MVPD+TV Change=OTT and The Third Perfect Storm
During the past 70 years of television, broadcasters have been challenged by new forms of distribution in two distinct time periods: the cable era of the 60s and 70s, and the satellite era of the 80s and 90s.
These once-nascent distribution technologies, each one with one or two defining leaders using their legal strength to challenge the broadcasters, ended up dramatically changing the landscape of television.
Built upon that foundation, welcome to the dawn of a new television distribution era. This one is known as the Internet video era, or Over-The-Top (OTT), or as the government recently coined it, the Online Video Distribution (OVDs) era.
Recent research by The Carmel Group suggests that copyright challenges usher in change. In the past, when the all-important broadcasters had their copyrights and licenses challenged, first by newcomers in cable, and second by newcomers in satellite, they typically sued first and obtained their desired injunctions. The broadcasters then tended to see the light (i.e., that more distribution of broadcast TV is good), and they then worked with the government and the industry to achieve reform-based legislation that allows that new form of distribution to coexist…as long as there is control of distribution and the revenues are shared.
History seems to be repeating itself today, with broadcast television being challenged by Internet video distributors, and the Internet video challengers compelled to offer that must-have broadcast content. Challengers with what appears to be less legal staying power have drifted into this Internet video history. They include iCraveTV, which appeared to be claiming it was a passive carrier (but it didn’t seem to fit the copyright exemption); and FilmOn, apparently claiming its service was merely free-to-air (for which no copyright exemption exists); and Sky Angel, which seems to have claimed it was governed by the FCC (but the FCC states it doesn’t govern the Internet).
Meanwhile, another key Internet video challenger, ivi may be emerging as a defining leader with that important legal strength –ivi is claiming it is a cable system (where there is a clear copyright exemption). And beyond ivi is the yet-to-launched, and yet-to-be-sued, Bamboom, which may be legally claiming it is not rendering a public performance (even though it transmits the broadcasters’ signals).
The ivi situation may be an ideal case in which to make the observation of broadcasters suing, getting an injunction, and having it appealed to the higher court while proceeding on the merits.
In the specific case of ivi, against which a preliminary injunction was lodged in February 2011, the Seattle-based company has appealed that injunction, and is waiting for a ruling from the U.S. second circuit court of appeals. At the same time, ivi and its founder/CEO, Todd Weaver, continue to press forward on the merits of their basic claim, i.e., ivi should be permitted to carry broadcast channels in the same way that cable providers do, because ivi meets the statutory description of a true “cable system,” and it pays the exact same copyright royalties that cable companies do. Interestingly, there is a copyright exemption for cable systems in Copyright Law, and all true cable companies (perhaps one day including ivi), make a biannual compulsory licensing royalty payment to the U.S. Copyright Office, making it a non-infringing act to retransmit FCC licensed broadcast stations to their subscribers.
Like cable and satellite before it, Internet video as a future form of television distribution is going to be decided, in some measure, by the federal courts. Based upon developments to date, OTT, OVD, and the Internet’s ability to compete with cable and satellite as a pay TV platform, may be largely decided by the ivi case. If history is a guide, the ivi case outcome may then encourage the industry’s stakeholders to join and push the government to reform copyright and compulsory licenses, possibly merging cable and satellite in with Internet video into a single copyright section and royalty rate.
Although probably inevitable, this process will take a long time. The government will not do much, if anything, to push the process along, especially in the beginning. Indeed, new challengers and court decisions in cases like ivi’s will do the pushing to the point where Congress, with Copyright Law; the FCC, with rules and regulations; and, to a lesser extent, the Copyright Office, with reporting and payment, will all step in to create new legislation that cements that necessary change.
OTT/OVD/Internet video has the legs, and these new services make a boatload of common sense, especially for consumers. Call this a forecast, if you will, but finding a place alongside cable and satellite is unavoidable, as long as these new Internet video players play by the same rules. These are the all-important rules that properly compensate each member of the entire content food chain. Or, to amend an overused adage: If these challengers follow (and pay) the money, that success is very nearly predictable.
