Cable Operators

Boxed In

FCC chief’s controversial ‘unlock the box’ proposal unleashes critics who fear a dire outcome 5/09/2016 8:00 AM Eastern

WASHINGTON — The cable industry is at war with Silicon Valley giants — and the U.S. government itself — over a small, black box.

 

And the stakes are high enough to jeopardize the most crucial part of the business relationship with a consumer — the point of first contact, specifically the first images a viewer sees when turning on a device — as well as the security of the signal. The prize is the vast trove of viewing data collected from MVPD-provided set-top boxes that is surely and not so slowly upending the $70 billion advertising market.

 

Content companies, unions and legislators have weighed in vigorously against Federal Communications Commission chairman Tom Wheeler’s proposed new rules for set-tops, counterpunching with major concerns that “unlocking the box” would leave valuable cable programming vulnerable to content thieves, copyright violators or powerful edge providers such as Google, who are looking to edge out MVPDs and remonetize their content for free.

 

Wheeler billed the proposal as a win-win, in part because he says that such a new rule would open up the retail market for set-tops, as most cable subscribers pay rental fees for their devices. Never mind that no one likes a box, and cable operators, recognizing consumer demand, are offering set-top-free alternatives.

 

PUSHING BACK

But a lot of people don’t see it the FCC’s way, and have pushed back on various aspects of the proposal — including on matters of privacy, copyright, diversity and more.

 

In just the past two weeks, House Judiciary Committee leaders from both parties have told Wheeler his proposal puts copyrights at risk. Other House Democrats, apparently unsatisfied with a Wheeler explanation of the proposal’s backing in a meeting with the House Democratic Caucus, said content creators are hardly applauding, even listing those who have weighed in against the plan.

 

RELATED: Content Commentary: Producers, Programmers and Affiliated Groups Against the Set-top Proposal | Get complete coverage of the FCC's set-top proposal.

 

Cable operators for years have been trying to get the FCC to drop its hardware-based CableCard solution for promoting competition in the set-top and navigation-device market. MSOs have long viewed the removable Cable-Card module as a clunky, hardware-based alternative to a software solution for set-top security.

 

The seeds of the current proposal are in the Satellite Television Extension and Localism Reauthorization Act (STELAR), which renews statutory licenses that allow satellite-TV providers to retransmit broadcast stations to their customers for five years. The mustpass bill was used as a vehicle for getting rid of the CableCard mandate, but it turned into something of a runaway train after an FCC advisory committee included the gateway device proposal, which calls for disaggregating cable content and data and repurposing it alongside over-the-top offerings for one-stop video shopping, among its recommendations. Wheeler climbed aboard.

 

But the chairman has run into bipartisan pushback from Congress and opposition from many in Hollywood, minority groups and others, all looking to put the brakes on that train.

 

Google has been pushing the notion of gateway devices for years, seeing an opportunity to promote OTT video alongside traditional TV fare and get access to set-top data in the process.

 

Cable operators have opposed what they continue to brand the “AllVid” approach — from a previous gateway effort under Julius Genachowski, the FCC’s chairman during President Obama’s first term — because they say it is an unnecessary technical mandate that opens their content and data up to piracy, as well as to edge providers eager to monetize cable programming without sharing the new wealth. Plus, they say an app-based approach to video navigation is already transforming the industry.

 

Wheeler has said his plan would not mean rebuilding networks or “all the other horrible things” the industry has cited.

 

Armed with the statistic that 99% of boxes are still leased, and the congressional mandate (or at least language) that the FCC is supposed to promote the availability of competitive video navigation devices, added “unlock the box” — the FCC’s slick, online branding of the effort to disaggregate set-top information, to the list of regulatory initiatives meant to promote competition. With the help of Democrats on the commission who voted with him, that would make cable content and data available for repackaging by third parties.

 

Obama is now very publicly on board, having made his support for the set-top box proposal part of a larger initiative to get federal agencies to promote competition across all sectors.

 

The president also came out very publicly for the FCC’s Title II reclassification. But while that was greeted with cheers from congressional Democrats, there has been plenty of pushback from his own party, likely stemming from the fact that all those advertisers and unions and studios and distributors with concerns about the propsal are constituents, too.

 

Why are cable operators apoplectic that the prospect of competing with devices and apps? Is cable just trying to keep others from milking its cash cow?

 

Cable operators say no. They say they’re moving away from set-tops themselves, partially because TV is evolving towards an app-driven environment and partially because — at least according to the American Cable Association, which represents smaller, independent MSOs — boxes don’t make them much money.

 

Cable MSOs also fear that disaggregation of channels would mean they can no longer guarantee programmers the channel positioning for which they’ve negotiated, or companies the ad placement that they’ve paid for.

 

Comments by Public Knowledge fueled that fear. The Washington, D.C.-based public interest group argued that contracts shouldn’t trump the FCC rules.

 

It has also been argued that Congress’s mandate that the FCC promote the commercial availability of boxes does translate to promoting new competitive services that rearrange that disaggregated content so it can be integrated with online video competitors.

 

There is also the privacy issue. Cable operators are required to adhere to set-top information privacy protections, while edge providers (as the FCC chairman keeps reminding them) are not.

 

The Wheeler proposal, as advertised, would require third parties to self-certify their compliance with similar rules to get access to the set-top data, but cable operators fear that approach is too hard to police. They have reason to be concerned.

