How Technological Innovation in Media Provokes Industry and Regulatory Change

Home , Bonnie Hammer

A Thesis

Submitted to the Faculty

Drexel University

Chelsea Fletcher

in partial fulfillment of the

requirements for the degree

Master of Science in Television Management

December 2017

Table of Contents

ABSTRACT ...... iii

1. INTRODUCTION ...... 1

1.1. Statement of the Problem ...... 2

1.2 Background and Need ...... 3

1.3 Research Questions ...... 5

1.5 Significance to the Field ...... 6

1.6 Definitions...... 6

1.7 Limitations ...... 9

1.8 Ethical Considerations ...... 10

2. REVIEW OF THE LITERATURE ...... 10

2.1 Stakeholders in the Industry...... 11

2.2 Laws and Regulation...... 13

2.3 Industry Effects ...... 20

3. METHODOLOGY ...... 27

4. RESULTS ...... 29

5. DISCUSSION ...... 33

5.1 Conclusion ...... 37

6. LIST OF REFERENCES ...... 39

7. APPENDIX A ...... 42

8. APPENDIX B ...... 52

9. APPENDIX C ...... 58 iii

ABSTRACT

How Technological Innovation in Media Provokes Industry and Regulatory Change Chelsea Fletcher

The purpose of this thesis was to gain insight into the technology and regulation that is deeply ingrained in the television and media industries. Through two interviews conducted in Philadelphia, two industry professionals provided opinion and insight into the current landscape of television and media. Their deep understanding of the media industry landscape and the technological influences within this industry added support to trends already being documented. The key stakeholders that make up the television and media industry are evolving as is the technology that supports the industry and the stakeholders alike. Regulation of an industry that is evolving presents challenges for current legislation and in implementing new legislation. This thesis provides insights to understand past roles and decisions, present issues and direction for possible future changes.

CHAPTER 1: INTRODUCTION

As new technology enters the television landscape, consumer consumption

patterns change. The speed of development and the adoption rate of these new

technologies threaten traditional television viewing habits and the structure of the

industry. The most significant addition to the structure in recent years are Over The Top

(OTT) services such as Netflix, Hulu and Amazon. These services are available across multiple platforms and can be a significantly less expensive alternative to a pay cable subscription. The noticeable decline in the number of pay TV subscribers has ramifications for large media companies that rely on subscriptions as a revenue source.

Media companies and content producers each hold large stakes in how online video

impacts other distribution services within the market.

Starting in the mid 2000’s, the television industry transformed into a multi-screen

ecosystem and traditional services like broadcast and cable operators no longer had the

control they once did. In addition to OTT services, there are convergence technologies

like Smart TVs which connect (or converge) the internet and television. This type of

technology has reinforced a change in the relationship between consumers and the

television industry. The Smart TV is an example of traditional media companies working

with new media developers. The traditional stakeholders are becoming more involved in

relevant new technology, even if it “threatens” their traditional business model in order to

increase or just maintain market power (Guignard, 2015).

Now that consumers and the media industry have begun to transform their

relationship to incorporate technological advances, the owners of media companies

increasingly are forced to address their own relationships and regulations. Laws and

regulations currently being enforced do not apply to the industry as it is today, but rather

to the industry decades ago. Even entities like the FCC are facing regulatory issues when

it comes to managing laws related to the consumer’s ability to use the internet for media

consumption. The FCC is faced with deciding how free the pathway to the internet is or

isn’t for consumers and if it is decided to regulate this pathway, levels of regulation will

need to be determined (Guignard, 2015).

The goal of this thesis was to analyze relationships and regulation between media companies, content providers and consumers. Areas of research will focus on the following: roles traditional media companies play in the adoption of new technology through regulation and copyright law, how and why companies maintain a strong

foothold in the industry through company mergers/acquisitions, and the importance of

regulation for the growth of the media industry. Additionally, through interviews with

industry professionals, opinions are shared on the future of OTT services, relationships

with traditional media companies, and opinions on regulatory changes throughout the

media industry.

1.1 Statement of the Problem

New technology is being introduced to the media industry at a rapid rate.

Consumers who could have over 100 channel paid cable packages are now transitioning

to other more advanced options and services. This trend greatly affects traditional media

companies, so much so that they are willing to work with or join forces with new

technology companies, but at what price to them? The issue of fair regulation and

decision making increasingly arises when the broadcast networks join forces with

technology based companies. Both parties have a vested interest in new products or

services as they directly affect consumer relationships and company revenue. Regulation

of these relationships, agreements, and acquisitions has been developing at a slower rate

than what is needed given the changing industry landscape. In addition to the internal

industry relationships among media entities there is government involvement in

regulation of these entities (Skroup & Kross, 2016).

1.2 Background and Need

Companies like Comcast and Charter Communications are Pay-TV service providers that have been feeling the effects of a changing industry, especially over last 10 years. Customers are switching to OTT services like Netflix and Hulu and foregoing a

200+ channel lineup for more a-la-carte viewing. In order to use an OTT service, customers need an internet connection and this service is provided by the same cable company, Comcast or Charter. While Comcast or Charter are not gaining revenue through cable subscriptions they maintain their footprint by offering internet services and adjusting their business model (Krosse, 2016).

The power and control within the television industry is shifting and traditional media companies are reacting. The traditional infrastructure has a tangible product, i.e. a

cable box and high upfront costs and so, it does not change rapidly, as opposed to internet services, which can change and adjust very quickly (Wildman and Flew, 2015). The rate of transformation and change has forced a change in legal concepts and regulation.

Aside from Multichannel Video Programming Distributors (MVPD’s), there are television networks that are adapting to the OTT offerings. HBO for example, released

HBO Now, which provides OTT HBO programming without a full video subscription. In the early stages, TV networks embraced services like Netflix by licensing their older programming; however, the long-term implication of this is ratings erosion (Gattuso,

2015).

The current state of the television industry’s legislation, including areas like copyright law, patents and FCC regulations are attempting to manage content across these new platforms. OTT services rely on the content produced and distributed by traditional content companies in the industry. OTT services have also begun to develop original content and worked around needing a relationship with traditional media partners, which as a service has its own forms of regulatory needs. The traditional media partners are accustomed to high costs, high barriers to enter and highly controlled production, whereas the online business model lends itself to lower costs all around

(Salka, 2016). Supreme Court cases involving the Copyright Act of 1976 and digital versus traditional media platforms have set a precedent in the industry. The case involving Aereo TV is an example of this. Aereo argued their ability to use technology to deliver programming to a subscriber without paying retransmission fees and won in two

5 district cases but lost in the Supreme Court in June of 2014. In more recent months, industry patents have been used to deter competition in the development of a similar technology and to delay the release of competing technology, an act termed “patent trolling” (Melody, 2013).

In 2017, regulators are revisiting net neutrality, a topic that seems to resurface every few years. The premise of net neutrality is that it prevents internet service providers

(ISPs) like Verizon and Comcast from dictating which online content would be accessible by their customers. Keeping the internet neutral is currently being enforced by the FCC

(Shontell, 2014). There are media companies and legislative groups that have opposing views on what the regulation for net neutrality should be. It is important to understand how traditional and online media companies will work together or against each other and the regulation that protects all parties including the consumer.

1.3 Research Questions

1. Who are the stakeholders in the television industry today? How do traditional

media companies and digital media companies work together? What

relationships are positive for the future of the media industry and what

relationships are negative?

2. What are the current regulations governing OTT services? What are court case

examples of legislation and is there new legislation in development?

3. Why has net neutrality resurfaced? What are the possible outcomes for net

neutrality regulation?

4. What types of changes should be expected, according to industry experts and

research?

1.4 Significance to the Field

The research conducted on this topic is significant to the future of television

technology because it strives to highlight the relationship between content networks

(broadcast and cable), cable providers and online TV services; not only how these companies work together, but how they do not, and the abuse of legislative loop holes that only benefit one party. Understanding how these business relationships ultimately affect the consumer will help with the development of future legislation and regulation.

1.5 Definitions

Aereo TV - A broadcast TV streaming service via the Internet, founded by Chet Kanojia.

Including DVR storage in the cloud, the content could be viewed on a web browser, iOS device or on a TV via Apple TV and AirPlay or a Roku set-top box (www.aereo.com).

Comcast - Comcast Corporation is a global media and technology company with two primary businesses, Comcast Cable and NBCUniversal. Comcast Cable is one of the nation’s largest video, high-speed internet, and phone providers to residential customers under the XFINITY brand, and also provides these services to businesses. It also provides wireless and security and automation services to residential customers under the

XFINITY brand. NBCUniversal operates news, entertainment and sports cable networks,

the NBC and Telemundo broadcast networks, television production operations, television

station groups, Universal Pictures and Universal Parks and Resorts

(corporate.comcast.com).

Strategic (Competitive) Alliance - an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. A strategic alliance will usually fall short of a legal partnership entity, agency, or corporate affiliate relationship. Typically, two companies form a strategic alliance when each possesses one or more businesses or have expertise that will help the other by enhancing their businesses (www.iveybusinessjournal.com)

The Federal Communications Commission (FCC) - is an independent U.S. government regulatory agency that oversees all interstate and international communications. The FCC maintains standards and consistency among ever-growing types of media and methods of communications while protecting the interests of both consumers and businesses. The agency is accountable to Congress (www.fcc.gov).

Hulu - An Internet-based video-on-demand service founded in 2007 by major broadcast networks NBCUniversal, Fox Entertainment and Disney-ABC. Hulu offers a free service with a limited number of movies and TV programs in standard definition (SD) for viewing on personal computers only. For a monthly fee, users can select HD movies and

a wide array of content on their computers, TVs and mobile devices. Hulu streaming is

built into various TVs and set-top boxes (www.dailydot.com).

Internet Service Provider(ISP) - is the industry term for the company that is able to provide access to the internet, typically from a computer.

(http://whatismyipaddress.com).

Multichannel Video Programming Distributor (MVPD) - is a service provider that delivers video programming services, usually for a subscription fee

(http://www.itvdictionary.com).

Net neutrality - the principle that Internet service providers and governments should treat all data on the internet equally, not discriminating or charging differentially by user,

content, site, platform, application, type of attached equipment, or mode of

communication (www.publicknowledge.org).

Netflix- A DVD rental and Internet-based video-on-demand service. As of 2014, Netflix,

Inc., is a publicly traded company owned by numerous investment funds, institutions and private investors. At its inception, Netflix was co-owned by founders Reed Hastings and

Marc Randolph (www.netflix.com).

Notice of Proposed Rulemaking (NPRM)- a public notice issued by law when one of the independent agencies of the United States government wishes to add, remove, or change a rule or regulation as part of the rulemaking process (www.fcc.gov).

Over-The-Top content (OTT) - is the delivery of audio, video, and other media over the internet without the involvement of a multiple-system operator in the control or distribution of the content (www.martechtoday.com).

Screen Actors Guild-American Federation of Television and Radio Artists (SAG-

AFTRA) -Previously (SAG) represents approximately 160,000 actors, announcers,

broadcast journalists, dancers, DJs, news writers, news editors, program hosts,

puppeteers, recording artists, singers, stunt performers, voiceover artists and other media

professionals. (www.sagaftra.org).

1.6 Limitations

The major limitation to the researcher is the rate at which technology literature is

generated. Using the most up to date information at the time of research and writing

leaves room for new information to emerge before the completion of the thesis. The

speed at which technology is changing and then being documented could outdate the

research done for this thesis more quickly than the researcher would have liked.

Technological advancements do not make the research obsolete, but rather adds more information to better understand the future.

1.7 Ethical Considerations

The researcher received consent from the interviewees, Dan Elu and Matthew

DeSabato, to use the information provided as a proprietary source to support the

questions posed by the researcher. The interviewees complied knowing the data gathered

was for academic purposes and research. All legal data was obtained via public forum.

CHAPTER 2: REVIEW OF THE LITERATURE

This literature review will present examples of business relationships between traditional broadcasters (Fox, ABC, CBS), cable companies (Comcast, Charter) and online services (Netflix, Hulu) and how these relationships affect the industry landscape.

Additionally, examples of industry regulation/copyright law pertaining to new technology will be examined.

