Investor Watch: MVPD reclassification could have historic market ramifications
Multi-channel Programming Video Distributor or (M.V.P.D.) designates video distributors like Comcast (CMCSA, CMCSK), Time Warner Cable (TWC) and Direct TV (DTV) who are classified officially by the FCC as having the right to distribute multi-channel video programming. Without this designation, anyone wishing to rebroadcast cable or broadcast programming must negotiate separately with each programmer for the right. This could be prohibitively expensive for Over-The-Top or ((OTT)) Internet-based companies wanting a piece of the distribution pie.
FCC Opens Commenting on Designation Change
The FCC in a surprising move has agreed to take a second look at the designation and take public comments regarding who can be designated as an M.V.P.D. This possible change could up-end the current distribution method of traditional Pay TV Providers, which means more competition for both Cable TV and Satellite based companies who have historically had a strangle-hold as preferred distributors.
An FCC wanting to see more competition within the market, not less, is mulling the idea presented originally by Sky Angel, a Christian media based company, two years ago, wanting to offer The Discovery Channel (DISCA) in its video package to consumers. The request was denied at that time but resurfaced recently as Sky Angel re-applied, as more potential competitors like Apple, Google, Netflix and others continue to research their own Internet video distribution models.
What is at Stake?
As the stakes are huge for all players involved, lobbying has been intensive on both sides. Pay TV Operators want a narrow interpretation of who can be a distributor, keeping such a designation within the confines of their industry. ((OTT’s)) must compete side-by-side with incumbent distributors to gain economies of scale but are curtailed by a lack of the broader definition as an M.V.P.D. Evidently the FCC understands that current video markets are changing rapidly, and want to be mindful that creating a level playing field is competition friendly.
Others disagree that the M.V.P.D. designation should be changed so quickly, and that more study and time is needed to see how those markets are going to shake-out. The fact remains that consumers are thirsty for programming on multiple platforms and want price competition to be a major factor in the distribution process. More competition is the recipe for lowering incumbent prices, long-held in disdain by customers, even though programming costs for pay TV operators have risen astronomically over the last two decades.
“The FCC should establish a level playing field where competitors operate under a core set of common rights, protections, and obligations.” A statement by Direct TV which simplifies the issue, proposes if an ((OTT)) acts like a MVPD, then it should be regulated like one, as well.
“Incumbents have the means and incentive to engage in economic and/or technical discrimination against online video distributors.” Barry Diller spoke on the issue calling for more stringent laws at a recent Senate hearing on digital platforms.
If the Federal Communications Commission rules on this issue favorably, ((OTT)) stocks should see a good up-tick as a result, while legacy MVPD’s will not fare so well as more competition enters the market with reduced operating costs. Stocks like suppliers of technology for ((OTT)) players will do extremely well as demand for IP delivered video is expected to see phenomenal growth over the next couple of years worldwide. Cisco predicts growth for connected device viewing of video content to increase exponentially by 2016 realizing a metric of 70% of all mobile data traffic by 2016.
Ramifications could be Historical
A strangle-hold on competitive forces which has helped both programmers and M.V.P.D.’s reap great profits through historical distribution methods are being challenged by IP (Internet Protocol) entrants into a once sealed off pipe. The final decision the FCC will eventually make on this matter will have both wide-spread and historical ramifications for investors, consumer pricing, how they view video programming, to increased legacy distributor competition in their markets.