The Other Reclassification: FCC Action on MVPDs Could Increase Online Video Competition

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You may be forgiven if, given all the attention given to the FCC's decision to classify broadband as "telecommunications" under Title II of the Communications Act, you missed that the FCC was also considering another "reclassification," of a sort. Specifically, the FCC is considering allowing online services to operate as "multichannel video programming distributors," an action that could benefit consumers and competition by opening up the video marketplace to new entrants, and paving the way for online services to offer the same kinds of channels that are available today only through traditional pay-TV services like cable and satellite. Yesterday, Public Knowledge filed comments supporting the FCC's proposed action, which could increase consumer choice while bringing down prices without subjecting most kinds of online video services to additional regulation.

One of the most successful communications policies in the United States was when Congress, in the 1992 Cable Act, opened up the video marketplace to new competitors. Through Section 628 of the Communications Act (as amended), Congress ensured that new entrants in the video marketplace would be able to purchase the programming they needed to offer a viable service without being locked out by incumbents (i.e., cable companies). That provision and a few others not only protected new video providers from being shut out by the established ones, they protected programmers themselves from being forced to sign unfair contracts with dominant video providers, or from being discriminated against on the basis of affiliation (that is, being bumped off of a lineup because they're not associated with a cable company).

The law works by preventing a category of provider called "multichannel video programming distributors" (MVPDs) from taking anticompetitive actions against other MVPDs.  Cable and satellite TV services are MVPDs, as well as the TV service offered by Verizon FiOS, AT&T U-Verse, Google Fiber, etc.  Any service that "makes available for purchase, by subscribers or customers, multiple channels of video programming" fits in the category.

However, until now, the FCC has interpreted "channel" in a very narrow way, as a "portion of the electromagnetic frequency spectrum."  From the perspective of a consumer, this is bizarre. Viewers do not purchase a portion of the electromagnetic spectrum when they subscribe to an MVPD. They buy access to content—in particular, to channels like NBC, ESPN, and Comedy Central. MVPD themselves advertise their various TV plans as offering different numbers of "channels," and the channels in question are given names like "MTV" and "Discovery," not like "549.25 MHz." The ordinary meaning of "channel" in this context is plainly a "programming channel," not some scientific or engineering concept.

By interpreting the word "channel" in this way, the FCC was able to exclude online video--because their services are offered on "channels" provided by someone else. That interpretation meant that none of the protections that MVPDs have against other MVPDs, and that programmers have against MVPDs, applied to online video.  That means that programmers could be prevented through contracts or incentives from selling video to online services, and that programmers affiliated with cable companies could discriminate against online services.  Actions like this can add up to starve online video services of content--which is why most of the most popular services offer video that is complementary to traditional MVPD service (back catalog programming, and original and user-generated content) instead of the same lineup of things like first-run shows and live sports.

This seemingly-arcane policy question has ended up shaping the video marketplace. To succeed, an online video provider needs both access to content, and access to consumers.  By protecting the open Internet with strong net neutrality rules, the FCC has taken an important step to ensure that online video services can continue to reach customers via their broadband connections. By proposing to count some online services as MVPDs, the FCC can also help ensure that online video services can offer the same content that traditional MVPDs do.  This could add some much-needed competition into the MVPD market.

It's important to realize that this revised understanding of "MVPD" would not have any effect on popular on-demand style services like YouTube, Hulu, and Netflix, which do not offer channels of video programming within the meaning of the statute.  Only providers of subscription-based, prescheduled streams of video programming would be considered MVPDs. There are few such services today--DISH’s recent Sling TV may be one--because this action isn't about existing services, but creating opportunities for new ones that would complement them, by offering the same kinds of programming channels currently only available via cable or satellite. (Existing MVPDs like DISH have an easier path to acquiring content rights for new online services than new entrants, because they can leverage their existing programming contracts.)

The effects of this action by the FCC could take a while to play out.  It's opening up new opportunities, but it will be up to entrepreneurs to take advantage of them.  And, among other things, the FCC can't change the interpretation of copyright law, which means that for a while at least the compulsory copyright licenses that cable and satellite TV use to carry broadcast programming won't be available to online services (though viewers can still watch those channels with an antenna).

With those caveats, it's always sound public policy to apply rules--particularly rules intended to benefit competition, diverse voices, and consumers--in a technology-neutral way.  The law should not give special preference to video services that happen to be delivered a particular way over a coaxial cable or a satellite. Consumers increasingly demand more content online, and the FCC's proposed action could help them get it.  

Image Credit: Flickr User Duncan Chen 

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