2.1 Stakeholders in the Television industry

In 2013, the largest cable company in the United States, Comcast, purchased the assets of NBC Universal, making it the largest media company in the entertainment and communications industry. There were concerns about this merger and the control

Comcast would have over the industry. Combining a major content creation company with a large content distributor made other media conglomerates wary in the amount of control Comcast held, and its ability to withhold NBC content from other distributors

(Gustin, 2013). This is an example of a content provider and a content distributor being controlled by the same company. Merger and acquisition activities between large companies in the industry moves the power to fewer and fewer stakeholders in the market in general (Gustin, 2013). The smaller stakeholders, such as new start-ups and new technology add on devices are less able to make a footprint in the industry without being smothered, legally or financially, by the larger more powerful companies.

In August of 2016 the Hollywood Reporter held a round table discussion between

TV executives concerning the challenges facing the TV industry. The topic that rose to the surface was the challenge of adapting to an increasingly competitive landscape with evolving technology and consumer demand (Band, 2016).

Industry executives acknowledge streaming technology and that it has changed the industry, creating the “golden age of TV” as described by Ted Sarandos of Netflix.

“If we were all to come back to this table 10 years from now, our

businesses are going to look very different, we’re going to be partnering

differently, selling to each other and using our brands differently. And not only do

we need to swing for shows on behalf of the audience, but we have to swing with

business ideas and strategic ideas to make sure the next generation of creatives

have a newly imagined or reimagined way of having their products seen.” - Nancy

Dubuc, A&E (Band, 2016)

Nancy Dubuc, as well as the other executives addressed the need to appeal to the millennial audience (Band, 2016).

“Learning to shoot differently, to program differently, to target a whole

different audience that doesn’t understand linear, live, scheduled TV.” This means

that “there are so many ways we have to experiment, and we’re going to fall on

our face.” Hammer further noted that “years ago, something would happen and

you had a decade to catch up and figure it out. [Then it was] about five years.

Now it’s five weeks.”- Bonnie Hammer, NBC Universal (Band, 2016).

The focus on millennials and streaming means the competition isn’t from broadcast

networks, but apps. TV Programming, like most entertainment content, is just another

app (Band, 2016).

2.2 Law and Regulation

2.2.1 The Copyright Act of 1976

The Copyright Act of 1976 provides basic rights to a copyright holder. This protection is

available for both published and unpublished works. Section 106 of the 1976 Copyright

Act generally gives the owner of copyright the exclusive right to do and to authorize

others to do the following:

• reproduce the work in copies or phonorecords • prepare derivative works based upon the work • distribute copies or phonorecords of the work to the public by sale or other transfer of ownership, or by rental, lease, or lending • perform the work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works • display the work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work • perform the work publicly (in the case of sound recordings*) by means of a digital audio transmission (US Copyright Office, 2012)

This act was used as the basis of a recent legal battle, Aereo v. ABC, CBS Corp.,

Comcast NBC, and Fox (referred to as ABC et el) argued at the US Supreme Court.

The Copyright Act of 1976 was the foundation legislation used against Aereo; specifically, two sections:

1. perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or

2. to transmit or otherwise communicate a performance or display of the work ... to the public by means of any device or process, whether the members of the public are capable of receiving the performance or display receive it in the same place or in separate places at the same time or at different times (Gilbert, 2014).

The “public performance” aspect of the Act is what broadcasters used in support of their argument. Broadcast networks used this portion of the Act to say that the programming being transmitted to the individual user was in fact a “public performance” which was copyrighted; Aereo did not pay for permission to retransmit the broadcaster’s content.

Prior to the Aereo case, Cartoon Network claimed copyright infringement against

Cablevision. In 2006, Cablevision, an MVPD, announced the development of a remote storage DVR, which would allow users access to DVR technology without the DVR box

in home, but rather on a remote server operated by Cablevision. The content was stored

independently by individual user (subscriber) and replayed only to the user who

requested it. Upon the announcement of this technology, Cablevision was sued for direct

use (Schruers, 2014).

The verdict in this litigation was in favor of Cablevision and Remote Storage

DVRs (RS-DVR) were determined to be legal. The court found that even though the

content was not being stored at the subscriber’s location/home, Cablevision was storing

and transmitting the subscriber’s content only when recorded and then requested playback by said subscriber. Therefore, the transmission of this content was not to the public and was considered private use and did not infringe on any copy right law

(Schruers, 2014).

2.2.2 U.S. Communications Act 1934 – MVPD

In late 2014, the FCC proposed that the definition of “Multichannel Video Programming

Distributor”, or MVPD be modernized under the U.S. Communications Act to include internet based programming services. This modernization would grant these internet based services the rights and responsibilities of a traditional MVPD (Syrkin 2015).

“Put simply, the FCC is seeking to render the term MVPD more or less

technology-neutral by proposing that the term include Internet-based distributors that

stream continuous linear feeds of third party video programming on the Internet on a

paid subscription basis. The goal, based on FCC chairman Tom Wheeler’s comments

to the NPRM, is to “expand Internet video competition with cable and satellite

services [which will] mean more alternatives for consumers beyond the traditional

cable or satellite bundle, including giving consumers more options to buy the

programming they want” (Syrkin, 2015).

Traditionally, to qualify as a MVPD an entity had to “make available for purchase, by subscribers or customers, multiple channels of video programming.” The issue the FCC was faced with here was defining “multiple channels of video programming” (Syrkin, 2015). The FCC defined “channel” as what is delivered by broadcast TV and not applied to internet delivery of content. The FCC was faced with similar services having very different regulation; cable/satellite could be subject to all

FCC MVPD regulation but the same content delivered by an internet based service would not have the same regulation (Oxenford, 2015).

On December 19, 2014, the FCC released a Notice of Proposed Rulemaking

(NPRM) an effort to “modernize [their] interpretation of the term “multichannel video programming distributor” – to determine whether online video services, including OTT, that offer linear streams of video for a subscriptions fee should be encompassed by the term MVPD. The FCC was trying to render the term MVPD more technology neutral by including internet based distributors that stream continuous linear feeds of third party content on the internet through a paid subscription (Syrkin 2014).

“Ultimately, the FCC states that “We tentatively conclude that an entity that makes [qualifying] linear services available via the Internet is an MVPD, and our regulations apply to all of the MVPD’s video services.” But then it promptly limits that conclusion by proposing, among other things, that this interpretation of MVPD not be applicable to a distributor that makes available only programming that it owns – for example, “sports leagues or stand-alone program services” that exclusively stream programs they own or control (e.g., multiple streams of shows programmed solely from a network’s existing library of content). Such a framework would certainly prevent OTT providers, like Netflix, from obtaining MVPD status by offering a 24-hour-a-day loop of their own original programming (e.g., a dedicated “House of Cards” and “Orange is the New Black” channel) in order to meet the Communications Act’s requirement of “multiple channels of video programming” (Syrkin, 2014).

Any entity that meets the definition of MVPD would be subject to privileges and obligations through the FCC, including retransmission rules and access rules. Allowing internet based providers program access protection would allow them to access to TV content that could attract and retain subscribers at a level that would enable them to compete with the established cable/satellite providers. Furthermore, extending the retransmission rules would require cable programmers to make their programming available to internet services at fair rates and conditions (Syrkin, 2014).

The update to the MVPD definition would not necessarily mean that all OTT services would automatically be able to obtain retransmission rights, as they would still need to qualify for these rights under the Copyright Act which has its own set of rules and regulations. Under the Copyright Act, as currently enforced, OTT services would not

18 qualify because they do not receive signals from broadcast stations, therefore retransmission regulation cannot be applied (Syrkin, 2014).

Instead of rewriting or changing the rules and regulations to match what technological advancements offer today, the FCC is just expanding the meaning/definitions of old rules to include new technology. This could undermine the evolution of the industry as whole

(Gattuso, 2015).

2.2.3 Patents

Increasingly, obtaining patents on new and/or existing technology is maliciously being used to delay the release of competitors’ technology (Melody, 2013). A patent obtained to delay or obstruct the incorporation of new/competing technology is deemed a

“patent troll” – as the entity owning the patent often does not make or sell anything in the market. The sole purpose of these types of patents is to stifle innovation and growth and to pursue any violation of said patent often ending with some form of litigation and/or licensing agreement. These events only laterally change the industry landscape as opposed to forward progress (Melody, 2013).

There are companies that provide no services or products, but exist in the media industry simply to buy patent rights and file lawsuits, a well-known action called “Patent

Trolling” (Mullin 2017). In recent events, a patent trolling company, Blackbird

Technologies filed suit against media companies that have apps that allow for

downloading content and watching it off-line (Mullin 2017).

US Patent No, 7,174,362 Method and system for supplying products from pre-stored digital data in response to demands transmitted via computer network1

This patent has been winning settlement money from companies since 2000, originally issued to Sungil Lee and then sold to Innovative Automation LLC. Lee’s patent

was written around the time Netflix’s, “DVD in the mail” business was in the market

(Mullin, 2017).

2.2.4 Net Neutrality

Net neutrality keeps the internet available and more or less equal to users and content

providers alike.

“Net neutrality rules basically deem every content equal. Under net

neutrality, companies – especially ISPs – cannot collect fees to prioritize certain

information and websites; instead, they are required by law to treat all information

flows in the same manner. If you recall, Comcast was fined $16 million back in

2009 for throttling BitTorrent connections, and that’s precisely the sort of

behavior that net neutrality aims to regulate” (Reigh, 2017).

1 Appendix C contains the full patent.

Under the Trump administration, FCC chairman Ajit Pai presented a plan to scale back net neutrality regulation. This was met with polarizing opinions throughout the media industry. Under Pai, changes would affect areas like internet speeds and raising the barrier to entry into the media industry by making it much harder for smaller, less well funded companies to evolve.

To keep the internet a level playing field, all ISPs have to treat all of their traffic sources equally.

“Comcast would probably like to promote NBC's content over ABC's to

its internet subscribers. That's because Comcast and NBC are affiliated. But net

neutrality prevents Comcast from being able to discriminate, and it must display

both NBC's and ABC's content evenly as a result. That means no slower load time

for ABC, and definitely no blocking of ABC altogether” (Shontell 2014).

The future of internet services and content creation will rely on the decisions made by the FCC and how the internet will be regulated.

2.3 Industry Effects

The main players in the industry recognize the need to work together, and doing so will be the major keystone of the future of the television industry. Once competing companies will be working together to reach their newest target demographic, millennials

(Band, 2016).

[Television networks are] “learning to shoot differently, to program differently,

to target a whole different audience that doesn’t understand linear, live, scheduled

TV.” This means that “there are so many ways we have to experiment, and we’re

going to fall on our face.” Hammer further noted that “years ago, something

would happen and you had a decade to catch up and figure it out. [Then it was]

about five years. Now it’s five weeks.” (Band, 2016)

2.3.1 Industry Relationships

The lines between content producers and distributors become more and more

blurred as the industry grows. In 2017, media is now an industry where the content

producers are the same company or owned by the same company as content distributors, and they have significant power. This tight relationship makes it very hard for new players, startups and new technology to enter the market.

AT&T’s acquisition of Time Warner is an example of the conglomerate relationship changes occurring in this industry. In 4th quarter, 2016 AT&T announced the

purchase of Time Warner Inc, whose divisions include HBO, Warner Brothers and

Turner Broadcasting for $85.4 Billion, creating a media giant of both content producers

and distributors. AT&T and TW confirm that this deal was mutual.2 These media

companies are anticipating drops in fees from cable service providers and declining

2 At the time of this thesis publication the AT&T and Time Warner purchase agreement was still awaiting regulatory approval.

revenue from advertisers. Getting bigger would give them more negotiating leverage with

both service providers and with advertisers (de la Merced, 2016).

“The biggest thing that we’re trying to do now is figure out what technology’s

role is in distributing the great content that we have,” Robert A. Iger, Disney’s chief

executive, said at a presentation at Boston College on Oct. 5 (de la Merced, 2016).

Comcast’s takeover of NBC has proved a model for this new world of media deal-

making. NBCUniversal has thrived under its current ownership, with NBC is enjoying a

ratings comeback and Universal is delivering a wide range of hit films. Time Warner’s

deal with AT&T is likely to face tough scrutiny from government regulators increasingly

skeptical of power being consolidated among a few companies (de la Merced, 2016).

AT&T has made other moves to acquire content. It has set up a joint venture with

Peter Chernin, a prominent media executive, and the company was one of the bidders for

Yahoo in 2017. The telecom company has also been working on its own online video

service, for which Time Warner’s trove of media could prove enormously helpful.

