The Top Ten for 2015

Looking back at the top 10 stories in the media/telecom industry in 2015

In no particular order, they were:

• Too Big to Merge -- Comcast and Time Warner Cable (TWC) part ways
• Not Too Big to Merge – AT&T and DirecTV are now one à AT&T Entertainment
• Maybe Not Too Big to Merge – Charter, TWC, and Bright House Networks announce merger plans – if approved in 2016, major concessions/perks to the “interested” parties are likely
• After 13 years (1992 Cable Act), local cable markets are now presumed to be effectively competitive
• ISPs (fixed and mobile) were re-classified under Title II of the 1934 Communications Act as part of the Net Neutrality ruling by the FCC
• The FCC rules that municipal broadband providers can expand their networks in states that have laws preventing such expansion --- FCC okay with preempting state laws if they deem that broadband deployment is being hindered
• Skinny is good – skinny bundles become the new “play” by cable providers to hold onto subscribers
• Cord-cutting accelerates as program watchers find a growing array of alternatives acceptable/preferable
• ESPN is vulnerable – always considered the must have in the TV-bundle; that doesn’t seem to be the case anymore
• Content is still king – networks (Showtime) and programs (Daily Show) cut their own deals with distributors

The year ahead promises continued challenges to the new laws and regulations, more consolidation and convergence, and a dizzying-array of new and re-packaged service offerings.  

On the Go with GoPro

In the fall, Verizon launched Go90, its ad-supported, non-subscription, mobile-only streaming platform.  The target audience consists of the on-the-go millennials and teens who are comfortable with viewing content, short and long in length, on their mobile devices.  The service, available from the iTunes and Google Play app stores, has been downloaded nearly 2M times as of mid-December (estimate by Apptopia).    The service is useable on all wireless networks, although some content is offered exclusively to Verizon Wireless subscribers.  The growing content consists of traditional television shows (not networks), online videos, and live sporting and concert events. 

In Q1, Verizon is expected to launch a paid version of Go90 consisting of zero-rated premium content.  Content providers may be “sponsoring” the data cap exemptions which raises concerns that Verizon (and T-Mobile with Binge-On and Comcast with Stream) may be testing the limits of net neutrality rules.

It's Showtime!

Showtime, always an add-on, has done it again.  As of a few weeks ago, Amazon Prime subscribers can get Showtime for $8.99/month ($10.99 without the Prime subscription.)  Showtime is available through Amazon's apps on mobile devices, streaming boxes, and connected television sets (via Fire TV and Fire TV stick).

Showtime has always been available this way through cable TV.  It is now available as an add-on on Hulu (this summer), Apple TV, Google Chromecast, and Roku.  Content has always been king.  And, with hit shows like Homeland and Ray Donovan, Showtime is in the driver's sit in negotiations with distributors of all shapes and sizes.  By contrast, lower quality channels that have survived inside the cable bundle have a lot to be nervous about.

Buyer's Remorse?

Laura Martin, media analyst at Needham & Co., suggests that for some consumers it won’t take much for the total cost of a slimmed-down and customized set of video channels to cost more than the $70 or so for 300+ pre-packaged channels.    

  

Bloomberg article (12/2013)

December 30, 2015 interview

How will consumers and media companies respond?  Will consumers be happy with their choices even though they will be getting less?  Will media companies slice and dice the offerings to make it so confusing that consumers long for the days of old? 

More likely, this tradeoff of price and choice is hardest for the cord-cutters who had it all, but didn’t want to pay the escalating prices for it.  The younger-generation, the cord-nevers, don’t have that relative comparison and they may be better off because of it.

Imagine

Imagine you had one more choice for your internet service.  Imagine it was a higher quality/speed service than you currently had.  Imagine there was a municipal broadband provider who was providing such a service in the neighboring community and wanted to expand its coverage into your local area.  Wouldn’t you consider this to be welfare-improving?  If yes, then, why are your elected state representatives (NC and TN) protecting private broadband firms from this government competition?  GOOD QUESTION.

The FCC wants this for you.  In February, it preempted the state laws that prevented muni broadband build-outs.  That decision is currently being challenged in court.

Note: Section 706 of Telecom Act of 1996 allows the FCC to use "measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment."  The question is whether the FCC has the authority to preempt state laws if it is deemed a “barrier”.  

Put a fork in it!

Today begins the new FCC presumption that local pay-tv markets are effectively competition.  Moving forward, municipalities can regulate basic cable rates only by requesting to do so and accompanied by proof of a lack of competition in the local market.  But, with DBS ubiquitously deployed (AT&T/DirecTV and Dish) and telephone entry (Fios and AT&T U-verse) in many markets over the past two-decades, that will be hard to prove.  Nationwide, of the 90M+ pay-tv subscribers slightly less than half get service from a non-cable provider.  Proof of competition, right?  Yes, but, the expansion of indirect substitutes creates the greatest threat to pay-tv providers and the reason why regulation of basic cable rates is no longer necessary.

A Philly company…it’s gonna cost ya!

