Wall Street Journal - Online Video Could Get a Boost From Proposed Laws

January 30, 2014
In The News

By Gautham Nagesh

Consumers have more choices for how to watch video than ever before, as this week's Consumer Electronics Show in Las Vegas is demonstrating, yet the industry's legacy players—particularly cable-TV providers—still have the upper hand.

Now, lawmakers have introduced at least three different bills that would reshape the consumer video market, including online video, similar to efforts used to boost the satellite industry in the 1990s.

A bill unveiled by Sen. Jay Rockefeller (D., W.Va.) would help online video providers gain access to broadcast and other desirable content, and prevent cable and broadband providers from discriminating against online competitors. The Rockefeller bill expressly prohibits Internet service providers affiliated with cable companies from degrading competitors' signals or using data caps to discourage consumers from "cutting the cord" on their pay-TV subscriptions.

That bill and the other proposed legislation are the opening shots of what is sure to be a contentious debate, one that crosses party lines and pits a number of influential industries against each other.

"What I want is for people to be able to watch what they want to watch, how they want to watch it, and not have to buy 300 channels and pay for them to watch two things out of 300," Mr. Rockefeller said in an interview. "People want to watch video online and get news online. You don't criticize people for doing what they can afford to do and want to do, you enable them."

Sens. John McCain (R., Ariz.) and Richard Blumenthal (D., Conn.), meanwhile, have introduced legislation that would force cable companies to let consumers choose channels a la carte rather than paying for pre-packaged bundles.

Reps. Anna Eshoo (D., Calif.) and Steve Scalise (R., La.) also have offered bills that overhaul the regulatory regime that governs how pay-TV providers negotiate for broadcast content.

None of the bills is expected to pass right away, and companies looking to expand in online video remain uncertain how far Congress will open the door for them. But lawmakers are responding to the exploding popularity streaming Internet video services sold by companies such as Netflix Inc. Also driving the debate is the rising cost of cable and satellite television.

John Bergmayer, senior staff attorney at the consumer group Public Knowledge, said the average household is paying roughly $90 a month for video alone, including fees and taxes. "Even if online video doesn't have all the content, it's more attractive at that price point," Mr. Bergmayer said. Pay-television providers "know they can't keep passing on higher and higher costs, but programmers keep demanding higher costs."

Cable companies say the market already provides plenty of options for price-conscious consumers and argue against the idea that Congress needs to step in to give Internet-video providers a jolt.

"The video marketplace has never been more competitive or innovative, with consumers enjoying dozens of choices from traditional providers or newer Internet video services," National Cable and Telecommunications Association spokesman Brian Dietz said.

He said cable's share of the pay-video marketplace has fallen below 55% from 98% in 1992 as satellite companies, phone providers and others enter the market.

The rise of online video services combined with the price pressure on consumers has spawned some cord-cutting, in which households cancel their cable or satellite connections and rely instead on a selection of Internet video services. Cord-cutting households amount to about 5% of the pay-TV audience in the U.S., or roughly six million homes, estimates SNL Kagan principal analyst Ian Olgeirson. That figure increased by one million in 2013.

The vast majority of American households still subscribe to cable or a similar service with bundled channels. That is because these services still control access to the most popular programming, which includes live sports and scripted shows with high production costs.

Analysts said Internet companies were unlikely to emerge as viable replacements for cable and satellite providers for a broad range of Americans, absent some sort of regulatory intervention.

Sen. Rockefeller's bill attempts to fill that void by ensuring online video providers have access to content and can't be discriminated against by legacy providers.

Mr. Rockefeller said he had in mind rules passed in the early 1990s that helped ensure the then-nascent satellite-TV industry had access to broadcast and other content on similar terms as cable providers.