The Digital Television Two-Way Memorandum of Understanding: Cable industry, manufacturers agree on box-free interactive service delivery
On June 10, 2008, the major cable companies, which together pass over 105 million U.S. homes, released an agreement with major consumer electronics manufacturers, set-top makers, and a chip manufacturer that will enable consumers to buy “two-way” digital TVs and other devices that will be able to receive all of cable's interactive digital and high-definition video services without needing a set-top box.
The terms of the agreement are embodied in a binding Memorandum of Understanding (Two-Way MOU) among the six largest cable companies—Comcast, Time Warner Cable, Cox, Charter, Cablevision and Bright House Networks—which serve more than 82 percent of all U.S. cable subscribers; some of the largest digital television manufacturers—Sony Electronics, Panasonic and Samsung; set-top makers ADB and Digeo; and chip manufacturer Intel.
This negotiated industry agreement resolves a long-running controversy over how two-way digital cable-ready retail products will be brought to market and receive interactive cable services, which include video on demand (VOD), digital video recording, interactive programming guides and other two-way services yet to be developed.
This advisory explains the history, terms, and import of the detailed Two-Way MOU.
Congress adopted Section 629 of the Communications Act in 1996 with an instruction to the FCC to “adopt regulations to assure the commercial availability” of navigation devices (such as set-top boxes) from manufacturers and retailers not affiliated with any cable or satellite television service provider.
The provision arose as retail consumer electronics manufacturers sought to increase their presence in the cable television set-top box arena. Cable operators traditionally purchased customer-premise set-top boxes from Scientific-Atlanta and Motorola because the headends supplied by those vendors protected cable channels with conditional access at the headend in ways that could only be decrypted by set-tops containing the manufacturer's specific conditional access technology.
CableCARDs and the “one-way MOU”
The FCC implemented this Act by requiring cable to separate the conditional access element into a removable module known today as the CableCARD, so that retail devices containing other set-top circuitry could operate with cable systems when paired with a CableCARD specific to that system, as supplied by the multiple system operator (MSO).
The cable industry developed a suite of required specifications for retailers to build set-top circuitry into retail devices, but the CableLabs licensing and testing regime implementing those requirements was criticized by consumer electronics (CE) lobbyists as being inflexible. In the earlier “one-way MOU” of 2002, the cable and consumer electronics industries took the first of two steps to resolve this impasse.
The one-way MOU presented to the FCC a set of proposed rules under which retail equipment could pair with CableCARDs and receive “one-way” linear programming under more relaxed licensing requirements. At the time, most CE manufacturers dismissed VOD, the cable electronic programming guide (EPG) and interactive services as uninteresting to consumers. The FCC adopted the proposal, but by the time digital televisions using the one-way standard came to market, consumers wanted the interactive features, few manufacturers were willing to invest in their own EPGs, and most buyers of the one-way devices ended up not using the CableCARD features, relying instead on set-tops to receive the full panoply of new interactive cable services.
The cable and CE industries spent several years trying to negotiate the second step: establishing a system under which retail equipment could pair with CableCARDs and receive “two-way” VOD, the cable program guide and other interactive services, in addition to linear programming. The negotiations failed and recriminations grew. CE representatives blamed cable for not making the CableCARDs work, and urged the FCC to enforce a previously postponed requirement: that set-tops built for cable operators to lease to customers stop integrating their conditional access circuitry and instead rely on the same CableCARDs as retail equipment—so called “common reliance.”
The FCC agreed that, with some waiver exceptions, common reliance was essential for CE to have confidence in the CableCARD solution. In July, 2007, the FCC began to enforce the “integration ban” so that most cable operators were required to use CableCARDs for security in 100 percent of the new set-top boxes they purchased for lease to customers. (This “insurance” policy is reported to cost approximately $600 million per year for no additional set-top functionality or features.)
The Java-based “tru2way” solution
The cable-CE two-way negotiation impasse boiled over in a rulemaking at the FCC. The cable industry had reached agreement on a solution with many industry players, including three of the leading digital TV manufacturers: Panasonic, Samsung and LG, who together account for more than 50 percent of the U.S. digital television market share. The cable industry offered this solution as an established means for retail manufacturers to receive two-way VOD, the cable guide and interactive services by using the middleware that cable itself uses. That approach (known as “tru2way,” and once known as “OCAP”) uses a Java-based middleware that serves as a buffer between a wide variety of hardware platforms and the many different headends and applications that cable operators use.
In a way, middleware works on set-tops as a PC operating system works on computers, to allow developers to write interactive applications once to the operating system with confidence that it will run on many varieties of computers. Tru2way middleware has the advantages of being deployed by cable, of working with existing and future interactive services, and of being part of the same Java-based solution used in video systems in Europe and Japan, Blu-Ray Disc, and many cell phones and other devices throughout the world.
