Video Programming: FCC Should Conduct Additional Analysis to Evaluate Need for Set-Top Box Regulation

GAO-17-785 Published: Sep 29, 2017. Publicly Released: Sep 29, 2017.
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Highlights

What GAO Found

Set-top boxes play a significant but diminishing role in delivering video content in an evolving video market. Subscribers to multichannel video programming distributors (MVPD)—companies that provide pay television services via subscriptions such as cable and satellite companies—generally need a set-top box to access MVPD television services, and most subscribers lease a set-top box from their MVPD. However, consumers can now access video through a wide range of Internet-based services without a set-top box, using a variety of Internet-capable devices, such as tablets. Internet-based services include those providing on-demand video such as Netflix and some, such as Sling TV, providing live content similar to that from MVPDs. Some Internet-capable devices, such as Roku, allow people to watch Internet-based video on televisions. In recent years, subscriptions to MVPDs have fallen as more Internet-based services have become available. Partly in response to this competition, many MVPDs have begun offering content over the Internet to subscribers, accessible on many Internet-capable devices, including streaming devices that display it on televisions. While in most cases, MVPD subscribers still need a set-top box, a few MVPDs GAO interviewed now allow subscribers to access content they subscribe to solely over the Internet, without a set-top box.

The Federal Communications Commission (FCC) has conducted limited analysis of the need for regulations to assure a commercial market for devices, such as set-top boxes, to access MVPD services. Most stakeholders and experts GAO interviewed said that further regulations for this purpose were not needed, given recent changes in the video content market. FCC is directed by law to set regulations to assure a commercial market for devices to access MVPD services. However, the law also specifies that any such regulations may no longer apply if FCC determines that the markets for both MVPD services and devices to access MVPDs are fully competitive. Moreover, while it does not extend to independent agencies, Office of Management and Budget guidance says agencies could use analyses to evaluate the need for proposed actions. However, FCC proposed a new rule in 2016 to promote a commercial set-top box market without undertaking a comprehensive analysis of the competitiveness of the market to support the proposed rule. FCC did not enact a final rule. Stakeholders had differing views on the potential effects of the proposed rule, but some raised concerns that the rule could have had negative effects on MVPDs and content providers. As described above, widespread changes in the video market in recent years have expanded consumers' choices for video services as well as devices to access those services. Nineteen of the 35 industry stakeholders GAO interviewed said rules are not needed at this time, while 8 said rules are still needed. (The rest gave uncertain answers or did not comment on this issue.) Without a comprehensive analysis, FCC lacks information on the extent of consumer choice and, furthermore, the extent to which increased options for video services affect the relative importance of consumer choice for devices to access MVPDs. Such an analysis could help FCC determine if additional regulations are needed and, as the market likely continues its rapid evolution, could serve as a benchmark in FCC's further consideration of whether market conditions have been met such that regulations may no longer apply.

Why GAO Did This Study

Millions of households subscribe to cable, satellite, and telephone companies—known as MVPDs—for television, which is generally delivered via a set-top box attached to a television. Congress directed FCC to adopt regulations to assure a commercial market for devices to access MVPDs, and in February 2016, FCC proposed a rule intended to do so. Many industry stakeholders raised concerns about the proposal's potential effects, and FCC did not issue the proposed rule. This report examines: (1) the role of set-top boxes in accessing video programming content and (2) views of selected stakeholders and experts on the need for FCC regulation regarding set-top boxes and FCC's analysis of such need.

GAO analyzed data from a media research group regarding the video market and interviewed 35 industry stakeholders including 12 MVPDs, 5 video content producers, 3 device manufacturers, 12 industry associations, and others; GAO selected stakeholders based on comments filed with FCC on its 2016 proposed rule. GAO also interviewed 11 industry analysts and experts selected based on industry coverage and publications.

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Recommendations

GAO recommends that FCC conduct a comprehensive analysis of how recent industry changes related to video services affect consumer choice for devices to access video services.

FCC agreed with GAO's recommendation and provided technical comments that GAO incorporated as appropriate.

Recommendations for Executive Action

Agency Affected Recommendation Status
Federal Communications Commission To help ensure that any future decisions by FCC regarding its efforts under the Communications Act of 1934 are based on comprehensive analysis, the FCC should, as part of its future annual video competition reports, analyze how the ongoing evolution in the video programming market affects competition in the related market for set-top boxes and devices, including how this evolution affects the extent to which consumer choice for devices to access MVPD content remains a relevant aspect of the competitive environment. (Recommendation 1)
Closed – Implemented
Many households subscribe to television video programming through multichannel video programming distributors (MVPDs) such as cable and telephone companies. That video programming is frequently delivered through set-top box devices, leased directly from MVPDs, that connect to televisions. In 1996, Congress directed the Federal Communications Commission (FCC) to assure the commercial availability of devices that access MVPD services by making them available from third parties unaffiliated with MVPDs. The law requiring FCC to do so also stated that such rules may no longer apply if FCC were to determine that the markets for both MVPD services and devices to access MVPD services were fully competitive. While FCC proposed a rule in 2016 intended to provide consumers additional choice for set-top box devices, in 2017 a new FCC Chairman removed the proposed rule from circulation and was silent as to whether the Commission would take any future action. In 2017, we reported that FCC had conducted limited analysis of the rapidly evolving market for video services and devices to access such services to support the need for its 2016 proposed rule. The proposed rule also contained limited analysis of the potential effects of this rule on consumers, MVPDs, or others. FCC had conducted some analysis of the evolving video market, which was providing consumers with more choices for both video services as well as devices to access services. However, FCC's analyses did not consider the effect that increasing consumer choice for video services had on the importance of consumer choice for devices to access MVPD services. While the 2017 video competition report-a congressionally mandated annual product-touches on consumer choice for both services and for devices, it did not discuss the extent to which new choices for services have affected the importance of consumer choice for devices. Without more comprehensive analysis of the industry's evolution and its effects on consumer choice for devices to access MVPD services, FCC could potentially take regulatory action-or choose not to take action-in a way that among other things, is not beneficial to consumers. Such an analysis could help FCC determine if additional regulations were needed or to inform further consideration of whether market conditions have been met so that regulations may no longer apply. Therefore, we recommended that FCC, as part of its future reports on the video programming market, analyze how the ongoing evolution in the video programming market affects competition in the related market for set-top boxes and devices, including how this evolution affects the extent to which consumer choice for devices to access MVPD content remains a relevant aspect of the competitive environment. In December 2020, FCC released a Communications Marketplace Report that, among other things, includes analysis of the commercial availability of devices to access MVPD services. Specifically, this report included information on consumer choice for video services and devices to access such services, including the percentage in MVPD subscribers that lease a set-top box from their provider, and how market evolution has affected the use of other devices to access video services from MVPDs and competition to MVPDs from internet-based video services. As a result of this analysis, FCC has insight into the market conditions for competition for video services and devices that could better inform any potential relevant future regulatory decisions in a way that is beneficial to consumers.

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