Impact of the Aereo Supreme Court Decision on Broadcasters, Cloud Content Storage

 
              Broadcast stocks rose as much as double digits on the day the Supreme Court released its Aereo decision.  The decision underscores the value in broadcasters’ copyrighted content, but also the importance—and staying power—of income streams accruing to broadcasters.  Any venture seeking commercially to exploit broadcaster content will not readily find a way to avoid having to secure retransmission/copyright consent.

              Because new ventures cannot easily cut out local broadcasters, perhaps network content creators might consider ways to deal directly with new distributors.  Regardless of the technology delivering content to end users, a payment likely will flow upstream.  Accordingly it appears even more unlikely that local broadcasters will participate in an incentive auction to part with all or a portion of their 6MHz channels.  Why abandon recurring and growing compensation for a one time infusion of cash?  Bad news for the FCC and others keen on extracting large swaths of additional spectrum for wireless broadband service.

              The Aereo decision also suggests that one cannot underestimate the power of broadcasters to establish themselves, even now, as benefactors of the public interest, localism, “free” content and candidates for elective office.  In the 1970s Congress amended the Copyright Act to mandate community antenna television (“CATV”) operator payments to broadcasters in exchange for a compulsory copyright license for retransmission, now deemed a public performance.  At that time, candidates for elective office heavily relied on television and radio to get their message out.  The National Association of Broadcasters ("NAB") was considered one of the most effective lobbying organizations on Capitol Hill.  NAB framed the cable issue as one of "siphoning," market fragmentation, a threat to localism and outright thievery. 

        While CATV actually helped expand market penetration into fringe, hinterland locations, it also "imported" signals and jeopardized local broadcasters' shared monopoly.  As Justice Scalia noted in dissent, incumbents have a history of forecasting disaster, e.g., the demise of “free television.”

        In short order (at least for Congress) local broadcasters got relief, including the right to force cable operators to block channels containing duplicative networks and syndicated content, such as Jeopardy and Wheel of Fortune.  Perhaps amending the Copyright Act was the most expedient legislative option to devise a mechanism whereby broadcasters received compensation and consumers, including first time, rural residents, continued to have the opportunity to view content.

        Reliance on 1976 Copyright Act amendments may have an adverse impact on new technologies and entrepreneurial business plans.  Any venture offering cloud-based storage of content now has to consider whether it may incur secondary liability for the direct infringement of their customers.  My free advice: make sure copyrighted content travels a round trip from the content source/distributor to the consumer and then back upstream to the cloud for storage.  In this bandwidth doubling routing, the cloud locker operator has a better legal argument for associating with consumers’ copyright fair use, or non-infringing use.

Aereo Lessons

            The Aereo technology and litigation offer several insights on how we will access video entertainment going forward and who has superior bargaining leverage.  Once upon a time—back in the age of “appointment television,” broadcasters controlled access to “must see” television.  We dutifully selected the network television channel at the appointed time and watched knowing any repeat access option was also subject to great specificity several weeks later.

            The onset of the analog video cassette recorder “empowered” viewers by facilitating time shifting and multiple viewing options.  With digitization consumers have greater options for shifting content between and among different recording and playback devices.  So one trend favors consumers with greater flexibility and the prospect of access to content anytime, anywhere, via any device and in any format.  Technology agnostic consumers have little interest in the medium of delivery, but surely expect on demand access to any and all screen: television sets, pc, smartphones and tablets.

            So far so good, but no one should be surprised when content creators and distributors responded in ways that lock down access and attempt to reestablish control.  While they failed to secure FCC regulations mandating television set processing of broadcast flags limiting content access flexibility, (American Library Assn. v. FCC  347 F.3d 291, 293 (D.C. Cir. 2003)) content creators and distributors achieved success in restricting copying and device shifting when the an HDMI cord handles the carriage, e.g., from a Blueray DVD player to a television set or PC.  Score one for the incumbents who now can use Digital Right Management technologies to prevent what might otherwise qualify as fair use, the right of consumers to make copies and switch access between devices for private, non-commercial use.

            Broadcasters in particular score additional points when they successfully accrued billions in retransmission consent fees for content they have to offer “free to air” for the 9 percent of the viewers still using the broadcast spectrum option. Copyright fees appear to matter more to broadcasters than advertising revenues which arguably Aereo technologies would increase in light of possibly higher ratings.

            So along comes a “disruptive” Aereo technology that mimics old school broadcast television reception.  The crux of the copyright litigation lies in whether the reception design of Aereo sufficiently mimics the private reception of public media via each dime sized antennas routing content via the Internet.  If the Supreme Court views this reception as a private performance, then Aereo would not incur copyright liability.  There is case law that suggests broadcasters have little control over content they “freely broadcast.” Bear I mind that this stakeholder group has benefitted for so many years with such benefits as free spectrum in light of their service in the public interest.  Converting free content into content available only subject to a retransmission consent fee dilutes any claim credible claim for such preferred status.

