THE OPPORTUNITIES AND THREATS FROM NEXT GENERATION TELEVISION

Transcription

1 THE OPPORTUNITIES AND THREATS FROM NEXT GENERATION TELEVISION Video consumers have access to an ever increasing inventory of content choices. Greater flexibility in access and choice results from a combination of technological innovations, market entry by entrepreneurs with innovative business plans, inexpensive high capacity storage and the Internet s ability to serve as a single medium for a variety of previously standalone services delivered via different channels. Viewers no longer need to accept a prescribed time for viewing programs ( appointment television ) as access to video content has become a matter of using one of several interfaces capable of delivering live and recorded content anytime and anywhere. The video marketplace has developed into a largely two-way medium providing alternatives to the static distribution models offered by incumbent terrestrial broadcasting, satellite and cable television operators. So called television Over-the-Top ( OTT ) refers to the ability of content creators and new or existing content distributors to provide consumers with access via broadband links, in lieu of, or in addition to traditional media. i It is too early to tell whether these new options will reduce the market share of incumbents, or solidify their dominance over a larger array of delivery options. Currently content creators and distributors experiment with new options, having perhaps reluctantly acknowledged that the status quo cannot persist in light of proliferating consumer self-help opportunities to access content via unlawful, copyright infringing ways. The Internet offers many legitimate, questionable and absolutely illegal opportunities to access both amateur and professional video content via the transmission of video files for subsequent replay, via real time streaming of files and even the retransmission of live programming, including premium, pay television sporting events. Widely available access to high speed broadband networks provide subscribers with easy and convenient techniques to acquire movies, some of which have just been released in a DVD format, or even still intended only for viewing in theaters. Three models for video access have evolved: 1) Illegal, copyright infringing access to content via efficient peer-to-peer file transfer, or other direct links, as well as real time streaming of video content files and Internet delivery of live television; 2) New, lawful access to live television or video files via new intermediaries such as Amazon, Apple, Hulu, Joost, Netflix, and YouTube; and 3) Efforts by incumbent broadcasters, broadcast networks, Direct Broadcast Satellite operators, cable television Page 1 of 15

2 networks and cable system operators to offer new television everywhere options. This paper will examine the motivations, strategies and prospects of ventures offering video content via new methods. The paper notes that incumbents may have failed to appreciate the risk of lost market share, but that they have belated responded with compelling new options for subscribers designed to stave off churn. The paper also will assess the opportunities and threats presented by new video distribution options. The paper concludes that the potential exists for significant change in the video content distribution marketplace, not all of which will benefit consumers. While it appears that OTT and other new options favor consumers, new technologies also may lock down content and prevent consumers from lawful content sharing and recording. ii The paper also will consider whether new video distribution techniques can contribute to promoting access parity between urban consumers and those in rural and remote locales throughout the Asia-Pacific region. 1. NEW OPPORTUNITIES AND THREATS IN VIDEO DISTRIBUTION AND ACCESS Video consumers appear to care little about which technology they use to access content, so long as they can access it on their terms. iii Increasingly, customers prefer access via a combination of traditional television, the first screen, with computer monitors, the second screen and wireless smartphones, the third screen. While consumers appear willing to tolerate significant difference in the visual and audio quality of service between screens, they appear less patient with attempts by content creators and distributors to close ranks and restrict access from alternative, non-incumbent platforms. For example, after a period of experimentation with new content distribution intermediaries, such as Hulu, content creators, perhaps at the insistence of incumbent content distributors, to have begun to reduce the breadth and freshness of available content. iv A significant percentage of early adopters of new video access platforms may pursue illegal self-help options should content creators and distributors opt to reduce lawful opportunities to access highly desirable, must see television. Both content creators and distributors appreciate that new distribution platforms offer more diverse opportunities for delivering compelling video content to consumers. However, incumbent will pursue only those new access opportunities that do not cannibalize revenues accruing from advertisers, or subscribers. v In the worst case scenario a significant number of viewers find ways to access content even premium, pay per view offerings at no cost, because an unauthorized intermediary has pirated the content, or offered a platform for accessing the pirated content. In either scenario consumers have readily available, but unlawful ways to access content without compensating the content creator and authorized distributors. Content creators can financially benefit from new distribution options and windows of availability, particularly if they achieve greater control over access, do not have to share as much revenue with distribution partners and can use new digital rights management vi technologies to prevent even lawful copying for private use. vii On the other hand Page 2 of 15

