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CHAPTER I - Executive Summary

Changes in technology and consumers’ consumption of video content make it imperative that government regulators, industry and other stakeholders come together to re-think policy models that may no longer apply. Evidence shows that consumers continue to exhibit strong demand for video content, with much viewing still occurring in traditional ways through broadcast and cable television. Yet the proliferation of viewing devices and options—so-called “over the top,” or OTT, viewing of content on the Internet—poses a threat to existing business models, as well as to opportunities for new ones. Audiences are increasingly fragmented and so are people’s attention spans, but at the same time, there is an unparalleled opportunity to deliver more personalized, more targeted and more relevant content than ever before. This upends traditional flows of advertising dollars upon which the media industry relies and calls into question traditional regulatory structures that originated prior to the development of these new business models.

Participants in the 2013 Aspen Institute Conference on Communications Policy examined the future of video regulation, recognizing from the outset the need for policy to adapt to changing conditions. Participants delved into four areas of the video and broadband ecosystem that present distinct business and policy challenges:

  • Production of content: Notwithstanding the falling cost of consumer electronics, high-quality video content will continue to be expensive to create and, in some cases, costs may increase. The added expense may make it difficult to create certain kinds of content, such as content with public-service characteristics, i.e., community news, civic information, education and diverse voices, especially if there is a continued reliance solely on traditional video-delivery platforms instead of new ones, such as the Internet.
  • Devices: Even with vigorous competition in some segments of the device market, potential anti-competitive pitfalls may warrant scrutiny. Device makers may seek to reinforce their competitive advantages by expanding the prevalence of their proprietary operating systems across multiple devices. The level of choice in the set-top box market for viewing traditional linear video at home was of particular concern to some participants. Other participants, in contrast, highlighted the danger of trying to unnecessarily influence a market that is increasingly challenged by a fast-growing array of nontraditional competitors using Internet-enabled set-top boxes, such as Apple TV, Roku, Xbox, Sony PlayStation and others. Innovation often can address such problems, and for that reason, government support for upstream research and development (e.g., in the university setting) is crucial to foster innovation that drives device competition.
  • Consumers: As beneficial as innovations in the video market have been to consumers, the changes place new focus on equity and privacy. As new means of consuming digital content become the societal norm, those without the means or skills to use them are left out of opportunities in education, civic engagement and culture. Consuming digital content typically requires that consumers share personal and behavioral data, which can increase choice and relevancy for consumers, but which also may raise concerns about privacy and trust.
  • Distribution: Although today’s broadband networks meet the performance needs of most consumer-use cases today, upgrading distribution networks to keep pace with evolving needs is expensive, resource-intensive and risky. Meeting consumer demand has been and continues to be primarily the province of the private sector, but wise use of public assets (e.g., rights-of-way, spectrum) can help facilitate the private sector’s ability to enhance and expand network platforms. New applications—such as use of video and other digital content to improve results in the classroom—will demand enhanced network capabilities. This means stakeholders must better align incentives to ensure ongoing improvements in America’s broadband networks, especially for those areas (such as rural America) where the economic prospects for investment face the greatest challenges.

To address these challenges, stakeholders could take action in the following areas:

  • Funding: With the cost of production increasing, nontraditional sources of funds may fill gaps for public-interest content pertaining to education or government. Such sources include franchise fees (with a broader range of uses), inducement prizes (modeled after the Department of Education’s Race to the Top) or opening up public facilities (such as universities) to lower costs for content developers. Revising the mission of the Corporation for Public Broadcasting may help address needs for public-interest content.
  • Competition: Some participants believed that the Federal Communications Commission (FCC) should move forward with its AllVid Section 629 Notice of Inquiry in order to foster greater competition in the set-top box industry. Others, however, argued vigorously that this action would be counterproductive and harmful to the innovation and competition evident in today’s market, pointing to the burgeoning market for online video facilitated by new Internet-enabled set-top boxes. Policymakers should also promote entry into the market through public databases. Such a database for spectrum use could promote spectrum sharing and thereby lower the cost of entry to the wireless market. Databases on patents and copyrights could promote fair and legal use of content, thus inviting new entrants into the content-development industry. Congressional action on legislation to inhibit “patent trolls” and patent wars could facilitate competition.
  • Consumer empowerment: Some participants argued that the Federal Trade Commission should create an online portal to help consumers make informed choices about service plans and how business or government uses their data. Some argued that passage of a baseline privacy law modeled on the Kerry-McCain approach could potentially contribute to a more trusted online environment for consumers, while other participants stressed that privacy issues are very complex and, in many cases, the context may be too nascent for making any binding policy conclusions or new regulations. Stakeholders should look for ways to scale and further implement existing programs (such as Internet Essentials or those funded by the 2009 stimulus bill) to close broadband adoption gaps.
  • Government leverage: Government agencies should collaborate with existing community broadband adoption initiatives to draw non-users to online use, given that many government services serve populations with low broadband adoption rates. Through aggressive initiatives to use digital means in delivery of government, educational and health services, government can improve the broadband adoption and even investment-upgrade calculations for individuals and companies. Local governments should streamline regulation to make network upgrades (by incumbents or entrants) less costly.
  • Multi-stakeholder forums: Stakeholders should use multi-stakeholder forums to address issues such as interoperability across platforms or devices, decency of video content and (in absence of legislation) consumer privacy. This mechanism allows the private and nonprofit sector to monitor and address issues and to develop more flexible solutions in lieu of protracted regulatory proceedings.

In other areas, policymakers should take a permissive yet watchful posture. Data caps and usage-based pricing is one example. Service offerings that include data caps can result in pricing options that are attractive to consumers and draw more people online, especially those who have not yet adopted broadband. For that reason, prohibiting such experimentation in service models is unwise, especially if doing so is based on speculation with no evidence of actual harm. At the same time, policymakers should monitor this area to be sure data caps are not used anti-competitively and only act on a case-by-case basis when competitive harm in the overall marketplace is clear. Similarly, policymakers should consider relaxing limits on cross-ownership between broadcast and newspaper companies, but monitor the market for any deleterious consequences.

Looking to the future, the goal is to have a video marketplace that contributes to a rising standard of living for all citizens. To get there, the video marketplace will have to be economically sustainable, which in turn requires robust business models, competition, transparent information for consumers and efficient investment in network upgrades and innovation. The video marketplace will also have to deliver on social goals, as a trusted environment where there is universal access to content that is diverse, local, entertaining, culturally rich, educational—all while adhering to free speech values and being a public sphere that contributes to democratic governance. Such a rosy scenario is not inevitable, and any number of wild cards could retard progress toward it. A “privacy and surveillance backlash” could arise that makes consumers less willing to share personal data or otherwise engage with digital applications; this could inhibit development of new applications and undermine business models dependent on advertising. Bandwidth capacity—either wireline or wireless—may not grow fast enough to elicit new innovations or drive ongoing marketplace competition, which underscores the importance of creating an environment where the private sector continues to invest in network capacity.

Even if all the answers are not apparent today on how to develop a framework so that the video industry can contribute to social and economic goals, understanding the challenges and uncertainties can help chart a pathway to those ends.

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