[Senate Hearing 112-856]
[From the U.S. Government Publishing Office]
S. Hrg. 112-856
THE CABLE ACT AT 20
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HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
JULY 24, 2012
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii KAY BAILEY HUTCHISON, Texas,
JOHN F. KERRY, Massachusetts Ranking
BARBARA BOXER, California OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida JIM DeMINT, South Carolina
MARIA CANTWELL, Washington JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri ROY BLUNT, Missouri
AMY KLOBUCHAR, Minnesota JOHN BOOZMAN, Arkansas
TOM UDALL, New Mexico PATRICK J. TOOMEY, Pennsylvania
MARK WARNER, Virginia MARCO RUBIO, Florida
MARK BEGICH, Alaska KELLY AYOTTE, New Hampshire
DEAN HELLER, Nevada
Ellen L. Doneski, Staff Director
James Reid, Deputy Staff Director
John Williams, General Counsel
Richard M. Russell, Republican Staff Director
David Quinalty, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel and Chief Investigator
C O N T E N T S
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Page
Hearing held on July 24, 2012.................................... 1
Statement of Senator Rockefeller................................. 1
Statement of Senator DeMint...................................... 2
Statement of Senator Kerry....................................... 4
Statement of Senator Hutchison................................... 7
Statement of Senator Isakson..................................... 53
Statement of Senator Pryor....................................... 55
Statement of Senator Thune....................................... 57
Statement of Senator Udall....................................... 59
Witnesses
Hon. Gordon H. Smith, President and Chief Executive Officer,
National Association of Broadcasters........................... 7
Prepared statement........................................... 9
Melinda Witmer, Executive Vice President and Chief Video and
Content Officer, Time Warner Cable............................. 12
Prepared statement........................................... 13
Martin D. Franks, Executive Vice President of Planning, Policy
and Government Affairs, CBS Corporation........................ 25
Prepared statement........................................... 26
Colleen Abdoulah, Chairwoman and Chief Executive Officer, WOW!
Internet, Cable, and Phone; Chairwoman, American Cable
Association.................................................... 28
Prepared statement........................................... 29
Dr. Mark Cooper, Director of Research, Consumer Federation of
America........................................................ 33
Prepared statement........................................... 34
Preston Padden, Senior Fellow, Silicon Flatirons Center, Colorado
Law, University of Colorado.................................... 46
Prepared statement........................................... 47
Appendix
Hon. Daniel K. Inouye, U.S. Senator from Hawaii, prepared
statement...................................................... 65
Letter dated July 20, 2012 to Senator John D. Rockefeller IV and
Senator Kay Bailey Hutchison from David Boylan, Chair, ABC
Television Affiliates Association.............................. 65
Letter dated July 20, 2012 to Hon. Daniel K. Inouye from Jamie
Hartnett, Executive Director, Hawaii Association of
Broadcasters, Inc.............................................. 67
Letter dated July 23, 2012 to Hon. John D. Rockefeller IV from
Paul A. FitzPatrick, President and CEO, RLTV................... 67
Letter dated July 24, 2012 to Hon. John D. Rockefeller IV from
Annette Garcia, President, Son Broadcasting--KCHF TV 11........ 68
Benjamin Orr White, Private Citizen, State of Hawaii, testimony.. 69
Response to written questions submitted to Hon. Gordon H. Smith
by:
Hon. Daniel K. Inouye........................................ 84
Hon. Barbara Boxer........................................... 84
Hon. Frank R. Lautenberg..................................... 87
Hon. Mark Warner............................................. 88
Hon. Olympia J. Snowe........................................ 92
Hon. Jim DeMint.............................................. 101
Hon. Kelly Ayotte............................................ 103
Response to written questions submitted to Melinda Witmer by:
Hon. Daniel K. Inouye........................................ 105
Hon. Barbara Boxer........................................... 105
Hon. Frank R. Lautenberg..................................... 107
Hon. Mark Warner............................................. 108
Hon. Olympia J. Snowe........................................ 110
Hon. Jim DeMint.............................................. 115
Hon. Kelly Ayotte............................................ 116
Response to written questions submitted to Martin Franks by:
Hon. Daniel K. Inouye........................................ 116
Hon. Barbara Boxer........................................... 117
Hon. Frank R. Lautenberg..................................... 118
Hon. Mark Warner............................................. 119
Hon. Olympia J. Snowe........................................ 121
Hon. Jim DeMint.............................................. 126
Hon. Kelly Ayotte............................................ 127
Response to written questions submitted to Colleen Abdoulah by:
Hon. Daniel K. Inouye........................................ 129
Hon. Barbara Boxer........................................... 129
Hon. Frank R. Lautenberg..................................... 130
Hon. Mark Warner............................................. 131
Hon. Olympia J. Snowe........................................ 132
Hon. Jim DeMint.............................................. 136
Hon. Kelly Ayotte............................................ 137
Response to written questions submitted to Dr. Mark Cooper by:
Hon. Daniel K. Inouye........................................ 137
Hon. Frank R. Lautenberg..................................... 137
Hon. Mark Warner............................................. 138
Hon. Olympia J. Snowe........................................ 138
Hon. Jim DeMint.............................................. 141
Hon. Kelly Ayotte............................................ 141
Responses to written question submitted to Preston Padden by:
Hon. Daniel K. Inouye........................................ 141
Hon. Frank R. Lautenberg..................................... 142
Hon. Mark Warner............................................. 142
Hon. Kay Bailey Hutchison.................................... 143
Hon. Jim DeMint.............................................. 147
Hon. Kelly Ayotte............................................ 148
THE CABLE ACT AT 20
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TUESDAY, JULY 24, 2012
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 2:35 p.m. in Room
SR-253, Russell Senate Office Building, Hon. John D.
Rockefeller IV, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
The Chairman. The hearing will come to order.
I thank our witnesses for being here, for coming whatever
distances you have come, and even if they are short, we are
still glad you are here.
Two decades ago we passed the Cable Act to promote
competition and to provide consumers with expanded choices at
lower rates. Today many consumers have a choice of video
providers, cable, satellite, and phone companies. Hundreds of
channels have been created catering to almost every interest
imaginable. Most people do not watch most of them. The Internet
now allows us to watch video on not just our televisions but
also our computers, our tablets, and our phones.
I know that many in the industry will argue that the Cable
Act achieved its goals. I will not go along with that argument.
I highly doubt that many consumers would agree. They feel that
they have to pay too much and they have very little choice in
picking the content that they desire to receive or can receive.
As this committee continues its discussion about the future
of the video, we must take a hard look at the Cable Act's
impact on modern television and the marketplace. I understand
that some want to make this hearing about retransmission
consent, and I agree that millions of Americans who are
currently victims of a number of high-profile, ongoing
programming disputes deserve answers as to why their screens
have gone dark. That has happened in West Virginia. Overheated
rhetoric alleging greed and bad faith is of little comfort to
somebody paying for services that they are not getting.
That is what the health insurance industry did to us, and
we stopped it. They cannot do that anymore. They are very
unhappy about it and they have actually had to return $4
billion of rebates because we passed a law which the Supreme
Court upheld. So $4 billion. I am getting phone calls from
people who have gotten checks in the mail because their health
insurance company obviously was going to continue to try and
only look at the bottom line, forget the consumer until the law
passed. Now the law has passed and now they know they are going
to get caught because they are being watched. And $4 billion in
a year back to consumers, that is pretty good.
It was certainly of no comfort to the tens of thousands of
West Virginians who needed access to news, weather, and
emergency information as they were recovering from a natural
disaster earlier this month, actually about the largest one, I
guess, in the history of the state. When consumers lose
channels in these corporate disputes, they should get a refund,
I believe. I think you do not believe that. I do and I think it
is only fair.
But retransmission consent is just part of a puzzle.
Although consumers often have the choice of video providers,
rates continue to go up faster than the rate of inflation, year
in and year out and year forever. They are tired of it. I am
tired of it. And rather than being able to pick smaller
packages or choose the channels they want, consumers are still
forced to purchase larger and larger packages of channels no
matter how few they actually watch.
This says to me that the market is not working. Real
competition should be bringing rates down. It is my general
impression that those I look at at the witness table, minus one
or two, that your profit margins are very, very high, maybe 30
to 40 percent per year, and the question that I would pose to
you is that for you this hearing is about how can we make this
work for corporate America in the world of television, et
cetera. My point of this hearing and my point in chairing this
committee is how can we do a better job of protecting
consumers. How can we do a better job of protecting consumers
to make sure they get what they want, that they do not have to
pay more than they should for it, that the companies involved
are thinking about consumers? First, companies always say that,
but rarely do that.
Real competition, as I said, should be driving rates down,
and it should be driving development. It should be bringing
consumers more choices, and it should be spurring new,
innovative products.
Today I want to take a close look at several core questions
about the Cable Act. Why has competition not succeeded in
bringing rates down and more programming choices and more
selection within those choices? Should the protections in the
Cable Act for various entities be maintained? How do we make
sure that consumers are protected and see real benefits as
video moves to the Internet, where people are increasingly
watching?
To our witnesses, again I say thank you for being here. I
look forward to your thoughts on these questions, and thank you
for joining us.
And now Senator DeMint, to be followed by Senator Kerry.
STATEMENT OF HON. JIM DeMINT,
U.S. SENATOR FROM SOUTH CAROLINA
Senator DeMint. Thank you, Mr. Chairman, for holding this
important hearing and for your continued interest in the video
market.
The communications sector, particularly video distribution,
is one of the most dynamic, innovative, and competitive in our
consumer economy, as shown by the FCC's long overdue video
competition report released last Friday.
It is important for us, Mr. Chairman, to remind ourselves
of what is the role of government as it comes to this industry
and others. It is not our role to manage or to control any
business or industry in this country. In fact, our role is more
of providing a good legal and regulatory structure for
competition to flourish. When that competition is not there,
the government does have to play a role, a surrogate role, to
protect the consumers, but hopefully we know, as we look out
across the free enterprise system in this country today, that
the best protection for consumers is competition and choice.
The law at issue today, the 1992 Cable Act, did not
contemplate the dynamic market we now have, but rather simply
answered problems in a snapshot of the market as it was 20
years ago. I think today's competitive offerings from satellite
to telephone companies, rapidly expanding online video
services, and more than 500 non-broadcast networks that are now
clearly available were not available in 1992.
Last year I introduced the Next Generation Television
Marketplace Act to begin withdrawing government meddling from
the video industry. There are two primary government
interventions in the video market which my bill repeals:
compulsory copyright licenses and retransmission consent. As
the Committee educates itself and moves toward action on these
issues, I want to make clear that the repeal of both of these
government interventions must occur in tandem if we are to make
lasting progress. Broadcasting is a wonderful technology and
industry. I believe there is tremendous consumer interest and
benefit in locally oriented programming, and I believe there is
tremendous value which locally produced broadcast programming
brings to the market.
I do not believe, however, that local broadcasters need
government intervention to be viable. It is actually the very
competition we have today among many competing video
distribution services that favors broadcasters. To the extent
broadcast programming is compelling and marketable to viewers,
pay-TV providers have an interest in acquiring the rights to
carry that programming on their subscription services.
It is this competitive dynamic among pay-TV providers which
did not exist in 1992 that today makes government protection of
the broadcasting industry unnecessary. That dynamic would not
change because of my legislation. In fact, it seems that a
right grounded in constitutional copyright is preferable to a
manufactured right, retransmission consent, which will
constantly be threatened by industry lobbyists, FCC
bureaucrats, and meddling politicians. I believe my bill
removes government intervention, thereby allowing unencumbered
private parties to negotiate contracts based on private
property rights.
It is time to recognize that retransmission consent
negotiations are not actually free market negotiations. They
are more accurately an inefficient proxy for free market
carriage negotiations based on copyright licensing like those
for more than the 500 non-broadcast networks which get carried
in the market today. Unfortunately, a copyright-based
negotiation for broadcast programming was prevented by Congress
with the passage of the compulsory licensing for cable and
satellite providers beginning in 1976. They also are affected
by punitive measures which limit the rights of consumers and
pay-TV providers, including the mandate on cable companies to
place broadcast channels on their basic service tiers and the
mandate on consumers to purchase those basic tiers. That
answers one of the chairman's questions, why do consumers have
to buy things they do not want. Part of it is we require them
to.
Make no mistake. Retransmission consent was and is a
construct of lobbyists and politicians. It is not the model
that would have developed in a free market, and it is not a
model rooted in constitutional property rights. It was a right
created out of whole cloth to combat a cable monopoly and make
up for an earlier government imposition, the compulsory
copyright license. Today the cable monopoly is gone with two
nationwide satellite services, widely available competitive
video services from traditional telephone providers, and online
video distributors available to any home with broadband. In
short, the 1992 Act is obsolete.
Also, the existence and widespread copyright-based carriage
of more than 500 non-broadcast networks is proof that video
compulsory licensing is likewise no longer needed.
Cable and satellite companies have, unfortunately, long
sought remedies which invite further government involvement in
the marketplace, but these suggested fixes would only add to
the existing framework of mandates and restrictions when what
we need is a simpler rulebook for all market participants. We
should work together in this committee to encourage more
innovation, new competition, job creation, and consumer freedom
and remove rules written to serve the last century's business
and regulatory models.
The next generation television marketplace does just that.
Mr. Chairman, our nation's laws regarding the video
marketplace include mandates on individual consumers and
businesses, they violate the property rights of content
creators, and they treat similar services differently. I
believe we should be creating a deregulatory parity in the
video market so investment and innovation, not lawyers and
lobbyists, is rewarded in a free economy to the ultimate
benefit of consumers.
I want to again express my sincere interest in working
together with you, Mr. Chairman, to seek ways to improve our
laws and regulations to better serve competition, innovation,
the national economy, and most importantly, American consumers.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator DeMint.
The Subcommittee Chairman, Senator Kerry?
STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. Thanks very much, Mr. Chairman. I appreciate
it, and I appreciated listening just now to Senator DeMint's,
future Ranking Member's, comments as we sort of examine this.
The Cable Act at 20. It is interesting to analyze it and
look at it. I think most people would agree that it kind of
brought us what we wanted, which was pretty broad-based
competition. And I think that is one of the things we are going
to need to analyze, Mr. Chairman, to what degree did we really
create a playing field with a lot of competition in it.
It is good to have Senator Smith back. Mr. Smith is back in
Washington, and I appreciate your being here. I would be very
interested in your comments after this hearing of what it is
like to be on the other side of the table and what your
reactions are.
But as I listened to Senator DeMint, boy, there is a real
divide here which is going to be interesting to see how we
manage it because Senator DeMint would repeal the
retransmission consent and must-carry systems, along with a
number of other things, repeal the statutory copyright license,
repeal the broadcast television basic tier rules, the buy-
through prohibition, and the existing media ownership rules.
That is a mouthful.
And in the end, what we are going to need to look at, Mr.
Chairman, is what is the impact of that, because as I read it,
it would essentially make broadcast channels just like any
other cable channel, meaning that the cable companies could
purchase the content from a single source or multiple sources
rather than from the local broadcaster. I think everybody would
agree that is going to have a profound impact on the
distribution in the marketplace. It would have a profound
impact, I think, ultimately on the concentration of ownership,
which has been one of the fundamentals that guided us as we did
the 1992 Act. It would do nothing to resolve this question of
negotiating stalemates, and it would result probably in very
few broadcasters being around, I would suspect. So we are going
to have to look at that very closely.
And I would just ask the Senator to keep his mind open to
think about those impacts because to make the cable law in
1992, Mr. Chairman, it is good to remember that we had to
overcome a Presidential veto. We did. We did it on a bipartisan
basis fundamentally making the judgment that we were protecting
consumers, promoting competition, and preserving the viability
of local broadcasting. And as we look to update the law, I
think it is going to be important for the Committee to keep
those goals in mind, and we obviously have to put to test the
propriety of them or the viability of them, but I would suspect
they are pretty viable today.
So among other things, the 1992 Act created the current
retransmission consent regime, and with Time Warner Cable and
Hearst recently ending the latest retransmission consent
dispute, which saw service disrupted for millions of
households, that subject probably is going to take up some of
this hearing.
Chairman Rockefeller in his opening comments raised this
question also of the rising rates and of the hopes for
competition to be able to deal with that. I might mention that
in the most recent dispute, the station that was pulled from
Time Warner Cable in the Boston area during that period, WCVB,
was recently named as the Edward R. Murrow Award winner for the
Nation's most outstanding news operation. It is a broadcast
operation. And we take pride in that. We want to see it succeed
and obviously receive fair compensation for the retransmission
of its signal. But we do not want to see the pulling of signals
repeatedly used as the common tool for arriving at a resolution
between distributors and broadcasters. It simply is not fair to
consumers who get trapped.
And this is not a new problem. I chaired a hearing on this
in 2010 after disputes threatened viewer access to the Oscars
and the World Series that year. I asked the FCC to explore its
authority to help protect consumers, but the FCC Chairman
concluded that he lacked the legal authority to intervene
during an impasse in negotiations, and as a result, disputes
and standoffs now continue with millions of consumers being
affected.
Some people argue that these disruptions are okay because
cable subscribers can simply switch to satellite service, but
switching in fact does not protect consumers from the disputes.
In March 2011, Dish customers in 17 markets lost their CBS,
Fox, NBC, and CW signals for 6 days, and earlier this year,
DirecTV and Sunbeam Television reached an impasse in the weeks
leading up to the Super Bowl which, as you can imagine, caused
certainly huge consternation in New England because the New
England Patriots were playing. Fortunately, the signal was
restored prior to the game. Unfortunately, the Patriots lost
the game.
[Laughter.]
Senator Kerry. In extreme cases, it may be that pulling the
signal is a broadcaster's only choice, but I think good faith
negotiations--there ought to be a way to set up a process for a
negotiation to be exhausted and consumers still ought to be
able to have access during some kind of temporary negotiating
impasse to live events like college bowl games or the World
Series or debates for public officials or the Oscars and so
forth.
Now, I want to personally preserve local broadcasting. I do
not think that means the government has to somehow intervene or
sustain it, but a fair, competitive structure can be set up to
recognize their values and the values of their programming. And
I would not personally support a radical proposal to eliminate
a retransmission consent right or must-carry requirements
altogether, but I do want to shield consumers from unfair
treatment or from being used as pawns in negotiations.
And, Mr. Chairman, the disputes obviously also occur
between distributors and non-broadcast channel owners,
including the recent dispute between Viacom and DirecTV and AMC
and Dish. But those disputes do not elicit the same level of
concern because those station owners do not have public
interest obligations. They do, however, raise questions about
how to appropriately value bundled channels where stations in
the bundle are dramatically more valuable than others, and that
is tricky obviously.
So I would hope the industry would really step up here and
construct an alternative to the disruption of service during
negotiations, and I would urge the FCC to complete its pending
Notice of Proposed Rulemaking on retransmission consent. And I
hope we here on the Committee will explore the role of the
Internet as an alternative vehicle for accessing video content.
So I think we need to think about the degree to which
consumers can customize their consumption of media and control
over spending. I think that our obligation is to maximize that
access and maximize that control, and that will come through
really fair and open competition where you cannot have the
kinds of imbalances that have occurred.
So, Mr. Chairman, these are important issues. They have
social, they have civic, they have economic, and they have in
the end, vast educational and political implications for all of
the working families and citizens and consumers of our country.
And I look forward to working with you on them because they are
really critical to how information will flow and sort of what
kind of discourse and access to information we will have in our
country. Thank you.
The Chairman. Thank you, Senator Kerry.
The Ranking Member, Senator Hutchison?
STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM TEXAS
Senator Hutchison. Well, thank you, Mr. Chairman. I
apologize for being late.
I am not going to read my full statement, but just to say,
I guess we can tell from the last two statements that have been
made there will be a lot of disagreement about the way forward.
We can agree that 20 years ago when the first bill was
passed, that things have exploded since then, and on the one
hand, you can say, well, the competition is so diverse now that
not having another big regulatory overreach is maybe a good
thing, which in general I think we certainly have a lot of
competition. On the other hand, the issues that have arisen
from all of the proliferation of options has also caused some
of the investment that has been made to be obsolete. So how do
we deal with that?
I am very anxious to hear what our witnesses say because it
is a very diverse group of experiences that are before us. So I
will not put my statement in the record, but I will be
interested in what enlightenment you can give us that would
give us only what is necessary to be done. I do not want to
regulate any more than is absolutely necessary, but how do we
keep a level playing field?
Thank you, Mr. Chairman.
The Chairman. Did the gentlelady, as they say in the House,
say that she did not want to put her statement in the record
because she did not.
Senator Hutchison. I did not. I will not.
Senator Coons. Well, what if I want to?
Senator Hutchison. Well, my statement is pretty sophomoric
compared to all of the issues that we are facing.
[Laughter.]
Senator Hutchison. So I am going to just listen.
The Chairman. I back off.
Our first witness will be former Senator, Gordon Smith,
President and Chief Executive Officer, National Association of
Broadcasters.
And we do not have a lot of time. We have a lot of charts
and perhaps a lot of testimony, and we have a lot of people who
will have a lot of questions. So be concise please.
STATEMENT OF HON. GORDON H. SMITH, PRESIDENT AND CEO, NATIONAL
ASSOCIATION OF BROADCASTERS
Mr. Smith. I will be as quick as I can, Chairman
Rockefeller.
Thank you. I thank Ranking Member Hutchison and the members
of this committee. It was my privilege to serve with you on
this prestigious committee. Remembering that privilege, it is
my pleasure now to return and represent a great trade
association, the National Association of Broadcasters. I also
thank all of the broadcasters from around the country who have
come to participate in this hearing.
Part of what has made my new job at NAB so fulfilling is
the focus that broadcasters have on public service. With a
father that worked for Eisenhower and a mother with the last
name of ``Udall,'' public service remains an important value to
me.
In large cities and small, in blue states and red, local
television stations are an indispensable source for quality
entertainment, high profile sporting events, emergency weather
warnings and disaster coverage that can literally make the
difference between life and death. We serve tens of millions of
Americans every day, are responsible for close to 700,000 U.S.
jobs, and are the primary advertising conduit for businesses,
small and large, in communities of all sizes across this great
country. Local broadcast television is a wholly unique video
service because it is free. It is locally focused and it is
always on, even when pay-TV, wireless and broadband networks
may fail.
That is precisely what is at stake today as we review the
1992 Cable Act which enables a local television model that is
the envy of the world. Respectfully, I ask that you focus on
the possible devastating impacts that proposed changes in the
law could have on broadcast localism and on the 56 million
Americans that rely on free local television stations every
day.
The 1992 Cable Act ushered in an era of unprecedented
choice of television content and provided local TV stations the
opportunity to finally realize their full value of our
television signals through a free market system called
``retransmission consent.'' Some on this panel will argue that
the retransmission consent system is 20 years old and is
somehow broken. I would submit that even after 2 decades, the
retransmission consent system is working just as the Committee
wisely intended.
There are over 5,800 cable companies in the United States.
Only three-tenths of 1 percent of those cable companies have
ever been party to a service disruption. The fact is over 99
percent of deals are amicably completed with no disruption to
the consumer. If you take a closer look at the disruptions, you
will find three companies, Time Warner Cable, DirecTV, and
Dish, that are principally the party for the vast majority of
disruptions. These three pay-TV companies have been involved in
three out of every four disruptions in 2012.
Now, let me be clear. We do not begrudge our pay-TV friends
the right to make a profit, but when it comes to programming
costs, fair is fair. Even after almost 20 years, television
broadcasters still do not receive compensation commensurate
with their ratings. The fact is demonstrated by this chart from
SNL Kagan. The chart shows the total fees paid to cable
companies. The dark blue represents the total retransmission
fees to broadcasters. The light blue are the fees paid to basic
cable networks. As you can see, in 2012, cable networks
received just over $29 billion in fees, but local broadcasters
received just over $2 billion. The wide disparity between fees
for cable and broadcast channels does not reflect our value in
the marketplace. Broadcasters are not the source of rising
cable fees. The cost of cable channels and cable profit margins
are, of course, the source.
And, of course, I know each of you is concerned with how
contractual impasses between broadcasters and pay-TV companies
affect your constituents. I remember that. What you should know
is that some proposed changes could actually result in more
consumer disruptions. Removing compulsory copyright license,
for instance, would exponentially increase the number of rights
holders that need to grant permission before a station's
programming is carried by a cable or satellite company, thereby
certainly increasing the likelihood of increased consumer
disruptions. Instead, we encourage more creative solutions to
this issue.
First, we urge the FCC to insist that pay-TV providers give
viewers ample notice of a possible disruption in service.
Second, the FCC should allow customers to easily switch
among competing pay-TV providers without incurring financial
penalties and also receive refunds when stations are
unavailable.
And third, we as broadcasters could do a better job by
educating consumers about the availability of free, over-the-
television with plugging in the antenna that comes with TV.
In conclusion, Congress in its wisdom fostered what is
unique across the globe, a local broadcasting system that
provides local content and community-focused programming. It is
how communities share common experiences. It is how you as
Senators communicate with your constituents. It is a lifeline
in moments of great peril. I urge you to carefully consider any
changes to this truly remarkable broadcasting system.
And I thank you all for having me here.
[The prepared statement of Mr. Smith follows:]
Prepared Statement of Hon. Gordon H. Smith, President and CEO,
National Association of Broadcasters
Thank you Chairman Rockefeller, Ranking Member Hutchison, and
members of the Committee. I appreciate the opportunity to be with you
today. I share so many fond memories of service on this committee and
in serving with so many of you, that it is very meaningful to be a
participant in today's hearing.
I am here on behalf of the 1,300 free, local, over-the-air
television stations who are members of the National Association of
Broadcasters. Those members are the local television stations that you
and your constituents have come to know and depend on: the Quincy
station in Bluefield, West Virginia--WVVA; the Post-Newsweek station in
Houston, Texas--KPRC; the Saga station in Joplin, Missouri--KOAM; the
Allbritton station in Little Rock, Arkansas--KATV; and the Hubbard
station in Minneapolis, Minnesota--KSTP, to name a few.
Local television stations are iconic brands that Americans identify
with and rely on as a link to their local communities. I believe that
everyone has a unique connection to local television--whether it is in
the place where they grew up or where they live now. Local television
is the go-to choice for news, emergency service, and entertainment and
is what people depend on to stay connected daily. Importantly,
broadcasters' over-the-air signals enable these stations to remain
available during times of crisis when other forms of communication may
fail.
Recent events have helped highlight the role local television
stations play in providing life-saving coverage in times of emergency.
Local broadcasters alert and inform viewers with critical information,
as they did during the June derecho that swept through West Virginia
and the Washington, D.C. region. Bluefield, West Virginia's WVVA
provided wall to wall coverage on the storm giving updates on power
restoration, providing locations of shelter areas and cooling stations,
and noting road closures in southern West Virginia and southwest
Virginia. Local stations, like WVVA, are a trusted source in such
challenging times, and make a difference in people's lives.
Several times a year, your offices receive NAB's newsletter,
``License to Serve: A Chronicle of Broadcasters' Community
Initiatives.'' This newsletter illustrates the many public service
activities broadcasters organize on any given day across the country. A
recent spring edition highlighted local broadcaster efforts in Kentucky
and Indiana when tornadoes ripped through those two states. Last year,
monthly editions covered the local broadcast response to the
devastating weather in Missouri and Alabama. These newsletters can be
found on NAB's website, NAB.org, under Public Service Initiatives, and
may be a great resource to your offices. Simply, these stories show
local broadcasters at their best.
A vibrant system of local television serving local communities is
the underpinning of our system of telecommunications. Congress
envisioned a system where local stations are given the opportunity to
compete within defined television markets while serving a larger public
interest. Local television stations take that responsibility very
seriously by providing local news, programming, and services to their
communities. As a result, local stations have immense value to all
citizens.
The viability of local broadcast stations, and their continued
local service, is tied to their ability to negotiate for fair value and
carriage of their signals through a process known as ``retransmission
consent.'' In today's competitive video market, retransmission consent
compensation enables broadcasters to deliver free and locally-focused
programming and services. Broadcasters continue to reinvest their
revenues in local news and coverage. In 2011, broadcasters hired more
than 1,100 additional anchors, reporters, producers and news staff.
Total employment in local television newsrooms grew by 4.3 percent to
27,653 employees. This is the second highest total on record. The
average television station also set a new record in 2011 for the amount
of local news aired--the average amount of news rose to five and a half
hours per weekday last year. Retransmission consent is particularly
significant for supporting local news operations in smaller markets
with more limited advertising revenues.
The fundamental fairness is apparent in allowing stations to
negotiate for compensation from pay-TV providers that use a local
station's signal to attract subscribers. The value of the local signal
encompasses a broadcaster's assembly of the total programming package,
as well as its promotion and distribution. Of course, this value is
enhanced by the quality of broadcast programming, both local and
national. With viewership and ratings, broadcast television is
unparalleled--95 of the top 100 rated shows during the 2010-2011
television season were on broadcast TV. With respect to price,
broadcasters receive only a fraction of the total carriage fees paid by
cable companies. Carriers continue to pay considerably more for non-
broadcast channels than for broadcast signals, even though the non-
broadcast channels attract smaller audiences and yield lower ratings.
When put in terms of the average consumer cable bill, the cost of
carriage for broadcast-owned signals comprises 2 percent of the cost to
the consumer, while non-broadcast channels comprises 41 percent of that
cost. Broadcast television accounts for 35 percent of all television
viewership, yet broadcasters in total receive only 6.7 percent of
carriage fees. That number is projected for slow growth in coming
years, but this market dynamic is affected by the suggestion of
legislative or regulatory change.
I often hear references to the 20-year-old carriage law as if that,
by itself, justifies change. These references ignore how new and recent
retransmission consent cash compensation is for television
broadcasters. In the 1992 Cable Act, local television stations were
given the option for carriage via a must-carry election or through the
opportunity to negotiate. However, it has only been very recently that
many local broadcasters have come to receive cash compensation for
their signals through these negotiations. When some focus only on 1992,
we should also remember that for many years carriers refused to pay
cash to local broadcasters. The simple fact that the nature of the
compensation for retransmission consent has changed does not
demonstrate a problem. Rather, it shows the means of achieving the
fairness that Congress contemplated has evolved along with the market.
When some suggest that these laws are ripe for a rewrite, they
misstate history and facts. Direct broadcast satellite (DBS) services
were not a truly viable competitor to cable until Congress authorized
local-into-local service in the Satellite Home Viewer Improvement Act
of 1999. For households unable to receive local-into-local DBS service
for one reason or another, a viable competitor to cable did not come
until 2003 when regulatory changes brought fiber to the home. When
these new market entrants began clamoring for local broadcast signals,
marketplace competition finally vaulted retransmission consent into a
revenue stream that began to compensate broadcasters for their true
value.
Some proposals have emerged seeking to address aspects of
television carriage and video programming. Last Congress, there were
suggestions to expand the role of government in private business-to-
business carriage negotiations. This Congress, legislation seeks to de-
regulate the video marketplace. In evaluating each proposal, NAB
suggests that the benchmark should be the impact on local broadcasters
and their ability to continue offering the level of community service
that viewers expect and deserve.
In looking at S. 2008, there are some provisions that broadcast
groups may look favorably upon and others that raise concerns and may
require more thoughtful consideration. Language that would eliminate
carriage provisions like retransmission consent and must-carry is a
chief concern. These suggestions only fuel those carriers that would
rather seek to change the law than engage in meaningful negotiation.
They also come at a time when local television stations are more fully
realizing the value of their signals.
The legislation also proposes significant changes to cable and
satellite compulsory licenses. While NAB could look favorably on the
elimination of some of these licenses (such as the distant signal
licenses), Congress should know that wholesale changes may well result
in serious disruptions and diminish the availability of programming
viewers have come to expect on their local stations.
I understand that the intent of this proposal is for broadcasters
to maintain control of the copyright interests through direct licensing
and to allow for carriage negotiation. As I noted earlier, though, the
local broadcasters' value in its signal is not the same as the
copyright interests in the programming elements. Many stations may be
unable to undertake the expensive and cumbersome responsibility of
direct licensing, and such a change might affect the ability of local
stations to serve their local markets.
Another impact is on those stations that simply elect carriage
through must-carry rules rather than seeking compensation.
Telecommunications policy has always acknowledged a public value to
these stations and for viewers in a community to have access to local
offerings. There is a community value in viewers being able to see WFMZ
in Allentown, Pennsylvania and its localized and extensive news
coverage of the northern tier of the Philadelphia market. There is also
a community value to viewers being able to see religious, minority, and
other niche programming. The legislation removes this carriage option
which will leave many of these stations off systems and may weaken the
diversity of offerings in markets and to viewers.
We will continue to review and engage on this and other legislative
proposals before the Committee. Our underlying goal is always to enable
the continued viability of your local television stations to serve
their communities.
Also, as this committee continues its forward looking approach to
communications policy, video programming providers--including
broadcasters--may benefit from the deployment of new online video
distribution platforms and competitive subscription television
services. These platforms could provide new opportunities for local
broadcast stations to reach more local viewers and augment program
services to their communities.
To achieve these public policy objectives, broadcasters must
continue to have the right to control the distribution of their signals
and to negotiate with broadband video service providers seeking to
retransmit such signals. If new technologies are allowed to evade
retransmission consent and exploit broadcasters' signals without local
stations' consent, the viability of those stations--and their ability
to serve their local communities with high quality programming--will be
lost.
In conclusion, local broadcasters serve the public interest and
have a unique position in the telecommunications marketplace, both
today and well into the future. As Congress shapes policy to address
the hyper-competitive television marketplace, it is essential that key
underpinnings, such as broadcast television carriage, remain
cornerstone public policy goals.
The Chairman. Thank you very much, Senator Smith, and I
appreciate your interest in refunds. It has worked well with
the health insurance industry, as I indicated.
Our next witness is Ms. Melinda Witmer, Executive Vice
President and Chief Video and Content Officer, Time Warner
Cable, not a small operation.
STATEMENT OF MELINDA WITMER, EXECUTIVE VICE
PRESIDENT AND CHIEF VIDEO AND CONTENT OFFICER, TIME WARNER
CABLE
Ms. Witmer. Good afternoon, Mr. Chairman, Ranking Member
Hutchison, and members of the Committee. My name is Melinda
Witmer of Time Warner Cable. Thank you for inviting me here to
appear today.
Nearly 20 years ago, Congress passed legislation intended
to promote innovation in the video marketplace by fostering the
development of competitive alternatives to cable. The 1992 Act
also sought to preserve local broadcasting by giving station
owners a subsidy through a new regulatory right called
``retransmission consent.'' Broadcasters also benefit from a
host of other special privileges. These include mandatory
carriage on cable's basic tier of service, preferential channel
placement protection, and territorial exclusivity provisions
that limit cable operators' ability to carry out-of-market
television signals. These rules were adopted at a time when
cable operators generally were the only pay-TV option to
consumers. That world no longer exists.
Today cable operators face competition from three or more
pay-TV providers in virtually every community. In fact, cable's
share of video households has declined from 95 percent in 1992
to approximately 58 percent today. Cable operators also face
growing competition from Internet video offerings and a much
more robust digital broadcast distribution system.
Given the marketplace changes over the last 2 decades, many
provisions of the 1992 Act are no longer needed and, worse yet,
have become counterproductive. One provision in particular,
retransmission consent, has led to significant and ongoing
consumer harm. This is the focus of my testimony today.
Congress established retransmission consent to bolster the
continued availability of local broadcast television.
Unfortunately for consumers, we are seeing the opposite result.
Retransmission consent negotiations are now characterized by
escalating blackout threats as broadcasters make clear that
they are willing to pull their signals to increase their
bargaining leverage. And the Big 4 broadcast networks now
demand a significant cut of the fees obtained by affiliated
stations. This creates even more pressure for rate increases
and more contentious negotiations.
As a result of these dynamics, the number of disputes and
blackouts has risen dramatically. In the first half of this
year alone, there have already been 69 blackouts, a 35 percent
increase over all of last year. Owners of broadcast stations
have said the sky is the limit when it comes to their
compensation demands. Unfortunately, we can expect public
disputes and blackouts to increase in the future.
Congress also intended retransmission consent to subsidize
and preserve localism, but that objective has been subverted as
well. Despite demanding significant increases in retransmission
consent fees, local broadcasters are cutting costs and scaling
back on local news programming. Many broadcasters are also
duplicating news programming across multiple stations in the
same market.
Another unintended and negative consequence of
retransmission consent is that it allows broadcasters to force
distributors to purchase a bundle of affiliated cable networks
even if there is little or no demand for some of those
channels. This has resulted in bloated packages and higher
costs to consumers.
In 1992, Congress was concerned with the fact that more
than 53 percent of the national cable networks were owned by
cable operators. That number has fallen to approximately 14
percent. In sharp contrast, due largely to retransmission
consent, Big 4 broadcasters now own 60 percent of the top 50
cable networks.
Finally, it is clear that the social compact between
broadcasters and the public is broken. Broadcasters were given
the free use of tens of billions of dollars worth of spectrum
and other special privileges in return for a commitment to
serve the public interest, but broadcasters should not have it
both ways. They cannot claim that without special treatment
they can no longer provide consumers with local news and
information and at the same time reduce their spending on
localism and deny pay-TV customers access to their signals
during disputes. Contrary to broadcaster assertions,
retransmission consent and the host of protections that go with
it is the opposite of a free market.
The time has come to update the Nation's laws to reflect
the current competitive and technological landscape to best
ensure that the public interest is served. We applaud the
leadership of Chairman Rockefeller, Senator Hutchison, Senator
Kerry, and Senator DeMint on this issue. Senator DeMint's
legislation has begun an important dialogue and we look forward
to working with all of the members of the Committee as it
undertakes this essential task.
Thank you.
[The prepared statement of Ms. Witmer follows:]
Prepared Statement of Melinda Witmer, Executive Vice President and
Chief Video and Content Officer, Time Warner Cable
Good afternoon Mr. Chairman, Ranking Member Hutchison, and members
of the Committee. My name is Melinda Witmer, and I am Executive Vice
President and Chief Video and Content Officer of Time Warner Cable.
Time Warner Cable is the Nation's second largest operator of cable
television systems and the fourth largest multichannel video
programming distributor (``MVPD''), serving more than 12 million
subscribers in 29 states. I want to thank you for inviting me to appear
before you today to share Time Warner Cable's perspective on the 1992
Cable Act and its role in the television marketplace of the twenty-
first century.
As the title of this hearing indicates, the 1992 Cable Act is
turning twenty years old this year. This legislation, enacted over a
presidential veto, has defined the role of government in the regulation
of the video marketplace for two decades.\1\ During that time, vast
changes have occurred in the competitive and technological landscape.
Thus, it is both necessary and appropriate for Congress to take a fresh
look at whether the provisions of the 1992 Act have met their goals and
whether they continue to serve the public interest.
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\1\ Cable Television Consumer Protection and Competition Act of
1992, Pub. L. 102-385 (1992).
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The principal goal of the 1992 Act was to protect consumers and
promote innovation while fostering the development of competitive
alternatives to cable services, which at the time constituted the only
pay television option for most consumers. Congress's objective was for
competition eventually to take the place of regulation. This was made
clear in the Act's Statement of Policy, where Congress expressed its
preference ``to rely on the marketplace'' rather than regulation
wherever feasible.\2\ Consistent with this policy, several of the Act's
provisions were expressly designed to be temporary, such as the rate
regulation measures and certain provisions governing competitors'
access to vertically-integrated programming.
---------------------------------------------------------------------------
\2\ Id. at Section (2)(b)(2).
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A separate, but related goal of the 1992 Cable Act was to address
the concern that competition from non-broadcast cable networks,
particularly those that were owned by cable operators, was diverting
viewers and advertisers from local broadcast stations and thus
threatening the future of ``free'' over-the-air local television.\3\
Among other things, Congress created a new regulatory right, called
retransmission consent, which broadcasters could elect to invoke when
it served their interests. Retransmission consent is one of a number of
special privileges given to broadcasters by the government as part of a
thicket of outdated regulations. These special privileges, which also
include must carry rights, territorial exclusivity protection, a
guaranteed right to basic tier carriage and, of course, the
broadcasters' free use of the public airwaves, were supposed to
safeguard the public's access to broadcast programming. Unfortunately,
given the dramatic changes over the last twenty years, that is not the
case today.
---------------------------------------------------------------------------
\3\ S. Rep. No. 102-92 (1991) at 1168 (``Senate Report''). See also
138 Cong. Rec. S14615-16 (Sep. 22, 1992) (Statement of Sen. Lautenberg)
(``if a broadcaster is seeking to force a cable operator to pay an
exorbitant fee for retransmission rights, the cable operators will have
an opportunity to seek relief at the FCC.'').
---------------------------------------------------------------------------
Over the past twenty years, many of the 1992 Act's objectives have
been accomplished in the marketplace. In particular, cable operators
face effective competition in virtually every community that they serve
from three or more MVPDs (including two national direct broadcast
satellite services that are now the Nation's second and third largest
MVPDs and, in many instances, a well-funded telco-video provider like
Verizon FiOS or AT&T U-Verse, who are among the ten largest MVPDs). As
a result of this competition, traditional cable operators have seen
their share of the multichannel video business decline from 95 percent
in 1992 to about 58 percent today.\4\ Cable systems also face growing
competition from new platforms that were not even imaginable in 1992,
such as online video delivery. Moreover, Congress's hope that cable
operators would ``continue to expand, where economically justified,
their capacity and the programs offered'' \5\ has been fulfilled as the
industry, responding to competitive marketplace pressures, invested
billions of dollars to provide consumers with an unparalleled array of
innovative services, including high definition and 3D television,
video-on-demand, digital video recording and other time-shifting
capabilities, high speed Internet, and digital telephone.
---------------------------------------------------------------------------
\4\ See In the Matter of Revision of the Commission's Program
Access Rules, MV Docket No. 12-68, Comments of the National Cable &
Telecommunications Association (filed June 22, 2012) at 9.
\5\ Id. at Section (2)(b)(3).
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In light of these marketplace changes, several of the provisions of
the 1992 Act clearly are no longer needed and, in fact, may be working
counter to Congress's intentions. In my testimony, I will focus on how
the retransmission consent framework, originally intended to advance
the public interest, is now harming consumers.
The first point I would like to make is that, Congress established
retransmission consent to ``ensure the universal availability of local
broadcast signals'' to consumers.\6\ Today, however, this regulatory
regime is having the opposite effect. Retransmission consent
negotiations are characterized by the broadcasters' demands for massive
fee increases backed by blackout threats, and the incidence of actual
blackouts has spiked as broadcasters increasingly have demonstrated
their willingness to withdraw retransmission consent to increase their
bargaining leverage. Retransmission consent disputes have increased
dramatically in recent years from 12 in 2010 to 51 in 2011. So far this
year there have already been 69 blackouts. And these numbers do not
capture the fact that every retransmission consent negotiation is
resulting in dramatically increasing fees ultimately borne by
consumers.
---------------------------------------------------------------------------
\6\ 138 Cong. Rec. S643 (Jan. 30, 1992) (Statement of Sen. Inouye).
---------------------------------------------------------------------------
This is not what Congress intended or expected when it gave
broadcasters retransmission consent rights. Retransmission consent is a
regulatory construct that provides broadcasters an opportunity to
obtain value for their ``signal'' not for the content contained within
that signal. This value was intended to subsidize local stations to
ensure the continued viability of local broadcasting. Given the market
structure in 1992 with essentially one local broadcaster negotiating
against one cable operator in each local market, Congress expected that
the rough balance of power between the parties would serve as a check
on unreasonable behavior.\7\
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\7\ The legislative history indicates that Congress expected
demands for retransmission consent compensation would be modest because
``broadcasters also benefit from being carried on cable systems.''
Senate Report at 1168. See also 138 Cong. Rec. S643 (Jan. 30, 1992)
(Statement of Sen. Inouye) (``It is of course in their mutual interests
of these parties to reach an agreement: the broadcaster will want
access to the audience served by the cable system, and the cable
operator will want the attractive programming that is carried on the
broadcast signal. I believe that the instances in which the parties
will be unable to reach an agreement will be extremely rare.'');
Implementation of the Cable Television Consumer Protection and
Competition Act of 1992; Broadcast Signal Carriage Issues, Report and
Order, 8 FCC Rcd 2965 (1993) at 115 (expressing the FCC's belief that
``there are incentives for both parties to come to mutually beneficial
arrangements'' in retransmission consent negotiations).
---------------------------------------------------------------------------
Moreover, even with the expectation that the grant of
retransmission consent rights to broadcasters did not pose an undue
threat of harm to consumers either in the form of increased rates or
service disruptions, Congress acknowledged, and took steps to address,
these risks. For example, Congress included in the 1992 Act a provision
directing the FCC to adopt rules to ensure retransmission consent would
not adversely impact the rates that consumers paid for multichannel
television service.\8\ In addition, Members of Congress, including
Senator Inouye, the floor manager of the legislation in the Senate,
made clear that the FCC had (and was expected to exercise) its
``existing'' authority to resolve retransmission consent impasses if
and when they resulted in an interruption of service to consumers.\9\
---------------------------------------------------------------------------
\8\ 47 U.S.C. Sec. 325(b)(3)(A).
\9\ 138 Cong. Rec. S643 (Jan. 30, 1992)(Statement of Sen. Inouye)
(``I am confident, as I believe other cosponsors of the bill are, that
the FCC has the authority under the Communications Act and under the
provisions of this bill to address what would be the rare instances in
which such carriage agreements are not reached. I believe that the FCC
should exercise this authority, when necessary, to help ensure that
local broadcast signals are available to all the cable subscribers.'').
---------------------------------------------------------------------------
Unfortunately, the FCC has adopted a narrower interpretation of its
role in overseeing the retransmission consent process and the agency's
inaction, combined with broadcasters' ability to play competing MVPDs
against each other, has been a key cause of the brinkmanship tactics
(or take-it-or leave it demands) that now characterize the
broadcasters' approach to retransmission consent negotiations.
Ironically, the marketplace-driven increase in competition among
MVPDs that has occurred since 1992 enables broadcasters to play one
MVPD against another while each MVPD still only has one broadcaster
from which it can obtain programming, giving broadcasters a lopsided
advantage in retransmission consent negotiations. Additionally,
territorial exclusivity and the requirement that cable operators place
broadcast stations on the basic tier of service further exacerbate the
harm to consumers by preventing MVPDs from obtaining broadcast
programming from alternative sources and consumers from opting not to
purchase the broadcast channels. As a result, broadcasters--who
continue to enjoy their government-created and -supported monopolies--
now threaten to withhold consent to the carriage of their stations with
the confidence that neither MVPDs nor their subscribers have any
recourse. Making matters worse, the Big Four broadcast networks have
begun demanding a cut of the retransmission consent fees obtained by
affiliated local stations, creating even more pressure for rate
increases.
As a result of these dynamics, consumers lose, or face the threat
of losing, access to season premieres of popular programming, major
events like the Super Bowl and the Olympics, and even emergency weather
information. Two of the better-known examples of retransmission
consent-related service disruptions occurred when FOX denied
Cablevision subscribers in New York access to World Series games and
Disney/ABC denied those same subscribers access to a portion of the
Academy Awards. Earlier this month, over two million of our subscribers
lost access to broadcast signals when we would not cave in to Hearst
Broadcasting's demands for huge fee increases. While our dispute with
Hearst has been settled, the fact remains that our customers are being
asked to shoulder ever-increasing rates resulting from each and every
retransmission consent negotiation, even those that do not result in a
public dispute. It is also worth underscoring that broadcasters are
making much of their marquee programming, such as the Olympics and the
Super Bowl--not to mention much of their entertainment programming,
available for free on the Internet. The perverse result is that MVPD
subscribers are literally paying billions of dollars to subsidize
content that the broadcasters make available for free both over-the-air
and via the Internet. While MVPDs recognize that broadcasting has
always had an alternative distribution system, it is not economically
rational to pay the premium the broadcasters are demanding and that
ultimately consumers are being asked to bear.
Nor is there any indication that the situation is going to resolve
itself. In 2009, it was estimated that retransmission consent fees
would reach $1.6 billion in 2015.\10\ But according to data compiled by
SNL Kagan, retransmission consent payments grew from $215 million in
2006 to nearly $1.5 billion last year and are now projected to top $2.0
billion this year--a compounded growth rate of 45 percent over that
period.\11\ SNL Kagan estimates that by 2015, retransmission consent
payments will reach almost $4.0 billion, more than double what the 2009
study predicted. While the broadcasters like to claim that this rapid
escalation in retransmission consent fees is part of a ``market
adjustment,'' the fact is that there is no sign that retransmission
consent costs will level off in the future. Indeed, SNL Kagan forecasts
that in the next five years retransmission consent fees will double
again, reaching just under $5.0 billion.\12\ This dramatic uptick in
retransmission consent fees is not surprising given statements by
broadcast executives like CBS's CEO Les Moonves, who boasted that when
it comes to retransmission consent fees, ``the sky's the limit'' and by
Sinclair Broadcasting Group's CEO David Smith, who has acknowledged
that, in order to meet reverse compensation demands from the networks,
local broadcasters will need ``to keep upping'' their retransmission
consent fees ``forever.'' \13\
---------------------------------------------------------------------------
\10\ Michael Katz, Jonathan Orszag, and Theresa Sullivan, An
Economic Analysis of Consumer Harm from the Current Retransmission
Consent Regime, at 32 (Nov. 12, 2009), filed as an attachment to the
Comments of the National Cable & Telecommunications Association in MB
Docket No. 07-269 (Dec. 16, 2009).
\11\ See Appendix 1.
\12\ Id.
\13\ See CableFAX Daily, June 3, 2011, at 2; Communications Daily,
May 5, 2011 at page 5.
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These demands for dramatically escalating fees inevitably impact
consumers in the pocketbook. In fact, according to the Katz/Orszag/
Sullivan study, more than a million households ``likely [will] forego
the benefits of MVPD services because of the higher subscription fees
they face as a result of retransmission consent fees.'' \14\ The
broadcasters' unreasonable demands also will lead to more blackouts as
MVPDs do what they can to hold the line. Yet, given the disconnect
between a 20-year old law and today's marketplace, it is unclear what
will prevent the rising tide of retransmission consent demands. As Mr.
Moonves explained, the retransmission consent right that Congress
created gives broadcasters the ``ultimate leverage'' in retransmission
consent negotiations.\15\
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\14\ See note 5 supra at 37. Given that the Katz/Orszag/Sullivan
study underestimated how high retransmission consent fees would climb,
it is likely that the number of households opting out of MVPD services
will be even higher than they projected.
\15\ CableFAX Daily, June 3, 2011, at 2.
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Incredibly, having the ``ultimate leverage'' is not enough for some
broadcasters. Local broadcast station owners have managed to skirt the
FCC's ownership rules and now conduct retransmission consent
negotiations on behalf of multiple stations in the same local market.
The advent of multicasting has exacerbated this trend. In 2010, a study
commissioned by the American Cable Association found that there were at
least 57 instances in which one station exercised common control of
multiple Big Four network stations in its local market through some
form of contractual arrangement.\16\ And a review conducted last year
by BIA/Kelsey on behalf of Time Warner Cable indicated that there are
more than 40 examples of ``virtual duopolies'' in which one station
uses its multicast capacity to operate as the market affiliate of two
Big Four networks and nearly 150 instances in which one station's
multicast capacity allows it to serve both as an affiliate of a Big
Four network and as an affiliate of either CW or MyNetwork. It is
likely that this is not the complete picture of coordination and
consolidation by local stations because there currently is no
requirement for broadcasters to disclose these arrangements.
---------------------------------------------------------------------------
\16\ See In the Matter of 2010 Quadrennial Regulatory Review;
Review of the Commission's Broadcast Ownership Rules and Other Rules
Adopted Pursuant to Section 202 of the Telecommunications Act of 1996,
MB Docket No. 02-182, Comments of the American Cable Association (filed
July 12, 2010). Given the difficulty of tracking SSAs in particular,
TWC believes that the ACA data may well understate the number of
instances in which a station licensee has entered into a control-
sharing arrangement with another network affiliated station in the same
market.
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As you can imagine, being able to deny a cable operator access to
the programming of not just one, but of two or three broadcast signals
in the same local market gives a broadcaster an almost insurmountable
advantage in retransmission consent negotiations. It also explains why
the record in the FCC's retransmission consent reform proceeding
indicates that retransmission consent fees for Big Four affiliates are
more than 20 percent higher where a single station is negotiating on
behalf of more than one affiliate in a market.\17\
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\17\ In the Matter of Amendment of the Commission's Rules Related
to Retransmission Consent, MB Docket No. 10-71, Comments of the
American Cable Association (filed May 27, 2011). See also William P.
Rogerson, Joint Control or Ownership of Multiple Big 4 Broadcasters in
the Same Market and Its Effect on Retransmission Consent Fees (May 18,
2010) (attached to ACA's comments in MB Docket No. 10-71).
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Not only are broadcasters demanding that consumers bear these
exorbitant cost increases and deal with threatened and actual
blackouts, many are reducing their commitment to local programming in
order to cut costs. While Congress intended for the 1992 Act to
subsidize and preserve local broadcasting, the trend in the broadcast
industry in recent years has been away from localism. As Senator Inouye
said during the debate on the Act, the intent of retransmission consent
was to ``permit local stations, not national networks . . . to control
the use of their signals.'' \18\ NAB expressed a similar view, writing
to members of Congress that retransmission consent was ``not a `network
TV' issue'' and that ``[t]he television networks will not play a role
in negotiations between local stations and local cable systems.'' \19\
Indeed, NAB not only proclaimed that the networks would have no right
to participate in retransmission consent negotiations, it also declared
that the networks would have ``no right to dictate their terms, or to
demand any part of the benefits which the local station might obtain
from a cable system.'' \20\
---------------------------------------------------------------------------
\18\ 138 Cong. Rec. S562-63 (Jan. 29, 1992). Other members of
Congress echoed Senator Inouye's statement. See, e.g., 138 Cong. Rec.
H6491 (July 23, 1992) (Statement of Rep. Callahan) (``The right to
retransmission consent . . . is a local right. This is not, as some
allege, a network bailout for Dan Rather or Jay Leno. Networks are not
a party to these negotiations, except in those few instances where they
own local stations themselves.'') (emphasis supplied); 138 Cong. Rec.
H6493 (statement of Rep. Chandler) (``The intent of the [retransmission
consent] amendment was to give bargaining power to local broadcasters
when negotiating the terms of cable carriage--not to serve as a subsidy
for major networks.'') (emphasis supplied).
