“Unlock the Box” Should End Video Device Regulation

Perspectives from FSF Scholars September 25, 2020 Vol. 15, No. 50 Closing the Lid on "Unlock the Box" Should End Video Device Regulation by Andrew Long * I. Introduction and Summary On September 4, 2020, the FCC formally terminated the dormant and highly problematic "navigation device" rulemaking initiated in 2016 by then-Chairman Tom Wheeler. The so-called "unlock the box" proposal, like prior agency attempts to implement a statutory "set-top box" mandate long ago rendered unachievable – and, more importantly, unnecessary – by subsequent competitive developments, suffered from numerous flaws. Most notable among them was the proposal's infringement of the intellectual property and contractual rights of content owners. The Commission's decision to close the lid is a positive deregulatory step, one that recognizes that the video device marketplace on its own has accomplished what government intervention could not. The Report and Order therefore should signal the end, once and for all, of unsuccessful regulatory activity to satisfy Section 629 of the Communications Act, which for twenty-five years has compelled wasteful agency attempts to assure the commercial availability of set-top boxes and other navigation devices used to access multichannel video programming. As the Commission recognizes, consumers today are able to access both traditional, regulated multichannel video programming distributor (MVPD) offerings and Internet-delivered services on a wide range of products sold at retail: dedicated streaming devices, smart TVs, gaming The Free State Foundation P.O. Box 60680, Potomac, MD 20859 [email protected] www.freestatefoundation.org consoles, smartphones, tablets, and more. These products are sold by a multitude of unaffiliated entities, including Amazon, Apple, Facebook, Google, Microsoft, Roku, Samsung, and Sony. This marketplace abundance has been achieved in spite of, not due to, repeated Commission attempts to regulate navigation device competition into existence. The failure of one-way cable-compatible devices to gain a foothold in the early 2000s revealed the absence of the amount of consumer demand necessary for the FCC to achieve the task assigned by Congress. Devices were expensive and, as a result of rapid innovation within the increasingly competitive MVPD marketplace, quickly became obsolete. The FCC, however, remains to this day on the hook, by virtue of the statute, to assure their commercial availability. Recognizing the competitive advantage that this government mandate could provide, third parties repeatedly have put forth proposals premised upon the promise that, should the Commission grant them, through regulation, direct and free access to the video programming and other intellectual property that MVPDs license for their integrated video offerings, the goal of Section 629 could be realized. With no other options available, the agency repeatedly has proceeded down this pro-interventionist path, each time hitting a dead end. There is a simple explanation for that: what those who seek to disaggregate MVPD services and repackage their underlying assets into differentiated user interfaces in fact hope to gain – the ability to use, without contractual authorization or limitation, those inputs that MVPDs obtain via contract – the FCC simply cannot provide. A 2016 letter from the U.S. Copyright Office, relied upon by the Report and Order, made clear that rules establishing such a right by FCC fiat inevitably and impermissibly would infringe upon the rights of content owners. Unless and until the specter of additional activity pursuant to Section 629 is removed, however, the possibility that the Commission might endeavor once again to find a way to satisfy these demands will serve as powerful motivation. Should a pro-regulatory environment once again prove receptive, those hoping to avoid negotiating with copyright holders for access to video programming and other intellectual property assets might once again try their luck. The Report and Order encouragingly concludes "that further Commission intervention in the navigation device marketplace is not necessary at this time." But the FCC can and should do more to prevent future longshot attempts to leverage this statutory mandate. Section 629 uniquely includes a sunset provision that, when triggered, requires that any implementing rules "cease to apply." Specifically, subsection (e) states that, upon a finding by the agency that (1) the MVPD market is "fully competitive," (2) the navigation device market is "fully competitive," and (3) sunset of the rules would "promote competition and the public interest," all regulations adopted under Section 629 shall no longer have force. All three conditions without question have been met, as the Report and Order itself tacitly concedes. And although the Commission commendably does eliminate some, though not all, of those rules, it fails to even mention subsection (e). In light of existing, well-established facts, invocation of the sunset provision is warranted. This would lead to elimination of all implementing regulations and serve as an effective bar to any subsequent regulatory action. 