[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE SATELLITE TELEVISION LAW: REPEAL, REAUTHORIZE, OR REVISE?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
JUNE 12, 2013
__________
Serial No. 113-52
Printed for the use of the Committee on Energy and Commerce
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
RALPH M. HALL, Texas HENRY A. WAXMAN, California
JOE BARTON, Texas Ranking Member
Chairman Emeritus JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania 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
TIM MURPHY, Pennsylvania GENE GREEN, Texas
MICHAEL C. BURGESS, Texas DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee LOIS CAPPS, California
Vice Chairman MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana JIM MATHESON, Utah
ROBERT E. LATTA, Ohio G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington JOHN BARROW, Georgia
GREGG HARPER, Mississippi DORIS O. MATSUI, California
LEONARD LANCE, New Jersey DONNA M. CHRISTENSEN, Virgin
BILL CASSIDY, Louisiana Islands
BRETT GUTHRIE, Kentucky KATHY CASTOR, Florida
PETE OLSON, Texas JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia JERRY McNERNEY, California
CORY GARDNER, Colorado BRUCE L. BRALEY, Iowa
MIKE POMPEO, Kansas PETER WELCH, Vermont
ADAM KINZINGER, Illinois BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia PAUL TONKO, New York
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
Subcommittee on Communications and Technology
GREG WALDEN, Oregon
Chairman
ROBERT E. LATTA, Ohio ANNA G. ESHOO, California
Vice Chairman Ranking Member
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
LEE TERRY, Nebraska MICHAEL F. DOYLE, Pennsylvania
MIKE ROGERS, Michigan DORIS O. MATSUI, California
MARSHA BLACKBURN, Tennessee BRUCE L. BRALEY, Iowa
STEVE SCALISE, Louisiana PETER WELCH, Vermont
LEONARD LANCE, New Jersey BEN RAY LUJAN, New Mexico
BRETT GUTHRIE, Kentucky JOHN D. DINGELL, Michigan
CORY GARDNER, Colorado FRANK PALLONE, Jr., New Jersey
MIKE POMPEO, Kansas BOBBY L. RUSH, Illinois
ADAM KINZINGER, Illinois DIANA DeGETTE, Colorado
BILLY LONG, Missouri JIM MATHESON, Utah
RENEE L. ELLMERS, North Carolina G.K. BUTTERFIELD, North Carolina
JOE BARTON, Texas HENRY A. WAXMAN, California, ex
FRED UPTON, Michigan, ex officio officio
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........................................... 2
Hon. Anna G. Eshoo, a Representative in Congress from the State
of California, opening statement............................... 4
Hon. Marsha Blackburn, a Representative in Congress from the
State of Tennessee, opening statement.......................... 5
Hon. Steve Scalise, a Representative in Congress from the State
of Louisiana, opening statement................................ 5
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 6
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, prepared statement................................... 183
Witnesses
Mike Palkovic, Executive Vice President, Services and Operations,
DIRECTV........................................................ 8
Prepared statement........................................... 10
Answers to submitted questions............................... 189
Marci Burdick, Senior Vice President of Broadcasting, Schurz
Communications, Inc............................................ 46
Prepared statement........................................... 48
Answers to submitted questions............................... 194
Ben Pyne, President, Global Distribution, Disney Media Networks.. 60
Prepared statement........................................... 62
Answers to submitted questions............................... 198
Amy Tykeson, CEO, BendBroadband.................................. 67
Prepared statement........................................... 69
Answers to submitted questions............................... 205
Hal Singer, Managing Director, Navigant Economics................ 86
Prepared statement........................................... 88
Answers to submitted questions............................... 209
Geoffrey Manne, Senior Fellow, Tech Freedom...................... 95
Prepared statement........................................... 97
Answers to submitted questions............................... 215
Submitted Material
Letter of June 12, 2013, from Ken Solomon, Chairman and CEO of
the Tennis Channel, to the Committee, submitted by Mr. Waxman.. 185
THE SATELLITE TELEVISION LAW: REPEAL, REAUTHORIZE, OR REVISE?
----------
WEDNESDAY, JUNE 12, 2013
House of Representatives,
Subcommittee on Communications and Technology,
Committee on Energy and Commerce,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:35 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Greg
Walden (chairman of the subcommittee) presiding.
Members present: Representatives Walden, Latta, Blackburn,
Scalise, Gardner, Barton, Eshoo, Doyle, Welch, Lujan, Dingell,
Matheson, 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; Kelsey Guyselman, Counsel, Telecom; David Redl,
Counsel, Telecom; Charlotte Savercool, Executive Assistant,
Legislative Clerk; Shawn Chang, Democratic Senior Counsel;
Patrick Donovan, Democratic FCC Detail; Margaret McCarthy,
Democratic Staff; Roger Sherman, Democratic Chief Counsel; and
Kara Van Stralen, Democratic Policy Analyst.
OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Walden. Good morning to everyone. I want to call to
order the Subcommittee on Communications and Technology for
``The Satellite Television Law: Repeal, Reauthorize, or
Revise?'' hearing. This is our second hearing on this issue,
and I want to welcome our witnesses today and thank you all for
agreeing to come and share your knowledge and opinions with us.
I want to especially welcome Amy Tykeson, who is the CEO of
Bend Broadband, a constituent of mine, and to congratulate her
on her award last night. She was inducted into the Cable
Industry Hall of Fame. Congratulations, Amy, to you. She is a
dynamic leader in the cable industry and in the Central Oregon
community, and we are delighted she made the trip out here and
is willing to testify.
