Copyright Problems Plague FCC's Proposed Video Device Regulations

On February 18, the FCC proposed new regulations it claims will "unlock the cable box." But what the Commission may be doing instead is unlocking copyright protections for video content. Its new regulations will jeopardize the rights of video content owners and diminish the value of their intellectual property.

Owners of video content have exclusive rights over distribution of their programming. So video service providers negotiate detailed licensing agreements for rights to transmit copyrighted video to subscribers. The FCC's proposed regulations would effectively undo those agreements. Under the proposed rules, video service providers would be forced to make licensed video content available to third party device-makers. The Commission's approach would distort licensing negotiations and deny video programmers their exclusive rights under copyright law.

Consumers today can make trips to retail stores and purchase video devices built by third parties, such as TiVo. Yet the Commission is miffed that – overwhelmingly – most video service subscribers instead choose to lease set-top boxes from their video service provider. By and large, subscribers would rather not to spend a few hundred dollars plus additional fees for third-party supplied devices.

Meanwhile, the emerging video industry and consumers are steadily trending toward cloud-delivered and apps-based solutions to video viewing. They are trending away from video viewing via set top boxes. Online video distributors ("OVDs") such as AmazonPrime, HuluPlus, and Netflix now serve over 100 million subscribers. Those services are viewable on digital streaming media devices, including small stick devices, or smart TVs. For their part, cable, satellite, and other multi-channel video providers offer viewing via video apps on gaming consoles, PCs, laptops, and tablet devices.

Continuing competition among video program distributors, device innovation, and adoption of apps-based viewing make a strong case for market freedom—not regulation. Yet by regulatory fiat the Commission is planning to force cable, satellite, and other video subscription services to re-engineer ways their networks deliver video and alter their business contractual arrangements. The Commission has proposed that video service providers be required to deliver "information flows" to third-party video device makers. These include: (1) service information, such as available channels and video-on-demand lineups; (2) entitlement information about what a device is permitted to do with the content, such as recording; and (3) the video programming content itself. Third-party devices makers can take these information flows and repackage them with add-ons or perhaps advertisements for viewing on their retail devices.

Of course, the information flows targeted by the FCC's proposed regulation include copyrighted video content. The risk to protecting intellectual property rights in video programming is one of many reasons why the FCC’s device regulation proposal is wrong-headed.

Carriage of video programming on video networks is dependent upon business contracts. It involves complex licensing agreements negotiated between owners of video programming and video service providers. Such agreements take into account audience size, channel tier placement, channel lineup neighborhoods, as well as access and security protections. Negotiated terms can involve promotional efforts. Others involve sharing of advertising revenue or various restrictions on ads for licensed video programming.

Negotiated licensing agreements are a critical mechanism for owners of video programming to exercise their right of control over use of their content. But the FCC's proposed video device regulations would sharply curtail the choices of copyright owners in making licensing agreements. Undermining that control through regulation threatens to reduce the value of their intellectual property.

By regulation, third-party video device makers would gain a special right to commercially use video programming without having to negotiate with the copyright owners. Instead, video service providers would be required to make all of the video programming for which they have negotiated licensing rights available to third-party device makers. The Commission's regulations would thereby warp business contractual relations. Negotiation and enforcement of licensing terms would become far more precarious for copyright owners. And video service providers would become a kind of forced middleman. In effect, video service providers would be negotiating licenses for the benefit of third-party device makers while perhaps policing their compliance also.

Ultimately, the FCC's proposed video device regulations clash with principles of copyright law. The Copyright Act sets forth the exclusive rights of copyright owners in motion pictures and other audiovisual works. Under Section 106 of the Act those exclusive rights include reproduction, distribution, and public performance of copyrighted works.

Video programming transmitted on cable, satellite, and other networks receives the protections of copyright law. By requiring copyrighted video to be made available to non-contracting third party device makers, the Commission's proposal would impair the exclusive rights of video programming owners under law. If and when a legal challenge to the Commission goes to court, it is all but certain the Commission's convoluted forced-access proposal for licensed video programming will be tossed out on copyright grounds.

