The FCC’s War to Liberate Your Cable Box, Brian Blade, Wired Magazine

[This is another example of small bore thinking by the FCC, which will lead to  many years of lawsuits. By the time the legal issues are settled, the set top box will be as antiquated as narrow band itself. A look at the complainants, Google, Amazon, Netflix, and others, says it all. It's a battle of giants each of whom have their own anti-trust issues.  “Our goal shouldn’t be to unlock the box,” says Pai. “It should be to eliminate the box.”]

The FCC’s War to Liberate Your Cable Box

by Brian Blade, Wired Magazine

You likely don’t think about your set-top box much, any more than you might think about your gall bladder. You live with the one you were assigned. The decision of which model you’d be stuck with was made long before your service provider arrived at your house to hook it up to your TV.

Thursday, the FCC took its first significant step toward changing the set-top box dynamic, potentially opening up a market that’s been stifled by the near-absence of competition.

There’s still a long ways to go before the changes the FCC voted on, which would better enable consumers to get their set-top box fix from people other than Comcast and TWC, have any actual impact. Now comes a lengthy comment period, where supporters and dissenters can voice their opinions, revisions based on those comments, and a final vote after that.

It’s inarguable that the television industry is changing. What the FCC’s actions will ultimately decide is not just how quickly, but in what direction.

Battle Lines

To understand the debate, it’s helpful to understand the device that centers it. The set-top box is a mainstay of the American cable subscriber’s living room, the faucet that makes those cable providers more than just dumb pipes. The premise that underlies the FCC’s actions is that they are bad, because they’re under no pressure to be good.

Even if you’re not already nodding your head in recognition of the slow, failure-prone box on your media console, there’s plenty of evidence to bear this thesis out. In Thursday’s hearing, FCC commissioner Mignon Clyburn noted that 99 percent of paid TV customers rent a set-top box from their cable company, and that they pay over $200 per year in rental fees to do so. A report last fall from Senators Ed Markey and Richard Blumenthal estimated that these fees ad up to about $19.5 billion in revenue for pay TV companies annually.

It's inarguable that the television industry is changing. What the FCC's actions will ultimately decide is not just how quickly, but in what direction.

“Each consumer has invested thousands of dollars into the box without having any ownership,” says Chip Pickering, CEO of Incompas, a trade association for “competitive networks” backed by Google, Amazon, Netflix, and others. “That’s a monopoly business model.”

The distribution of set-top boxes, then, is essentially a monopoly within an already monopolistic industry. The FCC, working off of a 20-year-old Congressional mandate that customers should be able to choose their equipment when they sign up for paid television, wants to foment an environment in which consumers pick which set-top box they want, whether it’s from their cable provider, or Google, or some unforeseen hero of basic cable delivery innovation.

If you’re a cable customer, it’s hard to find anything objectionable there. More competition means more choice, and more choice means you’re not left sticking HDMI cables into the bulky plastic trash heap your ISP issued. If you’re a cable industry executive, though, the needle scratched deep into the record the minute the word “Google” entered the conversation.

“[Google] is unhappy with the choice by consumers to consume more and more content through apps, into which they have very little visibility” says Paul Glist, a lawyer and privacy expert for the National Cable & Telecommunications Association. “This is a gift to Google to give them access to the information that is moving away from them in the market place.”

If Google manufactures a set-top box, the argument goes, it could potentially insert its own ads into programming, taking money away from content creators. It would also, argues Rosa Mendoza, Executive Director of the Hispanic Technology & Telecommunications Partnership, disproportionately impact smaller networks with more targeted audiences who might get left out of a channel lineup altogether.

“They’re asking us to trust Google?” she says. “All of us know about their diversity record. The only people that are going to benefit from this are Silicon Valley companies.”

Oodles of Googles

Google has become a popular bogeyman for entrenched cable interests for good reason. The company has actively supported set-top box disruption, both through its involvement with Incompas and through direct contact with the FCC. AT&T went so far as to call it “Google’s Set-Top Box Proposal” in a corporate blog post opposing the rules.

The focus on Google, though, belies two important truths. First, the nature of the rules themselves.

“There is no multibillion-dollar reengineering of cable systems, as we have heard, that is required,” said FCC Chairman Tom Wheeler at Thursday’s hearing. “There is nothing in here that allows third parties to disaggregate cable content, sell advertising around it… It takes the same system that goes to the cable box today, with the same structure, and moves it through a different box requiring the same structures.”

The NCTA’s response to that point is, essentially, that while there’s nothing explicitly allowing Google to sell ads against someone else’s programming, there’s nothing to prevent them them from doing it, either. It’s a fun rhetorical tactic, because it forces Google to try to prove a negative. It’s also, Pickering says, a red herring.

“Nothing in the proposal changes linear TV or traditional TV’s advertising. Their programming, their advertising, nothing that they do today will be changed,” says Pickering. What could change is that the traditional programming would be served up alongside Internet programming (say, YouTube) in which Google does have a vested advertising interest.

