The cable TV industry is being disrupted in a variety of ways, thanks to the rise of "cord cutting" and the popularity of streaming services like Netflix. But there's one area where the cable business still reigns supreme, and that's the market for "set top" or cable boxes—in other words, the device consumers use to bring in signals from their cable provider and send them to their TV sets.
Surveys have found that over 90% of cable subscribers pay monthly for their cable box, charges that add up to an average of about $230 per year. That's far more than the device is worth, critics say, and subscribers often pay that amount for several years in a row. The Federal Communication Commission now says it wants to "unlock the box" and give consumers more choice when it comes to which cable device they buy and from whom.
FCC chairman Tom Wheeler said this week that cable and satellite providers make an estimated $20 billion a year by renting cable boxes, and the cost of these devices has climbed by 185% over the past two decades. During the same period, he says, the cost of almost every other electronic device—including computers—has gone down dramatically. In a post published at Re/code, Wheeler said:
Thanks to advances in technology, American consumers enjoy unprecedented choice in how they view entertainment, news and sports programming. You can pretty much watch what you want, where you want, when you want. But there’s one glaring exception in the competitive video marketplace: The set-top box.
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What the FCC wants to do is to open up the market for cable boxes to third parties, so that consumers can buy their boxes from anyone, whether it's Google or Apple or Roku (the full FCC proposal is here). As Wheeler notes, this is exactly the kind of thing the FCC did with land-line telephones, which were also part of a monopoly at one point—consumers had to lease their phones from AT&T if they wanted to have phone service.
The FCC unlocked competition and empowered consumers with a simple but powerful rule: Consumers could connect the telephones and modems of their choice to the telephone network. Competition and game-changing innovation followed, from lower-priced phones to answering machines to technology that is the foundation of the Internet.
What Wheeler gets right in his analysis is that most cable-TV users are probably frustrated not only with the cost of their cable box, but with the hodgepodge of devices and remote controls they must use to get the content they want to their television. There's the cable box itself, plus many people have at least one or two other boxes like an Xbox or a Sony Playstation, or maybe a Roku or Google Chromecast or an Apple TV, each one with its own interface and remote and connections.
Not surprisingly, perhaps, the cable industry is mounting a campaign to oppose the FCC's proposals. In a clever strategic gambit, it looks as though the industry is going to argue that breaking up the set-top box monopoly is a mistake, because they themselves are trying to get beyond the set-top box metaphor, and move to world where TV channels come through dedicated apps on supported devices.
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This is a smart response for the cable industry to make because it's arguably true: Apple in particular is trying to move television or video-viewing to an app-style ecosystem with its new Apple TV service. Instead of channels, the interface looks very similar to the iPhone or iPad, with an app store from which consumers pick the shows and movies they want to watch.
At the same time, however, tens of millions of people continue to use old-fashioned cable boxes, and probably will for some time to come, either because they are too old to care about Apple TV and downloading a bunch of apps, or because they are happy with the cable service they have already. And cable providers would probably like to continue getting those billions in rental charges for as long as possible.
It's not just the revenue from the box rental either—the cable companies also make money by selling premium real estate on their boxes to specific media providers, and the only way they get to cut those deals is because they control both the box and everything that flows through it.
Even if they don't aggressively reject the FCC's proposals, of course, there are other ways for cable and satellite providers to stymie Wheeler's plans. After all, they managed to kill a previous attempt to open up the cable-box market—it was called CableCard, and it was theoretically an open standard. But everything had to be approved by an industry-controlled group called CableLabs, so progress was slow and eventually everyone gave up. Will it have any better luck this time?