Rights and the Set-top Box

The formal comsettop _box_openment period in the Federal Communications Commission’s set-top box proceeding closed this week after tallying 256,747 submissions. Most were canned comments submitted by consumers who had been rounded up for the purpose by interest groups on both sides of the issue. But the controversial proposal to require pay-TV providers to “unlock” the set-top box and make disaggregated elements of their service available to third-party device makers and app developers also drew over 1,000 substantive comments from rights owners, members of the pay-TV industry, technology providers and other agencies of government involved in telecommunications policy.

Apart from those filed by technology companies and a few public interest groups, most of the comments from professional telecom policy circles — save one — strongly opposed the proposal. AT&T called the proposal “indefensible as a matter of law and nonsensical as a matter of public policy.” The Motion Picture Association of America said the proposal would violate content owners’ First and Fifth Amendment rights and called it tantamount to government-mandated copyright infringement.

The one official voice speaking up for the proposal, however, came from President Barack Obama’s bully pulpit. The White House not only publicly endorsed the proposal but made it a poster child for a broader initiative to increase competition in sectors of the economy where the administration thinks it’s lacking.

That probably gives FCC chairman Tom Wheeler, who cooked up the proposal, the political cover he needs to bring some version of it to a vote by the commission, despite concerns expressed by over 150 members of Congress from both sides of the aisle, including many frequent allies of the administration.
Should the proposal be adopted it will immediately become the object of litigation from any number of opponents, which could tie the matter up in court for years. Whatever the legal outcome, though, the debate over the proposal provided a useful preview of an issue rights owners and TV distributors will likely be wrestling with with increasing frequency over the next several years: how to manage video rights outside the bundle.

As currently structured, the FCC’s proposal would require pay-TV providers — multichannel video programming distributors (MVPDs) in regulatory parlance — to deliver three discrete data streams to third party devices and apps:

  • Service discovery: Information about what programming is available to the consumer, such as the channel listing and video-on-demand lineup, and what is on those channels.
  • Entitlements: Information about what a device is allowed to do with content.
  • Content delivery: The video programming itself.

Developers would then be able to incorporate those elements into new types of devices and apps that would be compatible with any pay-TV service but which consumers could buy instead of having to rent a box in perpetuity from their pay-TV provider.

The stated goal of the proposal is simply to bring competition to the market for pay-TV compatible set-top boxes. But rights owners argue it amounts to turning over their content to developers who have not licensed it to do with as they will and without compensation to the rights owner.

The legal issues are potentially significant: should the courts find the proposal implicates copyright they would almost certainly declare it beyond the ken of the FCC.  But the debate is also about the future of the bundle, and more specifically the role of the cable set-top box in sustaining it.

While rights owners complain about having to turn over their content to unlicensed third parties they acknowledge in their comments to the FCC that much of the substance of their current MVPD licensing agreements deal with matters unrelated to the content itself.

According to the MPAA:

Arm’s length agreements between MVPDs and programmers provide the necessary licenses to transmit the content, and in exchange the MVPDs agree to a range of license terms, including security requirements, advertising rules, EPG channel placement obligations, and tier placement requirements. These terms are material to the grant of the copyright license, and to copyright holders’ ability to direct the exploitation of their works in a manner that enables them to continue to invest in the high-quality programming that viewers expect.

By contrast, the proposed order mandates that MVPDs transmit to third-party providers of set-top boxes and other navigation devices three “flows” or “streams” of information— including all the content the MVPDs license from copyright holders—and it permits third parties to manipulate all of this content as inputs to their own services without seeking the permission of the copyright holders or compensating them. Because the FCC defines “navigation device” to include not only hardware, but also software, this “grant” of rights also extends to providers of Internet applications and web-based services.

The only terms the proposal would explicitly recognize are copy, output, and streaming limitations. Extensively negotiated terms on matters including “service presentation (such as agreed-upon channel lineups and neighborhoods), replac[ing] or alter[ing] advertising, or improperly manipulat[ing] content,” are all left unaddressed by the FCC’s proposal.

Disney was even more explicit in a separate, ex parte filing:

Content producers are intimately involved in the meticulous details of how a viewer sees programming content. For example, a network’s adjacencies in a programming lineup can be the result of careful and unique agreements between distributors and content creators. The Coalition Proposal would allow an “end run” around such careful deliberations. It could leave channel placement and other elements of content presentation exclusively in the hands of those with far less incentive to ensure a high level of quality or consistency in content presentation, in turn undermining the value of the content itself.

Deal points like channel placement and adjacencies are only relevant within the context of the traditional pay-TV bundle, and more specifically within the traditional, grid-like electronic programming guide (EPG) that still represents the primary user interface on most operator-provided boxes. The terms of those license agreements are enforceable only because of MVPD’s absolute control over their boxes. Even the apps many have begun to develop to run on third-party devices merely virualize the box without disrupting the basic structure of the UI.

The current licensing system by which TV content owners manage their rights, in other words, is largely premised on the bundle and the grid.

The first thing any developer coming to the problem fresh would do, however, if permitted by the FCC, is dump the grid to enable content to be served up the viewer by means of search, or recommendation engine, or social media integration, or nearly any other paradigm. The bundle might remain intact as a matter of billing, but it would disappear as a matter of the user experience.

Yet, even if the FCC’s current proposal goes nowhere, market forces are gradually (and sometimes not so gradually) pulling apart the bundle, and pulling content out of the grid. Insofar as the networks and content providers regard a measure of control over how their content is presented to consumers as critical to their value proposition and value of their copyrights, they increasingly will need to find a way to do that outside the box.

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