Fighting the Boxopoly

What Does It Mean to “Unlock the Box”?

Originally, Former FCC Chairman Tom Wheeler proposed that pay-tv companies be prohibited from requiring that consumers rent set-top boxes directly from the company.[1] The proposal further stipulated that consumers have the choice of using third-party devices to access cable and satellite content. This movement became colloquially known as, “Unlock the Box.”

According to a recent study, Americans spend $20 billion annually in rental fees because pay-tv providers require consumers to rent set-top boxes directly from their company. A single consumer spends “an average of $231 a year” for the technology necessary to view the shows included in their service agreement.[2]

Wheeler’s memoranda outlined the need for a change in the rent-to-watch cable regime. He stated that while 99% of consumers currently rent their set top boxes, “[i]t doesn’t have to be this way.”[3] He pointed out that telephone companies do not require individuals to rent telephones. Rather, consumers purchase or rent a device of their choosing and pay the company for the service. According to Chairman Wheeler, the same policy should apply to cable providers.[4]

Wheeler’s argument relies on basic economic principles of competition.[5] Generally, when competition is encouraged, the influx of products into the market place causes lower prices, which in turn allows more consumer-access. Here, the restrictions that cable and satellite companies place on consumers eliminate the demand for third-party devices. By prohibiting these regulations and increasing demand, more companies will be able to make and distribute set-top boxes. This would allow consumers to choose between a larger selection of cheaper devices.

On September 29 2016, the Federal Communications Commission delayed voting on a proposal to stop the monopoly pay-tv companies have on set-top boxes. This delay is only one piece of a complicated puzzle that began after Tom Wheeler formerly of the FCC proposed, “Unlocking the Box.” Since that first proposal, the initiative has changed twice, and voting has been delayed as many times.

Are these delays indicative of the search for the perfect compromise, or an example of how deep pockets and effective lobbying can result in favorable policies for corporate entities?

Backlash by Pay-TV Companies

Understandably, cable and satellite companies balked at the idea of any regulation that would cost them billions of dollars. Following this backlash, Wheeler amended his proposal. In the most recent version, Wheeler suggests that pay-tv companies with more than 1 million subscribers create an app to replace the companies’ set-top boxes within 2 years.

Even with the new app suggestion, cable and satellite providers continue to battle against regulation. Pay-tv providers and television have continued to argue that with new requirements come new problems. Specifically, pay-tv companies argue that third-party devices would infringe copyright by creating unauthorized performances of copyrighted programs.[6]

Copyright owners, here television networks, have the exclusive right to perform their works. Cable providers have licenses from the networks that authorize pay-tv companies to broadcast and transmit shows. Set-top boxes work by receiving broadcasted signals, unscrambling them, and displaying them on a user’s television set. Cable companies argued that third-party device manufacturers would need to acquire separate licenses from the networks because the third-party devices would otherwise be a catalyst for unauthorized performances. Copyright Office Register, Maria A. Pallante, agreed, stating that, “the [FCC’s proposed] rule could interfere with copyright owners’ rights to license their works as provide [sic] by copyright law.”[7]  However, this argument is unconvincing for two reasons.

The Supreme Court in American Broadcasting Companies v. Aereo, Inc (2014).[8] held that defendant Aereo was liable for publicly performing copyrighted content without permission where the company made recordings of pay-tv programming, stored them in a centralized server, and then transmitted the shows to viewers. Aereo’s function is easily distinguishable from that of a set-top box; set-top boxes do not make copies, but instead merely decode transmitted signals. Thus, to require that third-party device manufacturers obtain licenses would be like requiring television set manufacturers obtain licenses, or paper companies to obtain licenses before their paper is used to fixate copyrighted material into a book. Just as it is not the paper that is reproducing the story, it is not the box that is making the reproduction. Just as the publisher, not the paper company, needs to obtain a license to print, so the cable companies, not the third-party device manufacturer, need the license to perform.

