Whither the CableCARD?
That much is clear after the FCC revealed last Thursday (Dec. 3) that it is seeking comment on how the Commission can "encourage innovation" in the video device market as it pulls together a National Broadband Plan it will present to Congress by next February. Comments are due to the FCC by Monday, Dec. 21, 2009. (See FCC Boots Up National Broadband Plan , 100-Meg Price Tag: $350B, and FCC Explains Its Broadband Plan.)
Generally speaking, the FCC is asking about what technological and market limitations prevent retail video devices from having access to all forms of video content that consumers want to watch. The Commission's also wondering whether a retail market for "network agnostic video devices" might spur the use and adoption of broadband.
Interestingly, the FCC already seems to believe that IP-connected TVs can help spread broadband adoption, pointing to research that 75 percent of U.S. homes have PCs, while 99 percent have TV sets.
CableCARDs not doing the job
But, on a broader level, the FCC notice is an admission that CableCARD rules have failed to produce a vibrant retail market for cable set-tops and other video navigation devices.
The FCC, under what's called Section 629, tried to spur the development of such a retail market when its ban on integrated security set-tops took effect July 1, 2007.
Save for special circumstances where operators or suppliers obtained (and continue to obtain) temporary waivers for boxes with baked-in security, most domestic MSOs are separating out the security function using the CableCARD. (See Countdown to 'Seven-Oh-Seven', Boxing Up 'Seven-Oh-Seven' , Waiver Winners & Losers , and Verizon & Others Get Their Waivers.)
In an attempt to further push the potential for retail and to enable an "open" interactive platform, most of the major U.S. MSOs are also adopting tru2way, a system that uses the CableCARD for security separation but also ties in a common Java-based middleware called the OpenCable Application Platform (OCAP).
Even with the write-once/deploy-everywhere ideal of tru2way, the FCC now admits that the CableCARD rules have produced only "limited success in developing a retail market for navigation devices," pointing out that certification for plug-and-play CableCARD-based devices remains both costly and complex. But even labeling the results of those rules so far a "limited success" could be considered an overstatement, given the scarcity of real-world examples thus far.
The chief tru2way retail example is Comcast Corp. (Nasdaq: CMCSA, CMCSK), which has supported two tru2way-certified HDTV models from Panasonic Corp. (NYSE: PC) in Denver, Chicago, and Atlanta as part of a "controlled" effort, though consumers will be hard-pressed to find them on store shelves in any of those markets these days. Panasonic now appears to be interested in a more flexible tru2way retail strategy involving "set-back" boxes that can be paired with a wider variety of Viera-brand TV models. (See Denver, Chicago First to Get Tru2way TVs, Tru2Way in Atlanta, and Panasonic Appeals Over 'Set-Back' Ruling .)
But one-way CableCARD-capable TVs have done little to dent the retail market. In September, the NCTA reported that the top 10 largest incumbent U.S. cable MSOs had deployed more than 16.71 million "operator-supplied" set-tops with CableCARDs since the integration ban took effect in July 2007. However, those same MSOs had deployed just 443,000 CableCARDs for use in retail devices as of Aug. 31, 2009. (See CableCARD Update .)
The cable industry has tried to reach out to the telcos and encourage their adoption of tru2way, but that plea has fallen on deaf ears, mainly because Verizon Communications Inc. (NYSE: VZ) and others have no interest in using a technology and licensing scheme that's largely under the control of the cable industry and CableLabs . (See Verizon: No Way on tru2way , Telcos: Climb Aboard the Tru2way Train, and Verizon Stokes a Tru2way Stalemate .)
Some TV makers have also shied away from developing tru2way products due to the integration headaches and the costs (it's estimated that a CableCARD interface costs them about $200 extra). In the meantime, some box makers that are on board with tru2way, including EchoStar Technologies and Funai Electric Co. Ltd. (OTC: FUAIY), plan to avoid retail and instead sell their products directly to MSOs. (See Tru2way's Retail Forecast: Cloudy , Funai Makes Tru2way Play , and EchoStar: We're Cable's Answer .)
Amid all this, the market for retail-focused, broadband-connected TVs and specialized boxes and consoles capable of streaming or downloading video services appears to be flourishing thanks to the diversified efforts of upstarts such as Boxee and Roku Inc. , DVR pioneer TiVo Inc. (Nasdaq: TIVO), and giants like Microsoft Corp. (Nasdaq: MSFT) (with the Xbox 360), Sony Corp. (NYSE: SNE) (with the Playstation3), and Apple Inc. (Nasdaq: AAPL) (with Apple TV). Boxee, by the way, will be demonstrating the beta of its Boxee Box tonight in New York City.
NCTA reheats 'All-MVPD' concept
Although the cable industry has invested heavily in the CableCARD and tru2way, the National Cable & Telecommunications Association (NCTA) supports the FCC's effort to seek out "fresh approaches" for a portable platform that would apply to all multichannel video programming distributors (MVPDs), rather than one primarily focused on cable.
"We agree that a fully-competitive retail navigation device market has not yet developed – despite the persistent efforts of the Commission, the cable industry, and consumer electronics manufacturers and retailers," NCTA president and CEO Kyle McSlarrow noted in a letter sent Friday to FCC media bureau chief William Lake and FCC senior advisor to the chairman on broadband Carlos Kirjner. "Therefore, a Notice of Inquiry working to develop fresh approaches that cross multiple industry lines – should be pursued in concert with Commission policies that promote competition, innovation and other pro-consumer benefits."
McSlarrow then reiterated cable's historic interest in developing a platform-agnostic, "all-MVPD" platform that uses a standard network interface and would allow devices bought at retail to work across diverse cable, satellite, and telco networks.
The NCTA asked the Commission to pursue that approach in the fall of 2007, seeking support from the likes of Verizon, AT&T Inc. (NYSE: T), DirecTV Group Inc. (NYSE: DTV), and what's now Dish Network LLC (Nasdaq: DISH). (See Brenner Defends OpenCable .)
But the NCTA claims they all declined the invitation at the time, causing cable to proceed with the so-called tru2way memorandum of understanding (MOU) originally negotiated with Sony. At a high level, that agreement attempts to set up so-called "common reliance" between the cable and consumer electronics industries, though the MSOs involved missed the original deadline to have their headends wired up for tru2way. (See Revealed: The Tru2way MOU, MSOs to Miss Tru2way Date , and Comcast Wired for Tru2way by Year's End .)
Since the announcement of the tru2way MOU, however, Verizon, TiVo, the Consumer Electronics Association (CEA) , and some public interest groups have endorsed the all-MVPD approach for retail, the NCTA says.
Although the FCC is now seeking further comment on the all-MVPD issue, it's not the first time it's done so. The FCC looked into the matter in June 2007 with a Further Notice of Proposed Rulemaking, but nothing came of it. At the time, some parties argued that development and consensus on an all-MVPD platform could take years, given the "complex technical and businesses issues inherent in such an approach," while others disputed that it's the only way to achieve the goal of creating a truly competitive market for navigation devices.
— Jeff Baumgartner, Site Editor, Cable Digital News