The Studios Look For An Island In The Set-Top Storm

The Motion Picture Association of America really, really doesn’t want the FCC to tear up the set-top box. So much so that its filing with the commission last week regarding the final report of the Downloadable Security Technical Advisory Committee (DSTAC) contained a thinly veiled threat of litigation should the FCC mandate disaggregation of pay-TV services into parts that can be reassembled at will, and on constitutional grounds no less.

“Mandating such a regime…could violate content owners’: 1) contracts with distributors regarding how their content may be presented, monetized, and accessed; 2)

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exclusive rights under section 106 of the Copyright Act to determine how their content is copied, distributed, and publicly performed; 3) First Amendment right against compelled speech; and 4) Fifth Amendment right against taking of property without due compensation,” the MPAA warned. “If third-parties wish to offer a subset of content, services, features, and functions rather than all the choices distributors offer customers in the way that they offer them, the appropriate course is through individualized negotiation, not regulatory fiat.”

What has the Hollywood trade group so exercised is a proposal by one faction within DSTAC, included in the final report, to require cable and satellite providers to unbundle their video feeds from other elements of their services, including the user interface, interactive features and billing, so those feeds can be incorporated into the UI of a third-party device and integrated with other video services. Only then, proponents of unbundling argue, can consumer electronics makers create devices that can compete fully with or replace set-top boxes provided by pay-TV operators.

The studios much prefer a competing proposal, put forth by pay-TV operators and their vendors, which would allow an apps-based approach to enabling third-party devices to interoperate with pay-TV services. Under that approach, pay-TV operators would create an array of platform-specific and HTML 5 web apps that could be downloaded onto devices for accessing the pay-TV service. The device’s native UI would control the device, while the operator’s UI would continue to control the TV service within the app. (For more detailed descriptions of the competing proposals, along with links to additional materials, see my previous post on the topic here.)

The studios’ preference for the apps approach should come at no surprise. Publishers generally prefer apps to open platforms and networks, because apps allow the developer to retain control over the experience and determine which functionalities to enable and which to deprecate. In this case, operator-provided apps would allow operators and rights owners to preserve the terms of their offline licensing arrangements on third-party, IP-based devices by keeping the content tethered to the service provider’s existing rights management and authentication systems. Unbundling the content from the rest of the operator’s service, on the other hand, could make process of licensing content for pay-TV orders of magnitude more complex, to say nothing of contract enforcement.

“Whatever solutions distributors and third-parties adopt to address compatibility and navigation device issues must also respect the business terms that content providers negotiate with distributors to enable the financing of diverse, quality programing,” the MPAA told the FCC. “These include provisions related to brand protection, advertising, updates, channel placement, interactivity, presentation, on-demand and pay-per-view access, DVR functionality, resolution, cloud access, and availability windows and duration.”

In that sense, what we see playing out in the context of DSTAC is simply another round in the never-ending tug-of-war between what digital technology and enable and what existing business models contemplate.

Here, for instance, is technology-developer Google on why apps won’t cut it:

Much more is at stake here than just the ease with which an MVPD subscriber can channel-surf. Innovation and competition in navigation devices will promote numerous policies important to the Commission:

● Greater consumer choice, lower prices, and more robust device functionality;

● More competitive opportunities for small MVPDs or new entrants, which may be without access to the latest navigation device technologies because of their lack of purchasing scale;

● The possibility of an integrated, customized user interface that presents all of the content that the subscriber has purchased from an MVPD alongside content available from sources on the Internet; and

● Getting more people online and increasing Internet usage and demand via video adoption.

Google’s experience proves the point. To provide its TV service subscribers a better and more customizable offering, and thereby make its package of broadband and TV services more attractive to subscribers, Google Fiber had to develop its own set-top equipment.bbUnlike most set-top equipment, the Google Fiber devices and interfaces allow subscribers easily to switch between Google Fiber’s linear programming channels and online video options like VUDU, YouTube, and a Netflix account. The Commission should commence a rulemaking to ensure that all consumers enjoy these sorts of options.

Just because the dispute is familiar doesn’t mean the stakes aren’t high, however, especially for rights owners. At a time when the, consumers are cutting the cord, new entrants are banging at the door, and advertisers are fleeing prime time, the broadcasters long-term carriage deals with pay-TV operators, anchored in the proprietary set-top box, provide a rare island of stability for rights owners as they try to figure out  how to monetize their content in a rapidly changing business.

Operator-provided apps effectively virtualize the proprietary STB so it can be implemented, more of less as is, on third-party devices.

The last thing the MPAA wants to see is for the FCC to blow it up.