[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




                     STATE OF THE MEDIA MARKETPLACE

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

                                HEARING

                               BEFORE THE

             SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 27, 2018

                               __________

                           Serial No. 115-171
                           
                           
                [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]     
                           


      Printed for the use of the Committee on Energy and Commerce

                          energycommerce.house.gov
                        
                        
                                   ________
                       
                       U.S. GOVERNMENT PUBLISHING OFFICE
                
36-757 PDF                       WASHINGTON: 2019
                      
                        
                        


                    COMMITTEE ON ENERGY AND COMMERCE

                          GREG WALDEN, Oregon
                                 Chairman

JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
FRED UPTON, Michigan                 BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
MICHAEL C. BURGESS, Texas            ELIOT L. ENGEL, New York
MARSHA BLACKBURN, Tennessee          GENE GREEN, Texas
STEVE SCALISE, Louisiana             DIANA DeGETTE, Colorado
ROBERT E. LATTA, Ohio                MICHAEL F. DOYLE, Pennsylvania
CATHY McMORRIS RODGERS, Washington   JANICE D. SCHAKOWSKY, Illinois
GREGG HARPER, Mississippi            G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
ADAM KINZINGER, Illinois             PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia         BEN RAY LUJAN, New Mexico
GUS M. BILIRAKIS, Florida            PAUL TONKO, New York
BILL JOHNSON, Ohio                   YVETTE D. CLARKE, New York
BILLY LONG, Missouri                 DAVID LOEBSACK, Iowa
LARRY BUCSHON, Indiana               KURT SCHRADER, Oregon
BILL FLORES, Texas                   JOSEPH P. KENNEDY, III, 
SUSAN W. BROOKS, Indiana             Massachusetts
MARKWAYNE MULLIN, Oklahoma           TONY CARDENAS, California
RICHARD HUDSON, North Carolina       RAUL RUIZ, California
KEVIN CRAMER, North Dakota           SCOTT H. PETERS, California
TIM WALBERG, Michigan                DEBBIE DINGELL, Michigan
MIMI WALTERS, California
RYAN A. COSTELLO, Pennsylvania
EARL L. ``BUDDY'' CARTER, Georgia
JEFF DUNCAN, South Carolina

                                 ______

             Subcommittee on Communications and Technology

                      MARSHA BLACKBURN, Tennessee
                                 Chairman
LEONARD LANCE, New Jersey            MICHAEL F. DOYLE, Pennsylvania
  Vice Chairman                        Ranking Member
JOHN SHIMKUS, Illinois               PETER WELCH, Vermont
STEVE SCALISE, Louisiana             YVETTE D. CLARKE, New York
ROBERT E. LATTA, Ohio                DAVID LOEBSACK, Iowa
BRETT GUTHRIE, Kentucky              RAUL RUIZ, California
PETE OLSON, Texas                    DEBBIE DINGELL, Michigan
ADAM KINZINGER, Illinois             BOBBY L. RUSH, Illinois
GUS M. BILIRAKIS, Florida            ANNA G. ESHOO, California
BILL JOHNSON, Ohio                   ELIOT L. ENGEL, New York
BILLY LONG, Missouri                 G.K. BUTTERFIELD, North Carolina
BILL FLORES, Texas                   DORIS O. MATSUI, California
SUSAN W. BROOKS, Tennessee           JERRY McNERNEY, California
KEVIN CRAMER, North Dakota           FRANK PALLONE, Jr., New Jersey (ex 
MIMI WALTERS, California                 officio)
RYAN A. COSTELLO, Pennsylvania
GREG WALDEN, Oregon (ex officio)

                                  (ii)
                                  
                                  
                                  
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Gus M. Bilirakis, a Representative in Congress from the 
  State of Florida, opening statement............................     2
    Prepared statement...........................................     2
Hon. Michael F. Doyle, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     3
    Prepared statement...........................................     5
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, opening statement......................................     6
    Prepared statement...........................................     7
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     8
    Prepared statement...........................................    10

                               Witnesses

Craig Moffett, Cofounder and Senior Research Analyst, 
  MoffettNathanson...............................................    12
    Prepared statement...........................................    14
    Answers to submitted questions...............................   133
Ian Olgeirson, Research Director, S&P Global Market Intelligence.    24
    Prepared statement...........................................    26
    Answers to submitted questions...............................   138
Jeff Corwin, Wildlife Biologist, Executive Producer and Host of 
  ABC's ``Ocean Treks,'' on behalf of Litton Entertainment.......    37
    Prepared statement...........................................    39
    Answers to submitted questions...............................   141

                           Submitted Material

Letter of September 26, 2018, from Matthew M. Polka, President 
  and Chief Executive Officer, American Cable Association, to 
  Mrs. Blackburn and Mr. Doyle, submitted by Mr. Bilirakis.......    74
Statement of the Motion Picture Association of America, Inc., 
  September 27, 2018, submitted by Mr. Bilirakis.................    78
Article of February 8, 2018, ``Silicon Valley's Tax-Avoiding, 
  Job-Killing, Soul-Sucking Machine,'' by Scott Galloway, 
  Esquire, submitted by Mr. Bilirakis............................    84
Letter of September 26, 2018, from Jonathan Schwantes, Senior 
  Policy Counsel, Consumers Union, to Mrs. Blackburn and Mr. 
  Doyle, submitted by Mr. Bilirakis..............................   114
Letter of September 26, 2018, from Michael Fletcher, Chief 
  Executive Officer, RIDE Television Network, et al., to Mr. 
  Walden, et al., submitted by Mr. Bilirakis.....................   117
Letter, undated, from Mitch Glazier, President, Recording 
  Industry Association of America, to Mrs. Blackburn and Mr. 
  Doyle, submitted by Mr. Bilirakis..............................   120
Letter of May 29, 2018, from Timothy Lee, Senior Vice President 
  of Legal and Public Affairs, Center for Individual Freedom, to 
  Douglas Rathbun, Competition Policy and Advocacy Section, 
  Antitrust Division, Department of Justice, submitted by Mr. 
  Scalise........................................................   125
Letter of September 27, 2018, from Thomas A. Schatz, President, 
  Council for Citizens Against Government Waste, to subcommittee 
  chairman and ranking member, submitted by Mr. Scalise..........   129
Statement of the National Taxpayers Union, September 27, 2018, 
  submitted by Mr. Scalise.......................................   131
  
  
  

 
                     STATE OF THE MEDIA MARKETPLACE

                              ----------                              


                      THURSDAY, SEPTEMBER 27, 2018

                  House of Representatives,
     Subcommittee on Communications and Technology,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 3:02 p.m., in 
room 2123, Rayburn House Office Building, Hon. Gus M. Bilirakis 
presiding.
    Members present: Representatives Bilirakis, Lance, Shimkus, 
Scalise, Latta, Guthrie, Johnson, Long, Walden (ex officio), 
Doyle, Welch, Clarke, Engel, McNerney, and Pallone (ex 
officio).
    Staff present: Jon Adame, Policy Coordinator, 
Communications and Technology; Samantha Bopp, Staff Assistant; 
Karen Christian, General Counsel; Robin Colwell, Chief Counsel, 
Communications and Technology; Kristine Fargotstein, Detailee, 
Communications and Technology; Sean Farrell, Professional Staff 
Member, Communications and Technology; Margaret Tucker Fogarty, 
Staff Assistant; Adam Fromm, Director of Outreach and 
Coalitions; Elena Hernandez, Press Secretary; Tim Kurth, Deputy 
Chief Counsel, Communications and Technology; Lauren McCarty, 
Counsel, Communications and Technology; Brannon Rains, Staff 
Assistant; Austin Stonebraker, Press Assistant; Evan Viau, 
Legislative Clerk, Communications and Technology; Jeff Carroll, 
Minority Staff Director; Jennifer Epperson, Minority FCC 
Detailee; Alex Hoehn-Saric, Minority Chief Counsel, 
Communications and Technology; Jerry Leverich III, Minority 
Counsel; Jourdan Lewis, Minority Staff Assistant; Dan Miller, 
Minority Policy Analyst; Kaitlyn Peel, Minority Digital 
Director; and C.J. Young, Minority Press Secretary.
    Mr. Bilirakis. The Subcommittee on Communications and 
Technology will now come to order.
    I would like to thank all our witnesses for being here.
    Before recognizing myself for an opening statement, I would 
like to ask unanimous consent to enter the following documents 
into the record, and they are a letter from the American Cable 
Association, a letter from the MPAA, an article by Scott 
Galloway in Esquire, a letter from the Consumers Union, a 
letter from Ride TV, and also a letter from the Recording 
Industry Association of America. Thank you.
    There is no objection, so ordered.
    [The information appears at the conclusion of the hearing.]

OPENING STATEMENT OF HON. GUS M. BILIRAKIS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Mr. Bilirakis. Good afternoon and welcome to today's 
hearing on modern media marketplace. The goal of today's 
hearing is to develop a factual record so we can be informed on 
the state of the dynamic media market. The ways the consumers 
interact with media and the types of content available have 
changed significantly in a relatively short amount of time.
    As we have worked to bring broadband to more Americans, we 
have seen consumers increasingly use digital devices to enjoy 
unprecedented access to a variety of content. Not only has this 
resulted in more choices for consumers, but it also has led to 
innovation in the media market, specifically in the digital 
space.
    Traditional media providers and new entrants alike have 
invested heavily in digital media platforms, offering new 
distribution channels to content creators. This innovation has 
also led to increased competition. This helps keep prices for 
content affordable for consumers. It is critical that the 
committee be informed on this important topic.
    And with that, I welcome all of our witnesses here today, 
and I look forward to your testimony.
    At this time, I yield 2 minutes to Mr. Scalise.
    [The prepared statement of Mr. Bilirakis follows:]

              Prepared statement of Hon. Gus M. Bilirakis

    Good afternoon and welcome to today's hearing on the modern 
media marketplace.
    The goal of today's hearing is to develop a factual record 
for the committee so we can be informed on the state of the 
dynamic media market. The ways that consumers interact with 
media and the types of content available to them have changed 
significantly in a relatively short amount of time. As we have 
worked to bring broadband to more Americans, we have seen 
consumers increasingly use digital devices to enjoy 
unprecedented access to a variety of content.
    Not only has this resulted in more choices for consumers, 
but it has also led to innovation in the media market--
specifically in the digital space. Traditional media providers 
and new entrants alike have invested heavily in digital media 
platforms, offering new distribution channels to content 
creators. This innovation has also led to increased competition 
across the board, which helps keep prices for content 
affordable across a variety of platforms.
    It is critical that the committee be informed on this 
important topic and with that I welcome all of our witnesses 
and I look forward to your testimony.
    At this time, I yield 2 minutes to Mr. Scalise.

    Mr. Scalise. Thank you, Mr. Chairman.
    Mr. Bilirakis. My pleasure.
    Mr. Scalise. I appreciate you yielding to me.
    And I want to also thank Chair Blackburn for putting this 
hearing together on the video marketplace.
    I also want to thank our panelists for being with us today.
    While this hearing will cover the media landscape as a 
whole, I look forward to hearing from the panel about their 
viewpoints about the video marketplace. I don't think anyone 
here would disagree with the fact that the way American 
families watch television has changed. The question is, do our 
current laws and regulations match up with the modern 
marketplace? I would argue that they don't.
    Much of the legacy paid TV industry that we use today is 
governed by the 1992 Cable Act when this was the smartphone. 
And I think if you look at this device, it might have worked as 
a smartphone back in 1992. I can't even get it to connect to a 
local provider today, because things have changed. In fact, if 
you compare your smartphone of 1992 when the current laws that 
we are operating under were written, this is the smartphone of 
today. This can do a lot more than an entire room of 
microprocessors could have done in 1992.
    So what you have to look at is how are consumers getting 
their video. And the choices that they have have to be viewed 
against the regulations in the laws that are out there. An 
entirely new universe of choices for consumers has been 
unlocked thanks to advances in technology and agreements 
reached by companies through free-market negotiations.
    So rather than continuing to settle for predetermined 
outcomes based on decades-old rules, I have introduced my 
legislation called the Next Generation Television Marketplace 
Act, which will empower consumers by enabling a truly free 
market approach to video content and leveling the playing field 
across the market instead of government picking winners and 
losers, which is what the case is today.
    This hearing is a good starting point, Mr. Chairman, as the 
committee begins its work to reauthorize STELA, which expires 
at the end of next year. I will look forward to continuing my 
conversations with all the relevant stakeholders in support of 
a more free market and consumer-driven approach to the video 
marketplace.
    I look forward to the questions later, and, Mr. Chairman, I 
yield back the balance of my time.
    Mr. Bilirakis. I thank the gentleman from Louisiana.
    And the Chair now recognizes Subcommittee Ranking Member 
Mr. Doyle for 5 minutes for his opening statement.

