[Senate Hearing 113-682]
[From the U.S. Government Publishing Office]
S. Hrg. 113-682
AT A TIPPING POINT:
CONSUMER CHOICE, CONSOLIDATION
AND THE FUTURE VIDEO MARKETPLACE
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JULY 16, 2014
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
95-652 PDF WASHINGTON : 2015
_________________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
Fax:(202) 512-2104 Mail:Stop IDCC,Washington,DC 20402-001
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
John Williams, General Counsel
David Schwietert, Republican Staff Director
Nick Rossi, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel and Chief Investigator
C O N T E N T S
----------
Page
Hearing held on July 16, 2014.................................... 1
Statement of Senator Rockefeller................................. 1
Statement of Senator Thune....................................... 3
Statement of Senator Booker...................................... 48
Statement of Senator Nelson...................................... 51
Statement of Senator Markey...................................... 53
Statement of Senator Heller...................................... 56
Statement of Senator Ayotte...................................... 58
Statement of Senator Blunt....................................... 60
Statement of Senator Blumenthal.................................. 62
Statement of Senator Klobuchar................................... 65
Witnesses
David L. Cohen, Executive Vice President, Comcast Corporation.... 5
Prepared statement........................................... 6
Justin (Gus) Hurwitz, Assistant Professor of Law, University of
Nebraska College of Law........................................ 21
Prepared statement........................................... 23
John T. Stankey, Group President and Chief Strategy Officer, AT&T
Inc............................................................ 24
Prepared statement........................................... 26
Jeffrey H. Blum, Senior Vice President and Deputy General
Counsel, DISH Network L.L.C.................................... 28
Prepared statement........................................... 30
Shawn Ryan, Member, on behalf of Writers Guild of America, West.. 32
Prepared statement........................................... 34
Gene Kimmelman, President and CEO, Public Knowledge.............. 39
Prepared statement........................................... 41
Appendix
Response to written questions submitted to David L. Cohen by:
Hon. John D. Rockefeller IV.................................. 79
Hon. Barbara Boxer........................................... 80
Hon. Mark Pryor.............................................. 85
Response to written questions submitted by Hon. Mark Pryor to:
Justin (Gus) Hurwitz......................................... 86
John T. Stankey.............................................. 88
Jeffrey H. Blum.............................................. 89
Gene Kimmelman............................................... 90
AT A TIPPING POINT:
CONSUMER CHOICE, CONSOLIDATION
AND THE FUTURE VIDEO MARKETPLACE
----------
WEDNESDAY, JULY 16, 2014
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 2:40 p.m. in room
SR-253, Russell Senate Office Building, Hon. John D.
Rockefeller IV, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
The Chairman. Welcome all. The attendance does not
represent on our part so far the interest in this subject. We
just were finishing up a vote. Sometimes people tarry just a
bit when that happens.
But this is a very serious hearing and a very important
hearing. So, I am going to make my opening statement and then
turn it over to Senator John Thune.
Today we are here to discuss the future of the video
marketplace. We are continuing a conversation which the
Committee began several years ago, 2 years ago, I think, on an
examination of the emergence of online video.
I produced a bill, which caused some angst on K Street, but
obviously opened up a conversation, which we are going to be
continuing today. This bill asks whether it has the ability to
bring more quality content and more choice to consumers.
The past 2 years have confirmed from my perspective the
ability of online video to resonate with consumers and to
generate critical acclaim.
In fact, just last week an online video provider--to be
precise, Netflix--whose CEO declined to be here today, which I
cannot figure out because I am trying to help him, I think, but
he did not want to be here--anyway, the provider got 30 Emmy
nominations and produced two online-only TV shows that are
generally recognized by some to be the best TV shows airing
today. Whether that is true or not, I just do not know.
It remains an open question whether online video can become
the driving force of a consumer-centric revolution in the video
marketplace, a matter which interests me greatly.
While it is true that at least one online video provider,
that being Netflix, has more subscribers today than any one
cable or satellite provider, combine those two categories
together, and they have more.
No online video platform has emerged that can compete on
equal footing with traditional cable or satellite service. It
is important to remember that these online providers are
reliant on broadband providers to reach consumers, and hence,
the complexity of our discussion.
Last November, as I guess I already said, I introduced the
``Consumer Choice in Online Video Act.'' That legislation is
designed to start a real conversation about how to foster the
growth of online video services. My bill provides them the
breathing room necessary to compete on a level playing field
with tradition pay TV services.
I continue to believe that one of the core policy questions
that the Congress must grapple with as it looks to reform video
policy is how to nurture new competitive technologies and
services, and make sure that incumbents cannot simply
perpetuate the status quo of ever increasing pay TV bills
rising at a rate faster than inflation and limited programming
choice.
This is particularly true when we have real world examples
of at least one former cable CEO announcing to the world that
his company actively tried to prevent the growth of new
competitive online video services.
I know everybody says that and you are probably tired of
hearing it, but it does kind of make a point because he was
head of a cable service. Make no mistake, the video marketplace
is at a tipping point. That is why there are so many of you
here and that is why this is such a crucial point.
The video marketplace--the two proposed mergers could
fundamentally reshape the marketplace. As press reports as
recently as today indicate, there could be significant media
mergers on the horizon.
More importantly, these mergers create even larger
companies that combine high speed broadband and extensive media
holdings. These proposed combinations of video, broadband and
content have real implications for the future viability of
competitive online video services.
As the current--this is sort of obnoxious as I say it, so
please forgive me. As the current longest serving member of
this committee, I hope that is true, I have had before me many
CEOs. I am very serious about this, many CEOs and other company
representatives touting the consumer benefits of ever larger
companies in various industries.
In other words, you let us merge, prices are going to go
down and trucks are going to arrive on time. They will tell you
exactly what the guy is going to look like, you know, all this
stuff.
Yet these mergers, essentially media mergers and
telecommunications, railroads and airlines, just to name a
few--a lot of folks around here do not like the word
``regulation,'' but I suspect some folks who come from rural
states recognize that the deregulation of the airline industry
was a massive assault on rural America and small town America.
Yet in most cases these benefits never come to pass. All the
promises made are not the promises kept.
Of course, each of these mergers deserves to be judged on
the merits. There is no theology here. This is a merit based
discussion. But doing so cannot and should not ignore what they
could mean for the future of video.
Regulators must be vigorous in their review on the impacts
of these transactions on competition and on consumers, what
they have to pay, and what they have to see. Do people really
want to see 500 channels when all they ever look at is eight,
like me, or is it something different.
Our video marketplace stands at a crossroads today. I think
I just said that. I just used different words. One path could
lead to a perpetuation of the status quo into the online world,
which I think is upon us, big time, and consumers left worse
off than they were before.
The other path, the brighter path, is one where broadband
facilitates a new evolution in video services as it has done in
other markets. This evolution brings with it more consumer
choice, more competitive alternatives, more high quality
content, and for heaven's sake, lower rates.
Consumers clearly prefer the second path. They have an
appetite for the types of service and choices that online video
can bring. Policymakers in my judgment must respond to that
desire. If that is what consumers want, then we need to respond
to that, responsibly, and make sure that online video has the
room needed to flourish and push towards a consumer-centric
video marketplace.
That is the shortest opening statement I have ever given, I
think, Senator Thune, but I want to thank our witnesses for
being willing to come, and to the head of Netflix, we will see
him, too, but it will be later, I guess.
So, I look forward to the discussions and I look forward to
anything that my Co-Chair has to say.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman, for holding today's
hearing, and thank you to all our panelists as well for being
here.
Mr. Chairman, the title of this hearing suggests that we
have reached a tipping point in the video marketplace and that
we may have arrived at a foreboding precipice for the future of
video.
While the mergers proposed between Comcast and Time Warner
Cable and between AT&T and DIRECTV involve some of the largest
American telecommunications firms and tens of millions of
American households, I am not convinced it will necessarily
change the market in a permanent or a negative way.
That said, there is no doubt that these transactions are
quite significant, and we are rightly here to discuss them and
their potential impact on the marketplace, and most
importantly, on our constituents.
The marketplace for video services is dynamic and appears
increasingly robust. It was not that long ago when meaningful
competition to cable companies simply did not exist. Today,
nearly all homes have three pay TV providers competing for
their business, and that number is unlikely to be reduced by
the pending mergers.
In addition to the current facilities-based competition,
there is a growing class of video services we call ``over-the-
top.'' While this market is still nascent, it is also
ascendant. Many of the companies driving it are household names
that dwarf many traditional pay TV providers. Google, Amazon,
Microsoft, Apple, Yahoo, and Netflix are all investing
tremendous resources in unique and previously impossible ways
to capture a greater share of the video marketplace.
Consumer choice for video delivery and video content is
greater today than ever before. The continued promise of
increasing choice and consumer empowerment, however, will need
an ever more capable broadband infrastructure, both wired and
wireless.
So, Mr. Chairman, I am eager to hear how these mergers may
improve the broadband network infrastructure on which our
digital economy and video services increasingly rely. I am
particularly interested in what benefits these mergers would
provide to people in rural areas, like in my home state of
South Dakota, and yours of West Virginia.
It is also important for the Committee to understand how
competitors and other market participants may respond to these
mergers if they are approved. Smaller video providers and
content creators fear that they will get further squeezed as
the big companies get bigger. Are these fears legitimate, and
if so, can they be assuaged?
Another aspect that should be discussed is the role of
content creators and video programmers in shaping the future of
the video marketplace. As large as some pay TV companies may
grow, none will succeed in the marketplace without securing the
rights to carry high quality content created and owned by
others. Bill Gates once said, and I quote, ``Content is king,''
unquote. That is certainly true for video.
It is even more true for online video. So, while a
broadband connection is essential, ultimately it is the content
delivered by that connection that drives demand and competition
in the online video marketplace.
In future hearings and outreach to stakeholders, we should
solicit the input of online video providers and major
unaffiliated video programmers to provide perspectives and
insights into the dynamic interplay between content, platform,
and infrastructure.
I know the promise of online video is a subject you deeply
care about, Mr. Chairman, and I look forward to continuing to
build the Committee's record and exploring ways to work
together to ensure that consumers ultimately realize that
promise.
Thank you again for holding today's hearing, Mr. Chairman.
I look forward to hearing from our witnesses. Thank you.
The Chairman. Thank you, sir. Let's go right to our opening
statements, and there are seven of you.
Senator Thune. Six.
The Chairman. Six; yes. So, please do not talk more than
half an hour.
[Laughter.]
The Chairman. If you want the hearing to be interesting,
make it about five, and I know you can do that, David, you can
do that.
So, David Cohen is recognized. He is Executive Vice
President for the Comcast Corporation. I look forward to what
you have to say.
STATEMENT OF DAVID L. COHEN, EXECUTIVE VICE PRESIDENT, COMCAST
CORPORATION
Mr. Cohen. Thank you very much, Mr. Chairman, Ranking
Member Thune, and members of the Committee. I appreciate the
opportunity to testify today about the robust state of
competition in the video marketplace.
As I entered this hearing room, I was reminded of the
determined efforts of this committee over the past two decades,
including you, Mr. Chairman, and a bipartisan group of past
chairs of this committee, to support video competition and
greater programming choices for the benefit of consumers.
I would be remiss if I also did not recognize Senator
Markey's work in the House on that same subject, and I think we
are all benefiting from that two decades of work that all of
you have been engaged in.
America has indeed reached a tipping point in those
efforts, and it is tipping decidedly in the favor of consumers,
who are now enjoying what many rightly call ``a new golden age
of video services,'' more choices, new technologies, and
incredible content, and this is the direct result of thoughtful
government policies that remove barriers to competitive entry,
reduce regulation, and allow the marketplace to grow and
flourish.
More companies than ever before, both large and small, old
style and new style, are producing high quality and diverse
programming, competing to deliver that programming using an
unprecedented array of innovative technologies and business
models, and experimenting and competing in both the production
and delivery of content.
During a typical week, nearly a quarter of adults watch
downloaded or streaming video through their smartphones, and
nearly half of game console users stream and watch video over
those devices. 7.6 million U.S. homes are now considered cord
cutters or cord nevers, meaning they have high speed Internet
but no cable or satellite television service.
Nielsen reports that YouTube reaches more U.S. adults ages
18 to 34 than any cable network, and Netflix, as the Chairman
observed, has over 35 million domestic subscribers, and if I
can slightly adjust the comparison, that is more than Comcast
and Time Warner Cable combined.
Amazon, Hulu, Netflix, Yahoo! and other websites are
developing their own original series, including such successful
shows as House of Cards, Orange is the New Black, and Alpha
House.
And notwithstanding this explosion of alternative video
consumption models, traditional television viewing has remained
essentially constant, with the average adult consuming more
than 5 hours a day of television.
This new golden age is made possible in large part by the
$1.2 trillion that cable companies, phone companies, and
wireless companies have invested to bring broadband Internet to
every corner of America since the passage of the 1996
Telecommunications Act.
Comcast alone offers high speed data services to tens of
millions of households. We have increased speeds 13 times in
the last 12 years. We invest billions to double the capacity of
our network every 18 months, and we have driven the price per
megabit of data consumption down 92 percent since 2002, and it
is thanks to this investment in broadband networks that online
video distribution has flourished. The number of online video
subscribers more than tripled, from 18.2 million in only 2010,
to 54 million in 2013.
The video viewing options are going to continue to grow as
even more companies, including such power houses as AT&T,
Verizon, DIRECTV, DISH, Amazon, Apple, Sony, Google, Netflix,
and Facebook, to name a few, compete for their attention and
loyalty.
The increasing rivalry and experimentation among these
national and global companies is a primary business driver for
the Comcast/Time Warner Cable transaction. It will give Comcast
the increased geographic reach and economies of scale necessary
to compete in this capital intensive, rapidly evolving
industry, where continued research and development and
innovation are essential, allowing us to invest the billions of
dollars required for next generation technologies and services,
and when we invest and innovate, so do our competitors.
The mere announcement of our transaction has already caused
other companies across the country to accelerate and expand
their investment plans. All of this is great for consumers and
our economy, and it will ensure that this new golden age of
television extends well into the future.
As I noted in my opening, the massive investment and robust
competition that has brought us to this tipping point is in
large part a result of the pro-investment/deregulatory policies
that this committee and others set in motion, especially
through the 1996 Act.
So, at this time of extraordinary disruption in innovation,
it would not benefit consumers or businesses to add significant
legislative uncertainty into the mix. Congress should instead
continue to allow this dynamic and evolving video marketplace
to continue to grow.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Cohen follows:]
Prepared Statement of David L. Cohen, Executive Vice President,
Comcast Corporation
Mr. Chairman, Ranking Member Thune, and members of the Committee, I
appreciate this opportunity to testify today about the state of
competition in the video marketplace.
I. The Video Marketplace Is Robustly Competitive
The title of this hearing is apt--we are at a notable tipping point
in the development of the video marketplace, and it is tipping
decidedly in favor of American consumers.
They are enjoying what many are rightly calling a ``golden age'' of
video services thanks to an exceptionally dynamic and competitive
marketplace. As David Carr of The New York Times has observed, ``[t]he
vast wasteland of television has been replaced by an excess of
excellence.'' \1\
---------------------------------------------------------------------------
\1\ David Carr, Barely Keeping Up in TV's New Golden Age, N.Y.
Times, Mar. 9, 2014, http://www.nytimes.com/2014/03/10/business/media/
fenced-in-by-televisions-excess-of-excellence
.html.
---------------------------------------------------------------------------
A growing number of companies are producing significantly more
high-quality and diverse programming than ever before. And more
companies are competing to deliver that programming using a greater
array of technologies and business models than ever before. And even
more companies are experimenting and competing in both the production
and delivery of content than at any time in our history.
All of this competition is great for American consumers, giving
them access to more of the content they want, whenever and wherever
they want it. This competition has flourished largely because Congress,
led by the bipartisan efforts of this Committee in the 1980s and 1990s,
dramatically reduced the role of regulation in the video marketplace,
facilitated intermodal competition, threw open the opportunity for
investment in broadband Internet, and let the marketplace thrive.
In fact, it is fair to say that the Telecommunications Act of 1996
(``1996 Act'') \2\ worked better than could have been imagined to
create competition, choice, and innovation--in some expected ways and
in some unexpected ways.
---------------------------------------------------------------------------
\2\ Telecommunications Act of 1996, Pub. L. No. 104-104 (1996).
---------------------------------------------------------------------------
Consider all of the diverse methods that consumers are now
accessing video content in its many forms. In addition to traditional
broadcasting and multichannel video programming distributor (``MVPD'')
services, which now include cable, satellite, telephone companies, and
others, there is an astonishing proliferation of new sources of video
content--most of them using the broadband Internet that cable companies
helped lead the way in providing to American consumers. As reported by
the White House last year, ``[s]ince 2009, the percentage of American
homes reached by high-speed broadband networks have more than
quadrupled (from less than 20 percent to more than 80 percent) and
average broadband speeds have doubled.'' \3\
---------------------------------------------------------------------------
\3\ See Press Release, White House, Fact Sheet: Administration
Provides Another Boost to Wireless Broadband and Technological
Innovation (June 14, 2013), http://www.whitehouse.gov/the-press-office/
2013/06/14/fact-sheet-administration-provides-another-boost-wireless-
broadband-and-.
---------------------------------------------------------------------------
The power of technology and free markets continues to radically
transform how consumers access video. Now, virtually any device with a
screen and an Internet connection delivers video. Indeed, in 2013, 66
percent of all Internet traffic was video. This number is projected to
increase to 79 percent in the next five years.\4\
---------------------------------------------------------------------------
\4\ Cisco, Visual Networking Index: Forecast and Methodology, 2013-
2018 (June 10, 2014), http://www.cisco.com/c/en/us/solutions/
collateral/service-provider/visual-networking-index-vni/
VNI_Hyperconnectivity_WP.html.
---------------------------------------------------------------------------
Americans are increasingly turning to devices other than their
televisions for consuming video content, such as iPads, smartphones,
and laptops. And when they use their TVs, they are increasingly
connecting them to new intermediate devices like Apple TV, Roku, TiVo,
and Google Chromecast to stream or download video; or watching content
on entertainment apps on Smart TVs. A recent study found that, during a
typical week, nearly a quarter of all adults watch downloaded or
streaming video through their smartphone, making it the top device for
consuming that type of content. And in the same study, nearly half of
game console users reported that they primarily use those devices to
stream and watch video.\5\
---------------------------------------------------------------------------
\5\ Experian Marketing Services, Cross-Device Video Analysis
(2013), http://www.experian.com/marketing-services/cross-device-video-
analysis.html.
---------------------------------------------------------------------------
YouTube alone registers more than 1 billion unique user visits each
month; over 6 billion hours of content are watched each month; and more
than 100 hours of content is uploaded to YouTube every minute.
According to Nielsen, YouTube reaches more U.S. adults ages 18 to 34
than any cable network.\6\
---------------------------------------------------------------------------
\6\ Follow the audience . . ., YouTube Official Blog (May 1, 2013),
http://youtube-global.blogspot.com/2013/05/yt-brandcast-2013.html.
---------------------------------------------------------------------------
Streaming services have similarly surpassed traditional MVPDs in
customers. Netflix has approximately 44 million subscribers worldwide--
35.7 million domestic subscribers (greater than the number of
subscribers of any MVPD, including Comcast and Time Warner Cable
combined)--and announces services to new countries every month.\7\
Amazon Prime, which launched its Prime Instant Video service just two-
and-one-half years ago, already has approximately 20 million
subscribers worldwide.\8\
---------------------------------------------------------------------------
\7\ See Netflix Inc., Quarterly Report (Form 10-Q), at 16 (Apr. 23,
2014), http://files
.shareholder.com/downloads/NFLX/3300463643x0xS1065280%2D14%2D12/
1065280/filing.pdf; Netflix Inc., Annual Report (Form 10-K), at 1 (Feb.
3, 2014), http://ir.netflix.com/common/download/
sec.cfm?companyid=NFLX&fid=1065280-14-6&cik=1065280.
\8\ See Jay Yarow, Amazon Says It Has At Least 20 Million Prime
Members, Business Insider, Jan. 6, 2013, http://
www.businessinsider.com/amazon-prime-members-2014-1.
---------------------------------------------------------------------------
With this rapid transformation in the way video content is
distributed has come even more investment and innovation in content
production.
Online video distributors (``OVDs'') are producing their own
content and curating other programming. Netflix, for example, has
developed highly successful original series, such as House of Cards and
Orange is the New Black, and now has a $3 billion annual programming
budget that exceeds the programming budgets of many cable networks.\9\
In addition, Netflix has established an exclusive ``next season''
window for valuable television content, including Mad Men, Breaking
Bad, Revolution, and Pretty Little Liars, and has announced exclusive
deals for content from Disney, DreamWorks, and The Weinstein
Company.\10\ Similarly, Amazon Studios created a half-hour political
comedy, Alpha House, and has ordered full seasons of six more original
series.\11\ Amazon also recently announced an exclusive streaming
arrangement for HBO's library of productions, including The Sopranos
and The Wire.\12\
---------------------------------------------------------------------------
\9\ See Lacey Rose, Netflix's Original Content VP on Development
Plans, Pilots, Late-Night and Rival HBO (Q&A), The Hollywood Reporter,
June 18, 2014, available at http://www.holly
woodreporter.com/news/netflixs-original-content-vp-development-712293.
\10\ See Netflix Q3 2013 Investor Letter (Oct. 21, 2013); Netflix
Q2 2013 Investor Letter (July 22, 2013); Netflix Q4 2012 Investor
Letter (Jan. 23, 2013).
\11\ See Joan Solsman, Amazon Renews ``Alpha House,'' Picks Up 6
Series, CNET, Mar. 31, 2014, http://www.cnet.com/news/amazon-renews-
alpha-house-picks-up-6-new-series/.
\12\ Liana Baker & Lisa Richwine, Amazon Grabs Tights to Stream
Older HBO Shows, Reuters, Apr. 23, 2014, http://www.reuters.com/
article/2014/04/23/us-hbo-amazon-idUSBREA3M14
J20140423.
---------------------------------------------------------------------------
Last year, Hulu launched five original series, Moone Boy, East Los
High, Quick Draw, Behind the Mask, and The Awesomes, and announced
plans to expand its slate of originals this summer. Hulu also has
exclusive subscription video-on-demand (``VOD'') rights to over 5,300
episodes from the CBS library, including current hits Blue Bloods and
Elementary, as well as popular series such as Everybody Loves Raymond
and Survivor.\13\ Yahoo! has announced plans to produce two original
TV-length comedy series and to live-stream via Live Nation one concert
per day for a year on Yahoo!'s websites and apps, plunging Yahoo!
``directly into the increasingly competitive world of high-quality
digital video.'' \14\ And just last month, Yahoo! struck a deal with
Sony Pictures Television to stream a 13-episode season of the sitcom
Community.\15\
---------------------------------------------------------------------------
\13\ See Meredith Blake, Hulu Expands Original Content, Boasts 6
Million Hulu Plus Subscribers, L.A. Times, Apr. 30, 2014, available at
http://www.latimes.com/entertainment/tv/showtracker/la-et-st-hulu-
upfront-originals-6-million-hulu-plus-subscribers-20140430-story.html.
\14\ See Vindu Goel & Bill Carter, Yahoo to Offer TV-Style Comedy
Series on the Web, N.Y. Times, Apr. 28, 2014, available at http://
www.nytimes.com/2014/04/29/technology/yahoo-to-offer-two-tv-length-
comedy-series-on-web.html?hpw&rref=television&_r=0.
\15\ See Josef Adalian, Community Moving to Yahoo for Sixth Season,
Vulture, June 30, 2014, http://www.vulture.com/2014/06/community-
moving-to-yahoo-for-sixth-season.html.
---------------------------------------------------------------------------
And what I have just described only scratches the surface of the
content explosion being driven by new technology. There are literally
millions of viewing options, offerings thousands upon thousands of
hours of long-and short-form content, being offered by dozens of other
websites such as Vimeo, DailyMotion, Vube, Twitch, LiveLeak, UStream,
Break, MetaCafe, Viewster, and Crackle, attracting millions and
millions of viewers.\16\
---------------------------------------------------------------------------
\16\ See, e.g., Top 15 Most Popular Video Websites/July 2014, eBiz/
MBA, www.ebizmba.com/articles/video-websites (last visited July 12,
2014).
---------------------------------------------------------------------------
In the face of all of this new competition, MVPDs are working
harder than ever for consumer attention and loyalty with one another
and with these new online competitors.
Cable operators currently compete against DirecTV and Dish in every
market in which cable provides service. In many of those markets, cable
companies also face competition from telephone companies like AT&T and
Verizon, as well as overbuilders like RCN, WOW!, and Google Fiber. In
fact, in 2011, 98.6 percent of homes in America had access to at least
three MVPDs and 35.3 percent had access to at least four. Cable
operators' collective share of MVPD subscribers has plummeted from 87
percent in 1999 to 55.7 percent in 2012.\17\ And that percentage has
further declined as telephone competitors continue to invest in
upgrading their networks to deliver video:
---------------------------------------------------------------------------
\17\ Annual Assessment of the Status of Competition in the Market
for the Delivery of Video Programming, Fifteenth Report, 28 FCC Rcd.
10496, 3 (2013).
MVPDs are also responding to new competing video devices and
interfaces by accelerating their own pace of pro-consumer innovations.
Comcast, in particular, has made major investments to develop and
deploy X1, its nationally acclaimed entertainment operating system with
cloud technology, to provide its customers with greater access to more
content on a variety of devices inside and outside the home. The X1
platform provides an unmatched interactive TV experience featuring a
state-of-the-art user interface and other product features that
transform our customers' viewing experiences.\18\ Comcast has also
launched its new X1 cloud DVR, which enables customers to watch their
DVR recordings on computers and mobile devices in the home, and to
download recorded content to take on-the-go. In addition, Comcast has
launched a live in-home streaming feature in certain markets that
allows customers on the X1 platform to stream practically their entire
TV channel lineup to computers and mobile devices in the home at no
extra cost.
---------------------------------------------------------------------------
\18\ Praise for the value and innovation of the X1 platform has
been widespread. See, e.g., Todd Bishop, Xfinity X1: How Comcast Roped
Me Back into Cable, GeekWire, Aug. 22, 2013, http://www.geekwire.com/
2013/xfinity-x1/ (``I have been testing this sleek black cable box for
the past three weeks, but to call it a cable box really doesn't do it
justice. It is a nice blend of Internet content, live television, apps,
a multi-tuner DVR and on-demand programming, in one of the cleanest
user interfaces that you'll find from a cable company.''); Tim Carmody,
Comcast's New X1 UI Integrates Real-time and Streaming TV with News and
Social Apps, The Verge, May 21, 2012, http://www.theverge.com/2012/5/
21/3033972/comcast-ui-platforms-video-news-social-apps (``[X1] feels
like a genuinely 21st-century way to use a widescreen television set--
like a smart TV inside your cable box.'').
---------------------------------------------------------------------------
Comcast has likewise led the cable industry in going all-digital,
dramatically improving the video experience while simultaneously
freeing up valuable bandwidth for enhanced data, video, and voice
services. Comcast customers now have more cable channel viewing and
Xfinity On Demand choices, offering over 55,000 programming options,
including the most current TV shows and movies; 80 percent of this
content is free of charge. Xfinity On Demand also has the best new
release movies from all the major studios, and one of the broadest
selections of independent films. Through XfinityTV.com and Xfinity TV
mobile apps, for example, Comcast cable customers can access more than
four dozen live TV channels, and over 25,000 movies and TV shows that
can be watched anytime, anywhere, including by downloading programming
to watch offline later.
All of this competition, investment, and innovation is great for
consumers. And it is the direct result of government policies that
removed barriers to competitive entry, reduced regulation, and allowed
the marketplace to flourish.
II. The Broadband Marketplace Is Also Robustly Competitive--And It's
Driving Even More Video Competition
The innovations in the video marketplace are made possible in large
part by the $1.2 trillion that cable companies, phone companies, and
wireless companies have invested to bring open and competitive
broadband Internet to every corner of America.\19\ The dramatic growth
of Internet video has driven the rapid growth in demand for broadband
Internet services, and the companies that build broadband networks have
been highly responsive to that growing demand.
---------------------------------------------------------------------------
\19\ Broadband Investment, United States Telecom Association,
http://www.ustelecom.org/broadband-industry/broadband-industry-stats/
investment (last visited July 9, 2014).
---------------------------------------------------------------------------
Comcast and other cable operators, along with other wireline and
wireless broadband providers, have played a leading role in making this
transformation of the video world possible, empowering greater
innovation. Comcast alone has made broadband Internet available to tens
of millions of households, increasing speeds 13 times in 12 years,
driving prices per Mbps down 92 percent over that same period, and
leading the way for Internet adoption in low-income households with our
acclaimed Internet Essentials program.\20\
---------------------------------------------------------------------------
\20\ Since Comcast launched Internet Essentials during the 2011
back-to-school season, more than 1.2 million Americans, from 300,000
families, have been connected to the power of the Internet at home. We
have also sold more than 23,000 low-cost, subsidized computers to
program families.
---------------------------------------------------------------------------
Comcast's investments have spurred intense competition from other
companies. Today, telcos, cable, overbuilders, satellite providers, and
wireless broadband providers compete with traditional cable providers
to serve the needs of broadband Internet consumers across America. For
example, nearly half of the homes in Comcast's current footprint have
access to AT&T's U-verse and/or Verizon's FiOS.\21\
---------------------------------------------------------------------------
\21\ As of June 2013, about 99 percent of households are located in
census tracts where three or more fixed or mobile broadband providers
reported offering at least 3 Mbps downstream and 768 kbps upstream; and
over 92 percent of households are located in census tracts where two or
more providers reported offering at least 10 Mbps downstream and at
least 1.5 Mbps upstream. FCC, Internet Access Services: Status as of
June 30, 2013, at 9-10 (June 2014), http://transition.fcc.gov/
Daily_Releases/Daily_Business/2014/db0625/DOC-327829A1.pdf.
---------------------------------------------------------------------------
DSL is increasingly competitive with cable, as a result of ongoing
investments in next-generation DSL technology--including fiber-to-the-
node (``FTTN''), IP-DSLAM, VDSL2, and pair bonding. In fact, AT&T's U-
verse currently delivers speeds up to 45 Mbps and will deliver speeds
up to 100 Mbps to FTTN-based locations; CenturyLink offers speeds up to
40 Mbps; Frontier offers speeds up to 25 Mbps; and Verizon DSL offers
speeds up to 15 Mbps.\22\ These speeds are no less than five times
greater than the speeds that Netflix tells users they need to stream
videos in full DVD quality.\23\ The FCC's latest ``Measuring Broadband
America'' report shows that these newer DSL technologies are very
competitive for broadband consumers.\24\ Moreover, contrary to the
false picture some have painted of DSL as a moribund service, between
December 2008 and December 2012, DSL-based broadband connections grew
at an average annual rate of 25 percent, exceeding cable broadband's 18
percent annual pace of growth.\25\
---------------------------------------------------------------------------
\22\ As the head of MLB Advanced Media recently stated, in response
to the claim that ``[t]he cable guys pretty much control broadband'':
How? We have telcos now. You've got wireless. The only pay TV
business that's growing now is U-[v]erse and FiOS. They're owned by
AT&T and Verizon. I don't think you should discount what AT&T and
Verizon can do without a landline--what they can do through the air.
Who knows what this is going to look like? * * * A lot of our people
watch our live games in 4G. . . . If you watch [a] live baseball game
in 4G it looks pretty good and 5G is just round the corner.
David Lieberman, Q&A: MLB Advanced Media CEO Bob Bowman on WWE
Network, Sony's Virtual Pay TV Plans, and What's Next for Streaming
Video, Deadline, Jan. 21, 2014, http://www.deadline.com/2014/01/qa-mlb-
advanced-media-ceo-bob-bowman-on-wwe-network-sonys-virtual-pay-tv-
plans-and-whats-next-for-streaming-video/ (quoting Bob Bowman).
\23\ See Internet Connect Speed Recommendations, Netflix, https://
help.netflix.com/en/node/306 (last visited July 10, 2014) (stating that
users can stream Netflix videos at speeds as low as 0.5 Mbps, and can
stream them in full-DVD quality with speeds of 3 Mbps).
\24\ FCC, 2014 Measuring Broadband America--Fixed Broadband Report,
Charts 9.4 & 9.5 (June 2014), http://data.fcc.gov/download/measuring-
broadband-america/2014/2014-Fixed-Measuring-Broadband-America-
Report.pdf. Despite recent media stories suggesting otherwise, the
FCC's report shows that when the data for traditional DSL (or
``ADSL'')--i.e., downstream speeds generally of 1 to 6 Mbps--are
separated out from the data for next generation DSL (known as
``VDSL'')--i.e., downstream speeds generally from 6 to 40 Mbps--there
is no doubt that newer DSL technologies are very competitive. It is
only traditional ADSL that is ``lagging'' behind cable broadband. For
example, in the 18 to 25 Mbps tier, the tests were all of VDSL, cable,
and fiber. The FCC's data show that, at these speeds, VDSL performs at
the same levels as cable (i.e., at or above 100 percent).
\25\ See Applications of Comcast Corp. and Time Warner Cable Inc.
for Consent to Transfer Control of Licenses and Authorizations, MB
Docket No. 14-57, Applications and Public Interest Statement, at 48
(filed Apr. 8, 2014).
---------------------------------------------------------------------------
Importantly, these current measures of broadband competition are
already becoming stale. Almost daily, companies are announcing new
plans and breaking ground to deliver faster speeds and expanded
services across the country.
For example, just last week, Alcatel-Lucent reported that it has
achieved data transmission speeds of 10 Gbps over a 30-meters length of
bonded copper using a next-generation DSL technology it is calling XG-
FAST. The technology is an extension of G.fast ``that promises
theoretical speeds of up to 1 Gbps over the copper connection to a
broadband user's premises.'' \26\
---------------------------------------------------------------------------
\26\ See Ray Le Maistre, Bell Labs Claims Copper Speed Record,
Light Reading, July 9, 2014, http://www.lightreading.com/broadband/dsl-
vectoring-gfast/bell-labs-claims-copper-speed-recor
d/d/d-id/709846.
