[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

THE FUTURE OF VIDEO

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

HEARING

BEFORE THE

SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

OF THE

COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

JUNE 27, 2012

__________

Serial No. 112-155

Printed for the use of the Committee on Energy and Commerce

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COMMITTEE ON ENERGY AND COMMERCE

FRED UPTON, Michigan
Chairman

JOE BARTON, Texas HENRY A. WAXMAN, California
Chairman Emeritus Ranking Member
CLIFF STEARNS, Florida JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania EDOLPHUS TOWNS, New York
MARY BONO MACK, California FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska ANNA G. ESHOO, California
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina GENE GREEN, Texas
Vice Chairman DIANA DeGETTE, Colorado
JOHN SULLIVAN, Oklahoma LOIS CAPPS, California
TIM MURPHY, Pennsylvania MICHAEL F. DOYLE, Pennsylvania
MICHAEL C. BURGESS, Texas JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California TAMMY BALDWIN, Wisconsin
CHARLES F. BASS, New Hampshire MIKE ROSS, Arkansas
PHIL GINGREY, Georgia JIM MATHESON, Utah
STEVE SCALISE, Louisiana G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio JOHN BARROW, Georgia
CATHY McMORRIS RODGERS, Washington DORIS O. MATSUI, California
GREGG HARPER, Mississippi DONNA M. CHRISTENSEN, Virgin
LEONARD LANCE, New Jersey Islands
BILL CASSIDY, Louisiana KATHY CASTOR, Florida
BRETT GUTHRIE, Kentucky JOHN P. SARBANES, Maryland
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

7_____

Subcommittee on Communications and Technology

GREG WALDEN, Oregon
Chairman
LEE TERRY, Nebraska ANNA G. ESHOO, California
Vice Chairman Ranking Member
CLIFF STEARNS, Florida EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois MICHAEL F. DOYLE, Pennsylvania
MARY BONO MACK, California DORIS O. MATSUI, California
MIKE ROGERS, Michigan JOHN BARROW, Georgia
MARSHA BLACKBURN, Tennessee DONNA M. CHRISTENSEN, Virgin
BRIAN P. BILBRAY, California Islands
CHARLES F. BASS, New Hampshire EDOLPHUS TOWNS, New York
PHIL GINGREY, Georgia FRANK PALLONE, Jr., New Jersey
STEVE SCALISE, Louisiana BOBBY L. RUSH, Illinois
ROBERT E. LATTA, Ohio DIANA DeGETTE, Colorado
BRETT GUTHRIE, Kentucky JOHN D. DINGELL, Michigan (ex
ADAM KINZINGER, Illinois officio)
JOE BARTON, Texas HENRY A. WAXMAN, California (ex
FRED UPTON, Michigan (ex officio) officio)

(ii)

C O N T E N T S

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Page
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 1
Prepared statement........................................... 4
Hon. Lee Terry, a Representative in Congress from the State of
Nebraska, opening statement.................................... 5
Hon. Anna G. Eshoo, a Representative in Congress from the State
of California, opening statement............................... 9
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, opening statement.................................... 13
Prepared statement........................................... 15
Hon. Cliff Stearns, a Representative in Congress from the State
of Florida, opening statement.................................. 16
Hon. Marsha Blackburn, a Representative in Congress from the
State of Tennessee, opening statement.......................... 16
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 16

Witnesses

Robert W. Johnson, Chief Executive Officer, Sky Angel U.S., LLC.. 18
Prepared statement........................................... 21
Gigi B. Sohn, President, Public Knowledge........................ 33
Prepared statement........................................... 35
Answers to submitted questions............................... 155
David Hyman, General Counsel, Netflix, Inc....................... 53
Prepared statement........................................... 56
Answers to submitted questions............................... 157
Jim Funk, Vice President, Product Management, Roku, Inc.......... 61
Prepared statement........................................... 63
Michael K. Powell, President and Chief Executive Officer,
National Cable and Telecommunications Association.............. 66
Prepared statement........................................... 69
Answers to submitted questions............................... 160
David Barrett, President and Chief Executive Officer, Hearst
Television, Inc................................................ 83
Prepared statement........................................... 86
Answers to submitted questions............................... 169
Charlie Ergen, Chairman, DISH Network, and Chairman, EchoStar.... 111
Prepared statement........................................... 113
Answers to submitted questions............................... 174
Michael P. O'Leary, Senior Executive Vice President, Global
Policy and External Affairs, Motion Picture Association of
America, Inc................................................... 117
Prepared statement........................................... 120
Answers to submitted questions............................... 175

Submitted Material

Letter, dated June 26, 2012, from Gary Shapiro, President and
Chief Executive Officer, Consumer Electronics Association, to
Mr. Walden and Ms. Eshoo, submitted by Mr. Terry............... 6
Report, dated June 13, 2012, ``Broadcaster Retrans Blackouts
2010--2012,'' provided by American Television Alliance,
submitted by Ms. Eshoo......................................... 10
Letter, dated June 25, 2012, from Paul Porter, Co-Founder,
Industry Ears, et al., to Julius Genachowski, Chairman, Federal
Communications Commission, submitted by Mr. Rush............... 149
Report, dated March 3, 2011, ``Section 257 Triennial Report to
Congress Identifying and Eliminating Market Entry Barriers For
Entrepreneurs and Other Small Businesses,'' Federal
Communications Commission, submitted by Mr. Rush \1\

----------
\1\ Internet link to the report is on page 152.

THE FUTURE OF VIDEO

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WEDNESDAY, JUNE 27, 2012

House of Representatives,
Subcommittee on Communications and Technology,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:06 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Greg
Walden (chairman of the subcommittee) presiding.
Members present: Representatives Walden, Terry, Stearns,
Shimkus, Bono Mack, Blackburn, Bilbray, Bass, Scalise, Guthrie,
Kinzinger, Barton, Upton (ex officio), Eshoo, Markey, Doyle,
Matsui, Barrow, Christensen, Rush, DeGette, Dingell (ex
officio), and Waxman (ex officio).
Staff present: Gary Andres, Staff Director; Ray Baum,
Senior Policy Advisor/Director of Coalitions; Sean Bonyun,
Communications Director; Andy Duberstein, Deputy Press
Secretary; Neil Fried, Chief Counsel, Communications and
Technology; Debbee Keller, Press Secretary; Peter Kielty,
Associate Counsel; Nika Nour, NewMedia Specialist; Katie
Novaria, Legislative Clerk; David Redl, Counsel, Communications
and Technology; Charlotte Savercool, Executive Assistant; Tim
Torres, Deputy IT Director; Lyn Walker, Coordinator, Admin/
Human Services; Jean Woodrow, Director, Information Technology;
Phil Barnett, Democratic Staff Director; Shawn Chang,
Democratic Senior Counsel; Margaret McCarthy, Democratic
Professional Staff; Roger Sherman, Democratic Chief Counsel;
David Strickland, Democratic Counsel and FCC Detailee; and Kara
van Stralen, Democratic Special Assistant.

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

Mr. Walden. I call to order the Subcommittee on
Communications and Technology, and certainly welcome our
panelists, witnesses who are here today. We very much
appreciate your willingness to come and share your thoughts on
the future of video. This is one of a series of hearings that
we have organized, the first being future of audio and now
future of video, and I imagine we will do future of data as
well, and later in July we will have all five FCC commissioners
here now that it is up to full functioning status, and so we
look forward to that hearing as well as we look at these
various rules and laws that have been on the books for a long
time, and in an era when the marketplace continues to evolve
and change dynamically and in a very rapid way.
The FCC regulates traditional video providers based on a
bygone era. When Congress passed the 1992 Cable Act, for
example, cable operators controlled 98 percent of the pay TV
distribution market and were affiliated with 53 percent of the
national program networks.
That law was meant to spur competition. It worked.
Nationwide satellite TV providers DISH and DirecTV now control
approximately one-third of the market and are the second- and
third-largest providers. Only 15 percent of national program
networks are vertically integrated with a cable operator.
Broadcast stations are going mobile and wireless carriers are
streaming video. Programmers and pay-TV providers are filling
smartphone and tablet screens with their content and services
as fast as viewers are clamoring for them.
At the same time, new entities are flocking to the market.
Within the last 10 years, YouTube, iTunes, Netflix, Amazon,
Hulu, Roku, Sky Angel and many others have leapt to provide
video over the Internet. Currently, the Communications Act does
not apply to these players.
We therefore have some decisions to make. One option is to
recognize the competitive landscape and start deregulating
cable, satellite, and broadcast companies. The other is to
expand the Communications Act to apply to the new technologies
and services. I, for one, do not believe we should be expanding
video regulation. Internet-distributed video is growing at a
remarkable pace in the absence of regulation. Video represented
more than half of global Internet traffic by 2011, according to
Cisco. Video delivered over the Internet specifically to
televisions doubled in 2011 and will increase six-fold by 2016,
representing 11 percent of consumer Internet video traffic. By
2016, 1.2 million minutes of video will cross the network every
second and it would take more than 6 million years to watch the
amount of video that will cross global IP networks each month.
Existing cable, satellite, and broadcast providers and
programmers are experimenting with Internet distribution.
Internet-only providers and programmers are also springing up.
Regulation is not only unnecessary in such a vibrant
environment, it can harm this nascent competition. The creative
chaos in the marketplace frankly is healthy as parties fight to
out-innovate each other and win viewers. A vibrant marketplace
benefits consumers and it generates new jobs. The last thing we
want is to shackle everyone's entrepreneurial spirit with one-
size fits all rules designed for another time.
And if we are not going to apply the old regime to the new
participants, we must recognize the inequity of continuing to
apply it to the traditional players. The rules were premised on
a lack of video competition that just isn't the reality
anymore. To impose the regulations in a disparate fashion is
neither technologically nor competitively neutral. This is not
only unfair to the parties, it does viewers a disservice. Cable
operators, satellite providers and broadcasters should be
allowed just as much flexibility to respond to competition from
the Internet players as we would like the Internet players to
have to respond to competition from the traditional players.
This is how we will spur innovation.
[The prepared statement of Mr. Walden follows:]

[GRAPHIC] [TIFF OMITTED] T2325.001

Mr. Walden. With that, I yield the balance of my time to
the vice chair of the committee, Mr. Terry.

OPENING STATEMENT OF HON. LEE TERRY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEBRASKA

Mr. Terry. Thank you, Mr. Chairman.
A lot has changed in the video marketplace over the last 20
years. Content, distribution and consumers' preferences have
all evolved. We are a society that wants what we want, when we
want it, wherever we want it, and because of this, the
communication sector has spent billions over the last two
decades in order to meet that consumer appetite.
As we engage in discussions about the current stage of the
video marketplace and get bogged down in the granule details of
disputes and issues, it is imperative that we always keep one
thing in mind: the consumer is and will always remain the most
important component of the discussion.
It is appropriate to ask questions about whether the
regulations of decades past are in fact still appropriate
today. Do they inhibit competition or spur it? Do they create
regulatory parity or uneven playing fields? And most
importantly, do we still work to the betterment of the consumer
or are consumers now caught in the middle? Consumers need to
benefit from the great expansion in technologies and mobility
of technology.
With that, I would like to submit for the record a CEA
letter written to us in regards to the technology.
Mr. Walden. Without objection.
[The information follows:]

[GRAPHIC] [TIFF OMITTED] T2325.002

[GRAPHIC] [TIFF OMITTED] T2325.003

[GRAPHIC] [TIFF OMITTED] T2325.004

Mr. Terry. I thank my friend from Oregon and yield back.
Mr. Walden. The gentleman yields back the balance of his
time.
The chair now recognizes the ranking member of the
subcommittee, my friend from California, Ms. Eshoo.

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA

Ms. Eshoo. Thank you, Mr. Chairman, and good morning to the
witnesses, and thank you for being here, and thank you, Mr.
Chairman, for having this hearing. I think it is a very
important one, and certainly, when we look at the line outside,
there is a great deal of interest.
Over the past 20 years, the video market has undergone a
remarkable transformation. Today, consumers have access to more
programming choices than ever before and have increasing
control over where and when they watch these programs thanks to
the DVR, to the Internet and to mobile devices like smartphones
and tablets. While we have advanced in so many ways, there are
also several key barriers that I am concerned have or could in
the future curtail the exciting innovation that defines the
next generation of video.
First, when Congress passed the 1996 Act, we required the
FCC to establish rules to increase consumer choice and
competition in the set box market. While we may never have
imagined the benefits of Internet-connected devices like Roku
and Boxee, consumers continue to have limited options when it
comes to finding devices with features equivalent to the cable
company-issued set-top box.
Second, consumers should not be held hostage when
retransmission disputes break down. Since 2010, 10 different
multichannel video programming distributors have experienced at
least 34 blackouts in at least 76 media markets. Among the most
high-profile disputes, which I think all of us recall, was a
blackout that prevented millions of households from watching
the first two games of the 2010 World Series.
And I would like to ask for unanimous consent to submit for
the record, Mr. Chairman, the Broadcaster Retrans Blackouts
2010-2012.
Mr. Walden. Without objection.
[The information follows:]

[GRAPHIC] [TIFF OMITTED] T2325.005

[GRAPHIC] [TIFF OMITTED] T2325.006

[GRAPHIC] [TIFF OMITTED] T2325.007

Ms. Eshoo. Thank you.
Third, I am concerned about the potential impact of data
caps on the growth of the streaming video market. Just 2 weeks
ago, it was widely reported that the Department of Justice had
begun looking into whether data caps unfairly limit online
video competition. While we don't know the extent of this
inquiry, it falls on this subcommittee to thoroughly examine
the issue and ensure future innovation is not curtailed.
Finally, there are joint agreements involving Verizon and
several of the Nation's largest cable companies that are an
example of the changing video landscape. Last week, I once
again called for the subcommittee to have a hearing to review
the proposed transaction, and I hope Chairmen Upton and Walden
will agree to this request. I haven't taken a position on these
proposed changes or what's in the works but I do think that we
would all benefit from an examination of them.
I want to welcome again all of our witnesses that are here
this morning, and most especially to the two that have traveled
probably the farthest that are Silicon Valley constituent
companies, Netflix of Los Gatos and Roku of Saratoga.
So thank you again, Mr. Chairman, and I yield back the
balance of my time.
Mr. Walden. The gentlelady yields back the balance of her
time.
The chair recognizes the full committee chairman, the
gentleman from Michigan, Mr. Upton.

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN

Mr. Upton. Thank you, Mr. Chairman.
The beauty of the free market is that it harnesses the laws
of economics to spur competition. Especially in the
communications sector, if you are not using technology to offer
new services or cheaper prices, you are not going to last very
long.
Unlike the laws of Congress, the laws of economics are
exceedingly nimble. If new technologies or new competitors
arise, the marketplace begins to adjust almost immediately.
Legislators and regulators, by contrast, operate at a glacial
pace relative to the speed of technology. Even the FCC's data
on video competition is 6 years out of date, let alone the
regulations.
The laws of economics also encourage diversity. Companies
that can't provide the same services or content at cheaper
prices strive to offer different services or content. That is
what we call innovation.
Many regs, by contrast, drive everything to the lowest
common denominator. If everyone is entitled to whatever content
is popular at the moment, why would anyone risk investing in
something brand new? And if everyone is entitled to the fruits
of your labor, whether that is your distribution platform or
your content, you are less likely to invest as much. Indeed,
differentiation is often a leading driver of competition. So
for example, many attribute the exclusive availability of the
Football Sunday Ticket on DirecTV as a prime source of that
satellite TV provider's growth. This in turn forces other
players to invest in different content, develop better
services, or lower prices.
Regulations in that space will only decrease economic
activity. If particular behavior were economic, there would be
no need to compel it. While such mandates might be warranted in
a world of only three broadcast networks or where cable
operators serve close to 100 percent of the pay-TV market, that
is not the world that we live in anymore. Cable share of the
subscription TV market has dropped from 98 percent at the time
Congress passed the 1992 Cable Act to 68 percent in 2006, and
it is probably about 55 percent today. That means almost one
out of every home gets their programming from some other
source, like a satellite operator or a phone company. The
number of national program networks grew from 106 in 1994 to
565 in 2006, and the percentage of networks affiliated with a
cable operator has shrunk from 53 percent when the Cable Act
passed to 15 percent in 2006.
So if we want to spur investment, innovation and jobs, the
time may have come to pull back on the laws of Congress and let
the laws of economics do more of the work. Viewers across the
country, not to mention our economy, would be better for it.
I yield to Mr. Stearns.
[The prepared statement of Mr. Upton follows:]

[GRAPHIC] [TIFF OMITTED] T2325.008

Mr. Walden. Yes, we have three on our side I think would
like time. Mr. Stearns.

OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA

Mr. Stearns. Thank you, Mr. Chairman, and I think, as Ms.
Eshoo pointed out, a little nudge from this committee with
legislation will create a nudge of billions of dollars out
there in the audience.
I think, as you pointed out, the 1992 Cable Act, Mr.
Chairman, when it was passed, everything has changed
dramatically since then. I hope today is the first step towards
all of us coming together with a process to modernize the 1992
Cable Act, and as you pointed out, Cisco recently released a
study revealing that in 2016, over two-thirds, 68 percent of
the U.S. mobile data traffic will be video. The current rollout
of mobile DTV by broadcasters and dish push to enter into the
wireless market are important examples of industry that are
simply responding to consumer demand.
As many of our witnesses know who will testify today,
consumers have access to more content, higher quality
programming and a greater variety of devices than perhaps ever
before. So I look forward to learning what is working and what
the government can do to advance the future of video even
further.
Mr. Walden. I now recognize the gentlelady from Tennessee,
Ms. Blackburn.

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TENNESSEE

Mrs. Blackburn. Thank you, Mr. Chairman.
Welcome to all of our witnesses today. I think that from
the opening statements, you can see we can agree that the
constant in the video arena is change, change in innovation,
and I was thinking through my nearly 20 years of work in both
the private and public sector on this issue and going from big
box TVs to home theaters and then watching the analog to
digital. Now you can carry pretty much whatever you want on an
iPad and plug it into a screen and there you go.
Going forward, I hope we are going to focus on end use. I
think consumers are the best at deciding what they want in
content and also in their delivery mechanisms, so I look
forward to the discussion we are going to have about how we
insert free-market principles into the good work and innovation
you do. Yield back.
Mr. Walden. The gentlelady yields back.
I recognize the ranking member of the full committee, Mr.
Waxman, for 5 minutes.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA

Mr. Waxman. Thank you, Chairman Walden, for holding this
hearing to examine the future of video, and I want to thank you
for working with us to assemble an interesting and diverse
panel of witnesses.
Digital technology and broadband Internet access are
dramatically altering how video content is produced, delivered
and consumed, promising more choices and greater value for
consumers and new avenues for the creative community to
distribute its work. Our challenge is to ensure a diversity of
voices, robust competition, and greater access to these new
platforms.
The panel of witnesses before us illustrates the many ways
Americans can access video programming today: free over-the-air
broadcasting, pay-television service from cable, satellite, and
even traditional telephone companies, or video delivered
through a broadband connection. Video programming is no longer
the exclusive province of the television set. Consumers can now
use tablets and smartphones to watch their preferred content.
Innovative products and services are increasingly putting
viewers in control of what, when, where and how they watch
video.
Even as we marvel at the incredible advances in technology,
we must be mindful that policy choices we make today will
impact the video landscape we see tomorrow. We should examine
whether the legal framework created 20 years ago still works
for a video market filled with choices that did not exist even
2 or 3 years ago. And we should remember that old challenges
can persist in the face of new opportunities. Competitors need
a fair shot at gaining access to content, and independent
creators need rules that prevent discrimination against
carriage of their programming.
Two decades ago, the actions of this committee and others
in Congress helped once-nascent industries like cable and
satellite to offer new choices to consumers. Today, we must
continue to ensure innovation in the video marketplace can
continue to flourish. As consumers increasingly watch video
through broadband, an open Internet that is accessible to all
becomes even more important. We need to carefully examine
whether practices like broadband data usage caps are
restricting consumer choice or being employed in an anti-
competitive manner.
Also deserving of our scrutiny is whether major providers
of video and broadband services will continue to have the
incentives to compete in light of joint agreements and
consolidation in the marketplace, and I join Ranking Member
Eshoo in requesting hearings to examine the proposed
transactions between Verizon and four of the Nation's largest
cable companies, including an examination of the joint
marketing agreements that would allow the companies to cross-
market each others' services. I hope the committee will convene
a hearing so that members can consider the impact of these
deals not only on the video and broadband markets, but also on
wireless competition.
I appreciate all the witnesses for participating in today's
hearing. I look forward to your testimony, and I want to yield
time to Ms. DeGette.
Ms. DeGette. Thank you very much, Mr. Waxman.
I just want to add my greetings to my constituent, Charlie
Ergen from DISH Network, who came almost as far as Ms. Eshoo's
constituents to be with us today. Thank you for coming.
I yield back.
Mr. Waxman. I join you in welcoming Mr. Ergen and all of
our panelists, whether they came all the way from California or
down the street from K Street. Welcome to you all.
I yield back my time.
Mr. Walden. The gentleman yields back the balance of his
time.
We will get on with our witnesses now, and again, thank you
all for being here. We are going to start with Mr. Robert
Johnson, the CEO of Sky Angel U.S. LLC. Mr. Johnson, thank you
for being here. We appreciate reading through your testimony
and look forward to your comments.
Just for all the panelists, if you haven't used these
microphones, you really need to get pretty close to them, and
make sure the light is on.

STATEMENTS OF ROBERT W. JOHNSON, CHIEF EXECUTIVE OFFICER, SKY
ANGEL U.S., LLC; GIGI B. SOHN, PRESIDENT, PUBLIC KNOWLEDGE;
DAVID HYMAN, GENERAL COUNSEL, NETFLIX, INC.; JIM FUNK, VICE
PRESIDENT, PRODUCT MANAGEMENT, ROKU; MICHAEL K. POWELL,
PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL CABLE AND
TELECOMMUNICATIONS ASSOCIATION; DAVID BARRETT, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, HEARST TELEVISION, INC.; CHARLIE
ERGEN, CHAIRMAN, DISH NETWORK, AND CHAIRMAN, ECHOSTAR; AND
MICHAEL P. O'LEARY, SENIOR EXECUTIVE VICE PRESIDENT, GLOBAL
POLICY AND EXTERNAL AFFAIRS, MOTION PICTURE ASSOCIATION OF
AMERICA, INC.

STATEMENT OF ROBERT W. JOHNSON

Mr. Johnson. Chairman Walden, Ranking Member Eshoo and
members of the Subcommittee on Communications and Technology,
it is my pleasure to have this opportunity to testify at your
hearing today on the Future of Video, and thank you for
inviting me to participate. My name is Rob Johnson. I am one of
the founders of Sky Angel and its Chief Executive Officer.
Sky Angel was founded for the purpose of providing American
families with a high-quality and affordable video distribution
service in their homes that would offer exclusively family-
friendly programming. Today it offers more than 80 channels
that are live, linear programming networks, many of which are
familiar in American households such as the Hallmark Channel,
Fox News, the NFL Channel, Bloomberg and the Weather Channel,
to name a few. Also, we will be adding a new African American
family channel started by Magic Johnson.
Sky Angel was the first American video-programming
distributor to provide a service which uses Internet Protocol
Television technology, or IPTV, and a set-top box. Subscribers
cannot access Sky Angel's encrypted programming without a set-
top box, which has broadband Internet inputs including home
wireless router access and video outputs that connect directly
to their television sets. Sky Angel is not a web-based service
and no external computer is needed to subscribe to or receive
Sky Angel programming. All any American family needs for Sky
Angel is a television set and a broadband Internet service of
modest capability. Our set-top boxes look and act just like the
ones that consumers ordinarily use at home. Here is one of
them. A Sky Angel subscriber selects programming with the use
of a typical remote control. A subscriber simply uses our
remote to scroll up and down the screens of live channel
choices and then clicks on the selection he or she wants to
watch.
From the consumer's perspective, the Sky Angel service is
functionally identical to typical cable or satellite video
distribution. Sky Angel offers consumers a competitive
alternative to other MVPD systems at affordable rates.
Currently, our complete package of more than 80 live video and
audio programming channels costs $32.99 a month and includes
unlimited access to a large VOD library of movies, which are
also family friendly. We have recently rebranded the package as
FAVE TV. We have a less expensive inspirational package of
programming, which is also available to the iPad.
Our goal is to offer a safe haven for families and children
to enjoy as large a selection as possible of live video and
audio programming and recorded video programming without fear
of exposure to graphic sexual or other highly objectionable
content. We are the proud recipient of the seal of approval
from the Parents Television Council.
American families can have Sky Angel in their homes as an
exclusive source of wholesome video entertainment, or they can
subscribe and have Sky Angel in addition to another MVPD. The
choice is theirs.
Our business model is not complicated. We enter into
written agreements with programmers for distribution of
programming to Sky Angel subscribers via our IPTV system. We
pay the programmers monthly fees for a Sky Angel subscriber,
who receives a programmer's channel. Sky Angel enters into
subscription relationships with consumers for multiple live,
linear channels of programming. We downlink our channels at our
state-of-the-art facility located outside of Chattanooga. We
provide our subscribers with set-top boxes which are necessary
to receive the programming from Sky Angel, and we directly and
remotely control the programming to the set-top box at all
times.
Unfortunately, we have been faced with significant problems
in obtaining access to family-friendly programming channels.
One shocking example is C-SPAN, which is supposed to be a
public service but C-SPAN refuses to deal with us. About 3
years ago, C-SPAN entered into an agreement with us for
distribution of C-SPAN channels on the Sky Angel system.
However, C-SPAN cut its service off only 3 days after we
started carrying it, and we had a signed contract. C-SPAN
officials told us that they ``made a mistake'' in permitting
Sky Angel to carry its channels without any other explanation.
As everyone knows, C-SPAN is offered on the Internet as a free
public service to all, but as perhaps fewer people know, C-SPAN
is controlled by the cable television industry.
In addition to the shocking decision of C-SPAN to cut us
off, a number of large programmers have refused to deal with
Sky Angel for the distribution of must-have family-oriented
programming saying or implying that they want to avoid
conflicts with the big players in the video distribution
industry, and unlike C-SPAN, which is supposed to be a public
service, commercial programmers that refuse to deal with us are
passing up the higher subscriber rates Sky Angel typically pays
because we are too small to have any real bargaining power.
Discovery Communications is the most obvious example of a
large programmer that refuses a lucrative distribution
agreement with Sky Angel in order to stifle competition. My
written statement describes our problems with Discovery in some
detail, but basically, Discovery cut us off from receiving
their channels 2 years into a 7-year distribution agreement.
Discovery has never offered a coherent explanation for its
actions, which did not make economic sense. We are positive
that it was anti-competitive in nature trying to deter a new
startup company using IPTV technology.
Trying to right a wrong, we filed a program access
complaint with the FCC against Discovery in March of 2010. To
date, the FCC has never made a substantive ruling on that case
even though the FCC's own decisions say that they will decide
program access complaints within 5 months, and the DC Circuit
Court of Appeals is scrutinizing the FCC's delay in acting on
our program access complaint. Nonetheless, 27 months have
passed without substantive action by the FCC, so tiny Sky Angel
remains injured by the unfair programming decisions of
multibillion-dollar Discovery Communication and its affiliated
program distribution interest.
We believe that our experience with starting and operating
an innovative new family-oriented video distribution shows that
there is anti-competitive conduct in the industry and
significant problems with the manner in which the FCC is
failing to enforce program access laws and regulations so that
a valuable new competitive interest is facing unfair
discrimination. The program access requirements under the 1992
Cable Act require fair treatment of competitors such as Sky
Angel but those requirements are not being enforced.
The will of Congress is being ignored and competition by
Sky Angel and likely others is being stifled. We believe that
the public interest in supporting competition in video
distribution, expanded use of the Internet, diversity in
programming sources and affordable choices for American
families requires the attention of the Congress to ensure that
the existing legal framework is fairly and properly enforced.
Thank you again for the opportunity to testify, and I would
be pleased to answer any questions that you may have or provide
you with any additional information.
[The prepared statement of Mr. Johnson follows:]

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Mr. Walden. Mr. Johnson, thank you for your testimony. We
look forward to following up with some questions.
We will now turn to Gigi Sohn, the President and CEO of
Public Knowledge. Gigi, we are delighted to have you here
today. We look forward to your comments as well.

STATEMENT OF GIGI B. SOHN

Ms. Sohn. Chairman Walden, Ranking Member Eshoo, members of
the subcommittee, thank you for inviting me to talk about the
future of video.
There is widespread agreement that we are currently living
in the golden age of television, but despite all the great
programming and groundbreaking devices, Americans are still
locked into a TV business model that limits competition and
choice, keeps prices high for video, and limits technology and
online video from achieving their full potential. This business
model was made possible largely by an outdated regulatory
structure created by incumbents to gain competitive advantage.
It is time for policymakers to revamp this regulatory structure
so that new video competition can thrive, giving consumers
greater options and the ability to watch video whenever they
want and on the device of their choosing. This will result in
lower prices, better services and more flexibility and control
for consumers.
The Internet is changing the video marketplace just as it
changed the market for music, books and other forms of media.
Consumers are attempting to drive this change by demanding that
more content be provided to them through the Internet. One
grassroots campaign by consumers called ``Take My Money HBO''
advocates for HBO content, which is only available if you
subscribe to cable or satellite TV service, to be available for
purchase on the Internet. More than 60,000 visited the petition
Web site within 12 hours of its launch, leading many of them to
express over Twitter their willingness to pay money directly to
HBO only if it were available on the Internet.
Despite this level of excitement for Internet video
distribution, it is not a foregone conclusion that the Internet
will disrupt the video marketplace. Dominant players in the
market today control both the content their online competitors
need for their service and the pipes they must use to reach
consumers. As a result, much high-value programming is not
available to online video providers. They also have to contend
with artificially and arbitrarily low data caps and other
discriminatory practices that keep them from reaching their
full potential.
So while it is inevitable that IP technologies and the
Internet will play an ever-larger part of video delivery, it is
not inevitable that the market will reach its full competitive
potential. That is why policymakers should extend policies that
ensure that new competitors like Sky Angel can access high-
value content at reasonable prices. If they do this while at
the same time protecting Internet openness, they can ensure
that the video marketplace normalizes and becomes truly
competitive.
There are other regulations that permeate the video
marketplace that should be repealed today. The network non-
duplication, syndicated exclusivity and sports blackout rules
do little more than preserve old business models. If these
protectionist rules ever made any sense in the pre-Internet
era, they certainly don't today.
Representative Scalise and Senator DeMint are on the right
track with their bill that would clear away much of the
regulatory underbrush that holds back the evolution of the
video marketplace although the bill does go too far by
eliminating media ownership restrictions. Other rules like
retransmission consent, the compulsory copyright license and
must-carry are also outdated but they are part of an interwoven
fabric of regulatory and business expectations. They should be
reformed but cautiously and eventually eliminated. And
copyright law is also regulation that is often misused to hold
back innovation. Witness the lawsuits against Aereo and DISH's
AutoHop service.
By taking these simple steps, policymakers will be able to
facilitate the development of competitive online video and
subsequently disengage from regulations that were designed to
counter the effects of bottleneck control. If they fail to do
this, it is likely that incumbents will continue to shape the
development of the video market and extend their current
dominance indefinitely.
While the Internet provides grounds for hope that the
future of video will be much better for consumers, a lot of
work remains for this hope to become reality.
Thank you. I look forward to your questions.
[The prepared statement of Ms. Sohn follows:]

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Mr. Walden. Ms. Sohn, thank you for being here. We
appreciate your testimony on this very important set of issues.
Now we will welcome David Hyman, the General Counsel for
Netflix. Mr. Hyman, thank you for being here. We look forward
to your testimony.

