In February, FCC head Tom Wheeler proposed a rule change that would see some online video providers treated as MVPDs. On Friday, one of the FCC commissioners, Ajat Pai, announced that he was against that rule change.
In December, Tom Wheeler said that online providers that deliver linear television should enjoy the same rights to programming that big MVPDs have. To give them those rights, he proposes classifying those online providers as MVPDs. To that end, the FCC issued a Notice of Proposed Rulemaking (NPRM) which is the first step in making the required rules change. This came on the heels of Aereo’s failure to obtain a statutory license to some local television channels from the U.S. patent office. The office said Aereo did not meet the definition of an MVPD, and the company subsequently went out of business.
Ajit Pai was one of two FCC commissioners to state his reservations about the idea from the start. Speaking at a Churchill Club breakfast on Friday July 17th, he made his position to the rule change official:
This morning I’d like to make it clear I strongly oppose this proposal.”
He went on to lay out the reasoning behind his decision. He said it was important to perpetuate an environment where: “21st century entrepreneurial spirit isn’t saddled with 20th century rules and regulations.” Regulation of multi-video program distributors (MVPDs) stems from the 1992 Cable Act.
Mr. Pai claims the benefits provided to OTT video providers covered by the rule change are illusory. He said that even with the rule change, OTT providers would not fit the definition of a pay TV provider being used by the patent office. So, it is likely the online companies would still not be able to benefit from the statutory license which allows MVPDs to carry local TV channels.
Mr. Pai warned, however, that this would create a burden on OTT providers, because if a local programmer wanted carriage on their service the OTT provider would be required to negotiate with them. Further, he said online providers might end up facing other MVPD regulations on pricing, ad volume, employment practices, and even on the wiring inside a customer’s home; though it is unclear what these MVPD regulations mean in the OTT world.
Some, he said, thought that the rule change would force cable companies that own cable channels to negotiate with online competitors for carriage of those channels. However, he stated that just 11% of channels (or 3 out of the top 20 channels) are owned by cable companies. Many of those channels are already available online through services like Sony Playstation Vue and Sling TV.
With so little apparent benefit to adopting the rule change, why is the FCC proposing changing it? Mr. Pai had a very sinister explanation for it:
Once the camel’s nose is under the tent, the body will soon follow.”
In other words, though the initial rule change has very modest goals, it creates a mandate for regulation which the FCC would expand on later. According Mr. Pai, the goal of the FCC is to put itself at the head of the digital table, bringing another industry within its reach. The rule change, therefore, is unjustified because “there is no market failure, there is no problem to be solved.”
Why it matters
The FCC chairman has stated he is trying to create an environment where pay TV and online providers are on an even playing field from the standpoint of rights to TV content.
To do it, he wants to classify some OTT providers as MVPDs, making them subject to the same rights and regulations as facility based operators.
FCC commissioner Ajit Pai sees no justification for the change, and sees it simply as a power play by the commission.