---------------------------------------------------------------------------
AT&T is expanding U-verse, a service based primarily on FTTN
technology, as part of its ``Project VIP'' investment plan. This will
enable AT&T to offer FTTN-based U-Verse services to 33 million customer
locations, and ``U-Verse IP-DSLAM'' services to an additional 23
million customer locations, by the end of 2015. AT&T also announced
plans for potential expansion of its 1 Gbps fiber-optic service to up
to 21 new metropolitan areas. On top of these expansion plans, and as
part of its proposed acquisition of DirecTV, AT&T has announced that it
will use the merger synergies to build and enhance high-speed broadband
service to 15 million customer locations utilizing a combination of
technologies, including fiber-to-the-premises and fixed wireless local
loop capabilities.
CenturyLink is on a similar path, with announced network
investments that include gigabit fiber, VDSL2, and pair bonding
deployments to efficiently enable higher speeds.
Google Fiber is planning to launch its competitive broadband
services in nine new metro areas, which will include expansive Wi-Fi
service.\27\
---------------------------------------------------------------------------
\27\ See James O'Toole, People in Overland Park, Kansas, May Soon
Have 100 Times Faster Internet Than You, CNNMoney, July 8, 2014, http:/
/money.cnn.com/2014/07/08/technology/innovation/google-fiber-overland-
park/index.html.
---------------------------------------------------------------------------
Mobile wireless is also a bona fide competitor in delivering all
broadband services, including high-quality video. Mobile wireless data
speeds and capacity continue to increase rapidly with next-generation
services like LTE/LTE-Advanced and radio technology (i.e., beaming data
via satellite over 40 MHz blocks of spectrum). Between June 2012 and
June 2013, mobile connections offering 3 Mbps downstream or faster more
than doubled, increasing from 43 million to 93.2 million.\28\ Recently,
Masayoshi Son of SoftBank (which owns Sprint) noted that he intends to
outstrip typical cable broadband speeds by building a wireless
broadband network offering up to 200 Mbps.\29\
---------------------------------------------------------------------------
\28\ See FCC, Internet Access Services: Status as of June 30, 2013,
at 2 (June 2014), http://transition.fcc.gov/Daily_Releases/
Daily_Business/2014/db0625/DOC-327829A1.pdf.
\29\ See Presentation by Masayoshi Son, The Promise of Mobile
Internet in Driving American Innovation, the Economy and Education, Tr.
at 12 (Mar. 11, 2014), available at http://cdn
.softbank.jp/en/corp/set/data/irinfo/presentations/vod/2013/pdf/
press_20140311_02.pdf.
---------------------------------------------------------------------------
Looking ahead to 2018, SNL Kagan predicts that there will be 224
million 4G subscriptions active in the United States, up from 22.6
million at year-end 2013.\30\ This alone will easily surpass the rate
of growth of cable broadband service during the past five years and
over the next five. The FCC will contribute significantly to that
growth story as it moves forward with its upcoming spectrum auctions.
---------------------------------------------------------------------------
\30\ See SNL Kagan, Covered Pops & Subscribers by Technology in
U.S. Wireless (July 2013). Similarly, Cisco predicts the number of 4G
connections in North America in 2018 to be 372 million. Cisco Visual
Networking Index: Global Mobile Data Traffic Forecast Update, 2013-
2018, at 36 (Feb. 5, 2014), http://www.cisco.com/c/en/us/solutions/
collateral/service-provider/visual-networking-index-vni/
white_paper_c11-520862.html.
---------------------------------------------------------------------------
As a result of all of this investment, innovation, and competition
in broadband networks, OVDs have flourished in the last several years.
According to a recent SNL Kagan report, the number of online video
subscribers has increased from 18.2 million in 2010 to approximately
53.9 million at the end of 2013. Revenue for subscription services
alone reached nearly $3.67 billion at year-end 2013, up over 35 percent
from $2.7 billion in 2012. Total online video revenue grew 32 percent
in 2013, topping nearly $5.45 billion and up from $4.12 billion in
2012. SNL Kagan predicts that figure will more than double in the next
decade. Between 2012 and 2013, the number of online movie and
television show purchases also nearly doubled, while the number of
online movie and television show rentals more than doubled.\31\
---------------------------------------------------------------------------
\31\ SNL Kagan, Internet VOD Revenues, 2010-2023 (June 30, 2014),
http://www.snl.com/interactivex/doc.aspx?ID=28510695&KeyFile=24251620.
---------------------------------------------------------------------------
Furthermore, according to recent estimates, nearly 6.5 percent of
U.S. households--or 7.6 million homes--are now considered ``cord-
cutters'' or ``cord-nevers,'' meaning they have high speed Internet but
no cable or satellite television service--a dramatic 44 percent
increase since 2010.\32\ (The percentage of 18 to 34 year olds--a key
demographic for advertising purposes--in this category is 12.4 percent,
nearly double the 6.5 percent nationwide rate. And if the household has
either a Netflix or Hulu subscription, the percentage nearly triples,
from 6.5 percent to over 18 percent.)
---------------------------------------------------------------------------
\32\ Experian Marketing Services, Cross-Device Video Analysis
(2013), http://www.experian
.com/marketing-services/cross-device-video-analysis.html.
---------------------------------------------------------------------------
III. The Proposed Comcast-Time Warner Cable Transaction Will Spur Even
Greater Innovation And Competition In The Industry, Bringing
More Consumer Benefits
Americans will continue to benefit from the dynamic growth in video
and broadband services as more and more companies, including such
powerhouses as AT&T, Verizon, DirecTV, Dish, Amazon, Apple, Sony,
Google, Netflix, and Facebook, compete for their attention and loyalty.
The increasing rivalry and experimentation among these national and
global companies is a primary business driver for the Comcast/Time
Warner Cable (``TWC'') merger.
The proposed transaction will give Comcast the increased geographic
reach and economies of scale necessary to compete in this capital
intensive, rapidly evolving industry, where continued research and
development and innovation are essential. By combining with TWC,
Comcast can also achieve the increased geographic reach and economies
of scale necessary to invest the billions of dollars required for next-
generation technologies, greater service reliability, secure networks,
and faster Internet speeds. This will let us drive more innovative
products and services into the marketplace, allowing us to meet the
needs of American consumers, businesses, and institutions in ways
better than the two companies could do separately.
For example, TWC customers will immediately benefit from Comcast's
commitment to invest continuously in high-speed data services, as well
as Comcast's next-generation products like the X1 operating platform,
greater cable channel and VOD choices, best in-home Wi-Fi, and superior
TV Everywhere services. The transaction will also enable Comcast to
accelerate and expand the availability of Wi-Fi ``hotspots'' across the
combined footprint, which will provide greater mobile access to
Internet content. In less than three years, Comcast has deployed over
one million Xfinity WiFi access points in its current footprint--and
seen a significant spike in usage. And, on April 30, 2014, Comcast
unveiled plans to reach eight million Xfinity WiFi hotspots in major
cities coast to coast by the end of this year.\33\
---------------------------------------------------------------------------
\33\ See Press Release, Comcast Corp., Comcast to Reach Eight
Million Xfinity WiFi Hotspots in 2014 (Apr. 30, 2014), http://
corporate.comcast.com/news-information/news-feed/comcast-to-reach-8-
million-xfinity-wifi-hotspots-in-2014.
---------------------------------------------------------------------------
With larger scale and network coverage, Comcast will also have the
capability to deploy other new products and technologies more quickly
and efficiently than either company could do on its own, such as IP
cable and related technologies. Accelerating the IP cable transition
will yield a number of consumer and public interest benefits. Among
other things, IP cable will:
Enable consumers to access their cable and advanced video
services in their homes on an even greater variety of IP-
enabled retail devices--such as video game consoles, tablets,
and other connected devices;
Shift more of the network intelligence to the cloud,
allowing Comcast to rapidly roll out new functionalities to
consumers;
Simplify its existing distribution networks by relying on IP
technology to transport all of its services and relying on
innovative off-the-shelf IP-based retail devices, thereby
reducing home equipment and inventory costs; and
Reduce energy consumption for consumer set-top boxes.
The transaction will further enable Comcast to provide more
accessible services and features for disabled Americans. For example,
Comcast is leveraging the X1 cloud-based platform to deliver the first
``talking guide'' in the MVPD industry. The remote control for the X1
platform--known as the XR2--also includes ``soft keys'' that a customer
with a disability will be able to configure to enable quick access to
the talking guide and other accessibility features, such as closed
captioning and video description.
Furthermore, because Comcast and TWC serve separate and distinct
geographic areas and do not compete for video, broadband, or other
services, the proposed combination of the two companies will not reduce
consumer choice in any market. This transaction is not a horizontal
merger and there will be no loss of competition anywhere.
Nor will the transaction harm competition in other markets where
the combined company is involved. The transaction will leave Comcast,
after planned divestures, with about 29 million subscribers in systems
it manages. Comcast's share of the MVPD market will be below 30
percent--around the same share that Comcast had after the AT&T
Broadband (2002) and Adelphia (2006) transactions. This will also be
below the 30 percent ``ownership cap'' that the FCC had adopted based
on a stated intention to prevent a cable operator from exercising
bottleneck or monopsony control over programmers. The D.C. Circuit
twice rejected the ownership cap, finding, among other things, that
``the record is replete with evidence of ever increasing competition
among video providers. . . . Cable operators, therefore, no longer have
the bottleneck power over programming that concerned the Congress in
1992.'' \34\ Of course, the MVPD marketplace is even more competitive
now than it was five or more years ago.
---------------------------------------------------------------------------
\34\ See Comcast Corp. v. FCC, 579 F.3d 1, 8 (D.C. Cir. 2009)
(emphasis added).
---------------------------------------------------------------------------
Far from harming competition, the greater investment and innovation
resulting from the transaction will spur other companies to respond to
consumer demands with their own investments and innovations. The mere
announcement of our transaction has already created a ``heightened
sense of urgency'' at AT&T to accelerate investments in its broadband
networks.\35\ Other companies are also speeding up and expanding their
plans for further investments in broadband infrastructure.\36\
Verizon's CFO, for example, expressed the same eagerness to compete,
stating: ``I compete against Time Warner Cable today. I compete against
Comcast today. I'll just compete against Comcast tomorrow [by offering]
a superior product to any of them. . . .'' \37\
---------------------------------------------------------------------------
\35\ See Randall Stephenson, Chairman & CEO, AT&T, Inc., Morgan
Stanley Technology, Media & Telecom Conference, Tr. at 3 (Mar. 6,
2014).
\36\ Since this transaction was announced, numerous companies have
reported plans for major investments in infrastructure, as well as the
deployment of new technologies and services for video content and
delivery. See Exhibit 1 (Timeline of Technology and Communications
Investment and Innovation Since Comcast-TWC Merger Announcement).
\37\ See Fran Shammo, EVP & CFO, Verizon, Deutsche Bank Media,
Internet and Telecom Conference, Tr. at 13 (Mar. 10, 2014); see also
Gautham Nagesh, Comcast Sees Time Warner Cable Deal Boosting Broadband
Competition, Wall St. J., Feb. 21, 2014, http://online.wsj.com/news/
articles/SB10001424052702304275304579397541413329198 (``Verizon has a
history of introducing the next big thing for our video and Internet
customers. This [transaction] just changes the name of the competitor
in some of our markets.'') (quoting Verizon spokesman Ed McFadden).
---------------------------------------------------------------------------
This heightened competition, which AT&T's CEO Randall Stephenson
has aptly described as ``a dogfight,'' will result in even greater
video and broadband choices and services for American consumers,
extending the new ``golden age'' of television well into the
future.\38\
---------------------------------------------------------------------------
\38\ See Shalini Ramachandran & Thomas Gryta, Cutting the Cable and
Getting ``Phone TV'', Wall St. J., Nov. 1, 2013, http://online.wsj.com/
news/articles/SB100014240527023038431045
79169971029572160.
---------------------------------------------------------------------------
IV. Further Regulation Is Unnecessary And Could Risk Disrupting Today's
Dynamic Video Marketplace
As I stated earlier, the massive investment and robust competition
in the video marketplace can be largely attributed to the deregulatory
policies that this Committee and others set in motion, most notably
through the 1996 Act. Although the passage of time alone may justify a
review of the law, Congress should continue to let the video
marketplace grow and evolve without further regulation. If anything,
Congress should re-examine and eliminate regulatory burdens that only
apply to some of the companies competing in today's marketplace, so
that all providers have a level playing field to invest, innovate, and
serve consumers.
I will briefly touch upon some of the proposals that have been made
to ``rewrite'' the current regulatory landscape, and why these are
unnecessary and could have unintended, adverse consequences for
consumers.
A. OVDs Do Not Face Barriers To Accessing Video Programming.
The nearly ubiquitous availability of online content for American
consumers proves that OVDs face no meaningful barriers to accessing
video programming. The online video marketplace has grown exponentially
in the past several years. OVDs are licensing from the widest
imaginable range of programming sources as well as producing more of
their own content. While some insist that the programming marketplace
needs to be heavily regulated to the benefit of OVDs, the facts show
that is not necessary.
Video content producers have no economic incentive to block access
to their programming. That is because it is in the content provider's
economic interest to license programming broadly to gain as much
revenue as possible from expensive-to-produce content.\39\
---------------------------------------------------------------------------
\39\ Programming costs are the single biggest driver of cable
prices. From 2004 through 2013, Comcast's programming costs per video
subscriber have cumulatively increased by over 120 percent, an
astonishing amount. Our prices to customers have risen at about half
that rate. (The average Comcast customer bill increased by only 2
percent this year, with no price changes for Limited Basic, Digital
Preferred, or DVR services.)
---------------------------------------------------------------------------
In the case of NBCUniversal, for example, agreements with OVDs are
now a regular part of our licensing business. Since the Comcast-
NBCUniversal transaction alone, NBCUniversal has worked aggressively to
free up content rights for online distribution and entered into or
renewed agreements with dozens of OVDs, including Amazon, Netflix, and
YouTube,\40\ as well as with several MVPDs that include online access
to linear channels across multiple platforms and devices through our
industry-leading TV Everywhere service. Similarly, early this year, not
only did CBS extend its streaming deal with Amazon so that CBS's
current catalogue of shows remains available to Amazon Prime
subscribers, but it also added more series to Amazon's library
including Medium and Criminal Minds: Suspect Behavior. CBS also
announced that episodes of its new summer series Extant will be
exclusively available on Amazon four days after they premiere on
CBS.\41\
---------------------------------------------------------------------------
\40\ For example, in 2011, NBCUniversal renewed a multiyear deal
with Netflix to stream TV shows ranging from Leave it to Beaver to 30
Rock and Keeping Up with the Kardashians. See Paul Bond, Netflix Renews
Deal With NBCUniversal for Streaming TV Shows, Movies, The Hollywood
Reporter, July 13, 2011, http://www.hollywoodreporter.com/news/netflix-
renews-deal-nbcuniversal-streaming-210792. In 2013, NBCUniversal struck
a deal with Amazon to stream the first seasons of Grimm and Suits, and
children's programs such as Curious George and Land Before Time. See
Jeff Chabot, NBC Shows Added to Amazon Prime Instant Video, HD Report,
May 16, 2013, http://hd-report.com/2013/05/16/nbc-shows-added-to-
amazon-prime-instant-video/. Hulu has exclusive rights to prior seasons
of popular shows from NBC's vault, including Brooklyn Nine-Nine and The
Mindy Project (both of which air on Fox), and reality shows from Bravo
and E!, such as Top Chef. See Ryan Waniata, Hulu Secures a New
Licensing Deal With NBC In Pursuit of `Bingers', Digital Trends, Apr.
2, 2014, http://www.digitaltrends.com/home-theater/hulu-secures-new-
licensing-deal-nbc-pursuit-bingers/#!bbJB18.
\41\ See Michael O'Connell, CBS Extends Streaming Deal with Amazon
Prime, The Hollywood Reporter, Jan. 29, 2014, available at http://
www.hollywoodreporter.com/news/cbs-extends-streaming-deal-amazon-
675295.
---------------------------------------------------------------------------
In 2013, Netflix received nine Emmy nominations for its House of
Cards original drama series, winning three of them, and three
nominations for Arrested Development. Netflix ``will once again have a
big presence at the Emmys'' in 2014, having recently received
nominations for ``a wide array of awards . . . including outstanding
drama series for House of Cards and outstanding comedy series for
Orange is the New Black.'' \42\
---------------------------------------------------------------------------
\42\ See Jacob Kastrenakes, Netflix Scores Top Emmy Nominations for
`House of Cards' and `Orange is the New Black, The Verge, July 10,
2014, http://www.theverge.com/2014/7/10/5886937/netflix-emmy-
nominations-2014-house-of-cards-orange-new-black.
---------------------------------------------------------------------------
Given consumers' seemingly insatiable demand for online access to
video, content providers will continue to have strong incentives to
make their programming available to OVDs. There is no need for
government intervention into this increasingly dynamic and competitive
marketplace. It is thriving without intrusive regulation and should be
permitted to evolve.
B. The FCC Is Taking Appropriate Action To Ensure An Open Internet For
The
Benefit Of American Consumers
Consumers should have the right and ability to access whatever
legal content they desire using the broadband services they purchase,
without any improper blocking or discrimination and with appropriate
transparency, over the ``last-mile'' connections between their ISP
network and their homes.
Comcast has always been for a free and open Internet. We support
the FCC putting in place reasonable and legally enforceable industry-
wide rules to ensure a free and open Internet for all Americans,
including transparency, no blocking, and anti-discrimination
protections.
Comcast was a strong proponent of the FCC's 2010 Open Internet
Order because it struck a proper balance between consumer protection
and reasonable network management rights for ISPs. The 2010 Order also
maintained the right incentives for Comcast and other ISPs to invest
and thereby empower more and more innovation on the Internet.\43\
---------------------------------------------------------------------------
\43\ Comcast has built its business on delivering the highest
quality Internet access, and we have every incentive to keep doing so.
We have no interest in degrading our broadband services to disadvantage
OVDs or providers of other content and services; doing so would only
harm our fastest-growing business, which makes no sense. If we were to
try to limit our subscribers' ability to access content from legitimate
sources, they would use the power of the Internet to excoriate us for
placing limits on their enjoyment of content and even leave us for a
competitor's service.
---------------------------------------------------------------------------
Comcast was sufficiently comfortable with the 2010 Open Internet
Order that, as part of the NBCUniversal transaction, we agreed to be
bound by it even if the courts later struck it down. As a result, today
Comcast is the only ISP in the country that is legally bound by the
FCC's original Open Internet rules.\44\
---------------------------------------------------------------------------
\44\ Approval of the Comcast-TWC transaction will extend these open
Internet protections to millions of current TWC customers.
---------------------------------------------------------------------------
Comcast continues to advocate for reasonable and legally binding
rules that protect all Internet users, not just our customers. We
believe the D.C. Circuit has, for the first time, laid out express
authority and a clear path under Section706 of the 1996 Act for the FCC
to adopt those rules. But we do not support reclassification of
broadband as a telecommunications service under Title II, and believe
that any attempt to do so would cast a huge cloud of uncertainty over
the marketplace and create significant and immediate disincentives to
further investment and innovation in this vital segment of our economy.
The FCC has issued a Notice of Proposed Rulemaking and is currently
collecting comments to develop new open Internet rules based on its
Section 706 authority. And FCC Chairman Tom Wheeler has expressed his
commitment to complete the task by the end of this year. Comcast
supports the FCC's ongoing process and continues to advocate for the
prompt adoption of appropriate, legally enforceable open Internet
rules.
In short, we believe that the FCC is taking the appropriate steps
to ensure that all American consumers enjoy an open Internet. While
Congress should certainly continue to oversee the agency's activities,
there is no compelling justification for legislative intervention into
this area at this time.
C. Comcast Supports Reauthorization Of The Satellite Television
Extension And
Localism Act (``STELA''), But Does Not Support Changes To The
Current
Retransmission Consent Regime
Comcast generally supports a ``clean'' reauthorization of STELA and
believes a five-year extension is an appropriate length of time.\45\ A
shorter extension of only two or three years could cause unnecessary
disruption to the industry.
---------------------------------------------------------------------------
\45\ To the extent that the Committee considers any changes to
STELA, the National Cable Television Association has suggested
revisions in three areas: elimination of the integration ban;
prohibition of JSA stations in retransmission consent negotiations; and
elimination of the must-carry buy through requirement.
---------------------------------------------------------------------------
The vibrancy of today's video marketplace, as highlighted above,
refutes any notion that there is a general ``market failure''
warranting government intervention in the wholesale programming
business or further regulation of contractual arrangements between
MVPDs and programmers. Similarly, the online video segment of the
marketplace is flourishing without regulation and should be allowed to
continue to grow and evolve.
Comcast also does not support addressing issues or concerns
associated with the current retransmission consent regime as part of
STELA reauthorization or through other legislative action. We enjoy
positive relationships on all sides in retransmission consent
negotiations. We have not lost the signal of any major local
broadcaster in a dispute over retransmission consent fees.\46\
---------------------------------------------------------------------------
\46\ Further, as part of the NBCUniversal transaction, Comcast
agreed it would not seek repeal of the retransmission consent regimen
in existence as of June 2010.
---------------------------------------------------------------------------
Consumers today have access to an unprecedented number of video
programming choices, and broadcast television continues to be a
significant source of programming for tens of millions of households.
Broadcasters and MVPDs have, in the vast majority of cases, succeeded
in negotiating retransmission consent agreements that allow for the
carriage of broadcast programming to MVPD households across the
country. We believe that most parties involved in such negotiations
will continue to act responsibly and bargain in good faith and in a
manner that reflects consumers' best interests. And when parties fail
to do so, consumers can switch--and have switched--to other providers.
The marketplace thus remains the best forum where any disputes can and
should be resolved, without further regulatory intervention.
D. Congress Can Best Serve Consumers By Paring Back On Stale, Monopoly-
Era Regulations That Distort Fair Competition
Rather than imposing new regulations, Congress can best serve
consumers by paring back and eliminating monopoly-era regulations that
only impede healthy experimentation and innovation. Comcast and other
MVPDs operate under burdensome outdated regulations that do not apply
to our DBS competitors, while DBS providers in turn operate under rules
that do not apply to our mutual OVD competitors.
For example, the time for regulation of cable rates has long since
come and gone. Today's cable rate regulation regime was established in
1992, before the emergence of the Internet and prior to the entry into
the video marketplace of DBS, telephone companies, over-the-top video,
and other non-cable video providers. The two DBS providers are now the
second and third largest MVPDs in the nation; tens of millions can
obtain video from Verizon or AT&T; and, as my statement demonstrates,
consumers across the Nation enjoy a wealth of additional choices from
online and mobile platforms. Rate regulation inhibits investment,
stifles innovation, and imposes regulatory compliance costs and burdens
that are unnecessary and unfair in a competitive marketplace. It is
time to let this unbelievably robust video marketplace work.
Similarly, the integration ban should be repealed. The principal
effects of the integration ban have been to increase costs for set-top
devices leased to cable consumers, while needlessly intruding upon the
design and functionality of converter boxes offered by cable operators.
There is a large and growing number of video reception devices in the
retail marketplace that do not depend on using a cable-provided device.
These devices have been developed entirely outside the context of the
integration ban, and this marketplace growth shows how unnecessary it
is to continue to regulate cable set-top boxes.
In summary, to the extent that Congress takes any legislative
action involving the video industry, Congress should level the playing
field across all content providers and allow the dynamics of the
marketplace to evolve.
V. Conclusion
The state of the video marketplace is extraordinary--some have
rightly dubbed today the ``true golden age of television.'' \47\
---------------------------------------------------------------------------
\47\ See Marcus Wohlsen, When TV Is Obsolete, TV Shows Will Enter
Their Real Golden Era, Wired.com, May 15, 2014, http://www.wired.com/
2014/05/real-golden-age-television/ (``Streaming video as offered by
Netflix and Amazon Instant Video are not constrained by any of the
commercial or technical boundaries of traditional broadcast television
or cable. There aren't schedules. There aren't channels. The only
limitations are how much bandwidth their data centers and the Internet
itself can support. . . . Welcome to the real new golden age of
television--television without limits.''); Todd Leopold, The new, new
TV golden age, CNN, May 6, 2013, http://www.cnn.com/2013/05/06/showbiz/
golden-age-of-tv/ (``We are living in good TV times. . . . With more
channels and more choices, there are also more creative voices being
heard.''); Brett Martin et al., Stop Flipping! The New Rules of TV,
GQ.com, June 2012, http://www.gq.com/entertainment/movies-and-tv/
201206/new-rules-of-tv#slide=1 (``Nearly everything about how we watch
television has changed. For starters, we can do it anytime we want. . .
. And yes: The shows are a whole lot sexier, more terrifying, complex,
and hilarious than the ones we grew up with. It is, as people like to
say, a new golden age of television.'').
---------------------------------------------------------------------------
Investment is flowing into the video marketplace, and consumers are
reaping an amazing harvest of entertainment and information. Consumers
are benefitting from more and faster broadband from more competitors,
wireline and wireless, providing the platform for massive consumption
of video. The FCC is on track to ensure that all Americans continue to
enjoy an open Internet as they do today. Video competitors successfully
conclude business agreements every day and are able to work out any
differences without regulatory intervention. New video competitors are
growing at extraordinary rates, readily obtaining immense amounts of
content from third parties (and producing more and more of their own),
and benefitting from existing regulatory backstops to guard against any
market malfunction. And Americans are enjoying an excess of high
quality video programming, as Comcast and other video providers compete
intensely to offer the best value proposition to consumers, with
greater choices that encourage more--not less--video consumption.
In this increasingly competitive marketplace, at this
extraordinarily disruptive time, it would not benefit consumers or
businesses to add significant legislative uncertainty into the mix. We
urge Congress to tread extremely carefully, and not to inadvertently
place the dynamism and innovation in today's video marketplace at risk.
Thank you.
Exhibit 1
Timeline of Technology and Communications Investment and Innovation
Since Comcast-TWC Merger Announcement
i Press Release, Comcast Corp., Time Warner Cable to
Merge with Com cast Corporation to Create a World-Class Technology and
Media Company (Feb. 13, 2014), http://corporate
.comcast.com/news-information/news-feed/time-warner-cable-to-merge-
with-comcast-corporation.
ii Cheryl Conner, Google Fiber Plan Expansion to 34 New
Cities, Forbes, Feb. 20, 2014, available at http://www.forbes.com/
sites/cherylsnappconner/2014/02/20/google-fiber-plans-expan
sion-to-34-new-cities-lncluding-salt-lake/.
iii Randall L. Stephenson, Chairman & CEO, AT&T, Inc.,
Morgan Stanley Technology, Media & Telecom Conference (Mar. 6, 2014);
see also Thomas Gryta, Comcast Has AT&T Worrying About the US, Wall St.
J., Mar. 6, 2014, available at http://blogs.wsj.com/corporate-intelli
gence/2014/03/06/comcast-has-att-worrying-about-the-us/.
iv Sean Buckley, Verizon's Shammo: We'll Look at FiOS
Expansions Once It Returns the Cost of Capital, FierceTelecom. Mar. 10,
2014, http://www.fiercetelecom.com/story/verizons-shammo
-well-look-fios-expansions-once-it-returns-cost-capital/2014-03-10.
v Press Release, RCN Telecom Services, LLC, RCN
Increases Internet Speeds at No Additional Cost (Mar. 11, 2014), http:/
/www.rcn.com/about-rcn/newsroom/rcn-increases-internet-speeds.
vi Press Release, Cox Communications, Inc., Cox Media to
Launch Addressable TV Advertising Trial (Mar. 26, 2014), http://
cox.mediaroom.com/index.php?s=43&item=732.
vii Press Release, Amazon.com, Inc., Introducing Amazon
Fire TV: The Easiest Way to Watch Netflix, Prime Instant Video, Hulu
Plus, WatchESPN, and More on Your Big-Screen TV (Apr. 2, 2014), http://
phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-
newsArticle&ID=1915168&
highlight=.
viii Jeff Baumgartner, AT&T Eyes San Antonio for
`GigaPower' Expansion, Multichannel News, Apr. 8, 2014, available at
http://www.multichannel.com/news/news-articles/att-eyes-san-
antonio-gigapower-expansion/373723.
ix Press Release, Charter Communications, Inc., Charter
Announces Launch of Charter TV App (Apr. 8, 2014), http://
phx.corporate-ir.net/phoenix.zhtml?c=112298&p=irol-newsArticle&ID
=1916892&highlight=.
x Thomas Gryta, AT&T to Build Out Ultrafast Internet in
North Carolina, Wall St. J., Apr. 10, 2014, available at http://
online.wsj.com/news/articles/SB1000142405270230387360457949210
3338327532; see also AT&T, Cable, and Google Fiber: Spending Other
People's Money, Moffett
Nathanson Research (Apr. 10, 2014).
xi Press Release, DIRECTV, LLC, DIRECTV's New Wireless
Genie Mini Now Available Nationwide (Apr. 10, 2014), http://
investor.directv.com/press-releases/press-release-details/2014
/DIRECTVs-New-Wireless-Genie-Mini-Now-Available-Nationwide/
default.aspx.
xii Press Release, Charter Communications, Inc. ,
Charter Announces Launch of 802.11ac WiFi Router Capable of Providing
the Fastest WiFi (Apr. 17, 2014), http://www.prnewswire.com/
news-releases/charter-announces-launch-of-80211ac-wifi-router-capable-
of-providing-the-fastest-wifi-255648271.html.
xiii Yun-Hee Kim & Jonathan Krim, Samsung Is Developing
Its Own Platform, Apps, Wall St. J., Apr. 20, 2014, http://
online.wsj.com/news/articles/SB100014240527023043112045795065
31408901234?mod-ST1.
xiv Grant Gross, AT&T's Expanded 1 Gbps Fiber Rollout
Could Go Head to Head with Google, Network World, Apr. 21, 2014, http:/
/www.networkworld.com/news/2014/042114-atampt39s
-expanded-1-gbps-fiber-280882.html.
xv Thomas Gryta, AT&T Expands High-Speed Internet
Rollout, Wall St. J., Apr. 21, 2014, available at http://
online.wsj.com/news/articles/SB100014240527023040499045795157905084
91128.
xvi Press Release, Limelight Networks, Inc., Limelight
Partners with NeuLion to Deliver OTT and TVE Solutions (Apr. 22. 2014),
http://www.businesswire.com/news/home/20140422005335
/en/Limelight-Partners-NeuLion-Deliver-OTT-TVE-Solutions.
xvii Todd Spangler, AT&T, Chernin Group Invest $500
Million in Over-The-Top Video Venture, Variety, Apr. 22, 2014,
available at http://variety.com/2014/digital/news/att-chernin-group
-invest-500-million-to-form-over-the-top-tv-venture-12011608761#.
xviii Kyle Russell, Dish Network Is Partnering With This
Startup To Make Cellphone Internet 1,000 Times Faster Than 4G, Business
Insider, Apr. 22, 2014, http://www.businessinsider.com/
dish-network-and-artemis-partnering-to-make-cell-phone-internet-1000-
times-faster-than-4g-2014-4.
xix Jeff Baumgartner, Report: Dish Eyeing Summer Launch
of OTT TV Service, Multichannel News, Apr. 23, 2014. available at
http://www.multichannel.com/news/technology/report-dish
-eyeing-summer-launch-ott-tv-service/374044.
xx Liana B. Baker & Lisa Richwine, Amazon Grabs Rights
to Stream Older HBO Shows, Reuters. Apr. 23, 2014, available at http://
www.reuters.com/article/2014/04/23/us-hbo-amazon
-idUSBREA3M14J2014Q423.
xxi Brian Fung, Netflix to Become Real TV and Get Its
Own `Cable Channel' Next Week, Wash. Post, Apr. 24, 2014, available at
http://www.washingtonpost.com/blogs/the-switch/wp/2014/04
/24/netflix-to-become-real-tv-and-get-its-own-cable-channel-next-week/.
xxii Hayley Tsukayama, The Switchboard: Google May be
Giving Free WiFi to Fiber Cities, Wash. Post, Apr. 25, 2014, available
at http://www.washingtonpost.com/blogs/the-switch/wp
/2014/04/25/the-switchboard-google-may-be-giving-free-wifi-to-fiber-
cities/.
xxiii Janko Roettgers, Verizon Inks Paid Peering Deal
with Netflix, Gigaom, Apr. 28, 2014, https://gigaom.com/2014/04/28/
verizon-inks-paid-peering-deal-with-netflix/.
xxiv Vindu Goel & Bill Carter, Yahoo to Offer TV-Style
Comedy Series on the Web, N.Y. Times, Apr. 28, 2014, available at
http://www.nytimes.com/2014/04/29/technology/yahoo-to-offer
-two-tv-length-comedy-series-on-web.html?hpw&rref=television&_r=0.
xxv Jeff Baumgartner, Cable Show: Cox to Offer 1-Gig to
All, Multichannel News, Apr. 30, 2014, http://www.multichannel.com/
news/technology/cox-offer-1-gig-all/374284.
xxvi Amol Sharma, Netflix Reaches Pact With U.S. Cable
Provider Suddenlink, Wall St. J., May 6, 2014, available at http://
online.wsj.com/news/articles/SB1000142405270230341710
4579545764019069966?mg=reno64-wsj.
xxvii Wireless Needs Strong No. 3 to Compete: Sprint
CEO, Bloomberg TV, May 6, 2014, http:://www.bloomberg.com/video/
wireless-needs-strong-3-to-compete-sprint-ceo-gctbwYN8RtWMlneDS0
u9AQ.html.
xxviii Roger Yu, AT&T Buys DirecTV for $48.5 billion,
USA Today, May 19, 2014, available at: http://www.usatoday.com/story/
money/business/2014/05/18/att-buys-directv/9247795/.
xxix Press Release, XLTE: America's Best Network Gets
Even Better (May 19, 2014), http://newscenter.verizon.com/corporate/
news-articles/2014/05-19=verizon-announces-xlte/.
xxx Alistair Barr & Andy Pasztor, Google Invests in
Satellites to Spread Internet Access, Wall St. J., June 1, 2014,
available at http://online.wsj.com/news-article_email/google-invests-
in-
satellites-to-spread-internet-access-1401666287-
IMyQjAxMTAOMDwMTEwNDEyWj.
xxxi Press Release, Samsung Electronics Co., Ltd.,
Samsung Improves Development Environment and Announces Tizen-based
Samsung TV SDK (June 1, 2014),http://www.samsung.com/
us/aboutsamsung/news/
newslrRead.do?news_ctgry=irnewsrelease&page=2&news_seq=23207&
rdoPeriod=ALL&from_dt=&to_dt=&search_keyword.
xxxii Press Release, New Faster Speeds Without Any
Additional Costs on the Way to Mediacom High Speed Customers (June 1,
2014), https://mediacomcable.com/site/about_news_01_
06_2014.html.
xxxiii Press Release, Verizon Rolls Out FiOS Quantum TV
Service to New York, Connecticut and New Jersey; Redefines Customers'
TV Viewing Experience (June 3, 2014), http://newscenter.verizon.com/
corporate/news-articles/2014/06-03-fios-quantum-tv-ny-nj/.
xxxiv Press Release, RCN Delivers Its Most Powerful DVR
to Date (June 3, 2014), http://www.rcn.com/about-rcn/newsroom/rcn-
delivers-most-powerful-dvr.
xxxv Comm Daily Notebook, Communications Daily, June 4,
2014.
xxxvi Press Release, AT&T Adds HP to Network-Enabled
Cloud Ecosystem (June 9, 2014), http://about.att.com/story/
att_adds_hp_to_network_enabled_cloud_ecosystem0.html.
xxxvii Press Release, Level 3 Communications, Inc.,
Level 3 to Acquire tw telecom (June 16. 2014), http://
investors.level3.com/investor-relations/press-releases/press-release-
details/2014/
Level-3-to-Acquire-tw-telecom/default.aspx.
xxxviii Press Release. AT&T U-verse Arrives in
Montgomery, AL (June 16, 2014), http://about.att.com/story/
att_u_verse_arrives_in_montgomery_al.html.
xxxix Mike Robuck, Cox Business Debuts Dual Wi-Fi
Router, Access to Cable Wifi Hotspots, CED Magazine, June 17, 2014,
available at http://www.cedmagazine.com/news/2014/06/cox-
business-debuts-dual-wi-fi-router-access-to-cablewifi-hotspots.
xl Press Release, Century Link, Inc., Centurylink Brings
Pay-By-The-Hour Managed Services to Centurylink Cloud Platform (June
18, 2014), http://ir.centurylink.com/file.aspx?IID=40571
79&FID=24100050.
xli Press Release. DISH Eliminates Wire Clutter with New
Wireless Joey (June 23, 2014), http://about.djsh.com/press-release/
products-and-services/dish-eliminates-wire-clutter-new-wire
less-joey.
xlii Press Release, AT&T and Town of Chapel Hill Reach
Agreement to Deploy Up to 1 Gigabit Network (June 24, 2014), http://
about.att.com/story/att_uverse_with_gigapower_fiber
_network_coming_to_chapel_hill_html.
xliii Press Release, Facebook, Facebook to Acquire
LiveRail (July 2, 2014), http://investor.fb.com/
releasedetail.cfm?ReleaseID=857644.
xliv Press Release, Level 3 Communications, Inc., Level
3 Launches Channel Origination Solution to Address Demand for
Simplified Global Delivery of Broadcast Content (July 8, 2014), http://
investors.level3.com/investor-relations/press-releases/press-release-
details/2014/Level-3-
Launches-Channel-Origination-Solution-to-Address-Demand-for-Simplified-
Global-Delivery-of-Broadcast-Content/default.aspx#sthash.O3uznzJt.dpuf.
xlv Ray Le Maistre, Bell Labs Claims Copper Speed
Record, Light Reading, July 9, 2014, http://www.lightreading.com/
broadband/dsl-vectoring-gfast/bell-labs-claims-copper-speed-recor
d/d/d-id/709846.
