Another Reversal of the FilmOn X Decision

In the continuing saga of looking for alternate ways to get programming to the home, the U.S. Court of Appeals for the Ninth Circuit reversed an earlier ruling that said that FilmOn X had a right to retransmit over-the-air television signals.

FilmOn is a global provider of internet-based programming. They carry over 600 channels of broadcast TV from around the world. They also carry a big library of movies and offer a few of their own theme-based channels (such as Shockmasters that specialize in Alfred Hitchcock movies and television shows).

I won’t go through the history of the company and its attempts to carry the major US networks like ABC, NBC, CBS and Fox. The company was granted the right to carry this content several times in various courts and then had those decisions reversed by other courts. This case marks the third time that the company has been told it doesn’t have the right to retransmit these networks.

The company has tried several ways of delivering these networks to customers. They originally just grabbed the signals out of the air and put them on the internet. When told this wasn’t allowed by the courts they then set up satellite farms to wirelessly send individual signals to customers in a manner similar to Aereo.

This latest ruling said specifically that FilmOn is not eligible to call itself a cable company and to demand that local stations sell them content. That ruling hinged upon testimony provided by the US Patent office that said that such authority for internet-based retransmission was not clear. This differed from an earlier US Supreme Court ruling in the Aereo case that said that internet retransmission was equivalent to cable retransmission.

What’s really at the heart of this case is the definition of who is eligible to retransmit signals from the major over-the-air networks. Congress, through various laws, has given the right (and usually also the obligation) for landline-based cable companies to carry the major networks. Cable companies are obligated to carry those stations that are within certain distances from their customer base.

But over the years those that have been allowed to carry local programming has grown. Within the last decade the satellite cable companies began carrying local stations in many markets. I lived in the Caribbean for many years and some of the cable providers in Puerto Rico and the Virgin Islands somehow obtained the rights to carry some New York City local stations. Today there are a number of OTT providers like Sling TV and Playstation Vue that are carrying local network stations.

But the current rules draw a firm distinction between those that must carry local programming and everybody else. And this gives the flexibility to local stations to decide if they will sell their signal to those without the automatic rights. The big networks have decided to provide programming to Sling TV, but not to FilmOn or Aereo.

Originally both FilmOn and Aereo captured the broadcast signals from the air and put them onto their own networks. That obviously angered the big networks and they got that ruling reversed. But then these providers refused to sell their signal to these two companies. One has to think that was partly done to punish these companies for challenging them, and perhaps partly due to the cable companies who lobbied against competition.

This ruling could really stifle new OTT providers. It seems one part of the OTT appeal is the ability to deliver local network programming as part of their packages. This ruling gives local stations the ability to choose who can or cannot buy their signal, and to thus pick winners and losers in the competitive OTT battlefield.

It’s hard to think that this makes any sense. But Congress or the FCC could clarify this issue if they cared to tackle it. Just over two years ago the FCC put out a Notice for Proposed Rulemaking asking about this exact topic. The FCC wanted to clarify the rights for internet-based programmers to buy content, and in that docket the FCC had suggested that anybody ought to be allowed to buy programming if they agree to pay the market rates for it. But the FCC has never acted in that docket which has led to today’s situation where some providers are given programming and others not. The have-nots aren’t just companies like FilmOn and Aereo, and it’s been reported for years that Apple has been unable to get programming rights.

At some point this needs to be clarified. The last companies we want deciding who can or cannot offer programming services are the major networks, especially since some of them are owned by cable companies. I have no idea if the FCC will address this, but they need to.

Should the FCC Regulate OTT Video?

FCC_New_LogoA funny thing happened on the way to make it easier for OTT video providers to get content. Some of the biggest potential providers of online content like Amazon, Apple, and Microsoft have told the FCC that they don’t think that online video companies ought to be regulated as cable companies.

Of course, these couple of large companies don’t represent everybody who is interested in providing online video, and so they are just another faction to deal with for the issue. For example, FilmOn X recently got a court order allowing them to buy video as a regulated video provider and in the past Aereo had asked for the same thing.

A lot of the issue boils down to companies that want to put local networks online or else deliver them in some non-traditional way as was being done by FilmOnX or Aereo. These kind of providers are seeking to get the ability to force the local network stations to negotiate local retransmission agreements with them. Under current law the stations are not required to do so and are, in fact, refusing to do so.

The FCC is in a tough spot here because they don’t have a full quiver of tools at their disposal. The FCC’s hands are very much tied by the various sets of cable laws that have been passed by Congress over the years – the rules that define who is and is not a cable company, and more importantly, the rules and obligations of being a cable company. It will be interesting to see how much the FCC thinks it can stretch those rules to fit the situation of online programming, which was never anticipated in the rules.

I can certainly understand why the large companies mentioned above don’t want to be cable companies, because there are pages and pages of rules about what that means; the FCC is unlikely to be able to grant a company just a few of those rules without also requiring ones that these companies don’t want.