3 greater risk of piracy and strained relationships with long standing distribution partners, such as DBS and cable television, motivate content creators to experiment cautiously. viii Content distributors risk major migration of subscribers keen on cutting the cord and the burden of expensive monthly subscriptions that may combine desired content with many channels of undesired content. ix Incumbent distributors, such as DBS and cable television operators, risk disintermediation, i.e., elimination as middlemen in a chain of distribution, if OTT and other access option offer a better value proposition for access to desired content. Even if new distribution options impose pay per view charges, or monthly subscription rates, consumers might have available new, a la carte options that provide access to desired content with a much lower total out of pocket cost. x The loss of access to even many channels may not matter if consumers had little interest in such content offered in a package of programming. Accordingly incumbent video distribution operators may have to respond to new access options with efforts to enhance the value proposition of their monthly and sizeable subscription charges currently offered on a bundled, all you can eat ( AYCE ) model. xi 2. EVOLVING VIDEO PLATFORMS OTT refers to the use of broadband transmission networks to deliver video bitstreams in lieu of traditional cable, satellite and broadcast options and in addition to other broadband services available via an Internet connection. This means that an existing broadband service subscription can provide users with access to increasingly diverse video content in addition to, i.e., on top of, existing services such as general access to Internet-mediated services like and the World Wide Web. Consumers must subscribe to fast, high capacity broadband services, because video service requires networks that can handle large file downloading and video streaming. Even low quality video files, which are highly compressed and have comparatively lower resolution, require broadband networks that can deliver traffic at more than 1.5 megabits per second. xii OTT enhances the value proposition offered by ISPs. Subscribers can increase their video content options thanks to the synergistic and serendipitous opportunities available from broadband networking. Internet protocols support the loading, switching and routing of different kinds of traffic via the networks that interconnect to form the Internet. xiii This means that Internet routers can handle video traffic in much the same way as they manage other less bandwidth intensive applications. So long as the networks providing bitstream transmission can handle higher capacity streams and files, they can provide a medium for the delivery of video. The term Internet Protocol Television ( IPTV ) refers to the ability of the Internet, and specifically the Internet Protocol addressing scheme and the Transmission Control Protocol xiv bitstream management formats, to provide broadband subscribers with userfriendly access to video content. Page 3 of 15

4 Many broadband subscribers of both wired and wireless services have discovered the benefit in using their subscription to access video. With the currently predominant option of unmetered broadband access, subscribers can substantially increase the total volume of content they download without a commensurate rise in their monthly subscription cost. Broadband carriers, particularly wireless operators, have become concerned that such downloading will trigger network congestion and exhaust existing capacity requiring ever growing investment in broadband plant. By offering subscribers unmetered AYCE service, broadband carriers have encouraged experimentation and access without regard to the operational and cost burdens imposed. Now many broadband carriers want to abandon AYCE pricing and offer tiered service at different monthly rates providing different amounts of permissible content downloading. xv In lieu of tiered service, many ISPs invoke traffic management necessity as justification to throttle, i.e., deliberately slow the delivery of traffic to subscribers exceeding a quota of permissible downloading volume. xvi ISPs characterize the highest volume subscribers as bandwidth hogs xvii apparently in light of their ability to get more value and service than the ISPs intended, or expected a subscriber to accrue. ISPs consider these heavy users as creating a problem instead of an opportunity. Heavy demand for IPTV and data service contributes to the short term potential for congestion and the need to increase transmission capacity. However in the longer term subscribers expanded demand for broadband provides ISPs with the enviable opportunity to serve a growing market, rather than one that has become static, or declining. More broadly proliferating OTT and IPTV content options can stimulate greater demand for broadband infrastructure. The certainty of demand, coupled with an apparent willingness to pay for service, removes two major risk factors that have reduced incentives for both incumbents and market entrants to provide broadband in remote areas. OTT distribution includes two primary ways to deliver content: 1) the immediate, real time streaming of programs simultaneously available via other traditional media, such as satellite, cable and broadcast television; and 2) the streaming or downloading of files containing video content, some of which was initially available via incumbent media outlets. Three different commercial models have evolved to: 1) simulcast live content, 2) download files of content and 3) stream files of content so that consumers do not have an easy way to record and redistribute it. 2.1 ILLEGAL, COPYRIGHT INFRINGING MODELS The earliest video content access opportunities resulted from an adaptation of existing peer-to-peer file sharing techniques such as BitTorrent that started as music sharing sites. Because file sharing software and the Internet generally make no distinction between file types, users found it easy to share video files. Similarly Internet protocols support the delivery of live video feeds and stored files. A variety of web sites currently offer access to live television, including premium channels as well as access to files containing movies and television programs. Page 4 of 15

