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This Week in Law 248
Denise Howell: Next up on This Week in Law we’re got Berin Szoka and Jon Henke joining us from Tech Freedom. We’re going to go deep on the Netflix deal with Comcast, on the Comcast – Time Warner merger, on the scope of power on the FCC, on reclassification of broadband and on being kind to puppies and kitten, all next on This Week in Law.
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Denise: This is TWIL – This Week in Law, Episode 248, recorded February 28th, 2014
A Rock and a Hard Connection
Hi folks, I’m Denise Howell and you’re joining us for This Week in Law where we look at the latest and most important developments in the fields of legal, technology law and policy. Not legal technology law and policy but technology law and policy. We’ll get into the nuances of what we mean by that I think in this show. We’ve been have really propitious scheduling luck lately. We were able to have an anti-trust guru on last week to discuss the Time Warner and Comcast merger and this week we’ve got a couple of great folks from Tech Freedom who pay very close attention to issues like Net Neutrality and mergers of large companies. There is a lot that has been in the news lately that folks have been struggling mightily to understand. We are very fortunate to have 2 experts in that field with us today. The president of Tech Freedom is Berin Szoka and he’s with us here today. Hello Berin.
Berin Szoka: Hi, thanks Denise.
Denise: It’s great to have you back on the show. Also joining us is Tech Freedom’s strategic director, Jon Henke. Hello Jon.
Jon Henke: Hi, thank you for having me.
Denise: Great to have you. Why don’t we start out with – Tech Freedom has been around awhile, I tend to associate it, although probably not correctly with the Tech Liberation Front where I know Berin blogs. Can you guys give us just a brief history or your organization and why you do what you do?
Berin: Yes sure Denise. I practiced internet communications law until 2008 and had always planned on going back in to the think tank world. I had been doing that in college and in law school. I joined first the Progress and Freedom Foundation and then PFF closed in 2010 and Tech Freedom started up at the beginning of 2011 to pick up where PFF left off and frankly the better parts of PFF I think is the thing that really the free market movement had not been doing for a long time like specifically for a variety of reasons. Some of the folks who were there during the Bush administration sat by and said nothing while ATT was compelled to let the NSA surveil communications out in San Francisco. So we cover a wide range of issues from dealing with NSA surveillance to insuring that American’s have protection from law enforcement agencies who might track their cell phone or seize their cell phone on arrest. All those issues and the computer fraud and abuse act as well as Telecom issues like Net Neutrality as well as competition issues as well as consumer protection. So it’s the full range of internet protection. We don’t however tend to get involved in the very complicated issue of copyright and patents. We’ve done a little bit on that, we were out front with our concerns about SOPA which we saw a really an internet regulation bill more than a copyright bill. But that’s what we cover and I hope we’ll get to chat about a lot of those issues today.
Denise: We will indeed and we’ve had Jeff Mann from Tech Freedom on the show as well. The Tech Liberation Front I’m remembering from way back in the early days of blogging Berin, back when Glen Reynolds was sort of…well it’s not as though he’s not still a heavy hitter in the blogging world but back in the day he was quite something and I think he used to write there as well didn’t he?
Berin: No but he may have re-tweeted or shared some of our content. That’s just a group blog for free market or libertarian minded technology policy folks.
Denise: Alright, I don’t often give our audience homework or supplemental work to do in conjunction with the show but this week I’m going to, because on Wednesdays episode of This Week in Google there was a great Net Neutrality discussion with Dan Rayburn of streamingmedia.org and it went very much into sort of the intricacies of peering and transit and how all these things work technologically all around the story that came out early this week that Netflix is entering into a direct agreement with Comcast to be able to ensure the quality of Netflix’s carriage by Comcast; the quality of what is delivered to Comcast customers when they go to Netflix. This has triggered a whole bunch of discussion and speculation and Dan did a very nice job of debunking some myths and talking about “who is what” who all the players are and what they do in this very intricate dance, so I encourage you to go check that out if you haven’t already, if you’re not one of the folks who listens to every single one of the TWIT shows. That is a good compliment to what we’re going to do here today which is to hopefully get in to not just the technology but the law and policy ramifications of this deal, if there are any. So I know I’ve been eating my “Wheaties” and definitely training hard this week because I’ve been trying to keep up with – in some way anyway, both of your Twitter feeds and that is a Herculean task. You guys are very voluble on Twitter and go back and forth and have great insights. It’s pretty amazing what you’re able to accomplish and the discussions you can have in 140 characters.
Berin: I was mainly going for snark so I’m glad you found some insights.
Denise: Yes I definitely found some good insights and I found some great snark too. Jon you had something that I retweeted, let’s see if I can find it here. It was just yesterday….Hypothetically if a Muslim baker refused to serve a gay illegal immigrant should we all just take a sabbatical from Twitter?, which I thought was just classic. So my point in bring up the Twitter chatter is that definitely there are a lot of issues and a lot of nuances to this deal between Comcast and Netflix which causing a lot of handwringing among folks who see this coming hard on the heels of the decision against the FCC and in favor of Verizon by the DC Circuit where the open internet rules that the FCC had promulgated were tossed out. So I think that perhaps a media tendency has been for people to say ok open internet is out and Comcast by the way did agree to abide by the open internet rules even though they’ve been tossed out and maybe we can discuss that; but I think the tendency has been to say ok no open internet here we have the first agreement where someone is going to get preferential treatment for their traffic but I have the feeling that both of you would characterize this otherwise. Why don’t we start with you Berin and tell us what you think about this Comcast Netflix arrangement.
Berin: Let’s just start by putting a few things on the table. First of all there is a common misconception that this Comcast Time Warner cable deal changes broadband competition at all. It doesn’t, they don’t compete with each other. They have cable franchises in different areas, so what we’re talking about here is that Comcast is going to have more cable systems. It doesn’t change broadband competition so that’s the first thing. The concerns about the deal in that sense – they’re not what economists would call horizontal competition concerns. They’re really about vertical effects, how Comcast might deal with either cable programmers or with an alternative to cable like Netflix and I think those concerns are either already dealt with by the NBC Universal merger conditions. Comcast bought NBC Universal, they agreed to a number of conditions, specifically to protect online video. We could talk about some of those or their concerns that are dealt with by FCC rules where the FCC can police quite well and to the extent that people are concerned about broadband in this deal – what they’re really pissed off about is that they want more broadband options. This deal doesn’t change that. If anything that’s what we should be talking about and the problem there isn’t cable companies, its local governments making it very difficult to build out new broadband networks and I’m all in favor of changing that to make sure there is more competition. Just 2 other things; the other reason people have been very concerned about this is that they see their cable bill going up overall and so they assume that something is wrong with the cable companies. The reality is that cable bills are going up because cable programming costs are going up and that’s for a variety of reasons. Part of it is there is a lot more money going into programming, there is a lot of great programming on T.V today. I think it’s true that we live in a golden age of cable television but the bottom line is that if there is market power here it’s really the content owners; it’s HBO and especially the sports networks and other programmers who are getting more money for their content. Those are the companies that drive up cable costs; those are the companies that in many cases don’t want to put their content online because they’re not sure how they’ll make money on it. We can talk about those problems but those aren’t problems to do with cable or systems or broadband and such. The other thing I would like to say to set the table is that there is a real misunderstanding the DC circuit decision. People think that the FCC lost and that somehow this changes the open internet, the reality is what actually happened is that the DC circuit struck down 2 of the rules that the FCC put in place in 2010. That doesn’t really change much because at the same time the DC circuit said that the FCC has broad authority to regulate really anything, not just net neutrality, not just broadband but anything on the internet in any form of communications. Basically so long as it doesn’t impose common carriage, so there are some kinds of economic restrictions that the FCC can’t impose but the FCC can through this provision section 706, the FCC can require for example that any deals struck are non-discriminatory, and that power applies both to net neutrality as the FCC defined originally which was network management which is inside the network – such as the deals that you referenced. So the Netflix deal that has just been announced, that isn’t something that would have been covered anyway by the net neutrality rules. That’s a different level of the internet, that’s about what happens outside of Comcast network and how Comcast interacts with Netflix or other companies that provide peering or interconnection services. Those are the debates and the short version is that the FCC has a lot of power, the question is how should they use it, what should the standards be and that’s what the FCC has asked in the rule making that they’re apparently about to start.
Denise: Right, they have public comment open right now and they are investigating what the next move is going to be. What the next move is not going to be, Tom Wheeler announced last week is an appeal of the Verizon – FCC decision, so the Supreme Court won’t be asked to get involved here. Did that surprise you Jon?
Jon: No, not really. These are going to be fought at the political and lower court level for the time being.
Denise: Ok, do you think that as Berin was saying; because the FCC had some authority confirmed that might have been an issue before this decision, that they’d like to see that stand and might not want the Supreme Court to come in and disagree.
