Tech Knowledge Reply Comments in FCC ‘Set-Top Box’ Proceeding

Posted by | May 25, 2016 | Broadband Internet, Video | No Comments

On Monday, Tech Knowledge filed the following reply comments at the Federal Communications Commission in its proceeding to impose wholesale unbundling regulations on cable and satellite video programming in the guise of regulating set-top boxes. The complete comments as filed can be downloaded from the FCC’s website in PDF format HERE. (Note, the HTLM version of the reply comments printed below does not contain the footnotes or appendices provided in the PDF version that was filed at the FCC.)

Executive Summary

The arguments made by proponents of the Wholesale Proposal affirm that its true purpose is to limit MVPDs’ ability to exercise editorial discretion by forcibly overwriting MVPDs’ video interfaces. The Communications Act, previous FCC findings, judicial precedent, and scientific studies in behavioral economics all demonstrate that the interface between consumers and MVPDs’ video programing is itself a form of speech or is otherwise entitled to First Amendment protection because it is intrinsic to MVPDs’ exercise of editorial discretion.

Consider Amazon’s example in its comments in this proceeding — that the Wholesale Proposal would enable Amazon to suggest that an MVPD subscriber watch Amazon’s own programming rather than an MVPDs’ program. In the context of the printed news, that would be equivalent to a rule permitting the Washington Post (a newspaper owned by Amazon CEO Jeffrey P. Bezos) to slap a new front page on the Washington Examiner that contains the Post’s chosen headlines and a message directing Examiner subscribers to read the Post instead. Though the Examiner’s subscribers would still have access to the Examiner’s content as a technical matter (by turning the page), the rule would have the effect of compelling the Examiner to publish (or subsidize the publishing of) that which it does not want to publish (the Post’s headlines and advertising messages) while effectively overriding the Examiner’s editorial decisions about what should be considered the “front page news” of the day. Similarly, the Wholesale Proposal would force MVPDs to publish that which they do not want to publish (i.e., mandatory “information flows”) in order to enable third-parties to direct MVPD subscribers to watch third-party programming (and its associated advertising) that displaces MVPDs’ own decisions regarding what programming should be highlighted on the video interface’s “front page.” Whether applied to print or video, such a rule would cut straight through the heart of the First Amendment’s guarantee of press freedom.

Shifting control over the video choice architecture (and corresponding profits) from MVPDs (and the video programming vendors with whom they negotiate content licenses) to Internet software companies (and their affiliated video programming vendors) would threaten the free flow of information and ideas by concentrating control over the video interface in the hands of a few, giant Internet software companies.

FCC and other data show that Internet software companies would have the same incentives as MVPDs to influence consumer behavior in the video marketplace but would have far greater ability to do so than MVPDs, because the largest Internet software companies (1) have greater scale and ability to reach consumers than MVPDs, but (2) would not be subject to regulatory constraints on MVPD market structure or public interest obligations. (See Tables 1-4 below.)

The fact that the Wholesale Proposal would permit a single Internet software company to leverage its existing dominance in a complementary online market (e.g., general Internet search) to obtain monopoly control over the video interface — and thus the ability to influence what consumers watch — without regard to the regulatory constraints or public interest obligations applicable to MVPDs “raises serious doubts about whether the [FCC] is in fact pursuing the interest it invokes, rather than disfavoring a particular speaker or viewpoint.” In all other contexts involving television services, the FCC’s motto appears to be, “With great power comes great responsibility.” But not here. The Wholesale Proposal would grant Internet software companies a right to control consumers’ video interfaces without assuming any public interest obligations whatsoever.

The FCC cannot overcome these constitutional doubts merely by making an unsubstantiated claim that there is a substantive difference between competition among MVPDs generally and competition in the artificial market for navigation devices. The First Amendment requires the FCC to “explain[] why, in the pursuit of diversity, the independence of competing vertically integrated MVPDs is inferior to the independence of unaffiliated [navigation device companies].” Behavioral economics and the highly-concentrated state of the relevant markets for Internet software companies indicate there is no data-based explanation for attempting to make such a distinction. There is only the FCC’s naked preference for one set of speakers over another.

