Finance

Moody’s: Cable Industry Can Manage Set-Top Ruling

Rating Agency Says Any Losses Made Up Through Enhancements, Pricing 2/19/2016 1:00 PM Eastern

Moody’s Investors Service put its two cents in regarding the recent Federal Communications Commission ruling that would “unlock” set-top boxes, adding in a report that while the regulation will present some challenges, the industry should be able to manage it.

 

"We expect the established players to defend their market positions as they have during earlier attempts to open the market," said Moody’s vice president and senior analyst Jason Cuomo in a statement. "While the ruling is device agnostic and promotes competitive parity through standards rather than design, it still presents challenges."

 

RELATED: Follow our coverage of the FCC's set-top plan at this page.

 

Moody’s pointed to past attempts to open the market that have failed – first with the Cable Card, and then in 2010 with a universal adapter called AllVid when the Cable Card didn’t gain traction. “While this current proposal is device agnostic, promoting competitive parity through standards rather than design, it is no less of a threat to the established players who are sure to challenge new entrants,” the report states. “Regardless, if competitors are successful, the actual annual and total losses to MVPDs (once the new open-sourced STB's are rolled out no sooner than several years from now) would be much lower than the total revenues exposed, and realized over a long period of time.”

 

Moody's notes that any loss will likely be offset by litigation, regulatory challenges, a gradual rate of adoption, competitive enhancements to existing set-top boxes, and pricing actions.

 

According to the report, a decline in demand for set-top box rentals would reduce certain equipment costs and thus free up capital for other uses.

 

"Nevertheless, we recognize the risk of new entrants building strong relationships with cable customers," added Cuomo. "Gaining access to what is, in effect, the secret sauces puts them on equal footing, allowing them to deliver pay-TV and other content directly to the MVPD customer."

 

In addition, the report notes that while the rule would create more device choice, content owners would still have to grant permission for content rights, regardless of the set-top box vendor. A change in the box vendor only changes the content owner counterparty, not the rights to distribution.

 

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