[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
     THE SATELLITE TELEVISION LAW: REPEAL, REAUTHORIZE, OR REVISE?

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



                                HEARING

                               BEFORE THE

             SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 12, 2013

                               __________

                           Serial No. 113-52


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov




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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman
RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
JOE BARTON, Texas                      Ranking Member
  Chairman Emeritus                  JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
TIM MURPHY, Pennsylvania             GENE GREEN, Texas
MICHAEL C. BURGESS, Texas            DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee          LOIS CAPPS, California
  Vice Chairman                      MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia                JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             JIM MATHESON, Utah
ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin 
BILL CASSIDY, Louisiana                  Islands
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
CORY GARDNER, Colorado               BRUCE L. BRALEY, Iowa
MIKE POMPEO, Kansas                  PETER WELCH, Vermont
ADAM KINZINGER, Illinois             BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
             Subcommittee on Communications and Technology

                          GREG WALDEN, Oregon
                                 Chairman
ROBERT E. LATTA, Ohio                ANNA G. ESHOO, California
  Vice Chairman                        Ranking Member
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
LEE TERRY, Nebraska                  MICHAEL F. DOYLE, Pennsylvania
MIKE ROGERS, Michigan                DORIS O. MATSUI, California
MARSHA BLACKBURN, Tennessee          BRUCE L. BRALEY, Iowa
STEVE SCALISE, Louisiana             PETER WELCH, Vermont
LEONARD LANCE, New Jersey            BEN RAY LUJAN, New Mexico
BRETT GUTHRIE, Kentucky              JOHN D. DINGELL, Michigan
CORY GARDNER, Colorado               FRANK PALLONE, Jr., New Jersey
MIKE POMPEO, Kansas                  BOBBY L. RUSH, Illinois
ADAM KINZINGER, Illinois             DIANA DeGETTE, Colorado
BILLY LONG, Missouri                 JIM MATHESON, Utah
RENEE L. ELLMERS, North Carolina     G.K. BUTTERFIELD, North Carolina
JOE BARTON, Texas                    HENRY A. WAXMAN, California, ex 
FRED UPTON, Michigan, ex officio         officio



                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     1
    Prepared statement...........................................     2
Hon. Anna G. Eshoo, a Representative in Congress from the State 
  of California, opening statement...............................     4
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, opening statement..........................     5
Hon. Steve Scalise, a Representative in Congress from the State 
  of Louisiana, opening statement................................     5
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     6
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................   183

                               Witnesses

Mike Palkovic, Executive Vice President, Services and Operations, 
  DIRECTV........................................................     8
    Prepared statement...........................................    10
    Answers to submitted questions...............................   189
Marci Burdick, Senior Vice President of Broadcasting, Schurz 
  Communications, Inc............................................    46
    Prepared statement...........................................    48
    Answers to submitted questions...............................   194
Ben Pyne, President, Global Distribution, Disney Media Networks..    60
    Prepared statement...........................................    62
    Answers to submitted questions...............................   198
Amy Tykeson, CEO, BendBroadband..................................    67
    Prepared statement...........................................    69
    Answers to submitted questions...............................   205
Hal Singer, Managing Director, Navigant Economics................    86
    Prepared statement...........................................    88
    Answers to submitted questions...............................   209
Geoffrey Manne, Senior Fellow, Tech Freedom......................    95
    Prepared statement...........................................    97
    Answers to submitted questions...............................   215

                           Submitted Material

Letter of June 12, 2013, from Ken Solomon, Chairman and CEO of 
  the Tennis Channel, to the Committee, submitted by Mr. Waxman..   185


     THE SATELLITE TELEVISION LAW: REPEAL, REAUTHORIZE, OR REVISE?

                              ----------                              


                        WEDNESDAY, JUNE 12, 2013

                  House of Representatives,
     Subcommittee on Communications and Technology,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:35 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Greg 
Walden (chairman of the subcommittee) presiding.
    Members present: Representatives Walden, Latta, Blackburn, 
Scalise, Gardner, Barton, Eshoo, Doyle, Welch, Lujan, Dingell, 
Matheson, and Waxman (ex officio).
    Staff present: Gary Andres, Staff Director; Ray Baum, 
Senior Policy Advisor/Director of Coalitions; Sean Bonyun, 
Communications Director; Andy Duberstein, Deputy Press 
Secretary; Neil Fried, Chief Counsel, Communications and 
Technology; Kelsey Guyselman, Counsel, Telecom; David Redl, 
Counsel, Telecom; Charlotte Savercool, Executive Assistant, 
Legislative Clerk; Shawn Chang, Democratic Senior Counsel; 
Patrick Donovan, Democratic FCC Detail; Margaret McCarthy, 
Democratic Staff; Roger Sherman, Democratic Chief Counsel; and 
Kara Van Stralen, Democratic Policy Analyst.

  OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF OREGON

    Mr. Walden. Good morning to everyone. I want to call to 
order the Subcommittee on Communications and Technology for 
``The Satellite Television Law: Repeal, Reauthorize, or 
Revise?'' hearing. This is our second hearing on this issue, 
and I want to welcome our witnesses today and thank you all for 
agreeing to come and share your knowledge and opinions with us. 
I want to especially welcome Amy Tykeson, who is the CEO of 
Bend Broadband, a constituent of mine, and to congratulate her 
on her award last night. She was inducted into the Cable 
Industry Hall of Fame. Congratulations, Amy, to you. She is a 
dynamic leader in the cable industry and in the Central Oregon 
community, and we are delighted she made the trip out here and 
is willing to testify.
    The hearing will examine today whether the law authorizing 
satellite television providers to redistribute broadcast 
programming still serves an important function, or is out of 
step with today's video marketplace. The law is now 25 years 
old, and aspects of it sunset on December 31, 2014. So the 
question is, should Congress repeal the law, reauthorize it as 
it is, or revise it, possibly even tackling non-satellite 
specific video issues.
    Congress passed the original law in 1988 to give the then-
nascent satellite industry a leg up in providing distant 
broadcast signals to viewers out of range of local over-the-air 
signals. Today, however, DIRECTV and Dish control \1/3\ of the 
pay-television market and are the second and third largest pay-
TV providers behind Comcast. And by some estimates only 1 to 
1.5 million of the 115.9 million U.S. television households 
still receive distant signals. That is about 1 percent. DISH 
also now carries the local signals of broadcasters in all 210 
markets and DIRECTV carries them in 197 markets.
    On the other hand, a million viewers still represent a lot 
of potentially angry letters and calls reminding those of us in 
Congress about that, as I say, that clause in the Constitution 
that gives Americans the right to watch whatever they want, 
whenever they want, wherever and however they want on whatever 
device they have.
    Some stakeholders argue we should use the reauthorization 
to revisit retransmission consent. They also argue we should 
take another look at cable regulations, such as the must-carry, 
basic-tier, buy through, program carriage, program access, and 
set-top box rules. Those regulations date to 1992 and 1996, 
when cable had 98 and 89 percent of the pay-television market. 
As of 2010, cable television's share had dropped to 59.3 
percent of pay-TV households and 51.6 percent of all TV 
households.
    So I am open to debate on a whole host of these issues and 
all options remain on the table. I believe in good process, and 
one of our responsibilities is to make sure we operate publicly 
and transparently, giving the American people and stakeholders 
an opportunity to see what is happening and to contribute to 
this dialogue. The video market is changing rapidly. Phone 
companies are in the video business now, both over wires and 
wireless. Netflix is offering original programming over the 
Internet. And Aereo, for better or for worse, could turn 
everything upside down.
    Ultimately, the question is can we better ensure viewers 
have access to the programming they want while respecting the 
investments of the networks that create it and the broadcasters 
and pay-TV companies that deliver it? Today the government 
intervenes in various ways in that relationship between 
viewers, broadcast affiliates, network programmers and pay-TV 
distributors. Sometimes it does so to the benefit of one; other 
times to the benefit of another. Should it be intervening at 
all in the current marketplace? And if the answer is yes in 
some cases but not others, what is the justification?
    [The prepared statement of Mr. Walden follows:]

                 Prepared statement of Hon. Greg Walden

    I want to welcome all the witnesses to today's hearing as 
we continue our discussion of STELA and all issues related 
thereto. I want to especially welcome Amy Tykeson, CEO of 
BendBroadband, and congratulate her on her award last night as 
she was inducted into the Cable Industry Hall of Fame. She is a 
dynamic leader in the cable industry and it is an honor to have 
her here from central Oregon in my district.
    This hearing will examine whether the law authorizing 
satellite television providers to redistribute broadcast 
programming still serves an important function or is out of 
step with today's video marketplace. The law is now 25 years 
old and aspects of it sunset in December 31, 2014. Should 
Congress repeal the law, reauthorize it as is, or revise it, 
possibly even tackling non-satellite specific video issues?
    Congress passed the original law in 1988 to give the then-
nascent satellite industry a leg up in providing distant 
broadcast signals to viewers out of range of local over-the-air 
signals. Today, however, DirecTV and Dish control one third of 
the pay-TV market and are the second and third largest pay-TV 
providers behind Comcast. And by some estimates only 1-1.5 
million of the 115.9 million U.S. television households still 
receive distant signals. That's about one percent. DISH also 
now carries the local signals of broadcasters in all 210 
markets and DirecTV carries them in 197 markets.
    On the other hand, a million viewers still represent a lot 
of potentially angry letters and calls reminding us of that 
clause in the Constitution about the right of Americans to 
watch whatever they want, whenever they want, wherever and 
however they want.
    Some stakeholders argue we should use the reauthorization 
to revisit retransmission consent. They also argue that we 
should take another look at cable regulations, such as the 
must-carry, basic-tier, buythrough, program carriage, program 
access, and set-top box rules. Those regulations date to 1992 
and 1996, when cable had 98 and 89 percent of the pay-TV 
market. As of 2010, the cable's market share had dropped to 
59.3 percent of pay-TV households and 51.6 percent of all TV 
households.
    I'm open to debate on a whole host of issues and all 
options remain on the table. I believe in good process, and one 
of our responsibilities is to make sure we operate publicly and 
transparently, giving the American people and stakeholders an 
opportunity to see what is happening and to contribute to the 
dialogue. The video market is changing rapidly. Phone companies 
are in the video business now, both over wires and wirelessly. 
Netflix is offering original programming over the Internet. And 
Aereo, for better or for worse, could turn everything upside 
down.
    Ultimately, the question is can we better ensure viewers 
have access to the programming they want while respecting the 
investments of the networks that create it and the broadcasters 
and pay-TV companies that deliver it? Today the government 
intervenes in various ways in the relationships between 
viewers, broadcast affiliates, network programmers and pay-TV 
distributors. Sometime it does so to the benefit of one. Other 
times to the benefit of another. Should it be intervening at 
all in the current marketplace? And if the answer is yes in 
some cases but not others, what is the justification?

                                #  #  #

    Mr. Walden. With that, I yield the balance of my time to 
the vice chair of the subcommittee, the gentleman from Ohio, 
Mr. Latta.
    Mr. Latta. Thank you, Mr. Chairman, and I appreciate you 
holding this hearing today, and I also thank all of our 
witnesses for their testimony that they are going to be giving, 
and the expertise that they have as this subcommittee considers 
the satellite television law.
    I am glad, Mr. Chairman, that we have started the process 
of examining STELA early on in this Congress. We all know that 
December, 2014, will be here before we know it. It is important 
to have the opportunity to have a robust discussion about the 
satellite TV marketplace and determining if the law needs to be 
reauthorized, revised, or repealed.
    I believe it is extremely worthwhile that Congress has the 
obligation every 5 years to review this law. As we all know, 
the communications and video marketplace has changed 
dramatically and is constantly evolving, and I hope that this 
hearing and others are the continuation of a thoughtful public 
debate surrounding the video marketplace. I look forward to 
hearing from our witnesses today, Mr. Chairman, and I yield 
back.
    Mr. Walden. Gentleman yields back the balance of his time--
balance of my time, and with that, I will yield back the 
balance of my time and recognize the ranking member from 
California, Ms. Eshoo, for 5 minutes.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you, Mr. Chairman, for holding this 
hearing, and welcome to our witnesses and many distinguished 
representatives from the many sectors that are in the audience 
this morning.
    Today begins, obviously, the second in the subcommittee's 
series of hearings on the Satellite Television Extension and 
Localism Act, STELA, a law allowing consumers across our 
country who subscribe to satellite TV to receive local 
broadcast programming. Following today's hearing, we will have 
had and heard from a total of 11 witnesses in the first 6 
months of this Congress, plus countless others who have 
individually visited our offices to provide their perspective 
on STELA. These voices include representatives of the 
satellite, broadcast, cable, and motion picture industries, but 
I think that we need to now look forward to taking action.
    Mr. Chairman, I think that following today's hearing, we 
should instruct our respective staffs to work expeditiously on 
drafting legislative text so we can pass a bill long before the 
December 31, 2014, deadline. We have both stated publically 
that we want a clean bill. We know that Judiciary has some 
jurisdiction in this, so it will take some time for them to do 
their work. So I think that we need to get going with this.
    So much has changed since the 1992 Cable Act, the process 
by which broadcasters and pay-TV providers negotiated or how 
they negotiate retrans, the proliferation of blackouts, and now 
the emerging online video marketplace, and I think that we need 
to be examining all of these aspects. So we have a lot of work 
to do beyond STELA. I am struck--on the broader video market, I 
am struck by the rapid transformation underway. In particular, 
three statistics highlight how consumer behavior is changing. 
By 2017, which is not that far away, 58 billion hours of TV and 
video is expected to be viewed on tablets per year. That is a 
remarkable statistic. Online video will account for 69 percent 
of consumer Internet traffic by 2017, up from 57 percent in 
2012. The number of web-enabled TVs in consumers' homes will 
grow from close to 180 million in 2012 to 827 million in 2017.
    So what do all of these statistics mean for our work here 
at the subcommittee? In addition to freeing up more spectrum 
and expanding the deployment of high speed broadband to all 
Americans, we need to recognize that a shift is occurring where 
the primary means of video distribution might be radically 
different than the options available to consumers today. 
Consumers, as the chairman said, want greater choice in 
programming and how they receive it, and I think this 
subcommittee should not ever be viewed as a barrier to exciting 
innovation. So a video marketplace with vibrant competition 
among the services consumers most desire is really a very, very 
healthy one.
    So again, I welcome each one of the witnesses. 
Congratulations to you, Ms. Tykeson, for the wonderful award 
that you have received from the cable industry. Thank you all 
for being here and for how instructive your testimony will be 
to us.
    I would be happy to yield the remainder of my time to 
anyone. Anyone? Any takers on my side? No? With that, I will 
yield back. Thank you.
    Mr. Walden. Gentlelady yields back. Chairman now recognizes 
the vice chair of the full committee, Mrs. Blackburn.