The Chairman. Thank you, Mr. Cohen, very much. And now I am
happy to bring forward Justin Hurwitz, Assistant Professor of
Law, University of Nebraska College of Law. That would make
sense. We look forward to hearing from you, sir.
STATEMENT OF JUSTIN (GUS) HURWITZ,
ASSISTANT PROFESSOR OF LAW,
UNIVERSITY OF NEBRASKA COLLEGE OF LAW
Mr. Hurwitz. Chairman Rockefeller, Ranking Member Thune,
and members of the Committee, it is a privilege to be before
you today.
My comments today will focus on the future of the video
market, tying its current state to other ongoing issues that
face this committee and the market generally.
The future of the video market is easy to predict and
concise to state: the Internet. The question is how we get
there; when, that is, not whether, the majority of video
consumed in the United States will be consumed online.
For this committee, however, the question may be what is
holding us back. There is no lack of interest in developing
innovative new online video platforms. ``Tech titans,'' we have
heard much of this language before already today, like Google,
Apple, Netflix, Amazon, have shown great interest in online
video.
Entrants like Aereo, FilmOn, and similar startups have
attempted to bring a cable-like television experience to the
Internet. Major news and sporting events are now routinely
streamed online and most traditional video outlets have
Internet-based streaming video offerings.
Yet today's video marketplace does still look like the
marketplace of a decade ago more than one of the future. I
would suggest two factors that contribute to this. First, the
continuing dominance of the linear channel, where programming
is delivered as a continuous 24 hour feed, 24 hours a day, for
consumers to tune in to watch.
This model continues to dominate in part because better
models have yet to be developed, and in part because existing
regulations have ossified it. And second, the existing
regulatory regime more generally ossifies traditional business
models and stifles entry by new firms.
The problems with the existing regulatory regime cannot be
understated. It involves multiple statutes implemented by
multiple agencies to govern technologies developed in the
1960s, 1970s, and 1980s, according to policy goals from the
1950s, 1960s, and 1970s.
We are no longer living in a world where the Rube Goldberg
of compulsory licenses, must carry and retransmission consent,
financial interest, and syndication exclusivity rules, and the
panoply of Federal, state, and local regulations make sense,
yet these are the rules that govern today's video industry.
The discussion we are having today should involve many
current issues--the pending mergers; the Supreme Court's recent
Aereo decision; spectrum policy; interconnection disputes
between ISPs and edge providers; retransmission consent
disputes, and the FCC's ongoing network neutrality and video
regulation efforts. Time prevents me from discussing any of
these in detail, so I will leave you with a few specific
thoughts.
First, consolidation is not necessarily bad. To be sure,
consolidation can raise very serious antitrust concerns, but
theory and empirics tells us that consolidation can in many
cases benefit consumers, and I commend you, Chairman
Rockefeller, for focusing us on consumer welfare as a primary
standard by which we should judge success.
In any event, consolidation must be measured in terms of a
properly defined relevant market. This is especially true in
today's video marketplace where traditional MVPDs increasingly
compete with firms like Netflix, Apple and Google. This new
competition must be considered as part of the relevant market.
Indeed, traditional MVPDs may need to consolidate if they
are to compete with these new firms. I want to emphasize this
point. The greatest challenge to the development of a modern
video marketplace is not the development of new technologies.
That is the easy part. The challenge is how new and existing
firms, business models, and consumers transition to use these
new technologies.
Staying on the topic of consolidation, vertical
integration, in particular, is more often good for consumers
than bad. This is one of the enduring lessons from the break-up
of the vertically integrated film industry of the 1940s, and
one that has been consistently demonstrated in the economics'
literature.
What happened after the Supreme Court approved the break-up
of the film industry? Ticket prices for consumers went up,
quality and variety of films went down, and the industry as a
whole went into a multi-decade slump. Decades of subsequent
research suggest that vertical integration helps firms to
develop and implement new technologies.
At the same time, progress toward an Internet-based video
marketplace has been slower than many would like. Chief among
the reasons for this is regulatory uncertainty. It is entirely
unclear today how online video fits into the current regulatory
regime.
This uncertainty makes entry by new firms difficult and
decreases existing firms' ability to innovate. Updating the
``Copyright and Communications Act'' is one of the best things
that Congress could do to promote video in the marketplace.
Finally, any discussion of the video marketplace needs to
consider spectrum policy. Much of today's video marketplace is
shaped by pre-cable broadcast policy. We will likely never move
away from broadcast television entirely. Many Americans rely on
it. It is essential in emergency situations, and it is an
important competitive constraint on other television services.
But existing rules treat broadcast television as the basic
unit by which content is delivered to consumers. This does not
make sense in the Internet era. Rather than struggle with how
to fit online video into the traditional television model, we
should be thinking about how to allow traditional television to
operate more like online video.
I believe that is the perfect point on which to end my
comments. I look forward to answering your and the Committee's
questions.
[The prepared statement of Mr. Hurwitz follows:]
Prepared Statement of Justin (Gus) Hurwitz, Assistant Professor of Law,
University of Nebraska College of Law and Visiting Fellow, American
Enterprise Institute, Center for Internet, Communications, and
Technology Policy
The views expressed in this testimony are those of the author alone and
do not necessarily represent those of the University of Nebraska
College of Law or the American Enterprise Institute.
Chairman Rockefeller, Ranking Member Thune and members of the
Committee, it is a privilege to be before you today. My comments today
will focus on the future of the video market, tying its current state
to other ongoing issues that face this Committee and the market
generally.
The future of the video market is easy to predict and concise to
state: the Internet. The question is how we get there; when, that is,
not whether, the majority of video consumed in the United States will
be consumed online.
For this Committee, however, the question may be ``what is holding
us back?'' There is no lack of interest in developing innovative new
online video platforms. Tech titans like Google, Apple, Netflix, and
Amazon have shown great interest in online video. Entrants like Aereo,
FilmOn, and similar startups have attempted to bring a cable-like
television experiences to the Internet. Major news and sporting events
are now routinely streamed online. And most traditional video outlets
have Internet-based streaming video offerings.
Yet today's video marketplace looks more like the marketplace of a
decade ago than one of the future. I would suggest two factors that
contribute to this. First, the continuing dominance of the linear
channel--where programming is delivered as a continuous feed, 24 hours
a day, for consumers to ``tune in'' to watch. This model continues to
dominate in part because a better model has yet to be developed, and in
part because existing regulations have ossified it. And, second, the
existing regulatory regime more generally ossifies traditional business
models, and stifles entry by new firms.
The problems with the existing regulatory regime cannot be
understated. It involves multiple statutes implemented by multiple
agencies to govern technologies developed in the 60s, 70s, and 80s,
according to policy goals from the 50s, 60s, and 70s. We are no longer
living in a world where the Rube Goldberg of compulsory licenses, must
carry and retransmission consent, financial interest and syndication
exclusivity rules, and the panoply of Federal, state, and local
regulations makes sense--yet these are the rules that govern the video
industry.
The discussion we are having today should involve many current
issues--the pending mergers; the Supreme Court's recent Aereo decision;
spectrum policy; interconnection disputes between ISPs and edge
providers; retransmission consent disputes; and the FCC's ongoing
network neutrality and video regulation efforts. Time prevents me from
discussing any of these in detail, so I will leave you with a few
specific thoughts.
First, consolidation is not necessarily bad. To be sure,
consolidation can raise serious antitrust concerns. But theory and
empirics tell us that consolidation can in many cases benefit
consumers, and in any event must be measured in a properly defined
relevant market. This is especially true in the video marketplace,
where traditional MVPDs increasingly compete with firms like Netflix,
Apple, and Google. This new competition must be considered as part of
the relevant market.
Indeed, traditional MVPDs may need to consolidate if they are to
compete with these new firms. I want to emphasize this point: the
greatest challenge to the development of a modern video marketplace
isn't the development of new technologies--that's the easy part--the
challenge is how new and existing firms, business models, and consumers
transition to use these new technologies.
Staying on the topic of consolidation, vertical integration, in
particular, is more often good for consumers than bad. This is one of
the enduring lessons from the breakup of the vertically-integrated film
industry of the 1940s, and one that has been consistently supported in
the literature. What happened after the Supreme Court approved this
break-up? Ticket prices for consumers went up, quality and variety of
films went down, and the industry as a whole went into a multi-decade
slump. Decades of subsequent research suggest that vertical integration
helps firms to develop & implement new technologies.
At the same time, progress toward an Internet-based video market
has been slower than many would like. Chief among the reasons for this
is regulatory uncertainty. It is entirely unclear how online video fits
into today's regulatory regime. This uncertainty makes entry by new
firms difficult, and decreases existing firms' ability to innovate.
Updating the Copyright and Communications Acts is one of the best
things this Congress could do to promote the video marketplace.
Finally, any discussion of the video marketplace needs to consider
spectrum policy. Much of today's marketplace is shaped by pre-cable
broadcast policy. We will likely never move away from broadcast
television entirely--many Americans rely on it; it is essential in
emergency situations; and it is an important competitive constraint on
other television services. But existing rules treat broadcast
television as the basic unit by which content is delivered to
consumers; this doesn't make sense in the Internet era. Rather than
struggle with how to fit online video into the traditional television
model, we should be thinking about how to allow traditional television
to operate more like online video.
I believe that that is the perfect thought on which to end my
comments. I look forward to answering your questions.
The Chairman. Thank you very much, Mr. Hurwitz. It was very
interesting and precisely timed.
We now go to John Stankey. John Stankey, I want to tell you
that on my sheet here, it says ``John Stankey,'' and then it
says ``(pronounced Stankey).''
[Laughter.]
Mr. Stankey. You have good help, sir.
The Chairman. Yes, that is potentially true there. In any
rate, you are the Executive Vice President and Chief Strategy
Officer at AT&T, a large company and a good company, and we
welcome your statement, sir.
STATEMENT OF JOHN T. STANKEY, GROUP PRESIDENT
AND CHIEF STRATEGY OFFICER, AT&T INC.
Mr. Stankey. Thank you, Chairman Rockefeller, Ranking
Member Thune, and members of the Committee. I am John Stankey
with AT&T. I appreciate the opportunity to visit with you
today.
The name of today's hearing suggests we are at a tipping
point in the future of video. I really could not agree more. It
is a tipping point. It is a tipping point for more consumer
choice, more programming innovation, and more options for video
delivery.
Video competition today is strong, it is dynamic, and it is
increasing. Incumbent and new providers are satisfying consumer
demands in ways we could barely imagine just five years ago.
This increased video competition is being driven by advances in
broadband, both mobile and fixed, and by flexible and
innovative software architectures.
Consumers increasingly want their traditional TV service
integrated with broadband. As a result, it has never been
easier for consumers to access the video they want, when and
how they want it.
We are in the early innings of this evolution of video
consumption and competitive alternatives. Not so long ago
consumers watched video almost exclusively on a TV using over-
the-air broadcast, cable or satellite service. Today, consumers
are increasingly accessing video via broadband, on multiple
screens, Smartphones, Tablets, PCs, and TVs.
New programming choices, new devices, and higher speed
broadband are improving the customer experience exponentially.
Unlike traditional pay TV delivery systems, broadband allows
anyone to reach anyone else. That means any programmer with
great content can find an audience across TV, mobile, and
broadband platforms.
Consumer choice is vast and of high quality services like
YouTube, Netflix, Amazon, Hulu, and many more. Original
programming from Netflix, as the Chairman mentioned, last week
received 31 Emmy nominations.
The rise of over-the-top video made possible by broadband
has special importance for competition. Video represents an
increasing percentage of traffic on broadband networks. This
makes the competitive implications of over-the-top considerably
different than is often portrayed.
Although over-the-top programming often competes with
traditional cable TV as a substitute, it is also a complement
to traditional pay TV for the majority of people. For broadband
providers, giving consumers access to over-the-top content is a
critical component of why they offer broadband.
This is especially true for AT&T because our core business
is broadband. The central role of broadband in the new video
environment underpins our acquisition of DIRECTV. Unlike many
mergers, our transaction does not combine two companies that do
the same thing. Rather, it combines companies with
complementary capabilities--DIRECTV's pay TV service with
AT&T's broadband service.
As a result, there is no significant competitive overlap
between us in the product that consumers overwhelmingly
demand--a broadband and video bundle. Combining with DIRECTV
will enable us to be a much more effective nationwide
competitor with cable companies.
It gives us strong relationships with programmers producing
significant cost and quality improvements in our video service.
It gives us the scale to work with programmers to develop new
business models that give consumers what they want where they
want it.
Most importantly, being able to offer DIRECTV nationwide is
a game changer in the economics of deploying broadband. It will
allow us to expand and enhance broadband to at least 15 million
locations across 48 states, mostly in underserved rural areas.
This is in addition to the broadband expansion plans that we
have already announced, and it directly results from the
synergies created by this transaction. This new broadband
commitment includes 13 million high speed fixed wireless local
loop locations, 85 percent of which are outside our wireline
footprint.
This is big news for rural America. We estimate that nearly
20 percent of these consumers today have no access to wire line
broadband, and another 27 percent are served by just one
broadband provider.
The transaction also allows us to expand our one gigabit
service to two million additional locations. Combining with
DIRECTV allows us to offer content owners even more value and
distribution points across the nationwide pay TV network,
nationwide mobile network, and a broadband network covering 70
million locations. It strengthens our video engineering and
software expertise, enabling us to accelerate the development
of new over-the-top video delivered to any screen.
As video competition continues to accelerate, we look
forward to meeting consumers' demands for integrated broadband
and video services, all while complying with the FCC's 2010 net
neutrality standards.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Stankey follows:]
Prepared Statement of John T. Stankey, Group President
and Chief Strategy Officer, AT&T Inc.
Thank you, Chairman Rockefeller, Ranking Member Thune, and Members
of the Committee.
I am John Stankey, Group President and Chief Strategy Officer of
AT&T, and I appreciate this opportunity to address the state of video
competition and the benefits that competition is bringing to consumers.
Video competition today is strong and dynamic. Competition is
increasing sharply as both incumbent and new providers find new ways to
satisfy video demand and to deliver a multitude of new services that
benefit consumers in ways we could barely imagine five or ten years
ago.
This increased competition is being driven by broadband advances
and investments. National wireless broadband networks can now deliver
video quickly and efficiently. Advanced wireline connections to the
home have more capacity and are becoming more widely available. As a
result, it has never been easier for consumers to find the video
programming they want to watch, when and how they want to watch it.
Traditional video services are increasingly integrated with broadband
offerings that give consumers access to the full range of these
interactive and next generation services.
AT&T is proud to be at the center of these competitive
developments. We remain a company focused on wireless and wireline
broadband services, and on ensuring that consumers can use those
networks to reach each other and access the full scope of video and
information sources that are becoming available to them. We are
confident that we are seeing only the beginning of the consumer
benefits emerging from this new and increasingly competitive
environment, and we look forward to driving it forward through new and
expanded networks and services.
Technology and Consumer Demand Is Evolving
Not so long ago, consumers watched video almost exclusively on a
television set, using over-the-air broadcast, traditional point-to-
multipoint delivery systems like cable or satellite, and packaged
products like DVDs. Now, consumers are increasingly using advanced
wireless and wireline broadband networks to reach video providers.
Consumers are watching video on their smartphones, tablets, and
computers as well as televisions. They watch a broader variety of
programming, including the many short, long, and interactive forms of
programming the Internet enables. New, high-definition programming and
devices, supported by even higher-capacity broadband networks, will
create a new level of customer experience.
With this change in technology, consumer demand is changing.
Consumers increasingly expect to be able to watch video when they want,
where they want, and on whatever device they want. They want access to
interactive, crowd-sourced, short-form, and traditional long-form
services. And consumers are increasingly making clear that if service
providers cannot provide their video of choice, they will find other
providers that can.
Advanced, Interconnected Broadband Networks Are Driving New Video
Competition
Recent improvements in the capacity and capabilities of broadband
networks are driving this increased competition in video. For example,
the newest, most advanced generation of wireless networks now supports
the delivery of high-quality video. Those networks, in turn, have
enabled a new generation of mobile devices designed to provide both
interactive and traditional video viewing experiences. IP-based
wireline broadband services have also reached important capacity
thresholds that enable high-quality video streaming and delivery
services, and broadband providers have been expanding those networks to
an increasing number of the Nation's households. Those providers are
not just the traditional telephone companies. They include Google and a
host of other companies taking advantage of the latest technologies.
Unlike traditional broadcast video delivery systems, today's
broadband systems allow anyone to reach anyone else. That means any
programmer that has great video content can find its audience.
Programmers can use those broadband networks to make their video
available directly to consumers, and consumers can choose from among a
vast range of services to find those video offerings. YouTube, Netflix,
Amazon video, and Hulu are only the beginning of this evolution.
In this new broadband world, consumers increasingly want their
traditional video services integrated with broadband services to enable
a richer experience. And the consumer benefits of broadband and video
integration and bundling extend well beyond passive video viewing to a
broad and increasing range of interactive communications, home
security, and home automation, monitoring and control systems.
Consumers Today Have More Choice
These developments are shifting the relationship between consumers
and aggregators of video programming. Traditionally, Americans could
choose only among the ``linear'' programming provided by broadcast
television networks or later cable television networks. Consumers might
choose between the ABC or NBC program on a given evening or, later,
among the television and cable network programs available on their
cable television system.
Increasingly, however, consumers can choose among many more sources
of programming, and their choices drive what survives in the
marketplace. Many still choose from the television and cable networks,
and traditional providers now offer both on-demand and online viewing.
But broadband networks have expanded the choices. Streaming services
have libraries of available programming and increasingly commission new
programming. Social media and other emerging sites generate short-form
and independent programming, and the line between traditional and
emerging video programmers is blurring and will continue to do so.
As a result, consumers are able to find great programming in many
more ways. To retain customers, video content aggregators will have to
find superior programming and improve the seamlessness and efficiency
of how they deliver it. As competition increases among content
aggregators, and programmers are able to reach consumers more directly
on different networks, programming improves, consumer choice
proliferates, and consumers benefit.
Consumers Today Have Alternative Sources of Programming
The rise of these non-traditional, ``over-the-top'' programming
sources has special importance for competition. As I have explained,
these services have been able to flourish because of improvements in
broadband networks, and consumers have benefited tremendously as a
result. As demand for streaming and other innovative services grows,
video traffic represents an increasing percentage of the overall
Internet and data traffic on today's broadband networks.
This makes the competitive implications of over-the-top programming
considerably different than is often portrayed. Although online
programming often competes with traditional cable television as a
substitute, such programming is also a complement and an important
component of the services offered by broadband network operators.
Broadband competitors must work hard to ensure that they can provide
their customers with as rich and as integrated a video environment as
possible, drawn from all the programming sources consumers may want.
For these reasons, companies that provide bundles of broadband and
video will foster, rather than impede, the emergence of over-the-top
programmers. This is especially true for providers like AT&T whose core
business is mobile and wireline broadband services. If those companies
do not provide that rich and varied video environment, they risk losing
their broadband customers and their wireless customers as well. Only by
embracing the reality that over-the-top services are complements of
their own services, just as traditional video can be a complement, will
broadband providers retain and grow their relationship with their
customers.
Expanding Broadband Networks and Their Capabilities
The central role of broadband in the new video environment,
described above, also underpins AT&T's acquisition of DIRECTV and
explains why the combination is good for consumers.
DIRECTV is the premier video provider in the United States. AT&T
has robust, market-leading wireline and wireless networks throughout
the country. By adding DIRECTV's video capabilities to our strength in
fixed and mobile broadband delivery, we will create a new, unique
competitor with unprecedented capabilities in mobility, video, and
broadband services.
Today, consumers value a seamlessly integrated broadband access and
video offering. Because of this, combining with DIRECTV will enable us
to be a much more effective, nationwide competitor with traditional
cable television companies. We can integrate the DIRECTV video offering
with our national wireless broadband network services, as well as home
services and customer support offered on a national basis. And, because
we can offer broadband services far more widely than our U-Verse video
service area, we will be able to offer the integrated offering of video
and broadband access service to many more customers--AT&T customers,
DIRECTV customers, and new customers--than is possible today.
The transaction also enables us to grow and add to the capabilities
of our core broadband business. With relationships to many more current
and potential video customers, we will have stronger relationships with
programmers, producing significant cost and quality improvements in our
video offering. Those and other cost synergies and quality improvements
from this transaction fundamentally change the business case for
expanding our broadband infrastructure. Along with the strength of the
new integrated video/broadband bundles the transaction enables, these
synergies will make it economic to deploy infrastructure to millions of
additional customer locations and will justify billions of dollars of
additional broadband investment.
As a result, AT&T is committing to building and enhancing high-
speed broadband service to at least 15 million customer locations, most
of them rural, within four years of the transaction closing. This
expansion is in addition to the broadband expansion plans that AT&T has
already announced, and it directly results from the synergies created
by the transaction.
First, AT&T will use its wireless spectrum to bring a fast,
innovative broadband Internet access service to 13 million customer
locations in rural areas in 48 states. This new service is not simply
mobile LTE service on our wireless network. This is a new ``fixed
wireless'' service that uses advanced technology, dedicated spectrum,
and professional home installations to provide a consistent and
reliable high-speed broadband experience. Second, AT&T will be able to
build out its newest ``GigaPower'' broadband infrastructure to more
customer locations. GigaPower relies on fiber all the way to the home
and offers speeds of up to 1 gigabit per second. The transaction will
allow AT&T to upgrade at least 2 million additional customer locations.
Most of those locations are likely today to be in areas that have no
AT&T broadband infrastructure or only slower forms of DSL
infrastructure that do not support video service.
In these ways, DIRECTV enables AT&T to meet consumer's ever-
increasing demands for integrated broadband access and video services--
all while meeting or exceeding the FCC's 2010 net neutrality standards.
And, as more consumers want access to the most advanced, highest
capacity broadband networks, the transaction will enable AT&T to build
out its broadband infrastructure to homes and businesses that we could
not reach otherwise. As competition in the video industry continues to
accelerate, AT&T looks forward to bringing the benefits of innovation
to consumers.
Thank you, Mr. Chairman.
The Chairman. Thank you very much, Mr. Stankey. Now, Jeff
Blum of Dish Network. We welcome you.
STATEMENT OF JEFFREY H. BLUM, SENIOR VICE PRESIDENT
AND DEPUTY GENERAL COUNSEL, DISH NETWORK L.L.C.
Mr. Blum. Thank you. Chairman Rockefeller, Ranking Member
Thune, and members of the Committee, my name is Jeff Blum. I am
the Deputy General Counsel of DISH, the second largest
satellite TV provider in the country, with over 14 million
subscribers. I am pleased to have the opportunity to testify
today.
DISH agrees with the title of this hearing. We are at a
tipping point. The decisions that the FCC, DOJ, and Congress
make over the next 12 to 24 months will determine whether a few
large companies control what Americans watch and how they do
so. The future of video is broadband, and the unprecedented
consolidation looming in the high speed broadband access market
will shape video consumption for years to come.
Now more than ever a competitive video market needs high
speed, high capacity broadband services. Allowing the broadband
access market to consolidate down to a few powerful
gatekeepers, each of which also has video services to sell,
will hurt competition and consumers.
Online video can take many forms, be it a library of on-
demand movies and shows that you can order through a broadband
connected DISH set-top box, or a streaming video subscription
service like Netflix, and more competitive innovations are
coming, but without a high speed broadband pipe, consumers
cannot fully take advantage of these services.
A combined Comcast and Time Warner would not only control
nearly half of the broadband pipe in the U.S., it would have a
greater incentive to harm competing online services in order to
protect its own turf, its own linear TV packages, its own
online video services, and its own linear and online in-house
programming.
For our part, DISH increasingly offers broadband-enabled
services to compete in the video market. We are investing to
provide more video on demand and Internet stream programming.
Today, for example, we offer an Internet only foreign
language channel package called ``DISH World.'' We recently
announced a first of its kind deal to distribute live and on-
demand Disney programming over a new DISH over-the-top or OTT
service, where no satellite dish is required.
A broadband connection makes these innovations possible,
but because innovative online video services, like ours, are
powered by other companies' broadband connections, we are very
concerned about the threat to competition posed by the Comcast/
Time Warner merger.
We believe that the FCC and the DOJ should reject it
outright. There are no conditions or divestitures that would
offset the harms, and you do not need to be an economist or
antitrust expert to understand why. Given its control over the
broadband pipe and its own suite of linear and online video
products, a combined Comcast/Time Warner would have a
dramatically increased incentive to protect its business model
by thwarting the broadband-enabled video services of other
companies, like DISH or Netflix.
This presents a serious threat to competition, because
Comcast and Time Warner together would control close to 50
percent of all residential high speed broadband connections,
and would pass more than 60 percent of the homes in America.
Comcast will also be able to wield its greater market power
in another way, by restricting third-party programmers' digital
rights, licenses to compete in pay TV, and over-the-top
providers. They will tell programmers if you want carriage on
our giant network, you cannot grant DISH online rights to your
content.
Too much power in the hands of too few. That is really what
the Comcast/Time Warner merger would produce.
When we filed a letter last week announcing our opposition
to the merger, Comcast said we were just trying to win an edge
against a competitor. That is simply not true. We welcome
healthy competition. Being a disruptive competitor is in our
DNA. We are not here to complain about Comcast competing with
us on service quality, value, or technology, but we will raise
a red flag when a market participant seeks to abuse its market
power.
I also want to express DISH's concerns about the proposed
AT&T/DIRECTV merger. Among other things, AT&T and DIRECTV will
be able to combine their power to raise the cost of programming
content for smaller TV providers to the potential detriment of
consumers.
Finally, Congress has an opportunity to improve video
competition right now. This committee soon will consider
reauthorizing STELA. DISH, along with many other pay TV
providers, consumer groups, and independent programmers urge
you to seize this opportunity to enact real reforms to the
broken retransmission system.
We understand that Chairman Rockefeller and Ranking Member
Thune and their respective staffs have been working on a
bipartisan STELA bill. We applaud that effort.
Thank you.
[The prepared statement of Mr. Blum follows:]
Prepared Statement of Jeffrey H. Blum, Senior Vice President and Deputy
General Counsel, DISH Network L.L.C.
Chairman Rockefeller, Ranking Member Thune, Members of the
Committee:
My name is Jeff Blum. I am the Senior Vice President and Deputy
General Counsel of DISH Network L.L.C. (``DISH''), the second largest
satellite TV provider in the U.S. with over 14 million subscribers
located across every state.
DISH agrees with the title of this hearing: we are at a tipping
point. The decisions that the Federal Communications Commission
(``FCC''), Department of Justice (``DOJ''), and Congress make over the
next 12 to 24 months will impact the future of the video market in
determining whether a few large companies will have ultimate control
over what Americans watch and how they do so. The future of video is
broadband; and the unprecedented consolidation looming in the high-
speed broadband access market will shape video consumption for years to
come.
We at DISH know a thing or two about healthy competition. We
launched our satellite TV service when cable enjoyed near monopoly
status in the pay-TV market. When our original big-dish business
started to decline, we invested in a new, small-dish service. And now
that satellite and pay-TV generally have matured, we are again
investing in the next transformation of the market, namely broadband
and online video.
Now more than ever, a vibrant, competitive video market relies upon
high-speed, high-capacity broadband services. This is because consumers
increasingly want on-demand and Internet-delivered content. Allowing
the broadband access market to consolidate down to a few powerful
gatekeepers, each of which also has video services to sell, will hurt
competition and consumers.
For our part, DISH increasingly relies on broadband to compete in
the video market. We do so in two ways.
First, satellite TV can only be a competitive alternative to cable
if our subscribers can utilize a broadband connection. DISH's newest
set-top boxes connect to a consumer's broadband service, often provided
by cable ISPs like Comcast and Time Warner Cable. The broadband
connection makes possible the innovations that we need in order to stay
competitive, such as video-on-demand, DISH Anywhere, Sling, various
apps, and Internet-streamed programming.
Let's take the example of video-on-demand. Cable offers thousands
of titles on demand, delivered through the two-way cable connection
into the home. Our satellites and set-top boxes cannot serve the same
volume of content on demand. In order to offer a comparable experience,
we store titles on servers throughout the country and deliver them over
a consumer's home broadband connection. When a DISH subscriber selects
a movie on demand, she may be accessing the video file from one of our
servers, transmitted to her set-top box over a broadband connection,
and viewed on the TV.
Without such broadband-enabled features, DISH would fall behind our
pay-TV competitors like Comcast, Time Warner Cable, AT&T, Charter, and
others. Without broadband connections often provided by our pay-TV
competitors, we cannot stay competitive in the traditional pay-TV
market.
The second way DISH relies on broadband is when we provide a so-
called ``Over the Top'' or ``OTT'' service. These services will play a
large role in the future of video. Just like Netflix and Amazon, among
others, DISH offers an Internet-only video product. For these services,
all you need is a broadband connection; no satellite or set-top box is
required.
For example, we offer DISH World, a foreign language OTT video
service available over the Internet, using a broadband connection. This
OTT service provides programming in Hindi, Mandarin, and dozens of
other foreign languages. And, it is growing at a faster rate than our
foreign language services on satellite.
We also recently announced a first-of-its kind deal to distribute
live and on-demand Disney programming (such as ESPN and the Disney
Channel) over a new forthcoming DISH OTT service. For the first time,
consumers with a broadband connection will be able to subscribe to a
smaller package of channels at a lower price than what is available
today over traditional pay-TV. We are now talking to other major
content companies about joining Disney on our forthcoming OTT service.
We hope to launch the service later this year. These types of OTT
services, however, require high-speed and high-capacity broadband
connections.
Given our reliance on broadband to compete in the video market, we
are very concerned that the proposed merger between Comcast and Time
Warner Cable threatens competition as we know it in the video space,
especially in the traditional pay-TV market, where satellite relies so
heavily on a broadband connection, and in the emerging OTT video space.
The FCC and DOJ should reject this merger. There are no conditions
or divestures that would offset the harms. You don't need to be an
economist or antitrust expert to understand why. A competitor offering
pay-TV at a lower price, or with more on-demand titles, or OTT services
that cost less, is a company that can provide a different--or better--
alternative to Comcast and Time Warner Cable. A combined Comcast/Time
Warner Cable would have plenty of incentive to protect its business
model by thwarting the broadband-enabled services of competitors like
DISH.
The combined companies would control more than 47 percent of all
the residential high-speed broadband connections in America, and would
pass more than 60 percent of homes in America. These broadband
connections are necessary to power the type of video services I just
mentioned.
Comcast would like you to believe that the market for broadband is
full of choices. But the truth is that DSL in most cases does not offer
enough speed and capacity to support a typical household's streaming
video usage. Just look at AT&T and Verizon. When they provide video for
U-Verse or FiOS subscribers, they do not use their DSL networks.
Instead, they use newer, high-speed fiber networks.
With such vast broadband market share under its control, the new
Comcast will have at least three ``choke points'' in the broadband pipe
where it will have the ability to harm competing video services like
those provided by DISH:
1. First, the broadband connection to the consumer. This is often
called the ``public Internet.'' Comcast can prioritize its own
services before those of DISH and other competitors, rendering
services like ours less competitive;
2. Second, the interconnection point, where competitors' video
services enter the Comcast broadband network. Comcast controls
this critical point of interconnection, as it can close ports
or refuse to open enough ports to allow competing content onto
the ``public Internet.'' If we pose too much of a competitive
threat, we could suddenly find it more expensive, or even
impossible, to reach our customers who use Comcast broadband;
and
3. Third, any managed or specialized service channels, which can act
as high speed lanes and squeeze the capacity of the public
Internet portion of the pipe. Comcast's own services may enjoy
the fast lane, while DISH's and all other competitors' data may
get squeezed onto the ever more crowded public Internet lane.
