Opposition Mounts: Should FCC regulate linear OTT service providers as pay TV operators (MVPDs)?

Introduction:

FCC chairman Tom Wheeler has said there’ll be a final vote this fall on his proposal to define real time (AKA date/time or “linear”) over-the-top video services as pay TV services that are delivered by multichannel video programming distributors (MVPDs).

Regulation of MVPDs stems from the 1992 Cable Act (approved despite veto of President Bush Sr).  The act was created in order to amend the Communications Act of 1934 to provide increased consumer protection and to promote increased competition in the cable television and related markets, and for other purposes.

Currently, the MVPDs include cable, satellite, and telecom companies that offer pay TV service. However, real time (date and time or linear) Internet based video services like Dish Networks Sling TV, HBO Go, ESPN3, etc aren’t considered to be MVPDs under the current law. The FCC has proposed changing that law for linear OTT, but not for Video On Demand (VoD) providers.

Wheeler’s stated goal is to insure non-discriminatory access to programming for both cable and broadcast. To do that he is seeking to read out the “facilities-based” requirement in the definition of MVPD. Cable operators and over-the-top services alike have registered reservations about that move (see For and Against below).

Backgrounder:

U.S. law requires that pay TV distributors (like Comcast, Time Warner Cable, and DirecTV) and programmers (like NBC, ESPN, and CNN) negotiate “in good faith” over the rights to broadcast content to customers. The distributors have to pay for the content, and the programmers aren’t allowed to indiscriminately withhold those rights.The law established a cumbersome term for pay TV service providers (MVPDs).

The Federal Communications Commission released a Notice of Proposed Rulemaking (NPRM) proposing to classify over-the-top (OTT) video programming providers as MVPDs if they delver “linear” programming. The FCC proposes that it will facilitate the availability of cable and broadcast television programming to OTT providers and enhance consumer choice and competition in the video market.

The reclassification would require OTT providers to carry certain programming and to comply with other regulations currently imposed on MVPDs like cable providers. The proposal would also give OTT video providers certain legacy negotiating and carriage rights with respect to both cable and broadcast programming. 

The most important implication of that rule change is that programmers would then be forced to negotiate with Internet TV services just as they have to negotiate with cable companies.Services like Dish’s Sling TV and Sony’s PlayStation Vue currently offer small bundles of channels from companies with which they have been able to strike deals. The same is expected of Apple’s widely expected (but unannounced) Internet TV service. However,  if the definition of MVPD is changed to include these new services, they could have access to many more channels, and thus offer a more diverse programming line-up.

The exact implications of reclassification aren’t yet clear, since these Internet-only services are intentionally offering fewer channels than traditional pay TV packages. It’s also worth noting that the rule change wouldn’t affect Netflix and other subscription services that only offer on-demand video; it only applies to live television services. Still, the prospect of a rule change clearly has many companies nervous.

For and Against:

 1. The TV network affiliates of ABC, CBS, Fox, and NBC, which aren’t owned by the larger companies of the same name, filed their own comment in favor of the rule change. They’re excited because it would require that internet TV services gain their consent for retransmitting their broadcasts, just like cable companies have to under the 1992 Cable Act.

2.  Disney, Fox, and CBS filed a joint comment to the FCC explaining that they were firmly against changing the definition of MVPD to include internet TV. “The proposal to expand the definition of MVPD raises significant and complex questions that could jeopardize the nascent state of the over-the-top market,” the companies said.Essentially, they argue that market forces have created a healthy environment for internet video to thrive, and that more government regulation is not only unnecessary, but could, as they put it, “limit the opportunity for consumers to obtain their desired video programming in a variety of new manners.” Other programmers, like AMC, and many cable companies, like Cablevision, are against the rule change for similar reasons.

Opinions:

1.  Rep. Frank Pallone (D-N.J.), in his first media policy speech as ranking member of the House Energy & Commerce Committee, recently advised the FCC to “hit the pause button on regulating streaming video…In the case of defining online video providers as cable companies, I do not think we can say yes,” he said.  Pallone added: “Some have urged the FCC to help prop up some video business models through additional regulation. The companies that first asked for help claimed that new entrants must be defined as cable companies if they are to get access to content. They were essentially worried that they could not compete with traditional cable companies without importing cable regulations to the online world.But consumer demand since then has driven the market to create new business models and new ways to distribute programming.”