The hearing will examine today whether the law authorizing
satellite television providers to redistribute broadcast
programming still serves an important function, or is out of
step with today's video marketplace. The law is now 25 years
old, and aspects of it sunset on December 31, 2014. So the
question is, should Congress repeal the law, reauthorize it as
it is, or revise it, possibly even tackling non-satellite
specific video issues.
Congress passed the original law in 1988 to give the then-
nascent satellite industry a leg up in providing distant
broadcast signals to viewers out of range of local over-the-air
signals. Today, however, DIRECTV and Dish control \1/3\ of the
pay-television market and are the second and third largest pay-
TV providers behind Comcast. And by some estimates only 1 to
1.5 million of the 115.9 million U.S. television households
still receive distant signals. That is about 1 percent. DISH
also now carries the local signals of broadcasters in all 210
markets and DIRECTV carries them in 197 markets.
On the other hand, a million viewers still represent a lot
of potentially angry letters and calls reminding those of us in
Congress about that, as I say, that clause in the Constitution
that gives Americans the right to watch whatever they want,
whenever they want, wherever and however they want on whatever
device they have.
Some stakeholders argue we should use the reauthorization
to revisit retransmission consent. They also argue we should
take another look at cable regulations, such as the must-carry,
basic-tier, buy through, program carriage, program access, and
set-top box rules. Those regulations date to 1992 and 1996,
when cable had 98 and 89 percent of the pay-television market.
As of 2010, cable television's share had dropped to 59.3
percent of pay-TV households and 51.6 percent of all TV
households.
So I am open to debate on a whole host of these issues and
all options remain on the table. I believe in good process, and
one of our responsibilities is to make sure we operate publicly
and transparently, giving the American people and stakeholders
an opportunity to see what is happening and to contribute to
this dialogue. The video market is changing rapidly. Phone
companies are in the video business now, both over wires and
wireless. Netflix is offering original programming over the
Internet. And Aereo, for better or for worse, could turn
everything upside down.
Ultimately, the question is can we better ensure viewers
have access to the programming they want while respecting the
investments of the networks that create it and the broadcasters
and pay-TV companies that deliver it? Today the government
intervenes in various ways in that relationship between
viewers, broadcast affiliates, network programmers and pay-TV
distributors. Sometimes it does so to the benefit of one; other
times to the benefit of another. Should it be intervening at
all in the current marketplace? And if the answer is yes in
some cases but not others, what is the justification?
[The prepared statement of Mr. Walden follows:]
Prepared statement of Hon. Greg Walden
I want to welcome all the witnesses to today's hearing as
we continue our discussion of STELA and all issues related
thereto. I want to especially welcome Amy Tykeson, CEO of
BendBroadband, and congratulate her on her award last night as
she was inducted into the Cable Industry Hall of Fame. She is a
dynamic leader in the cable industry and it is an honor to have
her here from central Oregon in my district.
This hearing will examine whether the law authorizing
satellite television providers to redistribute broadcast
programming still serves an important function or is out of
step with today's video marketplace. The law is now 25 years
old and aspects of it sunset in December 31, 2014. Should
Congress repeal the law, reauthorize it as is, or revise it,
possibly even tackling non-satellite specific video issues?
Congress passed the original law in 1988 to give the then-
nascent satellite industry a leg up in providing distant
broadcast signals to viewers out of range of local over-the-air
signals. Today, however, DirecTV and Dish control one third of
the pay-TV market and are the second and third largest pay-TV
providers behind Comcast. And by some estimates only 1-1.5
million of the 115.9 million U.S. television households still
receive distant signals. That's about one percent. DISH also
now carries the local signals of broadcasters in all 210
markets and DirecTV carries them in 197 markets.
On the other hand, a million viewers still represent a lot
of potentially angry letters and calls reminding us of that
clause in the Constitution about the right of Americans to
watch whatever they want, whenever they want, wherever and
however they want.
Some stakeholders argue we should use the reauthorization
to revisit retransmission consent. They also argue that we
should take another look at cable regulations, such as the
must-carry, basic-tier, buythrough, program carriage, program
access, and set-top box rules. Those regulations date to 1992
and 1996, when cable had 98 and 89 percent of the pay-TV
market. As of 2010, the cable's market share had dropped to
59.3 percent of pay-TV households and 51.6 percent of all TV
households.
I'm open to debate on a whole host of issues and all
options remain on the table. I believe in good process, and one
of our responsibilities is to make sure we operate publicly and
transparently, giving the American people and stakeholders an
opportunity to see what is happening and to contribute to the
dialogue. The video market is changing rapidly. Phone companies
are in the video business now, both over wires and wirelessly.
Netflix is offering original programming over the Internet. And
Aereo, for better or for worse, could turn everything upside
down.
Ultimately, the question is can we better ensure viewers
have access to the programming they want while respecting the
investments of the networks that create it and the broadcasters
and pay-TV companies that deliver it? Today the government
intervenes in various ways in the relationships between
viewers, broadcast affiliates, network programmers and pay-TV
distributors. Sometime it does so to the benefit of one. Other
times to the benefit of another. Should it be intervening at
all in the current marketplace? And if the answer is yes in
some cases but not others, what is the justification?
# # #
Mr. Walden. With that, I yield the balance of my time to
the vice chair of the subcommittee, the gentleman from Ohio,
Mr. Latta.
Mr. Latta. Thank you, Mr. Chairman, and I appreciate you
holding this hearing today, and I also thank all of our
witnesses for their testimony that they are going to be giving,
and the expertise that they have as this subcommittee considers
the satellite television law.