The Wholesale Proposal Is Content- and Speaker-Based

In its initial comments, Tech Knowledge discussed relevant First Amendment precedent in depth, but due to the exigencies of time, did not apply those precedents to the facts of this proceeding in an in-depth manner. These reply comments are intended to supplement Tech Knowledge’s initial comments by applying the facts of this proceeding — in part as explicated by the initial comments of others — to relevant First Amendment principles in more detail.

The Wholesale Proposal Would Abridge MVPDs’ Editorial Discretion

The arguments made by proponents of the Wholesale Proposal affirm that its purpose is to limit MVPDs’ ability to exercise editorial discretion. For example, while its says the Wholesale Proposal is merely about accessing MVPD programming, at least “as a technical matter,” Public Knowledge admits the Proposal would give non-MVPDs “a major competitive advantage” in providing video services (by allowing them to leverage simultaneously their massive customer bases and the popularity of MVPD programming in order to push their own, non-MVPD programming to consumers). Amazon is explicit about the parenthetical addition in the preceding sentence. Amazon notes the Wholesale Proposal would enable it to “offer to a consumer—prior to when that consumer makes a viewing selection—suggestions about [non-MVPD] programs,” which could “put consumers in a better position to discover” non-MVPD programming (including Amazon’s own original series). Google is similarly candid when it admits that “video is more abundant today than ever before,” and describes the “problem” to be solved as helping consumers find “the right TV show, movie, or video clip” (i.e., the shows Google wants consumers to see).

The comments of Wholesale Proposal proponents thus reflect the FCC’s own expectation “that competition in interfaces, menus, search functions, and improved over-the-top integration will make it easier for consumers to find and watch minority and special interest programming” (i.e., programming that is different from the minority and special interest programming MVPDs already offer).

Video Interfaces Are Entitled to First Amendment Protection

The premise of the Wholesale Proposal — that an MVPD’s video interface is constitutionally separable from the MVPD’s underlying programming — is fundamentally flawed. The interface between consumers and MVPD programming, including integrated search functionality, is itself core speech that is entitled to strict First Amendment scrutiny; and even if the video interface were not considered core speech in and of itself, an MVPD’s interface would still be entitled to First Amendment protection due to its “close nexus” to the underlying video programming (which is clearly expressive speech). Because MVPDs’ video interfaces are constitutionally protected, a rule authorizing third parties to forcibly overwrite MVPDs’ video interfaces would abridge MVPDs’ First Amendment rights as speakers and their right to exercise editorial discretion as members of the press.

It appears the FCC does not view the video interface itself as speech or appreciate the essential role the video interface plays in MVPDs’ exercise of editorial discretion. The First Amendment analysis in the NPRM treats the Wholesale Proposal as if it were merely a restriction on “commercial speech” that would occur solely as a result of the Proposal’s “information flow” mandate. Though the NPRM recognizes that the video interface itself affects competition in the commercial marketplace, it does not consider how the video interface affects the marketplace of ideas.

The Communications Act, previous FCC findings, judicial precedent, and scientific studies in behavioral economics all demonstrate that the interface between consumers and MVPDs’ video programing is itself a form of speech or is otherwise entitled to First Amendment protection because it is intrinsic to MVPDs’ exercise of editorial discretion.

Cast in terms of behavioral economics, a video interface is a form of “choice architecture”: the different ways in which a video interface presents choices to consumers about what they can (or should) affects the video choices consumers ultimately make. Research consistently shows that “small and apparently insignificant details [in a choice architecture] can have major impacts on people’s behavior” and that “the power of these small details comes from focusing the attention of users in a particular direction.” Studies show that interfaces affect consumer behavior in numerous ways, including “through the choice of the default option,” “the tendency to select options that are presented first in the list,” and the way programming choices are framed (e.g., by Amazon suggesting that someone watch its affiliated programming rather than an MVPD’s programming). Indeed, the way the FCC has chosen to frame the current proceeding — as addressing an alleged market failure in set-top boxes rather than providing Internet software companies with free wholesale access to MVPD programming — is itself an example of the use of framing to influence consumer perception.

The FCC’s theory that it can “empower consumers to choose how they wish to access” MVPD programming without abridging MVPDs’ First Amendment rights is based on the misconception that permitting Internet software companies to overwrite MVPDs’ video choice architectures would not influence consumers’ video choices.

