JESSELL AT LARGE

Big Retrans Downside To Telletopia Plan

Startup Telletopia believes that it can retransmit the broadcast signals on the Internet and avoid all copyright liability by operating as a nonprofit. It says it would pay broadcasters for their signals, but if the FCC doesn’t rule that Telletopia and other online video providers are subject to the same retrans obligations as cable and satellite operators, what’s to stop Charlie Ergen or others from setting up nonprofits to take station signals for free?

Telletopia may not be the broadcasting utopia it first appears.

If you haven’t heard the pitch from the San Diego-based startup, here it is: We’ll build and launch an OTT service in each TV market offering the local broadcast signals to paying subscribers so they can watch on tablets, smartphones and connected TVs.

We’ll charged “less than $20 a month,” and pass along most of that revenue to you, the broadcasters, in the form of retransmission consent fees. Think of it as a virtual cable system dedicated to broadcasting. Think of it as a broadcaster-friendly Aereo.

That sounds simple enough, and, technically and operationally, I believe it is.

The problems are legal and regulatory.

Telletopia believes that it can retransmit the broadcast signals on the Internet and avoid all copyright liability by operating as a nonprofit.

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That belief stems from language in the 1976 Copyright Act that exempts nonprofits if they operate:

  • “Without any purpose of direct or indirect commercial advantage.”
  • “Without charge to the recipients of the secondary transmission other than assessments necessary to defray the actual and reasonable costs of maintaining and operating the secondary transmission service.”

I’m no lawyer, but I can see that there is plenty of squishy language in there for copyright holders — in this case, the big media conglomerates that own the broadcast networks and much of the programming — to challenge Telletopia’s legal theory for the exemption, which is laid out in a six-page 2013 legal memo by attorneys Eric Breisach and Lisa Chandler Cordell.

If the principals of Telletopia, a group of former cable and wireless executives, draw salaries, does that constitute “direct or indirect commercial advantage?” If Telletopia is paying substantial retrans fees to broadcasters, are they exceeding “actual and reasonable costs?”

Telletopia, of course, wants to avoid the courts. I suspect that is why it also wants the FCC to rule that it and other online video providers (OVDs) that carry broadcast signals are subject to the same retransmission consent obligations as cable and satellite operators. That is the broadcast-friendly way to go about this.

(Telletopia also needs some other things from the FCC in that proceeding. Among them, prohibitions against the broadcasters bundling non-broadcast signals in with their broadcast signals and against the networks’ interfering with the affiliates’ ability to cut deals with OVDs.)

The FCC led by Tom Wheeler was heading toward making such a ruling, but, for whatever reason, it’s not now. At an oversight hearing a couple of weeks ago, Wheeler said the proceeding had been shelved.

Unfortunately for Telletopia that puts the affiliates in the position of having to oppose Telletopia’s claims to a copyright exemption, despite its apparently sincere assurances that they want to fairly compensate the affiliates.

Why? Because Telletopia would be setting a terrible precedent. If one nonprofit can retransmit broadcast signals without having to worry about copyright then any nonprofit can.

And these other nonprofits might not be interested in compensating broadcasters and they wouldn’t have to. What’s more, they would not have to respect broadcasters’ local market exclusivity. They could distribute broadcast signals regionally or nationally if they wanted to.

As has been suggested to me by a couple of broadcast attorneys, long-time broadcasting nemesis Charlie Ergen could set up a nonprofit that would relieve him of having to deliver broadcast signals to his satellite subscribers and paying retrans for them. The big cable operators could do the same thing, of course.

The affiliates can rest assured that the networks would lead the legal fight to block anyone from claiming a nonprofit copyright exemption. And they may want to join the networks in that fight.

But the affiliates should also do what they can to resurrect the FCC proposal to impose retrans obligations on OVDs like Telletopia. By doing so, they would be creating a second line of defense against losing control of their broadcast signals in the broadband world.

It’s not just the threat of proliferating nonprofits that affiliates have to worry about.