OPENING STATEMENT OF HON. MICHAEL F. DOYLE, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Doyle. Thank you, Mr., Chairman for holding this 
hearing.
    And thank you to the witnesses for your testimony today.
    Before I start, Mr. Chairman, I am concerned that more than 
a year and a half into this Congress we are just now talking 
about the state of media marketplace, and we are doing so with 
a very broad brush stroke.
    I don't believe that this hearing or the panel before us 
will give our Members sufficient opportunity to address the 
multitude of changes that have occurred since the last time we 
held such a hearing. I sincerely hope that this hearing is just 
the beginning of a much broader and deeper investigation into 
these changes.
    That issue aside, I have many concerns about the state of 
the media marketplace. It seems that the only constant in the 
media marketplace is change. In the video market this year, we 
have seen both vertical and horizontal consolidation in the 
forms of the AT&T-Time Warner, and Disney-21st Century Fox 
mergers.
    We have also seen the continued trend of consumers cutting 
the cord on traditional paid TV options as they embrace the 
over-the-top options, such as Netflix, Amazon Prime, as well as 
virtual MVPD options, such as Sling TV, PlayStation Vue, and 
others. These new options often provide consumers with greater 
choice and lower prices.
    Virtual MVPDs offer the added benefit of finally letting 
consumers provide their own set-top box, freeing consumers from 
hundreds of dollars a year in fees and eliminating a 
particularly annoying paying point for video subscribers.
    However, the advances in this market are threatened by the 
FCC's repeal of net neutrality rules. ISP slowed over-the-top 
services such as Netflix in the run-up to the 2015 rules. And 
it was only due to the public outcry and the rules that were 
put in place under Chairman Wheeler that enabled Netflix and 
other streaming players to end the slowdowns they were 
experiencing.
    These rules provided the regulatory certainty for other 
players, such as PlayStation Vue, to enter this market knowing 
full well they would be competing directly with MVPDs over 
their own broadband connections. Since Chairman Pai took over 
at the FCC, he has repealed the Commission's net neutrality 
rules and ended the investigation into anticompetitive zero 
rating practices by ISPs.
    In the wake of these decisions, multiple ISPs have taken to 
zero rating their own video streaming products while forcing 
consumers to use data from their limited data plans. As Mr. 
Moffett points out in his testimony, many of these new players 
operate at a loss. These new entrants are then forced to 
compete against ISPs that are giving their own services an 
unfair advantage. These practices by ISPs do not incentivize 
innovation or competition, and they are not in the public 
interest.
    While I am encouraged by this nascent market, I believe 
that Congress should be examining how these markets have been 
affected by the regulatory vacuum created by the FCC's actions 
in far more depth and with the affected stakeholders.
    I would like to shift to the market for over-the-air 
television, including a slew of harmful regulatory changes by 
the FCC. From reinstating the UHF discount, to eliminating the 
main studio role, these changes undercut our commitment to 
localism and only serve to circumvent congressionally set 
broadcast ownership limits. I fear that despite Sinclair's 
failed merger that these changes will continue to negatively 
affect the broadcast market for years to come.
    Now, the Commission is contemplating making changes to 
broadcasters' obligations under the Children's Television Act. 
These rules, otherwise known as Kid Vid, require broadcasters 
to air children's programming weekly. The Commission is 
claiming that these rules that have led to the creation of 
thousands of hours of high-quality, safe, educational 
programming can be tossed out the window without harmful 
consequences.
    I am glad that we have Jeff Corwin here testifying 
regarding these proposed changes. It seems to me that the 
Commission's proposal could have a devastating affect on the 
creation of new children's television content and should be 
looked at with great skepticism. I believe that much more 
examination of these issues is warranted by this committee.
    Mr. Chairman, I thank you and I look forward to the 
testimony of our witnesses. And I yield back.
    [The prepared statement of Mr. Doyle follows:]

              Prepared statement of Hon. Michael F. Doyle

    Thank you, Mr. Chairman, for holding this hearing, and 
thank you to the witnesses for your testimony today.
    Before I start, Mr. Chairman, I'm concerned that more than 
a year and a half into this Congress we are just now talking 
about the state of the media marketplace, and we are doing so 
with a very broad brush stroke. I don't believe that this 
hearing or the panel before us will give our Members sufficient 
opportunity to address the multitude of changes that have 
occurred since the last time we held such a hearing. I 
sincerely hope that this hearing is just the beginning of a 
much broader and deeper investigation into these changes.
    That issue aside, I have many concerns about the state of 
the media marketplace
    It seems that the only constant in the is change.
    In the video market, this year we have seen both vertical 
and horizontal consolidation in the forms of the AT&T-Time 
Warner and Disney-21st Fox mergers. We have also seen a 
continued trend of consumers cutting the cord on traditional 
pay TV options as they embrace over the top options such as 
Netflix, Amazon Prime, as well as virtual MVPD options such as 
Sling TV, PlayStation Vue, and others.
    These new options often provide consumers with greater 
choice and lower prices. Virtual MVPDs offer the added benefit 
of finally letting consumers provide their own set top box, 
freeing consumers from hundreds of dollars a year in fees, and 
eliminating a particularly annoying pain point for video 
subscribers.
    However, the advances in this market are threatened by the 
FCC's repeal of Net Neutrality rules.
    ISPs slowed over the top services such as Netflix in the 
run up to the 2015 rules, and it was only due to the public 
outcry and the rules that were put in place under Chairman 
Wheeler that enabled Netflix and other streaming players to end 
the slow downs they were experiencing.
    These rules provided the regulatory certainty for other 
players, such as PlayStation Vue, to enter this market, knowing 
full well they would be competing directly with MVPDs over 
their own broadband connections.
    Since Chairman Pai took over at the FCC, he has repealed 
the Commission's Net Neutrality rules and ended the 
investigation into anti-competitive zero-rating practices by 
ISPs. In the wake of these decisions multiple ISPs have taken 
to zero-rating their own video streaming products while forcing 
consumers to use data from their limited data plans.
    As Mr. Moffet points out in his testimony, many of these 
new players operate at a loss. These new entrants are then 
forced to compete against ISPs that are giving their own 
services an unfair advantage. These practices by ISPs do not 
incentivize innovation or competition and are not in the public 
interest.
    While I am encouraged by this nascent market, I believe 
that Congress should be examining how these markets have been 
affected by the regulatory vacuum created the FCC's actions in 
far more depth and with the affected stakeholders.
    I'd like to shift to the market for over the air 
television, including a slew of harmful regulatory changes by 
the FCC. From reinstating the UHF discount to eliminating the 
main studio rule, these changes under cut our commitment to 
localism and only serve to circumvent Congressionally set 
broadcast ownership limits. I fear that despite Sinclair's 
failed merger, that these changes will continue to negatively 
affect the broadcast market for years to come.
    Now, the Commission is contemplating making changes to 
broadcaster's obligations under the Children's Television Act.
    These rules, otherwise known as Kid Vid, require 
broadcasters to air children's programming weekly.
    The Commission is claiming that these rules, that have led 
to the creation of thousands of hours of highly quality safe 
educational programing, can be tossed out the window, without 
harmful consequences.
    I'm glad that we have Jeff Corwin here testifying regarding 
these proposed changes. It seems to me that the Commission's 
proposal could have a devastating effect on the creation of new 
children's television content and should be looked at with 
great skepticism.
    I believe that much more examination of these issue is 
warranted by this committee.
    Thank you and I look forward to the testimony of our 
witnesses.

    Mr. Bilirakis. I thank the gentleman from Pennsylvania.
    I now recognize the chairman of the full committee, Mr. 
Walden, for 5 minutes for his opening statement.

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

    Mr. Walden. Well, thank you, Mr. Chairman. Thanks for 
having this hearing.
    I want to welcome our witnesses as well to talk to us about 
the rapidly changing state of the media marketplace. It goes 
without saying, the consumers in 2018 have unprecedented access 
to high-quality media content. From the smartphones in their 
pockets Americans can watch hours of television programming and 
YouTube videos, stream millions of songs and podcasts, and 
pursue endless hours of content all over social media. My, how 
things have changed.
    New platforms in variety and content have changed the way 
consumers spend their time and money, and the industry is 
responding to those consumers accordingly. The Energy and 
Commerce Committee has long conducted oversight on this topic, 
and a lot has changed over the years.
    In fact, in 2007, this committee held a media marketplace 
hearing, and the topics of discussion were the DTV transition 
and traditional media platforms transitioning to access on the 
internet. I think we also talked about coupons then too, so you 
could buy that little box.
    That same year Netflix announced the launch of a streaming 
service to compete with Blockbuster. That was the Nation's 
largest provider of video rentals at the time. Well, fast 
forward to 2018. More people watch Netflix than any other cable 
network, and Blockbuster has closed nearly every one of its 
stores.
    I say nearly every one of its stores, because there is one 
remaining Blockbuster store in America, and it happens to be in 
my district in Bend, Oregon. But wait, it could be pure 
coincidence--I will defer to our expert witnesses--but this 
Blockbuster store also brews beer. So talk about a new business 
model in the video marketplace.
    So and it is not just the video marketplace that has 
transformed. In the early 2000s, revenue from online music 
streaming was just a few million dollars. In 2017 Spotify alone 
reported almost $5 billion in revenue and on-demand audio 
streaming now accounts for 54 percent of total audio 
consumption.
    Ten years ago smartphones were new to the market, and 
Americans largely used their mobile devices for calling and 
texting. I wasn't here, but you have still got your brick 
phone, right. It is kind of amazing Scalise still uses that and 
hasn't gone to one of these.
    The deployment of modern wireless technology revolutionized 
the smartphone market, and today Americans spend on average 
about 3 hours a day on these mobile devices. Nearly every 
network, national newspaper, major radio station has an app, 
and consumers have access to content anywhere anytime.
    Changes in how we interact with media have caused a ripple 
effect on other industries as well. For example, the rise of 
over-the-top video streaming services has resulted in dramatic 
increases in demand for both fixed and mobile high-speed 
broadband. Online video consumption made up 69 percent of 
global internet traffic in 2017, and that number is expected to 
increase to 80 percent by next year.
    Changing consumer habits have also had a profound effect on 
the advertising industry. Ten years ago marketers used digital 
platforms to interact with potential customers, but advertising 
dollars were primarily spent on traditional platforms.
    Today brands are investing more than a third of their 
advertising budgets in the digital space, while print and radio 
account for less than 10 percent of total ads spent. Much of 
this shift can be attributed to mobile and social media ads.
    Nonexistent 15 years ago, combined advertising through 
these mediums are expected to reach $55 billion in 2019. Now, 
we have seen unprecedented concentration in this ad space. In 
2017 Google and Facebook dominated the U.S. digital market, 
taking a combined 63 percent of total ad investment. In the 
U.S. no other digital ad platform has a market share above 5 
percent. All signs indicate this duopoly will continue to 
dominate this market.
    While the rise of digital platforms will threaten 
traditional business models, there is no denying that evolving 
consumer habits and new market entrants have fueled a fiercely 
competitive media market. The largest traditional TV networks 
invest up to 10 billion a year in nonsports programming, and 
billions of dollars of venture capital have been invested in 
content creation for online platforms. So it is an exciting 
time as a consumer. It can be an uncertain time if you are in 
the business. We have an excellent panel of witnesses, and I 
appreciate you being here.
    You know, I was talking to some people the other day and 
they were asking about what time some show came on television. 
And for their kids, there is no such thing as a time something 
comes on. They just click on their iPad and there it is. And I 
remember going to a video conference, a video futures 
conference the NAB had back in 2004, I believe, and they talked 
about time shifting and how Walter Cronkite may not come on 
just at, you know, dinner time. You could get him anytime. And 
that was sort of out of the realm of possibility to our 
thinking then, and now we just get the news whenever we want 
it, on whatever platform we happen to have with us.
    So lots has changed. Our job is to make sure that internet 
works and that people have connectivity, and we have done a lot 
in this committee to make that happen as well.
    Mr. Chairman, thank you for having this hearing. I yield 
back.
    [The prepared statement of Mr. Walden follows:]

