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.

We largely agreed with the proposals the Commission made in its CableCARD Further Notice and want to ensure that customers who utilize these devices have a satisfying experience.  We also support the Commission’s efforts in the “AllVid” Notice of Inquiry to examine fresh approaches to implementing Section 629 that involve all video providers – not just cable – and we have proposed a set of principles that can serve as a foundation for these efforts.  But since the AllVid item is still in early stages, we are committed to working with the Commission on targeted revisions to the CableCARD rules.

You can review this previous post on the history of CableCARDs for a refresher on how we got to our current point. Quite simply, the CableCARD approach failed largely due to rational consumer choices. The original one-way retail devices worked only with one-way cable services, cost more than other devices, and made consumers assume the risk of obsolescence.  Instead, consumers chose to lease devices at government-mandated rates which offered Video on Demand and other valuable interactive services and which also provided them the flexibility to swap boxes when the next model was released or return boxes if they terminated service.

We agree that consumers should have a self-installation option, if their cable operator allows self-installation of leased set-top boxes and the device’s manufacturer provides adequate installation support, as Moxi and TiVo do today. We also think it’s a good idea for professional installers to arrive at the home with no fewer than the number of CableCARDs (specifically, M-Cards) that have been requested by the customer. And we agree that operators can provide more transparency regarding CableCARD pricing by including relevant information on an operator’s website, in rate cards and in other notices.

On a broader level, we don’t think that onerous new CableCARD requirements should be imposed on cable operators; instead, the focus should shift towards new solutions that cover all multichannel video programming distributors.   As we said in an earlier post, “the only way a retail video device marketplace can fully work for consumers is if all MVPDs participate.”

To that end, we’re happy to work with manufacturers like TiVo, but as we noted previously, we feel that TiVo’s proposal for mandating a standardized IP backchannel approach – in lieu of tuning adapters, so that one-way devices can access two-way switched digital video channels – would be costly, time-consuming and unnecessary.

Instead, all parties should work together to make the viewing experience better for consumers. We hope that tomorrow’s FCC meeting will help move us in that direction.

The meeting is almost three weeks off, but it’s probably worth reviewing the history of CableCARDs to prepare you for what transpires.

I’ll remind you that a CableCARD is a smart-card like device that plugs into a TV, computer or other equipment which allows consumers to receive digital cable services without a set-top box.  The CableCARD provides the same security/descrambling function as a set-top box, but is inserted into a “cable ready” digital device (like digital TVs or a TiVo).  The CableCARDs themselves have two-way functionality, but many of the devices they are inserted in only permit one-way communications, which means users can’t access cable’s interactive program guides, VOD or DVR services.

There’s a lot of misunderstanding of how CableCARDs work and especially of the history of how they came to the marketplace. I recommend you read this 2008 post that reviews the history of CableCARDs in depth. I’ll also point you to this recent post which rebuts TiVo’s proposed “IP backchannel fix,” which is likely to be discussed at the October 14 meeting.

Standard cable service, both analog and digital, works on a “broadcast” model, in which every available channel is sent to every subscriber all of the time, regardless of what is actually being watched. Sending more channels than you’re actually watching just takes up more of the capacity on the cable pipe – capacity that could be used for other important purposes.

As this article succinctly puts it:

One of the primary benefits of SDV is that it frees up bandwidth because it only delivers the channel a customer is viewing.

In previous posts – like this one on net neutrality or this one on consumption-based billing – we’ve referred to the competing demands on network bandwidth. Your local cable system has a finite amount of capacity over which to provide all of the voice, video, and data services that its consumers demand.  A tool like SDV is one method of clearing up bandwidth for other services, allowing your cable provider to offer faster broadband speeds, more HD and niche programming, and other new services.

That’s why the FCC has endorsed cable’s use of SDV (For example, see this FCC Order regarding deployment of SDV by Cox and Time Warner Cable.).  Other multichannel video providers use SDV, including AT&T’s U-verse service, which is 100% switched digital.

Two-Way Services Need Interactivity

Some people want to receive digital cable service with devices other than a cable-provided set-top box, such as a TiVo DVR.  For purposes of authentication, a CableCARD needs to be used as part of that connection. You can read this blog post to get the background on CableCARDs, but the salient detail here is that the  2002 agreement between the cable and consumer electronics industries that led to CableCARDs only covered devices that receive one-way cable services, such as the channels that are continually “broadcast” on the cable pipe without anyone actually requesting them.

