Open Set Top Box: A Slippery Slope to À La Carte and Weakening Power of MVPDs

The FCC’s February 18, 2016 NPRM seeking to open set-top boxes (AKA “Unlock the Box”) is more than it seems. The proposal would allow consumers to watch content they are entitled to view on their cable system on other devices as well. The cable industry’s strong resistance is filled with arguments about copyright infringement and consumer quality control concerns. The likely real concern is more insidious. It’s about shifting consumer perspective and expectations about content rights. These potential shifts seriously threaten the power of the cable industry.

Consumer Expectations Turned Upside-down

When a cable operator limits a consumer’s ability to watch a show to the operator’s set-top box, the unstated perspective is that the content is controlled by the cable company. The cable company can limit it per the terms of their subscription agreement with the customer. The cable operator fuses the content agreement and the showing terms. It’s similar to a movie theater ticket only allows you to see a show at the movie theater you bought it at, and only according to their terms. Their terms may mean, for example, that you can only watch the movie during the time they show it, that you can’t bring your own food and drinks. You certainly can’t buy a movie ticket and then use the it to watch the movie at a different theater!

Open set top box turns this perspective on its head. The customer now sees themselves as having paid for the content rights. As such, they will see these as independent of the showing terms controlled by the cable operator. The customer can enjoy the content on the terms they wish (consistent with the original license of course). It is if you could use your movie theater ticket at any theater or even watch it at home. The movie theater who sold you the ticket simply becomes a content reseller that has an optional viewing room.

How will the market react? When consumers can obtain content rights independent of platform, they will seek vendors offering it on the best terms. Consumers will be able to buy content rights from multiple sources and use them on multiple devices. This could even eventually lead to competition between cable companies in different service territories.

Long-term Implications More Dire for Cable

With this new paradigm, a consumer could, for example, watch the content via streaming into the Cloud (TiVo in the cloud). The could could deliver the content to a device located anywhere the consumer might be[1] – even outside their cable company’s territory. From there it’s only a short step to enabling consumer getting content rights to view content on their local cable system via a subscription agreement with an MVPD not serving their territory. This could work similar to the way a utility customer can buy electricity from suppliers other than their local electric company and then just pay their local electric company for carriage. Cable systems will likely lose the power to force consumers to buy large bundles of content. Too many other purchasing options will exist. Cable system revenue and subscribers, already falling, will likely plummet even faster. This existential fear is the heart of the open set-top box debate. The real debate is not driven by cable operator’s concern for customer experience or other abstract straw men.

Given the potential far reaching implications of the open set-top box initiative, it’s no wonder the FCC is starting to have reservations about it.

[1] Paragraph 46 of the NPRM suggests as much, “In fact, our proposal [the FCC’s NPRM] may make it easier for MVPDs to offer could-based services because it gives each MVPD the flexibility to choose the standards that best achieve its goals.”