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Latest FCC Report on U.S. Video Competition

Converge Network Digest reports that competition among multichannel video programming distributors (MVPDs), including cable operators, direct broadcast satellite (DBS) providers, local exchange carriers (LECs) and others, continues to provide U.S. consumers with increased choice, better picture quality, and greater technological innovation, according to the latest FCC report on video competition.

TV viewership is at its highest level since television viewing was first measured by Nielsen Media Research in the 1950s. The average American watches 4 hours, 32 minutes each day, a record high. Highlights of the report:

* The number of TV households and the number of MVPD subscribers increased in the past year. As of June 2005, there were 109.6 million TV households, compared to 108.4 million in June 2004. Of that number, approximately 94.2 million TV households subscribe to an MVPD service, as compared to 92.2 million as of June 2004.

* Cable serves the largest percentage of MVPD subscribers, but cable�s share of the MVPD market continued to decline. As of June 2005, the FCC�s traditional measure indicates that 69.4 percent of MVPD subscribers received video programming from a franchised cable operator, as compared to 71.6 percent as of June 2004.

* DBS subscribers comprise the second largest group of MVPD households, representing 27.7 percent of total MVPD subscribers as of June 2005, as compared to 25.1 percent in June 2004, an increase of over 10 percent. DBS operators continue to add local-into-local broadcast television service. In 167 of 210 television markets (i.e., designated market areas, or DMAs), covering 97 percent of all U.S. TV households, at least one DBS provider offers the signals of local broadcast stations (local-into-local service).

* The number of MVPD subscribers choosing all other delivery technologies decreased, representing 2.9 percent of all subscribers in June 2005, as compared to 3.3 percent in June 2004.

* There are 15.36 million U.S. TV households that do not subscribe to an MVPD service and thus rely solely on over-the-air broadcast television for their video programming, representing 14 percent of all U.S. TV households. The major broadcast networks now provide their most popular programming in high-definition. Hundreds of local stations are using their digital channels to provide multicast programming, including news, weather, sports, religious material, music videos and coverage of local musicians and concerts, as well as foreign language programming.

* BSPs served approximately 1.4 million subscribers, as of June 2005, representing 1.5 percent of all MVPD households.

* ILECs have accelerated their plans to roll out video services. Verizon has received franchises from numerous local communities and began offering multichannel video service, under the brand name FiOS, in several of them. SBC (now AT&T) is planning to deploy an IP-enabled broadband network called Project Lightspeed, and Qwest and a number of smaller incumbent LECs are offering, or preparing to offer, MVPD service over existing telephone lines using VDSL or ADSL technologies.

* PCO subscribership has declined to one million subscribers this year, a decrease of 9.1 percent from last year�s 1.1 million. More than one-hundred electric and gas utilities provide video service, 128 offered high-speed Internet access, 52 offered local telephone service, and 42 offered long distance telephone service. Of the 102 offering video services, 10 are offering video-on-demand (VOD). Wireless cable systems provide video competition to incumbent cable operators only on a limited basis. The number of wireless cable subscribers has declined steadily from a peak of 1.2 million in 1996 to approximately 100,000 as of March 2005, down from an estimated 200,000 subscribers in April 2004.

* Several major cellular telephone companies are offering video services through handheld devices such as mobile telephones. Verizon Wireless rolled out V-Cast, a service that offers video programming to cellular telephone users, in February 2005.

* The amount of web-based video provided over the Internet continues to increase significantly each year. The sale and rental of home videos, including videocassettes and DVDs, offer consumers an alternative to the premium and pay-per-view offerings of MVPDs. Video-on-demand (VOD) services provided by cable, DBS, and Internet providers have emerged, in turn, as competitive alternatives to home video.

* In 2005, the FCC identified 531 satellite-delivered national programming networks, including foreign-produced or foreign-language program channels. Of the 531 networks, 116 networks (21.8 percent) were vertically integrated with at least one cable operator. We also identified, 274, or 51.6 percent, that are not affiliated with any cable operator or other media entity. In addition, we identified 107 national, satellite-delivered non-broadcast networks that are owned by a DBS operator or one or more national broadcast networks (i.e., Fox, ABC, CBS, NBC Universal, and Univision) and that are not also owned by a cable operator.

* In 2005, the FCC identified 96 regional networks, the same number as last year. These networks provide programming of local or regional interest and are distributed to subscribers of one or more MVPDs in an area. Of the 96 regional networks we identified, 44 networks, or 45.8 percent, were vertically integrated with at least one MSO. There are 37 regional sports networks, representing 38.5 percent of all regional networks, devoted to sports programming, as compared to the 38 we reported last year. Of the 37 regional sports networks, 17, or 5.9 percent were vertically integrated with a cable multiple system operator (MSO).

* In 2005, the sale of DTV consumer electronics continued to accelerate. Industry estimates indicate that 8.2 million HD-ready monitors will be shipped to retailers. CEA reports that during the first six months of 2005, DTV products sold at a faster rate than during any previous comparable period of time, with 3.8 million DTV products sold, a 40 percent increase in unit sales from the same time period in 2004. In 2005, the average retail price of a DTV set is expected to drop to $1,189 from $1,489 in 2004, down from the average price of $3,147 in 1998. CEA states that currently several DTV models are available for under $700, and it expects that soon there will be DTV sets that sell for as low as $400.

* The development and deployment of CableCARDs continued in 2005. CableCARDs permit the reception of secured digital cable services without the addition of a set-top box. As of November 30, 2005, there were 375 certified or verified models of CableCARD products collectively offered by 22 manufacturers, up from 60 models offered by 11 manufacturers the previous year. One-way CableCARDs have been deployed to more than 90,000 subscribers by the ten largest MSOs. The video industry continues to evaluate the use of advanced compression technologies, such as MPEG-4/H.264 and Microsoft�s VC-1, to replace the MPEG-2 standard in order to decrease the amount of bandwidth required to transmit digital video. These advances are expected to allow existing video delivery services to provide more programming and to decrease barriers to entry for new entrants to the MVPD market.

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