TV

FCC Meddles in Cable-Box Market. Is Streaming TV Next?

Can the FCC bring "choice" and "competition" to your TV? Don't count on it.

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Jorge Jorquera/Flickr

This February, the Federal Communications Commission (FCC) announced a plan to intervene in the cable set-top box (STB) market with its "Unlock The Box" proposal. The telecommunications regulatory body sings a libertarian tune in press releases about the program, extolling the virtues of "creating choice and innovation" and bringing "competitive solutions" to that dusty old cable box in your living room. But this is rather misleading. We are already witnessing a renaissance of competition and innovation in media distribution without the FCC's help. Reading between the lines, it appears the FCC is not primarily interested in STBs at all. Rather, the agency may be building a foundation to exert more control over online content services such as Netflix.

The lowly set top box has few fans. For years, many of us have begrudgingly forked over STB rental fees to our cable providers just to be treated to slow, unintuitive software and poor user experience. But because it was the only option we had, we grumbled and took it. That is, until the rise of online content provides such as Chromecast, Hulu, and Apple TV, provided an alternative. These newcomers won over consumers with their thoughtful user interfaces, ease of use, and lack of annoying rental fees. 

It's not hard to understand why, after taking a quick comparison of their futuristic Roku device and their bulky set top box, some viewers decided to cut cable altogether and stick with the stick. Since 2002, cable TV operators lost around 15 million subscribers as tech-savvy consumers sought out more cutting-edge technologies. Thus, these technologies improved. This is the beauty of creative destruction. Cable companies were eventually forced to adapt and improve, too. For example, Comcast recently announced a new plan for its Xfinity TV service that will be compatible with streaming devices like Roku instead of an old-school set top box.

Contra the FCC, the popularity of streaming devices and services suggests that consumer choice and competition are already alive and well in the TV market. Notably, these market innovators are subject to virtually none of the Byzantine maze of regulations imposed upon satellite and cable distributors.

But there's evidence that the FCC aims to change this. 

Consider the proposed "Unlock the Box" rule. A notice about it states that "multichannel video programming distributors"—MVPDs in the FCC's unwieldy parlance, a category that includes not just cable but also satellite TV and "Internet Protocol Television" (IPTV)—will be required to give third parties, including competitors in less-regulated industries, free access to "information streams" about device programming information, access controls, and content delivery.

In other words, the FCC will act as a free broker of trade secrets and even licensed media content among competing content distributors, including STB providers and video apps such as Netflix and Apple.

While the final rules are still taking shape, my Mercatus Center colleague Brent Skorup anticipates that "the FCC will require all MVPDs to transmit their TV content and programming information, which they've spent billions of dollars purchasing (and sometimes originating), to any video app maker or STB device maker that complies with whatever vague standards the FCC tells the industry to develop." It's a bizarre conception of "promoting competition," but the idea is that the FCC must force standardized content sharing so third parties can gain market-share over MVPD-provided STBs.

This isn't the first time that the FCC has attempted to stimulate competition in the STB market. In 1998, the FCC promulgated new rules dictating how cable companies could design STBs. In particular, this "integration ban" prevented cable providers from providing devices that regulated content access and certain security functions. The industry managed to comply with this odd rule by developing an extra device called a "CableCARD" that could be inserted in televisions to separately serve the same function. One industry group calculates that this initiative has needlessly cost consumers $1 billion since 2007.

After one stubborn decade, the FCC finally admitted that the rule "raises the cost of set-top boxes for cable operators," which stifled opportunities to transition to all-digital systems. Meanwhile, the rule did not produce any noticeable improvement in competition. The integration ban was quietly repealed in 2014.

In spite of such FCC bungling, consumers today enjoy a wide range of content distribution options to fit their taste and budget. This new FCC move to direct the future of the STB marketplace is therefore curiously timed. If the market is already well on its way toward overcoming the problem of STB competition without an intervention, why should the FCC move to intervene?

As Skorup has documented, the FCC has a long and colorful history of fashioning new rationales for increasing its authority with each new wave of technological advancement. Since its genesis as the Federal Radio Commission in 1927, the body has grown from a targeted organ to license radio broadcasts into a Soviet-style planning board with expansive powers over most major telecommunications operations in the United States.

The FCC has consistently re-interpreted its charge to operate for "the public interest, convenience, or necessity" to secure considerable control of telephone, cable, broadcast, and satellite operations over the decades. Its recent net neutrality rule further expands its reach into online operations as well. And the STB rule may end up "unlocking" more than one box: It could provide an initial pathway for the FCC to regulate the booming ecosystem of TV apps and Internet-delivered TV.

