But in recent weeks, Boxee seems to have changed its tune.  Instead of telling regulators that its service is a replacement for pay TV service, they now seem to be saying that their service is dependent on subscription TV and that regulators must… wait for it… dictate how cable service is delivered to its customers.

Yes, that is correct.  This cord-cutting, end-of-cable-as-we-know-it dynamo is demanding that the FCC not allow cable systems to scramble its basic service tier (typically limited to broadcast channels, local access and a few others).  Their position is all the more ironic given that all of cable’s competitors – from satellite to Netflix to Boxee itself – already encrypt the programming they send to their customers.  But in Boxee’s world, all video service providers can innovate and compete except cable, which must remain frozen in a 1990s time warp.

What’s in It for Consumers?

But wait, Boxee’s moxie doesn’t stop there.  Their CEO Avner Ronen took to the Boxee blog this week to make the incredible claim that encryption of the Basic Service Tier wouldn’t help consumers at all.  Maybe Mr. Ronen thinks that consumers like to take time off work so they can wait at home for service calls, but I don’t think most American consumers would agree with him.

The simple fact is that basic tier encryption would eliminate the need for many service calls. Customers would be allowed to connect and disconnect service without having to wait at home or take time off work.  Admittedly, fewer truck rolls also permit the cable systems to operate more efficiently and focus service calls on more difficult installations.  But to assert that sparing millions of consumers the need to be at home to activate or deactivate cable service isn’t a consumer benefit is either completely out of touch or intentionally misleading – or both.

Ronen also injected a patently false scare tactic – that the TVs which receive basic channels without a set-top box will “go dark.”  Ronen knows that the FCC has already proposed a solution that will ensure these customers will continue to receive the channels they subscribe to by getting free equipment from their operators.

The Bottom Line with Boxee

In the end, Boxee’s disinformation campaign is nothing more than an attempt to distract attention from the fact that there is a simple technical fix that Boxee refuses to implement.  If Boxee included a CableCARD slot in its device, its customers could access encrypted channels without a set-top box.  Rather, Boxee wants cable operators and their customers to foot the bill for a special fix just for them. And if it doesn’t get what it wants, then no cable customers should get the benefits of basic tier encryption.

It’s time for Boxee to stop dealing from the bottom of the deck and for regulators to recognize that when a “competitor” asks for government help to stop the innovation and enhancement of rival services, such claims belong in the recycle bin, not an FCC docket.

Staci Kramer at PaidContent neatly sums up their positions:

…Cuban believes in subscription TV and sees Ronen… as representing free-only; Ronen believes TV over the internet is the present—and the future but a la carte. He’s not anti-pay per se—Boxee is working on a pay offering—but anti-establishment TV. Cuban doesn’t see an internet TV business model that works yet.

“How will content be paid for?” is a key question, and the Current Events blog notes that Cuban made strong points in this area:

Cuban pushed hard, arguing that other than a few big players, like Apple, you simply can’t get people to pay on a scale to make a solid business case for internet delivery of media. Ronen fired back with the question “What you are saying is that because you have lack of choice, you are going to win?” Cuban kept going back to the fact that Boxee can’t monetize their business, while Cuban won’t broadcast anything he can’t make a dollar on, and he has a point. Everyone wants to be able to pick and choose what they want to watch, but with the internet giving so much of it away for free, few are willing to pay.

At several points, Cuban argued that the Internet isn’t really set up for efficient delivery of video, but that cable’s infrastructure is. The Gearlog blog highlighted this point:

“But people are willing to pay for Internet video right now,” Ronan responded.  “They are paying for Netflix, they are paying for MLB, they are paying for a lot of things,” he said. “It isn’t about free or not free. It is about whether the Internet can deliver video and it can.”

How much video and how reliably it can be delivered is a different question. And that is where Cuban made his strongest points.  Having a few million users download programming a few times a week is one thing, but what about when it is tens of millions? The Internet simply wasn’t built to support that kind of delivery.

Ronen kept arguing that the old models are dying, that distribution via the Internet is the future, and that it is therefore foolish for content owners for Cuban to not make content available online. Cuban countered that no one is making significant money online and made it clear that he wasn’t going to give his content away for free. For example, Cuban joked, perhaps the producers of the show The Office should just give their program away for free and then tour the production as a play around the country.

Two colorful Cuban quotes:

• “The a la carte model is for morons.”
• “If you think that the Internet going to replace cable, you’re crazy.”

His larger point is that in an a la carte universe, content players have to include significant promotional expenses, because in a world of unlimited choices, you have to find a way to stand out. To an audience member who complained about “paying $100 a month to watch three shows,” Cuban responded, “In an a la carte world, you’re one of zillions. Marketing is expensive.”

But I think the key point of the whole discussion slipped by most of the audience, and I haven’t seen it reflected in the news coverage. An audience member asked how an Internet-based subscription service – one where the consumer contracts with a company, that then delivers video over the Internet for a fee – would differ from what we have now. Cuban said this was a good question. It is, because the answer is that it wouldn’t look different at all.

I went up afterwards to discuss this with Cuban and confirmed what I was thinking. Consumers don’t care how programming comes to their house, whether it’s over fiber or coax, by satellite or by IP transport. They turn on their TV and watch stuff. So, as long as the economics of producing content remain the same, and there’s no reason to think they won’t, then the technical means of getting programming into the home are immaterial.

Cuban said to an audience member after the session that many of the elements of Internet-based  content look just like digital cable: streaming content on demand, storage costs, capacity issues. As cable becomes increasingly digital, those similarities increase. And if those two worlds – Pay TV and the Internet – are alike in many ways, then it becomes even more important to look at the ways they are different.

Cuban thinks that cable’s subscription model works better for him financially. He also thinks that cable does a better job of delivering video, especially as hi-def becomes more prevalent.  Consumers aren’t going to care about the nuts-and-bolts of how it all works. As Cuban put it, “The future of television is… television.”

[NOTE: Photo above used by kind permission of Staci Kramer.]

It all started with this Contentinople article, quoting Ronen: “Cable companies have been fighting cable à la carte for years in Washington, but I think consumers will prevail online.”  Then Cuban responded on his blog: Why Do Internet People Think Content People Are Stupid ? He argued that it doesn’t make sense to disrupt cable’s current business model.  He then followed up by noting the impact if the “a la carte” model was applied to Internet content.

Then the whole discussion took off. Here are just a few of the relevant links:

• Cable TV is Screwd [Post from Revision3 CEO Jim Louderback, formerly of the cable network TechTV]
• a lively debate with mark cuban [Avner Ronen responds on Boxee's blog]
• Some Questions & Thoughts re Internet Video vs the Incumbents [Cuban follows up with another post]
• Mark Cuban debates Boxee founder [Blog post from Michael Willner]
• Mark Cuban Declares War On Free TV Online… But Misses Out On The Economics [Mike Masnick at TechDirt argues that charging for online content is "a dead-end model"]
• The Cuban Files: Taking On Boxee & Business Models [To close the circle, Contentinople's  R. Scott Raynovich weighs in]

One notices some common themes of those arguing that cable programming ought to be available online either free or in an a la carte fashion.  There’s a general theme that all content must inevitable be available on the Internet in this fashion. Typically, what consumers want is held up as the Golden Rule. I’m no expert, but I don’t think that Masnick’s economic analysis makes too much sense.

Anyway, take a look for yourself.