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF TENNESSEE

    Mrs. Blackburn. Thank you, Mr. Chairman. Welcome to all of 
our witnesses. We thank you for your time and for being here. 
This is an important opportunity for us to learn how we can 
continue to give TV consumers the best value, the very best 
value in terms of price, content, quality, and delivery. In 
this subcommittee last June, members of both parties 
acknowledged that the 20-year-old video regulations on the 
books are obsolete. I don't think there is any disagreement on 
that point at all. Technology has changed dramatically, but the 
law hasn't kept up. Today's cable, satellite, broadcast, 
telecom, and online video providers offer competing delivery 
services and packages, and they are governed by different 
rules.
    The question before us is how can we fix a really complex 
web of regulations that is limiting consumer benefits, 
restricting content choices, leading to blackouts, and 
contributing to rising prices? How do we rationalize old rules 
for the dynamic innovation that is happening before us? Are 
disruptive technologies ones that can provide broadcast content 
without paying a performance right? Everybody knows that is one 
of my issues, a byproduct of this outdated video framework.
    We should have a vibrant debate and welcome input from 
everyone as we review STELA, but most importantly, we need to 
look at what the proper role of government is and refocus on 
the best interests of our constituents, who are the consumers 
of video content. They do expect a level playing field.
    Mr. Chairman, I thank you and I yield back.
    Mr. Walden. The chair now recognizes the gentleman from 
Louisiana, Mr. Scalise.

 OPENING STATEMENT OF HON. STEVE SCALISE, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF LOUISIANA

    Mr. Scalise. Thank you, Mr. Chairman. Thank you for holding 
this hearing. I want to thank our panelists. I look forward to 
hearing from you all as well.
    When we look at the title of the hearing today, ``The 
Satellite Television Law: Repeal, Reauthorize, or Revise?'' I 
would think the subcommittee would be wise to revise and expand 
the STELA debate by addressing the other intertwined video 
issues. Many of these issues are government-created imbalances 
that have arisen over the past 2 decades as the marketplace 
underwent dramatic transformation. As the gentlelady from 
Tennessee just mentioned, we take for granted that as we are 
having this hearing today, many of us have handheld devices 
that can actually pull video and do so many other things that 
make our life very convenient, but when these laws were 
written, the device of the day was more like this device. And 
so when you think that we are currently governed by laws that 
were written based on the technology of this device, it shows 
us, I think, that when we think of the new technologies that we 
have the ability to have access to, the laws dramatically need 
revision and updating. And for anyone who seeks further 
evidence of the marketplace transformation, look no further 
than the ongoing Aereo court case that is moving through the 
courts right now, just to show you where the imbalance can 
occur.
    Instead of allowing a vast web of government regulations to 
influence the carriage of programming, we should trust the 
consumer demand that it is a strong enough tool to ensure that 
quality programming is carried by pay-TV providers at a rate 
that both willing buyers and willing sellers can agree upon, 
without the government thumbing the scale for one industry or 
another. That is all I am after in this debate, which I believe 
we can accomplish by reverting back to the basic tenets of 
property rights and consumer demand to guide the video 
marketplace forward.
    I encourage my colleagues to join me in this pursuit, and 
again, I look forward to the testimony and the questioning from 
our witnesses, and I thank the chairman and I yield back the 
balance of my time.
    Mr. Walden. Is there anyone else on the Republican side 
that wants the remaining minute? If not, we will yield back the 
time and I now recognize the former chairman of the committee, 
the gentleman from California, Mr. Waxman, for 5 minutes.

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

    Mr. Waxman. Thank you very much, Mr. Chairman.
    Today's hearing is the second time this year that this 
subcommittee has convened to examine issues surrounding the 
upcoming expiration of the Satellite Television Extension and 
Localism Act of 2010, or what we call STELA. The 
reauthorization of STELA involves interlocking communications 
and copyright law provisions that must be jointly addressed by 
our committee and the Judiciary Committee, and as I stated at 
our hearing in February, because of the complexity of this 
task, I start from the presumption that we should pursue a 
clean reauthorization. Congress must complete its work before 
the law expires so consumers do not inadvertently lose access 
to programming. At the same time, I believe that 
reauthorization provides us an opportunity for members to learn 
more about today's video marketplace and assess whether laws 
and regulations are keeping pace.
    As we begin this conversation, we need to consider how we 
can continue to ensure diversity, localism, and competition, 
which are the principles that undergird our Nation's media 
policy. Congress has recognized the need to protect many of 
these values, especially when the market might not. New avenues 
for online video distribution are creating exciting new 
opportunities for consumers and content creators alike, but to 
realize these opportunities, competitors may need access to 
must-have content and independent creators may need the 
opportunity for their program to reach audiences far and wide.
    I represent many interested parties in today's debate in my 
congressional district. Many of my constituents are the 
artists, writers, producers, and directors whose creativity 
drives consumer demand for video and who deserve to be 
compensated fairly. Many of my constituents work at the studios 
and media companies like Disney that make desirable content 
available to consumers. I also represent companies like Santa 
Monica-based Tennis Channel. The Tennis Channel is an 
independent cable channel that offers consumers unique tennis 
and tennis-related programming. Congress sought to protect the 
diversity offered by independent channels like the Tennis 
Channel in the 1992 Cable Act by adopting provisions to guard 
against discrimination by vertically integrated distributors. 
The CEO of the Tennis Channel, Ken Solomon, sent the committee 
a letter today outlining his perspective on the effectiveness 
of the FCC's so-called program carriage rules, and Mr. 
Chairman, I ask unanimous consent that Mr. Solomon's letter be 
entered into the record.
    Mr. Walden. Without objection.
    [The information appears at the conclusion of the hearing.]
    Mr. Waxman. I hope our discussion today will include 
consideration of whether today's video marketplace is making 
diverse and independent content available to all Americans. I 
am proud that my congressional district also includes the 
headquarters of DIRECTV, the second largest TV--the second 
largest video distributor in the United States, now serving 
over 20 million subscribers. Not only does DIRECTV have 
approximately 3,000 employees based in El Segundo, California, 
the company operates 100 percent California-made satellites, 
some of which were also produced in my congressional district. 
As one of the satellite providers that this legislation was 
originally designed to assist, DIRECTV can educate the 
subcommittee about why it believes the Act should be 
reauthorized, what aspects of STELA are working well, what 
parts of the law might need to be modified. And I want to 
extend a special welcome to our witness from DIRECTV, Mr. 
Palkovic.
    Thank you to all the panel members who are here today. We 
look forward to you testimony, your continued engagement as we 
move forward with this reauthorization.
    Mr. Chairman, since I have 35 seconds, I will be pleased to 
offer it, although there didn't seem to be takers when other 
time was available, but anybody that wants it can have it. If 
not, I will yield it back.
    Mr. Walden. Gentleman yields back the balance of his time, 
and that takes care of our opening statements, and we will move 
on now to the testimony from our distinguished panel of 
witnesses.
    We will start first with Mr. Mike Palkovic, who is the 
Executive Vice President for Services and Operations at 
DIRECTV. Thank you for being here this morning. Again, pull 
those microphones up close, turn them on, and the time is 
yours, sir. You have to turn it on. This is not a retrans 
issue.

STATEMENTS OF MIKE PALKOVIC, EXECUTIVE VICE PRESIDENT, SERVICES 
 AND OPERATIONS, DIRECTV; MARCI BURDICK, SENIOR VICE PRESIDENT 
    OF BROADCASTING, SCHURZ COMMUNICATIONS, INC.; BEN PYNE, 
  PRESIDENT, GLOBAL DISTRIBUTION, DISNEY MEDIA NETWORKS; AMY 
  TYKESON, CEO, BENDBROADBAND; HAL SINGER, MANAGING DIRECTOR, 
  NAVIGANT ECONOMICS; AND GEOFFREY MANNE, SENIOR FELLOW, TECH 
                            FREEDOM

                   STATEMENT OF MIKE PALKOVIC

    Mr. Palkovic. Sorry about that.
    Mr. Walden. There you go.
    Mr. Palkovic. OK. Chairman Walden, Ranking Member Eshoo, 
and members of the committee, thank you for inviting DIRECTV to 
discuss reauthorizing the Satellite Television Extension and 
Localism Act, STELA.
    As we speak, millions of Americans are leaving for 
vacation. Packing lists include grills, sunblock, and summer 
reading. Increasingly, they also include television. The very 
idea that someone could take TV to the beach would have been 
unimaginable when Congress passed the 1992 Cable Act. Viewers 
today expect the content they want, when they want it, where 
they want it, on the device of their choosing, and at prices 
they can afford. And for the most part, they get it, but there 
is one exception to this good news: broadcast television.
    Unlike other forms of television, broadcasting remains 
governed by antiquated laws designed to favor the broadcaster 
over the viewing public. We hear more complaints about 
broadcast-related issues than almost anything else. Our 
subscribers complain about high prices, lack of choice, and 
blackouts. Much of this results from the outdated 
retransmission consent regime created in the '92 Cable Act.
    There are three major problems with this broken system. 
First, retransmission consent raises prices. Between 2010 and 
2015, DIRECTV's retrans costs will increase 600 percent per 
subscriber. These cash payments are on top of the enormous fees 
we already pay the broadcasters for cable channels that were 
tied to the retrans negotiations, otherwise referred to as 
bundling.
    Second, retransmission consent limits choice. The retrans 
regime has led to the consolidation and bundling of cable 
channels by broadcast owned media conglomerates. In 1992, the 
broadcasters owned four cable channels. Today, they own over 
104 cable channels, a 2,500 percent ownership increase. For 
example, in 1992 NBC owned one channel, CNBC. Today, Comcast 
NBC Universal owns 22 cable channels, plus 11 regional sports 
networks. These corporations use the retrans process to force 
our customers to take and pay for all of their channels, 
regardless of whether they watch them or not.
    The third major problem and the most frustrating for 
consumers is retrans related blackouts. Broadcasters use 
blackouts to drive price increases and deny consumers access to 
what was once free programming. Last year alone, broadcasters 
pulled the plug in 91 markets.
    We see two paths ahead as Congress considers STELA 
reauthorization. One path is to eliminate these laws entirely. 
Representative Scalise's bill, the Next Generation Television 
Marketplace Act, does this. We believe this approach is better 
than today's hodgepodge of aging regulation.
    The other possibility would be to make existing laws 
smarter. To do so, we strongly believe Congress should address 
blackouts. First, in light of the fact that broadcasters use 
the public spectrum, an outright ban on local blackouts should 
be considered. Alternatively, Congress could allow us to 
provide our customers with distant network signals during a 
blackout. If the broadcaster's local content is as important to 
consumers as they claim, then distant networks would be a poor 
substitute, and then we would have every incentive to negotiate 
a carriage deal. Finally, Congress could allow broadcasters to 
negotiate directly with consumers. Broadcasters would simply 
set their rates, publish them, and we in turn would charge 
customers the price the broadcaster set. A consumer could, for 
example, choose ABC and NBC but opt out of CBS and FOX, as they 
do today with HBO and Showtime. This would end blackouts, allow 
for consumer choice, and allow the networks to charge as much 
as they think their content is worth.
    Let me also address Senator McCain's ala carte legislation. 
This bill demonstrates the growing frustration over the rising 
cost of content and the inability of consumers to make 
programming choices. Over the years, we have tried in vain to 
negotiate more choice and packaging flexibility for our 
customers. The broadcast corporations either outright refuse or 
make offers that could best be described as hollow. The result, 
though, is always the same. Higher prices for consumers and 
forced bundles of channels they don't want or can't afford. We 
believe the marketplace is best suited to resolve this 
conflict. Ideally, we would like to work with the broadcast 
companies to give consumers what they want, more choice over 
their programming. However, if these media companies continue 
to reject calls for packaging flexibility, they leave us no 
option but to support government intervention.
    In closing, I cannot emphasize enough that the status quo 
no longer works for the American viewing public. We speak with 
over 300,000 of our subscribers every day, and they tell us 
they want change. While DIRECTV is not wedded to any particular 
approach, we do believe congressional action is needed. We 
stand ready to work with you to explore all proposals. Thank 
you, and I look forward to your questions.
    [The prepared statement of Mr. Palkovic follows:]
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    Mr. Walden. Appreciate your testimony, sir. Thank you for 
being here.
    Now we will turn to Marci Burdick, who is the Senior Vice 
President of Broadcasting for Schurz Communications, 
Incorporated. We welcome you back to the committee and we look 
forward to your testimony.

