[Senate Hearing 112-856]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-856

                          THE CABLE ACT AT 20

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 24, 2012

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation









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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri           ROY BLUNT, Missouri
AMY KLOBUCHAR, Minnesota             JOHN BOOZMAN, Arkansas
TOM UDALL, New Mexico                PATRICK J. TOOMEY, Pennsylvania
MARK WARNER, Virginia                MARCO RUBIO, Florida
MARK BEGICH, Alaska                  KELLY AYOTTE, New Hampshire
                                     DEAN HELLER, Nevada
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
             Richard M. Russell, Republican Staff Director
            David Quinalty, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 24, 2012....................................     1
Statement of Senator Rockefeller.................................     1
Statement of Senator DeMint......................................     2
Statement of Senator Kerry.......................................     4
Statement of Senator Hutchison...................................     7
Statement of Senator Isakson.....................................    53
Statement of Senator Pryor.......................................    55
Statement of Senator Thune.......................................    57
Statement of Senator Udall.......................................    59

                               Witnesses

Hon. Gordon H. Smith, President and Chief Executive Officer, 
  National Association of Broadcasters...........................     7
    Prepared statement...........................................     9
Melinda Witmer, Executive Vice President and Chief Video and 
  Content Officer, Time Warner Cable.............................    12
    Prepared statement...........................................    13
Martin D. Franks, Executive Vice President of Planning, Policy 
  and Government Affairs, CBS Corporation........................    25
    Prepared statement...........................................    26
Colleen Abdoulah, Chairwoman and Chief Executive Officer, WOW! 
  Internet, Cable, and Phone; Chairwoman, American Cable 
  Association....................................................    28
    Prepared statement...........................................    29
Dr. Mark Cooper, Director of Research, Consumer Federation of 
  America........................................................    33
    Prepared statement...........................................    34
Preston Padden, Senior Fellow, Silicon Flatirons Center, Colorado 
  Law, University of Colorado....................................    46
    Prepared statement...........................................    47

                                Appendix

Hon. Daniel K. Inouye, U.S. Senator from Hawaii, prepared 
  statement......................................................    65
Letter dated July 20, 2012 to Senator John D. Rockefeller IV and 
  Senator Kay Bailey Hutchison from David Boylan, Chair, ABC 
  Television Affiliates Association..............................    65
Letter dated July 20, 2012 to Hon. Daniel K. Inouye from Jamie 
  Hartnett, Executive Director, Hawaii Association of 
  Broadcasters, Inc..............................................    67
Letter dated July 23, 2012 to Hon. John D. Rockefeller IV from 
  Paul A. FitzPatrick, President and CEO, RLTV...................    67
Letter dated July 24, 2012 to Hon. John D. Rockefeller IV from 
  Annette Garcia, President, Son Broadcasting--KCHF TV 11........    68
Benjamin Orr White, Private Citizen, State of Hawaii, testimony..    69
Response to written questions submitted to Hon. Gordon H. Smith 
  by:
    Hon. Daniel K. Inouye........................................    84
    Hon. Barbara Boxer...........................................    84
    Hon. Frank R. Lautenberg.....................................    87
    Hon. Mark Warner.............................................    88
    Hon. Olympia J. Snowe........................................    92
    Hon. Jim DeMint..............................................   101
    Hon. Kelly Ayotte............................................   103
Response to written questions submitted to Melinda Witmer by:
    Hon. Daniel K. Inouye........................................   105
    Hon. Barbara Boxer...........................................   105
    Hon. Frank R. Lautenberg.....................................   107
    Hon. Mark Warner.............................................   108
    Hon. Olympia J. Snowe........................................   110
    Hon. Jim DeMint..............................................   115
    Hon. Kelly Ayotte............................................   116
Response to written questions submitted to Martin Franks by:
    Hon. Daniel K. Inouye........................................   116
    Hon. Barbara Boxer...........................................   117
    Hon. Frank R. Lautenberg.....................................   118
    Hon. Mark Warner.............................................   119
    Hon. Olympia J. Snowe........................................   121
    Hon. Jim DeMint..............................................   126
    Hon. Kelly Ayotte............................................   127
Response to written questions submitted to Colleen Abdoulah by:
    Hon. Daniel K. Inouye........................................   129
    Hon. Barbara Boxer...........................................   129
    Hon. Frank R. Lautenberg.....................................   130
    Hon. Mark Warner.............................................   131
    Hon. Olympia J. Snowe........................................   132
    Hon. Jim DeMint..............................................   136
    Hon. Kelly Ayotte............................................   137
Response to written questions submitted to Dr. Mark Cooper by:
    Hon. Daniel K. Inouye........................................   137
    Hon. Frank R. Lautenberg.....................................   137
    Hon. Mark Warner.............................................   138
    Hon. Olympia J. Snowe........................................   138
    Hon. Jim DeMint..............................................   141
    Hon. Kelly Ayotte............................................   141
Responses to written question submitted to Preston Padden by:
    Hon. Daniel K. Inouye........................................   141
    Hon. Frank R. Lautenberg.....................................   142
    Hon. Mark Warner.............................................   142
    Hon. Kay Bailey Hutchison....................................   143
    Hon. Jim DeMint..............................................   147
    Hon. Kelly Ayotte............................................   148

 
                          THE CABLE ACT AT 20

                              ----------                              


                         TUESDAY, JULY 24, 2012

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:35 p.m. in Room 
SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Committee, presiding.

       OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    The Chairman. The hearing will come to order.
    I thank our witnesses for being here, for coming whatever 
distances you have come, and even if they are short, we are 
still glad you are here.
    Two decades ago we passed the Cable Act to promote 
competition and to provide consumers with expanded choices at 
lower rates. Today many consumers have a choice of video 
providers, cable, satellite, and phone companies. Hundreds of 
channels have been created catering to almost every interest 
imaginable. Most people do not watch most of them. The Internet 
now allows us to watch video on not just our televisions but 
also our computers, our tablets, and our phones.
    I know that many in the industry will argue that the Cable 
Act achieved its goals. I will not go along with that argument. 
I highly doubt that many consumers would agree. They feel that 
they have to pay too much and they have very little choice in 
picking the content that they desire to receive or can receive.
    As this committee continues its discussion about the future 
of the video, we must take a hard look at the Cable Act's 
impact on modern television and the marketplace. I understand 
that some want to make this hearing about retransmission 
consent, and I agree that millions of Americans who are 
currently victims of a number of high-profile, ongoing 
programming disputes deserve answers as to why their screens 
have gone dark. That has happened in West Virginia. Overheated 
rhetoric alleging greed and bad faith is of little comfort to 
somebody paying for services that they are not getting.
    That is what the health insurance industry did to us, and 
we stopped it. They cannot do that anymore. They are very 
unhappy about it and they have actually had to return $4 
billion of rebates because we passed a law which the Supreme 
Court upheld. So $4 billion. I am getting phone calls from 
people who have gotten checks in the mail because their health 
insurance company obviously was going to continue to try and 
only look at the bottom line, forget the consumer until the law 
passed. Now the law has passed and now they know they are going 
to get caught because they are being watched. And $4 billion in 
a year back to consumers, that is pretty good.
    It was certainly of no comfort to the tens of thousands of 
West Virginians who needed access to news, weather, and 
emergency information as they were recovering from a natural 
disaster earlier this month, actually about the largest one, I 
guess, in the history of the state. When consumers lose 
channels in these corporate disputes, they should get a refund, 
I believe. I think you do not believe that. I do and I think it 
is only fair.
    But retransmission consent is just part of a puzzle. 
Although consumers often have the choice of video providers, 
rates continue to go up faster than the rate of inflation, year 
in and year out and year forever. They are tired of it. I am 
tired of it. And rather than being able to pick smaller 
packages or choose the channels they want, consumers are still 
forced to purchase larger and larger packages of channels no 
matter how few they actually watch.
    This says to me that the market is not working. Real 
competition should be bringing rates down. It is my general 
impression that those I look at at the witness table, minus one 
or two, that your profit margins are very, very high, maybe 30 
to 40 percent per year, and the question that I would pose to 
you is that for you this hearing is about how can we make this 
work for corporate America in the world of television, et 
cetera. My point of this hearing and my point in chairing this 
committee is how can we do a better job of protecting 
consumers. How can we do a better job of protecting consumers 
to make sure they get what they want, that they do not have to 
pay more than they should for it, that the companies involved 
are thinking about consumers? First, companies always say that, 
but rarely do that.
    Real competition, as I said, should be driving rates down, 
and it should be driving development. It should be bringing 
consumers more choices, and it should be spurring new, 
innovative products.
    Today I want to take a close look at several core questions 
about the Cable Act. Why has competition not succeeded in 
bringing rates down and more programming choices and more 
selection within those choices? Should the protections in the 
Cable Act for various entities be maintained? How do we make 
sure that consumers are protected and see real benefits as 
video moves to the Internet, where people are increasingly 
watching?
    To our witnesses, again I say thank you for being here. I 
look forward to your thoughts on these questions, and thank you 
for joining us.
    And now Senator DeMint, to be followed by Senator Kerry.

                 STATEMENT OF HON. JIM DeMINT, 
                U.S. SENATOR FROM SOUTH CAROLINA

    Senator DeMint. Thank you, Mr. Chairman, for holding this 
important hearing and for your continued interest in the video 
market.
    The communications sector, particularly video distribution, 
is one of the most dynamic, innovative, and competitive in our 
consumer economy, as shown by the FCC's long overdue video 
competition report released last Friday.
    It is important for us, Mr. Chairman, to remind ourselves 
of what is the role of government as it comes to this industry 
and others. It is not our role to manage or to control any 
business or industry in this country. In fact, our role is more 
of providing a good legal and regulatory structure for 
competition to flourish. When that competition is not there, 
the government does have to play a role, a surrogate role, to 
protect the consumers, but hopefully we know, as we look out 
across the free enterprise system in this country today, that 
the best protection for consumers is competition and choice.
    The law at issue today, the 1992 Cable Act, did not 
contemplate the dynamic market we now have, but rather simply 
answered problems in a snapshot of the market as it was 20 
years ago. I think today's competitive offerings from satellite 
to telephone companies, rapidly expanding online video 
services, and more than 500 non-broadcast networks that are now 
clearly available were not available in 1992.
    Last year I introduced the Next Generation Television 
Marketplace Act to begin withdrawing government meddling from 
the video industry. There are two primary government 
interventions in the video market which my bill repeals: 
compulsory copyright licenses and retransmission consent. As 
the Committee educates itself and moves toward action on these 
issues, I want to make clear that the repeal of both of these 
government interventions must occur in tandem if we are to make 
lasting progress. Broadcasting is a wonderful technology and 
industry. I believe there is tremendous consumer interest and 
benefit in locally oriented programming, and I believe there is 
tremendous value which locally produced broadcast programming 
brings to the market.
    I do not believe, however, that local broadcasters need 
government intervention to be viable. It is actually the very 
competition we have today among many competing video 
distribution services that favors broadcasters. To the extent 
broadcast programming is compelling and marketable to viewers, 
pay-TV providers have an interest in acquiring the rights to 
carry that programming on their subscription services.
    It is this competitive dynamic among pay-TV providers which 
did not exist in 1992 that today makes government protection of 
the broadcasting industry unnecessary. That dynamic would not 
change because of my legislation. In fact, it seems that a 
right grounded in constitutional copyright is preferable to a 
manufactured right, retransmission consent, which will 
constantly be threatened by industry lobbyists, FCC 
bureaucrats, and meddling politicians. I believe my bill 
removes government intervention, thereby allowing unencumbered 
private parties to negotiate contracts based on private 
property rights.
    It is time to recognize that retransmission consent 
negotiations are not actually free market negotiations. They 
are more accurately an inefficient proxy for free market 
carriage negotiations based on copyright licensing like those 
for more than the 500 non-broadcast networks which get carried 
in the market today. Unfortunately, a copyright-based 
negotiation for broadcast programming was prevented by Congress 
with the passage of the compulsory licensing for cable and 
satellite providers beginning in 1976. They also are affected 
by punitive measures which limit the rights of consumers and 
pay-TV providers, including the mandate on cable companies to 
place broadcast channels on their basic service tiers and the 
mandate on consumers to purchase those basic tiers. That 
answers one of the chairman's questions, why do consumers have 
to buy things they do not want. Part of it is we require them 
to.
    Make no mistake. Retransmission consent was and is a 
construct of lobbyists and politicians. It is not the model 
that would have developed in a free market, and it is not a 
model rooted in constitutional property rights. It was a right 
created out of whole cloth to combat a cable monopoly and make 
up for an earlier government imposition, the compulsory 
copyright license. Today the cable monopoly is gone with two 
nationwide satellite services, widely available competitive 
video services from traditional telephone providers, and online 
video distributors available to any home with broadband. In 
short, the 1992 Act is obsolete.
    Also, the existence and widespread copyright-based carriage 
of more than 500 non-broadcast networks is proof that video 
compulsory licensing is likewise no longer needed.
    Cable and satellite companies have, unfortunately, long 
sought remedies which invite further government involvement in 
the marketplace, but these suggested fixes would only add to 
the existing framework of mandates and restrictions when what 
we need is a simpler rulebook for all market participants. We 
should work together in this committee to encourage more 
innovation, new competition, job creation, and consumer freedom 
and remove rules written to serve the last century's business 
and regulatory models.
    The next generation television marketplace does just that.
    Mr. Chairman, our nation's laws regarding the video 
marketplace include mandates on individual consumers and 
businesses, they violate the property rights of content 
creators, and they treat similar services differently. I 
believe we should be creating a deregulatory parity in the 
video market so investment and innovation, not lawyers and 
lobbyists, is rewarded in a free economy to the ultimate 
benefit of consumers.
    I want to again express my sincere interest in working 
together with you, Mr. Chairman, to seek ways to improve our 
laws and regulations to better serve competition, innovation, 
the national economy, and most importantly, American consumers.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator DeMint.
    The Subcommittee Chairman, Senator Kerry?

               STATEMENT OF HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. Thanks very much, Mr. Chairman. I appreciate 
it, and I appreciated listening just now to Senator DeMint's, 
future Ranking Member's, comments as we sort of examine this.
    The Cable Act at 20. It is interesting to analyze it and 
look at it. I think most people would agree that it kind of 
brought us what we wanted, which was pretty broad-based 
competition. And I think that is one of the things we are going 
to need to analyze, Mr. Chairman, to what degree did we really 
create a playing field with a lot of competition in it.
    It is good to have Senator Smith back. Mr. Smith is back in 
Washington, and I appreciate your being here. I would be very 
interested in your comments after this hearing of what it is 
like to be on the other side of the table and what your 
reactions are.
    But as I listened to Senator DeMint, boy, there is a real 
divide here which is going to be interesting to see how we 
manage it because Senator DeMint would repeal the 
retransmission consent and must-carry systems, along with a 
number of other things, repeal the statutory copyright license, 
repeal the broadcast television basic tier rules, the buy-
through prohibition, and the existing media ownership rules. 
That is a mouthful.
    And in the end, what we are going to need to look at, Mr. 
Chairman, is what is the impact of that, because as I read it, 
it would essentially make broadcast channels just like any 
other cable channel, meaning that the cable companies could 
purchase the content from a single source or multiple sources 
rather than from the local broadcaster. I think everybody would 
agree that is going to have a profound impact on the 
distribution in the marketplace. It would have a profound 
impact, I think, ultimately on the concentration of ownership, 
which has been one of the fundamentals that guided us as we did 
the 1992 Act. It would do nothing to resolve this question of 
negotiating stalemates, and it would result probably in very 
few broadcasters being around, I would suspect. So we are going 
to have to look at that very closely.
    And I would just ask the Senator to keep his mind open to 
think about those impacts because to make the cable law in 
1992, Mr. Chairman, it is good to remember that we had to 
overcome a Presidential veto. We did. We did it on a bipartisan 
basis fundamentally making the judgment that we were protecting 
consumers, promoting competition, and preserving the viability 
of local broadcasting. And as we look to update the law, I 
think it is going to be important for the Committee to keep 
those goals in mind, and we obviously have to put to test the 
propriety of them or the viability of them, but I would suspect 
they are pretty viable today.
    So among other things, the 1992 Act created the current 
retransmission consent regime, and with Time Warner Cable and 
Hearst recently ending the latest retransmission consent 
dispute, which saw service disrupted for millions of 
households, that subject probably is going to take up some of 
this hearing.
    Chairman Rockefeller in his opening comments raised this 
question also of the rising rates and of the hopes for 
competition to be able to deal with that. I might mention that 
in the most recent dispute, the station that was pulled from 
Time Warner Cable in the Boston area during that period, WCVB, 
was recently named as the Edward R. Murrow Award winner for the 
Nation's most outstanding news operation. It is a broadcast 
operation. And we take pride in that. We want to see it succeed 
and obviously receive fair compensation for the retransmission 
of its signal. But we do not want to see the pulling of signals 
repeatedly used as the common tool for arriving at a resolution 
between distributors and broadcasters. It simply is not fair to 
consumers who get trapped.
    And this is not a new problem. I chaired a hearing on this 
in 2010 after disputes threatened viewer access to the Oscars 
and the World Series that year. I asked the FCC to explore its 
authority to help protect consumers, but the FCC Chairman 
concluded that he lacked the legal authority to intervene 
during an impasse in negotiations, and as a result, disputes 
and standoffs now continue with millions of consumers being 
affected.
    Some people argue that these disruptions are okay because 
cable subscribers can simply switch to satellite service, but 
switching in fact does not protect consumers from the disputes. 
In March 2011, Dish customers in 17 markets lost their CBS, 
Fox, NBC, and CW signals for 6 days, and earlier this year, 
DirecTV and Sunbeam Television reached an impasse in the weeks 
leading up to the Super Bowl which, as you can imagine, caused 
certainly huge consternation in New England because the New 
England Patriots were playing. Fortunately, the signal was 
restored prior to the game. Unfortunately, the Patriots lost 
the game.
    [Laughter.]
    Senator Kerry. In extreme cases, it may be that pulling the 
signal is a broadcaster's only choice, but I think good faith 
negotiations--there ought to be a way to set up a process for a 
negotiation to be exhausted and consumers still ought to be 
able to have access during some kind of temporary negotiating 
impasse to live events like college bowl games or the World 
Series or debates for public officials or the Oscars and so 
forth.
    Now, I want to personally preserve local broadcasting. I do 
not think that means the government has to somehow intervene or 
sustain it, but a fair, competitive structure can be set up to 
recognize their values and the values of their programming. And 
I would not personally support a radical proposal to eliminate 
a retransmission consent right or must-carry requirements 
altogether, but I do want to shield consumers from unfair 
treatment or from being used as pawns in negotiations.
    And, Mr. Chairman, the disputes obviously also occur 
between distributors and non-broadcast channel owners, 
including the recent dispute between Viacom and DirecTV and AMC 
and Dish. But those disputes do not elicit the same level of 
concern because those station owners do not have public 
interest obligations. They do, however, raise questions about 
how to appropriately value bundled channels where stations in 
the bundle are dramatically more valuable than others, and that 
is tricky obviously.
    So I would hope the industry would really step up here and 
construct an alternative to the disruption of service during 
negotiations, and I would urge the FCC to complete its pending 
Notice of Proposed Rulemaking on retransmission consent. And I 
hope we here on the Committee will explore the role of the 
Internet as an alternative vehicle for accessing video content.
    So I think we need to think about the degree to which 
consumers can customize their consumption of media and control 
over spending. I think that our obligation is to maximize that 
access and maximize that control, and that will come through 
really fair and open competition where you cannot have the 
kinds of imbalances that have occurred.
    So, Mr. Chairman, these are important issues. They have 
social, they have civic, they have economic, and they have in 
the end, vast educational and political implications for all of 
the working families and citizens and consumers of our country. 
And I look forward to working with you on them because they are 
really critical to how information will flow and sort of what 
kind of discourse and access to information we will have in our 
country. Thank you.
    The Chairman. Thank you, Senator Kerry.
    The Ranking Member, Senator Hutchison?

            STATEMENT OF HON. KAY BAILEY HUTCHISON, 
                    U.S. SENATOR FROM TEXAS

    Senator Hutchison. Well, thank you, Mr. Chairman. I 
apologize for being late.
    I am not going to read my full statement, but just to say, 
I guess we can tell from the last two statements that have been 
made there will be a lot of disagreement about the way forward.
    We can agree that 20 years ago when the first bill was 
passed, that things have exploded since then, and on the one 
hand, you can say, well, the competition is so diverse now that 
not having another big regulatory overreach is maybe a good 
thing, which in general I think we certainly have a lot of 
competition. On the other hand, the issues that have arisen 
from all of the proliferation of options has also caused some 
of the investment that has been made to be obsolete. So how do 
we deal with that?
    I am very anxious to hear what our witnesses say because it 
is a very diverse group of experiences that are before us. So I 
will not put my statement in the record, but I will be 
interested in what enlightenment you can give us that would 
give us only what is necessary to be done. I do not want to 
regulate any more than is absolutely necessary, but how do we 
keep a level playing field?
    Thank you, Mr. Chairman.
    The Chairman. Did the gentlelady, as they say in the House, 
say that she did not want to put her statement in the record 
because she did not.
    Senator Hutchison. I did not. I will not.
    Senator Coons. Well, what if I want to?
    Senator Hutchison. Well, my statement is pretty sophomoric 
compared to all of the issues that we are facing.
    [Laughter.]
    Senator Hutchison. So I am going to just listen.
    The Chairman. I back off.
    Our first witness will be former Senator, Gordon Smith, 
President and Chief Executive Officer, National Association of 
Broadcasters.
    And we do not have a lot of time. We have a lot of charts 
and perhaps a lot of testimony, and we have a lot of people who 
will have a lot of questions. So be concise please.

STATEMENT OF HON. GORDON H. SMITH, PRESIDENT AND CEO, NATIONAL 
                  ASSOCIATION OF BROADCASTERS

    Mr. Smith. I will be as quick as I can, Chairman 
Rockefeller.
    Thank you. I thank Ranking Member Hutchison and the members 
of this committee. It was my privilege to serve with you on 
this prestigious committee. Remembering that privilege, it is 
my pleasure now to return and represent a great trade 
association, the National Association of Broadcasters. I also 
thank all of the broadcasters from around the country who have 
come to participate in this hearing.
    Part of what has made my new job at NAB so fulfilling is 
the focus that broadcasters have on public service. With a 
father that worked for Eisenhower and a mother with the last 
name of ``Udall,'' public service remains an important value to 
me.
    In large cities and small, in blue states and red, local 
television stations are an indispensable source for quality 
entertainment, high profile sporting events, emergency weather 
warnings and disaster coverage that can literally make the 
difference between life and death. We serve tens of millions of 
Americans every day, are responsible for close to 700,000 U.S. 
jobs, and are the primary advertising conduit for businesses, 
small and large, in communities of all sizes across this great 
country. Local broadcast television is a wholly unique video 
service because it is free. It is locally focused and it is 
always on, even when pay-TV, wireless and broadband networks 
may fail.
    That is precisely what is at stake today as we review the 
1992 Cable Act which enables a local television model that is 
the envy of the world. Respectfully, I ask that you focus on 
the possible devastating impacts that proposed changes in the 
law could have on broadcast localism and on the 56 million 
Americans that rely on free local television stations every 
day.
    The 1992 Cable Act ushered in an era of unprecedented 
choice of television content and provided local TV stations the 
opportunity to finally realize their full value of our 
television signals through a free market system called 
``retransmission consent.'' Some on this panel will argue that 
the retransmission consent system is 20 years old and is 
somehow broken. I would submit that even after 2 decades, the 
retransmission consent system is working just as the Committee 
wisely intended.
    There are over 5,800 cable companies in the United States. 
Only three-tenths of 1 percent of those cable companies have 
ever been party to a service disruption. The fact is over 99 
percent of deals are amicably completed with no disruption to 
the consumer. If you take a closer look at the disruptions, you 
will find three companies, Time Warner Cable, DirecTV, and 
Dish, that are principally the party for the vast majority of 
disruptions. These three pay-TV companies have been involved in 
three out of every four disruptions in 2012.
    Now, let me be clear. We do not begrudge our pay-TV friends 
the right to make a profit, but when it comes to programming 
costs, fair is fair. Even after almost 20 years, television 
broadcasters still do not receive compensation commensurate 
with their ratings. The fact is demonstrated by this chart from 
SNL Kagan. The chart shows the total fees paid to cable 
companies. The dark blue represents the total retransmission 
fees to broadcasters. The light blue are the fees paid to basic 
cable networks. As you can see, in 2012, cable networks 
received just over $29 billion in fees, but local broadcasters 
received just over $2 billion. The wide disparity between fees 
for cable and broadcast channels does not reflect our value in 
the marketplace. Broadcasters are not the source of rising 
cable fees. The cost of cable channels and cable profit margins 
are, of course, the source.
    And, of course, I know each of you is concerned with how 
contractual impasses between broadcasters and pay-TV companies 
affect your constituents. I remember that. What you should know 
is that some proposed changes could actually result in more 
consumer disruptions. Removing compulsory copyright license, 
for instance, would exponentially increase the number of rights 
holders that need to grant permission before a station's 
programming is carried by a cable or satellite company, thereby 
certainly increasing the likelihood of increased consumer 
disruptions. Instead, we encourage more creative solutions to 
this issue.
    First, we urge the FCC to insist that pay-TV providers give 
viewers ample notice of a possible disruption in service.
    Second, the FCC should allow customers to easily switch 
among competing pay-TV providers without incurring financial 
penalties and also receive refunds when stations are 
unavailable.
    And third, we as broadcasters could do a better job by 
educating consumers about the availability of free, over-the-
television with plugging in the antenna that comes with TV.
    In conclusion, Congress in its wisdom fostered what is 
unique across the globe, a local broadcasting system that 
provides local content and community-focused programming. It is 
how communities share common experiences. It is how you as 
Senators communicate with your constituents. It is a lifeline 
in moments of great peril. I urge you to carefully consider any 
changes to this truly remarkable broadcasting system.
    And I thank you all for having me here.
    [The prepared statement of Mr. Smith follows:]

    Prepared Statement of Hon. Gordon H. Smith, President and CEO, 
                  National Association of Broadcasters
    Thank you Chairman Rockefeller, Ranking Member Hutchison, and 
members of the Committee. I appreciate the opportunity to be with you 
today. I share so many fond memories of service on this committee and 
in serving with so many of you, that it is very meaningful to be a 
participant in today's hearing.
    I am here on behalf of the 1,300 free, local, over-the-air 
television stations who are members of the National Association of 
Broadcasters. Those members are the local television stations that you 
and your constituents have come to know and depend on: the Quincy 
station in Bluefield, West Virginia--WVVA; the Post-Newsweek station in 
Houston, Texas--KPRC; the Saga station in Joplin, Missouri--KOAM; the 
Allbritton station in Little Rock, Arkansas--KATV; and the Hubbard 
station in Minneapolis, Minnesota--KSTP, to name a few.
    Local television stations are iconic brands that Americans identify 
with and rely on as a link to their local communities. I believe that 
everyone has a unique connection to local television--whether it is in 
the place where they grew up or where they live now. Local television 
is the go-to choice for news, emergency service, and entertainment and 
is what people depend on to stay connected daily. Importantly, 
broadcasters' over-the-air signals enable these stations to remain 
available during times of crisis when other forms of communication may 
fail.
    Recent events have helped highlight the role local television 
stations play in providing life-saving coverage in times of emergency. 
Local broadcasters alert and inform viewers with critical information, 
as they did during the June derecho that swept through West Virginia 
and the Washington, D.C. region. Bluefield, West Virginia's WVVA 
provided wall to wall coverage on the storm giving updates on power 
restoration, providing locations of shelter areas and cooling stations, 
and noting road closures in southern West Virginia and southwest 
Virginia. Local stations, like WVVA, are a trusted source in such 
challenging times, and make a difference in people's lives.
    Several times a year, your offices receive NAB's newsletter, 
``License to Serve: A Chronicle of Broadcasters' Community 
Initiatives.'' This newsletter illustrates the many public service 
activities broadcasters organize on any given day across the country. A 
recent spring edition highlighted local broadcaster efforts in Kentucky 
and Indiana when tornadoes ripped through those two states. Last year, 
monthly editions covered the local broadcast response to the 
devastating weather in Missouri and Alabama. These newsletters can be 
found on NAB's website, NAB.org, under Public Service Initiatives, and 
may be a great resource to your offices. Simply, these stories show 
local broadcasters at their best.
    A vibrant system of local television serving local communities is 
the underpinning of our system of telecommunications. Congress 
envisioned a system where local stations are given the opportunity to 
compete within defined television markets while serving a larger public 
interest. Local television stations take that responsibility very 
seriously by providing local news, programming, and services to their 
communities. As a result, local stations have immense value to all 
citizens.
    The viability of local broadcast stations, and their continued 
local service, is tied to their ability to negotiate for fair value and 
carriage of their signals through a process known as ``retransmission 
consent.'' In today's competitive video market, retransmission consent 
compensation enables broadcasters to deliver free and locally-focused 
programming and services. Broadcasters continue to reinvest their 
revenues in local news and coverage. In 2011, broadcasters hired more 
than 1,100 additional anchors, reporters, producers and news staff. 
Total employment in local television newsrooms grew by 4.3 percent to 
27,653 employees. This is the second highest total on record. The 
average television station also set a new record in 2011 for the amount 
of local news aired--the average amount of news rose to five and a half 
hours per weekday last year. Retransmission consent is particularly 
significant for supporting local news operations in smaller markets 
with more limited advertising revenues.
    The fundamental fairness is apparent in allowing stations to 
negotiate for compensation from pay-TV providers that use a local 
station's signal to attract subscribers. The value of the local signal 
encompasses a broadcaster's assembly of the total programming package, 
as well as its promotion and distribution. Of course, this value is 
enhanced by the quality of broadcast programming, both local and 
national. With viewership and ratings, broadcast television is 
unparalleled--95 of the top 100 rated shows during the 2010-2011 
television season were on broadcast TV. With respect to price, 
broadcasters receive only a fraction of the total carriage fees paid by 
cable companies. Carriers continue to pay considerably more for non-
broadcast channels than for broadcast signals, even though the non-
broadcast channels attract smaller audiences and yield lower ratings.
    When put in terms of the average consumer cable bill, the cost of 
carriage for broadcast-owned signals comprises 2 percent of the cost to 
the consumer, while non-broadcast channels comprises 41 percent of that 
cost. Broadcast television accounts for 35 percent of all television 
viewership, yet broadcasters in total receive only 6.7 percent of 
carriage fees. That number is projected for slow growth in coming 
years, but this market dynamic is affected by the suggestion of 
legislative or regulatory change.
    I often hear references to the 20-year-old carriage law as if that, 
by itself, justifies change. These references ignore how new and recent 
retransmission consent cash compensation is for television 
broadcasters. In the 1992 Cable Act, local television stations were 
given the option for carriage via a must-carry election or through the 
opportunity to negotiate. However, it has only been very recently that 
many local broadcasters have come to receive cash compensation for 
their signals through these negotiations. When some focus only on 1992, 
we should also remember that for many years carriers refused to pay 
cash to local broadcasters. The simple fact that the nature of the 
compensation for retransmission consent has changed does not 
demonstrate a problem. Rather, it shows the means of achieving the 
fairness that Congress contemplated has evolved along with the market.
    When some suggest that these laws are ripe for a rewrite, they 
misstate history and facts. Direct broadcast satellite (DBS) services 
were not a truly viable competitor to cable until Congress authorized 
local-into-local service in the Satellite Home Viewer Improvement Act 
of 1999. For households unable to receive local-into-local DBS service 
for one reason or another, a viable competitor to cable did not come 
until 2003 when regulatory changes brought fiber to the home. When 
these new market entrants began clamoring for local broadcast signals, 
marketplace competition finally vaulted retransmission consent into a 
revenue stream that began to compensate broadcasters for their true 
value.
    Some proposals have emerged seeking to address aspects of 
television carriage and video programming. Last Congress, there were 
suggestions to expand the role of government in private business-to-
business carriage negotiations. This Congress, legislation seeks to de-
regulate the video marketplace. In evaluating each proposal, NAB 
suggests that the benchmark should be the impact on local broadcasters 
and their ability to continue offering the level of community service 
that viewers expect and deserve.
    In looking at S. 2008, there are some provisions that broadcast 
groups may look favorably upon and others that raise concerns and may 
require more thoughtful consideration. Language that would eliminate 
carriage provisions like retransmission consent and must-carry is a 
chief concern. These suggestions only fuel those carriers that would 
rather seek to change the law than engage in meaningful negotiation. 
They also come at a time when local television stations are more fully 
realizing the value of their signals.
    The legislation also proposes significant changes to cable and 
satellite compulsory licenses. While NAB could look favorably on the 
elimination of some of these licenses (such as the distant signal 
licenses), Congress should know that wholesale changes may well result 
in serious disruptions and diminish the availability of programming 
viewers have come to expect on their local stations.
    I understand that the intent of this proposal is for broadcasters 
to maintain control of the copyright interests through direct licensing 
and to allow for carriage negotiation. As I noted earlier, though, the 
local broadcasters' value in its signal is not the same as the 
copyright interests in the programming elements. Many stations may be 
unable to undertake the expensive and cumbersome responsibility of 
direct licensing, and such a change might affect the ability of local 
stations to serve their local markets.
    Another impact is on those stations that simply elect carriage 
through must-carry rules rather than seeking compensation. 
Telecommunications policy has always acknowledged a public value to 
these stations and for viewers in a community to have access to local 
offerings. There is a community value in viewers being able to see WFMZ 
in Allentown, Pennsylvania and its localized and extensive news 
coverage of the northern tier of the Philadelphia market. There is also 
a community value to viewers being able to see religious, minority, and 
other niche programming. The legislation removes this carriage option 
which will leave many of these stations off systems and may weaken the 
diversity of offerings in markets and to viewers.
    We will continue to review and engage on this and other legislative 
proposals before the Committee. Our underlying goal is always to enable 
the continued viability of your local television stations to serve 
their communities.
    Also, as this committee continues its forward looking approach to 
communications policy, video programming providers--including 
broadcasters--may benefit from the deployment of new online video 
distribution platforms and competitive subscription television 
services. These platforms could provide new opportunities for local 
broadcast stations to reach more local viewers and augment program 
services to their communities.
    To achieve these public policy objectives, broadcasters must 
continue to have the right to control the distribution of their signals 
and to negotiate with broadband video service providers seeking to 
retransmit such signals. If new technologies are allowed to evade 
retransmission consent and exploit broadcasters' signals without local 
stations' consent, the viability of those stations--and their ability 
to serve their local communities with high quality programming--will be 
lost.
    In conclusion, local broadcasters serve the public interest and 
have a unique position in the telecommunications marketplace, both 
today and well into the future. As Congress shapes policy to address 
the hyper-competitive television marketplace, it is essential that key 
underpinnings, such as broadcast television carriage, remain 
cornerstone public policy goals.

    The Chairman. Thank you very much, Senator Smith, and I 
appreciate your interest in refunds. It has worked well with 
the health insurance industry, as I indicated.
    Our next witness is Ms. Melinda Witmer, Executive Vice 
President and Chief Video and Content Officer, Time Warner 
Cable, not a small operation.

          STATEMENT OF MELINDA WITMER, EXECUTIVE VICE

  PRESIDENT AND CHIEF VIDEO AND CONTENT OFFICER, TIME WARNER 
                             CABLE

    Ms. Witmer. Good afternoon, Mr. Chairman, Ranking Member 
Hutchison, and members of the Committee. My name is Melinda 
Witmer of Time Warner Cable. Thank you for inviting me here to 
appear today.
    Nearly 20 years ago, Congress passed legislation intended 
to promote innovation in the video marketplace by fostering the 
development of competitive alternatives to cable. The 1992 Act 
also sought to preserve local broadcasting by giving station 
owners a subsidy through a new regulatory right called 
``retransmission consent.'' Broadcasters also benefit from a 
host of other special privileges. These include mandatory 
carriage on cable's basic tier of service, preferential channel 
placement protection, and territorial exclusivity provisions 
that limit cable operators' ability to carry out-of-market 
television signals. These rules were adopted at a time when 
cable operators generally were the only pay-TV option to 
consumers. That world no longer exists.
    Today cable operators face competition from three or more 
pay-TV providers in virtually every community. In fact, cable's 
share of video households has declined from 95 percent in 1992 
to approximately 58 percent today. Cable operators also face 
growing competition from Internet video offerings and a much 
more robust digital broadcast distribution system.
    Given the marketplace changes over the last 2 decades, many 
provisions of the 1992 Act are no longer needed and, worse yet, 
have become counterproductive. One provision in particular, 
retransmission consent, has led to significant and ongoing 
consumer harm. This is the focus of my testimony today.
    Congress established retransmission consent to bolster the 
continued availability of local broadcast television. 
Unfortunately for consumers, we are seeing the opposite result. 
Retransmission consent negotiations are now characterized by 
escalating blackout threats as broadcasters make clear that 
they are willing to pull their signals to increase their 
bargaining leverage. And the Big 4 broadcast networks now 
demand a significant cut of the fees obtained by affiliated 
stations. This creates even more pressure for rate increases 
and more contentious negotiations.
    As a result of these dynamics, the number of disputes and 
blackouts has risen dramatically. In the first half of this 
year alone, there have already been 69 blackouts, a 35 percent 
increase over all of last year. Owners of broadcast stations 
have said the sky is the limit when it comes to their 
compensation demands. Unfortunately, we can expect public 
disputes and blackouts to increase in the future.
    Congress also intended retransmission consent to subsidize 
and preserve localism, but that objective has been subverted as 
well. Despite demanding significant increases in retransmission 
consent fees, local broadcasters are cutting costs and scaling 
back on local news programming. Many broadcasters are also 
duplicating news programming across multiple stations in the 
same market.
    Another unintended and negative consequence of 
retransmission consent is that it allows broadcasters to force 
distributors to purchase a bundle of affiliated cable networks 
even if there is little or no demand for some of those 
channels. This has resulted in bloated packages and higher 
costs to consumers.
    In 1992, Congress was concerned with the fact that more 
than 53 percent of the national cable networks were owned by 
cable operators. That number has fallen to approximately 14 
percent. In sharp contrast, due largely to retransmission 
consent, Big 4 broadcasters now own 60 percent of the top 50 
cable networks.
    Finally, it is clear that the social compact between 
broadcasters and the public is broken. Broadcasters were given 
the free use of tens of billions of dollars worth of spectrum 
and other special privileges in return for a commitment to 
serve the public interest, but broadcasters should not have it 
both ways. They cannot claim that without special treatment 
they can no longer provide consumers with local news and 
information and at the same time reduce their spending on 
localism and deny pay-TV customers access to their signals 
during disputes. Contrary to broadcaster assertions, 
retransmission consent and the host of protections that go with 
it is the opposite of a free market.
    The time has come to update the Nation's laws to reflect 
the current competitive and technological landscape to best 
ensure that the public interest is served. We applaud the 
leadership of Chairman Rockefeller, Senator Hutchison, Senator 
Kerry, and Senator DeMint on this issue. Senator DeMint's 
legislation has begun an important dialogue and we look forward 
to working with all of the members of the Committee as it 
undertakes this essential task.
    Thank you.
    [The prepared statement of Ms. Witmer follows:]

  Prepared Statement of Melinda Witmer, Executive Vice President and 
           Chief Video and Content Officer, Time Warner Cable
    Good afternoon Mr. Chairman, Ranking Member Hutchison, and members 
of the Committee. My name is Melinda Witmer, and I am Executive Vice 
President and Chief Video and Content Officer of Time Warner Cable. 
Time Warner Cable is the Nation's second largest operator of cable 
television systems and the fourth largest multichannel video 
programming distributor (``MVPD''), serving more than 12 million 
subscribers in 29 states. I want to thank you for inviting me to appear 
before you today to share Time Warner Cable's perspective on the 1992 
Cable Act and its role in the television marketplace of the twenty-
first century.
    As the title of this hearing indicates, the 1992 Cable Act is 
turning twenty years old this year. This legislation, enacted over a 
presidential veto, has defined the role of government in the regulation 
of the video marketplace for two decades.\1\ During that time, vast 
changes have occurred in the competitive and technological landscape. 
Thus, it is both necessary and appropriate for Congress to take a fresh 
look at whether the provisions of the 1992 Act have met their goals and 
whether they continue to serve the public interest.
---------------------------------------------------------------------------
    \1\ Cable Television Consumer Protection and Competition Act of 
1992, Pub. L. 102-385 (1992).
---------------------------------------------------------------------------
    The principal goal of the 1992 Act was to protect consumers and 
promote innovation while fostering the development of competitive 
alternatives to cable services, which at the time constituted the only 
pay television option for most consumers. Congress's objective was for 
competition eventually to take the place of regulation. This was made 
clear in the Act's Statement of Policy, where Congress expressed its 
preference ``to rely on the marketplace'' rather than regulation 
wherever feasible.\2\ Consistent with this policy, several of the Act's 
provisions were expressly designed to be temporary, such as the rate 
regulation measures and certain provisions governing competitors' 
access to vertically-integrated programming.
---------------------------------------------------------------------------
    \2\ Id. at Section (2)(b)(2).
---------------------------------------------------------------------------
    A separate, but related goal of the 1992 Cable Act was to address 
the concern that competition from non-broadcast cable networks, 
particularly those that were owned by cable operators, was diverting 
viewers and advertisers from local broadcast stations and thus 
threatening the future of ``free'' over-the-air local television.\3\ 
Among other things, Congress created a new regulatory right, called 
retransmission consent, which broadcasters could elect to invoke when 
it served their interests. Retransmission consent is one of a number of 
special privileges given to broadcasters by the government as part of a 
thicket of outdated regulations. These special privileges, which also 
include must carry rights, territorial exclusivity protection, a 
guaranteed right to basic tier carriage and, of course, the 
broadcasters' free use of the public airwaves, were supposed to 
safeguard the public's access to broadcast programming. Unfortunately, 
given the dramatic changes over the last twenty years, that is not the 
case today.
---------------------------------------------------------------------------
    \3\ S. Rep. No. 102-92 (1991) at 1168 (``Senate Report''). See also 
138 Cong. Rec. S14615-16 (Sep. 22, 1992) (Statement of Sen. Lautenberg) 
(``if a broadcaster is seeking to force a cable operator to pay an 
exorbitant fee for retransmission rights, the cable operators will have 
an opportunity to seek relief at the FCC.'').
---------------------------------------------------------------------------
    Over the past twenty years, many of the 1992 Act's objectives have 
been accomplished in the marketplace. In particular, cable operators 
face effective competition in virtually every community that they serve 
from three or more MVPDs (including two national direct broadcast 
satellite services that are now the Nation's second and third largest 
MVPDs and, in many instances, a well-funded telco-video provider like 
Verizon FiOS or AT&T U-Verse, who are among the ten largest MVPDs). As 
a result of this competition, traditional cable operators have seen 
their share of the multichannel video business decline from 95 percent 
in 1992 to about 58 percent today.\4\ Cable systems also face growing 
competition from new platforms that were not even imaginable in 1992, 
such as online video delivery. Moreover, Congress's hope that cable 
operators would ``continue to expand, where economically justified, 
their capacity and the programs offered'' \5\ has been fulfilled as the 
industry, responding to competitive marketplace pressures, invested 
billions of dollars to provide consumers with an unparalleled array of 
innovative services, including high definition and 3D television, 
video-on-demand, digital video recording and other time-shifting 
capabilities, high speed Internet, and digital telephone.
---------------------------------------------------------------------------
    \4\ See In the Matter of Revision of the Commission's Program 
Access Rules, MV Docket No. 12-68, Comments of the National Cable & 
Telecommunications Association (filed June 22, 2012) at 9.
    \5\ Id. at Section (2)(b)(3).
---------------------------------------------------------------------------
    In light of these marketplace changes, several of the provisions of 
the 1992 Act clearly are no longer needed and, in fact, may be working 
counter to Congress's intentions. In my testimony, I will focus on how 
the retransmission consent framework, originally intended to advance 
the public interest, is now harming consumers.
    The first point I would like to make is that, Congress established 
retransmission consent to ``ensure the universal availability of local 
broadcast signals'' to consumers.\6\ Today, however, this regulatory 
regime is having the opposite effect. Retransmission consent 
negotiations are characterized by the broadcasters' demands for massive 
fee increases backed by blackout threats, and the incidence of actual 
blackouts has spiked as broadcasters increasingly have demonstrated 
their willingness to withdraw retransmission consent to increase their 
bargaining leverage. Retransmission consent disputes have increased 
dramatically in recent years from 12 in 2010 to 51 in 2011. So far this 
year there have already been 69 blackouts. And these numbers do not 
capture the fact that every retransmission consent negotiation is 
resulting in dramatically increasing fees ultimately borne by 
consumers.
---------------------------------------------------------------------------
    \6\ 138 Cong. Rec. S643 (Jan. 30, 1992) (Statement of Sen. Inouye).
---------------------------------------------------------------------------
    This is not what Congress intended or expected when it gave 
broadcasters retransmission consent rights. Retransmission consent is a 
regulatory construct that provides broadcasters an opportunity to 
obtain value for their ``signal'' not for the content contained within 
that signal. This value was intended to subsidize local stations to 
ensure the continued viability of local broadcasting. Given the market 
structure in 1992 with essentially one local broadcaster negotiating 
against one cable operator in each local market, Congress expected that 
the rough balance of power between the parties would serve as a check 
on unreasonable behavior.\7\
---------------------------------------------------------------------------
    \7\ The legislative history indicates that Congress expected 
demands for retransmission consent compensation would be modest because 
``broadcasters also benefit from being carried on cable systems.'' 
Senate Report at 1168. See also 138 Cong. Rec. S643 (Jan. 30, 1992) 
(Statement of Sen. Inouye) (``It is of course in their mutual interests 
of these parties to reach an agreement: the broadcaster will want 
access to the audience served by the cable system, and the cable 
operator will want the attractive programming that is carried on the 
broadcast signal. I believe that the instances in which the parties 
will be unable to reach an agreement will be extremely rare.''); 
Implementation of the Cable Television Consumer Protection and 
Competition Act of 1992; Broadcast Signal Carriage Issues, Report and 
Order, 8 FCC Rcd 2965 (1993) at  115 (expressing the FCC's belief that 
``there are incentives for both parties to come to mutually beneficial 
arrangements'' in retransmission consent negotiations).
---------------------------------------------------------------------------
    Moreover, even with the expectation that the grant of 
retransmission consent rights to broadcasters did not pose an undue 
threat of harm to consumers either in the form of increased rates or 
service disruptions, Congress acknowledged, and took steps to address, 
these risks. For example, Congress included in the 1992 Act a provision 
directing the FCC to adopt rules to ensure retransmission consent would 
not adversely impact the rates that consumers paid for multichannel 
television service.\8\ In addition, Members of Congress, including 
Senator Inouye, the floor manager of the legislation in the Senate, 
made clear that the FCC had (and was expected to exercise) its 
``existing'' authority to resolve retransmission consent impasses if 
and when they resulted in an interruption of service to consumers.\9\
---------------------------------------------------------------------------
    \8\ 47 U.S.C. Sec. 325(b)(3)(A).
    \9\ 138 Cong. Rec. S643 (Jan. 30, 1992)(Statement of Sen. Inouye) 
(``I am confident, as I believe other cosponsors of the bill are, that 
the FCC has the authority under the Communications Act and under the 
provisions of this bill to address what would be the rare instances in 
which such carriage agreements are not reached. I believe that the FCC 
should exercise this authority, when necessary, to help ensure that 
local broadcast signals are available to all the cable subscribers.'').
---------------------------------------------------------------------------
    Unfortunately, the FCC has adopted a narrower interpretation of its 
role in overseeing the retransmission consent process and the agency's 
inaction, combined with broadcasters' ability to play competing MVPDs 
against each other, has been a key cause of the brinkmanship tactics 
(or take-it-or leave it demands) that now characterize the 
broadcasters' approach to retransmission consent negotiations.
    Ironically, the marketplace-driven increase in competition among 
MVPDs that has occurred since 1992 enables broadcasters to play one 
MVPD against another while each MVPD still only has one broadcaster 
from which it can obtain programming, giving broadcasters a lopsided 
advantage in retransmission consent negotiations. Additionally, 
territorial exclusivity and the requirement that cable operators place 
broadcast stations on the basic tier of service further exacerbate the 
harm to consumers by preventing MVPDs from obtaining broadcast 
programming from alternative sources and consumers from opting not to 
purchase the broadcast channels. As a result, broadcasters--who 
continue to enjoy their government-created and -supported monopolies--
now threaten to withhold consent to the carriage of their stations with 
the confidence that neither MVPDs nor their subscribers have any 
recourse. Making matters worse, the Big Four broadcast networks have 
begun demanding a cut of the retransmission consent fees obtained by 
affiliated local stations, creating even more pressure for rate 
increases.
    As a result of these dynamics, consumers lose, or face the threat 
of losing, access to season premieres of popular programming, major 
events like the Super Bowl and the Olympics, and even emergency weather 
information. Two of the better-known examples of retransmission 
consent-related service disruptions occurred when FOX denied 
Cablevision subscribers in New York access to World Series games and 
Disney/ABC denied those same subscribers access to a portion of the 
Academy Awards. Earlier this month, over two million of our subscribers 
lost access to broadcast signals when we would not cave in to Hearst 
Broadcasting's demands for huge fee increases. While our dispute with 
Hearst has been settled, the fact remains that our customers are being 
asked to shoulder ever-increasing rates resulting from each and every 
retransmission consent negotiation, even those that do not result in a 
public dispute. It is also worth underscoring that broadcasters are 
making much of their marquee programming, such as the Olympics and the 
Super Bowl--not to mention much of their entertainment programming, 
available for free on the Internet. The perverse result is that MVPD 
subscribers are literally paying billions of dollars to subsidize 
content that the broadcasters make available for free both over-the-air 
and via the Internet. While MVPDs recognize that broadcasting has 
always had an alternative distribution system, it is not economically 
rational to pay the premium the broadcasters are demanding and that 
ultimately consumers are being asked to bear.
    Nor is there any indication that the situation is going to resolve 
itself. In 2009, it was estimated that retransmission consent fees 
would reach $1.6 billion in 2015.\10\ But according to data compiled by 
SNL Kagan, retransmission consent payments grew from $215 million in 
2006 to nearly $1.5 billion last year and are now projected to top $2.0 
billion this year--a compounded growth rate of 45 percent over that 
period.\11\ SNL Kagan estimates that by 2015, retransmission consent 
payments will reach almost $4.0 billion, more than double what the 2009 
study predicted. While the broadcasters like to claim that this rapid 
escalation in retransmission consent fees is part of a ``market 
adjustment,'' the fact is that there is no sign that retransmission 
consent costs will level off in the future. Indeed, SNL Kagan forecasts 
that in the next five years retransmission consent fees will double 
again, reaching just under $5.0 billion.\12\ This dramatic uptick in 
retransmission consent fees is not surprising given statements by 
broadcast executives like CBS's CEO Les Moonves, who boasted that when 
it comes to retransmission consent fees, ``the sky's the limit'' and by 
Sinclair Broadcasting Group's CEO David Smith, who has acknowledged 
that, in order to meet reverse compensation demands from the networks, 
local broadcasters will need ``to keep upping'' their retransmission 
consent fees ``forever.'' \13\
---------------------------------------------------------------------------
    \10\ Michael Katz, Jonathan Orszag, and Theresa Sullivan, An 
Economic Analysis of Consumer Harm from the Current Retransmission 
Consent Regime, at 32 (Nov. 12, 2009), filed as an attachment to the 
Comments of the National Cable & Telecommunications Association in MB 
Docket No. 07-269 (Dec. 16, 2009).
    \11\ See Appendix 1.
    \12\ Id.
    \13\ See CableFAX Daily, June 3, 2011, at 2; Communications Daily, 
May 5, 2011 at page 5.
---------------------------------------------------------------------------
    These demands for dramatically escalating fees inevitably impact 
consumers in the pocketbook. In fact, according to the Katz/Orszag/
Sullivan study, more than a million households ``likely [will] forego 
the benefits of MVPD services because of the higher subscription fees 
they face as a result of retransmission consent fees.'' \14\ The 
broadcasters' unreasonable demands also will lead to more blackouts as 
MVPDs do what they can to hold the line. Yet, given the disconnect 
between a 20-year old law and today's marketplace, it is unclear what 
will prevent the rising tide of retransmission consent demands. As Mr. 
Moonves explained, the retransmission consent right that Congress 
created gives broadcasters the ``ultimate leverage'' in retransmission 
consent negotiations.\15\
---------------------------------------------------------------------------
    \14\ See note 5 supra at 37. Given that the Katz/Orszag/Sullivan 
study underestimated how high retransmission consent fees would climb, 
it is likely that the number of households opting out of MVPD services 
will be even higher than they projected.
    \15\ CableFAX Daily, June 3, 2011, at 2.
---------------------------------------------------------------------------
    Incredibly, having the ``ultimate leverage'' is not enough for some 
broadcasters. Local broadcast station owners have managed to skirt the 
FCC's ownership rules and now conduct retransmission consent 
negotiations on behalf of multiple stations in the same local market. 
The advent of multicasting has exacerbated this trend. In 2010, a study 
commissioned by the American Cable Association found that there were at 
least 57 instances in which one station exercised common control of 
multiple Big Four network stations in its local market through some 
form of contractual arrangement.\16\ And a review conducted last year 
by BIA/Kelsey on behalf of Time Warner Cable indicated that there are 
more than 40 examples of ``virtual duopolies'' in which one station 
uses its multicast capacity to operate as the market affiliate of two 
Big Four networks and nearly 150 instances in which one station's 
multicast capacity allows it to serve both as an affiliate of a Big 
Four network and as an affiliate of either CW or MyNetwork. It is 
likely that this is not the complete picture of coordination and 
consolidation by local stations because there currently is no 
requirement for broadcasters to disclose these arrangements.
---------------------------------------------------------------------------
    \16\ See In the Matter of 2010 Quadrennial Regulatory Review; 
Review of the Commission's Broadcast Ownership Rules and Other Rules 
Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, 
MB Docket No. 02-182, Comments of the American Cable Association (filed 
July 12, 2010). Given the difficulty of tracking SSAs in particular, 
TWC believes that the ACA data may well understate the number of 
instances in which a station licensee has entered into a control-
sharing arrangement with another network affiliated station in the same 
market.
---------------------------------------------------------------------------
    As you can imagine, being able to deny a cable operator access to 
the programming of not just one, but of two or three broadcast signals 
in the same local market gives a broadcaster an almost insurmountable 
advantage in retransmission consent negotiations. It also explains why 
the record in the FCC's retransmission consent reform proceeding 
indicates that retransmission consent fees for Big Four affiliates are 
more than 20 percent higher where a single station is negotiating on 
behalf of more than one affiliate in a market.\17\
---------------------------------------------------------------------------
    \17\ In the Matter of Amendment of the Commission's Rules Related 
to Retransmission Consent, MB Docket No. 10-71, Comments of the 
American Cable Association (filed May 27, 2011). See also William P. 
Rogerson, Joint Control or Ownership of Multiple Big 4 Broadcasters in 
the Same Market and Its Effect on Retransmission Consent Fees (May 18, 
2010) (attached to ACA's comments in MB Docket No. 10-71).
---------------------------------------------------------------------------
    Not only are broadcasters demanding that consumers bear these 
exorbitant cost increases and deal with threatened and actual 
blackouts, many are reducing their commitment to local programming in 
order to cut costs. While Congress intended for the 1992 Act to 
subsidize and preserve local broadcasting, the trend in the broadcast 
industry in recent years has been away from localism. As Senator Inouye 
said during the debate on the Act, the intent of retransmission consent 
was to ``permit local stations, not national networks . . . to control 
the use of their signals.'' \18\ NAB expressed a similar view, writing 
to members of Congress that retransmission consent was ``not a `network 
TV' issue'' and that ``[t]he television networks will not play a role 
in negotiations between local stations and local cable systems.'' \19\ 
Indeed, NAB not only proclaimed that the networks would have no right 
to participate in retransmission consent negotiations, it also declared 
that the networks would have ``no right to dictate their terms, or to 
demand any part of the benefits which the local station might obtain 
from a cable system.'' \20\
---------------------------------------------------------------------------
    \18\ 138 Cong. Rec. S562-63 (Jan. 29, 1992). Other members of 
Congress echoed Senator Inouye's statement. See, e.g., 138 Cong. Rec. 
H6491 (July 23, 1992) (Statement of Rep. Callahan) (``The right to 
retransmission consent . . . is a local right. This is not, as some 
allege, a network bailout for Dan Rather or Jay Leno. Networks are not 
a party to these negotiations, except in those few instances where they 
own local stations themselves.'') (emphasis supplied); 138 Cong. Rec. 
H6493 (statement of Rep. Chandler) (``The intent of the [retransmission 
consent] amendment was to give bargaining power to local broadcasters 
when negotiating the terms of cable carriage--not to serve as a subsidy 
for major networks.'') (emphasis supplied).
    \19\ See, e.g., Letter from Edward O. Fritts, President & CEO, NAB, 
to Jack Valenti, President, MPAA, dated October 7, 1991 (``NAB Oct. 7, 
1991 Letter''); see also Letter from Edward O. Fritts, President & CEO, 
NAB, to Rep. Christopher H. Smith, dated August 9, 1991 (stating, in 
attachment, that characterizations of retransmission consent as a 
``network plan'' are ``sheer nonsense'' and that ``Networks are not 
involved in any negotiations.''). Copies of the documents referred to 
in footnotes 19-21 can be found as an attachment to the Joint Comments 
of Mediacom Communications Corporation, Cequel Communications LLC d/b/a 
Suddenlink Communications, and Insight Communications Company, Inc. 
filed in the FCC's retransmission consent reform proceeding, MB Docket 
No. 10-71, on May 27, 2011.
    \20\ See NAB Oct. 7, 1991 Letter (emphasis supplied).
---------------------------------------------------------------------------
    Today, however, retransmission consent has become exactly what it 
was never intended to be: a subsidy for the national broadcast networks 
and their affiliated cable channels rather than a source of support for 
local broadcasting. The national networks increasingly dictate to their 
affiliates whether and on what terms those affiliates may grant 
retransmission consent. In addition, the national broadcast networks 
have begun demanding ``reverse compensation'' from their affiliates, 
completely supplanting the structure that existed in 1992, when 
networks paid compensation to local stations for carriage.\21\ We turn 
again to CBS' Mr. Moonves, who has made clear that the national 
networks believe that they are the ones that should be receiving the 
bulk of the retransmission consent fees collected by their local 
affiliates, stating that ``[i]f a station is looking at what's really 
bringing in the money, it's the NFL, it's `American Idol,' it's `CSI,' 
it's the primetime strength. It's not the local news. . . .'' \22\
---------------------------------------------------------------------------
    \21\ For example, in May 2011 it was reported that NBC had entered 
into an arrangement with its affiliates by which NBC would hold its 
affiliates' proxies and negotiate retransmission consent deals on their 
behalf, with NBC pocketing as much as 50 percent of the revenues. See 
Harry A. Jessell, NBC's Affiliate Retrans Plan is 50-50 Split, 
TVNewsCheck, May 18, 2011 (available at http://www.tvnewscheck.com/
article/2011/05/18/51322/nbcs-affiliate-retrans
-plan-is-5050-split).
    \22\ See Les Moonves Insists That Retrans Cash Is Network Driven, 
Radio & Television Business Report, June 3, 2011, available at http://
www.rbr.com/tv-cable/les-moonves-insists-that-retrans-cash-is-network-
driven.html (emphasis supplied). The admission by the broadcasters that 
retransmission consent is all about the value of the broadcast content 
is, of course, directly contrary to the assertion, made by some of 
those same broadcasters and their supporters, that retransmission 
consent is not an intellectual property right and ``has no bearing on 
the relative value'' of the programming embodied in a broadcaster's 
signal. See Testimony of NAB President David Rehr, Hearing on Copyright 
Licensing in a Digital Age, House Committee on the Judiciary, February 
25, 2009 (``Retransmission consent rights under the Communications Act 
are distinct from copyright rights in broadcast programming. 
Retransmission consent agreements relate to the value of creating and 
disseminating the broadcast signal.'').
---------------------------------------------------------------------------
    Faced with the need to satisfy the networks' demands for 
compensation, the local affiliates are trying to cut expenses while 
simultaneously increasing the amounts they require MVPDs to pay to 
carry their signals. One of the principal ways in which the stations 
are cutting costs is by entering into agreements that allow multiple 
stations to share resources. While some sharing of costs may be 
beneficial for the stations and their viewers, the growing use of 
``shared services'' and other similar arrangements has precipitated a 
significant decline in original, diverse local news and public affairs 
programming as broadcasters combine studio facilities and eliminate 
separate newscasts, lay off employees, and reduce their production of 
local news and other community-oriented programming.\23\
---------------------------------------------------------------------------
    \23\ See, e.g., Philip M. Napoli, Retransmission Consent and 
Broadcaster Commitment to Localism at 18-25 (Nov. 2011), available at 
http://fordham.academia.edu/PhilipNapoli/Papers/1163518/
Retransmission_Consent_and_Broadcaster_Committmet_to_Localism. See also 
Danilo Yanich, Local TV News & Service Agreements: A Critical Look 
(Oct. 2011), available at http://www.ccrs.udel.edu/sites/ccrs.udel.edu/
files/DYanich%20.Local%20TV%20News%20%26
%20Service%20Agreements-A%20Critical%20Look.pdf.
---------------------------------------------------------------------------
    The broadcasters would have policymakers believe that if the 
retransmission consent rules are changed, they will be unable to 
provide local programming content that they, and they alone, are 
capable of producing. But not only are broadcasters already cutting 
back on their local content, cable and other sources (including the 
Internet) are rushing to fill the void. For example, Time Warner Cable 
now has nineteen channels that offer full-time coverage of local news, 
politics, sports and weather. In fact, Time Warner Cable produces three 
daily local newscasts that are aired by an ABC affiliate owned by 
Sinclair in Greensboro, NC.
    In sum, while Congress expected retransmission consent to sustain 
and improve the quality of local broadcasting without causing an 
unreasonable increase in consumer prices or disruptions to consumers' 
access to local stations, the opposite has occurred. Prices for 
retransmission consent are soaring while the quality of local broadcast 
programming continues to erode. In addition, consumers face a growing 
level of disruption in their access to local broadcast programming as 
stations more frequently deny MVPDs' retransmission consent in order to 
enforce their demands for unreasonable compensation.
    Next, I would like to address the bundling practices that are 
engaged in by programmers, particularly the Big Four broadcast 
networks, which are another unanticipated consequence of the 1992 Act. 
When MVPDs sit down with the broadcast networks to negotiate for the 
carriage of their owned and operated affiliates, they often are met 
with demands that the MVPD agree to carry and pay for not only the Big 
Four broadcast stations, but an array of non-Big Four stations and non-
broadcast channels as well.\24\ These bundling agreements also 
typically require the distributor to offer all or most of these 
channels on preferred tier locations. The effect is to force 
distributors and their subscribers to take and pay for an array of 
services that often includes channels for which there is limited (if 
any) subscriber interest.
---------------------------------------------------------------------------
    \24\ Similar bundling takes place at the local level when a group 
station owner refuses to grant retransmission consent unless the MVPD 
also agrees to pay for carriage of non-network affiliates, including 
low value multicast stations.
---------------------------------------------------------------------------
    The broadcasters' ability to engage in these bundling practices is 
an unfortunate byproduct of the 1992 Act and, in particular, of the 
Act's retransmission consent provisions. In 1992, Congress was 
concerned about vertical integration--the fact that more than 53 
percent of the national cable networks available at the time were owned 
by cable operators. Ironically, retransmission consent actually 
fostered a dramatic increase in vertical integration between cable 
networks and broadcasters.
    Today, broadcast networks and their affiliates are the dominant 
providers of cable networks. In fact, sixty percent of the top 50 basic 
cable networks are owned by broadcasting companies and their 
affiliates.\25\ This is due in large part to the way retransmission 
consent developed in its early days, where broadcasters sought 
retransmission consent compensation in the form of carriage of, and 
payment for, new cable networks.
---------------------------------------------------------------------------
    \25\ See Appendix 2 for a chart showing examples of the Big Four 
broadcast networks ownership of non-broadcast cable networks. This 
chart is illustrative in nature and is not intended to reflect the full 
extent of the Big Four's cable network interests.
---------------------------------------------------------------------------
    Now that the number of linear cable channels is reaching a 
saturation point, and with the ever-growing competition among 
distributors, broadcasters have shifted their demands to payment in 
cash, not just for carriage of the local television station, but also 
for carriage of bundles of cable channels. Because of the broadcasters' 
retransmission consent leverage, there is no check on the amount that 
they can demand for these bundles of broadcast and non-broadcast 
channels or on the size of those bundles. Thus, bundling is a major 
impediment both to controlling the price of service and to giving 
consumers other benefits (including more flexible packaging of 
services) that they should be enjoying as a result of the robust 
competition that now characterizes the multichannel video distribution 
marketplace.
    It is ironic that the 1992 Act, which sought to protect free, over-
the-air television from supposedly ``unfair'' competition from non-
broadcast cable networks has led to a regime in which the national 
broadcast networks take retransmission consent revenues obtained either 
directly from MVPDs (in the case of network-owned affiliates) or 
indirectly (in the form of reverse compensation payments from their 
independently owned affiliates) and use them to support the many non-
broadcast channels that they now operate and not local broadcasting. 
Furthermore, these cable channels now feature major programming 
events--such as Monday Night Football and college bowl games--that used 
to be available on over-the-air broadcast channels.
    It also is worth remembering that, during the debate over the 1992 
Act, the Act's proponents dismissed concerns that retransmission 
consent would drive up consumer prices by suggesting that cable 
operators would simply shift a portion of their programming budget away 
from the non-broadcast cable networks and towards local broadcasters. 
As Representative Markey (the chairman of the House Commerce 
Committee's Subcommittee on Telecommunications and the sponsor of the 
Cable Act in the House) stated,

