[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                   VIDEO COMPETITION IN A DIGITAL AGE

=======================================================================

                                HEARING

                               BEFORE THE

      SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 22, 2009

                               __________

                           Serial No. 111-76


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov



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                    COMMITTEE ON ENERGY AND COMMERCE

                      HENRY A. WAXMAN, California
                                 Chairman
JOHN D. DINGELL, Michigan            JOE BARTON, Texas
  Chairman Emeritus                    Ranking Member
EDWARD J. MARKEY, Massachusetts      RALPH M. HALL, Texas
RICK BOUCHER, Virginia               FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
BART GORDON, Tennessee               NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York             ROY BLUNT, Missouri
GENE GREEN, Texas                    STEVE BUYER, Indiana
DIANA DeGETTE, Colorado              GEORGE RADANOVICH, California
  Vice Chairman                      JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California               MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania       GREG WALDEN, Oregon
JANE HARMAN, California              LEE TERRY, Nebraska
TOM ALLEN, Maine                     MIKE ROGERS, Michigan
JANICE D. SCHAKOWSKY, Illinois       SUE WILKINS MYRICK, North Carolina
HILDA L. SOLIS, California           JOHN SULLIVAN, Oklahoma
CHARLES A. GONZALEZ, Texas           TIM MURPHY, Pennsylvania
JAY INSLEE, Washington               MICHAEL C. BURGESS, Texas
TAMMY BALDWIN, Wisconsin             MARSHA BLACKBURN, Tennessee
MIKE ROSS, Arkansas                  PHIL GINGREY, Georgia
ANTHONY D. WEINER, New York          STEVE SCALISE, Louisiana
JIM MATHESON, Utah
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin 
    Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
PETER WELCH, Vermont

                                  (ii)
      Subcommittee on Communications, Technology, and the Internet

                         RICK BOUCHER, Virginia
                                 Chairman
EDWARD J. MARKEY, Massachusetts      FRED UPTON, Michigan
BART GORDON, Tennessee                 Ranking Member
BOBBY L. RUSH, Illinois              CLIFF STEARNS, Florida
ANNA G. ESHOO, California            NATHAN DEAL, Georgia
BART STUPAK, Michigan                BARBARA CUBIN, Wyoming
DIANA DeGETTE, Colorado              JOHN SHIMKUS, Illinois
MICHAEL F. DOYLE, Pennsylvania       GEORGE RADANOVICH, California
JAY INSLEE, Washington               MARY BONO MACK, California
ANTHONY D. WEINER, New York          GREG WALDEN, Oregon
G.K. BUTTERFIELD, North Carolina     LEE TERRY, Nebraska
CHARLIE MELANCON, Louisiana          MIKE FERGUSON, New Jersey
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin 
    Islands
KATHY CASTOR, Florida
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
PETER WELCH, Vermont
JOHN D. DINGELL, Michigan (ex 
    officio)
  


                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Rick Boucher, a Representative in Congress from the 
  Commonwealth of Virginia, opening statement....................     1
Hon. Cliff Stearns, a Representative in Congress from the State 
  of Florida, opening statement..................................     3
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     5
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     5
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, prepared statement................................     6
Hon. Bart Stupak, a Representative in Congress from the State of 
  Michigan, opening statement....................................     8
Hon. Christopher S. Murphy, a Representative in Congress from the 
  State of Connecticut, opening statement........................     9
Hon. Nathan Deal, a Representative in Congress from the State of 
  Georgia, opening statement.....................................     9
Hon. Zachary T. Space, a Representative in Congress from the 
  State of Ohio, opening statement...............................    10
Hon. Edward J. Markey, a Representative in Congress from the 
  Commonwealth of Massachusetts, prepared statement..............   111
Hon. Bobby L. Rush, a Representative in Congress from the State 
  of Illinois, prepared statement................................   113
Hon. Anna G. Eshoo, a Representative in Congress from the State 
  of California, prepared statement..............................   115

                               Witnesses

Thomas Rutledge, Chief Operating Officer, Cablevision Systems 
  Corporation....................................................    12
    Prepared statement...........................................    14
    Answers to submitted questions...............................   166
Benjamin Pyne, President, Global Distribution, Disney Media 
  Networks.......................................................    25
    Prepared statement...........................................    27
Patrick Knorr, Chief Operating Officer, Sunflower Broadband......    36
    Prepared statement...........................................    38
    Answers to submitted questions...............................   172
Ronald D. Moore, Writer, Executive Producer......................    45
    Prepared statement...........................................    48
Terrence K. Denson, Vice President, Corporate Marketing, Verizon.    54
    Prepared statement...........................................    56
Adam Thierer, President, The Progress & Freedom Foundation.......    68
    Prepared statement...........................................    70

                           Submitted Material

Letter of October 21, 2009, from Wealth TV to Subcommittee, 
  submitted by Mr. Boucher.......................................   119
Letter of October 22, 2009, from Comcast to Subcommittee, 
  submitted by Mr. Boucher.......................................   123


                   VIDEO COMPETITION IN A DIGITAL AGE

                              ----------                              


                       THURSDAY, OCTOBER 22, 2009

              House of Representatives,    
Subcommittee on Communications, Technology,
                                  and the Internet,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:06 a.m., in 
Room 2123 of the Rayburn House Office Building, Hon. Rick 
Boucher [Chairman of the Subcommittee] presiding.
    Members present: Representatives Boucher, Markey, Stupak, 
Doyle, Inslee, Weiner, Castor, Murphy, Space, McNerney, Welch, 
Dingell, Waxman (ex officio), Stearns, Upton, Deal, Bono Mack, 
Terry, Blackburn, and Barton (ex officio).
    Staff present: Roger Sherman, Chief Counsel, 
Communications, Technology, and the Internet; Tim Powderly, 
Counsel; Amy Levine, Counsel; Shawn Chang, Counsel; Sarah 
Fisher, Special Assistant; Greg Guice, FCC Detailee; Amy 
Bender, Minority FCC Detailee; Will Carty, Minority 
Professional Staff; and Garrett Golding, Minority Legislative 
Analyst.

  OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN 
           CONGRESS FROM THE COMMONWEALTH OF VIRGINIA

    Mr. Boucher. The Subcommittee will come to order and good 
morning to everyone.
    Today we will examine the state of competition for video 
programming. In 1992, Congress recognized that the cable 
industry which then dominated the market for the delivery of 
multi-channel video programming could use its control over that 
programming in order to stifle competition. In order to enable 
competition in multi-channel video delivery, Congress enacted 
program access requirements in 1992 to prevent cable operators 
with ownership interest in video programming from refusing to 
sell their programs to the emerging satellite providers. That 
requirement is broadly acknowledged as being essential to the 
birth of the DVS industry and to the competition to cable that 
direct broadcast satellite has brought.
    Congress also in 1992, enacted program carriage 
requirements that prevent cable operators from discriminating 
against unaffiliated programming in favor of their affiliated 
networks. The rules have been broadly successful. Without them, 
neither satellite television nor multi-channel video delivered 
by telephone companies such as Verizon's FiO service or AT&T's 
U-verse service could have entered the market. The rules have 
also been instrumental to the success of independent cable 
networks like the Food Network and Bravo.
    But at the time the program access provision was approved 
by Congress in 1992, it applied only to programs that were 
delivered by satellite to multi-channel video distributors. 
Today, what is commonly known as the terrestrial loophole has 
arisen as vertically integrated cable operators use fiber 
optics more and more frequently in order to deliver some of 
their programming to cable headends. Fiber-based terrestrial 
networks have become economical alternatives to satellite 
delivery particularly for regional sports and for new 
programming controlled by regionally clustered cable operators. 
Cable operators which deliver programming terrestrially can 
block competing multi-channel providers access to their highly 
popular program offerings. These arrangements are 
understandably troubling for some sports fans who may have to 
choose between subscribing to the video programming provider of 
their choice or accessing the games of their favorite regional 
sports teams.
    In 2007, the Federal Communications Commission found that 
subscribership to direct broadcast satellite was 40 percent 
below what otherwise would be expected in Philadelphia where a 
cable operator's regional sports network has a lock on the 
Phillies, the Flyers and 76ers' games. In San Diego, the 
commission determined that lack of access to the regional 
sports network provided by the programming by the Padres' games 
resulted in a 33 percent reduction in the households 
subscribing to direct broadcast satellite in the San Diego 
area.
    The problem of the unavailability of terrestrially-
delivered programming on DVS systems is even worse for some 
rural residents for whom switching to cable service may not 
even be an option because a cable operator may not serve the 
area in which the rural resident lives. If direct broadcast 
satellite companies and phone companies are precluded from 
carrying regional sports programming, that effectively bars 
many rural fans from viewing their favorite teams.
    We are interested in hearing from today's witnesses about 
the terrestrial loophole as it currently exists and the 
consequences of it. What benefits does continued use of the 
terrestrial loophole offer to the providers of multi-channel 
video and to consumers and what are its harms, and we have 
knowledgeable witnesses who will speak to us on that subject 
from a range of different perspectives this morning.
    We are also interested in other matters. The FCC has 
recently considered a number of program carriage complaints by 
independent programmers that a multi-channel video programming 
distributor favored its own programming over the unaffiliated 
programming with respect to the terms and conditions of 
carriage. Does the FCC's program carriage complaint process 
work as Congress intended or should we consider modifications?
    Finally, an increasing amount of video content is now 
available by means of the Internet. Some programming web use 
generated such as YouTube is user generated and available 
without regard to the identity of the originating entity and 
its vertically-integrated nature. Other Internet-based services 
like Hulu and the Web sites of the major television networks 
offer full episodes of programming that aired on television as 
recently as the previous day. The more such programming 
migrates to the Internet, the less consumers may need to 
subscribe to a multi-channel video programming distributor at 
all. At the same time some Web sites that offer video content 
such as ESPN 360 are only available to subscribers of 
particular multi-channel video programming distributors. What 
are the implications of these emerging business models for 
consumers and for competition in video distribution?
    I expect that our knowledgeable witnesses today will offer 
a thoughtful analysis of these and other matters regarding 
video distribution in this digital era and we thank them for 
their presence here and look forward very much to their 
testimony.
    That concludes my remarks and I am pleased to recognize the 
gentleman from Florida, the ranking Republican member of the 
subcommittee, Mr. Stearns.

 OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Stearns. Good morning and thank you, Mr. Chairman. 
Thank you for holding this very interesting hearing. The issues 
surrounding video competition obviously are very important. I 
look forward to hearing from our witnesses and thank them for 
taking their time to be here.
    Competition in the video marketplace has been robust. 
Twenty years ago cable commanded almost 100 percent of the 
multi-channel television market. Today because of fierce 
competition, cable's market share has dropped to about 63 
percent of multi-channel video households. As we know, 
consumers can choose from a variety of multi-channel video 
providers including direct broadcast satellite. In fact, as of 
June 2009, DirecTV with 18.3 million subscribers was larger 
than all the cable companies in the United States except 
Comcast. EchoStar with almost 14 million subscribers was the 
third largest multi-channel video provider in the United 
States. Competition from the phone companies such as Verizon 
and AT&T and Web sites offering everything from home videos to 
full-length movies have brought even more choice to the 
consumers. As a result of this competition, 37.8 million 
consumers, over one of every three video subscribers can now 
obtain multi-channel video programming from some company other 
than local cable operator. It is a truly amazing thing how far 
have we come in such a short amount of time.
    Even the FCC has acknowledged the competition in the video 
market. The FCC's 2009 annual report on video competition 
reinforced the trend line of previous reports confirming growth 
and entrenchment of competition in the video marketplace, the 
decline of vertical integration between cable operators and 
program networks, and the emergence of a new video competition 
from programming that is distributed on the Internet.
    Innovations and new products are still being created all 
the time. The next frontier is Internet-based video which now 
competes with cable, satellite and telephone providers giving 
consumers even more choice. Applications such as Hulu, which 
the Chairman mentioned, which provides longer network 
television programs continue to experience explosive growth. 
With 373 million video streams per month, overall online video 
usage has grown almost 25 percent to an average of 9.5 billion 
streams a month.
    Yet despite all this competition, we still operate under 
regulatory regimes stemming from the radio broadcast provisions 
of the 1934 Communications Act and the multi-channel video 
programming distributor provisions of the 1992 Cable and 1996 
Telecommunications Act. And as much as we are finding in the 
broadband context, regulatory policies can hinder rather than 
help investment in the rollout of video services to consumers 
when competing platforms are present in the market. The growth 
in digital video programming is requiring significant 
investment in the Internet and beyond. Cable and satellite 
providers and now telephone companies are making large 
investments in equipment and capacity to accommodate next 
generation video content. Broadcaster and other programmers are 
incurring large cost to create and transmit digital 
programming. In a competitive environment, network neutrality 
mandates and regulations in general deter investments, at least 
put a chill on them. Any discrimination in openness mandates 
limit companies' ability to differentiate themselves from the 
competitors and provide their customers with the unique 
products and high level of service they demand.
    As the video industry competes in a digital world where the 
winning business models are not clear yet, it becomes even more 
important to rely on market forces and not on regulation. In 
such a competitive environment and absent any evidence that 
consumers are being harmed, it makes little sense to create a 
new regulatory environment that would only freeze investment 
and stunt innovation.
    When Congress adopted the program access rules in the 1992 
Cable Act, Congress wanted to ensure that the infant satellite 
television industry and other independent pay television 
providers simply had access to content. Thus, section 628 
prohibits a cable operator from unfairly hindering the ability 
of other pay television providers to gain access to programming 
in which the cable operator has an ownership interest. Congress 
did however include an exception for terrestrial-delivered 
programming as opposed to programming delivered to providers 
using a satellite network. Congress wanted to give providers an 
incentive to invest in local programming. That incentive would 
be diminished if providers were forced to share the content 
they develop with their competitors, especially since they 
would need to spread their cost over less than a national 
audience. Moreover, when providers launch unique offerings to 
differentiate themselves from their competitors, consumers 
benefit from a greater selection and a quality of programming.
    As I have said, the video market is very competitive and at 
this point, consumers have many choices.
    So I look forward to this hearing, Mr. Chairman, and I 
appreciate again the witnesses coming here to testify.
    Mr. Boucher. Thank you very much, Mr. Stearns.
    The Chairman of the Energy and Commerce Committee, the 
gentleman from California, Mr. Waxman, is recognized for 5 
minutes.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you very much, Mr. Chairman. I want to 
thank you for holding this hearing and I want to thank all of 
our witnesses for appearing today.
    We are in the midst of one of the most profound 
technological revolutions since the invention of the wireless. 
It heralds great abundance in the generation and delivery of 
content which is all to the good. We need to ensure, however, 
that we have an architecture of policy and technology that 
ensures diversity, competition, choice and access. As always 
the interests to be served first are those of viewers and 
users, the interest of competition and not any specific 
competitor. This hearing will help frame these issues.
    I especially want to recognize and welcome Ronald Moore, 
who is testifying on behalf of the Writers' Guild of America 
West. Mr. Moore is an Emmy Award-winning writer and producer of 
some of the most popular science fiction programs in history 
and I welcome your participation today, and I look forward to 
hearing your insights on the consolidation on program 
ownership. It is very important that those who create video 
programming are not left out of this debate.
    The market for distribution of video programming is 
changing. Many consumers have the option to subscribe to at 
least two paid television services delivered by a cable, 
satellite or fiber optic line. In addition, the transition to 
digital over-the-air broadcast has given tradition broadcasters 
the opportunity to deploy more channels with new and innovative 
programming. Meanwhile, more and more consumers are relying on 
their broadband connections to access web-based video services, 
and these new web-based distribution models offer great hope 
for many in the creative community.
    As I have indicated, all of these changes are creating both 
opportunities and challenges. For example, program carriage and 
program access issues remain particularly when a distributor 
owns programming that is comparable to or competes with 
independently-owned programming. In this case, it may be 
difficult for competitors to field the types of products and 
services that consumers want. As with other areas of 
telecommunications policy, the advantages of historic 
incumbency can be difficult for new entrants to overcome 
absence government intervention, and I am pleased that even the 
Nation's largest telecommunications companies recognize this 
fact.
    I look forward to reviewing all of our witnesses' 
testimony. I thank you, Mr. Chairman, for holding this hearing 
and I yield back the balance of my time.
    Mr. Boucher. Thank you very much, Chairman Waxman.
    The gentleman from Michigan, Mr. Upton, is recognized for 2 
minutes.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Well, thank you, Mr. Chairman.
    And with all due respect I don't think that this is 
necessarily the appropriate hearing that we ought to be having 
today. We should be putting closer scrutiny on the proposals 
pending before the FCC and why these proposed regulations carve 
out certain companies and how regulation may stifle much needed 
private investment.
    We are entering a new digital age and a new age of 
entertainment and more than ever the consumer is king. 
Consumers don't want their entertainment options dictated to 
them. They want greater control over not only what they watch 
but also where and when they watch it, and these new consumer 
expectations will continue to fuel investment, innovation and 
competition. But let us not forget, without investment in the 
physical network, there won't be much room for innovation or 
competition.
    It is my view that public policy must focus on enabling 
network operators to secure and utilize the investment capital 
to meet that demand, and to build out the vast network 
necessary to allow for the deployment of new services while 
still ensuring that services remain affordable for all 
consumers. And I have stated in the past, proposed network 
neutrality rules seek to alleviate a problem that doesn't exist 
and threatens to deter the investment necessary to enable 
consumers to enjoy additional exciting new features that the 
Internet could offer.
    Unnecessary new regs, such as those proposed by the FCC 
Chair will stifle future broadband investment and have broad 
economic implications. How does the FCC think that the U.S. 
will achieve ubiquitous broadband deployment after the agency 
imposes onerous regulations that will drive investment out of 
the broadband sector? The U.S. desperately needs broadband 
investment to help lift the Nation out of economic malaise and 
the FCC must not undermine that investment.
    Both the Post and the Wall Street Journal editorial pages 
agree that the Chairman's proposal would harm broadband 
investment. The Post concluded that the FCC's proposal would 
``stifle further investments by ISPs with attempts to 
micromanage what has been a vibrant and well-functioning 
marketplace.'' And the Journal concluded that threatening to 
limit what telco companies could charge and to whom net 
neutrality rules would discourage broadband investments.
    Yesterday's Reuter's report, and I quote, here says, 
``Verizon Communications, Inc., Chief Ivan Seidenberg said that 
the debate around the proposal is extremely troubling and could 
halt progress in U.S. broadband investment. From '01 to '08, 
communication systems invested tens of billions of dollars.'' 
The bottom line is this, in the conclusion, that without a 
regulatory touch, video has flourished in content and volume 
for all consumers. The same can happen with Internet access.
    Mr. Boucher. The gentleman's time has expired.
    The gentleman from Michigan, Mr. Dingell, Chairman 
Emeritus, of the full committee is recognized for 5 minutes.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. Mr. Chairman, thank you. I commend you for 
your initiative in overseeing the state of competition in video 
programming.
    I would note with no mean degree of dissatisfaction that 
the committee's understanding of this important issue would 
have been much better informed and much more solidly based had 
the Federal Communications Commission under the chairmanship of 
former Chairman Kevin Martin not advocated its duty to complete 
annual studies on video programming competition. I want to 
commend Chairman Genachowski for acting to correct this 
disregard to responsibility and in particular extend my thanks 
and appreciation to Commissioner Copps who is acting chairman 
of the Commission first set out to deal with this matter.
    Since passage of the Cable Act in 1992, the market for 
video programming has changed significantly. While 20 years ago 
a majority of the subscribers received video content from cable 
providers, they now enjoy a greater choice as evidenced by the 
robust participation of fiber optic and satellite providers in 
the marketplace. As the committee once again takes up this 
matter, it is my hope that our witnesses will provide us with a 
sense of how competition in the video programming market has 
evolved and what issues remain to be addressed including their 
candid suggestions for how to do so.
    In closing, it remains my desire to ensure that all people 
regardless of income are able to view free, over-the-air 
television with local programming. This belief will inform my 
participation in the debate we once again begin today.
    Mr. Chairman, I thank you for your courtesy and for your 
foresight, and I yield back the balance of my time.
    Mr. Boucher. Thank you very much, Chairman Dingell.
    The gentlelady from Tennessee, Ms. Blackburn, is recognized 
for 2 minutes.
    Mrs. Blackburn. Thank you, Mr. Chairman.
    I will submit my full statement. I know we are anxious to 
get to the hearing and I do have questions for some of you, 
believe it or not.
    As you all can imagine video competition is something 
important to me and my constituents in Tennessee. We have a lot 
of content producers there and they are certainly watching what 
is happening. So welcome to all of you who are our witnesses 
today.
    Mr. Chairman, I will tell you that it is always of concern 
to me when I see government insert itself into a private sector 
issue where there is no compelling reason to do so, and I think 
that is what we find ourselves facing right now. We know that 
increased regulation is going to give you less of what you 
want, and what people want to see is good, solid, aggressive 
competition in this marketplace. They want to see it spur 
innovation. They want to see it spur investment. They want to 
see it spur job creation and I think Congress mandating how 
these companies are going to market their products and services 
will end up being counterproductive.
    Now, there are some things I do hope we talk a little bit 
more about. Mr. Moore, I am going to want to talk with you a 
little bit about the '92 Cable Act. I know that you reference 
in your testimony what has happened to production over the past 
10 years, and sometimes that strong hand of Congress or 
government inserting itself can be counterproductive so I look 
forward to visiting with you. Mr. Knorr, I am going to want to 
talk with you about what we see happening to small businesses 
and those that are entrepreneurial and innovative as we look at 
the expansion of broadband and the opportunity to expand access 
to the content that our creative community does put out there 
for everyone. I know that, Mr. Pine, you are going to have a 
little bit to say about having consumers access that. So 
welcome to you all. We look forward to the hearing.
    I yield back.
    Mr. Boucher. Thank you, Ms. Blackburn.
    The gentleman from Michigan, Mr. Stupak, is recognized for 
2 minutes.

  OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Stupak. Thank you, Chairman Boucher, for holding 
today's hearing on the status of Video Competition in a Digital 
Age.
    Last year we held a similar hearing on competition in the 
sports and programming market. At that time, I voiced my 
concerns that the NFL Network was removed from the basic tier 
by Comcast and moved to a more expensive sports tier. Hoping to 
resolve the issue after it appeared to have hit a stalemate and 
all options were explored, I wrote to the FCC and requested 
that an arbitrator be appointed to serve as an independent 
third-party. However, the FCC did not have to weigh in to end 
the dispute and the parties negotiated a neutrally beneficial 
private agreement. I want to express my appreciation to Comcast 
for working with the NFL Network to ensure that sports fans 
were not denied access to content they demand. In the end, the 
dispute serves as an example of how these issues can be 
resolved for the benefit of consumers without direct government 
intervention.
    Today we will hear from our witnesses on challenges they 
have encountered in providing content to their consumers as 
well as their suggestive solutions to the problem. We should 
tread carefully when discussing legislative fixes when private 
solutions have not been exhausted. That is not to say that we 
should not act to ensure fair competition in the video 
marketplace. It is only to say that we should act as a last 
resort. Ultimately, we have the responsibility to ensure that 
consumers have access to the content they pay for and that the 
market power is not abused to their detriment.
    Thank you, Mr. Chairman, for holding today's hearing and I 
look forward to discussing with our witnesses how we can ensure 
that we have fair competition in the video marketplace.
    Mr. Boucher. Thank you very much, Mr. Stupak.
    The gentleman from Nebraska, Mr. Terry, is recognized for 2 
minutes.
    Mr. Terry. Thank you, Mr. Chairman.
    My opening statement would be simply repetitive of Mr. 
Upton's opening statement so I will say that I will associate 
myself with his remarks and thank you all for being here and 
yield back.
    Mr. Boucher. Thank you very much.
    The gentleman from Pennsylvania, Mr. Doyle, is recognized 
for 2 minutes.
    Mr. Doyle. Thank you, Mr. Chairman.
    I just want to welcome the witnesses and I will waive 
opening statement for time on questions.
    Mr. Boucher. Thank you very much, Mr. Doyle.
    The gentleman from Connecticut, Mr. Murphy, is recognized 
for 2 minutes.

      OPENING STATEMENT OF HON. CHRISTOPHER S. MURPHY, A 
    REPRESENTATIVE IN CONGRESS FROM THE STATE OF CONNECTICUT

    Mr. Murphy. Thank you, Mr. Chairman, for today's hearing.
    Having looked at the testimony to be presented today, I 
know that our hearing is going to be especially relevant to 
parts of my district in southwestern Connecticut. And much of 
our witness testimony deals with the issue of competition in 
the New York metropolitan market between competitors that are 
also present there and are undergoing the same competition in 
my district and the district of my colleague, Mr. Himes, so I 
am interested to hear specifically about some of the issues 
relevant to that market. I also look forward to hearing from 
our witnesses today to get a better understanding of how 
current market dynamics and what if anything this Congress 
needs to do to ensure that our constituents have opportunities 
to receive the programming they desire at a fair price, while 
ensuring that we don't stifle the development of innovative and 
new programming.
    I am especially interested to the extent that this hearing 
treads into the emerging new technologies which allow our 
constituents to receive programming online. Part of this 
hearing may focus on some of the emerging technologies like 
Hulu and Zillion TV which I think have some very interesting 
and potentially transformative impacts on our constituents. But 
this Congress needs to be mindful while we want to set a 
foundation that allows for that innovation, to be very careful 
about not allowing for the type of Internet piracy of and 
copyright violation that has hampered many of our efforts to 
try to promote the expansion of new and unique programming into 
the online space.
    So, Mr. Chairman, I thank you for the hearing and I look 
forward to the testimony of our witnesses.
    Mr. Boucher. Thank you very much, Mr. Murphy.
    The gentleman from Georgia, Mr. Deal, is recognized for 2 
minutes.

  OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    Mr. Deal. Thank you, Mr. Chairman.
    I think we all understand that we are in an evolutionary 
change in media and that evolutionary change has of course 
informed us better and we are better connected but the growth 
has come in the emergence of trying to protect the rights of 
copyright owners, compensating those who own the signals and on 
which the copyrighted program will travel in meeting the demand 
of consumers who want unfettered access to programming. 
Certainly, the marketplace is more competitive than ever. I 
think the question we have to answer is how can we make this 
marketplace completely free so that everyone from the 
programming owner to the programming provider to the 
programming consumer will be benefited.
    Last week this committee dealt with the Satellite Home 
Viewers Reauthorization Act. At that time, the committee 
adopted an amendment that was passed requiring the Dish Network 
to carry the Public Broadcasting Service in high definition 
sooner than the parties involved were able to reach an 
agreement. Under the intention of providing public airwaves to 
all consumers, the government forced a satellite carrier to 
carry a station without permitting Dish to choose whether or 
not they wanted to carry it. This illustrates the problem with 
retransmission consent is broadcasters are able to use their 
government-given marketplace leverage to force carriers of 
their programming on the distributor in unbalanced 
negotiations. The practice of retransmission consent is nothing 
but a government-regulated monopoly as Congress has given 
authority to broadcasters to negotiate on their terms.
    It is my hope that this witness panel will be able to 
discuss a solution to the problems of retransmission consent in 
an honest and fair manner. In the end, it is the consumer that 
drives competition. Competition fosters innovation and 
innovation is what we try for for the future. Today I hope we 
will be able to work towards solutions that help promote a free 
and fair market, one in which broadcasters, distributors and 
consumers are afforded flexibility, transparency and more 
importantly, choice.
    I yield back my time.
    Mr. Boucher. The gentleman from Ohio, Mr. Space, is 
recognized for 2 minutes.

