On February 18, the FCC proposed new regulations it claims will "unlock the cable box." But what the Commission may be doing instead is unlocking copyright protections for video content. Its new regulations will jeopardize the rights of video content owners and diminish the value of their intellectual property.
Owners of video content have exclusive rights over distribution of their programming. So video service providers negotiate detailed licensing agreements for rights to transmit copyrighted video to subscribers. The FCC's proposed regulations would effectively undo those agreements. Under the proposed rules, video service providers would be forced to make licensed video content available to third party device-makers. The Commission's approach would distort licensing negotiations and deny video programmers their exclusive rights under copyright law.
Consumers today can make trips to retail stores and purchase video devices built by third parties, such as TiVo. Yet the Commission is miffed that – overwhelmingly – most video service subscribers instead choose to lease set-top boxes from their video service provider. By and large, subscribers would rather not to spend a few hundred dollars plus additional fees for third-party supplied devices.
Meanwhile, the emerging video industry and consumers are steadily trending toward cloud-delivered and apps-based solutions to video viewing. They are trending away from video viewing via set top boxes. Online video distributors ("OVDs") such as AmazonPrime, HuluPlus, and Netflix now serve over 100 million subscribers. Those services are viewable on digital streaming media devices, including small stick devices, or smart TVs. For their part, cable, satellite, and other multi-channel video providers offer viewing via video apps on gaming consoles, PCs, laptops, and tablet devices.
Continuing competition among video program distributors, device innovation, and adoption of apps-based viewing make a strong case for market freedom—not regulation. Yet by regulatory fiat the Commission is planning to force cable, satellite, and other video subscription services to re-engineer ways their networks deliver video and alter their business contractual arrangements. The Commission has proposed that video service providers be required to deliver "information flows" to third-party video device makers. These include: (1) service information, such as available channels and video-on-demand lineups; (2) entitlement information about what a device is permitted to do with the content, such as recording; and (3) the video programming content itself. Third-party devices makers can take these information flows and repackage them with add-ons or perhaps advertisements for viewing on their retail devices.
Of course, the information flows targeted by the FCC's proposed regulation include copyrighted video content. The risk to protecting intellectual property rights in video programming is one of many reasons why the FCC’s device regulation proposal is wrong-headed.
Carriage of video programming on video networks is dependent upon business contracts. It involves complex licensing agreements negotiated between owners of video programming and video service providers. Such agreements take into account audience size, channel tier placement, channel lineup neighborhoods, as well as access and security protections. Negotiated terms can involve promotional efforts. Others involve sharing of advertising revenue or various restrictions on ads for licensed video programming.
Negotiated licensing agreements are a critical mechanism for owners of video programming to exercise their right of control over use of their content. But the FCC's proposed video device regulations would sharply curtail the choices of copyright owners in making licensing agreements. Undermining that control through regulation threatens to reduce the value of their intellectual property.
By regulation, third-party video device makers would gain a special right to commercially use video programming without having to negotiate with the copyright owners. Instead, video service providers would be required to make all of the video programming for which they have negotiated licensing rights available to third-party device makers. The Commission's regulations would thereby warp business contractual relations. Negotiation and enforcement of licensing terms would become far more precarious for copyright owners. And video service providers would become a kind of forced middleman. In effect, video service providers would be negotiating licenses for the benefit of third-party device makers while perhaps policing their compliance also.
Ultimately, the FCC's proposed video device regulations clash with principles of copyright law. The Copyright Act sets forth the exclusive rights of copyright owners in motion pictures and other audiovisual works. Under Section 106 of the Act those exclusive rights include reproduction, distribution, and public performance of copyrighted works.
Video programming transmitted on cable, satellite, and other networks receives the protections of copyright law. By requiring copyrighted video to be made available to non-contracting third party device makers, the Commission's proposal would impair the exclusive rights of video programming owners under law. If and when a legal challenge to the Commission goes to court, it is all but certain the Commission's convoluted forced-access proposal for licensed video programming will be tossed out on copyright grounds.
The FCC's device regulation proposal fails to respect contract rights and copyrights in video programming. That's reason enough to reject the proposal. The Commission should leave well alone so that market-based innovation and progress toward an app-based video market can proceed unimpeded.