FCC Looks Back at MVPD Competition, Adds OVD Competition in Report to Congress

The two Republican members of the FCC said they hope the agency gets back on track with the 15th MVPD competition report and that the Internet’s developed much since the previous document released on Kevin Martin’s last business day as chairman in 2009. That report covered the 52 weeks through June 2005. “Since the last report, the deployment of MVPD systems by AT&T and Verizon had the most significant impact on competition in the MVPD market,” the 14th report said (http://xrl.us/bnhkqj). “This type of entry, however, is rare when compared to the number of transactions involving the buying and selling of existing MVPD systems."

"Since the last report, OVDs have emerged as significant providers of video content” and “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,” the commission said. “Today’s growing list of OVD providers includes programmers, content owners/producers, and affiliates of online services, manufacturers, retailers, and other businesses.” Given “the delivery of online video is in its infancy, no single business strategy has emerged,” the report noted. Costs of acquiring content, such as the reported $1 billion Netflix is paying the CW broadcast-TV network, integration of traditional programmers and distributors and “several challenges” reaching potential customers were among the challenges the FCC cited.

ISP data caps were among those hurdles, in the report’s view. “Even where the physical capacity exists to provide broadband service, some of the leading” ISPs “have begun to impose data caps or shift to usage-based billing,” it said. AT&T, Comcast and Cox Communications’ have limits, and “major wireless providers also have begun to impose data caps,” the FCC said. “MVPDs have the ability and incentive to degrade the broadband service available to unaffiliated OVDs.” What ISPs charge “to deliver online video traffic could have a negative impact on the ability of OVDs to enter the market and compete,” the agency said, citing Netflix and a dispute involving its content delivery network Level 3 and Comcast over an Internet Protocol peering agreement. “MVPDs that are also ISPs dispute such assertions, arguing that while Internet backbone providers that have entered into peering arrangements typically do not charge fees when the traffic they carry for each other is roughly equal, charges are justified when the relative traffic flows are significantly out of proportion,” the report said. The NCTA declined to comment.

The report reviewed entry and exits from the online video business in recent years, and talked about new deals such as one between Redbox and Verizon. More exits may occur, the FCC predicted. “Because the OVD marketplace is still developing, it is likely that several entities will exit the marketplace in the upcoming years.” MeeVee stopped operations in December and Sezmi ended its OVD service in September, the agency said. Sony’s Crackle is an “example of recent entry and retooling by an OVD,” as the consumer electronics company’s Grouper service was shuttered in 2006 and rebranded the next year, the report said.

TV Everywhere challenges OVDs, the commission said in reviewing the streaming service MVPDs offer to subscribers of channels whose owners allow such authenticated viewing. “This strategy puts pressure on OVDs to continue to expand their content libraries and/or to offer unique content,” the report said. “So-called TV Everywhere services allow MVPDs to compete with unaffiliated OVDs by providing free on-demand Internet video to authenticated MVPD customers.” Though declining “in recent years,” DVD sales “still constitute a competitor to the online delivery of video” and often have deleted scenes, commentary and other content, the agency said. “OVD’s business model needs to account for competition from other OVDs, bearing in mind that, while most consumers subscribe to only one MVPD, it is easy for consumers to access video content via multiple OVDs."

A more updated report would be better for all stakeholders, the Republican commissioners said in statements released Friday and American Cable Association President Matt Polka told us. Ex-broadcasting and cable executive Preston Padden, who testifies Tuesday to the Senate Commerce Committee on the 1992 Cable Act (see separate story) notes the U.S. is “seeing the emergence of online video distributors, and that’s a good thing for everybody.” Because of copyright and other law, “we have this historical situation where Congress has given the cable and satellite companies a free copyright license,” he said of the statutory license which he hopes Congress will do away with as part of other changes. The license whereby MVPDs don’t need individual rights holders’ OK to carry programming “does not apply to these new online video distributors,” Padden said. “Just think what a great service would be if they had everything it has today, plus they entered into a license to carry the TV station live,” he said of OVDs like Netflix: “That would be a killer service."

Commissioners Robert McDowell and Ajit Pai see a chance for the FCC to get caught up with the 15th report that’s the subject of a notice of inquiry. Pai hopes the next report is released in 2013, he said in a statement accompanying the NOI (http://xrl.us/bnhkvx). That inquiry asked a number of questions about OVDs, and also MVPDs and TV stations, with comments due Sept. 10 in docket 12-203 and replies Oct. 10. “We have a terrific opportunity to get the Commission back on track so that we can release these reports annually as intended by Congress,” McDowell said (http://xrl.us/bnhkvz). “Unfortunately, the report’s analysis of the Internet’s effect on the video market is generally limited to online video distributors offering professional content previously exhibited on television or theatrically. Although such content is clearly a driving force in the video market, the Internet, coupled with mobile devices, provides alternate outlets for content outside of the traditional media and entertainment structure. I hope that future reports will also explore the market effects of alternative and emerging online video distributors that are creating new and original content."

Annual competition reports are still called for, Polka said. Legislation in the House that executives don’t expect to become law would reform the FCC and kill the MVPD competition and some other yearly documents from the commission. “To have timely information” is better, Polka said. “It is important for the FCC to be monitoring what’s taking place in the marketplace, because competition has changed, and it’s changing significantly.”