\19\ See, e.g., Letter from Edward O. Fritts, President & CEO, NAB,
to Jack Valenti, President, MPAA, dated October 7, 1991 (``NAB Oct. 7,
1991 Letter''); see also Letter from Edward O. Fritts, President & CEO,
NAB, to Rep. Christopher H. Smith, dated August 9, 1991 (stating, in
attachment, that characterizations of retransmission consent as a
``network plan'' are ``sheer nonsense'' and that ``Networks are not
involved in any negotiations.''). Copies of the documents referred to
in footnotes 19-21 can be found as an attachment to the Joint Comments
of Mediacom Communications Corporation, Cequel Communications LLC d/b/a
Suddenlink Communications, and Insight Communications Company, Inc.
filed in the FCC's retransmission consent reform proceeding, MB Docket
No. 10-71, on May 27, 2011.
\20\ See NAB Oct. 7, 1991 Letter (emphasis supplied).
---------------------------------------------------------------------------
Today, however, retransmission consent has become exactly what it
was never intended to be: a subsidy for the national broadcast networks
and their affiliated cable channels rather than a source of support for
local broadcasting. The national networks increasingly dictate to their
affiliates whether and on what terms those affiliates may grant
retransmission consent. In addition, the national broadcast networks
have begun demanding ``reverse compensation'' from their affiliates,
completely supplanting the structure that existed in 1992, when
networks paid compensation to local stations for carriage.\21\ We turn
again to CBS' Mr. Moonves, who has made clear that the national
networks believe that they are the ones that should be receiving the
bulk of the retransmission consent fees collected by their local
affiliates, stating that ``[i]f a station is looking at what's really
bringing in the money, it's the NFL, it's `American Idol,' it's `CSI,'
it's the primetime strength. It's not the local news. . . .'' \22\
---------------------------------------------------------------------------
\21\ For example, in May 2011 it was reported that NBC had entered
into an arrangement with its affiliates by which NBC would hold its
affiliates' proxies and negotiate retransmission consent deals on their
behalf, with NBC pocketing as much as 50 percent of the revenues. See
Harry A. Jessell, NBC's Affiliate Retrans Plan is 50-50 Split,
TVNewsCheck, May 18, 2011 (available at http://www.tvnewscheck.com/
article/2011/05/18/51322/nbcs-affiliate-retrans
-plan-is-5050-split).
\22\ See Les Moonves Insists That Retrans Cash Is Network Driven,
Radio & Television Business Report, June 3, 2011, available at http://
www.rbr.com/tv-cable/les-moonves-insists-that-retrans-cash-is-network-
driven.html (emphasis supplied). The admission by the broadcasters that
retransmission consent is all about the value of the broadcast content
is, of course, directly contrary to the assertion, made by some of
those same broadcasters and their supporters, that retransmission
consent is not an intellectual property right and ``has no bearing on
the relative value'' of the programming embodied in a broadcaster's
signal. See Testimony of NAB President David Rehr, Hearing on Copyright
Licensing in a Digital Age, House Committee on the Judiciary, February
25, 2009 (``Retransmission consent rights under the Communications Act
are distinct from copyright rights in broadcast programming.
Retransmission consent agreements relate to the value of creating and
disseminating the broadcast signal.'').
---------------------------------------------------------------------------
Faced with the need to satisfy the networks' demands for
compensation, the local affiliates are trying to cut expenses while
simultaneously increasing the amounts they require MVPDs to pay to
carry their signals. One of the principal ways in which the stations
are cutting costs is by entering into agreements that allow multiple
stations to share resources. While some sharing of costs may be
beneficial for the stations and their viewers, the growing use of
``shared services'' and other similar arrangements has precipitated a
significant decline in original, diverse local news and public affairs
programming as broadcasters combine studio facilities and eliminate
separate newscasts, lay off employees, and reduce their production of
local news and other community-oriented programming.\23\
---------------------------------------------------------------------------
\23\ See, e.g., Philip M. Napoli, Retransmission Consent and
Broadcaster Commitment to Localism at 18-25 (Nov. 2011), available at
http://fordham.academia.edu/PhilipNapoli/Papers/1163518/
Retransmission_Consent_and_Broadcaster_Committmet_to_Localism. See also
Danilo Yanich, Local TV News & Service Agreements: A Critical Look
(Oct. 2011), available at http://www.ccrs.udel.edu/sites/ccrs.udel.edu/
files/DYanich%20.Local%20TV%20News%20%26
%20Service%20Agreements-A%20Critical%20Look.pdf.
---------------------------------------------------------------------------
The broadcasters would have policymakers believe that if the
retransmission consent rules are changed, they will be unable to
provide local programming content that they, and they alone, are
capable of producing. But not only are broadcasters already cutting
back on their local content, cable and other sources (including the
Internet) are rushing to fill the void. For example, Time Warner Cable
now has nineteen channels that offer full-time coverage of local news,
politics, sports and weather. In fact, Time Warner Cable produces three
daily local newscasts that are aired by an ABC affiliate owned by
Sinclair in Greensboro, NC.
In sum, while Congress expected retransmission consent to sustain
and improve the quality of local broadcasting without causing an
unreasonable increase in consumer prices or disruptions to consumers'
access to local stations, the opposite has occurred. Prices for
retransmission consent are soaring while the quality of local broadcast
programming continues to erode. In addition, consumers face a growing
level of disruption in their access to local broadcast programming as
stations more frequently deny MVPDs' retransmission consent in order to
enforce their demands for unreasonable compensation.
Next, I would like to address the bundling practices that are
engaged in by programmers, particularly the Big Four broadcast
networks, which are another unanticipated consequence of the 1992 Act.
When MVPDs sit down with the broadcast networks to negotiate for the
carriage of their owned and operated affiliates, they often are met
with demands that the MVPD agree to carry and pay for not only the Big
Four broadcast stations, but an array of non-Big Four stations and non-
broadcast channels as well.\24\ These bundling agreements also
typically require the distributor to offer all or most of these
channels on preferred tier locations. The effect is to force
distributors and their subscribers to take and pay for an array of
services that often includes channels for which there is limited (if
any) subscriber interest.
---------------------------------------------------------------------------
\24\ Similar bundling takes place at the local level when a group
station owner refuses to grant retransmission consent unless the MVPD
also agrees to pay for carriage of non-network affiliates, including
low value multicast stations.
---------------------------------------------------------------------------
The broadcasters' ability to engage in these bundling practices is
an unfortunate byproduct of the 1992 Act and, in particular, of the
Act's retransmission consent provisions. In 1992, Congress was
concerned about vertical integration--the fact that more than 53
percent of the national cable networks available at the time were owned
by cable operators. Ironically, retransmission consent actually
fostered a dramatic increase in vertical integration between cable
networks and broadcasters.
Today, broadcast networks and their affiliates are the dominant
providers of cable networks. In fact, sixty percent of the top 50 basic
cable networks are owned by broadcasting companies and their
affiliates.\25\ This is due in large part to the way retransmission
consent developed in its early days, where broadcasters sought
retransmission consent compensation in the form of carriage of, and
payment for, new cable networks.
---------------------------------------------------------------------------
\25\ See Appendix 2 for a chart showing examples of the Big Four
broadcast networks ownership of non-broadcast cable networks. This
chart is illustrative in nature and is not intended to reflect the full
extent of the Big Four's cable network interests.
---------------------------------------------------------------------------
Now that the number of linear cable channels is reaching a
saturation point, and with the ever-growing competition among
distributors, broadcasters have shifted their demands to payment in
cash, not just for carriage of the local television station, but also
for carriage of bundles of cable channels. Because of the broadcasters'
retransmission consent leverage, there is no check on the amount that
they can demand for these bundles of broadcast and non-broadcast
channels or on the size of those bundles. Thus, bundling is a major
impediment both to controlling the price of service and to giving
consumers other benefits (including more flexible packaging of
services) that they should be enjoying as a result of the robust
competition that now characterizes the multichannel video distribution
marketplace.
It is ironic that the 1992 Act, which sought to protect free, over-
the-air television from supposedly ``unfair'' competition from non-
broadcast cable networks has led to a regime in which the national
broadcast networks take retransmission consent revenues obtained either
directly from MVPDs (in the case of network-owned affiliates) or
indirectly (in the form of reverse compensation payments from their
independently owned affiliates) and use them to support the many non-
broadcast channels that they now operate and not local broadcasting.
Furthermore, these cable channels now feature major programming
events--such as Monday Night Football and college bowl games--that used
to be available on over-the-air broadcast channels.
It also is worth remembering that, during the debate over the 1992
Act, the Act's proponents dismissed concerns that retransmission
consent would drive up consumer prices by suggesting that cable
operators would simply shift a portion of their programming budget away
from the non-broadcast cable networks and towards local broadcasters.
As Representative Markey (the chairman of the House Commerce
Committee's Subcommittee on Telecommunications and the sponsor of the
Cable Act in the House) stated,
If [cable operators] have to pay Nashville a little bit less,
to pay the sci-fi channel a little bit less, to pay some of
these other channels a little less in order to get revenues
over to Channel 4, 5, 7, and 9 so that the local children's
programming, the local news and public programming that the
rest of watch on free television, fine. It is meant to be
within the same existing pool of money; no additional monies
are going to the cable industry or to the broadcasters; it is
the same pool of money.'' \26\
---------------------------------------------------------------------------
\26\ 138 Cong. Rec. H8652 (Sep. 17, 1992) (Statement of Cong.
Markey).
The assumption that retransmission consent would have no impact on
a cable operator's programming costs was questionable in 1992. But even
if it was valid, MVPDs today do not have the choice of ``paying a
little less'' for non-broadcast programming to cover their growing
retransmission consent expenses. The very broadcasters that are
demanding increased retransmission consent fees own the non-broadcast
cable channels and are not about to lower the amounts that they are
paid for those.
My final point flows directly from my first two points: despite, or
possibly because of the 1992 Act, the broadcast model on which Congress
relied in adopting retransmission consent is broken. That broadcast
model assumed the broadcasters' acceptance of the social compact under
which local stations are given free use of the public airwaves and
certain related privileges in return for a commitment to serve the
public interest--to put the needs of the communities that they are
licensed to serve ahead of all other considerations.\27\
---------------------------------------------------------------------------
\27\ See Thomas W. Hazlett, If a TV Station Broadcasts in the
Forest: An Essay on 21st Century Video Distribution (May 19, 2011),
filed in MB Docket No. 10-71 (May 24, 2011).
---------------------------------------------------------------------------
Today, however, the Big Four networks are looking to increase the
profits of their cable channels and the affiliates are looking to cut
costs by entering into sharing agreements and reducing local
programming in order to be able to pay reverse compensation to the
networks. Furthermore, broadcasters are often arguing to reduce or
avoid their public interest obligations often citing some of the same
changes in the competitive and technological landscape that we believe
justify revising the 1992 Act. Yet, when it comes to preserving the
special privileges that have been accorded local television stations--
from free spectrum to black out rights--the broadcast industry claims
that nothing has changed over the past twenty years that warrants
revisiting those privileges. For example, the broadcasters not only
oppose suggestions that they be limited in their ability to engage in
joint retransmission consent negotiations, they even oppose efforts to
make them simply report the details of those sharing arrangements
online where they would be more readily accessible to public and
regulatory scrutiny.
The broadcast industry is sitting on spectrum worth tens of
billions of dollars. It is not surprising that they would use their
position as custodians of the public interest when it is to their
benefit. But the broadcasters should not have it both ways. They cannot
claim that without special treatment they will no longer be able to
provide consumers with local news and information, and at the same
time, reduce their spending on localism and deny cable and other pay-TV
customers access to their signals during disputes. Nor should they be
allowed to have the benefit of special protections such as mandatory
basic tier carriage and territorial exclusivity protection--privileges
that were premised on broadcasters fulfilling their public interest
obligations.
In conclusion, two years ago, Time Warner Cable's CEO, Glenn Britt,
testified before this Committee and stated that Time Warner Cable
agrees with the principle, embedded in the 1992 Act, that free markets
are preferable to regulated markets wherever feasible. We stand by that
position today. Contrary to broadcaster assertions, retransmission
consent is not now and has never been a free market. Rather, it is a
government-created regulatory regime established to address vastly
different conditions than those that exist today. That regulatory
regime was intended to safeguard the public's access to local broadcast
programming. But today, the law is having the opposite effect. It is
resulting in consumers losing access to local broadcast stations and
bearing the costs of increased fees as vertically integrated broadcast
networks are permitted to siphon support away from local broadcasters
to increase their profits and those of their non-broadcast cable
networks. No one could have foreseen how broken this regulatory regime
ultimately would become.
We applaud the leadership shown by Chairman Rockefeller, Ranking
Member Hutchison, Senator Kerry, Senator DeMint and other Members of
the Committee and their recognition that the status quo is not
sustainable. We are particularly appreciative of Senator DeMint's
efforts to begin the dialogue on the role that government should play
in the television marketplace by proposing to replace the outdated
regulatory regime embodied in the 1992 Cable Act with a genuine free
market approach. We also have made clear that, as long as the
regulatory regime established by the 1992 Act remains in effect, the
FCC should make targeted changes to protect consumers from the
broadcasters' abusive retransmission consent practices. We look forward
to working with all of the Members of the Committee as it undertakes
the essential task of updating the 1992 Act.
Thank you again for the opportunity to testify before the Committee
today. I would be happy to answer any questions you might have.
Appendix 1
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you.
And now Mr. Martin Franks, Executive Vice President for
Planning, Policy and Government Affairs, CBS Corporation.
STATEMENT OF MARTIN D. FRANKS, EXECUTIVE VICE
PRESIDENT OF PLANNING, POLICY AND GOVERNMENT AFFAIRS, CBS
CORPORATION
Mr. Franks. Thank you, Mr. Chairman, Ranking Member
Hutchison, and members of the Committee.
Allow me several observations based on 24 years at CBS
before I take your questions.
Retransmission consent is neither broken nor an antique in
need of refurbishment. In the 6 years since CBS split from
Viacom, we have successfully negotiated nearly 100 retrans
agreements without a word of public discord between a willing
seller and willing buyers, including Ms. Witmer's and Ms.
Abdoulah's companies. And this, despite many Wall Street
analysts pegging CBS's negotiated retrans fees at the top of
the market.
While any disruptions to consumers are unfortunate, only a
small handful of negotiations break down each year. That does
not sound like a dysfunctional marketplace to me. In fact, bad
weather is a far greater source of consumer disruption than
marketplace failure.
Development of a robust retrans marketplace has helped CBS
and our affiliates invest billions both to retain marquee
programming, including the NFL, SEC football, the Grammy's,
March Madness, the Kennedy Center honors, and the U.S. open
tennis, and to continue our considerable investment in local
and national news.
Calls for fixing a supposedly broken retrans system arose
only after a fully competitive marketplace among video
distributors developed. Retrans was basically a non-factor in
carriage negotiations until it became a teenager at the same
time that DirecTV, Dish, Verizon, and AT&T became full-fledged
competitors to the original cable monopoly. Far from a flawed
system, retrans is a triumph of Washington policymaking by
restoring balance and competition to a sector previously
dominated by a monopoly with a perfect business plan, namely
receiving its most valuable product, broadcast television, for
free, reselling it at an enviable margin, and using the
proceeds to build a dominant marketplace position. Nice work if
you can get it.
Some liken retrans to an antique relic of a bygone era.
Gee, in every other sense a 20-year-old is barely emerging from
adolescence.
Moreover, the notion that retrans has not been subject to
review since its passage neglects to take into account that in
1999, when retrans was extended to DirecTV and Dish at their
fervent request, then again in 2004, and most recently in 2010,
retrans has been subject to review by this committee and its
House counterpart and both the House and Senate Judiciary
Committees in the context of the Satellite Home Viewer Act and
its successors, to say nothing of countless oversight hearings
and FCC and GAO reports.
Rather than a legitimate public policy problem, what we
have now is an unholy alliance among distributors that are
supposed to compete with each other but who have, instead,
banded together to undo retrans and return to their halcyon
days of depriving broadcasters of the compensation that our
popularity in the marketplace so clearly merits.
Turning to another question before this committee, with
respect, those who believe doing away with retrans and the
compulsory license will lead to fewer consumer disruptions are,
I fear, mistaken and therefore I strongly urge the Committee to
look before you leap for unanticipated consequences.
Introducing even more claimants into an already challenging
negotiating environment may lead to more disputes, not fewer,
will be a lawyer's paradise, and is unlikely to yield any
relief to consumer pocketbooks. That brave new marketplace
would also be an extraordinarily capital-intensive one.
Make no mistake. CBS will do just fine. One way or the
other, we will be able to invest in our content, continue to
attract audiences, and figure out how to monetize our
performance. But what of the impact on companies without CBS's
heft and access to capital? Many smaller players, including
small cable operators, will be squeezed out of the business.
West Virginians may have access only to larger regional super
players from Washington, D.C. and Pittsburgh, or South
Carolinians may lose the wonderful localism tradition earned by
their State's broadcasters in favor of service solely from
Atlanta, Charlotte, or even New York City. How will local
economies and consumers adapt to that change? How will a local
car dealer, bank, or restaurant in Spartanburg reach its
potential consumers on a broadcast originating in Atlanta?
In conclusion, for all its flaws, American television is
the envy of the world. Tomorrow, as a very proud father, I am
leaving for London where my younger son will coach in the
Olympics. I am looking forward to every moment of the trip
except for being stuck watching British television.
[Laughter.]
Mr. Franks. Conversely, our 500 channel universe, largely
in high definition, has many somethings for everyone. Whatever
you do, be careful you do not undermine the existing system
that functions much more successfully than is recognized and
that almost any other country in the world would gladly have
instead of what their own economic, political, creative, and
technological cultures have been able to achieve.
Thank you.
[The prepared statement of Mr. Franks follows:]
Prepared Statement of Martin D. Franks, Executive Vice President of
Planning, Policy and Government Relations, CBS Corporation
Good afternoon, Chairman Rockefeller, Ranking Member Hutchison and
members of the Committee. My name is Martin D. Franks, and I am
Executive Vice President, Planning, Policy and Government Relations of
CBS Corporation. I appreciate the opportunity to speak with you today
about the state of the video marketplace 20 years after the Cable Act.
In a nutshell, as CBS can attest--as can I personally in my role as
the principal retransmission consent negotiator for the company--the
market for video programming is one of the country's most robust and
competitive sectors in the U.S. economy.
I believe that the retransmission consent regime enacted in 1992 is
actually one of the great Washington public policy accomplishments of
the intervening two decades. It has given renewed vitality to broadcast
television that prior to 1992 was being consigned to the dust heap of
history. That there are some calling for a return to the old regime,
when they got their most popular product for free, and then resold it
and used the proceeds to build their own businesses, is hardly a
surprise. Congress should resist those entreaties, especially since
retransmission consent is not broken.
It has been estimated that some 15,000 retransmission consent
negotiations take place every three years. And almost all of them are
completed successfully. Over the last six years CBS has completed all
of its retransmission consent negotiations successfully and without
incident.
Any tampering with retransmission consent laws and rules now could
trigger severe negative results to a broadcast television industry that
is actually contributing positively to the U.S. economy. To the extent
that impasses in negotiations occur with more frequency today, it is
due, at least in part, to the belief by a handful of distributors that
disruptions may help them advance their public policy goals in
Washington, that is, by trying to make a working model look broken.
Sometimes, too, these few distributors hold back from successful
conclusions to retransmission negotiations in hopes that the government
will step in to assist them.
Fortunately, from my perspective, competition in the communications
world has never been so robust. But that is the real concern of those
in our industry calling for a change to retransmission consent. They
are unnerved, nay threatened, by competition. And that is why we are
here today. Because they now believe that deleting retransmission
consent will end the balance of power and tip the scales in their
favor. Yet, the very MVPDs who today are calling for deregulation of
retransmission consent are the very same entities who have been filing
reams of paper and making countless visits to the FCC over the last two
or three years trying to do the very opposite, that is, to impose brand
NEW retransmission consent-related regulations--such as mandated
standstills and arbitration--to benefit their own bottom lines at the
expense of broadcasters.
Encouraging the FCC to become an active participant in
retransmission consent negotiations, as the leaders of the American
Television Alliance have suggested, would serve to hinder the current
free market negotiations, not set them free. Retransmission consent
negotiations are complex and time-intensive negotiations that involve
much more than price. Inserting a government-run arbitration provision
coupled with a standstill requirement would lead to an FCC that focused
on nothing but retransmission consent negotiations to the detriment of
the agency's core mission. Broadcasters across the country want to be
carried by distributors, and distributors want to carry broadcast
television stations because of the popularity of our local and national
programming. This equal amount of ``skin in the game'' is the best
incentive to reasonable agreements.
In exchange for use of the public's spectrum, broadcasters are
bound to operate in the public interest. Accordingly, to this day, we
fulfill that requirement with great enthusiasm, pride and excellence.
But never did we agree that the valuable programming we develop,
purchase, produce and offer over-the-air on our stations can be
retransmitted by another entity without our permission.
CBS understands the real world of innovation and the challenges it
brings. We were one of the founders of television more than 80 years
ago, and today we are a leader in the video marketplace. Our company
not only has businesses with origins that date back to the dawn of the
broadcasting age, it also has new ventures that operate on the leading
edge of media. We own the most-watched television network in the U.S.
and one of the world's largest libraries of entertainment content. We
believe in innovation and the power of broadcasting.
The CBS Television Network serves almost every household in the
Nation via a broadcast distribution platform made up of about 200
affiliated TV stations. These stations, in turn, supplement the CBS
content we license to them with their own packages of local news and
public affairs programming, as well as syndicated and other product
that they either acquire from other suppliers or produce themselves.
Stations do not own much of the non-news content they transmit; instead
they obtain from content producers and owners the rights to broadcast
it.
Each year, CBS spends billions of dollars to produce and acquire
top-notch programming. As for sports, CBS pays hundreds of millions of
dollars each year to the NFL and to the NCAA for rights to March
Madness alone, and that is before you consider rights fees for SEC
Football, regular season NCAA basketball, PGA golf and to the USTA for
rights to the U.S. Open Tennis Tournament.
Our investment in superior programming helps not only the CBS
network and our owned-and-operated television stations, but also our
affiliated stations nationwide. When network programming is of high
quality and compelling, local stations benefit. From large DMAs like
Boston and Dallas to smaller DMAs like Myrtle Beach and Clarksburg-
Weston, local stations are able to present this network programming to
obtain advertising dollars so that they, in turn, can make significant
financial investments in the production, gathering and reporting of
local news, sports, weather and other information. Local stations also
are able to invest in rights to syndicated programs, such as ``Wheel of
Fortune,'' ``Jeopardy,'' ``Ellen,'' ``Dr. Oz,'' ``Seinfeld'' and
``Friends,'' which are obtained from other content producers.
And, may I add, broadcasting is the most desirable platform for
advertisers on both the local and national levels. Advertising is a
powerful engine in the U.S. economy and subsidizes much of the
programming in this country. Additionally, because of the unique nature
of the network-affiliate system, small businesses are able to buy
promotional time at affordable rates in their communities and get the
most bang for their advertising buck.
CBS looks forward to continuing to vigorously compete in the open
marketplace this Committee created in 1992. As you recognized then in
the report to accompany the Cable Act, ``It is the Committee's
intention to establish a marketplace for the disposition of the rights
to retransmit broadcast signals; it is not the Committee's intention in
this bill to dictate the outcome of the ensuing marketplace
negotiations.'' We thank the Committee for including us in discussions
surrounding the future of the industry in which we plan to
constructively contribute for many decades more.
The Chairman. Thank you, Mr. Franks.
Ms. Colleen Abdoulah, CEO and Chairwoman of the Board, WOW!
Internet, Cable, and Phone.
STATEMENT OF COLLEEN ABDOULAH, CHAIRWOMAN AND CHIEF EXECUTIVE
OFFICER, WOW! INTERNET, CABLE, AND PHONE; CHAIRWOMAN, AMERICAN
CABLE ASSOCIATION
Ms. Abdoulah. Thank you. I too really appreciate all of you
for taking the initiative to open this review up because there
are a lot of things to consider and it is extremely complex,
especially because the pace of change is so rapid. I heard a
gentleman in one of your last hearings from Microsoft, I
believe, say that we will see more change in the next 18 months
than we have seen in the last 5 years, and I really believe
that.
We know that laws written in 1992, 1996 do not serve or
support consumer behaviors and the expectations of consumers
that are a direct result of the technological revolution that
we are experiencing. Consumers tell me directly that what they
want is more of what they want to buy and watch and they want
to do so on different devices using different technologies.
Yet, our outdated laws do not address these changing behaviors
in consumers demands. Instead, they create significant problems
for consumers.
Specifically, programming and retransmission consent
negotiations are failing and they are resulting in blackouts,
as was stated. In fact, 69 blackouts have occurred in 2012
alone, up 35 percent since 2011, affecting literally tens of
millions of viewers. Retransmission fees are skyrocketing and
consumers are paying the price. Media consolidation has led to
rampant tying and bundling of unwanted, unwatched programming.
So consumers often ask us why do they have to pay for so
many networks they do not want. And I believe that is what we
love about the Internet. We get to choose what we pay for.
And speaking of the Internet, access to online video
distribution rights is currently being withheld and slow-rolled
to the smaller cable operator by the big content providers, and
that puts our customers at a disadvantage.
Then we have the big broadcasting cable networks paying
what I think to be crazy, astronomical fees for sports
programming because they know with the current business model,
they can force that cost onto consumers.
The distortions caused by these outdated rules are really
serious and not without consequence, particularly for the
smaller cable operator. My colleagues and I within the American
Cable Association, with members in 49 states, represent the
small player in the small versus big business arena. In fact,
82 percent of ACA members serve fewer than 5,000 customers; 30
percent serve fewer than 500 customers. And what I find so
disturbing is that in the past 4 years alone, 800 small cable
systems have literally gone out of business due in part to
escalating retrans fees and overall programming costs. So we
are already getting squeezed out. And when these businesses
close, there is not only a loss of video to that community,
there is a loss of broadband services as well. Smaller
operators just simply do not have the leverage to negotiate
fair market pricing for our video content.
Since 1992, the tidal wave of media consolidation between
broadcasters and cable networks has given enormous bargaining
power to the Big 4 networks, power that abuses the Government-
sanctioned protections that may have made sense 20 years ago in
a completely different business environment, but they do not
today. And who pays for this? We do because we are all
consumers.
This abuse of power should be outlawed. There are at least
46 cases that we know of where separately owned, same-market
broadcasters coordinate their retransmission consent
negotiations. Now, they use a benign term for this collusion.
They call it ``shared services agreements.'' The impact of
their collusion is that broadcasters who are supposed to be
competing with one another use one single broker to negotiate
carriage rights for two or more competing stations. We have
given evidence to the FCC that proves that this unjust practice
results in fees that are 21 to 161 percent higher than the fees
that are created by broadcasters who negotiate carriage
separately. Now, we as operators are not allowed to practice
collusion, and appropriately so. Broadcasters should not be
either.
I have heard members in these hearings ask what should be
done when you choose to reform the current laws. There are many
improvements I think to consider, and I offer you just a few
today.
Prohibit coordinated negotiations by separately owned
broadcasters in the same market.
Provide special considerations for the small operators
because they need them.
Require continuous carriage of signals during a
retransmission consent dispute to stop consumers from being
held hostage by these blackouts.
Require binding baseball-style commercial arbitration of
such disputes.
And give consumers and pay-TV providers the right to
embrace new technologies to access broadcast signals.
Thanks for having me. I look forward to questions.
[The prepared statement of Ms. Abdoulah follows:]
Prepared Statement of Colleen Abdoulah, Chairwoman and Chief Executive
Officer, WOW! Internet, Cable and Phone; Chairwoman, American Cable
Association
Mr. Chairman and Ranking Member Hutchison, thank you for the
opportunity to participate on this panel.
As I prepared for today's event, I reviewed recent hearings and
comments from the members of this Committee and am pleased that so many
of you recognize what I and my fellow small cable operators also know:
Today's communications market has moved on while the 20-year-old laws
that govern it have stayed the same.
While the 1992 Cable Act may have worked for the realities of the
early '90s, it has been bypassed by a technological revolution that it
never anticipated and is ill-equipped to handle.
Today, we have smart phones, laptops, tablets, and other smart
devices that access rich video content via Internet technologies, yet
the law that governs video distribution assumes we still live in a
world of one local broadcaster working with one local cable franchisee.
I appreciate your awareness that the law is outdated, and I am
excited about the benefits that consumers will see through updating the
law.
Consumers are harmed because the laws have not kept pace with the
times.
Specifically, the 1992 Act lags behind profound technological
developments and business innovation. (Truthfully, the 1996
Telecommunications Act lags behind too.) As a result, outdated laws
applied to a rapidly changing marketplace create serious problems for
consumers.
These consumer harms manifest themselves in a number of ways:
Programming and retransmission consent negotiations are
failing, causing blackouts.
Retransmission consent fees, for what the broadcasters call
``free over-the-air TV,'' are skyrocketing, and consumers pay
the increased price.
Broadcasters collusively coordinate agreements with other
broadcasters in the same market, driving retransmission consent
rates even higher.
Growing media consolidation by the large networks and
programming owners has led to rampant tying and bundling of
unwanted, unwatched and unmarketable programming.
Because tying and bundling is forced on Multichannel Video
Programming Distributors (MVPDs) by the media giants, there is
hardly any difference today in the price and packages of video
services offered by cable, satellite, municipal and telco video
providers, let alone any choice for the consumer.
Access to online video distribution rights is being slow-
rolled by the big content providers, giving consumers little
choice for online video.
On the retransmission consent front, there is even more evidence of
consumer harm. For instance, in the retransmission consent market
today:
There are regular breakdowns in negotiations between
broadcasters and MVPDs, leading to a record number of
blackouts. In fact, 69 blackouts have already occurred in 2012,
affecting dozens of television markets across the country and
literally tens of millions of TV viewers.
Retransmission consent blackouts in 2012 are up 35 percent
over 2011, and this year is hardly even half over.
It is now the standard practice of big broadcast networks to
agree to pay astronomical fees for sports programming, in part
because they can force down the cost to consumers through
reverse compensation and retransmission consent payments.
The outdated retransmission consent rules give big media
companies the means to require the carriage of additional, less
desirable cable programming.
The impact on smaller, independent MVPDs is magnified, and systems in
rural America are being lost.
Distortions caused by these outdated rules are serious and not
without consequences, particularly for smaller cable operators.
My colleagues and I within the American Cable Association have a
unique view of the pay-television marketplace as compared with larger
MVPDs.
Our members include the smallest operators in the market. In fact,
82 percent of ACA's members serve fewer than 5,000 subscribers, and 30
percent serve fewer than 500 subscribers. Since 2008, nearly 800 of
these small systems have closed across the country due in large part to
escalating retransmission consent and programming costs that cannot be
passed along to consumers, a trend I fear will continue in many rural
communities. And the loss of a business that offers video programming
often means the devastating loss of broadband services as well, because
an operator needs a healthy business model on both ends to survive.
How did we get here?
I would like to present a view of how the video marketplace has
changed over the last 20 years, and why your sense is accurate that
these changes demand modernization of the Cable Act, particularly with
respect to the rules governing retransmission consent. As Chairwoman of
the Board of the American Cable Association (``ACA''), I provide my
perspective on behalf of a group of 850 cable operators, including Wide
Open West!, for which I serve as Chief Executive Officer.
Retransmission consent was crafted to give broadcast stations
control over the redistribution of their signals in a marketplace that
existed before cable faced competition from:
Direct broadcast satellite companies, such as DirecTV and
DISH Network, providing an all-digital video service that
includes local channels;
Telephone companies, like Verizon, AT&T, and mid-sized and
smaller companies, providing a wireline video service that also
includes broadband and phone;
Online video distributors, such as Netflix, Amazon, and
Hulu, providing a streaming and on-demand video service,
including broadcast content over the Internet, not just to TV
sets but also to laptop computers, tablets like the iPad, and
an assortment of hand-held mobile devices.
Moreover, the provision was written before a tidal wave of media
consolidation that has left the Big 4 broadcast networks (ABC, NBC,
Fox, and CBS) in the hands of media giants like Disney, Comcast, News
Corp., and Viacom's Sumner Redstone, all of whom own many of the most
popular cable channels. And now too retrans cash is king for CBS and
the others as they predict annual earnings of billion dollar
retransmission consent fees to come.
Today, retransmission consent rules fail to reflect the wide
disparity in bargaining power between a pay-TV provider and a local
broadcast station affiliated with a Big 4 network. In the distant past,
negotiations were between one local broadcaster and one cable operator,
each having exclusivity within its service territory. Although today
there is still only one local station affiliated with a broadcast
network per market, in nearly every market there are many multichannel
video programming distributors in each market competing against one
another. The original delicate balance between the two parties was
predicated on the fact that both sides needed each other in roughly
equal measure. However, unanticipated consolidation and business
practices have transformed this situation into one in which the
broadcaster can now extract evermore egregious fees from MVPDs and
their subscribers as a result of government sanctioned protections that
may have made sense in a completely different business environment, but
not today.
Today, the MVPD still needs the Big 4 signal on its channel line-up
just as much as before, but, unlike in 1992, the broadcaster no longer
needs any single MVPD quite so much. In my situation, I know, and my
local broadcaster also knows, that if I do not carry its signal my
customer will easily go to one of my competitors to get it.
Retransmission consent fees are out of control.
To put all of this into context, but without violating the non-
disclosure requirements embedded in the contracts we all must sign, I
have calculated that the retransmission consent costs for WOW!,
starting in January of this year, have increased at an appalling year-
over-year pace of almost 90 percent. And that's in this grim economy
for a product that Congress has legally obligated broadcast licensees
to provide free and over-the-air to the public. This exorbitant rate
hike follows on the heels of a 117 percent increase from the fees just
prior to this round of retransmission consent.
According to SNL Kagan research, retrans fees will increase 18-fold
by 2015, and we're talking BILLIONS per year taken from consumers.
Imagine the political reaction to that kind of increase if it was
forecast for corn, gasoline, clothing, or any other consumer product.
Cable consumers are forced to pay for Internet content they don't
access.
Let me shed light on another disturbing trend that should concern
you. Some major content distributors continue to deny ACA member
companies like WOW! fair and equitable Internet distribution rights for
their high-value programming. Or, they unfairly tie these media rights
to access to their core programming, requiring that our customers pay
for what is often also available for free on the networks' proprietary
websites. In one situation with a very well-known entity, we must
charge EVERY customer on our system a fee for the right to access that
company's online content over the subscriber's own broadband Internet
connection, even though the programmer's audits reveal that, on
average, less than two-tenths of one percent of our subscribers visit
its website on any given day. If that kind of trend continues, both
cable and broadband service will be priced out of reach for most
consumers. This situation highlights the looming problem you will face
if you do not in the very near future get ahead of the consumer and
MVPD concerns surrounding video programming content and how it is
distributed.
Coordinated negotiations by broadcasters stifle competition.
I believe the problems that WOW! and other MVPDs face are best
illustrated by understanding the sheer unfairness of coordinated
retransmission consent negotiations. Broadcasters have perverted what
they call ``marketplace negotiations'' for retransmission consent by
engaging in collusive coordinated negotiations. A longstanding
fundamental policy goal of our local broadcast television licensing
system is the promotion of competition among top rated, same-market
broadcasters licensed by the Federal Communications Commission.
Today, there are at least 46 instances where separately owned,
same-market broadcasters affiliated with a Big 4 network coordinate
their retransmission consent negotiations. The practical impact of
these collusive alliances is that local broadcasters, who are supposed
to be competing against one another, are using a single representative
to negotiate carriage rights for two or more competing stations. And
consumers pay the price for this kind of collusion.
Evidence ACA members presented to the FCC shows that broadcasters
who coordinate their retransmission consent charge fees that are at
least 21 percent higher than the fees collected by broadcasters who
negotiate carriage separately. Just imagine if the reverse were to
occur. Imagine the outrage you would hear from the local broadcasters
if Comcast, WOW!, DirecTV, DISH Network, and AT&T U-Verse all decided
to negotiate as one block with the TV stations in a single broadcast
market in which we operate. We shouldn't do that and neither should the
broadcasters.
ACA brought the issue to the FCC's attention on multiple occasions,
beginning as early as May 2010 in response to the FCC's request for
comment on a Petition for Rulemaking to reform the rules governing
retransmission consent. Each time we argued that the FCC should deem
coordinated negotiations by broadcasters to be a per se violation of
its good faith rules. More than two years later, we are still awaiting
action. Our hope is that Congress will find a way to convince the FCC
to act or will itself prohibit this practice in making revisions to the
Cable Act.
The good news: there's no shortage of solutions!
But there is good news. After years of hearings, industry
discussions, and constant debate, it's clear the time for Congress to
act is now. And when it does, there will be many solutions to consider
that will improve the situation for consumers and, in combination, have
a material benefit. As you begin your rewrite of the 1992 Cable Act, I
urge you to consider:
1. Prohibiting coordinated negotiations by separately owned
broadcasters in the same market;
2. Ensuring continued carriage of signals during a retransmission
consent dispute in order to stop consumers from being held
hostage by blackouts;
3. Requiring binding baseball-style commercial arbitration of such
disputes; and,
4. Authorizing consumers and pay-TV providers to employ new and
innovative technologies that allow consumers to receive
broadcast signals over-the-air as an alternative to receiving
and paying for that content through retransmission consent.
These are but a few possibilities, and I urge you to consider
them all.
As you have noted, the broadcast signal carriage rules codified in
1992 are antiquated and have escaped reform for far too long. They
reflect neither the realities of MVPD competition today engendered by
the 1992 Act, nor the impact of the pervasive consolidation in the
broadcast and media industry, not to mention the advent of the Internet
as a platform for video programming delivery.
Mr. Chairman, if you want to provide your constituents with the
best services and options that a 21st Century telecommunications
network can provide, then it is time to reform and overhaul the 20th
Century law that prevents cable operators from delivering them.
The status quo is unacceptable.
The Chairman. Thank you very much, Ms. Abdoulah.
And now we end with--no, we do not--Dr. Mark Cooper,
Director of Research, Consumer Federation of America.
STATEMENT OF DR. MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER
FEDERATION OF AMERICA
Dr. Cooper. Mr. Chairman, members of the Committee, thank
you for giving this opportunity.
In order to provide a fair evaluation of the Cable and
Consumer Protection Act of 1992, it is important to recall that
many of the most important provisions of that Act were
superseded or repealed by the 1996 Act, and some of the most
important policies pursued in the spectrum space since then
have been outside of both the 1992 and 1996 Acts.
Nevertheless, the 1992 Cable Act does provide an important
baseline because Congress recognized that the cable market was
afflicted by severe anti-competitive problems and anti-consumer
practices. Congress knew that access to distribution media and
control of market content are critical inputs that determine
the fate of competition and the treatment of consumers.
Congress believed that the incumbent market power in the video
space was sufficiently pernicious and tenacious, that it
overrode President Bush's only veto to enact the 1992 Act into
law.
Unfortunately, the competition promised by the Congress in
the 1996 Act failed to develop with the sufficient speed,
breadth, and scope to discipline cable market power. Relentless
cable price increases returned soon after the 1996 Act and
continue to this day because the multi-channel video market and
the broadband wireless access market remain very highly
concentrated. Competition was undermined in those markets by a
series of mergers which culminated in the last few years and
cross-technology mergers like Comcast/NBC and joint ventures
like Verizon and big cable. A quasi-monopoly is developing
where cable could compete against fiber. They have run up the
white flag, and in the rest of the country, inferior
technologies cannot compete against the single dominant coaxial
hybrid fiber network.
The failure to deconcentrate wireline distribution is
equaled by the failure to deconcentrate commercial programming.
Congress granted a lucrative right in retransmission, extending
the transmission rights with its retransmission rights. But it
gave broadcasters those rights without new responsibilities.
The broadcasters use their rights for retransmission to build
cable programming bundles and force them into the cable
network. Those fees paid for the cable networks--much of it
goes to broadcasters.
The cable operators are not innocent in this. They used
their vertically integrated programming to dominate where they
could, and so the broadcasters leveraged their retransmission
to respond to the cable operators' vertical market power. The
end result was, of course, that independent production has
disappeared in prime time.
Bargaining over retransmission has become ugly, but no
matter who wins between the cable operator and the
broadcasters, the consumer always loses. The public
occasionally loses access to programming, frequently is forced
to pay more for programming, and always is forced to buy
massive amounts of programming it never watches.
In contrast to the failure in those spaces, the success of
the FCC's decision to use the spectrum from mini to mini
communications is remarkable. Indeed, the biggest success has
come in the area where the FCC decided that it could allow the
spectrum to be used without exclusive licenses at all. It
concluded that a simple set of rules for sharing the spectrum
would make the public airways open to speech. It invented Wi-Fi
in the junk bands of the spectrum, and WiFi today is as big as
cellular in terms of traffic. The remarkable success of
unlicensed spectrum requires a radical deregulatory free market
shift in public policy thinking about how the spectrum is used.
We can return the public airways to the public for more direct
use than at any time in exactly 100 years.
And let us be clear. The original sin here is not
compulsory copyright, not retransmission. It is exclusive
broadcast licenses that were tolerated 100 years ago because of
technology, but are a fundamental affront to the First
Amendment.
If Congress intends to bring spectrum and video policy into
the 21st century, it must avoid making another 100-year
mistake. It must move the broadcasters out of the way and
provide the maximum opportunity for all the people to use the
public airways for their public purposes. If Congress intends
to rely on competition to fix the video space, as it should,
public policy must ensure that competition on the small number
of broadband platforms is not used to impede the development of
competition. Internet distribution of video must not be starved
of professional content by content owners, and it must not be
strangled by cable gatekeepers, especially when they seek to
defend the incumbent rents left over from antiquated 20th
century policies.
Thank you.
[The prepared statement of Dr. Cooper follows:]
Prepared Statement of Dr. Mark Cooper, Director of Research,
Consumer Federation of America
Mr. Chairman and Members of the Committee,
My name is Dr. Mark Cooper. I am Director of Research at the
Consumer Federation of America (CFA), which is an association of non-
profit consumer organizations that was established in 1968 to advance
the consumer interest through research, advocacy, and education. Today,
nearly 300 of these groups participate in CFA and govern it through
their representatives on the organization's Board of Directors and the
annual Consumer Assembly. CFA has been involved in communications,
media and Internet policy for decades in legislative, regulatory and
judicial arenas and has advanced the consumer view in policy and
academic publications.\1\
---------------------------------------------------------------------------
\1\ The analyses that are most directly relevant to this testimony
include: Mark Cooper, The End of the End of Competition for Digital
Access Services: The Verizon-Cable Spectrum Sale and Collaborative
Agreements Mark the Final Failure of the 1996 Telecommunications Act to
Provide Consumers with Effective Competition in Local Markets, Consumer
Federation, July 2012; Efficiency Gains and Consumer Benefits of
Unlicensed Access to the Public Airwaves: The Dramatic Success of
Combining Market Principles and Shared Access, Silicon Flatirons,
January 2012; ``Structured Viral Communications: The Political Economy
and Social Organization of Digital Disintermediation,'' Journal of
Telecommunications and High Technology Law, 9 (2011); The Central Role
of Wireless in the 21st Century Communications Ecology: Adapting
Spectrum and Universal Service Policy to the New Reality,''
Telecommunications Policy Research Conference, September 2011; ``Round
#1 in the Digital Intellectual Property Wars: Economic Fundamentals,
Not Piracy, Explain How Consumers and Artists Won in the Music
Sector,'' Telecommunications Policy Research Conference, September
2008.; The Case Against Media Consolidation (Donald McGannon
Communications Research Center, 2007); ``Will the FCC Let Local Media
Rise from the Ashes of Conglomerate Failure,'' International
Communications Association, May 2007. The Impact of the Vertically
Integrated Television-Movie Studio Oligopoly on Source diversity and
Independent Production, 2006; ``Independent Noncommercial Television:
Technological, Economic and Social Bases of A New Model of Video
Production,'' Telecommunications Policy Research Conference, October
2005; Broken Promises and Strangled Competition: The Record of Baby
Bell Merger and Market Opening Behavior (Consumer Federation of
America, June 2005); ``Spectrum as Speech in the 21st Century,'' The
Public Airwaves as a Common Asset and a Public Good: Implications for
the Future of Broadcasting and Community Development in the U.S., Ford
Foundation, March 11, 2005; ``Explorations Of Anti-Consumer,
Anticompetitive Practices,'' Cable TV Rates: Has Deregulation Failed?,
Manhattan Institute, November 2003; Open Architecture as Communications
Policy (Stanford Law School, Center for Internet and Society: 2004);
``Ten Principles For Managing The Transition To Competition In Local
Telecommunications Markets,'' Triennial Review Technical Workshop
National Association of Regulatory Utility Commissioners, Denver CO,
July 27, 2003; Media Ownership and Democracy in the Digital Information
Age: Promoting Diversity with First Amendment Principles and Rigorous
Market Structure Analysis (Stanford Law School, Center for Internet and
Society: 2003); Cable Mergers and Monopolies: Market Power In Digital
Media and Communications Networks (Washington, D.C.: Economic Policy
Institute, 2002); ``Open Access To The Broadband Internet: Technical
And Economic Discrimination In Closed, Proprietary Networks,''
University of Colorado Law Review, Vol. 69, Fall 2000; ``Picking Up the
Public Policy Pieces of Failed Business and Regulatory Models,''
Setting The Telecommunications Agenda, Columbia Institute For Tele-
Information November 3, 2000; ``Antitrust As Consumer Protection In The
New Economy: Lessons From The Microsoft Case, Hastings Law Journal, 52:
4, April 2001; ``Evolving Concepts of Universal Service,'' The
Federalist Society, October 18, 1996; ``Delivering the Information Age
Now,'' Telecom Infrastructure: 1993, Telecommunications Reports, 1993.
---------------------------------------------------------------------------
I appreciate the opportunity to offer CFA's reflections on the
Cable and Consumer Protection Act of 1992, an Act to which CFA devoted
a substantial amount of attention during its development. However, in
order to provide a fair evaluation of the 1992 Cable Act, we believe it
is important to recall that many of the most important policies adopted
by the 1992 Act were repealed or superseded by the Telecommunications
Act of 1996. It is also important to recall that some of the most
important policies that affected the video product space in this time
period (like the repeal of the Financial Interest and Syndication
Rules) were implemented outside of the Act. Finally, it is important to
recognize that the 1992 Cable Act dealt with and integrated rights to
two media--wireless and wireline, using media in the broad sense of
``storage and transmission channels or tools used to store and deliver
information or data . . . to communicate any data for any purpose.''
\2\ The first sentence of the Communications Act demands no less,
defining the purpose of the act to be
---------------------------------------------------------------------------
\2\ http://en.wikipedia.org/wiki/Media_ (communication).
to make available to all people of the United States, without
discrimination on the basis of race, color, religion, national
origin, or sex, a rapid, efficient nationwide and worldwide
wire and radio communications service with adequate facilities
---------------------------------------------------------------------------
at reasonable charges.
Dealing with a big issue over a long period, especially one where
there has been rapid technological and economic change, also requires
that we evaluate the outcome in relation to the broadly defined media
sector we have today. Because the video policy of the early 1990s
affected wireless (over-the-air terrestrial and satellite) and wireline
(cable) distribution media, any effort to write a new policy for the
21st century must affect both. Thus, to evaluate where we have come in
the past 20 years, we really need to look at the ``Video/Media Policies
of the early 1990s.
Once we take this broad perspective, we should be open to another
possibility. While we hope to learn important lessons from from
studying those aspects of wireless and wireline communications that
were addressed by the 1992 Act, we should be open to the possibility
that we may learn more about what we should do in the future from what
happened in the recent past in areas of wireless and wireline
communications policy that were not addressed by the 1992 Cable Act.
With all that said, the 1992 Cable Act does provide an important
baseline against which to evaluate the video/media policy of the early
1990s. In the 1992 Act Congress recognized that the cable market was
afflicted by severe, anticompetitive problems and anti-consumer
practices. Congress knew that access to distribution media and control
of marque content are critical inputs that determine the fate of
competition and the treatment of consumers. Congress believed the
problems were sufficiently grave and so in need of repair that it
overrode President Bush's only veto to put the 1992 Cable Act into law.
Congress was right to express these concerns; the central lesson of the
video/media policy of the early 1990s is that incumbent market power in
the video space is pernicious and tenacious and it requires vigorous
public policies to prevent abuse of consumers. Checking that market
power remains the central policy challenge after twenty years.
Wireline Service: The Failure of Competition to Discipline Cable Market
Power
Cable Rates: The market power of the cable operators unleashed by
the 1984 deregulation of cable had driven up rates dramatically. The
rate regulation sections of the 1992 Act effectively controlled that
runaway price escalation (see Exhibit 1). Unfortunately, the 1996
Telecom Act abandoned rate regulation and promised that competition
would protect consumers. It did not. In fact, the only time when
consumers have had a respite from relentless price increases for
multichannel video programming services since the 1984 deregulation of
cable was the brief period in which the rate regulation of the 1992
Cable Act was in place.
Exhibit 1: Bureau of Labor Statistics, Consumer Price Index (1982-
83=100)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Thus the heart of the analysis of the video/media policy of the
early 1990s must focus on the decision to rely on competition to
replace regulation as the essential source of consumer protection in
the video space. Unfortunately, the Telecom Act provisions that
promised competition failed and when sufficient competition to
discipline cable pricing failed to materialize, the abusive pricing
returned with a vengeance. Measured by the price consumers pay for
multichannel video programming services, the policy failed miserably.
Horizontal Limits: The horizontal and vertical limits policy that
congress enacted in the 1992 Cable Act to help control cable market
power also failed. Although the Congress told the FCC to impose
horizontal and vertical limits, the language was not clear enough in
the statue to overcome the steadfast opposition from cable in the
courts. The FCC was not able to get a rule past the courts and cable
exploited loopholes to undermine competition. The intermodal and
intramodal competition that Congress hoped in the 1996 Act would
replace regulation also failed to develop with sufficient speed,
breadth and depth, to break the stranglehold that the incumbent
distribution and content companies had on the video space. New entrants
have failed to discipline cable's pricing power at the level of local
of distribution and a handful of companies still dominate the prime
time dial, which is where the money is in the video space.
Program Access: Congress also recognized that access to marquee
content was important, if new distribution media were to have a chance
to compete against entrenched incumbents. If a new distribution media
is denied access to the programming that people watch most often, it
cannot attract the viewers necessary to make it a viable economic
operation. Access to popular programming is a huge barrier to entry.
The Congress recognized that antitrust law and practice were
insufficient to prevent this barrier from being used to undermine
competition, so it wrote specific provisions to promote and ensure
access to content under the broader, public interest standard of the
Communication Act. The 1992 Act recognized that potential satellite
distributors of video content had been the victims of the withholding
of content by cable operators. The Act included a number of provisions
to check this anticompetitive behavior.
The program access rules were among the most effective aspects of
the 1992 Act that were not replaced by the 1996 Act. The program access
rules did free satellite from the stranglehold of vertically integrated
cable operators, but that success was limited by the weakness of
intermodal competition. Because of differences in technology, satellite
made its greatest inroads in rural areas, where cable was weakest, but
never did discipline cable's pricing power anywhere. In urban areas, it
did push cable to digitize and expand its capacity, but ultimately,
that undermined satellite's ability to compete because satellite cannot
deliver broadband connectivity. The cable broadband pipe now dominates
the market for local digital connectivity.
The impact of the program access rules was also limited in the case
of intramodal competition. Head-to-head competition between cable
operators and overbuilders was undermined when cable claimed a
``terrestrial loophole,'' which allowed it to withhold ``must have''
content, like local sports from overbuilders. Even large potential
entrants like telephone companies have complained about the problem of
access to programming.
The Failure of Competition Policy
Relying on the theory that intermodal competition from satellite
and entry by telephone companies would discipline cable's market power,
a series of mergers was approved that consolidated the cable's control
over both the video and broadband markets in its local service area
(see Exhibit 2). The long standing failure of intramodal video
competition (between cable companies, between broadcasters, between
telephone companies) has been joined by the dramatic failure of
intermodal competition between (broadcasters and cable, between
satellite and cable, between cable and telephone companies).
Exhibit 2: The Telecom Act Path to a ``Collaborating'' Duopoly in Local
Digital Connectivity
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Author based on Cable Mergers and Monopolies (Economic
Policy Institute, 2002), Broken Promises and Strangled Competition: The
Record of Baby Bell Merger and Market Opening Behavior (Consumer
Federation of America, June 2005); ``Picking Up The Public Policy
Pieces Of Failed Business And Regulatory Models,'' Setting The
Telecommunications Agenda, Columbia Institute For Tele-Information
November 3, 2000.
The measure of market structure that has been used by the
Department of Justice and the Federal Trade Commission for decades is
the HHI index. The DOJ/FTC recently raised the threshold they use for
considering a market to be highly concentrated. They have declared that
when the HHI is at a level equivalent to four equal sized firms
(HHI=2500) a market is considered to be highly concentrated market and
likely to get close scrutiny in transactions like mergers and joint
ventures.
The HHI index for local distribution shows that local distribution
for MVPD service remains very highly concentrated, affording less
competition than even a pure duopoly (see Exhibit 3). The fact that
there is more competition than there was before the 1992 cable Act is
not the most important point; the central lesson in these statistics is
the fact that there is not enough competition to produce the beneficial
results that competition is supposed to deliver and Congress promised.
Moreover, this simple statistic does not even fully capture how bad
the situation is at the local level, as discussed below, because the
competitors are not evenly matched in terms of the technologies used to
supply services. The cable operators have added broadband to their
video bundle and in at least three-quarters of the country they have
the network that will dominate the broadband space in speed and
capacity. The steady increase in the concentration of local
connectivity for broadband access is evident in Exhibit 3.
Exhibit 3: HHI for Local Digital Wireline Connectivity
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Mark Cooper, The End of the End of Competition for Digital
Access Services: The Verizon-Cable Spectrum Sale and Collaborative
Agreements Mark the Final Failure of the 1996 Telecommunications Act to
Provide Consumers with Effective Competition in Local Markets, Consumer
Federation, July 2012; Eli Noam, Media Ownership and Concentration in
America, 2009, for pre-2008; author estimates based on national trends
in Federal Communications Commission reports on, High Speed Internet
and Wireless applied to local market shares data in International
Strategy and Investment Group, Media and Cable, October 24, 2011.
The 21st Century Policy Challenge: Ensuring the Emerging Quasi-
Monopoly in Wireline Broadband Services the Public Interest
When cable competition policy failed, it opened the door to the
dangerous possibility that these problems will persist in the age of
digital distribution. The failure to introduce vigorous and effective
competition into local video distribution now threatens the new
distribution medium--broadband. We are repeatedly told that the
broadband Internet will solve everything, but in the production and
distribution of professional video, it has not yet done so and the
dominant players are engaged in vigorous efforts to ensure that their
dominance is preserved by manipulating access to consumers or
withholding content from Internet video distribution.
