Monday, December 10, 2012

The Internet video battle is the wrong fight in the wrong venue

Last week, over-the-top Internet video company Aereo faced the major U.S. television networks in a Federal court of appeals in New York. Last July, a Federal court denied the broadcasters an emergency injunction to stop Aereo from offering its service, which enables consumers in New York City to watch, record and replay live broadcast television over the Internet. Aereo assigns a tiny, thumbnail-sized antenna to each active user, specifically to circumvent objections that resulted in court injunctions against ivi and FilmOn, two similar services that preceded Aereo. The appeals court hasn't made its ruling as of this writing, but based on court arguments, it looks like the appellate court will be less sympathetic to Aereo's arguments than was U.S. District Judge Alison Nathan.

In my opinion, both sides are fighting over the wrong issue, in the wrong venue. Aereo, and both ivi and FilmOn before it, took the approaches that they did because broadcasters and cable operators either refused to negotiate with them for rights to their content, or demanded fees that they couldn't possibly pay. There are conflicts in current laws that bring into question whether broadcasters must license their content to cable operators under what's termed a compulsory license. However, as the laws are generally interpreted, broadcasters can either make their content available to cable operators for free (in which case the cable operators must assign the broadcasters a channel,) or the broadcasters can ask for compensation for their content, in the form of payment and/or an agreement to carry other content from the broadcasters' parent companies (for example, CBS could require a cable operator to offer Showtime, which it owns, in order to get the right to broadcast its local television station(s).) Broadcasters can withhold their content from any cable operator that doesn't agree to their terms.

The real issue is whether broadcasters, if not cable networks, should be required to license their content under fair, reasonable and non-discriminatory (FRAND) terms to all distributors. I think that it's time for such a requirement. The rules that define who can be considered a Multichannel Video Programming Distributor (MVPD) were written before the Internet became a viable medium for distributing live video. There's no technical reason why Internet video companies can't compete with cable, satellite and IPTV operators, but very few broadcasters, and even fewer cable networks, are willing to sell them their programming.

Here's an example of a FRAND compulsory licensing scheme that could work: Over-the-top Internet services could license content from broadcasters on a tiered pricing scheme based on each service's number of active subscribers--for example, companies with 1-249,000 subscribers would pay a given per-subscriber fee for each broadcast station, and additional tiers with higher fees would be established at 250,000-499,999, 500,000-749,999 and 750,000-999,999 subscribers. Once a video service reaches one million subscribers, it would be subject to the same rules as cable, satellite and IPTV companies. For their part, cable, satellite and IPTV operators would also be eligible for the same FRAND compulsory licenses, at the same rates, until they too reach the one million subscriber mark. According to the most recent statistics from the National Cable Television Association, that would make all but the top 12 MVPD companies in the U.S. eligible for compulsory licenses. Finally, broadcasters could make their programming available to Internet services for free, under the same "must-carry" rules that apply to cable, satellite and IPTV services.

This approach would enable innovative Internet video startups to gain a foothold and compete against larger cable, satellite and IPTV companies, and it would allow smaller legacy MVPDs to compete on a level playing field. I'd also propose that cable networks that are owned by MVPDs (such as NBCUniversal, which is owned by Comcast) be required to follow the same FRAND compulsory licensing rules. Other cable networks could choose to make their programming available to smaller MVPDs, including Internet companies, under FRAND licenses.

The courts can't implement a FRAND compulsory licensing scheme; it has to be done by the U.S. Congress, in conjunction with the U.S. Copyright Office. No court ruling in the Aereo case, even if it goes all the way to the U.S. Supreme Court, will fully resolve the case--if Aereo wins, broadcasters will push for legislation, and if the broadcasters win, Aereo and its allies will do the same. It's time to recognize that the public Internet works for live video distribution, that startups should be able to compete with existing cable, satellite and IPTV companies, and that content providers should get fair compensation, no matter how their content is distributed.
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