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How Technological Innovation in Media Provokes Industry and Regulatory Change

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How Technological Innovation in Media Provokes Industry and Regulatory Change How Technological Innovation in Media Provokes Industry and Regulatory Change A Thesis Submitted to the Faculty of Drexel University by Chelsea Fletcher in partial fulfillment of the requirements for the degree of Master of Science in Television Management December 2017 © Copyright 2017 Chelsea Fletcher. All Rights Reserved. ii Table of Contents ABSTRACT ..............................................................................................................iii 1. INTRODUCTION .................................................................................................1 1.1. Statement of the Problem ....................................................................................2 1.2 Background and Need ..........................................................................................3 1.3 Research Questions ..............................................................................................5 1.5 Significance to the Field ......................................................................................6 1.6 Definitions............................................................................................................6 1.7 Limitations ...........................................................................................................9 1.8 Ethical Considerations .........................................................................................10 2. REVIEW OF THE LITERATURE .......................................................................10 2.1 Stakeholders in the Industry.................................................................................11 2.2 Laws and Regulation............................................................................................13 2.3 Industry Effects ....................................................................................................20 3. METHODOLOGY ................................................................................................27 4. RESULTS ..............................................................................................................29 5. DISCUSSION ........................................................................................................33 5.1 Conclusion ...........................................................................................................37 6. LIST OF REFERENCES .......................................................................................39 7. APPENDIX A ........................................................................................................42 8. APPENDIX B ........................................................................................................52 9. APPENDIX C ........................................................................................................58 iii ABSTRACT How Technological Innovation in Media Provokes Industry and Regulatory Change Chelsea Fletcher The purpose of this thesis was to gain insight into the technology and regulation that is deeply ingrained in the television and media industries. Through two interviews conducted in Philadelphia, two industry professionals provided opinion and insight into the current landscape of television and media. Their deep understanding of the media industry landscape and the technological influences within this industry added support to trends already being documented. The key stakeholders that make up the television and media industry are evolving as is the technology that supports the industry and the stakeholders alike. Regulation of an industry that is evolving presents challenges for current legislation and in implementing new legislation. This thesis provides insights to understand past roles and decisions, present issues and direction for possible future changes. 1 CHAPTER 1: INTRODUCTION As new technology enters the television landscape, consumer consumption patterns change. The speed of development and the adoption rate of these new technologies threaten traditional television viewing habits and the structure of the industry. The most significant addition to the structure in recent years are Over The Top (OTT) services such as Netflix, Hulu and Amazon. These services are available across multiple platforms and can be a significantly less expensive alternative to a pay cable subscription. The noticeable decline in the number of pay TV subscribers has ramifications for large media companies that rely on subscriptions as a revenue source. Media companies and content producers each hold large stakes in how online video impacts other distribution services within the market. Starting in the mid 2000’s, the television industry transformed into a multi-screen ecosystem and traditional services like broadcast and cable operators no longer had the control they once did. In addition to OTT services, there are convergence technologies like Smart TVs which connect (or converge) the internet and television. This type of technology has reinforced a change in the relationship between consumers and the television industry. The Smart TV is an example of traditional media companies working with new media developers. The traditional stakeholders are becoming more involved in relevant new technology, even if it “threatens” their traditional business model in order to increase or just maintain market power (Guignard, 2015). Now that consumers and the media industry have begun to transform their relationship to incorporate technological advances, the owners of media companies 2 increasingly are forced to address their own relationships and regulations. Laws and regulations currently being enforced do not apply to the industry as it is today, but rather to the industry decades ago. Even entities like the FCC are facing regulatory issues when it comes to managing laws related to the consumer’s ability to use the internet for media consumption. The FCC is faced with deciding how free the pathway to the internet is or isn’t for consumers and if it is decided to regulate this pathway, levels of regulation will need to be determined (Guignard, 2015). The goal of this thesis was to analyze relationships and regulation between media companies, content providers and consumers. Areas of research will focus on the following: roles traditional media companies play in the adoption of new technology through regulation and copyright law, how and why companies maintain a strong foothold in the industry through company mergers/acquisitions, and the importance of regulation for the growth of the media industry. Additionally, through interviews with industry professionals, opinions are shared on the future of OTT services, relationships with traditional media companies, and opinions on regulatory changes throughout the media industry. 1.1 Statement of the Problem New technology is being introduced to the media industry at a rapid rate. Consumers who could have over 100 channel paid cable packages are now transitioning to other more advanced options and services. This trend greatly affects traditional media 3 companies, so much so that they are willing to work with or join forces with new technology companies, but at what price to them? The issue of fair regulation and decision making increasingly arises when the broadcast networks join forces with technology based companies. Both parties have a vested interest in new products or services as they directly affect consumer relationships and company revenue. Regulation of these relationships, agreements, and acquisitions has been developing at a slower rate than what is needed given the changing industry landscape. In addition to the internal industry relationships among media entities there is government involvement in regulation of these entities (Skroup & Kross, 2016). 1.2 Background and Need Companies like Comcast and Charter Communications are Pay-TV service providers that have been feeling the effects of a changing industry, especially over last 10 years. Customers are switching to OTT services like Netflix and Hulu and foregoing a 200+ channel lineup for more a-la-carte viewing. In order to use an OTT service, customers need an internet connection and this service is provided by the same cable company, Comcast or Charter. While Comcast or Charter are not gaining revenue through cable subscriptions they maintain their footprint by offering internet services and adjusting their business model (Krosse, 2016). The power and control within the television industry is shifting and traditional media companies are reacting. The traditional infrastructure has a tangible product, i.e. a 4 cable box and high upfront costs and so, it does not change rapidly, as opposed to internet services, which can change and adjust very quickly (Wildman and Flew, 2015). The rate of transformation and change has forced a change in legal concepts and regulation. Aside from Multichannel Video Programming Distributors (MVPD’s), there are television networks that are adapting to the OTT offerings. HBO for example, released HBO Now, which provides OTT HBO programming without a full video subscription. In the early stages, TV networks embraced services like Netflix by licensing their older programming; however, the long-term implication of this is ratings erosion (Gattuso, 2015). The current state of the television industry’s legislation, including areas like copyright law, patents and FCC regulations are attempting to manage content across these new platforms. OTT services rely on the content produced and distributed by traditional content companies
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