Each of the above three ``choke points'' provide the ability for a
combined Comcast/Time Warner Cable to downgrade the online video
offerings of its competitors, all to the detriment of consumers.
The combination of Comcast and Time Warner Cable also would present
a larger competitive threat than the companies standing alone, without
a merger.
Take, for example, DISH World and the new DISH OTT service
discussed above. DISH World offers programming in Hindi. Hindi speakers
in the United States are concentrated in markets served by Comcast and
Time Warner Cable broadband, such as New York City, Chicago, and Los
Angeles.
Put all of those broadband markets under one roof and it becomes
clear how Comcast would be the primary gatekeeper for DISH World
reaching the Hindi-speaking community. It is also clear how Comcast
easily could degrade DISH World in favor of its own foreign language
service, perhaps to the point of eliminating the competition
altogether.
Regarding our forthcoming OTT service with Disney and other
programmers, a combined Comcast/Time Warner Cable will similarly be
able to slow down or degrade the quality of service over its broadband
pipe. But it will also be able to wield its greater leverage in another
way--to restrict third-party programmers' digital rights licensed to
competing pay-TV and OTT video providers. If you want carriage on our
giant network, they'll say to a programmer, you cannot grant DISH or
Netflix, for example, OTT rights to your content.
Too much power in the hands of too few--that's really what the
Comcast/Time Warner Cable merger would produce.
I should note that Comcast reacted to DISH's recent opposition to
its merger by characterizing us as a company just out to win an edge
against a competitor. To the contrary, DISH is all in favor of healthy
competition. You do not hear us complaining about Comcast competing on
service quality, value, or technology features. But, we will take issue
when a market participant seeks to abuse its market power to the
detriment of healthy competition. We want to win when the game is
played on an even playing field.
I also want to express DISH's competitive concerns about the AT&T/
DIRECTV merger. Among other things, AT&T and DIRECTV will also be able
to combine their market power to leverage programming content, to the
potential detriment of consumers.
Finally, while merger reviews are mostly under the jurisdiction of
agencies like the DOJ and FCC, Congress has an opportunity to improve
video competition right now. This Committee soon will consider
reauthorizing the Satellite Television Extension and Localism Act of
2010 (``STELA''). DISH and our fellow members of the American
Television Alliance urge you to seize this opportunity to enact real
reforms to the current laws governing how pay-TV and broadcast
companies negotiate deals. We understand that Chairman Rockefeller,
Ranking Member Thune, and their respective staffs have been working on
a bi-partisan STELA bill. We applaud that effort. As Chairman
Rockefeller said at the last video hearing, consumers cannot wait for
the ``mythical'' re-write of the communications law.
Specifically, it is time do something to fix the broken
retransmission consent system as part of STELA. Escalating programming
costs are the number one source of rising pay-TV rates and one of the
reasons we are seeing industry consolidation. The number of harmful
programming blackouts has skyrocketed as broadcasters seek to drive up
the amount of money they collect. Consumers are being negatively
impacted from coast to coast, but with a few simple changes to the law,
Congress can help to mitigate this harmful trend. DISH has submitted
many concrete legislative proposals in writing to this Committee, and I
am happy to answer any questions you might have about those ideas.
Thank you, and I look forward to the discussion today about the
industry consolidation we're seeing and other trends and problems
currently impacting the video industry.
The Chairman. Thank you, sir, very much. You are right
about the good Senator on my left and I. We try to cooperate as
much as possible.
Mr. Blum. Wonderful.
The Chairman. There are limits, he says.
[Laughter.]
The Chairman. So far, it is a wonderful relationship, which
is very key to undoing gridlock.
Let me see. I will turn to Mr. Ryan, the artist, the
writer, the creator, the innovator of The Shield. You present
the perspective of content creators and owners, and I am very
happy you are at the table and look forward to your testimony.
STATEMENT OF SHAWN RYAN, MEMBER, ON BEHALF OF
WRITERS GUILD OF AMERICA, WEST, INC.
Mr. Ryan. Chairman Rockefeller, Ranking Member Thune,
members of the Committee, thank you for the opportunity to
appear before you today. My name is Shawn Ryan. I am a member
of the Writers Guild of America, West.
My Guild represents more than 8,000 writers of television
series and feature films. We are the creators of television
comedies and dramas, and as the custodians of this uniquely
America art form, I want to outline for you and Americans
watching today online what is at stake for the future of the
video marketplace.
Although an abundance of outlets and new technologies has
made original video content both more robust and accessible,
the reality of American media is it is controlled by a handful
of companies formed through two decades of consolidation. These
companies own the television networks, the production studios,
and almost all the scripted content that is available on
television and in movie theaters.
The cable companies that distribute this content are even
more concentrated. In this market, independent programming has
been all but eliminated. Only 10 percent of the broadcast
networks' fall schedule in 2013 was independently produced.
Writers effectively have six companies they can sell to.
Because we have so few alternatives, the media companies take
the content we create, require us to relinquish ownership
rights, and then reap the monopoly profits.
Consumers fare no better in this equation as monopoly power
restricts viewpoint diversity, limits content choices, and
drives up cable bills.
Programming decisions in this environment are not the
result of a competitive market where the American public
decides what it wants to watch. Rather, they are made to
advance the economic interest of a handful of large companies.
I served as Executive Producer on a television series
called The Unit, a drama about American Special Forces soldiers
and the families back home who supported them. This program was
produced by Fox Television Studios and aired on CBS from 2006
to 2009. In 2009, the network canceled The Unit and picked up
Medium, a series produced by a CBS affiliated studio that aired
on NBC for five seasons.
The reasoning behind this decision, I believe, was that CBS
did not own The Unit, and would not benefit from secondary
market revenue earned by making additional episodes. Because
the network had an ownership stake in Medium, it chose to air
another season of it because of a syndication deal that would
generate additional revenue, despite the fact that The Unit was
routinely drawing over two million more viewers an episode that
season than Medium was.
Now Internet video distribution has the potential to
restore some measure of competition, the Internet's low entry
barriers have given us new content choices from outside the
tightly controlled cable bundle. We now have original online
series competing with television programming, what began with
House of Cards, a Netflix series that last week garnered 13 TV
Emmy nominations, is spreading to other online services.
This year Amazon and Netflix combined may spend close to $1
billion on original programming, and 20 original television
like series will be released online. These developments
represent meaningful change for providers and consumers alike.
The promise of vibrant video competition is once again
threatened by those who control distribution. The same
companies that control cable television also control Internet
distribution. They would like nothing more than to take their
content distribution monopoly and apply it now to the Internet.
The proposed Comcast/Time Warner Cable and AT&T/DIRECTV
mergers are designed to do just that. The open Internet has the
potential to create a video marketplace that is more
competitive, diverse, and independent, but it is clear that
action is needed to fulfill this promise.
The Internet is an information highway, and just as
Congress does not allow a handful of private companies to erect
toll booths on our Nation's actual highways, it cannot allow a
few ISPs to set arbitrary rates and decide which businesses,
video providers, or political organizations can have
prioritized delivery, and which are relegated to a slow lane.
Internet providers would be allowed to strangle innovation
in the cradle. Can we really expect the next Netflix, Amazon,
or Crackle to emerge under these circumstances?
Strong net neutrality rules that ban paid prioritization
and other discriminatory practices must be enacted. We also
need effective antitrust enforcement. The fundamental question
raised by mergers--concentration and the resulting monopoly
power--is are they good for society or not? The answer in
economic theory is a resounding ``no.''
Further market concentration simply means that writers will
be paid less to innovate and create and consumers will have to
pay more for our content.
Our country from the time of the founding fathers has been
defined by a struggle to eliminate concentrations of power that
harm both democracy and basic economic fairness.
As the creator of The Shield and its lead character, Vic
Mackey, I understand something about abuse of power and what
happens when proper oversight goes lacking. It may make for
great entertainment, but it makes for bad public policy.
We once again have an opportunity to serve the interest of
many rather than the few by stopping these mergers and by
keeping the Internet free and open.
Thank you for the opportunity to testify. I look forward to
your questions.
[The prepared statement of Mr. Ryan follows:]
Prepared Statement of Shawn Ryan, Member, on Behalf of Writers Guild of
America, West, Inc.
Introduction
Chairman Rockefeller, Ranking Member Thune and members of the
Committee, thank you for the opportunity to appear before you today. My
name is Shawn Ryan; I am a member of the Writers Guild of America,
West, Inc. (WGAW) and a working television writer for the past 25
years.
WGAW is a labor organization that represents more than 8,000
professional writers of film, television and online video programming.
Guild members write feature films, dramas and comedies for broadcast,
cable and pay TV networks, local news, documentary programs and the
original series that are now available online through services such as
Netflix, Amazon, Hulu and Crackle. Virtually all of the entertainment
programming and a significant portion of news programming seen on
television and in film are written by WGAW members and the members of
our affiliate, Writers Guild of America, East (jointly, ``WGA'').
Turn on a television today and the amount of original content
offered has never been more plentiful. Broadcast networks, basic cable
networks and pay television channels all offer original programming,
year round. Dramas and comedies, the primary work of Guild members, can
be found on almost three dozen of these networks. Viewers have never
had more control over what they watch. Using digital video recorders
(DVRs), video on demand (VOD) and online streaming, consumers can watch
almost any program at almost any time. Television is not even confined
to the TV set anymore. Tablets and smartphones have become portable
televisions and online video has expanded the definition of television
programming. Consumers can stream thousands of television episodes on
Hulu, Netflix and Amazon Prime and now these sites have begun to
program their own original comedy and dramas series, adding much needed
new competition.
But at odds with this proliferation of outlets is a disturbing
truth about American media. It is controlled by only a handful of
companies, formed through two decades of vertical and horizontal
integration. These companies--CBS, Comcast-NBCU, Disney, Fox, Time
Warner and Viacom--own the television networks, the studios and almost
all of the scripted content that is available on television and in
movie theaters. While the number of outlets has exploded, the number of
people deciding what Americans can watch has contracted. The market of
multichannel video programming distributors (MVPDs) is even more
concentrated, with four companies controlling two-thirds of the
market.\1\ Through monopoly power, these large corporations profit by
underpaying those who are actually responsible for content creation and
by overcharging consumers who have few alternative video choices.
---------------------------------------------------------------------------
\1\ SNL Kagan, ``U.S. Multichannel Industry Benchmarks,'' 2013 and
``U.S. Cable Subscriber Highlights,'' 12/13Q, http://www.snl.com.
---------------------------------------------------------------------------
TV comedies and dramas, the programs that Guild members create, are
an integral part of American culture. Writers are the custodians of
this uniquely American art form, and in that capacity I am here today
to talk about the choice we face as a society. The addition of Internet
distribution has made possible once again a media landscape that more
closely reflects our Nation's ideals: one of a free market in which the
American public, not a few powerful gatekeepers, decides what content
it wants to watch. If the open Internet is preserved, if competition is
enhanced, and if the media companies are restrained in their efforts to
monopolize, then diverse and independent content will flourish. But to
fulfill this promise requires action: we must have strong Net
Neutrality rules, effective antitrust enforcement, and legislation that
both expands competition and reins in discriminatory Internet Service
Provider (ISP) practices, such as paid prioritization and data caps
that apply only to unaffiliated video content.
Television
When I began in the television business, there were only four
broadcast networks airing original scripted programming. Ironically, in
that world of few outlets, the media business was far more competitive
than it is today. Because of the Federal Communication Commission's
Financial Interest and Syndication Rules (Fin-Syn), the networks were
not allowed to own the content they aired in primetime. The rules were
designed to serve the public interest by increasing viewpoint diversity
and competition in program supply. The result was a thriving
independent production sector. In 1989, 76 percent of the Fall
primetime schedule on the broadcast networks was independently
produced. This was a heyday for television writers as studios competed
for their services. And, because the networks were prohibited from
owning this content, writers and independent producers had more control
over content.
When Diane English, the creator of Murphy Brown, first pitched the
show to CBS, the network did not want a main character who was a
recovering alcoholic returning from rehab. The network, instead, wanted
to soften the storyline by having Brown return from a spa. Because CBS
couldn't own the show, English and her producing partners could have
taken the project elsewhere rather than compromise its integrity. The
result of that power--the product of a competitive market for content--
was that CBS acquiesced and English got to make the show she wanted and
the one the public loved. The Fin-Syn rules attenuated the power over
media granted to the broadcast networks by virtue of their control of
the airwaves. Television programming that resulted from the separation
between networks and studios promoted a diversity of voices and
viewpoints.
But with the advent of cable, the broadcast networks successfully
argued for the repeal of the Fin-Syn Rules, claiming the regulations
were no longer necessary to ensure competition. The decades that
followed saw consolidation on an unprecedented scale. It began with
Viacom's 1994 purchase of Paramount and the subsequent merger in 1999
with CBS, and continued with Disney's acquisition of Capital Cities/ABC
in 1995, Time Warner's purchase of Turner Broadcasting in 1996, and
NBC's combination with Universal in 2003 and acquisition by Comcast in
2010.\2\ At the same time, the broadcast networks used retransmission
consent to gain control of the basic cable market, requiring carriage
of basic cable networks they owned as a condition for local station
retransmission. The product of this consolidation is a basic cable
market where five companies account for 74 percent of basic cable
viewers.\3\
---------------------------------------------------------------------------
\2\ CBS and Viacom split in 2005 with Paramount film production and
distribution remaining with Viacom and Paramount television production
with CBS; both remain controlled by Sumner Redstone through National
Amusements.
\3\ WGAW Analysis of Nielsen data. Average P2+ viewers in
primetime, 2013.
---------------------------------------------------------------------------
In today's consolidated market, independent programming has been
all but eliminated. According to a WGAW analysis of the broadcast
network schedules, only 10 percent of the 2013 Fall primetime schedule
was independently produced, almost all of which was reality
television.\4\ Basic cable networks air a similarly anemic proportion
of independent programming. Only 15 percent of basic cable comedies and
dramas in the 2012-2013 season were independently produced. The decline
in independent programming has reduced the number of employers for
writers. In 1989, 89 percent of TV writing jobs came from independent
producers. By 2013, the figure had dropped to only 25 percent.\5\
---------------------------------------------------------------------------
\4\ WGAW defines independent producers as studios or production
companies that are not owned or affiliated with a major broadcast or
cable network or an MVPD provider. Such a definition is essential
because it exposes the true amount of programming that reaches the air
without the market power or guaranteed distribution provided by
vertical integration.
\5\ These figures include all broadcast, cable and pay TV
programming written by WGAW members, not just prime time.
---------------------------------------------------------------------------
This excessive concentration has benefitted the bottom lines of
these Fortune 500 companies at the expense of actual content creators.
With tight control over both production and distribution, the
vertically integrated media companies possess all the power as
employers of talent. To be hired on a television writing staff often
requires writers to give the employer an exclusive first look on any
idea they may have. Writers, who are the R&D of this industry, bear all
the risk of developing new creative works while the media companies,
through their control of distribution, reap the rewards. If a
television series creator and a network experience creative
differences, it is the writer who is replaced, not the network.
Consumers fare no better in this equation as monopoly power restricts
creative expression, limits content choices and drives up prices.
In my career I have had the opportunity to work on a series made by
a studio not vertically integrated with the network which it aired on.
I served as executive producer on a television series called The Unit,
a drama about American special forces soldiers and the families back
home who supported them. This program was produced by Fox Television
Studios and aired on CBS from 2006 to 2009. In 2009, the network
cancelled The Unit and replaced it with Medium, a series produced by a
CBS-affiliated studio that had aired on NBC for five seasons. The
reasoning behind this decision I believe, was that CBS did not own The
Unit and would not benefit from secondary market revenue earned by
making additional episodes. Because the network had an ownership stake
in Medium, it chose to air another season of that series because of a
syndication deal that would generate additional revenue. This
experience highlights the truth about the programming on our airwaves:
decisions about what to air are made to advance the economic interests
of a few large companies. The programming watched by millions of
Americans every day, therefore, is not the product of a competitive
market where the best ideas win out.
Online Video
It is into this world that Internet video distribution has now
emerged, with the potential to restore some measure of competition in
the marketplace for content. Until recently, much online video content
was short-form or reuse of film and television content. While this gave
consumers new ways to view content and expanded who could create, it
did little to challenge media company hegemony. The game changer was
House of Cards, a television series from an independent producer that
debuted online. This series represented what was previously
unimaginable: online content that rivals television in terms of
popularity, acclaim and production value. It was followed in short
order by the release of three more original Netflix series and two from
Amazon. The growth of this market is sudden. Our research indicates
that, this year, 20 original television-like dramatic series will be
released online.\6\
---------------------------------------------------------------------------
\6\ See Comments of WGAW In the Matter of Protecting and Promoting
the Open Internet, GN Docket No. 14-28, July 15, 2014.
---------------------------------------------------------------------------
Consumers have demonstrated a pent up demand for new content
offered in new ways. The number of online videos viewed each month by
Americans has increased from 7.2 billion in January of 2007 to 52.4
billion in December of 2013.\7\,\8\ The segment of Americans
who watch or download videos has grown from 69 percent of adult
Internet users in 2009 to 78 percent in 2013.\9\ YouTube and Netflix
now make up half of all downstream Internet traffic in North
America.\10\ The number of people signing up for online video
subscriptions is yet another indicator of consumer demand for new,
innovative video offerings. Hulu Plus counts more than 6 million paying
subscribers and Netflix has nearly 36 million customers in the
U.S.\11\,\12\ The Interactive Advertising Bureau and Price
Waterhouse Cooper report that advertisers spent almost $3 billion on
online video advertising.\13\ And consumers spent another $3 billion on
subscriptions to Netflix and Hulu Plus.\14\
---------------------------------------------------------------------------
\7\ comScore, ``Primetime' U.S. Video Streaming Activity Occurs on
Weekdays Between 5-8 P.M.'' March 21, 2007, http://www.comscore.com/
Insights/Press-Releases/2007/03/Primetime-US-Online-Video.
\8\ comScore, ``comScore Releases December 2013 U.S. Online Video
Rankings,'' January 10, 2014, http://www.comscore.com/Insights/Press-
Releases/2014/1/comScore-Releases-December-2013-US-Online-Video-
Rankings.
\9\ Kristen Purcell, ``Online Video 2013,'' Pew Research Center,
October 10, 2013, http://www.pewinternet.org/2013/10/10/online-video-
2013/.
\10\ Sandvine, Global Internet Phenomena Report: 2H 2013, https://
www.sandvine.com/downloads/general/global-internet-phenomena/2013/2h-
2013-global-internet-phenomena-report.pdf. Downstream traffic refers to
data received by Internet users.
\11\ Mike Hopkins, ``Welcome Jenny Wall, SVP Marketing, Hulu Blog,
May 13, 2014, http://blog.hulu.com/2014/05/13/welcome-jenny-wall-svp-
marketing/.
\12\ Rob Golum, ``Netflix Rises to Record as Analyst Predicts
Viewer Gains,'' Bloomberg, July 1, 2014, http://www.bloomberg.com/news/
2014-07-01/netflix-rises-to-record-as-analyst-predicts-viewer-
gains.html.
\13\ Price Waterhouse Cooper, ``IAB Internet Advertising Revenue
Report: 2013 Full Year Results,'' April 2014, http://www.iab.net/media/
file/IAB_Internet_Advertising_Revenue_
Report_FY_2013.pdf and Marina Lopes, ``Videos may make up 84 percent of
Internet traffic by 2018: Cisco,'' Reuters, June 10, 2014, http://
www.reuters.com/article/2014/06/10/us-internet-consumers-cisco-systems-
idUSKBN0EL15E20140610
\14\ Netflix, Inc. Form 10-K (2013) and WGAW estimates of Hulu Plus
subscription revenue.
---------------------------------------------------------------------------
In response to this growth in demand, online platforms are making
significant investments in original programming. Netflix spent $100
million on the first two seasons of House of Cards.\15\ It is estimated
that Netflix will spend $400 million on original series in 2014. Amazon
reportedly will spend as much as $500 million.\16\ Hulu has committed
to increasing the number of original shows on its service with six new
series scheduled to debut in 2014. More online platforms are entering
the original video market with Yahoo, Xbox and Playstation set to
become the next providers to offer TV-length series from professional
writers.\17\
---------------------------------------------------------------------------
\15\ Brad Reed, ``Netflix has already recouped its $100 million
House of Cards investment,'' BGR.com, April 23, 2013, http://bgr.com/
2013/04/23/netflix-subscriber-growth-analysis-459720/.
\16\ Bookman, Samantha. ``A closer look at the billions of dollars
Netflix, Amazon and Hulu are spending on original content.''
FierceOnlineVideo, June 4, 2014. Available at http://
www.fierceonlinevideo.com/special-reports/closer-look-billions-dollars-
netflix-amazon-and-hulu-are-spending-original.
\17\ Nellie Andreeva, ``XBox Develops Pro Skater Comedy Series,''
Deadline Hollywood, December 6, 2013, http://www.deadline.com/2013/12/
xbox-develops-pro-skaters-comedy-series/, and Marc Graser, ``Microsoft
to Launch First Original Shows on Xbox in Early 2014,'' Variety,
December 13, 2013 http://variety.com/2013/digital/news/microsoft-to-
launch-first-original-shows-on-xbox-in-early-2014-1200953110/#, and
Nellie Andreeva, ``Xbox Developing 1990s Music Series Based on Rapper
Nas' Life,'' Deadline Hollywood, February 11, 2014, http://
www.deadline.com/2014/02/xbox-developing-1990s-comedy-series-based-on-
rapper-nas-life/, and Bryan Bishop, ``Sony's first original TV series
for Playstation will be `Powers,' '' The Verge, March 19, 2014, http://
www.theverge.com/2014/3/19/5527878/sonys-first-original-tv-series-for-
the-playstation-will-be-powers, and Douglas MacMillan, ``Yahoo Bets on
Two New Web Comedy Series,'' Wall Street Journal, April 28, 2014,
http://blogs.wsj.com/digits/2014/04/28/yahoo-bets-on-two-new-web-
comedy-series/.
---------------------------------------------------------------------------
Much of the original content produced for these new outlets comes
from independent producers, including Media Rights Capital, Lionsgate,
Sony and Gaumont International Television. Online platforms have
created much needed new space for independent producers, which have
demonstrated a willingness to explore innovative formats and subjects.
As a result of new online video services, more than two hundred
professional writers have worked on original online video programs,
generating almost $10 million in income. Writers have also benefited
from services that offer consumers online availability of television
series and feature films. Millions of consumers visit Hulu each month
to catch up on recent television episodes. Subscription services such
as Netflix and Amazon Prime offer hundreds of complete television
series and movies for an affordable monthly price. Amazon and iTunes
also offer consumers the ability to rent or purchase individual titles.
Writers have earned almost $70 million in residual income from online
services licensing or selling the content they wrote.
But the promise of vibrant video competition is threatened by
incumbent control of distribution. Our nation's largest ISPs are also
MVPDs, offering cable television service. These companies, which
include Comcast, Time Warner Cable and AT&T, have both the means and
incentive to stifle emerging online video alternatives. Online video
services such as Netflix and Amazon do not own distribution facilities
and, as such, must rely on ISPs to reach consumers. What's more,
competition is extremely limited in the Internet service market: two-
thirds of U.S. households have access to only one or two ISPs with
service fast enough to stream video.\18\ ISPs, as a result, have
tremendous power as content gatekeepers. With this power ISPs intend to
erect tollbooths and arbitrarily decide what to charge for access.
Comcast, for example, has already demonstrated how it will use such
power--by instituting data caps that exempt its own content and
allowing interconnection ports to become congested in order to demand
compensation from online video competitors, as the company recently did
with Netflix.\19\ AT&T has come out in favor of paid prioritization. If
Comcast is allowed to acquire Time Warner Cable and AT&T is allowed to
acquire DIRECTV, two companies will control more than half of the MVPD
market and half of the wired Internet access market.\20\ They will
undoubtedly use their control to foreclose online competition, harming
content creators and viewers alike.
---------------------------------------------------------------------------
\18\ FCC, Industry Analysis and Technology Division, Wireline
Competition Bureau, Internet Access Services: Status as of December 31,
2012, December 2013, p 9.
\19\ Christopher Libertelli, Vice President, Global Public Policy,
Netflix, Inc., ``Letter to Senator Al Franken,'' April 23, 2014.
\20\ Leichtman Research Group, ``2.6 Million Added Broadband from
Top Cable and Telephone Companies in 2013,'' March 17, 2014, http://
www.leichtmanresearch.com/press/031714
release.html. Subscriber information from company filings and SNL
Kagan.
---------------------------------------------------------------------------
The Future of Video
Without the necessary interventions to ensure that the free market
works as intended, the future of video is all too predictable. In this
industry, every time a new platform has emerged that promises to
enhance competition and choice, the response of incumbents has been to
engulf and devour. Comcast, which was allowed to buy NBC Universal, now
wants to add Time Warner Cable to its media stable. AT&T has its sights
set on DIRECTV, and at the same time, they jointly advocate for the
weakest possible Net Neutrality rules.
But what is good for these companies is not necessarily good for
society. We need a video marketplace that more closely embodies the
American values of free speech, fair competition and the rewarding of
creativity and innovation. To protect nascent online video competition
and enhance consumer choice, we must enact strong Net Neutrality rules.
The Internet is an information highway, and just as Congress does not
allow a handful of companies to erect tollbooths on our Nation's actual
highways, it cannot allow a few ISPs to set arbitrary rates and decide
which businesses, video providers or political organizations can have
prioritized delivery and which are relegated to a slow lane. Such power
would allow ISPs to strangle innovation in the cradle. Can we really
expect the next Netflix, Amazon or Crackle to emerge under these
circumstances? Net Neutrality rules, therefore, must ban paid
prioritization and other discriminatory practices that favor content
affiliated with an ISP, as Chairman Rockefeller's Consumer Choice in
Online Video Act would do. We should also, as Chairman Rockefeller's
bill proposes, expand the definition of an MVPD to include providers
that do not own distribution facilities, enabling new online video
offerings.
The FCC and the Justice Department should block both the Comcast-
Time Warner Cable and the AT&T-DIRECTV mergers. There is a fundamental
political and economic question raised by mergers, concentration and
the resulting monopoly power. Are they good for society or not? The
answer in economic theory is a resounding no. Every economic textbook
makes clear that the result is a misallocation of resources and an
unfair distribution of income. So why do we, as a society, allow
corporations to make arguments about merger effects that contradict
economic theory?
What will the result be of further mergers and market
concentration? Writers will be paid less to create and innovate, even
though our national political rhetoric exalts the importance of
creators and innovators. And, consumers will pay more, just as economic
theory and history have made clear that they will.
This is the quintessential political and economic question for
America in the 21st Century: Will we continue to allow unchecked
concentrations of power that result in a widening gulf of income and
wealth? Or, will we seize the opportunity to say no? I hope we will
serve the interests of the many rather than the few, as classic
economic theory suggests we should, by stopping these mergers and by
keeping the Internet free and open.
The Chairman. Thank you, sir, very much. And finally, Gene
Kimmelman, President and CEO of Public Knowledge.
STATEMENT OF GENE KIMMELMAN, PRESIDENT AND CEO, PUBLIC
KNOWLEDGE
Mr. Kimmelman. Thank you, Mr. Chairman, Senator Thune,
members of the Committee. On behalf of Public Knowledge, a non-
profit that promotes freedom of expression and an open non-
discriminatory Internet, I appreciate the opportunity to
testify today.
I want to start off by thanking all of you for unanimously
voting to protect consumers last night by passing the cell
phone unlocking bill, which will enable consumers to unlock
their cell phones and take them to whichever service provider
they want. I am hoping the House will take up your legislation
and we will have this protection for consumers in the near
future. Wonderful to see the Senate move forward unanimously.
Mr. Chairman, on a personal note, as you indicated your
long service on the Committee, I am kind of hoping this is the
last time you will haul me up here before you leave. I do not
know for sure but I want to take a moment just to reflect back.
Because even before you started, over here in the Russell
Building, at a table like this, I sat before Senator Packwood
as he tried to work with the Democrats to figure out how to
deal with the break-up of AT&T, the old AT&T, in a bipartisan
fashion.
Recalling your tenure when you started and going forward, I
remember working closely with Senator Danforth and then Senator
Hollings as they grappled with what to do with the skyrocketing
cable rates of an unregulated industry, and worked amazingly in
a bipartisan fashion to actually re-regulate the industry and
create the opening for Mr. Blum's company to actually exist,
for the satellite industry to develop and to begin to compete.
Then Senator Pressler grappled with the 1996 Act, and
during all this time, Senator Markey was doing the same things
in the House. Senator McCain, Senator Inouye were all
wonderful, fabulous leaders. But I have to say, Senator
Rockefeller, nobody was a bigger consumer champion than you
have been during your time in this committee and leading this
committee. You will be sorely missed when you retire, so we
thank you for everything you have done.
You picked the title of the ``tipping point,'' and I note
that everyone has dutifully agreed in some fashion with what
that is all about, and I am particularly happy that Mr. Cohen
agrees because I think it is the tipping point to Comcast.
That is where we are today, with a proposed merger that
would put almost half of all consumer high speed broadband
connections in the hands of one company. I think it is worthy
of this committee's time to know what that means for all the
wonderful things we have out there, all the wonderful companies
that have been mentioned this afternoon, from Amazon, to
Google, to Microsoft, to Netflix. They all have to connect
through that broadband wire or some broadband connection.
I give AT&T credit for trying to play catch up here. Are we
tipping toward AT&T as well? Well, they are trying to combine a
technology satellite they could never offer effectively, the
broadband connection, with their own. They are going to need
new equipment; more power to them.
We go from four competitors to three in some markets, and
the question is whether they can make up for it and whether
they can actually take that on at a cost disadvantage to
Comcast and other cable companies. Maybe. We will see, but they
have not made that case yet.
Are we tipping toward the next wireless merger that is
right around the corner? Are we tipping toward a major content
merger that there were rumors of already this morning?
One thing we know is we are tipping toward a lot of power
in the hands of one major cable company, and why would that
matter? For a fundamental reason. As AT&T tries to play catch
up, the problem is the best competitor today to the cable wire
is the cable wire. It is called ``broadband.'' It is the other
part of the same wire.
With almost half of the customers in the country, why would
that matter? Because every Amazon, every Google, every Netflix,
everyone who wants to make that online service work will need
interconnection with Comcast/Time Warner. Can that be
manipulated? That would be an issue.
Connection to their customers, the last mile, part of the
net neutrality debate that has unfolded. Could that be
manipulated to favor the company that owns the wire? Massive
control in the hands of a company, the great NBC.
These are all wonderful NBC products. It is not a problem
for consumers to want NBC, want all the sports, all the
regional sports. The issue is whether it costs $50, $100, $150.
The issue is whether that choke point control inflates the
price, blocks the innovation, prevents new players from
reaching the customer first at all, or at a price competitive
level, or with the incentive to continue to innovate.
With that many customers, every programmer needs to be on
those Comcast systems. Under whose terms and conditions?
Comcast terms and conditions. Would Comcast want that broadband
service to compete against its own service? Any logical
business would not want that, would not want to be undermining
its own core business.
These are the dangers. These are the concerns. There may be
more to come because Comcast started the ball rolling, and it
appears from today's news story we do not even know where this
will end.
So, Mr. Chairman, I want to commend you, not just for your
long service, but for also the shot across the bow--your
legislation to identify for everyone on this committee and in
the body the importance of online video competition and the
dangers of discrimination.
I want to conclude by reminding everyone that during your
tenure when others were chairing, the most pro-business Senator
that I dealt with in my tenure, Senator Danforth, led the
charge to re-regulate, not because he wanted to, but because he
felt there was no other choice given what cable was doing in
1992.
Today is a time in which I hope that strong law enforcement
which you can help promote and support, will prevent us from
having to go back to that kind of a solution again. But I
appreciate your effort to identify what the issues are and
where the Congress may need to go if that strong law
enforcement does not actually take hold.
Thank you so much.
[The prepared statement of Mr. Kimmelman follows:]
Prepared Statement of Gene Kimmelman, President and CEO,
Public Knowledge \1\
---------------------------------------------------------------------------
\1\ Public Knowledge is a public interest nonprofit dedicated to
the openness of the Internet and open access for consumers to lawful
content and innovative technology. Public Knowledge has a long history
of opposing mergers and other transactions that reduce choice and
competition in the telecommunications sphere, including those between
Comcast and NBCU-Universal, AT&T and T-Mobile, and Verizon and
SpectrumCo.
---------------------------------------------------------------------------
After years of suffering from enormous rate increases and poor
service from incumbent cable providers,\2\ a vibrant broadband economy
is just beginning to show that there can be alternatives to
subscription television.\3\ Everything from new devices--like Roku,
Xbox, Amazon's Fire, and AppleTV--to new video services--like Amazon
Prime, YouTube, Netflix, and Aereo--are demonstrating that online video
can compete with some elements of traditional cable TV.
---------------------------------------------------------------------------
\2\ See Free Press, Comcast Gets Bigger, You Get Poorer, http://
www.freepress.net/sites/default/files/resources/Free_%20Press_Comcast-
TWC%20Infographic_Video_Price_Hikes_0
.pdf; see also Bureau of Labor Statistics, Consumer Price Index.
\3\ While some consumers have the option to choose between cable
and satellite providers, very few have viable options if they wish to
bundle both television and broadband services. At one time, wireline
telecommunications companies appeared to be a potential competitor in
the combined subscription TV and broadband space, but both Verizon's
FiOS and AT&T's U-Verse are currently offered in a relatively small
geographic area. Even if AT&T and DirecTV merged, the combined entity
would gain only a marginally improved ability to compete with Comcast
due to substantial labor and equipment costs related to installing new
customer equipment of combined services. Satellite continues to lack a
meaningful broadband option to make it a competitor to cable broadband.
Google has only committed to a limited number of small experiments.
Finally, mobile broadband is a complement, not a substitute.
---------------------------------------------------------------------------
These new competitors may begin to help consumers avoid overpriced
large ``tiers'' or bundles of channels, many of which force customers
to purchase access to channels they do not want simply to access the
channels they do want.