                   STATEMENT OF MARCI BURDICK

    Ms. Burdick. Thank you. Thank you, Chairman Walden, and 
good morning. Ranking Member Eshoo, good morning. Members of 
the subcommittee, hello. My name is Marci Burdick. I am Senior 
Vice President, as you heard, of Schurz Communications, where I 
oversee eight television stations, three cable companies, and 
thirteen radio stations. I am also the television board chair 
for the NAB, on whose behalf I testify today.
    Local broadcast television remains unique because it is 
free, it is local, and it is always on, even when other forms 
of communication fail. Television is the most watched media for 
high quality entertainment, sports, local news, emergency 
weather warnings, and disaster coverage. Schurz has television 
stations in tornado-prone places like Wichita, Kansas and 
Springfield, Missouri, and I can tell you from my own personal 
experience our viewers rely on us to stay informed during times 
of whether emergencies, not unlike the terrible storms we have 
seen this year.
    With that backdrop, thank you for the opportunity to be 
here today to discuss reauthorization of the Satellite 
Television Extension and Localism Act, or STELA.
    As broadcasters, we approach this debate asking a simple 
question: is satellite's distant signal compulsory license 
still in the public interest? We know the universe of distant 
signals is shrinking, and more and more viewers are receiving 
their local programming through satellite. Today, DISH provides 
local into local service in all 210 television markets and 
DIRECTV in 196. To justify the extension of this law, however, 
we need more specific information. For instance, how many 
subscribers rely on the distant signal? How many subscribers 
are grandfathered, but also receive local into local service? 
And what is the number of subscribers that receive the distant 
signal only for use in an RV or a boat? Unfortunately, this 
information resides only in the hands of DISH and DIRECTV. By 
digging into these facts, we can have an honest debate about 
whether the law is still needed.
    At a minimum, NAB asks this committee to embrace a clean 
reauthorization that does not include unrelated and highly 
controversial provisions that undermine the ability of 
broadcasters to provide high quality and locally focused 
content. For example, some would like to use STELA's 
reauthorization to make drastic changes in a free marketplace 
negotiation called retransmission consent. I believe such 
changes would harm consumers.
    I have been with Schurz Communications for 25 years, and I 
come to this hearing with a very unique perspective on the 
video marketplace. My company is a member of both NAB and ACA. 
We are a broadcaster and we are a small cable operator. I can 
tell you from our vantage point as a small company that has 
been on both sides of the negotiating table, the current system 
works. So I ask the subcommittee, if the system isn't broken, 
why fix it? The retransmission consent system in place today 
has a success rate of 99 percent. Only in Washington, D.C., 
could something that works 99 percent of the time, providing 
for thousands of deals every year, be called broken. This 
success rate trumps the effectiveness of the best medicines, 
the free throw percentage of the most accurate basketball 
player, and the approval ratings of the Dali Llama and the 
Pope, yet no one would doubt whether they are effective.
    The false fixes being suggested by my friends in the cable 
and satellite industry would not only harm consumers, but would 
do nothing to improve on the system that we have today. In 
fact, just the opposite would be true. One proposal would allow 
the importation of distant, out of market signals in the event 
of a contractual impasse. In the real world, that means that 
Congress would negate existing contracts between broadcast 
networks like ABC and their local affiliates like KOHD in Bend, 
Oregon, or KGO in the Bay area. If Congress were to allow 
distant signals to come into local markets, that will have 
gutted my affiliation contract while leaving viewers in Bend or 
in the Bay area to receive, perhaps, Los Angeles or Denver news 
and sports. Additionally, by allowing distant signal 
importation Congress would be placing its thumb on the 
bargaining scale by fundamentally skewing the negotiating 
leverage of the parties. The resulting effect would be more 
contractual impasses, not less. With fewer viewers and less 
advertising dollars, the localism that TV broadcasters provide 
would be compromised. This would ultimately leave your viewers 
with less local community programming, your local businesses 
with fewer places to reach local customers through TV 
advertising, and politicians with no effective medium to reach 
their constituents. None of this is good for the consumer.
    In conclusion, as television broadcasters, we aren't coming 
to Congress asking for a leg up in our negotiation or for 
changes to a law to benefit one side or the other. We will 
fight our own fights, we will make our own deals, and we only 
ask that Congress not tip the scales in favor of any one 
industry.
    I thank you for inviting me here today, and I look forward 
to your questions.
    [The prepared statement of Ms. Burdick follows:]
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    Mr. Walden. Ms. Burdick, thank you very much for your 
testimony. We appreciate your comments.
    We will now turn to the President for Global Distribution 
of the Disney Media Networks, Mr. Ben Pyne. We are delighted to 
have you here, sir, and please go ahead.

                     STATEMENT OF BEN PYNE

    Mr. Pyne. Thank you, Chairman Walden and Ranking Member 
Eshoo, and other members of this subcommittee----
    Mr. Walden. I am not sure your microphone is on, maybe. 
There you go.
    Mr. Pyne. Thank you, Chairman Walden, Ranking Member Eshoo, 
and other members of this subcommittee. I had the opportunity 
to appear before you 6 years ago at a hearing entitled ``The 
Future of Video.'' At that hearing, I promised we, the Walt 
Disney Company, will continue to find ways to get our content 
to any screen consumers use: computers, PDAs, mobile phones, 
iPods, and of course, TV sets. You may have noticed that I did 
not use the word iPad in 2007. Of course, it was introduced 3 
years after that hearing.
    What I am proud to tell you today is that we continue our 
commitment to developing and using new technology to improve 
the consumer experience. In cooperation with MVPDs, that is 
cable, satellite and telco distributors, we now make live 
streaming of many of our channels available to subscribers 
under tablets and smartphones. ESPN's Watch ESPN app, 
downloaded more than 18 million times, was the first 
application to provide live streaming of a cable channel. 
Likewise, our line of Watch Disney apps, downloaded now 15 
million times since last year, offers the same convenience to 
subscribers of Disney Channel, Disney XD, and Disney Junior. In 
fact, just last month we were the first broadcaster to launch a 
streaming service. Our Watch ABC service allows users to watch 
their local ABC stations online and on smart devices in their 
hometowns. We hope the service will soon be available in 
markets across the country.
    In addition to our Watch services, Disney has recognized 
the value of using online video distributors to reach consumers 
who want to enjoy our content in many other ways. We are a part 
owner of Hulu, and we have negotiated agreements to distribute 
our content on a host of other online platforms, including 
Netflix, Amazon, Streampix, and even X-Box.
    While all of these new forms of distribution are critical 
to our future, we continue to place a very high value on 
distributing content through MVPDs. We believe that monthly 
video subscriptions purchased by the overwhelming majority of 
American households continue to be of a tremendous value. We 
remain committed to delivering outstanding programming to these 
viewers at all times. As evidence of that, in the last few 
years we have reached long-term deals with many of the largest 
MVPDs.
    The common thread that runs through our use of all these 
technologies, old and new, is that each allows us to provide 
additional value to consumers and customers, while achieving a 
return on our investment in quality programming. Quality 
content is expensive to produce. Last year, we spent 
approximately $3 billion producing programming for ABC and our 
own stations. As a policy matter, given the significant risk 
and expense inherent in producing great content, it is critical 
that we continue to be permitted to negotiate freely for 
compensation of the distribution of our content.
    In this context, we believe the current regime requiring 
MVPDs to negotiate for the right to carry a broadcast signal, 
the process known as retransmission consent, is working well. 
Ultimately, this is a process that ensures that MVPDs 
compensate broadcasters for the value inherent in the carriage 
of that signal. Thousands of privately negotiated agreements 
for retransmission consent have been reached with few 
interruptions of service.
    The model of compensating local broadcasters for carriage 
is working for American consumers. The lion's share of the most 
watched programs on television are consistently found on 
broadcast TV. Local stations are able to provide outstanding 
local news and coverage for emergency events. With the launch 
of our Watch ABC services, we will be working with our 
broadcast affiliates to offer even more value for MVPDs to make 
available to their customers.
    I recognize that this committee has heard pleas for changes 
to retransmission consent. We believe the current system 
provides the appropriate incentives to reach agreements. We 
want our local and network programming carried by MVPDs. They 
want to carry our programming because their customers want to 
watch it. These mutual incentives encourage the successful 
resolution of negotiations. Additional government action is not 
necessary.
    Finally, I would like to turn to satellite legislation. The 
original law adopted by Congress 25 years ago eased the way for 
the technology available at that time to be used to distribute 
distant network programming to many households, especially in 
rural areas, that would otherwise not be able to receive the 
network programming at all. To their great credit, the 
satellite companies have made significant investments in their 
technology and today, they are able to deliver local broadcast 
stations to more households than ever. As a result, the 
necessity of the satellite legislation to ensure the 
availability of network programming is simply not as great as 
it once was. In fact, we believe Congress could give serious 
consideration to letting the legislation sunset. We realize, 
however, that you may be concerned by uncertainty regarding 
what would happen to rural viewers if the legislation was not 
reauthorized. In the face of that uncertainty, we understand if 
you choose to extend it, but would ask that you do so simply by 
extending the current expiration date.
    Thank you very much.
    [The prepared statement of Mr. Pyne follows:]
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    Mr. Walden. Thank you, Mr. Pyne. We appreciate your 
testimony.
    I would now turn to Amy Tykeson, who is the CEO of 
BendBroadband. We appreciate your being here, as I said 
earlier, and welcome your comments.

                    STATEMENT OF AMY TYKESON

    Ms. Tykeson. Thank you. Good morning, Chairman Walden and 
Congresswoman Eshoo, and members of the subcommittee. I am Amy 
Tykeson, President and CEO of BendBroadband, a family-owned 
independent cable operator that serves about 50,000 residential 
and commercial customers in Central Oregon. Thank you for 
inviting me here to testify this morning.
    My goal is to highlight the challenges facing cable 
operators, particularly smaller operators like BendBroadband. 
It is time for Congress to update the law to meet consumers' 
needs and interests.
    Let me tell you a little bit more about my company. Our tag 
line says it all: ``We are the local dog. We better be good.'' 
We have invested about $100 million to upgrade our network and 
bring people in Bend the best services available. We employ 270 
associates, and we are the 14th largest employer in Central 
Oregon. We are a first mover, and we are recognized as an 
industry leader.
    I want to discuss three examples of how the outdated video 
rules are hurting my customers and should be addressed in 
STELA.
    First, I can't create the programming packages my customers 
want; second, the retransmission consent process is broken; and 
third, technology mandates for set top boxes should be 
repealed.
    First, let me tell you why I can't give my customers the 
packages they want. The major programmers each control a dozen 
or more channels. When I negotiate with them, they tell me I 
have to take all of those channels and that I have to package 
them the way the programmers want, not the way my customers 
want. These bundling arrangements are resulting in significant 
fee increases for my customers. Program bundling is 
particularly harmful to smaller operators like BendBroadband, 
who are often presented with a take it or leave it offer.
    Second, my customers are being hurt by the broken 
retransmission consent process. I have been through a 
retransmission consent blackout, and my customers don't want it 
to happen again. But I fear it will, unless the rules are 
updated. For example, Congress intended for retransmission 
consent to support local stations, not to subsidize the 
operations of big national broadcast networks. But the networks 
are demanding an increasing share of their affiliates' 
retransmission consent fees. This harms localism by diverting 
revenues from the local stations. It also drives up the cost of 
retransmission consent and makes the negotiations more 
contentious. For the MVPDs, the cost of retransmission consent 
has grown from about $216 million to nearly $2.4 billion in 
just 6 years, and fees are estimated to top $6 billion by 2018. 
In my market alone, retransmission consent demands have nearly 
tripled over the last 3-year negotiating cycle.
    My final example concerns Section 629 of the Communications 
Act. That rule resulted in technology mandates for set top 
boxes that have cost the industry more than $1 billion and have 
not benefitted customers. Today, consumers watch programming on 
a plethora of devices, some of which we have talked about this 
morning. This rule should be repealed.
    These three examples illustrate how a regulated marketplace 
can be detrimental to consumers when government does not 
routinely review and update applicable laws. The time has come 
for a comprehensive review of the existing video framework. At 
a minimum, I would urge Congress to amend STELA to address 
issues like the ones I have identified today, to yield more 
choice, lower prices, and a healthy marketplace to benefit 
consumers.
    Finally, I want to acknowledge Representative Scalise and 
other members of this subcommittee who have advanced the debate 
on video reform. I look forward to working with you to examine 
these important issues and welcome your questions. Thank you.
    [The prepared statement of Ms. Tykeson follows:]
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    Mr. Walden. Thank you, Ms. Tykeson. We appreciate your 
comments and testimony. We look forward to continuing the 
dialog.
    We will turn now to the managing director of Navigant 
Economics, Mr. Hal Singer, for your comments, sir. Thank you 
for joining us, and please go ahead.