Combining with AT&T is meant to accelerate those efforts (de la Merced, 2016).

AT&T plans to avoid the FCC’s review of its Time Warner merger by proving that the acquisition will benefit Americans as well as sell its Atlanta television station to

Meredith Corp for $70 Million to relinquish station ownership and make the deal move more quickly (Kharpal, 207). AT&T’s written response promises benefits like targeting advertising – “more relevant advertising in ad-supported video services” is listed as a customer benefit.

AT&T's letter defending the Time Warner purchase also promised these

benefits (Brodkin, 2017):

• Short-form programming optimized for presentation on mobile devices.

• Interactive and personalized methods of viewing sports and other live events.

• Integration of professionally produced content with virtual reality or augmented

reality services.

• Services that encourage consumers to combine professionally produced content

with their own creative content and share the results on social media.

• Greater choice, convenience, and value in programming bundles.

At a hearing in early 2017, Senators and critics of the merger said a combined AT&T

and Time Warner might either restrict access to programming or charge rival TV

providers a higher price to carry it, which would in turn raise customers’ cable TV bills.

Senators also discussed AT&T’s practice of exempting its own video from its mobile

data caps while charging rivals for the same privileged treatment (Brodkin, 2017).

2.3.2 Regulation for the Future

In early 2017 Ajit Pai, previously a Republican FCC Commissioner, became the

Chairman of the FCC. His top priority was bringing broadband to all Americans and loosening net neutrality regulations currently in place. The digital divide throughout the country, refers to the US households that are not internet-connected. While it contradicts

24 many of Pai’s voting patterns as Commissioner, his outline of a “digital empowerment agenda” includes “removing regulatory barriers to broadband deployment”, which as

Chairman of the FCC his influence is much greater to do so (Brodkin, 2017).

According to James L. Gattuso, a Senior Research Fellow in Regulatory Policy at the

Thomas A. Roe Institute of Economic Policy Studies at The Heritage Foundation, there are three regulatory goals that should be addressed in this marketplace. Policy makers should focus on (1) removing obsolete restrictions, (2) ensuring that new and old technologies are subject to similar rules and (3) “normalizing” television by applying the same rules as the rest of the economy.

“The “vast wasteland”3 of the 1960s is gone forever—replaced by a world

of choice, competition, and constant innovation—providing viewers with options

never dreamed of by previous generations. Over-the-top video promises even

more benefits in the near future. But these benefits would be undermined by the

imposition of rules written for a different time and a different television world.

Instead of expanding old rules to cover these new services, the FCC (and

Congress) should ensure that outdated rules are not imposed anywhere in this new

marketplace” (Gattuso 2015)

There are industry concerns regarding net neutrality and the growing number of mergers between distributors and content producers. The idea of an ISP favoring its own

3 “Vast Wasteland” is reference to a speech given to the National Association of Broadcasters convention on May 9, 1961 by then FCC Commissioner Newton Minnow, where he states television programming offers nothing of substance to the public and is a “waste” and cites the broadcasters for not doing more.

content is a real concern among other content providers, mostly ones that are not part of a

larger company.

“Regardless of the policy outcome, old media won't die anytime soon. The effects

of the policy are that less regulation will help the cable companies, hurt streaming

providers, and eventually the consumer will foot the bill. If the regulation stays in

place, the cable companies are forced to face the competition head-on, and prices

are bound to go down. The question boils down to whether high-speed internet

should be considered a public utility like electricity, gas and water, or not” (Kelly

2017).

“The FCC said its proposed rules will also ask questions that guide its

enforcement of Internet service providers. For instance, it will closely watch a

company like Verizon, which owns streaming video provider Redbox, for any

deals that would hurt rivals like Hulu and Netflix. The agency will also consider

how deals between Web firms and ISPs affect future competition in the industry”

(Kang, 2014).

2.3.1 The Industry Ecosystem

The television industry continues to be a highly profitable industry but viewing habits are

changing. OTT offerings and programming that is produced and released by OTT service

providers is a large piece of what is changing and will continue to change the industry

(Bothum, 2016).

Tangentially related industries help support the move to online television, especially

mobile services. In response to users streaming on-demand video on a mobile device, providers emphasize their unlimited data offerings (Bothum, 2016).

To entertainment and media professionals, it’s no longer enough to just attract

viewers and seek large audiences to maintain revenues from advertising and/or

subscriptions. Now, it is more about obtaining active users, users who have shared ideals,

interests, and experiences and who will return to a brand, site, or property. Ultimately,

these users are “fans” of a product or service, and it allows the industry to know more

about their user and plan strategically (Bothum, 2016).

The television industry is the most competitive sector of the Entertainment and

Media landscape, commanding the most revenue of any sector. According to PwC, 78%

of US consumers subscribe to at least one OTT service. At this same time, many industry

companies are selling content, namely libraries of movies and TV shows, including

originals, to streaming services like Netflix, Hulu and Amazon – which helps increase

subscriptions and strengthens the end user relationship and allows the platforms to charge

for ad-free/ad-light viewing experiences (Bothum &Vollmer, 2016).

According the Bothum and Vollmer, there are three things that traditional video distributors should implement to react to consumer trends.

“Traditional video distributors, such as cable, satellite, and

telecommunications companies, must weigh three strategic options as they react

to consumer desire for fewer channels, more personalization and choice, and

lower monthly bills: (1) create more segmented, affordable, and smaller video

bundles to maintain pay-TV subscription rates; (2) launch OTT services to target

cord-nevers (those who have never connected to a pay-TV service); and (3)

integrate “a la carte” OTT or packages of OTT services with broadband

access”(Bothum & Vollmer, 2016).

Net neutrality is a concept that will affect the future of the media industry. This is one form of regulation that has a large divide within the industry. In 2015, under the

Obama administration, the FCC reclassified broadband internet as a Title II telecommunications service under the 1934 Communications Act. This change placed broadband providers under the same regulations as telephone networks. This reclassification was met with disdain from the ISPs (AT&T and Comcast) stating that it restrained their abilities to upgrade their networks (Reardon, 2015).

The ability for companies like Amazon and Netflix to create award winning content is credited to the existence of net neutrality and its protection of the internet (Wu

2017).

“In analyzing the attack on net neutrality, one looks in vain for the problem that

needs to be fixed. Net neutrality refers to rules intended to ensure that broadband

providers cannot block content or provide faster delivery to companies that pay

more. The policy was put in place in the George W. Bush administration, where it

enjoyed bipartisan support. In the years since, it has sheltered bloggers, nonprofit

organizations like Wikipedia, smaller tech companies, TV and music streamers,

and entrepreneurs from being throttled by providers like AT&T and Verizon that

own the “pipes” (Wu 2017).

Net neutrality has done more than just affect the television industry, it has had an impressive economic impact. Its existence allows technology to thrive and innovation to grow from the start-up level (Wu, 2017).

CHAPTER 3: METHODOLOGY

The most significant insights the researcher used in this thesis were those obtained

from interviews with Mr. Dan Elu and Mr. Matthew Sabato. At the time of the interview,

Elu was a Media Director at a Philadelphia media agency, with a deep knowledge of the

television landscape and emerging technology. Matthew DeSabato worked as a Network

Administrator and Technical Director in the education sector, and as a Data Analyst at a

Philadelphia advertising agency. Along with his personal interest in the legislation

surrounding net neutrality, his administrative level experience in information technology

provided unique insights for the interview. The perspectives of industry professionals

were important pieces of data to gather in the research process.

3.1 Criteria for Content Analysis

After the researcher digested and analyzed the information obtained from the

interviews, evaluation of legislation was deemed to be a very important element to

include in the research. Specifically, the Copyright Act of 1976 has been a major

influence on the industry and has affected technological progress. The regulatory issues surrounding net neutrality are important topics to include due to their fluidity.

Additionally, technology and innovation are two elements the researcher feels are important to the media industry and wanted material to support these elements.

To align the research findings, industry studies and interview information the author addressed the following research questions:

1. Who are the stakeholders in the television industry today? How do traditional

media companies and digital media companies work together? What

relationships are positive for the future of the media industry and what

relationships are negative?

2. What are the current regulations governing OTT services? What are legal case

examples of legislation and are there new legislation in development?

3. Why has net neutrality resurfaced? What are the possible regulations for net

neutrality?

4. What types of changes should be expected, according to industry experts and

research; what have recent industry studies predicted?

The literature used to support this research was based in on past industry events mostly relating to technology in the television industry.

3.2 Setting, Participant & Collection

A major piece of content obtained during the research process were the two interviews. Interview 1 was conducted in Bala Cynwyd, PA. The interviewee, Daniel Elu, was prepped with the topic prior to the interview, however this topic was already of personal interest to the interviewee. The purpose of this interview was to gain perspective from an industry professional who was also well versed in the media landscape as a whole. Interview 2 was held in Philadelphia PA with interviewee Matthew DeSabato.

The basis of this interview was to gain perspective on the issues surrounding net neutrality.

The interviews were recorded and transcribed, and quotations were selected as support for the various research questions.

CHAPTER 4: RESULTS

During a 2015 interview conducted by the researcher with industry professional

Daniel Elu, multiple topics were discussed that pertain to the future of the media and television industry. The notable discussion topics in this interview were the relationships between content producers and distributors within the industry, the state of industry regulation and how technology will likely effect the future of this industry. An additional interview was conducted in 2017 with industry professional Matthew DeSabato to gain insights on the topic of net neutrality and what impact regulation could have in the media industry.

As Dan Elu expressed, the traditional players will have to be malleable and willing to address or restructure their business models, not only to make sure they remain relevant but to be a part of the change. Allowing for changes and progress in incorporating digital technically maybe difficult at first but will result in long term success, whereas denial or refusal to change or advance will ultimately stifle the traditional business model, quite possibly in an irreparable way.

“Well, that’s the thing too, the number of zero TV households is growing

every year. And what the mean by zero TV is, zero TV provider. You still have a

TV that you what your content on, you just don’t subscribe to Comcast or

DirecTV or anything like that. And for like 30 [years old] and under its almost

like 10%-15% households are that way. So, that’s why they’re afraid of… it’s

eventually going to the way, what happened to music” (Dan Elu, Interview 2015).

With companies like Comcast in the market, significant industry power and control is left in very few hands and these large powerful companies become the gatekeepers to the industry. The more companies Comcast works with or acquires, the larger the control blanket spreads. This monopolization of the industry in the digital era largely effects the consumer as multiple services/subscriptions are now coming from one source, where as in the past, would have been separated among multiple providers. This give companies like Comcast a competitive advantage and gives more access to consumer and market information. When a company bundles services, it allows said company to gain a stronger hold on the consumer. Additionally, monopolistic companies like Comcast cause the barriers of entry to rise for new players in the market. These relationships are also greatly effecting the creative branch of the industry.

“And, it puts a burden on the creative community, in that you know…

‘who I choose to go with will decide my audience’. Whereas in the past, if I put a

show out on CBS, anybody who wants to watch it, could watch it. Now it’s going

to get into a little bit of this weird game where you start seeing people going to

just Netflix or just Amazon or just to this subscription service. So, Aereo was

trying to give people access to the content anywhere and everywhere and they just

tried to go through a couple of loopholes” (Dan Elu, Interview 2015).

The interview with Matthew DeSabato was conducted on topic of net neutrality as it is in the forefront of the FCC again in 2017. The last time net neutrality was addressed was in 2015 during the Obama administration and net neutrality was affirmed. This is being addressed again in the Trump administration which is not surprising since there was no actual legislation in place (Wu, 2017).

The DeSabato interview revealed how regulating the internet can affect revenue streams in the media industry, an interesting angle. The flow of ad dollars keeps content creation evolving and allows for content to hatch from many sources, big and small, in the industry. Net neutrality regulation could make it harder for ad dollars to reach the consumer, and ultimately a lesser ROI to the advertiser. This could lead to less investment in advertising which means the content providers are making less money and with decreasing revenue it becomes more challenging to create new content.

“If the ISP and content provider are more or less the same company – then

making their own content available at fast speeds, is a concern. So, if that were to

happen, the entire ad model starts to shift. There becomes a whole new element to

audience targeting – what would have previously been a pretty normal targeting

option now has another layer of ….xxx target, if they are subscribed to xxx ISP.

So, this would make maintaining these audiences very challenging for the ad

industry. Ultimately, if a website or app is lagging, that changes the ad revenue

sourced from that content. Does that make sense? (Matthew DeSabato, Interview

2017).