STATEMENT OF DAVID HYMAN

Mr. Hyman. Good morning. Netflix helped pioneer streaming
movies and TV shows over the Internet. In 2008, we began to
deliver instant streaming video to televisions through the use
of a handful of Internet-connected devices. Today, over 23
million consumers in the United States use the Netflix
streaming service on more than 900 different types of devices
including game consoles, mobile phones and tablets. In fact,
Netflix delivers close to a billion hours of streaming movies
and TV shows to its members every month.
The Internet delivery of video provides consumers with
unprecedented freedom and control over what video programming
they can watch as well as when and where they can watch it.
This is the future of video. Increased demand for Internet
video is driving consumer adoption of broadband. It is spurring
a wave of innovation in the consumer electronics industry with
virtually all new devices being Internet connected. Innovation
leaders like Netflix are developing new methods for delivering
the petabytes of video data traversing the Internet. Just a few
weeks ago, we announced the rollout of our open connect
network, a single-purpose content-delivery network focused on
the efficient distribution of large media files. Our goal here
is to help make a faster and less expensive Internet for all,
and to this end, we are connecting to ISPs free of charge and
making our hardware design and open-source software components
publicly available.
User interfaces, or UIs, through which consumers discover
and engage with video, are likely evolving. The typical linear
channel selection grid that uses the up-down left-right remote
to access content will likely be replaced with intuitive and
visually stimulating UIs that use motion, touch and voice as
means of control. Over the next few years, UIs will evolve in
amazing ways. A decade from now, choosing a linear feed from a
broadcast grid of 200 channels will feel as odd as using a
television dial to change channels does today.
The Internet is helping to reconceptualize how content is
made and consumed. Last year, for example, Netflix announced it
would be offering several original television series to its
members. This is really the first time that such high-quality
productions will be debuted through the Internet. Our first
show will be House of Cards, a political thriller set right
here in Washington, DC. The series stars Kevin Spacey and Robin
Wright and is directed by David Fincher. We will be
experimenting with how our programs are released, likely
offering multiple episodes or perhaps even whole seasons at one
time. In doing so, Netflix is giving arts like Mr. Fincher
greater latitude to create compelling stories while giving our
members the freedom to watch world-class content in a way that
suits their individual preferences.
Video services like Netflix are leveraging the power of the
Internet to help consumers discover content they will love.
Using recommendation and merchandising technology, Netflix is
helping to expand the reach and popularity of video content.
For example, the availability on Netflix of all four prior
seasons of the series Mad Men helped drive a 20 percent
increase in those watching this season's opening episode. By
combining technology with consumer choice, we were able to find
an untapped audience of more than a million viewers for a show
in its fifth season. This is just one example of how
traditional and emerging video distribution platforms can
complement one another.
All this change, however, has led to speculation about the
demise of traditional video distribution platforms and
networks. It is our belief that these platforms and networks
will also adapt to today's shifting video landscape. We see the
beginnings of this with various authenticated Internet video
offerings commonly referred to as ``TV Everywhere.'' These
offers provide cable subscribers on-demand access to a variety
of content through Internet-connected devices like the iPod,
the iPad and the Xbox. In this way, cable subscribers are
afforded many of the benefits of Internet video within the
bundled offering of their cable service.
To get a good feel for this implementation, I would
recommend that you take a look at Comcast Streampix, HBO GO or
Showtime's TV Everywhere offering. These implementations will
likely grow in popularity, and consumers will increasingly view
traditional cable networks on devices connected to the
Internet.
At Netflix, especially as we focus on streaming and begin
to offer original content, we are often asked if we are not
becoming more like a traditional network such as HBO. The fact,
however, is that these networks are becoming more like Netflix.
As traditional platforms and networks move to distribute their
programming in an on-demand fashion over the Internet, they are
beginning to compete more directly with pure play or over-the-
top Internet video providers like Netflix. As this trend
continues, issues such as discriminatory data caps and IP
interconnection must be examined with a much more discerning
eye. When you couple limited broadband competition with a
strong desire to protect legacy video businesses, you have both
the means and the motivation to engage in anticompetitive
behavior. Add to this mix a regulatory and legislative
framework largely crafted before the modern Internet era and
you have the makings for confusion and gamesmanship.
Competition certainly leads to innovation and growing
consumer choice. In large part because of innovation from
Internet players like Netflix, traditional platforms and
networks are changing their longstanding ways of doing
business. In adapting to this changing landscape, these
platforms and networks should not be permitted to unfairly
leverage their data delivery networks or content distribution
relationships to stifle unaffiliated video providers.
I encourage this committee to examine closely the evolving
competitive environment for Internet-delivered video. Netflix
stands ready to work with you and others in the industry to
explore various regulatory modifications or other changes that
will help assure a competitive and innovative video marketplace
for years to come.
Thank you for the opportunity to appear before you today,
and I look forward to your questions.
[The prepared statement of Mr. Hyman follows:]

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Mr. Walden. Mr. Hyman, thank you for your testimony and
your participation.
We will now go to Mr. Jim Funk. He is the Senior Vice
President of Product Management for Roku. Mr. Funk, thank you
for being here. We look forward to your testimony.

STATEMENT OF JIM FUNK

Mr. Funk. Good morning, Chairman Walden, Ranking Member
Eshoo and members of the subcommittee. Thank you for inviting
me here to testify today about the future of video. My name is
Jim Funk and I am the Senior Vice President of Product
Management at Roku.
Roku was founded 10 years in Silicon Valley. We are a
rapidly growing company with less than 200 employees, still
small by comparison with other companies represented at this
hearing. The company's founder, Anthony Wood, is a serial
entrepreneur who, among many accomplishments, started ReplayTV
and is considered the inventor of the DVR. While the DVR is now
among the most popular entertainment devices, Roku is betting
on the Internet as the future of television.
Four years ago, Roku introduced a small Internet connected
set-top box that allowed consumers to stream movies from
Netflix over the Internet and watch them in high quality on
their TVs without needing a computer. The combination of a $99
Roku player and Netflix streaming was a revolutionary offering.
Now, 4 years later, there are hundreds of models of TVs, Blu-
Ray players, game consoles and set-top boxes offering this
streaming video capability. These products can be found today
at Best Buy, Walmart, Target and Amazon.com marketed by well-
known brands such as Apple, Microsoft, Sony and Samsung.
Since the launch of the Roku player, we have sold more than
3 million boxes in the United States and now offer a range of
very affordable products from $49 to $99. Roku has grown beyond
a set-top box and has become an open streaming platform that
allows content providers to create applications, which we call
channels. Roku now features more than 500 channels that are
available to the millions of households which have purchased
our streaming players. Most Roku users have a cable or
satellite subscription service in addition to their Roku
player, and Roku provides both new entertainment choices, as
well as ways to get more value out of a cable or satellite
television service.
In addition to Netflix, Roku users can now enjoy tens of
thousands of TV episodes and movies on demand from services
such as Hulu Plus, Amazon Instant Video, Crackle, HBO and EPIX.
We offer sports packages from Major League Baseball, the NBA,
the NHL and Major League Soccer, and there is news from NBC,
Fox News, the Wall Street Journal and CNBC.
Beyond video, Roku users can enjoy streaming music services
like Pandora, Internet radio from around the world, photo
sharing, and popular games like Angry Birds.
Roku is becoming an alternative way to reach consumers for
existing video distributors too. We recently announced a
partnership with DISH Network to stream their international
programming to consumers who may not be able to install a
satellite dish. Customers of Time Warner Cable, Verizon, Dish
and other MVPDs can now enjoy on-demand movies and shows from
HBO and EPIX on Roku.
Local broadcasters have even begun to experiment with
reaching their audiences on Roku. Today you can watch local
news on demand from broadcast stations located in Madison,
Wisconsin, Las Vegas, and Indianapolis.
Roku is also a means for content producers who do not have
traditional cable or satellite distribution to reach the living
room TV via the Internet. For example, we have over 75 faith-
based channels, representing everything from individual
congregations to Catholic and Mormon Church broadcasts. We even
have a channel created by the House Oversight and Government
Reform committee where video of hearings like this are
available on demand.
We believe that devices like Roku are part of the future of
television because of what we already see. The average Roku
user streams over 10 hours of video per week, which is almost
one-third the number of hours that the average American watches
traditional TV. Consumers like the new technology of Internet
streaming because it combines all the new content choices with
convenience and value. With the widespread adoption of DVRs,
consumers now expect on-demand viewing, and the Internet
provides virtually unlimited capacity for delivery of on-demand
content. In addition, the combination of inexpensive Internet-
connected devices and the expanding selection of Internet video
services offer an excellent entertainment value for cost-
conscious consumers.
I did not come here today to advocate for specific
legislation. Our point of view is that devices such as Roku
represent an area of exciting innovation in entertainment and
information delivery that are finding a home in the living
rooms of millions of consumers. These devices are being
embraced by all segments of the entertainment industry as a
means to expand the business opportunities for legitimate
content distribution. They are also driving the adoption of
high-speed broadband connections, to the benefit of ISPs.
Our interest here, and we believe this is also the
consumer's interest, is that there continue to be an open
marketplace for competition in this space. That includes not
only open competition between device manufacturers, but also
open competition between video services, both traditional and
new, as well as competition between Internet service providers.
The widespread availability of affordable high-speed Internet
open to all video sources is essential to continued growth and
innovation in this market.
Thank you for your time today. I look forward to your
questions.
[The prepared statement of Mr. Funk follows:]

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Mr. Walden. Mr. Funk, thank you for your testimony. It is
most helpful.
We will now go to Mr. Michael Powell, President and CEO of
the National Cable and Telecommunications Association. Mr.
Powell, we are delighted to have you here. Please go ahead with
your testimony.

STATEMENT OF MICHAEL K. POWELL

Mr. Powell. Thank you, Mr. Chairman and Ranking Member
Eshoo. It is always a great honor and privilege to appear
before this committee. I have done it many times and I am proud
to be here again.
I am also proud to be here as a representative of America's
great success story, the cable operators and cable programmers
of the United States, to talk about the future of video for one
reason only. This is an industry through its own investment,
technological innovation has contributed to the glimmering
present that we are currently enjoying and has every intention
of contributing to a more glorious future in the area of video.
It is important as a quick reminder to remember that cable
industry when it was first pioneered was all about making TV
better. We brought television to rural America and urban areas
that couldn't be reached by traditional broadcast programming.
We ultimately developed original programming that led to the
iconic brand that most Americans associate with television
today: CNN, ESPN, C-SPAN, Discovery, the History Channel. These
were all creations of the artists and creators of the cable
industry working in cooperation with the production community.
We were the first to bring about anytime, anyplace shifting
through video on demand and through DVR, and in 1996 when
Congress called on the communications space to introduce
telephone competition, it was the cable industry that most
significantly made an impact representing almost 25 percent of
all telephone service today. And then there is broadband. Truly
the cable industry stepped up and led to the mass deployment of
cable broadband in the United States, now reaching 93 percent
of all homes in America.
So we are experiencing, in my judgment, a truly golden age
of television. By almost any metric used, particularly those
used by the government and FCC, we are experiencing the best we
ever have. First and foremost, there is simply more content. We
have gone from a 1950s world of three channels to one in which
there were 100 channels back in 1992 to over 900 programming
channel sources today, and that continues to expand and explode
at a rapid rate. And is it any good? I would submit that TV is
producing the finest content that it has in its entire history.
The critically acclaimed programs of The Sopranos or Mad Men or
Homeland or comedies like Modern Family are truly capturing the
imagination of the American public, and I think the industry
and content producers and distributors have a great deal to be
proud of in terms of the quality.
When I was at the FCC, I remember one of our central goals,
and I heard it mentioned earlier in the opening statement, is
the diversity of content. We don't want all the same stuff, and
we are experiencing a period in which we hit on a model that
allows true diversity of niche programming to smaller audiences
by definition but ones that are passionate about the things
they believe in. Put simply, if you fish, love music, crave
sports, gorge on politics, want your native language or reflect
your community on television or if you oddly have a fetish for
Jersey Shore, it is all out there and available to you. We
should be proud of what we have achieved in diversity.
We also have more competitive sources for content than ever
before. I would fully admit that 20 years ago in 1992 when the
Cable Act was passed, the cable industry was a monopoly. It had
98 percent of multichannel video distribution in this country.
Today, it enjoys 57 percent. And since the mid to late 1990s,
its share has remained flat or declined in the face of
competitive threat. Today Americans can choose between cable
companies, the satellite companies that rank second and third
in subscribership, telecos, you can go buy DVDs at Best Buy, or
why not walk down to your corner store and pay $1.20 for a DVD
at a Redbox distribution machine. It is an exciting opportunity
for the American citizen.
But then we haven't seen enough. Then the Internet finally
began to produce the realization of its promise. We now are
looking at extraordinary amounts of Internet content and video
by a whole host of companies, some represented today. There has
been an 80 percent increase in video streaming since 2008, and
by some estimates, 62 percent of traffic at prime time on the
Internet is video content, and as we have heard, they are
producing original content and more and more on every
conceivable device that can be dreamed up in Apple's magic
factory or anyone else. That is an exciting place.
But this golden age is set against a regulatory environment
that is tarnished. I am a big believer that law is premised on
certain factual predicates about markets, economics and
technology. Simply put, today's regulatory regime is built on a
foundation that crumbled long ago. I will submit my full
testimony for then-and-now analysis, but you can quickly see
cable once owned 98 percent of the market, owns 57 percent
today. Cable once owned 54 percent of the cable channels that
you see today. Today they only own 14 percent. Back in 1992, a
majority of Americans would watch television over the air.
Today that is down to 14 percent. This is not to suggest that
one industry is better than the other, but the predicates on
which the law are built long ago crumbled into the sand and it
is high time that they be reevaluated.
Finally, I would like to conclude by simply taking head on
the conjecture and speculation and active suggestion that
somehow the cable industry is actively involved in an effort to
destroy or eliminate over-the-top emerging competition. It is
just flatly wrong and belied by the facts.
First and foremost, we have seen a breathtaking explosion
of video streaming content, as I said, an 80 percent growth.
Netflix, who sits next to me, is the largest provider of
subscription video in the country, not cable and not satellite.
That growth has occurred in the current marketplace. Our
policies, caps and pricing have in no way thwarted a consumer's
ability to watch video streamed content by any measure, and we
are expanding to meet demand consistently, having increased
broadband speeds 900 percent in the last decade, and recently
announced plans for startling speeds by the end of the decade.
And finally, I would say, Mr. Chairman, remember, we sell
broadband, and as the testimonies of the CEO of Roku and the
General Counsel at Netflix made clear, their services help
stimulate demand for services we sell. I assure you, many
members of our board are very proud and appreciative of some of
those services and what they have done for our business.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Powell follows:]

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Mr. Walden. Mr. Powell, thank you, and we will look forward
to asking a few questions of you and the other panelists.
We will now go to the President and CEO of Hearst
Television Inc., Mr. David Barrett. Mr. Barrett, thank you for
being here. We look forward to your testimony.

