[Senate Hearing 111-976]
[From the U.S. Government Publishing Office]
S. Hrg. 111-976
THE COMCAST/NBC UNIVERSAL MERGER: WHAT DOES THE FUTURE HOLD FOR
COMPETITION AND CONSUMERS?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ANTITRUST,
COMPETITION POLICY AND CONSUMER RIGHTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 4, 2010
__________
Serial No. J-111-72
__________
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
66-290 WASHINGTON : 2011
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20402-0001
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York JON KYL, Arizona
RICHARD J. DURBIN, Illinois LINDSEY O. GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
AL FRANKEN, Minnesota
Bruce A. Cohen, Chief Counsel and Staff Director
Matthew S. Miner, Republican Chief Counsel
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Subcommittee on Antitrust, Competition Policy and Consumer Rights
HERB KOHL, Wisconsin, Chairman
CHARLES E. SCHUMER, New York ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island CHARLES E. GRASSLEY, Iowa
AMY KLOBUCHAR, Minnesota TOM COBURN, Oklahoma
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
AL FRANKEN, Minnesota
Carolina Holland, Democratic Chief Counsel/Staff Director
Jace Johnson, Republican Chief Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Cornyn, Hon. John, a U.S. Senator from the State of Texas,
prepared statement............................................. 147
Feingold, Hon. Russell, a U.S. Senator from the State of
Wisconsin, statement........................................... 161
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah,..... 3
Kaufman, Hon. Edward E., a U.S. Senator from the State of
Delaware....................................................... 4
Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota.. 4
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin...... 1
prepared statement........................................... 172
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
prepared statement............................................. 174
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 5
WITNESSES
Abdoulah, Colleen, President and Chief Executive Officer, WOW!
Internet, Cable & Phone, Denver, Colorado, and Board Member,
American Cable Association..................................... 12
Cooper, Mark, Director of Research, Consumer Federation of
America, Washington, DC........................................ 14
Roberts, Brian L., Chairman and CEO, Comcast Corporation,
Philadelphia, Pennsylvania, and Jeff Zucker, President and
Chief Executive Officer, NBC Universal, New York, New York..... 8
Schwartzman, Andrew Jay, President and Chief Executive Officer,
Media Access Project Washington, DC............................ 15
QUESTIONS AND ANSWERS
Responses of Colleen Abdoulah to questions submitted by Senators
Feingold, Hatch and Kohl....................................... 38
Responses of Brian L. Roberts to questions submitted by Senators
Feingold, Franken, Hatch, Klobuchar, Kohl, Schumer and Specter. 45
Responses of Andrew Jay Schwartzman to questions submitted by
Senators Feingold, Hatch and Kohl.............................. 105
Responses of Jeff Zucker to questions submitted by Senators Kohl,
Hatch, Schumer, Franken and Feingold........................... 112
Questions submitted to Mark Cooper (Note: Responses to questions
were not received as of the time of printing, May 18, 2010.)
SUBMISSIONS FOR THE RECORD
Abdoulah, Colleen, President and Chief Executive Officer, WOW!
Internet, Cable & Phone, Denver, Colorado, and Board Member,
American Cable Association, statement.......................... 125
Cohen, Larry, President, Communications Workers of America,
Washington, DC, statement...................................... 134
Cooper, Mark, Director of Research, Consumer Federation of
America, Washington, DC, statement............................. 149
Dish Network, R. Stanton Dodge, Executive Vice President and
General Counsel, Englewood, Colorado, statement................ 158
Epstein, Richard A., Free State Foundation, Potomac, Maryland:
February 12, 2010............................................ 163
March 15, 2010............................................... 166
Organization for the Promotion and Advancement of Small
telecommunications Companies (OPASTCO), John N. Rose,
President, Washington, DC, letter.............................. 175
Roberts, Brian L., Chairman and CEO, Comcast Corporation,
Philadelphia, Pennsylvania, and Jeff Zucker, President and
Chief Executive Officer, NBC Universal, New York, New York,
statement...................................................... 176
Schwartzman, Andrew Jay, President and Chief Executive Officer,
Media Access Project Washington, DC, statement................. 189
THE COMCAST/NBC UNIVERSAL MERGER: WHAT DOES THE FUTURE HOLD FOR
COMPETITION AND CONSUMERS?
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THURSDAY, FEBRUARY 4, 2010
U.S. Senate,
Subcommittee on Antitrust, Competition
Policy,
and Consumer Rights,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 2:36 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Herb Kohl,
Chairman of the Subcommittee, presiding.
Present: Senators Kohl, Feingold, Klobuchar, Kaufman,
Specter, Franken, and Hatch.
OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE
STATE OF WISCONSIN
Chairman Kohl. All right. We will commence the hearing at
this time. I need to notify all here that at around 3 o'clock
we will have two votes, and we will try to see to it that the
votes do not interfere unnecessarily with this hearing,
although there may be some modest interruption.
Today we examine the merger between Comcast and NBC
Universal. The combination of NBC's content holdings with
Comcast's distribution power would create a media powerhouse of
unmatched size and scope which, if approved, will have far-
reaching consequences for competition and consumers.
Comcast is the Nation's largest and most powerful cable
television company--with 24 million pay TV subscribers and the
dominant share of customers in the markets it serves. It now
seeks to acquire NBC Universal, which includes the family of
NBC broadcasting and cable networks, 25 local NBC and Telemundo
stations in some of the Nation's largest cities, and the
Universal Pictures Movie Studios. NBC has some of the most
popular programs on television--from the Olympics, to NFL
football, to NBC news programming, to entertainment programs
ranging from ``The Tonight Show'' to ``The Office,'' to give
just a few examples. We are witnessing the creation of a media
conglomerate which is likely to greatly impact both what
consumers pay for cable television and the ability of other pay
television companies to compete fairly in the market.
The highly concentrated nature of the cable TV industry and
the limited choices available to consumers have long concerned
this Subcommittee. Rather than compete with each other, large
incumbent cable companies have often divided the country into
regional clusters in which their market share of pay TV viewers
reach as much as 70 percent or higher. Consumers suffer from
annual cable rate increases running for the last decade about
triple the rate of inflation. While recent years have seen the
emergence of satellite and phone company competitors, these
competitors face considerable obstacles, including difficulties
obtaining programming owned by the cable giants and steep price
increases when they are able to obtain that programming. Now,
because of NBC's must-have programming, many fear this merger
has the potential to make these obstacles even worse.
There are four principal areas of concern raised by this
merger. First, will this deal create the possibility that
Comcast will deny ``must-have'' NBC programming to its rival
pay TV services or unreasonably raise the price of this
programming? Second, will Comcast move NBC programming now
enjoyed by millions of Americans on free broadcast TV to pay
cable TV? Third, will this deal make it significantly more
difficult for independent programmers to have Comcast carry
their new cable networks?
And, fourth, we must pay particular attention to the
effects of this merger on a new and promising form of
competition, namely, video programming on the Internet. The
widespread deployment of broadband Internet in millions of
consumers' homes has led to a growing phenomenon of ``cord
cutting''--consumers dropping their pay TV subscriptions and
watching full-length television programming via high-speed
Internet connections. But we have recently heard concerns from
programmers that cable TV companies are demanding restrictions
on their ability to show their programming on the Internet. We
must be vigilant to ensure that the market strength created by
this merger does not give the combined company the ability to
stifle this new innovative form of competition over the
Internet. Moreover, NBC owns a significant share in Hulu, one
of the largest providers of video content on the Internet, and
there are real concerns regarding its future and its ability to
access NBC content after the merger.
So the role of the antitrust regulators at the Justice
Department and the FCC will be vital to preserving competition.
Should these agencies decide to allow this merger, we believe
it is essential that they insist on strong conditions to
protect consumers. Comcast has already pledged to adhere to a
number of commitments with respect to this merger. We
appreciate that effort. However, those commitments are only a
starting point to determine what conditions will be necessary
to protect consumers. And it is essential, in our opinion, that
you, Mr. Roberts and Mr. Zucker, explain to us today and the
American people how the creation of this media conglomerate
will serve the interests of the American people, not just the
interests of your companies. I know you feel the same way about
it, and it is in that spirit that we are conducting this
hearing.
We now turn to the Subcommittee's Ranking Member, Senator
Hatch.
STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE
OF UTAH
Senator Hatch. Well, thank you, Mr. Chairman. I welcome all
of you here today to help us to understand this better. Thank
you, Mr. Chairman, for holding this hearing and for your
continued willingness to conduct these proceedings in a fair
and bipartisan manner. I have enjoyed the spirit of cooperation
and openness that has permeated in all of this Subcommittee's
business, and I look forward to working with you for another
year.
If only more people in Washington would follow our example
here in the Senate Antitrust Committee, the world would be a
much better place, as far as I am concerned. However, I do have
Senator Schumer now working with us on another matter. That is
a very good thing. And, Franken, I am looking toward you now.
[Laughter.]
Senator Hatch. Now, as we kick off another year of work on
issues relating to competition and consumer protection, we turn
to what I believe is an interesting and important issue,
namely, the proposed merger between Comcast and NBC Universal.
Both of these companies are iconic in their respective
industries, and this transaction has inspired no small amount
of interest and concern in the media and among consumers. And,
in many respects, I believe these worries are justified.
In recent years, even as more competitors have entered the
video distribution market, and as we have seen improvements in
innovation and technology, cable prices have continued to rise
at rates that are difficult to understand. This market is by
all accounts a dog-eat-dog world, and over the past few years,
we have seen companies, including Comcast, use every advantage
at their disposal to beat out their competitors. In many
respects, this is to be expected. After all, competition is the
essence of our free market system. But in this particular
industry, these tactics can have a tendency to harm consumers
by increasing their prices or affecting their services.
Over the course of this hearing, I hope to get a little
better picture as to how this merger will affect this dynamic.
And while this proposed union has some horizontal implications,
it appears to me to be predominantly a vertical merger.
True enough, both Comcast and NBC Universal are players in
the video content market, and there are legitimate questions
regarding the potential impact of putting their respective
content under the same banner. However, at this point I think
the more important questions arise when the vertical aspects of
the merger are examined.
The implications of the vertical integration of the
country's leading video distributor and one of its leading
content providers happen to be significant and more than worthy
of our attention. While horizontal mergers tend to receive more
criticism and scrutiny, vertical mergers also have the
potential to result in significant foreclosure of competition
and violation of our Nation's antitrust laws. That being the
case, I have a number of questions as to whether as a result of
this merger consumers will benefit because of increased
efficiencies or whether Comcast will be able to use NBC
Universal's content as a weapon to harm competitors and, as a
result, pass along costs to consumers.
When it comes to reviewing mergers, the Congress plays a
secondary role. Both the Justice Department and the FCC are
charged with preserving competition and protecting consumers,
and I am confident that this transaction will receive a full
and exhaustive review by them.
Today I expect we will have an open and robust debate over
the relevant issues which should give us an idea as to what
issues the reviewing agencies will consider when they go over
the data.
Thank you once again, Mr. Chairman, and I look forward to
examining these issues in today's proceedings.
Chairman Kohl. Thank you very much, Senator Hatch.
We will turn to other members of the Committee for their
opening statements, and we hope you will be relatively brief.
Senator Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM THE STATE
OF MINNESOTA
Senator Klobuchar. We will be brief, Senator Kohl, because
I understand we want to get the witnesses started before the
votes. Thank you for convening this important hearing. This is
the Subcommittee on Antitrust, Competition Policy, and Consumer
Rights. That is a name that we take seriously. We are
interested in figuring out what the impact of this merger will
be on the consumer and not just on business.
