Last Wednesday, those trying to use broadband to compete with cable video offerings (aka “over-the-top” video providers) lost the first round in a small but important case: Sky Angel v. Discovery Channel. Happily, it’s only the first round. But the preliminary ruling by the FCC’s Media Bureau (“MB”) highlights why either Congress or the full Commission needs to focus on the question of whether the rules that protect cable competition (or, as we in the field say, “multichannel video programming distributors” or “MVPDs” — which includes everything from traditional cable to FIOS to satellite) will also protect competition for online providers.
The case involves a program access complaint filed by Sky Angel aganst the Discovery Channel. You can find more details here. Briefly, Sky Angel, a self-described “Christian IPTV distributor” offers subscribers a set of channels designed to appeal to religious Christians (who want good religious and secular programming without allowing programming they consider against their religious values into the home). Sky Angel provides subscriptions through its website, and subscribers access programming channels via an Internet connection. Sky Angel’s package includes, among other things, the Discovery Channel.
In January, Discovery Channel informed Sky Angel it would terminate its affiliation agreement (the permission to distribute Discovery) on April 22 because Discovery found Sky Angel’s distribution methods (presumably, accessible from anywhere via broadband) “not satisfactory.” Sky Angel filed a complaint under the FCC’s “program access” rules, which require that programming networks affiliated with a rival MVPD (Discovery is affiliated with DIRECTV) to act in good faith and prohibits “unfair” or “anticompetitive” practices. Sky Angel also filed an emergency “stand still” petition to keep the programming in place while the FCC considers its complaint.
Put more simply, Sky Angel said Discovery yanked its programming because DIRECTV doesn’t want to compete with a company that distributes content over broadband aka “over-the-top.” Discovery, for its part, filed numerous objections to Sky Angels’s complaint, and raised as a legal defense that because Sky Angel distributes its content via broadband (even though it distributes it as a stream of 24/7 programming identical in substance to a traditional cable channel) it does not qualify as an “MVPD” and therefore gets no protection from the FCC’s program access rules.
For more than a year now, we at PK have argued that the battle between “over-the-top” online providers of video and existing distributors and programmers that like the current model has reached a flashpoint. We think that, absent action by the FCC or Congress, existing providers will likely do their best to stamp out online competitors and, using inititiatives like TV Everywhere, will try to manage the transition to online viewing of content in a way that minimizes competition and most preserves existing business models. We’ve urged the FCC to extend the same protections to over-the-top video providers that traditional video distributors, such as cable and satellite providers, currently enjoy. We’ve also asked the FCC to address this in the Comcast-NBC merger. So I’ve been watching the Sky Angel case for signs about the Media Bureau’s preliminary thinking on this.
Last week, the Media Bureau rejected Sky Angel’s “stand still” request (i.e., that it continue to have Discovery’s programming while the dispute remains pending). While I applaud the Media Bureau for acting on the request in a timely manner (the last time an online video provider filed a program access complaint, the Bureau “resolved” the complaint by taking no action and allowing the complainant to go bankrupt), I’m disappointed with the result. The MB decision finds that because Sky Angel distributes its content via broadband rather than through a traditional facility, it does not meet the definition of an “MVPD” and therefore is not eligible for protection under the program access rules.
The language of the decision is a bit confused, but the intent seems fairly clear. The MB Order looks to the statutory definition of MVPD as one who “makes available . . . multiple channels of video programming.” The MB then determined that “channels” means physical channels, rather than simply multiple strams of real-time video programming. On its surface, this would exclude not merely over-the-top providers, but any IPTV provider using a single digital stream to provide multiple “channels” of video programming. That would potentially be bad news for AT&T and its pending program access complant against Cablevision and Madison Square Garden HD, but further reading of the opinion shows that what the MB really means that it thinks broadband distribution is just too different from traditional cable or satellite subscription services to qualify as an MVPD.
Mind you, the MB also pointed out that this was a very preliminary first round decision, based on the evidence presented by Sky Angel. So while Sky Angel must do without Discovery programming until the Bureau resolves the complaint (either on the pleadings or by designating the matter for a hearing before an Administrative Law Judge), it will still have plenty of opportunity to argue for the right statutory interpretation and highlight the problems with the Media Bureau’s preliminary definition given the shift in technology among MVPDs to a single, digital “channel” that pretends to be multiple channels at the set-top box. It also highlights arguments for those interested in raising this issue in the Comcast-NBCU merger, whether as proof of the need of merger conditions or evidence that the Commission lacks the authority (at least under the program access rules) to impose conditions on online distribution.
No indication when the Bureau will act on the full complaint (I’m not sure if the pleading cycle is even complete), whether they will take supplementary briefing on this legal point, or whether Sky Angel will try to appeal the denial of a “stand still” order to the full Commission. All I can say for now is over-the-top video providers looking to the FCC to protect competition in the broadband space just lost Round 1. Anyone who cares about this in the Comcast-NBCU merger better come prepared to persuade the Bureau to change its mind.