Connecting America s Public Sector to the Broadband Future WHAT ARE THE IMPLICATIONS OF OVER-THE-TOP (OTT) FOR CABLE FRANCHISING? by Tim Lay enatoa 1875 Eye Street, NW, Suite 700 Washington, DC 20006 www.spiegelmcd.com 202.879.4022 tim.lay@spiegelmcd.com I. THE FCC S. A. Comments due February 17, reply comments March 2. B. Some definitional background. 1. MVPD is a person such as, but not limited to, a cable operator, a multichannel multipoint distribution service, a [DBS] service, or a [TVRO] satellite program distributor, who makes available for purchase, by subscribers or customers, multiple channels of video programming. 47 U.S.C. 522(13). OVS operator? Yes OVS program packager? Yes. Lesson: Just because a provider is an MVPD does not mean it s a cable operator subject to Cable Act franchising. 2 1
2. Channel is a TV channel as defined by FCC regulation. 47 U.S.C. 522(4). 3. Video programming is programming provided by, or generally considered comparable to programming provided by, a television broadcast station. 47 U.S.C. 522(20). 4. Linear programming is prescheduled programming, i.e., not ondemand programming. 5. Subscription linear programming is linear programming sold on a subscription basis, i.e., not free (like YouTube) and not per-program (like PPV). 3 C. NPRM proposes to classify providers of OTT subscription linear programming as MVPDs. 1. Tentatively concludes on-demand (e.g., Netflix) and free OTT would not be classified as MVPDs, but seeks comment on that conclusion. 2. Justification: Assuming FCC reclassifies broadband as Title II service and/or otherwise adopts adequate open Internet rules in the Open Internet proceeding to prevent operator discrimination against OTTs, would promote new non-facilities-based multichannel video programming competition over existing cable/broadband systems and spur broadband demand and thus deployment. 4 2
D. Alternative on which NPRM seeks comment (but does not tentatively support): limit MVPD definition to those who control the video programming physical transmission path (likely limited to facilities-based providers that own or control the end-user physical transmission path, i.e., cable operators and DBS and MMDS providers). 1. Key issue: What is a channel? Linear Programming Interpretation vs. Transmission Path Interpretation. 2. Cable industry might support the Transmission Path alternative. 5 E. NPRM seeks comment on what MVPD rights and obligations should apply to linear programming OTTs. 1. Rights. Programming access rules (access to vertically integrated programming). Right to seek relief under retrans consent rules. 2. Obligations. Program carriage agreement limitations (47 U.S.C. 536). Competitive availability of navigation devices (47 U.S.C. 549). Retrans consent (47 U.S.C. 325). EEO requirements. Closed captioning. 6 3
2. MVPD obligations continued Video description. Access to emergency information. Signal leakage. Inside wiring. Loudness of commercials. 7 Franchising-related Issues II. THE FCC s KEY CABLE FRANCHISING-RELATED ISSUES. A. Good news: NPRM concludes that cable service definition includes managed linear IP video service and thus that any entity that delivers cable service via IP over ROW-crossing facilities it owns is a cable operator subject to the cable franchise provisions of the Cable Act. Applies only to managed i.e., prioritized video programming offered by ROW-using operator. (Note: cable service is a specialized service not subject to FCC s open Internet rules.) Seems to clearly answer the question: AT&T s U-verse video is a cable service, and AT&T is therefore a cable operator. But expect AT&T to challenge that conclusion in its comments. 8 4
Franchising-related Issues B. Not-So-Good News: NPRM tentatively concludes that OTT video programing offered by a cable operator is not a cable service. 1. Note that, assuming the FCC reclassifies broadband or otherwise prohibits prioritization in the Open Internet proceeding, cable operators would be prohibited from favoring their own non-cable OTT video services over those of other non-facilities-based OTT providers. For this reason, cable operators will likely continue to offer traditional (albeit increasingly IP-based) managed cable services along with OTT and not go exclusively to OTT. 2. But classifying cable operator-provided OTT as a non-cable service will likely result in a siphoning off of cable franchise fee and PEG fee revenues, as well as frustrate efforts to require operators to include PEG in their OTT offerings. 9 Franchising-related Issues 3. NPRM also asks for comment on: a. Whether cable operator-provided OTT within its cable footprint should be treated differently (i.e., as a cable service ), and b. Whether and, if so, how the not a cable service analysis should change if cable operator bundles OTT with traditional cable service. 4. NPRM s tentative conclusion about operator-provided OTT seems wrong: OTT linear video programming is a video programming service. When offered by a ROW-crossing system owner, OTT should therefore be a cable service provided by a cable operator. 5. Cable industry will argue that treating its OTT as a cable service would be unfair, because cable operators would have to pay franchise and PEG fees and be subject to other franchising obligations that pure, nonfacilities-based OTTs are not. But that overlooks that cable operators make money from others OTT in the form of broadband service revenues, which are not subject to cable franchise fees or other cable franchising obligations. 10 5
OTTs AND FRANCHISE FEES III. OTTs (LINEAR AND ON-DEMAND) AND FRANCHISE FEES. A. Cable Act Franchise Fee Provision. 1. 47 U.S.C. 542(h): Nothing in the Cable Act prevents an LFA from imposing a tax or fee on any person other than a cable operator that provides cable service or other communications service over a cable system, as long as the tax or fee doesn t exceed 5%. 2. Could be read to reach the revenues of OTTs unaffiliated with the cable operator. 3. But state law (Dillon rule and/or state law limits on local taxing authority) may stand in the way, at least in many states. 4. Reaching non-facilities-based OTT content providers for tax/fee purposes may end up being a DGSTA issue. 11 OTTs AND FRANCHISE FEES B. Solely Interactive, On-Demand Service Exception to Cable System Definition (47 U.S.C. 522(7)(C). 1. Added in 1996. 2. Industry might claim it means on-demand services are not a cable service. 3. That is wrong: If on-demand service were not a cable service, the interactive, on-demand exception to the cable system definition would be meaningless surplausage. 4. Issue raised in Video Franchising proceeding, but FCC never addressed or resolved it. 12 6
Questions? Questions? Tillman L. Lay SPIEGEL & MCDIARMID LLP 1875 Eye Street, Suite 700, NW Washington, DC 20006 202.879.4022 tim.lay@spiegelmcd.com www.spiegelmcd.com 13 7