Despite adoption of tru2way by large manufacturers, the Consumer Electronics Association pressed for more concessions and presented the FCC with an alternative proposal, known as DCR+. The DCR+ proposal would have required the cable industry to invent a new solution that would squeeze a limited set of existing cable applications (VOD and the cable guide) into a fixed protocol that could run without middleware.
Among its disadvantages, DCR+ would have had the effect of freezing cable's innovation, because many existing cable applications and all new cable applications would not work on DCR+ products. Any new application would have to be defined by its own set of protocols, and be standardized in U.S. national standards bodies, which generally take years to consummate. This would have singled out cable consumers and cable operators as the one set of consumers and service providers unable to benefit from innovation while other industry segments were innovating rapidly.
The DCR+ proposal would also have significantly altered the customer relationship between cable operators and customers, by disconnecting cable customers from the cable user-interface, interactive features (such as StartOver), and brands that define modern cable services.
Terms of the Two-Way MOU
The Two-Way MOU is a negotiated industry agreement to solve the controversy over how two-way retail products may be brought to market and receive interactive cable services. Using the Java-based tru2way solution as the national “plug-and-play” standard, consumers will be able to buy two-way digital TVs and other devices that connect to digital cable without a set-top box, and enjoy easy access to high-definition television services offered by cable operators, plus VOD, interactive programming guides and other two-way services, as well as future interactive innovations.
The terms of the agreement are embodied in a binding contract initially agreed to by Sony, Comcast, Time Warner Cable, Cox, Charter, Brighthouse and Cablevision. Since its creation on April 25, 2008, other substantial companies have signed on: consumer electronics manufacturers Panasonic Corporation of North America and Samsung Electronics America. Other companies signing include set-top makers ADB and Digeo, and chip manufacturer Intel Corporation.
The MOU does not require signature by a manufacturer to build devices, and many more companies have simply signed the underlying licenses for tru2way technology. The Two-Way MOU is a major breakthrough, in which a critical mass has been achieved to resolve two-way issues on an industry level.
The Two-Way MOU resolution
The Two-Way MOU resolves the key issues that have divided the industries in the following ways:
A National tru2way Platform. The parties adopt the Java-based tru2way solution now being deployed by the cable industry as the national plug-and-play standard between two-way digital television products and digital cable systems. The cable industry agrees to deploy tru2way technology in all of their digital systems except for small systems (those with less than 750 MHz or that serve fewer than 5,000 subscribers). Headend support is due by July 1, 2009 (July 1, 2010 for Charter).
By deploying a national Java-based platform passing over 100 million homes, cable allows developers to create “write one, run anywhere” interactive cable applications, opening up cable to more innovation.
Retail consumer electronics manufacturers will include tru2way middleware in their retail two-way devices that are intended to connect to digital cable.
By employing tru2way, the deal makes certain that retail consumers will purchase and own fully upgradeable devices that will allow them to receive new and innovative interactive cable services now and in the future.
All parties reject the “DCR+” proposal for tru2way.
The tru2way platform guarantees that cable operators can display their service in their unique branded manner, ensuring that consumers will not only have access to all of their business offerings but also that each consumer's particularized customer service issues can be addressed.
Common reliance. The cable industry will include tru2way middleware in 20 percent of their own navigation devices, up to an industry ceiling of 10 million devices. At that point, it has been agreed that mandatory common reliance goals relating to tru2way technology have been met in the market. This does not affect the current regulatory requirement to include CableCARDs on all leased (OEM) set-tops, although in time regulators may grow to relax that requirement in light of an agreement that less common reliance can be just as effective at a lower percentage.
Self-certification. Cable operators are accustomed to performing compliance testing on products that connect to the cable network and deliver cable services. This model is followed for cable modems used in high-speed data and Internet access and is currently used for retail interactive CableCARD televisions. Television manufacturers far prefer the right to self-certification. The Two-Way MOU provides that certification testing will begin at CableLabs, but also provides a defined path for self-certification of retail devices. CE manufacturers who are certified for five mutually agreed upon devices, operating on different platforms, may obtain self-certification rights.
Specifications and changes. Cable operators are accustomed to defining their own technological future through hardware specification processes at CableLabs, which are then routinely adopted by standards bodies. CE manufacturers participate actively in these processes, but some have feared the possibility of arbitrary changes by cable that could disadvantage CE.
The Two-Way MOU provides that specifications are defined at CableLabs, but new formal rights are established for content, consumer electronics, and information technology industries to call a vote on hardware specification changes that raise costs without adequate justification. A new Founders Advisory Board (FAB) composed of representatives of the cable television, content, consumer electronics, and information technology industries will follow that process. The FAB will have one CE, one IT, and one Content seat. Advisory Board votes are not binding on CableLabs but may be made public. All parties explicitly retain their rights to appeal to the FCC for actions addressable by the FCC.
