In Comcast Country, Set-Top Box Competition Will Hurt Innovation, Raise Prices

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In Comcast Country, Set-Top Box Competition Will Hurt Innovation, Raise Prices

Image courtesy of knittinandnoodlin

Earlier this week, FCC Chair Tom Wheeler proposed new rules intended to increase competition in the pay-TV set-top box market. Rather than paying hundreds of dollars a year to your cable company for a device you can’t get anywhere else, the idea is that you would be able to buy your own box and save money in the long run. Amazing, Comcast — which stands to potentially lose billions of dollars if this happens — is crying foul.

In a blog post yesterday, Mark Hess — a Comcast executive with a title too long for a business card — painted Wheeler’s proposal as unnecessary government intervention in a situation he thinks is just fine.

He claims that the proposed rule — which would only require that pay-TV companies provide set-top box manufacturers with enough information to make devices that will work properly on their networks — will instead “require satellite and cable TV providers to disaggregate or separate their services so that a few companies could repackage them as their own without negotiating for content rights like everybody else in the market does today.”

How do “content rights” come into play here? There are dozens of manufacturers making BluRay disc players, but they aren’t expected to negotiate content deals. Likewise, while companies do need to make agreements with streaming services like Netflix to be included on their set-top boxes, they are not making licensing deals for the content served up by those services.

What Comcast likely means is that its business model is now reliant on the fees paid by customers for these boxes. Legislators recently attempted to find out just how much money the cable companies were making from the monthly fees associated with rented devices, and while the industry was anything but forthcoming in its responses, the lawmakers calculated that the pay-TV industry rakes in some $20 billion annually — and that’s not including fees for leased modems and routers for broadband customers.

Hess repeatedly makes the claim — again without supporting evidence — that having competition in the set-top box business would “chill” or “harm” innovation. That notion runs counter to the very idea of competition.

What incentive does Comcast have to innovate its devices when customers have no other option? The innovations that Comcast has made in recent years — notably, the launch of its X1 platform — have been attributable to either (A) the erosion of its pay-TV customer base by streaming video services [better known as “competition”]; and (B) attempts to present the company in a good light to lawmakers and regulators.

Another quizzical quote from the blog post:

“The proposal would require traditional TV distributors like satellite and cable providers – but not other video distributors – to re-architect their networks and develop an undefined new piece of customer equipment just so device companies can take apart the video service and selectively reassemble it.”

Who are these “other video distributors” that are somehow unfairly exempt from the proposed rule? Over-the-air broadcasters don’t need set-top boxes, just digital antennae, which are readily available from a wide variety of providers in a range of prices.

So Hess must mean streaming video, right? But we couldn’t think of a single major streaming video service that requires a single proprietary device for access. Netflix, Amazon, Google Play, Crackle, Hulu, Sling — even Sony’s PlayStation Vue — are available on numerous devices, from phones to tablets to gaming consoles to TVs. These “other video distributors” didn’t make the shortsighted decision of trying to make device rentals into a significant revenue stream.

Without explaining how, Hess writes that “Consumer costs would rise, content security would weaken, and consumer protections such as privacy would erode. It would undermine intellectual property rights and content licensing agreements.”

If costs for consumers go up, it will only be because Comcast and its ilk choose to drive them up. Comcast is already trying to give its customers less for their dollar by instituting data caps — and overage fees — on broadband service in more than a dozen markets.

As for content security, the FCC proposal would require that new set-top boxes use security protocols set by the pay-TV companies, so that doesn’t really track. Likewise, merely claiming that “privacy would erode” doesn’t make it so. And if Netflix can be watched on seven different devices in my house without undermining intellectual property rights or content licensing agreements, surely the cable industry can figure out a way to do the same with new, compatible set-top boxes sold by licensed third parties.

The one big question mark to the FCC proposal remains: Will consumers actually buy competing devices? As we noted earlier this week, there is indeed the possibility that new set-top boxes will be too pricey — or that not enough manufacturers will want to get into the box business — and that customers won’t buy them.

Comcast’s Hess points to the last governmental effort to introducing competition to this market — the CableCARD. The idea, introduced in a 1996 piece of legislation, was to give consumers a way to use third-party equipment.

Hess correctly notes that “consumers showed little interest” in CableCard, but as DSL Reports’ Karl Bode points out, the cable industry played no small part in scuttling interest in this pro-consumer option.

“[A] major reason for CableCARDs failure is the cable industry refusal to advertise it,” writes Bode, who also points to horror stories from Comcast CARD users who could not get them to work because the cable company would constantly de-authorize them. “As such, Comcast calling CableCARD a failure is kind of like mocking a losing marathon runner you repeatedly kicked in the crotch during the race.”

Finally, as one Consumerist reader recently asked: Isn’t it time to stop calling these devices set-top boxes? When was the last time you could actually rest one of these boxes on top of your TV set?