In many situations, some organization or agent must make a choice that will affect the behavior of some other people. There is, in those situations, no way of avoiding nudging in some direction, and whether intended or not, these nudges will affect what people choose.

Video interfaces are one of those “situations.”

The fact that video interfaces affect consumer choices is already reflected in Section 534 of the Communications Act, which requires cable operators to carry broadcast “must carry” signals on the same “cable system channel number on which the local commercial television station is broadcast over the air.” On its face, this provision indicates that Congress understood that an MVPD’s choice architecture matters (e.g., that the channel number a cable operator decides to assign to a local broadcast TV channel impacts the likelihood that consumers would access that channel), and legislative history confirms it.

“Channel position is important in ensuring the success of a [broadcast] signal carried on a cable system. The [House Commerce] Committee is aware that certain cable programmers offer cable systems financial incentives to be placed on a lower channel number where viewers initially “graze” in search of an attractive program. Eighty-five percent of the moves [of broadcast channel positions] reported in the FCC survey [in its 1990 cable TV report] were made for the cable system’s “marketing” reasons. Local stations moved to a high channel number, often a location unexpected by their usual audience, may lose viewers and suffer a diminution of their capability of rendering program services in the public interest, a development that will harm all viewers, whether or not they subscribe to cable.”

The House report thus concluded that a cable operator’s decision to change a broadcast TV station’s channel position was “damaging to the public interest and to the policies and purposes of the Communication Act.” This finding in turn relied on the FCC’s 1990 cable TV survey, which found that “[c]hannel repositioning results in lower audience measurement and lower rates that [broadcast TV] stations can charge for advertising.”

The demonstrable impact of choice architecture on speech makes the choice architecture of the press — including MVPDs’ video interfaces — an essential element of the First Amendment’s strict protection for editorial discretion. As the Supreme Court recognized with respect to printed newspapers in Miami Herald Pub. Co. v. Tornillo, “a newspaper is more than a passive receptacle or conduit for news, comment, and advertising.” Even decisions regarding things as seemingly mundane as the physical size of a newspaper “constitute the exercise of editorial discretion,” because a newspaper’s size determines how much news can be accommodated on its first page and can thus be accorded the status of “front page news.”

Consider Amazon’s example in its comments in this proceeding — that the Wholesale Proposal would enable Amazon to suggest that an MVPD subscriber watch Amazon’s own programming rather than an MVPDs’ program. In the context of the printed news, that would be equivalent to a rule permitting the Washington Post (a newspaper owned by Amazon CEO Jeffrey P. Bezos) to slap a new front page on the Washington Examiner that contains the Post’s chosen headlines and a message directing Examiner subscribers to read the Post instead. Though the Examiner’s subscribers would still have access to the Examiner’s content as a technical matter (by turning the page), the rule would have the effect of compelling the Examiner to publish (or subsidize the publishing of) that which it does not want to publish (the Post’s headlines and advertising messages) while effectively overriding the Examiner’s editorial decisions about what should be considered the “front page news” of the day. Similarly, the Wholesale Proposal would force MVPDs to publish that which they do not want to publish (i.e., mandatory “information flows”) in order to enable third-parties to direct MVPD subscribers to watch third-party programming (and its associated advertising) that displaces MVPDs’ own decisions regarding what programming should be highlighted on the video interface’s “front page.” Whether applied to print or video, such a rule would cut straight through the heart of the First Amendment’s guarantee of press freedom.

The Wholesale Proposal Threatens the Free Flow of Information and Ideas

Internet software companies who support the Wholesale Proposal argue that it would increase diversity in video programming. But they do not address the First Amendment implications of the Proposal or explain how giving them control over the choice architecture for video programming through government fiat would somehow improve the status quo. Studies in behavioral economics demonstrate that giving Internet software companies the power to suggest that consumers should watch their shows rather than the shows offered by MVPDs would not result in a more neutral interface; it would merely shift control over the video choice architecture (and corresponding profits) from MVPDs (and the video programming vendors with whom they negotiate content licenses) to Internet software companies (and their affiliated video programming vendors) who have the same incentives as MVPDs to influence consumer behavior in the video marketplace.

