Innovation’s Next (Though Certainly Not Final) Frontier: The Set-Top Box

As a longtime cord cutter, I predict a future where consumer choice trumps hardware or subscription models. Even my AOL-email-account-loving parents will sever ties with their cable TV provider and consume all of their video content on YouTube, Netflix, Amazon Prime, and future innovative internet platforms.

But until my prophecy is realized, imagine a world where your cable subscription could be combined with the power of the Internet to provide an innovative television experience unlike anything we’ve seen before. Suddenly, the clunky, expensive, and unimaginative set-top box navigation system we are forced to lease from cable companies is replaced by an intuitive, integrated device driven by the power of Internet-enabled connectivity and design.

We could take a critically important step closer to making this world a reality when, tomorrow, the FCC votes on a proposal to remove anticompetitive entry barriers in the set-top box market. History shows us that removing these entry barriers will spur innovation and unleash competition in a market sorely lacking in it. No longer will consumers be at the mercy of set-top box gatekeepers but will instead be able to choose from innovative, Internet-enabled navigation device offerings and expanded content choices.

If you have a cable or satellite account, in all likelihood you are being forced to rent a set-top box and pay a monthly fee for it. According to Congress, consumers pay an average of $231 a year to lease these devices. The FCC estimates that the prices for set-top boxes rose 185 percent since 1994, while prices for smartphones and other electronics plunged by 90 percent. Stated differently: price increases in set-top boxes have been well above inflation and unrelated to the underlying costs of manufacturing them, which have decreased in the same way that all hardware manufacturing costs tend to decrease over time.

These are simple statistics and observable trends. What they suggest is that something is up with competition in the set-top box market. These price increases could not have occurred in a competitive market. And if competition in the form of new entry or repositioning by existing players was defeating them, consumers have yet to see this pass through to their monthly bills. Instead, the average American consumer is paying 185 percent more today for a set-top box they don’t even own than they were in 1994. 
This anticompetitive market is just another result of gatekeepers blocking innovation. The cable companies and the telcos want to paint a picture in which set-top box competition is fierce, entry barriers are low, and consumers are winning. But the data just doesn’t show this to be the case.

Winter — or shall I say, cord cutting — is coming. Companies that force boxes on consumers who don’t want or need them will ultimately be the beneficiaries of competition and innovation. At the Internet Association, we are for competition and the free market. Nowhere is competition fiercer, and the market freer, than in the Internet industry, where your closest competitor is only a click away. These values boost the economy and benefit consumers. We can’t wait another 20 years and further price increases for competition and innovation to reach the set-top box. This is why we support the FCC’s proposal to #UnlockTheBox.