Set-Top Squabbles

April 15, 2016
By Ron Hendrickson - A White House blog posting today stirred up outrage among virtually every industry group with skin in the pay TV game ...
A White House blog posting today stirred up outrage among virtually every industry group with skin in the pay TV game.

The blog posting (available here) likens set-top boxes to the old Ma Bell rotary phones - technologically outdated things that subscribers were required to lease/rent from a monopoly telephone company - and posits that letting consumers buy their own third-party set-tops will improve competition and technological innovation.

The phone-to-set-top parallel isn't quite apt, in that video content today is available from multiple sources, many of them set-top-free, and technological innovation is through the roof, particularly in the over-the-top (OTT) video space. But the White House apparently wants third-party set-tops, and that's that. And that has set the pay TV industry's collective teeth on edge.

First a little background: In February, the FCC issued a Notice of Proposed Rulemaking (NPRM) on a proposal to do away with set-top rental fees and let pay TV subscribers access their pay TV video via third-party boxes and apps. (The original FCC proposal is available here.) The NPRM is currently in an "information-gathering process" during which pay TV operators and other stakeholders have 60 days to comment on it. If the rule is implemented, the industry would then have two years to comply.

Industry groups regard today's White House blog as a directive to the FCC to implement the proposed rule, even though the FCC is supposed to be an independent agency. The NCTA, ACA, Future of TV Coalition, USTelecom, the Free State Foundation and others have panned the White House move as an executive overreach and interference with the FCC's independence.

In a statement, USTelecom President Walter McCormick wrote: "The Administration's disregard for the integrity of the rulemaking process is appalling. There is no need to mince words. When the president 'calls upon' his appointees and an agency chairman who serves at his pleasure to act in a particular way, he is 'directing' them, and all credibility in the independence of the agency and trust in the administrative process evaporates. The legitimacy of this rulemaking proceeding has now been irreparably compromised."

The Future of TV Coalition goes a step further and says that Google (NASDAQ:GOOG) is behind the drive for third-party boxes and is exerting undue influence on both the White House and the FCC.

The Future of TV Coalition statement says, in part: "It is deeply disappointing that the White House appears once again to have outsourced a major tech policy decision to Mountain View, without taking the time to understand what's really at stake in this fight. The market is already moving toward a boxless future powered by apps. The Google proposal the White House endorsed today will box consumers into yesterday's technology and impede the innovation consumers so desperately want."

Google didn't have an official statement on the White House blog or FCC set-top proceedings, but referred us to the Consumer Video Choice Coalition, of which Google is a part.

Chip Pickering, CEO of INCOMPAS and a member of the Consumer Video Choice Coalition, said: "AT&T and cable are just afraid of competition. Unlocking the box will save consumers money and open a new competitive marketplace for small device manufactures, app developers and independent programmers. Like the rest of us, President Obama must be tired of having to switch remote controls every time he watches House of Cards or other streaming content. New boxes from new companies will create a competition ecosphere that benefits consumers, innovators and content creators."

The extent of Google's influence is difficult to gauge, but FCC approval of the NPRM would definitely benefit the search giant, whose Chromecast third-party video dongle business reportedly has been struggling lately. Moreover, Google seems to get a lot of face time at the White House. Last March, the Wall Street Journalreported on the relationship, saying that as of that writing Google executives had visited the White House some 230 times since President Obama took office, an average of about once a week. While that doesn't prove anything, it does look a little fishy.

But regardless of causes and actors, the pay TV industry's basic objections to the NPRM remain valid: It would weaken content licensing agreements and security, mandate another as-yet-undefined box in the home, and lead to disaggregation of service providers from the content they pay for and provide. White House interference - or just the appearance of it - in the process is just icing on the cake.