Beforethe FEDERALCOMMUNICATIONSCOMMISSION Washington,DC20554 IntheMatterof ) ) ProtectingandPromotingtheOpenInternet ) GNDocketNo.14Ͳ28 ) ) ) COMMENTSOFTHEINDEPENDENTFILM&TELEVISIONALLIANCE TheIndependentFilm&TelevisionAlliancerespectfullysubmitsthefollowingcommentsinresponseto theFederalCommunicationsCommission’sMay15,2014NoticeofProposedRulemakingintheaboveͲ referencedproceeding. JeanM.Prewitt President&ChiefExecutiveOfficer SusanCleary VicePresident&GeneralCounsel ArchieF.Iskaq AssociateCounsel IndependentFilm&TelevisionAlliance 10850WilshireBoulevard,9thFloor LosAngeles,CA90024Ͳ4321 July15,2014 TABLEOFCONTENTS PAGE I. INTRODUCTION……….……………………………………………………............................................................................1 II. BACKGROUND……………………………………………..….……………………………………………………………………………………..3 III. THEMARKETPLACEREQUIRESPERMANENTOPENINTERNETACCESSASSUREDBYREGULATION..........5 A. BroadbandProvidersHavetheIncentiveandAbilitytoLimittheOpenInternet……………………………5 B. IndividualizedArrangementsforPriorityTreatmentShouldBeProhibitedOutright………………………7 IV. THEPRINCIPLESOFTRANSPARENCY(DISCLOSURE),NOͲBLOCKINGANDNONͲDISCRIMINATIONARE ESSENTIALFOREFFECTIVEREGULATION……………………………………………………………………………………………….8 V. MOBILESERVICES………………………………………………………………………………………………………………………………….11 VI. ENFORCEMENT…………………………………………………………………………………………………………………….……………….11 VII. REGULATORYFRAMEWORK………………………………………………………………………………………………………………….12 VIII. CONCLUSION……………………………………………………………………………………………………………………………..............12 AppendixA:U.S.Production2002–2013:Independentv.Major. AppendixB:MediaConsolidationintheU.S.:ListingofConglomerates’Holdings. AppendixC:ComcastͲTimeWarnerCableProposedMergerConsolidation. AppendixD:AT&TͲDirecTVProposedMergerConsolidation. AppendixE:ExamplesofCommonlyOwnedorAffiliatedBroadbandProvidersandContentProviders. AppendixF:Top4BroadbandProviderMarketShareAnalysis:BroadbandShare/MultiͲChannelVideo ProgrammingDistributionShare. I. INTRODUCTION TheIndependentFilm&TelevisionAlliance(“IFTA”)isthetradeassociationfortheindependentfilmand televisionindustryworldwide.IFTArepresentsmorethan145MemberCompaniesfrom21countries,consistingof theworld’sforemostindependentproductionanddistributioncompanies,salesagents,televisioncompaniesand financial institutions engaged in film finance.1 Collectively, IFTA Members produce over 400 feature films and countless hours of programming annually with U.S. sales revenues of approximately $2.16 billion.2 IFTA also producestheAmericanFilmMarket,thelargestmotionpicturetradeeventintheworld,atwhichover$800million inlicensefeesarenegotiatedannually. Duringthelasttwelveyears,independentproductioncompanieshaveproducedthevastmajorityofallU.S. featurefilms.3Formorethan30years,IFTAMembershaveproduced,distributedandfinancedmanyoftheworld’s most prominent and critically acclaimed films, 21 of which have won the Academy Award® for “Best Picture,” including12YearsaSlave,TheArtist,TheKing’sSpeech,TheHurtLocker,SlumdogMillionaire,NoCountryforOld Men,Crash,MillionDollarBaby,LordoftheRings:TheReturnoftheKing,DanceswithWolves,andGandhi. IndependentfilmandtelevisionproductiondependsupontheabilitytosecurefinancingonapictureͲbyͲ picture or programͲbyͲprogram basis and on the ability to provide collateral for such financing through preͲ productiondistributionagreements.Inmostcircumstances,noindependentfilmproductioncanproceedunless and until commercial distribution is secured. Only a permanently open Internet will ensure that independent content producers, as well as independent online video distributors, can compete fairly with other content producersanddistributors,especiallythoseaffiliatedwithbroadbandproviders.Thiscanonlyoccurifbroadband providersarerequiredbyregulationtorefrainfromdiscriminatoryorcommerciallyunreasonablepractices. 1IFTAdefines“independent”producersanddistributorsasthosecompaniesandindividualsapartfromthemajorstudiosthatassumethe majority(morethan50%)ofthefinancialriskforproductionofafilmortelevisionprogramandcontrolitsexploitationinthemajorityof theworld.AlistofIFTAMemberscanbefoundatwww.iftaͲonline.org. 22013U.S.salesrevenuebaseduponlinearregressionanalysis,IFTAMembershipSalesSurveyresults2001Ͳ2012. 3SeeAppendixA:U.S.Production2002–2013:Independentv.Major. 