Over-the-Top Video Will Gain Popularity, FCC’s Broadband Chief Says

Rising subscription-video rates accompanied by declining interest in linear channels and coming advancements in set-top box technology augur increased viewer interest in online video viewed on TV sets, said outgoing FCC broadband plan initiative head Blair Levin. “Over-the-top video will eventually emerge” as a competitor to multichannel video programming distributors and “everyone is both excited and scared” by that prospect, he said. Since the technology is “a big bandwidth hog,” those with more capacity will do better, Levin told an American Cable Association conference.

"Someone will invent the iPhone equivalent to a set-top box” and “the real question is who will own the inevitable,” Levin said Tuesday. It’s possible but unlikely that the nation’s two largest set-top box manufacturers will develop such a device, he said without naming Cisco and Motorola. The National Broadband Plan, whose writing he oversaw, criticized the market for set-tops as being dominated by those two companies (CED March 17 p2). Someone will develop the device and/or software that will provide an “integrated experience and the kinds of applications that we did not know we needed and now cannot live without” after they're commercialized, Levin said.

"You do not want to be the industry that says no to the set-top equivalent of the iPhone,” Levin said. That’s especially so when it would “offer such a competitive edge” over the DBS industry and mean the top-two set-top box makers’ sway over the cable industry would be reduced, he continued. As interactive ads come to video, “what’s not inevitable is how we as a country” allow personal data to be used, Levin said. “Unlocking that value is difficult” and “consumers will not tolerate widespread collection and aggregation of that data unless they have a higher tolerance” because it’s more secure than they now believe it is, he added.

"What you get if rates go too high is a certain market response or a certain legislative response,” Levin said in a Q-and-A. “Everybody is kind of searching for how do you monetize, how do you create a business model over over-the-top video.” Levin declined to suggest an approach for the cable industry. “People are getting a very large bill for a bundle” of services and “consumers notice these rates,” he said: Additional online video accessible by TV and other means and a generation of viewers who “simply do not know the meaning of appointment viewing … changes the nature of the marketplace in a very important way."

Cable and telco group heads said their members seek out online video. High-quality IP programming won’t necessarily come cheaper than subscription-video offerings, they said on a later Q-and-A. “There’s going to be that demand for over-the-top regardless” since it’s not “necessarily linked to a perception of cable rates,” ACA President Matt Polka said. “Over-the-top is here and we're going to have to deal with that” while “trying to get more choices and packaging in the services we provide,” he continued. President Kyle McSlarrow of NCTA said he agreed.

"We as cable operators should be embracing whatever is happening on the Internet,” McSlarrow said. “Is it friend or foe? I tend to think it’s friend. We can and will be nimble about it.” IP delivery of content doesn’t seem to portend consumers will get more for what they pay now but that they'll get it by other methods, he said. “We're not talking YouTube videos, surely, we're talking broadcast” or cable programming, McSlarrow said. “The idea that somehow the world will just change and people will shift to an untested model is absurd.” President John Rose of the Organization for the Promotion and Advancement of Small Telecommunications Companies said the technology will let consumers “get a whole lot of other stuff” and “we need to embrace that business model and monetize it."

Some form of selling channels in smaller packages than they're currently offered makes sense, cable executives told reporters. On a la carte, “I'm not sure we're really that afraid of it anymore,” said President Tom Might of Cable One, owned by The Washington Post Co. “I'm not sure that it’s a bad idea.” Complete a la carte wouldn’t work for consumers because there would be an overwhelming number of choices to pick from, said CEO Colleen Abdoulah of WOW. Offering subscribers family, history, sports and other new tiers “from my experience is how viewers love to buy,” she said. “'Theme it for me, package it for me.'"

An agreement on net neutrality between industry and public interest groups to head off regulation is a possibility, though such conversations haven’t taken place, Polka told reporters. ACA works with the Media Access Project and Public Knowledge, among net neutrality proponents, on issues including retransmission consent, so cooperation in other areas is possible, he continued. “As we talk about a lot of issues we realize there are common areas,” he said. “They realize that our interest is not in rules that allow us to discriminate, because we're not doing this now.” Both sides may not be as opposed on the issue “as we once thought, so I'm sure those discussions will occur once we see what the commission is interested in doing."

Cable executives expressed optimism that FCC Chairman Julius Genachowski is serious about changing FCC handling of disputes between TV stations and subscription-video providers and the issue won’t get lost as the regulator focuses on moving on the broadband plan. “There’s going to be a lot that comes down the pike” yet “I think the chairman is really focused on this one in part because of the last three major disputes and more disputes to come,” Polka said. Little attention was paid in Washington to previous carriage cutoffs between Cable One and TV stations in several markets the past several year, but now it’s a closely-watched issue, Cable One’s Might said. ACA members have discussed Comcast’s deal to buy control of NBC Universal with FCC and Justice Department officials and with executives from the cable operator, Abdoulah and Polka said. The last meeting with Comcast executives after they were in Washington to testify on the transaction, Abdoulah said, “ended on a very cordial level of `let’s keep communications open.'"

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Look for more FCC workshops as the agency executes various parts of the National Broadband Plan, the plan’s outgoing head told the American Cable Association conference. “I think it’s fair to demand the FCC continue to have that openness,” Blair Levin said. Workshops on some of the video and CableCARD-related issues in the plan are a possibility, he said.