On Wednesday morning, the U.S. House of Representatives Energy & Commerce Subcommittee on Communications and Technology will hold a hearing on “The Future of Video.”

As we Tech Liberators have long argued on these pages (1, 2, 3, 4, 5, 6, 7), government’s hands have been all over the video market since its inception, primarily in the form of the FCC’s rulemaking and enforcement enabled by the Communications Act. While the 1996 Telecommunications Act scrapped some obsolete video regulations, volumes of outdated rules remain law, and the FCC wields vast and largely unchecked authority to regulate video providers of all shapes and sizes. Wednesday’s hearing offers members an excellent opportunity to question each and every law that enables governmental intervention—and restricts liberty in—the television market.

It’s high time for Congress to free up America’s video marketplace and unleash the forces of innovation. Internet entrepreneurs should be free to experiment with novel approaches to creating, distributing, and monetizing video content without fear of FCC regulatory intervention. At the same time, established media businesses—including cable operators, satellite providers, telecom companies, broadcast networks and affiliates, and studios—should compete on a level playing field, free from both federal mandates and special regulatory treatment.

The Committee should closely examine the Communications and Copyright Acts, and rewrite or repeal outright provisions of law that inhibit a free video marketplace. Adam Thierer has chronicled many such laws. The Committee should, among other reforms, consider:

• Restoring traditional copyright protection to broadcast signals, instead of the compulsory license created by the 1976 Copyright Act;
• Abolishing the “must-carry” rule that requires pay-TV providers to transmit certain broadcast signals without compensation;
• Ending syndication exclusivity, network non-duplication, and sports blackout rules;
• Repealing programming availability mandates and set-top box regulation;
• Undoing broadcast/cable ownership restrictions and media cross-ownership rules;
• Eliminating program access rules;
• Stripping the FCC of the authority to intervene in and promulgate rules regarding retransmission negotiations;
• Ending special regulatory treatment for public, educational, and governmental channels.

Here’s to the success of Sen. Jim DeMint, Rep. Steve Scalise, and other members of Congress who are working to achieve real reform and ensure that the future of video is bounded only by the dreams of entrepreneurs.

Imagine the following scenario. The government passes a law that includes regulations governing “transactional consent” for retail commerce. These regulations stipulate how buyers and sellers of various goods shall do business. Some of the rules give the sellers special rights to demand that the stores carry some of their goods as well as rules stipulating that stores not carry the goods of competing sellers from other markets. On the flip side, other preexisting rules give buyers the right to demand that certain sellers deal their goods to them at regulated rates.

Now, it’s true that a contractual negotiation takes place in this “marketplace” governed by “transactional consent” regulations, but does this sound like a truly free market to you? Most of us would say No.

Regrettably, that’s the essential error that the American Conservative Union (ACU) makes in a letter they sent to members of Congress this week in which they made the case against H.R. 3675 and S. 2008, “The Next Generation Television Marketplace Act.” That bill, which is sponsored by Senator Jim DeMint (R-SC) and Rep. Steve Scalise (R-LA), represents a comprehensive attempt to deregulate America’s heavily regulated video marketplace. In a recent Forbes oped, I argued that the DeMint-Scalise effort would take us “Toward a True Free Market in Television Programming” by eliminating a litany of archaic media regulations that should have never been on the books to begin with. The measure would:

• eliminate: “retransmission consent” regulations (rules governing contractual negotiations for content);
• end “must carry” mandates (the requirement that video distributors carry broadcast signals even if they don’t want to);
• repeal “network non-duplication” and “syndicated exclusivity” regulations (rules that prohibit distributors from striking deals with broadcasters outside their local communities);
• end various media ownership regulations; and
• end the compulsory licensing requirements of the Copyright Act of 1976, which essentially forced a “duty to deal” upon content owners to the benefit of video distributors.

Despite these clearly deregulatory provisions, in its letter to Capitol Hill, the ACU argues that the DeMint-Scalise bill would somehow interfere with what they regard as a free market in video programming. The ACU writes:

one of the major outcomes of the bill would be to strip away the negotiation process known as “retransmission consent.”  This process created a marketplace to ensure that broadcasters were compensated by pay-tv providers for the use of their signal and content. In 1992 Congress set up “retransmission consent” — a process by which broadcasters and the pay-tv industry would have to negotiate with each other for the use of the broadcast signal.  This prevented the pay-tv industry’s previous practice of using the signal for free and then profiting from its retransmission by selling the broadcasters’ content as part of their basic service. The programming that is most viewed today is still produced by broadcasting companies.  Broadcasters take risks by investing significant amounts of money into content production and marketing, and should have the right of determining its distribution.