Jimmy Schaeffler is chairman and CSO of Carmel-by-the-Sea-based consultancy The Carmel Group (www.carmelgroup.com).
video guru commented:
This OTT blog is great, a legal perspective with a lot of insight. I cannot agree that ivi “may be emerging as a defining leader,” but maybe you have some info that I lack about Weaver and his agenda. And I do like the way you worded “yet-to-be-sued Bamboom,” which seems like a hidden gem. I’ve been reviewing recent history. In 2007 Vint Cerf (already at Google) predicted that the Web will become the new TV defacto platform, although he didn’t put a date to that forecast. More media-savvy guys are echoing his view that the ‘net will kill television. That goes a few steps further than you are willing to say at this stage. Let’s see what happens next year!! Again, congrats on a great blog!!
Robert Rini commented:
Jimmy this is a thoughtful piece on where things are headed. Over a decade ago when the nascent wireless cable industry (does anyone remember them?) met the definition of a “cable system” for copyright purposes it took an act of Congress to clarify to the Copyright Office that’s what they intended in the first place. I agree with Jimmy that ultimately, after the courts have had their turn to interpret the definition, Congress will get involved. Only problem is that government is really bad at legislating in a dynamic marketplace and runs the risk of getting it wrong. Calls for abolition of the compulsory license in favor of market-driven solutions that lead to greater consumer choice without sacrificing fair and non-discriminatory program practices, appear to be gaining momentum, for now.
IVI-is-wrong commented:
What this article fails to fully address is that Ivi has consistently changed its tune as to what it was and how it wanted to be defined in order to try and get what it was really after - access to content for little or no charge. If they are a cable system as they now claim to be, then they should follow the same affiliate sales route and pay the same fees the other MSO’s, DTH and IPTV providers pay. Further, if you read the copyright law, in order to benefit from the compulsory license scheme you need to meet several criteria - none of which Ivi meets. I’m surprised the Carmel Group is giving a company like this such a platform.
Conundrum commented:
in reply to Cap’nRetrans below, I agree the compulsory license is the ante, but ivi has to get past that first, if they get past that, there is no retrans until the FCC adds OVD as a category to govern under retrans. After that happens, OTT would have the same cost for a given broadcast channel, but could also offer a la carte, opt-in/out, or other such debundling of service since it’s over the Internet. That will be the fun part for sure!
Conundrum commented:
I like the approach ivi took with all this, they asked to pay retrans rates to the broadcasters, who said no, they asked the FCC if they qualified to get retrans benefit, the FCC said no, they are granted the compulsory license (since it’s compulsory–required by law), so ivi launched with that (AWESOME!). It was congressional intent to allow emerging distribution to more consumers. I sure hope they win, it will change the landscape of television for the better!
Cap'nRetrans commented:
Copyright fees are a drop in the bucket. This article doesn’t address the real sticking point to a viable OTT service to compete with existing providers - retransmisson consent fees that are doubling and tripling every three years due to thebraodcasters’ leverage as a gov’t protected monopoly. Paying copyright fees is just the table stakes, then it gets really interesting.
WillyTech commented:
If, or better when, OTT or “OVD” providers get the go ahead to stream live TV broadcasting, will they be able to offer a highly competitve valuable service? Will they keep their rates low enough to compete with the top operators? And if/when OTT and OVD operators start seeing major growth and success, what will be the operators response? Will the top operators begin purchsaing, replicating, or simply continue to fight the newly emerging OTT/OVD operators? It has been fun watching this new technology emerge, I only hope it gets better!
John Hane commented:
The compulsory copyright is one of too many examples of media distribution laws and regulations that made sense when they were adopted (as opposed to the others, which didn’t even make sense when they were adotped). Time change quickly, put old rules and regs persist, and they skew the markets in unpredictable and often unfortunate ways. They block new entrants who ought to be given a chance, and they just as often penalize incumbents, making it difficult for them to evolve to remain competitive.
Do I have an answer for this? Perhaps. But I’m not giving it away here!
john commented:
Broadcasters have a very entitled view of the world–but they’re entitled middlemen. I wonder what over-the-air TV broadcasting will look like in 30 years.
Anon commented:
I’ve read the briefs, rulings, and appeal. The Internet and ivi should get equal treatment as cable, they clearly fit the definition of a cable system. Content gets paid, eyeball count is increased, consumers get what they have wanted for a decade, and everybody wins!
Oldy Olson commented:
Services such as ivi would have been handy to follow the non-stop hurricane coverage from different markets.
Beauty11 commented:
Important to remember here: one man’s reform is another woman’s theft of service, which means this court case could go either way.