Internet TV Rules May Need an Overhaul

WASHINGTON — As online video offerings expand their content libraries, gain viewers and multiply in number, lawmakers and regulators have begun to reexamine whether the rules of the road for traditional media providers–most written more than a decade ago–still make sense in a marketplace undergoing a period of considerable upheaval.

Questions about the wisdom of extending the rules that govern broadcasters and cable and satellite operators to Internet TV services, or, alternatively, rolling back regulations on traditional providers to level the playing field, figure to loom large in the next session of Congress.

A panel discussion among media experts convened by the nonprofit Advisory Committee to the Congressional Internet Caucus, designed as a briefing for Hill staffers, offered a preview of the coming debate.

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“The nature of this problem is that we have a classic sort of asymmetrical regulation problem, or an unlevel playing field problem, that’s developing in this country because we have very heavily regulated markets converging with very unregulated markets, and very disruptive ones at that,” says Adam Thierer, a senior research fellow at George Mason University’s Mercatus Center.

Thierer appealed for regulatory relief for members of the traditional media sectors, urging lawmakers to “wash away” the regulations covering industries like cable that he says amount to a double standard compared with the dynamic and generally unregulated online video space.

Thierer and other advocates of easing the regulatory burden on the cable industry point to the dramatic shift that the video landscape has undergone since the passage of the 1992 Cable Act, when many of the current rules were codified. A briefing memo circulated by House Republicans cites Federal Communications Commission figures pegging the cable industry’s share of the pay-TV market at 98 percent at the time that bill was enacted, and at 89 percent four years later, when Congress passed the Telecommunications Act, the last comprehensive overhaul of communications law. By 2006, cable’s share had slipped to 68 percent, with a steady decline in the percentage of national networks that were vertically integrated with a cable company.

Over that time, satellite providers have gained a solid share of the market and the number of national program networks has soared, while new online services such as Netflix, Hulu, YouTube and others have further fragmented the marketplace.

In another sign that of disruption in the traditional media landscape, providers like Netflix have been moving to offer their own original programming. Next year, Ricky Gervais is set to debut his series “Derek” as an exclusive on Netflix, following its run on Channel 4 in Britain. The online video provider has also inked a deal to revive the critically acclaimed comedy “Arrested Development” for a fourth season after a long hiatus since it was cancelled by Fox.

But consumer advocates have been warning in recent years that the cable industry has begun to exert new pressures on the burgeoning online market, seeking to exert its model of bundled services to restrict access to professional programming on the Web.

One prominent member of that faction, media and telecom attorney Andrew Jay Schwartzman, who for 34 years headed the now-defunct Media Access Project, has been a vocal critic of the TV Everywhere initiative members of the cable industry have been promoting.

Under that model, subscribers to cable television service would be able to sign in and watch the programming available in their cable package on the Web. But Schwartzman and others who have long advocated for à la carte offerings for TV service (which cable providers roundly reject) have charged that TV Everywhere is simply a scheme to extend the bundled model to the Internet, choking off innovative new services that might be more consumer-friendly.

“There is no technological impediment to having every channel ever made and every program individually available online via Internet protocol. The only impediments are legal and structural. So, we can’t have that. But what we can have is breaking up the bundle. We can move towards à la cart availability,” Schwartzman said. “Cable, through TV Everywhere and other contractual arrangements, wants to keep that bundle concept in the online space.”

He added, “The greatest threat to the development of online video is the fact that the cable companies are in a position to price their Internet service in a manner that protects their video service.”

Already, committees in both chambers have held hearings on the future of video, hearing from witnesses representing an array of stakeholders from traditional and new media outlets. Last December, Sen. Jim DeMint (R-S.C.) and Rep. Steve Scalise (R-La.) introduced companion bills in their respective chambers that would amount to a major roll-back of the regulations governing video providers, including a repeal of broadcast carriage rules and retransmission consent provisions, an effort to remove the government from licensing negotiations the lawmakers argue are best left to industry players. The DeMint-Scalise bill would, as Thierer suggested, “wash away” the regulations on traditional media companies that do not apply to upstart Web challengers.

In the meantime, action outside of Congress could have a significant impact on the regulatory future of online video providers. The FCC is currently considering whether online video providers should be classified as “multi-channel video programming distributors,” or MVPDs. That cumbersome term has traditionally referred to cable and satellite providers — video services that offer multiple channels of programming.

The FCC inquiry grew out of a company called Sky Angel’s bid to set up an online TV service comprised of family-friendly programming, after it hit a snag in its attempt to distribute programming from the Discovery Channel. Sky Angel’s initial complaint to the FCC was denied on the grounds that the online outfit did not qualify as an MVPD, and thus was not entitled to the regulatory relief that could have compelled Discovery to make its content available. In response to Sky Angel’s complaint, the FCC agreed to open a proceeding to consider what constitutes an MVPD and, further, how a “channel” should be defined.

The result could have a significant impact on the rules of the road for online video providers, potentially opening outfits like Hulu and YouTube to new regulatory requirements — and protections — as they seek to expand their programming catalogs.

Kenneth Corbin is a Washington, D.C.-based writer who covers government and regulatory issues for CIO.com.

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