Monday, February 1, 2016, 1:03 PM ET|Posted by Will Richmond
Late last week Roku announced it was developing a hybrid set-top box, expanding on the “Roku Powered” partner program it announced back in September, 2014. Roku’s hybrid set-top will give pay-TV operators a single, inexpensive device to deliver linear and OTT services. Variety also reported that Roku has raised an additional $45.5 million, bringing total funding to date to approximately $200 million.
Ironically (though perhaps not coincidentally), Roku’s hybrid set-top news came at the end of a week during which FCC Chairman Tom Wheeler unveiled a new regulatory initiative to “Unlock the Set-Top Box.” While his plan is light on details, it would essentially impose a new technology mandate on pay-TV operators to provide access to their programming to device manufacturers such that new interfaces and retail business models could be developed.
Chairman Wheeler characterized the move as pro-consumer in creating choices for consumers akin to selecting which smartphone or router to buy. He harkened back to the 1968 Carterfone decision that spurred the retail phone market. And he pointed to the $20 billion in annual set-top rental fees the pay-TV industry generates (averaging $7.43 per month per box, an increase of 185% since 1994), asserting that huge cost savings could be achieved.
All of these points resonate, but ultimately the question is whether it’s better for the government to impose new regulations to force change in set-tops, or to simply rely on the powerful market forces sweeping through the video industry to do the job.
Everywhere one looks these days, upheaval in TV and pay-TV is evident. In addition to Roku, companies including Google, Amazon, Apple, Sony, Samsung and Microsoft are innovating with devices that bring more video into the home. Wireless providers like T-Mobile, Verizon and AT&T are enabling cheaper access to video and investing in content themselves. Skinny bundles are proliferating. SVOD services are exploding. Binge-viewing is taking off. TV ad loads are declining. A YouTube ecosystem of independent video creators is thriving. And this Sunday, the Super Bowl will be streamed live to connected TVs for the very first time.
Despite all of this, the set-top box has endured in the vast majority of U.S. homes. For both pay-TV operators and TV networks it serves an essential and secure packaging role that fulfills contractual obligations. Recognizing their subscribers’ changing expectations some operators have aggressively innovated their set-tops, like Comcast, with its X1, or Dish, with its Hopper. But even X1, for all of its advancements, still lacks integrated access to popular SVOD services, years after its launch. And it’s expensive, with the DVR-enabled X1 version running almost $20 per month when initial discounts expire.
More broadly though, many set-tops feel woefully out of date, with their rudimentary graphics, complex remote controls and underpowered search, especially as compared with mobile devices, apps and online services. Add in the friction of required appointments to install and remove set-tops, plus the monthly fees, and it’s easy to see why Chairman Wheeler’s pro-consumer positioning of his new regulatory initiative resonates.
There’s no question the set-top experience needs to be innovated and pricing brought into line with comparable consumer devices. How best to accomplish that is what will now be heavily debated. When I see announcements like the Roku hybrid set-top - along with the abundant data about changing consumer behaviors - I’m cautiously optimistic that the TV and pay-TV industry can and will innovate to deliver better experiences.
No, it probably won’t happen as fast as many people would like. But it’s hard to envision a government-backed technology mandate moving any faster, and it carries the risk of wasting finite time and resources as the market continues to evolve. TV and pay-TV are complicated industries, involving dozens of companies and hundreds of billions of dollars, so lobbying and legal challenges are certain. All of this ensures that nothing dramatic will happen overnight.
Meanwhile, market forces, including Roku’s and others’ countless advances, will steadily move the industry in a better direction. Despite Chairman Wheeler’s laudable goals, I’d rather place my bet on market forces rather than FCC mandates.