FilmOn is a for-profit OVD that is waging a legal battle to carry broadcast signals under the compulsory license, which, for all intents and purposes, is the same as getting a full exemption from copyright liability.

So far, its argument that it is in essence a cable system based on and entitled to the license as one has been heard in three federal district courts.

Although it has lost two out of three cases, its argument is a legitimate one based on the Supreme Court’s 2014  Aereo decision that found little practical difference between a cable system and an OVD. If one is entitled to the compulsory license, so should the other be, or so the FilmOn argument goes.

If FilmOn continues to pursue the case in the appeals — it’s shown no signs of backing off — it could end up once again in the Supreme Court and it could ultimately win.

So, Telletopia and FilmOn represent two very good reasons to lobby for the FCC to impose retrans obligations on OVDs. The last thing any broadcaster would want is rogue nonprofits and for-profits like FilmOn set loose to redistribute their signals however they want without having to pay for them.

Plus, if the affiliates prevail on this issue at the FCC, the threat of the OVDs magically morphs into an opportunity for them. The OVDs — free of copyright liability, but not retrans obligations — would pump the affiliates’ signals into every digital device and become another source of revenue.

Of course, before getting into bed with the OVDs, the affiliates would have to placate the networks, which want to control all digital distribution of their programming. Either that, or, as Telletopia suggests, they need to convince the FCC to add a rule barring the networks from interfering with their OVD dealings.

Nobody ever said utopia was easy.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.


Comments (6)

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Matthew Castonguay says:

December 4, 2015 at 4:54 pm

“Innovative tech start-ups” that are actually “legal weasel Rube Goldberg contraptions”….jumped the shark. Please, get lost!

Keith ONeal says:

December 5, 2015 at 8:38 pm

Since some of our shows are also sold to broadcasters and networks in other countries around the world, you’ve gotta wonder if OVDs are already putting these shows on the Internet without paying for them because they are not running them off any American network or station. Is this a grey area? Is it a slippery slope?

Robert Stevens says:

December 5, 2015 at 9:03 pm

The legal questions you raise are real, and in fact, but a small subset of the full set of legal questions raised by Telletopia’s stated plan. On the other hand, some of the concerns that you state as definitive risks are, in fact, legal questions themselves. If there’s one thing we have learned from Aereo and a whole slew of cases around the 111 compulsory license, it’s that even where the statutory language is very clear, the courts are apt to read all kinds of other things into it.

So while you assert, for example, that a non-profit could distribute broadcast signals regionally or nationally, that’s really an open question — based on past performance, the courts could easily read into the law a locality limitation, on the theory that Congress never foresaw anything other than local retransmission when adopting the non-profit exemption. (After all, in following the Copyright Office’s lead, most courts to tackle the issue have already read a similar non-statutory limitation into the 111 compulsory license.)

On the other hand, you are absolutely correct that nothing would require another non-profit to pay retrans fees to broadcasters. In fact, it’s actually an open question whether it would even be possible to pay retrans fees while taking advantage of the exception. After all, retrans fees are clearly a commercial advantage for broadcasters. So if a non-profit were to pay retrans fees, would a court find that to be an impermissible purpose of direct or indirect commercial advantage? (Let’s remember that copyright protection for retransmissions was enacted to protect underlying rightsholders, not broadcasters — and specifically to ensure those rightsholders were compensated for out-of-market retransmissions, not in-market retransmissions for which they had already been compensated.)

Where you seem to go off the tracks, however, is in your apparently perception that it would be a terrible, and somehow unfair, thing for a non-profit to retransmit broadcast signals without paying retrans fees to broadcasters.

I guess if you’re a broadcaster (or serve them as your primary audience), you believe retransmission consent is a god-given right.

Of course, it’s no such thing. On the other hand, broadcasters do have a fundamental obligation to deliver their signals to the public, for free. That’s the basic compact of broadcast television: 6 MHz of precious spectrum, in exchange for free (advertising-supported) television.