2 Even better, Congress could repeal this quarter-century old statute altogether. Decades of failed efforts leave no doubt: rulemaking activity thereunder serves only to waste limited agency resources and impose unjustified costs upon consumers. It therefore is well beyond time for legislators to recognize that government intervention in the navigation device marketplace is not needed and, at long last, remove Section 629 from the books. II. Initial Commission Efforts to Implement Section 629 Exposed Its Flawed Premise For the time being, at least, it appears that the Commission will refrain from additional attempts to implement Section 629. The Report and Order adopted on September 4 formally terminated the inactive, but still technically open, rulemaking initiated in 2016, concluding that: [F]urther Commission intervention in the navigation device marketplace is not necessary at this time…. [W]e have serious and unresolved concerns about the security of multichannel video programming and copyright licensing under the proposed rules. Moreover, we conclude that the record raises other substantial doubts about the wisdom and necessity of the complex regulations proposed in the NPRM.1 It also eliminated rules expressly requiring that cable operators (1) support the CableCARD™, a separate-security module that allows retail one-way cable devices to access encrypted content,2 and (2) file quarterly reports addressing CableCARD support and deployment.3 These actions reflect the reality of the marketplace and provide considerable certainty that no new proposals will be forthcoming. The Report and Order does not, however, close the lid completely on future proceedings. To appreciate why that remains a problematic possibility, it is useful to review the history of Section 629 – in particular, prior FCC efforts to satisfy its mandate. In the mid-1990s, there was a push, at least by consumer electronics retailers,4 to allow consumers to buy cable set-top boxes from third parties rather than lease them from operators. 1 Expanding Consumers' Video Navigation Choices, MB Docket No. 16-42; Commercial Availability of Navigation Devices, CS Docket No. 97-80, Report and Order, FCC 20-124 (September 4, 2020), available at https://docs.fcc.gov/public/attachments/FCC-20-124A1.pdf (2020 R&O), at ¶ 4. See also id. at ¶ 5 (noting "the substantial doubts in the record as to whether [the proposed regulations] will help assure a commercial market for devices that consumers can use to access multichannel video programming" and pointing out that "the Commission last sought comment on these issues more than four years ago, and since then important changes have occurred in the video programming marketplace and delivery of those services via applications that run on subscriber-owned devices"). 2 See id. at ¶ 9. However, the Report and Order left in place the general requirement to make available some form of separated security. See id. at ¶ 11 ("As NCTA points out, cable operators are still required to provide separable security under section 76.1204 of the Commission's rules."). 3 See id. at ¶ 12. 4 See, e.g., Brent Skorup, "Why is the FCC Doubling Down on Regulating the TV Industry and Set Top Boxes?," The Technology Liberation Front (September 21, 2016), available at https://techliberation.com/2016/09/21/why-is- the-fcc-doubling-down-on-regulating-the-tv-industry-and-set-top-boxes/ (describing Section 629 as "a small addition to the [1996] Act, presumably added at the behest of Circuit City, so that electronics retailers and device companies could sell more consumer devices"). 3 Section 629 therefore directed the Commission to "adopt regulations to assure the commercial availability" of what it referred to as "navigation devices."5 Specifically, one assumes, the type of navigation device predominantly in use at that time: rudimentary digital cable set-top boxes that provided access to encrypted linear channels and, perhaps, an Electronic Programming Guide (EPG). In 1998, the FCC did as Congress instructed.6 Several years later the cable and consumer electronics (CE) industries successfully negotiated, and the agency incorporated into its regulations, a Memorandum of Understanding (MOU) detailing technical specifications that allowed third parties to manufacture and sell at retail Unidirectional Digital Cable Products (UDCPs) – that is, one-way devices

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