REACTION IS MOSTLY POSITIVE TO FCC'S BROADCAST FLAG RULING

Executives from the CE, broadcast and content industries generally praised the 72-page ruling, issued late Tues., as a necessary vehicle to advance the transition to DTV in the U.S. Content owners and distributors said they got the protections they had demanded, and DTV manufacturers received the longer deadline they had requested for compliance. The devil is in the details, though, and some said additional issues, such as fair use, needed to be monitored and ironed-out in ongoing deliberations.

Philips had been most outspoken among CE makers in its opposition to the proposed rules, but executives there couldn’t be reached for comment on the FCC’s ruling. However, Panasonic was pleased with the Commission’s action and “that it took such care for consumers,” said Peter Fannon, the company’s govt. affairs dir. “This doesn’t undercut consumer use,” Fannon said. The FCC listened to the CE industry’s needs, such as for a flexible compliance deadline, Fannon told us. “What’s important here is that it all was done in the public eye and with full public participation. That way, people can understand the balance of market protections and the capabilities digital made possible,” he said.

“We look forward to working with the Commission in the next round of rulemaking. The flag doesn’t mandate any particular technology, and now we can look at various types of protections,” Fannon said. “It’s not a slam-dunk. Now everyone will have an opportunity to come to the table,” he said, punning reference to so-called Table-A of relevant technologies.

“Thomson is delighted with the fair values struck by the Commission in moving the ball forward in an appropriate and effective way,” said David Arland, Thomson dir.-trade relations. “The Commission recognized the well-being of the consumer electronics industry in the flexibility of its introductory dates. Also, the flag is just a trigger and is open to multiple technologies. We look forward to supplying input on the next steps -- we're always supportive of low-cost, non-invasive methodologies.”

Uniformly, CE executives breathed a collective sigh of relief that the FCC gave manufacturers until July 2005 to comply with implementation of the flag. The MPAA and its supporters had lobbied vigorously for a July 2004 deadline that would coincide with the availability of the first plug-and-play DTV devices and the mandatory inclusion of DTV tuners in larger sets. With the July 2005 deadline, “the FCC has recognized the real-world product development and manufacturing cycles” of DTV set makers, CEA Pres.-CEO Gary Shapiro said.

“I don’t think it could have been done in 2004 for Samsung, and judging by what I was hearing from the other manufacturers, no one could do it before the middle of 2005,” said Frank Romeo, Samsung dir.-digital mktg./business development. Implementing the broadcast flag mandate would require 12-18 months of development, he told us. “It’s a lot more of a software issue than hardware. It costs something, but it’s not like adding $25 to a design like some of those decoder chips do,” Romeo said. “In essence, it’s going to piggyback on the $200-$300 cost that it’s going to take to make an integrated TV set. From Samsung’s perspective, it’s not going to add to our design.”

Although the CEA largely applauded the FCC’s ruling, it also urged vigilance in ongoing deliberations, and expressed reservations in some regards. “We continue to urge the Commission and broadcasters to implement the flag in a manner that respects and protects consumers’ fair use rights,” Shapiro said. The CEA also believed “some special status should have been given to news and public affairs programming,” he said, referring to arguments that those should be exempted from the flag.

Even after the implementation of the broadcast flag, the FCC and broadcasters should ensure it “does not invalidate the billions of dollars” consumers have spent on video products to date, Shapiro said. The Assn. seemed to suggest that the FCC’s statements indicated some safe-harbor for future CE products developed specifically for compliance with the flag. “The FCC has raised important questions in its Further Notice of Proposed Rulemaking (FNPRM), including the circumstances in which technologies and products relied upon by consumers in good faith might be ‘revoked’ at the behest of content providers and distributors,” Shapiro said. “In the Report & Order itself, the Commission recognized that adopted security technologies may continue to be considered successful and remain in use even though they may have been compromised.” During the FCC’s consideration of its FNPRM -- which includes issues such as “down resolution” of DTV images -- the CEA would continue “to defend established home recording and fair use rights and protect products” consumers purchase, Shapiro said.

Some consumer groups said they feared the broadcast flag would diminish consumers’ rights to record programming content in the way they are used to today. A Consumers Union (CU) spokesman said the decision by the FCC opens the door to a pay-for-play world where, potentially, every piece of content could involve a payment. The order, he said, doesn’t distinguish between an individual’s rights to move content around from his home, car and other places in a “personal digital network environment” and the illegal mass redistribution of that content over the Internet.

“The FCC approved most of the worst elements of the flag and punted on all of the hard questions that needed to be answered to remedy some of the problems of the flag,” he said, referring to the FNPRM. The flag, he said, is not even half of the solution unless the “analog hole” can be plugged. He also questioned whether the FCC has the power to transform the market for technology products in the way this order could do. “Technology normally becomes obsolete because the marketplace woos buyers with new features. This is the first time that technology will become obsolete by government fiat.”

Reaction was predictable from the broadcast and content sectors. NAB Pres. Edward Fritts said the FCC decision was an important advance in the DTV transition and that he was equally pleased that the Commission recognized that news and public affairs programming deserved the same copyright protection as other programming. “With approval of DTV ‘plug and play’ rules, a DTV tuner mandate and now the broadcast flag, the FCC is poised to enact cable DTV carriage rules that guarantee consumer access to the highest quality broadcast programming available anywhere in the world,” Fritts said. NCTA Pres. Robert Sachs said he was glad the FCC in its order gave cable a certain amount of flexibility in implementing the flag. Disney Executive Vp. Preston Padden said consumers have a “big stake in helping to keep high value content on broadcast TV. Today’s FCC decision will do just that.”

Politicians painted the FCC’s order as a win-win proposition for all. House Commerce Committee Chmn. Billy Tauzin (R-LA), who is said to be up for the job of MPAA pres., said that without the flag, content providers would have been hesitant to make high- value digital content available on broadcast TV. “Without content protection for such broadcasts, digital programming might migrate disproportionately to cable and satellite systems for which consumers must pay subscription fees,” Tauzin said.

Rep. Terry (R-Neb.), who introduced DTV legislation (HR- 2825) with Rep. Boucher (D-Va.) earlier this year, also praised the FCC for its adoption of the flag. The bill -- which mainly focused on cable-TV “plug and play” issues -- helped spur the FCC to take action on the plug and play agreement, Terry said. That action by the FCC acted as a “catalyst” for the Commission to move on the stalled broadcast flag requirements. Terry’s spokesman said despite the fact that the plug-&-play portion of the bill has been enacted by the FCC, there is still need for the legislation because it would require the FCC to establish minimum power levels for DTV broadcasts by July 1, 2004.