Internet Video Still Dwarfed by Traditional Players

Although real-time and downloadable video accessible over the Internet continues to become more widely available and the amount of content is increasing, a new Federal Communications Commission (FCC) report says the medium is still not seen as a direct competitor to traditional video service.

As part of the Ninth Annual Report on Competition in Video Markets, the FCC reports that as of June 2002, an estimated 54 million Americans subscribed to an Internet access service, compared with 50 million in June 2001. However, only a handful of Americans use their Internet connection to access video services. Pay-per-view services over cable and satellite systems and traditional video store rentals continue to dominate the market.

The report provides updated information on the status of competition in the market for the delivery of video programming, discusses changes that have occurred in the competitive environment over the last year, and describes barriers to competition that continue to exist.

The report also tracks the development of broadband service providers (BSP), who compete with existing cable systems by offering a bundle of telecommunications services, including video, voice and high-speed Internet access. According to FCC, Princeton, N.J.-based RCN is the largest BSP, serving approximately 507,000 subscribers, followed by WideOpenWest of Castle Rock, Colo., with about 313,000 subscribers and West Point, Ga.-based Knology with 120,000 subscribers.

By comparison, the report finds that cable television still is the dominant technology for the delivery of video programming to consumers, although its market share continues to decline. As of June 2002, 76.5 percent of all subscribers to multi-channel video program distributor (MVPD) services received their programming from a franchised cable operator, compared to 78 percent a year earlier.

The number of cable subscribers reached nearly 68.8 million as of June 2002, up about 0.4 percent from the 68.55 million cable subscribers in June 2001.

Although industry data collected for the FCC report reflect continued growth through June 2002, a number of major cable system operators have experienced significant subscriber losses and calendar year 2002 may be the first year in which the cable industry as a whole experiences a net loss of subscribers.

The report also concludes that “the most significant convergence of service offerings continues to be the pairing of Internet service with other service offerings” and that the popular way Americans access the Internet over cable is still through the use of a cable modem and a personal computer.

Cable subscribers will not be surprised to learn that the FCC says that during the period under review, cable rates continued to rise. According to the Bureau of Labor Statistics, between June 2001 and June 2002, cable prices rose 6.3 percent compared to a 1.1 percent increase in the Consumer Price Index, which measures general price changes.

Concurrently with these rate increases, the number of video and non-video services offered increased, and programming costs increased.