Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming

FEDERAL COMMUNICATIONS COMMISSION

[CS Docket No. 96-133, FCC 96-496]

Annual Assessment of the Status of Competition in the Market for

the Delivery of Video Programming

AGENCY: Federal Communications Commission.

ACTION: Notice; Third annual report to Congress.

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SUMMARY: Section 628(g) of the Communications Act of 1934, as amended,

47 U.S.C. 548(g), requires the Commission to report annually to

Congress on the status of competition in markets for the delivery of

video programming. On January 2, 1997, the Commission released its

third such annual report (``1996 Report''). The 1996 Report contains

data and information that summarize the status of competition in

markets for the delivery of video programming and updates the

Commission's two prior reports. The 1996 Report is based on publicly

available data, filings in various Commission rulemaking proceedings,

and information submitted by commenters in response to a Notice of

Inquiry in this docket, summarized at 61 FR 34409 (July 2, 1996).

[[Page 5628]]

FOR FURTHER INFORMATION CONTACT: Marcia A. Glauberman, Cable Services

Bureau (202) 416-1184 or Rebecca Dorch, Office of General Counsel (202)

418-1868.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 1996

Report in CS Docket No. 96-133, FCC 96-496, adopted December 26, 1996,

and released January 2, 1997. The complete text of the 1996 Report is

available for inspection and copying during normal business hours in

the FCC Reference Center (Room 239), 1919 M Street, N.W., Washington,

D.C., 20554, and may also be purchased from the Commission's copy

contractor, International Transcription Service (``ITS, Inc.''), (202)

857-3800, 2100 M Street, N.W., Suite 140, Washington, D.C. 20037. In

addition, the complete text of the 1996 Report is available on the

Internet at http://www.fcc.gov/Bureaus/Cable/WWW/csb.html or at thttp:/

/www.fcc.gov/ogc/articles.html

Synopsis of the 1996 Report

1. In the 1996 Report the Commission reviews provisions of the

Telecommunications Act of 1996 (``1996 Act'') that affect competition

in markets for the delivery of video programming. The Commission

reports on information about cable industry performance and the status

of competitive entry by other multichannel video programming

distributors (``MVPDs''). The Commission also provides information

about structural issues affecting competition, such as horizontal

concentration, vertical integration and technological advances. It

further examines potential obstacles to the emergence of competition

and reports on competitive responses by industry players that are

beginning to face competition from other MVPDs.

2. In the 1996 Report the Commission notes that the 1996 Act

embodies Congress' intent to promote a ``pro-competitive national

policy framework'' and eventual deregulation of markets for the

delivery of video programming. Several of the 1996 Act's provisions are

intended to remove barriers to competitive entry in video programming

markets and establish market conditions that promote the process of

competitive rivalry. Many provisions of the 1996 Act, and the

Commission's actions to implement them, have the potential for

fostering increased competition in markets for the delivery of video

programming.

3. At present, however, incumbent franchised cable systems are

still the primary distributors of multichannel video programming.

Although other MVPDs continue to increase their share of subscribers in

many local markets for the delivery of video programming, these markets

generally remain highly concentrated, and structural conditions are

still in place that could permit the exercise of market power by

incumbent cable systems. Nationwide, non-cable MVPDs now serve 11% of

total MVPD subscribers, with cable operators retaining a share of 89%,

down from 91% last year. Notwithstanding this decrease in cable

systems' share of total MVPD subscribers, the actual number of cable

subscribers continues to increase.

4. Key Findings:

Status of competition. It remains difficult to predict the

extent to which competition from MVPDs using non-cable delivery

technologies will constrain cable systems' ability to exercise market

power in the future. In a growing but still very limited number of

instances, incumbent cable system operators face competition from wired

MVPDs offering similar services. In addition there has been a

substantial increase in subscribership to direct broadcast satellite

(DBS) providers offering differentiated services. However, it remains

difficult to determine the extent to which markets for the delivery of

video programming will be characterized by vigorous rivalry among many

MVPDs offering closely substitutable services, or instead will be

dominated by a few providers facing less vigorous rivalry from other

MVPDs offering highly-differentiated or niche programming services.

Industry growth. The cable industry has continued to grow

in terms of the number of subscribers, penetration, average system

channel capacity, the number of programming services available,

revenues, audience ratings and expenditures on programming since the

Commission's previous report in 1995.

Horizontal concentration. Nationally, horizontal

concentration among the top cable multiple system operators (MSOs) has

continued to increase, but still remains within the moderately

concentrated range according to standard measures of industry

concentration. If all MVPDs are included for consideration, national

concentration falls just above the threshold of the moderately

concentrated range. In addition, cable MSOs, through acquisitions and

trades, continue to increase regional clustering, which now accounts

for service to approximately 50% of all cable subscribers.

Promotion of entry and competition. Several of the 1996

Act's provisions are intended to remove barriers to entry and to

promote competition in markets for the delivery of video programming.

The Commission has adopted rules implementing the provision creating

open video systems and the provision preempting certain local

restrictions on reception devices, including antennas and dishes for

reception of over-the-air broadcast, wireless cable and DBS signals.

Vertical integration. Vertical integration of national

programming services between cable operators and programmers declined

from last year's total of 51% to just 44% this year, due largely to the

sale of Viacom's cable system assets. In addition, of the 16

programming services that were launched since the Commission's previous

report, 10 are not vertically integrated. Access to programming remains

one of the critical factors for successful development of competitive

MVPDs.

Technological advances. Technological advances are

occurring that will permit MVPDs to increase both quantity of service

(i.e., an increased number of channels using the same amount of

bandwidth or spectrum space) and types of offerings (e.g., interactive

services). MVPDs continue to pursue new system architectures, upgraded

facilities, use of increased bandwidth and deployment of digital

technology.

Ordering Clauses

5. This 1996 Report is issued pursuant to authority contained in

Sections 4(i), 4(j), 403 and 628(g) of the Communications Act of 1934,

as amended, 47 U.S.C. Secs. 154(i), 154(j), 403 and 548(g).

It is Ordered that the Secretary shall send copies of this 1996

Report to the appropriate committees and subcommittees of the United

States House of Representatives and the United States Senate.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 97-2907 Filed 2-5-97; 8:45 am]

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