But while online video and connected devices are a success story,
their competitive effect is still somewhat limited. At the moment, they
are not driving down cable prices because anti-competitive practices
and outdated policies have relegated them to being a supplement to
cable and satellite, not a replacement. Incumbent providers control
both the content and the infrastructure that new competitors need to
provide service to viewers. Incumbents either control video content
outright or are able to use most-favored nation (MFN) contracts to
limit the independent content that can appear on online services.
Online video is often tied to a cable subscription--for instance, it's
impossible to pay HBO directly for an HBO Go subscription; viewers must
first pay for an entire pay TV package before adding HBO. Incumbents
can use data caps and, possibly, interconnection deals to disadvantage
online video as a whole. Incumbents even control the devices people can
use with their TVs--for example, by only supporting their proprietary
set-top boxes, or by failing to ``authenticate'' certain applications
on third-party devices.\4\
---------------------------------------------------------------------------
\4\ Certain online video (e.g., ``TV Everywhere'') is only
available to customers of traditional pay TV providers. This alone
makes it a supplement to, rather than competitor to, pay TV.
Compounding this, it is only available through apps that the customer's
pay TV provider has specifically white-listed, or ``authenticated.''
This means, for example, a customer of one pay TV provider might be
able to watch online video on an Apple TV and a web browser but not a
Roku or a game console. It might be the opposite for customers of
another pay TV provider. This is not a technological limitation; it is
solely in a pay TV provider's discretion to allow or not allow its
customers to use particular devices for particular content. This has
competitive implications.
---------------------------------------------------------------------------
New video services and their investors are also carefully watching
the national policy debate over maintaining strong rules to protect an
open Internet, which they need to thrive. A new wave of broadband and
media company mergers threatens to further limit the few choices
consumers have to access the Internet, while giving just a handful of
companies gatekeeper power over content, infrastructure, and devices.
In a world of limited access choices, strong open Internet rules become
dramatically more important to protect the ongoing virtuous cycle of
investment and growth of Internet Protocol based networks.
The current structure and dynamics of the video marketplace didn't
happen on their own. They are the result of decades of legislative and
regulatory policy choices. In order for the marketplace to realize the
potential for competition from online video both the Congress and
regulatory agencies must act. Public Knowledge has supported (in whole
or part) various proposals for video reform including aspects of former
Senator DeMint's Next Generation Television Marketplace Act in 2011 and
Senator Rockefeller's Consumer Choice in Online Video Act at the end of
last year. We are also encouraged by the bipartisan approach that
Senators Rockefeller and Thune have taken to approaching video reform
issues by jointly asking for public comment from stakeholders. It is
through the hard work of policy making that we can provide online video
creators, investors, and consumers with the certainty needed to build
greater competition.
The Dangerous Wave of Consolidation
The current proposed Comcast-Time Warner Cable merger and the AT&T-
DirecTV merger have placed the issue of the future of the video
marketplace squarely in front of the Federal Communications Commission
(FCC) and the Department of Justice (DOJ). American consumers are
watching as these merger proposals foreshadow even greater mergers and
consolidation to come, in order for the few existing broadband and
video distributors to match the market power these mergers represent.
Public Knowledge believes the proposed acquisition of Time Warner
Cable, the Nation's second largest cable company, by Comcast, the
Nation's largest cable company and owner of all NBCU content, will
threaten the viability of nascent competitors and endanger the
emergence of innovative new video and other types of services delivered
over the Internet. The proposed transaction is inconsistent with
antitrust policy, the goals of the Communications Act, and the broader
public interest. Therefore, it should not be approved.\5\
---------------------------------------------------------------------------
\5\ Public Knowledge testified in fuller detail on the specific
statistics and market concerns around the Comcast-Time Warner Cable
merger in a hearing specifically on that merger before the Senate
Judiciary Committee, April 9, 2014.
---------------------------------------------------------------------------
As a result of the merger, Comcast will control nearly 50 percent
of high speed Internet access in this country, over 30 percent of
Multi-Channel Video Programming Distributor (MVPD) subscribers and
almost 60 percent of cable subscribers.\6\ Comcast will also have a
significant presence in 16 out of 20 of the largest DMAs in the
country.\7\ This unprecedented accumulation of market power, combined
with Comcast's vertical integration into content, creates the incentive
and enormous leverage for Comcast to:
---------------------------------------------------------------------------
\6\ Mark Cooper, Buyer and Bottleneck Market Power Make the
Comcast-Time Warner Merger ``Unapprovable'', Consumer Federation of
America, at 6 (Apr. 2014), available at http://www.consumerfed.org/
pdfs/CFA-Comcast-TW-Merger-Analysis.pdf.
\7\ Filing by Comcast Corporation, SEC File No. 001-32871, at 5
(Feb. 13, 2014), available at http://www.sec.gov/Archives/edgar/data/
1166691/000095010314001082/dp44005_425-it.htm (``Comcast SEC Filing'').
(1) stifle slowly emerging competition from rivals such as Netflix
and Amazon that require high speed Internet access to deliver
quality service to their customers, thwarting not only
competition from existing rivals but discouraging investment in
---------------------------------------------------------------------------
new innovative services delivered over the Internet;
(2) slow the pace and dictate the direction of equipment, device,
and service innovation to lock in maximum revenue for Comcast's
own infrastructure and business model;
(3) pay content suppliers less than the market value of their
products and services, driving up the cost of programming to
other distributors and increasing prices to consumers;
(4) artificially raise the prices of Comcast-owned programming to
Comcast rivals hampering their ability to compete and raising
prices to consumers; and
(5) position itself as the dominant gatekeeper for all new services
(both video and non-video) that rely on fast, reliable
broadband connections to reach customers.
The Department of Justice (DOJ) recognized the competitive dangers
inherent in Comcast's vertical integration into content with its merger
with NBC-Universal:
Comcast has an incentive to encumber, through its control of
the [Joint Venture], the development of nascent distribution
technologies and the business models that underlie them by
denying OVDs access to NBCU content or substantially increasing
the cost of obtaining such content. As a result, Comcast will
face less competitive pressure to innovate, and the future
evolution of OVDs will likely be muted. Comcast's incentives
and ability to raise the cost of or deny NBCU programming to
its distribution rivals, especially OVDs, will lessen
competition in video programming distribution.\8\
---------------------------------------------------------------------------
\8\ United States v. Comcast, Case No. 11-cv-00106, Compl. at 54
(D.D.C. Jan 18, 2011), available at http://www.justice.gov/atr/cases/
f266100/266164.htm.
That transaction proceeded after Comcast committed not to unfairly
discriminate against either traditional video distributors or emerging
online competitors. The proposed merger of Comcast and Time Warner
Cable, however, presents competitive dangers that far exceed
traditional regulatory policing practices. As new threats arise to
Comcast's business interests, it has at its disposal myriad ways of
slowing down its competitors, degrading their services, and increasing
their costs in ways that cannot be effectively monitored and prevented.
By expanding its customer base to control almost one-third of all
subscription TV households in the country and almost one-half of all
the high speed broadband customers in the U.S., Comcast would position
itself to dictate how much consumers must pay, determine what packages
of services customers must buy, and influence what devices people can
use to receive the type of video content they want. Through vertical
control of NBCU's ``must have programming'' and its enormous customer
base, a combined Comcast-Time Warner Cable could become the dominant
Internet gatekeeper and choke point for innovative video services and
products, inflating prices and preventing millions of consumers from
receiving these services and products at competitive market prices.\9\
---------------------------------------------------------------------------
\9\ See Cooper, supra note 4, at 6 (HHI analysis showing Comcast-
Time Warner Cable firm share of True Broadband at 49 percent, Wireline
Cable of 54 percent, and MVPD of 35 percent).
---------------------------------------------------------------------------
While the Comcast-Time Warner Cable merger is the more dangerous of
the two mergers, AT&T-DirecTV raises concerns as well. AT&T and DirecTV
claim their proposed merger may in a limited fashion enhance the
combined company's ability to compete with Comcast and Time Warner (or
Comcast/Time Warner) in the market for video, broadband, and voice
bundles. Yet thus far, AT&T and DirecTV have failed to make a
compelling case that their proposal will not harm competition or that
it will result in significant public interest benefits.\10\ Public
Knowledge therefore, based on the current record, recommends that the
DOJ and FCC reject this proposed transaction.
---------------------------------------------------------------------------
\10\ Testimony of John Bergmayer, Public Knowledge, U.S. House of
Representatives Committee on the Judiciary, June 24, 2014.
---------------------------------------------------------------------------
Congress Has The Power To Promote Competition
Congress and the American public faced a marketplace challenge over
two decades ago when satellite television became a viable competitor.
The technology was there, but the existing regulations did not allow
for new entrants to compete with local cable monopolies. The 1992 Cable
Act opened up the market for satellite to compete by ensuring access to
``must see'' programming at a reasonable rate. The benefits are evident
today with Dish and DirecTV attracting about 34 million subscribers.
This moment in time is similar to what we faced in 1992, but with
greater potential for true competition. Congress and the FCC can help
online video develop into a full competitor in three ways. First,
Congress can clear away some of the outdated rules that slow down the
evolution of the video marketplace. Examples of outdated rules include
the dysfunctional retransmission consent system, as well as
protectionist policies like the prohibition on distant signal
importation.
Congress should be cautious not to eliminate parts of statute that
promote competition and choice. For example, section 629 of the
Communications Act allows for the FCC to enforce rules that create
innovation in set-top boxes and competition against high priced cable
boxes. Congress and the FCC should continue to enforce the current
CableCARD implementation of that statute while moving to a more modern
implementation that fixes some of CableCARD's shortcomings.
Second, Congress can extend the successful policies that protect
providers from anticompetitive conduct to certain online providers. For
example, if a large cable system would be prohibited by law from acting
anti-competitively towards a satellite provider, there is no reason why
it should be able to take the same actions against an online video
provider. We are pleased to see a section of Senator Rockefeller's
Consumer Choice in Online Video Act devoted to updating the program
access rules in order to include protections for online video as a
competitor to traditional Multichannel Video Programming Distributors
(MVPD). This includes the requirement that television broadcasters
negotiate with online video distributors.
Measures such as program access and program carriage rules are
designed to mitigate this form of market power by certain large video
providers. These rules should be extended to online video and should
not be repealed until effective competition develops. In light of the
Supreme Court's Aereo decision, which found that an online video system
such as Aereo bears an ``overwhelming likeness'' to traditional cable
systems, it has become increasingly untenable to afford online systems
that offer linear channels an entirely different regulatory treatment
from traditional pay TV providers. However, Senator Rockefeller's bill
provides an alternative and simpler approach to new technologies such
like Aereo. This approach recognizes the obvious differences between
cable systems and antenna rental services, legally clearing the way for
the new distribution model to flourish.
Third, Congress and the FCC can protect Internet openness and
prevent discriminatory billing practices that hold back online video.
In addition to supporting the FCC in preserving Open Internet rules,
Congress should encourage the FCC to examine whether discriminatory
data caps hold back online video competition. This will increase
competition, meaning lower prices, better services, and more
flexibility and control for consumers.
Conclusion
The technology exists that could eliminate the physical, bottleneck
control of video distribution that has existed in various forms for
decades. If policymakers have the courage to reject anti-competitive
merges, and take some simple steps to facilitate the development of
competitive online video now, Congress may eventually be able to
disengage from regulations that were designed to counter the effects of
this bottleneck control. However, if we fail to do this, it is likely
that incumbents will be able to continue to shape the development of
the video market and extend their current dominance indefinitely. While
the Internet provides grounds for hope that the future of video will be
better for consumers, policymakers have to make the policy choices to
create this reality.
The Chairman. Thank you, sir, very much. That was a heck of
a year, was it not, 1992? That was a brawl.
I thank you for your comments and your wisdom, and I am
going to proceed to the first question. We have very, very good
people here. We will try to make it 5 minutes or 6 minutes.
Let me start with you, sir. This is about the value of
online video. I know DISH is in the process of developing an
online cable service that would compete directly with
traditional pay TV offerings.
Your company has acquired some programming from ABC-Disney,
and I understand you are negotiating similar carriage
arrangements with other cable networks.
Now, that is easily said. However, it is an extraordinary
difficult process, where leverage becomes everything.
So, my question to you is why has DISH chosen to develop an
online video platform? What are the biggest challenges to the
development of that platform, and are there elements of my
online video legislation that if enacted would help alleviate
these challenges for a DISH network? In other words, an
entirely self serving question.
[Laughter.]
Mr. Blum. Chairman Rockefeller, DISH recognizes that the
younger generation does not want to have to spend $120 for 500
channels, as you note. They want a smaller package. They want a
less expensive package.
DISH and our founder, Charlie Ergen, spent 6 months
negotiating with Disney for this ground-breaking deal.
We are the first to get the rights to stream ESPN live, and
you are correct, we have to get other rights from other
programmers in order to be able to offer that package, and we
hope to launch the service later this year, and in many ways,
it will compete against traditional MVPD providers because it
is going to be an Internet only, leaner, cheaper package. We
think that is a good thing for consumers.
The threat and the challenge is when we launch that product
it will compete with Comcast's XFINITY product and their online
offerings. Comcast does not necessarily want us to succeed
because we are competitors.
The problem is they control post-merger almost 50 percent
of the broadband pipe. Our great over-the-top service when we
launch it will pass over their pipe, and we are very concerned
that a combined Comcast/Time Warner will have an incentive and
ability to stifle our service, to slow it down, to block it, to
make it jittery, so our customers do not like it. That is bad
for consumers and that is bad for competition.
In terms of your bill, Senator Rockefeller, there is a lot
in it that we like. The recognition of the growing importance
of over-the-top, that is something that two years ago people
were not talking about. You have been a leader on that issue,
and your engagement on these issues and hopefully work with
Senator Thune is enormously important.
Congress has an opportunity to encourage innovation, to
promote competition, and to protect consumers, and we hope they
do so.
The Chairman. I thank you, sir. This next question is for
you also, and for Mr. Kimmelman, and it is about access to
content.
When it comes to traditional television, the FCC has long
had rules to prevent certain anticompetitive activity between
cable and satellite companies, and why is it the 1992 Cable Act
comes to mind.
[Laughter.]
The Chairman. With respect to online video, in its approval
of the Comcast/NBC Universal merger several years ago, the FCC
required Comcast to offer its video programming to certain
online video distributors on the same terms and the same
conditions that would be available to traditional pay TV
providers.
So, my question to you, and first to Mr. Kimmelman, is is
there evidence that companies are in fact locking up content,
or demanding exclusive deals as a condition of carriage on
line, i.e., leverage? Have the Comcast/NBC Universal merger
conditions been effective, and how do you react to reports even
today suggesting a merger st between two large cable
programmers, to wit, 21 Century Fox and Time Warner, would have
enormous consequences?
So, I would ask each of you.
Mr. Blum. So, Senator Rockefeller, I am not aware of
Comcast granting over-the-top rights to anyone yet. I can say
we are in current negotiations with NBC and we hope that we can
get those rights.
As you noted in your opening remarks, often times promises
of a merger do not come to fruition, and often times conditions
that were put in place to remedy the harms of the proposed
merger do not work.
I can point to one condition as part of the Comcast/CNBC
deal where Bloomberg, a competitor to Comcast/CNBC got a
condition where Comcast agreed to put the Bloomberg channel
next to CNBC. It took 2 years of litigation for that to happen,
and when we are talking about over-the-top rights and the choke
point that Comcast will have over the pipe, the Bloomberg
dispute is so simple, broadband and all the ways they could
engage in anticompetitive behavior are complex. It is a cold
comfort, you have the best conditions in the world. I do not
think that is going to be able to ameliorate the harm of their
anticompetitive behavior post-merger.
Mr. Kimmelman. Mr. Chairman, the announcement this morning
that there could be discussions of another transaction, I
think, really indicates the nature of the problem in this
marketplace, and it is not a problem that antitrust enforcers
can address directly. They have to accept the business model as
is, you know, short of finding anticompetitive behavior within
it.
We are in an arms' race. It is transmission companies bulk
up, and then no surprise, content companies would want to bulk
up.
The problem is the consumer is squeezed. The consumer is
between a rock and a hard place because that is just price
increases. If the company is allowed to own the content and
then charge others the same price, they can charge themselves a
high price, they can charge their customers a high price, but
if they charge DISH or DIRECTV the high price, too, everybody
is paying the high price. It is passed on to the consumer.
So, there is no competition there for lowering the price to
consumers unless you can use something like broadband with an
opportunity to unbundle and pick what you want, just what you
want, to at least be able to have more choices.
So, I think the problem is now a new problem. At the time
of the 1992 Act, satellite could not get the programming at
all, and Congress stepped in and said you have to make it
available, and we saw investment flow and an enormous
explosion, and it was the explosion of that satellite product
that led to digital, which led to cable moving to digital, and
all the benefits of competition.
But now we are kind of stuck again because the cost of the
content keeps going up, and if you just pass it along to
everybody, you are not solving the problem for the consumer.
So, it is a question of whether you can do something to
break that cycle. I think your legislation identifies the need
to prevent discrimination. The question is whether enforcement
of the law, avoiding anticompetitive transactions that
consolidate beyond a reasonable level, can further that goal.
But we are in a bad place and it is important for the
Congress to consider this, that it is not just what you charge
someone else now, if you are charging yourself, if that is just
a higher price, everybody is paying a higher price. It does not
solve the problem.
That is why I said it is not that Comcast will not offer
wonderful things. XFINITY has wonderful services. I commend Mr.
Cohen and his company. The prices are high. Anyone trying to
buy his product is going to pay high prices, too.
That is why the issue is whether you can actually use
broadband to break that choke hold and give people at least
more choices to pick what they want.
The Chairman. I thank you, sir. My time is up, and I
recognize my distinguished Ranking Member, Senator Thune.
Senator Thune. Thank you, Mr. Chairman. Mr. Stankey, my
understanding is that South Dakota will benefit from AT&T's
commitment to deploy fixed wireless local loop service to 13
million customer locations across the country.
Can you please tell me a little bit more about the specific
plans for this new service, and perhaps, for instance, how soon
those services could be deployed after the merger closes, and
what kinds of speeds customers might expect?
Mr. Stankey. Certainly. South Dakota, specifically,
probably in the neighborhood of 135,000 new customers would get
access to fixed wireless local loop.
The technology will deliver a service of 15 to 20 megabits
per second, and in these rural and underserved areas, that is a
meaningful step forward, and as I mentioned earlier, 20 percent
of these customers only have satellite based broadband service
today, and 27 percent only have a single broadband provider, so
this will be a nice step forward for them.
This is a different technology than our mobile technology.
It is specific spectrum that we dedicate to a fixed solution.
It requires us to do unique things on the cell tower to put in
special antennas that transmit in the manner that achieves
those higher speeds, and it requires us to do unique work at
the customer's premise or location to put a fixed antenna in to
achieve those speeds and those capabilities.
It is a professional installation, and one of the benefits
of doing this in the combination of this merger is that as you
know, rural customers often times have an affinity for
satellite television, and when we are out installing a
satellite dish, we can now do the work to enable the broadband
connection at the same time, on one dispatch, consolidated on
one bill.
We think that is a good customer experience, and obviously
it is attractive because it puts more broadband in the market
and opens up opportunities for over-the-top distribution into
these customers that really do not have that kind of a robust
solution today.
Senator Thune. How soon might that come along?
Mr. Stankey. We will start activity on actually
constructing it the year the transaction closes. We are
expecting that will be some time next year. It will take us a
full 2 years to complete the build-out after that point. So, it
will take some time to get it done, and we will introduce it in
a rolling fashion. It will not be all one state at one time,
but it will roll through the state.
Senator Thune. Professor Hurwitz, the closing thought from
your testimony is, and I quote, ``We should be thinking about
how to allow traditional television to operate more like online
video,'' unquote.
So, when Chairman Rockefeller retires and he is sitting
back and watching a few of his cable favorites, like Fox News.
[Laughter.]
Senator Thune. And MTV.
[Laughter.]
Senator Thune. I assume the goal is to get more options,
more opportunities available. Could you explain that statement
and offer thoughts about what role this committee and Congress
might play in that pursuit?
Mr. Hurwitz. Absolutely. This ties into the beginning of my
testimony where I note the continuing dominance of the linear
channel model, and this is an area--I note Mr. Kimmelman just
complimented Comcast's XFINITY and X1 platform. I am going to
do the same.
This is an area where Comcast has made some really
interesting innovations, I think, to try and move the
consumer's viewing experience on the MVPD platform away from
channel 11, channel 12, channel 13, what are the neighborhoods,
does it matter if CNBC and Bloomberg are right next to each
other? No. It matters that you can go to your remote control,
you can go to your computer, your device, and you can see the
content of whatever you want to see.
There is a lot of implicit market power, a lot of implicit
regulatory ossification and structure built into the
traditional linear channel model. That is something that we are
seeing consumers able to escape from in the online world.
It is something that creates a lot of opportunity for
programmers, for writers and creators, and is something that I
think this committee and Congress should do everything it can
to enable and promote.
Senator Thune. Mr. Kimmelman, do you believe Americans have
meaningful choice today for video services, and if the answer
to that question is no, what is your definition of what
``meaningful choice'' is?
Mr. Kimmelman. I think they have more choices than they
have had before at higher price points. I think we have not
been able to succeed at getting the kind of full package
choices or the opposite, the kind of unbundled choices.
You cannot just buy Netflix without buying the broadband
connection first, and you cannot get a lot of individual
channels you may want, even if you just want five plus Netflix,
without paying a large price.
So, the issue is not choice in the sense of is it available
in any form at all, for most people it is, although I commend
the effort to do more in rural America because that is clearly
where the choices are more limited for broadband, not as much
for video.
What we do not have is the broader individualized selection
driven by the consumer. It is driven by a packager right now,
and that is our big problem.
Senator Thune. OK. Mr. Chairman, we have lots of people who
want to ask questions, so I will yield back my time. Thank you.
The Chairman. Thank you, Senator Thune. Senator Booker?
STATEMENT OF HON. CORY BOOKER,
U.S. SENATOR FROM NEW JERSEY
Senator Booker. Thank you very much, Mr. Chairman and
Ranking Member. I just want to jump right in in the limited
time that I have.
Comcast has stated and advertised that there should not be
any broadband concerns when it comes to the merger because
Comcast is willing to agree and abide by the FCC's former net
neutrality rules.
Mr. Kimmelman, can I just ask you real quick, what is your
response to this? I have some concerns about issues related to
Internet peering and interconnection. In many ways, this is a
way to create fast lanes de facto, what I consider de facto
ways that people can pay for better service or better
connectivity.
I would love to hear sort of your thoughts on that, and I
would like Mr. Blum and DISH also to weigh in on that as you
look at over-the-top cable service.
We will start with Mr. Kimmelman.
Mr. Kimmelman. Thank you, Senator Booker. I commend
Comcast's commitment, as well as AT&Ts. I think it is a step in
the right direction. The problem is I am not sure it is
anywhere near enough because Mr. Cohen has already indicated
even with those commitments, there could be certain prioritized
services, there could be certain preferential treatments that
he thinks are legal under the law--I am not sure exactly what
he is referring to.
But if we do what my organization thinks is necessary, to
go back to a traditional non-discrimination rule under Title II
of the Communications Act structure, we should not have to deal
with those kinds of fast lanes and that kind of preferential
treatment.
It can happen on the interconnection side. If you are a
video provider and a broadband provider, it is not particularly
helpful to your business to have Netflix pulling a lot of
eyeballs, or Amazon or Google's YouTube, or anyone else.
So, there is a natural incentive, and unfortunately an
opportunity to take advantage of that positioning of
controlling both broadband and the video platform, and that is
the concern here, and it is what should be looked at in terms
of FCC and DOJ enforcement, and in terms of the broader rules
of the road for the industry.
Senator Booker. Thank you. Mr. Blum?
Mr. Blum. Comcast's net neutrality commitment is not nearly
enough to protect consumers. They have at least three choke
points, the public Internet, interconnection, as Mr. Kimmelman
mentioned, and managed services.
Those last two choke points are complex, not easy to
understand, but they are just as threatening to competition as
the open Internet portion of it.
On interconnection, Senator Booker, Comcast has said there
is so much competition amongst these content delivery networks,
you know, competition is good and nothing bad will happen from
that, but the reality is all those content delivery networks,
they are delivering Netflix content, DISH content, to the point
of interconnection----
Senator Booker. So, Mr. Blum, let me cut you off because I
want to try to get another question in, but I would be remiss,
David, if you want to just say something really quick.
Mr. Cohen. I will try to do it really quick. Let me just
say I think all this reasoning that you have heard on this just
really misses the point about the way in which the Internet
works.
So, let me talk about interconnection really briefly first.
Totally different market than broadband market share. There are
dozens of content delivery networks and transit providers who
interconnect Internet edge provider content to Comcast and many
other companies.
So, if you want to interconnect to our backbone, you have
dozens of choices in a highly competitive market, where pricing
has dropped 99 percent in the last 15 years, and there simply
is no example anywhere of anyone not being able to----
Senator Booker. I get that, just for my own sake, I have a
minute left, just quickly, that is the Internet peering then?
Mr. Cohen. That is peering and interconnection. On the DISH
point--and there are so many misrepresentations in the DISH
testimony, which I would love to have a chance to address if
someone wants to let me do that.
Senator Booker. Well, do not take----
Mr. Cohen. On the one point, I will not do it here, the
only point I will say is that under the 2010 Open Internet
Order, under any Open Internet Order that is going to be put in
place, it is absolutely crystal clear that we would be
prohibited from blocking or degrading a DISH over-the-top
service to our customers.
I do not think we have the incentive to do that anyway, but
even if you do not believe that, it is clearly legally
prohibited and would----
Senator Booker. I hear you. I wish I could get back to
Internet peering and just one differentiating question, but
just while I have the moment, I am very concerned about sort of
independent channels that offer sort of niche services being
squeezed out of the market as a whole.
These are channels that serve, you know, rural audiences,
Latino audiences, black African-American audiences, Asian-
Americans. They are a very important part.
So, just real quick, Mr. Cohen and Mr. Stankey, how can we
assure this situation will not get worse when consolidation
happens and that we are not squeezing out certain niche markets
that are a very important part of the American cultural fabric,
and what are you going to do to make sure that these viable
independents have a long-term role in the video marketplace?
Mr. Cohen. There is nothing more important for maintaining
the future vitality of cable and diversity of voice than
protecting these independent voices. Comcast is already the
largest multi-channel video distributor in the country, and we
are the most independent channel friendly.
We carry 160 different independent channels, six out of
every seven channels we carry is unaffiliated with Comcast. In
the last 3 years, we have expanded carriage for 120 independent
channels.
We have launched five brand new independent channels since
the NBC Universal transaction, four of which are minority owned
and controlled, and I do not think there has been a period of 3
years in the history of cable where four brand new minority
owned and controlled cable channels have been launched in this
country.
So, we are going to stand by that commitment. We think this
transaction is great for independent channels and independent
programmers because of the track record that we have in
protecting those voices and in carrying those channels.
Senator Booker. Mr. Stankey, briefly.
Mr. Stankey. Senator, I would echo the same. The reality is
that the marketplace responds to what competitors do, and you
heard Comcast describe their push in this area.
All operators need to put relevant content out that people
want to watch, and we have a great track record, and I know
DIRECTV has a great track record of putting that content in
place. I expect nothing to change post-transaction.
If the content is something people want to watch, it will
be out there, and further, the push on the broadband side
allows for a lot more new programming models to emerge, and
especially when it is content that starts to address unique and
niche models. Some of these independents will have new models
that will be more effective in this marketplace, and an OTT
model, and we expect that is going to emerge going forward as
well.
Senator Booker. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Booker. Senator Nelson, to
be followed by Senator Markey, to be followed by Senator
Heller. Senator Nelson?
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. In an abundance of fairness, I want to get
some counterpoint between Mr. Kimmelman and Mr. Cohen.
Mr. Kimmelman, you believe it is important to view this
potential merger in the context of a broadband merger instead
of just a TV/video merger. Tell us why, and then I want Mr.
Cohen to give his point of view.
Mr. Kimmelman. Well, to be clear, Senator Nelson, I believe
that there are two separate markets and then there is a
combined service market, and they are all relevant here.
There is the video market, traditional video and MVPD
service that Comcast is in the business of, and then there is
the broadband product, which increasingly is the best
alternative way to get something as a competitive alternative
to the cable product because it has developed with high speed
capacity and great ability to offer the video service.
So, these are both important markets to look at.
Mr. Cohen has indicated they have been willing to divest
some properties to get down to a level of about 30 percent of
the MVPD market, he can correct me if I am wrong, consistent
with what were the original proposals from the FCC of a
horizontal limit in that market.
The problem is, and maybe it is a good problem for them,
they have been extremely successful with their broadband
product, it is very, very popular, and in many markets there is
no good alternative to it, or the one that is there is much
slower and cannot offer as good a video product, and therefore,
they have more than 40 to 50 percent when you combine the two
properties together of that market.
That is a huge market share. It will be the way in which
many content companies will want to compete against Comcast's
product.
Senator Nelson. OK. Let me get Mr. Cohen's response.
Mr. Cohen. Mr. Kimmelman and I testify a lot together and
as usual, I actually agree with some of the things he says,
particularly on the video market, in that--I am not even going
to address that.
We will be below 30 percent. The D.C. Court of Appeals has
ruled twice that having a less than 30 percent share for an
MVPD does not present significant risk of disruption of the
programming market. I will just leave that where it is.
In the high speed data market, I am always reminded of one
of my favorite expressions. I have a number of them, but one of
them is that ``You are entitled to your own opinions but you
are not entitled to your own facts.''
So, let's get the facts on the table. Under current Federal
definitions of broadband, according to data released by the FCC
in the last month, as of June 2013, the combined Comcast/Time
Warner Cable will control 35 percent of the fixed wire line
broadband market, and if you factor in wireless, we will
control 15 percent of the combined market.
I am not going to advocate for 15 percent because I do not
think wireless is a perfect substitute for wireline yet, but as
you heard from Mr. Stankey, as AT&T rolls out new advanced
wireless services in rural America and elsewhere, and he did
not address the U-verse product which is also rolling out
around the country, wireless is beginning to be a real
competitor for many uses of broadband.
So, the scare tactic of half of broadband connections is
just not true. It may sound good but it is not true period.
Second, in the broadband space, I am not sure what the
relevance is of a national market share, because the fact of
the matter is, and no one has bothered to mention this, the
fact of the matter is Comcast and Time Warner Cable do not
compete in a single market in America.
This is not a washing machine manufacturer combination
where you put two manufacturers together, they are selling in
the national market. You used to have two competitors. Now you
have one.
If you want to buy broadband in New York, in Philadelphia,
in Los Angeles and San Francisco, you do not have a choice
today between Comcast and Time Warner Cable. You only have one
choice, whichever one of those companies--you only have one
choice in cable, which is whichever one of those companies is
in your market, you can buy from them, and after this
transaction, there is not going to be any reduction in choice
in the broadband market in any market in America.
And by the way, it is not that depressing a market because
again under the current FCC definition, 99 percent of the
households in America are located in census tracts where there
are three or more fixed or mobile broadband providers.
So, this is just not the woe is me market concentration
terrible loss of choice and competition that some of the
opponents to this transaction would like to put forth.
Senator Nelson. Mr. Stankey, if your merger goes through,
is the U-verse build-out going to continue in Florida and other
states if your merger goes through?
Mr. Stankey. We have made public commitments around how we
are building U-verse, as I indicated. Comments I made about
additional broadband are in addition to that. We have no
intentions of backing off any of our other public commitments
of what we are building, and our plans in Florida remain
unchanged.
Senator Nelson. And other states?
Mr. Stankey. That is correct.
Senator Nelson. Thank you.
The Chairman. In my many years of service here, I have
never found a questioner on the Committee who more skillfully
works in the interest of the state than the inimitable Senator
Nelson, who I dearly love.
[Laughter.]
The Chairman. Senator Markey?
STATEMENT OF HON. EDWARD MARKEY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Markey. That is why he keeps getting re-elected by
overwhelming margins.
Professor Hurwitz said earlier that you have to understand
this involves multiple statutes implemented by multiple
agencies to govern technologies developed in the 1960s, 1970s,
and 1980s, according to policy goals from the 1950s, 1960s, and
1970s.
Just the opposite. We still have a stagnated marketplace.
So, we created new policies in the 1990s, the 1992 Cable Act.
We went over 200 megahertz in 1993 to create the third, fourth,
fifth and sixth cell phone license, so that people were not
carrying around a brick size cell phone that cost 50 cents a
minute, and then the 1996 Telecom Act.
And then we saw an unleashing of these technologies in the
21st Century. There was no Hulu. There was no YouTube. There
were no Netflix. It is the 21st century unleashing of
technology based on 1990s policies. That is what we are
debating here today.
So, a kid today who is 14 thinks they have a constitutional
right to a 50 inch screen, broadband, and a smartphone that
they are watching at the same time. That was not possible
before we created the new policies in the 1990s.
So, this is a relatively recent phenomenon and it has all
been caused by decisions that we made in the very recent past,
and has unleashed a massive amount of competition, Darwinian in
some ways, but deficient in others. We still do not have real
competition on price, so consumers keep paying more and more.
So, there is a deficiency actually in public policy because
consumers feel they are being tipped upside down and having
dollars shaken out of their pockets at the end of each and
every month. So, we have to discuss that as well.
Now we have merger mania. We have company after company
seeking to merge with other companies all based upon what has
been happening in the 21st century, not in the 1960s, 1970s,
1980s, because the technologies were not there.
So, this is a big moment for us because we now have to
determine the extent to which we are going to allow the
consolidation that was undone actually by the policies of the
1990s. We had pretty much one telephone company, not that much
cable competition, no satellite dishes at all, and a couple of
phone companies, cell phone companies, that really were not
providing high quality service at all.
So, let me do the same thing you did, Senator Nelson. Let
me say to you, Mr. Blum, I want to give you an expanded shot at
explaining why you think this Comcast/Time Warner merger is bad
for the marketplace, bad for consumers, bad for innovation, and
then give Mr. Cohen a chance to come back and explain why he
thinks it is good.
Mr. Blum. Senator, it is really about broadband. All these
great innovations that are happening, our attempts to enter the
over-the-top business and Netflix's, those are wonderful things
that are good for consumers. Those services compete with
Comcast/Time Warner.
The problem is they control the road which all those cars
go on. They control the point of entry, called ``the
interconnection.'' They control the open Internet, the right
side of the road, and they have the ability to create super
fast lanes for their own content, so you could have an eight
lane highway, seven are super HOV lanes, and then all this
great content that all of us are praising squeezed down to the
right lane.
