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State of Play

by Anthony Bontrager on November 23, 2010

“Stealing is not right… and it is stealing.”

– Ari Emanuel, William Morris Endeavor.

 

Over the past four months or so, two companies have literally become household names in the broadcast television industry.  While most companies achieve this level of notoriety through the development of a disruptive technology or new consumer craze, both ivi and FilmOn have achieved it through an obvious disregard of US copyright, re-transmission consent and a host of other laws or rulings designed to protect both content owners and consumers.

Now, we’ve all seen this story before with companies such as Redlasso, Limewire, etc.  Each built their business off the distribution and monetization of 3rd party content that they had no rights to.  Their position was indefensible and in the end they either worked with the content owners to reach a mutually beneficial arrangement or simply shut down.

Fast forward to today, and courtesy of some very dubious interpretation of US Copyright law and petitions to the FCC, the pirates are attempting to “force the broadcasters to work out a deal” according to a Wall Street Journal interview with ivi CEO Todd Weaver [my emphasis added].

What I find interesting in the case of ivi is the duality of their position.  On one hand, ivi claims that they are not a cable company and as a result reference Section 111 of the US Copyright law that enables certain, non-cable organizations to make use of broadcast television content – provided certain criteria are met – under a compulsory license scheme.  The net result of the compulsory license argument is that ivi would be able to pay less than fair market value for the broadcast content that it distributes.  Here, ivi’s analysis is flawed, as the exemptions from exclusivity for what are called “secondary transmissions” of broadcast content are essentially only available to Multi-Dwelling Unit (MDU) providers, satellite carriers, educational providers and non-profits.  The only glimmer ivi has in this section is sub-section a(3) that states:

“the secondary transmission is made by any carrier who has no direct or indirect control over the content or selection of the primary transmission or over the particular recipients of the secondary transmission, and whose activities with respect to the secondary transmission consist solely of providing wires, cables, or other communications channels for the use of others: Provided, That the provisions of this clause extend only to the activities of said carrier with respect to secondary transmissions and do not exempt from liability the activities of others with respect to their own primary or secondary transmissions;”

However, by virtue of its video player and grid guide, ivi falls well short of this definition as they go beyond being the “dumb pipe” and are actually the enablement platform and presentation layer of the content.  In essence, a cable company.  Oops, did I call them a cable company?

Yet on the other hand, they are petitioning the FCC to actually designate them as an online cable company, thereby forcing the broadcasters to enter into some sort of negotiation, re-transmission consent or must-carry designation for the benefit of ivi.  Alternatively this would give them better legal footing under Section 111 of the US Copyright law, specifically sub-section (c) that allows certain cable systems to engage in the secondary transmission of broadcast signals “where the carriage of the signals comprising the secondary transmission is permissible under the rules, regulations, or authorizations of the Federal Communications Commission.”  Thus, they would be designated a cable system AND get to participate in the compulsory license scheme.

Not a bad proposition, but ivi needs to clearly define what it is – cable company or not?

But I digress….  The real ramifications here, other than companies like ivi and FilmOn giving legitimate content aggregators a bad reputation, is what this portends for content owners should ivi be successful.

In such a situation, companies like Hulu, YouTube, Comcast’s xFinity and other online content platforms would strive to be designated as this quasi-androgynous online cable operator and benefit from the compulsory license scheme.  Unless I’m much mistaken, I imagine the team at Hulu would love to change the economics of the content deals they have with their owners – imagine immediate profitability!

It’s well known that the cable industry needs to evolve with today’s changing technological and consumer environment.  But by stripping away the ability for a content owner or producer to negotiate in the open market a fair price for their wares and require them to accept a compulsory license fee (which is an infinitesimal fraction of what it actually costs to produce the content) the industry as a whole will fold in on itself.  Who cares if you can pay $4.99 for a cable package if there’s nothing to watch?

While I don’t see believe that we are facing an Armageddon of the content industry, I do believe that ivi’s tactics amount to little more than a unique (and ballsy) way of avoiding the very real necessity of appropriately licensing content from the broadcasters.  I’ve negotiated numerous transactions at the national and local broadcast level for online and mobile distribution of video and these deals are not difficult to come by as nearly all broadcasters and cable programmers are open to working with online service providers.  Maybe ivi should drop the legal scheming and pick up the phone.  They just might be surprised.

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