In December 2014, the Federal Communications Commission (FCC) released a Notice of Proposed Rulemaking (NPRM) that could change the way Americans watch television. In a closely watched proceeding, the FCC proposed new rules to define which entities should be considered multichannel video programming distributors (MVPDs). The FCC sought comment on whether providers of IP-delivered video programming should have the same regulatory status as cable and satellite providers. If—as seems likely—the Commission adopts the rules proposed, qualified providers of video programming over the Internet could gain unprecedented access to programming, but could also be subject to significant new regulatory oversight.
Traditional MVPDs are cable and satellite companies that distribute channels of video programming to subscribers. At the core of the FCC’s proposed rule change is exactly how to define “channel.” In the past, the FCC has found that only operators who delivered their programming over some facility, such as a cable system or a satellite link, could provide consumers with “channels.” But with the growth in broadband penetration and capacity, an increasing number of companies have begun delivering separate streams “over the top” (OTT) of consumers’ Internet connection.
The FCC proposes to amend its rules to redefine the term “channels” as “streams of linear video programming.” (The term “linear programming” or “linear television” describes programming that consumers must watch when the provider offers it as opposed to programming available anytime on demand.) Under the proposed revised definition, even if an OTT provider does not provide the physical transmission path of a channel, it would qualify as an MVPD by providing multiple streams of programming. Because the FCC is basing its reclassification on providing “channels,” the proposal does not directly include subscription on-demand providers such as Netflix; non-subscription on-demand providers such Amazon Instant Video and iTunes; or ad-based providers such as Hulu, Roku or YouTube. Nevertheless, the FCC sought comments on whether it should reclassify any of these other types of providers as MVPDs, too.
The Upside for OTT Providers
Being classified as an MVPD could bring OTT providers two key benefits. First, MVPDs have program access rights, which prevent one MVPD from withholding affiliated content from an unaffiliated MVPD. The program access rules are one of the reasons that consumers can watch NBC programming, which is affiliated with Comcast, even though they subscribe to Cox. The second advantage of MVPD status is eligibility for retransmission consent, which requires broadcasters to negotiate in good faith with MVPDs for retransmission rights and prevents broadcasters from selling exclusive rights to just one MVPD. Retransmission consent is one of the reasons that cable subscribers have generally been able to watch a variety of broadcast networks through their cable box.
Expanding the definition of MVPD to include OTT providers would therefore provide new video service providers with greater access to linear television programming.
The Potential Burdens of MVPD Status
While there are advantages to gaining MVPD status, OTT providers would also face increased regulatory burdens from the classification. For example, MVPDs must provide closed captioning and video description services for individuals with disabilities and are bound by the FCC’s Equal Employment Opportunities rules. The FCC also regulates the volume of commercials on MVPD streams and has a host of requirements, such as signal leakage and inside wiring rules, that logically apply only to facilities-based MVPDs. Complying with these regulations inevitably comes at a cost, which some OTT providers may not want to pay, and some of these rules — such as the obligation to report and remedy signal leakage from cable lines — simply do not fit the OTT-delivery model.
The outcome of the OTT proceeding will not be a cliff hanger for much longer. FCC Chairman Tom Wheeler has said that he expects a final rule addressing the status of OTT providers to be released in the fall of 2015. The Chairman will likely have to push through the item over the objections of at least one of the four commissioners at the FCC. Commissioner Ajit Pai has already announced his opposition to reclassification. Pai recently said that the Commission should not create a new category of regulated entity in light of the absence of any clear market failure in the MVPD sector.
Once the FCC makes its move, attention will turn to the U.S. copyright office, which is the primary battlefield for programming access rights because the Copyright Office – not the FCC – determines eligibility for compulsory licenses to copyrighted work, which remains the most important step in any programming distribution effort. Here too, the playing field may be changing. In a recent case in a California district court, the judge tentatively ruled in favor of treating the online video streaming service FilmOn like a cable company for copyright purposes, while noting that the MVPD rulemaking could change the legal requirements of Internet-based providers under Section 111 of the Copyright Act, which requires that any retransmission of content comply with FCC regulations.
The potential for the FCC and the Copyright Office to change the regulatory landscape for OTT providers should keep everyone watching.