• by Joe Mandese  @mp_joemandese, January 29, 2004

As if the TV universe weren't already crowded enough, an important new study released Wednesday by the Federal Communications Commission shows the expansion of TV viewing options continues to grow and that the Internet is poised to become a major factor. As of June 2003, Americans had 339 national TV networks available to them, more than three times the number of networks that were available ten years ago when the FCC first began publishing its annual report on competition in the video marketplace.

Cable TV remains the primary form of video access, though it's share has eroded to just 75 percent of the multichannel video marketplace, while direct broadcast satellite TV services now account for nearly 22 percent. But perhaps the most alarming part of the study, which is based on data compiled through June 2003, is that despite the rapid expansion in channel options, the number of independent suppliers has been consolidating and consumer prices for TV services has been rising.

Of the 339 national TV networks, 110, or about 33 percent, were vertically integrated with at least one of the major cable system operators in 2003. That's up from 30 percent, in 2002, when major cable operators controlled 92 of the 308 national TV networks that were available.

Not coincidentally, consumer prices for multichannel TV services have also been escalating. During the 10-year period covered by the report, the FCC estimated that cable TV subscriber costs rose 53.1 percent, more than double the 25.5 percent rise in the consumer price index during that same period. In the past year (June 2002 through June 2003), cable costs rose 5.1 percent, while the consumer price index rose only 2.1 percent.

While the FCC did not project what the impact of further competition might have on future channel availability or on consumer costs, it does suggest that Internet video is finally poised to become a significant factor, mainly because of the rapid expansion of broadband Internet access.

Internet video "is not yet viewed in the same manner as is broadcast video, despite increased quality with high-speed connections. Nevertheless, the overall number of homes with access to the Internet continues to grow, as does the number of Americans who access video content via the Internet," says the report, noting that as of June 2003, an average of 12 percent of the estimated 59 million Americans who subscribe to either a dial-up or an broadband Internet access service "watched some form of Internet video in the past month." The FCC said that represented a 50 percent gain from the 8 percent of Internet access subscribers who utilized Internet video in 2002.

"As of July 2003, approximately 45% of all Americans and 57% of those with Internet access had accessed streaming audio or video at least once before, up from the approximately 51% who had accessed streaming audio or video at least once before as of July 2002," found the report.

The FCC attributed the surge to the rapid rise of broadband access, noting that as of June 2003, about 20 million of the 59 million Internet access subscribers were using a broadband service.

The rise of a broadband marketplace also is fueling traditional TV players to adapt Internet video formats. As of March 2003, the report noted that about 22 percent of the affiliates of ABC, CBS and NBC operated Web sites offering streaming media, while several networks and studios have begun offering premium Internet video subscription services.

The report also noted that organic Internet players are becoming more of a factor in providing Internet video. As of April 2003, RealNetworks has surpassed the one million-subscriber mark and the FCC projected that by 2007, video streaming subscription services would reach an estimated $4.7 billion in annual revenues.

Growth, Consolidation Of National TV Networks

            Number Of Networks

1990               70           
1994              106 
1995              129           
1996              145           
1997              172           
1998              245

1999              283 
2000              281 
2001              294 
2002              308 
2003              339 

Federal Communications Commission, 10th annual report on competition in video markets.