[Senate Hearing 113-575]
[From the U.S. Government Publishing Office]





 
                                                        S. Hrg. 113-575

 			REAUTHORIZATION OF THE SATELLITE 
 		       TELEVISION EXTENSION AND LOCALISM ACT

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

                                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

                             SECOND SESSION

                               __________

                             APRIL 1, 2014

                               __________

    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

                             SECOND 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
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK BEGICH, Alaska                  DAN COATS, Indiana
RICHARD BLUMENTHAL, Connecticut      TIM SCOTT, South Carolina
BRIAN SCHATZ, Hawaii                 TED CRUZ, Texas
EDWARD MARKEY, Massachusetts         DEB FISCHER, Nebraska
CORY BOOKER, New Jersey              RON JOHNSON, Wisconsin
JOHN E. WALSH, Montana
                    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
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire,
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK BEGICH, Alaska                  DAN COATS, Indiana
RICHARD BLUMENTHAL, Connecticut      TIM SCOTT, South Carolina
BRIAN SCHATZ, Hawaii                 TED CRUZ, Texas
EDWARD MARKEY, Massachusetts         DEB FISCHER, Nebraska
CORY BOOKER, New Jersey              RON JOHNSON, Wisconsin
JOHN E. WALSH, Montana
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 1, 2014....................................     1
Statement of Senator Pryor.......................................     1
Statement of Senator Wicker......................................     2
Statement of Senator Rockefeller.................................    32
    Prepared statement...........................................    34
Statement of Senator Johnson.....................................    51
Statement of Senator Ayotte......................................    53
Statement of Senator Nelson......................................    55
Statement of Senator Klobuchar...................................    58
Statement of Senator Blunt.......................................    60
Statement of Senator Thune.......................................    62
Statement of Senator McCaskill...................................    64
Statement of Senator Cruz........................................    66
Statement of Senator Markey......................................    68

                               Witnesses

William T. Lake, Chief, Media Bureau, Federal Communications 
  Commission.....................................................     4
    Prepared statement...........................................     5
Hon. Gordon Smith, President and CEO, National Association of 
  Broadcasters...................................................     9
    Prepared statement...........................................    10
Michael W. Palkovic, Executive Vice President, Services and 
  Operations, DIRECTV............................................    12
    Prepared statement...........................................    13
Hon. Michael K. Powell, President and Chief Executive Officer, 
  National Cable & Telecommunications Association................    27
    Prepared statement...........................................    29
Thomas S. Rogers, President and Chief Executive Officer, TiVo 
  Inc............................................................    35
    Prepared statement...........................................    37
Matthew F. Wood, Policy Director, Free Press and the Free Press 
  Action Fund....................................................    40
    Prepared statement...........................................    42

                                Appendix

Response to written questions submitted to Hon. Gordon Smith by:
    Hon. Claire McCaskill........................................    79
    Hon. John Walsh..............................................    79
Response to written question submitted by Hon. Dan Coats to 
  William T. Lake................................................    80
Response to written questions submitted to Michael W. Palkovic 
  by:
    Hon. Claire McCaskill........................................    81
    Hon. John Walsh..............................................    81
    Hon. Kelly Ayotte............................................    82
    Hon. Dan Coats...............................................    82
    Hon. Tim Scott...............................................    82
Response to written questions submitted to Hon. Michael K. Powell 
  by:
    Hon. Claire McCaskill........................................    83
    Hon. Kelly Ayotte............................................    84
    Hon. Dean Heller.............................................    85
Response to written questions submitted by Hon. Claire McCaskill 
  to:
    Thomas S. Rogers.............................................    86
    Matthew F. Wood..............................................    87


 REAUTHORIZATION OF THE SATELLITE TELEVISION EXTENSION AND LOCALISM ACT

                              ----------                              


                         TUESDAY, APRIL 1, 2014

                               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 3:05 p.m. in 
room SR-253, Russell Senate Office Building, Hon. Mark Pryor, 
Chairman of the Subcommittee, presiding.

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

    Senator Pryor. I'll go ahead and call our meeting to order.
    Thank you all for being here. And, I'm sorry we had to 
postpone for about 35 minutes based on the originally scheduled 
time because of the votes on the floor. And also, I know that 
Chairman Rockefeller is on his way and many others are on their 
way as well.
    So again, I want to thank you all for being here. This is 
the reauthorization of the Satellite Television Extension and 
Localism Act hearing. And I know that many of you had to change 
schedules to be here and did a lot of preparation to be here.
    So STELA, and its legislative predecessors, have served to 
help satellite television operators provide their subscribers 
with access to broadcast TV channels thus allowing these 
companies to compete on a level playing field with other 
providers in the video marketplace. The driving force behind 
these laws are the worthy goals of ensuring not only that 
consumers have access to the programming they desire, but that 
they have a choice of provider in a competitive marketplace 
that fosters better content, more services, and lower prices.
    And let's not forget that these laws have helped DISH 
Network and DIRECTV offer to many millions of customers over 
the years, primarily rural customers, at least in my state, the 
ability to purchase pay-TV services in areas not previously 
served by other pay-TV providers.
    Once again, with provisions within STELA set to expire at 
the end of the year, we have the opportunity to revisit and 
reconsider these policies. Our colleagues in the House and 
Senate Judiciary Committee have begun their efforts in earnest. 
And I'm glad all of you could be here today to discuss the 
Commerce Committee's pieces, I'll say pieces, plural, of this 
law.
    Well, I know that there are some who believe that STELA's 
time has passed and it should not be renewed. We cannot lose 
sight of the approximately 1.5 million people who may be harmed 
by STELA's expiration. As a result, I believe that the Congress 
should act to reauthorize STELA before it expires at the end of 
the year. With that said, I want you all to know that I'm 
approaching our reauthorization efforts with an open mind and 
that is why I've joined Senator Rockefeller, Thune, and Wicker 
in seeking comment for a diverse group of stakeholders on the 
appropriate scope of the reauthorization.
    We have a large panel today containing some familiar faces 
with the Subcommittee's ``State of Video'' hearing just last 
year. It's particularly nice to have our former colleague, 
Senator Smith, back with us.
    So welcome back to the Subcommittee. It's always great to 
see you.
    I hope to hear from our witnesses about the provisions of 
STELA that are expiring and how they have or have not been 
working for consumers. And I know they have been honing their 
arguments before other committees. So we appreciate you being 
here.
    I also know that many of you will want to talk about a host 
of other issues that some stakeholders would like to see 
potentially addressed as part of this reauthorization. I 
certainly look forward to hearing from all of you, but I want 
to reiterate my view that what ultimately matters in this 
debate and, more importantly, in legislation that would be 
considered by this committee, is what is best for the consumer.
    Folks back home are less interested in what goes on behind 
the scenes than making sure that they can receive broadcast TV 
programming relevant to their lives; whether it be news 
important to their communities, their favorite sports teams, 
or, more critically, timely weather warnings that can 
ultimately save lives.
    So, I look forward to working with all of you. And I look 
forward to working with my colleagues, as well, on the STELA 
reauthorization.
    Again, I want to say thank you for being here. And, with 
that, I'll recognize Senator Wicker.

              STATEMENT OF HON. ROGER F. WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Wicker. Thank you, Chairman Pryor, for holding this 
hearing on reauthorization of the Satellite Television 
Extension and Localism Act, better known as ``STELA.''
    This hearing is timely considering recent action at both 
ends of the Capitol. Last week, the House Subcommittee on 
Communications marked up and reported its version of STELA. And 
the Senate Judiciary Committee, which shares jurisdiction with 
this committee, held its own hearing on the topic. The 
expiration of the current STELA has brought discussion 
regarding not only issues surrounding the satellite industry. 
On a broader scale, it has led the debate on the current state 
of the video marketplace in the digital broadband era. This 
debate has proven quite instructive with plenty of divergent 
opinions offered.
    Many of those policy positions came in the form of detailed 
and informed answers to the letters Senator Pryor and I sent 
with Chairman Rockefeller and Ranking Member Thune. The letters 
sent to stakeholders, across the industry, directly solicited 
feedback on the key issues surrounding the STELA debate and 
provided a good sound foundation for this committee to build on 
as it moves forward.
    All of the private sector witnesses on this panel received 
a letter and all answered the questions in a thoughtful and 
complete fashion. Thank you for doing that. The entire 
Subcommittee thanks you for your input and looks forward to 
hearing you expand on your positions as we examine these issues 
further.
    Mr. Chairman, sending this letter together kick-started 
this process in a bipartisan way and it is my hope that we will 
continue on that path.
    The House was able to achieve a working consensus on a set 
of narrow, targeted, common sense reforms many of which are 
sure to be discussed this afternoon. Given the history of this 
committee, I'm confident that we will be able to work in a 
similar fashion.
    So, thank you to our witnesses for testifying today. Your 
presence here will give members an opportunity to gain your 
take on issues specific to STELA as well as many issues the FCC 
is considering in the interconnected media landscape.
    So thank you very much for being here. And thank you, Mr. 
Chairman.
    Senator Pryor. Thank you, Senator Wicker.
    What we're going to do right now is I'll go ahead and 
recognize the panel. I'll just introduce you as a group and 
we'll go one-by-one. But also, when Senator Rockefeller shows 
up, I know he can only be here a short time. I'll probably, you 
know, let you finish the statement that we're on at the moment 
and then let the Chairman make his opening statement.
    And that may also be the same as Senator Thune. I think he 
was going to stay longer but now that we pushed this back I 
don't know exactly what his schedule is, but I don't want to be 
disruptive but, certainly, we want them to have an opportunity 
to make their opening statement.
    So I'll just run down the table here real quickly and 
introduce everyone and then we'll call on Mr. Lake to lead us 
off.
    Mr. William T. Lake, Chief, Media Bureau, Federal 
Communications Commission; the Honorable Gordon Smith, 
President and Chief Executive Officer of the National 
Association of Broadcasters, again, we welcome you back to the 
Subcommittee; Mr. Michael W. Palkovic, Executive Vice 
President, Operations, DIRECTV; the Honorable Michael K. 
Powell, President and Chief Executive Officer of the National 
Cable and Telecommunications Association, always good to see 
you; Mr. Thomas S. Rogers, President and Chief Executive 
Officer of TiVo; and also, Mr. Matt Wood, Policy Director of 
Free Press.
    So again, thank you all for joining us.
    Mr. Lake.

  STATEMENT OF WILLIAM T. LAKE, CHIEF, MEDIA BUREAU, FEDERAL 
                  COMMUNITICATIONS COMMISSION

    Mr. Lake. Thank you.
    Good afternoon, Chairman Pryor, Ranking Member Wicker and 
members of the Subcommittee. My name is Bill Lake, and I'm the 
Chief of the Media Bureau at the Federal Communications 
Commission. I'm grateful for the opportunity to appear before 
you today as the Subcommittee begins to evaluate 
reauthorization of STELA.
    As the Subcommittee knows, but a quick reminder is always 
helpful, unless reauthorized by Congress, there are two 
provisions in the Communications Act that will expire at the 
end of this year: the authorization for satellite operators to 
retransmit distant network signals to an unserved household 
without first obtaining the consent of the station; and the 
sections that prohibit broadcast stations from engaging in 
exclusive contracts for carriage, and require both broadcasters 
and pay-TV operators, MVPDs, to negotiate in good faith for 
retransmission consent.
    In addition, it's important to note that the distant signal 
copyright license will also expire, which will affect current 
and grandfathered subscribers, as well as future subscribers 
who meet STELA's eligibility requirements to receive distant 
signals. I provide as an attachment to my statement a broad 
historical background on congressional action in this area, 
beginning with the enactment of the Satellite Home Viewer Act, 
over 25 years ago, and continuing through the most recent 
reauthorization, STELA.
    Also included is information on how the concurrent rules 
work for consumers today. I hope that this will help to inform 
the Subcommittee about the evolution of the provisions under 
consideration. I note that there are other issues that have 
been brought up in the context of this reauthorization process 
by both the Committee and stakeholder representatives, some of 
whom are with me here today. But I will limit these remarks to 
the specific topic at hand.
    Historically, Commission staff has provided Congress with 
technical assistance as it works through issues related to the 
expiring provisions, and we continue to stand-at-the-ready as 
you and other congressional committees continue to work on the 
reauthorization.
    Additionally, as always, the Commission will be tasked with 
implementing any changes that Congress makes to the language in 
the Communications Act. Having noted that, if we have one ask 
for Congress at this juncture, from the staff who worked 
directly on these issues, it would be for Congress to keep in 
mind the interdependence of the Communications Act provisions 
with the Copyright Act statutory licenses. While I understand 
that the Commerce and Judiciary Committees on both sides work 
very well to develop the underlying policies, ensuring that the 
statutory language is complementary between the two acts is 
essential to make sure that the intent of Congress is 
effectuated.
    Again, thank you for the opportunity to be here today. And 
I'll be happy to take any questions you have.
    [The prepared statement of Mr. Lake follows:]

      Prepared Statement of William T. Lake, Chief, Media Bureau, 
                   Federal Communications Commission
    Good afternoon, Chairman Pryor, Ranking Member Wicker, and Members 
of the Subcommittee. My name is Bill Lake, and I am the Chief of the 
Media Bureau at the Federal Communications Commission. I'm grateful for 
the opportunity to appear before you today as the Subcommittee begins 
to evaluate reauthorization of the Satellite Television Extension and 
Localism Act of 2010--commonly known as STELA.
    As the Subcommittee knows--but a quick reminder is always helpful--
unless reauthorized by Congress, there are two provisions in the 
Communications Act that will expire at the end of this year:

   The authorization for satellite operators to retransmit 
        distant network signals to an unserved household without first 
        obtaining the consent of the station; and

   The sections prohibiting broadcast stations from engaging in 
        exclusive contracts for carriage, and requiring both 
        broadcasters and MVPDs to negotiate in good faith for 
        retransmission consent.

    In addition, it is important to note that the distant signal 
copyright license will also expire, which will affect current and 
grandfathered subscribers as well as future subscribers who meet 
STELA's eligibility requirements to receive distant signals.
    I provide as an attachment to my statement a broad historical 
background on Congressional action in this area, beginning with the 
enactment of the Satellite Home Viewer Act over 25 years ago and 
continuing through the most recent reauthorization, STELA. Also 
included is information on how the current rules work for consumers 
today. I hope that this will help to inform the Subcommittee about the 
evolution of the provisions under consideration.
    I note that there are other issues that have been brought up in the 
context of this reauthorization process--by both the Committee and 
stakeholder representatives (some of whom are with me here today). But 
I will limit these remarks to the specific topic at hand.
    Historically, Commission staff has provided Congress with technical 
assistance as it works through issues related to the expiring 
provisions, and we continue to stand at the ready as you and the other 
Congressional Committees continue to work on the reauthorization. 
Additionally, as always, the Commission will be tasked with 
implementing any changes that Congress makes to the language in the 
Communications Act.
    Having noted that, if we have one ask for Congress at this 
juncture--from the staff who work directly on these issues--it would be 
for Congress to keep in mind the interdependence of the Communications 
Act provisions with the Copyright Act statutory licenses. While I 
understand that the Commerce and Judiciary Committees on both sides 
work together very well to develop the underlying policies, ensuring 
that the statutory language is complementary between the two Acts is 
essential to make sure that the intent of Congress is effectuated.
    Again, thank you for the opportunity to be here today. I'll be 
happy to take any questions you may have.
                                 ______
                                 
                               Attachment
History of Satellite TV Law
SHVA
    It has been over 25 years since Congress first established a 
statutory copyright license to give satellite carriers the ability to 
provide consumers with broadcast programming via satellite. The 
Satellite Home Viewer Act of 1988 (SHVA) and subsequent 
reauthorizations amend provisions in the Communications Act and in the 
copyright statute, Title 17.
    At the time of SHVA, satellite carriers were technologically 
limited in the number of broadcast channels they could deliver to their 
subscribers. SHVA was intended to provide a means for those carriers to 
offer the broadcast network programming while protecting the role of 
local broadcasters. SHVA thus limited satellite delivery of network 
broadcast programming to subscribers who were ``unserved'' by over-the-
air signals. It also permitted carriers to offer distant 
``superstations'' to subscribers. ``Unserved'' was defined as a 
household that did not receive an over-the-air signal of a particular 
signal strength from any station affiliated with a particular network. 
SHVA endorsed the Commission's computer model that predicts signal 
strength at a specific location, now known as the Individual Location 
Longley-Rice (or ILLR) predictive model. The predictive model was 
coupled with a process by which a subscriber who was predicted to be 
served could request a waiver from the relevant local stations, and, if 
the waiver was denied, could request an actual signal test.
SHVIA
    The Satellite Home Viewer Improvement Act of 1999 (SHVIA) expanded 
opportunities for consumers by creating a framework for satellite 
carriers to retransmit local broadcast signals directly to subscribers 
through a new local signal copyright license--commonly known as 
``local-into-local'' service. Beginning with SHVIA and continuing 
today, ``local stations'' are determined based on the Nielsen 
Designated Market Areas (DMAs) and typically by reference to the DMA 
map. In contrast to the ``must carry'' requirements that apply 
nationwide to cable service, the law requires satellite operators to 
carry all qualified local stations on a market-by-market basis (using 
DMAs) only if the satellite carrier opts to carry any local station in 
the market by reliance on the statutory copyright license. This is 
known as the ``carry one, carry all'' requirement.\1\ The Commission 
implemented SHVIA by adopting rules for satellite carriers with regard 
to carriage of broadcast signals, retransmission consent, and program 
exclusivity. These rules are comparable to the requirements for cable 
service.
---------------------------------------------------------------------------
    \1\ Satellite carriers are allowed to exclude from their local-
into-local service stations that are duplicative or stations that fail 
to provide a good quality signal to the satellite carrier's local 
receive facility. Satellite subscribers are not generally required to 
subscribe to the local-into-local package.
---------------------------------------------------------------------------
    In addition to introducing the legislative and regulatory mechanism 
by which satellite carriers can offer ``local'' stations to 
subscribers, SHVIA also maintained the mechanism for unserved 
subscribers to receive distant network stations, with a few tweaks to 
the waiver and testing protocol and still with reliance on the 
Commission's predictive model in the first instance.
SHVERA
    In 2004, Congress continued to expand and develop parity between 
satellite and cable services when it enacted the Satellite Home Viewer 
Extension and Reauthorization Act (SHVERA) and provided the framework 
for satellite carriage of ``significantly viewed'' stations. 
Significantly viewed stations are those that technically are distant 
signals--i.e., assigned to another DMA--but historically had 
``significant'' over-the-air viewing in specific communities or 
counties in a neighboring DMA. The Commission has maintained a 
``significantly viewed'' list since the 1970s. In addition, if a 
station meets the significantly viewed criteria for a particular 
community or county, it can petition the Commission to be added to this 
list. Carriage of such stations is voluntary on the part of the 
satellite carriers and requires the retransmission consent of the 
significantly viewed station. Only subscribers in the specific 
community or county who subscribe to the local-into-local service are 
eligible to receive the significantly viewed station from out of 
market. SHVERA also imposed additional restrictions on the carriage of 
digital significantly viewed stations--requiring that the local station 
affiliated with the same network is provided in the same format.\2\
---------------------------------------------------------------------------
    \2\ There were two exceptions to these restrictions on the carriage 
of significantly viewed stations--(1) satellite carriers could provide 
a significantly viewed station in areas where there was no local 
affiliate station; and (2) satellite carriers could negotiate a waiver 
with the local affiliate with regards to carriage of a significantly 
viewed station. Note that STELA's revisions affect these exceptions. 
See infra n. 5 and associated text, and n. 9.
---------------------------------------------------------------------------
    In addition to the significantly viewed provisions, Congress also 
modified the statutory language to account for various digital 
television transition issues, imposed the good-faith bargaining 
requirements for retransmission consent negotiations on multichannel 
video program distributors, and provided for some exceptions to the 
distant copyright license for certain areas of the country.
STELA
    The Satellite Television Extension and Localism Act (STELA), 
enacted in 2010, is the most recent iteration in the series of statutes 
that address satellite carriage of television broadcast stations. In 
addition to reauthorizing the expiring provisions of law, the major 
provisions of STELA include changes to the significantly viewed 
provisions enacted in SHVERA to promote use of the statutory provisions 
and provide additional choices for subscribers.\3\ Congress also 
modified the law to account for the terrestrial digital television 
transition that occurred in 2009 by requiring the Commission to 
establish a digital signal predictive model and to revise its 
measurement procedures for determining eligibility for subscribers to 
receive distant digital signals.\4\ Congress also changed the 
definition of the stations considered when determining whether a 
subscriber is served or unserved by an over-the-air signal for the 
purpose of eligibility for satellite-delivered distant signals; 
specified how multicast signals would be treated; and introduced the 
concept of ``short'' markets, that is, DMAs with fewer than four of the 
most widely viewed networks.\5\ Additionally, Congress required the 
Commission to provide a report to Congress regarding the availability 
of in-state programming for those counties that are assigned to a DMA 
served primarily by stations that are licensed to a different state.
---------------------------------------------------------------------------
    \3\ Congress also moved the corresponding copyright provisions for 
significantly viewed stations from the distant signal copyright license 
to the local signal copyright license.
    \4\ Congress revised the definition of ``unserved household'' to 
eliminate a specific reference to ``outdoor'' antennas. The Commission 
rulemaking determined that, from an engineering and technical 
perspective, consideration of an outdoor measurement remains 
preferable.
    \5\ Prior to STELA, the signal of any station affiliated with a 
particular network was considered in determining whether a subscriber 
was ``served'' or ``unserved'' by that network. STELA established that 
only network stations that are in the subscriber's ``local'' market 
(i.e., the same DMA) would be considered in making this determination. 
This change facilitated providing missing network stations via 
satellite to subscribers in short markets.
---------------------------------------------------------------------------
Practical Application of Current Law and Rules
Local-into-Local Service
    Since the inception of local-into-local service, the two satellite 
providers have increased their local market offerings to the point 
where subscribers in most, if not all, of the 210 local markets (DMAs) 
have access to the local package by one or both of the providers. The 
specifics are outlined below:

------------------------------------------------------------------------
     Date/Timing           DISH       DirecTV             Source
------------------------------------------------------------------------
Nov. 2000                       34           38  FCC 7th Video
                                                  Competition Report
Dec. 2004                150 (+PR)          130  FCC 11th Video
                                                  Competition Report
Fall 2007                      174          143  FCC 13th Video
                                                  Competition Report
Fall 2012                      210          194  SEC Filings
February 2013                  210          196  STELA Section 305
                                                  Report
Nov. 2013                      210         197*  STELA Section 305
                                                  Report
------------------------------------------------------------------------
* Markets currently without Local-into-Local service from DirecTV:
  Presque Isle ME; Alpena MI; Charlottesville VA; Victoria TX; Ottumwa
  IA-Kirksville MO; San Angelo TX; Bowling Green KY; North Platte NE;
  Cheyenne WY-Scottsbluff NE; Helena MT; Casper-Riverton WY; Grand
  Junction-Montrose CO; Glendive MT.

    A consumer can subscribe to satellite service from one of the two 
providers, and opt for different program packages. As part of the 
available packages, consumers can opt to subscribe to the local channel 
package for an additional charge. The local channels will be those 
stations that are assigned to the DMA in which the consumer resides 
based on the Nielsen designations. Consumers are not allowed to choose 
the local stations they wish to receive via satellite, and satellite 
providers are limited in the stations they are permitted to include in 
the local package. As noted above, Congress has allowed for additional 
flexibility in certain circumstances that could increase the choices 
available to subscribers, such as permitting carriage of significantly 
viewed stations in appropriate circumstances.
    As noted above, if a carrier chooses to provide any significantly 
viewed stations from the FCC's list, it can add those stations to the 
local package offerings after obtaining the retransmission consent of 
the station. Additionally, there are certain areas in the country in 
which Congress provided an exception to the copyright license to allow 
carriage into specific counties of additional signals that would 
otherwise be considered distant signals.
Distant Signals
    Distant signals, generally, are those broadcast stations that are 
assigned to a different DMA than the one in which the consumer resides. 
In the past, distant signals provided the only access to broadcast 
network programming for many satellite subscribers. Over time, more and 
more subscribers gained access to the local network stations via local-
into-local service. Even so, much of STELA, like its predecessors, is 
devoted to the requirements and limitations associated with eligibility 
for distant signals. The following is an overview of the highlights and 
concepts.
    Generally, in order to be eligible to receive distant signals, a 
subscriber must be deemed to be ``unserved'' by the local signals via 
an over-the-air antenna. ``Unserved'' means that the subscriber's 
household cannot receive the over-the-air signal of a local network 
station with sufficient signal strength \6\ as outlined in the current 
rules.\7\ Additionally, subscribers are limited to no more than 2 
network-affiliated signals from each broadcast network. If a subscriber 
is also receiving local stations, STELA restricts the time shifting 
permissible for the distant signals based on the subscriber's local 
time zone. Generally, the subscriber cannot specify which distant 
signals he or she wishes to receive. In addition to the eligibility 
criteria associated with the subscriber, the satellite carrier is 
permitted to provide distant signals only if it complies with the 
requirement to provide the networks with lists of the subscribers who 
are receiving distant signals. Below are some of the other major 
provisions regarding distant signals.
---------------------------------------------------------------------------
    \6\ STELA more specifically defines sufficient strength as the 
intensity defined by the FCC as the value for the ``noise-limited 
service contour,'' which means the value associated with a station's 
coverage area.
    \7\ As noted below, new subscribers are not eligible for distant 
signals if the local-into-local package is available to them.
---------------------------------------------------------------------------
No Distant Where Local
    When new consumers subscribe to satellite TV service, and the 
local-into-local package is available via satellite, they are not 
eligible to receive distant signals under current law. We refer to this 
as ``no distant where local.''
    One exception to no-distant-where-local is if the local signals are 
provided in the DMA but the subscriber lives in an area that is 
technically outside of the spot beam used to provide the local signals. 
In those instances, the subscriber will be permitted to receive the 
distant signals if the subscriber is also ``unserved'' by local 
stations over-the-air.
No Local-into-Local Service
    If the consumer resides in a market where their preferred satellite 
carrier does not offer a local-into-local package, they may be able to 
receive a distant signal package if they are ``unserved.'' The 
subscriber requests distant signals through his or her satellite 
carrier, and the carrier determines whether there is a sufficient 
signal by using a computer model that predicts the signal strength at 
the subscriber's specific household. Satellite carriers must use the 
computer model designed by the Commission, but the Commission is not 
involved in making individual predictions.
    If the model determines the household is ``unserved'' (i.e., the 
signal strength is too low), the satellite carrier can provide distant 
network signals to the household. If the model predicts that the 
household is served by a particular local network station over-the-air, 
the household is not eligible for distant signals for that network.\8\ 
The subscriber may request waivers from each of the local stations that 
are predicted to serve the household in order to be eligible for 
distant signals.\9\ Waivers are requested through the satellite 
carrier, and the local broadcast station must accept or reject a waiver 
request within 30 days. If the station does not respond to a waiver 
request within the time frame, the station is assumed to have agreed to 
the waiver.
---------------------------------------------------------------------------
    \8\ One of the revisions added by STELA to the existing protocol 
was to specify that the local network signal might be available via 
either a so-called primary or multicast stream broadcast by a local 
station. This distinction was added to address the enhanced capacity 
associated with digital transmission, which enables stations to 
broadcast multiple streams of programming simultaneously.
    \9\ STELA revised which stations are to be considered in the 
predictive model so that only stations that are ``local'' to the 
consumer based on the Nielsen DMA need to be considered. Previously, 
all network station signals were to be considered, including those that 
were not treated as local for purposes of carriage.
---------------------------------------------------------------------------
    If the local station denies the waiver request, the current law 
provides for a process by which the subscriber can request to have a 
signal test to measure the actual strength of the over-the-air signal 
from each station. Both the satellite and broadcast station must agree 
on a qualified and independent person to conduct the test. The costs of 
the test will be paid by either the satellite carrier or the broadcast 
station, depending on the outcome of the test. In limited 
circumstances, there are rules to provide for testing to be conducted 
and paid for by the subscriber directly. Others on the panel 
representing the affected industries can comment on whether and how 
often tests are requested and conducted. The Commission is not involved 
in the process, although we do field consumer questions about the 
process when requested.
Other ``Unserved'' Situations
    The law provides that, in situations where a satellite dish is 
permanently affixed to a recreational vehicle or commercial truck, that 
subscriber is deemed to be ``unserved'' and eligible to receive distant 
signals.
Other Distant Signal Subscribers
    As Congress has changed the eligibility rules for distant signals 
in successive reauthorizations, it has provided different treatment for 
subscribers to distant signals at the time of the reauthorization, 
depending on when the subscriber first received the distant signals. 
These different qualifications for ``grandfathering'' are used to 
determine whether subscribers may or must take the local-into-local 
package if and when offered. Some of the grandfathered subscribers may 
keep the distant signals, others may at some point be required to 
relinquish the distant signals. This is a topic that has been addressed 
in each reauthorization process, taking into consideration equitable 
treatment for distant signal subscribers at the time.

    Senator Pryor. Thank you.
    Senator Smith.

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

    Senator Smith. Thank you, Mr. Chair.
    Thank you, Chairman Pryor, Ranking Member Wicker, members 
of the Committee. It's a pleasure to be back before this 
committee and to share with you NAB's views on STELA 
reauthorization.
    STELA and its predecessors have achieved their intended 
goal of fostering satellite competition to cable monopolies and 
NAB feels STELA should be allowed to sunset, as Congress 
originally intended. However, if this committee determines that 
STELA should be reauthorized for another term, we support a 
clean bill free from controversial and unrelated provisions 
harmful to America's broadcasters.
    As you're all well aware, the principal challenge in 
legislating any telecommunications matter before this committee 
is the rapid pace of which the industry evolves and the desire 
not to stand in the way of innovation, job growth, and delivery 
of new services to consumers. The same is true in the video 
marketplace.
    Local television is evolving to provide viewers with the 
programming they crave where and when they want it. That said, 
now having served almost 6 years representing America's local 
TV broadcasters, I would like to share with you a few of the 
things I've learned since leaving this committee.
    First, the locally-focused system of television stations in 
the United States is the envy of the world but it's largely 
taken for granted in our country. We have a system that is not 
regional or national, not government owned or subsidized, but 
one that delivers to our citizens something no other country 
does: local services that play a vital role in every community 
across this great country.
    Localism underpins each of our FCC licenses and can never 
be replicated by broadband or by pay-TV service providers. Our 
stations demonstrate their commitment to this promise in times 
of every emergency reminding us of broadcasters' important role 
as first informers.
    We're here to be the public's eyes and ears, to serve them 
during times of crisis, to share profound moments, and to 
connect to our families, friends and neighbors. In this era of 
milk and bilk and build by the bit services that stress every 
family's budget, our medium is free, over-the-air to all, 
regardless of race, creed, color, gender, or economic 
disposition. These Americans should not be forgotten in your 
deliberations.
    Second, the business of broadcasting, which enables us to 
serve our local communities and which produces the best shows 
on television and delivers that content free to over-the-air 
viewers, has never been tougher. Today, broadcasters compete 
with wireless companies, pay-TV providers, over-the-top 
services for eyeballs, and for advertising.
    To be clear, we welcome competition. It makes us better at 
what we do and benefits viewers regardless of how they choose 
to consume our highly-valued content. The truth is, local 
television today is sustained by only two revenue streams: by 
retransmission consent fees paid by those who resell our 
signal; and by advertising. Without this economic foundation, 
we could not do what we do. Localism, as a public value on our 
airwaves, would simply not be preserved.
    Congress should resist efforts from pay-TV industry to 
upset the current retransmission consent framework that enables 
broadcasters to fulfill our fundamental mission of localism and 
look upon with great suspicion regulators that choose to 
reregulate local television's joint selling practices while 
turning a blind eye to pay-TV providers' joint selling 
practices as well. Policymakers and regulators need not 
intercede on behalf of the largely unregulated pay-TV industry 
to balance the playing field, particularly when the four top 
cable and satellite companies control nearly 70 percent of the 
video market already.
    Finally, pay-TV's misinformation campaign that hypothesizes 
increased bills for consumers are somehow related to 
broadcasting is groundless. To fix this, they've offered a 
number of proposals, both regulatory and deregulatory, that are 
designed to distort what currently is a marketplace that's 
working. NAB will continue to oppose these efforts in Congress, 
at the FCC, and in the courts, if necessary.
    I leave you with this plea for caution, and care in the 
video space and to please be mindful that unintended 
consequences could eliminate the benefits our country enjoys 
from free, local television. It's my fervent hope that this 
committee shares this belief and will reject haphazard, 
piecemeal legislative proposals proffered and supported by our 
competitors and our friends at this table which are 
specifically designed to undermine free local television.
    In conclusion, please preserve the value of localism and 
foster a competitive video landscape. We ask you do nothing to 
still or jeopardize your local stations that carry your news 
and to leave that available to serve your public.
    Thank you and I look forward to answering your questions.
    [The prepared statement of Senator Smith follows:]

      Prepared Statement of Hon. Gordon Smith, President and CEO, 
                  National Association of Broadcasters
    Good afternoon, Chairman Pryor, Ranking Member Wicker and members 
of the Subcommittee. On behalf of the NAB and its over 1,300 local 
television stations, it is an honor to be back in front of this 
Committee.
    I appreciate the opportunity to discuss the reauthorization of the 
Satellite Television Extension and Localism Act of 2010 (STELA), which 
is set to expire at the end of 2014. STELA, at its core, is a satellite 
bill. Passed in 1988, this law was intended to be a temporary fix to 
help satellite carriers better compete with cable. Twenty-five years 
later, satellite has grown to be the second and third largest pay-TV 
companies in America, with combined revenues of $46 billion and 34.2 
million total subscribers. This law has clearly served its intended 
purpose, which is why NAB asks the Committee to take a hard look at 
whether this bill should be reauthorized at all. But, if in this 
Committee's wisdom it determines that STELA should receive another 
authorization, NAB asks that the bill be clean of any unrelated or 
controversial provisions that harm the ability of your local television 
stations to serve your local communities.
    Both localism and diversity are bedrock principles that have guided 
communications policy for decades, and specifically the laws governing 
satellite carriage of broadcast signals. The key to promoting localism 
and diversity is the creation and distribution of locally-produced 
content relevant to our communities. In fact, the word ``localism'' 
even finds itself in the title of the bill we are discussing here 
today.
    I'm proud to say that the United States does localism better than 
any other country around the globe. It is viewers that are rewarded 
with coverage of matters of importance imperative to local 
communities--community news, severe weather and emergency alerts, 
school closings, high school sports, local elections and public 
affairs. Localism is also support for local charities, civic 
organizations and community events. Broadcast stations provide local 
businesses a place to advertise and inform consumers about their goods 
and services, which in turn, creates jobs and supports local economies. 
It is local broadcasters that create a sense of community by addressing 
the needs of the public, based on a familiarity with, and commitment 
to, the cities and towns they serve.
    For these reasons, NAB asks this Committee to continue to invest in 
the value of local content and keep STELA free of language that could 
undermine the legal framework that enables this fundamental mission of 
localism. While all of this is addressed in detail in the letter we 
provided to the Commerce Committee three weeks ago, four proposals in 
particular would undermine our ability to deliver locally-focused 
service.
    First, pay-TV industry proposals that would mandate standstills or 
importation of distant signals in the event of retransmission consent 
impasses are just naked attempts to distort market-based retransmission 
consent negotiations in favor of cable and satellite.
    In today's fiercely competitive video landscape, local broadcasters 
rely on the dual funding stream that comes from advertising and 
retransmission consent to invest in our programming. And the health of 
local television stations is in everyone's best interest. Broadcasters 
are a primary source of news and local programming. According to Pew 
Research, 71 percent of adults watch local television news, more than 
any other television news source. While you can find national news 
outlets on cable and the Internet, none of these channels provide the 
local reporting that remains so important to our democratic discourse. 
When cable news channels ``break'' stories impacting your local 
community, such as the tragic mudslides outside of Seattle, they use 
raw material provided by your local broadcasters. No other medium has 
boots on the ground with the experience to cover stories in a timely 
and accurate fashion.
    The current retransmission consent system is fair given the 
tremendous value of the content that broadcasters provide to pay-TV 
companies. Not only does broadcast dominate the top 100 shows on 
television every week, we offer the sports programming and award shows 
that attract the largest live audiences every year. To be fair, 
consumers don't buy cable to put more wires and cords in their living 
room or satellite to decorate the roof with an antenna; they buy these 
services for the content they provide. It is ``must-have'' broadcast 
programming--shows like Modern Family, New Girl, The Big Bang Theory, 
and NFL football--that pay-TV companies use to sell subscriptions. For 
this reason, it is only fair for MVPDs to pay broadcast stations for 
the ability to offer this value to their paying subscribers.
    Attempts to paint local television stations as the behemoth in 
these retrans negotiations should be dismissed, since in reality it is 
broadcasters who are selling to a highly concentrated pay-TV market, 
controlled by a few large and powerful buyers. According to the recent 
subscriber figures, the top four pay-TV companies control 67 percent of 
the market. The satellite companies, who are here today asking for a 
leg-up in retransmission consent negotiations, make up a full one-third 
of all pay-TV subscribers. And the concentration among the top 10 pay-
TV providers stands at 92 percent. There is no doubt, these pay-TV 
providers wield significant market power, yet it is the existing 
retransmission consent system that restores the balance of power 
between local television stations and highly concentrated MVPDs.
    In particular, inviting the FCC to order interim carriage of a 
broadcast station during a dispute would assure disputes would never be 
resolved. Such a change would undercut the only leverage a broadcast 
station has to secure an agreement. Moreover, allowing pay-TV companies 
to import an out of market broadcast signal during a dispute--with 
news, weather and advertising irrelevant to those viewers--would 
undermine the localism Congress specifically sought to promote. It also 
provides a back door for MVPDs to avoid negotiating a fair rate for 
broadcast programming in the marketplace.
    Second, reforms to the basic tier and buy-through requirements 
would harm our viewer's ability to access broadcast programming at a 
low cost. Broadcast television stations have been carried on the most 
highly penetrated service level by cable systems, and should remain on 
what's known as the ``lifeline'' level of service. Consumers should 
have access to local broadcast content like the local news, public 
safety, weather information and information of critical community 
interest. For this reason, Congress determined that broadcasters should 
be on the basic tier and part of every cable subscribers' package, a 
reason that remains important today.
    The removal of broadcasters from the basic tier will have the 
certainly unintended effect of increasing cable bills for the 
subscribers who want their local broadcast channels. If taken off the 
basic tier, these subscribers--generally minority and elderly viewers--
will be forced to buy a more expensive tier to get the programming they 
receive today.
    Additionally, local broadcasters have concerns with MVPDs 
restructuring the designated market areas (DMAs) which local stations 
use to gauge audience share and advertising rates. While almost half of 
all DMAs cross state lines, local broadcasters have provided non-
duplicative, local originating programming time and time again. A 
number of cable companies are currently providing this in-state 
programming and we would encourage the satellite industry to do the 
same.
    As Congress looks at these issues, separately from the narrow STELA 
reauthorization, NAB believes a number of items should be considered to 
protect consumers from monopolistic MVPDs. No consumer should have to 
pay for programming they do not receive. Loss of programming from an 
MVPD should result in an immediate refund. Consumers should also be 
allowed to switch providers without prohibitive penalties. And lastly, 
both broadcasters and MVPDs should also keep viewers informed with 
enhanced consumer notifications.
    Finally, I'd like to share with this Committee our serious concerns 
regarding the FCC's recent action on joint sales agreements and the 
harmful effect it will have on localism. These agreements between 
broadcasters, like joint ventures, foster more local news, provide 
access to capital for minority broadcasters and offer a diversity of 
programming options in local communities. I am so disheartened that the 
FCC failed to acknowledge the enormous benefits to viewers and local 
communities that can result from these agreements.
    In conclusion, at the core of STELA and its predecessors is the 
fundamental concept and enduring value of broadcast localism. If the 
Committee decides to reauthorize STELA, NAB urges you to pass a clean 
reauthorization and reject calls from the pay-TV industry to add 
controversial issues with the sole purpose of giving them a leg up in 
market-based negotiations.
    I thank you for your efforts and look forward to working with this 
Committee on a successful outcome.