OPENING STATEMENT OF HON. ZACHARY T. SPACE, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF OHIO

    Mr. Space. Thank you, Mr. Chairman.
    Today we examine video competition in the digital age, a 
topic with relevance to all Americans who watch TV and that is 
a lot of Americans. The status of competition in the video 
market affects all of those viewers whether they are actively 
aware of it or not.
    Mr. Chairman, in my district, my caseworkers and by the 
way, I have a very rural district pretty much like your own. We 
receive a steady stream of phone calls from my constituents 
complaining that they cannot get the video services they 
desire. The cable company doesn't come out far enough to reach 
their homes which are some distance back from the main 
thoroughfares. Two of the five DMAs covering Ohio's 18 
Congressional districts have only one of the two major 
satellite providers offering service, not to mention that one 
of the markets lacks local-into-local programming. And I have 
spoken repeatedly about the lack of broadband access in the 
Appalachian terrain of southeastern Ohio. A sad state of 
affairs that continues to limit content availability on 
countless fronts. So I think my constituents might disagree 
with some of the testimony that is going to be offered today 
that competition is alive and well. While that certainly may be 
the case in more urban and suburban areas of our country, my 
constituents generally have just one choice for paid television 
services from a multi-channel video programming distributor and 
one choice isn't really any choice at all. I worry that once 
again that rural America is being left behind.
    I thank you, Mr. Chairman, for calling this hearing and 
certainly for your tireless devotion to meeting the needs of 
rural America. And I look forward to the testimony of our 
witnesses and thank them for their appearance.
    Mr. Boucher. Thank you very much, Mr. Space.
    The gentleman from California, Mr. McNerney, is recognized 
for 2 minutes.
    Mr. McNerney. Thank you, Mr. Chairman.
    The only thing I really want to say is that I understand 
clearly how important legislation and regulation is going to be 
in terms of enhancing the competitiveness of video 
broadcasting. The wrong ideas are going to make the market a 
lot less competitive and select winners rather than let the 
market select the winners. So I am looking forward to what your 
testimony is and to learn as much as we can before we actually 
start marking up ideas onto paper.
    So thank you very much, Mr. Chairman, and I yield back.
    Mr. Boucher. Thank you very much, Mr. Space.
    The gentlelady from Florida, Ms. Castor, is recognized for 
2 minutes.
    Ms. Castor. Thank you, Chairman Boucher, very much for 
calling this hearing.
    It is an exciting new world and I am very interested in 
your opinions, your expert advice on where we should be going 
forward. Thank you all for being here today.
    And I yield back.
    Mr. Boucher. Thank you, Ms. Castor.
    The gentleman from Vermont, Mr. Welch, just joined us and 
is going to waive his statement and both Ms. Castor and Mr. 
Welch as well as Mr. McNerney will have 2 minutes added to 
their question time for witnesses as will Mr. Doyle. Are other 
members seeking recognition? That concludes opening statements 
and we welcome now our panel of witnesses and express thanks to 
each of you for taking part in our hearing this morning. I will 
say a brief word of introduction about each of our witnesses.
    Mr. Thomas Rutledge is the Chief Operating Officer of 
Cablevision Systems Corporation, one of the Nation's major 
cable companies. Mr. Benjamin Pyne is President of Global 
Distributions for Disney Media Networks. Mr. Patrick Knorr is 
the Chief Operating Officer of Sunflower Broadband. Mr. Ronald 
Moore is a writer and executive producer testifying on behalf 
of the Writers' Guild of America West previously introduced by 
Chairman Waxman. Mr. Terrence Denson is Vice President of 
Corporate Marketing for Verizon and Mr. Adam Thierer is 
President of The Progress & Freedom Foundation. We welcome each 
of you and without objection your prepared witness statement 
will be made a part of our record. We would welcome your oral 
summaries of your testimony and ask that you try to keep those 
oral summaries to approximately 5 minutes, that way we will 
have ample time for questions and we will proceed from the left 
and proceed to the right. That is not a philosophical comment 
but it does coincide with philosophical positioning at least 
for the last witness to some extent.
    Mr. Rutledge, we will be pleased to begin with you and if 
you could pull that microphone a bit closer and make sure that 
it is on and we can hear you better.

    STATEMENTS OF THOMAS RUTLEDGE, CHIEF OPERATING OFFICER, 
  CABLEVISION SYSTEMS CORPORATION; BENJAMIN PYNE, PRESIDENT, 
  GLOBAL DISTRIBUTION, DISNEY MEDIA NETWORKS; PATRICK KNORR, 
CHIEF OPERATING OFFICER, SUNFLOWER BROADBAND; RONALD D. MOORE, 
WRITER, EXECUTIVE PRODUCER; TERRENCE K. DENSON, VICE PRESIDENT, 
CORPORATE MARKETING, VERIZON; AND ADAM THIERER, PRESIDENT, THE 
                 PROGRESS & FREEDOM FOUNDATION

                  STATEMENT OF THOMAS RUTLEDGE

    Mr. Rutledge. Good morning.
    Mr. Boucher. That's better.
    Mr. Rutledge. Chairman Boucher, Ranking Member Stearns and 
members of the subcommittee.
    My name is Tom Rutledge and I am the Chief Operating 
Officer of Cablevision Systems Corporation. I also serve as 
Chairman of the Board of Directors of the National Cable 
Television Association.
    Mr. Chairman, the state of video competition is very 
healthy, especially in Cablevision's area, the most competitive 
market in the country. We face competitors many times our size 
by any metric and consumers have been the primary beneficiaries 
of this competition. After the 1996 Act, Cablevision invested 
more than $5 billion to build the most advanced communications 
network in the country. Cablevision offers all, not some but 
every household in our service area an array of new digital 
video voice and high-speed Internet services at significant 
savings to what our customers use to pay our competitors.
    As the Congress recognizes competition breeds innovation 
and investment. In competitive markets like New York, the rules 
designed to jumpstart competition where there was less multi-
channel video competition 17 years ago, the program access 
rules are no longer appropriate. Attempts to use the regulatory 
framework for competitive advantage such as by expanding the 
satellite delivered program access rules should be dismissed 
out of hand. Companies should continue to have incentives to 
compete in the marketplace not in the regulatory arena.
    For years, Cablevision has faced vigorous competition from 
Dish and DirecTV, currently the second and third largest video 
distributors, and Verizon and AT&T, the Nation's largest 
telecommunications companies, and currently the eighth and 
tenth largest video distributors. These phone companies are 
significantly larger than Cablevision, more than 10 times our 
size. Cablevision has always competed by investing and 
innovating to create products that meaningful differentiate our 
service. Cablevision was the first cable company to launch 
digital video service throughout its footprint including high-
definition offerings free of charge with our customers' 
packages. We launched the Nation's fastest Internet service 
Optimum Online Ultra and are now building the country's largest 
WiFi network to provide our customers free access to the 
Internet service and public spaces in our marketplace.
    Similar groundbreaking investments have been made with 
regard to content to ensure that Cablevision continues to 
provide unique value for customers, examples include News 12. 
In 1986, Cablevision launched News 12, the Nation's first 24-
hour hyper-local news channel and now offers seven individual 
local news channels and five traffic and weather channels.
    Madison Square Garden high definition, in 1998, Cablevision 
became the Nation's first regular provider of sports coverage 
in high definition. Cablevision's investment was a gamble. It 
required a sizeable investment at a time when very few people 
had high definition televisions. Recently, Cablevision launched 
Madison Square Garden Varsity, a new multi-platform suite of 
television and interactive services dedicated to local high 
school sports, academics and activities of interest to our 
local communities.
    Our investments in local and regional programming have been 
both risky and substantial. The program access rule adopted in 
1992 to ensure that new competitors like DirecTV and Dish could 
launch with key programming is now at odds with this kind of 
innovation. In fact, Congress recognizes potential negative 
impact and allowed for a periodic review and sunset of the 
program access rules. The implications of keeping these rules 
in effect is clear, if you take the risk to develop creative 
and often costly new programming and you fail, you alone bear 
that cost but if you succeed, you must share the fruits of your 
risk and innovation with your competitors.
    To jumpstart competition on the multi-channel video 
distribution market in 1992, Congress required that all 
satellite-delivered cable programming be given to new satellite 
competitors. However, Congress also wisely established new 
opportunity for an innovation in programming where a cable 
operator could create new programming, deliver it terrestrially 
and not be forced to share it with its competitors. To reverse 
this policy, it would undermine competition by discouraging 
that investment for new content and services. If a company is 
facing vigorous competition, why would that company invest in 
untested and expensive services if it had to share those 
services with its competitors? In the interest of investment, 
innovation and competition, we strongly urge that efforts to 
expand the program access regulations be rejected.
    Thank you very much.
    [The prepared statement of Mr. Rutledge follows:]

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    Mr. Boucher. Thank you, Mr. Rutledge.
    Mr. Pyne.

                   STATEMENT OF BENJAMIN PYNE

    Mr. Pyne. Thank you, Chairman Boucher, Ranking Member 
Stearns and members of the subcommittee.
    My name is Ben Pyne and I am President, Global 
Distribution, Disney Media Networks. I truly appreciate the 
invitation to talk with you today about video competition.
    There has never been a more competitive video marketplace, 
never. Thanks to Congress and the FCC, consumers today have 
more choices and more video content available to them then at 
any time in history. Most consumers now have the choice of 
three, four or more competitive options to receive multi-
channel video. While cable once was feared to be a monopoly, 
today 36 million customers subscribe to non-cable MPVDs. On the 
programming side, competition for eyeballs has never been more 
fierce. Over the last 30 years, the number of programming 
services literally has exploded. According to the FCC, there 
are now approximately 565 national satellite-delivered cable 
programming networks and cable and satellite's most popular 
services now reach nearly 100 million households.
    At the same time, vertical integration among programmers 
has decreased. Of course, the exponential expansion of content 
on the Internet whether video streams or social networking has 
created even more competition.
    Today's subscribers to multi-channel video get great value 
for their money. For about $50 per month, subscribers get 
thousands of hours of entertainment, news, sports, 
documentaries, lifestyle, children's and family-friendly 
programming. In fact, with all the great content on multi-
channel television, consumers spend much more per hour on 
movies, home video, mobile phones, print media and video games 
than for cable television.
    Disney realizes that as a result of all the competition 
that Congress has helped unleash, some cable operators are 
facing competitive pressure from satellite, telco and other new 
video entrants. In an effort to provide some relief to the 
smallest cable operator that is most impacted by this increase 
in competition, Disney and ABC have granted many small cable 
operators free retransmission consent for the current 3-year 
cycle for the 10 ABC stations owned by Disney. Specifically, 
Disney granted free retransmission consent to 90 small cable 
operators out of a total of 113 operators with whom we deal in 
our markets. With respect to our non-broadcast channels, Disney 
and ESPN have deals with the NCTC, the small cable operator 
cooperative for all of our cable channels. This provides NCTC 
members with buying power equal to the Nation's fifth multi-
channel video provider. Given these and similar efforts, the 
subcommittee should not get involved in the private 
negotiations between programmers and distributors.
    Technology has empowered the consumer more than ever before 
and at our company we create and use technology to deliver 
content to reach our fans and viewers. In doing so Disney has 
been a pioneer through video downloads and I-tunes, video 
streaming on ABC.com, video on Hulu, video over broadband on 
ESPN360.com, video on demand, video on mobile devices and a 
production of high definition video content across broadcast, 
cable, satellite and of course, DVD. These are just some 
examples of ways we have developed to serve consumers in this 
new age of media technology and we always will continue to find 
new ways to get our content to our consumers.
    Turning to broadband, Disney and ESPN distribute content on 
the Internet through various models. ESPN360.com is our sports 
event broadband product and it features an online video player 
and access to a broad array of game telecasts and long form 
sports content. ESPN360.com is available to any and all ISPs 
for a fee. It is currently available to over 50 million 
households representing approximately two-thirds of broadband 
subscribers in the United States. It provides fans with access 
to more than 3,500 live, full-game telecasts every year, many 
of which would not otherwise be available on any other domestic 
outlet. Nobody in the marketplace is currently delivering this 
volume of multi-sport coverage online.
    I want to be clear on one point though. Contrary to what 
you may hear ESPN360.com has nothing to do with net neutrality. 
The entire debate over net neutrality involves network 
management issues and the relationship of an ISP to its 
subscribers. In contrast, the business model of ESPN360 has 
nothing to do with the actions taken by any ISP such as network 
management or retail pricing.
    Now and in the future getting the balance right between 
convenience and pricing is a challenge facing all of us who 
create and distribute digital content. Adding to that challenge 
is the problem of piracy. We believe the best place to start to 
fight piracy is to bring content to market on a well-timed and 
well-priced basis. Disney is working to do just that, however 
piracy is a growing threat to our ability to deliver great 
content. We are looking to increase broadband deployment and 
adoption and we at Disney believe that it will be high quality 
sports and entertainment video that will help drive that 
adoption, but unless that content is protected as it flows over 
broadband it will be pirated and ultimately our ability to 
produce that very content will be undermined. We believe that 
ISPs should be encouraged to use the most effective and 
commercially reasonable technologies and processes to help curb 
the tidal wave of stolen content present on our networks today.
    In closing, thanks to Congress' pro-competitive policies, 
video competition is thriving. In our view, no additional 
government regulation of this dynamic and competitive 
marketplace is necessary or appropriate.
    Thank you very much.
    [The prepared statement of Mr. Pyne follows:]

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    Mr. Boucher. Mr. Knorr.

                   STATEMENT OF PATRICK KNORR

    Mr. Knorr. Thank you, Mr. Chairman and members of the 
committee.
    The American Cable Association represents nearly 1,000 
independent cable operators that primarily invest in small and 
rural communities where the big guys find it unattractive to 
provide service. Our members don't own or control national or 
major regional programming. Access to video content is tightly 
controlled by large media companies that have built their 
business models on top of decades-old regulation. As a result, 
our costs for this content have grown exponentially over the 
past few years and this is why your cable bill goes up every 
year.
    As an entrepreneur from Kansas, there is one message I hope 
you take away from my testimony. Do not believe those that say 
the sky will fall if you seek to improve the market for 
consumers by changing the status quo. I would like to remind 
you that Congress changed the cable laws in 1992 because it 
thought the marketplace could be better for consumers. In 1996 
you updated communications law because you thought consumers 
could get better, more innovative service. And you did it with 
the Satellite Home Viewer Act and most recently with the DTV 
transition. Embracing change needs to be your philosophy once 
again.
    For instance, Congress needs to confront Federal rules that 
grant broadcasters exclusivity and insulate them from 
competition. A recent study shows that retransmission consent 
fees will increase from $500 million in 2008 to $1.2 billion by 
2011, and a disproportionate amount of this revenue will come 
from consumers served by small and rural cable operators. To be 
clear, what happens today is not a negotiation. For most ACA 
members, a retransmission consent negotiation is a take it or 
leave it deal between an operator and a government-sanctioned 
monopoly. Networks use affiliation agreements to extend and 
ensure this monopoly status across every corner of a DMA. This 
artificially raises the price and keeps consumers from 
receiving relevant programming like sports and weather from 
neighboring markets.
    Video providers should have the option to offer consumers 
the most relevant and affordable broadcast content available. 
This is best accomplished by giving video providers the option 
of bringing in broadcast signals from adjacent markets. Today 
robust competition exists. In some rural markets, satellite has 
become the dominant provider. In the area of retransmission 
consent, DBS providers have the option to place broadcasters on 
a separate tier as an optional purchase. This gives DBS both a 
negotiating and pricing advantage over small cable operators 
who could not offer this option to their price conscious 
consumers. Therefore, small cable operators must have parity 
with satellite to remain competitive. They must have the same 
option to tier broadcasters. Moreover, smaller operators and 
their consumers face significantly higher programming rates, 
not only for retransmission consent broadcast channels but also 
cable and sports programming just because they are small 
businesses with minimal market power to negotiate fair terms 
from dominant media providers.
    There is an additional extremely important issue for you to 
consider regarding how programming is being delivered via the 
Internet. ESPN is pioneering a closed Internet business model 
with its ESPN360 offering where broadband service providers are 
required to pay a per-subscriber fee for every consumer they 
serve. If a provider does not pay this fee ESPN blocks access 
to ESPN360 and does not provide any options to consumers to 
access that content at any price.
    There are multiple problems with this situation. First, a 
person that is out of work and needs the Internet only to apply 
for a job must now subsidize those who want to access ESPN360 
on a regular basis. Second, it would establish a precedent that 
content companies can restrict consumer choices in the exact 
way that net neutrality was designed to prevent ISPs from 
doing. Wall Street loves this kind of business model and is 
encouraging others to follow ESPN's lead so this will not be a 
unique situation. Because ESPN embraces this model, you can 
expect Hulu, YouTube and others to follow suit. How much will 
they charge? If this model proliferates with millions of 
Internet content sites, consumers will ultimately pay 
exponentially higher rates for broadband service at a time when 
Congress is working to make broadband more affordable.
    ACA believes that consumers should be given a choice and a 
chance to access any legal content on the Internet regardless 
of their ISP. Therefore, we would request that if you are to 
proceed in addressing net neutrality legislation that you do 
not solely focus just on network service providers but address 
content providers that intend to limit consumer choice.
    So what can be done to create a better video market? There 
are many suggestions detailed in my testimony but I will focus 
on four here. First, prohibit any party including a network 
from providing a broadcast station outside of the local market 
area from granting retransmission consent to a smaller cable 
company outside of the broadcasters protected zone. Second, 
provide parity with DBS that would permit small cable operators 
from offering local broadcast programming on its own tier as an 
optional purchase. Third, direct the FCC to review all 
programming contracts to empirically determine the level of 
programming price discrimination and take necessary corrective 
action. Finally, providers of content services and applications 
should not be allowed to block consumers' access to their 
products regardless of their ISP.
    Thank you for this opportunity to testify today and I look 
forward to your questions.
    [The prepared statement of Mr. Knorr follows:]

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    Mr. Boucher. Thank you very much, Mr. Knorr.
    Mr. Moore.

