In the United States, there are an average of 1.8 set-top boxes providing pay-TV services to consumers per household, according to data published this April by broadband industry research firm Leichtman Research Group. A full 77 percent of television sets in houses accessing pay-TV services from cable or satellite providers use a set-top box. Such set-top boxes include tuners for selecting television channels and additional networking equipment for added digital services, such as incoming caller ID, and Internet-based services and providing those services and TV channels through a display.
This January, Federal Communications Commission chairman Tom Wheeler issued proposed rulemaking which was aimed at giving U.S. consumers more options for accessing broadcast video content through their set-top boxes. According to the initial proposal, Americans spend $20 billion each year to lease set-top box devices through their cable or satellite broadcast providers. The proposal argues that set-top box prices have increased by 185 percent since 1994 while related technologies like televisions or computers have dropped in price by 90 percent over the same period of time.
As the costs of set-top boxes have risen, consumers have also become increasingly beholden to their cable or satellite providers for access to set-top boxes which deliver video content. According to media reports, 99 percent of pay-TV subscribers rent their set-top box from their television provider.
To increase competition, with the goal of lowering prices paid by American consumers for video services, the FCC wants to mandate a flow of information from multichannel video programming distributors (MVPDs) to the creators of competitive devices and apps. These information streams would include service discovery about programming and channel listings available to customers, information on what devices are entitled to do with video content, such as recording, and then information on the delivery of video programming. In this way, third-party developers could sell devices which access cable and satellite broadcasts or enable app developers to create programs which can run on set-top box systems.
The FCC approved Wheeler’s set-top box proposal on February 18th in a 3-2 vote that followed party lines, with the three Democratic commissioners lining up in support of Wheeler. The approval launched a period of public comment from stakeholders leading to the development of a rule with which the industry must comply within two years.
The FCC supports an open standards-based approach to disseminating the three different streams of information among all interested parties. MVPDs would also be required to offer at least one content protection system to third-party developers which can be openly licensed on reasonable and non-discriminatory terms. Because the government doesn’t mandate a single content protection system, the FCC argues that its proposed rules wouldn’t hurt innovation in such systems. The FCC’s rules will not look to regulate business relationships between MVPDs and either their content providers or their customers, according to the initial proposal. The rules drafted by the FCC will also look to encourage a technology-neutral emergency alerting system which can work for MVPDs and Internet service providers (ISPs) alike and will apply restrictions on advertising geared towards children on all content distribution companies using the set-top box platform.
The proposed rulemaking received a great deal of initial pushback from the industry. American telecommunications company AT&T (NYSE:T) published an official blog piece in mid-April to comment on the FCC’s proposed set-top box rules. “Unfortunately, just as it did in the Title II proceeding, the White House is intervening in order to direct an outcome that favors one company viewed by many as its political ally,” the post reads. Specifically, the post identifies American tech giant Google as one company which clearly benefits from the FCC’s proposal to allow third-party services on set-top boxes. “This action not only damages the only companies seriously investing to build broadband infrastructure for this country, it also does great harm to the confidence we should be able to have in the impartiality of the FCC’s proceedings.”
The FCC’s commitment to opening up set-top box platforms could be of great benefit to video services developed by Google Fiber, which only had 53,000 video subscribers by the end of 2015. That pales in comparison to the 6 million U-verse broadband television subscriber base held by AT&T by the end of the first quarter of 2015. AT&T also owns DirecTV, which had 20 million satellite TV subscribers as of this February.
Official remarks from Google representatives in June, however, reflect a shift in position in its support of the FCC proposal. After a meeting between representatives of the FCC, AT&T, the National Cable & Telecommunications Association (NCTA) as well as American telecom companies Charter Communications (NASDAQ:CHTR) and Comcast Corporation (NASDAQ:CMCSA), Google expressed support for an app-based approach to a more open set-top box infrastructure which was developed by AT&T and others in the pay-TV industry.
An important shift in opinion has also taken place at the FCC itself. FCC commissioner Jessica Rosenworcel, one of the Democratic commissioners who approved the proposed notice of rulemaking in February, made comments in the middle of September during a hearing called by the U.S. Senate Committee on Commerce, Science, & Transportation which questioned the FCC’s legal authority to oversee standard licenses between broadcast providers and device manufacturers. At issue is the FCC’s authority to regulate telecom licensing under U.S.C. 47 § 629, which governs the FCC’s ability to ensure competition among MVPDs. The statute gives the FCC the ability to adopt regulations which improve the availability of devices for accessing MVPD services from entities not affiliated with MVPD companies. However, it cannot pursue regulations which would jeopardize the security of multichannel video programming or impede the rights of providers to protect against theft and regulations cease to apply when the market is competitive. Nationally, there is no single monopoly controlling the entire pay-TV industry even if consumers are given few choices within their region.
At least one other federal agency has also joined with the telecom industry to push back on the FCC’s proposal. In early August, the U.S. Copyright Office released a statement which raised concerns over the increased potential for copyright infringement under the FCC’s proposed set-top box regulatory scheme. By delivering bundled video programming to third parties that can exploit the content for profit without any legal business relationship between the third party and the copyright owner. Opening up set-top boxes to other developers could also make it easier for third-party set-top boxes which are designed to exploit cable programming streams without adhering to security measures.