Draft Rulemaking Notice On Redefining MVPD Won't Revolutionize OTT Access to Content, Industry Officials Say

A draft rulemaking notice (NPRM) proposing classifying linear online video providers as multichannel video programming distributors wouldn’t immediately change much for over-the-top companies, said cable and content officials in interviews Wednesday. The NPRM, circulated late Tuesday according to an FCC official, would enable over-the-top services to take advantage of program access and retransmission consent rights to better offer competition to cable incumbents in the video market, said FCC Chairman Tom Wheeler in a blog post Tuesday (see 1410280053). Retrans rights would still leave OTT services unable to stream broadcast content without also negotiating for content rights, and program access rights apply only to negotiations with vertically integrated distributors, which in practice largely means Comcast, said industry officials.

FCC authority over MVPD competition may allow it to take the program access rules further, said Public Knowledge Senior Staff Attorney John Bergmayer. Some cable attorneys believe the courts are unlikely to agree. Without additional rule changes, changing the definition of an MVPD is unlikely to allow OTT companies greatly increased access to content, said industry officials. “If this is a lifeline for Aereo, it’s a pretty thin one,” said MoffettNathanson analyst Craig Moffett in a blog post Wednesday.

The draft NPRM would seek comment on how linear OTT providers should be defined and differentiated, and proposes not applying to OTT providers the facilities-based rules that apply to MVPDs, industry and FCC officials have said (see 1410220044). They have said it also would seek comment on extending some obligations that apply to pay TV providers -- such as emergency alerts and children’s programming requirements -- to the new MVPDs. In the blog, Wheeler said the item would continue to apply rules for cable systems to existing cable systems, even if they transitioned to an all-IP delivery method.

Having just gone on circulation, a decision on the item isn’t likely until Q3, Guggenheim Partners analyst Paul Gallant said in an email to investors. “The FCC probably will release its OTT-MVPD proposal by December, once the other Commissioners have reviewed and edited the document,” Gallant said. “There will then be a two- to three-month public comment period.”

Though Wheeler’s blog linked the proposed rule change to services like Aereo, designating an OTT service as an MVPD won’t give it access to broadcast content, said a copyright lawyer and cable consultant Steve Effros. They said that along with the retrans negotiation rights that come with being an MVPD, the OTTs would need the rights to the content. Congress defines cable companies and DBS providers as being eligible for statutory licenses for content -- the legislation does not use the term MVPD, the copyright attorney said. This means that to get content, OTT services would have to negotiate individually with the rights holders to each piece of content, he said. That makes it unlikely that an OTT service would be able to retransmit a broadcaster’s channel as Aereo did, since an individual station won’t have rights to all of the content it airs, the copyright attorney said. “It’s hard to see the broadcasters racing to license content, at any price, to a company with whom they’ve battled in Court for years now,” said Moffett of Aereo.

OTT providers could lobby Congress for a change to the rules governing compulsory copyright licenses, but will likely run into a large bureaucratic snag there, the copyright attorney told us. The U.S. is party to a number of fair trade agreements that expressly ban applying compulsory copyright license rules to the Internet, the attorney said.

The program access guarantees to content that becoming an MVPD would grant to OTT services would compel only Comcast to share content with OTT providers, said cable officials told us, since it’s virtually the only vertically integrated distributor. Though Comcast owns a great deal of content, OTT providers already had access to it because of conditions on the company's purchase of control of NBCUniversal, a cable attorney and Moffett said. The vertical integration program access rules would also apply to AMC, said Gallant, and some regional sports networks, according to Moffett.

FCC power to compel MVPDs to deal with each other doesn’t necessarily stop at vertical integration, said Bergmayer. “The actual statute gives the FCC broad authority to promote competition.” If one newly minted OTT MVPD complains that another MVPD is limiting its ability to compete by preventing it from acquiring content, the FCC has the authority to deal with it, Bergmayer said. The U.S. Court of Appeals for the D.C. Circuit has upheld the FCC’s authority in such matters as “broad and sweeping,” he said. The use of that authority may be “the long game” behind Wheeler’s blog post, Bergmayer said.

A longtime cable attorney said courts may not share Bergmayer’s interpretation, and the FCC's trying to use its authority in that manner would likely lead to court battles. Moffett suggested a similar theory, pointing out that “the FCC’s NPRM will now make OVDs legal competitors to Cable,” and therefore give the FCC more room to regulate in that area. “By one line of thinking, that may make it harder for cable operators to use broadband pricing as a mechanism to defend themselves against OVD competition,” Moffett said.