FCC's Planned Set-Top Box Rules Targeted by Appropriators

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By Lydia Beyoud

May 24 — The Federal Communications Commission's set-top box proceeding is shaping up to be the agency's most extensive examination of the issue, according to FCC Chairman Tom Wheeler. But those same rules are in the bull's-eye of House appropriators who are seeking to halt the proceeding.

Wheeler touted the benefits his proposal could bring to the pay-TV market in a May 23 response to Rep. Gene Green (D-Texas), seeking to allay lawmakers' concerns with the proceeding. The reply adds to the continued communications between the FCC's top Democrat and over 161 lawmakers from both parties who have expressed concerns about how the proposal could impact multiple industries.

The House Appropriations Committee proposed in its draft fiscal 2017 Financial Services and General Government Appropriations bill to force the FCC to stop work on the rulemaking until more studies on its impact on the cable industry and others are complete. If passed, the provision would delay the proceeding for several months.

The bill, unveiled May 24, would also slash the agency's budget, appropriating the FCC at $315 million for fiscal 2017, $43 million below the agency's budget request and $69 million below the FY 2016 enacted level.

The proposed rules (MB Docket No. 16-42) are at the eye of a storm of debate between pay-TV providers, content companies, advertisers, public interest groups and tech groups. The FCC wants to enable third-party application and device manufacturers to sell retail cable boxes or standalone apps, giving consumers more choice in how they access pay-TV content and fulfilling the mandate of Sec. 629 of the Communications Act of 1934 to promote the commercial availability of pay-TV equipment.

Opponents have mustered a litany of arguments against the notice of proposed rulemaking, including the possibility of copyright and consumer privacy violations, and the prospect of third parties like Google Inc. and Apple Inc.—which opponents say might be interested in providing boxes or apps—being able to monetize user data based on content delivered without negotiating licensing agreements for that content.

Wheeler recently called for the cable industry to embrace change in how television content is delivered and to work with the agency in crafting rules that all sides could agree on, but reply comments submitted May 23 generally indicate the disparate groups are well entrenched in their views.

Programmers like AMC Networks Inc. (AMCN) continued to call for the FCC to abandon the proceeding, which it said would force the network to violate contractual obligations to content owners.

AMCN's licensing agreements with content owners can require it to include network branding or logos on certain distributed content, the company said. “If a third-party device manufacturer had the ability to select individual programs and repackage and present the programming without this network branding—by distributing it on a platform that is not AMCN-branded, for example—then AMCN would be in violation of its licensing agreements,” the company said.

The Association of National Advertisers (ANA) described a domino effect of disruption to traditional advertising models that could result from the notice of proposed rulemaking. Advertisers that purchase commercial ad time during a scheduled program could risk the ad being replaced by different ads sold by the third-party provider, “thereby robbing that advertiser of some (if not all) of the value of the purchased advertising time.”

In the long term, “the devaluation of commercial advertising opportunities will force advertisers to invest less in television advertising. In turn, the decreased revenue will cause content providers and [multichannel video program distributors] to attempt to reduce costs, resulting in fewer programming choices and lower quality choices,” the trade group said.

“These reductions in the variety and quality of programs will then provide advertisers with even fewer viable options to promote their products,” ANA said.

TiVo Strikes Back on Pause Ads

Digital video recorder specialist TiVo Inc., a key supporter of the proposal and one of the few third-party set-top box makers that has had success selling directly to pay-TV consumers, likened opposition to the proceeding as incumbent industries objecting to new ones having a seat at the video content distribution table.

TiVo also used its reply comments to push back at criticism from the National Cable and Telecommunications Association and others of TiVo's “Pause Ads” program, which displays ads when a program is paused.

Approximately 80 percent of the Pause Ads sold by TiVo have come from TV networks, it said.

“Until this proceeding, no MVPD or programmer had raised any objections about this because such displaying of ads is not a violation of copyright or any other law,” TiVo said.

While TV networks generally refuse ads for programs on competing networks, they seem to have no problem with being layered on top of other networks' shows through the Pause Ads program, the company said.

“The same programmers who are complaining about TiVo’s Pause Ads through their trade associations and industry groups are the enterprises that are buying those Pause Ads in order to reach new viewers through ads that can target similar genre shows,” TiVo said.

“In other words, despite their inside-the-beltway objections to such ads,” the company said, “television networks and programmers approve of and engage in them in the real world marketplace.”

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

For More Information

Text of Wheeler's letter to Rep. Green is at http://src.bna.com/fih.

AMC Networks' reply comments are at http://apps.fcc.gov/ecfs/document/view?id=60002015891.

ANA's reply comments are at http://apps.fcc.gov/ecfs/document/view?id=60002012091.

TiVo's reply comments are at http://apps.fcc.gov/ecfs/document/view?id=60002017657.

FCC set-top box NPRM is available at http://src.bna.com/fbU