The FCC appears to be dragging the TV industry, which is increasingly app- and Internet-based, into years of rulemakings, unnecessary standards development and oversight, and drawn-out lawsuits. The FCC hasn’t made a final decision but the general outline is pretty clear. T he FCC wants to use a 20 year-old piece of corporate welfare, calculated to help a now-dead electronics retailer, as authority to regulate today’s TV apps and their licensing terms. Perhaps they’ll succeed in expanding their authority over set top boxes and TV apps. But as TV is being revolutionized by the Internet the legacy providers are trying to stay ahead of the new players (Netflix, Amazon, Layer 3), regulating TV apps and boxes will likely impede the competitive process and distract the FCC from more pressing matters, like spectrum and infrastructure.

In the 1996 Telecom Act, a provision was added about set top boxes sold by cable and satellite companies. In the FCC’s words, Section 629 charges the FCC “to assure the commercial availability of devices that consumers use to access multichannel video programming.”  The law adds that such devices, boxes, and equipment must be from “manufacturers, retailers, and other vendors not affiliated with any multichannel video programming distributor.” In English: Congress wants to ensure that consumers can gain access to TV programming via devices sold by parties other than cable and satellite TV companies.

The FCC’s major effort to effect this this law did not end well. To create a market for “non-affiliated equipment,” the FCC created rules in 1998 that established the CableCARD technology, a module designed to the FCC’s specifications that could be inserted into “nonaffiliated” set top boxes.

CableCARD was developed and released to consumers, but after years of complex lawsuits and technology dead ends, cable technology had advanced and few consumers demanded CableCARD devices. The results reveal the limits of lawmaker-designed “competition.” In 2010, 14 years after passage of the law and all those years of agency resources, fewer than 1% of pay-TV customers had “unaffiliated” set top boxes.

It’s a strangely specific statute with no analogues for other technology devices. Why was this law created? Multichannel News reporting in 1998, representative of other reports at the time, has some clues.

[Rep.] Bliley, whose district includes the headquarters of electronics retailer Circuit City, sponsored the provision that requires the FCC to adopt rules to promote the retail sale of cable set-top boxes and navigation devices. 

So it it was a small addition to the Act, presumably added at the behest of Circuit City, so that electronics retailers and device companies could sell more consumer devices.

The good news is that by the law’s straightforward terms and intent, mission: accomplished. Despite CableCARD’s failure, electronics retailers today are selling devices that give consumers access to TV programming. That’s because, increasingly, TV providers are letting their apps do much of the work that set top boxes do. Today, many consumers can watch TV programming by installing a provider’s streaming TV app on their device of their choice, manufactured and sold by dozens of companies, like Samsung, Apple, and Google, and retailers. Unfortunately, Circuit City shuttered its last stores in 2009 and wasn’t around to benefit.

But the new FCC proposal says, no, mission: not accomplished. There’s some interpretative gymnastics to reach this conclusion. The FCC says “devices” and “equipment” should be interpreted broadly in order to capture apps made by pay-TV providers. Yet, while “devices and equipment” is broad enough to capture software like apps, it is not broad enough to capture actual devices and equipment, like smartphones, smart TVs, tablets, computers, and Chromecasts that consumers use to access pay-TV programming.

This strained reading of statutory language will create a regulatory mess out of the evolving pay-TV industry, that already has labyrinthine regulations.

But if you look at the history of FCC regulation, and TV regulation in particular, it’s pretty unexceptional. Advocates for FCC regulation have long seen a competitive and vibrant TV marketplace as a threat to the agency’s authority.

As former FCC chairman Newton Minow warned in his 1995 book, Abandoned in the Wasteland, the FCC would lose its ability to regulate TV if it didn’t find new justifications:

A television system with hundreds or thousands of channels—especially channels that people pay to watch—not only destroys the notion of channel scarcity upon which the public-trustee theory rests but simultaneously breathes life and logic into the libertarian model.

Minow advocated, therefore, that the FCC needed to find alternative reasons to retain some control of the TV industry, including affordability, social inclusiveness, education of youth, and elimination of violence. Special interests have manufactured a crisis in TV–“monopoly control” [sic] of set top boxes by TV distributors. As Scott Wallsten and others have suggested, bundling a set top box with a TV subscription is likely not a competitive problem and the FCC’s remedies are unlikely to work. 

The FCC’s blinkered view of the TV industry is necessary because the US TV and media marketplace is blossoming. Consumers have never had more access to programming on more devices. More than 100 standalone streaming video-on-demand products launched in 2015 alone. T he major TV providers are going where consumers are and launching their own streaming apps. The market won’t develop perfectly to the Commissioners’ liking and there will be hiccups, but competition is vigorous, output and quality are high, and consumers are benefiting.

The FCC decision to devote its highly-educated agency staff and resources (which will balloon when challenged in court or during the app specification proceedings) to an arcane consumer issue with such cynical origins is a lamentable waste of agency resources.

This an agency that for decades has done a hundred things poorly. In an increasingly competitive telecom and media marketplace, it should instead do a handful of things well. (Commissioner Pai has proposed useful infrastructure reforms and Commissioner Rosenworcel has an interesting proposal, that I’ve written about, to deploy federal spectrum into commercial markets). Let’s hope the agency leadership reassesses the necessity the this proceeding before dragging the TV industry into another wild goose chase.

