Earlier this year, the FCC proposed a new regulatory scheme ostensibly designed to improve the market for pay-TV set-top boxes. Chairman Wheeler claimed that the proposed rules would “tear down the barriers that currently prevent innovators from developing new ways for consumers to access and enjoy their favorite shows and movies on their terms.” But set-top boxes are already on their way out as more and more consumers turn to streaming apps to watch their favorite movies and shows. So what is the FCC up to here? A close look at the proposed rules reveals that this isn’t about set-top boxes at all. Instead, the rules are designed to benefit a handful of companies that want to disseminate pay-TV programs without negotiating with or paying a license to the owners of those programs, undermining the property rights of creators and copyright owners. The creative community is understandably up in arms.
As we explain in comments filed with the FCC, the proposed rules would require pay-TV providers to make copyrighted video content available to third-party companies that have no contractual relationship with either the pay-TV providers or the creators of the video programming. The Commission essentially aims to create a zero-rate compulsory license for these companies. But this zero-rate compulsory license would fundamentally disrupt copyright owners’ ability to pursue the wide variety of business models and licensing arrangements that enable our creative ecosystem to thrive.
A key component of copyright owners’ property interest is the ability to choose to whom they license their works and on what terms. Because their livelihoods depend on the success of their works, copyright owners are particularly well-positioned and incentivized to determine the best way to commercialize them. By conveying copyrighted works to third parties without the consent of copyright owners, the proposed rules trample on the property rights of copyright owners and risk severely damaging our vibrant creative economy.
Adding insult to injury, the proposed rules wouldn’t even require the recipients of this zero-rate compulsory license to abide by the underlying contractual terms between copyright owners and pay-TV providers. Licensing contracts between copyright owners and pay-TV providers often include specific terms detailing the obligations of the provider in distributing the creative works. These terms can include things like channel “neighborhood” assignments, branding requirements, advertising limits, platform restrictions, and the list goes on. While the Commission states that “our goal is to preserve the contractual arrangements” between copyright owners and pay-TV providers, the proposed rules would transfer some, but not all, of the underlying contractual obligations to the third-party recipients of the copyrighted works.
For example, under the Commission’s proposal, third-party recipients of the copyrighted works would not be required to abide by contractual terms about channel placement designed to protect viewer experience and brand value. Similarly, the Commission’s proposal would not require third-party recipients of copyrighted works to abide by contractual terms concerning advertising in the delivery of those works. By allowing third parties to sidestep these terms, the Commission risks reducing the advertising revenue that pay-TV providers can earn from disseminating copyrighted works, thereby reducing the value of the license agreements that copyright owners negotiate with pay-TV providers.
In another thumb-in-the-eye to creators and copyright owners, the Commission’s proposal fails to account for copyright owners who may want to protect their copyrighted works by disseminating them exclusively through proprietary (and not widely licensable) content protection mechanisms. Instead, the Commission proposes to require pay-TV providers “to support at least one content protection system to protect its multichannel video programming that is licensable on reasonable and nondiscriminatory terms by an organization that is not affiliated with [the pay-TV provider].” Thus, the Commission would force copyright owners to risk exposing their property to security threats that may be associated with using widely-licensable content protection mechanisms.
Furthermore, nothing in the Commission’s proposal would prevent third parties from delivering the copyrighted works side-by-side with stolen versions of those same works. It is easy to imagine a search function that aggregates copies of creative works from a variety of platforms and displays the search results side-by-side. In fact, anyone who has run an internet search for a movie or TV show has likely seen results that mix links to both legitimate and stolen works.
Copyright owners’ ability to protect their creative works is essential both to preserve the value of their property and to give them the confidence to enter into arrangements with intermediaries (like pay-TV providers) to disseminate their works to a wide variety of audiences. This is especially true in light of the unique security challenges involved in portable, online, and short-term access to copyrighted works. Any reasonable proposal in this space would help copyright owners move forward in the ongoing battle to prevent the rampant theft and illegal dissemination of their works that has accompanied the rise of the internet. Unfortunately, the Commission’s proposal does just the opposite, limiting copyright owners’ ability to protect their property and pushing them backwards in the ongoing struggle against piracy.
Furthermore, it is entirely unclear where the Commission would draw the legal authority to change the nature of copyright owners’ property rights. The proposed rules simply claim that Section 629 of the Communications Act grants the Commission authority to implement the regulations in order to ensure competition and consumer choice in the navigation device market. In its justification of authority, the Commission repeatedly states that it will broadly interpret ambiguous terms in the Communications Act and that “a broad interpretation is necessary.” But nowhere in its analysis does the Commission cite to language granting it the authority to rewrite copyright law. Even under the broadest of interpretations, it is clear that the Communications Act does not give the Commission the authority to amend the Copyright Act and create a zero-royalty compulsory license out of thin air.
By granting artists and creators property rights in the fruits of their labors, copyright supports a diverse and multifaceted ecosystem that enables the development, distribution, and enjoyment of creative works, and that provides significant economic and cultural benefits to our society. But this ecosystem only works if copyright owners are able to safely and freely deploy their property in the marketplace. Unfortunately, the Commission’s proposal fails to respect the property rights of creators and copyright owners, risking severe disruption to the very same creative marketplace the Commission claims to promote.