The end of the end of the fairy tale of competition has been
highlighted in the past two years by cross-technology mergers (Comcast-
NBC) and joint ventures (Verizon and big cable). It is no longer
possible to maintain the fiction that competition will protect
consumers in the video market. The lesson for policymakers is quite
clear.
In those parts of the nation where there are two networks
that are well-matched in capacity, the competitors have waved
the white flag and proposed a joint marketing agreement and
strategic produce development joint venture.
Poorly matched intermodal technologies are no substitute for
head-to-head competition. Telco DSL or 4G wireless networks
cannot deliver the speed and bandwidth that fiber and hybrid
fiber coaxial cable networks can.
The difference between wireless broadband and wireline is quite
clear. The fourth generation wireless technology aspires to deliver
capacity and speed in the range of 10 to 20 megabits per second (mbps).
The technologies used by advanced wireline service deliver 50 to 100
mbps. As a real world reminder of this difference, the wireline
broadband service providers set their caps about 125 times as high as
the wireless carriers. While none of the caps, as implemented, makes
economic sense, the dramatic difference in their levels reflects the
fundamental differences between the technologies.
Exhibit 4 shows a recent comparison of the best available broadband
services available from each technology in fifteen cities across the
globe, based on a recent analysis by the New America foundation. These
15 cities had complete data on upload and download speeds for each of
the major technologies. These are very dense areas ranging from 2300
per square mile in Riga Latvia to almost 30,000 per square mile in New
York. The Exhibit 4 shows that DSL and Wireless broadband delivers a
fraction of the speed that cable/fiber does. As cable and fiber move to
higher speed, DSL and wireless fall farther behind.
Exhibit 4: Average Speed for ``Best'' Available Technologies in 15
Cities
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Hibah, Husain, et al., The cost of Connectivity, New
America Foundation, July 23, 2012.
Policy Lessons
I believe mobile broadband is a terrific technology that will be at
the center of the communications ecology of the 21st century digital
economy, but it is not a substitute for wireline broadband. On the
contrary, wireline broadband is a vitally important complement and a
necessary input for wireless broadband. It is the ``fat pipes'' of
wireline broadband that bring the exaflood of data close to the
consumer, data which covers the first mile through wireless. This
critically important role of wireline broadband makes it all the more
alarming that we are headed to at best a quasi-monopoly of full
capacity broadband networks (a duopoly with either two poorly matched
or collaborating rivals). Moreover, to the extent that wireless
broadband might provide competition for cable, it has the added problem
in the U.S. that the dominant telephone companies also dominate the
wireless broadband space. Worse still, one of he two dominant wireless
broadband providers has signed a peace treaty with the major cable
operators. I believe that this is illegal under the Communications Act,
but if the courts find that the Act is ambiguous in this area, the
Congress should make it clear that this type of close collaboration
between two wireless broadband networks is unacceptable if competition
is to remain the primary thrust of public policy. One and a half firms
is not enough competition to protect consumers, but that is what we
have in the U.S.
Twenty years of failure to break the strangle hold of the incumbent
broadcasters and cable operators should have reinforced the premises on
which the 1992 Cable Act rested: access to the means of distribution
and ``must have'' content are key bottlenecks. The campaign by the
cable operators and content producers to prevent content from going
online or ensure that it is behind a pay wall if it gets online, is
intended to defend the rents of their offline businesses. In the
absence of effective competition, this rent collection is not socially
productive. Rather than support the necessary infrastructure, it
contributes to outrageously high rates of profit and undermines the
competitiveness of and innovation in the digital distribution models.
The pattern of anti-competitive, anti-consumer behavior that cable
exhibited in the pre-broadband era has been transferred to the
broadband product space. Comcast was caught red-handed degrading the
quality of service of applications that competed against its core
product. It has recently begun to charge consumers who use competing
digital distribution service over their broadband connections. In both
cases, it gave its own, identical services better treatment. I believe
that this is illegal under the Communications Act, but if the courts
find that the Act is ambiguous in this area, the Congress should make
it clear that broadband communications networks must be operating in a
nondiscriminatory manner, the way all of the major communications
networks have been throughout the history of the Republic.
If Congress intends to rely on competition to fix the video space,
it must ensure that the Internet is not starved of content or strangled
by cable gatekeepers. The very small number of distribution networks
means that competition between platforms will be feeble at best.
``Dynamic'' duopolies just won't cut it, ``collaborative'' duopolies
are a joke and ``benevolent'' monopolies are a fiction. If policymakers
intend to rely to the greatest extent possible on competition, then
public policy must ensure that competition on the small number of
platforms is unimpeded by the market power of the network owners or the
dominant content producers.
Wireless: The Failure of Broadcast Spectrum Policy
Retransmission Consent: Twenty years ago, when Congress chose to
extend the lucrative transmission rights it had granted to broadcasters
by adding retransmission rights, it was attempting to protect the
national broadcast networks that had come to play an important part in
democratic discourse in America. The retransmission consent provisions
of the 1992 Act were intended to ensure that national broadcast
networks were available over cable and supported by broadcasters.
Unfortunately, Congress gave the broadcasters these new rights without
new responsibilities and they abused them. They were not used to
strengthen the broadcast networks; they were used by the broadcasters
to build suites of cable programming that were crammed into the bundles
that cable offered. Consumers were forced to purchase large bundles of
programs, most of which they do not watch.
Repeal of FinSyn: The repeal of the FinSyn rules also contributed
to this consolidation, allowing the broadcasters to eliminate
independent programming from prime time, which provided the
broadcasters with the incentive to purchase movies studios. The result
of these policies was to unleash a wave of horizontal mergers and
vertical integration, as shown in Exhibit 5.
Exhibit 5: The Evolution of the Cable/Broadcast Content Oligopoly
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Mark Cooper, The Impact of the Vertically Integrated
Television-Movie Studio Oligopoly on Source diversity and Independent
Production, 2006; Columbia Journalism Review, Who Owns What, August 22,
2006.
Today the video dial is dominated by a handful of companies, many
of which have proposed to collaborate, as shown in Exhibit 6.
Exhibit 6: Programming Controlled by the Content Oligopoly and
Collaborators
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Federal Communications Commission, In the Matter of Annual
Assessment of competition in the Market for the Delivery of Video
Programming: fourteenth Report, July 20, 2012, Appendix B; Columbia
Journalism Review, Who Owns What, July 21, 2012.
The cable operators were not entirely innocent in this process. The
broadcasters were confronted with the problem that cable operators,
often vertically integrated with cable programming, gave their
affiliated programming preference in carriage and high fees. To match
the cable operators, who were leveraging the advantage of vertical
integration, the broadcaster leveraged their retransmission rights to
gain carriage. For a long period the cable operators and broadcasters
solved their problem by increasing the bundles and charging higher
prices. The bargaining over retransmission has become contentious
lately, but no matter who wins between the cable operators and the
broadcasters, one thing is certain, the public always loses. The public
occasionally loses access to programming, frequently is forced to pay
more for programming, and always is forced to pay for massive amounts
of programming it never watches.
Spectrum Policy Beyond the 1992 and 1996 Acts: Time to Return the
Public Airwaves to the Public
Use of the public airwaves (transmission and retransmission rights)
is a good place to start a broad and meaningful reform agenda. Spectrum
is a shared resource used by humans to communicate. Human speech uses
the airwaves, which are accessible to all who have a voice, and people
have been using technology to expand the reach of their communications
through the spectrum for as long as they have been speaking. The
invention of the radio a little over a hundred years ago was a
technological breakthrough that vastly increased the ability to
transmit signals over long distances to many more people.
Exactly a hundred years ago with the signing of the Radio Act of
1912 (August 13, 1912), public policy started down the road of granting
licenses to transmit signals whose range was boosted by electronics.
Given the technology of the day, using the spectrum to transmit one
signal to many potential listeners appeared to be the best use of the
spectrum. Exclusive licenses seemed to be a good way to solve two
problems--(1) prevent interference between speakers by designating one,
privileged person to use specific frequencies in the spectrum in
specific areas and (2) provide incentives to investment in the
transmitters, receivers and content that would fill the airways with
sound. In exchange for the privilege of an exclusive right to use the
public airwaves, broadcaster were asked to shoulder public interest
obligations.
Economists have debated for decades whether broadcast licenses were
the best use of the spectrum, but two remarkable experiments in the
past quarter century have made it clear that, whatever the original
rationale may have been, it no longer holds. About a quarter of a
century ago, public policy allowed the spectrum to be used in other
ways by other technologies to provide manyto-many conversations. The
FCC began to issue licenses for cellular communications under the
theory that licenses were still necessary to control interference and
incent investment in the technology necessary to exploit the resource
in this new way. As shown in Exhibit 7, the value of the economic
activity in the spectrum used for two-way communications now dwarfs the
value of the activity in the spectrum set aside for broadcasting, even
though the broadcast spectrum is considered to be of much higher
quality.
Exhibit 7: Broadcasting v. Wireless Annual Revenue (million $)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Statistical Abstract of the United States, various issues,
Information Sector Services--Telecommunications Estimated Revenue and
Expenses; Mark Cooper, ``The Central Role of Wireless in the 21st
Century Communications Ecology: Adapting Spectrum and Universal Service
Policy to the New Reality,'' Telecommunications Policy Research
Conference, September 2011.
At roughly the same time, however, the FCC undertook an even more
deregulatory free market experiment in the use of the spectrum. It
realized that issuing licenses to transmit signals was not the only way
to control interference or incent people to invest in the technology to
make more communications possible. Given new technology, allowing
everyone to use the spectrum to transmit signals, subject to simple
rules of sharing, also produces an immense amount of communications
without interference. WiFi was born in parts of the spectrum that had
been considered ``junk'' or ``garbage'' by those wishing to use the
spectrum for commercial purposes.
As shown in Exhibit 8, the number of WiFi enable devices deployed
has increased at a remarkable pace. In the contemporary world of
wireless broadband communications, firms that hold the privileged
position of licensed cellular carriers have found it efficient and
effective to dump as much as half their data traffic into the
unlicensed space.
Exhibit 8: U.S. Wireless Connectivity Potential
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Nick Flaherty, ``Consumer Wi-Fi drives Global growth,'' The
Embedded Blog, May 28, 2010, Peter King, Digital Home Wi-Fi Enabled
Devices: Global Market Forecast and Outlook,'' July 2007; FCC, Internet
Access Services, various issues; Mark Cooper, Efficiency Gains and
Consumer Benefits of Unlicensed Access to the Public Airwaves: The
Dramatic Success of Combining Market Principles and Shared Access,
Silicon Flatirons, January 2012.
The value of unlicensed spectrum goes well beyond a convenient
place for cellular services to offload their traffic. It provides a
variety of services that have unique value. In a recent paper I showed
that the value of the many uses of WiFi has grown to equal or exceed
the value of wireless broadband and wireline broadband (as shown in
Exhibit 9).\3\ As the Internet of things expands, to tens of billions
of transmitters, unlicensed spectrum will fill a larger and larger
role. Wi-Fi is a central feature of the 21st century communications
technology.
---------------------------------------------------------------------------
\3\ Mark Cooper, Efficiency Gains and Consumer Benefits of
Unlicensed Access to the Public Airwaves: The Dramatic Success of
Combining Market Principles and Shared Access, Silicon Flatirons,
January 2012.
---------------------------------------------------------------------------
The remarkable success of unlicensed spectrum requires a radical,
deregulatory, free market shift in public policy thinking about how to
use spectrum. It is now possible to return the public airwaves to the
public for much more direct use than at any time since the passage of
the Radio Act a hundred years ago.
The unlicensed model has succeeded because it is not free. In order
to utilize the unlicensed spectrum, device manufacturers must design,
build and market devices that consumers buy. To induce consumers to do
so, useful applications must be written and distributed. Service
provides must deploy hundreds of thousands of base stations and they
must pay for the transport of traffic to and from the Internet. The
unlicensed model succeeded by bringing new and unique services to
market, increasing the value of broadband by extending it to new
devices, and providing a lower cost, more efficient avenue to deliver
data to consumers.
Exhibit 9: Use of Unlicensed Spectrum Accounts for a Significant Part
of the Value of Broadband
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Sources: Cellular data estimated as $50/month for 84,000 million
subscribers year-end 2010 Industry Analysis and Technology Division,
Internet Access Services: Status as of December 2010, Federal
Communications Commission, October 2011. WiFi standalone value is
calculated as 110 million users are $20 per month value based on
charges for standalone Wi-Fi services (as advertised in websites of
Boingo, AT&T, T-Mobile). Most cellular providers bundle Wi-Fi with
cellular broadband subscriptions. Hot Spot Connectivity estimated by
scaling up AT&T 1.2 billion per year to 3.6 national total valued at
average per session charge of $3. Consumer surplus is from Richard
Thanki, The Economic Value Generated by Current and Future Allocations
of Unlicensed Spectrum, Perspective, 2009 (adjusting his 30 percent
scenario for the current level of broadband subscribers). Speed is
from, Paul Milgrom, Jonathan Levin and Assaf Eilat, The Case for
Unlicensed Spectrum, October 12, 2011). Intermediate Inputs from
Richard Thanki, The Economic Value Generated by Current And Future
Allocations of Unlicensed Spectrum, Perspective, 2009 and Yochai
Benkler, Unlicensed Wireless vs. Licensed Spectrum: Evidence from
Market Adoption, 2011. Mark Cooper, Efficiency Gains and Consumer
Benefits of Unlicensed Access to the Public Airwaves: The Dramatic
Success of Combining Market Principles and Shared Access, Silicon
Flatirons, January 2012.
The unlicensed model removes the spectrum barrier to entry,
which is the primary obstacle by allowing anyone to transmit
signals for any purpose, as long as the devices used abide by
the rules.
Removing this barrier to entry removes the threat of hold
up, in which the firm that controls the bottleneck throttles
innovation by either refusing to allow uses that are not in its
interest, or appropriating the rents associated with
innovation.
It lowers the hurdle of raising capital, by reducing the
need for network investment and focusing on devices and
applications.
It fosters an end-user focus that makes innovation more
responsive to consumer demand; indeed, it allows direct end-
user innovation.
It de-concentrates the supply of services compared to the
exclusive licensed model, especially for high bandwidth
services which tends to result in a very small number of
suppliers, particularly in lower density markets.
Policy Lessons: Moving the Broadcasters out of the Way
This historical background must be the starting point for policies
to address the problem of the retransmission consent. Retransmission of
broadcast signals may or may not be a necessary extension of the early
twentieth century broadcast license approach to using the spectrum, but
the fundamental problem at the start of the 21st century is that the
underlying broadcast licenses are an anachronism born of an antiquated
technology. They use far too much spectrum to provide a specific form
of communications that is of relatively little value compared to the
alternative uses of the public airwaves that technology now makes
possible. Simply put, the U.S. is wasting tens of billions of dollars a
year because the broadcast licenses prevent people from using the
public spectrum in much more valuable ways.
If Congress reforms retransmission rights without reforming the
underlying transmission rights, it will have done only a small part of
what is necessary and in the public interest. If Congress reforms the
underlying transmission rights without providing the maximum
opportunity for all the people to use the spectrum in the freest manner
possible, it will have failed miserably to bring the management of
spectrum in to the 21st century. Congress will make another hundred
year mistake.
Using 21st century technology, broadcasters can continue to
transmit their signals while using much less spectrum. They should be
required, not bribed, to do so. To be fair, the cost of retooling their
equipment to transmit more efficiently might be defrayed with public
funds, but that is it. They have no claim to the value that the
spectrum can generate with other uses. Since the signals they will be
able to transmit will be just as strong and clear (perhaps even better
in both regards), there will be no harm to them and they deserve no
special compensation. The exclusive right to transmit in the public
airwaves is already a privilege of immense value. If a broadcaster does
not move, the next time the broadcast license is up for renewal, part
should be set aside for unlicensed use and the other part should be
auctioned. If the broadcasters want it badly enough, they will win the
auction and make the investment necessary to use the spectrum, just
like every other potential bidder. The spectrum that is freed up by
relocating the broadcasters should be split between cellular licenses
and unlicensed use.
Reforming the management of the public airwaves in this way is the
most important step policymakers can take, but reforming transmission
rights in this way will not solve the problem of retransmission rights.
Broadcasters will still have the privilege of holding exclusive rights
to use the public airwaves to transmit their signals and the current
law gives them retransmission right, too.
Congress could simply eliminate retransmission rights and the
public interest would be no worse off. The original license to transmit
was a valuable privilege. The broadcasters received the right to
transmit signals over-the-air for free to the public. That is all they
deserved and should have expected.
In the alternative, Congress could tie retransmission right to
other public purposes for those who choose to continue their current
licenses and accept the offer to move their transmission signals, much
as it tied the original transmission rights to public interest
obligations. In order to exercise retransmission right on multichannel
video distribution platforms, broadcasters should be required to make
those programs available over the Internet at the same time and on the
same terms as they make their programming available over-the-air. This
would replicate the original deal between the public and broadcasters--
the right to transmit signals that are freely available to the public.
Conclusion
Digital distribution is a powerful, consumer-friendly, competition-
friendly force in the 21st century media sector, but it is not immune
to the abuse of market power by entrenched physical space incumbents.
Media policy in the 21st century will have to be sensitive to the new
economic reality, where small numbers of platforms play an important
role. Large firms dominate platforms at the center of the digital
economy because of the superior economics made possible by dramatic
reductions in transaction costs and the ease and importance of vertical
linkage in digital production. The economics that dictate a small
number of platforms with market power, do not prevent the abuse of that
market power. It becomes vitally important to ensure competition for
the complements that flow on those platforms is not undermined by
market power.
The need for access is a two edged sword. The owners of the
platforms must not be allowed to leverage their market power to distort
competition on the platform. The suppliers of the complements (content)
must not be allowed to manipulate the supply of ``marque'' content to
distort platform competition or extract monopoly rents, especially in
the name of defending inefficient, outdated physical space business
models.
The media policy of the early 1990s failed in large measure because
it pinned its hopes on competition between media distribution platforms
and gave broadcasters more rights, while failing to control cable
market power. After the Comcast-NBC merger and in light of the Verizon-
cable joint venture, the prospects that platform competition will
provide the necessary check on the market power of incumbent content
producers and network owners are dimmer than ever.
If Congress intends to legislate in the media and spectrum area, it
must get back to the principle that the primary means of communications
must be available to all on a nondiscriminatory basis, a principle that
has been successfully applied to the dominant means of communications
throughout U.S. history, regardless of the dominant technology--roads,
canals, steamships, railroads, and the telephone network. It would be a
grave mistake, another hundred year mistake, to allow the information
superhighway to be turned into a private toll road dominated by one or
two network owners.
The Chairman. I thank you, sir.
We move now on to Mr. Padden, and I could identify you. You
are an Adjunct Professor of Law at the University of Colorado.
Please proceed.
STATEMENT OF PRESTON PADDEN, SENIOR FELLOW,
SILICON FLATIRONS CENTER, COLORADO LAW,
UNIVERSITY OF COLORADO
Mr. Padden. Thank you, Chairman Rockefeller, Ranking Member
Hutchison, and members of the Committee. My name is Preston
Padden. I am a Senior Fellow at the Silicon Flatirons Center
for Law, Technology, and Entrepreneurship at the University of
Colorado School of Law and an Adjunct Professor of
Communications Law.
We have 11 of our students interning in communications-
related offices in Washington this summer, and I thank the
Committee very much for accommodating some of them here today.
The views I express are my own, and I have at least three
things I did not have in earlier appearances before this
committee. They are arthritis, hearing aids, and the broad
perspective that comes from no longer being employed in one of
these warring industry segments.
America's television regulatory policies have come to look
like that old closet in your basement that you keep promising
yourself one day you will finally clean out. I appear today to
offer a full-throated embrace of S. 2008 and H.R. 3675, the
Next Generation Television Marketplace Act, that would affect
principled deregulation.
Priority number one must be the repeal of the cable and
satellite compulsory licenses. These licenses seize all the
programs on local TV stations and give them for free to Time
Warner Cable and DirecTV, but not to new online video
distributors like Netflix. This creates a huge impediment to
the growth of online video distributors, the distributors that
hold the most promise of new competition for the benefit of
consumers. Since multinational and bilateral treaties prohibit
Congress from enacting a compulsory license for television
programs on the Internet, the only way to level the playing
field between Time Warner Cable and Netflix is to repeal the
cable and satellite compulsory licenses.
These licenses were first adopted in 1976 because Congress
did not then believe that there was a reasonable marketplace
mechanism to clear the copyrights for cable and satellite
retransmission of broadcast programs. But today the programs on
more than 500 non-broadcast networks, which are not subject to
the compulsory licenses, get retransmitted all across the
country through simple marketplace negotiations. The non-
broadcast channel owners simply aggregate the rights in all of
the programs on their schedule and then engage in a simple
copyright-based negotiation with the cable operator or
satellite operator. Broadcasters could do exactly the same
thing.
The worst of all possible results would be to modify or
repeal retransmission consent while leaving the compulsory
copyright licenses in place. That would produce a totally
unwarranted windfall for cable and satellite operators and
would do nothing to help consumers gain access to new video
options from online distributors.
The bedrock principle that broadcasters and program
creators deserve to be compensated when another party sells
their programs at retail is not outdated. It is timeless, as
old as capitalism itself. So I ask the Committee to distinguish
between an antiquated regulatory structure and indeed needs to
be examined and the unarguable principle that the creators of
broadcast programming deserve to be compensated for their
product.
S. 2008 and H.R. 3675 would bring about other much needed
deregulation as further described in my written testimony. For
example, because of the TV-newspaper cross-ownership rule, the
Times Picayune newspaper did not have the option of seeking to
merge with a local television station, and as a result,
consumers in New Orleans now get only three newspapers a week.
By championing principled deregulation, I do not mean to
tilt for or against any industry segment. I love them all.
Broadcasters provide consumers with free over-the-air access to
the most watched programming and to vital news and community
service. Cable, led by Dr. Richard Green and his team at Cable
Labs, deserve enormous praise for developing the doxis standard
and investing more than $175 billion of private capital to
build America's only nearly nationwide high-speed broadband
network. Satellite carriers and online video distributors offer
a much needed alternative source of video programming, and
without the program creators, nothing else in the television
ecosystem would matter.
I have confidence that all of these industry segments will
thrive in a deregulated future. I understand that a regulated
environment, especially one that your industry helped to shape,
is known and secure, but I firmly believe that the future of
all of these industry segments and of segments not yet even
conceived lies not in regulation but in the freedom to innovate
in the service of consumers.
Thank you very much.
[The prepared statement of Mr. Padden follows:]
Prepared Statement of Preston Padden, Senior Fellow, Silicon Flatirons
Center, Colorado Law, University of Colorado
``Congress gives Comcast, but not Netflix, a free copyright license for
all the programs on local TV Stations. Why?'' [From testimony
below]
Chairman Rockefeller, Ranking Member Hutchison and members of the
Committee, my name is Preston Padden and I am a Senior Fellow at the
Silicon Flatirons Center for Law, Technology and Entrepreneurship at
the University of Colorado School of Law and an Adjunct Professor of
Communications Law. I enjoyed a 38 year career in the television
industry during which I held senior positions in almost every segment
of the business--local television stations, television networks, cable
networks and satellite television, including serving as President of
The ABC Television Network.
I have appeared before the Committee many times, but this is the
first time that no one is paying me to advocate a particular point of
view. The views I express today are my own. I am strongly pro-
broadcaster, pro-cable/satellite/telco operator, pro-online video
distributor and pro-content creator. I am anti-no one. Most importantly
I am passionate about allowing dynamic market forces to provide
consumers with the best possible television services. I am honored to
be sharing the witness table with distinguished and accomplished
industry leaders, including longtime friends.
America's television regulatory policies have come to look like
that old closet in your basement that you keep promising yourself that
one day you will finally clean out. The span of my career has allowed
me to be an observer, and occasionally a participant, as one regulatory
structure after another was stuffed into that closet. In my opinion,
the day has come to clean it out. I appear today to offer a full-
throated embrace of S. 2008 and HR. 3675, the Next Generation
Television Marketplace Act.
Compulsory Licenses and Retransmission Consent
Because of the inextricable link between Communications policy and
Copyright policy, I urge this Committee to find a way to move forward
in lockstep with the Committee on the Judiciary as you clean out this
dusty regulatory closet. Repeal of the cable and satellite Compulsory
Copyright Licenses in Sections 111, 119 and 122 of Title 17 should be
an absolute prerequisite to action by this Committee, or by the FCC, to
repeal or modify related Communications Statutes and Regulations
including Retransmission Consent. Many of the Communications Act
provisions were adopted expressly to prevent unfair and unintended
consequences that otherwise would flow from Compulsory Licensing. They
are inseparable. Repeal of the Communications provisions without also
repealing the Compulsory Copyright Licenses would result in an
unjustifiable windfall for cable/satellite/telco operators
(``Multichannel Video programming Distributors'' or ``MVPDs'') at the
expense of broadcasters and program creators.
Today, MVPD distribution of broadcast programming is governed by a
Rube Goldberg regulatory structure. Wikipedia describes Rube Goldberg
as ``complex gadgets that perform simple tasks in indirect, convoluted
ways.'' Rube would have loved our system of Compulsory Licenses and
Retransmission Consent. First in 1976 and then in 1988 the government
seized the private property of program creators--all the programs on
local TV stations--and gave them for free to for-profit cable and
satellite companies under Compulsory Licenses. Then in 1992, instead of
simply repealing the Compulsory Licenses, the government layered on
Retransmission Consent--a requirement that cable and satellite
companies get the consent of the same local TV stations for the use of
their signal, as distinguished from their programs. The end result of
these two government interventions is a negotiation between the local
TV stations and the cable and satellite companies. As explained below,
that is the same result that most likely would have resulted if the
government had adopted neither the Compulsory Licenses nor
Retransmission Consent. We have created complex statutes that perform
simple tasks in indirect, convoluted ways.
S. 2008 and HR. 3675 achieve the right public policy balance by
repealing both the Compulsory Copyright Licenses and Retransmission
Consent provisions thereby favoring no industry over another. The
result would be to allow dynamic marketplace forces to manage the
distribution of broadcast programming in response to consumer demand,
just as those same forces have successfully managed the distribution of
non-broadcast programming for the last three decades. Those marketplace
forces will do a better job of serving the American people than do
these ancient Statutes and Regulations that virtually lock in place
viewing patterns dating back to 1972.
The Cable Compulsory Copyright License (17 U.S.C. Section 111),
enacted in 1976 when television in America consisted almost entirely of
just ABC, CBS and NBC, is one of the oldest and most outdated Statutes
gathering dust in the back of our nation's regulatory closet. The
Compulsory License is so old that very few people in the industry or in
the Congress even know that it exists. Even fewer understand what it
does. Unfortunately, I am so old that I was present when the Compulsory
License, which commentator Adam Thierer has dubbed ``the original sin
of video marketplace regulation'' (Forbes 2/19/12), was committed.
In November 1971, as a young law Student, I was clerking for a
great lawyer and a wonderful mentor named Tom Dougherty, Assistant
General Counsel of Metromedia, Inc. the then owner of channel 5 in
Washington, D.C. Tom sent me to observe the latest in a series of
meetings between Vince Wasilewski, President of The National
Association of Broadcasters, Bob Schmidt, President of the National
Cable Television Association and Jack Valenti, President of the Motion
Picture Association of America. Senior Staff members of the Senate and
House Commerce and Judiciary Committees and of the White House Office
Of Telecommunications Policy were present at the meeting. The goal was
to break the logjam of copyright and communications policy issues that
had prevented the growth of cable television systems. It was my good
fortune to be present as the negotiators, prodded sternly by
Congressional and White House Staff, reached what became known as the
``Consensus Agreement'' (Appendix D to 36 FCC 2d 143 at 284-286
(1972)).
The principal components of the Consensus Agreement were:
1. The Copyright Act would be amended to make it clear that cable
retransmission of the program schedule of a broadcast station
would be considered a ``performance'' of those programs;
2. But cable operators would get a government conferred Compulsory
Copyright License allowing the performance of those programs,
paying nothing for retransmitting the programs on local
stations and paying a statutory fee for retransmitting the
programs on out-of-market stations;
3. The FCC would enact an agreed upon set of communications
regulations including ``must carry'' and regulations designed
to ameliorate the marketplace disrupting capability of the
Compulsory License--the capacity of a Compulsory License to
otherwise trump the rights of parties to exclusive program
contracts that were negotiated in the marketplace.
The Network Non-Duplication Rule and the Syndicated Exclusivity
Rule are examples communications regulations designed to ameliorate the
effects of the Cable Compulsory License. These regulations do not
confer upon the broadcaster any exclusive rights. Instead, these
regulations merely allow a broadcaster to actually realize such
exclusivity as it has negotiated with the program owner notwithstanding
the Compulsory License bestowed on Cable by the Congress. In other
words, in the absence of a government conferred compulsory license,
parties in the marketplace that contract for exclusive rights can bring
litigation to enforce those exclusive rights. But, when the government
steps in and imposes a compulsory license, that license can ``trump''
negotiated licenses unless the government adopts rules like Network
Non-Duplication and Syndicated Exclusivity.
Compulsory licenses are an extraordinary exception to and departure
from normal copyright principles. Under a compulsory license a program
creator is actually compelled by the government to license its program
to a government-favored party at government-set rates. Pursuant to
International Copyright Treaties and Conventions, compulsory licenses
are to be used only as a last resort in instances of market failure. As
memorialized in the House Report, the cable compulsory license was
justified by the universal belief ``that it would be impractical and
unduly burdensome to require every cable system to negotiate with every
copyright owner whose work was retransmitted by a cable system.'' H.R.
Rep. No. 1476, 94th Cong., 2d Sess., at 89 (1976).
No one in the negotiating room in November 1971 thought of the
possibility that the television station owner could act as a ``rights
aggregator''--assembling the performance rights to all of the programs
that the station produced, or licensed from others, and then offering
the cable operator a single point of negotiation to reach a marketplace
license agreement to retransmit the station's programming. But, a few
years later, the first non-broadcast television channels emerged (e.g.,
HBO, CNN, A&E, History Channel, etc.) using exactly that rights
aggregator model.
The programs on non-broadcast television channels are not subject
to the Compulsory License. The owners of these channels produce or
license programs, secure the right to sublicense those programs to
MVPDs and then offer those MVPDs a simple ``one-stop-shopping'' source
to license the necessary performance rights in the programs. Today,
more than 500 non-broadcast television channels are distributed by
MVPDs nationwide without any need for government compulsory licensing.
The success of the marketplace ``rights aggregator'' model in
facilitating the distribution of the programs on non-broadcast channels
demonstrates that there is no longer any need for government Compulsory
Licensing of broadcast programming. Just like the non-broadcast
channels, broadcast stations easily could aggregate the rights in the
programs on their schedule and then negotiate with MVPDs.
In 1988 Congress extended the Compulsory Copyright License to
satellite systems. Satellite Home Viewer Act of 1988, Title II, Pub. L.
No. 100-667. MVPDs sell their subscribers the programming on a
combination of broadcast and non-broadcast channels. By the early
1990s, Congress concluded that it was wrong for MVPDs to pay (through
marketplace negotiations) for the programs on non-broadcast channels
but to not pay (because of the Compulsory Licenses) for the programs on
broadcast channels:
``Cable operators pay for the cable programming services they
offer to their customers; the Committee believes that
programming services which originate on a broadcast channel
should not be treated differently.'' S. Rep. No. 102-92 (1991),
at 35.
But, rather than repeal the Compulsory Licenses (as then advocated
by the U.S. Copyright Office, Fox Broadcasting Company and others)
Congress, in the 1992 Cable Television and Consumer Protection Act,
instead created a new Communications Act Retransmission Consent right
in broadcast signals. This new right requires MVPDs to secure the
permission of a broadcast station before retransmitting the programs on
its schedule thus setting up a negotiation that essentially is a
substitute for the copyright negotiations that would take place absent
the Compulsory Licenses.
The creation of this new Retransmission Consent right was a major
public policy accomplishment. It prevented broadcasters, and the
important public interest they serve, from being left behind in the new
economics of television. Broadcasters absolutely deserve to be paid by
any commercial business that wishes to retransmit their programs for a
fee to consumers. But, a far better course would have been to simply
repeal the Compulsory licenses. The Retransmission Consent right is
fundamentally flawed because it is based on a legal fiction--the notion
that consumers and MVPDs are interested in a broadcast station's signal
rather than in the programs on that signal.
Contrary to the Retransmission Consent legal fiction, it is
absolutely clear that MVPDs negotiate with broadcast stations so that
they can offer the broadcast programs, for a fee, to consumers. In
defending Retransmission Consent at the FCC, a joint filing by the
National Association of Broadcasters and the ABC, CBS, NBC and Fox
Affiliate Associations emphasized the popularity of broadcast
programming as distinguished from broadcast signals:
``Retransmission consent fees for local stations whose
programming service--national and local--is the most popular of
all programming services represent but a fraction of the rates
paid by MVPDs for other, less popular programming channels.''
Opposition Of The Broadcaster Associations in MB Docket 10-71,
May 18, 2010 (emphasis added).
A group of eight Broadcast Companies (Barrington, Bonten, Dispatch,
Gannett, Newport, Post-Newsweek, Raycom and Weigel) echoed this same
argument:
``Congress established the retransmission consent regime in
order to ensure that local television broadcast stations could
negotiate for fair compensation for their programming. ''
Opposition Of Local Broadcasters in MB Docket 10-71, May 18,
2010 (emphasis added).
This argument is 100 percent correct. I have made the same argument
many times myself. But, this argument makes it absolutely clear that
Retransmission Consent payments are made for the broadcast programs--
not the broadcast signal.
In addition to being based on the legal fiction that MVPDs bargain
for the broadcaster's signal rather than for the programs on the
broadcaster's schedule, the decision to adopt Retransmission Consent
rather than to repeal the Compulsory Licenses has adverse consequences
for consumers. The Compulsory Licenses apply to broadcast stations
whose carriage is deemed ``local'' and therefore permissible under FCC
Regulations. Those Regulations actually incorporate ratings from the
A.C. Nielsen Company as measured in 1972! 1972! See 47 CFR Sec 76.54.
Those 1972 audience ratings were attached as Appendix B to the FCC's
1972 Cable Television Report and Order, 36 FCC 2d 143, and, subject to
special administrative showings, continue to define the stations that
may be carried by MVPDs. The need to legislatively override this
ancient ratings data enshrined in the FCC Rules is why this Committee,
and the Committee On The Judiciary, repeatedly have been dragged into
controversies over what television programming is deemed ``local'' in
what areas.
By contrast, the distribution of programs on non-broadcast channels
is not governed by FCC Rules and 1972 ratings data. Programs on non-
broadcast channels may be carried wherever the program owners and MVPDs
sense an opportunity to satisfy consumer demand. Repeal of the
Compulsory Licenses would enable program owners, broadcasters and MVPDs
similarly to deliver to consumers the programs they want--not just the
programs on channels buried in a 1972 FCC Appendix.
The continued existence of the Compulsory Licenses also creates a
major impediment to the emergence of new competitive Online Video
Distributors (OVDs) like Netflix. Congress gives Comcast, but not
Netflix, a free copyright license for all the programs on local TV
Stations. Why? OVDs are the technology future of television and the
hope of new competitive options for consumers. But OVDs are not
eligible for the Compulsory Licenses. In fact, it would violate
International treaties to extend the Compulsory Licenses to OVDs. For
example, the United States is a party to several free trade agreements
which contain the obligation that ``. . .neither Party may permit the
retransmission of television signals (whether terrestrial, cable, or
satellite) on the Internet without the authorization of the right
holder or right holders. . ..'' Australia FTA, U.S.-Austl., Article
17.4.10(b). See also, Dominican Republic-Central America-United States
FTA, U.S.-Costa Rica-Dom. Rep.-El Sal.-Guat.-Hond.-Nicar. FTA, Art.
15.5.10(b), Aug. 5, 2004; U.S.-Bahrain FTA, U.S.-Bahr., art.
14.4.10(b), September 14, 2004; Morocco FTA, U.S.-Morocco, Art.
15.5.11(b), June 15, 2004. These treaty provisions clearly prohibit a
statutory license for the retransmission of any broadcast television
programs on the Internet.
In addition to not being eligible for the Compulsory Licenses, as a
practical matter, OVDs cannot negotiate direct licenses with local
broadcast stations. Because of the existence of the Compulsory
Licenses, broadcast stations--unlike non-broadcast channels--do not
routinely secure the right to authorize retransmissions of the programs
they license for their schedule. So, the OVDs, and the consumers they
seek to serve, are simply out-of-luck. Unlike cable, satellite and
telcos, OVDs must try to compete without the ability to obtain the
right to simultaneously retransmit the most popular programs in
television--broadcast programs. This is a substantial impediment to the
emergence of a more competitive video marketplace. Repeal of the
Compulsory Licenses would prompt broadcasters to secure the right to
authorize retransmissions of the programs on their schedule. Then all
retransmitters--cable, satellite, telco and OVDs--could negotiate on a
level playing field with the broadcasters.
Because the Compulsory Licenses distort the marketplace for the
distribution of broadcast programming, several Federal entities have
call for their repeal. The U.S. Copyright Office repeatedly has called
for the repeal of the Compulsory Licenses. In it's latest Report it
stated:
``Although statutory licensing has ensured the efficient and
cost-effective delivery of television programming in the United
States for as long as 35 years in some instances, it is an
artificial construct created in an earlier era. Copyright
owners should be permitted to develop marketplace licensing
options to replace the provisions of Sections 111, 119 and 122,
working with broadcasters, cable operators and satellite
carriers, and other licensees, taking into account consumer
demands.'' Copyright Office Satellite Television Extension and
Localism Act Section 302 Report: a report of the Register of
Copyrights, August 2011.
The FCC also has called for the repeal of the Compulsory Licenses:
``We hereby recommend that the Congress re-examine the
compulsory license with a view toward replacing it with a
regime of full copyright liability for retransmission of both
distant and local broadcast signals. . ..Our analysis suggests
that American viewers would reap significant benefits from
elimination of the compulsory license.'' 4 FCC Rcd 6562 (Docket
No. 87-25)
Today broadcasters want to maintain the status quo. Cable operators
want to repeal or modify Retransmission Consent. S. 2008 and HR. 3675
would chart a third path--returning to fundamentals and repealing both
the Compulsory Licenses and Retransmission Consent. After a brief
transition period during which broadcasters would secure the right to
authorize retransmissions of the programs on their schedules, broadcast
programming would be distributed based on consumer demand just like
non-broadcast programming. In my view, this is absolutely the right
course.
I would like to address briefly a couple of the arguments I hear
from my broadcast and cable friends.
Some cable operators complain that local network affiliate
broadcasters have a ``monopoly'' on the programs on their network.
These cable operators seek the right to retransmit the network programs
as broadcast by out-of-market affiliates. But the broadcast networks
and their affiliates should remain free to negotiate such exclusive or
non-exclusive affiliations as they deem appropriate in the marketplace.
And the outcome of those negotiations should not be superseded by
government intervention. I would point out to my cable friends that the
non-broadcast channels meet the same test of ``monopoly''. There is
only one source for the non-broadcast channel ``AMC'', and that is AMC
Networks, a ``spin-off'' of the cable company Cablevision. There is
only one source for the non-broadcast channel ``Bravo'' and that is
NBCUniversal, which is owned by the cable company Comcast. There is
only one source for CNN, one source for Discovery, etc. All of these
channels operate in an intensely competitive marketplace and the fact
that there is only a single source for the rights to retransmit any one
of them is no cause for government intervention.
I know that the members of this Committee would like to shield
consumers from any fallout from program carriage disputes. It is
noteworthy that two of the latest fights--the AMC channels dropped by
DISH and the Viacom channels dropped by DirecTV--have nothing to do
with Retransmission Consent. These are garden-variety disputes between
buyers and sellers over price, a common occurrence in any line of
commerce. I know of no way to protect consumers from the temporary
inconvenience of dropped channels. If history is a guide, these
channels will soon be restored to DISH and DirecTV. In the meantime,
there are many substitute channels available.
Some broadcasters resist the repeal of both the Compulsory Licenses
and Retransmission Consent worrying that program owners will ``hold
them up'' when the broadcasters seek the right to authorize
retransmission of the programs they have licensed to broadcast. I fully
understand that broadcasters would rather maintain the legal fiction
that MVPDs and consumers are seeking their signal rather than the
programs. But that legal fiction is not tenable. And there is no
objective basis to fear a ``hold up'' over retransmission rights.
Program owners grant those retransmission rights every day to non-
broadcast channels. Program owners, particularly an owner renewing a
hit program, could ``hold up'' the non-broadcast channels today. But
they do not do so for a very good reason. A non-broadcast channel that
could not authorize MVPDs to retransmit its programs would cease to be
a potential customer for program creators. Similarly, a broadcast
station that could not authorize MVPDs to retransmit its programs in
its market would cease to be a potential customer for program creators.
There is every reason to believe that program owners and broadcasters
would adapt quickly to the marketplace negotiations that work so well
today for 500+ non-broadcast channels. And constitutionally based
Copyright is a much stronger foundation for broadcasters to generate a
second revenue stream than is Retransmission Consent.
Ownership Rules
I fully support the public policy goal of diversity in media
voices. And I would strongly defend any Statute or Rule that is truly
necessary to assure that consumers have access to multiple and diverse
sources of news and information. But, in no small part because of the
efforts of this Committee, consumers now enjoy a multiplicity and
breadth of media sources and voices unmatched in our history.
Today, I find myself almost drowning in the plethora of diverse
news outlets competing for my time. I start each morning in Boulder,
Colorado watching multiple channels of broadcast and cable news while
combing through online news sources on my iPad--The New York Times, The
Wall Street Journal, The Washington Post, The Denver Post, The Los
Angeles Times, Salon, Drudge, Real Clear Politics, The Hill, Politico,
The Daily Beast, The Wrap, Communications Daily, CableFax, etc. I even
still read my local newspaper--The Daily Camera. Some mornings I have a
hard time tearing myself away from all the diverse news sources at my
fingertips so that I can actually start my day.
Sitting squarely, but awkwardly, in the middle of this sea of media
diversity are Media Ownership Rules designed for a bygone era. All of
these Rules were sensible and necessary when adopted. But, some of
these Rules have become counterproductive while others have been
rendered merely nonsensical. The TV/Newspaper Cross-Ownership Rule is
an example of a Rule that has become counterproductive.
It is well know that daily newspapers are under great financial
stress. Recently the Pulitzer Prize-winning Times Picayune of New
Orleans announced that it was cutting back to three printed papers per
week, a devastating blow to its local readers. Because of the TV/
Newspaper Cross-Ownership prohibition, the Times Picayune did not have
the option of pursuing a merger with a local Television Station as a
way of achieving the economies that might have permitted continued
publication of a daily paper. The existence of this Rule clearly
disserved the citizens of New Orleans and their interest in diverse
sources of news.
The Tribune Company provides another example. This venerable source
of award-winning newspaper and television journalism is struggling to
emerge from an arduous three year bankruptcy proceeding. And yet, the
new ownership of The Tribune Company will need waivers of the TV/
Newspaper Cross-Ownership Rule just to be allowed to try to maintain
the Company's existing television and print news operations.
To understand how outdated and illogical our media ownership
policies have become, contrast the regulatory plight of Tribune and the
Times Picayune with the recently approved merger of Comcast (the
nation's largest cable TV and Internet Company) with NBC Universal
(owner of a vast array of broadcast and cable channels, including news
channels, and a major movie studio). Both consumers and industry
participants should be forgiven if they have trouble following the
logic of what is allowed and what is not allowed under current, but
outdated, government policy.
For an example of a Rule that has become merely nonsensical, I
would point to the 50 percent UHF ``discount'' that is a part of the
limitation on ownership of multiple television stations. For the six
decades of analog television broadcasting in this Country, UHF stations
operated at a distinct and well documented disadvantage compared to VHF
stations. UHF stations produced weaker signals and smaller coverage
areas.
In light of this UHF handicap, the Rule limiting the total
theoretical ``reach'' of TV stations that one entity is allowed to own
wisely and sensibly incorporated a 50 percent UHF discount. If one owns
a VHF station in a market that constitutes 3 percent of U.S. TV
households, the station owner is charged with 3 percent against the
theoretical maximum permissible reach of 39 percent. But, if the
station is a UHF, the owner is charged with only 1\1/2\ percent. This
discount continues to be applied today.
The problem is that the factual predicate for the UHF discount has
evaporated. In digital broadcasting today UHF stations not only are not
at a disadvantage: they actually provide coverage superior to VHF
stations. For example, after the digital transition, the ABC Owned
television station in Chicago continued to operate on VHF channel 7.
However, the propagation of the VHF channel 7 digital signal was so
deficient that the station's engineers had to scramble to find a vacant
UHF channel and promptly switched to UHF channel 44 with dramatically
improved results. Other stations around the Country also switched from
VHF channels to UHF. The superiority of UHF frequencies in the digital
world was evident in the lobbying over the recent Incentive Auction
legislation. The National Association of Broadcasters advocated
successfully for statutory language ensuring that no television station
would be forced to shift from a UHF channel to a VHF channel as part of
the ``repacking'' process.
So, why not simply repeal the 50 percent discount? Because the
result would be to require unjustifiable, and politically untenable,
divestitures by broadcasters that relied on the discount in assembling
their station groups. ``Grandfathering'' these station groups would be
profoundly unfair to future competitors. And so, like the Emperor's
Clothes, we all just look the other way and pretend that the UHF
discount continues to make sense.
S. 2008 would recognize the reality of today's robust marketplace
of diverse and competitive media voices and would repeal outdated media
ownership restrictions that are relics of a bygone era of scarcity. Our
Nation's anti-trust laws would continue to be available to address any
undue concentrations of power and any market failure.
Conclusion
I urge this Committee to follow the roadmap of S. 2008 and HR. 3675
and repeal the many outdated provisions in our nation's Television
Regulatory closet. In particular I urge the Committee to work in lock
step with the Committee on the Judiciary to repeal the Compulsory
Licenses before considering repeal or modification of Retransmission
Consent. Television consumers will best be served if broadcast programs
can be distributed based on viewer demand and if new market forces like
OVDs are given a chance to compete on a level playing field.
The Chairman. Thank you very much.
The Chairman has obviously made a mistake here because we
started at 2:30. It is now 3:30, and that is fundamentally
unfair to Members who came, some of whom have already departed.
I checked with the Ranking Member. What we are going to do--and
all those who gave testimony, obviously they have come long
distances. They wanted to do their 5 minutes. Some went beyond
that. But in any event, what we are going to do now is skip me,
skip Kay Bailey--Senator Hutchison, that is--Senator DeMint. We
are going to start with Senator Isakson and then go to those
who did not give opening statements but who are still here.
STATEMENT OF HON. JOHNNY ISAKSON,
U.S. SENATOR FROM GEORGIA
Senator Isakson. Thank you, Mr. Chairman. I appreciate that
as one who came hoping to get out before I had the chance to
ask a question.
[Laughter.]
Senator Isakson. I appreciate the great opportunity you
have given me.
Let me say this. I am a cable subscriber who watches the
Sunday shows that are delivered by the broadcasters, and I
appreciate retransmission allowing me to be able to subscribe
to cable and see those shows on TV. So all of you, I am a
customer of all that you sell.
And I listened to all the testimony because I know there is
a lot of contention, and the number of phone calls I have
gotten in the office lead me to believe there is going to be
probably a lot more contention. But the best way to get all the
facts on the table are to have hearings like this, and I
appreciate the Chairman doing so.
And I might add, the Chairman and I also share an interest.
We both are big fans of the Atlanta Braves, and thanks to
access at night, I can go home and watch my Atlanta Braves on
TV even though I am 800 miles away. So I appreciate the
services you all bring us.
I actually have a few questions, all of which were raised
by comments that you made, and I will start with Mr. Padden.
Are you a doctor?
Mr. Padden. No. I am a recovering lawyer.
Senator Isakson. Recovering lawyer. Good. Those are the
best kind.
Let me ask this. You said the marketplace is better than
licensing for the future. Is that right?
Mr. Padden. Yes, sir.
Senator Isakson. And you were evidently employed by one of
these entities 20 years ago when the cable bill passed. Is that
right?
Mr. Padden. Yes. I was at Fox Broadcasting Company.
Senator Isakson. Would you elaborate on the licensing
platform that caused the licensing regime to be set up in 1992?
Mr. Padden. Well, actually it starts in 1976. The Supreme
Court had twice ruled that cable retransmission of broadcast
programming was not a performance under the then 1909 Copyright
Act. So no copyright liability attached to retransmitting
broadcast programming. And the Supreme Court urged Congress to
amend the Copyright Act, and that was done in 1976 to make
retransmission of broadcast programming a performance for which
copyright was due. But because at the time everyone thought it
would be unduly burdensome for the cable operator to have to
negotiate with the owner of each individual program on the
schedule, Congress conferred a compulsory license, a rare act
to be done only when there is a market failure and the rights
cannot be cleared in the marketplace.
Subsequent to that, cable networks were invented, channels
like HBO and The History Channel, and they are not subject to
this compulsory license because they were not around when it
was adopted. So what they did was the channel owner licenses
programming from various parties and gets the right to
sublicense that programming to cable and satellite operators.
So the cable and satellite operators do not have to negotiate
with all these different program owners. They just have a
single negotiation with the channel owner.
And my proposition to you today is the fact that more than
500 of these non-broadcast channels are distributed all across
the country without needing this Government intervention of a
compulsory copyright license shows that the broadcast channels
could be distributed exactly the same way. Each station,
Channel 7 here in Washington, in addition to licensing a show
like Oprah would get the right to sublicense that show to the
cable operators in the Washington area. The cable operators
would have a single negotiation with that station, and you
could get rid of a whole bunch of Communications Act regulation
that was adopted specifically to ameliorate the impact of the
compulsory license. And I wish it was simpler to explain this.
Senator Isakson. You have still got a little lawyer left in
you.
[Laughter.]
Senator Isakson. Thank you for that answer.
Dr. Cooper, you used a term I need an explanation for. I
did not quite understand it. You said ``cable gatekeepers.'' In
what context did you use that?
Dr. Cooper. Well, I used that in the context of the cable
companies putting together big bundles of packages, as Senator
Rockefeller mentioned, and then deciding which programming gets
into those bundles. Consumers do not get a choice of channels.
They get to choose a couple of big bundles, and as Senator
Rockefeller mentioned, they end up paying for many more
channels than they ever watch. So they are the gatekeepers
between the consumer and the programming, and they actually
have a very large market presence. They have a market share at
the local level which is, of course, the only way I can reach
those programs, see those programs. They have a very large
market share. There is more competition than there was in 1992,
for sure, but there is not enough to break that anti-consumer
bundling. So they are the gatekeeper.
Senator Isakson. Mr. Chairman, can I have just one more
question? Would that be OK?
The Chairman. With rapidity.
Senator Isakson. All right. Well, I will tell you what.
Knowing the question I am going to ask, it is not going to be a
rapid response. So I will yield back to my next time. Thank
you.
The Chairman. You are a gentleman.
Senator Pryor?
STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Senator Pryor. Thank you, Mr. Chairman. And thank you both
for having this hearing today.
Let me just jump right in. Ms. Abdoulah, you know, when I
think of the Cable Act, it is 20 years old. What I see when I
look at the landscape is I see a lot of innovation, a lot of
investment, a lot of creative efforts, and a lot of really good
things. So I guess my question is why should we change that,
and how do we know, if we do make some changes, it is actually
going to be better?
Ms. Abdoulah. A great question.
On the latter, I think it is just with real thoughtful
consideration to the consequences when reform and changes are
made, to really try to think through those consequences.
To the former question, why should we change it, for the
reasons I have said. I love the competitive landscape. We know
how to compete. That is what we are all about. So it is not
about wanting to limit competition, innovation, and creativity.
We welcome that. We want that as a small operator or large
operators. It is simply taking regulation that currently allows
monopolistic activity to go on--to remove that so that it truly
is based on a fair market and fair market pricing because,
unfortunately, Dr. Cooper is wrong in that we are not
gatekeepers from the standpoint of being able to--we do not
decide how we offer our programming. I wish we could. I wish I
could offer a sports tier so that 50 percent of our viewers who
do not watch sports are not subsidizing these enormous sports
costs. I do not have that right. The programmers, the
broadcasters, tell us and mandate--and the laws help them do
this--how we carry it. So that is why it has to change because
consumers are saying give me choice, give me what I want when I
want it, and we cannot do that due to the rules today, and that
is why they have to change to allow more innovation and more
flexibility.
Senator Pryor. If I have time, I want to come back to that,
but I do want to ask Mr. Smith a question. It is always great
to see my former colleague. Welcome back.
One of the things you mentioned--and I just want to make
sure I have this clear is that the Cable Act's requirement and
sort of the connection to localism and retransmission, and why
they are connected. I know why localism is important. I see it
every day in my local TV stations, but tell me what the
connection is there.
Mr. Smith. I believe what this committee and the Congress
intended was to make sure that in retransmission consent, small
broadcasters in Arkansas and other small rural communities,
along with their networks, had an opportunity to recoup the
value of their content but also their signal. Both things have
great value. And when you consider retransmission consent,
must-carry, compulsory copyright, this is a three-legged stool.
You pull one of those legs out and you will dramatically damage
the rural broadcaster. You will dramatically damage those who
are underprivileged and cannot afford $150 a month for cable.
You will dramatically damage the ability of rural states to be
able to sell a car in Pierre, South Dakota. They may have to go
to Minneapolis. They may have to go to Denver. And I think that
it is very important. If you want a robust, national system
that focuses on the localism, the resources have to get to
local, as well as to networks. And so it is a very careful
balance that is structured, and I just was offering caution.
Senator Pryor. Ms. Witmer, let me ask you. I saw that you
nodded your head when Ms. Abdoulah a few minutes ago was
talking about the cost of programming and things like that. And
I know the cost of programming is high, or at least I
understand it is high. But also I understand that that is not a
very transparent system. So as a subscriber, when I buy a local
cable package, whatever it is, I do not always know what my
cable provider, i.e., what I am paying for, but what my cable
provider had to pay for all the various programming. A lot of
it, as we have all talked about--we all agree. A lot of it we
do not want, but it is just part of the package.
So what is wrong with more transparency. Why should the
consumer, the subscriber, the end user, not have a right to
know how much you all have paid for it to know if we are being
charged fairly?
Ms. Witmer. Thank you for your question, Senator Pryor.
I think that for us, our consumers, first of all, are first
and foremost in our minds.