That is not good for consumers and that is why we are so
concerned that a combined Comcast/Time Warner will leverage its
control over the pipe to the detriment of consumers.
The notion that the FCC's broadband speeds of four megs
down, one meg up, is sufficient to watch House of Cards in 4K,
it is not. In order to take advantage of all these great
services, you need a really high speed connection and you need
a really high capacity connection.
When Mr. Kimmelman and I talk about 50 percent under the
control of Comcast/Time Warner, it is 50 percent control of
high speed/high capacity.
Senator Markey. You are saying you would have no protection
against anticompetitive activity.
Mr. Blum. We would not.
Senator Markey. You would not. Let's go back to you then,
Mr. Cohen. Can you respond to that?
Mr. Cohen. Well, I am going to respond on a couple of
levels. First of all, according to Netflix, which I believe is
the producer of House of Cards, a four meg connection is
sufficient to watch full DVD quality of an episode of House of
Cards. In any event, it is the current FCC definition of what
``broadband'' is.
Even if you move that definition to ten meg down, then 91
percent of the people living in America live in census tracts
where there are at least two choices of a broadband provider,
and again, the market share at 10 meg down, after transaction,
would be 40 percent of wireline and 20 percent of wireless. You
have heard Mr. Stankey say the types of speeds that AT&T is
talking about delivering wirelessly.
There is just more competition than Mr. Blum and Mr.
Kimmelman are willing to acknowledge, number one. Number two, I
do not agree that we have the incentive to block any lawful use
of our broadband pipe. It is our most important business. If we
start blocking or degrading content, even if it is content of
competitors, then we are going to lose customers and we are
going to stop the growth of that business.
So, it is just not in our business interest to do so, but
even if you do not accept that, I do not care what the open
Internet rules are going to look like, whether it is the 2010
rules or whether it is new rules under Section 706 and Title I,
or whether it is Title II, which I do not agree with and I hope
that is not where we end up, the one thing I am confident is
going to be included in any rules that are put in place, and
for which Comcast has no issue and no problem, is that we are
not going to be able to block or degrade anyone's content on
our network, whether it is competitive with us or not.
Senator Markey. OK, well----
Mr. Cohen. I think the law is going to protect DISH. One
other thing that I want to say, which is Mr. Blum keeps talking
about how this new DISH product is going to compete with
Comcast. It is going to compete with DISH, too. It is competing
with their traditional service as well.
Senator Markey. OK. I understand. So, the whole history of
this is the incumbents trying to block competitors from getting
access to the same consumers and degrading the quality of the
service that the competitor can provide to the very same
consumer by default, meaning they will stick with the
incumbent.
So, that is the whole history of this, since the 38 years
that I started on the Telecommunications Committee, and I just
want to finish up with one quick question if I can, and that is
on municipal broadband. That would be to you, Mr. Cohen, and
you, Mr. Stankey.
Do either of your companies oppose municipalities being
able to deploy their broadband in their own municipality as a
third wire? Do you oppose that corporately, Mr. Stankey, Mr.
Cohen?
Mr. Cohen. Do you want to go first, John? You want me to go
first? So, generally speaking as a company, we have serious
questions about whether municipalities should get into the
broadband business. Speaking personally----
Senator Markey. But do you oppose them getting in?
Mr. Cohen. Let me--I was in city government for six and a
half years. I know what city government can do. I think it is a
mistake to do it, so we will advocate at the municipal
government level that we think this is a mistake.
We are not--the answer is we do not oppose it. We do not
have the right to oppose it. We have the right to advocate
against it.
Senator Markey. I will just say this. More competition is
the answer for all these problems, so that Mr. Blum or Mr. Ryan
or anyone else has more roots into the home. If we are talking
about two, we could talk about three, if municipalities
deployed broadband--to not do that in my opinion kind of makes
it harder for the government then not to get in and regulate in
order to protect.
See, my basic philosophy, just very simply, is that
Darwinian eye watering bone chilling competition is the answer
to all regulation. You do not need it, but the smaller the
number of competitors is the more regulation you need.
Mr. Cohen. All I am going to say is that taxpayer subsidy
of poorly run and ultimately bankrupt municipal broadband
networks do not benefit anyone.
Senator Markey. But if a community wants to do it, should
they be allowed to do it?
Mr. Cohen. They should be allowed to do it.
Senator Markey. And do you agree with that, Mr. Stankey? If
a community wants to deploy their own broadband system, in
competition with AT&T, in competition with Comcast, should they
be allowed to do that?
Mr. Stankey. If it is an underserved community where there
has been no private solution----
Senator Markey. No, no, no.
Mr. Stankey. That is what I am saying.
Senator Markey. A community that already has two
companies----
Mr. Stankey. We do not believe that private companies
should actually compete against public subsidized taxpayer cost
of capital in that market.
Senator Markey. Well, then we would never have more than
two, and again, that brings back the question of more
regulation. See, that is the conundrum that you get into.
Mr. Stankey. We are providing Internet services in Austin
today where we are building--we are investing today to build
gigabit networks, in which we compete against an incumbent
cable company, Google, that is overbuilding at this point----
Senator Markey. I appreciate----
Mr. Stankey.--and a second overbuilder called ``Grande
Communications,'' and there are four in that market. So, there
are more than two that play in these markets.
Senator Markey. Yes, and I just think it is an area of
competition where if a local municipality is unhappy, they want
to have their own broadband system to make prices go down, and
prices go down dramatically, and all of a sudden, the two
private sector incumbents find a way to lower prices, which is
really what those people desperately want at home.
Mr. Chairman, I thank you so much for your indulgence.
The Chairman. Thank you, and indulgent, I was.
[Laughter.]
The Chairman. What I feel badly about is that Senator
Heller, Senator Ayotte, Senator--anyway, Senator Heller, to be
followed by Senator Ayotte.
STATEMENT OF HON. DEAN HELLER,
U.S. SENATOR FROM NEVADA
Senator Heller. Mr. Chairman, thank you, and thank you to
the Ranking Member for having this hearing today. You can tell
by the witnesses here we are having a heck of a discussion, and
there is no doubt by those that are in this room today that
this video hearing is a wide ranging discussion.
I would like to before I ask questions further add to this
discussion or perhaps give my view of the world. I think it is
no secret that the telecommunications laws currently in effect
today do not line up with the marketplace.
We have rules for voice and video that are provided for the
consumer by copper wire and by multi-video programming
distributors, but if the same voice and video services are
distributed over broadband Internet, then no rules apply.
Whether we look at this today or we look at this tomorrow,
the facts are the same. It is unfair for voice and video
providers who are regulated to compete against providers
offering the same services over the Internet.
I do not think we can afford to wait much longer. According
to some estimates, global IP traffic will increase by almost
three times from 2013 to 2018, and 84 percent of that traffic
will be video. We will have to address this through a form of
our telecommunications laws, and it should be led right here in
this committee.
I know some here in this room have called for regulating
the Internet like a phone utility. Why would we ever consider
treating the Internet, the most disruptive technology in our
lifetime, as a public utility? To me, it makes no sense. Power
and water utilities have not changed or innovated in decades.
Why would we want the Internet to become stagnant instead of
vibrant?
These calls for regulation fail to recognize that the world
has changed for the better, not because of regulation, but in
spite of it.
The video market is proof that less regulation and more
choice offer the most benefit to consumers. It also moves us
away from punishing some distributors of phone and video simply
because they came about in a different era.
In the meantime, the marketplace is still moving. AT&T and
Comcast are examples of that movement. The growth of these
companies is now about providing broadband and not about
providing just wireless telephone or cable television. They are
moving to provide the consumers what they want, voice and video
over the Internet, and that is why, as I understand these
mergers, I think, come with benefits.
But we can do more here to help the consumers as well. We
should focus efforts on understanding the marketplace, divided
by urban, rural, residential and business sections, we can
understand where competition is excelling and where it is not,
and enact policies for growth where appropriate, and leave the
marketplace alone where appropriate, based on actual market
failures and not perceived ones.
We should also focus on spectrum. We must bring as much
spectrum to the marketplace as possible in a responsible
manner. Bringing parity and service capabilities between
wireline and wireless should be a goal, even if today that is a
lofty goal.
We should not let opportunities for reforming the video
marketplace pass us by. For example, we will be looking at
STELA. I would encourage all actors in this sphere to come
forward with their proposals.
If a consensus can be reached and any part of our video law
can be reformed, we should try to do it. Our job as legislators
is to reform laws that are outdated, and if we can, find some
solutions. We should not kick this can down the road.
So, Mr. Chairman, I just want to sum it up. Consumers in
Nevada want more choices. We need to meet those expectations by
working toward a new telecommunications bill that rewards
innovation and drives more investments in content and
infrastructure.
And with that, I do have a couple of questions. Mr.
Stankey, I would like to start with you. We heard about what
you are doing for South Dakota. Would you please let us know,
being accused, of course, of the merger being harmful to
competition, what Nevada will benefit in this particular
merger?
Mr. Stankey. Sure. The number, if you are interested, is
probably about 31,000 additional homes in Nevada for rural
broadband, if that is the question you are seeking.
Senator Heller. It is. It is.
Mr. Stankey. And I would also like to clarify, when Ranking
Member Thune asked me about timing and I indicated two years, a
vast majority of that will get done during that first 2 year
period of time. There are some locations that will take up to 4
years to fully get to as we refine the implementation plan.
Senator Heller. Mr. Cohen, do you anticipate other mergers
occurring in this current marketplace?
Mr. Cohen. So, if you had asked me that question two days
ago, I would have said none that I can think of, and then I
woke up this morning like everyone else to hear about 21st
Century Fox and Time Warner.
It is a very, very dynamic marketplace. Again, I think Mr.
Kimmelman and I agree that out of this dynamism and disruption,
it does create the need for additional conversations about how
content and distribution companies can continue to have the
scale to be able to invest and to be able to innovate, to be
able to provide the best experience possible to customers.
So, I think it is impossible for me to say that I would
rule out any additional merger or acquisition activity within
the overall media, entertainment, and distribution space, but I
do think each transaction needs to be viewed on its own
individual merits, and I am very comfortable, notwithstanding
what transactions may follow, about the compelling consumer
advantages that arise from our particular transaction.
Senator Heller. Thank you. Mr. Chairman, thank you.
The Chairman. Thank you, Senator Heller. Senator Ayotte?
STATEMENT OF HON. KELLY AYOTTE,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Ayotte. Thank you, Mr. Chairman. I agree with the
comments of my colleague, Senator Heller, and also appreciated
what former FCC Commissioner Robert McDowell wrote yesterday in
the Washington Post, where he referred to the Internet as ``The
greatest deregulatory success story of all time.''
I agree with that assessment, and that is why I do not want
to treat the Internet like a public utility either.
Can you help me, Mr. Stankey or Mr. Cohen? What would
happen if we reclassify the Internet as a common carrier? How
would that affect what you do and how would that affect
consumers?
Mr. Stankey. Well, you are taking something that is not
broken and applying new rules to it. It creates unknown
problems and one of those problems is that heavy regulation
that goes with Title II would clearly slow down innovation and
investment.
You would begin to subject the Internet to a lot of
different regulatory constructs that will be procedural in
nature, and as a result of that uncertainty, investment tends
to dry up.
I think that is the greatest risk that we have, and when
you see record broadband investment going on in the United
States today, when you see companies build additional
broadband, when you have examples like what I cited with
municipalities that now have three and four competitors coming
in, I am not sure what it is exactly we are going to try to fix
with that.
And so, our view is let's keep a light touch. Let's make
sure that we have the typical constructs we have in the United
States to ensure that anticompetitive and antitrust behavior
are enforced, and there are folks that violate the principles
that many of us agreed to in this room, for example, what has
been outlined in the Net Neutrality rules from 2010, then let's
find those exceptions and deal with them.
Our view is it is not that we disagree that it should be
open and free and the Internet should work, it is just how we
go about administering it, and that is what we think we risk in
putting Title II into place.
Mr. Cohen. Senator, it is rare that in a single question--
it is rare that you can come up with a question that a single
answer can potentially slightly irritate every member of the
panel, which is what this question does.
So, I really think Mr. Stankey said it right. I am going to
crystallize it a little bit more, at least from my perspective,
which is I actually think there is pretty wide agreement among
everyone at this table and probably among everyone on the panel
that we are all for a free and open Internet. No one wants to
have any restrictions in the Internet at all.
When you talk about the Comcast position, which I think is
the AT&T position also, but I will allow myself to be
corrected, you know, we have reached the conclusion that being
for a free and open Internet on a voluntary basis is just not
enough in America today.
So, we are also for--``we'' Comcast--are also for legally
enforceable FCC rules that provide basic consumer protection
for a free and open Internet, and what I mean by that is
transparency, no blocking rules, non-discrimination rules,
essentially what the 2010 Open Internet Order was able to do.
In terms of paid prioritization and so-called ``fast
lanes'' and ``slow lanes,'' Comcast's position is we are not
even sure we know what they are. We do not have any. We have no
plans to develop any.
So, we are not defending in any way the right of Comcast or
anyone else to have a fast lane, and I think the one area of
disagreement or the major area of disagreement is what is the
authority that the FCC has to put in place those rules, do you
have to reclassify broadband under Title II as a telecom
service to do that.
We think the answer to that is no, and we think the risks
are as Mr. Stankey outlined, which is removing incentives to
invest, creating a disincentive to invest.
Under the 1996 Act as applied by bipartisan FCCs over the
last almost 20 years, this industry has invested $1.2 trillion
in building out the Internet, and we think it is a huge risk to
create the uncertainty that would be created from a
reclassification under Title II, which does not take away in
any way whatsoever our commitment to everything else that is
being talked about in the open Internet space.
Senator Ayotte. Thank you. Mr. Stankey, I would like also
to have the question answered that you have been asked by
Senator Heller and Senator Thune about the impact of the merger
on New Hampshire.
As you know, AT&T does not offer its U-verse video service
in New Hampshire, but DIRECTV has a footprint in our state. So,
will your merger with DIRECTV result in extending broadband
coverage to unserved areas and underserved areas in New
Hampshire?
Also, I have been a strong advocate for USF reform, and I
think that is something we need to do if we really want to get
more access for people in rural areas, especially in states
like mine.
My time is coming up but I would like to know what the
impact would be on New Hampshire if this merger is approved.
Mr. Stankey. Yes, Senator. There is a positive impact on
New Hampshire as well, about 166,000 additional rural customers
will be served by a broadband solution.
Senator Ayotte. Thank you.
The Chairman. Thank you, Senator. Senator Blumenthal was
here, went out and came back, so the order will be Senator
Blunt, Senator Blumenthal, and Senator Klobuchar.
STATEMENT OF HON. ROY BLUNT,
U.S. SENATOR FROM MISSOURI
Senator Blunt. Well, thank you. It sounds like the rules
maybe worked for me here, so whatever the rules are, I am
pleased to benefit from them.
[Laughter.]
Senator Blunt. Thank you all for being here. Mr. Kimmelman,
I am going to see Senator Danforth this weekend, and I will
tell him you mentioned him and also mentioned that he worked
hard to try to find the balance between good business practices
and good regulatory practices, and I think that is what we all
want to do and are trying to do here.
We have seen this industry change so dynamically and so
rapidly that it is hard to estimate any answers to speculative
questions, about speculating what will happen in the next 5
years. I am almost sure we will all find we are wrong, because
so much has happened and so much has happened so quickly.
Mr. Stankey, recently Google made a major investment in
Kansas City. I had a chance with Mayor James to go through that
not too long ago, talk about what they were doing, some of the
impact it was having.
From your point of view, has their entry provided
competition that is an alternative to U-verse, to cable, to
satellite?
Mr. Stankey. It has provided significant competition. They
have been very successful in Kansas City. You probably had an
opportunity to hear from them what their market share success
has been there. So, they are a meaningful competitor when they
enter into a market.
Senator Blunt. Are they entering into other markets?
Mr. Stankey. To my knowledge, they are working to take over
a failed municipal broadband project in Provo, Utah and begin
to offer services over it, and they are now building and
constructing services in Austin, Texas, and then they have made
an announcement to negotiate with about 30 other municipal
markets. It is uncertain at this point how many of those 30
they intend to enter into and what timeframe. That is my
understanding of their plans.
Senator Blunt. Thinking about your potential merger with
DIRECTV, is there anywhere where you and DIRECTV both offer
services now that do not also have a cable competitor, to your
knowledge?
Mr. Stankey. No.
Senator Blunt. So, anywhere you are and DIRECTV is, there
is also another alternative right now, a cable competitor?
Mr. Stankey. There are locations where DIRECTV will offer
service in rural areas where there may not be a competitor, a
cable competitor. There will be another satellite competitor in
those instances, and of course, after the transaction, both of
us will remain selling services in those areas.
Senator Blunt. Mr. Cohen, you mentioned there were any
number of content delivery networks and interconnections. Is
there anything else we should know about that which has not
been covered yet at this hearing?
Mr. Cohen. So, I think there is plenty that we could know.
We could spend a whole hearing on peering and interconnection.
I think the only other point I would add is that--it may be
more responsive to Senator Booker's original question--peering
and interconnection is really not net neutrality.
I think Chairman Wheeler sort of nailed that right when he
just explicitly said ``Peering and interconnection is not net
neutrality, it might be a cousin or a sibling, but it is not
net neutrality.''
We applaud the FCC's opening of an inquiry--it is not a
rulemaking or an investigation--into peering and
interconnection, because I think it is very misunderstood, and
I think having the FCC take a look at practices in that market
and draw some conclusions would be very, very helpful to the
overall understanding of what is going on in the peering and
interconnection market, and whether it is a choke point,
whether there is a need for FCC action or other action.
We are very confident that the answer to that question will
be no, but we are also very comfortable with the FCC looking
into it and gathering the data and drawing an expert
conclusion.
Senator Blunt. Well, I think that would be something we
would be interested in and benefit from.
Mr. Hurwitz, thinking about--you know, Netflix has come up
a couple of times here, and I think I was a Netflix subscriber
early on. Their early delivery system was DVDs through the
Postal Service, and then when Internet speed developed,
clearly, that is a totally different product than it was just a
handful of years ago.
My question to you is what would you think the impact would
be of Title II regulation as it relates to things like the kind
of content Netflix provides and the cable companies currently
provide?
Mr. Hurwitz. The impact of Title II regulation on Netflix
largely is not about the technology. The open Internet rules,
to the extent the FCC has authority to enact them, could be
enacted under Section 706 of Title II, largely with the same
result.
The greatest concern, returning to Chairman Rockefeller's
initial focus on the consumer, is if the FCC does take a Title
II approach, it creates a great deal of uncertainty about what
rules will apply. It is going to lead to unquestionably years,
at least months, possibly years of discussion within the FCC,
possibly followed by litigation over what the rules should be.
Senator Blunt. My final question would be, since you are
there, all that time spent in litigation and trying to define
what this really means, what impact do you think that has on
the continued development of this communications system that
has grown so rapidly?
Mr. Hurwitz. Most importantly, it harms consumers. It will
slow down the development of new technologies. It will slow
down the deployment of existing technologies.
Senator Blunt. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Blunt. Senator Blumenthal?
STATEMENT OF HON. RICHARD BLUMENTHAL,
U.S. SENATOR FROM CONNECTICUT
Senator Blumenthal. Thank you, Mr. Chairman. Thank you all
for being here today on this very important hearing, and thanks
to the Chairman for having this hearing to discuss really the
future of video, and in many ways, it is a bright future with
Amazon and Netflix beginning to deliver on much needed
competition in this marketplace, and finally threatening to
provide some of the competitive discipline that we need.
But online video is still a very young service and still
very vulnerable to threats from large entrenched companies, as
they use mergers and market power to thwart competition.
When consumers look at the market today, and like my
colleagues, I talk to a lot of consumers, what they see is more
mergers, more consolidations, less choice. They also see the
only competition right now is the race to increase prices.
That is the way they see it, and fueling this fire are
larger and larger bundles of channels that consumers have to
purchase in order to get service, and the increasing cost of
programming.
We have talked about these issues before in this very room.
That phenomenon especially affects sports programming, and that
is why I have joined with Senator McCain in championing the
Television Consumer Freedom Act, often referred to as the
``Cable A La Carte Act,'' as well as the ``Fans Act,'' which
would end blackouts of the sports programming consumers pay so
much to receive. Both of our bills essentially give consumers a
choice.
To continue taking advantage of Federal policies that
protect their business models, companies have to provide
consumers with more choices and make programming more
available.
Our legislation would give consumers more choice, on the
theory--it sounds like a novel theory, I know, in this day and
age--when consumers have more power and when there is true
competition, they actually affect market outcomes.
Mr. Cohen, when we were last in this room not long ago, we
spoke a little bit about the regional sports network. I want to
follow up and pursue that line of questioning.
Comcast's proposed merger would unite Comcast's 11 RSNs in
the country's largest media markets and Time Warner Cable's
five RSNs, and those RSNs along with another 16 local sports
channels would belong to one company that would have
significant nationwide market power.
That power would affect sports programming, I think we can
all agree. Combined, the merged entity would own the rights to
a formidable amount of local sports programming in the largest
media markets in the country.
You said at that hearing, and I am quoting, ``There is
nothing in this transaction that changes the competitive
dynamic in any market in the country,'' with regard to regional
sports networks.
We have now one of your competitors here, Mr. Blum, and I
want to give him an opportunity to address that statement, and
ask you specifically, Mr. Blum, if the merger is approved,
would Comcast have additional market power to withhold or
overcharge DISH for access to local sports programming in the
markets now controlled by Time Warner, for example, and should
consumers bear the additional cost of those licensing fees?
Mr. Blum. Unquestionably, yes. The ownership of these RSNs
by a cable provider poses competitive harms, it is not like an
owner of RSN that wants to get distribution.
Comcast combining with Time Warner owning all these RSNs
could use those RSNs for anticompetitive purposes, by
withholding the ability for us to offer that product to our
customers, which unfortunately Comcast did to DISH and DIRECTV
for over a decade, and it was only when the merger with NBC
went through that we were finally afforded the right.
Unfortunately, they engaged in not disclosure activity but
pricing it so astronomically that we could not pass on that
cost to our customers, because one of the things that you
recognize and that your bill attempts to address in terms of a
la carte is these RSNs, they are not a la carte. We have to
pass these costs on to our customers, even if they are not
watching sports programming.
So, we believe that there will be less competition in the
RSN market because Comcast will take Time Warner's RSNs, and
there is the potential to foreclose access to that content or
to act in an anticompetitive way that ends up hurting consumers
and raising prices for them, Senator.
Senator Blumenthal. Thank you. Unfortunately, my time has
expired, but I think the question then is for Mr. Cohen, and he
may wish to address it at another time later in the hearing. I
hope that he will, if not here, then perhaps in writing.
Why not commit to offering all of your RSN programming on
an a la carte basis, give consumers a choice, and let
competitive market discipline determine the price of sports
content?
Mr. Chairman, I recognize my time has expired and others
have waited a long time, but perhaps I can ask Mr. Cohen to
answer that question for the record or now, whichever you would
prefer.
The Chairman. Why do you not try now?
Mr. Cohen. I will do it short now and I will do it in
writing later as well.
So, first of all, I think it is important to listen to Mr.
Blum's answer to your question because I think it shows just
how non-transaction specific the issue is.
The underlying analysis that led to the answer that I gave
you is that regional sports net programming is by definition
local and negotiated market by market. So, whatever the
problems are, and there may be problems, they exist regardless
of whether you own one regional sports net or 30 regional
sports nets.
So, the issues with the pricing of a regional sports net,
let's just take Time Warner Cable's pricing of the L.A.
Dodgers' sports net in Los Angeles, which right now, no other
multi-channel video distributor is carrying, is created by the
result--theoretically could be created by the result of Time
Warner Cable as the video operator controlling that regional
sports net.
When the transaction goes through, we will control that
regional sports net. We are not going to have any more power
than Time Warner Cable does to be able to extract a deal in Los
Angeles by virtue of the fact that we own other regional sports
nets, which are simply not a part of that negotiation.
I will also note that at least in the short run, there will
be an advantage for the consumer and for the dishes, because
our ownership of regional sports net will put that under the
arbitration provisions of the FCC Order in the NBC/Universal
transaction, and if DISH or anyone else thinks that the price
being offered for that regional sports net is not fair, they
can take it to arbitration.
By the way, DISH has done that to us once before. They do
not talk about it because they lost the arbitration. The
arbitrator found that the price that we were seeking for the
regional sports net represented market value and was the right
price.
DISH responded, by the way, citing they were not going to
bother with the arbitrator's decision, and they dropped the
regional sports net. They picked it up again. We negotiated a
deal, and they are carrying it.
So, a la carte is a more complicated question. I briefly
responded to you in the last hearing as well. I will give you
the headline, which is that we believe that a mandatory a la
carte regime will result in less choice, and Senator Booker
asked me earlier about independent programming and diversity of
choice, if you are for less choice, less diverse programming,
you are for a la carte, because you will have fewer choices and
it will be more expensive for the consumer.
There is independent study after independent study that has
reached that conclusion, and we understand the frustration that
consumers have and that you and Senator McCain have, and a la
carte just is not the solution to the frustration. I am not
sure I know what the solution is, but I do know that a la carte
will not work to be able to accomplish the objectives that you
have.
Senator Blumenthal. Well, just two points, if that is not
the solution, I would like to know what is. Number two, your
response to my question, I think, depends on the assumption
that your market power is virtually not increased in any way by
the number of RSNs you own.
Mr. Cohen. I think that is basically right, and I would
note, by the way----
Senator Blumenhal. Very short.
Mr. Cohen. I would note that DIRECTV--I am sorry, that Fox
still will own twice as many regional sports nets as we will
after this transaction.
Senator Blumenthal. Mr. Chairman, I hope I have not
exhausted your patience.
The Chairman. You came close.
[Laughter.]
Senator Blumenthal. Thank you very much.
The Chairman. Senator Klobuchar?
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Well, thank you very much, Mr. Chairman.
As many of our witnesses know, I chair the Antitrust
Subcommittee of Judiciary, so we have held hearings for both
the--lengthy hearings--Comcast/Time Warner's merger as well as
the AT&T/DIRECTV merger. I feel like I am a bit in a
``Groundhog Day'' movie, a movie I do like and I hope will
continue to play on your stations and channels, no matter what
happens here.
[Laughter.]
Senator Klobuchar. Senator Lee and I sent a letter sharing
our concerns together on the Comcast/Time Warner deal, and are
working on the AT&T/DIRECTV, so I am not going to go over the
many questions that we asked at those hearings.
I did have one new question that came up, Mr. Cohen, since
that hearing. I understand that Comcast would be divesting its
Minnesota customers as a result of the deal, mainly in the Twin
Cities' area and Mankato. This would mean that my service as
well as my in-laws', which is more significant in Mankato,
would be rolled into the new company called ``SpinCo.''
What will this mean for Minnesota customers and how would
you mitigate any harm that the potential transaction would have
on their service? Where would their bills come from? Who will
they call for customer service?
My in-laws took a while getting used to the cell phone, so
I am concerned about the effect this is going to have if this
deal goes through. So, can you answer those questions? Thank
you.
Mr. Cohen. Yes, Senator. So, at the time of your hearing,
we did make the representation that we were prepared to divest
about three million of our customers in order to bring us under
the 30 percent ownership of MVPD households.
We ended up entering into an arrangement with Charter that
would actually result in a divestiture of 3.9 million
customers, and unfortunately, because Minnesota is actually a
very strong and good market for us, our Minnesota subscribers
are included in that divestiture plan.
Of the 3.9 million customers that we are divesting, 2.5
million will be spun off to a new independent publicly traded
cable company, which has the legal name ``SpinCo.'' I will
represent to you and I will absolutely promise you that no one
will ever get a bill with a label that says ``SpinCo'' on the
top of it. It will have a real name by the time we launch the
service.
The way this will happen is after the transaction closes,
we will purchase all the Time Warner Cable subscribers, and
then we will spin off 2.5 million of those subscribers to this
new company. It probably will take two or 3 weeks after the
close of the transaction to be able to do that.
They will then be owned by this company. The CEO of the
company, by the way, is Michael Willner, who I am sure many of
you know. He was the former CEO of Insight Communications, one
of the most respected cable operators and cable CEOs in the
business.
There will be two sets of important agreements. There will
be a transition services agreement with Comcast, so we are not
just going to spin the customers off and say goodbye and
Michael, they are all yours, you are a brand new company, pick
them up.
There will be some transitional period of time where those
customers will be operating on the Comcast plan, with Comcast
engineering and Comcast technology, Comcast customer service,
billing, et cetera, while we transition to the new company.
There will also be a services agreement between Charter
Communications and SpinCo, because SpinCo will be one-third
owned by Charter.
So, when we are ready, and I do not know yet exactly how
long that will take, but it will be months, not days or weeks--
when we are ready to cut over from the Comcast system basically
to a Charter supported technology and engineering
infrastructure for SpinCo, there will be a cut over to the new
system.
Comcast has vast experience in transactions--AT&T
broadband, Adelphia, multiple smaller transactions. We are very
good at ensuring that the transitions are seamless and customer
friendly, and that customers know who they are supposed to
call, know what is happening, and that ultimately the cut over
is opaque to the customer.
That is the customer does not realize it has happened. They
will simply have the new service on the new Charter, basically
we assume Charter supplied engineering and technology platform.
Senator Klobuchar. All right. Thank you. Appreciate that.
Mr. Blum, you were not at our last hearing.
Mr. Blum. I was there in the audience.
Senator Klobuchar. You were there but not with your new
position. In your testimony, you mentioned that Comcast had
several choke points over its broadband pipe that Comcast or
other ISPs could use to harm competitors' online video
offerings.
Can you explain that in more detail?
Mr. Blum. Sure. So, there are at least three choke points,
and Mr. Cohen is absolutely right. The net neutrality rules
that they are agreeing to commit to have nothing to do with
interconnection, but it so happens interconnection is one of
the choke points.
So, the example I gave is a highway. Interconnection is the
entry ramp on to that highway, and all these content delivery
networks are bringing all the content to that choke point, to
that entryway. Comcast controls what gets in and what gets in
slowly by opening and closing the ports.
That is a very significant way for them to engage in
anticompetitive conduct that net neutrality rules and Comcast
commitment do not address at all. So, that is one choke point.
Then there is the open Internet choke point. The fact that
you had Netflix at the last hearing and there was a lot of
discussion, you asked questions about this, the fact that there
is a dispute where Netflix is claiming Comcast misused the
ports and closed the ports and intentionally slowed down the
content, and Comcast is saying no, no, it was Netflix's fault,
the fact that there is a dispute, imagine if this merger goes
through and DISH's content is suddenly slowed, and we believe
it is Comcast, and Comcast says no, no, it is not us.
We have to bring a complaint before the FCC that takes two
years to resolve. Meanwhile, our content is slowed down and we
are being hurt, and customers are leaving us to go to Comcast.
So, that is another choke point that we are concerned about.
The third choke point is managed services, these super fast
lanes. There is no doubt that Comcast can create fast lanes on
its broadband pipe. Those fast lanes can squeeze the open
Internet portion of the pipe. So, even if Comcast is not
blocking, not discriminating on that right lane, that right
lane is unpalatable to consumers because it is so slow and
jittery, meanwhile, Comcast content is fast and wonderful, and
that is not good for consumers. That is not good for
competition.
Senator Klobuchar. OK. Thanks. I just have one last
question of you, Mr. Kimmelman. You look kind of lonely down
there.
You know, consolidation does not necessarily mean that it
is bad, but I think a lot of the concern is what is the tipping
point and at what point do all these consolidations spell
trouble for consumers.
Regardless of how these mergers look for the shareholders
or the companies themselves, our job is to look at them in
terms of consumers.
Could you just briefly, briefly talk about what kind of
terms you think the Department of Justice should look at, why
it is important for the purposes of these mergers and the
larger future of competition in video, in terms of policies and
trends, what do you think they should be looking at when they
look at these mergers?
Mr. Kimmelman. Certainly, Senator Klobuchar. I think it is
important to look at what the Department of Justice already
does, and whether you agree with my numbers about broadband
concentration or even Mr. Cohen's numbers, the Department of
Justice has already found the market to be highly concentrated
for the MVPD services and the broadband services.
I am going to suggest it is very likely they are going to
find this for the consumer interface, whether it is a set-top
box or another device, but they have already found it for those
other services.
They have already found that Comcast in its past
transaction had the opportunity and the incentive to
discriminate against other programmers, online video
distribution, and in transmission.
And therefore, Comcast made a number of concessions, to the
great credit of Mr. Cohen and his company, which the Department
of Justice found to be adequate at that point in time to remedy
the concerns they had, enough to not proceed to challenge the
transaction.
I think the question now would be with the addition of ten
plus million new subscribers through Time Warner, are those
remedies adequate? Have they worked?
I would hope the Department and the FCC would look back and
see if they have worked, and also look at whether the
additional size, the additional scope, adds concern. It is not
just about foreclosure of competition, as Mr. Cohen has
identified, but it is also a question of raising rivals' costs,
a critical antitrust concern.
So, whether Comcast's regional sports channels are in Los
Angeles or in New York, if Comcast's competitor is nationwide
and Comcast is driving up the cost to his competitor, Comcast
is causing a potential competitive harm to the broader
marketplace.
So, these are the kinds of issues that I certainly hope the
enforcement agencies will look at and see whether in addition
to what they have experienced under the existing transaction,
the new transaction adds additional problems.
Senator Klobuchar. Thank you very much.
The Chairman. Thank you, Senator Klobuchar. I think there
are a couple of people that want to ask several questions, so I
think we should have a second round, and I apologize to
everybody on their schedules. I have kept my sister's best
friend waiting 50 minutes, but life is such.
Let me just start by this. Let me ask both Mr. Cohen and
Mr. Stankey, does your company, AT&T and Comcast, enter into
any anticompetitive contracts to prevent content companies from
selling their TV shows and movies to online video competitors?
Do they or will they?
Mr. Stankey. No.
Mr. Cohen. I will go with a no also, and I may get myself
in trouble, but remember our company is a little more
complicated, I think for good reasons, even though Mr.
Kimmelman may disagree.
We have not just the cable side, but we have the content
side, which is actually selling content to online video
distributors, and in the last 3 years since we have owned that
company, we have made literally dozens of deals selling vast
amounts of highly popular content to online video distributors
like Netflix, Amazon and VUDU, Apple, a whole host of----
The Chairman. Mr. Cohen, the question I asked was for the
record, and you gave me your answer.
