The latest FCC intervention in the video market came Wednesday in a surprise proposal from Chairman Tom Wheeler that would force cable, satellite, fiber and other regulated providers to adopt new technical mandates aimed at opening all set-top boxes to third-party use and new providers. New standards to be developed under the plan would allow third parties to tap directly into the video stream, effectively unbundling the cable box.
The commission is worried about what it sees as a lack of choice for consumers who subscribe to video services from traditional pay TV providers, or what the agency calls Multichannel Video Programming Distributors. While some customers connect using their own set-top box, including TiVos, many still lease equipment from the provider.
Worried about a lack of alternatives, Wheeler now believes the agency must now “adopt rules that will ensure consumers will be able to use the device they prefer for accessing programming they’ve paid for.”
The commission will vote on the plan next month. Any new standard will take years to define and implement, however, so don’t expect to see new devices or applications anytime soon.
At least not any made possible only thanks to FCC intervention.
Far from the snow-covered Beltway, fear that the market for media consumption devices and services has become dangerously concentrated is a real head-scratcher. Instead, outside the FCC’s limited view (and, for now, its regulatory powers), a flowering of Internet-based competitors to pay TV services have bloomed, including products from Apple, Google, Sling TV, Hulu, Netflix, YouTube, Roku, Amazon Fire, Sony, HBO, and many more that deliver content on a growing range of devices well beyond TVs. None require a provider’s set-top box.
At the annual Consumer Electronics Show earlier this month, every TV (and every car, refrigerator and other device that now boasts high-definition displays) was natively connected to the Internet, with increasingly sophisticated applications to find, sort, save and enjoy video content.
Together, these innovations allow users to bypass pay TV for a remarkable range of traditional and new media. Today’s consumer has become comfortable accessing content through apps on their TV, gaming console or other third-party device, or directly through a PC, tablet, or smartphone using innovative new apps.
Millennials in particular have never had a problem enjoying content on “the device they prefer” — or all of them at once. Most don’t even realize there was a time when the TV was the only device on which you could watch just three channels of network programming — when cable itself was the disruptive innovation.
If anything, pay TV providers are losing ground rather than strengthening their control over the video stream. Hamstrung by rising prices for content from mega-producers including Disney, CBS and Fox, as well as complicated FCC rules imposed on the pay TV providers that the innovators don’t have to follow, pay TV subscriptions have plummeted by the millions in the last few years as cord-cutting becomes both better and cheaper. (Millennials, of course, never had cords to cut in the first place.)
It’s Moore’s Law, and not FCC law, that continues to drive content’s new Golden Age.
But the FCC only sees the pay TV providers, the subset of the market it has long regulated with considerable effort and mixed results. It’s mistaking its clear view of the traditional market, in other words, for an easy path to redesign the emerging new industry, which is mutating rapidly outside its peripheral vision.
That misperception is both short-sighted and dangerous.
For one thing, relying on the regulator’s obsolete view of the video market means the FCC’s proposed technical mandate could make things worse, not better, for consumers. How? Forcing open the pay TV providers video stream would likely undermine the complex programming arrangements between providers and content producers, arrangements made positively byzantine by a mountain of ancient FCC carriage rules.
And tense truces over copyright protection for content owners would certainly erupt into new and open warfare, of the kind that killed ill-fated startups such as AereoTV, which tried to walk the line between pay TV providers and traditional broadcast and ended up on the wrong side of the U.S. Supreme Court.
Even in the best of circumstances, developing the new standards will take years, cost millions, and unintentionally slow or stifle innovations yet to be identified. The FCC took five years just to decide not to take action the last time it waded into these troubled waters.
In the end, assuming a workable standard could be developed, mandatory implementation would simply shift the cost of compliance to higher content prices and replacement devices — costs that would equally apply to cord-cutters. The remarkable proliferation of new programming from non-traditional providers including Amazon, Netflix and from consumers themselves could be brought to a sudden and unintended end — just when we’re figuring out how to optimize audiences for both popular and quality programming. It’s a lose-lose proposition.
Quite simply, mandating technological changes at the lumbering pace of a federal agency is almost always a counter-productive (or worse) endeavor. That’s especially true in markets already undergoing dramatic transformation. And the video industry is the poster child for continued disruption.
It’s a lesson the FCC should have learned by now. The agency’s previous efforts to impose hardware standards and other technical mandates have never worked. The 2007 CableCard rule, for example, cost providers and device manufacturers as much as a billion dollars, but had little effect on competition in the set-top box market. Before that, the FCC mandated controls over specific plugs in the back of the TV and the cable box, continuing its requirements long after consumers had moved on to better tech.
Or consider the FCC’s 2002 requirement that every TV manufacturer introduce technology that would enforce a “broadcast flag” signaling when a program’s owner prohibited recording for later viewing.
When a federal appellate court tossed out the broadcast flag mandate as wildly outside the agency’s authority three years later, the judges mocked the agency’s hubris. “Are washing machines next?” one judge asked incredulously at oral argument. Said another: “You can’t rule the world.”
But that’s precisely what the agency seems to have in mind. Since late 2014, for example, the FCC has also been batting around a proposal that would reclassify many of the new Internet-based video providers and impose the same rules on them that apply today to the pay TV providers. That would certainly simplify things for the regulators, but it would be a disaster for consumers and entrepreneurs.
Not surprisingly, the reclassification proceeding has become a political football with no end in sight—exactly what would happen with yet another set-top box mandate.
The FCC is fiddling while Rome burns—and it’s a fire the agency regularly stokes by continuing to regulate pay TV under the groaning mass of rules that stopped making sense at least a decade ago.
If the commission really wants to see more consumer choice in the content market, it should abandon once and for all any thoughts of leveling the playing field by subjecting the disruptors to the same mess. And, at the same time, free the existing regulated industry to, well, compete.
But developing more Washington-based technology mandates for an industry in the midst of widespread technological disruption? Well, that might be the worst idea the agency has had yet. That is, since the last time it tried to do it.