5 Absent a license to redistribute video content, along with the expected agreement to compensate the copyright holder, these sites violate the intellectual property of content creators causing financial harm to both content creators and licensed content distributors. Ample case law supports the conclusion that web-based providers of access to content will be held secondarily liable for copyright infringement even though the software and Internet-routing used directly links one or more sources of the content and the recipient. xviii Secondary liability refers to the determination that the legal responsibility for damages caused by copyright infringement can apply to a party that facilitates and induces infringement even if it did not directly participate in the actual delivery of infringing content. This means that web-based sites that help promote infringement will be deemed legally responsible for the financial damages resulting from the distribution of file sharing software, or offering a web-based platform for access to sources of copyright infringing content. Notwithstanding the potential for copyright infringement liability, content providers must have assurance that Internet-based distribution models do not facilitate revenue-sapping piracy. IPTV techniques and much of the currently available OTT content promote copyright infringement, largely because few content providers and distributors have authorized access via nontraditional media. Rather than consider alternative distribution a possible source of supplemental income, incumbents initially concluded that these new options promoted piracy without any upside financial opportunities NEW LEGAL IPTV INTERMEDIARIES Incumbents subsequently reconsidered the conclusion that they should block IPTV innovation and refuse to offer content access alternatives. New and legal IPTV options, such as YouTube, gained traction and visibility thereby demonstrating that even amateur video could attract substantial audiences. Cautiously and incrementally content sources have explored directly distributing their content, via their own branded sites, or indirectly via new intermediaries such as Amazon, Apple, Hulu, Joost, Netflix, and YouTube. Most broadcast networks and many cable/satellite networks now consider the web as affording an opportunity to reach more viewers, thereby generating higher market penetration and advertising revenues. These content sources typically provide access after initial distribution via traditional media outlets so that consumers do not abandon traditional distribution intermediaries. Content distribution intermediaries provide an interface between video content consumers and sources. By serving as an intermediary these sites can enforce digital right management limitations on access, recording and redistribution as well as collect payments for premium content, or superior access options. However, content creators can only go so far in their exploration, because of existing and highly lucrative distribution contracts with incumbent distributors. While it might appear enticing to eliminate ( middlemen ) intermediaries, the proliferation of new ones evidences resiliency and continuing viability of this model. Content sources will have to calibrate closely the blend of access options they offer directly, via incumbent outlets and via new intermediaries. Page 5 of 15