Though their incentives are the same, the ability of Internet software companies to influence consumer video choices would be far greater than that of MVPDs, because the largest Internet software companies (1) have greater scale and ability to reach consumers than MVPDs, but (2) would not be subject to regulatory constraints on MVPD market structure or public interest obligations. A government rule shifting control over the video interface to Internet software companies would thus threaten the free flow of information and ideas rather than enhance it.

Internet Software Companies Have Incentives to Influence Consumers’ Video Choices

To find evidence that Internet software companies have incentives to influence consumers’ video choices, the FCC need look no further than their ongoing behavior in the Internet marketplace. The largest Internet software companies already use their enormous scale to influence the choices consumers make about the services they should use and the products they should buy, and even their voting behavior in political elections. This evidence indicates that, if the software companies who already dominate information flows on the Internet are given control over the video interface by fiat, those companies will waste no time in using their government-granted power to start influencing the choices consumers make about video programming as well.

Google: Internet Search and Mobile Operating Systems

The European Commission (EC) has opened formal investigations and issued statements of objections regarding Google’s abuse of its dominant position in the Internet software markets for general internet search services, licensable smart mobile operating systems, and app stores for the Android mobile operating system. In each case, the alleged abuse has been based on Google’s desire to influence consumers’ choices through its anticompetitive manipulation of Internet interfaces (i.e., its use of software-based choice architectures).

In April 2015, the EC issued a statement of objection alleging Google “has abused its dominant position in the markets for general internet search services in the European Economic Area (EEA) by systematically favouring its own comparison shopping product in its general search results pages.” The EC is concerned that Google’s practice of showing Google Shopping more prominently in its search results may “artificially divert traffic from rival comparison shopping services” and harm consumers by preventing them from seeing “the most relevant results” in response to their search queries. If the FCC adopts its Wholesale Proposal, Google could similarly leverage its dominance of Internet search in the U.S. to favor its own video programming (e.g., YouTube) over programming provided by MVPDs and other third-parties when providing the “integrated search across MVPD content and over-the-top content” described in the NPRM.

In April 2016, the EC issued a statement of objection alleging that Google violated antitrust laws by (1) “requiring manufacturers to pre-install Google Search and Google’s Chrome browser and requiring them to set Google Search as default search service on their devices, as a condition to license certain Google proprietary apps”; (2) “preventing manufacturers from selling smart mobile devices running on competing operating systems based on the Android open source code”; and (3) “giving financial incentives to manufacturers and mobile network operators on condition that they exclusively pre-install Google Search on their devices.” The European “Commission’s investigation showed that it is commercially important for manufacturers of devices using the Android operating system to pre-install on those devices the Play Store, Google’s app store for Android” (the “choice of the default option” in terms of behavioral economics). Because Google has made licensing the Play Store conditional on Google Search being pre-installed and set as default search service on Android devices, rival search engines are not able to become the default search service on the significant majority of Android devices sold in the EEA. Google has similarly made licensing the Play Store condition on pre-installation of its Chrome browser, another “important entry point for search queries on mobile devices.” This has the effect of reducing the incentives of manufacturers to pre-install competing search apps browsers as well as the incentives of consumers to download such apps and browsers.

Amazon: Books

Amazon “now sells more than a third of new print books, a level no single bookseller has ever reached before, and it closely controls the dominant e-book platform.” According to the New York Times, Amazon reportedly controls an estimated two-thirds (66%) of e-book sales, though some publishers say its market share is much higher.

Amazon has used its dominance over book sales to limit the availability of certain books and control pricing in a manner that has harmed consumers, authors, and publishers. During a high-profile dispute between it and Hachette Book Group, one of the largest publishing companies in America, Amazon abused its dominant position as a bookseller to block advance orders for Hachette books, delay shipping Hachette books for weeks, eliminate price discounts for Hachette books, and redirect readers to non-Hachette books through modifications to Amazon’s search engine and pop-up windows. According to Authors United, Amazon drove down the sales on Amazon.com of more than 8,000 titles by 3,000 authors by 50% to 90% in all formats over an 8-month period, which meant that tens of millions of books that would otherwise have been sold were not.

