Sec. 76.1504  Rates, terms and conditions for carriage on open video 
          systems.

    (a) Reasonable rate principle. An open video system operator shall 
set rates, terms, and conditions for carriage that are just and 
reasonable, and are not unjustly or unreasonably discriminatory.
    (b) Differences in rates. (1) An open video system operator may 
charge different rates to different classes of video programming 
providers, provided that the bases for such differences are not unjust 
or unreasonably discriminatory.
    (2) An open video system operator shall not impose different rates, 
terms, or conditions based on the content of the programming to be 
offered by any unaffiliated video programming provider.
    (c) Just and reasonable rate presumption. A strong presumption will 
apply that carriage rates are just and reasonable for open video system 
operators where at least one unaffiliated video programming provider, or 
unaffiliated programming providers as a group, occupy capacity equal to 
the lesser of one-third of the system capacity or that occupied by the 
open video system operator and its affiliates, and where any rate 
complained of is no higher than the average of the rates paid by 
unaffiliated programmers receiving carriage from the open video system 
operator.
    (d) Examination of rates. Complaints regarding rates shall be 
limited to video programming providers that have sought carriage on the 
open video system. If a video programming provider files a complaint 
against an open video system operator meeting the above just and 
reasonable rate presumption, the burden of proof will rest with the 
complainant. If a complaint is filed against an open video system 
operator that does not meet the just and reasonable rate presumption, 
the open video system operator will bear the burden of proof to 
demonstrate, using the principles set forth below, that the carriage 
rates subject to the complaint are just and reasonable.
    (e) Determining just and reasonable rates subject to complaints 
pursuant to the imputed rate approach or other market based approach. 
Carriage rates subject to complaint shall be found just

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and reasonable if one of the two following tests are met:
    (1) The imputed rate will reflect what the open video system 
operator, or its affiliate, ``pays'' for carriage of its own 
programming. Use of this approach is appropriate in circumstances where 
the pricing is applicable to a new market entrant (the open video system 
operator) that will face competition from an existing incumbent provider 
(the incumbent cable operator), as opposed to circumstances where the 
pricing is used to establish a rate for an essential input service that 
is charged to a competing new entrant by an incumbent provider. With 
respect to new market entrants, an efficient component pricing model 
will produce rates that encourage market entry. If the carriage rate to 
an unaffiliated program provider surpasses what an operator earns from 
carrying its own programming, the rate can be presumed to exceed a just 
and reasonable level. An open video system operator's price to its 
subscribers will be determined by several separate costs components. One 
general category are those costs related to the creative development and 
production of programming. A second category are costs associated with 
packaging various programs for the open video system operator's 
offering. A third category related to the infrastructure or engineering 
costs identified with building and maintaining the open video system. 
Contained in each is a profit allowance attributed to the economic value 
of each component. When an open video system operator provides only 
carriage through its infrastructure, however, the programming and 
packaging flows from the independent program provider, who bears the 
cost. The open video system operator avoids programming and packaging 
costs, including profits. These avoided costs should not be reflected in 
the price charged an independent program provider for carriage. The 
imputed rate also seeks to recognize the loss of subscribers to the open 
video system operator's programming package resulting from carrying 
competing programming.

    Note to paragraph (e)(1): Examples of specific ``avoided costs'' 
include:
    (1) All amounts paid to studios, syndicators, networks or others, 
including but not limited to payments for programming and all related 
rights;
    (2) Packaging, including marketing and other fees;
    (3) Talent fees; and
    (4) A reasonable overhead allowance for affiliated video service 
support.

    (2) An open video system operator can demonstrate that its carriage 
service rates are just and reasonable through other market based 
approaches.

[ 61 FR 28708 , June 5, 1996, as amended at  61 FR 43176 , Aug. 21, 1996]

    Effective Date Note: At  61 FR 43176 , Aug. 21, 1996, in Sec. 76.1504, 
paragraph (e) was revised. This amendment contains information 
collection and recordkeeping requirements and will not become effective 
until approval has been given by the Office of Management and Budget.