[Senate Hearing 113-544]
[From the U.S. Government Publishing Office]
S. Hrg. 113-544
STATE OF VIDEO
=======================================================================
HEARING
before the
SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET
of the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
MAY 14, 2013
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington ROY BLUNT, Missouri
FRANK R. LAUTENBERG, New Jersey MARCO RUBIO, Florida
MARK PRYOR, Arkansas KELLY AYOTTE, New Hampshire
CLAIRE McCASKILL, Missouri DEAN HELLER, Nevada
AMY KLOBUCHAR, Minnesota DAN COATS, Indiana
MARK WARNER, Virginia TIM SCOTT, South Carolina
MARK BEGICH, Alaska TED CRUZ, Texas
RICHARD BLUMENTHAL, Connecticut DEB FISCHER, Nebraska
BRIAN SCHATZ, Hawaii RON JOHNSON, Wisconsin
WILLIAM COWAN, Massachusetts
Ellen L. Doneski, Staff Director
James Reid, Deputy Staff Director
John Williams, General Counsel
David Schwietert, Republican Staff Director
Nick Rossi, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel and Chief Investigator
------
SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY,
AND THE INTERNET
MARK PRYOR, Arkansas, Chairman ROGER F. WICKER, Mississippi,
BARBARA BOXER, California Ranking Member
BILL NELSON, Florida ROY BLUNT, Missouri
MARIA CANTWELL, Washington MARCO RUBIO, Florida
FRANK R. LAUTENBERG, New Jersey KELLY AYOTTE, New Hampshire,
CLAIRE McCASKILL, Missouri DEAN HELLER, Nevada
AMY KLOBUCHAR, Minnesota DAN COATS, Indiana
MARK WARNER, Virginia TIM SCOTT, South Carolina
MARK BEGICH, Alaska TED CRUZ, Texas
RICHARD BLUMENTHAL, Connecticut DEB FISCHER, Nebraska
BRIAN SCHATZ, Hawaii RON JOHNSON, Wisconsin
WILLIAM COWAN, Massachusetts
C O N T E N T S
----------
Page
Hearing held on May 14, 2013..................................... 1
Statement of Senator Pryor....................................... 1
Statement of Senator Wicker...................................... 2
Statement of Senator Thune....................................... 35
Statement of Senator Fischer..................................... 35
Statement of Senator Johnson..................................... 37
Statement of Senator Warner...................................... 39
Statement of Senator Begich...................................... 42
Witnesses
Hon. John McCain, U.S. Senator from Arizona...................... 3
Hon. Gordon H. Smith, President and Chief Executive Officer,
National Association of Broadcasters........................... 6
Prepared statement........................................... 8
Hon. Michael K. Powell, President and Chief Executive Officer,
National Cable & Telecommunications Association................ 9
Prepared statement........................................... 11
R. Stanton Dodge, Executive Vice President and General Counsel,
DISH Network L.L.C............................................. 15
Prepared statement........................................... 16
John Bergmayer, Senior Staff Attorney, Public Knowledge.......... 19
Prepared statement........................................... 21
Appendix
Response to written questions submitted to Hon. Gordon H. Smith
by:
Hon. Mark Pryor.............................................. 55
Hon. Barbara Boxer........................................... 55
Hon. Amy Klobuchar........................................... 55
Response to written questions submitted to Hon. Michael K. Powell
by:
Hon. Mark Pryor.............................................. 56
Hon. Barbara Boxer........................................... 57
Hon. Amy Klobuchar........................................... 57
Hon. Marco Rubio............................................. 58
Hon. Dean Heller............................................. 61
Response to written questions submitted to R. Stanton Dodge by:
Hon. Mark Pryor.............................................. 61
Hon. Barbara Boxer........................................... 61
Hon. Amy Klobuchar........................................... 62
Hon. Dean Heller............................................. 62
Response to written questions submitted to John Bergmayer by:
Hon. Barbara Boxer........................................... 63
Hon. Amy Klobuchar........................................... 64
Hon. Marco Rubio............................................. 64
Hon. Dean Heller............................................. 64
STATE OF VIDEO
----------
TUESDAY, MAY 14, 2013
U.S. Senate,
Subcommittee on Communications, Technology, and the
Internet,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:32 a.m. in
room SR-253, Russell Senate Office Building, Hon. Mark Pryor,
presiding.
OPENING STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Senator Pryor. I would like to call our hearing to order,
and I want to say good morning and want to thank everyone for
being here this morning.
And we have two panels today. I want to thank all of our
panelists for being here.
And this morning, this Communications Subcommittee's
hearing is going to be on the ``State of Video.'' Again, I want
to thank everyone for their participation and their input
today.
This is the second in a series of hearings on the state of
communications in the United States. It is my hope that it will
help subcommittee members and the public have a better
understanding of the current policy issues that people in the
communications sector face.
Today we are focused on issues of importance to consumers
on video services. As we all know, the video industry has
changed dramatically in the last decade, particularly in light
of two things: Internet video and wireless video.
The increased adoption of broadband has changed the manner
in which Americans watch video programming, bringing both
opportunities and challenges to consumers and companies in the
video marketplace. Wireless video continues to put pressure on
the use and availability of spectrum.
Our witnesses today will tell us how consumers are
navigating and taking advantage of this ever-changing
environment. We will also hear from panelists about their
concerns and views on a number of policy issues, including some
that have been in place since the Cable Act was enacted over 20
years ago and others even longer than that.
Many of these issues were discussed last summer before a
full committee hearing, and I think it is helpful that, with
our new and returning members, we hear from witnesses on their
views on this matter. Most importantly, we want to hear about
our current policies and the dynamic market that is affecting
the consumer. Is the consumer receiving the services, channels,
and shows that he or she wants, and are these products
affordable?
Before we go to our panel discussions, I would like to ask
Senator Wicker to say a few words.
STATEMENT OF HON. ROGER F. WICKER,
U.S. SENATOR FROM MISSISSIPPI
Senator Wicker. Thank you very much, Chairman Pryor, and
thank you for holding this hearing on the state of video. This
is the second in our Subcommittee's ``state of'' communications
hearings. This is a good time to examine the truly vibrant,
growing, and multifaceted video marketplace.
Today's video marketplace is radically different from the
one that existed two decades ago, when the only options for
consumers were over-the-air broadcasting and cable television.
The advent of the World Wide Web has given consumers a
seemingly endless host of avenues to receive video content.
There are cable and satellite services, there are Verizon's
FIOS and AT&T's U-verse services, as well as so-called over-
the-top options, such as Netflix, YouTube, iTunes, and Hulu,
which grow in popularity each day.
The unregulated video media marketplace has truly thrived.
As a member of this subcommittee, I am eager to learn how
policymakers can ensure that the video delivery ecosystem
continues on this path of exponential growth, fostering
policies that encourage innovation rather than hindering it.
We need to focus not only on the current marketplace but,
more importantly, on the future of video. We need to identify
not only where the market has been but where it is going.
To that end, I would like to thank our witnesses for
testifying today. These industry and consumer representatives
are able to bring diverse experience and expertise on the
current state of video, and I look forward to hearing from
them.
I am particularly interested in hearing their perspectives
on the state of video in rural America. Out of 22 members on
this Communications Subcommittee, at least 17 represent what
would be considered rural states. So viewpoints on the unique
challenge of these areas would be appreciated.
I would also like to recognize the tangible presence each
of the three industries represented today have in rural
America, particularly in my home state of Mississippi.
First, broadcasting. From forecasting storm coverage and
issuing tornado and hurricane alerts to helping first
responders, broadcasters have been an invaluable resource to
Mississippians during times of natural disasters. One example
occurred in February, when tornadoes devastated Petal,
Mississippi. In March, a major hailstorm caused major damage in
Jackson, Mississippi. In each case, local radio and television
stations were the lifeline when cable and cell towers were
down. I would like to publicly thank them for their service to
my constituents.
And, actually, I misspoke, Mr. Chairman. It was not just
Petal, Mississippi. It was vast portions of Hattiesburg as well
as Lamar County, Mississippi, with that devastating tornado.
As with Arkansas and West Virginia, Mississippi has a
number of rural, remote areas that make it difficult to reach
via traditional infrastructure. There, satellite providers,
such as DISH and DIRECTV, have stepped up, providing access to
competitive, quality video and broadband resources. The
satellite industry serves approximately 450,000 households and
businesses in my state. Many of its dishes are prominently
visible at football tailgate parties during the autumn in
Mississippi.
And, finally, cable has demonstrated a strong commitment to
broadband adoption, investing $200 billion since 1996 to build
broadband infrastructure across the country. Cable has created
partnerships with the Federal Government and private sector to
increase broadband delivery to low-income households that need
it most. This includes a company called Comcast, which started
with one small cable system in Tupelo, Mississippi, in 1963.
They wandered off to Pennsylvania. They are celebrating their
50th anniversary this year. And we want you back in Tupelo.
[Laughter.]
Senator Wicker. Again, thank you, Mr. Chairman, for holding
this timely hearing. I think the attendance we already have
testifies to the importance of it. And I look forward to
hearing from all of our witnesses and having a healthy debate
on video marketplace issues.
Finally, I would like to welcome my friend, colleague, and
a former Chairman of this committee, the warm and cuddly senior
Senator----
[Laughter.]
Senator Wicker.--from Arizona, John McCain, who is here to
give a statement on legislation he recently introduced
regarding the pay-TV market.
So welcome back, Senator McCain.
And thank you, Mr. Chairman.
Senator Pryor. Thank you.
Before we hear from our industry panel, we would like to
extend a very special welcome to Senator McCain. As a former
Chairman of the full Commerce Committee and longstanding member
of this committee, he has long expressed his interest in these
issues.
And we are happy to hear your thoughts on the current state
of the video marketplace. Senator McCain?
STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
Senator McCain. Thank you very much, Chairman Pryor and
Ranking Member Colonel Wicker. I thank you for your warm words
of welcome. And it is great to be back in a Committee that I
enjoyed as much or more than any that I was ever privileged to
be part of, with a myriad of incredible and fascinating issues
that are part of an ever-changing world that we live in.
As you know, I introduced the Television Consumer Freedom
Act, and the bill would give consumers the option to purchase--
and I emphasize ``option''--to purchase television channels on
a per-channel basis, which is also known as ``aa la carte,''
rather than tiers of programming that are currently offered by
satellite and cable companies.
Basically, I support aa la carte and I believe most
Americans do for the basic reason that consumers shouldn't have
to pay for television channels they don't watch and have no
interest in watching. The Television Consumer Freedom Act uses
existing statute and regulations as incentives to encourage the
retail and wholesale distribution of television channels on an
aa la carte basis.
Opponents will say that Government should stay out of the
television industry, but obviously that overlooks the
Government's existing presence throughout the market in the
form of legal benefits like the compulsory copyright license,
indicated exclusivity, and network nonduplication, which is
rife with government involvement.
It is time to restore the proper operation of the market by
empowering American consumers. It has already garnered the
support of the Consumers Union and Free Press.
They recognize that aa la carte channel options are the
right thing to do and popular with consumers, in large part
because, as we all know, of dramatically rising cable prices,
which are dramatically exceeding the cost of living.
According to the most recent FCC pricing survey, since 1995
the average monthly cable bill for expanded basic service--that
is the most popular tier--has gone up from about $25 a month to
$54 a month today. That is a 6.1 percent annual increase, a
more than 100 percent total price hike over the past 16 years.
Considering the following story offered by a cable
executive on the significance of aa la carte. He says, quote,
``My next door neighbor is 74, a widow. She says to me, `Why do
I have to get all that sports programming?' She has no idea
that in the course of the year, just for ESPN and ESPN2, she is
sending a check to Disney for about $70 even though she doesn't
watch it. She would be apoplectic if she knew.''
Particularly in today's challenging economy, $70 is an
amount of money for a lot of Americans. I am a sports fanatic,
and I love ESPN. I stay awake many nights watching games back
in Arizona with a horrible three hour time change. And while I
would never go without ESPN, the fact is that the majority of
TV consumers have no interest in sports programming and
shouldn't be forced to purchase it.
Many of these Americans are beginning to realize that
included in their cable bill is a charge of about $10 a month
just to carry sports programming like ESPN, which costs nearly
$5 a month, far more expensive than any other cable, and even
less popular channels like regional sports networks, which can
be almost as expensive.
Also, we address bundling, which is when individual
channels are tied together by a television programmer and sold
to a pay-TV company in packages. Once again, do consumers
actually want bundles? The answer is obviously no.
According to Nielsen statistics, in 1995 the average cable
household was sold 41 channels and tuned in to 11. In 2008, the
last year that these statistics were compiled, the average
cable household was sold 130 channels but tuned in to only 18.
These excess channels are obviously driving up cable bills.
Companies like Viacom don't sell channels like MTV and VH1
individually but rather bundle them together, which then leaves
pay-TV companies with little choice but to do the same thing to
consumers.
This bill says if you bundle your programming on the
wholesale level, then you must unbundle, that is, distribute
your programming aa la carte, too. So the choice remains with
the programmer, and the outcome for the consumer is aa la carte
and a lower cable bill.
In addition to aa la carte, it also ensures that the public
spectrum resources are used in the most efficient and publicly
beneficial ways possible.
Finally, we want to end blackouts for teams that play in
publicly financed stadiums. Those stadiums are publicly
financed by the taxpayer. And today the practice of the NFL is
that if they don't sell out the stadium, then all the people in
that area don't get to see the game. I think that is
outrageous.
Now, if that stadium is not taxpayer-financed, then that
owner can do anything they want to with it. But if the
taxpayers pay for it, then, by God, I think that the taxpayers
ought to be able to see the game, whether they sell out the
stadium or not.
Obviously, I am a sports fan, as you can easily tell.
[Laughter.]
Senator McCain. So I believe the consumers are at a tipping
point when it comes to their monthly pay-TV bill. In my view,
the aa la carte option is a nonregulatory and consumer-friendly
way to provide consumers with the freedom to lower their bills
and pay only for what they watch.
I hope that this committee will examine this issue. I truly
believe that a lot of Americans are fed up with the size of
their cable bill. And they ought to be able to do the same
thing we are able to do when we walk into a restaurant and not
have to buy everything on the menu in a bundle. We can pick out
what we want and choose it.
And I thank my colleagues for allowing me to appear, and I
look forward, if you choose, to any questions, comments, or
insults that you might have for me.
[Laughter.]
Senator McCain. Thank you very much.
Senator Pryor. Thank you, Senator McCain. And you are
certainly welcome to join us and ask questions of the next
panel if you would like. Thank you for being here today.
Senator McCain. I am sure they look forward to that.
[Laughter.]
Senator Pryor. Well, we do. I don't know if they do, but we
do. Thank you.
Senator McCain. Thank you.
Senator Pryor. You are welcome.
And if I could ask the next panel to come up, please, and
take your seat at the table. We appreciate that.
As they get situated here, I will just go ahead and
introduce them in order to save some time.
First, we have Senator Gordon Smith, President and CEO of
the National Association of Broadcasters. Next, we are going to
have former FCC Chairman Michael Powell, President and CEO of
the National Cable and Telecommunications Association. Next, we
will have R. Stanton Dodge, Executive Vice President and
General Counsel of DISH Network. And then we will have John
Bergmayer, Senior Staff Attorney for Public Knowledge.
Now, with all of these, we would ask them to give an
opening statement. We have their written statements in the
record. We would ask that each would, if possible, keep their
opening statements to 5 minutes.
First, Senator Smith.
STATEMENT OF HON. GORDON H. SMITH, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF BROADCASTERS
Mr. Smith. Good morning, Chairman Pryor, Ranking Member
Wicker, members of the Committee. It is always a privilege to
be in this room, whether on your side of the dais or mine. It
is nice to be back.
As you know, I have the great honor of advocating on behalf
of America's local radio and television stations. Stations play
a vital role in informing, protecting, and entertaining every
local community across this great nation. And that is never
more apparent than when a disaster strikes, as Senator Wicker
noted, reminding us of broadcasters' important role as first
informers.
We have seen this time and again. In Arkansas, in
Mississippi, you saw the largest tornado outbreak that took
hundreds of lives across the South. Whether an earthquake in
Washington, D.C., a hurricane in New York, or a terrorist
attack in Boston, I have no doubt that each of you can tell a
similar tragic story from your own state.
But I am also confident that each story involves a response
by your local broadcast stations. These stations kept residents
safe. And when there was no cable, no satellite, no broadband,
no cell, no phone service, broadcasters were there to provide a
lifeline to their communities. When it was time to rebuild,
local stations were there for their neighbors in need, holding
fundraisers and food drives to help them get through the
hardest of times.
So I ask you, is this not a public good? Isn't this a role
that should be supported? Because if broadcasters are not there
to serve in this role as first informers, who will?
Even with all the spectrum in the universe, the wireless
industry's one-to-one delivery system could never match our
unique architecture and our ability to broadcast to masses for
large events. It is crucial that broadcasting and broadband
work hand-in-hand to offload congested wireless systems and
deliver the content consumers want and the emergency
information they need.
In this regard, it is also critical that Congress
implemented the necessary safeguards in the legislation
granting voluntary incentive auction authority. While these
auctions will present an enormous challenge to the FCC, to your
constituents, and to local broadcasters, we stand ready to roll
up our sleeves and conclude this auction in a successful and
timely fashion.
Broadcasters not only inform, we entertain. As content
producers, we create the most watched shows on TV. In fact, 96
of the top 100 shows were on broadcast television last year.
This content is valuable to viewers, to stations that supply
it, and to the companies that retransmit it.
Broadcasters' ability to serve our local communities, to
produce the best shows on television, and to deliver that
content free to over-the-air viewers is sustained by two
revenue streams: one, paid advertising; and the other, fees
paid to us by those who rent our signals and sell our content
to paying subscribers.
Without this economic foundation, we could not do what we
do. This revenue enables stations to meet their primary goal:
serving the public interest. And policy decisions that threaten
this economic foundation could cripple an industry that
provides an indispensable, even irreplaceable, lifeline service
to Americans.
I am always surprised when some of our competitors try to
describe broadcasters as ``yesterday,'' as part of a bygone
era. I have to ask these critics, what is it about free and
live and local that you don't like?
Our communities not only like broadcasting, they depend on
it. And despite a changing media landscape, broadcast
television is as relevant today as ever. When TV stations
transitioned from analog to digital transmissions in 2009, it
revolutionized free and local TV, providing viewers more
choices than ever before.
Most stations offer extra channels called multicast
channels that deliver diverse and hyper-local content. It is
coverage of local sports and community events, your local
weather and traffic matched to your ZIP code, and programs
reflecting vast languages and cultures and amplifying the
voices of women and minorities in our communities.
Broadcasters continue to innovate and deliver the content
viewers want when and where they want it, including interactive
TV customized to your needs that we are sending to tablets,
cars, and smartphones. The future of TV is mobile and on the go
and more vibrant than ever. In the past month alone, we have
seen new services rolling out to viewers. Networks are
investing in and launching mobile services to provide viewers
with live local and national TV on all their devices and even
on demand.
We also saw just last month at the NAB show--and I
encourage you all to see this when you can--ultra-high-
definition broadcasting, which to my eyes was literally 3-D
without glasses. The picture is simply astonishing.
Consumers have limitless options for content and countless
ways to access programming, and yet they continue to turn to
broadcasting more than any other medium. That is an enduring
value we provide.
I would ask you that as you consider public policy that
impacts the future of this great industry, remember the unique
and critical services local stations deliver and consider the
consequences of decisions that could impact broadcasters'
ability to serve our communities and to serve your
constituents.
I thank you very much.
[The prepared statement of Mr. Smith follows:]
Prepared Statement of Hon. Gordon H. Smith, President and Chief
Executive Officer, National Association of Broadcasters
Good morning, Chairman Pryor, Ranking Member Wicker and members of
the Subcommittee. Thank you for inviting me back to my former committee
to testify before you today. Though I cherished my time in the U.S.
Senate, it is an honor for me to now advocate on behalf of our
country's local radio and television stations as the President and CEO
of the National Association of Broadcasters.
In my view, the state of broadcast video services is very bright.
In fact, recent data show that the number of viewers accessing
television over-the-air has dramatically increased in recent years.
Today 54 million American's rely solely on over-the-air television.
Nearly 18 percent of households are watching television with an
antenna.
These new over-the-air viewers include young people, low-income
families and minorities. A GfK Media report from last year shows that
the effects of the economic downturn, increasing subscriber fees for
cable and satellite TV, and the plethora of new broadcast options in
the digital age have led consumers to embrace broadcast television.
Some of this resurgence can also be attributed to technological
advances in broadcast TV. The television industry is approaching the
fourth anniversary of the transition to all-digital distribution. By
almost any measure, the transition and broadcasters' embrace of digital
technology have been an enormous success. Nearly every major television
broadcaster now provides its content to viewers in crystal-clear high
definition over-the-air for free. Most stations also offer anywhere
from one to up to three additional ``multicast channels.'' These extra
channels contain new and diverse program content, much of which is
local in nature or specific to niche audiences. These stations provide
all of this within the same 6 MHz of spectrum that previously held just
one analog channel. In fact, today there are 660 multicast stations now
offering niche, richly diverse and hyper-local programming to viewers.
These new, free, digital over-the-air services actually double, and, in
some cases, more than triples, the number of channels available.
Indeed, broadcasters' ability to multicast has led to the rise of
new national networks, including many that specialize in delivering
diverse content to ethnic and niche audiences, such as Bounce TV,
Estrella, Live Well and MeTV. I anticipate continued growth as new
networks expand their audiences with increasingly diverse and
compelling programming. Multicasting also offers the added benefit of
lowering barriers to broadcast ownership, offering new opportunities
for women and minorities.
With these exciting developments in mind, the continued growth and
evolution of our platform relies on access to the valuable commodity of
spectrum. We thank this Committee for the necessary safeguards included
for television broadcasters in the legislation granting voluntary
incentive auction authority. While this auction will present a
challenge, not only to the FCC but also to local broadcasters, we stand
ready to roll up our sleeves and help in any way possible to conclude
the auction in a successful and timely fashion to the benefit of
consumers and the public's safety. To that end, NAB urges the Senate
Commerce Committee to be vigilant in its oversight of the broadcast
incentive auctions. Incentive auctions themselves are unprecedented,
and the television spectrum auction will have a direct impact on
millions of viewers, very likely exceeding that of the digital TV
transition.
Beyond the auctions, we are focused on the future of broadcasting
and how it can, and should, continue to play a vital role in our
Nation's communications system moving forward. Beyond continuing to
serve viewing audiences and local communities as we always have, the
broadcast industry's evolving technology will be a critical complement
to wireless broadband. Just as wireless companies are upgrading their
technology, from 3G to LTE and beyond, broadcasters will also be
upgrading, and the results will have an extraordinary impact on how
viewers consume broadcast television.
Broadcasters are innovating and working to find new and different
ways to serve our audiences. From offering live over-the-air content to
smartphones, tablets and the next generation of devices, our goal is
offering the highest quality programming and local content everywhere
the viewer is watching.
The television broadcast industry is aware of some calls from pay-
TV companies to dismantle the legal framework for video programming
distribution. These companies want Congress to change the laws and
regulations that have successfully governed the video marketplace.
These laws have a single purpose. They are designed to ensure fair
competition in a highly competitive media market and maximize the
diversity, quality and affordability of television service to the
American people. This legal framework works because it serves the needs
of television viewers and reflects the actual business relationships
between broadcasters and pay-TV providers. The system is not broken,
which leads me to question the calls to fix what is successfully
working in practice every day. I would argue that changing these laws
is not in the public's best interest and will do nothing more than pick
winners and losers in what is today a very competitive marketplace.
Ironically, calls for ``reform'' are in the midst of what I'd
consider the ``Golden Age'' of television. Consumers have been the
beneficiary of what is the most competitive video landscape we have
ever seen. There are platforms and programming options available that
did not exist just a few years ago. Viewers are able to access content
when and where they want. Congress has helped to successfully unleash
competition, and in turn, it has created the most robust, vibrant video
landscape in history.
For broadcasters, as video distributors and as content creators,
that means we must continue to offer free high-quality, over-the-air,
locally-oriented service that competes head-to-head with nationally-
oriented pay-TV platforms, hundreds of non-broadcast subscription
networks, and other numerous programming sources. And we are doing just
that. As I said above, as a video distribution platform, reliance on
over-the-air antenna reception continues to grow. As content creators,
an average of 96 of the top 100 television shows every week are
consistently on broadcast television.
Lastly and most importantly, broadcasters are committed to
providing a valuable public service to every community--big and small--
across our great nation. This localism is at the heart of what
broadcasters provide each day to their listeners and viewers. Localism
is keeping communities informed of the news that matters most to them,
such as severe weather and emergency alerts, school closings, high
school sports, local elections and public affairs. Localism is
supporting local charities, civic organizations and community events.
