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Proposed FCC regulation will change the way we watch TV

May 12, 2016
tv remote being used

By Oliver Harper, Senior Media Buyer

For many years, cable subscribers have had to pay monthly fees to rent the boxes that grant access to the plethora of cable network content coming to their TVs.  That fee represents a significant revenue stream for the cable/satellite/telco TV industries.  In 2016, this fact of life is quickly changing due to pending FCC regulations that will rewrite the rulebook for those companies while also adding additional competition.  The FCC’s proposal includes a provision to create a universal standard for set-top boxes - and has gained the support of the White House.  Technology companies, content producers, OTT services, and other media companies will be able to compete for deals/distribution of programming content.  Currently, broadcasters are heavily insulated from that type of competition for content and viewers.  These new rules will also add new regulations to OTT services like Sling TV, Netflix, Playstation Vue, and others, while at the same time creating a lot of opportunity for new players to join the market.

Cable companies have utilized the set-top-box stream of income to bring in an estimated $20 billion a year in revenue.  Families pay an average of $230 per year to rent set-top boxes, with 2-3 per household at $89 on average per box.  The proposal is not expected to help lower cable bills because consumers will now have to buy (or continue renting) their boxes from those same cable companies or ones that support the format broadcasted by the cable companies.  However, a very similar situation occurred in the 1980s with phone companies, where new regulations allowing consumers to stop renting phones led to lower prices and more options.  Time will only tell if those same conclusions will result in the set-top box world.

OTT services, however, are already beginning to offer more competition and options for consumers.  Many cable subscribers have downgraded their subscriptions due to cost, and supplemented their options with a variety of OTT services that are paid and/or ad-supported.  These services will be reclassified as MVPDs (Multichannel Video Programming Distribution Services), and will be expected to face new regulations after the rule change.  As FCC Chairman Tom Wheeler says, “Video is no longer tied to a certain transmission technology, so our interpretation of MVPD should not be tied to transmission technologies.”Things like limits to commercial loudness, closed-captioning, equal opportunity employment, and ensuring that boxes are available at retailers in a universal format will become the standard.  These services will be able to provide many new opportunities for new players, because existing carriage/content usage agreements will be negotiated under new rules moving forward. 

Don’t forget that mobile phone companies who are improving their data capabilities year-by-year are eager to join the mix as well.  T-Mobile asks FCC that mobile technology companies and other players outside of the set-top-box arena be allowed to fairly compete for content distribution as well.  T-Mobile launched the Binge On service, and has streamed over 190 million hours of free video content since the program’s launch in November of 2015.  They have also requested that the FCC look at broadcast re-transmission fee caps to help control a growing cost for cable/satellite/telco/wireless providers.

Many broadcasters, particularly minority owned/operated ones, have expressed great concern at this prospect.  These broadcasters have vested interests in keeping the market the same, and are going to fight to hold on to the progress made recently.  In gaining a slice of airwaves, they are worried that they will be indefinitely or permanently set back due to the negotiated carriage deals evaporating.  Hispanic minority broadcasters are concerned that there will be less content available to their viewers due to these changes.  African American minority broadcasters are split on the issue with Robert Johnson, the founder of BET, and Alfred Liggins, the founder of TV One, taking opposing views on the matter.  Liggins wants to keep things the same, and is concerned about the revenue streams that fuel program development drying up in the new economy.  He is also concerned that with the advanced data available to consumers; Johnson on the other hand, sees great opportunity with wider, internet-based distribution - it would open up potentially worldwide opportunities to minority broadcasters that simply have not previously existed.

Cable companies are looking to pre-empt these regulatory steps by making concessions like upping data caps, creating apps to remove the need for cable boxes, and showing willingness to work with other companies.  With 4k TVs and VR content coming to the market, it is to be determined if these new caps are reasonable for future media habits. Based on the replies of the FCC chairman, these changes may be too little, too late to stop the pending regulation.

Technology companies, on the other hand, are concerned about having to enforce the new privacy rules that will be enhanced to protect consumer privacy. With new, stronger, privacy rules being proposed, they are concerned about their abilities to keep tracking the same data used on their ad networks.  This may impact measurement within the ad industry as well, with many companies asking for more time to investigate the possible impact of these changes. We will see how those interests, and the ones of other companies trying to join the market, play out in the coming months.

Since mass media is an important tool for politicians, this legislation could become a hot-button issue through the election.  Minority broadcasters have already garnered some support in Congress to pressure the FCC to scrap the rules.  You may have heard many stories that everyone is cutting the cord and that cable is dying off.  To the contrary, cable broadcasters have had their best year since 2006 with positive subscription numbers, which is great news when compared to last year when 750,000 subscribers cut the cord in 2015.  That doesn’t mean they aren’t seeing significant competition; those new subscribers are buying smaller packages while exploring supplementary digital options.  No matter what happens, this issue will receive lots of attention in the coming months because so much is at stake for all parties involved.


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