That a non-profit could retransmit broadcast signals without paying retrans fees is no mistake, or loophole. It is precisely what Congress intended. It very intentionally created the non-profit exemption to enable governmental or non-profit entities to make broadcast signals more accessible to the community. And retransmission consent rules have always exempted even for-profit cable systems, where those cable systems retransmit only broadcast signals. That’s because retransmission consent was never pitched by broadcasters, nor intended by Congress, as compensation for some entitled right of broadcasters, but rather, as a complex (and as history has shown, misguided) scheme to ensure competitive balance between broadcasters and cable systems that were proliferating non-broadcast channels.

So it would be entirely proper and consistent with Congressional intent, both under Copyright Law and under Communications law, for a non-profit with no purpose of commercial advantage to retransmit broadcast television without paying any fees to broadcasters. Broadcasters can and should fairly profit from those retransmissions according to fundamental compact of broadcast television: by monetizing the viewing audience through advertising.

Veronica Serrano Padilla says:

December 8, 2015 at 8:40 pm

The provisions of section 111 have been used for years by non-profits and governments who use LPTV translators to bring TV service to their rural areas. I sadly suspect that there are some big TV stations – long accustomed to getting retransmission fees from satellite and cable TV – that would love to see this provision go away. If it’s pushed by Tellopia and other would-bes they may get their wish…

Jerome Davis says:

December 10, 2015 at 9:35 am

We appreciate the debate on Telletopia and would like to weigh in on several topics:

Jonathan [aka JS Greenfield] is right that the copyright exemption for nonprofits was “precisely what Congress intended.” Congress debated for more than a decade over the Copyright Act of 1976 with the goal of opening broadcast TV to more consumers. The Act enabled cable companies with a compulsory license and nonprofits with an exemption from that same license. Having spoken to dozens of lawyers in the communications industry, we believe this is as black and white as it gets.

Central to the debate is whether payment of retransmission fees is appropriate or even legally necessary. Jonathan is technically correct — since Telletopia isn’t an MVPD — we aren’t required to pay retransmission fees. However, the reality is that broadcasters expect to be paid. Aereo, FilmOn and IVI are testament to this. Telletopia simply desires to extend broadcasters’ revenue model to the Internet. The real problem is not with the broadcasters, but the outdated regulations that limit consumer choice to a few monopolistic cable, satellite and telco MVPDs.

Several TV networks have already offered to license Telletopia what they can, outside of an MVPD regime. Unfortunately, that doesn’t include NFL, other big sports, local content and most ads. So the FCC’s vote to make Telletopia an MVPD is critical, as it would enable a level playing field. If that means Telletopia must pay broadcasters, then tell us where to send the checks.

Whether it’s possible to pay retrans under the exemption and whether Telletopia opens the floodgates to non-retrans-paying non-profits are non-issues. Broadcasters receiving retrans payments make unlikely plaintiffs. If Telletopia (or others) successfully avoid retrans, the FCC would make us an MVPD faster than a lobbyist on speed dial.

We don’t believe broadcast TV should be free to anyone who wants to retransmit it. That’s not our fight. We think there is a better option for consumers to watch TV: online.

Gary Koerper, CEO, Telletopia

Veronica Serrano Padilla says:

December 10, 2015 at 3:16 pm

Mr. Jessell writes: “So, Telletopia and FilmOn represent two very good reasons to lobby for the FCC to impose retrans obligations on OVDs.” Sounds like that may the entire reason for Tellopia’s being… surely they really aren’t interested in pouring millions upon millions into a non-profit just so they can make zero profits. It seems like it might be a ploy to reinitiate the FCC’s consideration of bestowing retrans rights on OVDs. Mr. Koerper of Tellopia – in my opinion (which doesn’t mean much!) – pretty much confirms this by saying: “The real problem is not with the broadcasters, but the outdated regulations that limit consumer choice to a few monopolistic cable, satellite and telco MVPDs. “


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