Why MVPDs, Studios Won’t Take Yes For An Answer on STBs

When Federal Communications Chairman Tom Wheeler unveiled his initial proposal to “unlock” the pay-TV set-top box back in January, pay-TV service providers and programmers howled in protest. Operators complained that the proposal, which called for multichannel video program distributors (MVPDs) to make their video feeds, channel listings, and subscriber entitlement data available to third-party device makers as discreet “information flows,” would require a major and expensive re-architecting of their systems. Programmers complained that making their content available directly to device makers with whom the programmers had no contractual arrangement amounted to a de facto compulsory copyright license, which the FCC had no authority to create or enforce.

FCC_buildingBoth threatened to sue.

The two arguments were, in fact, reinforcing. The current carriage agreements TV programmers and distributors have with pay-TV operators are premised in part on pay-TV systems operating in certain ways and not in other ways. Changing how those systems function could cause part of the premise of those licensing agreements to crumble. Read More »

The FCC Chairman’s Tactical Retreat On Set-Top Boxes (Updated)

After months of intensive lobbying by pay-TV providers and TV programmers, as well as mounting pressure from congress, FCC chairman Tom Wheeler has apparently backed off quite a bit from his original proposal to “unlock the [set-top] box” and is preparing to adopt the broad outlines the industry’s app-based counter-proposal. But that doesn’t mean the struggle for control of the set-top is over.

Federal Communications Commission (FCC) Chairman Tom Wheeler gestures at the FCC Net Neutrality hearingIn an ex parte filing with the commission this week, the National Cable & Telecommunications Association, along with DirecTV-parent AT&T, pushed back forcefully against elements of what appears to be Wheeler’s new plan to bring greater competition to the market for pay-TV-compatible set-top boxes, as mandated by congress more than a decade ago.

The new plan, as described in general terms in a series of ex parte filings in recent weeks, will apparently require multichannel video programming distributors (MVPDs) to develop apps that can run on third-party devices but that replicate all of the features of MVPDs’ own services, including making all the operator’s linear and on-demand content available on similar terms.  It will also require MVPDs to make their content searchable by third-party, universal-search applications. Read More »

Peak TV and the Politics of Plenty

The formal comment period for the FCC’s controversial set-top box proposal closed this week, after tallying 256,747 submissions. As in any hard-fought rulemaking proceeding these days, most of those were canned comments from “the public” rounded up by PR firms working for parties on all sides of the issue. But it also drew more than 1,000 substantive comments from rights owners, members of the pay-TV industry, technology providers and other agencies of government involved in telecommunications policy, including the White House.

FCC_headquartersI’ve written here before, perhaps excessively, on the relative merits (or lack of them) to the various sides’ positions, so I won’t belabor the debate further. But the latest round of comments revealed another, related issue that bears watching regardless of how the set-top box debate turns out: the very different perspectives on the impact of innovation coming from different corners of the TV business.

The Motion Picture Association of America, representing the 6 major Hollywood studios, has been nearly apoplectic over the FCC’s plan, and its final reply comments — all 50 pages of them — were no exception: Read More »

The Wrong Debate Over Set-Top Boxes

Today (Nov. 9th) was the last day for filing comments with the Federal Communications Commission regarding the final report of the Downloadable Security Technical Advisory Committee (DSTAC) and folks in the pay-TV industry were clearly getting nervous that the FCC might finally, really do something this time to “tear up the set-top box.”

Last week, eight of the largest pay-TV providers, along with the National Cable & Telecommunications Association, the Motion Picture Association Push_button_cable_boxof America, and several equipment manufacturers together sent a phalanx of lawyers and lobbyists to FCC headquarters, ex parte, in a desperate bid to head off any movement by the agency toward a rulemaking that would require pay-TV providers to disaggregate their services into rearrangable  parts as proposed by the technology company and public interest faction of DSTAC.

