Robinson, M. J. "Containment, Common Carriage, and Net Neutrality—Regulating the Long Tail
of OTT Television." Television on Demand: Curatorial Culture and the Transformation of TV.
London: Bloomsbury Academic, 2017. 131–150. Bloomsbury Collections. Web. 22 Feb. 2023.
<http://dx.doi.org/10.5040/9781501300288.ch-005>.
Downloaded from Bloomsbury Collections, www.bloomsburycollections.com, 22 February
2023, 19:43 UTC.
Access provided by: February 2023 Collections Authors
Copyright © MJ Robinson 2017. All rights reserved. Further reproduction or distribution is
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5
Containment, Common Carriage,
and Net Neutrality—Regulating the
Long Tail of OTT Television
There may be no more-perfect site in which to study the unfinished, transitory,
and transformative nature of the liminal than government regulation.
While charged with the protection of the airwaves from monopolization by
special interests, the use of those airwaves to create a national mass media
culture required substantial investment by big business. This conundrum of
how to encourage innovation and advancement while not creating unfair
advantages or market shares for the corporations with the resources to innovate
and advance has been a hallmark of American broadcast regulation since
the early twentieth century. The internet—which knows no national boundaries
and yet relies upon geographically based wired and wireless communication
technologies—has further complicated the issues with which regulators,
industries, lobbyists, and citizens must contend.
To begin, there are a few points that should be noted about the US regulatory
system and its primary policymaking mechanism, the Federal
Communications Commission (FCC). First, “the American approach to regulating
new communication technologies and their impact has generally been
more reactive than proactive.”1
Thus, technologies have often developed and
entrenched themselves in industrial and user practices before being assessed
in relation to existing federal communications law, or without exploration
of alternatives to incumbent patterns and practices.*
This, of course, shapes
* An illustrative historical example: the regulatory and geographical structure of the mature radio
industry (originally established in the 1920s) was the groundwork for the nascent television industry
that developed in the post–World War II era, an arrangement that favored the interests of the
corporate entities that controlled and programmed radio. These companies argued that they were
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regulatory intervention particularly when certain practices or technologies
are defined and deployed by corporations with substantial resources long
before they have reached market saturation and before or during regulatory
deliberation.
Second, FCC commissioners have historically had unusually close relationships
with the industries they regulate. A large percentage of former FCC
commissioners have gone directly into positions in the television, cable, or
information services industries following their terms. Michael Powell, a
Clinton appointee to the commission in 1997 and FCC chairman from 2001
to 2005 is the current president and CEO of the National Cable Television
Association (NCTA).*
Current FCC Chairman Tom Wheeler has gone “the
other way,” having previously been president and CEO of the NCTA and the
Cellular Telecommunications & Internet Association (CTIA); lobbying arms
of the cable and wireless industries, respectively.2
Meredith Atwell-Baker,
an Obama-nominated FCC commissioner, served on the FCC from 2009 to
2011. She left the Commission four months after the Comcast/NBCUniversal
merger for a new position as senior vice president of governmental affairs
at NBCUniversal.3
In 2014 she became president and CEO of CTIA—The
Wireless Association, an industry trade group that lobbies on behalf of the
wireless communication sector.4
Finally, while the decisions of the Commission are ostensibly justified by the
contributions wired and wireless communication make to the public interest,
they are often driven by and in response to free market forces and exigencies.
As Thomas Streeter writes in his history of broadcast regulation: “Much of what
broadcast regulation is about in the United States is crafting the mix of rights,
privileges, and restrictions that form the conditions of operation, the bargaining
power, and thus the market value of stations, copyrights, and audiences.”5
the ones who had the resources to develop the new medium as well as the understanding of broadcasting
to bring the new medium to fruition. Therefore, television in the United States was “superimposed
on the existing pattern rather than basically altering it” (Sterling and Kitross). (And the
Commissioners during this time went to work for NBC, CBS, and ABC at the end of their terms.)
* While the same cannot be said of Powell, it should be noted that current FCC Chairman Tom
Wheeler has not shied away from confrontations with his former employers, nor from taking positions
in opposition to them. This is particularly evidenced in his advocacy for reclassifying ISPs as
“common carriers” in the net neutrality debate as well as his current efforts to create an open market
for set-top boxes.