        If [cable operators] have to pay Nashville a little bit less, 
        to pay the sci-fi channel a little bit less, to pay some of 
        these other channels a little less in order to get revenues 
        over to Channel 4, 5, 7, and 9 so that the local children's 
        programming, the local news and public programming that the 
        rest of watch on free television, fine. It is meant to be 
        within the same existing pool of money; no additional monies 
        are going to the cable industry or to the broadcasters; it is 
        the same pool of money.'' \26\
---------------------------------------------------------------------------
    \26\ 138 Cong. Rec. H8652 (Sep. 17, 1992) (Statement of Cong. 
Markey).

    The assumption that retransmission consent would have no impact on 
a cable operator's programming costs was questionable in 1992. But even 
if it was valid, MVPDs today do not have the choice of ``paying a 
little less'' for non-broadcast programming to cover their growing 
retransmission consent expenses. The very broadcasters that are 
demanding increased retransmission consent fees own the non-broadcast 
cable channels and are not about to lower the amounts that they are 
paid for those.
    My final point flows directly from my first two points: despite, or 
possibly because of the 1992 Act, the broadcast model on which Congress 
relied in adopting retransmission consent is broken. That broadcast 
model assumed the broadcasters' acceptance of the social compact under 
which local stations are given free use of the public airwaves and 
certain related privileges in return for a commitment to serve the 
public interest--to put the needs of the communities that they are 
licensed to serve ahead of all other considerations.\27\
---------------------------------------------------------------------------
    \27\ See Thomas W. Hazlett, If a TV Station Broadcasts in the 
Forest: An Essay on 21st Century Video Distribution (May 19, 2011), 
filed in MB Docket No. 10-71 (May 24, 2011).
---------------------------------------------------------------------------
    Today, however, the Big Four networks are looking to increase the 
profits of their cable channels and the affiliates are looking to cut 
costs by entering into sharing agreements and reducing local 
programming in order to be able to pay reverse compensation to the 
networks. Furthermore, broadcasters are often arguing to reduce or 
avoid their public interest obligations often citing some of the same 
changes in the competitive and technological landscape that we believe 
justify revising the 1992 Act. Yet, when it comes to preserving the 
special privileges that have been accorded local television stations--
from free spectrum to black out rights--the broadcast industry claims 
that nothing has changed over the past twenty years that warrants 
revisiting those privileges. For example, the broadcasters not only 
oppose suggestions that they be limited in their ability to engage in 
joint retransmission consent negotiations, they even oppose efforts to 
make them simply report the details of those sharing arrangements 
online where they would be more readily accessible to public and 
regulatory scrutiny.
    The broadcast industry is sitting on spectrum worth tens of 
billions of dollars. It is not surprising that they would use their 
position as custodians of the public interest when it is to their 
benefit. But the broadcasters should not have it both ways. They cannot 
claim that without special treatment they will no longer be able to 
provide consumers with local news and information, and at the same 
time, reduce their spending on localism and deny cable and other pay-TV 
customers access to their signals during disputes. Nor should they be 
allowed to have the benefit of special protections such as mandatory 
basic tier carriage and territorial exclusivity protection--privileges 
that were premised on broadcasters fulfilling their public interest 
obligations.
    In conclusion, two years ago, Time Warner Cable's CEO, Glenn Britt, 
testified before this Committee and stated that Time Warner Cable 
agrees with the principle, embedded in the 1992 Act, that free markets 
are preferable to regulated markets wherever feasible. We stand by that 
position today. Contrary to broadcaster assertions, retransmission 
consent is not now and has never been a free market. Rather, it is a 
government-created regulatory regime established to address vastly 
different conditions than those that exist today. That regulatory 
regime was intended to safeguard the public's access to local broadcast 
programming. But today, the law is having the opposite effect. It is 
resulting in consumers losing access to local broadcast stations and 
bearing the costs of increased fees as vertically integrated broadcast 
networks are permitted to siphon support away from local broadcasters 
to increase their profits and those of their non-broadcast cable 
networks. No one could have foreseen how broken this regulatory regime 
ultimately would become.
    We applaud the leadership shown by Chairman Rockefeller, Ranking 
Member Hutchison, Senator Kerry, Senator DeMint and other Members of 
the Committee and their recognition that the status quo is not 
sustainable. We are particularly appreciative of Senator DeMint's 
efforts to begin the dialogue on the role that government should play 
in the television marketplace by proposing to replace the outdated 
regulatory regime embodied in the 1992 Cable Act with a genuine free 
market approach. We also have made clear that, as long as the 
regulatory regime established by the 1992 Act remains in effect, the 
FCC should make targeted changes to protect consumers from the 
broadcasters' abusive retransmission consent practices. We look forward 
to working with all of the Members of the Committee as it undertakes 
the essential task of updating the 1992 Act.
    Thank you again for the opportunity to testify before the Committee 
today. I would be happy to answer any questions you might have.
                               Appendix 1


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




    The Chairman. Thank you.
    And now Mr. Martin Franks, Executive Vice President for 
Planning, Policy and Government Affairs, CBS Corporation.

         STATEMENT OF MARTIN D. FRANKS, EXECUTIVE VICE

   PRESIDENT OF PLANNING, POLICY AND GOVERNMENT AFFAIRS, CBS 
                          CORPORATION

    Mr. Franks. Thank you, Mr. Chairman, Ranking Member 
Hutchison, and members of the Committee.
    Allow me several observations based on 24 years at CBS 
before I take your questions.
    Retransmission consent is neither broken nor an antique in 
need of refurbishment. In the 6 years since CBS split from 
Viacom, we have successfully negotiated nearly 100 retrans 
agreements without a word of public discord between a willing 
seller and willing buyers, including Ms. Witmer's and Ms. 
Abdoulah's companies. And this, despite many Wall Street 
analysts pegging CBS's negotiated retrans fees at the top of 
the market.
    While any disruptions to consumers are unfortunate, only a 
small handful of negotiations break down each year. That does 
not sound like a dysfunctional marketplace to me. In fact, bad 
weather is a far greater source of consumer disruption than 
marketplace failure.
    Development of a robust retrans marketplace has helped CBS 
and our affiliates invest billions both to retain marquee 
programming, including the NFL, SEC football, the Grammy's, 
March Madness, the Kennedy Center honors, and the U.S. open 
tennis, and to continue our considerable investment in local 
and national news.
    Calls for fixing a supposedly broken retrans system arose 
only after a fully competitive marketplace among video 
distributors developed. Retrans was basically a non-factor in 
carriage negotiations until it became a teenager at the same 
time that DirecTV, Dish, Verizon, and AT&T became full-fledged 
competitors to the original cable monopoly. Far from a flawed 
system, retrans is a triumph of Washington policymaking by 
restoring balance and competition to a sector previously 
dominated by a monopoly with a perfect business plan, namely 
receiving its most valuable product, broadcast television, for 
free, reselling it at an enviable margin, and using the 
proceeds to build a dominant marketplace position. Nice work if 
you can get it.
    Some liken retrans to an antique relic of a bygone era. 
Gee, in every other sense a 20-year-old is barely emerging from 
adolescence.
    Moreover, the notion that retrans has not been subject to 
review since its passage neglects to take into account that in 
1999, when retrans was extended to DirecTV and Dish at their 
fervent request, then again in 2004, and most recently in 2010, 
retrans has been subject to review by this committee and its 
House counterpart and both the House and Senate Judiciary 
Committees in the context of the Satellite Home Viewer Act and 
its successors, to say nothing of countless oversight hearings 
and FCC and GAO reports.
    Rather than a legitimate public policy problem, what we 
have now is an unholy alliance among distributors that are 
supposed to compete with each other but who have, instead, 
banded together to undo retrans and return to their halcyon 
days of depriving broadcasters of the compensation that our 
popularity in the marketplace so clearly merits.
    Turning to another question before this committee, with 
respect, those who believe doing away with retrans and the 
compulsory license will lead to fewer consumer disruptions are, 
I fear, mistaken and therefore I strongly urge the Committee to 
look before you leap for unanticipated consequences. 
Introducing even more claimants into an already challenging 
negotiating environment may lead to more disputes, not fewer, 
will be a lawyer's paradise, and is unlikely to yield any 
relief to consumer pocketbooks. That brave new marketplace 
would also be an extraordinarily capital-intensive one.
    Make no mistake. CBS will do just fine. One way or the 
other, we will be able to invest in our content, continue to 
attract audiences, and figure out how to monetize our 
performance. But what of the impact on companies without CBS's 
heft and access to capital? Many smaller players, including 
small cable operators, will be squeezed out of the business. 
West Virginians may have access only to larger regional super 
players from Washington, D.C. and Pittsburgh, or South 
Carolinians may lose the wonderful localism tradition earned by 
their State's broadcasters in favor of service solely from 
Atlanta, Charlotte, or even New York City. How will local 
economies and consumers adapt to that change? How will a local 
car dealer, bank, or restaurant in Spartanburg reach its 
potential consumers on a broadcast originating in Atlanta?
    In conclusion, for all its flaws, American television is 
the envy of the world. Tomorrow, as a very proud father, I am 
leaving for London where my younger son will coach in the 
Olympics. I am looking forward to every moment of the trip 
except for being stuck watching British television.
    [Laughter.]
    Mr. Franks. Conversely, our 500 channel universe, largely 
in high definition, has many somethings for everyone. Whatever 
you do, be careful you do not undermine the existing system 
that functions much more successfully than is recognized and 
that almost any other country in the world would gladly have 
instead of what their own economic, political, creative, and 
technological cultures have been able to achieve.
    Thank you.
    [The prepared statement of Mr. Franks follows:]

  Prepared Statement of Martin D. Franks, Executive Vice President of 
       Planning, Policy and Government Relations, CBS Corporation
    Good afternoon, Chairman Rockefeller, Ranking Member Hutchison and 
members of the Committee. My name is Martin D. Franks, and I am 
Executive Vice President, Planning, Policy and Government Relations of 
CBS Corporation. I appreciate the opportunity to speak with you today 
about the state of the video marketplace 20 years after the Cable Act.
    In a nutshell, as CBS can attest--as can I personally in my role as 
the principal retransmission consent negotiator for the company--the 
market for video programming is one of the country's most robust and 
competitive sectors in the U.S. economy.
    I believe that the retransmission consent regime enacted in 1992 is 
actually one of the great Washington public policy accomplishments of 
the intervening two decades. It has given renewed vitality to broadcast 
television that prior to 1992 was being consigned to the dust heap of 
history. That there are some calling for a return to the old regime, 
when they got their most popular product for free, and then resold it 
and used the proceeds to build their own businesses, is hardly a 
surprise. Congress should resist those entreaties, especially since 
retransmission consent is not broken.
    It has been estimated that some 15,000 retransmission consent 
negotiations take place every three years. And almost all of them are 
completed successfully. Over the last six years CBS has completed all 
of its retransmission consent negotiations successfully and without 
incident.
    Any tampering with retransmission consent laws and rules now could 
trigger severe negative results to a broadcast television industry that 
is actually contributing positively to the U.S. economy. To the extent 
that impasses in negotiations occur with more frequency today, it is 
due, at least in part, to the belief by a handful of distributors that 
disruptions may help them advance their public policy goals in 
Washington, that is, by trying to make a working model look broken. 
Sometimes, too, these few distributors hold back from successful 
conclusions to retransmission negotiations in hopes that the government 
will step in to assist them.
    Fortunately, from my perspective, competition in the communications 
world has never been so robust. But that is the real concern of those 
in our industry calling for a change to retransmission consent. They 
are unnerved, nay threatened, by competition. And that is why we are 
here today. Because they now believe that deleting retransmission 
consent will end the balance of power and tip the scales in their 
favor. Yet, the very MVPDs who today are calling for deregulation of 
retransmission consent are the very same entities who have been filing 
reams of paper and making countless visits to the FCC over the last two 
or three years trying to do the very opposite, that is, to impose brand 
NEW retransmission consent-related regulations--such as mandated 
standstills and arbitration--to benefit their own bottom lines at the 
expense of broadcasters.
    Encouraging the FCC to become an active participant in 
retransmission consent negotiations, as the leaders of the American 
Television Alliance have suggested, would serve to hinder the current 
free market negotiations, not set them free. Retransmission consent 
negotiations are complex and time-intensive negotiations that involve 
much more than price. Inserting a government-run arbitration provision 
coupled with a standstill requirement would lead to an FCC that focused 
on nothing but retransmission consent negotiations to the detriment of 
the agency's core mission. Broadcasters across the country want to be 
carried by distributors, and distributors want to carry broadcast 
television stations because of the popularity of our local and national 
programming. This equal amount of ``skin in the game'' is the best 
incentive to reasonable agreements.
    In exchange for use of the public's spectrum, broadcasters are 
bound to operate in the public interest. Accordingly, to this day, we 
fulfill that requirement with great enthusiasm, pride and excellence. 
But never did we agree that the valuable programming we develop, 
purchase, produce and offer over-the-air on our stations can be 
retransmitted by another entity without our permission.
    CBS understands the real world of innovation and the challenges it 
brings. We were one of the founders of television more than 80 years 
ago, and today we are a leader in the video marketplace. Our company 
not only has businesses with origins that date back to the dawn of the 
broadcasting age, it also has new ventures that operate on the leading 
edge of media. We own the most-watched television network in the U.S. 
and one of the world's largest libraries of entertainment content. We 
believe in innovation and the power of broadcasting.
    The CBS Television Network serves almost every household in the 
Nation via a broadcast distribution platform made up of about 200 
affiliated TV stations. These stations, in turn, supplement the CBS 
content we license to them with their own packages of local news and 
public affairs programming, as well as syndicated and other product 
that they either acquire from other suppliers or produce themselves. 
Stations do not own much of the non-news content they transmit; instead 
they obtain from content producers and owners the rights to broadcast 
it.
    Each year, CBS spends billions of dollars to produce and acquire 
top-notch programming. As for sports, CBS pays hundreds of millions of 
dollars each year to the NFL and to the NCAA for rights to March 
Madness alone, and that is before you consider rights fees for SEC 
Football, regular season NCAA basketball, PGA golf and to the USTA for 
rights to the U.S. Open Tennis Tournament.
    Our investment in superior programming helps not only the CBS 
network and our owned-and-operated television stations, but also our 
affiliated stations nationwide. When network programming is of high 
quality and compelling, local stations benefit. From large DMAs like 
Boston and Dallas to smaller DMAs like Myrtle Beach and Clarksburg-
Weston, local stations are able to present this network programming to 
obtain advertising dollars so that they, in turn, can make significant 
financial investments in the production, gathering and reporting of 
local news, sports, weather and other information. Local stations also 
are able to invest in rights to syndicated programs, such as ``Wheel of 
Fortune,'' ``Jeopardy,'' ``Ellen,'' ``Dr. Oz,'' ``Seinfeld'' and 
``Friends,'' which are obtained from other content producers.
    And, may I add, broadcasting is the most desirable platform for 
advertisers on both the local and national levels. Advertising is a 
powerful engine in the U.S. economy and subsidizes much of the 
programming in this country. Additionally, because of the unique nature 
of the network-affiliate system, small businesses are able to buy 
promotional time at affordable rates in their communities and get the 
most bang for their advertising buck.
    CBS looks forward to continuing to vigorously compete in the open 
marketplace this Committee created in 1992. As you recognized then in 
the report to accompany the Cable Act, ``It is the Committee's 
intention to establish a marketplace for the disposition of the rights 
to retransmit broadcast signals; it is not the Committee's intention in 
this bill to dictate the outcome of the ensuing marketplace 
negotiations.'' We thank the Committee for including us in discussions 
surrounding the future of the industry in which we plan to 
constructively contribute for many decades more.

    The Chairman. Thank you, Mr. Franks.
    Ms. Colleen Abdoulah, CEO and Chairwoman of the Board, WOW! 
Internet, Cable, and Phone.

 STATEMENT OF COLLEEN ABDOULAH, CHAIRWOMAN AND CHIEF EXECUTIVE 
OFFICER, WOW! INTERNET, CABLE, AND PHONE; CHAIRWOMAN, AMERICAN 
                       CABLE ASSOCIATION

    Ms. Abdoulah. Thank you. I too really appreciate all of you 
for taking the initiative to open this review up because there 
are a lot of things to consider and it is extremely complex, 
especially because the pace of change is so rapid. I heard a 
gentleman in one of your last hearings from Microsoft, I 
believe, say that we will see more change in the next 18 months 
than we have seen in the last 5 years, and I really believe 
that.
    We know that laws written in 1992, 1996 do not serve or 
support consumer behaviors and the expectations of consumers 
that are a direct result of the technological revolution that 
we are experiencing. Consumers tell me directly that what they 
want is more of what they want to buy and watch and they want 
to do so on different devices using different technologies. 
Yet, our outdated laws do not address these changing behaviors 
in consumers demands. Instead, they create significant problems 
for consumers.
    Specifically, programming and retransmission consent 
negotiations are failing and they are resulting in blackouts, 
as was stated. In fact, 69 blackouts have occurred in 2012 
alone, up 35 percent since 2011, affecting literally tens of 
millions of viewers. Retransmission fees are skyrocketing and 
consumers are paying the price. Media consolidation has led to 
rampant tying and bundling of unwanted, unwatched programming.
    So consumers often ask us why do they have to pay for so 
many networks they do not want. And I believe that is what we 
love about the Internet. We get to choose what we pay for.
    And speaking of the Internet, access to online video 
distribution rights is currently being withheld and slow-rolled 
to the smaller cable operator by the big content providers, and 
that puts our customers at a disadvantage.
    Then we have the big broadcasting cable networks paying 
what I think to be crazy, astronomical fees for sports 
programming because they know with the current business model, 
they can force that cost onto consumers.
    The distortions caused by these outdated rules are really 
serious and not without consequence, particularly for the 
smaller cable operator. My colleagues and I within the American 
Cable Association, with members in 49 states, represent the 
small player in the small versus big business arena. In fact, 
82 percent of ACA members serve fewer than 5,000 customers; 30 
percent serve fewer than 500 customers. And what I find so 
disturbing is that in the past 4 years alone, 800 small cable 
systems have literally gone out of business due in part to 
escalating retrans fees and overall programming costs. So we 
are already getting squeezed out. And when these businesses 
close, there is not only a loss of video to that community, 
there is a loss of broadband services as well. Smaller 
operators just simply do not have the leverage to negotiate 
fair market pricing for our video content.
    Since 1992, the tidal wave of media consolidation between 
broadcasters and cable networks has given enormous bargaining 
power to the Big 4 networks, power that abuses the Government-
sanctioned protections that may have made sense 20 years ago in 
a completely different business environment, but they do not 
today. And who pays for this? We do because we are all 
consumers.
    This abuse of power should be outlawed. There are at least 
46 cases that we know of where separately owned, same-market 
broadcasters coordinate their retransmission consent 
negotiations. Now, they use a benign term for this collusion. 
They call it ``shared services agreements.'' The impact of 
their collusion is that broadcasters who are supposed to be 
competing with one another use one single broker to negotiate 
carriage rights for two or more competing stations. We have 
given evidence to the FCC that proves that this unjust practice 
results in fees that are 21 to 161 percent higher than the fees 
that are created by broadcasters who negotiate carriage 
separately. Now, we as operators are not allowed to practice 
collusion, and appropriately so. Broadcasters should not be 
either.
    I have heard members in these hearings ask what should be 
done when you choose to reform the current laws. There are many 
improvements I think to consider, and I offer you just a few 
today.
    Prohibit coordinated negotiations by separately owned 
broadcasters in the same market.
    Provide special considerations for the small operators 
because they need them.
    Require continuous carriage of signals during a 
retransmission consent dispute to stop consumers from being 
held hostage by these blackouts.
    Require binding baseball-style commercial arbitration of 
such disputes.
    And give consumers and pay-TV providers the right to 
embrace new technologies to access broadcast signals.
    Thanks for having me. I look forward to questions.
    [The prepared statement of Ms. Abdoulah follows:]

Prepared Statement of Colleen Abdoulah, Chairwoman and Chief Executive 
  Officer, WOW! Internet, Cable and Phone; Chairwoman, American Cable 
                              Association
    Mr. Chairman and Ranking Member Hutchison, thank you for the 
opportunity to participate on this panel.
    As I prepared for today's event, I reviewed recent hearings and 
comments from the members of this Committee and am pleased that so many 
of you recognize what I and my fellow small cable operators also know:
Today's communications market has moved on while the 20-year-old laws 
        that govern it have stayed the same.
    While the 1992 Cable Act may have worked for the realities of the 
early '90s, it has been bypassed by a technological revolution that it 
never anticipated and is ill-equipped to handle.
    Today, we have smart phones, laptops, tablets, and other smart 
devices that access rich video content via Internet technologies, yet 
the law that governs video distribution assumes we still live in a 
world of one local broadcaster working with one local cable franchisee.
    I appreciate your awareness that the law is outdated, and I am 
excited about the benefits that consumers will see through updating the 
law.
Consumers are harmed because the laws have not kept pace with the 
        times.
    Specifically, the 1992 Act lags behind profound technological 
developments and business innovation. (Truthfully, the 1996 
Telecommunications Act lags behind too.) As a result, outdated laws 
applied to a rapidly changing marketplace create serious problems for 
consumers.
    These consumer harms manifest themselves in a number of ways:

   Programming and retransmission consent negotiations are 
        failing, causing blackouts.

   Retransmission consent fees, for what the broadcasters call 
        ``free over-the-air TV,'' are skyrocketing, and consumers pay 
        the increased price.

   Broadcasters collusively coordinate agreements with other 
        broadcasters in the same market, driving retransmission consent 
        rates even higher.

   Growing media consolidation by the large networks and 
        programming owners has led to rampant tying and bundling of 
        unwanted, unwatched and unmarketable programming.

   Because tying and bundling is forced on Multichannel Video 
        Programming Distributors (MVPDs) by the media giants, there is 
        hardly any difference today in the price and packages of video 
        services offered by cable, satellite, municipal and telco video 
        providers, let alone any choice for the consumer.

   Access to online video distribution rights is being slow-
        rolled by the big content providers, giving consumers little 
        choice for online video.

    On the retransmission consent front, there is even more evidence of 
consumer harm. For instance, in the retransmission consent market 
today:

   There are regular breakdowns in negotiations between 
        broadcasters and MVPDs, leading to a record number of 
        blackouts. In fact, 69 blackouts have already occurred in 2012, 
        affecting dozens of television markets across the country and 
        literally tens of millions of TV viewers.

   Retransmission consent blackouts in 2012 are up 35 percent 
        over 2011, and this year is hardly even half over.

   It is now the standard practice of big broadcast networks to 
        agree to pay astronomical fees for sports programming, in part 
        because they can force down the cost to consumers through 
        reverse compensation and retransmission consent payments.

   The outdated retransmission consent rules give big media 
        companies the means to require the carriage of additional, less 
        desirable cable programming.
The impact on smaller, independent MVPDs is magnified, and systems in 
        rural America are being lost.
    Distortions caused by these outdated rules are serious and not 
without consequences, particularly for smaller cable operators.
    My colleagues and I within the American Cable Association have a 
unique view of the pay-television marketplace as compared with larger 
MVPDs.
    Our members include the smallest operators in the market. In fact, 
82 percent of ACA's members serve fewer than 5,000 subscribers, and 30 
percent serve fewer than 500 subscribers. Since 2008, nearly 800 of 
these small systems have closed across the country due in large part to 
escalating retransmission consent and programming costs that cannot be 
passed along to consumers, a trend I fear will continue in many rural 
communities. And the loss of a business that offers video programming 
often means the devastating loss of broadband services as well, because 
an operator needs a healthy business model on both ends to survive.
How did we get here?
    I would like to present a view of how the video marketplace has 
changed over the last 20 years, and why your sense is accurate that 
these changes demand modernization of the Cable Act, particularly with 
respect to the rules governing retransmission consent. As Chairwoman of 
the Board of the American Cable Association (``ACA''), I provide my 
perspective on behalf of a group of 850 cable operators, including Wide 
Open West!, for which I serve as Chief Executive Officer.
    Retransmission consent was crafted to give broadcast stations 
control over the redistribution of their signals in a marketplace that 
existed before cable faced competition from:

   Direct broadcast satellite companies, such as DirecTV and 
        DISH Network, providing an all-digital video service that 
        includes local channels;

   Telephone companies, like Verizon, AT&T, and mid-sized and 
        smaller companies, providing a wireline video service that also 
        includes broadband and phone;

   Online video distributors, such as Netflix, Amazon, and 
        Hulu, providing a streaming and on-demand video service, 
        including broadcast content over the Internet, not just to TV 
        sets but also to laptop computers, tablets like the iPad, and 
        an assortment of hand-held mobile devices.

    Moreover, the provision was written before a tidal wave of media 
consolidation that has left the Big 4 broadcast networks (ABC, NBC, 
Fox, and CBS) in the hands of media giants like Disney, Comcast, News 
Corp., and Viacom's Sumner Redstone, all of whom own many of the most 
popular cable channels. And now too retrans cash is king for CBS and 
the others as they predict annual earnings of billion dollar 
retransmission consent fees to come.
    Today, retransmission consent rules fail to reflect the wide 
disparity in bargaining power between a pay-TV provider and a local 
broadcast station affiliated with a Big 4 network. In the distant past, 
negotiations were between one local broadcaster and one cable operator, 
each having exclusivity within its service territory. Although today 
there is still only one local station affiliated with a broadcast 
network per market, in nearly every market there are many multichannel 
video programming distributors in each market competing against one 
another. The original delicate balance between the two parties was 
predicated on the fact that both sides needed each other in roughly 
equal measure. However, unanticipated consolidation and business 
practices have transformed this situation into one in which the 
broadcaster can now extract evermore egregious fees from MVPDs and 
their subscribers as a result of government sanctioned protections that 
may have made sense in a completely different business environment, but 
not today.
    Today, the MVPD still needs the Big 4 signal on its channel line-up 
just as much as before, but, unlike in 1992, the broadcaster no longer 
needs any single MVPD quite so much. In my situation, I know, and my 
local broadcaster also knows, that if I do not carry its signal my 
customer will easily go to one of my competitors to get it.
Retransmission consent fees are out of control.
    To put all of this into context, but without violating the non-
disclosure requirements embedded in the contracts we all must sign, I 
have calculated that the retransmission consent costs for WOW!, 
starting in January of this year, have increased at an appalling year-
over-year pace of almost 90 percent. And that's in this grim economy 
for a product that Congress has legally obligated broadcast licensees 
to provide free and over-the-air to the public. This exorbitant rate 
hike follows on the heels of a 117 percent increase from the fees just 
prior to this round of retransmission consent.
    According to SNL Kagan research, retrans fees will increase 18-fold 
by 2015, and we're talking BILLIONS per year taken from consumers. 
Imagine the political reaction to that kind of increase if it was 
forecast for corn, gasoline, clothing, or any other consumer product.
Cable consumers are forced to pay for Internet content they don't 
        access.
    Let me shed light on another disturbing trend that should concern 
you. Some major content distributors continue to deny ACA member 
companies like WOW! fair and equitable Internet distribution rights for 
their high-value programming. Or, they unfairly tie these media rights 
to access to their core programming, requiring that our customers pay 
for what is often also available for free on the networks' proprietary 
websites. In one situation with a very well-known entity, we must 
charge EVERY customer on our system a fee for the right to access that 
company's online content over the subscriber's own broadband Internet 
connection, even though the programmer's audits reveal that, on 
average, less than two-tenths of one percent of our subscribers visit 
its website on any given day. If that kind of trend continues, both 
cable and broadband service will be priced out of reach for most 
consumers. This situation highlights the looming problem you will face 
if you do not in the very near future get ahead of the consumer and 
MVPD concerns surrounding video programming content and how it is 
distributed.
Coordinated negotiations by broadcasters stifle competition.
    I believe the problems that WOW! and other MVPDs face are best 
illustrated by understanding the sheer unfairness of coordinated 
retransmission consent negotiations. Broadcasters have perverted what 
they call ``marketplace negotiations'' for retransmission consent by 
engaging in collusive coordinated negotiations. A longstanding 
fundamental policy goal of our local broadcast television licensing 
system is the promotion of competition among top rated, same-market 
broadcasters licensed by the Federal Communications Commission.
    Today, there are at least 46 instances where separately owned, 
same-market broadcasters affiliated with a Big 4 network coordinate 
their retransmission consent negotiations. The practical impact of 
these collusive alliances is that local broadcasters, who are supposed 
to be competing against one another, are using a single representative 
to negotiate carriage rights for two or more competing stations. And 
consumers pay the price for this kind of collusion.
    Evidence ACA members presented to the FCC shows that broadcasters 
who coordinate their retransmission consent charge fees that are at 
least 21 percent higher than the fees collected by broadcasters who 
negotiate carriage separately. Just imagine if the reverse were to 
occur. Imagine the outrage you would hear from the local broadcasters 
if Comcast, WOW!, DirecTV, DISH Network, and AT&T U-Verse all decided 
to negotiate as one block with the TV stations in a single broadcast 
market in which we operate. We shouldn't do that and neither should the 
broadcasters.
    ACA brought the issue to the FCC's attention on multiple occasions, 
beginning as early as May 2010 in response to the FCC's request for 
comment on a Petition for Rulemaking to reform the rules governing 
retransmission consent. Each time we argued that the FCC should deem 
coordinated negotiations by broadcasters to be a per se violation of 
its good faith rules. More than two years later, we are still awaiting 
action. Our hope is that Congress will find a way to convince the FCC 
to act or will itself prohibit this practice in making revisions to the 
Cable Act.
The good news: there's no shortage of solutions!
    But there is good news. After years of hearings, industry 
discussions, and constant debate, it's clear the time for Congress to 
act is now. And when it does, there will be many solutions to consider 
that will improve the situation for consumers and, in combination, have 
a material benefit. As you begin your rewrite of the 1992 Cable Act, I 
urge you to consider:

  1.  Prohibiting coordinated negotiations by separately owned 
        broadcasters in the same market;

  2.  Ensuring continued carriage of signals during a retransmission 
        consent dispute in order to stop consumers from being held 
        hostage by blackouts;

  3.  Requiring binding baseball-style commercial arbitration of such 
        disputes; and,

  4.  Authorizing consumers and pay-TV providers to employ new and 
        innovative technologies that allow consumers to receive 
        broadcast signals over-the-air as an alternative to receiving 
        and paying for that content through retransmission consent. 
        These are but a few possibilities, and I urge you to consider 
        them all.

    As you have noted, the broadcast signal carriage rules codified in 
1992 are antiquated and have escaped reform for far too long. They 
reflect neither the realities of MVPD competition today engendered by 
the 1992 Act, nor the impact of the pervasive consolidation in the 
broadcast and media industry, not to mention the advent of the Internet 
as a platform for video programming delivery.
    Mr. Chairman, if you want to provide your constituents with the 
best services and options that a 21st Century telecommunications 
network can provide, then it is time to reform and overhaul the 20th 
Century law that prevents cable operators from delivering them.
    The status quo is unacceptable.

    The Chairman. Thank you very much, Ms. Abdoulah.
    And now we end with--no, we do not--Dr. Mark Cooper, 
Director of Research, Consumer Federation of America.

 STATEMENT OF DR. MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER 
                     FEDERATION OF AMERICA

    Dr. Cooper. Mr. Chairman, members of the Committee, thank 
you for giving this opportunity.
    In order to provide a fair evaluation of the Cable and 
Consumer Protection Act of 1992, it is important to recall that 
many of the most important provisions of that Act were 
superseded or repealed by the 1996 Act, and some of the most 
important policies pursued in the spectrum space since then 
have been outside of both the 1992 and 1996 Acts.
    Nevertheless, the 1992 Cable Act does provide an important 
baseline because Congress recognized that the cable market was 
afflicted by severe anti-competitive problems and anti-consumer 
practices. Congress knew that access to distribution media and 
control of market content are critical inputs that determine 
the fate of competition and the treatment of consumers. 
Congress believed that the incumbent market power in the video 
space was sufficiently pernicious and tenacious, that it 
overrode President Bush's only veto to enact the 1992 Act into 
law.
    Unfortunately, the competition promised by the Congress in 
the 1996 Act failed to develop with the sufficient speed, 
breadth, and scope to discipline cable market power. Relentless 
cable price increases returned soon after the 1996 Act and 
continue to this day because the multi-channel video market and 
the broadband wireless access market remain very highly 
concentrated. Competition was undermined in those markets by a 
series of mergers which culminated in the last few years and 
cross-technology mergers like Comcast/NBC and joint ventures 
like Verizon and big cable. A quasi-monopoly is developing 
where cable could compete against fiber. They have run up the 
white flag, and in the rest of the country, inferior 
technologies cannot compete against the single dominant coaxial 
hybrid fiber network.
    The failure to deconcentrate wireline distribution is 
equaled by the failure to deconcentrate commercial programming. 
Congress granted a lucrative right in retransmission, extending 
the transmission rights with its retransmission rights. But it 
gave broadcasters those rights without new responsibilities. 
The broadcasters use their rights for retransmission to build 
cable programming bundles and force them into the cable 
network. Those fees paid for the cable networks--much of it 
goes to broadcasters.
    The cable operators are not innocent in this. They used 
their vertically integrated programming to dominate where they 
could, and so the broadcasters leveraged their retransmission 
to respond to the cable operators' vertical market power. The 
end result was, of course, that independent production has 
disappeared in prime time.
    Bargaining over retransmission has become ugly, but no 
matter who wins between the cable operator and the 
broadcasters, the consumer always loses. The public 
occasionally loses access to programming, frequently is forced 
to pay more for programming, and always is forced to buy 
massive amounts of programming it never watches.
    In contrast to the failure in those spaces, the success of 
the FCC's decision to use the spectrum from mini to mini 
communications is remarkable. Indeed, the biggest success has 
come in the area where the FCC decided that it could allow the 
spectrum to be used without exclusive licenses at all. It 
concluded that a simple set of rules for sharing the spectrum 
would make the public airways open to speech. It invented Wi-Fi 
in the junk bands of the spectrum, and WiFi today is as big as 
cellular in terms of traffic. The remarkable success of 
unlicensed spectrum requires a radical deregulatory free market 
shift in public policy thinking about how the spectrum is used. 
We can return the public airways to the public for more direct 
use than at any time in exactly 100 years.
    And let us be clear. The original sin here is not 
compulsory copyright, not retransmission. It is exclusive 
broadcast licenses that were tolerated 100 years ago because of 
technology, but are a fundamental affront to the First 
Amendment.
    If Congress intends to bring spectrum and video policy into 
the 21st century, it must avoid making another 100-year 
mistake. It must move the broadcasters out of the way and 
provide the maximum opportunity for all the people to use the 
public airways for their public purposes. If Congress intends 
to rely on competition to fix the video space, as it should, 
public policy must ensure that competition on the small number 
of broadband platforms is not used to impede the development of 
competition. Internet distribution of video must not be starved 
of professional content by content owners, and it must not be 
strangled by cable gatekeepers, especially when they seek to 
defend the incumbent rents left over from antiquated 20th 
century policies.
    Thank you.
    [The prepared statement of Dr. Cooper follows:]

     Prepared Statement of Dr. Mark Cooper, Director of Research, 
                     Consumer Federation of America
    Mr. Chairman and Members of the Committee,

    My name is Dr. Mark Cooper. I am Director of Research at the 
Consumer Federation of America (CFA), which is an association of non-
profit consumer organizations that was established in 1968 to advance 
the consumer interest through research, advocacy, and education. Today, 
nearly 300 of these groups participate in CFA and govern it through 
their representatives on the organization's Board of Directors and the 
annual Consumer Assembly. CFA has been involved in communications, 
media and Internet policy for decades in legislative, regulatory and 
judicial arenas and has advanced the consumer view in policy and 
academic publications.\1\
---------------------------------------------------------------------------
    \1\ The analyses that are most directly relevant to this testimony 
include: Mark Cooper, The End of the End of Competition for Digital 
Access Services: The Verizon-Cable Spectrum Sale and Collaborative 
Agreements Mark the Final Failure of the 1996 Telecommunications Act to 
Provide Consumers with Effective Competition in Local Markets, Consumer 
Federation, July 2012; Efficiency Gains and Consumer Benefits of 
Unlicensed Access to the Public Airwaves: The Dramatic Success of 
Combining Market Principles and Shared Access, Silicon Flatirons, 
January 2012; ``Structured Viral Communications: The Political Economy 
and Social Organization of Digital Disintermediation,'' Journal of 
Telecommunications and High Technology Law, 9 (2011); The Central Role 
of Wireless in the 21st Century Communications Ecology: Adapting 
Spectrum and Universal Service Policy to the New Reality,'' 
Telecommunications Policy Research Conference, September 2011; ``Round 
#1 in the Digital Intellectual Property Wars: Economic Fundamentals, 
Not Piracy, Explain How Consumers and Artists Won in the Music 
Sector,'' Telecommunications Policy Research Conference, September 
2008.; The Case Against Media Consolidation (Donald McGannon 
Communications Research Center, 2007); ``Will the FCC Let Local Media 
Rise from the Ashes of Conglomerate Failure,'' International 
Communications Association, May 2007. The Impact of the Vertically 
Integrated Television-Movie Studio Oligopoly on Source diversity and 
Independent Production, 2006; ``Independent Noncommercial Television: 
Technological, Economic and Social Bases of A New Model of Video 
Production,'' Telecommunications Policy Research Conference, October 
2005; Broken Promises and Strangled Competition: The Record of Baby 
Bell Merger and Market Opening Behavior (Consumer Federation of 
America, June 2005); ``Spectrum as Speech in the 21st Century,'' The 
Public Airwaves as a Common Asset and a Public Good: Implications for 
the Future of Broadcasting and Community Development in the U.S., Ford 
Foundation, March 11, 2005; ``Explorations Of Anti-Consumer, 
Anticompetitive Practices,'' Cable TV Rates: Has Deregulation Failed?, 
Manhattan Institute, November 2003; Open Architecture as Communications 
Policy (Stanford Law School, Center for Internet and Society: 2004); 
``Ten Principles For Managing The Transition To Competition In Local 
Telecommunications Markets,'' Triennial Review Technical Workshop 
National Association of Regulatory Utility Commissioners, Denver CO, 
July 27, 2003; Media Ownership and Democracy in the Digital Information 
Age: Promoting Diversity with First Amendment Principles and Rigorous 
Market Structure Analysis (Stanford Law School, Center for Internet and 
Society: 2003); Cable Mergers and Monopolies: Market Power In Digital 
Media and Communications Networks (Washington, D.C.: Economic Policy 
Institute, 2002); ``Open Access To The Broadband Internet: Technical 
And Economic Discrimination In Closed, Proprietary Networks,'' 
University of Colorado Law Review, Vol. 69, Fall 2000; ``Picking Up the 
Public Policy Pieces of Failed Business and Regulatory Models,'' 
Setting The Telecommunications Agenda, Columbia Institute For Tele-
Information November 3, 2000; ``Antitrust As Consumer Protection In The 
New Economy: Lessons From The Microsoft Case, Hastings Law Journal, 52: 
4, April 2001; ``Evolving Concepts of Universal Service,'' The 
Federalist Society, October 18, 1996; ``Delivering the Information Age 
Now,'' Telecom Infrastructure: 1993, Telecommunications Reports, 1993.
---------------------------------------------------------------------------
    I appreciate the opportunity to offer CFA's reflections on the 
Cable and Consumer Protection Act of 1992, an Act to which CFA devoted 
a substantial amount of attention during its development. However, in 
order to provide a fair evaluation of the 1992 Cable Act, we believe it 
is important to recall that many of the most important policies adopted 
by the 1992 Act were repealed or superseded by the Telecommunications 
Act of 1996. It is also important to recall that some of the most 
important policies that affected the video product space in this time 
period (like the repeal of the Financial Interest and Syndication 
Rules) were implemented outside of the Act. Finally, it is important to 
recognize that the 1992 Cable Act dealt with and integrated rights to 
two media--wireless and wireline, using media in the broad sense of 
``storage and transmission channels or tools used to store and deliver 
information or data . . . to communicate any data for any purpose.'' 
\2\ The first sentence of the Communications Act demands no less, 
defining the purpose of the act to be
---------------------------------------------------------------------------
    \2\ http://en.wikipedia.org/wiki/Media_ (communication).

        to make available to all people of the United States, without 
        discrimination on the basis of race, color, religion, national 
        origin, or sex, a rapid, efficient nationwide and worldwide 
        wire and radio communications service with adequate facilities 
---------------------------------------------------------------------------
        at reasonable charges.

    Dealing with a big issue over a long period, especially one where 
there has been rapid technological and economic change, also requires 
that we evaluate the outcome in relation to the broadly defined media 
sector we have today. Because the video policy of the early 1990s 
affected wireless (over-the-air terrestrial and satellite) and wireline 
(cable) distribution media, any effort to write a new policy for the 
21st century must affect both. Thus, to evaluate where we have come in 
the past 20 years, we really need to look at the ``Video/Media Policies 
of the early 1990s.
    Once we take this broad perspective, we should be open to another 
possibility. While we hope to learn important lessons from from 
studying those aspects of wireless and wireline communications that 
were addressed by the 1992 Act, we should be open to the possibility 
that we may learn more about what we should do in the future from what 
happened in the recent past in areas of wireless and wireline 
communications policy that were not addressed by the 1992 Cable Act.
    With all that said, the 1992 Cable Act does provide an important 
baseline against which to evaluate the video/media policy of the early 
1990s. In the 1992 Act Congress recognized that the cable market was 
afflicted by severe, anticompetitive problems and anti-consumer 
practices. Congress knew that access to distribution media and control 
of marque content are critical inputs that determine the fate of 
competition and the treatment of consumers. Congress believed the 
problems were sufficiently grave and so in need of repair that it 
overrode President Bush's only veto to put the 1992 Cable Act into law. 
Congress was right to express these concerns; the central lesson of the 
video/media policy of the early 1990s is that incumbent market power in 
the video space is pernicious and tenacious and it requires vigorous 
public policies to prevent abuse of consumers. Checking that market 
power remains the central policy challenge after twenty years.
Wireline Service: The Failure of Competition to Discipline Cable Market 
        Power
    Cable Rates: The market power of the cable operators unleashed by 
the 1984 deregulation of cable had driven up rates dramatically. The 
rate regulation sections of the 1992 Act effectively controlled that 
runaway price escalation (see Exhibit 1). Unfortunately, the 1996 
Telecom Act abandoned rate regulation and promised that competition 
would protect consumers. It did not. In fact, the only time when 
consumers have had a respite from relentless price increases for 
multichannel video programming services since the 1984 deregulation of 
cable was the brief period in which the rate regulation of the 1992 
Cable Act was in place.
Exhibit 1: Bureau of Labor Statistics, Consumer Price Index (1982-
        83=100)


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Thus the heart of the analysis of the video/media policy of the 
early 1990s must focus on the decision to rely on competition to 
replace regulation as the essential source of consumer protection in 
the video space. Unfortunately, the Telecom Act provisions that 
promised competition failed and when sufficient competition to 
discipline cable pricing failed to materialize, the abusive pricing 
returned with a vengeance. Measured by the price consumers pay for 
multichannel video programming services, the policy failed miserably.
    Horizontal Limits: The horizontal and vertical limits policy that 
congress enacted in the 1992 Cable Act to help control cable market 
power also failed. Although the Congress told the FCC to impose 
horizontal and vertical limits, the language was not clear enough in 
the statue to overcome the steadfast opposition from cable in the 
courts. The FCC was not able to get a rule past the courts and cable 
exploited loopholes to undermine competition. The intermodal and 
intramodal competition that Congress hoped in the 1996 Act would 
replace regulation also failed to develop with sufficient speed, 
breadth and depth, to break the stranglehold that the incumbent 
distribution and content companies had on the video space. New entrants 
have failed to discipline cable's pricing power at the level of local 
of distribution and a handful of companies still dominate the prime 
time dial, which is where the money is in the video space.
    Program Access: Congress also recognized that access to marquee 
content was important, if new distribution media were to have a chance 
to compete against entrenched incumbents. If a new distribution media 
is denied access to the programming that people watch most often, it 
cannot attract the viewers necessary to make it a viable economic 
operation. Access to popular programming is a huge barrier to entry. 
The Congress recognized that antitrust law and practice were 
insufficient to prevent this barrier from being used to undermine 
competition, so it wrote specific provisions to promote and ensure 
access to content under the broader, public interest standard of the 
Communication Act. The 1992 Act recognized that potential satellite 
distributors of video content had been the victims of the withholding 
of content by cable operators. The Act included a number of provisions 
to check this anticompetitive behavior.
    The program access rules were among the most effective aspects of 
the 1992 Act that were not replaced by the 1996 Act. The program access 
rules did free satellite from the stranglehold of vertically integrated 
cable operators, but that success was limited by the weakness of 
intermodal competition. Because of differences in technology, satellite 
made its greatest inroads in rural areas, where cable was weakest, but 
never did discipline cable's pricing power anywhere. In urban areas, it 
did push cable to digitize and expand its capacity, but ultimately, 
that undermined satellite's ability to compete because satellite cannot 
deliver broadband connectivity. The cable broadband pipe now dominates 
the market for local digital connectivity.
    The impact of the program access rules was also limited in the case 
of intramodal competition. Head-to-head competition between cable 
operators and overbuilders was undermined when cable claimed a 
``terrestrial loophole,'' which allowed it to withhold ``must have'' 
content, like local sports from overbuilders. Even large potential 
entrants like telephone companies have complained about the problem of 
access to programming.
The Failure of Competition Policy
    Relying on the theory that intermodal competition from satellite 
and entry by telephone companies would discipline cable's market power, 
a series of mergers was approved that consolidated the cable's control 
over both the video and broadband markets in its local service area 
(see Exhibit 2). The long standing failure of intramodal video 
competition (between cable companies, between broadcasters, between 
telephone companies) has been joined by the dramatic failure of 
intermodal competition between (broadcasters and cable, between 
satellite and cable, between cable and telephone companies).
Exhibit 2: The Telecom Act Path to a ``Collaborating'' Duopoly in Local 

        Digital Connectivity


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        
    Source: Author based on Cable Mergers and Monopolies (Economic 
Policy Institute, 2002), Broken Promises and Strangled Competition: The 
Record of Baby Bell Merger and Market Opening Behavior (Consumer 
Federation of America, June 2005); ``Picking Up The Public Policy 
Pieces Of Failed Business And Regulatory Models,'' Setting The 
Telecommunications Agenda, Columbia Institute For Tele-Information 
November 3, 2000.

    The measure of market structure that has been used by the 
Department of Justice and the Federal Trade Commission for decades is 
the HHI index. The DOJ/FTC recently raised the threshold they use for 
considering a market to be highly concentrated. They have declared that 
when the HHI is at a level equivalent to four equal sized firms 
(HHI=2500) a market is considered to be highly concentrated market and 
likely to get close scrutiny in transactions like mergers and joint 
ventures.
    The HHI index for local distribution shows that local distribution 
for MVPD service remains very highly concentrated, affording less 
competition than even a pure duopoly (see Exhibit 3). The fact that 
there is more competition than there was before the 1992 cable Act is 
not the most important point; the central lesson in these statistics is 
the fact that there is not enough competition to produce the beneficial 
results that competition is supposed to deliver and Congress promised.
    Moreover, this simple statistic does not even fully capture how bad 
the situation is at the local level, as discussed below, because the 
competitors are not evenly matched in terms of the technologies used to 
supply services. The cable operators have added broadband to their 
video bundle and in at least three-quarters of the country they have 
the network that will dominate the broadband space in speed and 
capacity. The steady increase in the concentration of local 
connectivity for broadband access is evident in Exhibit 3.
Exhibit 3: HHI for Local Digital Wireline Connectivity


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    Source: Mark Cooper, The End of the End of Competition for Digital 
Access Services: The Verizon-Cable Spectrum Sale and Collaborative 
Agreements Mark the Final Failure of the 1996 Telecommunications Act to 
Provide Consumers with Effective Competition in Local Markets, Consumer 
Federation, July 2012; Eli Noam, Media Ownership and Concentration in 
America, 2009, for pre-2008; author estimates based on national trends 
in Federal Communications Commission reports on, High Speed Internet 
and Wireless applied to local market shares data in International 
Strategy and Investment Group, Media and Cable, October 24, 2011.
The 21st Century Policy Challenge: Ensuring the Emerging Quasi-
        Monopoly in Wireline Broadband Services the Public Interest
    When cable competition policy failed, it opened the door to the 
dangerous possibility that these problems will persist in the age of 
digital distribution. The failure to introduce vigorous and effective 
competition into local video distribution now threatens the new 
distribution medium--broadband. We are repeatedly told that the 
broadband Internet will solve everything, but in the production and 
distribution of professional video, it has not yet done so and the 
dominant players are engaged in vigorous efforts to ensure that their 
dominance is preserved by manipulating access to consumers or 
withholding content from Internet video distribution.
    The end of the end of the fairy tale of competition has been 
highlighted in the past two years by cross-technology mergers (Comcast-
NBC) and joint ventures (Verizon and big cable). It is no longer 
possible to maintain the fiction that competition will protect 
consumers in the video market. The lesson for policymakers is quite 
clear.