                    STATEMENT OF HAL SINGER

    Mr. Singer. Thank you for having me. I have served as an 
economic expert in several program carriage complaints, 
including as an expert for the NFL Network, Tennis Channel, and 
Masson. The focus of my testimony is the proper regulatory 
oversight of vertically integrated cable operators, and the 
role of the FCC in that oversight process.
    To design the proper regulatory framework, one must first 
understand the nature of the potential harm presented by 
vertical integration in the cable industry, namely a reduction 
in innovation among independent content providers.
    Why do we care about that potential harm? Because some of 
the best content has sprung and will likely continue to spring 
from independents who are free from the strictures of a clumsy 
conglomerate when creating artistic expressions. Without any 
protection against discrimination, independents would be forced 
to surrender equity in exchange for carriage, and thus would be 
less willing to take risks, which would result in fewer 
programming choices and less programming diversity.
    There are two schools of thought on how best to deal with 
this problem of vertical integration. The first, advocated by 
Professor Tim Wu of Columbia Law School, in his best-selling 
book ``The Master Switch'', is to ban vertical integration 
entirely. The second, which was embraced by Congress in the 
1992 Cable Act, is to permit vertical integration but to police 
discriminatory acts on a case-by-case basis. The downside of an 
outright ban is that it sacrifices potential efficiencies 
related to vertical integration. The downside of a case-by-case 
approach is that if relief from discrimination does not come 
swiftly, or if the evidentiary burden imposed on an independent 
cannot be satisfied under any fact pattern, then after-the-fact 
adjudication affords no protection at all.
    Assuming that case-by-case review is the best solution to 
the problem of vertical integration, the policy question turns 
to which legal framework is best suited for the task. Should 
the FCC adjudicate these disputes under its public interest 
standard, or should complaints of discrimination by a 
vertically integrated cable operator be addressed under the 
antitrust laws? The problem with the latter approach is that a 
reduction in innovation by independents may not be cognizable 
under the antitrust laws, which were designed primarily to 
prevent the exercise of pricing power. Because discrimination 
in program carriage often does not produce price effects, 
antitrust is the wrong framework to address discrimination by a 
vertically integrated cable operator.
    The lack of price effects in these cases is also why it 
makes no sense to interpret the non-discrimination protections 
of the Cable Act in an antitrust context, even if Congress used 
the word ``unreasonably'' in the statute. By seeking to 
identify harm to an independent programmer rather than harm to 
competition, Congress meant to fill a gap in antitrust laws, 
namely, the preservation of diversity in the video-programming 
marketplace. How do we know this? At the time the Cable Act was 
passed, the largest cable operator in the country, TCI, 
controlled less than 20 percent of national video subscribers. 
If Congress meant to import antitrust concepts into the Cable 
Act, as some now argue, then Congress also intended to immunize 
all vertically integrated cable operators, including TCI, from 
the non-discrimination protections of the Act, as none would 
have sufficiently high market shares to constitute monopoly 
power under the antitrust laws. The absurdity of this 
conclusion, that Congress passed redundant antitrust regulation 
that was applicable to no one, proves that the Cable Act has 
nothing to do with antitrust enforcement.
    Finally, I would like to speak briefly about the 
appropriate evidentiary burden on complainants under the FCC-
administered approach. The purpose of the non-discrimination 
protections in the Cable Act is to ensure that a vertically 
integrated cable operator does not consider the benefit to an 
upstream programming affiliate when deciding whether to carry a 
similarly situated independent network. There are two primary 
ways to establish evidence of this kind of ``biased'' decision-
making. Complainants could show direct evidence that benefits 
to an upstream network were inappropriately considered. In the 
absence of such direct evidence, complainants could in theory 
establish that the downstream cable division incurred a loss by 
carrying the independent network narrowly. This finding would 
create a presumption that there was an offsetting benefit to 
the affiliated upstream network. However, with the exception of 
a handful of networks such as ESPN, most independent networks 
lack ``must-have'' status and thus would be hard-pressed to 
demonstrate any forgone benefit from broader carriage. Cable 
operators generally create value for their customers by 
offering a buffet of choices, rather than granting access to 
any particular network. Requiring an independent to estimate 
forgone benefits with precision would be tantamount to asking a 
leading columnist for the New York Times to estimate what 
fraction of subscribers would switch to another newspaper if 
the editorial page excluded that columnist. That the answer 
might be none, due to the costs of switching newspapers or due 
to customer loyalty attributable to the Times in general, does 
not imply that that columnist adds no value to the Times. 
Accordingly, complainants should not be required to estimate 
forgone benefits from broader carriage to prevail in a program-
carriage complaint, as the current law now demands.
    Thank you.
    [The prepared statement of Mr. Singer follows:]
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    Mr. Walden. We appreciate your testimony. Thank you.
    And now we will go to our final witness, a senior fellow at 
Tech Freedom, Mr. Jeffrey Manne. Thank you for being here, and 
we look forward to your testimony.

