Who Wants to Be an MVPD?

FCC chairman Tom Wheeler dropped a pretty broad hint last week that the commission is gearing up to reclassify at least some over-the-top video services as multichannel video programming distributors (MVPDs) as described in the Communications Act, putting them on roughly the same regulatory footing as cable and satellite providers.

In theory, the change could make it easier for services like Sling TV and Apple’s long-rumored subscription video service to add local broadcast channels to their lineups because it would extend the same retransmission consent rules to online video distributors as apply to cable and satellite providers.

Under the current retrans rules, broadcasters are required to enter “good faith” negotiations with any qualified MVPD for carriage of their signals. Similar rules, which presumably would also be extended to OTT services, require that cable networks owned by or affiliated with cable operators, such as the NBC Universal cable networks now owned by Comcast, must make their programming available to all other MVPDs.

Whether any OTT services actually want to be classified as MVPDs, however could be another matter.

The FCC first proposed the changes, in a Notice of Proposed Rulemaking (NPRM), in December, 2014, and the proposal has since gone through the required round of public comments and replies. Speaking at the Brookings Institution in Washington last week, Wheeler said he expects to “move that to a Report and Order” sometime this fall. “There is a line of new OTT providers queuing up to expand video choice – and increase consumer demand – for broadband.”

Moving the proposal to a Report and Order would the next formal step in the regulatory process. The order would then need to be voted on by the five FCC commissioners, and Wheeler stopped short of claiming to have the votes to approve it, although I doubt he would have mentioned it if he didn’t think he would.

As described in the NPRM the new rules would apply only to multichannel linear OTT services like Sling TV, not to purely on-demand services like Netflix or Hulu, or to standalone OTT offerings like HBO Now or CBS All Access. The proposed rules would also allow multichannel OTT providers to choose whether to invoke MVPD status, a point Wheeler emphasized in his speech last week.

“Another way to stimulate broadband is to increase opportunities for additional competition in upstream markets,” he said. “That is why we proposed a rule to give over-the-top video providers the ability to choose the same business model as cable and satellite providers, with the same program access rights.”

Choosing to invoke program access rights, however, would also presumably come with at least some of the regulatory obligations imposed on cable and satellite providers, such as support for closed captioning and video descriptions in video streams, submitting to local franchising approvals, and various reporting requirements. Current rules also require cable operators to secure franchise rights from local governments before offering service in a given area.

The program access rights would also come with a major caveat. A retransmission license covers only the right to retransmit the broadcaster’s signal. It does not, by itself, convey a right to make use of the copyrighted programming contained in that signal, which in many cases the broadcaster does not own and cannot convey.

The retransmission consent regime works for cable and satellite systems because in 1976 Congress created a compulsory license for the secondary transmission of copyrighted works contained in broadcast signals on cable systems. The Section 111 license was later extended to direct-broadcast satellite TV services.

The FCC has no authority over copyright law, however. Changing the definition of a MVPD to include over-the-top services would not guarantee that OTT services will be entitled to the same statutory license to broadcast programming as cable and satellite operators enjoy. Moreover, the U.S. Copyright Office, which administers the license, has consistently held that it does not apply to non-facilities based online video services, most recently in the case of Aereo, which tried unsuccessfullly to invoke the Section 111 license in a last-minute attempt to rescue its business model from copyright infringement charges.

Even with a change in the rules by the FCC then, any OTT service seeking MVPD status could still need to negotiate copyright licenses for broadcast programming — a potentially expensive and drawn out process (more on the potential copyright conflicts over the statutory license in a future post).

Given the known and likely trade-offs, how are companies from among the current crop of existing, announced, expected or potential linear OTT services likely to come down on the question of MVPD status. Until the details of the final Report and Order are available we can’t make any certain predictions.

What follows is Concurrent Media’s back of the envelope handicapper on how leading suspects are likely to respond to the FCC’s move.

Read the rest of this post at Concurrent Media.