                 Prepared statement of Hon. Greg Walden

    Good afternoon, and thank you to our witnesses for joining 
us today to talk about the rapidly changing state of the media 
marketplace. It goes without saying that consumers in 2018 have 
unprecedented access to high-quality media content. From the 
smartphones in their pockets, Americans can watch hours of TV 
programming and YouTube videos, stream millions of songs and 
podcasts, and peruse endless hours of content on social media.
    New platforms and variety in content have changed the way 
consumers spend their time and money, and the industry is 
responding accordingly.
    The Energy and Commerce Committee has long conducted 
oversight on this topic, and a lot has changed over the years. 
In 2007, this committee held a media marketplace hearing and 
the topics of discussion were the DTV transition and 
traditional media platforms transitioning to access on the 
internet. That same year, Netflix announced the launch of its 
streaming service to compete with Blockbuster, the Nation's 
largest provider of video rentals at the time.
    Fast forward to 2018, more people watch Netflix than any 
other cable network, and Blockbuster has closed nearly every 
one of its stores. I say nearly every one of its stores because 
there is one remaining Blockbuster in America and it happens to 
be in my district in Bend, OR. It could be pure coincidence, 
I'll defer to our expert witnesses, but this Blockbuster also 
brews its own beer. Talk about new business models in the video 
marketplace.
    And it's not just the video market that has transformed. In 
the early 2000s, revenue from online music streaming was just a 
few million dollars. In 2017, Spotify alone reported almost $5 
billion in revenue. On-demand audio streaming now accounts for 
54 percent of total audio consumption.
    Ten years ago, smartphones were new to the market and 
Americans largely used their mobile devices for calling and 
texting. The deployment of modern wireless technology 
revolutionized the smartphone market, and today Americans spend 
on average about 3 hours a day on their mobile devices. Nearly 
every network, national newspaper, and major radio station has 
an app, and consumers have access to content anywhere, anytime.
    Changes in how we interact with media has caused a ripple 
effect that impacts other industries. For example, the rise of 
over-the-top video streaming services have resulted in dramatic 
increases in demand for both fixed and mobile high-speed 
broadband. Online video consumption made up 69 percent of 
global internet traffic in 2017, and that number is expected to 
increase to 80 percent by the end of 2019.
    Changing consumer habits have also had a profound effect on 
the advertising industry. Ten years ago, marketers used digital 
platforms to interact with potential customers, but advertising 
dollars were primarily spent on traditional platforms. Today, 
brands are investing more than a third of their advertising 
budgets in the digital space, while print and radio account for 
less than 10 percent of total ad spend. Much of this shift can 
be attributed to mobile and social media ads. Nonexistent 15 
years ago, combined advertising through these mediums are 
expected to reach $55 billion in 2019.
    We have also seen unprecedented concentration in the ad 
space. In 2017, Google and Facebook dominated the U.S. digital 
market, taking in a combined 63 percent of total ad investment. 
In the U.S., no other digital ad platform has market share 
above 5 percent, and all signs indicate that this duopoly will 
continue to dominate the market.
    While the rise of digital platforms have threatened 
traditional business models, there is no denying that evolving 
consumer habits and new market entrants have fueled a fiercely 
competitive media market. The largest traditional TV networks 
invest upwards of $10 billion per year in nonsports 
programming. And billions of dollars of venture capital have 
been invested in content creation for online platforms.
    While this is an exciting time for consumers, it can be an 
uncertain time for traditional media. We have an excellent 
panel of witnesses today who have followed the media market for 
decades, and I look forward to hearing their testimony.

    Mr. Bilirakis. Thank you, Mr. Chairman.
    And I will now recognize the ranking member of the full 
committee, Mr. Pallone, for 5 minutes for his opening 
statements.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Mr. Chairman.
    The way Americans consume media and the variety of content 
available to them has grown significantly over the past decade. 
In addition to traditional television and radio, consumers are 
using their phones, computers, smart speakers, and tablets to 
access a variety of programs, podcasts, and videos. And today 
anyone can become a producer of content. Over 400 hours of 
video are uploaded to YouTube every minute, and over 1 billion 
hours are viewed every day.
    Last week a woman in DC posted on Twitter a short video of 
Marines running to help residents in an apartment fire a few 
blocks from here. News organizations quickly started using the 
clip in their on-air stories, and 2 days later the footage was 
used by the Marines in a tweet about the heroic efforts. And 
this is the dynamic world that we live in today.
    But at the same time, it is important to remember that not 
everyone has equal access to the latest technology. It is too 
easy to focus on the benefits of broadband new media and 
multitude of cable and satellite TV channels and forget how 
many people lack access to such opportunities, and this 
includes lower-income families and seniors.
    According to the FCC Commission's 2017 media industry 
report, 11 percent of television households relied exclusively 
on over-the-air broadcast service. That is 12.4 million 
households, 1 million more than the year before. According to 
the National Association of Broadcasters, over-the-air reliance 
is higher among low-income families, and for these families 
paying for cable may take a backseat to feeding their kids.
    Meanwhile, broadband, which is necessary to access a 
growing wealth of educational, social, and entertainment 
content, also faces an economic and age divide. According to 
Pew Research Center, only 45 percent of people making less than 
$30,000 and 50 percent of people 65 and over are home broadband 
users. Even when you add mobile broadband users the significant 
device still exists both in adoption and the quality of the 
experience.
    So as good as smartphones are, they don't provide the same 
functionality or experience as a large screen divide. The 
Communications Act focuses on certain timeless principles when 
it comes to media, and those are localism, diversity, and 
competition.
    In the modern age, broadband access should be added to that 
list. Whether it is watching videos for school projects, taking 
educational courses at home, engaging with friends and family, 
applying for a job, or utilizing government resources, 
broadband is becoming a necessity for all Americans. And having 
broadband available in your neighborhood isn't enough. 
Consumers should be able to afford the cost of the service and 
equipment necessary to use the tools of the 21st century.
    Unfortunately, the current FCC has been actively 
undermining these principles for Americans. Chairman Pai 
eliminated the FCC net neutrality rules which protected 
consumers, small businesses, and free speech. Net neutrality 
protected competition and access to the media content which is 
the focus of this hearing.
    But those protections are gone now. Chairman Pai also 
proposed to roll back the Lifeline program in a way that could 
cut phone or internet service for approximately 8.3 million 
people. And Chairman Pai's actions are not the way to promote 
access, localism, diversity, and competition.
    In the area of media ownership Chairman Pai sided with 
corporations over consumers and loosened TV ownership rules in 
ways that undermined competition. The changes encourage more 
consolidation and less local and diverse viewpoints. And I 
encourage the FCC to change course and focus on what is 
important to consumers.
    For example, the FCC should rethink its bizarre--and I say 
bizarre--proposal to unwind its safeguards designed to protect 
children watching broadcast television known as the Kid Vid 
rules. The rules require that broadcasters provide 3 hours of 
quality education program per week on their free over-the-air 
service. And 3 hours out of the 105 hours of core program in a 
week, I mean, is that too much to ask? Apparently Chairman Pai 
and Commissioner O'Rielly think so.
    For the 12 million over-the-air households without access 
to cable programming, I don't think so. For the millions of 
low-income families without access to broadband alternatives, I 
don't think so. And I appreciate Jeff Corwin being here today 
to discuss his experience producing children's programming and 
the impact the elimination of the Kid Vid rules would have on 
broadcast children's programming.
    And I also want to thank our other witnesses for appearing 
before us to discuss the changing media market.
    And I yield back at this point, Mr. Chairman.
    [The prepared statement of Mr. Pallone follows:]

             Prepared statement of Hon. Frank Pallone, Jr.

    The way Americans consume media and the variety of content 
available to them has grown significantly over the past decade. 
In addition to traditional televisions and radios, consumers 
are using their phones, computers, smart speakers, and tablets 
to access a variety of programs, podcasts, and videos.
    And today anyone can become a producer of content. Over 400 
hours of video are uploaded to YouTube every minute and over 1 
billion hours are viewed every day.
    Last week, a woman in DC posted on Twitter a short video of 
Marines running to help residents in an apartment fire a few 
blocks from here. News organizations quickly started using the 
clip in their on-air stories, and two days later, the footage 
was used by the Marines in a tweet about their heroic efforts. 
This is the dynamic world that we live in today.
    At the same time, it is important to remember that not 
everyone has equal access to the latest technology. It is too 
easy to focus on the benefits of broadband, new media, and 
multitude of cable and satellite TV channels and forget how 
many people lack access to such opportunities. This includes 
lower income families and seniors.
    According to the Federal Communications Commission's 2017 
media industry report, 11 percent of television households 
relied exclusively on over-the-air broadcast service. That is 
12.4 million households, a million more than the year before. 
According to the National Association of Broadcasters, over-
the-air reliance is higher among lower-income homes. For these 
families, paying for cable may take a backseat to feeding their 
kids.
    Meanwhile, broadband, which is necessary to access a 
growing wealth of educational, social, and entertainment 
content, also faces an economic and age divide. According to 
Pew Research Center, only 45 percent of people making less than 
$30,000 and 50 percent of people 65 and over are home broadband 
users. Even when you add mobile broadband users, a significant 
divide still exists both in adoption and the quality of the 
experience.
    As good as smartphones are, they don't provide the same 
functionality or experience as a large screen device.
    The Communications Act focuses on certain timeless 
principles when it comes to media: localism, diversity and 
competition. In the modern age, broadband access should be 
added to that list. Whether it is watching videos for school 
projects, taking educational courses at home, engaging with 
friends and family, applying for a job, or utilizing government 
resources, broadband is becoming a necessity for all Americans. 
And having broadband available in your neighborhood isn't 
enough. Consumers should be able to afford the cost of the 
service and equipment necessary to use the tools of the 21st 
century.
    Unfortunately, the current FCC has been actively 
undermining these principles for Americans.
    Chairman Pai eliminated the FCC net neutrality rules, which 
protected consumers, small businesses and free speech. Net 
neutrality protected competition and access to the media 
content at the focus of this hearing. But those protections are 
gone now. Chairman Pai also proposed to rollback the Lifeline 
program in a way that could cut phone or internet service for 
approximately 8.3 million people. Chairman Pai's actions are 
not the way to promote access, localism, diversity, and 
competition.
    In the area of media ownership, Chairman Pai sided with 
corporations over consumers and loosened television ownership 
rules in ways that undermine competition. The changes encourage 
more consolidation and less local and diverse viewpoints. I 
encourage the FCC to change course and focus on what is 
important to consumers.
    For example, the FCC should rethink its bizarre proposal to 
unwind its safeguards designed to protect children watching 
broadcast television, known as the Kid Vid rules. The rules 
require that broadcasters provide three hours of quality, 
educational programming per week on their free, over-the-air 
service. Three hours out of the 105 hours of core programming 
in a week. Is that too much to ask? Apparently, Chairman Pai 
and Commissioner O'Rielly think it is.
    For the 12 million over-the-air households without access 
to cable programming, I don't think so. For the millions of 
low-income families without access to broadband alternatives, I 
don't think so.
    I appreciate Jeff Corwin being here today to discuss his 
experience producing children's programming and the impact the 
elimination of the Kid Vid rules would have on broadcast 
children's programming.
    I also thank our other witnesses for appearing before us to 
discuss the changing media marketplace, and I yield back.