                  STATEMENT OF GEOFFREY MANNE

    Mr. Manne. Thank you, Mr. Chairman, Ranking Member, members 
of the subcommittee. In addition to being senior fellow at Tech 
Freedom, I am also Executive Director of the International 
Center for Law and Economics, and a lecturer in law at Lewis 
and Clark Law School in Portland.
    If you remember three words from my testimony today, 
remember these: House of Cards. Netflix's hit show encapsulates 
how fundamentally the video marketplace has changed since 
Congress enacted the special regulations that now govern that 
market. It represents the work of a new form of distribution, a 
new source of content creation. It is based on new technology. 
It is rapidly innovating. Those regulations are themselves a 
house of cards as well.
    In the face of technological change, shifting consumer 
preferences, and evolving policy aims, the complex fragile 
structure that shapes conduct by consumers, content owners, 
distribution networks, and regulators is bound to fall down. 
Its purpose is frustrated, unintended consequences its legacy.
    To start, STELA should be allowed to sunset the compulsory 
license limit and copyright protection for video content 
repealed. Congress should also repeal the related provisions of 
the Cable Act, retransmission consent, program access and 
carriage, must carry, among others, and Congress shouldn't 
extend this regime to--regulatory regime online. This isn't 
deregulation; this is smarter regulation. Because behind all of 
these special outdated regulations are laws of general 
application that govern the rest of the economy, antitrust and 
copyright. These are better, more resilient rules. They are 
simple rules for a complex world. They will stand up better as 
video technology evolves, and they don't need to be sunsetted.
    The FCC's numbers say that cable prices went up 20 percent 
between 2006 and 2010, but adjusting for inflation, they went 
up only 10 percent. Meanwhile, the number of channels increased 
42 percent. Spending on programming went up 30 percent. 
Americans spent 20 percent more time watching video, and then 
there is an endless range of quality improvements that went 
along with it. To say that the current market is in any way 
constrained, anti-competitive, or crabbed, seems very difficult 
to sustain.
    In short, consumers are getting more for their money, more 
content, more choices, and higher quality.
    If Netflix were regulated like a cable network, it is not 
likely that the law would allow it to offer exclusive programs 
like House of Cards. Why invest $100 million in a franchise if 
it doesn't offer you a leg up on your rivals? Exclusive 
programming helps drive competition.
    The key to promoting competition in both video and 
broadband isn't restricting programming innovation, if we are 
looking for rules to change, it is removing local regulatory 
impediments to competitive infrastructure, like franchise 
licensing and access to rights of way. Allowing more towers to 
be built would mean faster 4G wireless service, making 4G 
wireless yet another established competitor to legacy cable and 
satellite.
    And intense competition in some markets can benefit 
consumers everywhere. I would just point out when we are 
looking at potential problems of the absence of localized 
competition, it turns out, of course, that these are all 
networks. Competition from Verizon's FIOS in New York City, for 
example, has driven Cablevision to enter into a peering 
agreement with Netflix's CDN. That means better Netflix 
streaming for customers outside New York as well. Competition 
need not be local to have local benefits.
    So what should Congress do? Again, let STELA sunset. A 
clean reauthorization of STELA isn't clean at all. STELA is a 
mess. We need rules that minimize error costs but affects 
policy goals in a fashion that is least likely to outlaw by 
default that which we actually want to encourage, only haven't 
discovered yet; that is, regulatory mistakes discovered only in 
retrospect, and mistakes have been made. Aereo exploits 
imprecise language in the definition of copyrights performance 
right to navigate around the overly complex effort to use 
compulsory licensing, must carry, et cetera, aimed at 
bolstering cable's competitiveness and promoting localism. But 
arguably, a simple copyright rule of general applicability, 
full performance right protection retained and enforced by the 
copyright holder, would have avoided the problem entirely.
    While the interest of the dwindling percentage of Americans 
who view television programming only on-the-air shouldn't be 
ignored, we really have to take seriously the possibility that 
serving this segment under the current regulatory regime 
carries with it enormous costs that outweigh the benefits. 
These cost include, most significantly, retransmission fees 
passed on to MVPD viewers, technological and business model 
constraints, and most importantly, the enormous opportunity 
costs, perhaps as much as $1 trillion of more efficiently 
deploying spectrum currently used for broadcasting.
    I want to address quickly also the program access and 
program carriage rules. These rules eschew antitrust rules to 
promote program diversity and competition among providers. By 
focusing on the program carriage and program access rules as 
they are constructed, we have shifted the terms of the analysis 
to a starting point that sort of assumes that all content 
should be available everywhere, but that not all content is 
available from all distribution channels is not proof of market 
failure. Similarly, equating diversity with independence is 
inappropriate. If independence means not affiliated with the 
distribution network, this amounts to a preference for ABC's 
The Bachelor over NBC's The Biggest Loser. Program carriage 
rules, in contrast to antitrust, problematically prescribe an 
undesirable effect--not an undesirable effect, but a particular 
business model, and it is a mistake to try to prescribe a 
particular business model when we don't know in the future what 
the optimal business model will look like.
    Ending the current regulations won't leave consumers 
unprotected. There is a role for the law here, but the role for 
the right law, which is antitrust and copyright.
    Thank you.
    [The prepared statement of Mr. Manne follows:]
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    Mr. Walden. Thank you very much for your testimony. We 
thank all the witnesses for your testimony, and will now go 
into our question phase.
    Mr. Palkovic, in deciding whether to repeal, reauthorize, 
or revise the current satellite law, it is important, I think, 
that we understand what the impact of each of these decisions 
really would be on the current satellite television 
subscribers. How many viewers today actually receive a distant 
signal, because that was one of the underlying reasons for this 
Act--how many of those viewers would receive a local signal 
from their satellite provider, and how many would have no way 
of receiving broadcast programming over the air, over 
satellite, or from any other source without distant signal? So 
who is in that pool today?
    Mr. Palkovic. I think the entire pool between us and DISH 
is roughly a million and a half customers who are receiving 
that. I do not have the breakdown of how many people are 
grandfathered. I think it is a fraction of that, maybe a couple 
hundred thousand, and I think those are largely on the DIRECTV 
side. So it is in that range. It is a small piece of the 
million and a half, but if we were to lose that right through 
this process, you would basically be taking broadcast 
programming not only away from the million and a half 
customers, but there would be absolutely no substitute for it. 
Because honestly, if they had a substitute, they wouldn't be 
paying us to get the distant signals, they would be getting it 
a different way.
    Mr. Walden. OK. If we could work with you a little bit 
going forward just so we get an understanding what that pool 
looks like in terms of grandfathering, that would be terrific.
    Ms. Burdick and Mr. Pyne, I am interested in helping, 
obviously, constituents get the programming they consider truly 
local. How can we ensure that they are getting programming from 
their state, not out of state programming, merely because they 
fall in a DMA assigned to another State? We obviously have that 
situation----
    Ms. Burdick. I am a living example of that, Mr. Chairman. I 
actually live in Niles, Michigan. My front yard is in Michigan 
and my back yard is Indiana, and I am part of the South Bend 
DMA, but I vote in Chairman Upton's district.
    Mr. Walden. And you are, what, in five time zones, too? 
That used to be an issue.
    Ms. Burdick. We changed that a couple years ago, although 
my lawn mower did used to change when I go around the lawn--my 
cell phone would change when I go around the lawn.
    At any rate, I happen to receive Comcast's Michigan signal 
from its Michigan head end, and what Comcast does in that case 
is they reserve Channel 3 for--I am a CBS affiliate in South 
Bend and I have network non-dup and syndicated exclusivity 
protections across the market, but Comcast reserves Channel 3 
for the local broadcast of the CBS station in Grand Rapids, so 
its programming, local news, and information can be broadcast 
in that area.
    My point of telling you that is there are ways to resolve 
those situations and we have resolved them in the market today.
    Mr. Walden. I know we have that problem in Umatilla County. 
There is a certain former senator that is really aware of that, 
and anyway, it is an issue elsewhere in my district.
    Ms. Tykeson, when Congress passed the '92 Cable Act and the 
'96 Telecom Act, cable had 98 percent and 89 percent of the 
pay-TV market respectively. As of 2010, cable's share dropped 
to 59.3 percent as I mentioned in my opening statement of the 
pay-TV households, and 51.6 percent of all TV households. Is 
there still a justification for imposing on the cable industry 
regulations such as must carry, basic tier, buy through, 
program carriage, program access, and set top box requirements?
    Ms. Tykeson. Chairman Walden----
    Mr. Walden. Go ahead and push that microphone, yes.
    Ms. Tykeson. Thank you for the question. I think when we 
described earlier the shift in how things have changed and 
unfolded since 1992, it is a completely different marketplace 
today then it was then. Many of the rules that you have just 
mentioned are outdated and they need to be repealed. So my 
suggestion would be to consider sunsetting the '92 Act and 
potentially some of the other requirements in the '96 Act so 
there is a way to go back and revisit some of those rules. In 
the STELA bill, there is an opportunity for reexamination 
because of the sunset clause. We don't have that in the '92 Act 
and as a result, we are stuck with a lot of outdated rules that 
are harming consumers.
    Mr. Walden. All right. Mr. Pyne, do you have any comment on 
that issue of these rules that are put on the cable industry? 
Should they stay or go?
    Mr. Pyne. In terms of STELA?
    Mr. Walden. Well no, in terms of the must carry, the basic 
tier, the buy through program, carriage program access, set top 
box programs from your perspective. We are just trying to get 
different perspectives here.
    Mr. Pyne. In terms of the broadcast basic buy through, I 
think the marketplace in essence has spoken in terms of the 
value of local broadcast. For instance, one of the reasons 
satellite has shown tremendous growth over the past 12 years 
especially is because of their investment in satellite space to 
drive local into local, and it is a huge investment on their 
part. But clearly, it is because of the value of the local--
each local broadcast community or each community in this 
country that has allowed their investment. So in essence, even 
though they did have the option to just have national 
programming, they actually decided as a matter of course to 
deliver local programming.
    Ms. Tykeson. If I may just add one quick point, though.
    Mr. Walden. Sure.
    Ms. Tykeson. I think the problem now is that we have 
competitors in markets like Mike's company, and say, 
BendBroadband, that have different rules, and so the playing 
field isn't level. So I think we need to--for example, on the 
must buy, that has got to go.
    Mr. Walden. Yes, Marci, go ahead.
    Ms. Burdick. Mr. Chairman, could I speak about must carry 
for just a second? I think many members of this committee have 
rightly been concerned about diversity. One of the values of 
must carry is that these are stations in a local community that 
are sprung up by service to that local community. Of the 
stations that are must carry stations today, 69 percent of them 
carry some religious broadcasting. Thirty-nine percent of them 
carry some directed ethnic program to those communities they 
serve, and must carry--as a result of must carry today, 
networks like--channels like FOX, Univision, and others like 
that began as must carry stations, got traction, and then 
developed a business model of their own, but they are extremely 
important today in localism.
    Mr. Walden. Thank you. I actually have gone like a minute 
41 over my time and the committee has been indulgent, so I will 
now defer to the ranking member of the subcommittee, Ms. Eshoo, 
for 5 minutes.
    Ms. Eshoo. Thank you, Mr. Chairman. I never mind listening 
to you, so that is fine. Thank you.
    Well, the title of today's hearing is ``The Satellite 
Television Law: Repeal, Reauthorize, or Revise?'' and in some 
way, shape, or form each one of you have taken up one of those 
words, so it really fits with what the title of the hearing is. 
I am also mindful that, you know, as you make your 
recommendations to us, that these are really some huge rewrites 
of business plans, and those are gigantic lobbies, most 
frankly, around here but we are going to do our best to come up 
with the best, and I thank you, because we really have a mix of 
views which is very healthy here today.
    The questions that I want to ask, and I am going to have to 
submit some for the record for you to respond to because I 
won't have enough time to ask all of them, are a little beyond, 
I think, just STELA, but since you are here, I still want to 
ask them.
    Mr. Palkovic, I now understand why it is called DIRECTV, 
because you are very direct in your approach. In Ms. Burdick's 
testimony, she stated that the retransmission consent system 
under which local broadcast stations negotiate with pay 
television providers for the retransmission of their signal is 
working just as Congress intended. Do you agree with the 
assertion, and if not, what would you propose changing? Try to 
be as brief as possible.
    Mr. Palkovic. Yes, I will make a quick distinction is 
working as intended versus working well, because I think from 
the broadcaster's standpoint it is working fantastic, because 
they have all the protection and the rights of the laws that 
were in place in the '92 Cable Act. What I don't think was 
intended is that they would go from four cable channels to 104 
with regional sports networks and use the retrans process to 
leverage us into paying exorbitant amounts on the cable 
channels because we risk them blacking out channels as part of 
the renegotiation.
    So what we want to address here is the unintended part of 
the combination of those laws, OK, and what is different today 
than in 1992 was we were in a situation where we were dealing 
directly with broadcasters. Now we are dealing with huge 
conglomerates that own both sides of the equation, including 
cable MSOs that if they raise the rates exorbitantly, a lot of 
cases they are just paying themselves.
    Ms. Eshoo. Great, thank you.
    Mr. Pyne, welcome. Nice to have you here. Should Aereo 
prevail in court, some network executives have been quoted as 
saying there would be a radical shift away from the free over-
the-air broadcast signal that consumers have enjoyed for more 
than half a century. If broadcasters began offering programming 
on a subscription only basis, do you think they would still be 
in compliance with the public interest terms of their FCC 
licenses?
    Mr. Pyne. As it relates to the Aereo case, I mean, I know 
there are other network executives who have said certain 
things. Our company's position is that--and as I think is 
evident, we are in pending litigation with Aereo. We will 
always do everything we can to protect our content and the 
copyright and the illegal appropriation of our content.
    Ms. Eshoo. Very carefully crafted response. Very good.
    Mr. Pyne. Our focus is on the prevailing litigation.
    Ms. Eshoo. I understand. Thank you.
    To Mr. Singer, do you think our current law is sufficient 
in ensuring the availability of diverse independent programming 
like Ovation, Hallmark, and the Tennis Channel, and if not, why 
do you think the Cable Act is failing to accomplish its 
intended goal? Should we modernize the program access in the 
carriage laws, and if so, how? How many if so, how, is too--and 
I don't have very much time, but you have 36 seconds for a big 
question.
    Mr. Singer. I think that the laws as written with respect 
to program carriage, program access are fine. The problem is in 
the details of the implementation, and I actually think that 
the FCC has done a nice job here in implementing the rules, but 
of course, once they come to a decision, their decisions can 
be--well, the judge's decision can be overturned by the FCC and 
then there is a period again where the decision by the FCC can 
be overturned by the district court--D.C. Court of Appeals. And 
I think the problem now, very shortly, is that they have--the 
court has layered on certain burdens that will make it all but 
impossible for complainants to prevail. And so I do fear that 
at the current moment, we are in a position where there might 
not be any future program carriage complaints brought, and that 
would be certainly inconsistent with the interests of Congress.
    Ms. Eshoo. Thank you very much.
    Mr. Chairman, I am going to submit my other questions to 
the witnesses, and I am especially interested in the whole 
issue of copyrighted material deserving competition--I mean, 
compensation. I think it is a very important area for us to 
explore, especially when it comes to radio fairly compensating 
artists for their copyrighted materials.
    So with that, I yield back.
    Mr. Walden. Thank the gentlelady, and we will now go to the 
vice chair of the full committee, the gentlewoman from 
Tennessee, Ms. Blackburn, for 5 minutes.
    Mrs. Blackburn. Thank you, Mr. Chairman, and Ms. Eshoo and 
I, I think, have some of the same questions. I am going to go 
right to the copyright issue.
    Ms. Burdick, let me come to you. I appreciate your 
comments, and how you express for property rights and I am 
quoting, ``recognizing local broadcaster's property interest in 
their over-the-air signal, permitting them to seek 
compensation'', and I agree. Content deserves to be paid for 
and incentivized, but I am curious if you think the position 
the broadcasters have taken on the radio side, refusing to 
recognize a performance right for sound recordings, if that 
undermines your position before us as we look at the video 
framework and the retransmission rights, because as you know, 
radio broadcasters say that they shouldn't have to pay 
performance royalties, because they help distribute an artist's 
music. So square that up for me. Where is the contradiction in 
that?
    Ms. Burdick. Sure. Just by way of background, our company 
has been in the radio business for 90 years, 18 months after 
the first commercial station was launched. We have been at it 
for a long time.
    Mrs. Blackburn. That is fine. Quickly.
    Ms. Burdick. There has been a symbiotic relationship 
between radio and artists--I think I am on--radio and artists 
during that period of time, and the substantive difference is 
that when my radio stations play the artist's music, the 
listeners are getting it for free. In this case, we are talking 
about providers who are taking the local television broadcast 
signal, repackaging it, and selling it to consumers, and in 
that case, I am saying, in the latter case, if you are charging 
for it I should be compensated, but on the radio side--and I 
recognize this is a healthy debate in the industry--we are 
