Federal Communications CommissionFCC 12-81
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter ofAnnual Assessment of the Status of Competition in the Market for the Delivery of Video Programming / )
)
)
) / MB Docket No. 07-269
fourteenth report
Adopted: July 18, 2012Released: July 20, 2012
By the Commission: Commissioners McDowell and Pai issuing separate statements.
Table of Contents
HeadingParagraph #
I.Executive summary...... 1
II.introduction...... 12
A.Scope of the Report...... 12
B.Analytic Framework...... 15
C.Data Sources...... 16
III.PROVIDERS OF dELIVERED vIDEO pROGRAMMING...... 18
A.Multichannel Video Programming Distributors...... 18
1.Introduction...... 18
2.MVPD Structure...... 25
3.MVPD Conduct...... 85
4.MVPD Performance...... 134
B.Broadcast Television Stations...... 155
1.Introduction...... 155
2.Broadcast Television Industry Structure...... 158
3.Broadcast Television Industry Conduct...... 188
4.Broadcast Television Industry Performance...... 206
C.Online Video Distributors...... 237
1.Introduction...... 237
2.OVD Structure...... 241
3.OVD Conduct...... 285
4.OVD Performance...... 314
5.Consumer Behavior...... 336
IV.Rural Versus Urban Comparisons...... 343
A.MVPDs...... 345
B.Broadcast Stations...... 356
C.OVDs...... 357
V.key industry inputs...... 359
A.Content Creation and Aggregation of Video Programming...... 360
1.Overview...... 360
2.Distribution Strategies...... 377
B.Consumer Premises Equipment...... 388
1.CPE Used to Access MVPD Services...... 389
2.CPE Used to Access OVD Services...... 399
3.Handheld and Mobile Video Devices...... 401
VI.procedural matters...... 405
APPENDIX A: List of Commenters
APPENDIX B: National Video Programming Services
APPENDIX C: Regional Video Programming Services
APPENDIX D: Regional Sports Networks
I.Executive summary
1.This is the fourteenth report (“14th Report” or “Report”) submitted by the Federal Communications Commission to the United States Congress on the status of competition in the market for the delivery of video programming as required by Section 628(g) of the Communications Act of 1934, as amended (the “Act”).[1] In this Report, we focus on developments in the video marketplace in 2007, 2008, 2009, and 2010.[2] As described below, the most significant trends since the last report relate to the increased deployment of digital technology, consumers’ rising demands for access to video programming anywhere and anytime, and the evolution of online video from a niche service into a thriving industry.
2.For the first time, we present information and data under a new analytical framework, which is consistent with the framework we have used in the recent wireless and satellite competition reports.[3] For this Report, we categorize entities into one of three strategic groups – multichannel video programming distributors (“MVPDs”),[4] broadcast television stations,[5] and online video distributors (“OVDs”).[6] For each of these categories we examine industry structure, conduct, and performance. The following is an overview of our findings.
3.MVPDs. Cable MVPDs accounted for almost 60 percent of all MVPD subscribers at the end of 2010. This represents a decline in cable’s share of the MVPD group since the last report. In 2006, cable MVPDs accounted for over 65 percent of all MVPD subscribers. Although the number of cable video subscribers has been falling, cable MVPDs have done well financially by increasing sales of advanced services (e.g., digital cable, Internet access, and telephone) to the remaining customers.
4.The two DBS MVPDs, DIRECTV and DISH Network, accounted for over 33 percent of MVPD subscribers in 2010. This represents an increase in DBS’s share of the MVPD group since 2006 when DBS MVPDs accounted for just over 29 percent of MVPD subscribers.
5.In the MVPD group, the most significant change in the status of competition has been the entry of AT&T and Verizon. These two telephone companies have upgraded their networks to provide video services that compete directly with cable and DBS. At the end of 2010, the video services of Verizon FiOS and AT&T U-verse were available to one-third of U.S. homes and accounted for approximately seven percent of all MVPD subscribers. In 2006, Verizon’s service was available to approximately three percent of all U.S. households.[7]
6.Another significant development within the MVPD category has been the “TV Everywhere” initiative,[8] which allows subscribers of certain MVPD services to access MVPD video programming on stationary and mobile Internet-connected devices including: televisions, computers, tablets, and smartphones.