STATEMENT OF DAVID BARRETT

Mr. Barrett. Good morning, Chairman Walden, Ranking Member
Eshoo and members of the subcommittee. My name is David
Barrett. I am the President and CEO of Hearst Television. Our
company owns 29 TV stations across the country, a number of
which are in your home markets. I have traveled here today from
New York City on behalf of the National Association of
Broadcasters.
You can tell from the makeup of this panel that the future
of video is very bright, very diverse and more inclusive than
ever before. Each of us here today plays an important role in
the video ecosystem but what differentiates television
broadcasters from every other entity at this table is our
unique commitment to serve our local communities and to operate
in the public interest. Localism is our mandate, and we breathe
it every day, and we supplement our logical programming with
the most popular national entertainment, news, sports programs
to provide viewers with a variety and quality of content that
is unmatched by any other media.
Certainly, we cannot discuss the future of video without
talking about spectrum, the oxygen of our delivery for over-
the-air signals. With concerns over spectrum use intensifying,
it is broadcast television that uniquely offers the most
efficient use of spectrum to transmit video. The genius of
television broadcasting is its one-to-many architecture. For
high-demand programming like the Super Bowl and the upcoming
Olympics, there is no limit to how many viewers can tune into
these games and events. With wireless one-to-one architecture,
there is simply not enough spectrum on the planet to allow
every viewer to watch the events simultaneously on smartphones
or tablet devices. There should be no doubt that we need to
focus on the most efficient ways to deliver video to our
consumers today and into the future in order to optimize the
video experience.
To meet the demands for mobility, our industry is today
launching broadcast mobile television. New mobile DTV devices
and adapters will enable reception of full-motion digital
broadcast without the need for additional spectrum, and because
broadcast mobile TV relies on our existing over-the-air
transmission, we can offer high-quality video without running
up expensive consumer costs or exhausting data caps Internet
providers impose on their customers.
Other innovations on the horizon such as 3D, 4K and ultra-
high definition are down the road and around the corner. These
innovations will highlight how creatively broadcasters are
using their digital spectrum now and will be doing so in the
future. As incentive auctions and broadcast repacking is
initiated, it is imperative that the FCC policy determinations
not jeopardize the opportunity to bring these new and exciting
services to life. Our industry recognizes that consumers expect
to view our programming on a variety of devices large and
small. In order to make that a reality and preserve our
business viability, content producers will need assurance that
programming will only be transmitted with prior consent and
agreed-upon compensation.
In the current television context, retransmission consent
allows broadcasters and cable and settlement companies to
negotiate in the free market for the value of the broadcast
signal. These negotiations are successful because both sides of
the deal have skin in the game. We have a mutuality of
interest. Broadcasters benefit from the exposure that cable and
satellite provides, and likewise these video operators benefit
from reselling our incredibly popular content.
It has been suggested by some in the cable industry that
cable bills are rising because of the costs of broadcast
programming. There is a chart on the screen that would indicate
that the data does not support that assertion. As you can see,
cable price increases have consistently outpaced inflation for
11 of the last 12 years. In actuality, it is the cable networks
that have been collecting the vast majority of carriage fees.
This next chart from Kagen shows the differential and the
disparity in fees paid to basic cable networks compared to the
total fees paid to broadcasters both on a trailing basis and as
projected into the future. In 2012, it is estimated that cable
will pay broadcasters approximately $2 billion in retrans fees
while paying basic-cable networks almost $29 billion. This does
not give effect to the value of the inventory exchange that
goes on from cable networks to the cable MSOs but that amount
of money in no way equalizes a $27 million disparity.
This is even more confounding when you consider broadcast
ratings are many times higher than cable in so many cases. In
fact, approximately 95 of the top 100 shows in the recently
concluded television season aired on broadcast television both
in the demographic of 18-49 and in the demographic of 25-54 as
measured by Nielson. In truth, retrans payments are not the
driver of increasing cable bills, and the money is not
following the audience in terms of what is actually viewed on
television in this country.
So how do we ensure that our broadcast content is
successful beyond these traditional platforms to the new video
technologies evolving at a breakneck speed? I will observe that
I think Congress got it right in 1992 when it noted that
broadcasters must be allowed to control the use of their
signals by anyone engaged in retransmission by whatever means.
New companies like Sky Angel are now part of the video
marketplace but it appears to be unclear as to how the law will
apply to them and other new entrants. The FCC is currently
considering the question of what is a multichannel video
program distributor. These seemingly simple questions have far-
reaching implications. Who has program access? Who pays
retransmission consent fees? We believe it only makes good
sense for the existing retrans consent and exclusivity rules to
be applied to all new entrants.
As an industry that creates content or acquires the right
to content, it is imperative that we have the right to
negotiate over how our content is distributed. Congress should
reject any erosion of the bedrock principles of retransmission
consent and market exclusivity because they are essential to
our uniquely local system of broadcasting. Broadcast television
is an indispensably important part of today and tomorrow's
video ecosystem. As evidenced by our recent multibillion-dollar
investment throughout the digital transition, American
broadcasters are prepared to play a major role in the
advancement of video services as we look down the road.
I look forward to answering your questions when the remarks
have been concluded.
[The prepared statement of Mr. Barrett follows:]

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Mr. Walden. Thank you, Mr. Barrett. We appreciate your
testimony.
Our next witness is the Chairman of DISH Network, Mr.
Charlie Ergen. Mr. Ergen, thank you for being here before the
subcommittee. We look forward to your testimony.

STATEMENT OF CHARLIE ERGEN

Mr. Ergen. Chairman Walden, Ranking Member Eshoo and
members of the subcommittee, thank you for the opportunity to
testify about the future of video. My name is Charlie Ergen and
I am Cofounder and Chairman of DISH Network, the third-largest
pay-TV provider in the United States. We serve approximately 14
million subscribers and employ over 27,000 people.
I believe that understanding the future of video goes hand
in hand with two simple rules: first, always try to understand
what the customer wants, and second, change is inevitable;
embrace it.
What do customers want? They want to be able to watch
programming on their TV sets, on their phones and on their
tablets, no matter where they are. They also want to be able to
surf the web or make a phone call, again, no matter where they
are. DISH plans to offer consumers the chance to get all of
these services from one company.
At DISH today, we do a good job of efficiently providing
fixed video to the home. But customers increasingly want more
than just home video. They want mobile video. They want mobile
voice and they want mobile data. So when we look at the future
of video, we need to be able to provide all of those
communications services to every one of our customers, anywhere
and anytime.
Our company is moving in that direction. With innovations
like Sling, our customers can use a wireless smartphone or
tablet from any location to enjoy the video content that they
have already paid for. We recently purchased Blockbuster and
are integrating their video content holdings to enhance our on-
demand offerings. We are a leading distributor of DVR
technology and continue to innovate so our customers can watch
the programming they have paid for whenever, wherever and
however they want.
Our new Prime Time Any Time and AutoHop technology takes
the DVR to a new level, giving consumers the choice to more
easily view their preferred programming when they want, while
skipping what they do not want to see. This means that allowing
your kids to watch TV doesn't have to mean they have no choice
but to see commercials for junk food and alcohol. Through
AutoHop, DISH did nothing more than improve upon existing,
legally accepted, and widely available technologies that give
consumers the ability to record their television shows for
playback at home a more convenient time, when they are able to
fast-forward through or skip over commercials. These are some
of the ways we have responded to our customers' changing needs
but we have to go further.
In the past, we haven't shrunk from betting the company, so
to speak, in order to stay competitive. We went from selling
big dishes to launching our own small dish, DBS business. To
give customers what they want, including mobile video, voice
and data, we will have to take a significant risk once again.
Last year, we invested billions of dollars to acquire two
bankrupt satellite companies with the aim of transforming those
assets into a next-generation mobile broadband service. We want
to provide consumers with the choice in services and providers
that they seek. If we are successful, we will fuel billions of
dollars in investment and create tens of thousands of new jobs
in the United States.
And this brings me to my second point: foster change; don't
ignore it or be afraid of it.
We are prepared to leverage our experience and financial
strength to drive communications and entertainment forward and
make them more mobile and dynamic than ever before. We can't
get started, however, until the FCC releases updated rules
governing how our satellite licenses can be used for
terrestrial mobile broadband. Given the overwhelming support of
the comments received to date, we hope that the FCC will act,
and finalize the new rules by the end of the summer. We want to
build the most advanced wireless network in the United States
to compete against the well-established incumbents, but we need
to begin as soon as possible to have a chance.
And just as wireless rules must be modernized to keep up
with consumers and technology, the rules governing how
broadcasters and pay-TV providers reach retransmission
agreements are outdated and in need of change. Twenty years
ago, when Congress first adopted the retransmission consent
process in the 1992 Cable Act, there was typically only one
cable operator in any given market negotiating with one
broadcaster. Today, there are multiple pay-TV providers in each
market, including satellite, telco, small local cable and large
regional cable providers. Then, of course, there are also the
new over-the-top video providers like Netflix, Aereo, and
others. The broadcaster still maintains a government-sanctioned
monopoly on the network programming in his market, while pay-TV
providers face stiff competition from one another. The result
is almost always bad for consumers and the free market.
Broadcasters play the pay-TV providers against one another.
They cut off the most popular sports and entertainment
programming if their demands for drastically higher rate
increases are not met. Consumers lose because they cannot see
the programming they paid for, they end up paying higher rates,
or both. And the problem is only getting worse with more
blackouts and more broadcaster abuses. From where we sit, the
broadcasters cling to the status quo instead of meeting
consumer demand and embracing new technologies and business
models.
The retransmission consent regime is a prime example of an
outdated government policy in need of an overhaul by Congress
and/or the FCC. It is incredible to see how much has changed
since 1992. Likely, there are a few of us who used the Internet
back then, or had a cell phone. The idea of streaming movies or
TV shows to a smartphone was science fiction.
Just as businesses must foster change in a rapidly evolving
video marketplace to keep pace with what the consumer wants,
government should work to ensure its regulations mirror today's
competitive realities, consumer expectations, and advances in
technology.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Ergen follows:]

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Mr. Walden. Mr. Ergen, thank you for your testimony.
And now our final witness, Michael O'Leary, who is the
Senior Executive Vice President for Global Policy and External
Affairs of the Motion Picture Association of America. Mr.
O'Leary, thank you for being here today. We look forward to
your comments.

STATEMENT OF MICHAEL P. O'LEARY

Mr. O'Leary. Thank you, Chairman Walden, Ranking Member
Eshoo and members of the committee. I want to thank you all for
the opportunity to testify on behalf of the Motion Picture
Association and its member companies today. I also want to
acknowledge and thank my colleagues on the panel. I am honored
to be with such distinguished group here this morning.
Whether you are at a theater, at home, on the road or
choose to download and view when you want, content creators,
consumer electronics companies and content distributors are
working together to provide new, innovative options for
audiences to easily access high-quality content. We welcome
this opportunity to testify and work with this subcommittee as
you consider appropriate policies for the future of video. This
is an important discussion, and we are pleased to be a part of
it.
Like all successful business, we are driven by the desire
to create and meet consumer demand for the products that we
produce. We are listening to our audiences. We are attuned to
their desires, and every day we are developing innovative new
ways to give viewers the experiences that they want. Audiences
today want to enjoy movies on multiple platforms from the big
screen to televisions of all sizes to computers and tablets and
even on their phones. We are partnering with companies of all
stripes from around the globe including YouTube, Facebook,
Netflix and Roku and soon with others that are no doubt some
other new platform which exists only in the mind of some
inventive young person out there. All of these exciting
innovations and distribution benefit both the consumers who
receive the high-quality viewing experiences that they want and
the creators, who take the risk and invest in these productions
in the first instance.
For many people all around the world, there is no
substitute for the theater-going experience. The big screen is
the foundation of the American movie industry. Creating
wonderful movies that people can watch in movie theaters is an
important part of America's rich history but is equally part of
the present and the future of video. In addition to utilizing
cutting edge and sophisticated visual and special effects in
our productions, our companies have embraced 3D, IMAX and
brilliant sound that has enhanced and transformed the movie
theater experience. The theater will continue to play a
significant role in the future of how people around the globe
are entertained.
But our member companies are not just making movies
available for the big screen. For decades now, people have
watched movies on television, but that experience is changing
and improving too with each passing today. Today our programs
are being delivered to television screens by over-the-air
digital broadcasts and through an astonishing range of channel
choices enabled by our distribution partners in the cable and
satellite business. Audiences are able to watch these programs
at the time of the original airing or at the time of their
choosing, either through the DVR or through an increasing array
of video demand options.
In addition, with the advent of interactive television,
Blu-Ray players, Roku boxes, Microsoft's Xbox 360, the Sony
PlayStation, Nintendo's Wii and Apple TV, just to name a few,
consumers can watch HD movies and TV shows streamed across the
Internet in their home through services like Netflix, VUDU,
Hulu or other services too many to list.
Audiences now find entertainment on their mobile devices as
well. All of the major motion picture studios distribute full-
length films and television shows directly to consumer mobile
devices through major mobile operators such as AT&T, Sprint and
Verizon. The ability to access high-quality content is also, as
you have heard this morning, thriving online where competitors
for consumers' attention are providing new offerings every
week.
In just a few short years, the quality of video delivery
has improved tremendously, and with it, literally hundreds of
licensed online services have sprung up around the world. Among
them is HBO GO, which adds significant value to existing
subscribers by providing online access to HBO programming, and
that is not simply the programming that is available on TV
today, that is basically all of their catalog in the past as
well. Netflix, as you heard, is not only delivering a
staggering number of movies online but is also moving into the
production of online content--original content, rather. YouTube
and Facebook are entering into agreements to distribute movies
as well.
Online services today cater to every matter of consumer
viewing model including rental, download to own, subscriptions
and ad-supported viewing. They are provided by every
conceivable type of commercial entity including technology
companies like Apple's iTunes, broadcast television networks
like ABC, CBS, Fox and NBC, cable networks like the Comedy
Channel, TBS and USA, pay-television channels like HBO and
EPIX, telecommunications, cable and satellite providers like
AT&T, DISH and Comcast, retailers and rentailers like Amazon,
Best Buy, Blockbuster, Netflix and Walmart, and gaming systems
as I mentioned like PlayStation and Xbox, and new ventures
devoted entirely to delivering great content seamlessly such as
Crackle and Hulu.
Finally, Mr. Chairman, a word about portability. Simply
put, today audiences want the convenience to access the content
they purchased on a variety of devices without having to buy
the same thing twice, and we are delivering to that promise.
This began a few years ago as our companies started to include
with many DVD and Blu-Ray disc titles a transferable or
downloadable digital copy for consumers to use on their
computers or their portable devices. Now there are a variety of
ways to buy once and play everywhere.
One exciting innovation comes from the Digital
Entertainment Content Ecosystem, which is a consortium of more
than 60 studios, retail stores and technology firms that has
created UltraViolet, which is a cloud-based digital storage
locker for consumer content. It works like this. When a
consumer purchases UltraViolet media such as a Blu-Ray or DVD
or Internet download, the consumer receives the enduring right
to access that content on any UltraViolet device registered to
their household and to enjoy that content via streaming through
the devices at home or on the go. Presently, over 5,000 titles
are available through UltraViolet and over 3 million consumers
have set up accounts in less than one year. This spring,
Walmart began offering consumers the ability to convert their
current DVD and Blu-Ray collections to digital UltraViolet
copies that can both download and stream. Walmart estimates
that the average user of this service brings about seven discs
to the store, and each conversion takes approximately a minute.
Other complementary digital initiatives are also being
developed such as Disney Studio All Access, which will provide
consumers with easy access to Disney content across multiple
digital and video services and devices.
In closing, Mr. Chairman, we are relentlessly innovating to
keep pace with the evolving demands of our audience and to give
them more choices on how they view our content. We are
committed to that. As this committee considers the appropriate
policies for the future of video, we hope that you will
continue to recognize that as promising as these new forms of
distribution are, they all need content to reach their full
potential. A video streaming site, satellite television
company, a broadcaster, they are all terrific technologies, but
without the content that consumers want, they simply don't
reach their full potential. Make no mistake, we will always
have an incentive to seek our new ways for our content to be
distributed but we must be allowed to be compensated for it and
we must be a part of the discussions on how it is distributed.
The topic today is an important one, and we are pleased to be a
part of this dialog and we look forward to working with you in
the weeks and months ago.
Again, Chairman Walden, Ranking Member Eshoo, I want to
thank you for your time this morning.
[The prepared statement of Mr. O'Leary follows:]

