What the Repeal of Net Neutrality Will Mean for Hollywood

[Len]

Next month, the FCC is likely to repeal almost all of the net neutrality rules that govern how internet providers handle traffic online.

The action is already generating an outcry on social media. Celebrities such as Alyssa Milano and Ron Perlman have tweeted about it, and a host of public interest groups plan to make a lot of noise in the lead up to the Dec. 14 vote. John Oliver warned of the impending action in several segments on his HBO show “Last Week Tonight” earlier this year.

The Trump-era FCC would reverse just about all of the actions that the Obama-era FCC took in 2015, when it established a set of robust rule of the road for the internet.

But what will it mean for the entertainment industry?

Studios, through their trade association MPAA, have actually been quite silent on whether they favor or disfavor the FCC’s pending action. The exception is Comcast, the parent company of NBCUniversal, which, as one of the largest internet providers in the country, has long argued that the FCC’s current rules are over-regulation and supports the current action to repeal them.

Here’s what the FCC’s pending action would do and how it will affect Hollywood.

Internet providers will no longer be banned from blocking or throttling content. Net neutrality, at its heart, is based on the idea that no one should be allowed to restrict what users access or cannot access. That is within reason, as the rules have specified that it applies to lawful content, i.e. not criminal behavior or pirated material.

The Republican-controlled FCC has instead vested in the idea of disclosure. The agency wants to retain rules that require that ISPs reveal their traffic management practices, either online or to the FCC itself. That includes also providing information on what is being blocked and throttled.

Comcast said it should not be an issue, as it does not “block, throttle, or discriminate against lawful content” anyway, while other major internet providers also argued that they would not be the gatekeepers as to what consumers can access and not access.

But …

Internet providers could engage in “paid prioritization.” To put it simply, the fear of net neutrality advocates is that the internet will become what cable TV is — if you want to start a new channel and get significant placement, you better have a lot of money.

The current rules ban what is called “paid prioritization,” in which an internet provider collects money from a website, like a Netflix or Amazon, for speedier access to their subscribers. The fear is that this gives a leg up to big media, big telecom, and big internet firms to gain an advantage, and that consumers may ultimately have to pay to access certain areas of the internet. Of course, subscribers already have to buy a subscription to sites like Netflix and Amazon, but the worry among net neutrality advocates is that it’ll be next-to-impossible for new companies and streaming services to flourish.

Curiously, only one of Hollywood’s talent guilds has weighed in on this — the Writers Guild of America — and they warn that “without the rules, ISPs will be free to decide what content is available to Americans and on what terms, striking a blow to consumers and content creators alike.”

Again, the FCC’s majority believes that disclosure will give content creators and consumers a sense of whether ISPs are engaging in unfair or anticompetitive conduct. Internet providers will have to reveal when they are giving priority to content that they own, or when they have been paid for better delivery.

The other argument from ISPs is that the marketplace will take care of it — and that they’d be fools to alter the open platform. “Any ISP that is so foolish as to seek to engage in gatekeeping will be quickly and decisively called out,” said AT&T’s Joan Marsh.

The FCC’s oversight over the internet will be diminished. The repeal proposal also would eliminate the FCC’s role as a “referee on the field” as internet services evolve. The FCC has had in place a “general conduct” rule that would allow it to step in if ISPs develop services that are deemed to be anticompetitive.

This has been an issue as ISPs like Verizon and AT&T offered consumers the ability to view some video on its wireless plans without it counting against their data caps, while other types of content still do. For example, AT&T wireless subscribers can stream DirecTV content for free — and it is no surprise, as AT&T owns DirecTV.

The Obama-era FCC scrutinized these practices and generally frowned on them, on the grounds that in the long term, the playing field would no longer be level.

But the Trump-era FCC, led by Chairman Ajit Pai, doesn’t see a problem with such offerings; they view it as a benefit to consumers who will be able to access free data plans. Pai and fellow Republicans on the commission also find fault with the “general conduct” rule, on the grounds that it adds a layer of uncertainty for ISPs as they develop new services.

The FCC also will lose oversight over interconnection — or the agreements that ISPs reach to connect to other networks. This was an issue with Netflix several years ago, as it complained that major ISPs were trying to charge inflated rates to deliver their video traffic to subscribers. The FCC has not had actual rules in place governing these agreements, but in its 2015 rule making, it made clear that it would look at disputes on a case-by-case basis.

Champions of the effort to repeal net neutrality say that existing antitrust and consumer laws will protect the market from anticompetitive and egregious conduct, and that the FCC and the Federal Trade Commission will jointly handle complaints if transparency rules aren’t being followed. Activists who support the FCC’s existing approach, in which internet service is classified as a common carrier, find that far from sufficient.

Uncertainty. ISPs have complained that the FCC’s current regulation also added a new level of uncertainty, as it gave one regulatory agency too much control over their practices.

But as the FCC moves to repeal the rules, the story is far from over. A court challenge is likely from a number of public interest groups, on the grounds that the Trump-era FCC is reversing the actions of its previous majority just two years after the rules were established, and that they will have to prove that there is a reasonable rationale for doing so.

“While the FCC move will most certainly be challenged in court, we will likely enter another era of uncertainty around how or if net neutrality principles will ever be applied,” said David Sapin, principal at PricewaterhouseCoopers’ technology, media, and telecommunications consulting practice. “This may finally get Democrats on board to find a legislative fix from Congress.”

So far, some Republicans are calling for a legislative fix, and a number of net neutrality advocates are urging supporters to call Capitol Hill, but there is little movement.

Investment analysts Craig Moffett and Michael Nathanson wrote on their blog on Wednesday that the FCC’s proposals to repeal net neutrality were “draconian.” They, too, see some possibility in a legislative fix, but also wrote, “These changes will likely be so immensely unpopular that it would be shocking if they are allowed to stand for long.”