[Senate Hearing 116-568]
[From the U.S. Government Publishing Office]
S. Hrg. 116-568
THE STATE OF THE TELEVISION
AND VIDEO MARKETPLACE
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
JUNE 5, 2019
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available online: http://www.govinfo.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
52605 PDF WASHINGTON : 2023
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
ROGER WICKER, Mississippi, Chairman
JOHN THUNE, South Dakota MARIA CANTWELL, Washington,
ROY BLUNT, Missouri Ranking
TED CRUZ, Texas AMY KLOBUCHAR, Minnesota
DEB FISCHER, Nebraska RICHARD BLUMENTHAL, Connecticut
JERRY MORAN, Kansas BRIAN SCHATZ, Hawaii
DAN SULLIVAN, Alaska EDWARD MARKEY, Massachusetts
CORY GARDNER, Colorado TOM UDALL, New Mexico
MARSHA BLACKBURN, Tennessee GARY PETERS, Michigan
SHELLEY MOORE CAPITO, West Virginia TAMMY BALDWIN, Wisconsin
MIKE LEE, Utah TAMMY DUCKWORTH, Illinois
RON JOHNSON, Wisconsin JON TESTER, Montana
TODD YOUNG, Indiana KYRSTEN SINEMA, Arizona
RICK SCOTT, Florida JACKY ROSEN, Nevada
John Keast, Staff Director
Crystal Tully, Deputy Staff Director
Steven Wall, General Counsel
Kim Lipsky, Democratic Staff Director
Chris Day, Democratic Deputy Staff Director
Renae Black, Senior Counsel
C O N T E N T S
----------
Page
Hearing held on June 5, 2019..................................... 1
Statement of Senator Wicker...................................... 1
Statement of Senator Cantwell.................................... 3
Statement of Senator Blunt....................................... 37
Statement of Senator Schatz...................................... 39
Statement of Senator Capito...................................... 41
Statement of Senator Markey...................................... 43
Letter dated October 29, 2018 to Hon. Ajit V. Pai, Chairman,
FCC from Senators Markey, Baldwin, Hassan, Cardin, Merkley,
Sanders, Peters, Wyden, Leahy, Blumenthal and Warren....... 45
Statement from Senator Robert Menendez....................... 47
Letter dated June 5, 2019 to Senator Roger Wicker and Senator
Maria Cantwell from Jonathan Schwantes, Senior Policy
Counsel, Consumer Reports.................................. 49
Letter dated June 3, 2019 to Hon. Roger Wicker and Hon. Maria
Cantwell from Corrina Freedman, Political and Legislative
Director, Writers Guild of America West.................... 50
Statement of Senator Tester...................................... 51
Statement of Senator Lee......................................... 52
Statement of Senator Thune....................................... 55
Statement of Senator Udall....................................... 58
Statement of Senator Blackburn................................... 59
Statement of Senator Cruz........................................ 61
Witnesses
Hon. Michael K. Powell, President, NCTA--The Internet and
Television Association......................................... 4
Prepared statement........................................... 5
Hon. Gordon H. Smith, President and Chief Executive Officer,
National Association of Broadcasters........................... 9
Prepared statement........................................... 11
Craig Aaron, President and Chief Executive Officer, Free Press
and Free Press Action.......................................... 13
Prepared statement........................................... 15
David Kenny, Chief Executive Officer, Nielsen.................... 31
Prepared statement........................................... 33
Appendix
Letter dated June 4, 2019 to Hon. Roger Wicker and Hon. Maria
Cantwell, from Mike Chappell, Chairman, American Television
Alliance....................................................... 65
Letter dated June 5, 2019 to Hon. Roger F. Wicker and Hon. Maria
E. Cantwell, from Tom Struble, Technology and Innovation Policy
Manager, R Street Institute and Jeff Westling, Technology and
Innovation Policy Fellow, R Street Institute................... 68
Motion Picture Association of America, Inc., prepared statement.. 69
Response to written questions submitted to Hon. Michael K. Powell
by:
Hon. Todd Young.............................................. 76
Hon. Amy Klobuchar........................................... 77
Hon. Tom Udall............................................... 77
Hon. Jacky Rosen............................................. 78
Response to written questions submitted to Hon. Gordon H. Smith
by:
Hon. Roger Wicker............................................ 79
Hon. Rick Scott.............................................. 79
Hon. Tom Udall............................................... 80
Hon. Jacky Rosen............................................. 81
Response to written questions submitted to Craig Aaron by:
Hon. Amy Klobuchar........................................... 81
Hon. Tom Udall............................................... 83
Response to written questions submitted to David Kenny by:
Hon. Edward Markey........................................... 84
Hon. Jacky Rosen............................................. 85
THE STATE OF THE TELEVISION
AND VIDEO MARKETPLACE
----------
WEDNESDAY, JUNE 5, 2019
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m. in room
SD-G50, Dirksen Senate Office Building, Hon. Roger Wicker,
Chairman of the Committee, presiding.
Present: Senators Wicker [presiding], Cantwell, Blunt,
Schatz, Capito, Markey, Tester, Lee, Thune, Udall, Blackburn,
and Cruz.
OPENING STATEMENT OF HON. ROGER WICKER,
U.S. SENATOR FROM MISSISSIPPI
The Chairman. Welcome. And we are delighted to have all of
you with us today.
The Committee gathers to examine ``The State of the
Television and Video Marketplace.''
I'm glad to convene this hearing with my colleague, Senator
Cantwell.
I welcome our distinguished panel of witnesses and thank
them for appearing. The Honorable Michael Powell, President and
CEO of the NCTA--the Internet and Television Association; the
Honorable Gordon Smith, President and CEO of the National
Association of Broadcasters and our former colleague; Mr. David
Kenny, CEO of Nielsen; and Mr. Craig Aaron, President and CEO
of Free Press.
Americans are living in the Golden Age of Television. We've
never had more choices and access to video content. The days
when viewers had to be home at a certain time to watch their
favorite show are gone. Television experience is increasingly
moving away from dependence on fixed scheduled channels,
programming lengths, and the confines of the family living
room.
With the development of over-the-top technology, digital
programming, and streaming services, consumers now control how,
where, and when they watch television and video content.
The growing availability of high-speed Internet access
underlies the disruption of the traditional TV industry.
Internet connectivity has ignited an explosion of new video
offerings on a variety of platforms and devices. Live scripted
and unscripted video programming and user-generated content is
now readily available on computers, tablets, smart phones,
gaming consoles, and social media platforms. As a result,
Americans are able to access and watch television anywhere they
can get a sufficient connection online.
I hope the witnesses today will discuss the impact of
rising digital and online video services on consumer viewing
habits and preferences as well as the effects of growing access
to content.
Internet access has also spurred changes in the ways video
content is offered and packaged. This has led many to cut the
cord for subscriptions to traditional pay TV offerings in
exchange for online video services and I'm kin to some of those
who've cut the cord.
For an example, viewers can now purchase skinny bundles or
scaled-down selections of pay TV channels that more closely
align with their preferences. Content is also available on
demand through subscription-based offerings that provide
uninterrupted ad-free viewing as well as so-called ``freemium''
models where the service is available free of charge with
intermittent advertisements.
The growth of these offerings is delivering a more
personalized and less expensive television experience.
This morning's hearing is an opportunity to discuss how
television programming and the delivery of video content has
evolved over the past decade, particularly within the broadcast
and cable television industries.
I would also like to ask witnesses to address how new
entrants into the video marketplace are transforming
traditional television business models while increasing
competition in consumer choice.
As technology continues to advance and transform the
television industry, this hearing provides an opportunity to
examine existing rules and policies governing the video
marketplace.
Many of the rules which are contained in the STELAR Act and
the Cable Act of 1992 are intended to promote competition and
access to content. This is especially important for rural areas
where many individuals live beyond the reach of a broadcast
signal.
These laws have also played a meaningful role in fostering
localism and viewpoint diversity, but despite an increasingly
competitive video marketplace, consumers sometimes face higher
bills for video content, programming blackouts, and lack of
access to the most relevant programming due to market
restrictions.
Our witnesses today will no doubt address their views on
existing laws and policies governing the video marketplace.
I also hope the witnesses will discuss how Congress should
modernize these laws, given the context of which options and
services are available to the viewers.
Television and video programming industries are important
sectors of the economy. They're critical communications mediums
that create jobs, distribute information, drive commercial
activity, and entertain. Through quality content and services,
television and video programmers provide a voice to many
perspectives that serve the interests of the viewing public
every day.
This brings our communities closer and empowers our
citizens. So I look forward to a thoughtful discussion today,
truncated and abbreviated, though it might be, because of the
voting schedule, but we thank you all. We'll do the best we can
to fit a lot into a short time.
I now recognize and turn to my dear friend from the state
of Washington.
STATEMENT OF HON. MARIA CANTWELL,
U.S. SENATOR FROM WASHINGTON
Senator Cantwell. Thank you, Mr. Chairman.
I, too, will try to be brief this morning so we can hear
from our witnesses and possibly get some questions in before
our 11 o'clock votes today, but thank you for holding this
hearing, and thank you to the witnesses for their insights on
the ever-changing content market and delivery system.
Obviously, billions are being invested in new programming
and new production, and there are many more options for
consumers in an ever-expanding world of content.
Entertainment is at our fingertips whenever we want it,
including this hearing, Mr. Chairman, being seen, I'm sure, by
many people.
The Chairman. Hello out there.
Senator Cantwell. So much of the content in so many places,
and we obviously love the notion that we can watch it when we
need the content and content information.
But how has this innovation in the television and video
market impacted consumers? How are they better off, and what
are the challenges that we face in continuing to protect their
interests?
The Committee must engage in, I believe, a robust debate
about how we're going to foster true localism, diversity, and
competition, and fidelity to the public interests as we work on
various issues when we move forward.
Not so long ago, most of us watched TV for free over the
air and the time, I guess our eyeballs were rented to watch a
lot of ads to pay for that content. And we understood what that
meant and we understood what the public interest meant. But, as
we have changed into this larger picture, how has the heart of
localism and diversity and true media competition been
maintained?
So, these are the issues that I think we will be pondering
with as we look at issues of broadcast and cable industry and
the changes that people are proposing, the FCC's desire to
strip away basic rules that would ensure that companies play
fairly in a marketplace or dismantling of rules that preserve
the diversity of content and media ownership, particularly
impacting, I believe, in a negative way, the number of voices
that we need to have in media, and also an impact of key
issues.
Consumers still trust local broadcasters. In fact, a recent
survey revealed that 76 percent of Americans trust their local
news a great deal or a fair amount more.
So, I want to make sure that we're understanding how the
public interest here is being served in this debate that
sometimes can seem discussions about big business behemoths as
opposed to the consumer and the content that they are after.
The cable industry led the charge to eliminate the FCC's
strong net neutrality rules that help ensure that consumers are
guaranteed by rule to have unfettered access to new online
video content. And now the industry is asking the FCC to
further eliminate its public interest obligations, including
those that could potentially force localities to choose whether
to keep public education and government access channels on the
air.
So, I hope all these issues will be discussed this morning,
and I again thank our witnesses for being here on this very
important public policy debate.
The Chairman. Thank you very much, Senator Cantwell.
And we will receive in their entirety the statements
submitted by all four of our witnesses, and we'll ask,
beginning down here at the end of the table, for five-minute
summaries, beginning with Mr. Powell.
Sir, you are recognized.
STATEMENT OF HON. MICHAEL K. POWELL, PRESIDENT, NCTA--THE
INTERNET AND TELEVISION ASSOCIATION
Mr. Powell. Thank you, sir.
Good morning, Mr. Chairman, Senator Cantwell, Members of
the Committee.
I am pleased to be here today to discuss The State of the
Video Marketplace.
Today's marketplace in a word is extraordinary. It is the
latest installment of a multi-episode story on the evolution of
television. It's a really good story and it's only getting
better.
As we know, Episode 1 opens with the invention of
broadcasting. Sending moving images over the air was nothing
short of magical. The government licensed the airwaves in
exchange for broadcasters providing free service and serving
the public interest. It was a medium that delivered one show to
all viewers at the same time and TV commercials with a heart of
the business model. Today, broadcast content is predominantly
viewed on pay TV systems.
In Episode 2, television was transformed by cable, which
brought content directly to the home by wire, improving quality
and improving reach. Cable created new forms of content,
including CNN, ESPN, HBO, and countless other diverse varieties
of niche programming.
The number of networks has ballooned from 11 to over 900
today. Cable was privately financed and supported by a
subscription model. Cable regulation was focused on checking
cable's commanding market position and protecting over-the-air
broadcasting, a prescription now somewhat out of date in the
face of a newly invigorated market.
Multichannel video attracted competitors from the satellite
and teleco industries, as well. They won substantial market
share, now commanding over 42 percent of that market. Of the
top six MVPDs, only two today are cable companies.
In the current episode that we're in, the Internet is
upending the television universe, creating a world of robust
competition, continuous innovation and new consumer
experiences. The key driving changes are worth highlighting.
TV providers no longer need to own an infrastructure or a
license to offer video service. With lower barriers to entry,
new video providers have flooded into the video space. The
largest providers today are streaming services that did not
even exist in 2006.
Video apps have allowed viewing on any device rendering the
adage any time anywhere a cliche. The amount of video content
has also soared from a 182 original scripted shows in 2002 to a
staggering 495 shows last year.
Consumers now demand programming tailored to their
preferences. They mingle professional and user-generated
content, binge watch entire seasons, and often repel from
advertising. Providers must adapt to keep pace with a whole new
generation of viewers.
TV companies must compete with other Internet distractions,
from gaming to Instagram. Nielsen estimates, for example, that
18- to 34-year-olds spend 34 percent of their time using a
smart phone and only 22 percent on television.
A lot of this storm, it's hard to know how the corporate
winners will be when the dust settles, but the mega-winner is
certainly the consumer.
The cable industry has certainly felt the heat. Its
dominance has receded, losing market share to traditional MVPDs
and facing the challenge of cord cutting. Competition for
programming is fierce and rising costs have squeezed
profitability.
But despite these changes, the industry is adapting. It's
improving user experiences. Such efforts include voice remote
control, apps to watch your cable service on any device, and
the ability to download content on the go.
The industry has also embraced streaming services, both of
their own and in partnership with others, like Netflix and
YouTube. Such innovations do not stop with video, however.
The industry continues to push forward with broadband. Just
recently, it upgraded to one gigabit service, reaching 93
percent of the homes in our footprint.
Looking forward, the industry has announced a bold 10G
initiative to bring 10 gigs to its customers and we will not
rest till every rural community also has broadband.
So against this backdrop, what are some simple takeaways
for policymakers?
First, it's clear that technical economic market predicates
on which video laws are based have withered. Since the 1992
Act, the industry has substantially less share, less control
over programming, and faces stiffer competition. Rules premised
on cable's bottleneck control are just unfounded.
Second, many of the video laws apply to some industry
groups and not others and the newer services are completely
unregulated. Trying to create greater parity and regulatory
harmony is essential.
Third, we should encourage the FCC and this body to clear
away dated regulatory underbrush that no longer makes sense in
this dynamic age.
And, finally and importantly, we must preserve critical
social values. Diversity of voices, protection of children,
trusted news and information sources, and respect for the First
Amendment remain important and enduring.
Thank you. I'm happy to take your questions.
[The prepared statement of Mr. Powell follows:]
Prepared Statement of Michael K. Powell, President and CEO,
NCTA--The Internet & Television Association
Good morning Mr. Chairman and members of the Committee. My name is
Michael Powell and I am the President and CEO of the NCTA--The Internet
& Television Association. NCTA is the principal trade association for
the U.S. cable industry. Our members include the Nation's largest
providers of high-speed Internet and video service, as well as more
than 200 cable program networks. We welcome this important hearing and
I am pleased to be here today to discuss the state of the video
marketplace.
Today's video marketplace is extraordinary. It is the latest
installment of a multi-episode story on the evolution of television.
Each chapter has been propelled by new game-changing advances in
technology. With new capability, each phase produced more competitive
choice, creative strides in storytelling, news and information, and
educational content. And, consumers were treated to fresh, innovative
experiences. It is a really good story, and one can only imagine what
comes next.
Episode One
``Up in the Air''
Episode One begins with the invention of television itself and
broadcasting. Sending moving visual images over the air to people's
homes was magical. The government and broadcasters advanced the medium
through a partnership in which the public provided the use of its
airwaves, and in exchange broadcasters provided free service to the
public and promised to produce programming that served the ``public
interest.'' This social compact was the original foundation of
television public policy. As a free service, TV commercials were the
heart of the broadcaster business model. It was a one-to-many medium
that broadcast one show, to all viewers, at the same time. But it was
also limited by the vagaries of physics and long dominated by just
three major networks. Still, for many years, it served as the Nation's
community hearth for news, information, education, sports and
entertainment. Today, it still offers popular content, though now
largely viewed on pay-tv systems. Only 13 percent of the public watch
TV exclusively over the air.
Episode Two
``The Wire''
In Episode Two, the magic of television was extended and
transformed with the invention of cable and the rise of satellite
delivered programing. Cable brought content directly to the home by
wire--improving quality and reaching consumers who could not get a
broadcast signal over the air. The large channel capacity of the
system, aided by satellite delivery, provided the real estate for
dramatically expanding programming. Building on that capacity, cable
invented entirely new forms of television, producing greater diversity
and variety for viewers.
Each channel could appeal to distinct consumer interests. CNN
became the first 24-hour news network. ESPN was created to cover
sports. History channels, cooking channels and children's channels
proliferated on the dial. The number of networks ballooned from 11
cable networks in 1980 to over 900 today. Cable also launched the first
on-demand programming and is credited with the widespread use of DVRs,
giving consumers powerful tools that encouraged time-shifting and
content control. Cable eventually became the primary platform for
television viewing. At its peak in 2001, it served 67 million homes
with multichannel video programming service. Cable was privately
financed and adopted a subscription business model. Most cable
regulation was focused on checking cable's commanding market position
and protecting the over-the-air broadcasting service, a policy
prescription that has disappeared in the face of a healthier and more
vigorous marketplace.
The multichannel video world attracted new entrants, delivering the
first onslaught of MVPD competition. The DBS industry entered using
satellites to deliver high quality, digital content directly to the
home. From space, it could also reach remote rural communities. DBS
took market share from cable, and now commands 32 percent of the
market. Following the 1996 Act, telephone companies also entered the
MVPD market bringing more rivalry to the space. The result was growing
competition, delivering more choice for consumers. Of the top six
traditional MVPDs in today's market, four are not cable companies.
Among the top five of all video subscription services, only one is a
cable company, with streaming companies Netflix, Amazon and Hulu
holding the top three spots.
Episode Three
``Bits Byte T.V.''
The Internet has revolutionized everything in our society, and it
is no surprise that it has upended the television universe. When
digitized, any kind of content can go over the Internet. Video takes up
a lot of broadband capacity (in the U.S., an estimated 80 percent of
total Internet traffic is video traffic), and it took time for last
mile networks to be capable of handling the massive load of streaming
video services. In large measure due to the investment of the cable
industry in broadband, that moment arrived with a bang. Today, the
Internet has completely transformed the underpinnings of the
television/video marketplace, creating a world of robust competition,
constant innovation, and significant changes in consumer experiences
and preferences. The key driving changes are worth highlighting.
A TV provider no longer needs to own a distribution
infrastructure to provide a video service. In the past,
distribution was the defining attribute in the TV value chain.
You had to have a distribution partner with physical
infrastructure (a broadcast licensee or cable franchisee) to
reach customers. Now content services can proliferate freely
over the public Internet.
Removing distribution as a barrier to entry, new video and
content providers have flooded into the video space. The
largest video providers today are not traditional MVPDs, they
are streaming services that did not even exist in 2006. Netflix
has 60 million domestic subs. Amazon is estimated to have 40
million users of its Prime video service, and Hulu recently
announced that it has 28 million users. Traditional MVPDs like
Comcast, DISH, and DirecTV are also seeking to give Internet
only customers new options to receive traditional program
lineups. And still others are emerging on the horizon, such as
Apple TV, YouTube TV, Pluto TV, CBS All Access and Disney +.
With the rising wave of Internet delivery, the television
set has been dethroned as the only viewing device. Video apps
have allowed viewing on any device that can connect to the
Internet. iPads, laptops, cell phones, smart TVs, Roku boxes
and almost anything with glass and an Internet port all are
television sets now. The adage anytime, anywhere on any device
is now genuine and almost cliche.
As video service and devices have expanded, the amount of
video content has soared. In 2002 there were 182 original
scripted shows, in 2018 there were 495. The quality of that
programming also has been dramatically elevated, with more and
more buyers chasing the best writers, directors and actors to
produce compelling original shows.
Consumer viewing experiences have also dramatically changed.
Interactivity and data have allowed the unprecedented ability
to tailor the video experience to individual interests. Netflix
and others can now recommend shows to suit individual
preferences. YouTube can merge both professional content with
user-generated content and incorporate commentary. Twitter can
include video clips to illuminate stories. One can expect more
and more innovation, personalization and interactive viewing
experiences in the future. The TV experience has been
completely re-imagined around new consumer habits: Today full
series are released at once, allowing for binge watching.
Binging is helped along by auto-running the next episode. More
programming is available without advertising, and shows are
available on demand whenever and wherever you want to watch.
These changes are essential to keep pace with new generations
of TV audiences.
It is also worth noting that the Internet has supplanted
many of the functions TV alone once served in offering access
to different content sources. Gathering information and
searching for educational content for example. Kids largely
consume Internet-based content. And the Internet has spawned
other ways to bide one's leisure time such as gaming, Facebook,
Instagram, online shopping, and Snapchat. A TV provider today
not only has to compete with other TV companies, it must
compete for your time and attention with these other forms of
distraction. This new dynamic is particularly evident in the
18-34 demographic. Nielsen estimates that 18 to 34-year-olds
spend 34 percent of their media consumption time using a
smartphone and only 22 percent of their time viewing live or
time-shifted TV.
The sum effect of the Internet TV era is monumental. It has
enhanced traditional services, spawned the creation of new products,
and opened the doors wide to a dizzying array of competitors, pursuing
countless new approaches for entertaining and informing us. We are
awash with content of every genre, to satisfy every conceivable
preference. And every company is grappling with the disorienting and
fast changes that are twisting with creative destruction. It is hard to
know who the corporate winners will be when the dust settles, but the
mega winner is certainly the consumer.
CABLE
To Paraphrase Mark Twain
``Reports of Our Death are Greatly Exaggerated''
The cable industry has certainly felt the enormous pressures of
this new television age. Its historical dominance in the Pay TV
marketplace has receded as distributors have lost market share to other
traditional MVPD services and as the market itself has changed with the
rise of Internet-delivered video sources. Cable and traditional MVPDs
now face the daunting competitive challenge of cord-cutting, cord-
shaving and cord-nevers. Competition for top programming is fierce, and
the rising costs of securing and carrying content has squeezed the
profitability of cable's video businesses. Despite the challenges, the
industry is adapting and responding.
Cable continues to be an important presence in the video market and
has taken major steps to hold and increase the value of its service to
consumers. Cable still provides video service to 50 million homes and
continues to invest in new products and services that extend the video
experience well beyond linear viewing. The industry has invested
heavily in improving user experiences. Such efforts include voice
remote controls for navigation, cloud DVRs, Apps that allow you to
watch your cable service on any device, and the ability to download
content on the go. The industry has also embraced the new streaming
services, with a number of companies providing access through the set-
top box to Netflix, YouTube and Amazon Prime.
Such innovations do not stop with video. Indeed, the industry
continues to push forward with improvements to broadband connectivity
that themselves serve as the foundation for new video experiences. Just
recently, cable successfully upgraded its infrastructure to support
Gigabit Internet to 93 percent of the homes passed by cable networks.
And, not content to rest on its laurels, the cable industry has
announced a bold 10G initiative to bring 10 gig to its customers in the
next few years. Additionally, cable companies are offering wireless
service, and WIFI access in their territories.
Cable video certainly faces disruption and more vigorous
competition, but it is rising to the challenge, moving effectively to
innovate and increase consumer value that will secure our industry's
participation in the video marketplace for years to come.
Making the Laws
What is a Policymaker to Do?
While today's hearing is focused on better understanding the
current video marketplace and not specific legislative reforms, there
are some simple take-aways that are relevant to policymakers given the
transformative changes we are witnessing. These principles can guide
how we think about policy questions as we continue forward.
First, it is clearer than ever that the technical, economic, and
market predicates on which our video laws are based have crumbled.
Since the passage of the 1992 Cable Act, cable is no longer the
dominant video provider. Then it had 98 percent of homes and today it
has 56 percent. It has less control over programming than it once had.
Then cable had an ownership stake in 53 percent of content on its
systems, today only 9 percent is vertically integrated. And cable faces
much stiffer competition from more quarters than it did when the Cable
Act was passed. Without the factual predicate of a cable dominant
monopoly, the infirmities in many of the current rules premised on
cable's `bottleneck control' of video distribution are patent and
obvious.
Second, many of the video laws apply incoherently to some industry
groups and not others. For example, program access, must buy and leased
access rules apply to cable but not to satellite service. And, almost
none of today's video rules apply to streaming services like Netflix
and Amazon Prime, despite their large number of subscribers and leading
market positions. Wrestling to create greater parity, consistency and
overall regulatory harmony will be essential.
Third, we should encourage the FCC and this body to clear away
dated regulatory underbrush that no longer has value or has lost its
relevance in this current dynamic age. We support the FCC's efforts to
review and reinterpret Title VI as it seeks to adapt old laws to
present realities. At some point, policymakers have to recognize that
fair competition can only be advanced when obligations are
appropriately matched to the free-wheeling competitive bazaar of today,
and not the mythology of a world from almost 30 years ago.
Fourth, we collectively must consider how to reaffirm and preserve
critical social values that have long been a part of television policy.
The issues of diversity of voices, protection of children, trusted news
and information sources, and respect for the First Amendment remain
important and enduring.
Thank you and I am happy to take your questions.
The Chairman. Mr. Powell, your ability to summarize a
multipage statement like that in five minutes is breath-taking.
Mr. Powell. Thank you.
[Laughter.]
The Chairman. Senator Smith, can you do the same?
[Laughter.]
Senator Smith. I don't know anybody as talented as Michael,
but I'll do my best.
The Chairman. You're recognized. Glad to have you.
STATEMENT OF HON. GORDON H. SMITH, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF BROADCASTERS
Senator Smith. Thank you, and good morning, Chairman
Wicker, Ranking Member Cantwell, Members of this Distinguished
Committee, my former colleagues some and my friends all.
I am Gordon Smith. I'm President and CEO of the National
Association of Broadcasters.
On behalf of free and local broadcast television stations
serving your hometowns, I appreciate the opportunity to testify
on how Congress can ensure that viewers are better able to
access their local news, sports, weather, emergency information
by allowing existing provisions of STELAR to sunset this year.
Today, STELAR is not only unnecessary due to considerable
advances that Michael has testified to in the media marketplace
but also any reauthorization of it will further harm satellite
viewers that are currently denied access to their local
television as a result of this law. For these reasons,
broadcasters oppose STELAR's reauthorization.
Similarly, the Copyright Office, the expert agency charged
with administering STELAR's license, released a report on
Monday calling for its expiration.
In today's competitive media landscape, local television
remains the most watched source of news, emergency updates,
entertainment programming, sports, and investigative journalism
in communities across America.
Our viewers turn to local stations to get the weather
reports, to learn how to help neighbors in need, and watch
trusted local news anchors give an unbiased view of what's
happening in their communities.
Local broadcasting is crucial. It is the critical
electronic thread that runs through every community in America
to keep them together, informed, and safe.
The exceptions to the benefits afforded by this local
broadcast system are those communities that continue to be
served by out-of-state market stations as a result of STELAR.
In 1988, when the original satellite law was enacted,
viewers had two predominant choices for video programming:
over-the-air broadcast television or a subscription cable
package offered by a single local provider. That satellite
legislation, a predecessor of STELAR, was hugely successful to
better compete with the cable monopoly of that day, a monopoly
that no longer exists.
But the crush it gave them was the ability to serve viewers
with out-of-market network programming at a below-market rate
and without having to negotiate for it with local stations.
But 30 years later, today's media market is virtually
unrecognizable and dramatically different, even compared to
just 5 years ago, the last time STELAR was reauthorized.
Those nascent satellite companies that Congress subsidized
are now multibillion-dollar companies that have become
behemoths and today's competition for viewers comes not only
from those giant pay-TV providers and their cable brethren but
also unregulated tech companies, such as Facebook and Google
and online video providers, like Netflix and Amazon.
Most importantly, no technological impediment exists today
to prevent AT&T, DIRECTV or DISH from providing local broadcast
channels to their subscribers across the country. By the way,
they promised to do that. DISH has. DIRECTV has not.
Yet STELAR's distance signal provisions incentivized those
companies to serve a shrinking universe of eligible viewers
with out-of-market subs because of this subsidy.
To put it in practical terms, DIRECTV subscribers in
Nebraska recently saw a news story about a new panhandling fine
in New Jersey. The local news they should have seen is that of
the series of floods that have had a devastating impact on
Nebraska crop yields this year.
Instead of important local election news, viewers in
Montana, for example, the state capital of Helena were watching
Santa Clara County, California, Board of Supervisors instead of
election coverage, and when they should have been seeing
emergency coverage of a possible explosion on a busy local
street in Colorado, Grand Junction, they were hearing a story
about California's newest Michelin-starred restaurants.
This is a business decision that AT&T/DIRECTV is making in
12 rural markets across America, a choice that puts their
profits ahead of service to their consumers and ahead of the
safety of communities.
Broadcasters and viewers salute the Senators who have
highlighted this STELAR harm, a harm that must end.
To end this consumer harm and modernize the video
marketplace laws, Congress should allow STELAR to expire as
originally intended. There's no policy justification or
technical reason that this outdated law should be reauthorized.
The time has come to stop subsidizing billion dollar satellite
companies and to instead provide viewers with the most accurate
and timely source of community news, weather, emergency
information from their local broadcasters.
Thank you.