On the one hand, you do have an industry, as Senator Hatch
acknowledged, that is rapidly changing. We know that the
television and video markets are in a state of flux. But we
also know that consumers, especially younger consumers, want to
be able to watch programming at a time and place that is
convenient to them. They use DVRs and video on demand. They
stream content over the Internet. They watch television shows
on mobile devices. So we understand that traditional cable
delivery is not what it used to be. But, on the other hand, we
also know that we have seen increased cable rates from $22.35
per month in 1995 to $49.65 per month in 2008. So there is a
balance of concerns here, and I am looking very forward to
hearing from the witnesses as we evaluate this merger.
Chairman Kohl. Thank you very much.
Senator Kaufman.
STATEMENT OF HON. EDWARD E. KAUFMAN, A U.S. SENATOR FROM THE
STATE OF DELAWARE
Senator Kaufman. Thank you, Chairman Kohl.
When I look at my home State of Delaware, I am deeply
concerned about competition in the video content distribution
market. While there are alternative video players in Delaware,
Comcast is by far the largest in my State. My major concern is
that Delawareans have access to the widest range of
programming, whether they receive the programming through
cable, satellite, or Internet. I am skeptical about how merging
NBC into Comcast will help and am worried that it will
ultimately harm independent content producers.
I am sure that the Department of Justice and the FCC have
good people who are taking great care to review this merger as
we speak, and I genuinely and eagerly await their comments and
judgment. In the event that they approve the merger, I look
forward to seeing what conditions they propose to ensure that
this merger serves the public interest by leading to greater
choice and more diverse content, lower prices, and improved
customer service.
In the meantime, I want to thank you, Mr. Chairman, for
holding this hearing so we can talk to the witnesses and get
information. Thank you.
Chairman Kohl. Thank you, Senator Kaufman.
Senator Specter.
STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Specter. Thank you, Mr. Chairman.
I approach the hearing with a little different perspective
because I know Comcast and I know Brian Roberts and I know his
father, Ralph Roberts. So I am in a position to attest to a
number of critical factors evaluating whether this merger ought
to occur.
One factor that I can attest to is they are really very
good corporate citizens. Another I can attest to is that the
competency of their management is brilliant. Ralph Roberts, the
distinguished gentleman sitting behind Brian Roberts, founded
this company in 1963 in a small town in Mississippi with 1,200
customers, and they have grown in size to have almost 24
million customers and 100,000 employees operating in 40 States
and the District of Columbia because of their competency and
the service which they have provided. They have a tower which
now distinguishes the Philadelphia skyline, and they have a
great deal to offer and a great record.
Just a little on a personal note. Several years ago, I
noted that Comcast borrowed $7 billion, and I was a little
surprised because I knew of Ralph Roberts, I knew of Brian
Roberts. Brian plays squash with my son. They were Gold Medal
winners at the Maccabean squash tournament. And when I next saw
Ralph and Brian, and I said, ``Hey, I am a little worried about
you guys, $7 billion? Are you going to be able to pay it back?
'' And the winds have been at their back and they are risk
takers. So when Senator Hatch talks about competition, that is
America, and this company are competitors. But they also are
servers. They did not get almost 24 million customers when
there is a lot of competition out there without being able to
provide good service.
General Electric is their partner, a 49-percent partner. I
always wonder why anyone goes into a business at 49-percent,
especially General Electric. And the answer is that General
Electric has a lot of confidence in Brian Roberts and Comcast,
and they are willing to take a lesser position because they
want this company to manage a big chunk of their assets. And it
speaks very well of Comcast.
I could speak longer, but I see the red light is on, and I
know what it is like to chair from that central position, so I
will cease and desist now. But the questions posed by the
members so far are very valid questions, and I have had
extensive discussions and have confidence that they have very
comprehensive answers.
Thank you, Mr. Chairman.
Chairman Kohl. Thank you very much, Senator Specter.
Senator Franken.
Senator Franken. Thank you, Mr. Chairman.
Like Senator Specter, I come to this hearing with a
slightly different perspective. As some of you may know, though
I am on the Judiciary Committee, I am not a lawyer. But I used
to be in show business. In fact, I worked for years for NBC,
and I really feel I owe a lot to NBC.
But what I know from my previous career has given me reason
to be concerned--and let me phrase that ``very concerned''--
about the potential merger of Comcast and NBC Universal.
Let me start with something pretty basic. It matters who
runs our media companies. The media are our source of
entertainment. They are also the way we get our information
about the world. So when the same company that produces the
programs runs the pipes that bring us those programs, we have a
reason to be nervous.
I was at NBC in the 1970s, 1980s, and 1990s--but in the
1990s, that is when fin-syn, the financial interest and
syndication rules--most commonly known as fin-syn--were relaxed
and then essentially eliminated. And until then, fin-syn rules
had prevented networks from owning more than a very small
portion of the programs that they aired. This was to prevent an
inherent conflict of interest.
At that time NBC executives, including Rick Cotton over
there, testified that gutting fin-syn would not lead the
network to favor its own programming. To the contrary, the NBC
President at the time declared, ``It is in our self-interest to
do everything we can do to promote a strong, independent
production community.'' But by 1992, NBC was the single largest
supplier of its own prime-time programming. Today, if an
independent producer wants to get its show on NBC's schedule,
or any network's schedule, it is routine practice--and you guys
know it--for the network to demand at least part ownership of
the show. It will affect your placement on the schedule,
whether you are on the schedule or not, and where in the
schedule you are. And that is just a fact. And this was
completely contrary to what NBC and the other networks said
they would do when they were trying to get fin-syn rescinded.
So while I commend NBCU and Comcast for making voluntary
commitments as part of this merger, you will have to excuse me
if I don't trust these promises. And that is from experience in
this business.
Now, to make matters worse, after fin-syn was rescinded,
studios started buying up networks. It opened the way for the
studios to buy the networks. Disney bought ABC. Viacom, which
owns Paramount, bought CBS. And I am worried that this merger
could set off another round of media consolidation. The next
thing we know, AT&T and Verizon may decide that they also have
to buy a Hollywood studio and a network in order to compete.
And that would hurt the ability of Minnesotans and people
around the country to get access to important information, and
it will make their cable bills go up.
I look forward to hearing today's testimony and the
opportunity to discuss some of these important issues with you
all in more depth.
Thank you.
Chairman Kohl. Thank you, Senator Franken.
Senator Feingold. Mr. Chairman, I know we are deep into the
vote, so let me just say a couple of words.
The proposal to combine NBC Universal and Comcast clearly
has both vertical and horizontal competition concerns. In
addition to the content produced by the NBC broadcast network,
both NBC Universal and Comcast have a significant number of
profitable cable networks on both sides of the ledger,
including USA, Bravo, E!, and the regional sports channels. The
dangers of this horizontal consolidation are significantly
compounded by the vertical combination of content and
distribution that the joint written statement of Comcast and
NBC Universal not only admits but touts.
So while Mr. Zucker and Mr. Roberts believe that this
vertical integration is not a problem, I have been concerned
with these types of vertical alliances of behemoths, both in
media and elsewhere, for some time. They often seem to be
harmful, unsuccessful, or both. For example, the vertical
combination of Clear Channel's radio stations, concert venues,
and promotion was unfair to musical artists, small business
competitors, and ultimately to concert goers and radio
listeners.
Mr. Chairman, I would ask that the rest of my statement be
placed in the record.
[The prepared statement of Senator Feingold appears as a
submission for the record.]
Senator Hatch. Mr. Chairman, could I put a statement for
Senator Cornyn in the record?
Chairman Kohl. Without objection on both counts.
Senator Hatch. Thank you.
[The prepared statement of Senator Cornyn appears as a
submission for the record.]
Chairman Kohl. We will have some brief introductions before
we have to recess, and we hope the recess will not be very
long. The first introduction will be Brian Roberts, and Senator
Specter will make that introduction.
Senator Specter. Well, thank you, Mr. Chairman.
Mr. Roberts is on the Board of Directors of the National
Cable and Telecommunications Association. In his third term as
Chairman of Cable Labs, the research and development consortium
for the cable industry, he has a long litany of prizes and
awards. He has really an extraordinary record.
I think the fastest way, Mr. Chairman, is to ask consent
that it be included in the record, and I have already given
personal comments about Mr. Brian Roberts and his family, which
I think will suffice.
Thank you.
[The information referred to appears as a submission for
the record.]
Chairman Kohl. Thank you very much, Senator Specter.
The next witness after Mr. Roberts will be Jeff Zucker. Mr.
Zucker has spent his career at NBC Universal and has held his
current position as President and CEO since 2007. He joined NBC
straight out of college in 1986 and has held numerous positions
in the company, including executive producer of the ``Today''
show as well as President of NBC Universal Television Group.
Following Mr. Zucker will be Colleen Abdoulah. Ms. Abdoulah
is President and CEO of WOW! Internet, Cable & Phone. Before
joining WOW! in 2002, she was Executive Vice President of
Wireline Services at AT&T Broadband and served in a number of
positions at TCI Communications, Inc.
After that, our witness will be Mark Cooper. Dr. Cooper is
Director of Research at the Consumer Federation of America. In
this role, he has provided policy analysis and advocacy on
behalf of consumers in policy areas, including
telecommunications media and digital rights. Dr. Cooper also
serves as a fellow at four prestigious universities and has
published extensively on the energy, telecommunications, and
high-tech industries.
Our final witness today will be Andrew Jay Schwartzman. Mr.
Schwartzman is the President and CEO of Media Access Project, a
nonprofit, public interest law firm and advocacy organization.
He has directed the project for over 30 years and regularly
appears before Congress and the FCC on its behalf. Mr.
Schwartzman is also a faculty member of the Johns Hopkins
University School of Arts and Sciences.
After we recess briefly, we will be back, and we will begin
our testimony.
[Recess 3 p.m. to 3:25 p.m.]
Chairman Kohl. We will resume the hearing at this time.
Before we accept testimony, I would like to swear you all in.
Would you stand and raise your right hand? Do you swear that
the testimony that you are about to give before the Committee
will be the truth, the whole truth, and nothing but the truth,
so help you God?
Mr. Roberts. I do.
Mr. Zucker. I do.
Ms. Abdoulah. I do.
Mr. Cooper. I do.
Mr. Schwartzman. I do.
Chairman Kohl. Mr. Roberts, we will begin with you.
STATEMENT OF BRIAN L. ROBERTS, CHAIRMAN AND CEO, COMCAST
CORPORATION, PHILADELPHIA, PENNSYLVANIA
Mr. Roberts. Mr. Chairman and members of the Committee, it
is a privilege to come here today to talk about Comcast's
planned joint venture with GE regarding NBC Universal.
As has been mentioned, my father, Ralph, sitting just
behind me, started Comcast almost half a century ago. I want to
thank you, Senator Specter, for those nice remarks. Ralph has
built a company from a single small cable system in Tupelo,
Mississippi, to where we are today. And with this combination,
we are taking the next step in our improbable journey. This is
indeed an important moment in Comcast's history.
Let me briefly summarize the transaction. Under our
agreement Comcast will become majority owner of NBC Universal.
We will create a new venture that combines NBCU's broadcast TV,
cable programming, movie studio, and theme park businesses with
Comcast's limited video programming channels. Comcast will hold
51 percent of the venture and will manage it while 49 percent
will remain with GE.
This transaction puts two great American communications
companies under one roof. It will help to preserve traditional
broadcast television, a business that faces serious challenges.
And it will also help to accelerate a truly amazing digital
future for consumers. Together, Comcast and NBCU can help to
deliver the anytime, anywhere, multi-platform video experience
Americans want.
In combination, we will be a more creative and innovative
company that will meet customer demands. And our success will
stimulate our competitors to be more innovative, too. So this
joint venture should be good for consumers, innovation, and
competition.
