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Market Structure of the Video Programming Industry and Emerging Public Policy Issues

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The video programming industry has undergone fundamental structural change in the past 15 years. About 80 percent of U.S. households subscribe to cable or satellite systems offering multiple channels of programming. These alternatives to broadcast television now attract more than half the total viewing audience, although broadcast television still attracts a majority of viewers during prime-time when popular broadcast network fare is aired. Another seismic change is that movie producers receive more than twice as much revenue from video stores as they do from movie theaters.

At the same time, there has been widespread vertical and horizontal integration in the video programming industry. The industry is increasingly dominated by a small number of firms that finance the development of new programming through a wide variety of arrangements with content providers (including joint ventures and direct ownership), own extensive libraries of existing programming, own a variety of distribution channels for bringing content to the public, and also own retail pipelines such as local broadcast stations and video store chains (and, currently proposed, a direct broadcast satellite system).

These fundamental changes in the market structure affect the public policy issues that Congress faces. Today, there are more pipelines into the home and more distribution networks than ever before, but a small number of big media players control a large portion of both programming and distribution. Questions are starting to arise about how well the existing FCC ownership rules, which tend to focus on horizontal relationships involving only broadcast technology, address the impact of consolidated ownership of programming and distribution across broadcast, cable, and satellite technologies on the public interest goals of diversity, competition, and localism -- and whether new rules that more directly recognize the new market structure could or should be formulated that would better serve those goals.

The purpose of this report is to provide a brief description of the current video industry market structure and to explain how the various industry segments are interrelated. Given the successful entry of new technologies and the complex structure of many integrated media companies, the relationships across functional and technological segments of the industry are complex. CRS Report RL32026 explains how and why underlying market forces (as well as some government regulations and deregulation) have created strong pressure for vertical and horizontal integration, and how that market consolidation could be used to benefit or to harm consumers. It also identifies public policy issues that may arise as a result of the vertical and horizontal consolidation. This report will be updated as events warrant.