On February 18, 2016, the Federal Communications Commission (FCC) launched two proceedings designed to promote competition in the video marketplace—a proposed rulemaking related to devices used to access traditional TV programming (i.e., set-top boxes) and an inquiry into diversity in video programming. The proposed rulemaking, if effectively drafted and implemented, may create new opportunities for consumer electronics companies, app developers, and other innovators to introduce products and services that enable access to paid television. Both initiatives offer competitors to traditional pay-TV providers (i.e., cable companies, telecos, and satellite providers) an opportunity to weigh in on the future of video delivery and the availability of video content.
Proposed "Unlock the Box" Rules
The FCC's "Unlock the Box" Notice of Proposed Rulemaking (NPRM) is aimed at promoting the development of hardware and software that could substitute for the set-top box.
Ninety-nine percent of consumers access video programming through a set-top box rented from their pay-TV provider, with U.S. consumers spending $20 billion a year to lease devices.1 These set-top boxes are repeatedly and unfavorably compared to the innovation and choice found in cell phones and TVs.2 Given these competitive dynamics, the Department of Justice's Antitrust Division has already voiced its support for the FCC's inquiry, noting that the proposal has the potential to "unlock consumer choice."3
The NPRM purports to "unlock the box" by requiring pay-TV providers to give device manufacturers and app developers access to:
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Programming discovery data (e.g., channel listings and video-on-demand lineups)
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Entitlement information describing the permissible uses of content (e.g., whether copyright restrictions allow content to be recorded)
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Video programming itself
The FCC seeks comments on each aspect of these "Information Flows," including whether they are sufficient to promote competitive alternatives to the set-top box.
The Unlock the Box NPRM would require that the Information Flows be provided in a published, transparent format that is consistent with specifications set by open standards bodies. Under the proposal, pay-TV providers could choose the most appropriate standard. The FCC seeks comments on whether this is the right approach, as well as on the acceptable composition of the open standards bodies.
The proposed rules are not without controversy and the rulemaking proceeding can be expected to generate significant comment on a wide variety of issues. Although aimed at the straightforward goal of giving consumers more choice in how they view pay-TV, the proposal will require the FCC to delve into and resolve issues relating to subscriber authentication, copyright, security, and standard setting.
In the face of a strong coalition of consumer advocates and industry members seeking to introduce new access devices and apps, pay-TV providers and their representative associations were quick to set off the alarm bells. Among their loudest complaints is the potential for divergent privacy standards. Pay-TV providers claim that the proposed rules would enable other device providers to avoid the specific privacy rules that, because of the FCC's limited jurisdiction, today apply only to satellite and cable providers. For example, pay-TV providers argue that competitors would not have to comply with FCC rules that require cable and satellite providers to send detailed privacy notices and obtain prior written consent to use subscribers' individual viewing history for targeted advertising.
In response, the Unlock the Box NPRM proposes that developers certify that they will adhere to the same privacy protections imposed on the pay-TV providers. The NPRM also proposes that pay-TV providers would not have to provide the Information Flows unless they receive a certification and they would be prohibited from providing actual video programming without receiving the certification. How these rules would be enforced, including whether the FCC could pursue a developer for a false certification or failure to comply with a certification, remains an open question and is likely to be a significant focus of the debate, particularly as the FCC establishes itself as a privacy cop on the beat more broadly.
The NPRM has a 90-day comment cycle with comments on the proposal due within 30 days of the NPRM being published in the Federal Register and replies due 60 days later. The NPRM proposes that any rules, if finalized, would go into effect within two years of adoption.
Fact Finding on Access to Video Programming
The FCC also issued a Notice of Inquiry (NOI) to examine video programming diversity.4 Although the NOI is teed up as an opportunity for the FCC to examine barriers to independent and diverse video content, it also focuses extensively on contractual provisions that may limit the ability of nascent online video providers to obtain content.5
The NOI points to two specific types of contractual provisions that may pose barriers to online video—Most Favored Nation (MFN) and alternative distribution method (ADM) clauses. MFNs in video programming contracts can enable video distributors to modify agreements with content providers in ways that allow the distributor to take advantage of more favorable terms obtained by their competitors. ADMs restrict a programmer's ability to distribute programming via an alternate platform such as an online delivery service.6 The NOI highlights comments made in recent FCC merger reviews that these types of contractual provisions limit the growth of online video distribution models trying to compete with traditional pay-TV providers that, because of their larger subscriber base, can demand the more favorable terms and conditions. In this proceeding, the FCC asks for comment on the prevalence, scope, costs, and benefits of MFNs, ADMs, and other contractual provisions. This sets the stage for the FCC to better understand the broader marketplace effect and economics of MFNs and ADMs.7
The NOI has an 80-day cycle with comments due within 30 days of the NOI being published and replies due 50 days later. Unlike many other FCC proceedings, which generally are disclosed on the public record, the NOI is an exempt proceeding that allows companies to make presentations to the FCC without disclosure. This may be particularly relevant for companies seeking to discuss with the FCC confidential details and effects of their programming contracts and negotiations.
The NOI will not necessarily trigger any specific FCC action or rules but given the importance to the FCC of video competition more broadly it can be expected to influence future FCC analysis and policies regarding restrictive contractual agreements that affect the video marketplace.
Although targeted at different segments of the video programming industry, both newly launched proceedings reflect the FCC's interest in promoting competition. Although the current FCC chair, Tom Wheeler, may have less than a year to act on these items, they are likely to be prioritized in the near term and will inform FCC policies in the longer term.
