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FCC and STBs: Opening Pandora's set-top box

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FCC and STBs: Opening Pandora's set-top box

This is the secondinstallment of a two-part series on the FCC's proposal to open up the set-topbox market. The first installment can be found .

In some ways, the FCC's current proposal to unlock the set-top box has been 20 years inthe making. And it could be coming too late.

Two decades ago, Congress passed the Telecommunications Actof 1996, directing the FCC to create rules that would lead to the commercialavailability of set-top boxes. The first serious initiative to result from thatmandate was the CableCARD,a credit-card sized device that could plug into any set-top box and unlockcable and telco TV channels for the viewer. Next came Tru2way, meant to work inconjunction with the CableCARD to deliver interactive, two-way services.

Neither technology caught on with consumers and both arewidely viewed as costly failures.

Now, the FCC has introduced its latest set-top box proposal,which would require pay TV providers to share discovery and securityinformation as well as programming with third-party device manufacturers andapp developers. Those third parties, such as Alphabet Inc.'s GoogleInc. and Amazon.comInc., could then use that information and content to developproducts and services that would serve as alternatives to the leased set-topboxes most households rely on now.

Critics say, at best, this proposal is just anotherCableCARD product failure in the making.

"It's not like we haven't tried to develop a consumermarket for set-tops. We did with the CableCARD — that failed miserably,"American Cable Association CEO Matthew Polka said in an interview. "Out of55 million set-top boxes that were installed in homes, only 500,000 of themwere purchased at retail. Consumers did not flock to Best Buy or wherever tobuy set-top boxes."

The reason for that, according to Polka, is that consumersdo not want to bother with the expense or hassle of buying, setting it up andmaintaining their own box.

"It's hard for a consumer to go out and buy a box andmagically connect it and expect it to work," he said. "It's verydifficult."

At worst, critics worry the FCC proposal could be exposingcontent owners to undue risk. In an April meeting with Commissioner Jessica Rosenworcel,Walt Disney Co.warned that because programmers in general do not have the same contractualrelationships with third-party set-top box manufacturers, they are "concernedthat any enforcement mechanisms that could be adopted by the FCC as part ofthis proceeding would not adequately assure adherence to the terms governingthe distribution of content."

Indeed, SNL Kagan analyst Mike Paxton noted there are anumber of reasons why many content owners are of the FCC's proposal.

"Their concern is this may upset the whole economicapple cart in terms of how they get paid, whether it be through opening uptheir content to new types of theft or piracy, or changing the advertisingecosystem, or changing the analytics capabilities," he said. "As theylook at this, they are becoming much more aggressive in saying this is notsomething we want to do."

FCC Chairman Tom Wheeler, however, has the proposal maintains many of themost important aspects of the traditional video distribution regime, such asprotections against copyright infringement and theft of service. The proposalalso requires traditional pay TV operators to offer at least "one contentprotection system that is openly licensed on reasonable and non-discriminatoryterms."

But Marc Tayer, president of MediaTech Insights and authorof the book Televisionaries, notesthat even among the largest operators, some security systems have a history ofbeing more secure than others.

"One of most important things that always gets missedis the security systems inside those boxes that protects all of that valuablecontent," he said in an interview, noting that the boxes currently put outby ARRIS Group Inc.have not been hacked in 25 years. "For 25 years now, pirates have not beenable to break it."

Given the swift negative reaction from pay-TV providers andcontent owners; the potential security risks; and the unfortunate precedent ofboth the CableCARD and Tru2way initiatives, one might wonder why the FCC wouldchoose to once again tackle this issue.

The most popular theory among insiders in the pay TVindustry is that Google is using its clout to influence both the commission andthe White House.

"I think the Google conspiracy theory is real,"Tayer said. Asked to elaborate, Tayer explained he believed representatives andlobbyists for the search giant have been making "incredibly positivesounding arguments" with regards to opening up the set-top box market,prompting President Barack Obama to take the unusual action of wading into aregulatory debate over technology.