6 2.3. NEW OPTIONS VIA INCUMBENT INTERMEDIARIES Broadcast, cable and satellite operators belatedly have recognized that IPTV will not go away. New distribution technologies generate threats and greater risk to incumbents, but they also have the potential to help intermediaries solidify their role as a necessary interface between content sources and end users. In light of vastly greater web-based content options, incumbent intermediaries now recognize that they must enhance the value and accessibility of the premium, must see content they distribute. This translates into adopting new distribution options that provide subscribers with greater flexibility in terms of where, when, how and how often they can access content. Content creators and intermediaries have accepted the basic premise that they can no longer limit subscribers to one time viewing of content. Content providers failed in their challenges to consumers recording of copyrighted content for private, non-commercial use via video recorders. xix Recently a content intermediary received judicial confirmation that providing cable television subscribers with remote access to storage capability similarly does not constitute copyright infringement. xx In light of lawful content access and recording options available to consumers, incumbents have to enhance the value proposition of their pay service by providing subscribers with new opportunities to access content via different devices, in both fixed and mobile locations. Television anywhere refers to the relaxation of access limitations by incumbent intermediaries so that duly authenticated subscribers, i.e., subscribers who prove their identity and status as paying subscribers of a cable or satellite service, can pass through firewall barriers to access files containing premium content, including episodes of programs already delivered at assigned times to conventional television sets. Incumbents have abandoned attempts to limit subscribers to appointment television, or to the recording of content by devices closely aligned with cable television set top boxes, satellite receivers and broadcast television receivers. Subscribers of incumbent video program distribution services now can direct the carrier to save content for subsequent replay, a type of virtual video recording that replaces the need to have an on-premised digital video recorder. Additionally subscribers can access content for repeat viewing using different receiving devices that include multiple and geographically separated television sets, computers and smartphones. xxi 3. DIVERGING INCENTIVES AND INCREASED RISKS Before the onset of new and experimental content distribution models, content creators and distributors had established a mutually beneficial model based on several sequential windows of access based on elapsed time since initial release. Movies followed a predictable track with initial access solely in theaters, followed by pay per view and other premium channel access, followed by release of a DVD, after which the content becomes a less robust lure for direct payments from consumers and more an advertiser supported attraction typically first available on premium cable/dbs networks Page 6 of 15

7 and subsequently on non-premium, basic tier networks, followed even later in time by broadcast television. Cable programming also has tiered categories of access with premium content, such as movies and high budget original programming, located on higher cost tiers, offered as a standalone premium channel, or even charged on a pay per view basis. New distribution models provide consumers with access to some premium content earlier in time, on an a la carte, pay per view basis. Additionally some content creators have opted to provide access to premium content, via new access platforms operated by incumbent distributors, or upon proof that the consumer already has paid for a subscription, e.g., to a cable television operator. Video program creators see new distribution platforms as possibly offering new revenue growth opportunities and greater market penetration. However content creators must operate with caution so that they do not lose control over access to their product and also do not harm revenue streams flowing to traditional distribution partners. If a content creator decides to serve consumers directly via new distribution platforms, incumbent distributors might attempt to retaliate by favoring other content sources. Content distributors want to maintain the highly profitable status quo, but the traditional locked-down, largely one-way distribution model appears unsustainable in light of new options available to consumers. Incumbents have reluctantly concluded that they must provide greater access flexibility to subscribers, including the opportunity to watch the same content multiple times without additional payment. Incumbent video distributors so far do not seem to think it necessary to offer vastly more content, in addition to greater flexibility in accessing existing content. With the exception of a new cable television network managed by talk show host Oprah Winfrey, the industry has not introduced much new content in the last few years. Likewise little has changed over the last ten years in terms of which cable networks attract the largest audiences. xxii As new access options provide both greater flexibility and more content, incumbents might recognize the need to increase options, despite having previously assumed that they need only serve as the gateway to currently designated must see television. Consumers in growing numbers question a subscription model that regularly increases monthly rates well above measures of the overall cost of living. xxiii Cable and DBS operators may have grown complacent that tiered packages of channels available on an AYCE basis can remain dominant, because consumers have had few options that come close to offering the combination of must see and niche content. Now the Internet operates as a medium for access to much of the same must see television along with often free access to niche content. 4. NEAR TERM CONSEQUENCES FOR ASIA-PACIFIC AND BEYOND The allure of more flexible access to television content favorites coupled with vastly proliferating array of new content creates incentives for consumers to subscribe to Page 7 of 15