 

Both Google and Amazon have told the FCC that even such a voluntary quid pro quo is unnecessary and should be scrapped.

 

The set-top proposal has set minority programmer against minority programmer — in one corner, BET founder Robert Johnson; and in the other, TV One president Alfred Liggins and Revolt TV CEO Keith Clinkscales. It has also divided Democrats. A few support Wheeler’s proposal as a proconsumer, pro-OTT move, but many others have big concerns and want the FCC to back off until Congress gets the results of studies of its effects on diversity.

 

If the FCC does not back off, cable operators — the National Cable & Telecommunications Association has filed 394 pages of documents in opposition to the proposal — have promised to sue.

 

While some lobbyists and FCC sources on both sides of the issue and the political spectrum argue the NCTA misplayed its hand by pushing for an end to the CableCard regime, NCTA president and CEO Michael Powell disagreed.

 

“Public Knowledge and [DVR manufacturer] TiVo have pressured the FCC on AllVid since 2010, and with the late arrival of Google seeking free access to content through regulation, I think this FCC was going to move forward regardless of STELAR,” Powell told Multichannel News. “In fact, the FCC is doing this despite Congress clearly rejecting calls for the very proposals that seem to have found favor at the FCC.”

 

Perhaps at the FCC, but not so much on Capitol Hill. Among those who worried about the new rules are prominent Democratics on the House Judiciary Committee, who’ve written letters expressing worries about copyright protections, and the Congressional Black Caucus, which has aired its concerns about the proposal’s effects on diversity.

 

Wheeler declined to comment for this story, but his press secretary, Kim Hart, echoed his talking points in a statement. “Lack of competition in the set-top box market means 99% of pay TV subscribers are forced to spend hundreds of dollars a year to lease set-top boxes,” she said. “This proposal aims to provide new options for consumers to access the content they’ve paid for, while at the same time protecting that content from illegal use.

 

“Chairman Wheeler appreciates all the input he has received on the proposal. He looks forward to working with all stakeholders to bring real competition and choice to consumers.”

 

Wheeler has doubled down on the proposal, saying recently that it had to get done. And though he has also professed to being willing to adjust it to assuage concerns about copyright and ad deletion, Powell is unconvinced.

 

“We have heard that in almost every proceeding and it usually comes out awfully close to the way he says it is going to come out,” he said.

 

But Powell said he would take Wheeler at his word. “If he sincerely is going to work on an order that doesn’t just take these things into account, but actually addresses and removes them as a concern, I think everybody will be happy.”

 

In the meantime, unease appears the order of the day.

 

SIDEBAR: The Nays Seem to Have It

The FCC has collected the first round of comments on the navigation-device proposal. The heated rhetoric suggests the high stakes involved, which include privacy and copyright protections — and potentially billions in advertising dollars. Here is a sample of the yeas and nays for the proposal in its present form:

 

NAYS

Roku: While streaming-device maker Roku has been cited as one of the companies whose content could benefit from the “unlocked” set-top, it strongly opposes the plan. It says the market is already moving toward choice, and the proposal could slow that with a lengthy rulemaking process that creates a de facto technical standard.

 

Comcast: The nation’s largest cable operator says the FCC proposal is illegal, increases consumer costs, endangers content protection, jeopardizes security, facilitates piracy, weakens consumer privacy protections and creates an unworkable standards-setting process. (Other than that, how was the play Mrs. Lincoln?)

 

Dish Network/EchoStar: The Charlie Ergen-owned satellite provider and tech firm say the regime proposed by the FCC is unworkable for satellite, deeply flawed for all MVPDs and would “disserve the public interest and threaten competition in the video marketplace.”

 

Hollywood: The major movie studios, joined by the Independent Film & TV Alliance, recording industry associations, creative unions — SAGAFTRA, IATSE and the Directors Guild — and others say the proposal will allow allow third parties to scrape data, repackage channels and monetize content without notice or compensation to content creators or distributors.

 

Communications Workers of America: In its filing, the union says it was all for consumer choice and competition, but the proposal would force MVPDs to give away their programs and guide information to some of the wealthiest companies, like Google.

 

Association of National Advertisers: ANA says that under the proposal, there is great potential for overlaying or replacing ads and degrading content, leading to the draconian effects of “less content, fewer distributors of programming, higher costs to consumers, and less innovation.”

 

Arris: The set-top powerhouse warned the FCC that to the extent it is expected to monitor the security of third-party boxes, it said security vendors “do not always have the capability to confirm that their security solutions are properly integrated on devices or apps.”

 

YEAS

Writers Guild of America, West: The WGAW paints MVPDs as gatekeepers, so it sees the box as a platform for online distributors “not sanctioned [as in distributed] by the gatekeepers” to get noticed.

 

Amazon: The online retailer and OTT firm commended the FCC on the effort, pointing to the “scarcity of choices consumers have to access and locate MVPD content, and the untapped potential for significant competition in this space.”

 

Consumer Video Choice Coalition: This group, which counts Google as a member, produced a YouTube video to make its pitch, though it says renting a box from the cable company is required, and it’s isn’t. The message is the simplicity and choice that is being prevented by mandated cable box rentals, but would be “unlocked” if the proposal becomes a reality.

 

Public Knowledge: PK president Gene Kimmelman said the FCC was aiming to end a “$15 billion per year ripoff” and challenge the “cable monopolies.” PK said the FCC has unambiguous authority to promote both app and device competition and that programmers and distributors would benefit.

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