I am glad, Mr. Chairman, that we have started the process
of examining STELA early on in this Congress. We all know that
December, 2014, will be here before we know it. It is important
to have the opportunity to have a robust discussion about the
satellite TV marketplace and determining if the law needs to be
reauthorized, revised, or repealed.
I believe it is extremely worthwhile that Congress has the
obligation every 5 years to review this law. As we all know,
the communications and video marketplace has changed
dramatically and is constantly evolving, and I hope that this
hearing and others are the continuation of a thoughtful public
debate surrounding the video marketplace. I look forward to
hearing from our witnesses today, Mr. Chairman, and I yield
back.
Mr. Walden. Gentleman yields back the balance of his time--
balance of my time, and with that, I will yield back the
balance of my time and recognize the ranking member from
California, Ms. Eshoo, for 5 minutes.
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Eshoo. Thank you, Mr. Chairman, for holding this
hearing, and welcome to our witnesses and many distinguished
representatives from the many sectors that are in the audience
this morning.
Today begins, obviously, the second in the subcommittee's
series of hearings on the Satellite Television Extension and
Localism Act, STELA, a law allowing consumers across our
country who subscribe to satellite TV to receive local
broadcast programming. Following today's hearing, we will have
had and heard from a total of 11 witnesses in the first 6
months of this Congress, plus countless others who have
individually visited our offices to provide their perspective
on STELA. These voices include representatives of the
satellite, broadcast, cable, and motion picture industries, but
I think that we need to now look forward to taking action.
Mr. Chairman, I think that following today's hearing, we
should instruct our respective staffs to work expeditiously on
drafting legislative text so we can pass a bill long before the
December 31, 2014, deadline. We have both stated publically
that we want a clean bill. We know that Judiciary has some
jurisdiction in this, so it will take some time for them to do
their work. So I think that we need to get going with this.
So much has changed since the 1992 Cable Act, the process
by which broadcasters and pay-TV providers negotiated or how
they negotiate retrans, the proliferation of blackouts, and now
the emerging online video marketplace, and I think that we need
to be examining all of these aspects. So we have a lot of work
to do beyond STELA. I am struck--on the broader video market, I
am struck by the rapid transformation underway. In particular,
three statistics highlight how consumer behavior is changing.
By 2017, which is not that far away, 58 billion hours of TV and
video is expected to be viewed on tablets per year. That is a
remarkable statistic. Online video will account for 69 percent
of consumer Internet traffic by 2017, up from 57 percent in
2012. The number of web-enabled TVs in consumers' homes will
grow from close to 180 million in 2012 to 827 million in 2017.
So what do all of these statistics mean for our work here
at the subcommittee? In addition to freeing up more spectrum
and expanding the deployment of high speed broadband to all
Americans, we need to recognize that a shift is occurring where
the primary means of video distribution might be radically
different than the options available to consumers today.
Consumers, as the chairman said, want greater choice in
programming and how they receive it, and I think this
subcommittee should not ever be viewed as a barrier to exciting
innovation. So a video marketplace with vibrant competition
among the services consumers most desire is really a very, very
healthy one.
So again, I welcome each one of the witnesses.
Congratulations to you, Ms. Tykeson, for the wonderful award
that you have received from the cable industry. Thank you all
for being here and for how instructive your testimony will be
to us.
I would be happy to yield the remainder of my time to
anyone. Anyone? Any takers on my side? No? With that, I will
yield back. Thank you.
Mr. Walden. Gentlelady yields back. Chairman now recognizes
the vice chair of the full committee, Mrs. 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. We thank you for your time and for being here.
This is an important opportunity for us to learn how we can
continue to give TV consumers the best value, the very best
value in terms of price, content, quality, and delivery. In
this subcommittee last June, members of both parties
acknowledged that the 20-year-old video regulations on the
books are obsolete. I don't think there is any disagreement on
that point at all. Technology has changed dramatically, but the
law hasn't kept up. Today's cable, satellite, broadcast,
telecom, and online video providers offer competing delivery
services and packages, and they are governed by different
rules.
The question before us is how can we fix a really complex
web of regulations that is limiting consumer benefits,
restricting content choices, leading to blackouts, and
contributing to rising prices? How do we rationalize old rules
for the dynamic innovation that is happening before us? Are
disruptive technologies ones that can provide broadcast content
without paying a performance right? Everybody knows that is one
of my issues, a byproduct of this outdated video framework.
We should have a vibrant debate and welcome input from
everyone as we review STELA, but most importantly, we need to
look at what the proper role of government is and refocus on
the best interests of our constituents, who are the consumers
of video content. They do expect a level playing field.
Mr. Chairman, I thank you and I yield back.
Mr. Walden. The chair now recognizes the gentleman from
Louisiana, Mr. Scalise.
OPENING STATEMENT OF HON. STEVE SCALISE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF LOUISIANA
Mr. Scalise. Thank you, Mr. Chairman. Thank you for holding
this hearing. I want to thank our panelists. I look forward to
hearing from you all as well.
When we look at the title of the hearing today, ``The
Satellite Television Law: Repeal, Reauthorize, or Revise?'' I
would think the subcommittee would be wise to revise and expand
the STELA debate by addressing the other intertwined video
issues. Many of these issues are government-created imbalances
that have arisen over the past 2 decades as the marketplace
underwent dramatic transformation. As the gentlelady from
Tennessee just mentioned, we take for granted that as we are
having this hearing today, many of us have handheld devices
that can actually pull video and do so many other things that
make our life very convenient, but when these laws were
written, the device of the day was more like this device. And
so when you think that we are currently governed by laws that
were written based on the technology of this device, it shows
us, I think, that when we think of the new technologies that we
have the ability to have access to, the laws dramatically need
revision and updating. And for anyone who seeks further
evidence of the marketplace transformation, look no further
than the ongoing Aereo court case that is moving through the
courts right now, just to show you where the imbalance can
occur.