                  STATEMENT OF RONALD D. MOORE

    Mr. Moore. Thank you, Chairman Boucher, Chairman Waxman, 
Ranking Member Stearns and the other esteemed members of the 
committee.
    It is an honor to testify before you today. My name is Ron 
Moore and I am the executive producer and creator of Battlestar 
Galactica. I was also a writer/producer on the TV series Star 
Trek: The Next Generation, Deep Space Nine, Roswell and 
Carnivale, and I am currently working on my next project, 
Caprica, a TV series for the Syfy Network.
    I have been a working writer in the entertainment business 
for over two decades and in that time the television 
marketplace has fundamentally changed and in my opinion, not 
for the better. There are actually fewer places to sell ideas 
both in terms of the numbers of studios available to buy 
programming and the numbers of independent networks available 
to deliver it. While this might seem counterintuitive in an 
environment where the number of cable and satellite channels 
routinely runs into the hundreds, a closer look reveals that 
the media consolidation has resulted in a vast majority of 
television shows being produced by a handful of conglomerates 
and a vast majority of cable channels are also owned by only a 
small number of companies.
    This environment is a direct result of the repeal of 
financial interests and syndication rules in the mid-1990s. The 
challenge now is to make sure that the same thing doesn't 
happen again, that the future of programming on the Internet 
does not fall victim to the same mistakes that led to the 
current domination of media conglomerates and traditional 
television.
    Let us take a moment to look at some of the raw numbers. In 
1989, there were 18 production companies who were significant 
suppliers to the broadcast networks. In 2009, there are eight. 
After the repeal of the Fin-Syn rules, we went from a system 
where studios competed with each other for ideas and networks 
competed with each other for programming to a system where 
studios and networks are now combined into enormous entities 
who favor doing business with themselves.
    Let us take a look at the next chart, 66 percent of the 
series airing on broadcast television this fall are produced by 
the networks' own in-house studios. These studios no longer 
look for the best idea. They look for the idea that best helps 
their corporate sibling. But further consolidation of the 
industry like the proposed merger of NBC with Comcast certainly 
demands scrutiny and investigation into its impact on 
competition and diversity of programming. But what is the 
impact on the television audience and the American public? How 
does squeezing how the independent studio and eliminating 
autonomy for the writer/producer affect content?
    The answer is that fewer voices and fewer players reduces 
access and creates more homogenized product for the audience. 
Before the repeal of Fin-Syn, an independent studio like 
Carsey-Werner could produce a show like Roseanne which featured 
a working class family dealing with the struggles and conflicts 
common to working families all over America. Roseanne was about 
a contractor and his sometimes working and sometimes unemployed 
wife and their efforts to keep a roof over their heads. This 
followed in a tradition of independent programming that spoke 
to the same sensibility of All in the Family where Archie 
Bunker worked on the loading dock or the Honeymooners where 
Ralph Kramden drove a bus and his best friend worked in a 
sewer. That sensibility, the voice of the broad American 
working class has vanished from television. These voices, these 
independent voices are missing and they are missing because a 
mono-culture has been allowed to be nurtured in TV where new 
ideas and new players face virtually impossible odds of getting 
their shows on the air.
    So what can be done? If this committee supports competition 
in video programming, there are many things you can do. First, 
across town today the Federal Communications Commission is 
taking the first steps to codify Internet freedom. An open 
Internet promises to be an extremely competitive marketplace 
where small entrepreneurs can be matched up against the media 
giants of today and thrive. Supporting a free, open and 
nondiscriminatory Internet will allow the next generation of 
creators and innovators to distribute their own content and 
compete for the hearts, and minds and eyeballs of the audience.
    Second, we must remember that traditional media still has 
by far the broadest reach into America's homes. While broadcast 
networks complain of declining ratings, overall television 
viewership is actually increasing. Cable viewership is growing 
steadily and so the relationship between major cable 
distributors and programmers needs closer scrutiny. The 
practice of tying and bundling channels is one practice worthy 
of examination. When you learn that some of these bundled 
channels offer nothing more than a static weather map with 
national viewing levels in the tens of thousands, you realize 
that this is actually filler content whose only purpose is to 
block other programmers from gaining access to the cable 
satellite channels. Whether a la carte cable channel selection 
will eliminate those barriers is an open question but it is 
certainly worthy of further analysis by the FCC and this 
committee.
    In conclusion, I would like to point out that I have worked 
for major studios and networks my entire career. From Paramount 
to HBO to NBC Universal where Caprica is being shot this very 
day, I have found success in the corporate structure. These 
companies are not evil. They are not populated by modern-day 
robber barons intent on stealing the bread from my children's 
mouths. These companies are only doing what makes sense to them 
financially. However, what makes financial sense to a handful 
of corporations may not be in the best interests of the 
audience, the television industry itself or the American 
people. These companies are run by and large by good and decent 
people who are simply working within the regulatory environment 
that they have been given and therein lies the rub. By setting 
up a regulatory environment in which there are no barriers to 
continual corporate consolidation and huge incentives to both 
centralize power and squeeze out smaller players, even good and 
decent people will participate in and promote a system that 
ends up weakening competition, monopolizing power and 
corrupting the free flow of ideas and opportunities for all. 
The danger we face is not that we work for bad men and women, 
it is that good men and women can produce bad results in the 
absence of a law.
    I thank you for the opportunity to appear before you today.
    [The prepared statement of Mr. Moore follows:]

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    Mr. Boucher. Thank you, Mr. Moore.
    Mr. Denson.

                STATEMENT OF TERRENCE K. DENSON

    Mr. Denson. Good morning, Chairman Boucher, Ranking Member 
Stearns and other members of the subcommittee.
    My name is Terry Denson and I am Vice-President of Content 
and Programming for Verizon.
    Mr. Boucher. Mr. Denson, could you pull that microphone 
just a bit closer, please?
    Mr. Denson. Closer.
    Mr. Boucher. That is--thank you. Even a little closer than 
that would be good. Thank you.
    Mr. Denson. I am responsible for obtaining access to video 
programming to support Verizon's consumer services including 
FiOS TV. Verizon and its 200,000 plus employees are leading the 
way with investments in both wire line and wireless broadband 
networks. Verizon has invested over $80 billion in capital 
expenditures over the last 5 years, more than any other 
American company during that time period. Verizon is investing 
$23 billion to take fiber all the way to customer's homes with 
our FiOS network. This enables both video competition and next-
generation broadband networks and services to 18 million homes 
and businesses. Verizon's FiOS Internet access service 
currently provides consumers with maximum speeds of up to 50 
megabits per second downstream and we are already testing 100 
megabits per second services.
    Our FiOS TV video service is an integral part of the 
business case for our FiOS investment. Set services provide 
additional choices and competition for consumers. FiOS TV 
brings head-to-head wire line video competition to the cable 
incumbents for the first time in several markets. FiOS TV has 
more capacity than traditional cable providers and is able to 
provide consumers with a wide range of video content including 
a robust lineup of HD programming, independent programming and 
international and multi-cultural content. FiOS TV is also 
designed to enable innovative and interactive services. For 
example, the IP functionality of Verizon's network permits the 
company to offer unique service called FiOS TV widgets that 
allow consumers to access content in an interactive manner on 
their television, including some content and services from the 
Internet such as Facebook and Twitter, and other compelling 
interactive services that serve their community, weather 
widgets, traffic widgets and widgets that provide vital 
information to consumers when they want it and where they want 
it.
    While millions of customers are already enjoying our FiOS 
services, new entrants like Verizon face a number of 
challenges. For the most part, Verizon is able to deal with 
these challenges such as rising programming through creative 
negotiation. One significant challenge has proven difficult to 
solve with this market-based approach, access to regional 
sports programming controlled by cable incumbents. Regional 
sports is among the most popular programming to consumers, many 
of whom insist on the ability to see the games of their local 
teams. Given its very nature, this programming is unique and 
cannot be duplicated by new entrants who are denied access.
    Some incumbent providers have exerted their control over 
this must have programming to handicap new entrants. In many 
cases, cable incumbents have sought to exploit the so-called 
terrestrial loophole in an effort to deny competitive providers 
access to this must-have programming. Cable incumbents know 
full well that a new entrant lacking regional sports or lacking 
the HD format of that programming will not provide a meaningful 
choice for consumers. There is a long record documenting that 
cable incumbents have used this loophole to handicap 
competitive providers including in San Diego, Philadelphia and 
New York.
    Verizon has experienced this problem firsthand when 
Cablevision refused to provide access to its regional sports 
networks, MSG and MSG plus in the New York City and Buffalo 
areas. While we obtained access to the standard definition 
version of these channels only after filing suit at the FCC, 
Cablevision has steadfastly refused to even discuss providing 
Verizon access to MSG and MSG plus in HD on any terms 
whatsoever. By its refusal, Cablevision is seizing on the 
growing import of HD technology to consumers, particularly in 
the context of sports programming. A recent consumer survey 
conducted for Verizon found that nearly 60 percent of New York 
City subscribers say they are not likely at all to consider 
switching to a provider that does not provide their regional 
sports in HD.
    We have urged the FCC to take action because denial of 
access to this programming denies any meaningful choice to the 
many consumers for whom local sports are critical. In order to 
eliminate any disputes however, Congress should adopt a 
targeted, legislative fix to ensure access to the unique 
regional sports programming that consumers demand.
    Thank you.
    [The prepared statement of Mr. Denson follows:]

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    Mr. Boucher. Thank you, Mr. Denson.
    Mr. Thierer.

                   STATEMENT OF ADAM THIERER

    Mr. Thierer. Thank you, Mr. Chairman and members of the 
committee, and I appreciate you inviting me here today to speak 
about this important issue.
    My name is Adam Thierer and I am the President of the 
Progress & Freedom Foundation, a digital economy think tank 
here in Washington, D.C. I have written extensively on this 
important subject, including two books on the topic and in my 
work I have argued that regardless of underlying business 
structures or ownership patterns, the critical question that 
must govern this debate about the state of the media 
marketplace is do citizens have more news, information and 
entertainment choices at their disposal today then in the past? 
And I am pleased to report that all of the evidence suggests 
that the answer to that question is unambiguously yes.
    Indeed, we now live in a world of unprecedented media 
abundance where consumers can increasingly obtain whatever they 
want wherever they want however they want to. Citizens of all 
backgrounds and belief are benefiting from this modern media 
cornucopia and nowhere has this abundance been more evident 
then in the field of video programming. Although the provision 
of video services entail significant upfront investment at 
every step of the value chain, we have more video options and 
diversity at our disposal today than ever before and at 
generally falling prices. In sum, there is more competition for 
our eyes than ever before.
    Consider traditional broadcasting which was once synonymous 
with television itself. Most of us can remember when just three 
or four VHF channels and a few fuzzy UHF channels were all we 
had at our disposal. Today we have seven nationwide broadcast 
networks and the number of local broadcast stations has doubled 
since 1970. Competition against and among traditional 
broadcasters is intense and the viewing audience has become 
remarkably fragmented. The collective audience share for 
broadcast networks has fallen every year for the past decade.
    Competition is also intensifying among cable, telecom and 
satellite-based platforms. Better yet, the number of channels 
available on these platforms has skyrocketed from just 70 in 
1990 to 565 in 2006, the last year for which we have FCC data. 
Resulting diversity on the dial has been truly breathtaking and 
almost every human interest is now covered by some sort of 
video network and some of the most impressive gains have been 
made by minority oriented, foreign language, religion and 
children's based programming. Importantly, the largest share of 
the growth in the multi-channel video marketplace has actually 
come from independent programmers and owners. The percentage of 
pay-TV channels owned by cable distributors has plummeted from 
50 percent in 1990, to under 15 percent today, and that 
percentage is now significantly lower following the split 
between Time Warner Cable and Time Warner Entertainment. In 
fact, that percentage of vertical integration is probably in 
the single digits now.
    Thus, while the Cable Act of 1992 was motivated by fears of 
excessive vertical integration and gatekeeper power in the 
delivery of video programming, today's marketplace is actually 
intensely competitive and rich in its diversity. Meanwhile, new 
video empowerment technology such as DVRs, VOD, Blu-Ray and so 
on, have revolutionized the way that the public consumes visual 
media and given viewers unprecedented control over their 
preferences and timetables.
    While traditional platforms like cable and satellite offer 
a sea of diverse programming, the Internet's digital 
distribution platforms offer oceans of new content. Even 
defining a media outlet today has become very difficult as new 
technologies and power average citizens to become producers of 
news and entertainment themselves. Thanks to personal 
computers, Web sites, blogs, camcorders, digital cameras, cell 
phones and so on, anybody can be a one-person newspaper or 
broadcaster. Some might call it amateur media creation but it 
is media creation and it certainly is competing for eyeballs.
    The Internet has also empowers a growing number of 
consumers to cut the video cord all together by canceling their 
monthly video multi-channel video subscriptions and getting 
their video from a combination of other sources. If the 
committee wants a glimpse into the future, I suggest a few 
teenagers or 20-somethings to testify about how they consumer 
video today. They probably couldn't name most broadcast 
networks or multi-channel video providers but they would regale 
you with stories about how they have seen or shared video on 
platforms ranging from YouTube to I-Tunes, Video Views, 
Fusebox, Evio, Hulu, Netflix, Amazon On Demand, Sony's 
Playstation Store, Microsoft Xbox 360 Marketplace and so on.
    While some here in town often wring our hands about the 
supposed gatekeeper power of old media providers and platforms, 
our kids are increasingly ignoring those platforms and moving 
on. This begs the question, instead of fretting that some 
traditional media providers have too much power perhaps it is 
time to ask if some of them actually have too little, a concern 
we have today in the newspaper business, for example. Indeed, 
the very viability of traditional media operators is 
increasingly in doubt as they lack the pricing power and the 
ability to control when, where and how their content is 
delivered and consumed.
    Meanwhile advertising, the traditional lifeblood of the 
media sector is increasingly spread across multiple platforms 
and being subjected to new scrutiny and potential regulation 
here in town. And copyright infringement has also made 
modernization far more challenging and places serious strains 
on many content operators.
    In sum, traditional media operators could be in serious 
trouble and now certainly isn't the time to be considering new 
rules and red tape that could hamstring their ability to 
respond in new competitive pressures. Regardless, America's 
video marketplace should be viewed as a pro-consumer success 
story with an abundance of choices, competition and diversity 
in options. The only real scarcity that is remaining today is 
our personal time and attention spans, not video marketplace 
options. That is something we are celebrating.
    Thank you again for inviting me today.
    [The prepared statement of Mr. Thierer follows:]