The FCC's device regulation proposal fails to respect contract rights and copyrights in video programming. That's reason enough to reject the proposal. The Commission should leave well alone so that market-based innovation and progress toward an app-based video market can proceed unimpeded.

No Excuse for FCC Delaying Regulatory Relief from Costly Voice Services Rules

Food goes bad when left on the shelf long after its sell-by date. Similarly, monopoly-era regulations become harmful when left in place long after market conditions become competitive. Dominant carrier regulations for incumbent voice providers are way past their sell-by date. The FCC needs to remove them.

Dominant carrier regulations were designed for 20th Century monopoly-era copper-based telephone services. They were designed for incumbent local exchange carriers (ILECs), which were typically a consumer’s sole provider of telephone service. But recent data overwhelmingly evidences the competitive state of the voice services market. This makes dominant carrier regulations unnecessary to ensure competitive choice for consumers. They impose needless compliance costs that detract from provider investment in next-generation IP-based technologies. The Commission ought to declare ILECs to be non-dominant right away.

Last week public comments were filed at the FCC to refresh the record in its proceeding on the regulatory treatment of ILECs. Specifically at issue are dominant carrier regulation of interstate mass market and enterprise switched access voice services.

Three years ago, FSF President Randolph May and I filed comments insisting that relief from dominant carrier regulations were long overdue. We cited data, principally from 2011, showing continuing increases in interconnected VoIP subscriptions and precipitous declines in switched-access lines. Based on that data, both businesses and residential customers clearly had choices between incumbents and competitors – not to mention wireless voice providers.

Even by 2013, developments in the voice services market made a clearly strong case for relief from dominant carrier regulations for ILECs even stronger. Between 2011 and 2013, ILECs' nationwide market share of wireline business customers dropped from almost 61% to 55%, while competitors' share of business customers grew from just over 37% to over 44%. Also between 2011 and 2013, ILEC market share of residential customers dropped from over 63% to just over 57%, while competitors' share grew from just over 36% to nearly 43%. Keep in mind that in the AT&T Non-Dominance Order (1995), the Commission granted relief from dominant carrier regulations for long-distance voices services when AT&T's market share declined to 55.2% for revenue and 58.6% for minutes.

Of course, 2013 data is hopelessly out of date. Competition and innovation trends from 2011 to 2013 have certainly continued. As if wireline competition numbers weren't enough, consider also 2015 data concerning wireless voice services. The latest National Institutes of Health survey on wireless substitution found that "[i]n the first 6 months of 2015, nearly one-half of all households (47.4%) did not have a landline telephone but did have at least one wireless telephone." A wireless industry survey puts the total number of mobile connections at a staggering 355.4 million.

Despite this conclusive evidence that ILECs are no longer dominant the Commission has declined to take any action. There is no good reason for continuing delay. Hopefully, an updated record that reflects competitive market changes up through early 2016 will finally push the Commission to relieve ILECs of those unnecessary and costly regulations. As FSF's Comments in this proceeding maintained, the Commission should make a nationwide finding that interstate mass market and enterprise switched access voice services are presumptively competitive. And should actual evidence of market power or lack of choice in a particular geographic spot be presented to the Commission, it could then target that spot for remedy.

The Commission must finally put an end to the regulatory relics of 20th Century telephone services, including dominant carrier regulations. Those outdated rules, including dominant carrier regulations, do not help consumers. They only divert resources away from the ongoing upgrades to better-performing IP-based networks. Until the Commission removes them, those unnecessary and costly regulations will delay successful and efficient completion of next-generation technology transitions.

Agreement Reached on Definition of Small ISP

On February 25, 2016, the House Energy and Commerce Committee reached a unanimous agreement on the definition of a small Internet service provider (ISP) within the Small Business Broadband Deployment Act. This bill would exempt small businesses from enhanced transparency requirements imposed in the FCC’s Open Internet Order. The Committee defined a small ISP as 250,000 subscribers or fewer, while the FCC’s Open Internet Order originally had a transparency exemption for ISPs with 100,000 or fewer subscribers or 1,500 or fewer employees. The bill also includes a sunset for the exemption after five years.

