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Access to Video Programming Cited as One of Pay-TV Companies' Main Concerns

Wednesday, September 19, 2012
By Paul Barbagallo

As the Federal Communications Commission prepares its next annual report to Congress on the status of competition in the market for video programming, a central focus will likely be on the availability--or potential lack thereof--of content.

Based on newly filed comments with the FCC, many market players harbor concern about being able to continue to offer their customers the most desired content--both when and where they want it.

“Now, more than ever, content is king,” AT&T Inc. wrote in a Sept. 10 filing. “And the entities that control popular content have greater leverage over content distributors than ever before, and have used that leverage to extract higher licensing fees and demand carriage of less attractive programming--squeezing out other content producers.”

AT&T, which provides a pay-TV service in certain markets in the country, said the FCC should extend its ban on exclusive contracts between cable operators and cable-affiliated programmers, set to expire Oct. 5, 2012.

“Without access to content, competitive [providers] cannot offer a robust competitive alternative to cable, as Congress intended when it enacted the 1992 Cable Act, both for video distribution services and, more generally, for broadband,” AT&T wrote. “Thus, if the commission allows cable-affiliated programmers to act on those incentives by allowing the exclusive contract prohibition in the 'program access' rules to sunset, consumers will be the losers, with fewer choices of video and broadband providers, and higher cable rates.”

Sports Access Critical
Like AT&T, Verizon Communications Inc. also called on the FCC to extend the ban, pointing to its legal fight with the Madison Square Garden Co.--which is controlled by the same principals who own Cablevision Systems Corp.--for refusing to sell the company the high-definition formats of the two regional sports networks in the greater New York region.

“Incumbent cable operators continue to have the incentive and ability to use their control over programming to disadvantage their competitors,” Verizon wrote in comments filed with the FCC Sept. 10. At a minimum, Verizon said the FCC should extend the exclusive contract prohibition for all so-called “non-replicable” programming, including regional sports network programming. According to a recent survey the company commissioned, 54 percent of all viewers and 77 percent of sports fans in the New York area consider the availability of regional sports channels in high definition an important factor in deciding whether to switch video providers.

“While competitive providers may be able to replicate or find substitutes for some types of programming, that is not the case for such programming as exclusive, regional sports network programming,” Verizon wrote.

Exclusive Content
Comcast Corp., meanwhile, cited efforts by satellite providers and even Netflix Inc. to provide exclusive content.

DIRECTV has been experimenting with original programming, Comcast noted, announcing in May that it has ordered ten episodes of the dramaRogue that will be available only on DirecTV's “Audience Network.” Comcast was quick to point out, too, that DirecTV also continues to have an exclusive relationship with NFL Sunday Ticket, giving it the only license for out-of-market NFL games across the nation.

Netflix is also investing in exclusive content, including a new season of the former FOX sitcom Arrested Development, Comcast said.

Comcast said the FCC should review whether regulations that are currently applicable only to cable operators but not to other competitors should be rescinded, citing the exclusivity ban as one example.

“The U.S. Court of Appeals for the D.C. Circuit observed over three years ago that 'the record is replete with evidence of ever-increasing competition among video providers: Satellite and fiber optic video providers have entered the market and grown in market share since the Congress passed the 1992 Act, and particularly in recent years. Cable operators, therefore, no longer have the bottleneck power over programming that concerned the Congress in 1992,'” Comcast wrote in comments Sept. 10. “In other words, these regulations are increasingly outdated and unnecessary, as the underlying justification for regulating cable operators differently has eroded.”

Cable Market Share Nearly 60 Percent
According to the FCC's most recent annual report to Congress, issued in July, cable multichannel video programming distributors, or MVPDs, accounted for almost 60 percent of all pay-TV subscriptions at the end of 2010, a slight decline in market share since the last report, in 2006 (140 TCM, 7/23/12). At that time, cable operators provided service to more than 65 percent of all pay-TV subscribers.

The FCC noted that although the number of subscribers to cable TV service has been decreasing, the industry has remained healthy financially by increasing sales of other services, such as broadband internet and phone services, to existing customers.

Meanwhile, the two major satellite providers, DIRECTV and DISH Network, served 33 percent of all pay-TV subscribers in 2010, according the report. This represents an increase in satellite's share since 2006, when they had a 29 percent market share.

Telephone companies offering TV services also had 6.9 million video subscribers as of the end of 2010, with Verizon becoming the seventh-largest MVPD with 3.5 million subscribers and AT&T the ninth with 3 million subscribers. The FCC estimates that “telephone MVPDs” accounted for 7 percent of all pay-TV subscribers.

As for companies such as Netflix and Hulu, the FCC's report made notable mention of what they define as “OVDs,” or online video distributors, which the agency acknowledges have emerged as “significant providers of video content.”

“Over-the-top” video service, in which companies, like Netflix, use the internet to bypass traditional pay-for-TV control points and deliver programming “over the top,” via a consumer's broadband connection, rather than on existing cable or satellite systems, has been long feared in the cable business, leading many cable operators to launch their own web-based TV services.

Netflix addressed this issue in comments with the FCC, indicating that the overwhelming majority of its subscribers still rely on companies like Comcast for news, live sports, and “current season” TV shows on cable networks, and other entertainment.

“Given its mix of original programming and other content, and its pricing, Netflix is positioned in the market similar to HBO and other other arrivals in the streaming market, such as Amazon, that supplement rather than replace a cable package that includes hundreds of channels and costs approximately 10 times the cost of a Netflix subscription,” Netflix wrote in comments filed Sept. 10.

'Retransmission Consent' Draws Spotlight
One issue that garnered attention in comments to the FCC was a provision in the Cable Act that sets forth what is known as “retransmission consent” negotiations.

With advertising revenues declining and the price of sports rights soaring, TV broadcasters have been fighting distributors for higher and higher fees to retransmit their network programming, money that is eventually passed through to consumers in the form of higher monthly rates.

The pay-TV companies, including Comcast, Verizon, and AT&T, claim the current rules favor the broadcasters and programmers, who can simply shut off their signal when negotiations reach an impasse.

Broadcasters defended the current regime as a necessary to protecting their content.

“In today's competitive video market, retransmission consent compensation enables broadcasters to deliver free, locally-oriented programming and services,” the National Association of Broadcasters wrote in comments Sept. 10. “Broadcasters who receive retransmission consent compensation are able to defray some of the high costs associated with the production of local news and other programming valued by their viewers. Because today's viewers now use a combination of media platforms to obtain news, information, and entertainment, broadcasters must increasingly rely on non-advertising revenue sources to support their local news budgets. NAB anticipates that retransmission consent fees will continue to play a critical role in ensuring the ongoing vitality of local television services, including news, in the future.”

The FCC launched a rulemaking proceeding a year ago to explore whether the agency should, or could, do more to prevent blackouts of television programming when negotiations to renew retransmission consent agreements stall. But the agency has yet to take any substantive action.


For more comments filed in Docket No. 12-203, visithttp://apps.fcc.gov/ecfs/comment_search/input;jsessionid=pl7pQPsPhykJ481RvpvBtcJ1426WJwLGpML1lVMgbmZ13D8ZVd5n!-224088840!NONE?z=wnp30http://apps.fcc.gov/ecfs/comment_search/paginate?pageNumber=2.

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