OVDs Still Complement Pay TV, MVPDs and Web Companies Tell FCC

Filings from the American Cable Association, AT&T, CenturyLink, Cox Communications, DirecTV, National Telecommunications Cooperative Association, Organization for the Promotion and Advancement of Small Telecommunications Companies and Verizon in docket 12-203 (http://xrl.us/bnpcgw) recounted various challenges they said warrant rulemakings about keeping retransmission consent and/or program access rules. The NCTA and Comcast sought deregulation, while others talked about the municipal franchising process that CenturyLink said can make MVPD market entry difficult. Netflix asked the commission to “remain vigilant” about potential “threats” to OVD competition which include usage-based billing for broadband service, which ISPs have said helps network efficiency.

Cox, with 4.7 million video subscribers, was the top cable operator to raise concerns about programmer cable programming practices, which ACA, NTCA and OPASTCO also addressed. “While the Commission is not broadly authorized to regulate the rates programmers charge (and Cox does not advocate such regulation), the Commission has concluded that it has the authority to use Section 628 to police the MVPD market and prohibit conduct it deems anticompetitive,” the operator said (http://xrl.us/bnpche). It asked for a rulemaking “to investigate anticompetitive volume discounts and for using Section 628 as its legal authority for considering the pro-competitive proposals.” No backer of volume discounting “provided any justification for price differentials that are so extreme” as 30 percent greater per-subscriber rates paid by small and mid-size MVPDs vs. top ones, Cox said. “These apparently unjustified and potentially discriminatory volume discounts are a problem in deals involving both vertically integrated and non-vertically integrated programmers."

DirecTV thinks “broadcasters and cable networks continue to capitalize on their market power, making it difficult” for it and other MVPDs to get content “at reasonable and nondiscriminatory rates,” said the company, which has had terrestrial and cable channel blackouts (http://xrl.us/bnpchz). “Since the last video competition proceeding, DIRECTV has been forced into a standoff with programmers over increased costs at least five times, and that trend seems likely to continue.” DirecTV said it still wants the FCC to overturn municipal satellite-dish placement rules that it and other DBS entities oppose. As for OVDs, they've “quickly gained prominence as both complements and competitors to traditional MVPD services,” DirecTV said. “Because all such online programming must be delivered over broadband wireless or wireline facilities, cable and telco operators that provide those facilities have even greater control over competitive alternatives available in the market."

For NCTA, the last FCC report’s data “remove any doubt that competition in the delivery of video programming is vibrant and here to stay,” the association said (http://xrl.us/bnpcjc). That report noted that DirecTV was the No. 2 U.S. MVPD, Dish Network was 3, Verizon ranked 7 and AT&T No. 9, the group said. “Despite Comcast’s acquisition of NBCUniversal and its cable networks, vertical integration continues to diminish because of the divestiture by Time Warner of Time Warner Cable and the recently announced decision by NBCUniversal to sell its ownership stake in A+E Networks.” Fourteen percent of cable channels would be owned by MVPDs after those deals, NCTA said. It said cable as of June had 56 percent of U.S. MVPD customers, DBS 34 percent, telcos 9 percent and overbuilders the rest, citing SNL Kagan figures.

Service from Netflix and other OVDs shouldn’t be taken to “overstate” those newer companies’ “presence,” the firm said (http://xrl.us/bnpcjt). “With no live news or sports programming, Netflix does not offer a complete substitute for MVPDs.” OVDs won’t “necessarily discipline price increases for the complete bundle of MVPD video programming,” Netflix said.

Netflix said ISPs selling pay TV have “market power” over OVDs because they can favor their own broadband traffic, including by not counting it in bandwidth caps, as the firm’s criticized AT&T, Comcast and Time Warner Cable for doing. “ISPs can either refuse, or charge Netflix for, sufficient entry ports to their networks to deliver the Netflix video traffic that Netflix subscribers have requested, even though these subscribers have paid for their broadband connections from the ISP,” the company said. Usage-based caps come “even though off-peak usage has zero marginal cost and does not impact network congestion,” the firm said. Netflix’s Open Connect content delivery network that sends its programming to ISP locations at no charge means “incumbent broadband network operators must interconnect their access networks with Open Connect servers,” the company said. “If Tier 1 operators refuse to interconnect with Open Connect, they will have made a decision to forgo a more efficient, cost-effective method for delivering video via the Internet."

Comcast, viewing OVDs as a complement “rather than supplement” to “traditional MVPD services,” cited Netflix’s licensing deals with AMC Networks. “Comcast welcomes new participants into the online video space, and it helps to enable their success by offering a robust broadband Internet service, as well as through the licensing deals offered by NBCUniversal to OVDs on a commercial basis (and pursuant to the NBCUniversal conditions).” Comcast ended Q2 with 21.1 million video subscribers and 18.7 million broadband customers, the operator said (http://xrl.us/bnpcky).

With Netflix having more subscribers than Comcast, Verizon said “over-the-top video is emerging as a legitimate alternative or companion to traditional video programming services.” Extending MVPD regulations to OVDs “could have unintended consequences and derail continued innovation by this developing industry,” said the telco with 4.5 million FiOS pay-TV subscribers on June 30 (http://xrl.us/bnpcmp). “The Commission must recognize that a provider of an over-the-top video service should not be considered an MVPD even if the same provider is an MVPD for the purpose of other, independent services that it offers.” Verizon is testing the ability to stream 3D video over Wi-Fi, it said. AT&T views “content as king” now “more than ever,” that telco said (http://xrl.us/bnpcmx). “The entities that control popular content have greater leverage over content distributors than ever before, and have used that leverage to extract higher licensing fees and demand carriage of less attractive programming -- squeezing out other content producers.”