The Box And The Bundle

One of the most striking aspects of the current debate over the FCC’s proposal to “unlock” the set-top box is how shabby the public arguments are on all sides.

Chairman Tom Wheeler, who cooked up the idea, hangs his case for requiring pay-TV providers to disaggregate essential programming, navigation and entitlement elements of their service for the convenience of third-party device makers and developers on the alleged cost to consumers of renting a set-top box from their provider every month, which the proposal pegs at $231 a year (a figure others dispute). Allowing consumers to bring their own device will save them money, according to Wheeler. The White House made a similar argument in endorsing the proposal.

settop _box_openSet-top box fees are surely excessive, like the cost of pay-TV service itself. But they’re also arbitrary, just like a lot of other line items on the average cable bill. Broadcast fee? Regional sports fee? How are those calculated? The idea that requiring operators to eliminate one line item on a monthly bill full of arbitrary fees and prices will translate into meaningful cost savings to consumers seems far-fetched.

For that matter, the idea that letting consumers buy their own set-top box would necessarily result in significant savings also seems far-fetched. A TiVO Roamio goes for $600, plus $10 a month for the guide.

The operators’ argument isn’t much more compelling. They insist that apps can offer consumers all the flexibility they need. Comcast this week announced this week it is making its full lineup of programming available through an app on Roku boxes and Samsung TVs. The app itself is free, Comcast said, and will eventually be available on more devices.

Time Warner Cable has been trialing a similar arrangement with Roku in New York City and is close to rolling out the app more broadly, TWC principal architect Dave Belt said at the National Association of Broadcasters convention in Las Vegas this week.

Simply virtualizing a set-top box to run as an app on other devices without any new functionality, however, doesn’t exactly create competitive navigation options for consumers — the ostensible purpose behind Wheeler’s proposal. It simply transplants to current walled-garden paradigm to another field.

Perhaps sensing the inadequacy of their app riposte, the National Cable & Telecommunications Association is now threatening to sue the FCC should the proposal go through for exceeding its statutory authority.

The networks and rights owner say they object to proposal because they claim it plays fast and loose with content security. But their real concern is that third-party devices will play fast and loose with the presentation of their programming.

“Proposal forces pay-TV the provider to turn over all their licensed content,” Motion Picture of America senior VP for government and regulatory affairs Neil Fried said at NAB. “Our content is given to third parties without any input from us. They’re not required to abide by any of the provisions of that licensing agreeing.”

Added Stacey Fuller, VP of federal regulatory affairs for AT&T/DirecTV, “There is no requirement that any of the negotiated terms regarding channel placement, neighborhooding, and everything else. need to be honored.”

Channel placement and neighborhooding are only relevant in the context of the traditional grid-like programming guide, a nearly prehistoric means of navigation. Basically, rights owners are arguing for the preservation of an arbitrary and increasingly obsolete means of presenting their programming because its very rigidity works to their advantage.

At bottom, though, this is an argument about the bundle. Chairman Wheeler, correctly, sees the operated-provided set-top box as a critical anchor of the big pay-TV bundle.

The box — whether physical or virtualized as an operator-provided app — makes it possible for operators to make reception of one channel contingent upon acceptance of many others. Content owners appropriate and exploit that leverage in setting the terms of their licensing agreements with operators, including tier placement, channel position and the forced bundling of less-popular networks with popular ones. The box is the tax collector ESPN uses to impose levies on non-sports fans.

Wheeler clearly would clearly like to see that tax burden taken away from consumers. But the FCC lacks the legal authority to simply order an end to bundling. So he hopes that by blowing up the box he can cut the bundle loose from its anchor and let the currents break it apart.

Pay-TV operators and content owners (often one and the same entity) are fighting just as hard to hold their positions.

But neither side seems ready to acknowledge what the fight is really about, which doesn’t help the coherence of their arguments.

 

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