    Senator Pryor. Thank you.
    Mr. Palkovic.

  STATEMENT OF MICHAEL W. PALKOVIC, EXECUTIVE VICE PRESIDENT, 
                SERVICES AND OPERATIONS, DIRECTV

    Mr. Palkovic. Thank you.
    Good afternoon, Chairman Pryor, Ranking Member Wicker, and 
members of the Subcommittee. Thank you for inviting me to 
testify on STELA reauthorization and thank you and your staff 
for the hard work you have put in preparing for this hearing.
    Last month, you sought written submissions from a variety 
of stakeholders. My company and DISH Network jointly submitted 
a response on behalf of our more than 34 million subscribers. I 
would like to highlight two points of that response.
    First, Congress must renew STELA to preserve service to 
millions of your constituents. More than 1.5 million 
subscribers, many in rural areas of the country, receive at 
least one distant network signal from DirecTV or DISH. In many 
cases, only STELA permits them to receive network television at 
all. In all cases, failure to renew STELA would remove channels 
from people who receive them legally today, many of whom have 
done so for years, and who would not understand why they were 
taken away.
    Second, when it renews STELA, Congress can also help 
hundreds of millions of Americans by providing blackout relief. 
Every time it has renewed satellite television legislation, 
Congress has responded to the most pressing problems of the 
day. Today, the biggest problem facing television viewers by 
far is the recent increase in broadcaster blackouts.
    There were twelve blackouts in 2010. Last year, there were 
127. You have now heard from both sides in what have become 
known as the ``Retransmission Consent Wars.'' But your 
constituents do not care about who is right and wrong on these 
issues. They care, above all, about losing programming during 
broadcaster blackouts. And on this point, there is no dispute. 
Broadcaster blackouts have increased dramatically.
    The time is ripe for some form of blackout relief. Blackout 
relief would not favor one side or the other. It would merely 
ensure that viewers don't lose the programming they depend 
upon. The most basic form of blackout relief would be to 
require broadcasters to not black out their signals. Under such 
a standstill provision, signals would remain up while the 
parties negotiate with the ultimate agreement applying 
retroactively so that no party benefits from delay. If parties 
are unable to reach agreement after some amount of time, they 
could submit their best-and-final offers to baseball-style 
arbitration.
    Under another variety of blackout relief, pay-TV providers 
could temporarily import distant signals during broadcaster 
blackouts. This would be an imperfect solution, however, for 
consumers as they typically prefer local programming to distant 
programming. Yet, it would at least provide them with national 
network programming during disputes. Pay-TV providers would 
still have every incentive to reach deals with broadcasters, 
especially those that offer compelling local programming. And 
broadcasters could avoid distant signal importation simply by 
agreeing not to blackout their signals while negotiations are 
pending.
    Under either form of blackout relief, consumers would no 
longer be held hostage during programming disputes. This is the 
single most important thing that Congress can do to protect 
hundreds of millions of Americans.
    Thank you for hearing my testimony. And I look forward to 
your questions.
    [The prepared statement of Mr. Palkovic follows:]

 Prepared Statement of Michael W. Palkovic, Executive Vice President, 
                     Services & Operations, DIRECTV
    Good afternoon, Chairman Rockefeller, Ranking Member Thune, 
Chairman Pryor, Ranking Member Wicker, and members of the Subcommittee. 
My name is Mike Palkovic and I am the Executive Vice President of 
Services and Operations of DIRECTV. Thank you for inviting me to 
testify on reauthorization of the Satellite Television Extension and 
Localism Act of 2010 (or ``STELA'').
    I want to begin by thanking you and your staff for the hard work 
you have put in preparing for this hearing. Last month, you sought 
written submissions from a variety of stakeholders. My company and DISH 
Network jointly submitted a response on behalf of our more than 34 
million subscribers.\1\
---------------------------------------------------------------------------
    \1\ A copy of that response is attached to this testimony as 
Appendix A.
---------------------------------------------------------------------------
    I would like to highlight two points of that response. First, 
Congress must renew STELA to preserve service to millions of your 
constituents. Second, when it renews STELA, Congress can also help 
hundreds of millions of Americans by providing ``blackout relief.''
    With all of the other issues before this Committee, it's sometimes 
easy to forget that STELA's key distant signal provisions are due to 
expire this December. Your constituents, however, have not forgotten 
about these provisions.
    More than 1.5 million subscribers, many in the most rural areas of 
the country, receive at least one distant network signal from DIRECTV 
or DISH. In many cases, only STELA permits them to receive network 
television at all. In all cases, failure to renew STELA would remove 
channels from people who receive them legally today--many of whom have 
done so for years--and who would not understand why they were taken 
away.
    Because satellite television legislation expires every five years, 
however, STELA renewal also presents Congress with the opportunity to 
step back and examine broader issues. Congress has renewed satellite 
television legislation four times before. Each time, it examined 
intervening changes in the marketplace and acted to fix problems it 
found. These changes ranged from the large (permitting satellite 
carriers to offer local signals in 1999) to the small (updating 
technical provisions of the cable statutory license in 2010).\2\
---------------------------------------------------------------------------
    \2\ A chart summarizing these changes is attached to this testimony 
as Appendix B.
---------------------------------------------------------------------------
    Today, the biggest problem facing television viewers by far is the 
recent increase in broadcaster blackouts. There were twelve blackouts 
in 2010. Last year there were 127.
    You have now heard from both sides in what have become known as the 
``retransmission consent wars.'' Broadcasters think that our 
subscribers don't pay them enough for their programming, even though 
they offer it over-the-air for free. We wish broadcasters would pay us 
for delivering their signals to millions upon millions of our 
subscribers who would never be able to get them over the air. We also 
think that outdated laws and regulations prop up broadcasters' market 
power, leading to all kinds of documented abuses and strong-arm 
tactics.
    But your constituents do not care about who is right or wrong on 
these issues. They care above all about losing programming during 
broadcaster blackouts. And on this point, there is no dispute: 
broadcaster blackouts have increased dramatically.
    Congress never meant for things to get to this point. When it 
passed retransmission consent in 1992, Congress meant to encourage 
localism. It did not mean help the big networks, and certainly did not 
mean to prevent viewers from seeing broadcast programming.

        Sen. Daniel Inouye (HI-D)--``. . . If [the FCC] identifies such 
        unforeseen instances in which a lack of agreement results in a 
        loss of local programming to viewers, the Commission should 
        take the regulatory steps needed to address the problem.''

        Rep. Sonny Callahan (AL-R)--``This right of retransmission 
        consent . . . is a local right. This is not, as some allege, a 
        network bailout for Dan Rather or Jay Leno. Networks are not a 
        party to these negotiations, except in those few instances 
        where they own local stations themselves.''

    It seems clear to us, however, that changes in the marketplace over 
the last 20 years have swept away Congress's good intentions.
    The time is ripe for some form of ``blackout relief.'' Blackout 
relief would not favor one side or the other. It would merely ensure 
that viewers don't lose the programming they depend upon.
    The most basic form of blackout relief would be to require 
broadcasters not to black out their signals. Under such a 
``standstill'' provision, signals would remain up while the parties 
negotiate, with the ultimate agreement applying retroactively so that 
no party benefits from delay. If parties are unable to reach agreement 
after some amount of time, they could submit their best-and-final 
offers to baseball-style arbitration.
    Under another variety of blackout relief, pay-TV providers could 
temporarily import distant signals during broadcaster blackouts. 
(Providers would pay royalties for those signals under the distant 
signal provisions that apply today.) This would be an imperfect 
solution for consumers, as they typically prefer local programming to 
distant programming. Yet it would at least provide them with national 
network programming during disputes. Pay-TV providers would still have 
every incentive to reach deals with broadcasters, especially the 
handful of them that actually offer compelling local programming. And 
broadcasters could avoid distant signal importation simply by agreeing 
not to black out their signals while negotiations are pending.
    Under either form of blackout relief, consumers would no longer be 
held hostage during programming disputes. This is the single most 
important thing that Congress can do to protect hundreds of millions of 
Americans.
    On behalf of DIRECTV's more than 20 million subscribers, I would 
like to thank the Committee again for its hard work on STELA 
reauthorization. This bill presents challenges to the Committee. It 
also presents a real opportunity to make a difference. DIRECTV looks 
forward to working with you in the coming months to meet these 
challenges and to seize this opportunity.
                                 ______
                                 
             Appendix A--DIRECTV and DISH Network Response
Introduction and Summary
    DIRECTV, LLC (``DIRECTV'') and DISH Network L.L.C. (``DISH'') 
respectfully submit these joint responses to the Committee's written 
questions. We applaud the Committee's bipartisan efforts to establish a 
broad and thoughtful discussion of pro-competition, pro-consumer 
reforms in concert with the reauthorization of the Satellite Television 
Extension and Localism Act of 2010 (``STELA'').
    Together, our two companies serve over 34 million pay-TV 
subscribers and are the second and third-largest pay-TV companies in 
the U.S. We also are the only respondents that: (1) serve every 
community in the United States, including those in the most rural 
areas; (2) in the case of DISH, carry every single eligible local 
broadcaster in all 210 designated market areas (``DMAs''); and (3) rely 
directly on STELA to provide service to our subscribers.
    In our answers to the Committee's questions, we call upon Congress 
to:

   Stop local programming blackouts;

   Put an end to drastic retransmission consent rate hikes; and

   Ensure that the most rural households in the U.S. have 
        access to the same network programming as urban and suburban 
        households.

    In support of these principles, we advocate specific measures to 
amend current law, including:

   Authorizing the FCC to impose baseball-style arbitration and 
        a standstill so the programming stays up while the parties 
        arbitrate their dispute; or, alternatively, permitting the 
        importation of distant signals during retransmission consent 
        disputes.

   Stipulating specific, anti-consumer actions that would fail 
        the ``good faith'' requirement.

   Prohibiting joint sales agreements and other collusive 
        methods used by broadcasters.

   Updating the definition of ``unserved household'' to reflect 
        how Americans actually receive over-the-air broadcast signals 
        today, as opposed to how they did decades ago.

   Prohibiting broadcaster blocking of online content to the 
        broadband subscribers of a multichannel video programming 
        distributor (``MVPD'') during a dispute with that MVPD.

   Encouraging the unbundling of broadcast programming from 
        other programming, both at the wholesale and retail levels.

   Permanently reauthorizing STELA.

    The time for action is now. The current system of retransmission 
consent, established by Congress over 20 years ago in the 1992 Cable 
Act, gives each ``Big Four'' broadcast station a monopoly in its local 
market. While it may have been a fair negotiation when it was one cable 
company against one broadcaster, today the local broadcaster holds all 
of the cards and plays multiple MVPDs off of each other in any given 
market. Ultimately, it is the American consumer who suffers.
    Broadcasters abuse their retransmission consent rights during 
negotiations, using brinksmanship tactics and blackouts to extract 
ever-greater fees from MVPDs, with no end in sight. Blackouts happen 
when companies like DIRECTV and DISH try to fight back and reject 
broadcasters' unreasonable price demands, which often involve rate 
increases of several hundred percent. Retransmission consent fees 
raised $758 million for broadcasters in 2009. They hit $3.3 billion in 
2013. They are expected to reach $7.6 billion in 2019.
    In 2013, there were 127 broadcaster blackouts, compared with 96 
blackouts in 2012, 51 blackouts in 2011, and 12 blackouts in 2010. 
Thus, the number of blackouts increased over one thousand percent since 
Congress passed STELA. These numbers do not even include all of the 
near-misses, which are equally disruptive to the consumer experience. 
Compounding the injury, the timing of many blackouts coincides with 
marquee events like the World Series or the Oscars.
    It is time for Congress to act, and STELA reauthorization presents 
the perfect vehicle. Every five years Congress updates the law to 
account for changes in the marketplace, technology, and consumer 
demand. It should continue to make updates and improvements to the law 
that will benefit consumers.
I. STELA-Specific Issues:
(1) Should Congress reauthorize STELA? If so, for how long?

        Yes, permanently.

        More than 1.5 million satellite subscribers--many of them in 
        the most rural areas of the country--depend on these provisions 
        in order to receive distant signals. Were Congress not to 
        reauthorize STELA, these subscribers would lose access to TV 
        service that most Americans take for granted.

        Some have suggested that private licensing could take the place 
        of STELA. That may be true under the comprehensive deregulatory 
        approach championed in the Senate last Congress by then-Senator 
        Jim DeMint (R-SC) and Rep. Scalise (R-LA), which would 
        eliminate nearly all regulation of broadcast television, 
        including the enormous regulatory benefits enjoyed by 
        broadcasters. But nobody seriously contends that, if Congress 
        were to eliminate STELA's distant signal provisions only, 
        private licensing would replace them. Even NAB, which has 
        opposed these provisions for decades, does not believe this.\1\
---------------------------------------------------------------------------
    \1\ United States Copyright Office, ``Section 302'' Report at 71-72 
(2011), available at http://www.copyright.gov/reports/section302-
report.pdf (``NAB concluded that given the overwhelming economic 
importance to the station of appealing to viewers in its own market as 
opposed to cable or satellite subscribers in some distant market, there 
is little likelihood that stations would adjust their existing 
licensing models for broadcast programming specifically to accommodate 
the programming preferences of a distant cable operator or satellite 
carrier. NAB also stated that there is no incentive for a broadcaster 
to undertake the additional cost and administrative burden of 
negotiating for additional rights in order to be able to sublicense all 
of its station's programs to cable operators or satellite carriers 
serving subscribers in distant markets.'') (internal citations 
omitted).

        The distant signal provisions must be renewed by Congress in 
        order for a largely rural segment of the American population to 
        receive the same broadcast network programming as the rest of 
        the American populace. In other words, were Congress not to 
        renew STELA, distant signals would disappear, depriving rural 
        Americans of a lifeline to broadcast network programming and 
        eliminating any chance of watching a network station in 
        ``short'' markets, which do not have a station affiliated with 
---------------------------------------------------------------------------
        that network.

        A permanent reauthorization would establish parity between 
        satellite and cable, since the cable statutory license does not 
        expire. We see no reason why satellite subscribers should live 
        with the threat of losing their service when cable subscribers 
        do not. Barring permanent reauthorization, however, Congress 
        should extend STELA for as long as possible.

(2) Members of the Committee have heard from constituents who are 
unable to watch instate broadcast TV programming. Under Section 614(h) 
of the Communications Act, the Federal Communications Commission (FCC) 
has the power to modify Designated Market Areas (DMAs) for broadcast TV 
carriage on cable systems. Should the FCC have a similar power with 
respect to satellite pay TV providers to address DMA issues? Are there 
other ways to address these issues?

        Congress should consider this solution along with others.

        Satellite subscribers tell DIRECTV and DISH the same things 
        they tell Members of Congress. They do not want to be told 
        which ``local'' stations they must watch. They want choices. 
        They also want to be able to watch news and sports that 
        originate from within their own states.

        Congress could address this issue in many ways. One legislative 
        approach would be to permit satellite carriers to provide in-
        state stations to so-called ``orphan counties,'' which are 
        counties that receive no in-state broadcasting. Permitting the 
        FCC to modify DMAs holds some promise as well.

        Broadcasters occasionally suggest that they can ``solve'' the 
        in-state local news problem by offering private copyright 
        licenses for local news. This, however, results in a product 
        that consumers do not want--a ``channel'' that offers a blank 
        screen for as many as 23 hours a day. We know this because 
        DIRECTV offers such a product in Arkansas. Very few people 
        watch it. People want to watch channels with around-the-clock 
        programming, not blank screens.

        That said, we must present two notes of caution. First, DIRECTV 
        and DISH have each spent hundreds of millions of dollars on 
        spot-beam satellites and ground equipment based on the Nielsen 
        DMA boundaries. We may not be able to adjust our channel 
        offerings to implement changes that Congress or the FCC might 
        enact, and some of this costly capacity might have to fall into 
        disuse.

        Second, for this reason, DIRECTV and DISH urge Congress to 
        avoid single market ``fixes,'' as it did when it passed STELA 
        five years ago. We can comply more easily with systematic 
        changes than with one-off changes to individual local markets.

        A general remedy proposed by DIRECTV and DISH would give 
        subscribers the option to purchase station signals from an in-
        state DMA if they first receive local service. We would 
        compensate the in-state broadcaster pursuant to the Section 119 
        distant signal license. To the claims from broadcasters that 
        this would reduce local station viewership, we would note that 
        (a) a subscriber's local stations still would be on the channel 
        lineup, and (b) if local programming is as important and 
        compelling as local broadcasters claim, then no material 
        decrease in viewership should result.

(3) One of the expiring provisions in STELA is the obligation under 
Section 325(b) of the Communications Act for broadcast television 
stations and multichannel video programming distributors (MVPDs) to 
negotiate retransmission consent agreements ``in good faith.'' Should 
the Congress modify this obligation or otherwise clarify what it means 
to negotiate retransmission consent in good faith? If so, how?

        Yes. Congress should clarify and expand the ``good faith'' 
        rules.

        Congress has already instructed the FCC to adopt and enforce 
        rules that ``prohibit a television broadcast station that 
        provides retransmission consent from . . . failing to negotiate 
        in good faith.'' \2\ Such rules are supposed to provide that a 
        broadcaster violates its good faith duty when its demands 
        include terms or conditions not based on competitive 
        marketplace considerations.\3\ In implementing this mandate, 
        the FCC has created a two-prong standard: a list of specific 
        acts and practices that are per se a violation of good faith, 
        and a totality of the circumstances test.\4\ While the second 
        prong--the totality of the circumstances--gives the agency some 
        flexibility to consider broader types of anti-competitive 
        conduct that we have observed, to date it has not been used in 
        this way. Moreover, the FCC has interpreted the law as not 
        contemplating an ``intrusive role'' for the agency.\5\ As a 
        result, the FCC has never found a violation of the good faith 
        requirement.
---------------------------------------------------------------------------
    \2\ 47 U.S.C. Sec. 325(b)(3)(C)(ii).
    \3\ Id.
    \4\ 47 C.F.R. Sec. 76.65(b)(1)-(2).
    \5\ Amendment of the Commission's Rules Related to Retransmission 
Consent, 26 FCC Rcd. 2718,  20 (2011).

        Broadcasters plainly do not consider the good faith rules an 
        impediment to their behavior. In such circumstances, it should 
        surprise no one that broadcaster blackouts are accelerating and 
        retransmission consent fees are increasing at an alarming rate, 
---------------------------------------------------------------------------
        driving up consumer prices.

        Congress should thus clarify and expand the good faith 
        requirement. At a minimum, the requirement should prohibit the 
        following:

     Brinkmanship tactics, such as threatening programming 
            blackouts designed to exploit a network-affiliated 
            broadcast station's already substantial market power. (We 
            discuss ideas for ``blackout relief'' below in response to 
            Question II.1.b.1.)

     Withholding of retransmission consent from an MVPD without 
            granting that provider relief to permit importation of 
            same-network distant signals throughout the market until a 
            carriage agreement has been reached.\6\ (This also falls 
            within our discussion of ``blackout relief.'')
---------------------------------------------------------------------------
    \6\ For satellite carriers, such relief would take the form of 
waivers to the ``no-distant-where-local'' and ``unserved household'' 
rules. 47 U.S.C. Sec. Sec. 339(a)(2)(E), (c)(2). For cable operators, 
such relief would take the form of waivers of the network 
nonduplication and syndicated exclusivity rules. 47 C.F.R. Sec. 76.92 
et seq.

     Giving a network the right to negotiate or approve a 
            station's retransmission consent agreements or any major 
            term in such agreements. (We discuss joint retransmission 
            consent negotiation in more detail below in response to 
---------------------------------------------------------------------------
            Question II.1.b.ii.)

     Granting another non-commonly owned station or station 
            group the right to negotiate or approve a station's 
            retransmission consent agreements. (We discuss joint 
            retransmission consent negotiation in more detail below in 
            response to Question II.1.b.ii.).

     Demanding that an MVPD not carry legally available out-of-
            market stations (e.g., distant signals or significantly 
            viewed signals), or substantially burdening such carriage, 
            as a condition of retransmission consent.

     Deauthorizing carriage immediately prior to or during 
            marquee events, such as the Super Bowl, World Series, or 
            Academy Awards. (We discuss the so-called ``sweeps 
            provisions'' in more detail below in response to Question 
            II.1.b.v.)

     Refusing to give a stand-alone offer for retransmission 
            consent when requested by an MVPD, or giving a stand-alone 
            offer so high as to not constitute a bona fide offer. (We 
            discuss stand-alone offers in more detail below in response 
            to Question II.1.b.vi.)

     Imposing a blackout in any DMA where the broadcaster has 
            failed to provide an adequate over-the-air signal to a 
            materially large number of subscribers.

        None of these activities ought to be considered consistent with 
        ``competitive marketplace considerations.'' None should be 
        permitted under the good faith standard.

(4) As part of STELA, Congress changed the statutory standard by which 
households are determined to be ``unserved'' by broadcast TV signals. 
Does Congress or the FCC need to take further action to implement this 
previous legislative amendment?

        Yes, further action is necessary. For years, the law specified 
        that households would be considered ``served'' (and thus 
        ineligible for distant signals) if tested or predicted to 
        receive signals of a specified strength using a ``conventional, 
        stationary, outdoor rooftop receiving antenna.'' \7\ (Since the 
        antenna is supposed to be pointed at each station tested, this 
        really means a ``rotating'' antenna, not a ``stationary'' one.) 
        But most Americans do not have rooftop antennas and have not 
        for many decades. People today use indoor antennas. We have 
        consistently argued that the relevant standard should reflect 
        the kinds of equipment actually deployed in the marketplace.\8\
---------------------------------------------------------------------------
    \7\ 17 U.S.C. Sec. 119(d)(10)(A) (2004).
    \8\ See, e.g., Letter from DIRECTV, Inc. and DISH Network, L.L.C., 
FCC EB Docket No. 06-94, (filed Nov. 4, 2010) (providing CEA figures 
related to antenna purchases as part of technical submission); 
Satellite Delivery of Network Signals to Unserved Households for 
Purposes of the Satellite Home Viewer Act, 14 FCC Rcd. 2654,  52 
(1999) (citing comments of satellite providers urging an indoor antenna 
standard, but citing to then-current statutory language specifying the 
use of outdoor rooftop antennas).

        Moreover, just before the digital transition, the FCC ruled 
        that broadcasters did not have to replicate their analog 
        ``Grade B'' signal coverage areas with the new, digital 
        broadcast signal contours, increasing the number of households 
        that cannot receive an over-the-air signal using a typical 
---------------------------------------------------------------------------
        indoor digital antenna.

        In response, Congress changed the relevant statutory criteria 
        to refer simply to an ``antenna.'' \9\ Congress removed all 
        prior specifications--``conventional,'' ``stationary,'' 
        ``outdoor,'' and ``rooftop.''
---------------------------------------------------------------------------
    \9\ 17 U.S.C. Sec. 119(d)(10)(A).

        We believe that Congress intended to permit use of indoor 
        antennas as part of the standard. This certainly was our 
        understanding at the time, based on our conversations with 
---------------------------------------------------------------------------
        Members of Congress and Congressional staff.

        The FCC, however, did not construe the deletions in that 
        manner, and decided to leave the ``outdoor rooftop'' criteria 
        unchanged in its rules.\10\ Thus, the predictive model and test 
        still assume use of equipment that almost nobody uses.
---------------------------------------------------------------------------
    \10\ Measurement Standards for Digital Television Signals Pursuant 
to the Satellite Home Viewer Extension & Reauthorization Act of 2004, 
25 FCC Rcd. 16471 (2010) (``2010 Measurement Order''). The FCC 
reasoned: ``the change in statutory language simply affords that 
Commission latitude to consider all types of antennas.'' Id.,  12. It 
concluded that an outdoor antenna was the more appropriate standard 
because (1) it ``has always assumed'' that people who could not receive 
a signal using an indoor antenna would employ an outdoor one; (2) the 
stations' service contours themselves were developed assuming the use 
of outdoor antennas; and (3) it believed that no reliable method for 
indoor testing had then been developed. Id.,  12-14. We are aware of 
no evidence to support the FCC's first ``assumption.'' The FCC's latter 
two arguments have nothing to do with whether subscribers actually use 
outdoor antennas or not. Indeed, the FCC itself noted: ``[W]e remain 
aware and concerned that using the outdoor measurement procedures may 
result in instances where a consumer who either cannot use an outdoor 
antenna or cannot receive service using an outdoor antenna and is not 
able to receive a station's service with an indoor antenna will be 
found ineligible for satellite delivery of a distant network signal.'' 
Id., 21.

        This means that satellite subscribers in rural areas often can 
        be left without access to broadcast network programming. If, 
        for whatever reason, a satellite carrier does not offer a local 
        station, the subscriber often can get no network service at 
        all. She cannot receive local signals because she is too far 
        from the transmitter. And we cannot give her distant signals 
---------------------------------------------------------------------------
        because the FCC test thinks she can receive local signals.

        This occurs far more often than one might think. Last summer, 
        DIRECTV conducted nearly 1,800 signal tests in three local 
        markets, and compared those results to the FCC's predictive 
        model that is intended to predict whether people can receive 
        local signals. As many as two-thirds of those predicted to 
        receive local signals could not actually receive a viewable 
        picture--and this was using a rooftop antenna. If it had been 
        able to conduct indoor antenna tests, the figures would 
        undoubtedly have been much worse still.

        We thus believe that Congress should mandate a change to the 
        standard and give the FCC more unequivocal direction than was 
        issued in STELA.

(5) Are there other technical issues in STELA that have arisen since 
its passage in 2010 that should be addressed in the current 
reauthorization?

        No.
II. General Video Policy Issues
(1) Some have suggested that Congress adopt structural changes to the 
retransmission consent system established under Section 325 of the 
Communications Act (Act). Others have indicated that the retransmission 
consent system is working as Congress intended when it was developed as 
part of the Cable Television Consumer Protection and Competition Act of 
1992.

    (a)  Should Congress adopt reforms to retransmission consent? If 
so, what specific reforms could best protect consumers? If not, why 
not?

        Yes. The retransmission consent rules date from 1992--the same 
        year Wayne's World was released, AT&T introduced the first 
        video phone (for $1,500), and the Washington Redskins won their 
        last Super Bowl.

        The video marketplace has changed beyond recognition since 
        then. But regulation of the retransmission consent regime has 
        not.

        In particular, when Congress created the retransmission consent 
        regime in 1992, it sought to balance the market power of 
        monopoly cable operators against the monopoly power of 
        broadcast network affiliates with exclusive territories. In the 
        ensuing two decades, however, the video programming 
        distribution industry has undergone profound changes. While 
        cable operators still have market power, they are not 
        monopolies in the markets for video distribution. Most 
        consumers can now choose from among three or more 
        distributors--not to mention online video providers. But 
        broadcasters' exclusive territories and the Commission's 
        retransmission consent regime have remained largely unchanged.

        Moreover, broadcasters have increasingly engaged in conduct 
        designed to enhance their bargaining power even beyond what 
        they possessed in 1992. This includes collusion in the 
        negotiation of retransmission consent (we describe this in more 
        detail below in response to Question II.1.b.ii, regarding joint 
        retransmission consent negotiation) and prohibiting the use of 
        their programming as a distant network or significantly viewed 
        station, even though the law allows it.

        Broadcasters have exploited this situation by abusing their 
        retransmission consent rights during negotiations, using the 
        tactics of brinksmanship and blackouts to extract ever-greater 
        fees from MVPDs--this is an escalating problem with no end in 
        sight. 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.

        When MVPDs decline to meet broadcaster's demands, they face the 
        loss of programming for their subscribers. In 2013, there were 
        127 broadcaster blackouts, compared with 96 blackouts in 2012, 
        51 blackouts in 2011, and 12 blackouts in 2010.

        The result? Consumers are harmed no matter what the MVPD 
        chooses. Either the MVPD acquiesces, in which case subscribers 
        pay higher prices for programming. Or the MVPD resists, in 
        which case the subscriber loses key programming. Consumers also 
        may be forced by blackouts to switch from their first choice 
        provider. This, in turn, can cause the loss of their chosen 
        package, pricing, and DVR recording history, not to mention the 
        hassle of transferring billing, equipment and set up to their 
        second (or third) choice provider. Broadcaster blackouts, 
        moreover, affect all MVPDs. Thus, a consumer who switches MVPDs 
        in order to obtain broadcast programming may find herself 
        needing to do so again within a short time.

        As DISH has noted previously, rural households suffer 
        disproportionately from broadcaster blackouts.\11\ Moreover, 
        broadcasters in many cases simply have failed to provide an 
        adequate over-the-air signal to reach many rural communities. 
        As discussed above in more detail below in response to Question 
        I.4, DIRECTV has found that as many as two-thirds of those 
        predicted to receive local signals could not actually receive a 
        viewable picture.
---------------------------------------------------------------------------
    \11\ See Comments of DISH Network, MB Dkt. No. 10-71 at 11-14 
(filed May 27, 2011). These comments, along with the Comments of 
DIRECTV, LLC, MB Dkt. No. 10-71 (filed May 27, 2011) (``DIRECTV 
Retransmission Consent Comments'') are attached hereto as Exhibit B.

Examples of Communities Underserved by Big Four Broadcast Station Signal
                                  \12\
------------------------------------------------------------------------
                                        ``Big Four''
                       Community           Digital        Missing ``Big
       DMA              Affected          Broadcast      Four'' Networks
                                      Signals Received
------------------------------------------------------------------------
Denver, CO         Steamboat          None              ABC, CBS, FOX,
                    Springs, CO                          NBC
Fargo-Valley       Cavalier, ND       WDAZ-TV (ABC);    CBS, NBC
 City, ND                              KNRR (FOX)
Medford-Klamath    Lakeview, OR       KOTI (NBC)        ABC, CBS, FOX
 Falls, OR
New York, NY       Ellenville, NY     WRGB (CBS)        ABC, FOX, NBC
Phoenix, AZ        Globe, AZ          KPNX (NBC); KPHO- ABC, FOX
                                       TV (CBS)
Spokane, WA        Lewiston, ID       KLEW-TV (CBS);    ABC, FOX
                                       KHQ-TV (NBC)
------------------------------------------------------------------------

        Clearly, then, Congress should act.
---------------------------------------------------------------------------
    \12\ Id. at 13.

