The FCC is proposing to bring Internet-based streaming video services within the scope of its legacy cable regulations, and reply comments have just been filed. Specifically, the FCC seeks to re-define the legal meaning of the term multi-channel video programming distributor" – MVPD – to include subscription-based online video distributors – OVDs. According to the FCC, its proposed changes would take stock of new video competition from online services, such as Netflix or Amazon Prime.
But the FCC's new-wine-in-old-wineskins approach to video regulation raises profound law and policy issues. The text of the Communications Act appears to foreclose the agency making such a change. Extending regulations based on early 1990s assumptions about cable monopolies to the dynamic Internet is also dubious. And such a redefinition of terms raises serious First Amendment questions.
If anything, the FCC's move should prompt Congress to act with greater urgency in bringing about the reforms that are truly needed. Today's dynamic market for video services calls for a new framework that reflects technologies and competition that didn't exist when the cable legacy regime was established. Congress should adopt a simplified market-based framework for video services. A streamlined approach to match today's video market should treat competition rather than regulation as the norm, seek to treat all video providers equally, and respect the First Amendment.
The FCC proposes to redefine the Communications Act's term for "multi-channel video programming distributor" – or MVPD – by including within its scope "services that make available for purchase, by subscribers or customers, multiple linear streams of video programming, regardless of the technology used to distribute the programming."
In particular, the FCC proposes extending to OVDs the ostensible benefits of program access regulations enjoyed by MVPDs. Program access regulations limit the ability of MVPDs to withhold satellite programming from competitors in the video distribution market. In effect, those regulations are intended to ensure that MVPDs that also own video programming make their programming available at wholesale for their rivals to sell at retail to subscribers. Program access regulations thereby impose restrictions on free market entrepreneurship and decisions about protected speech content. The FCC suggests that expanding such regulations will spur further video competition.
Back in 2010, the FCC's Media Bureau concluded that the agency lacked the statutory authority to redefine MVPD in the manner the agency now proposes. (It’s discussed briefly in my Perspectives from FSF Scholars essay "Keep Online Video Free from FCC Regulation.") The Media Bureau concluded the text of the Communications Act appeared to foreclose it from re-defining MVPD to include OVDs that do not offer their own physical transmission path directly to video consumers.
Related to the statutory problem with re-defining MVPD, as the FCC now has proposed, is the First Amendment problem. Cable operators and other MVPDs have free speech rights in the editorial choices of their video programming channel lineups and tier packages.
The U.S. Supreme Court has recognized that the constitutional permissibility for several cable-related regulations depends upon Congress's findings of so-called cable monopoly bottlenecks in the early 1990s. But there has been a dramatic technological transformation of the video market since then. The competitive landscape now includes two nationwide direct broadcast satellite services (DBS), former telephone company entrants in the MVPD market, as well as OVDs. Wireless delivery options also exist now. The prevalence of these innovative and competitive forces reinforces the First Amendment problem with expanding cable monopoly-era regulations, as the FCC proposes.
Under the canon of constitutional avoidance, a statute susceptible to more than one reasonable construction is interpreted to avoid raising constitutional problems. Should the FCC follow through with its proposed redefinition of MVPD, the constitutional avoidance canon could likely be invoked by a court of law to prohibit such a redefinition. In fact, this canon already has been invoked in the cable regulation context.
In Comcast v. FCC (2013), Judge Brett Kavanaugh of the U.S. Court of Appeals for the D.C. Circuit issued a concurring opinion concluding that government interference with the editorial discretion of video programming distributors is only permissible where such distributors possess market power in the relevant market. Judge Kavanaugh's antitrust-based reading of Section 616 program carriage regulations was bolstered by the constitutional avoidance canon. First Amendment protections for editorial decisions related to video programming tipped the scales in favor of free speech absent market power. (Free State Foundation President Randolph J. May and I discuss Judge Kavanaugh's excellent judicial opinion in an essay we called "The Case for Program Carriage Reform.")
The larger point is that the technological and competitive disruption to the video market posed by online video services should lead Congress to do away with the legacy cable regulatory apparatus. The FCC's proposed jerry rigging of the old system to suit current market realities should add urgency to comprehensive legislative reform efforts. Congress should pursue a market-based framework that is more streamlined, reduces regulations, seeks to treat video providers similarly, and respects the First Amendment.
In January 2015, FSF President Randolph J. May, myself, and several members of FSF's distinguished Board of Academic Advisers submitted a written response to the House Energy and Commerce Committee's white paper questions about modernizing federal video policy. The FSF Board of Academic Adviser members were Professors Michelle Connolly, Richard A. Epstein, Gus Hurwitz, Daniel Lyons, Bruce M. Owen, Glen O. Robinson, James B. Speta, and Christopher C. Yoo. Our response proposed that "[a] new framework should be established that is applicable all video services in the digital marketplace, the organizing principle of which is a rebuttable presumption that runs in favor of marketplace freedom and against regulatory intervention in the video market." Such a framework would eliminate the existing silo regime that subjects different providers of similar services to different regulatory burdens. It would also limit the FCC's authority to adopt broad anticipatory ex ante rules by confining the agency's actions to an ex post process based on adjudication of individual complaints alleging specific abuses of market power and consumer harm.
The Next Generation Television Marketplace Act – legislation that has previously been introduced in Congress by Rep. Steve Scalise – also offers a promising approach to comprehensive reform for video services policy. The bill was designed to eliminate outdated legacy regulations in the video marketplace.
The FCC's MVPD redefinition proposal should prompt Congress to comprehensively reform the outdated federal video services regulatory policy. Congress should regard competition rather than regulation as the norm, seek to treat all video providers equally, and respect First Amendment free speech strictures.