Media Bureau Sides Against Over The Top Video In Round 1 Of Sky Angel Case.

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.

First, I applaud the Media Bureau for actually ruling on the “standstill” petition (Sky Angel’s request that the FCC force Discovery to keep providing programming until the complaint gets resolved) in a timely manner. Having criticized the MB again and again for its incredible tardiness in deciding critical decisions (such as allowing VDC to go bankrupt rather than decide a program access complaint very similar to Sky Angel’s), I’m pleased to see them step up here. Also, while I think the decision is wrong, the Bureau acknowledges it is only just beginning to look at this question. (And they say I never show them any love . . . .)

For those who missed my earlier entry, the case involves a program access complaint filed by Sky Angel against the Discovery Channel.  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).  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 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 streams 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.  Here’s the critical language:

Sky Angel makes no attempt to describe whether and how it offers multiple “channels” of video programming. While Sky Angel appears to interpret the term “channel” in a non-technical sense to mean a stream of video programming, it fails to address the definitions of that term in the Act and the Commission’s rules, which appear to include a transmission path as a necessary element of a “channel.” Moreover, the entities in the illustrative list in the Act’s definition of an MVPD all provide transmission paths for the delivery of video programming. The evidence put forth at this stage of the proceeding indicates that Sky Angel does not provide its subscribers with a transmission path; rather, it is the subscriber’s Internet service provider that provides the transmission path. Because Sky Angel has not  shown that it is likely to be able to demonstrate that it is an MVPD entitled to seek relief under the program access statute and rules, we cannot conclude that Sky Angel has met its burden of demonstrating a likelihood of success on the merits of its complaint.

I’m not that impressed with the Media Bureau’s reasoning here, which boils down to “although the statute and the regs don’t explicitly say that we only want facilities based competition, we’re sure that’s what Congress meant.” Now, in fairness to the Bureau, I don’t think Congress foresaw the evolution of broadband networks that would make this sort of “non-facilities based” competition possible when it created Section 628 as part of the 1992 Cable Act.  OTOH, if you read the legislative history and the entire 1992 Cable Act (which, God help me, I have been required to do on more than one occasion), I think the better reading is to use what the Bureau dismisses as the “non-technical” meaning of channel as a stream of video programming that looks like a standard television programming channel. What Congress wanted out of the 1992 Act was to see competition emerge at every level of the MVPD and video programming market, and it really didn’t care how that happened. Unfortunately, the MB  — and the Commission generally and the D.C. Circuit, so I can’t be too hard on the MB here — have a long history of chopping the 1992 Cable Act up into little discrete pieces that minimize their effectiveness and ignoring how the various parts were supposed to work together as a whole.

OTOH, I can’t pretend that the language of Section 628 unambiguously requires the FCC to apply Section 628 to those offering over-the-top video. Which is what makes this proceeding so potentially significant. Last week’s opinion has practically no precedential value going forward. The Bureau itself stressed the “preliminary nature” of its findings and the lack of a substantial record on the key questions which could influence the outcome. But at each stage in the process, the analysis becomes more fixed. It’s worth noting that the “terrestrial loophole” was created when the old Cable Bureau (before it was merged with broadcast to become the Media Bureau) rejected a program access complaint against Comcast for sports programming that Comcast distributed terrestrially, so it’s important to watch this stuff even at the early stages.

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.

Stay tuned . . . . .

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