Jon: They got enough in this ruling that they can do what they want to accomplish. They really don’t want to spend a lot more time in court. Wheeler is perfectly aware that Jenikowski spend a very substantial portion of his term in court and all of his term dealing with an issue that wasn’t necessarily an issue that needed to be dealt with. That certainly wasn’t an issue that needed to be a top priority. So I think that they got enough that they don’t feel the need to take this and make an all or nothing gamble on the Supreme Court.
Berin: Again I can’t underscore strongly enough how broad the power that the DC circuit gave the FCC under section 706 is. For many years many people including copyright sceptics especially like Public Knowledge and the Electronic Frontier Foundation have worried about the FCC using what it calls – jurisdiction to claim that it can regulate something like copyright policing. To make a long story short this new power 706 is like that power except that it's easier to exercise. The FCC will probably always win when they try to do it. So long as they don't violate some specific protection or prohibition in the communications act. Most troubling, the 706 doesn't even require rulemaking. It could be used to cajole companies to voluntarily do something, voluntarily in quotes. Or it could be used to just do a declaratory ruling, saying that something is not appropriate. That could be anything from mandating copyright enforcement to imposing regulations on App Store's or on smart phone devices or potentially you could see the FCC trying to clean up the Internet under section 706. It's really quite disturbing. So you're seeing a lot of people across the political spectrum from a variety of philosophical points of view, saying whatever happens to net neutrality that 706 is a very serious problem.
Denise: Evan last week on the show, you talked more about the antitrust ramifications of the Time Warner, Comcast merger is there any of that discussion where we had Ryan Radia and Spencer Weber Waller and Lisa Borodkin with you, that comes to mind here and that shades our discussion now?
Evan: I don't know. I've got to admit this discussion is pretty esoteric we've got the wonderful experts here on all of this here today, but I think that probably is the biggest picture or the biggest relevance of it all is that the way that the marketplace would be shifting here and if Comcast and Time Warner and up is one big company. I think it's pretty unclear what the - at least to a layperson or an observer from the outside - what the real effect is going to be to the consumer. So I defer to the experts on most of these issues to get into the real nuances of the particular issues that would arise, kind of the cause-and-effect relationship between one to the other.
Denise: One nuance Berin just brought up and that is this Netflix deal or other deals that Netflix may be engaged in or striking with other ISPs has certainly been rumored or eluded to this week as well. That doesn't really impact net neutrality that occurs at a different layer of the Internet. Could you expand on that for us Berin?
Berin: Yes, so there is a common misconception out there today that Netflix doesn't have to pay for capacity and the Comcast is for the first time, trying to shake down Netflix that's just not true Netflix has to pay today, or has in the past had to figure out at enormous expense to Netflix. That's what a lot of your a Netflix subscription goes to they've had to buy their own content delivery network and figure out how to get traffic across the Internet and that means striking deals with companies like Cogent or level III. What just happened was Comcast offered them a more cost-effective option to route traffic directly to Comcast’s network. So what we're talking about here is Comcast offering a way to Netflix be able to improve the quality of Netflix streaming for Comcast customers at a price that was lower than what Comcast was paying for other ways of getting that traffic through. When you really look down at it; and that is the point of the streaming media post that you shared, when you really look at it, people are upset about net neutrality and it's a sensitive topic, but there really isn't a problem here. This is the market working, and if there is a problem, something that the antitrust laws deal with, the FCC has plenty of power to deal with and that importantly is checked. Any price that Comcast can charge there is a ceiling on that because for one Comcast isn't the only option. Netflix can always find other providers to carry that traffic to Comcast. Even if Netflix couldn't and Comcast found a way of trying to charge all providers more it's also true that - people don't like to admit this, but Comcast does face competition. So 15% today of Comcast's customers can switch to Verizon fiber, which is a faster product in most markets, and that doesn't sound like a lot to some folks, and it certainly could be higher, and I want it to be higher, and I'm looking forward to Google fiber rolling out and ATT's rolling out a 45 Mb per second service for the 25% of Comcast customers where AT&T competes but the point is whether it's just 15% or 40%, as long as there is a significant percentage of Comcast customers that can switch to a fast service, or a faster service, Comcast has a strong incentive to make sure that their entire system both those customers and everybody else can get Netflix at a streaming rate that works for them, because if they don't they will switch so we could talk about how to increase competition here. But there is actually a fair amount of broadband competition that disciplines that side of the market, even if it doesn't mean that everyone has a choice of some other provider than Comcast.
Denise: I was so enthusiastic to get into this discussion today that I neglected to introduce Evan Brown my cohost that is with us in Chicago, Illinois today, although he's already jumped into the discussion. Evan is with the Info Law Group he's always on the show. So if you're not a regular here is Evan. So good to see you again and thank you so much for steering the ship last week.
Evan: Thank you. It was my pleasure. And of course it's good to be here. Keep on rolling.
Denise: Jon is there some kind of a fox in the hen house issue that people should be paying attention to or that regulators should be a paying attention to here? Having to do with the notion that people, institutions or organizations like Comcast provide both Internet access and cable TV access and that a company like Netflix might deal with the one side of the business, but compete with the other.
Jon: There is certainly an anti-competitive concern and that's why we have laws and agencies that deal with that and to the extent that it could be a problem that is the proper place to deal with that. I don't believe that it's a substantial net neutrality issue, at least not distinct from the standpoint of antitrust and the competitive practices issue. The thing is, those markets are incredibly, incredibly, complex, so any time you talk about the interplay between players in that market you are see degrees of competition, degrees of cooperation between all of the players and I think it's a bit of an oversimplification to just simply say they have an incentive to stop therefore they're going to stop because a lot of other players in the market have a tremendous amount of leverage Tim Wu the fellow that created net neutrality; I read the New Yorker article last year where he pointed out that in the early days, the ISPs had the leverage in the market, now many of the providers like Netflix or Google or Facebook, now they have to leverage in the market. So perhaps we should look at, and I'm paraphrasing him here. Perhaps we should look at regulating them instead, or in addition to. One of the problems with the net neutrality debate always find another step that is necessary to accomplish the purpose if you're starting premise is that we need to the eliminate the incentive to discriminate in some way. Some of the discrimination Netflix in particular is simply geographic. There was an article in number years ago in the Wall Street Journal that Google wants to buy a fast lane on the Internet and it was suggesting that Googles buying co location from content providers putting their servers inside the local networks of Internet service providers was a violation of net neutrality, but it wasn't. It was simply buying geographic access, which has been going on for probably as long as the Internet has been around. It has been a normal practice. That's the whole business model of Akamai so to some extent what Netflix is doing is simply saying we are going to pay you directly so that we can get really close to your customers instead of paying someone else to deliver it. And then they have to compete with the rest of their traffic. It is very easy to make an argument that there is an incentive and yet there's very rarely much direct evidence of this in actual practice on the Internet.
Denise: Ok. So, from a regulation standpoint what we want to see happen is competition we want to see consumers treated fairly. We want to see a good deal of incentive for pricing to be competitive. I guess that's still the first point I mentioned, and we want to see efficiency as we look at and try to unravel what's going on with this Comcast Netflix deal. It seems like the latter point of efficiency is kind of a mess. It seems to me like the market is battling it out with the various transit and peering arrangements that are in place here, but that, as I say, it's kind of a mess. Is this what we want to encourage Berin?
Berin: I'm not sure what you mean when you say it's a mess. If the backend of the Internet looks messy it's because the Internet wasn't designed to carry video. If you really step back and think about the old days when video first started being carried it was poor industry as with every other part of the Internet where they drove this forward they figured out how to build the backend networks and overtime use of companies like YouTube and eventually Netflix come online and they had to fundamentally change the backend where it was no longer the case that you had networks like Time Warner cable or Comcast networks, exchanging roughly equal amounts of traffic with each other. All of a sudden today and I think you mentioned this in the lead up to the show today, the web, HTTP and HTTPS is only about 12% of Internet traffic. So, over half of traffic on the Internet is video and what it's requiring to do that on the backend is an enormous amount of infrastructure; you could have the fastest connection to your house Google fiber for example. 1000 Mb per second service in theory, and you know how fast they stream Netflix 3.6 Mb per second is the average streaming rate which is faster than cable, but it's not that much faster maybe twice as fast as the average rate for some other cable systems. The point is, it's really on the back end that you have the need for net capacity and the net capacity problem has always been solved by contract, private parties, figuring out how to put money into that backbone and Netflix has already had to pay for that. The question now is just how does that interconnection market work? I don't see any problem yet. But as Jon points out, we have laws to deal with that. Antitrust law is perfectly capable of dealing with that. And if it's not the FCC has much broader power today, than I would like them to have under section 706 to police those deals. They can require as they did with data roaming when they said every wireless carrier essentially has to provide data roaming to its competitor’s customers provided that the two companies can negotiate on an individualized basis and make sure that they can work out a deal that makes sense. The FCC though can require as I said before that the terms be reasonable and nondiscriminatory. So the point is, there are plenty of layers of legal protection here to govern that market. I don't see a problem and I don't see it fundamentally changed by the Time Warner, Comcast merger either. And if it were you could have conditions that specifically deal with that. I should also point out that with as a bigger company it's easier to make an antitrust case against them so if that were a problem you could make that case and antitrust law generally works best when it works in the background to ensure that companies don't engage in anti-competitive behavior in the first place. But nobody has really shown that that market is failing.