7.Broadcast Television Stations. Since the last report, full-power television stations completed their transition from analog to digital service. Digital broadcasting gives broadcast stations greater flexibility, allowing them to offer high definition (“HD”) programming, multiple streams of programming of standard definition (“SD”) programming, and/or programming delivered to mobile devices. With multicasting,[9] stations can cater to niche audiences with programming from newer networks or can affiliate their multicast streams with established networks to give viewers in smaller markets more over-the-air viewing options.
8.Several major patterns of consumer behavior have emerged which impact broadcast stations. The first is the dramatic increase in the number of households with HD television sets, from 25 percent during the 2007-2008 television seasons to 64 percent during the 2010-2011 television season. The second is the doubling of penetration of digital video recorders (DVRs), from 19 percent during the 2007-2008 television season to 38 percent during the 2010-2011 television season. The availability of DVRs and of broadband and mobile devices has spurred consumers’ desire to watch video on a time-shifted basis either on television sets or on other screens. In recent years, broadcast networks have started to explore and develop a variety of alternative outlets and business models for the distribution of their programming, including video-on-demand (“VOD”), online video distribution, and electronic sell-through.[10]
9.OVDs. Since the last report, OVDs have emerged as significant providers of video content. The OVD marketplace has expanded considerably, with all of the major providers either entering the market over the last few years or dramatically retooling their approach during that time. Today’s growing list of OVD providers includes programmers, content owners/producers, and affiliates of online services, manufacturers, retailers, and other businesses.
10.Providers have continued to develop business models for the provision of OVD services. Current business models, which providers often use in combination, include free (often ad supported), subscription, pay-per-program (rental), and electronic sell-through.
11.The amount of professionally produced content available online has expanded considerably since the last report. Today, online viewers can watch television shows (including recently aired episodes); newly released and older movies; sporting events; and other content, including high-quality content produced specifically for online distribution. Online video, like the Internet itself, has migrated beyond the computer to a wide variety of devices since the last report. Consumers now can access OVD service via computers, smartphones, tablets, gaming consoles, smart television sets, Blu-ray players, and a host of consumer electronics products.
II.introduction
A.Scope of the Report
12.Section 19 of the Cable Television Consumer Protection and Competition Act of 1992 (“1992 Cable Act”)[11] amended the Act and established regulations for the purpose of increasing competition and diversity in multichannel video programming distribution, increasing the availability of satellite delivered programming, and spurring the development of communications technologies.[12] To measure progress toward these goals, Congress required the Commission to report annually on “the status of competition in the market for the delivery of video programming.”[13]
13.In 2009, the Commission solicited 2007, 2008, and 2009 data, information, and comment for the period 2007, 2008, and 2009 similar to what the Commission requested for previous reports.[14] Thereafter, the Commission initiated a comprehensive review of the way in which it uses data, including data used for its statutory competition reports.[15] In the course of that review, the Commission determined that the data submitted in response to the 2009 notices of inquiry should be supplemented. Thus, on April 21, 2011, the Commission released a Further Notice of Inquiry,requesting additional data for 2009, seeking data for 2010, and encouraging the submission of comparable historical data for 2007 and 2008.[16]
14.To present the most useful information concerning competition in the video programming market, this report alters the analytic framework of earlier reports.[17] Importantly, this new framework will also allow the Commission to present competitive data in a uniform manner that is consistent in format with the other Commission competition reports.[18]
B.Analytic Framework
15.Under our new analytic framework, we first categorize entities that deliver video programming into one of three groups:[19] MVPDs, broadcast television stations, and OVDs. This is the first time that the Commission has considered OVDs separately in its analysis.[20] Second, we examine industry structure, conduct, and performance, considering factors such as:
- Structure: The number and size of firms in each group, horizontal and vertical integration, merger and acquisition activity, and conditions affecting entry and the ability to compete.