Local broadcasters help create a sense of community.
Locally-based broadcast stations are also the means through which
local businesses educate and inform the public about their goods and
services, and in turn, create jobs and support local economies. They
address the needs of their communities, based on a familiarity with and
commitment to the cities and towns where they do
business. Television broadcasters do all of this every day. We
reinvest in our communities and are there when our viewers need us
most. It is a public good that cannot be replaced. I would ask that
you, as policymakers, ensure that changes to laws and regulations do
not harm this unique and crucial local television broadcasting system.
Thank you for inviting me here today, and I look forward to
answering your questions.
Senator Pryor. Thank you.
Chairman Powell?
STATEMENT OF HON. MICHAEL K. POWELL, PRESIDENT
AND CHIEF EXECUTIVE OFFICER, NATIONAL CABLE &
TELECOMMUNICATIONS ASSOCIATION
Mr. Powell. Good morning, Mr. Chairman and members of the
Subcommittee. My name is Michael Powell, and I am the President
and CEO of the National Cable and Telecommunications
Association. Thank you for inviting me to testify on the state
of video.
The video world is undergoing exceptional transformation.
The power of technology and the insatiable consumer appetite
for video content are remodeling the video marketplace. It is
both exciting and challenging for companies working to deliver
value to the American consumer.
Gazing into the future is always hazardous, but a few
critical trends paint a picture of what is possible in the
emerging video landscape.
Video is flooding into every crevice of American life. From
the moment video content could be digitized, the rise of
streams of video anywhere and everywhere was inevitable. Video
will be as ubiquitous as the Web itself. In fact, today, as of
this morning, nearly 68 percent of all Internet traffic today
is video. And as one CEO recently described it, ``The Internet
has not invaded the TV as much as the TV has invaded the
Internet.''
And as Internet traffic is able to crawl across the Web and
Internet protocols, it can surface on nearly any screen with an
Internet connection. This is why we have seen such a great
renaissance in video on devices like iPads and smartphones.
Now, diversity has long been a paramount public policy
objective in this country. In the world we are stepping into,
we will see content of every conceivable stripe--every genre,
short clips and long series, programming from every ethnic and
racial community, and every political viewpoint with a voice,
individuals who make videos in their basements, while large
studios produce some of the most compelling stories in visually
arresting formats.
But the video story will not just be about more of
everything. It will also become a more dimensional experience.
TV was the original social network, driving water cooler
conversations about a favorite show. But social network
platforms will expand TV conversation and make it much more
contemporaneous. We see growing second screen TV watching as
consumers post and tweet along with their viewing.
Now, my kids have grown up digital and have come to expect
highly personalized products and the ability to interact with
them. As the video model evolves, expect to see channel lineups
that are personalized and recommendation engines that modify
content choices to your preferences.
Choice is good. But we sometimes hear from consumers the
frustration of finding something to watch. Curating consumer
retail offerings in a simple and useful way will still have
value to many families navigating their options.
As Reed Hastings of Netflix recently noted, ``Instead of
trying to have everything, we should strive to have the best in
each category.''
The cable industry has long been an innovative force in the
TV landscape and is working hard to bring much of this vision
into reality. The industry has unveiled applications to move
content out of the TV set and into portable devices.
Our companies have worked to shrink the aggravation of the
set-top box by offering cable service over devices consumers
already own or may prefer, like an Xbox or a Roku. New
platforms are emerging that will put program guides and other
consumer tools and services in the cloud, thereby vastly
improving the pace and quality of innovation.
It is critical to note that, as broadband providers, we
continue to invest massively in the networks that make so much
of this vision possible. We have invested over $200 billion
since 1996 and invest $13 million per year continuously. As a
result of this investment, we are increasingly pushing Internet
speeds over 50 percent a year, just a 1,000 percent increase in
the last decade.
Beyond the confines of the home, we are opening up the
airwaves to video and Internet access by deploying major wifi
networks across our markets. This transition will be chaotic
and convulsive at times. As the market remodels itself, it will
put a strain on the existing video models that we will all have
to work through.
The cable industry is highly focused on meeting several key
challenges: First, we need to innovate faster to meet the
changing habits of consumers. Second, we need to continue
working on greater flexibility for consumers in channel
offerings while continuing to deliver the content they love.
And, third, we need to manage the costs of our service to
ensure that we are attentive to the affordable constraints of
consumers.
Senator, the 1992 Act that currently governs the video
marketplace for incumbent providers is frayed, increasingly
incomplete, and out of sync with the realities of the
marketplace. But knowing that something is broken doesn't tell
you what should replace it. We are not presently calling for a
comprehensive rewrite of the video laws because we believe that
in this fast-moving period it is difficult to try and ink an
effective, full-scale comprehensive regime.
But this is not to say everything is fine with the existing
law, however. Rather, we believe it more prudent to evaluate
changes more surgically and deliberately as they arrive.
The state of video is a critical topic worthy of
discussion. I thank you for holding this hearing and for your
attention. I look forward to your questions.
[The prepared statement of Mr. Powell follows:]
Prepared Statement of Michael K. Powell, President and Chief Executive
Officer, National Cable & Telecommunications Association
Good morning Mr. Chairman and Members of the Subcommittee. My name
is Michael Powell and I am the President and Chief Executive Officer of
the National Cable & Telecommunications Association. Thank you for
inviting me today to testify on the state of video. We welcome this
important hearing.
Cable Always Has Been an Innovative Force in Video
From its beginning, cable has driven innovation and transformation
in the video business. Cable was founded to make broadcasting better--
bringing it to suburban and rural areas outside the reach of over-the-
air reception. We made programming better--breaking the lock of the
three channel universe by investing billions in original content that
appeals to specialized audiences as well as the mass market, and
building award-winning iconic brands like CNN, ESPN, HBO, CNBC, C-SPAN,
History and Discovery. We were first to unshackle consumers from
``appointment TV'' with video on demand and the wide deployment of
DVRs.
When we turned to areas other than video, the results were similar.
In 1996, Congress wanted telephone competition and cable delivered it.
Today, one in three households that have wireline phone service receive
it from a cable operator.
And then there is broadband. Where high-speed data service was once
the purview only of businesses, cable operators brought broadband
Internet service to residential subscribers. This was not serendipity.
The industry borrowed heavily and took enormous risk by ripping out its
one-way analog network and replacing it with a higher capacity, two-way
digital platform that made broadband possible. Cable broadband speeds
have increased at a 50 percent annual rate \1\ since being introduced
in 1996 and are projected to continue on that arc for the foreseeable
future. Cable operators have also extended the reach of their broadband
service through extensive Wi-Fi networks, offering more than 150,000
hotspots at present and that figure has been growing rapidly. To put
that footprint in perspective, AT&T's Wi-Fi network, which can be found
in Starbucks, McDonald's, Barnes & Noble, FedEx offices and other
locations, includes 32,000 hotspots.\2\ All of that in turn has enabled
consumers to receive high-quality video over the Internet and on mobile
devices.
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\1\ ARRIS Group Inc. 2012 Investor & Analyst Conference, Aug. 8,
2012, slide 29, available at http://phx.corporate-ir.net/
External.File?item=UGFyZW50SUQ9NDc2MTUwfENoaWxkSUQ9N
TA4NTk3fFR5cGU9MQ==&t=1.
\2\ See AT&T Wi-Fi Hotspots, AT&T, http://www.att.com/shop/
wireless/wifi.html#fbid=xu0Ri
NIAQ3F.
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Today's Golden Age of Video
From the consumer's standpoint, the state of video has never been
stronger. Consumers today enjoy (1) more content, (2) higher quality
programs, (3) more variety and diversity in video content, (4) more
sources for video content, offering different types of content in a
variety of packages and at a variety of price points, (5) a greatly
enhanced capacity to select, manipulate and record video content; and
(6) the ability to access video on an increasingly wider range of
devices.
There are hundreds of video programming networks, presented in
brilliant HD quality. This is an enormous expansion from just 20 years
ago. Artists and creators are producing some of the most compelling
programs ever and cable is their preferred palette. In the most recent
award seasons, cable programming won 10 of the 11 TV Golden Globes and
57 percent of Primetime Emmys. Acclaimed series such as ``Game of
Thrones,'' ``Breaking Bad,'' and ``Homeland'' are some of the most
accomplished dramas ever.
Public policy has always been concerned about diversity of
viewpoints and niche programs for smaller yet passionate audiences. The
cable model brought that ambition to fruition. The cable dial runs the
gamut--from compelling scripted dramas, situation comedies, educational
content, and kids programming, to sports, cooking shows, and news and
public affairs. Simply put, if you fish, cook, workout, love music,
crave sports, gorge on politics, admire dance, have a thing for duck
hunting, or want programming in your native language or reflective of
your community, you will find it on cable.
If you are itching to watch video, the number of sources you can
turn to has grown exponentially as different providers compete for your
business. You may subscribe to cable television and get 150 or more HD
channels, the latest premium content and live events, video on demand
and the ability to record and watch at your convenience on a DVR. You
can get a very similar experience from DIRECTV and Dish. In many
markets, you can also choose service from AT&T U-verse, Verizon FiOS,
or CenturyLink's nascent Prism TV. And Google Fiber is expanding to
more cities.
Cable also is working to bring better video experiences to
consumers wherever and whenever they want, offering, for example,
applications that allow subscribers to watch their cable service on
their iPads. Cable's ``TV Everywhere'' initiative makes it possible for
our customers to watch video content they have already paid for on
their laptops, tablets, smartphones and other portable devices--no
matter where they are. And many cable networks allow viewers to access
their programming outside their multichannel video programming
distributor (``MVPD'') subscription. Sprint, for example, offers its
mobile subscribers access to a wide variety of popular full-length
video programs from networks like MTV, Nickelodeon, Comedy Central,
Style, Discovery Channel and many more.
If that were not exciting enough, Internet-delivered video has
ushered in an even greater explosion of choice. By one estimate, real-
time video streaming represents 65.2 percent of downstream Internet
traffic in North America during prime time evening hours.\3\ The U.S.
online video market attracts an average of 75 million viewers every day
and streams nearly 40 billion videos per month.\4\ Revenue from video
content delivered over the Internet to televisions ``is expected to
grow from $2 billion in 2009 to over $17 billion in 2014.'' \5\ The
largest subscription video provider in the country today is Netflix--
not Comcast, Time Warner Cable, DIRECTV or any other MVPD.
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\3\ Global Internet Phenomena Spotlight 2H 2012 North America,
Fixed Access, Sandvine Incorporated, Nov. 6, 2012.
\4\ US Digital Future in Focus, Comscore (Feb. 2012).
\5\ U.S. Dep't of Justice, Competitive Impact Statement, United
States v. Comcast Corp., No. 1:11-cv-00106 (D.D.C. Jan. 18, 2011),
available at http://www.justice.gov/atr/cases/f266100/266158.htm.
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If market failure is characterized by a lack of new entry, there is
clearly no failure in the video marketplace. Companies that stream
content are proliferating: Netflix, Hulu, Amazon, iTunes, CinemaNow,
Network websites, HBOGo, Apple TV, and user-generated or special
interest sites like YouTube, Vimeo, and TED.com are a few. In fact,
YouTube recently announced a subscription video service.\6\ Some of
these services offer multichannel programming like an MVPD; others
specialize in entertainment programming, movies, or on-demand content.
With their smaller array of programming and emphasis on older content,
they generally offer consumers a lower priced option than cable and
other MVPDs. And many more offerings are anticipated from the likes of
Intel and Sony.
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\6\ New Ways to Support Great Content on YouTube, YouTube (May 9,
2013), http://youtube-global.blogspot.com/.
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And web video is not limited to a PC screen any more. Analysis of
data from Nielsen suggests that 65 percent of Netflix streaming is
viewed on television sets.\7\ Computers can connect to big screen
televisions; content can be beamed to sets using functions like Apple
Airplay; box companies like Roku, TiVo and Boxee can deliver web video
to the TV set; and manufacturers like Samsung are making the Flat Panel
TV web enabled, with apps incorporated for accessing video content. One
study estimates that at least 44 percent of U.S. households have a
television set connected to the Internet, through an Internet-ready TV,
game console, standalone Blu-ray player or smart set-top box connected
to their home network.\8\ Smartphones and iPads have proliferated as
compelling devices for consuming video content and enjoying second-
screen experiences. Of note, when measured together, the share of all
hours spent watching streaming video on tablets and mobile phones
increased 100 percent in 2012.\9\
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\7\ NCTA analysis of data from The Cross-Platform Report, Quarter
2, 2012-US, Nielsen (Nov 2012).
\8\ Over Half of Adults Watch Video on Non-TV Devices Weekly,
Leichtman Research Group, Inc. (May 2, 2013), available at http://
www.leichtmanresearch.com/press/050213release.html.
\9\ Global Video Index, 2012 Year in Review, Ooyla, available at
http://go.ooyala.com/rs/OOYALA/images/Ooyala-Global-Video-Index-Q4-
2012.pdf.
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For some consumers, online video offerings are good enough to cut
or shave the cord. According to one report, ``3.74 million (3.7
percent) U.S. TV subscribers cut their TV subscriptions 2008-12 to rely
solely on'' online video and over-the-air for their video
entertainment.\10\ Yet for most consumers, online video has developed
as a supplement to their broadly diverse MVPD service. It enables them
to add even more of a particular type of video content--whether it be
movies or music--to the live events and new programming available from
the MVPD. There are still millions of new customers subscribing to our
service for the first time--or returning to us--because of the HD, on-
demand, multi-screen and other advanced video offerings we make
available.
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\10\ The Battle for the AmericanCouch Potato: Online &Traditional
TV and Movie Distribution, The Convergence Consulting Group Ltd. (Apr.
2013), available at http://convergenceonline.com/downloads/
USNewContent2013.pdf.
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As always, the cable industry is responding to changes in
technology and in the marketplace in order to stay ahead of the curve
and provide leading-edge services to its subscribers. The opportunities
presented by broadband are great. While there are some challenges--any
network that is shared by many users must cope with congestion and
ensure all users get quality service--we continue to see great
potential in our networks. We are investing billions annually to ensure
that this potential can be realized by keeping pace with the dynamic
marketplace and consumers' changing needs and interests.
Cable's business incentives in today's marketplace are fully
aligned with the interests of consumers. The path to continued growth
for cable is to enhance and expand its customers' use and enjoyment of
the broadband platform we offer. If consumers want to access video
content via their laptop, their Xbox, their iPad, or their mobile
device, it's our job to make that possible for them. If they want to
obtain video content from Netflix, Amazon, Hulu, YouTube, Apple or any
other online provider, it's our business to make that possible as well
and we are. Cable has a strong broadband business and benefits from
greater Internet consumption generated by streaming video services. So
while cable operators are developing new services and features that
enable their subscribers to access video online and on-the-go, they are
also ensuring that other providers of content, services or devices in
the online video ecosystem can flourish.
The Future of Video
Gazing into the distance through the eyes of consumers, the future
of video shines extraordinarily bright. It will be a great time to be a
TV lover. John Malone once talked of a future of 500 channels, but
tomorrow's reality will be exponentially greater. The Internet has
opened a floodgate to new content creation, produced by individuals and
top network studios alike. Combined with the continually expanding
traditional television sources, consumers will be swimming in content
choices. The expansion of distribution platforms is also fueling a
continuing renaissance of creative work. Anyone with a story idea has
the venue and the tools to produce compelling video narratives.
Importantly, the video renaissance is expanding the diversity of
content. Diverse communities are finding greater voice. Every genre
imaginable is being explored. Top studios are producing award winning
long form series. News is being revolutionized. Video is rapidly
becoming the central force in all of electronic media and will only
grow.
Where will we watch video? Everywhere humans dwell. The ubiquity of
broadband networks and devices that connect to the Internet mean
content will envelope consumers. The living rooms and family dens will
still matter, but video experiences will not be tethered to our walls.
Portable screens will only further burrow into our lives. Cable's
investment in interoperable Wi-Fi networks will provide consumers with
unprecedented levels of portability and flexibility for consuming video
and other broadband service offerings.
This ever-present second screen will unleash a plethora of
interactive applications that give television a new dimension that
never existed before. Live stats during the game, user-controlled
camera angles, and social conversation embedded in programming are just
a few ways the experience will grow. Additionally, the ``TV'' will
increasingly become personal. Channel guides will be personal to the
user. Program line-ups and recording preferences may change for
different viewers. This personally tailored-experience is well in
motion.
In this world of bottomless content and near endless choice,
curating content well will be more valuable, not less. Meaningfully
combining programming into useful groupings will be important for
simplifying the viewing experience. Technology will play a bigger role,
too, empowering recommendation engines and crowd sourcing to bring
relevant content to the consumer. A good content editor remains
essential. As Reed Hastings recently explained, Netflix is ``actively
curating our service rather than carrying as many titles as we can'' so
they can ``have the best [content] in each category rather than the
most.'' \11\
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\11\ Reed Hasting, Long Term View, Netflix (Apr. 25, 2013),
available at http://ir.netflix.com/long-term-view.cfm.
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In this exciting new world, we believe private platforms--like
cable and DBS--will peacefully coexist with the public Internet
platform. Among other reasons, the private platforms are more highly
optimized for quality and reliability and deliver video content more
efficiently than the public Internet. Additionally, the continuous
challenges of piracy, malware and cyber-threats on the public web will
keep the value of private platforms high. Most importantly, the cable
model is critically important for monetizing and delivering the highest
premium content to consumers--including sports, live news, and premium
series. Indeed, without cable subscribers paying to watch shows like
``Mad Men,'' those shows would never even be available to run later
through online services.
This is an exciting future, and cable is working to be an important
part of it. Cable companies have been rapidly exporting the viewing
experience to iPads and other portable devices to let consumers watch
our services on any device they choose. Programming guides are being
redesigned by many companies to provide richer and more personal
experiences. Smartphone apps are being deployed to replace remote
controls. And cable companies continue to empower consumer choice with
on demand viewing and advanced DVRs that allow you to watch what you
want when you want.
We also are working to de-clutter the home of set-top boxes. The
marketplace of the future is apt to move from being hardware-centric to
software-centric, which will accelerate the pace of innovation and
adaptation to new features and capabilities. A vast array of cloud-
based services and applications will make available a new generation of
interactive offerings, and dissolve the lines between video, data,
graphics, voice, and text. Today, set-top box-based services cannot be
deployed until the boxes are tested and glitch-free; by contrast,
software-based services can be released more rapidly and upgraded more
easily. Cable companies have also been working constructively with
services like Roku and Xbox to integrate cable video services into
those platforms--allowing consumers to consolidate boxes and integrate
their cable services with online services.
Importantly, all of the innovation that is taking place to bring
both today's and tomorrow's advanced services is occurring and
continues to occur with only limited regulatory intervention. Cable,
satellite, phone, and online video providers are competing in the arena
that benefits consumers--the marketplace--and not before this Committee
or the FCC. The cable industry is prepared to meet the future in that
arena.
What is the Role for Policymakers?
The future looks bright, but a natural question for this Committee
is what type of regulatory framework will best promote consumer choice.
Do you need to take action to preserve and strengthen the incentives of
programmers and distributors to invest aggressively to bring new
services, features and capabilities to consumers? I think the answer is
generally no, at least not right now. While some surgical changes to
the law may be appropriate, a broad ``rewrite'' is not necessary and
could even be counterproductive by introducing uncertainty and
displacing or skewing the marketplace rivalries that are providing
today's consumers with the unparalleled choice I described earlier.
There is no doubt that the transformation underway will not be
problem-free. It will be chaotic at times as consumer expectations and
demands outpace changes in the underlying marketplace. As market
participants seek to realign their business strategies with the new
reality, many questions of law and policy may arise. In this dynamic
market, it is difficult to know what type of statutory or regulatory
changes will promote rather than hinder competition and investment. For
that reason, it is better to exercise caution rather than rush to
rewrite laws that will, in any event, be obsolete almost as soon as
they are enacted.
As the new video market develops, there may be limited, targeted
changes to the Act that are appropriate to address specific issues that
arise--and the FCC should have the tools it needs to adjust its rules
as the market changes--but the basic framework of the Act can remain in
place throughout this transition period, without causing any delay or
hindrance to the exciting changes that are occurring in the video
marketplace. The time may come when adjustments to the current law can
no longer suffice, but that time is not now.
Thank you again for the opportunity to appear today. Cable is proud
of the products and services it offers customers today and is excited
about the dynamic future before us. We look forward to being a key
player in this vibrant marketplace.
Senator Pryor. Thank you.
Mr. Dodge?
STATEMENT OF R. STANTON DODGE, EXECUTIVE VICE PRESIDENT AND
GENERAL COUNSEL, DISH NETWORK L.L.C.
Mr. Dodge. Chairman Pryor, Ranking Member Wicker, and
members of the Subcommittee, I appreciate the opportunity to
testify today, although I am a bit under the weather. And I
apologize in advance if I cough on occasion.
My name is Stanton Dodge, and I am the Executive Vice
President and General Counsel of DISH Network. DISH is the
nation's third largest pay-TV provider, with more than 14
million subscribers and over 25,000 employees. We are the only
provider of local TV service in all 210 markets.
DISH's award-winning innovations include the Hopper DVR and
TV Everywhere features that consumers can use to have greater
choice and control over their viewing experience. Our dishNET
service offers affordable, high-speed broadband via satellite
throughout the country. And DISH's recent offer to merge with
Sprint would allow us, among other things, to extend cable-
quality fixed wireless broadband service to more than 40
million underserved and unserved rural households.
For this Congress, we believe that outdated laws need to be
updated to reflect changes in the market and changes in how
consumers view their content. Public policy should support the
preservation and expansion of consumer video choices.
Unfortunately, as distributors like DISH offer advances in
technology, some programmers are again crying wolf, saying that
this time the threat is real and they won't be able to survive
the onslaught of innovation. The challenges to our Hopper DVR
are a perfect example. The networks are accusing millions of
subscribers of being copyright infringers merely because they
want to skip commercials more easily or watch TV on their
iPads.
We believe in consumer choice, and to preserve and expand
that, I want to make three points.
First, we believe Congress should protect consumers against
the growing problem of blackouts caused by retrans disputes.
The proof is in the numbers. In 2010 there were 12 blackouts,
and by 2012 the number soared to almost 100, impacting millions
of viewers. The consumers are the victims of these one-sided
negotiations. Their programming gets pulled by the
broadcasters, and their monthly bills go up and up.
As part of a STELA reauthorization, we propose that when a
local station is pulled from a consumer due to a retrans
dispute that video distributors should be able to provide
another market's network signal. This reform will at least
allow consumers to keep their network programming while
negotiations continue.
Second, Americans living in remote, underserved areas have
especially benefited from STELA and its predecessors. Among
other things, STELA allows Americans residing in predominantly
rural areas to receive distant network signals for any missing
local big-four stations in their market. The distant signal
license sunsets at the end of 2014, and, without
reauthorization, approximately 1.5 million American households
will be left without access to a full complement of network
channels.
Third, in the 3 years since STELA was enacted, the video
industry has not been sitting still. Consumers can and
increasingly want to watch news, sports, and entertainment on
the go, using increasingly high-resolution screens available on
their smartphones and tablets.
Over the years, DISH has done much to respond to changing
consumer preferences. Now, DISH stands ready to make a
significant investment to satiate consumers' growing appetite
for increased mobility and flexibility in consuming video.
DISH's recent $25.5 billion offer for Sprint would create game-
changing services and capabilities by offering for the first
time a nationwide fixed and mobile service for voice, video,
and data in and outside of the home.
In summary, we believe government should work to ensure its
laws mirror today's competitive realities, consumer
expectations, and advances in technology.
Thank you, and I look forward to answering any questions
you may have.
[The prepared statement of Mr. Dodge follows:]
Prepared Statement of R. Stanton Dodge, Executive Vice President and
General Counsel, DISH Network L.L.C.
Chairman Rockefeller, Chairman Pryor, Ranking Member Thune, Ranking
Member Wicker, and members of the Subcommittee, I appreciate the
opportunity to testify today. My name is Stanton Dodge, and I am the
Executive Vice President and General Counsel of DISH Network.
