator offers programming that is made up of local and distant television broadcast signals, along with local, regional and national cable channels (such as CNN, ESPN, and the Weather Channel). Cable operators contract with each cable programmer individually.
Cable programmers earn money by selling advertising space on their programs and charging cable operators a set fee per subscriber, per month. Not all programs function this way: some do not sell advertising (such as HBO and C-SPAN) and some do not charge on a per subscriber, per month basis (such as the TV Food Network). Cable operators earn money by collecting fees from subscribers. Cable operators attempt to provide a selection of programs that will be attractive to subscribers.
1. The Cable Communications Policy Act of 1984
The Cable Act establishes national policy for the federal, state, and local regulation of the cable industry. The stated purposes of the law include the establishment of franchise procedures and standards to encourage the growth and development of cable systems and to assure that cable systems are responsive to the needs and interests of the local community, 47 U.S.C. § 521(2); the establishment of guidelines for the exercise of federal, state, and local authority with respect to the regulation of cable systems, 47 U.S.C. § 521(3); and the assurance that cable systems will provide the widest possible diversity of information sources and services to the public, 47 U.S.C. § 521(4).
The Cable Act establishes who, in addition to the operator, may have access to a cable system. To assure a cable system provides programming that is responsive to the needs of the local community, the Cable Act authorizes franchising authorities to require operators to set aside an undetermined number of channels for "public, educational and governmental use." 47 U.S.C. § 531(a). These stations are known as PEG channels or PEG access. The statutory provision does not further explain this use, but Congress's meaning and intent is apparent from the legislative history of the Cable Act, discussed below. Importantly, the statute does not require cable operators to carry such channels. Indeed, as of 1990, only sixteen percent of all cable systems nationwide had public access, thirteen percent had educational access, and eleven percent had governmental access.
The Cable Act does, however, give a franchising authority the power to require an operator to provide PEG channels. A franchise agreement gives life to Section 531(a), but Section 531(a) also establishes a framework for these franchise agreements: that the channels be set aside for public, educational, and governmental use.
Another provision makes clear that a different group of voices will be heard. Section 532 requires an operator with more than 36 channels (including PEG channels, but excluding the local commercial television stations that a cable operator must provide to subscribers pursuant to a 1992 amendment codified at 47 U.S.C. § 534) to set aside a percentage of those channels for use by entities unaffiliated with the operator.
47 U.S.C. § 532. The stated purpose of this provision is to "assure that the widest possible diversity of information sources are made available to the public." 47 U.S.C. § 532(a). Under this provision, a cable programmer can "lease" a cable channel from a cable operator. While the Act terms this access "commercial use," 47 U.S.C. § 532, and it is popularly referred to as "leased access," the "commercial" in the statute refers to the nature of the lease, not the content of the programming or intent of the programmer. Section 532(b)(5) states that "the term 'commercial use' means the provision of video programming, whether or not for profit." Indeed, a nonprofit entity may lease a channel under this provision. 47 U.S.C. § 532(b)(5)(B).
The statute also safeguards the editorial autonomy of operators, programmers, and PEG users. The programming decisions of cable operators are protected under 47 U.S.C. § 544(f)(1), which provides that "any federal agency, State, or franchising authority may not impose requirements regarding the provision or content of cable services, except as expressly provided in this subchapter." Likewise, a cable operator has no editorial control over PEG channels pursuant to 47 U.S.C. § 531(e), which states that "a cable operator shall not exercise any editorial control over any public, educational, or governmental use of channel capacity provided pursuant to [the PEG provision]." Under 47 U.S.C. § 532(c)(2) a cable operator "shall not exercise any editorial control over any video programming offered" under leased access.
The PEG provisions of the Cable Act did not introduce a new practice to the cable industry. Since the 1960s local governments had conditioned franchise grants on the provision of PEG access. This was done in an effort to "create a more direct right of access to the video media." Daniel L. Brenner et al., Cable Television and Other Nonbroadcast Video: Law and Policy § 6.04, at 6-34 (1996). Communities saw cable as "the next public forum," akin to "public parks, libraries, theaters, and other public fora [that] . . . encourage, or at least permit speech." Id. New York City has required PEG channels on cable systems since 1971. Id. § 6.04, at 6-34.1.
Nor was the Cable Act the first time the federal government regulated PEG practices. In 1968, the Federal Communications Commission ("FCC") initiated rule-making proceedings that ultimately led to cable regulations adopted in 1972. James N. Horwood, Public, Educational, and Governmental Access on Cable Television: A Model to Assure Reasonable Access to the Information Superhighway for All People in Fulfillment of the First Amendment Guarantee of Free Speech, 25 Seton Hall L. Rev. 1413, 1414 (1995). These regulations, among other provisions, required cable operators in the largest 100 markets to set aside three channels for free use by public, educational, and governmental bodies. Cable Television Report and Order, 36 F.C.C.2d 143, 190-91, aff'd on recon., 36 F.C.C.2d 326 (1972). In introducing the regulations, the FCC stated that the "fundamental goals of a national communications structure" would be furthered with the
opening of new outlets for local expression, the promotion of diversity in television programming, the advancement of educational and instructional television, and increased informational services of local governments.