The second and more important truth: While we don’t know what competition under the new rules will look like, it seems unlikely that Google would be the only new entrant. Besides which, it’s not like the cable industry demonstrably has our best interests in mind.

Data is really the new area of competition. If the pay-TV providers are looking at competition long-term in the future, that's the main concern. Brett Sappington, Director of Research at Parks Associates

“While the cost of other technologies have fallen as competition increased, the cost of the set top box has risen by more than three times the rate of inflation for American paid-TV subscribers over that same period,” said the FCC’s Clyburn, who also thinks disrupting the cable box could be a boon, not a hindrance, to specialized programmers.

“What I hope will occur is creators of content who have been unable to get [traditional cable distribution] may soon have a way to reach consumers directly, similar to the way Internet searches provide consumers with information from various sources,” says Clyburn. “That’s something you cannot do with today’s set top boxes.”

You surely would with Google, though. Or with Apple, or Amazon, or some company with great ideas about how to deliver cable that doesn’t yet exist, because it has no reason to, because the set-top box space today is almost entirely invite-only.

Ultimately, the threat from Google is less advertising than existential. “I think that they’re mostly concerned about the philosophy of Google,” says Brett Sappington, Director of Research at Parks Associates. “Data is really the new area of competition… I think if the pay-TV providers are looking at competition long-term in the future, that’s the main concern. Who has access to that data, how do they use that data. If it’s an open-network, open-device world, how do Comcast and Verizon and Dish Network ultimately compete with Google and Amazon?”

Winners and Losers

It’s going to be a drawn-out fight. Pickering’s best-case scenario for getting something ultimately passed is end of summer. Even then, it’s not clear what the fallout would be, or how long it would take to see real change in the marketplace.

In fact, no matter what happens, we may not see much change at all, says Dan Rayburn, streaming expert and principal analyst at Frost & Sullivan. Or maybe not the kind consumers have in mind.

“I think on paper everyone sounds like this is so easy, but in reality that’s not how it would work,” says Rayburn. “How good is the software? What’s the support? You buy a box but the TV signal doesn’t work, you can’t call the cable company to fix it. Do you call the hardware manufacturer?”

Rayburn also points out that Americans currently do have the option to go around their cable company’s set-top box. He does it himself, using Tivo and a CableCard to access his ISP’s content pipeline.

He’s one of a very small minority, though. That’s partly because of the CableCard set-up, which is a technological annoyance beyond many people’s willingness to endure, and the up-front price of Tivo, which can be intimidating. Might as well go with the thousand monthly cuts buried in your labyrinthine cable bill than fork out $300 for a Tivo Bolt and another $600 for lifetime service. Tivo might save you money in the long run, but the run is very, very long.

It’s likely those prices won’t stay that high forever. “If Tivo can more effectively compete, you can assume that their devices will decline in price and increase in functionality,” says Pickering, who adds that a more open standard should help drive prices down across the industry, a natural byproduct of not just increased competition, but any competition at all.

That said, it’s not quite as clear cut a divide between device makers and cable companies as it might seem. Roku, for instance, did not join the push for the FCC rules, and has expressed some trepidation about them.

“In our view, the FCC should be cautious when establishing regulations that mandate the adoption of uniform technology standards for video distribution to the home,” says Roku spokesperson Tricia Mifsud. “Regulations could inadvertently create obstacles that stifle the rapid pace of innovation.” Roku, after all, can already act as a cable box of sorts; its boxes have been streaming live TWC feeds since 2013 in a supplemental capacity. As recently as last fall, TWC trialled letting Roku replace its cable boxes altogether.

The Roku situation speaks to the concern, shared by FCC commissioner Ajit Pai, that the committee’s focus should be on moving beyond the cable box, rather than codifying what one looks like. “Our goal shouldn’t be to unlock the box,” says Pai. “It should be to eliminate the box.”

It’s a potentially valid worry, though we won’t know how valid it is until the rules are made public. In the meantime, the other reason that Roku and other streaming players might be anxious has less to do with curbing innovation, and more with the ruling potentially allowing set-top boxes that also do all of your streaming for you.

“If everyone’s set top box was open, and open in a way that allowed you to get Netflix and all of your other over the top services, suddenly you have less of a need to get that content through a Roku or Amazon Fire TV streaming stick,” says Sappington.

By now, your scorecard might be a little messy. Cable providers will likely take a hit, some device manufacturers will get a boost, others will have to scramble, though it’s not clear to what extent in any case. Part of that confusion is that the specific rules aren’t public yet, so concerned parties are batting around likelihoods more than facts. The deeper cause is that any FCC ruling can only allow for competition, not create it.

Regardless of companies or consumers end up doing with that freedom, though, it’s rarely a mistake to give both more options, rather than fewer.