Instead of allowing a vast web of government regulations to
influence the carriage of programming, we should trust the
consumer demand that it is a strong enough tool to ensure that
quality programming is carried by pay-TV providers at a rate
that both willing buyers and willing sellers can agree upon,
without the government thumbing the scale for one industry or
another. That is all I am after in this debate, which I believe
we can accomplish by reverting back to the basic tenets of
property rights and consumer demand to guide the video
marketplace forward.
I encourage my colleagues to join me in this pursuit, and
again, I look forward to the testimony and the questioning from
our witnesses, and I thank the chairman and I yield back the
balance of my time.
Mr. Walden. Is there anyone else on the Republican side
that wants the remaining minute? If not, we will yield back the
time and I now recognize the former chairman of the committee,
the gentleman from California, 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 very much, Mr. Chairman.
Today's hearing is the second time this year that this
subcommittee has convened to examine issues surrounding the
upcoming expiration of the Satellite Television Extension and
Localism Act of 2010, or what we call STELA. The
reauthorization of STELA involves interlocking communications
and copyright law provisions that must be jointly addressed by
our committee and the Judiciary Committee, and as I stated at
our hearing in February, because of the complexity of this
task, I start from the presumption that we should pursue a
clean reauthorization. Congress must complete its work before
the law expires so consumers do not inadvertently lose access
to programming. At the same time, I believe that
reauthorization provides us an opportunity for members to learn
more about today's video marketplace and assess whether laws
and regulations are keeping pace.
As we begin this conversation, we need to consider how we
can continue to ensure diversity, localism, and competition,
which are the principles that undergird our Nation's media
policy. Congress has recognized the need to protect many of
these values, especially when the market might not. New avenues
for online video distribution are creating exciting new
opportunities for consumers and content creators alike, but to
realize these opportunities, competitors may need access to
must-have content and independent creators may need the
opportunity for their program to reach audiences far and wide.
I represent many interested parties in today's debate in my
congressional district. Many of my constituents are the
artists, writers, producers, and directors whose creativity
drives consumer demand for video and who deserve to be
compensated fairly. Many of my constituents work at the studios
and media companies like Disney that make desirable content
available to consumers. I also represent companies like Santa
Monica-based Tennis Channel. The Tennis Channel is an
independent cable channel that offers consumers unique tennis
and tennis-related programming. Congress sought to protect the
diversity offered by independent channels like the Tennis
Channel in the 1992 Cable Act by adopting provisions to guard
against discrimination by vertically integrated distributors.
The CEO of the Tennis Channel, Ken Solomon, sent the committee
a letter today outlining his perspective on the effectiveness
of the FCC's so-called program carriage rules, and Mr.
Chairman, I ask unanimous consent that Mr. Solomon's letter be
entered into the record.
Mr. Walden. Without objection.
[The information appears at the conclusion of the hearing.]
Mr. Waxman. I hope our discussion today will include
consideration of whether today's video marketplace is making
diverse and independent content available to all Americans. I
am proud that my congressional district also includes the
headquarters of DIRECTV, the second largest TV--the second
largest video distributor in the United States, now serving
over 20 million subscribers. Not only does DIRECTV have
approximately 3,000 employees based in El Segundo, California,
the company operates 100 percent California-made satellites,
some of which were also produced in my congressional district.
As one of the satellite providers that this legislation was
originally designed to assist, DIRECTV can educate the
subcommittee about why it believes the Act should be
reauthorized, what aspects of STELA are working well, what
parts of the law might need to be modified. And I want to
extend a special welcome to our witness from DIRECTV, Mr.
Palkovic.
Thank you to all the panel members who are here today. We
look forward to you testimony, your continued engagement as we
move forward with this reauthorization.
Mr. Chairman, since I have 35 seconds, I will be pleased to
offer it, although there didn't seem to be takers when other
time was available, but anybody that wants it can have it. If
not, I will yield it back.
Mr. Walden. Gentleman yields back the balance of his time,
and that takes care of our opening statements, and we will move
on now to the testimony from our distinguished panel of
witnesses.
We will start first with Mr. Mike Palkovic, who is the
Executive Vice President for Services and Operations at
DIRECTV. Thank you for being here this morning. Again, pull
those microphones up close, turn them on, and the time is
yours, sir. You have to turn it on. This is not a retrans
issue.
STATEMENTS OF MIKE PALKOVIC, EXECUTIVE VICE PRESIDENT, SERVICES
AND OPERATIONS, DIRECTV; MARCI BURDICK, SENIOR VICE PRESIDENT
OF BROADCASTING, SCHURZ COMMUNICATIONS, INC.; BEN PYNE,
PRESIDENT, GLOBAL DISTRIBUTION, DISNEY MEDIA NETWORKS; AMY
TYKESON, CEO, BENDBROADBAND; HAL SINGER, MANAGING DIRECTOR,
NAVIGANT ECONOMICS; AND GEOFFREY MANNE, SENIOR FELLOW, TECH
FREEDOM
STATEMENT OF MIKE PALKOVIC
Mr. Palkovic. Sorry about that.
Mr. Walden. There you go.
Mr. Palkovic. OK. Chairman Walden, Ranking Member Eshoo,
and members of the committee, thank you for inviting DIRECTV to
discuss reauthorizing the Satellite Television Extension and
Localism Act, STELA.