I also was nodding at Ms. Abdoulah's characterization of us
not being gatekeepers. We operate in an incredibly competitive
environment. I think one of the things that may not be well
understood is the competitive environment in which we are
operating every day. And we are consumer-facing. We are dealing
with consumers directly. We are in their homes. We are talking
to them from our call centers, and we bill them for their
services and engage directly with consumers. So we are very,
very close to them, and the competition we face is all about
the consumer. So we understand their desire for transparency.
What we find from our consumers is they do not well
understand the system through which they buy television and
they receive content. We still find many consumers do not
necessarily understand, first of all, that cable operators do
not program the networks that they receive, and they do not
necessarily understand that we actually pay for and negotiate
for licenses to carry all of that programming.
There is no doubt that the biggest issue facing video
customers of multi-channel operators today is skyrocketing
programming costs. I was unable to see the chart from this
side, but I can tell you that Time Warner Cable spends----
nearly 60 percent of our costs every year in programming are
paying owners of broadcast stations. We spend over $2 billion a
year compensating those companies. So we know that the system
feels that it lacks some transparency for consumers. I think
they understand not a lot about how it works, and more
transparency might help them. At the end of the day, though,
for the consumer that wants to watch a single program, their
perception of value may be very different from one network to
the next, and that transparency is not always an immediate
translation for them.
Ms. Abdoulah. And more specifically, we cannot. We cannot
tell you what we pay. The programming agreements that we have
to sign do not allow us to share it with anyone, to share it
with consumers, with each other, with anyone.
Senator Pryor. Mr. Chairman, thank you. I am beyond my
time.
I understand what you are saying on that last statement. I
do not like that aspect of the agreements.
Ms. Abdoulah. Yes, right on.
Senator Pryor. I do not like the lack of transparency.
But, Mr. Chairman, thank you very much.
The Chairman. Thank you, Senator Pryor.
Senator Thune, to be followed by Senator Udall.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman. I appreciate this
hearing. I hope that we can find 21st century solutions to 21st
century challenges. One thing about the television marketplace
is that we have seen just remarkable improvements over time.
With technology and all the change that has occurred out there,
it has been, I think, very good for most Americans. But
obviously there are issues that come up along the way that need
to be addressed, and I think this committee needs to be
informed by all of your input as we try and address that.
Senator Smith, welcome back. Nice to have you with us again
here today.
One of the things that I hear is that television blackouts
due to disputes between providers and distributors are on the
rise--and I think everybody has alluded to various statistics
that bear that out today--and are likely to increase if we
retain the current regulatory regime for television.
I ask this question as someone who believes in the free
market, whose instincts are that deregulation is a good, solid,
preferred approach. My question is with regard to those types
of blackouts, what is your assessment as to whether we are
going to see fewer TV blackouts or more TV blackouts if we were
to completely deregulate and to go to an approach like what
Senator DeMint has proposed in his legislation. I open that up
to whomever. Senator?
Mr. Smith. Senator Thune, good to see you.
As I said in my testimony, I think when you increase by 10
times the number of rights holders that would have to come to
an agreement, you are apt to have a tenfold increase in the
likelihood of disruptions of some kind. That is just logical to
me, but perhaps others have a perspective on that.
Ms. Witmer. I think the other perspective that I would
share is that part of the regulatory landscape that we are
dealing with here is that the 1992 Act requires cable operators
to sell broadcast stations as a point of entry to purchasing
anything else from us, and that is unlike any other platform.
Satellite providers are not required to sell the broadcast
stations. Certainly access to entry to viewing content, even
broadcast content, on the Web does not require that subsidy to
be paid in order to be able to use any other form of content.
And so part of the tension I think for the operator, as
these costs are skyrocketing, is that we cannot sell a consumer
anything else without being obligated by virtue of the
privileges of this law to pay those broadcasters. And it is
unique to cable and it is placing greater and greater tension
on our ability to compete and our ability to provide consumers
with access to other content that they want without having to
pay that toll to enter our store.
Mr. Franks. Senator Thune, if I may. I guess two points.
As I said in my testimony, I guess my fear is, along the
lines of what Senator Smith said, if you introduce more
players--and some of these players are hard to find even to
clear the rights. So I fear that it is going to lead to many
more disputes rather than fewer.
But I guess I would like to make a related point if I may.
I was in a situation last year in a negotiation where we were
getting fairly close, and the FCC announced its proceeding and
the operator pulled back because he thought that he was on the
verge of getting a better deal from Washington. And it is
frustrating to me.
As a company, we own television stations. So CBS only
negotiates for the stations we own. Our CBS O&O's cover 32
percent of the country. So that is 32 million television
households. And I have been doing this for 6 and a half years.
We have done 100 agreements, including two with Ms. Abdoulah
and one with Ms. Witmer. We have not had blackouts. And so I
almost do not recognize the environment in which I am sitting
because they are describing a world that does not exist amongst
our three companies.
So I guess my concern is I know that you are all worried
about the current system. For a businessman who needs to make a
plan--we invest $5.5 billion a year in programming. $5.5
billion a year. We need to be able to plan. We need to know
what the rules are going to be. We know how this system works.
It has its flaws, but it basically works. Abandoning it for
some whole new system or a system that repeals retrans and
leaves the compulsory license, I guess we prefer the devil we
know.
Ms. Abdoulah. Well, I think we all have something to say.
Two things on that is that we may like this. Some people
may like the model that is for lots of reasons, but the
consumers do not and the consumers do not have that same model
on the Internet. It is time that the businesses that we are
talking about create a new, sustainable, innovative business
model that serves consumers and reduces confusion. That is one
point.
The second point is I sure hope we do not evaluate the
success of deals getting done based on blackouts because that
is not the only measure of success or failure. There is a
failure in the fact that we have these double-digit, triple-
digit increases that are not rationalized by ratings or
anything else on many networks. They are not rationalized. We
have to pass them through to consumers, and every year they
take the brunt of those increases. That is failure in my mind
because I can tell you the services that we do manage, Internet
and phone, we have not taken those services up. We have not
taken an increase in years. And I can represent many ACA
members who will tell you the same thing, some that have not
taken HSD or phone up for 10 years. Where are the price
increases coming from? Programming on video.
Dr. Cooper. Let me briefly follow up. We have testified
together before.
The only way to reform this market is to restore consumer
sovereignty, to make sure that consumers have the right to
choose to pay for the programs they want. That is the
fundamental problem in this marketplace. And you can fool
around with retrans. You will just shift the balance from one
big entity to another big entity. The only way to break the
market power is to ensure that the consumers have choices of
what to pay for and not being forced to buy these huge bundles.
That is what she wants because she faces the consumer, and she
is willing to face consumer sovereignty. She does not have any
market power. The big cable operators and the big broadcasters,
content providers, do have market power.
The Chairman. With all due respect, I have to cut that
question off here because we are already 2 minutes and 20
seconds over, and Senator Udall is waiting.
STATEMENT OF HON. TOM UDALL,
U.S. SENATOR FROM NEW MEXICO
Senator Udall. Thank you, Chairman Rockefeller and Ranking
Member Hutchison. And I really thank the panel. I think this
has been very lively and a very, very good discussion.
I understand my cousin, Senator Smith, reminisced a little
bit earlier about his service on the Committee, on the Commerce
Committee, and also about the Udall tradition of public
service. I can vouch for that. We are very close cousins. I am
not going to go down the road, Senator Smith, of saying I
regret--my one big regret is not serving with you in the Senate
because, as you know, you were succeeded by a Democrat. And I
am going to get myself in big trouble there.
[Laughter.]
Mr. Smith. Yes. You can stop there, Tom.
Senator Udall. OK. I am going to stop there.
But I wanted to start with you on a question, and others
may be interested in this. I have heard from a small religious
broadcaster based in New Mexico about the importance of must-
carry rules for making their programming available to cable and
satellite TV customers. And there is a proposal that you all
have been talking about before the Committee to abolish these
rules. If must-carry rules went away, would small local
channels, such as a religious broadcaster with a relatively
small audience or regional focus, have the same access to TV
audiences as they do today?
Mr. Smith. Senator Udall, when I served on this committee,
there was an appropriate concern for diversity and fostering
niche markets, and I understand some do not like the must-carry
provision, but the idea was to foster that in America. To get
rid of must-carry--most of my members do not count on must-
carry, but some do, and who are they? They are the religious
broadcaster. They are the rural. They are the foreign language.
They are often minority communities. I mean, you would not have
Univision today, you would not have Fox today--you might like
that, Mr. Chairman----
[Laughter.]
Mr. Smith. These great networks developed with must-carry
because of the wisdom and foresight of this committee to foster
this diversity, this niche, this service of all of America in
its great complexions and its great needs.
So must-carry is important to many small rural communities,
and if it goes away--again, I go back to if you want to sell a
Chevy in Pierre, South Dakota and must-carry goes away, Rapid
City may have to go to Denver, and if you are a Chevy dealer,
you are not going to be able to afford that. Sioux Falls may
have to go to Minneapolis. You will not be able to afford those
markets. So if you want to continue fostering localism, must-
carry is important.
Senator Udall. Ms. Abdoulah, small cable companies that
operate in rural parts of New Mexico tell me they pay more in
retransmission consent fees than larger cable companies pay in
places like New York or Los Angeles. What explains this
difference in cost for these smaller companies versus larger
cable and satellite TV providers?
Ms. Abdoulah. Great question. Leverage. They do not have
the leverage in the negotiation. So in they walk with the same
service, same delivery system, same costs, and they charge us
double-digit, higher rates than the big guy because if I say to
them, oh, I am going to take off 1,000 customers if you do not
get reasonable, they say OK. But if Comcast says be reasonable,
give me what I want or I am going to shut off 24 million
customers, they have a lot more leverage. So it comes down to
the big versus small guy.
Senator Udall. Mr. Franks?
Mr. Franks. I am real worried about Ms. Abdoulah here. She
is just suffering so horribly in the marketplace and needs
protection. She does just fine when she is at the table with
CBS. And in fact, there is a cable network we own called the
CBS Sports Network that we wish she was carrying. We could not
persuade her to do it. We did not have the leverage and the
clout. The big, bad media company in New York could not
persuade the struggling ACA member to carry one of our
channels. This notion that there are these weak players that
need protection--let me tell you they are not in the
negotiating rooms I am in. They do just fine.
Ms. Abdoulah. It is not a notion. We can prove that we pay
more. We can prove. And if there was more transparency, you
would know exactly how much more. I would welcome that.
Mr. Franks. So are you going to carry the sports network
for me?
Ms. Abdoulah. No.
Mr. Franks. Why not?
Ms. Abdoulah. It is not a good value. Customers are not
asking for it.
[Laughter.]
Senator Udall. Mr. Chairman, I am out of time. So you can
intervene here.
The Chairman. Why do not each of you send us the numbers to
find out which of you is telling the truth?
Ms. Abdoulah. I wish we could, sir. We are not allowed to.
Our contracts do not allow us to share what we pay for this
programming.
The Chairman. I am a very confidential source.
[Laughter.]
The Chairman. Senator Udall, go ahead if you want.
Senator Udall. I am out of time.
The Chairman. Yes, you are.
Senator Udall. So I was urging you to intervene in the
middle of that so I could get out of it.
The Chairman. I was enjoying it.
Senator DeMint and then Senator Hutchison, and then Senator
Hutchison and I need to talk. And I will be brief in the way I
thank all of you, and Senator Hutchison and I will go behind
the door here, but please forgive me for that. OK? Senator
DeMint?
Senator DeMint. Thank you, Mr. Chairman.
The Chairman. And you will be brief, I know.
Senator DeMint. This has really been a very helpful hearing
today. I am convinced if we kept talking, that you would
convince yourselves that this free market approach is the best
approach because, as Mr. Franks was just saying, they do not
need protection. We have got a very dynamic market and I am
convinced that if we let this continue to work, it would work a
lot better. I am convinced, Senator Smith, that broadcasters
would find themselves in the catbird seat because of their
owning control of such a package of content, local, national,
syndicated programs, that you negotiate. It is essentially your
property through contracts. All the other distributors have to
negotiate with you to get it. So I think your broadcasters
would be in a great position to do this.
And I think we need to realize that the innovation and a
lot of the dynamic that is going on in the market that you talk
about is going on with these 500 or more channels that do not
operate under any kind of compulsory license or retransmission.
When we are talking about taking away retransmission, we are
not talking about taking away carriage negotiations which again
the broadcasters will have the ability to continue to do. My
bill does not affect non-commercial, PBS, most religious
broadcasters. And as you know, Senator Smith, with the new
digital signals, all of these broadcasters have the ability to
send a free, crystal clear signal to 100 percent of the market
that is in their DMA. So we have an amazing dynamic. If cable
or other distributors are not willing in this environment to
deliver a la carte programming that the consumers want, someone
will give it to them, and that is why you see the growth of
streaming or Netflix types of programming today.
But again, instead of asking a question, I just hope, Mr.
Chairman, we can continue to do this because the more everyone
talks, I think the more we realize that we have got a very
dynamic and competitive marketplace, and if in a thoughtful,
systematic way we let this work, I think we would find that the
consumer gets what they want, but at the same time, there is
another player, Mr. Chairman. We certainly want the consumer to
have the choices they want, but private property, whether it be
copyrights, content control, is our responsibility as well. And
I do not think the Government should be telling the cable
companies what they have to buy or the broadcasters what they
have to sell or the networks what they charge. I am convinced
again that we would find a very competitive and active, dynamic
marketplace with lots of choices if we continue to talk through
this.
But thank you all for coming and getting this conversation
started. I think that is what it is. And I heard from a lot of
the folks on the panel here that there may be a lot of common
ground if we proceed through this thoughtfully.
So thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Hutchison?
Senator Hutchison. Thank you, Mr. Chairman.
I just have one more question. I think we have had a great
discussion here, but I want to go back to the newspaper-
television cross-ownership rules which, Senator Smith, you and
I had as issues when you were on this committee. And I thought
Mr. Padden's remarks were very interesting. I was a strong
proponent of that cross-ownership ban because there were two
markets, one with which I was very familiar, Dallas, Texas, but
also Atlanta, Georgia, where there was such a lock on the media
outlets with the only newspaper in town plus the major
television station being owned by the same companies in a
grandfather that superseded the ban.
However, I have quickly retreated from my position because
of the proliferation of media outlets, which came just in the
last 10 years and changed the whole marketplace. And I think,
Mr. Padden, you mentioned the New Orleans situation which now
is the opposite and has caused great harm to the Picayune,
which is one of our nation's oldest and most revered
newspapers, because they could not invest in television which
would be the money that would keep the newspaper going.
So my question to Mr. Smith and Mr. Padden is, if the FCC
either eliminated or modified the cross-ownership ban, do you
think it would hurt localism or do you think, in fact, as you
have stated, that in some cases it would actually promote
localism? And are there other instances where you think it
could have the opposite effect, or do you think that would be
universal? I would be interested in both of your views.
Mr. Smith. Senator Hutchison, I think it is very clear that
we live in a different world on this score, and there are many,
particularly our brothers and sisters in the newspaper
industry, and the journalism, the solid journalism, that they
do is under assault and real threat. We care about them. And
every market is a little bit different, and that is why the NAB
has supported relaxation, particularly in some communities, of
the cross-ownership rule so that there are economies of scale
that a radio, a TV, and a newspaper in a small community could
pool together and be able to survive so that you have
legitimate journalism in this country without a taxpayer
subsidy but with the logic that comes with those kinds of
synergies and economies of scale. So we support a relaxation.
Senator Hutchison. Thank you.
Mr. Padden?
Mr. Padden. Yes, Senator Hutchison. I agree with Senator
Smith. There was a time when newspapers and television stations
were the only games in town. Thanks largely to the efforts of
this committee, we now have a much more robust media
marketplace. We have cable. We have the Internet. We have
everything else. But one side effect of that wonderful new
diversity is it has gotten tougher for the entities that used
to be the only games in town. So I really think before
newspapers and small market local television stations
completely wither and die, I urge you to provide some relief
from that rule so that they can combine and survive.
And if I could very quickly respectfully disagree with
Senator Smith and Mr. Franks that passage of Senator DeMint's
bill would cause more blackouts because there would be a
tenfold increase in the number of parties that would have to
negotiate. I just do not think that is true at all. What we
have today is the compulsory license confers the program rights
to cable, and then the cable operator negotiates with the
broadcaster regarding the signal. In the world that Senator
DeMint's bill would create, there would still only be a single
negotiation between the broadcaster and the cable company only
instead of it being this legal fiction that it is about the
signal, it would be a negotiation about the program rights. And
there is no reason in the world why that should lead to an
increase in the number of blackouts.
Dr. Cooper. Senator Hutchison, may I submit a written
answer to your question from a somewhat different point of
view, to your question on newspaper-TV cross-ownership?
Senator Hutchison. Well, I would be happy for you to
disagree right now.
Dr. Cooper. Oh, I was not going to disagree. I was actually
going to point out that they did relax the rules in the last
round and we supported that relaxation and the court upheld
that relaxation. So in the markets where the newspapers have
been under the most pressure and where there are the most
alternatives, they did relax the rules. I have to go back and
look to see where exactly New Orleans fell. But there have been
no mergers in those markets.
Senator Hutchison. You have to go before the FCC to go
through----
Dr. Cooper. Yes, but there is no--no, the presumption was
that the merger would be found in the public interest,
rebuttable, but it shifted the burden. It said it could happen,
and we supported that change.
In addition, if there is a failing firm problem, there has
always been that exception. So if the Picayune wanted to
declare themselves a failing firm and get bought out by a TV
station, they have always had that option. So to look at that
case and say it was the result of this bad policy, I think is
misleading.
Senator Hutchison. Well, I think my view is it is obsolete
now, and I am 180 degrees different from where I was because I
felt like it stifled any other voice in the market 20 years ago
or 15 years ago. But now, as Mr. Smith said, with which I
agree, we need legitimate news organizations to be able to
function and have a voice because there is such a proliferation
of voices with no capability for in-depth reporting or even in
some cases ethical standards. So I think that we do want to
save newspapers and legitimate broadcasters to the extent that
we can even when I disagree with them 100 percent.
Dr. Cooper. We should not equate journalism with
newspapers. There may well be other ways to have legitimate
journalism in this new world that do not involve newspapers,
and that is the transition we are going in.
Senator Hutchison. Well, absolutely. I did not mean to
indicate that there is no journalism except in newspapers, but
certainly newspapers and other legitimate broadcasters have
exhibited standards that I think we want to assure have a voice
in the marketplace as well and not get drowned out with a
proliferation of voices that might not have even the resources
for in-depth reporting.
So I thank you all.
The Chairman. I thank you, and I thank all of you very,
very much. Senator Hutchison and I are going to disappear
behind closed doors for a second. And it may be some time
before I have six witnesses again. However, you did very well,
and it was a very interesting discussion, and I think we all
learned a lot from it. I thank you.
And the hearing is adjourned.
[Whereupon, at 4:15 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
I commend Chairman Rockefeller for convening this hearing to
consider the impact of the Cable Television Consumer Protection and
Competition Act of 1992 on the modern television marketplace. I agree
with the Chairman that consumers should be the focal point of our
discussions. As he noted, although consumers often have the choice of
video providers, rates continue to go up faster than the rate of
inflation.
Local broadcasters are an important source of news, emergency
services, and entertainment in our communities. I request unanimous
consent to include in the hearing record a letter dated July 20, 2012,
from the Hawaii Association of Broadcasters relating to the issues
before the Committee today.
Broadcasters should be allowed to negotiate for fair value and
carriage of their signals. The unanswered question is how to protect
consumers when there is an impasse in negotiations. Whenever signals
are pulled as a result of a retransmission consent dispute, consumers
lose. The impact is magnified in areas such as the State of Hawaii
where a single multichannel video programming distributor (MVPD)
dominates the state.
I look forward to continuing the dialog on these important issues
with my colleagues on the Commerce Committee.
______
ABC Television Affiliates Association
July 20, 2012
Senator John D. Rockefeller IV,
Chair, Senate Commerce Committee,
Washington, DC.
Senator Kay Bailey Hutchison,
Ranking Member, Senate Commerce Committee,
Washington, DC.
Dear Senator Rockefeller and Senator Hutchison:
It is our understanding the issue of retransmission consent, among
other matters, will be discussed during the Senate Commerce Committee
hearing on July 24. The ABC Television Affiliates Association, whose
members consist of some 170 local television stations throughout the
country affiliated with the ABC Television Network, respectfully
submits these comments to the Committee with the request that they be
incorporated into, and made part of the record of, the hearing.
It would be difficult to overstate the importance of retransmission
consent to the economic sustainability of network-affiliated, local
television stations. Without retransmission consent revenues, local
stations simply could not afford, today, to purchase popular, national
network entertainment and sports programming nor produce the expensive
local news, weather, sports, public safety, and public interest
programming on which the American people have come to rely. The core
economics of television have changed in dramatic ways over the years
from a time when local broadcast stations were the only viable local
distribution platforms for network programming.
The local video distribution market today is a highly competitive
market. Robust competition between video distributors affords program
producers and aggregators (i.e., national networks and syndicators)
multiple program distribution platforms. Having produced or acquired
expensive national program content, networks, understandably, have a
fiduciary duty to their shareholders to maximize the return on that
investment, and, in doing so, they now have the ability to select among
competing platforms (i.e., local television stations, cable systems,
satellite companies, the Internet, or other video platforms) for the
most financially advantageous distribution arrangement.
To compete in the program acquisition market, local network-
affiliated stations now have to compensate their networks for programs,
not only as in the past, by providing them significant amounts of local
advertising inventory for network commercials, but, unlike the past,
also by paying large sums of cash in ``program fees'' for the right to
broadcast network programs. If affiliates are financially unable to pay
a competitive market-based rate for those programs, the networks will
place them on a local fee-based platform, i.e., cable, satellite, or
the Internet. This is simply a function of a competitive program
distribution market--a public policy goal long advocated by public
officials and consumer groups.
To illustrate, Disney, which owns and operates both the ABC
Television Broadcast Network and ESPN, bids and competes in a
competitive market against Fox, CBS, NBC, Turner, and other aggregators
for expensive sports programming. After acquiring that content, Disney
must decide which distribution platform, the ABC Television Network or
ESPN, will yield the highest return on that investment. Placement of
sports programming on ESPN, reportedly, yields Disney program fees in
excess of $5.00 per month for each cable and satellite subscriber,
along with substantial cable and satellite commercial advertising
inventory. If placed on the ABC Television Network for free, over-the-
air broadcast, Disney now demands and receives both commercial
advertising inventory and a program fee from its affiliated stations.
Otherwise, Disney, understandably, will place its most expensive and
popular programs on cable and satellite. Thus, it is not surprising
that so many of the most popular traditional broadcast sports programs
have migrated in recent years to ESPN's advertiser-based and fee-based
cable and satellite platforms.
The above illustration applies equally to entertainment
programming, and the same local platform distribution choices for that
programming are made by the parent companies of the CBS, Fox, and NBC
Television Networks.
Therefore, to compete for the most popular national programming
with cable and satellite fee-based and advertiser-based revenue
streams, local television stations, of necessity, must now charge fees
to their competitors for the retransmission and resale of their
signals. It is indisputable that if the ability of local stations is
handicapped or impaired by Congress or the FCC in developing a fee-
based revenue stream from the resale, for profit, of their signals by
competitive cable, satellite, and other video distributors, local
television stations simply will no longer be competitive in the
acquisition of national programming, and they will, plainly, not be
able to afford to produce and broadcast local news, weather, sports,
public safety, and public interest programming. Two revenue streams
will always trump one, and if local television stations are not
permitted to compete, at arm's length, in a competitive market, the
best programming will ultimately migrate to subscription-based cable,
satellite, or Internet platforms. The reality is consumers will
ultimately pay for that programming, one way or the other.
Not only do local stations compete with cable, satellite, and other
video distributors for program content, they also compete head-to-head
with cable, satellite, and other distributors for audience share and
advertising revenue. Congress recognized in 1992, with adoption of the
current statutory retransmission consent requirement, the absurdity of
allowing competitors of local television stations to pirate and resell
their signals for profit without their consent and adopted a regulatory
framework to allow local television stations to negotiate at arm's
length in a competitive market for the resale of their signals.
Looked at another way, laws that prohibit cable and satellite
companies from pirating, retransmitting, and reselling the signals of
local television stations without their consent are no more unfair or
unreasonable than laws that prohibit a local television station from
pirating and retransmitting the signals of satellite and cable
companies--without their consent--or the signals of other television
stations, for that matter.
Volumes have been written and spoken about the fundamental fairness
and pro-competitive aspects of the Communications Act's retransmission
consent requirements. Retransmission consent is more important today
than when it was enacted for preservation of America's free, over-the-
air, local television broadcast service.
We, therefore, respectfully urge the Committee not to impair or
handicap the ability of local television stations to control the
distribution of their signals by other competitive video distribution
platforms.
Sincerely,
David Boylan,
Chair.
cc: Members of the Senate Commerce Committee
______
Hawaii Association of Broadcasters, Inc.
Honolulu, HI, July 20, 2012
Hon. Daniel K. Inouye,
United States Senate,
Washington, DC.
Dear Senator Inouye:
As the Senate Committee on Commerce, Science, and Transportation
prepares to hold a hearing to examine video issues and related aspects
of the Cable Television Consumer Protection and Competition Act of 1992
(the ``Cable Act''), I write on behalf of Hawaii's local television
broadcasters to underscore the importance of both the current
regulations, and the extension of their underlying principles to the
online video market.
Every one of the Hawaii television stations who are members of the
Hawaii Association of Broadcasters believe these bedrock principles
remain as vital today as when the Cable Act was enacted.
As you are aware, our local ABC-TV affiliate, KITV just yesterday
resolved an impasse with Time Warner Cable over retransmission consent
negotiations. While an unfortunate disruption of service left Hawaii
cable TV viewers without the KITV signal for a number of days, the
parties were able to resolve the issue and come to a retransmission
consent agreement through a fair market-based discussion.
Since the enactment of The Cable Act, literally thousands of
retransmission consent contracts have been successfully negotiated in
Hawaii to the mutual benefit of broadcasters, pay television companies
and consumers. In the increasingly competitive video market, these
deals ensure the continued viability of local broadcasters and our
ability to deliver local news, emergency services and high quality
programming to the communities that we serve.
It is Hawaii viewers who are the real beneficiaries of the current
retransmission consent process. Retransmission consent fees enable
stations to hire reporters and engineering staff, buy live remote
trucks, cameras, and production equipment, maintain transmission towers
and the infrastructure necessary to produce daily programming and
produce high quality local news that is an increasingly expensive
proposition. Retransmission consent compensation allows stations to
reinvest in valuable local content and services to our communities,
providing more choices and better programming for all consumers.
It is these very fees that allow TV stations to produce and provide
meaningful local programming in prime time hours such as the week-long
Merrie Monarch Festival, the Kamehameha Schools Song Contest, The Na
Hoku Hano Hano Music Awards and others.
This Committee was wise to craft legislation that recognized the
value of local broadcasting. The Hawaii Association of Broadcasters
asks that you support our local television stations in the upcoming
Senate hearing on video carriage and further resist any efforts to
eliminate retransmission consent, which allows our local stations to
freely negotiate with pay television providers for carriage of those
signals. The current system is good for your local television stations
and your constituents, and it supports the continued creation of
locally driven, community-focused programming.
Sincerely,
Jamie Hartnett,
Executive Director,
Hawaii Association of Broadcasters, Inc.
______
RLTV
Baltimore, MD, July 23, 2012
Hon. John D. Rockefeller IV,
Chairman,
Committee on Commerce, Science, and Transportation,
U.S. Senate,
Washington, DC.
Dear Chairman Rockefeller:
I serve as the President and Chief Executive of RLTV, which began
service as a 24/7 linear programming network in 2008. Our core purpose
is to create, acquire and distribute compelling content--both
television and online--for those who are 50 years of age and older, a
group we term ``Generation 50+.'' There are over 100 million of us with
$3 billion of spending power. As active, highly engaged and experienced
citizens, we care deeply not only about issues and pursuits that will
enhance this next stage in our personal lives, but also about the
future well-being of our children, grandchildren and other loved ones
who are among the 40 million caregivers in this country.
There is no other network like RLTV. But unlike most networks or
programming channels today, we are an ``independent.'' RLTV started
with a vision and the financial resources of our founder, John
Erickson. But lacking the deep pockets and brand awareness of large
media companies, RLTV and a handful of other independent programmers
have had to compete on a very uneven surface to secure distribution and
advertiser acceptance. The result for RLTV and the other handful of
independent programmers is a fundamentally longer, more difficult and
certainly more costly undertaking and, as such, one that imposes great
odds against the successful introduction and nurturing of additional
independent editorial voices from which the public can choose.
One particular cause of this circumstance is retransmission
consent. For example, unlike the broadcasters, RLTV has no special
government granted privileges, such as mandatory carriage rights or
basic tier placement guarantees. When retransmission consent was
created in 1992, it was intended to preserve local broadcasting, not to
subsidize national broadcast television networks. In effect
retransmission consent has had the unintended consequence of limiting
choice and imposing more difficult playing field conditions for
programmers such as RLTV.
Despite these conditions, MVPDs such as Comcast, Verizon FiOS, and
several dozen distributors fortunately have validated our mission.
Additional carriage later this year, due in part to Time Warner Cable
and Bright House Networks, will result in RLTV being seen in almost 30
million homes compared to the 14 million plus households we're in
today. For this we are greatly appreciative. Still, this is a long way
from where RLTV should be.
Recently, the Chairman and Chief Executive of a large MVPD was
quoted in a recent interview that he felt ``badly for independent
companies in general because they don't have the leverage against the
distributors. It's not a fair fight,'' he added. No, it's not, Mr.
Chairman. But unfortunately for distributors and independent networks
such as RLTV, the ground rules, as noted above, have put us both
between a rock and a very hard place.
Reform of retransmission consent will be a good start toward fixing
unintended consequences and enhancing the prospects of independent
voices such as RLTV to be seen and heard.
Sincerely,
Paul A. FitzPatrick,
President and CEO,
RLTV.
______
Son Broadcasting Network
Albuquerque, NM, July 24, 2012
Hon. John D. Rockefeller IV,
Chairman,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.
Dear Chairman Rockefeller:
I understand that the United States Senate Committee on Commerce,
Science, and Transportation plans to examine video carriage issues and
related aspects of the 1992 Cable Act at an upcoming hearing, including
the current ``must-carry'' regulations. On behalf of our station and
others throughout the nation, I write to emphasize the importance of
these ``must-carry'' regulations to our station, which has provided New
Mexicans with unique high quality Christian programming for more than
25 years.
Congress enacted the ``must-carry'' regulations to prevent a cable
system from refusing to carry lower-rated local television stations on
its system. At that time, Congress found, after establishing a
significant record, that if these local broadcast stations lost access
to their cable audiences, it would diminish the quality and diversity
of programming available in local communities. The Supreme Court agreed
that the public benefits of must-carry far outweigh the minimal burdens
it would impose on cable systems.
The public benefits of ``must-carry'' that Congress anticipated at
the time of the Cable Act's enactment have been borne out over the past
two decades. While in 1992, there were only three nationwide sources of
broadcast programming, must-carry laws have succeeded in creating an
explosion of diverse broadcast television content across the country.
Fox, Univision, the CW, MyNetwork, ION, Azteca, Telemundo and others--
all began as ``must-carry'' stations. ``Must carry'' provided them with
the broad exposure that introduced them to new audiences and enabled
them to thrive.
Today, viewers across New Mexico continue to benefit from ``must-
carry'' regulations through the services that our station provides to
the local community. Back in 1984 when we went on the air only a
fraction of viewers in our Santa Fe/Albuquerque DMA were able to pick
up our signal. Viewers, businesses and ministries advocated to the
cable companies on our behalf from 1984-1992 at no avail. And it wasn't
until the 1992 Cable Act went into effect that we were able to fully
serve the viewers in our community.
Since then we have produced thousands of hours of local programming
covering a variety of formats from health and healing, to issues,
entertainment, and talk programs that continue to serve the community
and highlight the lives and stories of New Mexicans. Included are
culturally diverse programs that are featured on our station.
Ministries across our state who rely on us to share their stories of
servicing the needs of New Mexicans would also be affected. As you may
not be aware, our state has many needs; some of which are homelessness,
hunger, drug addiction, family issues, health problems, and poverty.
Our Christian television station has been a strong vehicle to address
these issues and works with other ministries and agencies to
communicate the services they offer. Son Broadcasting continues to
provide a prayer line for people to call when they need encouragement,
hope and prayer. There have been cases of suicide and financial need
where we have bridged the caller to the appropriate professional or
non-profit that can help with the particular need.
Eliminating ``must-carry'' would threaten our ability to exist and
we would no longer be able to serve the community with local quality
Christian programming. We currently broadcast to the entire Santa Fe/
Albuquerque DMA, close to 800,000 households. Without ``must-carry'' we
would be reduced down to serving approximately 18 percent of our
current DMA, and many other stations around the country would be
affected this same way. I ask that you stand in support of our station,
and other local broadcasters that serve communities throughout the
country in the upcoming Senate hearing on video carriage. Please resist
any legislative efforts that eliminate the ``must-carry'' regulations.
Thank you for your consideration.
Annette Garcia,
President,
Son Broadcasting--KCHF TV 11.
______
Testimony of Benjamin Orr White, Private Citizen, State of Hawaii
U.S. Senate Committee on Commerce, Science, and Transportation
Attention--Senator John D. Rockefeller IV, Chairman
Senator Kay Bailey Hutchinson, Ranking Member
Senator Daniel Inouye, Past Chairman (2007-2009)
Fellow Senators and Committee Members
Washington, DC.
The following testimony is respectfully submitted to Chairman, John
D. Rockefeller and fellow Committee members of the U.S. Senate
Committee on Commerce, Science, & Transportation on July 23, 2012 for
your consideration from the perspective of a ``Private Citizen'' from
the State of Hawaii regarding the Cable Act at 20 hearing scheduled for
July 24, 2012 at 14:30 in the Russell Senate Office Building--253.
The Cable Television and Consumer Protection Act of 1992 authored
by Senator John C. Danforth has become legacy legislation which has
protected the consumer, cable companies, and programming media over the
past twenty years. It has met the burden of protecting a substantial
governmental interest in promoting a diversity of views provided
through multiple technology media. The 1992 Cable Act has with stood
the challenges of the Judicial Branch being upheld by the U.S. Supreme
Court in Turner Broadcasting System, Inc. v. FCC (95-992), 520 U.S. 180
(1997). In 1992 the estimate was 56,000,000 households, over 60 percent
of the households with televisions subscribe to cable television and
the number has definitely grown since the legislation's enactment.
In the case of private citizen from Hawaii like myself please allow
me to explain how this legislation has had an imperative attempt on
protecting Consumer and First Amendment rights in Hawaii within the
past month. On July 11, 2012 Oceanic Time Warner Cable a subsidiary of
Time Warner Cable blacked out the local commercial broadcast station
KITV an American Broadcasting Company (ABC) affiliate owned and managed
by Hearst Television. Oceanic then removed KITV from their cable line
up without any notice to the consumer. All parties (Time Warner,
Oceanic Time Warner, Hearst Television, and KITV) began to blame each
other for the removals over a failure to come to a fiscal agreement
regarding retransmission consent. For the next ten days 350,000 Oceanic
Time Warner Cable subscribers and citizens in Hawaii were held hostage
to the negotiations of these corporations. Cable subscribers were not
able to watch ABC's news and programming (a national affiliate). The
existing legislation requires cable companies to provide a 30 day
advance notice to their subscribers of any changes. This did not occur.
As a private citizen I sought to seek remedy through the FCC, FTC, and
State Cable Division and failed to receive any recourse. As a last
result a Federal lawsuit was filed to seek recourse. (See attached
documentation) Without the 1992 Cable Act there would have been no
consumer protection from the infringement of first amendment rights by
cable companies and programming media.
Moving forward more and more media is being viewed over the
Internet. It is important to establish legislation that will protect
media companies, consumers, and Internet providers. More and more
Internet cable companies are charging for the amount of data citizens
are viewing on the Internet thus making the overall cost of media and
freedom a speech quite expensive. Future legislation needs to look at
how the Internet is competing against cable television. Cable
television is an organized medium governed by individual station
programming. The Internet is not governed by scheduled programming but
by individual preferences with global implications. The Cable Act of
1992 did a great job of protecting local commercial and non commercial
broadcast stations. Any future legislation should provide the same
first amendment protection to view media over the Internet.
On a more personal note I am proud to say that I am Veteran of 16
years who takes great pride in having had the opportunity to defend
this legislation, freedom and First Amendment Rights. I have been to
other countries where the freedom of speech is restricted over cable
networks, satellite providers, and Internet cable companies.
Thank you for your consideration and may God Bless this Committee,
the U.S. Senate, the U.S. Legislative Branch and the United States of
America.
Respectfully submitted,
Benjamin Orr White.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Hon. Gordon H. Smith
Question 1. Whenever signals are pulled as a result of a
retransmission consent dispute, consumers lose. The impact is magnified
in areas where a single MVPD dominates an entire state. What is the
best way to protect consumers while companies work to resolve disputes
and impasses in negotiations for the carriage of broadcast signals?
Answer. Broadcasters all across the country have a strong incentive
to conclude retransmission consent negotiations successfully and avoid
carriage disputes, which result in the immediate loss of both
retransmission consent compensation and advertising revenues for local
stations and networks. As a result, retransmission consent negotiations
are almost always concluded successfully, with disruptions affecting
only hundredths of one percent of annual television viewing hours. In
the rare instance of a negotiating impasse, broadcasters take steps to
educate our viewers about available options.
Understanding the unique circumstances we have in Hawai'i, where
Time Warner Cable has near-monopoly control of the market, our signal
is available free, over-the-air to your constituents. Furthermore, as I
mentioned in my opening statement, it would be beneficial to arm
consumers with more protections in the rare event of a disruption.
First, more information should be given with enhanced notice of a
potential service disruption. Second, consumers who pay for an MVPD
package should be reimbursed for loss of service and allowed to change
systems without penalty.
Question 2. Should any special consideration be given to protect
consumers in geographic locations where a single MVPD serves a high
percentage (more than 50 percent) of total MVPD subscribers in a state?
Answer. Senator, ten MVPDs serve over 90 percent of the pay-TV
subscriber base nationally, in addition to geographic cable system
``clusters.'' Local broadcasters often have to negotiate retransmission
consent agreements with extremely large systems with vertically
integrated programming that are competing for the same local and
national advertisements. All in all, we feel that consumers should be
given more options in the retransmission consent process, outlined in
our previous answer.
______
Response to Written Questions Submitted by Hon. Barbara Boxer to
Hon. Gordon H. Smith
Question 1. In her testimony, Ms. Witmer of Time Warner Cable notes
that national broadcast networks ``have begun demanding reverse
compensation from their affiliates,'' which she alleges is contributing
to the increase in retransmission fees local affiliates have been
requesting in renegotiations.
Please respond to this point, providing detail on the extent that
national broadcast networks are involved in retransmission fee
negotiations, including any relevant information on the percentage of
retransmission fees for affiliate signals that are allocated to
national broadcast networks.
Answer. As a trade association, NAB does not have access to the
specific contractual terms of either network affiliation agreements or
retransmission consent agreements. Indeed, as a matter of antitrust
law, it would not be appropriate for NAB to have information on the
specific terms and conditions of the agreements between and among its
members (such as network affiliation agreements) or between and among
its members and entities within the pay-TV industry (such as
retransmission consent agreements). Information about network
involvement in retransmission consent negotiations and any
retransmission consent-related compensation arrangements would only be
available from the actual agreements and/or the networks and stations
that are parties to such agreements.
Question 2. What are NAB's views on Senator Kerry's idea of
requiring alternative styles of negotiation--i.e. baseball-style
arbitration--to be used in disputes between multichannel video
programming distributors and affiliates to ensure viewers are not
treated unfairly when retransmission consent negotiations breakdown?
Answer. There are several reasons why requiring arbitration would
be contrary to the public interest and contrary to existing law.
Under the retransmission consent system established by Congress,
the government does not and should not attempt to choose winners or
losers among broadcast stations and pay-TV providers but instead allows
broadcasters and MVPDs to negotiate freely and reach marketplace
agreements. Government-enforced arbitration would undermine this
market-based system and disrupt the carefully balanced combination of
laws and regulations governing carriage of television broadcast
signals. The complexity of retransmission consent negotiations makes
mandatory arbitration or a similar dispute resolution mechanism neither
viable nor practical.
Retransmission consent negotiations typically involve many complex
and multidimensional issues, including such matters as video on demand,
purchase of broadcast advertising by the MVPD (and vice-versa),
broadcast station promotion by the MVPD (and vice-versa), connectivity
between the station's studio/transmitter and the MVPDs headend/local
receive facility, digital and multicast channel carriage, electronic
program guide placement, and news insertion options, to name a few.
Given the complexity of these agreements, significant experience and
unique expertise would be required to assist parties in resolving
disputes. For this reason, retransmission consent agreements generally
also address matters such as the manner of dispute resolution, venue
and jurisdiction. NAB believes that mandating arbitration would result
in costly battles between economists and lawyers, bleeding economic
resources that local stations could better use to invest in high-
quality programming and public service stewardship. This would only be
compounded with smaller stations in California negotiating against
MVPDs with far greater leverage.
Question 3. In recent years, the breakdown of retransmission
consent negotiations has threatened the television access of millions
of Americans to major events like the Super Bowl, the World Series, and
the Oscars, not to mention the critical access of viewers to local news
broadcasts. The FCC has proposed to strengthen notice requirements for
consumers when there is the possibility that certain services may
lapse. Does NAB support this proposal?
Answer. NAB agrees that viewer notification requirements should be
strengthened. In comments filed with the FCC last year, NAB urged the
FCC to adopt certain changes to its rules to promote the interests of
viewers.
First, we urged the FCC to extend its consumer notice requirements
to all MVPDs. This requirement, which requires advance notice to
consumers of any changes to their channel line-ups, currently applies
only to cable operators. Extending this rule to all MVPDs would ensure
that consumers have adequate information to make informed decisions
about how to access programming in the rare instances when they may be
impacted by a negotiating impasse.
We also proposed two other changes that we anticipate will assist
viewers. We observed that many MVPDs now require that their subscribers
pay early termination fees (``ETFs'') when canceling services prior to
the termination of a service agreement, which could impede subscribers'
ability to cancel and/or change their MVPD service in the event of a
retransmission consent dispute. NAB urged the Commission to ensure that
the ability and freedom of consumers to make such decisions are not
impeded by the use of ETFs. Finally, NAB has noted that there is a
dearth of information about MVPD ownership, operations, and geographic
coverage. Current information about such matters is critical to
broadcasters' ability to make timely carriage elections and
retransmission consent-related communications. Accordingly, we urged
the FCC to consider rules that require MVPDs to periodically file with
the FCC data on their ownership (including contact information),
operation, and geographic coverage. This greater transparency could be
achieved in a manner that is not unduly burdensome but would promote
more effective and timely communications between broadcasters and
MVPDs.
Question 4. Does NAB support requiring affiliate broadcast signals
to remain on the air--i.e., continuous carriage--during retransmission
consent disputes?
Answer. Since the establishment of the current system of
retransmission consent, thousands of major sporting and entertainment
events have come and gone without incident or disruption to any
consumer. The system works so well that studies show that consumers are
more likely to face a power outage or an outage of their entire pay-TV
service than to be affected by a retransmission consent dispute. Even
in the rare instances that a disruption occurs, local stations' signals
remain available free over-the-air, and can also be viewed via other
pay-TV services.
The current regime specifies that both broadcaster and pay-TV
parties must, as part of their good faith negotiation obligations,
negotiate at reasonable times and locations, and must not unreasonably
delay negotiations. Further government intervention into the timing of
the negotiating process, including when those agreements commence or
terminate, easily could create disincentives to timely reaching
agreement. Certainly the requirement on broadcasters proposed in this
question would substantially reduce the incentives of pay-TV providers
to conclude retransmission negotiations, if those operators know they
can continue to use broadcasters' signals for their own profit, even in
the absence of any agreement between them.
I also want to stress that, during many retransmission
negotiations, television stations reach short-term agreements with pay-
TV providers, allowing them to continue carrying the stations' signals
while negotiations continue.
Question 5. Local broadcasting provides local programming and
assistance in times of emergency. Broadcasters increasingly recognize
that compensation from retransmission consent fees is an important
revenue stream going forward. Can you explain what the retransmission
consent fees paid to a broadcast station support?
Answer. Retransmission consent fees help support the quality,
quantity and diversity of broadcast programming and services.
Broadcasters are airing ever-increasing amounts and types of
programming through the use of multiple programming streams or
``multicasting.'' The total number of over-the-air television channels
skyrocketed from 2,518 channels as of year-end 2010 to 4,552 channels
as of year-end 2011.\1\ Multicasting has fostered the development of
entirely new programming networks, many of which are aimed at meeting
the needs and interests of specific ethnic groups. Another significant
development is the increase in programming available in high definition
(``HD'') format, with an estimated three-fifths of broadcasters having
upgraded their production facilities so that they can offer local news
in HD. Mobile DTV also is on the rise, with more than 130 stations in
30 states now making significant amounts of programming accessible via
handheld mobile devices.
---------------------------------------------------------------------------
\1\ TV Stations Multiplatform Analysis '12 Update: New Digital
Networks, Mobile TV Channels Expand Content Options, SNL Kagan (Jan.
31, 2012) at 1.
---------------------------------------------------------------------------
As you have observed, television broadcast stations are an
unrivaled source of local and national news and vital emergency
information and alerts. Broadcast television is the leading news
source, with 37.4 percent of American adults reporting that they
consider broadcast television to be their primary source of news.\2\
Recent surveys also show that viewers consider local television news
more trustworthy than other news sources.\3\
---------------------------------------------------------------------------
\2\ Television Bureau of Advertising, TV Basics Report (June 2012)
at 25, available at: http://www.tvb.org/media/file/TV_Basics.pdf. Local
television broadcast stations also are the top source for local
weather, traffic and sports. Id.
\3\ See University of Southern California, National USC Annenberg-
Los Angeles Times Poll Shows Local Television News Rules with Voters,
Press Release (Aug. 27, 2012), available at: http://www.usc.edu/
uscnews/newsroom/news_release.php?id=2795 (visited Aug. 28, 2012); The
Pew Research Center for People and the Press, Further Decline in
Credibility Ratings for Most News Organizations at 5 (Aug. 16, 2012),
available at: http://www.people-press.org/files/2012/08/8-16-2012-
Media-Believability1.pdf (visited Aug. 28, 2012).
---------------------------------------------------------------------------
To meet the needs and high expectations of their viewers, local
television stations invest heavily in their local news operations.
Recent survey data show that television news staffing has risen to the
second highest levels on record, with stations adding 1,131 jobs for a
total of 27,653 full time staff in 2011. In addition, 42.4 percent of
stations added to their newscasts last year, and a significant number
(31.2 percent) plan to increase news during the coming year. Despite
challenging economic times, most stations either increased or
maintained their news budgets during the past year.\4\
---------------------------------------------------------------------------
\4\ Bob Papper, RTDNA/Hofstra University, ``2012 TV and Radio
Staffing and News Profitability Survey,'' summarized at http://
www.rtdna.org/pages/media_items/2012-tv-and-radio-news-staffing-and-
profitability-survey2094.php, Part I-II.
---------------------------------------------------------------------------
Significantly, free over-the-air broadcast signals are relied upon
by an increasing proportion of the American public. The most current
data show that 17.8 percent of U.S. television households--a total of
20.7 million households (or 53.8 million Americans)--rely solely on
free over-the-air broadcast television. Broadcast-only households are
more likely to be racial and ethnic minorities, have lower household
incomes, and are younger.\5\
---------------------------------------------------------------------------
\5\ See GfK-Knowledge Networks, Home Technology Monitor 2012
Ownership Survey and Trend Report (Spring 2012-March 2012). See also
NAB, Over-the-Air TV Viewership Soars to 54 Million Americans, Press
Release (Jun. 18, 2012), available at: http://www.nab.org/documents/
newsroom/pressRelease.asp?id=2761.
---------------------------------------------------------------------------
Local television stations today increasingly rely upon revenue
streams other than over-the-air advertising to support the varied
services described above. Thus, the ability to engage in fair
negotiations with pay-TV providers for the value of the broadcast
signal is critical to broadcasters' ability to generate revenue and re-
invest those dollars in local news operations and a range of digital
services. Changes to the current system would impair the ability of
local stations to serve their local markets.\6\
---------------------------------------------------------------------------
\6\ See Jeffrey A. Eisenach & Kevin W. Caves, The Effects of
Regulation on Economies of Scale and Scope in TV Broadcasting 1 (2011),
Attachment A to Reply Declaration of Jeffrey A. Eisenach and Kevin W.
Caves (June 27, 2011) in NAB Reply Comments to Notice of Proposed
Rulemaking in MB Docket No. 10-71, at Appendix A (filed June 27, 2011).
---------------------------------------------------------------------------
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Hon. Gordon H. Smith
Question 1. Broadcasters tend to argue that retransmission consent
fees are critical to broadcasters being able to support local news
broadcasts. WWOR, owned by FOX, has faced significant criticism for its
coverage of local New Jersey news. Since FOX and Cablevision came to an
agreement on retransmission fees after a blackout during the World
Series in 2010, New Jersey customers have not seen real improvement of
local news coverage on WWOR. If broadcasters get use of the public
airwaves for free, while also charging retransmission fees, what are
New Jersey customers getting in return?
Answer. Senator, broadcasters are proud stewards of the Nation's
airwaves. In fact, most broadcasters were not given anything for
``free'' as they purchased their licensed stations at market price and
perform countless hours of public interest services, on the air and in
the community. In return, broadcasters continue to reinvest
retransmission consent revenues in local news and other programming
services. For example, in 2011, broadcasters hired more than 1,100
additional anchors, reporters, producers and news staff. Total
employment in local television newsrooms grew by 4.3 percent to 27,653
employees. This is the second highest total on record, thanks to
retransmission consent in many cases. New Jersey residents are served
by WWOR-TV, a broadcast television station licensed to Secaucus, New
Jersey, which is affiliated with MyNetworkTV and owned by Fox
Television Stations. In addition to MyNetworkTV entertainment
programming, WWOR-TV provides local viewers with local news coverage,
public affairs programming, special election coverage and children's
educational programming.
Question 2. Do broadcasters have an obligation to provide local
news coverage? If so, how much is adequate?
Answer. Local broadcasters are licensed by the FCC on the condition
that they will serve the public interest. Each and every station is
different and tailors its programming to fit the needs of the
community.
Question 3. S. 2008, the Next Generation Television Marketplace Act
of 2011, would provide for the deregulation of retransmission consent.
But as we saw last month with DirecTV and Viacom, blackouts occur due
to disputes between cable programmers and cable providers in a non-
regulated environment too. If we see customers, like those who
subscribe to DirecTV, suffering in a deregulated world, why would we
want to deregulate the negotiation process for broadcasters too?
Answer. Removing important laws like retransmission consent and
must-carry will harm local stations and television viewers alike. For
example, certain proposals would eliminate the ability of the FCC to
enforce privately negotiated contracts between program distributors and
stations for the distribution of network and syndicated programming.
Allowing pay-TV providers to import from distant markets signals
carrying duplicative network and syndicated programming ultimately will
harm viewers, by undermining local stations' economic base for
producing local news and information--including critical emergency
information. Specifically, limiting broadcasters' ability to enter into
and/or enforce exclusive contracts will jeopardize stations'
advertising revenues because the lack of program exclusivity in a
market makes television stations less attractive to advertisers.
Without sufficient advertising revenue streams, local stations cannot
afford to invest in valued informational and entertainment programming.
Both local stations and their viewers would be severely harmed if pay-
TV providers could undermine stations' exclusivity rights by importing
distant stations' signals.
Furthermore, if some legislative proposals were to become law, many
believe that the number of consumer disruptions will multiply. Removing
the compulsory copyright license, for instance, would exponentially
increase the number of rights holders that need to grant permission
before a station's programming is carried by a cable or satellite
company, thereby increasing the likelihood of consumer disruptions. In
addition to this, many stations, particularly smaller and independent
stations, may be unable to undertake the expensive and cumbersome
responsibility of direct licensing, and such a change might affect the
ability of local stations to serve their local markets.
Question 4. News Corporation, a member of the National Association
of Broadcasters (NAB), has been found to have misled the British
Parliament, has been accused of misrepresenting itself to the FCC, and
has seen its employees arrested for crimes including bribery of police,
phone hacking, e-mail hacking, and the perversion of justice. What, if
anything, does the NAB do to ensure that its members are living up to
the character requirements expected of a broadcast licensee?
Answer. NAB advocates on behalf of a broad membership, which is
comprised of local radio and television stations and broadcast TV
networks. To be a member of NAB, stations must hold a valid broadcast
license from the Federal Communications Commission.
Question 5. In light of the numerous allegations against News
Corporation, is the NAB conducting investigations into or taking any
action against News Corporation?
Answer. No.
Question 6. Today's video marketplace is very different than what
it was in 1992. Since the enactment of the Cable Act, satellite
carriers and telephone companies offering video services compete with
cable operators. And in the last few years, we have seen the enormous
growth of online video. In your view, given these changes in the video
marketplace, are the existing rules working? Why or why not?
Answer. NAB feels that the system established by the 1992 Act is
functioning as Congress intended and serving the public interest. Some
local broadcasters are for the first time receiving monetary
compensation for carriage of their signals, and consumers are
benefiting with enhanced local offerings and other highly valued sports
and entertainment programming. As new entrants, such as online video
distributors, provide consumers with even more options we believe that
applying the same basic principles for retransmission consent and
exclusivity to both new and traditional providers is paramount. Leaving
broadcasters unable to control Internet distribution of their signals,
and without the means to negotiate for fair compensation for others'
commercial use of their signals, would contradict Congress' mandate
that ``anyone engaged in retransmission consent by whatever means''
obtain stations' consent, and would seriously undermine local stations'
ability to fulfill their public service obligations.
______
Repsonse to Written Questions Submitted by Hon. Mark Warner to
Hon. Gordon H. Smith
Question 1. Stakeholders on all sides of the retransmission consent
debate appear to agree that the visibility and frequency of
retransmission disputes has increased over the last few years. Some
have argued that retransmission consent is working and that some
growing pains are reasonable because many broadcast stations are
electing to pursue deals instead of must-carry for the first time since
enactment of the 1992 Cable Act which created the dual regimes of must
carry and retransmission consent. On the other hand, distributors argue
that private sector retransmission consent deals are taking longer to
negotiate, and that it is becoming harder to reach agreement regarding
mutually agreeable terms.