Denise: you mentioned Tim Wu the professor at Columbia Law school. He is reported to have this great sort of Wild West metaphor about what's going on at the FCC right now. He says Tom Wheeler has stood up and walked through town like the sheriff, and said okay, the rules are still on and whether he's shooting blanks or bullets. It isn't clear yet, but he's on the beat. Clearly the FCC is going to make another move on the net neutrality fronts with the open Internet rules struck down. Consensus does not seem to be that that move is going to be to reclassify broadband as a common carrier and I wanted to get your thoughts on that. But first, before we get to that, what do you think the move is going to be? What is net neutrality from the FCC going to look like as far as you can tell as they are gathering public comment now?
Jon: I think it's important to remind people that Netflix as the most prominent example of who might suffer in a non-neutral world issued a report recently that said; we don’t think net neutrality is going to be a problem and that while they certainly would have been negotiating with Comcast for direct access so this is not something that many of the stake holders – I should say many of the people who were involved in the debate publically are a little bit more worried than the people who are actually stake holders who might be the victims in some of these cases. Google I think gave a good description a few years ago of where we stand. Rick Whit said at a conference; we know there are many non-neutral structures and business activities taking place every day on the net which is fine, the point is that the net is a robustly competitive place and those kind of non-neutral activities are acceptable in that context; the concern about broadband is because it’s in relatively scarce supply so the concerns there are heightened. It’s about the outcome, not the path, and he went on to say that you can have a net neutrality environment without the regulation to get you there and in fact I would say that we actually have net neutrality right now and so it’s about the outcome and the environment. There are a lot of mechanisms whether it’s the FCC’s implied threat, whether it’s the FTC and DOJ, whether it’s competition, there are many ways to preserve the neutral environment without what Rob Atkinson from ITIF called the lazy way of just a blanket law against discrimination without trying to figure out what is good, what is bad, what are healthy and productive business deals. So as far as what the FCC might do, it seems like Wheeler is going to come out with a new set of general rules that will be allowed under the 706 authority they have. The extent to which those dive beyond the last mile that net neutrality was supposed to be about – I think everybody is waiting to see.
Denise: Berin what do you think?
Berin: Well we don’t know exactly what Wheeler is going to propose because they don’t technically have the notice out yet. All we have seen thus far is Wheeler put out a statement with the broad outlines of what he intends to propose to his fellow commissioners. So just to set the table here what I think is going to happen at some point soon in the next few weeks or the next month or 2, you’ll probably see the FCC release this notice of inquiry or notice of proposed rulemaking that will ask a bunch of questions about how best to deal with net neutrality, as well as broadband deployment and peering and other sorts of issues that we’ve been talking about. What should happen is that initially there will be a notice of inquiry asking questions and then the commission will actually propose rules and then there will be a second round of comments on those and then we’ll see final rules. That process will probably play out over the next 9-12 months. That’s going to be the same time period roughly as the Time Warner cable Comcast merger. As to what the rules will look like I think it’s also worth noting here to the extent that people claimed the sky was falling that while the court did strike down both the non-discrimination and blocking rules in the 2010 open internet order it’s actually pretty clear if you read the Court’s decision that they wouldn’t necessarily have struck down the no blocking rule if the FCC had argued it’s case better. One of the things that people kind of missed here is that this case took 2 years to finally get to the point where it did and that’s very unusual. The court for reasons we don’t understand delayed it from their counter last year and pushed it forward to this year. 1 of the consequences of that was in the interim, so after the file in the summer of 2012 the DC circuit handed down that date roaming decision that I mentioned. What the court really should have done, or what the FCC should have asked for was to better brief the 2 most important issues which were section 706, what does it mean and then the issue of common carriage – where is the line. If they would have done that I think you probably would have seen the court uphold the no blocking rule. This is just to say these are the same questions that the agency is going to be asking and we’ll probably end up seeing some form of those rules – and upheld by the court. It’s hard to know if this time the FCC will go broader and will issue rules that will govern peering but as I said, under 706 they don’t have to issue rules at all. They can apparently use 706 on a case by case basis. People need to understand that regulation with a lowercase r doesn’t always mean formal rule making. It can be the threat of a territory ruling that comes one day or case by case action or it can just be the chairman making a bunch of companies sit down and work something out the way he did with cellphone…
Denise: Evan I have so many questions for these guys I’m just going to keep firing them off but I’ll let you – I don’t want to usurp your ability to comment or ask questions too. Is there anything on your mind that you need to jump in with?
Evan: Jon I wanted to pick up on something that you said about Netflix not being concerned about net neutrality and I’m wondering if from a certain perspective Netflix may stand to benefit from a non-neutral internet, because it actually has the resources to enter in to these peering arrangements with these companies like Comcast. I know that we’ve tried pretty hard in the conversation to separate the issues here of network neutrality and what’s going on with Comcast and Netflix here but it seems like it’s plausible that a large scale participant, edge provider, content producer with a house of cards and all that stuff, Netflix here would benefit from and environment where there was no framework of network neutrality because it doesn’t even have the resources to make life ok for itself by entering into arrangements like this with Comcast. What do you think of some notion like that?
Jon: There is a valid argument that one could construct a hypothetical where – unfortunate negative outcomes where bad outcomes result from a certain set of rules, but that’s really true with just about any set of rules. If you do ban some sort of prioritization or access who is going to have the advantage? Only companies who can afford to spend billions of dollars or enormous hundreds of millions of dollars building their own private networks, getting access to Akamai or companies with the scale to distribute their content more effectively. No matter which scenario you construct you could certainly imagine an outcome where a company like Google or a company like Netflix can gain the system for its advantage. I’m going to mess this up but there is this saying that I’ve had that “the law in its majesty allows rich and poor alike to build a multimillion dollar fast lane alongside the internet”. That is certainly possible but if you eliminate the ability or if you really dramatically limit the things that can happen within networks I think you’re going to see the large companies gain the rule. They gain the rules for their advantage anyway. I guess my response back to you would be to say can you construct a scenario where nobody can gain an advantage?
Berin: I’ll just jump in here and add that people often compare net neutrality or non-neutral arrangements to Plugola, in the old days you could pay Dj’s to play your song on the radio and it’s actually a pretty good analogy but not for the reasons that they imagined. Everyone seems to think that Plugola was a tool that the big labels used to control the media landscape in the 1950’s and 1960’s. Actually the opposite is true. The big company tried to put an end to Payola because paying for play, paying for airtime was a way that new artists and small labels could breakthrough. People don’t really think carefully about the economics or they assume that a little playing field is always good for small guys and that’s not necessarily true and often not the case. One more thing to point out here; people when they talk about net neutrality there is concern sometimes that we’re talking about every website on the internet and small guys not being able to compete. What we’ve always been talking about here is video platforms. That is where you need the capacity and the question is; is, there the ability for Netflix or Vimeo or Hulu or Youtube to get content to users with in those platforms. Youtube is the most open platform you could want. So it’s really hard to see how if Youtube can strike a deal Google is perfectly capable of trading with internet companies and then all of us can take advantage of that because that’s what we use or we use Skype to distribute video. It’s not the case that we’re going to have a million different video platforms on the internet and they all need to make this profitable.
Jon: Let me jump in to make one more quick point regarding Berin’s point about Plugola. I worked in radio for many years and Plugola and Payola were banned but the fact was that with those banns the large record labels were able to get a lot more time in front of the radio stations to provide a lot more things that were perfectly legal to provide. Boxes of Cds or trips to see Artists, they had the scale even if Payola itself was outlawed. To the point about CDN’s or peering let me quote something that public knowledge said back in 2010; “content providers enter into paid peering arrangements with broadband access providers or use content delivery networks”. These arrangements do not raise net neutrality concerns because they involve co-location of facilities and other means to reduce the distance communication must travel rather than selling prioritized access to the nearest bandwidth. If there are competitive concerns with these arrangements for example If broadband access provider might agree to peer with one content provider but not another on equal terms competition law would probably suffice to address them. So there are valid potential problems with things like this but the paid peering or CDNs are simply not a net neutrality issue.