It continues on:

The reality is that today we have a functioning market in which opposing parties are able to bring value to the negotiating table.  By stripping away the right to compensation for the use of the signal the government would be tipping the scales heavily to the side of the pay-tv companies.  It would distort the marketplace and allow an uncompensated use of broadcast signals and content and is certainly not “deregulation.”  So we urge you to oppose the retransmission consent provisions contained in HR 3675 and S 2008.

ACU has mistakenly equated the retransmission consent regulatory process with an actual free market contracting process. The two are not synonymous. Again, there are many layers of red tape that continue to encumber this marketplace and it would be incorrect to claim that the contracting process for video signals today represents a truly free and unfettered marketplace. The government has its thumb on one side of the scales with the retrans, must carry, and out-of-market signal regulations, but government simultaneously has its other thumb on the other side of the scale with the compulsory licensing requirements. And plenty of other regs litter the video landscape.  Thus, contrary to what the ACU claims, (1) a truly free video marketplace does not exist today because, by definition, a truly free marketplace would not be cluttered with so many federal regulations; and (2) the DeMint-Scalise bill absolutely does represent genuine deregulation of this marketplace since it would remove those unnecessary regulations. These are indisputable facts. No contortion of the English language can render them otherwise.

Unsurprisingly, because the ACU has made the mistake of assuming we currently live in a free market nirvana, it makes another error commonly heard in this debate. The ACU claims that an elimination of retransmission consent rules represents the end of free market contracting for video services. Indeed, the ACU’s claim that the DeMint-Scalise bill “would distort the marketplace and allow an uncompensated use of broadcast signals and content” gets it exactly backward. In reality, the DeMint-Scalise bill would end the regulatory policies that actually do currently “distort the marketplace” and then allow a truly free marketplace in video contracting to develop without any regulatory thumb on the scale in either direction.

Most importantly, nothing in this bill forces content creators or broadcasters to deal their content to other distributors. And nothing in the bill gives those other video distributors the right to freely distribute content without the permission of its owners. In sum, the bill does not repeal copyright law — it only repeals the compulsory licensing rules that force content owners to deal their programming against their consent on government regulated terms.  That means copyright is actually strengthened under this bill and that content owners have more bargaining power than they do today. Thus, the ACU is horribly mistaken in asserting that the DeMint-Scalise bill would “allow an uncompensated use of broadcast signals and content.” The exact opposite is the case.

If the ACU wants to make a case against this measure, I would respectfully suggest that they first get their terminology and facts right. And then we can have an honest debate about true video marketplace deregulation–which is exactly what the DeMint-Scalise bill represents.

I’m finishing up Stanford Law School professor Lawrence Lessig’s latest book, Remix: Making Art and Commerce Thrive in the Hybrid Economy and wanted to make a brief comment about his call for a “simple blanket license” to solve online music piracy.

Overall, I thought Prof. Lessig made a good case regarding the benefits of “remix culture” and why copyright law should leave breathing room for the various derivative works of amateur creators. On the other hand, Lessig still too often blurs remix culture with “ripoff culture” (i.e., those who aren’t out to create anything new but instead just take something without paying a penny for it).

To solve that latter problem, Lessig again endorses a proposal that William Fisher, Electronic Frontier Foundation, and others have made for collective licensing of all online music, but he fails to drill down into the devilish details. He says, for example, that “by authorizing a simple blanket licensing procedure, whereby users could, for a low fee, buy the right to freely file-share” we could “decriminalize file sharing.” (p. 271)

I respect the fact that Lessig is at least acknowledging a problem exists and proposing a solution to it, but the collective licensing approach will be anything but “simple” in practice. As I have pointed out here before, collective licensing proposals and efforts almost always become compulsory in practice.  They inevitably involve government mandates to determine (1) who pays in, (2) how much they pay in, as well as (3) how much gets paid out and, (4) who gets the money.

That final part is the most challenging: How do we determine who should get paid what under a blanket licensing system for the Net? What formula shall we use to determine why one artists gets more than another? After all, counting downloads won’t be simple, and it can be gamed. Lessig says that “there are plenty of ways that we might tag and trace particular uses of copyrighted material.” (p. 272)  Really? If that was the case today, then we would have a fully functioning copyright clearance and compensation system in place already. But “tagging and tracing” is easier said than done. The fact is, the same complexities we face trying to enforce such tagging and tracing systems under the present copyright system would be present in any compulsory licensing system.