2.  Ajit Pai was one of two FCC commissioners to state his reservations about the proposed rule change after it was announced by Wheeler. Speaking at a Churchill Club breakfast on Friday July 17th, he made his position to the rule change official: “This morning I’d like to make it clear I strongly oppose this proposal.”  Pai went on to lay out the reasoning behind his decision. He said it was important to perpetuate an environment where: “21st century entrepreneurial spirit isn’t saddled with 20th century rules and regulations.” 

Mr. Pai claims the benefits provided to OTT video providers covered by the rule change are illusory. He said that even with the rule change, OTT providers would not fit the definition of a pay TVprovider being used by the patent office. So, it is likely the online companies would still not be able to benefit from the statutory license which allows MVPDs to carry local TV channels.  However, hewarned that this would create a burden on OTT providers, because if a local programmer wanted carriage on their service the OTT provider would be required to negotiate with them. Further, Pai saidonline providers might end up facing other MVPD regulations on pricing, ad volume, employment practices, and even on the wiring inside a customer’s home; though it is unclear what these MVPD regulations mean in the OTT world.

3.  Assistant Attorney General Bill Baer  remarks on October 9, 2015 Keynote Address at the Future of Video Competition and Regulation Conference Hosted by Duke Law School:

“With respect to video programming, the streaming option is transformative.  Programmers now have the Internet as an alternative to distribution over traditional broadcast, satellite and cable networks. Over the top programming via broadband Internet connections increasingly competes with what consumers used to access solely from their cable or satellite provider.

In 2009, there were two scripted original series delivered exclusively through online services – by 2014, there were 27. This new distribution option also lowers barriers to entry for non-traditional content, like YouTube and e-sports, and allows established programmers to deliver more tailored services.  Networks can offer content a la carte, like CBS All Access and HBO Now/Go, or expand programming through services like ESPN3.

The FCC also took smart and measured action to protect competition with its recent Open Internet Order. That Order set out some simple, bright-line rules: broadband providers may not block access to lawful content; they may not throttle lawful content; and they may not take money to favor some lawful content over others.  The Order, which the Justice Department is proud to help defend in court, effectuates the public policy Congress mandated in 1996 by ensuring that cable companies or other broadband providers don’t disadvantage competitors offering consumers video services via their broadband connections.  This helps protect consumer choices and ensures that incumbents that sell both video and broadband internet do not use their control over broadband to suppress competition in video.

Sometimes the concern with undue restrictions on competition stems from incumbents seeking laws and regulations that would impede opportunities for rivals to challenge their control over the pipeline.  We see that debate playing out in efforts by some internet service providers to seek state laws precluding local communities from encouraging alternatives to local broadband monopolies.  The FCC, through its Municipal Broadband Order, targets those obstacles in order to allow municipalities to expand broadband availability.  This helps bring greater competition to exactly the part of the industry that needs it the most. 

The future of video competition should be left for the market to decide.  Our role as antitrust enforcers and competition advocates is not to pick winners or losers.  Our job is to make sure that existing bottlenecks are eliminated, that mergers don’t create new ones, and that our enforcement and policy efforts let competition thrive and innovation continue for consumers’ benefit.”

What’s Your Take?

Readers are invited to weigh in with their opinions via the comment box below this article.  Alternatively, you can email the author at:  alan.weissberger@ieee.org

Comment from Ken Pyle of Viodi View:

Excellent summary. This has been a long time coming. This 2008 obscenity ruling foreshadowed the long reach of the FCC into the Internet using video as its Trojan Horse. http://viodi.com/2008/06/24/fcc/

Like with everything else to do with the FCC, it seems like it is long past due for Congress to step in to update Federal Telecommunications’ law. Having said that, I would suggest there should be less regulation when it comes to video. It’s just video after all and not really life or death (particularly with so many different ways of being entertained or informed these days, as compared to the time when there was only the big 3 networks). 

 

References:

https://apps.fcc.gov/edocs_public/attachmatch/FCC-14-210A1.pdf

http://www.broadcastingcable.com/news/washington/pallone-fcc-dont-redefine-otts-cable-ops/144861

http://www.justice.gov/opa/speech/assistant-attorney-general-bill-baer-delivers-keynote-address-future-video-competition

http://qz.com/375566/the-really-important-policy-affecting-the-future-of-tv-that-no-one-is-talking-about/

http://www.nscreenmedia.com/fcc-commissioner-says-no-to-ott-mvpd-regulation-change/

https://apps.fcc.gov/edocs_public/attachmatch/DOC-334437A1.pdf

http://www.broadcastingcable.com/news/washington/fccs-wheeler-ott-report-and-order-fall/142159

https://en.wikipedia.org/wiki/Cable_Television_Consumer_Protection_and_Competition_Act_of_1992

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