        We discuss the six proposals cited by the Committee, along with 
        several others, immediately below. (Please note that we 
        discussed some of these reforms in the context of the FCC's 
        ``good faith negotiation'' rules above in response to Question 
---------------------------------------------------------------------------
        I.3.)

    (b)  Please comment on the following possible reforms that have 
been suggested by various parties:

    (i)  Providing the FCC authority to order interim carriage of a 
broadcast signal or particular programming carried on such signal (and 
the circumstances under which that might occur).

        We strongly support this proposal. We think of this idea as one 
        form of ``blackout relief'' for subscribers. It strikes us as 
        the single most important thing Congress could do in the STELA 
        reauthorization.

        One can agree with the MVPD in a particular retransmission 
        consent fight. Or one can agree with the broadcaster. But we 
        should all be able to agree that the subscriber should not be 
        put in the middle. Subscribers have done nothing wrong. All 
        they want is to watch television from the MVPD that they have 
        chosen.

        Blackout relief would let them do just that. It would require 
        the FCC to order interim carriage during all blackouts. And it 
        would provide that subsequent agreements will govern carriage 
        back to the date of the blackout, so neither party is 
        advantaged by the interim carriage.

        Better yet would be to combine interim carriage with baseball-
        style arbitration. This would keep the programming up so 
        consumers do not suffer, and ensure that the broadcasters are 
        fairly compensated through a formal arbitration process.

        Blackout relief works best if it is mandatory and applies 
        automatically. Asking the FCC to order interim carriage during 
        some blackouts would be costly and time consuming, and would 
        inappropriately put the focus on the behavior of MVPDs and 
        broadcasters, when the focus should be on the harm caused to 
        the consumer.

        Blackout relief could also take the form of changes to the 
        distant signal rules. Congress should permit (or direct the FCC 
        to permit) pay TV providers to deliver distant signals during 
        blackouts. While less perfect than full interim carriage, this 
        distant signal fix would allow us to provide subscribers with 
        an imperfect substitute during a local broadcaster's blackout, 
        thereby softening the blow to consumers. Subscribers in such 
        circumstances would continue to have access to a network 
        affiliate but would not have local news, weather and sports.

        For example, if a broadcaster were to black out the local 
        Charleston-Huntington, West Virginia FOX station, DIRECTV and 
        DISH would be able to temporarily bring in an out-of-market 
        station, such as the Lexington, Kentucky FOX station (with the 
        MVPD paying the compulsory copyright fee for each subscriber). 
        The replacement station would not be a perfect substitute for 
        the blacked-out local station, since consumers would not have 
        their local content, but at least some measure of protection 
        would be extended to affected consumers by providing access to 
        network programming. Additionally, this fix would level the 
        playing field a bit in the negotiating process and make it more 
        likely that the broadcaster would not pull its signal in the 
        first place. Broadcasters would be introduced to some of the 
        same competitive pressures that satellite carriers and cable 
        operators face every day, and consumers would benefit as a 
        result.

        These forms of blackout relief would not ``interfere'' with the 
        ``free market,'' as broadcasters have argued, for the simple 
        reason that the market is not free; it is skewed by the legal 
        monopolies and regulatory benefits enjoyed by the four 
        networks. The retransmission consent ``marketplace'' is one 
        littered with invasive government rules that favor broadcasters 
        and disfavor MVPD subscribers. A list of these appears as 
        Exhibit A. Every single one of these rules gives special 
        privileges to broadcasters. These privileges do not apply to 
        pay-TV networks (such as CNN or ESPN), Internet programming, or 
        any other kind of video product other than broadcasting.

        In today's highly regulated market, however, broadcasters 
        cannot reasonably object to protecting subscribers through 
        blackout relief.

        If Congress truly believes that broadcasters are special, and 
        that there should be a ``social contract between the government 
        and broadcasters to serve the `public interest' (e.g., provide 
        `local' programming and a `diversity of voices' to as many 
        Americans as possible),'' \13\ it should ensure that consumers 
        do not lose the benefit of this bargain.
---------------------------------------------------------------------------
    \13\ Phoenix Center, ``An Economic Framework for Retransmission 
Consent,'' Policy Paper No. 47 at 1 (Dec. 2013).

    (ii)  Prohibiting joint retransmission consent negotiations for 
---------------------------------------------------------------------------
multiple TV stations at the same time.

        Of all the reforms presented to Congress, this should be the 
        easiest to implement.

        Broadcasters should not be able to evade FCC rules through 
        legal tricks. Yet this is exactly what broadcasters are doing 
        today.

        The FCC's media ownership rules generally prohibit one entity 
        from owning more than one ``big four'' network affiliate in a 
        market.\14\ And they generally prohibit excessive concentration 
        of broadcast ownership across markets.\15\ Thus, collusive 
        joint retransmission consent negotiation should already be 
        prohibited.
---------------------------------------------------------------------------
    \14\ 47 C.F.R. Sec. 73.3555(b).
    \15\ Id. Sec. 73.3555(e).

        Broadcasters, however, increasingly evade these rules through 
        ``sidecar'' arrangements such as JSAs, SSAs, and similar 
        endeavors. DIRECTV's own internal records show that in nearly 
        half of the markets in which it carries local signals, it must 
        negotiate with a party controlling multiple affiliates of the 
        ``Big Four'' networks. This does not even count the increasing 
        practice of networks insisting on negotiating or approving 
        retransmission consent on behalf of their allegedly independent 
---------------------------------------------------------------------------
        affiliates.

        Nobody carries more broadcasters than DIRECTV and DISH. We can 
        assure you that these sidecar arrangements harm viewers. They 
        lead to higher prices (as much as 161 percent higher, according 
        to one estimate).\16\ And they by definition cause greater harm 
        when blackouts occur.
---------------------------------------------------------------------------
    \16\ William P. Rogerson, Coordinated Negotiation of Retransmission 
Consent Agreements by Separately Owned Broadcasters in the Same Market 
(May 27, 2011), filed as an attachment to the Comments of American 
Cable Association, MB Docket No. 10-71 (filed May 27, 2011); William P. 
Rogerson, Joint Control or Ownership of Multiple Big Four Broadcasters 
in the Same Market and Its Effect on Retransmission Consent Fees, MB 
Docket No. 10-71 (May 18, 2010), filed as an attachment to the Comments 
of the American Cable Association, MB Docket No. 10-71 (filed May 18, 
2010).

        This is why the Department of Justice recently submitted a 
        filing at the FCC that highlighted the harms of these tactics 
        and urged the FCC to require the broadcast ownership rules to 
        treat any two stations participating in such an arrangement as 
        being under common ownership.\17\ DOJ found that, ``[g]iven the 
        extensive control over pricing decisions inherent'' in such 
        arrangements, they should be attributable under the FCC's 
        ownership rules.\18\ And it stated that ``failure to treat JSAs 
        and similar arrangements as attributable interests could 
        provide opportunities for parties to circumvent any competitive 
        purposes of the multiple ownership limits.'' \19\
---------------------------------------------------------------------------
    \17\ Ex Parte Submission of the United States Department of 
Justice, MB Docket Nos. 09-182, 07-294, and 04-256 (filed Feb. 20, 
2014).
    \18\ Id. at 15-16.
    \19\ Id. at 16 (internal citations omitted).

        The FCC Chairman recently proposed to generally prohibit joint 
        retransmission consent negotiations between non-commonly owned 
        stations. The House Commerce Committee's discussion STELA 
---------------------------------------------------------------------------
        reauthorization draft contains a similar approach.

        We support both of these proposals. Some broadcasters point to 
        instances in which SSAs and JSAs have led to more local news, 
        or joint ownership of a news helicopter, or other public goods. 
        We do not object to such arrangements. Our primary concern is 
        when broadcasters collude on external functions--particularly 
        retransmission consent.

        Other broadcasters say that they need to negotiate 
        retransmission consent on behalf of more stations in order to 
        ensure their continued ability to offer local news and 
        information. If they really believe this, they should make the 
        case to Congress and the FCC to relax the ownership limits. 
        Unless and until they do so, they should not be allowed to rely 
        on legal tricks to evade the Commission's rules and harm 
        consumers.

        Finally, although the Committee does not ask this question 
        directly, the retransmission consent problems reflect a larger 
        pattern of network dominance over affiliates in the broadcast 
        markets. DIRECTV, for example, has argued that network ``rights 
        of refusal'' or even outright negotiation on behalf of 
        ``independent'' affiliates should be considered attributable 
        under the FCC's ownership rules and violations of its good 
        faith rules.\20\
---------------------------------------------------------------------------
    \20\ DIRECTV Retransmission Consent Comments at 19.

        As part of STELA reauthorization, Members of the Committee 
---------------------------------------------------------------------------
        might ask their local broadcasters:

     Do you think your network has demanded too much control 
            over retransmission consent negotiations and programming 
            time?

     Do you think too much of your station's retransmission 
            consent fees are sent back to network headquarters rather 
            than to your local station to support local news, weather, 
            sports, and public affairs programming?

        We believe that candid answers to these questions would stand 
        in contrast to NAB's claim that the current retransmission 
        consent system does not require reform.

    (iii)  Mandating refunds for consumers in the case of a programming 
blackout (and apportioning the ultimate responsibility for the cost of 
such refunds).

        Mandatory refunds would not be pro-consumer as they might 
        result in the elimination of current consumer benefits and 
        flexibility.

        The proposal stems from broadcast claims that subscribers 
        cannot switch providers during blackouts because long-term 
        satellite service agreements impose ``early termination fees.'' 
        This, however, is only half of the story.

        To begin with, DIRECTV and DISH subscribers are never required 
        to enter into a service agreement. They can choose to do so if 
        they would like to lower the up--front cost of equipment and 
        installation. Alternatively, they can pay the full cost of 
        equipment and installation when they commence service and enter 
        into no service commitment.

        We offer service agreements because we invest as much as $1,000 
        to provide service to a new residential subscriber. This 
        includes the full-price of installation and equipment. 
        Subscribers choose service agreements because it makes more 
        sense for them to pay these costs over the long term than all 
        at once.

        And every service agreement clearly states that programming and 
        channel lineups are subject to change and are not cause for 
        either party to end the agreement.

        Were Congress to mandate refunds during blackouts, we would 
        find ourselves less able to offer long-term service agreements. 
        This, in turn, would force subscribers to pay the full price of 
        equipment and installation up front.

        Such a measure would only serve to increase broadcaster 
        leverage in retransmission disputes, when the scales are 
        already so tipped in their favor. This would make such disputes 
        more common. And it would lead broadcasters to demand even 
        higher prices.

        Perhaps broadcasters would agree to amending the law so that 
        any broadcaster that blacks out its signal during a 
        retransmission consent dispute must credit all impacted 
        subscribers with the amount of retransmission consent fees paid 
        retroactively to the broadcaster during that period. This 
        might: deter the broadcaster from blacking out its programming 
        in the first place; incent the broadcaster to reach an 
        agreement quickly when it does black out a signal; and offer 
        some financial compensation subscribers who lose service 
        through no fault of their own. DIRECTV and DISH would gladly 
        credit the full amount of such restitution to subscribers upon 
        receipt from the broadcaster.

    (iv)  Prohibiting a broadcast television station from blocking 
access to its online content, that is otherwise freely available to 
other Internet users, for an MVPD's subscribers while it is engaged in 
a retransmission consent negotiation with that MVPD.

        This, too, is a wise reform, as illustrated by the fact that 
        CBS recently blocked access to online content by Time Warner 
        Cable's broadband subscribers nationwide during the 
        retransmission dispute between the two. Such blocking harms 
        MVPD video subscribers in the same way that blackouts harm them 
        more generally. But it also harms others. Some people have no 
        MVPD video service and rely on the broadband connection to get 
        video content. Others get video from one provider and broadband 
        from another. Yet they can be caught up in a dispute and denied 
        Internet content even though they actually are still paying for 
        a video service that includes the broadcaster's signal.

        Congress should prohibit such conduct outright. At a minimum, 
        it should clarify that website blocking against such viewers 
        constitutes a per se violation of the good faith rules.

    (v)  Eliminating the ``sweeps'' exception that prevents MVPDs from 
removing broadcast TV channels during a sweeps period, or alternatively 
extending that exception to prevent broadcasters from withholding their 
signals or certain programming carried on such signals under certain 
circumstances.

        To begin with, neither DIRECTV nor DISH has ever blacked out 
        broadcast TV channels. Broadcasters black out channels by 
        withholding consent.

        This fix constitutes a matter of fairness and creates parity 
        between MVPDs and broadcasters. One could imagine a fair set of 
        retransmission consent rules containing no restrictions on the 
        timing of disputes. (The DeMint/Scalise approach does this, as 
        does the House Energy and Commerce Committee discussion draft.)

        Even better from a consumer perspective would be a prohibition 
        on blackouts both during sweeps weeks (which are important to 
        broadcasters) and prior to and during marquee events such as 
        the Super Bowl, World Series, or Academy Awards (all of which 
        are important to viewers and have been used at one time or 
        another by broadcasters as leverage to receive higher fees). 
        Such a rule could be formulated both by referencing a limited 
        number of specific events or in terms of ratings or some other 
        parallel metric.

        Under the existing formulation, however, the government 
        protects only one side's economic interests--the broadcasters'. 
        This ultimately harms consumers, and certainly has no place in 
        allegedly ``free market'' negotiations.

    (vi)  Prohibiting retransmission consent agreements that are 
conditioned on the carriage by an MVPD of non-broadcast programming or 
non-broadcast channels of programming affiliated with the broadcast 
license holder.

        Congress should prohibit the forced tying (whether explicit or 
        de facto) of affiliated content as a condition of gaining 
        access to a station's signal. It should not prohibit all offers 
        of bundled programming.

        Forced tying most often arises in negotiations with the large 
        station groups affiliated with national networks, which use 
        their ``must have'' broadcast programming as negotiating 
        leverage to gain carriage for new and/or unpopular cable 
        channels affiliated with the corporate parent.

        Refusal to even discuss carriage of the station's Big Four 
        network signal separately from carriage of other tied 
        programming introduces an additional element of cost and 
        complexity to the negotiation, and thereby increases the risk 
        that the parties will reach an impasse. Such an outcome does 
        not serve the public interest.

        To be clear, we are not saying that Congress should prohibit 
        all offers that bundle retransmission consent with carriage of 
        additional content. Indeed, in many cases, we have found the 
        terms and conditions of a bundled offer attractive. If, 
        however, an MVPD requests an offer for retransmission consent 
        on a stand-alone basis, there is no reason why the broadcaster 
        should refuse to honor that request.

        In order to be effective, such a rule would have to distinguish 
        between bona fide and sham offers for stand-alone programming. 
        We do not think this would be difficult to police in practice. 
        A demand for significant price increases over the prior 
        agreement if the distributor purchases retransmission on a 
        stand-alone basis would be an example of a sham offer.

        The FCC has a similar remedy with respect to stand-alone 
        broadband offerings by Comcast in connection with the Comcast/
        NBCU merger. There, the FCC required Comcast to offer stand-
        alone broadband service ``at reasonable market-based prices'' 
        and ``on equivalent terms and conditions'' to the most 
        comparable bundled offering.\21\
---------------------------------------------------------------------------
    \21\ Comcast Corp., General Electric Co., and NBC Universal, Inc. 
26 FCC Rcd. 4238, app. A, Sec. IV.D (2011).

(2) Should Congress maintain the rule that cable subscribers must buy 
the broadcast channels in their local market as part of any cable 
package? If the rule is eliminated, should an exception be made for 
---------------------------------------------------------------------------
non-commercial stations?

        We are not cable operators and are not subject to this 
        requirement.

(3) Should Congress maintain the rule that cable systems include 
retransmission consent stations on their basic service tiers?

        We are not cable operators and are not subject to this 
        requirement.

(4) Section 623 of the Act allows rate regulation of cable systems 
unless the FCC makes an affirmative finding of ``effective 
competition.'' Should Congress maintain, modify, or eliminate these 
provisions?

        We are not cable operators and are not subject to this 
        requirement.

(5) Should Congress repeal the set-top box integration ban? If Congress 
repeals the integration ban, should Congress take other steps to ensure 
competition in the set-top box marketplace both today and in the 
future?

        We are not cable operators and are not subject to this 
        requirement.

(6) Should Congress limit the use of shared services agreements (SSAs) 
and joint sales agreements (JSAs) by broadcast television ownership 
groups, and if so, under what circumstances?

        Please see our response to question II.b.ii, in which we 
        discuss such arrangements in the context of joint 
        retransmission consent negotiations.

(7) Should Congress act in response to concerns that the increasing 
cost of video programming is the main cause behind the consistent rise 
in pay TV rates and that programming contracts contribute to the lack 
of consumer choice over programming packages? If so, what actions can 
it take?

        From our perspective, this question sets forth the very impetus 
        for retransmission consent reform--skyrocketing broadcaster 
        price increases resulting in more and more disputes and 
        blackouts and higher rates for our subscribers. As described in 
        our response to Question II.2.b.vi, moreover, we believe that 
        the very worst instances of tying involve broadcast 
        programming.

        Programming costs are the single largest input cost for both 
        DIRECTV and DISH. They cost even more than the satellites we 
        use to provide our services. As such, they have a direct impact 
        on what subscribers pay for service.

        Of course, we are concerned about price increases and tying for 
        all programming, not just broadcast programming. But, as 
        described above, broadcast prices have increased much faster 
        than those for any other type of programming--even sports 
        programming.

        We think broadcast programming has become the most problematic 
        kind of programming because only broadcast programming is 
        subject to a thicket of government rules that favor one side 
        over the other. Moreover, STELA itself relates to broadcast 
        programming. While we welcome Congressional efforts to control 
        runaway programming prices more broadly, it makes sense to 
        focus on the most acute problems in the video marketplace as 
        part of STELA reauthorization.

(8) With consumers increasingly watching video content online, should 
Congress extend existing competitive protections for the traditional 
television marketplace to the online video marketplace? If so, what 
types of protections?

        We are still analyzing whether Congress should extend existing 
        competitive protections for the traditional television 
        marketplace to the online video marketplace, and have not yet 
        formulated an opinion on this.

(9) The Consumer Choice in Online Video Act, S. 1680, is one approach 
to fostering a consumer-centric online video marketplace. Are there 
elements of that bill that should be considered in conjunction with the 
STELA reauthorization?

        S. 1680 contains several provisions helpful to consumers. In 
        particular, provisions prohibiting Internet blocking during 
        retransmission consent disputes could be beneficial. So would 
        the provisions encouraging broadcasters and upstream copyright 
        holders to provide copyright licensing for online delivery.

        On the other hand, several provisions appear to impose 
        additional, unwarranted regulation on MVPDs. One such provision 
        would prohibit many exclusive arrangements--even those between 
        distributors without market power and unaffiliated programmers. 
        Such arrangements have enabled both of our companies to compete 
        against cable operators that still maintain dominant market 
        share in most of America.

(10) Would additional competition for broadband and consumer video 
services be facilitated by extending current pole attachment rights to 
broadband service providers that are not also traditional 
telecommunications or cable providers?

        Our two companies do not use pole attachments at this time but, 
        as stated above, we generally support regulatory parity.

(11) Would additional competition for broadband and consumer video 
services be facilitated by extending a broadcaster's carriage rights 
for a period of time if they relinquish their spectrum license as part 
of the FCC's upcoming incentive auction?

        We generally support efforts to facilitate the most spectrum 
        possible made available in the incentive auctions. That said, 
        we think that broadcast carriage rights should not be expanded 
        as part of any incentive auction.

(12) Are there other video policy issues that the Congress should take 
up as part of its discussions about the STELA reauthorization?

        We are unaware of any such issues at this time, other than as 
        noted above.
                                 ______
                                 
  Appendix B--History of the Satellite Home Viewer Act and Amendments
            A Brief History of the Satellite Home Viewer Act

1. Satellite Home Viewer Act of 1988, Pub. L. No. 100-667 (``SHVA'')

   Created distant signal statutory license. (17 U.S.C. 
        Sec. 119)

   Limited distant signal service to ``unserved'' households--
        defined as households that, among other things, had not 
        subscribed to a cable system within the previous 90 days.
2. Satellite Home Viewer Act of 1994, Pub. L. No. 103-369 (``SHVA'')

   Created ``challenge'' procedures for networks to dispute 
        eligibility of households, and measurement procedures for 
        satellite carriers to demonstrate eligibility.

   Created ``loser pays'' formulation for signal measurement.
3. Satellite Home Viewer Improvement Act of 1999, Pub L. No. 106-113, 
        App. I. (``SHVIA'')

   Created new statutory license for local into local 
        transmissions. (17 U.S.C. Sec. 122)

   Created Communications Act ``carry-one, carry-all'' rules 
        for satellite. (47 U.S.C. Sec. 338)

   Subjected satellite local carriage to retransmission 
        consent. (47 U.S.C. Sec. 325)

   Created Communications Act distant signal rules. (47 U.S.C. 
        Sec. 339)

   Changed definition of ``unserved household'' in distant 
        signal license to remove reference to cable subscription.

   Created waiver process by which local stations could permit 
        distant signals to be delivered to houses otherwise ineligible.

   Created rules governing distant signal eligibility based on 
        predictive model and measurement, replacing prior ``challenge'' 
        procedure.

   Created ``C-band'' and ``Grade B doughnut'' exemptions 
        permitting distant signal service to a limited number of 
        longtime subscribers.

   Created RV and Truck eligibility.

   Permitted carriage of national PBS feed.

   Conditioned copyright license on compliance with FCC 
        carriage rules.

   Subjected satellite carriage of distant signals to sports 
        blackout rules.

   Subjected satellite carriage of nationally distributed 
        superstations to syndicated exclusivity and network 
        nonduplication rules.

   Created extensive complaint procedure for allegations of 
        provisions of distant signals to ineligible subscribers.
4. Satellite Home Viewer Extension and Reauthorization Act of 2004, 
        Pub. L. No. 108-447 (``SHVERA'')

   Permitted satellite carriage of ``significantly viewed'' 
        signals.

   Created ``no-distant-where-local'' formulation, including 
        separate waiver provisions.

   Created license for limited local retransmission of low-
        power TV signals.

   Permitted carriage of non-network stations in commercial 
        establishments.

   Created privacy rights for satellite subscribers 
        corresponding to those that had applied to cable subscribers.

   Prohibited ``two-dish'' arrangement under which DISH 
        required subscribers to obtain second satellite dish to see 
        lesser-viewed local stations.

   Created special rules requiring carriage of all local 
        signals in Alaska, and prohibiting out-of-state distant signals 
        in Alaska.

   Provided for expedited DOJ consideration of voluntary 
        agreements to provide local carriage in additional markets.

   Permitted carriage of distant and local digital signals, and 
        created separate ``digital white area.''

   Created special exemptions for carriage of in-state signals 
        in certain markets.

   Created ``testing waivers'' under which satellite could not 
        deliver distant digital signals to stations experiencing 
        problems completing the digital transition.

   Permitted satellite carriers to rely entirely on predictive 
        modeling and to refuse to engage in on-site testing, other than 
        at the subscriber's request and expense.
5. Satellite Television Extension and Localism Act of 2010, Pub L. No. 
        111-175 (``STELA'')

   Reinstated distant signal license to DISH Network (which had 
        lost the right to provide such service under the so-called 
        ``death penalty'' provisions) upon verification of DISH's 
        service of all 210 local markets.

   Eliminated ``Grade B Bleed'' by defining ``unserved 
        household'' restriction based on off-air reception of in market 
        stations only.

   Prohibited distant signal service to those who can receive 
        local multicast signals off-air (with complex implementation 
        phase-in).

   Harmonized ``no-distant-where-local'' rules to combine prior 
        analog-and digital-specific rules.

   Prohibited discrimination in carriage of high definition 
        public television stations.

   Required FCC to develop predictive model for digital 
        signals.

   Increased statutory damages for distant signal violations 
        tenfold.

   Permitted carriage of low-power stations throughout local 
        market.

   Permitted distant signal carriage of networks of public 
        stations.

   Modified cable statutory license to resolve several 
        technical problems that had arisen over the years, including 
        carriage of multicast streams.

   Directed Copyright Office to initiate filing fees.

   Directed Copyright Office to permit audits of statements of 
        account.

   Directed FCC, Copyright office, GAO to issue six reports 
        collectively.

    Senator Pryor. Thank you.
    Mr. Powell.

         STATEMENT OF HON. MICHAEL K. POWELL, PRESIDENT

         AND CHIEF EXECUTIVE OFFICER, NATIONAL CABLE & 
                 TELECOMMUNICATIONS ASSOCIATION

    Mr. Powell. Good afternoon, Mr. Chairman and members of the 
Subcommittee. My name is Michael Powell and I have the 
privilege of being the President and CEO of NCTA. Thank you for 
inviting me today to offer our thoughts on the reauthorization 
of STELA and I'm pleased to be here.
    Mr. Chairman, we fully support the reauthorization of STELA 
and particularly the provision that requires broadcasters and 
MVPDs to negotiate in good faith when conducting retransmission 
consent negotiations. Good faith is more important than ever. 
With the stresses of retransmission consent negotiations and 
blackouts, it is vital that the Committee ensure that this 
bilateral legal obligation remains part of the retransmission 
consent regime.
    We also support additional reforms that are appropriate and 
overdue given the competitive realities of today's video 
marketplace. And we deeply appreciate the Committee's 
willingness to consider them.
    NCTA has identified three narrow yet very important reforms 
that would prune away outdated legal requirements directly 
benefiting consumers and promoting a more level playing field 
among competing providers of multichannel video services.
    First, NCTA supports repeal of the FCC's integration ban 
which forces only cable operators and not other MVPDs to 
include a separate video decryption component in the leased 
set-top box. Congress intended, as part of the 1996 Act, to 
create the conditions for a retail market for set-top boxes. To 
implement the law, the FCC had to overcome the obstacle giving 
third-party boxes access to encrypted signals. Industry worked 
together to create the CableCARD so boxes could be sold, 
unlocked at retail, and work in any cable market simply by 
requiring a card.
    The FCC, however, stepped beyond the statute and imposed 
the integration ban. The ban forced cable companies to place 
security functions out of their leased boxes and rely, instead, 
on CableCARDs even though there's no technical need to do so 
and consumers would not enjoy any additional features or 
benefits. The theory of the rule was behavioral. The belief 
that cable companies would have the incentive to support 
CableCARDs for third parties if they had to use them and 
thereby help seed what they hoped to be a flourishing retail 
market for set-top boxes. Despite its merits; it has not had 
its intended effect.
    We now see that, while CableCARDs are a fully realized 
solution, the integration ban has not stimulated a consumer 
appetite for third-party devices. Today, over 45 million leased 
boxes are using CableCARDs while a mere 600,000 have been 
requested for retail devices. The explosion of unimagined video 
devices and content sources from companies like Netflix, 
Amazon, Roku, and a wealth of Apple and Android devices, likely 
explaining the lessening appetite among consumers for 
alternative set-top boxes. Yet, consumers that choose a cable 
operator's leased box are paying a penalty in unnecessary 
expense and energy cost.
    Recent evidence filed with the FCC just last year by one 
large cable operator seeking a waiver, indicated the cost of 
including CableCARD and current set-top boxes is between $40 
and $50. We estimate that the cost attributable to the 
integration ban has exceeded a billion dollars for the 
industry. And, based on EPA figures, subscribers collectively 
foot the bill for over 500 million kilowatts of unnecessary 
energy consumed by CableCARDs.
    Second, while we take no position on the propriety of Joint 
Advertising or Shared Service Agreements, we do support the 
legislative effort to prohibit broadcasters from engaging in 
joint negotiations with cable operators and other MVPDs for 
retransmission consent. Through a variety of agreements, 
certain broadcasters have been increasing their leverage in the 
negotiations by banding together, despite being competitors, 
and negotiating as a single entity rather than separately. The 
DOJ and the FCC have raised significant concerns about these 
anticompetitive practices, and it's appropriate for Congress to 
address this issue as a complement to actions taken recently by 
the FCC.
    Third, we support eliminating the must-buy requirement for 
stations that freely elect to negotiate the price and terms of 
their carriage. Having chosen the free market in pursuit of 
top-dollar, these stations should not enjoy a government 
guarantee that assures they're carried on the basic tier and 
forces consumers to purchase their channels as a prerequisite 
to buying any other programming package. Given the clear 
evidence, these stations are able to secure substantial and 
increasing fees; they are more than capable of negotiating 
their channel position, as well.
    Removing government's thumb from the scale will allow 
companies to negotiate more flexible packages and free 
consumers to secure broadcast channels over-the-air for free as 
intended and not have to pay for them as part of their cable 
subscription. This outdated requirement only applies to cable 
operators and not other MVPDs, and, given that cable represents 
only half of the market today, the must-buy rule imposes a 
significant and unjustified disadvantage on cable operators.
    Thank you for inviting me today and I look forward to your 
questions.
    [The prepared statement of Mr. Powell follows:]