Mr. Stankey. Senator, to be clear, we do not own content,
so we are basically licensing----
The Chairman. Understood; understood. Second and lastly, an
observation from my point of view, an observation, that this
subject like others--E-Rate is one that comes to mind, where
the FCC--it does not get legislated. The President does not
sign anything. He does not do an Executive Order.
It just comes into being by virtue of the silent process,
which brings up one of the reasons why this is so complicated
and misunderstood, and therefore, subject to a lot of suspicion
in the process, because it is not by definition open.
Our oversight function on the Commerce Committee helps, but
let me just give you one example. You have caps and price caps,
and price caps sounds very good, but price caps can also be
manipulated so that there is enough bandwidth given so that a
particular company can provide two-thirds of a movie, but if
you want to provide the last third, the price goes up.
Now, who in the world knows that? Nobody knows that, but it
is a fact of the business that we are in here and what we are
talking about. I think it talks to the necessity of oversight
and the importance of oversight and the importance of
transparency.
The other thing I want to say is I feel extremely badly and
personally responsible for the fact that Mr. Ryan has not
gotten any questions. I cannot help that because nobody asked
you questions. I need to have you say whatever you want to say
at this point.
[Laughter.]
Mr. Ryan. Well, thank you for that. It is interesting, this
conversation. You know, somebody said at the beginning of this
that content is king, and as someone who is sitting here
representing those people who create the content, it is
interesting that so much of this conversation has happened
without me.
I would reiterate so much of what my two colleagues right
here have said about things. You know, Comcast and Time Warner
in various studies are very low in customer satisfaction. I
think in a recent study they finished worse and second to
worse.
So, one thing I would say is that if this merger were to go
through, the only thing we know for sure is it would open up a
new spot at number two for who might be the worse in customer
satisfaction.
So, I would just counsel the reason why that exists is
because customers feel that certain promises they think they
have gotten from them have not been lived up to.
So, I would just counsel you to take their promises with a
grain of salt, and if you determine that this is going to go
through, hold their feet to the fire on this, and then I would
counsel to not let it go through because I think there is just
too much to worry about.
We do not need a new toll booth on the information super
highway, and that is what I think this sets up. I am surprised
by Mr. Cohen's uncertainty about what a fast lane would look
like at his company. I think all you have to do is go look at a
graph that was made public recently during their negotiations
with Netflix.
The speed at which Netflix was running through their pipes
was very slow while they were in negotiations, and the moment
that Netflix agreed to pay them some money, all of a sudden,
miraculously, the speed went up.
In the screenwriting business, that would be the equivalent
of saying yes, that is some awfully nice Internet we are
providing you, it would be a shame if something happened to it.
That is a situation that we do not want to get in with
these companies, where they get to decide you get the fast
treatment and you get the slow treatment. It does not just
apply to businesses. It could apply to political organizations.
It could put a cap on the kinds of material that we are able to
write and consumers are able to see.
So, I would just say be very careful about what they are
promising and whether they can and will live up to it.
The Chairman. I promise you I will be, because as I have
said this in a number of hearings--Senator Thune, please do not
hit me over the head with whatever this is.
[Laughter.]
The Chairman. When we passed E-Rate in 1996, I wrote, Mr.
Ryan, every single telecommunications company a letter, in
which I asked them to write me back saying they would not
litigate the E-Rate decision. Every company wrote me back
promising they would not do so, and every company litigated the
E-Rate decision, and they all lost. So, I think your counsel is
wise.
Senator Thune?
Senator Thune. Thank you, Mr. Chairman. I have a couple of
quick questions here. I wanted to follow up with Mr. Stankey.
Most wireless broadband services have data usage caps that are
much, much lower than you are going to find on a fixed wireline
broadband service, and my understanding is your wireline U-
verse product is capped at 250 gigabytes per month whereas a
comparably priced mobile data plan is more like two gigabytes.
So, the question has to do with, and we talked about
earlier, this expansion and making this more available. What
kind of data cap can we expect these new fixed wireless
customers to see?
Mr. Stankey. As I indicated earlier, we are intending to
engineer this product like a wire line fixed broadband product,
not a mobile broadband product. We have not put the exact caps
in place. We have done engineering studies to understand what
we think is reasonable.
I cannot promise you they will be the identical number that
is on the U-verse construct that you just put forward, but we
do know for a fact that their input will be very de minimis.
They will hit the very top 2 percent kind of thing, and it will
be designed to find that abuse that is going on, not
necessarily to prevent customers from doing the things they
need to do in their homes to use a broadband service, and it
will be substantially different than what you see in a mobile
broadband service.
Senator Thune. OK. Professor Hurwitz, back to you for a
minute here. We have had some discussion today about the impact
of these mergers and what they are going to do both to
consumers and creators alike.
As a professor of law and economics, my question is do you
agree with the views that have been articulated by Mr. Ryan
regarding the economic literature on communications and media
mergers?
Mr. Hurwitz. The economics literature sides more along the
analysis that Mr. Cohen gave in terms of unbundling. Generally,
what we find is when we have large bundles of content, when we
have large vertically integrated firms who are able to take
greater risk, they are able to invest more in questionable and
uncertain projects, and that is very frequently where the
really great projects come from.
Senator Thune. OK. Mr. Kimmelman, as large as some of these
MVPDs have become, they all apparently feel competitive
pressure to acquire and deliver the so-called ``must have
programming.''
So, the question is no matter how many competitive
distributors there are, do we not essentially have an auction
where all the bidders win but only after paying the highest
price to content providers, and why would prices decrease when
all distributors need to have essentially the same programming?
Mr. Kimmelman. That is a very good question, Senator Thune.
I think it is a problem. I think that is why we are in a bit of
an arms' race here, and I think it is worth looking at this as
a broader policy issue. Some of the traditional superficial
analysis of what another competitor would offer may not be
helpful from the consumer vantage point.
However, I think what is changing is that on the broadband
service distribution level, the ongoing culture has been much
more of an unbundled, pick what you want. My kids do not even
know what a channel is. They know a show. They know a video
clip. They know something is video streamed.
I think the next generation is really moving toward a
different experience and different expectation for what they
want from video, so while some of the traditional marquee
programming in this high price range will continue, I think
there will be new product, especially if Mr. Ryan and some of
the people like him can produce for online distribution and
challenge some of those traditional companies, and then I think
you will see the market shake up a bit.
I think it is the business model of bundling that is really
part of the problem here, and the ability to connect that then
with a transmission system that is dominant.
We probably from what we know economically are never going
to get ten, we maybe never are going to get to five, we may not
get to two in many places. I think what AT&T is trying to do is
an interesting experiment using fixed wireless, but it has not
been great in rural America for the whole bundled service.
So, we have a huge problem here of a highly concentrated
market in transmission, and then these very popular sets of
programming. I think we need to have more choices so that those
who are creating have more new ways to present it to the
public, and we are seeing a new generation that wants it
presented in a different way.
I think it is great if Comcast does that as well and AT&T.
I think we need to make sure that there are some new players
who have a chance to break up that traditional high price
structure.
Mr. Hurwitz. Mr. Thune, if I may add on to that, and I
would like to agree with Mr. Kimmelman and also Mr. Ryan in
some respects.
It is in many ways a real shame that we do not have any
programmers here today because the programmers are a very
important part of this discussion, and their voice is
absolutely lacking on the current panel.
The advent of the new forms of Internet-based technology
really is an aspect of the tipping point that we have not
spoken about. When you look at the demographics, people under
25 today are consuming most of their video content online. The
most recent numbers I have seen, under 25, it is about twice as
much online video content as cable content, about twice as much
cable content as traditional broadcast content.
If you go into older demographics, it is still almost
entirely traditional broadcast and MVPD content. So, for the
younger generations in many ways, the tipping point has already
occurred.
On the question of wireless, this is a final point, we have
spoken about wireless in several manners here, there is a lot
of technology that we do not understand, a lot of really,
really great cutting edge stuff that is on the verge of
becoming mainstream, on the verge perhaps of 3 to 5 years,
perhaps 5 to 10 years, particularly on the wireless front, on
the network neutrality front.
The FCC struggles with the level of technical
sophistication needed to really address and understand these
issues.
I do not hold it against anyone in this room. We are not
engineers. We are not trained Ph.D. engineers focusing on these
issues. It is really difficult to have an informed discussion
about the future of competition, the future of network
neutrality, without understanding complex issues like
statistical multiplexing, how routers actually work, how
prioritization would be implemented.
So, it is really hard for us to have a discussion about
that. In terms of wireless, I would like to just make one
really amazing point. I am following a lot of the technical
literature about developments in the so-called ``millimeter
wave bands.''
What could be possible using MIMO and millimeter wave
technology for mid to short haul fixed line wireless in the
next 3 to 10 years is incredible. I would say cable should be
scared to death of what fixed line wireless can do, because it
has the potential to have ten times the capacity that coaxial
cable running to your house has, and that will revolutionize
telecommunications.
Senator Thune. OK. Mr. Chairman, thank you, and thank you,
panel.
The Chairman. Thank you, Senator Thune. Senator Booker, if
you do not have a question, I am going to be shocked.
Senator Booker. So, I want to save you that kind of shock,
although it would be exciting to see what would happen if----
The Chairman. I like your questions.
Senator Booker. I appreciate that. I will just add a last
point. When I sat with a lot of the heads of a lot of tech
companies, they said the same thing about the technology
changing so rapidly.
But my concern is about the here and now, really focused on
one clarification and one question about municipal broadband,
which is something I care a lot about, having served as a
mayor.
Before I ask that question, I just want to give a lot of
talk now between sort of whether we should use Title II or not,
and I heard very strong comments about why Title II is not the
way to go. I would love to give Mr. Kimmelman and Mr. Ryan a
chance to quickly, very quickly, respond to some of the ideas
about whether we should be using Title II or not.
Mr. Kimmelman. Thank you, Senator Booker. We favor Title II
because it is not some traditional way only of looking at
utilities, it is a fundamental non-discrimination principle
that enables a rule to be developed that prohibits undue
discrimination, unfair discrimination.
Section 706 is a new approach that is being put forward. It
involves filing complaints after the fact when you think there
has been some discrimination, with some limitation of how far
the FCC can go based on the court decision. We will see how the
FCC can interpret that to create something that would be
meaningful.
From what we know right now, the most fail/safe mechanism
is an old traditional non-discrimination rule. It does not mean
you need to do 15 other things that one could conceivably think
of under Title II that have not been done in 15 or 20 years. I
know there is a desire to scare people about what could be
hidden in that.
It is a tried and true non-discrimination tool that has
been used very effectively. It is what enabled all the
innovation Senator Heller was referring to on the Internet that
he does not want to regulate to blossom, to grow. It was either
the exact Title II regulations or it was the fear that someone
might impose them and you need to be careful that has allowed
all this innovation to grow.
I am reminded that AT&T under its old rules was a great
transmission company, as a telephone company. They had the fax
machine before the turn of the century. I do not mean this
century, the 20th century, but could not figure out what to do
with it, could not figure out what to do with a whole lot of
things in wireless until we opened up the market to more
players.
It is not because they are a bad company. They are a great
company. They did wonderful things. They were never the
innovators. They were not the Bill McGowan/MCI innovators that
brought long distance competition and brought us new interfaces
and equipment, and similarly on cable, they did not invent the
over-the-top product. It was others who challenged them.
So, good transmission companies can do a lot of wonderful
things, but they are not necessarily or often have not been the
innovators. It is those edge company investors who can get
capital in the market because they know when they succeed,
someone cannot discriminate against them, and they get the
fruits of their innovation. That is what Title II has offered
us.
Senator Booker. Mr. Ryan, very quickly, because I do have a
question.
Mr. Ryan. Yes. I am a writer and a content provider, not a
lobbyist, so it is hard for me to go into the detail that they
do, but I will say that the Writers Guild of America, West,
believes that the FCC should reclassify Internet access as a
telecommunications service under Title II. This gives the
Commission the clearest path to enacting strong and open
Internet rules.
Senator Booker. OK. Let me just jump into municipal
broadband, and I say this with some trepidation, and I want to
say for the record, David and I have been friends for a long
time.
I have known him since he was a municipal official. I say
this for the record, that he was truly one of the greatest
municipal officials I ever encountered in our country, and I
made it a purpose to study good cities and the way they were
managed, and he was most certainly one of the best.
Mr. Stankey and Mr. Cohen, I do worry about what is
happening, and especially my concern is I am in a state that
has a lot of urban municipalities, a lot of very poor people,
and their access to broadband.
So, this push back, and literally from what I can see,
people going in and trying to pass laws against municipal
broadband, I worry about that. Mr. Markey and I were talking
over here about when municipalities do go in and do these
broadbands, it actually lowers the price for consumers about 20
percent because big companies come in and then lower their
prices as well.
Mr. Cohen rightfully said something. He and I both dealt
with cities. Cities do not run things really all that well,
even if they have some of the best master minds like you and
Governor Rendell, who I think were sort of Batman and Robin--
maybe Starsky and Hutch--not Lenny and Squiggy, I promise you.
[Laughter.]
Senator Booker. Two of the best municipal--my philosophy is
that if the private world can do something better, cheaper,
better for taxpayers, it is something we should consider.
That said, the reality is that broadband is not just
sitting back watching cable any more. It is not just I want to
get my Jersey Shore, which is something, Mr. Chairman, you
probably watch.
[Laughter.]
Senator Booker. It is about having access to information,
having access to innovation, having access to markets. It has
become an essential part of life.
So, for me, when I see communities in very poor census
tracts in urban areas having very high costs, relatively high
costs, for families of what their access is, it is very
worrisome to me.
So, a lot of the conversations in this hearing about costs
are really important. When I see a municipality that is
desperate to try to do right by poor people want to do this, it
is kind of almost offensive to me that local lobbyists are
going in and trying to pass laws that ban people from doing
things that those local actors believe will lower costs for the
poor people in that community.
So, I would love to hear from Mr. Stankey first. I have
great access. I have Mr. Cohen's cell phone number. Let's call
him second just in case the Chairman does cut me off.
Mr. Stankey. First of all, as I stressed, if it is an
underserved area, there probably is a role for subsidy. If it
is an area that is served competitively, I would suggest first
of all you have to look at life cycle costs.
Unfortunately, a long history of municipalities that start
these projects and ultimately are not successful in completing
them over the long haul, and then taxpayers are on the hook to
bail them out, or similar to what you are seeing in Provo----
Senator Booker. That is them going bad, but them going
right, sir, and correct me if I am wrong, is the revenue they
receive, it is not actually a taxpayer subsidy if they are done
right, the revenue that they receive at the lower cost covers
the cost of the efforts. It may not be as good as what you all
provide, but it provides a low cost option, if it is done
right.
Mr. Stankey. So, if you were subsidizing something with
public capital that does not have a rate in the market, then
over time, it will chase away the private investment and you
will be left with nothing but an urban or municipal supported
broadband infrastructure.
If you want to trust that is the right investment cycle
over time----
Senator Booker. So, you are telling me that the--let me
hear you correctly, the municipally run system will chase away
the big companies. They will say oh, we are leaving this
municipality. You will not go in there and compete. You will
compete with Comcast but you will not compete with a
municipally run----
Mr. Stankey. Whoever the other providers are in that market
have to make a return on their invested capital. If they are
competing against an entity that does not require a return and
wants to run a break even, they will always be in a situation
where they could potentially charge a price that is less, and
then ultimately, you are in a situation where that has to be a
sustaining equation.
Senator Booker. Is there anywhere in the United States of
America where there is a municipal one where that theory is
seen being played out?
Mr. Stankey. We are very early in the innings on it right
now. These are investments that are long lived investments that
take time. We invest in equipment cycles that last for 10
years.
So, you have to go through these cycles, and that is
typically when you see these projects get in trouble, when they
get to that seven/eight year point and they have to start the
new reinvestment cycle, and all of a sudden, somebody did not
care for in the budget the fact that they have to go and invest
another $800 per home to serve with the latest technology to
get it to the next speeds, and the equation starts to fall
apart.
Senator Booker. Of all the places I thought you would take
that argument, that is not where I thought you would take it.
As Mr. Kimmelman seems to be laughing at the same thing, I
cannot imagine in a city as diverse as Chicago, where you have
poor neighborhoods, that the more middle class or wealthy
people would not choose the far better option that you are
providing, that offers that kind of return on investment.
Mr. Cohen?
Mr. Cohen. Senator, what I would think would be the right
way and what we are seeing in models starting to emerge around
the country is when municipalities work cooperatively with
providers to lower the barriers and construction costs and
permitting to be able to get infrastructure investment at a
lower cost and faster speed.
That is one of the best incentives to get the right kind of
service done.
Senator Booker. Right, and what I will tell you right now
is that what is happening right now is inadequate for poor
families in this country. The system as it stands right now is
inadequate to provide open equal access for Americans who are
struggling to make it.
Cable bills, broadband access, in America right now, is too
expensive. It is shutting out poor people from what is becoming
now essential for getting access to everything from education
to job opportunities.
David, I know you have a better answer.
Mr. Cohen. We fully agree with that, sir, and that is why
our sponsorship of $100 million back to ConnectED, what we have
done through Aspire, those are all additional ways to try to
help.
Senator Booker. Sir, I respect it but what I am saying is
your efforts, as noble as they are, right now, are inadequate
because--I know you know this. There are families right now
that are making tough decisions by cutting their cords because
they are having difficulty choosing to make rent and to buy for
essentials.
I know it might be difficult for you to understand, but I
know you can take a leap of empathy to see how difficult it is
for many families in America to afford broadband access as it
stands right now.
Mr. Cohen?
Mr. Cohen. So, I am going to just spend a tiny time on the
process. We basically agree with AT&T on the bottom line. We do
have a difference between the two companies on the way in which
we pursue this.
Our style, and it is my style, so I will take
responsibility for it, and it does come from the prism of my
life, like most of us do, is to go and talk to local
governments and say are you sure this is a good idea.
Look at Provo, Utah, which spent this money, and for the
next 20 years, the taxpayers in Provo are going to be paying
off the cost of this broadband network that they built and
never got launched and then sold to Google for a dollar.
So, Google bought it for a dollar and the taxpayers of
Provo are going to be paying it off for the next 20 years.
As a matter of style, I hated it when the state would
attempt to preempt anything that Philadelphia wanted to do,
whether it was gun control or voter registration laws, I do not
believe in state preemption of municipal prerogatives.
So, it is not part of our style to get state legislatures
to pass laws prohibiting municipalities from doing municipal
overbuilds, but consistent with that, I am also not for the
Federal Government preempting states and what they might want
to do.
So, I think I have a pretty consistent position across the
line there. The most important thing I want to say is I think
the most important point you make, and it is a personal passion
of mine, and you know you have heard me talk about it before,
is if there is a single focus, Mr. Chairman, in your remaining
time as the Chair of this committee, it is to shine a spotlight
on the issue of accessibility of low income Americans to
broadband, and I have said it is one of the cruelest ironies in
America, that in the Internet, we have the most transformative
and disruptive technology that I believe we have ever developed
as a country.
It is a technology that has the capacity to level the
playing field in terms of access to education, to health care,
to vocational opportunity, to news, to information, and
entertainment, and instead of leveling the playing field, we
are exacerbating difference as the have's, people who have
broadband adoption rates of 85, 90, and 95 percent, primarily
in high income communities, are accelerating and have greater
access--let's just talk about education, the innovations in
education, then people in low income communities, primarily
people in poor urban communities, primarily people of color,
who have broadband adoption rates of 15, 20 and 25 percent.
That is the digital divide and it is creating one of the
great civil rights' disparities that this country has ever
seen.
So, Senator, you know how passionately I agree with that
point. I do not believe that municipal broadband is the
cleanest path to that. I continue to believe, and you know the
work that we have done in this space, that the number one
barrier to broadband adoption in low income communities is not
the cost of the service, it is digital literacy and a whole
bucket of digital literacy and relevance buckets that too many
people in these communities do not understand the value of the
Internet, the relevance of the Internet. They are scared of the
Internet. They do not know what it means for them and their
lives.
Breaking that cycle of digital illiteracy is the most
important step to breaking down the digital divide, and we are
enormously proud of our Internet Essentials program, and I
noticed you used the word ``essentials'' three times in talking
about this issue, it is where the name of the program came
from, which is the Nation's largest and most comprehensive
broadband adoption program for low income Americans.
In two and a half years, we will have some new numbers at
the end of this month, but in two and a half years, we have
been able to sign up over 300,000 families, 1.2 million low
income Americans to the Internet, most of them for the first
time in their lives.
By the way, 50 percent of those--80 percent of those who
have signed up are people of color, which is typical of the
demographic you are referring to as being left behind.
Senator Booker. So, first of all, again, you and I have had
this conversation in private. I really appreciate the fact that
you eloquently put the truth of the matter is in our country,
in a lot of our communities, the broadband penetration is
abhorrent, at a time when one of the most important
democratizing forces, both in the United States and globally,
is broadband access.
I mean we are intermediating banks with platforms like
Kiva, we are intermediating universities, as we see books and
other things being put on line.
As you said, in the medical profession, it is such a
powerful force.
The only thing I would say--the only point I would take
issue with you on is that some of it is, as you called it,
illiteracy around these issues, but just the mere fact that you
have so many poor minorities grasping for the programs that you
are offering shows, and I can take you to any community in
Philly or Newark, Trenton, Camden, Passaic, and there is a
hunger out there for low cost options.
So, when you provide it, people come. To me, and I am sure
this has happened before I came to the United States Senate,
but we are not doing enough to bridge this divide.
We, as a country, will pay the price for it because when
people do get that access, their economic productivity
flourish. Their children's access to--our ability to access
their children's genus flourishing.
That is just my concern in this. Maybe I am wrong on
municipal broadband. I am willing to have this dialogue back
and forth. My goal is to figure out a way to make sure every
American has a free, robust, net neutral Internet as well as a
broadband access that is affordable because it is becoming as
essential as heat and water, when it comes to the success of an
individual.
Mr. Cohen. I totally agree. All I want to add is that we--
when I say that Internet----
The Chairman. Mr. Cohen.
Mr. Cohen. Sorry.
The Chairman. I chair this committee, and I am going to
exercise----
[Laughter.]
The Chairman.--a necessary right. Let me say two things.
One is that in response to any question about my commitment, I
went to West Virginia in 1964 as a VISTA volunteer. Virtually
everything I ever did as Governor, virtually everything I have
ever fought for in 30 years in the Senate, has been for working
class people, for poor people, and I have never deviated from
that, and it all flowed very easily simply because of the moral
compass that was working within me after I had finished my 2
years with VISTA.
It was just like drinking a glass of water. It was easy for
me, where my priorities should lie, and I followed that.
The second and final thing I want to say is that this has
been a very long hearing but I think an extraordinarily
interesting one, because the questions did not all fit exactly,
you know, they were not a perfect puzzle, but we covered a lot
of ground on what has to be one of the most important subjects
that is available, and you have made that point several times,
Mr. Kimmelman, as have you, Mr. Cohen, as have you, Senator
Booker, that this is important beyond belief.
Where Americans get their information, if they can get
their information, how do they absorb it, how do they use it,
if they cannot get their information, what do we do to correct
that.
As the providers of the potential of getting that
information from whatever point of view they come, we have
serious responsibilities because the divide in our country is
bad and it is getting worse. It is not a good time.
I thank you and I treasure each and every one of you at the
witness table for staying, all of you in the audience for
staying for this long hearing, because I think it was worth it.
It was a good hearing, and each of you made a major
contribution.
Mr. Ryan, your star just shot up as soon as I said nobody
had asked you a question, you know. It was terrific.
[Laughter.]
The Chairman. The hearing is adjourned. Thank you.
[Whereupon, at 5:20 p.m., the hearing was adjourned.]
A P P E N D I X
Response to Written Questions Submitted by Hon. John D. Rockefeller IV
to David L. Cohen
Question 1. Mr. Cohen, online video platforms are exploring a mix
of revenue models to support their development, many of which include
digital advertising. Questions have been raised, though, about whether
Comcast, through the pending merger with Time Warner Cable and its
purchase of FreeWheel, could have significant control over the
burgeoning digital advertising market and the more traditional cable ad
sales market.
With respect to digital advertising, your company has indicated
that it will operate FreeWheel as an independent entity, safeguard data
collected by the company regarding other media companies' digital
operations, and not give preferential treatment to its own content.
Will you reaffirm those commitments to the Committee?
Answer. As background, Comcast's acquisition of FreeWheel received
antitrust approval in March 2014. This result was not surprising, since
the transaction did not reduce competition in any way. Prior to the
transaction, Comcast did not have a digital advertising platform
competitive with FreeWheel. The transaction is procompetitive because
it will provide FreeWheel with the resources and scale required to
continue to develop into a robust competitor in the digital advertising
space.
Comcast and FreeWheel management are committed to safeguarding the
data of FreeWheel's clients. This is essential to continued growth and
success of FreeWheel. As explained by Rob Holmes, Vice President of
Advanced Advertising at Comcast, ``our goal is to maximize the value of
FreeWheel to the overall ecosystem, and not respecting our clients'
data in some way would run counter to those purposes.''
Question 1a. With respect to the traditional advertising market,
how do you respond to claims from some groups that the merger will give
Comcast excessive control over the local ad time sold by cable systems
around the country and would have significant influence in the
cooperative interconnects that facilitate cable ad sales on a local and
regional basis?
Answer. The proposed Comcast-Time Warner Cable (``TWC'')
transaction presents no plausible competitive concerns regarding local
advertising for a number of independently sufficient reasons.
It is important to emphasize that cable companies like Comcast and
TWC control a very small percentage of television advertising. As a
general matter, national cable network and local broadcast stations
sell the vast majority of national and local television advertising.
Cable companies like Comcast and TWC are generally allotted only two
minutes per hour of advertising on national cable networks and no time
at all on local broadcast networks. Such cable spot advertising
accounts for only about seven percent of all spending on local
advertising and only approximately eight to 11 percent of saleable
impressions in local markets--far less than broadcast television,
radio, Internet, or newspapers.
Furthermore, Comcast and TWC generally operate in different local
geographic markets. There should be no competitive concern due to the
same company selling locally targeted advertisements in different
geographic markets, as local advertisers do not view such products as
competitive with each other. Consider an example: If an advertiser
(such as a local car dealership) wants to purchase advertising time in
Washington, D.C., to reach potential consumers in Washington, D.C.,
this advertiser would not view advertising in Los Angeles as a
competitive substitute. Thus, combining advertising inventory in
Washington, D.C. and Los Angeles (through a merger or otherwise) can
have no competitive effect on the D.C. car dealership, because that car
dealership never was interested in purchasing advertising in Los
Angeles in the first place.
For this same reason, the transaction changes nothing at the local
level with respect to local interconnects. Interconnects are formed
when different MVPDs situated within the same television market (also
known as ``designated market areas'' or DMAs) contract together to pool
their advertising inventory to cover a broader geographic area. This
permits MVPDs to compete more effectively with other outlets for local
advertising, like broadcast television, which sell advertising
inventory on a DMA-level with far greater coverage than any individual
MVPD can generally achieve. This structure benefits advertisers, who
can go to one outlet (the interconnect) to purchase DMA-level
advertising if they choose without having to go MVPD-by-MVPD to cobble
together a purchase of similar scope. As an established practice, the
largest participating MVPD in a given area typically manages the local
interconnect, which means overseeing negotiations with advertisers that
want access to the pooled inventory of available advertising time on
the participating MVPDs' systems, along with technically managing the
insertion of advertisements. These roles require substantial investment
in time, employees, and technology.
As a result of the transaction, in areas where TWC currently
manages an interconnect, Comcast will merely step into its shoes and
manage that interconnect. As these local interconnects pursue local
advertising in different markets, Comcast's managing of additional
interconnects will not alter the local advertising market dynamic
within any locality.
The lack of impact on the local advertising market is not altered
by the fact that Comcast owns NBC broadcast stations in four markets
(New York, Los Angeles, Dallas, and San Diego) where TWC operates cable
systems. The FCC and the DOJ have each concluded that locally-zoned
cable spot advertising, which is targeted at a sub-DMA level, is not
generally a close substitute for local broadcast advertising, which is
targeted at the DMA level. In addition to NBC broadcast stations and
the cable interconnects in these markets, advertisers who wish to
advertise at the DMA level have a broad array of options, including
other broadcast television networks, Internet, radio, newspaper,
billboards, and direct mail. Due to this variety of available options,
local broadcast and local cable advertising combined account for a
minority of local advertising spending in these markets, according to
BIA/Kelsey data. Even if one were to view local cable and local
broadcast advertising as being close substitutes, and exclude all non-
television local advertising options, NBC and the combined Comcast/TWC
local cable advertising share is still a minority of such a
hypothetical market.
In sum, due to their small share of local advertising and the
distinct geographical markets in which they operate, the Comcast-TWC
merger would not have an appreciable impact on local advertising.
______
Response to Written Questions Submitted by Hon. Barbara Boxer to
David L. Cohen
Question 1. According to the California Emerging Technology Fund,
Comcast's Internet Essentials program has signed up 11 percent of the
eligible households in California.
Answer. Comcast is fully committed to helping close the ``digital
divide,'' and we believe the record will show that we have done more to
encourage broadband adoption by low-income families than any other
entity in the nation, private or governmental. Our Internet Essentials
program was designed to meet the needs of a specific population--low-
income families with school-age children who are not currently
connected to broadband Internet at home. This is the population with
the greatest need for Internet connectivity for educational purposes.
At the hearing, I reported that, since launching Internet
Essentials during the 2011 back-to-school season, Comcast had signed up
more than 300,000 households to receive the Internet at home, serving
over 1.2 million Americans. We also had provided more than 30,000 low-
cost, subsidized computers to program families.\1\
---------------------------------------------------------------------------
\1\ See Draft Hearing Tr. At 125:12-125:16 (July 16, 2014); Press
Release, Comcast Corp., Comcast Offers Up to Six Months of
Complimentary Internet Service and an Amnesty Program for Low-Income
Families (Aug. 4, 2014), http://coporate.com/news-information/news-
feed/comcast-offers-up-to-six-months-of-complimentary-internet-service-
and-an-amnesty-program-for-low-income-families.
---------------------------------------------------------------------------
As promised, I am pleased to provide updated numbers for
participation in Internet Essentials, which now show that over 350,000
families representing over 1.4 million Americans have been connected to
the power of the Internet--an increase of over 50,000 families and
200,000 Americans. Moreover, as of June 21, 2014, the number of
California participants had surpassed 46,000 families--or almost 15
percent of the eligible population.
Experts agree that the success of Internet Essentials has exceeded
all reasonable expectations.\2\ The unconnected population is difficult
to reach, and because issues of igital literacy (lack of understanding
of the value or relevance of the Internet, fear of the Internet, lack
of knowledge as to how to use computers, etc.) are the primary barriers
to adoption, research confirms that closing the digital divide will be
a very long-term project.
---------------------------------------------------------------------------
\2\ See, e.g., Marguerite Reardon, Comcast Extends `Internet
Essentials' Program Indefinitely, CNET, Mar. 4, 2014, http://
www.cnet.com/news/comcast-extends-internet-essentials-program-
indefinitely/ (``Comcast is not the only company that is working toward
more Internet adoption. . . . But so far, Comcast's program is the
largest such effort. According to new research, it's also been among
the most successful.''), citing Dr. John B. Horrigan, The Essentials of
Connectivity (Mar. 2014), available at http://corporate.comcast.com/
images/Final_IE_Re
search_Full_Paper.pdf
---------------------------------------------------------------------------
Even so, when you consider that after nearly two decades of
aggressive marketing--spending hundreds of millions of dollars--Comcast
has connected to the Internet less than 40 percent of all the
households we pass, the fact that we have connected almost 15 percent
of the eligible low-income families in California to the Internet in
less than three years is a remarkable accomplishment.\3\
---------------------------------------------------------------------------
\3\ In March 2014, Comcast received the T. Howard Foundation's
Innovative Program Award honoring the success of Internet Essentials in
helping close the digital divide for low-income families with children.
---------------------------------------------------------------------------
When this transaction is approved, Internet Essentials will become
available in all the communities in the retained TWC markets--including
major new metropolitan areas such as Los Angeles, New York, and Dallas/
Fort Worth. This will significantly extend the program's reach to
millions of additional low-income children and families.\4\
---------------------------------------------------------------------------
\4\ Because Comcast will not control the cable systems in the
markets being divested, we will no longer be able to support Internet
Essentials in those communities, although SpinCo could choose to
continue an equivalent program.
Question 1a and 1b. How can Internet Essentials do better? What
specific changes or modifications to the program could Comcast make to
improve sign-up rates?
Answer. Although Internet Essentials is unquestionably the most
successful broadband adoption program in the county, it remains an
evolutionary one that Comcast continuously enhances and supplements to
help improve participation rates by low-income families.
As we recently reported to the FCC,\5\ program enhancement to date
include:
---------------------------------------------------------------------------
\5\ See Third Annual Compliance Report on Internet Essentials, The
Comcast Broadband Opportunity Report, MB Docket No. 10-56, at 22-23
(July 31, 2014).
Extending the program indefinitely--beyond Comcast's initial
---------------------------------------------------------------------------
three-year commitment.
Expanding the eligibility requirement for Internet
Essentials twice, first by extending eligibility to families
with children eligible to receive reduced-price school lunches,
and then by including parochial, private, cyberschool, and
homeschooled students.
Increasing the broadband speeds for Internet Essentials
customers twice in less than two years; Internet Essentials now
offers up to 5 Mbps downstream, which is triple the speed
offered at the beginning of the program, and faster than
Comcast's entry-level service (3 Mbps) in most of its markets.
Expanding an instant approval process for families whose
students attend schools with 70 percent or more NSLP
participation (previously, the threshold was 75 percent), which
enhanced participation rates.
Creating an online application tool on the Internet
Essentials website to make it easier and faster for a family to
apply for Internet Essentials. The online application form is
now available in English and Spanish, and is optimized for use
on mobile devices.
Enabling Comcast's community partners to help connect low-
income families to the Internet by purchasing Opportunity Cards
that can be used toward the cost of paying for Internet
Essentials service.
Launching an enhanced version of its online Learning Center
to provide families with enhanced and dynamic content,
including interactive content in Spanish.
Creating the Gold Medal Recognition Program to award grants
to communities that have done the most to help close the
digital divide and create Internet Essentials Learning Zones.