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A brief history of regulatory legislation
1934 Communications Act
Although revised by subsequent legislation, the 1934 Communications Act
remains the “Ur-text” of American wired and wireless communication regula-
tion.Itbroughtallservicesthat“relyonwires,cables,orradioasameansoftransmission”
under the regulatory control of the FCC (which replaced the Federal
Radio Commission).6
This act also codified the tenets of diversity and localism
as key to the regulation of the scarce electromagnetic spectrum and mandated
that licensees were to operate in the “public interest, convenience and necessity.”7
However, this codification ended at the inclusion of these terms and phrases
in the act. Nowhere does the act provide operative or even interpretive definitions
of “diversity,” “localism,” or “public interest, convenience and necessity.” As
a result, the meanings of these terms have been defined and redefined according
to the interests (and usually special interests) of the sitting FCC commissioners
who of course act in the best interest of their favored constituencies.
1965 First Report and Order on Cable/“must carry” rules
This first substantial piece of cable regulation by the FCC was designed to
“ensure local stations equal access to viewers who might be cable subscrib-
ers.”8
As a result, all cable companies were required to carry all over the air
(OTA) signals that were “significantly viewed” within their coverage area but
did not have to compensate the broadcasters for the retransmission of their
signals.9
As the number of original cable networks that could be utilized to
“light up the dial” of cable providers expanded, these requirements were challenged
by providers who wanted to carry more profitable niche networks on
their limited systems rather than being forced to retransmit all ultra high
frequency (UHF) and very high frequency (VHF) signals in their operating
areas.*
While the original raison d’etre of this legislation was to protect
* What should be noted about the “must carry rules” in this earliest period—while one may think
that this pertained solely to local affiliates of the “big three” networks at the time, the term “significantly
viewed” is significant. Most municipalities had several independent VHF stations as well as a
bevy of stations on the always-disadvantaged UHF channels. Therefore, the number of channels that
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broadcasters from being excluded from cable systems by forcing cable systems
to accommodate them and their advertising-supported programming as
cable networks began to proliferate—funded by both advertisers and carriage
fees—broadcasters began to lobby to eliminate the rules so that they could also
receive “retransmission fees.”
1992 Cable Television Consumer Protection and Competition Act
This act altered the “must carry” rules by allowing broadcasters to renegotiate
their multiple-system operator (MSO) carriage agreements and to
choose whether they wanted to receive “retransmission fees,” or “retrains,”
(a per-subscriber, per-month payment—as was paid to cable networks) or
another type of “compensation in kind.”10
This “compensation in kind” could
be the waiving of retransmission payments in return for the carriage of an
additional channel on the cable system and some barter advertising. If one
considers the “families” of channels that are owned by companies that either
are primarily broadcasters or have substantial broadcast holdings, one can
see how this shifted the balance of power toward broadcasting conglomerates
who can leverage the carriage of their nationwide programming to
ensure the distribution of their niche channels to the cable and satellite subscribing
public. If MSOs balk at these deals, broadcasters can withhold their
signals until the carrier offers them acceptable compensation. This imbalance
of power can be solved, of course, by the MSO’s purchase of the broadcasting
company.
1996 Telecommunications Act
The Telecommunications Act of 1996 was heralded by the FCC as “the first
major overhaul of telecommunications law in almost 62 years.”11
The goal of
qualified for “must carry” could easily be in the teens. While this did create a multichannel viewing
experience for the subscriber, it was also a financial challenge to cable systems, especially those with
smaller channel capacities.
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this legislation was to create an open market for telephone, cable, broadcast,
wired, and wireless information services—“to let anyone enter any communications
business—to let any communications business compete in any market
against any other.”12
Poised as it was on the brink of the internet’s maturation
as a multimedia information network, it was an interesting moment for the
legacy entertainment industries that could be viewed as the culmination of
their lobbying efforts to have ownership rules relaxed in order to engage in the
empire-building that media companies have pursued since the earliest days
of the film industry. In many ways, the act may have been inevitable since in
the years preceding its passage, “the final regulatory obstacles were removed,
ideological consensus achieved, political will solidified, and significant deals
struck. By 1996, the political landscape was no longer hostile to common ownership
of telecommunications, cable, broadcast and film.”13
The 1996 Telecommunications Act “launched a free-for-all in the TV marketplace
because regulation that had been in place for decades was lifted.
