The FCC Tackles Settop Boxes Again

Settop boxFCC Chairman Tom Wheeler just announced a proposal that would take another shot at standardizing settop boxes. The FCC is proposing that standard protocols be developed, enabling people to then buy a box from a third-party vendor rather than pay a monthly rental to the cable companies for each box.

Chairman Wheeler says that this is different than the AllVid proposal that has been around for years and that companies Best Buy, Google, Sony and TiVo recently resurrected. AllVid would create an updated version of a cable card – a device that could be added to an off-the shelf settop box to make it work. The FCC rejected AllVid a few years ago and many engineers think it’s not practical.

This time the FCC wants the industry to develop open standards for settop boxes. Chairman Wheeler was quoted saying, “We need to have standards the same way we have standards developed for cell phones, standards developed for Bluetooth, standards developed for Wi-Fi”. If such standards were developed, then third party manufacturers could make settop boxes directly for consumers, meaning they could avoid having to lease boxes from the cable companies.

This is obviously intended to quell the complaints from consumers about having to lease settop boxes. Many of the large cable companies have crept the monthly lease prices up to $8 per month, per box. My small clients can buy settop boxes that cost between $100 and $180, and surely the giant cable companies can buy these boxes for less than that. The math is pretty straightforward and a cable company can recover the cost of a $150 box in 18 months – and the average box probably stays at a home for three of four years, often longer.

Even with open standards there would be a number of technical challenges with the idea, due to the fact that all cable providers don’t use the same technologies. The settop boxes in a standard cable system operate differently and perform different functions than a box in a fiber network or DSL network. And even traditional cable systems aren’t going to keep the same technology forever and there is already some experimentation of converting cable systems to IPTV.

The idea of some standard solution gets even murkier when you consider that cable companies have been experimenting with delivering cable on other boxes such as Roku and the Xbox. This is not something that they have been able to do casually and it apparently took years of research to make this work. And not everybody is doing this the same way and there is a lot of custom programming and unique apps written to get cable to work on a different receiver.

There are also changes underway in the industry that have to be considered. There was a time when most of the brains of the cable delivery was in the settop box. All of the functions a customer used were controlled by software loaded onto the box and which controlled hardware within the box. But the industry has been experimenting with moving a lot of these functions to the ‘cloud,’ or at least to the headend. For example, some cable companies are now offering remote DVR storage, letting customers record shows at the headend to watch later.

One just has to wonder if a standard can be created that will allows companies to offer widely different features and options for customers? It probably can be done, but the time to do this was a decade ago when settop boxes were similar everywhere and the functions that cable providers offered were similar. We are finally starting to see experimentation among providers which has to complicate any attempt to create standards.

If the main goal is to give consumers a way to escape paying too much for cable boxes there is a much simpler solution. Why not just force every cable company to sell whatever box they use to customers at cost? This would give customers a way out of the monthly rentals and would shrink the claimed excess billions of dollars of cable profits. This would also create a secondary market for settop boxes since customers would be free to sell one that they owned to others. This would allow every cable provider to continue to pursue a different technological path with their boxes while still offering a break to consumers. This could be done immediately without having to wait for a protracted period of developing standards, and then manufacturing the boxes to meet those new standards.

The Alternate to Cable Cards

cablecardThe FCC just sent out for public comment a proposal to implement AllVid as an alternative to cable cards. AllVid was first introduced in 2011 by a group called the AllVid Tech Company Alliance that included Best Buy, Google, Sony and TiVo. AllVid was proposed as a universal adapter for all types of pay TV content on differing technology platforms like cable systems, satellite TV, VDSL systems, and fiber networks. This was basically going to be a universal cable card substitute that would work anywhere.

The FCC rejected the idea as costly and impractical. The original cable card order has been a boondoggle for years and only a small percentage of households ever went through the hassle of avoiding settop box fees from the cable companies. Even five years ago the FCC thought it was not realistic to think there could be a universal adapter that would work with all of the devices in the world. But since then the world of boxes that can receive cable signal has proliferated wildly making it hard to imagine a solution that would work with anything. There are now traditional cable companies sending programming to things like the Roku box and game consoles.

But the AllVid group apparently is good at lobbying and brought the idea back to the FCC again through the DSTAC (Downloadable Security Technology Advisory Committee), a formal committee under FCC auspices. This group was recently looking at what a post-cable card world might look like and AllVid got pushed back into the conversation. Because the DSTAC group recommended that the FCC ask for public comments the FCC sent the group’s report out, but nobody knows where the FCC might stand on the issue.