[The prepared statement of Senator Smith follows:]
Prepared Statement of Hon. Gordon H. Smith, President and CEO,
National Association of Broadcasters
Introduction
Good morning Chairman Wicker, Ranking Member Cantwell and members
of the committee. My name is Gordon Smith and I am the president and
CEO of the National Association of Broadcasters. On behalf of more than
1,300 full-power, free and local broadcast television stations serving
your hometowns, I appreciate the opportunity to testify on our unique
and indispensable role in today's video marketplace.My testimony will
focus on how Congress can ensure that viewers are better able to access
their local news, sports, weather and emergency information by allowing
the expiring provisions of the Satellite Television Extension and
Localism Act Reauthorization (STELAR) to sunset this year. STELAR is
not only unnecessary today due to considerable advances in the media
marketplace, but any reauthorization will further harm the satellite
viewers currently being denied access to their local television
stations. For these reasons, broadcasters oppose STELAR's
reauthorization.
Local Broadcasting: The Electronic Thread That Keeps Every Community
Together
In today's hyper-competitive media landscape, local broadcast
television remains the most-watched source of news, entertainment
programming, sports and investigative journalism in communities across
America. Our viewers turn to local stations to get the weather report,
learn how to help neighbors in need, and watch trusted local news
anchors deliver an unbiased report of what is happening in their
hometowns. Local broadcasting is the critical electronic thread that
keeps every community together, informed and safe.
One outstanding example is WLBT, the Gray Television-owned NBC
affiliate in Jackson, Mississippi. WLBT has a long history of providing
in-depth reporting and was one of the first local television stations
to devote dedicated airtime and personnel to investigative journalism.
Their work recently exposed a number of doctors accused of sexual
misconduct, and late last year examined a local housing program that
trapped low income residents in a cycle of evictions.
Of course, it is broadcasters' unique community connection and role
as a trusted lifeline during times of emergency that sets us apart from
other mediums. In April, as the state of Mississippi was experiencing a
record 44 tornadoes over a 24-hour period, WLBT was on the air giving
their viewers real-time updates on the tornadoes' locations and
directing viewers when and where to seek shelter. Just as importantly,
they continued their coverage in the days and weeks after the storms
when the national press had departed, providing viewers with critical
information such as where they could go for food, water and shelter.
Whether it is a blizzard in Seattle or Sioux Falls, or a false
missile alert on a sunny day in Hawaii, Americans' first choice during
emergencies is to turn to their local broadcast stations to get the
information they need to stay safe and informed. Local stations prepare
viewers for the coming storm, help them access needed supplies and
shelter during the disaster, and help towns and cities rebuild in the
aftermath.
Broadcasters invest heavily in their newsrooms and infrastructure
to ensure we remain on the air in times of disaster. Because of the
resiliency of the broadcast infrastructure and the power of the
airwaves, local broadcast stations are often the only available
communications medium during disasters, especially when cellular
wireless networks fail. Local television stations are part of the
communities we serve, and broadcasters do not hesitate to put
themselves in harm's way to bring critical information to their
neighbors.
Viewers Rely On Local Broadcasters In a Rapidly Evolving Video
Marketplace
In 1988, when the original Satellite Home Viewer Act (SHVA) was
enacted, viewers had two predominant choices for video programming:
over-the-air broadcast television or a subscription cable package
offered by a single local provider. As Congress intended, SHVA injected
much needed competition into the pay-TV market from the nascent
satellite industry--now AT&T-DIRECTV and DISH--and those companies
flourished to the benefit of consumers.
As a result, today's media marketplace is virtually unrecognizable
compared to 1988, and is even dramatically different from the one that
was the subject of discussion during STELAR's passage five years ago.
Today's competition for viewers comes not only from giant pay-TV
providers such as AT&T-DIRECTV and Charter, but also unregulated tech
companies such as Facebook and Google, and online video providers like
Netflix and Amazon.
This competition benefits consumers in the form of more choice and
lower prices. But for broadcasters, the competition for viewers and the
advertising dollars that fuel our locally-focused programming and
investigative journalism has never been more intense. As of last
summer, more than 200 over-the-top video services were available in the
U.S., and about 70 percent of American households subscribed to
Netflix, Amazon Prime and/or Hulu.
This shift in viewership has naturally led to a shift in ad
spending. In 2019, BIA Advisory Services (BIA) estimates that ``pure
play'' digital ad platforms (online, mobile, e-mail and Internet yellow
pages) will receive 31.5 percent of total ad spending across all 210
television markets combined, far outpacing the 12.4 percent of all
local ad spending that TV stations will receive. BIA also estimates
that Google's total local advertising revenues in 2019 will roughly
equal the total over-the-air ad revenues for all TV stations in the
U.S. and will soon exceed them. Meanwhile, Borrell Associates reports
that Facebook has become the most popular marketing vehicle for local
advertisers.
To compete in this rapidly evolving media and entertainment
landscape, television broadcasters now deliver our high-quality
entertainment programming, sports, local news and weather whenever and
wherever viewers want to access it. Broadcasters are investing in apps,
digital and new distribution platforms to fit the needs of all viewers.
Moreover, broadcasters are transitioning our free over-the-air
broadcasts to a Next Generation Television standard, also known as ATSC
3.0.
Next Gen TV will enable local broadcast stations to deliver their
programming over-the-air not only to televisions, but also to next-gen
enabled tablets and cell phones, giving consumers the ability to watch
their favorite broadcast shows and local news on the go without using
precious wireless data. That's in addition to enhancements like ultra
high-definition video, immersive theater-like sound, interactive
applications, and enhanced interactive hyper-local emergency and
weather alerts.
There are significant public policy benefits to ensuring that
consumers continue to enjoy our sought-after entertainment, sports
programming and lifeline local information even in this fragmented
media landscape. Yet, amidst this fierce competition, broadcasters are
not before you today to ask for new regulations to give us a leg up in
this video marketplace. Instead, we are asking this committee to
preserve policies that enable investment in local programming and to
not extend outdated and asymmetrical regulations that disadvantage
broadcasters--and only broadcasters--against our competition. Congress
can achieve these goals and update its laws simply by allowing STELAR
to expire at the end of this year.
STELAR's Harm to Local Viewers Must Be Stopped
Thirty years ago, nascent satellite television companies were
temporarily given a significantly discounted copyright license that
allowed them to better compete with big cable monopolies at a time when
there were millions of Americans who could not receive their local
broadcast stations over the air, from cable or from satellite. On a
temporary basis, Congress allowed the satellite companies to serve
those households with a broadcast station operating outside of the
local community, typically from a major city, so viewers could receive
their favorite network programming. This policy was the foundation for
STELAR and all of its predecessors dating back to SHVA in 1988.
Congress has succeeded in SHVA's policy goal of injecting
significant competition in the video distribution marketplace that is
now flourishing. Yet, those nascent satellite companies that Congress
subsidized are now media behemoths: AT&T-DIRECTV is a $235 billion
company, and DISH is a $17 billion company. There are no technological
impediments to providing satellite viewers with their local broadcast
stations rather than out-of-market substitutes. In fact, DISH is
providing this service in all 210 local markets today and has been for
nearly a decade.
Today, AT&T-DIRECTV and DISH provide local broadcast channels to
the vast majority of their subscribers across the country (only AT&T-
DIRECTV does not serve all 210 television markets). The number of
households being denied their local network channels is shrinking.
Although only AT&T-DIRECTV and DISH have access to the precise numbers,
it is estimated that around 500,000 households that subscribed to
satellite TV service in 2017 were denied their local ABC, CBS, FOX or
NBC broadcast channels and instead received an imported signal from
another market, primarily from New York City or Los Angeles, under the
expiring STELAR distant signal provisions.
The STELAR distant signal license allows the billion-dollar
satellite companies to import out-of-market TV channels for those
500,000 households instead of providing these viewers their local
broadcast stations. Royalties under this outdated license are
discounted substantially below the carriage fees for these stations
negotiated in the market by other pay-TV providers. This below-market
subsidy incentivizes the satellite companies to deny viewers local
news, weather and lifesaving emergency information, while still
charging their subscribers hefty fees each month for an out-of-market
station.
Viewers will benefit from eliminating this outdated law, ensuring
they receive the local content most relevant to them. In rare instances
where a local broadcast channel is not available, private business
arrangements between satellite TV providers and broadcasters can
resolve these issues.
Additionally, in an earlier reauthorization of the compulsory
copyright license, Congress added a requirement that broadcasters and
pay-TV providers negotiate in good faith for carriage of local TV
stations. In the nearly 20 years since Congress passed this provision,
the Federal Communications Commission has decided only seven good faith
complaints--and has found a violation of the requirement on only one
occasion. Not surprisingly, the one violation was committed by a pay-TV
company.
While well intended, the expiring good faith requirements have
provided no quantifiable benefit to either broadcasters or pay-TV
providers. This is in large part because both parties have every
incentive to reach a deal and serve consumers without a regulatory
requirement. Moreover, the provision has the unintended consequence of
diverting time and attention from the parties' negotiations in favor of
posturing in front of government officials. The countless other program
carriage agreements successfully completed outside this broadcast-only
framework reveal that this regulatory structure simply does not justify
STELAR's reauthorization.
Conclusion
Congress should allow STELAR to expire as it originally intended.
There is no policy justification or technological reason for this
outdated law to be reauthorized. The time has come to stop subsidizing
billion-dollar satellite TV companies and to instead provide viewers
with the most accurate and timely source of community news, weather and
emergency information--their local TV broadcast stations.
Thank you again for the opportunity to discuss this issue critical
to America's broadcasters and the communities we serve. I look forward
to your questions.
The Chairman. Thank you very much, Mr. Smith.
Mr. Aaron, glad to have you with us.
STATEMENT OF CRAIG AARON, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, FREE PRESS AND FREE PRESS ACTION
Mr. Aaron. Thank you for having me. Thank you, Chairman
Wicker, Ranking Member Cantwell, and Members of the Committee,
for inviting me today.
A thriving TV and video marketplace should spur
competition, encourage innovation, amplify diverse voices and
viewpoints, empower creators, and provide communities with the
local news and information they need, and so often when we come
together in these halls to talk about the state of the media,
we talk about industry versus industry, broadcasting versus
cable, old media versus new.
I hope today we'll talk more about the audience, the
viewers, the bill payers, and the public. As Congress has long
recognized, the companies that control the public airwaves, dig
up our city streets, put up towers or launch satellites, must
have public responsibilities.
What the public needs from them is more competition, more
choices, more diversity, more transparency, and especially
lower prices. These should be the Committee's priorities as it
renews and refreshes the laws shaping our communication system.
Yes, the TV and video marketplace is evolving, but the
reality is that Americans still spend far more time on
traditional cable and broadcast TV than on social media or
other apps.
The still powerful and profitable cable and broadcasting
industries come here to Washington touting their commitments to
localism and diversity but are seeking to evade those promises,
undercut their competitors, and consolidate at all costs. They
want all the benefits of dominating local media but none of the
obligations.
It's been said that what goes up must come down and that is
true for everything except your cable bill. It only goes in one
direction, up and up some more. Cable prices have risen three
times faster than inflation for decades and that's still
happening despite the advent of online video.
Pay TV customers are spending a fortune for channels they
don't want, gouged by hidden fees, locked into bloated bundles
and onerous contracts. Meanwhile, broadcasters, retransmission
consent, and political advertising revenues have skyrocketed to
record levels, too, but broadcasters aren't reinvesting this
influx of new money in local content or better journalism. The
revenues flow out of local communities and into the pockets of
distant executives and investors.
Years of runaway consolidation have pushed local owners out
of the broadcast market, creating insurmountable barriers that
shut out independent and diverse voices.
When big broadcasters and giant cable companies fight over
carriage or retransmission, when their disputes leave TV
screens blacked out before the big game, there's really no one
to root for on either side. The winner in all these disputes
may vary but the losers are always the same, the public. It
doesn't have to be this way.
Congress should pass legislation allowing consumers to
choose the channels they want to watch ala carte. It's time to
end below-the-line fees and hidden charges and require
providers to show the actual total price people will pay in
their advertisements and bills.
To boost competition and support viable online
alternatives, we need policies, like net neutrality, that push
ISPs to invest in big open pipes, rather than cooking up
schemes to crush their competition.
For broadcasters, we must put the brakes on runaway media
consolidation. That starts with restoring local ownership
limits, revoking the obsolete UHF discount, and refusing to
raise the national ownership cap.
Better yet, we should lower that cap and divest stations to
local owners and incentivizing the sale of licenses to women
and people of color.
Let's consider even bolder ideas like taxing targeted
online advertising to fund non-commercial local news and civic
technology.
What we do know, based on decades of evidence, is that a
regulation slashing race to the bottom won't create the
thriving marketplace we need. We should put the power, choices,
and control back in the hands of the people and local
communities and empower them to connect, communicate, and
create.
Thank you. And I look forward to answering your questions.
[The prepared statement of Mr. Aaron follows:]
Prepared Statement of Craig Aaron, President and CEO,
Free Press and Free Press Action
Introduction
Thank you Chairman Wicker, Ranking Member Cantwell and members of
this Committee for inviting me to testify today on this important
topic.
My name is Craig Aaron. I am the president and CEO of Free Press
and Free Press Action. Free Press is a national, nonpartisan, nonprofit
organization focused on issues at the intersection of media, technology
and democracy. I'm here today representing more than 1.4 million of our
members in all 50 states, Puerto Rico, and Washington, D.C.
Since Free Press was founded in 2003 to give the public a voice in
the crucial decisions shaping the media, the landscape has changed
dramatically. More than ever, media and technology are now intertwined
in our daily lives, vital to the health of our communities, and
essential to a functioning democracy.
The decisions and policies made by this Committee, and the agencies
it oversees, will have far-reaching consequences beyond any single
company or industry. A thriving television and video marketplace should
spur competition, encourage innovation, amplify diverse voices and
viewpoints, empower creators, and provide communities with the local
news and information they need, to know what's happening where they
live and here in Washington.
So often when we come together in these halls to talk about the
state of the media, we talk about industry versus industry,
broadcasting versus cable, old media versus new. Missing from these
debates are those who should matter the most: the audience, the
viewers, the public.
As Congress long has recognized, companies allowed to control the
public airwaves, dig up city streets to run wires, put up towers, or
launch a satellite into orbit must have public responsibilities. What
the public needs is more competition, more choices, more diversity,
more transparency, and--especially--lower prices. These should be the
Committee's priorities as it renews and refreshes the laws shaping our
communications system.
The powerful and still very profitable cable and broadcasting
companies come to Washington touting their commitments to localism and
diversity but seeking special favors to evade those public commitments,
undercut their competitors, and consolidate at all costs. They want all
of the benefits of dominating local media but none of the obligations.
Yes, the TV and video marketplace is evolving. But the reality is
that Americans still spend far more time watching traditional cable and
broadcast TV than they do on social media and other computer and
smartphone applications. People want to watch TV, and they are willing
to pay for it. They just don't want to be gouged on the price or forced
to buy a bunch of things they'll never watch to get the shows they
want. In a healthy market, we would see lower prices and better
service. But we are getting the opposite.
Cable prices have risen steadily at nearly three times the rate of
inflation despite the advent of online video. Deceptive and hidden fees
continue to spread. Pay-TV customers everywhere are spending a fortune
for channels they don't want, locked in by all-or-nothing channel
bundles and onerous contracts. While getting rich off their local
monopolies, the cable industry is shamefully trying to shirk their duty
to provide local PEG channels and to fund community media centers.
At the same time, both broadcast retransmission-consent and
political-advertising revenues are at record levels. Broadcasters
aren't reinvesting this influx of new money in localism or better
journalism. Instead, the public continues to be underserved as revenues
flow out of local communities and into the bank accounts of distant
executives and investors.
Years of runaway consolidation have pushed local owners out of the
broadcast market, creating insurmountable barriers to entry that shut
out local and diverse voices from access to the public airwaves.
Despite repeated warnings and widespread public outcry, the FCC
continues to gut national and local TV and radio ownership limits,
erase public-interest obligations, and replace independent and local
owners with giant chains that are shrinking newsrooms and pushing the
same cookie-cutter content from coast to coast.
When these big broadcasters and cable companies fight over
carriage, contracts or retransmission consent, when their conflicts
leave TV screens blacked out before the big game, there's no one to
root for on either side. While the winners in these disputes may vary,
the losers are always the same: those of us in the audience.
It doesn't have to be this way. For too long, the scales have been
tipped in favor of the biggest players, and they must be rebalanced. On
the pages that follow, I go into greater detail about the state of the
TV and video marketplace, chronicle the failure of regulators to
protect the public, identify areas ripe for reform, and suggest
sensible and concrete policies designed to foster a healthy media
system grounded in competition, diversity and localism.
The State of Traditional TV: Strong Viewership and Finances, But
Questionable Public Benefits
Rumors of traditional television's death have been greatly
exaggerated, even as more people choose to watch content they've always
gotten from giant studios, TV networks, and cable channels online
rather than just on pay TV or over the air. Viewership remains high,
and revenues continue growing as ``old'' media companies continue to
consolidate and expand their reach. Yet the diversity of viewpoints and
number of local voices they offer aren't keeping pace. Congress should
preserve viewers' existing choices and empower them to make new ones.
Traditional Video Delivery Still Dominates Viewing Time in the United
States
Traditional media companies love to talk about how much competition
they face in the Internet era from social media and search platforms.
But U.S. viewers still spend far more time watching traditional cable
and broadcast TV than they do on social media and other computer and
smartphone applications. And though people are slowly finding new
methods to watch online video (such as via a connected device like
Roku), they're still basically watching as much video as they always
have. What's more, the production of the video content is increasingly
concentrated in the hands of a few giant corporations, as regulators
continue to approve mergers that consolidate an already highly
concentrated media market.
According to Nielsen, the average U.S. adult spent 5 hours and 24
minutes per day consuming video during the 3rd quarter of 2018, only 3
minutes lower than the year prior.\1\ Of this 5 hours and 24 minutes, 4
hours and 13 minutes was spent watching ``traditional'' live or time-
shifted (i.e., DVR) video. During this same period, U.S. adults
averaged 45 minutes per day on social networks, down from 46 minutes
the year prior (and certainly a portion of this time is likely spent
sitting on the couch while watching traditional TV).
---------------------------------------------------------------------------
\1\ See The Nielsen Company, ``The Nielsen Total Audience Report--
Q3 2018'' (Mar. 19, 2019).
---------------------------------------------------------------------------
It is important to note that there are significant demographic
differences in time spent consuming video. For example, Nielsen
reported that Black adults consumed 7 hours and 25 minutes of video in
Q3 2018, with 6 hours of this time on traditional live and time-shifted
TV. But even though Black adults consume far more video programming
than the average, as we discuss in greater detail below, there is still
a serious lack of Black representation in the ownership of the
production and distribution of this content at the national level and
the local level, too.
Multichannel Subscriptions Have Declined, But Viewers Generally Still
Watch the Same Content from the Same Companies Online
The U.S. video market is changing, but this is a change largely of
type not degree. Users of all ages still have high demand for video
content, and a high willingness to pay for it, even among those with
lower incomes. This should not be surprising. Video is compelling and
easily consumed. Video can deliver entertainment as well as the news
and information our society needs to function. Much ink is spilled on
how the Internet is disrupting old business models. But when it comes
to video, subscription multichannel services remain dominant, even as a
very small but growing share of viewers rediscover the benefits of
over-the-air television as well as online video content that isn't
produced by the largest Hollywood programming conglomerates.
It is true that in recent years there has been a decline in
subscriptions for traditional multichannel video program distributors
(``MVPDs''), including cable, satellite, and telecom companies with a
pay-TV business. The total number of pay-TV subscriptions peaked at 101
million in 2012 and declined to 90 million by 2018. This decline is
largely the industry's fault--the result of greedy programmers to
greedy distributors unwilling to give consumers anything other than
expensive bloated channel bundles full of stations that few want to
watch.
But the recent rise in ``virtual'' multichannel subscriptions
(e.g., Sling, DirecTV Now) has almost made up for the losses in the
traditional space (see Figure 1). Many users aren't actually cutting a
cord. But they are dumping the bloated traditional bundles in favor of
the more flexible services offered by the half a dozen or so over-the-
top, virtual multichannel providers.
A growing number of households rely on a combination of over-the-
air antennas for their local stations, supplemented with online video
services such as ad-supported platforms like Hulu and commercial-free
packages from Netflix, Amazon and others. Indeed, according to data
from S&P Global, over the past five years the number of households
buying a so-called subscription video on demand (SVOD) service like
Netflix but not a traditional or virtual multichannel service has
doubled, from 6.5 million to 13 million. Nielsen estimates that there
are 16 million over-the-air homes, with about 8 million of these also
using SVOD services but no virtual or traditional multichannel
services.\2\
---------------------------------------------------------------------------
\2\ See The Nielsen Company, ``The Nielsen Local Watch Report--Q2
2018'' (Jan. 14, 2019).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Thus, the alleged decline of the ``cable TV'' industry is vastly
overstated. Programmers are thriving. Traditional cable TV distributors
are thriving, due in large part to their dominance in the broadband
market (even as their legacy pay-TV business loses some subscribers,
those people must still subscribe to broadband to get any online
programming at all). AT&T-owned DirecTV remains the top satellite TV
provider, and AT&T is working to adapt to the new market realities with
its DirecTV Now and forthcoming Warner Media SVOD service, even as it
purposefully deprioritizes its U-Verse telecom TV offering. Dish is
still profitable, and it pioneered the virtual multichannel market with
Sling TV. Verizon's FiOS service has a healthy share in the markets in
which it is available.
Local TV broadcasters are doing well in the internet-era, too. As
discussed below, broadcasters continue to break revenue records. They
are seeing substantial growth in over-the-air use and are able to
negotiate carriage on the traditional MVPD platforms and the newer
virtual multichannel services. And the forthcoming ATSC 3.0 broadcast
standard promises to bring broadcasters newfound targeted advertising
revenues--whether or not that's a good thing for people already losing
their privacy to Internet companies and telecommunications providers
alike.
Congress Must Address the Relationship Between Broadcasters and MVPDs
Without Taking Away Viewers' Existing Rights
In light of the continued health of these industries, particularly
the ones represented in today's hearing, it's hard to take seriously
all their cries for regulatory relief. In warring talking points about
the Satellite Television Extension and Localism Act Reauthorization of
2014 (or STELAR), lobbyists on both sides treat the needs of viewers--
especially rural ones--as little more than buzzwords and bargaining
chips to chase regulatory reforms best suiting their bottom lines. But
there is good reason to renew this bill for another five years and much
worth preserving here.STELAR, and the importation of distant TV station
signals for which it allows, is not outdated. Broadcasters rightly
point to the fact that one of the two major direct broadcast satellite
providers (AT&T-owned DirecTV) does not provide local-into-local
service for 12 of the smallest Designated Market Areas in the country,
while DISH does indeed offer local signals in all 210 Nielsen DMAs. But
the solution for that problem is to require local-into-local carriage
and spur retransmission of those local signals whenever possible,
including in those 12 markets-- not to rip away channels and choices
that hundreds of thousands of people have today in those areas and in
many others historically or currently unserved by an over-the-air
broadcast signal.
Likewise worth renewing are the other expiring provisions in
STELAR: the satellite distant signal statutory license that is coupled
with the unserved-areas provision described above, and the obligation
for broadcasters and all MVPDs alike to negotiate retransmission
consent in good faith. Obviously this ``good faith'' prescription has
never been a panacea, and even though the FCC does have in its rules
some guidelines, there are questions about whether the agency has the
tools it needs to enforce them. But ditching the framework in its
entirety is not a panacea either, at least without even more
comprehensive overhaul of United States copyright law and even deeper
intervention in private contracts between giant sports leagues,
Hollywood studios, broadcast networks and their local affiliates.
Pay-TV viewers are spending too much for traditional multichannel
video, including and perhaps especially for the ``free'' broadcast TV
they actually pay to get when it's retransmitted by cable and satellite
providers. We describe below the skyrocketing rate of increase for MVPD
subscription prices and the retransmission consent revenues received by
broadcasters that help drive those price hikes. MVPDs even resort to
hiding these charges as they pass them along to viewers by putting them
``below the line'' instead of accounting for them in the prices they
advertise and quote to customers.
But it is not just the retransmission-consent provisions in the
Communications Act that necessitate or generate these payments. Wiping
the retransmission-consent statutes and FCC rules off of the books
could change the current framework, and impact the bargaining power and
incentives that networks and local TV affiliates have. It would not
change the fact that broadcasters are (and should be) compensated for
the content they create, and in which they hold a copyright, when it is
retransmitted to paying MVPD customers. Nor would it interfere with or
directly disrupt the network affiliation agreements that dictate when
and where television affiliates can even negotiate for carriage in the
first place.
In other words, it's not the retrans provisions in the
Communications Act that prevent a TV station in Seattle from
negotiating for cable carriage in Mississippi. The affiliation
agreement between that Seattle station and its broadcast network are
the primary reason that carriage of ``distant'' signals is not allowed,
and not likely to happen unless lawmakers truly put the exclusivity
provisions in those agreements under the microscope and move to toss
out private contract clauses just as readily as Federal rules.
Proactive Policies to Strengthen and Expand Upon Gains Made Under
STELAR
What can Congress do instead? Several things. STELAR added a
market-modification provision for satellite carriage to the law, which
was the right step. Rather than fixating on distant-signal issues,
Congress could do more to help nearby neighbors get along. While
viewers in so-called orphaned counties in the Nielsen DMA system can
get signals from their home state rather than just being stuck with
signals from the city and state next door, making that process easier
for viewers to use (and tougher for industry players to evade) would go
a long way toward increasing choices and reducing pressure to raise
retransmission-consent fees, too.
STELAR also added a prohibition on joint negotiation of
retransmission-consent agreements by broadcasters in a local market
unless they are ``under common de jure control permitted under the
regulations of the [FCC]'' 47 U.S.C. Sec. 325(b)(3)(C)(iv). That was a
modest attempt to curb the appeal of broadcasters' ``sharing
agreements'' that allow large broadcast conglomerates to exercise de
facto control over ``sidecar'' stations they cannot formally own and
stash in shell companies instead. But however effective that joint
retrans negotiation ban has been, it will become even less meaningful
if the current FCC follows through on its plans to tear down all local
broadcast-ownership limits, as I discuss at greater length below. A
prohibition on joint retransmission-consent negotiations unless
stations are commonly owned won't do very much if a single company is
in fact routinely allowed to own multiple top-four network affiliates
in local markets.
One more thing that STELAR did not address is the scourge of
blackouts. When broadcasters and MVPDs reach an impasse in their
negotiations, viewers are treated like pawns in a game that ultimately
enriches those big companies at their customers' expense. Congress
should solve this problem by finally clarifying and strengthening the
FCC's good-faith negotiations authority. Senator Blumenthal's FANS Act
is a smart but rather narrowly targeted solution that lays much of the
responsibility for these negotiating breakdowns where it belongs: at
the feet of the sports leagues that command such a high price and drive
up costs for everyone. Congresswoman Anna Eshoo's proposals in the
House would go even further: preserving the status quo and keeping
content on the air by guaranteeing interim carriage while the parties
negotiate and proposing arbitration measures designed to bring both
parties to the table with reasonable offers in hand.
The State of Broadcasting: Making Money, Breaking Promises
Broadcasters' pleas of poverty, based on supposed competition from
Internet companies, are belied by data showing broadcasters' continued
fiscal growth despite changes in how people in the United States spend
their free time. Broadcasters say they need government-imposed
protections on other industry players in many cases, but total
deregulation and freedom for themselves in others, all in order to
preserve localism. This simply is not true.
Broadcast TV Revenues Continue to Grow
As we show just below, broadcast television advertising, online,
and retransmission consent revenues have all grown recently, with the
retransmission-revenue growth exploding in the past few years.
Broadcast television advertising remains strong, even as Internet
advertising grows in magnitude and importance. Broadcasters take a
portion of that online ad money too, of course. And retransmission-
consent revenues are an entirely new source of revenue--a gigantic
source--that sprung up over the last decade.
Despite this influx of new money, there is no evidence that
television broadcasters invested this capital in localism, particularly
in local journalism. And there is no reason to think that the
regulatory changes broadcasters want, such as increasing local
affiliates' leverage or their take in retransmission-consent
negotiations, would lead to a flowering of local content either. In
fact, as the broadcast market has become more concentrated at the
national level, and in local markets, too, those revenues just continue
to flow out of local communities.
For instance, local stations today generally pay a hefty portion of
the retransmission-consent fees they earn for local carriage back to
their affiliated networks. This phenomenon, known as ``reverse
retrans,'' sure is a backwards one. It takes money paid to local
broadcasters, all under a regulatory regime supposedly designed to keep
local content on the air, and sends it back to networks for the
decidedly non-local content they broadcast nationwide. That is one of
many reasons that retrans fees keep going up and that broadcasters also
aren't meeting the public's information needs with more community-
oriented and responsive content.
In recent years, broadcasters have profited handsomely from the
retransmission-consent rights Congress granted them. Payments from
cable, telco, and satellite MVPDs to local broadcasters reach record
levels every fiscal quarter, in many cases despite declining ratings.
Indeed, broadcasters' retrans revenues have seen--and are expected to
continue seeing--explosive growth during this so-called Netflix era, a
period in which viewership of ad-supported linear content is in
decline.
Just a decade ago, retransmission-consent revenues made up less
than 5 percent of broadcast television industry revenues. Now they
account for approximately one-third of the broadcast TV revenue pie, at
$10.2 billion and growing (see Figure 2).
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But TV broadcasters have also found themselves flush with new cash
from their online properties too. While broadcast television online
revenues amounted to just $587 million in 2006, they had increased
four-fold to $2.5 billion in 2018 (see Figure 3).
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This growth in these two new revenue streams for broadcasters comes
at a time when advertising revenues have rebounded from their
recession-era decline (see Figure 4). And even in today's era of hyper-
targeted social media ad campaigns, local TV remains dominant.
Broadcast TV political ad revenues broke the $3 billion barrier in
2018, exceeding 2012's record of $2.9 billion (see Figure 5).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
All of this means that, in total, U.S. broadcast television
industry revenues exceeded $33 billion in 2018, smashing the historical
record set in 2016 (see Figure 6). The election-year-fueled revenues
for 2020 are expected to easily top this total.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In sum, local TV broadcasters are thriving. They are awash in
advertising revenues and retransmission revenues. But there's simply no
evidence that this massive growth in revenues has resulted in more or
better quality local news.
Broadcast Television Ownership Diversity: A Shameful National Policy
Failure
Though the U.S. population is rapidly diversifying, ownership of
our media is not. This lack of ownership diversity is particularly
appalling in our local broadcast media, a market where the local nature
of the business should in theory support more diversity than in the
giant national studio market dominated by conglomerates. But years of
pro-consolidation policies at the FCC have pushed local owners out of
the broadcast market, creating insurmountable barriers to entry that
shut out diverse voices from access to the public airwaves.
