This ruling is not only a setback for the broadcast television networks that lobbied the FCC most vociferously for the broadcast flag; it may also be a setback for the growth of high-definition digital TV (HDTV) services in the United States as part of the FCC-mandated rollout of digital TV.  Although the FCC is requiring broadcasters to move to offering exclusively digital TV services by the end of 2006, broadcasters may use digital signals for purposes other than to transmit HDTV material.

It's a variation of the same old story: the consumer electronics industry attempts to introduce a new type of gadget, from which it can garner high profit margins (at least temporarily), and the media industry balks at the gadget because it does not provide enough benefit to media companies and/or does not incorporate sufficient copyright protection.  In this case, the story is a bit different, because the transition to digital television was occasioned as much by the FCC's desire to free up analog television broadcast spectrum as it was by the consumer electronics industry. 

The major broadcast TV networks led the charge to mandate copy protection in digital TV receivers -- with their movie-studio corporate siblings standing close behind -- out of fear that programs currently offered on free analog television could be subject to digital piracy when offered on digital HDTV. (The TV networks also distribute their programming over cable and satellite, but those services already contain significant copy protection features.)

Advocacy groups such as Public Knowledge, Electronic Frontier Foundation (EFF), Consumers Union, and the American Library Association successfully argued against the broadcast flag, saying (among other things) that it enabled digital broadcasters to restrict usage of content that should have been unregulated because it is in the public domain or covered by fair use laws (such as news content).  Yet the argument that rang true in federal court was simply that the FCC had overstepped its authority: nothing in its charter or history of actions was comparable to this type of technology regulation.

We argued last November that the broadcast flag, for all its troubling ramifications of over-regulating technology, would at least have brought a flavor of financial equity to the distribution of digital high-definition programming.  By requiring all makers of digital television receivers to incorporate broadcast flag detection technology, the FCC would have effectively imposed a flat tax on digital television receivers (in addition to the even higher effective tax that the FCC already imposed with the mandated transition to digital). Without the broadcast flag, the broadcast networks would presumably carry out their threat to withhold their programming from digital HDTV and limit its digital distribution to cable and satellite -- thereby making it available only to an elite viewership that pays a monthly subscription fee. 

Yet the transmission of network TV programming over digital HDTV is a classic "chicken and egg" proposition.  On the one hand, if digital HDTV grows quickly, the networks will be shutting themselves out of opportunities to reach audiences and garner ad revenue if they withhold their programming.  But on the other hand, the lack of major-network TV programming over digital HDTV could mean that digital HDTV simply never takes off.  Of course -- and to the consternation of consumer electronics makers -- the TV networks are betting on the latter.  And there is good reason to suppose that they are correct: remember that in the music industry, paid online music download services existed before iTunes but did not become popular until they got licenses to distribute significant varieties of music from the major labels. 

The media conglomerates that own television networks will now go to Congress for help; already the MPAA has begun circulating draft legislation that would explicitly give the FCC the authority to regulate digital television with regard to piracy.   Meanwhile, the EFF has picked up on a "flat tax" theme similar to ours above in suggesting that members of Congress might not want to be held responsible for imposing one on their constituents.  It remains to be seen whether members of Congress weigh such considerations above those of media piracy.

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