Background on DISH
DISH is the Nation's third largest pay-TV provider with more than
14 million subscribers and over 25,000 employees across the country. It
is the only provider of local broadcast television service in all 210
TV markets. Considered an industry leader in technology, DISH's award-
winning innovations include the Hopper Whole-Home HD DVR and TV
Everywhere devices and functionality that consumers can use to watch
their TV on smartphones, tablets, and computers. Additionally, our
dishNET satellite broadband service offers affordable high-speed
broadband Internet access, which can be bundled with DISH's satellite
TV service. DishNET enables data speeds of 10-15 Mbps, which is fast
enough to support high-definition video, voice-over-IP telephony, and
other applications previously unavailable to Americans living in
unserved and underserved areas. The dishNET satellite broadband service
is operated by our corporate affiliate, Hughes Network Systems, which
altogether serves approximately 700,000 U.S. customers who tend to be
located in rural areas outside the reach of traditional terrestrial
broadband networks. DISH's recent offer to merge with Sprint would
allow us to extend cable-quality fixed wireless broadband service to
more than 40 million underserved and unserved rural households.
Summary
For Congress, the convergence of video, mobile, and broadband
services has two major implications. First, outdated laws and
regulations need to be updated to reflect changes in the market and
changes in how consumers view their content. Second, and more broadly,
public policy should preserve and expand consumer video choices, which
are repeatedly under attack. As distributors like DISH offer advances
in technology that allow consumers to have greater choice and control
over their content, content providers again and again cry wolf, saying
that this time the threat is real and they will not be able to survive
the onslaught of innovation.
We believe Congress should safeguard viewer choice in the
increasingly frequent and highly unfortunate phenomenon of
retransmission consent disputes and ``blackouts.'' When a local
broadcast station is pulled from a consumer due to a retransmission
dispute, video distributors should be able to temporarily provide
another market's network signal and prevent the total
disenfranchisement of the consumer. The reauthorization of the
Satellite Television Extension and Localism Act of 2010 (``STELA'')
gives Congress the opportunity to enact this important reform.
In the three years since STELA was enacted, the video industry has
not been sitting still. Consumers can, and increasingly want to, watch
news, sports and entertainment on the go, using increasingly high-
resolution screens available on their smartphones and tablets. Over the
years, DISH has done much to respond to changing consumer preferences.
Now, DISH stands ready to make a significant investment to satiate
consumers' growing appetite for increased mobility and flexibility in
consuming video. DISH's recent $25.5 billion dollar offer for Sprint
would create game-changing services and capabilities by offering, for
the first time, a nationwide fixed and mobile service for voice, video,
and data, in the home and out of the home.
STELA Has Been a Success
DISH is a company dedicated to giving its customers what they want,
and STELA has been a big part of DISH's ability to deliver upon those
customer needs. The satellite licenses established and reauthorized by
STELA and its predecessors were instrumental in opening the video
industry to competition by placing satellite distribution on a more
level playing field with cable. The 1999 reauthorization, for example,
created the first satellite ``local-into-local'' license allowing
satellite distributors to retransmit local broadcast stations to their
subscribers. In 2004, Congress took the opportunity to update the law
for the digital transition. STELA built on these successes by giving
DISH an opportunity to earn back its distant signal license--an
opportunity that DISH seized to expand its local-into-local service
into all 210 of the country's local TV markets.
STELA and its predecessors have been especially important for
Americans living in remote, underserved areas. Among other things,
STELA allows more than 1.5 million Americans residing in predominantly
rural areas to receive distant network signals for any missing local
Big 4 stations in their market. The distant signal license sunsets at
the end of 2014, and without reauthorization, these 1.5 million
American households will be left without access to a full complement of
network channels.
The Video Industry Is Changing Dramatically
Consumers expect to be in control of what they watch as well as
where, when, and how they watch it. Rapid innovations in the device and
distribution marketplaces have now made that degree of choice and
control possible. Every day, more and more consumers watch video on
smartphones, tablet computers, and other portable wireless devices.
Online video streaming services grow in popularity, and startups like
Aereo are challenging the status quo by giving consumers greater
freedom to watch their local broadcast stations whenever and wherever
they want. Consumers can use DISH's innovative Hopper DVR with Sling
place-shifting technology, which won ``Best of CES'' at this year's
Consumer Electronics Show, to exercise unprecedented control over their
own TV viewing choices. This is good for consumers and good for
competition.
Although evolution stands to benefit all players in the video
marketplace, incumbents are often resistant--if not hostile--to that
change. Rather than embracing consumers' evolving expectations and
tastes, entrenched incumbents are fighting to preserve the status quo.
The broadcasters' lawsuits against DISH's Hopper DVR are a perfect
example. The networks are accusing millions of subscribers of being
copyright infringers just because they want to skip commercials more
easily or watch TV on iPads in their bedroom. Fortunately, the Supreme
Court's landmark decision in the Sony-Betamax case protects the right
of consumers to record their favorite shows and watch them later,
skipping through commercials if they want. Congress has also repeatedly
chosen to protect consumers' fair use and private performance rights.
Two examples are the Audio Home Recording Act and the Family Movie Act.
Congress should continue to protect consumer control over viewing
choices.
Congress passed the Cable Act in 1992. Remember how you watched TV
then? How disappointing it was to miss your favorite show and have to
wait for it to rerun or get the highlights around the water cooler the
next day? You likely only had one choice for a cable company from which
to get service, as most markets were served by a single operator. You
likely had never heard of the Internet, as it was in its infancy. If
you had a mobile device, it was probably the size of a brick. All these
years of progress later, with increased competitive forces now at play
in the video marketplace, it is difficult to look at the laws on the
books and tell that much has changed. Nowhere does the Cable Act
mention the Internet, wireless, or online video.
Congress Should Fix the Broken Retransmission Consent System to Protect
Consumers
A key area where the law has not been updated to reflect a growing
imbalance in market power is retransmission consent. This is the system
whereby video distributors must negotiate with the broadcasters for the
ability to transmit the broadcasters' signals. The laws remain largely
unchanged, and yet, in most markets, there are now a growing number of
distributors (one or more cable companies, two satellite providers, one
or more telcos, an over the top provider, etc.) that network stations
can play against one another. By contrast, the local broadcast stations
still enjoy a government-created monopoly where all of the video
distributors have only one door to knock on in order to transmit each
of the four networks in almost all local markets. Consequently, the
broadcasters have the luxury of threatening to withhold their
programming altogether in order to extract higher and higher
retransmission consent fees. We are seeing increased fee demands of
several hundred percent.
The result: more impasses and more blackouts interrupting
consumers' services. The proof is in the numbers. In 2010, there were
12 instances where a broadcast signal was blacked out in a local TV
market. In 2011, there were 51. In 2012, the number soared to almost
100. These numbers do not even include all of the near-misses, which
are almost equally disruptive. Adding insult to injury, the timing of
many blackouts coincides with marquee events like the World Series or
the Oscars. Ultimately, the losers in these one-sided contests are the
consumers who get their programming pulled from them by the
broadcasters and see their bills on the rise. Some broadcasters have
floated the idea of becoming a cable channel, thus stopping the
broadcast of their channels over the air. If the broadcasters choose to
do that, they should give back all of their government-granted
broadcast spectrum.
The STELA Reauthorization Is an Opportunity to Protect Consumers and
Further Support Video Competition
In the retransmission consent context, Congress can restore balance
to the negotiating table by allowing cable and satellite carriers to
substitute a network signal from a non-local market during an impasse
in retransmission consent negotiations with a local market affiliate of
that same network. For example, if a broadcaster blacks out the local
Denver FOX station, the video distributor will be able to temporarily
bring in an out-of-market station, such as the Cheyenne FOX station.
The replacement station will not be a perfect substitute for the
blacked-out local station, since consumers won't have their local
content, but at least some measure of protection will be extended to
affected consumers. Additionally, this fix will introduce some fairness
into the negotiating process and make it more likely that the
broadcaster won't pull its signal in the first place. Broadcasters will
be introduced to some of the same competitive pressures that satellite
carriers and cable operators face every day, and consumers will benefit
as a result.
The State of Video Will Continue to Evolve to Include More Wireless
Services--Consumers Will Demand It
As I've mentioned, the video industry is a place where the marvels
of yesterday have become commonplace today. The needs and desires of
consumers are evolving as technological innovations continue to be
deployed in the marketplace. We should give American consumers what
they want. They want to watch programming on their television sets, on
their phones and on their tablets--no matter where they are. They also
want to surf the web or make a phone call--again, no matter where they
are. Consumers want choice and control. They want mobile video. They
want mobile voice. They want mobile data. When we look at the
marketplace for video, we need to be able to provide all of those
communications options to every one of our customers, and we need to do
it anywhere and anytime, on any device.
At DISH today, I submit that we have done a fine job of efficiently
providing fixed video to the home. But customers increasingly want more
than just home video. As consumers seek to utilize wireless devices and
connectivity to view their content, the future of video relies more and
more on wireless providers. The explosion in wireless data usage rates
is due almost entirely to video consumption.
Our company is moving in that direction. By rolling out
technological innovations like the Hopper with Sling, our customers can
use a smartphone or tablet from any location in a controlled and
private manner to enjoy the video content for which they have already
paid. Our new PrimeTime Anytime and AutoHop technologies take the DVR
to a new level. Consumers can, at their option, enable these features
to more easily view their preferred programming when they want, while
skipping what they don't want to see.
These are some of the ways in which we have responded to our
customers' changing needs. But we have further to go. In the past, we
haven't shrunk from ``betting the company,'' so to speak, in order to
stay competitive. We went from selling big dishes to launching our own
small-dish DBS business. To give customers what they want, including
mobile video, voice, and data, we are taking a risk again. Recognizing
the evolution in video, DISH is on its way to becoming a wireless
service provider. We acquired satellite spectrum and, after almost two
years, secured FCC approval to use that spectrum for terrestrial mobile
broadband services. We now want to compete against the established
players by offering video, voice, and data inside and outside the home,
from a single platform.
To that end, we have made an offer valued at $25.5 billion dollars
to acquire Sprint. Our offer is better for American consumers, Sprint
shareholders, and the national security of this country than the
competing offer for Sprint made by SoftBank, a foreign company. A
combined DISH/Sprint would establish more competition in the wireless
marketplace. It will lead to less expensive options for consumers to
watch their video content using wireless broadband--either fixed or
mobile. Particularly for rural areas, a combined DISH/Sprint will be
able to offer a never-before-seen integrated fixed broadband/video
service that will place rural Americans on the same footing as New
Yorkers and Los Angelinos.
DISH is driven to provide consumers with all that they want,
including the choice in services and providers that they seek. If we
are successful, we will fuel billions of dollars in investment and
create tens of thousands of new jobs throughout the United States. Just
as businesses must foster change in a rapidly evolving video
marketplace to keep pace with what consumers want, government should
work to ensure its regulations mirror today's competitive realities,
consumer expectations, and advances in technology.
Thank you. I look forward to answering any questions you may have.
Senator Pryor. Thank you.
Mr. Bergmayer?
STATEMENT OF JOHN BERGMAYER, SENIOR STAFF ATTORNEY, PUBLIC
KNOWLEDGE
Mr. Bergmayer. Good morning, Chairman Pryor, Ranking Member
Wicker, and members of the Subcommittee. Thank you for the
opportunity to participate in today's hearing.
Today, I am going to talk about two things. First, I have a
few remarks on the state of the video marketplace today. Then I
will present a few ideas that will make the video marketplace
more competitive and affordable.
New technology and new services have given people more ways
to watch TV. In fact, they are changing what it means to watch
TV. People watch TV on smartphones, tablets, and computers.
People watch more on-demand video from online services. They
use DVRs to control what they watch and how they watch it.
But there is still a lot of must-see programming, and it is
available only through traditional pay-TV services. To keep up
with ``Game of Thrones'' or ``NCIS'' or live sports, viewers
have to subscribe to the traditional expensive bundle of
channels. One study has found that the cost of a cable
subscription is approaching $90 per month. That is just for
video, not broadband.
Content prices keep rising, and they are passed along to
consumers. The retransmission fees that broadcasters demand of
cable and satellite providers keep going up. NBC estimates that
it will collect 400 percent more in retransmission fees in 2013
than in 2012. Retransmission disputes lead to viewer blackouts,
as well.
Sports fees are going up. The average cable subscriber pays
almost $80 a year just for the NFL.
Large content companies do everything they can to make sure
that their cable channels are carried, and this can drive out
independent programmers. But they are only able to do this
because cable companies have been able to pass along the cost
to viewers. These problems are interrelated.
Congress and the FCC have been involved with the video
marketplace for decades. Sometimes they protected incumbents;
sometimes they promoted competition. The 1992 Cable Act created
policies that allowed satellite providers like DISH and telecom
companies like Verizon to start offering video services. These
policies protected smaller cable operators, too.
However, in a market where you have to string wires through
a town or launch satellites into space, competition will be
limited. But broadband technology changes that. It is no longer
necessary to operate a dedicated network to deliver many kinds
of video content. Public policy should reflect this
technological shift.
The Internet is changing the video marketplace, just as it
changed the market for other media. But there is a difference:
dominant players in video have control over the content their
nascent online competitors need for their service and the pipes
they need to reach consumers.
It is inevitable that new technology will play a large part
of video delivery, but it is not inevitable that the market
will reach its full competitive potential. Consumers will still
suffer from a lack of choice, and independent content producers
will still struggle to reach viewers.
But there is a solution at hand: Congress should make sure
that its pro-competition video policies are technology neutral.
If it does this while protecting Internet openness, it can
ensure that viewers have more choices.
Now, online video is a success story, but it can be much
more than it is now. It is not driving down cable prices. For
most users, it is a supplement to cable, not a replacement. But
video services that offer a full range of content should be as
competitive and open as e-mail services.
Congress and the FCC can help online video develop into a
full competitor in three easy ways. First, they can clear away
some of the outdated rules that slow down the evolution of the
video marketplace. Second, they can extend the successful
policies that protect providers from anticompetitive conduct to
certain online providers. Third, they can protect Internet
openness and prevent discriminatory billing practices that
could hold back online video. This will increase competition,
meaning lower prices, better services, and more flexibility and
control for consumers.
To be sure, many of the regulations that permeate the video
marketplace can be repealed today. Some of them exist only to
protect the business models of local broadcasting or even to
enhance the revenues of major sports leagues. These rules
include the sports blackout rule and prohibitions on distant
signal importation.
Some other rules, like the compulsory copyright license,
are outdated but part of an interwoven fabric of regulatory and
business expectations. They should be reformed but cautiously.
At the same time, measures that are designed to mitigate
the market power of certain large video providers should not be
repealed until effective competition develops. Examples of
these kinds of rules include the program access and program
carriage rules.
In some respects, they should be extended. For example,
online video providers that wish to voluntarily operate as
multichannel video programming distributors should be able to
do so. This would ensure that consumers have more choices for
high-value content than they do today and would eliminate the
incentives that keep certain content from being licensed
widely.
Finally, the Senate can help ensure that the Internet
remains competitive and open to creators of all sizes by
working to prevent the anticompetitive use of data caps and
other open Internet violations.
Senators, my brief testimony today can only touch on a few
subjects. My written testimony contains more detailed analysis
and recommendations. Thank you for inviting me to speak, and I
look forward to your questions.
[The prepared statement of Mr. Bergmayer follows:]
Prepared Statement of John Bergmayer, Senior Staff Attorney,
Public Knowledge
Good morning Chairman Pryor, Ranking Member Wicker, and members of
the Subcommittee. Thank you for the opportunity to participate in
today's hearing. My name is John Bergmayer, and I work for Public
Knowledge, a non-profit public interest organization that seeks to
ensure that the public benefits from a media ecosystem that is open,
competitive and affordable. Today, I am going to recommend that the
Senate consider re-aligning some of the rules that govern the video
marketplace so that they better serve the public interest, allowing all
creators to be fairly compensated while bringing down bills and
increasing the choices available to viewers.
Introduction
There is widespread agreement that we are living in a golden age of
television. Technology has increased people's choices so they can watch
just the shows and movies they are interested in. Digital technology
allows cable and satellite services to fit more channels in the same
bandwidth. DVRs give people control over how they watch broadcast and
cable programming, and online streaming services provide access to a
large back catalog of movies and TV shows. Computers, smartphones,
tablets, and connected devices are changing what it means to ``watch
TV.''
These new choices have allowed people to watch more specialized
programming that fits their individual tastes. But while some
pessimists have predicted that new technology would create a ``filter
bubble'' that isolates people from each other and deprives them of
common cultural reference points, this has not happened with video.
Programs like House of Cards, Mad Men, Game of Thrones, Dancing with
the Stars, NCIS, and (of course) live sports are still part of our
cultural landscape. Even in this era of 500 channels, these kinds of
programs still inspire discussions around the water cooler and on
Twitter.
But despite all of the great programming and groundbreaking
devices, many Americans are locked into a television business model
that limits competition and choice: the expensive bundle of channels.
Most of the most popular programming is not available except through
traditional subscription TV services, and these grow more expensive
year after year. Two years ago, the monthly fee for cable TV (not
including broadband) hit $86 per month, and is projected to rise to
$200 per month by 2020--that is, unless Congress does something about
it.\1\ By contrast an online video-on-demand service like Netflix or
Amazon Instant Video costs less than $10 per month.
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\1\ NDP Group, Pay-TV bills continue to increase by 6 percent,
year-over-year, as consumer-spending power remains flat, Apr. 10, 2012,
https://www.npd.com/wps/portal/npd/us/news/press-releases/pr_120410.
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While cable and satellite companies have improved some of their
offerings to match the convenience of what is available online, they
have a long way to go, and do not come close to matching the value
those services offer. This is because most Americans do not have a
meaningful choice when it comes to selecting their video provider, so
market forces have not been able to keep prices low. Often, if
consumers want an affordable broadband and a video subscription that
gives them access to must-see content, they can only turn to their
local cable company. This is a legacy of a time when subscription video
service required a specialized network, and simple economics did not
allow for much competition. But this is no longer the case; the
technology exists to allow people to have as many choices of video
provider as they have of e-mail providers, or of restaurants. While
there may be a continuing place for specialized technology or networks
to deliver live programming, in a largely on-demand world there should
be many more video providers than we currently see.
The ongoing dominance of the MVPD model is made possible largely by
an outdated regulatory structure created by broadcast, MVPD, and
content incumbents to gain competitive advantages and to cement their
place in the video ecosystem. Moreover, most people get their broadband
through Internet service providers that also are video distributors,
and who have the motivation and the means to discriminate against
online video services. It is time for Congress and the FCC to revamp
the rules of the video industry to promote the public interest. A video
marketplace that served the public interest would give viewers more
choice of providers and the ability to watch any programming whenever
they want on the device of their choosing. At the same time it would
ensure that creators and distributors could continue to get paid a fair
price. A video marketplace that served the public interest would align
the interests of viewers, creators, and distributors, not set one
against the other.
The Senate and other policymakers can achieve this ambitious goal
in three ways. First, they can clear away or update some of the
outdated rules that slow down the evolution of the video marketplace.
For example, protectionist policies like the sports blackout rules
should be repealed, and the dysfunctional retransmission consent system
should be updated. Second, they can extend the successful policies that
protect smaller video competitors. For example, if a large cable system
would be prohibited by law from acting anti-competitively toward a
satellite provider, there is no reason why it should be able to take
the same actions against an online video provider. Third, they can
protect Internet openness and prevent discriminatory billing practices
that hold back online video. In addition to supporting the FCC's Open
Internet rules, Senators and other policymakers should examine whether
discriminatory data caps hold back online video competition. By doing
this they will increase competition, which will mean lower prices,
better services, and more flexibility and control for consumers.
Background
For nearly a century the Federal Government has shaped the
development of electronic media. In the 1920s the Federal Radio
Commission brought order to the chaotic and experimental landscape that
characterized early broadcasting. In doing so it set the conditions
that allowed radio and then television broadcasting to develop into
what it was in its heyday, and what it is today. In the 1960s and 1970s
the FCC took steps to protect broadcasting from the disorganized and
innovative early cable industry.\2\ By doing this it made sure that
cable became an adjunct to rather than a replacement for established
broadcasting.\3\
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\2\ See United States v. Southwestern Cable Co., 392 U.S. 157
(1968). This case, in addition to being an important case setting out
the bounds of FCC authority, contains a summary of the FCC's early
efforts at cable regulation. In 1976, the House Subcommittee on
Communications issued a staff report titled ``Cable Television: Promise
Versus Regulatory Performance'' that stated that the FCC ``has chosen
to interpret its mandate from Congress as requiring primary concern for
individual broadcasters rather than the needs of the audience being
served.'' 94th Cong., 2d sess., 1976, Subcomm. Print. See also Office
of Telecommunications Policy, Cable: Report to the President (1974)
(OSTP Report), which contains an early history of the cable industry
and attempts at cable regulation, as well as policy recommendations.
\3\ The OSTP Report said that ``cable is not merely an extension or
improvement of broadcast television. It has the potential to become an
important and entirely new communications medium, open while and
available to all.'' OSTP Report at 13. But while cable did succeed in
providing viewers with more content it fell short of this early
promise, and the regulatory system that developed ensured that cable
extended the reach of broadcasting instead of developing into a
competitor to it.
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After Congress passed the Cable Act of 1984, the tables turned and
cable became the monopoly. Cable operators controlled who did and
didn't get on the new medium, using their power to require cable
programmers, such as the fledgling CNN and Discovery, to provide ``pay
for play'' equity interests to cable operators, or sign exclusive
agreements prohibiting programmers like MTV from appearing on potential
competitors such as Direct Broadcast Satellite (DBS). At the same time,
cable operators received access to needed inputs such as pole
attachment rights and broadcast programming. The lack of effective
competition led to high prices and poor service, but the cable
incumbents' control over ``must have'' programming made it impossible
for any competing services to emerge.
It was not until the 1992 Cable Act \4\ that Congress embarked on
an express policy of promoting competition in the television market. It
realized that potential competitors needed access to the same content
as large cable systems with market power. New requirements such as
program access rules that gave competitors access to programming owned
by the cable operators, and program carriage rules that prevented cable
operators from demanding an equity share as a condition of carriage
(``pay for play''), helped make it possible for new ``multi-channel
video programming distributors'' (MVPDs) to compete with cable
operators, as did changes to the law to make it easier for competitors
to get access to broadcast programming. (The remainder of this
testimony will use the term ``MVPD'' to refer to cable, satellite, and
telco video services such as U-Verse and FiOS generically.)
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\4\ Cable Television Consumer Protection and Competition Act of
1992, Pub. L. No. 102-385, 106 Stat. 1460 (1992).
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These policies of promoting competition were somewhat successful
but their promise was not entirely fulfilled.\5\ They enabled some new
competitors to operate but these new competitors did not change the
fundamental shape of the market. They did not slow the increasing power
of cable generally and a few large cable companies in particular.\6\
And they did little or nothing to keep the market from consolidating in
ways detrimental to consumers and independent content producers alike.
To an extent, this result was brought about by the technology of the
time. However, broadband now gives policymakers the chance to promote
true competition in video.
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\5\ See Annual Assessment of the Status of Competition in the
Market for the Delivery of Video Programming, Fourteenth Report, MB
Docket No. 07-269 (rel. Jul. 20, 2012), http://hraunfoss.fcc.gov/
edocs_public/attachmatch/FCC-912-981A1.pdf. See also Comments of Public
Knowledge in Annual Assessment of the Status of Competition in the
Market for the Delivery of Video Programming, MB Docket No. 07-269
(June 8, 2011), available at http://www.publicknowledge.org/files/docs/
PK_Comments_MVPD-Competition-Report.pdf.
\6\ For example, Adelphia's cable assets were sold to Time Warner
Cable and Comcast. See Adelphia Sold to Time Warner, Comcast, Buffalo
Business First (Apr. 21, 2005), http://www.bizjournals.com/buffalo/
stories/2005/04/18/daily37.html?page=all. Comcast's cable assets and
NBC Universal have been combined in a joint venture that is controlled
by, and 51 percent owned by Comcast. See General Electric, New NBCU,
http://www.ge.com/newnbcu.
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The Internet is beginning to change the video marketplace just as
it changed the market for music, news, books, and other forms of media.
Consumers have new options and incumbents are responding. But it is not
a foregone conclusion that the Internet will fundamentally alter the
video marketplace. Because they are missing so much of the most popular
programming, and because fast broadband is not yet sufficiently
deployed, online video providers are more complements to, than
replacements for, an MVPD subscription. While Netflix and Amazon have
proved fatal to most video rental shops, they do not directly compete
with MVPDs, which have shown themselves to be considerably more robust.
This is because cable and media incumbents have control both over
the content their nascent online competitors need for their service
(either through direct ownership, or through contracts that limit
online distribution), and over the pipes they must use to reach
consumers. As a result much high-value programming is not available
online, and online video providers have to contend with artificially
low bandwidth caps and other discriminatory practices that keep them
from reaching their full potential.
Thus while it is inevitable that IP technologies and the Internet
will play an ever-larger role in video delivery, it remains an open
question whether consumers or incumbent MVPDs will benefit most from
this technological transition. Consumers will still suffer from a lack
of choice and independent content producers will still struggle to
reach viewers if existing incumbents in the content and MVPD industries
continue to thwart disruptive change and control the transition for
their own benefit. Congress should once again take the necessary steps
to ensure that incumbents cannot throttle (literally as well as
figuratively) the legions of potential competitors trying to reach
willing consumers.