In the early 1990s, at the dawn of an unprecedented era of local
media consolidation, people of color comprised approximately one-
quarter of the U.S. population. Today that figure is approaching 40
percent and will continue to grow. But according to the latest FCC
analysis, people of color \3\ collectively owned 7 percent of all U.S.
full-power commercial broadcast television stations, or just 98 of the
Nation's 1,388 stations.\4\ (Though we note that a significant number
even of these stations are only nominally owned by people of color,
with broadcasters like Sinclair using shell companies headed by people
of color to evade FCC ownership rules).\5\
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\3\ People of color are defined as those holding attributable
interests in FCC-licensed stations and indicating on FCC Form 323 that
their race or ethnicity is one or more of the following: American
Indian/Alaska Native, Asian, Black, Native Hawaiian/Pacific Islander,
and/or Hispanic.
\4\ See Federal Communications Commission, ``Report on Ownership of
Commercial Broadcast Stations (Data as of Oct 1, 2015)'' (rel. May 10,
2017). We note that the FCC's definition of ownership for the purposes
of race/ethnicity and gender classification is the share of voting
interest in a station license. If persons of color and/or women have a
collective voting share total exceeding 50 percent, that station is
assigned to a particular race/ethnicity and/or gender. Because the
FCC's ownership forms only require disclosure by owners holding 5
percent of more of the voting interest, some stations owned by publicly
traded corporations will not have any identifiable race/ethnicity or
gender for owners with a controlling interest.
\5\ With the rise in the use of so-called Shared Service Agreements
(``SSAs'') there are a number of stations nominally owned by people of
color or women that are not operated by these nominal owners, but by
existing broadcasters (such as Sinclair or Nexstar, two of the largest
firms employing SSAs as a method for evading FCC ownership rules). Thus
while the FCC's most-recent data show a remarkably low level of
ownership diversity, the ``true'' ownership diversity levels are even
lower than these dismal figures.
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This low level of local ownership persists despite years of
supposed FCC attention to the matter, including a U.S. Appeals Court
remand requiring the FCC to adequately study this issue and the impact
of its policies on ownership diversity. Free Press's econometric
research has shown that the probability of a media market having an
owner of color is significantly lower as that market becomes more
concentrated, even controlling for a variety of other factors.\6\
Despite this finding that indicates the harm to diversity from
continued consolidation, as opportunities for diverse owners and new
entrants disappear when incumbent broadcasters can purchase all of the
stations, the FCC has never adequately studied the impact of its
policies on ownership diversity.
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\6\ See, e.g., Testimony of S. Derek Turner, Research Director,
Free Press, before the United States House of Representatives Committee
on the Judiciary, regarding Media Consolidation: The Impact on Minority
Ownership & Localism (Dec. 12, 2007).
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It is important to note that only 37 of the 98 full-power
commercial TV stations owned by people of color are in the top 50 U.S.
media markets, where the U.S. population is significantly more diverse.
This reflects the reality of the barriers to entry in our Nation's
over-consolidated broadcast market: Entry into the market (or staying
in the market if you're not a giant conglomerate) is essentially
impossible. Access to capital is of course a major barrier for would-be
entrants. But the reality is that the loosening of ownership limits and
the outright refusal of the FCC to enforce its ownership rules have
created a market where only the biggest existing companies can own
stations.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
More Consolidation Is Not the Answer to the Harms of Consolidation
How did we get to this point then, where the population continues
to diversify but broadcast ownership diversity simply does not budge?
As Free Press documented in a 2014 report, the broadcast industry
continued to concentrate even when the FCC, under the previous
presidential administration, claimed to be keeping some of its local
broadcast ownership limits in place.\7\ The agency failed to police
what we call ``covert consolidation'' by waving through more deals that
depended on shell companies and so-called shared-services agreements to
hide the true ownership and control of local TV stations. And while the
last FCC did take a few important steps, like repealing the obsolete
``UHF Discount'' that lets broadcasters pretend their UHF signals only
reach half of their actual audience for purposes of the 39 percent
national broadcast ownership cap, it was not enough to stem the wave of
consolidation already occurring.
---------------------------------------------------------------------------
\7\ S. Derek Turner, Free Press, ``Cease to Resist: How the FCC's
Failure to Enforce Its Rules Created a New Wave of Media
Consolidation'' (Mar. 2014), https://www.freepress.net/sites/default/
files/legacy-policy/Cease_to_Resist_March_2014_Update.pdf.
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The current FCC's response, under Chairman Ajit Pai, has been to
remove every last safeguard rather than to repair the damage of runaway
deregulation. Quickly after assuming office, Pai reversed the last
quadrennial-review decision issued under the prior administration. He
rapidly eliminated the longstanding prohibition against newspaper-
broadcast cross-ownership, while opening the door to more broadcast TV
duopolies. Free Press and others challenged Pai's decisions, and
arguments in the case before the U.S. Court of Appeals for the 3rd
Circuit will take place next week.
The FCC has been stuck in court for well over a decade now on its
string of failed quadrennial-review decisions because the agency
refuses to study the glaringly obvious, detrimental impact of its
policy changes on broadcast-ownership diversity. Rather than fulfill
its statutory duty and follow the court's instructions to do so, it
continues to follow a ``repeal first, ask questions later'' mentality
that prolongs legal uncertainty while compounding the loss of diverse
viewpoints on the air.
Rather than do those studies, or at least wait and see how the
court case comes out when the FCC has stubbornly refused to do its
homework again, the Pai FCC charged ahead with its latest quadrennial
review late last year. Looking to finish the job it started and get rid
of essentially every meaningful local ownership rule (for both TV and
radio), the Pai FCC now proposes to eliminate the last vestiges of
ownership rules against local-TV duopolies, including combinations of
top-four affiliates.
This FCC's assault on localism has not been limited to repealing
the local ownership rules either. Almost immediately upon becoming
Chairman, Pai reinstated the UHF Discount rule that even he admits is
technically obsolete. Born in an analog era when UHF signals traveled
poorly and covered fewer viewers than their VHF counterparts, there is
simply no justification for keeping this 50 percent ``discount'' on
audience reach now as digital UHF signals actually are better than VHF.
But the Pai FCC has bent to broadcasters' wishes, put the discount back
in place, and even proposed raising the 39 percent cap that Congress
wrote into the statute on the basis of dubious claims regarding the
agency's authority to make that change.
Last but not least, the Pai FCC repealed the ``Main Studio Rule''
that required local broadcasters to actually maintain a physical
presence in the communities they're licensed to serve. Broadcast
lobbying claims that abandoning the community will somehow improve
local reporting and news coverage barely merit a response. Suffice it
to say, we need more reporters on the ground in the communities they're
supposed to cover, not fewer.
It's time for Congress to step in and end this onslaught on
localism already underway at the FCC. Congress should also restore the
local ownership limits recently jettisoned by the FCC, and in fact
strengthen them, aiming for a world in which broadcasters can multicast
multiple networks on a single channel but not own or control more than
one TV station in each market. Congress should prevent the FCC from
raising the national ownership cap to benefit a few giant broadcast
conglomerates like Sinclair and Nexstar, and instead lower the cap in
statute to 15 percent. And instead of only waiting for the FCC to get
the doomed quadrennial-review process right some decade, Congress
should repeal the quadrennial-review statute altogether and prevent
this constant rush to deregulate a broadcast industry that is already
highly concentrated and insufficiently local.
Cable Performance Remains Strong Even as Online Video Grows
Cable Television Industry Revenues and Prices Continue to Increase
Since 1996, when Congress relaxed the protections adopted in the
Cable Television Consumer Protection and Competition Act of 1992, cable
prices have risen steadily at nearly three times the rate of inflation
(see Figure 8). And this trend is not showing any sign of improvement
despite the rise of online video. Between 2012 and 2017, the average
annual rate of inflation was 1.4 percent, but the price of expanded
basic cable service has increased by an annual average of 4.1
percent.\8\ Plus, these figures do not include mandatory equipment
rental costs, which continue to skyrocket (compare Figures 9 and 10).
---------------------------------------------------------------------------
\8\ Average annual rates of inflation described herein represent
the Compound Annual Growth Rate (``CAGR''). See 2018 Communications
Marketplace Report, GN Docket No. 18-231, Report, 33 FCC Rcd 12558,
App. B at Attachment 8 (2018).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In fact, as Free Press has documented, the ``effective
competition'' standard in Section 623 of the Communications Act has not
succeeded in disciplining cable prices.\9\ Congress should modify that
standard to make the FCC determine accurately whether effective
competition really exists, rather than letting the FCC pretend the mere
presence of MVPDs other than incumbent cable provides ``effective''
competition even where cable's market share remains as high as 85
percent. This test simply does not measure whether competition actually
occurs in such highly concentrated markets. That's the main reason that
FCC's most-recent report on the cable industry found that ``the average
price of basic service in the effective competition group is 51.5
percent higher than the average price of basic service in the
noncompetitive group.'' \10\
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\9\ See, e.g., S. Derek Turner, Free Press, ``Combating the Cable
Cabal: How to Fix America's Broken Video Market,'' at 10-11 (May 2013),
https://ecfsapi.fcc.gov/file/60001009214.pdf.
\10\ See 2018 Communications Marketplace Report, App. B, 27
(emphasis added). We note that the 1996 Telecom Act sunset the
Commission's authority to regulate rates of tiers above basic as of
March 31, 1999. While the 2017 survey results finally show lower prices
for expanded basic tiers in effective competition communities when
compared to those for non-competitive communities ($75.19 vs. $77.24),
this is only a recent reversal of the historical trends. For example,
in the 2015 survey the average price of expanded basic programming in
effective competition markets was $70.31, versus $67.85 in so-called
non-competitive markets. In the 2012 survey, the average price of
expanded basic programming in effective competition markets was $62.49,
versus $60.99 in non-competitive markets.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The data in Figures 9 and 10 comes from FCC annual surveys of what
cable television providers charge, which is not the same as the average
price that consumers actually pay. To get a better sense of the latter,
we present data from the Bureau of Labor Statistics measuring what
urban consumers spend on cable and satellite television services.\11\
The trends are similar, but the differences are important for the
purposes of measuring the impact of public policies,\12\ particularly
the effect of Congress passing the 1992 Cable Act but subsequently
weakening it.
---------------------------------------------------------------------------
\11\ See Bureau of Labor Statistics, Cable and satellite television
service in U.S. city average, all urban consumers, not seasonally
adjusted, Series ID CUUR0000SERA02.
\12\ For example, the BLS data show a flat line for cable CPI
during the most-recent recession, but the FCC data do not. This is
because during the recession consumers cut back on expenditures like
cable TV, but multichannel distributors did not cut their prices.
---------------------------------------------------------------------------
In 1992, consumers were giving Congress an earful about their cable
bills.\13\ A decade of deregulation prior to that meant cable
subscribers had to fend for themselves in a monopoly multichannel
market where cable TV companies used their pricing power. A super-
majority of Congress heard their complaints and took up the cause to
enact the 1992 Act over a presidential veto. The political will was
there because, as the 1992 Act noted in its findings, the ``average
monthly cable rate has increased almost three times as much as the
Consumer Price Index since rate deregulation.''
---------------------------------------------------------------------------
\13\ See Dissenting Views of Reps. Markey, Studds, and Klink on
H.R. 1555 (1995) (``Markey-Studds Dissent'').
---------------------------------------------------------------------------
That 1992 law, which once more subjected cable distributors to at
least some limited rate regulation on their basic and expanded-basic
tiers, was far from perfect. For example, the law's ``effective
competition'' standard mentioned above does not actually measure
whether there is actually any effective competition in terms of prices
or other marketplace results. It assumes instead that the mere presence
of additional distributors with small market shares would be enough to
warrant rate deregulation.\14\ Senator Markey, then still in the House
of Representatives, rightly noted that the law was working exactly as
intended. After the 1992 law's implementation, cable rates had
declined--a first for the industry (see Figure 11). And though the
cable industry claimed that rate caps were harming investment, it
turned out this was not the case.\15\
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\14\ 47 U.S.C. Sec. 543(l)(1). In general, a franchise area will be
deemed effectively competitive if ``the number of households
subscribing to programming services offered by multichannel video
programming distributors other than the largest multichannel video
programming distributor exceeds 15 percent,'' or a local exchange
carrier offers multichannel service.
\15\ See Markey-Studds Dissent.
---------------------------------------------------------------------------
But less than two years after the 1992 law was implemented, many in
Congress on both sides of the aisle were lining up to let the cable
industry return to its rate-hiking ways. The new members who came into
Congress during the 1994 ``Republican Revolution'' were eager to
deregulate, and many Democrats were willing to go along.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Supporters of the 1992 Act were unable to get their colleagues to
hold the line on rate regulation even in the face of consistent rate
hikes by dominant cable providers. Many in Congress believed the
emergence of new video-distribution platforms--namely satellite and
telco--would remove the need for rate regulation. They argued that the
additional competition from these distributors would solve the
monopoly-pricing problems.
The theory was plausible, but incomplete, as it ignored the
stumbling blocks posed by vertical integration and the programming
industry's own market power. It didn't help that the FCC completely
bungled the new law's implementation. But with members on both sides of
the aisle embracing this competitive theory during the drafting of the
1996 Telecom Act rewrite, Congress moved to loosen some of the cable
regulations it had adopted less than three years earlier--regulations
that in their first 15 months of existence had already saved consumers
$3 billion.\16\
---------------------------------------------------------------------------
\16\ Id.
---------------------------------------------------------------------------
Though it maintained the 1992 Act's structure for regulating basic
cable rates,\17\ the 1996 Telecom Act eliminated rate regulation of all
enhanced tiers.\18\ The new law also amended Title VI of the
Communications Act to deem a local video market competitive as soon as
a Local Exchange Carrier began offering video services, regardless of
its market share.\19\ And Congress stripped individual consumers of
their ability to challenge a rate as unreasonable, reserving that power
for the local franchising authority.\20\
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\17\ Small cable systems, however, were deregulated even on basic
tier rates. See 47 U.S.C. Sec. 543(m).
\18\ The FCC's ability to regulate these ``upper'' tier rates
sunset on March 31, 1999. See id. Sec. 543(c)(4).
\19\ Id. Sec. 543(l)(1)(D).
\20\ Id. Sec. 543(c)(1)(B).
---------------------------------------------------------------------------
Even though the mantra of the 1996 Telecom Act was ``competition
before deregulation,'' the cable industry got just the opposite. It got
the rate relief it asked for--regardless of marketplace conditions and
even in the absence of effective competition. Not surprisingly, FCC
data show that expanded basic cable rates once again began rising
annually at three times the rate of inflation, with a sharp uptick in
1999.\21\
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\21\ From 1998 to 1999, expanded basic rates increased by 3.8
percent. From 1999 to 2000, these rates increased by 7.9 percent. In
contrast, from 1999 to 2000 the rates for basic cable increased by 2.1
percent. See 2018 Communications Marketplace Report, App. B at
Attachment 8.
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Cable's Below-the-Line Fees for Regional Sports Networks and Local
Broadcasting
One of the more-frustrating trends for pay-TV subscribers is the
substantial increase in the amount of their total monthly bill that is
pushed ``below-the-line.'' Such fees include now-commonplace local
broadcasting and regional sports network (``RSN'') ``recovery'' fees.
MVPDs favor this practice because it allows them to advertise a lower
price, knowing that subscribers are unlikely or unable (because of
long-term contracts) to switch to a different video provider once they
get their surprisingly higher monthly bill.
The amount of these fees differs by market and distributor. In
large urban markets that have multiple professional sports teams, the
RSN recovery fee can climb to double digits on a monthly basis. For
example, in Chicago MVPD subscribers are forced to shell out about $9
per month for RSNs that many never watch, a fee that is slated to rise
to $13 after Sinclair's recent acquisition of the RSNs formerly-owned
by FOX.\22\ This hidden fee is already on top of a local TV fee that is
$10 per month on some Chicago-area cable systems.
---------------------------------------------------------------------------
\22\ See Robert Channick, ``Diehards and non fans alike to foot the
bill for new Cubs pay TV network,'' Chicago Tribune (May 24, 2019).
---------------------------------------------------------------------------
It is important to note that as high and annoying as the hidden RSN
fee is, it only represents a fraction of the customer's bill that is
used for sports channels, regardless of which--if any--sports they
actually watch. According to S&P Global, in 2018 ``the average cost per
subscriber for sports networks'' excluding RSNs was $13.30 a month,
``while the weighted average for all networks was just $5.83.'' \23\
ESPN and ESPN2, which are on almost all expanded basic plans, account
for more than $9 per subscriber. With the $4-$5 average cost per RSN
factored in, it is no surprise that in some markets sports channels can
account for about half of a customer's monthly bill.\24\
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\23\ See Adam Gajo, John Fletcher, Scott Robson and Brian Bacon,
``The 2019 Sports Report,'' S&P Global Market Intelligence (Apr. 4,
2019).
\24\ See, e.g., Joe Flint and Meg James, ``Rising Sports
Programming Costs Could Have Consumers Crying Foul,'' Los Angeles Times
(Dec. 1, 2012).
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Retransmission fees have made so-called free television quite
expensive for viewers watching it on a pay-TV platform. But instead of
putting these fees into the advertised price of their service, MVPDs
are shoving them into below-the-line fees. And what initially was a $1-
$2 annoyance is now for many customers yet-another double-digit
surprise. According to S&P Global, ``The weighted national average
broadcast fee [was] $8.84'' as of February 2019.\25\ But this average
is just that, and the fees are far higher for millions of video
subscribers. For example, Comcast's current maximum broadcast fee is
$10 per month and has increased nearly seven-fold in just the past five
years. And this practice isn't limited to traditional cable operators.
Dish charges $12 per subscriber on average.
---------------------------------------------------------------------------
\25\ See Neil Barbour, ``Broadcast fees in step with estimated
retrans costs at national level,'' S&P Global Market Intelligence (Feb.
7, 2019).
---------------------------------------------------------------------------
In a market that was actually ``effectively'' competitive, sellers
would not be able to saddle buyers with such giant hidden fees. If
policy makers are interested in helping video consumers, they can start
by regulating the use of below-the-line fees and requiring MVPDs to
advertise the real price customers must pay. Senator Markey's and
Representative Eshoo's TRUE FEES Act would go a long way in
illuminating and combating this problem, shining a light on the actual
monthly prices cable, phone and broadband customers should expect to
pay while attempting to prevent unjustified price hikes on set-top
boxes rented from cable operators.
Congress could do even more, however, to provide transparency not
only on below-the-line fees, but the prices that people pay for each
and every channel they choose to buy--or more often, must buy--in the
bloated bundles that still dominate the MVPD lineup.
Best of all would be the kind of long-overdue statutory fixes that
this Committee has contemplated in the not so distant past, mandating a
la carte programming options so that viewers can purchase the channels
they want from their MVPD and not be forced to buy the ones they don't.
But short of that, people should at least be able to see what they are
paying and why, for every broadcast channel, RSN, and other cable
channel in their subscription packages.
Preserving Local Content on Cable Means Ending the Attack on
Community TV
Cable companies are also going on the offensive against local
content, cheering on proposals at the FCC that would jeopardize funding
for community-access television channels and production facilities
around the country. Much like broadcasters, who want to keep all of the
benefits and protections they receive in exchange for providing local
content but none of the obligations to actually follow through on
producing it, cable companies are looking to diminish the availability
and even the viability of local PEG channels.
Cable operators negotiate local-franchise agreements with the
cities and towns they serve, paying some small compensation in exchange
for these companies' use of valuable public rights-of-way. Part of that
bargain in many franchise agreements is money to fund the constriction
and the operation of community access channels featuring local
government, civic affairs, school boards, high school sports, and all
manner of local-interest programming produced by actual community
members. In a pending proceeding at the FCC, however, we're witnessing
a sneak attack on the funding sources for these PEG channels' operating
budgets, as the Pai regime proposes changes to the definitions of what
counts against the 5 percent cap on franchise fees that the local
government can collect from the cable company. The proposal would treat
not just money paid over for PEG as a part of that franchise fee, but
would place a monetary value on all manner of in-kind ``contributions''
by cable companies never before offset against the 5 percent cap.
As Free Press explained in our filing in that FCC docket, the cable
industry's proposals here would violate the statute in the Cable Act
and put continued support for these vital community voices at risk.\26\
I would urge senators to make their voices heard on this issue and
protect these local institutions which go far beyond community-access
programming to provide technological training, youth education and
other essential services.
---------------------------------------------------------------------------
\26\ Reply Comments of Free Press, MB Docket No. 05-311 (filed Dec.
14, 2018), https://www.freepress.net/sites/default/files/2019-05/
free_press_reply_comment_on_community_access
_television.pdf.
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Online Video Competition: A Ray of Hope?
Fortunately for consumers there are some signs of hope in today's
online video era. While the 2017 survey results finally show lower
prices of expanded basic tiers in effective competition communities
compared to non-competitive markets ($75.19 vs. $77.24), this is a
reversal of the historical trends, which generally showed prices for
expanded basic tiers in effective-competition communities approximately
3 percent higher than in non-effective competition markets.
We believe this recent reversal of the historical trend
demonstrates the importance of actual competition, as opposed to the
weak and ineffective standard encapsulated in the Act's ``effective
competition'' test. Once the FCC restored Title II non-discrimination
obligations for broadband providers, the number of online video
alternatives exploded.
This development reduced the pricing power of the cable-TV
distributors, while the mere presence of satellite and telco video
providers did not work as the ``effective competition'' test speculated
it could. Traditional MVPDs still pass along the increased cost of
programming to their customers, but the additional competition from
numerous online alternatives reduces MVPDs' ability to pass along all
of these costs. This means the rate of price increases in effective
competition communities finally slowed, relative to non-effective
competition communities, even though prices in both continued to rise.
In other words, even the online video competition we see today
doesn't mean that pay-TV customers are paying less, only that their
bills are climbing a little less quickly.
This is a real-world example of the economic truism that ``four is
few, six is many.'' Effective competition in this market requires the
presence of more alternatives than just the monopoly cable incumbent
and two satellite distributors. The recent data strongly points to the
continued need for public policies that ensure video consumers and
online video distributors have access to high-quality, non-
discriminatory broadband telecommunications services.
Unfortunately, the current FCC has moved to eliminate the very
policies--namely Net Neutrality protections grounded in Title II of the
Communications Act--that helped spark this more competitive
environment. Senate passage of the ``Save the Internet Act'' introduced
by Senator Markey, which passed the House of Representatives in April,
is a crucial step not just to protect the free and open Internet but to
bolster needed competition in the video space.
Privacy Concerns with New TV Technology
While people still love watching TV, they may not expect their TVs
to be watching them. But that's exactly what is happening. And it's
creepy.
Cable and telecommunications providers have access to an incredible
trove of sensitive information about what their customers watch, visit
and download. Unfortunately, rules that the FCC implemented in 2016 to
protect this data and limit how ISPs can use it were overturned in the
last Congress.\27\ There's little to no accountability for what these
companies are doing with that data. For example, Nielsen, which is also
testifying at this hearing, has paid companies including Comcast, AT&T,
Charter, and Dish to receive set-top-box data about what shows
Americans are watching.\28\
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\27\ See, e.g., Free Press, Press Release, ``House Republicans Vote
to Destroy the FCC's Online Privacy Protections'' (Mar. 28, 2017).
\28\ Daniel Frankel, ``Comcast finally agrees to sell set-top data
to Nielsen,'' Fierce Video (Nov. 9, 2017).
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New smart TVs are being sold with sophisticated content-recognition
technology and other software that monitors what people watch on their
sets and collects data to target them with advertising.\29\ Viewers are
sold on opting in with promises of better content recommendations, but
many may not understand that their clicks have become a commodity or
that they are being tracked across platforms so that what they watch on
TV may show up Facebook, for example.
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\29\ Sapna Maheshwari, ``How Smart TVs in Millions of U.S. Homes
Track More Than What's on Tonight,'' New York Times (July 5, 2018).
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Nielsen, which has long held a monopoly over TV ratings, has now
become a big data company that traffics in TV viewer data.\30\ Data on
your channel surfing is brokered to and from many companies. The opt-in
disclosures on your set may tell you that ``third parties'' will see
the data, but they often provide viewers with no idea of who has the
data or offer any way to delete or reclaim their data once it is sold
and resold.
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\30\ Mike Masnick, ``Nielsen Using Patent Monopolies to Act like a
Monopolist,'' Techdirt (May 23, 2019).
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Senators Markey and Blumenthal have raised this issue with the
chairman of the Federal Trade Commission and called for an
investigation into the ``privacy policies and practices of smart TV
manufacturers.'' \31\ Much more oversight is needed by Congress and the
Federal Trade Commission on how these companies and their partners--
including Gracenote, a Nielsen subsidiary--are using the data, with
whom they are sharing it, and whether it is being sold to data brokers.
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\31\ Letter to the Hon. Joseph Simons from Sens. Ed Markey and
Richard Blumenthal (July 12, 2018), https://www.markey.senate.gov/imo/
media/doc/FTC%20smart%20TV%20letter%20.pdf.
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Conclusion: A Different Path Forward
When it comes to the state of the media--especially local media--we
are going in the wrong direction. But it is not too late to change
course. This committee should enact laws, and conduct oversight of the
agencies it authorizes, to stop the erosion of localism and promote
diversity. We need laws and policies that improve competition, boost
innovation, increase transparency, and support the creation of content
from diverse, independent, under-represented and varied viewpoints. Now
is the time to give your constituents more choices, lower prices,
better service and new opportunities.
In sum, Free Press Action urges the Committee and the Senate to:
Reauthorize STELAR or its equivalent for another five years.
Enact legislation to prevent blackouts and preserve carriage
during negotiations.
Revoke the FCC's ``UHF discount,'' an obsolete rule that
serves only to enable further media consolidation.
Reject the FCC's efforts and broadcasters' pleas to raise
the national broadcast audience reach cap above 39 percent, and
instead lower that cap to 15 percent.
Create incentives, modeled on the ``minority tax
certificate'' program that NAB and Free Press Action alike have
long supported restoring, to incentivize sales of stations to
local owners who are women and people of color.
Restore local limits on broadcast media ownership, and
prevent broadcasters from operating multiple stations in a
single market through shell companies
Eliminate the FCC's ``quadrennial review'' of media-
ownership rules.
End below-the-line fees and other hidden charges, requiring
cable and satellite providers to show the total price in
advertisements and bills. Also require them to show how much
consumers pay for individual channels in any package.
Pass legislation allowing consumers to pick and choose the
channels they want to watch and then to purchase multichannel
programming ``a la carte.''
Protect carriage and funding for PEG channels, signaling
disapproval of proposals circulating at the FCC that endanger
these essential local outlets.
Support and pass the ``Save the Internet Act'' introduced by
Senator Markey to restore strong Net Neutrality rules grounded
in Title II of the Communications Act, which are essential for
preserving access to competitive online video.
Institute strong privacy protections to protect personal
information, and limit its sale and exploitation not only by
Internet companies and broadband providers but also by TV and
video providers, manufacturers, or other parties.
Bolster antitrust laws to prevent mega-mergers in the TV and
video industries.
Consider imposing a tax on targeted online advertising, with
revenues used to fund local journalism and civic technology
alongside increased support for noncommercial media in places
poorly served by commercial media.
I look forward to working with the Committee and answering any
questions you have.
The Chairman. Well, thank you very much, Mr. Aaron.
Mr. Kenny, you're now recognized, and I understand you
really have to be out of here by 11, is that correct?
Mr. Kenny. 11:15, yes.
The Chairman. 11:15. OK. Well, that's a whole new matter.
You are recognized. We'll be delighted to hear from you.
STATEMENT OF DAVID KENNY, CHIEF EXECUTIVE OFFICER, NIELSEN
Mr. Kenny. Thank you.
I'd like to thank you, Chairman Wicker and Ranking Member
Cantwell, as well as all the Members of the Senate Commerce
Committee, for the opportunity to discuss the changes in the
video marketplace for consumers.
As the video landscape changes, Nielsen's role is critical.
Our independent measurement and analytics services allow video
producers and distributors to make the decisions so that
customers consume the video that they want, in a manner that
they want, and from whom they want it.
Trust and transparency are the reason why Nielsen ratings
are to a large extent the currency on which much of the media
business is conducted. Understanding the audience makeup of a
particular program helps broadcasters know where to invest in
new programming and at what time and at what localities to make
certain programming available.
The independence of companies, like Nielsen, matters and
should be protected. Without an independent voice, industry
would be left to grade its own homework, robbing consumers of
their voice, and sidelining critical investment from
advertisers.
As Congress develops legislation on the Satellite Home
Viewer Act and considers privacy, Nielsen feels there is a
legitimate interest in the use of independent third-party data
collection through audience measurement.
This is an exciting time for consumers. The changes to the
media landscape in just the last few years, as said, have been
extraordinary. The entire ecosystem, including my fellow
panelists, have moved the industry forward to ensure that
consumers can receive the video content that they want, when
they want it, and at a reasonable cost.
Overall video consumption has increased substantially over
the last decade. However, this growth does look as if it will
flatten out. Today, the average adult consumer is watching 5
hours and 24 minutes of video daily, which is a 3-minute
decrease year over year between 2017 and 2018, even when taking
into account all the new methods in which one can consume video
content.
While the overall consumption of live television was down 4
percent between 2017 and 2018, live television still comprises
78 percent of overall video consumption. Over almost 4 hours,
well, 3 hours, 44 minutes to be exact, are spent watching live
television per person daily, and 30 minutes is spent watching
recorded programming from live TV.
Nevertheless, we are seeing double-digit yearly growth for
video consumption via TV-connected devices, such as Roku. So-
called smart televisions, which are internet-connected and
allow viewers to control features for streaming content in a
one-stop-shop fashion, are increasing at a rapid rate, jumping
29.8 percent between Q3/2017 and Q3/2018.
The largest decline was not television usage but video
viewing on a personal computer which decreased 30 percent
between Q3/2017 and Q3/2018.
Many relatively recent market entrants are investing
substantial sums in new programming benefiting consumers, but,
interestingly, eight of the top 10 shows on Netflix, for
example, come from traditional television content. The Office,
Friends, and Gray's Anatomy, each independently accounted for 2
percent of Netflix's total video viewership.
When choosing what to watch on streaming services,
consumers studied existing and former broadcast shows as the
biggest influence. Less than half that number cited
recommendations from the streaming services themselves.