Broadcasters, cable TV operators, and local and long distance phone companies
were now permitted to increase their market power within their traditional
markets and to enter one another’s markets.”14
This allowed telecomm companies
such as AT&T and Verizon to begin to enter the multichannel video programming
distributor (MVPD) market. While this act increased the options
consumers had for how they accessed the multichannel environment in theory,
in practice, the situation was much different. There were no provisions in the act
against the MVPDs engaging in “clustering” in which they preserved regional
monopolies by dividing the country up among them. (“You take the Southwest,
I’ll take the Pacific Northwest.”) Ownership caps of broadcast television stations
were relaxed, which resulted in the increased power of “station groups” or large
holding companies that own multiple locally licensed stations across the United
States, and use their market-power to negotiate more cost-effective off-net
syndication deals with content producers. In short, writes Jennifer Holt: “The
Telecommunications Act of 1996 was the ultimate deregulatory initiative to
complete the structural convergence of the media industries that began during
the 1980s ... and the last piece of legislation necessary to solidify the blueprint
for the new millennium entertainment empires.”15
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Current FCC issues and actions
At present there are four separate yet interconnected regulatory issues that
have, do, or will affect the shape and operation of the television industry/ies:
●
Net neutrality
●
Ownership
●
Spectrum allocation (in particular the incentive spectrum auction)
●
Definitions of MVPDs
As many of these will have been decided or the conversation may have shifted
by the time this book is released, my purpose here is to sketch out the stakeholding
positions of those who stand to benefit or be disadvantaged by particular
rulings on these topics, as well as explore some of the implications of
the more likely outcomes of these regulatory actions.
Net neutrality
The term “network neutrality” was coined in 2003 by Columbia Law Professor
Tim Wu in a journal article that highlighted potential problems with “broadband
discrimination.” Wu sees network neutrality as an end goal of policy
that should prioritize innovation in a dynamic communications environment
whose fundamental industrial organization has not yet been concretized.16
Because “cognitive biases” toward existing schema or traditional protocols
may stifle innovation, especially by those who may already be established on
the platform (in this case the internet) it is crucial “that the platform be neutral
to ensure the competition remains meritocratic.”17
In specific terms of what net
neutrality means for the end consumer, it ensures that all traffic carried over
an internet service provider’s service network and into the subscriber’s home
be treated equally in terms of access and delivery efficiencies. For example: the
principle of net neutrality would not allow Comcast to slow down the movement
of Netflix’s information packets to Comcast internet subscribers (as it
did in 2013) while optimizing the Comcast subscriber’s reception of video
over Hulu (in which Comcast subsidiary NBC owns a controlling interest).
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On February 26, 2015, the FCC elected to codify net neutrality as a fundamental
principle of broadband network regulation.18
Its “Open Internet” ruling
reclassified broadband internet as a “Title II telecommunications service”
under the 1934 Communications Act.19
This means that broadband internet
providers (both wired and wireless) are now legally defined “common carriers”—just
like the (wired) phone companies. As such, they have responsibilities
to “act in the public interest” and cannot “make any unjust or unreasonable
discrimination [or undue or unreasonable preference] in charges, practices,
classifications, regulations, facilities or services.”20
This means that internet service
providers may not engage in blocking, throttling, or paid prioritization—
in other words, all websites, regardless of owner, content, or bandwidth usage
must be delivered to consumers without preferential or prejudicial altering of
their load times.21
TheopeninternetrulingalsoinvokesSection706oftheTelecommunications
Act of 1996 which states that “advanced telecommunications services” must be
utilized “in a manner consistent with the public interest, convenience, and
necessity, price cap regulation, regulatory forbearance, measures that promote
competition in the local telecommunications market, or other regulating
methods that remove barriers to infrastructure investment.”22
Section 706 also
seeks to extend “advanced telecommunications capability to all Americans”
but particularly “elementary and secondary schools and classrooms.”23
It appears that the FCC invoked Section 706 in its classification of broadband
as a common carrier under the original Title II so as to refute earlier judicial
rulings in the 2014 Verizon v. FCC case. In this case, Verizon stated that
because the FCC had previously defined broadband as an information service
(under Title I of the 1934 Communications Act); it could not reclassify them
as a common carrier. If Verizon and other internet service providers (ISPs)
had remained information services, they would be free to engage in competitive
speed capping as well as avoid the much stricter regulatory requirements
that adhere to common carriers. Section 706 softens the language of Title II by
emphasizing the promotion of infrastructure investment and preservation of a
competitive market for advanced telecommunication capacities that preemptively
strikes at industry complaints that common carrier status will prevent
innovation and expansion.
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In what can also be interpreted as a preliminary strike against legal challenges
by the industry, the FCC also explicitly claims “broad forbearance” in
the parts of Title II that apply to ISPs. It states: “In finding that broadband
Internet access service is subject to Title II, we simultaneously exercise the
Commission’s forbearance authority ... to establish a light-touch regulatory
framework tailored to preserving those provisions that advance our goals of
more, better, and open broadband. We thus forbear from the vast majority of
rules adopted under Title II.”24
The sections that the FCC specifically/explicitly does not waive are “sections
201, 202 and 208 (or from related enforcement provisions), which are
necessary to support adoption of our open Internet rules.”25
These sections of
the 1934 Communications Act pertain to interconnectivity (the ability of ISPs
to make arrangements with each other to carry each other’s traffic across the
internet until their proprietary “last mile”); discriminatory provision of services
(throttling, paid prioritization, etc.); and the right of persons with complaints
about the common carrier to petition the Commission, who will follow
an information-gathering process to ensure fairness to all parties involved.