MVPDs and content companies are operating in their own self-
interest under a framework that Congress and the FCC designed. Congress
can address some of the challenges the future development of the video
marketplace faces by pruning away the needless overgrowth of older
rules, like syndicated exclusivity, the sports blackout rule and the
network non-duplication rule, that exist only to protect the business
model of local broadcasters and other incumbents. Some other rules,
like retransmission consent and the compulsory copyright license, are
outdated, but part of an interwoven fabric of regulatory and business
expectations. They should be reformed, but cautiously.
At the same time, measures that are designed to mitigate the market
power of certain large video providers should not be repealed until
effective competition develops. In some respects they should be
extended. For example, online video providers that wish to voluntarily
operate as MVPDs should be able to do so, as this would enable them to
access certain valuable content and protect them against anti-
competitive actions by incumbents.\7\ This would ensure that consumers
had more choices for high-value content than they do today and would
eliminate the incentives that keep certain content from being licensed
widely.
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\7\ See Comments of Public Knowledge in Interpretation of the Terms
``Multichannel Video Programming Distributor'' and ``Channel'' as
Raised in Pending Program Access Proceeding, MB Docket No. 12-83 (filed
May 14, 2012) (Sky Angel Comments), available at http://
www.publicknowledge.org/interpretation-mvpd.
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Finally, the fact that the largest residential broadband Internet
service providers (ISPs) are also MVPDs invested in the existing video
distribution models raises concerns. These ISP/MVPD combinations can
impose a variety of policies that prevent genuinely disruptive
competition. For example, the ability to control how much data
subscribers may access through data caps, the ability to privilege some
content over others through prioritization or exemption from data caps,
and the ability to control what devices can connect to the network,
give cable operators (and other broadband providers like FiOS) the
ability to pick winners and losers just as cable operators did from
1984 to 1992.
Detailed Analysis and Recommendations
The video marketplace is unique, not only because of its
complicated business and regulatory structures, but because some cable
incumbents are better placed to counter the challenge the Internet
poses to their business models in varied ways. The structure and
practices of large media companies, copyright policy, and even spectrum
policy can directly affect the video marketplace.
Threats to Internet Openness
For a long time it looked as though ISPs would continue doing what
Comcast did when it started degrading BitTorrent traffic--picking and
choosing which Internet protocols and services got preferential or
discriminatory treatment. But recently ISPs have found that it is more
effective to discriminate via billing practices. Some ISPs have set
their bandwidth caps so low as to make it financially unattractive to
switch over entirely to online video, as this would put viewers over
their caps and perhaps subject them to overage charges.\8\ At the same
time, at least one ISP exempts its own video services that are
delivered over the same infrastructure from its caps.\9\ To top it off,
some ISPs cannot even accurately measure their subscribers' usage.\10\
These practices disadvantage services like Netflix and Amazon Instant
Video and relegate most online video to the role of a supplement to,
rather than replacement for, traditional MVPD services.
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\8\ Andrew Odlyzko, Bill St. Arnaud, Erik Stallman, & Michael
Weinberg, Know Your Limits: Considering the Role of Data Caps and Usage
Based Billing in Internet Access Service 48 (Public Knowledge 2012)
(``Comcast's own estimate for the amount of data required to replace
its pay-television offering with an over the top competitor is 288 GB
per month. In light of this, it may come as no surprise that Comcast's
data cap is set at 250 GB per month.''). Comcast has since raised its
cap, but it is worth observing that the 288 GB per month figure is
based on an unknown mix of standard and high-definition content;
presumably, a higher percentage of high-definition video would lead to
a higher figure. See Mark Israel and Michael L. Katz, The Comcast/NBCU
Transaction and Online Video Distribution, Submitted by Comcast
Corporation, MB Docket No. 10-56 (May 4, 2010) at 33, available at
http://apps.fcc.gov/ecfs/document/view?id=7020448237.
\9\ Michael Weinberg, Comcast Exempts Itself From Its Data Cap,
Violates (at least the) Spirit of Net Neutrality, Public Knowledge
(March 26, 2012), http://www.publicknowledge.org/blog/comcast-exempts-
itself-its-data-cap-violates-.
\10\ Stacey Higginbotham, More Bad News About Broadband Caps: Many
Meters Are Inaccurate, GigaOm (Feb. 7, 2013), http://gigaom.com/2013/
02/07/more-bad-news-about-broadband-caps-many-meters-are-inaccurate.
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To counter this, Congress needs to stand behind the FCC's attempts
to protect Internet openness,\11\ and it needs to find out more about
why wireless and wireline providers set data caps at the levels they
do.\12\ At the same time these protections need to be strengthened,
their loopholes need to be closed, and they need to take into account
the fact that discrimination can happen through billing, as well as
through Internet ``fast lanes'' that prioritize one service's traffic
over another's, and other forms of technological discrimination.
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\11\ Preserving the Open Internet, Report & Order, GN Docket No.
09-191, FCC 10-201, (rel. Dec. 23, 2010), available at http://
fjallfoss.fcc.gov/edocs_public/attachmatch/FCC-10-201A1.pdf.
\12\ For example, Representative Anna G. Eshoo, Ranking Member of
the Communications and Technology Subcommittee of the House Energy and
Commerce Committee, has recently asked the GAO to investigate data
caps. Letter from Representative Anna G. Eshoo to The Honorable Gene L.
Dodaro, Comptroller General of the U.S. Government Accountability
Office (May 9, 2013).
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Restrictions on the Availability of Content and Rising Content Costs
The current regulatory system is based around the relationship of
broadcasters and MVPDs,\13\ and this system makes it easy for
incumbents to share content with each other while keeping it out of the
hands of potential new competitors.\14\ And while it's unlawful for
incumbent providers to behave anti-competitively towards each other,
they are free to keep their content away from online services, and to
use exclusionary contracts and ``most favored nation'' clauses to limit
the online distribution of independent programming.\15\
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\13\ 47 U.S.C. Sec. 325; 47 C.F.R. Sec. 76.64.
\14\ 47 U.S.C. Sec. 548 provides that,
It shall be unlawful for a cable operator, a satellite cable
programming vendor in which a cable operator has an attributable
interest, or a satellite broadcast programming vendor to engage in
unfair methods of competition or unfair or deceptive acts or practices,
the purpose or effect of which is to hinder significantly or to prevent
any multichannel video programming distributor from providing satellite
cable programming or satellite broadcast programming to subscribers or
consumers.
These baseline statutory requirements still apply even though the
Commission has recently modified its program access rules. See Revision
of the Commission's Program Access Rules, Report & Order, MB Docket 12-
86 (rel. Oct. 5, 2012), http://hraunfoss.fcc.gov/edocs_public/
attachmatch/FCC-12-123A1.pdf.
\15\ Jon Brodkin, DOJ Probing Big Cable Over Online Video
Competition, Ars Technica, (June 13, 2012), http://arstechnica.com/
tech-policy/2012/06/doj-probing-big-cable-over-online-video-competition
(noting that ``[t]he DOJ is also investigating contracts programmers
sign to be distributed on cable systems, which include `most-favored
nation clauses' that may favor cable companies over online video
distributors.'')
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As a result, while a lot of very good video programming is
available online, the most popular programming is not.\16\ Most popular
broadcast and cable channels are not available online. Many popular
shows are not available online at all or are only made available after
a ``windowing'' period. Some programs are put online reasonably
promptly, but are only viewable in inconvenient ways. Some of the best
online content is only available to viewers who also have cable
subscriptions, through TV Everywhere and similar efforts. Live local
sports are generally not available online at all. Thus, while online
services make it easy to watch great documentaries, classic movies, and
old sitcoms, the kinds of culturally-current programming that people
talk about at the office and online are often not available without a
cable or satellite subscription.
---------------------------------------------------------------------------
\16\ See Carlos Kirjner, Internet TV (or Why It Is So Hard to Go
Over the Top), Bernstein Research (June 15, 2012).
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This problem would be largely abated if online providers like Sky
Angel and Ivi \17\ were permitted to operate as MVPDs, like they want
to.\18\ The rules that protect MVPDs from anti-competitive conduct
would then protect them as well as incumbents. At the same time, the
FCC should find that the current rules that prohibit incumbents from
behaving anti-competitively toward each other also prohibit them from
taking anti-competitive acts against online video providers, including
those that choose not to operate as MVPDs.\19\ But even short of that,
if more content were available from online services that might choose
to operate as MVPDs, the incentive to keep content offline would
evaporate to the benefit of the entire video marketplace.
---------------------------------------------------------------------------
\17\ See Ryan Lawler, Court Rules Ivi.tv Not a Cable System, Issues
Injunction, GigaOm (Feb. 22, 2011), http://gigaom.com/2011/02/22/ivitv-
injunction.
\18\ See Public Knowledge Sky Angel Comments.
\19\ As Public Knowledge has argued,
The [FCC] should use its authority over the video programming
distribution market to protect online video distribution generally, by
prohibiting MVPDs from behaving anti-competitively in ways that harm
any video distributor, whether or not it is an MVPD. Section 628 of the
Communications Act provides authority for this. This Section bans any
actions ``the purpose or effect of which is to hinder significantly or
to prevent any multichannel video programming distributor from
providing . . . programming to subscribers or consumers.'' The close
connection between the markets for MVPD and non-MVPD video distribution
mean that anti-competitive actions taken against an non-MVPD would
likely have a deleterious effect on the ability of a competitive MVPD
to offer programming--for example, by increasing its costs, or
inhibiting the ability of an MVPD to offer programming on demand or
online.
Sky Angel Comments at 24-25 (quoting 47 U.S.C. Sec. 548).
---------------------------------------------------------------------------
The current pay TV MVPD model is very lucrative for some creators
and distributors because it forces viewers to pay for large bundles of
cable channels even if they only want to watch a few.\20\ In fact,
every cable subscriber has to pay for broadcast channels, even though
they are available over the air for free. This is why some studies have
shown that current monthly cable bills are approaching $90 per
month,\21\ and the FCC has shown that cable rates continue to rise at a
faster rate than inflation.\22\ If these practices were to be lessened,
not only would bills shrink, but also more content might become
available to new online providers.
---------------------------------------------------------------------------
\20\ Peter Kafka, Hate Paying for Cable? Here's Why, AllThingsD,
March 10, 2010, http://allthingsd.com/20100308/hate-paying-for-cable-
heres-the-reason-why.
\21\ NDP Group, Pay-TV Bills Continue to Increase by 6 Percent,
Year-Over-Year, As Consumer-Spending Power Remains Flat, Apr. 10, 2012,
https://www.npd.com/wps/portal/npd/us/news/press-releases/pr_120410.
\22\ The FCC measures the expanded basic tier, which is ``the
combined price of basic service and the most subscribed cable
programming service tier excluding taxes, fees and equipment charges.''
Statistical Report on Average Rates for Basic Service, Cable
Programming Service, and Equipment, MM Docket No. 92-266, Report on
Cable Industry Prices 2 (rel. Aug. 13, 2012), http://
hraunfoss.fcc.gov/edocs_public/attachmatch/DA-12-1322A1.pdf. This is
not the same as the average or median cable bill, measures which
reflect what subscribers actually pay. The Commission found that this
specialized measure of rates ``increased by 5.4 percent over the 12
months ending January 1, 2011, to $57.46, compared to an increase of
1.6 percent in the Consumer Price Index (CPI). The price of expanded
basic service increased at a compound average annual growth rate of 6.1
percent during the period 1995-2011. The CPI increased at a compound
average annual growth rate of 2.4 percent over the same period.'' Id.
---------------------------------------------------------------------------
But it is important to understand exactly what causes these
problems. Input costs--the fees MVPDs pay to content companies--
certainly contribute. Rising fees paid by MVPDs to content companies
are one of the main drivers of rising cable bills.\23\ MVPDs are often
forced to pay for, and pass along to their consumers, less-popular
channels in exchange for access to the popular ones. Sports fees are a
huge portion of viewers' bills. Derek Thompson has calculated that ``if
you pay $90 a month for cable, you are paying about $76 a year (about 7
percent of the total cost of cable TV) just for the NFL.'' \24\ A
typical MVPD subscriber might pay about $60 per year just for ESPN,
whether or not she watches it.\25\
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\23\ In fact, Cablevision has recently sued Viacom for bundling
channels, ``a practice that's led to rising cable bills and ballooning
channel lineups.'' Alex Sherman & Edmund Lee, Cablevision-Viacom Suit
Aims to Shake Up $170B Industry, Bloomberg (Feb. 27, 2013), http://www
.bloomberg.com/news/2013-02-27/cablevision-viacom-suit-aims-to-shake-
up-170b-industry.html.
\24\ Derek Thompson, Mad About the Cost of TV? Blame Sports, The
Atlantic (Apr. 2, 2013), http://www.theatlantic.com/business/archive/
2013/04/mad-about-the-cost-of-tv-blame-sports/274575.
\25\ See Daniel Frankel, By the Numbers: The Spiraling Cost of
Sports Programming, paidContent (Apr. 8, 2012), http://paidcontent.org/
2012/04/06/by-the-numbers-the-spiraling-cost-of-sports-programming.
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Retransmission fees for broadcast networks keep rising--NBC expects
to collect $200 million in such fees this year, an increase of about
400 percent from 2012.\26\ What's more, retransmission agreements often
require that MVPDs carry certain cable networks, limiting the ability
of MVPDs to offer more flexible price plans. Content companies are able
to do this because of media consolidation. The most popular programming
is controlled by a handful of companies like Viacom and Disney. When
they make offers, they are hard to refuse. Even the broadcast industry
is consolidating as companies like Sinclair scoop up local broadcaster
after local broadcaster, contributing to the ongoing problem of
different local broadcasters coordinating their retransmission consent
negotiations and driving up rates.\27\
---------------------------------------------------------------------------
\26\ Steve Donohue, Comcast CFO: NBC Will Collect $200 Million in
Retrans Fees in 2013, FierceCable (Feb. 26, 2013), http://
www.fiercecable.com/story/comcast-cfo-nbc-will-collect-200-million-
retransmission-consent-fees-2013/2013-02-26.
\27\ Among other things, so-called ``Joint Services Agreements''
allow different broadcasters to collude on retransmission negotiations.
As Public Knowledge argued earlier this year,
Media pluralism does not only ensure that citizens have access to a
diversity of viewpoints and sources of information; it creates a
baseline level of competition between media companies that helps keep
markets competitive and prices low for consumers. Because of the joint
negotiations between ostensible competitors, television stations are
better able to create a ``united front'' in demanding higher fees,
which are ultimately passed along to consumers. If competing companies
worked together on other aspects of their business--for example, in
colluding to raise advertising rates--most observers would identify a
plain violation of antitrust laws. But under current policies stations
feel free to collaborate on this other important aspect of their
business operations. This harms consumers and contributes to ever-
rising subscription TV bills.
Letter from John Bergmayer to Ms. Marlene H. Dortch, Secretary,
Federal Communications Commission, in Promoting Diversification of
Ownership in the Broadcasting, MB Docket No. 07-294; Review of the
Commission's Broadcast Ownership Rules and Other Rules Adopted Pursuant
to Section 202 of the Telecommunications Act of 1996, MB Docket No. 09-
182; and Amendment of the Commission's Rules Related to Retransmission
Consent, MB Docket No. 10-71 (filed Jan. 22, 2013).
---------------------------------------------------------------------------
But content companies have grown accustomed to these practices for
a good reason: in a concentrated market for video distribution, it is
easier to pass along increased input costs.\28\ MVPDs have never liked
having to pay more for content, but it has historically been the cost
of doing business. They have traditionally resisted calls to move to an
aa la carte model. But bills have reached a point where a notable
number of viewers (especially younger and more tech-savvy ones) are
``cutting the cord'' (or never getting a cord to begin with) and doing
without MVPD subscriptions. Cable executives like Time Warner Cable CEO
Glenn Britt have started talking about offering consumers more flexible
packages and greater control over the bundles they subscribe to.\29\
This would be a positive development for consumers. It is an open
question, however, whether a market that remains concentrated both on
the content and distribution side can evolve to a lower cost model on
its own.
---------------------------------------------------------------------------
\28\ It is important to note that not all MVPDs have equal
bargaining power with respect to content suppliers. A very large cable
company with its own content interests like Comcast is in a different
position than DISH, Cablevision, or a rural cable system. These smaller
MVPDs may not be able to pass along increased prices to their
customers, or internalize them through acquisitions. Also, larger MVPDs
may be able to negotiate around certain non-price restrictions, such as
limitations on the functionality of cable-supplied set-top boxes and
other equipment, or the ability to make programming available on
tablets or smartphones within the home. By contrast, smaller cable
systems may not be able to overcome these kinds of restrictions.
\29\ Cecilia Kang, Time Warner Cable CEO Wants to Slim Cable
Bundles, Eyes Aereo's Technology, Wash. Post (May 2, 2013), http://
www.washingtonpost.com/business/technology/want-to-cut-the-cable-cord-
time-warner-cable-may-help-you/2013/05/02/f6b43b84-b27b-11e2-baf7-5bc
2a9dc6f44_story.html.
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One quick way to fix this would be to scrap the rules that require
that cable systems carry broadcast stations as part of their basic tier
(``basic tier buy-through'')--customers should be able to choose what
they pay for. Policymakers should also look very closely at the
practice some media companies have of bundling their programming
together and requiring that cable operators buy it all and put even
less-popular channels on lower programming tiers. Bundles can make
economic sense for buyers and sellers but they can be abused when there
are imbalances in bargaining power or a lack of competitive
alternatives. If MVPDs themselves had more flexibility in the
programming they purchase, they might become more willing to offer that
flexibility to viewers. At the same time, MVPDs should be encouraged to
offer more flexible programming packages. Consumers do not object to
``bundles'' per se--popular online services like Spotify and Amazon
Instant Video work on a bundled approach that is quickly surpassing the
pay-per-download iTunes model. What they object to is expensive bundles
that feel like a rip-off. They simply want to get good value for their
monthly bill. For some consumers who only watch a few programs, this
might mean channel-by-channel aa la carte subscription, perhaps coupled
with over-the-air TV and online services. For others, it might just
mean better bundles--for example, a cheaper sports-free programming
package, or a kid-friendly package.
One solution to the problem of rising input costs that would not be
good for consumers is further consolidation, allowing distributers to
internalize content costs and profits. The merger between Comcast and
NBC Universal brought a large amount of programming under the control
of a cable system that has an incentive to limit its distribution
online. While it is true that both the Department of Justice and the
FCC conditioned their transaction on Comcast's commitment to make
certain programming available to online distributors and to deal with
independent programmers fairly,\30\ such time-limited behavioral
remedies are insufficient to overcome all the anti-competitive effects
of mergers, joint ventures, and other structural changes that create
incentives to limit distribution and innovation.\31\ Furthermore,
without an agency that is willing to hold companies to the letter and
spirit of their merger conditions, they can simply be ignored,
requiring that affected parties undertake expensive legal proceedings
to enforce them. Just this has happened with the Comcast merger, where
Bloomberg has maintained since 2011 that Comcast has not met its
``neighborhooding'' requirements, and Internet video provider Project
Concord had alleged that Comcast was not meeting its online video
requirements.\32\
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\30\ Applications of Comcast Corporation, General Electric Company
and NBC Universal, Inc., for Consent to Assign Licenses and Transfer
Control of Licenses, Memorandum Opinion & Order, 26 FCC Rcd. 4238
(2011); Final Judgment in United States v. Comcast, United States
District Court for the District of Columbia, Case No. 1:II-cv-00l06
(Sept. 1, 2011).
\31\ Petition to Deny of Public Knowledge and Future of Music
Coalition in WT Docket No. 11-65 (filed May 31, 2011), at 62-70,
available at http://www.publicknowledge.org/files/docs/pk_fmc-att_tmo-
petition_to_deny.pdf.
\32\ See Letter from Senator Al Franken to FCC Chairman
Genachowski, FCC Commissioners, and Assistant Attorney General Varney,
Aug. 4, 2011, http://www.franken.senate.gov/files/letter/
110804_Letter_to_DOJ_and_FCC_Comcast_conditions_and_Bloomberg.pdf.
While there has been some activity on this matter at the FCC the
dispute is ongoing. See John Eggerton, Parties Continue to Tussle over
News Neighborhooding Condition in NBCU Deal, Multichannel News (Oct. 1,
2012), http://www.multichannel.com/distribution/bloomberg-comcast-
trade-fcc-filings/139564.
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Similarly, horizontal collaboration between different video
distributors (such as the ``TV Everywhere'' authentication system) may
seem to provide new options to some viewers in the short term, but only
at the long-term cost of preventing the marketplace from evolving to a
more competitive state. Likewise, arrangements between large content
companies like ESPN where some content gets preferential treatment,
such as an exemption from data caps, would not benefit either consumers
or creators.\33\ Large and small creators might find that they have to
negotiate with many different ISPs just to reach viewers, and viewers
might only have access to the programming of companies that have paid
up. Smaller competitors might not be able to reach viewers at all. This
would be counterproductive, anti-competitive, and a violation of Open
Internet principles.
---------------------------------------------------------------------------
\33\ Anton Troianovski, ESPN Eyes Subsidizing Wireless-Data Plans,
Wall St. J. (May 9, 2013), http://online.wsj.com/article/
SB10001424127887324059704578473400083982568.html.
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Outdated Rules That Protect Incumbent Business Models
Finally, there are some rules on the books today that seem designed
to prop up legacy business models and have long outlived any functions
they may once have served. Many of them can and should be repealed
today. Examples of these include sports blackout rules, network non-
duplication, and syndicated exclusivity provisions,\34\ and the
previously mentioned basic tier buy-through rule that requires that all
cable subscribers pay for free over-the-air television.\35\ Some of
these rules were passed to protect aspects of the video distribution
system from disruption before Internet video was a possibility, and
when it seemed that if local broadcasters lost revenue nothing could
replace them. Exclusivity rules not only keep cable systems from
carrying signals from ``distant'' markets but they prevent networks
from distributing content on a non-exclusive basis. The world these
rules were written for is gone now and they have outlived their
purpose. Some local broadcasters never provided unique local
programming, and the various public goals that they provide can be
achieved more effectively through other means. Traditional models of
video distribution are still valuable, and local broadcasters who serve
their communities will continue to thrive after any regulatory reform.
Viewers will still have access to local news, weather, and locally
relevant programming because they demand it. Reforms should reward
local broadcasters and other media outlets for creating their own
content rather than for distributing national programming. Simply put,
the broadcasting industry no longer needs extraordinary protection
against changes in technology, business models, and viewer behavior.
---------------------------------------------------------------------------
\34\ 47 C.F.R. Sec. Sec. 76.92(f), 76.106(a), 76.111, 76.120, and
76.127-130.
\35\ 47 U.S.C. Sec. 543(7); 47 C.F.R. Sec. 76.901(a) (``The basic
service tier shall, at a minimum, include all signals of domestic
television broadcast stations provided to any subscriber''); 47 C.F.R.
Sec. 76.920 (``Every subscriber of a cable system must subscribe to the
basic tier in order to subscribe to any other tier of video programming
or to purchase any other video programming.'').
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Some other rules are outdated, but so interconnected with other
rules and marketplace expectations that they need to be approached
carefully. Among these are the compulsory copyright license,\36\
retransmission consent,\37\ and must-carry.\38\ The compulsory license
cannot be reformed unless video providers are given assurance that they
never have to stop carrying programming just because they do not know
who to call for a license, and to make sure that they can cope with any
potential holdout problems. It would make no sense to embark on a
comprehensive reform of the laws governing video carriage in a way that
replicated the problems that afflict the retransmission consent process
today, while introducing new ones.
---------------------------------------------------------------------------
\36\ 17 U.S.C. Sec. Sec. 111, 119, 122.
\37\ 47 U.S.C. Sec. 325; 47 C.F.R. Sec. 76.64.
\38\ 47 U.S.C. Sec. 534; 47 C.F.R. Sec. 76.55.
---------------------------------------------------------------------------
Short of dealing with the compulsory license and retransmission
consent together, several reforms could improve the current
retransmission consent process. Many of the rules that have already
been mentioned give an unfair advantage to broadcasters and drive up
the rates they can charge. Some broadcasters have engaged in
brinksmanship tactics that harm viewers, where they pull their signals
from MVPDs right before high-profile events.\39\ These problems can at
least be alleviated with meaningful ``good faith'' standards that
discourage unfair negotiation tactics, and interim carriage
requirements that minimize disruption to viewers.\40\ Finally, while
the must-carry system is used by many low-value broadcasters in ways
that Congress never intended, public and non-commercial stations
continue to serve a valuable role and policymakers should find ways to
protect the good that they do.
