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United States Government Accountability Office: 
GAO:  

Report to the Acting Chairwoman of the Federal Communications 
Commission:  

June 2013:  

Video MarketPlace:  

Competition Is Evolving, and Government Reporting Should Be 
Reevaluated:  

GAO-13-576:  

GAO Highlights:  

Highlights of GAO-13-576, a report to the Acting Chairwoman of the 
Federal Communications Commission.  

Why GAO Did This Study:  

Video provided through subscription video services, such as cable and 
satellite television, is a central source of news and entertainment 
for the majority of U.S. households. Technological advances have 
ushered in a wave of new products and services, bringing online 
distribution of video to consumers. Federal laws and regulations have 
sought to foster competition in the video programming and distribution 
marketplace, but many such laws were adopted prior to the emergence of 
these advances.  

Among other things, GAO examined (1) how competition has changed since 
2005; (2) the increased choices that consumers have in acquiring video 
programming and content; and (3) stakeholders’ views on how the 
government’s regulations, reports, and other activities have kept pace 
with changes in the industry. GAO reviewed relevant literature and 
reports; interviewed agency officials, industry stakeholders, and 
experts; and analyzed prices and service offerings in 20 randomly 
sampled zip codes (the prices and services offerings reflect 
conditions in the 20 zip codes and are not generalizable to all zip 
codes).  

What GAO Found:  

Since GAO reported on competition in 2005, competition among video 
content producers is little changed, while competition among 
distributors has increased. According to data cited by the Federal 
Communications Commission (FCC), seven companies’ broadcast and cable 
networks accounted for about 95 percent of all television viewing 
hours in the United States. Further, ownership of broadcast and cable 
networks changed little from 2005 through 2012. Alternatively, the 
introduction of video service provided by telephone companies, such as 
Verizon’s FiOS service, has brought additional competition to video 
distribution. At year-end 2010, roughly 1 in 3 households could choose 
among 4 or more subscription video distributors: typically a cable 
company, 2 satellite companies, and a telephone company. With 
technological advances, companies are increasingly distributing video 
online. Online video distributors (OVD) are developing a variety of 
business models, including free and subscription-based services. 
However, online viewing and revenues represent a small portion of 
overall media viewing hours and revenue.  

Consumers continue to acquire programming and content through 
packages, but OVDs are delivering new choices. All the video 
distributors that GAO analyzed required consumers to purchase a 
package of channels often through the basic, expanded basic, and 
premium tiers. According to FCC data, in 2011, the average price for 
expanded basic service was $57.46, and had increased over 33 percent 
since 2005, exceeding the 15 percent increase in the Consumer Price 
Index. OVDs and other companies allow consumers to select content on a 
program or episode basis. However, these services typically do not 
include the most recent television programs and movies, thereby 
limiting their value for some consumers.  

Stakeholders generally noted that laws and regulations have not kept 
pace with changes in the video industry, and FCC has not consistently 
reported on competition. Some legislation governing the media industry 
was adopted over 20 years ago, before telephone companies entered the 
marketplace and the commercialization of the Internet facilitated new 
OVD services. A majority of stakeholders with whom GAO spoke stated 
that some provisions should be revisited. FCC is required to annually 
report to Congress on cable industry prices and competition in the 
video marketplace. However, since 1992, FCC has not published the 
cable industry price report 4 times-—in 2004, 2006, 2007, and 2010-—
and has not published the video competition report 4 times—-in 2007, 
2008, 2010, and 2011. According to FCC officials, a variety of 
administrative factors contributed to the missed reports, and the 
reports are time consuming to prepare. The reports also impose burdens 
on some industry participants.  

Less frequent reporting on cable industry prices and competition in 
the video marketplace could allow for continued measurement of 
industry performance while reducing the burden on FCC and industry 
participants. GAO found little change in the reported findings from 
year-to-year in FCC’s video competition report. FCC’s 2009 cable 
industry price and 2012 video competition reports followed missed 
reports, and these reports included data covering multiple years; 
these reports could serve as a model for issuing such reports less 
frequently. Since these reports are statutorily required, Congress, 
with input from FCC, would need to determine any new reporting 
frequency.  

What GAO Recommends:  

FCC should study the advantages and disadvantages of different 
reporting frequencies for its cable industry price and video 
competition reports and transmit the results of its analysis to 
Congress. FCC said that the Commission strives to use its resources 
efficiently to meet the agency’s mission and its Congressional 
requirements, and the Commission is reviewing GAO’s recommendation.  

View [hyperlink, http://www.gao.gov/products/GAO-13-576]. For more 
information, contact Mark Goldstein at (202) 512-2834 or 
goldsteinm@gao.gov.  

[End of section]  

Contents:  

Letter:  

Background:  

Competition among Content Producers Is Little Changed, while 
Competition among Distributors Has Increased:  

Consumers Continue to Acquire Programming and Content through 
Packages, but Online Video Providers Are Delivering New Choices:  

Although Technology Will Likely Continue to Spur New Services and 
Products, a Variety of Factors May Hinder Future Competition in the 
Video Marketplace:  

Stakeholders Generally Noted That Laws and Regulations Have Not Kept 
Pace with Changes, and FCC Has Not Consistently Reported on 
Competition:  

Conclusions:  

Recommendation for Executive Action:  

Agency Comments:  

Appendix I: Objectives, Scope, and Methodology:  

Appendix II: Comments from Federal Communications Commission:  

Appendix III: GAO Contact and Staff Acknowledgments:  

Table:  

Table 1: Cable Rates--2005 through 2011:  

Figures:  

Figure 1: Television Programming in Broadcast and Traditional 
Subscription Video Service:  

Figure 2: Multichannel Video Programming Distributors' Subscriber 
Market Share in 2005 and 2010:  

Abbreviations:  

CPST: cable programming service tier:  

DBS: direct broadcast satellite:  

DOJ: Department of Justice:  

FCC: Federal Communications Commission:  

FTC: Federal Trade Commission:  

IP: Internet protocol:  

MFN: most-favored nation:  

MVPD: multichannel video programming distributor:  

NCTA: National Cable and Telecommunications Association:  

OVD: online video distributor:  

[End of section]  

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548:  

June 25, 2013:  

The Honorable Mignon Clyburn: 
Acting Chairwoman: 
Federal Communications Commission:  

Dear Chairwoman Clyburn:  

Video provided through cable and satellite television services is a 
central source of entertainment, news, and other information for most 
American households. Today, over 100-million U.S. households subscribe 
to and rely on these television services, viewing on average more than 
140 hours of content every month. Federal laws and regulations, 
including the Cable Television Consumer Protection and Competition Act 
of 1992 and the Telecommunications Act of 1996, sought to foster 
competition in the video programming and distribution marketplace. 
These laws and regulations were essential to the emergence and growth 
of direct broadcast satellite (DBS) television service in the late 
1990s and early 2000s, which saw DBS companies gain market share at 
the expense of traditional cable companies. More recently, competition 
from new entrants--most prominently traditional telephone companies--
has increased in some areas of the country. In addition, advances in 
digitalization and Internet infrastructure have ushered in a wave of 
new products and services, bringing online distribution of video 
through services such as Netflix and YouTube to consumers. Some 
consumer advocates, industry stakeholders, and policymakers have 
expressed concern that laws and regulations, first adopted in the 
1990s, are no longer adequate to address changing competition in the 
emerging digital environment. And despite the myriad of technological 
and other changes, the rates paid by consumers for subscription video 
services continue to increase at a faster pace than the general rate 
of inflation.  

We examined (1) how competition has changed since 2005; (2) the 
increased choices that consumers have in acquiring video programming 
and content; (3) the factors that can spur or hinder competition; and 
(4) stakeholders' views on how the federal government's regulations, 
reports, and other activities have kept pace with changes in the 
industry.  

To address these questions, we reviewed relevant literature and 
reports published since 2005. In particular, we conducted a literature 
search and reviewed relevant articles on competition, technology, and 
economics in the video programming and distribution marketplace, 
including academic journals and studies. We also reviewed relevant 
reports prepared by the Federal Communications Commission (FCC), the 
Department of Justice (DOJ), and the Federal Trade Commission (FTC). 
To identify the prices for cable service, we gathered data from FCC's 
Cable Industry Price reports for the years 2005 through 2012, which 
represent the most recent available data. We reviewed FCC 
documentation and information provided by FCC staff to assess the 
reliability of the cable price data and determined that FCC's data 
were sufficiently reliable for the purposes of our report. We 
conducted interviews with FCC and DOJ, industry associations and 
participants, and experts; we selected industry associations and 
participants to ensure a diversity of participants, including content 
companies, broadcast and cable networks, multichannel video 
programming distributors (MVPD)--cable, satellite, and telephone 
companies--and online video distributors (OVD). We reviewed relevant 
laws, regulations, and FCC proceedings, including Notices of Inquiry, 
Proposed Rulemakings, and Reports and Orders. To determine the level 
of competition, available packages and pricing, and other program 
options, we conducted an analysis of MVPD services in 20 randomly 
sampled zip codes across the United States; these zip codes 
represented dense, urban areas as well as sparsely populated rural 
areas. For each zip code, we identified the MVPDs providing service 
and collected information from the MVPDs on their services and prices. 
Our results reflect the competition, packages, and pricing in the 20 
zip codes and are not generalizable to all zip codes. For more details 
on our scope and methodology, see appendix I.  

We conducted this performance audit from July 2012 to June 2013 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives.  

Background:  

Video Programming and Distribution:  

Various entities and groups develop and distribute video content. 
Content producers, such as Sony Pictures Entertainment and CBS 
Television Studios, sell the right to use their content to a variety 
of users, such as broadcast networks, cable networks, and local 
television stations. The financial compensation received by content 
producers for the use of their copyright-protected content is a 
licensing fee or royalty. Broadcast and cable networks produce and 
aggregate programming from other content producers for distribution to 
the public. Broadcast networks consist mainly of four major networks 
(ABC, CBS, FOX, and NBC), and several smaller networks, such as the CW 
Television Network, MyNetworkTV, and ION Television. Content is 
produced by the major networks' affiliated production companies, which 
can include movie and television studios, and independent producers. 
Cable networks aggregate programming from content producers and some 
also produce programming, which can include niche programming--that 
is, programming that targets specific demographics. For instance, 
Lifetime Television offers programming that specifically targets 
women, while MTV offers programming that targets the 18-to-34 age 
group.  

