Streaming video services by Apple, Amazon and Google have thrived off the idea that they are alternatives to cable TV. Now, the Federal Communications Commission is considering if it should begin to regulate online video services, like they do cable companies. And that's causing anxiety in Silicon Valley.
As early as October, the FCC is expected to vote on a proposal that would put some streaming video firms into the same regulatory bucket as multichannel video programming distributors, or cable and satellite TV firms, such as Comcast, Dish Network and Cox. The idea, according to FCC Chairman Tom Wheeler, is to help online video providers become stronger competitors to cable and satellite firms by making it easier to obtain valuable TV programming for the Web.
Under the plan, streaming companies would be able to use the FCC's program access rules to ensure TV networks offer the licensing of their programs. That would allow Apple, for instance, to bring ABC, NBC and Comedy Central to the bargaining table for their programs.
Small streaming companies, such as SkyAngel, Pluto TV and FilmOn, are championing the idea. But big tech firms don't like it.
The guarantee of getting valuable programs from TV networks might seem like huge benefit for online providers. But for the biggest streaming services, the FCC's proposal would create first-time regulations for their sector. And the fear is that more regulations would come.
Last week, lobbyists for Apple, Microsoft, and Amazon met with several senior FCC officials to express their concerns with the plan. They acknowledged that the proposal for consideration in the fall doesn't apply to the current businesses of Apple TV, XBox, and Amazon Instant Video. (Amazon CEO Jeffrey P. Bezos owns The Washington Post.) But their business plans for the future may dramatically change.
“This is a classic example of a solution in search of a problem. Our concern is that the entire space is in the nascent stage, and we're still tinkering with existing business models to respond to consumer demands," said Gregory Barnes, general counsel of the Digital Media Association, a lobbying group that represents the tech firms. "We don’t know where the sweet spot is yet, and our fear is that if you regulate a subset of the industry, it will eliminate our ability to experiment in the future.”
The FCC's plan would only apply to a vaguely defined subset of streaming companies known as Internet "linear" programming providers, or the online version cable TV companies that have several channels offering pre-scheduled shows like local news, live sports and "Modern Family" on Wednesdays at 9 p.m.
So as of now, that means the FCC's proposal wouldn't apply to on-demand streaming services, such as Netflix, YouTube, or Hulu, which don't provide any pre-scheduled programs. But, that's just for now.
The online streaming market is changing fast, and some of the most valuable content is live TV shows. Dish's SlingTV provides live programming, such as ESPN games. Walt Disney CEO Robert Iger recently said he believes ESPN will be delivered directly to consumers online in coming years. There's much anticipation that Apple will launch a streaming TV service that would include live programming from local TV broadcast stations.
In their minds, the worst case scenario is that companies like Amazon and Apple will be subject to rate regulations and public interest obligations, such as carrying local public access programs.
A Republican FCC commissioner has warned as much.
"Today, the FCC’s leadership says that it only wants to regulate certain online providers as MVPDs, those that provide multiple channels of linear programming," FCC Commissioner Ajit Pai said in a speech earlier this month at the Churchill Club in Palo Alto. "But once that camel’s nose is
under the tent, I am confident that the body will follow and that the FCC will seek to regulate other business models as well."
Most TV networks don't like the plan either. They want to be able to reject deals with streaming providers at their whim. And they want to be able to negotiate privately for distribution contracts without the watchful eye of the FCC.
Last week, AMC president of distribution Bob Broussard and other executives met with top aides to the FCC chairman and said the new rules would hurt their bottom line and brand.
The AMC execs expressed that their programs are purposely "not always available or available at a reasonable price," according to an exparte document filed with the FCC this week. "Programmers also need to be able to protect the value of their brand by ensuring that they distribute only through bona fide distributors that offer subscribers a robust high-quality offering containing a number of programming services."
Execs from Discovery and broadcast networks, such as ABC, CBS, NBC and Fox, have also met with FCC officials in recent weeks to protest the plan.
For programmers, streaming has become a new and lucrative line of revenue. What they don't want is for any of those lines of revenues to go away or merge.
That's what they are seeing with a dispute that is being played out with ESPN and Verizon. When Verizon introduced a pared down package of channels to its FiOS service, known as a "slim bundle," ESPN balked, saying the telecom firm never explicitly asked permission to distribute their programs in those new packages. ESPN filed a lawsuit against Verizon, citing a breach of contract. Verizon, incidentally, is in favor of the FCC's proposal.
Consumer advocacy groups, however, support the regulation, which could lead to more competition even against the bigger streaming firms.
"It helps to consider that entities who are already successful under today’s system might not see much benefit in rules that could facilitate more competition," said John Bergmayer, a senior staff attorney at Public Knowledge.