Programmers Wary Of FCC’s Set-Top Plan

The FCC’s Google-backed proposal to break the pay TV’s industry monopoly over the set-top box is a Pandora’s box packed with trouble for TV programmers, including broadcasters, according to opponents of the initiative.

If consumers are able to replace the set-top they now lease from their cable or satellite provider with a box or app from a third party as the FCC is proposing, the opponents say, programmers could lose some control over their content and the advertising that supports it as well as the advantage that comes from hard-won channel positions.

They would also be exposed to still more competition from broadband or OTT channels, they say.

“I don’t know of any major cable programmer who is not concerned,” a one programmer said. “The sanctity of contracts that programmers have with MVPDs [cable and satellite TV operators] need to be protected with strict enforcement.”

“Content owners share the concern about what this rule will do to their copyright protections,” said a spokesman for the pay TV industry’s The Future of TV coalition.

“There’s serious legal issues … [in the FCC’s proposal], and we’re paying attention,” said NAB President Gordon Smith on C-SPAN’s The Communicators shortly after the FCC’s Feb. 18 vote to consider the proposal in a rulemaking proceeding.

The proposal would essentially clear the way for Google and other high-tech companies to develop and sell TV navigation devices — set-tops or apps — that consumers would be able to use to seamlessly access both their traditional cable fare and OTT streaming services such as Netflix.

“In the end, this proposal is about one thing: putting the future of TV in consumers’ hands,” said FCC Chairman Tom Wheeler.

The devices envisioned also would include sophisticated search functions that would let consumers bypass on-screen grids and find whatever programs they want quickly while also providing data on where to buy on-demand programs at the lowest prices.

The MVPDs would have to make channel and other information available to third parties under standards to be set by an “independent, open-standards body,” the FCC said.

The FCC majority believes the plan will save consumers money. The agency said that 99% of cable and satellite subscribers are currently leasing set-top boxes, with the average household paying $231 annually in rental fees — a collective total of some $20 billion a year.

“Consumers who enjoy their current set-up through their pay-TV provider do not have to take any action,” the FCC said. “The proposal would instead provide an option for consumers looking for a competitive device or app to access the pay TV content to which they currently subscribe.”

Cable and satellite TV operators have the largest obvious stake in the FCC’s rulemaking because they stand to lose the $20 billion a year that subscribers currently pay to lease the set-tops.

But programmers say they would also be harmed.

The new boxes and apps could diminish the competitive advantage that broadcasters and other cable programmers currently have over OTT services due to their pay TV carriage, because the new boxes would have the effect of leveling the playing field among all video programmers, they say.

Opponents say the proposal would clear the way for third-party device providers to replace the ads in programs accessed via their devices.

The more likely threat, they say, is that the third-party providers may insert their own pop-ups, wraparounds and banner ads to the streams that consumers use to access and view broadcast programming and other traditional pay-TV fare.

“Google wants to build a business on this content without paying a license fee for it,” the Future of TV coalition spokesman said. “This will drive down the value of content and hurt programmers’ ability to continue developing high quality shows.”

In a dissenting statement to the rulemaking, Republican Commissioner Ajit Pai complained that there was nothing in the proposal that would prevent a set-top box manufacturer from replacing the commercials in a TV show with ads sold by the manufacturer.

“This proposal would allow set-top box manufacturers to profit from the content produced by others without paying those programmers at all,” he said.

Despite Smith’s comment on C-SPAN, NAB seems reluctant to get too deeply into the fight.

“NAB remains very concerned with the FCC proposal as it relates to copyright protections for programmers,” said NAB spokesman Dennis Wharton. “However, we also believe the FCC inquiry highlights the fact that cable/pay TV set-top box fees are a primary cause of rising cable rates, rather than modest retransmission consent fees received by local TV stations.”

As both programmer and operator, Comcast, whose vast portfolio includes NBC, has much at stake.

“Unfortunately, the majority of commissioners have chosen to ignore the many voices of reason and instead to pursue a proposal that strays well beyond the FCC’s authority under the Communications Act, and would violate copyright and other statutory and constitutional protections,” said Comcast Senior EVP David Cohen in a company blog.

Representatives of ABC, CBS and Fox declined comment.

Proponents of the FCC’s proposal say they don’t buy the ad-zapping arguments or claims that the proposed shift will have any impact on channel positioning or other existing contractual provisions between programmers and pay TV operators.

The proponents also insist that the initiative will be a boon for consumers. They save money by buying rather than leasing boxes. and they will be better able to search for programs and switch from conventional TV to broadband OTT services.

“With so many billions of dollars in rental fees at stake, we can expect the opponents of competition to make every argument they can as to why the FCC should preserve the status quo,” said John Bergmayer, a senior staff attorney for the Public Knowledge, which supports the proposal.

Added Matt Wood, policy director for the watchdog Free Press: “All we’re trying to do here is let people integrate their video choices on a single device.”

A senior FCC official told TVNewsCheck that the agency, responding to concerns from broadcasters and pay TV programmers, has tentatively concluded in the rulemaking not to require programmers to release key data that third-party navigation box and app makers would need to delete ads already embedded in pay TV programming.

The FCC official also said that the agency does not believe that pop-ups, wraparounds and other overlay ads by third-party box and app makers will be a problem, but that the agency is open to comment on the issue.

In addition, the FCC official said that the intent of the rulemaking is that all contractual provisions between pay TV programmers and distributors, including those over channel positioning, will continue to be honored.

All the FCC proposal is really saying, according to this official, is that the agency doesn’t want consumers to continue having to use only the pay TV industry’s set-top boxes and apps to get their pay TV.

According to the pay TV sympathizers, Google has been a key proponent of the FCC’s proposal, because the Silicon Valley giant wants to provide access to both online TV and traditional pay TV fare through its online search engine capabilities.

In a recent FCC filing, Google urged the agency to promote competition in the market for navigation devices. “Much more is at stake here than just the ease with which an MVPD subscriber can channel surf,” Google said.

“[I]nnovation and competition” in the market for navigation devices would promote the possibility for “an integrated, customized user interface that presents all of the content that the subscriber has purchased from an MVPD alongside content available from sources on the Internet,” it added.

Google declined to comment on this story.

Before the FCC’s proposed rules go into effect, the agency will need to vote again on a final rule, after reviewing comments from the industry and public.

To lead the lobbying, both Google and the pay TV industry have organized their own coalitions.

Members of Google’s coalition, Consumer Video Choice, include the Google-backed watchdogs — Public Knowledge and the New America Foundation’s Open Technology Institute — along With TiVo, Vizio and Hauppauge.

Members of the pay-TV industry’s lobbying coalition — Future of TV — include AT&T, Comcast/NBCUniversal, Dish Network, the Motion Picture Association of America, National Cable & Telecommunications Association and Time Warner Cable.