As we speak, millions of Americans are leaving for
vacation. Packing lists include grills, sunblock, and summer
reading. Increasingly, they also include television. The very
idea that someone could take TV to the beach would have been
unimaginable when Congress passed the 1992 Cable Act. Viewers
today expect the content they want, when they want it, where
they want it, on the device of their choosing, and at prices
they can afford. And for the most part, they get it, but there
is one exception to this good news: broadcast television.
Unlike other forms of television, broadcasting remains
governed by antiquated laws designed to favor the broadcaster
over the viewing public. We hear more complaints about
broadcast-related issues than almost anything else. Our
subscribers complain about high prices, lack of choice, and
blackouts. Much of this results from the outdated
retransmission consent regime created in the '92 Cable Act.
There are three major problems with this broken system.
First, retransmission consent raises prices. Between 2010 and
2015, DIRECTV's retrans costs will increase 600 percent per
subscriber. These cash payments are on top of the enormous fees
we already pay the broadcasters for cable channels that were
tied to the retrans negotiations, otherwise referred to as
bundling.
Second, retransmission consent limits choice. The retrans
regime has led to the consolidation and bundling of cable
channels by broadcast owned media conglomerates. In 1992, the
broadcasters owned four cable channels. Today, they own over
104 cable channels, a 2,500 percent ownership increase. For
example, in 1992 NBC owned one channel, CNBC. Today, Comcast
NBC Universal owns 22 cable channels, plus 11 regional sports
networks. These corporations use the retrans process to force
our customers to take and pay for all of their channels,
regardless of whether they watch them or not.
The third major problem and the most frustrating for
consumers is retrans related blackouts. Broadcasters use
blackouts to drive price increases and deny consumers access to
what was once free programming. Last year alone, broadcasters
pulled the plug in 91 markets.
We see two paths ahead as Congress considers STELA
reauthorization. One path is to eliminate these laws entirely.
Representative Scalise's bill, the Next Generation Television
Marketplace Act, does this. We believe this approach is better
than today's hodgepodge of aging regulation.
The other possibility would be to make existing laws
smarter. To do so, we strongly believe Congress should address
blackouts. First, in light of the fact that broadcasters use
the public spectrum, an outright ban on local blackouts should
be considered. Alternatively, Congress could allow us to
provide our customers with distant network signals during a
blackout. If the broadcaster's local content is as important to
consumers as they claim, then distant networks would be a poor
substitute, and then we would have every incentive to negotiate
a carriage deal. Finally, Congress could allow broadcasters to
negotiate directly with consumers. Broadcasters would simply
set their rates, publish them, and we in turn would charge
customers the price the broadcaster set. A consumer could, for
example, choose ABC and NBC but opt out of CBS and FOX, as they
do today with HBO and Showtime. This would end blackouts, allow
for consumer choice, and allow the networks to charge as much
as they think their content is worth.
Let me also address Senator McCain's ala carte legislation.
This bill demonstrates the growing frustration over the rising
cost of content and the inability of consumers to make
programming choices. Over the years, we have tried in vain to
negotiate more choice and packaging flexibility for our
customers. The broadcast corporations either outright refuse or
make offers that could best be described as hollow. The result,
though, is always the same. Higher prices for consumers and
forced bundles of channels they don't want or can't afford. We
believe the marketplace is best suited to resolve this
conflict. Ideally, we would like to work with the broadcast
companies to give consumers what they want, more choice over
their programming. However, if these media companies continue
to reject calls for packaging flexibility, they leave us no
option but to support government intervention.
In closing, I cannot emphasize enough that the status quo
no longer works for the American viewing public. We speak with
over 300,000 of our subscribers every day, and they tell us
they want change. While DIRECTV is not wedded to any particular
approach, we do believe congressional action is needed. We
stand ready to work with you to explore all proposals. Thank
you, and I look forward to your questions.
[The prepared statement of Mr. Palkovic follows:]
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Mr. Walden. Appreciate your testimony, sir. Thank you for
being here.
Now we will turn to Marci Burdick, who is the Senior Vice
President of Broadcasting for Schurz Communications,
Incorporated. We welcome you back to the committee and we look
forward to your testimony.
STATEMENT OF MARCI BURDICK
Ms. Burdick. Thank you. Thank you, Chairman Walden, and
good morning. Ranking Member Eshoo, good morning. Members of
the subcommittee, hello. My name is Marci Burdick. I am Senior
Vice President, as you heard, of Schurz Communications, where I
oversee eight television stations, three cable companies, and
thirteen radio stations. I am also the television board chair
for the NAB, on whose behalf I testify today.
Local broadcast television remains unique because it is
free, it is local, and it is always on, even when other forms
of communication fail. Television is the most watched media for
high quality entertainment, sports, local news, emergency
weather warnings, and disaster coverage. Schurz has television
stations in tornado-prone places like Wichita, Kansas and
Springfield, Missouri, and I can tell you from my own personal
experience our viewers rely on us to stay informed during times
of whether emergencies, not unlike the terrible storms we have
seen this year.
With that backdrop, thank you for the opportunity to be
here today to discuss reauthorization of the Satellite
Television Extension and Localism Act, or STELA.
As broadcasters, we approach this debate asking a simple
question: is satellite's distant signal compulsory license
still in the public interest? We know the universe of distant
signals is shrinking, and more and more viewers are receiving
their local programming through satellite. Today, DISH provides
local into local service in all 210 television markets and
DIRECTV in 196. To justify the extension of this law, however,
we need more specific information. For instance, how many
subscribers rely on the distant signal? How many subscribers
are grandfathered, but also receive local into local service?
And what is the number of subscribers that receive the distant
signal only for use in an RV or a boat? Unfortunately, this
information resides only in the hands of DISH and DIRECTV. By
digging into these facts, we can have an honest debate about
whether the law is still needed.
