Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

It has been more than a generation since Americans had to rent their rotary telephones from Ma Bell. (Kids, ask your grandparents to explain what a rotary telephone was.) A version of that antiquated system is still in place; it has just shifted from the phone company to cable- and satellite-television services.

The vast majority of Americans still pay for TV service, which means they rent a set-top box that they hate. The average American household spends about $231 a year to lease those boxes from their cable, satellite or telecom TV provider. That's a whopping $19.5 billion in total, according to surveys conducted by two U.S. senators. Now that more people are dropping or never buying video service from one of the Big Cable companies, it’s time to set the set-top albatross free.

A handful of the cable TV providers, including Time Warner Cable, are experimenting with letting Roku, the maker of a popular streaming Web-video device, take over as the primary access point for TV service. In principle, it means viewers can use one piece of TV equipment and one on-screen guide to seamlessly hop from an NFL game to “House of Cards” on the Netflix app to an Adele music video on YouTube. More cable companies should take this step of turning over the entertainment gateway duties to companies like Roku, or Apple, whose primary mission is making pleasant-to-use consumer electronics. 

TV Static
In the last year, eight of the country's biggest cable or satellite companies have shed a combined 390,000 TV subscribers. Netflix has added 15.6 million domestic Web-video customers in the same period.
Source: Bloomberg
Pay TV providers are Comcast, DirecTV, Dish Network, Time Warner Cable, AT&T U-Verse, Verizon FiOS, Charter and Cablevision.

This alliance between Big Cable and consumer technology companies won’t end the problem of cord cutting, but it does attack one of the reasons people are ditching TV service for Web-video subscriptions from Netflix, Hulu or Amazon Prime. It isn’t just because these services are cheaper but also because they feel like contemporary entertainment experiences. Apart from Comcast, whose on-screen technology is considered exemplary in the industry, sitting in front of most cable or satellite TV systems is like taking a time machine back to era of rabbit ears and VCRs.

The finances of dropping the set-top box are tough to assess. Time Warner Cable last year pulled in $1.4 billion, or 14 percent of the total revenue for its consumer TV service, from renting video equipment like set-top boxes and from installation charges. Yet the costs for hardware and service support for those boxes are also high. In aggregate, giving up set-top boxes could be a slight hit to overall returns for the pay TV companies, said Craig Moffett, an analyst with research firm Moffett Nathanson. Some people in the cable industry say they don’t need the money, anyway.

The real benefit is less financial than strategic. Anything that slows down the pace of pay-TV subscriber losses is good for the cable and satellite companies and for the entertainment conglomerates like Disney and Fox that rely on the stream of money from cable companies. This long-profitable alliance is fraying as each side blames the other for Americans tuning out traditional TV. Big Cable and Big Entertainment could use the time they buy from outsourcing set-top box technology to figure out what to do about their existential crisis. Cheaper packages of channels have been part of the cord-cutting response, too. 

Some people who have accessed pay-TV service through the Web-streaming boxes found the experience far from perfect. There is no DVR service, for example,  for people who sign up for the Time Warner Cable trial with Roku devices. TV through cable service also has a technical leg up over Web video because the programming runs through "managed networks,” or dedicated pipelines that are separate from the sometimes balky public Internet on which Netflix or Hulu rely. 

Even with limitations, letting the hardware experts take over the set-top boxes duties feels like an ideal marriage of the best of Big Cable -- reliable TV service and a collection of preprogrammed channels for optimal laziness – with the array of choices offered by Web video, all unified by competent search technology to hunt through the video smorgasbord.  

Of course there is a risk if pay-TV companies let go of their position as the primary entertainment gateway. Traditional TV becomes just one choice among many others that are a remote click away.

Eclipsed by Netflix
Investor worries about pay-TV subscriber losses have hit shares of media and cable companies.
Source: Bloomberg

In truth, that's happening anyway, even with the traditional set-top box keeping most people trapped in cable's walled garden. And there is actually a sly benefit in losing that position for an industry perpetually under a regulatory klieg light -- and with a perpetual urge to merge. It sends a message to Washington that the cable and satellite TV companies are willing to embrace a consumer-friendly world in which their video services stand on similar footing as those of Web-video rivals.

More pay TV providers, then, should seek to free themselves, and consumers, from the boxes. It will set Big Cable free, too. Otherwise more and more Americans will simply give up on today’s versions of Ma Bell.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net