Although the Small Business Broadband Deployment Act still needs to pass the full House and Senate before the President signs it, bipartisan support is encouraging. Small businesses often are harmed the most by unnecessary regulations. Because this bill would diminish the regulatory burden of the FCC’s transparency requirements, its passage would be a win for competition and consumers.

By the way, this is the first time that Democrats and Republicans have agreed on any measure to pare back the FCC's over-reaching Open Internet Order. Perhaps this is a good portent!

O'Rielly Asks FCC to Stop Censoring Commissioners

On February 24, 2016, FCC Commissioner Michael O’Rielly published a blog entitled “Stop Unfairly Censoring Commissioners.” Commissioner O’Rielly, who has published many blogs on process reform at the FCC, discusses the need for more transparency within the FCC rulemaking process. He argues that draft items should be released publicly, but at the very least, he says Commissioners and their staffs should be able to discuss items with the public, whether through blogs, tweets, fact sheets, or interviews. Commissioner O’Rielly stresses the importance of transparency and public feedback:

It is common sense that, if the Commission wants the strongest and most defensible items, it needs to talk to the outside world, including interested and affected parties.  This simple principle is embodied in the Administrative Procedure Act notice and comment rulemaking process.  Similarly, Commissioners also need the opportunity to discuss ideas, problems, and alternative ways to do things than the prescribed proposal contained in any draft item.  As it stands now, it is immensely frustrating to sit in ex parte meetings and be unable to test out other concepts and options or correct any misunderstandings of those in attendance.  But if we were to have such conversations today, my fellow Commissioners and I would risk potentially violating the Commission’s disclosure rule by revealing nonpublic information about items.  The end result is weaker Commission items.

Commissioner O’Rielly was the keynote speaker at the Free State Foundation’s July 2015 lunch seminar on FCC process reform, which can be viewed here. Free State Foundation President Randolph May has testified three times in front of the House Subcommittee on Communications and Technology regarding the need for process reform at the FCC (May 2015, July 2013, and June 2011). Mr. May also released two blogs in the summer of 2015 on this important topic, “Why Process Matters” and “Why Process Matters – Part II.”

Commissioner O’Rielly has been a strong leader on process reform at the FCC and we hope he continues his fight for more transparency and accountability at the Commission.

Cisco Projects Global Mobile Traffic to Increase 8-Fold by 2020

On February 3, 2016, Cisco released its annual Visual Network Index (VNI) Forecast Report: Mobile Data Traffic Update, 2015-2020. I certainly recommend exploring the global, regional, and national findings on Cisco’s helpful interactive website.

The proliferation of video applications are by far the biggest driving force behind the increases in mobile traffic over the past several years and will continue to be for the next five years as connections increase and networks expand. On a global level, video traffic is projected to comprise 75 percent of mobile data in 2020, an increase of 20 percentage points from 2015 (55 percent). While the United States certainly has been a leader in the growth of mobile connections and traffic, Cisco projects the rest of the world will have tremendous growth over the next five years.

Here are some key findings regarding the growth of mobile connections and traffic throughout the world:

• More than half a billion (563 million) mobile devices and connections were added in 2015.

• Mobile network (cellular) connection speeds grew 20 percent in 2015.

• Average smartphone usage grew 43 percent from 648 megabytes per month in 2014 to 929 megabytes per month in 2015.

• Global mobile data traffic will increase nearly 8-fold between 2015 and 2020.

• By 2020, 4G will be 40.5 percent of connections, but 72 percent of total traffic.

• The average smartphone will generate 4.4 gigabytes of traffic per month by 2020, a 5-fold increase over the 2015 average of 929 megabytes per month.

As you can see from the two graphs below, the global growth of both mobile traffic and the number of devices is projected to be enormous over the next five years.

Cisco Forecasts 30.6 Exabytes per Month of Mobile Data Traffic by 2020

Global Mobile Devices and Connections Growth

Here are some of the key findings for the United States:

• 43.3 million net new devices and connections were added to mobile networks in 2015.

• Mobile data traffic will grow 6-fold from 2015 to 2020, a compound annual growth rate of 42%.