- Conduct: The business models and competitive strategies used by firms that directly compete as video programming distributors, including product differentiation, advertising and marketing, and pricing.
- Performance: The quantity and picture quality of programming, prices charged for delivered video programming, financial indicators (e.g., revenue and profit margins), and investment and innovation activities.
Third, we look upstream and downstream to examine the influence of industry inputs and consumer behavior on the delivery of video programming. We discuss two key industry inputs: video content creators and aggregators and consumer premises equipment.[21] Figure 1 below displays the scope of the 14th Report.
Figure 1: Scope of 14th Report
C.Data Sources
16.The information and data presented in this Report are based, in part, on comments we received from interested parties in response to the notices of inquiry in this proceeding.[22] In addition, we also rely on a variety of publicly available sources of industry information and data including: Securities and Exchange Commission filings; data from trade association and government entities; data from securities analysts and other research companies and consultants; company news releases and websites; newspaper and periodical articles; scholarly publications; vendor product releases; white papers; and various public Commission filings, decisions, reports, and data.
17.As we have done for previous reports on the status of competition for the delivery of video programming, we requested data as of June 30 of the relevant year to monitor trends on an annual basis.[23] To continue our time-series analysis, and to the extent possible, we report as of June 30, 2007, June 30, 2008, June 30, 2009, and June 30, 2010. However, because a significant amount of information and data are reported on a calendar year basis we provide year-end data when June 30 information is not readily available. In addition, to the extent we find more recent Commission decisions and industry developments relevant, we include this information.
III.PROVIDERS OF dELIVERED vIDEO pROGRAMMING
A.Multichannel Video Programming Distributors
1.Introduction
18.As noted above, for purposes of this Report we have categorized entities that deliver video programming into one of three groups.[24] We focus in this section on the MVPD group. As defined by statute, an MVPD is an entity that makes available for purchase multiple channels of video programming.[25] Thus, the MVPD group includes cable operators,[26] DBS operators, and telephone companies that offer multiple channels of video programming. For purposes of this Report, we also include in the MVPD group other entities that sell multiple channels of video programming to consumers, including, home satellite dishes (“HSD”), open video systems (“OVS”), electric and gas utilities, wireless cable systems,[27] private cable operators (“PCO”),[28] commercial mobile radio services (“CMRS”), and other wireless providers. Inclusion of an entity in the MVPD group is based on the similarity of the video service provided to the consumer, not on the technology used (e.g., coaxial cable, fiber, spectrum) or the identity of the parent company (e.g., cable operator, telephone company), or any regulatory classification (e.g., cable service, open video system). In most cases, the entities we include in the MVPD group represent themselves publicly, in reports to their shareholders and press releases to the news media, as retailers of video packages that include a large number of channels. In total, the MVPD group is comprised of 42 cable MVPDs with over 20,000 subscribers each and over 1,000 cable MVPDs with less than 20,000 subscribers each, two DBS MVPDs (DIRECTV and DISH Network), two large telephone company MVPDs (AT&T and Verizon) and numerous smaller telephone company MVPDs.[29]
19.Today, the major MVPDs offer hundreds of linear television channels, which are streams of programming that offer video programs on a specific channel at a specific time of day. Many MVPDs also offer thousands of non-linear video-on-demand (“VOD”) programs, including pay-per-view (“PPV”) programs, which allow consumers to select and watch video programs whenever they request them. In this Report, we discuss a broad range of video programming that includes both linear and non-linear video programs.
20.An MVPD may offer services other than delivered video services using the same network infrastructure or through cooperative arrangements with other companies. For example, some MVPDs also offer high-speed Internet access service and telephone service. Although the focus of this Report is delivered video services, these non-video services are important to the business strategies of some MVPDs and may shift the focus of competition from standalone delivered video services to bundles of video, Internet, and telephone services.
