OTT Disruption: Is the “Rockefeller Bill” the Answer?

I’ve spent a fair amount of time at Project DisCo discussing how political, legal and regulatory processes in the United States are largely biased against disruptive innovators in favor of legacy incumbents. That’s typically just as true for Uber and its ride-hailing competitors as it is for Aereo, Hulu, Netflix and other streaming video — or over the top (“OTT”) — Internet television services. But perhaps no longer.

The Consumer Choice in Online Video Act (S.1680), introduced by Sen. Jay Rockefeller, chairman of the Senate Commerce Committee, aims to change things. The legislation’s stated objectives are to “give online video companies baseline protections so they can more effectively compete in order to bring lower prices and more choice to consumers eager for new video options” and to “prevent the anticompetitive practices that hamper the growth of online video distributors.” It does so by (a) requiring television content owners to negotiate Internet carriage arrangements with OTT providers in good faith, (b) guaranteeing such firms reasonable access to video programming by limiting the use of contractual provisions that harm the growth of online video competition, and (c) empowering the FCC to craft regulations governing the program access interface between online providers and traditional television networks and studios.

S.1680 is a remarkable legislative effort to predict where the nascent online programming market is headed. It anticipates that in order to fulfill their competitive potential, OTT video entrants will require similar legal protections to what satellite television providers have for years enjoyed. The bill applies the program access model developed several decades ago for satellite television to the new world of OTT video.

As Rockefeller explained:

[He] has watched as the Internet has revolutionized many aspects of American life, from the economy, to health care, to education. It has proven to be a disruptive and transformative technology, and it has forever changed the way Americans live their lives. Consumers now use the Internet, for example, to purchase airline tickets, to reserve rental cars and hotel rooms, to do their holiday shopping. The Internet gives consumers the ability to identify prices and choices and offers an endless supply of competitive offerings that strive to meet individual consumer’s needs.

But that type of choice — with full transparency and real competition — has not been fully realized in today’s video marketplace. Rockefeller’s bill addresses this problem by promoting that transparency and choice. It addresses the core policy question of how to nurture new technologies and services, and make sure incumbents cannot simply perpetuate the status quo of ever-increasing bills and limited choice through exercise of their market power.

Modeled explicitly on the controversial 1992 Cable Act (which itself passed only over a presidential veto), S.1680 appears to be the first piece of legislation embracing disruption as a procompetiitive form of market evolution, including as its initial congressional “finding” that OTT services have the potential to “disrupt the traditional multichannel video distribution marketplace.” That’s excellent. At the same time, the bill’s choice of solution is contentious, by subjecting vertically integrated cable and television providers (e.g., Comcast-NBCu) to another regime of program access and retransmission mandates. The legal standard fashioned for testing the validity of a television distribution contract in S.1680 is whether it “substantially deters the development of an online video distribution alternative.” Given the highly visible retransmission disputes that have arisen in recent months, such as the Tennis Channel and CBS, plus the lack of evidence that vertical integration in fact provides an incentive for exclusive dealing and content foreclosure, free market advocates are likely to object to this. Proponents of net neutrality rules, especially where data caps are concerned, have already spoken out in support.

Both views have some merit. The extent of vertical integration between television content and transmission decreased markedly in the past two decades. Many observers also believe it is the current lack of ratings measurement for streaming services which, to a large degree, has been a gating factor in networks offering their television content online. On the other hand, lots of new “TV anywhere” providers remain stuck in limbo because content owners are not yet willing to license streaming by third-parties before they can figure out a revenue model themselves. (Take DirecTV, for example, whose ability to allow views to watch anywhere is presently limited to devices operating on the same WiFi network as the consumer’s satellite receiver, in other words at home.) According to the Wall Street Journal, the Justice Department’s antitrust division has been investigating whether whether cable companies are acting improperly to quash nascent competition from online video since June last year.

That competition concern harkens all the way back to United States v. AT&T itself, namely that a firm which holds market power and that conducts operations in both content and distribution has the “incentive and ability” to discriminate against non-integrated rivals. We’ve seen such non-discrimination conditions applied to numerous markets and transactions involving media since then, from MCI-British Telecom in 1994 to AOL-Time Warner in 2000 and Comcast-NBCu itself in 2011. The theme has been enthusiastically embraced by Professors Tim Wu and Susan Crawford, both of whom advocate prophylactic regulation based on bottleneck concerns in broadband access. They are especially skeptical that ex post antitrust enforcement can ever be effective in preventing foreclosure of competitors.

Others do not share that skepticism, but a review of his OTT bill suggests that Sen. Rockefeller certainly does. Unfortunately, what this means in the politically charged atmosphere of Washington, DC is that S.1680 has already been denounced by industry sources as dead-on-arrival, terming the legislation in a Communications Daily report “a highly regulatory and probably unworkable bill” that represents a “thought piece” going nowhere. NCTA, the national cable lobbying group, responded by arguing that in an emerging online marketplace characterized by what it calls “dynamism and robust competition,” prudent policy “dictates the removal of regulatory obstacles for all instead of creating marketplace disparities that would ‘cherry pick’ rights and obligations for some.”

Them’s fighting words, plain and simple. Sen. Rockefeller, who is retiring at the end of his current term, may not see S.1680 enacted into law. But whether one likes his answers or not, Rockefeller’s new bill asks the right questions.

Note:  Originally prepared for and reposted with permission of the Disruptive Competition Project.