It is easy to see how "unlocking the box" would benefit certain media distributors in Silicon Valley over traditional cable providers. Internet-based companies would now have access to a key revenue generator of traditional cable companies without incurring most of their costs. Companies like, say, Google and Apple could therefore make money by selling advertisements for media content for which they did not procure costly licenses to broadcast. No wonder the cable companies are crying foul.

Legacy television providers are not without their share of anti-competitive sins, having enjoyed monopoly rights and regulatory protections at various points in the past. But the prospect of intentional regulatory sabotage of an entire industry should concern even the most ideologically-motivated cord cutter.

Even companies who would ostensibly benefit from this action are sounding the alarm on potential FCC malfeasance. The founder and CEO of Roku took to the Wall Street Journal to explain how the Unlock th Box plan could ultimately backfire in the form of increased costs for consumers. Consumers and providers alike would be best served by a policy environment that allows real competition and innovation—not government-directed industrial colonization.  

Ironically, the companies that initially benefit from this new FCC focus may soon find themselves within the regulatory crosshairs. How long will it be until the FCC looks to regulate online video platforms and applications like the rest of its portfolio? If the agency's history is any guide, this outcome is unfortunately quite likely. 

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  3. Just the fact that they’re still calling them set top boxes shows how out of touch they are.

    When was the last time anybody sat anything other than one of those Nintendo Wii sensor is on top of the television?

    1. I have maybe half an inch of level surface on top of my screen.

      I occassionally find it’s holding dust I didn’t know I’d put there…

      1. I still have a floor-model CRT from the mid-80’s with a VHS/DVD combo on it, but this is literally the only such setup I personally know of anyone using.

        Even my grandmother has a flat panel of some sort.

        That said, it’s only because I have been using a computer as a primary/ersatz tv for the last 15 years and could never justify an upgrade to the old tube.

        1. We used to have the smaller cousin to that TV… but then the tube turned green and it became impossible to watch anything. It just sort of crept in from the bottom corner and we couldn’t fix it.

        2. could never justify an upgrade to the old tube.

          Power savings. My panel uses something like 72watts, compared to my last CRT at something like 200. If your TV is on all the time like mine is….

    2. That is simply what they’re called. It’s not abnormal for technology to leave etymology behind (you still dial numbers and hang up on calls on your smartphone, after all), and irrelevant to the discussion at hand.

      That and “customer-premises equipment”, but that is a much larger category, also including, e.g., cable modems.

    3. Set-tops have become set-bottoms. Set-powerbottoms coming this summer.

  4. If the market is already well on its way toward overcoming the problem of STB competition without an intervention, why should the FCC move to intervene?

    How else will the FCC get to take credit for fixing the problem? The fact that their intervention will likely delay the solution is irrelevant. They will have done something, thus justifying their existence.

  5. “Contra the FCC, the popularity of streaming devices and services suggests that consumer choice and competition are already alive and well in the TV market.”

    Haha, yeah….when you get at most 2 ISPs that can offer you cable, and at sky high rates. If you think there is any competition in the joint ISP/cable space, you’re sadly mistaken.

    So either get on board with the govt breaking up the ISPs or the FCC allowing last mile unbundling. You can either be coddled by the govt or let it be free market. But the ISP cartel is neither.

    1. ISP cartel?

      The options around here are government-mandated monopolies. That’s hardly a cartel.

    2. Haha, yeah….when you get at most 2 ISPs that can offer you cable, and at sky high rates. If you think there is any competition in the joint ISP/cable space, you’re sadly mistaken.

      The infrastructure for broadband data is very costly. If you’ve got a better way to deliver it, please enter the market and push these legacy companies out of business. “Sky high rates”. What are you comparing this to? Time Warner Cable’s profit margin averages around 10%, for example. There isn’t a lot of room to cut prices.

      So either get on board with the govt breaking up the ISPs or the FCC allowing last mile unbundling.

      What does last mile unbundling have to do with breaking a cartel? They still own the infrastructure and you still have to buy a data plan from them. Again, they aren’t a cartel because there’s no evidence they collude on prices. This new FCC rule is going to backfire exactly as the Roku CEO predicts.

      1. Again, they aren’t a cartel because there’s no evidence they collude on prices.

        Further, even if what we’ve got now is a cartel, the hands of the FCC don’t magically make it not a cartel (see War On Drugs). It just guarantees that the people doing the colluding answer to the taxpayers (maybe) instead of the customers.

