Video Competition in the United States
TL;DR
Background: The rise of video streaming has caused a seismic shift in the market for video content. The internet has fundamentally altered the technology and economics of content delivery, enabling the emergence of numerous streaming platforms and drastically changing how consumers access and view content. This shift presents significant challenges for both traditional providers and policymakers alike.
But… Linear-programming distributors are struggling. Cable-television providers are losing subscribers, while local broadcasters are losing viewers. Linear distributors face declining revenues from both subscriptions and advertising. On the other hand, deals struck between sports leagues and streamers will boost streaming subscriptions at the expense of linear distributors. Policymakers are under pressure to “do something” to slow the shakeup in the video marketplace.
However… Policymakers should be cautious. Heavy-handed regulation—such as price controls or mandated unbundling of sports content—would be counterproductive and lead to unintended consequences, such as reduced investment in new programming.
KEY TAKEAWAYS
The Internet Changed Everything
In the still-recent past, broadcast and cable relied on access to airwaves or heavy investment in coaxial-cable hookups. This backdrop created significant barriers to entry and served to limit competition—so much so that providers were seen (and regulated) as monopolies.
The internet fundamentally changed the technology and economics of content delivery. Leveraging existing internet infrastructure drastically reduced the cost of entry for new content providers.
The relatively low cost of entry, combined with a relatively light regulatory burden, fostered the rise of streaming services. Companies like Netflix (initially a DVD-rental service) recognized the potential of online streaming, and capitalized on it by launching its streaming service in 2007. Netflix was soon followed by Hulu, initially a joint venture between News Corp and NBC Universal. Today, viewers can view content on more than 200 streaming platforms.
Cord-Cutting and the Decline of Linear
The average U.S. household subscribes to four streaming services, spending $61 monthly for that content. With more than 200 streaming platforms available, viewers spend 10.5 minutes just searching for content, according to Nielsen.
In response, providers are moving toward various bundling strategies, while also incorporating advertising to drive revenue growth. Ad-supported streaming tiers now account for about 40% of streaming minutes viewed.
Cable subscriptions peaked in 2010, with the number of subscribers dropping by more than 35% in the years since. Millions of consumers have “cut the cord” and switched entirely from channel packages offered by cable and DBS-satellite providers to streaming services delivered over the internet. The Washington Post reports that barely half of American homes now pay for “linear” service from cable, satellite TV, or an internet-delivered vMVPD (virtual multichannel video programming distributor) like YouTube TV.
Local Broadcasters Languish
With the decline of so-called “linear” programming—a term generally used to refer to live TV, especially broadcast and cable—local broadcasters have suffered steep declines in revenues. Advertising revenues have been hit by a double whammy of fewer “eyeballs” and a shift by advertisers toward more targeted digital advertising. In addition, the decline in the number of cable subscribers has reduced local stations’ revenues from retransmission-consent fees.
On top of that, local stations have lost their near-monopoly on providing “late-breaking” relevant news, weather, and traffic, as consumers shift to apps, online sources, and social media for timely news updates. As if that weren’t bad enough, local stations allege that networks’ direct-to-consumer services—such as NBC’s Peacock and CBS’ Paramount+—are cannibalizing viewers from local stations.
Sports: The New Battleground
Broadcasters and cable companies traditionally dominated the distribution of sports content. Over the past few years, however, this dominance has been eroded by streamers, who see sports as a key offering to attract and retain both consumers and advertisers. Sports have become such a key feature that they have been described as the “new battleground” in video competition.
Sport programming can be a powerful tool to attract new subscribers and reduce churn. Unlike linear and on-demand content, live sports events offer a unique draw, creating appointment viewing. They remain the primary driver of traditional TV viewership.
As audiences move to streaming, sports content is following suit. This move has been accelerated by tech companies acquiring sports-broadcasting rights, such as Amazon’s 10-year exclusive deal to carry the National Football League’s (NFL) Thursday Night Football package on Amazon Prime for $1 billion a year.
What to Watch
Even More bundles: Streaming services are increasingly experimenting with bundling strategies, combining multiple services or products into a single package. These experiments could be a first step toward further consolidation in the industry.
Consolidation: As local broadcasters struggle to survive in the new landscape, we expect to see more mergers and acquisitions. The three largest station owners control 40% of all local news stations and are present in more than 80% of U.S. media markets.
A New FCC: With Brendan Carr’s appointment as chairman of the Federal Communications Commission (FCC), many anticipate a more favorable regulatory environment for mergers. Carr has, however, also expressed interest in revisiting the FCC’s “public interest” standard, potentially leading to heavy-handed interventions in content providers’ business decisions.
Sports Lawsuits: High-stakes legal battles over exclusive sports-streaming deals are likely to continue, as demonstrated by the recent class-action lawsuit against the NFL over its Sunday Ticket package, as well as FuboTV’s now-settled lawsuit against the media giants Disney, Fox, and Warner Bros. Discovery.
As the video-content landscape continues to evolve rapidly, policymakers must carefully navigate the challenges of updating regulations to reflect the new reality. They should avoid implementing heavy-handed rules that could stifle innovation and investment, while ensuring a level playing field for competition. Price controls and mandated unbundling of sports content, for example, could lead to such unintended consequences as reduced investment in sports programming and limited consumer choice.
For more on this issue, see the Truth on the Market post “Video Competition in 2025: It’s Literally on Heebee.”