Buried somewhere in your cable bill is a not-so-noticeable fee of $7.43. That’s how much money the Federal Communications Commission says the average American household pays each month to rent a piece of equipment that most people hate: the set-top box. And now, its days may be numbered.
The commission on Thursday morning voted to start the process of formulating regulations that would require pay-TV companies to enable their video streams to pass through any set-top box, not just ones leased from the operator.
“This issue is not really complex,” FCC Chairman Tom Wheeler said. “Congress has explicitly instructed us to assure that there are competitive information devices, be it a box or an app.”
Under the current proposal, though, the FCC itself wouldn’t be mandating any standards. Instead, the pay-TV companies and programmers and set-top box manufacturers themselves would create these new open standards.
We don’t actually know for sure how much money pay-TV companies make from these rental fees — when the FCC attempted to ask the top 10 providers that very question, they were stonewalled, with those companies saying that information is private. The FCC had to estimate that amount, putting it at $20 billion a year.
What we do know is, if you’ve ever subscribed to cable, using one of those set-top boxes is often a nightmare. Massive lag time between pressing a button on the remote and activity on the screen; a search process that makes one long for the days of Dogpile and AltaVista — the list of consumer grievances goes on and on.
It’s not a new issue: FCC passed regulations 20 years ago that were aimed at encouraging choice and competition in the set-top box market. But as of today, only 2 percent of pay-TV subscribers buy their own box.
But if the problem has been around for so long, and if previous regulations didn’t do the job, why the sudden action from the FCC?
Just look at what year it is, says Hal Singer, principal at the consulting firm Economists Incorporated and adjunct professor at Georgetown University’s McDonough School of Business. The 2016 election is in full swing, and with a new president coming next year, the commission could soon look entirely different. Many of the largest stakeholders with skin in the game want action.
“Google owns this FCC. The Wheeler reign could end soon, so you might as well strike now,” Singer said.
Google has indeed been one of the biggest supporters of opening up the set-top box market, and has long been rumored to have its own set-top box in the works, separate from what’s used for its Google Fiber TV and internet service.
Theoretically, consumers do already have some choice when it comes to the hunk of metal and plastic they hook up to their TV. Time Warner Cable, for example, has 42 set-top box models available. But the new regulations are meant to improve the currently ghastly user experience many consumers face each time they press the “Power” button on their remote.
Thursday’s vote had its critics, including two FCC commissioners: Ajit Pai and Michael O’Rielly argued before the vote Thursday morning that this is regulation for hardware that is already on its way to the scrap yard, and that further regulation would only serve to divert operators’ resources to dying technology, rather than encouraging them to move away from clunky boxes altogether. “This proposal takes a 20th-century approach to a 21st-century problem,” Pai said.
What stifled innovation in the past was a lack of incentive. But pay-TV providers, facing a few years of overall TV subscriber declines, are finally getting the hint about terrible user experiences. The latest version of Dish Network’s Hopper box returns search results for movies and shows on Netflix, in addition to Dish’s own VOD offerings. Comcast’s Xfinity X1 box has earned rave reviews. LG sells a Google TV that runs on the Android operating system. “The video marketplace seems to be doing just fine,” O’Rielly said.
There are other concerns, mostly dealing with what the third-party makers might do with the data from those boxes. Pay-TV companies do use set-top box data — heavily anonymized — for certain types of ad sales. The incentive for Google, which is as much a data collector as anything else, is all that information passing through those boxes: who’s watching what, and when, and how. Wheeler said the privacy rules that govern pay-TV operators would also apply to other set-top box makers.
Singer remains dubious. “Google has the incentive and ability to monetize your viewing habits, as they do with search,” he says. “I’m not sure the FCC is in a good position to police that.”
Wheeler said Thursday that the proposed regulations would in no way allow for the set-top box makers to “unbundle” the video streams, repackage them and surround them with their own advertising.
That wouldn’t necessarily stop them from charging a monthly fee for the box’s use, as TiVo does. In this case, the third-party set-top box makers would, in essence, be profiting off the work done by the operator to secure programming rights and attract and retain customers, to the detriment of the operators’ bottom lines.
Outside of making it easier for consumers to find and watch programming, the FCC has another stated goal of making boxes cheaper. The theory is that increased competition will drive down prices.
That argument might not hold much water. TiVo, the only real viable third-party box on the market, is hardly a bargain. Whereas the average box from a pay-TV company costs $7.43 per month, TiVo’s new “Bolt” model, which hooks up to your cable and also offers access to online services like Netflix and Amazon Prime, costs $299.99 to purchase, with a $14.99 per month fee for the service.
Wheeler did have an answer for that: “Nothing in this item requires consumers to stop using the system they have right now. It only creates the opportunity for them to have choice.”