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.
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