November 24, 2015 | Commentary on Internet And Technology, Regulation

Thriving over-the-top video marketplace escapes over-the-top FCC regulations — for now

Television has come a long way since it was dubbed a "vast wasteland" more than a half-century ago. Once limited to a meager handful of government-approved stations, each with cookie-cutter fare, consumers today can choose from hundreds of diverse channels, each competing for their attention. Now, a wave of change is engulfing the market: Internet-based TV. Often called over-the-top (OTT) video, such service is provided over your Internet service rather than through your cable connection or satellite feed. And, with the Internet as their platform, OTT viewers enjoy a virtually limitless number of programming options.

The OTT marketplace is growing fast. Perhaps the best-known provider is Netflix. Started as a mail-order DVD service, it has evolved into an on-demand streaming service and then into one that creates original entertainment programming. But a horde of others have entered the market, including Amazon's Instant Video service, Google TV, Vudu, Hulu, Sling TV, Flixster, Crackle, and

Many are affiliated with existing players in the TV marketplace, but backing for these ventures is coming from a dizzying variety of sources, including retailers, consumer electronics manufacturers and Hollywood studios.

And more OTT options are on the way. Perhaps most notably, Apple is planning to debut an online TV service next year, providing about 25 channels of OTT programming, including content from CBS, ABC and Fox.

This is a free-market success story. Yet the Federal Communications Commission, under the leadership of Chairman Tom Wheeler, decided last December that some rules from Washington would make things even better.

Specifically, the FCC proposed to redefine OTT providers that offered regularly scheduled programing as "multichannel video program distributors" (MVPDs), putting them in the same regulatory category as cable TV and satellite television services. This would have triggered a number of obligations on OTTs, including mandatory closed-captioning, restrictions on the loudness of commercials and requirements that set-top boxes be offered for sale in retail stores.

However, there was also a carrot offered to Internet TV services: as MVPDs, they could force existing broadcast TV stations to negotiate agreements to retransmit their programming. Mr. Wheeler thinks this shift is needed to assist OTTs that had been having difficulty acquiring the programming content they wanted.

But competition in TV service — both among OTTs as well as between them and more traditional forms of television — is robust. While individual failures do occur, as they do in any healthy market, choices for consumers are still growing, with new services launched frequently. This market does not need the FCC's help.

In addition, given the regulatory burdens that accompany MVPD status, even some of the intended beneficiaries of the change expressed reservations about the rule change. For instance, YipTV, a primarily Spanish-language online video service launched in May, told the FCC that "classification as an MVPD will bring substantial costs that may limit its ability to obtain new programming — thus reducing the programming choices available to consumers." Others, such as, jumped in with criticism of its own, pointing out that in a marketplace as volatile as OTT's, FCC intervention would be sure to have unintended consequences, leaving consumers worse off.

Last week, in the face of growing criticism, including opposition from Rep. Frank Pallone Jr. of New Jersey, the ranking Democrat on the House subcommittee that oversees the FCC, Mr. Wheeler retreated on the proposal, announcing that he didn't plan to move forward with the new rules "at this time." That is a welcome move, although it's not clear whether the plan might be revived later.

Over-the-top services promise vast benefits for the formerly vast wasteland of television. But these benefits would be undermined by the imposition of unnecessary rules that burden (or artificially protect) those services. Instead of expanding old rules to cover OTT television, the FCC should ensure that it does not impose outdated rules anywhere in this new marketplace.

-James L. Gattuso is a senior research fellow for regulatory policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

This piece was originally published in the Washington Times