   Prepared Statement of Hon. Michael K. Powell, President and Chief 
   Executive Officer, National Cable & Telecommunications Association
    Good afternoon, 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 offer our thoughts on ``Reauthorization of 
the Satellite Television Extension and Localism Act.''
    Mr. Chairman, we support the Committee's effort to extend expiring 
provisions in the Communications Act and appreciate your consideration 
of other reforms to ensure the law protects and promotes the 
competitive video marketplace that is delivering consumers significant 
choice, innovative new ways to enjoy video content and a plethora of 
creative and diverse programming. A primary concern for Congress is the 
anticipated expiration of the current Communications Act provision that 
requires broadcasters and MVPDs to negotiate in good faith when 
conducting retransmission consent negotiations. By extending the ``good 
faith'' requirement for another five years, the Committee would ensure 
that this bilateral legal obligation remains part of the retransmission 
consent regime.
    In addition to extending the ``good faith'' requirement, we believe 
a few additional reforms are appropriate, and in fact, are overdue 
given the competitive realities of today's video marketplace. As we 
noted in our written responses to the questions previously posed by 
Senators Rockefeller, Thune, Wicker, and Pryor, NCTA has identified 
three narrow, yet very important, reforms that would prune away 
outdated legal requirements, directly benefit consumers and promote a 
more level playing field among competing providers of multichannel 
video services.
    First, NCTA supports repeal of the Federal Communications 
Commission (``FCC'')'s ``integration ban'' rule, which today forces 
cable operators--and cable operators alone--to include a separate video 
decryption component (e.g., a CableCARD) in their leased set-top boxes, 
adding extra cost, consuming extra energy, and providing no added 
benefit to cable customers with leased set-top boxes.
    Second, we support codifying the FCC's effort to prohibit 
broadcasters that are not commonly owned from engaging in joint 
negotiations with cable operators and other MVPDs for the price, terms 
and conditions of their retransmission consent. Through a variety of 
formal and informal agreements, certain broadcasters have been 
increasing their leverage in the negotiations by banding together and 
acting as a single entity in the negotiations rather than acting 
appropriately as competitors. The Department of Justice and the FCC 
have raised significant concerns about these anticompetitive practices, 
and it is appropriate for Congress to address this issue as a 
complement to actions being taken at the FCC.
    Third, we would similarly support efforts to amend the so-called 
``must buy'' requirement, which currently affords stations that elect 
to negotiate retransmission consent with a duplicative, government-
created windfall. Put simply, the right to negotiate retransmission 
consent already affords broadcast stations with the power to negotiate 
carriage terms, including price and channel position, on the cable 
system. Accordingly, the added legal obligation imposed on cable 
operators to carry such stations as part of a government-required basic 
tier is not only duplicative, but is also unfair given the lack of a 
similar legal obligation imposed on non-cable MVPDs. Indeed, the 
requirement that cable operators alone among all video programming 
distributors must offer a ``must buy'' basic tier already imposes a 
significant and unjustified competitive disadvantage on cable 
operators. The law should not heighten that disparity by supplementing 
the right of retransmission consent stations to negotiate terms of 
carriage with a legal obligation guaranteeing that such carriage occurs 
within the cable operator's basic tier of service.
    As the Committee considers the course and speed of its legislative 
initiatives, we would urge members to include these issues as areas 
that are ripe for legislative reform.
Congress Should Extend The Mutual Obligation To Negotiate 
        Retransmission Consent in Good Faith
    NCTA supports the proposed five-year extension of the legal 
obligation to negotiate retransmission consent in good faith. Broadcast 
programming remains an important part of the cable service offering, 
and ensuring 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, is essential. 
Continuing a duty of good faith works to constrain excessive demands 
for unreasonable terms and conditions and, when faithfully applied, 
limits the risk of blackouts or other actions that harm consumers. 
Accordingly, we support the extension of this requirement for five 
years, which helps to preserve consumer expectations and is consistent 
with the terms sought in prior efforts to extend expiring provisions.
The FCC's Integration Ban Imposes Needless Costs On Cable Customers And 
        Is Not Needed To Promote Competition In Retail Video Device 
        Availability
    NCTA asks the Committee to consider including legislative language, 
present in bipartisan legislation (H.R. 3196) introduced by Congressmen 
Latta (R-OH) and Green (D-TX), that would repeal a technology mandate 
adopted by the FCC in 1998 that eliminated a low cost choice for 
consumers, wastes energy, slows innovation, violates principles of 
competitive neutrality, and is unnecessary to fulfill the stated 
statutory objective of promoting the competitive availability of retail 
navigation devices such as set-top boxes.
    Congress intended as part of the 1996 Act to create the conditions 
for a retail market for set-top boxes and other navigation devices. The 
FCC was charged with making it possible for manufacturers to develop 
and sell devices that could be used, for example, with any cable 
provider anywhere in the country. Importantly, Congress did not impose 
any technical requirements on existing set-top boxes leased by cable 
operators to their own subscribers.
    In carrying out Congress's 1996 directive to promote a new market 
where consumers could choose to buy set-top boxes and other navigation 
devices at retail rather than lease them from their provider, the FCC 
did two things. First, it required the cable industry--and only the 
cable industry--to develop a separate security device to unscramble 
cable signals, now known as the CableCARD, for use in set-top boxes and 
other navigation devices that could be sold at retail and used on any 
cable system. If a customer moved, he could return the CableCARD to his 
former cable provider, and get a new CableCARD from his new cable 
provider, which would unscramble that provider's signals. This 
``separate security'' requirement fulfilled Congress's mandate of 
facilitating the creation of a retail market for set-top boxes and 
other navigation devices.
    The FCC, however, took a second and unnecessary step, adopting the 
so-called ``integration ban.'' It required cable operators to 
completely redesign their own leased set-top boxes to use CableCARDs, 
thereby prohibiting the integration of security (encryption) and 
navigation (channel-changing) functions in set-top boxes. This required 
operators to strip out security functions that had long been integrated 
in leased boxes. The idea behind this ``integration ban'' was that if 
operators had to rely on CableCARDs in their own boxes, they would have 
strong incentives to support CableCARDs in retail devices as well. 
Moreover, by eliminating a low cost leasing option, the FCC was 
attempting--through a little industrial engineering--to steer consumers 
to choose new third party options.
    With the benefit of hindsight, we can now clearly see that while 
CableCARDs are a ``fully realized solution'' (to quote TiVo), the 
integration ban has not stimulated a consumer appetite for third-party 
devices. Today, more than 45 million CableCARD-enabled set-top devices 
have been deployed by cable operators to their customers, but a mere 
600,000 CableCARDs have been requested by cable customers for use in 
third-party devices purchased at retail. Very few televisions contain 
CableCARD slots. This is not for lack of cable industry support of 
CableCARDs, but because manufacturers have found that consumers are not 
interested in paying the higher price for TVs with built in set-top 
technology.
    Consumers that elect a cable operator's leased box, however, are 
paying a penalty in unnecessary expense and energy costs. Recent 
evidence filed with the FCC just last year by one large cable operator 
seeking a waiver of the ban indicated that ``the cost of including a 
CableCARD and card interface in its current set-top boxes is in the $40 
to $50 range.'' We estimate that the costs attributable to the 
integration ban exceed $1 billion for the cable industry. Additionally, 
based on EPA figures, cable subscribers collectively foot the bill for 
roughly 500 million kilowatt hours consumed by CableCARDs each year. By 
all measures, the costs of this misguided rule clearly outweigh its 
benefits.
    Further evidence of the integration ban's incoherence is that these 
financial costs and energy burdens are borne only by cable subscribers 
and not video customers of satellite providers, like DirecTV and DISH, 
or of telco providers, like AT&T. Despite these providers being 
vigorous competitors, they have no CableCARD obligations, creating an 
unlevel playing field. At the time the rule was adopted, cable had a 
very large market share, and there may have been an arguable case for a 
rule exclusively applied to cable. Today, however, that share has 
shrunk from roughly 85 percent to just over 50 percent. DirecTV and 
DISH are the second and third largest providers of multichannel video 
programming, and AT&T is the fifth largest MVPD. The integration ban 
hampers cable's ability to compete fairly in this dynamic marketplace, 
and there is no substantive justification for this disparate regulatory 
treatment. Further, the goal of advancing a national market for third-
party devices is illusory when the ban is applied to only half of the 
market.
    It is important to note that even if the FCC-created integration 
ban is repealed, cable operators will still be required to provide 
CableCARDs or other separate security for devices purchased at retail. 
Third party set-top box makers, like TiVo, will still be able to build 
boxes that use CableCARDs, and cable operators will be required to 
support those devices. Beyond a cable operator's continued legal 
obligation, it will have a strong incentive to continue to support 
CableCARDs, given that 45 million CableCARD-enabled set-top boxes are 
in customer homes and that at least seven domestic cable operators are 
using TiVo as a primary leased set-top box. Repeal of the integration 
ban simply gives cable customers more choices and lower costs.
    Repeal of the integration ban also will not interfere with 
opportunities for innovation in retail set-top boxes. CableCARD 
technology is limited to decrypting video programming so that customers 
can view the channels to which they have subscribed. It does not 
prevent manufacturers from pursuing new retail products and services 
now or in the future. The innovative TiVo Roamio DVR is today much more 
advanced than prior TiVo boxes, yet the CableCARD is the same.
    The fact is that the navigation device goals of the 1996 Act are 
being achieved. As the FCC noted in its most recent Video Competition 
Report, ``the CPE marketplace is more dynamic than it has ever been, 
offering consumers an unprecedented and growing list of choices to 
access video content.'' Cable operators have been key actors in 
facilitating these marketplace developments by making their services 
available on a broad and growing array of CE devices. Numerous cable 
operators are delivering cable services to iOS and Android tablets and 
smartphones, PCs and Macs, and game consoles and other video devices, 
and that trend is accelerating to meet consumer demand for these 
options. These devices that consumers want do not rely on CableCARDs. 
Today's competitive market is obviously providing plenty of incentives 
for cable operators to make their customers happy without needing cable 
to adopt the same technology solutions for their own set-top boxes.
    Retail competition in navigation devices is a worthy goal, but it 
is now clear that this goal is best supported by embracing the 
innovations already occurring in today's retail marketplace and not by 
clinging to an outdated and costly FCC rule. The repeal of the 
integration ban will not change the path for innovation in the retail 
set-top box but will provide more opportunities for innovation in 
operator-supplied boxes, which will no longer have to be engineered 
around the CableCARD. We are pleased that the bill advanced last week 
by the House Committee on Energy and Commerce's Subcommittee on 
Communications and Technology includes a provision repealing the 
integration ban that enjoyed strong bipartisan support, and we 
respectfully suggest that any reauthorization bill advanced by this 
Committee should similarly remove this outdated and harmful rule.
Prohibiting Broadcast Stations From Coordinating Their Retransmission 
        Consent Negotiations Unless Co-Owned Would Create A More Stable 
        Carriage Environment For Consumers
    It is important that any reform seek to promote balance in 
retransmission consent negotiations. Congress originally created the 
retransmission consent provisions in an attempt to achieve a 
competitive balance between the cable and broadcast industries and 
believed that the retransmission consent negotiation process would 
provide incentives for both parties to come to mutually beneficial 
arrangements. Given government's substantial involvement in what would 
otherwise be a free market negotiation, government has an even greater 
responsibility to police anticompetitive attempts to gain undue market 
power.
    In recent years, certain broadcaster practices have disrupted that 
competitive balance. One of the more troubling practices is that 
broadcasters are using a variety of formal and informal agreements to 
coordinate the prices, terms, and conditions they agree to with MVPDs 
for their retransmission consent.
    If multiple broadcast stations in a local market are not co-owned, 
then they should not be allowed to act as if they are co-owned in 
retransmission consent negotiations. The Department of Justice has 
voiced concerns about broadcast stations that are not commonly owned 
jointly coordinating their retransmission consent negotiations. DOJ 
argues that broadcasters must be required to exercise retransmission 
consent rights individually, because joint negotiations strengthen the 
broadcasters' negotiating positions against MVPDs, allowing the 
stations to obtain better deals, and because joint negotiations 
eliminate competitive rivalry between the stations. As a result, these 
joint negotiations result in higher prices and less choice for 
consumers.
    FCC Chairman Wheeler recently recognized this point, noting that 
``joint negotiations have been documented to increase prices to cable 
systems,'' which ``ultimately are borne by the consumer in the form of 
higher cable or Direct Broadcast Satellite fees.'' The Commission may 
soon act, justifiably, to eliminate these practices by making joint 
negotiations a per se violation of a broadcaster's obligation to 
negotiate in good faith when the broadcasters are not commonly owned 
and are among the top four stations in the local market, and a 
presumptive violation of that obligation for all other broadcasters in 
the local market.
    As the Committee considers this issue, we would urge it to take 
actions that complement and extend FCC efforts. NCTA believes that non-
commonly owned broadcasters should not be allowed to coordinate their 
retransmission consent negotiations in any way--whether through 
directly or indirectly exchanging or sharing information regarding the 
terms of existing retransmission consent agreements, the potential 
terms of future retransmission consent agreements, or the status of on-
going retransmission consent negotiations.
    Retransmission Consent Broadcast Stations Should Not Be 
Automatically Included In Cable Operators' ``Must Buy'' Basic Tier.
    Another area ripe for reform is the scope of the ``must buy'' 
obligations that apply under current law. In particular, NCTA believes 
that one warranted change would limit ``must buy'' basic tier 
requirements to broadcast stations electing must-carry status and 
certain other required channels, such as PEG channels required by the 
franchising authority to be carried on the basic tier. Retransmission 
consent stations should not have a government-mandated right to be 
included in that ``must buy'' tier.
    Not only is a government-imposed ``must buy'' requirement for 
retransmission consent stations unwarranted, it is also selectively 
applied. Under current law, it is cable operators alone who are 
required to offer a ``must buy'' basic tier. No other MVPD or its 
customers is subject to a statutory ``must buy'' requirement. This 
requirement imposes a significant and unjustified competitive 
disadvantage on cable operators.
    Eliminating the requirement that cable operators carry broadcast 
stations electing retransmission consent on the basic tier would not 
fully rectify this competitive imbalance, but it would promote greater 
competitive neutrality among video distributors. Retransmission consent 
stations would continue to negotiate with cable operators over channel 
placement and price, but having elected to privately negotiate carriage 
terms, would no longer enjoy the unwarranted additional benefit of a 
government-created requirement for mandatory carriage in the must-buy 
tier. Eliminating this requirement would also mean that consumers do 
not have to pay for such broadcast stations as a condition of receiving 
cable service.
    NCTA appreciates your continued efforts to support a vibrant and 
innovative video marketplace. We look forward to working further with 
the Subcommittee on these important issues.
    Thank you again for the opportunity to appear today.

    Senator Pryor. Senator Rockefeller.

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

    Chairman Rockefeller. Mr. Chairman, I apologize. Well, I 
thank you and apologize to everybody else for interrupting in 
this way but I have to go do some intelligence reading for a 
very important vote tomorrow. So I want to make a statement and 
I'm going to proceed to do that unless, of course, Senator 
McCaskill objects. In which case, I'll simply go to the back of 
the room and hide under a chair. Is it all right?
    [Laughter.]
    Senator McCaskill. If you're good.
    Chairman Rockefeller. Good, thank you.
    I want to thank Senator Pryor very much for convening 
today's Subcommittee hearing on the reauthorization of STELA. 
And I also want to applaud him. I was going to give a speech at 
the caucus but we never got called on. That if people would 
just listen to what we had in mind for cybersecurity, there 
never would have been this 170 million person data breach 
problem. It would have never happened. But people don't listen.
    I also want to applaud him for his leadership of the 
communications subcommittee of which I'm very proud that he is 
the Chair and through work that he has done to help the 
Committee members understand the state of the communications 
marketplace, which is a very interesting phenomenon, and the 
pressing issues facing consumers in the companies that serve 
them.
    Today, the Subcommittee considers, once again, the 
reauthorization of key statutes that promote competition in our 
video marketplace. Over the past 20 years, satellite pay-TV 
providers have extended pay-television service to consumers in 
rural areas, which did not have such service prior to that.
    Across the country, they've offered consumers an 
alternative to their local cable provider. Today, DIRECTV and 
DISH Network have become the second and third largest national 
pay-TV providers. STELA and its predecessors, along with other 
necessary competitive protections from the 1992 Cable Act, who 
will ever forget those days, have been essential to satellite's 
growth.
    Congress recognized early on that it must act to foster 
competition and enhance consumer choice in the video market. 
Now we are faced once again with the question of whether to 
reauthorize key elements of STELA. Let me be clear: I believe 
that we would do customers a disservice if we failed to 
reauthorize STELA.
    Approximately 1.5 million satellite subscribers continue to 
rely on STELA for access to broadcast television. Hundreds of 
thousands of homes in West Virginia have subscribed to 
satellite television. And every pay-TV consumer benefits from 
the protection afforded by the law's requirement that 
broadcast, cable and satellite, negotiate in good faith. 
They're wonderful words. If only they came true.
    The pending reauthorization also gives the Committee a 
chance to reassess whether the overall video marketplace 
operates to the benefit of consumers and competition. Since the 
last time we addressed STELA, this committee has held nearly 
six hearings. Well I guess we've held six hearings; not nearly. 
We've held six hearings exploring the video marketplace. The 
record from those hearings shows that several aspects of the 
present video market could be reformed. And as you know, I 
think it is long since time to explore what we can do to foster 
a more consumer-centric future for video, particularly through 
online video distribution.
    There are some who believe that STELA is not the 
appropriate time to address these issues. They argue that such 
an examination is better left for some future day as part of 
the mythical rewrite of the Communications Act; which always 
seems to be right around the next corner. I know there is a 
pent-up desire among the Committee members to fully debate and 
address these issues, issues that directly affect all of our 
constituents.
    I've been part of this committee for three decades now and 
participated in many debates over video policy. Although the 
final path for STELA reauthorization has not been determined, 
one of the things that I have learned from my tenure here is 
that committees should seize the opportunities that present 
themselves, not take a pass for another day. That future day 
may not come. Dealing with these issues will require the 
Committee to take a close look at today's video market, ask 
tough questions, and, ultimately, we may have to make hard 
choices that may upset incumbent interests. And so be it.
    For me, the touchstone will always be whether the 
Committee's STELA reauthorization legislation advances the 
public interest. I think it's fair to say that there's a good 
chance that this will not be a clean process this year. I'm 
confident that this committee will be able to work in a 
bipartisan fashion to reauthorize STELA and I thank the 
witnesses for coming today and for putting up with my 
interruption.
    I thank the Chair.
    [The prepared statement of Chairman Rockefeller follows:]

          Prepared Statement of Hon. John D. Rockefeller IV, 
                    U.S. Senator from West Virginia
    I want to thank Senator Pryor for convening today's Subcommittee 
hearing on the reauthorization of the Satellite Television Extension 
and Localism Act, or STELA. I also want to applaud him for his 
leadership of the Communications Subcommittee and the thorough work he 
has done to help the Committee members understand the state of the 
communications marketplace, and the pressing issues facing consumers 
and the companies that serve them.
    Today, the Subcommittee considers once again the reauthorization of 
key statutes that promote competition in our video marketplace. Over 
the past 20 years, satellite pay TV providers have extended pay 
television service to consumers in rural areas which did not have such 
service previously. Across the country, they have offered consumers an 
alternative to their local cable provider. Today, DirecTV and Dish 
Network have become the second and third largest national pay TV 
providers.
    STELA and its predecessors, along with other necessary competitive 
protections from the 1992 Cable Act, have been essential to satellite's 
growth. Congress recognized early on that it must act to foster 
competition and enhance consumer choice in the video market. Now, we 
are faced once again with the question of whether to reauthorize key 
elements of STELA.
    Let me be clear: I believe that we would do consumers a disservice 
if we failed to reauthorize STELA:

   Approximately 1.5 million satellite subscribers continue to 
        rely on STELA for access to broadcast television;

   Hundreds of thousands of homes in West Virginia subscribe to 
        satellite television; and

   Every pay TV consumer benefits from the protection afforded 
        by the law's requirement that broadcast, cable, and satellite 
        negotiate in good faith.

    The pending reauthorization also gives the Committee a chance to 
reassess whether the overall video marketplace operates to the benefit 
of consumers and competition. Since the last time we addressed STELA, 
this Committee has held nearly half a dozen hearings exploring the 
video marketplace. The record from those hearings shows that several 
aspects of the present video market could be reformed. And as you know, 
I think it is long since time that to explore what we can do to foster 
a more consumer-centric future for video, particularly through online 
video distribution.
    There are some who believe that STELA is not the appropriate time 
to address these issues. They argue that such an examination is better 
left for some future day, as part of a mythical rewrite of the 
Communications Act, which always seems to be right around the corner. I 
know there is a pent up desire among the Committee members to fully 
debate and address these issues--issues that directly affect all of our 
constituents.
    I have been part of this Committee for three decades and 
participated in many debates over video policy. Although the final path 
for the STELA reauthorization has not been determined, one of the 
things that I have learned from my tenure is that the Committee should 
seize the opportunities that present themselves, not take a pass for 
another day. That future day may not come.
    Dealing with these issues will require the Committee to take a 
close look at today's video market, ask tough questions, and ultimately 
we may have to make hard choices that may upset incumbent interests. 
For me, the touchstone will always be whether the Committee's STELA 
reauthorization legislation advances the public interest. I am 
confident that this Committee will be able to work in a bipartisan 
fashion to reauthorize STELA. And as we have with past STELA 
reauthorizations, we will work closely with Senator Leahy and the 
Judiciary Committee.
    I thank the witnesses for coming today and welcome their thoughts 
on the STELA reauthorization.

    Senator Pryor. Thank you, Mr. Chairman.
    Mr. Rogers.

           STATEMENT OF THOMAS S. ROGERS, PRESIDENT 
             AND CHIEF EXECUTIVE OFFICER, TiVo INC.

    Mr. Rogers. Thank you, Mr. Chairman.
    My name is Tom Rogers; I am President and CEO of TiVo. In 
my career, I have been counsel to the House Telecommunications 
Subcommittee, your counterpart on the other side, in the 1980s. 
When I left Capitol Hill, I became the first President of NBC 
cable and had the privilege of founding CNBC. I have been CEO 
of TiVo for eight years. I drafted the Cable Act of 1984, which 
was key legislation that deregulated the cable industry. Also, 
this happened to be the first legislation that assured access 
to signals for satellite dish owners. I have worked tirelessly 
through my career to advance the interest of the cable industry 
and try to promote competition and consumer choice.
    TiVo stands for innovation. I am particularly proud of Mr. 
Powell's statement when he was Chairman at the FCC calling TiVo 
``God's machine.'' It was one of the best quotes we have in 
support of our product.
    Today, more than ever, I work to advance the competitive 
position of cable operators. Along these lines, given how this 
issue has been framed, I find it very odd that anyone would 
cast us as anti-cable on any issue, especially the CableCARD 
issue that the Committee has asked for comments on.
    In addition to our retail consumer set-top business, which 
is well known, today we count as partners 14 of the top 20 
cable operators in the United States. We not only provide 
consumers a choice at retail but we are dedicated to getting 
cable operators the best possible customer experience. And all 
of our cable partners recognize that we have given them a huge 
upgrade in terms of their future technology relative to the 
lackluster look and feel that most cable operators have been 
known for in their video service.
    We spend more time, by a lot, serving the cable operators' 
future technology interests in this regard than others serving 
the cable industry, including NCTA. This is what we do. Our 
lifeblood is about driving the future technology for television 
viewers, including cable subscribers.
    And while, with all due respect to Mr. Powell, and I do 
understand what the role of trade associations are, but the 
position that NCTA has taken on this CableCARD issue is not 
what's in the best interest for cable subscribers and it's not 
even what's in the best technological interest of cable 
operator members. The ability to port to cable operators what 
we do derives directly from the fact that there was a retail 
consumer business made possible by CableCARDs. Operators have 
benefited hugely from the retail business that we've created.
    Now, having said that, we understand the cost burden of 
CableCARDs. We understand it well. We have our own issues with 
CableCARDs, not least of which is the problems consumers have 
had having them installed by cable operators who are not well 
trained on the installation. So we are here to represent three 
points of view.
    Choice for consumers is good. In every other area, 
telephone, smartphone, laptop, name the device, consumers have 
the right to bring their own. The exception to that has been in 
the television set-top box arena, which is the one area where 
consumer choice and competition in that regard has not been 
provided as a means for consumers to have choice.
    Two, we are extremely invested in the future technology for 
cable operators and we want to see cable operators succeed in 
terms of being the leaders in future television technology.
    And third, we get the fact that there is a better approach 
than CableCARDs. In our view, there's one, and only one, way to 
do it and it's not the way that the House legislation has put 
forward. We need to get to a new standard that replaces 
CableCARDs; a downloadable security standard that doesn't rely 
on a physical card having to be inserted in a box. A new 
standard will save operators money, will assure competition and 
choice for consumers, and will continue to assure that our 
great innovations that we provide to the cable industry will 
continue to be easily ported to them.
    One theme that's critical in underlying that approach is 
that we need common reliance, which has become the industry 
term for the security standard that operator boxes provide and 
that retail set-top boxes rely on. That's the linchpin for 
having a retail market.
    Now, what the legislation on the House side tries to do is 
repeal the CableCARD standard before a new standard is in 
place, which in our minds will kill any ability for a new 
standard to emerge. What will happen is different operators 
will use different solutions which will kill any prospect for a 
national retail market. We need a standard; not a regulation. A 
standard. There's a smart way to do this. All policymakers ask 
that key cable companies and TiVo sit down and figure out that 
next generation standard that isn't a burden on cable that 
provides for choice and consumer competition. And, when that is 
in place, then the CableCARD regime should certainly go away.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Rogers follows:]

           Prepared Statement of Thomas S. Rogers, President 
                 and Chief Executive Officer, TiVo Inc.
    Good afternoon, Chairman Pryor, Ranking Member Wicker, and members 
of the Subcommittee. Thank you for the opportunity to participate in 
today's hearing. My name is Tom Rogers and I am the President and Chief 
Executive Officer for TiVo Inc. TiVo developed the first commercially 
available DVR and is the leading provider of competitive retail Set-Top 
Boxes with over 4 million subscribers worldwide, including 
approximately 1 million U.S. retail subscribers.
    I appreciate the invitation to testify before you today to discuss 
whether the current law appropriately protects and promotes a video 
market that is responsive to consumer demands and expectations. 
Fundamentally, the Satellite Television Extension and Localism Act and 
the predecessor legislation, are about competition. The Act has given 
consumers choice in how they access multichannel programming. 
Competition and consumer choice should be the hallmark of any satellite 
reauthorization.
    Extraneous provisions that actually undermine consumer choice and 
competition have no place in STELA reauthorization legislation. For 
this reason, TiVo opposes the legislation recently reported out of the 
House Communications and Technology Subcommittee which includes 
language that would undermine consumers' ability to purchase their own 
Set-Top Box to watch their cable channels. We urge this Committee to 
reject this anti-consumer provision.
    There is a long established policy of allowing consumers to bring 
their own device that defines the features and experience they want to 
use with their network. History has shown time and again that when 
devices are untethered from the network and consumers have choice, 
innovation is unleashed. We need no better examples of this than the 
smart phone, the tablet, and the laptop. Consumers have device choice 
in most of the industries that meet their communications needs.
    The one glaring exception is in the multichannel video sector. 
Ninety-nine percent of multichannel video provider customers use 
operator-supplied Set-Top Box equipment. While the cost of consumer 
electronics are consistently decreasing, the price charged to consumers 
to lease Set-Top Box equipment is consistently increasing. These are 
not the hallmarks of a competitive marketplace. More choice is needed 
and with more choice comes innovation and lower prices. A retail market 
allows for such choice, innovation, and ultimately lower pricing. TiVo 
has used the access to cable signals afforded by CableCARD to provide 
consumers with the option to purchase a product with features and 
functionality not provided by their cable operator. TiVo's latest Set-
Top Box, called Roamio, is the only way for consumers to get their 
broadcast, cable, video-on-demand, and Internet-delivered content (such 
as Netflix, Amazon, Hulu Plus, YouTube) together in one user interface 
that enables the consumer to search across all of content offered 
through each of these services. TiVo's Roamio product has been heralded 
in the press as ``the Holy Grail of Set-Top Boxes'' (Wall Street 
Journal), ``a big step up for cable TV subscribers'' (TechHive), ``the 
ultimate cable box,'' \1\ and ``the best TV viewing experience that 
money can buy.'' \2\
---------------------------------------------------------------------------
    \1\ http://www.theverge.com/2013/8/20/4638390/tivo-roamio-pro-
review
    \2\ http://venturebeat.com/2013/08/20/three-thumbs-up-for-the-new-
tivo-roamio-dvrs/
---------------------------------------------------------------------------
    TiVo stands for innovation. We are the innovators in multichannel 
video. TiVo not only was the first company to introduce the Digital 
Video Recorder, it was the first to make services like Amazon video 
rentals available on the television. TiVo also pioneered the ability to 
transfer cable television shows from a DVR to computers and mobile 
devices, and the integration of traditional television and over-the-top 
content into a seamless integrated user interface. No Set-Top Box 
(other than TiVo) is listed in CNET's top 20 most innovative consumer 
electronic products of the decade.\3\ Nobody proclaims their love of a 
cable box. But they often do for TiVo.
---------------------------------------------------------------------------
    \3\ http://reviews.cnet.com/8301-18438_7-10413195-82.html
---------------------------------------------------------------------------
    Our retail products have pushed multichannel operators to improve 
their products and we continue to offer consumers features available 
only on our devices. I am not here to criticize cable, quite the 
contrary. TiVo is working with cable operators to offer their customers 
the best television experience possible. Many cable operators have told 
us how our retail business has hugely benefitted them because TiVo's 
retail devices have features and functionality that consumers want to 
pay for. TiVo's ability to provide choice and innovation to both retail 
consumers and operators depends on having access to the cable signals. 
Without access to the same channels as an operator-supplied box, a 
retail box cannot provide a real alternative to a consumer.
    The provision slipped into STELA in the House bill would repeal the 
pro-competitive requirement that operators use the same security 
standard in their boxes as they make available for retail and 
jeopardize the ability of retail devices to access all cable 
programming channels. Common reliance on the same security standard is 
a principle that the Federal Communications Commission (``FCC'') has 
repeatedly found is a necessary component for a retail market for Set-
Top Boxes to emerge. Seeking its repeal is at odds with cable's 
generally pro-competitive policy approach. Cable originally provided 
competition to broadcast networks, then to data and telephone networks, 
and did not oppose the original STELA legislation that enabled 
satellite competition to cable.
    In 1996 Congress, led by former Representative--now Senator--Markey 
had the wisdom to include in the landmark Telecommunications Act a 
provision to unlock the devices through which cable subscribers get 
their channels. The concept was simple--consumers should have the 
ability to purchase a navigation device or Set-Top Box at retail and 
not have to rely on renting a box from their cable provider. This 
provision was intended to do for the multichannel video device market 
what the Carterfone decision 45 years ago did for the telephone 
industry and what the Congress is currently doing for consumers with 
wireless devices. When consumers have choice, innovation flourishes 
because manufacturers have to compete on features and functionality to 
entice consumers to choose its products.
    To implement this section, Section 629 of the 1996 Act, the FCC 
urged cable operators to reach agreement with the consumer electronics 
industry. Cable operators came forward with a standard CableCARD 
interface for national access by competitive entrant devices but did 
not promise to rely on this technology in their own devices. The FCC 
accepted this offer provided that cable operators (1) make CableCARDs 
available by July 1, 2000, and (2) rely on the CableCARD interface in 
their own newly fielded devices by January 1, 2005. The FCC determined 
that only by requiring ``common reliance'' by retail devices and 
operator-leased devices on the same security technology would retail 
devices receive the support necessary to attain the goals of Section 
629.
    The first CableCARD-reliant products--televisions with CableCARD 
slots--came to market in 2003--2004 but in the absence of common 
reliance received poor or nonexistent support from cable operators as 
documented in FCC and court decisions.\4\ That lack of support finally 
led the FCC to implement common reliance on the same security 
technology (also known as the ``integration ban'') as of July 1, 2007. 
By this time, CableCARD televisions were disappearing from the market 
due to lack of cable operator support. But, the emergence of High 
Definition Television and the impending digital transition encouraged 
TiVo and others to begin selling HD CableCARD DVRs.
---------------------------------------------------------------------------
    \4\ See, e.g., Charter Communications v. FCC, 440 F.3d 31, 40-44 & 
n.10 (D.C. Cir. 2006); In the Matter of Implementation of Section 304 
of the Telecommunications Act of 1996, Commercial Availability of 
Navigation Devices, CS Dkt. No. 97-80, Second Report and Order  39 & 
n.162 (Mar. 17, 2005)
---------------------------------------------------------------------------
    Because retail CableCARD devices were still being disadvantaged by 
cable operators,\5\ the FCC in 2010 adopted rules to strengthen its 
CableCARD regulations to deal directly with certain cable operators' 
evasion of CableCARD requirements, by providing for consumer self-
installation of CableCARDs, access to switched digital programming, and 
ending economic discrimination against competitive products.\6\ While 
CableCARD success has been hobbled by a lack of support from certain 
cable providers and a refusal to allow retail devices to have access to 
two-way services like Video On Demand, CableCARD is a fully realized 
solution that provides consumers today with a choice of using a better 
alternative to an operator-supplied box.
---------------------------------------------------------------------------
    \5\ See, e.g., Federal Communications Commission, Connecting 
America: The National Broadband Plan (``National Broadband Plan'') 
Sec. 4.2 at 52 (``[C]onsumers who buy retail set-top boxes can 
encounter more installation and support costs and hassles than those 
who lease set-top boxes from their cable operators.'')
    \6\ Implementation of Section 304 of the Telecommunications Act of 
1996; Commercial Report and Order and Order on Reconsideration, 25 FCC 
Rcd 14657  5, 27 (2010).
---------------------------------------------------------------------------
    The history of implementation of Section 629 shows that if Congress 
wants to promote choice and innovation, retail devices must have the 
same access to signals as operator-supplied devices. Allowing cable 
operators to treat the boxes they lease to subscribers differently than 
retail devices undermines retail choice and competition.
    Even with CableCARD, certain cable operators have treated their own 
leased boxes differently and implemented switched digital video 
(``SDV'') technology that denied retail devices direct access to 
numerous cable channels. SDV uses the two-way cable infrastructure for 
upstream signaling to request a channel be sent to the set-top box 
similar to video-on-demand. However, retail boxes have been prohibited 
from using the upstream capability of the cable network and are thus 
unable to receive SDV signals directly. Users of retail devices in SDV 
signals have thus been forced to use operator-provided equipment (so-
called ``tuning adapters'') to enable their retail box to receive SDV 
signals, an approach antithetical to the goal of providing consumers 
with the choice to not use operator-provided equipment and still 
receive their cable channels.
    That CableCARD is a flawed solution for retail is not new news. I 
am not here to defend the status quo. The issue confronting the 
Committee is how to improve the national standard that has allowed for 
retail competition, not how to repeal it.
    There is an existing policy objective of ensuring that retail 
devices have access to cable signals so that competitive retail 
products can be created with innovative features and functionality. 
Without a uniform standard for accessing signals, a retail market 
cannot exist. TiVo would be happy to move to a new standard by which it 
can access cable signals. Legislation is not necessary to do that. All 
that is required is for a handful of companies to work cooperatively on 
a next generation standard under the supervision of the FCC that is 
non-burdensome and works for operators and retail devices. Repealing 
the existing uniform standard policy without putting a new standard in 
place will undermine competition, increase costs for consumers using 
retail devices, and eliminate any incentive for the industry to help 
develop a successor solution for retail devices. \7\
---------------------------------------------------------------------------
    \7\ The NCTA claims that CableCARD increases the cost of a set-top 
box by $56 citing an ``estimate cited by the FCC'' but this figure is 
based on data from 2008 or earlier--before common reliance and mass 
production lowered CableCARD costs. See In the Matter of James Cable, 
LLC, RCN Corporation, WideOpenWest Finance, LLC Requests for Waiver of 
Section 76.1204(a)(1) of the Commission's Rules, CSR-7216-Z, CSR-7113-
Z, CSR-7139-Z, Memorandum Opinion and Order, 23 FCC Rcd. 10592 (2008) 
at **3, n.30. In the intervening 6 years, we believe that the unit cost 
of a CableCARD, when ordered in volume, has likely come down to about 
$10. The additional cost of the CableCARD interface for the set-top 
box, including additional software, has likely come down to about $2. 
The NCTA similarly estimates that the costs attributable to the 
integration ban exceed $1 billion without providing any support for 
this estimate. Whatever the cost of CableCARD, however, they pale in 
comparison to the over $7 billion per year that consumers pay to lease 
equipment from cable operators. This translates to approximately $50 
billion in equipment lease revenue during the period of time that the 
NCTA claims to have incurred $1 billion in CableCARD costs. Whatever 
the cost, however, there is no justification for imposing the cost on 
retail devices but not on operator-supplied devices. These costs will 
surely rise again if operator-supplied devices are not using CableCARDs 
as there would no longer be mass production. Putting retail boxes at a 
cost and technology disadvantage certainly will not fulfill the goal of 
Section 629 of assuring a retail market.
---------------------------------------------------------------------------
    Congress needs to solve for the policy objective rather than 
undermining the existing policy in the name of lifting an industry 
burden that applies equally to retail devices and from which TiVo also 
wants to move on to a successor standard. The multichannel video 
industry is confronting its own IP transition. Now is the time to 
unleash innovation and give consumers the benefits of choice and 
competition in video devices like they have Internet, telephone and 
wireless devices.
    The NCTA has been characterizing the repeal of the integration ban 
as a minor change and claiming that they still have to support retail 
CableCARD products.\8\ Again, allowing operator-supplied boxes to use a 
different security standard than retail boxes results in a tilted 
playing field that undermines retail choice and competition. Moreover, 
the NCTA and some of its members are simultaneously taking the position 
at the FCC that there are no rules requiring them to provide or support 
CableCARDs to retail devices (and the FCC should not reinstate any 
rules unintentionally vacated by the DC Circuit Court of Appeals in a 
decision, EchoStar v. FCC, that did not even address the CableCARD 
rules.)\9\
---------------------------------------------------------------------------
    \8\ See Letter to The Honorable Greg Walden, Chairman, and The 
Honorable Anna Eshoo, Ranking Member, Subcommittee on Communications 
and Technology from James Assey, Executive Vice President, National 
Cable & Telecommunications Association dated September 18, 2013 at 2 
(``repealing the integration ban will not affect the separate 
requirement for cable operators to make CableCARDs available to cable 
customers who buy a retail set top box from TiVo or others.'')
    \9\ Opposition of Charter Communications, Inc. To Petition For 
Reconsideration, CSR-8740-Z, MB Docket No. 12-328 (June 3, 2013) at 3 
n.6 (``EchoStar does not address downloadable security; what it changes 
is that CableCARD support is no longer required, and thus cable 
operators are free to rely solely on other compliant technologies . . 
.''); Comments of the National Cable & Telecommunications Association 
on TiVo Inc.'s Petition for Clarification or Waiver, CS Docket No. 97-
80 (February 14, 2014); Comments of the National Cable & 
Telecommunications Association on TiVo Inc.'s Petition for Rulemaking, 
CS Docket No. 97-80, PP Docket No. 00-67 (September 16, 2013).
---------------------------------------------------------------------------
    This means that if the integration ban is eliminated, and if the 
FCC agrees with NCTA's position, there will be no requirement for cable 
operators use CableCARDs themselves and no requirement to supply 
CableCARDs to new retail devices. Indeed, no requirement for cable 
operators to even support existing retail CableCARD devices. Cable 
operators would be free to use new security technology but leave retail 
devices using legacy technology that they will have little incentive to 
support, keep current with new technology developments, or control 
costs. Would anyone reasonably expect any consumer to purchase a retail 
set top box for the express purpose of replacing their cable-supplied 
Set-Top Box if there was no assurance that their cable operator would 
actually support that retail box? Retail devices have to be treated the 
same, in terms of access to programming and support, as operator-
supplied devices for consumers to have a real choice and for the 
effects of competition to take hold.
    In support of its position that no current rules and no next 
generation standard are needed to guarantee that retail devices have 
access to cable signals, the NCTA has tried to portray cable apps on 
Xbox or Roku as evidence of the emergence of a retail set top box 
market. While there has been some experimentation with apps on third 
party devices in the last couple of years, these experiments only serve 
to confirm that a successor security standard is essential. None of 
these apps guarantee that a consumer can purchase a retail device to 
(a) receive all of the cable programming they are paying for; (b) 
record that programming for later viewing; (c) incorporate Internet-
delivered content; (d) frame the experience in a user interface better 
and more innovative than the lowest-common denominator approach 
supplied by their cable provider; and (e) work with more than one 
provider.\10\ CableCARD does this for scheduled programming but it is 
clear that core MVPD services are moving on to IP technologies instead. 
Real device competition requires a successor solution in which 
consumers can have confidence that any retail devices they purchase for 
the purpose of receiving the cable programming to which they subscribe 
will be supported and will deliver their cable programming channels.
---------------------------------------------------------------------------
    \10\ Imagine buying an iPhone and then learning if you move to 
another community it no longer works because your local service 
provider won't support it. It's the same with these app experiments. 
They don't work across operators. Why would someone buy a Samsung TV 
that works today with Charter in Los Angeles knowing that if they move 
to Atlanta Cox won't support it? Retail choice requires national 
portability. CableCARD does this today and any successor standard must 
likewise be nationally portable.
---------------------------------------------------------------------------
    The removal of the AT&T U-verse app on X-Box last December confirms 
that apps provide no such assurance to consumers. AT&T U-verse had 
advertised its app on X-Box as an inducement for customers to sign-up 
for its service.\11\ Then it abruptly announced that it would terminate 
support for its app on the Xbox 360 service.\12\ The point is, these 
apps and other solutions come and go, and are not a reliable 
alternative to what is available on a competitive Set-Top Box where 
consumers are guaranteed access to all of their cable programming.
---------------------------------------------------------------------------
    \11\ http://www.prnewswire.com/news-releases/att-extends-tv-
watching-to-more-devices-with-launch-of-u-verse-tv-on-xbox-360-
104699739.html
    \12\ http://www.multichannel.com/distribution/att-u-verse-tv-drop-
support-xbox-360-december-31/146904
---------------------------------------------------------------------------
    The video market is at a critical juncture with video about to 
undergo an IP transition. Now is the time to seize the opportunity to 
foster a next generation standard for accessing television signals. 
Ensuring that consumers have retail choices from unaffiliated Set-Top 
Box manufacturers, and that such retail devices are interoperable on 
networks nationwide, remains an essential, pro-consumer policy today. 
Indeed, the principle of requiring standards to enable competition in 
the market for communications equipment--leading in turn to consumer 
benefits in the form of greater innovation, lower prices, and higher 
quality--is one of the most settled and successful principles in 
telecommunications policy, and has been extremely successful in the 
wireline and wireless broadband markets.
    This Committee can play a strong role on this important pro-
competition and consumer choice issue by supporting a process that puts 
in place a more efficient market solution worked out between the 
industries. I respectfully urge you to support innovation and consumer 
choice and resist including any provisions in the STELA reauthorization 
bill that would undermine video device competition.