And there are still more questions to consider about collective licensing. For example, how do we restrict free-riders who attempt to evade the blanket charge the rest of us are paying? How would we deal with ISPs who refused to play along and embed such a fee in their monthly bills? (Of course, if the fee was reasonable, many ISPs would likely be willing to pass it along to their customers in exchange for freedom from future copyright liability. After all, some ISPs have already expressed an unwillingness to play the role of copyright cop, so they might initially look favorably on a blanket licensing system. But they might still need to engage in some filtering efforts to determine who is downloading what).

There are many thorny questions about the fairness of imposing a blanket fee on all online users even if they don’t listen to any music, or those who would be offended at the prospect of being forced to pay for certain types of music (think of grandmas paying for gangsta rap). On the opposite end of the equation, there’s the question of fairness to artists who may not want to surrender the rights to their musical creations at government-set terms and rates. Finally, what about other types of media creators and distributors? If we’re going to have a blanket fee for online music, why not movies, television content, video games, and everything else?

Thus, while I appreciate Lessig’s argument in the conclusion of the book about “recognizing the limits of regulation,” it’s important to realize that collective / compulsory licensing introduces a different layer of regulatory complexity and that we will need to deal with many of the same challenges we’re trying to deal with under the existing copyright system. I would have liked to see Prof. Lessig explore these challenges in greater detail in Remix.

Is there any other issue under the tech policy sun today that creates stranger intellectual bedfellows than collective licensing of online music? After all, as I noted here before, on the pro-collective licensing side we find mortal enemies EFF and RIAA (at least Warner) in league. And on the anti-collective licensing side, we have Mike Masnick and Andrew Orlowski. If you locked those two guys in a room and tossed out any other copyright topic, they’d probably end up killing each other with their bare hands. But somehow they agree on this one (albeit for somewhat different reasons).

Anyway, I continue to have mixed, but generally skeptical, feelings about online collective licensing. There are countless thorny fairness issues on both the artist and consumer side of things. What’s the pay-in rate? How is it set? Who all pays in? Who gets paid out, how much, and by what formula? And God only knows how you deal with those parties (whether they be ISPs, consumers, or even artists) who don’t want to be a part of the scheme.

For these reasons, I’ve always felt a voluntary collective licensing scheme for the Internet is challenging, if not impossible. It would have to be compulsory to be a truly blanket license that covered all music, all users, and all platforms. I’m not too fond of that approach, but I think that’s where we are likely heading in the copyright wars. After all, that’s how it has been resolved in many other contexts historically. But that doesn’t give me any comfort since those other systems have been a mess in practice. This 2004 Cato study by Robert Merges provides some details and makes the case against apply the compulsory licensing approach to the online music marketplace.

At first glance, it seems to me that this big settlement announced today between Google and the book publishers regarding Google Book Search sounds a lot like an ASCAP model for online book transactions. Specifically, of the key provisions of the agreement, it’s this last one about the Book Rights Registry that makes me think of ASCAP:

Compensation to Authors and Publishers and Control Over Access to Their Works – Distributing payments earned from online access provided by Google and, prospectively, from similar programs that may be established by other providers, through a newly created independent, not-for-profit Book Rights Registry that will also locate rightsholders, collect and maintain accurate rightsholder information, and provide a way for rightsholders to request inclusion in or exclusion from the project.

That’s basically what ASCAP does today, and I think this sounds like a pretty good plan for books going forward. But I also find myself wondering: Could this be the beginning of a move toward a more comprehensive online collective licensing system for other types of content as everything moves online. For example, could this model work for music? EFF has argued it could. And some in the music industry appear to be moving in that direction. (Talk about your strange bedfellows… EFF and the RIAA potentially on the same side of an issue!)

Of course, you’d need to get a lot more companies than just Google to play ball to make it work for music — specifically, you’d need all the ISPs on board. For books, by contrast, the reason today’s deal will likely work is because Google has been the only online operator with the scale and interest in putting the entire contents of so many books online. But all music is already online and much video is heading online, too. So, I think it would be much, much more challenging to make collective licensing work for music and video the way it appears it might work for books. (We’d probably need compulsory licensing instead, which I am no fan of). The key to these voluntary collective licensing systems is large, trusted intermediaries that can clear a massive volume of transactions. Google can do that for books as today’s deal makes clear. It will be interesting to see if others suggest that music and video can and should work the same way. I’m skeptical, and I’m also a bit hung up on some fairness issues about how it would work, which I might touch upon in a future essay.

But I’m no copyright expert so I’d be interested in hearing what my colleagues and others think.

Update: Looks like someone beat me to the punch with the ASCAP comparison. I just starting reading through my RSS feed and finding reaction from others and came across Mathew Ingram’s post arguing that, “In effect, Google is setting up a body that does what ASCAP and similar groups do for musicians.”