Therefore, these parts of the act protect consumers, preserve competition, and
encourage growth without creating ownership caps on MSOs or engaging in
rate-regulation. (ISPs may set their own rates in accordance with whatever the
market will bear.)
Other Title II regulations of the 1934 Communications Act that remain in
effect in this ruling are sections 222, 224, 225, and 254. These pertain to privacy,
accommodations for persons with disabilities, and the requirement that
local utilities grant the ISPs access to their infrastructure (poles, ducts) so as to
encourage the growth and development of universal service.
One interesting feature of this ruling is that it redefines both wired and
wireless broadband services as “common carriers.” Therefore, wireless ISPs
(essentially cell phone providers) are now subject to the same rules as are their
wired ISP brethren (the cable companies). In this case the forbearances have
much more direct advantages for the wireless ISPs as “data caps” are expressly
not forbidden so as to encourage the universal spread of internet access to
mobile-only users. Thus, wireless providers may provide different “tiers” of
data plans with different pricing points as presumably this supports universal
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access through different price points. It should be noted that this is a capping
of amount of data one can receive a month for one’s set fee, not the capping of
the speed of the delivery of certain kinds of data.
A less clear wireless data initiative is that of “zero rating” particular apps or
families of apps that stream content. Zero rating means that customers use of
these apps does not count against their monthly data allowance. The FCC has
yet to rule on a case about this, but it would seem to fall into a grey area, particularly
if it favors the streaming consumption of one company’s service (e.g.,
YouTube) over another’s (Netflix). (This is also where programs like T-Mobile’s
“Binge On” may be vulnerable to challenge.)
As was predicted, the industry majors immediately filed suit against the
FCC open internet regulations claiming that the agency had again exceeded
their power in reclassifying wired and wireless broadband as common carriers
and insisting that the ruling not only violated the First Amendment rights
of the corporations involved, but also would retard innovation in the field.
On June 14, 2016, the District of Columbia’s Appeals Court rendered a decision
upholding the network neutrality rules finding that the Commission was
acting within its powers to reclassify the service providers as common carri-
ers.26
While AT&T, Verizon, and the other plaintiffs have vowed to take this to
the Supreme Court, it is unlikely that this will occur in the immediate future.
FCC Chairman Tom Wheeler said of the ruling “It is a victory for consumers
and innovators who deserve unfettered access to the entire web” and that it
would “ensure the Internet remains a platform for unparalleled innovation,
free expression and economic growth.”27
Ownership
As repeatedly noted, due to market realities and the economies of scale traditionally
required to create and sustain the production, distribution, and
exhibition of entertainment, these industries tend toward oligopolies. The role
of regulators has been to control conglomeration by maintaining ownership
caps or prohibitions against purchases that would create too large a controlling
entity in any industrial segment so as to ensure a diversity of voices in
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the marketplace and to prevent one corporate perspective from gaining too
much exclusive or exclusionary access to the viewing population. Station caps
and ownership limits were inscribed in the original 1934 Communications
Act but, as we have seen, these caps have been revised in subsequent legislation
to respond to the multiplication of choice with regard to viewing options and
presumably voices that are now available to the citizen-consumer.
Patterns of corporate acquisition can take several forms. The overall goals
were originally vertical and horizontal integration. Vertical integration brings
companies involved in all phases of production—distribution—sale together
while horizontal integration is the accumulation of multiple companies whose
primary economic activity is at the same phase or stage of industrial activity.28
Now we have reached a stage of transindustrial conglomerates—“firms that
vertically and horizontally integrate multiple media operations within and
across multiple media industries.”29
The result of this is an “increased concentration
of ownership across all media, with fewer companies involved in
more media oligopolies.”30
The easiest way to understand this is to consider
the holdings of any of the six global conglomerates that controlled 90 percent
of media markets in 2011.31
Among the holdings of each of these companies
(Comcast-NBCU, News-Corp, Disney, Viacom, TimeWarner, and CBS) one
finds not only film studios, television production companies, television and
cable networks, station groups, and O&Os, but also publishing companies,
music, theme parks, newspapers, and magazines—all in the same corporate
family.