If you believe must-carry and retransmission consent are important
to localism, how do you recommend that the Congress measure the success
of localism?
If you believe retransmission consent is failing, what evidence can
you provide?
Answer. Must carry and retransmission consent have yielded
important benefits for American television viewers, whether they access
broadcast television over-the-air, via pay-TV services, or online.
Must-Carry. Congress adopted ``must-carry'' because it found that
cable systems were increasingly refusing to carry certain local
television stations or carrying them in ways that made it difficult to
receive them (such as placing them on channels that could only be
received with additional equipment).
Congress found, after assembling a massive record, that if stations
lost access to the cable audience, their ability to provide quality
diverse programming to their local communities would decline, and those
stations would either be forced to change to less expensive programming
or go off the air altogether, reducing the diversity of programming
available to local communities.
The must-carry policy has succeeded. Congress can measure that
success by looking at the results. In 1992, there were only three
nationwide sources of broadcast programming. In the past 20 years, new
and diverse programming networks have grown, including Univision, Fox,
the CW, MyNetwork, ION, Telemundo, Azteca and others. Each of them
first obtained widespread distribution over must-carry stations and
produce local news thus serving localism. Other local stations that
provide foreign language or other niche programming are able to operate
only because they can reach the entire audience due to must-carry
requirements.
Although some cable companies complain that must-carry reduces the
opportunity for new cable programming, the facts don't support that
claim. Must-carry stations occupy no more than one to two percent of
the capacity of most cable systems, and as cable systems convert to
all-digital operations, their capacity grows even further. Those cable
systems also often devote many channels to carrying feeds of popular
cable networks from multiple time zones.
Television broadcasters are committed to providing a wide variety
of channels and programming that connect the cultures and communities
they serve and reflect the diverse nature of their viewing audiences.
Must-carry laws have succeeded in helping broadcasters accomplish these
goals.
Retransmission Consent. Retransmission consent allows stations
electing this option to negotiate with pay-TV providers in good faith
for the value of their signals. Retransmission consent fees help
support the quality, quantity and diversity of broadcast programming
and services. Broadcasters are airing ever-increasing amounts and types
of programming through the use of multiple programming streams or
``multicasting,'' which has resulted in enhanced localism. The total
number of over-the-air television channels skyrocketed from 2,518
channels as of year-end 2010 to 4,552 channels as of year-end 2011.\7\
Multicasting has fostered the development of entirely new programming
networks, many of which are aimed at meeting the needs and interests of
specific ethnic groups and community focused programming. Another
significant development is the increase in programming available in
high definition (``HD'') format, with an estimated three-fifths of
broadcasters having upgraded their production facilities so they can
offer local news in HD. Mobile DTV also is on the rise, with more than
130 stations in 30 states now making significant amounts of programming
accessible via handheld mobile devices.
---------------------------------------------------------------------------
\7\ TV Stations Multiplatform Analysis '12 Update: New Digital
Networks, Mobile TV Channels Expand Content Options, SNL Kagan (Jan.
31, 2012) at 1.
---------------------------------------------------------------------------
Television broadcast stations are an unrivaled source of local and
national news and vital emergency information and alerts. Broadcast
television is the leading news source, with 37.4 percent of American
adults reporting that they consider broadcast television to be their
primary source of news.\8\ Recent surveys also show that viewers
consider local television news more trustworthy than other news
sources.\9\ To meet the needs and high expectations of their viewers,
local television stations invest heavily in their local news
operations. Recent survey data show that television news staffing has
risen to the second highest levels on record, with stations adding
1,131 jobs for a total of 27,653 full time staff in 2011. In addition,
42.4 percent of stations added to their newscasts last year, and a
significant number (31.2 percent) plan to increase news during the
coming year. Despite challenging economic times, most stations either
increased or maintained their news budgets during the past year.\10\
---------------------------------------------------------------------------
\8\ Television Bureau of Advertising, TV Basics Report (June 2012)
at 25, available at: http://www.tvb.org/media/file/TV_Basics.pdf. Local
television broadcast stations also are the top source for local
weather, traffic and sports. Id.
\9\ See University of Southern California, National USC Annenberg-
Los Angeles Times Poll Shows Local Television News Rules with Voters,
Press Release (Aug. 27, 2012), available at: http://www.usc.edu/
uscnews/newsroom/news_release.php?id=2795 (visited Aug. 28, 2012); The
Pew Research Center for People and the Press, Further Decline in
Credibility Ratings for Most News Organizations at 5 (Aug. 16, 2012),
available at: http://www.people-press.org/files/2012/08/8-16-2012-
Media-Believability1.pdf (visited Aug. 28, 2012).
\10\ Bob Papper, RTDNA/Hofstra University, ``2012 TV and Radio
Staffing and News Profitability Survey,'' summarized at http://
www.rtdna.org/pages/media_items/2012-tv-and-radio-news-staffing-and-
profitability-survey2094.php.
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Local television stations today increasingly rely upon revenue
streams other than over-the-air advertising to support the varied
services described above. Thus, the ability to engage in fair
negotiations with pay-TV providers for the value of the broadcast
signal is critical to broadcasters' ability to generate revenue and re-
invest those dollars in local news operations and a range of digital
services. Changes to the current retransmission consent system would
impair the ability of local stations to serve their local markets.\11\
---------------------------------------------------------------------------
\11\ See Jeffrey A. Eisenach & Kevin W. Caves, The Effects of
Regulation on Economies of Scale and Scope in TV Broadcasting 1 (2011),
Attachment A to Reply Declaration of Jeffrey A. Eisenach and Kevin W.
Caves (June 27, 2011) in NAB Reply Comments to Notice of Proposed
Rulemaking in MB Docket No. 10-71, at Appendix A (filed June 27, 2011).
Question 2. Some distributors have indicated concerns about the
ability of content creators to tie affiliated programing to
retransmission consent deals because they argue this practice
contributes to programming cost increases. Broadcasters and content
creators argue that current practices provide necessary financial
support for a greater variety of programming options which they say is
a benefit to consumers.
To what extent should Congress be concerned about programming cost
increases over the past several years?
If you believe programming cost increases merit a fresh look at the
1992 Cable Act, do you believe cost savings garnered by distributors
should be passed onto consumers? If so, how would any savings be
realized by consumers?
If you support changes to current law, would your company provide
consumers with the same flexibility to pursue a la carte programming
options? If not, why not?
Answer. As a threshold matter, it is important to recognize that
programming costs are declining, not rising, relative to other key
economic indicators in the pay-TV industry. Thus, pay-TV industry
contentions that retransmission consent fees drive consumer are
patently false.
For years, cable operators consistently refused to pay cash for
retransmission consent of local broadcast signals.\12\ Despite this,
the average monthly rate subscribers were charged for the combined
basic and expanded-basic tiers of service rose from $26.06 in 1997 to
$36.47 in 2002--a 40 percent increase over the five years.\13\ This
rate of increase was much greater than the general rate of inflation,
as measured by the Consumer Price Index (``CPI''), which rose 12
percent over the same period.\14\ Clearly, these rate increases were
entirely unrelated to broadcast retransmission consent compensation.
---------------------------------------------------------------------------
\12\ See GAO, Issues related to Competition and Subscriber Rates in
the Cable Television Industry, GAO-04-8 at 43 (Oct. 2003) (``few
retransmission consent agreements include cash payment for carriage of
the local broadcast station'').
\13\ Id. at 20, 43-44.
\14\ Id.
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Even today, the prices paid by MVPDs for retransmission consent are
very modest when compared to other key indicators, such as MVPDs' other
programming-related expenses, revenues and profits. Broadcasters'
compensation is significantly less than that paid to non-broadcast
program providers whose programming earns lower ratings. For example,
in 2009, MVPDs paid an average of $2.08 per subscriber per month to
carry one of the four most expensive cable networks and $1.49 per
subscriber per month to carry one of the four most heavily viewed cable
networks, while each of the ``Big 4'' broadcast network affiliates only
received an average of approximately $0.14 per subscriber per month in
retransmission consent fees.\15\ MVPDs paid almost fifteen times more
in fees for carriage of the four most expensive cable networks and
approximately ten times more for carriage of the four most heavily
viewed cable networks than they paid in retransmission consent fees for
carriage of the Big 4 broadcast network affiliates.
---------------------------------------------------------------------------
\15\ SNL Kagan, Economics of Basic Cable Networks 2009 and SNL
Kagan, Nielsen November 2009 Prime-Time Live Coverage.
---------------------------------------------------------------------------
As further evidence that retransmission consent fees are not
driving higher cable rates, programming expenses, of which
retransmission consent fees account for only a small fraction, are
rising more slowly than other sectors of the cable industry's overall
economic structure. For example, between 2005 and 2010, with respect to
six publicly-traded cable operators:
the share of cost of revenue accounted for by programming
costs declined from 54 percent to 49 percent;
the share of cost of revenue, plus selling, general, and
administrative costs accounted for by programming costs
declined from 36 percent to 34 percent;
the ratio of programming expenses to total cable operating
costs decreased (from 27 percent in 2005 to 26 percent in
2010);
Cable operators monthly revenue per subscriber increased by
$53.06 per subscriber per month, from $80.95 to $134.01, while
programming expenses increased by just $10.03 per subscriber
per month (from $18.21 to $28.24); stated differently, for
every dollar increase in programming expenses, MVPDs raised
monthly subscription rates by $5.29.
The average retransmission fee per cable subscriber per
month increased from zero in 2005 to $0.86 in 2010. Thus, in
2010, retransmission consent fees, at $0.86 per subscriber per
month, were approximately six tenths of one percent of cable
operator revenues.\16\
---------------------------------------------------------------------------
\16\ See Declaration of Jeffrey Eisenach and Kevin Caves,
Attachment to NAB Comments in MB Docket No. 10-71 (filed May 27, 2011)
at 16-24.
Further, retransmission consent fees are not expected to drive up
cable subscriber rates in the future. A March 2009 study estimated that
cable revenues per subscriber are predicted to rise 45 times more than
retransmission consent fees between 2006 and 2015.\17\
---------------------------------------------------------------------------
\17\ Jeffrey A. Eisenach, The Economics of Retransmission Consent
(March 2009), attached to Reply Comments of NAB, MB Docket No. 07-269
(filed Jun. 22, 2009) at 33.
---------------------------------------------------------------------------
Accordingly, NAB does not believe that programming costs generally
have driven the steady increases in consumer prices for pay-TV service.
In particular, the modest retransmission consent fees paid to
broadcasters are not the cause of consistent subscriber rate increases
above the rate of inflation. We therefore do not see any reason for
modifications to the current system.
Question 3. Given that retransmission consent deals are private
sector negotiations under the 1992 Cable Act, it is difficult for
observers and participants to track pricing trends.
Do you believe pricing transparency for distributors and for
consumers could help to alleviate tensions over content deals? If not,
why not?
If you do believe pricing transparency could be beneficial, please
provide specific recommendations for such a proposal could be
implemented.
Answer. There are several reasons why disclosure of retransmission
consent pricing would not be helpful, and could in fact be harmful, to
the current system of retransmission consent.
First, such proposals implicitly assume that retransmission consent
negotiations are only about money. To the contrary, retransmission
consent negotiations typically involve many complex and
multidimensional issues, including such matters as video on demand,
purchase of broadcast advertising by the MVPD (and vice-versa),
broadcast station promotion by the MVPD (and vice-versa), connectivity
between the station's studio/transmitter and the MVPD's headend/local
receive facility, digital and multicast channel carriage, electronic
program guide placement, and news insertion options, to name a few.
Disclosure of ``price'' is not a simple matter, there are often myriad
elements beyond cash fees that constitute the overall price
compensation in a retransmission consent agreement.
Another issue to consider is whether such disclosures could
effectively establish either a ``floor'' or a ``ceiling'' for
retransmission consent fees in a given market. This could harm
broadcasters and/or pay-TV providers because each transaction should
reflect unique and specific marketplace circumstances involving the
parties to that transaction. For example, a broadcaster may wish to
offer a lower rate to a specific MVPD because that MVPD is able to
offer the broadcaster a unique video-on-demand partnership. When other
MVPDs learn of the reduced rate, they may seek that same rate when
their retransmission consent agreements are up for renewal (even if
they are not willing or able to offer the same types of non-price terms
and conditions). In light of that likely outcome, the broadcaster in
this scenario may be deterred from offering a lower rate and entering
an arrangement that would otherwise have created new programming
options for viewers. As you can see, disclosure could create
disincentives that harm both the industry and the viewing public.
Finally, it is important to consider how one-sided it would be to
require only retransmission consent rates to be disclosed.
Interestingly, the pay-TV providers who have supported proposals for
rate disclosure do not seek ``transparency'' across the board. Rather,
these providers wish for broadcasters to lay all their cards on the
table while pay-TV providers get to keep theirs close to the vest.
Under their proposals, MVPDs would not have to disclose the rates that
they pay to non-broadcast programming services with substantially less
audience appeal, or any of the data relevant to determining their costs
per channel.
Question 4. Going forward, how should Congress and/or the Federal
Communications Commission measure whether or not the current system is
working? Please provide specific metrics to support your answer.
Answer. I think there are several key indicators that the existing
retransmission consent system is working, and that these indicators can
continue to be monitored by Congress and/or the Commission. The leading
indicator is that the overwhelming majority of retransmission consent
deals are getting done. Studies that show that retransmission consent
disputes affect only hundredths of a percent of annual television
viewing hours. Congress and the FCC could use such metrics to help
assess the extent and nature of negotiating impasses. Congress and the
Commission also should consider the extent to which certain pay-TV
providers are repeatedly involved in disputes with broadcasters and
other programmers. Such repetitive conduct suggests that these pay-TV
providers may be more focused on generating interest in government
intervention on their behalf than engaging in genuine attempts to reach
agreement.
Another key indicator that the system is working is the extent to
which broadcasters are upgrading and expanding their services to the
public. Retransmission consent fees help support the quality, quantity
and diversity of broadcast programming and services. As discussed in
response to question #1 above, this includes offering ever-increasing
amounts and types of programming through the use of multicasting, more
HD programming, mobile DTV, and the local news and emergency
information on which so many Americans rely. Because local television
stations today increasingly rely upon revenue streams other than over-
the-air advertising to support the varied services they offer, the
ability to engage in fair negotiations with pay-TV providers for the
value of the broadcast signal is critical to broadcasters' ability to
generate revenue and re-invest those dollars in local news operations
and a range of digital services.
Question 5. If Congress were to revisit the 1992 Cable Act, are
there improvements to the law which you believe Congress should
consider?
Answer. NAB believes that the current systems of must carry and
retransmission consent are functioning effectively. In comments filed
with the FCC in 2011, however, NAB proposed a small number of
modifications to FCC rules that we believe would assist American
television viewers. These proposals could certainly be taken up by
Congress in an effort to promote the interests of viewers as part of a
review of the 1992 Cable Act.
First, NAB urged the FCC to extend its consumer notice requirements
to all MVPDs. This requirement, which requires advance notice to
consumers of any changes to their channel line-ups, currently applies
only to cable operators. Extending this rule to all MVPDs would ensure
that consumers have adequate information to make informed decisions
about how to access programming in the rare instances when they may be
impacted by a negotiating impasse.
Second, NAB observed that many MVPDs now require that their
subscribers pay early termination fees (``ETFs'') when canceling
services prior to the termination of a service agreement, which could
impede subscribers' ability to cancel and/or change their MVPD service
in the event of a retransmission consent dispute. NAB urged the
Commission to ensure that the ability and freedom of consumers to make
such decisions are not impeded by the use of ETFs.
Finally, NAB has noted that there is a dearth of information about
MVPD ownership, operations, and geographic coverage. Current
information about such matters is critical to broadcasters' ability to
make timely carriage elections and retransmission consent-related
communications. Accordingly, we urged the FCC to consider rules that
require MVPDs to periodically file with the FCC data on their ownership
(including contact information), operation, and geographic coverage.
This greater transparency could be achieved in a manner that is not
unduly burdensome but would promote more effective and timely
communications between broadcasters and MVPDs.
______
Response to Written Questions Submitted by Hon. Olympia J. Snowe to
Hon. Gordon H. Smith
Existing FCC Authority
The Cable Television Consumer Protection and Competition Act of
1992 (``1992 Cable Act'') amended the Communications Act to include
Section 325, which provides television stations with certain carriage
rights on local market cable television systems. The Commission
established rules related to the retransmission/mandatory carriage
election cycle, but did not adopt rules governing the negotiation
process of retransmission consent.
However, the statute clearly calls for the FCC to ensure that
broadcasters act in ``good faith during negotiations.'' During the
Sinclair-Mediacom dispute back in 2007, the Commission didn't intervene
because then Chairman Martin interpreted the law didn't and stated that
the agency didn't have the authority to impose binding arbitration. At
the time, he stated ``It's not clear to me that the commission does
have the authority to order arbitration.''
Yet, during that time in January 2007, Senator Inouye and the late
Senator Stevens wrote the FCC stating that the Commission did indeed
have authority to intervene and, if necessary, use binding arbitration
to resolve any failed negotiations.
Question 1. Given the existing statute and the Congressional
letter, couldn't the current Commission interpret the statue
differently than Chairman Martin to where they do have the statutory
authority to be involved in any disputes? What is precluding them from
doing so?
Answer. The short answer to your question is--as the Commission has
consistently concluded--it does not have the authority to require
mandatory arbitration.\1\ Mandatory arbitration would be inconsistent
with Section 325 of the Act. Section 325(b) expressly states that
broadcasters, and only broadcasters, can provide multichannel video
programming distributors (MVPDs) with authority to retransmit their
broadcast signals.\2\ The plain language of Section 325(b) makes clear
that no party--neither the FCC nor an arbiter--can authorize an MVPD to
transmit a station's broadcast signal without the broadcaster's
consent. If the FCC were to mandate that broadcasters and MVPDs engage
in arbitration to resolve retransmission consent disputes, the parties
would have no choice but to submit to arbitration, which, by
definition, involves the arbitrator rendering a ``final and binding''
decision. Thus, the adoption of mandatory binding arbitration as a
mechanism to resolve retransmission consent disputes contravenes the
plain language of Section 325(b) because it would permit the
arbitrator, not the broadcaster, to decide the terms upon which to
grant permission to a MVPD to carry a broadcaster's signal.
---------------------------------------------------------------------------
\1\ See, Amendment of the Commission's Rules Related to
Retransmission Consent, 26 FCC Rcd 2718, 2728-29, 18 (2011) (FCC
concludes that it lacks ``authority to adopt either interim carriage
mechanisms or mandatory binding dispute resolution procedures
applicable to retransmission consent negotiations'').
\2\ 47 U.S.C. Sec. 325(b)(1)(A).
---------------------------------------------------------------------------
Mandatory arbitration is contrary to the most fundamental premise
of the retransmission consent marketplace established by Congress, in
which local television stations have the opportunity to negotiate for
compensation from MVPDs in exchange for the right to retransmit and
resell their broadcast signals.\3\ Congress made it quite plain that
this retransmission consent marketplace is to function without
government intervention. In particular, Congress emphatically rejected
the notion that it or the Commission should or would ``dictate the
outcome'' of the negotiations between broadcasters and MVPDs.\4\ By
forcing the parties into mandatory binding arbitration, the FCC would
impermissibly intervene in retransmission consent negotiations. Thus,
mandatory arbitration contravenes congressional intent.
---------------------------------------------------------------------------
\3\ See S. Rep. No. 102-92 (``Senate Report'') at 36 (stating that
the Cable Television Consumer Protection and Competition Act of 1992
(``1992 Cable Act'') created a ``marketplace for the disposition of the
rights to retransmit broadcast signals'').
\4\ Id.
---------------------------------------------------------------------------
Mandatory arbitration is also contrary to the Administrative
Dispute Resolution Act (``ADRA'') which authorizes an agency to use
arbitration only when all parties consent.\5\ The ADRA expressly
prohibits an administrative agency from requiring arbitration. In
particular, Section 575(a)(3) of the United States Code states that:
``an agency may not require any person to consent to arbitration as a
condition of entering into a contract or obtaining a benefit.'' \6\
This ``prohibition is intended to help ensure that the use of
arbitration is truly voluntary on all sides.'' \7\
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\5\ 5 U.S.C. Sec. 575(a)(1). See Use of Alternative Dispute
Resolution Procedures in Commission Proceedings and Proceedings in
which the Commission is a Party, Internal Policy Statement and Order, 6
FCC Rcd 5669 (1991). See also S. Rep. No. 101-543 at 13 (1990).
\6\ 5 U.S.C. Sec. 575(a)(3).
\7\ S. Rep. No. 101-543 at 13 (1990).
Question 2. If Congress directed the FCC to ensure broadcasters act
in ``good faith'' during negotiations, how do you believe the FCC can
go about fulfilling that responsibility and to limit or prevent the
disruption of programming to cable and/or satellite customers?
Answer. The FCC has established rules implementing the statutory
good faith negotiation requirement and has a process in place for
adjudicating complaints of violations of the good faith rules. In the
cases that the FCC has decided on the merits, broadcasters have never
been found to have violated the good faith negotiation standard,
although one MVPD was found to have violated the standard,\8\ and
another was found to have abused the complaint process.\9\
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\8\ See Letter from Steven Broeckaert, Media Bureau, to Jorge L.
Bauermeister, Counsel for Choice Cable T.V., 22 FCC Rd 4933 (2007)
(cable operator failed to meet good faith standard).
\9\ See EchoStar Satellite Corp. v. Young Broadcasting, Inc.,
Memorandum Opinion and Order, 16 FCC Rcd 15070 (2001) (broadcaster met
good faith standard while complaining MVPD was admonished for abuse of
FCC processes and lack of candor).
---------------------------------------------------------------------------
NAB has urged the FCC to adopt certain changes to its rules to
promote the interests of viewers. First, we urged the FCC to extend its
consumer notice requirements to all MVPDs. This requirement, which
requires advance notice to consumers of any changes to their channel
line-ups, currently applies only to cable operators. Extending this
rule to all MVPDs would ensure that consumers have adequate information
to make informed decisions about how to access programming in the rare
instances when they may be impacted by a negotiating impasse. Second,
NAB observed that many MVPDs now require that their subscribers pay
early termination fees (``ETFs'') when canceling services prior to the
termination of a service agreement, which could impede a subscriber's
ability to cancel service in the event of a retransmission consent
dispute. NAB urged the Commission to ensure that the ability and
freedom of consumers to make such decisions are not impeded by the use
of ETFs. Third, NAB has noted that there is a dearth of information
about MVPD ownership, operations, and geographic coverage. Current
information about such matters is critical to broadcasters' ability to
make timely carriage elections and retransmission consent-related
communications. Accordingly, we urged the FCC to consider rules that
require MVPDs to periodically file with the FCC data on their ownership
(including contact information), operation, and geographic coverage.
This greater transparency could be achieved in a manner that is not
unduly burdensome but would promote more effective and timely
communications between broadcasters and MVPDs.
Reasonable Basic Service Tier Rates
Question 3. While I understand programming costs are growing, I am
concerned about the significant increase in retransmission compensation
that has occurred over the past several years. For example,
retransmission consent revenue climbed more than 30 percent for six
broadcasters in the first nine months of 2008. By 2017, SNL Kagan--an
industry analysis firm--projects retransmission fees will grow to $3.61
billion, with average per-subscriber fees potentially doubling. So, as
broadcasters look to increase revenue streams through retransmission
fee, it seemingly puts upward pressure on the price of basic cable and
ultimately consumers. Such increase may also infringe upon the existing
statute.
Section 623(b)(1) requires the FCC to ensure that basic cable
service rates are reasonable. In addition, Section 325(b)(3)(A)
requires the Commission to consider the impact that retransmission
consent has on basic cable service rates and that any regulations do
not conflict with the FCC's ``obligation under Section 623(b)(1)'' to
ensure such rates are reasonable.
According to SNL Kagan, the average cable TV subscriber in 2011
paid $78 a month compared to only $40 per month in 2001. Whereas the
average household income fell 6 percent between 2006 and 2010,
according to the U.S. Census.
Do you know if the FCC is actively examining the impact of
increasing retransmission fees in relation to basic cable rates?
Answer. In its rulemaking proceeding on retransmission consent
initiated last year, the FCC specifically inquired whether there is an
impact on the basic service rate that consumers pay as the result of
retransmission consent fees or disputes.\10\ Various parties commented
on that issue, as well as the myriad others raised in the Notice. This
proceeding remains pending at the FCC. As discussed in response to
Question 4 below, NAB has presented evidence demonstrating that rising
cable rates are not caused by retransmission consent fees. In fact,
retransmission fees are miniscule in comparison to cable revenues.
---------------------------------------------------------------------------
\10\ See Amendment of the Commission's Rules Related to
Retransmission Consent, 26 FCC Rcd 2718, 2727 17 (2011).
Question 4. Can you elaborate on what impact these retransmission
fees have on the cost of basic cable service? What percentage of a
cable customer's monthly cable bill is attributed to retransmission
fees paid to the broadcasters (a rough estimate will suffice) for (1) a
customer subscribing to basic cable and (2) a customer subscribing to
the most expensive cable TV package?
Answer. Any suggestion that retransmission consent fees drive the
rates subscribers pay for MVPD service is patently false. For years,
cable operators consistently refused to pay cash for retransmission
consent of local broadcast signals.\11\ Nevertheless, the average
monthly rate subscribers were charged for the combined basic and
expanded-basic tiers of service rose from $26.06 in 1997 to $36.47 in
2002--a 40 percent increase over the five years.\12\ This rate of
increase was much greater than the general rate of inflation, as
measured by the Consumer Price Index (``CPI''), which rose 12 percent
over the same period.\13\ These rate increases were entirely unrelated
to broadcast retransmission consent fees.
---------------------------------------------------------------------------
\11\ See GAO, Issues related to Competition and Subscriber Rates in
the Cable Television Industry, GAO-04-8 at 43 (Oct. 2003) (``few
retransmission consent agreements include cash payment for carriage of
the local broadcast station'').
\12\ See GAO, Issues related to Competition and Subscriber Rates in
the Cable Television Industry, GAO-04-8 at 20, 43-44 (Oct. 2003).
\13\ Id.
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Even now, the prices paid by MVPDs for retransmission consent are
very modest when compared to other key indicators, such as MVPDs' other
programming-related expenses, revenues and profits. Broadcasters'
compensation is significantly less than that paid to other programmers
of equal or lower, ratings. For example, in 2009, an MVPD paid an
average of $2.08 per subscriber per month to retransmit one of the Top
4 most expensive cable networks and $1.49 per subscriber per month to
retransmit one of the Top 4 most heavily viewed cable networks, while
each of the ``Big 4'' broadcast network affiliates only received an
average of approximately $0.14 per subscriber per month in
retransmission consent fees in 2009.\14\ MVPDs paid almost fifteen
times more in fees for carriage of the Top 4 most expensive cable
networks and approximately ten times more for carriage of the Top 4
most heavily viewed cable networks than they paid in retransmission
consent fees for carriage of the Big 4 broadcast network affiliates.
---------------------------------------------------------------------------
\14\ SNL Kagan, Economics of Basic Cable Networks 2009 and SNL
Kagan, Nielsen November 2009 Prime-Time Live Coverage.
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As further evidence that retransmission consent fees are not
driving higher cable rates, programming expenses, of which
retransmission consent fees account for only a small fraction, are
rising more slowly than other sectors of the cable industry's overall
economic structure. For example, between 2005 and 2010, with respect to
six publicly-traded multiple system operators (``MSOs''):
the share of cost of revenue accounted for by programming
costs declined from 54 percent to 49 percent;
the share of cost of revenue, plus selling, general, and
administrative costs accounted for by programming costs
declined from 36 percent to 34 percent;
the ratio of programming expenses to total MSO operating
costs decreased (from 27 percent in 2005 to 26 percent in
2010);
MSOs' monthly revenue per subscriber increased by $53.06 per
subscriber per month, from $80.95 to $134.01, while programming
expenses increased by just $10.03 per subscriber per month
(from $18.21 to $28.24); stated differently, for every dollar
increase in programming expenses, MVPDs raised monthly
subscription rates by $5.29.
the average retransmission fee per cable subscriber per
month increased from zero in 2005 to $0.86 in 2010. Thus, in
2010, retransmission consent fees, at $0.86 per subscriber per
month, were approximately six tenths of one percent of cable
MSO revenues.\15\
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\15\ See Declaration of Jeffrey Eisenach and Kevin Caves,
Attachment to NAB Comments in MB Docket No. 10-71 (filed May 27, 2011)
at 16-24.
Further, retransmission consent fees are not expected to drive
cable subscriber rates in the future. A March 2009 study estimated that
cable revenues per subscriber are predicted to rise 45 times more than
retransmission consent fees between 2006 and 2015.\16\
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\16\ Jeffrey A. Eisenach, The Economics of Retransmission Consent
(March 2009), attached to Reply Comments of NAB, MB Docket No. 07-269
(filed Jun. 22, 2009) at 33.
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Eliminating Retransmission Consent and Compulsory Licenses
Question 5. While there is no question that Congress must examine
and reform outdated provisions in the statute, there are legislative
proposals before Congress that propose sweeping changes to laws
governing cable and broadcast obligations. In particular these bills
propose repealing retransmission consent, must carry, and the Copyright
Act's ``compulsory license'' provisions.
During the hearing, witnesses provided conflicting testimony on the
impact such eliminations would have on the marketplace and with retrans
negotiations--some said it would only increase disputes and others said
it would wouldn't.
Can you elaborate, in detail, on how negotiations between MVPDs and
broadcasters (and/or programming/content owners and anyone else that
might now be included) would be carried out, if the compulsory license,
must carry, and retransmission consent provisions were eliminated?
Please lay out the process and parties that would exist in negotiating
the rights to use programming/content. Also, please compare/contrast
the new negotiation process that would result versus the current
retransmission consent negotiations.
Answer. If the compulsory licenses for MVPDs were eliminated, in
order for an MVPD to carry a broadcast signal, some party would be
required to obtain the necessary copyright clearances for every
copyrighted work that was broadcast on that signal. This would include
the copyright owners of movies, syndicated programs, sports, news and
information programs, and all segments contained therein, all music
included in any program, etc. Some of these rights are held directly by
the program creator. Others are assigned or licensed to program
syndicators or collectives who have the rights to negotiate for the
public performance of a work by a television station, but currently
probably do not have the rights necessary for an MVPD to retransmit a
program or piece of music included in a station's signal.
In studies, the Copyright Office has identified three possible user
entities that could negotiate for these rights: broadcast stations, the
MVPDs, or possibly some sort of rights collective.\17\ None are
particularly satisfactory, and it is anticipated that any of these
parties would incur extraordinary expense in making such a transition.
The typical broadcast station simply is not equipped, either with the
personnel, resources or expertise, to undertake such complicated and
multifaceted negotiations. Moreover, it is unlikely that a station
could begin to recoup such costs in negotiations with multiple MVPDs.
For the same reasons, most MVPDs also have no desire to undertake these
licensing tasks. Before the Copyright office, associations for small
and large cable systems have opposed elimination of these licenses.
---------------------------------------------------------------------------
\17\ United States Copyright Office, Satellite Television Extension
and Localism Act Section 302 Report, A Report of the Register of
Copyrights (Aug. 29, 2011) at 66-128.
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The third option would be the formation of licensing collectives.
The paradigm for these would be ASCAP and BMI, the large music
collectives. The history of these collectives is that they were sued
for antitrust violations, entered into consent decrees, and the license
fees and conditions they impose are administered by a Federal rate
court. It is difficult to see how that paradigm is any improvement over
the existing compulsory licenses.
There are several other consequences detrimental to the public
interest that could be foreseen by elimination of the compulsory
licenses. First, because rights for certain programs or categories of
programs (such as certain sports programming) might not be obtainable
by individual stations, they might simply disappear from free over-the-
air television. Specifically, there could be the problem of the
``holdout'' where, for example, the rights to a program were secured,
but not the music within it. Depending on the timing of these
negotiations, the holder of such rights could be in a position to
demand confiscatory rates. Second, there is the possibility that some
quality programming now available on free over-the-air television would
migrate to pay channels which are better equipped to negotiate such
rights. Third, whatever entities undertook these new and extensive
negotiations would seek to recoup their costs, which could well be
passed on to consumers.
The response to this question would not be complete without
pointing out that under currently introduced legislation, a station's
property right in its signal would be eliminated. Hence, stations would
have far less to negotiate with, their only remaining rights being
those in the programming which they produce and in which they owned the
copyrights.
Question 6. If you believe that eliminating these provisions would
lead to more disputes, can you elaborate, in detail, on why?
Answer. Elimination of the compulsory licenses would significantly
increase the potential for many more disputes, simply because there
would be scores more individual negotiations for each program and
program segment, any one of which could result in disputes, stalemates
or, at the least, delays.
Question 7. If you believe that eliminating these provisions would
lead to less disputes, can you elaborate, in detail, on why?
Answer. Eliminating these provisions would not lead to fewer
disputes, but would increase the number of disputes. See response to
Question 6.
Question 8. In witness testimony, it was indicated that for 2012,
to date, there have already been 69 disputes regarding retransmission
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
Answer. NAB does not keep track of the number of disputes that
occur between MVPDs and non-broadcast networks/programmers. We checked
with a leading media industry research/analysis firm, which reported
that it did not compile this data either.
However, there have been and continue to be a number of carriage
disputes between MVPDs and non-broadcast networks that result in
interruptions of service to consumers, some of which last for months.
For example, the continuing dispute between the AMC Networks and DISH
had led to AMC being unavailable to DISH subscribers since June 30,
2012. There also have been service disruptions this year due to
disputes between DirecTV and Viacom's non-broadcast networks (e.g.,
Comedy Central, MTV, Nickelodeon, etc.) and high profile disputes
between Time Warner Cable and sports programmers, such as the New York-
based MSG network.
Question 9. It is my understanding that while there has been a 15
percent increase in commercials television stations from 1996 to 2010,
there has also been a 33 percent decrease in the number of station
owners. There has also been a continued dearth of ownership by
minorities and women--which is approximately only 5 percent and 3.3
percent of TV market share, respectively (both well below their
population representation). Both indicate a significant deficit in
achieving the policy goals of localism and diversity.
A free exchange of a wide range of viewpoints is the lifeblood of
our democracy, and the print and broadcast media serve an indispensable
function by exposing our society to diverse thoughts and viewpoints.
What would the impact of eliminating must carry requirements from
the law have on local and independent stations? Without must carry how
could a local independent station get carried by a MVPD? Is there any
obligation of the MVPD to carry the station?
Answer. Elimination of the must-carry requirements would have
devastating consequences for a number of stations, typically those
unaffiliated with major networks and often serving niche audiences,
including minority and foreign-language speaking viewers and religious
groups. Without must-carry, it is possible that the only way some of
these stations could obtain carriage, if at all, would be by paying the
MVPD, which niche stations generally cannot afford.
Elimination of these rules would also significantly impede the
introduction of new and diverse programming to the viewing public--
programming that is not owned or selected by the MVPD. A number of the
now popular Hispanic-oriented networks and even the Fox broadcast
network relied on must-carry at their inception.
Studies have confirmed that must-carry promotes Congress' goal of
helping to preserve a multiplicity of free, over-the-air broadcast
stations and that must-carry is especially important for the
preservation of independent stations.\18\ Elimination of the must-carry
rules and the consequent loss of audience and advertising revenues
clearly could result in the loss of many these stations and their
unique and diverse programming, which benefits both MVPD subscribers
and non-subscribers alike.
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\18\ See, e.g., G.S. Ford and J.D. Jackson, ``Preserving Free
Television? Some Empirical Evidence on the Efficacy of Must-Carry,'' 13
J. Media Econ. 1 (2000).
Question 10. Would the elimination of must carry possibly lead to
more concentration in the media market and, as a result, further muting
the diversity of media voices, which has been a resolute policy of our
nation's telecommunications and media laws?
Answer. For the reasons set forth in response to Question 9, the
elimination of the must-carry rules clearly would lead to more
concentration in the media marketplace and in the muting of the
diversity of media voices. The religious, ethnic, and culturally
diverse programming carried on the generally small, non-major network
affiliated must-carry stations is not duplicated elsewhere on MVPD
channel lineups. And these stations are not owned or controlled by the
MVPDs, unlike many other program networks that they typically carry.
Cable operators, along with Verizon and AT&T, collectively control
about 70 percent of the pay-TV market,\19\ and the ten largest MVPDs
(including satellite operators) control 91.3 percent of that
market.\20\ At least one leading industry analyst sees satellite and
telephone company market penetration peaking, while forecasting future
growth for cable.\21\ With these concentration levels for cable
specifically and for MVPDs generally, must-carry is essential to
maintaining the diversity of media voices.
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\19\ Annual Assessment of the Status of Competition in the Market
for the Delivery of Video Programming (Fourteenth Report), FCC 12-81
(rel. July 20, 2012) at p. 3.
\20\ See 2012 SNL Kagan Media Census Estimates, First Quarter 2012.
\21\ U.S. Telecommunications and U.S. Cable & Satellite: Nature
Versus Nurture, Sanford C. Bernstein & Co. (May, 2012) at pp. 63-94.
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Online Video vs. Traditional Video
Question 11. According to Nielsen Media, the average American
watches over 153 hours of video per month on traditional television
compared to only 4.5 hours per month of online video. Also,
approximately 97 percent of American households have a television
whereas 68 percent of households have broadband (the U.S. currently
ranks 23rd in broadband penetration).
In addition, a 2011 Project for Excellence in Journalism survey
found that local TV remains America's most popular source of local news
and information, particularly for weather and breaking news--89 percent
of surveyed adults get information about local weather and 80 percent
follow local breaking news through local television. Only about 51
percent of smartphone users use the device to get news.
While the Internet is a very value medium for media and news and
provides incredible benefit to users, most Americans still rely heavily
on traditional television for programming, local news, and even
weather.
With the current penetration and marketplace, is the Internet a
``perfect substitute'' to traditional television programming and local
broadcast news? If not, what do believe is required for it to be a
substitutable good to traditional television and local news?
Answer. The Internet provides consumers with access to information,
news and entertainment from innumerable sources around the world. These
online sources increasingly compete with traditional broadcast
television stations for viewers' time and attention and for
advertisers' dollars. However, the Internet is far from a ``perfect
substitute'' for traditional television programming, especially for
local news and emergency information. I think the Internet might more
accurately be described as one of the mix of platforms and sources that
consumers now use to access information and entertainment.
Another reason the Internet is not a perfect substitute for local
television is the relative availability of the two mediums. Broadband
access has increased rapidly and is continuing to increase today, but--
unlike broadcast television--it is not yet universal and certainly not
free. The broadcast television availability advantage is especially
apparent when Americans need access to critical information, as they
would during severe weather or other emergencies. No other medium
matches the ability of local broadcasters to deliver potentially life-
saving information to local communities. Particularly when the power
fails and Internet connections and wireless networks are overwhelmed,
nothing surpasses the one-to-many architecture of over-the-air
broadcasting, both TV and radio, to provide uninterrupted critical
information to citizens.
Finally, I note that no web-only company makes the same kind of
commitment to local journalism as local TV stations. A 2012 survey by
the Radio Television Digital News Association found that, despite the
struggling economy, television news employment is at its second highest
level ever and that the average television station set a new record
last year for the amount of local news aired (five and half hours per
weekday).
Value of Public Broadcasting
Question 12. Harris Interactive, an independent, non-partisan
research firm, found--for the ninth year in a row--that PBS (Public
Broadcasting Service) is the Nation's most-trusted institution by the
American public. PBS ranked higher than our court system, newspapers,
our Federal government, and, surprisingly, even Congress.
In addition, 74 percent of the American public surveyed believe
Federal funding for PBS is money well spent. PBS was also the most
trusted and safe place for children to watch television--88 percent of
Americans surveyed agreed.
What role do you see public television playing in providing local
programming?
Answer. Public broadcasting continues to be a valuable part of the
local television environment.
Question 13. To your knowledge, do you believe PBS or any other
public broadcasting station would be adversely impacted by any of the
legislative proposals (that would do away with must carry, retrans, or
compulsory licenses) currently in Congress?
Answer. I believe that public broadcasters share many of the same
concerns that commercial broadcasters have (as expressed above) with
the pending proposals.
Gentlemen's Agreement Not to Pull Signal
Question 14. Several of the negotiation disputes have threatened or
have actually disrupted cable customers' viewing of major television
programming--whether that is sporting events, season finales of shows,
or the Oscars. It is my understanding cable operators are prohibited
from pulling broadcast signals during sweeps when ratings determine
advertising rates--the life blood of your business.
Why shouldn't there be a similar prohibition on broadcasters to not
pull their signals in a retransmission negotiation impasse during a
major sporting event or other highly watched programming like the
Oscars--in order to limit the disruptive nature of negotiation disputes
to consumers?
Answer. Since the establishment of the current system of
retransmission consent, hundreds of major sporting and entertainment
events have come and gone without incident or disruption to any
consumer. The system works so well that data shows that consumers are
more likely to face a power outage or an outage of their entire pay-TV
service than to be affected by a retransmission consent dispute. Even
in the rare instances that a disruption occurs, local stations' signals
have not been ``pulled''--they remain available free over-the-air, and
can also be viewed via other pay-TV services.
The current regime specifies that both broadcaster and pay-TV
parties must, as part of their good faith negotiation obligations,
negotiate at reasonable times and locations, and must not unreasonably
delay negotiations. Further government intervention into the timing of
the negotiating process, including when those agreements commence or
terminate, easily could create disincentives to timely reaching
agreement. Certainly the prohibition on broadcasters proposed in this
question would substantially reduce the incentives of cable operators
to conclude retransmission negotiations prior to a major sporting event
or a ``highly watched'' program (however defined), if those operators
knew they could continue to use broadcasters' signals for their own
profit, even in the absence of any agreement between them.
Question 15. Would you (and/or your affiliates/members) agree to
voluntarily adopt an arrangement of where you would not pull your
signal prior to a major sporting or highly watched/anticipated event if
negotiations are at an impasse? You could obviously still pull your
signal after the event, if you so desired.
Answer. For the reasons discussed above in responding to Question
14, I do not think this will benefit the public. Under the current
system, both broadcasters and pay-TV providers have strong incentives
to reach agreement prior to the termination of retransmission consent
agreements. Modifications to the system, including additional public
commitments by broadcasters to offer extensions of existing agreements
because of a major sporting or other special event, could delay final
resolution of negotiations and reduce incentives for pay-TV providers
to negotiate in a timely manner prior to these events. Ultimately,
consumers are unlikely to benefit from policies that reduce incentives
to negotiate in good faith.
I also want to stress that, during many retransmission
negotiations, television stations reach short-term agreements with pay-
TV providers, allowing them to continue carrying the stations' signals
while negotiations continue. On occasion, however, pay-TV providers
have attempted to condition their agreement to these short-term
carriage arrangements on the broadcaster not providing notice to its
viewers of a potential programming disruption. See response to Question
2 above.
Local Programming & Independent Programming
Question 16. I have long been a champion of promoting localism and
diversity in television. Local media--be it newspaper, radio, or
television--play a critical role in informing citizens about important
decisions made by their local, state, and Federal officials. Even with
the Internet and other media sources, a 2011 Project for Excellence in
Journalism survey found that local TV remains America's most popular
source of local news and information, particularly for weather and
breaking news--89 percent of surveyed adults get information about
local weather and 80 percent follow local breaking news through local
television. Also, locally owned stations also air more local news and
programming than non-locally owned stations, typically 5 1/2 minutes
more per day.
It seems to me that one way to make sure that local television
stations can continue to invest in local journalism is to allow them to
recoup the investments they make in local programming. I am concerned
about the impact that various legislative proposals would have on
localism. Some have proposed to significantly alter the negotiating
leverage of the parties in a way that could make it more difficult for
local broadcasters or independent programmers to receive fair value for
their programming.
Do you agree? Can you discuss your concerns with the various
legislative proposals and its impact on local stations and the
availability of local programming to consumers that rely on overthe-air
broadcasting?''
Answer. I wholeheartedly agree. Television broadcast stations are
an unrivaled source of local and national news and vital emergency
information and alerts. Broadcast television is the leading news
source, with 37.4 percent of American adults reporting that they
consider broadcast television to be their primary sourceof news.\22\
Recent surveys also show that viewers consider local television news
more trustworthy than other news sources.\23\
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\22\ Television Bureau of Advertising, TV Basics Report (June 2012)
at 25, available at: http://www.tvb.org/media/file/TV Basics.pdf (``TV
Basics Report''). Local television broadcast stations also are the top
source for local weather, traffic and sports. Id.
\23\ See University of Southern California, National USC Annenberg-
Los Angeles Times Poll Shows Local Television News Rules with Voters,
Press Release (Aug. 27, 2012), available at: http://www.usc.edu/
uscnews/newsroom/news release.php?id=2795 (visited Aug. 28, 2012); See
The Pew Research Center for People and the Press, Further Decline in
Credibility Ratings for Most News Organizations at 5 (Aug. 16, 2012),
available at: http://www.people-press.org/files/2012/08/8-16-2012-
Media-Believability1.pdf (visited Aug. 28, 2012) (``believability
ratings for local TV news are [currently] higher than those for the
three cable news outlets'' and, over the years, ``credibility ratings
for local TV news have remained more stable than have ratings for the
three main cable news outlets'').
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To meet the needs and high expectations of their viewers, local
television stations invest heavily in their local news operations.
Recent survey data show that television news staffing has risen to the
second highest levels on record, with stations adding 1,131 jobs for a
total of 27,653 full time staff in 2011. In addition, 42.4 percent of
stations added to their newscasts last year, and a significant number
(31.2 percent) plan to increase news during the coming year. Despite
challenging economic times, most stations either increased or
maintained their news budgets during the past year.\24\
---------------------------------------------------------------------------
\24\ Bob Papper, RTDNA/Hofstra University, ``2012 TV and Radio
Staffing and News Profitability Survey,'' summarized at http://
www.rtdna.org/pages/media_nitems/2012-tv-and-radio-news-staffing-and-
profitability.survey2094.php. Part I-II.
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Local television stations today increasingly rely upon revenue
streams other than over-the-air advertising. Thus, the ability to
engage in fair negotiations with pay-TV providers for the value of the
broadcast signal is critical to broadcasters' ability to generate
revenue and re-invest those dollars in local news operations.
Legislative proposals that would eliminate broadcasters' retransmission
consent rights are fraught with risks of greater disruptions in service
and the possibility that broadcasters will no longer be able to secure
compensation for the value of their signals. Although I understand that
the intent of these proposals is for broadcasters to maintain control
of their copyright interests through direct licensing and to allow for
carriage negotiation, local broadcasters' value in their signals is not
the same as the copyright interests in the differing programming
elements (e.g., network, syndicated, local). Many stations may be
unable to undertake the expensive and cumbersome responsibility of
direct licensing (see response to Question 5 above), and such a change
likely will impair the ability of local stations to serve their local
markets.
Similarly, any legislation that would interfere with privately
negotiated exclusivity contracts between broadcasters and networks or
syndicators also would harm the public interest. Some legislative
proposals would eliminate the FCC's rules permitting the enforcement of
privately-negotiated non-duplication and syndicated exclusivity
agreements. NAB stresses that these rules do not actually create any
exclusive rights. Rather, they provide a means for parties to the
exclusive contracts to efficiently enforce them. In fact, the FCC's
rules actually limit and restrict program exclusivity by limiting the
geographic area in which television stations may enter into program
exclusivity agreements with network and syndicated program suppliers.
Moreover, allowing pay-TV providers to import from distant markets
signals carrying duplicative network and syndicated programming
ultimately will harm viewers, by undermining local stations' economic
base for producing local news and information--including critical
emergency information. Specifically, limiting broadcasters' ability to
enter into and/or enforce exclusive contracts will jeopardize stations'
advertising revenues because the lack of program exclusivity in a
market makes television stations less attractive to advertisers.
Without sufficient advertising revenue streams, local stations cannot
afford to invest in valued informational and entertainment programming.
Both local stations and their viewers would be severely harmed if pay-
TV providers could undermine stations' exclusivity rights by importing
distant stations' signals.
Question 17. How important are media ownership rules to promoting
competition, diversity, and localism? Some broadcasters have called for
relaxing media ownership rules but could that cause greater
consolidation and concentration, which would be counter to goals in the
statute of promoting competition, localism, and diversity?
Answer. I disagree that reforming out-of-date ownership
restrictions would undermine localism, competition and diversity. As
NAB has explained in detail in many FCC submissions, these broadcast-
only ownership restrictions do not reflect today's multichannel,
multiplatform marketplace. These limitations distort marketplace
competition and place local broadcasters at a severe disadvantage. The
rules limit broadcasters' ability to respond to market forces, as
satellite, cable and Internet-based outlets proliferate and compete for
audiences and advertising revenues without comparable restrictions. As
a result, many broadcast stations struggle to maintain their economic
vibrancy and to continue providing a high level of service to local
communities. Broadcast outlets in small markets with more limited
advertising potential face a particularly challenging economic
environment.
Reform of these outmoded restrictions would enhance competition by
strengthening the ability of local stations to compete against their
multichannel and online competitors. Competitively viable local
stations will have both the resources and the incentives to offer
programming that meets the needs and interests of their diverse
communities, including niche audiences and smaller demographic groups
that are increasingly better served through stations' digital
capabilities, particularly multicasting.
Finally, numerous studies, including a number conducted by or for
the FCC, have shown that common ownership enhances local service in
local markets, including stations' news and informational programming.
In its previous quadrennial reviews of the broadcast ownership rules,
the FCC has found that common ownership of multiple media outlets in
local markets can enhance localism, a finding that has been upheld by
the courts.
______
Response to Written Questions Submitted by Hon. Jim DeMint to
Hon. Gordon H. Smith
Question 1. If enacted as written, would the Next Generation
Television Marketplace Act, S. 2008, allow a pay-TV company to
retransmit the programming aired on broadcast signals without consent?
Answer. Although I understand the intent of these proposals is for
local television stations to maintain control of their copyright
interests through direct licensing and to allow for carriage
negotiation, local broadcasters' value in their signals is not the same
as the copyright interests in the differing programming elements (e.g.,
network, syndicated, local). Many stations may be unable to undertake
the expensive and cumbersome responsibility of direct licensing, and
such a change likely will impair the ability of local stations to serve
their local markets.
Question 2. A written statement delivered by David Barrett, on
behalf of the National Association of Broadcasters (the NAB), at a June
27, 2012, House Energy and Commerce Hearing on ``The Future of Video'',
included the following:
Two bills currently before Congress, H.R. 367S and S. 2008,
both known as ``The Next Generation Television Marketplace Act
of 2011,'' will harm local stations and television viewers in
at least three ways. First, they would turn back the clock to a
time when cable and satellite providers confiscated and resold
broadcast signals to their subscribers without obtaining
broadcasters` consent--a time when broadcasters were forced to
subsidize their pay-TV competitors. . .
Will you please provide for the Committee the legal analysis used
by the NAB to reach this understanding of these pieces of legislation?
Answer. That statement appears to be a general reference to a time
before broadcasters had a right to negotiate for compensation for
carriage of their signals. This prompts a broader discussion on current
bill language and whether it fully protects the broadcast ``signal''
versus protecting various aspects of the content through copyright.
Several legal analysts have drawn distinctions between the two--signal
vs. copyright--and may have suggestions on how that may be better
addressed.
Question 3. Are cable subscribers required by Federal law to
purchase a certain package of channels when they buy cable video
service?
Answer. Perhaps this may be better answered by the cable witnesses,
but my understanding is that the broadcast tier is a component of any
cable package given the critical nature of the service provided by
local broadcasters and their public and community value.
Question 4. Are cable providers prevented by Federal law from
selling a subscriber only a single channel, Discovery Channel for
example, or only a package of sports channels?
Answer. Again, the cable witnesses may be better suited to answer.
My understanding is that beyond the basic tier requirements, a la carte
type packaging is neither required nor prohibited by the current
regulatory structure.
Question 5. Do you believe it is ``free market'' for Federal law to
force cable companies to carry your member stations--whether by must-
carry or retransmission consent--on the ``basic tier'' and effectively
force cable subscribers to purchase the basic tier? (47 USC
Sec. 543(b)(7)(A))
Answer. Congress has long-held the view that local television
stations are a foundational part of any community. The public interest
obligations are unique to local broadcast and the corresponding service
in times of emergency is unparalleled. I think the decades long policy
direction has and continues to be correct.
Question 6. Currently, more than 500 non-broadcast channels engage
in copyright-based negotiations with pay-TV companies for carriage of
their programming. Many of your broadcast members negotiate based on a
different model, retransmission consent. Copyright is a
Constitutionally-based property right. Retransmission consent, on the
other hand, is a right made up by Congress 20 years ago, and
consequently will likely always be under threat. I believe my bill, S.
2008, would actually strengthen property rights for the creators of
programming, like broadcasters. Do you agree? And if not, please
explain.
Answer. I appreciate and understand the intent. We may want to
spend more time discussing whether changing to the protections
envisioned under the bill will fully and easily--especially for small
broadcasters--protect the broadcast signal, as opposed to protecting
content under copyright. The broadcast signal is a compilation of
various copyrighted content and rights holders, and differs
significantly from that of non-broadcast channels.
Question 7. The NAB's comments in the FCC's ongoing retransmission
consent proceeding include the following statement:
Contrary to Petitioners' assertions, viewers will not ``lose
access'' to a broadcast station's programming if retransmission
consent negotiations with an MVPD break down. Each television
station's signal is available at all times to all consumers
over the air and for free, and it is also available from other
competing MVPDs.
The 1992 Cable Act includes a finding that:
Consumers who subscribe to cable television often do so to
obtain local broadcast signals which they otherwise would not
be able to receive, or to obtain improved signals.
a. Is the 1992 Cable Act wrong or is the NAB filing wrong?
b. Do you have an idea of how many households in America today
cannot receive satisfactory over the air television broadcast signals?
Answer. The delivery of the local broadcast signal has improved
dramatically over the years, and significantly in 2009 when television
stations transitioned to digital. Local broadcast signals are always on
and always available--free and over-the-air. Regardless of which
provider a household may subscribe to, the fact remains that consumers
can get their local broadcast signals free and over-the-air with a
digital antenna. The recent STELA law and FCC data may be instructive
in defining how many households cannot receive a satisfactory signal
off-the-air. At the same time, broadcast industry statistics show the
number of broadcast only homes continues to grow to 54 million
consumers.
Question 8. You and NAB members have consistently made the
observations:
Broadcast television is available at all times to all
consumers over the air and for free;
95 of the top 100 rated shows are on free broadcast
television;
A record amount of local news is now available for free on
broadcast television;
Much of the most popular live sports and entertainment
events are available for free; and,
Since the recent DTV transition, many new multicast channels
are now available for free.
