Congloms, guilds and pipeline providers gird for new regulations

Lawyers, regulators and corporate reps in Washington this year will be working to solve a problem that, by and large, doesn’t yet exist. And the issue has the off-putting, wonky name of “Net neutrality.” Few people in showbiz are aware of the pending battles, and those who are following the issue are sharply divided.

All of these factors, on the face of it, add up to a big ho-hum. But in truth, the issue at stake is nothing less than the future of the Internet. And the outcome has far-reaching implications for the entertainment industry.

A central argument is the worry that Internet service providers, such as Comcast, Verizon, et al., could give speedier delivery to some websites and services than others. That would drive monthly subscribers to some websites while they eventually shut out the slower ones. And as Hollywood increasingly looks to the Web to deliver entertainment — via video streaming, downloading and techniques that are still in the formative stage — billions of dollars annually could be at stake.

The fear is that without the teeth of government restrictions, the Internet will one day resemble cable TV, where consumers are at the mercy of the dealmaking prowess of operators and networks, who decide what viewers can get via bundled tiers of channels. When someone subscribes to cable, they get certain channels because those companies made a deal to be there, and some Web folk want to ensure that the Internet avoids the more-money/more-access approach.

So far, Internet service providers (ISPs) aren’t showing widespread favoritism on the Net — cases where there has been are rare and greeted with an outcry. But to many proponents, the proposed merger of NBC Universal into Comcast, the nation’s largest residential Internet provider, underscores the urgency for Net neutrality regulations, as the two heavyweights — one in content, the other in content delivery — look to find synergies.

Some groups have been advocating rules of the road for the Internet, including Google and other tech firms, as well as bloggers, website creators, free-speech advocates and even disparate groups like the Christian Coalition and the ACLU. In Hollywood, one of the most vocal proponents of Net neutrality is the Writers Guild of America.

But others fear the government will set such onerous rules that they’re even raising First Amendment issues.

Hollywood is in the middle. The studios’ key priority is to ensure that Internet service providers have the flexibility to fight piracy. But some media congloms also worry that Net neutrality could stifle new ventures and innovation.

Until now, the idea of imposing such rules of the road has been without the full weight of the law.

But the election of Barack Obama turned the notion into a possible reality. Obama advocated Net neutrality as a campaign issue, and chose an FCC chief, Julius Genachowski, who has put it at the top of his agenda, with a set of proposed rules now making their way through the public review process. The commission is taking comments until Jan. 14 and will gather replies to those comments until March 5.

Amid these shifting realities, Hollywood studios have gone from outright opposition — MPAA chairman Dan Glickman made that clear in a speech he gave in 2008 — to acceptance that some rules are inevitable. Industry lobbyists are even encouraged by language in the proposed rules that would give Internet providers latitude to fight copyright infringement.

As they navigate a new world of Internet downloads and streaming, some studios want flexibility, especially if their ticket to a way forward is via a venture with a cable or telecom company or, in the case of NBC Universal, an outright purchase.

But studios aren’t all on the same page, and some would rather not get caught in a battle between content creators and cable companies. As an exec at one studio says, “A lot of players have a lot at stake here, and if we are in the middle of this thing, we have nothing to gain.”

One of the flashpoints of the FCC’s proposals is a “nondiscrimination” rule, which would prohibit a service provider from giving preferential treatment, for instance, to whoever pays the highest toll to use their pipes — or blocking access to a competitor.

What’s pleased the MPAA is that in drawing up its rules, the FCC made clear that “nondiscrimination” would apply only to “legal” content, and that service providers would be allowed the leeway of “reasonable network management” to control congestion and, most importantly for Hollywood companies, to prevent the sharing of content that infringes copyright.

The concern is obviously that you not start to put a lot of blanket prohibitions in place,” says Michael O’Leary, MPAA exec VP of government relations. “There are lots of unintended, and sometimes intended, consequences of that.”

In other words, the devil is in the details, and as an intense lobbying effort takes place to define exactly what constitutes “reasonable network management” and “nondiscrimination,” suspicions have been raised among writers and other content creators, even when it comes to the seemingly indisputable effort to eradicate piracy.

More than any other Hollywood union, the WGA has been vocal in championing the ideas behind the proposed rules. Stung by the wave of consolidation of the 1980s and ’90s, the guild views the Internet as a means to bypass the concentration of distribution power held by the big media congloms, typified by recent Web-based self-distribution endeavors like Joss Whedon’s independently produced “Dr. Horrible’s Sing-Along Blog” or even Strike TV.

From the WGA’s standpoint, Net neutrality is the Web’s version of the old “fin-syn” regulations, which once prevented the broadcast networks from owning the shows they aired.

WGA West prexy John Wells says the worry is that, without rules protecting Net neutrality, some sites “will pay the necessary toll” to gain an advantage, edging out independent content creators who don’t have the same hefty resources. As the WGA West outlined in an FCC filing, its members fear independents being relegated to “a slower, harder-to-load and harder-to-stream dirt road.” “We do not want to make the same mistakes our country has made in traditional media,” the guild stated.

And fears of what may happen with the Web are more far-reaching, with impact seen on even the fundamentals of public discourse.

“You can certainly see a situation where certain political views are more readily available than others,” Wells says.

The WGA is adamant in being “wholeheartedly supportive of preventing piracy wherever and whenever it occurs,” but its leaders worry that the proposed rules’ exceptions for rooting out copyright infringement will be so broad as to still offer an advantage to the major congloms.

The WGA West stated that the antipiracy provisions “may have the unintended consequence of prioritizing certain Web traffic,” and noted, “Should the major media conglomerates be allowed to collude with ISPs to flag their content as ‘not pirated,’ we would want independent content creators to have the same ability and be able to attain the same provisions as the major media studios.”