Evan: That still seems like it’s trying to circumvent the net neutrality issue. Sure it’s not a net neutrality issue because you’re not really involving the network as much because you’ve just peered directly with it and that’s going back to my original question – it’s only been Netflixes of the world who could strike a deal with Comcast, not some startup. With Payola it’s really the other way around. That benefitted the small guys more. I hadn’t really thought about that.
Denise: If we bring this to the small guy on the internet example as opposed to the small record label or artist trying to pay off the radio station, that just means that operating budgets are perhaps going to have to be re-jiggered and in the same way that a company might decide to plunk down a bunch of money for a super bowl ad, maybe they would decide it was a good investment to find the money, whatever they can to enter into an agreement that gets them wider distribution. Is that what you’re alluding to Berin?
Berin: It’s hard to see who besides video distributors as this point are going to actually feel the need to pay for this kind of arrangement, we could imagine other scenarios but right now we’re talking about video providers and my point is that number one small content creators – uses Skype. You don’t set up your own distribution network and whatever you use to stream on the internet; I assume you’re using a 3rd party platform. Its Youtube or some other service. The point is that the video internet is different in significant ways from the World Wide Web. The World Wide Web while it has big platforms like Wordpress and Tumblr and Facebook and so on that might help its websites…I understand the concern that people want to build and put up their own site and they want to make sure that they’re not discriminated against significantly. The difference with video is everyone is already using video distribution platforms. So is every content creator affected by this directly? They’re not but the real effect is on video distribution platforms whether it is Skype or Netflix or Youtube or Hulu, the thing we should be asking is what are they already doing today? They’re already spending a lot of money to make sure that they can provide capacity. Sometimes they get it wrong. Netflix started having slower streaming last year because they prematurely started allowing higher streaming quality. It made the streaming on the networks slow down for everybody. That was a business mistake; they needed more capacity to do that. So that’s they first question – are they already paying and the second is are they better off by banning direct deals with ISP’s which is what some people seem to be proposing, or heavily regulating them. They are receiving a better deal by dealing directly with Comcast than they would have gotten through some other provider and there are ways of policing those relationships through law like the Antitrust law and the FCC’s power even without formal rules about that, but also there is competitive discipline, that Comcast can’t charge more than Level III – would for the same service and Comcast has an incentive again to make sure that those customers who have the option of switching don’t do so. How do we make that broadband competition work even better?
Jon: Let me add to Berin’s point that there is no scenario where everybody is going to have equal speed on the internet. Now and then unfortunately some of the net neutrality advocates have said where every website will load at the same speed or what have you, but people buy different levels of access. I’m might only be willing to pay for a server that gives me a certain minimal amount of bandwidth. There is no scenario in which I as a guy working out of my house am going to purchase servers that are right in the major population locations all around the world where people might get my content. But there is nothing illegal with that. That is simply buying a geographic access. There is nothing wrong with different levels of speed. A number of years ago Al Frankin said; how long do you think it will take before Fox News website loads 5 times faster than Daily Co’s? So a network engineer friend of mine actually checked it and found that Daily Co’s loads about twice as fast as the Fox News website right now. That’s simply a matter of how many hops somebody has to take through the network – the network access they’re buying, the servers they’re using. There are a lot of different things that affect that so I think that we need to get over the idea that everything is going to be equal everywhere regardless of price because at the end of the day if I have a billion dollars I can probably buy more servers than you can.
Denise: That’s a really good point and it goes to the question that I’ve had in the back of my mind here as we’ve gone through this discussion and that is – a couple of times you’ve raised the issue that there are laws and processes in place where if anything were to veer severely awry that that could be corrected. Could you give us some examples and I’ll start with you Berin, on what would look broken enough to have a regulator or an agency come and fix?
Berin: Are you talking about peering?
Denise: I’m talking about abuses of either market power or entering into private arrangements that would unfairly disadvantage the market such that it would warrant a regulator or an agency to step in.
Berin: Apparently my audio is bad so I apologize for that. That is because I am using WIFI here at home between my computer and the router. Just the say that a lot of these problems exist at the user level, they’re not necessarily network problems so I apologize for that. Just to answer your question – the antitrust analysis on this is a pretty sound one. It asks whether Comcast is doing something to Netflix that forces its ability to compete, that’s an antitrust violation. So just for example you could imagine a different world where Comcast had set its basic data tier at 50 or even 20 gigabytes per month and then charged instead of 10 dollars in increments charged 20 or 30 dollars for that. You can imagine that significantly deterring people from streaming Netflix because it would be too expensive to pay for the data but they haven’t done that. They set their basic data tier at 300 gigabytes which has been increasing over time and is probably likely to increase and at that rate it’s hard to see how anybody is discouraged from relying on Netflix video and cutting the cord to Comcast cable products. So that would just be one example of the analysis where I think it’s probably working today. Antitrust law doesn’t require an enforcement action or regulation; it can be working today just because that incentive is there on top of all the marketing incentives that discourages Comcast from hurting Netflix.
Denise: Jon do you have anything to add to that?
Jon: No I think Berin can cover that far better than I do.
Berin: Denise if I might just add that that is the antitrust analysis, the FCC as I keep saying, can actually without crossing that line of common carriage can require that deals be reasonable and non-discriminatory. That can mean a wide range of different things but the point is that the FCC today has a lot of power. There is a myth out there that there is no coup – Susan Crawford and others say that a lot. That is just not true. There are 3 coups: The federal trade commission, the department of justice enforcing the antitrust laws and then there is the FCC which has broad power now under section 706 and can deal with these concerns. It has ways of dealing with – and program carriage concerns about the Time Warner cable merger. There is a lot that can be done today but there is a certain constituency out there that has always wanted for broadband to be removed as a title II common carrier. They are saying now that that’s the only way that the FCC can act to protect consumers and while it’s true that there are some differences at the margins that the FCC can do it’s just not true that the FCC is powerless without reclassification. I would say that reclassification would be a very bad thing on faster internet service because it means treating broadband providers – and even if you say that you’re going to be fair, you’re still going to… process to play out at the FCC and the courts. – on the national broadband plan which were all about promoting broadband deployment and open more spectrum to make wireless better.
Denise: Let’s look at the question of wireless versus wired and how the open internet rule when it was in effect only affected wired broadband and that wireless is out of that picture all together. I’m wondering Jon what the policy reasons are behind that; is it because so few of us get our internet delivered to our homes and businesses through a wireless process. At this point that there is even more incentive to have a hands off approach there; what’s going on or is there something else in play?
Jon: Well there are a few things. First of all let me say that I think the advocates of net neutrality have a better philosophical case for open access or net neutrality in terms of wireless, because it is a public resource, it is a public good or commons in some ways. Much more so than a particular bit of wire which is created and laid by a private provider is. That said they have a much more difficult technical case. The market is more competitive in the wireless space. The technical limitations of wireless are far, far greater than in wired broadband you can very easily overload the router with a few people using P2P - or not I router a tower with a few people using peer to peer around the tower. The limitations on that are much more significant than they are with wire, significant relative to the issue of net neutrality. So there's going to be a little bit more leeway given just from the peer technical and competition perspective, but also what the FCC said was that the market is still young and developing and they want to wait in see before trying to impose rules that lock it into a form.
Denise: Berin we're talking about why the open Internet order only applied to wired broadband and not wireless and what the implications of that are. Do you have any comments on that?
Berin: John probably already said this, but the FCC tried to recognize the capacity constraints that net capacity problems is much, much greater on the wireless networks. I'm sure that they'll have to revisit the question and I would say this that in a way which really telling about that is that the FCC felt compelled to do that because the approach they were taking was so rigid they were really trying to ban a secondary market regarding network management that they felt they couldn't apply it to wireless you could certainly imagine that the antitrust rules, for example, apply across the board. They don't make those distinctions and you could imagine that a more flexible rule that really focused on real problems could be applied across the board. It would just play out differently on wireless and wireline, so we'll see. I think the one thing worth pointing out is that were starting to see the analog to what we're talking about regarding peering and Netflix has started to play out on the wireless side with AT&T proposing a sponsor data program where they will allow certain content or any content provider frankly. It's an open API. So anybody can participate in can pay for user data on wireless networks and that's already been decried as a net neutrality violation even though that could really go a long way to helping solve the capacity problem that makes video streaming very difficult on wireless networks.
Denise: Scott Michon in the IRC is pushing back the notion that small businesses or individuals might not want to create their own video distribution servers and why wouldn't you want to be your own video distribution server if you have the resources to do it and the technical know-how? Our network does not as you were pointing out, we do use third parties. We use Justin TV and You Stream, but we could and at some point we may choose to do that if we feel that the third parties are either an efficient or too expensive or not delivering what we want. I think there is the case to be made that that niche of the market should be encouraged rather than discouraged and so what do you respond to Scott, Berin?