With all of that popular content available to every TV household in
America for free, why do you think so many people, in fact nearly 90
percent of those households, spend around $1,000 every year on pay-TV
subscriptions.
Answer. Current industry statistics show that 17.8 percent of
households are broadcast only. That said, it seems the majority of
consumers today want broad access to content and channels. One trend,
at least of concern to local broadcasters, is the migration of sports
to pay-TV as opposed to their continued availability on local broadcast
stations. The broadcast product continues to evolve, improve, and is
enhanced with mobile and multi-cast options, which we believe will be a
continued attractive option to consumers.
Question 9. You spend the majority of your testimony explaining the
local focus and local content created by your member stations that
elect retransmission consent and their relatively large viewership
compared to non-broadcast channels. But, you make only a passing note
of must-carry regulations and their impact on local news programming
and local services.
a. Do you have data available to quantify the amount of local
programming produced by your commercial must-carry member stations and
the viewership of those stations' programs?
b. What is your understanding of S. 2008's effect on must carry
regulations, specifically for public television, educational, and non-
commercial television broadcasters?
Answer. My understanding is that the legislation exempts certain
must-carry stations while also eliminating this carriage option for
many others. With respect to data, that is not something the trade
association would be able to compile. Stations maintain information
about programming that addresses the needs and interests of their
communities in their public inspection files and must certify that this
information is available as part of the FCC license renewal process.
Question 10. Does Federal law in any way limit a cable company's
ability to negotiate with broadcasters regarding how they sell their
programming to subscribers?
Answer. Both broadcasters and pay-TV providers are required by
statute and related FCC rules to negotiate retransmission consent in
good faith.\1\ Among other things, the good faith negotiation standards
prohibit broadcasters and pay-TV providers from refusing to negotiate;
refusing to designate a negotiating representative; refusing to meet at
reasonable times/locations; refusing to put forth more than a single,
unilateral proposal and failing to respond to proposals. The FCC also
has a separate ``totality of the circumstances'' test. If the
negotiating tactics of a broadcaster or cable operator violated these
standards, they would violate Federal law. I do not know of other
Federal laws affecting cable operator's ability to negotiate with
broadcasters.
---------------------------------------------------------------------------
\1\ See 47 U.S.C.Sec. 325(b)(3)(c); 47 C.F.R Sec. 76.65.
Question 11. Are you comfortable that Federal law mandates that
cable subscribers purchase local broadcast channels whether or not they
want them? (47 USC Sec. 543(b)(7)(A))
Answer. As also referenced in Question #5, there is a public value
to a local broadcast station and the service provided to their
communities. There are unique requirements and obligations as part of
their license, and local broadcasters embrace that public service role.
I am sure many broadcasters might welcome regulatory relief from the
current structure, making them more like any non-broadcast channel on
an MVPD's line-up. The fact remains that local broadcast stations are
not like any other channel. They are a critical part of their
communities, viewers deserve the opportunity to see those stations, and
they are the most watched and most desired because of their service.
Question 12. You indicate that monetary compensation for
retransmission consent is a recent development. How much do you
attribute this recent change in the nature of retransmission
compensation to the growth of competition among MVPDs?
Answer. There may be several factors involved and MVPD competition
may be one of those. As MVPDs have come to pay more and more for non-
broadcast channels, the weekly and annual ratings show that broadcast
television dominates the viewer ratings. That realization perhaps more
than any other is to account for the change.
Question 13. The FCC's latest video competition report indicates
that the ``Big Four'' broadcast networks and several broadcast
television group owners own about 100 non-broadcast cable networks,
including many of the most-watched cable channels in the market. How
has the viewership and related advertising revenue of NAB member
stations been affected by the development of these broadcaster-
affiliated cable channels?
Answer. Unfortunately, I may not be able to offer an informed
perspective on this question. Broadcasters compete within markets for
viewership, ratings, and advertising revenue against other local
broadcast stations. As opposed to non-broadcast channels, viewers will
continue to attract to those stations due to their local service and
coverage. I'm not sure what affect ownership of non-broadcast channels
might have on that competition within markets.
Question 14. In your testimony, you indicate that retransmission
consent revenue has provided broadcasters the resources to hire more
employees, such that ``total employment in local television newsrooms .
. . in 2011 . . . (was) the second highest total on record.'' A recent
survey conducted by Hofstra University supports that finding. That same
study also states that there were more stations doing local news in the
year 2000. Why were more local broadcasters doing local news and
employing more newsroom staff at a time when they were unable to
realize retransmission consent revenue?
Answer. As you point out, it is interesting that the study shows a
previous employment high in the year 2000. While the economy may have
been the contributing factor, certainly the growth of online and
alternative news outlets over the last decade has affected traditional
news organizations, newspapers, and journalism. What is known today is
that retransmission consent compensation is contributing to the renewed
growth in news resources with local television. We are very proud of
that growth and hope the trend continues.
______
Response to Written Questions Submitted by Hon. Kelly Ayotte to
Hon. Gordon H. Smith
Question 1. I wanted to get your opinion on free-markets and how
they are defined. In March of this year, the American Conservative
Union sent a letter to the Hill on retransmission consent calling it
``a functioning market''. The day before the hearing, I received a
letter from Citizens against Government Waste claiming the current
system, as currently structured ``inhibits the free market'' and
``reduces competition''. What are your thoughts on the free market as
it relates to retransmission consent?
Answer. The retransmission consent process is simply the right to
negotiate between two private parties. It is a business-to-business
discussion between broadcasters and MVPDs. These discussions occur and
are common in so many other industries in the private sector where a
producer of a good or service negotiates with another who wants to
purchase and re-sell that service. The fact remains that retransmission
consent agreements are reached all the time and without fanfare. More
recently, some have hoped to publicize agreements that may not have
been reached in a timely manner to try to paint a picture that the
underlying policy is wrong or needs reform. The current retransmission
consent framework is a true free-market process of negotiation. There
is no guarantee of an outcome or of compensation to a broadcaster.
Those are left to the parties to negotiate privately, business-to-
business, and in the free market.
Question 2. My constituents are adamant about receiving local news
coverage. Even in the southern-most part of my state, we want New
Hampshire news, not Boston news. One of the objectives of the 1992
Cable Act was to ensure consumers have access to locally originated
programming. Has this goal succeeded? Are your members producing more
or less local programming today? Are there any proposed changes to the
Cable Act that could reverse this trend? How can we maintain and
maximize localism?
Answer. Local television stations serving their local communities
is the foundation of broadcasting, and telecommunications policy over
time has served to strengthen and enhance that goal. Recent survey data
shows that television news staffing has risen to the second highest
level on record, with stations adding jobs to bolster their local
coverage. As for potential future impacts on this growth, the ability
to engage in fair negotiations with pay-TV providers for the value of
the broadcast signal is critical to broadcasters' ability to generate
revenue and re-invest those dollars in local news operations.
Legislative proposals that would eliminate broadcasters' retransmission
consent rights pose the risk of greater disruptions in service and the
possibility that broadcasters will no longer be able to secure
compensation for the value of their signals.
Question 3. Federal law prohibits blackouts during ``sweeps,''
which are critical to broadcasters. Federal law, however, permits
blackouts before marquee events like the Super Bowl and the Oscars,
which are most important to viewers. Do you think this disparity
contributes to blackouts?
Answer. Since the establishment of the current system of
retransmission consent, hundreds of major sporting and entertainment
events have come and gone without incident or disruption to any
consumer. The system works so well and data shows that consumers are
more likely to face a power outage or an outage of their entire pay-TV
service than to be affected by a retransmission consent dispute. Even
in the rare instances that a disruption occurs, local stations' signals
are not ``blacked out''--they remain available free over-the-air, and
can also be viewed via other pay-TV services.
The current law requires broadcasters and pay-TV providers to
negotiate in good faith. As part of that obligation, the parties must
negotiate at reasonable times and locations and must not unreasonably
delay negotiations. Further government intervention into the
retransmission consent negotiating process, such as placing limits on
when those agreements may commence or terminate, easily could create
disincentives to timely reaching agreement. Placing new restrictions on
stations' control of their signals actually would reduce the incentives
of MVPDs to conclude retransmission negotiations, perhaps especially
prior to marquee events, if those MPVDs knew they could continue to use
broadcasters' signals for their own profit, even in the absence of a
retransmission agreement.
In my opinion, the reduction of the currently strong incentives for
both broadcasters and pay-TV providers to reach agreement on
retransmission would ultimately lead to more disruptions for consumers,
not fewer. Finally, I want to emphasize that, during many
retransmission negotiations, television stations reach short-term
agreements with pay-TV providers, allowing them to continue carrying
the stations' signals while negotiations for a final agreement
continue.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Melinda Witmer
Question 1. Whenever signals are pulled as a result of a
retransmission consent dispute, consumers lose. The impact is magnified
in areas where a single MVPD dominates an entire state. What is the
best way to protect consumers while companies work to resolve disputes
and impasses in negotiations for the carriage of broadcast signals?
Answer. Time Warner Cable shares the Senator's concern about the
growing harm to consumers under the current retransmission consent
regime. While many new video competitors have entered most local areas
over the past 20 years, even in areas where a single MVPD serves an
especially high percentage of consumers, broadcast stations still have
all the leverage in retransmission consent negotiations. They are able
to exploit territorial exclusivity protections, tier-placement rights,
and a host of other government-granted preferences to pull down their
signals as a negotiating tactic, which harms consumers and drives up
fees. As these disputes have grown increasingly contentious, consumers,
confronted with either losing access to popular programming or
switching to another video provider facing the same blackout threats
from broadcasters, are caught in the middle.
TWC believes that the best way to protect consumers in the long run
is to do away with the retransmission consent regime altogether.
Eliminating the various artificial preferences for broadcasters in the
rules would help discourage them from engaging in brinkmanship and, in
turn, should reduce service disruptions. Pending such legislative
changes, the FCC has authority to make targeted changes to its rules to
protect consumers. In particular, the FCC can establish dispute-
resolution mechanisms and provide for interim carriage while a dispute
is ongoing. The Senator presciently observed as early as 1992 that
viewers would be harmed in those ``instances in which [retransmission
consent] agreements are not reached,'' and explained that the FCC has
broad authority under Section 325 of the Communications Act to
``address'' those instances by ``requir[ing] arbitration'' and other
dispute resolution methods. See Letter from Sens. Inouye and Stevens to
Chairman Kevin Martin, Federal Communications Commission (Jan. 30,
2007) (quoting statements of Sen. Inouye during the drafting of the
1992 Cable Act). Later, in a 2007 letter to the FCC, the Senator urged
the FCC to begin actively engaging in dispute resolution, noting that,
``[a]t a minimum, Americans should not be shut off from broadcast
programming while the matter is being negotiated among the parties and
is awaiting [FCC resolution].'' Id. TWC supports the Senator's call to
action and believes that such reforms would go a long way toward
preventing broadcast programming blackouts and threats of blackouts.
Question 2. Should any special consideration be given to protect
consumers in geographic locations where a single MVPD serves a high
percentage (more than 50 percent) of total MVPD subscribers in a state?
Answer. While it is clear that a broadcaster that pulls its signal
from a large MVPD affects a greater number of consumers, TWC believes
that any loss of a broadcast signal affiliated with one of the four
major broadcast networks causes significant consumer harm, and that any
actual or threatened blackout by a broadcaster is at odds with the
broadcaster's obligation to act in the public interest.
______
Response to Written Questions Submitted by Hon. Barbara Boxer to
Melinda Witmer
Question 1. In recent years, the breakdown of retransmission
consent negotiations has threatened the television access of millions
of Americans to major events like the Super Bowl, the World Series, and
the Oscars, not to mention the essential access of viewers to local
news broadcasts. The FCC has proposed to strengthen notice requirements
for consumers when there is the possibility that certain services may
lapse. Does Time Warner Cable support this proposal?
Answer. TWC believes that the existing notice rules are sufficient,
and that broadcasters' efforts to impose additional notice obligations
on MVPDs are driven only by their desire to apply greater pressure on
MVPDs to give into their outrageous demands. In particular, as
broadcasters increasingly resort to blackout threats as a negotiating
ploy, rigid notice requirements that force MVPDs to state well in
advance that a broadcast station may withdraw retransmission consent
likely would be counterproductive. TWC always attempts to apprise its
customers of possible service disruptions, but imposing new notice
obligations on MVPDs seems backwards, as the MVPD often does not know
until the moment before a retransmission consent agreement expires
whether the broadcast station will grant an extension. It would be far
more sensible for the FCC to require the broadcast station to provide
clear notice of its intention to withdraw its signal by a date certain.
In addition, imposing rigid notice requirements on MVPDs likely
would only heighten subscriber anxieties. Broadcasters already run
advertisements and ``crawls'' telling consumers to switch providers
because they might lose access to broadcast programming. Such
switching, however, again places consumers in the position of
shouldering burdens and inconvenience that they should not face. If
consumers decide to switch MVPDs, they often are forced to choose a
less-preferred provider simply to ensure access to over-the-air content
(of which the retransmission consent regime was supposed to ensure
continuous availability). And a customer who switches MVPDs may soon
find her new provider in a similar dispute with a broadcast station,
facing the prospect of having to undertake the time and expense of
switching yet again. The FCC should reject any proposals that would
facilitate broadcast stations' manipulation of consumers. (Also see the
response to question 4.)
Question 2. Does Time Warner Cable believe that continuous carriage
during retransmission consent disputes would help end disputes?
Answer. To the extent that the retransmission consent regime
remains in place, an interim carriage remedy not only would help
resolve retransmission consent disputes once they arise, but also would
help avert disputes before they begin. The availability of interim
carriage would prevent broadcasters from using actual or threatened
blackouts as a negotiating ploy, thereby reducing the risk of
programming loss for consumers and ensuring that negotiations produce
reasonable and non-coercive rates for retransmission consent. Interim
carriage also would prevent broadcasters from undermining the
government's interest in localism by exploiting their government-
granted preferences while withholding their signal from a substantial
portion of the viewing public.
Question 3. Ms. Abdoulah's written testimony noted WOW!'s support
for requiring alternative styles of negotiation, like baseball-style
arbitration, in retransmission consent disputes. Does Time Warner Cable
agree?
Answer. While TWC continues to believe that the best path to reform
ultimately is to do away with regulatory impediments to efficient
carriage negotiations between broadcasters and MVPDs, TWC agrees that,
unless and until these deregulatory reforms are adopted, the
establishment of some type of alternative dispute resolution mechanism
or other rate-setting procedure is necessary to prevent broadcaster
abuses of the current system. The FCC has clear authority under Section
325 of the Communications Act to protect consumers by ensuring that the
rates charged by broadcasters are fair and reasonable. Section
325(b)(3) instructs the Commission to consider ``the impact of the
grant of retransmission consent by television stations may have on the
rates for the basic service tier''; to make sure that its rules are
consistent with its obligation ``to ensure that the rates for the basic
service tier are reasonable''; and to prevent broadcasters from
insisting on rates that are not ``based on competitive marketplace
considerations.'' 47 U.S.C. Sec. Sec. 352(b)(3)(A), (C).
Question 4. Cable consumers who have the ability to shop for
different providers often face exorbitant termination fees to switch
services, limiting competition. The FCC indicated this was an issue in
their recent Notice of Proposed Rulemaking. Please provide for the
record information on Time Warner Cable's termination fee policy. Has
Time Warner Cable examined dropping these fees in the future?
Answer. TWC subscribers generally are not required to pay
termination fees to switch services. In any event, any focus on
termination fees risks missing the broader point that retransmission
consent disputes impose unnecessary burdens on consumers. Congress and
the FCC should emphasize reforms that protect consumers from the
inconvenience of switching providers in order to avoid broadcaster
blackouts. Such switching frustrates consumer choice, as many consumers
choose a provider not only for its video service, but also for its
broadband, voice, and wireless offerings. Switching also imposes
unnecessary costs on consumers who must obtain new equipment and stay
home to switch providers. And switching is ultimately ineffective as a
strategy for avoiding broadcaster blackouts; all MVPDs must regularly
renegotiate their carriage agreements with broadcasters and face
increasing threats from broadcasters to go dark unless their cash
demands for retransmission consent are met. Thus, as discussed above,
any reform effort either should focus on the elimination of the
artificial, government-granted preferences that enable broadcasters to
make good on threats to pull their signals frustrating consumer access
to broadcast programming and to the service providers of their choice,
or should take advantage of existing rulemaking authority to protect
consumers caught in the middle of these disputes.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Melinda Witmer
Question 1. S. 2008, the Next Generation Television Marketplace Act
of 2011, would provide for the deregulation of retransmission consent.
But as we saw last month with DirecTV and Viacom, blackouts occur due
to disputes between cable programmers and cable providers in a non-
regulated environment too. If we see customers, like those who
subscribe to DirecTV, suffering in a deregulated world, why would we
want to deregulate the negotiation process for broadcasters too?
Answer. TWC believes that eliminating the substantial regulatory
distortions that characterize negotiations between MVPDs and
broadcasters would reduce the number of blackouts, even if it does not
eliminate them entirely. Notwithstanding the highly publicized dispute
between DirecTV and Viacom, there have been fewer disputes between
MVPDs and pay television programmers in recent years than disputes
arising under the retransmission consent regime. In 2012, for example,
there have been more than 80 retransmission consent blackouts, as
compared to only two known blackouts involving a cable programming
service. This discrepancy is due in part to the significant differences
between the operative legal rules. Unlike cable programming, for which
MVPDs acquire a simple copyright license negotiated in a free market
setting without intrusive government regulation, broadcast programming
is subject to the artificial and heavily intrusive retransmission
consent regime, which Congress made clear was separate and in addition
to copyright law. See S. Rep. No.102-92, at 36 (1991), reprinted in1992
U.S.C.C.A.N. 1133, 1169 (noting that Congress was ``careful to
distinguish between the authority granted broadcasters under the new
section 325(b)(1) of the 1934 Act to consent or withhold consent for
the retransmission of the broadcast signal, and the interests of the
copyright holders in the programming contained on the signal''). And
while Congress in 1992 believed that the retransmission consent regime
would help preserve viewers' access to local broadcast television,
today the rules are undermining that purpose by enabling and
encouraging broadcasters to pull their signals and ``go dark'' on MVPD
systems as a negotiating tactic. Based on TWC's substantial experience
negotiating with pay television programmers and broadcasters, we expect
that a truly 5 market-based approach to broadcast carriage negotiations
would better protect consumers than the existing regime, which has seen
an alarming increase in blackouts and dramatically escalating fee
demands.
Question 2. Today's video marketplace is very different than what
it was in 1992. Since the enactment of the Cable Act, satellite
carriers and telephone companies offering video services compete with
cable operators. And in the last few years, we have seen the enormous
growth of online video. In your view, given these changes in the video
marketplace, are the existing rules working? Why or why not?
Answer. The existing rules are now undermining rather than
advancing the goals Congress identified when it enacted the Cable Act
in 1992. Congress and the FCC created retransmission consent and must-
carry based on conditions that existed in 1992. Among other things,
that marketplace was characterized by broadcast networks' paying
compensation to their broadcast affiliates and far fewer choices for
consumers among MVPDs. Based on those circumstances, Congress granted
powerful protections and new rights to broadcast stations. These rights
for broadcasters included the ability to seek compensation from cable
operators for the carriage of broadcast signals (even though cable
operators already pay a separate fee to the Copyright Office for the
programming contained in those signals), and the ability to prevent a
cable operator from importing a distant signal containing the same
network programming. But the emergence of strong competition among
MVPDs nationwide has greatly reduced cable operators' bargaining power
and increased that of broadcast networks, who have gained additional
leverage from their ``must have'' programming and from collusive
tactics. The broadcast networks are also increasingly interfering in
the retransmission consent negotiations of their affiliated local
stations--a dynamic that upends the intent of Congress in creating
retransmission consent by contravening the plain language of Section
325(b)(1), which provides that retransmission consent is a right that
belongs to the ``station,'' not to the network. Broadcasters thus can
wield these one-sided rules in ways that Congress did not expect in
1992--namely, to demand excessive retransmission consent fees by
credibly threatening to go dark on one or more local MVPD systems.
Broadcasters' ability to hold consumers hostage by threatening to
withhold programming is antithetical to the reason Congress established
retransmission consent and must carry in the first place: to ensure
that local communities retain access to the ``diversity of voices'' and
local programming that broadcasters have a public interest obligation
to provide.
Question 3. Packages of programming are getting bigger and more
expensive. Shouldn't consumers have a range of programming options at
variety of price points? Why does that not seem to be the case?
Answer. TWC agrees that smaller and more flexible tiers would be
better for consumers, and we actively seek ways to offer these options
to our subscribers. For instance, in 2010, TWC launched a service
called ``TV Essentials,'' which offers access to a subset of our
programming at a lower cost, but our flexibility in creating that
package was limited by programmers. Indeed, the size and cost of
virtually all of our programming packages is largely programmer-driven.
Not only do video programmers typically insist that MVPDs purchase
their full line of programming services as a condition of purchasing
any programming service, but they also demand tiering or penetration
requirements that dictate how broadly an MVPD must distribute those
programming services to subscribers. Cable operators in many local
areas also are required by law to carry all local television signals on
a basic service tier ``to which subscription is required for access to
any other tier of service.'' 47 U.S.C. Sec. 543(b)(7). Absent these
contractual and regulatory impediments, TWC would have far more
flexibility to meet consumer demand by offering smaller and less
expensive programming packages.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Melinda Witmer
Question 1. Stakeholders on all sides of the retransmission consent
debate appear to agree that the visibility and frequency of
retransmission disputes has increased over the last few years. Some
have argued that retransmission consent is working and that some
growing pains are reasonable because many broadcast stations are
electing to pursue deals instead of must-carry for the first time since
enactment of the 1992 Cable Act which created the dual regimes of must
carry and retransmission consent. On the other hand, distributors argue
that private sector retransmission consent deals are taking longer to
negotiate, and that it is becoming harder to reach agreement regarding
mutually agreeable terms. If you believe must-carry and retransmission
consent are important to localism, how do you recommend that the
Congress measure the success of localism?
Answer. TWC does not believe that today's retransmission consent
regime is advancing the governmental interest in localism. To the
contrary, the regime is undermining localism by enabling broadcasters
to pull their signals and deprive MVPD subscribers of local content as
a negotiating tactic. Moving forward, Congress should measure the
success of localism by evaluating the extent to which industry
participants are actually investing in local content. Multiple recent
studies show that broadcast stations are retreating from localism, as
their increasing use of ``sharing'' agreements has precipitated a
significant decline in original, diverse local news and public affairs
programming. By contrast, TWC is an active contributor to localism in
the communities it serves, having launched local news channels and
local interest channels that focus on public affairs, politics, sports,
cultural affairs, entertainment, and other content of interest to the
community. Critically, TWC has done so not because of any regulatory
mandate, but in response to the needs of its subscribers.
Question 1a. If you believe retransmission consent is failing, what
evidence can you provide?
Answer. No one seriously disputes the fact that retransmission
consent disputes have grown increasingly contentious in the past few
years and have led to greater number of programming blackouts for
consumers. There have been more than 80 retransmission consent disputes
so far this year. And as broadcasters have grown increasingly willing
to use blackout threats to increase their negotiating leverage--and to
make good on those threats when MVPDs do not accede to demands for
significant increases in compensation--the fees that MVPDs pay for
retransmission consent have risen dramatically. SNL Kagan estimates
that MVPDs paid $758 million in retransmission consent fees in 2009,
$1.24 billion in 2010, and $1.76 billion in 2011, and projects that
those fees will soar to a staggering $6.05 billion by 2018. See Robyn
Flynn, SNL Kagan, Retrans projections update: $6B by 2018, at 1 (Oct.
18, 2012) (``October 2012 SNL Kagan Report''). Recent studies show that
this precipitous rise in retransmission consent fees is a significant
contributor to the overall rise in programming costs industry-wide by
nearly 10 percent a year, and that retransmission consent payments will
drive 30 to 40 percent of the industry's total programming cost growth
through 2014--all of which translates into higher prices for MVPD
subscribers. See, e.g., Morgan Stanley, Cable/Satellite: Pricing,
Programming, and Payout Keys to 2010, at 11 (Jan. 26, 2010).
There is also growing evidence that, even though Congress made
clear that retransmission consent is a right that belongs to stations
and not to the networks, all four major broadcast networks (ABC, CBS,
NBC, and FOX) are interfering in the retransmission consent
negotiations of their independently owned affiliates and are requiring
those affiliates to pay a substantial portion of their retransmission
consent revenues to the networks. SNL Kagan estimates that today the
four major networks are collecting $487 million annually from their
independently owned affiliates as a cut of their retransmission consent
revenues, and that this amount will almost triple to $1.37 billion by
2015. See October 2012 SNL Kagan Report at 2. These demands from the
networks put even greater upward pressure on retransmission consent
fees and, in turn, on the rates consumers pay for MVPD service.
These spiraling fees and increasingly contentious negotiations
directly undercut the purpose of the 1992 Cable Act. Congress created
retransmission consent and must-carry because it believed that
preserving access to broadcast television would benefit the American
consumer. But broadcasters' abuses of the retransmission consent regime
are now harming consumers--by depriving MVPD subscribers of broadcast
signals as a bargaining tactic, and by driving up the fees that MVPDs
and their subscribers pay for supposedly free, over-the-air broadcast
programming. The retransmission consent regime is undeniably broken,
and Congress and the FCC must take swift action to reform the regime
and protect consumers once again.
Question 2. Some distributors have indicated concerns about the
ability of content creators to tie affiliated programing to
retransmission consent deals because they argue this practice
contributes to programming cost increases. Broadcasters and content
creators argue that current practices provide necessary financial
support for a greater variety of programming options which they say is
a benefit to consumers. To what extent should Congress be concerned
about programming cost increases over the past several years?
Answer. The skyrocketing cost of programming should be of
significant concern to Congress, and Congress should further examine
the conduct that results in these higher costs. Your question correctly
targets program tying as one of the major culprits for programming cost
increases. Each of the four major broadcast networks typically requires
MVPDs to purchase the network's affiliated programming services in a
package that includes retransmission consent for the network's owned-
and-operated stations. Program tying thus enables programming providers
to obtain carriage for affiliated cable networks on more favorable
terms than they would otherwise enjoy, while also crowding out non-
affiliated program networks and damaging their ability to obtain
carriage. TWC has urged the FCC to prohibit program tying as a per se
violation of a broadcaster's duty to negotiate in good faith, but the
Commission has taken no action to date.
Question 2a. If you believe programming cost increases merit a
fresh look at the 1992 Cable Act, do you believe cost savings garnered
by distributors should be passed onto consumers? If so, how would any
savings be realized by consumers?
Answer. If legislative changes curbed abusive tying practices and
otherwise resulted in programming cost savings, consumers would
undoubtedly (and should) benefit from those savings. In today's
competitive environment, any MVPD that failed to pass on savings to
subscribers would be quickly underpriced by its competitors. TWC also
has urged the FCC to expressly confirm that cable operators are
permitted to make subscription to the basic tier optional in areas that
satisfy the statutory standard of ``effective competition,'' or to
carry broadcast stations that elect retransmission consent in such
areas on a separate tier, so that subscribers can avoid paying for
these stations as the stations' fee demands continue to spiral upward.
Question 2b. If you support changes to current law, would your
company provide consumers with the same flexibility to pursue a la
carte programming options? If not, why not?
Answer. TWC is eager to introduce smaller and less expensive
programming tiers for our customers who would prefer such packages, but
programmer demands combined with today's legal restrictions impair our
ability to do so. If Congress were to address those impediments, TWC
likely would offer a variety of new service options. TWC has managed--
even under existing constraints--to offer the slimmer ``TV Essentials''
package mentioned above, as well as certain programming services on an
a la carte channel basis or on an a la carte program basis. But it is
not in consumers' interests to mandate a one-size-fits-all model,
whether that model resembles today's tier-based approach or requires a
la carte-only distribution. Instead, Congress should eliminate
artificial constraints on the ability of MVPDs to innovate in
programming packaging and to meet consumer demand. Indeed, in TWC's
experience, many consumers would prefer not to subscribe to channels on
a pure a la carte basis. An a la carte distribution model also could be
less efficient and more expensive for some consumers, and could force
some independent programmers out of business.
Question 3. Given that retransmission consent deals are private
sector negotiations under the 1992 Cable Act, it is difficult for
observers and participants to track pricing trends. Do you believe
pricing transparency for distributors and for consumers could help to
alleviate tensions over content deals? If not, why not?
Answer. Reforms targeted only at increasing transparency would not
address the core problems with the retransmission consent regime. It is
not clear, for example, that a rule requiring parties to reveal their
latest offers to consumers or ``observers'' would affect the outcome of
a dispute. In a handful of recent disputes, each side's offers were
widely reported in the press, and yet these reports had no apparent
effect on the negotiating postures of the parties. In addition,
consumers probably have little interest in refereeing disputes between
broadcasters and MVPDs by sorting out whose offer is more ``fair.''
Other transparency-based proposals, such as requiring broadcasters
to reveal the rates they charge to MVPDs, may be useful in providing
negotiating parties with more context, but would do little to help
consumers who simply want to avoid blackouts of the video programming
that they have come to rely on. It also is not clear that greater
transparency would constrain broadcasters' excessive demands; many of
these demands become widely known during and after the disputes, and
yet broadcasters persist in making them.
Question 3a. If you do believe pricing transparency could be
beneficial, please provide specific recommendations for such a proposal
could be implemented.
Answer. As noted in response to Question 3a, TWC believes that
adopting transparency requirements likely would not solve the core
problems with retransmission consent.
Question 4. Going forward, how should Congress and/or the Federal
Communications Commission measure whether or not the current system is
working? Please provide specific metrics to support your answer.
Answer. Among other potential metrics for evaluating whether the
rules are working, Congress and the FCC should look to the growing
number of disputes leading to programming disruptions each year, the
annual increase in retransmission consent fees (well above the rate of
inflation), and the resulting increases to MVPDs' overall programming
costs. Congress and the FCC should also track how much of the
retransmission consent fees broadcasters obtain goes to support local
programming. Going forward, independent industry analysts uniformly
believe that, without significant reforms by Congress and/or the FCC,
disputes will grow more common, retransmission consent fees will
continue their rapid rise for the foreseeable future, and broadcasters
will continue to spend less on local programming.
Question 5. If Congress were to revisit the 1992 Cable Act, are
there improvements to the law which you believe Congress should
consider?
Answer. TWC has suggested two possible paths for preventing the
disruptions caused by broadcaster abuses of the retransmission consent
regime.
First, Congress and the FCC could pursue a deregulatory path aimed
at eliminating the special protections for broadcasters under the
existing rules and thus facilitating genuine market-based
negotiations--including by repealing the network non-duplication and
syndicated exclusivity provisions, clarifying and modifying the tier-
placement requirements applicable to stations electing retransmission
consent, and amending the good-faith rules to prevent anticompetitive
conduct by networks and stations alike. TWC looks forward to working
with this Committee as it continues to consider such reforms.
Alternatively, if such regulatory interventions remain in place,
Congress or the FCC should amend the current rules to create a more
balanced regime that curbs broadcasters' abuses of the regulatory
regime, including in particular their use of blackout threats and
actual blackouts to drive up retransmission consent fees. Such reforms
could include new rules that would establish rate-setting and dispute-
resolution mechanisms and require interim carriage in the event of
negotiating impasses. As TWC explained in response to post-hearing
questions from Senator Snowe, the FCC already has ample authority under
Title III of the Communications Act to address harms occurring in the
retransmission consent process.
______
Response to Written Questions Submitted by Hon. Olympia J. Snowe to
Melinda Witmer
Question 1. Given the existing statute and the Congressional
letter, couldn't the current Commission interpret the statue
differently than Chairman Martin to where they do have the statutory
authority to be involved in any disputes? What is precluding them from
doing so?
Answer. There is no legal impediment that prevents the Federal
Communications Commission (``FCC'') from concluding that it has
authority under Section 325 of the Communications Act to adopt dispute
resolution mechanisms. As an initial matter, Chairman Martin's
statement in 2007 that the FCC's authority in this regard was ``not
clear'' was by no means an official interpretation of the statute by
the full Commission; rather, he made that statement in an interview
with reporters after testifying before this Committee. In any event,
the FCC's broad authority to order arbitration is clear from the plain
language of Section 325, as Senators Inouye and Stevens pointed out in
their January 2007 letter to the FCC. Section 325(b)(3)(A) empowers the
FCC ``to govern the exercise by television broadcast stations of the
right to grant retransmission consent.'' 47 U.S.C. Sec. 325(b)(3)(A).
In addition to that general mandate, Congress directed the FCC to
consider ``the impact that the grant of retransmission consent by
television stations may have on the rates for the basic service tier''
and to make sure that its rules are consistent with its obligation ``to
ensure that the rates for the basic service tier are reasonable.'' Id.
This authority dovetails with the FCC's power to ensure that broadcast
stations, as FCC licensees, act in accordance with ``the public
interest, convenience, and necessity'' under Section 309(a), see id.
Sec. 309(a), as well as the good-faith negotiation requirement in
Section 325(b)(3)(C), which instructs the FCC to ensure that the terms
and conditions for retransmission consent are ``based on competitive
marketplace considerations,'' id. Sec. 325(b)(3)(C)(i)-(ii). These far-
reaching grants of authority empower the FCC to adopt specific
measures--including dispute resolution procedures--to ensure that the
retransmission consent regime conforms to the public interest.
Question 2. If Congress directed the FCC to ensure broadcasters act
in ``good faith'' during negotiations, how do you believe the FCC can
go about fulfilling that responsibility and to limit or prevent the
disruption of programming to cable and/or satellite customers?
Answer. In comments filed at the FCC, Time Warner Cable (``TWC'')
has laid out two possible paths for preventing the disruptions caused
by broadcaster abuses of the retransmission consent regime.
First, Congress and the FCC could pursue a deregulatory path aimed
at eliminating the special protections for broadcasters under the
existing rules and thus facilitating genuine market-based
negotiations--including by repealing the network non-duplication and
syndicated exclusivity provisions, clarifying and modifying the tier-
placement requirements applicable to stations electing retransmission
consent, and amending the good-faith rules to prevent anticompetitive
conduct by networks and stations alike. TWC looks forward to working
with this Committee as it continues to consider such reforms.
Alternatively, if such regulatory protections for broadcasters
remain in place, the FCC should amend its rules to curb broadcasters'
abuses of the regulatory regime, including in particular their use of
blackout threats and actual blackouts to drive up retransmission
consent fees. Such reforms could include new rules that would establish
rate-setting and dispute-resolution mechanisms and require interim
carriage in the event of negotiating impasses. As explained above in
response to Question 1, the FCC has ample authority under Title III of
the Communications Act to address harms occurring in the retransmission
consent process.
Question 3. Do you know if the FCC is actively examining the impact
of increasing retransmission fees in relation to basic cable rates?
Answer. I am unaware of any active FCC examination of the impact of
rising retransmission consent fees on basic cable rates. The FCC's 2011
Notice of Proposed Rulemaking on retransmission consent asked
commenters to weigh in on whether ``there [is] an impact on the basic
service rate that consumers pay as a result of the retransmission
consent fees or disputes.'' See Amendment of the Commission's Rules
Related to Retransmission Consent, Notice of Proposed Rulemaking, 26
FCC Rcd 2718 17 (2011). But it is unclear what, if anything, the FCC
has done with the information provided by commenters in response
indicating that rising fees have a substantial and growing effect on
basic cable rates.
Question 4. Can you elaborate on what impact these retransmission
fees have on the cost of basic cable service? What percentage of a
cable customer's monthly cable bill is attributed to retransmission
fees paid to the broadcasters (a rough estimate will suffice) for (1) a
customer subscribing to basic cable and (2) a customer subscribing to
the most expensive cable TV package?
Answer. The impact of rising retransmission consent fees on overall
programming costs--and by extension on the downstream cost to consumers
for MVPD service--is significant. Recent studies show that
retransmission consent fees have been increasing by roughly 40 percent
annually, that this precipitous rise is helping to drive up overall
programming costs industry-wide by nearly 10 percent a year, and that
retransmission consent payments will drive 30 to 40 percent of the
industry's total programming cost growth through 2014.
Question 5. Can you elaborate, in detail, on how negotiations
between MVPDs and broadcasters (and/or programming/content owners and
anyone else that might now be included) would be carried out, if the
compulsory license, must carry, and retransmission consent provisions
were eliminated? Please lay out the process and parties that would
exist in negotiating the rights to use programming/content. Also,
please compare/contrast the new negotiation process that would result
versus the current retransmission consent negotiations.
Answer. If Congress were to eliminate retransmission consent, must-
carry, and the compulsory licensing regime, there would be a number of
possible alternatives for MVPDs to clear the rights to retransmit
broadcast programming to consumers. For instance, under the proposed
Next Generation Television Marketplace Act, S. 2008, a local station
presumably would aggregate the necessary copyrights from content owners
and negotiate an omnibus sublicense with the requesting MVPD. If this
approach were adopted, the identity of the negotiating parties would
likely remain the same as under today's regime. The Copyright Office
identified a handful of other possible approaches in last year's
Section 302 Report to Congress, each with its own particular advantages
and disadvantages. For instance, content owners could empower some
entity other than the local station to act as a clearinghouse, or could
negotiate individually with MVPDs to clear the rights to particular
programs. In TWC's view, the latter alternative would impose
substantial transaction costs on MVPDs and could significantly drive up
the cost of MVPD service to consumers.
At a minimum, however, each of these proposals would do away with
the legal fiction on which the retransmission consent regime is based--
that stations ought to be compensated merely for their ``signals,''
over and above the compensation paid to the owners of the programming
content contained in those signals under the copyright licensing
regime. In addition, a deregulatory approach presumably would eliminate
the various other regulatory advantages enjoyed by broadcasters in
negotiations with cable operators, such as the FCC's territorial
exclusivity protections and statutory tier placement rights. As a
result, broadcasters would be forced to compete on the merits of their
program offerings rather than rely on artificial, government-granted
preferences. Competition should enhance the quality of broadcast
programming, moderate the burgeoning cost of that programming for MVPDs
and their subscribers, and reduce the incentive and ability of
broadcasters to wield blackout threats as a weapon in carriage
negotiations.
Question 6. If you believe that eliminating these provisions would
lead to more disputes, can you elaborate, in detail, on why?
Answer. TWC believes that eliminating these provisions would lead
to fewer disputes, for the reasons set forth in response to Question 7.
Question 7. If you believe that eliminating these provisions would
lead to less disputes, can you elaborate, in detail, on why?
Answer. The deregulation of carriage negotiations between
broadcasters and MVPDs would lead to fewer disputes for multiple
reasons. As I explained during my initial testimony, the retransmission
consent regime is fraught with artificial, government-granted
preferences for broadcasters, and eliminating these preferences would
help discourage broadcasters from engaging in brinkmanship and reduce
disruptions for consumers. For instance, eliminating the FCC's network
non-duplication and syndicated exclusivity rules, which allow
broadcasters to prevent cable operators from mitigating the effects of
a blackout by replacing a local signal with a distant signal containing
the same network and syndicated programming, see 47 C.F.R.
Sec. Sec. 76.92, 76.101, would limit the effectiveness of broadcasters'
holdout strategies and encourage them to reach agreement. Moreover,
eliminating the requirement that cable operators place broadcasters on
the basic service tier, see 47 U.S.C. Sec. 543(b)(7), would facilitate
the ability of cable operators to offer broadcast stations to
subscribers on an optional basis, thus helping to temper broadcasters'
excessive fee demands. Congress thus should strongly consider
eliminating these and other unjustified and harmful preferences for
broadcasters in the law.
Question 8. In witness testimony, it was indicated that for 2012,
to date, there have already been 69 disputes regarding retransmission
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
Answer. Although I am unaware of the exact number of disputes
involving non-broadcast programmers this year, I believe there have
been fewer non-broadcast disputes than the 69 retransmission consent
disputes that had occurred by July (notwithstanding the highly
publicized impasses this summer between DISH Network and AMC and
between DirecTV and Viacom). The reason for this disparity is clear:
Negotiations with non-broadcast programmers involve far less regulatory
distortion than do negotiations with broadcasters over retransmission
consent--which is the product of a government-created regime premised
on a two-decades-old conception of the video marketplace.
Question 9. What would the impact of eliminating must carry
requirements from the law have on local and independent stations?
Without must carry how could a local independent station get carried by
a MVPD? Is there any obligation of the MVPD to carry the station?
Answer. If the must-carry statute were repealed, local independent
stations would bargain for carriage just like any other broadcaster.
Because it is in MVPDs' interest to carry programming that their
subscribers demand, a station that offers attractive programming should
be able to secure carriage on the merits of its content under
appropriate and reasonable economic terms. Moreover, while cable
operators faced far less competition in 1992 when the must carry
provisions were adopted, today broadcasters today have many other
avenues for reaching viewers.
Question 10. Would the elimination of must carry possibly lead to
more concentration in the media market and, as a result, further muting
the diversity of media voices, which has been a resolute policy of our
Nation's telecommunications and media laws?
Answer. The elimination of must-carry should not adversely affect
diversity. As mentioned above, stations that once relied on must-carry
rights would have the option to negotiate for carriage on the merits of
their programming. And even if some stations were unable to obtain
carriage without must-carry rights, the loss of those stations still
would not significantly affect diversity, as must-carry stations rarely
provide original programming and often rely instead on syndicated
programming and local newscasts borrowed from other broadcasters. The
very notion that guaranteeing cable carriage to local independent
stations is necessary to enhance diversity is an anachronism in today's
vibrant media landscape, where consumers have access to a growing
number of outlets for news, information, and entertainment programming.
In particular, the emergence of the Internet and online video
distribution affords consumers substantially more source and content
diversity than ever. Indeed, compelling carriage of broadcast stations
ultimately harms diversity by displacing other programming services
that viewers would prefer.
Question 11. With the current penetration and marketplace, is the
Internet a ``perfect substitute'' to traditional television programming
and local broadcast news? If not, what do believe is required for it to
be a substitutable good to traditional television and local news?
Answer. No video service is a ``perfect substitute'' for another;
each one has its own particular advantages and disadvantages. But the
Internet has numerous advantages over broadcast television as a video
distribution platform. Internet video is more accessible than
traditional television programming, as it is available not only on
Internet-connected television sets but also on computers, smartphones,
and tablets. Moreover, whereas video programming aired by a broadcast
station typically can be viewed only in the station's local area, video
content uploaded to the Internet can be viewed anywhere in the world.
Internet video also enables a far more customizable viewing experience
for consumers. And unlike local broadcast stations, Internet video
providers do not need to hold scarce spectrum resources in order to
offer service.
Question 12. What role do you see public television playing in
providing local programming?
Answer. Public television has played a valuable role in producing
and providing informational and educational programming to viewers for
decades. TWC has long viewed public television stations as key partners
in delivering high-quality content, including local programming, to our
subscribers.
Question 13. To your knowledge, do you believe PBS or any other
public broadcasting station would be adversely impacted by any of the
legislative proposals (that would do away with must carry, retrans, or
compulsory licenses) currently in Congress?
Answer. TWC does not believe that PBS stations or other public
broadcasting stations would be affected by current proposals for
legislative or regulatory reform. Notably, the Next Generation
Television Marketplace Act, S. 2008 would not repeal Section 535 of the
Communications Act, which governs the carriage of noncommercial
educational television stations. See 47 U.S.C. Sec. 535. Moreover, when
regulatory reforms have presented carriage issues for public television
in the past, the cable industry and public television stations have
worked together to resolve these issues on an industry-wide basis. For
instance, in 2005, when the transition to digital television was
underway, the National Cable and Telecommunications Association reached
an omnibus agreement with the Association of Public Television Stations
for multicast carriage of public television stations once the
transition was complete.
Question 14. While this might seem appropriate, I am concerned
about the impact such allowance would have on localism. As the Supreme
Court has stated ``fairness to communities [in distributing radio
service] is furthered by a recognition of local needs for a community
radio mouthpiece.'' If this scenario was allowed, how could we protect
localism? What safeguards could be implemented to ensure local
programming?
Answer. No regulatory safeguards are necessary to ensure access to
local programming; to the extent viewers value local programming, the
market will find a way to deliver it. Moreover, it is no longer correct
to assume that protecting local broadcasters from market forces
necessarily promotes localism or improves the quality or quantity of
local programming. Multiple recent studies show that broadcast stations
are retreating from localism, as their increasing use of ``sharing''
agreements has precipitated a significant decline in original, diverse
local news and public affairs programming. See, e.g., Philip M. Napoli,
Retransmission Consent and Broadcaster Commitment to Localism, at 18-25
(Nov. 2011), available at http://www.americantelevisionalliance.org/wp-
content/uploads/2011/11/Retransmission
Consent-and-Localism-Paper-by-Napoli-FINAL.pdf; Danilo Yanich, Local TV
News & Service Agreements: A Critical Look, at 105-07 (Oct. 2011),
available at http://www.udel.edu/ocm/pdf/DYanichSSAFINALReport-
102411.pdf. By contrast, TWC is an active contributor to localism in
the communities it serves, having launched local news channels and
local interest channels that focus on public affairs, politics, sports,
cultural affairs, entertainment, and other content of interest to the
community.
Question 15. How feasible is it actually for a cable or satellite
operator to negotiate with out of market affiliate? There is still the
primary owner of the content--the programmer. If the cable operator is
having a dispute with the in-market Fox or Disney broadcaster, how
could the cable company turn to an out-of-market Fox or Disney
affiliate and successfully negotiate? It's still Fox or Disney and it
seems that if the out-of-market affiliate did engage, Disney could
threaten to pull the affiliation to prevent such action?
Answer. Although TWC has entered into numerous agreements that
include broad rights for ``out of market'' carriage, broadcast networks
often do impose restrictions on their affiliates in the sale of
retransmission consent to MVPDs, making it challenging to secure the
necessary carriage rights. In particular, the networks have
increasingly hijacked the retransmission consent process by dictating
when, where, and at what price their affiliates may enter into
agreements with MVPDs, and by extracting a ``cut'' of affiliates'
retransmission consent revenues for themselves. As TWC has explained to
the FCC on several occasions, this network interference in affiliates'
retransmission consent negotiations is starkly anticompetitive,
undercuts the FCC's localism goals, and harms consumers. Network
interference increases the risk of impasse in retransmission consent
negotiations, siphons off funds intended to support local broadcasting,
and drives up the cost of retransmission consent to MVPDs and their
subscribers. TWC and many other parties accordingly have asked the FCC
to prohibit network interference in stations' retransmission consent
negotiations.
Question 16. If a MVPD feels that the retransmission fee the
broadcasters is asking for is not reasonable then why not just simply
not pay it, stop retransmitting the signal over the cable plant
indefinitely, and, if need be, give every customer in the market an
antenna? It seems over time, the number of subscribers MVPDs have (over
101 million subs) would make broadcasters come to the table sooner
rather than later.
Answer. MVPDs compete vigorously in the video distribution
marketplace and thus can hardly leverage their total subscriber count
to ``make broadcasters come to the table.'' Since cable operators face
vigorous competition in nearly every local area from an array of
satellite, telecommunications, and Internet-based distribution
platforms, broadcasters can play one distributor against another and
wield blackout threats in an effort to maximize their bargaining
leverage in negotiations. Moreover, the suggestion that an MVPD may
respond to broadcasters' tactics by dropping a station's signal
``indefinitely'' overlooks the fact that consumers--and not just
MVPDs--are harmed by the loss of network-affiliated broadcast
programming.
Consumers cannot avoid these harms simply by switching to another
video provider. All MVPDs must regularly renegotiate their carriage
agreements with broadcasters, and because broadcasters are increasingly
threatening to go dark unless their cash demands for retransmission
consent are met, consumers may be forced to engage in an endless cycle
of switching among MVPDs in an effort to avoid the potential for a
blackout. Such switching is not only a source of inconvenience for
consumers, but imposes unnecessary costs on consumers who must obtain
new equipment and stay home to switch providers. Additionally, many
consumers are not just purchasing video service and may have chosen
their video provider also for its broadband and voice services.
Moreover, those cable subscribers who would rather forego
purchasing broadcast stations as part of their cable package--and
thereby avoid the spiraling cost of retransmission consent--are
prohibited from doing so under Federal law. As explained below in
response to Senator DeMint's questions, 47 U.S.C. Sec. 543(b)(7) limits
the flexibility of cable operators to offer broadcast stations on an
optional basis. Congress should strongly consider eliminating not only
the ``tier buy-through'' requirement responsible for this, but also the
various other regulatory distortions in the retransmission consent
regime that actively harm consumers. .
Question 17. If all MVPDs feel that the retransmission fees are
unreasonable then why don't you all agree not to pay the broadcasters--
hold an industry-wide boycott?
Answer. Even apart from the antitrust issues presented by group
boycotts generally, such an approach would not serve the interests of
consumers. Any action to curb broadcaster abuses of the current system
should focus on preserving consumers' access to broadcast programming,
not depriving consumers of that programming.
Question 18. Are you concerned if we go too far with reforming
retransmission consent and/or copyright law that might limit rights of
broadcasters and/or programmers we could possibly erode the fundamental
protections to intellectual property and copyright that this country
has enforced?
Answer. Reforming the broken retransmission consent regime would
not erode traditional protections for copyright or other intellectual
property. Indeed, when Congress created this regime in 1992, it took
pains to clarify that the retransmission consent right is not a
copyright interest. See S. REP. NO. 102-92 (1991), reprinted in 1992
U.S.C.C.A.N. 1133, 1169 (``The Committee is careful to distinguish
between the authority granted broadcasters under the new section
325(b)(1) of the 1934 Act to consent or withhold consent for the
retransmission of the broadcast signal, and the interests of the
copyright holders in the programming contained on the signal.'').
Rather, retransmission consent is an artificial right granted by the
government to local stations with the understanding that stations, as
stewards of a valuable public spectrum resource, would exercise the
right in the public interest. But when stations use retransmission
consent as a weapon to black out broadcast programming and drive up
programming costs for MVPDs and their subscribers, Congress should not
hesitate to reform the regime to protect consumers.
______
Response to Written Questions Submitted by Hon. Jim DeMint to
Melinda Witmer
Question 1. If enacted as written, would the Next Generation
Television Marketplace Act, S. 2008, allow a pay-TV company to
retransmit the programming aired on broadcast signals without consent?
Answer. No. The Next Generation Television Marketplace Act
(``NGTMA'') requires MVPDs to obtain the consent of a local television
broadcast station before retransmitting the programming broadcast by
the station. See NGTMA Sec. 3(c)(5)(C).
Question 2. Are Time Warner Cable subscribers required by Federal
law to purchase a certain package of channels when they buy your video
service?
Answer. Yes. As a general matter, Section 623(b)(7) of the
Communications Act, as amended, provides that a cable operator ``shall
provide its subscribers a separately available basic service tier to
which subscription is required for access to any other tier of
service,'' and that basic service tier must include ``any signal of any
television broadcast station'' provided to subscribers in a given local
area. 47 U.S.C. Sec. 543(b)(7). In the local areas where this provision
applies, broadcasters can insist on automatic placement on the basic
service tier despite the fact that, in a more competitive marketplace,
broadcasters would be required to compete on price and quality to gain
access to desired tiers. As a result, skyrocketing retransmission fee
increases must be built into the mandatory basic cable rates that
subscribers cannot avoid paying. And as long as consumers are forced to
subscribe to (and pay for) broadcast programming--creating an effective
tax on access to cable programming--there is no market-based mechanism
to discipline retransmission consent fees. While eliminating the tier
buy-through requirement is a necessary step, such a move would not be
sufficient, on its own, to prevent harms to consumers. Carriage
negotiations between MVPDs and broadcasters will never be a truly
market-based process unless Congress eliminates all of the regulatory
distortions pervading the retransmission consent regime.
Question 3. Is Time Warner Cable prevented by Federal law from
selling a subscriber only a single channel, Discovery Channel for
example, or only a package of sports channels?
Answer. Yes. As mentioned above, cable operators in many local
areas are required to provide subscribers with a basic service tier
containing a statutorily mandated lineup of programming services, and
to make the purchase of the basic tier a prerequisite to the purchase
of all additional programming services. See 47 U.S.C. Sec. 543(b)(7).
Moreover, video programmers often require cable operators to purchase a
bundle of programming services all at once and to sell those
programming services to consumers on highly penetrated cable tiers.
______
Response to Written Question Submitted by Hon. Kelly Ayotte to
Melinda Witmer
Question. I wanted to get your opinion on free-markets and how they
are defined. In March of this year, the American Conservative Union
sent a letter to the Hill on retransmission consent calling it ``a
functioning market.'' The day before the hearing, I received a letter
from Citizens against Government Waste claiming the current system, as
currently structured, ``inhibits the free market'' and ``reduces
competition.'' What are your thoughts on the free market as it relates
to retransmission consent?
Answer. Retransmission consent does not involve ``free market''
negotiations for carriage. Since its creation in 1992, retransmission
consent has existed as part of a complicated system of government-
created rights designed to promote policy goals regarding the perceived
special importance of free over-the-air television. That system of
rights includes a host of special protections--such as must-carry,
preferential tier placement and channel positioning rights, territorial
exclusivity, and the ``sweeps'' rule--that further prevent market
forces from operating. In a truly ``free market,'' a station would not
be able to demand automatic placement on the basic tier, but rather
would have to bargain for such favorable positioning based on the
popularity of its programming. Likewise, a station operating in a
``free market'' would not be able to insulate itself from competition
by invoking the FCC's territorial exclusivity rules; instead, that
station would be required to compete with other stations on quality,
price, and other bases. The current regime thus bears little
resemblance to a ``free market.'' It is entirely a creature of
regulation, and that regulatory regime needs to be updated to prevent
abuses by broadcasters that harm consumers.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Martin Franks
Question 1. Whenever signals are pulled as a result of a
retransmission consent dispute, consumers lose. The impact is magnified
in areas where a single MVPD dominates an entire state. What is the
best way to protect consumers while companies work to resolve disputes
and impasses in negotiations for the carriage of broadcast signals?
Answer. CBS has been an independent company since 2006, and in that
time has concluded nearly 100 retransmission consent agreements without
a single public dispute with an MVPD. Therefore, we are pleased to
report that the viewers in the markets served by CBS owned-and-operated
stations have not had to deal with MVPD disruptions of our programming.
I believe that in a free marketplace, the best way to serve
consumers is to arm them with information about options and choices,
particularly with respect to how they can continue to obtain the
programming they want during an MVPD-programmer disruption.