Last, one of the hallmarks of Nielsen's measurement and
analytics capabilities is to help video producers and industry
leaders understand their audiences. We believe our service is
critical to ensuring that all consumers of video should be
accounted for when producing, investing, and distributing video
content.
Diversity in video viewing is a monetary reality when it
comes to consumption and the adoption of new technologies in a
changing media landscape. Both diverse and younger consumers
are more tied to their phones and have begun to move away from
traditional television in favor of new video entrants on the
phone.
As our country becomes more and more multi-culturally
diverse, these trend lines represent the future and advertisers
and video content producers would be well advised to serve
these populations now.
Once again, thank you for allowing me to share the hard
work my colleagues at Nielsen produce. We at Nielsen are
excited about what the future brings and helping policymakers
make informed decisions on everything from video regulation to
privacy.
If there's one ask I would make of the Committee, it is not
only to protect but embrace independent measurement and
analysis. Without it, my colleagues on the panel would be
unable to further invest in our media ecosystem, stagnating the
exciting innovation enjoyed by consumers today and for years to
come.
Thank you.
[The prepared statement of Mr. Kenny follows:]
Prepared Statement of David Kenny, Chief Executive Officer, Nielsen
I. Introduction
I would like to thank Chairman Wicker and Ranking Member Cantwell,
as well all of the other members of the Senate Commerce Committee for
the opportunity to discuss the changes in the video marketplace for
consumers.
II. Nielsen's role
As the video landscape changes, Nielsen's role is critical. Our
independent measurement and analytics services allow video producers
and distributors to make the decisions so that customers consume the
video that they want, in a manner that they want and from whom they
want it.
Trust and transparency are the reasons why Nielsen ratings are to a
large extent the currency on which much of the media business is
conducted. Understanding the audience make-up of a particular program
helps broadcasters know where to invest in new programming and at what
time and in what localities to make certain programming available.
The independence of companies like Nielsen matters and should be
protected. Without an independent voice, industry would be left to
grade its own homework, robbing consumers of their voice and sidelining
critical investment from advertisers. As Congress develops legislation
on the Satellite Home Viewer Act and privacy, Nielsen feels there is a
legitimate interest in the use of independent third party data
collection through audience measurement.
III. Consumer Trends
This is an exciting time for consumers. The changes to the media
landscape in just the last few years have been extraordinary. The
entire ecosystem, including my fellow panelists, have moved industry
forward to ensure that consumers can receive the video content that
they want, when they want it, and at a reasonable cost.
Overall video consumption has increased substantially over the last
decade. However, this growth looks as if it will flatten out. Today,
the average adult consumer is watching 5 hours and 24 minutes of video
daily, which is a 3 minute decrease year over year between 2017 and
2018 even when taking into account all the new methods in which one can
consume video content.
While the overall consumption of live television was down 4 percent
between 2017 and 2018, it still comprises 78 percent of overall video
consumption. Almost 4 hours (3 hours 44 minutes to be exact) are spent
watching live television per person daily and 30 minutes is spent
watching recorded programming from live TV.
Nevertheless, we are seeing double-digit yearly growth for video
consumption via TV-connected devices, such as a Roku. So-called
``Smart'' televisions, which are Internet-connected and allow viewers
to control features for streaming content in a one-stop shop fashion,
are increasing at a rapid rate, jumping 29.8 percent from Q3 2017 to Q3
2018. The largest decline was not television usage but video viewing on
a personal computer, which decreased 30 percent between Q3 2017 and Q3
2018.
Many relatively recent market entrants are investing substantial
sums in new programming, benefiting consumers. But interestingly, eight
of the top 10 shows on Netflix, for example, come from traditional
television ``library'' content. The Office, Friends and Grey's Anatomy
each independently accounted for 2 percent of Netflix's total video
viewership. When choosing what to watch on streaming services,
consumers cited existing and former broadcast shows as the biggest
influence. Less than half that number cited recommendations from the
streaming services themselves.
IV. Demographics and Diversity
One of the hallmarks of Nielsen's measurement and analytics
capabilities is to help video producers and distributors understand
their audiences. We believe our service is critical to ensuring that
all consumers of video should be accounted for when producing,
investing in and distributing video content. Diversity in video viewing
is a monetary reality when it comes to consumption and the adoption of
new technologies in a changing media landscape.
Both diverse and younger consumers are more tied to their phones
and have begun to move away from traditional television in favor of new
video entrants.
As our country becomes more and more multiculturally diverse, these
trend lines represent the future, and advertisers and video content
producers and distributors would be well advised to serve these
populations now.
V. Closing
Once again, thank you for allowing me to share the hard work my
colleagues at Nielsen produce. We at Nielsen are excited about what the
future brings and helping policymakers make informed decisions on
everything from video regulation to privacy.
If there is one ask I make of this Committee, it is to not only
protect but embrace independent measurement and analysis. Without it,
my colleagues on the panel would be unable to further invest in our
media ecosystem, stagnating the exciting innovation enjoyed by
consumers today and for years to come.
The Chairman. Well, thank you very much.
Let me just stay with you, Mr. Kenny. You mentioned
Nielsen's measurement and analytics capabilities in assessing
demographics and diversity on Page 4 of your testimony.
The provisions in STELAR help to ensure that rural
communities have access to broadcast programming. What can you
tell the Committee about how broadcasters are addressing the
needs of America's rural communities?
Mr. Kenny. So Nielsen is known for its measurement of video
consumption across the country in 208 of the 210 markets we do
measure and this allows us to serve those rural communities.
It's also very important that Nielsen measures wireless
coverage, which is another way that those communities are
served, and I would say, you know, we continue to see that
where the FCC allowing small rural cellular carriers to utilize
Nielsen data to challenge coverage decisions, this does allow
them access to wireless universal service funds.
Wireless satellite rural cable companies are all lifelines
to rural areas because they not only bring video television but
also broadband capabilities to those areas and we're really
proud to play a part in making sure those economics work.
The Chairman. Is Rural America getting what it needs today?
Mr. Kenny. In most cases, we do believe so. We would
continue to make sure the economics work so that Rural America
has every choice that every other part of America has.
The Chairman. Thank you.
Mr. Smith and Mr. Powell, Mr. Aaron went on at length about
the increasing costs, despite increased competition and more
choices available, the cost of cable and satellite television
is increasing and consumers are still subjected to programming
blackouts. In addition, according to reports, the costs of
streaming services are also rising.
Why is this happening, and do you have anything to say in
response to what Mr. Aaron has had to say?
Mr. Smith, we'll start with you and then move to Mr.
Powell.
Senator Smith. Chairman Wicker, I think the best thing you
can do to make sure that rural people get broadcast local
television is to end STELAR.
The Chairman. Why are the costs--are the costs increasing
because of STELAR?
Senator Smith. Well, I'm the only one up here that offers
every American who can receive a satellite signal to get it for
free if they want it. We include everyone regardless of race,
ethnicity, urban, rural. It's up there all the time. We don't
have blackouts. Sometimes, as we try to bargain for the value
of our content, we obviously like to make sure that the money
follows the ratings and we have the best content available and
people want to see it and we have the highest rating on
viewership.
But things are changing and people are now watching more
and more on devices and unrelated to us, there's this
unregulated group of providers now, the acronym being called
FANG, that is growing exponentially, even while we are kept
small by rule and statute.
The Chairman. Mr. Powell.
Mr. Powell. I would simply say I think the single greatest
driver factually of rising prices is rising costs of
programming and sports costs. Those costs have increased in the
market by double digits across the spectrum.
Retransmission costs have increased from $500 million 10
years ago to $10 million. That all gets pushed through pay TV
platforms to consumers. You can see the evidence of that of the
new entrants, like YouTube and others, who in the last several
weeks have raised their prices, as well, as they grapple with
the ever-escalating cost of acquiring high-quality programming,
and the production value of that programming has increased
substantially.
It's rumored that Game of Thrones cost nearly $14 million
an episode. As long as there's a strong appetite for content of
that expense, there will be a lot of pressure on the cost to
the system.
The Chairman. Thank you very much.
Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman.
To go back to your question about rural communities, Mr.
Aaron, in your testimony, you mention broadcasters rightly
point to the fact that one of the two major direct broadcast
satellite providers does not provide local content service to
12 of the smallest markets. Is this something we need to
address?
Mr. Aaron. I definitely think--thank you for the question,
Senator. I definitely think this is something the Committee
needs to look at.
One of the major satellite providers has managed to serve
all 210 markets. The other has not for reasons that, I'll be
frank, aren't clear to me. So I think they should be encouraged
to serve everyone. Although we would also support
reauthorization of the STELAR bill, we don't think we want to
take anything away from those who can't receive a signal and
are being well served, but I do think it's worth looking
closely at these 12 underserved markets and getting some clear
answers from AT&T on why they still can't do local-to-local
when they can do it everywhere else.
Senator Cantwell. But Mr. Smith sitting next to you is
providing that same content, is that not correct, Mr. Smith?
Senator Smith. That is correct. We provide it free to
anyone and Michael is right. I mean, one of the great drivers
of program costing is obviously sports salaries and yet every
American who can receive a broadcast signal gets it for free.
We need cable. We love satellite, too, but when they can
make money off of what we're providing through advertising free
to all Americans, we do think we have that right to bargain for
its value and its viewership. So we're kind of in this together
and it's a marketplace at work and it works 99 percent of the
time without a disruption and so as far as we're concerned,
we're never in a blackout. It's always up there.
If you just want to take a digital antenna and plug it in,
you'll get it.
Senator Cantwell. Well, no, there are some instances, I'm
under one right now with a cable provider who's not providing a
local channel because they're in a dispute, and so the fact
that I can't get a CBS channel in my own community because of
ongoing dispute between cable and broadcasters is very
frustrating.
But, Mr. Aaron, back to this point, so, you know, Mr.
Smith's pointing out, you know, free eyeball access to that
local content, why isn't that a good thing?
Mr. Aaron. Well, I think it's a great thing. I think there
are a number of people who are served by satellite who cannot
get their broadcast over-the-air signal. I think the number's
something in the neighborhood of 850,000, according to the
filings I've seen, and I think, you know, the experience of
those consumers' matters. We should look out for them.
Senator Cantwell. But that's because of the changes we've
made, correct?
Senator Smith. Yes.
Senator Cantwell. That was what we pushed through. I raised
objections to some of that because I know the grab for money
that people wanted off of spectrum auctions, which is the same
problem we have today. Now, people are selling off 5G, and
we're going to have crazy weather forecasts loss of information
because people are rushing to sell spectrum.
So, this problem you're talking about we created here. We
created by making that digital push.
Senator Smith. Senator Cantwell, to that point, I think
technology is proving that whether the number is 500,000, as we
calculate it, or 870, as satellite calculates it, over-the-top
offerings show that there's a technological solution to this.
CBS All Access and many, many other offerings are out there
that show how this can get taken care of.
Senator Cantwell. Well, I'm definitely with Mr. Aaron on
consumers should be advocated for in driving down price, and if
there are solutions out there that give consumers, back to the
old model, you rent my eyeballs and I watch a lot of
commercials in exchange for getting free content. We shouldn't
be blocking that. We shouldn't be giving people new ways to
capture that and repackage it just to make money when the old
model basically delivered that content in a business context
for free, so to speak.
Yes, you had to pay a lot of attention to things that maybe
you didn't want to pay attention to, and it's not to say you
can't have other evolving models, but we should keep our eye on
driving down cost to the consumers.
Anyway, I will stop with that, Mr. Chairman, although--yes,
I will stop with that.
So, thank you.
The Chairman. Thank you, Senator Cantwell.
Senator Blunt.
STATEMENT OF HON. ROY BLUNT,
U.S. SENATOR FROM MISSOURI
Senator Blunt. Thank you, Chairman.
Let's talk for just a minute about those 12 unserved
markets. Kirksville, Missouri's one of them, Truman State
University's there, fairly substantially sized community. They
have a TV station that covers me most of the time when I go
there.
What changes in STELAR or why would the elimination of
STELAR impact whether that community can get its local TV on
cable or not?
Senator Smith. Because, Senator Blunt, under STELAR, they
are given a distance signal license, so that I don't know
whether you're Missourians are getting New York or LA news but
it's one of those two, where they can get that for very little
money. It means they don't bargain with the local station,
which means that that station then is deprived of one of its
revenue sources. It's either advertising or its retransmission
consent.
That retransmission consent money is shared by networks and
affiliates. It supports localism. It supports great network
programming, such as the NFL. If you take that away, which is
being done in the case of a Missouri station by DIRECTV, that
is made possible by STELAR. It should no longer be possible.
AT&T is a $200 billion company. If you add up the market
capitalization of every broadcaster, network, and affiliate in
America, the sum of it will not equal AT&T. They don't need the
subsidy anymore.
Senator Blunt. Mr. Aaron, do you have anything to say about
that?
Mr. Aaron. Well, I certainly agree with Senator Smith on
the size of AT&T and that we need to be paying very much
attention to the kind of consolidation that's happening there.
I do think there are elements of the STELAR bill that are
important. I believe a lot of these households are in places
where they cannot receive a broadcast signal and so we want to
make sure that those people still have access to all kinds of
programming.
That said, I think what concerns me about seeing STELAR
expire is losing some of the language around good faith
negotiations and what are the kind of things that are going to
bring these parties to the table to ensure that we're not
experiencing the blackouts that Senator Cantwell was describing
and that consumers are actually taken care care of, whether
that's by keeping signals on the air or other forms of
arbitration that actually would encourage these folks to get
these deals done and stop punishing the viewers when they can't
get along.
Senator Blunt. Let me see if I can get in one more question
here and anybody can respond that wants to.
Now that this prevalence of the over-the-top, the internet,
the video providers, how has it affected viewership generally,
and how has it affected pricing of content? You want to start
with that, Mr. Kenny?
Mr. Kenny. Yes, so from a viewership standpoint, as I said,
there was an increase, but it's largely leveled out. People
only have so many hours a day to watch. So they are choosing, I
think, different demographics. They're moving to over-the-top
faster.
I would say as there become more choices, consumers are
finding ways to put the right bundle together for themselves in
a way that makes sense.
I would say all of this, I think, also depends on a strong
advertising market, which is why independent measurement has
been important. If you go over-the-top free, the way that gets
funded is advertising, and I think there's a renewed focus on
making sure the ad model works, as well.
Senator Blunt. You know, I watch some over-the-top that
there is no advertising on, and I wonder as I'm watching it,
are they collecting information so they can advertise to me
later or what are they doing, but I don't see commercials in a
number of the over-the-top things. So I wonder about that, but
I don't want to lose all my time.
Mr. Powell, on that topic of over-the-top and cost impact
and viewer impact, do you want to add something to that?
Mr. Powell. Yes, Senator. I think one of the most obvious
things that has resulted from many, many more distributors
entering the video space is a much more aggressive arms race
for the highest-quality content.
Essentially, there's a war for the best writers, artists,
and directors to produce the next blockbuster original series
and there are a lot more buyers in that jungle than there ever
used to be. That's why we've seen just a skyrocketing amount of
scripted original series created and the value of that content
programming or those creative communities have gone way up.
So that's one of the reasons why you see even YouTubeTV
raising the cost of their service recently because of the
growing expense of acquiring content. Netflix spends $12 to $15
billion annually acquiring original content. You multiply that
across all of the distributors chasing that same content, you
can see what the impact on pricing can be.
Senator Blunt. And one last question. What's been the
impact on pricing of, say, Netflix? How much has that increased
from their first offering to where they would be today? Does
anybody have that number in mind?
Mr. Powell. Well, I think Netflix raised prices in the last
6 months three or four dollars probably, two or three dollars.
I'd have to get the exact number for you.
Senator Blunt. But for them, three or four dollars was a
big percentage increase, wasn't it?
Mr. Powell. Yes, it was in the $10.99-11.99-12.99 price
range. So I think they've been moving up closer to 15.
Senator Blunt. OK. Thank you, Chairman.
The Chairman. Thank you, Senator Blunt.
Senator Schatz.
STATEMENT OF HON. BRIAN SCHATZ,
U.S. SENATOR FROM HAWAII
Senator Schatz. Thank you, Mr. Chairman.
Thank you to all of the testifiers. Let me start with Mr.
Powell.
I think I heard you say that the main reason that prices
are going up is we're paying providers more, is that--excuse
me--content creators more, is that correct?
Mr. Powell. It's a principal reason, yes.
Senator Schatz. Why else are prices going up?
Mr. Powell. Well, given that those costs have increased at
rates as high as 35 percent a year, I do think--and sports
costs even worse, I think those two are the most massive
drivers.
Senator Schatz. Is profitability up?
Mr. Powell. Not on video. It's up for the cable.
Senator Schatz. In the cable industry, right?
Mr. Powell. Right, which also has other services, like
broadband, which are dramatically more profitable. Actually
margin, profit margins in the video business have declined over
the last 10 years.
Senator Schatz. Do you see any path forward in terms of
reducing prices or do you think this is just a fact of life
that prices are going to go up and outpace inflation by two or
three times?
Mr. Powell. I think it's a challenge. I think what we're
seeing is innovative experimental efforts to try to create new
bundles and new business models that might be able to do that.
For example, a number of MVPDs have launched what we call
skinny bundles, smaller collections of programming at
significantly lower prices, though I was a little worried to
see many of them feeling forced to raise prices this year, as
well.
Senator Schatz. Mr. Aaron, you want to disagree with him?
Mr. Aaron. I do, Senator. Thank you.
I think we have a huge competition problem here. We're
seeing for the first time some parts of the market, thanks to
some of these over-the-top services, beginning to slow the
rising prices a little bit.
I think Chairman Powell is right that programming expenses
are tremendous and----
Senator Schatz. But isn't there a big challenge on the
horizon that some of these over-the-top services are being
subsidized so they can grab market share so that by the time
they are used as a justification for further consolidation,
then there will be only a few players left and then everybody
raises their prices?
Mr. Aaron. Well, I think that is a risk, Senator, and I
think we have to watch carefully these emerging markets. I
think that's also a reason we need to really care about issues
like net neutrality. How are we going to make sure that these
over-the-top services can continue to reach their audience,
continue to build their customer base?
We need sort of those big open pipes that I hope Chairman
Powell and his members will continue to provide because we
almost get passed it but in order to get any of these services,
we're all having to pay broadband bills.
Senator Schatz. Sure.
Mr. Aaron. Those are all going up.
Senator Schatz. And I agree with you obviously about net
neutrality, but the point I would make is that there's just no
evidence that these guys who rely on net neutrality and use
over-the-top to grab market share are going to behave like
angels once they're dominant in the marketplace either.
Mr. Aaron. Absolutely not. I would urge you to watch all of
them very carefully.
Senator Schatz. Sure. Let me just move to another topic. I
want to talk about media diversity.
Senator Smith, people of color comprise about 40 percent of
the U.S. population and 7 percent of the full power of
commercial broadcast stations and less than 40 percent of those
are in the top 50 media markets. Is this a problem in your
view?
Senator Smith. It's a problem and it's one we're working
hard to fix.
First of all, NAB has a very aggressive education
foundation. We've graduated now some 20 classes with curriculum
that focuses on women and minorities to train them in broadcast
ownership management to try to help them to become upwardly
mobile.
In terms of what I would----
Senator Schatz. I'm sorry. What does that have to do with--
I mean, the idea that you can't--without this foundation, you
can't find qualified owners or something?
Senator Smith. No. It's helpful to get them in view of the
people who are doing the hiring. It's a credential that is very
helpful to their upward mobility.
But when I was----
Senator Schatz. Can I just ask you a question because, you
know, we've done a fair amount of work on diversity within the
U.S. Senate and one of the things that we heard from colleagues
is, you know, there's a pipeline problem. We just can't find
qualified LDs and chiefs of staff and staff directors who are
people of color and we found that over time we were able to
prove that that is in fact nonsense and what we needed was
pressure at the, in our case, principal level and I would just
encourage you to go beyond the idea that you have a foundation
that trains people who will eventually be qualified enough.
There are people qualified enough to run stations now and
if you have 7 percent people of color ownership and 40 percent
people of color viewership, it's a structural problem that will
not be solved with a foundation.
Senator Smith. What I used to do, Senator Schatz, when I
was in the Senate, on this Committee, is I always was the
Republican sponsor of the Minority Tax Certificate.
The problem isn't will, it's capital, in order to get more
minorities into the system. When it existed for 17 years, I
think minority ownership went up tenfold. That was ended in
1995. It should have been amended, not ended. I would strongly
recommend to this committee that this assistance be given. It
isn't a lack of will.
Senator Schatz. Thank you. I'll follow up.
The Chairman. Thank you very much.
Senator Capito.
STATEMENT OF HON. SHELLEY MOORE CAPITO,
U.S. SENATOR FROM WEST VIRGINIA
Senator Capito. Thank you, Mr. Chairman.
Thank you all for being here. I think, Mr. Smith, you made
it very clear that you feel the STELAR law needs to expire, but
I haven't really heard, unless I'm missing it, much specificity
from the other three. I think, Mr. Aaron, you disagree with
that.
Could we kind of go down the--start with you, Mr. Powell,
what your opinion of that would be?
Mr. Powell. Yes, Senator. Our view is that it should be
reauthorized and from our perspective, less because of the
debate about what the satellite industry is doing or not doing
because it creates a legal enforceable obligation to negotiate
in good faith, which is already a difficult and contentious
negotiation to preserve and continue FCC supervision potential
over the negotiation of retransmission carriers, I think
continues to be important.
Senator Capito. Mr. Aaron, did you--I'll come back to you,
Mr. Smith.
Mr. Aaron. Yes, I agree with Chairman Powell. I think that
the bill should be reauthorized. I think this good faith
negotiating is very, very important if we're going to have any
hope of actually lowering prices and I think the vehicle of
STELAR provides an important opportunity to check in on the
state of the industry again in a few years and make sure things
are working as they're supposed to.
Senator Capito. Mr. Kenny, do you have an opinion on that?
Mr. Kenny. We don't have a position on whether the Act
should be renewed. What we do care is that we have independent
measurement to make sure that the negotiations between the
parties are based on the facts.
Senator Capito. OK. So, Mr. Smith, it seems like the
pushback is that this ensures a good faith negotiation. What
was your rebuttal to that?
Senator Smith. Our rebuttal to that is that we have every
incentive to be at the negotiating table in good faith. We want
more people, as many people as possible to see our content. So
we're anxious to make a deal for the value of that content, but
that isn't the reason to renew STELAR.
Good faith is a wholly separate issue. It's something that
we're very comfortable with but that should not be tethered to
STELAR. STELAR is retarding the delivery of local news to rural
communities.
Senator Capito. OK. Mr. Powell, let me ask you this. You
mentioned in your statement just there on the STELAR issue that
the FCC--that you felt that the FCC's influence might be
diminished. Obviously you know a lot about this.
Could you kind of flesh that out a little bit, and do you
think that that would have any impact on future innovation and
technologies of the future if, I guess, the waters were muddied
here a little bit?
Mr. Powell. Well, just to reiterate, I think what STELAR
includes is a provision that creates a legally enforceable
obligation to negotiate in good faith. So if parties who are
attempting to negotiate retransmission consent, someone acts in
a way that the other finds abusive by the law, in their
negotiating position they have a venue to take that complaint
to and theoretically have the FCC oversee and arbitrate some
aspect of that dispute.
We think that that backstop actually incentivizes more
positive behavior than if that backstop didn't exist.
Senator Capito. So let's say the backstop didn't exist and
that it was expired and let's say there was a charge of not
acting in good faith, would the FCC still continue to be the
arbiter in that kind of a case?
Mr. Powell. No, I don't think they would have any----
Senator Capito. So it would be arbitrated in a court of
law, I guess?
Mr. Powell. Frankly, I think it would just lead to more
blackouts because I don't think there would be an obvious
ability to have a neutral third party oversee that question. It
would just be a walk away from the table.
Senator Smith. Senator, I would just comment that as a
matter of historic record in the some 20 years this has
existed, that that provision, I believe that's the length of
time, there has never been a finding of bad faith on the part
of broadcasters.
Senator Capito. OK. Let's me ask you this then. We're
talking about--I'm going to switch topics here on over-the-top.
I guess over-the-top is cutting the cord and you're streaming
on your device.
You can stream on your device now local broadcasting. I can
pull up my local WOWK local broadcast and I can watch it on my
device.
Senator Smith. There are apps to do that, yes.
Senator Capito. There are apps to do that. So is that local
broadcaster compensated for that or how does that work in the
money stream?
Senator Smith. Well, like on the news on app, there is a
coalition of broadcasters that produce this app that provide
their content, so that wherever you are, you can get it
streamed to you, yes.
Senator Capito. Or you can do it off of your own website?
Senator Smith. That's correct, and that's something we're
very--again, we're anxious for people to see our content. So
we're on every device we can get on as well as cable as well as
satellite and as well as over-the-top and, of course, again,
we're the only one offering to those who are concerned about--a
disproportionate number in the minority communities and the
economically disadvantaged, we are their outlet to get
everything that is available through broadcasting to get it for
free.
Senator Capito. So just quickly, Mr. Kenny, can you measure
that when somebody's doing that through an app or onto
somebody's website? Is that part of what you're measuring?
Mr. Kenny. We can measure that. We have the streaming meter
and we're investing in those technologies. We do think it's
important that they be measured independently and in the same
way so that there's nothing between that measurement. That way,
the advertising can get back to the right broadcaster.
Senator Capito. All right. Thank you.
The Chairman. Mr. Markey.
STATEMENT OF HON. EDWARD MARKEY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Markey. Thank you, Mr. Chairman.
Consumers have been surprised each month to find that their
cable, phone, and Internet bills are much higher than the
advertised price and that's why I introduced the True Fees Act,
legislation that would put an end to these advertising
practices that only confuse consumers about true costs.
The True Fees Act requires phone, cable, and Internet
providers to (1) include all charges in the prices they
advertise for their services, (2) allows customers to end a
contract without early termination fees if providers increase
their fees under that contract, and (3) to provide clear and
timely notice of price changes to consumers in an easily
readable high-profile, you know, message to the consumer.
Mr. Aaron, do you believe consumers should have these
rights? Does Free Press support the True Fees Act?
Mr. Aaron. We do, Senator Markey. We think this is an
incredibly important piece of legislation because it would give
consumers the ability to simply see what they're actually
paying for and they shouldn't be surprised at the end of the
month.
In fact, I think they should be given information on what
they're paying for each and every channel. I think that would
be a great innovation, but most importantly, these below-the-
line fees where you respond to an advertisement or they're
selling you on the phone when you're trying to upgrade or
switch your service and you get the bill and it costs
significantly more, it's a problem and it shouldn't be allowed.
We definitely this legislation.
Senator Markey. And, Mr. Powell, will you commit to working
with me to ensure that your member companies become more
transparent with their pricing practices?
Mr. Powell. Senator, we are always happy to work with you,
yes.
I would say that I think the concerns that we do have are
that false and misleading practices are heavily regulated by a
whole labyrinth of Federal and state laws today. We're
concerned about layering that additional complexity that
conflicts with those rules and we think those rules are
adequate for the entire economy where these kinds of fees are
prevalent.
Senator Markey. People just don't have enough time to get
all of the--go through each one of these details. It should
just be upfront, there it is. Your prices are going up. I know
you're under a contract but you can't get out.
Senator Smith. Mr. Markey, NAB supports your----
Senator Markey. Oh, you would? Thank you.
Senator Smith. We support your legislation.
Senator Markey. Thank you. Thank you. Appreciate it. Anyone
else want to interrupt me with that comment with regard to--
I'll take it.
The people of Massachusetts rely on local broadcast
television every day. It's how we follow the Bruins, the Red
Sox, and it's how we stay informed about our state government.
Unfortunately, residents of Berkshire County have lost
access to local Massachusetts broadcast television because the
cable provider dropped the Springfield NBC station and the
Boston ABC station from its channel lineups. So the Berkshires
are just without this local television coverage because the
Berkshires are technically part of the Albany, New York,
designated market area, and Western Massachusetts viewers can
only access broadcast stations that focus on the Yankees or the
New York football Giants and Governor Cuomo, as good as he is,
but not our Governor, not our sports teams, and that's why I
introduced legislation to force the Berkshire cable provider,
Charter, to engage in good faith negotiations with WWLP and
WCBB to bring those stations back on the air in Berkshire
County.
Mr. Powell, will you commit to working with me and this
committee to address this and other orphan county problems
across the country to ensure residents receive the local
broadcasting that is relevant to their lives?
Mr. Powell. Yes, Senator. The cable industry is always
interested in trying to help with these painful orphan county
situations.
First and foremost, they're a problem of market definition
which the FCC and the DMA drawers have to resolve. Second, we
have to deal with what rights for carriage do different local
broadcasters have. Often, they're constrained or we're forced
to live with----
Senator Markey. WWLP in Springfield says they'll give their
station free over to the cable system and the syndicated
programming can all be blocked out but the local news and
weather and sports will be there. OK. So it just seems to me
there's a fix.
Senator Smith, same question.
Senator Smith. We support your legislation and we'd like to
be carried locally.
Senator Markey. Thank you. I appreciate that, and I have
one final question, if I may.
Mr. Chairman, in this era of media globalization and
consolidation, Public Educational and Government Television,
also known as PEG, or Cable Access TV gives viewers critical
information about their communities and offers an important
platform for local voices, but the FCC has proposed a rule
change that would allow cable companies to shirk their
obligations to the communities where they operate.
Under current law, towns and cities across the country are
permitted to require as part of cable franchise agreements that
cable operators set aside channels for PEG stations.
The FCC's current proposal would allow cable operators to
assign a value to these channels and then subtract that amount
and the value the operator places on any other in-kind
contributions from the franchise freeze the cable operator
owes. This channel would threaten PEG channels across the
country.
Mr. Aaron, why is it critical that the FCC not imperil
community television by moving forward with this proposal?
I have a letter with about 15 members of the Senate calling
for this rulemaking not to proceed.
The Chairman. Let's include that in the record at this
point.
Senator Markey. Thank you, Mr. Chairman.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Aaron. I believe that the FCC is going against the
wishes of Congress which was very clear that these channels
should be provided and that the fees are separate and they're
really trying to squeeze these essential local outlets.
In so many communities, public access channels are one of
the last vestiges of really local content and it goes beyond
just what they put on the air. These are institutions that are
providing news media training, technical training, giving
people in many cases their first opportunity to be part of the
broadcast or cable industry.
I think these are vital local institutions. They should be
protected and they shouldn't be pitted against local
governments by these companies that are making lots of money.