    Mr. Bilirakis. The Chair thanks the ranking member.
    That concludes Member opening statements.
    The Chair would like to remind Members that, pursuant to 
the committee rules, all Members' opening statements will be 
made part of the record.
    So we want to thank all of our witnesses here today for 
being here. We appreciate you taking the time to testify before 
the subcommittee.
    Today's witnesses will have the opportunity to give opening 
statements followed by a round of questioning from the Members.
    Our panel for today's hearing will include Mr. Craig 
Moffett, who is the founder and senior research analyst at 
MoffettNathanson Research. Welcome, sir.
    Next we have Mr. Ian Olgeirson, research director at Kagan, 
a media research group, within S&P Global Market Intelligence. 
Welcome, sir.
    And next we have Mr. Jeff Corwin, wildlife biologist and 
executive producer of ABC's ``Ocean Treks,'' here on behalf of 
Litton Entertainment. Welcome, sir.
    We appreciate you all being here today and for preparing 
testimony for the committee.
    We will begin with you, Mr. Moffett, and you are recognized 
for 5 minutes for purposes of an opening statement. Thank you.

  STATEMENTS OF CRAIG MOFFETT, COFOUNDER AND SENIOR RESEARCH 
 ANALYST, MOFFETTNATHANSON; IAN OLGEIRSON, RESEARCH DIRECTOR, 
   S&P GLOBAL MARKET INTELLIGENCE; AND JEFF CORWIN, WILDLIFE 
    BIOLOGIST, EXECUTIVE PRODUCER AND HOST OF ABC'S ``OCEAN 
           TREKS,'' ON BEHALF OF LITTON ENTERTAINMENT

                   STATEMENT OF CRAIG MOFFETT

    Mr. Moffett. Thank you. And thank you, Chairwoman Blackburn 
and Ranking Member Doyle and members of the subcommittee, for 
the opportunity to appear today.
    My name is Craig Moffett. I am the founder of 
MoffettNathanson. It is a media and telecommunications research 
firm. I want to emphasize, my personal focus is the physical 
distribution side of media, that is cable operators, satellite 
operators, and telephone companies that operate the physical 
infrastructure for media distribution. I have spent 30 years in 
those industries. I won't go through my bio, but it is 
appended.
    One of the most popular aphorisms in media is that the 
media industry has seen more change in the past 5 years than it 
had in the previous 50. Never mind whether that is accurate, it 
is a call to action, and as a call to action it is a pretty 
good one. The argument being change or be left behind.
    But before getting too breathless about how revolutionary 
all of this is, I want to focus my remarks on two of the most 
important trends: The emergence of so-called virtual MVPDs, and 
also the trend toward vertical integration like AT&T and Time 
Warner through a decidedly less revolutionary lens, and that is 
microeconomics.
    I want to start with the emergence of the MVPDs. The appeal 
of cord cutting is simple: It is cheaper. And some might argue 
that it is also about greater consumer control or a step toward 
a la carte, but the real appeal is simpler than that. A bundle 
of cable networks from an MVPD with a handful of set-top--or 
from a traditional cable operator with a handful of set-top 
boxes can typically cost about $100 a month, and the most 
popular MVPD packages are typically about 40.
    The problem here is that the programming itself doesn't 
cost any less to produce just because it is being delivered 
over the internet, nor is it any cheaper for the aggregator, in 
this case a virtual MVPD, to buy the content from the content 
creator. In fact, virtual MVPDs usually pay more for their 
content, nor is it any cheaper to deliver by virtue of being 
delivered over the internet instead of so-called linear cable.
    Remember, the underlying infrastructure remains precisely 
the same. And in most cases it doesn't even avoid the need for 
a set-top box. It simply shifts the set-top box from the 
traditional provider to someone like Apple or Roku.
    When there is no underlying technology or business model 
reason why the new service is cost advantage relative to an old 
one, it pays to be wary. But that said, services themselves are 
actually cheaper, so the obvious question is why. Partly it is 
because the packages are smaller, but mostly it is because 
these services are being sold to the consumer at zero or 
negative profit margin.
    There is an old saying among economists that when something 
is unsustainable it will eventually stop, and I guess the real 
question as we observe this as economists is whether the 
practice of selling these services for a loss will actually 
turn out to be sustainable.
    But it is clear that all of this is about keeping pace with 
Google and Facebook. Their modernization model for these new 
services is not to make money on selling video but to make 
money on selling advertising.
    It suggests that we are likely to see one of two outcomes: 
Either Google and Facebook will come to dominate video 
distribution in a model that is based on highly targeted 
advertising, and that raises obvious questions about privacy; 
or the prices of virtual MVPDs will rise significantly to 
become self-sustaining, and in the process these distinctions 
between old and new won't look at significant.
    A few remarks on the other trend that I mentioned shaking 
the media business, and that is vertical integration. There has 
been widespread speculation that we will see a wave of vertical 
integration to follow Comcast acquisition of NBCU in 2010, and 
that speculation has obviously only grown with AT&T's 
acquisition of DirecTV in 2015 and now, of course, Time Warner.
    It is important to view the trend toward vertical 
integration through the lens of broader migration of what I 
would refer to as--to closed-media systems and consider where 
that is likely to take us. Closed systems dominate almost every 
important aspect of digital life today. Apple is a closed 
system once written off for dead versus PCs, but it is now an 
IOS universe. Facebook is a closed system, so is Uber and 
Google.
    And what we are seeing in the media business is a migration 
toward closed systems where someone like Facebook produces--
sorry, someone like Netflix produces all their own content and 
sells it to their own consumers and in the process requires 
enormous scale to advertise risk.
    I would suggest that that appears to be where we are headed 
with the digital platforms. And the real question will become 
for the traditional media companies, are they forced to go in 
the same direction, and if so, these ideas where every cable 
network, for example, is made available to every distribution 
platform will be very difficult to sustain in the face of the 
emergence of these kind of very large closed systems like 
Netflix, like what could potentially be Amazon and others.
    I will leave my remarks there given the time.
    [The prepared statement of Mr. Moffett follows:]
    
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
    
    Mr. Bilirakis. Thank you. I appreciate that very much. So 
thank you, Mr. Moffett.
    And now I will recognize Mr. Ian Olgeirson for 5 minutes 
for your opening statement.

                   STATEMENT OF IAN OLGEIRSON

    Mr. Olgeirson. Thank you.
    Chairman Bilirakis and Ranking Member Doyle, thank you for 
inviting me to speak today. I am grateful for the opportunity 
to share information for this hearing. My name is Ian 
Olgeirson, and I am an industry analyst with Kagan, a media 
research group within S&P Global Market Intelligence. We 
provide market commentary, industry benchmarks, and analysis 
with a particular focus on the changing media landscape.
    I have been analyzing the U.S. multichannel market for 
nearly 20 years. In that period we have seen online 
distribution fundamentally alter how consumers access content. 
Alternatives to legacy distribution for video and audio have 
clearly altered business models as well, and the corporate 
landscape is shifting in pursuit of increased scale.
    A pair of recent events nicely illustrate the movement. 
Comcast's premium bid for Sky in the U.K. and Amazon's much 
more subtle enhancement of its Fire TV recast streaming media 
player in very different ways offer insight into the direction 
of media. Legacy providers like Comcast and AT&T are doubling 
down for increased scale on delivery and content, while 
innovators are giving consumers greater access and control of 
programming outside of those traditional subscription offers.
    While the majority of U.S. households still maintain a 
traditional multichannel subscription through a cable, telco, 
or satellite service, often referred to as MVPDs, online 
alternatives have eroded the value of the classic, big 
subscription package driving declines in overall subscribers. 
Traditional multichannel subscriptions have fallen from their 
peak levels of nearly 102 million in 2012 to fewer than 94 
million at the end of 2017. Those figures have continued to 
decline in the first half of 2018.
    The percentage of occupied households with a traditional 
subscription have declined to less than 72 percent, down from a 
high point of 85 percent recorded in 2009. Virtual multichannel 
services, sometimes referred to as vMVPDs have risen 
considerably since 2015 offering a thinner package of channels. 
These services, including DirecTV Now, Sling TV, and Hulu with 
live TV blur the lines between online and traditional services. 
But it is clear that consumers looking for alternatives have 
never had more options.
    At the fore is the programming muscle of Netflix and Amazon 
Prime video and the swelling investment in original and 
acquired content. The investment paves the way for consumers to 
find alternatives with increasingly fewer sacrifices.
    However, the legacy providers do have substantial 
fortifications, including size and reach. There are significant 
interdependencies with networks and other content, including 
outright ownership. And in the case of wire line services, they 
own critical broadband infrastructure. As a result the video 
market is still in the early to mid stages of a complex process 
that shouldn't be over simplified.
    Thank you for the opportunity to provide this statement. I 
welcome any questions you might have.
    [The prepared statement of Mr. Olgeirson follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
    
    Mr. Bilirakis. Thank you very much, Mr. Olgeirson.
    Now we will hear from Mr. Jeff Corwin. You are recognized 
for 5 minutes, sir, for your opening statement.

                    STATEMENT OF JEFF CORWIN

    Mr. Corwin. Thank you for having more. I truly appreciate 
it.
    Millions of parents, educators, and children rely on the 
content protected by the Children's Television Act as their 
most trusted outlet for educational and informational 
programming. There is an effort underway to dismantle one of 
the most important public service obligations Congress placed 
on broadcasters as a condition for their license serving the 
needs of children.
    I speak today not just as a biologist, as a 
conservationist, explorer, and a father, but also as one of 
those kids who has benefited from those programs. When I was 
growing up my dad worked as a printer by day, delivered Dunkin' 
Donuts at night, and took classes to become a Boston police 
officer, for which he served proudly for more than 35 years.
    My mom worked as a registered nurse at Quincy City Hospital 
putting herself through school as well. So my sister and I, we 
spent a lot of our time in our triple decker with our black and 
white TV becoming a bit of a de facto babysitter. Shows like 
``Wild Kingdom'' with Marlin Perkins had a powerful impact on 
introducing me to the natural world and influencing my own 
life's journey.
    The TV programs that we make are loaded with that same 
inspiration germinating the next generation of innovators, 
educators, engineers, entrepreneurs, and leaders like 
yourselves.
    I have had the good fortune to spend the last 20 years 
working on shows around the world for Disney, Discovery, Food 
Network, Animal Planet, CNN. But I am most proud of the work 
that I have done with CTA.
    As we know, our children are naturally curious. They thirst 
for learning. And our mission is to feed that innate passion, 
thus inspiring these children to have rewarding and productive 
futures, which ultimately contributes to our society.
    Litton's educational programs received more than 1.5 
billion views just last year, and this motivates future leaders 
and visionaries, and many of these begin as children in rural 
America or in urban environments, often without access to 
internet technologies. Some of them are, of course, kids that 
are at-risk teens.
    The CTA has spurred a virtual classroom filled with a 
credible teachers and experts that engage millions of children 
every week, and we do so with enthusiasm, compassion, humor, 
and this deepens the learning experience. We choose, we intend 
our mission is to produce television for teens. We believe 
providing teens and their families with safe, educational, and 
inspirational content is vital.
    Today when social media and celebrity are often considered 
more valuable than education and innovation and when teens are 
only a single click away from the digital unknown, this 
programming is more critical than ever. We fear that if the Kid 
Vid NPRM is not rectified, stations will no longer dedicate 
time serving our children and shows like mine, ``Ocean Treks'' 
on ABC, will be replaced with infomercials such as My Pillow 
dot com.
    However, we are confident that there is a way for the FCC 
to provide flexibility for broadcasters without diminishing the 
quality of programming and Congress'--your commitment to our 
children.
    While we support efforts that lessen the burdens on 
television stations, we strongly oppose broadcasters move to 
take the EI programming multicast channel as our primary mode 
of distribution and rolling back the 3-hour rule. Multicast 
viewership is 95 percent less programming carried compared to 
the primary program stream. Without those viewers, we offer no 
value to our sponsors and to our advertisers.
    For example, on the main screen primary format a commercial 
would sell for $2,500. On the multicast channel that commercial 
is reduced to $25. Congress charge broadcasters with offering 
educational content for children. In order to stay true to this 
mission, we must keep our program current. Simple, but if we 
move the educational program to multicast, original programming 
will come to an end. It will cease to exist. Our virtual 
classroom will be obsolete.
    Broadcast television is uniquely powerful and can be a 
beacon for inspiration and enlightenment. I ask you just 2 
percent of broadcast time. Is that too much to ask to provide 
for our children?
    When Mr. Rogers was here 50 years ago, he discussed the 
impact that media is having on children, way back then in 1969. 
Imagine if he was here today what he would witness with the 
impact of media, which is why the program we deliver is so 
vitally important.
    I thank you so much for your time today. And I look forward 
to your questions.
    [The prepared statement of Mr. Corwin follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
    