Having the power position in this industry is determined by who controls the

industry entrance points, especially involving new technology. There are situations when

competing companies/providers find it more beneficial to work together, these situations

are referred to as competitive alliances. An example of this type of relationship would be

Apple TV allowing competing services to be available via the Apple TV hardware (Dan

Elu, Interview, 2015).

Regulation will continue to be the lynchpin for content creation and distribution

of the television industry. Innovation is pushing the tech industry and media industry

closer and closer together and even though regulation has hindered some technological

advancements it has allowed many. In DeSabatos response to the impending discussions at the FCC regarding changes in regulation on net neutrality, any imposed regulations will likely be less severe than what many fear.

“Yeah, well – correct. I think that net neutrality will exist in some

capacity. The changes will be in who is the governing party and then depending

on that, what the rules will be. As we know Ajit Pai is now the FCC Chairman

and upholding the current net neutrality regulations is not exactly what he is

aiming for. Of course, ISPs favor one set of rules and content providers a different

set – but I really do think regardless of who oversees this objective, the regulation

will stay fairly moderate in the end” (DeSabato Interview 2017).

DeSabato brings up points that involve being aware of the regulation in the industry for the future. While addressing net neutrality is imminent, he also addresses the need for a framework to handle regulating new technology. The pace at which technology has changed the entertainment industry in the last 10 years is exponential, a new innovation could surface in a year that will require regulation that is tailored to that type of technology and not retro-fitting old legislation (DeSabato Interview 2017).

CHAPTER 5: DISCUSSION

Competition in the television industry is not just from television anymore, but competition among all media and platforms. There is only a finite number of hours in the day and with more screens and data to consume, the more challenging it will be for content providers and advertisers to reach their target consumer or audience. The researcher also believes industry regulations play a major role in how the industry as a whole will progress and how quickly new innovation will be accepted. Reform is one of the most important elements to this industry’s future and many major stakeholders in the industry feel the same way. The challenge seems to be with the legislative bodies who hold the power needed to make change.

Supporting Dan Elu’s insights, the pace of change in the industry further supports the need for collaboration. Streaming for example, is a way of consuming television that in a very short time, has become what previous generations would call a “TV Channel”

(Band, 2016).

The landscape of television will be changed and affected by technology in ways that will be embraced and avoided. In 2013 EY Global Media & Entertainment released a report about the future of television and trends in the industry. This report identified 6 key points of the TV industry; specifically point number 4 relates to this research because it is recognizing that innovation is a key part in the future of the industry (EY Global

Media & Entertainment 2013).

1. Storytelling will evolve to make better use of an Omni platform environment.

2. Ubiquitous screens will demand greater content mobility.

3. Social dynamics and synergistic experiences will drive more event-based

viewing.

4. Innovation in program discovery and television controls will drive new

techniques to cut through the clutter.

5. Bingeing will drive more innovation in measurement and personalization.

6. New entrants demanding unique content will drive innovation beyond the

traditional studio system.

A DigitalSmiths poll shows 65% of respondents were “always” or “sometimes” frustrated when trying to find something on television through a set-top box (STB). Using tablets and wearable devices, program search and discovery will become more intuitive and more tailored to individual preferences and tastes.

The technology for smart devices that learn and adapt performance to regular routines already exist elsewhere in the home. The Nest thermostat “learns” habits and work patterns and adjusts housing temperature accordingly. Similarly, television can

“learn” a viewer’s habits, which is possible with streaming services like Netflix (EY

Global Media & Entertainment 2013).

The need for technological advancement is prevalent on the consumer side. Many other industries are adapting or have adapted to new consumer trends and to the new needs of consumers. This report supports the need for new technology that will be

39 integrated into the television industry if content providers and producers engage in this optimization process. These key industry stakeholders will realize that optimizing the ways they reach their consumer will be necessary for success.

This will need to go far beyond the descriptive show metadata and into parameters such a sentiment of show, optimum viewing circumstances (screen size, etc.) and shared creative heritage (EY Global Media & Entertainment 2013).

According to the NAB (National Association of Broadcasters), the evolution of the internet has changed everyone but the ownership regulations on broadcasters.

Outdated ownership rules continue to prevent local stations from fairly competing in a tight marketplace (www.nab.org).

In 2016, The Federal Communications Commission (FCC) concluded a long- overdue review of its broadcast ownership rules after coming under growing pressure from Federal courts to act. Although a review is mandated by law every four years, the

FCC had failed to complete one since 2006 (www.nab.org).

Also in 2016, the FCC reviewed all of the broadcast ownership rules and in a 3-2 vote the FCC chose to retain all of its existing broadcast ownership rules, even those dating back to the mid-70s, prior to the digital age. Broadcasters and policymakers alike agree that the FCC’s decision to do nothing to change this mandate ignores new

40 technology and industry realties. “The FCC still applies analog regulation in the digital age” (www.nab.org).

One of the major issues with this neglectful oversight is that these regulations only apply to broadcast stations and not their direct competitors. With the advent of multiple new media sources (Online Video, Social Media, blogs, etc.) outdate restrictions are not needed to ensure competition or diverse points of view, as at one time may have been needed (www.nab.org).

Both the Elu and DeSabato interviews drew insights into the role of regulation.

There are varying views as to how far regulation should go regarding companies and consumers. There is also the other angle, where there is regulation of companies relative to other companies. From the insights gathered, regulation between companies is driven more by monetary gains and/or protecting investments. The regulation between companies and consumers seems to be more politically driven.

“It is ironic that the FCC will allow mega-mergers in the pay-TV industry, such as the merger of AT&T and DirecTV, but continues to hold local stations hostage under decades-old, outdated rules” (www.nab.org).

Regulation of the internet and internet providers has become an area of focus in

2017, but it is not the first time regulation will be discussed with regard to net neutrality.

Gaining more insight into what is involved in regulating the internet in an important piece of the media industry puzzle, and will affect future legislation.

5.1 Conclusion

The media industry is an evolving area of technology, content and internet services. Ted Sarandos of Netflix shared one of the more powerful conclusions. “We’re not competing against ABC sitcoms, we’re competing against Pokemon Go, we’re competing against the $200 million blockbuster movies.” In other words, TV programming, like all entertainment content, is just another app (Band, 2016).

There have been legal cases over the years that have chipped away at the regulatory model of the television industry. The Aereo TV Supreme Court case was an important legal battle that highlighted the continued lack of legislation and understanding of new technology in this industry. Aereo was preceded by Cablevision and Sony before that.

Technology will continue to affect consumers’ daily lives and the choices that are made, including where to spend their screen time. Technology has enabled consumers to access their favorite content cross platform and at any time. The media industry has been slow to come around to this change in behavior but has begun adapting. Regulation for these new(er) viewing patterns is not on pace with the industry it is trying to regulate.

That is not to say that new innovations do not need to be regulated, they just need to be

regulated differently and the old laws, acts and rules simply do not apply in the same way they once did.

The internet is a vehicle for content as well as the road to be able to consume that content. This is a unique pair of services on which regulation is hard and political. As both DeSabato and Elu agree there is a need to understand and apply regulation in many areas of the media industry.

LIST OF REFERENCES

Ballon, P. (2016). Power and control strateiges in online video services. Ghent Belguim: iMinds. Band, J. (2016, August 12). www.project-dico.org/media. Retrieved from Disruptive Competition Project: http://www.project-disco.org/media/081216-the-real- challenges-facing-the-television-industry/#.WFrdNhsrLcs Breland, A. (2017, April 28). What killing net neutrality means for the internet. Retrieved from The Hill website: http://thehill.com/policy/technology/331012-what-killing- net-neutrality-means-for-the-internet Brodkin, J. (2017, February 21). Arstechnica.com. Retrieved from AT&T says its merger with Time Warner is exactly what the customers want: https://arstechnica.com/tech-policy/2017/02/att-says-youll-love-more-relevant- advertising-after-time-warner-merger/ Brodkin, J. (2017, January 25). FCC Chairman Pai vows to close broadband "digital divide". Retrieved from Arstechnica.com: https://arstechnica.com/tech- policy/2017/01/fcc-chairman-pai-vows-to-close-broadband-digital-divide/ Carney, E. (2013, June 18). Why the TV Networks Hate This Company. Retrieved from Wall Street Daily: www.wallstreedaily.com Deborah Bothum, C. A. (2016). 2016 Entertainment & Media Industry Trends. (Price Waterhouse Cooper) Retrieved from Strategyand.pwc.com: http://www.strategyand.pwc.com/perspectives/2016-entertainment-media- industry-trends Eggerton, J. (2013, Dec 12). Scalise Reintroduces Video Reform Bill. Retrieved from The Business of Television : Broadcasting & Cable: www.broadcastingcable.com/news EY Global Media & Entertainment. (2013). Future of Televison. Los Angeles: EYGM Limitied. Gattuso, J. L. (2015, Nov 17). FCC: Over the Top on Internet TV. Retrieved from The Hertiage Foundation: http://report.hertiage.org/bg3077 Gilbert, B. (2014, June 25). US Supreme Court rules Aereo's streaming service is illegal under copyright law. Retrieved from Engadget: https://www.engadget.com/2014/06/25/united-states-supreme-court-aereo/ Guignard, T. (2015). Digital Intermediaries and Cultural Industries: The Developing Influence of Distribution Platforms. Journal of Media Critiques, 44-54.

Joe Flint, S. R. (2016, May 1). Hulu is Developing a Cable-Style Online Service. The Wall Street Journal, p. 4. Kang, C. (2014, April 24). The effect of net neutrality rules on consumers. Retrieved from The Washington Post: https://www.washingtonpost.com/business/technology/the-effect-of-net- neutrality-rules-on-consumers/2014/04/24/59c90556-cbda-11e3-95f7- 7ecdde72d2ea_story.html?utm_term=.d903fa1febfb Kelly, B. (2017, July 12). Net Neutrality Issue (Again): Pros and Cons. Retrieved from Investopedia.com: http://www.investopedia.com/articles/markets/062014/what- you-need-know-about-net-neutrality.asp Kharpal, A. (2017, February 28). FCC does not expect to review AT&T and Time Warner deal, Chairman says. Retrieved from CNBC.com: https://www.cnbc.com/2017/02/28/fcc-at-t-time-warner-deal-no-review.html Krosse, B. S. (2016, March 24). 20th Century TV Regulations Threaten 21st Century TV. Retrieved from InsideSources: http://www.insidesources.com/category/technology/ Melody, W. (2013). Open Standards: A Shrinking Public Space in Future Network Economy. ITU Kaleidscope Academic conference. Merced, M. J. (2016, October 22). AT&T agrees to Buy Time Warner for $85.4 Billion. Retrieved from nytimes.com: https://www.nytimes.com/2016/10/23/business/dealbook/att-agrees-to-buy-timewarner-for-more-than-80-billion.html?_r=0 Mullin, J. (2017, February 5). Patent Troll Sues Netflix Over Offline Downloads. Retrieved from Arstechnica.com: https://arstechnica.com/tech- policy/2017/02/patent-troll-sues-netflix-over-offline-downloads/ National Association of Broadcasters. (2016). Reforming Broadcast Ownership Rules to Reflect the Competitive Marketplace. Retrieved from www.nab.org: http://www.nab.org/advocacy/issue.asp?id=2161&issueid=1017 Oxenford, D. (2015, Jan 15). FCC Regulation in Internet Video? - Dates Set for Comments on Treating Over-the-Top Video Providers like Cable and Satellite TV. Retrieved from Broadcast Law Blog: www.broadcastlawblog.com/2015/01/articles Oxford Analytica. (2014, June 16). Technology undermines cable television globally. Oxford Analytica Daily Brief, p. 3. Oxford Analytica Daily Brief. (2014). Technology Undermines cable Tevelsion Globally. Oxford Analytica.