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    Mr. Boucher. Thank you very much, Mr. Thierer, and thanks 
to each of our witnesses for joining us this morning for some 
very informed commentary on the subject matter before us.
    I recognize myself for the first round of questions. I am 
not entering this conversation with any preconceived ideas 
about whether or not we should legislate anything and I would 
like to make that clear at the outset. I did support in 1992 
the program access provisions as a part of the legislation that 
we passed in that year. I did so because cable at that time was 
a monopoly and we wanted to encourage competition. The direct 
broadcast satellite industry had not really launched and those 
companies were not established. They were clearly not in a 
position to generate their own content with their own 
expenditure at that early state, and the only way they could be 
successful in providing competition was to have access to the 
programs generated by cable so we provided that access. And I 
think that law has been successful for the reasons I mentioned 
in my opening statement. Now that marketplace is competitive. 
The two satellite providers have subscribers typically equal to 
the very large cable systems. And now we welcome into the 
market the very large telephone companies, in fact telcos 
across the country that are beginning to offer multi-channel 
video further expanding the competitive choice.
    And, Mr. Denson, I want to ask you some questions about 
your arrival in the market, what that means for competition and 
whether we ought to consider making any changes in the law in 
order to sustain it or perhaps further encourage it. Some would 
say that a company that is well-financed like Verizon either 
individually or in partnership with other large 
telecommunications companies could finance the creation of your 
own content and that is a situation very unlike the situation 
the direct broadcast satellite industry was in in 1992. And so 
how do you respond to the idea that you could generate your own 
content given the fact that you are a very large, well-
established company and could even partner with others in joint 
ventures in order to do that? I know you are particularly 
concerned about regional sports and I am going to come to that 
in a moment but as a general matter, let me just ask you about 
whether or not you are in a position to generate much of your 
own content?
    Mr. Denson. Certainly, you know, we actually have financed 
the creation of our own programming. We created local, three 
local hyper-local news channels, FiOS1, Long Island FiOS1, New 
Jersey and FiOS1 here in the D.C. metropolitan area. What we 
found is that local hyper-local content was crucial in order to 
win over customers. Customers, it wasn't enough just to have 
content that addressed their entire region. Customers really 
wanted to know what they smelled when they looked out the door. 
If they were smelling smoke they wanted a channel that actually 
would tell them where that fire was in their neighborhood and 
we do that. We also offer compelling stories within the 
community so that everyone sees themselves in the community in 
a positive way. So we invested heavily in that and to be honest 
with you, given our number of customers the true benefit for 
the customers is the customer itself. We are not seeing that 
financial return but we are doing it to benefit the customer.
    Mr. Boucher. How important is the 1992 program access 
provision to you as a general matter?
    Mr. Denson. Well, I think in terms of how important that 
was for us in the creation of that content I think.
    Mr. Boucher. Well, not in the creation of the content but 
getting access to other peoples' content, cable-affiliated 
content.
    Mr. Denson. Oh, absolutely vital.
    Mr. Boucher. That was vital to you?
    Mr. Denson. Absolutely vital at the time.
    Mr. Boucher. You could not have launched FiOS without that?
    Mr. Denson. We would not have launched FiOS without having 
the assurances that were provided in the Act.
    Mr. Boucher. All right, let me come to the regional sport 
question because that is something you focused on in your 
commentary. As I understand the situation as it pertains in 
Philadelphia and to some extent in San Diego and maybe other 
markets around the country, one cable provider has under 
contract the major sports leagues. I think that is true almost 
entirely in Philadelphia and the FCC found in a study that as a 
consequence of that the number of DBS subscribers is about 40 
percent less in Philadelphia than one would expect under 
different circumstances. And in San Diego the Padres are under 
contract with one cable company, and as a result of that the 
FCC found the DBS subscribership was about 30 percent, 33 
percent less than otherwise it would have been. Some would say 
that this is merely the functioning of the private market, that 
these contracts expire periodically and I assume they do. Maybe 
you know how often they expire and can tell us but upon that 
expiration why could other competitors within the multi-channel 
distribution space not go into the market, bid for those 
contracts and if they offer more money prevail and become the 
offerers of those programs? Now, assuming all of that is true 
why should we be concerned about this? Why not just let the 
market operate?
    Mr. Denson. Well, for certain regions.
    Mr. Boucher. First of all, can you tell us when those 
contracts expire?
    Mr. Denson. The every market is different. Every team is 
different. They typically expire on a 5-year basis however 
there are some contracts specifically between the Yes Network 
and the New York Yankees which I know run significantly longer 
than that. In terms of the competition, for sure regional 
sports networks are unique and we cannot duplicate that, and 
the cost of sports rights are enormous and there is no way in 
which we could monetize it so to that end we would not be able 
to actually make a meaningful bid for those regional sports 
networks. I think what we have here.
    Mr. Boucher. So is it the concern that contracts are 
exclusive that troubles you the most or is it the length of the 
contract that troubles you the most?
    Mr. Denson. It is, well, it is two things really. It is 
one, it is the partnership with the joint ownership of a cable 
operator and a team and the actual regional sports network 
there that is definitely vital. But for certain areas.
    Mr. Boucher. Well, I am taking more time than I should here 
but we really need to understand how this works. I don't 
understand why it is a problem. If the contract expires within 
a sufficiently short period of time and that contract is then 
available for you and direct broadcast satellite and other 
cable companies to go in and bid on, why is that a problem?
    Mr. Denson. Well, let me take just the issue head on. It is 
a problem because I don't see how we could reasonably expect a 
company like Cablevision who owns the New York Rangers, it 
won't even offer us, it won't even negotiate with us with 
respect to the delivery of high definition content to entertain 
a bid where we would actually secure the rights for the 
telecast distribution of the New York Rangers and their market.
    Mr. Boucher. So you're saying Cablevision has some kind of 
permanent right associated with the sports leagues under the 
terms of which it can deny high definition carriage or in fact 
any carriage at all to a competitor?
    Mr. Denson. Absolutely, they own the New York Rangers.
    Mr. Boucher. So there is a permanent right so the actual 
contract doesn't expire. They actually own the league, is that 
what you are saying?
    Mr. Denson. They own the team. They own the New York 
Rangers. They own the New York Knicks and they are free to 
contract with whomever they like and they contract with 
themselves and then they deny the HD content to us. Now, on the 
other hand, a tale of two cities, we look at Philadelphia and 
Comcast. Through creative negotiations we have actually been 
able to secure the rights even though that content is protected 
by the terrestrial loophole, we have been able to secure those 
rights with Cablevision, the largest provider right in and 
where it is a similar situation. We are competing head-to-head 
in Philadelphia and they could deny it but cable Comcast took a 
different route and we are willing to negotiate and bargain in 
good faith with Cablevision at any time they denied us the 
access so that is specifically what we are looking for in this 
instance.
    Mr. Boucher. All right, let me just ask if there is anybody 
else on the panel that wants to comment and the Chair will tell 
other members I will be generous with their time for questions 
in view of the fact that I have consumed so much. Does anyone 
else want to comment on this?
    Mr. Rutledge.
    Mr. Rutledge. I just want to make a brief comment.
    Mr. Boucher. Yes.
    Mr. Rutledge. Mr. Chairman, I just want to be clear that 
Cablevision provides every game on our regional sports networks 
to Verizon. What hasn't been provided to Verizon is a high 
definition feed but all of their customers have access to every 
game on the regional sports channels we own, and in New York 
there are four regional sports channels. The Yankees have their 
own, the Mets have their own and Cablevision owns two channels, 
one service. And it is interesting Dish TV which we do sell our 
service to has the right to carry the high definition feed and 
does not for their own competitive and business reasons. They 
don't carry the Yankees so they carry the Mets and they carry 
our services but don't carry the Yankee network for whatever 
competitive reason they have decided. And Cablevision has been 
without the Yankees for up to a year at a time in various 
contractual arrangement problems and succeeded in the 
marketplace so there are a variety of approaches that different 
distributors make to the marketplace and it is quite robust and 
there are quite a few regional sports up there as well.
    Mr. Boucher. All right, OK, that is fine. Thank you very 
much.
    The gentleman from Florida, Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman.
    Recently I attended an open mobile TV forum and spoke to 
all the operators and it was sponsored I think by LG and Ion 
and they had all these mobile devices where I could get 
television on here. So it appears that to me the next challenge 
is going to be when the TVs are sold to the consumers and they 
have an Internet chip in it so I can decide do I want to get 
cable or do I want to get DirecTV or do I want to go the 
Internet and get live streaming of digital or high definition 
programming, and that seems to me as a consumer that that is 
where I would go. I would have the digital and high definition 
streaming on my mobile and I would have it at home on my 
television and there might be a point where I might not say I 
even need a cable or DirecTV, satellite TV because I am just 
going to get it through the Internet. I think that after I went 
to this forum it seemed to me the next really growing demand is 
going to be that everything is going to come through the 
broadband Internet and it will be high definition and it will 
be high speed.
    So, Mr. Rutledge, if I am wrong you can tell me but it 
seems to me that is where you folks should be making your 
investment for programming over the Internet in the future. And 
I guess my question is, is that true and if it is true what 
kind of deregulation or regulation should be involved? And 
certainly you might want to comment on network neutrality or 
network regulation, as I call it which would be even as we 
speak today I think the FCC is going to have a vote on it so I 
would be curious about your opinion and then Mr. Denson and Mr. 
Moore.
    Mr. Rutledge. Ranking Member Stearns, thank you.
    Mr. Stearns. Does the future as I explained, does that seem 
a likelihood?
    Mr. Rutledge. Yes, I think it is a very complicated future 
and what is happening is that devises.
    Mr. Stearns. I need you to make your answer pretty short so 
I can move around here.
    Mr. Rutledge. Yes, devices, there is a device of 
convergence so that what looks like a phone is a television and 
what looks like a television is a phone.
    Mr. Stearns. OK.
    Mr. Rutledge. And we have products that work really well 
and one of the things Cablevision has done is launch the first 
100 megabit data service across its entire footprint. We are 
the fastest data service in the country and the only company 
offering speeds at that level to all of its customers.
    Mr. Stearns. So you have already made an investment in 
this?
    Mr. Rutledge. Yes, we have been putting investments in what 
is called DOCSIS 3.0.
    Mr. Stearns. OK.
    Mr. Rutledge. Which is the most advanced platform out there 
in terms of high speed capacity. We believe that if our 
customers can use that network and be happy with the way that 
network operates that we will be able to sell our network 
services and as part of that we encourage developers of 
programming to make applications that work on a big fat network 
like we sell. And so our goal is to have content providers 
flourish and have people subscribe to us because we have the 
best network.
    Mr. Stearns. OK and Mr. Denson.
    Mr. Denson. Yes, and I think we are in a similar position 
and I think you are exactly right as how you see the future and 
what you have really described is the TV everywhere initiative 
which is a collaborative initiative amongst all distributors in 
the multi-channel video marketplace. So in that situation I 
think what you are looking at is programmers, content providers 
are looking to drive their revenue from subscription-based 
services as are we as distributors. So the--but your unique 
insight was well if I have a phone, I would like to see it on 
the phone. If I have it on the PC I would like to see it on a 
PC and TV. You subscribe one place and then you get access to 
the content across every device and what that does is that 
spurs the innovation on our side. As a distributor we need to 
make sure that we have the fastest networks and we do. We need 
to make sure that we have the best picture quality, not just 
across one platform FiOS but broadband and also our V-cast 
video, the Verizon wireless video service as well. So we are 
enabling those services and we are doing it across carrier so 
we are not looking to make it unique for Verizon itself. We 
want to work with the Time Warners, the Comcasts, the 
Cablevisions of the world so it doesn't matter where a customer 
is, that customer can actually access their content by paying 
just one time to one distributor.
    Mr. Stearns. OK, Mr. Moore, based upon sort of what I sort 
of prophesize what I think is going to happen here, why 
couldn't I get a Web site and I go to you and say, Mr. Moore, 
you know, I am very impressed with what you did with Star Trek 
and the Next Generation. I want you to do the next Next 
Generation and I will pay you. You come onto my Web site and we 
will be through the Internet everywhere and that gives you 
access. That seems simple to me but based upon what I say is 
going to happen in the future, do you see problems of you and 
others with your talent and your skill getting this programming 
to the consumer market?
    Mr. Moore. Well, I think you are correct and that is 
theoretically possible. I think that, however, the convergence 
that I think we all agree is coming is going to take awhile and 
that history shows is that these sorts of technologies don't 
completely wipe out prior technologies. When television came 
along everyone said that the movies are going to die.
    Mr. Stearns. Right.
    Mr. Moore. And when the VCR came along they all said the 
movies and television were going to die and none of those 
things have proven true, and I think the point is that 
traditional media and the way that we have known television for 
a very long time is probably going to continue in some form for 
quite--for the foreseeable future. An Internet--a web startup 
site like the one that you are postulating will have its 
biggest problem to get people to come see it so it is all about 
getting the consumer access to it.
    Mr. Stearns. No, I like the advertising. I would say Mr. 
Moore who did this in Star Trek has got something, you know, 
and I would create a sensation like they are trying to do with 
Dan Brown's new book, The Symbol. They are creating all this 
sensation to try and sell it and I would have to do all of that 
as part of the contract with you to get you.
    Mr. Moore. It is a viable form that your are postulating. 
Again, it takes a tremendous amount of money to create 
