Innovating in the digital age requires flexible rules that keep pace with the latest technology. This is especially true in the video services market, where change has been fast and furious. That’s why Congress should act to repeal an expensive and innovation-restricting requirement on the design of set-top cable boxes.
Currently the FCC mandates that each cable box — the electronic device in your home that links your TV with your cable provider — use a particular type of technology known as a “CableCARD” that contains the security mechanisms needed to receive programming. The FCC’s rule, formally known as the “integration ban,” requires that these security functions cannot be hard-wired or otherwise integrated within the rest of the box.
The CableCARD requirement is a classic example of prescriptively regulating in order to reach a certain outcome. In this case, the desired outcome was competition, to create a retail market for set-top boxes. In its order the FCC stated the integration ban would “result in a broad expansion of the market for navigation devices so that they become commercially available through retail outlets.” The idea was for customers to buy cable boxes instead of leasing them, a universal box that could be used across providers with a removable CableCARD. It would be a marketplace similar to telephones.
But the intended outcome, a retail market for set-top boxes, never developed. Consumers just didn’t want to mess around with another piece of electronics that could potentially become outdated or incompatible. Instead, the overwhelming majority of consumers lease their set-top boxes through their cable provider. Moreover, an increasing number of consumers access digital programming from smart devices outside of traditional TV, such as tablets and smartphones. And, perhaps most telling, the introduction of YouTube, Hulu, Netflix, Amazon Prime and other delivery channels created different ways to access digital programming without a cable box. Recent research shows more people are cutting the cord on their cable subscription, particularly young people that are a key customer-building demographic.
The integration ban may have been well-intentioned, but the rule now accomplishes little more than impose old technology onto cable providers and consumers. Innovators are in the process of developing a “boxless” method of delivering cable service, where all control and delivery processing occurs in the cloud. But that requires flexibility in the evolution of box design, rather than the current rigid set-top box integration ban rule. Cable customers ultimately pay the price of the ban by missing out on the potential pace of innovation.
Fortunately there is an opportunity to repeal this outdated rule, with fresh momentum in Congress. The House will likely pass the repeal with bipartisan agreement, and it is now up for discussion in the Senate. Importantly, the current proposal preserves the CableCARD standard for use in retail devices like the TiVo, only affecting how these security features are embedded in boxes leased from the cable company. Customers can therefore continue to purchase their boxes, and retail sales could still become a bigger share of the set-top box market if that is the direction in which it evolves.