Railing against government regulations is practically a national pastime for businesses — except sometimes, regulation has its privileges. That little-acknowledged fact is apparent in a fight before the Federal Communications Commission that could fundamentally shape the future of television.
On one side is a small online video distributor all but begging to be subject to the same old-fashioned regulations that apply to cable companies. On the other are entrenched media giants who argue that the FCC cannot — and should not — extend the rules they live by to Internet-based competitors.
The underlying fight is over access to content. Sky Angel, a self-described Christian-owned company providing 80 channels of “Faith and Family” television and audio programming via the Internet, wants the FCC to designate it a “multichannel video programming distributor,” just like a cable or satellite company. It would be the first online video distributor classified this way.
Sky Angel’s request was prompted by a dispute with Discovery Communications, which terminated its agreement with the company to provide programming such as Animal Planet. The implications, however, go far beyond fans of Cats 101 or Rattlesnake Republic.
Cable industry lawyers warn that the proceedings could “completely upend the regulatory regime established by Congress,” as Comcast Corp. regulatory affairs counsel Kathryn Zachem put it in an FCC filing. Those on the other side, like Public Knowledge senior staff attorney John Bergmayer, claim the move would “significantly benefit consumers” and usher in a new era of competition.
The key: If Sky Angel is awarded the same regulatory status as a cable company, it can force Discovery under FCC program access rules to make its shows available on a nondiscriminatory basis. That’s because cable-affiliated programmers aren’t allowed to withhold their popular offerings from competitors — cable and satellite competitors, that is. The regulations don’t specify how to treat new, online video distributors like Sky Angel that didn’t exist 20 years ago when the law was enacted.
To be viable competitors, online video distributors say they need the same guaranteed access to must-see programming that cable companies enjoy and that there’s no reason to treat them differently just because they use a different technology to deliver the same television programs.
“Sky Angel looks and feels so much like a cable system. It’s not like Hulu or YouTube — you’re not watching a video on some Web site,” said Holland & Knight partner Charles Naftalin, who represents the company. Instead, subscribers pay a monthly fee (about $33) to watch TV shows using a set-top box. It’s connected to their television and offers a continuous stream of programs on different channels via the home’s broadband service. “It’s functionally identical from a consumer perspective to cable or satellite,” he said.
What so-called “over-the-top” video doesn’t require is laying miles of fiber optic cable or launching a satellite — a huge cost savings that dramatically lowers the barriers to entry for potential competitors. “This is the next thing that’s really going to compete with [cable],” Naftalin said. “They’re trying to delay a new competitive force in the distribution of video programming.”
To be sure, there are obligations that go along with regulation, but online video distributors are already subject to the biggest one — providing closed captioning for hearing-impaired viewers. Other requirements, like preventing loud commercials and complying with equal opportunity and emergency information rules, are a small trade-off for nondiscriminatory program access, Naftalin said.
In FCC filings, cable companies stress that “allowing IP-based services to remain free from legacy regulatory regimes best promotes broadband deployment, as well as the development of innovative new services. Saddling these services with legacy regulation necessarily adds costs and burdens,” wrote Verizon assistant general counsel William Johnson along with outside counsel from Kellogg, Huber, Hansen, Todd, Evans & Figel. “To the extent certain legacy requirements are extended to over-the-top video services, it should occur through new legislation.”
Indeed, the FCC, which through a spokeswoman declined comment on the proceedings, does not appear to have been eager to jump into the fray — it took two years just for the agency to give the matter a docket number. The FCC moved forward only after Sky Angel petitioned the U.S. Court of Appeals for the D.C. Circuit in late February for a writ of mandamus to force the agency to act.
On March 30, the agency issued a request for public comment on how to define a “multi-channel video programming distributor,” or MVPD. The notice poses 44 specific questions, with particular focus on the meaning of a “channel.” Comments are due by June 13.
The agency assigned the matter — which in its D.C. Circuit motion opposing the mandamus request it described as presenting “novel, difficult questions of law and policy” — to the Media Bureau. Normally, issues of first impression are decided exclusively by the FCC’s five politically appointed commissioners. To Naftalin, it’s “a way to kick the can down the road for a decade.” He predicts that the Media Bureau will eventually refer the matter to the full commission for further consideration, with years elapsing before Sky Angel could seek court review.