Video content is distributed to households by local television 
stations, cable and satellite companies, and most recently, OVDs. 
[Footnote 1] Each of the four major broadcast networks owns and 
operates some local television stations; other stations may be 
independently owned but affiliated with one of the major networks or, 
as is the case with noncommercial educational television, unaffiliated 
with any major network.[Footnote 2] FCC licenses local television 
stations, which have the right to transmit a video broadcast signal on 
a specific radio frequency in a particular area and at a particular 
strength. Local television stations that are affiliated with a 
broadcast network negotiate licensing agreements with their network 
for the right to air network-furnished content, including prime time 
shows, afternoon soap operas, and national news programs. MVPDs obtain 
a variety of programming from both local stations and cable networks. 
Time Warner Cable, DISH Network, and Verizon are examples of cable, 
satellite, and telephone MVPDs, respectively, that license and 
distribute content to subscribers. Figure 1 illustrates how television 
programming is distributed through broadcast and traditional 
subscription video service.  

Figure 1: Television Programming in Broadcast and Traditional 
Subscription Video Service:  

[Refer to PDF for image: illustration]  

Broadcast television:  

Program Producers: 
Studios, producers, writers, and actors. 
to: 
Major broadcast networks: 
ABC, CBS, FOX, and NBC. 
to: 
Local television stations: 
* Network affiliated stations
* Unaffiliated stations. 
to: 
Multichannel video programming distributors: 
* Cable operators, such as Comcast, Time Warner; 
* Satellite providers: DirecTV and Dish Network; 
* Telephone companies, such as AT&T U-verse and Verizon FiOS. 
to: 
Consumers.  

Traditional subscription video service:  

Program Producers: 
Studios, producers, writers, and actors. 
to:
Cable networks:         
Includes basic networks such as ESPN, MTV, Discovery, and other 
networks. 
to: 
Multichannel video programming distributors: 
* Cable operators, such as Comcast, Time Warner; 
* Satellite providers: DirecTV and Dish Network; 
* Telephone companies, such as AT&T U-verse and Verizon FiOS. 
to: 
Consumers.  

Source: FCC and GAO.  

[End of figure]  

Consumers can watch movies and television programs through computers, 
set top boxes, game consoles, and of course televisions. Some may also 
have the option of using tablets, smartphones, and other mobile 
devices to view content via the Internet, either through a MVPD 
service or an OVD, such as Netflix. Typically, the general public 
views television programming through broadcast or subscription video 
service. Local television stations provide free over-the-air 
programming to the public. In contrast, consumers pay fees to 
providers of subscription video services, including cable companies, 
satellite providers, or telephone companies. According to the National 
Cable and Telecommunications Association (NCTA), the trade association 
for cable companies, in 2012, over 85 percent of U.S. households had a 
MVPD subscription, with the remainder accessing television through an 
antenna.  

Industry participants receive revenue from a variety of sources. 
Companies that create programming receive the majority of their 
revenue from license fees. Broadcast networks receive the majority of 
their revenue from advertising. Cable networks receive revenue from 
both monthly subscriber fees, paid by MVPDs, and advertising. MVPDs--
which own, operate, and maintain their cable and satellite networks--
receive the majority of their revenues from monthly subscription fees 
paid by consumers, supplemented with advertising. Many MVPDs also 
provide broadband Internet and telephone services over their networks 
or in partnership with other companies.  

Federal Laws, Regulations, and Responsibilities:  

FCC is an independent federal agency that regulates segments of the 
video marketplace. Among other things, FCC licenses local television 
stations, reviews certain proposed mergers of media companies, issues 
the cable industry price and video competition reports, conducts 
proceedings on media-related issues, and proposes, conducts, and 
implements rulemakings to encourage competition, localism, and video-
programming diversity and to protect public safety and consumer 
welfare.[Footnote 3] FCC derives its statutory authority from the 
Communications Act of 1934,[Footnote 4] as amended by the following 
laws, among others:  

* The Cable Communications Policy Act of 1984 sought to establish a 
national policy concerning cable service; franchise procedures and 
standards; and guidelines for federal, state, and local authorities to 
regulate cable service; among other things.[Footnote 5] The 1984 Act 
imposed some limitations on franchising authorities' regulation of 
cable rates;[Footnote 6] in particular, the 1984 Act restricted 
regulation to only basic cable service for cable systems not subject 
to effective competition as defined by FCC.[Footnote 7]  

* The Cable Television Consumer Protection and Competition Act of 1992 
prohibited franchising authorities from awarding exclusive (or 
monopoly) franchises and required FCC to establish regulations 
ensuring reasonable rates for both the basic cable service and the 
cable programming service tier (CPST), commonly referred to as 
expanded basic, for cable systems not subject to effective competition 
as defined by the Act; Congress passed the 1992 Act in response to 
increasing rates.[Footnote 8] In addition, the 1992 Act required cable 
companies to carry all local television stations that requested 
carriage--known as must carry--or negotiate with television stations 
seeking compensation--known as retransmission consent. Cable companies 
that also produced content were required to provide their content to 
unaffiliated MVPDs at nondiscriminatory rates--known as program 
access.  

* The Telecommunications Act of 1996 phased out regulation of rates 
for the CPST and included provisions that allowed for the growth of 
telephone companies in the video distribution marketplace.[Footnote 9] 
For example, the 1996 Act eliminated the restriction on telephone 
companies providing video service directly to subscribers in areas 
where they provided telephone service.  

Competition among Content Producers Is Little Changed, while 
Competition among Distributors Has Increased:  

Several Large Media and Entertainment Companies Produce Much of the 
Content Viewed In the United States:  

Several large media and entertainment companies continue to produce 
much of the content watched by consumers. According to a 2012 report 
cited by FCC, seven companies' broadcast and cable networks accounted 
for about 95 percent of all television viewing hours in the United 
States. These seven companies hold some combination of television and 
movie production studios, broadcast networks, and cable networks. The 
seven companies and some of their holdings include:  

* CBS: CBS (broadcast network), CBS Television Studios, Showtime;  

* Discovery Communications: Discovery Channel, TLC, A&E, Animal 
Planet;  

* Disney: ABC (broadcast network), ESPN, Disney Channel, Walt Disney 
Studios;  

* NBCUniversal: NBC (broadcast network), Universal Pictures, USA 
Network, Telemundo Television Studios, The Weather Channel;  

* News Corporation: FOX (broadcast network), FOX News Channel, 20th 
Century Fox, 20th Century Fox Television;  

* Time Warner: The CW Network (broadcast network), CNN, HBO, TBS, 
Warner Brothers Studios; and:  

* Viacom: MTV, Comedy Central, Nickelodeon, Paramount Pictures.  

We previously reported that the major broadcast networks (ABC, CBS, 
FOX, and NBC) and their affiliated studios produced from 76 to 86 
percent of prime-time programming hours in 2002, 2005, 2008, and 2009, 
with the remaining hours coming from independent producers.[Footnote 
10] FCC similarly reported that the production studios of major media 
and entertainment companies, which also hold broadcast and cable 
networks, often create and license television programs and movies. 
This pattern does not hold for all companies. For example, Discovery 
Communications does not own a major television or movie studio and 
Sony Corporation, another large media and entertainment company, 
operates a television and movie studio, but does not operate a 
broadcast or cable network.  

The concentration of content production among a handful of large media 
and entertainment companies has changed little in recent years. We 
compared the ownership of major broadcast and cable networks from 2005 
through 2012, and found little change in the pattern of ownership and 
concentration of production. For example, of the top 20 cable networks 
by subscribership in 2005, more than half experienced no change in 
ownership from 2005 through 2012. However, some ownership change did 
occur during this period. In 2005, the former Viacom split into two 
companies--CBS and Viacom.[Footnote 11] In 2009, the Time Warner Cable 
distribution business was spun off from the Time Warner Inc. content 
business. Lastly, Comcast, the largest distribution company in the 
United States, merged with NBCUniversal;[Footnote 12] this transaction 
added NBCUniversal's content and networks to Comcast's existing, more 
limited media holdings, which include the Golf Channel and E! 
Entertainment.  

Since 2005, Some Local Markets Have Gained Access to Additional MVPD 
Service:  

Since 2005, the introduction of telephone-based video service has 
brought additional MVPD competition to some areas. Traditional 
telephone companies AT&T and Verizon--through their respective U-verse 
and FiOS products--have led this change, introducing video services in 
various areas across the country and competing with cable and 
satellite companies.[Footnote 13] Verizon first introduced its FiOS TV 
service in 2005 and as of year-end 2012, reported having 4.7 million 
subscribers with service available to 17.6 million households. As of 
year-end 2012, AT&T's U-verse service had 4.5 million subscribers with 
service available to more than 24.5 million households. In addition to 
AT&T and Verizon, other competition has emerged in a limited number of 
areas. For example, Google introduced Google Fiber in the Kansas City 
metropolitan area. Like cable companies, AT&T, and Verizon, Google 
Fiber includes broadband Internet and television service.[Footnote 14] 
Google Fiber is a pilot project, and it is unknown to what extent 
Google will expand its deployment to other cities; although, in April 
2013, Google announced that it would introduce Google Fiber in Austin, 
Texas, and Provo, Utah. In addition, we have previously reported that 
the Universal Service Fund managed by FCC, which provides subsidies to 
telephone companies that serve rural and other remote areas with high 
costs, enables some companies to upgrade their telephone networks, 
including upgrading to fiber optic cable and extending it closer to 
their customers.[Footnote 15] The upgraded networks enable these 
companies to provide video and broadband service in some rural and 
remote areas.  

