Really hasnt, and we think consumers would have lower prices and more choices if we got vigorous competition into that space. Host george ford. Guest well, the fccs nprm asked the question whether the settop box is competitive, the first question x. Actually the first question is, is there a market for settop boxes, and in terms of whats delivered over the Cable Network, no, because the settop box is actually a component of the network. Thats the most efficient way to design and deliver Cable Television service, so its the cheapest way to do it, the most efficient way to do it, is so no market has developed. The companies would prefer a market if it was more efficient to do it that way. Host lets bring in lydia beyoud as well, she is with bloomberg bna where she coffers telecommunications. Thank you. So to follow up on both of your questions, chairman wheeler in introducing this proposed rule said he want withs to open up wants to open up whats been a closed market and make it more like the market where consumers can buy their own devices as we have seen with mobile phones, tvs and other electronics. Do either of you think there is Something Different to that analogy that would make it such that this proposal would or wouldnt work . Guest we think it clearly is the perfect analogy. You have an interface between the device and the network that has been closed. Its been impossible for people to sell across that interface. Its just Like Computers or modems or software systems, the Microsoft Case was about that interface. And the courts said open the interface, and you get competition. Weve seen that time and time again. Remember the old telephone market, at t used to say no one can plug a foreign, a piece of foreign equipment into my network, itll blow it up. And, of course, they were wrong. We opened it up, and we got tremendous competition. Thats the perfect analogy. Open the interface, and we think youll get a lot of competition and innovation for the device without harming the network. Guest well, you look at the settop box, and rather than making a judgment are about whether it is or is not like the other things, look at it and say, well, its not behaving like the other things, and why might that be. And the answer is its not like the other things. Its not like a cable modem which you could buy from best buy if you wanted to. Its not like a telephone either in the fact that these devices are a secure link which secures property that is delivered over it which is copyrighted content and also prohibits theft of the signal because its scrambled. So its not the same thing by any stretch of the imagination. Its also a very important part of managing the quality of the network for the cable operator. If you call the cable operator and say your service is down, first thing they do is say let me hit your box and see whats going on. Rather than trying to convince you of why is it different than other things, why is this different from a cable modem, for example, where youre perfectly able to buy one at the store and use it even though only 15 of people do. Host mr. Cooper, whats your response . Guest well, you know, thats what they always say. We have to be integrated to protect it, and the answer is the way the order is written, the way the law is written you will protect the quality, you will protect privacy, you will protect the advertising stream. And letting people connect is exactly what has been the issue with the home recording industry. They wanted to stop vcrs, they wanted to stop mp3 players. Therell be theft. Well, they can defend themselves, and theyve won all those cases, but the court has never let them dictate technology to protect their copyright, and for us thats a critical point. The marketplace just opens the system up because theres a lot of value in Consumer Choice there. This is exactly the same thing. It has worked so many times that the, the question is should we experiment . The answer is, absolutely yes. If it goes wrong, we can close the door. We honestly believe it wont go wrong because of that experience every place else. Host george ford . Guest well, it has gone wrong. The reason that the Telephone Companies were opposed to the telephone was that the whole system was regulated, and the telephone was part of the scheme, and it created an incentive to want to keep the phone as part of the network. So there are significant differences between that experience and the other. You also had to look at who is really opposing the chairmans proposal, and that is the copyright industry. Theyre very concerned that this program is going to threaten their livelihood. And theres also, whats interesting about this case is that normally when a new Company Comes along that wants to use video content, for example, when the phone Companies Began operating in the cable business or when netflix came around, is that the copyright industry then had a new customer, right . I sat down with these guys, we did a deal, we created new things, you know . And so they had an expanded base, a Customer Base for the copyright products. Now what the fcc wants to do is say, no, comcast can buy it, and then whoever wants access to that can have it. No compensation. You really dont have to pay a whole lot of attention to the contracts that are written. And so the programmers or the Program Content people are thinking, wait a minute, this isnt, this isnt really right and fair, and its really confiscation of our property. And i think really what happens to this whole program is it runs square into the law of copyright law. The fcc has no authority to implement copyright law, and this is a pretty clear violation of it. Well, to follow up guest thats absolutely wrong. When someone puts an independent thirdparty settop box there, it does not erase the relationship between the Cable Company and the consumer. You dont get it for free. You still have to pay your cable bill. Your paying the youre paying the bill to the Cable Company, you just dont have to pay the company for the settop box. So theres exactly the same compensation the day