    Mr. Bilirakis. Thank you.
    And I thank all the witnesses for their testimony today.
    And before I begin questioning, I would like to ask 
unanimous consent to enter the following documents into the 
record for Mr. Scalise: a letter for the Center for Individual 
Freedom, Council for Citizens Against Government Waste, and a 
press release from the National Taxpayers Union.
    Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Bilirakis. Now I would like to begin my questioning. 
The first question will be for Mr. Olgeirson. It is very clear 
that consumers have many different options to get their video 
content. Can you talk a little bit about how the market is 
impacted by generational viewing habits? For example, my 
district is home to many seniors in retirement. Are there 
certain age groups that are deriving subscriber growth or 
subscriber losses? I know that the youth is probably number 
one, but if you can explain, I would appreciate it very much.
    Mr. Olgeirson. Sure. So I think that it is difficult to 
ascribe a specific demographic to the people that are leaving 
the multichannel environment. The common wisdom is that it is 
younger people, and that part of the decline of multichannel 
has to do with younger people leaving a multichannel service 
and the other part has to do with the fact that they are not 
fueling new subscribers as older subscribers turn off.
    We have seen certainly evidence, survey evidence of younger 
people embracing over-the-top video more frequently than older 
people. If we look at a recent survey, it shows that the 
seniors sort of over 72 years old tend to be more engaged with 
multichannel services. They tend to be less engaged with the 
subscriber VOD services like Netflix, and so we certainly have 
that evidence.
    We have also seen that both younger generations like Gen Z 
and Millennials tend to be about the same--have the same 
satisfaction rate with their multichannel services as seniors, 
which is an interesting fact, an interesting finding. But 
seniors seem to find more value within those multichannel 
services. So we have seen a senior class that tends to stay 
closer to the multichannel services than their younger 
demographics.
    Mr. Bilirakis. I thank you. A followup here, how are 
content creators and video providers adapting to these changes?
    Mr. Olgeirson. Are they adapting to the changes?
    Mr. Bilirakis. How are they adapting to these changes?
    Mr. Olgeirson. Well, I think that we have certainly seen 
the multichannel service providers like Comcast, Charter 
integrating their own access to over-the-top features. We have 
seen them introduce on a limited basis their own skinny 
bundles. Comcast has its instant TV initiative, which is meant 
to look and feel similar to virtual service like a Hulu with 
live TV.
    So we have seen that. They have invested in improved user 
interfaces to try to match some of the functionality that they 
get from Netflix. So we have seen a variety of different 
offerings from operators.
    Mr. Bilirakis. Thank you.
    My next question is for Mr. Moffett. You talked in your 
testimony about a transition to closed media with more and more 
content owners moving to a closed system like Netflix or Hulu. 
But consumers must have individual subscriptions with all of 
these providers--that is correct, right?--which leads to the 
question of subscription fatigue. Do you have any thoughts on 
this, how the industry can respond to the overload of 
subscriptions as we move to a closed system?
    Mr. Moffett. Mr. Chairman, it is a fantastic question, and 
the answer is, I think the entire industry writ large is 
grappling with exactly that question. You know, Disney, for 
example, has talked about an expectation that they will 
increasingly be a direct-to-consumer company. HBO is 
increasingly or, in fact, arguably always has been to some 
degree a direct-to-consumer company as is to a degree Showtime.
    But all of them are, in effect, aiming at becoming direct-
to-consumer platforms that will increasingly look like closed 
systems, as, by the way, will Netflix where Netflix is 
licensing less content certainly as a share of its total 
business from others and producing more and more of it 
themselves.
    So the question of what the future looks like, it is very 
hard for us to get our heads around the idea that we might have 
a model where at AT&T, for example, the only way you would be 
able to get CNN is if you were a subscriber to an AT&T platform 
and you ended up with an exclusivity platform like that.
    Or the only way you could get NBC would be to be a 
subscriber to Comcast, and that if you had to choose between 
the two, it would mean I am either going to have one or the 
other, because adding them together may be rather unwieldy.
    That is so different than the model that we have all grown 
up with that most people find it to be almost unimaginable. 
But, in effect, all of the competitors of the traditional 
companies are going in that direction, and so what the 
traditional companies are struggling with is are we going to be 
forced to go in that direction as well. And I don't think 
anybody has a good answer yet for what that looks like, how 
many subscriptions the average person is likely to be willing 
to bear. Those are all very, very open questions at this point.
    Mr. Bilirakis. All right. Thank you very much. My time has 
expired.
    Now I yield 5 minutes to the ranking member, Mr. Doyle.
    Mr. Doyle. Mr. Corwin, as I understand it, TV stations 
contract Litton, who you are testifying on behalf of, to 
provide them with children's television content to meet their 
Kid Vid obligations, right?
    Mr. Corwin. Correct.
    Mr. Doyle. And the way that Litton pays to produce new 
content is by selling advertisements during these broadcasts, 
right?
    Mr. Corwin. Yes.
    Mr. Doyle. So now one part of the FCC's proposal regarding 
Kid Vid is to allow broadcasters to meet that Kid Vid 
obligation by broadcasting this content on one of their 
multicast stations. Now, I have heard that there is a pretty 
significant difference in value between main station and 
multicast advertising revenue. Is that accurate, and if so, how 
big of a difference are we talking about?
    Mr. Corwin. Well, there is a tremendous challenge with 
trying to rely on multicast as a way to broadcast. But, you 
know, I could tell you, you know, from my personal experience I 
find that people are very excited to be engaged in this 
material. And I hope that none of your constituents are 
responding to you saying they are getting too much educational 
television.
    Mr. Doyle. Right. But what I am interested in what is the 
difference in the advertising revenues, whether they are 
broadcast or----
    Mr. Corwin. They are huge. The advertising revenue can be 
from $2,000 plus per commercial to $25. Why does that break 
down so much? Well, that is because you lose your audience. 
Multicast is not available in cable. It is not available in 
satellite. It is rarely broadcasted in HD. We lose 98 percent 
of the market. My own children, where I live in Massachusetts, 
would not be able to watch my television program.
    Mr. Doyle. So then my question is, do you think that you 
and other content producers could continue to make high-quality 
children's television content for broadcasters under Kid Vid if 
you were just working with ad revenue for multicast stations?
    Mr. Corwin. We could not. In fact, what we do is we 
actually generate our own income which the networks do not have 
to pay for. We are self-sustaining. But because we would no 
longer have the marketplace, we no longer have the viewership, 
we would no longer be competitive, and we wouldn't get those ad 
dollars. The reason why I get the money to make the TV shows 
that we do is by having a strong, robust, highly competitive 
viewing audience, and that goes away on multicast.
    Mr. Doyle. Well, representing the district where Fred 
Rogers lived, I will ask you, do you think there is value in 
children having access to safe, educational, original 
programming on free, over-the-air broadcast television?
    Mr. Corwin. I do. There are millions of children that get 
this information. I can tell you, Mr. Doyle, I was filming in 
Pennsylvania just a couple of weeks ago filming the hellbender, 
which is a remarkable species of salamander that tells us all 
about science, technology, and research, both in the ancient 
past of evolution and today in modern wildlife management. We 
get to tell that story in a compelling way through my TV show 
because we have the budget to be able to travel and invest in 
these stories. That goes away through multicast.
    Mr. Doyle. Yes, I agree. I think there is great benefit to 
having that kind of program over the air on free television. 
And I just close by saying I am glad the Pirates don't have to 
play the Red Sox this year.
    So, Mr. Chairman, I know we have votes being called, so I 
will yield back.
    Mr. Bilirakis. OK. We are going to get one more in. We will 
get the--I will recognize the full chairman of the committee, 
Mr. Walden, for 5 minutes, please.
    Mr. Walden. Well, thank you, Mr. Chairman.
    Again, thanks to our witnesses. This is part of a very 
vibrant discussion we are going to be having on this committee 
in the weeks and months and probably years ahead about the 
changing video marketplace and what it looks like, what it can 
look like, what it will look like, what we can envision it 
should be, and then what are the regulations in place today, do 
they make sense for today, do they make sense for tomorrow, who 
is covered, who is not. These are always the challenges in 
public policy we get confronted with.
    I loved ``Wild Kingdom'' too. You know, it was on the air 
from I think it was 1963 to 1988, and we always watched it. And 
``Mutual of Omaha's Wild Kingdom.'' They had that little 
advertising plug in there every time. I think Kid Vid actually 
came in 1990, so the law that you reference actually was 
enacted in 1990.
    And I guess as I look at this marketplace, gosh, there has 
never been more opportunities for all kinds of programming at 
your fingertips as long as you have connectivity and internet. 
So it is a pretty exciting time unless you are stuck on your 
brick phone. Yes. Yes.
    So, Mr. Moffett, critics have been--yes, he is still paying 
for AOL too.
    Mr. Moffett, critics of industry--could we have order here, 
Mr. Chairman.
    Critics of industry consolidation have claimed that the 
combination of large firms who provide both content and 
distribution platforms is anticompetitive and puts too much 
power in the hands of a few. But we don't often talk about the 
impact that new entrants are having on the same marketplace.
    Google's YouTube platform is the largest video network in 
the world, and it is enhanced by 2 billion Android phone 
devices that come pre-installed with the YouTube app. Amazon's 
Prime reaches two-thirds of American households now, and both 
of these companies have market caps several times larger than 
the biggest telecom media companies.
    Can you comment on big tech's increasing presence in the 
video market and how this impacts competition?
    Mr. Moffett. Yes. Thank you for the question. Look, it is 
very clear that the moves that you have seen from companies 
like AT&T and Comcast have been precisely to respond to the 
fact that the scale and market power of companies like Google 
and Facebook are, in fact, much greater than their own.
    And what I described in my witness statement of a model 
that--or what an economist would call the modernization theory 
based on advertising and, you know, the old adage that if the 
product is free, you are the product----
    Mr. Walden. Right. Right.
    Mr. Moffett [continuing]. In fact, the consumer is the 
product that is being sold in most of these models.
    Mr. Walden. Right, because it is data.
    Mr. Moffett. They may not be entirely free, but all of the 
economic value is effectively predicated on the assumption that 
there will be a resale of the customer data, what you watch and 
what you do. That is extraordinarily difficult for the 
traditional companies to respond to.
    And what you are seeing is a sort of a different model. The 
consolidation is more defensive than offensive among the large 
companies. They are trying to respond by doing the traditional 
things of getting bigger and cutting cost and hoping, in the 
case of AT&T, that there is a path for them to be truly 
competitive as an advertising platform. But it is very 
difficult for them as a competence to be as successful in the 
advertising business as the digital advertisers, Facebook and 
Google in particular, are.
    Mr. Walden. And you have talked about the rise of virtual 
MVPDs and how they are becoming popular with consumers, but you 
said the service is losing money so it may not be sustainable. 
But yet it seems like Wall Street has supported business models 
that lose money as long as they keep growing their user base. I 
think about Amazon and Snapchat and the way they leverage their 
capital to keep garnering market share. It is phenomenal what 
they have done in so many respects.
    Do you think Wall Street will give virtual MVPDs the same 
benefit, or does a different set of rules apply?
    Mr. Moffett. Well, I think for now the--Wall Street is 
generally skeptical of the virtual MVPD model, at least the 
live version. That is distinct from the Netflix model. So the 
Netflix model, which is in Wall Street parlance an SVOD model, 
or subscription video on demand, particularly when they are 
producing their own content. It is a fixed cost being 
advertised across a larger and larger base.
    Mr. Walden. Right.
    Mr. Moffett. By contrast, the virtual MVPDs are essentially 
a variable cost. And so if you lose money on one customer, 
having 100 million customers is still going to lose money. You 
are losing money on every one----
    Mr. Walden. You don't make it up in volume.
    Mr. Moffett [continuing]. And so scale doesn't help. And so 
Wall Street is quite skeptical, I think, for the moment of any 
of the virtual MVPD models. In the context of a company like 
Google, YouTube TV is too small for anyone to spend much time 
on it.
    But a big part of the reason, for example, that AT&T as an 
equity has performed so poorly since its DirecTV acquisition 