With the new entry in some areas, roughly 1 in 3 households had access 
to at least 4 MVPDs at year-end 2010.[Footnote 16] As a result, the 
nationwide market shares have shifted among MVPDs since 2005 (see fig. 
2). In particular, cable companies have seen their nationwide market 
share drop, continuing a longer-term decline. For example, NCTA 
estimated that cable companies' share of MVPD subscribers has dropped 
from 98 percent in 1992 to 57 percent in 2012. Satellite services have 
continued to grow, although more slowly in recent years. Financial 
analysts and other experts report that satellite companies could face 
increasing competitive challenges from cable and telephone companies 
going forward. In particular, as consumers increasingly purchase a 
bundle of video, broadband Internet, and telephone services, 
satellite's slower Internet service could dissuade consumers from 
purchasing satellite service.[Footnote 17] For example, DirecTV 
reported that various telephone and broadband companies also sell its 
service as part of a bundle with their voice and data services, and 
these companies could focus less effort and resources selling 
DirecTV's service or decline to sell it at all as they deploy networks 
with the capability of providing video, voice, and data services. 
[Footnote 18]  

Figure 2: Multichannel Video Programming Distributors' Subscriber 
Market Share in 2005 and 2010:  

[Refer to PDF for image: 2 pie-charts]  

2005: 
Cable: 69.4%; 
Satellite: 27.7%; 
Other[A]: 2.9%.  

2010: 
Cable: 59.8%; 
Satellite: 33.9%; 
Telephone: 6.9%.  

Source: FCC.  

Note: For 2005, FCC did not include a category for telephone.  

[End of figure]  

Although more households have access to at least 4 MVPDs than in the 
past, roughly 2 in 3 households still had access to 3 or fewer MVPDs 
at year-end 2010, 2 of which were the satellite providers. While the 
entry of telephone companies into the video marketplace offers some 
households more options, representatives from AT&T and Verizon were 
uncertain about the scope of future expansion. AT&T announced that the 
company will expand its U-verse service to be available to 33 million 
households--an increase from 24.5 million--but the company may also 
discontinue service to other areas simultaneously. Verizon officials 
reported that the company has no current plans to expand FiOS beyond 
its goal of making service available to 18 million households. In 
addition, according to FCC, at year-end 2010, about 1.5 percent of 
households had access to just 2 MVPDs, which are the two major 
satellite companies. In our analysis of MVPD service in 20 zip codes, 
one zip code--encompassing Limon, Colorado--was not served by a cable 
company and relied solely on satellite service.  

Online Video Products Have Emerged as a New Form of Video 
Distribution:  

Technological advances increasingly enable distribution of video 
online. Internet speeds have increased as companies deploy new, high-
speed technologies, such as fiber optic cable, to the neighborhood or 
the residence. These new technologies enable many U.S. households to 
stream video--that is, access and view video content via online 
sources. Watching video online generally requires an Internet 
connection with a speed of .7 to 4 megabits per second, depending on 
the quality of the video;[Footnote 19] for example, high-definition 
video requires higher Internet speeds than standard definition video. 
In August 2012, FCC reported that over 40 percent of U.S. households 
had adopted broadband speeds of at least 3 megabits per second. 
[Footnote 20]  

A variety of business models supporting online video have emerged; 
some online video is available free, while other content is available 
with payment.[Footnote 21] Online sites such as YouTube aggregate user-
created and other content and make this content available to viewers 
free with an Internet connection. Increasingly, professional content 
is appearing on YouTube. For example, ABC News has segments from ABC 
World News and Good Morning America available on YouTube. Other 
services, such as Netflix and Amazon Prime Instant Video, entail one-
time or monthly rental fees to access content, including television 
programs and movies. Still other models exist, where content owners 
sell their content directly to consumers. In particular, Hulu--a joint 
venture that includes News Corporation, NBCUniversal, and Disney--
offers a free advertiser-supported service and a monthly subscription 
service with fewer commercials and access on a wide variety of 
devices.  

While the Internet has emerged as a new source for viewing video, 
online viewing and revenues represents a small portion of overall 
media activity, particularly as compared to traditional television. In 
September 2012, Nielsen reported that 162 million Americans watched 
online video, consuming on average nearly 7 hours of content over that 
month.[Footnote 22] In contrast, Americans watch over 34 hours of live 
television per week. Additionally, several financial analysts and 
experts whom we interviewed described Internet advertising as still in 
its infancy, with viewership and advertising still developing and 
companies exploring successful business models. For example, FCC, 
citing data from Investor's Business Daily, reported that in 2009 
advertisers spent $908 million on U.S. online video advertising 
compared to $68.9 billion spent on U.S. television advertising during 
that same period.  

Consumers Continue to Acquire Programming and Content through 
Packages, but Online Video Providers Are Delivering New Choices:  

MVPDs Generally Provide Large Packages of Channels:  

In general, MVPDs provide video content by packaging together a large 
number of channels in different programming tiers--often the basic, 
expanded basic, and premium tiers. In our analysis of MVPD services in 
20 zip codes in 2013, all MVPDs reported requiring consumers to 
purchase tiered packages of channels. We found that the basic tier of 
these MVPDs consisted of a minimum of 13 channels, with local 
broadcast and informational channels sometimes dominating this tier; 
the price of the basic tier ranged from $9.95 to $40 per month. 
[Footnote 23] The expanded basic tier usually included the channels in 
the basic tier and additional cable networks, such as ESPN, 
Nickelodeon, USA Network, MTV, and A&E. Higher end, premium tiers 
usually included more than 100 channels and the monthly subscription 
price for this tier ranged from $53 to $200.49. In all 20 zip codes we 
analyzed, the MVPD included HBO, Showtime, and Cinemax in its premium 
tier. Because subscribers must receive all of the channels offered on 
a tier that they choose to purchase, they have little choice regarding 
the individual channels that they receive. À la carte service--where 
consumers purchase content on a channel-by-channel basis--is generally 
not provided by MVPDs. None of the MVPDs we interviewed, or any MVPDs 
included in our analysis of 20 zip codes, provided à la carte service; 
the only exceptions were premium channels and pay-per view services, 
which were often available on a stand-alone basis.[Footnote 24] For 
example, HBO was available for an additional $6.00 to $26.95 per month 
in the 20 zip codes we analyzed.  

Contractual and economic factors lead MVPDs to package channels into 
tiers rather than providing à la carte service. Contractually, content 
companies generally seek to have their networks carried on the largest 
tier, typically the expanded basic tier. These companies have an 
economic incentive to pursue this strategy; content providers 
typically receive both a monthly fee for each customer that subscribes 
to the tier on which their network appears and advertising revenues, 
which are based in part on the number of potential viewers (e.g., 
subscribers) to the tier on which their network appears. Content 
companies and others reported that they might need to charge more for 
certain content under an à la carte system because of potential 
revenue losses and that the price of a single channel could be 
significantly higher with an à la carte system compared to the current 
tiered system. Consumer groups expressed concerns that à la carte 
service could diminish diversity and local aspects of existing 
programming if lower demand networks cease operation because of a lack 
of subscribers. Some experts with whom we spoke also questioned 
whether consumers would necessarily be better off with à la carte 
pricing of channels, given the potential for reduced quantity and 
quality, and higher prices for individual channels.  

Some MVPDs are providing increased service options to consumers. For 
example, some MVPDs are making content available through TV Everywhere 
services. These services allow MVPD subscribers to view some content 
on mobile devices, typically smartphones or tablet computers, and from 
various locations within and, depending on the service, outside the 
residence. Some MVPDs charge for these additional features as a stand-
alone service or include them as part of a digital package, and some 
require that the customer subscribe to both the company's MVPD and 
broadband services. In addition, some MVPDs are bundling telephone, 
Internet, and video services. These bundles have a higher aggregate 
price, but the consumer's total cost can be less than if the consumer 
purchased these services separately. For example, one MVPD included in 
our zip code analysis provided a tier of channels for $39.95, Internet 
service for $39.95 per month, and telephone service for $34.95 per 
month. Alternately, a consumer could receive these three services in a 
bundle for a monthly price of $84.95, a savings of $29.90. Such 
bundling appears to be widespread; of the 20 zip codes in our 
analysis, consumers in all 20 had access to one or more bundles. FCC 
reported that as the number of video subscribers has fallen, cable 
companies have prospered by increasing sales of other services, such 
as phone and Internet access, to their remaining customers.[Footnote 
25]  

New Entrants Are Providing Increased Choices:  

OVDs and related companies provide consumers with increased 
flexibility in selecting content. Services like Hulu and Netflix allow 
consumers to select content based on a program, or even an episode 
basis. Some experts and consumer groups with whom we spoke said that 
these new online options constituted a programmatic à la carte, 
rendering debates over whether or not consumers should have the 
ability to purchase specific channels less relevant. OVDs' libraries 
are limited, however, and OVDs do not have the rights to display 
certain television programs and movies. To maximize the return on 
investment from producing video content, where costs can be quite 
high, content owners generally distribute content through a series of 
outlets over time, through a process known as windowing. Content is 
distributed in the most lucrative outlets first, and depending on the 
type of content, the windowing process can take months or years to 
fully play out. Distribution of content through an OVD is often last 
in the series of outlets, as content providers first distribute 
television programs through broadcast or cable networks and feature 
films through movie theatres. Because of this, OVDs typically are not 
able to obtain first run television programs and movies; for example, 
a television program may have to finish its entire season before a 
single episode becomes available online. Thus, although the same 
content is available in earlier windows through other outlets, 
windowing can limit the value of OVDs' services for some consumers. As 
such, most of the industry representatives and experts with whom we 
spoke stated that, at this time, OVD services are generally seen as a 
complement to MVPD services, rather than a substitute.  

Nonetheless, some content companies are providing content directly to 
consumers online. Sports leagues are one such example. Major League 
Baseball provides its MLB.TV service, where subscribers can watch 
baseball games live online or at a later time, as well as recaps and 
other baseball news. The National Basketball Association provides a 
League Pass service where subscribers can watch some games live, have 
access to live game statistics, and review an archive of content for 
the season. In addition, other content aggregators, like cable 
networks, have made content available online. For example, AMC has an 
online service where viewers can watch shows such as Mad Men. In 
another example, HBO has an online version of its network, HBOGO, 
where viewers can watch all of the movies and other content on this 
premium network.[Footnote 26] Much of this and other online content 
can also be accessed through electronic portable devices. Indeed, some 
of the aforementioned sport content services provide mobile options 
for subscribers.  