For example, in 2011, the merger of Comcast and NBCUniversal united
the largest cable MSO in the United States and a large diversified entertainment
company with many broadcast and cable holdings. More recently
TimeWarner, a highly vertically and horizontally integrated media company
with holdings across television, film, music, and publishing, merged with
Charter Communications (the number two MSO in the country). Shortly
afterward, Altice, the fourth largest cable provider in Europe purchased
New York-based Cablevision (more on this in the next chapter). The implications
of this new wave of conglomeration which brings together massive content
creators with cable and internet providers are massive for both the market
and the consumers.
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Prior to the merger, Comcast was the largest cable operator in the United
States, the largest residential high-speed internet provider in the United States,
the third largest home phone company, the owner of key content properties
including eleven regional sports networks and the manager of a large video
on demand (VOD) concern.32
NBCUniversal was a content conglomerate that
owned one of the largest national broadcast networks as well as some of the
most popular cable networks in the United States, owner of NBC Sports, seven
production studios, twenty-five television stations in all major US DMAs and
had interest in several internet properties, including iVillage and 1/3 of Hulu.33
Writing shortly after the merger, Susan Crawford noted that the merged
company controls “one in five hours of all television viewing in the United
States ... and more than 125 media outlets (cable channels, television stations,
film studios, web sites).”34
But more important than the content library
and branded channels that NBCUniversal brought to the table was Comcast’s
broadband service—a primary provider of broadband connectivity in most
major US cities.35
This bears further examination in light of the “sky is falling”
rhetoric that has been employed with regard to the “threat” of OTT producers
and distributors to traditional television “because no other widely available privately
provided wired Internet access product is fast enough or can be installed
cheaply enough to compete with cable, each of the country’s large cable distributors
can raise prices in its region for high-speed Internet access without fear
of being undercut.”36
While cable subscriptions may have declined in recent
years, “80% of Americans buying a wired high-speed connection these days
sign up with their local cable incumbent” and in fact, “for 75% of Americans,
the only choice for globally standard high-speed Internet access will soon be
the local cable guy.”37
So, if the traditional “legacy” broadcast and cable television
companies are part of these large wired internet service-providing conglomerates,
how much do they really have to worry about cord cutters or cord
shavers? If “broadcasting” and “cablecasting” moves predominantly to IPTV
platforms, it is their same content, same advertising, just served via a different
pipe, which they still own and receive revenue streams from. And, of course,
cable companies can, have, and will “push subscribers toward bundles of payTV
and Internet access by pricing Internet-only subscriptions at a higher rate
than that of the bundle.”38
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Spectrum allocation and auctions
Among the lesser-discussed mandates of the 1996 Telecommunications Act
was the transition of all analog television broadcasters to digital. The presumed
and widely publicized reason for this conversion was to “free up parts (‘bands’)
of the scarce and valuable broadcast [airwaves], allowing these bands to be
used for public safety and emergency services, such as police, fire and medical
services, and new wireless, services, such as wireless broadband.”39
This conversion
was pushed back several times, from 2006 to 2007 to 2008, until analog
television broadcasting ultimately ended on June 12, 2009. The spectrum
that was freed by the transition was sold through an FCC-administered auction
and netted the government $19.5 billion, $16.3 of it from wireless mobile
providers Verizon and AT&T.40
Verizon, AT&T, and US Cellular have utilized
their new spectrum to enhance the speed of their wireless broadband coverage
in urban areas, rather than enhancing coverage in less populous area.
As I write this, the 600MHz spectrum is imminently going up for auction
by the FCC. This auction is actually composed of two separate actions, one
of which is a “reverse auction” (Auction 1001) in which current license holders
(television broadcasters) will sell their spectrum back to the FCC. This
repurchased spectrum will be bundled with additional spectrum currently
controlled by the FCC and then offered in a “forward auction” (Auction
1002) which will offer this spectrum for reprovisioning as wireless broadband
infrastructure. The FCC states explicitly that the goal of this buy-back/sellforward
is to “expand the benefits of mobile wireless coverage and competition
to consumers across the Nation, offering more choices of wireless providers,
lower prices, and higher quality mobile services.”41
The major participants registered for both auctions are, not surprisingly,
Verizon AT&T and T-Mobile US; it is assumed that they will be the winners of
the largest amount of spectrum. This particular part of the spectrum is technologically
attractive to wireless providers because it “offer[s] both distinct
propagation characteristics for deployments over long distances and strong
in-building penetration.”42
It is instructive to note that Chairman Wheeler emphasizes the fact that
broadcasters’ participation in his auction process will be “purely voluntary,
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and participation ... does not mean they have to leave the over-the-air TV
business entirely. New channel-sharing technologies offer broadcasters a
rare opportunity for an infusion of cash to expand their business model and
explore new innovations, while continuing to provide their traditional services
to customers.”43
How this will be accomplished, both technologically and
in a regulatory sense, remains to be determined.