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\39\ Some of these incidents were cataloged in Amendment of the
Commission's Rules Related to Retransmission Consent, Notice of
Proposed Rulemaking, 26 FCC Rcd. 2718, 15 (2011).
\40\ See Comments of Public Knowledge and New America Foundation in
MB Docket No. 10-71 (filed May 27, 2011), available at http://
www.publicknowledge.org/files/docs/11-05-27PK-NAF_retrans_comments.pdf.
---------------------------------------------------------------------------
Still other rules serve a function and should be maintained, at
least until effective competition develops. These include the program
access, program carriage rules, as well as rules that promote choice in
set-top boxes and other video devices. The program access rules prevent
MVPDs from taking certain anti-competitive actions toward each other.
Although the video market is not as competitive as it can be in the
Internet age, the fact remains that the American video distribution
market is more competitive than that of many other countries.\41\ The
program access rules have contributed to that, and they should be
extended to all services that wish to operate as MVPDs, even ones that
are exclusively online. Similarly, the program carriage system, which
protects independent programmers from the negative effects of
bottleneck control by some MVPDs, still serves a role in ensuring that
viewers can enjoy content from diverse sources. Finally, the FCC has
not done enough to fulfill Congress's directive to promote set-top box
competition--in fact, the FCC's Media Bureau has recently imperiled
\42\ the Commission's CableCARD program which, though far from perfect,
at least gives some cable subscribers more options when it comes to
video devices. Until Internet-delivered video becomes a true
substitution, preserving the FCC's authority to promote set-top box
choice will remain necessary.\43\
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\41\ For example, ``Free-to-air television in Mexico is a stale
duopoly in which 70 percent of viewers tune in to channels broadcast by
Televisa, the biggest media company in the Spanish-speaking world.
Televisa dominates pay-TV as well, with about 45 percent of Mexico's
cable market and 60 percent of the satellite market.'' Let Mexico's
Moguls Battle, The Economist (Feb. 4th, 2012), http://
www.economist.com/node/21546028.
\42\ Charter Communications had asked for a waiver of some of the
Commission's rules, but the Bureau went far beyond what Charter asked
for and decided, based on a misapplication of the recent EchoStar
Satellite L.L.C. v. FCC decision, 704 F.3d 992 (D.C. Cir. 2013), to
effectively eliminate most CableCARD requirements.
\43\ For example, by implementing AllVid or a similar technology-
neutral solution. See AllVid, http://www.publicknowledge.org/issues/
allvid.
---------------------------------------------------------------------------
Copyright and Spectrum Policy
There are two other kinds of regulations that can hold back the
development of online video. Policymakers who are steeped in media
issues do not always see them as ``regulations'' in the same sense as
things like syndicated exclusivity. But copyright and spectrum laws are
regulations nonetheless, and they have profound effects on the shape of
the market.
Copyright law should not be misused to hold back the evolution of
the video marketplace. Broadcasters are suing DISH for making a DVR
that is too sophisticated and easy to use. But it is not illegal to
skip commercials or for users to take full advantage of their home
recording rights.\44\ And as the Second Circuit Court of Appeals
recently found, Aereo's remote antenna is legal just as Cablevision's
remote DVR is.\45\ Copyrights are limited monopolies granted by the
government, and they come with a series of limitations and exceptions
designed to protect users as well as creators. They should not be a
weapon used to limit experimentation with business models and services.
---------------------------------------------------------------------------
\44\ See Fox Broadcasting v. Dish, 2012 U.S. Dist. LEXIS 169112
(C.D. Cal. 2012).
\45\ WNET et al., v. Aereo, No. 12-2786-cv (2d Cir. Apr. 1, 2013),
available at http://www
.publicknowledge.org/files/aereo_decision_2d_circuit.pdf
---------------------------------------------------------------------------
Nor should misplaced fears of piracy keep content offline. Some
content industry executives have a view of technology and the Internet
that can only be described as superstitious, and they think that if
they give people access to content they will lose control of it. But
recent history shows that many people only turn to piracy when content
is not available online though other means. Indeed, Netflix has
recently provided data that show that as its online service is adopted,
unlawful file-sharing decreases.\46\ From the perspective of reducing
copyright infringement, limiting online distribution is simply
counterproductive. Creators will benefit most from an open marketplace
that allows different services and voices to reach viewer's homes.\47\
---------------------------------------------------------------------------
\46\ See Netflix's Ted Sarandos Talks Arrested Development, 4K and
Reviving Old Shows, Stuff, May 1, 2013, http://www.stuff.tv/news/apps-
and-games/news-nugget/netflixs-ted-sarandos-tal
ks-arrested-development-4k-and-reviving-old (quoting the Netflix Chief
Content Officer as saying ``when we launch in a territory the
BitTorrent traffic drops as the Netflix traffic grows.''). It is true,
as BitTorrent, Inc. states, that BitTorrent has many lawful uses and
that BitTorrent, Inc. is not associated with copyright infringement.
See BitTorrent Blog, Reports Of Our Death Have Been Greatly Exaggerated
(May 6, 2013), http://blog.bittorrent.com/2013/05/06/reports-of-our-
death-have-been-greatly-exaggerated. However, Sarandos appears to have
been referring to all files that are exchanged using the BitTorrent
protocol (which BitTorrent, Inc. does not control), not just the
minority of those associated with BitTorrent, Inc. While BitTorrent is
a general-purpose tool with lawful and unlawful uses, it is also true
that many viewers use BitTorrent to unlawfully access content that is
not otherwise available online.
\47\ For this reason, trade and other agreements negotiated on
behalf of the United States should not include provisions that could
expand the scope of copyrights or copyright enforcement (as many trade
agreements do, even though copyright law is already handled
internationally by a series of treaties), create new kinds of
intellectual property rights (as the proposed WIPO Broadcast Treaty
would), or attempt to limit the online distribution of broadcast
content. See John Bergmayer, The US-Colombia Free Trade Agreement:
Policy Laundering in Action, Public Knowledge (Apr. 20, 2012), http://
www.publicknowledge.org/blog/us-colombia-laundering (arguing that
language in some free trade agreements could be read as limiting online
video distribution). But see Comments of ABC, CBS, and NBC Television
Affiliates in MB Docket No. 12-83 (filed June 13, 2012), available at
http://apps.fcc.gov/ecfs/document/view?id=702
1922660 (arguing that it would be consistent with such agreements if
online systems were categorized as MVPDs and subsequently followed
standard retransmission consent procedures).
---------------------------------------------------------------------------
A service like Aereo's raises issues of spectrum policy as well as
copyright. Broadcasters are given free use of the public's airwaves in
exchange for certain public obligations, such as the obligation to
provide free programming to the public. While it is true that Aereo
does not pay retransmission fees like MVPDs do, it is also true that
Aereo, unlike MVPDs, only provides people with access to the free local
signals they are already entitled to view. As Congress found in 1976,
The Committee determined . . . that there was no evidence that
the retransmission of ``local'' broadcast signals by a cable
operator threatens the existing market for copyright program
owners. Similarly, the retransmission of network programming,
including network programming that is broadcast in `distant'
markets, does not injure the copyright owner. The copyright
owner contracts with the network on the basis of his
programming reaching all markets served by the network and is
compensated accordingly.\48\
---------------------------------------------------------------------------
\48\ Copyright Law Revision, House Report No. 94-1476 (1976).
The majority of viewers do not watch over-the-air broadcasters
directly, but only as those stations are carried by MVPDs. This leads
some to question whether the allocation of spectrum to broadcasting
makes sense at all.\49\ Certainly, the broadcasters who have said they
may no longer want to continue broadcasting should feel free to return
their spectrum to the public so that it can be put to other uses.\50\
However, broadcast content is still important to many viewers and,
driven to cut the cord because of rising MVPD subscription costs, a new
generation of viewers is becoming more familiar with rabbit ears and
over-the-air viewing.\51\ Aereo and services like it should be part of
this. If Aereo ultimately wins the court challenges against it and the
Senate decides to revisit the law, it should consider creating a path
where online video services can choose to operate as online MVPDs,
which would increase the opportunity for content creators to get paid
for their work and to reach new viewers. However, making an antenna
rental service illegal would not benefit the public, would provide no
benefit to creators, and would be contrary to the public purpose of
broadcasting.
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\49\ For example, Economist Thomas Hazlett has observed that
``[t]oday, the social opportunity cost of using the TV Band for
television broadcasting--294 MHz of spectrum with excellent propagation
characteristics for mobile voice and data networks, including 4G
technologies--is conservatively estimated to exceed $1 trillion (in
present value).'' Comment of Thomas Hazlett, in A National Broadband
Plan for Our Future, GN Dckt. No. 09-51, Federal Communications
Commission (filed Dec. 18. 2009), available at http://mason.gmu.edu/
thazlett/pubs/NBP
_PublicNotice26_DTVBand.pdf.
\50\ See John Bergmayer, As Broadcasters ``Threaten'' to Shut Down,
They're Not Getting the Reaction They Were Looking For, Public
Knowledge (Apr. 10, 2013), http://publicknowledge.org/not-the-reaction.
\51\ Christopher S. Stewart, Over-the-Air TV Catches Second Wind,
Aided by the Web, Wall Street Journal (Feb. 21, 2012), http://
online.wsj.com/article/SB1000142405297020405980
4577229451364593094.html (``It's cool to have rabbit ears again.'').
---------------------------------------------------------------------------
Conclusion
As they have in the past, policymakers are starting to consider the
implications of increasing change in the market for video distribution.
History provides examples both of protectionist regulations that should
be avoided today, and of pro-competitive measures that enable new
entrants to reach viewers. But today is different in one way: Finally,
the technology exists that could eliminate the physical, bottleneck
control of video distribution that has existed in various forms for
decades.
If policymakers take some simple steps to facilitate the
development of competitive online video now, later they can begin to
disengage from regulations that were designed to counter the effects of
this bottleneck control. However, if they fail to do this, it is likely
that incumbents will be able to continue to shape the development of
the video market and extend their current dominance indefinitely. While
the Internet provides grounds for hoping that the future of video will
be better for consumers, policymakers have a lot of work to do to help
make that happen.
Senator Pryor. Thank you.
I will go ahead and start the questions with Senator Smith.
Senator Smith, I know that broadcasters have obligations,
which I like and I think are based on good public policy, and
we have seen decades of good results as a result of that. But
these same obligations do not exist on the Internet.
So could you tell the Subcommittee here what might happen
if, you know, for some reason those obligations went away?
Mr. Smith. Mr. Chairman, broadcasting is in competition
with everyone else providing video. Obviously, we believe we
earn our licenses every day, with all the public service that
we do, the decency rules that we observe, the children's
programming we provide, the local news, weather, sports,
information, emergency information. These are the values that
broadcasting represents, and they are valuable still.
I think I infer from your question that if you take
broadcaster spectrum away, will those same regulations of
public service apply to the Internet? And I would simply say,
my experience is that that would be a real steep climb in the
U.S. Senate.
But the question is, if you compromise broadcasting, who
serves those interests? And the answer is, no one steps up to
those kinds of obligations. If you imposed indecency
regulations on the Internet, you would collapse the business
model of many of the people involved in that.
But notwithstanding an episodic, fleeting expletive or a
wardrobe malfunction, I am very proud of the fact that
broadcasters work hard to make sure that we are not purveyors
of indecency and that families have a place to go where they
can have some confidence that their families can view what is
on the television.
But we compete with the lowest common denominators of
production, and that is the other pressure on the other side of
us. But the best I can tell you, our spectrum comes with public
service obligations that only we deliver.
Senator Pryor. And can you tell the Subcommittee what your
industry is doing to increase consumers' access to your
programming for online and mobile platforms?
Mr. Smith. Well, just recently, ABC announced that they are
putting through a streamed process their programming.
I am pushing very hard on my members to deploy in more
stations mobile facility, so that the 130 stations that now
provide--or 130 cities that now have mobile, that that can
expand all over the country. That is the very best way you can
get video through the broadcast architecture.
It is one-to-everyone in a locality. It is local, and it is
free. And it is live; it is big-event. And those are the
qualities that I think make, as I said in my testimony, when it
comes to video, we are indispensable, even irreplaceable. There
is not enough spectrum in the universe to do all video one-to-
one. So you have to preserve broadcasting if you want those big
events, particularly those emergency events, available to the
American people.
Senator Pryor. Mr. Powell, let me ask you, I wanted to give
you a chance to respond to Senator McCain's opening statement
and the bill that he has filed.
You know, on one level, it may seem very commonsense that
all consumers would have a choice and be able to go aa la carte
and pick out their programming. And, you know, that is kind of
intuitive, that, yes, that makes sense. But I would like to
hear your response from the industry's perspective on what
problems that presents.
Mr. Powell. Sure. Thanks for the question.
First of all, Senator McCain has a longstanding and deep
interest in this. And I had the privilege when I was Chairman
of the FCC to work with him on this issue and many more quite
extensively.
As you point out, Mr. Chairman, the objective seems
entirely reasonable and noble and quite intuitively right, that
somehow if you bought less, you would pay less. That seems
logical.
But many independent, third party studies that have looked
at this very carefully have concluded that is not likely to be
the case, including the GAO in 2003, the FCC again in 2004, and
the Congressional Research Service again in 2006, as well as a
bunch of academic reports, have concluded that it is a very
serious question mark whether consumers would actually have
lower bills or cheaper services as a consequence of aa la
carte.
The reasons are relatively clear when you think about it
for a moment. If you take a channel that is accustomed to a
large audience size and allocating its services across a big
base and the advertising revenue and subscription revenue that
go with it and have it sold directly to the consumer aa la
carte, a couple of things happen.
One, their audience size has shrunk dramatically. And so to
make up for the revenue loss associated with advertising and
their revenue base, they are very likely to have to raise the
individual price of that programming quite substantially than
the $4 or $5 that Senator McCain was referencing when it is
provided in a bundle.
It doesn't take long for consumers, putting those pieces
together, to quickly get to a package that costs something very
similar to what they were paying before, if not more. It is not
a good deal for consumers if you pay $10 for 10 channels and
you were paying $10 for 100. And I think that there has been
some quite serious academic work to show that that is a
possibility, a very likely possibility.
And so, while the concern is respectable and noble and one
that we should continue to work on, I think we have our
profound doubts that aa la carte would actually deliver a
lower-cost product to the American consumer.
Senator Pryor. Senator Wicker?
Senator Wicker. Mr. Powell, let me start with you. I
believe you testified that the current statute is frayed, needs
some work, but you don't think this is a good time for an
overhaul of the Act; we need to do something surgical because
the state of the industry is fast-moving, we are in a period of
transition.
When will it ever be less fast-moving than it is now? And
when will we ever not be in a transition era?
Mr. Powell. It is a very good question, because we may
never. That is a fair enough question.
But I am a big believer that you can migrate existing
regulatory regimes as well as just throw them out and try to
replace them with a grand scheme. And I think by tackling the
problems as they surface, you have demonstrable evidence, very
specific fact patterns, understandable technology that you can
directly address, that I think is very, very challenging to try
to do in a big, comprehensive rewrite.
So, again, I would emphasize, we are not saying we are
enamored with every aspect of the 1992 Act and that no change
over time is necessary. But I think it is a more prudent and
deliberate approach to try to address specifics as they arise,
in which fact patterns and demonstrable evidence are available
for us to address.
It is dated, as you note, in the sense that it was based on
a lot of factual premises that are simply no longer true. I
would be the first to admit that in 1992 the cable industry was
unquestionably a monopoly provider. We had 98 percent of the
multichannel video market. Today, that percentage is under 60
percent. At the time the 1992 Act was written, the industry was
vertically integrated with program providers, closer to 57 to
60 percent. Today, that number is down to 14 percent.
But many of the rules that underlie the 1992 Act are meant
to address those concentrated considerations, and I think those
rules over time will have to be modified to reflect reality.
Senator Wicker. OK. What specifics have recently arisen
that would be the target of your so-called surgical changes?
Mr. Powell. Well, I would say, among our members, there is
a difference of opinion on that. And we, as an association, are
not particularly prepared to present a list of specifics for
you.
Senator Wicker. So you are not advocating an overhaul of
the Act, nor are you coming before us even suggesting the sort
of surgical limit to changes that your testimony seems to
advocate.
Mr. Powell. I would only suggest that any surgical
proposals we might make or those of our members might make will
be done, if at all, subsequently to this hearing.
Senator Wicker. All right. Well, tell me this. For the
overall industry, for the consumer, what do you fear might go
wrong with an overhaul, a general overhaul, of the act?
Mr. Powell. I think we could easily retard or disincent the
enormous revolution we see taking place. Number one, a
comprehensive rewrite is a long, complicated, and uncertain
exercise. That uncertainty that hangs over the industry while
it is rewritten tends to retard taking risk, making business
model changes, because you are awaiting the understanding of
what the rules will be.
I have been through, as a regulator, many major
transformational rewrites. I would say that the 1996 telephone
provisions took almost a decade to settle down, with multiple
trips to the Supreme Court for resolution of clarity. And I
think the country underinvested and underinvested in taking
risks and innovation during that period. I think that is a real
risk.
And I don't think some of the problems that some refer to
are necessarily clear enough for a government response.
Now, that said, I think we have members, to be perfectly
honest, who are very concerned about consumer affordability,
and we will also often be talking about ways to manage cost to
deal with that.
Senator Wicker. Mr. Bergmayer, would you like to briefly
comment on Senator McCain's proposal, the aa la carte proposal?
Mr. Bergmayer. Yes, Senator.
I support Senator McCain's bill as a first step toward
broader reform. The Senator, like so many Americans, is clearly
outraged by ever-increasing cable bills. And the bill promotes
his pro-consumer goals by taking note of the various regulatory
advantages that broadcasters and cable already get, and it
requires that these companies serve the public interest to
qualify for them.
Notably, as I read it--you know, the bill came out
recently, but I don't think that the bill outlaws the practice
of bundling. It simply requires that viewers have a choice.
I would especially like to single out the bill's response
to broadcaster threats to take high-value content off the air.
This would clearly be an abrogation of the public trust. And
Senator McCain is right to require that broadcasters serve the
public if they wish to use the public's airwaves.
And as just a general observation, I would say the aa la
carte bundle tends to polarize people because they think it is
a choice between buying a bundle that has every channel or
simply assembling your entire subscription on a channel-by-
channel basis.
Now, there is room in the marketplace for bundles of
content. Something like Netflix, that is a bundle. You
subscribe and you get access to everything at once. And many
online services are like that. And, frankly, I prefer the
Netflix model of just a single flat rate to get access to
everything to, you know, the iTunes model of buying every show
or every series episode by episode.
That said, what I think people want is a lot more choice.
It is not bundles per se; it is that they don't like feeling
like they are getting ripped off. And I think that a lot of
people today feel like they are getting ripped off. So I
support Senator McCain's bill because it is aimed at giving
consumers a lot more choice and flexibility.
Senator Wicker. Thank you.
Senator Pryor. Thank you.
We have been joined by Senator Thune, the Ranking Member of
the full committee.
Senator Thune, you are recognized.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Well, thank you, Mr. Chairman. I don't have
a lot to add. I thank you and Ranking Member Wicker for having
this hearing.
And I want to thank our former colleague, Senator Smith,
for coming back and joining us here.
And, Chairman Powell, thank you for being here, and Mr.
Dodge and Mr. Bergmayer.
We had, earlier this year, an FCC oversight hearing, and I
mentioned at that time that we needed to focus on establishing
a 21st century legal and regulatory structure that meets the
realities of our 21st century economy.
And as we move forward this year and continue looking at
various aspects of our communications marketplace, I want to
learn where our current laws need to be modernized. Every law
that we pass is based on assumptions, and tends to address
issues of a given moment in time. And a great deal has changed,
obviously, in the video market in just the past 5 years, not to
mention since 1992.
So, as we look at these issues and think about them, I
think there are some basic questions that need to be asked:
Do our laws work? Are they still relevant? And do they
provide the foundation for innovation and consumer choice?
And so I appreciate all of you and your testimony and your
good work.
And thank you, Mr. Chairman, again, for holding this
hearing and for the opportunity to just share those comments. I
look forward to addressing these issues and moving forward in a
way that will reflect a 21st century economy and the amazing
changes over the years and technologies that have really given
the American people higher quality and more choices. And those
are all good things, so we want to continue in that direction.
Thank you.
Senator Pryor. Thank you.
Senator Fischer?
STATEMENT OF HON. DEB FISCHER,
U.S. SENATOR FROM NEBRASKA
Senator Fischer. Thank you, Mr. Chairman.
And thank you, Ranking Member Wicker.
In Nebraska, the way that the Nielsen DMA map is currently
drawn, many people don't get in-state news, especially those
living around the borders of our state. And as I understand it,
the map was developed years ago for the purpose of assessing
advertising revenue, and then Congress codified it and now
determines where those broadcast signals for cable and
satellite can be.
If I can watch Nebraska broadcasts on my computer over the
Internet, I can tell you, the Internet doesn't represent those
boundaries, but I can get them. But I can't get them on TV.
So my question is, to Senator Smith and Mr. Bergmayer, does
this law make any sense in the current era? Because my
neighbors in north-central Nebraska, we love our neighbors to
the north, but we would also like to see Nebraska news.
Mr. Smith. Senator, I remember vividly sitting in a seat in
the Commerce Committee and being very frustrated by the very
issue that you raise, and I introduced a bill to fix it. The
NAB that I now am employed by fortunately didn't remember when
they hired me that I did that.
[Laughter.]
Senator Fischer. But you thought it was a good idea at the
time.
Mr. Smith. Well, I understand exactly what you are saying
and the frustration. Unfortunately, when the state boundaries
were drawn, the advice of Thomas Jefferson was not followed,
that state boundaries be drawn on the basis of irrigation
basins--in other words, groups of economics. And the Nielsen
ratings, which we do not control, reflect those economic
basins, if you will. And yet, if you go to Oregon, they don't
want to listen to the Cougars and the Huskies; they want the
Ducks and the Beavers and they want their local news.
So what I did, with NAB's help, was to work with cable and
satellite providers to--in one case, one of the satellite
providers was willing to add a Portland station. It relieved a
little bit of the pressure, but it did not solve the problem.
But what we have done and what we will do with you is, if
you have a particular situation, such as the chairman did in
Arkansas, we work to try to resolve specific problems.
But I understand the problem. I am entirely sympathetic. I
don't have a legal, statutory recommendation for you because
the statute can't change where the money is, the advertising
goes. People in Pendleton, Oregon, don't necessarily buy Chevys
in Portland; they buy them in Pasco, Washington. And this is
the problem.
And I wish I had an easier answer, but we will work with
you and your office to see if we can't get some of the other
providers to help solve that problem.
Senator Fischer. I appreciate that.
Mr. Bergmayer. Yes, Senator, I think that the rules that
really limit the ability of cable or satellite and VPD
providers to carry broadcast signals really should be reformed,
because they demonstrate how the current regulatory system sort
of freezes relationships and it freezes the status quo and it
prevents the industry from flexibly evolving to, you know,
match our technology and to match expectations.
And I think, for the most part, the broadcast industry
should be able to control most of its relationships with cable
providers or satellite providers, you know, with a lot of
exceptions, as is in my testimony, through voluntary contracts
and not necessarily--I don't think that those should be backed
up by FCC rules that sort of set those contracts in the form of
law.
Senator Fischer. Would you try to reconfigure the way the
formula is drawn now?
Mr. Bergmayer. Sure, that might be a very----
Senator Fischer. And what would you do? Do you have
examples right off the top of your head?
Mr. Bergmayer. For the technical, you know, reformulating
the boundaries, I don't have any examples off the top of my
head. That is extremely technical, and, you know, I am sure
there are people out there who can better assess that than me.
I would reconsider the basic idea of things like distant
signal protections, where if a signal in another market is
willing to be carried by a cable system in another market, I
don't see why those two businesses can't reach an arrangement
to do so, and I don't see what the FCC should have to say about
it one way or the other.
So I would attack issues like that probably at a more
fundamental level. However, I certainly acknowledge in the
short term simply just, you know, revisiting the formula and
changing boundaries might make a lot of sense.
Senator Fischer. Good. Thank you.
Thank you, Mr. Chair.
Senator Pryor. Thank you.
Senator Johnson?
STATEMENT OF HON. RON JOHNSON,
U.S. SENATOR FROM WISCONSIN
Senator Johnson. Thank you, Mr. Chairman.
There is either a breakdown in the competitive model or
there is not. And I guess what I would like to do, just--and I
don't know who I should ask this of, but whoever has an
opinion, chime in.