The regulations described "public" as an access channel "available without charge on a first-come, first-served nondiscriminatory basis." Id. The FCC defined "educational" as a channel that "local educational authorities" have access to for "instructional programming and other educational purposes." Id. at 191. The regulation stated that "the potential uses of the educational channel are varied. An important benefit promises to be greater community involvement in school affairs." Id. Finally, the FCC defined "governmental" as an access channel "designed to give maximum latitude for use by local governments." Id. The regulations were not long-lived, however, because the Supreme Court ultimately found them to be outside the scope of the FCC's delegated authority under the Communications Act of 1934 (which established the FCC and defined the scope of its regulatory authority). FCC v. Midwest Video Corp., 440 U.S. 689, 708-09, 59 L. Ed. 2d 692, 99 S. Ct. 1435 (1979).
Despite the rise and fall of federal regulations, the practice of including PEG channels in franchise agreements continued. The Cable Act, then, was intended to "recognize and endorse the preexisting practice of local franchise authorities conditioning their cable franchises on the granting of PEG channel access." Time Warner, 93 F.3d at 972. See also H.R. Rep. No. 98-934, supra, at 30, reprinted in 1984 U.S.C.C.A.N. at 4667. As explained by the D.C. Circuit, the PEG provisions merely ensure that states will not prohibit the practice, and preclude federal preemption challenges to such requirements. Time Warner, 93 F.3d at 972-73.
c. Legislative History of the Cable Act
While the legislative history of the Cable Act is not abundant -- a House Report and few Senate floor statements -- the House Report addressed many of the issues in this case. The House Report stated that one goal of the law was to "provide the widest possible diversity of information services and sources to the public, consistent with the First Amendment's goal of a robust marketplace of ideas." H.R. Rep. No. 98-934, supra, at 19, reprinted in 1984 U.S.C.C.A.N. at 4656. The House Report stated that
Id. The House Report noted that leased access also would promote a diversity of views. Id. at 20, reprinted in 1984 U.S.C.C.A.N. at 4657.
In a section describing the PEG provisions, the House Report noted that
one of the greatest challenges over the years in establishing communications policy has been assuring access to the electronic media by people other than the licensees or owners of those media. The development of cable television, with its abundance of channels, can provide the public and program providers the meaningful access that, up until now, has been difficult to obtain.
Id. at 30, reprinted in 1984 U.S.C.C.A.N. at 4667. The section also stated that
almost all recent franchise agreements provide for access by local governments, schools, and non-profit and community groups over [PEG] channels. Public access channels are often the video equivalent of the speaker's soap box or the electronic parallel to the printed leaflet. They provide groups and individuals who generally have not had access to the electronic media with the opportunity to become sources of information in the electronic marketplace of ideas. PEG channels also contribute to an informed citizenry by bringing local schools into the home, and by showing the public local government at work.
Id. While the House Report did not expand on the three prongs of PEG, a 1991 Senate Report leading up to the 1992 amendments of the Cable Act discussed the different types of use. The Senate Report concluded that public access would allow "individuals and groups to communicate their message to the general public;" educational access would allow "local schools to supplement classroom learning and to reach out to teach those who are beyond school age or unable to attend classes;" and the governmental channel would allow "for a local 'mini-C-SPAN.'" S. Rep. No. 102-92, at 52-53 (1991), reprinted in 1992 U.S.C.C.A.N. 1133, 1185-86.
While the PEG channels were not an innovation of the Cable Act, Congress did create a new type of access through the leased access provision. The House Report stated that leased access
complements PEG access by assuring that sufficient channels are available for commercial program suppliers with program services which compete with existing cable offerings, or which are otherwise not offered by the cable operator (for political reasons, for instance).
H.R. Rep. No. 98-934, supra, at 30, reprinted in 1984 U.S.C.C.A.N. at 4667. The House Report made clear that the key to leased access was not the commercial nature of the programming or the producer, instead it was the commercial aspect of the lease: a programmer buys space on this channel, as opposed to the free access available under PEG. The House Report stated that
"commercial use" means the provision of video programming, whether or not the third party providing the program service is a profit or nonprofit entity. The term commercial use is employed to distinguish from public access uses which are generally afforded free to the access user, whereas third party leased access envisioned by this section will result from a commercial arrangement between the cable operator and the programmer with respect to the rates, terms and conditions of the access use.