These one-way devices are known by the long – yet descriptive – name “Unidirectional Digital Cable Ready Products.”  UDCPs were never designed or intended to be able to receive Video-on-Demand, electronic program guides, and other two-way services that require interaction between a set-top box and the cable operator’s plant – and the FCC required UDCP manufacturers to expressly warn consumers of those limitations.

Based on the description above, you might easily surmise that SDV requires interactivity.  A channel request goes up the line to your cable provider, and then the requested content is sent back.

Even though UDCP devices were never intended to receive content delivered over a two-way platform, the cable industry and TiVo worked together to develop a solution for consumers who were using TiVo UDCP devices on systems where some channels were delivered using SDV.  That solution is called a “Tuning Adapter,” because it is a device that connects to a consumer’s TiVo box and provides the two-way functionality to request (or “tune” to) SDV content.  A TiVo press release (NCTA and TiVo Announce Switched Digital Solution for HD DVRs) and this 2007 news story (TiVo, NCTA Team Up on Switched Digital) outline the joint development.

In April, the FCC launched two proceedings about video devices, one of which asked questions about whether Tuning Adapters are working.  Although TiVo’s website asserted that the Tuning Adapter “works well” for accessing SDV content (TiVo’s website declared “there are no known issues with Tuning Adapters and Premiere/XL, TiVo HD/XL, and Series3 HD DVRs”), TiVo is now proposing that the FCC mandate a completely different solution. Or as Todd Spangler put it in Multichannel News, TiVo wants to replace “the Tuning Adapter that cable developed in conjunction with TiVo.”

My next post will look into just that issue.

But despite the advanced features that today’s boxes offer, and their broad consumer use, not everyone is a fan of these devices. Washington Post tech columnist Rob Pegoraro apparently falls into this camp and recently wrote a column expressing his frustration with boxes – explaining that “three digital-cable technologies have failed to usher the cable box and its button-strewn remote from most living rooms.”

Pegoraro focused on the cable industry in his column, but did note that other video providers also require set-top boxes, certainly an important point in a competitive marketplace. As I was quoted in a story on the TV Barn blog last year:

If you switched to DirecTV or Dish, you have to have a new box. If you switch to Verizon FiOS or AT&T’s U-verse, you have to have a new box. It baffles me to no end why there are four companies competing with cable and nobody has ever complained that you have to have a set-top box for them.

The Progress of CableCARDs

Set-top boxes are necessary in many circumstances, but the cable and consumer electronics industries have been working for years on providing cable customers with ways to receive service without them. The first approach was one-way Digital Cable Ready TV sets – also known by the unfortunate legal term Unidirectional Digital Cable Ready Products or UDCPs (the history of them was discussed in this post from last year) – which utilize CableCARDs to provide security, ensuring that only paying customers can receive cable service.

NCTA periodically reports to the FCC on the number of CableCARDs that have been issued to customers for use in UDCPs purchased at retail. Last week, we reported: “As of August 31, 2009…there have been over 443,000 CableCARDs deployed for use in retail devices by the ten largest incumbent cable operators who serve approximately 90% of the cable subscribers in the country.” When compared against the cable’s 63 million video subscribers, my math shows that CableCARDs are being used in retail devices by well under one-percent of the overall base (.0008 to be exact).

Some blame cable operators for the low number of CableCARDs in use in retail devices, but that fact is that one-way Digital Cable Ready devices do not support Video-on-Demand (VOD), electronic program guides (EPGs), and other two-way services that cable customers want.

As the FCC has recognized more than once: “market demand for UDCPs is not strong”; “it is apparent that consumers have not shown significant interest in one-way devices, which cannot access features such as EPGs, VOD, PPV, and other ITV capabilities provided by cable operators“; and “many consumer electronics manufacturers have discontinued the manufacture of UDCPs because consumers are more interested in advanced two-way functions that UDCPs by definition cannot perform.” (Also, see this related article.) In fact, with the exception of certain TiVo digital video recorders, the consumer electronics industry isn’t building one-way Digital Cable Ready devices for the retail market.

There is another explanation for the low level of consumer interest in these devices. As Consumer Reports said as far back as its November 2006 issue, it makes no sense for most consumers to buy DVRs (“cable ready” or not), let alone “Plain Jane” digital boxes, when they can rent them from their cable company for a low, government-regulated monthly fee and exchange those boxes for more advanced models when they become available. Multichannel News’ Todd Spangler also recently examined the question “Why Haven’t CableCards Taken Off?”

