The Feds Want to Redefine TV, and That Has Cable Giants Nervous
A plan to update television regulations could help online video companies take on the established providers.
Major cable companies are getting worried they could face stiffer competition from online video, thanks to a new government proposal.
The Federal Communications Commission is working on a plan to give online TV services all of the same regulatory perks that cable companies get. Putting online companies on equal footing with cable providers like Comcast could usher in a new wave of competition in the TV industry—potentially meaning more choices and lower prices for consumers.
The FCC is mulling the change just as online video is making major strides toward becoming a mainstream alternative to the established TV providers. HBO plans to offer online-only subscriptions next year, and CBS launched its own digital service earlier this month.
But the cable companies are opposed to the plan and are lobbying the FCC to reverse course. The cable companies also have an ace up their sleeves: They control the Internet access that the new video competitors depend on.
WHAT IS THE FCC'S PLAN?
The FCC's proposal, which is still in its initial stages, would classify certain online video services in the same category as cable and satellite TV providers ("multichannel video programming distributors," in the legal terminology). The change would make it easier for the online companies to offer popular channels.
Under the plan, the online services would have the same right as cable companies to negotiate fairly for access to broadcast networks such as Fox and CBS. TV providers that also own cable channels (such as Comcast) wouldn't be allowed to block their online rivals from carrying those channels.
The proposal would apply only to online services that offer multiple streams of pre-scheduled programming. So the rules wouldn't cover Netflix and Hulu, which allow subscribers to watch videos whenever they want. But it would apply to services that are in the works from Sony, Dish Network, and Verizon. The controversial website Aereo, which shut down earlier this year after a loss at the Supreme Court, could also make a comeback.
Aides to FCC Chairman Tom Wheeler are still drafting the proposal. The commission will have to vote to seek public comments before finalizing any regulatory changes.
WHAT DOES IT MEAN FOR YOU?
Regardless of whether the FCC takes action, the online services from Dish and others are expected to be available soon on mobile devices, computers, and Internet-connected TVs. Watching the services will probably be very similar to watching cable or satellite TV today; consumers will flip between video streams just like flipping between regular TV channels.
The agency's proposal would help the online services gain cheaper access to more channels of shows, sports, and movies. More consumers may ultimately decide to "cut the cord" from their cable company and rely solely on the online options. But if the FCC doesn't expand its definition of a video provider, it could be tough for those new online services to compete with the established pay-TV giants.
Don't expect any dirt-cheap TV options. The channel owners such as Disney and Viacom will still charge providers (online or cable) hefty fees to carry their channels. But a new surge of competition could ultimately drive prices lower. Cable companies serve particular geographic areas and usually don't compete against each other. But the online options will likely be available to anyone in the country with a sufficient Internet connection.
It may also become easier for consumers to mix-and-match packages from various companies instead of having to sign up for one massive bundle of cable channels that they mostly don't watch.
The FCC hasn't taken any formal action yet, but officials are starting to tout the potential benefits that could come from treating online video the same as cable. In a speech earlier this month, Jon Sallet, the agency's general counsel, argued that the proposal could boost competition in the TV industry and drive Internet providers to build faster and bigger networks.
"Of course, the commission doesn't root for one business model over another," Sallet said. "But it does—and it should—look to see if any of its rules should be updated to facilitate the innovation that is occurring in the marketplace."
WHY CABLE COMPANIES DON'T LIKE IT
The cable giants aren't yet launching an all-out blitz against the FCC's proposal, but they don't like what they've seen so far. Earlier this month, top lawyers from the National Cable & Telecommunications Association, which represents Comcast and other cable providers, met with FCC officials to urge them to drop the proposal.
Expanding the definition of a video provider to include online services would misinterpret the law and "raise a host of practical and regulatory concerns," the cable lawyers said, according to a public filing disclosing the meeting.
If the FCC does decide to give online companies the same regulatory advantages as cable providers, then the agency should also impose the slew of regulatory burdens that come with that classification, the lawyers argued. That would mean the online services would have to air emergency alerts, offer closed captioning, carry certain local stations, and comply with equal hiring rules.
The FCC will have to make a number of other decisions, such as whether a service has to be available 24/7 to qualify and whether to include services based in other countries.
BUT WHY CABLE WILL PROBABLY BE FINE
Paul Gallant, a telecom policy analyst for Guggenheim Partners, said the FCC's proposal poses "at least some risk" to the existing pay-TV providers. But Comcast isn't going out of business anytime soon. All of these new online services depend on customers subscribing to high-speed Internet—which is usually provided by a cable company.
Online video is sometimes referred to as an "over-the-top" service because its data goes over another company's broadband network. That gives the cable providers a lot of power over their new competitors.
The FCC is also crafting net-neutrality rules to prevent Internet providers from blocking or slowing down any online services. The cable companies aren't likely to cut off access to online video, but Gallant said he expects they will impose higher fees on customers who use large amounts of data. Streaming a few hours of high-definition video every day could cause a consumer to blow past monthly data limits.