• Mobile data traffic will grow 2 times faster than fixed IP traffic from 2015 to 2020.

• Mobile traffic per user will reach 8,835 megabytes per month by 2020, up from 1,775 megabytes per month in 2015, a compound annual growth rate of 37%.

• There will be 292.2 million (88% of the United States' population) mobile users by 2020, up from 275.7 million in 2015, a compound annual growth rate of 1.2%.

North America, and predominately the United States, has been a global leader in the innovation and development of mobile broadband networks. By 2020, 40.5 percent of all global devices and connections will have 4G capacity, but in North America, 59 percent of devices and connections will have 4G capability.

The United States’ leadership in the ongoing development of mobile broadband, devices, and content applications is the result of many economic and institutional factors. However, it should not go unnoticed that a light-touch regulatory environment has helped entrepreneurs spur investment in new products and services through the process of “permissionless innovation.” As laptops, tablets, phablets, and smartphones have morphed into each other and become substitutes, competition among them has increased, reducing the price and increasing the quantity demanded by consumers. This increase in consumer demand has created more innovation in mobile services, more broadband network expansion, and more application accessibility.

Additionally, because video currently comprises 55 percent of mobile data, strong intellectual property rights have also played a pivotal role, allowing for a growing number of brands in mobile devices and new video content. It is important for artists, innovators, and service providers to have secure copyrights and patent rights in order to incentivize returns on creation and investment. The prospect of profitable returns invites new entrants into the market, which ultimately leads to more investment and lower prices for consumers.

Cisco’s report provides very important information for policymakers. It is essential that the FCC not take for granted the way in which the development and deployment of mobile networks and technologies has benefited consumers. More licensed and unlicensed spectrum is needed to meet the growing consumer demand for advanced services and devices. Understanding the extent of mobile data growth and the resulting need for additional spectrum will be crucial for promoting future U.S. leadership in mobile broadband – as will be the need for the government to avoid imposing burdensome regulatory requirements in a market which is indisputably competitive.

  

Cisco’s report provides very important information for policymakers. It is essential that the FCC not take for granted the way in which the development and deployment of mobile networks and technologies has benefited consumers. More licensed and unlicensed spectrum is needed to meet the growing consumer demand for advanced services and devices. Understanding the extent of mobile data growth and the resulting need for additional spectrum will be crucial for promoting future U.S. leadership in mobile broadband – as will be the need for the government to avoid imposing burdensome regulatory requirements in a market which is indisputably competitive.

A Look at Set-Top Box Prices Shows No Monopoly Power

In a Forbes article, on February 15, 2016, Progressive Policy Institute Economist Hal Singer debunks the FCC’s theory that the market for set-top boxes is a monopoly. He says that small providers with few market shares often charge more for set-top box rentals than large providers with many market shares. For example, TiVo charges between $299.99 and $599.99 upfront for a DVR and 1 year of service, but Comcast charges only $9.99 a month for a DVR. Mr. Singer says that the realities of the marketplace are the opposite of the FCC’s theory because monopoly prices should increase with market power, not decrease.

International IP Index Is a Useful Tool for Assessing IP Rights Protections

By Randolph J. May and Michael J. Horney

On February 10, 2016, the U.S. Chamber of Commerce’s Global Intellectual Property Center (GIPC) released the fourth edition of the International IP Index entitled “Infinite Possibilities.” As the Executive Summary of “Infinite Possibilities” states at the outset:

By providing a legal infrastructure through which ideas can become products, robust IP systems foster innovation leading to economic growth, job creation, and sustained competitiveness in global markets. The U.S. Chamber’s International IP Index provides economies with a comprehensive roadmap to harnessing the benefits robust IP systems provide.

Focusing on six separate key categories, the Index scores 38 countries representing over 85 percent of the world’s gross domestic product. The six categories are:

1. Patents, Related Rights, and Limitations
2. Copyrights, Related Rights, and Limitations
3. Trademarks, Related Rights, and Limitations
4. Trade Secrets and Market Access
5. Enforcement
6. Membership and Ratification of International Treaties

The United States had the highest score of 28.61 (out of 30), followed by the United Kingdom and Germany with scores of 27.53 and 27.36, respectively. The countries with the lowest scores were Thailand, India, and Venezuela at 7.40, 7.05, and 6.42, respectively.