It shouldn’t be surprising that, once Amazon proved it could dictate terms to one of America’s “Big Six” publishers, Amazon now sets e-book prices. Under its preferred “wholesale model” for book sales, Amazon negotiates different revenue splits with different publishers and ‘co-op’ fees to promote particular books through Amazon’s web interface and search engine (i.e., its choice architecture). Amazon has thus consolidated influence over what books most e-book consumers read from 6 different publishing houses to 1 company: Amazon.

Ironically, Amazon obtained dominance over e-book choices through a government effort to “restore competition” in the e-book market (similar to the “competition” justification on which the Wholesale Proposal rests). When Apple launched the iPad, it tried to enter the e-book market, despite “Amazon’s virtually uncontested dominance” in that market. Because Amazon was using book sales as a loss-leader to promote its Kindle e-book reader (i.e., Amazon was charging below-market prices for e-books — at the expense of publishers and authors — to obtain profit in a complementary market segment), Apple believed the only way it could enter the market profitably was through an agreement with the largest publishers that they would no longer permit Amazon to set prices. Apple was successful in obtaining the agreement of 5 of the “Big Six” publishers in the U.S. to use an “agency model” for pricing e-books, but its efforts were invalidated in a federal antitrust judgment. The antitrust court focused its analysis on the narrow issue of book publishers’ attempt to coordinate e-book prices and ignored the broader, potentially pro-competitive effort of Apple to enter the e-book distribution market “that had been dominated by a monopolist [i.e., Amazon] and insulated from competition through below-cost pricing.”

The result of this narrowly-focused antitrust ruling is that Amazon reestablished its monopoly power to set e-book prices and influence what books consumers read. Amazon’s market share has soared as Barnes & Noble pulled back on its Nook e-reader (and its retail stores cratered), Sony and Samsung exited the e-reader market altogether, and Apple focused its efforts elsewhere. But the biggest losers have been authors, publishers, and consumers. While the “book business has become more dependent on Amazon,” books have become “almost an afterthought to the company itself.” The quality and quantity of e-books available to consumers is not Amazon’s primary concern. For Amazon, e-books are simply a means to “boost sales of its profitable Kindles and Amazon Prime subscriptions.”

Facebook and Internet Search Engines: Political Elections

From a First Amendment perspective, it is critical to realize that the choice architectures dominated by Internet software companies are capable of far more than merely influencing what services consumers use and what products consumers buy. Multiple scientific studies have shown that Internet software companies with massive user bases, like Facebook and Google, can use their web interfaces to influence voter behavior and, at least in theory, determine the outcome of political elections.

It is undisputed that Facebook has intentionally influenced selective voter behavior in multiple elections already. The results of a study conducted by Facebook and scientists from the University of California, San Diego, on Election Day 2010 “show that the messages [published by Facebook] directly influenced political self-expression, information seeking and real-world voting behaviour of millions of people.” Facebook conducted more voter experiments during the 2012 and 2014 elections, at least some of which were aimed specifically at determining how its web interface would affect user behavior. For example, Facebook tested whether the location of a voting button on its webpage had any effect in motivating a user to declare that he or she were voting, and whether re-ranking the appearance of articles in users’ newsfeeds would have an effect on voter behavior (and found that it did). Facebook has been criticized for not telling its users about these and other experiments, which some (perhaps correctly) have attributed to politics: “Facebook officials likely do not want Republicans on Capitol Hill to realize that their voter megaphone isn’t a neutral get-out-the-vote mechanism.”

The potential for Facebook to use its more than 167 million U.S. users (and more than 1 billion total users) to manipulate elections recently resurfaced, when Facebook employees asked in a company poll, “What responsibility does Facebook have to help prevent President Trump in 2017?” Facebook has the ability to remove pro-Trump stories and media from its website without disclosing it is doing so, and might already have done so. According to Gizmodo journalist Michael Nunez, former journalists who worked as news curators at Facebook recently alleged that Facebook’s curators “routinely suppressed news stories of interest to conservative readers from the social network’s influential ‘trending’ news section.” Facebook has stated that it does “not insert stories artificially into trending topics, and [does] not instruct [its] reviewers to do so”; but, according to the Guardian, “Leaked internal guidelines show human intervention at almost every stage of [Facebook’s] news operation, akin to a traditional media organization.”

