The costs of AllVid

With much fanfare, the FCC has just announced a sweeping new proposal to “tear down the barriers” that supposedly limit innovation and choice in video and save TV viewers on their monthly television bills.  The FCC claims its new rules – similar to the “AllVid” mandate rejected by the Obama FCC in 2010 – are needed to let large tech companies create new “set top boxes” viewers could buy to replace the ones they currently lease from their satellite, cable, or fiber video provider. 

That’s sounds like a win for competition – until you read the fine print, which reveals that this new technology mandate won’t save money, it will substantially drive up consumer costs.    

{mosads}The problem is this “AllVid” system the FCC imagines does not exist today.  It will have to be designed and built. Existing TV providers will have to re-design and re-engineer their networks, and install new adapter equipment in viewer homes.  And viewers will end up paying these costs, a new “Tech Tax” will roll down onto monthly television bills – hitting every consumer in the pocketbook whether or not they even want to use the AllVid system.

AllVid proponents claim the system will free us from “the tyranny of boxes” but most viewers will actually end up paying for not just one in-home box, but two:  the new “AllVid” adapter and then a second device that actually connects to the screen. 

And those costs will also be substantial.  TiVo’s Roamio box costs several hundred dollars up front plus monthly fees of about $15 a month – more than double the $7.43 that most viewers pay today.  (And AllVid does not replace your existing TV package or give you access to any new programming or shows – so those costs will remain in place as well.)  

And don’t imagine that you will be able to buy an AllVid box and then spread the costs out over years of service.  A recent LA Times editorial warned the rapid pace of tech change “can make even a two-year-old box seem slow and outdated” – and unlike a leased box viewers can upgrade year after year, you can’t trade in the AllVid box you bought at retail and own.  Like smartphones today, the relentless pressure to upgrade and advance is going to hit consumers in their pocketbooks year after year under this poorly conceived rule.

Why then does the FCC claim it’s proposal will save consumers money?  Because it is relying on data provided by paid advocacy organizations that have simply skewed the facts.

Thee groups claim that 99 percent of pay TV viewers are “chained” to company provided set top boxes, for example.  But that data is 3 years old and out of date, and ignores the massive changes in the market that are underway.

Today, millions of Americans receive pay video over boxless apps – these viewers are not chained to anything but watch on the go on tablets, phones, laptops, and more.  Netflix alone has more subscribers than any cable company.  Streaming apps are already available on more devices – tablets, phones, game consoles – than there are set-top boxes in consumer homes today.  Meanwhile, pay TV companies are losing subscribers by the droves, as cord cutters turn to web-based services and streaming devices like Roku, Apple TV, and Smart TVs.  Apple’s Tim Cook often says “the Future of TV is apps” – while the FCC’s backwards looking box-focused approach will only drag us into the past. 

The FCC’s claims about massive profit margins and overcharges are also incorrect.  For example, the FCC complains that the average pay TV household spends $231 a year on boxes, but ignores that competing devices, like TiVo’s Roamio – undoubtedly whatever new systems AllVid puts in place – cost far, far more.  And the claim that box prices have increased 185 percent in the past 20 years is especially spurious.  Comparing apples to apples, a box that would have cost $2.50 a month in 1994 would cost just about the same today – that’s a zero percent increase, not 185 percent!   

Once you cut through the noise and the hype and the FCC’s political spin, you end up at a basic truth.  There’s no such thing as a free lunch – and no such thing as free technology.  If the FCC forces the creation of a new box, you will have to pay for it whether you use it or not.  And based on the information they have released so far, consumers will likely find themselves paying far more to create, implement, and maintain this “AllVid” system than they pay today.  

Balto served as policy director at the Federal Trade Commission and as an attorney in the Justice Department’s antitrust division.


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