WASHINGTON — Federal Communications Commission chairman Tom Wheeler may have brushed back cable operators’ business model in pitching his proposal to define linear over-the-top video providers as MVPDs, but he is also at least tentatively proposing to let operators remake that model, potentially without must-carry obligations to carry TV stations.
According to FCC sources with knowledge of the Notice of Proposed Rulemaking (NPRM) circulated last week, it tentatively concludes that a cable operator who offers a nationwide over-the-top service would, at least in terms of that service, be treated as an over-the top multichannel video programming distributor (MVPD), rather than as a cable MVPD.
There is no must-carry obligation for the new class of over-the-top linear MVPDs, as there is on cable operators, the source said. The FCC in the NPRM only asks which, if any, of the other MVPD obligations should apply to OTTs, according to the source.
The item tentatively concludes that any program services a cable operator offers nationally online should not be regulated as cable services. Instead, such services would fall under the new OTT category, since the operator wouldn’t be offering the online video product as a managed service over its facilities.
Cable operators’ traditional managed service would still be considered a cable MVPD, but the online service would be considered an OTT MVPD.
For instance, if Comcast were to deliver its TV Everywhere everywhere — not just to authenticated subscribers in its franchise areas — it could do so without a must-carry requirement or, potentially, other obligations.
That could spur the migration of traditional cable to an online model, which is where the FCC assumes everything is moving anyway. It would also mean cable operators would be able to start competing against one another on a national basis, rather than divvying up territories due to the expense of duplicating plant — which, in turn, could spur the kind of robust video competition among virtual “cable” operators, as well as traditional cable operators and other competitive MVPDs, that Wheeler has been trying to promote.
But if Wheeler was looking to give cable operators a boost, it was hard to tell from the rhetoric in his blog promoting the proposal. (See Viewpoint.)
His mantra may have been “competition, competition, competition,” but had a subtext of a la carte and program withholding aimed at cable operators’ s business model.
He said MSOs had been making consumers buy channels they didn’t watch, and were “locking” up programming that the FCC was now attempting to make available to online competitors. The point of the move was to make sure that OVDs had access to that programming, Wheeler said.
Whether the OTT is a cable operator or a competitor, as MoffetNathanson partner and senior analyst Craig Moffet pointed out in an advisory to investors, the move would not guarantee access to all programming, only to content owned by cable, satellite or telco distributors that also own networks. That means a bunch of major programmers would still be able to keep their programming to themselves.
“The rights to carry Disney’s or CBS’s programming will still have to be negotiated, and for any programmer other than those owned by vertically-integrated distributors (Comcast … and Comcast … and some owners of regional sports networks … and Comcast) those rights can be withheld without limitation,” Moffett said.
David Wittenstein, a partner in law firm Cooley LLP’s Technology Transactions practice group, agreed. “The program- access rules don’t reach programmers that aren’t vertically integrated (e.g., Disney, Fox, Viacom, Turner),” he said.
But that is where the “competition, competition, competition” mantra comes into play. “Once linear OTTs are served by the vertically integrated programmers,” Wittenstein said, “it’s likely that the other networks would consider selling to them too.”
Moffett warned against overstating the importance of the NPRM — and not just because there is a lot that can happen between a notice and the passage of a final order, including lots of time.
He made note of one perhaps more subtle, but important, aspect to the proposal that circles back to Wheeler’s competition mantra: broadband pricing. OVDs that mimic MVPDs will be “legal competitors” to cable, Moffett said, and Wheeler is trying his best to encourage cable competition as a way to give consumers more choice and lower prices.
While usage-based pricing or charging for interconnection are arguably reasonable pricing mechanisms for a transport network, Moffett said, it could be argued that those same mechanisms “self evidently” harm OVD competitors because they raise end-user prices.