   In those parts of the nation where there are two networks 
        that are well-matched in capacity, the competitors have waved 
        the white flag and proposed a joint marketing agreement and 
        strategic produce development joint venture.

   Poorly matched intermodal technologies are no substitute for 
        head-to-head competition. Telco DSL or 4G wireless networks 
        cannot deliver the speed and bandwidth that fiber and hybrid 
        fiber coaxial cable networks can.

    The difference between wireless broadband and wireline is quite 
clear. The fourth generation wireless technology aspires to deliver 
capacity and speed in the range of 10 to 20 megabits per second (mbps). 
The technologies used by advanced wireline service deliver 50 to 100 
mbps. As a real world reminder of this difference, the wireline 
broadband service providers set their caps about 125 times as high as 
the wireless carriers. While none of the caps, as implemented, makes 
economic sense, the dramatic difference in their levels reflects the 
fundamental differences between the technologies.
    Exhibit 4 shows a recent comparison of the best available broadband 
services available from each technology in fifteen cities across the 
globe, based on a recent analysis by the New America foundation. These 
15 cities had complete data on upload and download speeds for each of 
the major technologies. These are very dense areas ranging from 2300 
per square mile in Riga Latvia to almost 30,000 per square mile in New 
York. The Exhibit 4 shows that DSL and Wireless broadband delivers a 
fraction of the speed that cable/fiber does. As cable and fiber move to 
higher speed, DSL and wireless fall farther behind.
Exhibit 4: Average Speed for ``Best'' Available Technologies in 15 
        Cities


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    Source: Hibah, Husain, et al., The cost of Connectivity, New 
America Foundation, July 23, 2012.
Policy Lessons
    I believe mobile broadband is a terrific technology that will be at 
the center of the communications ecology of the 21st century digital 
economy, but it is not a substitute for wireline broadband. On the 
contrary, wireline broadband is a vitally important complement and a 
necessary input for wireless broadband. It is the ``fat pipes'' of 
wireline broadband that bring the exaflood of data close to the 
consumer, data which covers the first mile through wireless. This 
critically important role of wireline broadband makes it all the more 
alarming that we are headed to at best a quasi-monopoly of full 
capacity broadband networks (a duopoly with either two poorly matched 
or collaborating rivals). Moreover, to the extent that wireless 
broadband might provide competition for cable, it has the added problem 
in the U.S. that the dominant telephone companies also dominate the 
wireless broadband space. Worse still, one of he two dominant wireless 
broadband providers has signed a peace treaty with the major cable 
operators. I believe that this is illegal under the Communications Act, 
but if the courts find that the Act is ambiguous in this area, the 
Congress should make it clear that this type of close collaboration 
between two wireless broadband networks is unacceptable if competition 
is to remain the primary thrust of public policy. One and a half firms 
is not enough competition to protect consumers, but that is what we 
have in the U.S.
    Twenty years of failure to break the strangle hold of the incumbent 
broadcasters and cable operators should have reinforced the premises on 
which the 1992 Cable Act rested: access to the means of distribution 
and ``must have'' content are key bottlenecks. The campaign by the 
cable operators and content producers to prevent content from going 
online or ensure that it is behind a pay wall if it gets online, is 
intended to defend the rents of their offline businesses. In the 
absence of effective competition, this rent collection is not socially 
productive. Rather than support the necessary infrastructure, it 
contributes to outrageously high rates of profit and undermines the 
competitiveness of and innovation in the digital distribution models.
    The pattern of anti-competitive, anti-consumer behavior that cable 
exhibited in the pre-broadband era has been transferred to the 
broadband product space. Comcast was caught red-handed degrading the 
quality of service of applications that competed against its core 
product. It has recently begun to charge consumers who use competing 
digital distribution service over their broadband connections. In both 
cases, it gave its own, identical services better treatment. I believe 
that this is illegal under the Communications Act, but if the courts 
find that the Act is ambiguous in this area, the Congress should make 
it clear that broadband communications networks must be operating in a 
nondiscriminatory manner, the way all of the major communications 
networks have been throughout the history of the Republic.
    If Congress intends to rely on competition to fix the video space, 
it must ensure that the Internet is not starved of content or strangled 
by cable gatekeepers. The very small number of distribution networks 
means that competition between platforms will be feeble at best. 
``Dynamic'' duopolies just won't cut it, ``collaborative'' duopolies 
are a joke and ``benevolent'' monopolies are a fiction. If policymakers 
intend to rely to the greatest extent possible on competition, then 
public policy must ensure that competition on the small number of 
platforms is unimpeded by the market power of the network owners or the 
dominant content producers.
Wireless: The Failure of Broadcast Spectrum Policy
    Retransmission Consent: Twenty years ago, when Congress chose to 
extend the lucrative transmission rights it had granted to broadcasters 
by adding retransmission rights, it was attempting to protect the 
national broadcast networks that had come to play an important part in 
democratic discourse in America. The retransmission consent provisions 
of the 1992 Act were intended to ensure that national broadcast 
networks were available over cable and supported by broadcasters. 
Unfortunately, Congress gave the broadcasters these new rights without 
new responsibilities and they abused them. They were not used to 
strengthen the broadcast networks; they were used by the broadcasters 
to build suites of cable programming that were crammed into the bundles 
that cable offered. Consumers were forced to purchase large bundles of 
programs, most of which they do not watch.
    Repeal of FinSyn: The repeal of the FinSyn rules also contributed 
to this consolidation, allowing the broadcasters to eliminate 
independent programming from prime time, which provided the 
broadcasters with the incentive to purchase movies studios. The result 
of these policies was to unleash a wave of horizontal mergers and 
vertical integration, as shown in Exhibit 5.
Exhibit 5: The Evolution of the Cable/Broadcast Content Oligopoly


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    Source: Mark Cooper, The Impact of the Vertically Integrated 
Television-Movie Studio Oligopoly on Source diversity and Independent 
Production, 2006; Columbia Journalism Review, Who Owns What, August 22, 
2006.

    Today the video dial is dominated by a handful of companies, many 
of which have proposed to collaborate, as shown in Exhibit 6.
Exhibit 6: Programming Controlled by the Content Oligopoly and 
        Collaborators


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    Source: Federal Communications Commission, In the Matter of Annual 
Assessment of competition in the Market for the Delivery of Video 
Programming: fourteenth Report, July 20, 2012, Appendix B; Columbia 
Journalism Review, Who Owns What, July 21, 2012.

    The cable operators were not entirely innocent in this process. The 
broadcasters were confronted with the problem that cable operators, 
often vertically integrated with cable programming, gave their 
affiliated programming preference in carriage and high fees. To match 
the cable operators, who were leveraging the advantage of vertical 
integration, the broadcaster leveraged their retransmission rights to 
gain carriage. For a long period the cable operators and broadcasters 
solved their problem by increasing the bundles and charging higher 
prices. The bargaining over retransmission has become contentious 
lately, but no matter who wins between the cable operators and the 
broadcasters, one thing is certain, the public always loses. The public 
occasionally loses access to programming, frequently is forced to pay 
more for programming, and always is forced to pay for massive amounts 
of programming it never watches.
Spectrum Policy Beyond the 1992 and 1996 Acts: Time to Return the 
        Public Airwaves to the Public
    Use of the public airwaves (transmission and retransmission rights) 
is a good place to start a broad and meaningful reform agenda. Spectrum 
is a shared resource used by humans to communicate. Human speech uses 
the airwaves, which are accessible to all who have a voice, and people 
have been using technology to expand the reach of their communications 
through the spectrum for as long as they have been speaking. The 
invention of the radio a little over a hundred years ago was a 
technological breakthrough that vastly increased the ability to 
transmit signals over long distances to many more people.
    Exactly a hundred years ago with the signing of the Radio Act of 
1912 (August 13, 1912), public policy started down the road of granting 
licenses to transmit signals whose range was boosted by electronics. 
Given the technology of the day, using the spectrum to transmit one 
signal to many potential listeners appeared to be the best use of the 
spectrum. Exclusive licenses seemed to be a good way to solve two 
problems--(1) prevent interference between speakers by designating one, 
privileged person to use specific frequencies in the spectrum in 
specific areas and (2) provide incentives to investment in the 
transmitters, receivers and content that would fill the airways with 
sound. In exchange for the privilege of an exclusive right to use the 
public airwaves, broadcaster were asked to shoulder public interest 
obligations.
    Economists have debated for decades whether broadcast licenses were 
the best use of the spectrum, but two remarkable experiments in the 
past quarter century have made it clear that, whatever the original 
rationale may have been, it no longer holds. About a quarter of a 
century ago, public policy allowed the spectrum to be used in other 
ways by other technologies to provide manyto-many conversations. The 
FCC began to issue licenses for cellular communications under the 
theory that licenses were still necessary to control interference and 
incent investment in the technology necessary to exploit the resource 
in this new way. As shown in Exhibit 7, the value of the economic 
activity in the spectrum used for two-way communications now dwarfs the 
value of the activity in the spectrum set aside for broadcasting, even 
though the broadcast spectrum is considered to be of much higher 
quality.
Exhibit 7: Broadcasting v. Wireless Annual Revenue (million $)


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    Source: Statistical Abstract of the United States, various issues, 
Information Sector Services--Telecommunications Estimated Revenue and 
Expenses; Mark Cooper, ``The Central Role of Wireless in the 21st 
Century Communications Ecology: Adapting Spectrum and Universal Service 
Policy to the New Reality,'' Telecommunications Policy Research 
Conference, September 2011.

    At roughly the same time, however, the FCC undertook an even more 
deregulatory free market experiment in the use of the spectrum. It 
realized that issuing licenses to transmit signals was not the only way 
to control interference or incent people to invest in the technology to 
make more communications possible. Given new technology, allowing 
everyone to use the spectrum to transmit signals, subject to simple 
rules of sharing, also produces an immense amount of communications 
without interference. WiFi was born in parts of the spectrum that had 
been considered ``junk'' or ``garbage'' by those wishing to use the 
spectrum for commercial purposes.
    As shown in Exhibit 8, the number of WiFi enable devices deployed 
has increased at a remarkable pace. In the contemporary world of 
wireless broadband communications, firms that hold the privileged 
position of licensed cellular carriers have found it efficient and 
effective to dump as much as half their data traffic into the 
unlicensed space.
Exhibit 8: U.S. Wireless Connectivity Potential


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Source: Nick Flaherty, ``Consumer Wi-Fi drives Global growth,'' The 
Embedded Blog, May 28, 2010, Peter King, Digital Home Wi-Fi Enabled 
Devices: Global Market Forecast and Outlook,'' July 2007; FCC, Internet 
Access Services, various issues; Mark Cooper, Efficiency Gains and 
Consumer Benefits of Unlicensed Access to the Public Airwaves: The 
Dramatic Success of Combining Market Principles and Shared Access, 
Silicon Flatirons, January 2012.

    The value of unlicensed spectrum goes well beyond a convenient 
place for cellular services to offload their traffic. It provides a 
variety of services that have unique value. In a recent paper I showed 
that the value of the many uses of WiFi has grown to equal or exceed 
the value of wireless broadband and wireline broadband (as shown in 
Exhibit 9).\3\ As the Internet of things expands, to tens of billions 
of transmitters, unlicensed spectrum will fill a larger and larger 
role. Wi-Fi is a central feature of the 21st century communications 
technology.
---------------------------------------------------------------------------
    \3\ Mark Cooper, Efficiency Gains and Consumer Benefits of 
Unlicensed Access to the Public Airwaves: The Dramatic Success of 
Combining Market Principles and Shared Access, Silicon Flatirons, 
January 2012.
---------------------------------------------------------------------------
    The remarkable success of unlicensed spectrum requires a radical, 
deregulatory, free market shift in public policy thinking about how to 
use spectrum. It is now possible to return the public airwaves to the 
public for much more direct use than at any time since the passage of 
the Radio Act a hundred years ago.
    The unlicensed model has succeeded because it is not free. In order 
to utilize the unlicensed spectrum, device manufacturers must design, 
build and market devices that consumers buy. To induce consumers to do 
so, useful applications must be written and distributed. Service 
provides must deploy hundreds of thousands of base stations and they 
must pay for the transport of traffic to and from the Internet. The 
unlicensed model succeeded by bringing new and unique services to 
market, increasing the value of broadband by extending it to new 
devices, and providing a lower cost, more efficient avenue to deliver 
data to consumers.
Exhibit 9: Use of Unlicensed Spectrum Accounts for a Significant Part 
        of the Value of Broadband


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        

    Sources: Cellular data estimated as $50/month for 84,000 million 
subscribers year-end 2010 Industry Analysis and Technology Division, 
Internet Access Services: Status as of December 2010, Federal 
Communications Commission, October 2011. WiFi standalone value is 
calculated as 110 million users are $20 per month value based on 
charges for standalone Wi-Fi services (as advertised in websites of 
Boingo, AT&T, T-Mobile). Most cellular providers bundle Wi-Fi with 
cellular broadband subscriptions. Hot Spot Connectivity estimated by 
scaling up AT&T 1.2 billion per year to 3.6 national total valued at 
average per session charge of $3. Consumer surplus is from Richard 
Thanki, The Economic Value Generated by Current and Future Allocations 
of Unlicensed Spectrum, Perspective, 2009 (adjusting his 30 percent 
scenario for the current level of broadband subscribers). Speed is 
from, Paul Milgrom, Jonathan Levin and Assaf Eilat, The Case for 
Unlicensed Spectrum, October 12, 2011). Intermediate Inputs from 
Richard Thanki, The Economic Value Generated by Current And Future 
Allocations of Unlicensed Spectrum, Perspective, 2009 and Yochai 
Benkler, Unlicensed Wireless vs. Licensed Spectrum: Evidence from 
Market Adoption, 2011. Mark Cooper, Efficiency Gains and Consumer 
Benefits of Unlicensed Access to the Public Airwaves: The Dramatic 
Success of Combining Market Principles and Shared Access, Silicon 
Flatirons, January 2012.

   The unlicensed model removes the spectrum barrier to entry, 
        which is the primary obstacle by allowing anyone to transmit 
        signals for any purpose, as long as the devices used abide by 
        the rules.

   Removing this barrier to entry removes the threat of hold 
        up, in which the firm that controls the bottleneck throttles 
        innovation by either refusing to allow uses that are not in its 
        interest, or appropriating the rents associated with 
        innovation.

   It lowers the hurdle of raising capital, by reducing the 
        need for network investment and focusing on devices and 
        applications.

   It fosters an end-user focus that makes innovation more 
        responsive to consumer demand; indeed, it allows direct end-
        user innovation.

   It de-concentrates the supply of services compared to the 
        exclusive licensed model, especially for high bandwidth 
        services which tends to result in a very small number of 
        suppliers, particularly in lower density markets.
Policy Lessons: Moving the Broadcasters out of the Way
    This historical background must be the starting point for policies 
to address the problem of the retransmission consent. Retransmission of 
broadcast signals may or may not be a necessary extension of the early 
twentieth century broadcast license approach to using the spectrum, but 
the fundamental problem at the start of the 21st century is that the 
underlying broadcast licenses are an anachronism born of an antiquated 
technology. They use far too much spectrum to provide a specific form 
of communications that is of relatively little value compared to the 
alternative uses of the public airwaves that technology now makes 
possible. Simply put, the U.S. is wasting tens of billions of dollars a 
year because the broadcast licenses prevent people from using the 
public spectrum in much more valuable ways.
    If Congress reforms retransmission rights without reforming the 
underlying transmission rights, it will have done only a small part of 
what is necessary and in the public interest. If Congress reforms the 
underlying transmission rights without providing the maximum 
opportunity for all the people to use the spectrum in the freest manner 
possible, it will have failed miserably to bring the management of 
spectrum in to the 21st century. Congress will make another hundred 
year mistake.
    Using 21st century technology, broadcasters can continue to 
transmit their signals while using much less spectrum. They should be 
required, not bribed, to do so. To be fair, the cost of retooling their 
equipment to transmit more efficiently might be defrayed with public 
funds, but that is it. They have no claim to the value that the 
spectrum can generate with other uses. Since the signals they will be 
able to transmit will be just as strong and clear (perhaps even better 
in both regards), there will be no harm to them and they deserve no 
special compensation. The exclusive right to transmit in the public 
airwaves is already a privilege of immense value. If a broadcaster does 
not move, the next time the broadcast license is up for renewal, part 
should be set aside for unlicensed use and the other part should be 
auctioned. If the broadcasters want it badly enough, they will win the 
auction and make the investment necessary to use the spectrum, just 
like every other potential bidder. The spectrum that is freed up by 
relocating the broadcasters should be split between cellular licenses 
and unlicensed use.
    Reforming the management of the public airwaves in this way is the 
most important step policymakers can take, but reforming transmission 
rights in this way will not solve the problem of retransmission rights. 
Broadcasters will still have the privilege of holding exclusive rights 
to use the public airwaves to transmit their signals and the current 
law gives them retransmission right, too.
    Congress could simply eliminate retransmission rights and the 
public interest would be no worse off. The original license to transmit 
was a valuable privilege. The broadcasters received the right to 
transmit signals over-the-air for free to the public. That is all they 
deserved and should have expected.
    In the alternative, Congress could tie retransmission right to 
other public purposes for those who choose to continue their current 
licenses and accept the offer to move their transmission signals, much 
as it tied the original transmission rights to public interest 
obligations. In order to exercise retransmission right on multichannel 
video distribution platforms, broadcasters should be required to make 
those programs available over the Internet at the same time and on the 
same terms as they make their programming available over-the-air. This 
would replicate the original deal between the public and broadcasters--
the right to transmit signals that are freely available to the public.
Conclusion
    Digital distribution is a powerful, consumer-friendly, competition-
friendly force in the 21st century media sector, but it is not immune 
to the abuse of market power by entrenched physical space incumbents. 
Media policy in the 21st century will have to be sensitive to the new 
economic reality, where small numbers of platforms play an important 
role. Large firms dominate platforms at the center of the digital 
economy because of the superior economics made possible by dramatic 
reductions in transaction costs and the ease and importance of vertical 
linkage in digital production. The economics that dictate a small 
number of platforms with market power, do not prevent the abuse of that 
market power. It becomes vitally important to ensure competition for 
the complements that flow on those platforms is not undermined by 
market power.
    The need for access is a two edged sword. The owners of the 
platforms must not be allowed to leverage their market power to distort 
competition on the platform. The suppliers of the complements (content) 
must not be allowed to manipulate the supply of ``marque'' content to 
distort platform competition or extract monopoly rents, especially in 
the name of defending inefficient, outdated physical space business 
models.
    The media policy of the early 1990s failed in large measure because 
it pinned its hopes on competition between media distribution platforms 
and gave broadcasters more rights, while failing to control cable 
market power. After the Comcast-NBC merger and in light of the Verizon-
cable joint venture, the prospects that platform competition will 
provide the necessary check on the market power of incumbent content 
producers and network owners are dimmer than ever.
    If Congress intends to legislate in the media and spectrum area, it 
must get back to the principle that the primary means of communications 
must be available to all on a nondiscriminatory basis, a principle that 
has been successfully applied to the dominant means of communications 
throughout U.S. history, regardless of the dominant technology--roads, 
canals, steamships, railroads, and the telephone network. It would be a 
grave mistake, another hundred year mistake, to allow the information 
superhighway to be turned into a private toll road dominated by one or 
two network owners.

    The Chairman. I thank you, sir.
    We move now on to Mr. Padden, and I could identify you. You 
are an Adjunct Professor of Law at the University of Colorado. 
Please proceed.

          STATEMENT OF PRESTON PADDEN, SENIOR FELLOW,

            SILICON FLATIRONS CENTER, COLORADO LAW,

                     UNIVERSITY OF COLORADO

    Mr. Padden. Thank you, Chairman Rockefeller, Ranking Member 
Hutchison, and members of the Committee. My name is Preston 
Padden. I am a Senior Fellow at the Silicon Flatirons Center 
for Law, Technology, and Entrepreneurship at the University of 
Colorado School of Law and an Adjunct Professor of 
Communications Law.
    We have 11 of our students interning in communications-
related offices in Washington this summer, and I thank the 
Committee very much for accommodating some of them here today.
    The views I express are my own, and I have at least three 
things I did not have in earlier appearances before this 
committee. They are arthritis, hearing aids, and the broad 
perspective that comes from no longer being employed in one of 
these warring industry segments.
    America's television regulatory policies have come to look 
like that old closet in your basement that you keep promising 
yourself one day you will finally clean out. I appear today to 
offer a full-throated embrace of S. 2008 and H.R. 3675, the 
Next Generation Television Marketplace Act, that would affect 
principled deregulation.
    Priority number one must be the repeal of the cable and 
satellite compulsory licenses. These licenses seize all the 
programs on local TV stations and give them for free to Time 
Warner Cable and DirecTV, but not to new online video 
distributors like Netflix. This creates a huge impediment to 
the growth of online video distributors, the distributors that 
hold the most promise of new competition for the benefit of 
consumers. Since multinational and bilateral treaties prohibit 
Congress from enacting a compulsory license for television 
programs on the Internet, the only way to level the playing 
field between Time Warner Cable and Netflix is to repeal the 
cable and satellite compulsory licenses.
    These licenses were first adopted in 1976 because Congress 
did not then believe that there was a reasonable marketplace 
mechanism to clear the copyrights for cable and satellite 
retransmission of broadcast programs. But today the programs on 
more than 500 non-broadcast networks, which are not subject to 
the compulsory licenses, get retransmitted all across the 
country through simple marketplace negotiations. The non-
broadcast channel owners simply aggregate the rights in all of 
the programs on their schedule and then engage in a simple 
copyright-based negotiation with the cable operator or 
satellite operator. Broadcasters could do exactly the same 
thing.
    The worst of all possible results would be to modify or 
repeal retransmission consent while leaving the compulsory 
copyright licenses in place. That would produce a totally 
unwarranted windfall for cable and satellite operators and 
would do nothing to help consumers gain access to new video 
options from online distributors.
    The bedrock principle that broadcasters and program 
creators deserve to be compensated when another party sells 
their programs at retail is not outdated. It is timeless, as 
old as capitalism itself. So I ask the Committee to distinguish 
between an antiquated regulatory structure and indeed needs to 
be examined and the unarguable principle that the creators of 
broadcast programming deserve to be compensated for their 
product.
    S. 2008 and H.R. 3675 would bring about other much needed 
deregulation as further described in my written testimony. For 
example, because of the TV-newspaper cross-ownership rule, the 
Times Picayune newspaper did not have the option of seeking to 
merge with a local television station, and as a result, 
consumers in New Orleans now get only three newspapers a week.
    By championing principled deregulation, I do not mean to 
tilt for or against any industry segment. I love them all. 
Broadcasters provide consumers with free over-the-air access to 
the most watched programming and to vital news and community 
service. Cable, led by Dr. Richard Green and his team at Cable 
Labs, deserve enormous praise for developing the doxis standard 
and investing more than $175 billion of private capital to 
build America's only nearly nationwide high-speed broadband 
network. Satellite carriers and online video distributors offer 
a much needed alternative source of video programming, and 
without the program creators, nothing else in the television 
ecosystem would matter.
    I have confidence that all of these industry segments will 
thrive in a deregulated future. I understand that a regulated 
environment, especially one that your industry helped to shape, 
is known and secure, but I firmly believe that the future of 
all of these industry segments and of segments not yet even 
conceived lies not in regulation but in the freedom to innovate 
in the service of consumers.
    Thank you very much.
    [The prepared statement of Mr. Padden follows:]

Prepared Statement of Preston Padden, Senior Fellow, Silicon Flatirons 
              Center, Colorado Law, University of Colorado
``Congress gives Comcast, but not Netflix, a free copyright license for 
        all the programs on local TV Stations. Why?'' [From testimony 
        below]

    Chairman Rockefeller, Ranking Member Hutchison and members of the 
Committee, my name is Preston Padden and I am a Senior Fellow at the 
Silicon Flatirons Center for Law, Technology and Entrepreneurship at 
the University of Colorado School of Law and an Adjunct Professor of 
Communications Law. I enjoyed a 38 year career in the television 
industry during which I held senior positions in almost every segment 
of the business--local television stations, television networks, cable 
networks and satellite television, including serving as President of 
The ABC Television Network.
    I have appeared before the Committee many times, but this is the 
first time that no one is paying me to advocate a particular point of 
view. The views I express today are my own. I am strongly pro-
broadcaster, pro-cable/satellite/telco operator, pro-online video 
distributor and pro-content creator. I am anti-no one. Most importantly 
I am passionate about allowing dynamic market forces to provide 
consumers with the best possible television services. I am honored to 
be sharing the witness table with distinguished and accomplished 
industry leaders, including longtime friends.
    America's television regulatory policies have come to look like 
that old closet in your basement that you keep promising yourself that 
one day you will finally clean out. The span of my career has allowed 
me to be an observer, and occasionally a participant, as one regulatory 
structure after another was stuffed into that closet. In my opinion, 
the day has come to clean it out. I appear today to offer a full-
throated embrace of S. 2008 and HR. 3675, the Next Generation 
Television Marketplace Act.
Compulsory Licenses and Retransmission Consent
    Because of the inextricable link between Communications policy and 
Copyright policy, I urge this Committee to find a way to move forward 
in lockstep with the Committee on the Judiciary as you clean out this 
dusty regulatory closet. Repeal of the cable and satellite Compulsory 
Copyright Licenses in Sections 111, 119 and 122 of Title 17 should be 
an absolute prerequisite to action by this Committee, or by the FCC, to 
repeal or modify related Communications Statutes and Regulations 
including Retransmission Consent. Many of the Communications Act 
provisions were adopted expressly to prevent unfair and unintended 
consequences that otherwise would flow from Compulsory Licensing. They 
are inseparable. Repeal of the Communications provisions without also 
repealing the Compulsory Copyright Licenses would result in an 
unjustifiable windfall for cable/satellite/telco operators 
(``Multichannel Video programming Distributors'' or ``MVPDs'') at the 
expense of broadcasters and program creators.
    Today, MVPD distribution of broadcast programming is governed by a 
Rube Goldberg regulatory structure. Wikipedia describes Rube Goldberg 
as ``complex gadgets that perform simple tasks in indirect, convoluted 
ways.'' Rube would have loved our system of Compulsory Licenses and 
Retransmission Consent. First in 1976 and then in 1988 the government 
seized the private property of program creators--all the programs on 
local TV stations--and gave them for free to for-profit cable and 
satellite companies under Compulsory Licenses. Then in 1992, instead of 
simply repealing the Compulsory Licenses, the government layered on 
Retransmission Consent--a requirement that cable and satellite 
companies get the consent of the same local TV stations for the use of 
their signal, as distinguished from their programs. The end result of 
these two government interventions is a negotiation between the local 
TV stations and the cable and satellite companies. As explained below, 
that is the same result that most likely would have resulted if the 
government had adopted neither the Compulsory Licenses nor 
Retransmission Consent. We have created complex statutes that perform 
simple tasks in indirect, convoluted ways.
    S. 2008 and HR. 3675 achieve the right public policy balance by 
repealing both the Compulsory Copyright Licenses and Retransmission 
Consent provisions thereby favoring no industry over another. The 
result would be to allow dynamic marketplace forces to manage the 
distribution of broadcast programming in response to consumer demand, 
just as those same forces have successfully managed the distribution of 
non-broadcast programming for the last three decades. Those marketplace 
forces will do a better job of serving the American people than do 
these ancient Statutes and Regulations that virtually lock in place 
viewing patterns dating back to 1972.
    The Cable Compulsory Copyright License (17 U.S.C. Section 111), 
enacted in 1976 when television in America consisted almost entirely of 
just ABC, CBS and NBC, is one of the oldest and most outdated Statutes 
gathering dust in the back of our nation's regulatory closet. The 
Compulsory License is so old that very few people in the industry or in 
the Congress even know that it exists. Even fewer understand what it 
does. Unfortunately, I am so old that I was present when the Compulsory 
License, which commentator Adam Thierer has dubbed ``the original sin 
of video marketplace regulation'' (Forbes 2/19/12), was committed.
    In November 1971, as a young law Student, I was clerking for a 
great lawyer and a wonderful mentor named Tom Dougherty, Assistant 
General Counsel of Metromedia, Inc. the then owner of channel 5 in 
Washington, D.C. Tom sent me to observe the latest in a series of 
meetings between Vince Wasilewski, President of The National 
Association of Broadcasters, Bob Schmidt, President of the National 
Cable Television Association and Jack Valenti, President of the Motion 
Picture Association of America. Senior Staff members of the Senate and 
House Commerce and Judiciary Committees and of the White House Office 
Of Telecommunications Policy were present at the meeting. The goal was 
to break the logjam of copyright and communications policy issues that 
had prevented the growth of cable television systems. It was my good 
fortune to be present as the negotiators, prodded sternly by 
Congressional and White House Staff, reached what became known as the 
``Consensus Agreement'' (Appendix D to 36 FCC 2d 143 at 284-286 
(1972)).
    The principal components of the Consensus Agreement were:

  1.  The Copyright Act would be amended to make it clear that cable 
        retransmission of the program schedule of a broadcast station 
        would be considered a ``performance'' of those programs;

  2.  But cable operators would get a government conferred Compulsory 
        Copyright License allowing the performance of those programs, 
        paying nothing for retransmitting the programs on local 
        stations and paying a statutory fee for retransmitting the 
        programs on out-of-market stations;

  3.  The FCC would enact an agreed upon set of communications 
        regulations including ``must carry'' and regulations designed 
        to ameliorate the marketplace disrupting capability of the 
        Compulsory License--the capacity of a Compulsory License to 
        otherwise trump the rights of parties to exclusive program 
        contracts that were negotiated in the marketplace.

    The Network Non-Duplication Rule and the Syndicated Exclusivity 
Rule are examples communications regulations designed to ameliorate the 
effects of the Cable Compulsory License. These regulations do not 
confer upon the broadcaster any exclusive rights. Instead, these 
regulations merely allow a broadcaster to actually realize such 
exclusivity as it has negotiated with the program owner notwithstanding 
the Compulsory License bestowed on Cable by the Congress. In other 
words, in the absence of a government conferred compulsory license, 
parties in the marketplace that contract for exclusive rights can bring 
litigation to enforce those exclusive rights. But, when the government 
steps in and imposes a compulsory license, that license can ``trump'' 
negotiated licenses unless the government adopts rules like Network 
Non-Duplication and Syndicated Exclusivity.
    Compulsory licenses are an extraordinary exception to and departure 
from normal copyright principles. Under a compulsory license a program 
creator is actually compelled by the government to license its program 
to a government-favored party at government-set rates. Pursuant to 
International Copyright Treaties and Conventions, compulsory licenses 
are to be used only as a last resort in instances of market failure. As 
memorialized in the House Report, the cable compulsory license was 
justified by the universal belief ``that it would be impractical and 
unduly burdensome to require every cable system to negotiate with every 
copyright owner whose work was retransmitted by a cable system.'' H.R. 
Rep. No. 1476, 94th Cong., 2d Sess., at 89 (1976).
    No one in the negotiating room in November 1971 thought of the 
possibility that the television station owner could act as a ``rights 
aggregator''--assembling the performance rights to all of the programs 
that the station produced, or licensed from others, and then offering 
the cable operator a single point of negotiation to reach a marketplace 
license agreement to retransmit the station's programming. But, a few 
years later, the first non-broadcast television channels emerged (e.g., 
HBO, CNN, A&E, History Channel, etc.) using exactly that rights 
aggregator model.
    The programs on non-broadcast television channels are not subject 
to the Compulsory License. The owners of these channels produce or 
license programs, secure the right to sublicense those programs to 
MVPDs and then offer those MVPDs a simple ``one-stop-shopping'' source 
to license the necessary performance rights in the programs. Today, 
more than 500 non-broadcast television channels are distributed by 
MVPDs nationwide without any need for government compulsory licensing.
    The success of the marketplace ``rights aggregator'' model in 
facilitating the distribution of the programs on non-broadcast channels 
demonstrates that there is no longer any need for government Compulsory 
Licensing of broadcast programming. Just like the non-broadcast 
channels, broadcast stations easily could aggregate the rights in the 
programs on their schedule and then negotiate with MVPDs.
    In 1988 Congress extended the Compulsory Copyright License to 
satellite systems. Satellite Home Viewer Act of 1988, Title II, Pub. L. 
No. 100-667. MVPDs sell their subscribers the programming on a 
combination of broadcast and non-broadcast channels. By the early 
1990s, Congress concluded that it was wrong for MVPDs to pay (through 
marketplace negotiations) for the programs on non-broadcast channels 
but to not pay (because of the Compulsory Licenses) for the programs on 
broadcast channels:

        ``Cable operators pay for the cable programming services they 
        offer to their customers; the Committee believes that 
        programming services which originate on a broadcast channel 
        should not be treated differently.'' S. Rep. No. 102-92 (1991), 
        at 35.

    But, rather than repeal the Compulsory Licenses (as then advocated 
by the U.S. Copyright Office, Fox Broadcasting Company and others) 
Congress, in the 1992 Cable Television and Consumer Protection Act, 
instead created a new Communications Act Retransmission Consent right 
in broadcast signals. This new right requires MVPDs to secure the 
permission of a broadcast station before retransmitting the programs on 
its schedule thus setting up a negotiation that essentially is a 
substitute for the copyright negotiations that would take place absent 
the Compulsory Licenses.
    The creation of this new Retransmission Consent right was a major 
public policy accomplishment. It prevented broadcasters, and the 
important public interest they serve, from being left behind in the new 
economics of television. Broadcasters absolutely deserve to be paid by 
any commercial business that wishes to retransmit their programs for a 
fee to consumers. But, a far better course would have been to simply 
repeal the Compulsory licenses. The Retransmission Consent right is 
fundamentally flawed because it is based on a legal fiction--the notion 
that consumers and MVPDs are interested in a broadcast station's signal 
rather than in the programs on that signal.
    Contrary to the Retransmission Consent legal fiction, it is 
absolutely clear that MVPDs negotiate with broadcast stations so that 
they can offer the broadcast programs, for a fee, to consumers. In 
defending Retransmission Consent at the FCC, a joint filing by the 
National Association of Broadcasters and the ABC, CBS, NBC and Fox 
Affiliate Associations emphasized the popularity of broadcast 
programming as distinguished from broadcast signals:

        ``Retransmission consent fees for local stations whose 
        programming service--national and local--is the most popular of 
        all programming services represent but a fraction of the rates 
        paid by MVPDs for other, less popular programming channels.'' 
        Opposition Of The Broadcaster Associations in MB Docket 10-71, 
        May 18, 2010 (emphasis added).

    A group of eight Broadcast Companies (Barrington, Bonten, Dispatch, 
Gannett, Newport, Post-Newsweek, Raycom and Weigel) echoed this same 
argument:

        ``Congress established the retransmission consent regime in 
        order to ensure that local television broadcast stations could 
        negotiate for fair compensation for their programming. '' 
        Opposition Of Local Broadcasters in MB Docket 10-71, May 18, 
        2010 (emphasis added).

    This argument is 100 percent correct. I have made the same argument 
many times myself. But, this argument makes it absolutely clear that 
Retransmission Consent payments are made for the broadcast programs--
not the broadcast signal.
    In addition to being based on the legal fiction that MVPDs bargain 
for the broadcaster's signal rather than for the programs on the 
broadcaster's schedule, the decision to adopt Retransmission Consent 
rather than to repeal the Compulsory Licenses has adverse consequences 
for consumers. The Compulsory Licenses apply to broadcast stations 
whose carriage is deemed ``local'' and therefore permissible under FCC 
Regulations. Those Regulations actually incorporate ratings from the 
A.C. Nielsen Company as measured in 1972! 1972! See 47 CFR Sec 76.54. 
Those 1972 audience ratings were attached as Appendix B to the FCC's 
1972 Cable Television Report and Order, 36 FCC 2d 143, and, subject to 
special administrative showings, continue to define the stations that 
may be carried by MVPDs. The need to legislatively override this 
ancient ratings data enshrined in the FCC Rules is why this Committee, 
and the Committee On The Judiciary, repeatedly have been dragged into 
controversies over what television programming is deemed ``local'' in 
what areas.
    By contrast, the distribution of programs on non-broadcast channels 
is not governed by FCC Rules and 1972 ratings data. Programs on non-
broadcast channels may be carried wherever the program owners and MVPDs 
sense an opportunity to satisfy consumer demand. Repeal of the 
Compulsory Licenses would enable program owners, broadcasters and MVPDs 
similarly to deliver to consumers the programs they want--not just the 
programs on channels buried in a 1972 FCC Appendix.
    The continued existence of the Compulsory Licenses also creates a 
major impediment to the emergence of new competitive Online Video 
Distributors (OVDs) like Netflix. Congress gives Comcast, but not 
Netflix, a free copyright license for all the programs on local TV 
Stations. Why? OVDs are the technology future of television and the 
hope of new competitive options for consumers. But OVDs are not 
eligible for the Compulsory Licenses. In fact, it would violate 
International treaties to extend the Compulsory Licenses to OVDs. For 
example, the United States is a party to several free trade agreements 
which contain the obligation that ``. . .neither Party may permit the 
retransmission of television signals (whether terrestrial, cable, or 
satellite) on the Internet without the authorization of the right 
holder or right holders. . ..'' Australia FTA, U.S.-Austl., Article 
17.4.10(b). See also, Dominican Republic-Central America-United States 
FTA, U.S.-Costa Rica-Dom. Rep.-El Sal.-Guat.-Hond.-Nicar. FTA, Art. 
15.5.10(b), Aug. 5, 2004; U.S.-Bahrain FTA, U.S.-Bahr., art. 
14.4.10(b), September 14, 2004; Morocco FTA, U.S.-Morocco, Art. 
15.5.11(b), June 15, 2004. These treaty provisions clearly prohibit a 
statutory license for the retransmission of any broadcast television 
programs on the Internet.
    In addition to not being eligible for the Compulsory Licenses, as a 
practical matter, OVDs cannot negotiate direct licenses with local 
broadcast stations. Because of the existence of the Compulsory 
Licenses, broadcast stations--unlike non-broadcast channels--do not 
routinely secure the right to authorize retransmissions of the programs 
they license for their schedule. So, the OVDs, and the consumers they 
seek to serve, are simply out-of-luck. Unlike cable, satellite and 
telcos, OVDs must try to compete without the ability to obtain the 
right to simultaneously retransmit the most popular programs in 
television--broadcast programs. This is a substantial impediment to the 
emergence of a more competitive video marketplace. Repeal of the 
Compulsory Licenses would prompt broadcasters to secure the right to 
authorize retransmissions of the programs on their schedule. Then all 
retransmitters--cable, satellite, telco and OVDs--could negotiate on a 
level playing field with the broadcasters.
    Because the Compulsory Licenses distort the marketplace for the 
distribution of broadcast programming, several Federal entities have 
call for their repeal. The U.S. Copyright Office repeatedly has called 
for the repeal of the Compulsory Licenses. In it's latest Report it 
stated:

        ``Although statutory licensing has ensured the efficient and 
        cost-effective delivery of television programming in the United 
        States for as long as 35 years in some instances, it is an 
        artificial construct created in an earlier era. Copyright 
        owners should be permitted to develop marketplace licensing 
        options to replace the provisions of Sections 111, 119 and 122, 
        working with broadcasters, cable operators and satellite 
        carriers, and other licensees, taking into account consumer 
        demands.'' Copyright Office Satellite Television Extension and 
        Localism Act Section 302 Report: a report of the Register of 
        Copyrights, August 2011.

    The FCC also has called for the repeal of the Compulsory Licenses:

        ``We hereby recommend that the Congress re-examine the 
        compulsory license with a view toward replacing it with a 
        regime of full copyright liability for retransmission of both 
        distant and local broadcast signals. . ..Our analysis suggests 
        that American viewers would reap significant benefits from 
        elimination of the compulsory license.'' 4 FCC Rcd 6562 (Docket 
        No. 87-25)

    Today broadcasters want to maintain the status quo. Cable operators 
want to repeal or modify Retransmission Consent. S. 2008 and HR. 3675 
would chart a third path--returning to fundamentals and repealing both 
the Compulsory Licenses and Retransmission Consent. After a brief 
transition period during which broadcasters would secure the right to 
authorize retransmissions of the programs on their schedules, broadcast 
programming would be distributed based on consumer demand just like 
non-broadcast programming. In my view, this is absolutely the right 
course.
    I would like to address briefly a couple of the arguments I hear 
from my broadcast and cable friends.
    Some cable operators complain that local network affiliate 
broadcasters have a ``monopoly'' on the programs on their network. 
These cable operators seek the right to retransmit the network programs 
as broadcast by out-of-market affiliates. But the broadcast networks 
and their affiliates should remain free to negotiate such exclusive or 
non-exclusive affiliations as they deem appropriate in the marketplace. 
And the outcome of those negotiations should not be superseded by 
government intervention. I would point out to my cable friends that the 
non-broadcast channels meet the same test of ``monopoly''. There is 
only one source for the non-broadcast channel ``AMC'', and that is AMC 
Networks, a ``spin-off'' of the cable company Cablevision. There is 
only one source for the non-broadcast channel ``Bravo'' and that is 
NBCUniversal, which is owned by the cable company Comcast. There is 
only one source for CNN, one source for Discovery, etc. All of these 
channels operate in an intensely competitive marketplace and the fact 
that there is only a single source for the rights to retransmit any one 
of them is no cause for government intervention.
    I know that the members of this Committee would like to shield 
consumers from any fallout from program carriage disputes. It is 
noteworthy that two of the latest fights--the AMC channels dropped by 
DISH and the Viacom channels dropped by DirecTV--have nothing to do 
with Retransmission Consent. These are garden-variety disputes between 
buyers and sellers over price, a common occurrence in any line of 
commerce. I know of no way to protect consumers from the temporary 
inconvenience of dropped channels. If history is a guide, these 
channels will soon be restored to DISH and DirecTV. In the meantime, 
there are many substitute channels available.
    Some broadcasters resist the repeal of both the Compulsory Licenses 
and Retransmission Consent worrying that program owners will ``hold 
them up'' when the broadcasters seek the right to authorize 
retransmission of the programs they have licensed to broadcast. I fully 
understand that broadcasters would rather maintain the legal fiction 
that MVPDs and consumers are seeking their signal rather than the 
programs. But that legal fiction is not tenable. And there is no 
objective basis to fear a ``hold up'' over retransmission rights. 
Program owners grant those retransmission rights every day to non-
broadcast channels. Program owners, particularly an owner renewing a 
hit program, could ``hold up'' the non-broadcast channels today. But 
they do not do so for a very good reason. A non-broadcast channel that 
could not authorize MVPDs to retransmit its programs would cease to be 
a potential customer for program creators. Similarly, a broadcast 
station that could not authorize MVPDs to retransmit its programs in 
its market would cease to be a potential customer for program creators. 
There is every reason to believe that program owners and broadcasters 
would adapt quickly to the marketplace negotiations that work so well 
today for 500+ non-broadcast channels. And constitutionally based 
Copyright is a much stronger foundation for broadcasters to generate a 
second revenue stream than is Retransmission Consent.
Ownership Rules
    I fully support the public policy goal of diversity in media 
voices. And I would strongly defend any Statute or Rule that is truly 
necessary to assure that consumers have access to multiple and diverse 
sources of news and information. But, in no small part because of the 
efforts of this Committee, consumers now enjoy a multiplicity and 
breadth of media sources and voices unmatched in our history.
    Today, I find myself almost drowning in the plethora of diverse 
news outlets competing for my time. I start each morning in Boulder, 
Colorado watching multiple channels of broadcast and cable news while 
combing through online news sources on my iPad--The New York Times, The 
Wall Street Journal, The Washington Post, The Denver Post, The Los 
Angeles Times, Salon, Drudge, Real Clear Politics, The Hill, Politico, 
The Daily Beast, The Wrap, Communications Daily, CableFax, etc. I even 
still read my local newspaper--The Daily Camera. Some mornings I have a 
hard time tearing myself away from all the diverse news sources at my 
fingertips so that I can actually start my day.
    Sitting squarely, but awkwardly, in the middle of this sea of media 
diversity are Media Ownership Rules designed for a bygone era. All of 
these Rules were sensible and necessary when adopted. But, some of 
these Rules have become counterproductive while others have been 
rendered merely nonsensical. The TV/Newspaper Cross-Ownership Rule is 
an example of a Rule that has become counterproductive.
    It is well know that daily newspapers are under great financial 
stress. Recently the Pulitzer Prize-winning Times Picayune of New 
Orleans announced that it was cutting back to three printed papers per 
week, a devastating blow to its local readers. Because of the TV/
Newspaper Cross-Ownership prohibition, the Times Picayune did not have 
the option of pursuing a merger with a local Television Station as a 
way of achieving the economies that might have permitted continued 
publication of a daily paper. The existence of this Rule clearly 
disserved the citizens of New Orleans and their interest in diverse 
sources of news.
    The Tribune Company provides another example. This venerable source 
of award-winning newspaper and television journalism is struggling to 
emerge from an arduous three year bankruptcy proceeding. And yet, the 
new ownership of The Tribune Company will need waivers of the TV/
Newspaper Cross-Ownership Rule just to be allowed to try to maintain 
the Company's existing television and print news operations.
    To understand how outdated and illogical our media ownership 
policies have become, contrast the regulatory plight of Tribune and the 
Times Picayune with the recently approved merger of Comcast (the 
nation's largest cable TV and Internet Company) with NBC Universal 
(owner of a vast array of broadcast and cable channels, including news 
channels, and a major movie studio). Both consumers and industry 
participants should be forgiven if they have trouble following the 
logic of what is allowed and what is not allowed under current, but 
outdated, government policy.
    For an example of a Rule that has become merely nonsensical, I 
would point to the 50 percent UHF ``discount'' that is a part of the 
limitation on ownership of multiple television stations. For the six 
decades of analog television broadcasting in this Country, UHF stations 
operated at a distinct and well documented disadvantage compared to VHF 
stations. UHF stations produced weaker signals and smaller coverage 
areas.
    In light of this UHF handicap, the Rule limiting the total 
theoretical ``reach'' of TV stations that one entity is allowed to own 
wisely and sensibly incorporated a 50 percent UHF discount. If one owns 
a VHF station in a market that constitutes 3 percent of U.S. TV 
households, the station owner is charged with 3 percent against the 
theoretical maximum permissible reach of 39 percent. But, if the 
station is a UHF, the owner is charged with only 1\1/2\ percent. This 
discount continues to be applied today.
    The problem is that the factual predicate for the UHF discount has 
evaporated. In digital broadcasting today UHF stations not only are not 
at a disadvantage: they actually provide coverage superior to VHF 
stations. For example, after the digital transition, the ABC Owned 
television station in Chicago continued to operate on VHF channel 7. 
However, the propagation of the VHF channel 7 digital signal was so 
deficient that the station's engineers had to scramble to find a vacant 
UHF channel and promptly switched to UHF channel 44 with dramatically 
improved results. Other stations around the Country also switched from 
VHF channels to UHF. The superiority of UHF frequencies in the digital 
world was evident in the lobbying over the recent Incentive Auction 
legislation. The National Association of Broadcasters advocated 
successfully for statutory language ensuring that no television station 
would be forced to shift from a UHF channel to a VHF channel as part of 
the ``repacking'' process.
    So, why not simply repeal the 50 percent discount? Because the 
result would be to require unjustifiable, and politically untenable, 
divestitures by broadcasters that relied on the discount in assembling 
their station groups. ``Grandfathering'' these station groups would be 
profoundly unfair to future competitors. And so, like the Emperor's 
Clothes, we all just look the other way and pretend that the UHF 
discount continues to make sense.
    S. 2008 would recognize the reality of today's robust marketplace 
of diverse and competitive media voices and would repeal outdated media 
ownership restrictions that are relics of a bygone era of scarcity. Our 
Nation's anti-trust laws would continue to be available to address any 
undue concentrations of power and any market failure.
Conclusion
    I urge this Committee to follow the roadmap of S. 2008 and HR. 3675 
and repeal the many outdated provisions in our nation's Television 
Regulatory closet. In particular I urge the Committee to work in lock 
step with the Committee on the Judiciary to repeal the Compulsory 
Licenses before considering repeal or modification of Retransmission 
Consent. Television consumers will best be served if broadcast programs 
can be distributed based on viewer demand and if new market forces like 
OVDs are given a chance to compete on a level playing field.

    The Chairman. Thank you very much.
    The Chairman has obviously made a mistake here because we 
started at 2:30. It is now 3:30, and that is fundamentally 
unfair to Members who came, some of whom have already departed. 
I checked with the Ranking Member. What we are going to do--and 
all those who gave testimony, obviously they have come long 
distances. They wanted to do their 5 minutes. Some went beyond 
that. But in any event, what we are going to do now is skip me, 
skip Kay Bailey--Senator Hutchison, that is--Senator DeMint. We 
are going to start with Senator Isakson and then go to those 
who did not give opening statements but who are still here.

               STATEMENT OF HON. JOHNNY ISAKSON, 
                   U.S. SENATOR FROM GEORGIA

    Senator Isakson. Thank you, Mr. Chairman. I appreciate that 
as one who came hoping to get out before I had the chance to 
ask a question.
    [Laughter.]
    Senator Isakson. I appreciate the great opportunity you 
have given me.
    Let me say this. I am a cable subscriber who watches the 
Sunday shows that are delivered by the broadcasters, and I 
appreciate retransmission allowing me to be able to subscribe 
to cable and see those shows on TV. So all of you, I am a 
customer of all that you sell.
    And I listened to all the testimony because I know there is 
a lot of contention, and the number of phone calls I have 
gotten in the office lead me to believe there is going to be 
probably a lot more contention. But the best way to get all the 
facts on the table are to have hearings like this, and I 
appreciate the Chairman doing so.
    And I might add, the Chairman and I also share an interest. 
We both are big fans of the Atlanta Braves, and thanks to 
access at night, I can go home and watch my Atlanta Braves on 
TV even though I am 800 miles away. So I appreciate the 
services you all bring us.
    I actually have a few questions, all of which were raised 
by comments that you made, and I will start with Mr. Padden. 
Are you a doctor?
    Mr. Padden. No. I am a recovering lawyer.
    Senator Isakson. Recovering lawyer. Good. Those are the 
best kind.
    Let me ask this. You said the marketplace is better than 
licensing for the future. Is that right?
    Mr. Padden. Yes, sir.
    Senator Isakson. And you were evidently employed by one of 
these entities 20 years ago when the cable bill passed. Is that 
right?
    Mr. Padden. Yes. I was at Fox Broadcasting Company.
    Senator Isakson. Would you elaborate on the licensing 
platform that caused the licensing regime to be set up in 1992?
    Mr. Padden. Well, actually it starts in 1976. The Supreme 
Court had twice ruled that cable retransmission of broadcast 
programming was not a performance under the then 1909 Copyright 
Act. So no copyright liability attached to retransmitting 
broadcast programming. And the Supreme Court urged Congress to 
amend the Copyright Act, and that was done in 1976 to make 
retransmission of broadcast programming a performance for which 
copyright was due. But because at the time everyone thought it 
would be unduly burdensome for the cable operator to have to 
negotiate with the owner of each individual program on the 
schedule, Congress conferred a compulsory license, a rare act 
to be done only when there is a market failure and the rights 
cannot be cleared in the marketplace.
    Subsequent to that, cable networks were invented, channels 
like HBO and The History Channel, and they are not subject to 
this compulsory license because they were not around when it 
was adopted. So what they did was the channel owner licenses 
programming from various parties and gets the right to 
sublicense that programming to cable and satellite operators. 
So the cable and satellite operators do not have to negotiate 
with all these different program owners. They just have a 
single negotiation with the channel owner.
    And my proposition to you today is the fact that more than 
500 of these non-broadcast channels are distributed all across 
the country without needing this Government intervention of a 
compulsory copyright license shows that the broadcast channels 
could be distributed exactly the same way. Each station, 
Channel 7 here in Washington, in addition to licensing a show 
like Oprah would get the right to sublicense that show to the 
cable operators in the Washington area. The cable operators 
would have a single negotiation with that station, and you 
could get rid of a whole bunch of Communications Act regulation 
that was adopted specifically to ameliorate the impact of the 
compulsory license. And I wish it was simpler to explain this.
    Senator Isakson. You have still got a little lawyer left in 
you.
    [Laughter.]
    Senator Isakson. Thank you for that answer.
    Dr. Cooper, you used a term I need an explanation for. I 
did not quite understand it. You said ``cable gatekeepers.'' In 
what context did you use that?
    Dr. Cooper. Well, I used that in the context of the cable 
companies putting together big bundles of packages, as Senator 
Rockefeller mentioned, and then deciding which programming gets 
into those bundles. Consumers do not get a choice of channels. 
They get to choose a couple of big bundles, and as Senator 
Rockefeller mentioned, they end up paying for many more 
channels than they ever watch. So they are the gatekeepers 
between the consumer and the programming, and they actually 
have a very large market presence. They have a market share at 
the local level which is, of course, the only way I can reach 
those programs, see those programs. They have a very large 
market share. There is more competition than there was in 1992, 
for sure, but there is not enough to break that anti-consumer 
bundling. So they are the gatekeeper.
    Senator Isakson. Mr. Chairman, can I have just one more 
question? Would that be OK?
    The Chairman. With rapidity.
    Senator Isakson. All right. Well, I will tell you what. 
Knowing the question I am going to ask, it is not going to be a 
rapid response. So I will yield back to my next time. Thank 
you.
    The Chairman. You are a gentleman.
    Senator Pryor?