Reardon, M. (2015, March 14). 13 things you need to know abou the FCCs net neutrality regulation. Retrieved from CNET: https://www.cnet.com/news/13-things-you- need-to-know-about-the-fccs-net-neutrality-regulation/ Reigh, B. (2017, July 17). Net neutrality affects all of us: how to support Google and 39 others in day of action. Retrieved from Andriod Authority: http://www.androidauthority.com/net-neutrality-affects-us-786926/ Salka, N. (2016). Risky Business:Creative Development in Digital Media. University of Michigan. Schruers, M. (2014, June 26). Symposium: Aereo copyright decision creates uncertainty for the Cloud. Retrieved from Supreme Court of the United State Blog: http://www.scotusblog.com/2014/06/symposium-aereo-copyright-decision- creates-uncertainty-for-the-cloud/ Shontell, A. (2014, January 15). EXPLAINED: 'Net Neutrality' For Dummies, How It Affects You, And Why It Might Cost You More. Retrieved from Business Insider: http://www.businessinsider.com/net-neutralityfor-dummies-and-how-it-effects- you-2014-1 Skroup, B., & Krosse, N. (2016, March 24). 20th Century TV Regulations Threaten 21st Century TV. Retrieved from InsideSources.com: http://www.insidesources.com/20th-century-tv-regulations-threaten-21st-century- tv/ Syrkin, M. (2015, March 18). US Television on the Internet and the New "MVPDs". Retrieved from Digital HHR: https://www.hugheshubbard.com/news/u-s- television-on-the-internet-and-the-new-mvpds-updated US Copyright Office. (2012, 05). Copyright Basics. Retrieved from copyright.gov: https://www.copyright.gov/circs/circ01.pdf Weisburg, J. (2015, Oct 8). TV vs the Internet: Who Will Win? Retrieved from The New York Review of Books: www.nybooks.com Wu, T. (2017, April 28). The ‘Fix’ for Net Neutrality That Consumers Don’t Need. Retrieved from New York Times: https://www.nytimes.com/2017/04/28/opinion/the-fix-for-net-neutrality-that- consumers-dont-need.html

APPENDIX A

US Patent No, 7,174,362 Method and system for supplying products from pre-stored digital data in response to demands transmitted via computer network

Inventors: Lee; Sungil (San Jose, CA) Family ID: 37696731 Appl. No.: 09/718,286 Filed: November 21, 2000

Current U.S. Class: 709/203; 709/217; 709/219 Current CPC Class: G06Q 10/06 (20130101); G06Q 30/06 (20130101) Current International Class: G06F 13/00 (20060101) Field of Search: ;709/203,217,218,219,226,227 ;369/84,85

Abstract

The present invention relates to a digital data duplication system that utilizes one or more computer networks to automate the process from order-taking to delivery, eliminating the need for human supervision. Customers enter requests for a given number of machine- readable articles containing digital data, typically compact disks. The requests are transferred to a website, which sends to a server electronic mails containing the details of the requests. Upon receiving an electronic mail, the server directs a printing device to produce mailing labels for shipment. The server has an internal archive of all data it uses to convert blank CD-Rs into the requested CDs, and is connected to a series of CD-R writing machines. The server schedules each request, downloads necessary data onto the CD-R writing machine that is assigned a particular request, and sends a write command. The CD-R writing machine subsequently transfers the data in its cache onto the pre- loaded CD-Rs. After the data transfer is complete, the CDs embodying the requested information are automatically placed in a bin for shipment.

I claim:

1. A computer-implemented method of digital data duplication comprising: taking requests at one or more user interfaces; transmitting said requests through a network to a computer; assigning each of said requests to one of a plurality of output devices; and executing the duplication process, wherein said computer comprises: at least one first module configured to create a task log based on incoming requests; at least one second module configured to store all data necessary for executing said duplication process; at least one third module configured to create a subset of said data stored in said second module, further configured to download said subset to one of said output devices, and further configured to command said output device to transfer said subset onto blank media; and a connection through which said second module communicates with said first module and said third module.

2. The method of claim 1, wherein said data stored in said second module comprises: an expandable indexed archive of digital data, said data representing contents available for request by customers; and at least one resource file for each of said output devices in communication with said computer.

3. The method of claim 2, wherein said data in each said resource file comprise: name and type of said output devices; network address of said output device; number of drives in said output device; availability of said output device; number of blank recording mediums pre-loaded in said output device; index of digital data that has been downloaded onto said output device; and hard drive capacity remaining in said output device.

4. The method of claim 1, wherein said first module is configured to send at least one signal to at least one printing device to create mailing address labels for each of said requests.

5. The method of claim 1, wherein assigning said requests comprises: grouping together requests for the same content; directing said requests to the most immediately available

48 output device that is capable of making the requested duplication onto the requested type of recording medium; tracking the number of recording mediums remaining in each output device; notifying an operator if more recording mediums need to be loaded; finding the digital data that corresponds to the requested content; sending a write command to said output device in the format that said output device understands; waiting for the output device to perform the requested number of duplications; repeating the above steps each time a new request is entered.

6. The method of claim 5, wherein finding the digital data comprises: checking the cache of said output devices for data representing the requested content(s); deleting enough pre- existing data in said cache to make room for said requested content; and downloading said requested content from said computer onto said cache of said output device.

7. The method of claim 1, wherein each module that comprises said computer is responsive to electronic mail commands.

8. A system for duplication of data onto digital recording mediums, the system comprising: a customer interface; and a communication network connecting said customer interface to a server that schedules and process duplication; wherein said server comprises: first module for creating a log of customer requests; second module for storing the data to be duplicated; third module for scheduling the duplication of each request and directing each request to one of a plurality of output devices; at least one printing device for producing mailing labels for each request; and at least one output device for transferring the data requested by customers from an internal data storage onto digital recording mediums.

BACKGROUND OF THE INVENTION

1. Technical Field

The present invention relates to a digital data duplication system that utilizes one or more

49 computer networks to automate the process from order-taking to product delivery. More specifically, the invention permits users of CD duplication services to directly place requests into a server, which then schedules production, allocates resources, executes duplication, and sorts the products for shipment.

2. Description of Related Art

Before the advent of recordable digital compact disks (hereinafter "CD-Rs"), the transfer of data onto compact digital disks was a costly procedure, economically feasible only when manufacturing a large number of copies. Users whose applications required relatively few copies or required frequent data updates could not reap the benefits of this compact disk duplication technology, even though low-cost disk-readers were readily available.

The advent of CD-R was intended to allow users to record their own disks and thereby achieve significant savings. Unlike a common compact disk that has been pressed by a mold, a CD-R typically has a dye layer that is etched by a laser contained in the CD-R disk drive. Once etched, the "burned" CD-R disk is unalterable.

Several practical problems have prevented CD-R users from attaining maximal efficiency in the copy process, especially when attempting to make multiple disk copies in a short amount of time. One of the problems that typically arise in a volume copying process using CD-R writers is the necessity for direct human supervision. A person has to prepare CD-R disks for copying, remove the disks from the CD-R writer once copying is complete, and then prepare the disks for inspection to ensure no defective CD-R disks are retained in the completed set of copies. Aside from the tedium involved that may increase errors, requiring human attention in this process adds a significant labor cost that is added to the end-user price.

One solution to the human supervision problem is a programmable, automatic compact disc duplication system. That system, which includes a copy unit, a host computer and a

50 computer software that provides a user interface, is further discussed in U.S. Pat. No. 6,141,298, incorporated herein by reference. While the system in the above patent eliminates some of the manual steps that creates inefficiency, it still leaves many steps to be handled by operators.

SUMMARY

The present invention relates to a method and system of taking customer requests and writing the requested digital data onto various digital recording media, such as CD- ROMs, CDs, mini-CDs, or DVDs. Using this method, a customer can request any quantity of a specific CD, mini-CD, or DVD through an electronic commerce transaction system or a website and have a server automatically process the request so that it is ready for delivery. Upon order entry, the customer interface website first sends an electronic mail (e-mail) to a CD Writer Server. The e-mail triggers the CD Writer Server to update a log of requests and send signals to one or more printing devices that prepare address labels for delivery. Once the log is updated, the CD Writer Server schedules the requests based on estimated process time, availability of the appropriate output device, suitability of particular devices for handling a particular request, among other characteristics. Information on process time is obtained from an internal archive of the digital data used to produce the ordered CDs. Likewise, the information concerning the availability of each output device in the system is found in internal resource files. When scheduling is complete, the CD Writer Server converts the e-mail requests into machine language and sends write commands to designated output devices.

One important object of the present invention is to cost-effectively duplicate CDs using CD writers in response to requests received from remote customers. The present invention removes the inefficiency associated with human supervision, and eliminates the need for inventory.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is a schematic depiction of the three modules comprising a CD Writer Server.

FIG. 2 is a block diagram depicting the process flow from order receipt to production.

FIG. 3 is a schematic depiction of the functions of the Log Manager.

FIG. 4 is a schematic depiction of the functions of CD Writer Control.

DETAILED DESCRIPTION

The present method and system relate to conducting a business that supplies any type of written or printed material, such as invitations, books, cards, and similar materials that can be mechanically produced from an archive of digital information. In one embodiment, the present invention is adapted to produce various digital recording media, such as CD-ROMs, CDs, mini-CDs, and DVDs (hereinafter collectively referred to as CDs). The invention is implemented through a computer system herein referred to as CD Writer Server. CD Writer Server 100 processes customer requests by using three modules that work together: Log Manager 200, Resource Manager 300, and CD Writer Control 400 (see FIG. 1). A "module," as used herein, refers to the functionality and not the configuration of components.

The CD Writer Server 100 typically resides on an e-mail server because the CD Writer Server commonly communicates with the customer interface 10 via e-mails. The order fulfillment process is triggered when a customer enters a request through a customer interface 10. A customer interface includes but is not limited to a website, a web server, an electronic commerce transaction system, a customized start page, or an e-mail subsystem. At the interface, the customer is prompted to provide 1) the content(s) he wants duplicated, for example identifiers of songs, movies, or software, 2) the desired quantity, 3) personal information such as the name, address, and phone number of the customer, 4) the desired shipping method, 5) the due date, and 6) a payment or a method of payment, such as a credit card number, among other information. After the request has

52 been entered and the CD Writer Server 100 has scheduled the request, the customer may be able to see an estimated delivery date at the interface 10.

The present system manages payment at the customer interface 10, either through an e- commerce transaction system involving a credit card number, or through an account number to which charges can be made. Managing payment through an e-commerce system significantly reduces the amount of human supervision that is required.

As shown in FIG. 2, the CD Writer Server 100 module that first receives an e-mail order from the customer interface is Log Manager 200. FIG. 3 shows that upon receiving an e- mail, Log Manager 200 first interprets it 210 and extracts certain information, including but not limited to the mailing address. Then, Log Manager 200 time-stamps each incoming e-mail 220 and lines it up in the order of receipt 230, creating a log that CD Writer Control 400 can eventually retrieve and process. In addition, Log Manager 200 sends the extracted mailing address information 240 to an address label printer 600. The printer 600 is optionally attached to the CD Writer Server 100. Log Manager 200 repeats 250 the process with each incoming e-mail request, updating the log with each request.

After Log Manager updates the log, CD Writer Control 400 retrieves the log and examines it 410 in conjunction with the information stored in Resource Manager to schedule the production of CDs. The information CD Writer Control retrieves from Log Manager 200 pertains to the specifics of a request, such as the order quantity and the requested content. In contrast, the information stored in Resource Manager 300 pertains to hardware configuration and digital data that represent contents that can be transferred to a blank medium. As FIG. 2 shows, Resource Manager maintains two types of files: a set of resource files 310, one file for each of the output devices controlled by CD Writer Server, and an archive 320 of all the sounds, images, and characters used to execute the duplication requests.

In one embodiment, there are as many resource files 310 in Resource Manager 300 as there are output devices (hereinafter CD Writers) 500. For example, Resource Manager

300 shown in FIG. 2 stores N resource files 310 because there are N CD Writers 500. Each resource file contains the name and the IP address of each CD Writer 500, the number of drives and printers in each of those machines, and the number of blank CD-Rs remaining in each machine, among other information. Moreover, the resource file 310 keeps track of which data from its archive 320 has been copied to the internal cache 520 of each CD Writer 500 and how much cache space remains in each machine. The latter information becomes important when some data needs to be purged in order to download new data. As FIG. 2 shows, Resource Manager 300 and CD Writer Control 400 maintain close communication 330 so that every time CD Writer Control 400 sends a write command 440 to one of the CD Writers 500, Resource Manager 300 can update the resource file 310 for that CD Writer.

As mentioned above, Resource Manager 300 also stores an archive 320 of all the sounds, images, and characters used to produce the requested CDs. The archive can be internally indexed by part numbers, each part number being associated with a path name. In one, the hard drive of Resource Manager 300 was designed to hold at least 1,000 CD contents along with corresponding graphics, which are to be physically printed on the CDs (the number of contents the archive can hold depends on the amount of data that each content corresponds to). In order to change or update the contents of the archive, an operator would have to delete some of the existing data and download new data from a network or a digital storage medium.