Research has also shown that “Internet search rankings have a significant impact on consumer choices.” The results of five double-blind, randomized controlled experiments that were published by the Proceedings of the National Academy of Sciences in a peer-reviewed paper demonstrated:

“(i) biased search rankings can shift the voting preferences of undecided voters by 20% or more, (ii) the shift can be much higher in some demographic groups, and (iii) search ranking bias can be masked so that people show no awareness of the manipulation.”

The paper concludes these data “suggest that a search engine company has the power to influence the results of a substantial number of elections with impunity.”

Internet Software Companies Have Greater Scale and Reach More Consumers than MVPDs

Each of the largest Internet software interfaces have far greater scale (i.e., have the ability to reach more consumers) and actually do reach more consumers than each of the largest MVPDs, which suggests the ability of the largest Internet software companies’ web interfaces to influence consumers is broader and more powerful than MVPDs’ “set-top box” interfaces.

FCC data show that most MVPDs are capable of serving far fewer than half of all households in the United States. The number of “homes passed” by an MVPD is the maximum number of households its video interface can reach. According to the FCC’s most recent video competition report, as of 2014, the largest cable operator’s network (Comcast’s) passed only 41% of homes in the United States.

Table 1

The largest Internet software companies, however, are capable of reaching all U.S. homes that have access to broadband Internet service. According to the FCC’s most recent broadband progress report, as of 2014, 90% to 99% of the U.S. population had access to broadband Internet access service, with the differences in percentage depending on the measurement criteria used. In other words, all Internet software companies can reach, at a minimum, 90% of the U.S. population.

Table 2

Data indicate that the number of consumers that any one MVPD actually reaches is also far less than the number of consumers that the largest Internet software companies actually reach (and can thus influence).

According to data presented at the Media Bureau Workshop on the State of the Video Marketplace held on March 21, 2016, the largest MVPD (AT&T/DIRECTV) has only 25.4 million U.S. subscribers — i.e., its video interface can actually influence only about 19% of the U.S. population’s video choices.

Table 3

In contrast, each of the 5 most popular Internet software companies actually reaches more than half of the U.S. population. In particular, the Internet search market segment — which would presumably begin providing “integrated video search” if the FCC adopts the Wholesale proposal — is far more concentrated than the MVPD market segment. Google alone accounts for a 69% to 85% share of the Internet search engine market in the U.S.

Table 4

The FCC should expect to see relatively high levels of concentration in certain market segments served by Internet software companies because, paradoxically, Internet software services that are offered to consumers for free and have zero switching costs (e.g., Internet search engines) tend to yield a winner-take-all market for the market leader. “This is because, faced with a choice between two products, in the absence of switching costs [or another difference in “price”] users will choose the better one, even if it is only slightly better.” And Internet search engines get “better” through usage; search engines enhance the accuracy and value of their search results by accumulating more data. As a result, first mover advantages in the Internet search engine and similar online markets can be especially powerful.

Internet Software Companies Are Not Constrained by Video Regulations Applicable to TV

The stark differences in scale and market concentration between Internet software companies and MVPDs is not, however, merely the result of market forces or market economics. It is, at least in part, the product of the distinctly different regulatory regimes that are applicable to Internet software companies on the one hand (which are generally unregulated) and to traditional TV services on the other (i.e., MVPDs and broadcast TV stations, which are subject to extensive regulation).

Strict FCC Regulation of Traditional TV Companies

“It has long been a basic tenet of national communications policy that the ‘widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public.’” To fulfill this tenet, Congress and the FCC have long relied on comprehensive regulation of traditional TV companies, including (but not limited to):