I have often praised Congress for succeeding in achieving its goal
of competition in the video marketplace. Today, thanks to this
congressional focus, the American viewer in a given local market has
robust options with respect to video distribution platforms, including
at least one cable operator, two satellite services, as many as two
telcos and, of course, several broadcast television stations. When a
disruption of broadcast programming occurs on a particular platform,
the viewer can always count on the originating platform--the broadcast
television station--to continue service. Contrary to the allegations of
some MVPDs, there is no ``blackout'' and a television station does not
``go dark'' when a disruption occurs. Rather, the station still
operates in the public interest and transmits its signal over the air
to almost every household with a television receiver. In addition, that
station's programming is still available on competing MVPD platforms
not engaged in a dispute with that station.
It is important to note that any disruptions involving
retransmission consent are local in nature, affecting an individualized
market and a limited amount of MVPD subscribers, while disruptions
involving non-broadcast programmers affect the nationwide carriage of
that programming and, therefore, millions of MVPD subscribers.
Question 2. Should any special consideration be given to protect
consumers in geographic locations where a single MVPD serves a high
percentage (more than 50 percent) of total MVPD subscribers in a state?
Answer. Congress has succeeded in its goal of establishing a highly
competitive video distribution market. A disruption of a single
station's service to one MVPD provides an opportunity for a competing
MVPD to acquire a new subscriber. That's how competition works:
Consumers shop where the products they want are available. Thus, where
a lone MVPD has more than half of all MVPD subs in a given state, a
disruption just might have the collateral benefit of creating greater
competition among video distributors. Specifically, in Hawaii, a
retrans disruption with Time Warner Cable could inure to the benefit of
DirecTV and DISH.
______
Response to Written Questions Submitted by Hon. Barbara Boxer to
Marin Franks
Question 1. In her testimony, Ms. Witmer of Time Warner Cable notes
that national broadcast networks ``have begun demanding reverse
compensation from their affiliates'', which she alleges is contributing
to the increase in retransmission fees local affiliates have been
requesting in renegotiations.
Please respond to this point, providing detail on the extent that
CBS is involved in retransmission fee negotiations, including any
relevant information on the percentage of retransmission fees for
affiliate signals that are allocated to CBS.
Answer. At CBS, we view our affiliated broadcast television
stations as true partners in helping us deliver high quality network
entertainment, news, information and sports programming to the American
public. And our affiliates realize that that partnership is good for
them, in large part because of what the network is delivering, as a
complement to their locally provided content. The network-affiliate
relationship is symbiotic.
Most of our affiliates are still on long-term contracts that do not
expire for several more years. The renewal of those contracts will be
the point at which reverse compensation will be negotiated. We have
said publicly that the structure of the reverse comp deals varies, but
in most cases, we are asking for a fixed fee rather than a percentage
of the affiliates' retrans fee.
The value of a CBS affiliation goes far beyond what the station can
secure from retransmission consent. Our time-period-winning 10 PM
dramas bring a larger audience to a local station's 11 PM broadcasts in
which they sell all of the advertising and retain all of that revenue.
The opportunity to sell spots in the network's news, sports and
entertainment programming brings a local affiliate additional value.
When we assess the value of a CBS Television Network affiliation,
we take into account all of the ways we help to create value for a
local station and negotiate a mutually beneficial agreement
accordingly--and utterly independent of how much that station may
obtain in retrans fees from a given MVPD.
Question 2. What are CBS's views on Senator Kerry's idea of
requiring alternative styles of negotiation--i.e. baseball-style
arbitration--to be used in disputes between multichannel video
programming distributors and affiliates to ensure viewers are not
treated unfairly when retransmission consent negotiations breakdown?
Answer. Section 325(b) expressly states that only broadcasters can
provide MVPDs with authority to retransmit their signals. Therefore,
neither the FCC nor an arbiter can authorize an MVPD to carry a
station's signal without the station's consent.
As the FCC states in the NPRM which launched its pending proceeding
on retransmission consent:
``[W]e believe that mandatory binding dispute resolution
procedures would be inconsistent with both Section 325 of the
Act, in which Congress opted for retransmission consent
negotiations to be handled by private parties subject to
certain requirements, and with the Administrative Dispute
Resolution Act (``ADRA''), which authorizes an agency to use
arbitration ``whenever all parties consent.''
Broadcasters spend hundreds of millions of dollars to produce or
acquire content that is popular with viewers--much of which is produced
in California and employs thousands of Californians. Mandating carriage
of our content -even for a limited time--effectively would put the
government's thumb on the MVPDs' side of the scale. The consequences of
such government intervention in the free market of negotiations likely
would result in lower fees to broadcasters which, in turn, would impair
our ability to produce and obtain the high quality programming that
viewers want.
Let me emphasize that when a retrans disruption occurs and a
station's signal is not available on a particular MVPD platform, that
station's programming is still widely available -via competing MVPDs in
the market, as well as over the air.
Finally, if Congress were to take the extraordinary step of
granting the FCC the authority to arbitrate or mediate disputes, with
the thousands of retrans negotiations that occur each year on average,
it is likely that parties would run to the Commission instead of trying
to work out issues in the marketplace. At such point, the FCC would
become the ``Federal Arbitration Commission,'' with retrans disputes
tying up a substantial portion of valuable agency resources. The
marketplace has worked -and with very few disruptions and, even in
those rare cases, have lasted only a short time.
Question 3. In recent years, the breakdown of retransmission
consent negotiations has threatened the television access of millions
of Americans to major events like the Super Bowl, the World Series, and
the Oscars, not to mention the critical access of viewers to local news
broadcasts. Consumers should not be losing access to programming that
they have paid for because of the failure of retransmission consent
negotiations. The FCC has proposed to strengthen notice requirements
for consumers when there is the possibility that certain services may
lapse. Does CBS support this proposal?
Answer. While I do not advocate further regulation or rules, I
believe that it is important for MVPD subscribers to be notified of
their options for obtaining the programming of a station in a retrans
dispute. Perhaps subscribers should be given a heads up when it appears
as if a retrans term is set to expire and negotiations are going badly
and a signal disruption is anticipated in order to give them adequate
time to connect an antenna or seek another multi-channel provider who
has secured access to the relevant programming.
Question 4. Does CBS support requiring affiliate broadcast signals
to remain on the air--i.e., continuous carriage--during retransmission
consent disputes?
Answer. CBS would be ``on the air'' in any event in that our free,
over-the-air broadcast is always available to anyone who chooses to
employ an antenna.
Having clarified that point, no, we do not support any proposal
that would require us to provide our signals to MVPDs against our will.
Not only is this type of proposal prohibited under Section 325(b) of
the Communications Act, but such a requirement would lead to the same
result described in response to the preceding question. However, we may
elect to grant an extension of a retrans deadline as part of the to-
and-fro of negotiations in a free market. Indeed, we have done so in
the past when we believe that discussions were going well with the
MVPD. These extension periods have covered major broadcast events. But
these extensions were made in our discretion, and not based on a
regulatory obligation to do so.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Martin Franks
Question 1. S. 2008, the Next Generation Television Marketplace Act
of 2011, would provide for the deregulation of retransmission consent.
But as we saw last month with DirecTV and Viacom, blackouts occur due
to disputes between cable programmers and cable providers in a non-
regulated environment too. If we see customers, like those who
subscribe to DirecTV, suffering in a deregulated world, why would we
want to deregulate the negotiation process for broadcasters too?
Answer. I agree that any attempt to transform the retransmission
consent regime into one looking more like the national cable network
model would be misguided.
In the end, I believe that eliminating retrans and the compulsory
license would lead to far more disruptions, not fewer. Introducing even
more claimants into an already challenging negotiating environment
likely will lead to more, not fewer, disputes. In the end consumers
will suffer.
While this reorganized retrans marketplace would also be an
extraordinarily capital intensive one, I testified that in that new
world CBS would do just fine. One way or another, we will be able to
invest in our content, continue to attract audiences, and figure out
how to monetize our performance. But the adverse impact on smaller
companies -both on the broadcaster and MVPD sides--could be
substantial.
Question 2. Today's video marketplace is very different than what
it was in 1992. Since the enactment of the Cable Act, satellite
carriers and telephone companies offering video services compete with
cable operators. And in the last few years, we have seen the enormous
growth of online video. In your view, given these changes in the video
marketplace, are the existing rules working? Why or why not?
Answer. Actually, the marketplace is even more competitive now, and
therefore not only is retransmission consent not broken, it is more
suited to today's vibrant marketplace, with manifold alternate sources
of programming for consumers.
I believe that the retransmission consent regime enacted in 1992 is
one of the great Washington public policy accomplishments of the last
two decades. It has given renewed vitality to broadcast television that
prior to 1992 was being consigned to the dust heap of history.
Estimates are that some 15,000 retrans negotiations take place
every three years and almost all of them are completed successfully and
without disruption. As the principal retransmission consent negotiator
for CBS, I can tell you that over the last six years, since CBS split
from Viacom, we have completed ALL of our negotiations successfully and
without incident.
Question 2a. Why are we even discussing changes to a system that
works?
Answer. Because there are some in the MVPD industry calling for a
return to the old days, when they got their most popular video product
for free and then resold it and then used the proceeds to build their
own businesses. We urge Congress to resist calls for change. To the
extent that impasses in retrans negotiations occur with more frequency
lately, it is due, at least in part, to the belief by a handful of
distributors that disruptions may cause Congress to act--and in a way
that would end the current balance of power to tip the scales in their
favor. Congress should resist calls for legislation because some MVPDs
today use this in negotiations in an attempt to gain leverage over
broadcasters. Legislation only serves to slow down negotiations or
leads to increased disruptions.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Martin Franks
Question 1a. Stakeholders on all sides of the retransmission
consent debate appear to agree that the visibility and frequency of
retransmission disputes has increased over the last few years. Some
have argued that retransmission consent is working and that some
growing pains are reasonable because many broadcast stations are
electing to pursue deals instead of must-carry for the first time since
enactment of the 1992 Cable Act which created the dual regimes of must
carry and retransmission consent. On the other hand, distributors argue
that private sector retransmission consent deals are taking longer to
negotiate, and that it is becoming harder to reach agreement regarding
mutually agreeable terms. If you believe must-carry and retransmission
consent are important to localism, how do you recommend that the
Congress measure the success of localism?
Answer. As I stated at the hearing, I believe that the
retransmission consent regime enacted 20 years ago has given renewed
vitality to broadcast television.
In adopting retrans, Congress recognized that broadcast programming
``remains the most popular programming on cable systems, and a
substantial portion of the benefits for which consumers pay cable
systems is derived from carriage of the signals of network affiliates,
independent television stations, and public television stations.''
Congress found that cable operators enjoyed great benefits from the
local broadcast signals that they were able to carry without
broadcaster consent. Thus, Congress adopted retransmission consent
provisions to allow broadcasters to negotiate to receive compensation
for the value of their signals.
Retrans, therefore, was meant to address more than just localism.
It was meant to allow broadcasters to monetize their performance in the
marketplace.
Broadcast television stations around the country deliver top-notch
local news, public affairs and emergency content to their hometown
viewers. But local stations deliver much more than that--that is, they
provide national network content that represents some of the highest
quality sports and entertainment programming in the world. In a tough
economy, it is no small benefit to Americans that they can sit in their
living rooms and access via broadcast television, free of charge, major
sporting and entertainment events that would cost hundreds of dollars
to view at a sports arena or movie theater.
The ability of broadcasters to provide this superior product to the
American consumer is due, in great part, to retransmission consent
fees.
With great respect, I urge Congress not to get in the business of
measuring ``success'' of localism or any other aspect of video
programming. The American viewer should be the final arbiter of what
content they wish to view. And by most accounts, local broadcast news
is considered the most popular and credible while broadcast network
programming is the most watched. There are plenty of organizations
studying broadcaster performance, some commercial and some not-for-
profits. For example, entities such as the Pew Research Center and the
Knight Foundation regularly issue reports on the state of local news.
And there are commercial ratings enterprises, such as Nielsen and new
entrant Rentrak, which are in the business of measuring the country's
television viewing habits. In the end, satisfying viewers is what
motivates broadcasters.
Question 1b. If you believe retransmission consent is failing, what
evidence can you provide?
Answer. I do not believe that retransmission consent is failing in
any sense of the word.
Question 2a. Some distributors have indicated concerns about the
ability of content creators to tie affiliated programing to
retransmission consent deals because they argue this practice
contributes to programming cost increases. Broadcasters and content
creators argue that current practices provide necessary financial
support for a greater variety of programming options which they say is
a benefit to consumers. To what extent should Congress be concerned
about programming cost increases over the past several years?
Answer. Again, with respect, I urge Congress not to get involved in
the costs of video programming. American television is considered the
best in the world, thanks to the innovation and flexibility of the
marketplace. And it in this weakened economy, television is one of the
sectors performing quite strongly and is not in need of a ``fix.'' In
fact, any regulation of programming costs likely would lead to the
deterioration of the product.
In the marketplace, if a product is too costly or is undesirable,
demand will wane. And the industry will adapt accordingly. CBS is
committed to investing in programming. Our ability to invest in the
acquisition of broadcast rights to premier sporting events, as well as
in the production of the highest quality entertainment and news
programming, is made possible today by a variety of revenue streams,
including advertising and retransmission consent fees. In a free,
unfettered market, broadcasters should be permitted to obtain revenues
from any combination of sources as it can in order to provide the
American consumer with a service that almost every household can access
free of charge. Costs of providing this service should be determined in
the market and not through regulation.
Question 2b. If you believe programming cost increases merit a
fresh look at the 1992 Cable Act, do you believe cost savings garnered
by distributors should be passed onto consumers? If so, how would any
savings be realized by consumers?I do not believe that Congress should
review programming cost increases. And I would not support any
resurrection of rate regulation of my MVPD partners.
Answer. I do not believe that Congress should review programming
cost increases. And I would not support any resurrection of rate
regulation of my MVPD partners.
Question 2c. If you support changes to current law, would your
company provide consumers with the same flexibility to pursue a la
carte programming options? If not, why not?
Answer. Tiering options are available today from various MVPDs. If
the American viewer demands more tailored, channel-by-channel, a la
carte options, the market will supply it.
Question 3a. Given that retransmission consent deals are private
sector negotiations under the 1992 Cable Act, it is difficult for
observers and participants to track pricing trends. Do you believe
pricing transparency for distributors and for consumers could help to
alleviate tensions over content deals? If not, why not?
Answer. Those seeking retrans pricing trends need only search the
Internet for the numerous analyst reports available to the public.
Providing the public with the wholesale cost of retrans is a
solution in search of a problem. Some MVPDs assert that disclosure of
retrans pricing, especially to consumers, would benefit the public. I
am mystified as to how the public would be better positioned by the
disclosure of such discrete information in the absence of the same
disclosure with respect to MVPD costs for non-broadcast programming and
their set-top boxes and other equipment. These are ALL costs which are
passed along by MVPDs to their customers. Thus, forced disclosure of
the wholesale cost of retrans is akin to forced disclosure of the
wholesale costs of only a few ingredients in a loaf of bread. It would
reveal no meaningful information for the consumer. Moreover, I question
whether such disclosure of this retrans fee might be a vehicle for
price-signaling among competitors.
Question 3b. If you do believe pricing transparency could be
beneficial, please provide specific recommendations for such a proposal
could be implemented.
Answer. See response to Question 3(a).
Question 4. Going forward, how should Congress and/or the Federal
Communications Commission measure whether or not the current system is
working? Please provide specific metrics to support your answer.
Answer. That the current system is working or not working should be
based on consumer reaction. The hue and cry to ``fix'' retrans is not
coming from consumers. Rather, it is coming from MVPDs. Calls for
fixing a supposedly broken retrans system arose only after a fully
competitive marketplace among video distributors developed.
Retrans was essentially a non-factor in carriage negotiations until
several years back when DirecTV, DISH, Verizon and AT&T became full-
fledged competitors to the cable monopoly. Yes, when a retrans
disruption occurs, consumers in a given local market may experience
inconvenience. But disruptions are few and far between. It has been
estimated that some 15,000 retrans negotiations take place every three
years. And almost all of them are completed successfully.
There is no need to overhaul a well functioning retrans system that
has inured to the benefit of consumers -in the form of continued high-
quality broadcast service. Congressional and/or FCC involvement in
retrans would serve to hinder negotiations, not assist them.
Broadcasters across the country want to be carried by distributors and
distributors want to carry broadcast television stations because of the
popularity of our local and national programming. As long as this
balance exists, the system is working.
Finally, let me note again that to the extent that impasses in
retrans negotiations occur with more frequency lately, it is due, at
least in part, to the belief by a handful of distributors that
disruptions may cause Congress to act--and in a way that would end the
current balance of power to tip the scales in their favor. Congress
should resist calls for legislation because some MVPDs today use this
in negotiations in an attempt to gain leverage over broadcasters.
Legislation only serves to slow down negotiations or leads to increased
disruptions.
Question 5. If Congress were to revisit the 1992 Cable Act, are
there improvements to the law which you believe Congress should
consider?
Answer. I believe that the retransmission consent regime enacted in
1992 is one of the great Washington public policy accomplishments of
the last two decades. Therefore, I do not see the need for Congress to
address any part of the 1992 Cable Act pertaining to retrans.
______
Response to Written Questions Submitted by Hon. Olympia J. Snowe to
Martin Franks
Existing FCC Authority
The Cable Television Consumer Protection and Competition Act of
1992 (``1992 Cable Act'') amended the Communications Act to include
Section 325, which provides television stations with certain carriage
rights on local market cable television systems. The Commission
established rules related to the retransmission/mandatory carriage
election cycle, but did not adopt rules governing the negotiation
process of retransmission consent.
However, the statute clearly calls for the FCC to ensure that
broadcasters act in ``good faith during negotiations.'' During the
Sinclair-Mediacom dispute back in 2007, the Commission didn't intervene
because then Chairman Martin interpreted the law didn't and stated that
the agency didn't have the authority to impose binding arbitration. At
the time, he stated ``It's not clear to me that the commission does
have the authority to order arbitration.''
Yet, during that time in January 2007, Senator Inouye and the late
Senator Stevens wrote the FCC stating that the Commission did indeed
have authority to intervene and, if necessary, use binding arbitration
to resolve any failed negotiations.
Question 1. Given the existing statute and the Congressional
letter, couldn't the current Commission interpret the statue
differently than Chairman Martin to where they do have the statutory
authority to be involved in any disputes? What is precluding them from
doing so?
Answer. Section 325(b) expressly states that only broadcasters can
provide MVPDs with authority to retransmit their signals. Therefore,
neither the FCC nor an arbiter can authorize an MVPD to carry a
station's signal without the station's consent.
As the NPRM in the pending proceeding at the FCC on retransmission
consent states:
``[W]e believe that mandatory binding dispute resolution
procedures would be inconsistent with both Section 325 of the
Act, in which Congress opted for retransmission consent
negotiations to be handled by private parties subject to
certain requirements, and with the Administrative Dispute
Resolution Act (``ADRA''), which authorizes an agency to use
arbitration ``whenever all parties consent.''
Question 2. If Congress directed the FCC to ensure broadcasters act
in ``good faith'' during negotiations, how do you believe the FCC can
go about fulfilling that responsibility and to limit or prevent the
disruption of programming to cable and/or satellite customers?
Answer. Congress has, on two occasions, directed the FCC to adopt
rules that compel both broadcasters and MVPDs to negotiate for
retransmission consent in good faith. In response, the FCC has
established rules that guide parties as to what conduct is deemed good
faith in retrans negotiations and has implemented an enforcement
regime. However, there have been very few complaints filed alleging
violations of the rules. There has only been one finding that a party
to a retransmission consent agreement negotiated in bad faith--and that
party was an MVPD.
Reasonable Basic Service Tier Rates
While I understand programming costs are growing, I am concerned
about the significant increase in retransmission compensation that has
occurred over the past several years. For example, retransmission
consent revenue climbed more than 30 percent for six broadcasters in
the first nine months of 2008. By 2017, SNL Kagan an industry analysis
firm--projects retransmission fees will grow to $3.61 billion, with
average per-subscriber fees potentially doubling. So, as broadcasters
look to increase revenue streams through retransmission fee, it
seemingly puts upward pressure on the price of basic cable and
ultimately consumers. Such increase may also infringe upon the existing
statute.
Section 623(b)(1) requires the FCC to ensure that basic cable
service rates are reasonable. In addition, Section 325(b)(3)(A)
requires the Commission to consider the impact that retransmission
consent has on basic cable service rates and that any regulations do
not conflict with the FCC's ``obligation under Section 623(b)(1)'' to
ensure such rates are reasonable.
According to SNL Kagan, the average cable TV subscriber in 2011
paid $78 a month compared to only $40 per month in 2001. Whereas the
average household income fell 6 percent between 2006 and 2010,
according to the U.S. Census.
Question 3. Do you know if the FCC is actively examining the impact
of increasing retransmission fees in relations to basic cable rates?
Answer. The FCC has a pending proceeding on retransmission consent.
I do not know whether the FCC is studying programming fees as part of
this proceeding or any other.
Question 4. Can you elaborate on what impact these retransmission
fees have on the cost of basic cable service? What percentage of a
cable customer's monthly cable bill is attributed to retransmission
fees paid to the broadcasters (a rough estimate will suffice) for (1) a
customer subscribing to basic cable and (2) a customer subscribing to
the most expensive cable TV package?
Answer. I have no independent knowledge of the impact of
retransmission fees on the cost of cable service, but public analysts'
reports state that they are but a fraction of a cable operator's
overall programming expenses and a minute portion of its revenues. In
comments in the FCC's pending retransmission consent proceeding, NAB
submitted an economic report that contained the following conclusions:
In 2008, for example, the average MVPD programming expense per
subscriber per month was approximately $26 and average MVPD
revenue was more than $99 per subscriber per month. In
contrast, as noted above, in 2009 MVPDs paid retransmission
consent fees totaling only $0.70 per subscriber per month.
Thus, retransmission consent fees are just 2.7 percent of
programming expenses and about 0.71 percent of revenues. A
March 2009 study estimated that cable revenues per subscriber
are predicted to rise 45 times more than retransmission consent
fees through 2015.
These conclusions are well illustrated in an article in an MVPD
industry trade publication, which I have included with my response.
Eliminating Retransmission Consent and Compulsory Licenses
While there is no question that Congress must examine and reform
outdated provisions in the statute, there are legislative proposals
before Congress that propose sweeping changes to laws governing cable
and broadcast obligations. In particular these bills propose repealing
retransmission consent, must carry, and the Copyright Act's
``compulsory license'' provisions.
During the hearing, witnesses provided conflicting testimony on the
impact such eliminations would have on the marketplace and with retrans
negotiations some said it would only increase disputes and others said
it would wouldn't.
Question 5. Can you elaborate, in detail, on how negotiations
between MVPDs and broadcasters (and/or programming/content owners and
anyone else that might now be included) would be carried out, if the
compulsory license, must carry, and retransmission consent provisions
were eliminated? Please lay out the process and parties that would
exist in negotiating the rights to use programming/content. Also,
please compare/contrast the new negotiation process that would result
versus the current retransmission consent negotiations.
Answer. As I noted at the hearing, introducing even more claimants
into an already challenging negotiating environment may lead to more
disputes, not fewer, will be a lawyer's paradise, and is unlikely to
yield any relief to consumer pocketbooks.
That brave new marketplace would also be an extraordinarily capital
intensive one. I testified that in that new world CBS would do just
fine. One way or the other, we will be able to invest in our content,
continue to attract audiences, and figure out how to monetize our
performance. But the adverse impact on smaller companies -both on the
broadcaster and MVPD sides--could be substantial.
Many smaller players will be squeezed out of the business. West
Virginians may have access only to larger regional super players from
Washington, D.C. and Pittsburgh, or South Carolinians may lose the
wonderful localism tradition earned by their state's broadcasters in
favor of service solely from Atlanta, Charlotte or even New York City.
This move to a more regional system will come at the expense of
local economies and consumers.
Question 6. If you believe that eliminating these provisions would
lead to more disputes, can you elaborate, in detail, on why?
Answer. I believe that in the absence of a compulsory license and
retransmission consent there would be far more disputes if for no other
reason than that many, many more parties would be involved.
As the Copyright Office concluded in a 2011 report to Congress
pursuant to the Satellite Television Extension and Localism Act
(STELA):
In the absence of the statutory licenses, the businesses of
cable operators and satellite carriers would be much different,
and presumably more difficult, because they would have to
negotiate with copyright owners through private transactions
for the public performance rights to copyrighted broadcast
content.
Question 7. If you believe that eliminating these provisions would
lead to less disputes, can you elaborate, in detail, on why?
Answer. Please see response to Question 6.
Question 8. In witness testimony, it was indicated that for 2012,
to date, there have already been 69 disputes regarding retransmission
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
Answer. I have no independent information as to such disputes, but
there have also been reports of numerous disruptions of non-broadcast
programming in 2012. It is important to note that any disruptions
involving retransmission consent are local in nature, affecting an
individualized market and a limited amount of MVPD subscribers, while
disruptions involving non-broadcast programmers affect the nationwide
carriage of that programming and, therefore, millions of MVPD
subscribers.
CBS has been an independent company since 2006, and in that time
has concluded nearly 100 retransmission consent agreements without a
single public dispute with the relevant MVPD.
Question 9. It is my understanding that while there has been a 15
percent increase in commercials television stations from 1996 to 2010,
there has also been a 33 percent decrease in the number of station
owners. There has also been a continued dearth of ownership by
minorities and women--which is approximately only 5 percent and 3.3
percent of TV market share, respectively (both well below their
population representation). Both indicate a significant deficit in
achieving the policy goals of localism and diversity.
A free exchange of a wide range of viewpoints is the lifeblood of
our democracy, and the print and broadcast media serve an indispensable
function by exposing our society to diverse thoughts and viewpoints.
What would the impact of eliminating must carry requirements from
the law have on local and independent stations? Without must carry how
could a local independent station get carried by a MVPD? Is there any
obligation of the MVPD to carry the station?
Answer. But for one instance in which a station we acquired had
already elected must carry, CBS does not rely on must carry and would
not be affected, but the impact on smaller stations and the ensuing
diversity of voices Congress strives to provide might be adversely
impacted. I note this despite the fact that any adverse impact may
benefit CBS from a competitive standpoint.
Question 10. Would the elimination of must carry possibly lead to
more concentration in the media market and, as a result, further muting
the diversity of media voices, which has been a resolute policy of our
Nation's telecommunications and media laws?
Answer. Please see response to Question 9.
Online Video vs. Traditional Video
According to Nielsen Media, the average American watches over 153
hours of video per month on traditional television compared to only 4.5
hours per month of online video. Also, approximately 97 percent of
American households have a television whereas 68 percent of households
have broadband (the U.S. currently ranks 23rd in broadband
penetration).
In addition, a 2011 Project for Excellence in Journalism survey
found that local TV remains America's most popular source of local news
and information, particularly for weather and breaking news--89 percent
of surveyed adults get information about local weather and 80 percent
follow local breaking news through local television. Only about 51
percent of smartphone users use the device to get news.
While the Internet is a very value medium for media and news and
provides incredible benefit to users, most Americans still rely heavily
on traditional television for programming, local news, and even
weather.
Question 11. With the current penetration and marketplace, is the
Internet a ``perfect substitute'' to traditional television programming
and local broadcast news? If not, what do believe is required for it to
be a substitutable good to traditional television and local news?
Answer. In economic terms, a good or service is deemed to be a
``perfect substitute'' if it is completely substitutable with another
good or service. The American public looks to and depends upon their
local television stations -and not to the Internet--as the primary ``go
to'' source for news, weather, traffic and information. Moreover, local
television stations offer a news service and platform that is
ubiquitous and free of charge. While broadcasters compete with the
Internet for audience and advertisers, local broadcasters do not merely
aggregate or regurgitate news from other sites. Instead, they invest
millions of dollars annually to produce news and information
programming that is original and fresh. This means investing in
personnel--including reporters, writers, producers, camera operators--
and purchasing technical equipment that allows live coverage of local
events and the production of high-quality content. This is a model the
Internet is not currently able to match. Therefore, the Internet is not
yet a perfect substitute for local broadcast news.
Value of Public Broadcasting
Harris Interactive, an independent, non-partisan research firm,
found--for the ninth year in a row--that PBS (Public Broadcasting
Service) is the Nation's most-trusted institution by the American
public. PBS ranked higher than our court system, newspapers, our
Federal government, and, surprisingly, even Congress.
In addition, 74 percent of the American public surveyed believe
Federal funding for PBS is money well spent. PBS was also the most
trusted and safe place for children to watch television--88 percent of
Americans surveyed agreed.
Question 12. What role do you see public television playing in
providing local programming?
Answer. All local broadcasters, including public television
stations, compete against each other for viewers. Competition is good
and we hope to see public television stations remain vibrant.
Question 13. To your knowledge, do you believe PBS or any other
public broadcasting station would be adversely impacted by any of the
legislative proposals (that would do away with must carry, retrans, or
compulsory licenses) currently in Congress?
Answer. I defer to our PBS colleagues on this question as I have no
particular expertise on the challenges facing public broadcasting.
Gentlemen's Agreement Not to Pull Signal
Several of the negotiation disputes have threatened or have
actually disrupted cable customers' viewing of major television
programming--whether that is sporting events, season finales of shows,
or the Oscars. It is my understanding cable operators are prohibited
from pulling broadcast signals during sweeps when ratings determine
advertising rates--the life blood of your business.
Question 14. Why shouldn't there be a similar prohibition on
broadcasters to not pull their signals in a retransmission negotiation
impasse during a major sporting event or other highly watched
programming like the Oscars--in order to limit the disruptive nature of
negotiation disputes to consumers?
Answer. I would oppose such a prohibition. As noted in response to
Question 1 above, under Section 325(b), consent for retransmission of a
station's broadcast signal is within the sole province of the station.
No party, not even the FCC, can permit retransmission of a signal, even
for a short period of time or for a given program. Broadcasters spend
hundreds of millions of dollars to produce or acquire content that is
popular with viewers. Thus, mandating carriage of our content -even for
a limited time--effectively would put the government's thumb on the
MVPDs' side of the scale. The consequences of such government
intervention in the free market of negotiations likely would result in
lower fees to broadcasters which, in turn, would impair our ability to
produce and obtain the high quality programming that viewers want.
Finally, let me emphasize that when a retrans disruption occurs and a
station's signal is not available on a particular MVPD's platform, that
station's programming is still widely available -via competing MVPDs in
the market, as well as over the air.
Question 15. Would you (and/or your affiliates/members) agree to
voluntarily adopt an arrangement of where you would not pull your
signal prior to a major sporting or highly watched/anticipated event if
negotiations are at an impasse? You could obviously still pull your
signal after the event, if you so desired.
Answer. Making such a ``voluntary'' commitment across the board
would lead to the same result described in response to Question 14.
However, we may elect to grant an extension of a retrans deadline as
part of the to-and-fro of negotiations in a free market. Indeed, we
have done so in the past when we believe that discussions were going
well with the MVPD. These extension periods have covered big-ticket
broadcast events, such as the Super Bowl. But these extensions were
made in our discretion, and not based on a regulatory obligation to do
so.
Local Programming & Independent Programming
I have long been a champion of promoting localism and diversity in
television. Local media--be it newspaper, radio, or television--play a
critical role in informing citizens about important decisions made by
their local, state, and Federal officials. Even with the Internet and
other media sources, a 2011 Project for Excellence in Journalism survey
found that local TV remains America's most popular source of local news
and information, particularly for weather and breaking news--89 percent
of surveyed adults get information about local weather and 80 percent
follow local breaking news through local television. Also, locally
owned stations also air more local news and programming than non-
locally owned stations, typically 5 1/2 minutes more per day.
It seems to me that one way to make sure that local television
stations can continue to invest in local journalism is to allow them to
recoup the investments they make in local programming. I am concerned
about the impact that various legislative proposals would have on
localism. Some have proposed to significantly alter the negotiating
leverage of the parties in a way that could make it more difficult for
local broadcasters or independent programmers to receive fair value for
their programming.
Question 16. Do you agree? Can you discuss your concerns with the
various legislative proposals and its impact on local stations and the
availability of local programming to consumers that rely on over-the-
air broadcasting?''
Answer. I am also concerned that the various legislative proposals
relating to retransmission consent would have an adverse impact on
local broadcasting. For further detail, please see response to Question
5.
Question 17. How important are media ownership rules to promoting
competition, diversity, and localism? Some broadcasters have called for
relaxing media ownership rules but could that cause greater
consolidation and concentration, which would be counter to goals in the
statute of promoting competition, localism, and diversity?
Answer. CBS has been one of the broadcasters calling for less
restrictive ownership rules. Today, broadcasters compete with an ever-
increasing and constantly changing array of alternative sources of
news, information, and entertainment. Broadcasters undoubtedly
contribute to competition, localism and diversity, and if we are to
continue to do so, we must be released from structural regulations that
do not bind our competitors.
______
Response to Written Questions Submitted by Hon. Jim DeMint to
Martin Franks
Question 1. If enacted as written, would the Next Generation
Television Marketplace Act, S. 2008, allow a pay-TV company to
retransmit the programming aired on broadcast signals without consent?
Answer. No.
Question 2. Besides several local CBS broadcast stations, like
WCBS-TV in New York City, your company owns the non-broadcast Showtime
and Smithsonian Channels. Your company negotiates copyright-based
carriage agreements for these channels with pay-TV providers without
any compulsory license or retransmission consent legal structure
involved.
a. Are you able to receive fair compensation from pay-TV companies
for carriage of Showtime and Smithsonian Channels?
Answer. Yes, based on free market negotiations.
b. Are pay-TV providers able to retransmit Showtime and Smithsonian
Channel programming without your consent?
Answer. No.
c. My legislation envisions you negotiating carriage agreements in
that same manner for WCBS-TV and your other broadcast stations. Could
CBS negotiate for carriage of its broadcast stations the way it does
for its non-broadcast properties if pay-TV compulsory licenses and
retransmission consent were both repealed?
Answer. Eventually, yes, but only after a period of several years
of considerable disruption. And to what end? As I noted at the hearing,
I can say without equivocation from my position as the principal
retransmission consent negotiator for CBS, the market for video
programming is already one of the country's most robust and competitive
sectors in the Nation. Retransmission consent is not broken and not
currently hampered by government intervention. In fact, the mere
suggestion of Federal legislation has made retransmission consent
negotiations more difficult. Any tampering with it now could negatively
impact consumers and trigger severe negative results to a broadcast
television industry that is positively contributing to the U.S.
economy.
Question 3. In your testimony, you explain how CBS affiliates
leverage CBS network programming into advertising revenue. You state,
``When network programming is of high quality and compelling, local
stations benefit . . . (by) . . . using this network programming to
obtain advertising dollars.'' They then use those advertising revenues
to produce local programming and obtain syndicated programming. I was
surprised that you did not discuss retransmission consent revenue
received by CBS affiliates or the way in which they use that revenue.
a. How much retransmission consent revenue did CBS make from its
owned & operated (O&O) stations last year?
Answer. CBS has publicly reported that we expect retransmission
consent revenues of approximately $250 million in 2012.
b. Does CBS charge its non-O&O affiliates reverse compensation or
some similar fee in exchange for their affiliation?
Answer. CBS negotiates with each of our affiliated stations over
the various terms of their carriage of CBS Television Network
programming. In many cases, affiliates do compensate us for that
carriage.
c. How much reverse compensation or similar revenue did CBS receive
last year from its affiliates?
Answer. We do not break out that revenue. Moreover, most of our
affiliates are still on long term contracts that do not expire for
several more years. The renewal of those contracts is the point at
which reverse compensation will be negotiated.
d. How much retransmission consent revenue did CBS's non-O&O
affiliates receive last year?
Answer. We have no access to the retrans revenues of our
affiliates.
Question 4. Your prepared remarks indicate that ``CBS pays hundreds
of millions of dollars each year to the NFL and to the NCAA for rights
to March Madness alone.'' You also mention fees paid for ``SEC
Football, regular season NCAA basketball, PGA golf, and the U.S. Open
tennis tournament.'' How much of the cost of these programs is covered
by the revenue from advertising sold within these programs?
Answer. CBS's ability to invest in the acquisition of broadcast
rights to premier sporting events, as well as in the production of the
highest quality entertainment and news programming, is made possible
today by a variety of revenue streams, including advertising and
retransmission consent fees. In a free, unfettered market, broadcasters
should be permitted to obtain revenues from any combination of sources
as it can in order to provide the American consumer with a service that
almost every household can access free of charge.
______
Response to Written Question Submitted by Hon. Kelly Ayotte to
Martin Franks
Question. Mr. Franks, if compulsory licensing is eliminated, what
would be the effect on smaller providers? Would individual deals need
to be cut? Is it easier for those already in the marketplace, therefore
hurting competition?
Answer. As I noted at the hearing, introducing even more claimants
into an already challenging negotiating environment may lead to more
disputes, not fewer, will be a lawyer's paradise, and is unlikely to
yield any relief to consumer pocketbooks.
That brave new marketplace would also be an extraordinarily capital
intensive one. I testified that in that new world CBS would do just
fine. One way or the other, we will be able to invest in our content,
continue to attract audiences, and figure out how to monetize our
performance. But the adverse impact on smaller companies--both on the
broadcaster and MVPD sides--could be substantial.
Many smaller players will be squeezed out of the business. West
Virginians may have access only to larger regional super players from
Washington, D.C. and Pittsburgh, or South Carolinians may lose the
wonderful localism tradition earned by their state's broadcasters in
favor of service solely from Atlanta, Charlotte or even New York City.
This move to a more regional system will come at the expense of
local economies and consumers.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Colleen Abdoulah
Question 1. Whenever signals are pulled as a result of a
retransmission consent dispute, consumers lose. The impact is magnified
in areas where a single MVPD dominates an entire state. What is the
best way to protect consumers while companies work to resolve disputes
and impasses in negotiations for the carriage of broadcast signals?
Answer. I believe that one of the best ways to protect consumers
while companies work to resolve disputes and impasses in negotiations
for the carriage of broadcast signals is to grant MVPDs and
broadcasters the right to interim carriage. This is not a novel idea.
Over the last decade, as part of conditions in several media mergers,
the FCC has granted interim carriage rights to MVPDs while they seek to
resolve their programming disputes.
An additional way to protect consumers is for Congress or the
Commission to provide a market-oriented means for resolving these
disputes and impasses. I believe that ``baseball style'' (``final
offer'') commercial arbitration, another remedy imposed by the FCC on
several media mergers, including most recently the Comcast-NBCU merger,
can be an effective way to encourage the parties in a negotiating
dispute to reach a resolution prior to dropping a signal. The FCC's use
of baseball-style arbitration is based on the theory that the
availability of arbitration alone will push the parties towards
agreement prior to a breakdown in negotiations. The FCC has found that
``final offer'' arbitration has the attractive ability to induce the
two sides to reach their own agreement lest they risk the possibility
that the arbitrator will choose the relatively extreme offer of the
other side. The prospect of submission of a dispute to arbitration
supports market forces and aids in preventing a transaction from
distorting the marketplace. Since ``baseball style'' commercial
arbitration can take time to resolve, it is important that MVPDs be
permitted to continue carrying the networks that are the subject of the
dispute during the pendency of the dispute resolution process.
Moreover, while ``baseball style'' commercial arbitration can be
prohibitively costly for small cable operators, the Commission could
adopt special rules for operators of this size to make it work in a
cost-effective manner.
Question 2. Should any special consideration be given to protect
consumers in geographic locations where a single MVPD serves a high
percentage (more than 50 percent) of total MVPD subscribers in a state?
Answer. The consumer dislocations caused by broadcaster blackouts
may be of greater breadth in geographic locations where a single MVPD
serves a high percentage of total MVPD subscribers in a DMA, however,
consumers served by the market's smallest MVPDs--who, rather than the
largest, are taken advantage of the most in retransmission consent
negotiations,--are most in need of special consideration.
______
Responses to Written Questions Submitted by Hon. Barbara Boxer to
Colleen Abdoulah
Question 1. In recent years, the breakdown of retransmission
consent negotiations has threatened the television access of millions
of Americans to major events like the Super Bowl, the World Series, and
the Oscars, not to mention the essential access of viewers to local
news broadcasts. The FCC has proposed to strengthen notice requirements
for consumers when there is the possibility that certain services may
lapse. Does WOW! support this proposal?
Answer. WOW! questions whether the consumer benefits of the notice
requirements proposed by the Commission would be outweighed by consumer
harm and confusion. In some instances, consumers might respond to the
notice of a potential loss of service by switching providers only to
learn afterwards that such action was unnecessary because the dispute
was resolved without any consumer impact. In other instances, consumers
might heavily discount or ignore the notice believing that the dispute
will be resolved, realizing that there would be no agreement only after
losing service. We believe a better approach to addressing the problem
of consumers losing access to broadcast stations is to reform the
underlying retransmission consent rules.
Question 2. Your written testimony indicated your support for
continuous carriage. Why does WOW! believe continuous carriage during
retransmission consent disputes would help end disputes?
Answer. WOW! supports continuous carriage in order to ensure that
consumers are not unnecessarily harmed while retransmission consent
negotiations are ongoing. In particular, interim carriage can be an
effective way to protect consumers while the FCC determines whether the
good faith rules have been violated by either party. This is not a
novel idea. Over the last decade, as part of conditions in several
media mergers, the FCC has granted interim carriage rights to MVPDs
while they seek to resolve their programming disputes.
Question 3. Please provide for the record information on WOW!'s
termination fee policy.
Answer. WOW! does not require residential customer to sign
contracts for our services, therefore we have neither termination fees
nor policies regarding them. Rather, we rely on the quality of our
service and products as the incentive for continued customer loyalty.
Question 4. Has your company examined dropping these fees in the
future?
Answer. Please see above answer.
Question 5. Your written testimony noted WOW!'s support for
requiring alternative styles of negotiation, like baseball-style
arbitration, in retransmission consent disputes. Can you elaborate on
why you feel this would be beneficial?
Answer. WOW! believes that ``baseball style'' (``final offer'')
commercial arbitration, a remedy imposed by the FCC on several media
mergers, including most recently the Comcast-NBCU merger, can be an
effective way to encourage the parties in a negotiating dispute to
reach a resolution prior to dropping a signal. The FCC's use of
baseball-style arbitration is based on the theory that the availability
of arbitration alone will push the parties towards agreement prior to a
breakdown in negotiations. The FCC has found that ``final offer''
arbitration has the attractive ability to induce the two sides to reach
their own agreement lest they risk the possibility that the arbitrator
will choose the relatively extreme offer of the other side. The
prospect of submission of a dispute to arbitration supports market
forces and aids in preventing a transaction from distorting the
marketplace. Since ``baseball style'' commercial arbitration can take
time to resolve, it is important that MVPDs be permitted to continue
carrying the networks that are the subject of the dispute during the
pendency of the resolution process. Moreover, while ``baseball style''
commercial arbitration can be prohibitively costly for small cable
operators, the Commission could adopt special rules for operators of
this size to make it work in a cost-effective manner.
In addition to arbitration, the FCC has found it necessary, as part
of its media merger conditions, to require interim carriage of the
broadcast signal while negotiations are ongoing under the prices, terms
and conditions of the expired agreement to protect consumers against
loss of access to broadcast programming.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Colleen Abdoulah
Question 1. S. 2008, the Next Generation Television Marketplace Act
of 2011, would provide for the deregulation of retransmission consent.
But as we saw last month with DirecTV and Viacom, blackouts occur due
to disputes between cable programmers and cable providers in a non-
regulated environment too. If we see customers, like those who
subscribe to DirecTV, suffering in a deregulated world, why would we
want to deregulate the negotiation process for broadcasters too?
Answer. We believe that reform of the existing system is necessary
to ensure that consumers are protected. With regard to some rules that
are part of the retransmission consent regulatory scheme, deregulation
may be appropriate. In instances where both parties at the negotiation
table have roughly the same market power, there may be less need for
regulations to avoid disruption to the consumer. However, this is not
always the case, and in some cases, new rules may be necessary.
Question 2a. Today's video marketplace is very different than what
it was in 1992. Since the enactment of the Cable Act, satellite
carriers and telephone companies offering video services compete with
cable operators. And in the last few years, we have seen the enormous
growth of online video. In your view, given these changes in the video
marketplace, are the existing rules working?
Answer. No.
Question 2b. Why or why not?
Answer. The rules were designed for a period of time when a cable
operator was the dominant provider of multichannel video service in its
franchise area. Times have changes, and the rules governing the market
need to change as well.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Colleen Abdoulah
Question 1a. Stakeholders on all sides of the retransmission
consent debate appear to agree that the visibility and frequency of
retransmission disputes has increased over the last few years. Some
have argued that retransmission consent is working and that some
growing pains are reasonable because many broadcast stations are
electing to pursue deals instead of must-carry for the first time since
enactment of the 1992 Cable Act which created the dual regimes of must
carry and retransmission consent. On the other hand, distributors argue
that private sector retransmission consent deals are taking longer to
negotiate, and that it is becoming harder to reach agreement regarding
mutually agreeable terms. If you believe must-carry and retransmission
consent are important to localism, how do you recommend that the
Congress measure the success of localism?
Answer. If Congress wants to determine whether retransmission
consent is important to localism, Congress should inquire as to how
much of broadcasters' retransmission consent revenue is being invested
into the production of local programming.
Question 1b. If you believe retransmission consent is failing, what
evidence can you provide?
Answer. Failed retransmission consent negotiations have resulted in
80 blackouts this year alone, which is the largest number of blackouts
in a year since the rules were passed in 1992. Moreover, the wholesale
prices for retransmission consent are rising despite the fact that the
ratings for these stations are dropping.
Question 2a. Some distributors have indicated concerns about the
ability of content creators to tie affiliated programing to
retransmission consent deals because they argue this practice
contributes to programming cost increases. Broadcasters and content
creators argue that current practices provide necessary financial
support for a greater variety of programming options which they say is
a benefit to consumers. To what extent should Congress be concerned
about programming cost increases over the past several years?
Answer. Congress should be very concerned about the programming
cost increases over the past several years because these costs are
largely passed along to consumers in the form of higher subscription
rates. These rate increases are felt most acutely by consumers at the
lowest end of the economic scale, because they have the least amount of
discretionary income (or, more pointedly, no discretionary income), to
spend. Bernstein Research has published a series of studies starting in
2009 on what it calls a ``looming affordability crisis in Pay TV and
telecommunications'' where ``dislocations at the low end of the income
scale in the wake of the Great Recession must be viewed as structural
rather than cyclical.'' Their most recent research reveals that the
bottom 40 percent of households not only has no discretionary income
with which to purchase pay-TV and telecom services after meeting the
most basic necessities of food, shelter, transportation and health
care, they ``are already underwater to the tune of $1,322 annually, or
more than $100 per month.'' [Craig Moffett, Bernstein Research, U.S.
Cable & Satellite Broadcasting, ``Weekend Media Blast: The Poverty
Problem 2012 (Oct. 12, 2012)] For residents of areas where a good
quality over-the-air broadcast signal does not reach because of
topography, this can mean the complete loss of access to vital news,
emergency information, and entertainment for an entire household.
Increased programming costs from the major content companies also
threaten independent programming voices whose opportunities for
carriage are threatened by the outsized demands of the media giants.
Question 2b. If you believe programming cost increases merit a
fresh look at the 1992 Cable Act, do you believe cost savings garnered
by distributors should be passed onto consumers? If so, how would any
savings be realized by consumers?
Answer. Given the amount of competition among MVPDs in the market,
I believe that market forces will cause cost savings to be passed onto
consumers, either through lower prices, or more limited rate increases.
Question 2c. If you support changes to current law, would your
company provide consumers with the same flexibility to pursue a la
carte programming options? If not, why not?
Answer. WOW! would like the flexibility to provide its customers
some channels or blocks of channels on an a la carte or tiered basis,
particularly higher cost networks, such as broadcast stations, regional
sports networks, and national sports networks.
Question 3a. Given that retransmission consent deals are private
sector negotiations under the 1992 Cable Act, it is difficult for
observers and participants to track pricing trends. Do you believe
pricing transparency for distributors and for consumers could help to
alleviate tensions over content deals? If not, why not?
Answer. Generally speaking, I believe that greater transparency for
distributors and for consumers would help alleviate tensions over
content deals. However, greater transparency must come with certain
safeguards to prevent sellers and buyers from using the available
information to collude.
Question 3b. If you do believe pricing transparency could be
beneficial, please provide specific recommendations for such a proposal
could be implemented.
Answer. The FCC should be required to gather data and evidence for
the purpose of producing a pricing report to Congress on the costs of
retransmission consent. Today, unfortunately, the non-disclosure
provisions that are part of nearly every retransmission consent
agreement prevent even the FCC from knowing what MVPDs are paying for
broadcast programming, or the level of pricing discrepancies among
MVPDs of varying sizes.
Question 4. Going forward, how should Congress and/or the Federal
Communications Commission measure whether or not the current system is
working? Please provide specific metrics to support your answer.
Answer. The Commission should seek access to the prices, terms, and
conditions of retransmission consent agreements, and issue an annual
report to Congress on the matter. At a minimum, the report should
measure how many blackouts have occurred in the covered period.
Moreover, it should include an analysis of the difference in prices
paid by small MVPDs versus large ones.
Question 5. If Congress were to revisit the 1992 Cable Act, are
there improvements to the law which you believe Congress should
consider?
Answer. At a minimum, Congress should consider adopting interim
carriage to ensure that consumers do not lose access to broadcast
stations during retransmission consent disputes, and adoption of
baseball style commercial arbitration as a means of resolving impasses.
Neither of these ideas are novel. Over the last decade, as part of
conditions in several media mergers, the FCC has adopted these
solutions. But Congress must go further to ensure adequate protections
for small MVPDs, similar to those adopted by the FCC in its recent
Comcast-NBCU merger order, such as one-way fee shifting if a small MVPD
prevails in arbitration, and right of an MVPD with 3 million or fewer
subscribers to use a bargaining agent to negotiate and arbitrate. In
addition, Congress should adopt a ban on coordinated retransmission
consent negotiations by separately owned, same market broadcast
stations.
______
Response to Written Questions Submitted by Hon. Olympia J. Snowe to
Colleen Abdoulah
Existing FCC Authority
The Cable Television Consumer Protection and Competition Act of
1992 (``1992 Cable Act'') amended the Communications Act to include
Section 325, which provides television stations with certain carriage
rights on local market cable television systems. The Commission
established rules related to the retransmission/mandatory carriage
election cycle, but did not adopt rules governing the negotiation
process of retransmission consent.
However, the statute clearly calls for the FCC to ensure that
broadcasters act in ``good faith during negotiations.'' During the
Sinclair-Mediacom dispute back in 2007, the Commission didn't intervene
because then Chairman Martin interpreted the law didn't and stated that
the agency didn't have the authority to impose binding arbitration. At
the time, he stated ``It's not clear to me that the commission does
have the authority to order arbitration.''
Yet, during that time in January 2007, Senator Inouye and the late
Senator Stevens wrote the FCC stating that the Commission did indeed
have authority to intervene and, if necessary, use binding arbitration
to resolve any failed negotiations.
Question 1. Given the existing statute and the Congressional
letter, couldn't the current Commission interpret the statue
differently than Chairman Martin to where they do have the statutory
authority to be involved in any disputes? What is precluding them from
doing so?
Answer. Yes, the current Commission can interpret the statute
differently from previous Commissions, and it is my belief that the
Commission has the statutory authority to be significantly more
involved in helping to resolve retransmission consent disputes. I do
not know what is precluding the current Commission from being more
involved in dispute resolution.
Question 2. If Congress directed the FCC to ensure broadcasters act
in ``good faith'' during negotiations, how do you believe the FCC can
go about fulfilling that responsibility and to limit or prevent the
disruption of programming to cable and/or satellite customers?
Answer. The Commission could prohibit separately owned, same-market
broadcasters from coordinating their retransmission consent
negotiations as a per se violation of the good faith rules. Also the
Commission could prohibit all forms of third-party interference with
the exercise of retransmission consent for out-of-market carriage as a
per se violation of the good faith rules.
Moreover, the Commission could make available dispute resolution
mechanisms in cases where retransmission consent negotiations have
reached an impasse and the broadcaster and MVPD cannot reach a deal on
prices, terms, or conditions of carriage, even in the absence of a
showing that a broadcaster has not acted in ``good faith.''
It could also create a process that provides interim carriage based
on the terms of expiring retransmission consent deals while (i) an MVPD
continues to negotiate in good faith towards a carriage agreement; or
(ii) during the pendency of a dispute resolution proceeding.
Reasonable Basic Service Tier Rates
While I understand programming costs are growing, I am concerned
about the significant increase in retransmission compensation that has
occurred over the past several years. For example, retransmission
consent revenue climbed more than 30 percent for six broadcasters in
the first nine months of 2008. By 2017, SNL Kagan--an industry analysis
firm--projects retransmission fees will grow to $3.61 billion, with
average per-subscriber fees potentially doubling. So, as broadcasters
look to increase revenue streams through retransmission fee, it
seemingly puts upward pressure on the price of basic cable and
ultimately consumers. Such increase may also infringe upon the existing
statute.
Section 623(b)(1) requires the FCC to ensure that basic cable
service rates are reasonable. In addition, Section 325(b)(3)(A)
requires the Commission to consider the impact that retransmission
consent has on basic cable service rates and that any regulations do
not conflict with the FCC's ``obligation under Section 623(b)(1)'' to
ensure such rates are reasonable.
According to SNL Kagan, the average cable TV subscriber in 2011
paid $78 a month compared to only $40 per month in 2001. Whereas the
average household income fell 6 percent between 2006 and 2010,
according to the U.S. Census.
Question 3. Do you know if the FCC is actively examining the impact
of increasing retransmission fees in relations to basic cable rates?
Answer. No, I do not know. However, increasing retransmission
consent rates are having a large impact on our basic cable rates, and
we would strongly encourage the FCC to launch such an examination.
Question 4. Can you elaborate on what impact these retransmission
fees have on the cost of basic cable service? What percentage of a
cable customer's monthly cable bill is attributed to retransmission
fees paid to the broadcasters (a rough estimate will suffice) for (1) a
customer subscribing to basic cable and (2) a customer subscribing to
the most expensive cable TV package?
Answer. We are prohibited by confidentiality language in our
retransmission consent agreements from disclosing fees paid to the
stations. However, during the past two retransmission consent cycles we
have seen an average of 100 percent increases when the agreements get
renegotiated. The internal year-over-year increases then moderate for
the balance of the term of the agreement but essentially always
represent a multiple of the consumer price index (CPI).
Based on the retransmission consent agreements we are negotiating
now for 2013 and beyond we expect that trend to continue, if not
worsen.