isn't just that DirecTV started to shrink right after they 
bought it but because they started to migrate customers into a 
virtual MVPD of their own, DirecTV Now, that was hemorrhaging 
money. And so the income statement looked frankly quite awful 
partly because of that acquisition. So Wall Street has not been 
willing to fund the expansion of the traditional companies into 
this business.
    Mr. Walden. I have gone over my time.
    Mr. Moffett. And it hasn't paid much attention to the 
digital companies doing it.
    Mr. Walden. Thank you, Mr. Chairman. I yield back.
    Mr. Bilirakis. Thank you, Mr. Chairman. Appreciate it.
    And now we will recognize the ranking member 5 minutes for 
questions.
    Mr. Pallone. Thank you, Mr. Chairman.
    I know that we have a vote on, so I am going to only use 
about half the time and I am going to limit my questions to Mr. 
Corwin. I want to thank you for your excellent programming that 
you provided to America's children over the years. And I agree 
with you that my concern that you share is that the FCC in 
considering rolling back protections that ensure kids have 
access to free, educational, informational TV program is a 
serious problem.
    So let me just say, if educational children's program 
migrated online or to cable channel only, what groups of 
children would be the most affected?
    Mr. Corwin. Well, the people that would benefit children 
would be the ones that have access to--the people most affected 
are the ones that do not have access to the technology. And as 
we have discovered with the potential opportunities of 
multicast is that there is no opportunity for broadcast because 
we just wouldn't have our audience. So unless you are in a 
public library or you are in school, there are many children in 
our country that would not have access to this technology.
    Mr. Pallone. And what's the consequence of that? In other 
words, children from lower-income homes, as you say, have 
access to fewer resources and opportunities than wealthier 
families. So in your experience, you know, how does exposure to 
educational program mandated by Kid Vid rules actually benefit 
the children?
    Mr. Corwin. So how does it benefit children? OK. So the 
only thing I could say is, in my job I don't wear a suit. This 
is the first time I have worn a suit. I always say, you never 
want to see me in a suit because you are probably in a casket. 
But I needed a suit. I was filming overseas. My wife got a 
suit. I came home. It didn't fit. I found a tailer at the last 
minute. She was able to do it. I didn't think she knew who I 
was.
    I got a text from her saying you can pick it up on the 26th 
in the afternoon. And she said, by the way, I don't know if 
this is inappropriate, but would you provide a correspondence 
to my nephew because he serves in special ops, and he wanted 
you to know that when he was a teenager he was going through 
some tough times and your programming and others inspired him 
to focus and he joined the military and now has a very 
productive career.
    I mean, that is a personal story that I have encountered. I 
have met many children--I have met many--unfortunately now that 
I am aging, you meet adults that come up to you and say, I 
became a veterinarian or I became a scientist because of shows 
like yours that I have experienced. So on a personal note, I 
have met hundreds, if not thousands of people, that have been 
positively impacted.
    When it comes to our natural resources, I will tell you 
this: You can't protect and you can't wisely use what you do 
not love. And if you don't love it--you will never love it if 
you never realize it or discover it. And that is what shows 
like mine do. We provide a vehicle, a safe, encouraging, rich 
environment for young children and young people to make 
discoveries that could perhaps set them on their careers of 
what they will do in the future.
    Mr. Pallone. I think that is so important. You know, the 
other thing we realize more and more--at least I do. I think 
most people do--is that when you talk about STEM, right, in 
other words, you know, science, engineering, the things that--
that kind of education that is so important, you know, for the 
future in this sort of innovative technology world, what this 
committee deals with, that is where a lot of these kids--we 
know that, you know, STEM education is something that low-
income kids often don't have the opportunity, they don't hear 
about, don't start, you know, wondering about science and 
nature and all that.
    And so I think it has a particular impact there because I 
worry so much that, you know, if people from low-income 
backgrounds will never get into those fields. And the sort of 
discovery aspect that you are talking about I think is 
particularly important in that respect as well. So thank you 
very much.
    Mr. Corwin. Thank you.
    Mr. Pallone. Thank you, Mr. Chairman.
    Mr. Bilirakis. Thank you for yielding back.
    I will now recognize the gentleman from Pennsylvania--
excuse me, Louisiana, my good friend, Mr. Scalise, 5 minutes, 
please.
    Mr. Scalise. Thanks again, Mr. Chairman.
    I appreciate the testimony that you all have given and it 
really describes just how much things have changed since the 
brick was the cellphone. This was the last time our laws were 
written. These are the laws. We are literally operating under 
1992 laws with this technology. And I show this to show the 
importance of why we need to update our laws.
    And, you know, obviously I filed a bill, the Next 
Generation Television Marketplace, to start this conversation 
about how we get beyond these people that want to live in the 
dark ages. The number one song, by the way, when the 1992 Cable 
Act was written, ironically was ``End of the Road'' by Boyz II 
Men. It is the end of the road for the 1992 Cable Act, but we 
can't keep living under it because of those companies that are 
fighting that change.
    Mr. Moffett, you said in your statement earlier, change or 
get left behind. And really that is fitting because it seems 
like some of the people that think that they are protected by 
the 1992 Cable Act that want to hide behind the 1992 Cable Act 
and fight to protect it, they are going to fight change while 
they are getting left behind because the change is happening.
    The problem is you have very different sets of rules that 
everybody is playing by. Why is it--and I think, Mr. Olgeirson, 
you did some research to look at how many people are really 
cutting the cord, what kind of drop there is. And from what I 
saw, there is about a 9 percent drop, reduction in people that 
are staying within the old MVPD marketplace. In other words, 
the cutting of the cord is real and they are doing it, but they 
are not just stopping and watching things. They are 
transferring over to over the top.
    And I think in your studies it was somewhere around 180 
percent increase in the number of people going to over the top. 
And so there was a revenue study that was done by Convergence 
Research Group that showed a revenue change last year. A 1 
percent increase in paid TV, the traditional MVPD, and a 41 
percent increase in revenues by over the top.
    The more alarming part of the traditional revenue, the 
traditional MVPD folks, you know, while they may seem to be 
saying, hey, you know, we had a 1 percent increase, that is a 
decrease in what they were getting before. But they are losing 
customers by a rapid, rapid rate.
    And so, if you look at where we should be trying to go, we 
should be trying to go to a marketplace where everybody has the 
same set of rules. One of the reasons that those traditional 
MVPDs can't go find ways to get more customers that are getting 
better choices--I mean, customers do what they always do. They 
look for better choices and they look for lower costs, and they 
are finding both in the over-the-top, but they can't get it in 
the traditional MVPD because there are laws in the 1992 Cable 
Act, like must-carry, like basic tier. There are actual laws 
that prevent you from providing the services that customers are 
looking for.
    So they are cutting the cord because they can go somewhere 
else. So, Mr. Moffett, what I want to ask you, is, as I have 
described that marketplace, explain to me, maybe, why you see 
some of these traditional MVPDs fighting change that--frankly 
the change, they are going to be Blockbuster. You know, 
Chairman Walden, I know he gave that example of Blockbuster. 
Blockbuster died for a reason, because they fought the change 
that was happening. It happened anyway. And so as people moved 
away, Blockbuster went away because they fought the change. If 
they maybe would have said, let's go be like Netflix then maybe 
they could be like Netflix today instead of being the dinosaur. 
So if you want to maybe touch on that, Mr. Moffett.
    Mr. Moffett. Well, thank you for the question. I would say, 
in fact, part of the reason that the change has seemed--
particularly to people in the tech community--has seemed a bit 
glacial for the traditionals is precisely as you say. There are 
very real limitations on their degrees of freedom, right? As a 
traditional MVPD, a Comcast or a charter or something, I might 
want to, for example, respond to the emergence of so-called 
skinny bundles among the OTT players, by saying, ``Well, I have 
to have skinnier bundles of my own with fewer networks.'' Well, 
your contracts don't allow that, so you probably can't.
    Mr. Scalise. And maybe that worked when you were the 
monopoly. You know, again, in 1992, you didn't even have 
satellite, STELA didn't exist.
    Mr. Moffett. That is right.
    Mr. Scalise. You surely didn't have Roku and Hulu and all 
those other services. You had one place to go. You were the 
only game in town, and so it was a great relationship with the 
networks. They were a monopoly, you were a monopoly, and 
everybody could only go to you. It doesn't exist anymore.
    Mr. Moffett. And by the way, the negotiating leverage, as 
you can imagine, in those days, was quite different. One of the 
challenges for the traditional MVPDs in competing, is, as they 
think about the retrans rules, for example, you have a very 
clear asymmetry in the negotiating leverage. The media company, 
the local--I should say, the local broadcast affiliate, 
particularly in NFL markets where they have the rights to--to a 
local football game, is dealing with a product that--for which 
there is no substitute.
    By law, there is no one else allowed to sell that NFL game, 
for example, in that market. And they are negotiating with a 
player on the--on the multichannel video side, a cable operator 
or satellite operator, for whom there are very obvious and 
identifiable substitutes. So that is quite different than the 
situation in 1992, and not surprisingly----
    Mr. Scalise. And I apologize, I know I am out of time, but 
just to say--to wrap it up, Mr. Chairman--let's get back to a 
free market where everybody is paid for their content. I mean 
let's go to pure copyright. We are not talking about somebody 
giving away their product for free, but let's not have the 
Government tell you that you have to provide content one way, 
but this other actor over here, that is going through the 
internet can operate in a completely different set of rules and 
environment and take your customers away, but you are trapped 
in the old system.
    Let's have a free market for everybody, where you get fully 
compensated for your content, but update the laws, because, my 
gosh, why are we still operating under these laws? It is the 
end of the road.
    Yield back.
    Mr. Bilirakis. All right, thank you. Thank you, Mr. 
Scalise. And as you know, votes have been called, so we will 
take a slight recess. This subcommittee will recess for, well, 
a few minutes.
    [Recess.]
    Mr. Guthrie [presiding]. The subcommittee will reconvene. 
At this time I am going to recognize Mr. McNerney for 5 minutes 
for questions.
    Mr. McNerney. I want to thank the chairman, and I am glad 
to be back after votes here today. Mr. Corwin, about 21 percent 
of the households in my district have an annual income of less 
than $25,000 a year. What types of--why are the types of 
educational and informational programming that you describe in 
your testimony so important for kids in these households?
    Mr. Corwin. Well, I think why it is so important is because 
if you can provide anything for young people that are in a 
disenfranchised or disadvantaged situation where they may not 
have access to technology that allows them to be omnipresent in 
the digital universe, I think what we can do is provide those 
kids with a sense of hope, that we can inspire them with places 
around the world. These kids, when they watch my shows, I 
literally imagine in my brain, they are my sidekick companion, 
and we are on an adventure together. And we can show them 
places around the world. We can show them scientists that are 
doing ground-breaking stuff, not just your classic scientists, 
but scientists from all walks of life.
    Many of them have had moments of adversity in their lives 
that are doing groundbreaking, life-changing things to not only 
advance science, but to wisely manage our natural resources. So 
I think, in the end, that is something we provide. We empower 
them with knowledge. We show people like them, who have made 
great successes of themselves and are contributing. We give 
them hope, and I figure the hope that I got, for example, when 
I watched David Attenborough, when I watched Marlin Perkins, 
but wanted to be Jim, you know, when I watched all that stuff, 
it inspired me, and I hope we can inspire them.
    Mr. McNerney. Thank you.
    Well, more than 56,000 households in my district 
participate in the Lifeline program, which you must be aware 
of, and that enables low-income families to stay connected. The 
FCC Chairman is currently proposing the changes to the Lifeline 
program that will eliminate 70 percent of the households that 
participate in Lifeline. Do you think cutting off households 
from Lifeline will be harmful?
    Mr. Corwin. I think not only is it harmful, but it isolates 
children. It does not give them access to resources, 
pedological and educational and informational opportunities, 
that could ultimately be a stepping stone to inspire them to 
become engineers, explorers, or scientists. So they lose that 