providing that as broadcasters for free.
    Mrs. Blackburn. OK, but you know, you can look at it and 
say that they are helping to distribute your signal which helps 
to increase your ad revenues, and so maybe broadcasters--radio 
broadcasters should be distributing or should be paying that 
performance right for those entertainers.
    Mr. Manne, you had a little bit to say about this. Do you 
want to weigh in on this side?
    Mr. Manne. Just briefly, I would just say I think the 
distinction is a distinction without a difference. I don't 
think that you can really square the rejection of the 
compulsory right in one case and not in the other, except other 
than to recognize that the broadcasters are net beneficiaries 
in one regime and they are net payers in the other, and so it 
makes perfect sense that they would prefer one over the other, 
but I don't think that squares with the public interest.
    Mrs. Blackburn. OK, thank you for that.
    I think that this is one of those points that we will 
continue to look at, because content does deserve to be 
compensated and the creator and the holder of that content 
deserves to be compensated.
    Ms. Tykeson, given how government granted retransmission 
consent fees have grown from $216 million in '06 to what will 
be over $3 billion this year, who is benefitting and what is 
driving that growth?
    Ms. Tykeson. Congresswoman, thank you for the question. 
There are two groups that are benefitting from the 
retransmission consent fees. Originally those fees were 
designed to allow--to help level the playing field between the 
local broadcaster and the cable company, and of course, back in 
1992 it was a very different circumstance than it is today. 
What is happening now is the national broadcasters are 
requiring fees be paid through the local affiliates, and that 
is increasing the fees at huge rates, as you mentioned. So that 
all those fees are going to--they are accruing to the large 
conglomerate broadcast companies that control 60 percent of the 
top 50 networks on the backs of my customers.
    Mrs. Blackburn. OK. You also stated in your testimony that 
there exist barriers to creating programming packages that are 
responsive to consumer need, so what has led to your business's 
hands being tied in meeting the needs of your consumers?
    Ms. Tykeson. Congresswoman, there are three things that are 
happening that affect my customers in Bend, Oregon. The first 
is the size of the increases that we are asked to pay by all of 
these programming channels on an annual basis, which range 
between 8 and 10 percent, roughly, for every channel. In 
addition, with these large bundles of programming there is 
always a must-have channel in there, but there are a lot of 
other channels that maybe my customers wouldn't want, and what 
is happening is the large programming companies are forcing 
those channels into certain packages. I used to be able to have 
a special sports package that could meet the needs of customers 
that wanted sports, but now in many cases those expensive 
channels are being pushed down into the more popular packages 
that is increasing the prices for my customers.
    Mrs. Blackburn. OK, my time is expired. Mr. Chairman, I 
have got a question I will submit to all witnesses and ask for 
their response in writing, and I yield back.
    Mr. Walden. Thank the gentlelady from Tennessee, the vice 
chair of the committee. We will now go to the former chairman 
of the committee, the gentleman from Michigan, Mr. Dingell, for 
5 minutes.
    Mr. Dingell. Thank you, Mr. Chairman, and I commend you for 
this hearing. I appreciate your kindness and courtesy to me.
    To the surprise of all, I probably won't be asking 
questions today, but I have got some brief cautionary remarks.
    I am somewhat alarmed by the prevalence of comments in the 
testimony of our witnesses today that are extraneous to the 
basic issue that we seek to address. Successive iterations of 
the 1988 Satellite Home Viewer Act, SHVA, were enacted by 
Congress in order to extend the principle of localism to the 
greatest degree possible to unserved viewers. I note that 
thanks to SHVA and with subsequent reauthorization, DIRECTV and 
DISH are now the second and third largest pay television 
providers in the country and are able to compete on a more 
level footing with the traditionally dominant cable companies. 
These facts tell me that SHVA and its successor legislation 
have well nigh fulfilled their intended effect.
    Now the committee last considered the satellite television 
reauthorization legislation in October of 2009. That bill was 
comprised of nine titles, but it had only 30 pages or 
thereabouts. Its main provisions extended Section 325(b) of the 
Communications Act with respect to distant signal carriage and 
good faith negotiations, as well as addressed problems related 
to significantly viewed stations, and the after effects of the 
transition to digital television. Now to put this in simple 
terms, the committee's work on satellite television legislation 
has been predicated on the simple principle of localism, and it 
should continue to do so.
    In closing, I recognize the landscape for video has changed 
significantly in the past 25 years. If the Cable Act or other 
laws related to the video marketplace are to be amended, they 
should be amended on the sound basis of a thorough record 
established by the committee's diligent record--diligent 
efforts to achieve such record. At present, the committee has 
not established such record, and I have to confess that I don't 
think that most of my colleagues, including me, understand full 
well what the situation is or what it is we should do about 
these matters. And so without those kinds of things and without 
a record to define what are efforts should be, I think we would 
be well served to confine our efforts here to a clean 
reauthorization of the Satellite Television Extension and 
Localism Act. I would observe that to fail to do this is 
probably going to project the committee into one of the 
doggonest donnybrooks in recent history and I would hope that 
for the benefit of all of us and for the need to do other 
things that we would keep that thought in mind.
    With that, Mr. Chairman, I return with my thanks and 
gratitude a minute and 44 seconds, and I appreciate your 
courtesy toward me. Thank you.
    Ms. Eshoo. Would the gentleman yield?
    Mr. Dingell. If I have some time, of course.
    Mr. Walden. Gentleman yields.
    Ms. Eshoo. Thank you, Mr. Dingell.
    I can't help but jump in here, given what the gentleman 
from Michigan has said. I think everyone here knows, and if you 
don't, you are going to be reading about it, that Mr. Dingell 
is now the single longest serving member of the United States 
Congress in the history of our Nation, and he has spoken again 
very, very wisely and prudently today. So we not only 
congratulate him and celebrate the work that he has done at 
this committee. Every major law that we can point to has his 
imprimatur on it. So thank you, Mr. Dingell, and thank you for 
what you said today, and bravo.
    Mr. Dingell. Mr. Chairman, I want to express my respect for 
the gentlewoman from California, and my thanks to her for those 
kind words. My old daddy used to say to me, son, he would say, 
it ain't how long you took, but how well you did and how hard 
you tried. I have tried to concentrate on the second part of 
that comment. Thank you very much, Ms. Eshoo, and Mr. Chairman, 
I thank you for your courtesy again.
    Mr. Latta [presiding]. The chairman emeritus yields back, 
and at this time, the chairman recognizes himself for 5 
minutes. Again, I want to thank all of the panelists for 
appearing before us today, and it is a very important hearing 
and where we are going to be going in the next year and a half 
with the reauthorization.
    If I could start with Ms. Tykeson, and ask you a couple 
questions. First, again, congratulations on your award. I 
represent a very interesting area, one that is south of Mr. 
Dingell's area in Ohio, and it goes from an urban area to a 
very rural area. And so it is served by very many smaller 
operators like BendBroadband. I want to ask you about set top 
boxes, if I could. You have called on Congress to repeal the 
band on integrated security on these set top boxes, but you 
note in your written testimony that your company was granted a 
waiver of that rule. Why is this rule relevant in today's role, 
given all the devices that folks out there are able to get 
video programming from? And do we still need the 629 rule as a 
follow up?
    Ms. Tykeson. Thank you for your question, Congressman.
    We were successful in receiving a waiver from the separable 
security ban back in 2008, so we were able to go all digital. 
We were the first company in a traditional cable company to go 
all digital and reclaim all of our analog spectrum. What has 
changed even since then is the plethora of devices that are 
available and so determining how people receive their signals 
using hardware in today's world where applications or software 
can do the job is a much more efficient way to do that. A lot 
of companies can't do--put together a waiver because they are 
too small, and having this rule on the books that is outdated 
and no longer relevant is costing billions of dollars and 
preventing technology from moving forward. Thank you.
    Mr. Latta. Let me just follow up. You just said some of the 
companies out there can't do it because they are too small. How 
small is too small?
    Ms. Tykeson. Well, I am a member of the ACA, which 
represents small operators, and there are companies out there 
with a couple of hundred cable customers.
    Mr. Latta. OK. Let me follow up with you on that. I 
understand that the FCC has admitted that their cable card 
rules have not been successful at ensuring a retail market for 
set top boxes as Section 629 of the '96 Act intended. However, 
the FCC has been encouraged to adopt all vid rules that apply 
to all pay-TV providers to remedy this situation. What is your 
position on that?
    Ms. Tykeson. Well, I think the problem with the rules 
that--with regards to the--excuse me, I am a little bit 
nervous.
    Mr. Latta. Go right ahead.
    Ms. Tykeson. Some of these rules are only applying to cable 
companies, and they are only applying in the United States. And 
so we are artificially impacting the cost of hardware, and I am 
not in favor of trying to regulate who should be doing what 
with technology that is changing fast and rules like we have in 
the '92 Act become outdated and they are impacting the 
marketplace and how it unfolds.
    Mr. Latta. Thank you very much.
    Mr. Pyne, if I could ask you just a couple questions. I 
find it kind of interesting in your testimony you stated that 
in cooperation with our MVPDs, for example, cable, satellite, 
and telco distributors, you now have--you make live streaming 
of many of our channels available to subscribers on their 
tablets and smartphones, and having heard, you know, through 
the testimony today and we hear all the time is how things are 
really changing out there, how people from, you know, across 
the country are getting their information.
    I am just kind of curious, when you talk about, you know, 
making that live streaming available, you know, on all these 
different channels of subscribers, do you have any breakdown of 
like the ages of individuals or the regions? Is it particular 
or is this across the Nation on the age groups, just out of 
curiosity, for one?
    Mr. Pyne. On the specific--with our Watch services, I don't 
have the breakdown. We can certainly look into that. Just to be 
clear, part of the reason we call this TV Everywhere, the 
industry calls it TV Everywhere, and it is really--it is part 
of the industry's effort to continue to find ways to provide an 
incredible value package to consumers. Just quickly, this week, 
Michael Powell, who is the head of the NCTA, said on stage, you 
know, the average cost per hour of viewing entertainment 
content is 23 cents. So 23 cents is the average cost of 
viewing, which in terms of entertainment options, he was saying 
is a very great bargain. I mean, I commend companies like Bend, 
DIRECTV, and others for the great job that they have done in 
creating that value.
    I will tell you that ABC.com, in 2004 when we had such 
great hits as Lost, Desperate Housewives, and Grey's Anatomy, 
we found that 15 minutes they were off the air, they were 
pirated around the world, so we created a service called 
ABC.com, which is live streaming at that point, and the 
statistics we found in that is that the average age of a linear 
television was in the earlier 40s, but the average age of 
someone who watched ABC.com was in his or her early 30s. So I 
think that that may give you some indication.
    Mr. Latta. Well thank you very much, and my time has 
expired. At this time, I recognize the gentleman from 
Pennsylvania, Mr. Doyle, for 5 minutes.
    Mr. Doyle. Thank you, Mr. Chairman.
    Ms. Burdick and Ms. Tykeson, both of your companies deal 
with retransmission consent as small cable providers, yet you 
seem to have a disagreement on the effectiveness of the regime. 
Why do you think that is?
    Ms. Burdick. Well as I said, I am the small broadcaster, 
small cable company at either side of the table. There have 
been some remarks today about consolidation of broadcasters. We 
are small fries compared to the consolidation of the video 
provider world. The top four video providers control 62 percent 
of the market. The top 10 control 91 percent, so in my 
negotiations as a broadcaster, I will start with a major MVPD 
with millions of subscribers that says you cover in your six 
markets 1.8 percent of the country. I can afford that churn. So 
it is a tough business negotiation either way. If I spoke as a 
cable operator, which I am not today, I am speaking on behalf 
of NAB, but the negotiation is equally as tough on that side of 
the table and I think what it proves is that the marketplace 
works. There are thousands----
    Mr. Doyle. So as a small cable operator, though, you think 
it works?
    Ms. Burdick. Yes, we made it work.
    Mr. Doyle. Ms. Tykeson, you have a different view?
    Ms. Tykeson. I don't think it works because it is not a 
free market, so I have a choice of one affiliate in my market, 
you know, and in some cases it is a great affiliate because 
they provide local news. But if we have an impasse, for 
example, I am given a price I have to pay, I don't have any 
recourse. I can maybe negotiate a little bit, but at the end of 
the day, that broadcaster can take the channel off of my 
system. So my customers either have to pay the price or we go--
have to go black with the channel. We can't bring in another 
signal during that interim period.
    The other point I wanted to make, in some markets, about 48 
markets around the country, there are broadcasters working 
together to negotiate with the MVPD or the local operator, and 
that collusion is driving up prices by about 20 percent and 
making it very challenging to negotiate. I don't think there is 
any other industry where competitors could work together to 
collude to come up with a solution. I know Ms. Burdick in her 
testimony said that in her market she is not doing that, but my 
smaller cable constituents around the country have had those 
circumstances that are very disruptive to their customers.
    Mr. Doyle. Thank you.
    Mr. Pyne, has Disney ever commissioned the purchase of your 
most popular channels on the purchase of your least popular 
channels?
    Mr. Pyne. No, we have not. In fact, I have signed three 
affidavits attesting to that fact that we do not employ what is 
commonly known as tying.
    Mr. Doyle. So has anyone ever requested price quotes from 
you for just your most popular channels only?
    Mr. Pyne. Excuse me?
    Mr. Doyle. Has anyone ever requested price quotes from you 
for just your most popular channels?
    Mr. Pyne. Yes, they have, and in fact, ESPN and ESPN-2, 
which are two of our most popular channels, 15 percent of our 
cable systems out there only carry ESPN and ESPN-2.
    Mr. Doyle. Very good, thank you.
    Ms. Tykeson and Mr. Palkovic, how does channel bundling 
affect the types of packages that your companies can offer, and 
how does it affect the prices you charge your consumers?
    Mr. Palkovic. Well, with DIRECTV, it is simple. We are 
offered a price for all of the channels with a particular 
program, including retrans. Any offers that would break that 
down into individual pieces are just economic. I think that is 
intended, so that usually doesn't go anywhere, and you know, 
you end up with situations where even if we could create a 
package for consumers that was affordable that only had in that 
package enough programming to support a price point that they 
would want, it will run afoul of penetration obligations in 
those agreements. So you can do it, but you end up either 
having to stop selling that package or you have to pay through 
the nose to the programmers for violating those terms. So it is 
not just a tie-in involving channels, there are penetration 
obligations on the more popular channels that accrue to the 
rest of the suite of services. So it is a tough situation today 
to deal with.
    Mr. Doyle. Thank you. Ms. Tykeson?
    Ms. Tykeson. So what that means is if we wanted to have a 
channel down in a lower level--well, usually we don't, but if 
say, for example, with the basic cable, limited cable, we would 
be prevented from moving those channels to a higher tier if 
they are too expensive. So we are forcing our customers 
through--unfortunately, the programmers are--to put these 
channels in tiers where customers don't want them, and if we 
pierce the floor, and I think that is what Mike is saying, now 
we are in breach of contract. So I have to put these channels 
in these wide penetrated tiers and customers don't want them. 
My packages are becoming way too expensive, and it is just not 
fair for my customers.
    Mr. Doyle. Thank you, Mr. Chairman. I see my time is up so 
I will submit the rest of my questions for the record.
    Mr. Latta. Thank you very much. The gentleman yields back, 
and the chair now recognizes the chairman emeritus, Mr. Barton 
from Texas, for 5 minutes.
    Mr. Barton. Thank you, Mr. Chairman.
    Before I go into my questions, I have a commercial. 
Tomorrow night at I think 7 o'clock, Mr. Doyle's behemoth of a 
team, the Ragtag Republicans, and I am scrounging a team 
together this afternoon to make sure that we can get nine folks 
to show up, but the game is at 7 o'clock and there are a lot of 
Energy and Commerce Members. Mr. Doyle is the manager on the 
Democrats and I am the manager on the Republicans. Mr. Scalise 
he is our second baseman, so we are hoping----
    Mr. Doyle. We will be gentle, Mr. Chairman.
    Mr. Barton. You what?
    Mr. Doyle. I said we will be gentle.
    Mr. Barton. Yes, well we want you to be very gentle. Now if 
you will start the clock I will get into my comments.
    I have three homes, which is unusual: two in Texas and one 
up here. One of them is covered by DIRECTV, one is covered by 
Comcast, and one is covered by Charter Communications. The two 
that are covered by cable, you know, also includes an internet 
package. DIRECTV is just TV. All of those I am paying in the 
neighborhood of $200 a month each. I am really looking at going 
back to the old free TV. I mean, I think it is illustrative 
when you are having commercials show up on cable television 
that you can get an antenna and the government requires free 
over-the-air broadcast. You know, we have got a whole 
generation of Americans who don't realize that they can get 
free over-the-air TV. It is like it is a new product, and I am 
about to rejoin going back to the future, because of the cost.
    Now, the last time we did a major cable bill, there was a 
Republican Congressman named Nathan Deal, and he was hot to 
trot on ala carte pricing. And I discouraged him and--but 
anyway, we got him--we let him have a vote on his amendment. I 
think he got two or three votes. Well he is now Governor of 
Georgia, but if he were still a member of this committee, I 
think he would get a lot more votes. I am not real happy--I 
understand that I can get 1,000 channels, but I only watch two 
or three, and my friends at DIRECTV--I know it is not fair to 
pick on you, but one of the channels that I really, really like 