What this means is that there may be locally licensed broadcast affiliates or
independent stations that are going to sell back all of their spectrum allocation
to the FCC—in effect ceding their identities as traditional broadcasters. This
would free them from certain legally defined responsibilities of FCC-licensed
OTA broadcasters such as main studio rules, local programming, and the nebulously
defined “public interest” services and force them to rely upon carrier
agreements with cable and satellite MSOs as well as their own IPTV websites
to distribute themselves to viewers.
What is important to understand about the spectrum auction is that while
it will increase the industrial size and capacity of wireless providers, this
does not pose a major threat to the wired broadband providers. Wired high
speed internet and wireless services do not currently compete with each other
directly. They are complementary services.44
Therefore, “there are two enormous
monopoly submarkets—one for wireless and one for wired transmission.
Both are dominated by two or three large companies.”45
In many of the
largest markets, the same companies (Verizon and AT&T) might be dominant
in both the wired and the wireless broadband markets, making such distinctions
irrelevant except to those interested in antitrust legislation.
Because spectrum is a limited resource, wireless is inherently a limited technology.
Wireless might seem to be the antidote for the stranglehold the cable
companies have on wired internet access but coaxial cable and fiber optics are
20–100 times faster than a 4G wireless connection.46
According to Crawford,
“In order to build a wireless network that could be used by everyone and that
would perform as well as wired high-speed Internet services there would have
to be a wireless tower on every rooftop—connected to a wire—that no user
shared with any other.”47
Therefore, while AT&T and Verizon must abide by
net neutrality rules in their provision of wired high-speed internet, the very
nature of their wireless technology (use of the scarce spectrum) ensures that
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they will not challenge MSOs broadband services in the marketplace, particularly
not in the delivery of IPTV.
Wired distribution systems such as telephone and cable are what Crawford
calls “natural monopoly industries” because “up-front capital costs are high
and the marginal cost of serving one additional customer is low.”48
Once the
major wiring has been installed and the necessary deals made with the municipalities
through whose infrastructure the wires run, additional customers
“will not only mean more revenue for the provider, it will also reduce the company’s
average cost of serving its entire customer base.”49
This obviously favors
incumbents, especially if they already have monopoly control over particular
regions and markets—and it also dissuades competitors from attempting to
enter the market.50
This is what caused the “nationwide rollout” of Verizon
FiOS to stall as well as what makes Google Fiber unlikely to spread beyond its
experimental run in Kansas City.51
The incumbent cable systems already have
formed a natural monopoly and the cost of running fiber into these communities
is prohibitively expensive when compared with what the market will currently
bear, even though a large-scale capital investment in this infrastructure
now would yield much higher profits for Verizon and Google in the long run.
MVPD vs. OVD—What’s in a definition?
The legal definition of a “multichannel video programming distributor
(MVPD)” is “a person such as, but not limited to, a cable operator, a multichannel
multipoint distribution service, a direct broadcast satellite service,
or a television receive-only satellite program distributor, who makes available
for purchase, by subscribers or consumers, multiple channels of video pro-
gramming.”52
This includes all existing cable and satellite MSOs. As a result,
content providers such as AT&T/DirectTV, Comcast, Charter-Time Warner,
Cablevision/Altice, and Verizon FiOS (the five largest MVPDs in the United
States)53
are subject to regulations that exclusively online video distributors
(OVD) such as Amazon Instant Video, Hulu, and Netflix are not.
The primary point of contention here is the financial challenges that the
regulatory requirements of MVPD classification would create for OVDs,
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particularly those seeking to enter the market. Among these regulations are
cable program access, Equal Employment Opportunity Commission (EEOC)
obligations, mandatory closed-captioning/video description, and, most
importantly, retransmission consent fees.