Berin: I'm not saying that the only video distributors we should have are the ones that exist today. All I'm saying is that as a basic technical and economic matter it’s just not cost-effective for everyone to build their own video distribution platform. It's not a simple matter. It has taken Google's literally billions of dollars to provide the basic backend that makes YouTube work and even still YouTube doesn't stream everything at HD quality, and if they did, it would cause a huge catastrophe for everybody. I can't underscore this point enough getting high-quality video through the Internet means that you got to make the backend really - you used the word messy earlier, and you've got to build a lot of hardware on the backend and that takes an enormous amount of money. So to imagine that we're going to have 100 or 1000 or more independent video distribution platforms just isn't realistic. So what we really need to be asking about is given that were going to have a relatively small number and given that some companies may really want add and join that sort of system what’s the problem and I'll just give you a concrete example. This happened last year, Intel wanted to start offering an over-the-top video service and Intel in spite of having enormous resources and enormous technical know-how they decided not to do it. And the reason wasn't net neutrality, it wasn't the cost of the infrastructure or the hardware, they knew they could do all of that stuff. The issue was the content rights they had the same problems that the cable systems have which is that the real market power is with people who produce the stuff that we all want to watch and that's most of all sports, but it's a few premium properties like HBO as well. Those are the people who really have the market power. That's not necessarily a bad thing, that's good stuff. It's good that people want it. The really interesting thing I think that is starting to happen in that market is you're seeing that companies like Netflix are themselves getting into the content creation business. So they are vertically integrating in the same way that cable companies have been in the past. And that just sort of illustrates how competition works in this market and that's not something that we should be afraid of. But it's just to say that this is, a.) Hard to do; it takes a lot of money and b.) Is going to require some form of vertical integration to some degree. And the level of analysis here shouldn't be, are we having a thousand video distribution platforms or can people get the content that they want? If they can't, it's probably because of the content owners, not because of anybody in the middle.
Denise: Okay, we've had Susan Crawford on the show before, we've had Eli Patel on the show many times. Susan was last on right when the FCC Verizon case had been argued and had a lot of good comments about the case and her take on it. Eli and Susan are both in the camp that broadband services should be classified as Common Carrier and, as you mentioned Berin, that's how the FCC should go on this and what's strange to me on these arguments back and forth on that particular point, is that there is a decision to be made. It seems to me like it either is or it isn't, you know? Broadband is a common carrier or isn't a common carrier and there really shouldn't be a lot of indecision on that point. So I'm guessing both Berin and John think it shouldn't be classified as a common carrier, but I'm interested to hear from the two of you what you think about that, and why that's such a clear case in your mind. Berin.
Berin: Yeah, let me just start by saying the reason that we have the internet of today at all is precisely because broadband wasn't classified as a common carrier. In 1992, people don't realize this, the Cable Act initially put all kinds of restrictions on cable companies, stopped telcos from competing as well, and that delayed broadband deployment for years in this country. What finally unleashed it was, not just the 1996 Cable Act, but the decisions beginning with the Clinton administration, to take a light touch approach to regulating broadband providers. And what that meant was instead of imposing the traditional regulatory model, which assumed there was going to be a monopoly, and therefor was sort of self-fulfilling. Instead, we had a light touch approach that led to $300 billion being put into broadband infrastructure, right? That's the infrastructure that makes it possible for you to get the speeds you get today. You may not think that they're fast enough, but if we had actually reclassified years ago, the internet would be slower, you wouldn't have distribution the way that we have today. And people who say that we can just reclassify but forbear from the most onerous parts of Title Two, but they just don't understand how the process works. It's just not that simple. The FCC, if they forbear from anything, that is another lengthy process that gets tied up for years in litigation, and inevitably so. Even if we all agreed on what the bill was going to be, somebody out there who wanted broadband to be more regulated would fight in court. So, reclassification has just never been a realistic option. The Obama administration put heavy pressure on the FCC in 2010 when it even floated the idea not to do it, it was opposed by 74 House Democrats. It's something that really runs in the face of fifteen years of bipartisan industrial policy to promote broadband in this country. And so to have people like Susan on the one hand, say that broadband isn't fast enough and then say that we should reclassify broadband, the only way that you really square those two things together is if you have the government take over running the broadband networks. Which is what Susan wants, she wants local governments to build those networks and we don't have any reason to think that they're going to do a good job with either building them, or making sure that they actually keep up the capacity that you need to run things like high speed video.
Jon: Let me add that the question of reclassification to Title Two is, I understand that there are arguments for it but remember, Title Two involves a lot more than just saying the net shall be neutral. A lot more than just these basic common carrier, that you have to take all comer's obligations. There are enormous numbers of obligations which is why when the FCC floated the idea of Title Two reclassification in 2010, they said well Title Two, but we'll forbear from 40 of the items within Title Two. And then a week later, they came back and said wait, wait... We'll forbear from 41 of the items within Title Two. Which should give you a sense of you know, how much you can trust an agency to enforce or not enforce some of these things. They can't commit future agencies to also do that so, if you like Title Two, bear in mind that it's going to come in with a lot of other obligations that, a) Are going to be legally controversial, as Berin said and b) Are not going to necessarily be just the common carrier rule that you like.
Denise: I don't know if I like or dislike it just seems strange to me that in this context there is so much debate around what box you put broadband in. You know? It seems to me like it should be more clear cut and that the debate is all about politics and, as you were eluding to just then Jon, horsetrading. Okay well we'll put it in this box but we won't apply all of the factors that might come into play and maybe a future version of our agency will. So, it just seems- Go ahead.
Jon: A lot of this debate is really fun to me. It comes down to a debate over whether the internet and broadband access should be a public utility or not. And I understand the arguments from both sides, but from our perspective, it doesn't need to be a public utility because that's going to be a monopoly so, we would like to see more competition and that's not going to happen if it's a public utility. And what happens with public utility monopolies? I mean how much innovation have you seen out of the electric system in the last 80 years? Competition is difficult with that. You're just not going to see as much innovation out of a public utility monopoly. You can certainly understand that the government might be able to if it can search resources on something, especially if it controls access to the right-of-way, the government might be able to build something relatively quickly and easily. But what is there incentive and motivation for upgrading it, for trying new services, for doing things very differently. In many cases, the public utility broadbands are not actually less expensive than the existing private providers. In some cases, they are but you know, that's what you would expect if you get massive federal subsidies to build a network, or if you are building a network over top of existing utility networks and you won't have to jump through all the hoops that private providers are going to. So, it is to some extent, a question of whether we want to treat it like the electric system or to treat it like we treat roads. Berin and I take the view that the road is not, the fiber of the road is the right-of-way. The right-of-way is what people should have easy access to. Whereas if, we treat the fiber as the road, we're just embedding a monopoly.
Berin: Let me just elaborate on that point because people don't really understand this. So, part of the reason that cable companies had to spend $300 billion to build out broadband, was they had to dig up every street in America, really, to roll out broadband to homes. And what should have been done at the time, what we're saying should now, what 25 House democrats proposed in the last congress was what was called the Dig Once Policy. Which is the idea that when you dig up the road, for whatever reason anytime you do a road project, you should put in there underneath the road a conduit that anybody can put a fiber cable through. That idea is actually supported, even by the cable industry. That would be great for everybody, increases the cost of a roads project by about 1%, but it makes it about 90% cheaper to deploy a new network. There are some things here that really are natural monopolies, it doesn't have to be the broadband network, it's that system of conduits, the tubes that run under the streets. That's a natural monopoly. The utility towers, the poles around the city, that's a monopoly that is either owned by the city or that is adopted monopoly licensed by the city. So we're not saying that there's no role for government, I'm fine with having a non-discriminatory pricing regime for either the public infrastructure or if AT&T has towers in Austin and the government has licensed those towers and nobody else is going to put up towers, fine. Let's have non-discriminative pricing so the Google fiber can roll out in Austin. But if we deal with those problems, what we see is that broadband isn't just not a natural monopoly. I'm just astonished that people like Susan Crawford keep saying that, even the very week that Google Fiber finally proves that what they're doing is not a stunt, that they're willing to roll out in cities that make it feasible for them to do so. Again, we could have real competition here if we just both deregulated at the local level and had some smarter infrastructure policy that used concepts like Dig Once. And Google, Century Link, and Verizon have already laid out exactly what cities need to do in those respects and that would be a much better way to serve consumers than simply letting local governments build government networks. I mentioned this earlier but it's not as simple as building a network, you've got to keep upgrading it and keep providing capacity. So even Google Fiber for example, still only offers Netflix streaming rates at like 1/300th of the theoretical maximum speed. Because the problem is the back end capacity, and I worry and Jon worries that even if you sank a lot of government money into building out a broadband network that had a high speed at the local level, it's still not necessarily going to be a very good network or keep up with the things that consumers want to do with it over the years. Those are the kind of things that private companies tend to do, so we should really be removing options for private investment and for competition at that layer. As to your point about reclassification, Denise, you asked why it's a harder question, I should just say in connection with this point I was just making, traditional common carriers were not forced to be a common carrier. They wanted to be common carriers because they got a monopoly, right, that was the deal. The concepts go hand-in-hand. But if you're not going to get to be a monopoly, if you've got competitors, you don't want to be a common carrier. You don't want to have your rates controlled by the government. You know. Now you might try to keep out your competitors through other means like, making an offer for them to deploy. But those are the problems we should deal with, the reclassification thing is really just a red herring. It's something that the FCC, legally speaking, probably do, but politically is never going to happen. Even democrats in DC oppose it, so we really just need to focus on what can the FCC do, and what should it do with the world that exists now and with the power that it has under section 706.
