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.
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.
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.
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.
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
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.
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.
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
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.
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.
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.