The FCC released a Notice of Proposed Rulemaking on the topic in 2014,
in which it advocated the reclassification of OVDs as MVPDs, arguing that the
designation MVPD should apply to any “services that make available for purchase,
by subscribers or customers, multiple linear systems of video programming,
regardless of the technology used to distribute the programming.”54
Presumably the FCC is seeking to primarily address one reality and one
industry/market-based concern with this proposed redefinition. The reality
is the acceptance that “television” can no longer be technologically defined as
“broadcast, cable and satellite”—it is now “platform everywhere” and its definition
in practice is more based on the characteristics of its content rather than
the container through which it is delivered to the viewer. The market-based
concern (according to Chairman Wheeler) is that “efforts by new entrants to
develop new video services have faltered because they could not get access
to programming content that was owned by cable networks or broadcasters”
and that “big company control over access to programming should not keep
programs from being available on the Internet.”55
That being said, the validity of the market-based concern raises more
questions than it addresses. The majority of OVDs are owned and operated
by big companies anyway—as such they are already operating in the collaborative
cross-licensing economy that is part and parcel of the operation of
the entertainment oligopolies (you pay me for my content and delivery, I’ll
pay you for yours and do likewise). When “big companies” have restricted
access to their content (as NBC and ABC did with Netflix in the lead up to the
Hulu launch), Netflix’s response was to expand its licensing deals of overseas
English-language programming and to enter the original production realm.
This was possible because it already had the revenue streams and capital to
invest in this competitive action. If it were classified as an MVPD, NBC, and
ABC would have been forced to negotiate carriage fees with Netflix, but could
have made these negotiations prohibitively expensive or stalled them until it
had sufficiently benefitted Hulu.
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The position that OVDs should be recategorized as MVPDs to encourage
competition and new entry into the market is interesting in the wake of the
Supreme Court decision on Aereo in 2014. In 2012, Aereo began offering OTA
viewers in New York City access to broadcast channels via a remotely located
dime-sized antenna and DVR service that the viewer accessed over the internet
via his or her computer, tablet, phone, SmartTV, or streaming device.56
The viewer leased the remote antenna for about $8 a month which included
twenty hours of cloud-based DVR storage. Technologically, Aereo worked by
tuning the individual subscriber’s antenna to the broadcast feed of the channel
that the subscriber selected to view, began recording the broadcast feed of that
channel to a remote DVR on a cloud server and then streamed the programming
from the cloud-based DVR on the device to which the subscriber was
viewing. Therefore, the subscriber was not receiving a direct live feed of the
OTA broadcast signal, but rather a seconds-delayed replay of the content from
the remote DVR.57
Aereo was thus technically an OVD—while it relied upon
the OTA broadcast signal for initial reception of the content, its use of broadband
and wireless connectivity made it an online video distributor of sorts.
Aereo’s design was widely critiqued as being “barely legal” from the start.
Writing in the Harvard Business Review’s HBR Blog in 2013, Larry Downes
said “the entire business is engineered to exploit existing copyright law.”58
It
did so mainly by relying on a combination of one of the central unchallenged
tenets of American broadcasting—that “over-the-air television [is] free to anyone
who puts up an antenna and connects it to a receiving device” and legal
precedents set by the 1984 Sony Betamax case that said individual consumer
use of video recording devices to time-shift the viewing of video programming
was “fair use” of the content.59
The Betamax decision was further complicated
by a 2008 case in which the television networks sued Cablevision for its development
of a “‘Remote Storage’ DVR.” Cablevision wanted to maintain “virtual
DVRs” for each of its subscribers to which the subscriber would record his or
her time-shifting programming via home remote. While “from an engineering
standpoint it would only have needed one [recorded copy of the shows]
to handle the replay,” the Cablevision system made an individual copy of
each show on its cloud servers as the show was aired for each subscriber who
requested it.60
Thus, the Cablevision customers were watching “their” copy of
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the show during playback. The Cablevision system looks very much like what
Aereo offered. The networks argued that the virtual DVR system as “really just
a ruse to let Cablevision offer their content as on-demand programming without
paying extra for it. The difference between a home VCR and a remote DVR
was legally significant, they said. Indeed, it was the difference between fair use
and an unauthorized rebroadcast.”61
The court ruled in favor of Cablevision
saying that as long as separate viewer-initiated recordings were made and
maintained by Cablevision on its hard drives and served individually to customers,
the service was within the boundaries of Betamax.
The television industry argued that Aereo was operating as a cable or satellite
provider—providing “retransmission” of their content without paying
“retransmission fees,” which were established by the 1992 Cable Television
Consumer Protection and Competition Act and are federally regulated. The
specific charge made in this case (ABC Television Stations v. Aereo) hinged
on the interpretation of the definitions of “public versus private performance”
in US copyright legislation.62
Central to this question was “when private consumer
technology crosses the line into becoming a public performance.”63
According to the Copyright Act of 1976, an indirect public performance (as
opposed to a direct one, such as a movie screening) is when “members of the
public capable of receiving it did so ‘in the same place or in separate places,
and at the same time or at different times.’”64
Aereo claimed that its activity was within the “fair use” rulings of the
Betamax and Cablevision decisions because its service was based on the
individual—“hundreds of thousands of tiny antennas ... one for each of its
customers. It’s just like having your own antenna and a DVR at home, the
company argues, except that the antenna and the DVR are both remote, and
you control both through the Internet and not your television. It’s not just time
shifting. It’s place shifting.”65
The assigning of an individual antenna to every
subscriber thus made the transmissions private performances.