8 available broadband services. As well the prospect of flexible and more plentiful access can stimulate demand for broadband service in locales having inferior access, or none at all. The perceived deprivation in not having broadband access perhaps compounds one s sense of a digital divide. Even though video access may involve mostly entertainment content, a lower priority than the goal of providing access to life line services such as voice telephony, consumers denied proliferating video options may sense an equally stinging sense of loss. As residents of nations with commercially viable, or subsidized broadband enjoy ever more content options, residents lacking broadband may sense they have fallen farther behind. An expanding video divide will occur so long as broadband access opportunities are unequal, but also so long as IPTV and OTT options do not adversely impact incentives to create video content and to exploit new Internet-mediated options to distribute it. Simply put, IPTV and OTT video access opportunities cannot subvert existing business models which deliver sizeable financial rewards for creativity and popularity in content creation and in the creation of hard to replace distribution channels. The freedom to access content at anytime, anywhere, via an expanded array of devices and for multiple viewings surely promotes consumer welfare, flexibility and choice. However, these freedoms should not expand the opportunities for piracy. If content creators and distributors conclude that OTT and IPTV constitute too great a threat, then the proliferation of legal options will decline or stop. Even before the onset of Internet-mediated access to video content, individuals had some free rider opportunities to consume advertiser-supported content without buying the advertised products and services. The possibility exists that IPTV and OTT will offer even more free-rider opportunities, at least initially when content providers and distributors have not yet perfected a payment scheme, or perceive the need to promote new Internet access opportunities by offering attractive content for free and with less advertising. But when payment schemes apply and new intermediaries establish sustainable business models based on payments from both subscribers and advertisers, consumers should understand that when too many people can free ride and avoid payment by defeating digital rights management safeguards such action will adversely impact the viability of new Internet options. The obligation to pay for content offered for compensation does not mean that content creators and distributors do not have to stop finding ways to enhance the value proposition of their products and services. IPTV and OTT promote greater competition for consumer payment and attention. Incumbent content creators have no right to expect that they will continue to offer must see television worthy of premium payments, nor do existing intermediaries have a right to expect that consumers should have no opportunity to access content except through their access platform. Distribution intermediaries in particular have to make their subscriptions worth the sizeable fees charged, particularly if new access opportunities offer cheaper access for the same content, or a lower total out of pocket cost for the most desired content. Only recently has an economic downturn coupled with new IPTV and OTT options resulted in Page 8 of 15

9 a decline in viewership of traditional media, particularly by young viewers. xxiv The urge to cut the cord and lower one s cable or satellite bill will become more compelling as new access opportunities develop and proliferate, even if they too require payment. A user friendly interface, reasonable prices and conscientious customer service all lacking to some extent among incumbents can stimulate subscriber migration. Currently video consumers enjoy new opportunities to access long successful content options, e.g., sporting events, movies and blockbuster, mass market programming, as well as new options. It would be premature to predict the demise of intermediaries and the rise of direct dealing between content source and consumers. However electronic commerce conducted via the Internet demonstrates that while the viability of intermediaries remains strong, who operates as one and how they add value and justify their fees will be subject to change. The potential for significant change in the video marketplace appears quite real. ENDNOTES i Over the Top Television services (also known as Internet TV or TV over Broadband) are soon to become common place in the home. Over the Top TV is the next natural evolution of the personalisation of how we consume audio visual content in the home. Whilst traditional linear TV will still continue to provide the backbone of home viewing for some time, it is likely to be increasingly demoted in the home in favour of Over the Top TV services as the primary means to watch your favourite content. Over the Top Television represents a fundamental shift in TV consumption and whilst it brings many opportunities it will also carry many challenges. BCi, Over the Top Television set to change TV consumption in the home (Nov. 9, 2010); available at: ii Digital Rights Management ( DRM ) technologies create a burden of obtaining consent that has no parallel in the offline world.... [E]very permissions-based DRM implementation (in which the user must formally acquire some form of explicit authorization to engage in a particular use of the protected work) simply reproduces a variant of the judge on a chip problem. No such system can ever replicate the experience of fair use in the offline world because the requirement of ex ante authorization by the copyright holder or its designee is a departure from offline practice and statutory requirements. Timothy K. Armstrong, Digital Rights Management and the Process of Fair Use, 20 HARV. J.L. &TECH. 49, 54 (2006). iii To many... [youger viewers] there;s no difference between watching [programs such as] Gossip Girl online or on the tube, says David F. Poltrack, chief research officer at CBS. College-age audiences are relying more on laptops than TVs to watch favorit shows, a function of TV prices and less help from Mom and Dad, Poltrack says. Andy Page 9 of 15