Consumers incur costs to acquire these online video services. First, a 
consumer must purchase a broadband Internet connection to view video 
content online. The price for Internet services provided by MVPDs in 
the zip codes we analyzed ranged from $19.99 to $69.99 per month. 
[Footnote 27] Once connected, some online content is available at no 
charge on sites such as YouTube. Other content is available on a pay-
per-view or rental basis. For example, Amazon's Prime Instant Video 
service includes a rental option where a consumer can pay a set amount 
(usually $1.99 to $4.99) to view a movie in a 30-day window. Services 
like Netflix are subscription-based with recurring, monthly fees for 
continued access to their content library.[Footnote 28] Content viewed 
directly from content companies also generally requires a monthly or 
yearly fee. For example, the price for Major League Baseball's MLB.TV 
services is $94.99 for a year or $19.99 per month.  

Prices for Traditional MVPD Services Continue to Increase:  

Despite entrants providing new choices, the price of MVPD video 
service continues to increase. In its most recent annual report on 
cable rates, FCC reported that over the course of 2010, cable rates 
rose 5.4 percent.[Footnote 29] From 2005 through 2011, cable rates 
rose more than 33.5 percent for both basic and expanded service tiers 
(see table 1). This increase outpaced inflation captured in the 
Consumer Price Index, which rose 15.5 percent over the same period. 
Besides cable service, other MVPDs' prices have increased faster than 
inflation. For example, in January 2013, Dish Network raised the price 
for its services between 7 to 20 percent; this included a price 
increase of $5 for its basic service package--from $24.99 to $29.99 
per month. DirecTV also increased its prices in February 2013, raising 
its average price by 4.5 percent.  

Table 1: Cable Rates--2005 through 2011:  

Year: 2005; 
Basic service price: $14.30; 
Expanded basic service price: $43.04; 
Consumer price index: 126.90.  

Year: 2006; 
Basic service price: $14.59; 
Expanded basic service price: $45.26; 
Consumer price index: 131.90.  

Year: 2007; 
Basic service price: $15.33; 
Expanded basic service price: $47.27; 
Consumer price index: 134.70.  

Year: 2008; 
Basic service price: $16.11; 
Expanded basic service price: $49.65; 
Consumer price index: 140.40.  

Year: 2009; 
Basic service price: $17.65; 
Expanded basic service price: $52.37; 
Consumer price index: 140.50.  

Year: 2010; 
Basic service price: $17.93; 
Expanded basic service price: $54.44; 
Consumer price index: 144.20.  

Year: 2011; 
Basic service price: $19.33; 
Expanded basic service price: $57.46; 
Consumer price index: 146.50.  

Year: Percentage Increase; 
Basic service price: 35.17%; 
Expanded basic service price: 33.50%; 
Consumer price index: 15.45%.  

Source: GAO analysis of FCC Report on Cable Industry Prices, August 13, 
2012.  

[End of table]  

Representatives from MVPDs and content companies, consumer groups, and 
other stakeholders identified a variety of causes for continued rate 
increases. MVPD and content companies cited the cost of content 
production as one factor. The cost of acquiring "must have" content--
content that is very much in demand by consumers, such as live sports--
has become increasingly expensive. Sport leagues, such as the National 
Football League and Major League Baseball, are seeking higher fees 
from broadcast and cable networks to carry their sporting events. For 
example, in its latest contract with ESPN, Major League Baseball will 
receive approximately $5.6 billion for the years 2014 through 2021; 
this represents a 100 percent increase above the previous agreement. 
Broadcast and cable networks may in turn pass along these higher 
prices to MVPDs, which ultimately contribute to higher consumer prices 
for MVPD service. Infrastructure investment costs, such as cable 
companies continuing to roll out broadband Internet service to new 
communities and locations, may also play a role. For example, NCTA 
reported that the cable industry's capital expenditures for 2011 were 
$12.9 billion.  

Although Technology Will Likely Continue to Spur New Services and 
Products, a Variety of Factors May Hinder Future Competition in the 
Video Marketplace:  

Technological Advances and Increased Spectrum for Wireless Services 
Could Spur New Services, Products, and Competition:  

Advances in digital technologies and increased Internet capacity could 
help lower the cost to develop and distribute some video content. Some 
high-quality digital video cameras and editing equipment can be 
purchased for less than a thousand dollars, enabling individuals and 
small startups to create content at relatively low cost. As a result, 
individuals and startups can produce web series of low-budget programs 
and develop dedicated online channels to carry content. In addition, 
crowdfunding--the practice of funding a project or venture by raising 
small amounts of money from a large number of people, often online--
provides a mechanism for startups to acquire the financial resources 
to develop content. Furthermore, technological advances can lower the 
costs to distribute content through online platforms like YouTube, 
which provides free content posting. OVDs can distribute content 
online at relatively lower costs than traditional MVPDs, which own 
physical networks and tend to distribute more costly professionally 
produced movies, sports, and television programs. For example, whereas 
OVDs have limited distribution costs as consumers pay subscription 
fees to access the Internet and online video, traditional MVPDs built, 
operate, and maintain the networks through which Internet bandwidth 
and online video is provided.  

Increased spectrum for wireless broadband could facilitate greater 
distribution and viewing of video content wirelessly. According to 
industry stakeholders and experts with whom we spoke, today's 
terrestrial wireless networks are unable to support widespread, large-
scale viewing of video content; these networks' capacities are much 
less than existing wired and satellite networks deployed by cable, 
telephone, and satellite companies. However, increased spectrum for 
wireless broadband, combined with compression technologies that allow 
more efficient use of spectrum, could allow for additional viewing of 
video content wirelessly. According to FCC, the Commission's 2008 
auction of spectrum licenses resulted in some mobile wireless service 
providers beginning to offer mobile broadband services for laptop 
computers, tablets, smartphones, and other mobile devices. FCC is 
planning another spectrum auction for wireless services in 2014. 
According to industry stakeholders and experts with whom we spoke, 
more spectrum for wireless services could spur additional competition, 
with more companies entering the marketplace to provide online video 
services accessible via smartphones and tablets. However, as we have 
previously reported, most spectrum has already been allocated and 
assigned to other users, including federal agencies such as the 
Department of Defense, and reallocating spectrum from other uses can 
be time-consuming, costly, and contentious.[Footnote 30]  

A Variety of Factors May Hinder Future Competition:  

Availability and Licensing of Professionally Produced Content:  

The high costs to license professionally produced content could hinder 
the competiveness of entrants and small distributors. Some 
professionally produced and time-sensitive programming, like sports 
and popular prime time shows, are highly valued by many viewers. As 
the supply of those who are involved in the production of such popular 
programming--well regarded athletes, writers, actors, and directors--
is limited, their talents command premium compensation, often in the 
millions of dollars. While large MVPDs that have subscription and 
advertising revenues can pay the license fees for this content, 
smaller MVPDs and new OVDs that are not as established in the 
marketplace may not be able or willing to do so.  

In addition, OVDs told us that competition could be hindered by the 
fact that content providers will license their content to them, but 
only on similar contractual prices and terms that they offer to 
traditional MVPDs. In particular, OVDs told us that licensing 
contracts have "most-favored nation" (MFN) clauses that guarantee a 
customer will receive prices and terms that are at least as favorable 
as those provided to other customers of the same seller. Because of 
MFN clauses, OVDs assert that content providers will not enter into 
agreements with OVDs that are different from agreements that they have 
with MVPDs. As a result, OVDs said that MFN clauses inhibit their 
ability to compete, as they cannot offer consumers different 
programming choices and prices than MVPDs, thus making it difficult to 
attract customers. DOJ and the Federal Trade Commission (FTC), which 
investigate certain proposed mergers and potential antitrust 
violations, jointly sponsored a workshop in September 2012 on MFN 
clauses and their benefits and risks to competition.[Footnote 31] 
According to DOJ's press release announcing the workshop, MFN clauses, 
though at times employed for benign purposes, can under certain 
circumstances present competitive concerns. DOJ noted that MFN clauses 
might, especially when used by a dominant buyer of intermediate goods, 
raise other buyers' costs or foreclose would-be competitors from 
accessing the market. While high prices and contracting terms could 
hinder entry, some larger OVDs with subscription services have taken 
steps to overcome these challenges. For example, Netflix signed a 
multiyear billion-dollar agreement with Disney Corporation to license 
its content beginning in 2016. In addition, some OVDs have begun 
producing their own original content. For example, Netflix created its 
first original series, House of Cards, which debuted on February 1, 
2013, and Amazon currently has 12 pilots in development that will be 
available on its Prime Instant Video service.  

Entry into the Traditional MVPD Market:  

Based on our discussions with an array of industry stakeholders and 
experts, the prospect of any new wire-based providers entering the 
video market appears unlikely. As previously discussed, the two 
telephone providers that expanded their service offerings to compete 
with incumbent cable companies--AT&T and Verizon--appear to be 
curtailing further expansion of their video and broadband Internet 
services. Both companies made very large investments to upgrade their 
networks--an expected $23 billion in the case of Verizon and billions 
of dollars, according to AT&T--to provide new video and broadband 
services, despite the fact that the companies were established 
telephone companies with existing telecommunications infrastructure in 
place. The high costs to provide these services create a substantial 
barrier to entry.[Footnote 32] In particular, not only are the overall 
costs of entry into the video distribution market high, but many of 
these costs are fixed, meaning that much of the infrastructure needs 
to be in place before the provider can initiate service. High fixed 
costs can render entry difficult because an established company with a 
large customer base will generally enjoy a significant cost advantage 
over a new entrant.  

The costs involved in entering the video distribution market fall into 
several categories including: (1) physical infrastructure, (2) 
regulatory authorizations, (3) securing access to broadcast and cable 
programming, and (4) marketing.  