CD Writer Control 400 retrieves information from both Log Manager 200 and Resource Manager 300 to schedule production for each CD Writer 500 connected to the system. In order to optimize production, CD Writer Control 400 must first calculate the process time for each order 412. This calculation is performed by first reading the title of the requested songs or movies from the order log and looking up the size of those songs or movies in the Resource Manager archive. Then, CD Writer Control 400 can schedule the requests according to whatever criteria that best suits the business (i.e., it can be programmed). For example, it can schedule the duplication jobs in the order that the requests were received, to ensure that between two requests with approximately equal process times, the

54 request that was received first will be processed first. Alternatively, it can prioritize the request with a closer due date or an order marked "high priority." Furthermore, if there are multiple orders requesting the same content, CD Writer Control 400 can group those orders so that they can be produced together 414 (but the mailing address labels would be different for each order). Other factors may only be taken into account in the scheduling algorithm.

Since there are different types of CD Writers 500 (for example, CD Writers for DVDs and CD Writers for mini-CDs) with different cache 520 contents and varying numbers of drives 510, scheduling involves careful selection of a CD Writer for each job. CD Writer Control 400 selects (416, 418) a CD Writer 500 based on the hardware configuration data stored in Resource Manager's resource files 310. CD Writer Control 400 would send a job to the next available CD Writer 500 of the appropriate type that already has the requested content in its cache 520. For optimal production, as many machines as possible would be processing orders concurrently.

Once scheduling is complete, CD Writer Control tells the designated CD Writer to begin the duplication process by sending a "write" command in the appropriate machine language 440. However, before sending the "write" command, CD Writer Control 400 must check to make sure there are enough blank CD-Rs 540 loaded in the particular machine, as shown in FIG. 4. CD-R, as used herein, refers to any kind of medium onto which data can be fixed, printed, embodied, or stored, and from which the information fixed, printed, embodied, or stored therein can be perceived, reproduced, used, or otherwise communicated, either directly or indirectly with the aid of a device. Each CD Writer can be designed to hold as many number of CD-Rs as is practical. If there is an insufficient number of blank CD-Rs remaining, CD Writer Control notifies the operator with a short message 448. If there are enough blank CD-Rs, CD Writer Control will send the write command for the proper number of CDs 440. Note that the maximum number of CDs that can be written and printed with one "write" command is equal to the number of drives in the CD Writer that is processing the order (shown as n in FIG. 4). Thus, CD Writer Control repeatedly sends 446 a "write" command to the designated machine until

55 the requested number of CDs have been produced. When a request is fulfilled, CD Writer Control 400 proceeds to the next request scheduled for the particular CD Writer.

In the event that no CD Writer of the appropriate type contains the requested data in its cache, CD Writer Control must check whether there is enough cache space left in the machine and download 432 the necessary data onto that machine from the Resource Manager internal archive. Only after downloading is complete can the CD Writer Control send its "write" command, which directs the CD Writers to transfer a specific subset of data from their cache to the blank CD-Rs. In one embodiment, each CD Writer is designed to hold up to about 200 CD images and printer graphics (depending on the size of the images).

Writing a CD entails not only transferring digital data from the cache 520 to the blank CD-Rs 540, but also printing certain graphics on the surface of the mediums. Thus, each CD Writer must be equipped with at least one printing device 530.

While the present invention is illustrated with particular embodiments, it is not intended that the scope of the invention be limited to the specific and preferred embodiments illustrated and described.

APPENDIX B

Interview: Matthew DeSabato

C: So I’ve really be interested in media industry regulation and so when the topic of net neutrality came back into the picture earlier this year I thought it would a good opportunity for me to delve into the topic. It’s something that I feel has always been in the background and gets addressed every few years, and more recently addressed from a legislative perspective, I wanted to take this opportunity to talk to you about your thoughts and feelings on the topic in general and how you feel it will effect the future of media consumption.

M: Hi, yes well thank you. As you know I come from an IT background but now work in the media industry so I am happy to chat about what I think and feel on this topic.

C: Okay great! So I guess lets chat about in general what’s going on right now regarding net neutrality and the FCC and then I think I’d like to talk a little about how this effects consumers and also other industries.

M: Sure – okay, so the current net neutrality debate isn’t new, like, we’ve seen this before

– and it usually settles in the Court of Appeals. I think its important to know that the basis of net neutrality comes from treating all information equally, and like, certain information isn’t considered to be better or worse that other information.

C: Yes, right – ISP’s cannot treat their information pathways differently from each other.

M: In short, yes, precisely. I feel like a lot of the issues we’ve run into with policy about

net neutrality is because its unclassified as a ….thing. So like it’s a ISP is providing a

service but the service itself isn’t what people care about it’s a part of this service, that is

not a tangible thing but part of a technological architecture that is the vehicle of

information. Yeah, so I get it, it’s hard to classify and decide who governs what and what

entity is the decision maker.

C: Yeah that seems complicated.

M: Yeah, which is why I’m not all that surprised that we are back in this scenario having

just been her in 2015.

C: Okay, so whats going on, who is involved?

M: Well its pretty much the same players, the FCC, the FTC and Congress. And if you

remember back to 2015 the Obama administration was able to pass a FCC policy that

reclassified ISPs and they would be regulated by the old public utility laws, but still

remain within the FCC’s governance.

C: Okay so considering ISPs are a public utility, that pretty much forces equality?

M: Yep, pretty much. So anyway, basically I see the outcome of this current round

shaking out in a few ways. First there is this option of enacting legislature. This is

probably less favorable or likely but it would allow for long term regulation. I feel like

this would be similar to the parts of the 2015 order and would have set rules in place for

blocking, throttling and the like. I think it would make sense that the FCC is the governor

of this regulation and they should be prepared to future proof this legislature so that we

are not visiting this again in a few years.

C: How do you think it can be future proofed?

M: Well, listen, I mean – we can’t predict the future. So, there is always a risk of

technology or a change arising that we aren’t prepared for. But I think just taking a look

at the trends of the industry and things that we’ve struggled or are struggling to regulate

now in other industries could be a good angle to start at. I think addressing the companies

that have distribution outlets as well as providing content could be an area to make sure

there are stop gaps in place. Companies like Comcast – with NBC Universal, could

become a threat in ways not yet understood, so preparing for that is necessary, I think.

C: I see – all good points. Okay so the FCC imposing regulation is one, how else could

this go down?

M: Ah yes, well the other option is probably more popular among the ISPs. This is

basically to move the governing of net neutrality from the FCC to the Federal Trade

Commission (FTC). This seems a little odd to me, but I think the ISPs are pushing for it

because it will totally change how their networks are managed and regulated. There

would still be regulation, but it would be different. The FTC would really on be involved

if there was a net neutrality violation, which is different than the role of the FCC, where

there are rules already set. Since the FTC is a law enforcement agency – they more or less

wait for something to happen, and of course, a complaint would be filed and then the

regulation would – or wouldn’t – happen.

C: Interesting, so the suggestion of moving to the FTC – you don’t think is a good one?

M: Well – I see why it is a suggestion – I also think its being suggested to just decide on

this topic because it feels like the FCC is going to just keep going in circles. But yeah – I

really don’t like it and I just don’t think the FTC has the mind set or experience it needs

to manage something as unique as net neutrality.

C: I see, so there is a lot of talk about net neutrality going away all together, and what

you’re saying is that’s not the case?

M: Yeah, well – correct. I think that net neutrality will exist in some capacity. The

changes will be in who is the governing party and then depending on that, what the rules

will be. As we know Ajit Pai is now the FCC Chairman and upholding the current net

neutrality regulations is not exactly what he is aiming for. Of course ISPs favor one set of

rules and content providers a different set – but I really do think regardless of who

oversee this objective, the regulation will stay fairly moderate in the end.

C: So you don’t think that changes like paid prioritization will be a problem?

M: I don’t think they will be allowed in the new, revised, reclassified – whatever happens to our current net neutrality standards. I guess I just feel like that the changes that are on the horizon will be far less severe than what many people are feeling.

C: But there is no way to know that for sure?

M: Well, no of course not, it will definitely be a wait and see type of situation. But I do feel like the extreme ends of this issue are not where the important decision makers are settling.

C: Okay I got it. Okay – well I just wanted to pivot on the topic a little bit and see what your thoughts are on net neutrality as it relates to the advertising industry? As we both have experience in this industry – I’d just like to see how you see net neutrality effecting

on of the major revenue streams in the media landscape.

M: Sure – yeah I think that biggest glaring issue here is the relationships between content

providers and ISPs and the potential deals that could be made.

C: So, this is clearing more referring to digital advertising?

M: Oh yes, digital marketing really.

C: Okay – so give me an example.

M: Okay, well so say the changes in the regulation lessen the current standards and say

the ISP’s are affecting the speeds at which their services are reaching their customers.

Say, faster on certain content than others.

C: Maybe faster on content that is within their parent company, or something like that?

M: Yes – exactly, if the ISP and content provider are more or less the same company – then making their own content available at fast speeds, is a concern. So if that were to happen, the entire ad model starts to shift. There becomes a whole new element to audience targeting – what would have previously been a pretty normal targeting option now has another layer of ….xxx target, if they are subscribed to xxx ISP. So this would make maintaining these audiences very challenging for the ad industry. Ultimately, if a website or app is lagging, that changes the ad revenue sourced from that content . Does that make sense?

C: Yeah – basically ISPs ability to affect website and app speed will create less opportunities for advertising, therefore less funding for future content?

M: Yes – exactly – my second point. If the revenue streams slow down or dry up – there will be less in the bank to create new content. Unless of course you’re a content provider that’s also owned by or with a service provider.

C: I see, well that makes sense. I’ve also read that ad space pricing will change, do you have any insights or thought on that topic?

M: Yes, well – I think that in general if regulations are lessened ad prices will likely increase. There will likely be a shift in ad based to subscription based models for content

services, so there would be less opportunity to use ad space as revenue. But – like I mentioned earlier this is getting pretty complex and tricky with companies that have a presence in multiple industries – like Comcast, an ISP and plays a role in the ad sector.

C: Okay yeah, but overall you think this will effect how digital advertising is bought?

M: Oh for sure – I think that pricing ads on something like... Hulu will go up, most definitely. I think also the ‘’brand’ of a service will come into play, if your targeting a certain type of demographic.. say high income 150k +, you’d probably want to be

reaching people who paid for the fastest speed internet with access to the most websites.

Well that’s going to cost you big bucks – if of course, things change in this fashion.

C: Interesting, okay – that makes sense. I think I would say that being in the industry,

open and free internet is important to advertising, it allows for so much competition and

innovation.

M: I would tend to agree. Also though – something to think about is how quickly this

industry has changed, just even looking at the last ten years.

C: I know, it really is amazing.

M: So yeah, we are here today talking about regulation of the internet – but at the pace of

technology today, something new could be available tomorrow. Then we will be having a

chat about how to regulate that! I’m not saying that net neutrality isn’t important or isn’t

a major issue, topic or whatever – I think that as technology involves its more important

to keep up from the regulatory side.

C: I totally agree! I feel the same way – I want there to be a resolution with net neutrality

– but I also want to get … whatever in place to help quickly regulate new technology.

M: Yeah – I don’t want to rush it – I hope it’s thought out.

C: We can only hope! Well I think this will do it, thanks so much for your time!

M: Sure! Thanks for the opportunity.

APPENDIX C Interview: Dan Elu

C: Topic is more legislation and regulation of new technology.

C: So in regards to Aereo TV, which industry regulation played a big role in the more recent Supreme Court case, how do you feel about the final ruling in the case?

D: Um, I think it continues to show that the primary content distributors, cable companies, have a lot of power in the process still. Um, if in the long run, what’s going to happen is, within this space, the Aereo case basically scared away anybody who is not part of the existing distribution eco system right now. So, any new technology or opportunities are going to develop within the say, Comcast world.

C: Right, from this existing landscape…

D: Right, its going to be really hard for anybody from the outside to try to do something.

C: And you think that’s an issue?

D: Well, it’s a bit of an issue because of the fact that now the distributors are also the

producers. So it, tightens up the loop. Um, even stuff like CBS announcing they are going

to do a subscription model.