The group was particularly exercised by an ex parte filing with the commission in late October by Public Knowledge, Google, Amazon and Hauppauge purporting to fill in the technical details of the “virtual head-end” proposal made by the technology faction of DSTAC for separating out the components of pay-TV services. According to MPAA, NCTA et. al., however, the new version “is so changed that it is barely recognizable from [the technology group’s] earlier proposal in the DSTAC Report,” and required more time for study before they could adequately respond to it. Read More »

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)

Wallpaper: Sunrise of the Sea

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. Read More »

Slippery SOPA

Copyright Critics of the failed Stop Online Piracy Act and the Protect IP Act (SOPA/PIPA) have been having some fun with some internal RIAA and IFPI materials regarding the music industry’s anti-piracy efforts that leaked to TorrentFreak last week. Part of the cache includes a PowerPoint presentation delivered by RIAA deputy general counsel Victoria Sheckler to IFPI members back in April (pdf).

The critics are taking particular delight in Sheckler’s acknowledgment that the laws were “not likely to have been effective tool[s] for music.” Here’s the PPT slide summarizing the SOPA/PIPA debate:

While perhaps a bit embarrassing for the RIAA, I don’t find the revelation terribly surprising. The bills weren’t really crafted with music in mind; most of the online piracy the music industry is concerned about occurs over peer-to-peer networks, which were not the targets of the bills.

Rather, the bills were crafted by the MPAA, as a tool against movie piracy. Though P2P networks are responsible for a certain amount of movie piracy, more of it these days involves digital locker services, mostly based outside the U.S., like Megaupload, which were the main targets of SOPA and PIPA. As data contained elsewhere in Sheckler’s presentation show, digital lockers make up only about 6 percent of what the music companies regard as piracy, compared to 23 percent Read More »

Selecting outputs at Best Buy

The Media Wonk got a fair amount of feedback on a post from last week on the controversy over the MPAA’s petition to the FCC for a waiver on the rules on selectable output controls. Some readers liked my analysis; others were something less-than convinced. I commend both to this feature article on Best Buy in the current issue of Bloomberg BusinessWeek (nee BusinessWeek), which provides a very useful perspective on the same phenomenon I was trying to get at in my SOC post, namely, the complex and conflicbest-buy-storeting business relationships that retailers, content owners and device makers increasingly must navigate in the digital age, and how that might manifest itself in their strategic moves.

The thrust of the piece is that Best Buy, as the last CE retail giant standing since the liquidation of Circuit City earlier this year, is starting to flex its muscles with vendors to influence product design, merchandising strategies, customer service and other aspects of their business as it looks for ways to fend off new competition from the likes of Wal-Mart and Amazon. Read More »

Selectable outputs, or selectable logic?

The long-running battle at the Federal Communications Commission over the MPAA’s petition for a waiver of the rules banning the use of selectable output controls on devices that can receive TV signals is turning into a textbook example of how regulation can distort business decisions. I almost hate to write that sentence because I don’t want to sound like some sort of Cato Institute ideologue with a jones for deregulation. But the SOC debate has become terminally absurd.

And petty. Just before Thanksgiving, the MPAA filed an ex parte brief with the commission in which it called Public Knowledge legal director Harold Feld, in so many words, a liar.

First and foremost, MPAA would like to respond to certain Public Knowledge statements about the waiver request that, quite frankly, constitute blatant untruths. MPAA appreciates that different parties can reach different conclusions about matters of public policy. Indeed, MPAA has welcomed the opportunity to engage with Public Knowledge and its allies in an honest and open debate about the merits of the SOC waiver request. Regrettably, however, Public Knowledge, apparently having determined that its arguments on the merits have failed to gain traction with the Commission, has resorted to outright distortion and falsehoods. In particular, MPAA believes that the Feld Video Blog contains statements that are simply and irrefutably untrue.

 That drew a sharp retort from PK president Gigi Sohn, and a melodramatically “more-in-sorrow-than-anger” reply from Feld in a subsequent video blog post.

fcc-sealFor those joining us late, the MPAA’s petition has been pending before the commission for more than two years, but was victim of a pocket veto by the previous FCC chairman, who refused to put it before the other commissioners for a vote. With the Barack Obama Administration now in charge, however, there is a new FCC lineup and new chairman, and the studios have tried to capitalize on the changes to breathe new life into the old petition.