WOW!, like all other MVPDs, has no real option other than to pass
some or all of these costs along to our customers. The impact of out-
of-control programming cost increases, including retransmission consent
fees, is felt most acutely by elderly and low-income customers.
Eliminating Retransmission Consent and Compulsory Licenses
While there is no question that Congress must examine and reform
outdated provisions in the statute, there are legislative proposals
before Congress that propose sweeping changes to laws governing cable
and broadcast obligations. In particular these bills propose repealing
retransmission consent, must carry, and the Copyright Act's
``compulsory license'' provisions.
During the hearing, witnesses provided conflicting testimony on the
impact such eliminations would have on the marketplace and with retrans
negotiations--some said it would only increase disputes and others said
it would wouldn't.
Question 5. Can you elaborate, in detail, on how negotiations
between MVPDs and broadcasters (and/or programming/content owners and
anyone else that might now be included) would be carried out, if the
compulsory license, must carry, and retransmission consent provisions
were eliminated? Please lay out the process and parties that would
exist in negotiating the rights to use programming/content. Also,
please compare/contrast the new negotiation process that would result
versus the current retransmission consent negotiations.
Answer. If these provisions were eliminated, the copyright owners
of the content that airs on broadcast stations would gain greater
control over the distribution of their content. Some of these copyright
owners may choose to license their content to MVPDs on their own, and
others may choose to grant broadcasters the right to sublicense their
content to MVPDs
The new negotiation process that would emerge from the elimination
of the statutory license and the retransmission consent provisions
seems likely to carry with it at least as many of the same flaws as the
current process, with the added problem that the changeover would
inject a great deal of uncertainty into the marketplace that could be
significantly harmful to consumers and competition.
If the must carry requirements were eliminated from the law, there
would be no obligation on an MVPD to carry any broadcast station, and
station owners that had relied on the must carry rules would have to
negotiate for carriage with MVPDs, similar to the way retransmission
consent stations negotiate carriage with MVPDs.
Question 6. If you believe that eliminating these provisions would
lead to more disputes, can you elaborate, in detail, on why?
Answer. To the extent that MVPDs have to negotiate carriage deals
with an increased number of copyright holders and their sub-licensees,
the likelihood of negotiating impasses would be greater. The result may
be fewer total broadcast signal blackouts, but more partial content
blackouts where individual programs are no longer available to the
viewer.
Question 7. If you believe that eliminating these provisions would
lead to less disputes, can you elaborate, in detail, on why?
Answer. I do not believe that eliminating all of these provisions
would lead to fewer disputes.
Question 8. In witness testimony, it was indicated that for 2012,
to date, there have already been 69 disputes regarding retransmission
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
Answer. Carriage disputes between MVPDs and non-broadcast networks/
programmers seem to occur less often than disputes regarding
retransmission consent. I am aware of only two such disputes this year,
each involving satellite providers. First, Dish Network continues to be
unable to reach to reach a carriage deal with AMC Networks, which
includes AMC, WE, IFC, and Sundance. This dispute has been ongoing
since July. Second, DirecTV could not reach a carriage deal with Viacom
for its 26 channels, including MTV, Nickelodeon and Comedy Central. The
networks were off DirecTV for nine full days.
It is my understanding that while there has been a 15 percent
increase in commercial television stations from 1996 to 2010, there has
also been a 33 percent decrease in the number of station owners. There
has also been a continued dearth of ownership by minorities and women--
which is approximately only 5 percent and 3.3 percent of TV market
share, respectively (both well below their population representation).
Both indicate a significant deficit in achieving the policy goals of
localism and diversity.
A free exchange of a wide range of viewpoints is the lifeblood of
our democracy, and the print and broadcast media serve an indispensable
function by exposing our society to diverse thoughts and viewpoints.
Question 9. What would the impact of eliminating must carry
requirements from the law have on local and independent stations?
Without must carry how could a local independent station get carried by
a MVPD? Is there any obligation of the MVPD to carry the station?
Answer. If the must carry requirements were eliminated from the
law, there would be no obligation on an MVPD to carry any broadcast
station, and station owners that had relied on the must carry rules
would have to negotiate for carriage with MVPDs, similar to the way
retransmission consent stations negotiate carriage with MVPDs.
Question 10. Would the elimination of must carry possibly lead to
more concentration in the media market and, as a result, further muting
the diversity of media voices, which has been a resolute policy of our
Nation's telecommunications and media laws?
Answer. If must carry stations could not strike carriage deals with
an MVPD, and as a result these stations went out of business, then it
is possible that one would perceive there to be greater concentration
in the media market due to these stations' exit. However, one must then
assess the magnitude of the impact of the loss of these stations on the
diversity of media voices in the current marketplace.
Online Video vs. Traditional Video
According to Nielsen Media, the average American watches over 153
hours of video per month on traditional television compared to only 4.5
hours per month of online video. Also, approximately 97 percent of
American households have a television whereas 68 percent of households
have broadband (the U.S. currently ranks 23rd in broadband
penetration).
In addition, a 2011 Project for Excellence in Journalism survey
found that local TV remains America's most popular source of local news
and information, particularly for weather and breaking news--89 percent
of surveyed adults get information about local weather and 80 percent
follow local breaking news through local television. Only about 51
percent of smartphone users use the device to get news.
While the Internet is a very value medium for media and news and
provides incredible benefit to users, most Americans still rely heavily
on traditional television for programming, local news, and even
weather.
Question 11. With the current penetration and marketplace, is the
Internet a ``perfect substitute'' to traditional television programming
and local broadcast news? If not, what do believe is required for it to
be a substitutable good to traditional television and local news?
Answer. I do not believe that today Internet video is a ``perfect
substitute'' for traditional television programming and local broadcast
news. Thus far, we have seen little evidence that significant numbers
of consumers are abandoning traditional MVPD services (``cutting the
cord'') and relying instead entirely on video delivered over the
Internet, which is how an economist would view a ``perfect
substitute.'' Rather, most Internet video appears to be complementary
to MVPD offerings, with many consumers using both services.
Value of Public Broadcasting
Harris Interactive, an independent, non-partisan research firm,
found--for the ninth year in a row--that PBS (Public Broadcasting
Service) is the Nation's most-trusted institution by the American
public. PBS ranked higher than our court system, newspapers, our
Federal government, and, surprisingly, even Congress.
In addition, 74 percent of the American public surveyed believe
Federal funding for PBS is money well spent. PBS was also the most
trusted and safe place for children to watch television--88 percent of
Americans surveyed agreed.
Question 12. What role do you see public television playing in
providing local programming?
Answer. While many of the smaller markets we serve don't receive
much if any locally originated programming from their respective PBS
affiliates, we continue to believe that PBS programming is an important
service for our subscribers and expect it to remain a valued part of
our channel lineups.
Question 13. To your knowledge, do you believe PBS or any other
public broadcasting station would be adversely impacted by any of the
legislative proposals (that would do away with must carry, retrans, or
compulsory licenses) currently in Congress?
Answer. The elimination of the must carry rules and the compulsory
license could have a near term adverse impact on PBS and other public
broadcast stations. However, I believe that many MVPDs would continue
to carry one or more PBS stations on their systems even without the
must carry rules in place. Nonetheless, these stations would need to
quickly adapt to the new regulatory environment, particularly a
marketplace without a statutory license, and their success would depend
on how well they make the transition.
Affiliate Negotiation & Impact on Localism
One of the arguments for reform is that the current law is outdated
and doesn't allow for true marketplace negotiations because it allows
local stations to block cable systems from importing network
programming from another affiliate of the same broadcast network. For
example, the network non-duplication rule prohibits distributors from
negotiating with other suppliers of the same content--taking away a
basic component of any free market.
Some have stated that this prohibits ``free market'' negotiations
since cable operators have only one source to receive the programming.
And therefore have recommended to open up the market where a cable or
satellite operator could negotiate with an out-of-market affiliate.
Question 14. While this might seem appropriate, I am concerned
about the impact such allowance would have on localism. As the Supreme
Court has stated ``fairness to communities [in distributing radio
service] is furthered by a recognition of local needs for a community
radio mouthpiece.'' If this scenario was allowed, how could we protect
localism? What safeguards could be implemented to ensure local
programming?
Answer. The relationship between elimination of the network non-
duplication and syndicated exclusivity rules and the amount of local
programming aired on local broadcast stations is indirect, at best.
Question 15. How feasible is it actually for a cable or satellite
operator to negotiate with out of market affiliate? There is still the
primary owner of the content--the programmer. If the cable operator is
having a dispute with the in-market Fox or Disney broadcaster, how
could the cable company turn to an out-of-market Fox or Disney
affiliate and successfully negotiate? It's still Fox or Disney and it
seems that if the out-of-market affiliate did engage, Disney could
threaten to pull the affiliation to prevent such action?
Answer. It is increasingly difficult for small cable operators to
negotiate retransmission consent with broadcasters for out-of-market
carriage. It is now common for the national broadcast networks to
prohibit contractually their affiliates from granting an MVPD the right
to re-broadcast their signal outside of their local market. At the same
time, in-market broadcasters are increasingly conditioning their grant
of retransmission on MVPDs agreeing not to import out-of-market
broadcast stations. These practices mostly harm consumers who benefit
from receiving out-of-market stations in some circumstances where the
out-of-market station offers in-state news and more relevant weather
compared with the in-market station.
Where not restricted by exclusivity rules and contractual
provisions, carriage of out-of-market stations is often made available
to MVPDs at a more competitive price than the in-market affiliate. This
often has the effect of moderating the demands made by the in-market
affiliate, thus creating savings that can be passed through to
consumers.
Retransmission Fee
As mentioned in a prior question, I am concerned about the
significant increase in retransmission fees that has occurred over the
past several years. But at the same time, given that retransmission
consent is a negotiation between private parties, the MVPD is under no
obligation to pay the fee being demanded by the broadcaster or carry
the signal under Section 325(b)(4).
Question 16. If a MVPD feels that the retransmission fee the
broadcasters is asking for is not reasonable then why not just simply
not pay it, stop retransmitting the signal over the cable plant
indefinitely, and, if need be, give every customer in the market an
antenna? If seems over time, the number of subscribers MVPDs have (over
101 million subs) would make broadcasters come to the table sooner
rather than later.
Answer. If an MVPD stops retransmitting the signal of a Big 4
broadcast network affiliate, the MVPD would expect to lose a
significant number of subscribers, which will threaten their
competitive standing in the marketplace. Providing an antenna to every
customer using traditional antenna technology is not an option,
particularly for smaller MVPDs serving rural areas, because not all
customers can receive a good quality broadcaster signal over the air.
MVPDs don't object to paying a retransmission consent fee to
broadcasters. MVPDs are troubled that rules and regulations that were
created 20 years ago have not kept up with the times, and now give
broadcasters advantages in negotiations which allow them to charge
prices that are above fair market value.
Question 17. If all MVPDs feel that the retransmission fees are
unreasonable then why don't you all agree not to pay the broadcasters--
hold an industry-wide boycott?
Answer. Such an act would be considered collusion prohibited under
the Sherman Antitrust Act.
______
Response to Written Questions Submitted by Hon. Jim DeMint to
Colleen Abdoulah
Question 1. If enacted as written, would the Next Generation
Television Marketplace Act, S. 2008, allow a pay-TV company to
retransmit the programming aired on broadcast signals without consent?
Answer. No.
Question 2. Are WOW! subscribers required by Federal law to
purchase a certain package of channels when they buy your video
service?
Answer. Yes, current Federal law requires that WOW! subscribers
must purchase at a minimum a basic cable service tier, which MUST
include must carry signals, local public, educational and governmental
access programming required under its franchises, and any signal of any
television broadcast station that WOW! provides to any subscriber.
Broadcast stations that elect retransmission consent generally require
carriage in the basic cable service tier as a non-negotiable condition
of retransmission consent. [Note the operator must put ALL broadcast
signals on the basic tier without distinction as to whether they are
there under must carry or retrans. See Section 623(b)(7)(A)(iii). The
above paragraph has been modified.]
Question 3. Is WOW! prevented by Federal law from selling a
subscriber only a single channel, Discovery Channel for example, or
only a package of sports channels?
Answer. Except as set forth above in my answer to question 2,
Federal laws do not prevent WOW! from selling a subscriber a single
channel, like Discovery Channel, or a package (tier) of sports
channels. However, in practice, media conglomerates that own many
channels condition carriage of their most popular channel with carriage
of their less popular channels and require them to be distributed on
MVPD's most widely sold packages. Moreover, media conglomerates also
require that their programming be carried in the same package of
service as programming owned by other media conglomerates. The result
for the consumer is a bloated and expensive tier of cable channels
where the consumer has little to no choice in what channels to
purchase.
______
Response to Written Question Submitted by Hon. Kelly Ayotte to
Colleen Abdoulah
Question. Mr. Franks, if compulsory licensing is eliminated, what
would be the effect on smaller providers? Would individual deals need
to be cut? Is it easier for those already in the marketplace, therefore
hurting competition?
Answer. No answer provided.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Dr. Mark Cooper
Question 1a. Whenever signals are pulled as a result of a
retransmission consent dispute, consumers lose. The impact is magnified
in areas where a single MVPD dominates an entire state. What is the
best way to protect consumers while companies work to resolve disputes
and impasses in negotiations for the carriage of broadcast signals?
Answer. No answer provided.
Question 1b. Should any special consideration be given to protect
consumers in geographic locations where a single MVPD serves a high
percentage (more than 50 percent) of total MVPD subscribers in a state?
Answer. No answer provided.
______
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to
Dr. Mark Cooper
Question 1. S. 2008, the Next Generation Television Marketplace Act
of 2011, would provide for the deregulation of retransmission consent.
But as we saw last month with DirecTV and Viacom, blackouts occur due
to disputes between cable programmers and cable providers in a non-
regulated environment too. If we see customers, like those who
subscribe to DirecTV, suffering in a deregulated world, why would we
want to deregulate the negotiation process for broadcasters too?
Answer. No answer provided.
Question 2a. Today's video marketplace is very different than what
it was in 1992. Since the enactment of the Cable Act, satellite
carriers and telephone companies offering video services compete with
cable operators. And in the last few years, we have seen the enormous
growth of online video. In your view, given these changes in the video
marketplace, are the existing rules working?
Answer. No answer provided.
Question 2b. Why or why not?
Answer. No answer provided.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Dr. Mark Cooper
Question 1a. Stakeholders on all sides of the retransmission
consent debate appear to agree that the visibility and frequency of
retransmission disputes has increased over the last few years. Some
have argued that retransmission consent is working and that some
growing pains are reasonable because many broadcast stations are
electing to pursue deals instead of must-carry for the first time since
enactment of the 1992 Cable Act which created the dual regimes of must
carry and retransmission consent. On the other hand, distributors argue
that private sector retransmission consent deals are taking longer to
negotiate, and that it is becoming harder to reach agreement regarding
mutually agreeable terms. If you believe must-carry and retransmission
consent are important to localism, how do you recommend that the
Congress measure the success of localism?
Answer. No answer provided.
Question 1b. If you believe retransmission consent is failing, what
evidence can you provide?
Answer. No answer provided.
Question 2a. Some distributors have indicated concerns about the
ability of content creators to tie affiliated programing to
retransmission consent deals because they argue this practice
contributes to programming cost increases. Broadcasters and content
creators argue that current practices provide necessary financial
support for a greater variety of programming options which they say is
a benefit to consumers. To what extent should Congress be concerned
about programming cost increases over the past several years?
Answer. No answer provided.
Question 2b. If you believe programming cost increases merit a
fresh look at the 1992 Cable Act, do you believe cost savings garnered
by distributors should be passed onto consumers? If so, how would any
savings be realized by consumers?
Answer. No answer provided.
Question 2c. If you support changes to current law, would your
company provide consumers with the same flexibility to pursue a la
carte programming options? If not, why not?
Answer. No answer provided.
Question 3a. Given that retransmission consent deals are private
sector negotiations under the 1992 Cable Act, it is difficult for
observers and participants to track pricing trends. Do you believe
pricing transparency for distributors and for consumers could help to
alleviate tensions over content deals? If not, why not?
Answer. No answer provided.
Question 3b. If you do believe pricing transparency could be
beneficial, please provide specific recommendations for such a proposal
could be implemented.
Answer. No answer provided.
Question 4. Going forward, how should Congress and/or the Federal
Communications Commission measure whether or not the current system is
working? Please provide specific metrics to support your answer.
Answer. No answer provided.
Question 5. If Congress were to revisit the 1992 Cable Act, are
there improvements to the law which you believe Congress should
consider?
Answer. No answer provided.
______
Response to Written Questions Submitted by Hon. Olympia J. Snowe to
Dr. Mark Cooper
Existing FCC Authority
The Cable Television Consumer Protection and Competition Act of
1992 (``1992 Cable Act'') amended the Communications Act to include
Section 325, which provides television stations with certain carriage
rights on local market cable television systems. The Commission
established rules related to the retransmission/mandatory carriage
election cycle, but did not adopt rules governing the negotiation
process of retransmission consent.
However, the statute clearly calls for the FCC to ensure that
broadcasters act in ``good faith during negotiations.'' During the
Sinclair-Mediacom dispute back in 2007, the Commission didn't intervene
because then Chairman Martin interpreted the law didn't and stated that
the agency didn't have the authority to impose binding arbitration. At
the time, he stated ``It's not clear to me that the commission does
have the authority to order arbitration.''
Yet, during that time in January 2007, Senator Inouye and the late
Senator Stevens wrote the FCC stating that the Commission did indeed
have authority to intervene and, if necessary, use binding arbitration
to resolve any failed negotiations.
Question 1. Given the existing statute and the Congressional
letter, couldn't the current Commission interpret the statue
differently than Chairman Martin to where they do have the statutory
authority to be involved in any disputes? What is precluding them from
doing so?
Answer. Changing statutory interpretations are quite challenging.
One must prove a material change in circumstances to reverse an earlier
interpretation. Should the FCC try to do so, it would certainly be
sued.
Question 2. If Congress directed the FCC to ensure broadcasters act
in ``good faith'' during negotiations, how do you believe the FCC can
go about fulfilling that responsibility and to limit or prevent the
disruption of programming to cable and/or satellite customers?
Answer. If the Congress has the will and ability to take action, it
should do a lot more than ``good faith.'' Good faith negotiations will
require arbitration and enforcement. Congress will do better o mandate
specific criteria or standards.
Reasonable Basic Service Tier Rates
While I understand programming costs are growing, I am concerned
about the significant increase in retransmission compensation that has
occurred over the past several years. For example, retransmission
consent revenue climbed more than 30 percent for six broadcasters in
the first nine months of 2008. By 2017, SNL Kagan--an industry analysis
firm--projects retransmission fees will grow to $3.61 billion, with
average per-subscriber fees potentially doubling. So, as broadcasters
look to increase revenue streams through retransmission fee, it
seemingly puts upward pressure on the price of basic cable and
ultimately consumers. Such increase may also infringe upon the existing
statute.
Section 623(b)(1) requires the FCC to ensure that basic cable
service rates are reasonable. In addition, Section 325(b)(3)(A)
requires the Commission to consider the impact that retransmission
consent has on basic cable service rates and that any regulations do
not conflict with the FCC's ``obligation under Section 623(b)(1)'' to
ensure such rates are reasonable.
According to SNL Kagan, the average cable TV subscriber in 2011
paid $78 a month compared to only $40 per month in 2001. Whereas the
average household income fell 6 percent between 2006 and 2010,
according to the U.S. Census.
Question 3. Do you know if the FCC is actively examining the impact
of increasing retransmission fees in relations to basic cable rates?
Answer. I do not.
Question 4. Can you elaborate on what impact these retransmission
fees have on the cost of basic cable service? What percentage of a
cable customer's monthly cable bill is attributed to retransmission
fees paid to the broadcasters (a rough estimate will suffice) for 1) a
customer subscribing to basic cable and 2) a customer subscribing to
the most expensive cable TV package?
Answer. Retransmission fees are a small part of the total bill.
However, retransmission has played a large part in driving up cable
bills. By giving the broadcasters the ability to create bundles that
have driven up costs.
Eliminating Retransmission Consent and Compulsory Licenses
While there is no question that Congress must examine and reform
outdated provisions in the statute, there are legislative proposals
before Congress that propose sweeping changes to laws governing cable
and broadcast obligations. In particular these bills propose repealing
retransmission consent, must carry, and the Copyright Act's
``compulsory license'' provisions.
During the hearing, witnesses provided conflicting testimony on the
impact such eliminations would have on the marketplace and with retrans
negotiations--some said it would only increase disputes and others said
it would wouldn't.
Question 5. Can you elaborate, in detail, on how negotiations
between MVPDs and broadcasters (and/or programming/content owners and
anyone else that might now be included) would be carried out, if the
compulsory license, must carry, and retransmission consent provisions
were eliminated? Please lay out the process and parties that would
exist in negotiating the rights to use programming/content. Also,
please compare/contrast the new negotiation process that would result
versus the current retransmission consent negotiations.
Answer. Repeal of these provision would completely unbalance the
bargaining process. MVPDs have market power over access to viewers.
MVPDs would eat the lunch of the broadcasters. Consumers would
ultimately pay the price.
Question 6. If you believe that eliminating these provisions would
lead to more disputes, can you elaborate, in detail, on why?
Answer. I do not believe they would lead to more disputes. The
MVPDs' would prevail on terms that suite them.
Question 7. If you believe that eliminating these provisions would
lead to less disputes, can you elaborate, in detail, on why?
Question 8. In witness testimony, it was indicated that for 2012,
to date, there have already been 69 disputes regarding retransmission
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
Answer. I do not have this information.
Question 9. What would the impact of eliminating must carry
requirements from the law have on local and independent stations?
Without must carry how could a local independent station get carried by
a MVPD? Is there any obligation of the MVPD to carry the station?
Answer. They could not gain carriage.
Question 10. Would the elimination of must carry possibly lead to
more concentration in the media market and, as a result, further muting
the diversity of media voices, which has been a resolute policy of our
Nation's telecommunications and media laws?
Answer. Elimination of must carry would reduce the availability of
local broadcasting. The local broadcasting would be replaced by content
from dominant firms.
Online Video vs. Traditional Video
According to Nielsen Media, the average American watches over 153
hours of video per month on traditional television compared to only 4.5
hours per month of online video. Also, approximately 97 percent of
American households have a television whereas 68 percent of households
have broadband (the U.S. currently ranks 23rd in broadband
penetration).
In addition, a 2011 Project for Excellence in Journalism survey
found that local TV remains America's most popular source of local news
and information, particularly for weather and breaking news--89 percent
of surveyed adults get information about local weather and 80 percent
follow local breaking news through local television. Only about 51
percent of smartphone users use the device to get news.
While the Internet is a very value medium for media and news and
provides incredible benefit to users, most Americans still rely heavily
on traditional television for programming, local news, and even
weather.
Question 11. With the current penetration and marketplace, is the
Internet a ``perfect substitute'' to traditional television programming
and local broadcast news? If not, what do believe is required for it to
be a substitutable good to traditional television and local news?
Answer. The Internet is, at best an emerging partial substitute.
Professional, long form video is a distinct product that is dominated
by a handful of vertically integrated media conglomerates, who have
controlled the availability of their content on the Internet to prevent
it from becoming an effective distribution mechanism for this content.
Value of Public Broadcasting
Harris Interactive, an independent, non-partisan research firm,
found--for the ninth year in a row--that PBS (Public Broadcasting
Service) is the Nation's most-trusted institution by the American
public. PBS ranked higher than our court system, newspapers, our
Federal government, and, surprisingly, even Congress.
In addition, 74 percent of the American public surveyed believe
Federal funding for PBS is money well spent. PBS was also the most
trusted and safe place for children to watch television--88 percent of
Americans surveyed agreed.
Question 12. What role do you see public television playing in
providing local programming?
Answer. In 50 years public television has not played a significant
role in providing local content and there is no reason to believe it
will do so in the foreseeable future.
Question 13. To your knowledge, do you believe PBS or any other
public broadcasting station would be adversely impacted by any of the
legislative proposals (that would do away with must carry, retrans, or
compulsory licenses) currently in Congress?
Answer. I do not know.
Response to Written Questions Submitted by Hon. Jim DeMint to
Dr. Mark Cooper
Question 1. If enacted as written, would the Next Generation
Television Marketplace Act, S. 2008, allow a pay-TV company to
retransmit the programming aired on broadcast signals without consent?
Answer. Cable would have to reconfigure distribution as a private
performance, as Aereo has done.
Question 2. Do you believe the Federal law requiring cable
subscribers to purchase the so-called ``basic tier'' of channels
prescribed by the government is at odds with consumer choice, since it
effectively forces consumers to purchase channels they may not want?
(47 USC Sec. 543(b)(7)(A))
Answer. Mandatory unbundling would be in the consumer interest, but
it must cover all programming, not just the basic tier.
Question 3. Do you believe wireless voice services and VoIP
services are an adequate substitute for traditional wireline telephony
for consumers?
Answer. No.
______
Response to Written Question Submitted by Hon. Kelly Ayotte to
Dr. Mark N. Cooper
Question. Mr. Franks, if compulsory licensing is eliminated, what
would be the effect on smaller providers? Would individual deals need
to be cut? Is it easier for those already in the marketplace, therefore
hurting competition?
Answer. No answer provided.
______
Responses to Written Question Submitted by Hon. Daniel K. Inouye to
Preston Padden
Question. What is the best way to protect consumers while companies
work to resolve disputes and impasses in negotiations for the carriage
of broadcast signals? Should any special consideration be given to
protect consumers in geographic locations where a single MVPD serves a
high percentage (more than 50 percent) of total MVPD subscribers in a
state?
Answer. The television marketplace is moving toward more consumer
choice among video distributors, more package options and, with
services like ABC.com, Hulu and Netflix, more a la carte offerings. As
this pro-consumer migration continues, not every channel is going to be
a part of every video distribution platform and every service offering.
For example, DISH recently decided to not carry the channels of AMC
Networks. In our free market economy, DISH is perfectly free to make
that decision. Fans of the AMC channels are equally free to abandon
DISH and to choose a different subscription video provider.
As sports costs escalate, it seems inevitable that some
subscription television platform will decide that there is a market for
a less expensive service without sports channels. One day (after the
concept of ``Must Carry'' is retired), some cable/satellite
subscription platform will elect to go to market without broadcast
signals concluding that there is a market to serve consumers who can
receive broadcast channels well over-the-air. And, someday one or more
broadcasters and/or non-broadcast channels will elect to not even offer
their channels to one or more distribution platforms--perhaps because
those platforms insist on stripping out the channels' commercial
foundation.
My point in painting this vision of what I believe to be the
inevitable future of the television marketplace is respectfully to
nudge the Congress (and hopefully the FCC) away from the notion that
every instance of non-carriage of a TV channel on some cable/satellite
video distribution platform is a matter for government intervention.
Respectfully, in my opinion, it is not.
Thanks to the leadership of this Committee, American consumers are
now served by a workably competitive video distribution marketplace
featuring competition between cable companies, two nationwide satellite
companies, telephone companies and emerging Online Video Distributors.
Instead of maintaining statutes and regulations designed to manage the
channel lineups of each cable/satellite video service offering, I urge
the Congress to focus on removing outdated statutes and regulations
left over from a bygone era of scarcity--regulations designed to
enforce some government preferred outcome such as the inclusion of
every channel on every video service offering. The dynamics of
competition between multiple and diverse video offerings will be a far
better servant of consumers than is detailed government regulation.
A market where a single MVPD serves more than 50 percent of total
MVPD customers does come closer to a situation that warrants government
intervention. But, I would urge the Congress to take steps to promote
more distribution competition (for example by repealing the cable and
satellite compulsory licenses that currently disadvantage emerging
online distributors) rather than trying to regulate the behavior of any
distributor.
______
Response to Written Question Submitted by Hon. Frank R. Lautenberg to
Preston Padden
Question. If we see customers, like those who subscribe to DirecTV,
suffering in a deregulated world, why would we want to deregulate the
negotiation process for broadcasters too? In your view, given these
changes in the video marketplace, are the existing rules working? Why
or why not?
Answer. Please see the answer to Senator Inouye's questions above.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Preston Padden
Question 1. If you believe must-carry and retransmission consent
are important to localism, how do you recommend that the Congress
measure the success of localism? If you believe retransmission consent
is failing, what evidence can you provide?
Answer. Please see the answer to Senator Inouye's questions above.
Question 2. To what extent should Congress be concerned about
programming cost increases over the past several years? If you believe
programming cost increases merit a fresh look at the 1992 Cable Act, do
you believe cost savings garnered by distributors should be passed onto
consumers? If so, how would any savings be realized by consumers? If
you support changes to current law, would your company provide
consumers with the same flexibility to pursue a la carte programming
options? If not, why not?
Answer. The best antidote to program cost increases is to maximize
the number of distributors offering service to consumers. In my
opinion, competition is always a better servant of consumers than is
regulation, no matter how well intended the regulation. There have been
numerous studies of government mandated a la carte. Most of those
studies have concluded that in an a la carte world, consumers would pay
more and get less. The studies also show that government mandated a la
carte would diminish program diversity. Online distributors like Hulu
and Netflix are beginning to offer consumers a la carte options without
government mandates. These options are likely to increase in the
future. Congress should repeal the cable and satellite compulsory
licenses that presently discriminate against the online distributors.
Question 3. Do you believe pricing transparency for distributors
and for consumers could help to alleviate tensions over content deals?
If not, why not?
If you do believe pricing transparency could be beneficial, please
provide specific recommendations for such a proposal could be
implemented.
Answer. There are good and valid reasons why confidentiality
provisions are a part of most contracts in American free market
commerce. In my opinion, there is no reason for the government to
mandate a departure from this nearly universal business practice with
respect to television programming.
Question 4. Going forward, how should Congress and/or the Federal
Communications Commission measure whether or not the current system is
working? Please provide specific metrics to support your answer.
Answer. Please see the answer to Senator Inouye's questions above.
Question 5. If Congress were to revisit the 1992 Cable Act, are
there improvements to the law which you believe Congress should
consider?
Answer. In my opinion, Congress should repeal the cable and
satellite compulsory licenses that discriminate in favor of cable and
satellite distributors and against online distributors. I do not
understand why Congress chooses to discriminate in this manner.
One of the most important public policy benefits of S. 2008 is that
it would remove this huge current impediment to the development of
competitive Online Video Distributors. The compulsory copyright
licenses apply to cable and satellite systems, but not to Online Video
Distributors. That means that the government gives cable and
satellite--but not Online Video Distributors--a royalty free license to
use all the programs on local broadcast stations. In other words, the
government gives a huge windfall to cable and satellite but not to
Online Video Distributors.
Even worse, because of the existence of the compulsory licenses,
broadcasters (unlike non-broadcast channels) traditionally contract
only for the right to broadcast a program--not for the right to
sublicense that program to distributors who wish to retransmit the
program. Because they have never needed to do so (because the
compulsory license was there to fulfill this role), broadcasters
typically do not contract for the right to authorize anyone to
retransmit their programs. So, the poor Online Video Distributor not
only cannot get the right to retransmit broadcast programs from the
compulsory license; the OVD also cannot get the rights directly from
the broadcaster.
There are two ways to fix this glaring problem. The first would be
to add Online Video Distributors to the parties covered by compulsory
licensing. As outlined in my written testimony, the problem with this
approach is that the United States is a party to numerous International
agreements and treaties that expressly prohibit granting compulsory
licenses for Internet retransmission of television programs. The second
way to solve the problem is to repeal the antiquated compulsory
licenses so that cable, satellite and online distributors are all on a
level playing field when it comes to securing rights in broadcast
programming. This is the approach embodied in S. 2008.
In my opinion, consumers would reap huge benefits from the
increased television distribution competition that would result from
repeal of the cable and satellite compulsory licenses.
______
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to
Preston Padden
Question 1. Given the existing statute and the Congressional
letter, couldn't the current Commission interpret the statue
differently than Chairman Martin to where they do have the statutory
authority to be involved in any disputes? What is precluding them from
doing so?
Answer. The television marketplace is moving toward more consumer
choice among video distributors, more package options and, with
services like ABC.com, Hulu and Netflix, more a la carte offerings. As
this pro-consumer migration continues, not every channel is going to be
a part of every video distribution platform and every service offering.
For example, DISH recently decided to not carry the channels of AMC
Networks. In our free market economy, DISH is perfectly free to make
that decision. Fans of the AMC channels are equally free to abandon
DISH and to choose a different subscription video provider.
As sports costs escalate, it seems inevitable that some
subscription television platform will decide that there is a market for
a less expensive service without sports channels. One day (after the
concept of ``Must Carry'' is retired), some cable/satellite
subscription platform will elect to go to market without broadcast
signals concluding that there is a market to serve consumers who can
receive broadcast channels well over-the-air. And, someday one or more
broadcasters and/or non-broadcast channels will elect to not even offer
their channels to one or more distribution platforms--perhaps because
those platforms insist on stripping out the channels' commercial
foundation.
My point in painting this vision of what I believe to be the
inevitable future of the television marketplace is respectfully to
nudge the Congress (and hopefully the FCC) away from the notion that
every instance of non-carriage of a TV channel on some cable/satellite
video distribution platform is a matter for government intervention.
Respectfully, in my opinion, it is not.
Thanks to the leadership of this Committee, American consumers are
now served by a workably competitive video distribution marketplace
featuring competition between cable companies, two nationwide satellite
companies, telephone companies and emerging Online Video Distributors.
Instead of maintaining statutes and regulations designed to manage the
channel lineups of each cable/satellite video service offering, I urge
the Congress to focus on removing outdated statutes and regulations
left over from a bygone era of scarcity--regulations designed to
enforce some government preferred outcome such as the inclusion of
every channel on every video service offering. The dynamics of
competition between multiple and diverse video offerings will be a far
better servant of consumers than is detailed government regulation.
Question 2. If Congress directed the FCC to ensure broadcasters act
in ``good faith'' during negotiations, how do you believe the FCC can
go about fulfilling that responsibility and to limit or prevent the
disruption of programming to cable and/or satellite customers?
Answer. As described above, the video marketplace is moving from a
world of a limited number of platforms offering nearly identical
channel lineups to a far more consumer friendly world of many platforms
offering diverse and differentiated channel lineups. This evolution,
which inevitably will involve some disruption, is wildly pro-consumer.
The forces of competition and diversity will be a much better servant
of consumer interests than government regulation ever could be.
Therefore, I urge the FCC to find a lack of good faith negotiating in
only the most egregious circumstances.
Question 3. Do you know if the FCC is actively examining the impact
of increasing retransmission fees in relations to basic cable rates?
Answer. Retransmission fees to broadcasters are increasing rapidly
to correct for several decades in which cable companies paid nothing
for the use of broadcast channels--the most popular and valuable
channels that the cable companies sell to consumers. I do not know
whether the FCC is investigating this long overdue marketplace
correction. I do know that in 1992 this Committee stated, ``Cable
operators pay for the cable programming services they offer to their
customers; the Committee believes that programming services which
originate on a broadcast channel should not be treated differently.''
S. Rep. No. 102-92, at 35.
Question 4. Can you elaborate on what impact these retransmission
fees have on the cost of basic cable service? What percentage of a
cable customer's monthly cable bill is attributed to retransmission
fees paid to the broadcasters (a rough estimate will suffice) for 1) a
customer subscribing to basic cable and 2) a customer subscribing to
the most expensive cable TV package?
Answer. I do not have access to the data necessary to answer this
question. I do know that for decades cable operators charged consumers
approximately $15 or more per month for ``Lifeline'' services
consisting almost exclusively of broadcast channels and paid the
broadcasters nothing. That the transition from this patently unfair
situation would have some impact on consumer cable bills is not
surprising.
Question 5. Can you elaborate, in detail, on how negotiations
between MVPDs and broadcasters (and/or programming/content owners and
anyone else that might now be included) would be carried out, if the
compulsory license, must carry, and retransmission consent provisions
were eliminated? Please lay out the process and parties that would
exist in negotiating the rights to use programming/content. Also,
please compare/contrast the new negotiation process that would result
versus the current retransmission consent negotiations.
Answer. There is no need to guess or to speculate about how
negotiations between broadcasters and cable/satellite distributors
would work in the absence of compulsory licensing. One need only look
at the current negotiations between NON-broadcast channels--channels
NOT subject to the existing cable/satellite compulsory licenses--and
the cable/satellite distributors. The channels not subject to
compulsory licensing routinely engage in a single negotiation with
program owners for both (1) the copyrights necessary to telecast a
program and (2) the right to sublicense the program to cable/satellite
distributors. Then these non-broadcast channels engage in a single
negotiation with each cable/satellite distributor providing them with
the necessary copyright clearances to exhibit ALL of the programs on
the channel's schedule. The process is simple, straightforward and has
resulted in cable/satellite carriage of more than 500 non-broadcast
channels nationwide without any difficulty, complication or ``hold-
outs''.
When the compulsory licenses are repealed (as surely will happen at
some point), broadcasters and program owners will need a brief period
(perhaps 12 or 18 months) to adjust their existing contracts to include
the right to sublicense programs to cable/satellite distributors.
Today, program owners routinely give these sublicensing rights to non-
broadcast channels when those channels license a program for their
schedule. There is absolutely no reason to believe that the process
would work any differently for broadcast channels.
Some proponents of continued compulsory licensing fear that
clearing these cable/satellite-sublicensing rights in the marketplace
could be messy and difficult creating the opportunity for program
owners to ``hold up'' the broadcast channels. These fears can be
convincingly laid to rest by the fact that hundreds of non-broadcast
channels today obtain these cable/satellite-sublicensing rights in the
free market without mess, difficulty or ``hold-ups''.
Other proponents of continued compulsory licensing fear that small
broadcasters lack the staff and expertise necessary to negotiate the
same cable/satellite-sublicensing rights routinely secured today by
non-broadcast channels. This fear also is unfounded. For programs
licensed today to non-broadcast channels, the burden of assembling all
the necessary rights, including music rights, is borne by the program
owner. Then, the non-broadcast channels engage in a single, simple
negotiation with the program owner. Again, there is no reason to
believe that the process would work any differently for broadcast
channels after the end of compulsory licensing.
Finally, some advocates of continued compulsory licensing fear that
program owners (sometimes referred to as ``Hollywood'') would charge
broadcasters above and beyond the basic program exhibition license fee
for the right to sublicense to cable/satellite distributors. To test
this fear I sought the advice of a major television programming
syndicator. I asked the direct question, ``Would you charge
broadcasters extra for the right to sublicense program rights to cable/
satellite distributors''. The Syndication Executive did not answer
immediately but instead met with that organization's rank and file
syndication salespeople to consider the question. In the end they
concluded that there would be no additional charge. Their reasoning was
as follows. Today, the syndication salespeople fly to a city, make
presentations to the likely buyers among the local TV stations, play
those stations against each other and seek to extract the highest
possible license fee for their program--leaving no money ``on the
table.'' After repeal of compulsory licensing, the program sales
process would unfold in exactly the same way with the program sales
executive seeking the highest possible license fee. With no change in
the negotiating dynamics, there is no reason to expect a different
outcome.
To summarize, today broadcasters engage in a one-on-one negotiation
with cable and satellite companies for the right to retransmit the
broadcast signal. Following repeal of compulsory licensing,
broadcasters would engage in a one-on-one negotiation with cable and
satellite companies for the right to retransmit the broadcast programs.
After a brief transition period, repeal of compulsory licensing would
not introduce any complexity or complication to the process. And, a
copyright-based negotiation is the strongest possible foundation for
broadcasters to seek fair compensation for cable and satellite use of
their programming.
Questions 6 and 7. If you believe that eliminating these provisions
would lead to more disputes, can you elaborate, in detail, on why?
If you believe that eliminating these provisions would lead to less
disputes, can you elaborate, in detail, on why?
Answer. In my opinion, repeal of compulsory licensing would not
cause any change in the number of disputes between broadcasters and
cable/satellite distributors.
NAB President and CEO Gordon Smith and CBS Executive VP Marty
Franks, both good friends of mine and both highly respected industry
leaders, testified to their opinion that repeal of compulsory licensing
would increase the number of parties ``at the table'' by ten-fold and
therefore would increase the number of disputes. Although I have no
doubt that their testimony reflected their sincere beliefs, I
respectfully disagree with their opinions. I believe that they may
misperceive how the market would operate.
The best evidence of how a market without compulsory licensing
would work is to look at the process that takes place today regarding
cable/satellite retransmission of non-broadcast channels. The programs
on those channels are not subject to compulsory licensing and therefore
provide a real world example of how broadcast negotiations with cable/
satellite distributors would work in the absence of compulsory
licensing.
Today, non-broadcast channels engage in a single negotiation with a
program seller for both (1) the right to include a program on their
channel and (2) the right to sublicense that program to cable/satellite
distributors. After securing those copyright rights, the channel then
engages in a single negotiation with any cable/satellite distributor
who wishes to distribute their channel. The process is simple. It
happens every day without complication and without a tenfold increase
in the parties ``at the table''.
There is absolutely no reason why broadcast channels could not
operate in exactly the same way in the absence of compulsory
licensing--no tenfold increase in parties and no increase in disputes.
Question 8. In witness testimony, it was indicated that for 2012,
to date, there have already been 69 disputes regarding retransmission
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
Answer. I do not know the answer to this question. But, as I
explained in Answer number 1, there is every reason to expect disputes
between programmers and cable/satellite distributors as the market
transitions from a world with only a few distribution platforms with
identical channel lineups to a world with more numerous distribution
platforms with diverse channel lineups. This transition is underway and
is decidedly pro-consumer.
Question 9. What would the impact of eliminating must carry
requirements from the law have on local and independent stations?
Without must carry how could a local independent station get carried by
a MVPD? Is there any obligation of the MVPD to carry the station?
Answer. The following answer relates exclusively to commercial
television stations.
As President of the Association Of Independent Television Stations
from 1985 to 1990, I was a strong advocate for ``Must Carry''. At the
time, cable systems had no competition in the subscription television
market--no competition from satellite television distributors like
DirecTV and DISH, no competition from Telco television distributors
like FIOS and U-Verse and no competition from online television
distributors like Hulu and Netflix. Government regulation in the form
of Must Carry was necessary to protect consumers from cable's then
monopoly power. By documenting numerous instances of cable systems not
carrying or dropping independent stations, I helped to build the
factual record that the Congress relied upon in 1992 to codify Must
Carry, and that the Supreme Court subsequently relied upon to affirm
the Must Carry statute.
But, today's television marketplace is radically different from the
circumstances that existed in the late 1980s and early 1990s. Today
consumers and broadcasters have the opportunity to interface with
multiple distribution platforms. Broadcasters can authorize
distribution of their programming by cable, satellite, telephone
companies and on the Internet. Some broadcasters already stream a
portion of their program schedule online and that trend will only grow.
In my opinion, these marketplace changes call into the question the
continued need for Must Carry. Moreover, earlier this year Congress
authorized the FCC to conduct Incentive Auctions to reclaim some
broadcast spectrum so that it can be auctioned for wireless broadband.
The broadcast stations most likely to give up their spectrum are the
same stations most likely to elect Must Carry. Therefore, these
auctions will almost certainly drastically reduce the universe of Must
Carry stations raising further questions about the continuing need for
a Must Carry statute.
Congress will need to decide the future of Must Carry. In any
event, repeal of the compulsory licenses should proceed. In the absence
of compulsory licensing, commercial stations electing Must Carry would
simply need to certify that in acquiring their programming they had
secured the copyrights necessary to enable cable/satellite distributors
to retransmit those programs.
Question 10. Would the elimination of must carry possibly lead to
more concentration in the media market and, as a result, further muting
the diversity of media voices, which has been a resolute policy of our
Nation's telecommunications and media laws?
Answer. The elimination of Must Carry would not lead to
concentration in the media market. The media market is exploding with
competitive and diverse voices. As outlined in my written testimony,
consumers today have access to more, and more diverse, media options
than at any time in history. As just one consumer, I frequently find
myself drowning in diverse media options.
Some of these new media options are on the Internet. But other new
options are sprouting up in traditional media environments including
broadcast television. For example, Bounce TV, created by co-founders
Andrew Young and Martin Luther King III, describes itself as ``the
first 24/7 digital multicast broadcast network created exclusively for
African Americans''. There is no reason to fear that repeal of Must
Carry would lead to more concentration in the media market.
Question 11. With the current penetration and marketplace, is the
Internet a ``perfect substitute'' to traditional television programming
and local broadcast news? If not, what do believe is required for it to
be a substitutable good to traditional television and local news?
Answer. Clearly the Internet is not yet as ubiquitous as
television. But, it is rapidly closing the gap. And, the Internet has
characteristics that make it better than merely a substitute for
broadcast news. Traditionally broadcast news was available at only
certain hours--hours selected by the broadcaster. Cable news channels
offered consumers the first taste of ``on-demand'' news. Some
broadcasters have taken advantage of the digital transition to offer
consumers free on-demand news on a multicast channel. For example,
Station KMGH, the ABC Affiliate in Denver, owned by Scripps Howard
Broadcasting, provides consumers with 24/7 news on a digital multicast
channel.
The Internet provides consumers with a vast array of diverse on-
demand news ``channels''. At any time they choose, consumers can go
online and find multiple sources of mainstream news, business news,
political news, minority news, women's news, foreign news, automobile
news, culinary news, motorcycle news, etc. The Internet is far better
than merely a substitute for broadcast news.
Question 12. What role do you see public television playing in
providing local programming?
Answer. My experience is limited to commercial television. I have
no expertise in public television.
Question 13. To your knowledge, do you believe PBS or any other
public broadcasting station would be adversely impacted by any of the
legislative proposals (that would do away with must carry, retrans, or
compulsory licenses) currently in Congress?
Answer. S. 2008 was drafted to not have any impact on the cable
carriage rights of public broadcasting stations.
______
Response to Written Questions Submitted by Hon. Jim DeMint to
Preston Padden
Question 1. If enacted as written, would the Next Generation
Television Marketplace Act, S. 2008, allow a pay-TV company to
retransmit the programming aired on broadcast signals without consent?
Answer. No. If enacted, S. 2008 would require subscription
television companies to negotiate with broadcasters for the right to
retransmit their programs. S. 2008 would repeal the cable and satellite
compulsory copyright licenses in Title 17 of the United States Code.
Under these outdated statutes, the government seizes the programs
broadcast by TV stations and grants to cable and satellite distributors
a government conferred copyright license to make those programs a part
of the service that the cable/satellite companies sell to consumers.
By repealing the compulsory copyright licenses, S. 2008 makes the
retransmission consent provision of Title 47 of the United States Code
unnecessary. Currently, the retransmission consent provision requires
cable/satellite distributors to negotiate for the right to use a
broadcaster's signal. After repeal of compulsory licensing, cable/
satellite distributors will be required to negotiate for the right to
use a broadcaster's programs.
In my opinion as a Thirty-Eight year veteran of the television
business, S. 2008 actually strengthens the position of local
broadcasters. I say that because a negotiation based on traditional,
and unarguable, copyright grounds is the strongest possible foundation
for broadcasters to seek fair compensation for cable/satellite use of
broadcast programming. S. 2008 would give broadcasters the same
copyright based negotiating platform enjoyed today by non-broadcast
channels like ESPN.
Question 2. How did the existence of video compulsory licenses
impact the creation of retransmission consent by Congress in 1992?
Answer. Retransmission consent was enacted in 1992 to counter the
effect of the compulsory copyright licenses.
In 1992, this Committee stated, ``Cable operators pay for the cable
programming services they offer to their customers; the Committee
believes that programming services which originate on a broadcast
channel should not be treated differently.'' S. Rep. No. 102-92, at 35.
It is the compulsory license that enabled cable operators to offer
broadcast programs to their customers without paying for those programs
(unlike the programs of non-broadcast channels). The most direct way to
achieve the result desired by the Committee would have been to simply
repeal the compulsory license.
But, this Committee does not have jurisdiction over the compulsory
license because it is in Title 17 of the United States Code.
Retransmission consent was conceived as a Commerce Committee vehicle to
require cable operators to pay for broadcast programs.
S. 2008 would correct the 1992 jurisdictional ``end around'' by
straightforwardly repealing both the compulsory licenses and
retransmission consent.
Question 3. Do you believe a copyright-based carriage negotiation
for broadcast programming, as envisioned by S. 2008, would necessarily
increase the number of negotiating parties and increase ``blackouts''?
Answer. No. In my opinion, passage of S. 2008 would not increase
the number of negotiating parties and would not increase the number of
disputes between broadcasters and cable/satellite distributors.
NAB President and CEO Gordon Smith and CBS Executive VP Marty
Franks, both good friends of mine and both highly respected industry
leaders, testified to their opinion that S. 2008, by repealing the
compulsory license, would increase the number of parties ``at the
table'' by ten-fold and therefore would increase the number of
disputes. I respectfully disagree with their opinions. I believe that
they may misperceive how the market would operate.
The best evidence of how a market without compulsory licensing
would work is to look at the process that takes place today regarding
cable/satellite retransmission of non-broadcast channels. The programs
on those channels are not subject to compulsory licensing and therefore
provide a real world example of how broadcast negotiations with cable/
satellite distributors would work in the absence of compulsory
licensing.
Today, non-broadcast channels engage in a single negotiation with a
program seller for both (1) the right to include a program on their
channel and (2) the right to sublicense that program to cable/satellite
distributors. After securing those copyright rights, the channel then
engages in a single negotiation with any cable/satellite distributor
who wishes to distribute their channel. The process is simple. It
happens every day without complication, without government involvement
and without a tenfold increase in the parties ``at the table''.
There is absolutely no reason why broadcast channels could not
operate in exactly the same way in the absence of compulsory
licensing--no tenfold increase in parties and no increase in disputes.
Question 4. Would S. 2008 allow pay-TV providers to buy broadcast
programming from anywhere?
Answer. S. 2008 would restore the right of program creators
(including broadcasters), and their contractual licensees, to maximize
the availability of broadcast programming to consumers based on market
demand. The compulsory licenses take away those rights. Under the
compulsory licenses, the question of what broadcast programs may be
distributed to which consumers is governed by audience ratings from
1972. (I know this sounds so stupid that it is hard to believe but I
promise that it is true.) 1972! Some things have changed since 1972--
but not the rules governing which broadcast programs may go where.
Under S. 2008, program creators, networks and stations would work
together to satisfy consumer demand. In a free market, if there is a
program consumers want to see, a distribution platform to get it to
them and money to be made doing so, it will happen.
Historically, program syndicators and networks have granted local
stations exclusive rights to exhibit their programs to the viewers in
their market. I would expect that to continue. But, S. 2008's repeal of
compulsory licensing also would enable the parties in the marketplace
to respond to any demonstrated consumer demand. Specifically, after
enactment of S. 2008 getting in-State news to viewers will no longer
take an act of Congress to override antiquated rules based on 1972
ratings.
______
Response to Written Questions Submitted by Hon. Kelly Ayotte to
Preston Padden
Question 1. My constituents are adamant about receiving local news
coverage. Even in the southern-most part of my state, we want New
Hampshire news, not Boston news. One of the objectives of the 1992
Cable Act was to ensure consumers have access to locally originated
programming. Has this goal succeeded? Are there any proposed changes to
the Cable Act that could reverse this trend? How can we maintain and
maximize localism?
Answer. In my opinion, the problem being experienced by your
constituents is caused by the outdated compulsory copyright license.
This government-conferred license uses 1972 audience ratings by the
A.C. Nielsen Company to dictate where broadcast programs may be
distributed by cable. The 1972 ratings actually are enshrined in the
FCC's Rules that govern where cable systems may distribute broadcast
programs.
S. 2008 repeals the compulsory license and the 1972 ratings. After
passage of S. 2008 New Hampshire broadcasters and cable/satellite
companies serving New Hampshire households will be able to work
together to satisfy consumer demand for New Hampshire news. And it will
be easier for consumers to receive messages from their State's elected
leaders.
Question 2. Mr. Padden, you have spent a large part of your
distinguished career working for a broadcast company, and in your
testimony you argue that the 1992 Act is outdated and that it stifles
innovation by maintaining hurdles for Online Video Distributors to get
into the market. New Hampshire is home to countless numbers of
innovators, especially smaller ones just trying to penetrate a
competitive marketplace. Can you elaborate from your testimony on the
affect The Act has on innovation?
Answer. In my opinion, one of the most important public policy
benefits of S. 2008 is that it would remove a huge current impediment
to the development of competitive Online Video Distributors. The
compulsory copyright licenses apply to cable and satellite systems, but
not to Online Video Distributors. That means that the government gives
cable and satellite--but not Online Video Distributors--a royalty free
license to use all the programs on local broadcast stations. In other
words, the government gives a huge windfall to cable and satellite but
not to Online Video Distributors.
Even worse, because of the existence of the compulsory licenses,
broadcasters (unlike non-broadcast channels) traditionally contract
only for the right to broadcast a program--not for the right to
sublicense that program to distributors who wish to retransmit the
program. Because they have never needed to do so (because the
compulsory license was there to fulfill this role), broadcasters
typically do not contract for the right to authorize anyone to
retransmit their programs. So, the poor Online Video Distributor not
only cannot get the right to retransmit broadcast programs from the
compulsory license; the OVD also cannot get the rights directly from
the broadcaster.
There are two ways to fix this glaring problem. The first would be
to add Online Video Distributors to the parties covered by compulsory
licensing. As outlined in my written testimony, the problem with this
approach is that the United States is a party to numerous International
agreements and treaties that expressly prohibit granting compulsory
licenses for Internet retransmission of television programs. The second
way to solve the problem is to repeal the antiquated compulsory
licenses so that cable, satellite and online distributors are all on a
level playing field when it comes to securing rights in broadcast
programming. This is the approach embodied in S. 2008.
In sum, the best way to end the discrimination against online
innovators in New Hampshire is to pass S. 2008.
Question 3. Mr. Padden, can you elaborate on your contention that
retransmission consent and compulsory licensing are linked together?
Answer. The only reason that it was necessary for the Congress to
enact retransmission consent in 1992 was because of the existence of
the compulsory license.
In 1992, this Committee stated, ``Cable operators pay for the cable
programming services they offer to their customers; the Committee
believes that programming services which originate on a broadcast
channel should not be treated differently.'' S. Rep. No. 102-92, at 35.
It is the compulsory license that enabled cable operators to offer
broadcast programs to their customers without paying for those programs
(unlike the programs of non-broadcast channels). The most direct way to
achieve the result desired by the Committee would have been to simply
repeal the compulsory license.
But, this Committee does not have jurisdiction over the compulsory
license because it is in Title 17 of the United States Code.
Retransmission consent was conceived as a Commerce Committee vehicle to
require cable operators to pay for broadcast programs.