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman. And thank you both 
for having this hearing today.
    Let me just jump right in. Ms. Abdoulah, you know, when I 
think of the Cable Act, it is 20 years old. What I see when I 
look at the landscape is I see a lot of innovation, a lot of 
investment, a lot of creative efforts, and a lot of really good 
things. So I guess my question is why should we change that, 
and how do we know, if we do make some changes, it is actually 
going to be better?
    Ms. Abdoulah. A great question.
    On the latter, I think it is just with real thoughtful 
consideration to the consequences when reform and changes are 
made, to really try to think through those consequences.
    To the former question, why should we change it, for the 
reasons I have said. I love the competitive landscape. We know 
how to compete. That is what we are all about. So it is not 
about wanting to limit competition, innovation, and creativity. 
We welcome that. We want that as a small operator or large 
operators. It is simply taking regulation that currently allows 
monopolistic activity to go on--to remove that so that it truly 
is based on a fair market and fair market pricing because, 
unfortunately, Dr. Cooper is wrong in that we are not 
gatekeepers from the standpoint of being able to--we do not 
decide how we offer our programming. I wish we could. I wish I 
could offer a sports tier so that 50 percent of our viewers who 
do not watch sports are not subsidizing these enormous sports 
costs. I do not have that right. The programmers, the 
broadcasters, tell us and mandate--and the laws help them do 
this--how we carry it. So that is why it has to change because 
consumers are saying give me choice, give me what I want when I 
want it, and we cannot do that due to the rules today, and that 
is why they have to change to allow more innovation and more 
flexibility.
    Senator Pryor. If I have time, I want to come back to that, 
but I do want to ask Mr. Smith a question. It is always great 
to see my former colleague. Welcome back.
    One of the things you mentioned--and I just want to make 
sure I have this clear is that the Cable Act's requirement and 
sort of the connection to localism and retransmission, and why 
they are connected. I know why localism is important. I see it 
every day in my local TV stations, but tell me what the 
connection is there.
    Mr. Smith. I believe what this committee and the Congress 
intended was to make sure that in retransmission consent, small 
broadcasters in Arkansas and other small rural communities, 
along with their networks, had an opportunity to recoup the 
value of their content but also their signal. Both things have 
great value. And when you consider retransmission consent, 
must-carry, compulsory copyright, this is a three-legged stool. 
You pull one of those legs out and you will dramatically damage 
the rural broadcaster. You will dramatically damage those who 
are underprivileged and cannot afford $150 a month for cable. 
You will dramatically damage the ability of rural states to be 
able to sell a car in Pierre, South Dakota. They may have to go 
to Minneapolis. They may have to go to Denver. And I think that 
it is very important. If you want a robust, national system 
that focuses on the localism, the resources have to get to 
local, as well as to networks. And so it is a very careful 
balance that is structured, and I just was offering caution.
    Senator Pryor. Ms. Witmer, let me ask you. I saw that you 
nodded your head when Ms. Abdoulah a few minutes ago was 
talking about the cost of programming and things like that. And 
I know the cost of programming is high, or at least I 
understand it is high. But also I understand that that is not a 
very transparent system. So as a subscriber, when I buy a local 
cable package, whatever it is, I do not always know what my 
cable provider, i.e., what I am paying for, but what my cable 
provider had to pay for all the various programming. A lot of 
it, as we have all talked about--we all agree. A lot of it we 
do not want, but it is just part of the package.
    So what is wrong with more transparency. Why should the 
consumer, the subscriber, the end user, not have a right to 
know how much you all have paid for it to know if we are being 
charged fairly?
    Ms. Witmer. Thank you for your question, Senator Pryor.
    I think that for us, our consumers, first of all, are first 
and foremost in our minds.
    I also was nodding at Ms. Abdoulah's characterization of us 
not being gatekeepers. We operate in an incredibly competitive 
environment. I think one of the things that may not be well 
understood is the competitive environment in which we are 
operating every day. And we are consumer-facing. We are dealing 
with consumers directly. We are in their homes. We are talking 
to them from our call centers, and we bill them for their 
services and engage directly with consumers. So we are very, 
very close to them, and the competition we face is all about 
the consumer. So we understand their desire for transparency.
    What we find from our consumers is they do not well 
understand the system through which they buy television and 
they receive content. We still find many consumers do not 
necessarily understand, first of all, that cable operators do 
not program the networks that they receive, and they do not 
necessarily understand that we actually pay for and negotiate 
for licenses to carry all of that programming.
    There is no doubt that the biggest issue facing video 
customers of multi-channel operators today is skyrocketing 
programming costs. I was unable to see the chart from this 
side, but I can tell you that Time Warner Cable spends---- 
nearly 60 percent of our costs every year in programming are 
paying owners of broadcast stations. We spend over $2 billion a 
year compensating those companies. So we know that the system 
feels that it lacks some transparency for consumers. I think 
they understand not a lot about how it works, and more 
transparency might help them. At the end of the day, though, 
for the consumer that wants to watch a single program, their 
perception of value may be very different from one network to 
the next, and that transparency is not always an immediate 
translation for them.
    Ms. Abdoulah. And more specifically, we cannot. We cannot 
tell you what we pay. The programming agreements that we have 
to sign do not allow us to share it with anyone, to share it 
with consumers, with each other, with anyone.
    Senator Pryor. Mr. Chairman, thank you. I am beyond my 
time.
    I understand what you are saying on that last statement. I 
do not like that aspect of the agreements.
    Ms. Abdoulah. Yes, right on.
    Senator Pryor. I do not like the lack of transparency.
    But, Mr. Chairman, thank you very much.
    The Chairman. Thank you, Senator Pryor.
    Senator Thune, to be followed by Senator Udall.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman. I appreciate this 
hearing. I hope that we can find 21st century solutions to 21st 
century challenges. One thing about the television marketplace 
is that we have seen just remarkable improvements over time. 
With technology and all the change that has occurred out there, 
it has been, I think, very good for most Americans. But 
obviously there are issues that come up along the way that need 
to be addressed, and I think this committee needs to be 
informed by all of your input as we try and address that.
    Senator Smith, welcome back. Nice to have you with us again 
here today.
    One of the things that I hear is that television blackouts 
due to disputes between providers and distributors are on the 
rise--and I think everybody has alluded to various statistics 
that bear that out today--and are likely to increase if we 
retain the current regulatory regime for television.
    I ask this question as someone who believes in the free 
market, whose instincts are that deregulation is a good, solid, 
preferred approach. My question is with regard to those types 
of blackouts, what is your assessment as to whether we are 
going to see fewer TV blackouts or more TV blackouts if we were 
to completely deregulate and to go to an approach like what 
Senator DeMint has proposed in his legislation. I open that up 
to whomever. Senator?
    Mr. Smith. Senator Thune, good to see you.
    As I said in my testimony, I think when you increase by 10 
times the number of rights holders that would have to come to 
an agreement, you are apt to have a tenfold increase in the 
likelihood of disruptions of some kind. That is just logical to 
me, but perhaps others have a perspective on that.
    Ms. Witmer. I think the other perspective that I would 
share is that part of the regulatory landscape that we are 
dealing with here is that the 1992 Act requires cable operators 
to sell broadcast stations as a point of entry to purchasing 
anything else from us, and that is unlike any other platform. 
Satellite providers are not required to sell the broadcast 
stations. Certainly access to entry to viewing content, even 
broadcast content, on the Web does not require that subsidy to 
be paid in order to be able to use any other form of content.
    And so part of the tension I think for the operator, as 
these costs are skyrocketing, is that we cannot sell a consumer 
anything else without being obligated by virtue of the 
privileges of this law to pay those broadcasters. And it is 
unique to cable and it is placing greater and greater tension 
on our ability to compete and our ability to provide consumers 
with access to other content that they want without having to 
pay that toll to enter our store.
    Mr. Franks. Senator Thune, if I may. I guess two points.
    As I said in my testimony, I guess my fear is, along the 
lines of what Senator Smith said, if you introduce more 
players--and some of these players are hard to find even to 
clear the rights. So I fear that it is going to lead to many 
more disputes rather than fewer.
    But I guess I would like to make a related point if I may. 
I was in a situation last year in a negotiation where we were 
getting fairly close, and the FCC announced its proceeding and 
the operator pulled back because he thought that he was on the 
verge of getting a better deal from Washington. And it is 
frustrating to me.
    As a company, we own television stations. So CBS only 
negotiates for the stations we own. Our CBS O&O's cover 32 
percent of the country. So that is 32 million television 
households. And I have been doing this for 6 and a half years. 
We have done 100 agreements, including two with Ms. Abdoulah 
and one with Ms. Witmer. We have not had blackouts. And so I 
almost do not recognize the environment in which I am sitting 
because they are describing a world that does not exist amongst 
our three companies.
    So I guess my concern is I know that you are all worried 
about the current system. For a businessman who needs to make a 
plan--we invest $5.5 billion a year in programming. $5.5 
billion a year. We need to be able to plan. We need to know 
what the rules are going to be. We know how this system works. 
It has its flaws, but it basically works. Abandoning it for 
some whole new system or a system that repeals retrans and 
leaves the compulsory license, I guess we prefer the devil we 
know.
    Ms. Abdoulah. Well, I think we all have something to say.
    Two things on that is that we may like this. Some people 
may like the model that is for lots of reasons, but the 
consumers do not and the consumers do not have that same model 
on the Internet. It is time that the businesses that we are 
talking about create a new, sustainable, innovative business 
model that serves consumers and reduces confusion. That is one 
point.
    The second point is I sure hope we do not evaluate the 
success of deals getting done based on blackouts because that 
is not the only measure of success or failure. There is a 
failure in the fact that we have these double-digit, triple-
digit increases that are not rationalized by ratings or 
anything else on many networks. They are not rationalized. We 
have to pass them through to consumers, and every year they 
take the brunt of those increases. That is failure in my mind 
because I can tell you the services that we do manage, Internet 
and phone, we have not taken those services up. We have not 
taken an increase in years. And I can represent many ACA 
members who will tell you the same thing, some that have not 
taken HSD or phone up for 10 years. Where are the price 
increases coming from? Programming on video.
    Dr. Cooper. Let me briefly follow up. We have testified 
together before.
    The only way to reform this market is to restore consumer 
sovereignty, to make sure that consumers have the right to 
choose to pay for the programs they want. That is the 
fundamental problem in this marketplace. And you can fool 
around with retrans. You will just shift the balance from one 
big entity to another big entity. The only way to break the 
market power is to ensure that the consumers have choices of 
what to pay for and not being forced to buy these huge bundles. 
That is what she wants because she faces the consumer, and she 
is willing to face consumer sovereignty. She does not have any 
market power. The big cable operators and the big broadcasters, 
content providers, do have market power.
    The Chairman. With all due respect, I have to cut that 
question off here because we are already 2 minutes and 20 
seconds over, and Senator Udall is waiting.

                 STATEMENT OF HON. TOM UDALL, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Udall. Thank you, Chairman Rockefeller and Ranking 
Member Hutchison. And I really thank the panel. I think this 
has been very lively and a very, very good discussion.
    I understand my cousin, Senator Smith, reminisced a little 
bit earlier about his service on the Committee, on the Commerce 
Committee, and also about the Udall tradition of public 
service. I can vouch for that. We are very close cousins. I am 
not going to go down the road, Senator Smith, of saying I 
regret--my one big regret is not serving with you in the Senate 
because, as you know, you were succeeded by a Democrat. And I 
am going to get myself in big trouble there.
    [Laughter.]
    Mr. Smith. Yes. You can stop there, Tom.
    Senator Udall. OK. I am going to stop there.
    But I wanted to start with you on a question, and others 
may be interested in this. I have heard from a small religious 
broadcaster based in New Mexico about the importance of must-
carry rules for making their programming available to cable and 
satellite TV customers. And there is a proposal that you all 
have been talking about before the Committee to abolish these 
rules. If must-carry rules went away, would small local 
channels, such as a religious broadcaster with a relatively 
small audience or regional focus, have the same access to TV 
audiences as they do today?
    Mr. Smith. Senator Udall, when I served on this committee, 
there was an appropriate concern for diversity and fostering 
niche markets, and I understand some do not like the must-carry 
provision, but the idea was to foster that in America. To get 
rid of must-carry--most of my members do not count on must-
carry, but some do, and who are they? They are the religious 
broadcaster. They are the rural. They are the foreign language. 
They are often minority communities. I mean, you would not have 
Univision today, you would not have Fox today--you might like 
that, Mr. Chairman----
    [Laughter.]
    Mr. Smith. These great networks developed with must-carry 
because of the wisdom and foresight of this committee to foster 
this diversity, this niche, this service of all of America in 
its great complexions and its great needs.
    So must-carry is important to many small rural communities, 
and if it goes away--again, I go back to if you want to sell a 
Chevy in Pierre, South Dakota and must-carry goes away, Rapid 
City may have to go to Denver, and if you are a Chevy dealer, 
you are not going to be able to afford that. Sioux Falls may 
have to go to Minneapolis. You will not be able to afford those 
markets. So if you want to continue fostering localism, must-
carry is important.
    Senator Udall. Ms. Abdoulah, small cable companies that 
operate in rural parts of New Mexico tell me they pay more in 
retransmission consent fees than larger cable companies pay in 
places like New York or Los Angeles. What explains this 
difference in cost for these smaller companies versus larger 
cable and satellite TV providers?
    Ms. Abdoulah. Great question. Leverage. They do not have 
the leverage in the negotiation. So in they walk with the same 
service, same delivery system, same costs, and they charge us 
double-digit, higher rates than the big guy because if I say to 
them, oh, I am going to take off 1,000 customers if you do not 
get reasonable, they say OK. But if Comcast says be reasonable, 
give me what I want or I am going to shut off 24 million 
customers, they have a lot more leverage. So it comes down to 
the big versus small guy.
    Senator Udall. Mr. Franks?
    Mr. Franks. I am real worried about Ms. Abdoulah here. She 
is just suffering so horribly in the marketplace and needs 
protection. She does just fine when she is at the table with 
CBS. And in fact, there is a cable network we own called the 
CBS Sports Network that we wish she was carrying. We could not 
persuade her to do it. We did not have the leverage and the 
clout. The big, bad media company in New York could not 
persuade the struggling ACA member to carry one of our 
channels. This notion that there are these weak players that 
need protection--let me tell you they are not in the 
negotiating rooms I am in. They do just fine.
    Ms. Abdoulah. It is not a notion. We can prove that we pay 
more. We can prove. And if there was more transparency, you 
would know exactly how much more. I would welcome that.
    Mr. Franks. So are you going to carry the sports network 
for me?
    Ms. Abdoulah. No.
    Mr. Franks. Why not?
    Ms. Abdoulah. It is not a good value. Customers are not 
asking for it.
    [Laughter.]
    Senator Udall. Mr. Chairman, I am out of time. So you can 
intervene here.
    The Chairman. Why do not each of you send us the numbers to 
find out which of you is telling the truth?
    Ms. Abdoulah. I wish we could, sir. We are not allowed to. 
Our contracts do not allow us to share what we pay for this 
programming.
    The Chairman. I am a very confidential source.
    [Laughter.]
    The Chairman. Senator Udall, go ahead if you want.
    Senator Udall. I am out of time.
    The Chairman. Yes, you are.
    Senator Udall. So I was urging you to intervene in the 
middle of that so I could get out of it.
    The Chairman. I was enjoying it.
    Senator DeMint and then Senator Hutchison, and then Senator 
Hutchison and I need to talk. And I will be brief in the way I 
thank all of you, and Senator Hutchison and I will go behind 
the door here, but please forgive me for that. OK? Senator 
DeMint?
    Senator DeMint. Thank you, Mr. Chairman.
    The Chairman. And you will be brief, I know.
    Senator DeMint. This has really been a very helpful hearing 
today. I am convinced if we kept talking, that you would 
convince yourselves that this free market approach is the best 
approach because, as Mr. Franks was just saying, they do not 
need protection. We have got a very dynamic market and I am 
convinced that if we let this continue to work, it would work a 
lot better. I am convinced, Senator Smith, that broadcasters 
would find themselves in the catbird seat because of their 
owning control of such a package of content, local, national, 
syndicated programs, that you negotiate. It is essentially your 
property through contracts. All the other distributors have to 
negotiate with you to get it. So I think your broadcasters 
would be in a great position to do this.
    And I think we need to realize that the innovation and a 
lot of the dynamic that is going on in the market that you talk 
about is going on with these 500 or more channels that do not 
operate under any kind of compulsory license or retransmission. 
When we are talking about taking away retransmission, we are 
not talking about taking away carriage negotiations which again 
the broadcasters will have the ability to continue to do. My 
bill does not affect non-commercial, PBS, most religious 
broadcasters. And as you know, Senator Smith, with the new 
digital signals, all of these broadcasters have the ability to 
send a free, crystal clear signal to 100 percent of the market 
that is in their DMA. So we have an amazing dynamic. If cable 
or other distributors are not willing in this environment to 
deliver a la carte programming that the consumers want, someone 
will give it to them, and that is why you see the growth of 
streaming or Netflix types of programming today.
    But again, instead of asking a question, I just hope, Mr. 
Chairman, we can continue to do this because the more everyone 
talks, I think the more we realize that we have got a very 
dynamic and competitive marketplace, and if in a thoughtful, 
systematic way we let this work, I think we would find that the 
consumer gets what they want, but at the same time, there is 
another player, Mr. Chairman. We certainly want the consumer to 
have the choices they want, but private property, whether it be 
copyrights, content control, is our responsibility as well. And 
I do not think the Government should be telling the cable 
companies what they have to buy or the broadcasters what they 
have to sell or the networks what they charge. I am convinced 
again that we would find a very competitive and active, dynamic 
marketplace with lots of choices if we continue to talk through 
this.
    But thank you all for coming and getting this conversation 
started. I think that is what it is. And I heard from a lot of 
the folks on the panel here that there may be a lot of common 
ground if we proceed through this thoughtfully.
    So thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Hutchison?
    Senator Hutchison. Thank you, Mr. Chairman.
    I just have one more question. I think we have had a great 
discussion here, but I want to go back to the newspaper-
television cross-ownership rules which, Senator Smith, you and 
I had as issues when you were on this committee. And I thought 
Mr. Padden's remarks were very interesting. I was a strong 
proponent of that cross-ownership ban because there were two 
markets, one with which I was very familiar, Dallas, Texas, but 
also Atlanta, Georgia, where there was such a lock on the media 
outlets with the only newspaper in town plus the major 
television station being owned by the same companies in a 
grandfather that superseded the ban.
    However, I have quickly retreated from my position because 
of the proliferation of media outlets, which came just in the 
last 10 years and changed the whole marketplace. And I think, 
Mr. Padden, you mentioned the New Orleans situation which now 
is the opposite and has caused great harm to the Picayune, 
which is one of our nation's oldest and most revered 
newspapers, because they could not invest in television which 
would be the money that would keep the newspaper going.
    So my question to Mr. Smith and Mr. Padden is, if the FCC 
either eliminated or modified the cross-ownership ban, do you 
think it would hurt localism or do you think, in fact, as you 
have stated, that in some cases it would actually promote 
localism? And are there other instances where you think it 
could have the opposite effect, or do you think that would be 
universal? I would be interested in both of your views.
    Mr. Smith. Senator Hutchison, I think it is very clear that 
we live in a different world on this score, and there are many, 
particularly our brothers and sisters in the newspaper 
industry, and the journalism, the solid journalism, that they 
do is under assault and real threat. We care about them. And 
every market is a little bit different, and that is why the NAB 
has supported relaxation, particularly in some communities, of 
the cross-ownership rule so that there are economies of scale 
that a radio, a TV, and a newspaper in a small community could 
pool together and be able to survive so that you have 
legitimate journalism in this country without a taxpayer 
subsidy but with the logic that comes with those kinds of 
synergies and economies of scale. So we support a relaxation.
    Senator Hutchison. Thank you.
    Mr. Padden?
    Mr. Padden. Yes, Senator Hutchison. I agree with Senator 
Smith. There was a time when newspapers and television stations 
were the only games in town. Thanks largely to the efforts of 
this committee, we now have a much more robust media 
marketplace. We have cable. We have the Internet. We have 
everything else. But one side effect of that wonderful new 
diversity is it has gotten tougher for the entities that used 
to be the only games in town. So I really think before 
newspapers and small market local television stations 
completely wither and die, I urge you to provide some relief 
from that rule so that they can combine and survive.
    And if I could very quickly respectfully disagree with 
Senator Smith and Mr. Franks that passage of Senator DeMint's 
bill would cause more blackouts because there would be a 
tenfold increase in the number of parties that would have to 
negotiate. I just do not think that is true at all. What we 
have today is the compulsory license confers the program rights 
to cable, and then the cable operator negotiates with the 
broadcaster regarding the signal. In the world that Senator 
DeMint's bill would create, there would still only be a single 
negotiation between the broadcaster and the cable company only 
instead of it being this legal fiction that it is about the 
signal, it would be a negotiation about the program rights. And 
there is no reason in the world why that should lead to an 
increase in the number of blackouts.
    Dr. Cooper. Senator Hutchison, may I submit a written 
answer to your question from a somewhat different point of 
view, to your question on newspaper-TV cross-ownership?
    Senator Hutchison. Well, I would be happy for you to 
disagree right now.
    Dr. Cooper. Oh, I was not going to disagree. I was actually 
going to point out that they did relax the rules in the last 
round and we supported that relaxation and the court upheld 
that relaxation. So in the markets where the newspapers have 
been under the most pressure and where there are the most 
alternatives, they did relax the rules. I have to go back and 
look to see where exactly New Orleans fell. But there have been 
no mergers in those markets.
    Senator Hutchison. You have to go before the FCC to go 
through----
    Dr. Cooper. Yes, but there is no--no, the presumption was 
that the merger would be found in the public interest, 
rebuttable, but it shifted the burden. It said it could happen, 
and we supported that change.
    In addition, if there is a failing firm problem, there has 
always been that exception. So if the Picayune wanted to 
declare themselves a failing firm and get bought out by a TV 
station, they have always had that option. So to look at that 
case and say it was the result of this bad policy, I think is 
misleading.
    Senator Hutchison. Well, I think my view is it is obsolete 
now, and I am 180 degrees different from where I was because I 
felt like it stifled any other voice in the market 20 years ago 
or 15 years ago. But now, as Mr. Smith said, with which I 
agree, we need legitimate news organizations to be able to 
function and have a voice because there is such a proliferation 
of voices with no capability for in-depth reporting or even in 
some cases ethical standards. So I think that we do want to 
save newspapers and legitimate broadcasters to the extent that 
we can even when I disagree with them 100 percent.
    Dr. Cooper. We should not equate journalism with 
newspapers. There may well be other ways to have legitimate 
journalism in this new world that do not involve newspapers, 
and that is the transition we are going in.
    Senator Hutchison. Well, absolutely. I did not mean to 
indicate that there is no journalism except in newspapers, but 
certainly newspapers and other legitimate broadcasters have 
exhibited standards that I think we want to assure have a voice 
in the marketplace as well and not get drowned out with a 
proliferation of voices that might not have even the resources 
for in-depth reporting.
    So I thank you all.
    The Chairman. I thank you, and I thank all of you very, 
very much. Senator Hutchison and I are going to disappear 
behind closed doors for a second. And it may be some time 
before I have six witnesses again. However, you did very well, 
and it was a very interesting discussion, and I think we all 
learned a lot from it. I thank you.
    And the hearing is adjourned.
    [Whereupon, at 4:15 p.m., the hearing was adjourned.]
                            A P P E N D I X

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    I commend Chairman Rockefeller for convening this hearing to 
consider the impact of the Cable Television Consumer Protection and 
Competition Act of 1992 on the modern television marketplace. I agree 
with the Chairman that consumers should be the focal point of our 
discussions. As he noted, although consumers often have the choice of 
video providers, rates continue to go up faster than the rate of 
inflation.
    Local broadcasters are an important source of news, emergency 
services, and entertainment in our communities. I request unanimous 
consent to include in the hearing record a letter dated July 20, 2012, 
from the Hawaii Association of Broadcasters relating to the issues 
before the Committee today.
    Broadcasters should be allowed to negotiate for fair value and 
carriage of their signals. The unanswered question is how to protect 
consumers when there is an impasse in negotiations. Whenever signals 
are pulled as a result of a retransmission consent dispute, consumers 
lose. The impact is magnified in areas such as the State of Hawaii 
where a single multichannel video programming distributor (MVPD) 
dominates the state.
    I look forward to continuing the dialog on these important issues 
with my colleagues on the Commerce Committee.
                                 ______
                                 
                      ABC Television Affiliates Association
                                                      July 20, 2012

Senator John D. Rockefeller IV,
Chair, Senate Commerce Committee,
Washington, DC.
  

Senator Kay Bailey Hutchison,
Ranking Member, Senate Commerce Committee,
Washington, DC.

Dear Senator Rockefeller and Senator Hutchison:

    It is our understanding the issue of retransmission consent, among 
other matters, will be discussed during the Senate Commerce Committee 
hearing on July 24. The ABC Television Affiliates Association, whose 
members consist of some 170 local television stations throughout the 
country affiliated with the ABC Television Network, respectfully 
submits these comments to the Committee with the request that they be 
incorporated into, and made part of the record of, the hearing.
    It would be difficult to overstate the importance of retransmission 
consent to the economic sustainability of network-affiliated, local 
television stations. Without retransmission consent revenues, local 
stations simply could not afford, today, to purchase popular, national 
network entertainment and sports programming nor produce the expensive 
local news, weather, sports, public safety, and public interest 
programming on which the American people have come to rely. The core 
economics of television have changed in dramatic ways over the years 
from a time when local broadcast stations were the only viable local 
distribution platforms for network programming.
    The local video distribution market today is a highly competitive 
market. Robust competition between video distributors affords program 
producers and aggregators (i.e., national networks and syndicators) 
multiple program distribution platforms. Having produced or acquired 
expensive national program content, networks, understandably, have a 
fiduciary duty to their shareholders to maximize the return on that 
investment, and, in doing so, they now have the ability to select among 
competing platforms (i.e., local television stations, cable systems, 
satellite companies, the Internet, or other video platforms) for the 
most financially advantageous distribution arrangement.
    To compete in the program acquisition market, local network-
affiliated stations now have to compensate their networks for programs, 
not only as in the past, by providing them significant amounts of local 
advertising inventory for network commercials, but, unlike the past, 
also by paying large sums of cash in ``program fees'' for the right to 
broadcast network programs. If affiliates are financially unable to pay 
a competitive market-based rate for those programs, the networks will 
place them on a local fee-based platform, i.e., cable, satellite, or 
the Internet. This is simply a function of a competitive program 
distribution market--a public policy goal long advocated by public 
officials and consumer groups.
    To illustrate, Disney, which owns and operates both the ABC 
Television Broadcast Network and ESPN, bids and competes in a 
competitive market against Fox, CBS, NBC, Turner, and other aggregators 
for expensive sports programming. After acquiring that content, Disney 
must decide which distribution platform, the ABC Television Network or 
ESPN, will yield the highest return on that investment. Placement of 
sports programming on ESPN, reportedly, yields Disney program fees in 
excess of $5.00 per month for each cable and satellite subscriber, 
along with substantial cable and satellite commercial advertising 
inventory. If placed on the ABC Television Network for free, over-the-
air broadcast, Disney now demands and receives both commercial 
advertising inventory and a program fee from its affiliated stations. 
Otherwise, Disney, understandably, will place its most expensive and 
popular programs on cable and satellite. Thus, it is not surprising 
that so many of the most popular traditional broadcast sports programs 
have migrated in recent years to ESPN's advertiser-based and fee-based 
cable and satellite platforms.
    The above illustration applies equally to entertainment 
programming, and the same local platform distribution choices for that 
programming are made by the parent companies of the CBS, Fox, and NBC 
Television Networks.
    Therefore, to compete for the most popular national programming 
with cable and satellite fee-based and advertiser-based revenue 
streams, local television stations, of necessity, must now charge fees 
to their competitors for the retransmission and resale of their 
signals. It is indisputable that if the ability of local stations is 
handicapped or impaired by Congress or the FCC in developing a fee-
based revenue stream from the resale, for profit, of their signals by 
competitive cable, satellite, and other video distributors, local 
television stations simply will no longer be competitive in the 
acquisition of national programming, and they will, plainly, not be 
able to afford to produce and broadcast local news, weather, sports, 
public safety, and public interest programming. Two revenue streams 
will always trump one, and if local television stations are not 
permitted to compete, at arm's length, in a competitive market, the 
best programming will ultimately migrate to subscription-based cable, 
satellite, or Internet platforms. The reality is consumers will 
ultimately pay for that programming, one way or the other.
    Not only do local stations compete with cable, satellite, and other 
video distributors for program content, they also compete head-to-head 
with cable, satellite, and other distributors for audience share and 
advertising revenue. Congress recognized in 1992, with adoption of the 
current statutory retransmission consent requirement, the absurdity of 
allowing competitors of local television stations to pirate and resell 
their signals for profit without their consent and adopted a regulatory 
framework to allow local television stations to negotiate at arm's 
length in a competitive market for the resale of their signals.
    Looked at another way, laws that prohibit cable and satellite 
companies from pirating, retransmitting, and reselling the signals of 
local television stations without their consent are no more unfair or 
unreasonable than laws that prohibit a local television station from 
pirating and retransmitting the signals of satellite and cable 
companies--without their consent--or the signals of other television 
stations, for that matter.
    Volumes have been written and spoken about the fundamental fairness 
and pro-competitive aspects of the Communications Act's retransmission 
consent requirements. Retransmission consent is more important today 
than when it was enacted for preservation of America's free, over-the-
air, local television broadcast service.
    We, therefore, respectfully urge the Committee not to impair or 
handicap the ability of local television stations to control the 
distribution of their signals by other competitive video distribution 
platforms.
            Sincerely,
                                              David Boylan,
                                                             Chair.
cc: Members of the Senate Commerce Committee
                                 ______
                                 
                   Hawaii Association of Broadcasters, Inc.
                                        Honolulu, HI, July 20, 2012
Hon. Daniel K. Inouye,
United States Senate,
Washington, DC.

Dear Senator Inouye:

    As the Senate Committee on Commerce, Science, and Transportation 
prepares to hold a hearing to examine video issues and related aspects 
of the Cable Television Consumer Protection and Competition Act of 1992 
(the ``Cable Act''), I write on behalf of Hawaii's local television 
broadcasters to underscore the importance of both the current 
regulations, and the extension of their underlying principles to the 
online video market.
    Every one of the Hawaii television stations who are members of the 
Hawaii Association of Broadcasters believe these bedrock principles 
remain as vital today as when the Cable Act was enacted.
    As you are aware, our local ABC-TV affiliate, KITV just yesterday 
resolved an impasse with Time Warner Cable over retransmission consent 
negotiations. While an unfortunate disruption of service left Hawaii 
cable TV viewers without the KITV signal for a number of days, the 
parties were able to resolve the issue and come to a retransmission 
consent agreement through a fair market-based discussion.
    Since the enactment of The Cable Act, literally thousands of 
retransmission consent contracts have been successfully negotiated in 
Hawaii to the mutual benefit of broadcasters, pay television companies 
and consumers. In the increasingly competitive video market, these 
deals ensure the continued viability of local broadcasters and our 
ability to deliver local news, emergency services and high quality 
programming to the communities that we serve.
    It is Hawaii viewers who are the real beneficiaries of the current 
retransmission consent process. Retransmission consent fees enable 
stations to hire reporters and engineering staff, buy live remote 
trucks, cameras, and production equipment, maintain transmission towers 
and the infrastructure necessary to produce daily programming and 
produce high quality local news that is an increasingly expensive 
proposition. Retransmission consent compensation allows stations to 
reinvest in valuable local content and services to our communities, 
providing more choices and better programming for all consumers.
    It is these very fees that allow TV stations to produce and provide 
meaningful local programming in prime time hours such as the week-long 
Merrie Monarch Festival, the Kamehameha Schools Song Contest, The Na 
Hoku Hano Hano Music Awards and others.
    This Committee was wise to craft legislation that recognized the 
value of local broadcasting. The Hawaii Association of Broadcasters 
asks that you support our local television stations in the upcoming 
Senate hearing on video carriage and further resist any efforts to 
eliminate retransmission consent, which allows our local stations to 
freely negotiate with pay television providers for carriage of those 
signals. The current system is good for your local television stations 
and your constituents, and it supports the continued creation of 
locally driven, community-focused programming.
            Sincerely,
                                            Jamie Hartnett,
                                                Executive Director,
                               Hawaii Association of Broadcasters, Inc.
                                 ______
                                 
                                                       RLTV
                                       Baltimore, MD, July 23, 2012
Hon. John D. Rockefeller IV,
Chairman,
Committee on Commerce, Science, and Transportation,
U.S. Senate,
Washington, DC.

Dear Chairman Rockefeller:

    I serve as the President and Chief Executive of RLTV, which began 
service as a 24/7 linear programming network in 2008. Our core purpose 
is to create, acquire and distribute compelling content--both 
television and online--for those who are 50 years of age and older, a 
group we term ``Generation 50+.'' There are over 100 million of us with 
$3 billion of spending power. As active, highly engaged and experienced 
citizens, we care deeply not only about issues and pursuits that will 
enhance this next stage in our personal lives, but also about the 
future well-being of our children, grandchildren and other loved ones 
who are among the 40 million caregivers in this country.
    There is no other network like RLTV. But unlike most networks or 
programming channels today, we are an ``independent.'' RLTV started 
with a vision and the financial resources of our founder, John 
Erickson. But lacking the deep pockets and brand awareness of large 
media companies, RLTV and a handful of other independent programmers 
have had to compete on a very uneven surface to secure distribution and 
advertiser acceptance. The result for RLTV and the other handful of 
independent programmers is a fundamentally longer, more difficult and 
certainly more costly undertaking and, as such, one that imposes great 
odds against the successful introduction and nurturing of additional 
independent editorial voices from which the public can choose.
    One particular cause of this circumstance is retransmission 
consent. For example, unlike the broadcasters, RLTV has no special 
government granted privileges, such as mandatory carriage rights or 
basic tier placement guarantees. When retransmission consent was 
created in 1992, it was intended to preserve local broadcasting, not to 
subsidize national broadcast television networks. In effect 
retransmission consent has had the unintended consequence of limiting 
choice and imposing more difficult playing field conditions for 
programmers such as RLTV.
    Despite these conditions, MVPDs such as Comcast, Verizon FiOS, and 
several dozen distributors fortunately have validated our mission. 
Additional carriage later this year, due in part to Time Warner Cable 
and Bright House Networks, will result in RLTV being seen in almost 30 
million homes compared to the 14 million plus households we're in 
today. For this we are greatly appreciative. Still, this is a long way 
from where RLTV should be.
    Recently, the Chairman and Chief Executive of a large MVPD was 
quoted in a recent interview that he felt ``badly for independent 
companies in general because they don't have the leverage against the 
distributors. It's not a fair fight,'' he added. No, it's not, Mr. 
Chairman. But unfortunately for distributors and independent networks 
such as RLTV, the ground rules, as noted above, have put us both 
between a rock and a very hard place.
    Reform of retransmission consent will be a good start toward fixing 
unintended consequences and enhancing the prospects of independent 
voices such as RLTV to be seen and heard.
            Sincerely,
                                       Paul A. FitzPatrick,
                                                 President and CEO,
                                                                  RLTV.
                                 ______
                                 
                                   Son Broadcasting Network
                                     Albuquerque, NM, July 24, 2012
Hon. John D. Rockefeller IV,
Chairman,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Dear Chairman Rockefeller:

    I understand that the United States Senate Committee on Commerce, 
Science, and Transportation plans to examine video carriage issues and 
related aspects of the 1992 Cable Act at an upcoming hearing, including 
the current ``must-carry'' regulations. On behalf of our station and 
others throughout the nation, I write to emphasize the importance of 
these ``must-carry'' regulations to our station, which has provided New 
Mexicans with unique high quality Christian programming for more than 
25 years.
    Congress enacted the ``must-carry'' regulations to prevent a cable 
system from refusing to carry lower-rated local television stations on 
its system. At that time, Congress found, after establishing a 
significant record, that if these local broadcast stations lost access 
to their cable audiences, it would diminish the quality and diversity 
of programming available in local communities. The Supreme Court agreed 
that the public benefits of must-carry far outweigh the minimal burdens 
it would impose on cable systems.
    The public benefits of ``must-carry'' that Congress anticipated at 
the time of the Cable Act's enactment have been borne out over the past 
two decades. While in 1992, there were only three nationwide sources of 
broadcast programming, must-carry laws have succeeded in creating an 
explosion of diverse broadcast television content across the country. 
Fox, Univision, the CW, MyNetwork, ION, Azteca, Telemundo and others--
all began as ``must-carry'' stations. ``Must carry'' provided them with 
the broad exposure that introduced them to new audiences and enabled 
them to thrive.
    Today, viewers across New Mexico continue to benefit from ``must-
carry'' regulations through the services that our station provides to 
the local community. Back in 1984 when we went on the air only a 
fraction of viewers in our Santa Fe/Albuquerque DMA were able to pick 
up our signal. Viewers, businesses and ministries advocated to the 
cable companies on our behalf from 1984-1992 at no avail. And it wasn't 
until the 1992 Cable Act went into effect that we were able to fully 
serve the viewers in our community.
    Since then we have produced thousands of hours of local programming 
covering a variety of formats from health and healing, to issues, 
entertainment, and talk programs that continue to serve the community 
and highlight the lives and stories of New Mexicans. Included are 
culturally diverse programs that are featured on our station. 
Ministries across our state who rely on us to share their stories of 
servicing the needs of New Mexicans would also be affected. As you may 
not be aware, our state has many needs; some of which are homelessness, 
hunger, drug addiction, family issues, health problems, and poverty. 
Our Christian television station has been a strong vehicle to address 
these issues and works with other ministries and agencies to 
communicate the services they offer. Son Broadcasting continues to 
provide a prayer line for people to call when they need encouragement, 
hope and prayer. There have been cases of suicide and financial need 
where we have bridged the caller to the appropriate professional or 
non-profit that can help with the particular need.
    Eliminating ``must-carry'' would threaten our ability to exist and 
we would no longer be able to serve the community with local quality 
Christian programming. We currently broadcast to the entire Santa Fe/
Albuquerque DMA, close to 800,000 households. Without ``must-carry'' we 
would be reduced down to serving approximately 18 percent of our 
current DMA, and many other stations around the country would be 
affected this same way. I ask that you stand in support of our station, 
and other local broadcasters that serve communities throughout the 
country in the upcoming Senate hearing on video carriage. Please resist 
any legislative efforts that eliminate the ``must-carry'' regulations.
    Thank you for your consideration.
                                            Annette Garcia,
                                                         President,
                                          Son Broadcasting--KCHF TV 11.
                                 ______
                                 
   Testimony of Benjamin Orr White, Private Citizen, State of Hawaii
U.S. Senate Committee on Commerce, Science, and Transportation
Attention--Senator John D. Rockefeller IV, Chairman

Senator Kay Bailey Hutchinson, Ranking Member

Senator Daniel Inouye, Past Chairman (2007-2009)

Fellow Senators and Committee Members
Washington, DC.

    The following testimony is respectfully submitted to Chairman, John 
D. Rockefeller and fellow Committee members of the U.S. Senate 
Committee on Commerce, Science, & Transportation on July 23, 2012 for 
your consideration from the perspective of a ``Private Citizen'' from 
the State of Hawaii regarding the Cable Act at 20 hearing scheduled for 
July 24, 2012 at 14:30 in the Russell Senate Office Building--253.
    The Cable Television and Consumer Protection Act of 1992 authored 
by Senator John C. Danforth has become legacy legislation which has 
protected the consumer, cable companies, and programming media over the 
past twenty years. It has met the burden of protecting a substantial 
governmental interest in promoting a diversity of views provided 
through multiple technology media. The 1992 Cable Act has with stood 
the challenges of the Judicial Branch being upheld by the U.S. Supreme 
Court in Turner Broadcasting System, Inc. v. FCC (95-992), 520 U.S. 180 
(1997). In 1992 the estimate was 56,000,000 households, over 60 percent 
of the households with televisions subscribe to cable television and 
the number has definitely grown since the legislation's enactment.
    In the case of private citizen from Hawaii like myself please allow 
me to explain how this legislation has had an imperative attempt on 
protecting Consumer and First Amendment rights in Hawaii within the 
past month. On July 11, 2012 Oceanic Time Warner Cable a subsidiary of 
Time Warner Cable blacked out the local commercial broadcast station 
KITV an American Broadcasting Company (ABC) affiliate owned and managed 
by Hearst Television. Oceanic then removed KITV from their cable line 
up without any notice to the consumer. All parties (Time Warner, 
Oceanic Time Warner, Hearst Television, and KITV) began to blame each 
other for the removals over a failure to come to a fiscal agreement 
regarding retransmission consent. For the next ten days 350,000 Oceanic 
Time Warner Cable subscribers and citizens in Hawaii were held hostage 
to the negotiations of these corporations. Cable subscribers were not 
able to watch ABC's news and programming (a national affiliate). The 
existing legislation requires cable companies to provide a 30 day 
advance notice to their subscribers of any changes. This did not occur. 
As a private citizen I sought to seek remedy through the FCC, FTC, and 
State Cable Division and failed to receive any recourse. As a last 
result a Federal lawsuit was filed to seek recourse. (See attached 
documentation) Without the 1992 Cable Act there would have been no 
consumer protection from the infringement of first amendment rights by 
cable companies and programming media.
    Moving forward more and more media is being viewed over the 
Internet. It is important to establish legislation that will protect 
media companies, consumers, and Internet providers. More and more 
Internet cable companies are charging for the amount of data citizens 
are viewing on the Internet thus making the overall cost of media and 
freedom a speech quite expensive. Future legislation needs to look at 
how the Internet is competing against cable television. Cable 
television is an organized medium governed by individual station 
programming. The Internet is not governed by scheduled programming but 
by individual preferences with global implications. The Cable Act of 
1992 did a great job of protecting local commercial and non commercial 
broadcast stations. Any future legislation should provide the same 
first amendment protection to view media over the Internet.
    On a more personal note I am proud to say that I am Veteran of 16 
years who takes great pride in having had the opportunity to defend 
this legislation, freedom and First Amendment Rights. I have been to 
other countries where the freedom of speech is restricted over cable 
networks, satellite providers, and Internet cable companies.
    Thank you for your consideration and may God Bless this Committee, 
the U.S. Senate, the U.S. Legislative Branch and the United States of 
America.
            Respectfully submitted,
                                        Benjamin Orr White.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                          Hon. Gordon H. Smith
    Question 1. Whenever signals are pulled as a result of a 
retransmission consent dispute, consumers lose. The impact is magnified 
in areas where a single MVPD dominates an entire state. What is the 
best way to protect consumers while companies work to resolve disputes 
and impasses in negotiations for the carriage of broadcast signals?
    Answer. Broadcasters all across the country have a strong incentive 
to conclude retransmission consent negotiations successfully and avoid 
carriage disputes, which result in the immediate loss of both 
retransmission consent compensation and advertising revenues for local 
stations and networks. As a result, retransmission consent negotiations 
are almost always concluded successfully, with disruptions affecting 
only hundredths of one percent of annual television viewing hours. In 
the rare instance of a negotiating impasse, broadcasters take steps to 
educate our viewers about available options.
    Understanding the unique circumstances we have in Hawai'i, where 
Time Warner Cable has near-monopoly control of the market, our signal 
is available free, over-the-air to your constituents. Furthermore, as I 
mentioned in my opening statement, it would be beneficial to arm 
consumers with more protections in the rare event of a disruption. 
First, more information should be given with enhanced notice of a 
potential service disruption. Second, consumers who pay for an MVPD 
package should be reimbursed for loss of service and allowed to change 
systems without penalty.

    Question 2. Should any special consideration be given to protect 
consumers in geographic locations where a single MVPD serves a high 
percentage (more than 50 percent) of total MVPD subscribers in a state?
    Answer. Senator, ten MVPDs serve over 90 percent of the pay-TV 
subscriber base nationally, in addition to geographic cable system 
``clusters.'' Local broadcasters often have to negotiate retransmission 
consent agreements with extremely large systems with vertically 
integrated programming that are competing for the same local and 
national advertisements. All in all, we feel that consumers should be 
given more options in the retransmission consent process, outlined in 
our previous answer.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                          Hon. Gordon H. Smith
    Question 1. In her testimony, Ms. Witmer of Time Warner Cable notes 
that national broadcast networks ``have begun demanding reverse 
compensation from their affiliates,'' which she alleges is contributing 
to the increase in retransmission fees local affiliates have been 
requesting in renegotiations.
    Please respond to this point, providing detail on the extent that 
national broadcast networks are involved in retransmission fee 
negotiations, including any relevant information on the percentage of 
retransmission fees for affiliate signals that are allocated to 
national broadcast networks.
    Answer. As a trade association, NAB does not have access to the 
specific contractual terms of either network affiliation agreements or 
retransmission consent agreements. Indeed, as a matter of antitrust 
law, it would not be appropriate for NAB to have information on the 
specific terms and conditions of the agreements between and among its 
members (such as network affiliation agreements) or between and among 
its members and entities within the pay-TV industry (such as 
retransmission consent agreements). Information about network 
involvement in retransmission consent negotiations and any 
retransmission consent-related compensation arrangements would only be 
available from the actual agreements and/or the networks and stations 
that are parties to such agreements.

    Question 2. What are NAB's views on Senator Kerry's idea of 
requiring alternative styles of negotiation--i.e. baseball-style 
arbitration--to be used in disputes between multichannel video 
programming distributors and affiliates to ensure viewers are not 
treated unfairly when retransmission consent negotiations breakdown?
    Answer. There are several reasons why requiring arbitration would 
be contrary to the public interest and contrary to existing law.
    Under the retransmission consent system established by Congress, 
the government does not and should not attempt to choose winners or 
losers among broadcast stations and pay-TV providers but instead allows 
broadcasters and MVPDs to negotiate freely and reach marketplace 
agreements. Government-enforced arbitration would undermine this 
market-based system and disrupt the carefully balanced combination of 
laws and regulations governing carriage of television broadcast 
signals. The complexity of retransmission consent negotiations makes 
mandatory arbitration or a similar dispute resolution mechanism neither 
viable nor practical.
    Retransmission consent negotiations typically involve many complex 
and multidimensional issues, including such matters as video on demand, 
purchase of broadcast advertising by the MVPD (and vice-versa), 
broadcast station promotion by the MVPD (and vice-versa), connectivity 
between the station's studio/transmitter and the MVPDs headend/local 
receive facility, digital and multicast channel carriage, electronic 
program guide placement, and news insertion options, to name a few. 
Given the complexity of these agreements, significant experience and 
unique expertise would be required to assist parties in resolving 
disputes. For this reason, retransmission consent agreements generally 
also address matters such as the manner of dispute resolution, venue 
and jurisdiction. NAB believes that mandating arbitration would result 
in costly battles between economists and lawyers, bleeding economic 
resources that local stations could better use to invest in high-
quality programming and public service stewardship. This would only be 
compounded with smaller stations in California negotiating against 
MVPDs with far greater leverage.

    Question 3. In recent years, the breakdown of retransmission 
consent negotiations has threatened the television access of millions 
of Americans to major events like the Super Bowl, the World Series, and 
the Oscars, not to mention the critical access of viewers to local news 
broadcasts. The FCC has proposed to strengthen notice requirements for 
consumers when there is the possibility that certain services may 
lapse. Does NAB support this proposal?
    Answer. NAB agrees that viewer notification requirements should be 
strengthened. In comments filed with the FCC last year, NAB urged the 
FCC to adopt certain changes to its rules to promote the interests of 
viewers.
    First, we urged the FCC to extend its consumer notice requirements 
to all MVPDs. This requirement, which requires advance notice to 
consumers of any changes to their channel line-ups, currently applies 
only to cable operators. Extending this rule to all MVPDs would ensure 
that consumers have adequate information to make informed decisions 
about how to access programming in the rare instances when they may be 
impacted by a negotiating impasse.
    We also proposed two other changes that we anticipate will assist 
viewers. We observed that many MVPDs now require that their subscribers 
pay early termination fees (``ETFs'') when canceling services prior to 
the termination of a service agreement, which could impede subscribers' 
ability to cancel and/or change their MVPD service in the event of a 
retransmission consent dispute. NAB urged the Commission to ensure that 
the ability and freedom of consumers to make such decisions are not 
impeded by the use of ETFs. Finally, NAB has noted that there is a 
dearth of information about MVPD ownership, operations, and geographic 
coverage. Current information about such matters is critical to 
broadcasters' ability to make timely carriage elections and 
retransmission consent-related communications. Accordingly, we urged 
the FCC to consider rules that require MVPDs to periodically file with 
the FCC data on their ownership (including contact information), 
operation, and geographic coverage. This greater transparency could be 
achieved in a manner that is not unduly burdensome but would promote 
more effective and timely communications between broadcasters and 
MVPDs.

    Question 4. Does NAB support requiring affiliate broadcast signals 
to remain on the air--i.e., continuous carriage--during retransmission 
consent disputes?
    Answer. Since the establishment of the current system of 
retransmission consent, thousands of major sporting and entertainment 
events have come and gone without incident or disruption to any 
consumer. The system works so well that studies show that consumers are 
more likely to face a power outage or an outage of their entire pay-TV 
service than to be affected by a retransmission consent dispute. Even 
in the rare instances that a disruption occurs, local stations' signals 
remain available free over-the-air, and can also be viewed via other 
pay-TV services.
    The current regime specifies that both broadcaster and pay-TV 
parties must, as part of their good faith negotiation obligations, 
negotiate at reasonable times and locations, and must not unreasonably 
delay negotiations. Further government intervention into the timing of 
the negotiating process, including when those agreements commence or 
terminate, easily could create disincentives to timely reaching 
agreement. Certainly the requirement on broadcasters proposed in this 
question would substantially reduce the incentives of pay-TV providers 
to conclude retransmission negotiations, if those operators know they 
can continue to use broadcasters' signals for their own profit, even in 
the absence of any agreement between them.
    I also want to stress that, during many retransmission 
negotiations, television stations reach short-term agreements with pay-
TV providers, allowing them to continue carrying the stations' signals 
while negotiations continue.

    Question 5. Local broadcasting provides local programming and 
assistance in times of emergency. Broadcasters increasingly recognize 
that compensation from retransmission consent fees is an important 
revenue stream going forward. Can you explain what the retransmission 
consent fees paid to a broadcast station support?
    Answer. Retransmission consent fees help support the quality, 
quantity and diversity of broadcast programming and services. 
Broadcasters are airing ever-increasing amounts and types of 
programming through the use of multiple programming streams or 
``multicasting.'' The total number of over-the-air television channels 
skyrocketed from 2,518 channels as of year-end 2010 to 4,552 channels 
as of year-end 2011.\1\ Multicasting has fostered the development of 
entirely new programming networks, many of which are aimed at meeting 
the needs and interests of specific ethnic groups. Another significant 
development is the increase in programming available in high definition 
(``HD'') format, with an estimated three-fifths of broadcasters having 
upgraded their production facilities so that they can offer local news 
in HD. Mobile DTV also is on the rise, with more than 130 stations in 
30 states now making significant amounts of programming accessible via 
handheld mobile devices.
---------------------------------------------------------------------------
    \1\ TV Stations Multiplatform Analysis '12 Update: New Digital 
Networks, Mobile TV Channels Expand Content Options, SNL Kagan (Jan. 
31, 2012) at 1.
---------------------------------------------------------------------------
    As you have observed, television broadcast stations are an 
unrivaled source of local and national news and vital emergency 
information and alerts. Broadcast television is the leading news 
source, with 37.4 percent of American adults reporting that they 
consider broadcast television to be their primary source of news.\2\ 
Recent surveys also show that viewers consider local television news 
more trustworthy than other news sources.\3\
---------------------------------------------------------------------------
    \2\ Television Bureau of Advertising, TV Basics Report (June 2012) 
at 25, available at: http://www.tvb.org/media/file/TV_Basics.pdf. Local 
television broadcast stations also are the top source for local 
weather, traffic and sports. Id.
    \3\ See University of Southern California, National USC Annenberg-
Los Angeles Times Poll Shows Local Television News Rules with Voters, 
Press Release (Aug. 27, 2012), available at: http://www.usc.edu/
uscnews/newsroom/news_release.php?id=2795 (visited Aug. 28, 2012); The 
Pew Research Center for People and the Press, Further Decline in 
Credibility Ratings for Most News Organizations at 5 (Aug. 16, 2012), 
available at: http://www.people-press.org/files/2012/08/8-16-2012-
Media-Believability1.pdf (visited Aug. 28, 2012).
---------------------------------------------------------------------------
    To meet the needs and high expectations of their viewers, local 
television stations invest heavily in their local news operations. 
Recent survey data show that television news staffing has risen to the 
second highest levels on record, with stations adding 1,131 jobs for a 
total of 27,653 full time staff in 2011. In addition, 42.4 percent of 
stations added to their newscasts last year, and a significant number 
(31.2 percent) plan to increase news during the coming year. Despite 
challenging economic times, most stations either increased or 
maintained their news budgets during the past year.\4\
---------------------------------------------------------------------------
    \4\ Bob Papper, RTDNA/Hofstra University, ``2012 TV and Radio 
Staffing and News Profitability Survey,'' summarized at http://
www.rtdna.org/pages/media_items/2012-tv-and-radio-news-staffing-and-
profitability-survey2094.php, Part I-II.
---------------------------------------------------------------------------
    Significantly, free over-the-air broadcast signals are relied upon 
by an increasing proportion of the American public. The most current 
data show that 17.8 percent of U.S. television households--a total of 
20.7 million households (or 53.8 million Americans)--rely solely on 
free over-the-air broadcast television. Broadcast-only households are 
more likely to be racial and ethnic minorities, have lower household 
incomes, and are younger.\5\
---------------------------------------------------------------------------
    \5\ See GfK-Knowledge Networks, Home Technology Monitor 2012 
Ownership Survey and Trend Report (Spring 2012-March 2012). See also 
NAB, Over-the-Air TV Viewership Soars to 54 Million Americans, Press 
Release (Jun. 18, 2012), available at: http://www.nab.org/documents/
newsroom/pressRelease.asp?id=2761.
---------------------------------------------------------------------------
    Local television stations today increasingly rely upon revenue 
streams other than over-the-air advertising to support the varied 
services described above. Thus, the ability to engage in fair 
negotiations with pay-TV providers for the value of the broadcast 
signal is critical to broadcasters' ability to generate revenue and re-
invest those dollars in local news operations and a range of digital 
services. Changes to the current system would impair the ability of 
local stations to serve their local markets.\6\
---------------------------------------------------------------------------
    \6\ See Jeffrey A. Eisenach & Kevin W. Caves, The Effects of 
Regulation on Economies of Scale and Scope in TV Broadcasting 1 (2011), 
Attachment A to Reply Declaration of Jeffrey A. Eisenach and Kevin W. 
Caves (June 27, 2011) in NAB Reply Comments to Notice of Proposed 
Rulemaking in MB Docket No. 10-71, at Appendix A (filed June 27, 2011).
---------------------------------------------------------------------------
                                 ______
                                 
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                          Hon. Gordon H. Smith
    Question 1. Broadcasters tend to argue that retransmission consent 
fees are critical to broadcasters being able to support local news 
broadcasts. WWOR, owned by FOX, has faced significant criticism for its 
coverage of local New Jersey news. Since FOX and Cablevision came to an 
agreement on retransmission fees after a blackout during the World 
Series in 2010, New Jersey customers have not seen real improvement of 
local news coverage on WWOR. If broadcasters get use of the public 
airwaves for free, while also charging retransmission fees, what are 
New Jersey customers getting in return?
    Answer. Senator, broadcasters are proud stewards of the Nation's 
airwaves. In fact, most broadcasters were not given anything for 
``free'' as they purchased their licensed stations at market price and 
perform countless hours of public interest services, on the air and in 
the community. In return, broadcasters continue to reinvest 
retransmission consent revenues in local news and other programming 
services. For example, in 2011, broadcasters hired more than 1,100 
additional anchors, reporters, producers and news staff. Total 
employment in local television newsrooms grew by 4.3 percent to 27,653 
employees. This is the second highest total on record, thanks to 
retransmission consent in many cases. New Jersey residents are served 
by WWOR-TV, a broadcast television station licensed to Secaucus, New 
Jersey, which is affiliated with MyNetworkTV and owned by Fox 
Television Stations. In addition to MyNetworkTV entertainment 
programming, WWOR-TV provides local viewers with local news coverage, 
public affairs programming, special election coverage and children's 
educational programming.

    Question 2. Do broadcasters have an obligation to provide local 
news coverage? If so, how much is adequate?
    Answer. Local broadcasters are licensed by the FCC on the condition 
that they will serve the public interest. Each and every station is 
different and tailors its programming to fit the needs of the 
community.

    Question 3. S. 2008, the Next Generation Television Marketplace Act 
of 2011, would provide for the deregulation of retransmission consent. 
But as we saw last month with DirecTV and Viacom, blackouts occur due 
to disputes between cable programmers and cable providers in a non-
regulated environment too. If we see customers, like those who 
subscribe to DirecTV, suffering in a deregulated world, why would we 
want to deregulate the negotiation process for broadcasters too?
    Answer. Removing important laws like retransmission consent and 
must-carry will harm local stations and television viewers alike. For 
example, certain proposals would eliminate the ability of the FCC to 
enforce privately negotiated contracts between program distributors and 
stations for the distribution of network and syndicated programming. 
Allowing pay-TV providers to import from distant markets signals 
carrying duplicative network and syndicated programming ultimately will 
harm viewers, by undermining local stations' economic base for 
producing local news and information--including critical emergency 
information. Specifically, limiting broadcasters' ability to enter into 
and/or enforce exclusive contracts will jeopardize stations' 
advertising revenues because the lack of program exclusivity in a 
market makes television stations less attractive to advertisers. 
Without sufficient advertising revenue streams, local stations cannot 
afford to invest in valued informational and entertainment programming. 
Both local stations and their viewers would be severely harmed if pay-
TV providers could undermine stations' exclusivity rights by importing 
distant stations' signals.
    Furthermore, if some legislative proposals were to become law, many 
believe that the number of consumer disruptions will multiply. Removing 
the compulsory copyright license, for instance, would exponentially 
increase the number of rights holders that need to grant permission 
before a station's programming is carried by a cable or satellite 
company, thereby increasing the likelihood of consumer disruptions. In 
addition to this, many stations, particularly smaller and independent 
stations, may be unable to undertake the expensive and cumbersome 
responsibility of direct licensing, and such a change might affect the 
ability of local stations to serve their local markets.

    Question 4. News Corporation, a member of the National Association 
of Broadcasters (NAB), has been found to have misled the British 
Parliament, has been accused of misrepresenting itself to the FCC, and 
has seen its employees arrested for crimes including bribery of police, 
phone hacking, e-mail hacking, and the perversion of justice. What, if 
anything, does the NAB do to ensure that its members are living up to 
the character requirements expected of a broadcast licensee?
    Answer. NAB advocates on behalf of a broad membership, which is 
comprised of local radio and television stations and broadcast TV 
networks. To be a member of NAB, stations must hold a valid broadcast 
license from the Federal Communications Commission.

    Question 5. In light of the numerous allegations against News 
Corporation, is the NAB conducting investigations into or taking any 
action against News Corporation?
    Answer. No.

