On May 6, the Federal Communications Commission released its Seventeenth Video Competition Report. Regrettably, the FCC fell back into its pattern of problems in generating its statutory mandated reports. This time around, the FCC Media Bureau released the video competition report on its own. At FCC Chairman's Tom Wheeler's direction, the four other Commissioners were bypassed and never voted to approve the report's release.

 

Skipping the Commissioners' vote may reduce the video competition report's public visibility. So this paper will take the opportunity to highlight two key aspects of the report that deserve increased visibility. First, trends reflected in the report evidence a video services market characterized by competition and innovation - offering consumers a variety of choices for video services. Second, although the report overlooks some well-known evidence concerning available choices for video devices, information cited in the report still reveals a market for video devices that is likewise characterized by competition and innovation.

 

All told, existing competition for the video services and available choices for video devices - much of which is reflected in the report - undermine the Commission's flimsy rationale for imposing costly new technical mandates on video devices. This may be why Chairman Wheeler wants to downgrade the report and reduce its visibility.

 

The report reconfirms that there is effective competition in the multi-channel video programming distributor (MVPD) market.In 2014,direct broadcast satellite (DBS) providers' market share increased to 33.8% of MVPD subscribers. Former telephone company entrants or "telco" MVPDs increased their market share to 13% while also increasing their nationwide footprint by 5%. Emerging broadband service providers such as Google Fiber also expanded their footprints. Meanwhile, cable operators' market share declined to 52.8% of MVPD subscribers.

 

The report also clearly identifies the increasing popularity of online video distributor (OVD) services.In 2014,Netflix reached the 37.7 million mark for U.S. subscribers to its streaming service. Hulu had 6.9 million subscribers. And Amazon had an estimated 40 million subscribers. More recent numbers - not included in the report - indicate that Netflix now has 75 million or more subscribers, Amazon Prime has 54 million, and Hulu has close to 12 million.

 

Report data and analysis reveal the potency of OVD competition with MVPD services.In 2014, OVD competitive effects became increasingly evident. An estimated 7.8% of households watched TV programs or movies via OVDs rather than MVPDs. About 150,000 subscribers eliminated their MVPD service in the third quarter of 2014 - and 190,000 eliminated their service in the third quarter of 2015. Indeed, 2014 marked a second year of overall declines in MVPD subscriptions. Cable MVPD subscriptions dropped from 55.1 million to 53.7 million households. Furthermore, nearly 15% of surveyed adult broadband and MVPD subscribers said they were likely to cancel their MVPD service. Among households that kept their MVPD service, 15% decreased their level of service. The report noted that MVPDs began offering "skinny bundles" of video channels and reduced rates "[i]n response to competition from OVDs, stagnant household incomes, and higher programming costs."

 

The Seventeenth Video Competition Report also sheds some important light on advancements in video devices and the device options currently available to consumers. As the report reveals, there is a proliferation of IP device viewing options.The nearly 91 million U.S. households with broadband connections used an average of 7.3 Internet devices for video, including game consoles like the Xbox One and Playstation 4, streaming media devices such as Roku and TiVo, Internet-connected televisions and Blu-ray players, and home computers. Mobile device viewing also grew in popularity. The report observes that smartphones and tablets "typically have high-resolution screens for consumers to watch video" and increasing screen sizes are "making those phones more practical for watching high-resolution video" enabled by 4G networks.

 

However, the report essentially overlooks the fact that consumers can choose different device offerings from among competing MVPDs. Cable, DBS, and telco MVPDs offer consumers devices that are unique to their own networks. The report neglects to mention the availability of choices among the Comcast X1 DVR set-top box, DIRECTV's HR 44 Genie Server, Charter's Worldbox, or others. Although the report highlights the TiVo BOLT, it downplayed the reality that cable subscribers can purchase and use that device or other CableCARD-enabled third-party video devices for viewing cable MVPD services. The report also relegates to a footnote Comcast's announcement of its partnership with Roku for making its Xfinity video service available to interested subscribers exclusively through video apps on Roku devices.

 

The FCC's February 2016 proposed set-top box rulemaking would impose new technical mandates on MVPD-provided video devices and apps. The proposed rulemaking focuses myopically on estimates that 99% of cable consumers lease set top boxes from their cable operators rather than purchase their own devices at retail. That figure disregards the real choices and the broader context of competition and innovation in video devices and video apps revealed by the report.

 

An eyes-wide-open look at the video services market and today's variety of video device options reveals no actual market failure or problem that can justify the FCC's proposed device regulations. It's more likely the proposed regulations would inhibit the video market's progress toward an apps-centric approach to content viewing. If imposed, such rules would impose heavy financial costs on cable, DBS, and other MVPDs. Ultimately those costs will be paid for by consumers in the form of higher prices.

 

Going forward, the Commission should take its cue from the existing choices among MVPDs and OVDs, as well as continuing innovation in video apps, mobility, and multi-functional devices - many of which are identified in the Seventeenth Video Competition Report. The Commission can best serve consumers by letting the video market's innovative and competitive forces continue fostering the launch of new services and viewing options, free from costly regulations.

 

 

Market data contained in the Seventeenth Video Competition Report offers an important reminder about the competition that actually exists among video services and available choices for video devices. Thus, the report offers a fresher look at why the FCC's proposed rulemaking for video devices and apps is backward looking and fails to take seriously the market competition that exists. The Commission can better promote consumer welfare leaving the video market innovation and competition free to continue delivering new services and viewing options to consumers.

 

* Seth L. Cooper is a Senior Fellow of the Free State Foundation, an independent, nonpartisan free market-oriented think tank located in Rockville, Maryland.