Capitol Hill Tunes Into AOLs TV Aims

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Washington -- America Online Inc.'s new 5.0 release comes
with a glitzy feature called "You've Got Pictures!"

But if the online-service giant wants to take the next step
-- launching something akin to "You've Got TV!" -- it first has to win a
copyright-policy battle here.

AOL's interest in retransmitting television -- as opposed
to a broadband AOL version ported to TV set-tops, a la the "AOL TV" initiative
-- emerged when the company suddenly attacked a provision in satellite legislation just as
the bill seemed headed for the White House after a three-year struggle.

The provision -- billed by some as a mere technical change
in copyright law -- stated that providers of "digital online-communications
service" were ineligible to use cable's compulsory copyright license to retransmit
local TV signals within the same market.

In the end, AOL prevailed, and the wording came out of the
bill. It also obtained assurances from House and Senate leaders that they would review the
issue next year. But no one is promising a new law to accommodate AOL.

"We'll have some hearings, and we'll have everybody
get a chance to talk about it," said Sen. Patrick Leahy (D-Vt.), the ranking member
on the House Judiciary Committee, who works closely with chairman Orrin Hatch (R-Utah) on
copyright issues. "We are not going to make major changes on that."

Jack Valenti, president of the Motion Picture Association
of America, is already dedicated to the demise of the cable license. So for him, the
extension of the cable license to AOL is unthinkable.

"I would say they've got two chances of changing that
law: slim and none. There is no way, no way," Valenti said.

Granted by Congress in 1976, the cable license is a way of
bypassing protracted negotiations to obtain copyright clearances from groups that produce
the most popular TV programming: Hollywood studios that create movies and primetime
sitcoms, and major sports leagues that control the broadcast rights to their games.

According to an AOL source, the company took offense for
two reasons. First, the ban was included in the bill at the last minute, without any
debate or discussion. Second, it sought to wall off AOL from the license in a broad-brush
manner totally at odds with the fast-paced, unpredictable world of digital commerce.

A source familiar with the situation said Hollywood studios
included the provision in the bill, although MPAA spokesman Rich Taylor declined to
address questions about authorship.

If it wasn't the MPAA, it might have been the handiwork of
the National Association of Broadcasters, the National Football League, Major League
Baseball, the National Hockey League or the National Cable Television Association, all of
which signed a letter to Congress protesting the extension of cable's license to AOL.

So it seems that Washington has on its hands yet another
juicy dispute -- one running parallel to AOL's 18-month attempt to prod Congress and the
Federal Communications Commission to force cable operators to open their Internet
facilities to unaffiliated Internet-service providers.

And this, too, pits a $178 billion colossus of the new
economy beholden to Moore's Law against giants of the old economy, shielded by copyright
law passed when AOL chairman Steve Case was still in high school.

"Dinosaur law is conflicting with Internet
technology," said Scott Cleland, a Washington telecommunications analyst with Legg
Mason Wood Walker's Precursor Group. "This is not going away. This is a big deal for
a long time, and it's going to be a bitter fight."

The dispute came to the fore in a roundabout way. As the
satellite bill began taking its final form, congressional aides suggested changing the law
from a "cable" compulsory license to a "terrestrial" one. The change
in wording was necessary, proponents reasoned, because the cable license was not exclusive
to traditional landline cable operators: It also included
multichannel-multipoint-distribution-service operators.

The Copyright Office in the Library of Congress resisted
the change. Its fears quickly came true that the new name -- no matter how much people
thought it was only a nonsubstantive, technical change -- would spark a debate regarding
whether the license now embraced ISPs like AOL.

To fix that problem, congressional staffers who wrote the
bill for the 18-member conference panel decided to insert wording that stated in no
uncertain terms that companies like AOL were not entitled to the cable license.

AOL's opponents had various reasons for denying AOL access
to the license. Chief among them, they said, was the marketplace havoc wrought by having
any local TV signal just a mouse click away on any computer in the world with access to
AOL -- the world's leading online-service provider, with about 19 million customers.

For years, the movie industry has wanted to abolish
compulsory licensing altogether, preferring free-market negotiations with cable. So to
Hollywood, the idea of extending the license to AOL was anathema on its face.

"We're negotiating with AOL right now for use of our
work," a movie-industry source said. "We're willing to negotiate with anybody
for a license to do that. We just sure as hell don't believe the cable compulsory license
should be the right place to do that."

The sports leagues -- especially the NFL -- were opposed
because the global distribution of games inherent in granting AOL the license would
devalue their broadcast rights. A source familiar with the Capitol Hill debate said the
NFL voiced concern about its ability to sell foreign rights if its games became available
over the Internet.

The cable industry supported the ban because AOL's
distribution of local TV signals represented competition from an entity that would share
none of cable's regulatory burdens, including payments to local governments and the
set-aside of channels for public and commercial use.

An AOL source said the company's intention was to preserve
current law, rather than seeking new legislation expanding the scope of the license to
include online-service providers. The company thought it was just plain stupid for
Congress to read it out of law without undertaking a study of the implications.

"This is not something that we put on the agenda. It
was something the Internet industry had to respond to," AOL spokeswoman Kathy
McKiernan said.

AOL had allies in the dispute, including MCI WorldCom Inc.,
MindSpring Enterprises Inc. and Yahoo! Inc. "We support[ed] having it removed,
because we don't think it [was] properly vetted," said a spokesman for one of AOL's
allies. "We wouldn't want that option taken away from us."

After the furor erupted, some on Capitol Hill said AOL's
point had merit. "We shouldn't put the provision in without knowing what we are
doing," one Capitol Hill source said.

Some believe that AOL's explosion was much ado about
nothing. They reasoned that no matter how much lobbying pressure the company applied, it
would never convince the Copyright Office that it qualified for the license under current
law.

"They are not a traditional cable system as regulated
by the FCC, which is what the [cable] license covers," a Copyright Office source
said.

The cable license, the source continued, is for the
retransmission of local signals within the station's market and no further. Cable pays
virtually nothing in copyright fees because the license is restricted to households the
broadcasters have already paid copyright owners to serve. The Internet shatters that
scheme.

"There are a lot of new issues," the Copyright
Office source said.

To Cleland, copyright law must yield someday so the
Internet can become an a la carte electronic video store for consumers.

"At some time in the future, broadcast-cable law is
going to have to be updated to the digital-broadband reality. Otherwise, the Internet
can't grow up to video," he added.

Leahy said extending the cable license as is to AOL might
come with undesirable regulatory burdens.

"As I said to some of the Internet companies: Be
careful what you wish for, because do they really want to face some of the same licensing
requirements that television companies face and some of the same economic strictures that
they do? I am not sure that they do," he added.

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