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MEDIA ADVISORY               September 21, 2016

Contact: Randolph May at 202-285-9926

FSF Comments: The FCC Should Acknowledge the Competitiveness of the Video Services Market
 
Free State Foundation President Randolph May and Senior Fellow Seth Cooper submitted comments today in response to the Federal Communications Commission's Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming. The comments demonstrate the competitiveness of the video services and video devices market segments.
 
Below is the Introduction and Summary of the Free State Foundation's comments submitted today.

A PDF of the complete FSF comments, with footnotes, is here.
 
These comments are submitted in response to the Commission's request for comments regarding Section 628(g)'s requirement that the Commission report annually on "the status of competition in the market for the delivery of video programming." The focus of these comments is on the need for the Commission to further Section 628(g)'s underlying purpose by bringing its regulatory policies into alignment with the actual state of competition in the video services market. Further, these comments demonstrate that the Commission's proposed regulations for video devices and video apps are unjustifiable and counterproductive in light of today's competitive market conditions. If adopted, the new navigation device proposal would undermine market values for copyrighted video content and give government ultimate control over video app designs and functions. The Commission must drop this regulatory proposal.
 
There is clear and convincing evidence demonstrating that today's video market is "effectively competitive." Indeed, the Commission already has determined in its April 2015 Effective Competition Order that the multichannel video distributor market is presumptively competitive on a nation-wide basis and is presently defending that determination in court. Obviously, the Commission should declare this to be the case in its upcoming Eighteenth Video Competition Report. As of year-end 2014, direct broadcast satellite (DBS) providers' market share of multi-channel video programming distributors (MVPDs) subscribers rose to 33.8%. "Telco" MVPDs increased their market share to 13% and their nationwide footprint grew by 5%. Broadband service providers such as Google Fiber also expanded their footprints. Meanwhile, cable operators' market share fell to 52.8% of MVPD subscribers.
 
Online video distributor (OVD) services continue to grow in popularity with consumers. Netflix now has 47 million or more subscribers in the U.S., Amazon Prime has close to 60 million, and Hulu has close to 12 million. By contrast, cable MVPD subscriptions dropped to 53.7 million households in 2014.
 
On average, U.S. households with broadband connections used 7.3 Internet-connected devices for video in 2014. Those devices included game consoles such as the Xbox One and Playstation 4, streaming media devices like Roku and TiVo, Internet-connected Smart TVs and Blu-ray players, as well as home computers. Cable, DBS, and telco MVPDs offer consumers devices that are unique to their own video networks, such as the Comcast X1 DVR set-top box, DIRECTV's HR 44 Genie Server, and Charter's Worldbox. Consumers can also purchase CableCARD-enabled devices manufactured by third parties from retail outlets. The market is moving toward apps-based viewing, with MVPDs increasingly making content available through proprietary video apps.
 
With these innovative and competitive developments in the video services market, it does not reflect well on the Commission that analog-era regulations, based on early-1990's perceptions about cable "bottlenecks," remain in force. The analytical underpinnings of those regulations have been swept away by dynamic marketplace changes. Unnecessary, backward-looking regulation offers little or no benefit to consumers. Instead, overregulation imposes costs on providers that inevitably are passed onto consumers in the form of higher prices or reduced choices. Legacy regulations now impede the competitiveness of MVPD services in a market landscape that is being transformed by convergence on digital and IP-based technologies, cross-platform competition among MVPDs, disruptive OVD services, as well as digital streaming media devices and portable viewing.
 
In its Effective Competition Order (2015), the Commission examined market evidence and adopted a presumption that local markets for multichannel video programming are effectively competitive. For the sake of some semblance of intellectual consistency, the next report should likewise acknowledge that the nationwide cable market is effectively competitive. Dynamic market conditions should prompt the Commission to remove old analog-era regulations - or at least reorient such regulations in a deregulatory direction that will better enhance video competition and consumer welfare.
 