The next step in cable’s set-top box evolution was the development of tru2way, which is a middleware stack that is being installed in cable headends nationwide and allows retail devices to access cable’s two-way services. Last year, the six largest cable operators concluded a landmark agreement with major consumer electronics companies (including Sony, Panasonic, Samsung, LG and Funai Electric (which trades products in the United States under the brand names Philips, Magnovox, Sylvania, and Emerson)) laying the foundation for development of two-way digital cable ready devices which would not need a set-top box to access cable’s two-way services. Those tru2way devices also use CableCARDs for security.

Panasonic has been selling, and cable systems are supporting, tru2way digital TVs in three major markets: Atlanta, Chicago and Denver (as we reported last year).

Clearing Up QAM

Another method for cable reception without a box is through the use of a device with a built-in QAM tuner. QAM (pronounced “kwam”) stands for quadrature amplitude modulation and is a method for putting digital signals onto a carrier so that it can travel from your local cable company to the home.*

You might recall a FiOS commercial from a few years ago where the tech rattles off a bunch of technical stuff and then refers to “true QAM.” Cable systems have been using QAM for years because it’s faster and more efficient than some other digital modulation techniques.

But there is a catch to consumers counting on QAM tuners. Currently, some QAM signals are sent in the clear and others are encrypted, but, increasingly, channels are being moved to the digital tier and are being encrypted. In some circumstances, with the right TV, you could receive the “clear QAM” signals, but you’d need a set-top box or a CableCARD-enabled device to receive the encrypted signals.

Pegoraro referred to “Hollywood’s paranoia about shows being shared online” and said that “this encryption doesn’t stop shows from being shared online.” I think that’s the point: Not all programming is encrypted at this point and it’s fairly easy to digitally copy a television program (or movie) and distribute it online. The proliferation of content online will require a level of confidence by content owners that their shows won’t end up being widely digitally bootlegged.

Protecting channels through encryption also allows cable companies to offer the opportunities to consumers to buy different tiers of service – such as basic, expanded basic and digital, as well as your pick of premium channels – or to select among packages of programming, such as kids, sports and news.

The Correct Approach to Ditching the Box

While the pace of progress hasn’t been rapid enough for some, cable has been leading the way on the development of solutions to serve customers who don’t want boxes. But there are other multichannel video programming distributors (MVPDs) than just cable companies (services like DirecTV and Dish, and telephone company offerings like FiOS and U-verse) and, as mentioned earlier, they also require set-top boxes.

To help achieve a universal “box-free” solution for all providers, NCTA has suggested an “all-MVPD” solution. Under this scenario, the consumer could buy a TV set or other device at a retail outlet and successfully connect it to any MVPD without a set-top box from that provider.

I’ll quote from a 2008 NCTA letter:

Verizon also expresses support in its [July 31, 2008] ex parte for an “all-provider” plug-and-play solution (i.e., a solution that uses a standard network interface that is platform agnostic). This is something that NCTA and traditional cable operators spent more than a year advocating. In the summer of 2007, the cable industry asked the FCC to encourage an all-provider solution, and actively sought support for the concept from AT&T, Verizon, and satellite providers during the summer and fall of 2007, including numerous high-level contacts among the parties. Unfortunately, AT&T, Verizon, and satellite all declined cable’s invitation, and cable proceeded with its plan to negotiate and conclude the Two-Way MOU with major consumer electronics and information technology companies. When we announced the MOU in June, 2008, we specifically renewed the cable industry’s invitation to collaborate on a voluntary all-provider solution. We are pleased that Verizon is now calling on the Commission to encourage all parties to work towards that goal.

More recently, TiVo has supported an “all-MVPD” solution as well. We would welcome further discussion of this concept.

Undeniably, there are challenges to providing service without a traditional set-top box. It involves issues of technology, regulatory policies, innovation, and consumer choice. For those who are deeply interested in getting rid of the box, we suggest that effort should focus on developing an effective solution for the reception of multichannel video that would work for all consumers and all providers.

For example, I see tru2way described as “CableCARD 2.0,” which is cute but not technically correct. I see questions about when there will be a “two-way CableCARD,” when in fact all CableCARDs are capable of accessing two-way cable services such as video-on-demand. I see people expressing expectations that the introduction of tru2way means that CableCARDs will go away, when in fact tru2way devices require use of CableCARDs.

It’s great to know that so many people are passionate about these issues, but the misinformation is a little frustrating.

I thought I would back up and walk through a very brief history of CableCARDs and tru2way, so as to hopefully clear up this confusion.

