A Startup Learns How Sausage Gets Made

Web video company Boxee finds it can’t ignore Washington | “We’re not speaking D.C.-speak or FCC-speak, for good or for worse”

Mark Milian

Avner Ronen, an Israeli entrepreneur who lives in New York City, doesn’t normally pay much attention to American politics. Then in January he realized his company, the Internet video provider Boxee, had a lot to lose by ignoring Washington. He set up a meeting with Federal Communications Commission Chairman Julius Genachowski and booked three train tickets to Washington. Two were for Ronen and the startup’s sole lawyer. The third was for an intern who, for the purposes of the Genachowski meeting, got the title Head of Government Relations.

Wearing a hoodie to maintain his startup vibe, Ronen showed how owners of the Boxee Box, a $180 device made by D-Link that aggregates videos from all over the Web and displays them on a TV set, can seamlessly flip between Major League Baseball games, Netflix, and a reality show. He pleaded for FCC officials to reject proposed rules that put Boxee at a disadvantage to big cable-TV providers. “Definitely startups, but tech in general, don’t focus on D.C. as much,” Ronen says. “We’re not speaking D.C.-speak or FCC-speak, for good or for worse.”

Boxee is embroiled in a spat with Comcast, News Corp., and Walt Disney, companies that own cable channels and are much more fluent in the language of Washington. The entertainment heavyweights are among those backing a rule the FCC proposed in October that would allow cable operators to encrypt all their TV transmissions. That would be a blow to Boxee, which allows cable subscribers to plug their cords directly into Boxee Boxes — bypassing the cable companies’ own set-top boxes, and giving expensive dramas like Mad Men equal billing with YouTube’s dog-on-skateboard videos. If the rule goes into effect, people using Boxee to watch cable will only see static. Other set-top boxes such as Apple TV, Roku, and Google TV could be affected in the future, though they don’t currently allow for cable-TV input.

In public filings with the FCC, the cable companies say encryption would allow them to shut off service remotely when a customer moves instead of making them wait for a technician, and would minimize cable theft. Third parties like Boxee would be able to decrypt and display cable-video feeds if they include a special chip in their devices, though the Consumer Electronics Association argues that such a step is too costly and cumbersome for hardware manufacturers. Comcast and News Corp. declined to comment, and Disney didn’t respond to multiple requests for comment.

Christopher King, an analyst for Stifel Nicolaus, says the cable companies probably won’t fret over Boxee’s troubles. The startup has actively pushed the idea that homeowners should give up their costly cable plans and rely instead on free, over-the-air network broadcasts and Internet video — all aggregated by a Boxee Box, of course. The more TV watchers rely on such devices, “the less power that cable companies and the content providers have in the long run,” says King.

Ronen first learned about the obscure encryption rule two months after the FCC proposed it, when intern Nick Miller received a Facebook message about it from a concerned user. “There’s no attempt by the regulatory groups to actually talk to us,” says Miller. “None of us had ever dealt with the FCC. So it took us a while to figure out, OK, how are we going to approach this problem? What are the options that are open to us?”

Taking a page from the Internet industry’s recent defeat of the media industry-backed Stop Online Piracy Act, Boxee has rallied some of its 2 million users through blogs and social networks, asking them to voice their opposition to the FCC rule. About 2,000 people have written detailed, personal messages, Ronen says. He hopes such grass-roots efforts can help narrow the spending gap: While Comcast, News Corp., and Disney dedicated a combined $30.6 million to lobbying last year, according to OpenSecrets.org, Boxee can’t afford to spend more than $50,000. “I don’t believe it is realistic to expect startups to pay too much attention to regulatory and legislative proceedings,” Ronen says. “I guess one lesson to other startups is that if there is an issue that concerns you, it may be worth a trip to D.C.”

The bottom line The startup Boxee has only $50,000 to fight a cable company-backed FCC rule that would limit the usefulness of its set-top box.


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