Is OTT Getting Closer?

Fatty_watching_himself_on_TVThe rumors were running around the industry last week that the FCC was considering an investigation to allow over-the-top video on the web by non-cable companies. FCC Chairman Wheeler dismissed this as something that is being discussed but that is not imminent. But it should be on the table along with a lot of other changes to the way we handle programming.

The rumor wasn’t very specific, as rumors tend to be. One thing that was mentioned was the possibility of requiring that networks owned by cable companies be made available to those who want to broadcast on the web. Specifically mentioned was Comcast which owns the NBC channels and AMC. So perhaps this rumor is tied into the possible merger of Comcast and Time Warner.

But the rumor also implied that the FCC is thinking of classifying OTT providers, on the web or using other medium as cable companies. This would give them the right to buy content and that is a big deal. It was lack of this classification that put Aereo out of business, and giving web-companies these rights would mean a proliferation of customer options for something other than the traditional cable packages.

There are currently several well-known attempts in the industry to break the cable monopoly. It seems to be a universal thought that once somebody is able to create a viable on-line alternative that the flood gates might open up and that all sorts of alternate programming would come to the market. One of the companies trying hard to come up with alternate programming is Dish networks. They own a lot of terrestrial spectrum and have said that they plan to bring an OTT line-up to major markets.

SONY is also working on an alternative OTT line-up and it was reported by Bloomberg News in September that SONY was getting close to a deal with Disney and Fox to go along with an arrangement they already have with Viacom. That would be enough channels to create a very attractive package for cord cutters and millennials who want to get away from the expensive cable packages.

To put this into perspective, the cable companies also want big changes. Consider the petition that Mediacom filed with the FCC last month that asked for an expedited rulemaking to consider various changes in programming rules. Mediacom said that the relationship between programmers and distributors is broken, and they are right. Back at the beginning of the cable industry the cable providers had most of the power since they could decide to carry or not carry any given programming. But over the years as some networks have become indispensable the power has shifted to the programmers.

In recent years the programmers have abused their power. They have increased rates significantly every year, much faster than the rate of inflation. And in doing so they are pushing the price of cable packages to the point where many households are considering alternatives. The programmers also have forced cable systems to take everything they offer if they want to get the better channels. Further, the more powerful programmers often force the cable companies to place a lot of their channels in the most expensive tiers. Recent programming contracts also have minimum penetration rules meaning that cable companies have to pay for a specified percentage of customers even if they don’t actually get those penetration rates.

A lot of this has come about due to industry consolidation and there are six programmers that now own 125 cable networks. And consolidation continues as the Comcast / Time Warner merger would bring more network channels to Comcast.

Mediacom asks for some very specific relief from the FCC. They want the ability to negotiate for channels on an a la carte basis so that they don’t have to take new channels offered or can opt out of the most expensive ones. They also ask for the ability to unbundle, meaning that they are not required to carry everything a programmer offers. Mediacom also asks that the programmers not be allowed to restrict access for putting programming on the Internet for their customers.

Mediacom says in their filing that they expect the programmers to fight vehemently against even opening such an investigation. They said that the programmers will argue that the FCC doesn’t have the authority to implement the changes that they are requesting. But the Mediacom filing lays forth why they think the FCC does have the authority.

At some point something has to give. Perhaps it will come through a generic FCC investigation implied by the rumors. Perhaps a crack will come as part of approving the Comcast / Time Warner merger. Or perhaps somebody like Dish Networks will put together an offering that attracts enough customers to threaten the big cable bundles. But one thing is certain. If nothing changes and cable prices keep soaring, at some point the public will vote with their pocketbooks and we will see a flood of cord cutters finding lower-cost alternatives. The programmers keep acting like that will never happen, but one doesn’t have to remember back very many years to a time when it became trendy to drop home phones and a huge chunk of the market dropped them over a few year period.

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