Senator Markey. Thank you, Mr. Aaron.
Mr. Chairman, Senator Cantwell asked me for her to make a
request for documents to be entered into the record.
The Chairman. Without objection,----
Senator Markey. Thank you, Mr. Chairman.
The Chairman.--it will be done.
[The information referred to follows:]
United States Senate
Washington, DC
Thank you, Chairman Wicker and Ranking Member Cantwell for holding
this important hearing today, and for allowing me to provide testimony.
As this Committee works to reauthorize the 2014 Satellite Television
Extension and Localism Act Reauthorization (STELAR) legislation, I urge
you to take a holistic look at the state of broadcasting in the
country. I ask that the Committee give special consideration to whether
the Federal Communications Commission's (FCC) current broadcast TV
rules serve the public interest, particularly in states like New Jersey
that lack their own home television markets. Finally, as part of your
work on a reauthorization measure, I ask that you consider including in
that bill reforms to the special obligations of Section 331 of the
Communications Act.
If the densely populated state of New Jersey had its own broadcast
television market, it would be the fourth-largest market in the
country. However, due to its position between New York City and
Philadelphia--and the way The Nielsen Company draws television
markets--my state is split between two designated market areas centered
on those two cities. As a result, New Jersey is home to a paltry few TV
stations actually licensed to communities in the state, with WWOR TV
(licensed to Secaucus) as the most well-known by my constituents.
Because of the mechanism by which WWOR-TV obtained its license in
New Jersey, the station has special obligations to serve northern New
Jersey's many residents. In accordance with section 355 of the Tax
Equity and Fiscal Responsibility Act of 1982 (which added section 331
to the Communications Act of 1934) \1\ the FCC stipulated that any
license holder for WWOR-TV ``devote itself to meeting the special needs
of its new community (and the needs of the Northern New Jersey area in
general).'' These requirements accorded with the original Congressional
intent of section 331, which entices stations to move their community
of license to unserved states by giving them a prime broadcast channel.
Moreover, the authors of section 331 were my predecessor Senators from
New Jersey, who understood the need to have TV stations serving the
needs of these previously unserved communities.
---------------------------------------------------------------------------
\1\ https://www.govinfo.gov/content/pkg/STATUTE-96/pdf/STATUTE-96-
Pg324.pdf#+page
=318
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Despite this license requirement, WWOR shut down its entire New
Jersey-based news operation in 2013, forcing layoffs while absorbing
some staff at Fox 5 affiliate, WNYW-TV, in New York City.\2\ WWOR-TV
subsequently replaced its local newscast with ``Chasing New Jersey''--
now called ``Chasing News''--a half-hour, TMZ-style program produced by
an outside company. WWOR-TV now provides just three hours of weekly
news programming compared to an average of 56 hours by comparable
broadcast stations in the overlapping New York City and Philadelphia
media markets. This is unacceptable.
---------------------------------------------------------------------------
\2\ https://www.adweek.com/tvspy/wwor-replacing-evening-newscast-
with-show-on-new-jersey-politics-issues/97374/
---------------------------------------------------------------------------
WWOR-TV's failure to provide local news coverage goes back many
years. In 2009, WWOR TV reduced its news coverage by more than half. At
that time WWOR-TV broadcast only 8.8 percent as much news programming
as its peer group,\3\ Six years later, WWOR-TV's news programming
remained stagnant at 3 hours/week, while its peer stations increased
their average news coverage to 56 hours/week.\4\
---------------------------------------------------------------------------
\3\ ``Petition to Deny Renewal, Filed by Voice for New Jersey,
Before the Federal Communications Commission: File No. BRCDT-
20150202ACT.'' FCC.gov. May 1, 2015. Accessed December 19, 2017. http:/
/licensing.fcc.gov/cgi-bin/prod/cdbs/forms/prod/getimportletter_-exh
.cgi?import_letter_id=64062.
\4\ Id.
---------------------------------------------------------------------------
This difference in local community service is simply startling--and
it has prompted my constituents to complain to the FCC many times that
the station's license should be revoked. And yet, last year the FCC
concluded that WWOR-TV license should be renewed for another eight year
term. I believe that in renewing WWOR's license, the FCC failed to live
up to its statutory obligations under Section 309(k)(1) of the
Communications Act to examine whether WWOR has complied with its
obligation to ``serve[ ] the public interest, convenience, and
necessity.'' \5\ The FCC's grant of renewal in 2018 also raises a
serious question as to what a concerned local citizen would have to
demonstrate for the FCC to deny a license renewal based upon the
inability of WWOR, or any other station, to serve its1ocal community
consistent with section 331.
---------------------------------------------------------------------------
\5\ 47 U.S.C. Sec. 309(k)(l),
---------------------------------------------------------------------------
The FCC's rubber-stamping of WWOR's license renewal last year
portends the end of rigorous review of whether a licensee has met the
public interest standard for TV licensee holders as set forth in the
Communications Act.\6\ I understand that the FCC does not sit as the
final arbiter of what a station must or must not air--something that
would be inconsistent with the First Amendment. But the FCC has a
statutory duty to make sure stations like WWOR-TV are complying with
their special obligations. This renewal raises serious questions about
what evidence those concerned about a, license renewal must show to get
the FCC to take seriously its duty to determine that a licensee is
complying with the Communications Act. It is time for the FCC to adopt
clear guidelines for how it will judge whether stations are meeting
their responsibilities to Americans, especially for those stations like
WWOR who have particularized responsibilities pursuant to their TV
licenses.
---------------------------------------------------------------------------
\6\ https://www/document/fcc-affirms-license-renewal-aplication-
grant-wwor-tv
---------------------------------------------------------------------------
To ensure that WWOR-TV and stations live up to their obligations, I
ask that this Committee consider my legislation, S. 941, the Section
331 Obligation Clarification Act. The Section 331 Obligations
Clarification Act would require licensee holders under this section to:
(1) broadcast at least 14 hours of localized programming during
primetime hours; (2) file with the FCC a quarterly disclosure of all
local programming, including a separate list of particularized local
content; and (3) consult with local leaders in the market served by the
station. 1 would request that the Committee advance my bill, either as
a stand-alone measure or as part of the STELAR reauthorization package.
The concerns I present to the Committee today rest on one simple
concept--local TV viewers deserve programming that is relevant to their
lives. The issue of localism has been central in past reauthorizations
of the satellite TV carriage laws. In fact, it was the Senate Commerce
Committee, in STELAR, that developed a TV market modification mechanism
that specifically considers whether citizens are getting relevant local
programming from their home state in considering whether to grant a
market modification/facilitate access to that sort of in-state
programming.
The citizens of New Jersey face a similar problem today. My
constituents are supposed to be the beneficiaries of special
protections in section 331--in practice, as documented by the issues
surrounding WWOR-TV, this has not been the case. And I would note that
the conversation thus far around the STELAR reauthorization has itself
focused on the question of localism and access to local programming/
content. In fact, one of the key arguments presented by the broadcast
community for why the laws reauthorized in STELAR should not be allowed
to lapse is that those laws may encourage satellite providers not to
offer more localized TV stations over their systems. It would seem then
that the broadcasters would support passage of S. 941, which seeks to
address that same problem of lack of truly particularized local content
where there are such few options to obtain it.
Citizens in New Jersey and other areas like it must have confidence
that the FCC will make sure that these stations are living up to their
commitment to their local communities and the public trust placed in
them as holders of broadcast TV licenses. My constituents also deserve
assurances that the FCC will revoke a station's license for failure to
meet its responsibilities. Thank you for your consideration.
Robert Menendez,
New Jersey.
______
Consumer Reports
June 5, 2019
Senator Roger Wicker,
Chairman, U.S. Senate Committee on Commerce, Science, and
Transportation,
Washington, DC.
Senator Maria Cantwell,
Ranking Member, U.S. Senate Committee on Commerce, Science, and
Transportation,
Washington, DC.
Re: June 5, 2019 Senate Committee on Commerce, Science, and
Transportation Hearing, ``The State of the Television and
Video Marketplace.''
Dear Chairman Wicker an·d Ranking Member Cantwell:
Consumer Reports' \1\ appreciates the Committee's consideration of
the many consumer interests implicated in examining the video
marketplace at today's hearing. Also important to consider is the
reauthorization of the STELAR Act (STELA Reauthorization Act of 2014).
Important provisions of that law are set to expire at the end of this
year, and Congress would be wise to not only extend, but improve the
statute to better benefit consumers.
---------------------------------------------------------------------------
\1\ Our advocacy work officially moved under the Consumer Reports
(CR) banner starting last November. We were founded as the Consumers
Union of America in 1936 and became known by millions of Americans for
our award-winning magazine Consumer Reports. In recen t years, our
overall organization transitioned to the name Consumer Reports.
Consumer Reports is an organization with more than six million members
that advocates for a fair, safe, and transparent marketplace, fueled by
our trusted research, journalism, and insights. We believe this
integration of our advocacy work under the CR name will communicate the
depth and breadth of our mission and values, and will help us make an
even greater impact to advance the issues that matter to consumers and
the world. We invite you to come see what we are doing at
consumerreports.org/advocacy.
---------------------------------------------------------------------------
Dating back to the very first satellite television bill which
permitted direct broadcast satellite (DBS) operators to offer ``local-
into-local''market channels to consumers, the Satellite Home Viewer
Improvement Act of 1999,\2\ and in every five-year reauthorization
statute bearing a new acronym after that, Congress has attempted to
deal with the problems consumers face in the video marketplace. Outside
of those efforts, the several issues that plague consumers have not
been addressed in a comprehensive manner since the 1992 Cable Act. That
Jaw introduced the retransmission consent regime and the basic tier
buy-through requirement--where cable operators and consumers are more
or Jess required to offer and purchase local broadcast channels, thus
preventing any a la carte offering of those channels--both of which
have been the source of so many consumer headaches. In any discussion
of how to improve the video marketplace, the Committee must address how
best to update this twenty-seven year-old Jaw.
---------------------------------------------------------------------------
\2\ Satellite Home Viewer Improvement Act of 1999, Pub L. No. l 06-
113, App. I.
---------------------------------------------------------------------------
Rather than engaging in another quinquennial patchwork effort to
deal with these broken provisions, Congress should embark upon a
serious, bipartisan effort to rewrite the laws that govern ALL video
offerings, including traditional cable and DBS offerings along with
services provided by online video distributors (OVDs). Consumer Reports
is aware of the recent work undertaken by House Representatives Anna
Eshoo and Steve Scalise to introduce legislation to overhaul the rules
underpinning the video marketplace, and we look forward to engaging
with them and other Members of Congress to advance workable solutions
that will benefit consumers far better than the current dysfunctional
status quo.
Consumers Reports is on record stating that the retransmission
consent regime is broken. Though cable and DBS operators endure rising
retransmission consent fees, it is consumers who ultimately pay for
these increases in the form of the now ubiquitous ''broadcast TV
fee''--a fee that accounts for billions of do1lars of extra revenue for
cable companies. And the price tag for this and other company imposed
fees is rising dramatically. For example, Charter Communications
increased its ``broadcast TV fee'' not once, but twice, since last
November, from $8, to $9, and now $12 per month.\3\ Consumers are
rightly furious to find that the advertised rate for cable service does
not clearly include these fees and others that can dramatically raise
the price of service. Antiquated rules passed into. law more than a
quarter century ago have set the stage for this consumer nightmare, and
they must be revisited and changed where necessary.
---------------------------------------------------------------------------
\3\ J Jon Brodkin. Charter Raises Sneaky `Broadcast TV' Fee for
Second Time In Four Months, ArsTechnica (Feb. 6, 2019).
---------------------------------------------------------------------------
This is one of the many challenges facing consumers in today's
video marketplace. We stand ready to work with you to craft viable and
creative solutions-either as part of the STELAR Act reauthorization,
the TRUE Fees Act (S. 510), or new legislation--that level the playing
field for consumers in an increasingly expensive market.
Please do not hesitate to contact me with any questions.
Sincerely,
Jonathan Schwantes,
Senior Policy Counsel.
cc. Members of the U.S. Senate Committee on Commerce, Science, and
Transportation
______
Writers Guild of America West
June 3, 2019
Hon. Roger Wicker,
Chairman,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.
Hon. Maria Cantwell,
Ranking Member,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.
Dear Chairman Wicker and Ranking Member Cantwell:
As you consider the current state of the television and video
marketplace, Writers Guild of America West (WGAW) asks the Committee to
support the necessary protections that promote competition and limit
consolidation in these markets. Specifically, WGAW strongly opposes
modification or repeal of the Dual Network rule, which preserves
competition in a critical media market by prohibiting a merger between
any of the four major broadcast networks.\1\ As the labor union
representing more than 10,000 professional television and film writers,
including writers of nearly all of the scripted primetime programming
aired by the major broadcast networks, as well as a number of local
news writers, WGAW urges the Senate Commerce Committee to support the
preservation of this critical rule at the FCC.
---------------------------------------------------------------------------
\1\ See Comments of the Writers Guild of America, West, Inc., in
the Matter of 2018 Quadrennial Regulatory Review--Review of The
Commission's Broadcast Ownership Rules and Other Rules Adopted Pursuant
to Section 202 of The Telecommunications Act of 1996, MB Docket No. 18-
349 (Apr. 29, 2019).
---------------------------------------------------------------------------
The Dual Network rule remains relevant and necessary to promote
competition and viewpoint diversity and to protect local news. The four
major broadcast networks ABC, CBS, NBC and Fox-continue to provide a
unique offering to the public that is unmatched by new entrants in the
broader media marketplace. Broadcast programming consistently captures
the largest audiences and remains highly valuable for advertisers. It
is the most accessible market for professionally-produced entertainment
and news media because it is available for free over the air. The Dual
Network rule is needed to protect competition in this unique market.
Online streaming video services do not offer a complete substitute
for broadcast programming. While subscription streaming services have
released popular scripted and unscripted series, they are weak or non-
existent competitors in live sports and have no original or local news
programming. The Internet has given consumers access to a variety of
content on new platforms, yet this has not increased competition with
broadcast television from new diverse and independent sources of robust
news coverage.
Repeal of the Dual Network rule would lead to increased
concentration in the national television marketplace, decreased
diversity of content and harm to local news. The broadcast market
continues to experience consolidation at all levels and removing this
ownership restriction would inevitably trigger new mergers; indeed, the
Dual Network rule is likely the only reason that Disney does not
currently own both ABC and Fox broadcast networks. Telecommunications
deregulation and media consolidation over the last two decades has not
only harmed consumers through loss of viewpoint diversity, it has
harmed competition in the labor market for creative talent, leading to
downward pressure on compensation despite rising demand for content and
increased corporate profitability. Rescinding the Dual Network rule
would negatively impact creators and audiences alike as large media and
telecommunications companies gain an even greater share of control over
programming, and news programming will suffer from less diversity of
viewpoints and in depth coverage.
The FCC should be increasing protections against harmful
consolidation, not eliminating them. The Dual Network rule is easily
administrable and prevents such consolidation. The protection afforded
by this rule remain necessary despite changes in the video market For
these reasons, WGAW urges the Senate to call on the FCC to maintain the
Dual Network rule and similar measures that promote competition and
prevent media consolidation.
Sincerely,
Corrina Freedman,
Political and Legislative Director.
The Chairman. Senator Tester, you are next.
STATEMENT OF HON. JON TESTER,
U.S. SENATOR FROM MONTANA
Senator Tester. Thank you. Thank you, Mr. Chairman.
So I want to go into the orphan counties in a little bit,
but, Mr. Powell, you're off the hook for the moment. I'm going
to go over to Mr. Kenny.
In Northwest Montana, we have an orphan county situation,
Lincoln County, getting their news out of Spokane, and so
here's the deal. It's not about watching the Red Sox or the
Yankees. You got a forest fire burning. They need to get it
local. Otherwise, human lives are at risk.
Is there anything that Nielsen can do about deciding these
markets?
Mr. Kenny. Nielsen measures what people watch, which starts
with the DMA. Then there is a process where you can----
Senator Tester. Yes. But if they don't have access to the
local channels, they can't watch them, so it can't be measured.
Mr. Kenny. I understand that. That's a decision that needs
to be made by appealing to the FCC as to where they want to
make the allocation and what----
Senator Tester. OK. So----
Mr. Kenny. We don't tell the FCC what to decide.
Senator Tester. OK. So what, write them a letter, is that
the deal, or does it take an act of Congress? If we don't get
anything done, so they don't have to do anything?
Mr. Kenny. I think you have to write them a letter. I think
you can make a local appeal to change the allocation,----
Senator Tester. OK.
Mr. Kenny.--but it has to be done locally and they're the
body that decides.
Senator Tester. I got it. Senator Smith, you had something
you wanted to add?
Senator Smith. Yes, Senator Tester. I would just point out
that the FCC has a market modification process. NAB is very
supportive of that, has used it to resolve some of these very
kinds of orphan situations.
I would just commend it to your attention and use and will
help you with that.
Senator Tester. OK. Well, I appreciate that very much. This
isn't that tough, to be honest with you, and so we ought to
figure it out.
So I'll stick with you, Senator Smith. There are new
players in the video marketplace. We talked about this.
However, people in Montana aren't going to get highlights of
their high school football team from Netflix by any stretch of
the imagination and as you know, we rely heavily on local
broadcasts for news, for information about what's going on both
locally, state, and nationally, politically, for safety alerts,
for community events.
What can this committee do to ensure that local news
continues to play the role it's traditionally played and
continues to, quite frankly, thrive?
Senator Smith. Candidly, the most obvious and most
immediate thing you could do is to let STELAR sunset because
then what would happen is AT&T would be in a position where
they have to deal with the local stations for the local content
instead of providing in two markets in Montana with the news
from Los Angeles.
Senator Tester. OK. What are your thoughts, as long as
you're going and as long as the mike is hot, what are your
thoughts on consolidation amongst the entire video landscape?
Senator Smith. You know, I would just simply note that
because broadcasting, as Michael pointed out, was the first or
the most highly regulated and left unregulated at all of these
new entrants, the acronym being FAANG, Facebook, Amazon, Apple,
Netflix, Google, they're wholly unrelated, and yet they are
cannibalizing the advertising market that sells Chevys and
Bozeman, a market that sells furniture in Missoula, and if
localism matters, then I think they should be held to the
standards we are held to because they are growing--they're like
separate nations now and we're all trying to fight to stay
alive for our members and I just think as many Senators have
started drawing attention to this issue, I salute them for
that.
Senator Tester. Well, I appreciate those comments and
hopefully the chairman of this illustrious committee would
agree with your perspective because I do think leveling the
playing field is very, very important.
Thank you all very, very much.
The Chairman. Thank you, Senator Tester.
Senator Lee.
STATEMENT OF HON. MIKE LEE,
U.S. SENATOR FROM UTAH
Senator Lee. Thank you very much, Mr. Chairman, and thanks
to each of our witnesses for being here. You're an insightful
group. You've got a lot of information to share with us and we
really appreciate that.
Mr. Powell, I'd like to start with you.
Mr. Powell. Yes, sir.
Senator Lee. Do I understand from your comments a minute
ago, would you agree that, is it fair to say that our current
video entertainment marketplace is being governed largely by
laws passed in 1992?
Mr. Powell. Absolutely, it is, yes.
Senator Lee. And 1992 was a good time. I remember it well.
It was a different era, though. You know, we didn't really have
the internet. Ordinary people and ordinary circumstances didn't
have access to anything even akin to the internet. If you
wanted to watch a movie that wasn't airing on cable or
broadcast television or perhaps if you were lucky enough to
have a satellite television system, then you'd go to
Blockbuster and typically you'd go there may be looking for
Adventures in Babysitting and that was rented out, so you'd
have to watch Iron Eagle IV. Nobody knew what Iron Eagle IV
was, but they watched it anyway and pretended to like it.
Mr. Powell. Go with Say Anything every time.
Senator Lee. Right. Yes, yes, exactly, exactly. Does that
technological world in any way reflect the way Americans
consume video entertainment today?
Mr. Powell. No, it doesn't. I mean, we have a chart which
I'd be happy to share with you talking about then and now and I
think law is only as good as the technical, economic, and
market predicates on which it's built.
An enormous premise built in the 1992 Act is that the cable
industry has 98 percent of all the video viewing market which,
candidly, it did. When you said it was a good time, it was a
particularly good time for the cable industry, but that share
has fallen all the way down to 56 percent today. Back then, we
owned 50 or more percent vertically of all the content that was
aired on those networks. Today, that number is single digits.
So there has been an enormous transformation and, more
importantly, the rapid innovation that's brought about by
internet-fueled services really has upended the model all
together.
Senator Lee. Indeed, indeed. Mr. Smith, one of the things
we've seen since then is the development of OTT services. Those
didn't exist back then, did they?
Senator Smith. No.
Senator Lee. And the technology for providing them wasn't
accessible and so there was no reason for them to exist.
Senator Smith. Correct.
Senator Lee. But you'd agree that they've changed the
marketplace today?
Senator Smith. Totally. And I think you've zeroed in on the
reason we asked for STELAR to sunset. The technology exists
making it unnecessary. The competition exists that didn't exist
then and the harm is very real now as a matter of public policy
to local communities.
Senator Lee. So should OTTs be somehow folded into the 1992
legislative framework?
Senator Smith. I can't speak to that. I haven't considered
that, but what I am saying is it is filling a niche where
people want to watch video on other platforms that currently
are not available through cable or broadcast.
Senator Lee. Right.
Senator Smith. By the way, they should be available through
broadcast but the companies bar that.
Senator Lee. I guess what I'm seeing is we've got these two
separate frameworks. One is operating with 1992 technology and
regulated with 1992 laws. Another one is operating with cutting
edge technology that operates in a different world and has
resulted in substantial innovation, cost reductions to the
consumer, and to me that suggests that we ought not try to
hobble the part of the market that is thriving through
technological innovation with the legislative framework meant
for another era, an era when, I would add, we had just recently
discovered that Milli Vanilli was kind of a fraud. It wasn't
really sad to me but, you know, some people got bent out of
shape on that.
OK. Let me ask both of you now, Mr. Smith and Mr. Powell,
you can answer in whatever order you would prefer.
Is there room for reform in the video marketplace, and if
we're talking about legislative reform, what key principles
should drive that?
Senator Smith. I believe a key principle should drive the
reform that we're asking for is a recognition that the world
has changed, that STELAR, which is over 30 years old, is out of
date, should lapse, and some of the provisions that may still
have some merit should not be held hostage to this bill. They
can be dealt with separately.
My own view is while I'm not for regulation and all of
that, but I am for markets but you have half of the video
industry, you know, shackled by old regulations and statutes
and the other completely unfettered, and I would just simply
note in my own political experience that social media began to
explode and video began, our civil discourse began to
deteriorate, as well, and I don't have the answer to that, but
I am just saying that we would ask for a level playing field.
I would note that what is really important in this age of
charges of fake news is that somebody is still doing
journalism. Broadcasters are doing it on a local and a national
level, and if we care about the news being about Utah senators
in Utah, then I think you need to look about how are the
revenue streams to broadcasters being damaged because when you
damage those, you damage localism and then the news is just
national and not about the local civic information.
So I think we deliver a durable public value that should be
respected and supported.
Senator Lee. Mr. Chairman, could I have Mr. Powell answer
the same question? Then I'll close. Mr. Powell.
Mr. Powell. Yes, Senator. I'd offer you sort of a schematic
of how to approach the problem. I think I would start with
modernizing and recontextualizing the technical, economic, and
factual predicates, right.
What are the technologies used today to deliver video
signals as compared to 1992? You know, what are the economic
realities of the modern marketplace, both in the context of how
traditional providers are monetizing their services as well as
the new entrants?
The one thing we haven't mentioned is the new entrants are
some of the biggest companies in the history of the
industrialized world, many of whom have massive amounts of
capital and access to other sources of monetizing that payout,
you know, make our services pale in comparison.
So I think getting that factual predicate correct is step
one. Step 2 is harmonizing the incongruity. I could go through
chapter and verse of rules that apply to cable but don't apply
to satellite, rules that apply to satellite but don't apply to
broadcasting, rules that apply to broadcasting of which none
apply to the modern new entrants.
It's just incoherent ultimately to have a regulatory
framework where you can't reconcile from the eyes and ears and
perspective of the consumer the varying regulatory environments
when the consumer sees all of those as compelling substitutes
of each other.
Senator Lee. Well said. Thank you very much. Thank you, Mr.
Chairman.
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Senator Lee, and, as always,
showing his great grasp of pop culture with the Milli Vanilli
references there.
I'm told, Mr. Kenny, that you have to depart, is that
correct?
Mr. Kenny. Yes, thank you.
Senator Thune. OK. We will release you.
Mr. Kenny. Thank you.
Senator Udall. Mr. Chairman, I had a really tough
question----
Senator Thune. Did you?
Senator Udall.--but I'll let him go.
Mr. Kenny. Are you sure? I'll wait, Senator.
Senator Udall. I'm kidding.
Mr. Kenny. OK. Good to see you. Thank you.
Senator Thune. If I might, I'm going to direct this
question to Chairman Powell, but we all know and it has been
discussed at length, I think, here today that the marketplace
for video services has changed dramatically since the last time
the Committee examined this issue.
Consumers have a lot more choices for video services and
content than ever before, so much so that now Netflix is
America's largest video service in terms of subscribers since
producing much of its own content. You have Amazon's Prime
subscription offering, exclusive video programming, and these
are two of the numerous over-the-top video services, investing
tremendous amounts of resources to capture a greater share of
that marketplace.
So one of the factors that has brought this rapid change is
the expansion of reliable broadband connectivity.
Chairman Powell, in your testimony, you briefly discussed
the ways improvements in broadband connectivity have created
new video experiences. Could you elaborate on what your members
are doing to ensure that rural areas, like my home state of
South Dakota, have access to reliable broadband and what new
services it brings them?
Mr. Powell. Yes, sir, I'd be happy to. I would start with
this statement. I think solving the rural broadband issue is
the seminal issue of infrastructure today. I don't think you
can be an active participant in society or the economy without
having the ability to access that infrastructure. So we think
it's essential.
These are our communities, our neighbors. The cable
industry was founded as a rural service to reach people who
couldn't otherwise get a broadcast signal. We have many, many,
many companies operating in those parts of the world.
The first thing we're doing is trying to get a much better
mapping dataset. We have heard the conversation for many, many
years that it's difficult to identify and target unserved areas
because of the inadequacy of data collection and the
granularity of those maps.
The FCC currently has a proceeding underway that we're
actively participating. We have made a proposal to use
something called ``shapefiles'' which provide much more
dramatic detailed mapping of unserved areas that allow us to
better target limited resources to those communities that most
need it.
We have also fought frequently in public policy to make
sure dollars go to the unserved before they go to the
underserved. We follow the view that nobody should get seconds
until everybody's eaten once. We think that's been a flaw of
many subsidy programs in the past.
On the ground, we're doing a lot of things. One thing we
worked to do is demand aggregation. I can find examples for
you, like Eagle Communications in Kansas who works with the
local government, businesses, to try to essentially create
buying consortiums and co-ops to help lower the problem of
revenue in order to serve those communities.
A lot of our cable companies are now experimenting with
very innovative fixed wireless technologies attached to the end
of their network, run a fiber to a grain elevator, and then use
fixed wireless to hop another six to eight miles and hop again
and reach homes 40 miles from that last wired point.
I would point you to Media Midcontinent, which is doing
that in the Dakotas, I think you're probably familiar with, and
we have other big companies looking at that option, as well.
At the end of the day, we also need to be candid. That last
two or three percent, that is a really, really tough problem
for a wired infrastructure. We need to find ways to empower
both wireless and satellite delivered services when we get down
to that last really, really difficult part. Running a wire
between two homes 500 miles apart to pick up two customers will
always be difficult, but from 28,000 feet in space, it's a
minor problem.
All major tech companies have announced new broadband
satellite initiatives, claiming to desire to close the digital
divide. I think often they're talking about Africa and India. I
think they should be compelled to be talking about Iowa,
Montana, and South Dakota.
Senator Thune. Senator Smith, during yesterday's House
hearing examining STELAR, retransmission consent fees were
discussed at length, including the FCC's finding that small
providers pay substantially more for retrains consent, both in
total and per channel, than larger providers to carry
broadcasters' programming.
Could you clarify what goes into determining rates for
retransmission consent, help us understand why smaller
providers, like those rural areas, may be paying more in
retrains fees, whether the same market dynamic applies to non-
broadcast programming fees?
Senator Smith. Well, I'm not a part of those negotiations,
Senator, but I do know that what broadcasters are trying to
focus on in their system is to get value for their viewership
and for the value of their content.
Obviously when you have a small cable company against a
larger broadcaster that is one dynamic. Most of the dynamics we
confront are small broadcasters dealing with much larger cable
companies and so the bargaining power is not always the same.
It is never perfect, but what we try to do is to make sure that
this system that works 99 percent of the time without an
interruption is a market that is respected and that members
will see that it does ultimately support the programming that
we've all acknowledged here is becoming more expensive and you
can get it for free if you put up an antenna, but if you want a
paid TV subscription, you can get that, too.
Senator Thune. Chairman Powell, any comment on that? I
mean, you're obviously the other player in a lot of those or
your folks are a lot of the other players in those
negotiations. Any perspective on that dynamic?
Mr. Powell. Yes, Senator. We----
Senator Thune. Again, small versus large.
Mr. Powell.--have many, many small cable operators that
face this challenge. I think Senator Smith is right that a big
part of that problem is asymmetry of bargaining power and I
think many small cable operators have attempted to solve that
through buying consortiums, like NCTC, and encourage
broadcasters to be willing to negotiate with that collective
entity.
For more information on this, I think there was excellent
testimony yesterday by the CEO of Boycom herself, a leader of a
smaller cable company, who I thought thoughtfully articulated
that challenge from the small operator's perspective.
Senator Thune. Well, I'm going to wrap up. I need to go
vote, but I'd just like to note that in previous Congresses,
this committee has taken a serious look at the overdue video
reforms of which there are many and as chairman of the
Communications and Technology Subcommittee, I intend to
continue some of the discussions that we started here today,
and I for one believe that consumers are smart and that we
ought to make it easier for them to make informed choices about
their news and media consumption while also recognizing the
critical service that's provided by local broadcasting in our
communities across this country.
So I hope that as STELAR is given additional consideration
in the coming months that we can work together on this
committee and try and find ways to advance transparency and
pro-consumer solutions in the changing video marketplace while
again always protecting the important role that local
broadcasting plays.