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Mr. Walden. Mr. O'Leary, thank you for your testimony and
thanks to all of our witnesses for enlightening us on your
views on these very important issues related to the world of
video.
I am going to start my questioning with Mr. Johnson. I
appreciate your comments and the situation you face, and I want
to just kind of get above your company per se but raise the
issues that come up in this new world we are in. I understand
why you would want the protections of the Communications Act
that afford multichannel video program distributors, but are
you prepared for the responsibilities? And so this probably
goes to others as well. For example, are you willing to live
under the must-carry rules, the rules requiring the competitive
availability of set-top boxes, the network non-duplication and
syndicated exclusivity rules and the closed-captioning
emergency information requirements? So that is all the other
cars attached to the Communications Act. Tell me what that
means to your world.
Mr. Johnson. Chairman Walden, we are currently already
offering closed captioning. We currently offer the EAS service.
As far as must-carry retransmission consent, we are not going
to be carrying any type of local broadcasting. We have done a
marketing agreement with a company called Antennas Direct,
which sells over-the-air digital antennas, so that our
subscribers that want to receive over-the-air programming can
do that through them. So we will not be entering into any
retransmission consent issues.
Mr. Walden. But what if you were required to?
Mr. Johnson. Well, we would have to look at that when it
happens.
Mr. Walden. I am going to ask the same of Mr. Hyman and Mr.
Funk, given the world you are operating in now. Do you want
everything that is in the Communications Act good and some
might argue burdensome?
Mr. Funk. I think our position is the current situation
where there is a competitive environment to innovate is
probably the right approach. There are some parts of the
requirements that I think will naturally come to the markets
such as closed captioning and other things that are a benefit
to consumers but a lot of the regulations that have been
written were really written for a different environment than
exists today.
Mr. Walden. Mr. Hyman?
Mr. Hyman. I agree with Mr. Funk in the sense that I think
this highlights some of the antiquated notions of the Cable Act
with the definition of MVPD, and I also think that it is
something that in connection with determining MVPD should be
done on a broader scale than in a single regulatory filing.
Mr. Walden. All right. Mr. Johnson, Mr. Hyman, Mr. Powell
and Mr. Ergen, isn't it a little strange that a child could be
watching the Sprout Channel's Caillou on the same television in
the same living room but the way that programming got there may
have been subject to different rules depending on whether it
was provided by Sky Angel, Netflix, a cable company or DISH?
Shouldn't the regulatory or non-regulatory treatment be the
same? Mr. Johnson, I will start with you.
Mr. Johnson. Well, we are asking for a level playing field
that, you know, we have the same access to the programming that
our competitors do, and because the definition of MVPD is up in
question, we have not been able to have the access to that
programming.
Mr. Walden. Mr. Ergen?
Mr. Ergen. Well, in general, I would say yes, the rules
should be the same. To your earlier point, to the chairman's
earlier point, if you are going to be an MVPD provider, you
have all the rules or eliminate the rules for the current
incumbents. Having said that, there are cases where things are
a little bit different between the technologies and I think you
have to look at it on a case-by-case basis. Cable is more of a
local service. Satellite, for example, is a national service.
It remains to be seen how the IP networks that Mr. Johnson and
others are doing, whether it is going to be national or it is
going to be local. So, you know, it depends on--there may be
some differences because of that.
Mr. Walden. Mr. Powell?
Mr. Powell. Yes, Mr. Chairman. I largely agree with Mr.
Ergen. I think what you are having is, this is just a continued
evolution of the challenge of convergence in which technologies
increasingly bring sameness to the way things are provided and
distributed. But that said, I wouldn't make the hallmark of
suggesting that things are insimilarly situated just because
they can produce the same content, the same show. There are
different business models, different terms, different
technologies underlying it. The cable industry spends $186
billion over a decade to build an infrastructure that is
optimized for premium, high-quality, low-latency content. That
is very different than the same content being sold on iTunes
for $2.99 in a model largely designed to sell iPods more than
it is designed to sell content. So as long as we are cognizant
these different business models are often pursuing different
central objectives, just because they have the same content
doesn't necessarily make them identical. But as we look at a
new statute, I do think there should be more sameness than
there is today.
Mr. Walden. My time is expired, but, really trying to get
to the heart of the issue here. Everybody wants a little
different deal, the other guy's deal, and so we are trying to
sit here and figure out what is the right regulatory regime to
really spur innovation and competition in a marketplace that
functions, so your input is most valuable.
With that, I will turn to my colleague from California, the
woman who is proud to represent innovation and technology, Ms.
Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman. I think you have hit
the nail on the head because I think that we all want to see an
acceleration of innovation, that it not only be--you know, that
we motivate things through, whatever it might be, a change of
the law, whatever rules at the FCC, because this is really one
of the more exciting areas relative to our national economy
that holds so much promise, and there is an insatiable appetite
on the part of consumers, and so I think this morning's hearing
is really highly instructive but right below the surface there
are all these different cases.
I have four questions that I want to ask starting with Mr.
Funk, Mr. Hyman and Ms. Sohn. We are very well aware of the
consumer demand for innovative data-intensive video
applications like Netflix, Amazon video and Hulu, they all
continue to grow, while at the same time the wireless carriers
are moving away from the unlimited data plans. There was a
piece in the New York Times yesterday that talked about
broadband moving to meters.
First of all, do you think that this curtails innovation?
And if so, how would you address it?
Mr. Funk. Well, first of all, there have been speed-based
tiers in Internet service for some time, so the idea of some
different classes of service for Internet consumers is not new.
I think the important thing is that as long as there is
competition among Internet service providers, providers who
give good value to consumers will get the business, and if the
tiers become restrictive in a way that they disadvantage some
services or restrict choice in a competitive market, companies
that provide those services will not succeed. So I think the
key here is really competition in order to ensure that we get
the right outcome.
Ms. Eshoo. Thank you. Let us go quickly.
Mr. Hyman. There has been a lot of talk about the
competition in the video marketplace.
Ms. Eshoo. You traveled across the country and you have got
30 seconds.
Mr. Hyman. Thousands of video channels and it is the golden
age of video. I think that is true. I think the one thing that
we have to be mindful of and that I would suggest this
committee to be mindful of is that Internet video, there is
only one way to get Internet video and that is over an Internet
pipe, and there are very few carriers that provide Internet
video. In some places, there is only one carrier that people
can access that, and the ability to have competition in that
marketplace is something that you guys should be mindful as you
go on and think about Internet video.
And with respect to our issues out there, you know, the
issue that we have been raised and been very public about, is
the application of discriminatory data caps and the way in
which the same content that is delivered over the----
Ms. Eshoo. When are they discriminatory, and when are they
not?
Mr. Hyman. When are they, and when are they not?
Ms. Eshoo. Right.
Mr. Hyman. So the same content from Netflix or the same
content from, for instance, Comcast over Streampix, one counts
against a data cap and the other one doesn't. So from our
standpoint, well, if you are going to implement data caps,
there are innovation issues associated with data caps but they
should be applied equally or not applied at all.
Ms. Sohn. Let me give you an example. I agree with my
colleagues to the left. So a perfect example of discriminatory
data caps that we are concerned about is what Comcast is doing
with the Xbox 360. So it is exempting its own Xfinity app from
the data cap but Netflix and others are subject to the data
cap. So while we don't think the data caps are inherently bad,
when they are arbitrary, they can be abused, they can be
anticompetitive. Remember, ISPs also own video services so
there is an incentive and an ability to discriminate against
online video competitors.
And if I could just say one more thing. One of the things
that really galls us is that we have been asking, Public
Knowledge has been asking the FCC now for almost 2 years to
look at data caps, not to regulate them, look at them, find out
how they are evaluated, how they are raised or lowered so
people can have an idea of what these caps are intended to do,
and they have just refused.
Ms. Eshoo. Thank you.
Mr. Funk, it is my understanding that 20 percent of your
customers have dropped their cable or satellite service. What
factors do you think would leave more of your customers to
consider Roku as an alternative rather than a traditional, you
know, rather than a complement to traditional cable or
satellite service?
Mr. Funk. We do see a percentage of our users who have cut
the cord, as it is called, and dropped their cable or satellite
package. It is the minority, as you said. I think there is a
variety of reasons for this. In some cases, it is cost, and in
some cases it might be a living situation or just individual
preferences on programming. I think what is interesting is that
there are now choices that allow consumers that opportunity so
things like Netflix and Hulu Plus give people who want
potentially a different selection of video at a lower price the
ability to get that. So I think increased choice of offerings
is really the key to providing the right service for all
consumers. I think we provide one method for doing that. I
think you will see a lot more innovation in the coming months
and years as to how to do that better. So we are optimistic
that cord-cutting will lead to continued video consumption but
just in different fashions.
Ms. Eshoo. Thank you. I had four questions. I will submit
the other two in writing. I want to thank all the witnesses
because together you have made this not only an important but
an instructive hearing on the future of video.
Thank you.
Mr. Terry [presiding]. Thank you.
The chair recognizes Chairman Emeritus Mr. Barton.
Mr. Barton. Thank you, Mr. Terry.
I first want to take a little victory lap this morning. The
college presidents announced yesterday we are going to have a
non-BCS football playoff in college football, and I can take a
little bit of credit because back when I was chairman of this
committee, we had some hearings on that and we got the ball
rolling and they announced a 2014 playoff, so I want to commend
them but also take credit for this committee highlighting that
issue several years ago. I don't think the 2014 playoff is the
ultimate but it is a start in the right direction. When they
get to eight or 16, I think they will have it.
My first question is to the audience. I want somebody in
the audience to tell me the original analog televisions, how
many channels were on them. Anybody that is my age ought to
know. I see one hand out there. How many? Somebody? No, not how
many you got but how many were on the dial. There were 13.
There were 2 to 13 but there was no number 1. I never
understood why there was no number 1. But you could go up to
13. As Mr. Powell just pointed out in his testimony, there is,
like, 900 programs available now. We have gone from--my first
TV, we got one channel on a good day, and now we have got
thousands literally.
I think it is time to review the telecommunication video
market. I think Mr. Walden and Ms. Eshoo and Mr. Upton and Mr.
Waxman are to be commended for agreeing to do this hearing. I
think there are some principles that we need to remember as we
look at this, and this is just my scratches so I don't claim
this is the universe. But obviously in order to have a program,
you have to have a creator. In this country, we have never
regulated the creator of the programming. Then you have to have
a producer, and to my knowledge, we have never regulated the
producers. Now, there have been efforts at censorship but in
terms of creativity and production, we basically let that be a
free market operation.
Once you have a program, you have to have somebody to
package it and market it. You have to have somebody to transmit
it and then obviously you have to have somebody to buy it,
somebody to view it, somebody to consume it. When you get into
the packaging and the transmission is where we had a role for
government. I think it is a truism that form follows function,
and our original regulatory format was based on the fact that
where there was radio or television, there was a potential for
a natural monopoly, and government either tries to prevent
monopoly or regulate monopoly, and a lot of the rules that we
are talking about here originated when the radio market and the
early TV market was getting started. As Mr. Powell pointed out,
the advent of the cable industry brought video to more people
but it also brought additional regulation.
I was the only member of the committee back in the 1980s
that voted against the re-regulation of cable, the only one on
either side of the aisle when the first President Bush was
President, and I was at the White House when we deregulated
cable. When we passed the telecommunications Act in 1996, there
were at least four and maybe five or six witnesses at this
table that their industry or their company did not exist, did
not exist. I couldn't tell you today what Roku is, and I
listened to the president of Roku try to explain what it is.
So I think, Mr. Chairman, I know it is too late to do a
major bill in this Congress but I hope in the next Congress we
take this up and use original principles to review the market,
and in general, I think we are better off having less
regulation than more and more enterprise and more market
competition than less. The role of government is to provide a
level playing field to prevent a monopoly if possible, if we
can't prevent a monopoly to try to prevent undue market share
and be fair to all.
So I think this is an excellent hearing, and I look forward
to big things happening on this committee in the next Congress.
The last thing I will say: If we are going to do big
things, it has to be done no a bipartisan basis. This is not a
partisan issue. It will go nowhere if it becomes R versus D. It
has to be done in a bipartisan basis, and the good news is,
with the leadership on both sides of this committee, that is a
very doable deal.
With that, I yield back, Mr. Chairman.
Mr. Terry. I would agree.
The gentlelady from California, you are now recognized for
your 5 minutes.
Ms. Matsui. Thank you very much, Mr. Chairman.
First of all, I would like to welcome all the witnesses
before us today, and I would just like to acknowledge the great
work that a Hearst-owned station, KCRA, is doing for my
constituents in Sacramento.
You know, local news and weather as well as other local
programming is important to all Americans, not just to my
constituents, and I like to get a better understanding from our
witnesses about the role of retransmission consent and
preserving our shared commitment to localism.
Mr. Ergen, I understand that retransmission consent
payments are used by broadcasters to support local news and
local weather. How would you respond to concerns that changes
in the retransmission consent regime could undermine quality
local programming?
Mr. Ergen. Thank you for the question.
First of all, retransmission consents--and maybe Mr.
Barrett can give us a little bit more information on this--in
my understanding generally goes some to the network. If it is
changed where the network themselves, the major network may
take some of that and a large part of retrans consents does not
actually flow to the local broadcasters anymore. That is the
way it started but now the national network will take a large
portion of that. And then second, of course, the broadcast
model is a two-prong model, the retransmission consent fees and
also advertising fees so they get ad revenue from two sources.
The troubling thing is that despite the fact that
retransmission fees have gone up probably 200, 300, 400 percent
since I started in this business, the actual localism and local
level has actually gone down from a local news perspective in
the sense that to cut costs and operate more efficiently, many
broadcasters are sharing local news networks and so forth. In
many cities today you will see that a network show, a news show
will be on multiple networks or there will be sharing of
resources, so very similar to what the newspaper industry did
as well.
Ms. Matsui. Sure. Mr. Barrett, would you like to comment on
that?
Mr. Barrett. Well, I disagree. The 21st century media
company needs a dual revenue stream, and for years, the
television industry operated with an advertising-only model.
The cable industry was launched and helped us get our signal
into rural areas but then built a significant business on the
back of the most popular programming available to Americans in
every community in this country, and that was local television.
I would say to you that we are using as an industry the
retransmission consent fees to invest in our local businesses.
It helps support the investment we made in digital technology,
which was multiple billions of dollars over the last decade. I
think you have seen most local stations, many local stations go
from producing 20 hours a week of programming to 40 hours of
week of programming exclusively in the local news genre. We
have added multi-cast channels on our signals now which are
trying to get clearance on settlement and cable, so I would
disagree with Mr. Ergen that that money is not being used in a
constructive way to advance the business interest of local
television.
Ms. Matsui. Well, Mr. Barrett, how would you respond to
concerns some parties have raised about the impact of broadcast
stations' coordination and consolidation on retransmission
consent negotiations?
Mr. Barrett. Well, I think speaking for our company, we
negotiate only on behalf of the owned stations of the Hearst
Company. Other companies have pooled some of their
retransmission consent negotiations, have created bundles, but
I believe in most cases, in all cases, people have been smart
enough to acknowledge that they have to break up a bundle. Mr.
Ergen wants to buy a station where we have a duopoly separately
from KCRA. If you would like to buy KQCA, I will sell him KQCA
separately, I will sell him KCRA separately.
Ms. Matsui. Mr. Ergen, your thoughts quickly.
Mr. Ergen. Yes, I think the problem is, is that in
retransmission consent, the local broadcaster is in fact a
government-sponsored monopoly. In other words, nobody else can
bring that signal into that marketplace today, so it is a
little bit of an unfair fight, and what has happened is, I will
give you one example. In Wyoming where one individual got the
rights to negotiate for all three broadcast networks in
Cheyenne, Wyoming, so there was either no local networks in
Cheyenne or you had to pay whatever rate----
Ms. Matsui. But would you say----
Mr. Ergen. And so the signal actually had to come down and
so consumers lost because of unfair bargaining between--it is
one thing to be an unregulated monopoly, it is another thing
then to band together and negotiate on behalf of multiple
stations in the same market.
Ms. Matsui. Would you say, though, this is not the same
throughout the country? I mean, it appears that what Mr.
Barrett in certain areas like where Sacramento may not be the
same way as what you are talking about in Wyoming and other
areas.
Mr. Ergen. I would agree with Mr. Barrett that each
broadcaster handles it differently so Mr. Barrett's company
handles it in a very professional manner with just their
networks. Other people utilize their market power and that
mischief can happen, now, of course, legally sanctioned.
Ms. Matsui. Well, I have run out of my time. I would like
to submit some written questions.
Mr. Terry. Absolutely. Thank you, Ms. Matsui.
Now I recognize myself for 5 minutes, and I will spend most
of my time with you, Mr. Powell. But first I want to just give
a little anecdotal story. When I walked into my 17-year-old's
room and, by the way, we got him a TV for his room for
Christmas thinking that when he graduates, it will be a good
thing for him to take to college. Hopefully he is going to
college. But I walk into his room and he is on his iPhone and I
said hey, what is going on; oh, just watching Netflix, on his
iPhone, and there is a TV sitting right there, and that is the
world we are living in. That is the people that are going to
dominate the consumer products and video markets for the years
to come. I think of turning on the TV; they don't.
Mr. Hyman. Is the TV Internet connected?
Mr. Terry. Good point. Yes, he has the Xbox 360. Yes, so he
can do it that way as well but he just chose to do it on his
phone.
So Mr. Powell, it is interesting that you mentioned the 57
percent. In 1992, Congress was concerned about the cable
monopoly. That does not exist today if you are at 57 percent
and the folks that are sitting on this panel. So what does that
really mean to the cable industry? How is it evolving to be
competitive? And in reference to the 1992 Act--let us try and
not be redundant on Ms. Matsui's questions of retransmission--
but what other underbrush is there from 1992 that was just so
focused on the cable industry? What do we need to do to clear
out the brush? What specific things should Congress look at if
we want to review the 1992 Act?
Mr. Powell. Well, the first thing I would say is, the
beauty of competitive dynamics is, you have to increase value
for consumers, and you can do that through innovation,
evolution of your service, and I think that the competition we
face first and most formidably from the satellite companies
increase both the quality of content that we are providing, the
