On 27 October 2016 the Federal Communications Commission will take up the issue of competition in the navigation device or set top box space. The Commission wants to see the video content distribution industry move from requiring subscribers use of set top boxes to the use of free apps to find content. The main driver of the proposed policy, according to the Commission, is subscriber avoidance of onerous set top box fees that allegedly average $231 a year. With today’s app and internet technology, argues the Commission, subscribers should be able to find content without paying navigation device fees.
The process for getting to a decision is driving some content developers bonkers. According to a report in Broadcasting & Cable, some content developers are concerned about the proposal’s lack of transparency and whether the Commission will play an intrusive oversight role in contracts between content distributors and content programmers. Contracts lay out terms for compensation and channel placement, items I would think that the Commission should not really be interested in. Rather, the Commission should be interested in whether the telecommunications sector is bringing value to the overall economy. While content creation is ancillary to the sector, without information, data, or knowledge flowing over networks, the network itself loses value.
From the content programmer’s perspective, while concerned with carving out a niche in a competitive content space, the content developer, where he can seize the opportunity, wants to recover as much of a premium as he can from his product. That means cashing in on as much exclusivity as he can. He will do this in two ways. One, produce content that generates traction. Two, make sure that given the traction, he makes the content as exclusive as possible so that he can extract higher rents. Free apps do not meet either of these conditions. Free apps providing you navigation to licensed and unlicensed content eliminates exclusivity. Content competition is increased which drives down the prices content programmers can charge. This leads to lower returns on capital. If returns on capital are seen as too low, no investment is made, no infrastructure deployed, no workers hired.
All this to save $231 a year.