The FCC Is Not Thinking Outside the Set Top Box – Just Undermining its Financial Foundation

April 22, 2016

Today, ANA filed comments with the FCC regarding the Commission’s Notice of Proposed Rulemaking (NPRM) on expanding competition in set top boxes. The NPRM seeks to allow competitive consumer electronics manufacturers to make set top box devices and software that can provide full access to the content of multichannel video program distributors (MVPDs). While we are just beginning to assess the full potential of the proposed rules’ impacts, ANA has highlighted several very serious and negative consequences the rules could have, particularly for the advertising industry and consumers.

The most important of these impacts is the threat to the contractual obligations of advertisers and those distributing their advertisements. In today’s system, the privity between these parties ensures both rights and obligations. If (as proposed by the NPRM) content is accessed by a third party with which there is no privity, those rights and obligations could be severely undermined. Advertisers would be in the position of not knowing who is responsible for the integrity of their ads. They would have to absorb significantly increased costs just in attempting to monitor where their ads appear and whether their originally approved messaging was appropriately used.

Once the privity of contract is removed, advertisers will face the following serious threats:

  • The undermining of compensation agreements with programmers;
  • Risks to the investments marketers make in content sponsorships, including the Olympics and other costly special events;
  • The potential for third parties to alter or manipulate original ads through inserting additional ads, using unrestricted overlays, banners or blockers or other detrimental interference;
  • Risks to the complex systems currently used to protect content from theft and piracy.

Numerous industry experts, MVPDs, and other content providers all agree that the NPRM would undermine the advertising-based economics that currently support the creation of high-quality commercial video content.

Nevertheless, paragraph 80 of the NPRM states that the Commission does “not currently have evidence that regulations are needed to address concerns…that competitive navigation solutions will disrupt elements of service presentation…replace or alter advertising, or improperly manipulate content.” However, the concerns we raise are not merely conjecture or supposition – they are already evident. ANA is aware of instances where promotion and marketing of original programming has been overtaken by the marketing of the acquiring entity. TiVo, for example, has overlaid its own messaging or placed competing advertising messages over the promotional messaging of cable operators. TiVo has stated that it does not believe competitive device providers should be bound to programming contracts entered into by MVPDs to which they were not a party. This only foreshadows how other third party manufacturers will be able to undermine programming content and advertising under the FCC’s proposals.

If further protective measures are not mandated, this NPRM will have great potential to adversely affect the advertising segment of our economy. ANA did not argue for or against the desirability of navigation device proposals, but rather emphasized our concern that, whatever the technologies utilized, a fair marketplace must exist in which advertising interests are protected and where the financial underpinnings for content creation, and competition among content creators, are not undermined.

We are very concerned that adoption of the NPRM could lead to these results, including the availability of less program content, higher costs to consumers, and less quality and programming content innovation. That certainly would not help consumers or be in the public interest. ANA does not believe that the Commission has analyzed the NPRM’s potential impacts on consumers and advertising interests, and we have urged that the NPRM not be adopted in its current form.

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