10 Fixmer, New TV Season, and Fewer People to Watch It, BLOOMBERG BUSINESSWEEK, 24 (Sep. 18-Sep. 25, 2011). iv Viewers looking to watch their favorite TV shows the day after they air know to go to Hulu it s one way the company made its mark. But Tuesday, one of its corporate owners, Fox, announced that it is erecting a paywall. There will be an eight-day delay on viewing TV shows for free online, on both Hulu and Fox.com, unless a cable subscriber logs in. Levi Sumagaysay, Good Morning Silicon Valley blog site, Fox delays free content on Hulu (July 27, 2011); available at: v See, e.g., J.D. Roth, Get Rich Slowly Web site, How I Cut My Television Bill in Half (Feb. 19, 2009); available at: vi Digital Rights Management refers to the use of technological tools by copyright owners and distributors to regulate the uses of their works, and in particular to restrict reproduction. For background on the types of current DRM technologies used to guard against music piracy, see Nika Aldrich, An Exploration of Rights Management Technologies Used in the Music Industry, 2007 B.C. INTELL. PROP. & TECH. F (2007), vii In the United States and other nations, intellectual property law recognizes the rights of consumers to make copies of content without the consent of the copyright holder under certain circumstances. This fair use defense to a claim of copyright infringement balances the rights of copyright holders to profit from their creations with the expectation that society have access to such content, including opportunities to analyze, critique, parody, examine, and use for educational purposes. While governments need to create incentives for the creational of copyrighted content, they establish fair use opportunities and time limits on copyrights to promote access to and use of the content. See, e.g., Religious Technology Center v. Netcom, 907 F. Supp (N.D. Cal. 1995) available at: (balancing the fair use right to criticize religious publications with the right of a copyright holder to prevent duplication and distribution of complete copies of books); Sony Corp. of America v. Universal City Studios, 464 U.S. 417 (1984); (recognizing the non-infringing uses of a copying technology; Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 (9 th Cir. 2007)available at: (deeming fair use the creation of thumb nail copies of images); The Library of Congress, U.S. Copyright Office, Copyright Basics; available at: Michael Allyn Pote, Mashed-Up In Between: The Delicate Balance Of Artists' Interests Lost Amidst The War On Copyright, 88 N.C. L. REV. 639 (January, 2010); Matthew J. Page 10 of 15

11 Tokson, The Content/Envelope Distinction In Internet Law, 50 WM. & MARY L. REV (May, 2009); Fred von Lohmann, Fair Use as Innovation Policy, 23 BERKELEY TECH. L.J. 829 (2008). viii [P]ay-TV operators and cable networks are closing ranks to preserve their healthy ecosystem and further their TV Everywhere goals. Will Richmond, Netflix (Partially) Comes to Its Senses, Drops Qwikster DVD Plan, Video Nuze web site (Oct. 10, 2011); available at: ix With more young adults tuning out this TV season, the industry is confronting a generation of viewers who say they won t pay the typical $75 monthly cable or satellite bill....the six largest publicly traded cable- and satellite-tv providers ann9ounced last month a combined loss of about 580,000 customers in the second quarter [2011] the biggest decline in history. Id. at x Both cable television content creators and operators have favored the packaging of numerous channels into a bundle or tier of service. Such combinations help programmers that subscribers might not choose for access on an a la carte, pay per channel basis. This pricing model also helps obscure the actual cost of the most desired networks by averaging in low cost program access. Recently some cable television operators have begun to rethink the business sense of tiered service packages. See, e.g., Yinka Adegoke, In switch, cable operators want to go "a la carte", Reuters (Sep. 27, 2011); available at: xi Some cable operators have begun to experiment with pricing models that replace tiers of numerous channels with a la carte, per channel selection. Yinka Adegoke, In switch, cable operators want to go a la carte, Reuters, Sep. 27, 2011; available at: xii To watch movies instantly via your Netflix-ready device, we recommend a broadband connection providing at least 1.5 Mbps. The faster your connection, the better your picture quality will be. Netflix, Frequently Asked Questions, available at: xiii The Internet is a vast network of individual computers and computer networks that communicate with each other using the same communications language, Transmission Control Protocol/Internet Protocol (TCP/IP). The Internet consists of approximately more than 100 million computers around the world using TCP/IP protocols. Along with the development of TCP/IP, the open network architecture of the Internet has the following characteristics or parameters: 1. Each distinct network stands on its own with its own specific environment and user requirements, notwithstanding the use of TCP/IP to connect to other parts of the Internet. Communications are not directed in a unilateral fashion. Rather, communications are routed throughout the Internet on a best efforts basis in which some packets of information may go through one series of Page 11 of 15

