Regulating Online Video Content

Recently the Kommission für Zulassung und Aufsicht der Medienanstalten (ZAK) – the German equivalent of our FCC – recently concluded that OTT services ought to be regulated the same way as other broadcast radio and television networks. Specifically they were looking at Twitch.tv the web gaming service, but the ruling could have far-reaching consequences.

I think the ruling raises two questions. First, should any regulatory body be regulating video content on the Internet? Second, why are we still heavily regulating cable TV?

The European press is lambasting the order as nothing more than a money grab. One of the benefits of regulating anything is to charge fees for that regulation. Like many regulatory bodies around the world the ZAK is largely funded by fees charged to the companies that it regulates (which is also largely true for the FCC as well). This means that regulators have a perverse incentive to regulate things, even if they don’t need to be regulated.

The idea of regulating a worldwide web ‘channel’ like a TV station is absurd. For those of you that may not know about Twitch.tv, it’s the primary gaming network for worldwide gamers. It’s owned by Amazon. It’s a huge platform and works like YouTube where over 17,000 ‘partners’ post gaming content into ‘channels.’ The platform averages 625,000 simultaneous viewers at any given time, making it one of the most popular web platforms in the world.

So regulating Twitch.tv would be the same as regulating YouTube. It’s a platform where virtually all of its content is created by others. Other than extracting fees from the platform for the privilege of regulating it, it’s hard to understand what else the ZAK could regulate. Twitch.tv and YouTube are open platforms and only function because they allow anybody to post content. Both platforms will take down offensive content or content that violates copyrights if they are asked to do so. But the platforms, by definition of the way they operate, have no control of the content that is posted. I’m at a total loss what the ZAK thinks they can regulate.

You have to also wonder how effective any regulation would be. There are a huge number of smaller web platforms that might fall into the same category as Twitch.TV. It’s hard to imagine anybody being able to launch a new platform if they are expected to comply with different rules in a hundred countries. But it’s also hard to envision the ZAK doing anything other than somehow trying to ban the content from the whole country of a platform that refuses to comply with their regulations. I don’t think the ZAK understands the political ramifications of banning a platform used by all the young tech-savvy programmers (and hackers) in their country!

But thinking about this makes me ask why we are still regulating cable companies in the US. There are slews of FCC rules that dictate things like channel line-ups. It’s FCC rules that force cable companies to still offer basic, expanded basic, and premium tiers of service. It’s now pretty clear that few consumers are happy with this structure. The average household only watches about a dozen channels monthly regardless of the size of the tiers they purchase. It is the requirement for these tiers that has allowed the programmers to force programs onto cable companies that they don’t really want.

It is the cable tiers that have forced up the price of cable. Households spend huge monthly bills to watch a dozen channels – all because the regulations force channel line-ups that contain a hundred or more channels that the household isn’t interested in.

And cable companies are now competing against companies that don’t have these same restraints. Companies like SlingTV can put together any channel line-up they want with no regulatory constraints telling them what they can or can’t offer. Surveys have always shown that people would rather buy just those channels that they want to watch. And yet cable companies in the US are not allowed to compete head-on with OTT providers.

It would be easy to blame the FCC for not keeping up with the times. However, the most draconian cable rules come directly from Congress and the FCC’s hands are tied from deviating from rules that are embedded in law. We are now at a time when we really need to consider these old rules. The cable companies are being forced to sell programming that customers don’t want to pay for. The whole industry would benefit if cable companies were free to pursue packages that people actually want to buy. Freeing up all video providers to offer what customers want is a far better solution than trying to drag web companies into becoming regulated cable companies.

A Real Chance for OTT?

FCC_New_LogoOn Friday the FCC released an NPRM in Docket FCC 14-210 that asks a host of questions about allowing Internet content providers to be treated as cable companies. The NPRM contains a very thorough discussion of all of the rights and obligations of being a cable company, and anybody who doesn’t understand the regulation of cable companies can get a quick education just by reading the NPRM.

It’s obvious that by raising the issue that the FCC is in favor of promoting more competition for cable TV. This is something that the public obviously wants. But the FCC has to walk a fine balance with this issue. If they make it too easy for online content providers then they might accelerate the collapse of the traditional cable TV business. I know many would applaud that, but there are a lot of homes that can’t get cable over the Internet and who are not situated to get it from a satellite. On the other hand, if they make it too hard to qualify to deliver content online then not many companies will try and they will have accomplished little.

One might think that it’s an easy question to answer until you read the NPRM. There are some very tricky issues for the FCC to wrangle with:

  • For example, should somebody who only wants to deliver a package of a few channels be able to buy them? (Cable companies can’t do that).
  • Should they require an Internet provider to carry the major network channels like cable companies must do, and if so, would they be required to carry the channels in every market and have to swing deals with hundreds or even thousands of stations?
  • Can an Internet provider that only wants to deliver content on a delayed basis, like Netflix, be able to buy any programming they want?
  • Can a content provider like Disney offer a package of programming online that only includes content they own?
  • Do online providers have to provide services like closed captioning (for the deaf) and video description (for the blind)?
  • Would ad-based online companies have to comply with the rules about the loudness of commercials?
  • Does an online provider have to notify customers of things like weather alerts or other emergency announcements?
  • Can the FCC require content providers to negotiate with possibly thousands of new online market entrants? Even today many content providers send smaller providers to somebody like the National Cable Television Cooperative to get content. Would this mean that NCTC would have to accept online providers into the Coop?
  • Would online providers have the same restrictions against making exclusive deals with MDU owners?
  • What do they do about the more arcane rules such as cable cards, inside wiring and signal leakage?
  • Can a company with no business presence in the US become a US cable company since they have access to customers through the Internet?

I think it’s pretty obvious that the FCC is going to do something to allow online competition. But they are starting with a regulatory framework that was written specifically with coaxial networks in mind and that has many rules that don’t make sense for an Internet provider.

I think there are a lot of people who would become cord cutters if they could buy smaller packages of the programming they want online. I know I would personally be very happy with a package of Netflix, Amazon Prime, ESPN and the Big 10 Network. But I think a lot of people are going to be disappointed when the find out that online cable competition is not going to be the same thing as a la carte programming where subscribers can choose only the channels they want to buy. It might be that on-line packages cost as much as the ones from the cable companies.

Once a company qualifies as an online cable company they are going to be saddled with many of the same rules that apply to cable companies. And they are going to be in an industry where the balance of the power has swung very much to the content providers. For example, it’s common today that if a cable company wants to buy one channel from one of the big eight content providers that they have to take virtually every channel that the provider owns.

There is also an issue that is faced by many customers that is not addressed in the NPRM. It’s a very common trend these days for cable companies to require at least some bundling in order to buy Internet access. For example, in my town I can only buy Comcast’s slowest Internet speed without having to subscribe to at least some cable channels. But it’s doubtful that without considering Internet as a Title II service that the FCC can order cable companies to sell all speeds of broadband as a standalone product. This is one of the issue that is stopping potential cord cutters. So here is yet another issue that is tangled up in in the Title II regulatory debate along with net neutrality.