Section 19 of the Cable Television Consumer Protection and Competition Act of 1992 (“1992 Cable Act”)1 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.2 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.”3
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.4 Thereafter, the Commission initiated a comprehensive review of the way in which it uses data, including data used for its statutory competition reports.5 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 2008.6
To present the most useful information concerning competition in the video programming market, this report alters the analytic framework of earlier reports.7 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.8
Under our new analytic framework, we first categorize entities that deliver video programming into one of three groups:9 MVPDs, broadcast television stations, and OVDs. This is the first time that the Commission has considered OVDs separately in its analysis.10 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.11 Figure 1 below displays the scope of the 14th Report.
Figure 1: Scope of 14th Report
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.12 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.
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.13 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
As noted above, for purposes of this Report we have categorized entities that deliver video programming into one of three groups.1 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.2 Thus, the MVPD group includes cable operators,3 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,4 private cable operators (“PCO”),5 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.6
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.
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.
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 Everywhere7 – represents a new opportunity for MVPDs that may affect their business models and competitive strategies.8
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.9 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.
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.10 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.
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.11 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.12Similarly, 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.