At a minimum, NAB asks this committee to embrace a clean
reauthorization that does not include unrelated and highly
controversial provisions that undermine the ability of
broadcasters to provide high quality and locally focused
content. For example, some would like to use STELA's
reauthorization to make drastic changes in a free marketplace
negotiation called retransmission consent. I believe such
changes would harm consumers.
I have been with Schurz Communications for 25 years, and I
come to this hearing with a very unique perspective on the
video marketplace. My company is a member of both NAB and ACA.
We are a broadcaster and we are a small cable operator. I can
tell you from our vantage point as a small company that has
been on both sides of the negotiating table, the current system
works. So I ask the subcommittee, if the system isn't broken,
why fix it? The retransmission consent system in place today
has a success rate of 99 percent. Only in Washington, D.C.,
could something that works 99 percent of the time, providing
for thousands of deals every year, be called broken. This
success rate trumps the effectiveness of the best medicines,
the free throw percentage of the most accurate basketball
player, and the approval ratings of the Dali Llama and the
Pope, yet no one would doubt whether they are effective.
The false fixes being suggested by my friends in the cable
and satellite industry would not only harm consumers, but would
do nothing to improve on the system that we have today. In
fact, just the opposite would be true. One proposal would allow
the importation of distant, out of market signals in the event
of a contractual impasse. In the real world, that means that
Congress would negate existing contracts between broadcast
networks like ABC and their local affiliates like KOHD in Bend,
Oregon, or KGO in the Bay area. If Congress were to allow
distant signals to come into local markets, that will have
gutted my affiliation contract while leaving viewers in Bend or
in the Bay area to receive, perhaps, Los Angeles or Denver news
and sports. Additionally, by allowing distant signal
importation Congress would be placing its thumb on the
bargaining scale by fundamentally skewing the negotiating
leverage of the parties. The resulting effect would be more
contractual impasses, not less. With fewer viewers and less
advertising dollars, the localism that TV broadcasters provide
would be compromised. This would ultimately leave your viewers
with less local community programming, your local businesses
with fewer places to reach local customers through TV
advertising, and politicians with no effective medium to reach
their constituents. None of this is good for the consumer.
In conclusion, as television broadcasters, we aren't coming
to Congress asking for a leg up in our negotiation or for
changes to a law to benefit one side or the other. We will
fight our own fights, we will make our own deals, and we only
ask that Congress not tip the scales in favor of any one
industry.
I thank you for inviting me here today, and I look forward
to your questions.
[The prepared statement of Ms. Burdick follows:]
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Mr. Walden. Ms. Burdick, thank you very much for your
testimony. We appreciate your comments.
We will now turn to the President for Global Distribution
of the Disney Media Networks, Mr. Ben Pyne. We are delighted to
have you here, sir, and please go ahead.
STATEMENT OF BEN PYNE
Mr. Pyne. Thank you, Chairman Walden and Ranking Member
Eshoo, and other members of this subcommittee----
Mr. Walden. I am not sure your microphone is on, maybe.
There you go.
Mr. Pyne. Thank you, Chairman Walden, Ranking Member Eshoo,
and other members of this subcommittee. I had the opportunity
to appear before you 6 years ago at a hearing entitled ``The
Future of Video.'' At that hearing, I promised we, the Walt
Disney Company, will continue to find ways to get our content
to any screen consumers use: computers, PDAs, mobile phones,
iPods, and of course, TV sets. You may have noticed that I did
not use the word iPad in 2007. Of course, it was introduced 3
years after that hearing.
What I am proud to tell you today is that we continue our
commitment to developing and using new technology to improve
the consumer experience. In cooperation with MVPDs, that is
cable, satellite and telco distributors, we now make live
streaming of many of our channels available to subscribers
under tablets and smartphones. ESPN's Watch ESPN app,
downloaded more than 18 million times, was the first
application to provide live streaming of a cable channel.
Likewise, our line of Watch Disney apps, downloaded now 15
million times since last year, offers the same convenience to
subscribers of Disney Channel, Disney XD, and Disney Junior. In
fact, just last month we were the first broadcaster to launch a
streaming service. Our Watch ABC service allows users to watch
their local ABC stations online and on smart devices in their
hometowns. We hope the service will soon be available in
markets across the country.
In addition to our Watch services, Disney has recognized
the value of using online video distributors to reach consumers
who want to enjoy our content in many other ways. We are a part
owner of Hulu, and we have negotiated agreements to distribute
our content on a host of other online platforms, including
Netflix, Amazon, Streampix, and even X-Box.
While all of these new forms of distribution are critical
to our future, we continue to place a very high value on
distributing content through MVPDs. We believe that monthly
video subscriptions purchased by the overwhelming majority of
American households continue to be of a tremendous value. We
remain committed to delivering outstanding programming to these
viewers at all times. As evidence of that, in the last few
years we have reached long-term deals with many of the largest
MVPDs.
The common thread that runs through our use of all these
technologies, old and new, is that each allows us to provide
additional value to consumers and customers, while achieving a
return on our investment in quality programming. Quality
content is expensive to produce. Last year, we spent
approximately $3 billion producing programming for ABC and our
own stations. As a policy matter, given the significant risk
and expense inherent in producing great content, it is critical
that we continue to be permitted to negotiate freely for
compensation of the distribution of our content.
In this context, we believe the current regime requiring
MVPDs to negotiate for the right to carry a broadcast signal,
the process known as retransmission consent, is working well.