Physical infrastructure for providing video. Providing wire-based 
video service requires an extensive physical network. The provider 
needs to be able to capture video signals from various sources--
broadcast transmitters, fiber optic cable, satellites--each source 
requiring specific communications infrastructure. Once captured at the 
provider's facilities, video signals are transported to households. 
Transmission requires a wired network from the provider's facility 
traveling across highways and byways, into neighborhoods, and 
ultimately linked to every subscribing household. Installation of such 
a network is expensive: the provider generally needs to dig trenches 
along roads and into neighborhoods in order to install equipment and 
wire. This fairly extensive and expensive network of communications 
reception and transmission equipment needs to be in place before any 
service can be provided, so much of the video capture infrastructure, 
trench digging, and wire installation costs are fixed.  

Regulatory authorizations and coordination with private party 
facilities owners. A new provider must work with local jurisdictions 
to obtain authorizations to undertake various activities. Cable 
providers are required to obtain a franchise authorization for each 
jurisdiction they serve. Franchise areas vary in size, but they 
typically cover a town or relatively small jurisdiction, so gaining 
franchise authorization to enter any significant geographic area can 
be time-consuming.[Footnote 33] In addition, to deploy cable for the 
network, a provider requires access to public rights-of-way. The 
governmental entities that grant franchises and access to rights-of 
ways vary by state, which again may mean that an entrant needs to 
obtain a grant to access rights-of-ways from multiple 
jurisdictions.[Footnote 34] Once the grant is received, a video 
provider must work with either the local telephone or utility 
companies to undertake the necessary installation work, because these 
companies generally are the owners of the poles or conduits over or 
through which wires are deployed along the rights-of-way. As with the 
physical installation, obtaining regulatory authorizations and 
coordinating installations generally needs to take place before the 
provider can begin to service customers.  

Acquisition of Programming. A new provider in the video market needs 
to secure access to a large portfolio of broadcast and cable networks 
to compete for customers. The cost of the programming itself is paid 
monthly based on the number of subscribers the provider serves, and 
according to providers with whom we spoke, prices for programming are 
high and continue to increase. Several of the providers and experts 
with whom we spoke also told us that networks generally offer 
significant discounts based on the number of subscribers a provider 
has. Thus, a substantial disadvantage that an entrant has relative to 
a large provider is that it will likely have higher programming costs, 
making entry challenging.  

Marketing. A new entrant needs to make the public aware of the new 
services it is offering and attempt to convince potential customers to 
buy its services. This can pose many challenges for an entrant. As 
mentioned earlier, over 85 percent of households already subscribe to 
a video service, so most potential customers are already buying a 
service. Thus, most customers need to be persuaded to switch their 
provider. Additionally, many households buy a bundle of services from 
their provider--video, broadband Internet, and sometimes telephone--
and the inconvenience of switching over several services to a new 
provider is greater than it might be for a stand-alone service. Such 
challenges that an entrant would face to gain subscribers can also act 
as a barrier to entry.  

Online Entry and Business Practices of Established Industry Sectors:  

While OVDs present a new and exciting venue through which consumers 
can enjoy video services, we found that OVDs do not yet offer a 
package of programming that is substantial enough to induce households 
to drop their subscription to a traditional video service in favor of 
an OVD's services. OVD providers have a variety of business models, 
but fundamentally, they are dependent on two established industries--
developers of video content and providers of broadband Internet 
access--and this dependence could hinder any significant maturation of 
the OVD business model.  

Content. OVDs purchase content from the same content providers as do 
traditional MVPDs, and content providers and MVPDs have long-standing 
and lucrative business relationships. As discussed above, high-valued 
content, such as professionally produced movies and television 
programs, is costly to produce. Therefore, even if some OVDs are 
successful in developing some independent content, they will remain 
largely dependent on traditional sources of content. Content providers 
enjoy a stable and secure business model distributing programs on MVPD 
systems. In particular, content providers benefit from MVPDs packaging 
many channels because it ensures that most households purchase a large 
set of channels.[Footnote 35] Similarly, MVPDs benefit from their 
purchase of high-quality content, which most households value enough 
to induce them to purchase a large tier of MVPD programming.[Footnote 
36] Thus, there is a symbiotic benefit in the business relationship 
between the content producers and MVPDs.  

At the same time, content providers are also interested in selling 
their programs to OVDs. In particular, representatives of several such 
companies, as well as experts, said that through these new outlets, 
content providers are able to monetize their products in new ways. For 
example, OVDs can distribute content separate from the bundles of 
content offered by broadcast and cable networks, which may have a 
unique commercial appeal and attract new consumers to content 
providers' programs. However, content providers are also wary about 
the extent to which they contract for OVD distribution of their 
programs. If OVD offerings become attractive enough that households 
begin to drop MVPD subscriptions and rely solely on online viewing, 
revenues earned through traditional subscription service will decline, 
affecting both content providers and MVPDs. The issue is the extent to 
which this happens: the impact of a small number of households doing 
so may not be of concern to content providers, but if a substantial 
number of households choose to "cut the cord," revenues of both the 
content providers and the MVPDs could be reduced enough to be 
worrisome for these companies. Thus, while content providers are 
interested in providing some content to OVDs, their incentive to do so 
is somewhat constrained by the potential effect on subscriptions to 
traditional MVPDs. Some stakeholders with whom we spoke stated that 
the critical challenge for the OVD business model is access to quality 
content and that as long as content providers do not see OVDs as a 
viable outlet for the highest quality content, the growth of the OVD 
business model will be limited.  

Broadband. Most households with broadband purchase that service from 
either a cable or a telephone company.[Footnote 37] Thus, the 
companies that provide a large portion of the broadband access in the 
country are the same companies that OVDs are attempting to compete 
against in the video marketplace. Users who view video provided by 
OVDs are often large consumers of broadband bandwidth, and heavy use 
may place stress on the broadband infrastructure. Some MVPDs have 
created pricing structures for bandwidth that, in one manner or 
another, extract higher fees from heavy users. OVDs and other experts 
have expressed concern that, because MVPD providers are also 
competitors of OVDs in the video market, MVPDs may have an incentive 
to charge for bandwidth in such a way as to raise the costs to 
consumers for using OVD service. Some of the industry groups and 
experts with whom we spoke stated that some form of usage-based 
pricing was probably inevitable and reasonable based on the costs of 
maintaining the infrastructure, but that they would be concerned if 
such pricing was used in any way that could stall the growth of the 
nascent OVD market. For example, they would be concerned if there were 
any differential treatment of broadband use for accessing the content 
of the MVPD versus that of OVD providers.  

Stakeholders Generally Noted That Laws and Regulations Have Not Kept 
Pace with Changes, and FCC Has Not Consistently Reported on 
Competition:  

The Majority of Stakeholders Noted that Some Laws and Regulations Are 
Out of Date, but Little Agreement Exists on Potential Changes:  

The 1992 Act was written over 20 years ago, and for a variety of 
reasons, the majority of stakeholders with whom we spoke stated that 
some provisions of the laws and associated regulations do not reflect 
the current marketplace. Stakeholders told us that there have been 
significant changes in competition in the video marketplace since 
1992. For example, cable companies were often the only choice of a 
video distributor for most consumers in 1992. Since then, satellite 
and telephone companies have entered the marketplace, and consumers 
have more choices in selecting a video distributor. In addition, the 
1992 Act was written before the commercialization of the Internet and 
other technological advances, such as tablets and smartphones, which 
allow for online video and wireless distribution. As previously 
discussed, online video viewing is a small portion of overall 
viewership. However, experts with whom we spoke said that the trend is 
for growth of online video with the expansion of WiFi and 4G 
infrastructure and the greater use of tablets and smartphones. 
Furthermore, since 1992, MVPDs have digitalized their systems and the 
number of channels carried on these systems has risen dramatically, an 
increase that has led to more content being developed and more content 
options available for consumers. Due to these marketplace changes, the 
majority of stakeholders we interviewed stated that some provisions in 
the 1992 Act should be revisited; however, other stakeholders 
disagreed, stating that given the quickly developing, dynamic, and 
technology-oriented nature of the industry, it is difficult for laws 
to keep up with changes. These stakeholders noted that, as was the 
case in 1992, it is hard to predict what the marketplace will be like 
in the future and therefore difficult to envision appropriate laws and 
regulations.  

Most of the stakeholders who told us that some provisions of the 1992 
Act should be revisited had varying opinions, which were often based 
on their position in the marketplace. In general, stakeholders 
identified three issues related to the 1992 Act that they believe 
should be addressed: (1) retransmission consent, (2) program access, 
and (3) the definition of MVPD and OVD. In addition, stakeholders also 
had varying opinions on FCC's Open Internet regulation.  

Retransmission Consent. One of the concerns expressed by stakeholders 
and experts with whom we spoke was the manner in which retransmission 
consent is functioning in the market today. Policies to support 
localism have long been a focus of communications laws related to 
television broadcasting. In 1992, Congress took action to help ensure 
that the local benefits of over-the-air broadcast television stations 
were protected as more households began to migrate to pay video 
services over cable systems. The 1992 Act thus set forth a paradigm 
under which commercial, local television stations[Footnote 38] can 
choose to be carried by cable companies under a must carry status--
meaning that cable companies in their market are obliged to carry the 
station's signal--or can elect to negotiate for carriage under 
retransmission consent.[Footnote 39] The purpose behind the dual 
policies of must carry and retransmission consent was, in part, to 
support the development of local news, emergency weather information, 
and other local public interest content. While a must carry station 
does not receive any compensation for the carriage of its signal, a 
station electing retransmission consent can negotiate with cable 
companies for compensation in return for the cable company's right to 
carry the station's signal. Thus, must carry provisions were designed 
to ensure that all local commercial stations would be carried by cable 
companies, which may not have occurred for some stations that do not 
have a significant commercial appeal. At the same time, retransmission 
consent was designed to ensure that stations choosing this status had 
the ability to bargain for compensation for the value of their local 
television signal.  