Denise: Again, I'm going to refer people to this week's episode of This Week in Google, there was a good discussion of whether or not municipalities should become the broadband provider, and as an alternative to the private options that we have now. That's episode 238 of This Week in Google and it's called "Net Brutality." And Evan, on this topic, do you think that it has to be either or? Should municipalities and government be able to play in this game and might not they be able to accomplish things that private enterprise can't simply because of their resources, you know, as they pointed out on TWiG, we don't have private enterprise build our roads and other infrastructures except as directed in a government project. So what do you think of that?
Evan: The best thing I could see a local municipality doing in this base is cooperating with the NSA and the Department of Homeland Security in seeing the contents of all of our communications and further eroding our fourth amendment. I can't believe people even entertain the notion of the government providing this much infrastructure. The world is a frightening enough place the way it is when it comes to the government watching what we're doing. You look at some of the surveillance cases in meat space, you know, the Jones case, GPS tracking somebody around on the roads it just seems even weirder to think that you would have the government providing that, to just give that entree and to expanding with so much more ease, that kind of surveillance. I just can't get that issue out of my mind, and apart from the market concerns and all of the issues that we've been talking about so far here, I wouldn't want to touch government, whether it be a local municipality or whatever, provided internet for those reasons that the privacy and the civil liberties reasons but if I'm over-simplifying it, I would love to have somebody help me be more at ease.
Denise: What do you think Berin, does it have to be an either or, couldn't we have both players in the game?
Berin: Look, I'm not going to get hung up on whether states really should ban municipalities from building broadband networks, which is what some states have done now. And what some people are so upset about. I think it is- It seems very likely to me that when the government competes with the private sector, it drives out private investment, and the consumers will be worse off. But it's an empirical question, I could be wrong. I'm more concerned with making sure that private companies have the option of rolling out. I mean, Jon mentioned that one of the reasons that municipal broadband has succeeded anywhere, if it has, it's not just the subsidies that they've gotten, it's that they get to end run all of the local BS because you know, like in Chattanooga, it's actually the local utility that is running the network. So, they skip right ahead, don't have to deal with what Google Fiber has to deal with so we could have all of those advantages. We could have Google Fiber be able to take advantage of using the poles that the utility company owns on a fair non-discriminatory price basis without tax payers having to spend any money, other than maybe that 1% of the roads project concept that I mentioned of doing Dig Once. So I just think if you look at the numbers, it's hard to see why you'd want local government putting bonds out and spending money that really could be spent on teachers and policemen's pensions and salary's, when a private company could be willing to build and run the network and the local government has to do nothing more than get out of the way and maybe spend a little bit of money on building those conduits that they can then rent and make money off of. That's the natural monopoly, that's where we should be focused on having smarter policies.
Denise: Okay, before we leave this topic of net neutrality and the FCC's power in the wake of the Verizon decision, this is one of those instances where I was really chomping down my Wheaties following your Twitter streams this week and it has to do with a study of news organizations that the FCC sponsored. Can you tell us what went on there and how the fairness doctrine comes into play and how it illustrates, I think you both might say, the expanded powers of the FCC and where they might go. Can we start with you Berin?
Berin: Yeah, sure. So a few years ago the FCC started an inquiry into critical information needs and now they put out a new study they proposed last year- And this has all been done at the staff level, the commission never actually voted on this, even though it raises some significant 1st Amendment concerns and the bottom line is this- Instead of having the researcher sit down and study hard data on what topics are discussed on the news and so on, and then analyze it you know, a big data approach which I would be fine with. Instead, what they proposed to do was to send researchers in who, everybody would know were from the FCC, to go ask broadcasters all kinds of intrusive questions about what they cover, why they cover it, whether there are disputes between journalists and editors, you know. That's the kind of thing that the free speech community has always been worried about. When the government goes in and starts asking people questions like that, it has a chilling effect. And it doesn't matter how good your intentions are or whether you're doing it to try to discourage bias, you end up shaping the way that media works. Especially because we're talking about broadcasters who have a license that the FCC can take away at any point. Anyway, the bottom line is, that is deeply concerning and and it was something that one of the FCC commissioners, Ajit Pai, voiced great concern about in the Wall Street Journal, because he was never given a chance to vote on it, or helped the study, or suggest that it be done in a less intrusive way that doesn't actually change the data and he got some push back for that. But the analogy for the fairness doctrine is that the FCC used to require that if there were talk about a controversial subject on radio, you had to have someone on to present the other side. And what that actually effectively did, was somewhat similar, it had the unintentional effect of chilling discussion of controversial topics because you get tied up in litigation about whether you gave someone the right to respond, who was the right person, and so on. And it's just to say that the point in either case is not that the FCC sets out to censor or control media, but that is the effect of their regulation, that has always been the message of the free speech community and now what you're really seeing is principal free speech advocates are standing by that, and then some people, frankly, are not that principled are now saying that somehow the FCC doesn't care about media bias, so they're getting confused about this.
Denise: Okay, Jon, anything to add?
Jon: The FCC did a really good report back in 2008 about the details around licensing and public interest and communications needs, information needs of communities and that sort of thing, and one of the points that they made was that the commission can't dictate to licensees what programming they have to air and they leave it to licensees to determine what the information needs of their communities are and that the FCC does not substitute their judgment for the judgment of the licensees. Which is a bit of a circular argument, that they are to oversee that communities are getting the information they need, but they ask the licensees what the information they need is, and they just take the licensees word for it because the licensee is going to say whatever they are providing is what the community needs. Which on one hand, that's a bit circular and on the other hand, there's not really another way around that. If the FCC in any way, shape, or form, tries to impose its judgment on what the information needs of a community actually are, then you immediately tromp right into 1st amendment's territory. The problem is, Berin can explain better than I can, but the problem is that there are many who believe that the 1st amendment is a sword, not a shield, and that the government may not curtail speech, but that the government would promote the speech that it finds useful and helpful. And so a lot of concern on the right is that while the left certainly has forsworn, and I certainly believe that the fairness doctrine is dead letter, it's not coming back, it's not a threat. That doesn't mean that content regulation or tinkering with the inputs of content is not still a threat. I mean, if you don't have to say what has to come out of the air, you can say who owns the licenses, and you can certainly shape the market that way, or providing more public media is certainly a way to affect the media market. So the concern from the right in the pre-market community is not that the FCC is going to go in and tell them you have to push this, you may not push this, it's that they will use more of the levers of regulatory power.
Denise: Okay, we had a bunch of copyright stories we could discuss this week, there's a lot going on, some interesting developments, decisions, and updates to things we've been following. I think we're pretty much going to shelve them because we are having such a good time and good discussion on the issues we've been pursuing, but there is a copyright wrinkle that Jeff Jarvis brought up on TWiG, that I'd love to get you guys' take on. And that is, he suggested that one of the reasons that we have such trouble with video distribution and why it's such an issue and a tax on the network, is because of our copyright laws and the way that they artificially can strain the way that video is delivered because Netflix can't do something like utilize something like P2P because that wouldn't take into account the copy protection that is necessary for them to be able to carry the videos that they do. And I thought that was a really interesting insight, and I'm wondering if you guys think that copyright reform might be helpful in unraveling and smoothing out some of these video distribution problems that we've been discussing today. What do you think Berin?