    3. I would like to see some realistic estimate of what they price “should be” to back up your claim of “sky high” rates. No cherry-picking places with 20,000+ people per square mile, either. Yes, Internet is cheap in Tokyo. How much is it in Sapporo?

    4. I like how you conflate the TV market with the cable market. Very disingenuous.

      1. Not just TV with cable, but TV with cable and internet.

        He’s inches away from complaining that all the newfangled motor conveyances have caused the buggy whip cartel jack prices up to the point where taking his buggy out is too damned expensive.

    5. Cable companies are constantly trying to entice people back from satellite or IP based products.
      At the same time they are trying to keep their existing customers from going to a competitor.

      The competition on video service has never been hotter.

      Also, adjusted for inflation, cable internet prices are within 1-2% of the price they were 15 years ago, but the service itself is far superior. Higher reliability (thank digital video conversion), and 20-50 times the throughput (thanks again digital video)

    6. Does this idiot poster think STB’s and ISP’s are the same thing?

      Unless you’re talking about satellite ISP’s – which ain’t cheap – all the other ISP’s have to petition local governments to be allowed to operate and get taxed) which accounts for the high costs.

      1. Look, they aren’t being forced to ask for the right kinds of permission. They have to be made to jump through more hoops, which will totally benefit the consumer. Just you wait.

    7. Haha, yeah….when you get at most 2 ISPs that can offer you cable, and at sky high rates. If you think there is any competition in the joint ISP/cable space, you’re sadly mistaken.

      Having lived both in the US and abroad, in numerous cities, I can tell you that US Internet is pretty competitive.

      So either get on board with the govt breaking up the ISPs or the FCC allowing last mile unbundling. You can either be coddled by the govt or let it be free market. But the ISP cartel is neither.

      Limited availability of choice among last mile providers is largely due to local government restrictions; I’m not sure there is much Congress or the FCC can do. But even that matters less and less, with fast commercial wireless, both via cellular networks and other kinds of wireless providers.

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  8. Just like any other government bureaucracy, the FCC must occasionally do something to try to justify its continued existence, not to mention gradually increasing budget allocations.

    Perish the thought that any government body, decades after being rendered completely superfluous, could actually ever be retired. If they had ever come up with a Federal Stagecoaches Agency back in the day, guaranteed that it would still be operational, overspending its budget, and looking to hire more employees even today.

    1. While I don’t think this function needs to be provided by the government, the FCC isn’t functionally obsolete (yet). The regulation of the EM spectrum is still a “vital” function that it performs. They don’t need to justify their continued existence; that is pretty much indisputable politically. They “need” to justify ever larger budgets.

      1. Somewhere, my English teacher sheds a single tear.

      2. “The regulation of the EM spectrum is still a “vital” function that it performs.”

        Doesn’t the electromagnetic spectrum run from heat waves all the way to gamma radiation?
        Crap! We are in even more trouble than I thought!

        1. Aren’t heat waves supposed to get longer and more intense as the globe warms? If the FCC and the IPCC join forces, we really are screwed.

        2. the amount of bandwidth available in a signal depends on the wavelength.

          spectrum: radio, microwave, terahertz, infrared, visible, ultraviolet, x/gamma

          Analog cable TV consisted of radio frequency (megahertz) signals. A channel takes a couple MHz of bandwidth to fit a picture, so the FM range of 97-108 MHz could hold like two analog TV channels instead of all those audio stations. The UHF band (470 – 890MHz) fits like 70 channels. A Microwave transmitter could put even more of those channels in a few GHz. And so on. Beyond ultraviolet, the light starts ionizing matter and becomes less useful for information purposes beyond astronomy.

      3. The regulation of the EM spectrum is still a “vital” function that it performs.

        Mostly, its function seems to be to destroy any viable market and kill innovation.

        Reserve half the spectrum in each band for unrestricted use, a tiny fraction for military use, and make the other half tradeable private property (with private enforcement backed by civil lawsuits), and I guarantee you that we’ll get much more efficient use and much more wireless innovation than we have, at no cost to tax payers.

  9. That is, until the rise of online content provides such as Chromecast, Hulu, and Apple TV, provided an alternative.

    Hulu is an online content provider. Chromecast and Apple TV are hardware devices, i.e., Roku competitors (although Apple does have its own online video/music provider, iTunes, as well, of course).

    1. And Hulu’s user interface is clunky, like those of Netflix and Amazon. My cable set-top box is intuitive.

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  12. Obama claims there has been no innovation in set top boxes. Or so I’ve heard — I turned the channel like I always do when he appears, and watched one of 40 programs I had recorded on my set top box/DVR with 4 recording channels and 100 hours of storage of high definition video.

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