    Question 6. Today's video marketplace is very different than what 
it was in 1992. Since the enactment of the Cable Act, satellite 
carriers and telephone companies offering video services compete with 
cable operators. And in the last few years, we have seen the enormous 
growth of online video. In your view, given these changes in the video 
marketplace, are the existing rules working? Why or why not?
    Answer. NAB feels that the system established by the 1992 Act is 
functioning as Congress intended and serving the public interest. Some 
local broadcasters are for the first time receiving monetary 
compensation for carriage of their signals, and consumers are 
benefiting with enhanced local offerings and other highly valued sports 
and entertainment programming. As new entrants, such as online video 
distributors, provide consumers with even more options we believe that 
applying the same basic principles for retransmission consent and 
exclusivity to both new and traditional providers is paramount. Leaving 
broadcasters unable to control Internet distribution of their signals, 
and without the means to negotiate for fair compensation for others' 
commercial use of their signals, would contradict Congress' mandate 
that ``anyone engaged in retransmission consent by whatever means'' 
obtain stations' consent, and would seriously undermine local stations' 
ability to fulfill their public service obligations.
                                 ______
                                 
    Repsonse to Written Questions Submitted by Hon. Mark Warner to 
                          Hon. Gordon H. Smith
    Question 1. Stakeholders on all sides of the retransmission consent 
debate appear to agree that the visibility and frequency of 
retransmission disputes has increased over the last few years. Some 
have argued that retransmission consent is working and that some 
growing pains are reasonable because many broadcast stations are 
electing to pursue deals instead of must-carry for the first time since 
enactment of the 1992 Cable Act which created the dual regimes of must 
carry and retransmission consent. On the other hand, distributors argue 
that private sector retransmission consent deals are taking longer to 
negotiate, and that it is becoming harder to reach agreement regarding 
mutually agreeable terms.
    If you believe must-carry and retransmission consent are important 
to localism, how do you recommend that the Congress measure the success 
of localism?
    If you believe retransmission consent is failing, what evidence can 
you provide?
    Answer. Must carry and retransmission consent have yielded 
important benefits for American television viewers, whether they access 
broadcast television over-the-air, via pay-TV services, or online.
    Must-Carry. Congress adopted ``must-carry'' because it found that 
cable systems were increasingly refusing to carry certain local 
television stations or carrying them in ways that made it difficult to 
receive them (such as placing them on channels that could only be 
received with additional equipment).
    Congress found, after assembling a massive record, that if stations 
lost access to the cable audience, their ability to provide quality 
diverse programming to their local communities would decline, and those 
stations would either be forced to change to less expensive programming 
or go off the air altogether, reducing the diversity of programming 
available to local communities.
    The must-carry policy has succeeded. Congress can measure that 
success by looking at the results. In 1992, there were only three 
nationwide sources of broadcast programming. In the past 20 years, new 
and diverse programming networks have grown, including Univision, Fox, 
the CW, MyNetwork, ION, Telemundo, Azteca and others. Each of them 
first obtained widespread distribution over must-carry stations and 
produce local news thus serving localism. Other local stations that 
provide foreign language or other niche programming are able to operate 
only because they can reach the entire audience due to must-carry 
requirements.
    Although some cable companies complain that must-carry reduces the 
opportunity for new cable programming, the facts don't support that 
claim. Must-carry stations occupy no more than one to two percent of 
the capacity of most cable systems, and as cable systems convert to 
all-digital operations, their capacity grows even further. Those cable 
systems also often devote many channels to carrying feeds of popular 
cable networks from multiple time zones.
    Television broadcasters are committed to providing a wide variety 
of channels and programming that connect the cultures and communities 
they serve and reflect the diverse nature of their viewing audiences. 
Must-carry laws have succeeded in helping broadcasters accomplish these 
goals.
    Retransmission Consent. Retransmission consent allows stations 
electing this option to negotiate with pay-TV providers in good faith 
for the value of their signals. Retransmission consent fees help 
support the quality, quantity and diversity of broadcast programming 
and services. Broadcasters are airing ever-increasing amounts and types 
of programming through the use of multiple programming streams or 
``multicasting,'' which has resulted in enhanced localism. The total 
number of over-the-air television channels skyrocketed from 2,518 
channels as of year-end 2010 to 4,552 channels as of year-end 2011.\7\ 
Multicasting has fostered the development of entirely new programming 
networks, many of which are aimed at meeting the needs and interests of 
specific ethnic groups and community focused programming. Another 
significant development is the increase in programming available in 
high definition (``HD'') format, with an estimated three-fifths of 
broadcasters having upgraded their production facilities so they can 
offer local news in HD. Mobile DTV also is on the rise, with more than 
130 stations in 30 states now making significant amounts of programming 
accessible via handheld mobile devices.
---------------------------------------------------------------------------
    \7\ TV Stations Multiplatform Analysis '12 Update: New Digital 
Networks, Mobile TV Channels Expand Content Options, SNL Kagan (Jan. 
31, 2012) at 1.
---------------------------------------------------------------------------
    Television broadcast stations are an unrivaled source of local and 
national news and vital emergency information and alerts. Broadcast 
television is the leading news source, with 37.4 percent of American 
adults reporting that they consider broadcast television to be their 
primary source of news.\8\ Recent surveys also show that viewers 
consider local television news more trustworthy than other news 
sources.\9\ To meet the needs and high expectations of their viewers, 
local television stations invest heavily in their local news 
operations. Recent survey data show that television news staffing has 
risen to the second highest levels on record, with stations adding 
1,131 jobs for a total of 27,653 full time staff in 2011. In addition, 
42.4 percent of stations added to their newscasts last year, and a 
significant number (31.2 percent) plan to increase news during the 
coming year. Despite challenging economic times, most stations either 
increased or maintained their news budgets during the past year.\10\
---------------------------------------------------------------------------
    \8\ Television Bureau of Advertising, TV Basics Report (June 2012) 
at 25, available at: http://www.tvb.org/media/file/TV_Basics.pdf. Local 
television broadcast stations also are the top source for local 
weather, traffic and sports. Id.
    \9\ See University of Southern California, National USC Annenberg-
Los Angeles Times Poll Shows Local Television News Rules with Voters, 
Press Release (Aug. 27, 2012), available at: http://www.usc.edu/
uscnews/newsroom/news_release.php?id=2795 (visited Aug. 28, 2012); The 
Pew Research Center for People and the Press, Further Decline in 
Credibility Ratings for Most News Organizations at 5 (Aug. 16, 2012), 
available at: http://www.people-press.org/files/2012/08/8-16-2012-
Media-Believability1.pdf (visited Aug. 28, 2012).
    \10\ Bob Papper, RTDNA/Hofstra University, ``2012 TV and Radio 
Staffing and News Profitability Survey,'' summarized at http://
www.rtdna.org/pages/media_items/2012-tv-and-radio-news-staffing-and-
profitability-survey2094.php.
---------------------------------------------------------------------------
    Local television stations today increasingly rely upon revenue 
streams other than over-the-air advertising to support the varied 
services described above. Thus, the ability to engage in fair 
negotiations with pay-TV providers for the value of the broadcast 
signal is critical to broadcasters' ability to generate revenue and re-
invest those dollars in local news operations and a range of digital 
services. Changes to the current retransmission consent system would 
impair the ability of local stations to serve their local markets.\11\
---------------------------------------------------------------------------
    \11\ See Jeffrey A. Eisenach & Kevin W. Caves, The Effects of 
Regulation on Economies of Scale and Scope in TV Broadcasting 1 (2011), 
Attachment A to Reply Declaration of Jeffrey A. Eisenach and Kevin W. 
Caves (June 27, 2011) in NAB Reply Comments to Notice of Proposed 
Rulemaking in MB Docket No. 10-71, at Appendix A (filed June 27, 2011).

    Question 2. Some distributors have indicated concerns about the 
ability of content creators to tie affiliated programing to 
retransmission consent deals because they argue this practice 
contributes to programming cost increases. Broadcasters and content 
creators argue that current practices provide necessary financial 
support for a greater variety of programming options which they say is 
a benefit to consumers.
    To what extent should Congress be concerned about programming cost 
increases over the past several years?
    If you believe programming cost increases merit a fresh look at the 
1992 Cable Act, do you believe cost savings garnered by distributors 
should be passed onto consumers? If so, how would any savings be 
realized by consumers?
    If you support changes to current law, would your company provide 
consumers with the same flexibility to pursue a la carte programming 
options? If not, why not?
    Answer. As a threshold matter, it is important to recognize that 
programming costs are declining, not rising, relative to other key 
economic indicators in the pay-TV industry. Thus, pay-TV industry 
contentions that retransmission consent fees drive consumer are 
patently false.
    For years, cable operators consistently refused to pay cash for 
retransmission consent of local broadcast signals.\12\ Despite this, 
the average monthly rate subscribers were charged for the combined 
basic and expanded-basic tiers of service rose from $26.06 in 1997 to 
$36.47 in 2002--a 40 percent increase over the five years.\13\ This 
rate of increase was much greater than the general rate of inflation, 
as measured by the Consumer Price Index (``CPI''), which rose 12 
percent over the same period.\14\ Clearly, these rate increases were 
entirely unrelated to broadcast retransmission consent compensation.
---------------------------------------------------------------------------
    \12\ See GAO, Issues related to Competition and Subscriber Rates in 
the Cable Television Industry, GAO-04-8 at 43 (Oct. 2003) (``few 
retransmission consent agreements include cash payment for carriage of 
the local broadcast station'').
    \13\ Id. at 20, 43-44.
    \14\ Id.
---------------------------------------------------------------------------
    Even today, the prices paid by MVPDs for retransmission consent are 
very modest when compared to other key indicators, such as MVPDs' other 
programming-related expenses, revenues and profits. Broadcasters' 
compensation is significantly less than that paid to non-broadcast 
program providers whose programming earns lower ratings. For example, 
in 2009, MVPDs paid an average of $2.08 per subscriber per month to 
carry one of the four most expensive cable networks and $1.49 per 
subscriber per month to carry one of the four most heavily viewed cable 
networks, while each of the ``Big 4'' broadcast network affiliates only 
received an average of approximately $0.14 per subscriber per month in 
retransmission consent fees.\15\ MVPDs paid almost fifteen times more 
in fees for carriage of the four most expensive cable networks and 
approximately ten times more for carriage of the four most heavily 
viewed cable networks than they paid in retransmission consent fees for 
carriage of the Big 4 broadcast network affiliates.
---------------------------------------------------------------------------
    \15\ SNL Kagan, Economics of Basic Cable Networks 2009 and SNL 
Kagan, Nielsen November 2009 Prime-Time Live Coverage.
---------------------------------------------------------------------------
    As further evidence that retransmission consent fees are not 
driving higher cable rates, programming expenses, of which 
retransmission consent fees account for only a small fraction, are 
rising more slowly than other sectors of the cable industry's overall 
economic structure. For example, between 2005 and 2010, with respect to 
six publicly-traded cable operators:

   the share of cost of revenue accounted for by programming 
        costs declined from 54 percent to 49 percent;

   the share of cost of revenue, plus selling, general, and 
        administrative costs accounted for by programming costs 
        declined from 36 percent to 34 percent;

   the ratio of programming expenses to total cable operating 
        costs decreased (from 27 percent in 2005 to 26 percent in 
        2010);

   Cable operators monthly revenue per subscriber increased by 
        $53.06 per subscriber per month, from $80.95 to $134.01, while 
        programming expenses increased by just $10.03 per subscriber 
        per month (from $18.21 to $28.24); stated differently, for 
        every dollar increase in programming expenses, MVPDs raised 
        monthly subscription rates by $5.29.

   The average retransmission fee per cable subscriber per 
        month increased from zero in 2005 to $0.86 in 2010. Thus, in 
        2010, retransmission consent fees, at $0.86 per subscriber per 
        month, were approximately six tenths of one percent of cable 
        operator revenues.\16\
---------------------------------------------------------------------------
    \16\ See Declaration of Jeffrey Eisenach and Kevin Caves, 
Attachment to NAB Comments in MB Docket No. 10-71 (filed May 27, 2011) 
at 16-24.

    Further, retransmission consent fees are not expected to drive up 
cable subscriber rates in the future. A March 2009 study estimated that 
cable revenues per subscriber are predicted to rise 45 times more than 
retransmission consent fees between 2006 and 2015.\17\
---------------------------------------------------------------------------
    \17\ Jeffrey A. Eisenach, The Economics of Retransmission Consent 
(March 2009), attached to Reply Comments of NAB, MB Docket No. 07-269 
(filed Jun. 22, 2009) at 33.
---------------------------------------------------------------------------
    Accordingly, NAB does not believe that programming costs generally 
have driven the steady increases in consumer prices for pay-TV service. 
In particular, the modest retransmission consent fees paid to 
broadcasters are not the cause of consistent subscriber rate increases 
above the rate of inflation. We therefore do not see any reason for 
modifications to the current system.

    Question 3. Given that retransmission consent deals are private 
sector negotiations under the 1992 Cable Act, it is difficult for 
observers and participants to track pricing trends.
    Do you believe pricing transparency for distributors and for 
consumers could help to alleviate tensions over content deals? If not, 
why not?
    If you do believe pricing transparency could be beneficial, please 
provide specific recommendations for such a proposal could be 
implemented.
    Answer. There are several reasons why disclosure of retransmission 
consent pricing would not be helpful, and could in fact be harmful, to 
the current system of retransmission consent.
    First, such proposals implicitly assume that retransmission consent 
negotiations are only about money. To the contrary, retransmission 
consent negotiations typically involve many complex and 
multidimensional issues, including such matters as video on demand, 
purchase of broadcast advertising by the MVPD (and vice-versa), 
broadcast station promotion by the MVPD (and vice-versa), connectivity 
between the station's studio/transmitter and the MVPD's headend/local 
receive facility, digital and multicast channel carriage, electronic 
program guide placement, and news insertion options, to name a few. 
Disclosure of ``price'' is not a simple matter, there are often myriad 
elements beyond cash fees that constitute the overall price 
compensation in a retransmission consent agreement.
    Another issue to consider is whether such disclosures could 
effectively establish either a ``floor'' or a ``ceiling'' for 
retransmission consent fees in a given market. This could harm 
broadcasters and/or pay-TV providers because each transaction should 
reflect unique and specific marketplace circumstances involving the 
parties to that transaction. For example, a broadcaster may wish to 
offer a lower rate to a specific MVPD because that MVPD is able to 
offer the broadcaster a unique video-on-demand partnership. When other 
MVPDs learn of the reduced rate, they may seek that same rate when 
their retransmission consent agreements are up for renewal (even if 
they are not willing or able to offer the same types of non-price terms 
and conditions). In light of that likely outcome, the broadcaster in 
this scenario may be deterred from offering a lower rate and entering 
an arrangement that would otherwise have created new programming 
options for viewers. As you can see, disclosure could create 
disincentives that harm both the industry and the viewing public.
    Finally, it is important to consider how one-sided it would be to 
require only retransmission consent rates to be disclosed. 
Interestingly, the pay-TV providers who have supported proposals for 
rate disclosure do not seek ``transparency'' across the board. Rather, 
these providers wish for broadcasters to lay all their cards on the 
table while pay-TV providers get to keep theirs close to the vest. 
Under their proposals, MVPDs would not have to disclose the rates that 
they pay to non-broadcast programming services with substantially less 
audience appeal, or any of the data relevant to determining their costs 
per channel.

    Question 4. Going forward, how should Congress and/or the Federal 
Communications Commission measure whether or not the current system is 
working? Please provide specific metrics to support your answer.
    Answer. I think there are several key indicators that the existing 
retransmission consent system is working, and that these indicators can 
continue to be monitored by Congress and/or the Commission. The leading 
indicator is that the overwhelming majority of retransmission consent 
deals are getting done. Studies that show that retransmission consent 
disputes affect only hundredths of a percent of annual television 
viewing hours. Congress and the FCC could use such metrics to help 
assess the extent and nature of negotiating impasses. Congress and the 
Commission also should consider the extent to which certain pay-TV 
providers are repeatedly involved in disputes with broadcasters and 
other programmers. Such repetitive conduct suggests that these pay-TV 
providers may be more focused on generating interest in government 
intervention on their behalf than engaging in genuine attempts to reach 
agreement.
    Another key indicator that the system is working is the extent to 
which broadcasters are upgrading and expanding their services to the 
public. Retransmission consent fees help support the quality, quantity 
and diversity of broadcast programming and services. As discussed in 
response to question #1 above, this includes offering ever-increasing 
amounts and types of programming through the use of multicasting, more 
HD programming, mobile DTV, and the local news and emergency 
information on which so many Americans rely. Because local television 
stations today increasingly rely upon revenue streams other than over-
the-air advertising to support the varied services they offer, the 
ability to engage in fair negotiations with pay-TV providers for the 
value of the broadcast signal is critical to broadcasters' ability to 
generate revenue and re-invest those dollars in local news operations 
and a range of digital services.

    Question 5. If Congress were to revisit the 1992 Cable Act, are 
there improvements to the law which you believe Congress should 
consider?
    Answer. NAB believes that the current systems of must carry and 
retransmission consent are functioning effectively. In comments filed 
with the FCC in 2011, however, NAB proposed a small number of 
modifications to FCC rules that we believe would assist American 
television viewers. These proposals could certainly be taken up by 
Congress in an effort to promote the interests of viewers as part of a 
review of the 1992 Cable Act.
    First, NAB urged the FCC to extend its consumer notice requirements 
to all MVPDs. This requirement, which requires advance notice to 
consumers of any changes to their channel line-ups, currently applies 
only to cable operators. Extending this rule to all MVPDs would ensure 
that consumers have adequate information to make informed decisions 
about how to access programming in the rare instances when they may be 
impacted by a negotiating impasse.
    Second, NAB observed that many MVPDs now require that their 
subscribers pay early termination fees (``ETFs'') when canceling 
services prior to the termination of a service agreement, which could 
impede subscribers' ability to cancel and/or change their MVPD service 
in the event of a retransmission consent dispute. NAB urged the 
Commission to ensure that the ability and freedom of consumers to make 
such decisions are not impeded by the use of ETFs.
    Finally, NAB has noted that there is a dearth of information about 
MVPD ownership, operations, and geographic coverage. Current 
information about such matters is critical to broadcasters' ability to 
make timely carriage elections and retransmission consent-related 
communications. Accordingly, we urged the FCC to consider rules that 
require MVPDs to periodically file with the FCC data on their ownership 
(including contact information), operation, and geographic coverage. 
This greater transparency could be achieved in a manner that is not 
unduly burdensome but would promote more effective and timely 
communications between broadcasters and MVPDs.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                          Hon. Gordon H. Smith
Existing FCC Authority
    The Cable Television Consumer Protection and Competition Act of 
1992 (``1992 Cable Act'') amended the Communications Act to include 
Section 325, which provides television stations with certain carriage 
rights on local market cable television systems. The Commission 
established rules related to the retransmission/mandatory carriage 
election cycle, but did not adopt rules governing the negotiation 
process of retransmission consent.
    However, the statute clearly calls for the FCC to ensure that 
broadcasters act in ``good faith during negotiations.'' During the 
Sinclair-Mediacom dispute back in 2007, the Commission didn't intervene 
because then Chairman Martin interpreted the law didn't and stated that 
the agency didn't have the authority to impose binding arbitration. At 
the time, he stated ``It's not clear to me that the commission does 
have the authority to order arbitration.''
    Yet, during that time in January 2007, Senator Inouye and the late 
Senator Stevens wrote the FCC stating that the Commission did indeed 
have authority to intervene and, if necessary, use binding arbitration 
to resolve any failed negotiations.

    Question 1. Given the existing statute and the Congressional 
letter, couldn't the current Commission interpret the statue 
differently than Chairman Martin to where they do have the statutory 
authority to be involved in any disputes? What is precluding them from 
doing so?
    Answer. The short answer to your question is--as the Commission has 
consistently concluded--it does not have the authority to require 
mandatory arbitration.\1\ Mandatory arbitration would be inconsistent 
with Section 325 of the Act. Section 325(b) expressly states that 
broadcasters, and only broadcasters, can provide multichannel video 
programming distributors (MVPDs) with authority to retransmit their 
broadcast signals.\2\ The plain language of Section 325(b) makes clear 
that no party--neither the FCC nor an arbiter--can authorize an MVPD to 
transmit a station's broadcast signal without the broadcaster's 
consent. If the FCC were to mandate that broadcasters and MVPDs engage 
in arbitration to resolve retransmission consent disputes, the parties 
would have no choice but to submit to arbitration, which, by 
definition, involves the arbitrator rendering a ``final and binding'' 
decision. Thus, the adoption of mandatory binding arbitration as a 
mechanism to resolve retransmission consent disputes contravenes the 
plain language of Section 325(b) because it would permit the 
arbitrator, not the broadcaster, to decide the terms upon which to 
grant permission to a MVPD to carry a broadcaster's signal.
---------------------------------------------------------------------------
    \1\ See, Amendment of the Commission's Rules Related to 
Retransmission Consent, 26 FCC Rcd 2718, 2728-29,  18 (2011) (FCC 
concludes that it lacks ``authority to adopt either interim carriage 
mechanisms or mandatory binding dispute resolution procedures 
applicable to retransmission consent negotiations'').
    \2\ 47 U.S.C. Sec. 325(b)(1)(A).
---------------------------------------------------------------------------
    Mandatory arbitration is contrary to the most fundamental premise 
of the retransmission consent marketplace established by Congress, in 
which local television stations have the opportunity to negotiate for 
compensation from MVPDs in exchange for the right to retransmit and 
resell their broadcast signals.\3\ Congress made it quite plain that 
this retransmission consent marketplace is to function without 
government intervention. In particular, Congress emphatically rejected 
the notion that it or the Commission should or would ``dictate the 
outcome'' of the negotiations between broadcasters and MVPDs.\4\ By 
forcing the parties into mandatory binding arbitration, the FCC would 
impermissibly intervene in retransmission consent negotiations. Thus, 
mandatory arbitration contravenes congressional intent.
---------------------------------------------------------------------------
    \3\ See S. Rep. No. 102-92 (``Senate Report'') at 36 (stating that 
the Cable Television Consumer Protection and Competition Act of 1992 
(``1992 Cable Act'') created a ``marketplace for the disposition of the 
rights to retransmit broadcast signals'').
    \4\ Id.
---------------------------------------------------------------------------
    Mandatory arbitration is also contrary to the Administrative 
Dispute Resolution Act (``ADRA'') which authorizes an agency to use 
arbitration only when all parties consent.\5\ The ADRA expressly 
prohibits an administrative agency from requiring arbitration. In 
particular, Section 575(a)(3) of the United States Code states that: 
``an agency may not require any person to consent to arbitration as a 
condition of entering into a contract or obtaining a benefit.'' \6\ 
This ``prohibition is intended to help ensure that the use of 
arbitration is truly voluntary on all sides.'' \7\
---------------------------------------------------------------------------
    \5\ 5 U.S.C. Sec. 575(a)(1). See Use of Alternative Dispute 
Resolution Procedures in Commission Proceedings and Proceedings in 
which the Commission is a Party, Internal Policy Statement and Order, 6 
FCC Rcd 5669 (1991). See also S. Rep. No. 101-543 at 13 (1990).
    \6\ 5 U.S.C. Sec. 575(a)(3).
    \7\ S. Rep. No. 101-543 at 13 (1990).

    Question 2. If Congress directed the FCC to ensure broadcasters act 
in ``good faith'' during negotiations, how do you believe the FCC can 
go about fulfilling that responsibility and to limit or prevent the 
disruption of programming to cable and/or satellite customers?
    Answer. The FCC has established rules implementing the statutory 
good faith negotiation requirement and has a process in place for 
adjudicating complaints of violations of the good faith rules. In the 
cases that the FCC has decided on the merits, broadcasters have never 
been found to have violated the good faith negotiation standard, 
although one MVPD was found to have violated the standard,\8\ and 
another was found to have abused the complaint process.\9\
---------------------------------------------------------------------------
    \8\ See Letter from Steven Broeckaert, Media Bureau, to Jorge L. 
Bauermeister, Counsel for Choice Cable T.V., 22 FCC Rd 4933 (2007) 
(cable operator failed to meet good faith standard).
    \9\ See EchoStar Satellite Corp. v. Young Broadcasting, Inc., 
Memorandum Opinion and Order, 16 FCC Rcd 15070 (2001) (broadcaster met 
good faith standard while complaining MVPD was admonished for abuse of 
FCC processes and lack of candor).
---------------------------------------------------------------------------
    NAB has urged the FCC to adopt certain changes to its rules to 
promote the interests of viewers. First, we urged the FCC to extend its 
consumer notice requirements to all MVPDs. This requirement, which 
requires advance notice to consumers of any changes to their channel 
line-ups, currently applies only to cable operators. Extending this 
rule to all MVPDs would ensure that consumers have adequate information 
to make informed decisions about how to access programming in the rare 
instances when they may be impacted by a negotiating impasse. Second, 
NAB observed that many MVPDs now require that their subscribers pay 
early termination fees (``ETFs'') when canceling services prior to the 
termination of a service agreement, which could impede a subscriber's 
ability to cancel service in the event of a retransmission consent 
dispute. NAB urged the Commission to ensure that the ability and 
freedom of consumers to make such decisions are not impeded by the use 
of ETFs. Third, NAB has noted that there is a dearth of information 
about MVPD ownership, operations, and geographic coverage. Current 
information about such matters is critical to broadcasters' ability to 
make timely carriage elections and retransmission consent-related 
communications. Accordingly, we urged the FCC to consider rules that 
require MVPDs to periodically file with the FCC data on their ownership 
(including contact information), operation, and geographic coverage. 
This greater transparency could be achieved in a manner that is not 
unduly burdensome but would promote more effective and timely 
communications between broadcasters and MVPDs.
Reasonable Basic Service Tier Rates
    Question 3. While I understand programming costs are growing, I am 
concerned about the significant increase in retransmission compensation 
that has occurred over the past several years. For example, 
retransmission consent revenue climbed more than 30 percent for six 
broadcasters in the first nine months of 2008. By 2017, SNL Kagan--an 
industry analysis firm--projects retransmission fees will grow to $3.61 
billion, with average per-subscriber fees potentially doubling. So, as 
broadcasters look to increase revenue streams through retransmission 
fee, it seemingly puts upward pressure on the price of basic cable and 
ultimately consumers. Such increase may also infringe upon the existing 
statute.
    Section 623(b)(1) requires the FCC to ensure that basic cable 
service rates are reasonable. In addition, Section 325(b)(3)(A) 
requires the Commission to consider the impact that retransmission 
consent has on basic cable service rates and that any regulations do 
not conflict with the FCC's ``obligation under Section 623(b)(1)'' to 
ensure such rates are reasonable.
    According to SNL Kagan, the average cable TV subscriber in 2011 
paid $78 a month compared to only $40 per month in 2001. Whereas the 
average household income fell 6 percent between 2006 and 2010, 
according to the U.S. Census.
    Do you know if the FCC is actively examining the impact of 
increasing retransmission fees in relation to basic cable rates?
    Answer. In its rulemaking proceeding on retransmission consent 
initiated last year, the FCC specifically inquired whether there is an 
impact on the basic service rate that consumers pay as the result of 
retransmission consent fees or disputes.\10\ Various parties commented 
on that issue, as well as the myriad others raised in the Notice. This 
proceeding remains pending at the FCC. As discussed in response to 
Question 4 below, NAB has presented evidence demonstrating that rising 
cable rates are not caused by retransmission consent fees. In fact, 
retransmission fees are miniscule in comparison to cable revenues.
---------------------------------------------------------------------------
    \10\ See Amendment of the Commission's Rules Related to 
Retransmission Consent, 26 FCC Rcd 2718, 2727  17 (2011).

    Question 4. Can you elaborate on what impact these retransmission 
fees have on the cost of basic cable service? What percentage of a 
cable customer's monthly cable bill is attributed to retransmission 
fees paid to the broadcasters (a rough estimate will suffice) for (1) a 
customer subscribing to basic cable and (2) a customer subscribing to 
the most expensive cable TV package?
    Answer. Any suggestion that retransmission consent fees drive the 
rates subscribers pay for MVPD service is patently false. For years, 
cable operators consistently refused to pay cash for retransmission 
consent of local broadcast signals.\11\ Nevertheless, the average 
monthly rate subscribers were charged for the combined basic and 
expanded-basic tiers of service rose from $26.06 in 1997 to $36.47 in 
2002--a 40 percent increase over the five years.\12\ This rate of 
increase was much greater than the general rate of inflation, as 
measured by the Consumer Price Index (``CPI''), which rose 12 percent 
over the same period.\13\ These rate increases were entirely unrelated 
to broadcast retransmission consent fees.
---------------------------------------------------------------------------
    \11\ See GAO, Issues related to Competition and Subscriber Rates in 
the Cable Television Industry, GAO-04-8 at 43 (Oct. 2003) (``few 
retransmission consent agreements include cash payment for carriage of 
the local broadcast station'').
    \12\ See GAO, Issues related to Competition and Subscriber Rates in 
the Cable Television Industry, GAO-04-8 at 20, 43-44 (Oct. 2003).
    \13\ Id.
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    Even now, the prices paid by MVPDs for retransmission consent are 
very modest when compared to other key indicators, such as MVPDs' other 
programming-related expenses, revenues and profits. Broadcasters' 
compensation is significantly less than that paid to other programmers 
of equal or lower, ratings. For example, in 2009, an MVPD paid an 
average of $2.08 per subscriber per month to retransmit one of the Top 
4 most expensive cable networks and $1.49 per subscriber per month to 
retransmit one of the Top 4 most heavily viewed cable networks, while 
each of the ``Big 4'' broadcast network affiliates only received an 
average of approximately $0.14 per subscriber per month in 
retransmission consent fees in 2009.\14\ MVPDs paid almost fifteen 
times more in fees for carriage of the Top 4 most expensive cable 
networks and approximately ten times more for carriage of the Top 4 
most heavily viewed cable networks than they paid in retransmission 
consent fees for carriage of the Big 4 broadcast network affiliates.
---------------------------------------------------------------------------
    \14\ SNL Kagan, Economics of Basic Cable Networks 2009 and SNL 
Kagan, Nielsen November 2009 Prime-Time Live Coverage.
---------------------------------------------------------------------------
    As further evidence that retransmission consent fees are not 
driving higher cable rates, programming expenses, of which 
retransmission consent fees account for only a small fraction, are 
rising more slowly than other sectors of the cable industry's overall 
economic structure. For example, between 2005 and 2010, with respect to 
six publicly-traded multiple system operators (``MSOs''):

   the share of cost of revenue accounted for by programming 
        costs declined from 54 percent to 49 percent;

   the share of cost of revenue, plus selling, general, and 
        administrative costs accounted for by programming costs 
        declined from 36 percent to 34 percent;

   the ratio of programming expenses to total MSO operating 
        costs decreased (from 27 percent in 2005 to 26 percent in 
        2010);

   MSOs' monthly revenue per subscriber increased by $53.06 per 
        subscriber per month, from $80.95 to $134.01, while programming 
        expenses increased by just $10.03 per subscriber per month 
        (from $18.21 to $28.24); stated differently, for every dollar 
        increase in programming expenses, MVPDs raised monthly 
        subscription rates by $5.29.

   the average retransmission fee per cable subscriber per 
        month increased from zero in 2005 to $0.86 in 2010. Thus, in 
        2010, retransmission consent fees, at $0.86 per subscriber per 
        month, were approximately six tenths of one percent of cable 
        MSO revenues.\15\
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    \15\ See Declaration of Jeffrey Eisenach and Kevin Caves, 
Attachment to NAB Comments in MB Docket No. 10-71 (filed May 27, 2011) 
at 16-24.

    Further, retransmission consent fees are not expected to drive 
cable subscriber rates in the future. A March 2009 study estimated that 
cable revenues per subscriber are predicted to rise 45 times more than 
retransmission consent fees between 2006 and 2015.\16\
---------------------------------------------------------------------------
    \16\ Jeffrey A. Eisenach, The Economics of Retransmission Consent 
(March 2009), attached to Reply Comments of NAB, MB Docket No. 07-269 
(filed Jun. 22, 2009) at 33.
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Eliminating Retransmission Consent and Compulsory Licenses
    Question 5. While there is no question that Congress must examine 
and reform outdated provisions in the statute, there are legislative 
proposals before Congress that propose sweeping changes to laws 
governing cable and broadcast obligations. In particular these bills 
propose repealing retransmission consent, must carry, and the Copyright 
Act's ``compulsory license'' provisions.
    During the hearing, witnesses provided conflicting testimony on the 
impact such eliminations would have on the marketplace and with retrans 
negotiations--some said it would only increase disputes and others said 
it would wouldn't.
    Can you elaborate, in detail, on how negotiations between MVPDs and 
broadcasters (and/or programming/content owners and anyone else that 
might now be included) would be carried out, if the compulsory license, 
must carry, and retransmission consent provisions were eliminated? 
Please lay out the process and parties that would exist in negotiating 
the rights to use programming/content. Also, please compare/contrast 
the new negotiation process that would result versus the current 
retransmission consent negotiations.
    Answer. If the compulsory licenses for MVPDs were eliminated, in 
order for an MVPD to carry a broadcast signal, some party would be 
required to obtain the necessary copyright clearances for every 
copyrighted work that was broadcast on that signal. This would include 
the copyright owners of movies, syndicated programs, sports, news and 
information programs, and all segments contained therein, all music 
included in any program, etc. Some of these rights are held directly by 
the program creator. Others are assigned or licensed to program 
syndicators or collectives who have the rights to negotiate for the 
public performance of a work by a television station, but currently 
probably do not have the rights necessary for an MVPD to retransmit a 
program or piece of music included in a station's signal.
    In studies, the Copyright Office has identified three possible user 
entities that could negotiate for these rights: broadcast stations, the 
MVPDs, or possibly some sort of rights collective.\17\ None are 
particularly satisfactory, and it is anticipated that any of these 
parties would incur extraordinary expense in making such a transition. 
The typical broadcast station simply is not equipped, either with the 
personnel, resources or expertise, to undertake such complicated and 
multifaceted negotiations. Moreover, it is unlikely that a station 
could begin to recoup such costs in negotiations with multiple MVPDs. 
For the same reasons, most MVPDs also have no desire to undertake these 
licensing tasks. Before the Copyright office, associations for small 
and large cable systems have opposed elimination of these licenses.
---------------------------------------------------------------------------
    \17\ United States Copyright Office, Satellite Television Extension 
and Localism Act Section 302 Report, A Report of the Register of 
Copyrights (Aug. 29, 2011) at 66-128.
---------------------------------------------------------------------------
    The third option would be the formation of licensing collectives. 
The paradigm for these would be ASCAP and BMI, the large music 
collectives. The history of these collectives is that they were sued 
for antitrust violations, entered into consent decrees, and the license 
fees and conditions they impose are administered by a Federal rate 
court. It is difficult to see how that paradigm is any improvement over 
the existing compulsory licenses.
    There are several other consequences detrimental to the public 
interest that could be foreseen by elimination of the compulsory 
licenses. First, because rights for certain programs or categories of 
programs (such as certain sports programming) might not be obtainable 
by individual stations, they might simply disappear from free over-the-
air television. Specifically, there could be the problem of the 
``holdout'' where, for example, the rights to a program were secured, 
but not the music within it. Depending on the timing of these 
negotiations, the holder of such rights could be in a position to 
demand confiscatory rates. Second, there is the possibility that some 
quality programming now available on free over-the-air television would 
migrate to pay channels which are better equipped to negotiate such 
rights. Third, whatever entities undertook these new and extensive 
negotiations would seek to recoup their costs, which could well be 
passed on to consumers.
    The response to this question would not be complete without 
pointing out that under currently introduced legislation, a station's 
property right in its signal would be eliminated. Hence, stations would 
have far less to negotiate with, their only remaining rights being 
those in the programming which they produce and in which they owned the 
copyrights.

    Question 6. If you believe that eliminating these provisions would 
lead to more disputes, can you elaborate, in detail, on why?
    Answer. Elimination of the compulsory licenses would significantly 
increase the potential for many more disputes, simply because there 
would be scores more individual negotiations for each program and 
program segment, any one of which could result in disputes, stalemates 
or, at the least, delays.

    Question 7. If you believe that eliminating these provisions would 
lead to less disputes, can you elaborate, in detail, on why?
    Answer. Eliminating these provisions would not lead to fewer 
disputes, but would increase the number of disputes. See response to 
Question 6.

    Question 8. In witness testimony, it was indicated that for 2012, 
to date, there have already been 69 disputes regarding retransmission 
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
    Answer. NAB does not keep track of the number of disputes that 
occur between MVPDs and non-broadcast networks/programmers. We checked 
with a leading media industry research/analysis firm, which reported 
that it did not compile this data either.
    However, there have been and continue to be a number of carriage 
disputes between MVPDs and non-broadcast networks that result in 
interruptions of service to consumers, some of which last for months. 
For example, the continuing dispute between the AMC Networks and DISH 
had led to AMC being unavailable to DISH subscribers since June 30, 
2012. There also have been service disruptions this year due to 
disputes between DirecTV and Viacom's non-broadcast networks (e.g., 
Comedy Central, MTV, Nickelodeon, etc.) and high profile disputes 
between Time Warner Cable and sports programmers, such as the New York-
based MSG network.

    Question 9. It is my understanding that while there has been a 15 
percent increase in commercials television stations from 1996 to 2010, 
there has also been a 33 percent decrease in the number of station 
owners. There has also been a continued dearth of ownership by 
minorities and women--which is approximately only 5 percent and 3.3 
percent of TV market share, respectively (both well below their 
population representation). Both indicate a significant deficit in 
achieving the policy goals of localism and diversity.
    A free exchange of a wide range of viewpoints is the lifeblood of 
our democracy, and the print and broadcast media serve an indispensable 
function by exposing our society to diverse thoughts and viewpoints.
    What would the impact of eliminating must carry requirements from 
the law have on local and independent stations? Without must carry how 
could a local independent station get carried by a MVPD? Is there any 
obligation of the MVPD to carry the station?
    Answer. Elimination of the must-carry requirements would have 
devastating consequences for a number of stations, typically those 
unaffiliated with major networks and often serving niche audiences, 
including minority and foreign-language speaking viewers and religious 
groups. Without must-carry, it is possible that the only way some of 
these stations could obtain carriage, if at all, would be by paying the 
MVPD, which niche stations generally cannot afford.
    Elimination of these rules would also significantly impede the 
introduction of new and diverse programming to the viewing public--
programming that is not owned or selected by the MVPD. A number of the 
now popular Hispanic-oriented networks and even the Fox broadcast 
network relied on must-carry at their inception.
    Studies have confirmed that must-carry promotes Congress' goal of 
helping to preserve a multiplicity of free, over-the-air broadcast 
stations and that must-carry is especially important for the 
preservation of independent stations.\18\ Elimination of the must-carry 
rules and the consequent loss of audience and advertising revenues 
clearly could result in the loss of many these stations and their 
unique and diverse programming, which benefits both MVPD subscribers 
and non-subscribers alike.
---------------------------------------------------------------------------
    \18\ See, e.g., G.S. Ford and J.D. Jackson, ``Preserving Free 
Television? Some Empirical Evidence on the Efficacy of Must-Carry,'' 13 
J. Media Econ. 1 (2000).

    Question 10. Would the elimination of must carry possibly lead to 
more concentration in the media market and, as a result, further muting 
the diversity of media voices, which has been a resolute policy of our 
nation's telecommunications and media laws?
    Answer. For the reasons set forth in response to Question 9, the 
elimination of the must-carry rules clearly would lead to more 
concentration in the media marketplace and in the muting of the 
diversity of media voices. The religious, ethnic, and culturally 
diverse programming carried on the generally small, non-major network 
affiliated must-carry stations is not duplicated elsewhere on MVPD 
channel lineups. And these stations are not owned or controlled by the 
MVPDs, unlike many other program networks that they typically carry. 
Cable operators, along with Verizon and AT&T, collectively control 
about 70 percent of the pay-TV market,\19\ and the ten largest MVPDs 
(including satellite operators) control 91.3 percent of that 
market.\20\ At least one leading industry analyst sees satellite and 
telephone company market penetration peaking, while forecasting future 
growth for cable.\21\ With these concentration levels for cable 
specifically and for MVPDs generally, must-carry is essential to 
maintaining the diversity of media voices.
---------------------------------------------------------------------------
    \19\ Annual Assessment of the Status of Competition in the Market 
for the Delivery of Video Programming (Fourteenth Report), FCC 12-81 
(rel. July 20, 2012) at p. 3.
    \20\ See 2012 SNL Kagan Media Census Estimates, First Quarter 2012.
    \21\ U.S. Telecommunications and U.S. Cable & Satellite: Nature 
Versus Nurture, Sanford C. Bernstein & Co. (May, 2012) at pp. 63-94.
---------------------------------------------------------------------------
Online Video vs. Traditional Video
    Question 11. According to Nielsen Media, the average American 
watches over 153 hours of video per month on traditional television 
compared to only 4.5 hours per month of online video. Also, 
approximately 97 percent of American households have a television 
whereas 68 percent of households have broadband (the U.S. currently 
ranks 23rd in broadband penetration).
    In addition, a 2011 Project for Excellence in Journalism survey 
found that local TV remains America's most popular source of local news 
and information, particularly for weather and breaking news--89 percent 
of surveyed adults get information about local weather and 80 percent 
follow local breaking news through local television. Only about 51 
percent of smartphone users use the device to get news.
    While the Internet is a very value medium for media and news and 
provides incredible benefit to users, most Americans still rely heavily 
on traditional television for programming, local news, and even 
weather.
    With the current penetration and marketplace, is the Internet a 
``perfect substitute'' to traditional television programming and local 
broadcast news? If not, what do believe is required for it to be a 
substitutable good to traditional television and local news?
    Answer. The Internet provides consumers with access to information, 
news and entertainment from innumerable sources around the world. These 
online sources increasingly compete with traditional broadcast 
television stations for viewers' time and attention and for 
advertisers' dollars. However, the Internet is far from a ``perfect 
substitute'' for traditional television programming, especially for 
local news and emergency information. I think the Internet might more 
accurately be described as one of the mix of platforms and sources that 
consumers now use to access information and entertainment.
    Another reason the Internet is not a perfect substitute for local 
television is the relative availability of the two mediums. Broadband 
access has increased rapidly and is continuing to increase today, but--
unlike broadcast television--it is not yet universal and certainly not 
free. The broadcast television availability advantage is especially 
apparent when Americans need access to critical information, as they 
would during severe weather or other emergencies. No other medium 
matches the ability of local broadcasters to deliver potentially life-
saving information to local communities. Particularly when the power 
fails and Internet connections and wireless networks are overwhelmed, 
nothing surpasses the one-to-many architecture of over-the-air 
broadcasting, both TV and radio, to provide uninterrupted critical 
information to citizens.
    Finally, I note that no web-only company makes the same kind of 
commitment to local journalism as local TV stations. A 2012 survey by 
the Radio Television Digital News Association found that, despite the 
struggling economy, television news employment is at its second highest 
level ever and that the average television station set a new record 
last year for the amount of local news aired (five and half hours per 
weekday).
Value of Public Broadcasting
    Question 12. Harris Interactive, an independent, non-partisan 
research firm, found--for the ninth year in a row--that PBS (Public 
Broadcasting Service) is the Nation's most-trusted institution by the 
American public. PBS ranked higher than our court system, newspapers, 
our Federal government, and, surprisingly, even Congress.
    In addition, 74 percent of the American public surveyed believe 
Federal funding for PBS is money well spent. PBS was also the most 
trusted and safe place for children to watch television--88 percent of 
Americans surveyed agreed.
    What role do you see public television playing in providing local 
programming?
    Answer. Public broadcasting continues to be a valuable part of the 
local television environment.

    Question 13. To your knowledge, do you believe PBS or any other 
public broadcasting station would be adversely impacted by any of the 
legislative proposals (that would do away with must carry, retrans, or 
compulsory licenses) currently in Congress?
    Answer. I believe that public broadcasters share many of the same 
concerns that commercial broadcasters have (as expressed above) with 
the pending proposals.
Gentlemen's Agreement Not to Pull Signal
    Question 14. Several of the negotiation disputes have threatened or 
have actually disrupted cable customers' viewing of major television 
programming--whether that is sporting events, season finales of shows, 
or the Oscars. It is my understanding cable operators are prohibited 
from pulling broadcast signals during sweeps when ratings determine 
advertising rates--the life blood of your business.
    Why shouldn't there be a similar prohibition on broadcasters to not 
pull their signals in a retransmission negotiation impasse during a 
major sporting event or other highly watched programming like the 
Oscars--in order to limit the disruptive nature of negotiation disputes 
to consumers?
    Answer. Since the establishment of the current system of 
retransmission consent, hundreds of major sporting and entertainment 
events have come and gone without incident or disruption to any 
consumer. The system works so well that data shows that consumers are 
more likely to face a power outage or an outage of their entire pay-TV 
service than to be affected by a retransmission consent dispute. Even 
in the rare instances that a disruption occurs, local stations' signals 
have not been ``pulled''--they remain available free over-the-air, and 
can also be viewed via other pay-TV services.
    The current regime specifies that both broadcaster and pay-TV 
parties must, as part of their good faith negotiation obligations, 
negotiate at reasonable times and locations, and must not unreasonably 
delay negotiations. Further government intervention into the timing of 
the negotiating process, including when those agreements commence or 
terminate, easily could create disincentives to timely reaching 
agreement. Certainly the prohibition on broadcasters proposed in this 
question would substantially reduce the incentives of cable operators 
to conclude retransmission negotiations prior to a major sporting event 
or a ``highly watched'' program (however defined), if those operators 
knew they could continue to use broadcasters' signals for their own 
profit, even in the absence of any agreement between them.

    Question 15. Would you (and/or your affiliates/members) agree to 
voluntarily adopt an arrangement of where you would not pull your 
signal prior to a major sporting or highly watched/anticipated event if 
negotiations are at an impasse? You could obviously still pull your 
signal after the event, if you so desired.
    Answer. For the reasons discussed above in responding to Question 
14, I do not think this will benefit the public. Under the current 
system, both broadcasters and pay-TV providers have strong incentives 
to reach agreement prior to the termination of retransmission consent 
agreements. Modifications to the system, including additional public 
commitments by broadcasters to offer extensions of existing agreements 
because of a major sporting or other special event, could delay final 
resolution of negotiations and reduce incentives for pay-TV providers 
to negotiate in a timely manner prior to these events. Ultimately, 
consumers are unlikely to benefit from policies that reduce incentives 
to negotiate in good faith.
    I also want to stress that, during many retransmission 
negotiations, television stations reach short-term agreements with pay-
TV providers, allowing them to continue carrying the stations' signals 
while negotiations continue. On occasion, however, pay-TV providers 
have attempted to condition their agreement to these short-term 
carriage arrangements on the broadcaster not providing notice to its 
viewers of a potential programming disruption. See response to Question 
2 above.
Local Programming & Independent Programming
    Question 16. I have long been a champion of promoting localism and 
diversity in television. Local media--be it newspaper, radio, or 
television--play a critical role in informing citizens about important 
decisions made by their local, state, and Federal officials. Even with 
the Internet and other media sources, a 2011 Project for Excellence in 
Journalism survey found that local TV remains America's most popular 
source of local news and information, particularly for weather and 
breaking news--89 percent of surveyed adults get information about 
local weather and 80 percent follow local breaking news through local 
television. Also, locally owned stations also air more local news and 
programming than non-locally owned stations, typically 5 1/2 minutes 
more per day.
    It seems to me that one way to make sure that local television 
stations can continue to invest in local journalism is to allow them to 
recoup the investments they make in local programming. I am concerned 
about the impact that various legislative proposals would have on 
localism. Some have proposed to significantly alter the negotiating 
leverage of the parties in a way that could make it more difficult for 
local broadcasters or independent programmers to receive fair value for 
their programming.
    Do you agree? Can you discuss your concerns with the various 
legislative proposals and its impact on local stations and the 
availability of local programming to consumers that rely on overthe-air 
broadcasting?''
    Answer. I wholeheartedly agree. Television broadcast stations are 
an unrivaled source of local and national news and vital emergency 
information and alerts. Broadcast television is the leading news 
source, with 37.4 percent of American adults reporting that they 
consider broadcast television to be their primary sourceof news.\22\ 
Recent surveys also show that viewers consider local television news 
more trustworthy than other news sources.\23\
---------------------------------------------------------------------------
    \22\ Television Bureau of Advertising, TV Basics Report (June 2012) 
at 25, available at: http://www.tvb.org/media/file/TV Basics.pdf (``TV 
Basics Report''). Local television broadcast stations also are the top 
source for local weather, traffic and sports. Id.
    \23\ See University of Southern California, National USC Annenberg-
Los Angeles Times Poll Shows Local Television News Rules with Voters, 
Press Release (Aug. 27, 2012), available at:  http://www.usc.edu/
uscnews/newsroom/news release.php?id=2795 (visited Aug. 28, 2012); See 
The Pew Research Center for People and the Press, Further Decline in 
Credibility Ratings for Most News Organizations at 5 (Aug. 16, 2012), 
available at: http://www.people-press.org/files/2012/08/8-16-2012-
Media-Believability1.pdf (visited Aug. 28, 2012) (``believability 
ratings for local TV news are [currently] higher than those for the 
three cable news outlets'' and, over the years, ``credibility ratings 
for local TV news have remained more stable than have ratings for the 
three main cable news outlets'').
---------------------------------------------------------------------------
    To meet the needs and high expectations of their viewers, local 
television stations invest heavily in their local news operations. 
Recent survey data show that television news staffing has risen to the 
second highest levels on record, with stations adding 1,131 jobs for a 
total of 27,653 full time staff in 2011. In addition, 42.4 percent of 
stations added to their newscasts last year, and a significant number 
(31.2 percent) plan to increase news during the coming year. Despite 
challenging economic times, most stations either increased or 
maintained their news budgets during the past year.\24\
---------------------------------------------------------------------------
    \24\ Bob Papper, RTDNA/Hofstra University, ``2012 TV and Radio 
Staffing and News Profitability Survey,'' summarized at http://
www.rtdna.org/pages/media_nitems/2012-tv-and-radio-news-staffing-and-
profitability.survey2094.php. Part I-II.
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    Local television stations today increasingly rely upon revenue 
streams other than over-the-air advertising. Thus, the ability to 
engage in fair negotiations with pay-TV providers for the value of the 
broadcast signal is critical to broadcasters' ability to generate 
revenue and re-invest those dollars in local news operations. 
Legislative proposals that would eliminate broadcasters' retransmission 
consent rights are fraught with risks of greater disruptions in service 
and the possibility that broadcasters will no longer be able to secure 
compensation for the value of their signals. Although I understand that 
the intent of these proposals is for broadcasters to maintain control 
of their copyright interests through direct licensing and to allow for 
carriage negotiation, local broadcasters' value in their signals is not 
the same as the copyright interests in the differing programming 
elements (e.g., network, syndicated, local). Many stations may be 
unable to undertake the expensive and cumbersome responsibility of 
direct licensing (see response to Question 5 above), and such a change 
likely will impair the ability of local stations to serve their local 
markets.
    Similarly, any legislation that would interfere with privately 
negotiated exclusivity contracts between broadcasters and networks or 
syndicators also would harm the public interest. Some legislative 
proposals would eliminate the FCC's rules permitting the enforcement of 
privately-negotiated non-duplication and syndicated exclusivity 
agreements. NAB stresses that these rules do not actually create any 
exclusive rights. Rather, they provide a means for parties to the 
exclusive contracts to efficiently enforce them. In fact, the FCC's 
rules actually limit and restrict program exclusivity by limiting the 
geographic area in which television stations may enter into program 
exclusivity agreements with network and syndicated program suppliers.
    Moreover, allowing pay-TV providers to import from distant markets 
signals carrying duplicative network and syndicated programming 
ultimately will harm viewers, by undermining local stations' economic 
base for producing local news and information--including critical 
emergency information. Specifically, limiting broadcasters' ability to 
enter into and/or enforce exclusive contracts will jeopardize stations' 
advertising revenues because the lack of program exclusivity in a 
market makes television stations less attractive to advertisers. 
Without sufficient advertising revenue streams, local stations cannot 
afford to invest in valued informational and entertainment programming. 
Both local stations and their viewers would be severely harmed if pay-
TV providers could undermine stations' exclusivity rights by importing 
distant stations' signals.

    Question 17. How important are media ownership rules to promoting 
competition, diversity, and localism? Some broadcasters have called for 
relaxing media ownership rules but could that cause greater 
consolidation and concentration, which would be counter to goals in the 
statute of promoting competition, localism, and diversity?
    Answer. I disagree that reforming out-of-date ownership 
restrictions would undermine localism, competition and diversity. As 
NAB has explained in detail in many FCC submissions, these broadcast-
only ownership restrictions do not reflect today's multichannel, 
multiplatform marketplace. These limitations distort marketplace 
competition and place local broadcasters at a severe disadvantage. The 
rules limit broadcasters' ability to respond to market forces, as 
satellite, cable and Internet-based outlets proliferate and compete for 
audiences and advertising revenues without comparable restrictions. As 
a result, many broadcast stations struggle to maintain their economic 
vibrancy and to continue providing a high level of service to local 
communities. Broadcast outlets in small markets with more limited 
advertising potential face a particularly challenging economic 
environment.
    Reform of these outmoded restrictions would enhance competition by 
strengthening the ability of local stations to compete against their 
multichannel and online competitors. Competitively viable local 
stations will have both the resources and the incentives to offer 
programming that meets the needs and interests of their diverse 
communities, including niche audiences and smaller demographic groups 
that are increasingly better served through stations' digital 
capabilities, particularly multicasting.
    Finally, numerous studies, including a number conducted by or for 
the FCC, have shown that common ownership enhances local service in 
local markets, including stations' news and informational programming. 
In its previous quadrennial reviews of the broadcast ownership rules, 
the FCC has found that common ownership of multiple media outlets in 
local markets can enhance localism, a finding that has been upheld by 
the courts.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jim DeMint to 
                          Hon. Gordon H. Smith
    Question 1. If enacted as written, would the Next Generation 
Television Marketplace Act, S. 2008, allow a pay-TV company to 
retransmit the programming aired on broadcast signals without consent?
    Answer. Although I understand the intent of these proposals is for 
local television stations to maintain control of their copyright 
interests through direct licensing and to allow for carriage 
negotiation, local broadcasters' value in their signals is not the same 
as the copyright interests in the differing programming elements (e.g., 
network, syndicated, local). Many stations may be unable to undertake 
the expensive and cumbersome responsibility of direct licensing, and 
such a change likely will impair the ability of local stations to serve 
their local markets.

    Question 2. A written statement delivered by David Barrett, on 
behalf of the National Association of Broadcasters (the NAB), at a June 
27, 2012, House Energy and Commerce Hearing on ``The Future of Video'', 
included the following:

        Two bills currently before Congress, H.R. 367S and S. 2008, 
        both known as ``The Next Generation Television Marketplace Act 
        of 2011,'' will harm local stations and television viewers in 
        at least three ways. First, they would turn back the clock to a 
        time when cable and satellite providers confiscated and resold 
        broadcast signals to their subscribers without obtaining 
        broadcasters` consent--a time when broadcasters were forced to 
        subsidize their pay-TV competitors. . .

    Will you please provide for the Committee the legal analysis used 
by the NAB to reach this understanding of these pieces of legislation?
    Answer. That statement appears to be a general reference to a time 
before broadcasters had a right to negotiate for compensation for 
carriage of their signals. This prompts a broader discussion on current 
bill language and whether it fully protects the broadcast ``signal'' 
versus protecting various aspects of the content through copyright. 
Several legal analysts have drawn distinctions between the two--signal 
vs. copyright--and may have suggestions on how that may be better 
addressed.

    Question 3. Are cable subscribers required by Federal law to 
purchase a certain package of channels when they buy cable video 
service?
    Answer. Perhaps this may be better answered by the cable witnesses, 
but my understanding is that the broadcast tier is a component of any 
cable package given the critical nature of the service provided by 
local broadcasters and their public and community value.

    Question 4. Are cable providers prevented by Federal law from 
selling a subscriber only a single channel, Discovery Channel for 
example, or only a package of sports channels?
    Answer. Again, the cable witnesses may be better suited to answer. 
My understanding is that beyond the basic tier requirements, a la carte 
type packaging is neither required nor prohibited by the current 
regulatory structure.

    Question 5. Do you believe it is ``free market'' for Federal law to 
force cable companies to carry your member stations--whether by must-
carry or retransmission consent--on the ``basic tier'' and effectively 
force cable subscribers to purchase the basic tier? (47 USC 
Sec. 543(b)(7)(A))
    Answer. Congress has long-held the view that local television 
stations are a foundational part of any community. The public interest 
obligations are unique to local broadcast and the corresponding service 
in times of emergency is unparalleled. I think the decades long policy 
direction has and continues to be correct.

    Question 6. Currently, more than 500 non-broadcast channels engage 
in copyright-based negotiations with pay-TV companies for carriage of 
their programming. Many of your broadcast members negotiate based on a 
different model, retransmission consent. Copyright is a 
Constitutionally-based property right. Retransmission consent, on the 
other hand, is a right made up by Congress 20 years ago, and 
consequently will likely always be under threat. I believe my bill, S. 
2008, would actually strengthen property rights for the creators of 
programming, like broadcasters. Do you agree? And if not, please 
explain.
    Answer. I appreciate and understand the intent. We may want to 
spend more time discussing whether changing to the protections 
envisioned under the bill will fully and easily--especially for small 
broadcasters--protect the broadcast signal, as opposed to protecting 
content under copyright. The broadcast signal is a compilation of 
various copyrighted content and rights holders, and differs 
significantly from that of non-broadcast channels.

    Question 7. The NAB's comments in the FCC's ongoing retransmission 
consent proceeding include the following statement:

        Contrary to Petitioners' assertions, viewers will not ``lose 
        access'' to a broadcast station's programming if retransmission 
        consent negotiations with an MVPD break down. Each television 
        station's signal is available at all times to all consumers 
        over the air and for free, and it is also available from other 
        competing MVPDs.

    The 1992 Cable Act includes a finding that:

        Consumers who subscribe to cable television often do so to 
        obtain local broadcast signals which they otherwise would not 
        be able to receive, or to obtain improved signals.

    a. Is the 1992 Cable Act wrong or is the NAB filing wrong?

    b. Do you have an idea of how many households in America today 
cannot receive satisfactory over the air television broadcast signals?
    Answer. The delivery of the local broadcast signal has improved 
dramatically over the years, and significantly in 2009 when television 
stations transitioned to digital. Local broadcast signals are always on 
and always available--free and over-the-air. Regardless of which 
provider a household may subscribe to, the fact remains that consumers 
can get their local broadcast signals free and over-the-air with a 
digital antenna. The recent STELA law and FCC data may be instructive 
in defining how many households cannot receive a satisfactory signal 
off-the-air. At the same time, broadcast industry statistics show the 
number of broadcast only homes continues to grow to 54 million 
consumers.