It’s impossible to think that there could even be a universal solution. The world of settop boxes is changing quickly. There is Time Warner Cable that says they want out of the settop business and are trialing both Roku and Xbox consoles as a replacement. There is Charter which builds the settop box into its base fee and doesn’t charge specifically for the settop box. As part of the attempt to buy Time Warner Cable and Bright House Networks they told the FCC that the boxes are free to customers. It’s been reported that Comcast now has a proprietary box with its own flavors of features. Google supposedly has its own box that nobody knows much about.

And there has never been a cable card solution found for settop boxes that hand off IPTV networks used on DSL or fiber network and those companies all got waivers from the original cable card order.

What probably keeps the topic alive is that there is a very vocal minority of people in the country who love the cable card order. They will do anything to avoid paying a fee to the hated large cable companies. So one has to imagine that this group is also behind AllVid, which is reported to have some support on Capitol Hill.

But every reason why the FCC rejected this the first time is still true and now there are more reasons why this is a bad idea. If we really want a solution so that people don’t have to pay for a monthly settop box it ought to come from Congress. I think every company that sells video would be glad to sell boxes directly to users at cost who insist on having them. That way each company could sell whatever box they use and there would never be compatibility issues. But the AllVid folks seem to think that by somehow coming up with a solution that will work on all networks that there will be such a volume of sales that the price for the box will come down. That is wishful thinking and so the whole industry has to watch this be argued yet another time after we all thought it was put to bed.

How Much Should You Spend to Stay in the Cable Business?

Old TVOne of the questions I am often asked is, “How much money should I be willing to spend to stay in the cable TV business?” It’s a really great question because I think every small cable provider probably understands that they are losing money today on cable. Plus everything they read tells them that the cable business poised to undergo tremendous change.

The cable business is by far the most capital intensive of the three triple play services. Cable headends are expensive and they seem to need constant upgrades. Programmers alone cost you a lot of money. They move networks between satellites; they change the compression on channels; they push you to add more high definition channels and additional networks. And settop boxes cost a lot to maintain. They break and wear out. People move and take them with them. And they get obsolete – Scientific Atlanta recently stopped supporting one of the more common settop boxes in the market.

Additionally there is always pressure to offer all of the bells and whistles. A lot of content is being added to video on demand and customers seem to really like it (although they don’t spend as much on VOD movies as we were all once promised). The big cable companies offer TV everywhere so that customers can watch TV on computers, laptops, tablets and smartphones. The middleware vendors are always coming out with updates and improvements and want to charge more.

This leads you to ask the big picture question – how much money do I pour into a business line that is losing money? This is something that every business faces from time to time. I know a decade ago many of my clients faced this same question with their sales of PBX and key systems. Most of them lost money on that business line if they were honest about the real cost of being in the business. And many of them decided to cut the cord and ditched the losing business line, although others kept it.

Business school basics would tell you that you need to ditch lines of business that are losing money. But dropping cable is not easy, and for a triple-play provider it would be like McDonald’s dropping the Big Mac. It’s not easy for a triple-play provider to decide to get out of the cable business, and for most of them it’s not practical. So what do you do about this situation? Every company is different, but here are some ideas worth considering:

Charge More. If your cable line of business is not profitable, then reduce your losses by raising your rates more than normal. I had one client who raised rates 10% per year for four years and finally got close to profitability. You will lose some customers along the way, but there is no particular reason for you to subsidize a losing product by having rates lower than the surrounding market. And within the product line make sure you are charging enough for settop boxes, HD channels and the other ancillary cable products.

Pinch Pennies on Capital. If you are losing money on cable then you will never recover any investment made in cable assets. Delay upgrades and delay putting in new channels as long as possible. Make sure you are buying forward-looking settop boxes that will be compatible with future changes in the industry.

Don’t Try to Do Everything.  At some point you need to decide if you can really afford all of the bells and whistles. You really need to understand your market and your customers and decide what will happen if you don’t offer TV Everywhere or if you don’t update the VOD system. Let’s face it, little companies can’t keep up with big companies like Comcast. Comcast has headends that serve millions of customers and that makes it easier for them to justify upgrades. Unless your customers absolutely demand everything, then start paring back your offering. Perhaps cut channels and don’t implement every industry upgrade. It may not feel right to not have the state-of-the-art system, but it feels pretty good to not be bleeding money.