1 In2010,IFTAfiledcommentsinresponsetotheFCC’sOpenInternetNoticeofProposedRulemaking4as wellastheFCC’sNoticeofFurtherInquiryinthesameproceeding.5Inthosecomments,IFTAoutlineditsconcerns thatthepatternsofverticalintegrationintraditionalmediawouldbereplicatedintheemergingonlinemarketplace unless regulatory action was taken. In the four years since, the consolidation of the marketplace with large conglomeratesowningorcontrollingbroadbandnetworks,alongwithtelevisionnetworksandchannels,production units,andcontentsuppliers,hasonlyexpanded.TheComcastͲNBCUniversalmergeracceleratedtheconsolidation trend,6andrecentlyproposedmergers(e.g.,ComcastwithTimeWarnerCable7andAT&TwithDirecTV8)would continuetheconsolidationandexpandtheabilityandincentivesforbroadbandInternetproviderstoengagein preferential treatment of affiliated services and content. This will shut out or restrict consumer access to independentlysuppliedcontentandplaceindependentlyownedonlinevideodistributionservicesandcontentat aseveredisadvantage. Theprinciplesoftransparency,noͲblockingandnonͲdiscriminationarecriticalinpreventingbroadband providersfromdisadvantaginglawfulindependentcontentbyfavoringofselfͲownedoraffiliatedcontent,services andapplications.Anysuchconductshouldbeprohibited.Moreover,anyindividualizedarrangementsforpriority treatmentbetweenbroadbandprovidersandthirdͲpartiesshouldbeprohibitedsincethesearrangementsarelikely topreventnewinnovativeservicesfromevenenteringintocompetitionwithexistingofferings. TheproposedFCCreviewproceduresforsucharrangements(boththroughcomplaintprocessesandother formsofdisputeresolution9orviaanadvancefactorͲbasedreviewofpotentiallydiscriminatoryarrangements),10 cannotprovideeffectiveprotections.Theinformationnecessarytoassesshowsucharrangementswouldaffect 4IFTACommentstoPreservingtheOpenInternetBroadbandIndustryPractices,NoticeofProposed Rulemaking,FCC09Ͳ93,GNDocketNo.09Ͳ191,WCDocketNo.07Ͳ52(filedJan.4,2010),currentlyavailableathttp://www.iftaͲ online.org/sites/default/files/IFTA%20Comments%20January%2014,%202010%20Ͳ%20FINAL.pdf. 5IFTACommentstoFurtherInquiryintoTwoUnderdevelopedIssuesintheOpenInternetProceeding,NoticeofProposedRulemaking,GN DocketNo.09Ͳ191,WCDocketNo.07Ͳ52(filedOct.12,2010),availableathttp://apps.fcc.gov/ecfs/document/view?id=7020916598. 6SeeAppendixB:MediaConsolidationintheU.S.:ListingofConglomerates’Holdings. 7SeeAppendixC:ComcastͲTimeWarnerCableProposedMergerConsolidation. 8SeeAppendixD:AT&TͲDirecTVProposedMergerConsolidation. 9ProtectingandPromotingtheOpenInternet,FCCNoticeofProposedRulemaking,FCC14Ͳ61,GNDocketNo.14Ͳ28,Para.172Ͳ176 (adoptedMay15,2014)(“NPRM”). 10NPRMPara.122Ͳ136. 2 othercustomersandconsumersandwhatbarriersmaybecreatedforyetͲtoͲbeͲlaunched,innovativeapplications isuniquelyinthehandsofthebroadbandprovidersthemselves.Thosemostlikelytobeharmed–entrepreneurs newtothemarketplace,smallventuresandconsumers–aretheleastlikelytobeabletopursuearemedythrough theseregulatoryprocesses.Ifthesearrangementsareallowed,thefullandrapiddevelopmentofavibrantonline marketplacewillberestrictedtothepublic’sdetriment. II. BACKGROUND IFTA’sapproachtotheissuesbeforetheCommissionandourresponsetotheregulatorysolutionsproposed intheCommission’sMay15,2014NoticeofProposedRulemaking(“NPRM”)arebasedonthehistoryofthevideo marketplaceintheU.S.andontheevolutionoftheonlinemarketplaceforvideoprogrammingthathastakenplace inthepastfouryears.Overthepast20years,accesstotraditionaldistributionplatformshasnarrowedasregulatory restraintsagainstverticalintegrationbetweenprogramproducersandbroadcastandcablenetworkshavebeen easedorhavedisappearedaltogether.Inthepastfewyears,opportunitiestogeneratefinancialreturnsonmultiͲ milliondollarinvestmentsinindependentproductionshavebeendevelopedprincipallyfrom“videoondemand” (“VOD”) services. VOD may be defined generally to include the right to offer programs on demand to consumers/purchasersforaoneͲofftransactionfeeoronasubscriptionbasis.VODisdistributedonbroadband networksthroughservicesofferedbythebroadbandprovidersthemselves(e.g.,TimeWarnerOnDemand)aswell asbyedgeproviderssuchasNetflixthatrelyuponthebroadbandnetworksforaccesstocustomers. VODofferedviabroadbandandstreamedtotheconsumerhasbeenanincreasingrevenuesourcefor independent producers. However, that market is dominated by programming owned by or affiliated with the verticallyͲintegratedlargemediaconglomerates.Notwithstandingclaimstothecontrary,themajorVODsystems (includingComcastXFINITY,etal.)donotdedicateunlimitedcapacitytoVODofferings.Theyofferconsumersonly asmallnumberoftitlesatanygiventimeandretaintitlesonitsserversforonlyafewmonths.Moreover,the program“slots”thatdoexistareallocatedroutinelytofilmsandprogramsthathavehadsignificantpriorexposure inthecinemasoronprominenttelevisionchannels–traditionalplatformsthatindependentsalreadyfinddifficult toaccess. 3 Further, while independents routinely produce and license programs on a pictureͲbyͲpicture basis, the majorVODservicesrefusetoacceptprogramsonthisbasis.Themajorservices(especiallythoseofferedbythe broadbandprovidersthemselves)filltheirslotsthroughrelianceonaffiliatedentities11orbyacquiringpackagesof multipletitlesthroughthirdͲpartyaggregators.ThesethirdͲpartyaggregatorsselectandbundlecontentandreͲ licensetotheonlinedistributionservices,thusallowingtheservicestoavoidthetransactionalcostsofprogram