Industry, FCC Haggle Over Set-Top Box Compromise

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Less than two days out from Thursday’s scheduled vote, Federal Communications Commission Chairman Tom Wheeler’s cable set-top box proposal remains in flux.

But if discussions between programming representatives and FCC officials are any indication, a compromise over the most contentious part of the plan may be in the works. After weeks of complaints from a broad array of industry representatives, lawmakers from both parties and even Democratic FCC Commissioner Jessica Rosenworcel, Wheeler’s plan to have the commission oversee a copyright licensing board for pay-tv apps may be on its way out.

Industry sources agree that Wheeler’s proposal will almost certainly need to change to receive Rosenworcel’s support, which he needs to pass it. But there’s still no certainty over what those changes will be.

“The biggest issue right now is that we have no idea what is actually being proposed and understand that the commissioners have yet to receive an updated item from the chairman’s office,” a pay-tv source told Morning Consult in an email on Tuesday morning.

Wheeler announced the revised proposal nearly three weeks ago, scrapping an earlier push to allow third-party developers access to cable set-top boxes and instead mandating the development of pay-tv apps that consumers can use to stream content on the device of their choice.

The new plan would also create a copyright licensing board composed of programmers and pay-tv providers, which Wheeler proposes should be overseen by the FCC. In order to promote market competition, the commission would have the ability to review or modify the licensing agreement made between the two industries.

Programming, content, pay-tv, and broadcast industry groups have all pushed back against the FCC inserting itself in the licensing process. Many Democrats — including Rosenworcel — publicly questioned whether the commission has the authority to do so. Even apps developers expressed skepticism over the FCC’s “purely regulatory intervention.”

During a Sept. 15 Senate hearing, Wheeler said he is open to changing the copyright portion of the plan. And in numerous conversations between programmers and FCC officials over a three-day period last week — detailed in a filing to the commission on Sept. 22 — the contours of a possible deal may have taken shape.

The programmers said they were asked by an unspecified FCC official for their perspective on a compromise originally floated in a separate filing by Amazon.com Inc. That plan would take the FCC out of the front end of licensing deliberations and instead establish a complaint process through which the commission could later address any instances of market failure stemming from uncompetitive licensing agreements.

The programmers rejected that option, an industry source said, telling the officials they wouldn’t support any provision allowing the FCC to review or alter copyright agreements, even after the fact.

But they were more amenable to an alternative proposal. If the FCC still has concerns about the competitiveness of the apps market, industry representatives argued, regulators should give the programming and pay-tv industries a chance to prove them wrong.

Wheeler’s current plan requires pay-tv apps to go online no later than two years after adoption of the FCC rule. The programmers suggested that in another two years (i.e., in 2020), the FCC could review data on the pay-tv apps market to determine whether a licensing intervention to stir competitiveness is warranted. Until then, however, the FCC would have no involvement in the process.

“Why don’t you go forward, do whatever you’re going to do, stay out of the copyright business. I bet you two years after that when you look back, you’ll see that we were not the problem,” one programming source said on Monday, characterizing the industry’s conversations with FCC officials over the possible agreement.

The source stressed that while the compromise would theoretically enable the FCC to assess the app market’s competitiveness after two years, it doesn’t mean the industry would accept the FCC’s authority over copyright licensing at that later date.

“I don’t think they were suggesting that within two years they were somehow going to submit to that jurisdiction,” the programming source said.

What it does is buy the industry time to prove to the FCC and other regulators that the market can be competitive without government intervention.

It’s unclear what Wheeler thinks about this new plan, which would effectively nix the commission’s participation in copyright licensing for pay-tv apps. The programmers’ filing to the agency says merely that the two parties “discussed” the proposal.

Still, congressional supporters of new set-top box regulations are hailing the possible compromise as a big step forward.

In a press call with reporters on Tuesday morning, Rep. Anna Eshoo (D-Calif.) initially suggested that the programmers’ latest filing proves that they now agree with Wheeler on the proposal. (That is not the programmers’ perspective.) She later modified that assessment, saying instead that the discussion “signal[s] progress between the chairman and the programmers.”

Last Thursday, 63 House Democrats led by California Rep. Tony Cárdenas sent a letter to Wheeler and the other commissioners, urging them to delay the set-top vote until they could take a closer look at the copyright issues.

When asked about that letter, Eshoo said she had questioned several of the involved lawmakers about why they had signed it. “There was silence,” she said, adding that the members she spoke to “really had a lack of understanding of where the commission was, what the revised proposal contained, and what it would do for their constituents.”

The programming industry now seems to be leading the charge in negotiations with the FCC over the set-top proposal. But pay-tv, broadcast, and content industry representatives have also filed documents with the agency and met with commission officials to express their own concerns. In sum, they want to move beyond copyright and into issues such as consumer privacy.

Still, the FCC’s disputed role in copyright licensing remains the key sticking point less than two days out from the vote. And nearly everyone expects a dramatic shift on that issue if Wheeler wants to get Rosenworcel on board.

“I think that Chairman Wheeler will fabricate something, and that it’ll get a majority of votes when they come to this on Thursday,” said one pay-tv source. “But it has to be significantly different.”

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