Content Protection. Content providers routinely require cable operators to promise security protections to prevent content from flowing out for unauthorized uses, such as onto the Internet. The CableLabs licenses have therefore required that CableLabs approve the ports through which retail devices can output programming, and the protections that are applied to that programming. CE manufacturers have long resented that CableLabs is the “sole” judge of the adequacy of such “outputs.”
The Two-Way MOU borrows the solution used in the one-way MOU: any four major motion picture studios may also approve outputs, and any output decision by CableLabs may be appealed to the FCC.
Using tru2way also addresses one of the major concerns of motion pictures studios and linear programmers: it establishes a consistent, upgradeable platform upon which the studios and programmers can develop new content offerings.
Guides. Cable operators generally have limited licenses to program their electronic programming guides with guide data provided by third-party sources. Some CE manufacturers have had a long interest in installing competing guides in their DTVs. However, few have invested in developing a distribution path for programming those guides, and most simply license the Gemstar-TV Guide package when confronted with the Gemstar-TV Guide patent claims pertaining to the point-and-click grid guides.
The Two-Way MOU allows CE to develop its own, unique user-interfaces and to use its own, unique navigation tools. The cable industry agreed to pass through Gemstar electronic programming guide data that Gemstar embeds in over the air broadcast signals—a commitment which goes far beyond federal signal carriage obligations. CE manufacturers may use that guide data if the CE manufacturer has obtained the necessary rights (e.g., from Gemstar) to do so. Consequently, a tru2way retail device may have two competing guides from which consumers may choose.
There is also an additional right given by the Two-Way MOU in order to accommodate new CE navigator menus, such as crossbars from which consumers may select among inputs. Historically, content providers have restricted the overlay of third-party material on top of the images they transmit. Under the Two-Way MOU, if a manufacturer includes a limited CE navigator menu in “multifunction” retail devices with multiple inputs, consumers may call up that menu on cable screens just as they do on other screens.
The limitations are crafted to respect typical content provider expectations: the menu must (i) be user-initiated for each use, (ii) be solely for navigation (e.g., no new ads overlaid on content), (iii) be transitory (disappear like a volume bar after use), and (iv) appear the same regardless of the channel selected. This flexibility would allow for CE-branded navigators such as the Sony crossbar navigator.
Innovation. The Two-Way MOU protects the rights of innovation in cable networks, cable services, retail devices and set-top boxes. If MSO tru2way applications evolve, the MSOs will provide backward compatibility so that the kinds of applications running on deployed retail tru2way devices will keep running for five years from the first certification of the version of tru2way middleware in the retail device. Such a commitment helps to protect consumers' investment in tru2way retail products.
Sunset. The Two-Way MOU also addresses what should happen if for any reason this new product category proves unpopular. The measurement of popularity is that more than 500,000 new retail tru2way devices are connected via CableCARD (or another mutually agreed upon conditional access technology) in each 24-month period. If that threshold is not reached, then MSOs are relieved of the other contractual obligations to support these devices, but may make their own business judgments about appropriate support, as they do for legacy set-tops.
Reform of CableLabs licenses and processes. The cable industry uses CableLabs licenses and processes to define requirements for retail devices with set-top functionality that interoperate with cable headends. Previously disputed CableLabs licenses and processes have been reformed as follows:
- Certification testing of retail devices begins at CableLabs using the CableLabs tests, but there is a defined path for self-certification.
- A new FAB, composed of representatives of the cable television, content, consumer electronics and information technology industries, has a formal role in requesting a vote on specification changes that raise costs without adequate justification.
- Four motion picture studios may approve digital outputs and/or content protection technologies, with the FCC to entertain appeals.
- If tru2way support is sunset, adopters may participate in CableLabs processes to define specifications for a successor technology.
Role of the FCC. The Two-Way MOU presents an industry marketplace solution that has been agreed to as a matter of contract among the largest companies of the CE, IT, and cable industries, rather than requiring FCC resolution. All of the parties have agreed to support the arrangement embodied in the Two-Way MOU at the FCC, and before any other regulatory legislative or governmental body, and to oppose any additional obligations. No further action is required by the FCC for two-way devices to come to market.
The Two-Way MOU is a remarkable achievement. It is contractually enforceable over a 10-year term, covers the vast majority of cable consumers, and is structured so that additional CE and IT companies may formally join the agreement, but benefit from it even without signature or government action. After years of acrimony, the industries have been able to satisfactorily address the complex business, technological, and legal issues that have divided them for years. They have done so in a balanced manner, reflecting the significant advantages that private industry negotiations have over the blunt instrument of government regulation.