Internet multichannel video services go on the offensive

According to The Hollywood Reporter, Aereo, the Internet-based multichannel video service backed by Barry Diller, faced off against ABC, CBS and NBC yesterday in Federal Court in New York. The broadcast networks are asking for a preliminary injunction again Aereo. In an unusual move, the judge is allowing both sides to call witnesses--an opportunity that wasn't afforded to either ivi or FilmOn in previous cases. (The Second Circuit Court of Appeals began oral arguments about ivi's injunction yesterday.)

Part of yesterday's testimony centered on the damage that Aereo's service could do to broadcasters, since the networks have to demonstrate both a likelihood of prevailing on the merits of the case and irreparable harm if Aereo continues in operation in order to get a preliminary injunction. Martin Franks, CBS' Executive Vice-President of Planning for Policy and Government Affairs, was asked whether Aereo is more or less damaging to broadcasters than DVRs, and Franks replied that he didn't know. Michael Elkin, one of Aereo's attorneys, pointed to a deposition that Franks had given, in which he suggested that DVRs were more damaging than Aereo's technology, even though broadcasters have accepted DVRs as a "fact of life."

The comparison with DVRs is interesting, and it might well help Aereo avoid a preliminary injunction. However,  it's probably not going to be a major factor in the trial for a permanent injunction. Broadcasters want to be able to require Aereo to pay for retransmission rights, as cable, satellite and IPTV operators are required to do by law.  Aereo claims that its system is the same as reception through a roof-top antenna--the antenna is simply located across the open Internet--and that it's thus not bound by the same rules as other multichannel video programming distributors (MVPDs.) Broadcasters are concerned that if Aereo is allowed to continue to operate, it will lead to a flood of low-priced, over-the-top video distributors copying Aereo's model. Consumers will move to the new Internet-based distributors, and the revenues that broadcasters get from cable, satellite and IPTV providers will decline.

The FCC is considering whether to add over-the-top Internet video services like Aereo to the definition of MVPDs. That would partially address the issues in this case, since Aereo would be required to pay for broadcasters' programming. However, the broadcasters could still refuse to license their programming to Aereo, leaving the company without the content it needs to operate.

What's ultimately needed is a requirement that broadcasters make their programming available to all MVPDs at equitable prices. That would allow Internet-based MVPDs to compete on an even footing with other companies, but wouldn't penalize established MVPDs. It would also insure that broadcasters get retransmission revenues from all distributors.

Aereo: Another "cable killer"?

Companies have been trying for years to offer cable television-like services over the Internet, without having to either get permission from broadcasters or pay them to retransmit their shows. FilmOn and Ivi are two companies that tried last year, but are both currently "off the air" as the result of court injunctions. Aereo, a New York-based company, is the latest to try. The company launched its service today in New York City. According to the company, Aereo is designed specifically to get around the legal limitations that shut both FilmOn and Ivi down.

Aereo will stream the signals from 20 New York City-area broadcast stations to its subscribers for $12/month, and will include a network-based DVR service that was upheld as legal by the U.S. Supreme Court last year in a case against Cablevision. All the major broadcast networks, including ABC, CBS, Fox, NBC and PBS, will be included, but cable-only networks such as USA, TNT and CNN won't be. That's one big difference between Aereo's service and those of FilmOn and Ivi, both of which offered a selection of basic cable networks. In addition, Aereo will initially only be available in New York City, and Aereo will only carry signals from local television stations--another difference from its predecessors, which made signals from stations in Los Angeles and New York available to subscribers around the U.S.

Aereo is doing one more thing that it hopes will make its service ligitation-proof: For every subscriber, Aereo will install a tiny, thumb-sized antenna in an undisclosed location in New York City. (Correction, February 15, 2012: Aereo is going to allocate each subscriber their own antenna from a pool of antennas while they're using the service, not install a dedicated antenna for every subscriber.) The idea is that each subscriber will receive the signal from their own antenna, not from a "community" antenna, and therefore, Aereo isn't a cable system and isn't bound by cable retransmission rules. It's an interesting way to try to get around the regulations, but whether the courts will agree is an open question.

Aereo has one more card to play: One of its investors is IAC, and company Chairman Barry Diller will join Aereo's Board of Directors. Diller is a former VP of development at ABC Television, former Chairman and CEO of Paramount Pictures and former Chairman and CEO of Fox, where he founded the Fox Television Network. At one time he owned USA Network. Diller is one of the best-connected executives in the media industry, and he has the experience in running and working with television networks and movie studios that neither FilmOn nor Ivi had. However, it's unclear if that's going to be of any help if the New York television stations go to court against Aereo.