amount of content we are providing. It forced us to look at new
businesses for revenue development to continue to be
competitive, which is part of the dynamic that I think helped
drive investment in broadband and ultimately brought that into
the bundle of services we offer as well as telephony. If you
look at the wonderful things that the over-the-top folks are
doing, you see cable companies knowing they too have to be able
to bring that value to your son to be able to allow him to
watch what they are selling over iPads and Xboxs as well. So I
think that dynamic has driven a lot of innovation.
I would give you a more global answer about what to change,
so I think that the 1992 Act had two core fundamental
foundational elements. One, that we were a vertically
integrated exclusive monopolist and a whole bunch of other
rules that were premised on supporting and subsidizing
broadcasting for the protection of the social compact that
America supposedly wanted to advance in the context of
broadcasting. I think vertical integration rules when an
industry only has about 14 percent of its operators integrated
with content, these would be rules like program access, program
carriage and rules that are premised on the idea that you have
to guard against incentives associated with both being a
distributor and owner of content. I think when we have a
dialog, those are the kinds of rules we should have to talk
about.
But to be fair and honest, I think you also have to sort of
reevaluate elements of the social compact. You know, is it
still the policy of the United States that the cable industry
should continue to forcefully subsidize the broadcasting model
through must-carry, retransmission consent and other elements.
I am not prepared to answer them.
Mr. Terry. Well, one last question and then hopefully we
can have time for the broadcaster, Mr. Barrett, to rebut that.
We are getting calls in our office about cable rates going up,
and I think this goes to the vertical integration model that
was thought of as cable then but you are not the content
provider today. Could you explain very quickly in 26 seconds
how that it is impacting the business model and what we should
be telling our constituents?
Mr. Powell. So price is two things. One, I think any
industry in this day and age under economic stress who is not
sensitive to affordability of the American consumer is acting
at its peril, and I think our industry is very focused and
looking for ways to do that. You are seeing companies
experimenting with smaller and lower priced packages. You are
seeing basic packages being offered for one. Secondly, I think
it is very difficult to compare prices over time because there
is so much more that is in the suite of bundled services that
consumer are buying--DVR, more channels. I would leave you with
one statistic. On an hourly basis, cable is about 21 cents per
hour. That is cheaper than even Netflix subscription and most
other entertainment products in the market.
Mr. Terry. Is that viewing hours or 24 hours in a day?
Mr. Powell. Viewing hours, 8 hours a day.
Mr. Terry. Thank you.
At this time the chair recognizes the gentlelady from the
Virgin Islands, Ms. Donna Christensen.
Ms. Christensen. Thank you, Mr. Chairman, and welcome to
all of the panelists this morning. Thank you for holding this
hearing. I have a couple of questions. I probably won't use up
all of my time.
Ms. Sohn, you advocate for eliminating the broadcast must-
carry rule but you also note on the other hand the importance
of protecting the public and non-commercial stations. So what
policies would protect this programming without a must-carry
rule?
Ms. Sohn. I think we would be comfortable with preserving
must-carry for public stations but, you know, as far as
commercial stations are concerned, my feeling, our feeling is
that if local broadcasters are indeed providing good local
programming, cable casters will want to carry them because
their customers will demand it, but I don't think they need the
protection of must-carry.
Ms. Christensen. And Mr. Barrett, I know one of the
concerns is advertising revenues, so how are broadcasters
looking to respond to the pressures on advertising revenues
from the new technologies and services?
Mr. Barrett. Well, one of our challenges has been an
accurate measurement from Nielsen. It has been a challenge as
to we have moved to a time-shifted world of viewing for Nielsen
to capture that television viewing, and that has had downward
pressure on commercial pricing. Retransmission consent has been
a new revenue stream as we have referenced. The multi-cast
business has been a new revenue stream for us and we are
optimistic that mobile television as it rolls out over the next
several years will be a new revenue opportunity for local
stations as well, and that will help offset some of the
downward pressure on ad rev.
Mr. Terry. Is your mic on?
Mr. Barrett. Now it is on. I am a TV broadcaster. I should
know that.
Ms. Christensen. Mr. Powell, you and all of the other----
Mr. Terry. Could he answer that again and we will stop the
time?
Ms. Christensen. Sure.
Mr. Barrett. Our challenge as broadcasters has been to be
sure that Nielsen captures the viewing that has occurred on
time-shifted--on the television experience that is time-shifted
on DVRs and the like, and very briefly, the new revenue
opportunities we have with retransmission consent, multi-cast
and, in the future, mobile television, the extent that those ad
revenues will help replace and support some of the downward
pressure on ad revenues against our core video product.
Ms. Christensen. Thank you.
Thank you, Mr. Chairman.
And Mr. Powell, you and all of the other panelists have
pointed out the way the competitive environment and technology
has changed and is continuing to change, and you recommended
re-examining a lot of the rules, the regulatory rules, program
access, content carriage obligations as well as must-carry
transmission content and non-duplication rights. So some would
say that if we were to weaken any of those rules, it would give
cable an unfair competitive advantage. Given the wide choices
that are available today, how would you respond to that?
Mr. Powell. That is a great question. I think the way I
would characterize it is, I don't think the cable industry's
position is we are just looking for a wild, abandoned
deregulation. I think we are looking for a more rationalized
regulatory model that more properly reflects the reality of the
market. We think a lot of the rules that we are currently
living under, if you accept the way they are premised, would
fall under a standard by today's measurements.
Now, I am perfectly willing to entertain that somebody
could conceive of a different basis or a different reason for
some sort of regulatory rule but I think that the obligation,
the burden should be to prove that from a zero base, meaning
giving the reality of today, not the legacy of yesterday, why
do you still need this rule or why do you need some new
proposed rule? So I really wouldn't say that I think we are a
cooperative partner in trying to make sure the policy is right
as opposed to just some random, get rid of everything because
it is stupid but we do think it should be justified based on
what we are seeing in the market, and given all the wonderful
things you have heard, we think on balance, that would be a
dramatically lighter regulatory regime.
Ms. Christensen. Thank you.
Mr. Chairman, I will yield back the balance of my time.
Mr. Terry. Thank you.
Ms. Christensen. Thank you.
Mr. Terry. At this time we recognize Mr. Stearns for 5
minutes.
Mr. Stearns. Thank you, Mr. Chairman.
Mr. Barrett, you have been getting all the questions. I
have a little delicate question, which is more or less confined
to my Congressional district. I represent the University of
Florida in Gainesville, and it appears there is a dispute
between DirecTV and the ABC affiliate, WCJB, over transmission
consent fees. You are probably not familiar with that.
Mr. Barrett. I am not familiar with that. We own the NBC
affiliate in nearby Orlando.
Mr. Stearns. I don't necessarily want to get involved with
this business dispute, but some have suggested that because now
Gainesville and Alachua County, they have DirecTV, they can't
even get ABC now. It is sort of a blackout. And I guess in your
opinion, are these blackouts becoming more frequent?
Mr. Barrett. I think they are very infrequent. Cox happens
to own the ABC station in Orlando. We own the NBC affiliate
WESH in Orlando, and over the past several years or so, there
has been a new NBC affiliate licensed to Gainesville to that
marketplace, and you may infer that we stood aside and did not
challenge that NBC affiliate that went into that marketplace.
Mr. Stearns. Mr. Ergen, what is your reply to that? Are
these blackouts becoming more frequent? Are they a problem for
DirecTV?
Mr. Ergen. They are becoming more frequent. I can speak for
DISH Network.
Mr. Stearns. Mr. Chairman, we have a clear difference of
opinion here between----
Mr. Ergen. And perhaps we can get the committee to----
Mr. Stearns. But your position is, they are becoming more
frequent?
Mr. Ergen. Yes. I can speak for DISH Network. We had six
blackouts last year. We have had nine already this year.
Mr. Stearns. So if you have had nine this year, and let us
take Gainesville, for example, and they can't get ABC so they
call you up and say why can't we get ABC, what do you say?
Mr. Ergen. You basically say you are working with the
broadcasters to negotiate a fair rate for them. You know, what
happens is, it is bit of an unfair food fight because the
broadcaster--because everyone has a choice to switch to another
video provider, A, and B, they only get--their sweeps ratings
only happen four times a year so they only get measured four
times a year by Nielsen, which affects their advertising rates
except by law, is my understanding, cable companies can't take
down a network during a sweeps rating. So it is just not a fair
fight out there today and it is become more prevalent.
Mr. Stearns. What do you think a solution should be? Is
there a solution? It seems like----
Mr. Ergen. I think there are some fairly easy solutions. I
mean, as an example, if we are going to make it a market
determinant, I am all for that, but that means that we should
be able to--if you don't have the Gainesville ABC station, then
you would have to go to a stand-still arbitration or you have
to have the right to import an ABC station from Orlando, for
example, so the customer doesn't do without the ABC network
while the dispute is going on. Then you get a free-market
system working where it is more of a fair fight between the
broadcaster and the distributor.
Mr. Stearns. I don't necessarily want to get involved with
this dispute, so I mean----
Mr. Barrett. You have opened Pandora's box here.
Mr. Stearns. I know.
Mr. Barrett. We would strongly resist the----
Mr. Stearns. Well, I have given you a chance to speak and I
have given him, so I don't know, because he will want to speak
after.
Mr. Barrett, I understand that broadcasters are poised to
deploy mobile DTV services to allow viewers to watch live local
news, emergency alerts and other programming on the go. What
are the differences between broadband mobile DTV and video over
broadband that is currently available on cell phones and can
mobile DTV help alleviate some of the pressure on the wireless
bands?
Mr. Barrett. The architecture of the broadcast as a single-
point, a multi-point distribution is the superior distribution
system. It doesn't run into broadband congestion. If I invited
you to a Yankee game in New York City and we wanted to go
online, you would have trouble in Yankee Stadium on any given
weekend connecting with a broadband supplier that didn't buffer
and didn't have real signal limitations. An over-the-air
broadcast signal could touch everyone in that stadium
simultaneously and there would be no signal degradation at all.
It is a vastly superior distribution system of the signal
Mr. Stearns. OK. My last question, Mr. Ergen, I think we
all understand the need for more spectrum. I think the FCC is
moving forward on a rule regarding the S band spectrum DISH
recently acquired in order to build out a wireless network.
What is the status of this item and when will the FCC issue its
final order on this proceeding, in your opinion?
Mr. Ergen. Well, we first went through a waiver process
last year and ultimately were denied that waiver by the FCC.
Then we went into a rulemaking process, which is now complete
in the sense that all the comments are in from all the parties
who might be affected either in a positive or negative way by
our entering into the wireless business and now it is just in
front--the rulemaking now just has to be decided by the full
commission, the five commissioners, to make a decision. We are
hopeful that they can do that by the end of the summer. Other
than time--we realize the FCC has a lot of other things on
their plate, as Michael Powell can speak to when he was there.
Other than time, they have all the facts in to approve it, so
we are hopeful they will do it by the end of the summer, and
then that unleashes 40 megahertz of spectrum and of course
obviously a huge investment in this industry and jobs at a time
when, you know, a lot of companies are hoarding their cash
because of an uncertainty out there. We are certainly hoarding
our cash because we are waiting on the FCC uncertainty that
they can alleviate that problem. So it is a case where business
and government can work together to do the right thing for
consumers and also unleash productivity and investment in the
United States.
Mr. Stearns. Thank you, Mr. Chairman.
Mr. Terry. Thank you.
The chair now recognizes the gentlelady from Colorado, Ms.
DeGette.
Ms. DeGette. Thank you very much, Mr. Chairman.
Sitting here listening to this testimony reinforces my view
that this retransmission consent issue is a very messy issue
and there is not a one-size solution. Most people would like to
see agreements reached that are fair to consumers and I think
one thing almost everybody could agree with is Congress
shouldn't put too heavy of a finger on that scale. We should
really try to allow the market to come to a solution.
I believe that we need access to free and diverse and local
news and local programming and information in an emergency. I
was just looking at some of my local news on these wildfires in
Colorado and there is a good example of how consumers in
Boulder or in Colorado Springs or Fort Collins need to be able
to get access to local news. And so that is a balancing that we
have to have, and also several members of the panel talked
about mobile TV and how much promise that that has. But the
strong argument supporting the value of broadcasting to
consumers doesn't necessarily equate to a justification for
pulling a signal from cable or from satellite viewers if
retransmission consent negotiations fail, and I am thinking
about this from the standpoint of my constituents who work all
day, who barely have time to sit down in front of the
television, who want to turn on the first game of the World
Series with hope the Rockies might be in it, although maybe not
this year, but they can't get the programming they want because
we have had failed retransmission consent talks.
And so my first question is a simple question, and if
preferable, I would like to have a yes or no, and that question
is, do you think blackouts as a result of the failure of these
agreements are fair to consumers no matter how rare or how
often they might be? Mr. Powell, I will start with you.
Mr. Powell. No.
Ms. DeGette. Mr. Barrett?
Mr. Barrett. No.
Ms. DeGette. Ms. Sohn?
Ms. Sohn. No.
Ms. DeGette. And Mr. Ergen?
Mr. Ergen. No.
Ms. DeGette. OK. Thank you.
Now, Mr. Ergen, I have a question for you about this
AutoHop issue. As you testified in your statement, and I think
everybody knows, the AutoHop technology lets consumers skip
over commercials or other things that they don't want to watch,
and as you said, that would mean that when kids are watching
TV, they wouldn't have to see junk food and alcohol
commercials. I would submit that as the fall approaches, many
viewers would skip over the shock-and-awe TV commercials that
everybody is going to be treated to in the campaign this fall.
And so it--I am sorry?
Ms. Sohn. And the volume too.
Ms. DeGette. Yes, and the volume too. So I think the volume
is the issue.
But if people had AutoHop, it would let them decide what
they wanted to see. Now, I know that this is in the courts
right now, but talking not about the legal issues but consumer
choice and innovation in the free marketplace, doesn't AutoHop
simply improve on technology that is already available from the
DVR to what is possible through the DVR?
Mr. Ergen. Yes. I think it was settled legally 28 years ago
in the betamax case but the AutoHop does what everybody in the
pay-TV business does with DVRs which is, allows a customer with
the push of a button to record a channel or series of channels
and it allows customers with the push of a button to skip ahead
through a commercial. What AutoHop does it make it more
convenient for customers to do it. When I woke up this morning,
my alarm went off at 6 o'clock in the morning as it does every
morning, and I don't have to reset it every morning for 6
o'clock even if I'm in a different time zone. So AutoHop allows
you then when you choose to watch a prime-time show, you can
make the choice to AutoHop through the commercial with the push
of a button. And so it is--just as we regulated--I've sat
through regulation of, we have to have a rating system for our
TV shows so that parents can block them out, we now have
regulations to turn the volume down for commercials. It is
amazing we had to do that. It is amazing that commercials could
be that loud. And I think that we certainly don't need
regulation that prevents a customer, as I understand the
broadcasters' point, it is that consumers do not have the right
to skip a commercial and do not have the right to record a
show, and I think that, you know, we will fight the good fight
for the consumer.
Ms. DeGette. You know, I have to say, from the standpoint
of the broadcasters, I understand their business plan and their
revenue concerns but I think we have to balance the consumer
decision of what they want to see versus that business plan. We
need to work something out. I think we can all agree on that.
Mr. Barrett is eager to make a point
Mr. Barrett. I think if this committee is interested in
protecting localism, if you are interested in having your local
station cover the wildfires in Fort Collins, the AutoHopper and
that technology will be damaging to the local business model
and you will lose local stations' ability to provide the kind
of coverage that is important to you and your district.
Ms. DeGette. And that is why I am saying, I think for the
local broadcasters, I am sympathetic to the business model, but
we need to balance that plus the consumers wanting a choice. It
is not DISH that wants to have that choice, it is the consumer.
So I think we are going to have to work that out.
Thank you very much, Mr. Chairman.
Mr. Scalise [presiding]. The gentlelady's time has expired
and now the gentlelady from Tennessee, Ms. Blackburn, is
recognized for 5 minutes.
Mrs. Blackburn. Thank you so much.
I just have a couple of questions that I want to get to
today but I do thank all of you for your patience, for your
diligence in continuing to work on this issue.
Ms. Sohn, since you are the only female on the panel
today--I see seven guys and you--there is a lot I could say,
right? We need more women down there.
Let me go to something you said previously. You basically
endorsed having usage-based billing at one point by saying the
ISPs should charge a flat rate for a certain amount of
bandwidth and then charge a per-bit metered rate for usage that
goes beyond that limit. So what I wanted to see was if you
still agreed with that. And let us say if somebody is a Netflix
subscriber and they are using a large portion of capacity as
opposed to someone who just checks email and does a little bit
of surfing every day, should they be paying the same amount? So
where are you on that one?
Ms. Sohn. We don't endorse usage-based billing or data
caps. I mean, basically what we say is, data caps are not
inherently bad, but they can be abused and they can be used
anti-competitively to discourage people from using online video
to disadvantage competitors, so we are very, very concerned
about that.
One of the problems here is what is the rationale for
usage-based billing or data caps? Former Chairman Powell says
in his testimony and he said yesterday in response to questions
about the DOJ investigation well, we have to deal with
congestion on our networks. Well, data caps is a very blunt
instrument to deal with congestion because congestion only
happens at one point in time, right? So if I am backing up my
data at 3 o'clock in the morning, I am not causing congestion,
but that goes against my data cap. So I want to reemphasize
that it is really, really important for Congress and the FCC to
know how data caps are set, how they are evaluated, how they
are moved over time. I mean, Comcast just raised its data cap
for the first time in 4 years from 250 gigabytes to 300. Why
did it take so long with the explosion of video? So no, we
are--you know, we don't think usage-based billing is inherently
bad but it can be abused and it is very, very important to know
how they are used.
Mrs. Blackburn. OK. Mr. Powell, let me come to you. You
might want to respond to that. Then I want to ask you also to
talk a little bit about MFN and Most Favored Nation status, and
looking at that plus the alternate distribution method clauses
that are there in cable carriage contracts. You know, in
Nashville with a lot of the entertainers, they understand an
MFN approach when they are doing shows. And so with a lot of
our content producers and people that are pushing content
forward, we have got some questions about the MFN and the ADM
approach, so if you want to respond to what Ms. Sohn had to say
and then answer the second question, that would be great.
Mr. Powell. Sure. First, I would like to highlight
something she did say and by the way has been echoed by the
country's leading regulations, both the chairman of the Federal
Communication Commission and the chairman of the Federal Trade
Commission. There is nothing inherently wrong with usage-based
pricing just like there isn't--if you run your air conditioning
all day long at the lowest temperature and your neighbor
chooses to open the windows and have the breeze blow in, you
are going to pay more money than your neighbor is as a
consequence of your use. So inherently usage-based pricing is
about price fairness, that you are being allocated a portion of
the cost consistent with your use, and that is a very well
established economic principle and we don't think just because
you can condemn it in words makes it so.
The other thing I would say about caps, first of all, let
us be clear. Caps are not the industry standard. In fact, as
