FCC Needs to Recognize the Value of Advertising

In February, the FCC put forward a sweeping Notice of Proposed Rulemaking (NPRM). The FCC claimed that it would create needed competition in the set-top box marketplace.

In fact, as we emphasized in our two filings in this proceeding, the FCC’s plan poses an extraordinary threat to advertising interests. It would give third parties access to content without requiring them to abide by contractual agreements or copyright protections that are presently in place between programmers and advertisers.

ANA told the FCC that its proposal would preclude advertisers being able to control ad content and placement, which of course would create great uncertainty for consumers and jeopardize ad compensation.

ANA fortunately is not alone in its concerns about the FCC’s plans. Members of Congress have raised a host of problems with the proposal (e.g., threats to programming diversity, harms to small businesses, and additional opportunities for pirated content). Many business interests also have complained that the rules would upset the current content regime without achieving desirable benefits for consumers.

Now, the U.S. Copyright Office has weighed in against the rules, pointing out that:

•     Copyrighted multichannel video programming is the result of complex, private negotiations that depend on an understanding that the works will be made available pursuant to negotiated terms.
•     The proposed rule appears to allow third parties to unfairly exploit copyrighted works, contrary to the essential conditions upon which the works were originally licensed.
•     The proposed rule seems to allow third-party devices and applications to ignore MVPDs’ agreements not to alter agreed-upon channel lineups or neighborhooding restrictions, to replace or alter advertising, or to improperly manipulate content.
•     Even if third-party devices and applications did not replace the advertising that appears in the programming itself, the proposed rule appears to allow them to add additional advertising as part of the programming stream, or to banner advertising next to or overlaid on top of a program, without any requirement that resulting advertising revenues be shared with either the MVPD or the content creator.
•     The proposed rule would allow third parties to commercially exploit copyrighted works, thereby diminishing the value of those works.
•     The FCC does not have the legal authority to create enforcement mechanisms to address potential copyright violations, so any harm that might occur could not be redressed.

With all these problems, no wonder the proposal has been widely rejected, including by some within the FCC itself. Even before the Copyright Office’s statement, FCC Commissioner Rosenworcel said that, “[I]t has become clear the original proposal has real flaws and, as I have suggested before, is too complicated. We need to find another way forward.” And FCC Commissioner Pai, also responding to the Copyright Office statement, urged that “[I]t is long past time for the FCC’s leadership to walk away from its deeply flawed set-top box scheme. Instead, the Commission should focus on ways to ditch the set-top box and embrace the video marketplace of the future.”

ANA couldn’t agree more. The important role of advertising and its value to the nation’s economy, the support advertising provides for a reasonably-priced Internet, the sanctity of copyrighted works, and the threats for piracy of content all demand that this misguided proposal be withdrawn. The FCC should go back to the drawing board.

We’ll keep you posted.