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Why the FCC’s Net Neutrality Vote Matters to Hollywood

John Oliver may have used his “Last Week Tonight” perch last June to explain net neutrality to the public, but the impact on showbiz won’t be clear even after the results of the FCC’s landmark Feb. 26 vote on the future of the Internet.

Confusing and involving lots of regulatory jargon, net neutrality has nevertheless drawn more than 4 million comments to the FCC, setting a new record. Actors including Mark Ruffalo and Evangeline Lilly and singers including Michael Stipe have weighed in. Chris Keyser, president of the Writers Guild of America West, called net neutrality “the issue of our time for the creative community.”

Those in favor of robust rules of the road have a myriad of concerns, but they share a common fear: that left unchecked, the Internet will morph into something resembling cable TV, including its expensive bundling structure. That’s why net neutrality advocates have sought rules that would prevent Internet service providers from blocking or throttling traffic, or selling faster access to subscribers.

While the goal of net neutrality may be the status quo — to keep the Internet the way it is — the FCC’s proposed tough regulatory approach could impact Hollywood in two key areas: the pathways consumers take to receive programming, and the price they pay for it.

The current renaissance in TV is fueled, at least in part, by the expansion of cable programming as well as online video from providers like Netflix and Amazon. The concern is that this new “golden age of television” won’t last long if Internet service providers engage in so-called paid prioritization, that is, asking studios and networks to fork over money to get speedier and better access to subscribers.

That’s why Keyser thinks the FCC’s plan to reclassify the Internet as a Title II telecommunications service — perhaps the most robust of all its options — is important. “It’s the philosophy, which is that … they have the pipes but they can’t say what flows through it.”

He says that such an approach would protect content creators from the impulse of major media companies to exploit loopholes that would allow them to favor their own content, freeze out independent projects or curb competition.

Lilly, who has been working with public interest group Free Press in pushing for net neutrality, says, “If you can control the information highway, you can control the information.

“I’m a very big fan of marketplace forces, but I think there’s a place where the government needs to step in and protect the open environment,” she says, adding that without the rules, she believes that “essentially you would see cable companies charging a premium for anyone who wants to have a properly functioning website.”

The other side of the argument is that studios aren’t exactly rushing to pay to gain an advantage in the delivery of their content online — the so-called fast lanes of the Internet.

Some high-ranking studio executives confess to being a bit mystified by the debate, and Comcast’s executive vice president David L. Cohen has said execs have no plans to prioritize traffic. Officially, studios have largely been mute on the issue. But some studio executives privately say they share the concerns of ISPs over the FCC’s approach — that the better course for a fast-changing technology is less regulation.

ISPs have labeled net neutrality as a solution in search of a problem, but in the eyes of Netflix, the problem is very real. Last year, Netflix says it was forced to pay fees to connect its signal to Comcast’s broadband service — eventually igniting a war of words between the two companies.

Such “interconnection” actually falls outside the scope of net neutrality, since connectivity has traditionally applied to the way ISPs deliver traffic to consumers — not the way ISPs connect to such content in the first place.

Corie Wright, director of global public policy for Netflix, says the prospect of a new regime of interconnection fees is a big loophole to neutrality — saddling online video competitors to cable with new costs.

“The ability of these businesses to reach consumers unfettered is what this debate is about,” Wright says.

Responding to these concerns, part of Wheeler’s proposal is that the FCC, for the first time, will take up complaints from streaming services and ISPs to discern whether interconnection dealmaking is reasonable. Whether that aspect of his proposal makes it into the final language remains to be seen, as FCC commissioner Mignon Clyburn, whose vote Wheeler needs, reportedly is seeking to keep it out.

Cable and telecom companies have accused Netflix of skewing the issue — and they maintain that there’s no reason non-Netflix subscribers should have to bear the cost of the streaming service’s high bandwidth signal.

The cable industry’s view of the FCC’s proposal seems to be one of disbelief. A year ago, it even seemed unthinkable that the agency would move to reclassify the Internet in the face of strong opposition. Now it’s widely expected that the FCC will do so. Mark Cuban is among the most vocal opponents of the FCC approach, and earlier this week warned of “unintended consequences” of agency oversight.

“The impact will be more litigation, higher consumer prices, slower network innovation, and a compromised ability for America to insist on Internet freedoms around the world,” the National Cable and Telecommunications Assn. said in a statement this week.

Wheeler and the FCC staff insist his proposal, as robust as it is, will limit the agency’s authority to regulate such things as pricing. That posture counters ISPs’ arguments that they are being burdened with regulations as antiquated as the ones faced by phone companies when the FCC was formed.

Yet even with those assurances, one of the two Republicans on the FCC, Ajit Pai, cautions that the FCC could still consider complaints about Internet rates and determine if they are reasonable. In a recent research report, research analyst Craig Moffett downgraded Comcast and Time Warner Cable, in part because of what he sees as the growing risk of price regulation.

In Moffett’s eyes, such regulation is a threat to the cable business model, especially with the rise of over-the-top video services like Apple TV and Roku. Those distribution shifts change the dynamics of the business naturally; price limits to Internet delivery of video content will only speed up the trend toward online video.

An FCC spokeswoman insists that the new rules include price regulation, and notes that mobile voice services have been classified as Title II services for two decades without regulators imposing price limits.

Still, despite some disagreement over what the FCC’s pending action will mean to Hollywood, there is widespread agreement to what will happen next: another challenge in court.

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