    Senator Pryor. Thank you.
    Mr. Wood.

        STATEMENT OF MATTHEW F. WOOD, POLICY DIRECTOR, 
           FREE PRESS AND THE FREE PRESS ACTION FUND

    Mr. Wood. Chairman Pryor, Ranking Member Wicker, and 
Chairman Rockefeller, and members of the Subcommittee, thank 
you for the chance to testify today.
    My name is Matt Wood and I'm the Policy Director for Free 
Press which is a nonpartisan, nationwide organization with more 
than 700,000 members. I'm glad to talk about STELA and will 
answer your questions about whether present law does enough to 
protect and promote a video marketplace that is responsive to 
consumer demands and expectations. The short answer is that 
Congress can and must do more to make sure that this market is 
functioning and free.
    Television and broadband deliver video and other content 
that inform our democracy, shape our culture, and power our 
economy. No single speaker in our media system and no 
distributor in the middle of that system should have the power 
to dictate our discourse or control our programming. 
Competition in the marketplace of ideas requires competition 
among the channels and platforms that carry those ideas. And, 
as FCC Chairman Wheeler has said, ``Competition does not always 
flourish by itself. It must be supported and protected.''
    Some companies and lobbyists call for reform or a total 
repeal of video rules. But don't be fooled. What they often 
want is changes that benefit their own business and hamper 
competitors. They'll suggest Congress should get rid of all 
safeguards. But the truth is that many laws on the books today 
actually promote competition and consumer choice that simply 
would not exist without them. We need laws built on bedrock 
principles of increasing choice, expanding access, preserving 
competition, and preventing discrimination.
    Laws like STELA make more content available. STELA itself 
gives options to people that can't receive a local broadcast 
signal over the air. Congress should keep that option in place. 
Chairman Pryor, himself, and Mr. Palkovic noted that 1.5 
million homes rely on distant signals for broadcast content and 
there's no reason to take that away or to narrow eligibility 
for them even more.
    A better approach for improving access to local broadcasts 
would be to make sure satellite customers can get TV stations 
from their home state. Many of your constituents can't do that 
today, because Nielsen defines TV markets without regard for 
state lines. That's a problem because broadcast TV remains a 
primary source for news about our government and our 
communities. The FCC already has power to modify Nielsen 
markets and extending that power here would give the FCC a 
chance to make the call based on the facts of the individual 
circumstance.
    Another expiring STELA provision is Section 325's 
requirement to negotiate retransmission consent in good faith. 
Congress should extend these protections, too, and could 
explain more about what the good faith standard requires or 
direct the FCC to do that. That's what the FCC did just 
yesterday; rightly deciding that joint negotiations by 
supposedly independent broadcasters don't meet that good faith 
standard.
    Cable operators have seen increases up to 161 percent in 
the fees they pay when stations use these tactics. The FCC's 
action could control these skyrocketing costs that always come 
back to consumers. Congress also should clarify the FCC's 
authority to order carriage during retransmission disputes so 
that blackouts are not a bargaining chip.
    Congress rolled back many Cable Act protections in 1996 and 
it now relies on competition to discipline those rates. But 
rates keep going up nearly three times the rate of inflation. 
That's because the method of gauging competition is not 
effective. Prices in markets that the Act calls ``competitive'' 
are actually 3 percent higher.
    There's plenty of blame to go around for these failures. 
Too often pay-TV companies, broadcasters, and programmers 
divide the spoils from consumers that have no real choice in 
the market for bundled TV and broadband services. Cable 
operator revenues go up even as they lose video customers. 
Broadcast and cable channel revenues go up even as their 
ratings go down. But a lot of people have decided either they 
can't or they won't absorb these increases anymore. They're 
cutting the cord completely on pay-TV or relying more on online 
options.
    Senator Rockefeller's Consumer Choice in Online Video Act 
would help online providers compete. It would guard against 
pay-TV attempts to deny content, degrade online choices or prop 
up their own video business by using their market power over 
broadband services.
    The Television Consumer Freedom Act, sponsored by Senators 
McCain, Blumenthal, and Whitehouse, would lower prices by 
giving customers a real choice about what they buy. Letting 
people know what they're paying for each channel and letting 
them decide whether to pay it is common. It also would reduce 
blackouts by testing channel prices in a real market rather 
than tying up popular content in take-it-or-leave-it bundles.
    Thank you very much and I look forward to your questions.
    [The prepared statement of Mr. Wood follows:]

  Prepared Statement of Matthew F. Wood, Policy Director, Free Press 
                     and the Free Press Action Fund
Introduction
    Chairman Pryor, Ranking Member Wicker, and members of the 
Subcommittee, thank you for inviting me to testify on the Satellite 
Television Extension and Localism Act (STELA).
    My name is Matt Wood, and I am the Policy Director for Free Press 
and the Free Press Action Fund. Free Press is a nationwide, nonpartisan 
and nonprofit organization with more than 700,000 members. We promote 
public interest media and technology policies, working to strengthen 
democracy by strengthening the tools we use for free expression and 
economic activity. We advocate for diverse media viewpoints and quality 
journalism. And we focus especially on promoting open, universal and 
affordable communications platforms for all.
    In this testimony, I will comment first on the need to extend 
current laws that serve those same diversity and competition goals, 
including STELA and related provisions. Second, I will offer answers to 
the Committee's questions about whether present law does enough to 
protect and promote a video market responsive to consumer demands and 
expectations. Specifically, I will describe failures that permeate the 
industry, and address legislative proposals (in addition to STELA) that 
would allow consumers to enjoy more choices and more affordable 
services.
    Some industry stakeholders today call for total ``reform'' of video 
marketplace rules--or, to describe their calls more accurately, for 
self-interested changes to benefit themselves and hamper their 
competitors. Their arguments suggest that a free market could exist for 
multichannel video programming distributor (MVPD) services or online 
video in the absence of any safeguards. But the truth is that many 
current measures actually promote competition and consumer choice that 
simply would not exist otherwise. Deleting some provisions and allowing 
others to expire (in the absence of a comprehensive, consumer-focused 
overhaul) would be especially harmful. So would ignoring the market 
power of established players.
    Whether a particular statute or rule provision is necessary today 
is not an automatic binary choice, where public oversight is always bad 
and removing it is always good. The determination depends instead on 
the nature and the effect of the provision in question. Some rules 
actually work to limit the scope of copyright and contractual 
exclusivity provisions. So, like STELA, they make available certain 
types of content that it would be difficult or impossible to obtain in 
the absence of such rules.
    Other existing provisions, like the good faith negotiation 
obligations in the retransmission consent context, are necessary to 
prevent anticompetitive behavior by incumbent providers and 
distributors. These provisions could be clarified, strengthened, or 
supplemented by new laws, such as the Consumer Choice in Online Video 
Act (CCOVA) (S.1680), sponsored by Senator Rockefeller; the Television 
Consumer Freedom Act of 2013 (TCFA) (S.912), sponsored by Senators 
McCain, Blumenthal and Whitehouse; and the Video CHOICE Act of 2013 
(H.R. 3719), sponsored by Representatives Eshoo and Lofgren.
    The Free Press Action Fund supports these bills because they would 
increase consumer choice among the offerings already on the market 
today. The CCOVA also would prevent harmful conduct leveled against new 
entrants in the video market by incumbent MVPDs that also offer 
broadband and, in some cases, control vertically integrated content 
companies as well.
Preserving and Extending Satellite Viewing Options
    STELA and its predecessors, starting in 1988 with the Satellite 
Home Viewer Act (SHVA), were designed to address a technical gap and 
remedy the resulting limitation on viewer choice. SHVA and other STELA 
forerunners were intended to ensure that viewers who are unable to 
receive a local ``over-the-air'' broadcast signal could still have 
access to broadcast programming through their satellite television 
subscription.
    Congress should continue to offer this assurance to such 
individuals, and should reauthorize STELA to provide continued 
satellite viewing options for unserved households. Prior 
reauthorizations of the satellite home viewing laws have narrowed the 
definition of ``unserved households'' and their eligibility for distant 
signals. Those bills have reduced opportunities for distant signal 
importation in favor of local-into-local carriage for in-market 
broadcast TV stations affiliated with the same network as the distant 
station.\1\
---------------------------------------------------------------------------
    \1\ See 17 U.S.C. Sec. 119(a)(3).
---------------------------------------------------------------------------
    Free Press Action Fund takes no position on whether further 
legislative or regulatory action may be needed to implement these 
changes. We note, however, that direct broadcast satellite providers 
have testified that as many as 1.5 million homes still rely importation 
of distant signals for their broadcast content.\2\ There is no reason 
to reduce these viewers' options by taking away signals they receive 
today.
---------------------------------------------------------------------------
    \2\ See, e.g., Testimony of Alison A. Minea, Director and Senior 
Counsel of Regulatory Affairs, DISH Network LLC, on ``Reauthorization 
of the Satellite Television Extension and Localism Act,'' Hearing 
Before the United States Senate Committee on the Judiciary, at 3 (Mar. 
26, 2014).
---------------------------------------------------------------------------
    STELA and other satellite laws should preserve and increase 
viewers' choices, not reduce them. Yet it remains the case today that 
any of many of your constituents are unable to watch in-state broadcast 
TV programming with their satellite subscription. That is because 
Nielsen draws its Designated Market Area (DMA) television market 
boundaries, on which the FCC relies, without regard for state lines. 
Certain counties are thus ``orphaned'' from the television stations 
located in the same state in which those themselves counties are 
located. This means that residents of a Nebraska county, for example, 
may be able to receive via satellite only television signals that 
originate in Iowa or Colorado; or that residents of a Wisconsin county 
may be eligible to receive only Minnesota broadcast television station 
signals.
    This poses a problem because broadcast TV is a primary means by 
which residents get news and other information that is culturally 
relevant to their communities. Broadcasting also provides a medium 
through which elected officials communicate with their constituents, 
and through which those individuals can gather information about their 
representatives at the statehouse and in Congress too.
    Under Section 614(h) of the Communications Act, 47 U.S.C. 
Sec. 534(h), the Federal Communications Commission has the power to 
modify DMA boundaries for purposes of determining broadcast TV carriage 
rights on cable systems. The FCC's market modification processes under 
Section 614(h) would serve as a good precedent for addressing the issue 
of potentially misaligned boundaries that prevent residents from 
receiving any in-state broadcast signals either over-the-air or through 
their satellite provider. Use of the FCC's market modification 
procedures would not necessarily result in changes to television market 
boundaries, or in the deletion of signals originating in the same DMA 
as the orphan county. This process would simply give the Commission a 
chance to make the determination based on the facts, and perhaps to 
``determine that particular communities are part of more than one 
television market.'' \3\
---------------------------------------------------------------------------
    \3\ 47 U.S.C. Sec. 534(h)(1)(C)(i).
---------------------------------------------------------------------------
Keeping the Faith for Retransmission Consent Negotiations
    Another expiring provision in STELA is the obligation under Section 
325(b)(3)(C) of the Communications Act for broadcast television 
stations and MVPDs to negotiate retransmission consent agreements ``in 
good faith.'' The Satellite Home Viewer Improvement Act (SHVIA) enacted 
in 1999, and the Satellite Home Viewer Extension and Reauthorization 
Act of 2004 (SHVERA), added these good faith negotiating requirements 
to the Communications Act--first for broadcasters, and then with a 
reciprocal good faith obligation for MVPDs as well.
    Congress should extend these protections. It also could adopt 
additional specifications explaining what the good faith standard 
requires, or direct the FCC to provide such additional specifications 
in Section 76.65 of the Commission's rules. For instance, some have 
suggested that a broadcaster blocking access to its online content 
during a retransmission dispute--specifically aimed at broadband 
customers of an MVPD with whom the broadcaster's retransmission deal 
has expired--should be considered a bad faith negotiating tactic.\4\
---------------------------------------------------------------------------
    \4\ See, e.g., Harold Feld, Public Knowledge, ``Escaping the Black 
Hole of Television Blackouts'' (Aug. 6, 2013), http://
www.publicknowledge.org/news-blog/blogs/escaping-black-hole-television-
blackouts.
---------------------------------------------------------------------------
    Congress also should clarify the FCC's authority to order interim 
carriage of a television signal during the pendency of such 
retransmission consent disputes. Free Press supports the availability 
of a ``standstill'' period to ensure continued carriage when 
negotiations reach an impasse, so that viewers are not subjected to 
loss of service as a negotiating tactic.\5\ Clarifying the FCC's 
authority to require carriage during the pendency of any such dispute 
would help hold viewers harmless and prevent them from bearing the 
brunt of such breakdowns in negotiations.
---------------------------------------------------------------------------
    \5\ See, e.g., Comments of Free Press, Parents Television Council, 
and Consumers Union, MB Docket No. 10-71, Petition for Rulemaking to 
Address the Federal Communications Commission's Rules Governing 
Retransmission Consent, at 6-7 (filed May 18, 2010).
---------------------------------------------------------------------------
    The brinksmanship and more frequent blackouts that go along with 
retransmission consent renewals deprive viewers of content they have 
already paid to watch. A better remedy than allowing importation of 
distant signals when a blackout begins, requiring refunds to MVPD 
subscribers after it is over, or creating a counter-productive 
``parity'' to let MVPDs delete broadcast signals during ratings 
periods, would be to prevent loss of service in the first place.
    Different parties have offered up persuasive if not definitive 
arguments about the FCC's existing authority to require interim 
carriage.\6\ Clarifying the agency's authority (as Rep. Eshoo's Video 
CHOICE Act proposes) would remove any doubt about the FCC's ability to 
hold consumers harmless during a retransmission consent dispute. Such 
measures would preserve choice and rein in costs, but without scrapping 
retransmission consent compensation to broadcasters and content 
creators for use of their materials by the MVPDs who sell these signals 
to their own customers.\7\
---------------------------------------------------------------------------
    \6\ See, e.g., Letter from Public Knowledge, OTI, and the Benton 
Foundation, MB Docket No. 10-71, at 5-7 (filed Jan. 4, 2011); Letter 
from Public Knowledge, DISH, New America Foundation, DIRECTV, Charter 
Communications, American Cable Association and Time Warner Cable, MB 
Docket No. 10-71, at 1-4 (filed Dec. 11, 2013).
    \7\ See, e.g., Testimony of Ellen Stutzman, Director, Research and 
Public Policy, Writers Guild of America, West, Inc., on 
``Reauthorization of the Satellite Television Extension and Localism 
Act,'' Hearing Before the United States Senate Committee on the 
Judiciary, at 3 (Mar. 26, 2014).
---------------------------------------------------------------------------
    Of course, to acknowledge that retransmission consent fees remain 
valid in principle is not to deny for a second that these fees are 
spiraling out of control. There are actions that the FCC has already 
undertaken to check these skyrocketing prices, and there are additional 
steps that Congress should take as well. These negotiations are not 
just a business disputes with no ramifications for consumers: the 
increased fees that MVPDs pay in such circumstances invariably are 
passed through to cable and satellite subscribers.
    For instance, retransmission consent negotiations conducted jointly 
by broadcast TV stations allegedly under separate control--but in 
reality coordinating all of their operations--are one driver for this 
rising price of retransmitted broadcast signals. American Cable 
Association members have shown the increase in retransmission consent 
fees paid when stations employ these joint negotiating mechanisms. 
These small cable operators documented four instances in which the 
average impacts of joint negotiations on their own retransmission 
consent costs were increases ranging from 21.6 percent to 161 
percent.\8\ MVPDs also have found more than 40 instances, representing 
more than 20 percent of all TV markets, in which a single broadcaster 
negotiates retransmission consent for more than one ``big four'' 
network affiliate--a number that will only grow in light of the 
continued pace of broadcast transactions.\9\
---------------------------------------------------------------------------
    \8\ See, e.g., Ex Parte Comments of SuddenLink Communications, CSR 
Nos. 8233-C, 8234-M, at 5-6 (filed Dec. 14, 2009) (21.6 percent 
increase); USA Companies Letter to Ms. Marlene Dortch, Secretary, 
Federal Communications Commission, MB Docket No. 10-71 (filed May 28, 
2010) (133 percent increase); Cable America Letter to Ms. Marlene 
Dortch, Secretary, Federal Communications Commission, MB Docket No. 10-
71 (filed May 28, 2010) (161 percent increase); Pioneer Long Distance 
Letter to Ms. Marlene Dortch, Secretary, Federal Communications 
Commission, MB Docket No. 10-71 (filed June 4, 2010) (30 percent 
increase).
    \9\ See, e.g., Notice of Ex Parte Communication of American Cable 
Association, MB Docket Nos. 10-71, 09-182, at 2 (filed June 24, 2013).
---------------------------------------------------------------------------
    Free Press does not believe that congressional action is necessary 
at this time to prevent such joint negotiating tactics, so long as the 
FCC continues its progress towards renewed enforcement of the local 
television multiple ownership limits in Section 73.3555 of the 
Commission's rules. The FCC can prevent such coordination among alleged 
competitors by ensuring that separate broadcast licenses really do 
remain under separate control. That would prove a more effective remedy 
than a standalone ban on joint negotiations, while also working to 
promote competition, localism and diversity in other ways in local 
media markets.
    Yet, breakdowns in retransmission consent negotiations do not exist 
in a vacuum, and the excesses and failures of the current video market 
would not disappear even if Congress and the FCC implemented all of the 
measures outlined above. Better faith bargaining, interim carriage 
requirements, and an end to joint retransmission consent negotiations 
would improve outcomes, but these steps would not by themselves allow 
consumers more freedom to choose their own video content--either on 
traditional MVPD platforms or from ``over-the-top'' alternatives.
    That is why further congressional action is necessary, whether 
taken in conjunction with this reauthorization or not. Congress must 
address the real culprit for rising retransmission fees and myriad 
other failures in the video marketplace: the traditional cable business 
model, which too often centers around how to divide the spoils from 
captive customers rather than how to improve consumers' choices and 
lower their prices in the first place. These problems are not confined 
to the ``traditional'' video marketplace either, and they are now 
spilling over into online video and into our Nation's broadband 
communications market as well.
Additional Steps for Fixing America's Broken Video Market
    America's video market is broken. Since 1996, when Congress relaxed 
the protections adopted in the Cable Television Consumer Protection and 
Competition Act of 1992, cable prices have risen steadily at nearly 
three times the rate of inflation. And this trend is only getting 
worse. Since the 2008 recession, the average annual rate of inflation 
has been 1.4 percent, but the price of expanded basic cable service has 
increased by an annual average of 5 percent. Plus, these figures do not 
include mandatory equipment rental costs, which continue to skyrocket 
too.
    In fact, as Free Press has documented, the ``effective 
competition'' standard in Section 623 of the Communications Act, 47 
U.S.C. Sec. 543(l), has not succeeded in disciplining cable prices. 
Congress should modify that standard to make the FCC determine 
accurately whether effective competition really exists, rather than 
finding the mere presence of MVPDs other than incumbent cable to be 
``effective'' even where cable's market share remains as high as 85 
percent. This test simply does not measure whether competition actually 
occurs in such highly concentrated markets. That's the main reason that 
the FCC's own statistics show prices in markets deemed subject to 
effective competition under this test are 3 percent higher.\10\
---------------------------------------------------------------------------
    \10\ See S. Derek Turner, Free Press, ``Combatting the Cable Cabal: 
How to Fix America's Broken Video Market'' (May 2013), http://
www.freepress.net/sites/default/files/resources/
Combating_The_Cable_Cabal_0.pdf.
---------------------------------------------------------------------------
    While no one industry segment is responsible for all of these out-
of-control price increases, there is plenty of blame to go around. 
Broadcast and cable channel owners such as Disney, Fox and Viacom, and 
multichannel video distributors like Comcast and Time Warner Cable, are 
the two factions of what Free Press has described as a comfortable 
cabal \11\ that earns monopoly profits from consumers who are deprived 
of any real choice in the pay-TV market.
---------------------------------------------------------------------------
    \11\ See id.
---------------------------------------------------------------------------
    The recent recession took a brutal toll on many businesses. 
However, the cable, satellite and telco TV multichannel distributors 
kept making money. From 2007 to 2011, the multichannel distributors 
collectively increased the price of expanded basic cable service by 22 
percent. These rate hikes and other fee increases helped the industry 
boost its video-service revenues by 27 percent, an impressive 
performance considering that during this same period there was almost 
no growth in the total number of pay-TV subscribers.\12\ Indeed, the 
traditional wired cable providers' total video revenues grew by 11 
percent during this timeframe, even though these companies lost 11 
percent of their subscribers.\13\
---------------------------------------------------------------------------
    \12\ See id. at 12.
    \13\ See id. at 2.
---------------------------------------------------------------------------
    But these distributors are just that: distributors of (most often) 
someone else's programming. As the owners of that programming raise 
their fees, distributors either have to pass those higher costs along 
to their subscribers or accept lower profits on video. For many years, 
the distributors simply passed along all of these increased programming 
costs. As impressive as the multichannel video distributors' fiscal 
performance was through the recent economic downturn, it pales in 
comparison to the revenue growth experienced by cable programmers. From 
2007 to 2011, total cable programmer revenues rose at a compound annual 
growth rate of 8 percent, a result analysts characterized as 
particularly impressive given the recession.\14\
---------------------------------------------------------------------------
    \14\ See id. at 2.
---------------------------------------------------------------------------
    Cable channels are not the only ones profiting from increased fees, 
as broadcasters also make extensive use of their retransmission consent 
rights today. Payments from multichannel video distributors to local 
broadcasters reach record levels every fiscal quarter, in some cases 
despite declining ratings. As one broadcast executive bragged to 
analysts: ``[T]he reality of retransmission is it enables the broadcast 
business to be a healthy business. . . . [W]e have had a very 
disappointing year ratings-wise but our broadcast business is up [in] 
profitability.'' \15\ Retransmission consent fees have risen across the 
board and become a larger and larger percentage of broadcasters' 
revenues. The industry saw retransmission revenues increase more than 
10-fold in six years, from $215 million in 2006 to $2.4 billion in 
2012.\16\ They jumped to $3.3 billion in 2013, and current projections 
predict them more than doubling again to $7.6 billion in just five more 
years.\17\
---------------------------------------------------------------------------
    \15\ Id. at 19-20 (quoting News Corp. Q2 2013 Earnings Call, Feb. 
6, 2013).
    \16\ See id. at 20.
    \17\ See ``Retrans Rev Projected To Hit $7.6B By 2019,'' 
TVNewsCheck, Nov. 22, 2013, http://www.tvnewscheck.com/article/72202/
retrans-rev-projected-to-hit-76b-by-2019.
---------------------------------------------------------------------------
    While they often find themselves at odds over rates today, 
programmers and distributors still might work together to prevent 
consumers from truly ``cutting the cord'' for pay-TV services, or to 
keep customers from paying only for the programming those consumers 
want to watch. Many programmers leverage their ownership of high-demand 
channels (such as ESPN or HBO) and force MVPDs to purchase the less-
desired channels controlled by these same programmers. Distributors 
long accepted this practices of wholesale bundling as acceptable or 
even beneficial for them as well, because they could pass the whole 
bundle on to customers. So MVPDs could grow their own revenues and 
create an illusion of value with ever-expanding channel lineups.
    Recently, as programming fees continued to balloon, many consumers 
decided that either they couldn't or they wouldn't absorb the rate 
increases--leading to the decline in MVPD video subscribers documented 
above. As a result, MVPDs have been forced to absorb at least a portion 
of these increased programming costs. But cable companies are using 
their captive broadband customers to help shoulder the burden. Because 
the wired providers bundle video service with broadband, they are able 
to spread the programming-cost increases across each service in the 
bundle--maintaining healthy overall margins even as their video margins 
decline.
    Lawmakers, including those on this Committee, have introduced or 
co-sponsored legislative solutions in the last year to these twin 
problems: limited choice in the TV channels that MVPD customers must 
buy, whether or not they watch them; and limited choice in the online 
alternatives that consumers have, both for watching broadcast and cable 
programming online and for utilizing alternative video sources. Free 
Press Action Fund has supported three such bills aimed at fixing these 
problems during the current Congress: Senator Rockefeller's CCOVA; the 
TCFA put forward by Senators McCain, Blumenthal and Whitehouse; and the 
Video CHOICE Act sponsored by Representatives Eshoo and Lofgren.
Increasing Consumer Choice on Pay-TV Platforms
    The TCFA and the Video CHOICE Act address many of the same 
problems. The bipartisan TCFA in particular could shake up the industry 
and give consumers a real measure of control over the price they pay 
for the cable and broadcast channels made available to them. That bill 
virtually ensures that consumers would be offered an ``aa la carte'' 
option alongside bundled-channel packages, allowing viewers to take and 
pay for only the channels they actually want to watch. This would save 
consumers money in the short run and, in the long run, help create a 
more competitive television market both online and on traditional MVPD 
platforms.
    The Video CHOICE Act introduced by Reps. Eshoo and Lofgren seeks to 
prevent retransmission consent-driven blackouts by (1) enabling 
consumers to purchase cable service without subscribing to 
retransmitted broadcast stations and (2) prohibiting programmers from 
directly or indirectly condition retransmission consent on the carriage 
of additional, affiliated cable channels. (For example, prohibiting CBS 
from requiring carriage of Showtime to get the CBS signal.) The TCFA 
would go even further by providing incentives for retail aa la carte 
for all pay-TV channels, including broadcast and cable programming 
alike.
    Passage of these bills would promote competition between 
traditional MVPD services and online video alternatives, and increase 
market transparency and consumer agency in the purchase of traditional 
MVPD programming. If Congress does not pass such measures, large 
programmers will continue to tie less popular channels to their marquee 
content--crowding out capacity and opportunities for independent 
channels while making consumers foot the bill for an entire bundle of 
channels they don't want. Our research shows that the chief 
beneficiaries of forced bundling are not diverse programmers serving 
underserved communities, but sports and entertainment channels owned by 
Fox, Viacom, Comcast, Disney and the major sports leagues.\18\
---------------------------------------------------------------------------
    \18\ See Turner, ``Combatting the Cable Cabal,'' at 22-27.
---------------------------------------------------------------------------
    In the absence of legislative action, retransmission consent and 
cable licensing fees will stay high because they are undisciplined by 
any real measure of demand. It's no surprise to see prices increase 
when the viewers ultimately purchasing this content have little to no 
knowledge of the price they pay for each channel, let alone the power 
to decide whether or not they purchase them. Such hidden prices are 
perhaps the most tangible sign of a failed market. Distributors sell 
inflexible, more-than-you-can-eat programming bundles full of channels 
that no one watches. This model completely obscures actual demand, 
making consumers appear to be far less price sensitive than they 
actually are for any given channel or group of channels.
    Senator Rockefeller's CCOVA offers alternatives to the 
retransmission consent structure as well, by expressly authorizing 
antenna rental services (such as Aereo) and resolving doubts and 
ongoing litigation about the legitimacy of such services. But Senator 
Rockefeller's bill offers even more promise for video consumers because 
it expands not only the choices that viewers have with their current 
pay-TV subscriptions, but protects online content and distribution 
alternatives as well.
Increasing Video Options Online
    The CCOVA would help online video content companies and 
distributors compete with traditional pay-TV channels and MVPDs. In no 
uncertain terms, it would prevent broadband Internet service providers 
from trying to squelch alternatives to their legacy video services. The 
bill would give online video providers more rights to negotiate access 
to popular content. It would keep broadband providers from degrading 
online video services that compete with traditional cable TV offerings. 
And it would clarify broadband billing to guard against discriminatory 
pricing, and to let consumers know what they are paying for.
    The Free Press Action Fund endorsed the CCOVA because the bill 
would extend nondiscrimination and program access-style protections to 
online video providers, and more generally guard against 
anticompetitive practices (such as the use of data caps, forced 
bundling and exclusivity) when such practices are aimed at diminishing 
competition from online video sources. The bill notes the substantial 
First Amendment interest in ``promoting a diversity of views'' and 
would prohibit Internet Service Providers affiliated with MVPDs from 
favoring their own offerings.
    These tactics harm not only the video market, including new 
entrants, innovators, and consumers in that market. They also harm 
broadband as well, as some MVPDs use their broadband service--a product 
subject to very little competition in a market with insurmountable 
entry barriers--to cross-subsidize their video business. Some large 
distributors like Comcast actually use predatory pricing (e.g., selling 
a video-data bundle for less than the price of stand-alone data 
service) to discourage competition from new video providers. And some 
distributors like Comcast and AT&T use data caps and veiled threats 
against Internet openness to thwart competition from over-the-top 
competitors.
Conclusion
    Congress should reauthorize STELA, in the process preserving and 
expanding choices available to satellite viewers, while extending and 
strengthening good faith negotiating rules for retransmission consent. 
Yet the ultimate answer to preventing blackouts, and loss of service 
for consumers who already pay too much for video in the first place, is 
to empower those consumers with the ability to make decisions for 
themselves. Whether it takes up such reforms in this reauthorization 
process or not, Congress should allow the FCC to continue implementing 
its own retransmission consent and local ownership reforms. Congress 
also should enact new legislation to preserve and promote video choice 
both online and on traditional pay-TV platforms.