  • Ex ante “media ownership” regulations intended to limit concentration in the MVPD and broadcast TV industries in order to enhance diversity and “localism” in the production and distribution of video programming, radio broadcasting (i.e., audio content), and printed news, including:
    • The national cable MVPD ownership limit provision, which requires the FCC to establish reasonable limits on the number of cable subscribers served by an individual cable operator through its ownership or control of local cable systems (traditionally set at 30%);
    • The cable MVPD vertical ownership limit (also known as the “channel occupancy” limit), which requires the FCC to establish “reasonable limits on the number of channels on a cable system that can be occupied by a video programmer in which a cable operator has an attributable interest” (traditionally set at 40%);
    • The cable MVPD/incumbent local telephone company cross-ownership limit, which prohibits a cable MVPD from having more than a 10% financial or management interest in an incumbent local telephone company that is providing local exchange service in the cable operator’s franchise area and vice versa;
    • The cable MVPD/BRS-SMATV limit, which prohibits a cable MVPD from owning a Broadband Radio Service system (also known as a wireless cable system) or a Satellite Master Antenna Television (SMATV) system in markets that are not subject to effective competition;
    • The national broadcast TV ownership limit prohibiting a single company from having a “cognizable interest” in TV stations that have an aggregate national audience reach exceeding thirty-nine percent (39%) (i.e., TV stations with signals reaching more than 39% of U.S. television households);
    • The local broadcast TV ownership limit prohibiting a single company from owning more than two TV stations in a single designated market area (DMA) and limiting the ownership of more than one TV station in a single DMA to specific circumstances;
    • The joint sales limit, which restricts contracts for the joint sale of broadcast TV advertising;
    • The dual network limit on mergers between or among the “top four” broadcast programming networks (ABC, CBS, Fox, and NBC);
    • The newspaper/broadcast cross-ownership limit, which prohibits common ownership of a TV station and a daily newspaper if the television station’s Grade A service contour completely encompasses the newspaper’s city of publication; and
    • The radio/television cross-ownership limit, which limits the number of commercial radio and television stations a firm is permitted to own in the same market.
  • Post hoc FCC review of mergers involving MVPDs or broadcast TV stations (typically in addition to a separate review by the DOJ and FTC);
  • Programming diversity regulations governing the contractual relationships (1) between MVPDs and video programming vendors (including program carriage, program access, and leased access, requirements as well as limitations on exclusive programming agreements) and (2) between MVPDs and broadcast TV stations (including retransmission consent requirements and must carry);
  • “Localism” regulations intended to promote the production of video programming that addresses local issues, including (1) limits on the geographic area covered by broadcast TV stations, (2) local broadcast TV and MVPD “PEG” programming requirements, and (2) regulations providing for FCC enforcement of local TV stations’ exclusive programming distribution agreements (known as “non-duplication” and “syndicated exclusivity” agreements);
  • Political advertising regulations governing the non-discriminatory sale of political advertisements by MVPDs and broadcast TV stations and disclosure obligations with respect to the buyers of such political advertisements;
  • Equal employment opportunity regulations imposing specific obligations on MVPDs with respect to their provision of such opportunities; and
  • Privacy regulations imposing specific privacy obligations on MVPDs.

Laissez-Faire Approach to Internet Software Companies

In stark contrast to its treatment of other media companies, the FCC has generally exempted Internet software companies from any form of ex ante or post hoc regulation. The agency has disclaimed any interest in (1) imposing ex ante regulation on the structure of Internet software markets, (2) reviewing mergers between Internet software companies, or (3) protecting consumers from the practices of Internet software companies relating to privacy and other matters.

The Proposed Regulatory Disparity Raises Serious Doubts About the FCC’s Motives

The fact that the Wholesale Proposal would permit a single Internet software company to leverage its existing dominance in a complementary online market (e.g., general Internet search) to obtain monopoly control over the video interface — and thus the ability to influence what consumers watch — without regard to the regulatory constraints applicable to MVPDs “raises serious doubts about whether the [FCC] is in fact pursuing the interest it invokes, rather than disfavoring a particular speaker or viewpoint.” In all other contexts involving television services, the FCC’s motto appears to be, “With great power comes great responsibility.” But not here. The Wholesale Proposal would grant Internet software companies a right to control MVPDs’ video interfaces without assuming any public interest obligations whatsoever.