So I will recognize the Senator from New Mexico. I assume
you've already voted?
Senator Udall. Yes.
Senator Thune. OK. And then----
Senator Udall. Yes, I have.
Senator Thune.--Senator Young is here to take over. Thank
you.
Senator Udall.
STATEMENT OF HON. TOM UDALL,
U.S. SENATOR FROM NEW MEXICO
Senator Udall. Thank you, Chairman Thune, and thank you to
all the witnesses here today.
You know, support of local media means we need media in our
communities reporting on local events and stories of local
interest, not prepackaged stories that don't reflect the
community.
Now I understand the claim that the number of hours of news
is increasing but more is not always better. One data point is
illustrative. On May 6 of this year, the United Nations'
chartered panel of scientists released a critical report
warning that one million animal and plant species are
threatened with extinction because of destructive human
activity, including climate change, and on that same day, Baby
Archie, Baby Archie was born to Prince Harry and Duchess of
Sussex. Guess which story got more air time on the three major
broadcast stations nightly news. I think probably this panel
could----
Senator Smith. Baby Archie I think won.
Senator Udall. Yes, yes. Overwhelmingly, overwhelmingly,
Senator Smith.
Well, the three stations spent nearly 18 minutes over the
next week on Baby Archie and the only station, CBS, spent one
minute and 21 seconds on the U.N. report. That's, I think, a
really sad reflection on our priorities.
This is an even more interesting little graph here. Here
you have ABC News and the one week of royal baby coverage. Now
here we're talking a whole year. This is one week of coverage
of the baby. This is an entire year of climate change, 2018, so
seven minutes versus six minutes.
So we're in a situation where the media is not focusing on
the existential issue that's facing us and for sure the media,
especially the journalists, are up against tough challenges
these days.
The President continues his attacks on fake news by which
he means the news that does not flatter him, ownership of major
news media outlets is dwindling to record low numbers. All of
this has a chilling effect on a free and robust press.
We must continue to have newsrooms that pursue
investigations of public interests, free of worry that the FCC
will pull their license for no good reason or that the
Department of Justice will be pressured to rule against them.
Now this is a question for all the panelists here. A couple
of weeks ago, a blogger pushed out a doctored video to make it
seem as though Speaker Pelosi was impaired. As so-called ``deep
fake technology'' becomes more sophisticated, we are threatened
with foreign actors using it to stoke division within our
country.
What role should broadcasters and video providers play in
monitoring this type of content and making sure unquestionably
false and bad faith content is not further amplified?
Senator Smith. I would just note that I don't think either
Michael or Aaron or I have any editorial control of what--it's
kind of a chicken and egg thing as to what people want to hear
about.
That said, I tell my wonderful members constantly report
the news without fear or favor. You're the Fourth Estate. It's
vital that you play your role and the First Amendment is not
subject to repeal, as far as I can see, and state laws on
freedom of speech are very much intact and so we have a job
that we're proud to do and will continue to do it, however
imperfectly.
Senator Udall. Mr. Powell.
Senator Smith. I would note to your point about fake news
and doctored videos, we have statutes and regulations we have
to obey and we're happy to do it, but all of these new entrants
on the Internet are wholly unregulated. So it goes to the point
that's been made many times by this panel that the playing
field should be leveled as it relates to our election
integrity.
Senator Udall. Mr. Powell.
Mr. Powell. Senator, I'd only say things like deep fake and
altered video, the shape of things to come with the rise of
artificial intelligence, it's a sad state of affairs, and I
think that any publisher that puts up content should accept
certainly a moral, ethical, and professional obligation to try
to weed out such things to the extent that they're able to
determine them.
They obviously are First Amendment speakers and enjoy
certain protections specifically when it comes to public
figures, but, nonetheless, I think a party outside is going to
navigate the torrent of this kind of stuff that's to come. We
all have to accept some responsibility for it.
Senator Udall. Mr. Aaron.
Mr. Aaron. Senator, I think that when we're talking about
these issues, we do have to look at the shared responsibility.
These are videos may have emerged on one platform but then they
get rebroadcast on Fox News or on local TV again and again and
again and I think we need to be paying attention to everyone
stepping up and taking that responsibility and when I think we
look at the changing media market, one great way to prevent
this kind of content, fake content from being aired as news is
to invest in newsrooms and unfortunately with runaway media
consolidation, we've seen these cutbacks, so we lose the
veteran editor, we lose the producers who are there, and if
we're actually investing in that local product, there'd be more
people saying wait, stop, before that gets out there and over
our airways.
Senator Udall. Thank you. And thank you, Mr. Chairman.
The Chairman. Thank you, Senator Udall.
Senator Blackburn.
STATEMENT OF HON. MARSHA BLACKBURN,
U.S. SENATOR FROM TENNESSEE
Senator Blackburn. Thank you, Mr. Chairman, and thank you
all for staying with us.
Mr. Aaron, to your comment that you just made about
investing in newsrooms, I think if some of our social media
platforms were to have such before they put things up that
would be something that would be helpful.
I'm so glad we're doing this hearing today because the
video marketplace is indeed vibrant. I serve not only here on
Commerce but also on the Judiciary Committee and probably most
importantly represent the great state of Tennessee which, of
course, songwriters live, call that home, and copyright and
protecting copyright is how they really make their living and
as I lamented and spoke about in the last reauthorization of
STELAR, that was in the House, the laws that we make do not
keep up with the evolving video and technology marketplace and
so I think it's something we have to pay very close attention
to because it evolves much faster than Congress operates.
So we need to keep that in mind as we look at the
technology and the delivery systems that are made available to
the American public today.
Mr. Powell, if STELAR were to expire, what impact would
that have on retransmission consent negotiations?
Mr. Powell. For our members, Senator, the provision that is
most important to us in STELAR is the good faith legal
obligation that both parties have to negotiate in good faith
and failure to do so at least can invite the oversight and
response by the Federal Communications Commission.
We think that's an important disciplining element of those
negotiations to try to limit those negotiations from failing
and leading to consumer blackouts.
Senator Blackburn. OK. Mr. Smith, same question.
Senator Smith. We have no problem with good faith, but to
your earlier point that shouldn't be the reason that STELAR is
reauthorized. That could be a separate issue and I would just
simply note during the life of STELAR, 30 years now, the
broadcasters have never been found in violation of good faith
standard.
We have every incentive to make a deal. We want more people
to see our content and it is our incentive and our desire to
act in good faith and I pledge to you that that will not
change.
Senator Blackburn. OK. And I think it's fair to say that
you would like for STELAR to sunset.
Senator Smith. I would.
Senator Blackburn. And in part because it provides
satellite companies with the continued ability to rebroadcast
the signals over the air TV without authorization of all the
copyright holders through the use of a blanket compulsory
license, is that right?
Senator Smith. That is correct.
Senator Blackburn. OK. And it is your view that
retransmission should require the actual consent of those who
own the copyrights, correct?
Senator Smith. Correct.
Senator Blackburn. OK. Then I want you to do this and you
probably know this question's coming because I ask it every
time.
Senator Smith. You're welcome to do it, please.
Senator Blackburn. Could you help me understand why you
think that consent should be required for retransmission of TV
broadcast but not also for radio transmission of sound
recordings where the copyright is owned by third parties?
Senator Smith. I wasn't here in the early 1930s when
Congress wrote the law that said performers got their
remuneration through contract and songwriters got it through
copyright. Congress certainly has the ability to change that if
it will.
What I'm charged to do is to protect an industry, radio-
free local. When we put it out there, we don't charge anyone
for it, except those who wish to advertise on those stations.
We provide tremendous value in terms of advertising for new
songwriters, but when we put it up on the screen and someone
else is trying to get a paid radio subscription, we pay a
copyright on that because Congress created that law.
Senator Blackburn. And you're----
Senator Smith. We consistently observe the laws.
Senator Blackburn. Yes. But your position would be because
radio transmissions are not protected by copyright and----
Senator Smith. That's correct.
Senator Blackburn.--you agree with that, but then shouldn't
your position be that it should be like policy for like policy
and both should be protected by copyright?
Senator Smith. I think if we're interested in recognizing
the reality on the ground as well as the principle you're
stating, most of the radio stations out there are mom and pop
operations that rural communities in Texas and otherwise depend
on for lifesaving information as well as music entertainment.
I'm charged to keep them alive, too, and if you look at the
streaming rates we pay on copyright as required by law, there
are very few radio stations that are able to do that anymore
because there's simply no money in it and so if we're
interested in the benefit of all music and the Congress wants
to get into what those rates should be, then I would just say
please, for the sake of your constituents, take care of this
lifeline information of free and local radio. I'm not
unsympathetic to the performance community.
Senator Blackburn. Well, I would hope that we can reconcile
these positions. I'm overtime. I'm going to yield back my time
and thank you all for being here.
Senator Smith. Thank you, Senator.
The Chairman. Thank you, Senator Blackburn.
Senator Cruz.
STATEMENT OF HON. TED CRUZ,
U.S. SENATOR FROM TEXAS
Senator Cruz. Thank you, Mr. Chairman. Thank you to each of
the witnesses for being here today.
Today's video and television marketplace is vastly
different from what it was in the 1960s and 1970s when
consumers only had three broadcast channels to choose from.
Cable and satellite industries have grown and they're no longer
the new entrants that they once were and new and innovative
services and platforms not only offer consumers more options
for enjoying TV and video services but they also allow content
creators the opportunity to produce more and better content
that can actually reach its intended audience.
And yet despite this vast transformation of the video
marketplace in the last half century, consumers remain
frustrated as there is still a litany of government regulations
that restrict how content is ultimately delivered to consumers.
I appreciate that the Committee is holding today a hearing
reviewing STELAR. It's worth noting, however, that it has been
more than 30 years since Congress passed the first iteration of
that bill and almost 30 years since Congress passed the Cable
Act.
The TV and video marketplace has evolved into something no
one from 1990 would recognize and a multi-billion dollar part
of the economy that only continues to grow and so my question
for each of the members of the panel is, is it time for
Congress to look at reforms beyond the narrow lens of STELAR
and consider broader and more sweeping and holistic reform to
the rules and regulations that govern the TV and video
marketplace, and, if so, what specifically would you recommend?
Mr. Powell. I'm happy to go first, Senator. Yes, we always
would welcome that inquiry.
As I stated in my testimony, there are several guiding
principles that we think are important to drill into. The first
is just the revolution in the predicates that underpin the 1992
Act. The technologies have been radically transformed. So many
video services of the past were built around the limitations of
the technology that distributed to them. Much of those premises
have been upended. The economic conditions are different. The
markets are different. All of those need to be reformed and
modernized.
Second, as I mentioned before, the rules do not apply
coherently across the space. I'm a fan of regulations that look
through the eyes of the consumer who sees video from one
platform to the other, not too differently, but yet there are
radically different regulatory regimes that apply to the
different sources of content vying for that consumer's
attention.
I think a regime that doesn't harmonize that regulatory
structure is one that is weak and ineffective, and then,
finally, I think we just have a whole conglomeration of giants
who are now driving this space who weren't even remotely
contemplated in 1992 and really are the principal drivers of
trains across the whole Internet economy.
Senator Cruz. And particularly with regard to those giants,
how should government policy respond to them?
Mr. Powell. Well, I'm a fan of light regulation, so I don't
like to reflexively say regulate them like me, but I think you
have to reconcile what they do and what we do and make sure
that whatever the public interest principle is, it's manifested
in both environments, and I think right now, they don't even
have any consideration of the kind of things our industries do,
whether it be diversity of content, trusted sources,
obligations to consumers, billing rights, fees, none of that
applies in that community which gives them an enormous
advantage.
The one other thing I would highlight for the Committee is
they often are in video as an ``also ran,'' meaning they had
massive financial engines around a second product and they're
often using the video business to drive power into that other
product, so Google with Search, Facebook with Posting and
Sharing, Amazon with Retail.
So those dynamics are very, very different than in Gordon's
business and mine which are wholly dedicated to video and that
has to in some way be understood in this process, as well.
Senator Smith. Senator Cruz, of course, we'll always be
anxiously engaged and constructively working with you as video
reforms come to mind.
I feel because of your question to share with you what I
always tell my broadcasters and that is the new entrants and
everyone in telecommunications, they want two things from
broadcasters. They want your content and they want your
spectrum, but they don't want to do what you do, which is
localism and journalism, and we're trying not to become the
newspaper industry.
We have two sources that support localism and localism,
candidly, is the envy of the world. Our country has it because
of laws Congress passed that creates this relationship with
networks and affiliates, national and local, all these other
platforms, but when those revenue streams are cannibalized,
mainly advertising, which sells Chevys in Texas and furniture
in Texas and gasoline prices in Texas, we're still the best
source of informing the public how to move commerce, which
creates jobs, and, frankly, we're essential to making sure that
the news is about you in Texas and not about somebody in New
York or Los Angeles.
So retransmission consent is a system that people complain
about, but it's a market working. We don't think it's broken
and so I would just simply ask you to remember that the way you
pay for localism in this miracle of network broadcasting and
affiliate relationships, you do it through advertising. You do
it through retransmission consent. If either of those is unduly
damaged and advertising is being cannibalized right now in the
digital age, you lose localism and America loses something
pretty precious.
Senator Cruz. Mr. Aaron, did you have a comment?
Mr. Aaron. Yes, thank you, Senator. I would just add I
think we need to look back at the laws we passed in the past
and see what's working.
I know 1992 seems like a long time ago. That was also the
only time right after passage of the Cable Act that cable bills
actually went down in the last 35 years immediately after
passage of that bill. So we should figure out what's working
there and then update it. I think the thing to look at is how
do we empower consumers with more choice. Why can they not--
their cable system work just like online, pick and choose the
channels they want, pay for them, but I think if we empower
consumers, we're going to get a lot more effective market, and
we need to put more of those choices back in the hands of
consumers.
If they want local stations on their cable system, they'll
pay for them. If they want other stations, they'll pay for
them. If they want sports, they'll pay for them. We should give
them that choice and then look at why things like
retransmission consent fees, it is working, it's working for
the broadcasters. I think they're up 2,000 percent in the last
decade.
Senator Smith. Which is not hard when you start from zero.
Senator Cruz. Thank you.
The Chairman. Thank you, Senator Cruz, and thank you,
gentlemen, for your testimony today.
The hearing record will remain open for two weeks. During
this time, Senators are asked to submit any questions for the
record. Upon receipt, the witnesses are requested to submit
their written answers to the Committee as soon as possible but
no later than Wednesday, June 19.
So thank you very much. It has been a good hearing and we
managed to get in quite a lot. There's one minute left on the
second vote.
So at this point, we will close the hearing.
[Whereupon, at 11:43 a.m., the hearing was adjourned.]
A P P E N D I X
American Television Alliance
June 4, 2019
Hon. Roger Wicker,
Chairman,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Hon. Maria Cantwell,
Ranking Member,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Re: STELAR Review: Protecting Consumers in an Evolving Media
Marketplace
Dear Chairman Wicker and Ranking Member Cantwell:
I write on behalf of the American Television Alliance \1\ to
provide our perspective in advance of your hearing on ``The State of
the Television and Video Marketplace.''
---------------------------------------------------------------------------
\1\ ATVA seeks to be a voice for the American television viewer.
Our members include cable and broadband operators, satellite carriers,
phone companies, trade associations, independent programmers, consumer
groups and others concerned about the state of the video marketplace.
You can find out more information about us at
www.americantelevisionalliance.org.
---------------------------------------------------------------------------
At this hearing, you will hear a lot about the evolution--if not
the revolution--in the media marketplace. The advances really are
amazing. Those of us old enough to remember when you had ``appointment
television'' to catch your favorite show can't help but be amazed to
see our younger colleagues on their smartphones (and tweeting or
snapping about it to the world at large). I'm happy to say that ATVA
members are justifiably proud of their roles in this revolution. From
offering innovative video streaming services that allow consumers to
watch programming when and where they want it to building the blazing
fast broadband networks that make those services possible, ATVA members
can claim as important a role in the video marketplace revolution as
anybody.
Yet there remains one sector of the media marketplace where the
news is far less good--retransmission consent remains governed by rules
Congress enacted in 1992, before anybody had heard of the Internet.
Whatever Congress intended almost thirty years ago, this is what the
retransmission consent marketplace looks like today:
Skyrocketing prices for lower-rated programming. Broadcast prices
go up by double digits every year. Last month, Nexstar reported a 14
percent rise in retransmission consent revenue to $314 million,\2\ Gray
reported an increase of 26 percent to $204 million,\3\ Sinclair
reported an increase of 12 percent to $352 million,\4\ compared to $314
million in the first quarter of 2018, while Fox reported a 29 percent
jump in retransmission consent revenue.\5\ These increases are far
higher than inflation--and, indeed, far higher than can be found in any
other sector of the economy. Indeed, as one of our members explained,
retransmission consent fee increases over the last decade exceeded
hyperinflation in Brazil and Argentina in the 1980s.\6\ Yet these
increases are not for better or more popular programming. To the
contrary, broadcast ratings overall are far lower than they were ten
years ago.\7\ Indeed, the broadcasters themselves cite these lower
ratings as a reason why they should all receive a ``discount'' off the
FCC's national ownership cap.\8\
---------------------------------------------------------------------------
\2\ Mike Farrell, ``Retrans Helps Drive Record Q1 for Broadcaster
Nexstar,'' Multichannel News (May 8, 2019), https://
www.multichannel.com/news/retrans-helps-drive-record-q1-for-
broadcaster-nexstar.
\3\ Thomson Reuters, ``Edited Transcript of GTN earnings conference
call or presentation 9-May-19 3:30pm GMT,'' Yahoo Finance (May 8,
2019), https://finance.yahoo.com/news/edited-transcript-gtn-earnings-
conference-233214931.html.
\4\ Mike Farrell, ``Revenue Up, Profits Down in Q1 at Sinclair,''
Multichannel News (May 8, 2019), https://www.multichannel.com/news/
revenue-up-profits-down-in-q1-at-sinclair.
\5\ Dade Hayes, ``Fox Tops Wall Street Forecasts In First Quarterly
Report As Stand-Alone Company,'' Yahoo Finance, (May 8, 2019), https://
finance.yahoo.com/news/fox-tops-wall-street-forecasts-203152097.html.
\6\ Petition to Deny of DISH Network L.L.C., MB Docket No. 17-179
at 37 (filed Aug. 7, 2017)(comparing figures from SNL Kagan, a media
research group within the TMT offering of S&P Global Market
Intelligence, ``Broadcast retransmission and Virtual Service Provider
Carriage Fee Projections Through 2023'' (July 2017) with ``Brazilian
Hyperinflation,'' Encyclopedia of Money (last accessed: May 31, 2019),
http://encyclopedia-of-money.blogspot.com/2010/01/brazilian-
hyperinflation.html and ``Hyperinflation in Argentina,'' Citeco (last
accessed: May 31, 2019), https://www.citeco.fr/10000-years-history-
economics/contemporary-world/hyperinflation-in-argentina).
\7\ Rick Porter, ``TV Long View: The Bar for Rating Success Has
Come Way Down--or Has It?'' Hollywood Reporter (May 11, 2019), https://
www.hollywoodreporter.com/live-feed/bar-ratings-success-has-come-way-
down-has-it-1209741.
\8\ See Comments of the National Association of Broadcasters, MB
Docket No. 17-318 at 23-25 (filed Mar. 19, 2018).
---------------------------------------------------------------------------
MVPDs have three choices in the face of such price increases. They
can refuse to carry the programming, which is bad for subscribers and
may cause them to look elsewhere because they have other ways to watch
broadcast programming. They can accede to the outrageous demands and
``eat'' the cost increases themselves, though no business can swallow
increased input costs forever without increasing retail prices. Or, as
is almost always the case, they can try to pass these increases along
to your constituents in the form of higher prices while hoping that the
latest broadcaster-induced increase does not prompt subscribers to
discontinue their pay-TV subscriptions.
Broadcast consolidation within local television markets. These
retransmission price increases result, in part, from local
consolidation among broadcasters. FCC rules nominally prohibit a single
broadcaster from controlling, say, the CBS and ABC affiliates in any
given television market. But broadcasters have increasingly used
loopholes, like airing the second affiliate on a multicast channel or a
low power station, to get around this restriction--and the FCC may soon
loosen this restriction further. As the Sinclair-Tribune transaction
demonstrated, moreover, broadcasters can also use ``sidecar''
agreements to violate this and other FCC restrictions. The result?
``Duopolies'' in more than a hundred local markets. Indeed, a single
entity controls all four major network feeds in two markets, with a
third possibly coming soon. Obviously, an MVPD negotiating with a
combined CBS/ABC (much less a combined CBS/ABC/NBC or CBS/ABC/NBC/FOX)
will pay more than an MVPD negotiating with four individually owned
network affiliates.
Broadcast consolidation raises another issue: the threat to diverse
voices in local markets. Regardless of one's political persuasion, we
should all be wary of any one entity controlling the commentary,
comments and political activity that is available in the market.
Without belaboring the point, members on both sides of the aisle can
easily imagine scenarios in which their perspectives--or those of
groups they support--could be suppressed by a broadcaster offering the
only game in town.
Blackouts. Most of you probably know about ``blackouts,'' which is
the term for when a broadcaster pulls its signal from an MVPD. By our
count, broadcasters have blacked out your constituents more than one
thousand times since 2010. If indeed broadcasters are an irreplaceable
source of local news and information--as they say they are--this figure
should be entirely unacceptable.
It gets worse. If you follow the industry closely, you probably
also know that most blackouts take place at a particular time of the
year--late December and early January. This isn't because of the
holidays, or the first snow of the year, or even the end of the
calendar year. It's because of football. College bowl games and the NFL
Playoffs are among the most important programming in the viewing year.
So, it's no surprise that broadcasters like to have their contracts
expire immediately prior to such events. This is when they have the
greatest ability to charge the highest prices. Of course, football
isn't the only important programming on television, and so New Year's
isn't the only time broadcasters try to black out programming. Some
broadcasters like to black out before the Oscars or the World Series.
Some broadcasters have even blacked out MVPDs as hurricanes
approached.\9\ When such deliberately timed blackouts actually occur,
your constituents are harmed. When they are even threatened, your
constituents pay higher bills.
---------------------------------------------------------------------------
\9\ Press Release, ``ACA President & CEO Matthew M. Polka Condemns
LIN TVs Retrans Blackout Threat As Hurricane Irene Bears Down On
Eastern Seaboard,'' ACA Connects (Aug. 26, 2011), https://
www.americancable.org/aca-president-ceo-matthew-m-polka-condemns-lin-
tvs-retrans-blackout-threat-as-hurricane-irene-bears-down-on-eastern-
seaboard/; Press Release, ``ACA Launches `TV Ransom' To Highlight
Broadcasters' Abusive Behavior With Retransmission Consent Resulting In
Consumer Harm,'' ACA Connects (Oct. 4, 2017), https://
www.americancable.org/aca-launches-tv-ransom-to-highlight-broadcasters-
abusive-behavior-with-retransmission-consent-resulting-in-consumer-
harm/.
---------------------------------------------------------------------------
``Phantom subscribers.'' Historically, stations charge MVPDs per
subscriber, per month--meaning that the MVPD pays a certain amount each
month, for all of the subscribers who get that station via the MVPD.
Recently, however, broadcasters have sought to charge MVPDs for
subscribers who do not even receive the broadcaster's signals from the
MVPD. So, in the end, consumers have to pay a higher price for
programming. For example, a broadcaster might charge a satellite
carrier for subscribers who have elected not to receive local stations
from that satellite carrier and instead get their ``free'' broadcast
signals over the air. Alternatively, a broadcaster might charge a cable
operator for subscribers who only receive their broadband service from
that operator and have chosen not to buy the video product. Or a
broadcaster might require a ``penetration rate'' of 95 percent and
charge the MVPD based on that rate, even if fewer subscribers actually
receive the stations. In each case, your constituents pay for service
that is not being ``retransmitted'' by the MVPD and therefore they do
not even receive. Again, this artificially raises prices.
Forced bundling with broadcast stations. A retransmission consent
agreement is supposed to be simple: it is a commercial contract
permitting MVPDs to retransmit the signals of television stations so
that customers can view the network programming they want. And yet,
there is nothing simple about these agreements, and their complexity
level only continues to grow. Many broadcasters--especially the largest
ones--insist on ``bundling'' other programming as a condition of
negotiating retransmission consent agreements. This leads to higher
prices for consumers and carriage of undesirable stations that aren't
supported by market forces and diverts capacity that could be used to
provide broadband services or new innovative video products.
* * *
This is clearly not a competitive marketplace. Indeed, it stands in
stark contrast to all of the other parts of the video marketplace that
you will be discussing at your hearing--in which innovation has led to
lower prices and more choice.
What, then, should Congress do? Most important is that it does
something. By no means should Congress miss the opportunity presented
by this STELAR reauthorization to examine the entire video marketplace
and consider updates to rules that no longer work. (We assume, of
course, that Congress has no intention of accepting the broadcasters'
self-serving invitation to ignore STELAR entirely and thereby strip
almost 900,000 satellite customers of programming they have grown to
rely upon.)
We also continue to support an approach based on an idea presented
during the last reauthorization in which each TV station could set
whatever price it wanted, pay-TV subscribers would be free to take or
leave it, and MVPDs would collect fees and remit them to the broadcast
station. Broadcasters and viewers, in other words, would participate in
the purest of marketplaces--transparent prices, empowered consumers,
and choice. And MVPDs would give up the role of local-TV middleman once
and for all. You would never see another broadcast blackout again.
Yet we are not limited to the above approach in solving the
retransmission consent problem. There are plenty of other ideas that
range in their level of disruptiveness to the current regime. We stand
ready to provide any information we can in support of your work on
these issues and thank you again for holding this important hearing
today.
Sincerely,
/s/ Mike Chappell,
Chairman,
American Television Alliance.
______
R Street Institute
Washington, DC, June 5, 2019
Hon. Roger F. Wicker, Chairman,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
Hon. Maria E. Cantwell, Ranking Member,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.
RE: Hearing on ``The State of the Television and Video Marketplace''
Dear Chairman Wicker and Ranking Member Cantwell:
We at the R Street Institute (``R Street'') commend you and the
Committee for holding this hearing on ``The State of the Television and
Video Marketplace.'' \1\ Given the impending expiration of several key
provisions that govern program carriage agreements and the broader
shifts underway in the video marketplace, it is both appropriate and
timely.
---------------------------------------------------------------------------
\1\ Hearing on `The State of the Television and Video Marketplace'
Before the Senate Committee on Commerce, Science, & Transportation,
116th Cong. (June 5, 2019), http://bit.ly/2XrVwog.
---------------------------------------------------------------------------
R Street's mission is to engage in policy research and outreach to
promote free markets and limited, effective government. As part of that
mission, we have researched and commented upon multiple policy issues
related to American media regulation, including some of the video
competition rules currently in place at the Federal Communications
Commission (``FCC'').\2\ For the Committee's convenience, we would like
to highlight the following specific recommendations:
---------------------------------------------------------------------------
\2\ See, e.g., Tom Struble and Joe Kane, ``Comments of R Street
Institute,'' In the Matter of Modernization of Media Regulation, MB
Docket No. 17-105 (July 5, 2017), http://bit.ly/2wA0jbK.
---------------------------------------------------------------------------
To ensure a level playing field, program carriage rules must be
harmonized across distribution platforms.
The history of video competition and the regulatory framework that
governs this market is long and complex. To account for new
distribution platforms and business models, Congress and the FCC have
updated these rules periodically but there remains a great deal of
regulatory underbrush.\3\ Worse yet, these legacy regulations are
uneven and tend to favor certain distribution platforms and business
models over others, which ultimately distorts the market and harms
competition. Set to expire at the end of this year, the STELA
Reauthorization Act of 2014 is one example of such uneven regulation
that distorts the video marketplace.
---------------------------------------------------------------------------
\3\ See Committee on Energy and Commerce Staff, ``Memorandum Re:
Hearing on `STELAR Review: Protecting Consumers in an Evolving Media
Marketplace,'' (May 31, 2019), http://bit.ly/2wzxfkD.
---------------------------------------------------------------------------
Originally with the Satellite Home Viewer Act in 1988 and
periodically since then, Congress gave satellite television
distributors certain rights that other multichannel video programming
delivery (``MVPD'') services did not have, including a right to import
distant broadcast signals into a local video market pursuant to a
compulsory statutory license.\4\ This is similar to, but distinct from,
the statutory license available to wireline MVPDs under Section 111(d)
of the Copyright Act.\5\ When they were first developed, different
carriage rules for these different distribution platforms made some
sense as a way to encourage new competition from satellite MVPDs in
local video markets. But the video marketplace has changed dramatically
since then. Wireline and satellite MVPDs now compete head-to-head in
most local markets, and both sets of MVPDs must grapple with ongoing
technological shifts that are enabling new competitive viewing options
for consumers and programmers--including broadcasters' new ATSC 3.0
protocol and improved over-the-top video services enabled by the
Internet Engineering Task Force's (``IETF'') Real-time Transport
Protocol (``RTP''). Accordingly, to promote fair and open competition
among MVPDs, broadcasters and new entrants into the video marketplace,
program carriage rules should be harmonized across distribution
platforms as much as possible.
---------------------------------------------------------------------------
\4\ 47 U.S.C. Sec. 325(b)(2)(C); 17 U.S.C. Sec. 119.
\5\ 17 U.S.C. Sec. 111(d).
---------------------------------------------------------------------------
As competition grows, legacy rules should be relaxed or eliminated.
Open and fair competition can come only from a regulatory framework
that levels the playing field and treats all video distribution
platforms the same. One way to do that and to harmonize program
carriage rules would be to regulate upward, imposing the rules that
currently govern wireline MVPDs onto satellite MVPDs (and perhaps over-
the-top video providers, as well). This could be done by making
STELAR's provisions permanent and harmonizing them with Section 111(d)
or by simply incorporating satellite MVPDs into Section 111(d).
However, new competition from satellite MVPDs and other video providers
suggests that many of the legacy regulations that govern these markets
could be relaxed or even eliminated, as market forces may be able to
sufficiently constrain bad behavior and protect consumers. Doing so
would achieve parity and harmonize program carriage rules across
distribution platforms by regulating downward, such as by allowing
STELAR to expire and then removing the compulsory license for wireline
MVPDs in Section 111(d), too. The video marketplace has been governed
by specific rules and regulations for decades, but general copyright,
contracts and antitrust law could also be used in this area, perhaps to
even greater effect. Such an approach would take more effort on the
part of Congress, but it may ultimately lead to better outcomes in the
video marketplace.