television programs like the ones that I have done. It then 
takes a tremendous amount of money to make them accessible to 
the audience.
    Mr. Stearns. So only the big players can do it then?
    Mr. Moore. Only the big players basically can do it and if 
the big players have basically own the means of their own 
production, they tend to go to those.
    Mr. Stearns. OK. Yes, sir, Mr. Knorr.
    Mr. Knorr. Thank you, Congressman Stearns.
    I think this is an excellent question that you are posing 
and really our concern about the ESPN360 business model goes 
directly to this. In your hypothetical, if Mr. Moore was able 
to put together a Web site and put on his content, under the 
business model that we are concerned about where all of our 
broadband subscribers are paying, in this case ESPN but it 
could be any of the existing major brands could leverage this 
type of arrangement, that anyone of my customers that access 
Mr. Moore's content not only would be paying Mr. Moore but 
would be paying all these other existing content providers. In 
which case a competing entity never would be able to get ahead 
because every time someone went to this new entrant, the 
existing companies would make money, and there would be no way 
that someone could get a pure connection to the Internet and 
choose to take a different path. It would carry over the 
existing cable business model and in many cases the existing 
cable participants onto the Internet and replicate.
    Mr. Stearns. My time has expired unless there is someone 
else who wanted to answer the question.
    Mr. Pyne.
    Mr. Pyne. I just would like to briefly comment on the 
ESPN360. The ESPN.com is a free Internet site that everybody 
who has an Internet connection can access. It is a very, very 
competitive business whether in every months we look at Yahoo 
Sports, ESPN.com, FOX Sports, CBS Sportsline, but that is there 
is more video on ESPN.com itself then any of the other dotcom 
sites. ESPN360 is the unique per-sub business model that in 
fact we created to help broadband adoption and today there is--
we have no evidence of someone raising their ISP fee to a 
consumer because they have launched ESPN360 and it is we don't 
force people. We are only--we are in 50 million homes. It has 
doubled over the last year because of the popularity of the 
service but the whole purpose of 360 was to help broadband get 
further adoption in our country because it is programming that 
drives--that will help drive adoption.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Boucher. Thank you very much, Mr. Stearns.
    The gentleman from Michigan, Mr. Stupak, is recognized for 
5 minutes.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Knorr, in your testimony you state that the ACA members 
pay 10 times as much as your competitors for the same content. 
How have you been able to make this determination and by 
competitors do you mean like satellite providers like Dish and 
DirecTV?
    Mr. Knorr. Competitors in some cases DirecTV and the 
satellite. In other cases, larger cable operators and a lot of 
it is anecdotal based on smaller cable operators that acquire 
cable systems from larger providers see the discrepancy in 
their cost of programming and that is, you know, that is 
anecdotal. That is one of the things that we are putting out 
there is we would like the FCC to empirically examine and 
review programming to determine what level of price 
discrimination occurs. I mean based on acquisitions and other 
things, we know it is occurring. Documenting that is what we 
want to do so that we can address the problem.
    Mr. Stupak. Well, like in my district there I get very 
rural districts, Sunrise Communications pay in about $40 for 35 
channels and that is a cable but then yet the same area, Dish 
is offering for $30 over 100 channels. Is that where you are 
doing your because that is about a 300 percent increase if you 
look at the number of channels.
    Mr. Knorr. I think there are a lot of things that figure 
into that. One is the disparity in cost of programming. Another 
one is again, the unique burdens of being a small operator. I 
mean regulatory costs, retransmission costs, disparities in all 
those costs make it more difficult for a small operator to make 
investments.
    Mr. Stupak. You are taking all of those into consideration 
when you say 10 times more than?
    Mr. Knorr. No, in programming alone it can be up to that 
much just in programming.
    Mr. Stupak. OK.
    Mr. Knorr. And then those other things would explain the 
disparity you are talking about of having 35 channels for a 
higher price than 100 channels.
    Mr. Stupak. All right, well, you also said that you are 
given a take it or leave it offer when attempting, take it or 
leave it when you are attempting to negotiate a program 
carriage.
    Mr. Knorr. Especially in regards to retransmission consent.
    Mr. Stupak. OK, how does that negotiation go? It is just 
take it or leave it, or do you have any input? Do you have any 
room to negotiate or is it just here is what we are offering, 
that is it.
    Mr. Knorr. It varies. In many cases it is getting a 
contract and saying here is the deal if you want to carry the 
network, and well that deal doesn't work for us. OK, here is 
the deal, you sign it, you don't sign it. It is up to you.
    Mr. Stupak. Sure.
    Mr. Knorr. As opposed to--oh, go ahead.
    Mr. Stupak. OK, I was--Mr. Pyne was shaking his head there. 
Do you want to add something on that one?
    Mr. Pyne. Well, I shouldn't have shaken my head.
    Mr. Stupak. I was going to ask anyways even if you didn't 
shake your head.
    Mr. Pyne. OK.
    Mr. Stupak. Because you are one of the bigger ones so I was 
going to ask.
    Mr. Pyne. Well, as it I mean, we work very hard to work and 
help our smaller cable affiliates as I mentioned in my 
testimony. I mean two specific things as it relates to 
retransmission consents for our own stations, in this last 
round we in fact in an effort to help, I mean it was a take it 
or leave it offer but it was free retransmission consent. In 
other words, the 1992 Cable Act allows us to make a cash offer 
available.
    Mr. Stupak. Right.
    Mr. Pyne. Or negotiate some other consideration. We have 
practiced that successfully for since 1993 actually but in this 
last round in an effort to help our smaller operators we said 
OK for these 90 in these smaller territories we will not 
extract any cash or ask for any other consideration. You can 
have it for the next 3 year cycle.
    Mr. Knorr. And I think honestly Mr. Pyne makes an excellent 
point. ESPN generously offered free carriage to about 90 of our 
1,000 cable systems but he also said exactly what the fact is 
it was a take it or leave it offer. ESPN generously made a zero 
cost take it or leave it offer to those smaller cable 
operators. Many, many, many of the broadcasters in this country 
are not so generous and that is the problem.
    Mr. Stupak. Well, Mr. Pyne, let me ask you this. Are you 
planning to see access to that ESPN360 directly to consumers 
over their Internet if their service provider does not pay for 
access?
    Mr. Pyne. That is not in our business model today, no.
    Mr. Stupak. Thank you.
    Mr. Pyne. We have other products at ESPN.com and actually 
throughout the entire portfolio such as ESPN Insider which is 
something that if you are subscribing, I mean if you get 
ESPN.com you can subscribe that goes into deeper that we offer 
directly consumers but ESPN360, no.
    Mr. Stupak. OK, well, if the content is so compelling, I 
would think you would want to get it out there without having 
to go through the ISP, just sell it directly to consumers.
    Mr. Pyne. Again, in this fascinating space of the Internet 
we are looking for multiple different models to get our content 
to consumers and we have ESPN.com which is for free. We have an 
ESPN mobile product. We have ESPN Insider.
    Mr. Stupak. Right.
    Mr. Pyne. We have ESPN VOD but in this particular case, we 
believe this business model actually helps the adoption and we 
don't force it on anybody but which is our decision but we 
think it will actually help the adoption and in fact Beta does 
research which is a sort of cable industry entity that sort of 
values the different programming and ESPN360 has been named the 
number one broadband service to help adoption of broadband and 
that is our goal. That is why we would do it.
    Mr. Stupak. OK, but the service provider is still paying 
something, right? Someone is paying somewhere along the line 
here because if we go on the Internet we think we can have 
access and have it pretty much free.
    Mr. Pyne. Right.
    Mr. Stupak. But in a way you are no longer, you are putting 
an extra hurdle up there for someone to.
    Mr. Pyne. Well, I think as the way we look at it is it is 
the service provider's option.
    Mr. Stupak. Right.
    Mr. Pyne. To work to negotiate a deal or not from, you 
know, and we again, there are many providers who don't. In 
fact, Cablevision doesn't carry 360 nor does Time Warner at the 
moment. Comcast and Cox Communication has just signed up and 
Verizon has it so it is a competitive product in the 
marketplace, and I will just say that the reason we developed 
the product was that as we saw Internet or broadband 
penetration grow, we saw that there would be a plateau at some 
point and that it would need extra content. And ultimately we 
are here trying to provide that content and the margins in the 
ISP world for providers are, you know, depending on who you 
look at, anywhere from 40 percent to 70 percent so we are 
ultimately helping to support that model.
    Mr. Boucher. Thank you very much, Mr. Stupak.
    The gentleman from Texas, Mr. Barton, is recognized for 5 
minutes.
    Mr. Barton. Thank you, Mr. Chairman.
    I think we have a vote on the floor so I know that we need 
to be.
    Mr. Boucher. We do but we have got 8 minutes left here so I 
think we can probably fit you in.
    Mr. Barton. Eight minutes, I can probably give some of that 
back.
    I didn't hear the opening statements of the panel and I 
didn't hear all the statements of our witnesses but I am trying 
to figure out why we are having this hearing. It looks like we 
have got a food fight going on between some of the folks that 
at some point in the past decided to buy a sports team and a 
venue and a medium to distribute that programming, and the 
people that didn't do that don't like it. Am I wrong?
    Mr. Denson. I will take that. I think are you wrong, I 
wouldn't go so far to say that you are wrong but what I would 
say is that there is certain baseline content that is unique in 
a community that without it we cannot compete and we would like 
very much better to compete on the services that we do have and 
the innovation that we have created. We offer over 400 digital 
channels, over 17,000 video-on-demand channels, the highest 
broadband speeds with the best picture quality and we want to 
make that choice to the customers. We offer more foreign 
languages then any other distributor yet if we do not have the 
regional sports networks that are germane to that particular 
community then it is not meaningful choice.
    Mr. Barton. Now, is there any prohibition with you buying 
your own team?
    Mr. Denson. There is no prohibition.
    Mr. Barton. I think a lot of people would want you to buy 
the Redskins right now. I mean, you know, is anybody on the 
panel say that there is less competition today then there was 
in 1992? Are there less programs available? Are there less 
mediums available? Is there less content available?
    Mr. Moore. Well, I would say in response to that to when 
you look at the dial there is a tremendous amount of 
competition. There is a tremendous amount of choices but the 
point that I would like to make is that the people that provide 
that content are becoming a smaller and smaller number.
    Mr. Barton. And I did get to hear you and but even there 
is, if I heard you correctly, there is still eight, didn't you 
say eight companies that are in the provider business?
    Mr. Moore. Yes, there are eight and of those eight, two of 
them are reality-based or do reality shows and are based in the 
UK and only one is an actual independent, and these others are 
the multi-national media block.
    Mr. Barton. But even there, is there some bar that would 
prohibit entry into that arena if one was predisposed and felt 
they had the creative ability to do so?
    Mr. Moore. Well, the marketplace is developed in such a way 
that if a network owns its own in-house production studio, 
there is a tremendous incentive to buy from that studio and not 
from independent producer.
    Mr. Barton. Right.
    Mr. Moore. So and because these shows cost so much to 
produce and get on the air, if you are going to set yourself up 
as an independent studio and risk all this capital, you should 
be able to compete fairly. But unfortunately what happens is 
that networks turn to their corporate sibling for programming 
more and more and more, and that is essentially why you have 
seen a decrease from 18 production studios who provided content 
in 1989 to only eight today, and as I said only one of those is 
a true independent and the other two are reality providers from 
the UK.
    Mr. Barton. OK, well, Mr. Chairman, I know we are short of 
time. I am going to yield back the last minute and a half but 
my advice to our witnesses is go have lunch together and work 
it out and, you know, if this is really--if the Yankees not 
being available on Verizon is a huge problem then Verizon ought 
to be able to come up with an incentive package to encourage 
some of the Yankee games being on Verizon or the 76ers being on 
whatever in Philadelphia or whatever it is. I just don't think, 
Mr. Chairman, I mean this is an entertaining hearing but I 
don't think this is worthy of Congressional oversight unless 
the goal is just to get these guys to work it out amongst 
themselves at which you and Mr. Markey are past masters at 
that.
    Mr. Boucher. Well, thank you very much.
    Mr. Barton. So I will join you in that effort if that is 
what the goal of this is.
    Mr. Boucher. Thank you very much, Mr. Barton. There are a 
number of people who are quite interested in this subject 
matter, and I choose to think it is an appropriate hearing but 
it is going to have to be recessed because we have three votes 
pending on the floor of the House and we need to respond to 
those. We will be gone for probably 40 minutes, 45 minutes and 
so stay tuned and stay close and we will be in recess until the 
conclusion of the third vote.
    [Recess.]
    Mr. Boucher. I thank everyone for your patience while we 
attended to business on the floor.
    The gentlelady from Tennessee, Ms. Blackburn, is recognized 
for 5 minutes.
    Mrs. Blackburn. Thank you, Mr. Chairman, and I will 
probably not use my full 5 minutes. I know that you all have 
been very patient with us and you are probably ready to move on 
with your day and I know some of you have flights that you want 
to catch so you can get back to business.
    A couple of quick questions, Mr. Pyne, I will start with 
you. I have got to say if I understood you right you said the 
whole purpose of ESPN360 was to spur the adoption of broadband. 
That was quite a generous offer and I thank you all for doing 
that to spur broadband. I hope that we continue to make certain 
that we look at how that is available to people that do have 
broadband but thank you all for making that the whole purpose 
of ESPN360. I know that 50 million users are pleased with that 
decision that you all carried out.
    A couple of quick questions and this is a yes or a no, and 
I want to just go down the list. Mr. Rutledge, I am going to 
start with you. Currently, do you think that the current 
marketplace needs government intervention at this time, yes or 
no?
    Mr. Rutledge. No.
    Mrs. Blackburn. No. OK, Mr. Pyne?
    Mr. Pyne. No.
    Mrs. Blackburn. No. OK, Mr. Knorr?
    Mr. Knorr. Yes, in some areas.
    Mrs. Blackburn. Yes, in some areas. OK, Mr. Moore?
    Mr. Moore. Yes.
    Mrs. Blackburn. Yes. OK, unequivocal yes?
    Mr. Moore. In some areas I would say.
    Mrs. Blackburn. In some areas, OK, so a qualified yes. Mr. 
Denson?
    Mr. Denson. Qualified yes, narrow legislative act, yes.
    Mrs. Blackburn. OK. Mr. Thierer?
    Mr. Thierer. No, ma'am.
    Mrs. Blackburn. No. All right, OK, are you in favor of net 
neutrality? We have the principles that were released this 
morning. I call it fairness doctrine for the Internet. Some of 
you call it net neutrality, some of you not so neutral. So, Mr. 
Rutledge, aye or no?
    Mr. Rutledge. No.
    Mrs. Blackburn. No. OK, Mr. Pyne?