    Question 8. You and NAB members have consistently made the 
observations:

   Broadcast television is available at all times to all 
        consumers over the air and for free;

   95 of the top 100 rated shows are on free broadcast 
        television;

   A record amount of local news is now available for free on 
        broadcast television;

   Much of the most popular live sports and entertainment 
        events are available for free; and,

   Since the recent DTV transition, many new multicast channels 
        are now available for free.

    With all of that popular content available to every TV household in 
America for free, why do you think so many people, in fact nearly 90 
percent of those households, spend around $1,000 every year on pay-TV 
subscriptions.
    Answer. Current industry statistics show that 17.8 percent of 
households are broadcast only. That said, it seems the majority of 
consumers today want broad access to content and channels. One trend, 
at least of concern to local broadcasters, is the migration of sports 
to pay-TV as opposed to their continued availability on local broadcast 
stations. The broadcast product continues to evolve, improve, and is 
enhanced with mobile and multi-cast options, which we believe will be a 
continued attractive option to consumers.

    Question 9. You spend the majority of your testimony explaining the 
local focus and local content created by your member stations that 
elect retransmission consent and their relatively large viewership 
compared to non-broadcast channels. But, you make only a passing note 
of must-carry regulations and their impact on local news programming 
and local services.
    a. Do you have data available to quantify the amount of local 
programming produced by your commercial must-carry member stations and 
the viewership of those stations' programs?
    b. What is your understanding of S. 2008's effect on must carry 
regulations, specifically for public television, educational, and non-
commercial television broadcasters?
    Answer. My understanding is that the legislation exempts certain 
must-carry stations while also eliminating this carriage option for 
many others. With respect to data, that is not something the trade 
association would be able to compile. Stations maintain information 
about programming that addresses the needs and interests of their 
communities in their public inspection files and must certify that this 
information is available as part of the FCC license renewal process.

    Question 10. Does Federal law in any way limit a cable company's 
ability to negotiate with broadcasters regarding how they sell their 
programming to subscribers?
    Answer. Both broadcasters and pay-TV providers are required by 
statute and related FCC rules to negotiate retransmission consent in 
good faith.\1\ Among other things, the good faith negotiation standards 
prohibit broadcasters and pay-TV providers from refusing to negotiate; 
refusing to designate a negotiating representative; refusing to meet at 
reasonable times/locations; refusing to put forth more than a single, 
unilateral proposal and failing to respond to proposals. The FCC also 
has a separate ``totality of the circumstances'' test. If the 
negotiating tactics of a broadcaster or cable operator violated these 
standards, they would violate Federal law. I do not know of other 
Federal laws affecting cable operator's ability to negotiate with 
broadcasters.
---------------------------------------------------------------------------
    \1\ See 47 U.S.C.Sec. 325(b)(3)(c); 47 C.F.R Sec. 76.65.

    Question 11. Are you comfortable that Federal law mandates that 
cable subscribers purchase local broadcast channels whether or not they 
want them? (47 USC Sec. 543(b)(7)(A))
    Answer. As also referenced in Question #5, there is a public value 
to a local broadcast station and the service provided to their 
communities. There are unique requirements and obligations as part of 
their license, and local broadcasters embrace that public service role. 
I am sure many broadcasters might welcome regulatory relief from the 
current structure, making them more like any non-broadcast channel on 
an MVPD's line-up. The fact remains that local broadcast stations are 
not like any other channel. They are a critical part of their 
communities, viewers deserve the opportunity to see those stations, and 
they are the most watched and most desired because of their service.

    Question 12. You indicate that monetary compensation for 
retransmission consent is a recent development. How much do you 
attribute this recent change in the nature of retransmission 
compensation to the growth of competition among MVPDs?
    Answer. There may be several factors involved and MVPD competition 
may be one of those. As MVPDs have come to pay more and more for non-
broadcast channels, the weekly and annual ratings show that broadcast 
television dominates the viewer ratings. That realization perhaps more 
than any other is to account for the change.

    Question 13. The FCC's latest video competition report indicates 
that the ``Big Four'' broadcast networks and several broadcast 
television group owners own about 100 non-broadcast cable networks, 
including many of the most-watched cable channels in the market. How 
has the viewership and related advertising revenue of NAB member 
stations been affected by the development of these broadcaster-
affiliated cable channels?
    Answer. Unfortunately, I may not be able to offer an informed 
perspective on this question. Broadcasters compete within markets for 
viewership, ratings, and advertising revenue against other local 
broadcast stations. As opposed to non-broadcast channels, viewers will 
continue to attract to those stations due to their local service and 
coverage. I'm not sure what affect ownership of non-broadcast channels 
might have on that competition within markets.

    Question 14. In your testimony, you indicate that retransmission 
consent revenue has provided broadcasters the resources to hire more 
employees, such that ``total employment in local television newsrooms . 
. . in 2011 . . . (was) the second highest total on record.'' A recent 
survey conducted by Hofstra University supports that finding. That same 
study also states that there were more stations doing local news in the 
year 2000. Why were more local broadcasters doing local news and 
employing more newsroom staff at a time when they were unable to 
realize retransmission consent revenue?
    Answer. As you point out, it is interesting that the study shows a 
previous employment high in the year 2000. While the economy may have 
been the contributing factor, certainly the growth of online and 
alternative news outlets over the last decade has affected traditional 
news organizations, newspapers, and journalism. What is known today is 
that retransmission consent compensation is contributing to the renewed 
growth in news resources with local television. We are very proud of 
that growth and hope the trend continues.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Kelly Ayotte to 
                          Hon. Gordon H. Smith
    Question 1. I wanted to get your opinion on free-markets and how 
they are defined. In March of this year, the American Conservative 
Union sent a letter to the Hill on retransmission consent calling it 
``a functioning market''. The day before the hearing, I received a 
letter from Citizens against Government Waste claiming the current 
system, as currently structured ``inhibits the free market'' and 
``reduces competition''. What are your thoughts on the free market as 
it relates to retransmission consent?
    Answer. The retransmission consent process is simply the right to 
negotiate between two private parties. It is a business-to-business 
discussion between broadcasters and MVPDs. These discussions occur and 
are common in so many other industries in the private sector where a 
producer of a good or service negotiates with another who wants to 
purchase and re-sell that service. The fact remains that retransmission 
consent agreements are reached all the time and without fanfare. More 
recently, some have hoped to publicize agreements that may not have 
been reached in a timely manner to try to paint a picture that the 
underlying policy is wrong or needs reform. The current retransmission 
consent framework is a true free-market process of negotiation. There 
is no guarantee of an outcome or of compensation to a broadcaster. 
Those are left to the parties to negotiate privately, business-to-
business, and in the free market.

    Question 2. My constituents are adamant about receiving local news 
coverage. Even in the southern-most part of my state, we want New 
Hampshire news, not Boston news. One of the objectives of the 1992 
Cable Act was to ensure consumers have access to locally originated 
programming. Has this goal succeeded? Are your members producing more 
or less local programming today? Are there any proposed changes to the 
Cable Act that could reverse this trend? How can we maintain and 
maximize localism?
    Answer. Local television stations serving their local communities 
is the foundation of broadcasting, and telecommunications policy over 
time has served to strengthen and enhance that goal. Recent survey data 
shows that television news staffing has risen to the second highest 
level on record, with stations adding jobs to bolster their local 
coverage. As for potential future impacts on this growth, the ability 
to engage in fair negotiations with pay-TV providers for the value of 
the broadcast signal is critical to broadcasters' ability to generate 
revenue and re-invest those dollars in local news operations. 
Legislative proposals that would eliminate broadcasters' retransmission 
consent rights pose the risk of greater disruptions in service and the 
possibility that broadcasters will no longer be able to secure 
compensation for the value of their signals.

    Question 3. Federal law prohibits blackouts during ``sweeps,'' 
which are critical to broadcasters. Federal law, however, permits 
blackouts before marquee events like the Super Bowl and the Oscars, 
which are most important to viewers. Do you think this disparity 
contributes to blackouts?
    Answer. Since the establishment of the current system of 
retransmission consent, hundreds of major sporting and entertainment 
events have come and gone without incident or disruption to any 
consumer. The system works so well and data shows that consumers are 
more likely to face a power outage or an outage of their entire pay-TV 
service than to be affected by a retransmission consent dispute. Even 
in the rare instances that a disruption occurs, local stations' signals 
are not ``blacked out''--they remain available free over-the-air, and 
can also be viewed via other pay-TV services.
    The current law requires broadcasters and pay-TV providers to 
negotiate in good faith. As part of that obligation, the parties must 
negotiate at reasonable times and locations and must not unreasonably 
delay negotiations. Further government intervention into the 
retransmission consent negotiating process, such as placing limits on 
when those agreements may commence or terminate, easily could create 
disincentives to timely reaching agreement. Placing new restrictions on 
stations' control of their signals actually would reduce the incentives 
of MVPDs to conclude retransmission negotiations, perhaps especially 
prior to marquee events, if those MPVDs knew they could continue to use 
broadcasters' signals for their own profit, even in the absence of a 
retransmission agreement.
    In my opinion, the reduction of the currently strong incentives for 
both broadcasters and pay-TV providers to reach agreement on 
retransmission would ultimately lead to more disruptions for consumers, 
not fewer. Finally, I want to emphasize that, during many 
retransmission negotiations, television stations reach short-term 
agreements with pay-TV providers, allowing them to continue carrying 
the stations' signals while negotiations for a final agreement 
continue.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                             Melinda Witmer
    Question 1. Whenever signals are pulled as a result of a 
retransmission consent dispute, consumers lose. The impact is magnified 
in areas where a single MVPD dominates an entire state. What is the 
best way to protect consumers while companies work to resolve disputes 
and impasses in negotiations for the carriage of broadcast signals?
    Answer. Time Warner Cable shares the Senator's concern about the 
growing harm to consumers under the current retransmission consent 
regime. While many new video competitors have entered most local areas 
over the past 20 years, even in areas where a single MVPD serves an 
especially high percentage of consumers, broadcast stations still have 
all the leverage in retransmission consent negotiations. They are able 
to exploit territorial exclusivity protections, tier-placement rights, 
and a host of other government-granted preferences to pull down their 
signals as a negotiating tactic, which harms consumers and drives up 
fees. As these disputes have grown increasingly contentious, consumers, 
confronted with either losing access to popular programming or 
switching to another video provider facing the same blackout threats 
from broadcasters, are caught in the middle.
    TWC believes that the best way to protect consumers in the long run 
is to do away with the retransmission consent regime altogether. 
Eliminating the various artificial preferences for broadcasters in the 
rules would help discourage them from engaging in brinkmanship and, in 
turn, should reduce service disruptions. Pending such legislative 
changes, the FCC has authority to make targeted changes to its rules to 
protect consumers. In particular, the FCC can establish dispute-
resolution mechanisms and provide for interim carriage while a dispute 
is ongoing. The Senator presciently observed as early as 1992 that 
viewers would be harmed in those ``instances in which [retransmission 
consent] agreements are not reached,'' and explained that the FCC has 
broad authority under Section 325 of the Communications Act to 
``address'' those instances by ``requir[ing] arbitration'' and other 
dispute resolution methods. See Letter from Sens. Inouye and Stevens to 
Chairman Kevin Martin, Federal Communications Commission (Jan. 30, 
2007) (quoting statements of Sen. Inouye during the drafting of the 
1992 Cable Act). Later, in a 2007 letter to the FCC, the Senator urged 
the FCC to begin actively engaging in dispute resolution, noting that, 
``[a]t a minimum, Americans should not be shut off from broadcast 
programming while the matter is being negotiated among the parties and 
is awaiting [FCC resolution].'' Id. TWC supports the Senator's call to 
action and believes that such reforms would go a long way toward 
preventing broadcast programming blackouts and threats of blackouts.

    Question 2. Should any special consideration be given to protect 
consumers in geographic locations where a single MVPD serves a high 
percentage (more than 50 percent) of total MVPD subscribers in a state?
    Answer. While it is clear that a broadcaster that pulls its signal 
from a large MVPD affects a greater number of consumers, TWC believes 
that any loss of a broadcast signal affiliated with one of the four 
major broadcast networks causes significant consumer harm, and that any 
actual or threatened blackout by a broadcaster is at odds with the 
broadcaster's obligation to act in the public interest.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                             Melinda Witmer
    Question 1. In recent years, the breakdown of retransmission 
consent negotiations has threatened the television access of millions 
of Americans to major events like the Super Bowl, the World Series, and 
the Oscars, not to mention the essential access of viewers to local 
news broadcasts. The FCC has proposed to strengthen notice requirements 
for consumers when there is the possibility that certain services may 
lapse. Does Time Warner Cable support this proposal?
    Answer. TWC believes that the existing notice rules are sufficient, 
and that broadcasters' efforts to impose additional notice obligations 
on MVPDs are driven only by their desire to apply greater pressure on 
MVPDs to give into their outrageous demands. In particular, as 
broadcasters increasingly resort to blackout threats as a negotiating 
ploy, rigid notice requirements that force MVPDs to state well in 
advance that a broadcast station may withdraw retransmission consent 
likely would be counterproductive. TWC always attempts to apprise its 
customers of possible service disruptions, but imposing new notice 
obligations on MVPDs seems backwards, as the MVPD often does not know 
until the moment before a retransmission consent agreement expires 
whether the broadcast station will grant an extension. It would be far 
more sensible for the FCC to require the broadcast station to provide 
clear notice of its intention to withdraw its signal by a date certain.
    In addition, imposing rigid notice requirements on MVPDs likely 
would only heighten subscriber anxieties. Broadcasters already run 
advertisements and ``crawls'' telling consumers to switch providers 
because they might lose access to broadcast programming. Such 
switching, however, again places consumers in the position of 
shouldering burdens and inconvenience that they should not face. If 
consumers decide to switch MVPDs, they often are forced to choose a 
less-preferred provider simply to ensure access to over-the-air content 
(of which the retransmission consent regime was supposed to ensure 
continuous availability). And a customer who switches MVPDs may soon 
find her new provider in a similar dispute with a broadcast station, 
facing the prospect of having to undertake the time and expense of 
switching yet again. The FCC should reject any proposals that would 
facilitate broadcast stations' manipulation of consumers. (Also see the 
response to question 4.)

    Question 2. Does Time Warner Cable believe that continuous carriage 
during retransmission consent disputes would help end disputes?
    Answer. To the extent that the retransmission consent regime 
remains in place, an interim carriage remedy not only would help 
resolve retransmission consent disputes once they arise, but also would 
help avert disputes before they begin. The availability of interim 
carriage would prevent broadcasters from using actual or threatened 
blackouts as a negotiating ploy, thereby reducing the risk of 
programming loss for consumers and ensuring that negotiations produce 
reasonable and non-coercive rates for retransmission consent. Interim 
carriage also would prevent broadcasters from undermining the 
government's interest in localism by exploiting their government-
granted preferences while withholding their signal from a substantial 
portion of the viewing public.

    Question 3. Ms. Abdoulah's written testimony noted WOW!'s support 
for requiring alternative styles of negotiation, like baseball-style 
arbitration, in retransmission consent disputes. Does Time Warner Cable 
agree?
    Answer. While TWC continues to believe that the best path to reform 
ultimately is to do away with regulatory impediments to efficient 
carriage negotiations between broadcasters and MVPDs, TWC agrees that, 
unless and until these deregulatory reforms are adopted, the 
establishment of some type of alternative dispute resolution mechanism 
or other rate-setting procedure is necessary to prevent broadcaster 
abuses of the current system. The FCC has clear authority under Section 
325 of the Communications Act to protect consumers by ensuring that the 
rates charged by broadcasters are fair and reasonable. Section 
325(b)(3) instructs the Commission to consider ``the impact of the 
grant of retransmission consent by television stations may have on the 
rates for the basic service tier''; to make sure that its rules are 
consistent with its obligation ``to ensure that the rates for the basic 
service tier are reasonable''; and to prevent broadcasters from 
insisting on rates that are not ``based on competitive marketplace 
considerations.'' 47 U.S.C. Sec. Sec. 352(b)(3)(A), (C).

    Question 4. Cable consumers who have the ability to shop for 
different providers often face exorbitant termination fees to switch 
services, limiting competition. The FCC indicated this was an issue in 
their recent Notice of Proposed Rulemaking. Please provide for the 
record information on Time Warner Cable's termination fee policy. Has 
Time Warner Cable examined dropping these fees in the future?
    Answer. TWC subscribers generally are not required to pay 
termination fees to switch services. In any event, any focus on 
termination fees risks missing the broader point that retransmission 
consent disputes impose unnecessary burdens on consumers. Congress and 
the FCC should emphasize reforms that protect consumers from the 
inconvenience of switching providers in order to avoid broadcaster 
blackouts. Such switching frustrates consumer choice, as many consumers 
choose a provider not only for its video service, but also for its 
broadband, voice, and wireless offerings. Switching also imposes 
unnecessary costs on consumers who must obtain new equipment and stay 
home to switch providers. And switching is ultimately ineffective as a 
strategy for avoiding broadcaster blackouts; all MVPDs must regularly 
renegotiate their carriage agreements with broadcasters and face 
increasing threats from broadcasters to go dark unless their cash 
demands for retransmission consent are met. Thus, as discussed above, 
any reform effort either should focus on the elimination of the 
artificial, government-granted preferences that enable broadcasters to 
make good on threats to pull their signals frustrating consumer access 
to broadcast programming and to the service providers of their choice, 
or should take advantage of existing rulemaking authority to protect 
consumers caught in the middle of these disputes.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                             Melinda Witmer
    Question 1. S. 2008, the Next Generation Television Marketplace Act 
of 2011, would provide for the deregulation of retransmission consent. 
But as we saw last month with DirecTV and Viacom, blackouts occur due 
to disputes between cable programmers and cable providers in a non-
regulated environment too. If we see customers, like those who 
subscribe to DirecTV, suffering in a deregulated world, why would we 
want to deregulate the negotiation process for broadcasters too?
    Answer. TWC believes that eliminating the substantial regulatory 
distortions that characterize negotiations between MVPDs and 
broadcasters would reduce the number of blackouts, even if it does not 
eliminate them entirely. Notwithstanding the highly publicized dispute 
between DirecTV and Viacom, there have been fewer disputes between 
MVPDs and pay television programmers in recent years than disputes 
arising under the retransmission consent regime. In 2012, for example, 
there have been more than 80 retransmission consent blackouts, as 
compared to only two known blackouts involving a cable programming 
service. This discrepancy is due in part to the significant differences 
between the operative legal rules. Unlike cable programming, for which 
MVPDs acquire a simple copyright license negotiated in a free market 
setting without intrusive government regulation, broadcast programming 
is subject to the artificial and heavily intrusive retransmission 
consent regime, which Congress made clear was separate and in addition 
to copyright law. See S. Rep. No.102-92, at 36 (1991), reprinted in1992 
U.S.C.C.A.N. 1133, 1169 (noting that Congress was ``careful to 
distinguish between the authority granted broadcasters under the new 
section 325(b)(1) of the 1934 Act to consent or withhold consent for 
the retransmission of the broadcast signal, and the interests of the 
copyright holders in the programming contained on the signal''). And 
while Congress in 1992 believed that the retransmission consent regime 
would help preserve viewers' access to local broadcast television, 
today the rules are undermining that purpose by enabling and 
encouraging broadcasters to pull their signals and ``go dark'' on MVPD 
systems as a negotiating tactic. Based on TWC's substantial experience 
negotiating with pay television programmers and broadcasters, we expect 
that a truly 5 market-based approach to broadcast carriage negotiations 
would better protect consumers than the existing regime, which has seen 
an alarming increase in blackouts and dramatically escalating fee 
demands.

    Question 2. Today's video marketplace is very different than what 
it was in 1992. Since the enactment of the Cable Act, satellite 
carriers and telephone companies offering video services compete with 
cable operators. And in the last few years, we have seen the enormous 
growth of online video. In your view, given these changes in the video 
marketplace, are the existing rules working? Why or why not?
    Answer. The existing rules are now undermining rather than 
advancing the goals Congress identified when it enacted the Cable Act 
in 1992. Congress and the FCC created retransmission consent and must-
carry based on conditions that existed in 1992. Among other things, 
that marketplace was characterized by broadcast networks' paying 
compensation to their broadcast affiliates and far fewer choices for 
consumers among MVPDs. Based on those circumstances, Congress granted 
powerful protections and new rights to broadcast stations. These rights 
for broadcasters included the ability to seek compensation from cable 
operators for the carriage of broadcast signals (even though cable 
operators already pay a separate fee to the Copyright Office for the 
programming contained in those signals), and the ability to prevent a 
cable operator from importing a distant signal containing the same 
network programming. But the emergence of strong competition among 
MVPDs nationwide has greatly reduced cable operators' bargaining power 
and increased that of broadcast networks, who have gained additional 
leverage from their ``must have'' programming and from collusive 
tactics. The broadcast networks are also increasingly interfering in 
the retransmission consent negotiations of their affiliated local 
stations--a dynamic that upends the intent of Congress in creating 
retransmission consent by contravening the plain language of Section 
325(b)(1), which provides that retransmission consent is a right that 
belongs to the ``station,'' not to the network. Broadcasters thus can 
wield these one-sided rules in ways that Congress did not expect in 
1992--namely, to demand excessive retransmission consent fees by 
credibly threatening to go dark on one or more local MVPD systems. 
Broadcasters' ability to hold consumers hostage by threatening to 
withhold programming is antithetical to the reason Congress established 
retransmission consent and must carry in the first place: to ensure 
that local communities retain access to the ``diversity of voices'' and 
local programming that broadcasters have a public interest obligation 
to provide.

    Question 3. Packages of programming are getting bigger and more 
expensive. Shouldn't consumers have a range of programming options at 
variety of price points? Why does that not seem to be the case?
    Answer. TWC agrees that smaller and more flexible tiers would be 
better for consumers, and we actively seek ways to offer these options 
to our subscribers. For instance, in 2010, TWC launched a service 
called ``TV Essentials,'' which offers access to a subset of our 
programming at a lower cost, but our flexibility in creating that 
package was limited by programmers. Indeed, the size and cost of 
virtually all of our programming packages is largely programmer-driven. 
Not only do video programmers typically insist that MVPDs purchase 
their full line of programming services as a condition of purchasing 
any programming service, but they also demand tiering or penetration 
requirements that dictate how broadly an MVPD must distribute those 
programming services to subscribers. Cable operators in many local 
areas also are required by law to carry all local television signals on 
a basic service tier ``to which subscription is required for access to 
any other tier of service.'' 47 U.S.C. Sec. 543(b)(7). Absent these 
contractual and regulatory impediments, TWC would have far more 
flexibility to meet consumer demand by offering smaller and less 
expensive programming packages.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                             Melinda Witmer
    Question 1. Stakeholders on all sides of the retransmission consent 
debate appear to agree that the visibility and frequency of 
retransmission disputes has increased over the last few years. Some 
have argued that retransmission consent is working and that some 
growing pains are reasonable because many broadcast stations are 
electing to pursue deals instead of must-carry for the first time since 
enactment of the 1992 Cable Act which created the dual regimes of must 
carry and retransmission consent. On the other hand, distributors argue 
that private sector retransmission consent deals are taking longer to 
negotiate, and that it is becoming harder to reach agreement regarding 
mutually agreeable terms. If you believe must-carry and retransmission 
consent are important to localism, how do you recommend that the 
Congress measure the success of localism?
    Answer. TWC does not believe that today's retransmission consent 
regime is advancing the governmental interest in localism. To the 
contrary, the regime is undermining localism by enabling broadcasters 
to pull their signals and deprive MVPD subscribers of local content as 
a negotiating tactic. Moving forward, Congress should measure the 
success of localism by evaluating the extent to which industry 
participants are actually investing in local content. Multiple recent 
studies show that broadcast stations are retreating from localism, as 
their increasing use of ``sharing'' agreements has precipitated a 
significant decline in original, diverse local news and public affairs 
programming. By contrast, TWC is an active contributor to localism in 
the communities it serves, having launched local news channels and 
local interest channels that focus on public affairs, politics, sports, 
cultural affairs, entertainment, and other content of interest to the 
community. Critically, TWC has done so not because of any regulatory 
mandate, but in response to the needs of its subscribers.

    Question 1a. If you believe retransmission consent is failing, what 
evidence can you provide?
    Answer. No one seriously disputes the fact that retransmission 
consent disputes have grown increasingly contentious in the past few 
years and have led to greater number of programming blackouts for 
consumers. There have been more than 80 retransmission consent disputes 
so far this year. And as broadcasters have grown increasingly willing 
to use blackout threats to increase their negotiating leverage--and to 
make good on those threats when MVPDs do not accede to demands for 
significant increases in compensation--the fees that MVPDs pay for 
retransmission consent have risen dramatically. SNL Kagan estimates 
that MVPDs paid $758 million in retransmission consent fees in 2009, 
$1.24 billion in 2010, and $1.76 billion in 2011, and projects that 
those fees will soar to a staggering $6.05 billion by 2018. See Robyn 
Flynn, SNL Kagan, Retrans projections update: $6B by 2018, at 1 (Oct. 
18, 2012) (``October 2012 SNL Kagan Report''). Recent studies show that 
this precipitous rise in retransmission consent fees is a significant 
contributor to the overall rise in programming costs industry-wide by 
nearly 10 percent a year, and that retransmission consent payments will 
drive 30 to 40 percent of the industry's total programming cost growth 
through 2014--all of which translates into higher prices for MVPD 
subscribers. See, e.g., Morgan Stanley, Cable/Satellite: Pricing, 
Programming, and Payout Keys to 2010, at 11 (Jan. 26, 2010).
    There is also growing evidence that, even though Congress made 
clear that retransmission consent is a right that belongs to stations 
and not to the networks, all four major broadcast networks (ABC, CBS, 
NBC, and FOX) are interfering in the retransmission consent 
negotiations of their independently owned affiliates and are requiring 
those affiliates to pay a substantial portion of their retransmission 
consent revenues to the networks. SNL Kagan estimates that today the 
four major networks are collecting $487 million annually from their 
independently owned affiliates as a cut of their retransmission consent 
revenues, and that this amount will almost triple to $1.37 billion by 
2015. See October 2012 SNL Kagan Report at 2. These demands from the 
networks put even greater upward pressure on retransmission consent 
fees and, in turn, on the rates consumers pay for MVPD service.
    These spiraling fees and increasingly contentious negotiations 
directly undercut the purpose of the 1992 Cable Act. Congress created 
retransmission consent and must-carry because it believed that 
preserving access to broadcast television would benefit the American 
consumer. But broadcasters' abuses of the retransmission consent regime 
are now harming consumers--by depriving MVPD subscribers of broadcast 
signals as a bargaining tactic, and by driving up the fees that MVPDs 
and their subscribers pay for supposedly free, over-the-air broadcast 
programming. The retransmission consent regime is undeniably broken, 
and Congress and the FCC must take swift action to reform the regime 
and protect consumers once again.

    Question 2. Some distributors have indicated concerns about the 
ability of content creators to tie affiliated programing to 
retransmission consent deals because they argue this practice 
contributes to programming cost increases. Broadcasters and content 
creators argue that current practices provide necessary financial 
support for a greater variety of programming options which they say is 
a benefit to consumers. To what extent should Congress be concerned 
about programming cost increases over the past several years?
    Answer. The skyrocketing cost of programming should be of 
significant concern to Congress, and Congress should further examine 
the conduct that results in these higher costs. Your question correctly 
targets program tying as one of the major culprits for programming cost 
increases. Each of the four major broadcast networks typically requires 
MVPDs to purchase the network's affiliated programming services in a 
package that includes retransmission consent for the network's owned-
and-operated stations. Program tying thus enables programming providers 
to obtain carriage for affiliated cable networks on more favorable 
terms than they would otherwise enjoy, while also crowding out non-
affiliated program networks and damaging their ability to obtain 
carriage. TWC has urged the FCC to prohibit program tying as a per se 
violation of a broadcaster's duty to negotiate in good faith, but the 
Commission has taken no action to date.

    Question 2a. If you believe programming cost increases merit a 
fresh look at the 1992 Cable Act, do you believe cost savings garnered 
by distributors should be passed onto consumers? If so, how would any 
savings be realized by consumers?
    Answer. If legislative changes curbed abusive tying practices and 
otherwise resulted in programming cost savings, consumers would 
undoubtedly (and should) benefit from those savings. In today's 
competitive environment, any MVPD that failed to pass on savings to 
subscribers would be quickly underpriced by its competitors. TWC also 
has urged the FCC to expressly confirm that cable operators are 
permitted to make subscription to the basic tier optional in areas that 
satisfy the statutory standard of ``effective competition,'' or to 
carry broadcast stations that elect retransmission consent in such 
areas on a separate tier, so that subscribers can avoid paying for 
these stations as the stations' fee demands continue to spiral upward.

    Question 2b. If you support changes to current law, would your 
company provide consumers with the same flexibility to pursue a la 
carte programming options? If not, why not?
    Answer. TWC is eager to introduce smaller and less expensive 
programming tiers for our customers who would prefer such packages, but 
programmer demands combined with today's legal restrictions impair our 
ability to do so. If Congress were to address those impediments, TWC 
likely would offer a variety of new service options. TWC has managed--
even under existing constraints--to offer the slimmer ``TV Essentials'' 
package mentioned above, as well as certain programming services on an 
a la carte channel basis or on an a la carte program basis. But it is 
not in consumers' interests to mandate a one-size-fits-all model, 
whether that model resembles today's tier-based approach or requires a 
la carte-only distribution. Instead, Congress should eliminate 
artificial constraints on the ability of MVPDs to innovate in 
programming packaging and to meet consumer demand. Indeed, in TWC's 
experience, many consumers would prefer not to subscribe to channels on 
a pure a la carte basis. An a la carte distribution model also could be 
less efficient and more expensive for some consumers, and could force 
some independent programmers out of business.

    Question 3. Given that retransmission consent deals are private 
sector negotiations under the 1992 Cable Act, it is difficult for 
observers and participants to track pricing trends. Do you believe 
pricing transparency for distributors and for consumers could help to 
alleviate tensions over content deals? If not, why not?
    Answer. Reforms targeted only at increasing transparency would not 
address the core problems with the retransmission consent regime. It is 
not clear, for example, that a rule requiring parties to reveal their 
latest offers to consumers or ``observers'' would affect the outcome of 
a dispute. In a handful of recent disputes, each side's offers were 
widely reported in the press, and yet these reports had no apparent 
effect on the negotiating postures of the parties. In addition, 
consumers probably have little interest in refereeing disputes between 
broadcasters and MVPDs by sorting out whose offer is more ``fair.''
    Other transparency-based proposals, such as requiring broadcasters 
to reveal the rates they charge to MVPDs, may be useful in providing 
negotiating parties with more context, but would do little to help 
consumers who simply want to avoid blackouts of the video programming 
that they have come to rely on. It also is not clear that greater 
transparency would constrain broadcasters' excessive demands; many of 
these demands become widely known during and after the disputes, and 
yet broadcasters persist in making them.

    Question 3a. If you do believe pricing transparency could be 
beneficial, please provide specific recommendations for such a proposal 
could be implemented.
    Answer. As noted in response to Question 3a, TWC believes that 
adopting transparency requirements likely would not solve the core 
problems with retransmission consent.

    Question 4. Going forward, how should Congress and/or the Federal 
Communications Commission measure whether or not the current system is 
working? Please provide specific metrics to support your answer.
    Answer. Among other potential metrics for evaluating whether the 
rules are working, Congress and the FCC should look to the growing 
number of disputes leading to programming disruptions each year, the 
annual increase in retransmission consent fees (well above the rate of 
inflation), and the resulting increases to MVPDs' overall programming 
costs. Congress and the FCC should also track how much of the 
retransmission consent fees broadcasters obtain goes to support local 
programming. Going forward, independent industry analysts uniformly 
believe that, without significant reforms by Congress and/or the FCC, 
disputes will grow more common, retransmission consent fees will 
continue their rapid rise for the foreseeable future, and broadcasters 
will continue to spend less on local programming.

    Question 5. If Congress were to revisit the 1992 Cable Act, are 
there improvements to the law which you believe Congress should 
consider?
    Answer. TWC has suggested two possible paths for preventing the 
disruptions caused by broadcaster abuses of the retransmission consent 
regime.
    First, Congress and the FCC could pursue a deregulatory path aimed 
at eliminating the special protections for broadcasters under the 
existing rules and thus facilitating genuine market-based 
negotiations--including by repealing the network non-duplication and 
syndicated exclusivity provisions, clarifying and modifying the tier-
placement requirements applicable to stations electing retransmission 
consent, and amending the good-faith rules to prevent anticompetitive 
conduct by networks and stations alike. TWC looks forward to working 
with this Committee as it continues to consider such reforms.
    Alternatively, if such regulatory interventions remain in place, 
Congress or the FCC should amend the current rules to create a more 
balanced regime that curbs broadcasters' abuses of the regulatory 
regime, including in particular their use of blackout threats and 
actual blackouts to drive up retransmission consent fees. Such reforms 
could include new rules that would establish rate-setting and dispute-
resolution mechanisms and require interim carriage in the event of 
negotiating impasses. As TWC explained in response to post-hearing 
questions from Senator Snowe, the FCC already has ample authority under 
Title III of the Communications Act to address harms occurring in the 
retransmission consent process.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                             Melinda Witmer
    Question 1. Given the existing statute and the Congressional 
letter, couldn't the current Commission interpret the statue 
differently than Chairman Martin to where they do have the statutory 
authority to be involved in any disputes? What is precluding them from 
doing so?
    Answer. There is no legal impediment that prevents the Federal 
Communications Commission (``FCC'') from concluding that it has 
authority under Section 325 of the Communications Act to adopt dispute 
resolution mechanisms. As an initial matter, Chairman Martin's 
statement in 2007 that the FCC's authority in this regard was ``not 
clear'' was by no means an official interpretation of the statute by 
the full Commission; rather, he made that statement in an interview 
with reporters after testifying before this Committee. In any event, 
the FCC's broad authority to order arbitration is clear from the plain 
language of Section 325, as Senators Inouye and Stevens pointed out in 
their January 2007 letter to the FCC. Section 325(b)(3)(A) empowers the 
FCC ``to govern the exercise by television broadcast stations of the 
right to grant retransmission consent.'' 47 U.S.C. Sec. 325(b)(3)(A). 
In addition to that general mandate, Congress directed the FCC to 
consider ``the impact that the grant of retransmission consent by 
television stations may have on the rates for the basic service tier'' 
and to make sure that its rules are consistent with its obligation ``to 
ensure that the rates for the basic service tier are reasonable.'' Id. 
This authority dovetails with the FCC's power to ensure that broadcast 
stations, as FCC licensees, act in accordance with ``the public 
interest, convenience, and necessity'' under Section 309(a), see id. 
Sec. 309(a), as well as the good-faith negotiation requirement in 
Section 325(b)(3)(C), which instructs the FCC to ensure that the terms 
and conditions for retransmission consent are ``based on competitive 
marketplace considerations,'' id. Sec. 325(b)(3)(C)(i)-(ii). These far-
reaching grants of authority empower the FCC to adopt specific 
measures--including dispute resolution procedures--to ensure that the 
retransmission consent regime conforms to the public interest.

    Question 2. If Congress directed the FCC to ensure broadcasters act 
in ``good faith'' during negotiations, how do you believe the FCC can 
go about fulfilling that responsibility and to limit or prevent the 
disruption of programming to cable and/or satellite customers?
    Answer. In comments filed at the FCC, Time Warner Cable (``TWC'') 
has laid out two possible paths for preventing the disruptions caused 
by broadcaster abuses of the retransmission consent regime.
    First, Congress and the FCC could pursue a deregulatory path aimed 
at eliminating the special protections for broadcasters under the 
existing rules and thus facilitating genuine market-based 
negotiations--including by repealing the network non-duplication and 
syndicated exclusivity provisions, clarifying and modifying the tier-
placement requirements applicable to stations electing retransmission 
consent, and amending the good-faith rules to prevent anticompetitive 
conduct by networks and stations alike. TWC looks forward to working 
with this Committee as it continues to consider such reforms.
    Alternatively, if such regulatory protections for broadcasters 
remain in place, the FCC should amend its rules to curb broadcasters' 
abuses of the regulatory regime, including in particular their use of 
blackout threats and actual blackouts to drive up retransmission 
consent fees. Such reforms could include new rules that would establish 
rate-setting and dispute-resolution mechanisms and require interim 
carriage in the event of negotiating impasses. As explained above in 
response to Question 1, the FCC has ample authority under Title III of 
the Communications Act to address harms occurring in the retransmission 
consent process.

    Question 3. Do you know if the FCC is actively examining the impact 
of increasing retransmission fees in relation to basic cable rates?
    Answer. I am unaware of any active FCC examination of the impact of 
rising retransmission consent fees on basic cable rates. The FCC's 2011 
Notice of Proposed Rulemaking on retransmission consent asked 
commenters to weigh in on whether ``there [is] an impact on the basic 
service rate that consumers pay as a result of the retransmission 
consent fees or disputes.'' See Amendment of the Commission's Rules 
Related to Retransmission Consent, Notice of Proposed Rulemaking, 26 
FCC Rcd 2718  17 (2011). But it is unclear what, if anything, the FCC 
has done with the information provided by commenters in response 
indicating that rising fees have a substantial and growing effect on 
basic cable rates.

    Question 4. Can you elaborate on what impact these retransmission 
fees have on the cost of basic cable service? What percentage of a 
cable customer's monthly cable bill is attributed to retransmission 
fees paid to the broadcasters (a rough estimate will suffice) for (1) a 
customer subscribing to basic cable and (2) a customer subscribing to 
the most expensive cable TV package?
    Answer. The impact of rising retransmission consent fees on overall 
programming costs--and by extension on the downstream cost to consumers 
for MVPD service--is significant. Recent studies show that 
retransmission consent fees have been increasing by roughly 40 percent 
annually, that this precipitous rise is helping to drive up overall 
programming costs industry-wide by nearly 10 percent a year, and that 
retransmission consent payments will drive 30 to 40 percent of the 
industry's total programming cost growth through 2014.

    Question 5. Can you elaborate, in detail, on how negotiations 
between MVPDs and broadcasters (and/or programming/content owners and 
anyone else that might now be included) would be carried out, if the 
compulsory license, must carry, and retransmission consent provisions 
were eliminated? Please lay out the process and parties that would 
exist in negotiating the rights to use programming/content. Also, 
please compare/contrast the new negotiation process that would result 
versus the current retransmission consent negotiations.
    Answer. If Congress were to eliminate retransmission consent, must-
carry, and the compulsory licensing regime, there would be a number of 
possible alternatives for MVPDs to clear the rights to retransmit 
broadcast programming to consumers. For instance, under the proposed 
Next Generation Television Marketplace Act, S. 2008, a local station 
presumably would aggregate the necessary copyrights from content owners 
and negotiate an omnibus sublicense with the requesting MVPD. If this 
approach were adopted, the identity of the negotiating parties would 
likely remain the same as under today's regime. The Copyright Office 
identified a handful of other possible approaches in last year's 
Section 302 Report to Congress, each with its own particular advantages 
and disadvantages. For instance, content owners could empower some 
entity other than the local station to act as a clearinghouse, or could 
negotiate individually with MVPDs to clear the rights to particular 
programs. In TWC's view, the latter alternative would impose 
substantial transaction costs on MVPDs and could significantly drive up 
the cost of MVPD service to consumers.
    At a minimum, however, each of these proposals would do away with 
the legal fiction on which the retransmission consent regime is based--
that stations ought to be compensated merely for their ``signals,'' 
over and above the compensation paid to the owners of the programming 
content contained in those signals under the copyright licensing 
regime. In addition, a deregulatory approach presumably would eliminate 
the various other regulatory advantages enjoyed by broadcasters in 
negotiations with cable operators, such as the FCC's territorial 
exclusivity protections and statutory tier placement rights. As a 
result, broadcasters would be forced to compete on the merits of their 
program offerings rather than rely on artificial, government-granted 
preferences. Competition should enhance the quality of broadcast 
programming, moderate the burgeoning cost of that programming for MVPDs 
and their subscribers, and reduce the incentive and ability of 
broadcasters to wield blackout threats as a weapon in carriage 
negotiations.

    Question 6. If you believe that eliminating these provisions would 
lead to more disputes, can you elaborate, in detail, on why?
    Answer. TWC believes that eliminating these provisions would lead 
to fewer disputes, for the reasons set forth in response to Question 7.

    Question 7. If you believe that eliminating these provisions would 
lead to less disputes, can you elaborate, in detail, on why?
    Answer. The deregulation of carriage negotiations between 
broadcasters and MVPDs would lead to fewer disputes for multiple 
reasons. As I explained during my initial testimony, the retransmission 
consent regime is fraught with artificial, government-granted 
preferences for broadcasters, and eliminating these preferences would 
help discourage broadcasters from engaging in brinkmanship and reduce 
disruptions for consumers. For instance, eliminating the FCC's network 
non-duplication and syndicated exclusivity rules, which allow 
broadcasters to prevent cable operators from mitigating the effects of 
a blackout by replacing a local signal with a distant signal containing 
the same network and syndicated programming, see 47 C.F.R. 
Sec. Sec. 76.92, 76.101, would limit the effectiveness of broadcasters' 
holdout strategies and encourage them to reach agreement. Moreover, 
eliminating the requirement that cable operators place broadcasters on 
the basic service tier, see 47 U.S.C. Sec. 543(b)(7), would facilitate 
the ability of cable operators to offer broadcast stations to 
subscribers on an optional basis, thus helping to temper broadcasters' 
excessive fee demands. Congress thus should strongly consider 
eliminating these and other unjustified and harmful preferences for 
broadcasters in the law.

    Question 8. In witness testimony, it was indicated that for 2012, 
to date, there have already been 69 disputes regarding retransmission 
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
    Answer. Although I am unaware of the exact number of disputes 
involving non-broadcast programmers this year, I believe there have 
been fewer non-broadcast disputes than the 69 retransmission consent 
disputes that had occurred by July (notwithstanding the highly 
publicized impasses this summer between DISH Network and AMC and 
between DirecTV and Viacom). The reason for this disparity is clear: 
Negotiations with non-broadcast programmers involve far less regulatory 
distortion than do negotiations with broadcasters over retransmission 
consent--which is the product of a government-created regime premised 
on a two-decades-old conception of the video marketplace.

    Question 9. What would the impact of eliminating must carry 
requirements from the law have on local and independent stations? 
Without must carry how could a local independent station get carried by 
a MVPD? Is there any obligation of the MVPD to carry the station?
    Answer. If the must-carry statute were repealed, local independent 
stations would bargain for carriage just like any other broadcaster. 
Because it is in MVPDs' interest to carry programming that their 
subscribers demand, a station that offers attractive programming should 
be able to secure carriage on the merits of its content under 
appropriate and reasonable economic terms. Moreover, while cable 
operators faced far less competition in 1992 when the must carry 
provisions were adopted, today broadcasters today have many other 
avenues for reaching viewers.

    Question 10. Would the elimination of must carry possibly lead to 
more concentration in the media market and, as a result, further muting 
the diversity of media voices, which has been a resolute policy of our 
Nation's telecommunications and media laws?
    Answer. The elimination of must-carry should not adversely affect 
diversity. As mentioned above, stations that once relied on must-carry 
rights would have the option to negotiate for carriage on the merits of 
their programming. And even if some stations were unable to obtain 
carriage without must-carry rights, the loss of those stations still 
would not significantly affect diversity, as must-carry stations rarely 
provide original programming and often rely instead on syndicated 
programming and local newscasts borrowed from other broadcasters. The 
very notion that guaranteeing cable carriage to local independent 
stations is necessary to enhance diversity is an anachronism in today's 
vibrant media landscape, where consumers have access to a growing 
number of outlets for news, information, and entertainment programming. 
In particular, the emergence of the Internet and online video 
distribution affords consumers substantially more source and content 
diversity than ever. Indeed, compelling carriage of broadcast stations 
ultimately harms diversity by displacing other programming services 
that viewers would prefer.

    Question 11. With the current penetration and marketplace, is the 
Internet a ``perfect substitute'' to traditional television programming 
and local broadcast news? If not, what do believe is required for it to 
be a substitutable good to traditional television and local news?
    Answer. No video service is a ``perfect substitute'' for another; 
each one has its own particular advantages and disadvantages. But the 
Internet has numerous advantages over broadcast television as a video 
distribution platform. Internet video is more accessible than 
traditional television programming, as it is available not only on 
Internet-connected television sets but also on computers, smartphones, 
and tablets. Moreover, whereas video programming aired by a broadcast 
station typically can be viewed only in the station's local area, video 
content uploaded to the Internet can be viewed anywhere in the world. 
Internet video also enables a far more customizable viewing experience 
for consumers. And unlike local broadcast stations, Internet video 
providers do not need to hold scarce spectrum resources in order to 
offer service.

    Question 12. What role do you see public television playing in 
providing local programming?
    Answer. Public television has played a valuable role in producing 
and providing informational and educational programming to viewers for 
decades. TWC has long viewed public television stations as key partners 
in delivering high-quality content, including local programming, to our 
subscribers.

    Question 13. To your knowledge, do you believe PBS or any other 
public broadcasting station would be adversely impacted by any of the 
legislative proposals (that would do away with must carry, retrans, or 
compulsory licenses) currently in Congress?
    Answer. TWC does not believe that PBS stations or other public 
broadcasting stations would be affected by current proposals for 
legislative or regulatory reform. Notably, the Next Generation 
Television Marketplace Act, S. 2008 would not repeal Section 535 of the 
Communications Act, which governs the carriage of noncommercial 
educational television stations. See 47 U.S.C. Sec. 535. Moreover, when 
regulatory reforms have presented carriage issues for public television 
in the past, the cable industry and public television stations have 
worked together to resolve these issues on an industry-wide basis. For 
instance, in 2005, when the transition to digital television was 
underway, the National Cable and Telecommunications Association reached 
an omnibus agreement with the Association of Public Television Stations 
for multicast carriage of public television stations once the 
transition was complete.

    Question 14. While this might seem appropriate, I am concerned 
about the impact such allowance would have on localism. As the Supreme 
Court has stated ``fairness to communities [in distributing radio 
service] is furthered by a recognition of local needs for a community 
radio mouthpiece.'' If this scenario was allowed, how could we protect 
localism? What safeguards could be implemented to ensure local 
programming?
    Answer. No regulatory safeguards are necessary to ensure access to 
local programming; to the extent viewers value local programming, the 
market will find a way to deliver it. Moreover, it is no longer correct 
to assume that protecting local broadcasters from market forces 
necessarily promotes localism or improves the quality or quantity of 
local programming. Multiple recent studies show that broadcast stations 
are retreating from localism, as their increasing use of ``sharing'' 
agreements has precipitated a significant decline in original, diverse 
local news and public affairs programming. See, e.g., Philip M. Napoli, 
Retransmission Consent and Broadcaster Commitment to Localism, at 18-25 
(Nov. 2011), available at http://www.americantelevisionalliance.org/wp-
content/uploads/2011/11/Retransmission
Consent-and-Localism-Paper-by-Napoli-FINAL.pdf; Danilo Yanich, Local TV 
News & Service Agreements: A Critical Look, at 105-07 (Oct. 2011), 
available at http://www.udel.edu/ocm/pdf/DYanichSSAFINALReport-
102411.pdf. By contrast, TWC is an active contributor to localism in 
the communities it serves, having launched local news channels and 
local interest channels that focus on public affairs, politics, sports, 
cultural affairs, entertainment, and other content of interest to the 
community.

    Question 15. How feasible is it actually for a cable or satellite 
operator to negotiate with out of market affiliate? There is still the 
primary owner of the content--the programmer. If the cable operator is 
having a dispute with the in-market Fox or Disney broadcaster, how 
could the cable company turn to an out-of-market Fox or Disney 
affiliate and successfully negotiate? It's still Fox or Disney and it 
seems that if the out-of-market affiliate did engage, Disney could 
threaten to pull the affiliation to prevent such action?
    Answer. Although TWC has entered into numerous agreements that 
include broad rights for ``out of market'' carriage, broadcast networks 
often do impose restrictions on their affiliates in the sale of 
retransmission consent to MVPDs, making it challenging to secure the 
necessary carriage rights. In particular, the networks have 
increasingly hijacked the retransmission consent process by dictating 
when, where, and at what price their affiliates may enter into 
agreements with MVPDs, and by extracting a ``cut'' of affiliates' 
retransmission consent revenues for themselves. As TWC has explained to 
the FCC on several occasions, this network interference in affiliates' 
retransmission consent negotiations is starkly anticompetitive, 
undercuts the FCC's localism goals, and harms consumers. Network 
interference increases the risk of impasse in retransmission consent 
negotiations, siphons off funds intended to support local broadcasting, 
and drives up the cost of retransmission consent to MVPDs and their 
subscribers. TWC and many other parties accordingly have asked the FCC 
to prohibit network interference in stations' retransmission consent 
negotiations.

    Question 16. If a MVPD feels that the retransmission fee the 
broadcasters is asking for is not reasonable then why not just simply 
not pay it, stop retransmitting the signal over the cable plant 
indefinitely, and, if need be, give every customer in the market an 
antenna? It seems over time, the number of subscribers MVPDs have (over 
101 million subs) would make broadcasters come to the table sooner 
rather than later.
    Answer. MVPDs compete vigorously in the video distribution 
marketplace and thus can hardly leverage their total subscriber count 
to ``make broadcasters come to the table.'' Since cable operators face 
vigorous competition in nearly every local area from an array of 
satellite, telecommunications, and Internet-based distribution 
platforms, broadcasters can play one distributor against another and 
wield blackout threats in an effort to maximize their bargaining 
leverage in negotiations. Moreover, the suggestion that an MVPD may 
respond to broadcasters' tactics by dropping a station's signal 
``indefinitely'' overlooks the fact that consumers--and not just 
MVPDs--are harmed by the loss of network-affiliated broadcast 
programming.
    Consumers cannot avoid these harms simply by switching to another 
video provider. All MVPDs must regularly renegotiate their carriage 
agreements with broadcasters, and because broadcasters are increasingly 
threatening to go dark unless their cash demands for retransmission 
consent are met, consumers may be forced to engage in an endless cycle 
of switching among MVPDs in an effort to avoid the potential for a 
blackout. Such switching is not only a source of inconvenience for 
consumers, but imposes unnecessary costs on consumers who must obtain 
new equipment and stay home to switch providers. Additionally, many 
consumers are not just purchasing video service and may have chosen 
their video provider also for its broadband and voice services.
    Moreover, those cable subscribers who would rather forego 
purchasing broadcast stations as part of their cable package--and 
thereby avoid the spiraling cost of retransmission consent--are 
prohibited from doing so under Federal law. As explained below in 
response to Senator DeMint's questions, 47 U.S.C. Sec. 543(b)(7) limits 
the flexibility of cable operators to offer broadcast stations on an 
optional basis. Congress should strongly consider eliminating not only 
the ``tier buy-through'' requirement responsible for this, but also the 
various other regulatory distortions in the retransmission consent 
regime that actively harm consumers. .

    Question 17. If all MVPDs feel that the retransmission fees are 
unreasonable then why don't you all agree not to pay the broadcasters--
hold an industry-wide boycott?
    Answer. Even apart from the antitrust issues presented by group 
boycotts generally, such an approach would not serve the interests of 
consumers. Any action to curb broadcaster abuses of the current system 
should focus on preserving consumers' access to broadcast programming, 
not depriving consumers of that programming.

    Question 18. Are you concerned if we go too far with reforming 
retransmission consent and/or copyright law that might limit rights of 
broadcasters and/or programmers we could possibly erode the fundamental 
protections to intellectual property and copyright that this country 
has enforced?
    Answer. Reforming the broken retransmission consent regime would 
not erode traditional protections for copyright or other intellectual 
property. Indeed, when Congress created this regime in 1992, it took 
pains to clarify that the retransmission consent right is not a 
copyright interest. See S. REP. NO. 102-92 (1991), reprinted in 1992 
U.S.C.C.A.N. 1133, 1169 (``The Committee is careful to distinguish 
between the authority granted broadcasters under the new section 
325(b)(1) of the 1934 Act to consent or withhold consent for the 
retransmission of the broadcast signal, and the interests of the 
copyright holders in the programming contained on the signal.''). 
Rather, retransmission consent is an artificial right granted by the 
government to local stations with the understanding that stations, as 
stewards of a valuable public spectrum resource, would exercise the 
right in the public interest. But when stations use retransmission 
consent as a weapon to black out broadcast programming and drive up 
programming costs for MVPDs and their subscribers, Congress should not 
hesitate to reform the regime to protect consumers.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jim DeMint to 
                             Melinda Witmer
    Question 1. If enacted as written, would the Next Generation 
Television Marketplace Act, S. 2008, allow a pay-TV company to 
retransmit the programming aired on broadcast signals without consent?
    Answer. No. The Next Generation Television Marketplace Act 
(``NGTMA'') requires MVPDs to obtain the consent of a local television 
broadcast station before retransmitting the programming broadcast by 
the station. See NGTMA Sec. 3(c)(5)(C).

    Question 2. Are Time Warner Cable subscribers required by Federal 
law to purchase a certain package of channels when they buy your video 
service?
    Answer. Yes. As a general matter, Section 623(b)(7) of the 
Communications Act, as amended, provides that a cable operator ``shall 
provide its subscribers a separately available basic service tier to 
which subscription is required for access to any other tier of 
service,'' and that basic service tier must include ``any signal of any 
television broadcast station'' provided to subscribers in a given local 
area. 47 U.S.C. Sec. 543(b)(7). In the local areas where this provision 
applies, broadcasters can insist on automatic placement on the basic 
service tier despite the fact that, in a more competitive marketplace, 
broadcasters would be required to compete on price and quality to gain 
access to desired tiers. As a result, skyrocketing retransmission fee 
increases must be built into the mandatory basic cable rates that 
subscribers cannot avoid paying. And as long as consumers are forced to 
subscribe to (and pay for) broadcast programming--creating an effective 
tax on access to cable programming--there is no market-based mechanism 
to discipline retransmission consent fees. While eliminating the tier 
buy-through requirement is a necessary step, such a move would not be 
sufficient, on its own, to prevent harms to consumers. Carriage 
negotiations between MVPDs and broadcasters will never be a truly 
market-based process unless Congress eliminates all of the regulatory 
distortions pervading the retransmission consent regime.

    Question 3. Is Time Warner Cable prevented by Federal law from 
selling a subscriber only a single channel, Discovery Channel for 
example, or only a package of sports channels?
    Answer. Yes. As mentioned above, cable operators in many local 
areas are required to provide subscribers with a basic service tier 
containing a statutorily mandated lineup of programming services, and 
to make the purchase of the basic tier a prerequisite to the purchase 
of all additional programming services. See 47 U.S.C. Sec. 543(b)(7). 
Moreover, video programmers often require cable operators to purchase a 
bundle of programming services all at once and to sell those 
programming services to consumers on highly penetrated cable tiers.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Kelly Ayotte to 
                             Melinda Witmer
    Question. I wanted to get your opinion on free-markets and how they 
are defined. In March of this year, the American Conservative Union 
sent a letter to the Hill on retransmission consent calling it ``a 
functioning market.'' The day before the hearing, I received a letter 
from Citizens against Government Waste claiming the current system, as 
currently structured, ``inhibits the free market'' and ``reduces 
competition.'' What are your thoughts on the free market as it relates 
to retransmission consent?
    Answer. Retransmission consent does not involve ``free market'' 
negotiations for carriage. Since its creation in 1992, retransmission 
consent has existed as part of a complicated system of government-
created rights designed to promote policy goals regarding the perceived 
special importance of free over-the-air television. That system of 
rights includes a host of special protections--such as must-carry, 
preferential tier placement and channel positioning rights, territorial 
exclusivity, and the ``sweeps'' rule--that further prevent market 
forces from operating. In a truly ``free market,'' a station would not 
be able to demand automatic placement on the basic tier, but rather 
would have to bargain for such favorable positioning based on the 
popularity of its programming. Likewise, a station operating in a 
``free market'' would not be able to insulate itself from competition 
by invoking the FCC's territorial exclusivity rules; instead, that 
station would be required to compete with other stations on quality, 
price, and other bases. The current regime thus bears little 
resemblance to a ``free market.'' It is entirely a creature of 
regulation, and that regulatory regime needs to be updated to prevent 
abuses by broadcasters that harm consumers.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                             Martin Franks
    Question 1. Whenever signals are pulled as a result of a 
retransmission consent dispute, consumers lose. The impact is magnified 
in areas where a single MVPD dominates an entire state. What is the 
best way to protect consumers while companies work to resolve disputes 
and impasses in negotiations for the carriage of broadcast signals?
    Answer. CBS has been an independent company since 2006, and in that 
time has concluded nearly 100 retransmission consent agreements without 
a single public dispute with an MVPD. Therefore, we are pleased to 
report that the viewers in the markets served by CBS owned-and-operated 
stations have not had to deal with MVPD disruptions of our programming.
    I believe that in a free marketplace, the best way to serve 
consumers is to arm them with information about options and choices, 
particularly with respect to how they can continue to obtain the 
programming they want during an MVPD-programmer disruption.
    I have often praised Congress for succeeding in achieving its goal 
of competition in the video marketplace. Today, thanks to this 
congressional focus, the American viewer in a given local market has 
robust options with respect to video distribution platforms, including 
at least one cable operator, two satellite services, as many as two 
telcos and, of course, several broadcast television stations. When a 
disruption of broadcast programming occurs on a particular platform, 
the viewer can always count on the originating platform--the broadcast 
television station--to continue service. Contrary to the allegations of 
some MVPDs, there is no ``blackout'' and a television station does not 
``go dark'' when a disruption occurs. Rather, the station still 
operates in the public interest and transmits its signal over the air 
to almost every household with a television receiver. In addition, that 
station's programming is still available on competing MVPD platforms 
not engaged in a dispute with that station.
    It is important to note that any disruptions involving 
retransmission consent are local in nature, affecting an individualized 
market and a limited amount of MVPD subscribers, while disruptions 
involving non-broadcast programmers affect the nationwide carriage of 
that programming and, therefore, millions of MVPD subscribers.

