Access to Consumer Data May Be Real Prize in Set-top Battle, Experts Say

Access to consumer data may be the real prize in the battle between pay-TV carriers and supporters of FCC-proposed changes to the set-top box market (see 1602180065), cable attorneys, analysts and data experts said in interviews.

Allowing third-party set-top makers access to multichannel video programming distributor (MVPD) content will allow Google and the like to see and use consumer data that’s currently available only via pay-TV proprietary apps and devices. That has caused consternation among MVPDs, glee among tech companies and led the FCC to say the proposed rules won't harm consumer privacy or cable industry content safeguards. In a 3-2 vote last month, commissioners approved an NPRM on making it easier for pay-TV customers to get encrypted video content from set-tops they don't lease from the MVPDs.

Set-top viewer data is the “last tranche of data” unavailable to Google, said Guggenheim Partners analyst Paul Gallant. Supporters of the FCC proposals disagree. “To claim that this agenda has been driven by ‘big tech’ or some such ignores the work that Public Knowledge and smaller companies like Hauppauge did in the DSTAC (Downloadable Security Technology Advisory Committee),” said PK Senior Staff Attorney John Bergmayer.

The consumer data that flows through set-tops would certainly be valuable to third-party developers and would be of extra value to Google, analysts and a consumer data expert told us. Consumer viewing habits are the “next untapped market” for the search company’s data collection efforts, said data analytics consultant Stephane Hamel. Google is able to track what Web users search for, send email about, and where they go online until they go into a closed system like Facebook, Netflix or a proprietary MVPD VOD app, said Hamel. Consumer viewing data would enable Google, or other third-party set-top makers, to build a more complete picture of a consumer’s interests and shopping habits, Hamel said. That more-complete profile can then be used to make a more persuasive or targeted pitch to advertisers. Though other companies could take advantage of consumer data, few would be able to offer as complete a picture of a consumer’s habits as Google, numerous industry officials told us. “This would take Google to a whole new level,” said Gallant. A company spokeswoman declined to comment.

Google has struggled to form relationships with programmers, MoffettNathanson analyst Craig Moffett told us. The FCC’s proposals are seen as a way for Google to access consumer viewing data without “the heavy lifting” of negotiations with content companies, Moffett said. Access to consumer data as Google’s goal also makes more sense than profit from set-top sales, he said. “There’s not a lot of evidence for enormous pent up demand for set-top boxes.” Consumer data is perceived as valuable in the MVPD sphere, he said. “Operators have been chomping at the bit to monetize it.”

MVPDs want to keep sole control of their consumer data because their main business model is no longer as profitable as it once was, Hamel said. Though cable companies don’t use data the same as Google, they do take advantage of consumer data, a consumer electronics official told us. “It is a touch ironic that the cable companies are accusing companies of planning to engage in various practices that the cable companies themselves are doing today,” Bergmayer said.

One reason MVPDs don’t use data the same way Google does is that they're bound by some restrictive laws that in their current form wouldn’t apply to non-MVPD set-top makers. Without those rules, consumer data will be abused, a cable attorney who opposes the FCC proposals told us. TiVo has argued that existing laws already prevent such abuses, and that it has offered retail set-tops for years without going past the limits that bind MVPDs (see 1602160072). Industry officials on the MVPD side said things would be different under the FCC proposal. “Google is an advertising company” and thus more likely to take advantage of difficult-to-enforce rules, said American Cable Association CEO Matt Polka.

Though FCC Chairman Tom Wheeler has said would-be set-top makers would be bound by covenants to abide by rules similar to those that govern MVPDs (see 1602180065), the wording in the NPRM is too vague, a cable attorney told us. MVPDs aren’t allowed to share with law enforcement or sell information that can identify a specific customer, and they have to allow customers to opt out of data collection and correct their data profiles, the lawyer said. It might be possible for third-party companies to agree to similar terms, but MVPDs have a final check on their data use that can’t be replicated, the attorney said. MVPD customers have a federal right to sue MVPDs if their data is mishandled, a power the FCC can’t grant to customers of third-party set-top manufacturers, the attorney said.

The FCC proposal seeks comment on what type of mechanism to use to ensure that "in addition to having to comply with existing state and federal protections, third-party devices and apps will also comply with protections that specifically apply to cable and satellite TV," a spokeswoman said Tuesday. The proposal also asks about enforcement, she said, including how best to do so, whether an independent entity should validate third-party developers' certifications to abide by the restrictions, and whether the FCC should maintain the certifications.

Google is the least likely to play fast and loose with consumer data because Google is so visible, Hamel said. A bigger risk could come from smaller, less well-known third-party box makers that could bundle and sell consumer data profiles. That wouldn’t be allowed under the FCC proposals, supporters of the commission’s plan told us. MVPD industry officials have said the FCC-proposed covenants would likely be difficult for the commission to enforce. “We support rules that will make sure that third-party device and app makers are subject to the same privacy rules and standards that cable companies are subject to,” Bergmayer said.

Investors don’t view the FCC interest in set-tops favorably, analysts said. It’s a “headwind” for investing in cable stocks, Moffett said. “It’s scary not for what it says about the future of set top boxes but because of what it says about the FCC’s animus toward the cable industry.”