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.

It’s All Up to the Courts

Seal of the United States Court of Appeals for...

Seal of the United States Court of Appeals for the Second Circuit. (Photo credit: Wikipedia)

As often happens with many controversial topics in our society, the fates of Aereo and its clone FilmOn X are now in the courts. These companies supply antenna receivers to customers and let them receive live, local, over-the-air television from the local network affiliates of ABC, CBS, FOX and NBC on internet connected devices including TVs, tablets and smartphones. These companies are claiming that since the signal goes directly on a single antenna to only one customer that they don’t have any obligation to pay retransmission fees to the network affiliates for the programming.

Of course the large networks disagree vehemently with that interpretation and have sued the two companies. In April, Aereo won a suit in New York, which was then upheld later in July in the Second Circuit Court. The judge who ruled in the Aereo suit concentrated on the way that Aereo transmits the signal rather than rule on the issue of copyright infringement that was brought by the networks.

The networks also sued FilmOn X using the same arguments that they had used against Aereo. FilmOn X is an odd company in some ways because in the past it went by the names of Aereokiller and BarryDriller.com, both names that are a dig at Barry Diller, the founder of Aereo. In fact, there are conspiracy theories flying around the Internet that FilmOn X was secretly founded by the networks for the purposes of being sued and losing on the Aereo issue.

A week ago the District Court of Washington DC ruled against FilmOn X saying that the company had violated the copyrights of the networks. A week later the same court refused to accept an appeal on the issue. The suit puts an injunction on FilmOn X from operating.

So now there are two district courts with differing opinions on the same topic. The two courts heard essentially the same arguments and came to different conclusions. Generally the only way to resolve this kind of dichotomy is for the Supreme Court to hear the case and to resolve the issue.

But until then both companies are in legal limbo. Aereo came out this week and publicly advised FilmOn X to ignore the injunction. Aereo also made an effort to distinguish that its technology is different than that of FilmOn X, but the differences are subtle. Aereo continues to expand to new markets and continues to face additional lawsuits in each new market it enters.

As somebody on the sideline I really don’t know how I hope this case resolves. Part of me says that this suit is a result of the greed of the networks which are now pushing to get as much as $2 per month per subscriber in retransmission fees for each local channel. Everybody in the industry understands that we are starting to price cable TV service out of the range of a lot of households, and yet the networks and every other programmer keep pushing for higher and higher fees. As a whole the industry is laying the foundation of its own decline, and if the fees weren’t this high, then Aereo wouldn’t have a business plan.

But the other side of me says that the networks are right, at least under the current cable rules at the FCC. Of course, those rules were made in a very different time a few decades ago when nobody contemplated the ability for somebody to bypass the cable companies as Aereo has done. Certainly the FCC ought to take another look at cable regulations and update them to account for the realities of TV over the Internet.

But from what I understand, nothing is likely to happen since Washington is in gridlock. The FCC is not free to change the rules too much without authority from Congress, and there does not seem to be any impetus for Congress to look at the cable rules. So, like often happens when policy makers don’t make policy, it’s all up to the courts.