The US Federal Communications Commission has decided to reform the pay TV set top box system once again. This isn’t the first time it’s done so – the 1996 Telecoms Act directed the FCC to find a way to open up competition in this space and the FCC created the CableCARD standard as its solution to the problem. But that CableCARD system never really made much difference and few companies other than TiVo ever really took advantage of it. As such, the details of how the cable box reform contemplated by the FCC are incredibly important this time around.
Carterfone – the inspiration for reform then and now
The inspiration for cable box reform both in the 1990s and today comes, at least in part, from the landmark FCC decision in the Carterfone case in 1968. That decision allowed a new device – the Carterfone – to connect to AT&T’s network even though it wasn’t made or sold by AT&T, a significant departure from past practice. In the process, the FCC essentially created a market for third-party phones and related devices, and ended AT&T’s monopoly over the devices that could connect to its network. The 1996 Telecoms Act and the subsequent implementation of CableCARD were intended to achieve the same result for cable boxes but clearly fell short of that goal.
One major reason is phones are, technically, much simpler than cable boxes, not least because the box had to be able to verify itself to the network as a legitimate receiver for the cable signals. The CableCARD authenticated the box in which it was inserted and decrypted the signal so it could be viewed by the consumer. Actual consumer experience with CableCARD, however, has generally been poor – installing a device that uses a card often requires calls to the cable company’s support line and even then can be hit and miss, as anyone who has visited online forums for these devices can attest.
CableCARD failed because it was an overly complex solution to what is inherently a complex problem – cable companies (and other pay TV providers) run sophisticated infrastructure to deliver signals in a highly managed way across networks which they control. Simply swapping in a third-party box isn’t straightforward. Add in the fact cable companies are highly motivated to prevent competition – some 20% of cable company TV revenues come from these boxes and the services they provide – and you have a recipe for disaster.
Two possible approaches to reform
As I see it, there are two possible approaches to the current attempts at reform. One would essentially replicate the CableCARD system but in a less clunky way, implementing physical solutions in third-party boxes that would interface with the standard cable TV infrastructure in the same way as a cable STB does today. That seems likely to run into many of the same issues as its predecessor and I generally think that’s not the way to go. The FCC has in fact previously proposed a CableCARD replacement generally referred to as AllVid, which takes a hardware-based approach, but it’s never really gone anywhere despite support from Google and others.
The other approach is to implement the solution in software, with third party boxes interacting with the head end infrastructure in much the same way as pay TV companies’ own apps on mobile devices do. This would be far less restrictive in the design of such boxes than a hardware solution, and would be more in keeping with how boxes for watching TV are evolving, in that it would be app-centric. This would still be complex but, if implemented in a smart way, would allow for far more innovation around TV boxes than any hardware solution. I would very much hope the FCC will end up going down this road rather than the hardware route – it seems far more likely to succeed and to allow makers of smaller TV boxes, not just traditional STB manufacturers, to participate.
Pay TV companies only have themselves to blame
As I mentioned earlier, pay TV companies have significant incentives to preserve the status quo – box installations and rental fees as well as DVR and other associated service fees are both sources of significant revenue and high margins for these companies. Even as these companies have slowly embraced apps for mobile devices, they have largely refused to do so on TVs or devices connected to them. So far, Time Warner Cable has a trial using Roku boxes for an app-based version of its service but, other than that, there’s very little by way of innovation in this area from the major pay TV companies. All they offer on most smart TV boxes is TV Everywhere authentication for third party apps, which makes for a cobbled-together solution that does very little to replicate the usual pay TV experience.
It’s precisely because the pay TV companies have resisted the app-based approach the FCC now feels the need to intervene. These companies will only have themselves to blame if, as a result of their intransigence in the face of consumer demand, they find themselves forced into something they could have done much less painfully themselves.
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