THE FCC rulemaking on set tops, when it came, was less of a rulemaking and more of a consultation – the FCC desperately wants to get this right, and the industry desperately wants to resist all of its efforts. So the FCC played softly, softly making a handful of changes from the original draft and tentatively and apologetically saying that it would really like to make changes if everyone could agree on them. Never before has an FCC request for input rung so true.
But whatever its intentions and its softly, softly approach, it intends to wipe out the set top as we know it and move innovation into the hands of device makers, quite simply because pay TV operators have just forgotten to innovate for the past 30 years. They may be innovating now, but the FCC seems to think they wish to keep device development in the slow lane for a while longer, so it wants to force their collective arms.
If the FCC has its way, set tops in the US at least, will become retail devices which you buy based on your own preferences, and that means selecting a new UI and potentially adding other non-MVPD content relationships. They will also become the property of a consumer and no longer remain the sole ownership of a provider.
The 67 page, rulemaking had many references to past initiatives including both CableCARD and AllVid, which are both seen as fairly disastrous attempts at making this happen in the past. AllVid was rubbished for requiring an extra device in the home, increasing the cost to the consumer, while CableCARD was sabotaged by the top 5 US cable operators who simply refused to implement or market it, claiming it was flawed.
It almost feels like this is the FCC’s revenge for the scorn heaped on those two initiatives, tantamount to an angry parent saying, “If you can’t play nice you won’t play at all…” and taking away cable’s toys. Not that this rulemaking is limited to cable, it is about all MVPDs so that includes DTH or DBS satellite TV providers and IPTV and IP ABR providers as well.
We say, “If the FCC has its way,” simply because this edition of trying to make the set top market play fair will almost certainly result in legal actions and heel dragging which will attempt to make this approach unworkable.
The nub of the issue is that the pay TV operators in the US will not be able to define their own UI, a move that was described like “letting us redesign Google’s home page,” a not too veiled reference to the fact that both Google and Apple stand to benefit from these proposals, as much as both Roku (which disagrees with the ruling) and TiVo.
We have called a few leaders in the industry this week to get a handle on this and that’s the part that sticks in their gullet, the fact that this is one way and appears unfair to cable operators.
You have to go back to the figures, back in July 2015, Senators Ed Markey and Richard Blumenthal gathered statistics from large MVPDs which showed that 99% of customers rent set top boxes from their pay TV provider, which put the US set-top box rental market at $19.5 billion a year. Divide that between the number of pay TV homes in the US and you get the oft quoted $231 per year being spent on set-top box rentals.
We pointed out that pay TV providers have built apps and so their shopfront is being voluntarily moved to the mobile via apps. But this is a voluntary shift. Comcast is not forced to offer Xfinity OTT services on these phones and Xfinity TV Go is chasing the popularity of the phone itself. The idea that Google can make its own device and decide how it wants to show Comcast programming, will not be a voluntary move, but a regulated one. That’s how US industry currently sees it.
We know that there have been conversations between all the pay TV providers in the US and Apple and Google to put their services on Apple TV and Chromecast and what has stopped such deals going ahead is the insistence that Apple and Google just show the programming in the same way the set top shows it, when they could do so much more.
If Google or Apple wants a TV service, surely it can spend the money that Comcast does to acquire the programming and create their own services and sell these. We know that this is the end game for Apple and Google. Owning a competitive slice of the US pay TV market would not be enough to serve these companies. What they want is complete global control of content so they can offer a global service with their devices, which further distinguishes their offerings. If Google can offer Comcast or Charter or Cablevision or DirecTV programming on the same box, the box then becomes the route to market, as the handset has in cellular content. Does the FCC really want to destroy set top companies like Arris and Technicolor in favor of Apple and Google, and its partners such as Samsung?
It is pretty clear to anyone who follows the technology markets that Apple has been bereft of innovation since the death of Steve Jobs. So if the FCC is in favor of stimulating innovation, why would it drive this market into Apple’s hands?
This then is the logic in the supplier market among an incredulous cluster of businesses who rely on the video industry for their revenue. And if they speak with one voice and criticize this rulemaking in its currently conceived format then it could be stopped at source.