21.Although MVPDs have traditionally delivered video programming to television sets, some MVPDs are moving beyond the television and delivering video programming to computer screens, tablets, and smartphones. The expansion of MVPD’s delivered video programming from television to other stationary and mobile devices – generally known as TV Everywhere[30] – represents a new opportunity for MVPDs that may affect their business models and competitive strategies.[31]
22.When available, this Report uses information and data directly from the MVPDs as reported to the Commission and/or a company’s shareholders. For privately held companies we primarily rely on data from SNL Kagan.[32] The MVPD group also includes two DBS MVPDs, DIRECTV and DISH Network, and two large telephone company MVPDs, Verizon FiOS and AT&T U-verse. For those four companies we primarily use data found in reports to shareholders.
23.On the other hand, with respect to some other types of MVPDs, including HSD, OVS, PCO, there is little or no publicly or commercially available data. Comments filed for this Report provide limited data on those entities. Considering that the combined market share of these other types of MVPDs represents less than one percent of MVPD subscribers, their relevance to competition in the market for the delivery of video programming is limited.[33] Thus, we do not believe that a lack of data regarding these types of MVPDs will significantly hinder our analysis of competition in the market for delivered video services.
24.Consumers shop for MVPD alternatives in the areas where they live. However, determining which MVPDs offer video service in which geographic areas is difficult as a result of the wide variation in the geographic footprints of MVPDs and the lack of available data that would allow comparison of the geographic coverage of one type of MVPD with another type of MVPD.[34] For instance, DBS MVPDs provide a nationwide footprint. Cable MVPDs, however, operate in discrete geographic areas defined by the boundaries of their individual systems and provide data to the Commission on a “cable system” basis.[35] Similarly, the Commission collects data related to telephone MVPDs only to the extent that they operate under cable franchises, and thus on a cable system basis. As a result, there is no reliable method to match DBS MVPD data with cable MVPD or telephone MVPD data on a common geographic basis. We do not have the data necessary to systematically identifying with respect to any specific geographic area which MVPDs compete for the delivery of video services.
2.MVPD Structure
25.A key element of our analysis of video competition is an examination of the MVPD industry structure, including the various types of companies within the MVPD group and their place in the market for the delivery of video programming. In this section of the Report, we describe the structure of cable, DBS, telephone, and other MVPDs. We then examine horizontal concentration and vertical integration in the market. Next, we describe conditions effecting market entry during the relevant period, including an overview of existing regulations and market conditions that might influence entry decisions. Finally, we describe recent entry in the market.
a.Cable, DBS, Telephone, and Other Providers
26.The major MVPDs now offer hundreds of television channels as well as thousands of video programs through VOD services, many are offered in high-definition (“HD”). The major MVPDs offer delivered video programming as a standalone service or in combination with Internet access and telephone services. Cable MVPDs typically offer video, Internet access, and telephone services using their own facilities. DBS MVPDs offer video services using their own facilities and typically enter into cooperative arrangements with other entities to offer Internet access and telephone services.[36] Telephone MVPDs offer video, Internet access, and telephone services using their own facilities where they have upgraded systems. Where they have not upgraded systems, telephone MVPDs usually offer video through cooperative arrangements with DBS MVPDs.
27.Cable MVPDs. Historically, cable companies rarely competed with one another in the same geographic area. In some locations, cable operators built cable systems where cable MVPDs already provided video service, but this is the exception, not the rule. The introduction of DBS MVPDs with national footprints in the 1990s changed the competitive landscape and increased competition in the market for the delivery of video programming. In geographic areas that did not have access to cable MVPDs, the DBS companies competed with one another. In geographic areas with access to cable MVPDs, the DBS companies competed with one another and with the incumbent cable MVPDs. The level of competition increased again with the entry of Verizon in 2005 and AT&T in 2006, two large facilities-based telephone MVPDs, which began offering video service in geographic areas already served by cable MVPDs.[37] Today, a small number of geographic areas have as many as five MVPDs (i.e., two cable MVPDs, two DBS MVPDs, and a telephone MVPD) directly competing with one another in the delivery of video programming. At the other end of the spectrum, some geographic areas (e.g., rural areas) have only two MVPDs (i.e., the two DBS MVPDs) directly competing with one another.