FilmOn Ruling Not The End Of The World

The networks suffered a setback Thursday when U.S. District Court Judge George Wu ruled that Alki David’s FilmOn is entitled to the compulsory license.

But it’s only a setback. There is plenty more litigation to go before it’s settled that FilmOn — or any other online video distributor (OVD) — may enjoy the benefits of the license as cable and satellite operators do. For the record, the license permits redistributors of broadcast signals to cover their copyright liability by paying a nominal fee through the Copyright Office.

The Supreme Court has weighed in once on this issue, and may do so again before it’s all over.

And even if the networks ultimately lose the legal battle, they may not lose the war. The FCC has their backs. Sometime later this year, the agency, with the backing of Chairman Tom Wheeler, is expected to rule that OVDs are multichannel video program distributors (MVPDs) just like cable and satellite operators.

And as MVPDs, FilmOn and its ilk will presumably have to secure retransmission consent from (and pay retrans fees to) the most-watched broadcast stations — O&Os, affiliates and major independents. (They would also presumably have to carry little-watched stations that assert their must-carry right.)

I say “presumably” because I am not certain that the FCC will impose the must-carry/retrans responsibilities on OVDs. But I and most others following the rulemaking are confident it will. Even FilmOn has said it is the right thing to do.

And isn’t that what really matters — that stations get paid for the redistribution of their signals no matter how those signals are redistributed? If stations can collect retrans fees from the OVDs, the networks can get paid for their programming through the fees or reverse comp they charge the affiliates.

By the way, broadcasters need more from the FCC proceeding than just a broad ruling that retrans applies to OVDs. They also need rules insuring their local exclusivity.

Like cable and satellite operators, OVDs must restrict the distribution of broadcast signals to their local markets and to have some mechanism to guard against out-of-market reception. At the very least, the FCC ought to allow broadcasters to refuse to negotiate with OVDs that won’t, or can’t, guarantee exclusivity.

To further safeguard broadcasters’ territorial rights, the OVDs should also have to adhere to the network non-duplication and syndication exclusivity rules banning the importing of shows to which stations have the local rights.

The FCC’s “protection of program exclusivity is as critical to assurance of the nation’s local broadcast service in the online context as it is in the cable and satellite context,” the network affiliates argue in their comments to the FCC.

If the FCC follows through and imposes retrans and exclusivity obligations on OVDs, the rules will serve as a bulwark against the OVDs winning the compulsory license in the courts and streaming their programming without paying fully for it.

That’s the way the network affiliates see the FCC proceeding and that’s why they have been enthusiastic supporters of it. Many affiliates also like the idea of treating OVDs just like cable systems since it puts them, rather than the networks, in control of the negotiations with the OVDs.

Ironically, however, the networks have been opposing the FCC initiative, seeing it as a perpetuation of the old compulsory license regime that has over the years robbed them of full value of their programming. Keep in mind that the networks are, as CBS CEO Les Moonves has pointed out, primarily programmers — copyright owners — rather than broadcasters.

Just last week, representatives of Disney, CBS, Fox and other non-broadcast programmers made the rounds at the FCC arguing against the rulemaking.

In light of Thursday’s ruling, they might want to reconsider that opposition. It signaled that they could end up losing, something I’m not sure they ever seriously considered before.

In joint comments of CBS, Disney and Fox on the FCC proceeding last March, the networks said the law “remains clear” that Internet-based services are not entitled to the compulsory license.

It may have been clear in March, but it’s certainly not clear now.

The networks don’t necessarily need the FCC’s help. If they lose on the compulsory license in court, they could return to court to argue that any OVD that takes advantage of the compulsory license also takes on the obligation of retransmission consent.

The lawyers tell me that it would be difficult for an OVD to prevail on the argument that it is, on the one hand, a cable system for purposes of the compulsory license, but not, on the other, for purposes of retransmission consent. In fact, as I mentioned above, FilmOn is on the record as saying the two go hand in hand.

Still, litigation is always dicey. You never know what you are going to get.

Here’s something else I’m sure the networks are plugging into their calculations. If the FCC goes ahead and declares that OVDs can be MVPDs, it strengthens the compulsory license case of the OVDs.

FilmOn can argue that the federal agency charged with regulating MVPDs now recognizes OVDs as ones. If nothing else, the FCC ruling might offset all the declarations of the Copyright Office saying that the compulsory license should not be extended to OVDs.

The trade press overreacted to Judge Wu’s ruling, calling it an “earthquake,” a “shocker” and a “stunner.” I’m content to call it a setback, and far more so for the networks than their affiliates.

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