Id. at 48, reprinted in 1984 U.S.C.C.A.N. at 4685.
local cable company may provide information in which it has a financial or proprietary interest on the vast majority of its channels, as long as it sets limited channel capacity aside for use by others.
Id. at 33, reprinted in 1984 U.S.C.C.A.N. at 4670. The House Report added to, and reiterated, this point:
the access channel requirements of [the Cable Act] are narrowly drawn structural regulations that will ensure a diversity of information sources without governmental intrusion into the content of programming carried on the cable system.
Id. at 35, reprinted in 1984 U.S.C.C.A.N. at 4672 (emphasis in original).
The House Report then addressed each constituency's concerns. Addressing PEG access, the House Report stated
it is integral to the concept of the use of PEG channels that such use be free from any editorial control or supervision by the cable operator. . . . There is no limitation imposed on a franchising authority's or other governmental entity's editorial control over or use of channel capacity set-aside for governmental purposes. However, the Committee does not intend that franchising authorities lease governmental channels to third parties for uses unrelated to the provision of governmental access . . . .
Id. at 47, reprinted in 1984 U.S.C.C.A.N. at 4684.
Protecting the cable operators' First Amendment rights, the House Report stated
with regard to the access requirement, cable operators act as a conduit. They do not exercise their editorial discretion over the programming; nor are they prevented or chilled in any way from presenting their own views and programming on the vast majority of channels otherwise available to them.
Id. at 35, reprinted in 1984 U.S.C.C.A.N. at 4672.
Later statements by Congress also evidence an intent to curb franchising authorities' control over cable operators. In the 1992 amendments to the Cable Act, Congress found that "the Cable Communications Policy Act of 1984, in its amendments to the Communications Act of 1934, limited the regulatory authority of franchising authorities over cable operators." Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, § 2(a)(20), 106 Stat. 1460, 1463 (1992) ("1992 Act").
2. Post-1984 Cable Act Legislation
The cable industry grew dramatically after the 1984 Cable Act. Congress conducted a two-year study of the expanding industry which ultimately led to the passage of the 1992 Act. Time Warner, 93 F.3d at 963. The 1992 Act revised some provisions of the 1984 Cable Act, left others intact, and added still others. In response to congressional studies that concluded cable rates were excessive due to a lack of competition, the 1992 Act granted the FCC and local authorities the power to regulate prices. Primarily, the 1992 Act imposed rate regulations on the industry and required operators to carry television broadcast stations.
While the 1992 Act did not amend the 1984 Cable Act PEG provisions, it did add several provisions related to PEG. First, it required that cable operators provide a basic tier service, a set of channels that include PEG channels. 47 U.S.C. § 543(b)(7)(A)(ii). Second, it allowed franchise authorities to require cable operators to provide "adequate assurance that the cable operator will provide adequate public, education, and governmental access channel capacity, facilities, or financial support." 47 U.S.C. § 541(a)(4). Finally, the 1992 Act enacted censorship provisions for indecent programming on PEG channels. 47 U.S.C. §§ 532(h), (j), and note following § 531. This was a major change from previous law which prohibited cable operators from exercising any editorial control over PEG channels. The Supreme Court recently struck down the censorship provisions on First Amendment grounds. Denver Area Educ. Telecomm. Consortium v. FCC, 135 L. Ed. 2d 888, 116 S. Ct. 2374, 2394 (1996).
The 1992 Act also made changes to the leased access provision. Section 612 of the Act notes that leased access is rarely used. While the reasons for this are uncertain, Time Warner 93 F.3d at 968-69, the Senate Commerce, Science, and Transportation Committee attributed the lack of use to the fact that cable operators could set the terms and rates of the leases. Sen. R. No. 102-92, supra, at 30-32, reprinted in 1992 U.S.C.C.A.N. at 1163-65. The 1992 Act allows the FCC to establish maximum rates for leased access and regulate the terms and conditions of such leases. 47 U.S.C. § 532(c)(4)(A). The 1992 Act also adds to 47 U.S.C. § 532 (the leased access provision) by providing that a cable operator may designate leased access channels for qualified minority or educational programming. The 1992 Act defines educational programming as "programming that promotes public understanding of mathematics, the sciences, the humanities, and the arts." 47 U.S.C. § 532(i)(3).
One study that informed the 1992 Act discussed the importance of localism "as a fundamental policy in domestic broadcasting." Dep't of Commerce, Nat'l Telecomm. & Info. Admin., Comprehensive Study on the Globalization of Mass Media Firms, 55 Fed. Reg. 5792, 5800 (Feb. 16, 1990). It stated that
while this federal policy of "localism" is principally a part of broadcast regulation, cable television systems often have local programming requirements imposed on them pursuant to state or local franchises. The [Cable] Act authorized local franchising authorities to insert public, educational, or governmental access channel requirements in cable television franchises. Many local authorities have opted to establish such ...