The Index found some interesting correlations regarding strong protections of IP rights across all countries:

• Access to finance: Economies with robust IP regimes are more likely to attract venture capital and private equity funding.
• High-quality human capital: Economies with favorable protection of IP rights possess on average 2.5 times more R&D-focused personnel within their workforces.
• Foreign direct investment attractiveness: Economies with robust IP systems receive on average a 45 percent higher Standard and Poor’s credit rating than economies whose IP systems lag behind.
• Inventive activity: The top 10 economies in the Index exhibit patenting rates more than 30 times greater than the bottom 10 economies in the Index.
• Advanced technology markets: People and firms in economies scoring above the median level of the Index are 30 percent more likely to enjoy access to the most recent technological developments.
• Streamlined and enhanced access to creative content: Advanced and easy-access delivery of streaming services is 3 times greater in economies scoring above the median level of the Index than in those scoring below the median. Access in the top five economies is up to 25 times greater than in the lowest five.

The 4^th edition of the International IP Index contains important information about the 38 countries included. Eight new countries were added to this latest edition of the Index. While it is unknown where these countries would have ranked last year, three of the eight rank in the top 15. But regardless of the new countries’ overall scores, the addition of this new data allows policymakers in those countries to understand where their countries rank and how their IP policy frameworks can be improved.

Of the thirty countries in last year’s Index, sixteen improved their overall scores this year. Many of the countries in the Index’s bottom half decreased their overall scores, while many countries in the top half increased their overall scores.

In a January 2016 Perspectives from FSF Scholars titled “Protecting Global IP Rights Is an Economic Imperative, Free State Foundation President Randolph May and Senior Fellow Seth Cooper traced the history of the development of international protection of IP rights, including through the negotiation of international agreements and treaties. In the Perspectives, they emphasized the importance of concluding “international trade agreements, such as the recently-negotiated Trans-Pacific Partnership, that contain meaningful intellectual property protections.”

The United States, as a global leader with respect to IP rights and enforcement, should continue to use its leadership to negotiate multilateral trade agreements that ensure strong protections of IP rights in participating countries, particularly developing countries with low scores. By doing so, the countries involved will benefit through mutual gains from trade. And as more countries adopt strong protections of IP rights, the entire global economy also will grow substantially, because legal institutions, including regimes that safeguard IP rights, constitute a positive externality for the global economy. The gains from global trade are much higher when more nations adopt and enforce laws that protect IP rights.

“Infinite Possibilities,” the fourth edition of the International IP Index, shows that strong protections of IP rights incentivize investment in R&D, innovation, and creative content because entrepreneurs are then enabled to earn a return on their labors. And, most importantly, this means that as economies with strong IP rights regimes grow and prosper, consumers are the ultimate beneficiaries as new goods and services, in whatever form they take, are brought to market.

The Index is a useful tool for policymakers to use to consider how they may improve their own nation’s IP systems. Hopefully, we will see even higher scores next year!

Senate Passes Permanent Extension of Internet Tax Freedom Act

Today, February 11, 2016, the Senate passed a permanent extension of the Internet Tax Freedom Act, which would permanently ban state and local taxes on Internet access. Because the House passed its version of the bill in June 2015, the legislation now waits for President Obama’s signature. (See my June 2015 blog on the House passing the bill.)

As I have written many times, along with FSF scholars who have written on the subject, Internet access taxes at any level of the government would make Internet access less affordable for all consumers and, therefore, stifle broadband infrastructure investment from Internet service providers.

Thanks to Congress for passing this important piece of legislation. Now, President Obama must sign the bill in order to keep the Internet affordable for all!

MPAA and Donuts Establish New Voluntary Initiative Tackling Piracy

On February 9, 2016, the Motion Picture Association of America (MPAA) and Donuts Inc., the world’s largest operator of new domain name extensions, established a voluntary initiative to help ensure that websites using Donuts-operated top-level domains are not engaging in large-scale piracy. Under the terms of the agreement, Donuts will treat MPAA as a “Trusted Notifier” with respect to referrals that include clear evidence of copyright infringement.

