Cable Scrambling And A Test Of The Piracy Debate

Cable companies scored a victory yesterday at the FCC:

Federal regulators are letting cable companies scramble all their TV signals, closing a loophole that lets many households watch basic cable channels for free. The Federal Communications Commission voted Friday to lift a ban on encryption of basic cable signals, saying it will reduce the number of visits by cable technicians to disconnect service and reduce cable theft. Neither the FCC nor the National Cable & Telecommunications Association knows how many households are taking advantage of the unencrypted signals. NCTA spokesman Brian Dietz says most of the theft is by cable modem customers who also connect their line to a TV set.

Whatever the merits (or lack thereof) of the decision, I think there’s an extent to which this is an interesting test. People who would like to see the cable and media companies, which to an extent are distinct entities, innovate in the service offerings they make available to consumers tend to fall in one of two camps. First, there are those who say that piracy, whether of content or of the cable services that let them access content, are a sign that current offerings aren’t sufficient to meet the specific needs of potential consumers, and that content and cable companies could innovate their way to more business. Second, there are those who say that piracy is committed by people who would never purchase these goods and service in the first place, and who thus shouldn’t be subject to excessive regulation, which is of course a different argument than saying regulations would damage the underlying structure of the internet, etc. This second argument is a decent one against spending money and energy on regulation, but it’s ultimately an argument against innovation. If pirates are people for whom the only acceptable price point is zero dollars, no matter how much content and cable companies innovate, they’ll never be able to capture those consumers, and so it makes no sense to adjust or endanger business models to try to accommodate their needs.

What happens after cable companies start scrambling their signals will be an interesting test of these propositions. If cable subscriptions stay level, they maybe it’s true that the folks who are stealing cable service were never potential consumers. If one company cracks down and another company’s subscription base rises, maybe it’s a sign that consumers are willing to pay, but will be unwilling to sign up with companies that seem sour about enforcement. Or if all companies crack down and all subscriptions go up, then perhaps there’s some indication that there are customers out there available to be culled if the environment gives them few options other than to buy service legally. These will all be shaky correlations, of course. But it’s important to actually start testing the question of whether people who aren’t paying for media they consume now are potential customers or not if we want to push cable and content companies towards new business models.