To leave no doubt about the benefits of the new NBCU, we
have made a series of public interest commitments detailing how
we will bring more local programming, more children's
programming, and more diverse programming on more platforms. We
have also made commitments to reassure our competitors that we
will compete fairly in the marketplace. Let me offer two
examples.
First, the program access rules have never applied to
retransmission consent negotiations, but we volunteer to have
the key components of these rules apply to our retransmission
negotiations for NBC stations.
Second, we want independent programmers with quality
content to know we are committed to help them reach an
audience, so we have committed to add at least two new
independently owned cable channels to our systems every year
beginning in 2011.
The combination of NBCU and Comcast, with no significant
overlap between the assets of the companies, is primarily
vertical, which generally poses fewer antitrust concerns. That
also means no massive layoffs, no closure of facilities,
nothing to produce hundreds of millions of dollars of
``synergies.'' That is why some on Wall Street have not
initially fallen in love with this deal, but the same lack of
overlap is why Washington can, because we will grow these great
American businesses over the long term and make them more
successful, not cut them.
Congress has recognized the benefits of vertical
integration before and adopted rules in 1992 to address
potential risks. At that time there was almost no competition
to cable, and more than half of the channels were owned by
cable companies. So Congress created program access and program
carriage rules to ensure that a company which owns both cable
content and distribution cannot treat competitors unfairly.
Those rules have worked in the past and will continue to work.
In the last week, some have suggested that our several-
year-old legal challenge to certain portions of the program
access rules is inconsistent with our commitments in connection
with this transaction. But while we have argued and believed
that today's marketplace is sufficiently competitive to do away
with program access rules, we did not pursue this transaction
with the intention of not following those rules, and we do not
intend to behave any differently. So we are willing to discuss
with the FCC making the program access rules binding on us even
if they were to be overturned by the courts.
In the past decade, Comcast has come to Washington twice to
seek merger approvals when we acquired cable systems from AT&T
and Adelphia. Each time we explained how consumers would
benefit, and in each case I believe we have delivered. We spent
billions of dollars upgrading cable systems to make them state-
of-the-art. We created video on demand, which our customers
have used 14 billion times. And from a standing start 4 years
ago, we now give millions of Americans their first real phone
choice. Once again we have described how consumers will
benefit, and I want to assure you that we will deliver.
Mr. Chairman, we are asking for the opportunity to make one
of the great icons of American broadcasting and communications
part of the Comcast family. We promise to be reliable stewards
for the national treasures of NBC and NBC News. It is a
breathtaking and humbling moment in our history, and we hope to
have your support.
Thank you.
Chairman Kohl. Thank you very much, Mr. Roberts.
Mr. Zucker.
STATEMENT OF JEFF ZUCKER, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NBC UNIVERSAL, NEW YORK, NEW YORK
Mr. Zucker. Mr. Chairman, members of the Subcommittee,
thank you for the opportunity to testify today.
As the President and CEO of NBC Universal, I am proud to
lead, as Senator Hatch described it, an iconic media company
shaped by two great American brands: NBC and Universal. I am
grateful for the opportunity to tell you how the proposed
venture between Comcast and GE will help NBC Universal thrive
and also benefit our local communities, our employees, and the
American consumers who enjoy our content.
In today's intensely competitive, unpredictable, and
dynamic media markets, this deal is critical to realizing these
benefits. The marketplace that I live in is a media free-for-
all, a media donnybrook, whether you look at the overall media
marketplace, the cable channels, broadcast networks, or the
Internet. There will be more change in our space in the next 5
years than there has been in the last 50.
This deal will not change the fundamental competitive
dynamic or the extraordinary rate of technological change, but
it will help NBC Universal compete in the new media world.
Why is this transaction good for NBC Universal, for the
U.S. economy, and for the consumers we serve? My answer can be
captured in two words: investment and innovation, both of which
I believe are essential if we are to remain a vigorous
competitor in the 21st century media market and a growing
source of high-wage jobs in an economy starved for employment.
First, investment. The creative programming that lies at
the heart of our business is neither easy nor inexpensive to
produce. The entertainment programming on our broadcast and
cable networks will require an investment this year of nearly
$4.5 billion. Every year we invest another $1 billion in news
gathering and news production. An investment of half a billion
dollars annually makes Telemundo the leading U.S. producer of
Spanish-language programming.
In a highly competitive, unpredictable, and dynamic media
marketplace, Comcast's desire to expand our business and invest
in programming will benefit NBC Universal, the American
consumer, and the U.S. economy.
Also with regards to investment, Comcast's written
commitment to over-the-air broadcasting has been widely
underappreciated. In addition, Comcast has expressed a
willingness to play a constructive role in the business
negotiations between broadcast stations and MVPDs. Those two
positions could play a pivotal role in finding a sustainable
new business model for the struggling broadcast business.
Second, innovation. We believe that Comcast's history of
delivery innovation and technological vision will help us
better serve the 21st century consumer. We must find a
sustainable business model to meet consumer demands for access
to programming anytime, anywhere. We need to be more nimble in
taking advantage of new digital distribution capabilities: on
demand, online, mobile, and beyond.
This venture with Comcast positions NBCU to be a leading
innovator in delivering content to consumers where they want
it, when they want it, and how they want it. In this
extraordinarily competitive industry, sustained investment and
innovation will be the keys to remaining a vigorous competitor.
This is not your father's media market. Less than 40 years
ago, three companies enjoyed 90 percent of all television
viewing. Oh, how simple it was. Today the world could not be
more different. Each of the five largest media companies in
America now only account for between 5 and 10 percent of all
viewing, and a multitude of smaller competitors actually
account for half of all television viewing. The new NBCU's
cable channel business, where we will add Comcast networks,
will account for just 7 percent of total viewing and be fourth
by revenue among owners of national cable networks.
Television is also a shrinking proportion of the media
market. People today choose not only between broadcast and
cable television, but also increasingly the Internet, Xbox,
iPhone, PlayStation, and so many other new platforms and
technologies for their media choices. Very simply, this
transaction will not change the tidal wave of competition
inundating today's media market. The big winner here is the
consumer. More investment leads to more and better content.
More innovation leads to more access, anytime, anywhere.
Let me close by saying how grateful I am for GE's excellent
stewardship of NBC Universal. GE has invested more than $22
billion since 2000 and built NBCU into the diversified and
vibrant broadcast, film, cable, programming, and media company
that we are today. With this deal GE will have billions of
dollars to invest in new technologies and jobs in its core
businesses.
I could not be more excited about the future of this
company. This deal will give us the resources and the tools to
innovate and adapt in an unpredictable media world and meet the
needs of 21st century consumers.
Thank you for the opportunity to testify, and I look
forward to answering any questions that you may have.
[The prepared statement of Messrs. Roberts and Zucker
appears as a submission for the record.]
Chairman Kohl. Thank you, Mr. Zucker.
Ms. Abdoulah.
STATEMENT OF COLLEEN ABDOULAH, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, WOW! INTERNET, CABLE & PHONE, DENVER, COLORADO, AND
BOARD MEMBER, AMERICAN CABLE ASSOCIATION
Ms. Abdoulah. Hi. I am very proud to be here to represent
WOW! and the American Cable Association. We are a broadband
competitor in five markets in the Midwest. A million of the
households that we pass directly compete with Comcast in
Michigan and Illinois. Customers appreciate the competitive
provider choice that they have, and they do not choose WOW! as
the low-cost provider, because we are not. We differentiate
ourselves based on the service experience that we offer, and
customers recognize it with ten J.D. Power Awards and recently
in Consumer Reports voted us No. 1 Internet, phone, and cable
operator.
I do not tell you this to brag. I tell you to illustrate
simply that the areas of our operation that we have influence
over and some control over, we are able to be incredibly
customer centric and focused on customer needs. Yet when it
comes to being a buyer of content, both cable and online, we
face a whole different set of challenges. We buy most of our
content from a handful of very large content providers who have
significant market power and leverage.
The prospect of having Comcast and NBCU as the largest
vertically integrated content provider as our direct competitor
for customers concerns me. It concerns me because the combined
entity will have powerful abilities and incentives to hurt a
competitor like ourselves and to increase our costs.
I have these concerns not because of the ``what if.'' These
are based on current behaviors that we experience today. Since
the reality is that whether the medium is broadcast, cable,
online, or portability, video content is key to our business.
So content negotiations for us are critical.
Some of the things that we encounter today: Specifically,
price/value. Not all content is created equal. Yet when content
providers come to us and they have a large amount of market
power, they present their network offerings in a bundle, in a
package, and it is sort of an all-or-nothing, take-it-or-leave-
it kind of fashion. What this means is low-value networks that
customers do not want, and are not asking for, are associated
with high-value networks that we have to have in order to
compete. And why this is an issue for us is that we end up
having to use channel space for networks that customers do not
want and do not want to pay for; channel space that we could
give to independent networks that customers are asking for; and
it consumes valuable bandwidth that we would prefer to allocate
to advanced services that we know customers want, like high
definition, video on demand, interactive, and especially faster
online speeds.
And then there is carriage availability. Content providers
with significant market power withhold or delay launch timing
by slow-rolling the negotiations. Two examples. One, online
content, this would be with the concept of TV Everywhere. It
involves packaging some cable networks and offering them to the
broadband consumer. In the past, we have gone to--several
months ago, we went to Comcast and tried to receive the rights
to offer their networks to our broadband customers. We also
went to the other TV Everywhere cable networks and asked them
for the rights. To date, we have been denied those rights.
We were negotiating recently with a network that Comcast
has a significant ownership stake in. During that negotiation
the network refused to include the advanced services that they
were developing.
The bottom line is this. We are not here to whine or to ask
for special advantages because we are the smaller operator. We
also believe in competition. It does breed creativity and
innovation and a clear focus on the customer. Our J.D. Power
and Consumer Reports ratings, I think, validate that. We simply
ask for a thorough and thoughtful review and consideration of
the special conditions that may be imposed so that we can
continue to preserve and promote the competitive choice that we
provide today, and that Congress sought in the 1992 and 1996
acts.
The terms and conditions that we would like to have
considered are that all terms and conditions for access to
content--cable, online, or otherwise--should be the same terms
and conditions that are available to Comcast. And then business
is business. If we do run into loggerheads and we find that
discriminating behavior occurs, or market power is exerted
inappropriately, we would simply like to ask for a remedy
structure that is meaningful and accessible for companies like
WOW!. The current retransmission consent and program access
complaint procedures do not help us. An outside arbitration
process does not help us. And the reason for this is the timing
of these processes are consuming--very time-consuming, they are
very costly; they generally do not ensure continued carriage
while in dispute; and especially they place the burden of proof
on the complainant who does not have the access to the data we
need since there is no price transparency.
So to protect competition and consumers from this
combination, regulators must impose different and better
remedies, and we look forward to participating in that process.
Thanks for giving me an opportunity.
[The prepared statement of Ms. Abdoulah appears as a
submission for the record.]
Chairman Kohl. Thank you, Ms. Abdoulah.
Mr. Cooper.
STATEMENT OF MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER
FEDERATION OF AMERICA, WASHINGTON, D.C.
Mr. Cooper. Thank you, Mr. Chairman and members of the
Committee, for the opportunity to offer a public interest,
antitrust analysis of a merger that is unique in the history of
the video marketplace and will go a long way toward determining
whether or not the future of video viewing in America is more
competitive and consumer friendly than in the past.
Comcast straddles the dominant video distribution platform
of the 20th century as the Nation's largest cable operator and
the emerging video distribution platform of the 21st century as
the Nation's largest broadband Internet service provider. In
its cable franchise territories, its market share of these two
vital distribution platforms is in excess of 50 percent.
Allowing it to acquire one of the Nation's premier video
content producers will radically alter the structure of the
video marketplace, triggering a bevy of anticompetitive effects
that will result in higher prices, fewer choices, and increase
the likelihood that the ugly business model of the cable cartel
will be strengthened and extended to the Internet.
