CableCARD: Still a Flop

by on September 28, 2006 · 8 comments

Ars covers an FCC filing by the National Cable & Telecommunications Association concerning the uptake of CableCARDs. The CableCARD has not proven a hit with consumers, to put it charitably. So far, 200,000 have been deployed, out of 73 million households with cable TV service. That’s about a quarter of one percent.

This is not a surprise. CableCARDs incorporate two of my least favorite things–digital rights management and government technology mandates–so I might be biased, but I have trouble seeing why anyone would want one. The cards were mandated by the FCC as a way of creating a competitive market in set-top-box replacements. The cable industry likes its set-top boxes, resents the FCC’s attempts to abolish them, and so they’ve done everything they could to resist their roll-out. Their primary weapon has been foot-dragging. They released a first generation CableCARD spec that was were crippled by limited functionality. More than a year after the first generation was unveiled, it remains unclear when the second generation will become available.


This puts the FCC into a quandary. Originally, it was going to ban integrated set-top boxes this year, but it extended the deadline when it became clear that most consumers would still be using them at that point. So far, the 2007 deadline remains on the books but it’s extremely hard to imagine that CableCARD deployments will go from 200,000 to 73 million in less than a year. It’s especially true because many TV sets in stores now don’t even have a CableCARD slot.

The FCC’s CableCARD mandate is the worst kind of government micro-management of private industry. Like the FCC’s “local loop unbundling” mandates on the Baby Bells and the “deregulation” of California’s power industry, government bureaucrats have decided they want to increase “competition” in a heavily regulated industry. But rather than repealing regulations that are currently acting as barriers to entry in that industry (such as liberalizing the cable franchise system) they’ve dreamed up a highly artificial “market” in which firms are only allowed to compete in ways carefully circumscribed by the regulators. Incumbents invariably find ways to subvert or co-opt such regulations, with the result that they wind up simply forcing the incumbents to jump through a lot of hoops and wasting a lot of money on lawyers and lobbyists.

In this case, it’s not obvious that consumers want or need a competitive market in cable box replacements. There’s a lot to be said for the simplicity of having your cable box provided by your cable provider. Forcing consumers to buy that functionality from a third party is likely to create confusion for those consumers who just want their cable service to just work.

The fear, I suppose, is that the cable industry will incorporate more and more functionality into its set-top boxes while refusing to allow interoperability with third-party devices, eliminating consumer choice in third-party devices like the TiVo. But a better way to deal with that would be to repeal the DMCA and other legal restrictions on reverse-engineering. That way, third parties will be free to develop compatible products with or without the assistance of the cable industry.

Technological process doesn’t happen by government edict. If you order an industry to develop a product against its will, it shouldn’t be a surprise when the result is crap.

  • Steve R.

    Tim, I would agree that a cable card is an unnecessary piece of hardware and that technological progress doesn’t happen by government edict. Nevertheless, the inference that the cable card’s supposed “failure” is a result inappropriate government micromanagement is misplaced.

    The reason that we are in this situation, I believe, is that the corporations are establishing the the rules, not the government. Your posts states: “The cable industry likes its set-top boxes, resents the FCC’s attempts to abolish them, and so they’ve done everything they could to resist their roll-out.” Clearly, the cable companies have no intent or incentive to manufacture a usable cable card since they see more money in a cable box. Hence it is not truly a government failure.

    While it is easy to rile against the government (it is a good target), I think that the government today, in many cases, simply acts as a puppet of the corporations. For example your August 3, 2006 post “Railroad Network Neutrality and New Technologies” states: “As a Ralph Nader report put it in 1970, the commission became “primarily a forum at which transportation interests divide up the national transportation market.”” The cable industry is doing the same. Addtitional corporate laws that prevent the government from doing its “public service” oversite function include the Digital Millennium Copyright Act (DMCA) and Copyright Term Extension Act of 1998.
    The role of corporations in creating free market failures must be explored and discussed if we are to have a real free market system.

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    Tim, I would agree that a cable card is an unnecessary piece of hardware and that technological progress doesn’t happen by government edict. Nevertheless, the inference that the cable card’s supposed “failure” is a result inappropriate government micromanagement is misplaced.

