In the proposed rule, FCC tentatively concluded that despite the  availability of CableCARD devices, the market for navigation devices  (such as set-top boxes) was not competitive, citing a previous analysis  that found that approximately 99 percent of MVPD subscribers continued  to lease a set-top box from their MVPD. Set-Top Boxes Play a Significant but Diminishing Role in Delivering Programming in an Evolving Video Market

		The Internet Provides Opportunities for Viewing Video Programming without the Need For a Set-Top Box

While over 75 percent of households still subscribe to MVPDs for video  services and rely on a set-top box leased from their provider to access  content, the Internet has created more opportunities for consumers to  access video programming services in ways that do not require a leased  set-top box. Sling TV, DIRECTV Now, and  PlayStation Vue): These providers use a model similar to the MVPD  model by providing live and on-demand programming from a variety of  networks over the Internet in generally smaller channel lineups. Subscribers can access Internet-based video services using many  different Internet-connected devices and do not need a set-top box. Although subscribers to MVPDs generally require a set-top box in most  cases to access content they subscribe to, many MVPDs are also offering  their video programming over the Internet and through alternative  devices. Many MVPDs have also developed their own apps allowing their  subscribers to access a range of content. Such apps may allow for  viewing both live and on-demand content. In addition, some MVPDs have developed apps for  streaming devices such as Roku. Experts and Stakeholders Suggest Additional FCC Efforts on Choice in Set-Top Boxes are Not Needed, but FCC has Conducted Limited Analysis of this Issue

		Generally, Selected Stakeholders and Experts Did Not See Need for FCC Regulation to Increase Consumer Choice for Set- Top Boxes

Most selected stakeholders and industry experts we spoke to did not see  a need for FCC to intervene in the set-top box market at this time, given  the changes taking place that provide consumers with more choices for  services and devices to access video programming. Furthermore, only 8 of the 35 total industry stakeholders we  interviewed stated that regulations are needed. Some Experts and Industry Stakeholders Raised Concerns about the Potential Effects of FCC’s Recent Proposal to Expand Consumers’ Choices for Devices

Some industry stakeholders and experts and analysts we interviewed  thought that FCC’s proposed rule could have had negative effects on  MVPDs as well as other industry participants, including content providers. Representatives with a device manufacturer said that the proposal  could have provided consumers with new and innovative ways to  access video content. The proposed rule also contained limited analysis of the potential effects  of this rule on consumers, MVPDs, or others. While the Act requires FCC to set regulations to assure the commercial  availability of devices to access MVPD services, it also states that any  regulations implemented under the statute shall cease to apply if FCC  deems that: (1) the market for MVPDs is fully competitive, (2) the market  for devices used to access MVPD services is fully competitive, and (3) the  elimination of the regulations would promote competition and the public  interest. access MVPDs. Such an analysis, conducted as part of FCC’s existing  annual video competition reports—which, as discussed, already include  relevant analyses—could help FCC determine if additional regulations are  needed. Conclusions

The market for video services and devices to access video services has  evolved significantly in recent years so that consumers now have  considerably more choices for video services and devices to access such  services than when Congress passed the Telecommunications Act of  1996. However, FCC has not conducted a comprehensive analysis to support  an informed decision as to whether further action is needed or not. FCC’s  recently proposed rule and most recent annual video competition report  contain limited analysis of the extent to which Internet-based providers  affect consumer choice for video programming and what that change  means for the importance of consumer choice for devices in the context  of the Act. Should  such analysis show that those market conditions have not yet been  reached, a clear articulation by FCC of what elements have and have not  yet been met could help as a benchmark in FCC’s further consideration of  this issue as the market likely continues to evolve. Recommendation

To help ensure that any future decisions by FCC regarding its efforts  under the Act are based on comprehensive analysis, we recommend that  FCC, as part of its future annual video competition reports, analyze how  the ongoing evolution in the video programming market affects  competition in the related market for set-top boxes and devices, including  how this evolution affects the extent to which consumer choice for  devices to access MVPD content remains a relevant aspect of the  competitive environment. FCC also  provided technical comments that we incorporated as appropriate.
Why GAO Did This Study