MPAA will submit referrals to Donuts regarding domains which provide false Whois information, engage in copyright infringement, and/or facilitate the sale of illegal content. Then, Donuts will review the referrals and take appropriate enforcement action against the domains.

In December 2015, “Digital Bait”, a Digital Citizens Alliance report, found that malware associated with piracy sites cost consumers $70 million per year.

Piracy online remains a problem. Additionally, for instance, the recent movies “Interstellar” and “The Wolf of Wall Street” have been pirated over 46 million and 30 million times, respectively. This agreement between MPAA and Donuts and other voluntary initiatives, such as TAG and MPAA’s WheretoWatch.com, help consumers find legal content and raise awareness about websites, enterprises, and advertisers that violate intellectual property rights.

Other initiatives, like the Copyright Alert System, allow artists and creators to protect their intellectual property by alerting Internet service providers when a subscriber has engaged in copyright infringement.

It is necessary to address and hopefully diminish piracy and content theft with voluntary initiatives to help ensure that content providers, artists, innovators, and marketers can earn a return on their creative works – thereby incentivizing more innovation, investment, and economic growth. The new Donuts-MPAA voluntary agreement is a positive step in the ongoing fight against piracy of online content. 

Indian Regulators Ban Zero-Rated Services

On February 8, 2016, India’s Telecom Regulatory Authority banned zero-rated services, such as Facebook’s “Free Basics” program, because they violate the concept of network neutrality by “shap[ing] the users’ Internet experience.” Free Basics offers access to a text-only version of Facebook and other news and health services in three dozen countries around the world.

In the United States, the legality of zero-rated services has been a topic of debate, especially since the FCC adopted its Open Internet Order in February 2015. FSF scholars have argued that zero-rated services offer more choices to consumers and can be particularly attractive to low-income consumers and/or individuals who would not have Internet access otherwise.  

For more on how zero-rated services can benefit consumers, see Daniel Lyon’s Perspectives from FSF Scholars entitled “Usage-Based Pricing, Zero-Rating, and the Future of Broadband Innovation,” Randolph May’s October 2015 blog, and my March 2015 blog.

The FCC's Previous Failures Regulating Video Devices Show Folly of New Rules

The FCC is planning vast new regulatory controls regarding how video devices are designed and function. To date, the agency has not identified any market power problem justifying new controls. As recently as the Fifteenth Video Competition Report (2013), the Commission even admitted the video device market "is more dynamic than it has ever been." Yet FCC Chairman Tom Wheeler is working on a regulatory proposal that he seems confident will develop new ways to access video content.

Overconfident is more like it, considering past FCC efforts. When it comes regulating video devices, the Commission has a track record of failure. Tremendous advances in video devices have resulted from entrepreneurial investment and innovation. But prior Commission attempts to redesign video devices through regulation have been thwarted by technological and economic realities. These realities have made video devices more costly to manufacture and therefore more costly for consumers to use.

Three pronounced FCC policy failures in regulating video devices demonstrate the empty promises and pitfalls of regulation in this fast-changing, technologically dynamic area. Taken together, they offer concrete evidence for why the Commission should avoid any new foray into regulating the design and operation of video devices.

The FCC's Failed FireWire Mandate. In 2003, the FCC adopted regulations to require all cable operators include a FireWire data port in all HD set-top boxes they distributed to customers. Also known as an IEEE-1394 interface, FireWire is an external data connection for audio and video transfers. But the Commission's video device design preferences were rejected by the marketplace. HDMI ports were far more widely adopted in HD TVs than FCC-mandated FireWire ports. The Commission finally relented and removed its FireWire requirement in 2010. Industry estimated $400 million in costs to comply with the Commission's failed FireWire mandate.