Second, even if a license is necessary for a third-party to device to transmit signals, Congress has already solved this problem. Cable and satellite companies receive compulsory licenses to retransmit programs.[9] As previously mentioned, set-top boxes merely decode signals. Thus, the set-top box, whomever the manufacturer, should be able to operate under pre-existing compulsory licenses.[10]

Pay-tv companies further argue that because the cable company is not regulating both the service and the box, third-party boxes will make it easier for consumers to view channels they are not paying for, allowing them to “go rogue.” However, this is another erroneous theory. The Court in Sony Corp. of America v. Universal City Studios[11] (1984) made it clear that creators of new technologies will not have to seek copyright licenses from the entertainment industry so long as the device has “substantial non-infringing uses.” Here, although third-party devices may be used to unscramble channels that a user has not paid for (a possible infringing action), the devices themselves, like the Betamax VCRs in Sony, have substantial non-infringing uses. Some would argue that cases like Napster and Grokster have diminished this type of protection for technology manufacturers; however, third-party manufacturers would not be liable for consumer’s infringement unless the companies actively induce the infringement.

Current State of “Unlocking the Box”

Proponents for the Unlock the Box movement have called out Former Chairman Wheeler for seemingly allowing Big Cable to change his tune. They purport that by siding with these corporate entities, the technological innovation and societal good that could have come from enacting these new rules has been annihilated.

Yet, by only proposing and not enacting these rules, the FCC has actually spurred a potential different type of innovation. While Wheeler’s initial proposal would have opened up the market for third-party devices, it is possible that those companies would have only marginally reduced costs of set-top boxes knowing that they are the only alternatives. Out of desire to maintain control, cable and satellite companies proposed a fairly innovative solution—rather than continuing to charge for the set-top rental, the companies could create an app that consumers could use to access their content. So although newer third-party hardware is likely no longer in the picture, newer cheaper software would replace the set-top box. Thus, by simply opening “Pandora’s set-top box,” the FCC has forced cable and satellite companies to admit that there is an easier and cheaper way to provide access for consumers.

However, even this innovative solution comes with its own share of problems. The app alternative could disproportionally affect low-income communities. Apps require newer, “smarter” televisions, Blue-Ray players or gaming devices in order to operate. Because individuals in low-income communities are less likely to have the latest or most up-to-date technology, they might be faced with an expensive choice—update their technology or continue paying set-top box rental fees.

The FCC vote has yet to be rescheduled (at time of publication of this blog post). In the meantime, large companies such as Amazon and Google continue to send letters to the FCC offering their support, in recognition of the large impact this type of rule could have on the entire industry. Although the third-party devices seem to no longer be on the table, the FCC does seem to be intent on ending the boxopoly. Hopefully, consumers will soon be able to access their television shows sans set-top boxes and at a reduced cost.

 

New FCC chairman, Aigt Pai, has yet to comment on whether this type of regulation will remain a priority. Under the new administration, it is unclear what will happen to the fight against the boxopoly.

[1] http://www.latimes.com/opinion/op-ed/la-oe-wheeler-set-top-box-rules-20160908-snap-story.html
[2] http://www.recode.net/2016/1/27/11589108/its-time-to-unlock-the-set-top-box-market
[3] http://www.latimes.com/business/la-fi-fcc-set-top-box-20160218-story.html
[4] https://apps.fcc.gov/edocs_public/attachmatch/FCC-16-18A2.pdf
[5] https://apps.fcc.gov/edocs_public/attachmatch/FCC-16-18A2.pdf
[6] https://www.eff.org/deeplinks/2016/04/new-rules-pay-tv-set-top-boxes-are-about-innovation-and-competition-not-copyright
[7] https://www.publicknowledge.org/assets/uploads/documents/CO_set-top_letter_%281%29.pdf
[8] 134 S. Ct. 2498 (2014)
[9] See 17 USC §111 and §§119, 122.
[10]  See also 17 U.S.C. §501(c) (showing congressional intent to make television broadcasts widely available).
[11] 464 U.S. 417 (1984)