12 computer networks and other packets of information go through a different permutation or combination of computer networks, with all of these information packets eventually arriving at their intended destination. 2. Black boxes, for lack of a better term, connect the various networks; these boxes are called gateways and routers. The gateways and routers do not retain information but merely provide access and flow for the packets being transmitted. 3. There is no global control of the Internet. Konrad L. Trope, Voice Over Internet Protocol: The Revolution in America s Telecommunications Infrastructure, COMPUTER & INTERNET LAWYER, Dec. 2005, available at xiv In the Open System Interconnection ( OSI ) model, layered network architecture for packet networks typically consists of seven layers: physical, data link, network, transport, session, presentation and application. The model calls for the independent operation of the layers, and supports the interaction of various applications and equipment that is designed to address separately each layer in a product offering. In the Transport Control Protocol ( TCP )-IP model, only four levels are used: link (combines OSI physical and data link levels), network, transport and application (combines OSI session, presentation and application levels). The functions supported at each layer are as follows: physical represents electrical signaling, modulation, etc.; data link moves packets (also called datagrams ) between hosts based on a protocol such as Ethernet, Asynchronous Transfer Mode, frame relay; network defines how data is routed between hosts over one or several networks, often based on IP; transport establishes the connection between two hosts, creating a virtual network, often based on TCP or Universal Datagram Protocol; session controls the setup and termination of communications sessions; presentation defines the format of the data exchanged (e.g., text, graphic); application defines how applications communicate with each other over the network (e.g., ) using various protocols. Communications Assistance for Law Enforcement Act and Broadband Access and Services, 19 F.C.C.R n.181 (2004). See also Joshua L. Mindel & Douglas C. Sicker, Leveraging the EU Regulatory Framework to Improve a Layered Policy Model for US Telecommunications Markets, 30 TELECOMM. POL CY 136, 137 (2006); Douglas C. Sicker & Lisa Blumensaadt, Misunderstanding the Layered Model(s), 4 J. ON TELECOMM. & HIGH TECH. L. 299 (2006); David P. Reed, Critiquing the Layered Regulatory Model, 4 J. ON TELECOMM. & HIGH TECH. L. 281 (2006); Lawrence B. Solum & Minn Chung, The Layers Principle: Internet Architecture and the Law, 79 NOTRE DAME L. REV. 815 (2004); Richard S. Whitt, A Horizontal Leap Forward: Formulating a New Communications Public Policy Framework Based on the Network Layers Model, 56 FED. COMM. L.J. 587 (2004). xv Some ISPs are currently moving away from the unlimited bandwidth terminology and are beginning to implement tiered services where the consumers have a limited amount of bandwidth that they can use each month. Carol M. Hayes, Content Discrimination on the Internet: Calls for Regulation of Net Neutrality, 2009 U. Ill. J.L. Tech. & Pol y 493, 499. Page 12 of 15

13 xvi Content owners, not without success, have been selling the idea that broadband operators can help themselves manage network congestion by helping rights owners combat infringement. Comcast s highly controversial use of DPI [Deep Packet Inspection] in 2007 to throttle BitTorrent traffic is one manifestation of the coincidental community of interest that has developed between rights owners and network operators with respect to the use of smart network technology to manage bandwidth-intensive P2P [peer-to-peer] traffic. In late 2007, Comcast was discovered to have been blocking BitTorrent transfers as a means of congestion management. In 2008, Comcast was sanctioned for this conduct by the FCC, though it argued in the proceedings that it was simply engaged in legitimate network management. Annemarie Bridy, Graduated Response and the Turn to Private Ordering in Online Copyright Enforcement, 89 OR. L. Rev. 8, (2010). xvii There are some cases in which ISPs have taken action against file-sharing on their own, without regulatory pressure to do so. Comcast's now infamous bandwidth throttling of subscribers using bit-torrent software is probably the most significant instance of ISP action against online file-sharing in the United States. Of course, Comcast's primary motivation may not have been to protect the content industries, although its motivation could change in the wake of the merger with NBC. Comcast's stated intention was to manage its bandwidth by restricting the amount used by some file-sharing applications known to be bandwidth hogs. Unsurprisingly, these applications turn out to be the ones used by the most prolific file-sharers. Christopher M. Swartout, Toward a Regulatory Model of Internet Intermediary Liability: File-Sharing and Copyright Enforcement, 31 NW. J. Int l L. & BUS. 499, (Spring, 2011). xviii See, e.g., MGM Studios, Inc. v. Grokster, Ltd. 545 U.S. 913 (2005) (file sharing web sites deemed to have induced subscribers to infringe copyrights). xix Sony Corp. of America v. Universal City Studios, 464 U.S. 417 (1984) (affirming the lawfulness of using a video tape recorder to make private, noncommercial copies of copyrighted broadcast content). xx The Cartoon Network et al v. CSC Holdings, Inc. et al, 536 F.3d 121 (2d Cir. 2008). available at: xxi Your Slingbox compresses your television signal (or other audio/video) and makes it available through your home network, so you can watch TV in another room, on another floor, in your backyard... or halfway around the world (if you have access to a broadband Internet connection). Slingbox, How does the Slingbox work?, available at: xxii The FCC identified the top 20 cable television networks for the year 2000: Top 20 Programming Services by Subscribership Page 13 of 15