Incremental changes could be made now, but any major reforms should
be gradual and phased in over time to minimize disruptions in the
current video marketplace.
Regardless of the course of action Congress pursues here, lawmakers
should carefully consider the impact that a sudden shift in the
regulatory environment could have on the current video marketplace.
Many consumers rely on video programming for vital news and weather
alerts, so Congress should try to minimize disruptions to these
consumers. Incremental reforms could be made now, but any major reforms
to the video marketplace should be gradual and phased in over time. For
example, in 1996, when Congress directed the FCC to oversee the shift
from analog to digital broadcasts, they did not simply allow all analog
signals to be turned off with no chance for consumers to plan for the
changes.\6\ In fact, after several delays and efforts to help consumers
adapt, it was not until 2009 that analog service was phased out
completely, thirteen years after the passage of the Telecommunications
Act.\7\ Any major and unexpected changes to the video marketplace now
could similarly harm consumers and thus Congress should ensure that any
major reforms to the video marketplace are phased in gradually with
adequate notice to consumers before implementation.
---------------------------------------------------------------------------
\6\ See ``Digital Television,'' Federal Communications Commission
(last visited June 3, 2019), https://bit.ly/2WmnwgO.
\7\ Ibid.
---------------------------------------------------------------------------
* * *
Again, we commend you for your efforts to protect consumers in an
evolving media marketplace. We also look forward to working with you
and the rest of the Committee as you consider potential legislation in
this area.
Sincerely,
Tom Struble,
Technology and Innovation Policy Manager,
R Street Institute.
Jeff Westling,
Technology and Innovation Policy Fellow,
R Street Institute.
______
Prepared Statement of Neil Fried, SVP & Senior Counsel,
Motion Picture Association of America, Inc.
Summary
Describing today's programming marketplace as embodying another
Golden Age of television has become cliche because it's true: American
viewers have never had as much compelling content to choose from. Nor
have they had as many ways to view that content, whether on their
televisions, computers, gaming systems, or personal devices. The MPAA's
members--Walt Disney Studios, Netflix Studios, Paramount Pictures, Sony
Pictures, Universal City Studios, and Warner Bros. Entertainment--work
to provide audiences with television and movie content where, when, and
how they want to watch it, including over broadcast, cable, satellite,
wired or wireless telephony, and online services.
This vibrant content market benefits not only television and movie
fans, but also the national and local economies. The investment and
work that goes into producing shows and movies helps drive jobs, wages,
and trade. What makes this all possible is the dual American values of
respect for free speech and respect for copyright. Together, they
enable content creators to tell their stories, to recoup their
investments, and to reinvest in the next project. Negotiated licensing
of content in the free market best ensures audiences have robust
programming options. For that reason, the MPAA disfavors compulsory
copyright licenses.
Despite the vitality of the television programming market, however,
piracy remains a problem. Copyright infringement harms legitimate
production and distribution, reducing proceeds to pour back into both
businesses, stealing significant revenue from cast and crew that would
otherwise fund their health plans and retirement funds, and making it
harder to continue providing viewers a wide array of content. And just
as legitimate distribution is moving toward streaming, so too is
piracy, posing ever more problems for creators, as well as a growing
malware threat to consumers.
The MPAA has a three-pronged approach to combating digital piracy:
1) We look for voluntary initiatives by others in the online ecosystem
to combat content thieves' illicit endeavors, and hope Congress will
encourage such initiatives; 2) the MPAA's members, along with the
Alliance for Creativity and Entertainment--our growing cross-industry
coalition--bring civil actions against pirate enterprises; and 3) we
refer cases to the DOJ for criminal enforcement against operations
engaged in sufficiently significant infringement, something we hope
members of the House and Senate will urge the government to pursue.
One development making the piracy fight even harder, however, is
diminished access to WHOIS data, which contains basic contact details
for holders of Internet domain names. Domain name providers have begun
restricting access to WHOIS data based on an overapplication of the
European Union's General Data Protection Regulation. This is not only
limiting the ability of content creators to track down pirates, but
also hindering the efforts of others to thwart online lawlessness
generally. The Internet Corporation for Assigned Names and Numbers has
been trying to resolve the WHOIS problem for more than a year. If it
fails to do so soon, Congress may need to legislate.
This industry is a success story of free expression, free markets,
and intellectual property rights. Helping that success continue
requires collaboration between and among private-sector actors and
government to ensure the Internet connects audiences with storytellers,
not pirates.
The Vibrant Content Marketplace
Television viewers have more content choices than ever before. The
number of scripted, original series available over traditional and
online sources is up from 389 in 2014 to 495 in 2018, with the number
of those series originating online growing from 33 to 160.\1\ The
industry makes that content available not only over broadcast, cable,
satellite, and telephony services, but also through 144 lawful online
services available to American audiences as of 2018, up from 112 in
2014.\2\ American viewers used those online services to access 11.5
billion movies and 170.6 billion TV episodes in 2018, up from 5.4
billion and 71 billion in 2014.\3\
---------------------------------------------------------------------------
\1\ FX Networks Research (2018).
\2\ MPAA database.
\3\ IHS Markit. See www.IHS.com.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Technological protection measures--also known as digital rights
management--facilitate all this by enabling creators and distributors
to offer a variety of viewing options at different prices. Because of
digital rights management, audiences can choose how to access
programming, including by downloading content, streaming content on a
pay-per-view basis, enjoying content as part of a subscription service,
watching content over TV Everywhere applications in different places
across different devices, and accessing full seasons of a television
series, either to catch missed episodes or to watch them all at once
when a content creator makes them available en masse. Without
technological protection measures to ensure only authorized viewers
gain access to the programming, and only as authorized, content
creators could not offer these choices, resulting in one-size-and-
price-fits-all offerings and fewer options for viewers.
Audiences are not the only beneficiaries of this vibrant film and
programming marketplace. So, too, are the national and local economies.
In the process of making content available online and off, the
television and film industry supports 2.6 million jobs and $177 billion
in wages across all 50 states; enlists more than 93,000 businesses, 87
percent of which are small businesses employing fewer than 10 people;
contributes $229 billion in sales to U.S. GDP; generates $17.2 billion
in exports; and exports 2.5 times what it imports, yielding a positive
balance of trade in every major market in the world and producing a
$10.3 billion trade surplus--larger than each of the surpluses in the
telecommunications, transportation, mining, legal, insurance,
information, and health-related services sectors.\4\ In addition, the
industry pays $44 billion to more than 250,000 local businesses each
year.\5\ A major motion picture filming on location contributes on
average $250,000 per day to the local community, and a one-hour
television episode contributes $150,000 per day. Notably, the local
community sees that up-front investment regardless of whether the film
or TV show becomes a hit or a flop.
---------------------------------------------------------------------------
\4\T4AMPAA, The Economic Contribution of the Motion Picture
& Television Industry to the United States (Nov. 2018), https://
www.mpaa.org/wp-content/uploads/2019/03/Economic_
contribution_US_infographic_Final.pdf.
\5\ Id.
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A Product of the First Amendment and Strong Copyright Policy
Underlying this vibrant content marketplace is America's respect
for two fundamental and complementary values: free speech and
intellectual property. Under the First Amendment, the speaker and the
audience acting in the marketplace--not the government--determine what
is said and heard. And the Constitution's Copyright Clause recognizes
that honoring the right of creators to determine how to disseminate
their works increases both the production and distribution of content,
to the public benefit.\6\ The ability of content producers and
distributors to decide what programming to create, disseminate, and
license is what makes the online marketplace so dynamic.
---------------------------------------------------------------------------
\6\ See U.S. CONST., art. I, Sec. 8, cl. 8 (conferring upon the
legislative branch the role ``[t]o promote the Progress of Science and
useful Arts, by securing for limited Times to Authors and Inventors the
exclusive Right to their respective Writings and Discoveries''); Harper
& Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 558 (1985)
(stating that ``[b]y establishing a marketable right to the use of
one's expression, copyright supplies the economic incentive to create
and disseminate ideas.'').
---------------------------------------------------------------------------
This respect for the First Amendment and copyright law also enables
companies to manage the economic risks in the ultra-competitive video
marketplace, allowing them to continue investing and innovating to
deliver high-quality and diverse content to viewers. Producing and
distributing a major motion picture typically costs at least $100
million, and six out of ten never recoup their initial investment.
Major television productions now rival feature films not only in
quality, but also in cost, sometimes reaching millions of dollars per
episode. Yet according to one rule of thumb, 80 percent of scripts
never become a pilot, 80 percent of pilots never become a series, and
80 percent of series never see a second season. Our nation's respect
for the First Amendment and intellectual property rights are very
significant contributors to making America the global leader in the
creation of premium content enjoyed by audiences worldwide. The best
way to ensure audiences have a robust, diverse array of programming--
and that creators reap the fruits of their labors to continue investing
in the next story--is through negotiated licensing of content in the
free market. For that reason, when it comes to the licensing
marketplace for video content, it is the MPAA's position that
compulsory copyright licenses should be disfavored, and that its
members are most fairly compensated through market-based negotiations
consistent with copyright's exclusive rights, and without unnecessary
government intervention.
Just as a commitment to strong copyright policy in our domestic law
is necessary to promote this dynamic at home, such a commitment in
trade agreements is necessary to continue our market leadership abroad
and to preserve the positive balance of trade. That is why the MPAA
supports the copyright and intellectual property enforcement provisions
of the United States-Mexico-Canada Agreement. Although the agreement
should not be held out as a model for other trade pacts, it
significantly improves upon the intellectual property provisions of the
North American Free Trade Agreement.
Piracy, However, Continues to Present Challenges
Although the motion picture and television industry has
unquestionably embraced the Internet as a powerful means of reaching
audiences through lawful services, online piracy remains a problem. In
2017, an estimated 542 million pirated movies and TV shows were
downloaded in the United States using peer-to-peer protocols alone.\7\
And just as the legitimate marketplace is moving toward streaming, so,
too, is the illegitimate marketplace. Streaming piracy has now
surpassed illicit downloading via peer-to-peer protocols, with
streaming piracy sites representing 37 percent of visits to sites with
unauthorized content, host sites representing 36 percent, and peer-to-
peer representing 27 percent.\8\ Streaming device-based piracy, in
particular, is a growing issue. The devices, often Android-based ``set-
top boxes,'' are typically built around the Kodi open-source media
software, but modified with illegal ``add-ons.'' The add-ons connect
users to stored or ``live'' streams of pirated movies and television
programming, and enable ``plug and play'' connection to a television.
Six percent of North American broadband households--some 6.5 million
homes--are accessing known subscription television piracy services,
generating for pirate operations ill-gotten gains of $840 million per
year in North America, according to a report by Sandvine.\9\
---------------------------------------------------------------------------
\7\ MarkMonitor. See www.markmonitor.com.
\8\ Analysis of SimilarWeb data, based on sites with at least
10,000 copyright removal requests in 2017 according to the Google
Transparency Report.
\9\ Sandvine, Spotlight: Subscription Television Piracy 2 (Nov.
2017), https://www.sand
vine.com/hubfs/downloads/archive/2017-global-internet-phenomena-
spotlight-subscription-television-piracy.pdf.
---------------------------------------------------------------------------
All this infringement harms a broad swath of the legitimate movie
and television production and distribution sectors, including content
creators, skilled craftspeople earning a middle-class living in the
industry, movie and television studios large and small, sports leagues,
broadcast and pay-TV networks and distributors, and over-the-top
services. The illicit activity unlawfully competes with digital
entrepreneurs and established players trying to grow lawful and
innovative streaming content and distribution businesses to meet
evolving consumer demands. To the extent streaming piracy diverts
subscribers from legitimate services and siphons money otherwise
available to re-invest, it harms competition and limits the ability of
content creators and distributors to offer audiences choices in movies,
television programming, and services.
Because many pirate sites disseminate malware, the spread of
streaming piracy devices and applications into living rooms also
presents a growing threat to consumers and a new vulnerability to
cybersecurity. One-third of pirate sites expose users to malware, and
pirate sites are 28 times more likely to infect users with malware than
mainstream websites, according to the Digital Citizens Alliance.\10\
Making matters worse, when people use streaming piracy devices and
applications, they typically place the devices on the other side of the
router, past the firewall or other security measures.\11\ This helps
usher hackers beyond the defenses of the network the device is
connected to, which can result in access to anything else connected to
that network; the siphoning of massive amounts of data; theft and sale
of user names, passwords, credentials for legitimate services, credit
cards, and identities; remote, third-party control of devices and
applications on the network; surreptitious use of the network by
someone else, such as for mining crypto-currency; creation of a botnet;
or other harms.\12\ And any malware installed can continue to reside
within the network even after the user removes the piracy device.\13\
Troublingly, 44 percent of individuals that have a piracy device in
their home reported experiencing malware-related problems, as compared
to 7 percent for individuals who did not have such a device
installed.\14\
---------------------------------------------------------------------------
\10\ Digital Citizens Alliance, Digital Bait 2 (Dec. 2015), https:/
/www.digitalcitizens
alliance.org/clientuploads/directory/Reports/digitalbait.pdf.
\11\ Id., Fishing in the Piracy Stream: How the Dark Web of
Entertainment is Exposing Consumers to Harm 3, 8 (April 2019), https://
www.digitalcitizensalliance.org/clientuploads/directory/Reports/
DCA_Fishing_in_the_Piracy_Stream_v6.pdf
\12\ Id. at 3-5, 8, 15-20.
\13\ Id. at 14.
\14\ Id. at 4, 22.
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Combating Piracy
The MPAA has a three-pronged approach to combating online piracy
that involves: (1) voluntary initiatives by private-sector participants
in the Internet ecosystem; (2) civil action; and (3) criminal referrals
to law enforcement.
Voluntary Initiatives. One of the internet's strengths is its
distributed, interconnected nature. Because no one entity controls the
web, anyone across the globe can contribute to its architecture, as
well as the services and content it carries. As a result, however, no
one entity can address problems that arise. Consequently, the MPAA
often looks for voluntary efforts by others in the online ecosystem to
join in the fight against piracy, which poses a threat to consumers and
legitimate commerce. Visa, MasterCard, and PayPal, for example, work to
minimize the ability of pirate websites and sellers of streaming piracy
devices to misuse those financial networks to collect subscription fees
or other revenue from their unlawful pursuits. Advertisers, advertising
agencies, and online ad networks have formed the Trustworthy
Accountability Group to minimize the likelihood that household-name
advertising inadvertently ends up on pirate websites, generating
revenue for the pirates. Amazon, eBay, and Alibaba are taking steps to
keep their digital marketplaces free from trafficking in streaming
piracy devices. Donuts and Radix, operators of relatively new domain
name extensions--such as ``.movie'' and ``.online''--have each
separately established ``Trusted Notifier'' programs to ensure that
websites using domains registered to those companies are not engaged in
large-scale piracy. Under the programs, the MPAA may refer such sites
to the companies. If the companies determine that such a website is
engaged in illegal activity in violation of the companies' acceptable
use and anti-abuse policies, the companies may act within their already
established authority to put the infringing site on hold or suspend it.
Similar initiatives by other domain name providers would be
welcome. So, too, would increased efforts by video hosting services to
ensure third parties are not using their platforms and storage space to
pedal stolen content. And while reverse proxy services helpfully fend
off denial-of-service attacks by interposing themselves between the
websites of legitimate businesses and would-be hackers, the proxy
services could do a better job ensuring that pirates don't use those
services to mask their true IP addresses and impede efforts to stop
their theft. The proxy services should also stop doing business with
repeat infringers. Some social media platforms have taken productive
steps to remove piracy-related links, but pro-active efforts to take
down unauthorized live streams of content, as well as generic
promotions of piracy pages, would also be helpful. Congressional
encouragement of these and other voluntary initiatives could help put a
dent in intellectual property theft.
Civil Action. The MPAA members, along with the Alliance for
Creativity and Entertainment \15\--a coalition of more than 30 content
producers, distributors, and online services--file civil actions
against illicit enterprises engaged in piracy. Just short of two years
old, ACE counts Amazon, AMC Networks, CBS, Discovery and our six
studios among its growing numbers. The alliance has already brought
lawsuits in the United States that have contributed to the shuttering
of three large providers of streaming piracy devices and applications:
Tickbox, Dragon Box, and Setvnow.
---------------------------------------------------------------------------
\15\ See https://www.alliance4creativity.com/
---------------------------------------------------------------------------
Short of litigation, ACE also conducts ``knock and talks,'' which
involve significant forensic work to locate key individuals involved in
substantial streaming piracy operations, presenting those individuals
with evidence of their illegal activity, and agreeing not to take them
to court if they cease their activities and help locate others higher
up in their unlawful enterprises. ACE similarly works to disrupt
central, back-end elements of the streaming piracy ecosystem--such as
repositories for illicit streaming applications or purveyors of
unauthorized streams--to disable multiple piracy services in one fell
swoop.
Criminal Referrals. The MPAA and ACE also provide evidence packages
to U.S. and foreign law enforcement agencies to help those agencies
bring criminal actions against sufficiently significant piracy
operations. Although the U.S. government does not take many such
actions, those they do can have a greater deterrent effect than civil
suits because criminal cases bring more attention, along with the
possibility of jail time for convicted culprits. Indeed, a 2012 U.S.
action against Megaupload--then the largest piracy ``cyberlocker,''
accounting for 4 percent of all internet traffic--increased lawful
digital sales by 6.5 to 8.5 percent for three major studios in 12
countries.\16\ The MPAA has pending a number of criminal referrals to
DOJ regarding streaming piracy operations, with the goal of replicating
a comparable uptick in legitimate consumption. Our hope is that
Congress will encourage DOJ to move forward with those cases.
---------------------------------------------------------------------------
\16\ Brett Danaher and Michael D. Smith, Gone in 60 Seconds: The
Impact of the Megaupload Shutdown on Movie Sales 4 (Sept. 2013),
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2229349.
---------------------------------------------------------------------------
Reduced WHOIS Access Is Hurting the Fight Against Piracy and Other
Online Lawlessness
One development making the piracy fight even harder is diminished
access to WHOIS data, which contains basic contact details for holders
of Internet domain names. WHOIS information has been publicly available
since the founding of the commercial internet. Access to WHOIS data
forms the basis of online transparency, security, and accountability,
and is necessary to protect consumer privacy, ensure public safety, and
promote lawful commerce. Indeed, a recent DOJ cyber report states that
``[t]he first step in online reconnaissance often involves use of the
Internet Corporation for Assigned Names and Numbers' WHOIS database.''
\17\
---------------------------------------------------------------------------
\17\ DOJ, Report of the Attorney General's Cyber Digital Task Force
35 (July 2018), https://www.justice.gov/ag/page/file/1076696/download.
---------------------------------------------------------------------------
Domain name providers have begun restricting access to WHOIS data,
however, based on an overapplication of the European Union's General
Data Protection Regulation. The GDPR does not apply at all to non-
personal information;\18\ and even in the case of personal information,
the regulation acknowledges disclosure is warranted for legitimate
interests such as public safety, law enforcement and investigation,
enforcement of rights or a contract, fulfillment of a legal obligation,
cybersecurity, and preventing fraud.\19\ Moreover, the GDPR does not
apply to American registrars and registries with respect to domain name
registrations by U.S. registrants, or where domain name registrants and
registrars are located outside the European Economic Area.\20\
Furthermore, it applies only to information about ``natural persons,''
and so imposes no obligation to obfuscate information about domain name
registrants that are companies, businesses, or other legal entities,
irrespective of the nationality or principal place of business of such
entities.\21\
---------------------------------------------------------------------------
\18\ See GDPR, art. 1 (describing the subject matter and objectives
of the regulation as relating to the processing and protection of
personal data), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/
?uri=CELEX:32016R0679.
\19\ See id., arts. 2(2)(d), 5(1)(b), 6, 23. See also ICANN,
Governmental Advisory Committee, Communique--San Juan, Puerto Rico
(Mar. 15, 2018) (stating that the GDPR allows for access to data for
legitimate purposes), https://gac.icann.org/advice/communiques/
20180315_icann
61%20gac%20communique_finall.pdf.
\20\ See GDPR, arts. 2(2)(a), 3.
\21\ See GDPR, art. 1 (describing the subject matter and objectives
of the regulation as relating to the protection of natural persons).
See also GAC San Juan Communique (stating that the GDPR applies only to
the privacy of natural persons, not legal entities).
---------------------------------------------------------------------------
Domain name providers' overapplication of the GDPR is not only
limiting the ability of content creators to combat piracy, but also
hindering efforts by public interest groups, the private sector, cyber-
security firms, Federal agencies, and law enforcement authorities to
thwart online-lawlessness generally--including identity theft, theft of
intellectual property, fraud, cyber-attacks, election interference,
illegal sale of opioids, and human trafficking. According to an
analysis by two cybersecurity working groups of more than 300 survey
responses, the restriction of WHOIS data is impeding attempts to
investigate cyber-attacks.\22\ A survey of 55 global law enforcement
agencies by ICANN's Public Safety Working Group reveals that 98 percent
found the WHOIS system aided their investigative needs before domain
name providers took these steps, as compared to 33 percent after.\23\
The U.S. Department of Commerce has also been outspoken about the value
of WHOIS information to governments, businesses, intellectual property
owners, and individual Internet users across the globe, and has
conveyed the concern of the United States about the lack of certainty
around access to WHOIS data for legitimate purposes.\24\
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\22\ Anti-Phishing Working Group, ICANN'S Temporary Specification
Survey (Oct. 18, 2018), (https://apwg.org/apwg-news-center/icann-whois-
access/temporySpecSurvey.
\23\ Laureen Kapin, FTC Counsel for International Consumer
Protection & Co-Chair, ICANN Public Safety Working Group, ICANN63 GAC
Plenary Meeting 8 (Oct. 23, 2018), https://gac.icann.org/presentations/
icann63%20pswg.pdf.
\24\ See, e.g., Remarks of David J. Redl, Assistant Secretary of
Commerce for Communications and Information, ICANN 61 (Mar. 12, 2018),
https://www.ntia.doc.gov/speechtestimony/2018/remarks-assistant-
secretary-redl-icann-61.
---------------------------------------------------------------------------
ICANN has been seeking to resolve the WHOIS problem for more than a
year. If it fails to do so soon, Congress may need to legislate.
Indeed, the Department of Commerce sent ICANN a letter April 4 stating
that ``[n]ow is the time to deliberately and swiftly create a system
that allows for third parties with legitimate interests, like law
enforcement, IP rights holders, and cybersecurity researchers to access
non-public data critical to fulfilling their missions.'' \25\ The
letter added that the U.S. government is expecting ICANN to ``achieve
substantial progress, if not completion, in advance of ICANN's meeting
in Montreal in November,'' and observed that ``[w]ithout clear and
meaningful progress, alternative solutions such as calls for domestic
legislation will only intensify and be considered.'' \26\ Senate
Commerce Committee Chairman Roger Wicker echoed that sentiment in a May
6 letter to the Department of Commerce, stating that ``[a]bsent a
meaningful resolution to these issues, Federal legislation guaranteeing
access to WHOIS data may be warranted.'' \27\
---------------------------------------------------------------------------
\25\ Letter from David J. Redl, Assistant Secretary of Commerce for
Communications and Information, to Cherine Chalaby, Chair, ICANN Board
of Directors (April 4, 2019).
\26\ Id.
\27\ Letter from Sen. Roger Wicker, Chairman, U.S. Senate Committee
on Commerce, Science, and Transportation, to David Redl, Assistant
Secretary for Communications and Information, U.S. Department of
Commerce (May 6, 2019).
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Conclusion
The video content business is a success story of free expression,
free markets, and intellectual property rights. Our community--the MPAA
studios and the many thousands of people who work to create and make
available great television shows and movies--is committed to investing
and innovating to keep meeting audiences' expectations. As the
Committee considers the appropriate policies for the future of the
video marketplace, we hope it will recognize that as wondrous as all
the forms of distribution are, they rely on the production of content
to deliver value to consumers. Producers and creators take financial
risks to make that content available. As those producers and creators
continue to explore ways to distribute content, respect for copyright
is necessary to help safeguard their investments from theft and illicit
distribution, especially as access to stolen content becomes easier
over the internet. Helping to write future chapters of the great
American success story that is the television and film industry will
require collaboration between and among private-sector actors and
government to ensure the Internet connects audiences with storytellers,
not pirates.
______
Response to Written Questions Submitted by Hon. Todd Young to
Hon. Michael K. Powell
Question 1. Mr. Powell, your testimony highlighted an issue that is
a priority for me and my constituents: rural broadband. Can you discuss
more about what your members are doing to ensure that communities
across the country have access to broadband and the many services it
enables?
Answer. NCTA's members are expanding the reach of their networks,
including through the use of innovative technologies, to bring the
benefits of broadband as rapidly as possible to all Americans,
including those in rural America. Today, thanks to cable's continued
investment, 93 percent of the country has access to high-speed cable
broadband. Median cable broadband speeds are at 100 Mbps, and speeds in
many areas, including rural areas, reach 1 Gig. Comcast last fall
announced that it offers gigabit broadband to nearly all of the
company's 58 million homes and businesses passed in 39 states and the
District of Columbia, achieving this goal by increasing speeds 17 times
in 17 years and doubling the capacity of its broadband network every
18-24 months. Cox has been rapidly rolling out its ``Gigablast''
service throughout its service area, and Charter has rolled out its
``Spectrum Internet Gig'' service. To power these massive broadband
deployments, the cable industry has increased its investment in capital
infrastructure significantly--from $206.6 billion in 2012 to $290
billion in 2018.
Ensuring that rural communities have access to high-quality
broadband is a priority for the cable industry. For example, in 2017,
NCTA member MidCo, a provider of Internet and cable service to rural
communities, launched the MidCo Gig Initiative--a commitment to extend
gigabit speeds--which are already available to more than 90 percent of
its customers--to its entire, mainly rural, service area. It does so
using an innovative fixed wireless approach to extend its network
beyond the reach of its hardwired fiber networks. This process is one
example of how cable ISPs are exploring innovative approaches to extend
broadband in rural areas, powering innovations from rural telehealth to
precision agriculture.
Question 2. We all can agree that for vast majority of Americans
the video marketplace has changed over the past several years. What are
the key drivers of this transformation? How should we think about these
changes when it comes to STELA reauthorization?
Answer. The transformation in the video marketplace is being driven
by previously unimagined levels of competition. Today, consumers enjoy
a historic level of choice in content, and more ways than ever before
to watch it:
First, today's video programming ecosystem is more diverse
and higher quality than ever before. The cable industry's
investment in content has been well received, with cable
networks winning 65 Primetime Emmy Awards in 2018.
Second, there are many new sources of content. Content
spending by online video services is staggering and fueling
their growth in popularity. Netflix spent $12 billion on
content in 2018, and analysts predict that figure will grow to
$15 billion in 2019. Even entities that were not traditionally
video content providers, such as Amazon and Twitter, are
investing in video content.
Third, how cable delivers content to subscribers is also
changing. Cloud DVR, ``TV Everywhere'' offerings, and extensive
On Demand libraries allow cable customers to view their content
whenever and wherever they want.
Finally, today's cable operators face vigorous competition
from MVPDs, online video distributors like Netflix, and content
providers selling directly to consumers. This competition has
created a marketplace where no single type of video service is
dominant. Of the top ten video subscription services, only four
are cable companies. Providers like Google, Netflix, Amazon,
Hulu, and Sling TV have not only emerged, but gained well over
100 million subscribers, and the number of consumers that
receive their programming through virtual MVPDs and online-only
subscribers has rapidly increased from 12.9 million at year-end
2015 to 20.7 million households at year-end 2018.
These changes in the video marketplace inevitably argue for legal
changes that would promote fair competition by removing unduly
burdensome requirements that current law imposes on cable operators and
programmers, but not their competitors. Congress should keep these
marketplace realities in mind when it considers STELA or any other
video legislation.
______
Response to Written Question Submitted by Hon. Amy Klobuchar to
Hon. Michael K. Powell
Question. While diversity of viewpoints has long been an important
part of the U.S. media market, recently, numerous mergers and
acquisitions have resulted in four companies owning 80 percent of the
cable and satellite pay television marketplace and eight companies
controlling nearly 80 percent of the cable and satellite networks. Can
you speak to the effects of consolidation in the media, both in terms
of the diversity of voices that are represented in the media
marketplace and the protection of innovation and small businesses?
Answer. It is impossible to assess the diversity of today's media
voices by looking only at the cable and satellite industries. There are
many new sources of content and delivery.
Today, only 9 percent of programming on cable is cable-affiliated;
the vast majority of content comes from other sources. Netflix, for
example, spent $12 billion on content in 2018, and analysts predict
that figure will grow to $15 billion in 2019. Even entities that were
not traditionally video content providers, such as Amazon and Twitter,
are investing in video content. All of these new entrants contribute to
the diversity of today's media voices.
Similarly, there any many, many ways for viewers to receive that
content, other than through carriage by a cable or satellite provider.
Of the top ten video subscription services, only four are cable
companies. Providers like Google, Netflix, Amazon, Hulu, and Sling TV
have not only emerged, but gained well over 100 million subscribers,
and the number of consumers that receive their programming through
virtual MVPDs and online-only subscribers has rapidly increased from
12.9 million at year-end 2015 to 20.7 million households at year-end
2018. And even within the narrow category of MVPD service offerings,
cable share of customers, which was 98 percent at the time of the 1992
Cable Act, has plateaued for the last few years at approximately half--
53 percent
Finally, the near-ubiquity of an Internet connection means that
today, everyone can be a content creator. Small businesses or other
innovators with a story to tell have the venue and tools to produce
compelling video narratives. Countless authors, musicians, and other
video bloggers have enhanced their brand and visibility by spreading
their user-created content. 45 percent of people watch more than an
hour of Facebook or YouTube videos a week. YouTube's search engine
receives more than 1.5 billion users per month and plays over 1 billion
hours of video each day to users.
In short, the media marketplace has never been more diverse.
______
Response to Written Questions Submitted by Hon. Tom Udall to
Hon. Michael K. Powell
Question 1. Mr. Powell, you have an extensive media background--as
a former Chairman of the Federal Communications Commission and now as
President of the Internet & Television Association. In your experience,
have you ever seen the kind of undue pressure and false accusations
leveled against regulated media companies by any president or Federal
agency as we have seen with President Trump? Can Americans reasonably
have confidence that FCC and DOJ decisions about media corporations are
being made free of political pressure?