far as I know, after Comcast's recent change, there is not a
cable company that employs a cap that penalizes a consumer
after they exceed that cap. They are able to move to other
pricing bundles or increased capacity. So, you know, this idea
that we are all uniformly applying caps as a way of creating
artificial scarcity is not factually accurate. And I do think
there is an economically defensible reason for usage-based
pricing and threshold models and it is not about congestion
management, as Gigi suggested. It is about how do you fairly
monetize a very high fixed cost network? You have to dig up the
ground, put this thing in and you have to charge your end
users. And also I might note because of net neutrality, we are
not allowed to charge other corporations. We have to charge end
users alone. And how to do that fairly is the question that
cable companies are experimenting with.
On MFN, Congresswoman, honestly, I am not that much of an
expert on the specifics of these contracts. They have been
around a long time. I would note that in the DOJ supposed
investigation that is underway, DOJ looked at these MFNs in the
context of the Comcast/NBC merger and other merger-specific
deals and didn't find antitrust violations in those cases in
passing on them. So to be honest, they are contract specific. I
am not usually privy to the contours of them. I think they can
serve a beneficial purpose. I also think they can be harmful,
but that is what we rely on honest examination for.
Mrs. Blackburn. Thanks. I appreciate that.
My time is expired, Mr. Chairman. I will yield back.
Mr. Scalise. The gentlelady yields back.
Now the gentleman from Pennsylvania, Mr. Doyle, is
recognized for 5 minutes.
Mr. Doyle. Thank you, Mr. Chairman.
Mr. Barrett, I want to thank you for joining us today. I
know my constituents in Pittsburgh appreciate the Hearst
station that you have there. I just want you to elaborate more
on Mr. Ergen's comments about the hopper service.
My understanding is, there is a fair-use exemption for DVR
recordings. Can you explain to me why you believe that the
hopper service is so different than regular DVR service?
Mr. Barrett. I believe it goes beyond the contemplated
fair-use parameters. I think it is a copyright issue. It is a
matter that is in the court right now, and I will be anxious to
see how the court adjudicates that. It remains a threat to the
local broadcasting system and, you know, one of the best
qualities of the American society is that we have a local
broadcasting system that is in place in 210 markets, and in all
the determinations that you will make, there is going to be a
prioritization and a tradeoff of things, and I am here on
behalf of people who are committed to local communities and I
think there has go to be a high prioritization for preserving
that localism that these stations provide.
Mr. Doyle. Thank you.
Ms. Sohn?
Ms. Sohn. It is absolutely not a copyright issue, and to
me, this is a perfect example about how copyright is misstated
and misused, you know, to stop innovation. I mean, the Sony
versus Universal case, as Mr. Ergen said, is absolutely clear.
The public has the right to record what they want to record off
of TV, whether it be a VCR or DVR. That was 1984. That was a
long time ago.
Look, people have been skipping commercials for 50 years
since the guy who just died invented the remote control. This
is about consumer choice. I remember it was about 10 years ago
when Jamie Kellner from Fox said it was OK for people to go to
the bathroom to skip commercials. So what Mr. Ergen's AutoHop
service is doing is just turning three steps with a remote
control into one, and consumers should have the right to do
that.
Mr. Doyle. Thank you.
Mr. O'Leary, in your testimony you spoke about your
UltraViolet service. My understanding is that it is basically a
new way for consumers to be able to watch movies through the
Internet rather than having to purchase a DVD that they can
only watch on a DVD player. I find the service very
interesting. I have some questions.
On the UltraViolet Web site, you indicate that customers
can stream content on almost any Internet-connected device and
that they can also download digital copies when they don't have
good Internet access. Can UltraViolet customers download a
digital copy of a film onto any device or just certain
compatible devices?
Mr. O'Leary. My understanding, Congressman, is that it has
to be a device that is registered with UltraViolet service, and
that downloading is a component of it. I think in the first
phase, the emphasis, as your question highlighted, is in
streaming but they will have the ability to download it onto
different devices as long as they were registered.
Mr. Doyle. I just thought it was unclear on the Web site.
Based on the advertising, it kind of seemed like to me that I
could download the content onto any device of my choosing, and
I noticed some similar confusion from some other UltraViolet
users who thought they were going to get a digital copy of a
movie to watch anywhere. Can you explain what some of the
approved devices are that I can download my films to? What
would be an approved device, for instance?
Mr. O'Leary. Well, you could download it, for example, onto
your laptop, onto, you know, a tablet, onto different things
like that. I would have to get back to you with a specific list
of the types of devices, a complete list of the types of
devices that----
Mr. Doyle. Yes, I am just curious what these UltraViolet-
compatible devices are. I think it just might be easier for
consumers, you know, when you look at that Web site to
understand what actually they can use and what they can't use.
Mr. O'Leary. Absolutely.
Mr. Doyle. And just to follow up to that, does your service
give customers any guarantee that they will always have access
to the purchase they made? You know, I have my old DVD. You
know, some of them might be scratched up but I can still go
into the closet and pull out that DVD any time I want because I
know they are always there. Is there a guarantee that people
will always have access to a purchase they make?
Mr. O'Leary. Yes, Congressman, it is my understanding that
there is a perpetual agreement between the consumer and the
producer in that they will have access to those, yes.
Mr. Doyle. Thank you.
Mr. Chairman, with that I will yield back.
Mr. Scalise. Thank you.
The chair will now recognize himself for 5 minutes. When we
look at the video marketplace today, it is drastically
different than it was in 1992 when Congress passed the Cable
Act yet the laws and regulations written then still apply today
as if a monopoly power exists and as if innovation has come to
a screeching halt. I think it is important for us to go back,
you know, because we take for granted that technology--you
know, I can look on my video device and watch Swamp People
episodes on this video device and yet the laws that we have on
the books today were written when we had these devices for
telephones. So while I can do things today we all take for
granted, just remember, the law was written when this device
was your communications device. And so I think when we start
this conversation, it is real important to remember that
technology has changed dramatically yet the law hasn't changed
at all and so we have got a process today where if you have a
disagreement with the law, you have to go to the FCC and maybe
they rule your way one day, maybe they rule against you one
day, but shouldn't we have this open discussion.
Traditional distributors remain subject to archaic
regulations while new entrants operate virtually free from the
heavy of government but are constantly threatened by the
possible extension of these same obsolete rules. Since Congress
created the problem decades ago, it has a responsibility to
review and fix them today.
The current unfair system forces people to turn to the FCC
for relief and encourages new entrants to cherry-pick
regulations that benefit their platforms. I also question the
wisdom of regulating new startups and innovative services as
traditional video providers. They are not recipes for
encouraging the utmost innovation, investment and ultimately
competition benefiting consumers.
Modernizing this decades-old regulatory framework should
instead focus on providing relief to all stakeholders by
repealing the intertwined 1976 and 1988 compulsory copyright
licenses as well as the 1992 cable Act. Sweeping away these
government intrusions altogether will actually level the
playing field for content creators and video distributors
alike. Negotiations for broadcast content will then look much
like it does for cable programming where compensation is paid
for the issuance of traditional copyright licenses.
It is time we recognize the dramatic transformation that
has occurred in the video marketplace by getting the government
out of negotiations that should be strictly left up to the
private sector. I think I know somebody in this subcommittee
who has actually got legislation to do just that.
I am going to ask some of our panelists some questions
about this. First, if we can just go across the board and a yes
or no question. Do you believe the current video marketplace
allows consumers sufficient choice over what, when, where and
how they watch video programming? Yes or no, starting with Mr.
Johnson.
Mr. Johnson. Well, regarding our service, I would say no
because of the lack of programming.
Mr. Scalise. Thank you. Just yes or no.
Ms. Sohn. No.
Mr. Scalise. Mr. Hyman?
Mr. Hyman. Getting there, yes.
Mr. Scalise. Mr. Funk?
Mr. Funk. I agree with Mr. Hyman.
Mr. Scalise. Mr. Powell?
Mr. Powell. Make that three, yes.
Mr. Scalise. Mr. Barrett?
Mr. Barrett. Yes.
Mr. Scalise. Mr. Ergen?
Mr. Ergen. No, not yet.
Mr. Scalise. Mr. O'Leary?
Mr. O'Leary. Yes.
Mr. Scalise. OK. So we have got clearly a split amongst the
panelists here.
Mr. Barrett, I appreciate the work that WDSU-TV, the NBC
affiliate in New Orleans, does. It is one of the Hearst
affiliates. Do you currently have the legal rights to
sublicense all broadcast programming transmitted over your
signals to companies like Netflix and Sky Angel if so desired?
Who do you not qualify for compulsory copyright licenses?
Mr. Barrett. We have a limited right from our networks with
respect to how we may transmit their signal to other
distributors.
Mr. Scalise. So limited rights?
Mr. Barrett. Yes.
Mr. Scalise. OK. Mr. Ergen, your company is opposed to
paying for access to content?
Mr. Ergen. No, we are not opposed to paying for content.
Mr. Scalise. Mr. Johnson?
Mr. Johnson. When you say content, do you mean local
programming or cable channels?
Mr. Scalise. Any content that you----
Mr. Johnson. Well, no. We respect and have been paying for
the content
Mr. Scalise. Mr. Hyman?
Mr. Hyman. All we do is pay for content.
Mr. Scalise. Right. So this is something that already
occurs.
I want to ask Mr. Barrett, you all own a stake in A&E, the
History Channel, Lifetime, other cable channels, correct?
Mr. Barrett. That is correct.
Mr. Scalise. Now, those negotiations when you are
negotiating with different video distributors, is that a free
market? Do you all just sit at a table? Are there any
government-enforced compulsory copyright laws or retransmission
consent agreements that have to happen?
Mr. Barrett. We negotiate on behalf of Hearst Television
for the retransmission consent rights and are not involved in
any linked negotiations with Heart-owned cable assets.
Mr. Scalise. OK. I want to ask you about some comments you
made in your opening statement. On page 9 and 10, you made
specific reference to the legislation I filed, H.R. 3675. In
it, you say ``Cable and satellite providers''--you are
referring to their content. You said, ``First, they would turn
back the clock to a time when cable and satellite providers
confiscated and resold broadcast signals to their subscribers
without obtaining broadcasters' consent.'' I would first
suggest to you that my legislation does not do that. I would
hope you have read the sections that not only repeal compulsory
copyright but also retransmission consent, which means we would
revert to traditional copyright laws, and under the legislation
that I filed that you referred to, a company would have to pay
for the content that you would provide before they could
distribute it, yet you refer to my bill and you say that
providers could confiscate the content under my bill, which is
a mischaracterization. I wonder, did you read the bill and have
you re-looked at this statement?
Mr. Barrett. I have read the bill. If you say that this is
a mischaracterization, I will revisit that.
Mr. Scalise. And on a final question, Ms. Sohn, you look at
this industry. You have read the bill, too. Does this
legislation that I filed allow for people to confiscate content
and give it away or would they actually have to pay for it?
Ms. Sohn. No, of course not. I think the thing that keeps
getting lost in this conversation is that Mr. Barrett and his
colleagues get their transmission, meaning spectrum, for free
from the public, OK? They get it for free from the public. In
exchange, they are supposed to make that signal available for
free to the public. So this notion that they are somehow
entitled to money for their signal, number one, that has only
been the case for the last 20 years, so from the advent of
television broadcasting in the 1950s until 1992, you know,
other people were, quote, unquote, confiscating their signals.
But again, that signal is supposed to be free. I don't know how
you confiscate something----
Mr. Scalise. But under my bill, if somebody retransmits it,
they would have to actually pay and get an agreement with one
of Mr. Barrett's companies, pay to get the copyright license.
Ms. Sohn. Right, and that makes more sense. That eliminates
the middleman.
Mr. Scalise. So I would just ask if you could go back and
look at the statement.
Mr. Barrett. I will go back and look, but let me comment. I
think the characterization that we get this for free is a
mischaracterization. The public trustee model has been in place
since the 1920s and the 1930s Communication Act and it
acknowledges that the limited spectrum is a limited resource.
It belongs to the public and those most capable of serving the
public interest should be entrusted with that license, and I
think the body of record would show that local broadcasters in
this country have served the public interest very well and the
notion of free is baloney.
Mr. Scalise. Right. Well, that is referring to over the
air. I was specifically asking about the bill that was filed
and the copyright laws that would still be in effect if the
bill were to pass, that nobody should retransmit your signal
without first getting an agreement and compensation to you. All
right. I appreciate it.
Now Mr. Dingell, the gentleman from Michigan, is recognized
for 5 minutes.
Mr. Dingell. I thank you. I commend you for holding this
hearing and welcome to our witnesses. I have a lot of questions
to ask and too little time, so I hope you will help me by
answering yes or no.
This question to all witnesses, and I am going to make a
statement and then I am going to ask if there is anyone that
disagrees. We can all agree that consumers want innovative,
informative and entertaining new content. Absent such content,
new delivery methods won't matter much to consumers. Now, is
there anyone that disagrees with the statement that content
creators should be compensated fairly for the content which
itself should be protected. Is there anyone that disagrees with
that statement?
Very well. Now, speaking of some content, there is some
consternation, I understand--this question to Mr. Ergen--about
your latest invention's effect on content distribution so I
would like to explore this issue perhaps a bit more carefully.
Now, Mr. Ergen, is DISH Network currently being sued for
copyright infringement and breach of contract in Federal court
over its new hopper service? Yes or no.
Mr. Ergen. Yes. I would characterize it a little bit
differently. We filed a declaratory ruling----
Mr. Dingell. Thank you.
Mr. Ergen [continuing]. In the State of New York based on--
--
Mr. Dingell. Now, the next----
Mr. Ergen. Just let me finish, please, because I want to
make sure the record is clear. We filed a declaratory ruling
because----
Mr. Dingell. Mr. Chairman, may I have order, please?
The next question, Mr. Ergen, is it true that hopper only
automatically records and provides commercial skipping for
programs on the local four network affiliations in the market?
Yes or no.
Mr. Ergen. No, it does not automatically record.
Mr. Dingell. Thank you. Now, Mr. Ergen, is this so because
the channels are the most popular channels on your system? Yes
or no.
Mr. Ergen. It has to do with a variety of factors.
Mr. Dingell. Is that yes or no?
Mr. Ergen. Well, it is not a yes or no answer on that one
because----
Mr. Dingell. I have got an election coming up like all of
my colleagues here on the committee, and like every politician
everywhere, and we all use political ads on local stations to
reach our constituents, those who vote in the districts. The
hopper potentially limits the ability of every member of this
subcommittee and every one of our challengers to reach
constituents with ads to help them to make up their minds on
Election Day. Do you understand and appreciate the concern that
the politicians up here on the dais and other politicians
everywhere would feel in this matter? Yes or no.
Mr. Ergen. I understand consumers very well. I am not a
politician so I can't say that I understand your concerns on
whether someone----
Mr. Dingell. Very well. Thank you.
Now, given all of this, Mr. Ergen, I hope you understand my
skepticism when it comes to DISH's latest offering and its
effect on the future of video.
Now, I would like to use the rest of my time to learn a
little bit more about how the cable industry is adapting to new
Federal communications regulations to provide its subscribers
with new types of content and ways to do this. Now, Mr. Powell,
is it true that the cable industry supported the commission's
Open Internet Order? Yes or no.
Mr. Powell. Ultimately, yes.
Mr. Dingell. Thank you. Mr. Powell, again, if you please.
Help me remember, was use-based billing considered and allowed
by the Open Internet Order? Yes or no.
Mr. Powell. Yes.
Mr. Dingell. Mr. Powell, were managed services also
considered and allowed as part of the order? Yes or no.
Mr. Powell. Yes.
Mr. Dingell. Mr. Powell, I want to thank you for the way
you are proceeding here. So are cable companies delivering
products and services as well as practicing business models
that comply with the Open Internet Order? Yes or no.
Mr. Powell. Yes.
Mr. Dingell. Mr. Powell, in other words, cable is complying
with the order. Is that right?
Mr. Powell. Yes, we believe we are.
Mr. Dingell. Now, Mr. Powell, one last question, and I do
want to commend you again. The FCC just sunsetted its
Viewability Order. I think it is very important that cable
subscribers be able to access local content by smaller
broadcasters. Now, this is the question. What steps will NCTA's
member companies take to ensure that their subscribers can
still access local broadcast signals affected by the
Viewability Order's sunset?
Mr. Powell. Yes, we agree that it is important that they
continue to receive those signals. Eighty percent of the
consumers have already gone digital and they will not be
affected. As to the remaining 20 percent, we have committed to
low-cost boxes that would make that an affordable transition,
similar to the boxes broadcasters used for the HDTV transition,
and we have committed to providing adequate notice and a
transition period that will allow that to happen smoothly.
Mr. Dingell. Thank you, Mr. Powell.
And Mr. Chairman, to you my thanks. To the panel, thank you
for your assistance and your candor.
I yield back the balance of my time.
Mr. Scalise. The gentleman yields back.
The gentleman from Illinois, Mr. Rush, is recognized for 5
minutes.
Mr. Rush. Thank you, Mr. Chairman, and I want to thank the
witnesses also for their appearance before this subcommittee.
I have a question for the panel regarding the legal
construction of the MVPD definition that I will submit for the
record or may get to ask if we go another round of questions.
And if there is time remaining, Mr. Chairman, I would also like
to hear some of the panelists' views regarding the consumer
privacy matters. Privacy needs to be addressed as so many of
your business models depend heavily on advertising and there
are other emerging models not represented here today that are
rolling out video offerings tied to social media platforms.
But first, I would like to ask for the record questions
that pertain to the importance of more diverse ownership of
broadcasting, wireless, cable and information services
licenses. Mr. Barrett, while I agree with you that we should
lament the lack of diverse ownership and control of wireless
services, I would like to look more into something that is
written into your testimony. It says that, and I quote, ``The
broadcast model permits diversity of ownership and control that
does not exist in wireless services.'' Did you know, Mr.
Barrett, for example, that minorities make up more than one-
third of the U.S. population yet only own an estimated 3
percent of full-power commercial television stations and a
little more than 7.5 percent of commercial radio stations? And
I strongly suspect that minority cable system ownership numbers
are not much better or much lower. Do these numbers suggest to
you that there is sufficient diversity of ownership and
offerings of diverse video content and should we be concerned
that those levels could decrease even further following
voluntary relocation of broadcasters during the lead-up to
incentive auctions?
Mr. Barrett. I think those numbers suggest that there is a
sad limitation of the number of minorities that are involved in
ownership. I think my comments and my remarks were meant to
suggest that there are 1,700 or so TV stations across the
country. There is an opportunity for more diverse ownership
than there may be in a world where the national licensees and
national providers of this content is the reality that we live
with. I think the country is at risk in terms of less diversity
and I would note that minority groups are very dependent on
broadcast reception. Twenty-eight percent of Asian households,
23 percent of African American households, 26 percent of Latino
households are today receiving broadcast reception over the
air.
Mr. Rush. Thank you very much.
Mr. Chairman, without objection, I would like to enter into
the record a copy of a letter that was just filed with the FCC
a couple days ago by a number of stakeholders asking the FCC to
study the state of black radio ownership and programming
diversity and to adopt rules that address these disparities.
Even though the subject we are taking up today is video and not
audio, these stated concerns and the state of minority
ownership in the video marketplace is even more acute and
troubling.
Mr. Scalise. Without objection.
[The information follows:]

