It pays to be mindful of the future.
In 2003, when many cable operators were just beginning to offer HDTV signals, the Michael Powell chaired Federal Communications Commission stamped its seal of approval on the “plug and play” memorandum of understanding negotiated by the consumer electronics and U.S. cable industries.
For the most part, the densely detailed agreement was about “interoperability,” which was code language for eliminating the cable set-top box from the emerging video picture. In its September 2003 order, the FCC approved arrangements that would allow early-generation HDTV sets to receive signals directly from a connected cable network, without the need for an intermediary set-top device. The instrument of that feat was a slim-profile insert that would come to be known as a CableCard. Slipped into a slot on a digital TV, it took over one of the primary functions of a set-top, which is to guard against unauthorized receipt of content by allowing or disallowing signals depending on a customer’s selections and payment history.
But the September 2003 FCC order also planted the seeds for a revolution in the movie business. Ironically, it came about when the Commission barred the very practice the Motion Picture Association of America wanted: the ability to inject electronic instructions into video signals for the purpose of crippling certain outputs on a settop box.
Section 76.1903 of the 2003 rules – the language that barred so-called “selective output control” – was included because first-generation HDTVs relied on old-school analog outputs to connect to cable. This was 2003, remember, when a new HD set at Best Buy could easily cost $3,000 or more, and when today’s gold standard for a digital video connection, HDMI, was barely born.
Instead, most HDTVs talked to cable networks by way of component video outputs – the familiar red, blue and green jacks on the back of a box. These innocent-looking ports were the stuff of nightmares to Hollywood, which worried that all of the advanced digital rights protection techniques in the world could be rendered useless the second a protected digital signal was flushed through an analog conduit.
The FCC wasn’t unsympathetic to Hollywood’s worries, but it had a bigger agenda to pursue: the transition of the U.S. television system at large to a digital foundation. HDTV was a big consumer incentive for embracing digital TV, and there was little room for regulatory error. If cable operators were to pass through signals that temporarily turned analog outputs off, owners who had shelled out thousands of dollars for HD sets would have no way to watch certain programs. Or, as the FCC put it, they would be placed “at risk of being completely shut out from the high-definition content they expect to receive.”
Thus, when the FCC adopted the plug-and-play agreement, selective output control was outlawed. Sort of.
In fact, the FCC left enormous leeway for the very practice it had just banned. Although its 2003 ruling prohibited the application of selective output control, the Commission left set-top manufacturers free to build the technology into their new boxes. And it openly invited petitions for waivers at a later date.
That later date is now. In a May 2010 order, the FCC allowed for a limited application of selective output control that would let studios apply the technology for a particular film title for up to 90 days. The intent is to cultivate a new exhibition window for movies on-demand that occurs during, or slightly after, a film’s theatrical debut but before its release on physical media. The FCC reasons that its ruling will invite a new movie-viewing opportunity but won’t deny early-generation HDTV set owners access to content they already have.
In explaining its recent order, the Commission took some pain to note that it hadn’t given Hollywood everything it wanted. “We … conclude that the breadth of the waiver requested by MPAA exceeds the protections necessary to guard against illegal copying,” the filing says. That may be true, but effectively, the studios and their cable distributors now have the regulatory leeway they needed to fuel-inject the movie on-demand category by introducing new, premium-priced, earlyrelease films.
From a strategy standpoint, the lesson here is that it pays to be mindful of the future. Studios knew all along that they weren’t going to get carte blanche freedom to apply selective output control in the early stages of television’s digital transition. But by convincing the Federal Communications Commission to leave the door open for the technology eight years ago, they set the stage for a later advance. If you were writing a movie screenplay, you’d call that foreshadowing.