For example, the current cable law defines required tiers of service. Cable companies must have at least a basic and an expanded basic tier, and those are very narrowly defined. A basic tier includes all of the ‘must-carry’ local networks and the expanded basic carries all of the things we think of as cable channels.

I think what the FCC has in mind is a set of rules that require programmers to negotiate in good faith with online companies that want to buy their content. Certainly any company that wants to put content online today is completely at the mercy of programmers saying yes or no to giving them the content they want to carry. And there is nothing from stopping the programmers from changing their mind if they see an OTT company being more successful than they like.

So I would think that even Amazon, Apple, and Microsoft would like the ability to force the programmers to negotiate with them, but they obviously don’t want other FCC rules that they think will come along with that ability. Of course, these are very large companies with deep pockets and one has to imagine that they get a fairly decent hearing when they talk to programmers. The FCC’s real concern is not these giant companies, but companies smaller than them who don’t have any ability to force the programmers to even talk to them. I think the FCC believes that if online content is to be successful that there ought to be widespread competition and innovation online, not just content provided by a few giant tech companies along with other huge companies like Verizon.

Today the programmers have most of the power in the industry. They are making a huge amount of money from the mega-subscription models where all of their content is forced upon US cable companies. And they have no reason to become more reasonable because most of them are seeing gigantic growth in selling content overseas, so they have no real reason to upset the cart in the US market.

If online content is to become a vibrant alternative and not just be expensive packages foisted on the public by a small group of huge corporations, then something has to change. I just don’t know how much the FCC can do realistically considering how they are hamstrung by the current cable laws.

Court Jumps into OTT Fray

Fatty_watching_himself_on_TVIn a really surprising ruling, a federal judge has ruled that FilmOn X should be able to get access to local network programming like a cable TV company. US District Court judge George Wu ordered that FilmOn X be treated like a cable company and is entitled to retransmit broadcaster’s content.

For those not familiar with FilmOn X, check them out on the web. They have a huge amount of  on-line content that includes local TV from around the world as well as 600 other channels. There is a little bit of everything from non-traditional sports, music from around the world, and channels of almost any topic you can imagine. They also carry a mountain of for-pay video-on-demand content that ranges from music to major league baseball. All of the free content is ad-supported. Viewers can also create their own channels.

FilmOn X also had their own version of the Aereo model and they offered a premium subscription model in a few markets, which gave customers access to 120 HD channels on any computer or smartphone through the use of a dongle. Just like Aereo this was done from antenna farms.

The company has been in a battle with the major networks in the US since its inception. The company began carrying the local networks on the Internet in 2010. In 2011 they were ordered by a court to stop the practice. But in 2012, the local channels were all allowed back onto the system through a federal appeal and FilmOn X carried local content on its broadcast dongle product. But in 2013 the US District Court of the District of Columbia issued a nationwide injunction against the antenna service.

This latest ruling overturns that injunction and seemingly gives FilmOn X the same right to content as a cable company. Obviously this is going to be appealed further and one has to doubt that the networks are going to negotiate retransmission agreements with the company while the appeals are still being fought in court.

But the case raises serious questions. Although addressing a different set of issues than the Aereo case, it still sets up conflicting district court decisions. Aereo had taken the legal tactic of dancing around the issue of whether they were a cable company by concentrating on the issue of copyright infringement. FilmOn X took a more direct legal approach and argued that they had the rights to rebroadcast the content as a cable company. And apparently the court bought it.

Realistically nothing is going to happen in the area of on-line content until the FCC decides where it wants to go with this. Recall that in January of this year the FCC opened up a Notice for Proposed Rulemaking to look at the issue of on-line content. FilmOn X was mentioned several times in that document and the FCC is asking if on-line companies can have the same rights as cable companies to get content.

The FCC can put all of these lawsuits to rest by defining the rights, or lack of rights, of on-line providers. It’s fairly clear in reading the NPRM that the FCC has a bias towards allowing content on-line and is probably seeking a legal way to do that since they are required to follow the various cable laws that have been passed by Congress.

It’s hard to think that on-line content providers are ever going to be able to comply with all of the rules included in the current cable regulations. Those rules very rigidly define tiers of programming. They also define the retransmission process whereby cable companies can rebroadcast local content. But there are a ton of other requirements that range from closed captioning to emergency alert systems that also apply to cable companies. It’s going to be a challenge to give just a few of these rights to on-line providers while making cable providers continue to comply with all of the rules.

For now this ruling is just one more confusing court ruling that has defined the on-line broadcast industry so far. There have been several conflicting rulings as part of earlier cases with Aereo and FilmOn X that muddy the legal waters for the business model. But this is something that the general public very much wants and traditional cable will be in a lot of trouble if local content ends up on the Internet. It is that content along with sports that are the primary drivers behind maintaining the cable companies’ grips on customers.