Ultimately, this is a process that ensures that MVPDs
compensate broadcasters for the value inherent in the carriage
of that signal. Thousands of privately negotiated agreements
for retransmission consent have been reached with few
interruptions of service.
The model of compensating local broadcasters for carriage
is working for American consumers. The lion's share of the most
watched programs on television are consistently found on
broadcast TV. Local stations are able to provide outstanding
local news and coverage for emergency events. With the launch
of our Watch ABC services, we will be working with our
broadcast affiliates to offer even more value for MVPDs to make
available to their customers.
I recognize that this committee has heard pleas for changes
to retransmission consent. We believe the current system
provides the appropriate incentives to reach agreements. We
want our local and network programming carried by MVPDs. They
want to carry our programming because their customers want to
watch it. These mutual incentives encourage the successful
resolution of negotiations. Additional government action is not
necessary.
Finally, I would like to turn to satellite legislation. The
original law adopted by Congress 25 years ago eased the way for
the technology available at that time to be used to distribute
distant network programming to many households, especially in
rural areas, that would otherwise not be able to receive the
network programming at all. To their great credit, the
satellite companies have made significant investments in their
technology and today, they are able to deliver local broadcast
stations to more households than ever. As a result, the
necessity of the satellite legislation to ensure the
availability of network programming is simply not as great as
it once was. In fact, we believe Congress could give serious
consideration to letting the legislation sunset. We realize,
however, that you may be concerned by uncertainty regarding
what would happen to rural viewers if the legislation was not
reauthorized. In the face of that uncertainty, we understand if
you choose to extend it, but would ask that you do so simply by
extending the current expiration date.
Thank you very much.
[The prepared statement of Mr. Pyne follows:]
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Mr. Walden. Thank you, Mr. Pyne. We appreciate your
testimony.
I would now turn to Amy Tykeson, who is the CEO of
BendBroadband. We appreciate your being here, as I said
earlier, and welcome your comments.
STATEMENT OF AMY TYKESON
Ms. Tykeson. Thank you. Good morning, Chairman Walden and
Congresswoman Eshoo, and members of the subcommittee. I am Amy
Tykeson, President and CEO of BendBroadband, a family-owned
independent cable operator that serves about 50,000 residential
and commercial customers in Central Oregon. Thank you for
inviting me here to testify this morning.
My goal is to highlight the challenges facing cable
operators, particularly smaller operators like BendBroadband.
It is time for Congress to update the law to meet consumers'
needs and interests.
Let me tell you a little bit more about my company. Our tag
line says it all: ``We are the local dog. We better be good.''
We have invested about $100 million to upgrade our network and
bring people in Bend the best services available. We employ 270
associates, and we are the 14th largest employer in Central
Oregon. We are a first mover, and we are recognized as an
industry leader.
I want to discuss three examples of how the outdated video
rules are hurting my customers and should be addressed in
STELA.
First, I can't create the programming packages my customers
want; second, the retransmission consent process is broken; and
third, technology mandates for set top boxes should be
repealed.
First, let me tell you why I can't give my customers the
packages they want. The major programmers each control a dozen
or more channels. When I negotiate with them, they tell me I
have to take all of those channels and that I have to package
them the way the programmers want, not the way my customers
want. These bundling arrangements are resulting in significant
fee increases for my customers. Program bundling is
particularly harmful to smaller operators like BendBroadband,
who are often presented with a take it or leave it offer.
Second, my customers are being hurt by the broken
retransmission consent process. I have been through a
retransmission consent blackout, and my customers don't want it
to happen again. But I fear it will, unless the rules are
updated. For example, Congress intended for retransmission
consent to support local stations, not to subsidize the
operations of big national broadcast networks. But the networks
are demanding an increasing share of their affiliates'
retransmission consent fees. This harms localism by diverting
revenues from the local stations. It also drives up the cost of
retransmission consent and makes the negotiations more
contentious. For the MVPDs, the cost of retransmission consent
has grown from about $216 million to nearly $2.4 billion in
just 6 years, and fees are estimated to top $6 billion by 2018.
In my market alone, retransmission consent demands have nearly
tripled over the last 3-year negotiating cycle.
My final example concerns Section 629 of the Communications
Act. That rule resulted in technology mandates for set top
boxes that have cost the industry more than $1 billion and have
not benefitted customers. Today, consumers watch programming on
a plethora of devices, some of which we have talked about this
morning. This rule should be repealed.
These three examples illustrate how a regulated marketplace
can be detrimental to consumers when government does not
routinely review and update applicable laws. The time has come
for a comprehensive review of the existing video framework. At
a minimum, I would urge Congress to amend STELA to address
issues like the ones I have identified today, to yield more
choice, lower prices, and a healthy marketplace to benefit
consumers.
Finally, I want to acknowledge Representative Scalise and
other members of this subcommittee who have advanced the debate
on video reform. I look forward to working with you to examine
these important issues and welcome your questions. Thank you.
[The prepared statement of Ms. Tykeson follows:]
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Mr. Walden. Thank you, Ms. Tykeson. We appreciate your
comments and testimony. We look forward to continuing the
dialog.
We will turn now to the managing director of Navigant
Economics, Mr. Hal Singer, for your comments, sir. Thank you
for joining us, and please go ahead.
STATEMENT OF HAL SINGER
Mr. Singer. Thank you for having me. I have served as an
economic expert in several program carriage complaints,
including as an expert for the NFL Network, Tennis Channel, and
Masson. The focus of my testimony is the proper regulatory
oversight of vertically integrated cable operators, and the
role of the FCC in that oversight process.
To design the proper regulatory framework, one must first
understand the nature of the potential harm presented by
vertical integration in the cable industry, namely a reduction
in innovation among independent content providers.