after as there was the day before. Guest thats not true at all. What these Companies Want to do is to take the content and do something to make money with it, to make profit with it, okay . You make profit with copyrighted content, you have to compensate the content owner. Google isnt in this business to deliver service for free, you know . They want to be in the business so they can monetize whatever information they gather from what the viewer is doing. Well, where does the copyright owner get to play in this game of monetizing the use of this video content . So its not the same thing. Theres Something Else going on, otherwise nobody would be interested in doing it. So to allay the concerns that the content providers have in this proceeding, do either of you view a way that perhaps is an alternative to what the fcc has proposed in the rule, a google or any third party device or app maker could go and negotiate carriage contracts directly with the content providers . Why do they have to go through the pay tv industry . Guest they may do that too. But that stream that is coming through the cable box, the settop box today is going to continue. It is going to be almost impossible for anybody to monkey with that scheme, because that would require rebuilding an entire network to replicate what exists. Now, would they put a piece of advertising in front of the show . Maybe. He thinks they own that. They dont own that. They get all the advertising in the show. They give people the ability to move around more quickly, absolutely. They dont own that ability. So they had their stream of revenue, they put their ads in, their ads will stay this. And now anytime someone else thinks of a neat way to place that, to spread it around like the slingbox, they hate that. But anyone who tries to think of another way to deliver that content exactly the way they provided it, they get very upset. Oh, i could have monetized that for me. Thats my money theyre taking away. Its not. They made their deal, and other people are innovating and maybe gaining rewards for how they move the content around but not display. Also this is a marketplace where money to be made in manufacturing, that has been monopolized by the cable market power. So were already seeing pay tv providers delete or skip over advertisements in the shows now, and is that a concern that consumers that they would have with this proceeding as well as it relates to copyright . Guest they have a right to defend their interest under the copyright act. But what they cant do, shouldnt do and the courts havent let them do is use the Communications Act or even the copyright act to dictate technology. And so this debate about should consumers be allowed to skip ads . Well, consumers do skip ads. They can turn it off, they can turn the sound off, and now weve got some technology that automates that. Is that a radical change . Should that be banned . Well, the federal Communications Commission has no business being in the middle of the copyright act. Theyve been to court every decade numerous times to battle against technology. And the iron is they win their irony is they win their court cases, but they lose the economic war because the courts will not let them dictate the structure and nature of technology in order to protect their interests. And so they work it out. Now streaming music is the perfect example. Thats the majority of their income. They make less money than they did before, they have much smaller costs than they did before. So thats the process under the copyright act. Remember, its a balance between the consumer interest and the Creative Arts and the Copyright Holder interests in getting enough revenue to continue to create. Thats a different balance. The fccs about communications, not copyright. Guest well, i think you pretty much made my point. When you make money using copyrighted content, then you owe the owner money. If its in addition to the ones that are there, you must pay for that right. Thats what a broadcaster is. They get copy can wrighted content, sell copyrighted content, sells advertisement around it. Thats exactly the point. You cant do anything, reorganize the channels, right . Put a nicer front end on it. Anything you do to make money is a violation of somebody elses right if you dont pay them for it. Thats what the copyright law is. Host well, george ford, wouldnt opening up the market benefit the consumer by having competition where you can buy box a, b or c . Guest well, it wouldnt. The cable operator, the box is a cost to the try. It is not a benefit. It provides no profit. I mean, you cant take a product like video, which everybody wants, and add to it a settop box which known wants and which nobody wants and become more profitable. Thats insanity. Theyre trying desperately to get out from under it by moving to an appbased model. The industry was onboard with that. The pcc had the fcc had two choices here. The copyright industry and the cable industry and the rest of the providers were onboard with it which would eliminate the box for all practical purposes or this other approach that is very complex and is going to experience significant resistance. And the fccs always saying the reason the cable card didnt work by significant resistance by the industry. What the heck do you think theyre going to do now . Not only are they going to do it, but the copyright people are going what if the copyright industry says you cant give this information to a third party . You cant. Okay . What is the fccs Program Going to do, mandate that you can give it to a third party as a video provider . I mean, is that really legal to do that . I dont think it is. Youre going to run into that. On the other hand, we could have just gone the other the chairman could have gone the other route and done it. But at a time when were trying to just eliminate the settop backs, if you read the nprm, its almost like, whoa, whoa, whoa, we cant eliminate the settop box because the statute says i have to have a market for the settop box, so im going to force you to keep it so we can have