Related research: This week Mercatus released a paper by MA Economics Fellow Joe Kane and me about the FCC’s reinvention as a social and cultural regulator: “The FCC and Quasi–Common Carriage A Case Study of Agency Survival.”

This article originally appeared at techfreedom.org.

Today, the FCC voted on a Notice of Proposed Rulemaking that would  force pay-tv or multichannel video programming distributors (MVPDs) to change their existing equipment to allow third-party set-top boxes to carry their signals. Currently, MVPD subscribers typically pay $15–20/month to lease set-top boxes from their cable, satellite, or telco video provider. Those set-top boxes allow subscribers to view video programming on their TVs and, in some cases, also provide access to online video distributors (OVDs) such as Netflix and Hulu. However, Chairman Wheeler and some interest groups say those leasing fees are too high, that MVPDs have a stranglehold on video programming, and that the set-top box market must be opened to competition from third parties.

“Regulating set-top boxes may do serious damage to video programmers, especially small ones and those geared to minorities,” said Berin Szoka. “That’s why Congressional Democrats, minority groups and other voices have urged caution. Yet FCC Chairman Tom Wheeler blithely dismisses these concerns, insisting that ‘this is just the beginning of a fact-finding process.’ Do not believe him. If that were true, the FCC would issue a Notice of Inquiry to gather data to inform a regulatory proposal. Instead, the FCC has issued a Notice of Proposed Rulemaking. That means the FCC Chairman has already made up his mind, and that the agency is unlikely to adjust course.”

“ This is simply the latest example of the FCC abusing the rulemaking process by bypassing the Notice of Inquiry,” concluded Szoka. “Every time the FCC does this, it means the gun is already loaded, and ‘fact-finding’ is a mere formality. It’s high time Congress put a stop to this pretense of objectivity and require the FCC to begin all major rulemakings with an NOI. That key reform was at the heart of an FCC reform bill initially proposed by Republicans in 2013 — but, tellingly, removed at the insistence of Congressional Democrats.”

The FCC’s proposal is based on the recommendations of the Downloadable Security Technology Advisory Committee (“DSTAC”), which was directed to investigate this issue by Congress in the STELA Reauthorization Act of 2014.

“ The FCC is also abusing the advisory committee process—once again,” argued Tom Struble, Policy Counsel at TechFreedom. “The Commission acts as if the DSTAC unanimously supported the NPRM’s proposal. In fact, the DSTAC recommended two alternative approaches, only one of which was taken up by the FCC. This is only the most recent example of the FCC abusing the advisory committee process, denying broad input from stakeholders and steering the committee to issue recommendations that suit the administration’s policy preferences. The FCC should have used an NOI to seek comment on both the DSTAC recommendations. But at the very least, Chairman Wheeler should drop his absurd pretense that the FCC is merely beginning a fact-finding process.”

Last week, it was my great honor to speak at the 2011 State of the Net 2011 event, where I participated in a panel discussion about the future of the online video marketplace.  In an earlier essay, I mentioned how some of the discussion that day revolved around the Comcast-NBCU merger, which had just been approved by the FCC, but with unprecedented strings being attached.  The heart of the panel discussion, however, was a debate about the future of online video and regulation of the video marketplace more generally. Also joining me on the panel were Susan Crawford of Cardozo Law School, William Lehr of MIT, Marvin Ammori of Nebraska Law School, and Richard Bennett of ITIF.

During my response time on the panel, which begins around 28:45 of the video, I made a couple of key points:

• We’re living in the golden age of video. In considering the state of the video marketplace, we need to put things in some historical context. We should appreciate just how far we’ve come from the “age of scarcity,” in which we only had access to a handful of VHF and UHF broadcast channels in most communities, compared to present day. Indeed, we are today blessed today to live in a world of information abundance. By the FCC’s last count, 565 cable or satellite channels exist today and those channels and programs are available over more platforms (cable, satellite, telco, online, mail, etc) than ever before.
• Deregulation (or light-touch) rules helped. Video distribution and program diversity thrived as the FCC gradually loosened the regulatory chains or forebore from regulating emerging video platforms or programs.  By contrast, in the highly-regulated past, innovation, competition, and diversity were stagnant.
• “Gatekeeper” control fears are bunk. Content continues to flow over multiple platforms in an unprecedented manner. That only makes sense since content creators and distributors have every incentive to get as much content pushed out on as many platforms as possible in order to make money! No one ever got rich in this space by locking up all their content. Moreover,  vertical integration of programming by MVPDs is at its lowest point in the past 20 years. The percentage of channels owned by video distributors has fallen from 50% in 1990 to around 15% today.
• Youngsters today don’t “watch TV” anymore. They watch YouTube, Hulu, Netflix, Apple TV, Google TV, Amazon, XBox Live, PlayStation, Roku, etc.  The video market is highly dynamic and subject to seemingly constant disruptive technological change.
• Level the playing field in favor of more freedom. To the extent there is a regulatory asymmetry at work between the old media marketplace and the online or Internet video world, and to the extent policymakers are looking to “level the regulatory playing field” between them, I argued we should level the playing field in favor of freedom.
• Clean up the old mess now. Therefore, the old rules need to go. Those rules would include must carry mandates and other carriage requirements / compulsory licensing rules, retransmission consent rules, “localism” and other program content mandates, set-tob box regs, advertising limitations, etc.
• Or, at least don’t extend old mess to new world. If lawmakers refuse to get rid of the old rules, however, we should erect a high and tight firewall between the old and new worlds and not muck up the new online video ecosystem with rules and regulations that would stifle the wonderful developments and diversity we are witnessing today.