The FCC's Failed Integration Ban. Beginning in 1998, the Commission prohibited cable operators from offering subscribers video devices that performed both program content access and security functions. The Commission even conceded in a 2010 order that "[t]he integration ban raises the cost of set-top boxes for cable operators, which discourages operators from transitioning their systems to all-digital." The Commission’s ban on integrating access and security in a single video device even prohibited access-enabling devices from downloading security functions from the Internet. Despite the obvious problematic nature of the integration ban, the FCC clung to it stubbornly. The Commission took a permission-by-waiver approach, requiring video device providers to file for exemptions from the integration ban. Congress finally stepped in. The STELA Reauthorization Act of 2014 repealed the integration ban entirely.

The FCC's Failed CableCARD Mandate. A manifestation of the integration ban was the Commission's CableCARD regulations. CableCARDs are small PC cards that are inserted into cable set-top boxes or independently manufactured devices. They perform decryption to allow subscribers access to video programming. In 2003, the Commission imposed regulations that made CableCARD compatibility the official means for cable operators to comply with the integration ban. Cable operators were required to make their cable systems compatible with CableCARD-enabled devices made by independent manufacturers. What's more, cable operators were also required to rely on CableCARDs to provide security functions for the set-top boxes they lease to their subscribers. This "common reliance" mandate resulted in unnecessarily complex and costly cable set-top box devices. Indeed, the cable industry has estimated that CableCARD-related costs to consumers have exceeded $1 billion. By another reported estimate CableCARD adds $56 to the cost of each set-top box.

However, the FCC order imposing CableCARD mandates contained serious legal defects. The D.C. Circuit threw that order out in Echostar v FCC (2013). Legal problems aside, consumers were largely uninterested in purchasing independently manufactured set-top boxes. As the Commission conceded in its Fourteenth Video Competition Report (2012), "[c]onsumer adoption of retail CableCARD-compatible devices has not matched the Commission’s expectations." According to a January 2016 industry report, the nine largest cable operators have deployed 55 million set-top boxes with CableCARDs. Only 621,000 CableCARDs have been deployed for retail devices. Overwhelmingly, consumers have preferred to lease video devices from cable providers. This allows consumers to avoid extra trips to the store. It also allows them to avoid owning a video device that technological advances render outdated, such as standard definition digital video recorders (DVRs).

Those three recent failures in FCC video device policy are concrete reminders of the limits of bureaucratic regulation. It's easy enough to write rules and make promises that they will bring about imagined improvements in sophisticated technological devices. But when government mandates run into real-world technical difficulties, manufacturers are subjected to hundreds of millions of dollars in extra costs and consumers end up footing the bills. Real innovation requires investment-backed risk-taking by market participants who must actually create and sell products and services. This is especially the case in dynamic markets, such as the market for video devices.

At all times it should be remembered that today's video market advancements have taken place outside the scope of FCC regulation. Hi-definition video – and increasingly ultra HD – has replaced one-way analog cable video technology. Cable, direct broadcast satellite (DBS), and telco video consumers now use Internet-enabled HD DVRs with video-on-demand, whole homing options, and a variety of other video applications. Video content, including through TV Everywhere, is widely available to subscribers on gaming consoles, PCs, or tablet devices. CableCARD-compatible video devices manufactured by third parties are also still available, although consumers overwhelmingly prefer to lease devices from providers.

Meanwhile, online video distributor (OVD) subscriptions using streaming media devices offer consumers another alternative platform for video viewing. OVDs like Netflix and Amazon Prime have more than 100 million subscriptions. That number equals or exceeds total cable, DBS, and telco video subscriptions. Market research indicates almost 20% of U.S. broadband households have a streaming media device – such as the Roku 3 or Amazon Fire TV. And 8% of households have streaming stick device for TVs or PCs, like the Amazon Fire TV Stick. Ownership of streaming media devices is projected to rise significantly in the immediate future.

All this to say that marketplace freedom has a superior track record advancing innovation and consumer choice for video devices. The Commission’s real-life track record of failed video device regulations adds weight to the case against new mandates. 

The FCC has made big promises about the benefits of video device regulations before. It did so with FireWire, the integration ban, and CableCARD. In the end, the Commission's promises led to aggravating technical difficulties and consumer bafflement. And, of course, to higher costs that were passed on to consumers.