competition in it, which is a crazy idea. Host you referenced the cable card. What was that . Guest ing the cable card the first time they did this was a total disaster, a total failure. They had a security card, basically. The cable signal comes in from the headin, it leaves the headin, its scrambled, you dont know whats there, it hits the settop box, and they can see it. They decided we can pull out this security piece of it, right, and move it around in different boxes, okay . So then you could actually have a tv even that had a slot anytime, and you could slide this card in there, and it would descramble the signal, okay . And you could buy the little card, and everything would be fine. Go get your market box from the store and plug this thing ask in. It was a mess. Nobody bought the thing. I think half a million of the things were ever put into service. People just quit making the technology really because consumers just really arent that interested in it. They dont want they could buy a cable modem, and they just dont. You can buy a cable modem for 60, and they choose instead to rent it for 4, 5 a month. Its pretty obvious that theyre really not that keen on that, but that costs billions of dollars to implement that program. Nothing came of it. It was a disaster, and the fcc admits its a disaster, and this is going to be a disaster too. This is the fccs third try. The dog returns to its vomit, right . As the scripture says. And the fccs coming righting back poo this almost you read the nprm, and you think no wonder the soviet unions failed. Look at all this complexity. Then the copyright guest well, well have a fight. The Copyright Holders would like when i buy a book, they want to charge me every time i read it, and they certainly dont want me to allow to read it to a room full of kids. They want to get a quarter from every kid that listens to that book. Thats the model they like. Instead of recovering their costs in the sale of the book or in this case the Monthly Subscription fee they get back from the Cable Operators. They want to have a copyright fight, lets have a copyright fight in the courts. Weve had, as i said, the home recorder, the mp3 player, file sharing, weve had those fightses, and the world has moved on. The fact that they say, look, lets get rid of the is settop box this way, it was a way to get rid of their bilateral monopoly. Thered be no competition in that space. They defined the way the programs come through. They define the way you search through the programs. I think and thats exactly what at t said about the telephone. Its exactly the same argument. If you plug it in, its going to blow the system up. And the answer is that its just the way, its the wall they put up to defend their market power. And the commission has looked at statute. They said weve come 20 years later, we do things in software now. And so the cable card involved a physical thing and, actually, some people succeeded with cable cards. I believe tivo uses cable cards. But we no longer have that. So we have this new flexibility about how to do it, and we can control these interfaces. And thats much more efficient way to do it. And is so we can have security, fair protection of copyright and also competition. And thats what we as consumers, we care most about getting some competition in this space. Guest well, i mean, i think that was a gross misstatement of the copyright industrys take on books. Theyve never charged, tried to charge me for reading it to my children, and weve read the same books many times. But the question, the question is, is there such thing, i mean, this is fundamental. Is there such thing as a market for settop boxes really, or is it just part of the network . Now, we can draw regulatory distinctions at house and say the Cable Network ends outside your house and all the inside stuff is yours, but thats just an artificial regulatory distinction, okay . Is that thing separate and apart from the network . Its really not. The other thing is now weve actually got a realistic possibility to move to a softwarebased solution to this and get rid of the thing altogether, but thats not good enough for some reason for the fcc. And i think the reasons pretty obvious. Thats a very valuable piece of information that traverses that cable wire and comes into somebodys house, particularly when you know what theyre watching and what theyre not. Theres a huge opportunity to monetize, okay in and the fcc is not going to let that to go, okay . Theyre going to let somebody else in there which, of course, is the problem the copyright people have was they should be able to charge when somebody makes money with their product. Theres nothing illegal or wrongheaded about that. It is their property, okay . There is a Software Solution that can be implemented here. Why is that not good enough . Why cant we get rid of the settop box altogether . I already have. Charter Communications Actually provides an app for me that i can use on roku. Why isnt that good enough . Host lets get the next question from lydia beyoud. Guest if you expose the api on that Software Solution to other people, id be fine with it. Guest thats not what the fccs saying to do. Guest well, they reject it, but you guys didnt guest they rejected it. Guest but you didnt offer it guest they did offer it. I dont offer anything, i dont provide guest they did not offer an open interface. Guest heres my app, open your roku box which is a competitive business, hit on the comcast app and guest you still have to the permission from the cable operator guest what you cannot do host lets get lydia beyoud in here from bloomberg. Heres a question to follow up again, and the copyright a little bit more, bun of the most criticized aspects of this proposed rule is it is not clear how Copyright Holders would be able to enforce that copyright if a third party were to either change the programs neighborhood where it sits in relation to other channels or layer certain types of content and is enforced through their contract. So could you describe a little bit about what the fcc ha