Related Research

Google's Tying and Bundling

EC Statement of Objections on Google's Tactics in Mobile

Secret Ties in Google's "Open" Android

FCC Comment on Expanding Consumers' Video Navigation Choices

May 23, 2016


Disclosure: I serve as a consultant to various companies that compete with Google. I filed the underlying FCC comment at the request of the Future of TV Coalition. But no client directed my comment or had the right to revise it before submission.

Today I filed comments in the FCC's ongoing proceeding Expanding Consumers' Video Navigation Choices. The FCC calls the initiative "unlock the box" -- allowing consumers to buy set-top boxes from any of a variety of competitive manufacturers, not just leasing from their cable companies.

On one hand, the FCC's proposal benefits from favorable experience three decades ago. It's hard to overstate the benefits of the 1982 FCC rule that granted consumers the right to supply their own telephone equipment -- crucially including fax machines and modems.

But in the context of set-top boxes, the FCC's approach would have implications far beyond hardware design and user interface. As I point out in my comment, alternative set-top boxes might add new forms of advertising -- not just in channel guides, but in prerolls, superimposed panels, and even insertions within commercial breaks. Meanwhile alternative set-top boxes could even remove existing advertising -- a particularly serious intrusion into the advertising-based model of most television programming. These tactics would undermine the basic business model and value exchange of advertising-supported video programming. What advertiser would pay top dollar to advertise in a television show if widely-used alternative set-top boxes remove the ad and substitute other ads for, no doubt, the advertiser's direct competitors?

As it turns out, the FCC is well aware of these problems. In the FCC's February 18, 2016 Open Commission Meeting, Ars Technica's Jon Brodkin asked FCC Chairman Tom Wheeler about advertising issues. Their exchange:

Q: I want to ask about the issue of advertising in third-party set top boxes. You said nothing will change that. What prevents a set top box maker from putting advertising in? ...

A: The rule will prohibit it. You need to have the sanctity of the content. Nobody is going to insert ads into it. Nobody is going to make a split screen where they're putting ads next to it. Nobody is going to say it's a frame around it, where you can say “Go to Joe's Auto Repair.” It's going to require the sanctity of the content be passed through unchanged.

Q: Does that include the neighborhood agreements?

A: Programming agreements are included. Programming agreements are part of the sanctity of the content. ... That's still there.

Q: So the rule will specifically prohibit extra advertising?

A: Yes sir.

(See minute 129 of the meeting video.)

Despite the clarity of Wheeler's response, the FCC's NPRM provides no such assurance -- zero protection whatsoever against extra advertising or, for that matter, removal of existing advertising. One might that hope principles of copyright would disallow those tactics. But copyright law has struggled to address intermediaries that insert and remove advertising. (Consider a decade of adware cases, where advertisers' ads often covered their competitors' sites.) So if the FCC is silent on the permissibility of adding, removing, or changing advertising, it's likely that new boxes will attempt all those methods.

Relatedly, the FCC's proposal offers disproportionate benefits to Google, whose dominance is at this point beyond dispute. For one, Google could offer an alternative set-top box that delivers advertisements targeted based on users' activities in Google Search, Gmail, Maps, and more. Furthermore, Google's lawyers have taken expansive views of fair use -- making them particularly well-positioned to argue the permissibility of removing other companies' advertisements and inserting their own. To date, television has been one of the few electronic advertising spheres where Google is not dominant -- so if the FCC's approach helps Google grow there, advertisers dissatisfied with the company would have even fewer alternatives.

My bottom-line: Whatever innovations and cost-savings might result from alternative set-top boxes, I don't see how they can outweigh the clear concerns in advertising, copyright, program integrity, and competition.

Further details are in my full comments to the FCC.