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A red pill, blue pill moment for TV

Video killed the radio star, the Internet is killing traditional newspapers, and now the FCC is planning to kill video content in the guise of regulating cable TV set-top boxes.

It's an odd time to propose new rules for TV boxes. Cable is already moving to apps that stream video directly to consumer TVs and mobile screens, no set-top-box required. Just as it's impossible to bend a spoon in "The Matrix" — because "there is no spoon" — the FCC can't regulate "set-top boxes" that don't exist.

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Why propose new rules when technology is poised to make set-top boxes obsolete? Because the FCC's proposal isn't truly about boxes. It's about forcing television companies to give their video content to Internet companies who want to collect data about consumers' viewing habits and sell video advertisements without paying for or licensing programming rights.

The so-called "set-top box" rules would apply independently from the existence of any actual boxes. Internet companies would still have a government-mandated right to profit from TV content even after operators stop leasing set-top boxes altogether.

In truth, the FCC is using the historical status of the "set-top box" — which was once the only technological means of watching cable services — as a mere pretext for the wholesale regulation of video content, now and far into the future.

Forcing existing TV distributors to give programming away for the benefit of the Internet's big data and online advertising companies won't lower anyone's TV bill. But it will, as Roku CEO Anthony Wood wrote in the Wall Street Journal, "allow a company like Google to do to the TV what it did on the Web" — build a consumer interface that leverages its massive user base in order to sell advertising for "premium" video content (where the money is) without the "inconvenience" of creating its own content or licensing it from companies like ABC and HBO (where the costs are).

Internet companies know, as Tom Goodwin of Havas Media put it, "the interface layer is where all the value and profit is" — which is why letting them become the interface for video content through sheer government force would be so harmful to the diversity and quality of video programming.

Producers of premium shows rely on advertising revenue and licensing fees. The FCC's plan to shift advertising revenue from Hollywood to Silicon Valley would give video content companies an incentive to charge higher licensing fees for their shows or cut the costs of producing them. That's bad news for consumers, who would pay more while getting fewer shows of lower-quality.

This outcome isn't speculative. A similar shift in ad revenue from newspapers printed on paper to online companies caused a rapid decline in the fortunes of the newspaper industry and the content they produce. The industry responded by cutting back on investigative journalism, closing local and international news bureaus, slashing salaries and laying off waves of experienced reporters. In the click-bait era, newspapers can no longer fund the quantity or quality of journalism the print media once offered.

This decline hasn't led to a corresponding increase in journalism produced by the Internet companies who dominate online advertising. Google and Facebook account for more than half of all digital advertising revenue in the U.S. but aren't a significant source of original news content. Despite the Internet's increasing importance as a medium where people access news, online ad revenues go primarily to "middlemen" that distribute content but don't create it.

The crisis in journalism hasn't hurt video content — yet. The Internet's adverse impact on print journalism has prompted a beneficial "rush to video." Consumers are now spending more time per day with digital video than any other online activity, and ad spending on original digital video content has more than doubled since 2014. Online video distributors — e.g., Netflix — have responded to increased demand and revenue opportunities by producing quality new shows. And new devices like Apple TV, Roku and smart TVs are bringing more options to consumers and making it easier than ever to "cut the cord."

The FCC's plan threatens to bring the video boom to a screeching halt. If Internet companies can sell ads using "free" government-mandated access to video, Netflix and other online distributors would have less incentive to invest in original series, and traditional content companies would have less incentive to maintain the quantity and quality of their programming. Why spend heavily to create new video if you are compelled to hand it over — free — to your competitors?

The FCC's proposed new rule is a red pill, blue pill fork in the road for the video ecosystem and consumers. Let's hope the agency chooses wisely.

Fred Campbell formerly served as chief of the Wireless Telecommunications Bureau at the Federal Communications Commission; his email is fcampbell@techknowledge.center.

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