Update, March 1, 2012: The Hollywood Reporter reports that not one, but two, lawsuits were filed against Aereo today to stop it from launching on March 14th. The first lawsuit, asking for a permanent injunction and statutory damages, was filed by Fox, Telemundo and PBS and their New York affiliates. The second lawsuit, asking for pretty much the same thing, was filed by CBS, NBC and ABC and their local affiliates. The Hollywood Reporter says that the two lawsuits are likely to be consolidated.

If you live in New York, have poor television reception and don't care about cable networks (or can get what you want from Netflix), it may be worth considering Aereo as an alternative to cable. If you live outside New York, don't hold your breath--Aereo's unlikely to spread to other cities until the courts determine whether or not its service is legal.

Closing the cable television statutory licensing loophole

Over the last few months, FilmOn and ivi, two Internet-based services that retransmitted broadcast television stations from multiple cities, have been effectively shut down by preliminary injunctions issued by a U.S. Federal court. In both cases, the issue was that the U.S. Copyright Office has a regulation dating back more than 20 years (Section 111 of the Copyright Act) permitting cable systems to retransmit broadcast signals locally in return for the payment of statutory royalties to the Copyright Office. That regulation was effectively superseded by the Communications Act of 1996, which requires cable and satellite systems to obtain permission from and pay compensation directly to broadcast stations in order to retransmit their signals.

In ivi's case in particular, the company argued that it was a cable system for the purposes of Section 111 of the Copyright Act, but it wasn't a cable system under the definition of the Federal Communication Commission, and therefore wasn't subject to the Communications Act of 1996. In both ivi's and FilmOn's cases, the Federal court ruled that they weren't cable systems under any established definition, and therefore weren't entitled to take advantage of Section 111. They could negotiate directly with television stations for retransmission rights, as IPTV operators such as Verizon and AT&T do, but they had no right to retransmit their signals under a statutory license.

Both cases are still in litigation and have not been finally decided by the courts, but an action announced last week by the U.S. Copyright Office may may the entire argument moot. The right of satellite services such as Dish Network and DirecTV to retransmit signals from broadcast stations outside a subscriber's local area was renewed last year, in the Satellite Television Extension and Localism Act of 2010 (STELA). A section was included in STELA that requires the statutory licensing requirements in Section 111, as well as additional requirements in Sections 119 and 122 (covering satellite services), to be phased out, and it gives the Copyright Office responsibility for coming up with a phase-out plan. Here's what the section says:

Not later than 18 months after the enactment of this Act, and after consultation with the Federal Communication Commission, the Register of Copyrights shall submit to the appropriate Congressional committees a report containing the following:

1. proposed mechanisms, methods, and recommendations on how to implement a phase-out of the statutory licensing requirements set forth in sections 111, 119, and 122 of title 17, United States Code, by making such sections inapplicable to the secondary transmission of a performance or display of a work embodied in a primary transmission of a broadcast station that is authorized to license the same secondary transmission directly with respect to all of the performances and displays embodied in such primary transmission

2. any recommendations for alternative means to implement a timely and effective phase-out of the statutory licensing requirements set forth in sections 111, 119, and 122 of title 17, United States Code

3. any recommendations for legislative or administrative actions as may be appropriate to achieve such a phase-out

Last week, the Copyright Office announced a timetable for requesting comments and replies to comments to help it formulate a phase-out plan. By the time the FilmOn and ivi cases wind their ways through the Federal court system, it's likely that the phase-out plan will be adopted, and even possible that the phase-out date will be reached. Thus, even if they win in court, there won't be any statutory license, and they'll still have to negotiate station by station for retransmission rights and compensation.

Section 111 of the Copyright Act is alive and well

In this week's videoblog, I did a piece about FilmOn.com, a U.K. company that's streaming broadcast signals from television stations in Los Angeles, as well as a variety of cable networks, across the Internet. Like ivi, FilmOn.com is depending on Section 111 of the U.S. Copyright Act, which requires television broadcasters to grant statutory (mandatory) licenses to retransmit their signals to cable systems, in return for payments made to the Copyright Office and distributed to broadcasters.

Some people (including myself) have argued that Section 111 was superseded by the 1996 Telecommunications Act, which gives broadcasters control over whether or not their signals can be retransmitted by cable systems and similar services. The Act also allows broadcasters to specify the price for retransmission rights, which is paid directly to broadcasters, not to the Copyright Office.