The Supreme Court disagreed and in a 6–3 decision said that Aereo had
violated the copyright of the broadcasters. Writing for the majority, Justice
Breyer said that Aereo was “‘not simply an equipment provider’ but acted like
a cable system in that it transmitted copyrighted content.”66
As for the private
performance argument, Breyer stated “You can transmit a message to your
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friends whether you send identical emails to each friend or a single email all
at once.”67
Justice Scalia, writing for the dissent objected to Aereo’s entire business
model saying it was one that “exploited a loophole” and that it was the job
of regulators and legislators, not the Court to plug loopholes.68
CBS CEO Leslie Moonves, one of the most outspoken television industry
leaders said of the decision: “We expected to win, but it certainly feels good
to win as decisively as we did.”69
He was blunt about what was expected of
the Aereo-like service: “all that’s important here is that broadcasters and cable
content companies and everyone who’s involved with the content producing
business gets paid appropriately for their content. And that somebody can’t
come and take that content, charge for it, and not pay us back for that con-
tent.”70
Other industry entities from networks to unions and guilds voiced
much the same relief at the exit of Aereo from the market since it protects a
valuable revenue stream that supports new production.
In 2014, Aereo filed paperwork to be reclassified as a cable company.71
This
reclassification would have required Aereo to pay retransmission fees to the
broadcasters whose signals it provides, which begged the question of Aereo’s
viability as an MVPD. At the end of 2013, Aereo had “77,596 subscribers,
spread out among 10 cities.”72
With a maximum subscription of $12 per month,
Aereo would not have been able to cover the cost of retrans fees for all the signals
it was rebroadcasting. Additionally, although Aereo claimed to have the
technological capacity to serve hundreds of thousands of subscribers, its market
performance indicated that the majority of viewers were unwilling to pay
a monthly fee to get programming that is usually available (along with many
other options) for next day viewing via online outlets like Hulu Plus or the networks’
own sites. This left locally originated programming (primarily news) as
the unique programming Aereo was able to provide. Regulatory issues aside,
as all local television stations maintain websites that include streaming video,
Aereo was ultimately providing a redundant service without sufficient valueadded
for all but a small group of viewers. After filing for bankruptcy, Aereo
was acquired by TiVo for $1 million and briefly used in an attempt to sell its
now-defunct Roamio OTA DVR system.73
The use of Aereo-like technology to offer access to broadcast signals has
just now begun to be explored by cable MSOs. Optimum is offering a $24.95
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subscription package that essentially provides subscribers with a digital
antenna that receives all broadcast signals in their service area plus a DVR.
This, however, is a bona fide retransmission-fee-paying MVPD utilizing this
technology to bring cord-cutters back into its subscriber fold. This convergence
of cable and OTT seems primed to continue as Comcast has recently
announced the integration of Netflix subscriptions into its new set-top boxes
in late 2016.74
This would seem to indicate a tacit acceptance of the OTT platforms
by the traditional video industries—and it legitimates them as another
form of television. Whether this will be subject to FCC intervention at a later
date (the set-top box issue is currently moribund but may rise again) remains
in a liminal state.
Regardless of parent company ownership, it behooves OVDs to be excluded
from the MVPD definition. While some may find future OVD retransmission
markets to be lucrative, the requirements to carry OTA content would create
needless duplication as well as raise further questions about the relevancy (and
definition) of “local broadcast footprints” in an era of IPTV. The commentperiod
for this rulemaking was extended into spring 2015, but as of summer
2016 it remains in a decidedly liminal phase while OVDs continue to behave
like (and be acquired by MVPDs).
What we can say of the contemporary moment in US communications
regulation is that it appears to favor an expansion of viewing options through
mandated “equal access” of content via the internet. At the same time, spectrum
auctions seem destined to sharply contract the technological existence
of “broadcast” television and to move that distribution to wired and wireless
broadband common carriers. The ability of the on demand audience to
engage in substantial mobile viewing will be directly affected by the strength
and expansiveness of high-speed next generation wireless systems, as will the
building of a reliable nationwide wireless system with capacities suitable to
provide universal service to urban and rural populations equally.
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151150
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