There are huge horizontal problems with this merger.
Broadcasters and cable companies have a natural competitive
rivalry we see every day. They argue about the price, channel
location, and carriage of content. The rivalry is so intense
that each side has attempted to enter the rival's market in an
effort to diminish their market power. They have been and are
disruptive new entrants. This merger would eliminate one of the
major sources of that competitive rivalry in the industry.
These two companies compete for audiences and advertisers
in a dozen of the Nation's most important local video markets,
reaching about a fifth of the Nation's population. In fact,
they compete head to head for more eyeballs where NBC owns O&Os
than in the O&O stations that NBC does not compete with
Comcast. These two companies compete in the video programming
market where Comcast regional sports and news production
compete with NBC's news and sports output. In three-quarters of
the local markets where Comcast and NBC compete directly for
eyeballs, Comcast has rolled out its regional marquee sports
programs. If that ain't competition, nothing is.
These two companies also compete in cyberspace where NBC
has funded an alternative distribution platform as well as
numerous websites for its own media properties, and, of course,
Comcast has launched its video portal and the plan for TV
Everywhere. If that is not competition, nothing is.
By combining its distribution market power with the huge
portfolio of content, the merger would dramatically increase
Comcast's incentive and ability to raise prices, discriminate
in carriage, foreclose and block competitive entry, and force
programming bundles onto other cable systems, larger bundles at
higher prices. The likely response to the huge advantage that
Comcast would gain with this merger would be to convince the
other members of the industry to try and muscle up as well, to
create similar vertically integrated entities to try and match
the bargaining power of Comcast, and that would diminish
competition.
The best indicator of the danger we face is the TV-
everywhere proposal, which is a blatant market division scheme
in which the two cable operators who have never overbuilt one
another, never competed head to head in physical space, would
like to extend that anticompetitive gentleman's agreement into
cyberspace. And if they succeed, they will induce the other
members of the industry to go along.
For decades, the Congress has labored to bring consumer
price competition into the video market by opening the door to
technology and new business models. But in every instance,
policy mistakes were made that allowed the cable industry to
extend and preserve its market power. This is the first big
policy moment for the Internet as the alternative video
platform that can compete with cable. If policymakers allow
this merger to go forward, the prospects for a consumer-
friendly, competition-friendly, multi-channel video market will
be dealt a severe setback.
This hearing should be the beginning of a long process and
rigorous review that ends, in our opinion, with the rejection
of this merger as anticompetitive and anti-consumer.
Thank you.
[The prepared statement of Mr. Cooper appears as a
submission for the record.]
Chairman Kohl. Thank you, Mr. Cooper.
Mr. Schwartzman.
STATEMENT OF ANDREW JAY SCHWARTZMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, MEDIA ACCESS PROJECT, WASHINGTON, D.C.
Mr. Schwartzman. Thank you, Senator. This is the most
important media merger since Lucy met Desi. Comcast seeks to
combine its huge cable and Internet footprint with NBC content
assets.
Senator Specter, even though I have problems with his labor
management practices and his corporate governance structure, I
recognize that Mr. Roberts is motivated by business
considerations and not some sort of design to undermine
American democracy. But the consequences of this deal,
nonetheless, could have precisely that effect.
Concentration of control in the mass media poses unique
questions for policymakers and regulators. As Judge Greene said
when he considered the AT&T consent decree, the values
underlying the First Amendment coincide with the policy of the
antitrust laws.
Approval of this merger would increase Comcast's power to
squeeze out independent programmers with diverse editorial
perspectives. There are scores of cable networks which have
been unable to obtain carriage on Comcast and other cable
systems. I am here--and they are not--because some of these
companies have told me they are afraid of retaliation. An
acquisition of NBC's stable of cable networks will greatly
exacerbate the existing imbalance of power.
If Comcast is permitted to purchase the NBC TV stations and
its highly viewed cable networks, Comcast will be able to
bundle unwanted programming when it seeks carriage deals with
other MVPDs. The problem is even greater with respect to
carriage on Comcast's own cable systems.
After the acquisition, Comcast would have even more
networks to favor. This means higher prices for all Americans,
not just Comcast customers.
There ought to be a law against such abuse. And, in fact,
there is. Section 616 of the Communications Act is supposed to
prohibit cable companies from discriminating in favor of their
own programming. While Comcast argues that existing law is
sufficient to protect independent programmers and the public,
it is important to point out that it has argued that
enforcement of Section 616 is unconstitutional.
Now, the rules surely pass constitutional muster. But they
have not worked. Program carriage litigation is prohibitively
expensive, and the FCC has adopted almost insuperable legal
hurdles for complainants. Complaints and appeals are stalled at
the FCC for years while programmers remain shut out.
Combining NBC and Universal content with Comcast's cable
and Internet distribution systems will also give the merged
company vastly increased power over content distribution
markets. Depending on the circumstance, Comcast could choose to
withhold its programming or force it on competitors at inflated
prices. This in turn will increase cable bills and deprive
customers of access to programming from diverse sources.
While the FCC has program rules which are supposed to stop
such practices, Comcast has gone to court to challenge the
FCC's basic legal authority to continue enforcing the program
access rules.
Now, today for the first time, Mr. Roberts says that it may
consider agreeing to be bound by the program access rules
voluntarily. But there are many reasons why the program access
rules in place are insufficient.
First, they expire in 2 years, and there is no assurance
they will be extended. In any event, as Ms. Abdoulah has said,
the program access regime does not preclude bundling. Although
the law prohibits discrimination against competitors in this
instance, it simply means that as long as Comcast overcharges
itself, it can overcharge everyone else. And the cost and delay
in enforcing program access rules makes it a right without a
remedy.
Retransmission consent rules are even less reliable as a
tool for video competitors. The statutory mandate is simply
``good faith,'' and it does not prohibit price or packaging
discrimination.
The good news is that Internet technology offers the
prospect of creating vibrant and high distribution channels for
video programming. Members of the public can, or soon will be
able to, receive high-definition video on the Internet. But
Comcast has already taken steps to kill off such competition,
and acquisition of NBC's content will greatly enhance that
campaign.
The prospect of consumers canceling their cable
subscriptions and relying on the Internet poses an existential
threat to the cable industry. Comcast's answer is XFinity,
which allows Comcast customers to view video over the Internet
without extra charge. The catch, which is a very big catch
indeed, is that you must keep your cable TV subscription.
XFinity permits Comcast to cut off the flow of programming
to potential new competitors while preserving the cable TV
revenue stream indefinitely. Stripped of slick marketing,
XFinity consists of agreements among competitors to divide
markets, raise prices, exclude new competitors, and tie
products.
Comcast's ownership in Hulu is especially important here.
It can cripple Hulu by withdrawing NBC content, or it may
choose to make the NBC content exclusive to Hulu and withhold
it from new Internet-delivered video competitors. Either way it
is bad for the public.
There is more, but no more time. I urge you to oppose
approval of this merger.
[The prepared statement of Mr. Schwartzman follows:]
Chairman Kohl. Thank you very much, Mr. Schwartzman. We
will now have rounds of questions of 8 minutes.
Mr. Roberts, we have heard a lot of concern about what will
happen to the price charged to rival cable systems for NBC
programming once Comcast and NBC come under common ownership.
Today, when negotiating contracts for carriage, Comcast and NBC
are at opposite ends of the bargaining table. NBC is seeking to
get the highest prices it can for its programming while Comcast
is trying to keep its programming costs as low as possible.
But the deals critics argue that after the merger things
will change radically. Comcast will now have the incentive to
raise the cost of NBC programming because this will not cost
Comcast anything. It will just be paying money from one pocket
to the other.
But in doing so, Comcast will be able to raise the
programming costs to all of its cable and satellite rivals, and
these programming costs obviously will be passed on ultimately
to the consumer.
What is your response, Mr. Roberts? Won't Comcast have the
incentive to raise its rivals's costs by raising the cost of
NBC programming if this merger is completed?
Mr. Roberts. Well, I respectfully disagree with that
theory, as you might expect, and the logic is simple as
follows. The program access rules, if we were to set an
artificially higher price, are designed for the FCC to look at
that behavior. So someone would come in and say, ``I have a
program access complaint.'' In doing so, the FCC and an
independent judge would look at what all the other companies
are charging for similar type programming.
To put it in perspective, six out of seven channels that
Comcast carries after the deal will not be owned by Comcast. We
have agreements with all those unaffiliated companies. About 88
percent of the programming that is in the marketplace is not
owned by NBCU or Comcast.
So there are robust distributors--DirecTV, Dish Network,
Time Warner, Ms. Abdoulah's company--all negotiating with other
programmers. There is a very defined marketplace and a third
party to adjudicate whether somebody is playing games, as was
the suggestion perhaps that you would do, so you would
overcharge. That would not be available to do, the way I
understand how the process has worked, and that is not the
intention.
In fact, today, NBC can charge freely anything it wants in
the marketplace and whatever the market will bear. If and when
we come together, we would fall under the program access rules,
which then allow a third party to review whether that is a fair
pricing. And so I think it actually works the other way here
because it is going to be harder for NBC to have pricing
flexibility, not easier.
Chairman Kohl. But you have never been a supporter of the
program access rules, and you have often made the point that
they should be allowed to expire and not be enforced. Now you
are talking that the program access rules exist, they are good,
you support them. I suppose you are saying they should not be
allowed to expire. That is pretty inconsistent with what you
said prior, isn't it?
Mr. Roberts. Well, if I might, let us look at where the
program access rules started. It was 1992--nearly 20 years
ago--and at that time over half the cable channels were owned
by cable companies. And at that time there was no satellite. It
was at that time that Congress passed the law that helped
create the satellite industry, and at the same time it created
the program access rules.
If you fast-forward to today, 15 percent of all the cable
channels are owned by cable companies, and so the market is
very different. We don't just have one company distributing;
but every consumer has choices of two satellites, a phone
company, and possibly a fifth provider like Ms. Abdoulah's
company. So it is a very different marketplace.
A couple years ago, we and others said it was time to
sunset the rules, and that is a review the FCC periodically
makes. When we said that we would like to join forces with NBC
Universal, we have always planned that we would continue the
behavior that we have the last 20 years. We have successfully
gone into the cable programming business with channels like The
Golf Channel and E! Entertainment, and we do not find those
rules burdensome because our behavior has never been
inconsistent with them. So we are not troubled by seeing them
extended given this potential merger.
Chairman Kohl. I appreciate that.
Ms. Abdoulah, what would you say? Would you expect that
your programming from NBC is going to increase if this merger
is completed?
Ms. Abdoulah. Well, I have two concerns. One is carriage
demands. Currently we carry 20 of the combined companies'
product, and there are 24 when they combine. There is no reason
to believe that when we are negotiating renewals that they do
not ask us to carry the four that we do not carry. Of the 20 we
do carry, we do not carry them across all our systems, so there
is often in negotiations the request--again, in brackets, in
quotes--to say we would like you to carry our services
everywhere. So I think there will be an increased demand of
carriage of products we do not want.
For example, the 20 that we do carry today, four of them we
would never have put on if we could have negotiated so. Eight
of them we would put in our lower tier. Eight would probably
stay where they are.
But that just goes to show that we do not have much
leverage in saying where we want to carry the networks today,
which ones we want to carry. So those things would be a
concern.
You asked specifically about price. I find it interesting
when I hear terms like ``what the market will bear'' and that
it is not--because it is not market-based pricing. We have no
pricing transparency. The pricing is not based on ratings or
consumer viewership. It is based on whatever the programmer
tells us is the price. And many times during negotiations with
both these companies and others, rate increases can be as high
as 20 percent to as high as 156 percent.
That is the kind of increases that we are facing with very
little leverage in negotiating.
