The U.S. Federal Communications Commission is expected this week to vote to approve the classification of some Internet streaming video providers as cable companies.
Companies such as Aereo, which this summer lost a Supreme Court case against the major TV networks, and FilmOn would be classified as multichannel video programming distributors, or MVPDs. The reclassification would allow the online video providers, which are also referred to as “over-the-top” video providers, to gain access to broadcast programming so long as they pay retransmission fees.
FCC chairman Tom Wheeler and Democratic members Jessica Rosenworcel and Mignon Clyburn are expected to vote yes, which would provide the majority vote needed.
The vote follows last summer’s Supreme Court ruling suggesting that Aereo, which had been offering a subscriber-based service that captured over-the-air signals and delivered them to a user’s mobile phone or computer, operated “like a cable company.” Though transmission fees were at the center of the dispute in the Aereo case, legal experts noted that the ruling never specifically classified Aereo as a cable company.
“The Supreme Court danced around this point,” says Anderson J. Duff, intellectual property law expert and associate with the Boston law firm Wolf Greenfield. “In the ruling it was never said that Aereo was a cable operator, as that is a term of ‘art,’ but in the process it left open the door for a reclassification.”
Duff told Fortune that if the companies are classified as MVPDs they would have to pay a license—a move that couldn’t be stopped by the broadcasters. Moreover, the amount that MVPDs would pay would be set by statute. This situation wouldn’t technically make Aereo a cable company, which is a point the now-bankrupt company tried to argue after it lost in court.
“Congress has been hesitant to broaden what is in fact a cable system,” Duff adds. “That is part of the cynical view in all this, but part of it comes down to the fact that Congress has almost totally relied on local TV as a way to reach constituents. They’re unlikely to want to see local TV go away.”
Moreover, there is also Section 111 of the United States Copyright Office to consider. The law allows cable systems to make secondary transmissions of copyrighted work.
“It would allow them to negotiate with the local broadcasters,” says Ryan Radia, associate director of technology studies at the Competitive Enterprise Institute. “However, this doesn’t mean they are in fact cable companies according to the Copyright Act.”
It is here where the Copyright Office could find itself in conflict with the FCC, Radia says. “The FCC has rule making authority, and broadly speaking determine what is an MVCP,” he says. “On the other hand the Copyright Office has limited actual rule-making authority. But it is the entity that establishes the requirements governing the submission of statutory royalty payments.”
Duff adds: “The Copyright Office has said over and over and over that retransmission-based operators such as Aereo and FilmOn shouldn’t be considered cable operators.”However the Justice Department noted that if Aereo can provide a value add to the consumer they’ll find a way to make it work.”
FilmOn, based in Los Angeles, has been pushing for this kind of resolution with the FCC. The company has been fighting legal battles since 2010 but has managed to find solutions and remain in business.
“We’ve seen a lot of road kill along the way that include the likes of Ivi and Aereo,” says Alki David, FilmOn’s founder. “In some ways it is clear that the FCC will want to protect existing business models. So we shouldn’t think of this ruling as a big surprise. The big surprise is how long this has taken, and how long it has taken for the FCC to embrace this. It is a very complicated issue with complex interests.”
FilmOn’s plan supports authenticated subscribers in local markets in a way that is consistent with FCC rules. FilmOn would provide program exclusivity, emergency alerts and information, close captioning, equal employment opportunity, and good-faith compliance with all the rules and regulations that govern MVPD services.
The FCC noted during the 2014 merger of cable operator Comcast
and programmer NBCUniversal that it expected over-the-top video to become another competitor to traditional MVPDs, which would require the cable giant to make its programming available to OTT providers. Cord-cutters have had difficulty accessing local channels in particular; an FCC-rule change may level the playing field in a way that the Aereo case did not.
“We’re talking about public airwaves,” David says. “They are exactly that: public. And the airwaves should be made available to anyone who wants them by any way possible. If I were to believe that I was trying to manipulate a loophole I wouldn’t have gotten into this. But in my heart I know this is the right thing.”