The Beginning of CableCARDs
In the Telecommunications Act of 1996, Congress sought to foster competition in the set-top box market by enacting a new provision of the Communications Act, section 629, whose purpose was to make set-top boxes available for retail purchase. Specifically, that provision called on the FCC to adopt rules to ensure the commercial availability of “navigation devices” (e.g., a set-top box). But you couldn’t jeopardize the signal security of the provider (e.g., your local cable operator).

The FCC determined that this could be accomplished by separating security (i.e., conditional access) from the function of the device. The security functions would instead reside in a separate security module that you would get from your local provider. These security modules were first known as Point-of-Deployment (POD) Modules and later were named CableCARDs.

An FCC order in 1998 required the cable industry to develop PODs which it did by 2000, but, for a variety of reasons, there were no retail devices built with which the PODs were intended to work. By December of 2002, a “Plug & Play” agreement was reached between major cable operators and major consumer electronics companies setting the stage for the release of the first wave of devices – such as digital “cable ready” television sets – which would work with CableCARDs. These DTVs could be sold (and moved) anywhere in the country and allowed cable subscribers to receive one-way digital cable services without the use of a set-top box by obtaining a CableCARD from his or her cable operator. CableCARDs allowed cable customers to view encrypted digital programming after being authorized to do so by the cable operator.

That “Plug and Play” agreement took effect in the Summer of 2004. As of August 2004, there were approximately 700 CableCARDs deployed by the top 10 MSOs. NCTA just reported new numbers to the FCC and we found that there are 372,000 CableCARDs that the top 10 operators have supplied to date to customers who requested them for Digital Cable Ready TV sets or other CableCARD-compliant products, such as some TiVo digital-video recorders.

In addition, as a result of the FCC’s “integration ban” requiring that cable operators use CableCARDs in their own leased set-top boxes, we just reported that major cable operators have deployed more than 6.2 million digital set-tops with CableCARD conditional-access systems since July 2007.

One-way versus two-way
It’s good to stop here and point out that the 2002 agreement was an agreement for building devices to access one-way cable services such as linear (e.g., TNT, ESPN) and premium (e.g., HBO, Showtime) digital channels, including high-definition channels, but not two-way (“interactive”) services such as video-on-demand.

The reasons for this are long and involved and include technical, business and legal issues, but the short answer is that the cable and CE industries decided to adopt a one-way agreement as a first step to a “two-way” agreement. But agreement on a two-way agreement proved to be much more difficult and complex than a one-way agreement.

In particular, two-way services involve high-value content and we have three affected industries: cable, content providers (such as studios) and consumer electronics manufacturers. Not all of the companies within each industry have all the same views and not all of these industries have the same views. It’s a hard thing to accomplish.

The Story of tru2way
Now, I need to back up one more time and point out that something else was going on at almost exactly the same time. In the fall of 1997, came the beginning of the cable industry’s OpenCable project. Its mission was to provide a set of hardware and software specifications for the next generation of cable’s set-top boxes and other two-way devices. The software involved was called the OpenCable Applications Platform or OCAP, now known as tru2way. The tru2way hardware and software forms the basis for interactivity in two-way retail devices, as well as cable operator devices, and is used in conjunction with – not as a substitute for – CableCARDs which are still needed to provide access to secure cable services.

These are two separate stories
Now, let’s put it all in context. CableCARDs came from a government mandate to separate security from “channel surfing” functionality in set-top boxes, making them available at retail. The CableCARD itself can handle one-way or two-way communication, but the first Digital Cable Ready sets were one-way, because that’s all that was negotiated.

Meanwhile, tru2way comes from a decade of development and was focused on developing specifications that would allow interactive services to be deployed – and interactive services are two-way by definition. Two-way Plug & Play negotiations have been going on for some time, since the one-way agreement was finally settled.

In the meantime, the tru2way specification emerged as an option for building two-way Digital Cable Ready devices. Major CE companies such as Panasonic, Samsung, LG, and Sony have agreed to use tru2way technology to build two-way Digital Cable Ready devices (IT companies such as Intel have also endorsed tru2way). And, as noted, tru2way devices still require a CableCARD for security.

After all, without such security, you can’t have content. Cable operators typically have contracts in place that they have to guarantee conditional access and other limits on unauthorized distribution.

So, there you go. It’s understandable that there’s confusion over CableCARDs. After all, customers with Digital Cable Ready devices represent probably less than 1% of cable customers. But I hope this post will serve to bring some clarity to the issue. If anyone wants a more detailed history, the best one I have seen can be found here.