Chairman Kohl. What about Mr. Roberts' argument that the
FCC rules will prevent unreasonable price increases?
Ms. Abdoulah. Yes, thank you for that, sir. I forgot. The
problem I have with that, as I understand the process, is what
I said in my testimony. The burden of proof, if we file a
complaint, the burden of proof is on us to show that it is an
egregious price increase. Well, I have no transparency to price
because of confidentiality clauses in our agreements. There are
no MFNs. There is no way for me to have that kind of burden to
prove. I cannot. I do not have the data. The burden of proof
should be on the programmer who is asking for these egregious
increases.
Chairman Kohl. Dr. Cooper, do you have a comment on that?
Mr. Cooper. Well, the buzz words, the key words are
''incentive'' and ``ability'' here. Today Comcast has zero
interest in increasing retrans fees or bigger bundles. Tomorrow
they will own one of the major networks, one of the four major
networks. They will have an interest in higher retrans fees and
bigger bundles.
Today NBC has to negotiate with 100 percent of the cable
operators in the country to get carriage. Tomorrow they will
only have to negotiate with 75 percent. They have a guaranteed
access to a quarter of the industry. They have a stronger
bargaining position. You change the incentive, you change the
ability, and you end up with more stations being pushed on more
systems at higher prices.
Chairman Kohl. Thank you very much.
Senator Specter.
Senator Specter. Thank you, Mr. Chairman.
Mr. Roberts, the testimony by Mr. Schwartzman is that you
can squeeze out your competitors, and he amplifies that by
saying you can set a high cost for the programming, and as the
comment has been made, one pocket to another, so far as Comcast
is concerned.
How do you deal with that specific in terms of Mr.
Schwartzman's broad charge of squeezing out your competitors?
Mr. Roberts. I want to use this opportunity to say that I
think this is misunderstood, our motivation for why we would
want to do this transaction. The video marketplace, going back
to 1992, using that as one date, has changed radically over the
last 20 years. We have much more competition. Just in the last
2 years, Comcast lost about a million and a half of our
customers, and we have gone into the phone business, we have
gone into the broadband business, we have diversified.
At the same time we have had an explosion of choices so we
must keep this in mind as we talk about independent programmers
and people who have the diversity of voice. Going back to 1963,
there were three TV channels when Ralph started the company,
and today there are hundreds of channels and tens of thousands
of shows on demand. So I guess I start with a different point
of view as to what the last 20, 30, or 40 years have all been
about.
So our motivation is not to try to change the explosion
that is happening, as Jeff described in his testimony,
technologically. That is not possible. That is not our
motivation. We think content is a great business. If we can
keep it lawful and legal and protected through these new
technologies, we think we can give customers access anytime,
anywhere. We are saying today you can only watch HBO on your
TV, ``True Blood.'' Now, if you are subscribing to HBO, you can
watch it on your PC from anywhere. I think that is a great
consumer benefit, and HBO knows that their content is secure
and is not going to be pirated.
So I do not believe, Senator, that our plan is, as I said
to the Chairman, to be motivated to change the behavior that is
happening in the market as one company with 12 percent of the
programming and 24 percent of the distribution. It is to
participate in the convergence, the technological explosion,
and, frankly, the business diversification.
Senator Specter. Mr. Schwartzman's prepared testimony, Mr.
Roberts, points out that you are making a contention that
Section 616 is unconstitutional. It involves some complex
litigation which is now in the Court of Appeals for the
District of Columbia, and this question might better be
directed to your counsel. But is it the contention that Section
616 is unconstitutional or that the market is sufficiently
competitive that you feel that limitation is no longer in the
public interest?
Mr. Roberts. Well, as I testified, Senator, there is a set
of specific things that have been challenged in terms of
whether the market is changed, whether the FCC adequately has
reviewed changes and whether the courts agree or disagree with
that judgment. But as we have lived with those rules for nearly
20 years and we have built a successful, but small, set of
program channels, we are comfortable, working it out with the
FCC and voluntarily continuing those rules whether the court
throws them out or not.
Senator Specter. So you are saying that you would be
willing to be bound by Section 616 and make that commitment as
a condition of the----
Mr. Roberts. The only hesitation is I am not familiar with
the section number, Senator, so if I may call it ''program
access''----
Senator Specter. That is the program access----
Mr. Roberts. I just want to be sure that I am familiar with
the right section. But, yes, you know, we are comfortable
making the program access rules binding on us, even if they
were to be overturned by the courts as part of the----
Senator Specter. So the assertion by some that you are
saying you may do it is not accurate. You are saying you will
do it, and you will be agreeable to making that commitment to
the FCC.
Mr. Roberts. Yes.
Senator Specter. Mr. Schwartzman, does that assuage your
fears a little?
Mr. Schwartzman. No, it does not. But, first of all----
Senator Specter. Why not?
Mr. Schwartzman. Well, first let me say that Mr. Roberts'
question was well placed because you have confused two
different provisions of the Communications Act. The case that
is in court involves the program access provisions, which is
Section 628. The challenge to Section 616, which is the program
carriage rules, was made at the FCC.
That minor confusion aside, as I have explained in my
written testimony in greater detail, both the program access
and program carriage rules are rights without remedies. There
is no standstill provision that allows carriage during the
pendency of litigation. Litigation goes on for months and
years. In fact, I am unaware----
Senator Specter. Mr. Schwartzman, I do not mean to unduly
interrupt, but I have got less than 2 minutes left. What kind
of assurances would you like from Mr. Roberts to satisfy the
concerns you have stated?
Mr. Schwartzman. Well, I am not sure that any concerns
would satisfy me. I would point out that neither of those two
sections applies to video on demand, which is a critical part
of the milieu.
Senator Specter. Well, if nothing would satisfy you, let me
move to Dr. Cooper in the minute I have left. Would anything
satisfy you?
Mr. Cooper. Frankly, we believe that the anticompetitive
effects that I have described are just too difficult to
unravel. The remedies and promises are unenforceable in many
cases.
Senator Specter. Why? Why unenforceable?
Mr. Cooper. Well, we have had two decades, and the FCC is
constantly chasing around scofflaws who challenge the legality
in court, engage in anticompetitive practices, and eventually
get caught and say, ``Well, we will be good.'' So the answer is
that we have suffered through decades of rising prices, of
anticompetitive practices, and the set of policies we have on
the books has not been able to prevent those practices in the
market today. There is no reason to believe that a company with
that much incentive and vertical integration will be tamed by
the rules we have on the books.
Senator Specter. So, Dr. Cooper, what you are saying is
that there are some assurances which, if enforced, would be
sufficient, but you doubt the FCC's capability of enforcing
them?
Mr. Cooper. I certainly doubt the FCC's capability of
enforcing under the current statute as written. And so this
merger--they want to proceed as quickly as possible under the
current law. They promise they will obey the current law even
if they overturn it in court.
Senator Specter. My red light is not yet on, so I am going
to ask Ms. Abdoulah if there is anything which would satisfy
her. You can ask the question before the red light goes on. The
rest is on you.
Ms. Abdoulah. OK, thank you. Absolutely, there is.
Absolutely, there is. If this merger goes through, just the two
things I said, that the terms and conditions for access to
content are the same for Comcast as they are for the rest of
us; and, secondarily, that there is a remedy structure that
works so that when we do get into a bind, we need somewhere to
go that we can have a hearing on what the issues are, have it
within a reasonable timeframe at a reasonable cost, ensure that
the product can continue to go on while there is the dispute,
and--what is the other one? Oh, burden of proof, of course,
that there be some pricing transparency from the DOJ that it is
required to--the program is required to come and prove that
their market pricing is truly competitive.
Senator Specter. Thank you.
Thank you, Mr. Chairman.
Chairman Kohl. Thank you, Senator Specter.
Senator Klobuchar.
Senator Klobuchar. Thank you very much, Mr. Chairman.
Why don't we start with where Ms. Abdoulah was, with Mr.
Zucker or maybe specifically Mr. Roberts. I know that Ms.
Abdoulah mentioned the access issue, which I know you have been
asked about, but how about the pricing transparency, something
that should be a concern for consumers?
Mr. Roberts. I want to just make some points about what Ms.
Abdoulah just said, if I may. She said that arbitration is
unfair because it puts the burden on the complaining
distributor. We do not think that is true. The rule requires
both the complaining distributor and the programmer to submit
final offers, and each party has an equal burden to show that
its final offer reflects the fair-market value of programming.
In terms of the timing, the FCC specifically established
arbitration as a streamlined remedy, and under the rules the
arbitrator is supposed to issue his decision within 30 days. In
terms of keeping the content on the air, once the distributor
triggers arbitration, the distributor is guaranteed continued
carriage of the network----
Senator Klobuchar. Okay. I was more interested in the
transparency issue.
Mr. Roberts. And so both sides put in their best offer, and
they have to defend it to the arbitrator, which encourages you
to have to make that case.
And then, finally, I want to just state that the FCC under
Chairman Genachowski has underway a proceeding to look at how
the rules are working. We are participating in that process,
and I hope you are as well, to try to tell the FCC how to
improve it.
Senator Klobuchar. How about these issues that Mr. Cooper
raised about just the price that I raised in my opening
statement? How do you respond to this, the quadrupling of the
price in some places? And what effect do you think this merger
would have on the price for your average consumer for their
cable?
Mr. Roberts. So I think you have to say what are the
consumer benefits here, and I believe using technology and
innovation to deliver more content is what this deal is all
about. Preservation of free broadcast, over-the-air television,
which, as Mr. Zucker said, is not a sure thing, and additional
investment.
As to cable prices, I think we have a market structure
existing today. Some of the issues that have been raised by
some of the other witnesses are industry-wide issues. And I
think that they are not really affected by this transition. We
are not getting any larger in cable distribution here with this
because NBC is not in our business, and we are not really in
their business. I think that these are always questions that
seem to be constantly evolving.
Senator Klobuchar. But do you have any prediction on how
this would affect consumer rates, their monthly payment?
Mr. Roberts. I do not believe this transaction affects that
question. I think that question has been and is a relevant
question, and I think that it is best directed to the entire
industry. There are more distributors than ever before, which
is putting more growth in content and has allowed an
understanding that you do not just carry these channels. We pay
$6 billion a year or so to buy cable channels. So there is a
robust market, and there are more distributors, more supply and
demand changes all the time. And I think that that is an
industry-wide question, not specifically changed by this merger
in----
Senator Klobuchar. I am going to ask Dr. Cooper and Mr.
Schwartzman for their response to that, but just one other
thing here is that on jobs, you know, we are very focused on
jobs right now, if you have not noticed, in Washington, and
with our unofficial unemployment rates 10 percent now
nationwide, do you see this transaction as resulting in job
loss? And, also, one of the public interest commitments you
have made regarding this merger is that Comcast will honor NBC
Universal's collective bargaining agreements. Is that correct?
Mr. Roberts. Yes, it is on the last part. We will honor
those agreements. I think that is one of the best parts of this
story, is that it is not based on eliminating jobs. It is a
risk and a bet that America's economy is turning around,
advertising is going to come back, that content is going to be
copy protected, and that business models will be found that are
successful in the future and make this a good investment. There
is no guarantee of that, and it is not based on elimination of
jobs.
Senator Klobuchar. Okay. One last question before I turn to
them. One of the advantages with nbc.com--I have used it
myself--is the free--you can watch ``Saturday Night Live'' the
next morning. Is that going to change with the proposed
purchase and the hulu.com and those other attributes of
nbc.com?
Mr. Roberts. I would like to say--and maybe Mr. Zucker
wants to comment on it as well--but I would say from Comcast's
perspective, we have no intention of changing any of the
behavior that NBC has had. I think that regarding the Internet
and video over the Internet, there were 30 billion videos last
month over the Internet. Of all video viewed online; NBC has
less than 1 percent; Comcast has less than half of 1 percent;
Hulu has less than 4 percent; and Google has over 50 percent.