During roughly the first decade after the 1992 Act was passed, 
negotiations for retransmission consent usually did not result in cash 
payments from cable companies to local television stations, but 
rather, resulted in other forms of negotiated compensation, such as 
carriage of fledgling cable networks owned by broadcast networks. But 
over the last several years, negotiated cash fees for retransmission 
have increased significantly, as we reported in 2011.[Footnote 40] 
Stakeholders with whom we spoke--specifically cable and DBS companies, 
as well as industry experts--told us that the rapid rise in 
retransmission fees is of concern because these fees put upward 
pressure on subscriber rates, and the negotiation over fees have 
become increasingly contentious, leading to more "blackouts" during 
which local television signals are pulled from a particular MVPD's 
channel lineup.[Footnote 41] Moreover, some of those concerned about 
increasing retransmission fees noted that while the concept underlying 
retransmission consent was to support local television stations, they 
believe that a portion of the financial compensation paid through 
retransmission fees is, in fact, not going to local television 
stations. Instead, critics told us that a good portion of 
retransmission fees are flowing to the broadcast networks that own or 
have affiliation agreements with the local stations and that 
ultimately a portion of these fees flow to the copyright holders of 
high-valued content purchased by broadcasters, such as sports leagues 
and studios producing popular dramatic TV series.  

Others with whom we spoke--from broadcast networks and an associated 
trade association--told us that retransmission consent remains an 
important foundation for developing programming. They noted that 
without this form of compensation, broadcasters would not be able to 
continue to provide high quality programming and emergency local 
information. These stakeholders also said that broadcast stations have 
the right to control their television signal and that any attempt to 
alter this long-standing policy would be harmful to the television 
broadcasting system that was developed decades ago.  

Program Access Rules. The 1992 Act gave FCC the authority to establish 
program access rules that require cable companies that produce content 
to make that content available to other unaffiliated MVPDs. Cable 
companies say these rules are no longer needed because they do not 
have monopoly power and that other MVPDs have access to content. Cable 
companies also note that it is their First Amendment right to 
determine to whom they license their content. However, OVDs, consumer 
groups, and experts state that the program access rules need to be 
continued and extended to include OVDs, whom they say have difficulty 
accessing content. As noted earlier, limited access to high-valued 
programming is one of the factors that stakeholders told us could 
hinder competition. Stakeholders told us that the program access rules 
allowed satellite and telephone companies to compete and grow and that 
new entrants, such as OVDs, should have the same protections. In 
October 2012, FCC declined to extend the exclusive contract 
prohibition, originally enacted as part of the program access 
statutory provisions, beyond its scheduled sunset date. FCC stated 
that a preemptive prohibition on exclusive contracts was no longer 
necessary because a case-by-case process under the program access 
rules would remain in place after the prohibition expired to assess 
the impact of individual exclusive contracts.[Footnote 42] FCC has 
received program access complaints, including one from an OVD--Sky 
Angel--in March 2010.[Footnote 43] Sky Angel also filed lawsuits 
against Discovery Communications and the National Cable Satellite 
Corporation, the owner of cable channel C-SPAN, to access programming 
from these two companies.  

Definition of MVPD. As defined in the Communications Act, an MVPD is, 
among others, a cable operator or satellite provider that makes 
available for purchase multiple channels of video programming. 
[Footnote 44] Experts with whom we spoke said that OVDs generally have 
not been regarded as MVPDs because OVDs are not facilities-based, in 
that they do not own the Internet bandwidth through which their 
content is distributed. FCC staff has determined that Sky Angel--an 
OVD that offers channels but is not facilities-based--failed to 
demonstrate that it is a MVPD entitled to seek relief under the 
program access rules. However, FCC has not conclusively decided the 
issue. Since OVDs may or may not be MVPDs, it is unclear if OVDs have 
the same rights to program access and obligations, such as must carry. 
While some OVDs like Sky Angel want to be classified as an MVPD so 
that they can have program access rights, other OVDs do not, saying 
that their business model differs from that of a MVPD and that 
therefore they should not be treated as one. Experts noted that 
complicating the distinction between OVDs and MVPDs is that some MVPDs 
also provide content online and on demand. Experts with whom we spoke 
said that defining OVDs as MVPDs could have negative implications on 
competition in that it could discourage companies that do not wish to 
be subject to MVPD regulations from entering. In response to Sky 
Angel's program access complaint, FCC initiated a proceeding in March 
2012 requesting comments from industry stakeholders on the definition 
of MVPD and channel.[Footnote 45]  

Open Internet. The growing use of the Internet since the 1992 Act has 
raised concerns among some industry stakeholders about the management 
of broadband networks. In particular, the literature we reviewed, as 
well as OVDs and consumer groups with whom we spoke, reported concerns 
that some companies providing broadband service that are affiliated 
with MVPDs could favor their own content. According to the literature 
and stakeholders, MVPD-affiliated broadband providers might have an 
incentive to limit access to their programming or block or slow 
consumers' access to their competitors' websites, thereby giving 
competitive advantage to their content and restraining the growth of 
rivals. As we previously mentioned, limited access to content is a 
factor that could hinder competition in the video marketplace. In 
December 2010, FCC issued its Open Internet Order, which provides that 
(1) fixed and mobile broadband providers must disclose the network 
management practices, performance characteristics, and terms and 
conditions of their broadband services; (2) fixed broadband providers 
may not block lawful content, applications, services, or non-harmful 
devices; mobile broadband providers may not block lawful websites or 
block applications that compete with their voice or video telephony 
services; and (3) fixed broadband providers may not unreasonably 
discriminate in transmitting lawful network traffic.[Footnote 46] MVPD-
affiliated broadband providers told us that they should be able to 
manage their networks as they built, operate, and maintain the 
networks and that Open Internet rules could make it more difficult for 
them to recoup their investments. Verizon, which provides both 
broadband and video services, appealed FCC's Open Internet Order in 
the U.S. Court of Appeals for the District of Columbia Circuit. 
Several parties, including the National Association of State Utility 
Consumer Advocates intervened in that appeal and argued, among other 
things, that the Commission has authority to adopt the Open Internet 
rules to protect against cable operators and their affiliates 
discriminating against their video programming competitors. Panelists 
at a January 2013 forum on cable and broadband law noted that any 
consideration of potential legislative and regulatory changes 
affecting the video marketplace should wait until the District of 
Columbia Circuit Court rules on FCC's order since the outcome could 
dictate how the online video marketplace evolves.  

FCC Has Not Consistently Published Statutorily Required Reports:  

FCC is required by statute to report annually to Congress on both 
cable industry prices and competition in the video marketplace, but 
has not met this requirement every year. The 1992 Act established 
requirements for the purpose of increasing competition and diversity 
in MVPD distribution[Footnote 47] and required FCC to report annually 
on the average rates that cable companies charge for cable service and 
equipment[Footnote 48] and the status of competition in the video 
marketplace[Footnote 49] to measure progress toward these goals. Since 
the 1992 Act, FCC has published the annual cable industry price report 
13 times, but did not publish the report in 2004, 2006, 2007, and 
2010. In the 2009 report, FCC included data from 2006 and 2007, in 
addition to the 2008 data that it would have normally reported. FCC 
has submitted 14 video competition reports to Congress, but did not 
release the report in four years--2007, 2008, 2010, and 2011. The most 
recent report, published in July 2012, covered 4 years of information.  

FCC officials cited several factors that contributed to the missed 
reports, and legislation introduced in the 112th Congress would have 
reduced the frequency of the reports. FCC officials told us that the 
reports were generally prepared on time, but the delays in the release 
of the reports were due to a variety of administrative factors. In 
2010, FCC initiated a comprehensive review of the way in which it uses 
data, including data used for its video competition report; 
ultimately, FCC altered the analytic framework of the video 
competition report to be consistent with its other competition 
reports.[Footnote 50] According to FCC officials, this review and 
change contributed to the Commission missing the 2010 and 2011 video 
competition reports. In addition, FCC officials told us that the 
reports are time consuming to prepare because of the amount of 
industry data the Commission reviews. While data and comments used for 
the video competition report are submitted by industry participants on 
a voluntary basis, the cable industry price reports impose a burden on 
some industry participants.[Footnote 51] In particular, FCC estimated 
that the public reporting burden for the information collection 
required for the cable industry price report was 6 hours per response, 
including the time for reviewing instructions, searching existing data 
sources, gathering and entering the data needed, and completing and 
reviewing the questionnaire.[Footnote 52] Some stakeholders told us 
that FCC reports are valuable, although the majority of stakeholders 
that we interviewed had no opinion on them. In our review of the video 
competition reports, we saw little change in the reported findings 
from year to year; therefore, less frequent reporting could allow for 
continued measurement of industry performance while reducing the 
burden on FCC and industry participants. In the past, both Congress 
and the executive branch have expressed concern about reporting 
requirements; the basic concern has been that some requirements result 
in reports that may be unnecessarily burdensome to produce or, in some 
instances, not very useful. A bill that the House of Representatives 
passed during the 112th Congress, would have required FCC to 
consolidate eight currently separate congressionally mandated reports, 
including the video competition reports, and issue a single report 
biennially; the legislation would have eliminated the cable industry 
price report.[Footnote 53] FCC officials expressed no opinion between 
an annual or biennial reporting requirement and said that the 
Commission prepares the reports as directed by Congress; the 
Commission has not communicated an opinion on this issue to Congress.  

Conclusions:  

The video marketplace consists of a complex set of interrelated and 
competing industries operating under a variety of related laws and 
regulations. In particular, communications and copyright law dictate 
how content providers, aggregators, and distributors operate in this 
marketplace. Competition has expanded in some segments of the video 
marketplace, most notably, the emergence of telephone companies 
providing video distribution services. In addition, technology in this 
arena is changing and has facilitated the formation of entirely new 
businesses and products, such as online video distribution, which have 
the potential to alter existing business models. It is too soon to 
tell what the outcomes of these technological and market changes will 
be, or whether anticompetitive behavior would necessitate any federal 
action. A lack of consensus, influenced by vested economic interests 
among industry officials, consumer groups, and experts reinforces that 
while federal laws and regulations may in some ways be outdated, it is 
not yet clear how they should be updated to reflect 21st century 
technologies and market conditions. FCC's cable industry price and 
video competition reports provide useful information. However, these 
reports may not be needed on an annual basis, especially given demand 
on FCC staff's time for other monitoring and regulatory duties. FCC's 
2009 cable industry price and 2011 video competition reports covered 
several years of data and could serve as models for issuing such 
reports on a less frequent basis. Since these annual reports are 
statutorily required, Congress, with input from FCC, would determine 
any new reporting frequency.  

