There's no surprise that cable and subscription TV providers are a generally disliked lot. Last year, the largest pay-TV company Comcast (NASDAQ:CMCSA) was the winner of Consumerist's "Worst Company in America" tournament. In addition, the second-largest cable TV operator, Time Warner Cable (NYSE:TWC), managed a top eight finish after getting knocked out in the quarterfinal round.
For a quantitative representation, the American Consumer Satisfaction Index recently conducted its first-quarter surveys. Of the 43 industries surveyed, subscription TV (a term denoting both cable and satellite TV) came in last, tying Internet service providers with a score of 63. Per the ASCI, the subpar performance is based on "poor customer satisfaction combined with higher prices."
While the price increases have been well chronicled, there's perhaps a more insidious charge these companies use in addition to programming-rate increases: set-top box rental fees. And now, the FCC is looking for ways to foster competition and lower prices for the black box you point your remote control at nightly.
It's more expensive than you'd believe
Although it's generally lumped in with the greater cable and Internet bill, set-top box rental fees aren't cheap. Earlier this year, Senators Ed Markey (D-MA) and Richard Blumenthal (D-CT) sent letters of inquiry to major pay-TV companies in regard to their set-top box policies. And, shockingly, it's a large market -- the results found the average subscriber pays $89.16 per year for renting a single box. And while consumers can buy their own boxes, avoiding these fees, most don't – the study found 99% of all subscribers rent their set-top boxes.
Additionally, the average household doesn't rent just one box -- the responses found roughly 2.6 boxes leased per household, or $231.82 a year in fees. So those seemingly innocuous boxes are costing households more than you think. Using simple math, the senators argue the set-top rental market may be worth $19.5 billion per year. And while I'm sure subscription-TV providers love this market and don't want to see it changed, the FCC's recently released report encouraging competition in the set-top box marketplace could lower these costs quickly.
We've had this happen before
According to The Atlantic, this is essentially a needless industry that should be disrupted. Much like the telephone industry, which used to require users to rent telephones from AT&T (NYSE:T) in order to have a landline, the FCC could intercede to encourage standardization. That, in turn, should encourage price competition and innovation in order to shift the balance of power toward the consumer. Using AT&T's example as a guide, third-party manufacturers should drive down the price of set-top boxes, essentially crippling the rental market.
Perhaps a physical box would not be required at all. An intriguing option in the FCC's proposal is to eliminate the set-top box by an app-based browsing system. Replacing the search, guide, and menu features with an app should be the cheapest, although other features of traditional set-top boxes (like decoding and decompression for analog TVs) would have to be integrated.
Many televisions manufactured today, however, have these functions built into the actual device. For consumers, moving to an app-based system should save money, and the FCC's actions on this issue should be closely followed.
Jamal Carnette owns shares of AT&T.; The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.