It is a dynamic, rapidly changing market, but as a broadband
company, we want to encourage as much video as possible because
the fastest growing part of our company is broadband. We are
now investing $1 billion to build something called wideband at
50 megabits a second and beyond. And when you say, ``What are
you going to do with wideband? '' The answer is, ``We are not
sure yet.'' But we are making that investment now because we
know consumers want more and more bandwidth for their----
Senator Klobuchar. I want to give Dr. Cooper and Mr.
Schwartzman a chance to respond. Just quickly, Mr. Zucker, on
this issue of hulu.com and NBC.
Mr. Zucker. You will still be able to watch ``Saturday
Night Live'' on Sunday morning.
Senator Klobuchar. All right. Very good.
Mr. Cooper and Mr. Schwartzman, I think specifically the
response to this issue about how it will not affect the monthly
cable rates.
Mr. Cooper. Well, I have worked the numbers. I have shown
you why there is an incentive to raise the prices. There is the
ability to raise the prices. And let me work them one more time
so you really can understand how the future is at stake here in
terms of the Internet.
TV Everywhere is not TV anybody. Comcast will only sell its
Internet product to current subscribers of Comcast; that is,
they will sell it to one-quarter of the people in this country.
They are dividing the market.
Hulu and all of NBC's products on the Internet are
available to 100 percent of the people in this country. And so
you have this different incentive.
If they take NBC in and they have made some vague promises
about what they will do with NBC's content, their objective is
to extend the geographic division they have accomplished by
refusing to ever overbuild a competitor. They have never
overbuilt. That raises consumers' prices because it diminishes
competition.
Senator Klobuchar. Okay. Mr. Schwartzman, and then we will
give them 1 minute to respond.
Mr. Schwartzman. Senator Klobuchar, first of all, Mr.
Roberts misstated what the program access rules require. The
program access rules do not require arbitration, and that is
not what Comcast's written commitment to the FCC is. The
arbitration provide to which you referred is part of a
condition to the Adelphia merger, which expires in about a year
and a half, and they did not commit to the FCC to the
arbitration regime.
Second, with respect to Hulu--excuse me, with respect to
NBC programming, Hulu has denied access to--NBC and Hulu have
denied access to NBC programming to existing over-the top video
provider Roku. That is not hypothetical. That is a fact. So
there is every reason to expect that the combined entity will
have even greater reason to make that content unavailable to
Internet competitors such as more networks, which is going to
do a virtual cable network online. And they have every reason
to withhold NBC programming from those online-only competitors.
Senator Klobuchar. Okay. Mr. Zucker, just 10 seconds, 20
seconds.
Mr. Zucker. Thank you, Senator Klobuchar. The fact is from
our perspective we license our content online to a multitude of
distributors. They have to qualify in certain areas. They have
to have an economic model that makes sense for us. They have to
technically be able to distribute the content. It has to be in
an environment that we want our content to be in. And they have
to step up and protect our intellectual property. Assuming they
meet all four criteria, we are open to that conversation with
everybody, with anybody, but not everybody is capable of
satisfying all four criteria.
Mr. Roberts. If I may, just to correct the record so there
is no misunderstanding. In response to Ms. Abdoulah, there was
a specific sports network, I believe, in the Midwest that you
were referring to, which is under that Adelphia order, and that
is what she was, I believe--referring to.
Senator Klobuchar. We will try to clarify that afterward
with maybe some letters and responses so we can get it
clarified. Thank you very much, all of you.
Chairman Kohl. Thank you, Senator Klobuchar.
Senator Franken.
Senator Franken. Thank you, Mr. Chairman. Mr. Roberts, last
week you came to my office to talk about the potential merger.
I told you that I was worried that the merger would hurt
consumers, but you assured me that the FCC has regulations
called program carriage rules--these are not the access rules;
these are the program carriage rules--that protect consumers.
You said that those rules will make sure that you always have a
wide variety of programs because they forbid you from
discriminating against other companies' programs.
Now, I have here Comcast's argument from NFL Enterprises v.
Comcast, a 2008 case in front of the FCC, where Comcast argued
that, ``The Commission simply is not equipped or
constitutionally empowered to make an independent assessment of
the myriad, complex, and dynamic considerations that affect
carriage, tiering, and pricing decisions. Thus, the First
Amendment requires that the Commission exercise extreme caution
before interfering with any carriage decision.''
So, in 2008, Comcast argued that the First Amendment
precluded the FCC from enforcing its program carriage rules. In
other words, looking to get approval for this merger, you sat
there in my office and told me to my face that these rules
would protect consumers. But your lawyers had just finished
arguing in front of the Commission that it would be
unconstitutional to apply these rules.
Then, to add insult to injury, I asked you, right after you
made this assertion in my office, whether you were aware that
your company had litigated this, and you said, ``I do not
know.'' And so I said, ``Why don't we ask one of your lawyers?
'' because you had a number of lawyers there. And we turned to
your lawyer, and you lawyer said, ``Yeah, yeah, we did that. We
did this.''
And then you in your written testimony--and this is over a
week ago that you came to my office in your written testimony,
you again assert the same thing twice. ``Moreover, the FCC's
rules governing program access, program carriage, and
retransmission consent provide further safeguards for
consumers. . .'' That is on page 4. Then on page 7, you do it
again. Now, that was your written testimony that was submitted
today. I noticed that today you added something about
voluntarily being subject to the rules because you probably
read Mr. Schwartzman's and Mr. Cooper's testimony which called
you on this. But I have been through this fin-syn thing.
Now, you came into my office--I am a United States Senator
representing the people of Minnesota, people who buy cable,
whose cable bills have gone up at three times the rate of
inflation since 1995. And my job is to protect the interests of
the people of Minnesota.
Now, how are Minnesotans to trust you when you come in and
to my face say something that either you know was not true or
you did not know--and I do not know which is worse. How are the
people of Minnesota supposed to trust you?
Mr. Roberts. Senator, first of all, our company has been
doing business for a long time, and I think our reputation
has----
Senator Franken. Your reputation----
Mr. Roberts. Well, if I may, our reputation and our
practices I think have been at the top of our industry, our
innovation, and what we have achieved. When we met, perhaps I
was confused. I thought we were talking about program access.
Now you are talking about program carriage. I think in both
cases----
Senator Franken. Your lawyer confirmed to me that they have
litigated that, and you know that. You were in the room when
your lawyer confirmed that. Did he not?
Mr. Roberts. We were talking program access. You are
talking about program carriage. I do not think that we are
litigating the program carriage rules. The NFL list brought an
arbitration or a program carriage question and----
Senator Franken. Okay. Whether it was program access or
program carriage, did you not say that this rule protects the
people of Minnesota? And then did I not ask your lawyer, oh,
aren't you saying that it is unconstitutional in court? And
then you said you did not know that, and then you write in your
testimony, your written testimony for today, that these rules
protect us.
Mr. Roberts. Because our intentions, as I told you from the
beginning, were not to change the way we have behaved for the
last 20 years----
Senator Franken. Well, I think Minnesotans have their
answers. Thank you very much.
Let me go to Mr. Zucker. Look, we are friends, and I worked
for a number of years with your wife, Karen, who is lovely, at
``Saturday Night Live,'' and she is a lot of fun and a great
woman. And I loved my time at NBC, and I want you to know that.
But as I said in my opening statement, I remember what happened
in fin-syn, and I think my characterization is pretty accurate,
don't you?
Mr. Zucker. [pause] It is a long time ago, and I think
there are a lot of factors that went into what happened back
then. But----
Senator Franken. Come on.
Mr. Zucker. Well----
Senator Franken. I mean, come on. You guys said, ``We are
in the business of ratings. Why would we favor our own
programming? '' And it was 2 years later that your guys were
saying to your stockholders that, ``We are going to own most of
our own programming.'' And you know that. And you know that to
get a program on your network that you often, very, very often
say, ``Well, we want to be partners in this.''
Mr. Zucker. Well, I can tell you about what is happening
today, and I think that that is probably most relevant here,
and the most relevant fact of that is that NBC has just ordered
20 pilots for new shows next year. As you well know, NBC needs
some better shows, so we have ordered 20 new potential
programs.
Senator Franken. I think what you did was put an NBC
produced show on at 10 o'clock for five nights a week, that's
what I think you did. But let me--what I am saying----
Mr. Zucker. Can I just----
Senator Franken. Since the promises of fin-syn were not
kept, what conditions would you have the Government put on you
to make sure that what happened is fin-syn does not happen
again?
Mr. Zucker. I do not necessarily agree that the promises of
fin-syn were not kept. I think that it is a very complicated--
--
Senator Franken. Can I ask Mr. Cooper then about that?
Mr. Zucker. Well, am I able to answer the question?
Senator Franken. No, because I want to ask Mr. Cooper that,
and then you can answer the question. How is that?
Mr. Cooper. If you go back in the record, you will find the
same kinds of promises about how there would be all this
independent programming, and if you look at the quality of
independent programming that was put on the air during fin-syn,
it was magnificent, and I will submit a report I did for the
Independent Family Television----
Senator Franken. Well, let us just speak to the----
Mr. Cooper. So the simple fact of the matter is that they
said they would use independents. They drove them off the air,
and that is when the quality of programming began to decline.
Senator Franken. Okay. So what----
Mr. Zucker. So what I would say is----
Senator Franken. What restrictions would you have?
Mr. Zucker. Let me make two points.
Senator Franken. Conditions, I mean.
Mr. Zucker. Let me make two points, which is that if you
look at the pilots that we just have ordered for next year, we
have ordered 18 pilots. Seven of those 18 have nothing to do
with NBC or NBC Universal, completely non-affiliated, meaning
39 percent. So 40 percent of all the programs that we are
trying to put on the air for next year have no affiliation, we
have no financial interest whatsoever in those programs.
Senator Franken. So you have 60--you have an interest in 60
percent.
Mr. Zucker. Well, I would argue that 40 percent non-
affiliated is a substantial number, and the fact is the burden
and the risk of the financial burden that is required today,
for us to take on 60 percent is still quite high.
Senator Franken. Well, we are way over time, and I am
sorry. I wanted to get to what conditions you thought we could
put on if this thing went through to make this work, and then I
wanted to ask the others what they thought of that.
Chairman Kohl. Thank you very much, Senator Franken.
Mr. Roberts, in your own FCC filing, you state that the NBC
broadcast network is ``an American icon,'' which, of course, is
very true. And, best of all, of course, it is available
entirely free all across the country. Many are now worried
about what the merger would mean for the future of free, over-
the-air television.
In your FCC merger filing, you have committed to
``continuing to provide free, over-the-air television.'' But
this commitment also states that, ``Comcast will continue its
cooperative dialog with its affiliates toward a business model
to sustain free, over-the-air service that can be workable in
the evolving economic and technological environment.''
We need to know what that means, Mr. Roberts. Do we have
reason to worry that Comcast in the future will move the best
programming ideas to NBC cable networks? And won't Comcast have
an incentive to do this? Because, obviously, it charges its
customers for cable. Over-the-air is free.
Mr. Roberts. Well, first of all, that is not our plan. We
have never been in broadcasting, as you know, and we are
committed--and that was our first commitment--to leaving and
creating a vibrant NBC, trying to restore some of its glory, as
Jeff just said, and get back to better shows. Hopefully some of
those pilots will take off.
We will be hopefully able to help play a constructive role
in retransmission consent, because today free, over-the-air
television, as we know, is not as it was 20 years ago. On New
Year's Eve we saw Time Warner Cable and Fox hold an independent
negotiation between an independent broadcaster and an
independent cable distributor over retransmission fees. There
is a change in the marketplace happening where cash payments
are occurring for broadcast television to the broadcasters,
which is, I am sure, quite welcome by the broadcasters.