    The reason that we are in this situation, I believe, is that the corporations are establishing the the rules, not the government. Your posts states: “The cable industry likes its set-top boxes, resents the FCC’s attempts to abolish them, and so they’ve done everything they could to resist their roll-out.” Clearly, the cable companies have no intent or incentive to manufacture a usable cable card since they see more money in a cable box. Hence it is not truly a government failure.

    While it is easy to rile against the government (it is a good target), I think that the government today, in many cases, simply acts as a puppet of the corporations. For example your August 3, 2006 post “Railroad Network Neutrality and New Technologies” states: “As a Ralph Nader report put it in 1970, the commission became “primarily a forum at which transportation interests divide up the national transportation market.”” The cable industry is doing the same. Addtitional corporate laws that prevent the government from doing its “public service” oversite function include the Digital Millennium Copyright Act (DMCA) and Copyright Term Extension Act of 1998.
    The role of corporations in creating free market failures must be explored and discussed if we are to have a real free market system.

  • http://www.techliberation.com/ Tim

    Steve: what would you suggest? Having the FCC develop the CableCARD spec? Letting the consumer electronics industry do it? I agree that the cable industry is in some sense at fault for the failure of the CableCARD, but I don’t think I can really blame them for not putting forth their best effort on a product that’s going to harm their bottom line.

    The right way to make policy is to get the incentives right and then get out of the way and let the market work. The CableCARD fiasco did just the opposite: it kept perverse incentives in place and then tried to browbeat the industry into doing things that were against their interest. That’s never going to work.

  • http://www.techliberation.com/ Tim

    Steve: what would you suggest? Having the FCC develop the CableCARD spec? Letting the consumer electronics industry do it? I agree that the cable industry is in some sense at fault for the failure of the CableCARD, but I don’t think I can really blame them for not putting forth their best effort on a product that’s going to harm their bottom line.

    The right way to make policy is to get the incentives right and then get out of the way and let the market work. The CableCARD fiasco did just the opposite: it kept perverse incentives in place and then tried to browbeat the industry into doing things that were against their interest. That’s never going to work.

  • Steve R.

    The setting of open standards can be done by the government, educational institutions, professional associations and/or private industry associations. Doesn’t matter; just as long as they are effectively peer reviewed.

    Can we discuss a “concrete” incentive? It’s easy to assert “get the incentives right and then get out of the way and let the market work.” However, what would such an incentive look like?

    Two possible incentives, which I do not think either of us would agree to, are subsidies to the consumer and tax breaks to the industry for adopting/introducing the CableCard. So I will take the liberty to toss out these approaches.

    Currently, the cable/phone lines to a person’s are under monopoly control by the service provider. (I will admit to not being up on the current status of competitors sharing access to the physical cable). What this means is that the necessity for the CableCard in the abstract sense is actually unnecessary. In terms of the incentive question, I would accept the service provider having a monopoly in providing me with an HDTV signal that does not require a CableCard. Also I am accepting this for a basic minimal style service not a premium service.

    Should competition (in the form of shared use of the physical wire) become reality; a CableCard of some form will be necessary. At that point the service providers would have an interest to provide such a device. Again, I am looking at this from a tiered concept – the CableCard being the minimal form of HDTV access.

    Competition in this case could even lead to enhanced cards for a simple practical reason. I would rather have the CableCard in a slot in the TV rather than another ugly box, power cord, and remote control cluttering up the house.

    This last thought developed as I wrote, so perhaps the CableCard providers are simply missing a business opportunity by not exploring indirect benefits. The CableCard incentive is that it would be a hidden device that won’t add clutter to your house!!

    What would you have in mind as an incentive?

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    The setting of open standards can be done by the government, educational institutions, professional associations and/or private industry associations. Doesn’t matter; just as long as they are effectively peer reviewed.

    Can we discuss a “concrete” incentive? It’s easy to assert “get the incentives right and then get out of the way and let the market work.” However, what would such an incentive look like?

    Two possible incentives, which I do not think either of us would agree to, are subsidies to the consumer and tax breaks to the industry for adopting/introducing the CableCard. So I will take the liberty to toss out these approaches.