At Faultline we are not really sure that we agree with such suppliers. US cable operators have emerged as the default broadband suppliers across the US, picking up every new broadband home in the last 9 years, give or take, and that business is massively profitable. They have perhaps lost the ten million homes that Verizon and AT&T have taken in the pay TV market during the same time, and a few million more as DirecTV and Dish have filled out. But during that time Comcast alone has doubled its broadband homes from around 10 million to well over 20 million. If IP becomes the singular route to market for video, as it appears to be doing, and streaming becomes the favored method of delivery, set tops will disappear and that was the case made at the FCC by the two dissenting opinions who voted against this rulemaking.
Also if the cable operators cannot charge for the set top box, they are likely to simply raise their content rates, so they end up making the same amount of money. What the customer gets charged is unlikely to change, at least not at first. Perhaps the ability to switch suppliers while keeping the same set top box may slowly undermine the constant cable price rises in the US. Then prices may change.
Even so we know that set tops would take an inordinate amount of time to disappear. The large home screen continues to be resistant to cord cutting – it happens, and it is accelerating, but it is from a low base, and many cord cutting deals end up taking video services straight back to the main screen in the home, to the sitting room smart TV.
The naysays believe that set tops are going to disappear anyway and it is too late to make this move. But the FCC thought it had cleared the way in 2010 with CableCARD, and not much has happened since, which is why it feels compelled to take this action.
What precisely does it plan to do? The FCC wants to define service as 3 information flows delivering Service Discovery Data, Entitlement Data, and the Content itself, in a manner defined by an Open Standards Body.
So for cable we assume that CableLabs cannot be considered an open standards body, and we are really talking about IP standards such as XML, from the W3C. This would not include metadata, so each set top maker would have to become a customer of perhaps Rovi or Gracenote to buy metadata. And they would have to create their own EPG if they require one or create an alternative method for content discovery. That might drive greater acceptance of voice control and content recommendations.
And if this market becomes a mostly retail market (probably almost all of it would go through Amazon) then that means that Arris would have to enter the retail market and create a consumer brand or simply live on replacement set top contracts until it ran out of momentum and died.
On the security side the FCC was looking at two options, the first going fully HTML 5.0 using EME, MSE and Web Crypto APIs, all controlled by the MVPD; and the second approach running a cloud “Media Server,” where conditional access decodes are performed and with security between the cloud and end user devices using a link protection mechanism such as DTCP. One allows the MVPDs to put up proprietary barriers, the other locks the entire industry into one protocol, and anyway creates a perfect target for a hacker.
A third way was proposed by Verimatrix which has resulted in a change of heart at the FCC. So in its rulemaking it said that both approaches should be available as part of a “toolkit” of approaches. So the MVPDs can choose their content protection systems as long as they also enable competitive devices by making at least one content protection system licensable on reasonable and non-discriminatory terms, which is not controlled by any MVPDs.
So this presents a couple of US market problems. Comcast took a Motorola protocol and continued to develop it internally, so it would need to add another alongside this, and Dish works with Nagra is a joint venture company, so it too would need to offer a new encryption route as well.
Again this would lead to more device integrations and contracts, each responsible for less end user customers, so might aid the DRM world, but most likely this would be interpreted as implementing something like PlayReady from Microsoft, or Widevine from Google, and it still may lead to a whole crop of existing solutions losing market share through no real fault of their own.
We suspect the devil is in the detail and initially all the comments will be negative as a lot of unintended consequences are discovered or imagined, and an overwhelming number of players will oppose this rulemaking. Then if the FCC persists unchanged, and the key to the change here is to allow the MVPD to at least control the look and feel of the UI, there will be a legal challenge about whether or not the FCC has the power to do this, and we think it might fail such a challenge.
And if it gets through all of that it will be implemented how each cable operator sees fit, where they will drag their heels over ratifying compliant devices (Motorola held up Pace for 3 years emulating its set top designs) and then hint strongly that if any partners recommend these devices to anyone their name will be mud in future negotiations. Finally, some devices will fail to work and the ownership of any call center problems will be hotly disputed with the new technology being blamed.
The end result with be that in 5 years this technology will be as buried as the CableCARD, but that it will not be worth pushing further at that point, because the set top would have been forced further into the cloud to the point where any given MVPD could deliberately eliminate it just to keep clear of this ruling.