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By John D. McKinnon 

The Federal Communications Commission is probing whether big cable firms use special contract provisions to discourage media companies--from Walt Disney Co. to smaller firms--from running programming on the Internet.

It is part of a broader attempt by the FCC to address one of the big conundrums of the telecom age: Why has television been so slow to come to the Internet, despite technical breakthroughs that made it possible long ago?

The FCC is expected to act soon to curb such contracts on the part of two big cable firms, Charter Communications Inc. and Time Warner Cable Inc., if the agency approves their merger. Consumer advocates hope that change would set a precedent that could eventually cover the industry as a whole.

Despite the success of a few on-demand streaming services like Netflix and Hulu, the long-anticipated migration of familiar TV channels to the Internet, especially with real-time programming, has yet to unfold on any significant scale.

At issue are the contracts that pay-TV companies, mostly cable and satellite firms, sign with media companies such as television networks whose programming they carry. The cable firms often insist on inserting clauses that prevent the media companies from simultaneously providing their programs to an online provider, industry insiders say.

In some cases, the contracts simply reduce the price the cable firms must pay for the programs if they are also available online, according to media firms.

The FCC recently invited several big media firms--including Disney, 21st Century Fox Inc. and HBO's parent Time Warner Inc.--to discuss their concerns about the clauses, according to public disclosures. 21st Century Fox and News Corp, owner of The Wall Street Journal, were until mid-2013 part of the same company. Fox declined to comment for this article.

The FCC is now weighing whether to approve a planned merger between Charter and Time Warner, two of the nation's largest cable companies. If the merger goes through, the FCC is widely expected to attach a condition that would limit the use of these contract clauses.

The FCC appears particularly concerned because the merger would create a company almost as large as industry leader Comcast Corp.

The contract issue is "front-and-center for [the FCC], to prevent the two dominant firms from...blocking the expansion of online video stream competition," said Gene Kimmelman, president of Public Knowledge, a consumer advocacy group.

Disney said in a summary of its meeting with FCC officials that they asked about ways the pay-TV contracts can inhibit online TV. "We submitted that the FCC should, of course, consider these issues" in the Charter-Time Warner Cable deal, Disney said.

In their meeting with the FCC, HBO and its parent firm raised concerns about possible retaliation by Charter against firms that put their content online. HBO recently started its own Internet-based service, HBO Now.

Public and private statements by Charter representatives "suggest that a combined Charter/Time Warner Cable would be inclined to take action directed at programmers" that decide to offer their programming online, HBO said in a publicly filed summary of the meeting. HBO declined to comment for this article.

In a response filed with the FCC, Charter contended that "there is no reason to restrict" its ability to enter into the contract provisions, all of which "have widely accepted legitimate business purposes, especially in fluid and rapidly-evolving markets."

Charter added that even if the concerns merit consideration, they aren't specific to the merger and instead should be addressed on an industrywide basis. Time Warner Cable declined to comment.

Berin Szoka, president of TechFreedom, a market-oriented think tank, also criticized the FCC's focus on the contract clauses, saying they make economic sense.

"Banning such clauses is simply part of a long-standing regulatory agenda for critics of cable, who happen to have enormous political sway over this FCC and a very compelling-sounding story to tell," Mr. Szoka said. "The real economics of the situation simply don't matter to them."

The dispute isn't limited to media giants. A smaller firm, Herring Broadcasting, also has complained to the FCC about the contracts. The clauses have "stifled the rollout" of Internet-based TV, Charles Herring, the company's president, said in an interview.

Herring Broadcasting produces a lifestyle channel called AWE (for "A Wealth of Entertainment") and has started a conservative news channel, OAN network.

Some evidence suggests the restrictive clauses may have effectively kept many TV programs off the Internet. Several big tech companies have tried to start Internet TV services, but have found it hard to get programming because of the exclusivity provisions.

One new online TV venture, Sling TV, a subsidiary of Dish Network, says it suffered months of delay because of challenges posed by the contract clauses.

"When we launched Sling, one of the toughest things [was that] many of the programmers...had conditions in their programming agreements with other distributors that did restrict them in how they could license content," Roger Lynch, Sling's CEO, said in an interview.

Charter says opponents of its merger have presented no evidence that its practices hurt the public. The company also says the contract provisions actually benefit media companies financially, because their content can run first on cable, then on the Internet.

Write to John D. McKinnon at john.mckinnon@wsj.com

(END) Dow Jones Newswires

February 28, 2016 19:22 ET (00:22 GMT)

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