Thursday, November 18, 2004

FCC Report Urges Congress to Let Market Forces Shape Video Industry

Congress should not seek to implement an a la carte programming requirement for Multichannel video programming distributors (MVPD) -- providers of pay TV services -- according to a new report from the Media Bureau of the FCC. The report found that although an a la carte option would allow consumers to pay for only the programming they choose, given current viewing practices, few consumers would experience lower bills for multi-channel programming.

The report found that an a la carte regime would not produce the desired result of lower MVPD rates for most pay-television households. Under an a la carte mandate, networks formerly sold in tiers would need to significantly increase their marketing expenses to induce consumers to affirmatively select the network. This would have a significant negative effect on the programmer's advertising and revenue model. The FCC concludes that the loss of cost savings, combined with the likely loss in advertising revenue and the likely rise in license fees, may cause many program networks to fail, thus adversely impacting diversity in programming. The FCC calculates that consumers selecting 9 or fewer network choices would see their monthly bills decrease, while those choosing more than 9 networks would see the monthly bill rise.

Currently, the FCC estimates that the average household watches about 17 different channels, including local broadcast stations.

An alternative to an a la carte mandate would be to encourage voluntary "mixed bundling" whereby network operators offer a wide choice in channel packages. The FCC report further argues that Congress should let market forces and technological innovation play out. It notes that two significant players are poised to enter the pay TV market soon: incumbent telcos with TV over DSL offerings; and USDTV and others, who plan to use over-the-air spectrum to offer low cost digital TV services. On the technology front, the FCC argues that VOD services and digital video recorders (DVRs) are gaining market momentum, giving consumers far greater control over what they watch and when.

Cable's share has fallen to about 75% of Multichannel video programming distributors (MVPD), compared with nearly 100% ten years ago.

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