conduit to another world, and they become isolated.
    Mr. McNerney. Thank you.
    Mr. Olgeirson, in recent years, we have seen a number of 
vertical and horizontal mergers in the media marketplace. We 
know that most Americans still get their news from local 
sources, local broadcasting stations, local radio, and hometown 
newspapers, but increasingly many of these outlets are being 
consolidated by a handful of companies. Localism is still 
important in our Nation's communications policy. It produces 
more robust democracy.
    Do you think that the FCC's decision to allow a single 
broadcaster to own more than one--one top-four stations in a 
market could result in less unique local voices in the market?
    Mr. Olgeirson. I couldn't speak to the consolidation within 
the broadcast markets.
    Mr. McNerney. OK.
    Mr. Olgeirson. I could offer you a data point on--to your 
last point, talking a little bit about where lower income 
households come in. We have certainly seen a significant 
increase in the average revenue per unit and the cost of a 
multichannel subscription, which puts a--which certainly puts 
a--the statistics you mentioned about the lower-income 
households in your district, would put them outside of the 
affordability of a multichannel service and being able to 
access that.
    Mr. McNerney. OK, thank you for that.
    Mr. Moffett, privacy is an area of great concern for me and 
a lot of Americans, a lot of people around the world really. 
Americans increasingly feel they are losing control of the 
information they share online.
    I understand the FTC has a general enforcement policy under 
Section 5 to go after unfair and deceptive practices. I also 
understand the Communications Act has certain privacy 
provisions that apply to cable and satellite operators. Do 
cable and satellite privacy protections in the Communications 
Act apply to online MVPDs?
    Mr. Moffett. I think it is generally assumed by most of the 
carriers. I think a good example is Verizon. That they are 
subject to--to stricter privacy rules than are the edge 
providers, as they are referred to, the Googles and Facebooks. 
And that asymmetry is problematic. I wouldn't want to--it is a 
legislative question, rather than an analytical question, to 
say which model is the preferable model. That is, is it more 
appropriate--while it is more complicated than this, it boils 
down, in many ways, to an opt in versus opt out, but there are 
obviously many nuances beyond that.
    I wouldn't suggest that--I would suggest that it is a 
legislative and--a legislative question to decide whether it 
is--whether one is preferable to the other. But there is 
certainly a strong economic argument for ensuring that everyone 
operates under the same set of rules.
    And historically that has been solved to some extent in 
that now when the previous net neutrality rules were in place, 
it created some additional complexity because--because of the 
exemption of--that had come from almost a century ago, about 
net neutrality and jurisdiction of the Federal Trade 
Commission. At least that has been taken away, so that the 
Federal Trade Commission has jurisdiction over both, but the 
presumed rules are still different.
    And, for example, Verizon is struggling with the 
acquisition of AOL and Yahoo, in part because their expectation 
is, we have to abide by privacy rules that are stricter than 
those rules that are adhered to by a Google or a Facebook.
    You have another--one more obviously, you have another very 
big challenge, which is, especially the social media companies 
are global and are now being asked to respond to different 
rules in Europe and different rules in Asia, and in fact, 
individual countries in Asia. And it makes it extraordinarily 
difficult to think about all these different regimes.
    Mr. McNerney. Thank you for your opinion.
    I yield back.
    Mr. Guthrie. The gentleman's time has expired and he yields 
back. And I will recognize myself for 5 minutes for questions.
    So, Mr. Olgeirson, this subcommittee has talked a lot in 
this country about the importance of winning the race to 5G. 
And Doris Matsui of California and I, with the Congressional 
Spectrum Caucus, have been looking at the spectrum--the block 
phone is coming back--the spectrum questions, which are central 
to 5G. And since we are talking about media today, one of the 
many uses that 5G will enable is an enhanced mobile broadband 
capability, vitally important to high-quality video, among 
other things.
    I have been told about the incredible amount of bandwidth 
that online video consumes on all networks, including the 
mobile. My question is, since we are already seeing consumers 
transition towards mobile content consumption, do you think the 
deployment of 5G will accelerate this trend and, in particular, 
when it comes to video?
    Mr. Olgeirson. Thank you for the question. I think that, 
first of all, when we think about the consumption of video, we 
still see the primary location in consumption of video being 
the home. So even though consumers may be technically using a 
mobile device, and they maybe experience a certain degree of 
mobility because they are not tethered to a wire, they are on 
the home Wi-Fi. And that is where the majority of usage for 
video is at the moment.
    We have certainly seen different service providers 
targeting a true mobile service and looking to leverage that, 
and capacity would certainly increase their ability to put that 
out there. Under the current sort of 4G network's mobile video, 
in an uncongested 4G network's mobile video is not necessarily 
a gating factor. But bandwidth is not necessarily a gating 
factor to getting that video. But we do anticipate that a more 
robust mobile network would lead to, you know, more data usage, 
including video.
    Mr. Guthrie. More demand for it.
    Mr. Moffett, would you have any comments on that?
    Mr. Moffett. No, I would agree with that answer, that the--
I am not sure that video alone--there is obviously a 
tremendously--a tremendously rapid growth in consumption of 
data, and, therefore, all the wireless operators are applying 
all different kinds of strategies to increase the capacity of 
their networks. And video is a very large driver of that 
growth. But I think it would be a little bit of a stretch to 
argue that video consumption will be the economic basis of 5G. 
I think there has to be something that is a separate and unique 
revenue stream associated with that business. Because video is 
already a revenue stream that the 4G network allows them to 
capture, as Mr. Olgeirson said, with reasonably good 
efficiency.
    Mr. Guthrie. OK, thanks.
    And this is Mr. Olgeirson's testimony, but anyone can 
answer this. I will go to Mr. Olgeirson first, but in today's 
testimony we heard about the significant shifts in media 
marketplace and how different the industry is now, compared to 
even 10 years ago. But you said that we are still in the early 
to mid stages of complex transition. If we are only in the 
early stages--put on your analyst hat here--and if you are only 
in the earliest stages now, what can we expect the marketplace 
to look like in the late stages?
    Mr. Olgeirson. Well, I think that we see a continued 
progression of subscribers moving outside the umbrella of the 
big subscription package that is represented by cable, Telco, 
and satellite services that we know today. Those services--
those subscribers will be in a position of self-aggregating 
their content through different services like a Netflix or a 
Hulu.
    We will also see an increasing move toward direct-to-
consumer delivery by video conglomerates who are looking to 
sort of move beyond having a distributor middle man in that 
section. So I think that we see a progression of subscribers 
outside of this big package. We see the traditional operators 
continue to have significant leverage within that discussion, 
because of their wireline networks, and in many cases, because 
of the wireless networks that they will develop on top of those 
wireline networks. But nonetheless, the video package migrates 
outside.
    Mr. Guthrie. OK. I have a few seconds, do you want to 
comment, Mr. Moffett?
    Mr. Moffett. You know, I can--I think the key thing to 
focus on is really what is happening to consumption trends, and 
while people are watching more and more video, they are 
watching less and less what we consider scripted video, and 
that sort of thing. So you have got this period where there is 
more scripted shows than ever but fewer and fewer people 
watching them. And that is not a sustainable model.
    I think if you project out forward, you are likely to see 
that a lot of what we think of as linear television today just 
disappears, to be replaced with much more on demand, and with a 
much more limited offering of linear TV, linear news, and 
linear sports. But that it may not be--there may not be a need 
for any other linear channels. Everything else may eventually 
be sold in on-demand packages. And I think younger people are 
sort of scratching their head over why are we spending so much 
time thinking about linear television and the migration of 
linear television because----
    One of the better quotes that I heard was from a young 
person, who when faced with a virtual MVPD, which is sort of 
pitched at people like that, said, why would I want a bunch of 
networks that only my father watches? That is not the way they 
consume television or consume video. And even the idea of 
consuming television is a bit anachronistic.
    Mr. Guthrie. Well, thank you. My time has expired. I 
appreciate your answers.
    Next up is my friend, the gentle lady from New York, Ms. 
Clarke.
    Ms. Clarke. Thank you very much, Chairman Guthrie, and to 
Ranking Member Doyle, for convening this important hearing on 
the media marketplace.
    Viewpoint diversity is an important principle that has long 
informed communications policy in the United States. While 
online platforms provide new channels for voices to rise to the 
surface, it remains vital that our media outlets and the 
content they distribute reflect the diversity of voices and 
opinions that make up America. Minority media ownership remains 
abysmally low, and I worry that the current FCC's rollback of 
media ownership rules meant to promote diversity of voices will 
do nothing but make the problem worse.
    So, Mr. Moffett and Mr. Olgeirson, does media consolidation 
have a negative effect on the number of minority-owned media 
outlets?
    Mr. Moffett. My focus is not really on the broadcast side, 
which I think is, if I understand your question, to some degree 
where you are focusing, because those are the places where the 
media ownership rules are the most relevant. And so I am afraid 
it is outside of my area of expertise.
    Mr. Olgeirson. It is also outside of my area of expertise. 
I would note that the--that the dynamics that have been 
described up here of sort of an increasingly on-demand delivery 
of content and sort of the erosion of that big subscription 
package have different impacts on people seeing diverse views. 
Because you are self-selecting the content, you are less likely 
to run into--into a view that might not be your own.
    But at the same time, there is an easier path toward 
distributing those views, because you don't have the gatekeeper 
of a 60-channel lineup from a cable operator that you can't 
crack, because your network is really the 61st most popular 
one.
    Ms. Clarke. Yes, and I just think that with the diversity 
of ways in which people are accessing their video or their 
content, it still disadvantages those who are not in ownership 
positions. So I was wondering whether any of you can speak to 
that.
    Mr. Olgeirson. I don't think so, but thank you.
    Ms. Clarke. Oh, OK, just thought I would ask. Maybe we 
should look into it.
    Are you aware of any efforts to promote diversity or 
increase the number of minority-owned opportunities out there? 
Either--anyone?
    Mr. Olgeirson. I am not, no.
    Ms. Clarke. OK.
    Mr. Corwin, you are familiar with diversity in another 
sense, the diversity of wildlife inhabitants that populate our 
planet. I am interested in hearing from you why you think it is 
so important to bring the natural world to children and young 
people via television programming.
    Mr. Corwin. Well, that is a great question. There are a 
number of objectives that we are looking at. One is to not only 
inspire a sense of stewardship to make that natural connection, 
but ultimately by building that relationship of stewardship, we 
encourage the next generation of leaders, of users of resources 
to maybe learn from our mistakes, to ensure that we have a 
biologically rich and healthy planet.
    And as we know today, we face tremendous challenges with 
endangered species, habitat loss, and climate change. In 
addition, we try to strive and reach out to above and beyond 
our audience. Recently we just received a letter from the 
Department of Defense and the American Forces Network. And the 
American Forces Network commended us in our ability to connect 
with our armed servicemembers and to try to be a resource for 
them.
    So, for example, we reach more than a million soldiers and 
their families around the world, a success point so embraced 
that they are now using our TV shows in schools that our men 
and women who are fighting for our country can educate their 
children in a positive way.
    We face tremendous challenges. We live in what is called 
the six extinction. We lose a species on our planet once every 
20 minutes----
    Ms. Clarke. So let me ask you something. According to 
Nielsen, 45 percent of African Americans and 36 percent of 
Hispanic Americans don't own streaming devices. So the FCC has 
suggested that Kid Vid rules are not necessary because 
educational content for children is available online. How would 
this impact those communities?
    Mr. Corwin. Well, it will be impacted in a huge and an 
almost asteroid-like fashion. What the asteroid did to the 
natural history of our planet over 60 million years ago, we are 
doing that with communications. The multicast program basically 
removes more than 98 percent of our audience. Children and 
families that live in the inner cities will not be able to 
watch our shows because it is not on multicast, broadcast and 