    Senator Pryor. Thank you.
    And we've been joined by Senator Thune. And he has said 
that he does not want to ask questions. And as a reminder to 
the Committee, we will--I mean--I'm sorry. He said he didn't 
want to make a statement.
    And as a reminder to the Committee, we will allow everyone 
to submit their full statements for the record, including the 
panel.
    Let me jump in, if I may. Mr. Palkovic, let me ask you a 
pretty straightforward question, or at least it seems 
straightforward to me. And that is, the STELA and its 
predecessors have generally included a 5-year sunset and as 
Congress looks at this reauthorization, is 5 years the right 
amount of time? And also, is it 5 years for everything in the 
reauthorization or should there be, sort of, a staggered set? 
And if so, why?
    Mr. Palkovic. Well, actually, I think that we would 
strongly support as long a term as you would consider. As it 
sits today, we are definitely not on a level playing field with 
cable which is our number one competitor who has a statutory 
license that does not sunset.
    You know, permanent reauthorization would be what we would 
want. And then, as marketplace changes dictate, we would come 
back to the Committee with issues like blackout issues as 
appropriate. Right now, we have the uncertainty of coming back 
every 5 years and, because of that, we think that's the 
opportune time to not just extend it but to consider what's 
taken place in the last 5 years that would require Congress to 
change.
    So longer is better for us.
    Senator Pryor. OK.
    And I was going to ask you if you, I know that you--also, 
obviously, previously with the chairmanship of the FCC, you are 
in a unique position here, we all know that the video 
marketplace has changed a whole lot in the last years and 
continues to change. What do you think, what do you foresee the 
video marketplace to look like over the next four or 5 years?
    Mr. Palkovic. It's a fascinating question because I think 
the arrival of the Internet has allowed the digitalization of 
any form of content to include video distribution over networks 
that were unimagined in serving that purpose.
    That's why you see the excitement around companies like 
Netflix who've had a 230 percent increase in their stock price 
and have 44 million subscribers, more than any multichannel 
provider in the United States today, as well as innovations 
like Hulu and Roku and Amazon Prime, and VUDU, and other 
services.
    I think you're going to see a much more multidimensional 
video marketplace; one with very nontraditional competitive 
forces coming from over-the-top alternatives, from companies 
who would have never been in the video business. You're seeing 
a flourishing in the program creation market with companies, 
again, like Netflix who can invest up to $100 million in 
original content. We're enjoying a relatively golden age of the 
creation of that content. And I, frankly, don't see anything 
that's going to stop the ability to field the incredible 
appetite Americans seem to have for high-quality television on 
any device they choose.
    Senator Pryor. Anybody else on the panel that would like to 
look into the crystal ball and see--yes. Yes, sir, Mr. Rogers.
    Mr. Rogers. It's a great question, Mr. Chairman.
    We look at it this way. We think there's an ideal out there 
in terms of how the future of television is going to evolve and 
what we think that future is going to be is music.
    The music industry got crushed by the onslaught of digital. 
But, with that, an entirely new model developed for consumers 
where, effectively, anything they want to get that's ever been 
written by way of song or music is available to any device they 
want. It follows them in the cloud; it can be personalized with 
playlists by genre; however they want it.
    And most Americans have gotten to think that that is a 
great way to consume content. What we do is try to bring about 
that opportunity in the video realm without the incumbent 
business models being crushed. And that is, what we do is try 
to bring together, with a single box, a single remote, a single 
user interface, the ability to search across everything. 
Traditional video sources; your regular cable channels; your 
Video On Demand; and all the new offerings coming from the 
Internet, all coming together.
    We're the only retail box that gives consumers that choice, 
that ability to say, ``I know a great model out there; I want 
to apply it to television.'' And in so doing, we've been able 
to take that technology and build it out for cable operators so 
their boxes that they're providing that are not retail boxes 
can now provide that same degree of technology and ultimately 
that same consumer experience. If you take away this thing that 
sounds really unrelated but it's very related, how CableCARD 
exists to provide that competition, what you're going to do is 
undo the ability for that opportunity for consumers to have a 
great content consumption experience that we've built.
    Senator Pryor. Thank you.
    Senator Smith.
    Senator Smith. Mr. Chairman, I think Michael is right. This 
is a very fast-evolving marketplace. It's already incredibly 
diverse. But I would simply note that in any given week, if you 
look at the top 100 shows, somewhere between 94 and 96 of them 
are broadcast content. It shows you where the eyeballs are.
    And I would just simply make a plea on behalf of my 
members, both my networks that have expensive and highly-valued 
content that they have the right to control it and that they 
have the freedom to negotiate for its market value.
    Senator Pryor. Senator Wicker.
    Senator Wicker. Well, thank you.
    And I guess we could go on and on with that general 
question. Let me get down into the specific weeds. And, Mr. 
Powell and Mr. Rogers, see if I can get a conversation going 
between the two of you about the integration ban. And, you 
know, we're all consumers up here, too. So if you could sort of 
speak to us on the consumer level rather than as Senators or 
policymakers.
    Mr. Powell, as I understand Mr. Rogers, he says that 
there's a better approach than CableCARDs. He sees a new 
approach that doesn't involve a physical card. They need time 
to establish this and that the House action, in repealing the 
FCC integration ban, is going to interfere with that. Now, I 
take it that you're quite satisfied with the approach of the 
House legislation with regard to the integration ban. Why is 
that good for consumers? And, what's wrong with what Mr. Rogers 
said about giving a little more leeway to get rid of this card 
but do the same thing for consumers?
    Mr. Powell. I'd make a couple critical points.
    One, the legislation that we support in the House and the 
one that we would ask you to consider here does not, in any 
way, repeal Section 629 of the statute that requires the 
separate security requirement or require CableCARD. If you pass 
the legislation we are urging today, CableCARD would still be a 
solution that the FCC would still oversee, and they would still 
have a legal duty to continue to support.
    What we had asked for is the removal of an FCC decision to 
include an integration ban requiring our boxes to use separate 
security. What that does is deny consumers a low-cost choice 
that could be created in the market. Meaning, if we're allowed 
to provide integrated security boxes that would be a low-cost 
option, among others, that consumers could choose.
    I appreciate Mr. Rogers noting my laudatory comments as 
``God's machine'' and I stand by them. It's a terrific device. 
The same year as Chairman of the FCC, a few years earlier, I 
dissented from this very rule because I believed it overstepped 
the bounds of Congress and wouldn't have the effect that it was 
intended.
    So this would provide consumers another box of a different 
choice. It would also lower costs and lower energy consumption, 
CableCARD remains a solution, and future IP solutions, we 
believe, which we do agree, are due, we believe, can be 
developed in the marketplace.
    Senator Wicker. The exact wording of the House Committee 
bill suits you fine. Is that right, Mr. Powell?
    Mr. Powell. Yes, sir, it does.
    Senator Wicker. All right.
    Now, Mr. Rogers, what's your response to Mr. Powell's 
position?
    Mr. Rogers. Well, the issue is: how do you preserve a 
retail market and the choice for cable subscribers which 
consumers have when it comes to smartphones or tablets, et 
cetera?
    And, if you remove a common way for those devices to be 
developed around content security, which, in the end of the day 
has to do with can a consumer get access to the content that 
they want to buy their own box for. We've already seen, even 
under the CableCARD regime, cable operators who have tried to 
put in place technology that deny CableCARDs the ability to get 
a whole bunch of channels.
    So if you went and bought a retail box, even under the 
CableCARD standard, it created a situation where cable 
companies were trying to thwart that and create a way for 
content channels to be distributed to their own boxes that 
retail boxes couldn't get. And if we hadn't scrambled and found 
a quick solution to that, there'd be no reason anybody would 
buy a retail box or that a competitive marketplace would 
develop. Because why would anybody do that if they couldn't get 
access to the cable content that they were subscribing to?
    So CableCARDs have their flaws, what I'm just pointing to 
being one example. We've had our headaches with installation of 
CableCARDs. We're not sitting here saying that's the best 
system. There's an easy----
    Senator Wicker. But the function needs to stay?
    Mr. Rogers. The function needs to stay.
    The standard----
    Senator Wicker. Mr. Lake?
    Mr. Rogers It doesn't require a regulation. It's the 
industry needs to come up with a replacement standard that 
applies to retail boxes and cable boxes, and then there's no 
issue. There's no cost or burden to the cable industry of what 
CableCARDs provide. It provides choice for consumers, and it 
allows the technology development that we stand for and the 
innovation that we stand for to thrive.
    And we ask, why take off a current standard which is just 
going to end up bulkanizing the industry. Different companies; 
different solutions. We can't create a retail national device 
based on a hodgepodge of different standards. We need a single 
standard. And the industry could easily come up with one if 
policymakers said figure this out, figure it out quickly. 
Everybody wants to get rid of CableCARD, but we're not going to 
get rid of it until a new standard is in place.
    Senator Wicker. Mr. Lake, help us out here. Which is the 
best way for us to protect the consumer here?
    Mr. Lake. We think the CableCARD regime has not been a full 
success in generating a robust retail market. It does have to 
be replaced for an IP delivery world, which is coming very 
quickly. We agree with that. When a replacement is worked out, 
we do think that the common reliance principle is a useful one 
to ensure that the cable companies have an incentive to support 
the technology that's used in retail boxes.
    Senator Wicker. Thank you.
    And thank you, Mr. Chairman.
    Senator Pryor. Senator Johnson.

                STATEMENT OF HON. RON JOHNSON, 
                  U.S. SENATOR FROM WISCONSIN

    Senator Johnson. Thank you, Mr. Chairman.
    Being relatively new to this process here, not having been 
watching it for decades, this gets confusing very quickly.
    Mr. Wood, you talked about JSAs, that they don't really 
meet the standard of good faith negotiation. Can you explain 
that to me?
    Mr. Wood. Well, the FCC, yesterday, decided that joint 
retransmission between allegedly separate licensees is a 
violation of that good faith bargaining duty because it allows 
a single entity, a single broadcaster, to control the 
negotiations for more than one broadcast outlet in the same 
market. And that leads to, according to small cable operators 
who typically serve rural customers and don't get quite the 
same discounts that the largest cable operators get, leads them 
to provide us with evidence that rates go up in that 
circumstance, those rates flow on to consumers. And that's why 
we're concerned about it just as the cable industry itself is.
    Senator Johnson. Mr. Smith, can you give us your 
perspective on that?
    Senator Smith. Senator Johnson, there are two issues. One 
is joint selling of advertising. And the other is negotiating.
    Very often, when my members negotiate with my friends here, 
they ask us to get together just out of economies of scale. I 
have a few members who argue about our ability to jointly 
negotiate.
    When it comes to joint selling I would just simply note 
that I'd wish it on cable they do the same thing. But, it's 
applied only to us. It does not seem fair. And I don't mean to 
offend my friend, Bill Lake, here, but the FCC is under 
statutory obligation to do a biannual review of ownership in 
this vastly changing market. Do you know how long it's been 
since they've done that? Since 2007.
    And so, do my members try to deal with the market realities 
that are out there? Of course they have. In order to promote 
localism, promote local news and weather, and especially 
emergency information, typically when there's a tornado bearing 
down on your community, it actually helps. The record is 
replete with how this has expanded with localism and diversity. 
And yet, we're singled out. It doesn't seem right. And it does 
seem a dereliction of duty on the part of the FCC to be square 
with broadcasting because there's no replacement for localism 
than us.
    And when it comes to a lot of these issues, like distance 
signals, we want them to have it. STELA has lapsed before, in 
2009. We kept their signals up. We want them to have those 
signals. But the question is shouldn't you want, as a matter of 
public policy, localism? Why do you want LA news brought into 
Wisconsin? They need to build out their networks----
    Senator Johnson. We're veering off the subject of the joint 
sales agreements.
    To me, personally, there's a great deal of bias toward the 
status quo. People base business models on that and then all of 
a sudden they get changed, possibly not following the statute.
    Mr. Powell, can you just kind of speak to that? The 
stability of you've got a regulation people base their business 
models on, now the FCC is changing them without giving, I think 
what some people may consider due notice, not really following 
the statute in terms of the review.
    Mr. Powell. Let me be clear, at least representing the 
position of cable, because Gordon has raised it. We have no 
opinion whatsoever on the efficacy of joint sales in sales 
agreements. We haven't challenged that function; we don't have 
an opinion on that function.
    I will note, however, that the accusation that what cable 
does is exactly the same as what broadcasting does is 
fundamentally different. The difference being that in these 
interconnect situations in which cable companies negotiate for 
advertising, you're talking about companies who are not 
competitors. They're in no way competitors with each other. In 
the context of broadcasting, they're companies that are 
otherwise supposedly competitors which raises other sets of 
concerns of which I've never examined, I don't have an opinion.
    I do believe the FCC has an obligation to provide clear 
notice of what it's doing. But I really don't take an opinion 
on the dispute they're having with broadcasters over the local 
ownership rules.
    Senator Johnson. Well, again, having been with the FCC, did 
you think the FCC was--did they overstep their bounds here in 
this latest decision?
    Mr. Powell. With the decision they made that concerns our 
issue, I don't believe they've overstepped their bounds at all. 
I think they had the obligation for decades to make sure that 
the good faith provision of retransmission consent is fully 
utilized and fully understood. And I think that their decision 
to prohibit joint negotiations in the top four is a natural 
extension of that authority.
    Senator Johnson. OK.
    My time is up, I guess, Mr. Smith.
    Senator Smith. I would just note, for the record, Senator 
Johnson, that by my count, 85 joint sales service agreements 
have already been approved by the FCC that are now disallowed 
and have to be unwound.
    How do you attract investment to an industry when your 
regulator can change the rules ex post facto? A great injustice 
has been done to a lot of what has been done and the FCC is 
already blessed.
    Senator Johnson. OK. Thank you, Mr. Chairman.
    Senator Pryor. Senator Ayotte.

                STATEMENT OF HON. KELLY AYOTTE, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Ayotte. Thank you, Mr. Chairman. I want to thank 
the witnesses for being here. If we don't reauthorize STELA, 
what happens to my constituents in New Hampshire who rely on 
imported distant signals? And since STELA is a regulation, if 
it lapses is there an alternative marketplace mechanism to 
serve those viewers?
    I would pose that to Senator Smith or anyone else on the 
panel who would like to comment.
    Senator Smith. Senator Ayotte, STELA has lapsed before and 
the signal stayed up. But we should be clear, that there's a 
reason why my friends in satellite, we want them to succeed, 
but they want this bill reauthorized so they don't have to 
buildup their network in order to provide your constituents 
local television. So they don't have to negotiate for retrans. 
They're exempted from that. So it's a subsidy that exists for 
the second and third largest pay-TV providers in the country.
    Senator Ayotte. Would anyone else on the panel like to 
comment?
    Mr. Wood. I would take issue with that, Senator, with some 
of those characterizations. I think that if the testimony and 
the materials that were prepared in response to the Committee's 
questions are correct, that DISH is serving every local market 
with local signals. And DirecTV, and Mr. Palkovic can correct 
me if I'm wrong, is serving all but a few of them. And many of 
your constituents are probably getting local signals from 
Boston or from New Hampshire stations depending on where they 
are within the state.
    This provision, reauthorizing that, simply allows those who 
get distant signals from another city to continue receiving 
those. And I wouldn't really characterize it as a subsidy or as 
a regulation, but rather, a statutory license and limitation on 
certain rights under copyright law that broadcast stations 
have.
    I appreciate Senator Smith saying they want those signals 
to stay on the air, but this is the mechanism that ensures that 
and keeps those signals on the air for your constituents.
    Senator Ayotte. I'm trying to understand if we don't 
reauthorize, what is the alternative? I understand, Senator 
Smith, what you're saying about the buildout and the investment 
that you believe needs to be made. I want to hear the panel's 
opinion on how you think this would occur? Let's assume we 
didn't reauthorize and how quickly could that occur? And, 
during that period, how do I say to my constituents that are 
receiving these distant signals, that while we're waiting for 
this investment to happen, that they won't be cut off? So, this 
is an important question for everyone up here.
    Mr. Palkovic. Yes.
    I'll speak on behalf of DIRECTV and DISH. I mean, we would 
not be allowed to continue to provide those signals to a 
million and a half customers or we'd be in violation of the 
law.
    So there is no other alternative for those folks since they 
were prequalified as not being able to receive the off-air 
signal based on certain tests. And the tests are actually 
fairly outdated but if they were brought up to kind of the 
current standard of reality of what's going on out there, there 
would actually be even more people that would probably qualify.
    With that said, we would have to take the signals away and 
they'd have no choice but to put an off-air antenna, which the 
very idea of that is kind of frustrating for them because 
that's what qualified them to get these signals in the first 
was they weren't able to receive the signal. So the fact that 
it's free over the air, does not mean that everybody is able to 
get a valid signal in the marketplace.
    Senator Ayotte. Senator Smith.
    Senator Smith. He's right about that, Senator Ayotte. Let 
me admit there are some narrow circumstances where this ought 
to be given to them and given to them permanently. But, there 
is an incentive built into this for them not to build out 
because they don't have to negotiate for a local retran.
    And I think, for purposes if you want to foster localism, 
if you want your constituents to see news about your activities 
here as opposed to someone in California or New York, they 
ought to be encouraged to do that and make it permanent because 
there are some limited circumstances where a distant signal is 
necessary.
    Mr. Palkovic. Just on that point, for the record, and Mr. 
Wood commented on this, DISH provides and has spent, between 
the two companies, we've spent billions of dollars on 
satellites and broadcast centers and uplink centers to provide 
service to just those 210 DMAs; 100 percent of them. We're 197 
out of 210, which is 98 percent of the customers. So, yes, 
we're a few markets short and we have off-air antenna solutions 
currently being marketed in every one of those markets.
    So the idea that we're not taking this seriously to try and 
avoid retrans consent is ridiculous. We've spent billions of 
dollars to do just the opposite.
    Senator Ayotte. Well, I really appreciate all of your 
answers on this. And it seems to me that if we were going down 
the road in terms of changing the mechanism now that there 
would need to be some kind of off-ramp or transition period 
because I am concerned about these consumers who are caught in 
the middle in terms of where we would be because of the 
regulatory framework. I think that would be a concern of many 
of us up here.
    I thank you all for your testimony today.
    Senator Pryor. Thank you.
    Senator Nelson.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. It's so good to have a panel of such 
unanimity of opinion.
    [Laughter.]
    Senator Nelson. Well, two of the most frequent complaints 
that we get are cost and the blackouts. As a matter of fact, 
just for cost, for example, you've had the cable and other TV 
services have increased 6 to 7 percent over the last few years 
while the rate of inflation is 1.5 percent. A magazine did a 
study, Consumer Reports, and over a 15-year period, the 
difference over inflation was $1,750 for the cost versus the 
rise of inflation. Now, I know part of that answer is, well, 
there are additional services that you offer and so forth and 
I'd like anybody who would like to comment on it. This is a 
complaint that we get from consumers.
    We also get a complaint from consumers when suddenly there 
is this showdown at high noon in the middle of the street, and 
the Super Bowl or whatever is a most-acclaimed show is suddenly 
going to be blacked out. Now, that's clearly not in the 
interest of the American public.
    So tell us.
    Senator Smith. Senator Nelson, let me just say that I think 
the industry that I represent has done a poor job of educating 
the American consumers that when they buy a television set, 
there's an antenna in there and all they've got to do is plug 
it in. I just did that on ours. I get 39 stations here.
    We are always on. There's never a blackout. And consumers, 
we need to educate them better. But we become the heavy in this 
that somehow we're to blame. You've just decided the Consumer 
Reports article, which I would recommend to all of you, 
broadcasters only barely begin to get retransmission consent 
for their highly-valued content since 2006. And it's hard. It's 
easy to show a thousand percent increase when you start from 
zero. But, what does broadcasting represent on a dollar of a 
cable bill? It represents two cents.
    Senator Nelson. All right. Let me get Mr. Powell to answer.
    Mr. Powell. I would highlight two things for you when you 
look at rates over time. One, for example, the enormous 
explosion in channels and services that consumers subscribe to. 
For example, in 1995, if you look over that period, there were 
probably on average 24 channels offered to consumers on cable 
systems and we paid roughly $7 to acquire that, those 24 
channels of content. By 2013, the average offered is closer to 
100 channels and they are offered, I'm sorry, over 100 channels 
are offered and we pay about $34 per subscriber for that 
content.
    And, I have to say, in response to Mr. Smith, it's all 
great and well to celebrate what's available for free. If that 
were really the driving force behind these businesses, we 
wouldn't hear about escalating retransmission fees, which, last 
year, increased 38 percent, predicted to increase 30 percent--
--
    Senator Nelson. Let me interrupt you because we're running 
out of time.
    Now Mr. Rogers disagrees with both of you because he says 
he can handle it all.
    Mr. Rogers. I think, Senator, the best antidote for price 
issues is competition. And, allowing consumers to show up with 
their own set-top box to be able to get just over-the-air 
signals, if that's all they want, or over-the-air signals and 
cable and Internet. We have shown that a consumer can save $500 
or more over the life of a set-top box, if given the ability to 
show up with their own device.
    The most galling thing to me in this whole debate is that 
while the FCC has established this scheme for a retail set-top 
box market to create competition, consumer choice, and, 
ultimately, have that kind of impact on price. There are 
regulations in place which tell cable operators if somebody 
shows up with your own box, then they're supposed to get a 
discount on the bundle that they pay $80 a month, $100 a month, 
by virtue of the fact that they're not getting a box from the 
cable operator; they're providing their own.
    Senator Nelson. OK.
    Mr. Rogers. We are finding, far more often than not, that 
discount isn't being given. So somebody's being double-charged. 
That's something that really needs to be pressed.
    Senator Nelson. Final question, Mr. Lake.
    Mr. Lake. Yes sir.
    Senator Nelson. Is all of this an academic discussion 
because is the Internet cloud going to take it all over anyway?
    Mr. Lake. Well, we certainly believe that competition is 
the key. You've probably heard my Chairman say, more than once 
that his motto is ``competition, competition, competition.'' We 
are trying to encourage competition in every part of this 
ecosystem as the best means of driving down prices.
    Our action yesterday with respect to retransmission consent 
was in that theme. We were basically telling two competing 
stations you can't agree not to compete on retransmission fees. 
For that reason, we welcome over-the-air competition in video. 
That's just one more source of consumer choice and one more 
source of competition that will keep rates down.
    Senator Smith. Senator Nelson.
    Senator Nelson. Mr. Chairman, my time is up. But, I want 
Mr. Lake to answer the question for the record, if he would, 
because here we are in a changing-daily technology and who 
knows how these services are going to be offered in the future. 
And I would like for the FCC to look ahead.
    Senator Pryor. Answer the question about the----
    Senator Nelson. Thank you.
    Senator Pryor. Go ahead.
    Mr. Lake. We'd be happy to submit something.
    Senator Wicker. Well, you know----
    Senator Pryor. Yes. Would you like to--go ahead and answer 
it now.
    Senator Wicker.--consent he have another 2 minutes to 
actually answer the question?
    Senator Pryor. Sure.
    Mr. Lake. Yes.
    Well, I think I was trying to get to that with the last 
part of that answer. We see now a tremendous source of 
competition for the video marketplace from the Internet; not 
only the wired Internet but also with LTE on the wireless side, 
the source of competition from the wireless side. And we do 
think that this will change a lot of the business models. We're 
already seeing a world in which there is at least some decline 
in pay-TV subscription because of these additional sources of 
competition.
    And we don't know exactly where the marketplace will go and 
I think we aren't in a position to try to regulate its future 
but I think we do anticipate that there will be more consumer 
choice and more competition going forward. And that, 
ultimately, is the answer to higher prices.
    Senator Wicker. And, Senator Smith.
    Senator Smith. I just think it's really important to point 
out something I'm not sure I fully grasped when I sat among 
you. To Senator Nelson's question: will the Internet take it 
all over? And the answer to that question is it can't by virtue 
of the laws of physics.
    The distribution of wireless broadband is a one-to-one 
communication. Broadcasting is one-to-everyone in the 
demographic. The architectures are fundamentally different. And 
when you try to run all of the video through the Internet, 
guess what happens? It crashes. And in an emergency, do you 
want to crash? That's why broadcasting must be, as a matter of 
policy, a survivor industry in this because our architecture is 
irreplaceable by broadband. And it's physics. It isn't the laws 
of the regulations at the FCC or the laws of Congress. It's the 
laws of physics.
    Senator Pryor. Mr. Wood, just 30 seconds then we have to go 
to our next question.
    Mr. Wood. Yes, very briefly. Thank you, Senator.
    I often talk about the model that Chairman Powell described 
as, when we're providing more channels, look at all the value 
they make you buy. I think that the ultimate answer to the 
price increases you talked about, Senator, and to the blackouts 
as well, is giving people more choice about what to buy both 
online and on their pay-TV platform so that they actually have 
some view of what those retransmission--thank you, Senator. 
What those retransmission consent bills mean for them. And 
also, what cable channels and online options mean to them, as 
well, for the bill they pay at the end of the month.
    Senator Pryor. I'll give others a chance to respond to that 
in a moment. But, Senator Klobuchar, I know that you need to 
ask. Go ahead.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Well, thank you very much. I appreciate 
Senator Blunt allowing me to go first. I have some veterans 
visiting from Minnesota up there. So thank you.
    And thank you for holding this very important hearing, 
Chairman Pryor. And it's the only way that many of the 650,000 
satellite subscribers in our state can get access to video 
services is through satellite; 34 million nationwide. I have 
the honor of being one of three Senators, including Senator 
Cruz, to be on both the Judiciary and Commerce Committee. So 
this will be my second opportunity to talk about STELA. Very 
exciting.
    OK. So I thought I would start with you, Mr. Palkovic. You 
weren't at our last hearing. And, is reauthorization of this 
act still necessary to ensure satellite continues to be 
competitive with cable? And, specifically, how has Section 119, 
which is expiring in the permanent Section 122, impacted your 
ability to compete in the video marketplace?
    Mr. Palkovic. There's no question it has given us the 
ability to compete. And I think, based on my prior comments, 
the reason we made those investments between ourselves and DISH 
is because that programming is invaluable to consumers. And, 
any way you can get it to them is important to them; whether 
it's through satellite, whether it's cable, whether it's over 
the air. If they can't get it through the over-the-air model 
that was originally designed, they should be allowed to get it 
through the STELA Act. So it's critical that we reauthorize 
this.
    Senator Klobuchar. Are there any changes, you think, since 
2010, that's made a difference in how we reauthorize it?
    Mr. Palkovic. Since 2010?
    Senator Klobuchar. Yes.
    Mr. Palkovic. I think this is the opportunity to make those 
changes. I was going to finish this by saying it's all the more 
reason why if it's such important programming to consumers, as 
Honorable Smith stated several times today, then don't black it 
out. Don't use that as kind of a bully negotiating tactic. 
Negotiate, you know, straight up with your distributers without 
bringing the consumers into it. That's the part that we object 
most to.
    Senator Klobuchar. Senator Smith, I asked this question to 
Ms. Burdick during the Judiciary Hearing but wanted to extend 
it to you, as well, if you have anything to add. During the 
last STELA reauthorization, we had a lot of concerns about 
orphan counties, and these were defined for local broadcasters 
about the way the DMAs were defined. And this is an issue I 
spoke about during the Judiciary markup and in the Commerce 
Committee's consideration of STELA 5 years ago. Can you discuss 
how DMAs are still important for local advertising and local 
economies?
    Senator Smith. Absolutely.
    Your local commerce needs to have a local out-web and that 
is broadcasting. That's none of these national providers.
    And so, I just think it's absolutely fundamental that we be 
included in this. And you ask if STELA--what would happen? 
Look, we both have an incentive to make sure our stuff is on 
their satellites. We want that to happen. So when it lapsed 
before, it continued on because we both have equal incentive to 
make sure viewers get their local TV. We just think it's better 
local than a distant signal from the major markets on the 
coast.
    Senator Klobuchar. OK, thank you.
    Mr. Rogers, a little different question. Why isn't there 
more competitive market or products that connect to cable 
systems? What do you think we could do to spur competition?
    Mr. Rogers. It's a great question. Well, certainly a new 
standard that's a better standard than CableCARDs where key 
industry players agree to what that standard ought to be.
    Two, I think it should include all cable content. That was 
one of the mistakes the FCC made in limiting the kind of 
content, the kind of channels, that a retail set-top box would 
be able to access. Certainly, it needs to provide for the fact 
there'll be this transition to IP technology and to incorporate 
a standard that fully allows a retail set-top box to develop 
with IT. Consider the opportunity to bring in all providers of 
video and not necessarily just cable in terms of access to 
signals, because I think that will provide the most competition 
and choice for all consumers.
    Senator Klobuchar. Very good.
    Just one last question here, Mr. Powell. Our 
reauthorization of STELA includes reauthorizing the good faith 
standard requiring both broadcasters and all multichannel video 
programming distributers to negotiate in good faith for the 
retransmission consent. Do you believe this is working?
    Mr. Powell. I would emphasize, I do think it's a critical, 
mutual obligation on both parts particularly if we're concerned 
about the dangers that retransmission consent has to lead to 
blackouts. So I would encourage its reauthorization for as long 
as possible.
    I think it's been underutilized. I think it has been 
underutilized by the FCC and I'm proud to see Chairman Wheeler, 
yesterday, taking steps to get meaningful content by preventing 
joint negotiations of retransmissions consent. So I do believe 
it's an effective provision. It's a provision that probably 
could be used more fully to try and protect consumers in these 
commercial negotiations.
    Senator Klobuchar. One last thing.
    We're going to have, as you know, next week, Mr. Palkovic 
in the Judiciary Committee on the Comcast-Time Warner merger. 
You're aware of that; right?
    Mr. Palkovic. I have not heard about that. Is that in the 
House?
    Senator Klobuchar. OK.
    [Laughter.]
    Senator Klobuchar. Well, I just wandered if you had any 
views on this or you prefer to put them in writing on the 
merger? Since you're sitting here.
    Mr. Palkovic. Yes, since I'm sitting right here.
    Well, look, there are a lot of issues that we're very 
interested in and some we're concerned about, but we have not 
taken a public position on any of them yet. We are looking at 
it very seriously, though, back with the folks on, you know, 
the executive team and the right folks on this.
    When we're ready, and we have a position, we'll come out 
with it in the proper channels.
    Senator Klobuchar. Appreciate it, thank you.
    And thank you, Mr. Chairman. And thank you, Senator Blunt.
    Senator Pryor. Thank you.
    Let's see. We will go Senator Blunt, Senator Thune, Senator 
McCaskill, and then Senator Cruz.

                 STATEMENT OF HON. ROY BLUNT, 
                   U.S. SENATOR FROM MISSOURI

    Senator Blunt. Thank you, Chairman.
    Mr. Lake, last week, and in the last couple of weeks, I've 
sent two letters to the FCC urging the Commission to carry out 
its comprehensive media ownership reviews before acting on any 
rule changes impacting Joint Sales Agreements. I do know that 
in both the Joplin market and the Springfield market that I 
used to represent in the House of Representatives, that in each 
of those markets they have Joint Sales Agreements.
    When you were talking on the topic just a moment ago, you 
talked about increased competition for the video marketplace. 
Frankly, if you'd been defending the old rule that allowed 
these kinds of agreements, that would've been the perfect way 
to competition.
    I have a couple of questions. One is Commissioner Pai has 
said that he didn't think there was an adequate review of how 
this would impact minority-owned and women-owned stations that 
had a disproportional number of these Joint Agreements. And so, 
one question is going to be, I'll ask a couple here in a row, 
was there a review that, the kind of review I asked for, that 
would have got all the information that two of the other 
Commissioners say you didn't have? And two, in reviewing 
agreements that are already in place, I think you've given 
yourself 90 days to do that and are you going to stick with 
that 90-day review standard? And, will you have any special 
consideration for agreements that have been previously approved 
and a significant number of business decisions made based on 
what the FCC told these stations operating under Joint 
Agreements they could do?
    Mr. Lake. Yes.
    As to your first question, we think Commissioner Pai's 
concern is misplaced. We do have a substantial amount of 
information. We have seen over the last decade, and 
particularly in the last several years, a tremendous upsurge in 
the number of Joint Sales Agreements that stations are using.
    As you know, we have rules limiting the number of stations 
that can be co-owned in a local market. And what we've seen is 
a growing use of Joint Sales Agreements; all of them we've seen 
in recent years are for a 100 percent of the advertising of the 
sidecar station. They're typically joined with a number of 
other types of financial and other entanglements and what we 
concluded was that these were basically causing the equivalent 
of ownership of a station that was nominally independently 
owned.
    We're not the only to reach that conclusion. The Justice 
Department treats these sidecar stations as owned when it does 
merger reviews. And the companies themselves, when they report 
to the Securities and Exchange Commission, treat these as 
basically the same as their owned stations.
    So we have a situation in which we haven't yet completed 
the quadrennial review to consider what the rules should be, 
but----
    Senator Blunt. Were any of these Joint Management 
Agreements allowed without the FCC agreeing that they could go 
forward?
    Mr. Lake. Excuse me?
    Senator Blunt. Weren't these all approved by the FCC when 
they moved forward?
    Mr. Lake. We don't approve agreements except in the context 
of transactions. We have approved a number of transactions in 
recent years that included JSAs. This was against a background 
in which the Commission proposed in 2004 to attribute them to 
treat them as ownership----
    Senator Blunt. Well, I'm going to run out of time here. So 
let me go to Senator Smith. I'll join the Chairman who welcomed 
you back to the Committee and certainly it's good to see you.
    But do you want to comment on this from the station 
ownership perspective and the kind of interlocking financial 
arrangements which include borrowing money and doing things 
with that borrowed money that Mr. Lake suggested were out 
there?
    Senator Smith. If the FCC had any intention to damage 
broadcasting, they made a good start with what they did 
yesterday. It has dramatically damaged a number of broadcasting 
stocks; just check with Wall Street. But it just strikes me as 
fundamentally unfair when I know of 85 that they specifically 
blessed as not in any way violative of public policy but, in 
fact, the economies of scale--I'm not talking about negotiating 
that Michael mentioned. We can deal with that. But, in selling 
advertising. Those economies of scale have allowed the 
spreading of local news, weather and sports and, particularly, 
emergency information. Those are now all in jeopardy unless 
they grant, re-grant, what they've already granted.
    But as to how I see this as unfair--and I'm certainly open 
to Michael to tell me how JSAs are somehow different than 
interconnects. I've got their advertisement right here. It 
says, ``Interconnects are collections of two or more cable 
systems in a market working together to distribute commercials. 
Interconnects make it easy to plan and buy cable in local 
markets with only one buy, one commercial, and one invoice. An 
advertiser can reach an entire market full of cable homes with 
one call.'' Well, come on. Where is that fair? Both the damage 
to localism, the damage to broadcaster, the damage the deal is 
already done but permit it for our friends in cable.
    Senator Blunt. Chairman Powell, do you want to respond to 
that?
    Mr. Powell. The only thing----
    Senator Blunt. Senator Smith is still asking questions here 
in the Committee, you see.
    Mr. Powell. I remain intrigued why broadcasters insist on 
sort of impugning what we're doing given that we haven't in any 
way suggested what they're doing is problematic. But since he 
has, I would note for you, and I can provide for the record, 
that the Department of Justice has reviewed these kinds of 
interconnect relationships and has found them to be acceptable 
buying groups, principally because the companies involved are 
not competitors of each other. That's a very significant 
difference under antitrust laws and concerns around collusive 
activities.
    So all I can say is that the things that are being 
referenced have been reviewed, approved by Department of 
Justice at different times, and continue to involve very small 
cable companies that are not competitors with each other.
    Senator Blunt. I would just say, as I complete this 
thought, Chairman and to Mr. Lake, I think the Joint Sales 
Agreements that have been approved should be handled in a 
significantly different way. I don't believe I agree on your 
forward-going view of this either, but I would definitely 
disagree that you can go back and ask these stations to unwind 
business decisions that have been made for years relying on 
JSAs.
    Mr. Lake. If I could clarify what we've done with respect 
to that, the 90-day provision is the timetable that the 
Commission has set for the Media Bureau to consider 
applications for waiver.
    But as to existing agreements, what the Commission has done 
is what it did when it attributed radio JSAs, which is to give 
a 2-year period for them to be unwound or adjusted to comply 
with the ownership rules.
    Senator Blunt. I'll have some more questions for the 
record.
    Thank you, Chairman.
    Senator Pryor. Senator Thune.

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

    Senator Thune. Thank you, Mr. Chairman.
    I want to thank you and Senator Wicker for having this 
hearing as we head toward a STELA reauthorization and there 
are, as has already been pointed out, lots of moving parts on 
these issues.
    I'd like to follow up on some things that were stated in 
the opening remarks. Mr. Powell, a question for you and then 
for Senator Smith. Senator Smith argued in his prepared 
testimony, and I quote, ``The removal of broadcasters from the 
basic tier will have the certainly unintended effect of 
increasing cable bills for the subscribers who want their local 
broadcast channels.''
    Now, that doesn't sound like a good outcome, especially 
with cable rates that are already increasing every year. So the 
question is, without the basic tier mandates, would cable 
companies simply put local broadcast channels on higher tiers 
and effectively raise the rates on subscribers who want those 
channels?
    Mr. Powell. I think quite the contrary.
    Under the retransmission consent regime, Congress has 
provided a broadcaster a choice. He can either be carried on a 
cable system under the must-carry provisions without 
compensation as a guaranteed right of law, or they can elect 
essentially to go on the free market, which is often a 
conversation that they insist on, were able to attain the value 
of the content that we believe it deserves.
    In that free market, negotiating, in addition to price, the 
terms and conditions of carriage including placement should be 
something that someone believes that it can be fully 
compensated should be able to be achieved. I will tell you, in 
fact, a vast majority of cable agreements today, with 
broadcasters, often include contractual terms that provide for 
carriage on the basic tier.
    I think it's anachronistic to say that you can negotiate 
supposedly in a free market for carriage, but the government 
has guaranteed you carriage on a particular tier and that the 
American consumer has to buy your product before being allowed 
to buy any other channel. I think if consumers were freed from 
that obligation, there would at least be the possibility to do 
the very thing Senator Smith talks about, which is put up an 
antenna, get those channels over the air for free, and not have 
to pay for them additionally as part of someone's cable 
subscription; which today, they have to do.
    So I actually believe the prospects would be for the 
consumers' benefit rather than would have increased cost.
    Senator Thune. Senator Smith, Mr. Powell suggests, in his 
prepared testimony, that eliminating the basic tier purchase 
mandate, and I quote, ``Would also mean that consumers would 
not have to pay for such broadcast stations as a condition of 
receiving cable service.'' And you previously testified before 
this committee that ``nearly every major television broadcaster 
now provides its content to viewers in crystal clear high-
definition over the air for free.'' That was a quote from you.
    So the question is, do you believe that consumers should 
remain required by law to purchase the channels your members 
offer over the air for free in order to receive non-broadcast 
channels?
    Senator Smith. Senator Thune--and a perfect example that 
happened to a medium-sized market, Senator Johnson's city of 
Milwaukee, Journal of Broadcasting ran into a dispute with Time 
Warner Cable. A big company versus a little broadcaster. When 
it was settled, Time Warner had sold their place on the tier to 
the game show in which they had a financial interest.
    Now, I can tell you that the basic tier, you know, was a 
benefit broadcasting got on the Cable Act as something of a 
compensation for all of the burdens of regulation apply only to 
us. And so, if you're going to relieve--take away one benefit, 
relieve some of the burden. But that really misses the point of 
why Congress put in the basic tier.
    The basic tier was put in as a matter of public safety so 
that if an elder person in Joplin, Missouri has a tornado 
bearing down on them, they don't have to go to channel 750 or 
hunt for their local station. It's where they know it's been 
and it's for their convenience, not ours. So when you mess 
that, you know, it--look what happened in Milwaukee. Look what 
could happen if, all of the sudden, your CBS channel is in 450, 
or ABC channel is in the 800s, and NBC is in the 700s. And you 
got to start hunting. The basic tier is not about us; it's 
actually about public safety. Now, it applies only to cable. I 
don't wish them to have any regulations but, on the other hand, 
I'd simply want to remind the Committee why it was there in the 
first place.
    Now, satellite provides a basic tier. They have no 
obligation to do that. And why did they do that? Because they 
need our stuff to sell their subscriptions. And their consumers 
need to know where ABC is, NBC is, CBS and FOX, so that their 
local channels are convenient to them.
    Senator Thune. Mr. Powell and Mr. Palkovic, Jay Huizenga, 
the General Manager of KELO Television in Sioux Falls, South 
Dakota, recently wrote in an op-ed, and I quote, ``That it's 
only fair that the government allow broadcasters to negotiate 
for retransmission consent revenue.'' Do either of you disagree 
with that statement?
    Mr. Powell. No.
    Mr. Palkovic. No.
    Senator Thune. Great.
    Well, Mr. Chairman, I thank you and thank our panelists for 
sharing their testimony today.
    Senator Pryor. Thank you.
    Senator McCaskill.

              STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. Well, let me just say that listening to 
the testimony today, and knowing this Congress, I think that we 
should all go buy lotto tickets if we think we're going to come 
up with the STELA that's going to sail through the U.S. Senate, 
because it's a long shot.
    But, I want to talk a little bit about consumers here and I 
really want to--we've covered a lot of ground on 
retransmission, and we've covered a lot of ground on basic 
tier, and channels merging. I'd like to talk about the business 
model that has consumers scratching their head all over the 
country. And that is the pricing and billing practices of 
satellite and cable.
    You know, I don't think people realize. I want the word to 
go out right now. Call your provider today and find out what 
they're charging you that they shouldn't be charging you. Call 
every 6 months because that's the model that's out there. I 
discovered that I was paying extra for speed on an Internet 
that now was the basic speed. They were still charging me. And 
when I ask, ``How could they do that?'' They said, ``Well you 
have to call in.'' I said, ``Well I don't remember getting that 
in my bill that I should be calling in to check in case you're 
charging me for something that is now what everybody gets.'' 
Same thing with HD.
    There are people out there who are paying an extra lug. 
It's not a lot; it's $4 or $5 on their bill, $10 on their bill. 
They don't even know perhaps that that provider has gone to all 
HD now and they're still paying that $10 every month and 
they'll pay it until they ask about it.
    Now, how do you get away with that? How do we do that? I 
don't get it. I mean, I get it when you go to a car dealership, 
you're going to haggle over a price of a car, but I don't think 
the consumer is supposed to be giving me the directive that 
you've got to haggle over your cable bill or your satellite TV 
bill on a monthly basis. And then, this whole notion that we're 
going to give you now for this amount, but then, in 3 months, 
it's going to go to this amount, and then, in 6 months, it's 
going to go to this amount, and then, in a year, it's going to 
go to this amount, and, by the way, in 3 years it's going to go 
to this amount. But by the way, don't rely on any of that 
because it could change and, by the way, if you call you 
probably won't have to pay it.
    Now who thought of this business model? And let me ask Mr. 
Lake, can the FCC do anything about this? It's ridiculous.
    Mr. Lake. We share your concern. With respect to----
    Senator McCaskill. It's more than a concern. It infuriates 
me. Can't you tell?
    Mr. Lake. With respect to billing practices, we have 
authority to impose Truth-in-Billing requirements on voice 
services. We do not have the same authority with respect to 
cable or satellite services.
    Senator McCaskill. So there's no authority anywhere to get 
after people who are charging people for something that they 
are getting at lower price if they just ask for it.
    Mr. Lake. Yes, there is.
    As to basic cable service, I think the local franchising 
authorities have authority to regulate billing practices but 
the FCC does not.
    Senator McCaskill. I'm going to give you guys a chance to 
respond.
    Mr. Palkovic. Well, first of all, on behalf of DIRECTV, 
that is not our practice; to intentionally, knowingly, go out 
and do what you just described. In fact, it's more often the 
case that when we have the opportunity to change our pricing 
and prices go down, generally speaking, that's adjusted 
downward for any affected customers.
    Senator McCaskill. Without them having to call you?
    Mr. Palkovic. Without them having to call us.
    Now, there are, as you can imagine, I think there's 
indirectly because of the series of acquisitions with PrimeStar 
and their pricing and packaging and USSB over the years, we 
have over 2,000 different package prices in our billing system 
that we have to communicate to the 20 million customers. Most 
of those are there, the term grandfathering is used, so that we 
introduce a new package, we don't bring customers up to the new 
price which would be a price increase. We leave them down at 
the price that they'd agreed to. Now, both of those customers 
may get an annual increase but more often than not, and I would 
say, you know, in a business like ours where there are that 
many transactions, you're going to make some mistakes and when 
we find them and they're pointed out to us, we correct them 
immediately.
    We take taking care of the consumer extremely serious at 
DIRECTV. In fact, that's the entirety of my job. I run all the 
call centers and all the technicians. I have 40,000 people that 
get up every day in this country to work on the consumer. So 
it's my job to make sure that we don't do what you just 
described.
    There are, undoubtedly, people out there that are either 
flip about it, or careless, or lazy but we are not one of 
those. We take what you just said very seriously. We're 
actually spending in the magnitude of about $20 million today 
to do nothing more than create a very simple, transparent, 
consumer-friendly bill that we're going to introduce this year. 
Our bill was technically correct but it was very confusing. 
That's a lot of money to spend to keep sending a bill out just 
to make sure they don't misunderstand it.
    Senator McCaskill. Right.
    Well, I know, Mr. Powell, that it's difficult for you to 
respond and I'll ask you to respond for the record. But let me 
briefly, I know I'm out of time, don't you think that if we 
went to an aa la carte system, Senator, that you would compete 
very well on an aa la carte system?
    I know on all the channels that people get, I have a sense 
that they would want to buy their local channels for the local 
content. And is there any reason--let me just ask you this--
does anybody think that we will go to a complete aa la carte 
system as a business model anytime in the next decade?
    Just say yes, if you think that we will.
    Does anybody think that we'll go to an aa la carte business 
model without being forced to by government intervention any 
time in the next 20 years?
    Mr. Powell. Senator, I don't.
    Senator McCaskill. No?
    Mr. Wood. I would just point out, Senator, that the bills 
that we have supported would not require aa la carte alone but 
would require an aa la carte option to be made available to 
people. So that's why we think that by allowing bundling, of 
course, it's something that some people will want to choose. 
They want to have that package but we want people to have the 
choice if they want to buy individual channels to make that 
decision themselves.
    Senator McCaskill. Thank you.
    Senator Smith. Senator McCaskill, I would just simply say, 
if I may, Mr. Chairman, yes, we'd do very well under aa la 
carte, but some of my members don't support aa la carte and 
others do support aa la carte. And my counsel would advise me 
to invoke my constitutional right against self-incrimination if 
I take a position on aa la carte.
    Senator McCaskill. All right.
    Senator Pryor. Senator Cruz.

                  STATEMENT OF HON. TED CRUZ, 
                    U.S. SENATOR FROM TEXAS

    Senator Cruz. Thank you, Mr. Chairman, and I appreciate the 
Subcommittee holding this hearing. I appreciate all the 
witnesses being here. There's a lot of expertise here today and 
I appreciate your time and good counsel.
    Since 1998, Congress has reauthorized legislation like this 
every 5 years, continually making changes to these laws. And 
they seem to get more and more complicated. As a lawyer who 
spent a number of years in private practice, I can certainly 
say that these laws are among the most complicated laws that 
the legal system faces and, indeed, courts struggle to 
interpret them.
    The question I'd like to ask the panel is, is rather than 
continually adding conditions, adding mandates, adding 
complexity, is there not a path we could go on to subtract from 
the complexity to make it simpler to allow free negotiations 
between large mature competitive industries? These are not 
startups anymore. These are mature industries. And I'd welcome 
the panel's collective views on if the direction, the one-way 
ratchet of more and more complexity, more and more burdens can 
be turned the other way?
    Senator Smith. Senator Cruz, if I may?
    We've testified that we just as soon see it go. We're very 
anxious to keep our signals on satellite. We want people to get 
our content. We want to be fairly compensated. We have the 
ability to negotiate for that.
    For us, STELA is--but I will repeat: there are some that 
would be orphaned that should be permanently made available. 
But, for us, the 5-year STELA is like every five years it's a 
chance to harpoon the broadcasters when they swim by. There's 
nothing in it for us here. This is just what we can take away 
from broadcasters, what we can add to in terms of more burdens 
and regulations.
    Mr. Rogers. Senator, at TiVo, our view is that there 
shouldn't be anything by way of additional legislation. Our 
view is that, just to your point, there ought to be a way for 
industries to work this out on a voluntary basis; that if the 
existing regulatory regime that applies to this area is lifted 
after the industries have been told, ``Look, go work this out. 
Make sure there's competition for consumers. Make sure there's 
a non-burdensome standard for cable operators. Make sure 
there's a good way for the kind of technology that we deliver 
is easily ported for cable operators.'' That can probably be 
done. Done relatively quickly. And, as a result, we don't see 
any need for legislation to address this area at all.
    Mr. Wood. I would say, Senator just to the point about 
adding burdens to broadcasters, in 2010, the reauthorization 
actually required people to take their local broadcast signals 
if they wanted to continue receiving these distant signals. So 
with respect to satellite provisions alone, I would dispute the 
notion that somehow they're particularly aimed at broadcasters 
by reducing their rates or reducing their carriage.
    On the complexity point, we were talking about this earlier 
with Senator Ayotte as well, and I think there are ways to 
reduce the complexity but, as I said in my testimony, not 
piecemeal; not to simply say, ``Well, let's let this statutory 
license expire and see what happens. But rather, to overhaul 
copyright entirely.'' And, Senator, Chairman Rockefeller talked 
about the communications rewrite, it's always just around the 
corner, I'm sure the copyright rewrite is always just around 
the corner, too. But that's the kind of path we would like to 
see as a comprehensive solution rather than just letting 
certain provisions go away.
    Mr. Powell. Senator, recently I testified in the House on 
the future of telecom deregulation and the entire theme of the 
testimony was simplicity, what we titled it. I commend it to 
you. I'd be happy to send it to your office because I do think 
we're dealing with a statutory regime that's 750,000 words and 
it's premised at a time and a place where the market was 
radically different than it is today.
    Just by virtue of one illustration, 1992 Cable Act, the 
cable industry represented well over 90 percent of all 
multichannel video production. Today, we represent only 50 
percent. Back then, we were vertically integrated over 50 or 60 
percent with content. Today, that's down to less than 12 
percent of content. Yet, there are many rules that are built on 
those underlying premises.
    The bottom line is there are a lot of companies that can 
take care of their own interests and the market is fast-moving 
and innovative. It's why we raise questions about provisions 
like must-buy which really provide a unique advantage to one 
set of very significant companies. By the way, if it's so 
harmful, 50 percent of the market aren't subject to the rule. 
All of the third and fourth largest providers in the country 
aren't subject to the must-buy rule. Yet, the cable industry 
is.
    These are prunings that need to happen to simplify and 
better level the playing field.
    Senator Cruz. And, Mr. Chairman, my time has expired but if 
I could ask one additional question. And, this is addressed to 
Mr. Lake. After there was a large public outcry, and a 
significant outcry from Congress, the FCC has announced that it 
has discontinued its plans with regard to its critical 
information needs study, which would have inserted government 
observers into newsrooms.
    Mr. Lake, what I would ask you today, and let me say I was 
one of those deeply concerned about that proposed plan, can you 
assure this committee today that the FCC has no intention to go 
forward with this kind of inquiry either through the CIN or any 
other similar course?
    Mr. Lake. I should say that the intrusion into the 
newsrooms was not an intended aspect of that study. When that 
issue was brought to the Commission's attention it did abandon 
the study. I know of no plans to continue with a study of that 
type.
    Senator Cruz. Well, thank you. And let me encourage you in 
having no plans to do so.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Senator Markey, is it true that you wrote the Satellite 
Television Bill shortly after they sent Sputnik up?
    [Laughter.]

               STATEMENT OF HON. EDWARD MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. We had an era.
    I'll tell you what happened. You know, I campaigned for my 
candidate for President in 1980 in Iowa and 1988 in Iowa. And, 
I'm a former future cabinet officer in many administrations.
    [Laughter.]
    Senator Markey. But I learned a lot about Iowa. I learned a 
lot about Iowa.
    And we had these huge eight foot dishes and basketball 
courts and farms. And I would ride through, and I'd say, 
There's got to be a way that these dishes are not eight feet 
wide.'' You know? And so, that is what the 1992 Cable Act is 
all about. It's the 18-inch satellite dish industry which is, 
if nothing else, an incredible addition to the aesthetic 
quality of our Nation. OK?
    [Laughter.]
    Senator Markey. And so, yes, I was there at day one and 
that was my bill back then long ago and far away. So thank you, 
Mr. Chairman.
    So, welcome. You know, that was 22 years ago and the 
Satellite Home Viewer Act, which eventually became STELA, 
allowed satellite companies to transmit broadcast signals. And 
we had a revolution going. And now, 34 million Americans have 
18-inch satellite dishes.
    And moving forward, satellite service should remain a vital 
competitor in the pay-TV market for consumers. And, as we begin 
debate on the reauthorization of STELA, we should evaluate 
whether any proposed change to STELA would promote competition 
consumer choice in the public interest. That's what we did when 
we put those laws on the books, telecommunications a generation 
ago.
    So I would like to, if I could, move to a set-top box issue 
because that was a provision in the 1996 STELA Communications 
Act, which I was the author of along with Tom Bliley, who was a 
Republican from Virginia and the Chairman of the Commerce 
Committee in the House, which was really aimed at unleashing 
competition and innovation in the retail marketplace, enabling 
consumers to buy the set-top box of their choice independent of 
their network provider making the consumer king. And that bill 
passed through this committee and through the House committee 
in 1996.
    And, in the age of the Smartphone, we should think of these 
devices as smart video boxes. The devices that, ideally, would 
help consumers navigate to the video and information sources of 
their choice. So 18 years have passed since the 1996 Telecom 
Act and it's clear that over these two decades the promise of a 
robust dynamic smart video box retail market has largely been 
unfulfilled. And it's true that the market has changed since 
the 1990s and I'm open-minded about how we continue to push 
policies that promote competition.
    I think we have to accept changes in technology, but we 
have to make sure that nothing that happens limits the choices 
of consumers. OK? I think we should also agree with that. The 
consumer should be king. That was my vision then and it remains 
to be my vision today, especially in a multichannel video 
programming world.
    So I'll start with you, Mr. Rogers. I think we can all 
agree that we should not be wed to CableCARD; that we need to 
move on to the next technology. But what would you suggest that 
we do with the cable industry in order to have a standard that 
ensures the consumers continue to be able to purchase their own 
navigation devices before we lift the integration ban? How do 
we do that?
    Mr. Rogers. Well, thank you, Senator.
    The answer to that, I think, is clearly there is a 
downloadable security standard meaning software that can be 
downloaded that doesn't require a physical card and you get out 
from under that and you get out from under the cost to 
operators and the burdens that have been associated with it and 
you get out of the frustration for consumers and the 
frustrations that have been associated with installation of 
CableCARD. So we've got to get to a next generation standard.
    If you get rid of the current standard before, meaning 
common reliance, meaning the cable operator and retail boxes 
have to be based on the same kind of content security, if you 
get rid of that before there's a new standard we've got no hope 
of getting to a new standard.
    So I think this is not complicated. It's a relatively 
simple process. There are really a small number of cable 
operators. So, I think, sitting down with ourselves and any 
other company that would like to do what we do, and come up 
with a downloadable security system that can become that 
national standard to preserve retail choice. And once it's in 
place, once the FCC certifies it, I see no reason that 
CableCARDs can't be lifted. And I see that that whole process 
could take place pretty quickly but the idea--I'm sorry.
    Senator Markey. OK. I thank you. So let me just move along 
quickly because I want to reach one other subject, if I could, 
retransmission consent and have a little discussion about that, 
with your indulgence, Mr. Chairman.
    Again, retransmission consent goes back to the 1992 Cable 
Act, as well. And so, last August I was concerned by reports 
that amidst a retransmission dispute between CBS and Time 
Warner, CBS was blocking access to its Internet-based video for 
Time Warner Cable broadband customers. This blocking occurred 
even in cases where the consumer was not a Time Warner Cable 
video subscriber; meaning the consumer was only a Time Warner 
Cable broadband customer. I believe that the consumer's choice 
of cable television providers should not be tied to her ability 
to access Internet content that is freely available to other 
consumers.
    Accordingly, I wrote a letter to the FCC, calling on the 
Commission to actively defend Internet freedom and consumer 
rights, and thankfully that dispute was resolved and access was 
restored.
    Mr. Smith, I'd like to get your views on those issues, and 
you, Mr. Powell, and you, Mr. Lake, if we could.
    With your indulgence, Mr. Chairman.
    Senator Pryor. Sure.
    Senator Smith. Senator, nice to see you.
    Senator Markey. Thank you.
    Senator Smith. I think you were referring to the Time 
Warner/CBS shutdown. I'm not privy to those negotiations but 
from press reports what was clear is Time Warner was asking 
them for an exclusivity that would prevent CBS from negotiating 
carriage rights for its very valuable content with Netflix, 
Hulu, or whomever. And so, they took a tough stand and they 
won, ultimately, I think the outcome you would like, but at the 
time they had--they are tough negotiators and they defended 
their right to make sure that other newcomers online could 
negotiate with them.
    Thank you.
    Senator Markey. Mr. Powell.
    Mr. Powell. Senator, recently in our comments that we filed 
at the FCC under net neutrality, we alluded to the growing 
dangers that edge providers are those that control distribution 
and content have certainly the ability, power, and sometimes 
incentive to also disrupt consumer access to content. And 
that's an issue that certainly should be in the conversation 
around ensuring consumers have free and unfettered access to 
Internet content. So we think it's an issue worthy of 
consideration.
    Senator Market. OK, good. Thank you.
    And, Mr. Lake.
    Mr. Lake. That dispute illustrates the fact that 
retransmission consent negotiations are much more complex than 
they used to be. They now commonly include online rights. And, 
we've also seen a Disney-DISH deal that also involved online 
rights although it did not involve a blackout. We worked very 
closely with both parties to that dispute. As you know, we have 
a responsibility to enforce the duty of negotiation in good 
faith and we worked with both companies at the highest 
management levels to try and encourage them to resolve that 
dispute. We're glad that it was finally resolved and that, at 
least by reports, it did not involve any exclusive online 
rights.
    Senator Markey. And just again, it's another illustration 
of why we have to be so careful in what we're doing with 
technologies' change, but the values have to stay the same; the 
goals that we have have to stay the same. And we have to make 
sure that those goals, competition, consumer choice are there 
because that ultimately is what makes us the leader in the 
world on these issues.
    And, I thank you, Mr. Chairman.
    Senator Pryor. Thank you very much.
    And let me just follow up on one thing. We've talked a 
little bit about the CableCARD but someone mentioned, I think 
it was you, Mr. Powell, in passing you said something about the 
energy usage of the CableCARD and you threw out a big figure, I 
think. I think it was you, but----
    Mr. Powell. Yes, sir.
    Senator Pryor.--I'm curious about why it uses so much 
energy and where do we get those numbers. I know it's kind of 
minor but I am curious.
    Mr. Powell. I can provide details for the record but the 
citation is the EPA found that CableCARDs add an additional 15 
kilowatts of power as an energy consumption when they're 
separated in that manner. And so, the additional burden of 
running leased set-top boxes that don't have any technical need 
for a separate security requirement amounts to, when you add it 
up, over 500 kilowatts of additional energy expense to the 
American consumer without any--to the consumer. That's all I 
was referring to was the EPA estimates that are in their 
citation.
    Senator Pryor. Mr. Rogers.
    Mr. Rogers. Just another example, Mr. Chairman, of 
innovation that we ported to the cable industry. What we 
allowed cable operators to do is take small IP set-top boxes 
with no CableCARDs that are linked to one primary set-top box 
and, with that, have the ability to get out of what used to be 
the only way to approach this which was multiple set-top boxes 
with multiple CableCARDs. So another reason energy conservation 
to get to another standard, a smarter standard, but along the 
way here we are contributing innovation that I think has 
contributed to what operators are able to do on that issue.
    Senator Pryor. Mr. Palkovic, were you going to say 
something?
    OK.
    I do have a question for you, Mr. Palkovic. And that is, I 
think we've got through this whole hearing, maybe, without 
really talking about orphan counties and that issue that does 
come up with satellite. And I am wondering about your view of 
whether, you know, Congress maybe should try and address that 
in this reauthorization? And are we looking at a general 
systemic fix? Is that the best way to do it or is there another 
way that we should talk about it?
    Mr. Palkovic. Well, first of all, I think we do agree it 
needs to be addressed. It's unfortunate, but the current map, 
you know, it's a map that Congress adopted, a Nielsen map, 
that's from the 1950s. So you will have a DMA that will, 
essentially, give somebody one state, will assign them as part 
of a DMA in another state. And I don't have a great example, 
but it's frustrating for those customers when the local 
channels that they're authorized to get, even if they receive 
them through us or DISH, are from a different state.
    So, somehow we'd like to be able to offer consumers the 
right to choose the local channels from their state as an 
option. There's not that many of these people but it's very 
frustrating for them. Now we, I know, and DISH feels strongly 
the same way, would like to work together before we change any 
of the rules because we designed those billions of dollars of 
satellites.
    I talked about our design around this mapping system with 
our spot beams. I mean, they're launched. You can't change 
those. So we'd have to be a little bit thoughtful about can we 
even reach them with our spot beams before we change the law to 
say you have the right and then they can't get them.
    So we'd like to participate in a fix. We think it 
definitely is not the intent of the law and the use of the DMA 
mapping. It's a well-principled concept but it's got some flaws 
and that's one of them.
    Senator Pryor. And just to follow up on that. You mentioned 
this Nielsen map, is that still a map that everybody else uses 
today or is that a map that satellite folks----
    Mr. Palkovic. It is the same. I believe it's amended from 
time-to-time and we have to change our database on ZIP codes, 
occasionally. It's not often and they're not big changes but it 
does get tweaked from time to time but it's essentially the 
same maps. It's a 50-year-old map.
    Senator Pryor. Senator Smith, I'd like to give you a chance 
to respond.
    Senator Smith. Mr. Chairman, Thomas Jefferson once wisely 
suggested that new state boundaries be drawn on irrigation 
districts. I would suggest to you that's about how Nielsen DMAs 
are formulated.
    And the issue you raise is one that bedeviled me every year 
I served in the Senate. And to Direct's credit, they're 
bringing stuff into Little Rock, Arkansas to cable's credit. 
They worked very well with us. We are entirely anxious to help 
but we're not the whole answer. I'm just telling you 
broadcasters will help you fix this and the technology exists.
    For example, I have cable in Pendleton, Oregon that lets me 
get Oregon content but my satellite subscription from Direct 
does not. And I heard in more town halls, I like the Ducks and 
the Beavers, I hate the Huskies and the Cougars and I want 
Oregon content. And they can do two signals. The technology 
exists right now.
    We're ready and we'll help you solve it when it comes up in 
your particular case but we can't do it alone.
    Senator Pryor. All right.
    Let me ask Mr. Lake a follow-up on that, as well. I know 
that the FCC at one point said, you know, 614(h) might be a 
useful model. Can you explain that?
    Mr. Lake. Yes.
    We do have authority on the cable side to do what's called 
a ``market modification,'' which would address the problem 
that's been described by adding a station to the service area 
for purposes of carriage.
    We don't have that authority with respect to satellite. I 
can't address the technological issues. It is a different 
technology and I don't know how difficult it would be to 
implement that. But, we lack the authority to make those 
modifications for satellite that we have for cable.
    Senator Pryor. OK.
    Senator Blunt.
    Senator Blunt. Thank you, Chairman. Thank you for giving me 
a chance to ask a couple more questions
    Mr. Palkovic, it's come to my attention that for over a 
year there has been an ongoing carriage dispute between your 
company and an independent network, The Inspiration Network. 
Inspiration provides family-friendly programming. There's a 
high demand for that kind of programming in Missouri and across 
the country.
    I clearly think you have the right to negotiate this 
however you want to. At the same time, I'm told that your 
company wants to charge Inspiration to carry their programming 
while, at the same time, it's paying to carry programming from 
other networks that have a fraction of the viewership of 
Inspiration Network. Do you have a comment on that?
    Mr. Palkovic. Well, let me respond this way. As you can 
imagine, all of these programming relationships are 
confidential; we're not allowed to disclose terms and 
conditions. We're bound by the agreement. We had a relationship 
with Inspiration Network that was perfectly fine. They wanted 
to extend it on significantly more favorable terms than they 
had, then, under. Now we pay some, some people pay us and some 
people are neutral. It just depends on the evaluation of the 
quality of the channel. It's their evaluation as well as ours.
    They elected to take their channel down from DIRECTV 
because they didn't want to pay even close to similar terms for 
their carriage. So the economic relationship, as it was, was 
fine. They wanted to change it. We're willing to negotiate with 
them in good faith and, to be honest, we're still negotiating 
with them. There's still ongoing discussions with them. 
Hopefully, something gets worked out.
    But, that's the way these things happens, is one party or 
the other gets too far apart on evaluation and somebody makes a 
decision to drop the channel. In this case, it happened to be 
their decision.
    As far as evaluating one channel versus another, that's 
something we do every day. That's the business we're in. We 
have to make a judgment call on who gets paid, who pays us, and 
who's in between, and how much. So it's not going to shock you 
that normally the programmer's opinion of the value that they 
bring to the table is usually greater than what the distributer 
thinks it is. And that's where the negotiation starts.
    Senator Blunt. I assume you know how to monitor that, don't 
you? Don't you know how many people watch these programs?
    Mr. Palkovic. There's some capability but not as much as 
you would think.
    Senator Blunt. Apparently not.
    Mr. Palkovic. Well, look, there are privacy laws and stuff 
that we're not going to violate by, you know, being accused of 
Big Brother tactics and things. There's ways to monitor 
viewership of channels by third parties as opposed to us 
monitoring individual viewership data. There's rules around 
that we have to be careful with.
    Mr. Wood. Senator, I would just note that--I'm sorry. I 
would note that Parent's Television Council is a group that we 
worked with to advocate for aa la carte solutions and this 
issue of empowering consumers and cable and satellite customers 
to make those choices for themselves. It's not a partisan 
issue. And that's a place where we have definitely worked with 
groups across the political spectrum to, again, give people the 
choice of which channels they want to buy and give them more 
view into how much they're paying for them.
    Senator Blunt. Right.
    I do believe that Inspiration Network would say that they 
have significantly changed their programming from when they 
first made an agreement with DIRECTV and offer a different 
value and a lot more programming that's not as much religious 
broadcasting in nature as it is family friendly in nature. And 
I suppose that I'd have to think about whether or not all these 
relationships are totally private and don't relate to each 
other.
    But, if you're paying somebody like, say, Al Jazeera to put 
their news on DirecTV and you're charging somebody like The 
Inspiration Network that has more viewers, I have a hard time 
figuring out the economics of that and I'm interested in it. 
And maybe we can talk about it some more.
    Mr. Wood, earlier, the Chairman asked, Chairman Pryor asked 
a question. I thought you wanted to respond either to Mr. 
Rogers or to that overall question of the CableCARD. Did you 
have something you wanted to say there?
    Mr. Wood. Sure. Thank you, Senator.
    I would just say, just to finish that thought on the 
CableCARD discussion, the integration ban is not about 
CableCARD. So we shouldn't conflate the two. It's about, as Mr. 
Rogers has explained, ensuring that we have a common standard. 
So no one, including consumer groups like ours, is advocating 
for perpetual continuation of CableCARD but simply to have a 
market in these devices where people can make those choices for 
themselves and can go buy one at retail or get it from their 
satellite or cable provider.
    Senator Blunt. And, Mr. Powell, the arena we're in now, 
where there are so many other ways to get content but a lot of 
that content comes through the equipment that you put in 
somebody's house, how are you dealing with that? In the past, 
you might have been the sole provider, but now the environment 
for broadband and pay-TV services is so much more competitive. 
Do you want to talk just a little bit about that?
    I'm interested in how we, in this rapidly changing 
environment, how we adjust whether there's any realistic 
possibility that Congress could possibly keep up with these 
changes or not. But I'm interested in how you're adjusting to 
all these new competitors who are out there that probably use 
your streaming equipment to get in a house.
    Mr. Powell. Thank you, Senator, for the question. I'll try 
to be succinct.
    I think cable companies are increasingly becoming agnostic 
about the method and way or device that consumers get access to 
the services and content that we provide because we're being 
driven by customer preferences in the market. A day doesn't go 
buy where somebody talks about a millennial who doesn't want to 
subscribe to cable. A day doesn't go by where I don't hear a 
story of someone sitting on a couch with their 4-year-old 
watching television on an iPad. You know, a day doesn't go by 
without reading some tech-net story about a new device, whether 
Roku, or Apple TV, or a streaming service like Netflix, or 
VUDU, on how that's changing the video marketplace.
    If cable companies don't evolve with that and make sure 
they chase the consumer where they want to be and allow 
consumers to use the equipment and devices that they prefer, 
we're going to be in a tough spot. And I think the most 
enlightened companies in the industry are working very, very 
hard to empower any device that might be the preference of the 
consumer to receive the service and content we provide.
    In fact, some companies who are competitors are doing it so 
well they're not just offering alternative equipment; they're 
offering, in essence, alternative services that can serve as a 
complement and more often a substitute to the services we 
provide. So, we do lose cord-cutting customers to alternate 
device systems including alternate content sources that they're 
able to secure in the marketplace. And I think that's going to 
continue to be a hot competitive space that changes our 
perspective on that.
    Senator Blunt. Mr. Chairman----
    Mr. Rogers. Just to respond to that, we're well aware of 
some cable operators trying to allow their service in some 
limited respect to be made available through other devices. 
But, those that are out there doing it allow a subset of their 
content to be received on other devices. You don't to have the 
ability to record on those other devices. You don't have the 
ability to have a different user interface that you may like 
better than the cable operator provides as a way to frame how 
you're accessing that cable-operator provided content. You 
don't have the ability to integrate Internet content into that 
user experience provided by the cable operator.
    It's a highly limited fashion by which some of these multi-
device experiments have been put forward. That shouldn't be 
confused at all with allowing consumers to come with their own 
retail set-top box that allows for the core of their television 
experience where they spend the vast majority of their time 
watching broadcast and cable channels and have a true 
alternative for that. That's what Mr. Markey's amendment, back 
in 1996, was intended to provide a regime for and that's really 
the guts of what the CableCARD or common reliance or 
integration ban is all about.
    Senator Blunt. Does anybody else have anything to say on 
this topic?
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    We do want to allow Senator Markey to ask other questions.
    Now, Mr. Rogers, I understand you may have a flight that 
you're trying to get to and if you----
    Mr. Rogers. I think that's a lost cause, but thank you, 
Senator.
    [Laughter.]
    Senator Pryor. We got a late start, you know that. But 
anyway, if you wanted to, we would certainly excuse you to try 
to do that. But we'd love for you to stay if you can, but we 
understand.
    Senator Markey.
    Senator Markey. Thank you, Mr. Chairman.
    And, again, I don't want to take any more time than we 
already have and we thank all of you for your patience.
    You know, when the Soviet Union was falling, Gorbachev 
called it ``perestroika,'' we had a restructure. And they were 
destroying the old but they hadn't invented the new yet. So 
with the CableCARD, that's what we're talking about. We're 
talking about well, we'll all live with the CableCARD going. We 
can save some energy, we can have a new era, but we have to 
invent the new, too. We have to have a new standard.
    So, what would you recommend, Mr. Wood, for the process 
that we would go through if we were going to eliminate the 
CableCARD so that we could have a new standard that all of the 
participants then said, ``That's fine. We can live with that 
new era.'' Who goes into that room? What does the FCC, I guess, 
do to make sure that all of the participants are in that room, 
and that a new standard comes out that reflects the new 
technology, and we can kiss the CableCARD goodbye, but have the 
protections, the historical protections, still in place?
    Mr. Wood. Thank you, Senator.
    Hopefully, not just the companies in play but hopefully 
some voices of consumer advocates as well. But I think we do 
have these solutions and I'm sure Mr. Rogers and Chairman 
Powell could talk about them as well. You've heard about in 
this hearing downloadable security solutions that have been 
developed and just haven't really gotten over the finish line 
because of continued doubt about things like the integration 
ban, different status of life for different cable companies 
with where they are in their digital conversion.
    And I think we need to, first and foremost, maintain the 
principles that we have of ensuring common reliance and not 
pulling the rug out before we have those in place because I 
think the market will get there if the principles remain 
intact.
    Senator Markey. Mr. Lake, could the Federal Communications 
Commission put together a process like that; that had all 
parties at the table that do this?
    Mr. Lake. We certainly have a rule and we'll do what we can 
to encourage the development of a new standard. We certainly 
see that is what is needed.
    It's very difficult for the agency to impose a technology 
on the industry or the public interest groups. CableCARD was 
brought to us as a proposal. We would very much hope that we 
could have a new proposal brought to us, whether it's 
downloadable security or something equivalent. And we'll 
consider what we can do to try to catalyze that effort.
    Senator Markey. All right. Thank you.
    Mr. Chairman, thank you.
    Senator Pryor. Well, with that I just want to thank all of 
our witnesses for coming and all the time you put into this. 
And we really appreciate everything that you've done for the 
Subcommittee and appreciate all the members.
    What we're going to do is we will leave the record open for 
2 weeks to allow members to submit questions for the record.
    We may be in touch with some of you all to answer those.
    And again, we want to thank everyone for their 
participation and preparation. Thank all the Subcommittee 
members.
    And, with that, we will adjourn.
    Thank you.
    [Whereupon, at 5:23 p.m., the hearing was adjourned.]
                            A P P E N D I X