So we are committed to working with the NBC affiliates,
trying to invest in the programming, and trying to build NBC,
because the advertising model of NBC is so much different than
the advertising model of a cable channel. And there is a great
suite of cable channels that NBC has, but NBC itself is a huge
priority both for local programming and for network programming
to improve. And if I might, Mr. Zucker is more of an expert on
it than I am, and he is already well equipped with knowledge of
how retransmission consent is going. But by being both a cable
company and a broadcaster, we think we can play a unique role
in--even though there will be plenty of independent
negotiations that we are not involved in,--trying to find
constructive models to help the broadcast business thrive in
the future.
Mr. Zucker. If I may, Senator, I would say a couple things
in response to your question, and then I would like to follow
up on what Mr. Roberts said.
The fact is the commitment to free, over-the-air
broadcasting here is incredibly important, and maintaining that
I think is probably the most exciting thing that Comcast has
come to this joint venture with.
The reach that NBC has, our ability to sell advertising on
NBC as opposed to what we bring in on the cable networks, the
fact that we do not only determine whether or not sports rights
will be on NBC, but that is decided by leagues that give us the
rights and things like that, I think this should give you and
the Committee confidence that we want NBC to be strong and
vibrant. Ten million people a night watch Brian Williams on
``NBC Nightly News.'' Six million people a morning watch the
``Today'' show and get their news from that.
The reach of these incredibly important programs is
something that we are incredibly proud of and that we will
continue.
With regard to broadcasting, I tried to make this point in
my remarks earlier. Broadcasting has been troubled. The
economics of broadcasting are not as good as the cable side.
That is what we are talking about. But the fact that Mr.
Roberts and Comcast have said that they are willing to step up
and play a constructive role in the retransmission consent
negotiations gives me more hope about the future of NBC than I
have had in a long time. And I actually feel better about the
future of broadcasting today.
Chairman Kohl. I just want to ask you this question,
though. There is no doubt that you offer compelling must-have
programming on NBC, as we know. What is to stop Comcast, in any
legal way what is to stop them if this merger is completed from
moving NBC broadcast content to cable? Is there anything in
this deal that is going down that legally will prevent Comcast
from taking any and every show or whatever they decide from NBC
to cable?
Mr. Zucker. But that would not be in their interest. There
is nothing legally. Yes, I understand.
Chairman Kohl. I understand that. But is there anything
that would prevent that legally from happening? The answer is
clearly no.
Mr. Zucker. Legally, I do not believe--legally, no, sir.
Chairman Kohl. I want to hear that from you, that if it
makes economic sense at some point--which you say it never
will, but if it does, there is nothing that would prevent
Comcast from moving whatever they wish from NBC to cable,
legally nothing to prevent them. Correct?
Mr. Roberts. I think we have made a commitment; however,
Senator, I guess there is always an extreme that you could say
that something is theoretically possible someday. But I will
tell you the commitment we intend to make binding with the FCC
is our commitment to a robust NBC network similar to the kind
of programming that it has today, free, over-the-air, and with
a strong affiliate model. I am not quite sure how much you can
do because certain rights holders decide where they want to put
their programming and other things like that. But our goal, I
believe our commitment and our actions are to restore NBC, and
to invest in NBC. And that is the constructive dialog we are
actually having with the NBC affiliates,--which is how to get
that moving in the right direction.
Chairman Kohl. Good. Thank you so much.
Yes, Ms. Abdoulah.
Ms. Abdoulah. I was not going to bring up retrans, but
since it has come to the forefront, I would like to just ask
about that or comment about it. When I hear Comcast is going to
play a constructive role, I mean, I do not know how we can make
that retrans process constructive other than redoing it. In the
1992 act, when retrans was formed, I was in the business. I
know why it happened. We had a lot of clout as cable operators,
and the small broadcasters needed some protection. It made some
sense.
What has happened since then is the whole balance of power
has gone totally upside down, and now these networks can come
in and now negotiate retrans with us. As a matter of fact, in
the past 2 years--or in the last cycle of negotiations, WOW!'s
retrans costs increased over 100 percent because these
broadcasters can come in and demand not only carriage, if they
went with ``must carry,'' but demand prices that nobody has any
control over and very few of us have any leverage on.
So retrans is a huge issue and needs to be reviewed and
revised.
Chairman Kohl. Yes, Mr. Schwartzman.
Mr. Schwartzman. Senator, I want to make sure everybody
understands what Mr. Roberts was saying. By playing a
constructive role in retransmission consent, he means paying
more for NBC programming. The industry standard are MFN
agreements by which other network affiliates can charge the
same rates. That gets passed on to Comcast and to every other
cable operator in the country. In short, Mr. Roberts just
promised to raise everybody's cable rates.
Chairman Kohl. Oh, my goodness. Mr. Roberts, did you do
that?
[Laughter.]
Mr. Roberts. No, I did not, Senator, and I believe that in
light of some of the issues that Ms. Abdoulah raised, I just
want to put things back in perspective for Mr. Schwartzman and
others. We are still 80 percent a cable company after this
transaction, and we have some of the same issues and same
concerns. But we also now recognize that there are broadcast
needs and cable needs. Congress, I believe, at some point, or
others at the FCC will want to have discussions that affect the
entire industry--both industries--and we can be a voice among
many other voices to try to forge creative solutions. I was not
referring to what he said.
Ms. Abdoulah. Good.
Mr. Roberts. Thank you.
Chairman Kohl. Before I pass it on to Senator Specter, I
assume what you are saying is that programs like ``NBC News,''
the Olympics, ``Sunday Night Football,'' ``The Tonight Show,''
and ``The Office,'' for example, these things are going to stay
on NBC.
Mr. Roberts. Yes.
Chairman Kohl. They are not going to be cable-ized.
Mr. Roberts. That is certainly my hope--absolutely.
Chairman Kohl. Well, hope is----
Mr. Roberts. Absolutely yes.
Chairman Kohl. Yes.
Mr. Roberts. And the only one that is up to somebody other
than NBC would be NFL Football. They control those rights, not
NBC. But ``The Office'' and ``Saturday Night Live'' are--
certainly that is the intention, and, Jeff, you can speak for
yourself.
Chairman Kohl. Jeff, is that right?
Mr. Zucker. Yes, sir.
Chairman Kohl. Good. Senator Specter.
Senator Specter. Mr. Roberts, when you were testifying
earlier, you were trying to make a distinction between program
access and program carriage, which you did not get a chance to
conclude. What point were you trying to make on that?
Mr. Roberts. Thank you. After the deal, six out of seven
channels that Comcast carries--I am talking program carriage--
are unaffiliated.
The second point is that there are choices customers now
have that were not around 20 years ago or even 10 years ago. So
if we do not carry popular shows, such as the NFL Network,
customers can choose to go somewhere else where they can get
that programming.
The third point is that regarding the cost of these
channels, it is not just carriage the way it is with free
broadcasting. As I mentioned, we spend about $6 billion a year.
When a new network comes to us and says, ``I want to be
carried,'' the reason there is tension at all is, one, do we
have the bandwidth; but, two, and usually the significant
tension is what is the cost to our consumers. Ultimately we are
purchasing on their behalf and putting it in one of the many
packages that we offer.
So you factor in what is our competitors' behavior--
satellite, phone company; what is the cost to the consumer;
what is the quality of that programming; that in the end, 85
percent of the programming is owned by others; and we have got
to be competitive, or else the customer is going to switch
carriers.
Senator Specter. When Senator Franken was questioning you,
there appeared to be substantial differences as to what had
occurred during the course of the discussions you had with him
in his office. Would you care to amplify what happened there
and why you are saying that you were providing information
which was entirely accurate and trustworthy?
Mr. Roberts. Yes. Well, first of all, it is the first time
we have ever had a chance to meet in his office describing the
deal. There is a couple-year-old appeal of whether the sunset
rule should go away on program access. I did not remember that.
To his point, it is an argument and fair question, as far as I
am concerned, as to whether we would have these rules apply to
us.
The genuine intention from the day we have done this deal
was to say we are comfortable with the rules we have lived with
for the last 20 years. Commenting on whether they should be
upheld by the courts or not for constitutional reasons was
never our intention--and they have not been stricken by the
courts. There have been many legal challenges over those 20
years as the market continues to evolve. And the market will
continue to evolve in the future. There are rights as a speaker
that--whether they are constitutional or not--lawyers love to
challenge all the time, and I think that is legitimate as well.
But from where I sit as a business person, our reason for
wanting to buy NBC Universal is to invest in content, grow the
business, preserve free broadcast television over the air, and
to build a wonderful content company for the 21st century that
will dynamically change Comcast from just a distributor. And we
are very comfortable, and that is why today I wanted to clarify
that, both in the written record and in this back-and-forth
here.
Senator Specter. These hearings do not allow the kind of
full exchange necessary to really get to the bottom of things.
There are time limits and complex questions and, necessarily,
interruptions to try to move through in a hurried way. And I
discussed with Senator Franken, when we went to vote--Senator
Franken, if I may have your attention. I was just saying that
you and I had a brief discussion when we went to vote about
sitting down in a more elongated discussion to have an exchange
which is not limited in time to get a fuller understanding
exactly where you stand and exactly what Senator Franken's
concerns are. He is in a lot different position, having been an
entertainer and on the TV shows. The best Senator Kohl and I do
is C-SPAN2.
[Laughter.]
Senator Specter. So we are not in Senator Franken's league.
I had a little trouble following some of it myself, and he did
not get a chance to finish his questioning of you because the
time is limited. But we do the best we can of making a public
record here, and these hearings go on all the time. Do you want
to--I just want to say I welcome that. I also understand the--I
was never involved in fin-syn. Comcast was not a producer of
broadcast shows, and I do not know what those commitments were.
Senator Specter. Senator Franken is nodding in the
affirmative. He agrees with you about something.
Mr. Roberts. Thank you, Senator Specter.
Senator Specter. You have heard, Mr. Roberts, quite a
number of concerns expressed by Mr. Schwartzman, Dr. Cooper,
and Ms. Abdoulah. On my time, would you care to identify any of
them and respond at this moment?
Mr. Roberts. Well, I think we have had, you know, a healthy
exchange and perhaps disagreement of whether this is really a
vertical integration; whether the cable industry over the last
30 years has added great technological innovation; how
competitive the industry has become; and where we might be
headed in the future. In my opinion, companies need to take
risks, make investments, and try to innovate. And what I see
happening is an explosion of technological choices to the
consumer and the wonderful content at NBC Universal. We want to
try to accelerate how to make it more available, and our goal
is to stimulate the technology that our company has
traditionally built.
When we first went to 20 channels, people said, ``Why do
you need 20 channels? '' When we went to 100 channels, people
said, ``Why do you need 100? '' The first time we launched On
Demand, we could not get movies. The main complaint, as you and
I have talked in the past, that people have with our On Demand
is how can we get more movies. Well, NBC Universal has 4,000
movies in their library.
So we will do our very best to push the technology and the
content to try to give the consumer that which we know they
want, in a business model that can work for all parties, and at
the same time change our company, as companies need to evolve.
Senator Specter. Mr. Zucker, I will come to you in just a
moment, in less than a moment.
Well, I think that is important reassurance. My television
watching is limited, but Turner Classic Movies is one of my
favorites. In fact, it is my favorite, aside from sports, on TV
and they are the old movies. And Comcast movies on demand could
use improvement.
[Laughter.]
Senator Specter. You could use a----
Mr. Roberts. Yes, sir.
Senator Specter. Now, Mr. Zucker, you may comment, and, Ms.
Abdoulah, you had your hand up, you may comment on your own
time because my red light is on.
