April 4 (Bloomberg) -- Boxee Inc., a New York startup that makes software for showing Internet video on televisions, is heading to Washington to challenge some of the biggest names in the media industry.
The company is fighting a proposed Federal Communications Commission rule backed by Comcast Corp., News Corp. and Walt Disney Co. that would let cable operators encrypt the TV transmissions that are delivered to U.S. homes. That means anyone trying to watch cable TV on a Boxee device would only see static, even if they were paying for a cable subscription.
Boxee, which has previously feuded with Hollywood-backed Hulu LLC, wants to be able to replace traditional cable boxes with its own software and hardware, rather than equipment endorsed by Comcast and other cable providers. At stake is whether media companies can restrict their customers from a wider range of options -- a battle that the technology industry needs to fight in Washington, Boxee says.
“Definitely startups, but tech in general, don’t focus on D.C. as much,” said Avner Ronen, chief executive officer of Boxee, which has 45 employees. “We’re not speaking D.C.-speak or FCC-speak, for good or for worse.”
Ronen has an uphill battle ahead. In the October proposal, which was put forth before Boxee voiced its opposition, the FCC wrote that the change “will not substantially affect compatibility between cable service and consumer electronics equipment for most subscribers.” That’s not true, Ronen said, and he’s working to convince the FCC of that. Neil Grace, a spokesman for the agency, said the FCC hasn’t reached a decision on whether to pass the rule.
Sena Fitzmaurice, a spokeswoman for Philadelphia-based Comcast, declined to comment beyond public FCC filings. In those statements, Comcast has encouraged regulators to pass the rule and said Boxee’s concerns were “without merit.”
Jack Horner, a spokesman for News Corp. in New York, declined to comment. Burbank, California-based Disney didn’t respond to a request for comment.
The Boxee Box is a $180 device made by D-Link Corp. In a game-changing development, the company also began selling a $49 accessory in January that can receive some TV channels through cable, such as TBS or the Food Network, without needing to lease hardware from a cable operator.
“Boxee in particular is a product that focuses on choice and breadth,” said Ross Rubin, an analyst for NPD Group in Port Washington, New York. The Live TV accessory is “one of the few weapons they have to deliver a greater swath of programming.”
If cable companies can’t encrypt their signal, they are enabling the kinds of technology that could ultimately cause customers to drop their subscriptions altogether, said Christopher King, an analyst for Stifel Nicolaus & Co.
For instance, if someone can get cable, Hulu and Netflix service from the same Boxee device, they may decide they don’t need the cable portion anymore. Cable companies also worry about noncustomers pirating their signal and watching it on unauthorized equipment.
“The more controls they have over that distribution pipe, the better off they’re going to be,” King said.
Technology companies are often ignored in regulatory and legislative discussions, Ronen said. Startups don’t get involved with lobbying because they’re more concerned about attracting millions of users quickly and they’re on a tight budget, he said. Boxee has more than 2 million users.
Nick Miller, a 26-year-old intern who managed Boxee’s social-network feeds, learned of the FCC rule through a message posted to the company’s Facebook page in December.
Miller, Ronen and Melissa Marks, Boxee’s only lawyer, took a train to Washington to meet with FCC Chairman Julius Genachowski on Feb. 1. Ronen maintained the startup aura by wearing a Boxee hoodie rather than a suit.
“We’ve put on our lobbying hats,” Miller said. “There’s no attempt by the regulatory groups to actually talk to us.”
Boxee has feuded with media giants before. Hulu, an online TV service backed by Comcast, News Corp. and Disney, has blocked Boxee’s software from accessing Hulu programs.
During congressional hearings for Comcast’s acquisition of NBCUniversal in 2010, then NBCUniversal CEO Jeff Zucker said Boxee was “illegally taking the content that was on Hulu without any business deal.”
The media industry complains that technology companies fight against their anti-piracy measures without offering alternatives or adopting industry-approved standards.
The National Cable & Telecommunications Association, a cable-industry trade group, wants Boxee to use a different protocol called CableCARD to access live programming. The organization described Boxee as a competitor to cable operators that’s trying to prevent them from “modernizing their networks.” Boxee says CableCARD would significantly increase the cost of its hardware because the system requires the company to install a card in its boxes and pay service fees.
The Consumer Electronics Association, meanwhile, opposes the FCC’s cable encryption proposal.
“The FCC should not act piecemeal,” Julie Kearney, a spokeswoman for the electronics trade group, said in an e-mail. Cable companies should adopt a system “based on open standards, that will promote competition and will give consumers new choices -- other than simply accepting another cable box.”
The AllVid Tech Company Alliance, a group that includes Google Inc. and Sony Corp., also opposes the proposal. An executive on Google’s legal team in Washington told Boxee that Google hasn’t gotten involved directly because it’s not a pressing issue for the company’s business, said Miller, the intern. Google didn’t respond to a request for comment.
Boxee only has about $50,000 to spend on lobbying, Ronen said. Compare that with the combined $30.6 million spent by Comcast, News Corp. and Disney last year, according to the OpenSecrets.org site of the Center for Responsive Politics, though that includes lobbying on a wide range of issues.
“It’s a lot of money,” Ronen said.
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