In very broad strokes, the MPAA argues that its member companies would like to introduce a new high-definition video-on-demand window for movies immediately following the theatrical window and before those movies are released on DVD and Blu-ray. The new window, according to the MPAA, would allow consumers to watch movies on their home theater systems earlier than they can today based on the current sequence of rlease windows, which generally doesn’t make movies available for home viewing until three to six months after their theatrical release when they come out on DVD. But the studios would only do that, the MPAA argues, if they’re allowed to remotely disable any analog outputs on receiving devices by inserting the appropriate “flag” into the VOD signal.

Why? Because analog outputs on HDTV sets and other devices do not support digital copy protection encryption like the High-bandwidth Digital Copy Protection (HDCP) system supported by HDMI and certain DVI connections. The studios fear that permitting their “high-value” content to travel over unprotected outputs would allow users to record the movies and then redistribute them over the Internet.

Public Knowledge and other opponents of the waiver argue that allowing the studios to turn off analog outputs would “break” as many as 25 million devices by preventing them from receiving or displaying the content and and is therefore anti-consumer. (There are also technical arguments over whether the MPAA has met its legal burden of proof to qualify for a waiver and other super-wonky issues that even The Media Wonk won’t delve into here.)

Here’s the problem: Because the debate is occuring in a public-policy context the MPAA is playing what it considers to be its best public-policy card: fear of piracy. We would only be too eager to offer this shiny new benefit to consumers, the studios say, if  we could just do something about the terrible scourge of piracy. But there’s a far more compelling business case for granting the SOC waiver that the studios are not making.

For its part, Public Knowledge is offering counter-arguments that, while they may address  the public-policy questions at issue, are utterly naive as to the business considerations distributors face when releasing a movie.

The studios know perfectly well that turning off the analog outputs for the proposed VOD transmissions will have little effect on the broader piracy problem (or, I should say, some people at the studios know that, some of them really are crazy). The reason they need to do it is to give themselves cover with Wal-Mart and other large DVD retailers who would raise holy hell over a new “unprotected” window ahead of theirs. Of course, they, too, know the piracy argument is a feint. But they would nonetheless use it to squeeze the studios on shelf space and price at a time when the studios can ill-afford to lose more DVD business.

Theater owners would also squawk, of course. But the studios have no doubt calculated that there is nothing the theaters can really do about it. They need Hollywood’s movies far more than Wal-Mart does.

Cable operators, who would benefit from the new window, have predictably come out in favor of granting the waiver. But they, too, would be all too happy to turn around and use “piracy” during the new window to squeeze the studios on licensing fees in the traditional VOD window. It’s business, after all. not a morality play.

And that, ultimately, is the flaw in Public Knowledge’s case against the waiver. To argue, as it has repeatedly, that the fact that a few independent distributors like Magnolia and IFC have released movies on VOD ahead of their theatrical or DVD release proves that piracy is not a real problem, and that the studios could release movies the same way now, is simply a non sequitur. Independent distributors are in a different business from the major studios. They do not have business relationships with Wal-Mart and Best Buy to protect.

family-watching-dvdAs things now stand, routinely releasing movies on VOD ahead of their DVD/Blu-ray release would not be a sound business decision for a studio to make, given all of the considerations that must go into the distribution of movies, and no business person answerable to shareholders is likely to make it. Would the use of SOC change that? It might, but not because it would do anything to prevent piracy. It might because it would give the studios a tool to manage their business relationships through a period of technological and industry transition.

That may not sound very noble (or compelling to regulators), but I don’t find it particularly nefarious, either. Making and distributing movies is a business, and expecting that it would operate on something other than business principles is absurd.

For similar reasons, I don’t find the “breaking 25 million TVs” argument very compelling, either.

Public Knowledge and the Consumer Electronics Association complain that “allowing the MPAA to shut off analog outputs will leave over 20 million TV sets and downstream devices like Slingbox unable to receive the MPAA’s content.” That may be so, but it’s also so that NO TV sets or downstream devices can receive the MPAA’s content in the proposed window as things now stand. And they’re simply not going to start receiving it just because Public Knowledge and CEA think they ought to be able to because it’s not in anyone’s economic interest to let them.

Granted, it may be that the likely consumer benefit of the new window is not a sufficient trade off for changing the rules that have governed TV receivers up to now. But “no one should have it if some people can’t” is not an argument to that point one way or another. In fact, it’s not really an argument at all. It’s an attitude.

And it’s not a sound basis for either business or public policy decisions.