Mr. Zucker. If I may, I just wanted to make one comment,
which is that there was a comment made earlier in the opening
remarks that this was the biggest or most important media
merger since Lucy and Desi. And I would just argue that I long
for those days, and I wish these were the times of Lucy and
Desi. But the fact is we are in an incredibly different era,
and competition is much greater, the cost of programming is so
much higher, and if NBC and broadcasting is going to survive,
then we are going to have these honest discussions about how
that will happen. And I think that one of the great things here
is Comcast's actual real commitment to ensuring that NBC and
broadcasting survive. And it is a very different era than Lucy
and Desi.
Ms. Abdoulah. Two quick things, if I may.
Mr. Roberts is right. As operators, when we are considering
what programming to carry, we do think about what is the cost
to the customer. Unfortunately, it not market-based pricing.
Unfortunately, the customer does not get to know what it is
costing to deliver them this product because we are not allowed
to talk about price. We are restricted from talking about price
to our consumers or to each other. The only reason I know we
pay more is because I have been on the large company side, so I
know that we pay at least 25 to 30 percent more than our
competitor does. And I just do not understand how that is good
for consumers.
I also do not understand, if the billions that are being
spent in programming--which I respect and appreciate. The fact
of the matter is a product is produced for a certain fixed
cost, and then those costs are incurred by the operators. I do
not understand why we as a smaller operator pay much more for
that product--it is a fixed cost--than the larger operator
does. It is very difficult to compete without that kind of
transparency, without that kind of market-rationalized pricing,
and it is wrong for consumers. They do not have the choice
because we are told how to deliver the product. We are not able
to deliver it in the way the customers have asked us to deliver
it.
Specifically, sports, if people want to just watch sports
and pay more for it, we would love to put that on a tier. We
are not allowed to do that.
Family entertainment, if they just want a tier of family
product entertainment, we are not allowed to tier that.
If we want to put it on digital instead of expanded basic,
we are not allowed to do that. We are told by the programmer
how we are to distribute that product.
That is not choice for the consumer.
Mr. Cooper. I would offer two revolutionary business model
innovations, one extending Ms. Abdoulah's suggestion. If we
want to talk about consumer choice, let us give them real
choice. Let us give them a la carte choice. Instead of making
them buy tiers, let us let them choose each channel they want
to pay for. That would be a revolution.
The second revolution, let us sell TV to everybody. There
are no franchised service territories in cyberspace. There are
no building requirements in cyberspace. It is easy to sell TV
to everybody. So let us let everybody sell TV to everybody
else, instead of dividing the market as TV and everywhere does.
Those would be revolutionary, innovative business models
which would shake this industry up something fierce compared to
the modest rivalry you have today.
Senator Specter. Thank you, Mr. Chairman.
Chairman Kohl. Senator Franken.
Senator Franken. Thank you, Mr. Chairman.
I would be happy to meet with you and Senator Specter, Mr.
Roberts. We might include maybe Mr. Cooper in that
conversation.
Mr. Cooper, Mr. Roberts was talking about the reputation of
Comcast. You in your testimony said that Comcast is on record
lying to a Federal agency regarding whether they blocked
Internet users' access to competing application for
anticompetitive purposes. I assume you are referring to
Comcast's testimony about blocking BitTorrent, a peer-to-peer
file sharing application. Is that right?
Mr. Cooper. Yes, I think one of the incidents that Mr.
Roberts does not point to in defense of his honor is this
question of, Were they blocking? Well, they were not. Then they
said they were. What were they doing?
In the end, they were interfering with the flow of video
traffic, and they were not forthcoming about what happened.
Obviously, that is another one of these court cases they are
involved in, in which they----
Senator Franken. Well, let us talk about these cases, and I
do, Jeff, want to get back to the last question I asked you.
But trying to resolve these things before the FCC, carriage
complaints and access complaints, these are incredibly--it is
like impossible, right? And the burden--do you want to go to
this, Mr. Schwartzman?
Mr. Schwartzman. Yes. A promise to abide by the existing
rules is a meaningless promise. I looked, and I may have missed
something, but I am unaware of the FCC ever ruling in favor of
a complainant in a program access case.
As Ms. Abdoulah explained, in order to pursue one of these
complaints, you need information that you do not have, and if
you cannot provide the information, you do not meet the very
high initial burden that the FCC places on pursuing a
complaint. The burden is on the complainants to provide
information they do not have and cannot obtain. It is a right
without a remedy.
Senator Franken. And there is only one administrative law
judge at the FCC now. Is that right?
Mr. Schwartzman. That is correct.
Senator Franken. Okay. Look, I have had this history where
I have seen NBC and I have seen other networks promise
something and then do the 180-degree turn on it. There is no
question about that. People in my industry--or my former
industry--they know that. You came into my office, and you did
tell me something that--and I asked you a question, and you did
not know, and your lawyers confirmed that you had gone after
the very rules that you said that would protect the consumer.
That happened. It did.
Now I will go to Jeff. Given that it is really hard to
trust you guys, from my point of view, and given that resolving
these matters is so one-sided in favor of the big guy, and this
merger makes you so big, what kind of commitments do you think
you should be held to that can be made that would make it
feasible for anyone looking at this objectively to feel good
about it?
Mr. Zucker. I think you should hold us to the 17
commitments that we have made in our FCC filing that we have
said we will abide by as a condition of this deal.
Senator Franken. Okay. Mr. Cooper, do you think that that
is sufficient? You have read those, have you?
Mr. Cooper. Well, they do not address the competitive
problems, but I want to go to the enforcement question. He
makes the commitment to you. You cannot do anything to him when
he violates it. You have to find an agent to enforce that.
Senator Franken. I could call him back here.
Mr. Cooper. You could call him back here and give him a
hard time, but----
Senator Franken. That is about it, right?
Mr. Cooper. The FCC cannot do it. The DOJ does not like to
do it. So the real answer is: Do not let the market power be
created if you cannot really enforce and police the
commitments. And you cannot.
Senator Franken. Now, let me ask you about this. This is a
big issue about the cost to the consumer, your cable bill, and
it has gone up about three times the rate of inflation, I
think, over the last--since 1995. And this idea of--this is
about access, program access rules. So now you have to--NBC and
Comcast, by the rules, have to provide its programming to other
cable carriers--all right?--and it has to charge them what they
are charged, what NBCU is charged for the program, for the
network, for NBC or CNBC or A&E, Bravo, whatever.
Did you, Mr. Cooper or Mr. Schwartzman, buy what Mr.
Roberts said about them not being able to charge more and take
it from one pocket into another pocket? Did you buy that at
all, especially the part about now that they are together, they
are even in less position to do it, because NBC now can charge
whatever it wants to charge, but they would not be able to
together, I mean, that actually by combining they would be less
able to do this?
Mr. Cooper. Well, three-quarters of the pockets are not one
pocket to the other. It is reaching into the consumer's pocket
who is served by another cable operator. They increase their
profit by raising the transmission----
Senator Franken. I understand that, but what I am saying is
that if they double what NBC costs to carry, they can charge
themselves double, but it is going from one pocket to the
other, but that means every other cable carrier is charged
double for that, and their cable rates go up.
Mr. Cooper. Absolutely.
Senator Franken. And the answer to that from Mr. Roberts
was that he is actually in a worse position to do that. Does
that hold water?
Mr. Cooper. It does not hold water. His prices have gone
up. His profit margins on cable have gone up. And he has more
than covered any increase in costs, so he can pass them
through, and he ends up with more profit in his pocket when
retrans----
Senator Franken. We are talking about charging extra for
NBC or charging extra for----
Mr. Cooper. Extra for NBC or bigger bundles and charging
Ms. Abdoulah higher prices.
Senator Franken. And Jeff is really raising his hand, and I
should recognize him. But then I want to go back to Mr.
Schwartzman to answer that as well.
Mr. Zucker. Thank you, Senator. I think you have to take a
step back and realize the real world that we live in. I want my
programming to be carried by every distributor, and if the
price is too artificially high, that is not going to happen. So
the real world that we live in, if the 3 distributors do not
want to--if the price is too high, they are not going to carry
out networks and our programs, and that is not--that is not in
our interest.
Senator Franken. If a cable company wants to carry
``Saturday Night Live,'' and they cannot, they are not--no one
is going to use that cable company. They have to--they have to
get NBC. It would be death to any cable company. So you can--
maybe you are not going to charge them ten times as much, but
you can charge them twice as much.
Mr. Schwartzman. Well, my time is up, so I am sorry.
Chairman Kohl. Mr. Schwartzman can answer the question, and
then we will----
Senator Franken. Okay.
Mr. Schwartzman. Thank you, Mr. Chairman. This may be a
first in the history of the Senate, but I do not have anything
to add.
Ms. Abdoulah. Could I take your time? I just want to
acknowledge, video subscription revenue, our revenues on video
have risen 35 percent. However, our programming costs have
increased by 81 percent. We pay--it is very hard for us to
compete for customers with a large competitor like Comcast who
enjoys lower rates, lower costs than we do. They have
promotions, for example, for digital cable, $30 a month. Our
costs on that are close to $27, so we cannot do the same kind
of offers.
Chairman Kohl. I have one question for you, Mr. Roberts,
and then we will end the hearing. One bright spot for
competition has been the development of the Internet as an
alternative for consumers to view video content. Because of the
rapid deployment of high-speed Internet connections, millions
of consumers now access TV programming from websites such as
Hulu or Apple TV without paying the cable or satellite
companies anything. Some consumers have even cut the cord and
rely solely on the Internet to watch programming. Competition
in this area is an encouraging development.
However, we have recently heard from some programmers who
allege that cable TV companies are demanding that the
programmer refuse to make its programming available over the
Internet as a condition to getting carried on cable TV. This
applies to archives of old programming in addition to current
content. And programmers are in no position but to accede to
such a condition in order to reach the tens of millions of
cable subscribers.
Does Comcast demand that programmers keep their content off
non-Comcast Internet websites in order to be carried on Comcast
in some circumstances? And will you pledge not to do so?
Mr. Roberts. I will tell you that what we have done and
what I will pledge to do for sure and continue to do is to
license content. We never say to anyone you cannot sell that
content to anyone else. We have windows where there are certain
times where that content may be just advertising supported.
There are times when it is subscription. There are times when
it is pay-per-view. So different types of content have
different windows. That has been true for Hollywood movies,
right to the cable channels that we carry today. So if you are
taking a channel in its entirety and you are paying hundreds of
millions of dollars a year to carry that channel--they are free
to sell it to anybody they want to in the same manner that they
sell it to us, or any other terms--to my knowledge we have
never said they cannot sell it to some other area of
distribution. Sometimes they may create a new window, and there
is a discussion of how long that window is until they want to
change the model from a subscription model to an advertising-
supported model. There are sometimes models windows ahead of
us, which are the pay-per-view model.
We believe this is a burgeoning area, and we should all be
trying to find a way to get this content in front of the
consumer. We have a vision called Project Infinity that is
literally any content you want, at any time you want, on any
device you want. We leave it to the content company to
establish the practices of whether that is pay, subscription,
advertising-supported, or part of some other bundle. And our
technology vision is how to make that happen faster and have
unlimited access for the consumer to that amount of content.
Chairman Kohl. Good. Well, this will bring the hearing to a
close. It has been very informative and we think very important
for the Justice Department and the FCC to examine this issue
very carefully, take into consideration the things that have
been brought out in these hearings, and maybe perhaps if it
decides to allow it, to establish what conditions to put on the
deal. I do not know how it will develop, but that certainly is
a possibility.
Thank you all for being here, and I particularly thank the
witnesses.
[Whereupon, at 5:04 p.m., the Subcommittee was adjourned.]
[Questions and answers and submissions for the record
follow.]
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