Commissioners, Industry Observers Divided Over Effect of MVPD Definition Change

The rule change in its current form would have only a “modest impact” on the “pay-TV ecosystem,” Guggenheim Partners analyst Paul Gallant said in an email to investors. “While I can appreciate that the Commission may be trying to be forward looking, this item misses the mark,” Commissioner Michael O’Rielly said in his statement released along with the NPRM. O’Rielly and Republican colleague Commissioner Ajit Pai concurred with the item rather than approve it as the commission Democrats did.

The broader definition will “increase the diversity of content” online and create opportunity for new kinds of video subscriptions, Public Knowledge senior staff attorney John Bergmayer said. The Writer’s Guild of America, West also said the shift will increase competition. “A technology-neutral MVPD definition inclusive of Internet-based services that do not own the distribution path to consumers is of critical importance,” WGAW said. “This would expand the market beyond those few companies with wired connections to the home.”

Although Wheeler also has positioned the plan to bring OTT into the MVPD fold as connected to creating competition, many in the industry aren’t sure what the motivation behind the rule is, a cable attorney told us. Since the definition change would only give the new MVPDs rights to vertically integrated programming and doesn’t compel TV stations to grant retransmission consent, it doesn’t much change the program access options for OTT services, Gallant said.

Though Wheeler repeatedly has cited Aereo’s troubles and increasing the ability of companies like it to compete as a reason for the broader definition, the change proposed in the NPRM wouldn’t be enough to accomplish that, the cable attorney and others told us. It’s up to the U.S. Copyright Office to decide if the new MVPDs are eligible for compulsory licenses, Gallant said. But he also said the new rule could impel change at the Copyright Office. “It might help that it's Verizon, Sony, and Dish doing the asking -- credible, established companies -- rather than Aereo and ivi,” Gallant said.

Aereo entirely supports a broadened definition as ushering in “a new age of competition and investment in the video marketplace,” it said in an email. But Aereo also said the rule change will come too late for the company. “Even though Aereo won’t have an opportunity to compete in this new world, having a clear set of rules for online linear video distributors ensures that we’ll have a robust video marketplace for decades to come,” CEO Chet Kanojia said in an emailed statement.

Pai and O’Rielly both framed the definition shift as an FCC move toward increasing its regulatory scope. “The Internet -- and online video in particular -- has grown to where it is today outside of our regulatory clutches," O’Rielly said. “The FCC trying to jump into this space now, especially without clear direction provided by the Congress, is highly questionable.” Pai said he was “also worried that this proposal will pave the way for more comprehensive regulation of Internet-based services.” NCTA said it isn’t clear that an OTT service could be a multichannel video distribution provider, and indicated “any rules deemed necessary in today’s competitive video distribution marketplace” should be “fairly applied to all.”

One way for the proposed definition shift to have an effect on the video industry would for the FCC or Congress to follow up and push programmers to sell content to OTT services, Gallant said. That could come in the form of Wheeler's exhorting programmers to do so, making rules restricting programming negotiations based on a recent Mediacom petition, or possibly congressional action, he said.