14 Rank Programming Network Number of MSO Ownership Interest in (Top 20) Subscribers (Millions) Network (%) 1 TBS 77.0 Time Warner (100) 2 Discovery Channel 76.4 AT&T (49), Cox (24.6) 3 ESPN USA Network 75.8 AT&T (18.6) 5 C-SPAN (1) TNT 75.6 Time Warner (100) 7 Fox Family Channel 74 8 TNN (The Nashville Network) Lifetime Television A&E CNN 73 Time Warner (100) 12 Weather Channel QVC 70.1 Comcast (57), AT&T (43) 14 TLC (The Learning Channel) 70 AT&T (49), Cox (24.6) 15 MTV AMC 69 Cablevision (75) 17 CNBC Nickelodeon/Nick at Nite VH ESPN Federal Communications Commission, Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, CS Docket No , Sixth Report, 14 F.C.C.R. 978 (2000); available at: The FCC compiled an nearly identical list for 2009: Top 20 Programming Services by Subscribership Programming Number of Ownership Interest in Network Rank Network Subscribers (Mil.) (1) 1 Discovery Channel 91.2 Cox, Advance/Newhouse, Discovery Holding Co. 2 ESPN 91.0 Disney, Hearst 3 CNN 90.9 Time Warner 4 USA Network 90.8 NBC-Universal Page 14 of 15

15 4 TNT 90.8 Time Warner 6 C-SPAN 90.7 National Cable Satellite Corporation (2) 7 Lifetime Television 90.6 Disney, Hearst 8 ESPN Disney, Hearst 8 The Weather Channel 90.5 Landmark 8 Nickelodeon 90.5 Viacom 8 TBS 90.5 Time Warner 12 Spike TV 90.4 Viacom 12 A&E 90.4 Disney, Hearst, NBC-Universal 14 QVC 90.3 Liberty Media 14 TLC 90.3 Cox, Advance Newhouse, Discovery Holding Company 16 Headline News 90.1 Time Warner 17 MTV 89.9 Viacom 17 Home & Garden TV 89.9 EW Scripps 17 ABC Family Channel 89.8 Disney 20 History Channel 89.7 Disney, Hearst, NBC-Universal 20 Toon Disney 89.7 Disney 20 VH Viacom Federal Communications Commission, Annual Assessment of the Status of Competition in Markets for the Delivery of Video Programming, MB Docket No , Thirteenth Report, 24 F.C.C.R. 542 (2009); available at: xxiii See Implementation of Section 3 of the Cable Television Consumer Protection and Competition Act of 1992, Statistical Report on Average Rates for Basic Service, Cable Programming Service, and Equipment, Report on Cable Industry Prices, MM Docket No (rel. Feb, 14, 2011); available at: xxiv Erik Brannon, HIS isuppli, U.S. Pay TV Subscriptions Decline by 380,000 in Q2 (Sep. 2, 2010); available at: Research/MarketWatch/Pages/US-Pay-TV-Subscriptions-Decline-by-380,000-in- Q2.aspx. Page 15 of 15