    Question 2. Should any special consideration be given to protect 
consumers in geographic locations where a single MVPD serves a high 
percentage (more than 50 percent) of total MVPD subscribers in a state?
    Answer. Congress has succeeded in its goal of establishing a highly 
competitive video distribution market. A disruption of a single 
station's service to one MVPD provides an opportunity for a competing 
MVPD to acquire a new subscriber. That's how competition works: 
Consumers shop where the products they want are available. Thus, where 
a lone MVPD has more than half of all MVPD subs in a given state, a 
disruption just might have the collateral benefit of creating greater 
competition among video distributors. Specifically, in Hawaii, a 
retrans disruption with Time Warner Cable could inure to the benefit of 
DirecTV and DISH.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                              Marin Franks
    Question 1. In her testimony, Ms. Witmer of Time Warner Cable notes 
that national broadcast networks ``have begun demanding reverse 
compensation from their affiliates'', which she alleges is contributing 
to the increase in retransmission fees local affiliates have been 
requesting in renegotiations.
    Please respond to this point, providing detail on the extent that 
CBS is involved in retransmission fee negotiations, including any 
relevant information on the percentage of retransmission fees for 
affiliate signals that are allocated to CBS.
    Answer. At CBS, we view our affiliated broadcast television 
stations as true partners in helping us deliver high quality network 
entertainment, news, information and sports programming to the American 
public. And our affiliates realize that that partnership is good for 
them, in large part because of what the network is delivering, as a 
complement to their locally provided content. The network-affiliate 
relationship is symbiotic.
    Most of our affiliates are still on long-term contracts that do not 
expire for several more years. The renewal of those contracts will be 
the point at which reverse compensation will be negotiated. We have 
said publicly that the structure of the reverse comp deals varies, but 
in most cases, we are asking for a fixed fee rather than a percentage 
of the affiliates' retrans fee.
    The value of a CBS affiliation goes far beyond what the station can 
secure from retransmission consent. Our time-period-winning 10 PM 
dramas bring a larger audience to a local station's 11 PM broadcasts in 
which they sell all of the advertising and retain all of that revenue. 
The opportunity to sell spots in the network's news, sports and 
entertainment programming brings a local affiliate additional value.
    When we assess the value of a CBS Television Network affiliation, 
we take into account all of the ways we help to create value for a 
local station and negotiate a mutually beneficial agreement 
accordingly--and utterly independent of how much that station may 
obtain in retrans fees from a given MVPD.

    Question 2. What are CBS's views on Senator Kerry's idea of 
requiring alternative styles of negotiation--i.e. baseball-style 
arbitration--to be used in disputes between multichannel video 
programming distributors and affiliates to ensure viewers are not 
treated unfairly when retransmission consent negotiations breakdown?
    Answer. Section 325(b) expressly states that only broadcasters can 
provide MVPDs with authority to retransmit their signals. Therefore, 
neither the FCC nor an arbiter can authorize an MVPD to carry a 
station's signal without the station's consent.
    As the FCC states in the NPRM which launched its pending proceeding 
on retransmission consent:

        ``[W]e believe that mandatory binding dispute resolution 
        procedures would be inconsistent with both Section 325 of the 
        Act, in which Congress opted for retransmission consent 
        negotiations to be handled by private parties subject to 
        certain requirements, and with the Administrative Dispute 
        Resolution Act (``ADRA''), which authorizes an agency to use 
        arbitration ``whenever all parties consent.''

    Broadcasters spend hundreds of millions of dollars to produce or 
acquire content that is popular with viewers--much of which is produced 
in California and employs thousands of Californians. Mandating carriage 
of our content -even for a limited time--effectively would put the 
government's thumb on the MVPDs' side of the scale. The consequences of 
such government intervention in the free market of negotiations likely 
would result in lower fees to broadcasters which, in turn, would impair 
our ability to produce and obtain the high quality programming that 
viewers want.
    Let me emphasize that when a retrans disruption occurs and a 
station's signal is not available on a particular MVPD platform, that 
station's programming is still widely available -via competing MVPDs in 
the market, as well as over the air.
    Finally, if Congress were to take the extraordinary step of 
granting the FCC the authority to arbitrate or mediate disputes, with 
the thousands of retrans negotiations that occur each year on average, 
it is likely that parties would run to the Commission instead of trying 
to work out issues in the marketplace. At such point, the FCC would 
become the ``Federal Arbitration Commission,'' with retrans disputes 
tying up a substantial portion of valuable agency resources. The 
marketplace has worked -and with very few disruptions and, even in 
those rare cases, have lasted only a short time.

    Question 3. In recent years, the breakdown of retransmission 
consent negotiations has threatened the television access of millions 
of Americans to major events like the Super Bowl, the World Series, and 
the Oscars, not to mention the critical access of viewers to local news 
broadcasts. Consumers should not be losing access to programming that 
they have paid for because of the failure of retransmission consent 
negotiations. The FCC has proposed to strengthen notice requirements 
for consumers when there is the possibility that certain services may 
lapse. Does CBS support this proposal?
    Answer. While I do not advocate further regulation or rules, I 
believe that it is important for MVPD subscribers to be notified of 
their options for obtaining the programming of a station in a retrans 
dispute. Perhaps subscribers should be given a heads up when it appears 
as if a retrans term is set to expire and negotiations are going badly 
and a signal disruption is anticipated in order to give them adequate 
time to connect an antenna or seek another multi-channel provider who 
has secured access to the relevant programming.

    Question 4. Does CBS support requiring affiliate broadcast signals 
to remain on the air--i.e., continuous carriage--during retransmission 
consent disputes?
    Answer. CBS would be ``on the air'' in any event in that our free, 
over-the-air broadcast is always available to anyone who chooses to 
employ an antenna.
    Having clarified that point, no, we do not support any proposal 
that would require us to provide our signals to MVPDs against our will. 
Not only is this type of proposal prohibited under Section 325(b) of 
the Communications Act, but such a requirement would lead to the same 
result described in response to the preceding question. However, we may 
elect to grant an extension of a retrans deadline as part of the to-
and-fro of negotiations in a free market. Indeed, we have done so in 
the past when we believe that discussions were going well with the 
MVPD. These extension periods have covered major broadcast events. But 
these extensions were made in our discretion, and not based on a 
regulatory obligation to do so.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                             Martin Franks
    Question 1. S. 2008, the Next Generation Television Marketplace Act 
of 2011, would provide for the deregulation of retransmission consent. 
But as we saw last month with DirecTV and Viacom, blackouts occur due 
to disputes between cable programmers and cable providers in a non-
regulated environment too. If we see customers, like those who 
subscribe to DirecTV, suffering in a deregulated world, why would we 
want to deregulate the negotiation process for broadcasters too?
    Answer. I agree that any attempt to transform the retransmission 
consent regime into one looking more like the national cable network 
model would be misguided.
    In the end, I believe that eliminating retrans and the compulsory 
license would lead to far more disruptions, not fewer. Introducing even 
more claimants into an already challenging negotiating environment 
likely will lead to more, not fewer, disputes. In the end consumers 
will suffer.
    While this reorganized retrans marketplace would also be an 
extraordinarily capital intensive one, I testified that in that new 
world CBS would do just fine. One way or another, we will be able to 
invest in our content, continue to attract audiences, and figure out 
how to monetize our performance. But the adverse impact on smaller 
companies -both on the broadcaster and MVPD sides--could be 
substantial.

    Question 2. Today's video marketplace is very different than what 
it was in 1992. Since the enactment of the Cable Act, satellite 
carriers and telephone companies offering video services compete with 
cable operators. And in the last few years, we have seen the enormous 
growth of online video. In your view, given these changes in the video 
marketplace, are the existing rules working? Why or why not?
    Answer. Actually, the marketplace is even more competitive now, and 
therefore not only is retransmission consent not broken, it is more 
suited to today's vibrant marketplace, with manifold alternate sources 
of programming for consumers.
    I believe that the retransmission consent regime enacted in 1992 is 
one of the great Washington public policy accomplishments of the last 
two decades. It has given renewed vitality to broadcast television that 
prior to 1992 was being consigned to the dust heap of history.
    Estimates are that some 15,000 retrans negotiations take place 
every three years and almost all of them are completed successfully and 
without disruption. As the principal retransmission consent negotiator 
for CBS, I can tell you that over the last six years, since CBS split 
from Viacom, we have completed ALL of our negotiations successfully and 
without incident.

    Question 2a. Why are we even discussing changes to a system that 
works?
    Answer. Because there are some in the MVPD industry calling for a 
return to the old days, when they got their most popular video product 
for free and then resold it and then used the proceeds to build their 
own businesses. We urge Congress to resist calls for change. To the 
extent that impasses in retrans negotiations occur with more frequency 
lately, it is due, at least in part, to the belief by a handful of 
distributors that disruptions may cause Congress to act--and in a way 
that would end the current balance of power to tip the scales in their 
favor. Congress should resist calls for legislation because some MVPDs 
today use this in negotiations in an attempt to gain leverage over 
broadcasters. Legislation only serves to slow down negotiations or 
leads to increased disruptions.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                             Martin Franks
    Question 1a. Stakeholders on all sides of the retransmission 
consent debate appear to agree that the visibility and frequency of 
retransmission disputes has increased over the last few years. Some 
have argued that retransmission consent is working and that some 
growing pains are reasonable because many broadcast stations are 
electing to pursue deals instead of must-carry for the first time since 
enactment of the 1992 Cable Act which created the dual regimes of must 
carry and retransmission consent. On the other hand, distributors argue 
that private sector retransmission consent deals are taking longer to 
negotiate, and that it is becoming harder to reach agreement regarding 
mutually agreeable terms. If you believe must-carry and retransmission 
consent are important to localism, how do you recommend that the 
Congress measure the success of localism?
    Answer. As I stated at the hearing, I believe that the 
retransmission consent regime enacted 20 years ago has given renewed 
vitality to broadcast television.
    In adopting retrans, Congress recognized that broadcast programming 
``remains the most popular programming on cable systems, and a 
substantial portion of the benefits for which consumers pay cable 
systems is derived from carriage of the signals of network affiliates, 
independent television stations, and public television stations.'' 
Congress found that cable operators enjoyed great benefits from the 
local broadcast signals that they were able to carry without 
broadcaster consent. Thus, Congress adopted retransmission consent 
provisions to allow broadcasters to negotiate to receive compensation 
for the value of their signals.
    Retrans, therefore, was meant to address more than just localism. 
It was meant to allow broadcasters to monetize their performance in the 
marketplace.
    Broadcast television stations around the country deliver top-notch 
local news, public affairs and emergency content to their hometown 
viewers. But local stations deliver much more than that--that is, they 
provide national network content that represents some of the highest 
quality sports and entertainment programming in the world. In a tough 
economy, it is no small benefit to Americans that they can sit in their 
living rooms and access via broadcast television, free of charge, major 
sporting and entertainment events that would cost hundreds of dollars 
to view at a sports arena or movie theater.
    The ability of broadcasters to provide this superior product to the 
American consumer is due, in great part, to retransmission consent 
fees.
    With great respect, I urge Congress not to get in the business of 
measuring ``success'' of localism or any other aspect of video 
programming. The American viewer should be the final arbiter of what 
content they wish to view. And by most accounts, local broadcast news 
is considered the most popular and credible while broadcast network 
programming is the most watched. There are plenty of organizations 
studying broadcaster performance, some commercial and some not-for-
profits. For example, entities such as the Pew Research Center and the 
Knight Foundation regularly issue reports on the state of local news. 
And there are commercial ratings enterprises, such as Nielsen and new 
entrant Rentrak, which are in the business of measuring the country's 
television viewing habits. In the end, satisfying viewers is what 
motivates broadcasters.

    Question 1b. If you believe retransmission consent is failing, what 
evidence can you provide?
    Answer. I do not believe that retransmission consent is failing in 
any sense of the word.

    Question 2a. Some distributors have indicated concerns about the 
ability of content creators to tie affiliated programing to 
retransmission consent deals because they argue this practice 
contributes to programming cost increases. Broadcasters and content 
creators argue that current practices provide necessary financial 
support for a greater variety of programming options which they say is 
a benefit to consumers. To what extent should Congress be concerned 
about programming cost increases over the past several years?
    Answer. Again, with respect, I urge Congress not to get involved in 
the costs of video programming. American television is considered the 
best in the world, thanks to the innovation and flexibility of the 
marketplace. And it in this weakened economy, television is one of the 
sectors performing quite strongly and is not in need of a ``fix.'' In 
fact, any regulation of programming costs likely would lead to the 
deterioration of the product.
    In the marketplace, if a product is too costly or is undesirable, 
demand will wane. And the industry will adapt accordingly. CBS is 
committed to investing in programming. Our ability to invest in the 
acquisition of broadcast rights to premier sporting events, as well as 
in the production of the highest quality entertainment and news 
programming, is made possible today by a variety of revenue streams, 
including advertising and retransmission consent fees. In a free, 
unfettered market, broadcasters should be permitted to obtain revenues 
from any combination of sources as it can in order to provide the 
American consumer with a service that almost every household can access 
free of charge. Costs of providing this service should be determined in 
the market and not through regulation.

    Question 2b. If you believe programming cost increases merit a 
fresh look at the 1992 Cable Act, do you believe cost savings garnered 
by distributors should be passed onto consumers? If so, how would any 
savings be realized by consumers?I do not believe that Congress should 
review programming cost increases. And I would not support any 
resurrection of rate regulation of my MVPD partners.
    Answer. I do not believe that Congress should review programming 
cost increases. And I would not support any resurrection of rate 
regulation of my MVPD partners.

    Question 2c. If you support changes to current law, would your 
company provide consumers with the same flexibility to pursue a la 
carte programming options? If not, why not?
    Answer. Tiering options are available today from various MVPDs. If 
the American viewer demands more tailored, channel-by-channel, a la 
carte options, the market will supply it.

    Question 3a. Given that retransmission consent deals are private 
sector negotiations under the 1992 Cable Act, it is difficult for 
observers and participants to track pricing trends. Do you believe 
pricing transparency for distributors and for consumers could help to 
alleviate tensions over content deals? If not, why not?
    Answer. Those seeking retrans pricing trends need only search the 
Internet for the numerous analyst reports available to the public.
    Providing the public with the wholesale cost of retrans is a 
solution in search of a problem. Some MVPDs assert that disclosure of 
retrans pricing, especially to consumers, would benefit the public. I 
am mystified as to how the public would be better positioned by the 
disclosure of such discrete information in the absence of the same 
disclosure with respect to MVPD costs for non-broadcast programming and 
their set-top boxes and other equipment. These are ALL costs which are 
passed along by MVPDs to their customers. Thus, forced disclosure of 
the wholesale cost of retrans is akin to forced disclosure of the 
wholesale costs of only a few ingredients in a loaf of bread. It would 
reveal no meaningful information for the consumer. Moreover, I question 
whether such disclosure of this retrans fee might be a vehicle for 
price-signaling among competitors.

    Question 3b. If you do believe pricing transparency could be 
beneficial, please provide specific recommendations for such a proposal 
could be implemented.
    Answer. See response to Question 3(a).

    Question 4. Going forward, how should Congress and/or the Federal 
Communications Commission measure whether or not the current system is 
working? Please provide specific metrics to support your answer.
    Answer. That the current system is working or not working should be 
based on consumer reaction. The hue and cry to ``fix'' retrans is not 
coming from consumers. Rather, it is coming from MVPDs. Calls for 
fixing a supposedly broken retrans system arose only after a fully 
competitive marketplace among video distributors developed.
    Retrans was essentially a non-factor in carriage negotiations until 
several years back when DirecTV, DISH, Verizon and AT&T became full-
fledged competitors to the cable monopoly. Yes, when a retrans 
disruption occurs, consumers in a given local market may experience 
inconvenience. But disruptions are few and far between. It has been 
estimated that some 15,000 retrans negotiations take place every three 
years. And almost all of them are completed successfully.
    There is no need to overhaul a well functioning retrans system that 
has inured to the benefit of consumers -in the form of continued high-
quality broadcast service. Congressional and/or FCC involvement in 
retrans would serve to hinder negotiations, not assist them. 
Broadcasters across the country want to be carried by distributors and 
distributors want to carry broadcast television stations because of the 
popularity of our local and national programming. As long as this 
balance exists, the system is working.
    Finally, let me note again that to the extent that impasses in 
retrans negotiations occur with more frequency lately, it is due, at 
least in part, to the belief by a handful of distributors that 
disruptions may cause Congress to act--and in a way that would end the 
current balance of power to tip the scales in their favor. Congress 
should resist calls for legislation because some MVPDs today use this 
in negotiations in an attempt to gain leverage over broadcasters. 
Legislation only serves to slow down negotiations or leads to increased 
disruptions.

    Question 5. If Congress were to revisit the 1992 Cable Act, are 
there improvements to the law which you believe Congress should 
consider?
    Answer. I believe that the retransmission consent regime enacted in 
1992 is one of the great Washington public policy accomplishments of 
the last two decades. Therefore, I do not see the need for Congress to 
address any part of the 1992 Cable Act pertaining to retrans.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                             Martin Franks
Existing FCC Authority
    The Cable Television Consumer Protection and Competition Act of 
1992 (``1992 Cable Act'') amended the Communications Act to include 
Section 325, which provides television stations with certain carriage 
rights on local market cable television systems. The Commission 
established rules related to the retransmission/mandatory carriage 
election cycle, but did not adopt rules governing the negotiation 
process of retransmission consent.
    However, the statute clearly calls for the FCC to ensure that 
broadcasters act in ``good faith during negotiations.'' During the 
Sinclair-Mediacom dispute back in 2007, the Commission didn't intervene 
because then Chairman Martin interpreted the law didn't and stated that 
the agency didn't have the authority to impose binding arbitration. At 
the time, he stated ``It's not clear to me that the commission does 
have the authority to order arbitration.''
    Yet, during that time in January 2007, Senator Inouye and the late 
Senator Stevens wrote the FCC stating that the Commission did indeed 
have authority to intervene and, if necessary, use binding arbitration 
to resolve any failed negotiations.

    Question 1. Given the existing statute and the Congressional 
letter, couldn't the current Commission interpret the statue 
differently than Chairman Martin to where they do have the statutory 
authority to be involved in any disputes? What is precluding them from 
doing so?
    Answer. Section 325(b) expressly states that only broadcasters can 
provide MVPDs with authority to retransmit their signals. Therefore, 
neither the FCC nor an arbiter can authorize an MVPD to carry a 
station's signal without the station's consent.
    As the NPRM in the pending proceeding at the FCC on retransmission 
consent states:

        ``[W]e believe that mandatory binding dispute resolution 
        procedures would be inconsistent with both Section 325 of the 
        Act, in which Congress opted for retransmission consent 
        negotiations to be handled by private parties subject to 
        certain requirements, and with the Administrative Dispute 
        Resolution Act (``ADRA''), which authorizes an agency to use 
        arbitration ``whenever all parties consent.''

    Question 2. If Congress directed the FCC to ensure broadcasters act 
in ``good faith'' during negotiations, how do you believe the FCC can 
go about fulfilling that responsibility and to limit or prevent the 
disruption of programming to cable and/or satellite customers?
    Answer. Congress has, on two occasions, directed the FCC to adopt 
rules that compel both broadcasters and MVPDs to negotiate for 
retransmission consent in good faith. In response, the FCC has 
established rules that guide parties as to what conduct is deemed good 
faith in retrans negotiations and has implemented an enforcement 
regime. However, there have been very few complaints filed alleging 
violations of the rules. There has only been one finding that a party 
to a retransmission consent agreement negotiated in bad faith--and that 
party was an MVPD.
Reasonable Basic Service Tier Rates
    While I understand programming costs are growing, I am concerned 
about the significant increase in retransmission compensation that has 
occurred over the past several years. For example, retransmission 
consent revenue climbed more than 30 percent for six broadcasters in 
the first nine months of 2008. By 2017, SNL Kagan an industry analysis 
firm--projects retransmission fees will grow to $3.61 billion, with 
average per-subscriber fees potentially doubling. So, as broadcasters 
look to increase revenue streams through retransmission fee, it 
seemingly puts upward pressure on the price of basic cable and 
ultimately consumers. Such increase may also infringe upon the existing 
statute.
    Section 623(b)(1) requires the FCC to ensure that basic cable 
service rates are reasonable. In addition, Section 325(b)(3)(A) 
requires the Commission to consider the impact that retransmission 
consent has on basic cable service rates and that any regulations do 
not conflict with the FCC's ``obligation under Section 623(b)(1)'' to 
ensure such rates are reasonable.
    According to SNL Kagan, the average cable TV subscriber in 2011 
paid $78 a month compared to only $40 per month in 2001. Whereas the 
average household income fell 6 percent between 2006 and 2010, 
according to the U.S. Census.

    Question 3. Do you know if the FCC is actively examining the impact 
of increasing retransmission fees in relations to basic cable rates?
    Answer. The FCC has a pending proceeding on retransmission consent. 
I do not know whether the FCC is studying programming fees as part of 
this proceeding or any other.

    Question 4. Can you elaborate on what impact these retransmission 
fees have on the cost of basic cable service? What percentage of a 
cable customer's monthly cable bill is attributed to retransmission 
fees paid to the broadcasters (a rough estimate will suffice) for (1) a 
customer subscribing to basic cable and (2) a customer subscribing to 
the most expensive cable TV package?
    Answer. I have no independent knowledge of the impact of 
retransmission fees on the cost of cable service, but public analysts' 
reports state that they are but a fraction of a cable operator's 
overall programming expenses and a minute portion of its revenues. In 
comments in the FCC's pending retransmission consent proceeding, NAB 
submitted an economic report that contained the following conclusions:

        In 2008, for example, the average MVPD programming expense per 
        subscriber per month was approximately $26 and average MVPD 
        revenue was more than $99 per subscriber per month. In 
        contrast, as noted above, in 2009 MVPDs paid retransmission 
        consent fees totaling only $0.70 per subscriber per month. 
        Thus, retransmission consent fees are just 2.7 percent of 
        programming expenses and about 0.71 percent of revenues. A 
        March 2009 study estimated that cable revenues per subscriber 
        are predicted to rise 45 times more than retransmission consent 
        fees through 2015.

    These conclusions are well illustrated in an article in an MVPD 
industry trade publication, which I have included with my response.
Eliminating Retransmission Consent and Compulsory Licenses
    While there is no question that Congress must examine and reform 
outdated provisions in the statute, there are legislative proposals 
before Congress that propose sweeping changes to laws governing cable 
and broadcast obligations. In particular these bills propose repealing 
retransmission consent, must carry, and the Copyright Act's 
``compulsory license'' provisions.
    During the hearing, witnesses provided conflicting testimony on the 
impact such eliminations would have on the marketplace and with retrans 
negotiations some said it would only increase disputes and others said 
it would wouldn't.

    Question 5. Can you elaborate, in detail, on how negotiations 
between MVPDs and broadcasters (and/or programming/content owners and 
anyone else that might now be included) would be carried out, if the 
compulsory license, must carry, and retransmission consent provisions 
were eliminated? Please lay out the process and parties that would 
exist in negotiating the rights to use programming/content. Also, 
please compare/contrast the new negotiation process that would result 
versus the current retransmission consent negotiations.
    Answer. As I noted at the hearing, introducing even more claimants 
into an already challenging negotiating environment may lead to more 
disputes, not fewer, will be a lawyer's paradise, and is unlikely to 
yield any relief to consumer pocketbooks.
    That brave new marketplace would also be an extraordinarily capital 
intensive one. I testified that in that new world CBS would do just 
fine. One way or the other, we will be able to invest in our content, 
continue to attract audiences, and figure out how to monetize our 
performance. But the adverse impact on smaller companies -both on the 
broadcaster and MVPD sides--could be substantial.
    Many smaller players will be squeezed out of the business. West 
Virginians may have access only to larger regional super players from 
Washington, D.C. and Pittsburgh, or South Carolinians may lose the 
wonderful localism tradition earned by their state's broadcasters in 
favor of service solely from Atlanta, Charlotte or even New York City.
    This move to a more regional system will come at the expense of 
local economies and consumers.

    Question 6. If you believe that eliminating these provisions would 
lead to more disputes, can you elaborate, in detail, on why?
    Answer. I believe that in the absence of a compulsory license and 
retransmission consent there would be far more disputes if for no other 
reason than that many, many more parties would be involved.
    As the Copyright Office concluded in a 2011 report to Congress 
pursuant to the Satellite Television Extension and Localism Act 
(STELA):

        In the absence of the statutory licenses, the businesses of 
        cable operators and satellite carriers would be much different, 
        and presumably more difficult, because they would have to 
        negotiate with copyright owners through private transactions 
        for the public performance rights to copyrighted broadcast 
        content.

    Question 7. If you believe that eliminating these provisions would 
lead to less disputes, can you elaborate, in detail, on why?
    Answer. Please see response to Question 6.

    Question 8. In witness testimony, it was indicated that for 2012, 
to date, there have already been 69 disputes regarding retransmission 
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
    Answer. I have no independent information as to such disputes, but 
there have also been reports of numerous disruptions of non-broadcast 
programming in 2012. It is important to note that any disruptions 
involving retransmission consent are local in nature, affecting an 
individualized market and a limited amount of MVPD subscribers, while 
disruptions involving non-broadcast programmers affect the nationwide 
carriage of that programming and, therefore, millions of MVPD 
subscribers.
    CBS has been an independent company since 2006, and in that time 
has concluded nearly 100 retransmission consent agreements without a 
single public dispute with the relevant MVPD.

    Question 9. It is my understanding that while there has been a 15 
percent increase in commercials television stations from 1996 to 2010, 
there has also been a 33 percent decrease in the number of station 
owners. There has also been a continued dearth of ownership by 
minorities and women--which is approximately only 5 percent and 3.3 
percent of TV market share, respectively (both well below their 
population representation). Both indicate a significant deficit in 
achieving the policy goals of localism and diversity.
    A free exchange of a wide range of viewpoints is the lifeblood of 
our democracy, and the print and broadcast media serve an indispensable 
function by exposing our society to diverse thoughts and viewpoints.
    What would the impact of eliminating must carry requirements from 
the law have on local and independent stations? Without must carry how 
could a local independent station get carried by a MVPD? Is there any 
obligation of the MVPD to carry the station?
    Answer. But for one instance in which a station we acquired had 
already elected must carry, CBS does not rely on must carry and would 
not be affected, but the impact on smaller stations and the ensuing 
diversity of voices Congress strives to provide might be adversely 
impacted. I note this despite the fact that any adverse impact may 
benefit CBS from a competitive standpoint.

    Question 10. Would the elimination of must carry possibly lead to 
more concentration in the media market and, as a result, further muting 
the diversity of media voices, which has been a resolute policy of our 
Nation's telecommunications and media laws?
    Answer. Please see response to Question 9.
Online Video vs. Traditional Video
    According to Nielsen Media, the average American watches over 153 
hours of video per month on traditional television compared to only 4.5 
hours per month of online video. Also, approximately 97 percent of 
American households have a television whereas 68 percent of households 
have broadband (the U.S. currently ranks 23rd in broadband 
penetration).
    In addition, a 2011 Project for Excellence in Journalism survey 
found that local TV remains America's most popular source of local news 
and information, particularly for weather and breaking news--89 percent 
of surveyed adults get information about local weather and 80 percent 
follow local breaking news through local television. Only about 51 
percent of smartphone users use the device to get news.
    While the Internet is a very value medium for media and news and 
provides incredible benefit to users, most Americans still rely heavily 
on traditional television for programming, local news, and even 
weather.

    Question 11. With the current penetration and marketplace, is the 
Internet a ``perfect substitute'' to traditional television programming 
and local broadcast news? If not, what do believe is required for it to 
be a substitutable good to traditional television and local news?
    Answer. In economic terms, a good or service is deemed to be a 
``perfect substitute'' if it is completely substitutable with another 
good or service. The American public looks to and depends upon their 
local television stations -and not to the Internet--as the primary ``go 
to'' source for news, weather, traffic and information. Moreover, local 
television stations offer a news service and platform that is 
ubiquitous and free of charge. While broadcasters compete with the 
Internet for audience and advertisers, local broadcasters do not merely 
aggregate or regurgitate news from other sites. Instead, they invest 
millions of dollars annually to produce news and information 
programming that is original and fresh. This means investing in 
personnel--including reporters, writers, producers, camera operators--
and purchasing technical equipment that allows live coverage of local 
events and the production of high-quality content. This is a model the 
Internet is not currently able to match. Therefore, the Internet is not 
yet a perfect substitute for local broadcast news.
Value of Public Broadcasting
    Harris Interactive, an independent, non-partisan research firm, 
found--for the ninth year in a row--that PBS (Public Broadcasting 
Service) is the Nation's most-trusted institution by the American 
public. PBS ranked higher than our court system, newspapers, our 
Federal government, and, surprisingly, even Congress.
    In addition, 74 percent of the American public surveyed believe 
Federal funding for PBS is money well spent. PBS was also the most 
trusted and safe place for children to watch television--88 percent of 
Americans surveyed agreed.

    Question 12. What role do you see public television playing in 
providing local programming?
    Answer. All local broadcasters, including public television 
stations, compete against each other for viewers. Competition is good 
and we hope to see public television stations remain vibrant.

    Question 13. To your knowledge, do you believe PBS or any other 
public broadcasting station would be adversely impacted by any of the 
legislative proposals (that would do away with must carry, retrans, or 
compulsory licenses) currently in Congress?
    Answer. I defer to our PBS colleagues on this question as I have no 
particular expertise on the challenges facing public broadcasting.
Gentlemen's Agreement Not to Pull Signal
    Several of the negotiation disputes have threatened or have 
actually disrupted cable customers' viewing of major television 
programming--whether that is sporting events, season finales of shows, 
or the Oscars. It is my understanding cable operators are prohibited 
from pulling broadcast signals during sweeps when ratings determine 
advertising rates--the life blood of your business.

    Question 14. Why shouldn't there be a similar prohibition on 
broadcasters to not pull their signals in a retransmission negotiation 
impasse during a major sporting event or other highly watched 
programming like the Oscars--in order to limit the disruptive nature of 
negotiation disputes to consumers?
    Answer. I would oppose such a prohibition. As noted in response to 
Question 1 above, under Section 325(b), consent for retransmission of a 
station's broadcast signal is within the sole province of the station. 
No party, not even the FCC, can permit retransmission of a signal, even 
for a short period of time or for a given program. Broadcasters spend 
hundreds of millions of dollars to produce or acquire content that is 
popular with viewers. Thus, mandating carriage of our content -even for 
a limited time--effectively would put the government's thumb on the 
MVPDs' side of the scale. The consequences of such government 
intervention in the free market of negotiations likely would result in 
lower fees to broadcasters which, in turn, would impair our ability to 
produce and obtain the high quality programming that viewers want. 
Finally, let me emphasize that when a retrans disruption occurs and a 
station's signal is not available on a particular MVPD's platform, that 
station's programming is still widely available -via competing MVPDs in 
the market, as well as over the air.

    Question 15. Would you (and/or your affiliates/members) agree to 
voluntarily adopt an arrangement of where you would not pull your 
signal prior to a major sporting or highly watched/anticipated event if 
negotiations are at an impasse? You could obviously still pull your 
signal after the event, if you so desired.
    Answer. Making such a ``voluntary'' commitment across the board 
would lead to the same result described in response to Question 14. 
However, we may elect to grant an extension of a retrans deadline as 
part of the to-and-fro of negotiations in a free market. Indeed, we 
have done so in the past when we believe that discussions were going 
well with the MVPD. These extension periods have covered big-ticket 
broadcast events, such as the Super Bowl. But these extensions were 
made in our discretion, and not based on a regulatory obligation to do 
so.
Local Programming & Independent Programming
    I have long been a champion of promoting localism and diversity in 
television. Local media--be it newspaper, radio, or television--play a 
critical role in informing citizens about important decisions made by 
their local, state, and Federal officials. Even with the Internet and 
other media sources, a 2011 Project for Excellence in Journalism survey 
found that local TV remains America's most popular source of local news 
and information, particularly for weather and breaking news--89 percent 
of surveyed adults get information about local weather and 80 percent 
follow local breaking news through local television. Also, locally 
owned stations also air more local news and programming than non-
locally owned stations, typically 5 1/2 minutes more per day.
    It seems to me that one way to make sure that local television 
stations can continue to invest in local journalism is to allow them to 
recoup the investments they make in local programming. I am concerned 
about the impact that various legislative proposals would have on 
localism. Some have proposed to significantly alter the negotiating 
leverage of the parties in a way that could make it more difficult for 
local broadcasters or independent programmers to receive fair value for 
their programming.

    Question 16. Do you agree? Can you discuss your concerns with the 
various legislative proposals and its impact on local stations and the 
availability of local programming to consumers that rely on over-the-
air broadcasting?''
    Answer. I am also concerned that the various legislative proposals 
relating to retransmission consent would have an adverse impact on 
local broadcasting. For further detail, please see response to Question 
5.

    Question 17. How important are media ownership rules to promoting 
competition, diversity, and localism? Some broadcasters have called for 
relaxing media ownership rules but could that cause greater 
consolidation and concentration, which would be counter to goals in the 
statute of promoting competition, localism, and diversity?
    Answer. CBS has been one of the broadcasters calling for less 
restrictive ownership rules. Today, broadcasters compete with an ever-
increasing and constantly changing array of alternative sources of 
news, information, and entertainment. Broadcasters undoubtedly 
contribute to competition, localism and diversity, and if we are to 
continue to do so, we must be released from structural regulations that 
do not bind our competitors.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jim DeMint to 
                             Martin Franks
    Question 1. If enacted as written, would the Next Generation 
Television Marketplace Act, S. 2008, allow a pay-TV company to 
retransmit the programming aired on broadcast signals without consent?
    Answer. No.

    Question 2. Besides several local CBS broadcast stations, like 
WCBS-TV in New York City, your company owns the non-broadcast Showtime 
and Smithsonian Channels. Your company negotiates copyright-based 
carriage agreements for these channels with pay-TV providers without 
any compulsory license or retransmission consent legal structure 
involved.
    a. Are you able to receive fair compensation from pay-TV companies 
for carriage of Showtime and Smithsonian Channels?
    Answer. Yes, based on free market negotiations.

    b. Are pay-TV providers able to retransmit Showtime and Smithsonian 
Channel programming without your consent?
    Answer. No.

    c. My legislation envisions you negotiating carriage agreements in 
that same manner for WCBS-TV and your other broadcast stations. Could 
CBS negotiate for carriage of its broadcast stations the way it does 
for its non-broadcast properties if pay-TV compulsory licenses and 
retransmission consent were both repealed?
    Answer. Eventually, yes, but only after a period of several years 
of considerable disruption. And to what end? As I noted at the hearing, 
I can say without equivocation from my position as the principal 
retransmission consent negotiator for CBS, the market for video 
programming is already one of the country's most robust and competitive 
sectors in the Nation. Retransmission consent is not broken and not 
currently hampered by government intervention. In fact, the mere 
suggestion of Federal legislation has made retransmission consent 
negotiations more difficult. Any tampering with it now could negatively 
impact consumers and trigger severe negative results to a broadcast 
television industry that is positively contributing to the U.S. 
economy.

    Question 3. In your testimony, you explain how CBS affiliates 
leverage CBS network programming into advertising revenue. You state, 
``When network programming is of high quality and compelling, local 
stations benefit . . . (by) . . . using this network programming to 
obtain advertising dollars.'' They then use those advertising revenues 
to produce local programming and obtain syndicated programming. I was 
surprised that you did not discuss retransmission consent revenue 
received by CBS affiliates or the way in which they use that revenue.
    a. How much retransmission consent revenue did CBS make from its 
owned & operated (O&O) stations last year?
    Answer. CBS has publicly reported that we expect retransmission 
consent revenues of approximately $250 million in 2012.

    b. Does CBS charge its non-O&O affiliates reverse compensation or 
some similar fee in exchange for their affiliation?
    Answer. CBS negotiates with each of our affiliated stations over 
the various terms of their carriage of CBS Television Network 
programming. In many cases, affiliates do compensate us for that 
carriage.

    c. How much reverse compensation or similar revenue did CBS receive 
last year from its affiliates?
    Answer. We do not break out that revenue. Moreover, most of our 
affiliates are still on long term contracts that do not expire for 
several more years. The renewal of those contracts is the point at 
which reverse compensation will be negotiated.

    d. How much retransmission consent revenue did CBS's non-O&O 
affiliates receive last year?
    Answer. We have no access to the retrans revenues of our 
affiliates.

    Question 4. Your prepared remarks indicate that ``CBS pays hundreds 
of millions of dollars each year to the NFL and to the NCAA for rights 
to March Madness alone.'' You also mention fees paid for ``SEC 
Football, regular season NCAA basketball, PGA golf, and the U.S. Open 
tennis tournament.'' How much of the cost of these programs is covered 
by the revenue from advertising sold within these programs?
    Answer. CBS's ability to invest in the acquisition of broadcast 
rights to premier sporting events, as well as in the production of the 
highest quality entertainment and news programming, is made possible 
today by a variety of revenue streams, including advertising and 
retransmission consent fees. In a free, unfettered market, broadcasters 
should be permitted to obtain revenues from any combination of sources 
as it can in order to provide the American consumer with a service that 
almost every household can access free of charge.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Kelly Ayotte to 
                             Martin Franks
    Question. Mr. Franks, if compulsory licensing is eliminated, what 
would be the effect on smaller providers? Would individual deals need 
to be cut? Is it easier for those already in the marketplace, therefore 
hurting competition?
    Answer. As I noted at the hearing, introducing even more claimants 
into an already challenging negotiating environment may lead to more 
disputes, not fewer, will be a lawyer's paradise, and is unlikely to 
yield any relief to consumer pocketbooks.
    That brave new marketplace would also be an extraordinarily capital 
intensive one. I testified that in that new world CBS would do just 
fine. One way or the other, we will be able to invest in our content, 
continue to attract audiences, and figure out how to monetize our 
performance. But the adverse impact on smaller companies--both on the 
broadcaster and MVPD sides--could be substantial.
    Many smaller players will be squeezed out of the business. West 
Virginians may have access only to larger regional super players from 
Washington, D.C. and Pittsburgh, or South Carolinians may lose the 
wonderful localism tradition earned by their state's broadcasters in 
favor of service solely from Atlanta, Charlotte or even New York City.
    This move to a more regional system will come at the expense of 
local economies and consumers.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                            Colleen Abdoulah
    Question 1. Whenever signals are pulled as a result of a 
retransmission consent dispute, consumers lose. The impact is magnified 
in areas where a single MVPD dominates an entire state. What is the 
best way to protect consumers while companies work to resolve disputes 
and impasses in negotiations for the carriage of broadcast signals?
    Answer. I believe that one of the best ways to protect consumers 
while companies work to resolve disputes and impasses in negotiations 
for the carriage of broadcast signals is to grant MVPDs and 
broadcasters the right to interim carriage. This is not a novel idea. 
Over the last decade, as part of conditions in several media mergers, 
the FCC has granted interim carriage rights to MVPDs while they seek to 
resolve their programming disputes.
    An additional way to protect consumers is for Congress or the 
Commission to provide a market-oriented means for resolving these 
disputes and impasses. I believe that ``baseball style'' (``final 
offer'') commercial arbitration, another remedy imposed by the FCC on 
several media mergers, including most recently the Comcast-NBCU merger, 
can be an effective way to encourage the parties in a negotiating 
dispute to reach a resolution prior to dropping a signal. The FCC's use 
of baseball-style arbitration is based on the theory that the 
availability of arbitration alone will push the parties towards 
agreement prior to a breakdown in negotiations. The FCC has found that 
``final offer'' arbitration has the attractive ability to induce the 
two sides to reach their own agreement lest they risk the possibility 
that the arbitrator will choose the relatively extreme offer of the 
other side. The prospect of submission of a dispute to arbitration 
supports market forces and aids in preventing a transaction from 
distorting the marketplace. Since ``baseball style'' commercial 
arbitration can take time to resolve, it is important that MVPDs be 
permitted to continue carrying the networks that are the subject of the 
dispute during the pendency of the dispute resolution process. 
Moreover, while ``baseball style'' commercial arbitration can be 
prohibitively costly for small cable operators, the Commission could 
adopt special rules for operators of this size to make it work in a 
cost-effective manner.

    Question 2. Should any special consideration be given to protect 
consumers in geographic locations where a single MVPD serves a high 
percentage (more than 50 percent) of total MVPD subscribers in a state?
    Answer. The consumer dislocations caused by broadcaster blackouts 
may be of greater breadth in geographic locations where a single MVPD 
serves a high percentage of total MVPD subscribers in a DMA, however, 
consumers served by the market's smallest MVPDs--who, rather than the 
largest, are taken advantage of the most in retransmission consent 
negotiations,--are most in need of special consideration.
                                 ______
                                 
   Responses to Written Questions Submitted by Hon. Barbara Boxer to 
                            Colleen Abdoulah
    Question 1. In recent years, the breakdown of retransmission 
consent negotiations has threatened the television access of millions 
of Americans to major events like the Super Bowl, the World Series, and 
the Oscars, not to mention the essential access of viewers to local 
news broadcasts. The FCC has proposed to strengthen notice requirements 
for consumers when there is the possibility that certain services may 
lapse. Does WOW! support this proposal?
    Answer. WOW! questions whether the consumer benefits of the notice 
requirements proposed by the Commission would be outweighed by consumer 
harm and confusion. In some instances, consumers might respond to the 
notice of a potential loss of service by switching providers only to 
learn afterwards that such action was unnecessary because the dispute 
was resolved without any consumer impact. In other instances, consumers 
might heavily discount or ignore the notice believing that the dispute 
will be resolved, realizing that there would be no agreement only after 
losing service. We believe a better approach to addressing the problem 
of consumers losing access to broadcast stations is to reform the 
underlying retransmission consent rules.

    Question 2. Your written testimony indicated your support for 
continuous carriage. Why does WOW! believe continuous carriage during 
retransmission consent disputes would help end disputes?
    Answer. WOW! supports continuous carriage in order to ensure that 
consumers are not unnecessarily harmed while retransmission consent 
negotiations are ongoing. In particular, interim carriage can be an 
effective way to protect consumers while the FCC determines whether the 
good faith rules have been violated by either party. This is not a 
novel idea. Over the last decade, as part of conditions in several 
media mergers, the FCC has granted interim carriage rights to MVPDs 
while they seek to resolve their programming disputes.

    Question 3. Please provide for the record information on WOW!'s 
termination fee policy.
    Answer. WOW! does not require residential customer to sign 
contracts for our services, therefore we have neither termination fees 
nor policies regarding them. Rather, we rely on the quality of our 
service and products as the incentive for continued customer loyalty.

    Question 4. Has your company examined dropping these fees in the 
future?
    Answer. Please see above answer.

    Question 5. Your written testimony noted WOW!'s support for 
requiring alternative styles of negotiation, like baseball-style 
arbitration, in retransmission consent disputes. Can you elaborate on 
why you feel this would be beneficial?
    Answer. WOW! believes that ``baseball style'' (``final offer'') 
commercial arbitration, a remedy imposed by the FCC on several media 
mergers, including most recently the Comcast-NBCU merger, can be an 
effective way to encourage the parties in a negotiating dispute to 
reach a resolution prior to dropping a signal. The FCC's use of 
baseball-style arbitration is based on the theory that the availability 
of arbitration alone will push the parties towards agreement prior to a 
breakdown in negotiations. The FCC has found that ``final offer'' 
arbitration has the attractive ability to induce the two sides to reach 
their own agreement lest they risk the possibility that the arbitrator 
will choose the relatively extreme offer of the other side. The 
prospect of submission of a dispute to arbitration supports market 
forces and aids in preventing a transaction from distorting the 
marketplace. Since ``baseball style'' commercial arbitration can take 
time to resolve, it is important that MVPDs be permitted to continue 
carrying the networks that are the subject of the dispute during the 
pendency of the resolution process. Moreover, while ``baseball style'' 
commercial arbitration can be prohibitively costly for small cable 
operators, the Commission could adopt special rules for operators of 
this size to make it work in a cost-effective manner.
    In addition to arbitration, the FCC has found it necessary, as part 
of its media merger conditions, to require interim carriage of the 
broadcast signal while negotiations are ongoing under the prices, terms 
and conditions of the expired agreement to protect consumers against 
loss of access to broadcast programming.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                            Colleen Abdoulah
    Question 1. S. 2008, the Next Generation Television Marketplace Act 
of 2011, would provide for the deregulation of retransmission consent. 
But as we saw last month with DirecTV and Viacom, blackouts occur due 
to disputes between cable programmers and cable providers in a non-
regulated environment too. If we see customers, like those who 
subscribe to DirecTV, suffering in a deregulated world, why would we 
want to deregulate the negotiation process for broadcasters too?
    Answer. We believe that reform of the existing system is necessary 
to ensure that consumers are protected. With regard to some rules that 
are part of the retransmission consent regulatory scheme, deregulation 
may be appropriate. In instances where both parties at the negotiation 
table have roughly the same market power, there may be less need for 
regulations to avoid disruption to the consumer. However, this is not 
always the case, and in some cases, new rules may be necessary.

    Question 2a. Today's video marketplace is very different than what 
it was in 1992. Since the enactment of the Cable Act, satellite 
carriers and telephone companies offering video services compete with 
cable operators. And in the last few years, we have seen the enormous 
growth of online video. In your view, given these changes in the video 
marketplace, are the existing rules working?
    Answer. No.

    Question 2b. Why or why not?
    Answer. The rules were designed for a period of time when a cable 
operator was the dominant provider of multichannel video service in its 
franchise area. Times have changes, and the rules governing the market 
need to change as well.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                            Colleen Abdoulah
    Question 1a. Stakeholders on all sides of the retransmission 
consent debate appear to agree that the visibility and frequency of 
retransmission disputes has increased over the last few years. Some 
have argued that retransmission consent is working and that some 
growing pains are reasonable because many broadcast stations are 
electing to pursue deals instead of must-carry for the first time since 
enactment of the 1992 Cable Act which created the dual regimes of must 
carry and retransmission consent. On the other hand, distributors argue 
that private sector retransmission consent deals are taking longer to 
negotiate, and that it is becoming harder to reach agreement regarding 
mutually agreeable terms. If you believe must-carry and retransmission 
consent are important to localism, how do you recommend that the 
Congress measure the success of localism?
    Answer. If Congress wants to determine whether retransmission 
consent is important to localism, Congress should inquire as to how 
much of broadcasters' retransmission consent revenue is being invested 
into the production of local programming.

    Question 1b. If you believe retransmission consent is failing, what 
evidence can you provide?
    Answer. Failed retransmission consent negotiations have resulted in 
80 blackouts this year alone, which is the largest number of blackouts 
in a year since the rules were passed in 1992. Moreover, the wholesale 
prices for retransmission consent are rising despite the fact that the 
ratings for these stations are dropping.

    Question 2a. Some distributors have indicated concerns about the 
ability of content creators to tie affiliated programing to 
retransmission consent deals because they argue this practice 
contributes to programming cost increases. Broadcasters and content 
creators argue that current practices provide necessary financial 
support for a greater variety of programming options which they say is 
a benefit to consumers. To what extent should Congress be concerned 
about programming cost increases over the past several years?
    Answer. Congress should be very concerned about the programming 
cost increases over the past several years because these costs are 
largely passed along to consumers in the form of higher subscription 
rates. These rate increases are felt most acutely by consumers at the 
lowest end of the economic scale, because they have the least amount of 
discretionary income (or, more pointedly, no discretionary income), to 
spend. Bernstein Research has published a series of studies starting in 
2009 on what it calls a ``looming affordability crisis in Pay TV and 
telecommunications'' where ``dislocations at the low end of the income 
scale in the wake of the Great Recession must be viewed as structural 
rather than cyclical.'' Their most recent research reveals that the 
bottom 40 percent of households not only has no discretionary income 
with which to purchase pay-TV and telecom services after meeting the 
most basic necessities of food, shelter, transportation and health 
care, they ``are already underwater to the tune of $1,322 annually, or 
more than $100 per month.'' [Craig Moffett, Bernstein Research, U.S. 
Cable & Satellite Broadcasting, ``Weekend Media Blast: The Poverty 
Problem 2012 (Oct. 12, 2012)] For residents of areas where a good 
quality over-the-air broadcast signal does not reach because of 
topography, this can mean the complete loss of access to vital news, 
emergency information, and entertainment for an entire household.
    Increased programming costs from the major content companies also 
threaten independent programming voices whose opportunities for 
carriage are threatened by the outsized demands of the media giants.

    Question 2b. If you believe programming cost increases merit a 
fresh look at the 1992 Cable Act, do you believe cost savings garnered 
by distributors should be passed onto consumers? If so, how would any 
savings be realized by consumers?
    Answer. Given the amount of competition among MVPDs in the market, 
I believe that market forces will cause cost savings to be passed onto 
consumers, either through lower prices, or more limited rate increases.

    Question 2c. If you support changes to current law, would your 
company provide consumers with the same flexibility to pursue a la 
carte programming options? If not, why not?
    Answer. WOW! would like the flexibility to provide its customers 
some channels or blocks of channels on an a la carte or tiered basis, 
particularly higher cost networks, such as broadcast stations, regional 
sports networks, and national sports networks.

    Question 3a. Given that retransmission consent deals are private 
sector negotiations under the 1992 Cable Act, it is difficult for 
observers and participants to track pricing trends. Do you believe 
pricing transparency for distributors and for consumers could help to 
alleviate tensions over content deals? If not, why not?
    Answer. Generally speaking, I believe that greater transparency for 
distributors and for consumers would help alleviate tensions over 
content deals. However, greater transparency must come with certain 
safeguards to prevent sellers and buyers from using the available 
information to collude.

    Question 3b. If you do believe pricing transparency could be 
beneficial, please provide specific recommendations for such a proposal 
could be implemented.
    Answer. The FCC should be required to gather data and evidence for 
the purpose of producing a pricing report to Congress on the costs of 
retransmission consent. Today, unfortunately, the non-disclosure 
provisions that are part of nearly every retransmission consent 
agreement prevent even the FCC from knowing what MVPDs are paying for 
broadcast programming, or the level of pricing discrepancies among 
MVPDs of varying sizes.

    Question 4. Going forward, how should Congress and/or the Federal 
Communications Commission measure whether or not the current system is 
working? Please provide specific metrics to support your answer.
    Answer. The Commission should seek access to the prices, terms, and 
conditions of retransmission consent agreements, and issue an annual 
report to Congress on the matter. At a minimum, the report should 
measure how many blackouts have occurred in the covered period. 
Moreover, it should include an analysis of the difference in prices 
paid by small MVPDs versus large ones.

    Question 5. If Congress were to revisit the 1992 Cable Act, are 
there improvements to the law which you believe Congress should 
consider?
    Answer. At a minimum, Congress should consider adopting interim 
carriage to ensure that consumers do not lose access to broadcast 
stations during retransmission consent disputes, and adoption of 
baseball style commercial arbitration as a means of resolving impasses. 
Neither of these ideas are novel. Over the last decade, as part of 
conditions in several media mergers, the FCC has adopted these 
solutions. But Congress must go further to ensure adequate protections 
for small MVPDs, similar to those adopted by the FCC in its recent 
Comcast-NBCU merger order, such as one-way fee shifting if a small MVPD 
prevails in arbitration, and right of an MVPD with 3 million or fewer 
subscribers to use a bargaining agent to negotiate and arbitrate. In 
addition, Congress should adopt a ban on coordinated retransmission 
consent negotiations by separately owned, same market broadcast 
stations.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                            Colleen Abdoulah
Existing FCC Authority
    The Cable Television Consumer Protection and Competition Act of 
1992 (``1992 Cable Act'') amended the Communications Act to include 
Section 325, which provides television stations with certain carriage 
rights on local market cable television systems. The Commission 
established rules related to the retransmission/mandatory carriage 
election cycle, but did not adopt rules governing the negotiation 
process of retransmission consent.
    However, the statute clearly calls for the FCC to ensure that 
broadcasters act in ``good faith during negotiations.'' During the 
Sinclair-Mediacom dispute back in 2007, the Commission didn't intervene 
because then Chairman Martin interpreted the law didn't and stated that 
the agency didn't have the authority to impose binding arbitration. At 
the time, he stated ``It's not clear to me that the commission does 
have the authority to order arbitration.''
    Yet, during that time in January 2007, Senator Inouye and the late 
Senator Stevens wrote the FCC stating that the Commission did indeed 
have authority to intervene and, if necessary, use binding arbitration 
to resolve any failed negotiations.

    Question 1. Given the existing statute and the Congressional 
letter, couldn't the current Commission interpret the statue 
differently than Chairman Martin to where they do have the statutory 
authority to be involved in any disputes? What is precluding them from 
doing so?
    Answer. Yes, the current Commission can interpret the statute 
differently from previous Commissions, and it is my belief that the 
Commission has the statutory authority to be significantly more 
involved in helping to resolve retransmission consent disputes. I do 
not know what is precluding the current Commission from being more 
involved in dispute resolution.

    Question 2. If Congress directed the FCC to ensure broadcasters act 
in ``good faith'' during negotiations, how do you believe the FCC can 
go about fulfilling that responsibility and to limit or prevent the 
disruption of programming to cable and/or satellite customers?
    Answer. The Commission could prohibit separately owned, same-market 
broadcasters from coordinating their retransmission consent 
negotiations as a per se violation of the good faith rules. Also the 
Commission could prohibit all forms of third-party interference with 
the exercise of retransmission consent for out-of-market carriage as a 
per se violation of the good faith rules.
    Moreover, the Commission could make available dispute resolution 
mechanisms in cases where retransmission consent negotiations have 
reached an impasse and the broadcaster and MVPD cannot reach a deal on 
prices, terms, or conditions of carriage, even in the absence of a 
showing that a broadcaster has not acted in ``good faith.''
    It could also create a process that provides interim carriage based 
on the terms of expiring retransmission consent deals while (i) an MVPD 
continues to negotiate in good faith towards a carriage agreement; or 
(ii) during the pendency of a dispute resolution proceeding.
Reasonable Basic Service Tier Rates
    While I understand programming costs are growing, I am concerned 
about the significant increase in retransmission compensation that has 
occurred over the past several years. For example, retransmission 
consent revenue climbed more than 30 percent for six broadcasters in 
the first nine months of 2008. By 2017, SNL Kagan--an industry analysis 
firm--projects retransmission fees will grow to $3.61 billion, with 
average per-subscriber fees potentially doubling. So, as broadcasters 
look to increase revenue streams through retransmission fee, it 
seemingly puts upward pressure on the price of basic cable and 
ultimately consumers. Such increase may also infringe upon the existing 
statute.
    Section 623(b)(1) requires the FCC to ensure that basic cable 
service rates are reasonable. In addition, Section 325(b)(3)(A) 
requires the Commission to consider the impact that retransmission 
consent has on basic cable service rates and that any regulations do 
not conflict with the FCC's ``obligation under Section 623(b)(1)'' to 
ensure such rates are reasonable.
    According to SNL Kagan, the average cable TV subscriber in 2011 
paid $78 a month compared to only $40 per month in 2001. Whereas the 
average household income fell 6 percent between 2006 and 2010, 
according to the U.S. Census.

    Question 3. Do you know if the FCC is actively examining the impact 
of increasing retransmission fees in relations to basic cable rates?
    Answer. No, I do not know. However, increasing retransmission 
consent rates are having a large impact on our basic cable rates, and 
we would strongly encourage the FCC to launch such an examination.