cable, or satellites. Not even in HD. My own children, who I 
try to provide a nice life for, will not be able to watch my TV 
shows if this continued trend moves forward.
    Ms. Clarke. Very well. I thank you very much, gentlemen, 
for your feedback. It is a lot to think of and consider there.
    And, Mr. Chairman, I yield back the balance of my time.
    Mr. Guthrie. Thank you. The gentle lady yields back.
    The Chair recognizes Mr. Johnson of Ohio for 5 minutes for 
questions.
    Mr. Johnson. Thank you, Mr. Chairman.
    And this is indeed an important topic, and, Mr. Corwin, for 
the record, I enjoy your shows. So I am one of those kids that 
you are taking on those journeys in your mind, because I really 
enjoy them.
    So thanks to all of you for being here today, because it is 
such an important topic, the current state of the media 
marketplace.
    As everyone knows, the media landscape has changed 
significantly in the last two decades, even in the last few 
years. And I have faith that American innovation will continue 
to develop exciting new technologies and platforms that will 
continue to change and expand the media marketplace in the 
future. So it is important for us to take a look at the media 
marketplace more broadly, understand the new ways that people 
are listening to or viewing media content, and also the 
continued role of traditional over-the-air broadcasting.
    This hearing is just the start of a needed conversation to 
examine these topics and ensure policy and regulations reflect 
the current marketplace and provide a fair playing field for 
all the industries involved.
    With that as a backdrop, Mr. Moffett, for years, we have 
been hearing about a la carte offerings in which viewers could 
pay for the programming they want and not pay for programming 
they don't want. Yet the cable bundle lives on. Indeed it now 
appears that even new online products like Sling and Hulu are 
starting to recreate the familiar cable bundle. Why is this 
happening?
    Mr. Moffett. Well, the first thing--thank you for the 
question. I guess the first thing I would say is, when we talk 
about a la carte and unbundling, it is important to be 
articulate about where in the value chain we are unbundling and 
what we are unbundling from what. So today shows are created by 
television studios. Those tend to be bundled together into 
linear networks. Linear networks are bundled together into 
media conglomerates. Media conglomerates are bundled together 
into the package that is sold to consumers. And in theory, 
unbundling could happen at any one of those levels.
    Mr. Johnson. What effect does it have on prices and 
broadband offerings----
    Mr. Moffett. So right now, the reason--and I think it is 
actually lost on many of your constituents, because when I talk 
to consumers, they often blame the distributor. But the reason 
that you can't do a la carte as a customer, and by most people, 
when they say a la carte, what they mean is unbundling cable 
networks from each other. Again it is not obvious. That should 
be what it means, but that is what most people assume.
    The reason you can't do that is because the media 
conglomerates don't allow the distributors to buy individual 
networks. They require you to take all of them or none of them.
    Mr. Johnson. What do you think we do about it?
    Mr. Moffett. Well, it is a very difficult problem in some 
ways, because at least the legal question, as I understand it, 
has always been, on the one hand, anti-trust laws would 
suggest--would say that looks a lot like illegal tying. On the 
other hand, first amendment rights say that they are first 
amendment speakers and that you can no more tell Disney that 
they can't bundle their channels together than you can tell The 
Washington Post that they can't bundle the business section 
with the editorials. And so you have this tension between first 
amendment rights and antitrust rules.
    Mr. Johnson. So what you are saying, it is not easy?
    Mr. Moffett. It is not an easy problem to solve. The 
marketplace may eventually solve it but very, very slowly.
    Mr. Johnson. OK. Well, earlier this year the FCC relaxed 
its local television ownership rule to permit broadcast 
television companies to own, within certain limits, two 
stations in a single television market. In its decision, the 
FCC pointed to the fact that consumers are increasingly 
watching video programming from cable and satellite operators 
and online content distributors.
    Given the rise of these other mediums, do you believe that 
free, over-the-air TV broadcasters compete only against other 
TV broadcasters in the same geographic market for viewers and 
advertising dollars?
    Mr. Moffett. Clearly not. And, in fact, I think that speaks 
to, while there are perfectly legitimate arguments to be made 
about diversity of voices and keeping two--the two-station 
rules being problematic in some way, the economic reality is 
that these companies are competing against social media and 
streaming----
    Mr. Johnson. Sure.
    Mr. Moffett [continuing]. Models, and so the question is, 
can they fund the news-gathering function with the economics 
available to them on a single station? Or do they need 
synergies? And those are really tough questions.
    Mr. Johnson. Yes, we could talk for days about some of 
this. I know I have got very limited time, but I want to give 
each of you a chance to answer this question.
    What suggestions do you have for this committee to ensure 
that the marketplace continues to evolve, to innovate, and 
provide robust competition?
    Mr. Olgeirson. I think boiling it down to a single 
suggestion is a daunting task. I think that, you know, at this 
point, what we have seen is that consumers are essentially 
driving the market. They are making decisions about a la carte. 
They have asked for a la carte. Operators have told them that 
it is probably not in their best interest, and we look at the 
economic models and determine that a la carte is not in their 
best interest. And yet they are moving toward a la carte models 
already.
    So I think that what we will see is--basically the market 
is answering those questions.
    Mr. Johnson. Mr. Corwin, I know you got to go quickly, but 
do you have a response to that?
    Mr. Corwin. Well, I can just tell you this, making 
children's television programming isn't easy. We are very 
limited on the things we can express, the tools we can use 
because of the audience we are trying to reach. But if you give 
us the platform, we will succeed. We have this great ability to 
reach millions and millions of people, and we do so by 
providing a competitive, engaging, and entertaining, and 
informational product. And you give us that platform, we will 
continue to do what we do.
    Mr. Johnson. OK. Mr. Chairman, I wish I had more time, but 
I yield back.
    Thank you, gentlemen.
    Mr. Guthrie. Thank you. The gentleman from Ohio yields 
back, and the Chair now recognizes Mr. Engel of New York, 5 
minutes for the purpose of asking questions.
    Mr. Engel. Thank you, Mr. Chairman and Ranking Member 
Doyle.
    I know and hear regularly from my constituents who complain 
about poor cable service, high bills and being forced to pay 
for bundled programming that they don't really want. And with 
that in mind, I want to start by talking about television 
blackouts, which means not showing a particular channel or a 
particular show in a given market. It can be extremely 
frustrating to consumers who pay their bills and expect to be 
able to watch the programming of their choice, and yet we have 
seen more and more business disputes that result in a 
particular show, channel, or content provider being blacked out 
for consumers, sometimes for long periods of time. So let me 
ask Mr. Moffett and Mr. Olgeirson, in your opinion, are 
consumers likely to see more or fewer blackouts in the future?
    Mr. Moffett. I think--and thank you for the question. My 
suspicion is that we will see more. And, in fact, not just more 
temporary blackouts, but we will start to see more permanent 
blackouts. That is, we will start to see more networks, 
particularly cable networks, being dropped entirely because the 
economic model for them to be distributed by an individual 
distributor just doesn't make sense anymore.
    And that, again, speaks to the economic tensions are 
mounting. And when the economic tensions in a business system 
like this one mount, you tend to get more and more of these 
kind of extreme examples of dysfunctional economics.
    Mr. Engel. Mr. Olgeirson, would you agree?
    Mr. Olgeirson. Yes, I agree. I think the only--the only 
lever there that wasn't brought up is that consumers do have an 
increasing option to move away from--from that service and, 
therefore, have a solution to those blackouts.
    Mr. Engel. We are seeing content producers, broadcasters, 
and multichannel video programming distributors consolidating, 
getting larger, the MVPDs. Do these consolidations impact the 
likelihood of blackouts? Either one of you--or both.
    Mr. Moffett. In theory, they would, particularly, and in 
fact, that was the--if you think about the AT&T-Time Warner 
case, that was actually the most important theory put forth by 
the Department of Justice and, in fact, was why the DOJ 
appealed the case, was that they felt that Judge Leon in that 
case had failed to acknowledge that that was the likely 
outcome. I am slightly spinning that a little differently than 
they put it, but that was effectively the argument that they 
made.
    Now, as it happens, in that particular case, for the time 
being, they are bound by a voluntary consent decree like 
commitment to make their content available and to--and not have 
blackouts. But in theory, yes, the economics of withholding 
content from a direct competitor are more attractive, or are 
more tenable, if, in fact, you will get some economics back by 
virtue of some of their customers leaving them and coming to 
you. That is the nature of the economic argument, and it seems 
to me, on its face, that it is correct, at least to some 
degree.
    Mr. Olgeirson. I don't have anything to add to that.
    Mr. Engel. OK, well, let me--I would like to address the 
cost of traditional cable and satellite service. So let me ask 
you again, either one of you who--or both who might want to 
answer, do you think that the subscription cost to a 
traditional cable or satellite service are likely to increase 
or decrease for consumers in the near future?
    Mr. Moffett. I think the answer remains, as it has been for 
30 years, that the--there are very strong inflationary 
pressures. One of the things that is unique about this model, I 
used to describe it as--because it is--the wholesale prices are 
delivered to the multichannel distributors by the content 
owners and are invisible to the consumer.
    One of the few models that that looks like is the 
healthcare system. If we wonder, you know, why we have runaway 
healthcare costs, it is because the end user is not even aware 
of the wholesale cost of individual services. The only other 
model you can find that looks like that is the media business, 
where we have the same model.
    And in particular, when you have this--what I described in 
response to an earlier question, you have this asymmetry of 
negotiating leverage between local broadcasters, in particular, 
that own the rights to sports, for which there is no 
substitute, and a negotiation with a multichannel provider for 
which there is an obvious substitute. That is a recipe for 
natural escalation in prices, and that has been the primary 
driver for the last, roughly, 10 years. The primary driver of 
escalating prices to end users has been that asymmetry.
    Mr. Engel. Do you think that the new online streaming 
services, where people are watching more of the broadcast, will 
lead to lower costs?
    Mr. Moffett. Temporarily, I think that it puts pressure on 
the multichannel distributors to try to respond to the fact 
that there are these low-cost options. But as I described in my 
opening remarks, there are very real reasons to be doubtful 
about whether the selling that service--those services without 
any margin will turn out to be a sustainable model.
    It will depend on how successfully they can monetize 
advertising and how well they can exploit the customer data for 
a very targeted advertising. My suspicion is that that won't be 
sufficient to offset the cost of maintaining those services at 
no margin, and that you will start to see those prices start to 
escalate, and if anything, take some of the downward pressure 
off of the pricing of the traditional multichannel providers.
    Mr. Engel. Thank you.
    I have one final question I would like to address to Mr. 
Corwin. You touched on it before when the question was asked. 
In the FCC's repeal, if they were to repeal Kid Vid 
protections, if that is finalized, people say it is done 
because kids don't watch education programs anymore; they have 
so many other things to do. How do you answer that?
    Mr. Corwin. Well, we know that children and teenagers, 
which we target for our audience, do watch this programming. My 
ratings are very competitive, 1.6 shares watch, and Nielsen 
ratings, which allows us to get the revenue streams to make the 
shows we do.
    But if we are crippled by the multicast broadcast 
situation, we will no longer have that audience, which means we 
will not get those resources, which means we can't make the 
shows that engage our audience, inspire them to a path forward 
in science and technology.
    Mr. Engel. Thank you.
    Thank you, Mr. Chairman.
    Mr. Guthrie. Thank you. The gentleman's time is expired.
    Seeing no other Members wishing to ask questions for the 
panel, I thank all of our witnesses for being here today. It 
has been very informative, and I appreciate it.
    Pursuant to committee rules, I remind Members that they 
have 10 business days to submit additional questions for the 
record and ask that witnesses submit their responses within 10 
business days upon receipt of the questions. Seeing no further 
business before the subcommittee today and without objection, 
the subcommittee is adjourned. Thank you.
    [Whereupon, at 5:00 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    
    
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