First Amendment considerations bolster the policy imperative of matching policy to video market reality. Several early 1990s MVPD regulations override provider editorial decisions, restricting free speech. In critical respects, must-carry, must-buy, program carriage, leased access, and other forced access regulations effectively dictate what video service providers must say. But today there are no identifiable market power concerns or perceivable distributional bottlenecks in the video market. Instead, there is effective competition between MVPDs, OVDs, and even wireless providers. The Commission should eliminate speech-restricting regulations where it has the power to do so. And when it lacks such power, the Commission should readjust regulations in a deregulatory direction that respects free speech principles.
 
Broadcast exclusivity regulation constitutes one candidate for repeal. The Commission should proactively seek other unnecessary and costly legacy rules to wipe from the books. For those instances where repeal of legacy rules requires Congressional action, the Commission should reorient such rules through the use of deregulatory presumptions. The Commission should make free market competition the default presumption in applying its rules. It should require evidence of actual or potential market power or consumer harm to overcome that presumption and thereby justify regulatory intervention. Use of deregulatory presumptions would provide swifter and surer relief from burdensome restrictions that no longer make sense.
 
In addition, it is critically important that the Commission drop its proposed regulations of set-top boxes and video apps. If adopted, such regulations would significantly damage the market values of video programming content and voluntary market arrangements by undermining copyrights and contract rights.
 
No market problem exists that would provide a justification for the intrusive tech mandates on video devices and video apps the Commission now contemplates. The Commission should no longer disregard the heavy costs that would initially be paid by MVPDs as well as video programming owners - and which ultimately will be paid by consumers.
 
It would also be a serious mistake for the Commission to design new "free" standard video apps for accessing MVPD programming. The Commission's forthcoming revised proposal would, if adopted, give the government ultimate control over the design and functions of the apps. It would also mandate the terms and conditions under which copyrighted programming must be made available. This is a compulsory license, even if Chairman Wheeler prefers not to utter the words "compulsory license." This is a legally dubious approach under Section 629. That provision is directed to Commission regulation of "converter boxes" and "equipment," not Internet software apps. It is also contrary to copyright law and the exclusive rights of video programmers to license their content for performance or display by parties of their own choosing.
 
The Commission should drop its proposal and, instead, finally recognize that new market entrants and rivalrous platforms have made the device market "fully competitive." Indeed, the Commission should sunset its set-top box rules.
 
In sum, the Commission, finally, should bring its regulatory policies into closer alignment with the actual state of competition in the video services market. That begins with recognizing that the MVPD market is effectively competitive and with respecting First Amendment free speech principles. It also includes recognizing OVD services as a potential substitute for MVPD services. And, in all events, the Commission should drop its unlawful and harmful proposed regulations for video devices and video apps.

* * *
 
Randolph J. May, President of the Free State Foundation, is a former FCC Associate General Counsel and a former Chairman of the American Bar Association's Section of Administrative Law and Regulatory Practice. Mr. May is a current public member of the Administrative Conference of the United States, and a Fellow at the National Academy of Public Administration.
 
Mr. May is a nationally recognized expert in communications law, Internet law and policy, and administrative law and regulatory practice. He is the author of more than 180 scholarly articles and essays on communications law and policy, administrative law, and constitutional law. Most recently, Mr. May is the co-author, with FSF Senior Fellow Seth Cooper, of the recently released The Constitutional Foundations of Intellectual Property and is the editor of the book, Communications Law and Policy in the Digital Age: The Next Five Years. He is the author of A Call for a Radical New Communications Policy: Proposals for Free Market Reform. And he is the editor of the book, New Directions in Communications Policy and co-editor of other two books on communications law and policy: Net Neutrality or Net Neutering: Should Broadband Internet Services Be Regulated And Communications Deregulation and FCC Reform.
 
Seth L. Cooper is a Senior Fellow at The Free State Foundation. He is the author of numerous articles and essays on federal telecommunications and technology policy, regulatory reform, and intellectual property. Mr. Cooper's work has appeared in such publications as the Washington Examiner, The Washington Times, The Tennessean, and the San Jose Mercury News. He previously served as the Telecommunications and Information Technology Task Force Director at the American Legislative Exchange Council (ALEC), as a Washington State Supreme Court judicial clerk, and as a state senate caucus staff counsel. Mr. Cooper was a 2009 Lincoln Fellow at the Claremont Institute.
      
The Free State Foundation is a non-profit, independent free market-oriented think tank.

  
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