Recommendation for Executive Action:  

To ensure that the Commission's cable industry price and video 
competition reports provide timely and useful information, while 
minimizing the reporting burden and meeting statutory deadlines, we 
recommend that the Chairman of the Federal Communications Commission 
study the advantages and disadvantages of different reporting 
frequencies, including annual and biennial reporting, and transmit the 
results of its analysis to Congress.  

Agency Comments:  

We provided a draft of this report to the Federal Communications 
Commission and the Department of Justice for review and comment. FCC 
provided written comments, which are reprinted in Appendix II of this 
report. In its letter, FCC said that the Commission strives to use its 
resources efficiently to meet the agency's mission and its 
Congressional requirements, and the Commission is reviewing our 
recommendation. DOJ provided technical comments that we incorporated 
as appropriate.  

We are sending copies of this report to the Attorney General and 
appropriate congressional committees. In addition, the report will be 
available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov].  

If you or your staff have any questions concerning this report, please 
contact me on (202) 512-2834 or goldsteinm@gao.gov. Contact points for 
our offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made key contributions 
to this report are listed in appendix III.  

Sincerely yours,  

Signed by:  

Mark L. Goldstein: 
Director, Physical Infrastructure Issues:  

[End of section]  

Appendix I: Objectives, Scope, and Methodology:  

The objectives of this report were to examine (1) how competition has 
changed since 2005; (2) the increased choices that consumers have in 
acquiring video programming and content; (3) the factors that can spur 
or hinder competition; and (4) stakeholders' views on how the federal 
government's regulations, reports, and other activities have kept pace 
with changes in the industry.  

To assess how competition has changed since 2005, we first conducted a 
literature search and reviewed media articles, academic studies, 
industry reports, and prior GAO reports on the structure, economics, 
and technological factors affecting the development and distribution 
of video content. We also reviewed relevant reports prepared by the 
Federal Communications Commission (FCC), the Department of Justice 
(DOJ), and the Federal Trade Commission (FTC). We verified information 
from the literature review through interviews with FCC and DOJ 
officials, industry participants, trade associations, consumer groups, 
industry analysts, and other experts. We selected industry 
participants to include producers, aggregators, and distributors of 
content, such as broadcast and cable networks, multichannel video 
programming distributors (MVPD)--cable, satellite, and telephone 
companies--and online video distributors (OVDs).  

To assess what increased choices consumers have in acquiring video 
programming and content, we conducted an analysis of MVPD services in 
20 randomly sampled zip codes across the United States. To ensure a 
representative sample, we used the Rural/Urban Commuting Area zip code 
file that includes all U.S. zip codes. We then sorted the zip code 
file into four census regions--Northeast, South, Midwest, and West--
and within these regions, made five urban and rural classifications--
urban, suburban, large town, small town, or isolated rural. This 
process resulted in 20 different segments--5 classifications for each 
of the 4 census regions. We then randomly sorted each of the 20 
segments, a process that resulted in the identification of 20 zip 
codes. We identified the community names associated with the 20 zip 
codes using the United States Postal Service online zip code locator; 
we used FCC's cable franchise information to identify the MVPDs that 
served the communities. We contacted these MVPDs and asked them for 
publicly available information on their services and prices. The 
information requested and collected included channel lineups by 
package name, monthly rate for each package, broadband packages 
(whether provided stand-alone or combined with video services), 
available broadband speeds, available online video offerings, 
available out-of-household viewing options, and available DVR options. 
We had a 100 percent response rate to the survey as all 20 communities 
provided information. We then analyzed the data to compare packages 
offered, prices, level of competition, among other factors. Our 
results reflect the competition, packages, and pricing in the 20 zip 
codes and are not generalizable to all zip codes. To identify the 
prices for traditional MVPD services, we gathered data from FCC's 
reports on cable industry prices for the years 2005 through 2012, 
which represent the most recent available data. These cable rates were 
for basic and expanded basic tiers. We reviewed FCC documentation and 
information provided by FCC staff to assess the reliability of the 
cable price data and determined that FCC's data were sufficiently 
reliable for the purposes of our report. We conducted interviews with 
content producers, MVPDs, consumer groups, and experts to collect 
information on reasons for the rise in cable rates.  

To assess the factors that can spur or hinder competition in the video 
marketplace, we conducted a literature search and reviewed relevant 
articles and prior GAO reports, as discussed previously. Through a 
review of DOJ's website, we examined DOJ's activities in the video 
marketplace, including any investigations of potential relevant 
antitrust violations and the agency's review of the Comcast/NBCU 
proposed merger; we verified our research with DOJ. We also conducted 
interviews with industry participants, trade associations, consumer 
groups, industry analysts, and other experts for their views on 
factors that have increased or hindered competition. Our ability to 
understand some specific aspects of the industry was limited because 
certain information and data are generally not made publicly 
available. In particular, details of the contracts between content 
providers and MVPDs--such as retransmission fees, per subscriber fees 
for cable networks, and other requirements (such as tier placement) 
surrounding the carriage of broadcast and cable channels--are 
generally covered under nondisclosure agreements. Similarly, 
information on the negotiations for the purchase of programming by 
OVDs is generally not publicly available. Other areas with limited 
publicly available data and information include the extent to which 
retransmission fees are retained by local broadcast stations or flow 
to broadcast networks and copyright holders, the extent to which the 
access of content through OVD providers congests broadband providers' 
networks, and the cost of producing high-valued content, such as 
sports and popular TV dramas. As such, for some issues discussed in 
this report, our information is largely based on the statements and 
opinions of industry participants that we cannot independently 
corroborate.  

To assess stakeholders' views on how the federal government's 
regulations, reports, and other activities have kept pace with changes 
in the industry, we analyzed the FCC Media Bureau's activities since 
2005 to determine competitive issues that the Commission has or is 
addressing. To do this, we reviewed the Media Bureau's website, which 
lists its activities. We also analyzed DOJ's investigative activities 
in the video marketplace through its website. We verified information 
collected from our reviews with FCC and DOJ. As part of this review, 
we reviewed the relevant laws, regulations, and FCC proceedings 
including Notices of Inquiry, Notices of Proposed Rulemakings, and 
Reports and Orders. We also conducted interviews with industry 
participants, trade associations, consumer groups, industry analysts, 
and other experts for their views on how federal regulations, reports, 
and activities are keeping pace with the industry. We prepared a 
summary analysis of all interviews that we conducted to determine the 
four major issues that interviewees said that Congress or the federal 
government should address. To determine FCC's consistency in 
publishing its cable industry price and video competition reports, we 
analyzed all reports since they were first published. In this 
analysis, we looked at when the reports were completed and submitted 
for Commission approval and when the Commission approved and published 
the reports. We also interviewed FCC on why the reports were not 
published annually.  

We conducted this performance audit from July 2012 to June 2013 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives.  

[End of section]  

Appendix II: Comments from Federal Communications Commission:  

Federal Communications Commission: 
Washington, D.C. 20554:  

June 11, 2013:  

Mark Goldstein: 
Director, Physical Infrastructure Issues: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548:  

Dear Mr. Goldstein:  

Thank you for the opportunity to review the Government Accountability 
Office (GAO) Draft Report Competition Is Evolving, and Government 
Reporting Should be Reevaluated (Draft Report).  

As observed in the Draft Report, the FCC is required to report 
annually on cable industry prices and competition in the video 
marketplace. The Draft Report recognizes the utility of these reports. 
The Draft Report notes, however, the burden on staff resources and 
some industry participants in collecting the data and preparing the 
reports. The Draft Report recommends that the FCC study the advantages 
and disadvantages of producing the cable industry price and video 
competition reports at differing frequencies, including the current 
statutory mandate of reporting once a year. The Draft Report further 
recommends that the FCC transmit the results of its analysis to 
Congress.  

We are reviewing GAO's recommendation. The FCC strives to use its 
resources efficiently in order to meet the agency's mission and its 
Congressional requirements. The Draft Report's recommendation comes at 
an important time, as we continue to consider all avenues to meet our 
budget goals.  

Thank you for the opportunity to review the Draft Report. We look 
forward to working with you in the future.  

Sincerely,  

Signed by:  

William T. Lake: 
Chief, Media Bureau:  

[End of section]  

Appendix III: GAO Contact and Staff Acknowledgments:  

GAO Contact:  

Mark Goldstein, (202) 512-2834 or goldsteinm@gao.gov.  

Staff Acknowledgments:  

Other key contributors to this report were Mike Clements (Assistant 
Director), Amy Abramowitz, Matt Cail, Dave Hooper, Delwen Jones, 
Maureen Luna-Long, Josh Ormond, and Andrew Stavisky.  

[End of section]  

Footnotes:  

[1] FCC described an OVD as any entity that offers video content by 
means of the Internet or another Internet Protocol-based transmission 
path provided by a person or entity other than the OVD. See, Annual 
Assessment of the Status of Competition in the Market for the Delivery 
of Video Programming, MB Docket No. 07-269, Fourteenth Report, 27 FCC 
Rcd. 8610, 8612 (2012).  

[2] Affiliated stations are stations not owned by a major broadcast 
network, but carry broadcast network programming and network-inserted 
advertisements during specific time periods.  

[3] The Department of Justice and Federal Trade Commission also review 
certain proposed mergers and investigate other potential antitrust 
violations. 15 U.S.C. §§ 1, 2, 18, 45 and 1311-14.  

[4] Pub. L. No. 416, ch. 652, 48 Stat. 1064 (1934).  

[5] Pub. L. No. 98-549, 98 Stat. 2780 (1984).  

[6] Most wire-based MVPDs, such as cable companies, obtain a franchise 
to operate under agreed-upon terms and conditions from a local 
franchising authority, such as a township, county, or state. During 
cable's early years, franchising authorities regulated many aspects of 
cable television service, including subscriber rates.  

[7] Cable companies offer basic cable and expanded basic services. 
Basic cable service generally includes local broadcast stations, 
education channels, and some cable networks. Expanded basic service 
includes all channels in basic cable service plus other cable networks 
like ESPN and Disney.  