  Response to Written Question Submitted by Hon. Claire McCaskill to 
                           Hon. Gordon Smith
    Question. Customers have a right to expect to get what they signed 
up for. So when a carriage dispute between a content provider and 
programmer results in a channel being dropped, it makes sense to me 
that customers should be permitted to change providers without paying 
an early termination fee or other penalty. Do you agree?
    Answer. Cable and satellite TV customers should have flexibility in 
switching providers in those rare instances in which negotiations 
result in specific channels being dropped from programming packages 
that they have paid for. By their very nature, pay-TV early termination 
fees, which range in the industry from $240 to $480 \1\, are designed 
to lock in customers to multi-year contracts and prevent switching to a 
competitor if they have legitimate concerns with the current service 
provider. We think this is punitive in nature and serves to lessen 
competition in the pay-TV industry, ultimately harming consumer choice.
---------------------------------------------------------------------------
    \1\ See the Dish Network's Legal Terms of its Service Commitment 
Agreement, early termination fees, online: http://www.dish.com/legal/
offers/
    See Mediacom Cable's Legal Terms of its Service Commitment 
Agreement, early termination fees, online: https://mediacomcable.com/
site/legal.html?page=legal_promotional_text.html
---------------------------------------------------------------------------
    We also favor refunds on pay-TV customers' monthly bills in those 
situations in which a TV channel is removed for an extended period of 
time by the cable or satellite TV provider and is not accessible to 
customers on that platform. We are pleased to see that some pay-TV 
service providers have begun to offer these refunds to customers and we 
believe this should become the industry norm in today's video 
marketplace.
                                 ______
                                 
     Response to Written Question Submitted by Hon. John Walsh to 
                           Hon. Gordon Smith
    Question. For determining eligibility for distant signals, we rely 
on an outdoor 20-30 foot antenna standard. It has been suggested by 
some that we should update that standard. As we consider reauthorizing 
STELA, would you recommend revisiting this issue? What impact would 
amending this standard have on consumers?
    Answer. No, this issue should not be revisited. Congress should 
resist this effort by DISH and DIRECTV to expand the scope of this 
license by having more subscribers receiving their network programming 
from distant out-of-market stations and fewer subscribers viewing this 
programming on their local stations. Following the 2010 
reauthorization, the FCC carefully considered and rejected an indoor 
antenna standard for the eligibility to receive distant signals for a 
number of reasons.\2\ First, Congress specified a specific signal 
strength standard to determine eligibility to receive distant signals. 
Second, there is no way to predict signal strength using an indoor 
antenna as interference factors include performance characteristics of 
the antenna, location of antenna (window vs. basement), proximity to 
electronic equipment, height, and direction of antenna. Hence, the FCC 
concluded that: ``It would be difficult, if not impossible to obtain 
accurate & reliable predictors of digital television signal strengths 
indoors'' \3\ Third, use of an indoor antenna standard would allow 
``gaming'' of the system to receive distant signals by claiming use of 
an indoor antenna when, in fact, an outdoor antenna can or is actually 
being used. The FCC found: ``this would remove large numbers of viewers 
from local stations' potential audience. . .The Commission does not 
believe that Congress envisioned or contemplated such as increase in 
the numbers of satellite subscribers eligible for delivery of distant 
network signals.'' \4\ Fourth, DISH Network provides local-into-local 
service in all 210 DMAs, thereby substantially reducing the need to 
rely on the distant signal license, and revealing that changes to the 
antenna standard are being sought as an end-run around the 
retransmission consent process. Rather than growing the number of 
households that receive ``local'' broadcast programming from New York 
and Los Angeles, we would encourage you to work with DIRECTV on 
offering local service in Glendive and Helena, markets currently being 
neglected by the second largest pay-TV provider in the country. 
DIRECTV's failure to serve these and similar markets with local 
broadcast signals is a consumer disservice and public safety hazard to 
rural America.
---------------------------------------------------------------------------
    \2\ See, Satellite Television Extension and Localism Act of 2010 
and Satellite Home Viewer Extension and Reauthorization Act of 2004, ET 
Docket No. 10-152, 75 FR 80354 (Dec. 22, 2010) Paras 15-18
    \3\ Id.
    \4\ Id.
---------------------------------------------------------------------------
                                 ______
                                 
      Response to Written Question Submitted by Hon. Dan Coats to 
                            William T. Lake
    Question. My understanding is that the standard for measuring 
whether a home can get a broadcast over-the-air signal involves using a 
30-foot antenna on their roof. I travel all over Indiana on a regular 
basis, and I cannot remember the last time I saw a 30-foot antenna on a 
home. In fact, I am not even sure where one would purchase a 30-foot 
antenna. Where did this standard come from, and should it be changed to 
reflect the smaller, more compact indoor antennas that consumers can 
purchase at any store?
    Answer. In 1998, the Commission developed a model for predicting 
when a household is ``unserved'' and thus eligible to receive distant 
signals via satellite. That model was based on the National 
Telecommunications and Information Administration's ``Individual 
Location Longley Rice'' (ILLR) radio signal propagation methodology, 
which is used to predict the coverage of television signals by industry 
and government alike. In the Satellite Home Viewer Improvement Act of 
1999 (SHVIA), Congress endorsed the Commission's ILLR predictive model 
to be used as the means of predicting whether households were served by 
an over-the-air broadcast signal for purposes of eligibility to receive 
satellite-delivered distant signals. In addition to the predictive 
model, SHVIA created a testing regime to measure signals as received by 
a household. Both the predictive model and the testing regime consider 
the signal based on its availability for reception at the location of 
the household; that is, as available 20 or 30 feet above the ground (20 
feet is used for one story homes, 30 feet for homes two or more 
stories). The Commission's rules have traditionally used an outdoor 
antenna mounted at 30 feet (a ``rooftop'' antenna) as the standard for 
TV reception in defining the service areas of broadcast television 
stations.
    Initially, the rules applied only to analog signals, but the 
Commission reviewed and updated its rules to account for the digital 
television transition in compliance with Satellite Home Viewer 
Extension and Reauthorization Act (SHVERA) in 2004. The ILLR predictive 
model was revised to measure the presence and strength of a digital 
television signal at 30 feet from the ground (or 20 feet if the home in 
question is one story). This model provides accurate, reliable and 
repeatable results.
    In 2010, the Satellite Television Extension and Localism Act 
(STELA) removed the statutory limitation to ``outdoor'' antennas in the 
distant signal statutory license. In compliance with STELA, the 
Commission again considered the digital signal strength standard to 
determine if reliance on an indoor measurement would provide more 
reliable results in predicting whether a household is served or 
unserved. The Commission affirmed the prior determinations that 
creation of an indoor TV signal measurement procedure would be 
difficult due to the wide variation in the construction of homes, 
possible placement of the antenna within the home, and the performance 
and quality of indoor antennas. Further, the Commission noted that 
STELA specified the use of the digital television signal strength 
standard in Section 73.622(e)(1) of the Commission's rules as the 
threshold to determine whether households are served or unserved. This 
rule is premised on the use of an outdoor antenna, and the Commission 
concluded that it was appropriate to retain the same requirements for 
the signal strength measurement standards. At the time, proponents of 
relying on indoor antennas as the basis for the standard did not 
provide the Commission with a reliable indoor testing method, and we 
believe that nothing has changed sii1ce that time to warrant a re-
examination of this issue.
                                 ______
                                 
  Response to Written Question Submitted by Hon. Claire McCaskill to 
                          Michael W. Palkovic
    Question. Customers have a right to expect to get what they signed 
up for. So when a carriage dispute between a content provider and 
programmer results in a channel being dropped, it makes sense to me 
that customers should be permitted to change providers without paying 
an early termination fee or other penalty. Do you agree?
    Answer. DIRECTV does not require customers to pay an early 
termination fee if they change providers early. Rather, customers can 
choose to enter into a programming agreement (which contains such fees) 
in exchange for steep discounts on DIRECTV equipment and programming 
approaching $800 in total. For example, without these discounts/
credits, an average customer would pay $397 (1 HD DVR @ $199 + 2 HD 
clients @ $198) for equipment, and would pay $384 more in programming 
costs based on our CHOICE package. Customers can always pay full price 
without entering a programming agreement, in which case they are free 
to leave any time. But most prefer to spread those additional costs 
over the life of a programming agreement.
    Our programming contracts are also fair in other respects. They 
clearly state in plain English that programming and channel lineups are 
subject to change and that such changes do not permit either party to 
terminate the agreement. We carry multiple channels in several 
programming genres. For example, we carry 18 independent networks 
carrying faith based programming: BYU TV, CTN, Church Channel, Daystar, 
EWTN, INCTV, GOD TV, GEB America, Hope, Jewish Life Television, NRB, 
Son Life, TCT Network, The Word Network, TBN, TBN Enlace USA, Up, and 
World Harvest Television. And we ``pro-rate'' early termination fees 
based on how long the subscriber has left on her agreement.
    We would like to raise one last point. We do not ``drop'' 
broadcasters. Broadcasters force us to drop their signals by 
withholding ``consent'' if we do not agree to massive price increases. 
We absolutely agree that our subscribers have a right to expect the 
programming they signed up for. This is exactly why Congress should 
consider ways to reduce or (better yet) eliminate blackouts.
                                 ______
                                 
     Response to Written Question Submitted by Hon. John Walsh to 
                          Michael W. Palkovic
    Question. My constituents have written me to ask for access to in-
state Montana local broadcasters. In eight Montana counties, ``local'' 
broadcast stations come from outside Montana. One county is even forced 
to watch ``local'' stations from Washington state, two states away. 
This leaves Montanans in these counties without the opportunity to 
watch local news and weather or key coverage like the annual ``Cat-
Griz'' football game between Montana State University and the 
University of Montana. Is there an appropriate way to remedy this 
situation as we renew STELA?
    Answer. We, too, are concerned about subscribers in what have 
become known as ``orphan counties.'' Many of these subscribers want 
``local'' stations from their own states. They want not only in-state 
news, but also in-state sports and entertainment programming. We 
succeed in the marketplace by giving our subscribers what they want. 
But right now, we can't, in part because the law prevents us from doing 
so, and we thus support efforts to change the law.
    You should, however, be aware of three other factors relevant to 
this discussion. First, we carry local stations on ``spot beams'' that 
cover limited geographic areas. We thus are not technically capable of 
carrying in-state stations to all orphan counties. Second, most 
subscribers--even those that want in-state stations--do not want to 
lose the stations they already have. Third, the retransmission consent 
fees charged by local stations have gone through the roof. A 
``solution'' that requires all subscribers in orphan counties to pay 
double (or more) their local stations is no solution at all. We thus 
support targeted legislation that would give us the option of adding 
in-state stations in orphan counties where we can. Such legislation 
would also give orphan county subscribers the choice of taking such in-
state stations, and would limit the amount subscribers would have to 
pay for these new stations--while still fairly compensating 
broadcasters and copyright holders.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Kelly Ayotte to 
                          Michael W. Palkovic
    Question. As we have heard today, the video market is extremely 
competitive and vibrant. In fact, with 33 million customers in the 
United States, Netflix has more subscribers than any other single 
multichannel video provider. Do your industry is competing on a level 
playing field? Are there any regulations that put you at a competitive 
advantage or disadvantage?
    Answer. As we discussed in the Joint Written Response of DIRECTV 
and DISH, submitted to the Committee on March 17, 2014 (``Joint 
Response''), a panoply of regulations give broadcasters preferential 
treatment. (We provided a list of these regulations as Exhibit A to the 
Joint Response). These regulations, individually and collectively, 
result in a ``competitive disadvantage'' for DIRECTV. More importantly, 
they result in increased blackouts and higher prices for DIRECTV's 
subscribers.
    In addition, online-based ``over the top'' (``OTT'') providers 
generally are not subject to significant FCC regulation. This means 
both that they are free from the burdens such regulation place on more 
traditional MVPDs and that they often cannot avail themselves of the 
protections contained in such regulation. Generally speaking, DIRECTV 
has supported equal treatment for providers offering similar services, 
regardless of the platform used.
                                 ______
                                 
      Response to Written Question Submitted by Hon. Dan Coats to 
                          Michael W. Palkovic
    Question. My understanding is that the standard for measuring 
whether a home can get a broadcast over-the-air signal involves using a 
30-foot antenna on their roof. I travel all over Indiana on a regular 
basis, and I cannot remember the last time I saw a 30-foot antenna on a 
home. In fact, I am not even sure where one would purchase a 30-foot 
antenna. Where did this standard come from, and should it be changed to 
reflect the smaller, more compact indoor antennas that consumers can 
purchase at any store?
    Answer. As discussed in more detail in Question I(4) of our Joint 
Response, the law has for years specified that households would be 
considered ``served'' (and thus ineligible for distant signals) if 
tested or predicted to receive signals of a specified strength using a 
``conventional, stationary, outdoor rooftop receiving antenna.'' This 
standard was developed in the early days of broadcasting, and was 
originally used to help set generalized ``service contours'' for analog 
broadcasters so that they did not interfere with one another. This 
never really had anything to do with the equipment that people actually 
used back then--and certainly has no relationship to the equipment they 
use today.
    Moreover, as your question suggests, this standard is a terrible 
way to measure eligibility for distant signals. Subscribers should be 
able to receive distant signals if they cannot receive a viewable local 
signal over the air. But assuming that every subscriber has a perfectly 
calibrated rooftop antenna--when almost nobody has such equipment--
means that many people who should be eligible for distant signals are 
not.
    Not only should the standard be changed to reflect antennas used 
today, but Congress already made such a change. Five years ago, 
Congress removed the words ``conventional, stationary, outdoor rooftop 
receiving'' before the word ``antenna.'' The plain intent was to (as 
you put it) ``reflect the smaller, more compact indoor antennas that 
consumers can purchase at any store.'' Unfortunately, however, the FCC 
failed to implement this change. We urge Congress to take more 
definitive action to help the FCC rectify its error.
                                 ______
                                 
      Response to Written Question Submitted by Hon. Tim Scott to 
                          Michael W. Palkovic
    Question. With the widespread adoption of subscription-based video 
platforms by consumers, we are seeing the development of a diverse 
range of content by independent television networks, sometimes tailored 
to the interests of previously underserved consumers. But it can often 
be a substantial challenge for these independent networks to gain 
carriage on subscription-based platforms, and it seems the process can 
be rather opaque from their perspective. Can you give us some insight 
into the factors DirectTV uses in making carriage decisions?
    Answer. We attempt to make carriage decisions based on what our 
subscribers want to watch. We are, however, limited in several 
respects, including the following:

   Our satellite system has limited capacity--especially with 
        respect to local and regional programming.

   We are subject to series of regulatory carriage requirements 
        that apply to us, including ``carry-one, carry-all'' for local 
        broadcast channels and a four percent set-aside for ``qualified 
        programmers for noncommercial programming of an educational or 
        informational nature.''

   We are often required by large programming conglomerates to 
        carry unpopular networks as the price of carrying popular ones.

    Each of these three limitations makes it more difficult for us to 
carry independent channels that we might otherwise wish to carry.
    Unlike some of our larger competitors, DIRECTV is largely 
unaffiliated with programmers. (We own a minority interest in Game Show 
Network and own three regional sports networks.) Many people worry that 
so-called ``vertically integrated'' cable operators make programming 
decisions to benefit their programming affiliates. We believe that such 
worries do not apply to us.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Claire McCaskill to 
                         Hon. Michael K. Powell
    Question 1. Consumer Reports recently published a survey of more 
than 80,000 cable subscribers that found an astonishing 92 percent of 
respondents who called to negotiate with their cable company were able 
to get a better deal. Consumers shouldn't have to call their provider 
every six months in order to get a fair shake. I would think businesses 
would want to do everything they can to keep customers from dropping 
their service or changing providers but instead it often takes the 
threat of doing just that to get the best deal available. Being charged 
a premium for HD channels even after HD channels are standard, being 
charged a premium for higher Internet speeds once the higher speed is 
the base speed, having ``promotions'' end that would likely be renewed 
if a customer picked up the phone--these are among the examples I've 
heard from constituents about and even experienced myself. How does 
this pricing model best serve your customers? Do you have statistics or 
an estimate on what percentage of cable customers contact customer 
service on an annual basis to renegotiate their rate?
    Answer. Cable operators today are constantly innovating to offer 
new options and bundles of services tailored to fit the full spectrum 
of consumer preference. Customers can select packages that include a 
variety of tiered options for basic through premium cable; can add on 
DVR or on-demand capabilities; and can opt to receive bundles of 
services, including phone and Internet, all at varying service and 
price levels. Our companies make full information about their range of 
service and pricing offerings readily available to their subscribers, 
including by describing them online and through mailed inserts and 
other means of direct communication, so that customers can compare and 
contrast multiple options, and choose the best service at the best 
price for them. Cable believes that giving consumers the information 
they need to make informed choices and an enhanced ability to tailor 
and control what they receive best serves our customers. Our customers 
take full advantage of the information they receive, and review their 
service offerings not just annually, but frequently, adjusting their 
service as necessary to benefit from the latest offerings, either by 
contacting customer service, or by accessing their account and making 
changes online.

    Question 2. I have a TiVo. I like my TiVo. I assure you I do not 
want to put TiVO out of business. NCTA has proposed eliminating the so-
called set-top box ``integration ban'' that requires a CableCard be 
installed in every leased set-top box even though the leased box could 
be built without a card. The intent was good but as a practical matter 
technology has moved past the CableCard, and eliminating this 
technology mandate could reduce the cost of the boxes as well as reduce 
their energy consumption--a win-win, as long as we can ensure cable 
providers are still supporting and not discriminating against 
commercial set-top boxes like Tivo. If Congress does what you are 
advocating and directs the FCC to eliminate the ``integration ban,'' 
why would the industry still support CableCards?

    Question 2a. It is my understanding that the FCC would still have 
authority under Section 629 of the Communications Act to ensure 
commercial availability of set-top boxes; in fact isn't there a 
separate rule today that cable would still have to comply with? And if 
you did not comply, wouldn't the FCC be empowered to take action, 
including fine a company if it failed to comply?
    Answer. Even if the integration ban is repealed, cable operators 
will have strong marketplace incentives to support CableCARDs. First, 
over 47 million legacy CableCARD-enabled leased set-top boxes are 
deployed today and are used by cable operators to deliver service. 
Second, consumers with third party devices are still cable customers 
and cable operators are strongly motivated to attract and retain these 
customers in a highly competitive market. No rule ordered cable to 
serve tablets, smartphones, Xbox, PCs, Macs, or SmartTVs, but that 
market imperative led cable to support those devices using new 
technologies that they do not use in their own leased set-top boxes.
    We have a good test case proving that market imperative. 
Cablevision has used downloadable security rather than CableCARDs in 
its leased set-top boxes since 2011, but it has continued to provide 
CableCARDs to customers for use in retail devices and to support TiVo.
    The proposed repeal of the integration ban is narrow: it only 
repeals the integration ban, an FCC rule which is not part of the 
statute, and preserves all other FCC authority. As a regulatory 
backstop, the FCC can continue to enforce a different rule--unaffected 
by repeal of the integration ban--that requires cable operators to 
offer a ``separable security'' solution for retail devices which for 
most operators means CableCARDs. The FCC monitors the market by 
requiring CableCARD inventory, deployment, price and trouble reports 
every 90 days from the five largest cable operators; it has existing 
complaint procedures to consider any disputes over whether CableCARDs 
are performing; and it may issue enforcement orders which can include 
fines and forfeitures for non-compliance.

    Question 3. Customers have a right to expect to get what they 
signed up for. So when a carriage dispute between a content provider 
and programmer results in a channel being dropped, it makes sense to me 
that customers should be permitted to change providers without paying 
an early termination fee or other penalty. Do you agree?
    Answer. The cable industry takes seriously our obligation to 
provide clear and accurate information about the variety of service 
plans that we offer to meet consumers' needs.
    Our companies typically offer all of their services on a month to 
month basis. But in addition, they sometimes try to meet their 
consumers' needs through promotional offers, where consumers can 
benefit from lower prices in exchange for committing to a defined 
contract term (for example, a year). While these promotions are popular 
among many customers, customers who prefer a month-to-month plan 
generally always have that alternative.
    In the rare instance in which a customer that has elected to be 
part of a promotional contract elects to switch before the term has 
ended, the cable operator may seek to recoup some the promotional 
benefit extended under the original contract term. Typically, these 
ETFs or ``breakup fees'' are prorated based on the remaining time left 
in the contract term. Our practices are consistent regardless of a 
customer's reason for ending the contract term early. While we never 
want customers to switch, our aim is to treat all customers fairly, and 
consistent with the terms of their service arrangement.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Kelly Ayotte to 
                         Hon. Michael K. Powell
    Question. One of the provisions in STELA requires broadcasters and 
pay-tv providers to negotiate ``in good faith''. When I look at the 
spiraling upward trend of blackouts, having gone from 12 blackouts in 
2010 to 127 blackouts in 2013, it is hard to believe this provision is 
working as intended. Can you talk about your perspective or definition 
of what ``in good faith'' means?
    Answer. NCTA supports the reauthorization of the mutual ``in good 
faith'' retransmission consent provisions in Section 325 of the 
Communications Act. Broadcast programming remains an important part of 
the cable service offering, and ensuring 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 postures, is an important part of protecting consumers.
    By a 5-0 vote, the FCC recently made joint retransmission consent 
negotiations among the top four stations in a local Designated Market 
Area a per se violation of a broadcaster's obligation to negotiate in 
good faith when the broadcasters are not commonly owned. Through 
statute, Congress should complement and extend the FCC's regulatory 
action.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Dean Heller to 
                         Hon. Michael K. Powell
    Question 1. Should we make any of these changes in STELA?
    Answer. Yes, STELA is an appropriate legislative vehicle to address 
a number of narrow, targeted video reforms, including prohibiting non-
commonly owned broadcasters from coordinating their retransmission 
consent negotiations. This ban could be effected by modifying Section 
325 of the Communications Act to prohibit these activities, or by 
clarifying explicitly that such coordination would violate a 
broadcaster's obligation to negotiate in good faith.
    NCTA also supports two other reforms, repeal of the FCC's 
technology mandate known as the ``integration ban'' and elimination of 
retransmission consent stations from the basic ``must buy'' tier. These 
reforms would directly benefit consumers, prune away outdated legal 
requirements, and promote a more level playing field among multichannel 
video programming distributors (MVPDs).
    The FCC's ``integration ban'' mandate forces consumers to bear 
needless costs, increases energy use, and precludes cable operators, 
and only cable operators, from leasing set-top boxes with less 
expensive and more energy-efficient decryption technologies. Unevenly 
applied, three of the five largest MVPDs do not comply with this tech 
mandate.
    In carrying out Congress's directive in Section 629 of the 
Communications Act that the FCC adopt rules to promote a retail market 
for set-top boxes and other navigation devices, the FCC did two things. 
First, because different cable operators used different scrambling 
technologies, the FCC required cable operators to develop a separate 
security device to unscramble cable signals--now known as the 
CableCARD--for use in set-top boxes and other navigation devices that 
could be sold at retail and used on any cable system. If a customer 
moved, he could return the CableCARD to his former cable provider, and 
get a new CableCARD from his new cable provider. But the FCC took a 
second and unnecessary step of mandating that a cable operator's leased 
set-top boxes be redesigned to also include CableCARDs. When used in 
leased set-top boxes that are owned by and returned to the cable 
operator, CableCARDs do nothing that hadn't been done previously by 
leased boxes with traditional ``integrated'' security while wasting 
hundreds of millions of kilowatt hours in energy per year and forcing 
customers who lease set-top boxes to pay over $1 billion in added set-
top box costs for portability they do not want or need in a leased box. 
Today there are more than 47 million CableCard devices deployed in 
leased set-top boxes, but only 616,000 CableCards have been requested 
for third-party retail devices.
    Repeal of this technology mandate would eliminate the inequities 
forced upon cable subscribers, who choose to lease set-top boxes, while 
not affecting the retail market. If the integration ban is repealed, 
operators will have strong marketplace incentives to support CableCARDs 
given the over 47 million CableCARD-enabled leased set-top boxes they 
use to serve their customers today, and the fact that cable operators 
are strongly motivated to attract and retain customers with retail 
devices in a highly competitive market, including cable customers who 
use CableCARD-enabled devices like TiVos. And, as a regulatory 
backstop, the FCC can enforce a different rule--which would be 
unaffected by repeal of the integration ban--that requires cable 
operators to offer a ``separate security'' solution (e.g., the 
CableCARD) to manufacturers of retail devices.
    In addition, NCTA supports repeal of the ``must buy'' requirement. 
The Communications Act mandates that cable operators, and only cable 
operators, include all broadcasters on a basic tier, which all cable 
subscribers ``must buy'' before they can purchase any other cable 
programming. To give consumers and operators more flexibility, the 
``must buy'' tier should be limited to must carry stations and certain 
other channels mandated by local franchises.
    Broadcast stations freely electing retransmission consent should 
not have a government-mandated right to be included in the ``must buy'' 
basic tier. Retransmission stations could continue to negotiate 
placement, but would no longer enjoy the unwarranted benefit of a 
government-created mandate that narrows consumer choice for cable 
subscribers in contrast to other MVPD subscribers.

    Question 2. At the very least shouldn't the laws reflect parity 
between cable and satellite providers?
    Answer. Yes, NCTA has long advocated that laws can and should be 
more technology-neutral and that functionally equivalent services 
should be treated similarly. As noted above, cable operators remain 
subject to a number of statutory requirements that DBS providers are 
not, even though--from the consumer's perspective--they provide the 
same type of service and the DBS providers are the second and third 
largest MVPDs. Congress should examine the Communications Act broadly, 
to ensure that the law does not confer any regulatory advantage or 
disadvantage based on the use of any particular technology.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Claire McCaskill to 
                            Thomas S. Rogers
    Question 1. I have a TiVo. I like my TiVo. I assure you I do not 
want to put TiVo out of business. NCTA has proposed eliminating the so-
called set-top box ``integration ban'' that requires a CableCard be 
installed in every leased set-top box even though the leased box could 
be built without a card. The intent was good but as a practical matter 
technology has moved past the CableCard, and eliminating this 
technology mandate could reduce the cost of the boxes as well as reduce 
their energy consumption--a win-win, as long as we can ensure cable 
providers are still supporting and not discriminating against 
commercial set-top boxes like Tivo. Isn't the CableCard outdated 
technology?
    Answer. TiVo agrees that CableCARD is becoming an outdated 
technology but it is still the only industry-wide standard that will 
support retail boxes. The problem is that while the cable industry 
wants to move to a more modern security technology for its own leased 
boxes, it has not proposed a modern successor security technology for 
use by retail boxes. The issue is not about a ban on ``integrating'' 
security into boxes; the real issue is common reliance by operator 
boxes and retail boxes on the same security technology. Reliance on the 
same security technology is how we assure that cable providers do not 
discriminate against retail boxes.
    NCTA wants to allow cable operators to use new and different 
security solutions for their own leased boxes, while claiming that 
operators will continue to support the use of old CableCARD technology 
in retail boxes. The notion of requiring retail devices to rely on 
different security than operator boxes is bad enough yet, at the FCC, 
the NCTA is arguing that the FCC's CableCARD rules are no longer in 
effect and cable operators have no obligation to supply CableCARDs to 
retail devices.\1\
---------------------------------------------------------------------------
    \1\ See Comments of National Cable & Telecommunications 
Association, CS Docket No. 97-80, at pp. 4-5 (Feb. 14, 2014); 
Opposition of Charter Communications, Inc. to Petition for 
Reconsideration, MB Docket No. 12-328, CSR-8470-Z, at 3 (June 3, 2013) 
(``CableCARD support is no longer required.'')
---------------------------------------------------------------------------
    In the absence of any FCC requirement for operators to supply 
CableCARDs to retail devices, the integration ban is the only thing 
that practically assures that CableCARDs will be supplied by operators 
simply because if cable operators have to use CableCARDs in their own 
devices, then cable operators will supply CableCARDs to retail devices. 
Conversely, if operators don't have to use CableCARDs in their own 
devices and they stop buying CableCARDs, then basic economics dictate 
that the CableCARD manufacturers, Motorola/Arris and Cisco, will stop 
making CableCARDs (or at best dramatically increase pricing) because 
demand will drop significantly since only competitive boxes will be 
using CableCARDs, there is no requirement for Motorola/Arris and Cisco 
to continue to manufacture them, and Motorola/Arris and Cisco do not 
want retail competition.
    For retail boxes to be a real alternative for consumers, they need 
to use the same conditional access solution as operator leased boxes 
use to unlock the encrypted cable programming. Allowing operator boxes 
to use different conditional access than retail boxes will inevitably 
result in retail boxes not having access to all of the cable 
programming. A retail box that cannot receive all of your cable 
programming is not a viable alternative for a consumer.
    TiVo simply wants to rely on the same conditional access solution 
that the industry relies on for its own set top boxes. When the 
industry comes forward with a successor solution to access their cable 
signals (presumably IP-based), then we can sunset CableCARD and all 
move on to a better solution for everyone.

    Question 1a. Why aren't the protections under Section 629 of the 
Communications Act enough to ensure companies like Tivo can continue to 
compete?
    Answer. Section 629 protects competitive entry only to the extent 
that the FCC's implementing regulations do. NCTA insists that these 
regulations place cable operators under no obligation to take any 
further steps to accommodate competitive devices such as TiVo's.
    Cable operators have already announced plans to use IP to deliver 
some programming to be available to subscribers who lease their 
proprietary boxes, but not to subscribers who own retail CableCARD 
boxes. Cable operators insist that they are under no obligation to make 
equal access to their systems available on a national basis for IP-
delivered signals. Absent the so-called integration ban that has 
required common reliance on the same security standard by operator and 
retail boxes, no present FCC rules would address the need for a common 
successor standard to be provided. This would allow cable operators to 
provide signals via IP to their own devices yet withhold the same 
technology from any competitive product.
    It is worth noting that a consequence of the NCTA's position that 
the FCC's CableCARD rules are not longer in effect is that the FCC's 
companion rules that require operators to clearly and conspicuously 
disclose equipment rental fees, prevent operators from charging 
consumers for a set-top box when the consumer is using a retail set-top 
box, and prevent the levying of service charges on subscribers using 
retail boxes that are not levied on operator boxes and other 
discriminatory practices against subscribers using retail equipment are 
similarly no longer in effect.
    FCC oversight remains as relevant today as ever because the 
incentives for cable operators to favor their own leased equipment and 
discriminate against retail products remain as strong as ever. On the 
whole, cable operators charge consumers an estimated $7 billion each 
year from set-top box leasing fees.\2\ At a time when cable operators 
are faced with rising programming costs, equipment leasing costs are 
one area where operators can raise revenue to boost earnings.\3\ 
Consumer electronics prices almost always drop over time, but monthly 
cable set-top rental prices are rising.\4\ Competition from retail 
devices leads to lower prices, but this has not happened in the set-top 
box market because consumers have limited choices. The fact that cable 
operators have the incentive to deny consumer choice to maintain and 
increase the revenue stream associated with leasing set-top boxes 
demonstrates the need for Congress and the FCC to ensure competition 
from retail devices.
---------------------------------------------------------------------------
    \2\ See Report on Cable Industry Prices, MM Docket No. 92-266, DA 
13-1319, at 12-13,  21-22 (rel. June 7, 2013) (finding average cost 
of leasing a cable set-top box to be $7.29 per month; the $7 billion 
figure assumes 54 million subscribers nationwide and an average of 1.5 
set-top boxes per home).
    \3\ See David Lazarus, TWC is Offering Customers Little in Return 
for Its Latest Rate Hikes, March 17, 2014, available at http://
touch.latimes.com/#section/-1/article/p2p-79650340/
    \4\ See id; Jessica DiNapoli, Time Warner Cable Raises Cable, 
Internet Rates, Times Herald-Record, Feb. 27, 2014, available at http:/
/www.recordonline.com/apps/pbcs.dll/article?AID=/20140227/BIZ/
402270319; Todd Spangler, Verizon Raising FiOS TV DVR, Set-Top Rates, 
Multichannel News, Mar. 23, 2012, available at http://
www.multichannel.com/content/verizon-raising-fios-tv-dvr-set-top-rates.

    Question 2. Customers have a right to expect to get what they 
signed up for. So when a carriage dispute between a content provider 
and programmer results in a channel being dropped, it makes sense to me 
that customers should be permitted to change providers without paying 
an early termination fee or other penalty. Do you agree?
    Answer. TiVo agrees that costumers have a right to change providers 
in order to get what they pay for. However, without equivalent access 
to signals across cable, satellite and telco platforms, it is difficult 
for consumers to switch providers, particularly if they have invested 
in a competitive retail device. In TiVo's case, the CableCARD interface 
on our products could not help an unhappy customer move to a 
competitive satellite or ``IPTV'' service because the FCC has not 
required that retail devices have access to the signals delivered by 
those operators.
    With IP technology this need not be the case. A common IP-level 
interface for devices could work not only across all cable systems and 
telco systems, allowing an unhappy customer to switch providers yet 
still keep her competitive product and any content stored on it. Access 
to satellite signals could also be incorporated into such a retail 
device. The idea of a device that could allow a consumer to switch 
among MVPDs has been consistently opposed by virtually every MVPD.
                                 ______
                                 
  Response to Written Question Submitted by Hon. Claire McCaskill to 
                            Matthew F. Wood
    Question. Customers have a right to expect to get what they signed 
up for. So when a carriage dispute between a content provider and 
programmer results in a channel being dropped, it makes sense to me 
that customers should be permitted to change providers without paying 
an early termination fee or other penalty. Do you agree?
    Answer. Yes, Free Press agrees that customers have a right to 
receive the services for which they have paid. We believe it makes 
sense to provide relief to multichannel video program distributor 
(``MVPD'') subscribers who lose service due to carriage disputes, 
including by holding them harmless against early termination fees and 
penalties.
    However, as explained in our written testimony, we also support 
measures to prevent loss of service in the first place. For instance, a 
``standstill'' period would ensure continued carriage when negotiations 
reach an impasse, so that viewers are not subjected to loss of service 
as a negotiating tactic. Congress should clarify the Federal 
Communications Commission's authority to order interim carriage during 
a retransmission consent dispute, to the extent that the Commission 
does not possess this authority already.
    Some parties have suggested as remedies for these situations a 
requirement of refunds to MVPD subscribers after a blackout ends, in 
addition to the early termination fee relief described in the question. 
Others have suggested allowing importation of distant broadcast signals 
when a blackout begins. Still others argue for creating a counter-
productive ``parity'' that would let MVPDs delete broadcast signals 
during ratings periods, so that both sides in the carriage dispute have 
power to take down service.
    In almost every case, Free Press believes preventing the loss of 
service in the first place would be more beneficial for viewers than 
any attempt to make them whole after the fact. Beyond ``standstill'' 
carriage, for which we have consistently advocated before the 
Commission, we also have called for passage of bills such as the 
Television Consumer Freedom Act of 2013 sponsored by Senators McCain, 
Blumenthal and Whitehouse.
    Giving MVPD subscribers not just the knowledge of what they pay for 
each channel, but also the ability to decide whether to buy that 
channel at all, would bring real market forces to bear on carriage 
negotiations. Without such direct measures of viewer demand, 
broadcasters and MVPDs will fight over the price of a channel yet 
simply pass along all of the cost to viewers once a deal has been 
struck. If viewers were instead empowered to decide which channels they 
buy, this would allow them to vote with their wallets when the price 
for a particular service is too high--all contributing to a more 
transparent and rational pricing structure than the forced bundling 
model viewers must deal with today.

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