The dispute began in 2007, when Sky Angel and Discovery entered into an affiliation agreement for multiple Discovery channels. The deal was supposed to run through 2014, and Sky Angel in court papers said it never missed a payment or heard any complaints from Discovery. Nonetheless, in December 2009, Discovery informed Sky Angel it was ending the agreement and would withhold its programming. (Naftalin declined to comment why Sky Angel didn’t just sue Discovery for breach of contract.)
According to Sky Angel, “Discovery simply repeated that it was ‘uncomfortable’ with Sky Angel’s distribution methodology, which had not changed since the parties executed the initial affiliation agreement two years earlier.”
Discovery counsel Tara Corvo, a partner at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, declined comment, as did a Discovery spokeswoman. In an FCC filing, though, Corvo wrote that “Discovery executives have repeatedly expressed their belief that offering Discovery’s programming services over the Internet could lead to a decline in Discovery’s ability to produce high-quality programming over the long-term. The Commission is not well positioned to second-guess these types of business decisions.” She also pointed out that some content creators “prefer to retain their rights to online distribution, in the hope of turning it into a separate revenue stream.”
In March 2010, Sky Angel filed a program-access complaint with the FCC against Discovery (which is subject to the access rules because Liberty Media Corp. Chairman John Malone owns part of the company) and asked the agency for a petition of standstill that would have forced Discovery to keep providing programming while the matter was pending.
The FCC said no, ruling that Sky Angel was not likely to succeed on the merits in establishing that it is a multichannel video programming distributor and therefore it would not be entitled to seek relief under program-access rules. The reason: Sky Angel does not provide a transmission path to deliver its content, which the FCC concluded was an MVPD requirement. At the same time, the FCC cautioned that the decision didn’t mean it “will ultimately conclude, in resolving the underlying complaint, that Sky Angel does not meet the definition of an MVPD.”
The Cable Television Consumer Protection Act of 1992 defines a multichannel video programming distributor as someone that “makes available for purchase, by subscribers or customers, multiple channels of video programming.” Sky Angel has paid subscribers and it has video programming. But does it have multiple channels?
The FCC in its request for public comment asked whether a channel is strictly a physical “portion of the electromagnetic frequency spectrum,” as Congress specified in 1984. Or should it be interpreted in “the more common, less technical, everyday sense to mean ‘multiple video programming networks’ ” (e.g., the Weather Channel or, for that matter, the Discovery Channel)?
The National Cable & Telecommunications Association argued that the statutory definition of “channel” is clear: It’s not “the programming itself, but the physical transmission path used to deliver that programming,” wrote Rick Chessen, the association’s senior vice president for law and regulatory policy, in FCC comments. “Entities that offer or package video programming for viewing on the Internet do not generally include such a transmission path in their service offerings to customers; that path [a broadband connection] is purchased by customers separately from their Internet service providers. And, as a result, such entities are not MVPDs.”
In the 1992 Cable Act, Congress listed examples of MVPDs “not limited to a cable operator, a multichannel multipoint distribution service, a direct broadcast satellite service, or a television receive-only satellite program distributor.”
But Congress’ last example, more commonly known as a home satellite dish provider, doesn’t involve a transmission path, said DirecTV counsel William Wiltshire of Wiltshire & Grannis. Such providers are independent distributors that aggregate programming rights for resale to subscribers, but are neither satellite operators nor program producers. “It’s not reasonable [for the FCC] to directly contradict the very definition they’re trying to interpret,” Wiltshire said. “Clearly, they cannot define a MVPD in terms of a transmission path.”
Instead, DirecTV has urged the FCC to use the less technical definition of channel and bring qualified online video distributors like Sky Angel into the MVPD club.
If the FCC does so, predicted Public Knowledge’s Bergmayer, it will transform television. “A typical viewer will go from having a choice of one or two MVPDs to any number of them,” he wrote. “Just as a reader today is no longer limited to the local newspaper and one or two national papers, but can read online news from around the country and around the world,…the Bureau will make it so that viewers can choose between a large number of competitive MVPDs instead of being limited to the same few options, year after year.”
Jenna Greene can be contacted at email@example.com.