Last week, however, the Copyright Office issued two notices in the Federal Register: Distribution of the 2008 Cable Royalty Funds and Distribution of the 2008 Satellite Royalty Funds.  Note that the Copyright Office is still collecting royalties, and so far as they're concerned, Section 111 is still in full effect. Here's a direct quote from the Federal Register posting:

"Each year cable systems must submit royalty payments to the Register of Copyrights as required by the statutory license set forth in section 111 of the Copyright Act for the retransmission to cable subscribers of over-the-air television and radio broadcast signals. See 17 U.S.C. 111(d).  These royalties are then distributed to copyright owners whose works were included in a qualifying transmission and who timely filed  a claim for royalties. Allocation of the royalties collected occurs in one of two ways.  In the first instance, these funds will  be distributed through a negotiated settlement among the parties. 17 U.S.C. 111(d)(4)(A). If the claimants do not reach an agreement with respect to the royalties, the Copyright Royalty Judges (‘‘Judges’’) must conduct a proceeding to determine the distribution of any royalties that  remain in controversy. 17 U.S.C. 111(d)(4)(B)."

"The 'Phase I Parties' are the Program Suppliers, Joint Sports Claimants, Public Television Claimants, Commercial Television Claimants (represented by National Association of Broadcasters), Music Claimants (represented by American Society of Composers, Authors and Publishers, Broadcast Music, Inc., and  SESAC, Inc.), Canadian Claimants, National Public Radio, and the Devotional Claimants. In Phase I of a cable royalty distribution proceeding, royalties are allocated among certain categories of broadcast programming that have been retransmitted by cable systems. The categories have traditionally been movies and syndicated television series, sports programming, commercial and noncommercial broadcaster-owned programming, religious programming, music, public radio programming, and Canadian programming."

Now, that pretty much covers every kind of programming and every kind of broadcaster. If broadcasters are relying on the Telecommunications Act, why are they still collecting royalties from the Copyright Office? It could be that there are broadcasters who don't bother to negotiate for retransmission compensation who still want to claim the statutory royalties from the Copyright Office. Nevertheless, it adds an interesting dimension to the ivi and FilmOn.com story

Ivi TV: Let's see how long this lasts (Updated with new information)

Ivi, Inc., a Seattle-based company, has launched what it calls a "revolutionary" live television application. For $4.99 (U.S.) per month, they will stream the live feeds from 16 over-the-air television stations in New York City and 10 from Seattle straight to your computer. Their feeds include ABC, CBS, Fox, NBC, PBS, Telemundo, Univision and other affiliates, as well as independents.

Update, 14 September 2010: Ivi seems to be trying to take advantage of U.S. Copyright law that was written well before the advent of the Internet, while simultaneously avoiding FCC rules that make the company's plans patently illegal. (Keep in mind that I'm not a lawyer, so I'm bringing a layman's knowledge to the situation.) In the Code of Federal Regulations, Title 37, Section 201.17, "cable systems" as defined by this statute are entitled to retransmit ("secondarily transmit") television stations' signals under a statutory (or "compulsory") license. The cable system pays a royalty based on its revenues to the U.S. Copyright Office. This portion of the statute was written in 1978, almost 20 years before the commercialization of the Internet, and it didn't contemplate a technology that would make a national cable service feasible outside of FCC regulations.

The FCC has its own rules on permission and compensation for retransmitting the signals from broadcast television stations. Here's a direct quote from the FCC's Fact Sheet on Cable Carriage of Broadcast Stations:

The Communications Act prohibits cable operators and other multichannel video programming distributors from retransmitting commercial television, low power television and radio broadcast signals without first obtaining the broadcaster's consent. This permission is commonly referred to as "retransmission consent" and may involve some compensation from the cable company to the broadcaster for the use of the signal.

If ivi is a cable operator or other multichannel video programming distributor, the FCC's rules require the company to get permission from broadcasters before they retransmit their signals.

Under Title 37, Section 201.17, ivi claims that it's a cable system and has a right to a statutory license to television stations' programming, no matter where they're located. However, ivi claims that it's not subject to regulation by the FCC, and therefore is not a cable system. CFR 37 Section 201.17 says that cable systems are entitled to statutory licenses, even if they're not defined as cable systems by the FCC.

So, what's likely to happen? My suspicion is that there are many high-paid attorneys at the television networks and cable operators working on this right now. One option would be to get the U.S. Congress to amend or repeal Section 201.17, since the FCC's rules supercede it. Another option would be to get the FCC to rule that ivi is a legitimate cable operator, and the fact that it owns no plant doesn't mean that it's free from FCC regulation. A third option would be for programming suppliers (the major networks, movie studios and syndicators) to file suit against ivi, charging the company with interfering with their exclusive distribution contracts with local television stations outside the New York City and Seattle markets. These suppliers could petition for an emergency injunction to shut down ivi's service.

Ivi might have a better case than I anticipated when I first wrote this post, but I still believe that it's only a matter of time before it gets shut down. It may take a year or two for the necessary statutory changes to be put into place, but a preliminary injunction can be put into effect in a matter of weeks, or even days.