President Barack Obama

In April, the White House posted a blogthat described the set-top box as a symbol of "anti-competitivebehavior—companies stacking the deck against their competitors and their workers"and as "a stand-in for what happens when you don't have the choice to goelsewhere."

Tayer said he has great respect for the president but doesnot think Obama should have weighed in on the set-top box debate.

"When it comes to this issue, he doesn't have the timeor background to dig in deep to it. He has so many more important things to doin the world," Tayer said.

Polka agreed.

"The dirty little secret about this set-top boxrulemaking is it's all about Google getting consumer television viewing data,"he said. "This is the FCC and the White House working with Google to givethem a rulemaking that would allow them to have access to consumer televisionviewing data that they do not have today."

Polka pointed to recent datafrom Campaign for Accountability, a nonprofit watchdog organization, showingthat employees of Google and its related companies have had unrivaled access toWhite House officials. The organization counted 427 meetings between the timeObama took office and October 2015. Analyzing the same data, recode foundthat Google's head of public policy, Johanna Shelton, met with White Houseofficials 128 times during that time period, whereas Chief Diversity OfficerDavid Cohen met with White House officials closer to 50 times.

Google did not respond to a request for comment, but it didaddress similar accusations in 2015, noting that when one only looks at thenumber of meetings and not the substance of them, it can be misleading.

"Of course we've had many meetings at the White Houseover the years," Google spokeswoman Rachel Whetstone wrote in a 2015 blogpost. Among the topics discussed at those meetings were "patent reform,STEM education, self-driving cars, mental health, advertising, Internet censorship,smart contact lenses, civic innovation, R&D, cloud computing, trade andinvestment, cybersecurity, energy efficiency and our workplace benefitpolicies."

In addition, other so-called "meetings" includedvisits by production crews for the YouTube interviews with the president, andthe photographing of the White House art collection for Google's Art Project.

Looking beyond Google, there could be a number of otherfactors driving the FCC's latest proposal. For one, the set-top box marketexperienced a wave of consolidation in 2015, as first ARRIS plans to acquire in a $2.1 billion deal,making ARRIS the world's leading set-top box vendor. Just a couple of monthslater, Technicolor saidit was acquiring Cisco Systems Inc.'s set-top box business for $600 million,creating the world's second-largest vendor.

Between ARRIS and Technicolor, Tayer said the U.S. set-topbox market is essentially a "duopoly," though he added that bothcompanies "are really good at what they do — designing and manufacturingthose boxes in high volume."

Another consideration could simply be timing. It has beenroughly 18 months since the U.S. House of Representatives and Senate the STELA ReauthorizationAct, which included language directing the FCC both to get rid of the rulesthat had given rise to the CableCARD and to begin looking for new solutions.

In response, the commission established the DownloadableSecurity Technical Advisory Committee, whose members included representativesfrom AT&T Inc.,Sony Corp.,DISH Network Corp.,Amazon, Cablevision Systems Corp.,Comcast, Google, Samsung Group,Charter Communications Inc.,ARRIS and TiVo Inc.,among others. In August of 2015, the committee released its , though it wasunable to come to a consensus.

Essentially, the members of the committee were split betweenan apps-based approach, favored by the cable operators, and a virtual headendsystem proposal, favored by companies like Google and Amazon. The latterproposal, which called for retail set-top boxes supported by network securityand conditional access that is performed in the cloud, is the one the FCC optedto push forward.

But if timing is really the driving factor, it could also bea major hurdle. Reply comments on the FCC's proposal are due by May 23. Thatgives the commission just a few months before the November elections whenAmerica will select a new president, who, once inaugurated, will likely appointa new FCC chairman. That gives the current commission until early 2017 at the latestto wade through thousands of pages of comments and reply comments, to make anynecessary changes or tweaks to its current proposal, to implement the new rulesand to face down any legal challenges that result.

Given the two decades it has taken for the set-top boxmarket to reach this point, that could be a tall order to accomplish in lessthan a year.