If we have sufficient competition, describe it. If we don't
have sufficient competition, describe that. In other words,
what is preventing the competitive model from offering aa la
carte? I mean, where is the breakdown occurring?
Mr. Smith. Senator Johnson, if I might offer my perspective
from my experience on this committee. I served here when
Senator McCain was the Chairman. I remember wrestling with the
issue of aa la carte.
I will tell you that I have members in broadcasting who are
for aa la carte and I have members who are against aa la carte.
And I am with my members.
[Laughter.]
Senator Johnson. But, again, why don't we have aa la carte?
Mr. Smith. What I concluded at the time--I did not vote for
it, despite Senator McCain's considerable pressure, because I
saw it as a new market, and, as Michael just indicated in his
testimony, there are tremendous market forces anyway that are
creating kinds of adjustments. I foresaw a market developing
that would keep pressure on this issue.
And I believe--I can't speak for Michael, but I believe
there are some cable offerings now and satellite offerings that
are beginning to offer different kinds of packages.
Senator Johnson. I mean, is there simply not enough
competition? Is there collusion? Or is there a law or
regulation that prevents aa la carte pricing? That is really
what I am asking.
Mr. Bergmayer. In terms of specific laws, in fact, I
believe there are. For example, there are certain provisions
such as the basic tier buy-through, where even if a cable
operator wanted to offer, say, their subscribers a broadcast-
free cable package--because, after all, you can access over-
the-air broadcast TV just with an antenna; what do you need to
pay your cable provider for? However, they can't do that
because there are rules passed by Congress and the FCC that
prevent that flexibility.
So I certainly, you know, support repealing those because I
don't think they make a lot of sense anymore.
On the broader point, I believe that online video is
showing a lot of promise as the potential, the technological
potential and the business model potential, for online
competition to MVPDs, to cable, satellite, and the teleco video
services.
However, I don't think that they are directly competing
with each other. You can see that just by looking at the
prices. I think online video more competes with the video
rental store. And we have seen what happens. You know, we saw
what happened to Blockbuster. I think that is much more of what
that model approach is, as opposed to cable. And that is what
competition looks like. You know, Blockbuster really had to
change and is almost out of business. I am not sure exactly
what their business status is right now.
But I don't see online video directly competing with cable
right now, and I think that is why you don't see the cable
providers really lowering their prices and offering as much
flexibility. I have seen some improvement, as we would like.
Senator Johnson. But it has the potential, and there is
really no legal impediment from the Internet to be able to do
that?
Mr. Bergmayer. Well, the Internet market right now, it
can't get access to the same kinds of content, partly in
response to the overall regulatory system. And most of the
really must-see content is still available only on cable. So I
think that is really--that and, plus, particular challenges
like data caps and other things are preventing online video
from becoming the full competitor.
So, right now, it is simply not a full competitor. But,
yes, in the unregulated online space, there is nothing stopping
them. In fact, some online services, like iTunes I mentioned
before, I would characterize those as aa la carte.
Senator Johnson. Mr. Powell, I get your point that just by
going aa la carte doesn't necessarily mean the service is going
to be reduced. By the way, consumers are actually voluntarily
paying these prices. So, you know, there is the marketplace
actually working.
But is it fair for some content to subsidize the other
content, which is basically what you are doing as you bundle? I
mean, why not let each individual program stand on its own and
fight for its own audience?
Mr. Powell. Sure. A couple of things that I think might be
informative.
One, I would say the way the market is evolving, consumers
have aa la carte depending on the window and timing that they
want to watch it. There is a distinction between I want to
watch it in its live, current, premium window aa la carte
versus your willingness to wait sometimes the next day,
sometimes a few days before it is available on iTunes or
Netflix or many other services that offer those programming
offerings just as a show bundle.
Second, one of the big challenges in our market is the
economics of funding high-value content. So the average
television show today is $3 million to $4 million an episode to
produce. When it runs in the first window, it often runs on
cable in an effort to recoup some of that expense----
Senator Johnson. But, again, if it is so good, won't people
pay for that? If it is not quite so good, they won't pay for
the price.
Mr. Powell. I think the challenge is, in a country
committed to diversity of content, there would be a whole host
of content that we would say collectively we value that
probably would not survive being sold aa la carte. This is one
of the challenges of the television economic business.
If you are standing alone, you are depending 100 percent on
the subscriber base that you can attract, the advertising you
can attract. The challenge is for niche audiences or minority
audiences that have a high-intensity love for a particular kind
of content or programming, that programming potentially would
not be able to survive economically being distributed and sold
solo as opposed to a model in which the whole subscription
model allows it to be sold in a bundle.
Senator Johnson. So, in other words, your association does
support subsidizing certain programs over others?
Mr. Powell. Well, I think an aspect of the cable model is
it supports a wide range of diverse choices of channels that
would be difficult to survive on their own. I do think that is
a beneficial part of the cable model.
Senator Johnson. OK. Thank you.
Senator Pryor. Senator Warner?
STATEMENT OF HON. MARK WARNER,
U.S. SENATOR FROM VIRGINIA
Senator Warner. Thank you, Mr. Chairman.
It is great to see you all.
I guess, you know, as we think about here broadcast, cable,
satellite, you know, each along the way have been in periods of
dominance, and now each of you kind of being evidence of the
status quo of content distribution, I guess, one, I would
love--and I know this is a hot topic, but, you know, as we see
the next wave of disruptive technology come along, whether it
is the Aereo circumstance and some of the litigation that has
been talked about, and the other members have mentioned Netflix
and some of the others, you know, how do you all see these--
what role, if any, that government should play as these new
disruptive technologies come in and really, basically,
potentially threaten each of your core business models?
And I would like to hear Mr. Bergmayer's comments on that,
as well.
And then maybe a subset of that question being, you know,
how do we factor in kind of the new revenue stream around
digital rights, which is basically a whole new revenue stream
that doesn't fit within our existing legal structure?
Mr. Smith. Senator Warner, I think the thing that Congress
can do is to be faithful to what is as old as our country, and
that is our Constitution, which includes copyright. If you have
copyrighted material, rights go with that that deserve
compensation when others use it. I think that that is a
principle that was valuable in the beginning and is important,
hugely important, today.
Senator Warner. That goes to the Aereo question, I guess.
Mr. Smith. Well, I would just simply say I have members who
are in litigation, and I can't speak to the facts of it or the
technical details of it. But it seems to me that if someone
takes copyrighted material, distributes it, and charges for it,
and does not do what other MVPDs do, that that is called
piracy.
And I think if you are faithful to the principle of
copyright, the constitutional principle--ultimately, the courts
will settle this and see if there is an exception. I don't
believe there should be, because I think that begins to undo
the creative community.
Senator Warner. I would like to hear from everybody else.
Mr. Dodge. That said, I think copyright law also needs to
keep pace with the times.
And so, for example, are there any devices out there today
that don't have buffers, for example, and does a buffer make a
copy, and should that copy be entitled to a royalty. And I
guess it all depends on the facts and circumstances of a
particular case, but, you know, our set-top boxes today are
really computers. And if we make a transitory buffer copy,
should that be an additional royalty to the copyright owner? I
would put forth not. If you pay one royalty at the beginning,
then the consumer, through fair-use principles, should really
be able to do what they would like with the content.
Mr. Powell. Senator, I would just say that the arrival of
the Internet as a genuine and viable distribution platform will
shake up the marketplace. I read it in articles, every week.
One week, they are the greatest threat to our industry ever
seen; the next week, they are a complement; and some of that
language coming from the various CEOs who said the one comment
last week and are saying a different comment this week. It is
really in convulsive change.
The best part about it, I would observe, is that it is
creating economic competitive stimulus to force companies to
continue to innovate at a much more rapid pace, try to provide
much higher-value services to consumers, and to compete with
the pressures of content for nearly free that exist in the
Internet space. It puts an even better punctuation mark on our
need to continue to find ways to provide flexible channel
offerings and to provide affordable services.
So I think, on balance, all of these things are exciting
and positive, and I think they are going to continue.
I think it is very typical, sort of like a spinning jump
rope, to say to Congress comprehensively that we know enough to
step into that and write an entirely new, responsive,
effective, comprehensive regime. And I still think it is
prudent to try to evaluate issues on a very specific basis as
they arrive.
But I think if you just sit here from the perspective of
consumers, what is not to like about the future that is
emerging? And I think it is very, very exciting, generally,
and, you know, I think it is something we should be excited
about.
Senator Warner. Mr. Bergmayer? And then I have just one
other quick question, if I could.
Mr. Bergmayer. Yes, I mean, sure, on the Aereo topic, two
courts have now found that Aereo is an antenna rental service
that does not require a license, and I think that both of those
courts were correct. And I think it would be a very bad idea to
change copyright law to make it so that services like Aereo
would require a license. You don't need a license to put an
antenna on the roof of your house, or rabbit ears, and it is
hard to see why all of a sudden now you do need a license
because you rent an individual antenna which happens to be
located in another building in town.
And if you were to change copyright law to make services
like that unlawful, there could be all sorts of unintended
consequences for the Internet economy. And I think that is such
a growing part of our economy today, I think it would be a bad
idea. All kinds of services that can exist today without having
to separately negotiate licenses, for example, services that
allow you to access your own content that you store online,
like Dropbox, would they suddenly need to get public
performance licenses because they allow people to access their
own individual content? I think that would be disastrous.
So, you know, for that reason, I don't think that the law
needs to change to match Aereo.
And in broadly answering your original question, which was,
you know, how should regulations cope with the rise of new
technology, I think one of the primary ways is ensuring that
these innovative online services are able to reach consumers
over the broadband pipe and that they are not discriminated
against and there are not data caps or other measures that, you
know, prevent the next Netflix from offering innovative service
to viewers.
Senator Warner. I guess the only--and I appreciate that.
And I know my time has expired. I just want to ask Senator
Smith one last question, though.
You know, I am struggling with this because on one hand I
absolutely understand your concern about piracy and the notions
about content. But I also have to say, when I heard, I believe,
Mr. Carey from Fox say recently that, you know, if this
continues, Fox or others may start taking content off
broadcast, simply putting it on cable, I have to tell you, that
raises a real concern for me. Because your broadcasters, unlike
some of the others, actually have public spectrum you got for
free, unlike, you know--I think if we were looking backward,
those of us who used to be in the wireless industry, finally
the government got smart and said, let's go ahead and auction
this spectrum; it is a public good.
If you all have had this spectrum, which is an enormous
value, for free and you are threatening to withdraw content
because of these other challenges, then it really raises, to
me, the question of whether you ought to be able to keep that
spectrum for free, which is a public good and maybe could be
utilized for better public purposes.
Mr. Smith. Senator Warner, I don't speak for Mr. Carey. Fox
is an esteemed member of the NAB. I think he was speaking of
hypotheticals or potentials. I think Fox produces enormously
valuable content that gets huge viewership, and they have to
figure out how to pay for it.
I understand the concerns you raised, but I would also
simply say that we don't feel like we got our licenses for
free. Those licenses come with significant public policy
choices of the Congress that those airwaves should be used for
localism, to produce news, weather, sports, and particularly
emergency information that literally is the lifeline in either
manmade or natural disasters. So broadcasters earn those
licenses every day by obeying and observing, being faithful to
the conditions of those licenses.
But I won't speak for Mr. Carey. I understand what you are
saying. I think he is simply saying, we are not going to sit
still for piracy.
Senator Warner. And I would only simply say, sir, that I
would imagine if we were to take this spectrum and say, let's
go ahead and put a requirement out there, since we are losing a
lot of that local content as broadcasters move more and more
content upstream into national bases, and say, we are going to
sell off some more digital component of that spectrum to
entities that will provide that very local content, that
emergency response, all those very valuable items, that there
still would be a lot of excess, additional value that could
perhaps be better utilized for the public.
And, candidly, the Government could receive a lot of
revenues from that, as well.
But thank you, Mr. Chairman.
Senator Pryor. Thank you.
Senator Begich?
STATEMENT OF HON. MARK BEGICH,
U.S. SENATOR FROM ALASKA
Senator Begich. Thank you very much, Mr. Chairman.
And let me, if I can, I want to follow up, Mr. Powell, in
the discussion you had with Senator Johnson, if I could.
And when you talk about the subscription or the packaging,
is the thought that there may be some that are new entries of
product that--because people don't know they exist but, by
putting them into a package, that people like me that surf
channels might stumble across it and say, wow, I didn't know
this existed, where did this content come from, and suddenly
become someone who wants that content? Is that the thought
behind it?
Because I want to follow up, because----
Mr. Powell. Yes, sir.
Senator Begich. Is that what you are thinking there?
Mr. Powell. I think there are two versions of the thought:
the one that you have described very well, that there is an
element of the television experience that is about discovery.
It is about stumbling on something you didn't know you loved or
wanted. I can certainly list a long string of shows that I
discovered that I don't know that I would have thought to buy
in advance with full knowledge of what I am buying.
Moreover, I am not so sure in the course of the year my
interests or patterns wouldn't change, that I got tired of that
program or that program went off the air and now there is some
other program on another channel that I haven't subscribed to
that seems interesting. That is just a complicated movement of
the way consumers consume television.
I think the second point, the one I was making earlier too,
is, let's say you are interested in launching a brand-new
network. And a brand-new network to survive has to audience, it
has to have subscription. Right now in the model, you still
have to convince cable operators to carry you. You still have
to convince them that it is worth paying the price that you are
asking for for carriage. But if you get on that system, you are
being accessed by everyone in that subscription household.
If it was aa la carte and you basically had to go
essentially knock on doors and convince people to buy something
they had never seen, something they have never experienced, I
think there really would be a challenge for new and diverse
networks to----
Senator Begich. Yes. And I guess I am following--as you
were talking, I am thinking about from a network standpoint, it
is like a pilot. You know, if someone had a pilot--in this
case, a pilot channel--to go out and market, to get the share
they need, to get their customer base would be very expensive.
But if they have to just convince a company to carry something,
it is a little bit easier. Is that a fair statement?
Mr. Powell. Yes, sir. And if you think about it----
Senator Begich. That is what your thought is, right----
Mr. Powell. Yes.
Senator Begich.--and that is how you are doing that?
Mr. Powell. Another dimension of it, you understand, is
that all the marketing, all the sales, all that work is done by
the cable operator. If you had to sell aa la carte, you would
have to absorb the cost and expenses of doing all of that
yourself.
Senator Begich. Right.
I am going to come back to one more issue on cable, but I
am going to go to Mr. Dodge, if I can.
And you may not want to answer this because it is regarding
your company's effort to merge with Sprint, and also SoftBank,
I think, is also considering or in the process of going through
a process. And SoftBank, which is predominantly foreign-owned
or a foreign process--can you--I don't understand the process
of if you are a domestic company and they are a foreign company
and they are buying into a domestic company in this business,
how that process works, in the sense of ensuring that we
understand, when a foreign company buys some of our network,
what happens.
And is there a difference between what you have to go
through and what they have to go through? And what are the
risks--and this may be unfair because you obviously would
prefer the company, you, to buy it, not them. I am guessing
that; I may be wrong, but----
Mr. Dodge. That is true.
Senator Begich. OK.
[Laughter.]
Senator Begich. I am just guessing here. So I am going to
try to ask you to be as nonbiased as possible, which I know is
going to be difficult, but I just want to understand the
process.
So you come and you buy a company like Sprint, or SoftBank,
which is foreign-owned, wants to buy Sprint. Don't they have to
go through a whole other process? Or help me understand that a
little bit.
Mr. Dodge. They do. For a foreign company to acquire FCC
licenses in this case, they have to go through a CFIUS process,
and the FCC also----
Senator Begich. Say that process again.
Mr. Dodge. CFIUS, C-F-I-U-S, which is the Committee for
Foreign Investment in U.S. Companies, I believe.
Senator Begich. Yes. OK. I am with you now.
Mr. Dodge. Which takes a look at the national security
concerns that may be associated with a foreign company owning
broadcast or FCC authorizations generally.
And we do think that, you know, there is a difference
between us and SoftBank acquiring Sprint, really for two
primary reasons, one of which is, you know, we think a wireless
nationwide network today is an asset that has, you know,
important national strategic significance. And all things being
equal, you know, we think it is better to keep it in U.S.
hands.
And, specifically, assuming that the Clearwire spectrum is
rolled up into Sprint or if Sprint keeps its controlling
interest in Clearwire, the 2.5 gigahertz spectrum that they
hold is evolving as the global standard for LTE mobile
deployment. So we think it is preferable for a U.S. company to
own that huge swath of spectrum in the United States.
And, similarly, Sprint has an enormous fiber backhaul
network with numerous government contracts that rely on that
for national security reasons. So we think, again, all things
being equal, it is better for an American company to hold
those.
Senator Begich. Very good.
Let me ask you one last question on that. Obviously, my
state is a very rural state, and I mean extremely rural. The
description you just gave, I mean, what gives--and, again, this
is probably self-serving to you, so, again, try to be as
nonbiased as possible here. But, you know, obviously, my end
issue is, how much can we provide to rural communities and what
would give the most access to rural communities? At the end of
the day, that is what I look for. And so give me your thoughts
on that.
Mr. Dodge. Yes, well, I think our proposal is to use that
2.5 gigahertz spectrum to actually increase broadband
capability in rural areas for unserved and underserved
households, which we estimate is about 40 million people today.
And we are uniquely positioned to do that because we
actually have an installation network. We are largely a rural-
based satellite TV provider today, and we have installers in
every square inch of the country who could actually go and put
outdoor antennas on the sides of people's houses, which allows
the propagation of the 2.5 gigahertz spectrum to go much
further and reach, as I said, you know, the 40 million unserved
and underserved households in rural America for broadband.
Senator Begich. Very good.
Mr. Chairman, if I could ask one last question of Mr.
Powell.
Mr. Powell, thank you very much, again, for that answer,
but I have another question. I have a 10\1/2\-year-old, and so
I am always wondering what he is watching.
[Laughter.]
Senator Begich. But I have a--and I won't say the company
name, but I do love this system, and I want to just suggest one
piece added to it. And that is, I literally was flying, I was
on Gogo Internet on the plane, sending a note to my wife
saying, what is the channel my son is watching right now, and
she says--I said, great. I literally went on and changed it
online, and it changed it. And I said, did he notice it
changed? And she said, yes, but he flipped it back. I said, I
am going to change it again.
[Laughter.]
Senator Begich. And I literally used my iPad, obviously,
and I was doing that, and I changed it again. And I was really
testing the system. I mean, I was flying back to Alaska,
changing his channel to a more educational channel, in my view.
But what I wanted to do is, at that moment, also lock him out.
So I am just giving you a little--I think from a parent's
standpoint, it is an incredible tool. I mean, literally,
anywhere I am, I can see what he is up to, and if I don't like
the channel he is on, at that moment, I can lock him out. That
is what I would love to go to the next stage.
So I am just giving you that from a parent of a 10\1/2\-,
11-year-old. Give me a couple more extra tools, because, you
know, as a parent, you always--you know, there are a lot of
channel choices. You know, we have the ability on the mechanism
there to lock out channels, but sometimes there are channels
that have some really good content and you want that show but
you may not want the whole channel because later in the evening
they may have content you don't want them to see, or limit his
content.
So I am just giving you a thought to the industry. I think
it is amazing that I was able--my wife was very impressed, so
now it is on her, you know. I think she will lock me out of
channels or something, I don't know.
[Laughter.]
Senator Begich. ``No, you can't be watching any more
movies,'' or something. But it is really--I found it very
impressive. So I just want to throw that----
Mr. Powell. Well, thank you. I will definitely take the
suggestion back. I can tell you, I try to lock out my 24-year-
old, too, mostly because he is running up the cable bill.
Senator Begich. That is exactly--you just said why I do it,
too.
Mr. Powell. And, by the way, I would love to work with you,
because there actually may be ways to do what you are trying to
do in some of our systems. So----
Senator Begich. I would be game.
Mr. Powell.--I could look at yours.
Senator Begich. I think it would be great. From a parent
standpoint, it is great, because so much is mobile now. If you
can make that access point----
Mr. Powell. Well, we have worked hard to move interfaces
and channel-changing capacity into devices like iPads so you
can do just what you said, as well as really invigorate the
parental controls in our set-top boxes. So anything we can do
to make those two things work together better we will happily
pursue.
Senator Begich. Great. Thank you very much.
Thank you, Mr. Chairman.
Senator Pryor. Thank you.
I have a few more questions.
Senator Johnson, do you have other questions? Let me go
ahead and recognize you, Senator Johnson. My understanding is
we are going to have a vote on the floor at noon. So go ahead
and ask a few questions, and I will ask a few questions before
we----
Senator Johnson. OK.
Again, I just want to follow up on the competitive model.
Mr. Powell, you used the term ``convulsive change.'' I got
in trouble using the word ``great obstruction,'' but that is
really how economies move forward.
Mr. Powell. It is a good trumpeter word. That is good.
Senator Johnson. What I am getting a sense out of a lot of
people on the panel here is that we really need to proceed
cautiously. I understand Senator Begich's concern with
something like a lockout, but I think that is something the
private market ought to institute, not a government solution.
So I think that is--you know, obviously, a hearing like
this is about legislation. And I guess I am asking, the
competitive model works, the competitive marketplace is a
marvel; we don't want to screw it up. So are there things that
government needs to do to get out of the way? Are there
legitimate governmental roadblocks to that competition versus
roadblocks that will just be taken care of over the course of
time through market competition? Maybe they are not here quite
yet because of technology, but over the course of time. Let's
not have government step in and screw it up.
So I will start with--I guess just kind of work down the
list, or the table.
Mr. Smith. Senator Johnson, I think, philosophically, I am
a big proponent of markets.
I also know that many of the rules that sometimes you hear
complaints about where government regulates--a comment was made
earlier that there is a lot of rural representation on this
panel. A lot of these rules are to try to protect rural
residents in Wisconsin. If you get rid of nonduplication,
compulsory license, things like this, what are you really
getting rid of? You are getting rid of the congressional intent
to foster localism. Because if you just go where the money is,
you are going to go to New York, Chicago, Los Angeles, a few
other big cities, and rural folks get left out.
And so Congress made a decision, with all of these rules--
compulsory license, whatever--how do we foster this marvel that
we have in this country that is actually unique to this
country, where you have local broadcasting in this big, vast
country that serves so many public values that are valuable
still?
And so, always ask yourself when it comes up, I don't like
this, why? Well, the answer is localism.
Senator Johnson. OK.
Mr. Powell?
Mr. Powell. I would concur that I think we are in a
tumultuous and competitive market that is generally operating
well. But I would say, as I am obligated to, particularly on
the behalf of some of our members, a lot of rules, a lot of
aspects of the market have government at the table. They shape
the terms and conditions under which certain things can be
done.
And so, while I am not in a position to say which ones we
would eliminate and in what way or even if we ever will, I
would preserve the discussion that, where government is a party
to how market conditions unfold, there can always be a question
about whether that would be a productive place for government
involvement.
But, you know, we reserve what that might be----
Senator Johnson. OK.
Mr. Powell.--to a time in which it is----
Senator Johnson. And I would love to follow up with you
when you have those issues. I would also love to hear what
rules and regulations your members disagree on and the reason,
but we can do that offline.
Mr. Dodge?
Mr. Dodge. So I would say, you know, we at DISH love
competition and a free market figuring out the right answer
for, you know, all manner of business questions.
There is one area today where there is not competition, and
it is largely government-created, which is the retransmission
consent system that I mentioned in my opening remarks.
And that is because, when this all started, there was one
local broadcaster, say, an ABC affiliate, and one cable
company. It was a pretty fair fight, you know, either called a
symbiotic relationship or mutual assured destruction, but they
both needed each other.
Today you have one broadcaster who is playing three or four
distributors off against each other, and the result being
prices are going up by hundreds of percent every time
retransmission consent comes up for renewal. Consumers, in many
cases, lose their programming. And it is just not a fair fight.
So that is why we suggested in those cases allowing us to
import additional signal to level the playing field just a
little bit so that the broadcaster has an incentive to actually
be fair.
Senator Johnson. But you don't have a problem in paying for
the retransmission. You just want more competition so that you
are not pretty well forced to negotiate with just one supplier.
Mr. Dodge. Correct.
Senator Johnson. You would like multiple suppliers,
potentially.
OK, Mr. Bergmayer?
Mr. Bergmayer. Now, when you look at the way that people
watch content, it is created by the network, they lure it to
the affiliate, the FCC has rules about that. If it goes from
the affiliate or the local broadcaster to the MVPD, the FCC has
rules about that. That is retrans and the compulsory copyright
license.
So, now, I support localism. However, I think there are
better ways to foster localism than essentially subsidizing it
through this baroque regulatory apparatus that holds back
change and limits choice.
So I support a lot of the same goals that our broadcaster
friends support. However, I just think there are better ways to
accomplish those goals, particularly with the change in
technology that we have all seen.