As part of this program, Comcast recently made grants totaling
more than $1 million to 15 communities, including in Elk Grove
and Fresno, California.\6\
---------------------------------------------------------------------------
\6\ The additional Gold Medal-recognized communities include Adams
County, Aurora, and Denver, Colorado; Atlanta, Georgia; Chicago and
Cicero-Berwyn, Illinois; Collier, Miami, and Palm Beach, Florida;
Pasadena, Texas; Seattle and Tacoma, Washington; and St. Paul,
Minnesota.
Comcast is extremely proud of the success of Internet Essentials.
Going forward, we remain committed to making the program and our other
community service efforts even more effective, including in the
---------------------------------------------------------------------------
communities with TWC systems that we will acquire in this transaction.
Question 1c. Does Comcast support continuing the Internet
Essentials program until California and the Nation achieve an 80
percent home broadband adoption rate?
Answer. Comcast announced in March 2014 that it has extended
Internet Essentials indefinitely.\7\ However, the suggestion that any
one company could accomplish an 80 percent broadband adoption rate in
the low-income population is unrealistic. As noted above, after two
decades of intense marketing, Comcast has yet to achieve an overall 40
percent adoption rate across all of the homes we currently pass.
---------------------------------------------------------------------------
\7\ See Press Release, Comcast Corp., Comcast Extends National
Broadband Adoption Program for Low-Income Families (Mar. 4, 2014),
http://corporate.comcast.com/news-information/news-feed/internet-
essentials-2014.
Question 2. I represent California, which is home to the creative
and content community. My concern with the Comcast-Time Warner merger
is that because Comcast now controls cable systems in Los Angeles and
New York, it has the ability to decide which content, which cable
channels, will succeed and which will be crippled.
My constituents from the content community tell me that they cannot
get the support of advertisers and investors to launch a new channel
without exposure in Los Angeles, New York, Chicago or Philadelphia.
Answer. Today, the MVPD marketplace is fiercely competitive and
provides programmers with more outlets than ever before for their
content. Nothing about this transaction will harm programmers.
Comcast, like other MVPDs, has--and will continue to have--every
business incentive to carry programming that its customers value and
demand. As others have said, ``Content is king.'' Comcast faces intense
competition for customers in these markets from the two DBS providers,
telcos, cable over-builders, and, increasingly, OVDs--including
Netflix, Amazon, Hulu, and others that are producing their own content
and curating other programming. In fact, Netflix alone has more
customers than the combined company will have and provides broader
exposure than any MVPD, giving content providers a whole new platform
to establish themselves and advertisers a new way to reach millions of
viewers. As a result, Comcast would quickly lose subscribers to other
MVPDs if it failed to carry channels its customers want to watch, or
failed to offer attractive packages of desired programming to
consumers.
The D.C. Circuit concluded more than a decade ago that the evidence
before the FCC and the court could not have justified a horizontal
ownership limit lower than 60 percent on the basis of buyer power
concerns.\8\ And in 2009, the same court concluded that ``[i]n light of
the changed marketplace, the Government's justification for the 30
percent cap is even weaker now than in 2001. . . .'' \9\ As the court
explained:
---------------------------------------------------------------------------
\8\ See Time Warner Entm't Co., L.P. v. FCC, 240 F.3d 1126, 1136
(D.C. Cir. 2001).
\9\ Comcast Corp. v. FCC, 579 F.3d 1, 9 (D.C. Cir. 2009) (emphasis
added).
[T]he record is replete with evidence of ever increasing
competition among video providers: Satellite and fiber optic
video providers have entered the market and grown in market
share since the Congress passed the 1992 Act, and particularly
in recent years. Cable operators, therefore, no longer have the
bottleneck power over programming that concerned the Congress
in 1992.\10\
---------------------------------------------------------------------------
\10\ Id. at 8.
Today's MVPD marketplace is even more competitive than it was in
2009--let alone in 2001--with cable providers' share of U.S. MVPD
subscribers having declined significantly in recent years in light of
robust competition from DBS and telco providers and online video
distributors. Given these clear judicial precedents and the enhanced
competition that has developed in the video marketplace since the
decisions were issued, there is no credible basis for concluding that a
cable operator serving less than 30 percent of all MVPD subscribers
could be a bottleneck or raise competitive issues.\11\ A 70 percent
``open playing field'' is more than sufficient to allow new cable
channels to be launched.
---------------------------------------------------------------------------
\11\ See Applications of Comcast Corp. and Time Warner Cable Inc.
for Consent to Transfer Control of Licenses and Authorizations, MB
Docket No. 14-57, Applications and Public Interest Statement, at 143-51
(filed Apr. 8, 2014); Rosston-Topper Declaration 185-188.
---------------------------------------------------------------------------
Indeed, looking solely at carriage by MVPDs, Epix, Longhorn
Network, NFL Sunday Ticket, Fusion, Fox Soccer Plus, Universal Sports,
and MTV U are among many networks that are (or were originally) carried
by other MVPDs besides Comcast. Similarly, the Big 10 Network, ESPNU,
Smithsonian Channel, Fox Movie Channel, MASN, CBS Sports Net, and
several other networks were launched by other MVPDs before Comcast
started carrying them.
Conversely, carriage by Comcast does not guarantee a network's
success. AZN, Bridges Network, ESPN3D, and Mountain West Conference
Channel are among various networks that Comcast carried that were
ultimately not successful. As these facts further demonstrate,
therefore, carriage by Comcast is not essential to the ability of an
independent network to launch or to succeed.
In short, previous concerns about video competition are truly
antiquated in light of today's marketplace realities. This is
particularly so where, as here, Comcast and TWC do not compete for
customers in any market and there will be no reduction in consumer
choice among competing MVPDs. Comcast will continue to face the same
competitive pressures post-transaction as it does today.
Question 2a. How will the merger with Time Warner impact diversity
of content for Comcast customers?
Answer. Comcast serves the diverse needs and interests of our
customers by offering a wide variety of compelling content, regardless
of any affiliation with Comcast. We currently carry over 160
independent networks, including many small, diverse, and international
ones.\12\ Moreover, Comcast does not have an ownership interest in the
overwhelming majority of content that it distributes. In fact, six of
every seven networks carried by Comcast are unaffiliated with the
company.
---------------------------------------------------------------------------
\12\ Comcast is using the FCC's definition of ``independent
networks'' in the NBCUniversal Order, which includes networks that are
not owned by Comcast and not affiliated with either Comcast or a top 15
programming network owner, as measured by annual revenues.
---------------------------------------------------------------------------
We carry--and will continue to carry--the programming that our
subscribers want and value. And our proven commitment to a wide
diversity of content will enhance consumer access to diverse
programming after the TWC transaction is completed.
More specifically, Comcast is proud of the amount of diverse
programming we make available to our customers. All of our cable
systems are now digital and we carry scores of diverse networks on our
Digital Basic tiers at affordable prices. In total, Comcast currently
carries more than 100 cable networks geared toward African American,
Hispanic/Latino, and Asian American audiences. These include:
11 cable networks geared toward the African American
community.
Dozens of cable networks geared toward the Hispanic/Latino
community. Comcast fulfilled its commitment to launch a package
of 40 to 60 Spanish-language channels in all major Latino
markets, including South Florida. The XFINITY TV Latino
packages now include approximately 60 Latino networks in
English and Spanish, depending on a customer's region,
including 50+ independent channels in our Spanish-only ``H''
tier. Comcast also launched the Xfinity Latino website
(Xfinity.com/Latino), which features almost 9,000 choices and
2,500 hours of movies and shows online free to XFINITY Latino
customers.
25 cable networks geared toward the Asian community.
Highlights include Mnet, the only 24/7 English-language
nationwide television network in the U.S. targeting Asian
Americans, and MYX TV, a channel carried in Seattle and western
Washington State made for and by Asian Americans.
Since 2011, and as part of our commitments in the NBCUniversal
Order, Comcast has also launched five independent networks, four of
which have Hispanic American or African American ownership or
management. These include BabyFirst Americas, El Rey, ASPiRE, and
REVOLT. All of these networks are carried on our Digital Basic tier.
The launch of these networks has created even more outlets and
opportunities for content creators serving the interests and needs of
diverse audiences.\13\
---------------------------------------------------------------------------
\13\ Comcast has committed to launch four additional minority-owned
networks and one additional independent network in the next few years.
---------------------------------------------------------------------------
In addition, since 2011, Comcast has expanded its distribution of
over 120 independent networks, including expanded distribution of a
host of minority channels to tens of millions of additional customers.
This increased distribution is consistent with commitments that Comcast
made as part of memoranda of understanding (``MOU'') with various
diverse organizations, in conjunction with the NBCUniversal
transaction.
For example, consistent with the MOU, Comcast has made the Africa
Channel available to over two million additional customers, and TV One
available to over 600,000 additional customers. Comcast likewise
extended distribution of seven Hispanic programming services--Azteca
America, Galavision, HITN, LATV, nuvoTV (f/k/a SiTV), UniMas (f/k/a
Telefutura), and Univision--by more than 14 million subscribers.\14\
Mnet, a leading Asian American entertainment network, was also expanded
to millions of additional subscribers in major DMAs. And we have
increased the number of video-on-demand (``VOD'') hours for diverse
programming by more than 270 percent, while increasing the number of
online hours for diverse programming (via Xfinity.com) by nearly 170
percent.
---------------------------------------------------------------------------
\14\ This exceeded, by more than 40 percent, Comcast's commitment
in the NBCUniversal transaction to expand carriage of three Hispanic
networks by 10 million subscribers.
---------------------------------------------------------------------------
Besides expanding distribution of these channels and other diverse
content, Comcast also has also helped promote and drive viewer interest
in its diverse programming in innovative ways that many smaller
networks could not do on their own. Specifically, between 2011 and
2013, we created Xfinity ``microsites'' tailored for African American,
Asian-Pacific, Hispanic, and LGBT audiences.\15\ Each microsite brings
together culturally relevant entertainment from a variety of sources in
a central, easy-to-navigate location. As an example, xfinity.com/
CelebrateBlackTV featured special programming celebrating Black History
Month. And to commemorate the 50th anniversary of the March on
Washington, Comcast launched HisDreamOurStories.com, an award-winning
website dedicated to the legacy of Dr. Martin Luther King, Jr. For
these and other efforts, Comcast/NBCUniversal was recently honored with
the 2014 Multicultural TV Front Runner Award, which recognizes the
company's commitment and leadership in supporting multicultural
communities.
---------------------------------------------------------------------------
\15\ See http://xfinity.com/celebrateblacktv; http://xfinity.com/
asia; http://xfinity.com/latino; http://xfinity.com/lgbt.
---------------------------------------------------------------------------
Comcast has also invested heavily to develop and deploy the first-
of-its-kind Xfinity Latino Entertainment Channel, a linear, interactive
``barker'' channel available to over 20 million subscribers that
promotes curated, Latino-relevant content. During June 2014, this
channel was transformed into a one-stop shop for all things World Cup,
including direct links to Xfinity On Demand for immediate VOD
availability of every World Cup match, the latest news, scores and
standings, content recaps, and information on upcoming matches.\16\
---------------------------------------------------------------------------
\16\ See Press Release, Comcast Corp., Every Moment, Every Match On
Demand, Instantly (June 11, 2014), http://corporate.comcast.com/news-
information/news-feed/comcast-delivers-the-world-cup-on-demand-
instantly.
---------------------------------------------------------------------------
These are only a few of the additional ways that Comcast is
providing and supporting diverse programming. Nothing about the
transaction will change our commitment to offering and promoting
programming, regardless of source, that appeals to a broad range of
consumers; instead, we will bring this same approach to a larger
universe of customers.
Question 2b. What does Comcast plan to do to ensure that consumers
are not harmed by Comcast having too much control over content?
Answer. The transaction will not give Comcast the incentive or
ability to restrict competing content providers from distributing their
content to consumers, or to withhold NBCUniversal programming from
competing TV and Internet providers.
The combined company will account for less than 30 million managed
MVPD subscribers, or less than 30 percent of MVPD subscribers
nationally. This will not adversely affect the ability of content
providers to distribute their content broadly to a national audience,
whether or not they enter into an agreement with our company, for the
same reasons I previously explained.
Indeed, today, most consumers can choose among at least three
facilities-based MVPD providers; many can choose among four or more.
And this does not even account for the increasing number of online
video distributors offering content to consumers. According to SNL
Kagan, 53.9 million U.S. households subscribed to online video services
at the end of 2013, nearly triple the 18.2 million that did so in 2010.
If Comcast refuses to carry the content that consumers want, they can
and will switch to our competitors, and their numbers are growing
everyday.
The transaction will not affect NBCUniversal's licensing of content
to MVPDs, either.\17\ Comcast is acquiring minimal new programming
interests from TWC: one major league professional sports English
language RSN, some local sports and news channels, and interests in two
national cable networks in which Comcast already has a partial
ownership interest (MLB Network and iN Demand). As a result, there will
only be a de minimis change in the new company's programming assets.
NBCUniversal will not have the power or incentive to withhold its
programming from MVPDs in any markets. And, in all events, these
relatively modest new holdings will be subject to safeguards such as
the FCC's program access rules.
---------------------------------------------------------------------------
\17\ Since the Comcast-NBCUniversal transaction, there have been no
disputes with any MVPDs over licensing of NBCUniversal programming on
fair and reasonable terms--and none in which the parties have resorted
to arbitration. NBCUniversal has successfully reached affiliation
agreements covering the full suite of NBCUniversal programming with,
among others, Verizon, Cablevision, Charter, Dish Network, Suddenlink,
Mediacom, and NCTC without resort to the arbitration remedies in the
NBCUniversal Order.
---------------------------------------------------------------------------
For the same reasons, the transaction will not affect
NBCUniversal's licensing of content to OVDs. Since the NBCUniversal
transaction was approved, NBCUniversal has licensed or renewed
programming content to numerous OVDs, including Apple, Amazon, Netflix,
and YouTube. The NBCUniversal Order's licensing and arbitration rights
for OVDs will also continue to apply after this transaction as a
backstop.
______
Response to Written Questions Submitted by Hon. Mark Pryor to
David L. Cohen
Question 1. I have long been concerned about ``orphan counties''
and the ability of consumers living in those areas to have access to
home state broadcast TV programming. I would expect that as online
video choices continue to grow consumers in these counties would have
more access to programming that is specific to their state. Could you
please state your thoughts on how increased online video competition
could help address the orphan county issue?
Answer. Comcast recognizes the frustration that results from
consumers' lack of access to in-state broadcast signals and
programming, which arises from Nielsen's construct of DMAs. We agree
that the explosive growth of online video has the potential to fill
some of those gaps for consumers seeking local content such as news,
weather, and sports.
In a number of circumstances, Comcast carries additional broadcast
stations in order to provide in-state coverage to our customers. For
example, our cable systems in West Memphis currently include locally-
based stations broadcasting out of Memphis, Little Rock, and Jonesboro.
In addition, the increasing competition to provide online video
will help provide greater access to local programming for consumers
living in an orphan county in at least two ways. First, this increased
competition will continue to drive Internet Service Providers to invest
in infrastructure that gives more consumers access to online sites and
platforms, extending the availability of broadband services into rural
areas that typically comprise orphan counties. And second, in response
to this increased competition, broadcast stations and other
programmers, as well MVPDs and OVDs, will continue to invest in
providing online content that appeals to consumer interests, including
local news, weather, and sports programming.
Broadcasters, in particular, are offering websites where local
information can be accessed freely by any consumer. For instance, among
other websites, an Arkansan living in the Memphis DMA can find in-state
news, sports, and weather (including watches and warnings) originating
from Jonesboro at www.kait8.com; or from Little Rock at
www.arkansasmatters.com or www.Fox16.com. These kind of online
offerings of local content will continue to expand as programmers and
distributors compete for viewer attention and loyalty in this
increasingly dynamic video marketplace.\1\
---------------------------------------------------------------------------
\1\ Indeed, the website of WATN, Memphis (ABC), covered almost 60
stories about Arkansas in the last month. See http://
www.localmemphis.com/sitesearch?q=arkansas&mod=m. The website of WHBQ,
Memphis (Fox), covered close to 50 stories about Arkansas in the last
three weeks or so. See http://www.myfoxmemphis.com/
search?RecordNum=1&vendor=ez&qu=
arkansas. The website of WMC-TV, Memphis (NBC), covered about 100 news
stories in the last 30 days that mentioned Arkansas. See http://
search.wmctv.com/default.aspx?ct=r&q=arkansas
&type=20198,155010154&r.STRDAT=8%2f03%2f2014%2c.
Question 2. As we look to the future of video, no Americans should
be left behind. I authored the Twenty-First Century Communications and
Video Accessibility Act in 2010 as a way to make sure communications
and video services remain available to all consumers. In addition to
the FCC's laudable recent actions to expand its closed captioning rules
to Internet video clips, are there additional steps that Congress or
the FCC need to take to make sure all video services are accessible to
everyone?
Answer. Comcast shares Senator Pryor's commitment to improving the
accessibility of video services. We supported the Twenty-First Century
Communications and Video Accessibility Act of 2010 (the ``CVAA''). We
have also participated in a constructive and collaborative way in many
CVAA rulemaking proceedings at the FCC; and we are now working
diligently to implement the law's requirements, including those
relating to Internet video clips. Comcast believes the goals of the
CVAA are being achieved, but also recognizes that there is always more
to do in this area. We look forward to working together with the FCC
and other stakeholders on these and other accessibility issues.
Comcast appreciates that both Congress in drafting the CVAA, and
the FCC in implementing its related rules, have given industry
flexibility to build next-generation accessibility solutions by not
limiting technology choices. This policy has enabled Comcast to develop
innovative solutions for viewers with disabilities. We have made
accessibility an integral part of our service and product planning,
design, and implementation. We work closely with individuals with
disabilities and advocacy groups to drive a customer-informed
accessibility strategy, and have hosted numerous roundtables with
interested parties to identify ways to make our services and products
more accessible.
These collaborative efforts have led to a range of innovative,
industry-leading solutions, including:
A first-of-its-kind ``talking guide'' solution for our
acclaimed X1 platform, which assists blind and visually-
impaired customers in navigating the X1 TV user interface and
selecting particular services for use.
Simplified processes for activating accessibility features,
such as programmable ``soft keys'' on the remote control for
the X1 platform that can be configured for one-touch activation
of closed captioning or video description.
Screen-reader technology on the Xfinity Connect Mobile App,
so blind and low-vision users can access e-mail, text, and
other online services on tablets and smartphones.
A new automated monitoring tool, which enables Comcast to
detect closed captioning problems and quickly investigate and
troubleshoot captioning issues.
A Comcast Accessibility Center of Excellence focused on
providing specialized customer care for persons with
disabilities.
We also recognize the importance of making a wider range of content
accessible to viewers with disabilities. In fact, NBCUniversal began
captioning online video well before the FCC required it, including, for
example, news clips on the NBC News and Today Show websites.
NBCUniversal has also captioned content that is not subject to the
FCC's rules, such as Internet-only video feeds for the 2014 Sochi
Olympics. And we played a leading role in the development of industry
best practices (later codified in the FCC's rules) to improve the
quality of closed captions.
Comcast appreciates Senator Pryor's leadership on accessibility
issues, and is strongly committed to continuing to work with him and
other stakeholders to make further improvements in this area.
______
Response to Written Questions Submitted by Hon. Mark Pryor to
Justin (Gus) Hurwitz
Question 1. As we look to the future of video, no Americans should
be left behind. I authored the Twenty-First Century Communications and
Video Accessibility Act in 2010 as a way to make sure communications
and video services remain available to all consumers. In addition to
the FCC's laudable recent actions to expand its closed captioning rules
to Internet video clips, are there additional steps that Congress or
the FCC need to take to make sure all video services are accessible to
everyone?
Answer. The direction of the video market is largely being driven
by competition for high-value consumers that are interested in, or that
the market believes are interested in, high-definition, Internet-
delivered, general interest entertainment programming. I worry that
this competition will tend to leave three groups behind: local
programmers (including news, information, and local entertainment),
consumers without access to the highest-speed Internet services, and
traditional MVPD (cable and satellite services). Each of these are
problematic in their own right, and also raise concerns that the
evolving media marketplace is ``evolving'' in part by leaving consumers
that are not of ``high-value'' to the market behind. Whether, or what,
can be done in response to these concerns is a difficult question, but
I offer some preliminary thoughts below.
First, local programming--which is often more important to and
representative of those with accessibility needs--is largely
unavailable online. Some broadcasters may stream their content on their
own--but it is not part of the typical online video ecosystem. Other
local broadcasters do not make their video content available online--in
any format, let alone real-time streaming of broadcaster-originated
content. As consumers continue to migrate to online video sources, they
also move away from these local programming sources. This is
exacerbated by typical consumer demand, which is driven by consumption
of non-local programming (and primarily entertainment programming).
This loss of local content is potentially devastating to participatory
government in a modern liberal democracy. While there are no clear
answers to address this concern today, Congress and the FCC should be
actively investigating the role of local programming in the media
(especially video, and online video) marketplace, and considering
approaches to bringing local content to online video platforms in a
meaningful way, and the role of local media in the lives of the
disabled.
Second, the online video marketplace is driven by a hydraulic
pressure to cater to the demands of the highest value consumers--those
who typically make the greatest investments in video consumption,
including by having high-quality video systems (e.g., HD TVs) and high-
speed Internet. It is an unfortunate truth that consumers with
disabilities are often not represented among these ``high-value''
consumers--ongoing technological development often does not cater to
them, and, indeed, often leaves them behind. This is particularly,
troubling where earlier iterations of a given technology may be more
accommodating (or more readily accommodated) to their needs.
The technological state of the art will always be beyond what the
median consumer demands, and entirely out of reach of many consumers.
Undoubtedly this pressure to develop new and better technologies yields
immeasurable benefits (viz., the new technologies that result). But if
we define what ``the typical'' or ``every'' consumer should have access
to as what is necessary to make use of what the market is offering, we
will be in a perpetual state of ``falling behind''--and to the extent
that we do catch up, it will often be by expending substantial
resources to provide consumers with resources they do not necessarily
want or need. The Universal Service program is one mechanism that helps
reduce this concern, by ensuring that consumers have access to high-
speed Internet--but it does nothing to address the hydraulic pressure
that will ensure many consumers do not have access to much video
content, and in fact may exacerbate that pressure. Rather, Congress and
the FCC, at least to the same extent they are pushing for the most
advanced technologies to be widely available to consumers, should also
be working to ensure that consumers have access to less technologically
demanding equivalents of video (and other online service) offerings.
Thanks to technological advances, typical quality video offerings from
3-4 years ago can today be accommodated by Internet connections
commonly available 5-8 years ago. But the market is focused on
developing video offerings that require consumers to have substantial
multiples of resources beyond that (e.g., HD-quality video requires 3-6
times the bandwidth of DVD quality video; 4K-quality video requires 25
times the bandwidth)--and that do nothing to improve the accessibility
of this content. These higher-quality video offerings offer little
necessary benefit to many forms of programming--especial for the most
vital programming, such as local news and information--yet there is
little focus on preserving access to non-HD quality content for
consumers who may not have or want access to HD-quality content.
Similar concerns can be expressed about online accessibility
outside of the video marketplace context. The Internet is increasingly
a rich multimedia environment, the evolution of which has been driven
by low-cost access to high-speed broadband service. But this audio-and
video-rich environment frequently leaves disabled persons behind.
Third, traditional MVPD platforms are subject to myriad regulations
to which emerging video marketplace participants are not. These
restrictions regulate, for instance, how much and what types of certain
content these firms can (or must) carry, as well as how, when, or even
whether these firms can negotiate over the price or terms for carrying
that content. The subject many of these firms to local or other
licensing regulations, and impose other limits on how they develop and
operate their infrastructures. And increasingly it is unclear whether
these regulations do or should apply to non-traditional entrants into
the video marketplace.
The existing regulatory framework therefore presents two types of
problem relevant to accessibility concerns. First, it ossifies
traditional MVPDs, limiting their ability to provide access to or
compete with other providers in the emerging video marketplace. This is
particularly problematic because many with accessibility concerns may
be averse to experimenting with new technology platforms, preferring
instead to stick with a known platform that offers at least minimal
accessibility support. Moreover, allowing traditional MVPDs to evolve
their own technological and business models to look more like the
evolving online video marketplace may in many cases require those MVPDs
to expand their accessibility features to cover new content forms and
sources. And second, related to this point, many firms in the evolving
marketplace--those that are not (or may not be) subject to existing
regulations--operate without any concern for or awareness of
accessibility issues. This furthers the tendency of the market to speed
ahead, catering to ``high-value'' consumers while leaving those with
other needs or demands behind. This is particularly tragic because many
of the firms developing these new technologies have incredible
innovative capabilities that could likely yield substantial benefits to
those who need more accessible content--were these firms brought under
the umbrella of responsibility for ensuring the accessibility of their
wares, the dividends could be substantial.
______
Response to Written Questions Submitted by Hon. Mark Pryor to
John T. Stankey
Question 1. As we look to the future of video, no Americans should
be left behind. I authored the Twenty-First Century Communications and
Video Accessibility Act in 2010 as a way to make sure communications
and video services remain available to all consumers. In addition to
the FCC's laudable recent actions to expand its closed captioning rules
to Internet video clips, are there additional steps that Congress or
the FCC need to take to make sure all video services are accessible to
everyone?
Answer. The passage of the Twenty-First Century Communications and
Video Accessibility Act (``CVAA'') represented a landmark event for
persons with disabilities, significantly increasing access to modern
communications and video products and services. For its part, the
Federal Communications Commission (``FCC'') has worked diligently to
adopt rules under the CVAA that can be implemented by the
communications and video industries. The CVAA and implementing FCC
regulations not only mandate more accessible and usable video products
and services, but inspire manufacturers, service providers, and video
providers to rethink how they make communications and video products
and services available to the public. Yet, the CVAA wisely avoids
prescriptive regulations that would be all too quickly out of date and
potentially limit innovation and the benefits to persons with
disabilities. The communications and video industries have used the
impetus of the CVAA and the existing momentum from advancements in
technology to significantly increase access to video for persons with
disabilities, such as the development of increasingly accessible mobile
operating systems and mobile applications. Today, persons who are blind
can use camera and video applications to communicate, identify colors,
have video clips described, and travel in unfamiliar areas
independently, and persons with speech disabilities can use
applications to augment their speech. This cycle of innovation will
continue without additional Congressional or FCC action, resulting in a
greater number of options for persons with disabilities to access and
enjoy video communications.
Given that the CVAA is still in its relatively early stages of
implementation, companies like AT&T are primarily focused on finalizing
implementation and ensuring compliance. For example, AT&T has created
the Corporate Accessibility Technology Office, which has evaluated over
17,000 products and services for accessibility. We also have invested
in improving access to U-verse video programming for persons with
disabilities. U-verse customers who are deaf or have hearing loss rely
on closed captioning to experience video programming and customers who
are blind or have low vision rely on video description to access video
programming. Currently, video description is required for 50 hours of
programming per calendar quarter for nine channels--the four television
broadcast networks in the largest 25 markets and the top five non-
broadcast networks.
Congress has provided the FCC with authority under the CVAA to
examine whether and when it is appropriate to increase the number of
hours of described programming and to expand the market areas where
such programming must be provided. In addition, Congress could examine
the costs versus benefits of opening more markets to described
programming on less than the ten year timeline it provided in the CVAA
and to encourage and recognize voluntary efforts by content developers,
researchers and organizations of persons with disabilities that result
in an increase in the amount of described programming.
The FCC can also enhance access to video services by increasing the
number of persons with disabilities who are eligible for assistance
under the National Deaf-Blind Equipment Distribution Program
(``NDBEDP''). For persons who are both deaf and blind, the potential
for full inclusion is often blocked by the significant cost of
specialized equipment and related activities, which will likely remain
high due to specialization and limited market size. To help this
community acquire assistive equipment, the FCC adopted rules under
Section 105 of the CVAA to establish a trial of the NDBEDP, setting an
income eligibility threshold to participate in the trial at 400 percent
of the Federal Poverty Guidelines ($43,320 based on 2010 poverty
levels). According to the National Coalition of Deafblindness, this
eligibility threshold will exclude some persons who are deaf-blind
because of their family situation and the high costs of their
transportation, medical, home support and other needs, even before
considering the costs of assistive technology.\1\ Those persons would
also have fewer employment options, as some small businesses may be
unable to bear the cost of assistive technologies. In light of these
issues, the final FCC NDBEDP rules should significantly lower the
income eligibility threshold and Congress should evaluate the costs and
benefits of continuing to restrict participation in the NDBEDP to low
income individuals.
---------------------------------------------------------------------------
\1\ Comments of National Coalition on Deafblindness, Implementation
of the Twenty-First Century Communications and Video Accessibility Act
of 2010, Section 105, Relay Services for Deaf-Blind Individuals, CG
Docket No. 10-210, at 5 (filed Feb. 4, 2011).
---------------------------------------------------------------------------
Congress could also increase access to video communications by
promoting continued research and technological advancement. While
device manufacturers and video distributors work actively with
disability organizations, such as the National Association of the Deaf,
the American Foundation for the Blind, and Telecommunications for the
Deaf and Hard of Hearing, Inc., to understand the needs of persons with
disabilities, research is ultimately conducted by accessibility
experts. The Rehabilitation Engineering Research Centers (e.g., the
Telecommunications Access Program at Gallaudet University), with
industry support and participation, offer a good model for technology
transfer in the accessibility and usability of communications and
video. It is critical that these research efforts continue and increase
in scope, to not only provide access to advanced communications and
video, but also to foster advancements in the areas of education,
employment and civic participation for persons with disabilities
through these technologies. Efforts to increase access to video
programming tend to focus on persons with hearing and vision
disabilities (i.e., Sections 204 and 205 of the CVAA). With additional
funding, these Research Centers (and similar organizations) could
expand their focus on improving the video experience for persons with
cognitive and physical disabilities. The results of this research could
form the basis for manufacturers and video providers to develop more
universally accessible remote controls, interfaces, and other assistive
technology. Given the prevalence of physical and cognitive
disabilities, the increasing interactivity of video, and the wider use
of video programming in the workplace, education settings, social
networks, and elsewhere, Congress should also direct Federal agencies
to fund user research intended to identify accessibility barriers to
video programming for people with physical and cognitive disabilities
and potential solutions to circumvent those barriers, and to work with
industry on the transfer of technology to develop those solutions.
Lastly, without research and training at the university level, it
will be difficult for companies to find the experts necessary to
harness the potential of advanced communications and video programming
for persons with disabilities. The International Association of
Accessibility Professionals (``IAAP'') encourages programs that
increase the number of professionals with expertise in accessibility in
engineering, human factors, and computer science. Congress can promote
the continued development of the field by recognizing the efforts of
organizations like the IAAP and encouraging funding to university and
professional development programs with the goal to develop
accessibility expertise.
______
Response to Written Questions Submitted by Hon. Mark Pryor to
Jeffrey H. Blum
Question 1. I have long been concerned about ``orphan counties''
and the ability of consumers living in those areas to have access to
home state broadcast TV programming. I would expect that as online
video choices continue to grow consumers in these counties would have
more access to programming that is specific to their state. Could you
please state your thoughts on how increased online video competition
could help address the orphan county issue?
Answer. DISH shares your concern regarding the inability of orphan
county residents to access in-state broadcasts. While the Internet has
generally provided more video options, it is not guaranteed that all
orphan county residents are connected to the Internet or have the high-
speed, high-capacity connections that online video is increasingly
dependent upon. Rather than hoping that all orphan county residents
have sufficient broadband connections in order to seek out alternative
Internet sources of in-state news and weather, Congress should consider
the statutory changes that would be necessary for consumers to receive
in-state local broadcast stations from the pay-TV provider of their
choice.
Question 2. As we look to the future of video, no Americans should
be left behind. I authored the Twenty-First Century Communications and
Video Accessibility Act in 2010 as a way to make sure communications
and video services remain available to all consumers. In addition to
the FCC's laudable recent actions to expand its closed captioning rules
to Internet video clips, are there additional steps that Congress or
the FCC need to take to make sure all video services are accessible to
everyone?
Answer. DISH shares the goal of making video services more
accessible to all consumers. We look forward to continuing to work with
Congress and the FCC to ensure Americans have access to video
technologies while preserving flexibility for the industry to continue
innovating in this rapidly evolving space.
______
Response to Written Questions Submitted by Hon. Mark Pryor to
Gene Kimmelman
Question 1. I have long been concerned about ``orphan counties''
and the ability of consumers living in those areas to have access to
home state broadcast TV programming. I would expect that as online
video choices continue to grow consumers in these counties would have
more access to programming that is specific to their state. Could you
please state your thoughts on how increased online video competition
could help address the orphan county issue?
Answer. The orphan county issue highlights one of the problems with
today's video marketplace. It is an artifact of rules that say that
viewers can only access programming from ``their'' DMAs. But DMAs are
drawn to suit advertisers' needs, not viewers' needs. Orphan counties
are only the clearest example--but why is it difficult for any viewer
who so chooses to access ``out of market'' programming?
Increased competition from online sources could help alleviate some
of the problems caused by the DMA system, by giving viewers new ways to
access programming that is not available over the air or through an
MVPD. But territorial exclusivity can still affect what programming
viewers can access online, and the existing structures of the video
marketplace can keep programming from being distributed online
altogether.
At the very least, FCC rules should not reinforce a system that
works against viewer choice. As with the sports blackout issue, private
parties should not be able to use government regulations as an excuse
to limit what people can see. They might still be able to use private
contracts to restrict viewer access to programming, but it should be
clear that these restrictions are driven by business considerations and
not public policy.
Question 2. As we look to the future of video, no Americans should
be left behind. I authored the Twenty-First Century Communications and
Video Accessibility Act in 2010 as a way to make sure communications
and video services remain available to all consumers. In addition to
the FCC's laudable recent actions to expand its closed captioning rules
to Internet video clips, are there additional steps that Congress or
the FCC need to take to make sure all video services are accessible to
everyone?
Answer. In general, accessibility rules should not hinge on whether
online programming was once aired on broadcast or cable. Regulatory
silos are not appropriate when it comes to ensuring that technology and
media are accessible to all. Policymakers should ensure that content,
devices, and services are all accessible to Americans with
disabilities, in a way that is not unduly burdensome to small creators.
Additionally, as more video goes online, access to video
increasingly requires access to broadband. Universal service for
broadband is thus necessary to ensure that Americans in every part of
the country, and at every income level, can access and participate in
culture.
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.