[8] Pub. L. No. 102-385, § 2, 106 Stat. 1460 (1992).  

[9] Pub. L. No. 104-104, 110 Stat. 86 (1996).  

[10] GAO, Media Programming: Factors Influencing the Availability of 
Independent Programming in Television and Programming Decisions in 
Radio, [hyperlink, http://www.gao.gov/products/GAO-10-369] 
(Washington, D.C.: Mar. 17, 2010).  

[11] The Executive Chairman of the Board for Viacom and CBS remains 
the same individual.  

[12] Comcast acquired control of NBCUniversal in a $13 billion 
transaction. In January 2011, Comcast and NBCUniversal's parent 
General Electric (GE) entered into a joint venture in which Comcast 
held a 51 percent share of the company. FCC and DOJ approved the 
merger on January 18, 2011, subject to a range of conditions intended 
to protect competition. In March 2013, Comcast completed its 
acquisition of the remaining 49 percent stake in NBCUniversal held by 
GE. This transaction represented a form of vertical integration, where 
the principally downstream distributor (Comcast) acquired control of a 
company with significant upstream content development and aggregation 
holdings (NBCUniversal).  

[13] AT&T and Verizon provide many of the same cable channels that 
cable and satellite MVPDs provide.  

[14] Google reports that its television service includes 20 local 
stations and 152 cable channels.  

[15] GAO, Telecommunications: FCC Has Reformed the High-Cost Program, 
but Oversight and Management Could be Improved, [hyperlink, 
http://www.gao.gov/products/GAO-12-738] (Washington, D.C.: July 25, 
2012) and Telecommunications: FCC Needs to Improve Performance 
Management and Strengthen Oversight of the High-Cost Program, 
[hyperlink, http://www.gao.gov/products/GAO-08-633] (Washington, D.C.: 
June 13 2008).  

[16] Two of these MVPD choices are satellite providers (DirecTV and 
Dish Network), which offer national video services to consumers and 
local television stations in many markets. For purposes of its 
analysis, FCC assumed that satellite was available to all households. 
27 FCC Rcd. 8610, 8626 (2012).  

[17] We discuss the MVPDs' bundled services more fully in the next 
section.  

[18] DIRECTV, Form 10-K (Annual Report), filed Feb. 21, 2013.  

[19] Megabits per second refers to how fast information can either be 
uploaded to or downloaded from the Internet. Higher speeds enable 
consumers to receive information much faster and thus enable certain 
applications to be used and content to be accessed that might not be 
possible with a slower connection, such as viewing video content.  

[20] Eighth Broadband Progress Report, GN Docket No. 11-121, Eighth 
Report, 27 FCC 12-90 (2012). The data in this report are from 2011, 
and the percent of households with broadband service may have 
increased since that time.  

[21] Online sites with content available for free, as well as those 
sites that require payment, may also have advertising present.  

[22] Nielsen collects and reports on media information, including 
television program ratings.  

[23] These and other tier prices are the rates charged to new 
customers. Higher rates may apply after a set period of time.  

[24] To acquire a premium or pay-per-view service, the consumer must 
still purchase a lower-level tier.  

[25] 27 FCC Rcd. 8610 (2012).  

[26] Authentication of existing subscription to cable and premium 
networks is required to access this content online.  

[27] These prices are for a basic Internet connection; some MVPDs 
provide higher-speed options for a higher price. These prices also do 
not include satellite companies, which do not provide a stand-alone 
Internet service.  

[28] The price of Netflix's online subscription service is $7.99.  

[29] This reflects the average rate for expanded basic service, the 
most popular tier among consumers, from a sample of cable and 
telephone companies. This does not include MVPD operators of wireless 
systems, satellite companies, or AT&T U-verse.  

[30] GAO, Spectrum Management: Incentives, Opportunities, and Testing 
Needed to Enhance Spectrum Sharing, [hyperlink, 
http://www.gao.gov/products/GAO-13-7] (Washington, D.C.: Nov. 14, 
2012).  

[31] See Department of Justice, Federal Trade Commission to Hold 
Workshop on Most-Favored Nation Clauses (Aug. 17, 2012), accessed June 
5, 2013, at [hyperlink, 
http://www.justice.gov/atr/public/press_releases/2012/286144.htm]. 
Although no panel focused specifically on the use of MFNs in the video 
marketplace, the panelists' discussion of MFNs in general may be 
illuminating with respect to the video industry as well.  

[32] In addition to wire-based providers, the entry of a satellite 
company appears unlikely. Deploying a network of satellites and ground 
stations is costly, and there are a limited number of available slots 
in orbit to locate a satellite. See, GAO, Telecommunications: 
Competition, Capacity, and Costs in the Fixed Satellite Services 
Industry, [hyperlink, http://www.gao.gov/products/GAO-11-777] 
(Washington, D.C.: Sept. 7, 2011).  

[33] Like traditional cable companies, Verizon chose to secure 
franchises from the relevant jurisdictions where it introduced FiOS 
service. In contrast, AT&T asserted that its U-verse service is not 
subject to local franchise regulation as a traditional cable 
television service, but is generally authorized by statewide 
franchises.  

[34] According to FCC, historically states vested franchise authority 
primarily in either county or municipal governments; however, 
approximately 20 states now have statewide video franchising.  

[35] A consumer will purchase a large package of channels, even if the 
consumer only watches a few channels, if the consumer's willingness to 
pay for those channels is at least equal to the price of the entire 
package.  

[36] In February 2013, Cablevision, the ninth largest MVPD based on 
subscribers, filed an antitrust suit against Viacom. In a statement, 
Cablevision said that Viacom effectively forces Cablevision's 
customers to pay for and receive little-watched channels in order to 
get the channels they actually want. See, Cablevision Systems 
Corporation, et al. v. Viacom International Inc, et al., U.S. District 
Court, Southern District of New York, 13-1278.  

[37] The primary companies providing broadband service are cable and 
telephone companies. Cable companies provide broadband service using 
their fiber-coaxial network. Telephone companies provide broadband 
service using either fiber optic cable or digital subscriber line 
(DSL) technology, although DSL is generally slower than fiber-coaxial 
or fiber optic technology. Satellite companies can also provide 
broadband service, but like DSL, it is generally slower than fiber-
coaxial and fiber optic technologies.  

[38] Noncommercial television broadcast stations, mostly public 
television stations, have must carry rights but do not have the option 
of electing retransmission consent.  

[39] Satellite companies may choose to carry local broadcast stations. 
In television markets where they do so, all local broadcast stations 
are entitled carriage ("carry one, carry all") and commercial stations 
may elect whether they want to be carried under similar must carry and 
retransmission consent provisions as are applied to cable systems.  

[40] GAO, Statutory Copyright Licensing: Implications of a Phaseout on 
Access to Television Programming and Consumer Prices Are Unclear, 
[hyperlink, http://www.gao.gov/products/GAO-12-75] (Washington, D.C.: 
Nov. 23, 2011).  

[41] Aereo has developed a business model that may challenge the 
functioning of retransmission in the marketplace. The company has 
begun providing local broadcast stations to subscribers of its service 
by capturing broadcast signals at its facilities with an antenna 
dedicated to each of its subscribers and then transmitting that signal 
via an Internet Protocol (IP) network to its subscribers' residences. 
This has allowed Aereo to develop a unique video product that bypasses 
the retransmission consent fees that are paid by cable and DBS 
companies for providing broadcast signals to their subscribers. 
However, broadcast networks view Aereo's activities as violating 
copyright law, and the issue is currently in litigation. In April 
2013, the U.S. Court of Appeals for the Second Circuit upheld a lower 
court's denial of WNET's motion for a preliminary injunction, finding 
that Aereo was unlikely to be liable for copyright infringement. WNET 
v. Aereo, Inc., 712 F.3d 676 (2nd Cir. 2013). On April 15, 2013, the 
plaintiffs filed a petition for reconsideration en banc, that is, by 
the full membership of the court.  

[42] In the Matter of Revision of the Commission's Program Access 
Rules. 27 FCC Rcd 12605 (2012).  

[43] See Sky Angel U.S., LLC v. Discovery Communications LLC, et al., 
Program Access Complaint, MB Docket No. 12-80, File No. CSR-8605-P 
(Mar. 24, 2010) ("Sky Angel Complaint"); Sky Angel U.S., LLC v. 
Discovery Communications LLC, et al., Emergency Petition for Temporary 
Standstill, MB Docket No. 12-80, File No. CSR-8605-P (Mar. 24, 2010) 
("Sky Angel Petition"); see also Sky Angel U.S., LLC v. Discovery 
Communications LLC, et al., Renewed Petition for Temporary Standstill, 
MB Docket No. 12-80, File No. CSR-8605-P (May 27, 2011).  

[44] See 47 U.S.C. § 522 (13).  

[45] Media Bureau Seeks Comment on Interpretation of the Terms 
"Multichannel Video Programming Distributor" and "Channel" as Raised 
in Pending Program Access Complaint Proceeding, 27 FCC Rcd. 3079 
(2012).  

[46] Federal Communications Commission, In the Matter of Preserving 
the Open Internet, Broadband Industry Practices, Report and Order, 25 
FCC Rcd. 17905 (2010).  

[47] 47 U.S.C. § 521(5) and (6).  

[48] 47 U.S.C. § 543(k).  

[49] 47 U.S.C. § 548(g).  

[50] In particular, FCC adopted a framework consistent with its recent 
wireless and satellite competition reports.  

[51] According to FCC officials, the video competition report does not 
impose a burden on industry participants because the Commission 
solicits information through a Notice of Inquiry, and industry 
participants voluntarily submit comments. However, industry 
participants that choose to prepare and submit comments do incur 
costs, reflecting staff time, attorney fees, or both.  

[52] See Office of Management and Budget, Office of Information and 
Regulatory Affairs, ICR Reference No: 201005-3060-016, Annual Cable 
Price Survey and Supplemental Questions, FCC Form 333, Conclusion 
Date: 08/04/2010.  

[53] Federal Communications Commission Consolidated Reporting Act of 
2012, H.R. 3310, 112th Cong. (2012).  

[End of section]  

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