    Mr. Pyne. Yes, to the extent it allows network management 
to help with piracy.
    Mrs. Blackburn. OK, so you are a qualified and so qualified 
on piracy, is that what you said?
    Mr. Pyne. Right, traditionally we have not been proponents 
of net neutrality but as it relates to helping with piracy.
    Mrs. Blackburn. To piracy. OK, Mr. Knorr?
    Mr. Knorr. Having not seen exactly what came out today but 
my understanding it would apply narrowly just to distributors 
in which case that would be a concern.
    Mrs. Blackburn. OK, so are you a yea or a nay?
    Mr. Knorr. It would be a nay if it is only applied to 
distributors.
    Mrs. Blackburn. OK, all right. Mr. Moore?
    Mr. Moore. From my understanding, I would support it, yes.
    Mrs. Blackburn. OK. Mr. Denson?
    Mr. Denson. Nay.
    Mrs. Blackburn. OK, all right. Mr. Moore, I appreciated 
what you had to say about the change in cable rules in the '90s 
and I know you are concerned about you feel like that that 
really impeded some of the independent producers and I 
appreciate the charts and the graphs that you brought forward 
in your testimony today. So let me ask you this, it seems like 
there were fewer cable channels just a few years ago and so 
there were fewer outlets. A lot of our cable programming 
producers in Tennessee said there were fewer outlets to sell 
their content and turn that intellectual property and that work 
product into something that could be monetized. And so I would 
ask you this, I know you are saying you favor government 
intervention, don't we need to be careful about intervening now 
given the possibility of unintended consequences like reducing 
the incentive for the continued carriage of some of these 
channels and your concerns over consolidation?
    Mr. Moore. Well, my concern is about, oh, I am sorry. My 
concern is about the ability to provide content to a variety of 
forums and the way that the rules use to be in traditional 
television was that networks could not actually own or could 
not program most of their programming from in-house production 
studios like say Disney owns ABC Studios that then provides 
most of their content for ABC. However, on the Internet where 
we are going now what we are trying to do is with Internet 
neutrality is to maintain an environment where we have an 
ability to sell our wares to multiple places and not to have 
the Internet sort of turn into what has happened in the repeal 
of the financial interests in syndication rules.
    Mrs. Blackburn. OK, so the piracy issue is a part of your 
concern also?
    Mr. Moore. Oh, we are very concerned about piracy as well. 
I mean, you know when people pirate.
    Mrs. Blackburn. Mr. Thierer?
    Mr. Thierer. Yes, Congresswoman, with all due respect to 
Mr. Moore, I believe that the fact is is that he is a pretty 
good example of why the repeal of the financial syndication, 
informational syndication rules have made sense because we have 
a lot more platforms then ever before for things like 
Battlestar Galatica to go out over. I watched all four seasons 
on a combination of DVD, Blu-Ray and downloads from my Xbox 
360. I never watched it once on television per se. Number two, 
the cost of programming, the cost of producing a show like 
Battlestar is enormously expensive and the Syfy Channel itself 
is an example of a station that did not exist 10-20 years ago. 
Universal and others put a lot of money into that to create a 
platform for folks like Mr. Moore. And then third, you know, 
this whole question about is it evil to have too much ownership 
and in-house production is a classic make versus buy decision. 
Newspapers and magazines produce the vast majority of their 
content in-house. Is that good, bad, evil, in-between? I don't 
think it is any of those things. It is just a business choice. 
Sometimes it makes a great deal of sense because you are 
sharing the risk and the rewards of the enormous expense 
associated with the production of television.
    Mrs. Blackburn. I appreciate that and I thank you all for 
your answers. And, Mr. Pyne, I picked on you at first so I am 
going to come back to you and let you answer your question. Go 
ahead.
    Mr. Pyne. I just wanted to make one further point in terms 
of broadcast networks and where they get programming from. This 
year, ABC in its own studio developed 26 pilots at great 
expense and of the 11 new shows that are on ABC this fall only 
three of those 26 will actually appear. The other eight are 
from other studios so it is I mean we try--all of the broadcast 
networks and all of the cable networks try--to do the best to 
get the best programming and content on the air.
    Mrs. Blackburn. OK, great. I have two questions I will 
submit. Mr. Rutledge, one to you--I want to ask you an MVPD 
question that I will submit to you for writing--and, Mr. 
Denson, I am going to come back to you because I want to go 
back to this exclusivity issue with you and how you view that 
differently from sports networks to handset exclusivity. So 
with that I thank you all very much and I yield my time.
    Mr. Boucher. Thank you very much, Ms. Blackburn.
    The gentleman from Pennsylvania, Mr. Doyle, is recognized 
for 7 minutes.
    Mr. Doyle. Thank you, Mr. Chairman.
    I live in Pittsburgh where we have division one college 
sports, the defending Super Bowl Champions, the Stanley Cup 
Champions. I am sorry Mr. Stupak isn't here because he is a Red 
Wings fan. In Pittsburgh we love our sports but I am also 
sympathetic to my constituents that want to have their 
broadband at an affordable price. Now, as I understand it for 
any of the ISP customers to have access to ESPN360 all of them 
have to pay for it and that strikes me in some of ways as 
fundamentally unfair. I have read that some independent ISPs 
were quoting as much as 79 cents per subscriber per month for 
ESPN360. Even if only one subscriber watched it, all of them 
would have to pay for it. Now, Mr. Knorr, you are a small cable 
person. Do you believe that all your broadband customers want 
and will watch ESPN360?
    Mr. Knorr. No, I mean I think fundamentally and know for a 
fact and where in Lawrence, Kansas is a huge sports market with 
the Jayhawks. We have the Chiefs although that is down this 
year but we know our customers aren't all sports fans and we 
think the ones that are, 360 is a great product. But for the 
ones that aren't as I said in my testimony, if you are just the 
only reason you are getting your Internet access is because you 
lost your job and you have to find a new one, having that 
Internet access be more expensive just for those that want that 
product, again we don't think that is right.
    Mr. Doyle. Yes, I mean it seems to me if they are going to 
quote 79 cents per month per subscriber that wants to watch it, 
that seems like a perfectly reasonable thing to do but if you 
are going to charge the ISP and people start to try to out-
exclusive one another, you know, if this is this business model 
what happens when we have a dozen more ESPN360 business models? 
What happens to broadband prices for the average consumer when 
they are forced to pay, you know, whether they are watching 
this or not and if everybody would adopt that kind of a model 
what would happen to pricing? And, Mr. Pyne, I will let you 
maybe discuss that.
    Mr. Pyne. Well, as I mentioned earlier but will reaffirm 
now, for all the research and work that we have done on 
ESPN360, no one has told us they are raising prices to 
consumers because of launching ESPN360 and in fact when the 
broadband margins that operators or ISPs are making can be up 
to 70 percent. It varies by market for sure but it is certainly 
well worth their while to get another subscriber and if ESPN360 
can help with that, that is fantastic. And I am able--I don't 
think.----
    Mr. Doyle. You are saying in Pittsburgh they are not 
passing that cost on? They are absorbing that cost because they 
want the ESPN360?
    Mr. Pyne. To be clear, we don't tell our distributors how 
they need to manage their retail pricing, just as we don't tell 
people who carry ESPN how to manage their retail pricing. That 
is between them and the consumer but if we are offering a 
business proposition to ISPs to make them valuable in their 
marketplace and it is actually up to them what they want to do 
with it. I mean in the New York market.
    Mr. Doyle. But wouldn't you concede if there were half a 
dozen other business ventures like your own that adopted that 
same model that were attractive content and the ISPs had to pay 
for it for every subscriber they had regardless of whether 
every subscriber watched it or not, at some point they have to 
pass that cost on to their especially the small. I mean what 
does it do to a small cable operator, Mr. Knorr, that is having 
to pay 80 cents per person per subscriber per month?
    Mr. Knorr. Well, I mean it has two impacts. I mean we can 
absorb it but that reduces the capital we have available to 
launch things like DOCSIS 3.0 and more advanced broadband 
services or we can pass it along to our customers which raises 
the price of the service and if everybody is raising the price 
of the service, I mean that is fine, it doesn't put me at a 
competitive disadvantage if everybody carries ESPN360 but it 
certainly doesn't do anything to make broadband more 
affordable. One of the key concerns that we have is what has 
been stated several times by Mr. Pyne today is that it is a 
negotiation with the operator. It is up to the operator to 
decide whether or not they want to take the deal. That is one 
of our concerns that we are replicating one of the chief 
concerns of the cable business model onto the Internet and that 
distributors will decide what customers can access. You know, I 
can choose to say no, I am not going to do a deal and my 
customers can't get it or I can choose to do a deal and all my 
customers have to pay for it. When in the age of the Internet 
the great promise of the Internet was that customers would have 
control. Customers would be able to make choices more like more 
than ever before and this model would take away that great 
promise of the Internet.
    Mr. Doyle. Yes, thank you, Mr. Knorr.
    I want to ask Mr. Denson a question too and it is a 
different question. Mr. Denson, we all agree that competition 
is good for consumers. FiOS is rolling out in my district and I 
understand why Verizon wants popular programming in HD. I mean 
that kind of programming certainly makes for a compelling 
package so it seems here that Verizon supports government 
intervention for competitors to have access to programming that 
incumbents own saying that it will help competition. But if my 
memory serves me correct, I have sat in this committee and 
watched Verizon oppose the CLEC industry from line-sharing. You 
have opposed government intervention to help small wireless 
carriers struggling because big wireless carriers have lengthy 
handset exclusivity contracts. And yesterday, your CEO 
reiterated Verizon's opposition to net neutrality rules that 
would ensure that companies offering competing services won't 
be blocked. So those are all exclusivities that Verizon likes. 
What makes this exclusivity that you want different?
    Mr. Denson. Well, I think the most important part of this 
exclusivity is that it benefits the consumers and it provides 
the consumers with the maximum amount of choice. If we don't 
provide--it is not a choice for consumers. You are from 
Pittsburgh and if you could not watch the Pittsburgh Pirates or 
the Penguins in high definition----
    Mr. Doyle. I could probably go with not watching the 
Pirates.
    Mr. Denson. OK.
    Mr. Doyle. The Steelers might have been a better pick, yes.
    Mr. Denson. So let us take those Stanley Cup Champions 
Pittsburgh Penguins, if you could not get the Penguins in HD 
you might not choose Verizon even though we will have a wealth 
of services and content and innovations and applications that 
would make us all told a superior service for consumer choice. 
The promise we like to make is that every customer should want 
to consider or be in a position to consider FiOS and that is 
what is being defeated if we don't have access to that highly 
valuable unique regional sports network programming.
    Mr. Doyle. Thank you.
    I see my time is up, Mr. Chairman, thank you.
    Mr. Boucher. Thank you very much, Mr. Doyle.
    The gentleman from Georgia, Mr. Deal, is recognized for 5 
minutes.
    Mr. Deal. Thank you, Mr. Chairman.
    Mr. Pyne, I think we have established a couple of things 
and everything seems to revolve around sports it seems. The 
ESPN360 is not available on a subscriber basis over the 
Internet to individuals. That is what you said, I believe. It 
is only available if an Internet provider chooses to 
participate with you and I assume that when you negotiate with 
that ISP that it is on a per customer basis which your fee is 
based. Would that be a logical assumption?
    Mr. Pyne. Per ISP customer?
    Mr. Deal. Yes.
    Mr. Pyne. That is correct.
    Mr. Deal. OK, but that so far you don't think anybody is 
passing that cost on to their customers.
    Mr. Pyne. Correct.
    Mr. Deal. They are absorbing it. It is interesting that it 
appears that ESPN360 is being sold to potential ISP providers 
on the basis that it gives them a competitive advantage over 
perhaps their competition. But on the television side it 
appears that ESPN doesn't seem to follow that same model 
because it is under current statutes a cable operator or a 
satellite provider cannot simply enhance their offerings in a 
package that would include niche tiers or a per channel basis 
in order to gain competitive advantage over their competition. 
Why is it that it works in one environment as a free market 
opportunity but in the other environment it is not considered 
to be that?
    Mr. Pyne. I am not sure if I understand. What do you mean 
by in the other environment?
    Mr. Deal. Well, let us just take the television environment 
in terms of cable, operators cannot simply just pick and choose 
their packages they are required to take.
    Mr. Pyne. Actually I don't think that is true. No, if 
people would like ESPN they don't have to take any other ESPN, 
Disney or even ABC service. We have been--in fact, they have 
affidavits that I have submitted that if you want--there are 
two most popular services, Disney Channel and ESPN. There is 
absolutely nothing else a cable operator, telco or satellite 
provider needs to take. We make it available on that basis.
    Mr. Deal. Mr. Knorr, does that reconcile with what you are?
    Mr. Pyne. And in fact just to add I mean we have several 
hundred situations where people just take ESPN around this 
country.
    Mr. Deal. Mr. Knorr?
    Mr. Knorr. To my knowledge, I mean there is significant 
financial incentives to take the bundle of services that ESPN 
offers on the video side and so I believe that most operators 
choose to take that route. Fundamentally, whether it is the 
Internet side and ESPN360 or on the programming side and this 
is true for most of the top programmers, there is very little 
options in how we can package that content to our customers.
    Mr. Deal. Now, with regard to all of this, let me preface 
what I am about to ask by saying I believe that negotiations 
are private in private business. They should remain private; 
however, we are operating in somewhat of a public domain. Mr. 
Moore alluded to some of the problem here. Do you think that 
the FCC should have some availability to know what the 
negotiations are among providers and carriers in terms of 
determining if in fact the rules, general rules of fairness are 
being followed even though the public may not have access to 
that, even though individual subscribers may not know what a 
per channel cost is being allocated to them on? Is there reason 
to say that this is a type of transparency at the FCC that we 
currently don't have but we should be encouraging? Mr. Moore, I 
will start with you since that is sort of in an area you have 
alluded to.
    Mr. Moore. I think generally speaking, you know, 
transparency is a good thing when we are dealing with the 
public airwaves and when we are dealing with content providers 
and so on. I don't know that I can speak to that specific 
example of whether the FCC should have the authority to look 
into all the details of these kind of negotiations. I think I 
would want to probably confer with the Writers' Guild and sort 
of study that before I gave you a definitive answer.
    Mr. Deal. OK, I will try to--yes, Mr. Thierer?
    Mr. Thierer. Congressman Deal, I think you really hit the 
nail on the head when you said first and foremost that sports 
is really what is the thorn in our side here on so many of 