            If Aereo loses, perhaps broadcasters should lose the benefits of a status deeming them “trustees” of scarce and valuable spectrum, including the billions that otherwise might accrue by relinquishing control of some spectrum in an incentive auction.

 

 

The Network Neutrality Debate in “Extra Innings”

     Since release of the D.C. Circuit Court decision on the FCC’s Open Internet Order, I have read and reread the decision along with many interpretations.  I have seen some opponents to network neutrality try to convince themselves and others that the two courts decisions have little impact or finality, so the campaign (and the need for financial support) must continue. 

     On the other hand, some advocates for network neutrality appear intent on finding a glimmer of hope that the decisions do not prevent the FCC from yet again trying to carve out a regulatory regime for Internet access.  Even as the court devoted much space in explaining what the FCC cannot do, many advocates on both sides invoke the validation of FCC statutory authority (under Section 706 of the Telecommunications Act, 47 U.S.C. §1302) as evidence that the FCC can still do harm, or remedy likely problems.

     Both sides appear to overstate what the court considers lawful going forward.  Bear in mind that Section 706 only authorizes the FCC to promote access to, and investment in the Internet.  The legislative history appears to emphasize deregulatory initiatives, rather than new regulatory ones to achieve the specified twin goals.  Both court decisions devote many pages on what the FCC has done unlawfully with fairly clear admonitions on what the Commission cannot do going forward.  Put simply, the FCC has a limited wingspan for invoking Sec. 706 to create regulations directly impacting how Internet Service Providers (“ISP”) deal with upstream sources of content and downstream subscribers.

     The Commission can impose transparency requirements such as the duty to disclose when network management factors warrant throttling (slowing down) certain traffic streams, or when an ISP offers premium, “better than best efforts” quality of service and traffic routing options.  Likewise the Commission should retain authority to respond to complaints from subscribers, upstream ISPs and content sources.

     However, the language in Sec. 706 and the clear prohibition on imposing common carriage responsibilities significantly constrain the FCC.  Perhaps more importantly and ignored from the analyses I’ve read is the insight provided by cable television case precedent and the court’s reading of these cases.  These cases did not endorse the FCC’s imposition of anything coming close to common carriage responsibilities on cable operators. 

     The high water market of a duty to deal occurred when the FCC created a dichotomy of carriage options pertaining only to significantly viewed broadcast television stations.  When unable to extract payment from cable operators for their “retransmission consent” broadcasters can demand carriage, a process known as “must carry.”  Note that the FCC limited this carriage obligation to a select beneficiary, broadcast television stations, not to any and all sources of content.

     The D.C. Circuit court in Verizon v. FCC, http://www.cadc.uscourts.gov/internet/opinions.nsf/3AF8B4D938CDEEA685257C6000532062/$file/11-1355-1474943.pdf, emphasized that the FCC could apply its expertise to determine that the public would benefit from a limited cable television carriage regime.  The FCC rules provided for a marketplace-driven, commercial negotiation process by the stakeholders, with the prospect of mandatory carriage coupled with denial of monetary compensation flowing to the source of content electing compulsory carriage. Note that currently most broadcaster-cable operator negotiations opt for retransmission consent and not must carry.  Additionally the FCC limited the carriage requirement to a percentage of overall channel capacity.  Also the Commission never put itself in the position of ordering cable operators to carry a specific station, or content.

     The court in Verizon v. FCC devoted several pages to explaining that when the FCC decided to mandate the reservation of channels by cable operators for access by a larger group of qualifying candidates, (public, educational, local governmental, and leased-access users), the Commission exceeded its statutory authority by imposing the functional equivalent of common carriage.  See FCC v. Midwest Video Corp. - 440 U.S. 689 (1979)(Midwest Video II).

     It appears to me that the D.C. Circuit has provided the FCC and others rather clear guidance on the way forward.  The Commission cannot impose common carriage requirements and not even quasi-common carrier duties to deal that extend to a large subset of the public.  The court used a little snarkiness to admonish the FCC not to push the envelope as it had done with previous interpretations of its ancillary jurisdiction.  Noting that even regulatory agencies take pride in authorship, the court recited the history of network neutrality litigation where the Commission’s work product failed to pass muster, but it soldiered on only to receive the same rejection.

     Perhaps history will not repeat itself.  However the FCC has a long history of false pride, or at least the inability to take no for an answer. Some of the judges in the D.C. Circuit court appear to know this and to infer from this the need to provide clear instructions. 

    Is anyone listening?