March 15, 2016 10:07 AMunlock the box" initiative, the Chairman had a different idea: if the FCC made it easier to become an over-the-top ("OTT") multi-channel video programming distributor ("MVPD"), then more companies would enter the market, and this competition would benefit all subscription video consumers. You might think this would appeal to a new entrant with TV ambitions, like Google.
After all, the subscription TV market is devilishly hard to penetrate even if you can get the capital to build a distribution system. A year ago, Google had 20,000 customers in Kansas City--after 5 years of trying. But, Google wasn't in love with the Chairman's idea. Why not?
The Market Is Internet Advertising . . . on TV Screens
Google is the dominant company in Internet advertising because it sells information about you--that it learns from your use of its applications, and devices--to advertisers. If you're using the Internet, whether on a computer, mobile phone, or tablet, then there's a 70-85% likelihood that you're looking at Google ads (according this WSJ article re: the FTC Bureau of Competition 2012 staff recommendation on Google's abuse of its market power in online advertising).
When you watch TV, however, the ads you see are not targeted at you personally, because they haven't been placed by Google. This is something Google has been trying to fix since shortly after it first announced plans to build a fiber network. Google, through its Google TV, and then Android TV, project makes "smart TVs" (with Google software built into the TV) and "buddy boxes" (set top boxes that work with a cable box/cable remote) available to consumers. But none of these efforts have been particularly successful--leading industry observers to conclude that Google needed "another path to the TV screen."
Then, a year ago, Google decided to try an "experiment" in Kansas City in which it combined its TV customers' content, and viewing history, with its advertising algorithms in order to sell targeted ads on the customers' TV screens. Most likely, Google discovered that the content itself was the secret ingredient that would allow it to integrate the TV screen into its advertising universe.
So why not become an OTT MVPD in the proceeding that Chairman Wheeler had initiated in December of 2014? One obvious problem with this strategy is that MVPDs have long been subject to extremely strict FCC rules about disclosing customers' personally-identifiable information--rules that don't apply to edge providers like Google. The other problem with this approach is that the subscription TV market is devilishly hard to penetrate--just to get access to the customer's video content. Thus, shortly after Google announced its Kansas City TV experiment, it (along with several of its Google TV partners, trade associations, and pressure groups) formed the Consumer Video Choice Coalition ("CVCC") and began lobbying the Commission on a new set of issues.
The FCC Unbundles Video to Create "Device Market" Competition?
On February 18th, after 6 months of intensive lobbying by the CVCC, the FCC voted to require multichannel video programming distributors (hereinafter "MVPDs") to, effectively, "unbundle" the video stream going to and from the customer's television. See, "Set Top Box NPRM". The Commission explains that its proposed rules requiring video stream unbundling are necessary "because MVPDs offer products that directly compete with navigation devices and therefore have an incentive to withhold permission or constrain innovation, which would frustrate Section 629's goal of assuring a commercial market for navigation devices." Set Top Box NPRM at para 12.
The FCC seems to believe that if it can imply that the MVPDs were responsible for the failure of the Commission's CableCARD rules, and that the MVPDs would likely frustrate any future rules to facilitate device interoperability, then it will be justified in implementing full-scale video stream unbundling. So, on the thinnest of grounds--a couple of anecdotes, and a facially absurd theory--the FCC asserts that that MVPDs "offered poor support" for the CableCARD rules, and have the ability and incentive to frustrate the manufacture/sale of navigation devices by third parties. Set Top Box NPRM at paras 7, 12, and 28. The actual answer to the Commission's question was already available--but it wasn't the right answer.
The Commission's theory regarding MVPD's "incentive and ability" to foreclose third party sales of navigation devices has been litigated through trial in two separate consumer class action antitrust cases, and this theory has never been found to be supported by any evidence. See, Jarrett v. Insight Communications Co., (W.D. Ky. July 14, 2014)
and Healy v. Cox Enterprises (W.D. Ok. Dec. 15, 2015). If you bother to read either of these cases, you may also be surprised to learn that the device manufacturing market is very competitive--with at least 5 major vendors competing for each cable system.
So, as was the case with the Commission's reclassification of broadband Internet access, a very small number of privileged entities (Google, its partners and pressure groups) benefit from rules designed to address conduct that is not even hypothetically rational--much less, likely. Still, you might think, who cares if the TV providers now have to compete with Google to sell ads to viewers? But, Google won't be competing with your TV provider.
Don't Expect Much New Competition in the Device, or Online Advertising, Markets
One of the issues from the Commission's Net Neutrality Order (currently on appeal) is whether the FCC could, as part of reclassifying broadband Internet access as a "telecommunications service," classify all of an Internet user's formerly non-confidential information (the kind Google sells to advertisers) as "Customer Proprietary Network Information" ("CPNI") under Section 222 of the Act. The statutory definition of CPNI is fairly broad, and includes information "made available to the carrier by the customer solely by virtue of the carrier-customer relationship." 47 USC 222(f)(1).
If the DC Circuit agrees with the FCC that previously non-confidential customer data is now CPNI, as the result of the Commission's change in service definitions, then the FCC could limit the ability of ISPs to provide customer usage information to advertisers. This was exactly the position that was being urged on the Commission by the Eric Schmidt/Google-funded pressure group New America, only a week before Chairman Wheeler put his "unlock the box" editorial on Recode.
Last Wednesday, in a Senate Judiciary Committee Oversight Hearing, FTC chair, Edith Ramirez, was grilled on why the FTC overrode the recommendations of its Bureau of Competition and closed an investigation into Google's abuse of its market dominance in the online advertising market. Not un-ironically, two days later, the FCC released a "fact sheet," describing its proposed rules to prevent ISPs from competing in that market by providing the same kind of ads that Google does--over your computer, mobile, and now, TV screens.