Senator Johnson. OK.
Thank you, Mr. Chairman.
Senator Pryor. Thank you, Senator Johnson.
Let me follow up, if I may. I will start with you, Mr.
Bergmayer. And that is, you mentioned in your testimony or in
one of the answers to one of the questions, you mentioned that
online video distributors are having problems getting access to
some content. Do you want to explain that a little further?
Mr. Bergmayer. Sure. I mean, a lot of the online video
providers we see are very successful, and I don't think they
really want to change their business model and become
essentially virtual cable systems. You know, that said, you
know, we do see that some content that is available through
more traditional channels simply is not available online. And I
would imagine that it is not for want of trying but it is just
not available because the current incumbents, you know, have
control over the business models and incentives of the content
creators.
But, that said, you know, we have seen a number of
providers--I will just point out Sky Angel, who is a company
that wanted to offer a family-friendly--they are actually a
Christian cable system. And they were an online cable system;
however, you know, they lost access to certain content because
they were an online system, and for that reason only. So they
have a dispute at the FCC.
And I think, you know, that is just a hint of the kinds of,
you know, competitive services that we might see and choices
and control for viewers that we might see, you know, if these
providers were allowed to basically, you know, do the cable
model except online.
Senator Pryor. Is that because of copyright considerations?
Mr. Bergmayer. There are copyright considerations. There
are telecom considerations. You know, there are ways to handle
it. I don't think it is an intractable problem, though.
Senator Pryor. Mr. Dodge, as you know, one of the things
that we have to do in this committee and the Senate and the
House have to do is to reauthorize STELA before the end of
2014. You suggested in your statement that retransmission
consent is one area that Congress should consider when
reauthorizing the measure.
And, you know, I think retransmission consent deserves a
much longer conversation. I see some heads bobbing back there
behind you; I think some would agree. But what other issues do
you think ought to be part of the discussion when it comes to
STELA reauthorization?
Mr. Dodge. So an area of potential improvement, I would
say, is DMA reform or the orphan county issue, which is, you
know, to use Colorado as the example, there are folks who live
in the southwest corner of Colorado who are in the Albuquerque
DMA and every time the fall rolls around ask the question, why
can't I watch my beloved Denver Broncos?
Senator Pryor. Which is what Senator Fischer was asking
about.
Mr. Dodge. Yes. And so, for that, we proposed a pretty
simple fix, which is, you know, folks in the ``orphan county,''
meaning from a neighboring state, should be able to get some
in-state programming. We are happy to provide them with the
programming for the DMA they are in, you know, as, if a will, a
buy-through requirement, but give them the in-state programming
to allow them to make a choice, ultimately.
You know, because, for example, there might be folks in
southwest Colorado who, to Senator Smith's point, they might
want to buy their cars in Albuquerque, and if that is the case,
then they will probably watch Albuquerque stations to see those
advertisements. But if they are watching Denver, you know, when
Nielsen calls, they should say, ``I am watching Denver,'' and
maybe someday those DMAs will flip.
And then with respect to just STELA reauthorization
generally, there are several categories of folks that we think
should still be protected: you know, first and foremost, folks
in short markets who don't have a network affiliate; folks who
drive around in RVs; and DIRECTV also has some legacy customers
who are true DISH Network subscribers that actually live in
unserved households.
Senator Pryor. OK.
Mr. Powell, let me ask you, I know that you offered your
comments, your response to Senator McCain's proposal. Is there
something that might give consumers more transparency and more
choice that might be short of aa la carte?
Mr. Powell. Well, I think this has been mentioned, you
know, there is a whole range of product configurations one
could imagine that would improve the value from the perspective
of the consumers. And I think all of our companies actually
believe in that and are working very, very hard to try to
create much more flexible offerings to give consumers that
choice.
I would point to as an example Time Warner Cable's
offering, in which it attempted to provide a package called, I
believe, Internet--I mean, Essentials package for a much lower
price without some of the traditional programming.
Experimentation like that I think is going on. I think our
operators would like to have even more flexibility to try to
make those offerings. And I think that is a positive.
I also think we shouldn't underestimate the role of the
cable company as broadband provider and the ability to continue
to provide an infrastructure that really opens up the world of
video far beyond what we provide over the proprietary system.
And in that area, we are working very, very hard to be
transparent about consumption patterns, usage of meters,
clarification in billing, better information on the Web. I know
these are issues you have been focused on.
So those are some of the things we are doing.
Senator Pryor. And would some of this desire for more
flexibility and, you know, pricing structure changes, whatever
they may be, would that also include more transparency on what
each channel actually costs the consumer?
Mr. Powell. Well, interestingly enough, I can only speak to
it factually; we have operators--there is nothing that prevents
them--we do have operators who actually break out on the bill
some of the costs associated with specific programming. Even if
they are obligated to carry it by contract, I think some of
them do let the consumer understand what the various consumer
pieces are.
Senator Pryor. And let me ask also about rural. This is
changing gears a little bit, but let me just ask about rural.
You know, I believe, of course, and I think you all
mentioned that there are several Senators on the Committee and
subcommittee that have large areas of rural constituents in
their states. And, you know, I think it is fair to say we
believe that they should have the same ability to view the
programs, not just--you know, I think they should have the same
access to programs generally.
So let me ask Mr. Powell, if I can start with you on this,
is it your experience that customers of small cable companies--
it doesn't have to be rural, but small cable companies--end up
with the same choices and the same viewing options and
offerings that folks with the larger cable companies have?
Mr. Powell. I would say that the small companies, first of
all, do a very terrific job of providing good service even in
rural communities. I think they are very proud of that. And
they work very, very hard to provide a programming lineup that
is compelling.
I think it is merely factually true that, being a small
programmer, buying programming to match what may be provided on
other cable systems sometimes can be a bigger challenge. Given
because it is not as large, not as profitable a company, some
of the premium programming that is understandably relatively
expensive is a bigger challenge for them to purchase. But they
work hard at trying to make sure that they can replicate that
the best that they can.
Senator Pryor. Senator Smith?
Mr. Smith. Mr. Chairman, I need to say a word in defense of
retransmission consent.
I understand why my friends on this dais don't want to pay
for broadcast content. We literally represent a few pennies per
dollar of a subscription-TV bill, but it is the most valuable
content they have, the stuff that people watch the most.
Retransmission consent is only a recent, in terms of
literally years, when we have gotten paid for that value. But
we are not the driver of what is driving up their costs. We are
one piece of it, and literally cents per dollar.
Somehow, if you want to support localism, please remember
the two revenue streams that provide for it and pay those
costs: advertising and retransmission consent. Mr. Dodge's
company now has the technology to get rid of broadcast ads. It
gets rid of your ads, too, Mr. Chairman.
It does not get rid of cable or their ads.
So somehow, if we are going to do business with them, we
need to be paid for the value of what we provide, because it is
expensive. And what does it preserve? It preserves localism,
because I have to tell you, if they bring in a distant signal
from L.A. into Fort Smith, it is not going to mean a lot to
them when a hurricane is bearing down or a tornado.
So these things cost money, and we have only two ways to
pay for it: advertising and retrans. And they want to eliminate
our advertising model. It doesn't add up.
Senator Pryor. Do you want to comment on that, Mr. Dodge?
Mr. Dodge. Sure, just on a couple points.
One, you know, Senator Smith is referring to our AutoHop
technology, and it doesn't get rid of the ads. The entire
broadcast is actually saved to someone's hard drive, and people
actually have to enable the functionality to skip ads. So if
they want to watch them, they are there. If they fast-forward
into them or rewind, the ads are actually still there.
Two, it is my understanding that an increasingly increasing
proportion of retransmission consent fees, which are collected
ostensibly in the name of localism, are actually being required
to be sent back to the networks in Los Angeles and New York. So
I would ask you to view that statement, that retrans 100
percent supports localism, with a little bit of skepticism.
Mr. Smith. It does involve both, by the way. Networks and
local affiliates are actually both hugely important to
localism.
Senator Pryor. Mr. Smith, let me ask you, if I may--this is
a little bit of a change of gears here, but a little bit here
today but also in other contexts I have heard you talk about
spectrum and the spectrum crunch that we are in in this
country, especially when it comes to the most densely populated
areas.
And I am wondering if you would share with the Subcommittee
your thoughts on how the broadcast model helps to alleviate
some of the spectrum crunch we are seeing around the country.
Mr. Smith. Let me say as a predicate, if there is any
misunderstanding, the NAB supports the voluntary spectrum
auction. We believe it should be done right and not right now.
It should be done as soon as it can be done right.
But the uniqueness of the broadcasting signal is that it is
one-to-everyone, local, free, and live. That is a huge value,
the architecture of which is not shared by broadband, which is
one-to-one. As I said earlier, there is not enough spectrum in
the universe to do all video one-to-one. So when it comes to
big events and big emergencies, the broadcast signal becomes a
matter of extreme public safety importance.
And that is why I think, as you calculate, you know, all of
the various regulations around it, go back to the original
intent of Congress as to why they set it up to foster localism.
If everything is pay on TV now, if you have to go to DISH or
you have to go to whatever to see television, what does that do
for the elderly, the shut-ins, the poor, many minority
communities, who disproportionately rely on broadcast
television for, in these days, 20, 30 broadcast channels that
they can access? I think they should be counted too.
And those are the kinds of things which broadcast spectrum
uniquely provides to the American people. It was valuable in
the beginning; it is valuable still. And it is a value that the
Congress should support.
Senator Pryor. Senator Johnson, do you have anything else?
Senator Johnson. Just quickly, as long as we are talking
about rebroadcasting, the fees that I have--I am looking at a
schedule right here--about $2 billion last year. Is that
approximately true? And it has gone from about 1.3 percent in
2006 to about 7 percent of the total fees paid to cable. So, I
mean, it has been increasing as a percentage of the cable bill.
What is the total amount--you said two income streams. What
is the total value of advertising in the broadcasting----
Mr. Smith. It would vary with each broadcaster, but I would
say----
Senator Johnson. But, I mean, annually.
Mr. Smith. As a general rule, I would say somewhere between
15 and 30 percent of their revenue stream is retransmission
consent. The balance, of course, is advertising.
Senator Johnson. No, the question I am asking--so, in terms
of revenue streams coming into broadcasting, you get about $2
billion per year nationally in terms of rebroadcasting fees.
What do you get in terms of advertising? I mean, that is
hundreds of billions of dollars, correct?
Mr. Smith. It is a lot of money. I can get you an exact----
Senator Johnson. But, I mean, the retransmission fees, in
the scheme of things, is a pretty small amount of the revenue
stream, correct?
Mr. Smith. Correct. But as telecommunications fractures and
the advertising model gets smaller, how do you maintain the
quality, how do you pay the athletes, how do you provide all of
the content that people demand the most, which comes from
broadcasting----
Senator Johnson. And I know that the business model is
changing dramatically.
Mr. Smith. Right.
Senator Johnson. And, again, I just come from the
standpoint of I don't think government is particularly good at
trying to redirect that business model very effectively.
Another quick question, in terms of the total value of the
spectrum you have right now, I mean, yes, I realize that
broadcasters are providing the local content and the emergency
services, all those types of things, but there is a huge value
locked up----
Mr. Smith. Right.
Senator Johnson.--in that spectrum, correct?
Anybody on the panel have some kind of estimate? Isn't this
next auction supposed to bring in somewhere around $15 billion?
And that is still a roughly small sliver of the spectrum,
correct?
Mr. Smith. Broadcasting has about 230 megahertz of
spectrum. Wireless now has, I believe, over 500 megahertz, much
of it still inventoried. The government has the other half.
Mr. Dodge. Not all spectrum is created equal.
Mr. Smith. Not all spectrum is created equal, but the truth
of the matter is, with the digital technology, digital
compression technologies, spectrum gets more and more efficient
all the time.
Senator Johnson. But broadband providers are paying for
their spectrum? They have already purchased it? It has been
auctioned off?
Mr. Dodge. The wireless providers? Yes.
Mr. Smith. In some cases, not all.
Senator Johnson. Do you have any idea how much that has
cost, whatever the amount you have had?
Mr. Dodge. We paid $3 billion for 40 megahertz of S band
spectrum in the bankruptcy auction several years ago.
Senator Johnson. That was actually probably a pretty good
deal, right?
Mr. Dodge. It was an auction. It is fair.
Senator Johnson. No, I know. I am just saying--I am not--I
am just saying, that was--again, I am just trying to get some
sort of feel of overall numbers, overall value. Because it is
real easy to kind of throw around generalities in terms of, you
know, local content, but when you start putting a dollar to it,
that is where competition starts kicking in, and that is what
we are really talking about here, is dollars going to and from
different individuals. That is how competition is created.
I am just trying to get, you know, that basic information
to tell me what is happening here.
OK. Well, that is all. Thanks.
Senator Pryor. Thank you.
And I want to thank the panel. You guys have been
outstanding and very informative. We appreciate your time and
the fact that you were here today.
What we are going to do is we are going to leave the record
open for 2 weeks and allow members to ask questions, submit
questions. We would appreciate you all getting your answers
back as quickly as possible.
And since there is no other business before the
Subcommittee today, we will adjourn. Thank you very much.
[Whereupon, at 12:15 p.m., the hearing was adjourned.]
A P P E N D I X
Response to Written Question Submitted by Hon. Mark Pryor to
Hon. Gordon H. Smith
Question. During our hearing, there was much discussion about
retransmission fees and their effect on consumers' cable bills as well
as consumers' access to free broadcast television. Could you please
further describe the amount of revenue that the broadcast networks, as
well as affiliate stations, receive on a yearly basis from
retransmission consent fees? Can you provide an average rate that TV
stations charge pay TV providers for retransmission consent? Could you
also describe how the amounts generated have changed yearly and the
reasons for these changes? Finally, can you discuss what benefits this
added revenue has provided to the networks, affiliate stations, and
consumers?
Answer. Retransmission consent negotiations are market by market
business transactions. Therefore the cost of retransmission consent
varies widely from market to market and station to station. On average,
retransmission consent accounts for about 2 percent of a consumer's
cable bill. SNL Kagan recently estimated that broadcasters'
retransmission consent fees amount to just 8.9 percent of what cable/
satellite operators pay for the programming of basic cable networks and
regional sports networks (which receives much lower ratings than
broadcast programming). Despite the low cost per subscriber,
retransmission consent offers signification public interest returns.
Retransmission consent revenues are used to purchase weather radars,
pay the salaries of journalists and create new and refreshing content
for viewers.
______
Response to Written Questions Submitted by Hon. Barbara Boxer to
Hon. Gordon H. Smith
Question 1. In his testimony, Mr. Bergmayer argued that much of the
most popular video programming is not currently available online
because the current regulatory system allows broadcasters and other
media incumbents to decline to make their programming available to
online video providers. What are the barriers that prevent online video
providers from making many of the most popular television shows and
movies available to their customers?
Answer. Broadcasters have always been committed to offering our
popular programming directly to consumers for free. In some instances,
this means cord cutters utilize a digital antenna to view live over the
air broadcasts. In many other cases, broadcasters have committed to
putting popular shows online on network websites or via streaming video
services created by broadcasters such as Hulu.
Question 1a. What steps can be taken to facilitate online streaming
of more of the programming that is most popular with consumers?
Answer. Increasingly, pay -TV providers demand, as a condition of
carriage, that programmers do not display their content on websites
other than those available to authenticated cable subscribers. These
contractual restrictions are designed to curb ``cord cutting'' by
forcing consumers to subscribe to an MVPD service in order to view
their favorite programming online. Congress should investigate the
extent to which MVPDs utilize their market power to coerce programmers
to restrict access to their content online.
______
Response to Written Questions Submitted by Hon. Amy Klobuchar to
Hon. Gordon H. Smith
Question 1. Improving mobile broadband and emergency communications
is a key priority of this Committee. This priority led to the call for
the Federal Communications Commission to design and carry out voluntary
incentive auctions, a complex auction process allowing television
broadcasters to voluntarily return spectrum. A key component of these
auctions is sufficient coordination with Mexico and Canada to ensure
channel slots remain available at the conclusion of repacking. Can you
expand on why these negotiations are important for the stations along
the Canadian and Mexican borders and how your industry is working with
stakeholders and government officials to ensure effective coordination
and a successful auction?
Answer. Organizing television bands to ensure broadcast stations do
not interfere with one another is an incredibly complex task. Before
making new interference calculations and assigning broadcasters new
channel allocations, the FCC needs detailed information and a plan
prior to repacking. In states that border Canada and Mexico, the FCC
also needs detailed information on the broadcast television stations in
these counties before it can effectively reorganize the television
bands. If the FCC does not coordinate with our neighbors to the north
and south, broadcast television stations in border states will be left
with channel allocations that receive harmful interference from Mexican
and Canadian broadcasters and will prevent U.S. viewers from receiving
a quality signal. Unfortunately, the Commission has been lacking core
details on how it plans to treat border stations in the repacked
television band. It is unfortunate that viewers in Lake of the Woods,
MN risk losing free television service due to lack of planning and
information from ongoing negotiations with our partners north and south
of the border.
Question 2. The emergence of online video services and the ability
to send video over multiple internet-enabled devices has changed the
way viewers expect to access programming. In the hearing last April, we
spoke about the future of video and how consumers are starting to want
more and more ``on-demand'' services. They want what they want, when
they want it, wherever they want it. What are some of the examples of
how are your members/companies evolving and innovating to these new
market demands, and do current laws help or hinder these customer-
demanded market evolutions?
Answer. Broadcasters have made significant investments in Mobile
DTV technologies that allow subscribers to view free over the air
television on their choice of mobile device. Unlike other technologies
that rely on a wireless Internet connection, Mobile DTV utilizes the
same 6 MHz of spectrum broadcasters use to deliver their over the air
video to subscribers at home. As a result of Mobile DTV's one-to-many
architecture, Mobile DTV offers a level of spectral efficiency that is
unmatched by wireless Internet dependent solutions that rely on a one-
to-one architecture and exacerbate spectrum scarcity concerns.
Question 3. I understand that 5 local broadcast stations in
Minneapolis are currently on-the-air with mobile television. Can you
explain the benefits of this service to my constituents and how it
speaks to the future of broadcasting?
Answer. Mobile DTV is a pro-consumer, spectrally efficient way to
watch television on the go. Unlike other services that rely on wireless
Internet connections to stream live television, Mobile DTV uses the
same television architecture as traditional broadcast television. As a
result, consumers aren't forced to pay for monthly data packages and
overages, nor are they subjected to quality degradation and streaming
buffers that delay live news weather and sports. Additionally, because
Mobile DTV relies on hardened broadcast television transmission
facilities, rather than cellular towers susceptible to outages in
severe weather, Mobile DTV is a premiere platform for providing
emergency alerts and important safety information to viewers who are
away from a traditional television.
In a market where wireless providers claim spectrum is at a
premium, Mobile DTV offers television viewers an affordable option to
watch TV on the go without compromising quality or wasting precious
bandwidth.
______
Response to Written Question Submitted by Hon. Mark Pryor to
Hon. Michael K. Powell
Question. During our hearing, there was much discussion about
retransmission fees and their effect on consumers' cable bills as well
as consumers' access to free broadcast television. Could you please
further describe the amounts being paid to broadcasters and affiliate
stations annually by your members/company? What percentage do these
fees represent of your total programming costs and how do they compare
to non-broadcast access fees? How have these percentages changed
yearly? How does the amount paid in retransmission consent fees to
stations compare to the amount paid to non-broadcaster affiliated cable
networks? Finally, can you discuss the benefits broadcast programming
provides to your company/companies and consumers, and the challenges
posed for your operations and for consumers by the retransmission
consent system?
Answer. NCTA does not have access to data regarding the individual
payments made by its members. However, FCC Chairman Wheeler recently
noted that the costs of retransmission consent agreements have
increased from $28 million in 2005 to $2.4 billion in 2012--a nearly
8,600 percent increase in seven years. In 2013 alone, retransmission
consent fees rose 38 percent, while overall programming expenses rose
only approximately 13 percent.
Broadcast programming remains an important part of the cable
service offering. Therefore, it is important to our member companies
that negotiations for the carriage of broadcast programming on cable
are conducted honestly, in a good faith attempt to reach a mutually
beneficial carriage agreement without demanding unreasonable terms and
conditions or taking unreasonable negotiating postures.
The proliferation of video competition from DBS and telephone
company providers has resulted in increased leverage for broadcasters,
because broadcasters can withdraw their programming from one MVPD and
still reach consumers through multiple other MVPDs in the market.
Certain anticompetitive behavior by broadcasters, such as joint
retransmission consent negotiations between broadcasters that are not
co-owned, give broadcasters even more power in retransmission consent
negotiations, putting consumers at greater risk of losing broadcast
programming. We believe that the law should be changed to protect
consumers by addressing such behaviors.
______
Response to Written Question Submitted by Hon. Barbara Boxer to
Hon. Michael K. Powell
Question. In his testimony, Mr. Bergmayer pointed out that many
media incumbents control both video content and the infrastructure
necessary for delivering it to consumers. As a result, he argued,
online video distributors are subject to practices such as bandwidth
caps, which some commentators believe may be discriminatory,
particularly when they exempt video traffic of the incumbent's
affiliates from the cap. Do data caps disadvantage online video
distributors such as Netflix and Amazon Instant Video?
Answer. Far from thwarting the development of online competition to
its video service, the cable industry's massive and continual
investments in upgrading and enhancing its broadband service have only
encouraged and facilitated new online video offerings. Netflix now has
more than 33 million domestic streaming customers--more than the
largest cable or satellite operator. We expect and hope that this trend
continues. Netflix and other online video options have been positive
for cable. They have driven up consumption and demand for higher
broadband tiers.
Bandwidth ``caps'' (largely a misnomer, since subscribers generally
do not lose access when they reach their plan's ``cap''), or other
usage-based pricing plans in which subscribers who use the network
less, pay less, and subscribers who use the network more, pay more,
allow consumers to select the broadband plan that works best for them,
rather than requiring them to take a one-size-fits-all approach. Usage-
based pricing is not an effort to discourage broadband use, but rather
a means of ensuring fairness and economic efficiency. Such pricing
plans also drive consumer adoption of broadband, as would-be low-volume
users are able to enjoy lower prices premised on their below-average
usage. When accompanied by appropriate disclosures (regarding plan
options and a customer's own usage), usage-based pricing promotes
consumer choice and empowerment.
Providing video from an ISP's affiliated MVPD service outside of a
provider's data cap does not undermine the basic fairness of usage-
based pricing. Cable customers demand and expect value from their
providers, including the ability to access the MVPD content they
subscribe to on an anytime, anywhere basis. Exempting an operator's
authenticated video services from consumption limits is not intended to
discriminate against online video, but rather to benefit consumers by
adding value to the video programming package they already pay for.
______
Response to Written Question Submitted by Hon. Amy Klobuchar to
Hon. Michael K. Powell
Question. The emergence of online video services and the ability to
send video over multiple internet-enabled devices has changed the way
viewers expect to access programming. In the hearing last April, we
spoke about the future of video and how consumers are starting to want
more and more ``on-demand'' services. They want what they want, when
they want it, wherever they want it. KWhat are some of the examples of
how are your members/companies evolving and innovating to these new
market demands, and do current laws help or hinder these customer-
demanded market evolutions?
Answer. Consumers increasingly want access to programming on the
device in their pocket and the tablet on their desk. To meet this
demand, cable operators have developed apps and services for many
popular mobile platforms. Of particular note, cable companies are
streaming live video to their subscribers' mobile devices. Using
various technologies, subscribers can now access streaming content over
the Internet on nearly any connected device. Moreover, cable companies
have adapted to customers' preferences for using a wide variety of
devices (such as game consoles) and screens (such as smart phones and
tablets) inside their homes to watch programming that used to be
available only on their television sets and via cable set-top boxes.
Cable companies are also enabling their customers to access cable
programming outside the home. Comcast Xfinity customers can now watch
more than 50 networks live via the Xfinity TV Go app. Comcast customers
can also watch more than 25,000 on-demand video choices anywhere on
mobile devices and download thousands of video choices to watch
offline. Cablevision has been steadily expanding the channels included
in its ``Optimum: TV to GO'' service. The service now includes
everything from ESPN and the Food Network to HGTV. Charter's recently
launched Cable TV App. provides over 100 channels of live streaming in-
the-home, and a subset outside-the-home.
The investments cable operators have made in new apps and services
are beginning to pay off, but current laws sometimes hinder these
customer-demanded market evolutions. To continue to promote these
developments, the law should:
1. Provide the greatest possible degree of business flexibility.
Requiring providers to arrange and offer service in a
particular way hinders their ability to create and respond to
market demand.