Last week, the city of Philadelphia signed a 15-year franchise renewal agreement with Comcast.  The agreement allows Comcast to continue to use public rights-of-way to operate its cable system in the city of brotherly love.  What does the city get in return?  Plenty!

• Franchise fee of 5% of Comcast’s gross revenue (>$17.5 million annually, expanded to include PEG and FCC fees)
• Public, Educational, and Government funding of $21.3M (from $8.2M)
• 11 PEG channels (including expansion of HD channels)
• Expanded PEG VOD capacity from 8-hours to 20-hours.
• $1M/year in complimentary services to municipal locations, schools, and libraries.
• Institutional Network ($10M in network construction costs not billed to the City)
• The expansion of Comcast's Internet Essentials program to include low-income seniors
• Discounts of at least 10 percent for low-income seniors on cable service;
• $500,000 grant to the city's Digital Inclusion Alliance Fund

Any problems for Comcast?  Maybe one!  The city of Seattle, currently in contract talks with Comcast, wants the same deal.

Monopolizing Ad Sales

About two weeks ago, The Department of Justice announced that it had opened an investigation into Comcast’s spot ad sales practices.  Comcast Spotlight, a subsidiary of Comcast, sells cable advertising to businesses who want to advertise locally on channels distributed by both Comcast and rival MVPD operators (like RCN, AT&T U-verse, Centurylink).* 

In carriage agreements between programmers and MVPDs, programmers allocate about 2-minutes of each hour to local ad buyers.  The “interconnect” business model has the dominant MVPD in each market sell the inventory ad space, representing all MVPDs in the negotiations.  Because of its national footprint, Comcast leads the interconnect negotiations in 26 of the top 50 markets.   

The DOJ is investigating whether Comcast’s practices involve monopolizing or attempting to monopolize spot ad sales in local markets.  On the surface, the selling cooperative matches buyers and sellers more efficiently than each MVPD negotiating ad sales separately.  The question, however, is whether Comcast’s (dominant position and) actions creates an unreasonable restraint of trade that is harming competition (and competitors like non-affiliated cable ad representative, ViaMedia). 

*RCN just announced that it was switching from Viamedia to Comcast beginning on 1/1.  

Brand X

Does a pro-Title II decision hinge on Brand X?  It might!  In the 2005 case, NCTA et al. v. Brand X Internet Services et al., the Supreme Court ruled that the FCC has the authority, under the 1996 Telecom Act, to decide if broadband is an information or telecommunications service.  At the time, the FCC ruled that broadband was an information service.  Ten years later, in its February 2015 Open Internet Ruling, the FCC changed its position.

 

And, so, what a difference a year and a politically-influenced change of heart makes. 

In Verizon v. FCC (2014), the plaintiffs were victorious in shooting down efforts to impose the conduct rules against blocking and unreasonable discrimination because the Court determined that the Commission could not impose public-utility regulation on an information service. 

On Friday, the issue of net neutrality was once again front-and-center.  This time it was in Court of Appeals of the District of Columbia.  The three-judge panel heard arguments for and against the FCC’s decision to reclassify broadband internet service (fixed and mobile) as a common carrier under Title II of the Communications Act and therefore subject to utility-type regulation. 

It is likely that the Court will affirms the FCC’s authority to classify broadband as it sees fit.  Regulation will follow as the Commission believes that “broadband providers represent a threat to Internet openness and could act in ways that would ultimately inhibit the speed and extent of future broadband deployment.” (Verizon v. FCC, 2014)

Negotiating in good faith?

The media marketplace has changed significantly over the past decade, including more consumer choices for how, where, and when we watch video programs.  Content has always been king, but with alternative distribution channels available (e.g. internet, mobile), even more power has shifted to broadcasters in retransmission negotiations.  Without surprise, distributors are none too happy and are trying to wield their considerable influence with the FCC to get things changed….all under the guise of protecting the interests of consumers. 

So, while the number of program disruptions resulting from retransmission disputes have increased in recent years, without that threat and reality, we have to ask: who would be better off?  Maybe consumers would be in the short-run.  But, they have choices and could ultimately take their business elsewhere.  MVPDs, on the other hand….

Some background:

Section 325(b) of the 1934 Communications Act (as amended in 1992) requires cable systems and other pay television services to obtain a television station’s “retransmission consent” before carrying the station’s signal.  Broadcasters and MVPDs are required to negotiate these market-based agreements in good faith and minimize programming service disruptions (“blackouts”).  Violations of good faith negotiations can be determined as either per se breaches or in the totality of the circumstances.

And, now:

In March of 2011, the FCC released a Notice of Proposed Rulemaking (NPRM) to consider possible amendments to these rules, including providing guidance to the parties on good faith negotiation requirements.   With that NPRM still pending, Congress directed the FCC in the STELA Reauthorization Act of 2014 to begin a review of its totality of the circumstances test for good faith negotiations. Also included in the NPRM, released in September, was a request for comment on whether there are specific practices that constitute evidence of bad faith (i.e. preventing online access to programming, banning networks from negotiating on behalf of affiliate stations, and bundling broadcast and non-broadcast programming).