KEY POINTS

  • The Federal Communications Commission (FCC) is on a mission to increase competition in the pay-TV content space. Earlier this year, it put forth a proposal to ultimately relieve consumers of the TV set-top box — the small box that enables cable or satellite television to be viewed. Households have been forced to rent these devices from pay-TV providers for decades, resulting in complaints from consumers, lawmakers, and even media companies. 
  • There are three important implications of the proposal, which FCC Chairman Tom Wheeler released in early September.
    • Pay-TV providers would be required to provide free apps to consumers. 
    • Pay-TV providers would be required to provide a universal search across all video content, which includes content from video media services like Hulu and Netflix.
    • The FCC would oversee how pay-TV providers and content owners strike programming deals.
  • The proposal is on hold due to technical and legal issues related to the Communications Act. The proposal has faced intense criticism from pay-TV providers, which glean considerable revenue from renting set-top boxes to consumers, as well as select FCC officials citing concerns over increased government interference in the marketplace.
  • At stake is the rental set-top box market, which is worth upward of $20 billion annually, according to data released by US Senators Ed Markey and Richard Blumenthal. We estimate that Comcast alone generates over $1.7 billion per year from leasing set-top boxes.
  • Large pay-TV providers, like Comcast, have argued that greater government regulation will disrupt the naturally evolving video industry. The main argument is that TV providers are already creating alternative apps through which consumers can access their content. For instance, there are 151 TV and movie channels available on Roku devices alone.
  • Tech companies like Google, Apple, and Amazon stand to gain if the proposal is passed, as it would give them a stronger presence in the living room. Already, streaming devices are in 39% of US homes, and that figure could increase if the proposal were to pass and more consumers opt to stream their TV content. 
  • In addition to savings of $231 per household in annual set-top box fees, the FCC proposal offers consumers greater choice in how they obtain pay-TV content. The FCC’s set-top box proposal would spur new innovation in the distribution of pay-TV content, which, in turn, would provide competition in the space, ultimately driving down prices for [...]