So while the cable companies would prefer to protect their current business model, they might be able to make up for any loss in their pay-TV units by charging more for Internet service.
Consumer groups fear that cable providers will use data caps to punish consumers who choose online video competitors. The FCC doesn't currently have any strict rules on usage-based Internet pricing, but a battle over the issue could loom in the future.
WHAT IS THE FCC'S PLAN?
The FCC's proposal, which is still in its initial stages, would classify certain online video services in the same category as cable and satellite TV providers ("multichannel video programming distributors," in the legal terminology). The change would make it easier for the online companies to offer popular channels.
Under the plan, the online services would have the same right as cable companies to negotiate fairly for access to broadcast networks such as Fox and CBS. TV providers that also own cable channels (such as Comcast) wouldn't be allowed to block their online rivals from carrying those channels.
The proposal would apply only to online services that offer multiple streams of pre-scheduled programming. So the rules wouldn't cover Netflix and Hulu, which allow subscribers to watch videos whenever they want. But it would apply to services that are in the works from Sony, Dish Network, and Verizon. The controversial website Aereo, which shut down earlier this year after a loss at the Supreme Court, could also make a comeback.
Aides to FCC Chairman Tom Wheeler are still drafting the proposal. The commission will have to vote to seek public comments before finalizing any regulatory changes.
WHAT DOES IT MEAN FOR YOU?
Regardless of whether the FCC takes action, the online services from Dish and others are expected to be available soon on mobile devices, computers, and Internet-connected TVs. Watching the services will probably be very similar to watching cable or satellite TV today; consumers will flip between video streams just like flipping between regular TV channels.
The agency's proposal would help the online services gain cheaper access to more channels of shows, sports, and movies. More consumers may ultimately decide to "cut the cord" from their cable company and rely solely on the online options. But if the FCC doesn't expand its definition of a video provider, it could be tough for those new online services to compete with the established pay-TV giants.
Don't expect any dirt-cheap TV options. The channel owners such as Disney and Viacom will still charge providers (online or cable) hefty fees to carry their channels. But a new surge of competition could ultimately drive prices lower. Cable companies serve particular geographic areas and usually don't compete against each other. But the online options will likely be available to anyone in the country with a sufficient Internet connection.
It may also become easier for consumers to mix-and-match packages from various companies instead of having to sign up for one massive bundle of cable channels that they mostly don't watch.
The FCC hasn't taken any formal action yet, but officials are starting to tout the potential benefits that could come from treating online video the same as cable. In a speech earlier this month, Jon Sallet, the agency's general counsel, argued that the proposal could boost competition in the TV industry and drive Internet providers to build faster and bigger networks.
"Of course, the commission doesn't root for one business model over another," Sallet said. "But it does—and it should—look to see if any of its rules should be updated to facilitate the innovation that is occurring in the marketplace."
WHY CABLE COMPANIES DON'T LIKE IT
The cable giants aren't yet launching an all-out blitz against the FCC's proposal, but they don't like what they've seen so far. Earlier this month, top lawyers from the National Cable & Telecommunications Association, which represents Comcast and other cable providers, met with FCC officials to urge them to drop the proposal.
Expanding the definition of a video provider to include online services would misinterpret the law and "raise a host of practical and regulatory concerns," the cable lawyers said, according to a public filing disclosing the meeting.
If the FCC does decide to give online companies the same regulatory advantages as cable providers, then the agency should also impose the slew of regulatory burdens that come with that classification, the lawyers argued. That would mean the online services would have to air emergency alerts, offer closed captioning, carry certain local stations, and comply with equal hiring rules.
The FCC will have to make a number of other decisions, such as whether a service has to be available 24/7 to qualify and whether to include services based in other countries.
BUT WHY CABLE WILL PROBABLY BE FINE
Paul Gallant, a telecom policy analyst for Guggenheim Partners, said the FCC's proposal poses "at least some risk" to the existing pay-TV providers. But Comcast isn't going out of business anytime soon. All of these new online services depend on customers subscribing to high-speed Internet—which is usually provided by a cable company.
Online video is sometimes referred to as an "over-the-top" service because its data goes over another company's broadband network. That gives the cable providers a lot of power over their new competitors.
The FCC is also crafting net-neutrality rules to prevent Internet providers from blocking or slowing down any online services. The cable companies aren't likely to cut off access to online video, but Gallant said he expects they will impose higher fees on customers who use large amounts of data. Streaming a few hours of high-definition video every day could cause a consumer to blow past monthly data limits.
So while the cable companies would prefer to protect their current business model, they might be able to make up for any loss in their pay-TV units by charging more for Internet service.
Consumer groups fear that cable providers will use data caps to punish consumers who choose online video competitors. The FCC doesn't currently have any strict rules on usage-based Internet pricing, but a battle over the issue could loom in the future.