See the entire State of the Net 2011 panel on YouTube here.

Digital video recorders (DVRs) may turn out to be the “last gasp” of cable, satellite and other traditional multichannel subscription video providers.  If users can get the same basic functionality (on demand viewing of the shows they want) over the Internet for free or paying for each show rather than a hefty monthly subscription, Who Needs a DVR?, as Nick Wingfield at the WSJ asks:

Among a more narrow band of viewers -– 18- to 34-year-olds -– SRG found that 70% have watched TV online in the past. In contrast, only 36% of that group had watched a show on a TiVo or some other DVR at any time in the past. That last figure is a fairly remarkable statistic. Remember that DVRs have the advantage of playing video back on a device where the vast majority of television consumption has traditionally occurred –- that is, the TV set. Although it’s also possible to watch shows over the Internet on a TV set through a device like Apple TV and Microsoft’s Xbox 360, most people watch online TV shows through their computers — which have inherent disadvantages, like smaller screens and, in most cases, no remote controls.

Indeed, if users are going to buy a piece of hardware, why buy a DVR when they can buy a Roku box or a game console like the XBox 360 that will put Internet-delivered TV on their programming on their “television” (a term that increasingly simply means the biggest LCD in the house, or the one that faces a couch instead of an office chair)— and save money?

This is precisely the point Adam Thierer and I have been hammering away at in this ongoing series.  The availability of TV through the Internet and the ease with which consumers can display that content on a device, and at a time, of their choosing are quickly breaking down the old “gatekeeper” or “bottleneck” power of cable.  Let’s see how long it takes Congress and the FCC to realize that the system of cable regulation created in the analog 1990s no longer makes sense in this truly digital age.

This ongoing series has explored the increasing ability of consumers to “cut the cord” to traditional video distributors (cable, satellite, etc.) and instead receive a mix of “television” programming and other forms of video programming over the Internet.  As I’ve argued, this change not only means lower monthly bills for those “early adopter” consumers who actually do “cut the cord”, but, in the coming years, a total revolution in the traditional system of content creation and distribution on which the FCC’s existing media regulatory regime is premised.   

This revolution has two key parts:

1. Conduits: The growing inventory—and  popularity—of sites such as Hulu, Amazon Unboxed and the XBox 360 Marketplace (or software such as Apple’s iTunes store), that allow users to view or download video content.  Drawing an analogy to the FCC’s term “Multichannel Video Programming Distibutor” or MVPD (cable, direct broadcast satellite, telco fiber, etc.), I’ve dubbed these sites “Internet Video Programming Distributors” or IVPDs.
2. Interface:  The hardware and software that allows users to display that content easily on a device of their choice, especially their home televisions.

While much of the conversation about “interface” has focused on special hardware that brings IVPD content to televisions through set-top boxes such as the Roku box or game consoles like the XBox 360, at least one company is making waves with a software solution.  From the NYT:

Boxee bills its software as a simple way to access multiple Internet video and music sites, and to bring them to a large monitor or television that one might be watching from a sofa across the room. Some of Boxee’s fans also think it is much more: a way to euthanize that costly $100-a-month cable or satellite connection. “Boxee has allowed me to replace cable with no remorse,” said Jef Holbrook, a 27-year-old actor in Columbus, Ga., who recently downloaded the Boxee software to the $600 Mac Mini he has connected to his television. “Most people my age would like to just pay for the channels they want, but cable refuses to give us that option. Services like Boxee, that allow users choice, are the future of television.” …. Boxee gives users a single interface to access all the photos, video and music on their hard drives, along with a wide range of television shows, movies and songs from sites like Hulu,Netflix, YouTube, CNN.com and CBS.com.

With 200,000 users thus far, Boxee is quickly taking off and made a big splash at CES this year.  Boxee may be a scrappy start-up but is founder realizes the revolutionary implications of his product:

Mr. Ronen also shared what he called his “politically incorrect” vision of how the Internet would upset the television business by giving people on-demand access to the array of Web content. “The challenge for the cable industry is how they grapple with the fact that this is in some way a substitution for some of the things they do,” he said.

The NYT rightly observes that, whether Boxee really takes off as the Next Big Thing, its success thus far is at least driving other “consumer electronics companies to move faster to bring the Internet to their devices.”  I suspect that what we’re seeing now is a “tipping point” on both sides of the business:  As IVPDs gain popularity and larger inventories, “interface” developers like Boxee (or others on the hardware side) will proliferate rapidly.