On February 18, the FCC opened a rulemaking process to deregulate the cable set top box. Currently, cable, satellite and telco multi-system operators (MSOs) require subscribers to use only boxes they furnish. These are generally rented to subscribers at an average cost per household of $231 per year. The proposed regulations would permit consumers to purchase boxes on their own, once uniform technical standards have been set. As FCC Commissioner Jessica Rosenworcel said in justifying the move: “Costs are too high, innovation is slow and competition is too limited.” Deep-pocketed interest groups have weighed in on both sides of the proposed regulations, beginning what promises to be a hard fought process.
What are some of the implications of this rule, were it to pass?
First and most obvious, there is a lot of money at stake. Those box rental fees add up to about $20 billion a year. A substantial amount of that revenue would move from the pockets of MSOs to companies like Google and TiVo (which, not surprisingly, have come out in support of the regulations). It will not be easy for the MSOs to make up that revenue by raising subscriber fees; consumer discontent at what are perceived to be excessive fees has resulted in increased pressure for channels to be offered on an a la carte basis, an issue I will discuss in a later post. A further limit on the MSOs’ ability to hike prices is the increasing availability of content directly over the internet, as reflected in growing growing rates of cord-cutting.
It’s also an open question just what benefit open-source boxes will provide. If internet channels such as Netflix, Amazon and YouTube are delivered seamlessly with television channels through the same set top box, we could be one step closer to the long-awaited digital convergence. This move could, however, become irrelevant as content of all kinds, including that offered by MSOs, is increasingly available on mobile apps. As noted by Michael Powell, the president and CEO of the National Cable Television Association, “It would take four, five, six, seven years to fully implement, even by their own admission, and by that time, who knows what the video marketplace will look like, or whether this is a solution in search of a problem.” Another concern raised by the MSOs is that independent device makers will break apart the channel bundles to which they’ve agreed with program providers, putting them potentially in breach of their carriage contracts.
One intriguing consequence of open-source boxes could be to mitigate the vexing problem of television viewer data. As discussed in my earlier post, the data available to television networks is uncertain and incomplete compared to the vast pool of information that online content providers can furnish to advertisers. One reason for this is the very fact that each MSO operates in a walled garden of its own set top boxes. It is certainly possible that a nationwide network of internet-connected boxes were in place, all operating on a consistent set of standards, could mine data on a level not previously possible.
These issues are sure to be debated by all parties as the rulemaking process plays out over the next several months, but if it passes, the rule’s real impact won’t be clear for years.