As the WGAW’s assistant executive director, Chuck Slocum, put it, “Piracy threatens the availability and viability of that content. However, to meet that threat with a solution that itself threatens the free flow of content is to prescribe a medicine worse than the illness.”

The WGAW also suggested further investigation regarding the extent of online piracy, citing the conflict between reports of widespread infringement and a Bernstein Research study that the “magnitude (of pirated online video content) has reached urban legend status.” Instead, the WGAW points to another solution: a “graduated response,” in which viewers and distributors of pirated content are sent two warnings to cease, and, if they don’t stop, face having their Internet service suspended. Although studios support this too, there is some doubt among them as to whether it will be effective enough.

The WGAW’s sister guild, the Writers Guild of America East, echoes those concerns, noting, “Everyone opposes car theft, but no one proposes that we restrict access to the highways.” The union also cites the Comcast-NBC U merger as cause for alarm, as the cabler will “have a powerful incentive to use pricing to favor its own content.”

In fact, the prospective merger is becoming a rallying cry for the need for Net neutrality.

The consumer group Public Knowledge argues that such mergers create a potential advantage when it comes to the burgeoning world of TV via the Internet, in which Comcast could force consumers to buy a cable subscription if they want online access to, say, “30 Rock.” The group is already calling for an antitrust investigation of TV Everywhere, charging that the service to give cable subscribers access to shows online is an industry attempt to squelch competition.

Because of the potential for consolidating Internet service and content, Andrew Jay Schwarztman of the Media Access Project, another consumer group, called the Comcast-NBC U merger “a genuine threat to free expression and diversity of speech in our democratic society.”

But even as advocates of Net neutrality boast of a broad coalition, opponents are turning some of their arguments on their head.

In a speech last month, Kyle McSlarrow, president-CEO of the National Cable & Telecommunications Assn., argued that far from ensuring free speech on the Internet, Net neutrality would infringe on the First Amendment.

To tell a new entrant or an existing content provider that it cannot enter into arrangements with an ISP for unique prioritization or quality-of-service enhancements that might enable it to enter the marketplace and have its voice heard along with those of established competitors interferes with that provider’s speech rights in a way that should immediately invite First Amendment scrutiny,” he said.

So as TV-on-the-Internet grows, studios fear onerous rules could prevent them from working out a deal with an Internet service to offer services like high-definition video streaming or downloads.

The Net neutrality rules, McSlarrow asserts, would have the effect of “freezing in place today’s dominant players to the detriment of tomorrow’s startups.”

The cablers and telecoms argue that competition, more than anything, ensures the open Internet, particularly in the expanding world of wireless. If they start slowing access to certain sites, or pushing ones they have a financial stake in, a consumer can just switch to another provider. As critics argue that Comcast will consolidate the Net, the company pushes back by pointing out that the landscape will still be very diverse.

Their most effective argument against the creation of Net neutrality rules may be what’s going on today: just about nothing.

The Internet right now is, with few exceptions, open to all parties, even without binding rules in place. Comcast’s general counsel, David L. Cohen, has even called the push for Net neutrality a “solution in search of a problem.” The debate, however heated it may be growing, centers on what might happen. Perhaps that’s why Hollywood’s rank and file aren’t getting too worked up so far.

Moreover, in the strange way that rhetoric plays out in Washington, one of the highest-profile examples of where an Internet provider did block access to a site is being used by both sides as an argument for and against the need for rules.

Ironically, the case has to do with Comcast, which in 2007 restricted the file-sharing application BitTorrent. Comcast didn’t tell users that it was doing so, however, and it took a customer in Oregon — who happened to be an engineer — to figure out what was going on after he tried to share the file of a public-domain recording of a barbershop quartet with a friend.

The FCC in 2008 deemed that Comcast violated a set of Net neutrality “principles” the commission already had in place and ordered the company to stop slowing BitTorrent and to publicly disclose how it manages Internet traffic. Comcast, which had already changed its practices before the FCC order, argued that it was simply managing excessive traffic. It is contesting the FCC’s action and its authority to police the Internet in court, although it recently settled a class-action lawsuit in the case.

The Comcast incident is being used by opponents of Net neutrality as an example of how there are already checks and balances built into the system to prevent the erosion of a free and open Internet. But it’s also being used by supporters of Net neutrality as an example of the extent to which a conglom can go to restrict content, especially if there is a vested interest in protecting its own or a partner’s agenda. In a speech before the Brookings Institution, Genachowski argued that “saying nothing — and doing nothing — would impose its own form of unacceptable cost.”

This is not about protecting the Internet against imaginary dangers,” Genachowski said in a speech in September. “We’re seeing the breaks and cracks emerge, and they threaten to change the Internet’s fundamental architecture of openness.”

Even the most strident opponents of Net neutrality acknowledge that some rules are coming. Genachowski has the votes to make it happen, as two other commissioners indicated their support when the proposed rules were unveiled in October.

Until there is a final vote, however, all sides are going to be watching the process closely, wary of final language and loopholes.

That scrutiny was on display around the time Genachowski unveiled the proposals, when two champions on both sides of the debate, Verizon Wireless’s Lowell McAdam and Google’s Eric Schmidt, stirred the pot when they wrote a joint blog post to show areas of agreement.

While that post is cited as an example of finding common ground on a contentious issue, it also triggered suspicions regarding their motives. Some Net neutrality proponents, for example, worried it was a sign that Google was softening its previous support for Net neutrality.

Maybe it’s a sign of things to come.

As the MPAA’s O’Leary says, “My personal feeling is that if the FCC does a thorough and thoughtful job of this, it will be virtually impossible to craft something that makes any party completely happy, just because the issues are so complicated and they touch on so many facets of everyday business and everyday life.”

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