[GRAPHIC] [TIFF OMITTED] T2325.096

[GRAPHIC] [TIFF OMITTED] T2325.097

[GRAPHIC] [TIFF OMITTED] T2325.098

Mr. Rush. This is a question I have for both Mr. Barrett
and Mr. Powell around the issue of tax certificates.
In the past, Mr. Barrett, the association you are
representing here today, the NAB, has strongly endorsed passage
of legislation to establish a new communications tax
certificate program. Is that still the NAB's position?
Mr. Barrett. Yes, it is. The NAB would continue to support
such a legislative initiative.
Mr. Rush. And Mr. Powell, the association that you are
representing here today, the NCTA, also previously endorsed
passage of legislation for a new communications tax certificate
program. Is that still the NCTA's position?
Mr. Powell. Yes, Mr. Rush. In 2003, when Senator McCain
introduced tax certificate, as chairman of the FCC, I was an
enormous proponent and remain so.
Mr. Rush. Thank you very much.
Mr. Chairman, without objection, I would like to enter into
the record the FCC's Section 257 report recommending that
Congress reinstate a tax certificate policy. I will point out
that the statement of former FCC Commissioner Michael J. Copps
accompanying that order as being the source for the minority
ownership percentages that I cited earlier.
And with that, Mr. Chairman, I yield back the balance of my
time.
Mr. Scalise. The gentleman yields, and there is no
objection to the gentleman's unanimous-consent motion, so that
will be entered.
[The information is available at http://www.fcc.gov/
document/section-257-triennial-report-congress-identifying-and-
eliminating-market-entry-barriers-ent.]
Mr. Scalise. Now the gentleman from Massachusetts, Mr.
Markey.
Mr. Markey. Thank you, Mr. Chairman, very much.
Ms. Sohn, could you tell me what you believe the effect
will be of the proposed deal between Verizon and spectrum
companies on the telecommunications marketplace?
Ms. Sohn. So the Verizon/spectrum co. deal will have
several negative effects both for competition and consumers.
One is, because there are these side agreements--OK, there is a
spectrum sale and there is affiliated side agreements. Two of
the side agreements, one is a marketing agreement, one is a
reselling agreement, basically is an agreement between the
cable companies and Verizon to lay down arms and no longer
compete in the video or wireless marketplace. So Verizon and
AT&T will get the wireless marketplace to themselves and the
cable industry will get the wireline industry to themselves.
But even worse than that, there is something called the
Joint Operating Entity, or the JOE, and that is essentially an
agreement between those five cable companies and Verizon to
develop patents and technologies that would help to stream a
video from wireless to wireline systems, and that has an
enormous capability to be anticompetitive and used against, for
example, Mr. Ergen's company. If he wants to use that
technology, he would probably be charged, you know, very, very
high licensing fees or he might be told I am sorry, you are not
part of the club, you are not part of the cartel, you can't
have this technology.
Mr. Markey. Now, Mr. Ergen, are you afraid of that, that
you might not be part of the club? I guess what Ms. Sohn is
saying is that there is going to be cozy cooperation here that
exists and you just might get walled out. Do you agree that
that is a possibility?
Mr. Ergen. Well, unfortunately, we have not seen the
unredacted comments so I can't say specifically what they say,
but we would certainly have a concern where two vicious
competitors might get together to, A, not compete with each
other, and B, exclude other people from competing with them.
Mr. Markey. Yes. That has always been the beauty of the
1992 and 1996 Telecom Act is that it created, you know, the
conditions for Darwinian paranoia inducing competition, which,
you know, ultimately results in innovation and more benefits
for consumers. And so you always have to be wary, especially
when people start talking about rewriting the 1992 and 1996
Telecommunications Act, that somehow or other there is too much
competition or too many players that out there, and maybe some
of the smaller players don't need protection.
So let me go to you, Mr. Powell. You just heard the two
comments made by Ms. Sohn and Mr. Ergen. How would you comment?
Mr. Powell. I will be limiting my comments, because as the
head of the association, I am not really a party to the
transaction and don't have the specifics, but the companies
would in terms of their conversation. I would say that all
deals like this deserve vigilance and that is why we have an
antitrust process, and I think that we should rely on the
confidence and the able skills of both the Federal
Communications Commission, the Antitrust Division, to
rigorously scrutinize the transaction for those purposes and to
reach a conclusion in the public interest.
I don't believe that it is intuitively clear that it is a
capitulation, there wouldn't be continued competition among
these companies, but I think that is why we have an antitrust
process and I have a lot of faith in it.
Mr. Markey. Let me ask you, Mr. Barrett, and you, Mr.
O'Leary. July 1st is the deadline for the completion of kind of
the rulemaking and the implementation of the provisions which I
built into a 2010 law for video accessibility. Could you give
us an update as to where your two industries are in terms of
complying with that?
Mr. Barrett. Speaking on behalf of Hearst Television, we
are well in hand. Our implementation will be fully complete,
and I am very pleased with how that has proceeded, and I think
on behalf of the NAB member stations, the same thing can be
said.
Mr. Markey. Mr. O'Leary?
Mr. O'Leary. Congressman Markey, I would say effectively
the same thing in response to your question.
Mr. Markey. And what was that?
Mr. O'Leary. That we are working towards compliance and I
am also pleased with the way the process has gone.
Mr. Markey. I mean, it is so important that the deaf and
the blind do have access in the 21st century, that they are
able to use all their God-given abilities to fully participate,
and so it is very, very important that we get the full
cooperation, and we thank you for your positive comments about
the process.
I thank you, Mr. Chairman, and I yield back the balance of
my time.
Mr. Walden. The gentleman yields back the balance of his
time.
I believe that is the last member of subcommittee with
time, so I want to thank all of the participants today. As you
probably heard from some of our colleagues, they may have other
questions that they would submit for the record, that if you
can be responsive in your answers, it would really help us in
our work. Your presence today certainly does that. These are
consequential issues we are discussing at a policy level, and
your input is really helpful in our process. So I thank you for
participating, and with that, the hearing is adjourned.
[Whereupon, at 12:40 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]

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