Answer. The FCC is an independent agency and it should exercise
independent judgment in crafting new rules or making decisions about
media corporations. When Chairman of the FCC, I took that
responsibility very seriously, and I know that Chairman Pai does as
well.
Question 2. Mr. Powell--your testimony pointed out the many options
available to consumers over the internet. But an essential part of that
equation is that consumers can only shift to over-the-top programming
if they have access to broadband. And we know that there are too many
areas of my state and the Nation that still lack broadband capable of
carrying the speeds necessary to stream this content.
I am also concerned about an issue we don't hear much about: As
companies push more and more content to apps and online delivery
systems, consumers can still get locked out of content by owners who
will only allow their content to be available on certain device. For
example, AT&T unveiled its Watch TV--a $15 dollar package for limited
channels. While this sounds great, it's only on AT&T-approved devices,
and does not include a popular one--Roku. Are we headed toward a
scenario where consumers must purchase 3 or 4 or 5 different devices to
watch the content they are paying for?
Answer. The vast majority of online content is available on any
device with an Internet connection. Most content accessed through an
MVPD is also widely available on multiple devices.
All of the ten largest MVPDs (representing 95 percent of the
MVPD market) now offer consumers apps that can be used on
hundreds of millions of consumer-owned Internet-connected
devices, such as smartphones, tablets, personal computers,
select Smart TVs, game consoles, and streaming devices such as
Apple TV, Roku, Google Chromecast and Amazon Fire.
By the end of 2018, consumers owned more than 840 million of
these types of devices, and two-thirds of the devices can
access the programming of each of the ten largest MVPDs.
Nearly all TV households have at least one of these devices,
and more than two-thirds can stream video to their televisions.
Consumers actually used tens of millions of these devices to
watch MVPD video in 2018 without using a set-top box. Usage of
customer-owned devices increased by 25 percent from 2017.
Independent Television Issues/Most Favored Nation Negotiations. I
have been hearing for a number of years about the challenges that
independent TV programming networks face in the video market. In
particular, there is concern over their treatment at the hands of the
large cable and satellite distributors that use their outsized leverage
and Most Favored Nation contract clauses to the disadvantage of
independents. Independent networks are paid far lower license fees
compared to comparably-rated channels affiliated with distribution and
programming conglomerates, and are often provided poorer menu placement
and packaging. As a result, only half the number of independents exist
today, as compared to a little over a decade ago.
Making the situation even more challenging for independents--change
is rapidly occurring in this video market with many Over the Top or
``OTT'' platforms meeting the demand for video streaming that is coming
from the ``cord-cutters'' or ``cord-nevers'' seeking all of their
content through streaming.
These OTT platforms come in different shapes and sizes, and each
has a different model and different approach to contracting. But MFN
restrictions limit the flexibility of independents to negotiate
contracts with OTTs.
Question 3. Isn't time to revisit the kinds of protections for
independents proposed in the FCC's September 2016 Notice of Proposed
Rule Making that would have banned unconditional MFNs and OTT
restrictions?
Answer. Today's video programming marketplace is intensely
competitive, offering consumers an enormous array of diverse
programming--on MVPD systems and online--from a large number of content
owners, the vast majority of which are unaffiliated with any MVPD. By
any measure, the goal of ensuring a robustly competitive video
programming marketplace in which diverse independent programmers can
make their content available to viewers has been achieved. In such a
competitive marketplace, regulatory intervention for the purpose of
promoting particular programming based on ownership or content, such as
that proposed in 2016, is not only unnecessary, but is also likely to
distort rather than promote the competition that Congress and the
Commission favor, and in any event would raise serious First Amendment
problems.
______
Response to Written Question Submitted by Hon. Jacky Rosen to
Hon. Michael K. Powell
Broadband Needed for Streaming. Access to today's television
programming and video content more often than not also means access to
broadband. In my home state of Nevada, my constituents living in cities
such as Las Vegas and Reno have access to high-speed broadband, giving
them access to everything from social media to television shows to
binge-watching. In fact, not only do they have access to fast fixed
service, but Las Vegas also will be one of the first cities in the
Nation to receive 5G mobile service next year. But for rural Nevadans,
such as those living in Nye, Elko, and White Pine counties, high speed
broadband isn't an option. And I don't have to remind this committee
the importance of broadband for running small businesses, modernizing
agriculture, expanding access to telemedicine, and teaching our
children, in addition to providing entertainment.
Residents of Elko and Ely should have the same access to affordable
broadband as those in Las Vegas and Reno. They should be able to enjoy
the entertainment options available to Members of Congress here in
Washington DC.
Question. Mr. Powell, as more and more people are cutting the cord
and moving from cable and satellite services to non-traditional ``over
the top services'', how are your members ensuring that their customers
are getting access to the high-speed broadband necessary to enjoy
streaming services?
Answer. NCTA's members are expanding the reach of their networks,
including through the use of innovative technologies, to bring the
benefits of broadband as rapidly as possible to all Americans,
including those in rural America. Today, thanks to cable's continued
investment, 93 percent of the country has access to high-speed cable
broadband. Median cable broadband speeds are at 100 Mbps, and speeds in
many areas, including rural areas, reach 1 Gig. Comcast last fall
announced that it offers gigabit broadband to nearly all of the
company's 58 million homes and businesses passed in 39 states and the
District of Columbia, achieving this goal by increasing speeds 17 times
in 17 years and doubling the capacity of its broadband network every
18-24 months. Cox has been rapidly rolling out its ``Gigablast''
service throughout its service area, and Charter has rolled out its
``Spectrum Internet Gig'' service. To power these massive broadband
deployments, the cable industry has increased its investment in capital
infrastructure significantly--from $206.6 billion in 2012 to $290
billion in 2018.
Ensuring that rural communities have access to high-quality
broadband is a priority for the cable industry. For example, in 2017,
NCTA member MidCo, a provider of Internet and cable service to rural
communities, launched the MidCo Gig Initiative--a commitment to extend
gigabit speeds--which are already available to more than 90 percent of
its customers--to its entire, mainly rural, service area. It does so
using an innovative fixed wireless approach to extend its network
beyond the reach of its hard-wired fiber networks. This process is one
example of how cable ISPs are exploring innovative approaches to extend
broadband in rural areas, powering innovations from rural telehealth to
precision agriculture.
______
Response to Written Question Submitted by Hon. Roger Wicker to
Hon. Gordon H. Smith
Question. To ensure Americans in so-called ``orphan counties'' are
able to receive relevant broadcast signals (i.e., in-state, but out-of-
market broadcast programming), broadcasters are free to provide
retransmission consent without compensation, are they not? Moreover,
broadcast stations could waive their network non-duplication and
syndicated exclusivity rights in those limited circumstances, couldn't
they?
Answer. As a matter of law, local broadcasters are able to offer
retransmission consent without compensation, and in certain cases they
choose to do so. However, the production of locally-focused news,
investigative journalism, weather, sports and entertainment content is
costly, and the loss of retransmission consent revenues would undermine
local stations' ability to offer a high quality product. Further, the
pay-TV industry's suggestions that broadcasters ought to waive their
retransmission consent right in any circumstance devalues this local
content.
Network non-duplication and syndicated exclusivity rights are the
backbone of a legal regime that has enabled this country's locally-
focused broadcast industry to flourish. As a result, last year, 95 out
of the 100 most watched shows were on broadcast television, and that
high quality entertainment and sports programming is coupled with
locally-focused content in 210 distinct media markets. The law does
allow cable and satellite operators the right to negotiate for out-of-
market broadcast stations, most notably where the Federal
Communications Commission (FCC) approves a market modification or when
the out of market broadcast station is considered a ``significantly
viewed'' station.
______
Response to Written Question Submitted by Hon. Rick Scott to
Hon. Gordon H. Smith
Question. Rural Americans rely on local broadcasting for critical
information and news about their local communities and emergency
information. Major satellite television providers are carrying
television stations from outside these rural areas rather than local
stations themselves.
Senator Smith, as I witnessed firsthand as Governor, local
broadcast stations play a critical role across the state of Florida
when it comes to keeping our communities safe and informed,
particularly during hurricane season. Could you explain how STELAR can
impact viewer's ability to receive local emergency broadcasting during
a natural disaster?
Answer. STELAR allows satellite operators to import the distant
signal of a New York City or Los Angeles broadcast television station
to subscribers in markets like Bowling Green, Kentucky and Glendive,
Montana. Subscribers in these markets will still receive national
network content, but instead of receiving the local news and emergency
weather coverage you reference, they see traffic updates on the Holland
Tunnel or a car chase on the I-5.
At the law's outset, the technology simply did not exist for the
nascent satellite industry to provide viewers their local broadcast
stations. Fortunately, that is no longer the case and there is no
technological justification for the multi-billion dollar satellite
industry to avail themselves of this congressional subsidy instead of
investing in the local carriage that will better serve their viewers.
STELAR is an outdated law whose main function now is to deprive
local viewers in small, rural markets from receiving what is in some
cases life-saving emergency and weather alerts, among a host of other
valuable information and services that local broadcast stations offer
their communities. For the benefit of viewer safety during a natural
disaster or other emergency situation, Congress should allow STELAR to
sunset at the end of this year as scheduled.
______
Response to Written Questions Submitted by Hon. Tom Udall to
Hon. Gordon H. Smith
Question 1. I am an unyielding supporter of local broadcasters, and
have a lot of respect for so many of your members in New Mexico.
However, your organization has been active seeking relief from the FCC
from certain important public interest obligations. And it is hard to
see how the public benefits.
For example, NAB advocated that the ``Main Studio Rule'' be
repealed--thereby setting up a situation that a broadcast channel's
organization no longer needs to be located in the community they serve.
How will your members meet their public interest obligations with the
significant amount of ``relief'' that the FCC has granted them in the
last two years? What guarantees can you provide?
Answer. The ``Main Studio Rule'' was put in place over 80 years ago
to facilitate both input from the community and station participation
in community activities through physical access to the local studio.
Today, however, widespread use of electronic communications enables
efficient interaction between stations and their local communities of
license without the need for the physical presence of a physical
studio. Anyone with an Internet connection can access a broadcaster's
online public file and individuals can now communicate directly with a
station through their website, e-mail and over the telephone, among
other means. The elimination of the main studio rule allows cost
savings and other efficiencies that stations can instead invest in
local news staff, local content and high quality programming necessary
to compete in a dynamic video marketplace.
Question 2. As we discussed, retransmission fees are replacing a
significant portion of advertising revenue, but I am concerned with
these fees leaving our local stations and instead they are being sent
to the networks. Is it possible for these fees to be more transparent?
Would your organization support a mandate that a significant portion of
any retransmission fee stay with the local broadcaster?
Answer. The relationship between affiliate broadcast stations and
their network partners is the bedrock of U.S. broadcast television and
the envy of other countries. It is an effective and efficient delivery
system for both national and local programming that hundreds of
millions of Americans rely on for local news, weather, sports and
entertainment programming. Like franchise agreements in other
industries, the symbiotic relationship between national and local
broadcast partners has led to a thriving local broadcast industry which
continues to serve and inform viewers, even at a time when the pay-TV
marketplace is undergoing massive change. NAB does not support any
regulations which would encumber this relationship or, even
inadvertently, undermine the high quality programming that is available
for free on broadcast television.
Independent Television Issues/Most Favored Nation Negotiations. I
have been hearing for a number of years about the challenges that
independent TV programming networks face in the video market. In
particular, there is concern over their treatment at the hands of the
large cable and satellite distributors that use their outsized leverage
and Most Favored Nation contract clauses to the disadvantage of
independents. Independent networks are paid far lower license fees
compared to comparably-rated channels affiliated with distribution and
programming conglomerates, and are often provided poorer menu placement
and packaging. As a result, only half the number of independents exist
today, as compared to a little over a decade ago.
Making the situation even more challenging for independents--change
is rapidly occurring in this video market with many Over the Top or
``OTT'' platforms meeting the demand for video streaming that is coming
from the ``cord-cutters'' or ``cord-nevers'' seeking all of their
content through streaming.
These OTT platforms come in different shapes and sizes, and each
has a different model and different approach to contracting. But MFN
restrictions limit the flexibility of independents to negotiate
contracts with OTTs.
Question 3. Isn't time to revisit the kinds of protections for
independents proposed in the FCC's September 2016 Notice of Proposed
Rule Making that would have banned unconditional MFNs and OTT
restrictions?
Answer. Although we continue to believe that the system of market-
based negotiations for retransmission consent generally works,
broadcasters face significant challenges negotiating agreements with
outsized MVPDs. While local broadcast stations are always available for
free, over the air, they have every incentive to be on as many
platforms as possible to reach their audience, whenever and wherever
the viewer is watching. NAB previously urged the FCC to include
broadcasters among the independent programmers that qualify for
protections from unconditional MFNs (should the FCC adopt them).
Additionally, NAB believes that the ability of MVPDs to extract such
contract terms ought to provide a stark reminder to the Congress of the
negotiating leverage that these same MVPDs wield in retransmission
consent negotiations with local broadcasters.
______
Response to Written Question Submitted by Hon. Jacky Rosen to
Hon. Gordon H. Smith
Broadband Needed for Streaming. Access to today's television
programming and video content more often than not also means access to
broadband. In my home state of Nevada, my constituents living in cities
such as Las Vegas and Reno have access to high-speed broadband, giving
them access to everything from social media to television shows to
binge-watching . In fact, not only do they have access to fast fixed
service, but Las Vegas also will be one of the first cities in the
Nation to receive 5G mobile service next year. But for rural Nevadans,
such as those living in Nye, Elko, and White Pine counties, high speed
broadband isn't an option. And I don't have to remind this committee
the importance of broadband for running small businesses, modernizing
agriculture, expanding access to telemedicine, and teaching our
children, in addition to providing entertainment.
Residents of Elko and Ely should have the same access to affordable
broadband as those in Las Vegas and Reno. They should be able to enjoy
the entertainment options available to Members of Congress here in
Washington DC.
Question. Senator Smith, please discuss the importance of local
broadcasts in rural areas that lack significant access to broadband?
What does it mean for people living in remote areas with either limited
or no access to broadband to be able to get access to over the air
broadcasts for their local news?
Answer. Over-the-air broadcast signals are available to anyone with
a television and an antenna, for free. Our viewers turn to local
stations to get the weather report, learn how to help neighbors in
need, and watch trusted local news anchors deliver an unbiased report
of what is happening in their hometowns. Local broadcasting is the
critical electronic thread that keeps every community together,
informed and safe. As your question suggests, this uniquely local
broadcast programming is an especially important lifeline in rural
communities that lack access to high speed broadband.
______
Response to Written Question Submitted by Hon. Amy Klobuchar to
Craig Aaron
Question. Most consumers must choose between an incumbent cable
provider and two large satellite distributors. That's one of the
reasons why I joined the Save the Internet Act--which passed the House
in April--to restore net neutrality rules to ensure protections for
small businesses and innovation. In your testimony, you stated that
recent data highlights the need to ensure that video consumers and
online video distributors have equal access to high-quality,
nondiscriminatory broadband services. How will the repeal of net
neutrality protections impact consumers looking to purchase video
services?
Answer. Thank you for the question, Senator Klobuchar, and thank
you for supporting the Save the Internet Act. That essential bill would
reverse the current FCC's wrongheaded decision to repeal all of the
agency's Net Neutrality rules and, in the process, to abandon the
statutory mandate Congress gave the FCC to prevent unjust, unreasonable
and unreasonably discriminatory behavior by broadband Internet access
service providers. The repeal of Net Neutrality protections, if not
remedied by Congress or by the U.S. Court of Appeals (where Free Press
and others have sued the FCC) will continue to have dire impacts on
people looking to purchase online video services as well as the
creators and distributors of such video services.
In our comments submitted to the FCC prior to its repeal decision
issued in December 2017, Free Press explained that the Net Neutrality
framework then in place had been good for business--both for broadband
providers and over-the-top video providers alike. Despite the mistaken
and misleading suggestions put forward by cable lobbyists and embraced
by the current FCC majority, the 2015 Net Neutrality rules and Title II
legal framework on which they stood did not deter broadband investment
and deployment. Instead, coverage and speeds in urban and rural areas
alike improved with those rules in place. Broadband investment and
deployment decisions are driven by demand, competition and other fiscal
realities (such as tax law, depreciation allowances, and interest
rates) far more than they are by FCC rules and policies such as Net
Neutrality.
In other words, the restoration of longstanding telecommunications
nondiscrimination safeguards did not change broadband providers'
business models or bottom lines. In fact, as prior FCC administrations
have suggested, and as Free Press has documented in a wide range of
agency proceedings over the years, the so-called ``virtuous cycle'' of
increased usage of the open Internet actually promotes broadband
deployment and capacity upgrades, which in turn open up more
opportunities for new applications and usage of that capacity.
Preserving the open internet--and prohibiting harmful behavior like
blocking, throttling or otherwise deprioritizing Internet traffic from
certain sources--actually incentivizes broadband providers to meet the
demand for video and other bandwidth-intensive uses of their network,
rather than choking off the flow of information and attempting to
profit from the resulting artificial scarcity.
As we demonstrated in our 2017 filings at the FCC, there were more
new ``over-the-top'' video services launched in the United States in
the two years after the FCC's issuance of its landmark 2015 Open
Internet Order to protect Net Neutrality than had launched in the seven
years prior. While we would not attempt to attribute all of that growth
to the restoration of Net Neutrality rules on solid legal footing in
2015, it was no accident. The Obama-era FCC's decision to put Net
Neutrality rules in place, and its choice to ground them on Title II
authority that the U.S. Court of Appeals for the D.C. Circuit then
upheld in all respects in mid-2016, gave certainty to online video
providers that their offerings could not be shut down or displaced by
large broadband providers in favor of video content produced by legacy
phone, cable and satellite TV companies.
What we have seen since the 2017 Net Neutrality repeal, however, is
reason for concern for the entire competitive video marketplace--and
especially for the people watching online video. Broadband providers
have not yet taken full advantage of the repeal and the resulting
regulatory vacuum to block rival sites as Comcast once did, or to
charge extra fees for prioritized delivery of content as AT&T and
Verizon have indicated they might. But they have continued to chip away
at the open nature of the Internet and the competitive video market
that depends on it. For example, AT&T decided to eliminate data caps
and overage fees for its wired broadband customers--but only when those
customers also paid for the broadband provider's own DIRECTV video
products. Researchers have also suggested that wireless Internet
providers may be throttling different video sites like YouTube and
Netflix, perhaps providing different treatment to the sites with which
they have contractual relationships and promotional deals.
Broadband customers pay handsomely for their Internet connections,
and they should be able to use them however they choose. They should
have access to the video (or other online content) of their choosing,
without undue interference, penalties or additional fees imposed by
incumbent pay-TV providers who also happen to be the Nation's largest
wired and wireless Internet providers. Under the Communications Act as
properly read, Internet users do indeed have the legal right to make
such use of their Internet connections free from unreasonable
discrimination by their broadband providers. But without Net Neutrality
rules in place, and without passing the Save the Internet Act,
broadband providers will have every reason and every opportunity to
interfere with Internet customers' rights in ways that disadvantage
online video alternatives and favor the incumbents' pay-TV businesses
and their affiliated video services.
______
Response to Written Questions Submitted by Hon. Tom Udall to
Craig Aaron
Question 1. Mr. Aaron--your testimony highlights significant
problems that consolidation in the television and video marketplace has
created. Do you agree with those on the panel who believe that this
consolidation has helped local broadcasters increase their coverage of
local issues? And, if not, could you explain?
Answer. Thank you for the questions, Senator Udall. In a word, no.
Free Press does not agree with anyone espousing the view that
consolidation increases or improves local news coverage.
The FCC has an obligation to study the impact of any changes it
makes to its local ownership rules in the quadrennial review that the
agency must conduct pursuant to Section 202(h) of the
Telecommunications Act of 1996. Yet the FCC has repeatedly fallen down
on the job and failed to adequately account for broadcast ownership,
let alone study the impact of changes in its rules that have spurred
greater consolidation. That inability to measure its progress is why
the FCC has lost so many times in court challenges to its quadrennial
reviews. Yet the agency has plowed ahead nonetheless, continuing to
relax its rules and allow more consolidation on the basis of
unsubstantiated claims that more concentration creates more local news.
As research by Free Press and others over the past decade-plus
demonstrates, allowing more common ownership of broadcast stations and
other local news outlets in a media market may at times lead to an
increase in the sheer number of hours of news aired. But that increase
can be attributable to nothing more than repeat airings of the same
newscast across multiple timeslots--and even across multiple channels
that ``share'' the same newsrooms and journalists in a market where one
licensee controls several stations.
What's more, an increase in news output by the dominant local
conglomerate may lead to a net decrease in the amount of news available
market-wide, as stations not under common control cut back and invest
less in news coverage when forced to compete against outsized companies
controlling multiple stations. And there is no guarantee that a
consolidated owner with more stations and more assets at its fingertips
actually will invest more in local news or in any aspect of its
stations. Hedge funds and venture capitalists often treat the stations
and news outlets they acquire as assets to be squeezed for profits and
stripped for parts. They fire journalists, shutter newsrooms, and flip
the properties to new owners or simply shut them down.
Lastly, it must be said that a sheer increase in the quantity of
local news coverage--even if it were real, and not simply repeats and
carbon-copy newscasts across stations--is not the only metric the FCC
should value. The agency's longstanding public interest standard for
broadcast regulations historically emphasizes localism, competition and
diversity of viewpoint and ownership as the goals of its local media
ownership rules. Allowing more concentration in local markets and
nationwide serves none of those goals.
A broadcast conglomerate like Sinclair, which pushes the envelope
and skirts the FCC's rules so often that it is currently under
investigation for lying to the agency in its failed bid to acquire
Tribune, overrides local editorial control constantly. It forces all of
its stations around the country to air ``must-run'' screeds in place of
local news truly responsive to and generated in the community. This
kind of force-fed, cookie-cutter content makes a mockery of localism,
with the FCC ignoring the fact that content is not truly local (merely
because it airs on a broadcast station) when it has been produced for
nationwide distribution. And consolidation obviously and inexorably
diminishes competition, diversity of ownership, and diversity of
viewpoint, when instead of multiple journalists competing for stories
and providing diverse takes on them we see a single entity programming
multiple stations and dictating the editorial decisions of multiple
newsrooms.
Question 2. Mr. Aaron--do you believe the FCC is currently
effectively holding broadcasters accountable to its public interest
standards during the license renewal process?
Answer. No, Senator Udall, the FCC is not effectively holding
broadcasters accountable to its public-interest standard during the
license renewal process, largely because it has abdicated its
responsibility to even assess local broadcasters' success in meeting
that standard. As I noted in response to your first question, the FCC
has always said its broadcast-licensing decisions, ownership limits,
and license transfer reviews are predicated on promoting localism,
competition and diversity in broadcasting. But in reality, the license
renewal process for the past several decades has been little more than
a rubber-stamp approval for any and all incumbent broadcasters other
than those who've committed a felony or demonstrated some other such
demonstrable shortcoming in their putative fitness to hold a license.
An excellent case in point on the FCC's unwillingness to hold
licensees accountable--not just for failing to serve the public
interest but even to follow the Communications Act and the agency's own
rules--is WWOR, a station licensed to serve Northern New Jersey that
focuses almost entirely on New York. WWOR's license renewal was
challenged by a broad coalition of local and national media
accountability advocates when the initial waivers allowing Rupert
Murdoch to control multiple television stations and own newspapers in
the New York City market were set to expire. The FCC refused to grant
the station a permanent waiver, but effectively granted just that by
allowing this violation of its local ownership rules to persist until
the current leadership of the agency had obliterated those same
ownership rules. To add not just insult but further injury, WWOR sold
off its New Jersey studio and offices, taking advantage of the FCC's
lax attitude in general and its specific decision to eliminate the
``Main Studio Rule'' that required broadcasters to maintain a physical
presence in the community they are licensed to serve.
In its now essentially automatic license-renewal proceedings, as
well as other policy positions it has taken, the present FCC has
followed the unfortunate lead of its predecessors--under presidents
from both parties, it must be said--allowing broadcasters to
consolidate more and serve their local communities less and less each
year. The agency has refused to even study whether stations are meeting
the information needs of local communities, assuming away the problem
by simply closing its eyes to the reality that many stations clearly do
not do so.
Question 3. Do you think the so-called reverse retransmission
regime should be capped, or at the very least there should be more
transparency into the fees that are ultimately being paid by consumers?
Answer. Yes, we certainly believe there should be more transparency
on the fees that are ultimately foisted on pay-TV customers. But
whether or not Congress or the FCC can demand more information about
the contract structure and dollar figures set in affiliation
agreements, it is cable and satellite TV customers who truly need more
information about the prices they pay--and beyond information alone,
more power to choose whether or not to pay them.
For one thing, as discussed in our written testimony for this
hearing, Free Press Action supports the TRUE FEES Act that you have co-
sponsored, Senator Udall, because it would help pay-TV customers to
know more about the actual, bottom-line price they pay for service. At
present, those customers too often face the unwelcome surprise of
additional ``below-the-line'' fees for broadcast television stations
that the provider carries, along with other such hidden fees that
should instead be disclosed up front and factored into the prices the
pay-TV provider advertises.
As we also discussed in our written testimony, the ``reverse''
retransmission consent payments that local stations collect and then
ship back to their affiliated networks contribute greatly to the
ballooning size of retransmission payments overall. This phenomenon
takes money paid to local broadcasters, under a regulatory regime
supposedly designed to keep local content on the air, and sends it back
to networks for the decidedly non-local content they broadcast
nationwide. That is one of many reasons that retransmission fees keep
going up, and that broadcasters also don't have as much funding to
invest locally for meeting the public's information needs with more
community-oriented and responsive content.
Free Press Action has not taken a position on whether congressional
or other regulatory action is necessary to cap ``reverse''
retransmission fees, but we do believe firmly that viewers should have
a choice about whether to pay such fees when the pay their monthly
subscription. One great way to provide market discipline for runaway
carriage fees in general would be to give customers an opportunity to
opt out. New legislation mandating ``a la carte'' programming options,
so that viewers can purchase the channels they want from their pay-TV
provider and not be forced to buy the ones they don't want in a bundle,
would be a tremendous step forward in terms of increasing the choices
available to people while reducing the stress on their pocketbooks. But
short of having a la carte options guaranteed to them, people should at
least be able to see precisely what they pay for every broadcast
channel, regional sports network, and other cable channel in their
subscription packages.
______
Response to Written Questions Submitted by Hon. Edward Markey to
David Kenny
Question 1. Does Nielsen, Inc. or one of its subsidiaries receive
data from unaffiliated companies? If yes, please list the companies
from which Nielsen receives information as well as the types of
information it receives, including, but not limited to, data concerning
the content Americans are consuming on their televisions and online.
Answer. Nielsen's proprietary panels remain at the core of
Nielsen's media measurement business, rather than third party datasets.
Contractual agreements prevent us from listing our clients and
strategic partners, but in the media space we do receive data from
satellite and cable providers regarding TV viewership, demographic
partners regarding online consumption, and behavioral and purchase
data. Generally, such information does not contain directly
identifiable information, but it does on occasion include information
that may be classified as identifiable, such as unique device
identifiers. On our Connect side of the business, we receive aggregated
data from retailers to help us determine market share for companies
that sell packaged goods in the marketplace.
Question 2. Please explain if and how Nielsen or its partners
obtains clear notice and informed opt-in or opt-out consent to obtain
the information described in question one.
Answer. Nielsen has direct relationships with panelists who are
specifically recruited to participate in television or marketplace
measurement and explicitly agree to provide us information about their
activities. In circumstances where Nielsen does not interact directly
with the individuals/data subjects, we require that third parties who
share data with us or who facilitate our receipt of data to
contractually agree to provide notice to data subjects about the
collection, use and disclosure of their data for Nielsen's purposes, as
well as choices concerning the collection of data (e.g, opt-out
options). We also maintain our own publicly available privacy
statements, which include opt out mechanisms.
Question 3. Nielsen and its subsidiaries generate and aggregate
considerable amounts of data. Does Nielsen or any subsidiary license,
sell, or transfer any data to other companies? Please specify the exact
data, the users affected, and to whom it is transferred.
Answer. Nielsen's Media business focuses on measuring how content
and ads drive audience viewership and outcomes. We provide reporting
(which is generally aggregated) that constitutes data and information
to our clients, including broadcasters, publishers, advertisers and
agencies, regarding the reach and effectiveness of their advertising,
including related analysis. Nielsen's proprietary panels remain at the
core of Nielsen's media measurement business, and Nielsen also uses
third party datasets with appropriate contractual protections, as
discussed in Question 2. Nielsen's data measurement platform
facilitates the activation of datasets, allowing advertising and
agencies to reach the right consumers, following appropriate data
subject protections.
The Connect side of the business equips consumer packaged goods
companies and retailers with trusted measurement data, tools and
insights. The data includes categories, brands and specific product
performance, assessing aggregated sales and marketing data along with
purchasing by individual panelists, from whom Nielsen has received
affirmative consent. The privacy-centric manner in which Nielsen
collects its data leads to more precise predictions, stronger product
development and, most importantly, deeper trust with customers.
______
Response to Written Question Submitted by Hon. Jacky Rosen to
David Kenny
Broadband Needed for Streaming. Access to today's television
programming and video content more often than not also means access to
broadband. In my home state of Nevada, my constituents living in cities
such as Las Vegas and Reno have access to high-speed broadband, giving
them access to everything from social media to television shows to
binge-watching . In fact, not only do they have access to fast fixed
service, but Las Vegas also will be one of the first cities in the
Nation to receive 5G mobile service next year. But for rural Nevadans,
such as those living in Nye, Elko, and White Pine counties, high speed
broadband isn't an option. And I don't have to remind this committee
the importance of broadband for running small businesses, modernizing
agriculture, expanding access to telemedicine, and teaching our
children, in addition to providing entertainment.
Residents of Elko and Ely should have the same access to affordable
broadband as those in Las Vegas and Reno. They should be able to enjoy
the entertainment options available to Members of Congress here in
Washington DC.
Question. Mr. Kenny, what does Nielsen ratings data tell us about
access to and use of streaming services in rural communities?
Answer. While Nielsen does not have exact streaming information on
a county by county basis in rural areas, we do know urban areas have a
higher penetration of homes with access to broadband versus rural
areas. We feel it is quite safe to assume that with lower broadband
penetration there is less usage of specific applications that require
more bandwidth, such as streaming.
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