to watch is FOX Southwest. It is the regional sports channel in 
Texas. In order to get it, I had to pay about 70 bucks for a 
package, a tiered package of which out of all of those the 
really only one I want to watch is FOX Southwest.
    So I am not sure--I haven't talked to Mr. Walden or Mr. 
Upton. I don't know what their personal views are on 
reauthorization, whether they want to reopen it or they just 
want a so-called clean bill. But if they want to go beyond a 
clean reauthorization, I am very willing to look at the basic 
tenets and revisit it, because to the average American family, 
200 bucks a month is a significant amount of money and it is--
that is about--in three locations. Now that does, in two of the 
three, includes an internet package. It doesn't in the TV 
package for DIRECTV. So that is just something as an 
observation.
    My question I am going to go to Mr. Singer here, because he 
seems to be the economist neutral man here. Retransmission 
consent was meant to be a level playing negotiation between a 
local broadcaster and a local cable operator. And in many 
cases, the local cable operator was a national cable operator. 
It wasn't somebody like Mrs. Tykeson, who has a local system. 
But apparently now, retransmission is becoming a national 
negotiation between a broadcast network where the local 
affiliate yields to the national network, who then gets a fair 
amount of the retransmission package if there is compensation. 
That was not the intent of the Congress, at least, that is not 
my recollection. So I would like Mr. Singer's comments on this, 
how retransmission has evolved and if he has a solution, if he 
thinks it needs to be changed, what would he go to?
    Mr. Singer. Sure. Thanks for putting that to me, and I will 
try to be fairer than them all. But the point is that economics 
or the way that economists think about things, is there a 
market problem? Is there, say, vertical integration that can 
distort incentives relative to an independent in this 
situation? When I look at this problem, I see two behemoths on 
both sides of the bargaining table. And in this situation, you 
will get some failures in a sense that deals won't be struck. 
But there isn't a very solid basis, at least in economics, for 
regulatory intervention in those circumstances. It seems to me 
that--and this is an important caveat--so long as the copyright 
is protected on the broadcaster's side, we should just let 
those guys basically beat each other over the heads until they 
come to the right price.
    Mr. Barton. So you don't see a problem with the current 
law?
    Mr. Singer. I think that there is--again, what I have seen 
put on the table, I think, in Mr. Manne's testimony is that if 
we fix the copyright issue we can repeal the law and let market 
forces dictate the outcomes.
    I do see problems, I just want to say, in terms of the size 
of the package that you mentioned before and I am sympathetic 
to that, but on this issue of whether or not government should 
lean in and put their hand on the scale of a negotiation 
between two large players on both sides of the equation, that 
doesn't have a very strong basis in economics.
    Mr. Barton. OK. Thank you, Mr. Chairman.
    Mr. Latta. Thank you very much. The gentleman yields back, 
and at this time the chair recognizes the gentleman from New 
Mexico, Mr. Lujan, for 5 minutes.
    Mr. Lujan. Thank you very much, Mr. Chairman.
    Mr. Barton, I almost want to yield you more time to get to 
some of those questions as well, sharing some of those 
concerns, especially with the rural district that I represent.
    I guess a question to Mr. Palkovic, Mr. Pyne, and Ms. 
Tykeson, along the same lines, last year the FCC released its 
annual survey of cable industry rates and found that prices 
from 1995 to 2011 time period increased by an annual rate of 
6.1 percent, compared to only 2.4 percent increases in the 
overall consumer price index. To what factors do you attribute 
those causes, especially as we talk about the impact of 
programming to many of our consumers?
    Mr. Palkovic. Sure. I think DIRECTV in recent years has 
been going up annually about 4 percent with our customers all 
in, and just to kind of put it in some context, over 40 percent 
of our costs are costs paid directly to the programmers, to the 
content holders, and their prices have gone up double digits, 
so you know, when 40 percent of your costs are going up 10 
percent and we can only get 4 percent from our consumers, 
because we still have to operate in a competitive environment, 
we are not making any money on this. So all the other operating 
costs we have for satellite and broadcast centers and overhead 
and customer service--and we are a huge believer in providing, 
you know, the best customer experience, we are eating those 
costs because all the money that we are getting annually is 
going directly to the content holders. So if people think that 
we are, you know, out there making money on these increases, we 
are not.
    Mr. Pyne. I think----
    Ms. Tykeson. So in our case, programming is the number one 
cost for my company. Our expenses for programming are going up 
twice as fast as our revenue from video product. I wanted to 
also just comment on Congressman Barton's point, because what 
we have now is this shifting in the power. We are negotiating--
MVPDs like Mike's company and my company are negotiating with a 
single broadcaster in a market, so this is the only example I 
can think of where you have more competition and higher prices, 
and it is because I don't have any place to go besides to those 
broadcasters or programmers to get that particular content.
    Mr. Lujan. Mr. Pyne?
    Mr. Pyne. If I may just say something on programming costs. 
First of all, I want to make one point clear is that at the 
Walt Disney Company, we only own eight television stations so 
when we negotiate retransmission consent, we only negotiate for 
those eight stations. It sounds like there is a belief that all 
the local broadcasters are puppets in some way. Believe me, 
there is a great exchange of dialog between local broadcasters 
who are affiliates and us in terms of whatever the appropriate 
exchange of value, but you know, they are the ones that drive 
that local decision and that local negotiation.
    You know, we at the Walt Disney Company spend billions of 
dollars every year in creating great content. I said earlier 
that, you know, for ABC alone it is $3 billion a year, but we 
always--whatever the service, we always are looking to make our 
networks must-have. I wish it were as easy to call down to the 
local store and say here, I would like to order two hits, but 
the investment and the risk in developing that content is huge 
for us, and ultimately, we are looking, in terms of our 
negotiations, to find, you know, a fair way of reaching terms 
with whomever our distributor is.
    You know, one of the advantages that small rural cable 
systems have is something called the National Cable Television 
Cooperative, or NCTC, and in that case for all of our cable 
networks, ESPN, Disney Channel, ABC Family, we negotiate--and 
BendBroadband is a member, you may be a member, too--we 
negotiate as if they are the fifth--eight million subs, they 
represent eight million subscribers, and we negotiate as if 
they are the fifth largest MVPD.
    Mr. Lujan. Mr. Pyne, I am sorry, I am going to have to just 
jump in here because I am going to lose all my time here.
    Mr. Pyne. Sorry.
    Mr. Lujan. But I would love to get that maybe in a written 
way and we will get that resubmitted.
    Ms. Burdick, I am sympathetic to a comment that you made in 
your prepared testimony that you are concerned that local 
communities could lose access to local programming. I think 
that we would both agree that access to local news, local 
programming is critically important. But I want to talk to you 
about something that is broken. I represent a district where 
many of my constituents can't receive local programming because 
of the DMA that they are in, and I would like your opinion on 
what we can do to make sure that we are including orphan 
counties to get this done, because if not, I want to work with 
my colleagues to find a way to fix this. Since I have been in 
Congress I have been asking for help in this area and I have 
not found anyone willing to help me out to get this fixed.
    Ms. Burdick. Well, I can tell you the head of the NAB, 
former Senator Smith, was successful on the Senate side in 
finding some fixes there, and we will be glad to work with you. 
Broadcasters want local citizens to have local programming, and 
we would be glad to work with you.
    May I take just a minute to address a couple of the 
comments here? I think you raised something that was really 
important where you quoted cable rates from 1995 on. The fact 
of the matter is broadcast retransmission consent has only 
existed since 1992, and from a practical basis, it was really 
not until the late '90s or 2000 that most broadcasters began 
successfully negotiating for pennies of every programming 
dollar to support local news and information. The cable rates 
have been going up in a larger percentage long before 
broadcasters were being paid for the most popular content on 
cable systems.
    Mr. Lujan. Mr. Chairman, I know my time is right now, but 
as I look for some assistance to get this done, some of my 
savvy consumers, all they do is they go and get a post office 
box out of a metropolitan area in the middle part of the State, 
the largest city of Albuquerque and then once they send that 
bill to their satellite provider, then I will be darned, they 
get local programming. You know, if it is not against the law, 
we need to make this work somehow. This is just ridiculous. 
These are farmers and ranchers that are in isolated areas that 
want local programming, want to know what is happening in the 
State that they are proud to belong to, and we've got to get 
this thing fixed.
    Thank you very much, Mr. Chairman.
    Mr. Latta. The gentleman yields back his time, and at this 
time the chair recognizes the gentleman from Louisiana, Mr. 
Scalise, for 5 minutes.
    Mr. Scalise. Thank you, Mr. Chairman. I appreciate that and 
enjoy the testimony.
    I want to start with Mr. Palkovic. In your testimony you 
had stated that competition normally drives down prices, but 
here the Congressional Research Service recently put it that 
``Ironically the market consequence of greater competition in 
the distribution of video programming appears to be greater 
negotiating leverage for the programmers with popular and 
especially must-have programming, resulting in higher 
programming prices that MVPDs tend to pass through at least 
partially to subscribers.'' How do you believe government 
regulation has contributed, if at all, to the findings that we 
saw from the Congressional Research Service?
    Mr. Palkovic. Well, I think it gets back to the tying and 
bundling of the retransmission consent rights that broadcasters 
have that are tied to the 1992 Cable Act, coupled with the 
consolidation of programming that has taken place since that 
time. Right now, there are six major companies that control the 
majority of programming. They are not all broadcasters, but 
four of them are broadcasters, and they behave somewhat 
differently depending on who they are. But when they bundle all 
of their content together, even the content that is less 
desirable that people should be allowed to choose in more niche 
packages, in exchange for a very much high in demand 
programming, they really just point the gun at your head and 
say you got to take it or leave it. What makes it even worse is 
when they throw blackouts on top of that, so it sounds like it 
is a free market situation, but underlying that are all the 
protections they have for the local broadcast channels. And it 
may not be the smaller mom and pops, that may be a more direct 
kind of traditionally fair discussion, but these large 
conglomerates are basically using all the rights they have with 
the Cable Act and leveraging that against distributors and 
driving the prices up.
    Mr. Scalise. Let me ask Mr. Pyne, I know when you talk 
about the different services that your company provides, you 
know, my kids would probably have a revolt if the Disney 
Channel or Disney Junior went off the air. I would probably 
have a revolt if ESPN went off the air. If there was a repeal 
of retransmission consent, but also tied in with the repeal of 
compulsory copyright license, which I know legislation I 
brought forward would do--and usually the compulsory copyright 
components are often left out of the conversation. Wouldn't you 
just revert back to a normal, as Mr. Manne described it, a 
normal copyright negotiation where you would have two parties 
that would still be sitting at a table negotiating, but in this 
case the consumer demand would be driving a negotiation that 
would still be based on a mutually agreed upon price?
    Mr. Pyne. We don't support the repeal of both the retrans 
and compulsory copyright. Clearly in that discussion there are 
some things of interest to us in terms of the economic 
discussion, but we don't support the repeal of retransmission 
consent for the reasons I cited. I think in full candor, one of 
the reasons is the potential uncertainty we view that could 
take place in the marketplace. You know, from our perspective 
and certainly from other broadcast perspective, we believe the 
system is working in terms of the negotiations. Yes, there are 
disruptions. There are not officially blackouts because 
broadcasters are still broadcasting their signal, and as in any 
negotiation in the current system--I have personally been 
involved in two. One is when Time Warner dropped ABC in 2000, 
and then in 2010 when we dropped Cablevision. In the first case 
it was resolved in 36 hours, in the latter--and that was just 
ABC, by the way, it was not other networks--and the latter 
resulted in 20 hours of ABC being off the air and we reached a 
resolution.
    Mr. Scalise. Thanks. One of the earlier--when I did my 
opening, the reason I held up the brick phone, you can find 
these on the Internet still, which we were able to do--it 
doesn't work. I can't get it to work. But the laws that were 
written during the time when this was the technology--and I 
brought up the Aereo case earlier and I appreciate that there 
is ongoing litigation, you can't talk about it here. But if you 
look just a few weeks ago, the head of CBS actually did chime 
in on his and indicated that they are right now in talks with 
pulling CBS down and going to a cable format. Now, probably 
unlikely that it gets to that, but the fact that CBS, one of 
the major broadcasters, is right now talking about the 
possibility that if this court case goes a different way, that 
they could pull down their local broadcast signals and just go 
to a pure cable format tells you the marketplace has changed 
dramatically because of technology, and yet the laws don't 
cover that. So I want to finish with a question to Mr. Manne, 
how do you view this marketplace as it is evolving in the 
context of laws that were written in 1992 that really haven't 
been updated, though the technology has changed dramatically?
    Mr. Manne. We had amazing progress in this market, despite 
the fact, as I pointed out in my testimony, but clearly 
suboptimal rules here. I think in particular when I hear all 
this discussion about high prices for must-have content and all 
the talk about bundles, I think Hal and I seem to substantially 
disagree about this. What I hear is that there are pieces of 
the existing regime--we have talked about them, starting as you 
and I both agree with the compulsory license, but going through 
all of the many we have mentioned today, that do dramatically, 
I think, impair the free contracting among the various parties 
here and probably do affect price, but it is also really 
important that at the end of the day, you do have to pay a 
price for things like things that you must have. If you really 
want something, you usually have to pay more for it, and 
especially when it comes to the availability of content, and 
that means both the production of the content and the 
distribution of it, you know, I see this incredibly vibrant 
market with more content than we have ever had, more avenues of 
distribution than are imaginable, and the fact that the 
particular business model by which they are distributed, in 
some cases, for example, bundled, that doesn't foreclose access 
to all of this wonderful content. That is not how it works. And 
because it doesn't work that way, I see it as a valid business 
decision that these content owners and the distributors that 
they negotiate with have made to actually maximize the 
production of that content. That may cost a little bit more--
seem like it costs more, because you have to pay more, for 
example, the bundle, but that has generated such a 
proliferation of content and again, distribution mechanisms for 
it that we have this really remarkable market that could be 
even better, because there are such easily identifiable 
problems with the regulation of it that we could dispense with 
it.
    Mr. Scalise. Thank you. Appreciate it, Mr. Chairman, and I 
yield back the balance of my time.
    Mr. Latta. Thank you very much. The gentleman yields back. 
At this time now, the chair recognizes the gentleman from Utah, 
Mr. Matheson, for 5 minutes.
    Mr. Matheson. Thanks, Mr. Chairman, and I do appreciate the 
panel today. I find this to be a rather thoughtful and 
informative hearing, which I wish that was always the case, but 
this is a really good one today. So I appreciate all of your 
input.
    I had a couple of questions. There are so many issues out 
there, but Ms. Burdick, I wanted to ask you, there is a 
suggestion that has been put out by some folks that there is a 
situation where out-of-market programming could be allowed 
during retransmission consent disputes. If that happened, could 
you tell me what the impact would be on your company if that 
happened during a retransmission dispute?
    Ms. Burdick. Sure. I will give you one line and then I will 
elaborate. Imagine what it would have been like in Moore, 
Oklahoma, had distant signals been broadcast the day of the 
tornadoes. Imagine what it would have been like.
    We as local broadcasters are providing local news, weather, 
and sports services that are not duplicated by anyone else, and 
the fact of the matter, as the panelists have alluded to us is 
must-have programming because it is watched more on their cable 
systems or satellite systems than any of the channels that they 
provide. You have to go to a CW, a My Network station, over-
the-air that even gets close to the top-rated cable network, so 
we are providing important content. If a local signal--if a 
distant signal was allowed to be imported, a couple things 
would happen. There will be more disputes, not less, that will 
last longer because there is no incentive for the cable or 
satellite operator to solve that dispute. They are bringing in 
a signal they are not paying for, so why would you reach a 
resolution with a local content provider to pay for that 
content, number one. At the second time, they would be 
shrinking my market area. I would be losing eyeballs. When I 
lose eyeballs, I lose advertisers. When I lose advertisers, I 
lose dollars. The only place, as Ms. Tykeson rightly refers to, 
cable's highest programming cost--cable's highest cost is 
programming. Mine, as a local broadcaster, is people doing news 
and local information. When I lose revenue, that is the only 
place I have to go to control my cost, and that would be the 
impact. Less news, less local information.
    Mr. Matheson. Thank you.
    Ms. Tykeson, you talked about in your testimony how your 
costs for your consent fees have gone up over the last few 
years. Roughly how much of your--what is your breakdown of how 
much your programming dollar breaks down between what is 
broadcast and what is not?
    Ms. Tykeson. So the--I would say----
    Mr. Matheson. Sorry, could you turn your mike on?
    Ms. Tykeson. Sorry.
    Mr. Matheson. Thank you.
    Ms. Tykeson. The prices for retransmission consent are 
growing at a faster rate than the costs for my other kinds of 
programming, but both are going up by significant amounts. I 
would say with these recent rounds of retransmission consent 
