The Set Top Box Hustle

Alan Daley Writer, American Consumer Institute
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The ongoing scuffle over launching competitive set top boxes has the FCC, the White House, and wannabe program packagers, like Google, lined up against the cable, satellite and telephone companies, also known as multichannel video programming distributors or MVPDs. The superficial version of the scuffle is whether consumers should have a competitive alternative to paying an average of $89 yearly to rent a set top box. Of course, all things being equal, they should have a competitive choice. But what the FCC wants is not that simple, and in its zeal to score populist points it ignores what makes the industry viable.

The FCC and glib politicians are fixated on the $89 per year and they ignore important arrangements that make the industry viable. The FCC and some MVPDs want a search capability that traverses both TV programs and streaming videos, so that a consumer could find all occurrences of a particular program. To accomplish that search, MVPDs would be required to offer more than just program schedules. They would also need to reveal subscription arrangement information (by program or by channel) of each particular customer, and advertising that the MVPD presents along with the program schedule requests.

In addition, the MVPDs and programmers would also need assurance on the persistence of channel identification and intellectual property safeguards to prevent piracy. The current MVPD arrangement with program developers took many tortuous negotiations to reach resolution and now some believe the FCC proposal upends those agreements.

Under the FCC’s proposal, programmers now complain that they could lose control over their content and the advertising that supports it, as well as the advantage that comes from hard-won channel positions. The current arrangements cannot be summarily dismissed since tossing them out would create an avalanche of contract breaches.

Both MVPDs and programmers are dismayed by the FCC’s proposal since it fails to offer a competent analysis of the potential economic merits of the plan. Since the changes are likely to involve more than $100 million per year in revenues, why has there been no analysis of the economic impact? Where will the shortfall in revenues be made up? Perhaps the FCC has caught the White House’s executive privilege pretensions?

The MVPDs have not outright rejected the FCC’s call to discuss the issues. Some MVPDs have proposed an approach that third parties should be able to use pay-TV content in their search applications. Consistent with the negotiated licensing, consumers would still use the cable company interface, including advertising and channel line-up. Google, which had originally favored the FCC proposal, appears to give the MVPD proposal a tentative nod.

The MVPD proposal, unlike the FCC’s flawed proposal, will not require costly re-engineering of delivery networks or result in customers needing an additional government-approved box in their home.

News of a more advanced and pragmatic innovation comes from Comcast, which is developing apps for live TV, on-demand, channel listings and even cloud-based DVR services. The apps will be used by third-party partners such as Samsung smart TVs and ROKU streaming. Comcast had already released apps for both Android and iOS software – catering to most smartphone users.

Many consumers already have cable or telephone video services plus a device from ROKU, Google, Netgear or Apple that together present the cable channel lineup and streaming program lineup from video content bundlers like Netflix, Acorn, Amazon, HULU, CBS, HBO and many others. Consumers can already enjoy both streaming and conventional channel lineups. Search across both domains is in itself not as complex as the FCC imagines.

The FCC take a time out from handling set top box issues. Market solutions already happening without FCC intervention. The fact is that these issues are a lot more complex than politicians portray them. The FCC seems ready to do more damage than good.

Alan Daley writes for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.theamericanconsumer.org.