Berin: Well yes and no. I mean, I'm very much a pragmatist on copyright, I've been critical of things like Sopa. But you know, at the end of the day, what copyright does well, by protecting HBO or House of Cards, you wouldn't have content like that, it wouldn't be the same quality if we didn't protect those copyrights. So I'm all in favor of copyright and frankly, at the end of the day, those copyright owners are going to charge for that content what they think it's worth. And that may drive up cable costs, it may be a problem for video distributors, but that's a sign that people want that content. Now, where I'm very sympathetic to what Jeff might be saying, is that on top of those basic protections, which I think most of us would probably agree about, there's another set of restrictions in the video market place that are, I would say quazi-copyright, and those are all of the things that regulate content distribution at the level of broadcast content. So this Aereo case, for example, whatever you think about it, it's really an example of companies trying to innovate their way around that bizarre set of rules around broadcasting, and that set of rules is on its way out. Either Aereo case is going to kill it because Aereo wins, and then the networks just say well you know, if you can just take our content, if it's put up on broadcast, we're just going to stop putting on broadcast, we're going to become a cable network, goodbye. Or, you're going to see Congress finally change those rules. And I think that would certainly help. To a degree, there's a problem there, where that driving up the price of broadcast content, but that's not the biggest part of why cable costs are high, or why it's hard for over-the-top video distributors to compete, it really gets down to things like sports. Sports content is just the number one biggest, as an economist would say, demand insensitive. In elastic form of content out there, people are willing to pay a huge amount of money for it, and that creates market power so, I think the answer, to make a long story short is that copyright isn't the problem. If you're concerned about exclusive dealings or program access and program carriage, we already have rules that deal with them. We could tweak them, the NBC universal deal puts some restrictions on ComCast there, and you'll probably see conditions in Comcast Time Warner Cable, in that deal, that will govern how ComCast licenses its own content like NBC. And theres certainly a way that could be done too, to help online video distributors get access to that content, but I don't really see it as a fundamentally a copyright problem, unless you go so far as to do the sort of thing you eluded to, of actually shutting down peer-to-peer networks that really could be used to distribute video more effectively. I certainly wouldn't support that, but that's not really a copyright problem, or that's not something that you have to do to defend legitimate copyrights.
Denise: Yeah, no I wasn't hoping to shut them down. But rather, whether you know if we're looking at efficiencies and trying to come up with a legal structure that doesn't make people try to route around copyright laws, but respects that we want the most efficient distribution system possible in place, that P2P should be more widely in use.
Berin: Well, you mean as a distribution technology?
Berin: Well, you know if it made sense, I believe that Vimeo uses P2P, I could be wrong but it's a technical question. It's another technology that might work well, might not. The market will ultimately sort that out and we'll see what happens.
Denise: Right now, it's sort of hamstrung by the fact that Netflix wouldn't be able to provide all of the thousands of titles it does if it were to alter its architecture and try to distribute that way. The rights holders would just say sorry that's not going to cut it for us.
Berin: Well, hold on. You can run a video platform today using P2P on the backend in a way that is invisible to users. In other words, using P2P doesn't mean you put everything up on BitTorrent. BitTorrent is just one P2P system. So, that's just a technology, and I'm all in favor of companies being free to pick the right technology but, you know, if Netflix uses a technology that just makes video available to everybody, of course content owners are going to be reluctant. Look, the situation we're in today is very similar to the situation we were in with music. Where the music labels fought tooth and nail against online distribution, and eventually what it took was Apple, who had enough market power to force them to come to the table, cut a deal, and be able to put their stuff up on iTunes. We're basically in a similar situation today and that's going to change over time. And quite frankly, it's actually more likely to change if you have a bigger cable company that is willing to go head to head with the programmers. The only thing you should really be concerned about there is vertical integration. So if it were true that ComCast owned a huge number of cable programmers, that might be a problem, but that percentage or affiliation number has plummeted from being in the 90% range in the 1990's, to today being something like 15%. So that just doesn't seem to be a big concern and we can deal with that with merger conditions and specific rules.
Jon: I would also add that BitTorrent is not just software, it's also a for-profit company that distinct from the software. But the for-profit company does not engage in piracy or trading files illegally. They do provide BitTorrent as a service to many media companies. I know NBC was using it some years ago, so whether it gets used or not is not really simply about media companies being unwilling to use something that is often associated with piracy, the video companies will use it if it's going to be effective. But we have to remember that the right of the media companies is not just a right of Hollywood or big media companies, it's also the right of small guys. Whoever not only sells their content to the big media companies, but distributes their content individually. So the right of the creator whether big or small, to engage in a transaction or not, is equally important to the right of the consumer to use their content how they want, to do with their content what they want, to be able to get access to content. It's a bilateral relationship. And those things will work out, it happens slowly because the business models are changing and as much as people say they should just drop their old business models and adopt new business models, that's hard. I remember sitting down with the first senior person in the music industry a number of years ago and he showed me a PowerPoint slide and said look, we get that cassettes are gone and CD sales are almost gone, we get that the market is dramatically changing. The question isn't do we change, the question is what business model is going to work? And right now, it's not like we can all just hop to another business model. Everybody is experimenting and they're trying to experiment without completely losing the current revenues they have. The things they have right now that are working. These things will happen but it has to be evolutionary, if we tried to force it through with some massive copyright reform, and some copyright reforms are good, but if we tried to force it through with a massive copyright reform, it would end up not being as innovative and evolutionary as it can be if we still protect copyrights and contents in that evolution.
Denise: Do you agree Evan?
Evan: Yeah, that all seems really sensible. We can't just throw out the whole model and expect a new one to appear overnight that is going to continue to support an entertainment industry as robust as what it is now. Copyright reform is needed and there are some areas where it is clear where it has it's weaknesses. For example, the statutory damages model, we've talked about this before, anything that's going to motivate troll-ish behavior on the part of copyright owners, that's something that needs to go away and so I think that the new models need to be given enough time to make themselves known in the revenue streams that the copyright industry will enjoy from those will arise and exist in that new environment. That reminds me a little bit about what we were talking about earlier with the deal with Netflix and ComCast. It's just really interesting if you step back and look at the larger perspective, Netflix has been enabled to move into a streaming content service because of broadband networks. And so now, that is the environment in which it has been allowed to grow and now it's running up against some problems there, some growing pains, if you will, it's why that is striking some new deals. So I think just at a general level it's interesting to see how these technologies interact with one another and how distribution models affect norms and how businesses and revenue streams will develop around that. You just got to allow some patience, as Jon is suggesting, and there needs to be an emphasis on a certain amount of equilibrium, while changes do take place. It can't be too drastic or else there will be weakness and you know, the system can fall apart.
Berin: Denise, someone on the IRSC channel used my favorite line, that the future is already here, it's just not very evenly distributed yet. What we're really seeing is these are all really hard things. Sorting out the content rights, figuring out how much capacity you need, it's always going to be a messy process and will always take time to play out and there are always going to be people who are jumping up and down saying that it could be better if the government just did x. And our message, just to bring this full circle, you asked me what TechFreedom does, our message really, is that there are often things that the government should do that usually involve getting out of the way, like getting out of the way of local broadband deployment. Sometimes they're about smarter infrastructure like Dig Once, but usually things will turn out fine if we just let the companies involved sort them out on their own. If there are problems, we deal with them as they arise. That's why anti-trust law is generally a better approach. That's why it's not a good idea to write in place preemptive rules that ban an entire business practice, as the FCC tried to do with it's original net neutrality rule. So we're all for letting this stuff play out in all of it's messinesss. That's what Virgina Pestrell once called dynamism. It's a willingness to deal with that unplanability of the future and not make it conform to a nice simple neat plan or a metaphoric or like vision super highway. It's never going to be that simple, so we're going to keep having this discussion forever because we're never going to get to the point where it's done and everything just works. Which is what a lot of us techy geeks want, we imagine that eventually we'll reach a state where video is easy and everything is smooth and nobody needs to never really innovate anymore. There's never going to be a static state like that.