negotiation, probably doubling and tripling each cycle. And 
then in addition, with the large bundles of programming that I 
am required to offer because there is not a system that allows 
me to offer smaller packages to my customers, each time those 
negotiations come around, my costs are going up, in some cases, 
by 20 to 30 or even more, depending on what is being required 
of me in terms of moving some of those channels down, offering 
more channels, and then also taking double or triple the cost 
of inflation increases on each one of those channels that we 
provide to our customers, and we have to, in accordance with 
those agreements.
    Mr. Pyne. Can I make one clarification, please, and I have 
heard this several times. I think I stated earlier that we 
don't employ tying. Like other businesses, we do offer packages 
of programming, but I guess I will say three things. Number 
one, clearly we spend an inordinate amount of time, energy and 
money in developing must-have programming, and that is from the 
very top of our company, creative excellence. Two is, you know, 
when a channel doesn't do very well, we, in fact, change it, so 
recently Soapnet, great channel in the 2000s, its popularity 
has waned, so we could have just tacked on another channel and 
added more, but in fact, we are switching out Soapnet and 
launching Disney Junior, which has incredible programming, and 
third, if I may finish, you know, we would love all of our 
channels to be 100 percent penetrated. We have a portfolio. We 
love them. But in fact, even on BendBroadband, our ESPN news 
channel is only penetrated 18 percent, Disney Junior 49 
percent, and on DIRECTV, ESPN deportes is only penetrated 6 
percent. And finally, we have--and we understand that. That was 
a negotiated deal through fair market terms. And finally, you 
know, we have done as a company over the last little over 2 \1/
2\ years seven of the top ten deals with major companies, with 
smaller companies, ranging from Cox Communications to 
Cablevision, to AT&T, and certainly Comcast. We have done deals 
that after 30 years of negotiating in the marketplace--and I 
have been doing this for 21 years--I think we have established 
standard rates and standard terms.
    Ms. Tykeson. If I may just add, because my neighbor here 
mentioned the National Co-op, which is an opportunity for 
companies like BendBroadband to participate, but some of the 
problems with the rules that we currently are operating under 
is the co-op is not really treated truly like a large 
distributor, so the prices that are offered to the co-op 
members, and terms in particular, are different and in most 
cases, it costs more or there is more stipulations and terms 
that are not attractive or as attractive as a large distributor 
might be able to get. Thank you.
    Mr. Matheson. Thank you. I appreciate everyone's comments. 
Mr. Chairman, I yield back.
    Mr. Latta. Thank you very much. The gentleman yields back, 
and the chair now recognizes the gentleman from Vermont, Mr. 
Welch, for 5 minutes.
    Mr. Welch. Thank you very much, Mr. Chairman. This is a 
great hearing. I was on the committee two Congresses ago and 
then I was off last committee, and I am back. And things are 
pretty confusing for consumers, anyway. You know, I find this 
to be a very excellent hearing and really appreciated your 
testimony, and Mr. Chairman and ranking member, it is fabulous 
to be here.
    But you know, the work that everyone is doing is so 
important, and how you do it and what the market requirements 
are in order to have the revenue stream in order to do it 
obviously is essential, and we are talking about this in the 
context of satellite reauthorization, which Congress has 
successfully done. But the kind of elephant in the room that 
has been alluded to, but not directly addressed, is the Cable 
Act of 1992. I mean, the world is totally different. The 
revenue models are totally different. The consumer needs and 
opportunities are completely different, and it is raising the 
question in my mind as to whether or not, in fact, there needs 
to be a serious revisit of the Cable Act of 1992.
    In my office, I have had many of you or people in your 
sectors of the very challenging industry come in and talk about 
what they perceive as problems with the status quo, some people 
saying the status quo is the right way to go, but that is very 
much in contention, and we are even hearing that amongst you. 
And the bottom line--and I don't have any answers--is that 
somehow, some way we have to figure this out and do it in a 
coherent approach where there is an acknowledgment that there 
are new tensions. I mean, just think about the things we have 
heard tonight--this afternoon. Mr. Lujan talking about the 
orphan counties and not being able to make any progress. What I 
hear about a lot is from my consumers and the cost of this, and 
Mr. Latta, I really appreciate your leadership. We started a 
rural caucus to try to figure out how we can help folks in 
rural America basically get a fair shake on this. The dilemma 
here from my perspective is that the consumers just don't have 
any power to affect the outcome, but they are feeling the 
pressure of these high bills. They need the services you 
provide. They benefit from the content that you create. They 
certainly benefit from local broadcasting. We had Tropical 
Storm Irene, and the lifeline for us was local radio and local 
television. But on the other hand, they have no control over 
what that bill is. They get all these channels that they never 
watch, you know. They kind of wonder why these baseball players 
are getting $230 million contracts and they can't swing a bat 
anymore. And you have got a revenue model where basically there 
is no liability for the general manager who makes the deal, 
because they can just pass it on to the cable subscribers. 
People are getting kind of fed up with that, right?
    So you know, Mr. Chairman and ranking member, I just wonder 
whether it is time for us to not only look at the satellite 
STELA, but to look at the Cable Act of 1992 and understand that 
it has got to come out in a way where the competing interests 
and needs require a solid and stable revenue stream in order to 
provide the benefits to consumers, but the consumer has to be 
part of the equation.
    So I am just going to go down the line and ask whether a 
revisit of the Cable Act, in your view, makes some sense, aside 
from the fact that everyone always fears that whatever can go 
wrong will go wrong if Congress starts trying to change 
anything. So I get that part, all right, but let's start with 
you, Mr. Palkovic.
    Mr. Palkovic. Sure. Obviously we came here to address, you 
know, the topic of STELA, but I think it is safe to say that 
the common theme here is that the rules are old, they need to 
be revisited. It can be a little bit overwhelming to think 
about how difficult that would be. We tried to come up with 
solutions that were anywhere from, you know, the total 
deregulation approach where everybody gives up all their 
rights, and quite honestly, including us, we put the good and 
bad on the table and start over. Two more targeted approaches 
to take care of the things you pointed out that are directly 
evasive to the consumer, because that is really the problem we 
have is when you use the consumer with blackouts and other 
tactics like that to deal with your free marketplace 
negotiations, that is where we think they have kind of gone 
over the line. But yes, I don't think there is any question of 
revisiting----
    Mr. Welch. My time is about up, but I just would be 
interested in a short reaction to whether revisiting the Cable 
Act makes some sense. Go ahead.
    Mr. Palkovic. Pardon me?
    Ms. Burdick. Do you want us to continue or respond later?
    Mr. Welch. Well you can respond later, but a yes or no 
might be helpful now, because I am out of time. We have got a 
very generous chairman here, but I don't want to wear out his 
patience and good will.
    Mr. Latta. Well, if you just want to go down the line and 
answer a yes or no question, go right ahead.
    Mr. Welch. Just yes or no.
    Ms. Burdick. I can't answer it yes or no.
    Mr. Pyne. Me as well.
    Ms. Tykeson. I would say yes, and also provide a written 
response, but that will take time, so I would go for some 
additional fixes now, some of which I have mentioned. Thank 
you.
    Mr. Singer. I think that there is still a valid need for 
the program access and program carriage protections in the 
Cable Act, but aside from those, I think it would be worthwhile 
revisiting the larger picture.
    Mr. Manne. I think absolutely. In fact, I don't think you 
can really address STELA without addressing those other parts. 
I would just say that when you do, the most important thing 
is--I disagree, of course, with Hal about program access and 
program carriage, but the most important thing is to understand 
how your regulations can avoid enshrining, you know, the 
particular contractual arrangements we may have today as though 
those are the only possible revenue models or anything else. I 
think that is what has happened and really fundamentally----
    Mr. Welch. OK, thank you very much, and Mr. Chairman, thank 
you.
    Mr. Latta. Thank you very much. The gentleman yields back 
and the chair now recognizes the gentleman from Colorado, Mr. 
Gardner, for 5 minutes.
    Mr. Gardner. Thank you, Mr. Chairman, and thank you to the 
witnesses for your testimony today. Listening to the opening 
comments, listening to the questions, I think there is no doubt 
from the members here, the witnesses here today that the rules 
governing today's video marketplace were crafted 21 years ago, 
a very long time ago. In fact, none of the rules currently 
apply to some of the latest Internet competitors in the video 
space. So with these dramatic changes that have occurred in the 
video marketplace, I think we have got a great opportunity 
before us to examine what has changed and how current laws can 
help or hinder advancement of the free market and market 
innovation. I know the broadcast industry believes the system 
is working, and many others disagree. The rise in programming 
costs and retransmission consent disputes indicates that there 
are issues that we need to look at.
    So to DIRECTV, I would ask this question. Mr. Palkovic, is 
that right?
    Mr. Palkovic. Palkovic, yes.
    Mr. Gardner. Palkovic. Why do you think STELA is the right 
vehicle to move forward with the discussion of how to change 
regulations in the video industry?
    Mr. Palkovic. Well, I think STELA has proven to be a very, 
very important and appropriate piece of legislation for us. We 
obviously have a number of things that benefit consumers in 
that Act. We certainly wouldn't want any of that to change, 
particularly taking away programming from a million and a half 
customers without really--I don't see any benefit to the 
broadcasters of doing that, other than potentially hurting the 
satellite industry, but it will disenfranchise those customers. 
So since we are in the process of reauthorizing that to the 
extent we can have any even minor changes like the blackout 
issue addressed, and we thought it was appropriate.
    Mr. Gardner. Ms. Burdick or Mr. Pyne, why do you think 
STELA is not the right vehicle to move forward with the 
discussion of how to change regulations in the video industry, 
and could you address Ms. Burdick's question--testimony that 
notes that TV stations are underpaid in terms of retransmission 
consent dollars?
    Ms. Burdick. Well, I think that was evidenced again today 
when Representative Matheson asked the question specifically 
how much of a cable programming dollar goes to local stations? 
It wasn't answered. We continually get this percentage on 
retransmission consent, and math was never my strong suit, but 
when you start from zero----
    Mr. Gardner. Don't work for the IRS.
    Ms. Burdick [continuing]. It always looked pretty big. The 
fact is that broadcast programming is the single highest viewed 
programming on any satellite or cable system, yet the 
compensation we receive for producing that program is miniscule 
compared to some of the other providers.
    I haven't said anything as the term blackout has continued 
to be used today, and I would just like to underscore one 
issue. These are contractual negotiations and relationships, 
and when we reach an impasse, we are still on television. We 
never go away. I hope Representative Barton does take a look at 
what is available now free over-the-air since he last looked. 
It may be 20 or 30 stations, free over-the-air, different 
kinds. Cable is not asking you today with STELA that if they 
reach an impasse with HBO or AMC to be able to import that from 
another cable system, so why should it--why should they be 
allowed to import a broadcaster?
    Mr. Gardner. Mr. Pyne, do you have anything to add to that?
    Mr. Pyne. The only thing I would add is in terms of why we 
are comfortable with sunsetting STELA is that we believe the 
fraction of affected Americans--and we are trying to understand 
the exact number--but it is small enough that through private 
contract or private negotiations we could actually find a 
solution with the satellite companies.
    Mr. Gardner. Thank you. Broadcasters referred to 
retransmission consent negotiations as a free market and asked 
the government to refrain from intervening, yet many on the 
panel have argued today in some questions that there are a 
number of government mandates that prevent the market from 
being free, such as retransmission consent, compulsory 
copyright, basic tier placement, required tier buy through for 
cable, network non-duplication, and syndicated exclusivity. 
They further argue that broadcasters can decide which MVPDs 
carry their content, but MVPDs can't choose which market to get 
their programming from. And so if I could just start down the 
panel at the end--and I am going to run out of time quickly and 
I have some other questions here, but please explain why you 
think the regime is or is not a free market.
    Mr. Palkovic. Well, I think to be concise here, I think the 
broadcasters are combining their rights to carriage in a local 
market and they are leveraging those rights with all the other 
cable content that they have acquired over time, and they know 
that at the end of the day, using tactics like blackouts, bring 
the consumer into play and put the onus on the distributors to 
deal with the consumers, because they don't deal with the 
consumers, we do.
    Ms. Burdick. I will let Mr. Pyne answer one of the other 
issues. I will take a small chunk of that, and that is in all 
of the regulation, whether it was copyright or the Cable Act, 
what Congress wisely recognized is the value of localism and 
protecting local markets in a marketplace that supports local 
news and information. That still has to be recognized, because 
if local broadcasters aren't providing those lifeline services 
and local news, weather, and sports, who else will do it?
    Mr. Pyne. In terms of retransmission consent, we view that 
as a mechanism of actually entering into negotiation, and I 
think one of the tenets of our business is we spend a lot of 
money in creating content, and we want to be able to, you know, 
get an appropriate return on that content. Remember, when you 
do retransmission consent you only--you enter into negotiation 
and you can either reach an agreement or not.
    And just to be clear--and I have said this before--and I 
know we are--ABC is one of the big four broadcasters, but when 
we negotiate retransmission consent, we are not negotiating for 
the country, we are negotiating for our eight owned stations 
and those local markets only. I just wanted to be clear about 
that.
    Ms. Tykeson. Although those markets represent a huge 
percentage of the United States.
    Mr. Pyne. It is actually--to be clear, it is only 23 
percent of the United States, which is smaller than any of the 
other broadcast groups.
    Ms. Tykeson. So I would--to answer your question, I would 
say that it is not a free market. In Bend, Oregon, I have one 
broadcaster to negotiate with. That is it. If we can't come to 
an agreement on the price--and by the way, we have paid in 
other ways over the years in terms of launching additional 
channels and meeting other demands. So while it is true that 
retransmission consent fees have started recently, there were 
lots of other demands before that. So we don't have a free 
market. I don't consider $6 billion to be miniscule in terms of 
what consumers are paying for this programming. If we come to 
an impasse, really I have two choices. One is to take--to pay 
the price and pass that along to my customers, or the channel 
is blacked out.
    Mr. Pyne. Can I just address very quickly----
    Mr. Gardner. If I could interrupt. Mr. Chairman, I don't 
know--I am out of time so I don't know. It is up to you if you 
want the----
    Mr. Latta. If you can finish up in about 30 seconds.
    Mr. Gardner. Yes, so if I could just ask quickly to run 
through the rest of the panel members, and Mr. Pyne, we can 
catch up after this, but let's finish with the rest, Mr. Singer 
and Mr. Manne, if you don't mind quickly? Thank you.
    Mr. Singer. Sure. I don't think allowing broadcasters to be 
compensated for the signals is what is driving higher prices of 
the cable packages. I think it is bundling, and you put your 
finger on that. One of the things that you really haven't put 
your finger on yet that I just want to draw your attention to 
is vertical integration. I just released a study on the review 
of network economics showing that when a regional sports 
network, an RSN, is owned by a cable operator it charges more 
than independents, and the premium increases with the 
downstream market share of the vertically affiliated cable 
operator. So I just think it is important to focus everyone's 
attention on what is driving the prices higher, and the fact 
that broadcasters are allowed to seek compensation for their 
signals is not one of them.
    Mr. Gardner. Mr. Manne?
    Mr. Manne. It is not vertical integration, either. Vertical 
integration has been decreasing over the relevant time period, 
and with all due respect to Hal, we have a pretty substantial 
disagreement over how much vertical integration can really 
impact the prices like that. And I don't think it is nearly as 
substantial as he thinks. I think if there were really a free 
market, all of these supposed--and very real, actually, 
benefits from local broadcasters wouldn't need to be mandated 
by law. The customers and distributors would willingly purchase 
them, but that may not happen without a particular mandate 
suggests that it is not, indeed, a free market.
    Mr. Gardner. Mr. Chairman, thank you for your indulgence.
    Mr. Latta. Thank you very much. The gentleman's time has 
expired, and I just want to thank on behalf of Chairman Walden 
and also Ranking Member Eshoo and myself for all of your 
testimony today, and your answers. We really appreciate it. It 
is very, very informative, and on behalf of the committee, I 
just again say thank you. Seeing no other questions to come 
before the committee, this committee stands adjourned.
    [Whereupon, at 12:48 p.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

                 Prepared statement of Hon. Fred Upton

    Today the Subcommittee on Communications and Technology 
continues its examination of the law authorizing satellite 
operators to retransmit broadcast television signals. Portions 
of the law, first passed a quarter of a century ago, expire at 
the end of next year.
    I think it is an important exercise to be required to 
periodically examine that law. A lot has changed in the video 
marketplace since it was first passed in 1988. Satellite 
television providers are no longer new kids on the block. And 
cable operators, once the commanding presence in the pay-TV 
sector, now face competition not just from satellite providers, 
but phone companies and the Internet as well.
    We have a year and a half before we must decide what action 
to take. Let's use that time to make sure we hear from viewers 
and stakeholders about the actions we should consider, those we 
should not, and the implications of both. Today is our second 
of what will be a thoughtful series of hearings as we pursue 
the appropriate policies.

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