2. Contain fewer prescriptive rules. The government needs to resist
early and premature entry into the markets based on
hypothetical harm, and instead focus on addressing problems if
and when they arise. Experimentation in new services and new
business models should be encouraged.
3. Be applied on a technology-neutral basis. Like services should be
treated alike, and all providers of those services should play
by the same rules. There is a serious threat to innovation and
competition when the law confers any regulatory advantage on
particular technologies, or deregulates not when market forces
warrant, but when a favored technology is used. Companies
facing fierce competition will respond to what consumers want,
as providers continuously seek to differentiate themselves and
their products and services. Their response should not be
driven, or even affected, by a need to fit a service into a
particular regulatory box.
______
Response to Written Questions Submitted by Hon. Marco Rubio to
Hon. Michael K. Powell
Question 1. Consumers want their video consumption to fit around
their lives, giving them greater flexibility and more control and
choice over the content they watch. As a result, the market is
responding, and wireless services and capabilities are growing
substantially: networks are live streaming programming, cable companies
are providing mobile applications, and WiFi hot spots are expanding.
Given the expected growth in the wireless video marketplace, how
important is spectrum to the future of cable companies and video
distribution?
Answer. Spectrum, particularly unlicensed spectrum for Wi-Fi use,
is extremely important to NCTA's member companies and the future of
video distribution. Our member companies have invested in and deployed
more than 150,000 Wi-Fi access points, extending their networks to make
them more flexible, more interoperable, and more convenient for
customers. These Wi-Fi access points allow subscribers to access fast
and reliable Internet connections indoors and outdoors when away from
their home or office, advancing our joint goal of increasing broadband
access. Americans rely on these access points not only for everyday
business, education, and entertainment purposes, but also during
emergencies, such as Hurricane Sandy, Winter Storm Nemo, and the attack
at the Boston marathon. As Comcast noted in its recent testimony before
the Subcommittee, ``. . . unlicensed spectrum is an essential input to
technological innovation, investment, and economic growth. Only with
access to enough unlicensed spectrum will industry be able to meet
consumer demand for wireless data services.''
Question 2. NCTA has stated that cable companies now depend on the
5 GHz band for their Wi-Fi networks, and that the future of Wi-Fi
depends on the FCC making more spectrum available in this band and
adjusting the rules that apply to this band. Why is the 5 GHz band so
important to the future of consumer Wi-Fi?
Answer. In the United States, more data is carried over Wi-Fi than
any other Internet source, and Cisco's Visual Networking Index
estimates that today's already enormous Wi-Fi traffic will more than
double by 2015. Wi-Fi has been so successful, in fact, that existing
spectrum designated for unlicensed use is becoming increasingly
congested--a trend that will only continue. Indeed, the 2.4 GHz band,
the primary band used for Wi-Fi, is already reaching exhaustion in
larger, high-penetration markets. In fact, a recent study suggests that
Wi-Fi spectrum at 2.4 GHz will be exhausted in many markets by the end
of 2014. Device manufacturers and service providers are turning to the
5 GHz band to meet growing demand as the 2.4 GHz band reaches
exhaustion. The 5 GHz band is particularly attractive for new Wi-Fi
deployments because it provides a large amount of unlicensed spectrum
and is compatible with existing Wi-Fi standards, and because 5 GHz
capability is already built into many consumer devices used worldwide.
In addition, the next-generation ``gigabit'' Wi-Fi standard--IEEE
802.11ac--is built exclusively for the 5 GHz band, in large part
because the 160 MHz channels necessary to deliver gigabit Wi-Fi are not
available in other unlicensed bands. This new standard is already in
place and being rolled out in consumer devices. It will allow
substantially better speed and performance compared with previous
generations of Wi-Fi. Under current FCC rules, however, American
consumers do not have access to even a single channel in the 5 GHz band
where both indoor and outdoor use is allowed that is wide enough to
accommodate gigabit speeds
Question 3. NCTA has stated that cable companies are only able to
use a fraction of the 5 GHz band for their Wi-Fi networks. What
portions of the band can you use and what portions can you not use? Why
do the FCC rules make most of the 5 GHz band unusable for cable Wi-Fi
systems?
Answer. The FCC divides the 5 GHz band into several different sub-
bands. According to the Commission's current Notice of Proposed
Rulemaking, these would be: UNII-1, UNII-2A, U-NII-2B (proposed), U-
NII-2C, U-NII-3, and U-NII-4 (proposed). Cable companies overwhelmingly
use the U-NII-3 band. This band allows outdoor operations, has a
reasonable maximum power limit, and does not mandate that companies
employ a difficult listen-before-talk technology called ``Dynamic
Frequency Selection'' (DFS). The other bands do not support widespread
operations because FCC rules (1) do not allow unlicensed broadband
devices, (2) prohibit outdoor Wi-Fi use, (3) mandate a very low power
level, and/or (4) mandate the use of DFS. I have included a chart that
explains this visually. The result of these overlapping restrictions is
that it is technically and economically feasible for widespread Wi-Fi
networks to use just 100 megahertz of the 555 megahertz potentially
available for use in the 5 GHz band.
Question 4. NCTA has stated that it agrees with Congressional
action in the Spectrum Act to make the ``U-NII-4'' portion of the 5 GHz
band available for Wi-Fi. Intelligent Transportation Services also will
use a portion of this band once that technology becomes available in
the future. Are you seeking to displace ITS or to share with ITS? Given
the well-understood licensed and unlicensed spectrum crisis, we need to
make sure every band is used as efficiently and intensively as
possible. How would sharing improve the efficiency and intensity of use
of this band?
Answer. NCTA is committed to sharing the U-NII-4 band with ITS and
has not sought to displace ITS. The goal must be for the FCC to
establish a sharing approach that increases the efficiency and the
intensity of use of the band while also protecting ITS operations when
companies begin to deploy these technologies. This is critical, because
today the U-NII-4 band is underutilized. Although fourteen years have
passed since the Commission authorized ITS to use U-NII-4, there is not
one commercially available ITS network deployed in the 5 GHz band. The
ITS industry has only recently begun to coalesce around the IEEE
802.11p standard, and is now testing a limited number of experimental
vehicles. The fact that ITS, unlike licensees in almost any other band,
has not yet deployed presents Congress and the FCC with a golden
opportunity to make sure that we all build in sharing and efficiency
from the beginning.
Question 5. The issue of retransmission consent negotiations has
garnered the attention of Congress and the Federal Communications
Commission. In 2011, the FCC issued a Notice of Proposed Rulemaking
seeking comments on whether the must carry-retransmission consent
regime should be modified. Last Congress, the Next Generation
Television Marketplace Act was introduced in the House and Senate to
reform the must carry-retransmission consent regime. Which entity would
NCTA rather act on rules for retransmission consent--the FCC or
Congress, or neither? Why?
Answer. Retransmission disputes implicate very complex issues,
which involve both statutes and regulations. NCTA filings at the FCC
raise concerns about the current trend of broadcasters in the same
market utilizing local marketing agreements or shared services
agreements to jointly negotiate retransmission agreements. Cable
operators in particular have raised concerns about other aspects of the
current system. We are happy to work constructively with both Congress
and the FCC as they discuss retransmission consent.
Question 6. There has been a dramatic increase of programming
blackouts over the last few years under the current retransmission
consent regime, from 12 blackouts in 2010 to 91 last year. Why has the
number of blackouts increased?
Answer. Inherent in the right to withhold broadcast programming in
the absence of a distribution agreement is the risk that sometimes the
parties won't be able to reach agreement. As broadcasters have focused
in recent years more on retransmission dollars for compensation rather
than on other issues, business disputes have arisen over differences
between how the parties value the programming, and the terms and
conditions of how it is offered.
Question 7. It seems that, in many respects, it is a good time to
be a television viewer. Consumers have many choices. The emergence of
Netflix, Amazon Plus, Hulu, as well as more digital offerings from
over-the-air from broadcasters has provided a lot of competition to
cable and satellite providers. Over the years there have been arguments
that consumers were ``forced'' to buy some cable channels that they did
not watch, but as best as I can tell, this too has changed in the past
several years. For example, at least 8 of the largest cable and
satellite providers offer ``light'' packages that don't include
channels like ESPN. It seems that the market is working. With renewed
discussions of the need for aa la carte pricing, would you agree that
the market is providing consumers choice without the need for
government intervention?
Answer. Consumers certainly have a choice among distributors, as
competition has grown to include satellite providers, telephone
companies, and Internet-delivered options. Moreover, cable is committed
to offering a variety of pricing and packaging options to meet
consumers' needs and desires. As the market evolves, our members will
continue to work to find compelling and sufficiently flexible
offerings.
As policymakers examine the implications of this evolving
marketplace, including whether to make changes to the existing
regulatory structure, NCTA looks forward to serving as a resource in
that discussion.
Attachment
______
Response to Written Questions Submitted by Hon. Dean Heller to
Hon. Michael K. Powell
Question 1. Mr. Powell, cable is a broadband company. Does the cost
of content slow down broadband deployment or slow down re-investment of
infrastructure?
Answer. Cable companies continue to invest vigorously in their
networks in order to meet growing demand and more broadly to provide
the advanced high-speed services that consumers want. Since 1996, the
cable industry has invested over $200 billion in its facilities. These
investments have also included bringing broadband to previously
unserved areas.
Question 2. Is there any reason why an ``aa la carte'' package
isn't available today? Is there a reason any of the companies
represented here can't or won't provide it?
Answer. Numerous studies of retail aa la carte have cautioned that
consumers would not necessarily enjoy higher value from such a model.
While it seems intuitive that choosing one's individual channels would
result in cheaper content, the economic reality strongly suggests that
may not be the case.
______
Response to Written Questions Submitted by Hon. Mark Pryor to
R. Stanton Dodge
Question. During our hearing, there was much discussion about
retransmission fees and their effect on consumers' cable bills as well
as consumers' access to free broadcast television. Could you please
further describe the amounts being paid to broadcasters and affiliate
stations annually by your members/company? What percentage do these
fees represent of your total programming costs and how do they compare
to non-broadcast access fees? How have these percentages changed
yearly? How does the amount paid in retransmission consent fees to
stations compare to the amount paid to non-broadcaster affiliated cable
networks? Finally, can you discuss the benefits broadcast programming
provides to your company/companies and consumers, and the challenges
posed for your operations and for consumers by the retransmission
consent system?
Answer. Today, multiple MVPDs negotiate against one monopoly
broadcaster in a given market, creating an unfair advantage for the
broadcaster. As a result, the retransmission fees MVPDs pay to
broadcasters have skyrocketed, leaving customers with higher bills and
more blackouts. SNL Kagan estimates that MVPDs paid $3.3 billion in
retransmission consent fees in 2013, and that this figure will soar to
a staggering $7.6 billion by 2019. DISH is not suggesting that
broadcasters be denied fair compensation for content, but the multiple
hundred percent increases that broadcasters are often demanding is
unsustainable.
Reforming the retransmission consent regime to address the
broadcasters' government-sanctioned monopoly could halt the trend in
rising prices and prevent consumers from suffering blackouts.
______
Response to Written Question Submitted by Hon. Barbara Boxer to
R. Stanton Dodge
Question. In your written testimony, you propose that cable and
satellite carriers be permitted to retransmit a non-local market signal
in situations where a stalled retransmission consent negotiation would
otherwise result in a blackout for consumers. What legislative or
regulatory actions are necessary to implement such a change to the
retransmission consent system?
Answer. In order to provide blackout relief to consumers, Congress
could designate those who are caught in a broadcast television blackout
as ``unserved,'' which would allow DBS providers to import a
corresponding signal from a different ``distant'' market and pay the
distant signal copyright royalty fee set forth under Section 119. On
the cable side, the same result could be achievable by adjusting the
network non-duplication and syndicated exclusivity rules. MVPDs would
only be allowed to import a distant signal when the local station has
refused to keep the in-market signal up while contract negotiations
continue and viewers have been left in the dark.
______
Response to Written Question Submitted by Hon. Amy Klobuchar to
R. Stanton Dodge
Question. The emergence of online video services and the ability to
send video over multiple internet-enabled devices has changed the way
viewers expect to access programming. In the hearing last April, we
spoke about the future of video and how consumers are starting to want
more and more ``on-demand'' services. They want what they want, when
they want it, wherever they want it. What are some of the examples of
how are your members/companies evolving and innovating to these new
market demands, and do current laws help or hinder these customer-
demanded market evolutions?
Answer. DISH is investing in the emerging Over-the-Top (``OTT'')
video space to meet consumers' increasing demand for Internet-delivered
content. For example, DISH today offers a stand-alone OTT service for
foreign-language consumers, called DISH World. This OTT service
provides programming in Hindi, Mandarin, and many other foreign
languages.
DISH also plans to launch a new domestic OTT video service that
will distribute live programming. Viewers will be able to access the
DISH OTT product through any Internet-connected device, and will be
able to subscribe to a smaller package of channels at a lower price
than what is currently available under traditional pay-TV packages.
DISH is focused on responding to its customers' changing needs and
today's communication laws should reflect the current marketplace. Just
as DISH is adapting to keep pace with what consumers want, Congress and
the FCC should work to ensure that all laws and regulations mirror
today's competitive realities, consumer expectations, and advances in
technology.
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Response to Written Questions Submitted by Hon. Dean Heller to
R. Stanton Dodge
Question 1. In the late 1980s and early 1990s, Broadcasters flagged
that their signal was being taken by Cable for free and repackaged with
other channels. Congress then provided retransmission consent rules
which required Cable and then later Satellite television companies to
secure the permission of a broadcast station before retransmitting the
programs on its schedule. Cable could only offer the signal from
stations in their general vicinity and the broadcast station must be on
the basic tier of channels made available. Is this system still
working?
Answer. The system is not working. It was designed at a time when
Americans basically had two choices for television: over-the-air
broadcasting or cable TV. When negotiating retransmission consent, the
``mutually assured destruction'' existing between each local
broadcaster and the local cable operator established a shared incentive
for both parties to reach an agreement. If they could not agree upon
terms, the broadcaster risked losing significant viewership (and
advertising revenue) and the cable operator risked losing significant
programming content (and a major hook for securing subscribers).
Today, the local broadcaster still enjoys the same exclusive
control over key content, namely the broadcast network programming from
ABC, CBS, NBC, or FOX. The pay-TV provider, however, faces stiff
competition from multiple sources. Whereas only one pay-TV company, the
cable operator, offered service when the 1992 statute originally was
enacted, at least three companies offer that service today, including
the original local cable operator (such as Comcast, Time Warner Cable
or a smaller company like Wide Open West or Bend Broadband), DISH,
DirecTV, phone companies (such as AT&T and Verizon), and overbuilders
(such as RCN). The broadcaster in this scenario faces little risk in
taking down its programming from any one of those providers during a
retransmission consent dispute because it will still reach audiences
via the other pay-TV providers.
The imbalance in bargaining power between the local broadcaster and
the pay-TV providers in every community has led to a 600 percent
increase in broadcast programming take-downs over the last three years,
and a material spike in retransmission consent fees demanded by
broadcasters.
In short, the government-created broadcaster monopoly is no longer
working for the benefit of consumers. The 113th Congress has the power
to fix this imbalance, and it should.
Question 2. Mr. Dodge, what are your thoughts on the current video
marketplace? Are consumers getting a good value?
Answer. More consumers are watching video in a non-linear, on-
demand fashion on mobile devices such as tablet computers and smart
phones, computer screens and in-home flat screen HD displays. They
expect to be able to watch the video they want, where they want, when
they want.
Consumers increasingly feel that they pay too much for a collection
of linear video channels, most of which they do not watch. Costs are
driven by several factors but programming fees are by far the biggest
factor. Certain categories of programming increase costs more than
others. For example, 48 percent of all DISH's programming acquisition
costs are sports related. Less than 12 percent of DISH subscribers
regularly watch those channels, however, meaning that the vast majority
of our subscribers are subsidizing the viewing habits of a tiny
minority.
Reforming the retransmission consent regime would help to reverse
the trend of cost increases because it is, invariably, the broadcast
network conglomerate that demands significant cost increases across its
entire suite of broadcast and non-broadcast channels, using
retransmission consent for local broadcast signals as leverage. If the
government would take its thumb off the scale and reduce the federally
subsidized leverage bestowed upon broadcasters, pay-TV companies would
pay less for programming and have greater flexibility in designing
programming packages that better fit consumers' tastes and pocket
books.
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Response to Written Questions Submitted by Hon. Barbara Boxer to
John Bergmayer
Question 1. In your written testimony, you describe how cable
incumbents control content and infrastructure vital to online video
providers and, as a result, sometimes engage in discriminatory
practices such as artificially-limited data caps that include
exemptions for an incumbent's affiliates. Does the average consumer
understand how much data she consumes when performing various types of
activities online, such as streaming a feature film on Netflix?
Answer. No, I think that asking consumers to understand technical
issues like ``data'' and how that relates to video and billing plans is
asking too much--at least for billing plans where overages or caps are
not set at extremely high levels to deter abuse but are designed to
affect ordinary viewer behavior. For that matter, even technical
experts in the relevant fields might have a hard time estimating how
much data a given video stream is using. Among other things, the amount
of data a video stream uses will vary based on resolution (standard
definition, high-definition 720p, high-definition 1080p, or something
else), the ``complexity'' of the video (how much change there is frame-
by-frame), the number of channels in the audio track (stereo or
surround sound), and the compression codec used (MPEG2, MPEG4, WebM).
Also, if the data usage customers are supposed to keep track of is
cumulative, it might be hard for them to connect going over the cap at
the end of the month with watching an HD streaming movie at the
beginning of the month. By contrast, other ways of differentiating
service, such as speed (more accurately, bandwidth) are immediately
obvious to users, since they influence the experience of using the
Internet at that exact point in time (slower responsiveness, lower-
quality-video, buffering, and so on).
Question 2. Does a data cap discourage the average consumer from
watching as much online video as she would in the absence of a cap?
Answer. A data cap not only has that effect, many of the caps we've
seen appear designed to have that effect--set, for instance, at just
below an amount of data that would be at a minimum necessary if you
were to replace cable TV viewing with online video viewing.
However, another way that caps can affect online video is by
exempting certain video services from caps but not others. This could
distort the online video marketplace in ways that harm consumers by
encouraging viewers to use inferior services for reasons that have
nothing to do with their quality, ease of use, or choice of content.
Question 3. Are there steps Congress could take to address industry
practices that result in fewer online video choices for consumers?
Answer. Congress should extent the protections that enabled
satellite TV providers to access content and gain an audience to
certain online video providers, and take steps to ensure that dominant
ISPs and cable companies are not able to restrain or control the
development of online video through discriminatory data caps or other
billing practices, discriminatory treatment of online traffic, or
otherwise leveraging their dominance in the consumer pay TV and
broadband markets in ways that reduce choices to consumers.
______
Response to Written Question Submitted by Hon. Amy Klobuchar to
John Bergmayer
Question. The emergence of online video services and the ability to
send video over multiple internet-enabled devices has changed the way
viewers expect to access programming. In the hearing last April, we
spoke about the future of video and how consumers are starting to want
more and more ``on demand'' services. They want what they want, when
they want it, wherever they want it. Do you think the current market
players are doing enough to meet consumer demand?
Answer. The facts suggest that they are not. Consumers are
clamoring for more choice and flexibility in their video choices, yet
most have no option but to purchases an inflated and overpriced bundle
of content. Many existing online video services are popular, and it is
likely that if they were able to access more content under reasonable
terms they would be able to serve even more viewers. Additionally, the
persistence of online copyright infringement of video content is in
part attributable to unmet demand.
______
Response to Written Question Submitted by Hon. Marco Rubio to
John Bergmayer
Question. Your testimony states that the ``broadcasting industry no
longer needs extraordinary protection against changes in technology,
business models, and viewer behavior.'' Why is that the case?
Answer. Over-the-air broadcasting was once the primary way to reach
the American public. Thus, it is understandable that Congress and the
FCC have, through time, enacted various rules designed to protect this
essential medium. However, with the rise cable and satellite TV, not to
mention the Internet, broadcasting is not as essential as it one was.
Most people watch broadcast content via MVPDs and not over-the-air.
Broadcasting is now just one medium among many--one that, like other
communications media, certainly has its relative advantages. But these
no longer justify extraordinary treatment, such as protection from
competition and government-backed exclusives on certain content.
That said, broadcasters use the public airwaves and it is proper to
expect them to continue to have public obligations, just as all other
spectrum licensees do. Notably, broadcasters have a continuing
obligation to provide free programming to the public that is relevant
to their respective communities. Broadcasting still has a place in the
communications landscape, but it should compete on its own merits and
should not be the lynchpin of video policy. For this reason, Public
Knowledge has long advocated reform to the retransmission consent,
distant signal, sports blackout, syndicated exclusivity, and similar
provisions that grant broadcasters special privileges under the law.
______
Response to Written Questions Submitted by Hon. Dean Heller to
John Bergmayer
Question 1. Is there any reason why an ``aa la carte'' package
isn't available today? Is there a reason any of the companies
represented here can't or won't provide it?
Answer. There are two main reasons, both related to market
structure (and public policies that contribute to that market
structure). First, there is not sufficient competition in local MVPD
markets. Markets with more than just a few competitors--and markets
that are open to new entry--tend to have a few ``maverick'' players
that offer more unusual pricing options, or are willing to offer lower-
cost value products. For instance, in a more competitive market one
could picture an MVPD that chooses not to carry some very popular, but
high-cost programming, passing along the savings to its customers
(while explaining the tradeoff). In more competitive markets, in other
words, it becomes worthwhile for some competitors to differentiate
themselves through more varied price and service levels (as well as by
going after niche interests). By contrast, in less competitive markets,
it makes more sense for each competitor to go for the mainstream
market. These markets are more prone to parallel pricing and other
behaviors, and are more likely to leave price-sensitive customers
behind. The best way policymakers can address this aspect of the
problem is to adopt policies that promote new entry. In particular,
providing MVPD service no longer requires (as a technological matter)
that the provider build out new physical infrastructure. Policies that
enabled more online video competition would be likely to bring about
new competitors with new kinds of pricing and service options. Just as
some MVPDs have responded to competition from online on-demand video
services by improving their own on-demand offerings, it is likely that
more online MVPD competition would also encourage existing MVPDs to
improve their offerings.
Second, concentration and market power in the content industry
leave MVPDs themselves with less flexibility. Perhaps in response to
the threat of ``cord-cutting,'' some MVPDs themselves have been calling
attention to this obstacle to their providing more flexible service
offerings. Due to restrictive deals with content providers, MVPDs are
often required to buy content bundles at the wholesale level, and pass
them along to viewers. To carry a particular popular cable or broadcast
channel, an MVPD may be required to devote space in the channel line-up
to programming a content company is trying to develop. MVPDs would be
contractually prohibited from offering programming subject to these
restrictive contracts on an aa la carte basis to viewers, and all the
viewers who end up with these channels in their cable packages are
counted as ``subscribers'' to that programming. In addition, the
``carry one, carry all'' and ``basic tier buy-through'' rules prevent
MVPDs from offering broadcast programming on an aa la carte basis.
There are many ways that policymakers and other officials can begin
addressing these problems: By reforming the retransmission consent
system, by addressing media consolidation, and by examining whether
wholesale content bundling practices run afoul of antitrust laws.
Question 2. Mr. Bergmayer, I have been interested in ensuring that
robust broadband buildout into residential markets take place by the
private sector. However, economics are at play here. Most broadband
providers cannot compete unless they are also providing voice and video
in addition to a data plan. It is very expensive to enter into a market
due to the cost of infrastructure and I assume the local municipal
approval process is also cumbersome. Can you shed any light as to
whether the cost of content may also weigh on a company being able to
enter into a market and provide competition for voice video and data?
Answer. I agree that the cost of infrastructure, regulatory
clearance, and the cost of acquiring video content can all be obstacles
in the way of providing new facilities-based broadband competition.
Most broadband providers (new entrants such as Google Fiber, as well as
other non-cable broadband providers such as DSL) find that a video
product is a necessity offering. Unfortunately, the costs of acquiring
content for a video product are often forgotten when people consider
issues of broadband competition.
There are two ways policymakers can address these problems. The
first is measures designed to bring down the wholesale costs of
content, as discussed above in response to the question on aa la carte.
The second is to promote online video, by clarifying the law to
establish that an MVPD need not be facilities-based itself, and instead
can offer its service ``over-the-top,'' using a customer's existing
broadband connection. If broadband customers were able to access high-
value MVPD content online, it would be less important for new broadband
entrants to offer that service themselves. By way of analogy, there is
little demand for ISP-provided e-mail or webhosting services, since all
of these are available through competitive online markets (and can
easily be used through multiple ISPs, meaning that customers who move
or change providers do not need to change their e-mail addresses, for
instance).