New Settop Box Rules

roku-3-2Chairman Tom Wheeler proposed new settop box rules last week for the eight largest cable companies. The proposal reverses much of the Chairman’s last settop box proposal that would have required each cable company to find a way to support a common cable box that customers could buy.

The large cable companies lobbied hard that the first proposal added a lot of costs without much public benefit (and they were right). The new proposal is based partially on recommendations made by the large cable companies.

The core of the new proposal is that the large cable companies will have to offer free apps that would allow customers to receive their cable signal on a variety of devices such as a Roku box, a smart-TV or a SONY Playstation.  Any customer electing to use the app could return their settop boxes and avoid the expensive fees (which have grown to as high as $10 per box).

I’m guessing that the cable companies will make the app option pretty vanilla and it will provide a channel line-up as well as a way to easily tune between channels. The big question will be if the cable companies will give away their more advanced features for free as part of the apps. For example, today many of these companies have cloud-DVR and other advanced services and we’ll have to see if the companies will make customers lease a settop box to get these additional features.

And as I wrote in an article last week, a few of the biggest cable companies like Comcast have put a lot of development into new features for their latest settop boxes. Having a free app alternative might nudge the cable companies to lower settop box prices compared to today to entice people to instead use the box.

The proposed new rules also have a requirement that the cable companies must include other sources of programming in their search guide. For example, if a customer is looking for a movie not available at the cable company, the search might show that the movie is instead available at Hulu or Netflix. Comcast is already doing this today on a limited basis by bringing Netflix into their line-up as another ‘channel’.

This is a very odd requirement that would seem to favor OTT providers the most. It will be curious to see how customers like idea of constantly being offered programming to which they may not be subscribed. I can foresee one consequence of this move in that it might prompt cable companies and OTT providers to work together to create an ‘on-demand’ product for OTT content. That could benefit both companies.

The FCC will be establishing some kind of clearing house for the apps. They learned a lesson with the cable card order many years ago that if the cable companies are left to their own they will make it hard for customers to find the new alternative. The FCC wants to approve apps and somehow bless them, in a process that would need to be worked out.

These new requirements will not apply to smaller cable providers – which is good since it’s hard to imagine them having to do the work needed to create apps for a wide variety of ever-changing devices. But that doesn’t mean that there won’t be consequences for smaller companies.

If it turns out that customers love the free apps there will be pressure on smaller companies to somehow do the same thing. And perhaps these app, once developed will be made available to the smaller cable providers. But it’s likely that the apps are going to be written for two platforms – standard HFC cable networks and satellite TV. That means that there will probably be nobody writing similar apps for fiber or DSL-based cable systems.

One would also think over time that, if successful, these new rules will lower the demand for settop boxes. Over time that might drive up the cost of settop boxes for everybody else. However, to some extent we are already on that path since the biggest cable companies like Comcast and DirecTV have already migrated to custom settop boxes and don’t buy from the normal industry vendors.

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