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FCC Video Report Finds Market Growth, Increasing Alternatives

The FCC released its ninth annual report on competition in the market for the delivery of video programming, focusing on the competitive environment and barriers to competition in cable systems, direct-to-home satellite service (DBS and others), wireless cable systems, private cable operators, broadcast TV, local exchange carrier (LEC) entry, broadband service providers and Internet video, among others.

The June report finds that competitive alternatives and consumer choices continue to develop and that cable TV continues to hold slipping reins over delivering video programming to consumers, as compared to the previous year. Over 76 percent of all subscribers to multichannel video program distributor (MVPD) services received their programming from a franchised cable operator, compared to 78 percent. Other findings are summarized below:

* Cable say a marginal 0.4 percent increase in subscribers to 68.8 million (76.5 percent of the pay TV market). Since the June report, a number of cable MSO's have experienced significant subscriber losses and 2002 might be the first year in which the industry as a whole faces a net loss of subscribers.
* Both cable and non-cable MVPD's increased to 89.9 million households, up 1.8 percent or 88.3 million. The subscriber growth and a 1.2 percent decrease in MVPD's penetration of TV households to 85.3 percent indicates, according to the FCC, that TV households are increasing at a faster rate than MVPD subscriber growth.
* Direct broadcast satellite (DBS) service represents 20.3 percent of all MVPD subscribers, a number that grew from nearly 16 million households to 18 million households, higher than the cable subscriber growth rate. (The FCC says the growth is partly attributable to DBS operators' ability to distribute local broadcast TV stations in their local markets by SHIVA.) Satellite-delivered programming networks have increased to 308 from 287.
* According to the Bureau of Labor Statistics, cable prices rose 6.3 percent compared to a 1.1 percent increase in the Consumer Price Index, which measures general price change. Concurrently, the number of video and non-video services offered and programming costs increased.
* The outcome of the convergence of cable and telephone services remains unclear after the Telecommunications Act of 1996 removed barriers for telcos and LEC's entry into the video marketplace to step up competition.
* The four largest incumbent LEC's have mostly exited the video business, although a few smaller LEC's continue to offer, or are preparing to offer, MVPD service over existing telephone lines.
* Several MSO's continue to offer telephone service, but cable operators are beginning to use IP telephony as well.
* Companies like Cablevision and Comcast still offer cable telephony, but are waiting for IP technology to become widely available before accelerating their rollout.
* Cable operators continue to build out their broadband infrastructure to provide Internet, voice and video. A cable modem and personal computer is the most popular way to access the Internet over cable. The DBS industry is developing ways to bring advanced services to their customers.
* Broadcast stations and networks, and non-broadcast networks alike, must produce programming or purchase programming from third-party producers. Broadcast networks and stations also supply content for distribution by MVPD's.
* 54 million Americans subscribe to an Internet access service for video compared to 50 million last year. Despite the increase, the FCC says the medium is still not seen as a direct competitor to traditional video service.