It is not likely to be mere coincidence that the same Internet software companies who wholeheartedly support the Wholesale Proposal — e.g., Google and Amazon — vehemently opposed the FCC’s previous attempt to give them government-mandated rights to access MVPD programming, because the FCC’s previous proposal would have required Internet software companies to comply with the regulatory obligations applicable to MVPDs — e.g., media ownership, diversity, localism, and political advertising regulations. In December 2014, the FCC commenced its MVPD Classification proceeding, in which it proposed to “update [its] rules to better reflect the fact that video services are being provided increasingly over the Internet” by defining certain online video distributors as MVPDs. This proposal was “intended to ‘enable cable operators to untether their video offerings from their current infrastructure, and could encourage them to migrate their traditional services to Internet delivery.’” To the extent Internet software companies would be classified as MVPDs, this proposal would also have given them the right to invoke the FCC’s program access rules so that they would have a regulatory right to license cable MVPDs’ video programming.

Internet software companies apparently support the MVPD Classification proceeding’s goal of “untethering” cable MVPDs video offerings from their infrastructure, but they want that untethering to work like the FCC’s net neutrality rules: Internet software companies want to profit from using untethered MVPD programming without bearing any of the public interest responsibilities that are borne by MVPDs. The Digital Media Association (“DiMA”), who represents “the world’s leading Internet companies,” including Google’s YouTube, Amazon, and Apple, met with senior FCC officials on July 21, 2015, to “highlight[] the tremendous innovation — resulting in vibrant competitive alternatives for consumers — that has recently occurred in the marketplace for online video content,” and “questioned the case for government regulation at the present time.” The DiMA also recommended that, if the FCC adopts rules, those rules should allow “those [online video distributors] that the Commission believes would benefit from MVPD status with the ability to decide whether to receive such benefits and be subject to the attendant responsibilities associated with such a decision.”

Shortly after this meeting, on July 30, 2015, the Washington Post reported that the MVPD Classification proceeding was “terrifying Apple, Amazon and Microsoft.” According to the Washington Post, smaller online video distributors favored the proposal, but big tech firms didn’t like it.

‘’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.’”

For the largest Internet software companies, “the worst case scenario” is that they would be “subject to rate regulations and public interest obligations, such as carrying local public access programs.”

In what could be considered an uncanny coincidence, on the same day the Washington Post outed big Internet Software companies’ fear of serving the public interest, Senators Ed Markey and Richard Blumenthal released their report decrying the cost of set-top boxes, which appears to have been an impetus for the big-tech-giveaway proposed in the current proceeding.

A few months later, the DiMA met with the FCC one last time in the MVPD Classification proceeding to remind the FCC of “the tremendous innovation that has recently occurred in the marketplace for online video content” and advise the FCC that, “[t]o the extent the Commission decides to move forward with this proceeding,” it should wait until it has completed its annual report on competition in the video marketplace and other related proceedings, which would “considerably inform efforts in the [MVPD Classification] rulemaking.”

It appears the DiMA’s lobbying and the Markey-Blumenthal Report ultimately persuaded the FCC to sideline the MVPD Classification proceeding and offer the Wholesale Proposal — a proposal that would give the largest Internet software companies access to MVPD programming without any of the pesky public interest obligations imposed on MVPDs, and as an added bonus, without any obligation to pay the corresponding licensing fees to video programming vendors either. Put another way, the Wholesale Proposal would replicate the Internet software companies’ net neutrality business model for television.

The First Amendment Requires the FCC to Explain Why Effective Competition Among MVPDs Is Insufficient

It is a clever plan, and they might have gotten away with it too, if it weren’t for that meddling First Amendment. The FCC’s long and consistent history of regulation aimed at avoiding undue influence over consumers’ video programming choices and the DiMA’s repeated assertions in the MVPD Classification proceeding of the “tremendous innovation” in online video both “raise serious doubts” about the FCC’s asserted interest in this proceeding — the alleged need to promote an unspecified level of additional competition in the entirely artificial market for “navigation devices.” The FCC cannot overcome these doubts by making an unsubstantiated claim that there is a substantive difference between competition among MVPDs generally and competition in the artificial market for navigation devices. The First Amendment requires the FCC to “explain[] why, in the pursuit of diversity, the independence of competing vertically integrated MVPDs is inferior to the independence of unaffiliated [navigation device companies].” The above discussion of behavioral economics and the highly-concentrated state of the relevant markets for Internet software companies indicate there is no data-based explanation for attempting to make such a distinction. There is only the FCC’s naked preference for one set of speakers over another.