by Congress. There are several underlying purposes to the PEG channels. These purposes include a desire to respond to local needs, create space for voices that would not otherwise be heard, air programs needed by a community that may not otherwise be commercially viable, and, for governmental channels, show local government at work. While a failure to serve any one of these purposes may not itself be dispositive, in the instant case, the City's use of Crosswalks is at odds with all four purposes.
First, neither Fox News nor BIT responds to local needs. These 24-hour news programs are largely duplicative of programming already on commercial stations. New York City is not Aurora, Colorado. New York cable subscribers receive over 350 hours of national and local news and information programming a day.
Second, neither Fox News nor BIT will contribute a voice that is not already heard. While I make no judgments about their content, I find that these commercial news programs do not provide space for a class of speakers not already present on commercial stations.
Third, neither Fox News nor BIT needs a government subsidy in order to reach large audiences. These for-profit news programs are able to generate revenue through commercial advertising and contracts with cable operators, something a school that would use an educational channel, for example, is not able to do.
Finally, neither Fox News nor BIT will allow the citizenry to see local government at work, except in the most incidental fashion. A 24-hour news station may report on local government, but the news program is not bringing local government into the homes of the public. Rather, to the extent it is covering local events, it is doing so in a manner no different from another commercial news program.
Thus, wholly apart from any examination of the City's improper motives in giving Fox News and BIT the preferential treatment at issue here, it is apparent that the City violated Section 531(a) in placing and attempting to place these programs on Crosswalks. In sum, for the reasons discussed in this section, I do not find the City's interpretation -- that the City does not violate the PEG provision when the user is the government, no matter what the use of the channel -- persuasive. I find further, that by its actions, the City has violated Section 531(a).
3. The City's Actions Violate the Franchise Agreements.
The parties dispute whether the franchise agreements permit the City to place Fox News and BIT on a government channel.
I find that the agreements do not permit such use, whether the programs are shown with or without commercials, absent written permission from Time Warner to do so. I reach this conclusion based on the language of the agreements, the extrinsic evidence surrounding the negotiation of the 1990 agreement which sheds light on the parties' intent in reaching those agreements, as well as the City's conduct under the agreements.
The dispute centers on the word "commercial." I find that the parties understood this term to refer to the presence of commercials and whether the programmer is a for-profit company. The parties both argue that the language in the franchise agreements is unambiguous but offer competing interpretations of that "unambiguous" language. While existence of such a debate as to meaning does not create an ambiguity, I find nevertheless that the language is ambiguous, and therefore will rely on parol evidence not to vary or add to the terms of the contract, but only to interpret and give effect to the parties' intent. A court may do so, even if the contract contains a merger clause. Proteus Books Ltd. v. Cherry Lane Music Co., 873 F.2d 502, 509-10 (2d Cir. 1989). The parol evidence in this case persuades me that both franchise agreements contemplated only noncommercial uses for the PEG stations.
Even more persuasive, however, is the City's conduct up until October 1996. Such conduct is relevant to understanding the contract, even if the contract is unambiguous, which it is not. The Second Circuit has held that the "parties' interpretation of the contract in practice, prior to litigation, is compelling evidence of the parties' intent." Ocean Transport Line, Inc. v. American Philippine Fiber Indus., 743 F.2d 85, 91 (2nd Cir. 1984). The City's actions, discussed above, reflect an understanding that the government was free to use its channels for noncommercial services only. Indeed, the Assistant Commissioner at DoITT testified that programming must be noncommercial to comply with Crosswalks' mission and objectives. Additionally, both agreements make clear that the stations are to be used for governmental purposes, and Fox News and BIT, as the City intends to run them, do not fall within the ambit of appropriate governmental purposes. I now address the commercial nature of the programming.
Fox News and BIT are commercial programming designed to compete in the commercial market and were not created for a PEG environment. The commercial nature of Fox News is evident from that programmer's negotiations with Time Warner where Fox News intended to be carried on Time Warner channels, complete with commercials. Moreover, everywhere else in the country Fox News is carried, it is aired with commercials. Indeed, one purpose in obtaining carriage was so it could be seen by advertising decisionmakers. I base these findings on the facts discussed above, most importantly the letter dated October 10 from Fox News to the City where Fox News agreed to run on Crosswalks without commercials only through December 31, 1996, and the letter dated October 2 from the City to Time Warner requesting a waiver for Fox stating that Fox News needed commercials to remain commercially viable. Moreover, the City's own justification for its actions -- that the presence of Fox News retains and creates jobs -- is only true to the extent Fox News is commercially profitable, a profit that will be based, in part, on its ability to sell advertising.
