Why MVPDs, Studios Won’t Take Yes For An Answer on STBs

When Federal Communications Chairman Tom Wheeler unveiled his initial proposal to “unlock” the pay-TV set-top box back in January, pay-TV service providers and programmers howled in protest. Operators complained that the proposal, which called for multichannel video program distributors (MVPDs) to make their video feeds, channel listings, and subscriber entitlement data available to third-party device makers as discreet “information flows,” would require a major and expensive re-architecting of their systems. Programmers complained that making their content available directly to device makers with whom the programmers had no contractual arrangement amounted to a de facto compulsory copyright license, which the FCC had no authority to create or enforce.

FCC_buildingBoth threatened to sue.

The two arguments were, in fact, reinforcing. The current carriage agreements TV programmers and distributors have with pay-TV operators are premised in part on pay-TV systems operating in certain ways and not in other ways. Changing how those systems function could cause part of the premise of those licensing agreements to crumble.

Together, the arguments were effective. They allowed programmers to plausibly argue that Wheeler’s proposal implicated copyright law, over which the FCC has no jurisdiction, which found a sympathetic ear on Capitol Hill, drew a rebuke from the U.S. Copyright Office, and cost Wheeler support among fellow Democrats on the commission, forcing him to retreat.

MVPDs were sufficiently concerned, however, that they offered their own alternative: the app-based “Ditch the Box” proposal put forth by the National Cable & Telecommunications Association.

Now, Wheeler is back with a new proposal that adopts many of the core elements of the NCTA counter-proposal, including support for operator-developed apps that would run on third party devices while preserving the operator’s propriety UI, content protection system, and control over how users access the content in their apps.

Although the full proposal has not yet been made public, according to a fact sheet released by the FCC, Wheeler’s new plan would appear to address many of the concerns raised by programmers and MVPDs the first time around:

Protecting Copyrights & Contracts: Honoring the sanctity of contracts through pay-TV control of the app and related software

Pay-TV content will only be opened by the pay-TV app, thus using the robust security protocols already built in to pay-TV apps. In addition, programming will continue to be controlled by the pay-TV provider from end-to-end, protecting content and maintaining all contracts and agreements currently in place.  The pay-TV’s software will manage the full suite of linear and on-demand programming licensed by the pay-TV provider.

  • Maintains strong protections for copyrighted content: Copyrights and licensing agreements will remain in place. The proposed final rules maintain important aspects of the traditional video distribution regime by leaving the control of the app and related software in the hands of the pay-TV providers.

  • Existing content distribution deals, licensing terms and conditions are unchanged. Since the pay-TV provider controls its own app, deals made between pay-TV providers and content providers are not affected by this proposal. As pay-TV providers continue to oversee the delivery of content to consumers, all arrangements regarding channel lineups, advertising and distribution remain intact. Pay-TV companies retain their customers and will still receive a monthly subscription fee for the content they provide – consumers will simply have new ways to access that content.

Yet MVPDs and programmers are once again objecting. And they’re falling back on the same argument that worked last time: the FCC is attempting to create a de facto compulsory license for pay-TV content on third-party devices (see here for a particularly piquant example of their analysis).

The programmers have focused on one particular provision outlined in the fact sheet:

  • Standard License: The proposed final rules require the development of a standard license governing the process for placing an app on a device or platform. A standard license will give device manufacturers the certainty required to bring innovative products to market. Programmers will have a seat at the table to ensure that content remains protected.  The license will not affect the underlying contracts between programmers and pay-TV providers. The FCC will serve as a backstop to ensure that nothing in the standard license will harm the marketplace for competitive devices.

 

Programmers argue that content is licensed to MVPDs (and other distributors) on a wide range of contractual terms, and the only way a single, standard license could honor those contracts is to force rights owners to license their content on standard terms, ergo a compulsory license.

On its face, though, the “standard license” the fact sheet refers to would seem to concern the terms of use for MVPD apps on third-party devices, not any contract terms between programmers and MVPDs. And as I noted last week, the reason the provision is in there is pretty obvious: to preclude MVPDs from using the licensing of their proprietary apps to achieve anticompetitive ends, such as requiring devices to favor MVPD content over content from other service providers in search results, or denying certain features or functionality to certain devices or anticompetitive reasons.

The fact sheet spells out Wheeler’s competitive concerns pretty clearly:

Integrated Search: Consumers will be able to search across all pay-TV content  

  • Real cross-platform search: Pay-TV providers must enable consumers’ ability to search the content in their service, both linear and on-demand, alongside other video services accessible through the device. This means consumers will be able to search their programming options in one place whether from their pay-TV provider, an over-the-top service or a programmer’s standalone app.
  • No discrimination in search: Pay-TV providers may not require a platform or device to promote the pay-TV app over other sources of programming in the search function.
  • Ease of access: Pay-TV providers must provide consumers with an equivalent ability to access content via the pay-TV app as they have in the set-top box.  Pay-TV providers must also make it as easy for a subscriber to access programming inside a programmer’s app, including authentication of the subscriber, as it is to reach programming inside the pay-TV app.

 

That’s not to say a clever lawyer couldn’t convince a court that the licencing scheme envisioned by Wheeler implicates copyright should the rules get that far, or that the terms of use of the apps and the terms of use of the content are so closely intertwined that it’s impossible to meaningfully separate them, and thus the FCC is impermissibly straying into copyright law.

But it doesn’t seem obviously impossible that a contract governing how an app is to be implemented on a device could be crafted so as not to implicate what happens inside the app. And until such a contract is drafted, we can’t really know.

Instead, the brusque refusal by the MVPDs and rights owners to take an apparent yes for an answer reinforces the view, expressed here before, that the fight over the set-top box never was and isn’t now really a fight over copyright; it’s about the industry’s desire to control the pace and scope of disruptive competition in the pay-TV business.

Wheeler is trying to accelerate that pace. The incumbent players are resisting. But their real beef with Wheeler is over the pace, not the law.

 

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