    Currently, the cable/phone lines to a person’s are under monopoly control by the service provider. (I will admit to not being up on the current status of competitors sharing access to the physical cable). What this means is that the necessity for the CableCard in the abstract sense is actually unnecessary. In terms of the incentive question, I would accept the service provider having a monopoly in providing me with an HDTV signal that does not require a CableCard. Also I am accepting this for a basic minimal style service not a premium service.

    Should competition (in the form of shared use of the physical wire) become reality; a CableCard of some form will be necessary. At that point the service providers would have an interest to provide such a device. Again, I am looking at this from a tiered concept – the CableCard being the minimal form of HDTV access.

    Competition in this case could even lead to enhanced cards for a simple practical reason. I would rather have the CableCard in a slot in the TV rather than another ugly box, power cord, and remote control cluttering up the house.

    This last thought developed as I wrote, so perhaps the CableCard providers are simply missing a business opportunity by not exploring indirect benefits. The CableCard incentive is that it would be a hidden device that won’t add clutter to your house!!

    What would you have in mind as an incentive?

  • Mark Seecof

    To an extent, the “cable-card” battle is like the “net neutrality” battle. ISP’s are fighting website operators and PC makers for the first bite at users’ spending. (For example, if ISP’s with local monopoly or oligopoly power (most broadband ISP’s, currently) win the “net neutrality” dispute they will levy tolls to skim off Google’s profits.)

    Cable-providers and consumer-electronics-manufacturers (TV-receiver and DVR makers, mainly) have a similar conflict.

    The real question is which of those two groups should subsist as a humble servant of the other. The cable providers want to exclude independent DVR’s and reduce TV makers to vending single-channel displays (“monitors”). The TV and DVR makers would like cable providers to just deliver the channels and otherwise get out of the way.

    Both sides wish to sell viewers’ eyeballs to advertisers when the viewers are “between channels” (e.g., when they look at the program guide to choose which channel to watch next). Both sides want to compete with their peers on the basis of features (like pix-in-pix) which can be implemented about as well in any of the boxes (set-top, DVR, or TV-receiver) in the chain. Awkwardly, a cable-provider can only compete with, say, a satellite-TV provider on the basis of such features by excluding TV/DVR makers from providing similar features.

    The cable-carriers actually have the advantage of position in this struggle, since they have local monopolies/oligopolies and control which signals ever get to a DVR or TV. In the existing marketplace, the cable-providers would win automatically. That’s why the struggle takes the form of lobbying the FCC (rent-seeking), because the competitive terrain is different there.

    I hate “competition” by rent-seeking, but I doubt we should just let cable-providers totally dominate consumer-electronics makers. For one thing, we all benefit from innovation in end-user devices and barriers to entry are much lower for would-be consumer electronics makers than for would-be cable providers. Giving cable providers control over end-user devices would suppress consumer-electronics competition quite a bit.

    I’ve been studying these issues for a long time, and while I strongly favor deregulation of cable franchises I don’t think that would suffice to resolve the bigger problem. The way things are now, new cable (or DBS or IPTV) entrants would likely behave in exactly the same way as the incumbents with respect to set-top boxes. Despite my laissez-faire leanings, I currently think that we will never be able to keep high-capital-cost, low-marginal-cost carriers (phone, cable, ISP) from strangling the very markets they serve until we simply forbid them to. Embed the end-to-end principal in law and policy. Tell carriers they can only carry–let them charge whatever they want for bandwidth, but forbid them to price by content even indirectly (e.g., discount for using carrier’s set-top box because it forces you to watch carrier’s adverts), and forbid price discrimination among customers.

    Of course, confining carriers to the dull business of carrying might send some hot capital elsewhere. So what? Grain elevators, electric utilities, and telephone companies (in the analog voice era) never lacked for capital despite laboring under non-discrimination rules. Today’s hot capital hopes to exploit a local monopoly which isn’t forbidden to discriminate. Let that money seek above-market returns somewhere else… perhaps by investing in a novel end-user device or service!

