|Sony's OTT video offering will be delivered to its PlayStation game consoles|
In one fell swoop, this could clear up three big issues for potential OTT providers who are direct MVPD competitors, offering a package of linear "cable TV" networks.
#1 Access to top name-brand broadcast and cable network programming
Much like cable and DBS, any MVPD would have the right to negotiate with broadcast TV stations over retransmission consent and the stations would have the right to demand must-carry. For example, Aereo, which the Supreme Court declared was not legal because it distributed programming like an MVPD, but was denied the right to be an MVPD when it used the Supreme Court's argument at the US Copyright Office, would no longer be in a legal no-man's-land. Clarity on this point is overdue, as David Oxenford in BroadcastLawBlog notes, the Sky Angel case has been before the FCC for a long time, long enough, it turns out, for Sky Angel to go bust in its over-the-top incarnation.
#2 A way around online streaming restrictions in MVPD affiliation agreements
Restricting the distribution of cable programming on some "other" technology was a backdoor way to get some exclusivity, now the other MVPDs will have to negotiate exclusivity versus other MVPD competitors through the front door and many programmers have, not unreasonably, been historically reluctant to do exclusive deals that reduce MVPD competition.
#3 A way around rights issues for cable TV programming and advertising (e.g., SAG members get paid differently for commercials produced for the Internet than for those produced for TV)
Right now, only companies that explicitly clear "Internet rights" are allowed to put the programs on their TV channels on the Internet. Once an online video distributor is an MVPD, the linear stream of programs, as presented on a cable program service like Lifetime, can go to any MVPD.
[If the programmer owns the program and all its rights, like Major League Baseball, one can find MLB Extra Innings on cable TV or DBS (with internet streaming as added-value for "authenticated" subscribers), or as a stand-alone OTT offering at mlb.tv (although the TV commercials are usually not included in the Internet stream as the advertisers do not want to pay the performers for both the TV and Internet exhibition).]
Unfortunately for the soon-to-be-nascent-direct-MVPD-competitor, the over-the-top business still has two big remaining issues:
#1 Bandwidth caps
It might be politically poisonous for a cable MSO facing a direct competitor delivering "cable TV service" over-the-top to announce bandwidth caps that would make it uneconomic for any of their customers to use such a service. That said, the cable industry, like many other industries, has historically looked to protect its business against competition. Certainly that's what Netflix thought Comcast was doing when the streaming performance of Netflix customers using Comcast as their ISP declined in late 2013. Bandwidth caps would be great protection for MSOs against online video competition.
#2 The reality of the marketplace
This combines several issues: Is the consumer offering attractive enough? Are the programmers willing to negotiate with these new MVPDs? Are there terms that the programmers will find attractive enough that create a business opportunity for the new MVPDs? On the first one, Sony's rumored $80 per month offering is considerably more expensive than many had hoped.
Cable TV programmers have been supportive of new, clearly legal entrants to the program distribution business. More competition among distributors is always good news for the program suppliers who now have a new set of customers. Viacom certainly thinks so. Going over-the-top and preserving the existing pay-TV packaging (and business model) appears to be more attractive than going over-the-top on one's own like World Wrestling Entertainment's $9.99 monthly offering.
Rather than going-head-on against the pay-TV incumbents, it would seem that a more prudent course for new MVPDs would be to find a segment of the marketplace that is un- or poorly-served by the incumbents, but which also has high broadband Internet penetration. That may be a difficult combination to find.
My earlier post: The Virtual MSO Opportunity (19 July 2013)
Update (14 October 2014): Aereo asks the FCC to classify it as an MVPD (via Deadline), Brian Fung in the Washington Post thinks Aereo is making this request only in the short-term
Update (29 October 2014): FCC Chairman Tom Wheeler makes his views explicit in an FCC blog post "Tech Transitions, Video, and the Future". In short, he supports OTT video providers getting the rights that MVPDs have, believing that it will foster competition.