Unbundling The Set-Top Box

Somewhere, Steve Jobs is smiling. Nearly six years after the late Apple CEO complained that real innovation in the TV industry could only happen if you first “tear up” the traditional pay-TV set-top box, the FCC is taking the first steps toward doing just that.

FCC chairman Tom Wheeler this week announced that the commission will vote next month on whether to proceed with a formal rulemaking to “unlock the set-top box,” if not quite tear it up, by requiring cable, satellite and telco pay-TV providers to make elements of their service available to third-party device makers and software developers.

“Today, 99 percent of pay-TV customers lease set-top boxes from their cable, satellite or telco providers,” Wheeler wrote in an op-ed published Push_button_cable_boxWednesday. “Pay-TV subscribers spend an average of $231 a year to rent these boxes, because there are few meaningful alternatives. If you’ve ever signed up for a $99-a-month bundle for cable, phone and Internet and then wondered why your bill is significantly higher, this is a big reason…This week, I am sharing a proposal with my colleagues to tear down the barriers that currently prevent innovators from developing new ways for consumers to access and enjoy their favorite shows and movies on their terms. The new rules would create a framework for providing device manufacturers, software developers and others the information they need to introduce innovative new technologies, while at the same time maintaining strong security, copyright and consumer protections.”

The proposal is an outgrowth of the Downloadable Security Technical Advisory Commitee (DSTAC) proceeding we’ve been chronically here since last year. Mandated by Congress in 2014, DSTAC was tasked with developing technical recommendations regarding software-based, downloadable security tools for pay-TV services that would allow third-party devices to interoperate with those services by installing the appropriate software. The goal was to advance Congress’s long-standing objective, spelled out in the 1996 Telecommunications Act, of encouraging the development of a competitive market for set-top boxes.

As we’ve reported, however, the DSTAC process quickly went awry as the committee almost immediately split into two factions, one made up of pay-TV providers and content owners, the other comprised of technology companies and consumer advocacy groups, resulting in two separate, and radically different sets of recommendations.

The pay-TV providers and their content-owner allies favored a limited approach, in which security features would be incorporated into downloadable apps provided by the pay-TV services themselves that could run on third-party devices but would otherwise leave things pretty much as they are now in terms of UI and service providers’ control of the customer relationship. The technology companies and consumer groups favored a more radical approach requiring pay-TV providers to disaggregate elements of their service into discreet modules that could be rearranged and incorporated into new types of services.

While the details of Wheeler’s proposal have not yet been made public, a fact sheet released by the FCC makes it clear the proposal tracks more closely to the technology company’s plan than to the more limited, apps-based approach:

To ensure a competitive marketplace as required by the Telecommunications Act of 1996, the proposal identifies three core information streams that must pass from MVPDs to the creators of competitive devices or apps:

  • Service discovery: Information about what programming is available to the consumer, such as the channel listing and video-on-demand lineup, and what is on those channels.
  • Entitlements: Information about what a device is allowed to do with content, such as recording.
  • Content delivery: The video programming itself.

Reaction to the chairman’s announcement was swift, and split along the same lines as DSTAC itself. Hardly was the FCC’s press release issued when cable and satellite operators, along with media companies and the MPAA, announced a new coalition to fight the proposal, while Public Knowledge and other consumer groups praised it.

The split now sets up what is certain to be a long and nasty fight at the FCC, and perhaps ultimately in Congress and the courts over the future of the set-top box.

The question is whether any plausible outcome will be worth the controversy at this point.

The set-top box today is held together by more than its technical components. It’s also bound up in a web of contractual arrangements between networks and MVPDs governing everything from channel placement to ad-insertion rules to encryption.

As a group of content owners put it in a letter to the commission earlier this month:

Content producers are intimately involved in the meticulous details of how a viewer sees programming content. For example, a network’s adjacencies in a programming lineup can be the result of careful and unique agreements between distributors and content creators. The [open box proposal] would allow an “end run” around such careful deliberations. It could leave channel placement and other elements of content presentation exclusively in the hands of those with far less incentive to ensure a high level of quality or consistency in content presentation, in turn undermining the value of the content itself.

According to the FCC fact sheet, the new proposal will not disturb those agreements:

The proposal maintains important aspects of the traditional video distribution regime, such as protections against copyright infringement and theft of service. The proposal is clear – the Commission will not interfere with the business relationships between MVPDs and their content providers or between MVPDs and their customers. The proposal does not change a company’s ability to package and price its programming to its subscribers.  

  • Maintains strong protections for copyrighted content: Copyrights and licensing agreements will remain in place, and copyrighted content will be protected from piracy much as it is protected under the existing CableCARD regime. Similarly, the proposal honors the limits on the use of programming agreed upon between cable companies and content providers (e.g., ability to record content).
  • Existing content distribution deals, licensing terms, and conditions will remain unchanged. These deals made between MVPDs and content providers are not affected by this proposal. MVPDs retain their customers and will still get a monthly fee for the subscription service that the MVPD provides. The only change the FCC is proposing is to allow consumers alternative means of accessing the content they pay for.

If that’s indeed the case, third-party developers may see less incentive to tackle the set-top box than Wheeler is hoping. Issues like channel placement and network adjacencies are only relevant within the context of a fixed, linear bundle of channels. It’s not clear, at least from the fact sheet, how those contractual arrangements could be preserved without also preserving the basic structure of the linear bundle.

Who would build a new set-top box or a new UI application that is required to preserve the architecture of the current bundle? Particularly when the bundle is already fraying under its own excessive weight, the rise of a la carte over-the-top offerings like Netflix and Amazon Prime, and the networks own growing direct-to-consumer efforts like CBS All Access?

The reason the FCC is doing it that way, of course, is that it doesn’t have the legal authority to void existing contracts between programmers and MVPDs or to tread in areas that implicate copyright. As far back as October, in fact, while DSTAC was still meeting, the MPAA issued a thinly veiled threat to sue the commission if it tried.

What we’re likely to get from the FCC, then, is a collection of attempted workarounds and partial measures that may not add up to enough incentive for anyone to invest in, at this late date, creating the sort of competitive devices and applications Congress was envisioning back in 1996, followed by months of litigation.

Stay tuned.

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