    (You may ask, “what about premium channels like HBO?” Well, let’s try this: force cable carriers to auction most of their channels (say, all but 10*) to program originators (say, four times yearly). Originators like HBO should set their own prices to viewers, and pay the cable carriers out of their revenues. We should permit a cable carrier to act as billing and collection agent for any program originator on a non-discriminatory basis. We should immediately abolish broadcast-channel must-carry, but we should allow any cable operator to carry any local broadcast (unmodified) on one of his (10*) reserved channels without payment to the local broadcaster. If a local broadcaster wanted to charge viewers, or be guaranteed a cable channel, he should have to bid for carriage like any other program originator. Finally, we should override territorial provisions in TV network contracts, so that a network could serve cable customers with a different program than any local-affiliate broadcaster.)

  • Mark Seecof

    To an extent, the “cable-card” battle is like the “net neutrality” battle. ISP’s are fighting website operators and PC makers for the first bite at users’ spending. (For example, if ISP’s with local monopoly or oligopoly power (most broadband ISP’s, currently) win the “net neutrality” dispute they will levy tolls to skim off Google’s profits.)

    Cable-providers and consumer-electronics-manufacturers (TV-receiver and DVR makers, mainly) have a similar conflict.

    The real question is which of those two groups should subsist as a humble servant of the other. The cable providers want to exclude independent DVR’s and reduce TV makers to vending single-channel displays (“monitors”). The TV and DVR makers would like cable providers to just deliver the channels and otherwise get out of the way.

    Both sides wish to sell viewers’ eyeballs to advertisers when the viewers are “between channels” (e.g., when they look at the program guide to choose which channel to watch next). Both sides want to compete with their peers on the basis of features (like pix-in-pix) which can be implemented about as well in any of the boxes (set-top, DVR, or TV-receiver) in the chain. Awkwardly, a cable-provider can only compete with, say, a satellite-TV provider on the basis of such features by excluding TV/DVR makers from providing similar features.

    The cable-carriers actually have the advantage of position in this struggle, since they have local monopolies/oligopolies and control which signals ever get to a DVR or TV. In the existing marketplace, the cable-providers would win automatically. That’s why the struggle takes the form of lobbying the FCC (rent-seeking), because the competitive terrain is different there.

    I hate “competition” by rent-seeking, but I doubt we should just let cable-providers totally dominate consumer-electronics makers. For one thing, we all benefit from innovation in end-user devices and barriers to entry are much lower for would-be consumer electronics makers than for would-be cable providers. Giving cable providers control over end-user devices would suppress consumer-electronics competition quite a bit.

    I’ve been studying these issues for a long time, and while I strongly favor deregulation of cable franchises I don’t think that would suffice to resolve the bigger problem. The way things are now, new cable (or DBS or IPTV) entrants would likely behave in exactly the same way as the incumbents with respect to set-top boxes. Despite my laissez-faire leanings, I currently think that we will never be able to keep high-capital-cost, low-marginal-cost carriers (phone, cable, ISP) from strangling the very markets they serve until we simply forbid them to. Embed the end-to-end principal in law and policy. Tell carriers they can only carry–let them charge whatever they want for bandwidth, but forbid them to price by content even indirectly (e.g., discount for using carrier’s set-top box because it forces you to watch carrier’s adverts), and forbid price discrimination among customers.

    Of course, confining carriers to the dull business of carrying might send some hot capital elsewhere. So what? Grain elevators, electric utilities, and telephone companies (in the analog voice era) never lacked for capital despite laboring under non-discrimination rules. Today’s hot capital hopes to exploit a local monopoly which isn’t forbidden to discriminate. Let that money seek above-market returns somewhere else… perhaps by investing in a novel end-user device or service!

    (You may ask, “what about premium channels like HBO?” Well, let’s try this: force cable carriers to auction most of their channels (say, all but 10*) to program originators (say, four times yearly). Originators like HBO should set their own prices to viewers, and pay the cable carriers out of their revenues. We should permit a cable carrier to act as billing and collection agent for any program originator on a non-discriminatory basis. We should immediately abolish broadcast-channel must-carry, but we should allow any cable operator to carry any local broadcast (unmodified) on one of his (10*) reserved channels without payment to the local broadcaster. If a local broadcaster wanted to charge viewers, or be guaranteed a cable channel, he should have to bid for carriage like any other program originator. Finally, we should override territorial provisions in TV network contracts, so that a network could serve cable customers with a different program than any local-affiliate broadcaster.)

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