Telletopia Takes on OTT Broadcast Challenge

Streaming service hinges on FCC redefinition decision

Telletopia Foundation, a San Diego-based nonprofit, said it can deliver an online TV station streaming service that is legal and “elegant” and has a potential over-the-top offer broadcasters aren’t going to want to refuse — retrans payments.

The service hinges on an exemption from the compulsory license for nonprofits and an FCC proposal to define some streaming over-the-top services as MVPDs eligible for retrans.

The foundation's cofounders are unveiling at least the plans for the service Monday in hopes that the FCC will give it the regulatory green light.

Currently the jury is still out on whether online video services qualify for the compulsory license that currently relieves MVPDs from having to independently negotiate rights to that programming.

Congress will need to make that change, but Telletopia’s co-founders – Gary Koerper, CEO, a former senior VP at Comcast, and Michael Librizzi, CFO – aren’t waiting for Congress to clarify or change the 1976 law and argued they don’t have to.

And unlike now-defunct TV station streamer Aereo, which wasn’t paying broadcasters thanks to a complicated technological work-around eventually quashed by the courts, Koerper said broadcasters are likely to buy in because of the retrans component.

But they will need some help from the FCC.

Like Aereo, Telletopia doesn’t think it has to pay broadcasters to carry their signals, but unlike Aereo, its founders said they want to pay and think they should.

Telletopia is announcing that the browser-based online TV-station streaming service will launch early next year, beginning in major markets – it is currently beta testing in San Diego – but only if the FCC defines such day-and date services as MVPDs eligible to negotiate retransmission consent, as FCC chairman Tom Wheeler has proposed.

Koerper said Wheeler’s signal he would push a vote on the MVPD redefinition proposal by year’s end was a “watershed moment.”

The Telletopia exec team was in Washington last week to get a read on the progress of that proposal, which is getting some pushback from major edge players concerned about the FCC regulating over-the-top and is not getting much traction among the other commissioners, according to FCC sources.

Koerper conceded there has been pushback from major over-the-top players against the redefinition, but he said the FCC does not have to regulate the Amazons and Hulus to narrowly fix the “broadcasters over-the-top” issue.

He suggested that move would also help the smaller cable operators — like those represented by the American Cable Association -- looking to “get out of the retrans-paying business and focus on the Internet broadband they are staking their future on.”

While having a retrans system is key for negotiating carriage, unless over-the-top services also qualify for a compulsory license, the general thinking goes -- and Koerper said he agrees -- it will be impractical to try to line up the programming rights to go along with the signal carriage rights and local programing rights TV stations control.

But Koerper said because Telletopia is set up as a nonprofit foundation, an exemption in the compulsory license created by the 1976 Copyright Act allows them to stream TV stations without getting that license.

Koerper said that a "municipality or nonprofit” gets to retransmit TV stations without a compulsory license and can charge “fair and reasonable amounts” to cover the cost of the service, which means salaries, retrans and legal fees.

So, if Telletopia has to be a nonprofit to bypass the compulsory license issue, where is the money for its founders? 

“Any start-up is a nonprofit by definition for the first five years,” Librizzi, who has launched and sold start-ups for hundreds of millions, said.

He said that while neither he nor Koerper gets an ownership position as a nonprofit, some of the payout can come in “salaries and taking on a pretty ambitious project.”

Koerper and others have experience tackling innovative video services, having worked on Qualcomm’s ultimately shuttered MediaFLO wireless TV project.

Koerper said they know there is no Google- or Facebook-type IPO at the end, but that working with “really brilliant people” to move an industry forward is the payoff. “We are technologists, and this is a pretty big challenge for us,” he added.

They are self-funding the project, with plans to crowdfund in the future; the SEC has just come out with rules allowing crowd-funding of startups.

If the FCC does redefine day-and-date video streamers as MVPDs, Koerper said, Telletopia will have the go-ahead to launch a service — for something under $20 a month — to deliver local TV station signals, using “geofencing” technology to ensure the signals are only streamed to subs in that market (preserving syndicated exclusivity and network non-duplication).

Koerper said Telletopia has talked to around two dozen broadcasters about the service, and they have been receptive, as well as to the National Association of Broadcasters, which he does not expect to actively oppose the service. He said he does not anticipate the kind of pushback Aereo got, adding that the broadcasters he spoke with made it clear retrans was the “golden goose.” Telletopia has no plans to kill it.

One of those broadcasters is Gary Cocola, chairman of Cocola Broadcasting Cos.Telletopia said Cocola said the new service could not only drive online engagement and extend ad reach, but provide for real-time viewership data to an unprecedented detail.

The NAB does not oppose the MVPD redefinition so long as it includes retransmission consent and must-carry obligations.

Koerper said Telletopia has been spending over the past year on efforts to convince broadcasters its service is not about “disrupting from the outside, but enabling from the inside.”

Telletopia’s plan is to essentially cookie-cutter the “retrans-plus-ads” broadcast business model to the Internet. “We have always had the intention to pay [retrans],” Koerper said.

But why pay for the cow if you can get the milk for free?

Koerper said the answer is simple: “We’re not delusional enough to think they won’t sue us regardless of what the law says.”

Plus, he said, consumers are willing to pay for the content and, so long as it is fair and reasonable, “we think broadcasters should get paid.”

Greg Ireland, research director, multiscreen video, at IDC, said he sees promise in the service.

“While over-the-air broadcast makes great sense as a supplement to various OTT services, OTA isn’t conveniently multiscreen so ultimately broadcasters will want to look at OTT distribution options in order to reach consumers on tablets, PCs, smartphones and other streaming devices,” he told B&C. “It is into this dynamic that Telletopia steps, arguably with a strong value proposition – offer reach beyond OTA and traditional pay TV distribution and reach beyond the TV itself.”

Ireland said he will be an interested observer if the company gets its FCC redefinition and starts trying to strike retrans deals.

“While Telletopia maintains that it is willing to work with broadcasters on retrans,” Ireland said, “it will be interesting to see where price points fall and whether consumer appetite for services at those price points is strong enough (and if margins are strong enough) to support continued rollout of the new service."