Denise: Yeah, David Wineburger wrote years ago that the reason internet works is because it's fundamentally broken, and I'm paraphrasing him, but that's his crux in his book, Small Pieces Loosely Joined. And I think I get what he was after there. I'm going to move one of our stories that we had as a trademark/free speech discussion up to our Tip of the Week because I think we'll go ahead and do a few tips and a resource of the week to close out the show. The story I have in mind, going back to Evan's concerns about the NSA, is if you two are concerned about the NSA or somebody who likes to spotlight issues around the NSA, perhaps you are anxious to parody their logos. There is an individual who got involved in a lawsuit with both the DHS and the NSA about that very thing, was offering mugs and things. And you want to parody the NSA or the DHS on a t-shirt or a mug, good news for you, you can do that. Because after a three year legal battle, there are some cease and desist letters that were served by the NSA and DHS and were found to be not in order and that you can go ahead and parody their logos to your heart's content. It was Tim Cushing over at TechDirt who has a nice piece on that, if you'd like some more information or if you'd like to see that story or any of the other stories that we've discussed today, head on over to delicious.com/thisweekinlaw/248 and there will be links to everything we've discussed and more. A couple more great tips just from cruising through the internet, this week a piece at the Wallstreet Journal over secret apps, things like Whisper, Secret, and Ask.FM that people are using to be able to share their souls and perhaps their embarrassing or nefarious activities in a way that they would not on a less secure channel, such as Facebook or Twitter. These apps are out there encouraging people to do that, but of course, the Wallstreet Journal wants you to be cautious about that. The author of this article points out that it's important for everyone to understand what might be recorded and to weigh the consequences if your secrets fall into the wrong hands. So be skeptical about using secret apps and then, I thought it was pretty funny, another little copyright story here. There is a viral video out there if you haven't seen it yet, made by the SPCA of Wake County. It's a lip dub and features an Abba song, If You Change Your Mind, that one and you know goes through the SPCA with lots of adorable animals, it's a very well done lip dub. And I guess it's a couple years old. Somehow, inexplicably, it's had a surge of popularity again. It's had over 65,000 views online and of course, who doesn't like the SPCA and adorable animals? Well Abba doesn't like so much that their song was used, and is attempting to DMCA the video. Of course there are various versions of it out there and their DMCA efforts are not all that effective, so the tip we're deriving from this is you know, think twice. This is a Streisand effect kind of tip, if you are a rights holder and you have a very sympathetic entity like the SPCA and adorable puppies and kittens; that might not be the best instance for you to exercise your rights just purely from a public relations stand point. And then Evan has our resource of the week which is shestock images. Can you tell us about that Evan?
Evan: Sure, yeah. A former colleague of mine at my old firm has co-founded a new company called shestockimages. Really it's a two-part, it's a source of stock images, and it's also- I guess the best way to describe it is a network, almost where purchasers of stock photos can buy particular assignments of stock photos and the whole motif, the thing that makes this special and unique is this fits in with the current narrative that we're hearing a lot of, just to use the words from the shestock site, helping companies fix their failed dialogue with women through professional women photographers and portraying women in stock photography in a positive light. You know, we've seen some actvity on this front from Sheryl Sandberg partnering with Gettyimages to come up with leanin.org, portraying women in a more positive or just a more realistic light, perhaps. You know we've seen parodies of the ill ways in which this communication has been made; you know there's that tumblog that's been defunked. I mean, it's still there but I don't think it's a new content, something like women-
Denise: Women eating salad.
Evan: Yeah, women laughing and eating salad. That whole thing, it's the counter to that so Shestock is a new resource that consumers in this space should check out and the reason I'm interested in it is because my former colleague, Christopher Borders is one of the co-founders of it and I would really like to see- I'm not a paid sponsor or anything like that, it's just my friend who's doing this but it looks like an exciting project that's going on.
Denise: It looks like they have some neat images and this site is well done. The very first one I pulled up was a woman laughing, eating a hotdog so, not too much different.
Evan: Not even going to go there.
Denise: Exactly, so thank you so much for that Evan and thank you so much Jon and Berin for joining us today and having this lengthy and detailed discussion. It's been really really helpful for me personally and I'm sure for our listeners and viewers and we really appreciate your time and your insights. Is there anything that Tech Freedom is up to, Jon I'll start with you, or anything you personally are up to that you want to let us know about before we go ahead and wrap the show?
Jon: You know, instead of both of us say what Tech Freedom is up to, I'll let Berin do it, but I will say thank you for having us on and I hope we've solved the internet and if we haven't we need to come back and do this again, maybe take two or three weeks to solve all of the problems but I'm sure we can do it.
Denise: That's very optimistic and yes, we appreciate the solutions that we discussed today. Berin, why don't you let us know what's going on with Tech Freedom and anything else that's on your mind?
Berin: Sure, well as I sit at the outset, we spend a lot of time dealing with surveillance and privacy from government snooping, but we like to remind people that's not just about the NSA, it's also about all of the law enforcement agencies that can get access to your email to track your location without a warrant and I just want to call your attention. There was a big push yesterday as part of our ongoing coalition efforts for the email privacy act, which now has 182 sponsors in house of representatives, and that would require that law enforcement agencies get a warrant from a judge. And convince them that there is probable cause before searching your email. So please check that out, it's hr1852, it's the email privacy act, and that really, if that's going to pass, there's a lot of momentum behind it. But that's got to move soon. We had 100,000 signatures on a whitehouse.gov petition pushing for that, and yet the administration has said nothing about it thus far, so we're really disappointed, and frankly, if that can't get passed, nothing really is going to change on the NSA front because this really should be a lot easier politically. So, that's one thing. Second thing I'll mention, since we talked about the open internet, I would just be remiss if I didn't point out that while I think a lot of the concerns about net neutrality are a little overblown, there are some very real threats to the open internet on the international stage. And that is specifically that European countries are using concerns about surveillance in the United States as a pretext. They are proposing to create closed networks that will bypass US companies and US servers, they say in order to protect the privacy of Europeans. And I just have to emphasize that it's really tragic, that for all of the time and effort that's been spent arguing about the open internet here, no one is paying attention to that. So, that's a real problem that could break down the services that we all know and love that are, right now, global, that couldn't be if that happened. So we're focused, you already heard on TeleCom, net neutrality, opening up broadband competition, there's a lot going on in the FCC right now about opening up more spectrum, about allowing companies like AT&T to transition to all internet services. Those are all things that were bipartisan goals of the 2010 national broadband plan, and we're going to keep saying that's what the FCC should be working on. It's unfortunate that Jenna Kowsky decided he didn't want to do that, but we're pro-deployment and are really reaching across the aisle to try to build broad coalitions on that. Then finally, we do also work on a lot of federal trade commission issues. A lot of privacy, data protection, competition, those are getting a lot of attention right now and we've started a project around FTC reform. Which basically asks the question of if the federal trade commission is going to be the default technology regulator, the Federal Technology Commission, if you will. How should it work? And we've outlined a number of proposals in our FTC reform report that we put out last year and you'll see more from us on that but basically, it means making FTC a smarter more technologically sophisticated regulator, but also one that's less likely to jump in and to dictate, to Apple for example, that Apple didn't strike the right balance when they designed the user interface of the iTunes store, to leave the 15 minute window open after you've made a purchase. That's exactly what Apple just did and FTC decided that they knew better than Apple, that somehow that would allow small numbers of kids to make purchases that their parents didn't know where being made. So, that's just an example of the FTC not really being appropriately humble, so that's our work for the year, you can check us out at techfreedom.org and you've mentioned a few times that we use Twitter pretty heavily and we're also on Facebook. So please do follow us, and reach out to me and Jon on Twitter or by email if you want to know more. Our email addresses are just our first initial and last name @techfreedom.org.
Denise: That's great and thank you, the only thing I would add is you're also great at putting together panels and discussions and putting out the video of that or maybe letting a 3rd party put out the video of that, so for anyone who's interested in more engagement like we've had here today, definitely check in on the TechFreedom site and follow along. Berin makes an excellent moderator and panelist and Jon I haven't had the pleasure of seeing you in that capacity yet, but I'm sure you do as well. And I really appreciate the way you guys put together nice sort of broad spectrum, lots of different viewpoints coming together to hash through issues and try to come to an understanding or solve the internet, as Jon said, which is obviously all of our goals. We appreciate you joining us here today for this discussion, if you're joining us live, that means you've done so at Friday, we started at 11:00 Pacific time, 1800 UTC, which is when we record every week, so you can join us live at that time or you can find us after the fact at twit.tv/twil. We've got the whole archive of shows there, we're on Youtube at thisweekinlaw, is our Youtube channel there. Also, we too, are on Facebook and on Google+ if you want to give us suggestions for guests, further comments on our discussion today, or on any of the prior shows. Suggestions for topics, things that are on your mind, that would be a great place to go. Also on Twitter, I'm DHowell there, Evan is Internetcases there. Evan writes the great Internet Cases blog, which you should also check out. And Evan, I'm just glad to be back with you, missed you guys last week and it's been so fun chatting today.
Evan: Yeah, it has been a lot of fun. It's good to see you back, it's been really fun as usual, very educational, lots of pretty technical things we talked about today. So, I've really enjoyed it and had a really good time, looking forward to next week.
Denise: Yeah, and I neglected to put two MCLE pass phrases into the show this time around, I'll go ahead and put one in now, let's make it email privacy, and that'll just have to do the job for this time around. The reason we put MCLE passphrases in the show is in case you are interested in getting continuing legal education or other professional credit for the show, which as, I think you can tell, can be actually educational, you can go to your particular bar and apply, we have some information about that at wiki.twit.tv and let us know how that's going for you if you are engaged in that. We put the phrases in the show in case you have to demonstrate that you actually watched or listened. Little way of proving if you did, so thanks so much for joining us on this episode of This Week in Law, we'll be back next week and until then, keep solving the internet. Take care!