C: Yeah, NBC too, today, I read.

D: NBC is doing it, but NBC its tied to…well you to be a subscriber…

C: Oh right, yes you have you already have cable.

D: Right, you have to have cable still, to get the live stream. Which is was ABC does.

CBS is doing a subscription model where you can pay them, directly $5 a month to get that [CBS programming]. However, the only thing that you can actually stream are the

TV shows that they own. So, there are several shows on their roster, like Big Bang, which they as a studio don’t actually own. So what will happen, what happens when you, the distributors also the producers, it starts limiting what content actually gets out there.

C: Right!

D: And, it puts a burden on the creative community, in that you know… ‘who I choose to go with will decide my audience’. Where as in the past, if I put a show out on CBS, anybody who wants to watch it, could watch it. Now it’s going to get into a little bit of this weird game where you start seeing people going to just Netflix or just Amazon or just to this subscription service. So, Aereo was trying to give people access to the content anywhere and everywhere and they just tried to go through a couple of loopholes.

C: so you do believe that was intentional? The way they designed it and that was their…

D: Yes, they intentionally built the technology with the antennas to intentionally get through the loophole. Basically they were seeing it as you were renting and antenna, at a distant location, but it’s yours. And, from there, you can do whatever you want with your antenna.

C: Yeah, because its ‘yours’, private. The whole privacy thing.

D: Correct. The issue.. well what’s interesting about the Supreme Court case is that – well [going back to] the Cablevision case.

C: Well, yeah, because I feel like that was so big, and it helped Aereo for most of the

early cases, and then… it didn’t.

D: It didn’t. Because, you look at the Supreme Court ruling, they didn’t even, rule or

argue very heavily against the DVR functionally. But honestly, what happened, the way

the Supreme Court ruled it also leaves the Cablevision ruling now, possibly null and void.

C: hm, yeah

D: Honestly, the Supreme Court ruling is very vague and there is a lot of questions about

actually what it means. You could fall on either side in saying that the Cablevision ruling

is dead and so cloud based DVRs technically are not legal, or anybody can challenge

them again, there’s no.. the precedent has been washed away. You could also say that

because there was nothing explicit within the ruling that says that the DVR functionality

of Aereo was in violation of copyright law. The reason why I don’t think anyone is going

to really start challenging ruling is because, the big guy, Comcast is rolling out their own

cloud based DVR service. So, the reality is, it looks like Comcast is the one who was

pushing the hardest to kill this thing, because they are also the biggest one who owns

both sides of the table, distributor and producer, when they purchased NBC Universal.

So, they are really trying to do anything they can to limit these new guys to pop up, to undermine them, especially as they gobble up others like TimeWarner, and have huge control over the cable companies, or landscape. So, yeah its been interesting to see what

Aereo was trying to do, it was a very thin loophole – they did a couple things that still probably were outside that loophole, that probably got them in a little more trouble. They would have just had to get lucky with a judge, saying ‘yeah, by the fine description of this law, you’re fine’, with the fair use part of the process. And the Networks don’t like

65 them because they would lose out on transmission fees, well retransmission fees with the cable companies. Like Fox makes almost more money from retransmission fees than they do from like, Primetime ad sales.

C: Oh yeah?

D: Yeah, because they own so many of their own stations. So that’s it, as long as those retransmission fees are getting paid out like crazy by the cable companies to the

Networks and to the local TV stations -its going to be really hard from somebody like

Aereo to ever make it.

C: so, say Aereo stuck around, was it a real threat? Do you think it really would have effected….?

D: Yeah, because what would have happened was Aereo would have been gobbled up by somebody big.

C: That’s what I thought! So then, what if Comcast bought them?

D: If Comcast bought them, well actually what they were afraid of is Google buying them.

C: Ah, yes I see. Not something like Comcast…

D: Not within their own…

C: Broadcast family?

D: Yeah, you know not within their own group of friends -of another cable MSO.

Someone like Google comes in and then creates an ad model to lay on top of that

[Aereo], that’s when it becomes a…

C: Ah, okay so that was the real fear.

D: That was the real fear, is that – these guys were start-ups, they were trying something new – they were trying to create a legal precedent to make their company viable and then probably sell to a big guy like Google, or somebody like that who could then monetize it in a much more clean way. Because if Google got a handle of it, right? They could then do programmatic TV at an exponential scale.

C: Hm, Yeah.

D: Because they would be able to then know each individual TV stream is for user ‘X’ and so you could target to that particular user on that particular device. And I think that was the ultimate fear of these guys. It wasn’t so much that, ‘Oh my god, its going undermine our entire model” – somebody is going to come in there that we are afraid of –

Google – or somebody like that who has a lot of cash. If its legalized, it doesn’t have any challenges against it anymore – they come in, they monetize it and then that’s when it really starts to break down the model.

C: Okay.

D: Um, people would be like, ‘I can buy my google subscription, log into my Google account and have access to all my TV.

C: Oh yeah, like everything. Right there.

D: Yeah, so I think that was the issue.

C: Yeah, I mean, that makes sense.

D: Because they knew, honestly, the reason why they are doing all of these law suits and

like the NFL jumps in and everything else. Everybody knew that these guys had a limited

resource and they could only fight for so long.

C: What, like drain their bank?

D: Yeah, and that’s why the rollout for Aereo went really slow, because they were losing

money fighting legal challenges.

C: Yeah, pretty much from the get go.

D: Yes. So, all these guys are trying to drain it as fast as possible. Aereo kept pushing,

they were pushing hard and fast to move it up the appeals process just so they could get

to a point of…

C: figuring it out?

D: of whether its right, or not. Like if any Networks and Comcast out there had their way,

this would still be churning through the courts for another year or so. Which they eventually actually did bankrupt Aereo. Because even before the Supreme Court case came out they were bankrupt. So, you its, interesting. I mean, it really gets down to the distributors wanting control, because they’re still losing subscribers every day. You know, cable subscription – TV subscriptions are going down every day, even though the user base goes up because people are buying broadband from Comcast but they’re not buying cable from Comcast. So if those numbers go away, their trying to find their own

models that they can contain themselves. Like NBC, Comcast owns them – and so it’s

like they own NBC they own all those cable networks, they own the broadband

bandwidth that you’re going to be sucking down all the content with, so they want to

keep as much of that in the same space as possible. And be able to control it as much as

they can.

C: So I guess my next part of this would be like, regulation. So, I personally feel like

there is a little bit of a - well, a lack of, regulation. And they’re forcing new technology

and new ways of doing things into these old rules. What do you see for that – do you

think there is going to be a reform or no?

D: No.

C: Ha, but there needs to be!?

D: There absolutely needs to be, there is so many… I mean, for so long, things like email

weren’t written into certain, you know – what is and isn’t protected type conversations,

because it takes forever because it’s up to congress to make the reform. And again it gets

down to money and who has control, so long as Comcast has its hooks into congress,

which it does, and the Networks have their hooks – it’s going to be really hard these new

technologies to be protected by any reform in the laws. The fact that they are still

debating net neutrality is mind blowing.

C: Oh, yeah!

D: And, the fact that they are trying to kill net neutrality is crazy, because you know,

Comcast…

C: We’re so past that!

D: Comcast would love to kill net neutrality so that they can charge you more to get

Netflix than to get Comcast streams. So, the fact that even something as simple as that is

probably another two years away before it gets completely resolved and possibly to the

detriment of the consumer – things like this, they are always so far behind on tracking

things. I mean, they are still figuring out how to manage drones and whether or not

people should be allowed to have their own personal camera drones, and stuff like that.

But, legislatively it’s never going to happen. It’s basically going to take, well just like

with Aereo, when somebody new comes up with this very interesting breakthrough

device, tries to get out there in the marketplace and then through the legal battles justifies

its existence and sets legal precedent to allow it to exist and to do what it needs to do.

But, it is going to be more and more difficult as long as its little guy verses the Comcast

world.

C: Yeah, I feel like that could take 10 years, that could take forever.

D: Yeah, so its going to take someone like a Google or, kind of like, an outsider but with a lot of money. Like an Apple or a Google their going to try something, they can fight you lawyer to lawyer, legal battle, legal battle and the big player will withstand and kind of figure it out together. All the rumblings about Apple TV is that their waiting to roll it out once they get all their ducks in a row with the Networks and the cable companies – so say, ‘we’re going to do this, and this how we are going to do it and you’re going to be onboard or not’. They got lucky with how, when they rolled out Itunes -where it got so big so fast that the record companies had no choice but to deal with them. TV and Video is going to be little more difficult because there is so much more money there that’s tightly controlled.

C: Yeah, and I feel like people… well, a lot of broadcasters and cable companies like the way it works now, because its beneficial to them.

D: Yeah, because they love the current on-air model. It’s a limited inventory, and be restricting the inventory they can have high prices. You know, CPM’s have been relatively flat in the national TV world, but the actual unit rates are going down, the

CPM’s are staying flat because the ratings are going down [too]. So, they’re happy with that because they can control, but once it gets into a pure digital ad model, then the

CPM’s start to plummet and its harder for them to live off of that scarce inventory. When

70 you start to get to programmatic and into insertable data, you know, where as many different people are out there, there’s that many spots available to buy. And so, they are going to fight that tooth and nail and try to do things like these ad hoc situations like with the NBC app and the ABC app where, yes, you can [stream] live, but you still have to be a customer and you still have to watch it through that networks channels and ad revenue streams – they don’t want to give it up. And that’s really why they are still also fighting programmatic because there still is only so much inventory and they’d rather be able to convince ‘that guy’ that he’s one of five and needs to pay more to get one of the 5 spots

[in a program], whereas programmatic, it’s a world where anyone with the lowest bid gets the spot. So the next few years are going to be interesting to see and I think the big players that are on the sidelines right now are Google and Apple, could be what really changes things.

C: Yeah, I see.

D: Netflix is showing its strength but it unfortunately doesn’t have any distribution method other than their stream. And, they’re trying to get that, but then they run into the headache of, eventually, what the reality is that majority of people who have broadband have it through a cable provider. So Comcast, can always slow them down, even though its not technically legal for them to do what’s called ‘throttling’ – they do.

C: yeah, didn’t AT&T just get hit with that.

D: yeah, they got huge fines- but they are willing to pay the fines so that they can ruin the user experience, and maybe you say ‘no, I don’t want Netflix anymore’. Literally, that’s what their intention is.

C: That’s so corrupt.

D: Well, that’s why they are pushing so hard to kill net neutrality. In essence, Comcast is

already, well in a sense blackmailed Netflix because, well its interesting, there are these

systems that track upload-download speeds for any individual website, like Netflix or

whatever. And it was interesting, like last year, the Netflix streams are getting slower and

slower and then they sign the deals with Comcast and Time Warner, and Verizon – and

they went back to the pre 2013 levels.

C: What?!

D: And people say ‘oh, that was just coincidence’ – no it wasn’t!

C: No.

D: They basically were holding them ransom to make sure that people had a good user

experience because if you have Netflix and it buffers in the middle of a House of Cards

episode you’re going to be pissed off and you’re not going to want to use them anymore.

C: Yep.

D: So yeah, if Comcast’s deal with Time Warner goes through they are going to control a

huge footprint of the United States, which Charter and Cablevision being next closest and

they are scattered all over the place. And Verizon and AT&T are now popping up and

they have their own, so because of those limited players then it gets down to basically,

like four real players in the distribution system and those four guys can throw a lot of

money to congress to make sure stuff gets bogged down or net neutrality gets killed, stuff

like that. And the little guts don’t. Its really going to be up to like a Google or Apple to change some of the equation and force them [congress] to realize what’s beneficial to the consumer at the end of the day. Because right now its not.

C: Right. Yeah. Okay. So, personally, would you have used Aereo if you had had the

opportunity?

D: Yes, because I’ve been seriously trying to figure out how to cut the cord.

C: Yeah?

D: In terms of my cable subscription. Keep broadband, obviously – but the issues with

local television and sports have been a hindrance. So if I can still get that, you know –

well that’s the other wild card here too, is the NFL.

C: Yeah, I was reading about that.

D: They are playing around with a lot of interesting things, and they are probably two -

three years away from offering up the digital only subscription.

C: I feel like, so many people… well that would be huge for them. Because sports its

pretty much the only reason a lot of people have…

D: Football. Football is the reason, it’s the reason I don’t kill it. You know, for college

and professional football.

C: Sure!