Millions of households subscribe to cable, satellite, and telephone companies—known as MVPDs—for television, which is generally delivered via a set-top box attached to a television. Congress directed FCC to adopt regulations to assure a commercial market for devices to access MVPDs, and in February 2016, FCC proposed a rule intended to do so. Many industry stakeholders raised concerns about the proposal's potential effects, and FCC did not issue the proposed rule. This report examines: (1) the role of set-top boxes in accessing video programming content and (2) views of selected stakeholders and experts on the need for FCC regulation regarding set-top boxes and FCC's analysis of such need.
GAO analyzed data from a media research group regarding the video market and interviewed 35 industry stakeholders including 12 MVPDs, 5 video content producers, 3 device manufacturers, 12 industry associations, and others; GAO selected stakeholders based on comments filed with FCC on its 2016 proposed rule. GAO also interviewed 11 industry analysts and experts selected based on industry coverage and publications.

What GAO Found

Set-top boxes play a significant but diminishing role in delivering video content in an evolving video market. Subscribers to multichannel video programming distributors (MVPD)—companies that provide pay television services via subscriptions such as cable and satellite companies—generally need a set-top box to access MVPD television services, and most subscribers lease a set-top box from their MVPD. However, consumers can now access video through a wide range of Internet-based services without a set-top box, using a variety of Internet-capable devices, such as tablets. Internet-based services include those providing on-demand video such as Netflix and some, such as Sling TV, providing live content similar to that from MVPDs. Some Internet-capable devices, such as Roku, allow people to watch Internet-based video on televisions. In recent years, subscriptions to MVPDs have fallen as more Internet-based services have become available. Partly in response to this competition, many MVPDs have begun offering content over the Internet to subscribers, accessible on many Internet-capable devices, including streaming devices that display it on televisions. While in most cases, MVPD subscribers still need a set-top box, a few MVPDs GAO interviewed now allow subscribers to access content they subscribe to solely over the Internet, without a set-top box.
The Federal Communications Commission (FCC) has conducted limited analysis of the need for regulations to assure a commercial market for devices, such as set-top boxes, to access MVPD services. Most stakeholders and experts GAO interviewed said that further regulations for this purpose were not needed, given recent changes in the video content market. FCC is directed by law to set regulations to assure a commercial market for devices to access MVPD services. However, the law also specifies that any such regulations may no longer apply if FCC determines that the markets for both MVPD services and devices to access MVPDs are fully competitive. Moreover, while it does not extend to independent agencies, Office of Management and Budget guidance says agencies could use analyses to evaluate the need for proposed actions. However, FCC proposed a new rule in 2016 to promote a commercial set-top box market without undertaking a comprehensive analysis of the competitiveness of the market to support the proposed rule. FCC did not enact a final rule. Stakeholders had differing views on the potential effects of the proposed rule, but some raised concerns that the rule could have had negative effects on MVPDs and content providers. As described above, widespread changes in the video market in recent years have expanded consumers' choices for video services as well as devices to access those services. Nineteen of the 35 industry stakeholders GAO interviewed said rules are not needed at this time, while 8 said rules are still needed. (The rest gave uncertain answers or did not comment on this issue.) Without a comprehensive analysis, FCC lacks information on the extent of consumer choice and, furthermore, the extent to which increased options for video services affect the relative importance of consumer choice for devices to access MVPDs. Such an analysis could help FCC determine if additional regulations are needed and, as the market likely continues its rapid evolution, could serve as a benchmark in FCC's further consideration of whether market conditions have been met such that regulations may no longer apply.

What GAO Recommends

GAO recommends that FCC conduct a comprehensive analysis of how recent industry changes related to video services affect consumer choice for devices to access video services.
FCC agreed with GAO's recommendation and provided technical comments that GAO incorporated as appropriate.