Communications industry update: Streaming consolidation is underway

The deal linking Discovery and WarnerMedia has been completed (not without hiccups). This is going to mean big changes to the content you stream on your devices.

It’s going to be challenging for leadership to put together two very different companies with histories of producing very different content. WarnerMedia-owned HBO has been the home of lavishly produced, critically acclaimed scripted dramas (think “Mare of Eastown,” “Succession,” “Band of Brothers,” and “The Wire”) and comedies (like “Veep” and “The Larry Sanders Show”). Discovery has had lower-budget pop culture hits like the “Real Housewives” series, the “90 Day Fiancé” series, “Bizarre Foods with Andrew Zimmern,” Guy Fieri’s vehicle “Diners, Drive-ins and Dives,” and Anthony Bourdain’s “No Reservations.”

But if they can pull it off, the new Warner Bros. Discovery could become the one streaming app to rule them all. 

Alongside these flagships consolidating, we also will see an increase of niche platforms aimed at specialized audiences: bass fishing, for example. 

As all of this competition for our eyeballs and dollars evolves, we’ll continue to see cities and states search for new ways to recoup the revenues they’ve lost as so many viewers have cut the cable and switched to streaming. Expect legal battles to continue through the rest of this year, with emphasis on creative use of existing laws and statutes that used to govern cable services as governments attempt to extend them to streaming services.

One very interesting area to watch will be where the lines get drawn between educational, fitness, and entertainment content — which all have roots in very different tax universes.

If I stream a recorded video of my favorite fitness instructor leading a Pilates class, is that the same as having a live one-on-one session over Zoom with the same instructor? Common sense suggests that it may not be, and that the live session may fall under laws governing taxation of personal services rather than taxation of pay TV. But tax authorities are still struggling to draw these lines. 

Likewise, what if I stream “The Great Courses”? That seems educational, but maybe not as educational as streaming the actual lectures some academics are making available through various platforms. Does a lecturer need to offer college or continuing professional education credits to make it a true educational experience (and thus, more likely to be tax exempt)?

And what if I binge-watch eight episodes of “Ancient Aliens”? Does that count as educational programming too? How and where will tax law make a value judgment on what’s education and what’s entertainment?

Six months ago, we predicted we’d see big changes driven by API (or computer-to-computer) communications. 

We were right. The sector’s expanding rapidly and that growth’s likely to continue.

API communications are everywhere. When you get a text reminding you about your dentist appointment on Friday or that your Uber Eats driver is five minutes away with your dinner, that’s almost certainly an API-based communication: an automated text message. If you check your phone, you may find you’ve got more text messages from API apps than from actual humans.

The rapid proliferation of these services is drawing noncommunications companies into an area that seems very much like communications. We’ll need the Federal Communications Commission (FCC) to set rules — and taxes — for these services. 

But the FCC is stuck until Congress acts.

Congress has yet to approve President Biden’s pick for a fifth member of the FCC governing board. Without a majority on the board — which right now is split with two Republicans and two Democrats — the FCC hasn’t been able to move decisively on any major issues, like overhauling the Federal Universal Service Fund (FUSF). 

FUSF reform seems long overdue. The law — which is a tax on local phone services intended to provide money to ensure all Americans have access to communications services — was passed in 1996, back when almost all of us were on copper-wire phone services. 

Fast-forward a quarter-century, and the need now is for funds to provide high-speed internet to underserved communities: isolated rural towns or impoverished urban pockets that  private-sector providers haven't connected because they haven’t been profitable. But FUSF tax revenues remained tied to the shrinking number of users with copper-wire local phone service, which are now paying tax rates as high as 35% to keep the FUSF flush.

My hunch is that this will all get resolved as part of a larger deal that settles the net neutrality debate, but neither can happen without a full FCC to lead the charge, and for that, the White House and Congress need to agree on a nominee.

All these issues have ramifications for what’s already a complex network of communications taxes. You can read more about how automation can take some of the pain out of communications tax compliance.