So Set Top Box Competition Victimizes Incumbents, Harms Minorities, Enriches Google and Increases the Number of Set Top Boxes Consumers Have to Use??????

            Opponents to cable/satellite set top box competition have come up with creative and outlandish rationales for maintaining the status quo.  I didn’t see a claim that competition will kill jobs, but I have seen remarkable and irresponsible predictions of scenarios impossible to occur.

            Let’s consider three of the most outrageous claims.

 
            1)         Google hegemony

            AT&T, Comcast and the major trade association for the cable industry (among others) have strongly implied that big, bad Google is behind the FCC’s initiative and of course this means that the FCC has catered to the company’s ever growing needs for free content which it can offer as its own and monetize through advertising.  See, e.g., http://www.attpublicpolicy.com/privacy/exposing-some-myths-aboutgoogles-set-top-box-proposal/. If this is true, what took Google so long to achieve success?

            This assertion gains traction only for people who have never heard of the Aereo Supreme Court case and lack the time or inclination to read the FCC’s Notice of Inquiry; available at: https://www.fcc.gov/document/fcc-proposes-unlock-box.

First, the FCC document constitutes a request for comments on a set of initiatives and conclusions the FCC tentatively proposes.  There are no specific rules and regulations forthcoming, but that does not prevent incumbent stakeholders from offering a parade of horribles.

            The FCC clearly states that it has no intention to interfere with existing and future commercial arrangements relating to channel placement, advertising, intellectual property law, etc.  The Commission also notes that the much ignored CableCard option has had no impact on such arrangements.  I saw nothing in the NOI that somehow empowers new set top box competitors to preempt such commercial arrangements, to steal programming and to eviscerate existing commercials and insert their own.

            Bear in mind that set top box manufacturers do not qualify for a compulsory copyright license conferred to multichannel video programming distributors (“MVPDs”), like cable and DBS.  The Aereo case precedent sets a high standard for a venture to qualify as an MVPD: using thumb-sized antennas did not work, nor would a set top box.

            The FCC simply proposes that cable and satellite content distributors come up with one open interface specification that will enable set top box manufacturing by others lacking a direct commercial relationship with an incumbent.  An open interface does not suddenly render video content vulnerable to piracy, nor does it authorize the competitive set top box manufacturer to “repurpose” content by asserting ownership and complete freedom to replace existing advertising.

The Commission notes that existing CableCards don’t impact the content stream, nor do they provide set top box manufacturers the opportunity to subvert copyright and contract law.  Future competitive set top boxes will not confer such power to Google, consumers or anyone else.  Plain and simple.

        2)         Proliferation of set top boxes

             Ignoring the remarkable rents they have captured, year after year, incumbents brazenly imply that the FCC will increase consumers’ costs given the need for duplicate set top boxes.  So with all the engineering expertise in the world, there is no possible way for a single set top box to perform all necessary functions?  This assertion does not pass the smell test, much like the inability of the cable industry to complete its work on technical specifications for television sets that can talk to a cable headend and receive content from it.  The cable industry never finalized “true twoway,” because it did not want to do so.  If FCC Commissioner Pai wants an ecosystem where consumers do not have to use a set top box, he can blame the cable industry for deliberately stifling such an initiative.  See https://apps.fcc.gov/edocs_public/attachmatch/FCC-16-18A5.docx.

            Incumbents do not want set top box competition, or a return to “cable ready” televisions requiring no set top box, because the rental revenues are massively lucrative.

             3) Set top box competition hurts minorities

 

            Incumbents attempt to bolster their arguments with a clever and cynical strategy: claiming that set top box competition will harm minorities by making it easier to ignore minority programming.  So a more sophisticated search process harms minorities even though obviously it represents a more sophisticated set top box?

            Are we to infer that it’s better to have expensive and unrefined set top boxes, instead of more powerful and customizable devices that might reduce the serendipity of channel-surfing?

            What a remarkable exploitation of minorities!

Set Top Box Competition: What’s Not to Like?

            Only in this pay to play, partisan world could two out of three FCC Commissioners rise in opposition to an overdue initiative to save consumers billions of dollars.  Cable and DBS companies will join the opponents along with sponsored researchers who will trot out all sorts of bogus rationales.

            I’ll start by using two words to dismiss what appears to be the first gambit rationalizing a monopoly set top box marketplace.  The narrative goes something like this: “Why fix something that isn’t broken?  Just look at those so-called Tivo boxes.  Have you seen their prices?

            My response in two words: umbrella pricing.  Tivo charges what the market will bear, and in an artificially uncompetitive market it can use the outrageous set top box rental box rates to establish an equally outrageous sale price.

            If the FCC removes the government-sanctioned near monopoly, then cable, DBS and set top box manufacturers simply will have to sharpen their pencils and offer consumers a far better value proposition.

            Competition opponents will bolster their arguments for maintenance of the status quo by framing the FCC initiative as overbearing and unnecessary regulation.  How is it not deregulation when government eliminate previous rules that fostered a monopoly making it possible for above market set top rental and sale prices?

            This long overdue deregulatory effort reminds me of the adage about the stock market where bulls make money, and bears make money, but pigs get slaughtered.  Premium television companies have gouged consumers for years on a device that has become bundled with service.  Technological initiatives, which made it possible to offer more channels and compress more signals, also eliminated the ability of consumers to buy “cable ready” television sets useable without a set top box.  So the box has become a necessary device and pay TV operators get the privilege of charging a monopoly price, because they have no incentive to achieve progress on an open interface for competitive boxes that can provide both upstream navigation functions and downstream piracy prevention. 

            Cable operators have a lame, hassle-filled option available that they make every effort to obscure: the cable card.  Join the crowd if you have never heard of this option, one that typically requires an appointment with the “Cable Guy” to plug the card in, at considerable expense for the premises visit.

            The lack of set top box competition runs counter to a 60 year Carterfone precedent favoring the right of consumers to attach technically compatible devices like telephones, cable modems and wireless routers.  Incumbents do not want a free consumer option as they lust over the rental fees they cannot charge. 

            Consumers should think of an ecosystem where they have to pay a monthly rate to carriers for the privilege of attaching a modem, router and telephone.  We do not standard for such extortion, but even now inertia and ignorance of the ripoff allows cable operators to charge $10 a month for a cable modem that costs less than $50.  Bear in mind that unlike wireless handsets, consumers use the same cable modems and wireless routers for years. 

            Incumbents also will try to characterize the set top box as so complex in functionality that there could not possibly be a common interface usable by companies like Roku, Apple, Google and any television set manufacturer.  Nonsense.  Of course cable operators have never gotten around to finding a way for television sets to have “true two way” access to security and program guides, but their nonfeasance does not make the task undoable.

            In a nutshell: set top box competition does what I would have expected Republican regulators to applaud--competition unfettered by regulations that created a fake monopoly that has extracted billions from consumers.

Latest Publications: Conflict in the Network of Networks: How Internet Service Providers Have Shifted From Partners to Adversaries

The Hastings Communications and Entertainment Law Journal (Volume 38, No. 1 pp. 63-90) has just published an article of mine that examines the peering process.  I show that peering "partners" no longer have a common and shared mission.  Instead the parties become opponents on compensation and interconnection arrangements as occurred between Netflix and Comcast.

The article reports on the FCC's concerns about peering and the prospect for government oversight established in the 2015 Open Internet Order.  I suggest that the FCC refrain from intervening unless and until a stakeholder files a formal complaint based on the assertion that the parties cannot achieve a a commercially negotiated arrangement.