GAO to FCC: Report Less, Say More

Watchdog Agency Pushes for Re-evaluation of Video Competition Report
Author:
Updated:
Original:

WASHINGTON — The Federal Communications Commission should re-evaluate the processes used for its annual video-competition report, as a less-frequent report might provide more pertinent data, according to a new study by the Government Accountability Office.

Congress’s financial watchdog issued its recommendations just weeks before the FCC is set to release its 2013 Video Competition Report at its July 19 meeting.

The GAO “Video Marketplace” study’s subtitle states the office’s conclusion: “Competition Is Evolving, and Government Reporting Should Be Re-Evaluated.” The GAO suggested that to ensure the FCC’s “cable-industry price and video competition reports provide timely and useful information,” the FCC chairman should propose different reporting schedules. A revision, such as moving to biennial reports, would minimize the reporting burdens and meet statutory deadlines, the GAO said.

Since 1992, the GAO noted, the FCC has failed to publish cable-industry price reports four times and has not published video-competition reports four times — all within the past 10 years, including for 2010 and 2011. It acknowledged the FCC’s explanation that “a variety of administrative factors contributed to the missed reports,” which are “time-consuming to prepare” and “impose burdens on some industry participants.”

RATES ROSE 33%

The GAO study found that cable rates, including basic and premium service, climbed by more than 33% from 2005 to 2011. That increase far exceeded the Consumer Price Index rise of 15% during the same period.

The GAO’s study pegged current average cable prices at $19.33 monthly for basic service and $57.46 for “expanded basic.” It acknowledged the growing fees being charged by program networks, singling out sports leagues, such as the National Football League and Major League Baseball. ESPN’s $5.6 billion contract with MLB for 2014 through 2021, at double the value of the previous agreement, is cited as a reason for the higher prices, with the GAO noting that operators ultimately “pass along these higher prices” to consumers.

The study acknowledged the growing capital expenditures of cable companies as they “roll out broadband Internet service to new communities and locations.” Yet the GAO, using National Cable & Telecommunications Association data, observed that cable operators saw a national market-share drop from 98% in 1992 to 57% last year.

The GAO’s study, signed by Mark L. Goldstein, the agency’s director of Physical Infrastructure Issues, spends considerable time on the growth of online video distributors which, it noted, “are developing a variety of business models, including free and subscription- based services.” It acknowledged that online viewing and revenue “represent a small portion of overall media viewing hours and revenue,” but emphasized that about one in three U.S. homes can choose from among four or more subscription video providers: a cable company, a telco and two satellite providers.

Despite this growing competition, the GAO said technology is “likely to continue to spur new services and products” but that “a variety of factors may hinder future competition in the video marketplace.” It cited looming competition from wireless and online video providers, but also noted that such competition “could be hindered” if content providers license programming “only on similar contractual prices and terms that they offer to traditional MVPDs.”

“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,” the GAO concluded. “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.”

COMPETITIVE CONCERNS

 The GAO also looked at the “concentration of content production among a handful of large media and entertainment companies.” It found “little change in the pattern of ownership” since 2005.

To support its recommendation for a change in the FCC’s reporting timetable, the GAO cited industry comments that “laws and regulations have not kept pace with changes” and that the FCC “has not consistently reported on competition.” But the GAO added that “little agreement exists on potential changes.”

Although many believe that “some provisions of the [Cable Television Consumer Protection and Competition Act of 1992] should be revisited,” the GAO noted, proposals from the cable industry focus on overhauling three factors: retransmission consent, program access, and the definition of MVPD and OVD.

The GAO’s study also pointed out the “varying opinions on the FCC’s Open Internet regulation.”

To justify its proposal for less frequent reporting on pricing and competition, the GAO said it “found little change in the reported findings from year-to-year in FCC’s video competition report.” However, Congress would have to approve any timing revision for the statutorily required reports.

Before publishing its report, GAO submitted a review draft to the FCC. William Lake, chief of the FCC’s Media Bureau, responded to the report by focusing on the recommendation for less-frequent video competition reports, saying that it “comes at an important time as we continue to consider all avenues to meet our budget goals.”

TAKEAWAY

The GAO is urging the FCC to revise its video-competition evaluation process, citing the impact of “online video distributors (OVD)” with new business models.

Related