    Question 4. Can you elaborate on what impact these retransmission 
fees have on the cost of basic cable service? What percentage of a 
cable customer's monthly cable bill is attributed to retransmission 
fees paid to the broadcasters (a rough estimate will suffice) for (1) a 
customer subscribing to basic cable and (2) a customer subscribing to 
the most expensive cable TV package?
    Answer. We are prohibited by confidentiality language in our 
retransmission consent agreements from disclosing fees paid to the 
stations. However, during the past two retransmission consent cycles we 
have seen an average of 100 percent increases when the agreements get 
renegotiated. The internal year-over-year increases then moderate for 
the balance of the term of the agreement but essentially always 
represent a multiple of the consumer price index (CPI).
    Based on the retransmission consent agreements we are negotiating 
now for 2013 and beyond we expect that trend to continue, if not 
worsen.
    WOW!, like all other MVPDs, has no real option other than to pass 
some or all of these costs along to our customers. The impact of out-
of-control programming cost increases, including retransmission consent 
fees, is felt most acutely by elderly and low-income customers.
Eliminating Retransmission Consent and Compulsory Licenses
    While there is no question that Congress must examine and reform 
outdated provisions in the statute, there are legislative proposals 
before Congress that propose sweeping changes to laws governing cable 
and broadcast obligations. In particular these bills propose repealing 
retransmission consent, must carry, and the Copyright Act's 
``compulsory license'' provisions.
    During the hearing, witnesses provided conflicting testimony on the 
impact such eliminations would have on the marketplace and with retrans 
negotiations--some said it would only increase disputes and others said 
it would wouldn't.
    Question 5. Can you elaborate, in detail, on how negotiations 
between MVPDs and broadcasters (and/or programming/content owners and 
anyone else that might now be included) would be carried out, if the 
compulsory license, must carry, and retransmission consent provisions 
were eliminated? Please lay out the process and parties that would 
exist in negotiating the rights to use programming/content. Also, 
please compare/contrast the new negotiation process that would result 
versus the current retransmission consent negotiations.
    Answer. If these provisions were eliminated, the copyright owners 
of the content that airs on broadcast stations would gain greater 
control over the distribution of their content. Some of these copyright 
owners may choose to license their content to MVPDs on their own, and 
others may choose to grant broadcasters the right to sublicense their 
content to MVPDs
    The new negotiation process that would emerge from the elimination 
of the statutory license and the retransmission consent provisions 
seems likely to carry with it at least as many of the same flaws as the 
current process, with the added problem that the changeover would 
inject a great deal of uncertainty into the marketplace that could be 
significantly harmful to consumers and competition.
    If the must carry requirements were eliminated from the law, there 
would be no obligation on an MVPD to carry any broadcast station, and 
station owners that had relied on the must carry rules would have to 
negotiate for carriage with MVPDs, similar to the way retransmission 
consent stations negotiate carriage with MVPDs.

    Question 6. If you believe that eliminating these provisions would 
lead to more disputes, can you elaborate, in detail, on why?
    Answer. To the extent that MVPDs have to negotiate carriage deals 
with an increased number of copyright holders and their sub-licensees, 
the likelihood of negotiating impasses would be greater. The result may 
be fewer total broadcast signal blackouts, but more partial content 
blackouts where individual programs are no longer available to the 
viewer.

    Question 7. If you believe that eliminating these provisions would 
lead to less disputes, can you elaborate, in detail, on why?
    Answer. I do not believe that eliminating all of these provisions 
would lead to fewer disputes.

    Question 8. In witness testimony, it was indicated that for 2012, 
to date, there have already been 69 disputes regarding retransmission 
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
    Answer. Carriage disputes between MVPDs and non-broadcast networks/
programmers seem to occur less often than disputes regarding 
retransmission consent. I am aware of only two such disputes this year, 
each involving satellite providers. First, Dish Network continues to be 
unable to reach to reach a carriage deal with AMC Networks, which 
includes AMC, WE, IFC, and Sundance. This dispute has been ongoing 
since July. Second, DirecTV could not reach a carriage deal with Viacom 
for its 26 channels, including MTV, Nickelodeon and Comedy Central. The 
networks were off DirecTV for nine full days.
    It is my understanding that while there has been a 15 percent 
increase in commercial television stations from 1996 to 2010, there has 
also been a 33 percent decrease in the number of station owners. There 
has also been a continued dearth of ownership by minorities and women--
which is approximately only 5 percent and 3.3 percent of TV market 
share, respectively (both well below their population representation). 
Both indicate a significant deficit in achieving the policy goals of 
localism and diversity.
    A free exchange of a wide range of viewpoints is the lifeblood of 
our democracy, and the print and broadcast media serve an indispensable 
function by exposing our society to diverse thoughts and viewpoints.

    Question 9. What would the impact of eliminating must carry 
requirements from the law have on local and independent stations? 
Without must carry how could a local independent station get carried by 
a MVPD? Is there any obligation of the MVPD to carry the station?
    Answer. If the must carry requirements were eliminated from the 
law, there would be no obligation on an MVPD to carry any broadcast 
station, and station owners that had relied on the must carry rules 
would have to negotiate for carriage with MVPDs, similar to the way 
retransmission consent stations negotiate carriage with MVPDs.

    Question 10. Would the elimination of must carry possibly lead to 
more concentration in the media market and, as a result, further muting 
the diversity of media voices, which has been a resolute policy of our 
Nation's telecommunications and media laws?
    Answer. If must carry stations could not strike carriage deals with 
an MVPD, and as a result these stations went out of business, then it 
is possible that one would perceive there to be greater concentration 
in the media market due to these stations' exit. However, one must then 
assess the magnitude of the impact of the loss of these stations on the 
diversity of media voices in the current marketplace.
Online Video vs. Traditional Video
    According to Nielsen Media, the average American watches over 153 
hours of video per month on traditional television compared to only 4.5 
hours per month of online video. Also, approximately 97 percent of 
American households have a television whereas 68 percent of households 
have broadband (the U.S. currently ranks 23rd in broadband 
penetration).
    In addition, a 2011 Project for Excellence in Journalism survey 
found that local TV remains America's most popular source of local news 
and information, particularly for weather and breaking news--89 percent 
of surveyed adults get information about local weather and 80 percent 
follow local breaking news through local television. Only about 51 
percent of smartphone users use the device to get news.
    While the Internet is a very value medium for media and news and 
provides incredible benefit to users, most Americans still rely heavily 
on traditional television for programming, local news, and even 
weather.

    Question 11. With the current penetration and marketplace, is the 
Internet a ``perfect substitute'' to traditional television programming 
and local broadcast news? If not, what do believe is required for it to 
be a substitutable good to traditional television and local news?
    Answer. I do not believe that today Internet video is a ``perfect 
substitute'' for traditional television programming and local broadcast 
news. Thus far, we have seen little evidence that significant numbers 
of consumers are abandoning traditional MVPD services (``cutting the 
cord'') and relying instead entirely on video delivered over the 
Internet, which is how an economist would view a ``perfect 
substitute.'' Rather, most Internet video appears to be complementary 
to MVPD offerings, with many consumers using both services.
Value of Public Broadcasting
    Harris Interactive, an independent, non-partisan research firm, 
found--for the ninth year in a row--that PBS (Public Broadcasting 
Service) is the Nation's most-trusted institution by the American 
public. PBS ranked higher than our court system, newspapers, our 
Federal government, and, surprisingly, even Congress.
    In addition, 74 percent of the American public surveyed believe 
Federal funding for PBS is money well spent. PBS was also the most 
trusted and safe place for children to watch television--88 percent of 
Americans surveyed agreed.

    Question 12. What role do you see public television playing in 
providing local programming?
    Answer. While many of the smaller markets we serve don't receive 
much if any locally originated programming from their respective PBS 
affiliates, we continue to believe that PBS programming is an important 
service for our subscribers and expect it to remain a valued part of 
our channel lineups.

    Question 13. To your knowledge, do you believe PBS or any other 
public broadcasting station would be adversely impacted by any of the 
legislative proposals (that would do away with must carry, retrans, or 
compulsory licenses) currently in Congress?
    Answer. The elimination of the must carry rules and the compulsory 
license could have a near term adverse impact on PBS and other public 
broadcast stations. However, I believe that many MVPDs would continue 
to carry one or more PBS stations on their systems even without the 
must carry rules in place. Nonetheless, these stations would need to 
quickly adapt to the new regulatory environment, particularly a 
marketplace without a statutory license, and their success would depend 
on how well they make the transition.
Affiliate Negotiation & Impact on Localism
    One of the arguments for reform is that the current law is outdated 
and doesn't allow for true marketplace negotiations because it allows 
local stations to block cable systems from importing network 
programming from another affiliate of the same broadcast network. For 
example, the network non-duplication rule prohibits distributors from 
negotiating with other suppliers of the same content--taking away a 
basic component of any free market.
    Some have stated that this prohibits ``free market'' negotiations 
since cable operators have only one source to receive the programming. 
And therefore have recommended to open up the market where a cable or 
satellite operator could negotiate with an out-of-market affiliate.

    Question 14. While this might seem appropriate, I am concerned 
about the impact such allowance would have on localism. As the Supreme 
Court has stated ``fairness to communities [in distributing radio 
service] is furthered by a recognition of local needs for a community 
radio mouthpiece.'' If this scenario was allowed, how could we protect 
localism? What safeguards could be implemented to ensure local 
programming?
    Answer. The relationship between elimination of the network non-
duplication and syndicated exclusivity rules and the amount of local 
programming aired on local broadcast stations is indirect, at best.

    Question 15. How feasible is it actually for a cable or satellite 
operator to negotiate with out of market affiliate? There is still the 
primary owner of the content--the programmer. If the cable operator is 
having a dispute with the in-market Fox or Disney broadcaster, how 
could the cable company turn to an out-of-market Fox or Disney 
affiliate and successfully negotiate? It's still Fox or Disney and it 
seems that if the out-of-market affiliate did engage, Disney could 
threaten to pull the affiliation to prevent such action?
    Answer. It is increasingly difficult for small cable operators to 
negotiate retransmission consent with broadcasters for out-of-market 
carriage. It is now common for the national broadcast networks to 
prohibit contractually their affiliates from granting an MVPD the right 
to re-broadcast their signal outside of their local market. At the same 
time, in-market broadcasters are increasingly conditioning their grant 
of retransmission on MVPDs agreeing not to import out-of-market 
broadcast stations. These practices mostly harm consumers who benefit 
from receiving out-of-market stations in some circumstances where the 
out-of-market station offers in-state news and more relevant weather 
compared with the in-market station.
    Where not restricted by exclusivity rules and contractual 
provisions, carriage of out-of-market stations is often made available 
to MVPDs at a more competitive price than the in-market affiliate. This 
often has the effect of moderating the demands made by the in-market 
affiliate, thus creating savings that can be passed through to 
consumers.
Retransmission Fee
    As mentioned in a prior question, I am concerned about the 
significant increase in retransmission fees that has occurred over the 
past several years. But at the same time, given that retransmission 
consent is a negotiation between private parties, the MVPD is under no 
obligation to pay the fee being demanded by the broadcaster or carry 
the signal under Section 325(b)(4).

    Question 16. If a MVPD feels that the retransmission fee the 
broadcasters is asking for is not reasonable then why not just simply 
not pay it, stop retransmitting the signal over the cable plant 
indefinitely, and, if need be, give every customer in the market an 
antenna? If seems over time, the number of subscribers MVPDs have (over 
101 million subs) would make broadcasters come to the table sooner 
rather than later.
    Answer. If an MVPD stops retransmitting the signal of a Big 4 
broadcast network affiliate, the MVPD would expect to lose a 
significant number of subscribers, which will threaten their 
competitive standing in the marketplace. Providing an antenna to every 
customer using traditional antenna technology is not an option, 
particularly for smaller MVPDs serving rural areas, because not all 
customers can receive a good quality broadcaster signal over the air.
    MVPDs don't object to paying a retransmission consent fee to 
broadcasters. MVPDs are troubled that rules and regulations that were 
created 20 years ago have not kept up with the times, and now give 
broadcasters advantages in negotiations which allow them to charge 
prices that are above fair market value.

    Question 17. If all MVPDs feel that the retransmission fees are 
unreasonable then why don't you all agree not to pay the broadcasters--
hold an industry-wide boycott?
    Answer. Such an act would be considered collusion prohibited under 
the Sherman Antitrust Act.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jim DeMint to 
                            Colleen Abdoulah
    Question 1. If enacted as written, would the Next Generation 
Television Marketplace Act, S. 2008, allow a pay-TV company to 
retransmit the programming aired on broadcast signals without consent?
    Answer. No.

    Question 2. Are WOW! subscribers required by Federal law to 
purchase a certain package of channels when they buy your video 
service?
    Answer. Yes, current Federal law requires that WOW! subscribers 
must purchase at a minimum a basic cable service tier, which MUST 
include must carry signals, local public, educational and governmental 
access programming required under its franchises, and any signal of any 
television broadcast station that WOW! provides to any subscriber. 
Broadcast stations that elect retransmission consent generally require 
carriage in the basic cable service tier as a non-negotiable condition 
of retransmission consent. [Note the operator must put ALL broadcast 
signals on the basic tier without distinction as to whether they are 
there under must carry or retrans. See Section 623(b)(7)(A)(iii). The 
above paragraph has been modified.]

    Question 3. Is WOW! prevented by Federal law from selling a 
subscriber only a single channel, Discovery Channel for example, or 
only a package of sports channels?
    Answer. Except as set forth above in my answer to question 2, 
Federal laws do not prevent WOW! from selling a subscriber a single 
channel, like Discovery Channel, or a package (tier) of sports 
channels. However, in practice, media conglomerates that own many 
channels condition carriage of their most popular channel with carriage 
of their less popular channels and require them to be distributed on 
MVPD's most widely sold packages. Moreover, media conglomerates also 
require that their programming be carried in the same package of 
service as programming owned by other media conglomerates. The result 
for the consumer is a bloated and expensive tier of cable channels 
where the consumer has little to no choice in what channels to 
purchase.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Kelly Ayotte to 
                            Colleen Abdoulah
    Question. Mr. Franks, if compulsory licensing is eliminated, what 
would be the effect on smaller providers? Would individual deals need 
to be cut? Is it easier for those already in the marketplace, therefore 
hurting competition?
    Answer. No answer provided.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                            Dr. Mark Cooper
    Question 1a. Whenever signals are pulled as a result of a 
retransmission consent dispute, consumers lose. The impact is magnified 
in areas where a single MVPD dominates an entire state. What is the 
best way to protect consumers while companies work to resolve disputes 
and impasses in negotiations for the carriage of broadcast signals?
    Answer. No answer provided.

    Question 1b. Should any special consideration be given to protect 
consumers in geographic locations where a single MVPD serves a high 
percentage (more than 50 percent) of total MVPD subscribers in a state?
    Answer. No answer provided.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Frank R. Lautenberg to 
                            Dr. Mark Cooper
    Question 1. S. 2008, the Next Generation Television Marketplace Act 
of 2011, would provide for the deregulation of retransmission consent. 
But as we saw last month with DirecTV and Viacom, blackouts occur due 
to disputes between cable programmers and cable providers in a non-
regulated environment too. If we see customers, like those who 
subscribe to DirecTV, suffering in a deregulated world, why would we 
want to deregulate the negotiation process for broadcasters too?
    Answer. No answer provided.

    Question 2a. Today's video marketplace is very different than what 
it was in 1992. Since the enactment of the Cable Act, satellite 
carriers and telephone companies offering video services compete with 
cable operators. And in the last few years, we have seen the enormous 
growth of online video. In your view, given these changes in the video 
marketplace, are the existing rules working?
    Answer. No answer provided.

    Question 2b. Why or why not?
    Answer. No answer provided.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                            Dr. Mark Cooper
    Question 1a. Stakeholders on all sides of the retransmission 
consent debate appear to agree that the visibility and frequency of 
retransmission disputes has increased over the last few years. Some 
have argued that retransmission consent is working and that some 
growing pains are reasonable because many broadcast stations are 
electing to pursue deals instead of must-carry for the first time since 
enactment of the 1992 Cable Act which created the dual regimes of must 
carry and retransmission consent. On the other hand, distributors argue 
that private sector retransmission consent deals are taking longer to 
negotiate, and that it is becoming harder to reach agreement regarding 
mutually agreeable terms. If you believe must-carry and retransmission 
consent are important to localism, how do you recommend that the 
Congress measure the success of localism?
    Answer. No answer provided.

    Question 1b. If you believe retransmission consent is failing, what 
evidence can you provide?
    Answer. No answer provided.

    Question 2a. Some distributors have indicated concerns about the 
ability of content creators to tie affiliated programing to 
retransmission consent deals because they argue this practice 
contributes to programming cost increases. Broadcasters and content 
creators argue that current practices provide necessary financial 
support for a greater variety of programming options which they say is 
a benefit to consumers. To what extent should Congress be concerned 
about programming cost increases over the past several years?
    Answer. No answer provided.

    Question 2b. If you believe programming cost increases merit a 
fresh look at the 1992 Cable Act, do you believe cost savings garnered 
by distributors should be passed onto consumers? If so, how would any 
savings be realized by consumers?
    Answer. No answer provided.

    Question 2c. If you support changes to current law, would your 
company provide consumers with the same flexibility to pursue a la 
carte programming options? If not, why not?
    Answer. No answer provided.

    Question 3a. Given that retransmission consent deals are private 
sector negotiations under the 1992 Cable Act, it is difficult for 
observers and participants to track pricing trends. Do you believe 
pricing transparency for distributors and for consumers could help to 
alleviate tensions over content deals? If not, why not?
    Answer. No answer provided.

    Question 3b. If you do believe pricing transparency could be 
beneficial, please provide specific recommendations for such a proposal 
could be implemented.
    Answer. No answer provided.

    Question 4. Going forward, how should Congress and/or the Federal 
Communications Commission measure whether or not the current system is 
working? Please provide specific metrics to support your answer.
    Answer. No answer provided.

    Question 5. If Congress were to revisit the 1992 Cable Act, are 
there improvements to the law which you believe Congress should 
consider?
    Answer. No answer provided.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                            Dr. Mark Cooper
Existing FCC Authority
    The Cable Television Consumer Protection and Competition Act of 
1992 (``1992 Cable Act'') amended the Communications Act to include 
Section 325, which provides television stations with certain carriage 
rights on local market cable television systems. The Commission 
established rules related to the retransmission/mandatory carriage 
election cycle, but did not adopt rules governing the negotiation 
process of retransmission consent.
    However, the statute clearly calls for the FCC to ensure that 
broadcasters act in ``good faith during negotiations.'' During the 
Sinclair-Mediacom dispute back in 2007, the Commission didn't intervene 
because then Chairman Martin interpreted the law didn't and stated that 
the agency didn't have the authority to impose binding arbitration. At 
the time, he stated ``It's not clear to me that the commission does 
have the authority to order arbitration.''
    Yet, during that time in January 2007, Senator Inouye and the late 
Senator Stevens wrote the FCC stating that the Commission did indeed 
have authority to intervene and, if necessary, use binding arbitration 
to resolve any failed negotiations.

    Question 1. Given the existing statute and the Congressional 
letter, couldn't the current Commission interpret the statue 
differently than Chairman Martin to where they do have the statutory 
authority to be involved in any disputes? What is precluding them from 
doing so?
    Answer. Changing statutory interpretations are quite challenging. 
One must prove a material change in circumstances to reverse an earlier 
interpretation. Should the FCC try to do so, it would certainly be 
sued.

    Question 2. If Congress directed the FCC to ensure broadcasters act 
in ``good faith'' during negotiations, how do you believe the FCC can 
go about fulfilling that responsibility and to limit or prevent the 
disruption of programming to cable and/or satellite customers?
    Answer. If the Congress has the will and ability to take action, it 
should do a lot more than ``good faith.'' Good faith negotiations will 
require arbitration and enforcement. Congress will do better o mandate 
specific criteria or standards.
Reasonable Basic Service Tier Rates
    While I understand programming costs are growing, I am concerned 
about the significant increase in retransmission compensation that has 
occurred over the past several years. For example, retransmission 
consent revenue climbed more than 30 percent for six broadcasters in 
the first nine months of 2008. By 2017, SNL Kagan--an industry analysis 
firm--projects retransmission fees will grow to $3.61 billion, with 
average per-subscriber fees potentially doubling. So, as broadcasters 
look to increase revenue streams through retransmission fee, it 
seemingly puts upward pressure on the price of basic cable and 
ultimately consumers. Such increase may also infringe upon the existing 
statute.
    Section 623(b)(1) requires the FCC to ensure that basic cable 
service rates are reasonable. In addition, Section 325(b)(3)(A) 
requires the Commission to consider the impact that retransmission 
consent has on basic cable service rates and that any regulations do 
not conflict with the FCC's ``obligation under Section 623(b)(1)'' to 
ensure such rates are reasonable.
    According to SNL Kagan, the average cable TV subscriber in 2011 
paid $78 a month compared to only $40 per month in 2001. Whereas the 
average household income fell 6 percent between 2006 and 2010, 
according to the U.S. Census.

    Question 3. Do you know if the FCC is actively examining the impact 
of increasing retransmission fees in relations to basic cable rates?
    Answer. I do not.

    Question 4. Can you elaborate on what impact these retransmission 
fees have on the cost of basic cable service? What percentage of a 
cable customer's monthly cable bill is attributed to retransmission 
fees paid to the broadcasters (a rough estimate will suffice) for 1) a 
customer subscribing to basic cable and 2) a customer subscribing to 
the most expensive cable TV package?
    Answer. Retransmission fees are a small part of the total bill. 
However, retransmission has played a large part in driving up cable 
bills. By giving the broadcasters the ability to create bundles that 
have driven up costs.
Eliminating Retransmission Consent and Compulsory Licenses
    While there is no question that Congress must examine and reform 
outdated provisions in the statute, there are legislative proposals 
before Congress that propose sweeping changes to laws governing cable 
and broadcast obligations. In particular these bills propose repealing 
retransmission consent, must carry, and the Copyright Act's 
``compulsory license'' provisions.
    During the hearing, witnesses provided conflicting testimony on the 
impact such eliminations would have on the marketplace and with retrans 
negotiations--some said it would only increase disputes and others said 
it would wouldn't.

    Question 5. Can you elaborate, in detail, on how negotiations 
between MVPDs and broadcasters (and/or programming/content owners and 
anyone else that might now be included) would be carried out, if the 
compulsory license, must carry, and retransmission consent provisions 
were eliminated? Please lay out the process and parties that would 
exist in negotiating the rights to use programming/content. Also, 
please compare/contrast the new negotiation process that would result 
versus the current retransmission consent negotiations.
    Answer. Repeal of these provision would completely unbalance the 
bargaining process. MVPDs have market power over access to viewers. 
MVPDs would eat the lunch of the broadcasters. Consumers would 
ultimately pay the price.

    Question 6. If you believe that eliminating these provisions would 
lead to more disputes, can you elaborate, in detail, on why?
    Answer. I do not believe they would lead to more disputes. The 
MVPDs' would prevail on terms that suite them.

    Question 7. If you believe that eliminating these provisions would 
lead to less disputes, can you elaborate, in detail, on why?

    Question 8. In witness testimony, it was indicated that for 2012, 
to date, there have already been 69 disputes regarding retransmission 
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
    Answer. I do not have this information.

    Question 9. What would the impact of eliminating must carry 
requirements from the law have on local and independent stations? 
Without must carry how could a local independent station get carried by 
a MVPD? Is there any obligation of the MVPD to carry the station?
    Answer. They could not gain carriage.

    Question 10. Would the elimination of must carry possibly lead to 
more concentration in the media market and, as a result, further muting 
the diversity of media voices, which has been a resolute policy of our 
Nation's telecommunications and media laws?
    Answer. Elimination of must carry would reduce the availability of 
local broadcasting. The local broadcasting would be replaced by content 
from dominant firms.
Online Video vs. Traditional Video
    According to Nielsen Media, the average American watches over 153 
hours of video per month on traditional television compared to only 4.5 
hours per month of online video. Also, approximately 97 percent of 
American households have a television whereas 68 percent of households 
have broadband (the U.S. currently ranks 23rd in broadband 
penetration).
    In addition, a 2011 Project for Excellence in Journalism survey 
found that local TV remains America's most popular source of local news 
and information, particularly for weather and breaking news--89 percent 
of surveyed adults get information about local weather and 80 percent 
follow local breaking news through local television. Only about 51 
percent of smartphone users use the device to get news.
    While the Internet is a very value medium for media and news and 
provides incredible benefit to users, most Americans still rely heavily 
on traditional television for programming, local news, and even 
weather.

    Question 11. With the current penetration and marketplace, is the 
Internet a ``perfect substitute'' to traditional television programming 
and local broadcast news? If not, what do believe is required for it to 
be a substitutable good to traditional television and local news?
    Answer. The Internet is, at best an emerging partial substitute. 
Professional, long form video is a distinct product that is dominated 
by a handful of vertically integrated media conglomerates, who have 
controlled the availability of their content on the Internet to prevent 
it from becoming an effective distribution mechanism for this content.
Value of Public Broadcasting
    Harris Interactive, an independent, non-partisan research firm, 
found--for the ninth year in a row--that PBS (Public Broadcasting 
Service) is the Nation's most-trusted institution by the American 
public. PBS ranked higher than our court system, newspapers, our 
Federal government, and, surprisingly, even Congress.
    In addition, 74 percent of the American public surveyed believe 
Federal funding for PBS is money well spent. PBS was also the most 
trusted and safe place for children to watch television--88 percent of 
Americans surveyed agreed.

    Question 12. What role do you see public television playing in 
providing local programming?
    Answer. In 50 years public television has not played a significant 
role in providing local content and there is no reason to believe it 
will do so in the foreseeable future.

    Question 13. To your knowledge, do you believe PBS or any other 
public broadcasting station would be adversely impacted by any of the 
legislative proposals (that would do away with must carry, retrans, or 
compulsory licenses) currently in Congress?
    Answer. I do not know.
     Response to Written Questions Submitted by Hon. Jim DeMint to 
                            Dr. Mark Cooper
    Question 1. If enacted as written, would the Next Generation 
Television Marketplace Act, S. 2008, allow a pay-TV company to 
retransmit the programming aired on broadcast signals without consent?
    Answer. Cable would have to reconfigure distribution as a private 
performance, as Aereo has done.

    Question 2. Do you believe the Federal law requiring cable 
subscribers to purchase the so-called ``basic tier'' of channels 
prescribed by the government is at odds with consumer choice, since it 
effectively forces consumers to purchase channels they may not want? 
(47 USC Sec. 543(b)(7)(A))
    Answer. Mandatory unbundling would be in the consumer interest, but 
it must cover all programming, not just the basic tier.

    Question 3. Do you believe wireless voice services and VoIP 
services are an adequate substitute for traditional wireline telephony 
for consumers?
    Answer. No.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Kelly Ayotte to 
                           Dr. Mark N. Cooper
    Question. Mr. Franks, if compulsory licensing is eliminated, what 
would be the effect on smaller providers? Would individual deals need 
to be cut? Is it easier for those already in the marketplace, therefore 
hurting competition?
    Answer. No answer provided.
                                 ______
                                 
  Responses to Written Question Submitted by Hon. Daniel K. Inouye to 
                             Preston Padden
    Question. What is the best way to protect consumers while companies 
work to resolve disputes and impasses in negotiations for the carriage 
of broadcast signals? Should any special consideration be given to 
protect consumers in geographic locations where a single MVPD serves a 
high percentage (more than 50 percent) of total MVPD subscribers in a 
state?
    Answer. The television marketplace is moving toward more consumer 
choice among video distributors, more package options and, with 
services like ABC.com, Hulu and Netflix, more a la carte offerings. As 
this pro-consumer migration continues, not every channel is going to be 
a part of every video distribution platform and every service offering. 
For example, DISH recently decided to not carry the channels of AMC 
Networks. In our free market economy, DISH is perfectly free to make 
that decision. Fans of the AMC channels are equally free to abandon 
DISH and to choose a different subscription video provider.
    As sports costs escalate, it seems inevitable that some 
subscription television platform will decide that there is a market for 
a less expensive service without sports channels. One day (after the 
concept of ``Must Carry'' is retired), some cable/satellite 
subscription platform will elect to go to market without broadcast 
signals concluding that there is a market to serve consumers who can 
receive broadcast channels well over-the-air. And, someday one or more 
broadcasters and/or non-broadcast channels will elect to not even offer 
their channels to one or more distribution platforms--perhaps because 
those platforms insist on stripping out the channels' commercial 
foundation.
    My point in painting this vision of what I believe to be the 
inevitable future of the television marketplace is respectfully to 
nudge the Congress (and hopefully the FCC) away from the notion that 
every instance of non-carriage of a TV channel on some cable/satellite 
video distribution platform is a matter for government intervention. 
Respectfully, in my opinion, it is not.
    Thanks to the leadership of this Committee, American consumers are 
now served by a workably competitive video distribution marketplace 
featuring competition between cable companies, two nationwide satellite 
companies, telephone companies and emerging Online Video Distributors. 
Instead of maintaining statutes and regulations designed to manage the 
channel lineups of each cable/satellite video service offering, I urge 
the Congress to focus on removing outdated statutes and regulations 
left over from a bygone era of scarcity--regulations designed to 
enforce some government preferred outcome such as the inclusion of 
every channel on every video service offering. The dynamics of 
competition between multiple and diverse video offerings will be a far 
better servant of consumers than is detailed government regulation.
    A market where a single MVPD serves more than 50 percent of total 
MVPD customers does come closer to a situation that warrants government 
intervention. But, I would urge the Congress to take steps to promote 
more distribution competition (for example by repealing the cable and 
satellite compulsory licenses that currently disadvantage emerging 
online distributors) rather than trying to regulate the behavior of any 
distributor.
                                 ______
                                 
 Response to Written Question Submitted by Hon. Frank R. Lautenberg to 
                             Preston Padden
    Question. If we see customers, like those who subscribe to DirecTV, 
suffering in a deregulated world, why would we want to deregulate the 
negotiation process for broadcasters too? In your view, given these 
changes in the video marketplace, are the existing rules working? Why 
or why not?
    Answer. Please see the answer to Senator Inouye's questions above.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Warner to 
                             Preston Padden
    Question 1. If you believe must-carry and retransmission consent 
are important to localism, how do you recommend that the Congress 
measure the success of localism? If you believe retransmission consent 
is failing, what evidence can you provide?
    Answer. Please see the answer to Senator Inouye's questions above.

    Question 2. To what extent should Congress be concerned about 
programming cost increases over the past several years? If you believe 
programming cost increases merit a fresh look at the 1992 Cable Act, do 
you believe cost savings garnered by distributors should be passed onto 
consumers? If so, how would any savings be realized by consumers? If 
you support changes to current law, would your company provide 
consumers with the same flexibility to pursue a la carte programming 
options? If not, why not?
    Answer. The best antidote to program cost increases is to maximize 
the number of distributors offering service to consumers. In my 
opinion, competition is always a better servant of consumers than is 
regulation, no matter how well intended the regulation. There have been 
numerous studies of government mandated a la carte. Most of those 
studies have concluded that in an a la carte world, consumers would pay 
more and get less. The studies also show that government mandated a la 
carte would diminish program diversity. Online distributors like Hulu 
and Netflix are beginning to offer consumers a la carte options without 
government mandates. These options are likely to increase in the 
future. Congress should repeal the cable and satellite compulsory 
licenses that presently discriminate against the online distributors.

    Question 3. Do you believe pricing transparency for distributors 
and for consumers could help to alleviate tensions over content deals? 
If not, why not?
    If you do believe pricing transparency could be beneficial, please 
provide specific recommendations for such a proposal could be 
implemented.
    Answer. There are good and valid reasons why confidentiality 
provisions are a part of most contracts in American free market 
commerce. In my opinion, there is no reason for the government to 
mandate a departure from this nearly universal business practice with 
respect to television programming.

    Question 4. Going forward, how should Congress and/or the Federal 
Communications Commission measure whether or not the current system is 
working? Please provide specific metrics to support your answer.
    Answer. Please see the answer to Senator Inouye's questions above.

    Question 5. If Congress were to revisit the 1992 Cable Act, are 
there improvements to the law which you believe Congress should 
consider?
    Answer. In my opinion, Congress should repeal the cable and 
satellite compulsory licenses that discriminate in favor of cable and 
satellite distributors and against online distributors. I do not 
understand why Congress chooses to discriminate in this manner.
    One of the most important public policy benefits of S. 2008 is that 
it would remove this huge current impediment to the development of 
competitive Online Video Distributors. The compulsory copyright 
licenses apply to cable and satellite systems, but not to Online Video 
Distributors. That means that the government gives cable and 
satellite--but not Online Video Distributors--a royalty free license to 
use all the programs on local broadcast stations. In other words, the 
government gives a huge windfall to cable and satellite but not to 
Online Video Distributors.
    Even worse, because of the existence of the compulsory licenses, 
broadcasters (unlike non-broadcast channels) traditionally contract 
only for the right to broadcast a program--not for the right to 
sublicense that program to distributors who wish to retransmit the 
program. Because they have never needed to do so (because the 
compulsory license was there to fulfill this role), broadcasters 
typically do not contract for the right to authorize anyone to 
retransmit their programs. So, the poor Online Video Distributor not 
only cannot get the right to retransmit broadcast programs from the 
compulsory license; the OVD also cannot get the rights directly from 
the broadcaster.
    There are two ways to fix this glaring problem. The first would be 
to add Online Video Distributors to the parties covered by compulsory 
licensing. As outlined in my written testimony, the problem with this 
approach is that the United States is a party to numerous International 
agreements and treaties that expressly prohibit granting compulsory 
licenses for Internet retransmission of television programs. The second 
way to solve the problem is to repeal the antiquated compulsory 
licenses so that cable, satellite and online distributors are all on a 
level playing field when it comes to securing rights in broadcast 
programming. This is the approach embodied in S. 2008.
    In my opinion, consumers would reap huge benefits from the 
increased television distribution competition that would result from 
repeal of the cable and satellite compulsory licenses.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

                             Preston Padden
    Question 1. Given the existing statute and the Congressional 
letter, couldn't the current Commission interpret the statue 
differently than Chairman Martin to where they do have the statutory 
authority to be involved in any disputes? What is precluding them from 
doing so?
    Answer. The television marketplace is moving toward more consumer 
choice among video distributors, more package options and, with 
services like ABC.com, Hulu and Netflix, more a la carte offerings. As 
this pro-consumer migration continues, not every channel is going to be 
a part of every video distribution platform and every service offering. 
For example, DISH recently decided to not carry the channels of AMC 
Networks. In our free market economy, DISH is perfectly free to make 
that decision. Fans of the AMC channels are equally free to abandon 
DISH and to choose a different subscription video provider.
    As sports costs escalate, it seems inevitable that some 
subscription television platform will decide that there is a market for 
a less expensive service without sports channels. One day (after the 
concept of ``Must Carry'' is retired), some cable/satellite 
subscription platform will elect to go to market without broadcast 
signals concluding that there is a market to serve consumers who can 
receive broadcast channels well over-the-air. And, someday one or more 
broadcasters and/or non-broadcast channels will elect to not even offer 
their channels to one or more distribution platforms--perhaps because 
those platforms insist on stripping out the channels' commercial 
foundation.
    My point in painting this vision of what I believe to be the 
inevitable future of the television marketplace is respectfully to 
nudge the Congress (and hopefully the FCC) away from the notion that 
every instance of non-carriage of a TV channel on some cable/satellite 
video distribution platform is a matter for government intervention. 
Respectfully, in my opinion, it is not.
    Thanks to the leadership of this Committee, American consumers are 
now served by a workably competitive video distribution marketplace 
featuring competition between cable companies, two nationwide satellite 
companies, telephone companies and emerging Online Video Distributors. 
Instead of maintaining statutes and regulations designed to manage the 
channel lineups of each cable/satellite video service offering, I urge 
the Congress to focus on removing outdated statutes and regulations 
left over from a bygone era of scarcity--regulations designed to 
enforce some government preferred outcome such as the inclusion of 
every channel on every video service offering. The dynamics of 
competition between multiple and diverse video offerings will be a far 
better servant of consumers than is detailed government regulation.

    Question 2. If Congress directed the FCC to ensure broadcasters act 
in ``good faith'' during negotiations, how do you believe the FCC can 
go about fulfilling that responsibility and to limit or prevent the 
disruption of programming to cable and/or satellite customers?
    Answer. As described above, the video marketplace is moving from a 
world of a limited number of platforms offering nearly identical 
channel lineups to a far more consumer friendly world of many platforms 
offering diverse and differentiated channel lineups. This evolution, 
which inevitably will involve some disruption, is wildly pro-consumer. 
The forces of competition and diversity will be a much better servant 
of consumer interests than government regulation ever could be. 
Therefore, I urge the FCC to find a lack of good faith negotiating in 
only the most egregious circumstances.

    Question 3. Do you know if the FCC is actively examining the impact 
of increasing retransmission fees in relations to basic cable rates?
    Answer. Retransmission fees to broadcasters are increasing rapidly 
to correct for several decades in which cable companies paid nothing 
for the use of broadcast channels--the most popular and valuable 
channels that the cable companies sell to consumers. I do not know 
whether the FCC is investigating this long overdue marketplace 
correction. I do know that in 1992 this Committee stated, ``Cable 
operators pay for the cable programming services they offer to their 
customers; the Committee believes that programming services which 
originate on a broadcast channel should not be treated differently.'' 
S. Rep. No. 102-92, at 35.

    Question 4. Can you elaborate on what impact these retransmission 
fees have on the cost of basic cable service? What percentage of a 
cable customer's monthly cable bill is attributed to retransmission 
fees paid to the broadcasters (a rough estimate will suffice) for 1) a 
customer subscribing to basic cable and 2) a customer subscribing to 
the most expensive cable TV package?
    Answer. I do not have access to the data necessary to answer this 
question. I do know that for decades cable operators charged consumers 
approximately $15 or more per month for ``Lifeline'' services 
consisting almost exclusively of broadcast channels and paid the 
broadcasters nothing. That the transition from this patently unfair 
situation would have some impact on consumer cable bills is not 
surprising.

    Question 5. Can you elaborate, in detail, on how negotiations 
between MVPDs and broadcasters (and/or programming/content owners and 
anyone else that might now be included) would be carried out, if the 
compulsory license, must carry, and retransmission consent provisions 
were eliminated? Please lay out the process and parties that would 
exist in negotiating the rights to use programming/content. Also, 
please compare/contrast the new negotiation process that would result 
versus the current retransmission consent negotiations.
    Answer. There is no need to guess or to speculate about how 
negotiations between broadcasters and cable/satellite distributors 
would work in the absence of compulsory licensing. One need only look 
at the current negotiations between NON-broadcast channels--channels 
NOT subject to the existing cable/satellite compulsory licenses--and 
the cable/satellite distributors. The channels not subject to 
compulsory licensing routinely engage in a single negotiation with 
program owners for both (1) the copyrights necessary to telecast a 
program and (2) the right to sublicense the program to cable/satellite 
distributors. Then these non-broadcast channels engage in a single 
negotiation with each cable/satellite distributor providing them with 
the necessary copyright clearances to exhibit ALL of the programs on 
the channel's schedule. The process is simple, straightforward and has 
resulted in cable/satellite carriage of more than 500 non-broadcast 
channels nationwide without any difficulty, complication or ``hold-
outs''.
    When the compulsory licenses are repealed (as surely will happen at 
some point), broadcasters and program owners will need a brief period 
(perhaps 12 or 18 months) to adjust their existing contracts to include 
the right to sublicense programs to cable/satellite distributors. 
Today, program owners routinely give these sublicensing rights to non-
broadcast channels when those channels license a program for their 
schedule. There is absolutely no reason to believe that the process 
would work any differently for broadcast channels.
    Some proponents of continued compulsory licensing fear that 
clearing these cable/satellite-sublicensing rights in the marketplace 
could be messy and difficult creating the opportunity for program 
owners to ``hold up'' the broadcast channels. These fears can be 
convincingly laid to rest by the fact that hundreds of non-broadcast 
channels today obtain these cable/satellite-sublicensing rights in the 
free market without mess, difficulty or ``hold-ups''.
    Other proponents of continued compulsory licensing fear that small 
broadcasters lack the staff and expertise necessary to negotiate the 
same cable/satellite-sublicensing rights routinely secured today by 
non-broadcast channels. This fear also is unfounded. For programs 
licensed today to non-broadcast channels, the burden of assembling all 
the necessary rights, including music rights, is borne by the program 
owner. Then, the non-broadcast channels engage in a single, simple 
negotiation with the program owner. Again, there is no reason to 
believe that the process would work any differently for broadcast 
channels after the end of compulsory licensing.
    Finally, some advocates of continued compulsory licensing fear that 
program owners (sometimes referred to as ``Hollywood'') would charge 
broadcasters above and beyond the basic program exhibition license fee 
for the right to sublicense to cable/satellite distributors. To test 
this fear I sought the advice of a major television programming 
syndicator. I asked the direct question, ``Would you charge 
broadcasters extra for the right to sublicense program rights to cable/
satellite distributors''. The Syndication Executive did not answer 
immediately but instead met with that organization's rank and file 
syndication salespeople to consider the question. In the end they 
concluded that there would be no additional charge. Their reasoning was 
as follows. Today, the syndication salespeople fly to a city, make 
presentations to the likely buyers among the local TV stations, play 
those stations against each other and seek to extract the highest 
possible license fee for their program--leaving no money ``on the 
table.'' After repeal of compulsory licensing, the program sales 
process would unfold in exactly the same way with the program sales 
executive seeking the highest possible license fee. With no change in 
the negotiating dynamics, there is no reason to expect a different 
outcome.
    To summarize, today broadcasters engage in a one-on-one negotiation 
with cable and satellite companies for the right to retransmit the 
broadcast signal. Following repeal of compulsory licensing, 
broadcasters would engage in a one-on-one negotiation with cable and 
satellite companies for the right to retransmit the broadcast programs. 
After a brief transition period, repeal of compulsory licensing would 
not introduce any complexity or complication to the process. And, a 
copyright-based negotiation is the strongest possible foundation for 
broadcasters to seek fair compensation for cable and satellite use of 
their programming.

    Questions 6 and 7. If you believe that eliminating these provisions 
would lead to more disputes, can you elaborate, in detail, on why?
    If you believe that eliminating these provisions would lead to less 
disputes, can you elaborate, in detail, on why?
    Answer. In my opinion, repeal of compulsory licensing would not 
cause any change in the number of disputes between broadcasters and 
cable/satellite distributors.
    NAB President and CEO Gordon Smith and CBS Executive VP Marty 
Franks, both good friends of mine and both highly respected industry 
leaders, testified to their opinion that repeal of compulsory licensing 
would increase the number of parties ``at the table'' by ten-fold and 
therefore would increase the number of disputes. Although I have no 
doubt that their testimony reflected their sincere beliefs, I 
respectfully disagree with their opinions. I believe that they may 
misperceive how the market would operate.
    The best evidence of how a market without compulsory licensing 
would work is to look at the process that takes place today regarding 
cable/satellite retransmission of non-broadcast channels. The programs 
on those channels are not subject to compulsory licensing and therefore 
provide a real world example of how broadcast negotiations with cable/
satellite distributors would work in the absence of compulsory 
licensing.
    Today, non-broadcast channels engage in a single negotiation with a 
program seller for both (1) the right to include a program on their 
channel and (2) the right to sublicense that program to cable/satellite 
distributors. After securing those copyright rights, the channel then 
engages in a single negotiation with any cable/satellite distributor 
who wishes to distribute their channel. The process is simple. It 
happens every day without complication and without a tenfold increase 
in the parties ``at the table''.
    There is absolutely no reason why broadcast channels could not 
operate in exactly the same way in the absence of compulsory 
licensing--no tenfold increase in parties and no increase in disputes.

    Question 8. In witness testimony, it was indicated that for 2012, 
to date, there have already been 69 disputes regarding retransmission 
consent. How many disputes have occurred between MVPDs and non-
broadcast networks/programmers?
    Answer. I do not know the answer to this question. But, as I 
explained in Answer number 1, there is every reason to expect disputes 
between programmers and cable/satellite distributors as the market 
transitions from a world with only a few distribution platforms with 
identical channel lineups to a world with more numerous distribution 
platforms with diverse channel lineups. This transition is underway and 
is decidedly pro-consumer.

    Question 9. What would the impact of eliminating must carry 
requirements from the law have on local and independent stations? 
Without must carry how could a local independent station get carried by 
a MVPD? Is there any obligation of the MVPD to carry the station?
    Answer. The following answer relates exclusively to commercial 
television stations.
    As President of the Association Of Independent Television Stations 
from 1985 to 1990, I was a strong advocate for ``Must Carry''. At the 
time, cable systems had no competition in the subscription television 
market--no competition from satellite television distributors like 
DirecTV and DISH, no competition from Telco television distributors 
like FIOS and U-Verse and no competition from online television 
distributors like Hulu and Netflix. Government regulation in the form 
of Must Carry was necessary to protect consumers from cable's then 
monopoly power. By documenting numerous instances of cable systems not 
carrying or dropping independent stations, I helped to build the 
factual record that the Congress relied upon in 1992 to codify Must 
Carry, and that the Supreme Court subsequently relied upon to affirm 
the Must Carry statute.
    But, today's television marketplace is radically different from the 
circumstances that existed in the late 1980s and early 1990s. Today 
consumers and broadcasters have the opportunity to interface with 
multiple distribution platforms. Broadcasters can authorize 
distribution of their programming by cable, satellite, telephone 
companies and on the Internet. Some broadcasters already stream a 
portion of their program schedule online and that trend will only grow.
    In my opinion, these marketplace changes call into the question the 
continued need for Must Carry. Moreover, earlier this year Congress 
authorized the FCC to conduct Incentive Auctions to reclaim some 
broadcast spectrum so that it can be auctioned for wireless broadband. 
The broadcast stations most likely to give up their spectrum are the 
same stations most likely to elect Must Carry. Therefore, these 
auctions will almost certainly drastically reduce the universe of Must 
Carry stations raising further questions about the continuing need for 
a Must Carry statute.
    Congress will need to decide the future of Must Carry. In any 
event, repeal of the compulsory licenses should proceed. In the absence 
of compulsory licensing, commercial stations electing Must Carry would 
simply need to certify that in acquiring their programming they had 
secured the copyrights necessary to enable cable/satellite distributors 
to retransmit those programs.

    Question 10. Would the elimination of must carry possibly lead to 
more concentration in the media market and, as a result, further muting 
the diversity of media voices, which has been a resolute policy of our 
Nation's telecommunications and media laws?
    Answer. The elimination of Must Carry would not lead to 
concentration in the media market. The media market is exploding with 
competitive and diverse voices. As outlined in my written testimony, 
consumers today have access to more, and more diverse, media options 
than at any time in history. As just one consumer, I frequently find 
myself drowning in diverse media options.
    Some of these new media options are on the Internet. But other new 
options are sprouting up in traditional media environments including 
broadcast television. For example, Bounce TV, created by co-founders 
Andrew Young and Martin Luther King III, describes itself as ``the 
first 24/7 digital multicast broadcast network created exclusively for 
African Americans''. There is no reason to fear that repeal of Must 
Carry would lead to more concentration in the media market.

    Question 11. With the current penetration and marketplace, is the 
Internet a ``perfect substitute'' to traditional television programming 
and local broadcast news? If not, what do believe is required for it to 
be a substitutable good to traditional television and local news?
    Answer. Clearly the Internet is not yet as ubiquitous as 
television. But, it is rapidly closing the gap. And, the Internet has 
characteristics that make it better than merely a substitute for 
broadcast news. Traditionally broadcast news was available at only 
certain hours--hours selected by the broadcaster. Cable news channels 
offered consumers the first taste of ``on-demand'' news. Some 
broadcasters have taken advantage of the digital transition to offer 
consumers free on-demand news on a multicast channel. For example, 
Station KMGH, the ABC Affiliate in Denver, owned by Scripps Howard 
Broadcasting, provides consumers with 24/7 news on a digital multicast 
channel.
    The Internet provides consumers with a vast array of diverse on-
demand news ``channels''. At any time they choose, consumers can go 
online and find multiple sources of mainstream news, business news, 
political news, minority news, women's news, foreign news, automobile 
news, culinary news, motorcycle news, etc. The Internet is far better 
than merely a substitute for broadcast news.

    Question 12. What role do you see public television playing in 
providing local programming?
    Answer. My experience is limited to commercial television. I have 
no expertise in public television.

    Question 13. To your knowledge, do you believe PBS or any other 
public broadcasting station would be adversely impacted by any of the 
legislative proposals (that would do away with must carry, retrans, or 
compulsory licenses) currently in Congress?
    Answer. S. 2008 was drafted to not have any impact on the cable 
carriage rights of public broadcasting stations.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jim DeMint to 
                             Preston Padden
    Question 1. If enacted as written, would the Next Generation 
Television Marketplace Act, S. 2008, allow a pay-TV company to 
retransmit the programming aired on broadcast signals without consent?
    Answer. No. If enacted, S. 2008 would require subscription 
television companies to negotiate with broadcasters for the right to 
retransmit their programs. S. 2008 would repeal the cable and satellite 
compulsory copyright licenses in Title 17 of the United States Code. 
Under these outdated statutes, the government seizes the programs 
broadcast by TV stations and grants to cable and satellite distributors 
a government conferred copyright license to make those programs a part 
of the service that the cable/satellite companies sell to consumers.
    By repealing the compulsory copyright licenses, S. 2008 makes the 
retransmission consent provision of Title 47 of the United States Code 
unnecessary. Currently, the retransmission consent provision requires 
cable/satellite distributors to negotiate for the right to use a 
broadcaster's signal. After repeal of compulsory licensing, cable/
satellite distributors will be required to negotiate for the right to 
use a broadcaster's programs.
    In my opinion as a Thirty-Eight year veteran of the television 
business, S. 2008 actually strengthens the position of local 
broadcasters. I say that because a negotiation based on traditional, 
and unarguable, copyright grounds is the strongest possible foundation 
for broadcasters to seek fair compensation for cable/satellite use of 
broadcast programming. S. 2008 would give broadcasters the same 
copyright based negotiating platform enjoyed today by non-broadcast 
channels like ESPN.

    Question 2. How did the existence of video compulsory licenses 
impact the creation of retransmission consent by Congress in 1992?
    Answer. Retransmission consent was enacted in 1992 to counter the 
effect of the compulsory copyright licenses.
    In 1992, this Committee stated, ``Cable operators pay for the cable 
programming services they offer to their customers; the Committee 
believes that programming services which originate on a broadcast 
channel should not be treated differently.'' S. Rep. No. 102-92, at 35. 
It is the compulsory license that enabled cable operators to offer 
broadcast programs to their customers without paying for those programs 
(unlike the programs of non-broadcast channels). The most direct way to 
achieve the result desired by the Committee would have been to simply 
repeal the compulsory license.
    But, this Committee does not have jurisdiction over the compulsory 
license because it is in Title 17 of the United States Code. 
Retransmission consent was conceived as a Commerce Committee vehicle to 
require cable operators to pay for broadcast programs.
    S. 2008 would correct the 1992 jurisdictional ``end around'' by 
straightforwardly repealing both the compulsory licenses and 
retransmission consent.

    Question 3. Do you believe a copyright-based carriage negotiation 
for broadcast programming, as envisioned by S. 2008, would necessarily 
increase the number of negotiating parties and increase ``blackouts''?
    Answer. No. In my opinion, passage of S. 2008 would not increase 
the number of negotiating parties and would not increase the number of 
disputes between broadcasters and cable/satellite distributors.
    NAB President and CEO Gordon Smith and CBS Executive VP Marty 
Franks, both good friends of mine and both highly respected industry 
leaders, testified to their opinion that S. 2008, by repealing the 
compulsory license, would increase the number of parties ``at the 
table'' by ten-fold and therefore would increase the number of 
disputes. I respectfully disagree with their opinions. I believe that 
they may misperceive how the market would operate.
    The best evidence of how a market without compulsory licensing 
would work is to look at the process that takes place today regarding 
cable/satellite retransmission of non-broadcast channels. The programs 
on those channels are not subject to compulsory licensing and therefore 
provide a real world example of how broadcast negotiations with cable/
satellite distributors would work in the absence of compulsory 
licensing.
    Today, non-broadcast channels engage in a single negotiation with a 
program seller for both (1) the right to include a program on their 
channel and (2) the right to sublicense that program to cable/satellite 
distributors. After securing those copyright rights, the channel then 
engages in a single negotiation with any cable/satellite distributor 
who wishes to distribute their channel. The process is simple. It 
happens every day without complication, without government involvement 
and without a tenfold increase in the parties ``at the table''.
    There is absolutely no reason why broadcast channels could not 
operate in exactly the same way in the absence of compulsory 
licensing--no tenfold increase in parties and no increase in disputes.

    Question 4. Would S. 2008 allow pay-TV providers to buy broadcast 
programming from anywhere?
    Answer. S. 2008 would restore the right of program creators 
(including broadcasters), and their contractual licensees, to maximize 
the availability of broadcast programming to consumers based on market 
demand. The compulsory licenses take away those rights. Under the 
compulsory licenses, the question of what broadcast programs may be 
distributed to which consumers is governed by audience ratings from 
1972. (I know this sounds so stupid that it is hard to believe but I 
promise that it is true.) 1972! Some things have changed since 1972--
but not the rules governing which broadcast programs may go where.
    Under S. 2008, program creators, networks and stations would work 
together to satisfy consumer demand. In a free market, if there is a 
program consumers want to see, a distribution platform to get it to 
them and money to be made doing so, it will happen.
    Historically, program syndicators and networks have granted local 
stations exclusive rights to exhibit their programs to the viewers in 
their market. I would expect that to continue. But, S. 2008's repeal of 
compulsory licensing also would enable the parties in the marketplace 
to respond to any demonstrated consumer demand. Specifically, after 
enactment of S. 2008 getting in-State news to viewers will no longer 
take an act of Congress to override antiquated rules based on 1972 
ratings.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Kelly Ayotte to 
                             Preston Padden
    Question 1. My constituents are adamant about receiving local news 
coverage. Even in the southern-most part of my state, we want New 
Hampshire news, not Boston news. One of the objectives of the 1992 
Cable Act was to ensure consumers have access to locally originated 
programming. Has this goal succeeded? Are there any proposed changes to 
the Cable Act that could reverse this trend? How can we maintain and 
maximize localism?
    Answer. In my opinion, the problem being experienced by your 
constituents is caused by the outdated compulsory copyright license. 
This government-conferred license uses 1972 audience ratings by the 
A.C. Nielsen Company to dictate where broadcast programs may be 
distributed by cable. The 1972 ratings actually are enshrined in the 
FCC's Rules that govern where cable systems may distribute broadcast 
programs.
    S. 2008 repeals the compulsory license and the 1972 ratings. After 
passage of S. 2008 New Hampshire broadcasters and cable/satellite 
companies serving New Hampshire households will be able to work 
together to satisfy consumer demand for New Hampshire news. And it will 
be easier for consumers to receive messages from their State's elected 
leaders.

    Question 2. Mr. Padden, you have spent a large part of your 
distinguished career working for a broadcast company, and in your 
testimony you argue that the 1992 Act is outdated and that it stifles 
innovation by maintaining hurdles for Online Video Distributors to get 
into the market. New Hampshire is home to countless numbers of 
innovators, especially smaller ones just trying to penetrate a 
competitive marketplace. Can you elaborate from your testimony on the 
affect The Act has on innovation?
    Answer. In my opinion, one of the most important public policy 
benefits of S. 2008 is that it would remove a huge current impediment 
to the development of competitive Online Video Distributors. The 
compulsory copyright licenses apply to cable and satellite systems, but 
not to Online Video Distributors. That means that the government gives 
cable and satellite--but not Online Video Distributors--a royalty free 
license to use all the programs on local broadcast stations. In other 
words, the government gives a huge windfall to cable and satellite but 
not to Online Video Distributors.
    Even worse, because of the existence of the compulsory licenses, 
broadcasters (unlike non-broadcast channels) traditionally contract 
only for the right to broadcast a program--not for the right to 
sublicense that program to distributors who wish to retransmit the 
program. Because they have never needed to do so (because the 
compulsory license was there to fulfill this role), broadcasters 
typically do not contract for the right to authorize anyone to 
retransmit their programs. So, the poor Online Video Distributor not 
only cannot get the right to retransmit broadcast programs from the 
compulsory license; the OVD also cannot get the rights directly from 
the broadcaster.
    There are two ways to fix this glaring problem. The first would be 
to add Online Video Distributors to the parties covered by compulsory 
licensing. As outlined in my written testimony, the problem with this 
approach is that the United States is a party to numerous International 
agreements and treaties that expressly prohibit granting compulsory 
licenses for Internet retransmission of television programs. The second 
way to solve the problem is to repeal the antiquated compulsory 
licenses so that cable, satellite and online distributors are all on a 
level playing field when it comes to securing rights in broadcast 
programming. This is the approach embodied in S. 2008.
    In sum, the best way to end the discrimination against online 
innovators in New Hampshire is to pass S. 2008.

    Question 3. Mr. Padden, can you elaborate on your contention that 
retransmission consent and compulsory licensing are linked together?
    Answer. The only reason that it was necessary for the Congress to 
enact retransmission consent in 1992 was because of the existence of 
the compulsory license.
    In 1992, this Committee stated, ``Cable operators pay for the cable 
programming services they offer to their customers; the Committee 
believes that programming services which originate on a broadcast 
channel should not be treated differently.'' S. Rep. No. 102-92, at 35. 
It is the compulsory license that enabled cable operators to offer 
broadcast programs to their customers without paying for those programs 
(unlike the programs of non-broadcast channels). The most direct way to 
achieve the result desired by the Committee would have been to simply 
repeal the compulsory license.
    But, this Committee does not have jurisdiction over the compulsory 
license because it is in Title 17 of the United States Code. 
Retransmission consent was conceived as a Commerce Committee vehicle to 
require cable operators to pay for broadcast programs.

                                  
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