D: Its the only reason why I don’t do it. And if I had the opportunity to buy that separate

– we’d have Hulu, Netflix, Amazon and a NFL subscription and that would be our TV.

Which would be cheaper than what we have to spend now.

C: yeah, I just got a smart TV and I was thinking, when did I last use the cable. I was

clicking all these apps and “oh, Ill watch that”, you know? When you’re used to having it

at your figure tips..

D: Well, that’s the thing too, the number of zero TV households is growing every year.

And what the mean by zero TV is, zero TV provider. You still have a TV that you what

73 your content on, you just don’t subscribe to Comcast or DirecTV or anything like that.

And for like 30 [years old] and under its almost like 10%-15% households are that way.

So, that’s why they’re afraid of… it’s eventually going to the way, what happened to music.

C: Uh huh

D: Where is going to devolve and people can grab whatever they want from multiple sources, whether Pandora, Spotify, iTunes however they get what they want, which completely collapsed the music industry and made it all fall apart. But that happened quickly, video content is going to take a little bit longer because its more entrenched and deeper pocketed people as well as the ad model around it. And advertisers are going to be playing a huge role in this. Because the big guys like GM and PnG and Verizon, we

Verizon won’t, but the big spenders start taking large whole sale shifts of their TV budgets into digital only video that’s when their going to.. that’s when…

C: Their forced?

D: They forced their hand.

C: Yeah.

D: I mean, CBS is actually doing that. What they chose to do with their subscription model is, well there’s going to be advertising within that subscription. So you still get advertising, but they can control the subscription revenue as well as the ad revenue. NBC and ABC, are doing too, simply because it’s a new place where they can sell ads. Even though it’s a live steam of the network, during the commercial breaks it will be different ad inventory, the digital stream verses the TV stream. So, they are double dipping. Their basically like, if you’re going to take your dollars into online video we’ll grab a hold.

C: Well, it does give them more inventory. Really.

D: It does give them more inventory and it allows you then to play around in the

programmatic space because you’re going to have a log and their going to know who you

are when you’re watching that stream. So you’ll get different ads than the house next to

you, if you’re watching the same content. NBC is now doing it now, too, so they can start

building and install base prior to the 2016 Olympics. Because they’re going to do a huge

stream around the 2016 Olympics because Rio is live on the east coast, same time zone.

So, they are trying to get as many people into the system and familiar right, so that if

people do start streaming the Olympics, its within their platform and they can control all

of that ad revenue up front.

C: Well, look at them!

D: So, the next, I think I said, 2 – 3 years are going to be interesting to see. And I think

everyone’s watching to see the CBS subscription model and see if they start reporting -

well they are going to have to because they are publicly traded company - the level of

subscription levels, and how many people are using it. And everyone is going to look at it

and see like, okay, if they report a pretty healthy number, we’ll do to a sub-model, like 5- bucks a month of 10 million people and also sell ads to them, and everything else.

Unfortunately, is going to end up being the same people.

C: I guess that’s what irritating to me, I want a new player. It exciting to see a startup fight so hard, but you know…

D: Yeah, its going to be the same four guys fighting.

C: Yeah, Comcast, geeze.

D: It’s going to be Comcast NBC Universal, Disney ABC, Fox News Corp and basically whatever CBS transforms themselves into now that they’ve split up all of their units into different categories. So those four guys are going to continue to control because they all also control the majority of the cable networks. And the HBO goes to a digital only subscription.

C: That’s official?

D: Yep, beginning 2016, right before the new season of Game of Thrones starts, you’ll be able to buy HBO as digital only. You don’t have to have a cable subscription.

C: Yeah, just have the app.

D: Just have the app yeah. Um, yeah, and they could care less – a subscriber is a subscriber [to HBO].

C: Sure, $12 is $12 – its probably the same amount of money.

D: Yeah, probably the same amount, but they get a bigger portion. Because right now – like if you pay $20 a month or whatever for HBO, HBO probably only collects like 75% of that and the rest goes to the cable provider. So now, they’ll charge the exact same amount for their HBO product and they keep it all.

C: 100%

D: So yeah, their going to do really well. Showtime announced their doing the same thing next year. So those two big guys are going to go into digital only and its, well you know, there going to make so much money that it… makes sense. Honestly, it’s taken this long,

I don’t know why.

C: yeah.

D: Its, again, they’re working out deals with Comcast, like “don’t worry, you’re still

going to get the revenue from them [the customer] having to get the broadband package.”

C: Yeah, but not going to add it to the subscription, I wouldn’t! Just use the app! So yeah,

I think that’s all of this is what I wanted your industry thoughts on.

D: Okay.

C: So yeah, I guess until that big player comes in, we won’t really see any changes in

legislation.

D: there’s absolutely no changes in legislation for the next, 3-4 years. Congress is deadly

slow.

C: Their all old!

D: Well, yeah. You should see, if you read some of the arguments that are made against

net neutrality by some congressmen you’ll blow your brains out because of how

ridiculous they are.

C: Yeah.

D: They just don’t understand how it works. Um, there’s a couple of really great videos

about what net neutrality actually means and why you cant apply the same rules to the

digital content as you do to like, phone content. And a lot of people make that a case, it’s

like, literally if they had a system within, like back in the day for phones. Where calling

‘that’ person costs more than calling ‘this’ person because of the amount of volume that

goes there. So, like a catalog service, you’d pay like a dollar a minute verse the 2-10

cents a minute. It’s the same mentality of the communication provider choosing what is

important and what’s not, for you. And its not how it should be designed, its not how any

other service is designed, I mean, like a road – if you’re going to travel to San Francisco,

its going to cost more than if you drive from here to LA, because more people go to San

Francisco. Or we know you have to get there, so the comments that are made, very few

understand the technology at all, let alone what the technologies implications are for the

future.

C: Yeah. Ugh, it’s just crazy to me.

D: Yeah, well it’s like the new budget that got passed - they, legalized incandescent

lightbulbs again because people, well they thought it was restrictive that we wouldn’t be

able to choose. When there is no reason for any kind of light bulb to exist anymore, but

now – well it used to be, you were not allowed to manufacture or sell in the United States

anymore. Now, it’s gotten slipped in there that you can make and sell incandescent

lightbulbs, when there absolutely not technology reason to do so.

C: yeah, there is no need.

D: So they are adding old technology back into stuff as opposed to even thinking about,

like, what an Aereo might mean for the future.

C: You’d think there would be an all-encompassing thing, or phrase to help new technology progress.

D: Well, when you have all of the pacts that parts of [the industry has], you know its just so much money that flows in through there. And they actually fund most of those pacts because of the political spending that goes into the system. That’s all profit to these guys.

C: Well, it’s just seems like for Aereo, they didn’t have a fighting chances.

D: Well, no unfortunately, I knew from the get-go Aereo never was going to survive.

C: yeah, I wanted it to, though!

D: I thought either they were going to lose the legal battle or they were going to bled dry before they even had the chance to win the legal battle. Which kind of happened both ways, eventually. As soon as the NFL stepped in and its lawyers got involved it was dead in the water, because that was their… well that was the one place where they had some issue with the rebroadcast of sports content. Because the networks don’t actually own that content, it’s a secondary person and so NFL, MLB, NBA own that content, so that’s where the loophole was getting harder, because of the retransmission of [sports]. And there was nothing that another technology that could allow them to block those feeds because if they blocked any specific portion of the broadcast then, the loophole complete goes away, because it’s no longer the consumer choosing that antenna viewership.

C: Got it. Alright.

D: That’s another thing too. The way these laws are written, there are loopholes that also collapse in on themselves.

C: Yeah

D: Because technically DVR’s are, technically, illegal. By default, a DVR provided to you from Comcast is technically not really legal. But nobody is challenging them on that because they also control the content so they are not going to sue say, NBC U – well I mean, NBC Universal is not going to sue Comcast for giving ‘me’ the ability to store their content and re-watch it some other time. Yeah, so the way the laws are written,

DVRs are illegal and cloud based DVRs, which Xfinity X2 product actually is – you don’t have a hard drive on your system, you have a server somewhere and you just pull the content from [it]. So, yeah those are technically illegal. So like, Cablevision, it was kind of okay, but still not really legal,

C: Yeah, I feel like that started that, like process of the cloud based stuff and how to address it [legally]. I think it got address, maybe twice legally.

D: It did. And I read a lot about it, and a lot of legal tech scholars [said], there leaves this huge cloud here. And honestly the only thing that will happen though is, if somebody then sues somebody. And but, like everyone is talking about, the distributors and the producers are the same people, so they are not going to sue each other.

C: They are on the same team.

D: It’s when a person outside of that, an outlier, somebody not within the current club, tries to something is when they then work together to kill. But if they want, or choose “I want to do this” – there is some question even within like some SAG contracts and everything else, whether some of these things are legal. Because technically, if NBC produces a show, like State of Affairs, and then they choose to rebroadcast that live via a stream, that’s technically a different stream [than the original] and the talent should get paid a different, additional fee. But they are kind of working around that because, “no, it’s ours” even the way the contracts between SAG and producers are written right now, there is a loophole for them to do this, without them having to pay out additional talent fees. Because they are supposed to, every time, every different form which that [content] appears, they get a different residual level. And so, they’re not.

C: Seems like a big a mess!

D: its control! Who has the money and who owns it? And now the fact that.. well like, it’s like 80% of the shows on ABC are owned by Disney, or Disney ABC produced shows. CBS I think it’s close to 80-90% and NBC is the same, almost the entire slate is owned by NBC Universal. So that started to happen, where before you would have

Warner Brothers Show on this network and that’s all starting to fall apart. They know they need to control the entire ecosystem, so “we’re” going to control the show, so that we can then push it into any digital form without having to negotiate a new contract on all of these things. Like, Hulu, that’s why you will find stuff on Hulu, some stuff is there and some stuff is not, it’s because of what deal the studio, the producer of the content has with Hulu. If they don’t have it, or not part of the three networks that are partnered with

Hulu, then they are not in there. Its very convoluted and crazy.

C: It Is!

D: It’s like, you can’t find all of your stuff in one place anymore.

C: Yeah. It is.

D: That’s the bigger problem, for consumers, you kind of have to have something like

Hulu and Amazon to have access to “everything”.

C: Oh, yeah.

D: Like, I have Verizon Fios and you know how you have to log into your subscriber to get access to an app?

C: Yep.

D: Not all of them have done deals with Verizon, so none of the Fox apps I can watch.

And ABC it depends on who the local affiliate is, because if it’s not ABC owned market

– you don’t have access to the ABC live stream.

C: I see.

D: Which, is crazy. So people in Pittsburgh can’t watch the ABC Live stream, but in

Philadelphia you can watch the ABC Live stream.

C: Yeah, oh my…

D: {laughs} and from our perspective, our media perspective, from advertising, it makes it really hard to understand who’s – well when you’re selling me this product, who’s actually seeing it.

C: Oh yeah! Very difficult.

D: If you buy the ABC Live stream nationally, you’re not really getting everybody who has access to ABC. You’re getting only those people who are watching within the twelve

(approximately) ABC owned markets.

C: Hm, right.

D: And when you do programmatic nationally, its not really nationally. Because the inventory programmatic sources is from the cable providers, not from the network itself.

C: Right

D: So like, TubeMogul might have Comcast, Cablevision and TimeWarner, and doesn’t have like Charter or Brightlink or any of these other smaller ones, so when you buy programmatic nationally, your still only getting, like 70% of the US.

C: Yeah

D: You’re not getting everybody.

C: Oh goodness

D: Its really, really weird.

C: Yeah. Alright, Cool. Well thanks!

D: I hope I helped you out!

C: Oh yeah!

D: It’s a crazy, convoluted mess and three guys are basically controlling the entire conversation.

C: Yeah, and that’s crazy to me. It’s so much and like, so few people have control, ya know?

D: Right, its, you know, Comcast, NBC Universal, Disney ABC, Fox News Corp and

CBS – those are the four guys that are basically controlling how all of this content is getting out to people, other than what Netflix and Amazon produce themselves.

C: Yeah. I mean, it’s not going to change until… someone changes it.

D: Yeah, it’s not going to change until Google or Apple says, “we want to do it this way!” and guess what

C: They are willing to fight?

D: Well “our [Google and Apple] pockets are 20 times deeper than yours” – so “lets fight.”

C: [laughs] Well, hopefully that’s sooner rather than later!

D: Yeah!