these issues right but I hope that the committee doesn't lose 
sight of the fact that that is a very, very unique problem and 
that we don't have this problem in most other types of content. 
Second of all, to the extent it is a problem I think we need to 
understand that some of these fields might be--the role of the 
FCC could be more of a, to rip a page from baseball if you 
will, could be baseball style arbitration. Bring parties 
together, ask them to sit at a table and hammer out a deal and 
then maybe set a clock and set some sort of an independent 
person or group together there as an arbitrator to help them 
hammer out that deal if they don't reach it at the end of a 
certain timetable. But one final point let us not lose sight of 
the fact that exclusivity also has competitive benefits. Many 
of these regional sports networks would have never existed 
without a fair degree of exclusivity and I do wonder would a 
national service like DirecTV have the legs it does today 
without exclusivity for the Sunday ticket. It really does help 
create new forms of entertainment and new platforms that 
weren't there before. These things did not exist 10-15 years 
ago. Are new problems created because of that? Yes, it is true 
especially about sports but that is again I think a unique 
situation.
    Mr. Deal. Well, I would suggest it is broader than that, 
that the packaging and bundling is a much broader issue that 
goes far beyond just sports programming but my time is up.
    I will yield back.
    Mr. Boucher. Thank you, Mr. Deal.
    The gentleman from Vermont, Mr. Welch, is recognized for a 
total of 7 minutes.
    Mr. Welch. Thank you, Mr. Chairman, thank you very much.
    Mr. Rutledge, your company owns the sports teams and does 
the distribution and broadcast, is that correct?
    Mr. Rutledge. Cablevision owns the Knicks and Rangers.
    Mr. Welch. Right, so if I am in New York and I want to 
watch the Knicks and Rangers I have to get it through you? How 
does that work?
    Mr. Rutledge. No, it works this way. There are in the 
service footprint that Cablevision serves, we are a cable TV 
company as well, there are four providers of Knicks and Rangers 
and all of the other sports services that are sold in the 
market. Verizon, for instance, has access to every Knicks and 
Rangers game.
    Mr. Welch. Right, but if I want to get it in HD, I have to 
get it from you?
    Mr. Rutledge. Yes and they don't have it in the HD.
    Mr. Welch. So why won't you allow Verizon or others to get 
it in HD?
    Mr. Rutledge. I do allow others but I want to have a 
competitive differentiation against Verizon so that I can be 
more successful.
    Mr. Welch. So that is good for you but not necessarily for 
the consumer.
    Mr. Rutledge. Well, it is for the consumer to have 
companies that create products that are new and innovative. We 
invested and created this high definition regional sports 
programming service more than 10 years ago and we invested and 
created it, distributed it.
    Mr. Welch. All right, I get it.
    Mr. Rutledge. And we are trying to get our return to it.
    Mr. Welch. All right, Mr. Pyne, I just want to make sure I 
understood this. You were asked about your position on net 
neutrality. What I thought I heard you say and I just want to 
confirm this is that you want to deal with the piracy question 
because that is your product but if that is dealt with Disney 
favors net neutrality or opposes it? I just want some 
clarification on that.
    Mr. Pyne. I mean traditionally we have not been proponents 
of net neutrality. We haven't really been part of the 
discussion but we do support it to allow ISPs to manage their 
networks, particularly around piracy.
    Mr. Welch. I am not sure I understand you. So you have a 
piracy issue but dealing with that.
    Mr. Pyne. Well, the piracy is to make sure that----
    Mr. Welch. I understand what that is. You have got to 
protect your product. You invested in it and people are 
stealing it and I have some sympathy for that, but dealing with 
that are you saying yes or no that you are for net neutrality 
as you were asked by Congresswoman Blackburn?
    Mr. Pyne. I think we support it to the extent we believe 
ISPs should have the ability to manage their networks.
    Mr. Welch. OK, I come from Vermont where we have a lot of 
small rural carriers, Waitsfield Champlain Valley Telecom 
probably has, I don't know, fewer than a thousand folks and it 
is very, very tough for them to bring cable programming and 
Internet services to those rural markets that aren't served by 
the larger cable companies, tough markets to serve. There is a 
lot of difficulty in getting affordable terms for programming 
services that make that business even more difficult and I 
heard some conversation back and forth really between Mr. Pyne 
and Mr. Knorr and I want each of you to comment on what the 
obstacles are, and perhaps you too, Mr. Moore, as well, but, 
Mr. Knorr, why don't we start with you? What are some of the 
impediments that have to be addressed in order to provide fair 
access to the consumer?
    Mr. Knorr. Well, I think especially when it comes to 
retransmission consent, I think some type of balancing of the 
equation that is one thing that was brought up in testimony by 
ESPN is we have a buying cooperative but that buying 
cooperative is for national content. It does not and cannot 
scale to market by market broadcasters to negotiate those 
agreements.
    Mr. Welch. And I think what you had said in your testimony, 
if I remember, is that you have got a take it or leave it type 
of document that I guess is faxed to you or submitted?
    Mr. Knorr. Correct, yes, for the smaller operators, yes, 
often it is a faxed document or just a letter that comes in the 
mail with the election notice that says here are the terms and 
so I think injecting some fairness and some transparency giving 
us the ability that other DBS operators have to tier 
broadcasters would be one negotiating element. And then also 
for many small broadcasters who are outside the exclusion zone 
that broadcasters have and if they had the right to pick 
neighboring channels as well, I think that would help 
competition.
    Mr. Welch. OK, let me go to Mr. Pyne, just I want to add 
something too to you. You were talking about the ESPN360 and 
that you don't get involved in how that is priced by the people 
you sell it to but the bottom line is if the buyers can't 
absorb the cost indefinitely without passing that on obviously 
so isn't there down the road a problem that ultimately will 
result in higher cost to the consumers in order to have access 
to this with the approach that Disney is taking on this?
    Mr. Pyne. I don't believe so. I am sorry. I don't believe 
so for the following reason is that as broadband has still not 
fully penetrated in the United States and just a point is if 
because an ISP has a very strong programming service like 
ESPN360 and it gets additional subscribers, it actually will 
get more margin or profit margin to help in fact reduce its 
overall.
    Mr. Welch. So if I understand what you are saying, it helps 
on the build out but, you know, I think Mr. Doyle had a fair 
question. If he wants that service and is going to pay 79 cents 
for it or $7.90 and I don't want it, as a consumer my 
preference is to let Doyle pay and not me help him pay. Mr. 
Knorr.
    Mr. Knorr. Well, I mean I would like to answer that 
directly. I mean we have in our community with very high 
adoption, I think it might be as high as 80 percent. 
Fundamentally, I don't think there is any operator and we have 
several right here that feel that the only impediment to 
broadband adoption at this point is price sensitivity. I don't 
think any--there are customers out there that are requiring 
incentive to get onto the Internet. I mean everybody is getting 
on the Internet. I mean the Internet has been growing 
exponentially.
    Mr. Welch. OK, I only have another minute and I want to go 
to Mr. Moore. I happen to be somebody who thinks that the 
programming that we had before was an awful lot better than the 
programming we are having now and you mentioned a number of 
things in your very good testimony. The tying and bundling you 
mentioned was a bit of a problem and I wonder if you can 
elaborate on that?
    Mr. Moore. Well, what is happening is that as you are aware 
in bundling, you know, the operators are given here is a bundle 
of programs, channels that you have to take, you know, take it 
or leave it because you can't just a la carte differentiation 
them out.
    Mr. Welch. Right.
    Mr. Moore. And what we have discovered is happening is that 
some of those channels are being occupied by essentially just 
filler. They are weather maps with a crawl going across the 
bottom. They are sub-genres of music videos in some cases and 
these channels basically have national viewership in the tens 
of thousands and a viable cable operation needs at least, a 
cable channel needs around 200,000 to just to make it sort of a 
going concern. So when you look at what they are actually 
providing and the numbers of people that are actually watching 
this and the money that they are making, it is clear that they 
are not actually a business opportunity. They are not actually 
being innovative. They are simply squatting on the space and 
keeping other people off the dial.
    Mr. Welch. OK, thank you.
    I think my time is up, Mr. Chairman.
    Mr. Boucher. Thank you, Mr. Welch.
    The gentleman from Massachusetts, Mr. Markey, is recognized 
for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman, very much.
    Mr. Denson, the program access rules specifically are 
designed to prohibit discrimination and they provide for a case 
by case enforcement regime to stop any such discrimination. 
Moreover, Verizon supported extending the program access rules 
when they are scheduled to expire asserting that 
nondiscrimination rules were needed. And so for me as I listen 
to this discussion and I can understand why Verizon would 
vigorously oppose any efforts to deny it access to programming 
particularly sports programming, although my concern for 
people's access to Yankee games would only be received with 
crocodile tears but the principle is the same, OK, for any 
community in American for their sports teams. So I understand 
that debate but the principle of nondiscrimination is extremely 
important to me and to our economy. So what I would ask you to 
do is square that up then with the position that Verizon is 
taking on the question of nondiscrimination in the net 
neutrality bill and the net neutrality rulemaking because I 
kind of feel that there should be a presumption that if you are 
going to support nondiscrimination over here because it is, you 
know, good for the company, that the same kind of principle 
will then be adopted when it comes to other things that are 
unrelated to that issue but the principle is the same. So could 
you talk about how you square that circle internally in terms 
of your views on nondiscrimination?
    Mr. Denson. Yes, to be sure that area is outside of my area 
of expertise. I am video content across multiple platforms. I 
program all of the platforms at Verizon, broadband, wireless 
and the FiOS Service but I am not involved in our net 
neutrality, however what I would say is that for us it is about 
the competition is for benefit, direct benefit to the customer 
and that our position on the regional sports network is that it 
actually precludes a customer from making a choice that they 
might otherwise want to make or just consider another provider 
that they might otherwise want to.
    Mr. Markey. No, and I appreciate that but you can 
understand how someone who sat on this committee for 33 years 
and understands that there are protections on the books for--
AT&T lobbied me for 10 years to kind of mandate that they be 
allowed reasonable cost to deliver long distance service into 
the network and they begged me, you know, and I worked with 
them to give that to AT&T in their access to the local loop so 
that they could provide as a long distance company more 
competition to Verizon and towards other companies. And so when 
AT&T and Verizon get together and start to because they were 
bitter enemies and we are in a new era, you know. It is kind of 
like, you know, just got to adjust to this changing terrain and 
now they are aligned against allowing for this open Internet. 
What Mr. Moore next to you, he supports net neutrality. Mr. 
Pyne says that he could be open-minded to it as long as illegal 
activity, as long as piracy is not allowed and in my bill and I 
don't think there is any of us who have ever advocated that 
illegal activity should be condoned. In fact, it should be 
punished to the full extent of the law. And you are here, Mr. 
Denson, kind of with a portfolio that does not give you 
authority for fear of jeopardizing your job to speak on net 
neutrality or can you speak on net neutrality at all?
    Mr. Denson. I cannot and I think the best way that I can 
portray it here in terms of what I do and in my testimony today 
is that the Red Sox and the Bruins and the Celtics are each 
owned by different entities and if you had to choose between or 
among cable providers or satellite providers because each one 
had an exclusive right on one of those particular teams, that 
might be an unfair choice. You might not want to have to make 
your determination based upon that so that is what I am 
testifying on today.
    Mr. Markey. No, and I appreciate that, Mr. Denson, and back 
in 1992 when the Chairman and I were working on the programming 
access rules we were thinking about how do we get HBO and ESPN, 
I think there was only one ESPN then, and other cable programs 
over to the satellite dish industry. Because I think more than 
any reason because the Chairman was getting tired of having 
eight foot size dishes try to get zoning variances all over his 
district. So if we could get that programming access maybe we 
could get an 18 inch dish and we have 30 million people with 
it. And you kind of evolve to this question now that you are 
talking about which is the Yankee question or, you know, the 
Bruins question or whatever it is which is just kind of a 
perfect form of that same question that HBO, ESPN question back 
then. You just have to keep--how far do you take 
nondiscrimination? How far do you, you know, do you take it but 
you are advocating for kind of an outer limit definition here 
and all I am saying is that the same thing is true in net 
neutrality. What we are trying to do I would say to your 
company through you though it is not your responsibility that 
what we are trying to do is to protect those startups, those 
Steve Jobs and Serge Gurins and Larry Pages of today who are in 
the garage and they have got a gadget or they have got an 
application that they would want to get out there and they have 
got some ideas, you know, and that is where the revolutions 
come from. And we are just trying to make sure that the 
marketplace doesn't stultify, that is we shouldn't have a world 
where you innovate by permission. OK, you should be able to 
innovate and you shouldn't be able to be stultified and that is 
the point that I would make.
    I thank you, Mr. Denson, for being here. I thank all the 
rest of you, as well.
    I thank you, Mr. Chairman.
    Mr. Boucher. Thank you very much, Mr. Markey.
    The gentleman from Florida, Mr. Stearns, you have asked 
questions I think. I am going to ask unanimous consent that we 
put two documents in the record for today's hearing. One is a 
letter from Wealth TV. The other is a response from Comcast to 
the letter from Wealth TV and without objection these items 
shall be admitted to the record.
    [The information appears at the conclusion of the hearing.]
    Mr. Boucher. I want to say thank you to our witnesses this 
morning and I will say again that this hearing from my 
perspective is entirely informational. We wanted to get the 
benefit of your views on the current state of competition in 
the video marketplace. You have provided that well. We are 
well-informed on the subject thanks to you and I think some 
additional questions are going to be submitted to you. Ms. 
Blackburn indicated her intention to submit questions to at 
least two of the witnesses. When they are received, please 
submit them back to us promptly. We will hold this record open 
for about a 2-week period in order to receive your responses. 
So with the committee's thanks to our witnesses this morning, 
this hearing stands adjourned.
    [Whereupon, at 1:05 p.m., the Subcommittee was adjourned.
    [Material submitted for inclusion in the record follows:]

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