I need not determine the extent of BIT's commercial nature because in two instances Bloomberg has admitted to its commercial content and goal. First, in a letter from Bloomberg to Time Warner in early September 1996, it angled for carriage on the Time Warner system under the FTC consent decree. The intent of the letter appears to be to convince Time Warner that BIT would satisfy the requirement that Time Warner carry an "Independent Advertising-Supported News and Information Video Programming Service" under Time Warner's consent decree with the FTC. Bloomberg cannot have it both ways. It cannot try to convince Time Warner in September 1996 that it is commercial enough to count as competition under the consent decree and then in October 1996 argue it is not so commercial as to violate the franchise agreement. Second, at the TRO hearing Bloomberg's general manager of television news, Jonathan Fram, testified to this Court that Bloomberg's goal for being on Crosswalks was to enter the New York commercial market as a 24-hour news channel.
The City argues that stripping Fox News and BIT of their commercials transforms these programs into noncommercial offerings. I find this unpersuasive. Both Fox and Bloomberg are for-profit entities that plan to create a for-profit business in New York City. Even if they agree to forego commercials in the short-run, they cannot and do not intend to do so for long. It is not their intent to stay on the PEG channels any longer than necessary. I find that both Bloomberg and Fox hope and expect that access to the New York market through Crosswalks will win for them the opportunity to run on the commercial channels in the near future.
Given the clear commercial intentions of Fox and the admissions by Bloomberg, I find these programs are commercial for the purposes of this dispute and therefore their placement on a governmental channel violates the franchise agreements.
4. The City's Actions Violate Section 544(f)(1).
The Cable Act protects the First Amendment rights of PEG users, leased access users, and cable operators. In this case, Time Warner alleges that the placement of Fox News and BIT on Crosswalks violates Time Warner's editorial autonomy under Section 544(f)(1). The analysis for such a violation is substantially the same as for a violation of the First Amendment and, therefore, I conclude for the same reasons discussed below, that the City's actions violate Section 544(f)(1) of the Cable Act.
C. The City's Actions Violate Time Warner's First Amendment Rights.
1. First Amendment Jurisprudence
The Supreme Court's First Amendment jurisprudence in the area of cable regulation is not well settled. It cannot be disputed, however, that "cable programmers and cable operators engage in and transmit speech, and they are entitled to the protection of the speech and press provisions of the First Amendment." Turner, 114 S. Ct. at 2456. The Supreme Court held that this is so because
through "original programming or by exercising editorial discretion over which stations or programs to include in its repertoire," cable programmers and operators "seek to communicate messages on a wide variety of topics and in a wide variety of formats."
Id. at 2456 (quoting Los Angeles v. Preferred Communications, Inc., 476 U.S. 488, 494, 90 L. Ed. 2d 480, 106 S. Ct. 2034 (1986)).
In Turner, which involved a First Amendment challenge by cable operators and programmers to the "must-carry" provisions of the 1992 Cable Act, the Supreme Court addressed the appropriate level of scrutiny to apply to the regulation of cable operators. As an initial matter, the Court held that the relatively deferential standard that applies to the regulation of broadcast television was inappropriate for cable. 114 S. Ct. at 2456. The Court noted that the "justification for our distinct approach to broadcast regulation rests upon the unique physical limitations of the broadcast medium," id. at 2456, and held that "the broadcast cases are inapposite in the present context because cable television does not suffer from the inherent limitations that characterize the broadcast medium." Id. at 2457.
The Turner Court held that strict scrutiny -- termed by the Court "exacting" or "rigorous" scrutiny -- applies to content-based cable regulations and that intermediate scrutiny applies to content-neutral cable regulations.
Our precedents thus apply the most exacting scrutiny to regulations that suppress, disadvantage, or impose differential burdens upon speech because of its content. Laws that compel speakers to utter or distribute speech bearing a particular message are subject to the same rigorous scrutiny. In contrast, regulations that are unrelated to the content of speech are subject to an intermediate level of scrutiny, because in most cases they pose a less substantial risk of excising certain ideas or viewpoints from the public dialogue.