Why do we care about that potential harm? Because some of
the best content has sprung and will likely continue to spring
from independents who are free from the strictures of a clumsy
conglomerate when creating artistic expressions. Without any
protection against discrimination, independents would be forced
to surrender equity in exchange for carriage, and thus would be
less willing to take risks, which would result in fewer
programming choices and less programming diversity.
There are two schools of thought on how best to deal with
this problem of vertical integration. The first, advocated by
Professor Tim Wu of Columbia Law School, in his best-selling
book ``The Master Switch'', is to ban vertical integration
entirely. The second, which was embraced by Congress in the
1992 Cable Act, is to permit vertical integration but to police
discriminatory acts on a case-by-case basis. The downside of an
outright ban is that it sacrifices potential efficiencies
related to vertical integration. The downside of a case-by-case
approach is that if relief from discrimination does not come
swiftly, or if the evidentiary burden imposed on an independent
cannot be satisfied under any fact pattern, then after-the-fact
adjudication affords no protection at all.
Assuming that case-by-case review is the best solution to
the problem of vertical integration, the policy question turns
to which legal framework is best suited for the task. Should
the FCC adjudicate these disputes under its public interest
standard, or should complaints of discrimination by a
vertically integrated cable operator be addressed under the
antitrust laws? The problem with the latter approach is that a
reduction in innovation by independents may not be cognizable
under the antitrust laws, which were designed primarily to
prevent the exercise of pricing power. Because discrimination
in program carriage often does not produce price effects,
antitrust is the wrong framework to address discrimination by a
vertically integrated cable operator.
The lack of price effects in these cases is also why it
makes no sense to interpret the non-discrimination protections
of the Cable Act in an antitrust context, even if Congress used
the word ``unreasonably'' in the statute. By seeking to
identify harm to an independent programmer rather than harm to
competition, Congress meant to fill a gap in antitrust laws,
namely, the preservation of diversity in the video-programming
marketplace. How do we know this? At the time the Cable Act was
passed, the largest cable operator in the country, TCI,
controlled less than 20 percent of national video subscribers.
If Congress meant to import antitrust concepts into the Cable
Act, as some now argue, then Congress also intended to immunize
all vertically integrated cable operators, including TCI, from
the non-discrimination protections of the Act, as none would
have sufficiently high market shares to constitute monopoly
power under the antitrust laws. The absurdity of this
conclusion, that Congress passed redundant antitrust regulation
that was applicable to no one, proves that the Cable Act has
nothing to do with antitrust enforcement.
Finally, I would like to speak briefly about the
appropriate evidentiary burden on complainants under the FCC-
administered approach. The purpose of the non-discrimination
protections in the Cable Act is to ensure that a vertically
integrated cable operator does not consider the benefit to an
upstream programming affiliate when deciding whether to carry a
similarly situated independent network. There are two primary
ways to establish evidence of this kind of ``biased'' decision-
making. Complainants could show direct evidence that benefits
to an upstream network were inappropriately considered. In the
absence of such direct evidence, complainants could in theory
establish that the downstream cable division incurred a loss by
carrying the independent network narrowly. This finding would
create a presumption that there was an offsetting benefit to
the affiliated upstream network. However, with the exception of
a handful of networks such as ESPN, most independent networks
lack ``must-have'' status and thus would be hard-pressed to
demonstrate any forgone benefit from broader carriage. Cable
operators generally create value for their customers by
offering a buffet of choices, rather than granting access to
any particular network. Requiring an independent to estimate
forgone benefits with precision would be tantamount to asking a
leading columnist for the New York Times to estimate what
fraction of subscribers would switch to another newspaper if
the editorial page excluded that columnist. That the answer
might be none, due to the costs of switching newspapers or due
to customer loyalty attributable to the Times in general, does
not imply that that columnist adds no value to the Times.
Accordingly, complainants should not be required to estimate
forgone benefits from broader carriage to prevail in a program-
carriage complaint, as the current law now demands.
Thank you.
[The prepared statement of Mr. Singer follows:]
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Mr. Walden. We appreciate your testimony. Thank you.
And now we will go to our final witness, a senior fellow at
Tech Freedom, Mr. Jeffrey Manne. Thank you for being here, and
we look forward to your testimony.
STATEMENT OF GEOFFREY MANNE
Mr. Manne. Thank you, Mr. Chairman, Ranking Member, members
of the subcommittee. In addition to being senior fellow at Tech
Freedom, I am also Executive Director of the International
Center for Law and Economics, and a lecturer in law at Lewis
and Clark Law School in Portland.
If you remember three words from my testimony today,
remember these: House of Cards. Netflix's hit show encapsulates
how fundamentally the video marketplace has changed since
Congress enacted the special regulations that now govern that
market. It represents the work of a new form of distribution, a
new source of content creation. It is based on new technology.
It is rapidly innovating. Those regulations are themselves a
house of cards as well.
In the face of technological change, shifting consumer
preferences, and evolving policy aims, the complex fragile
structure that shapes conduct by consumers, content owners,
distribution networks, and regulators is bound to fall down.
Its purpose is frustrated, unintended consequences its legacy.
To start, STELA should be allowed to sunset the compulsory
license limit and copyright protection for video content
repealed. Congress should also repeal the related provisions of
the Cable Act, retransmission consent, program access and
carriage, must carry, among others, and Congress shouldn't
extend this regime to--regulatory regime online. This isn't
deregulation; this is smarter regulation. Because behind all of
these special outdated regulations are laws of general
application that govern the rest of the economy, antitrust and
copyright. These are better, more resilient rules. They are
simple rules for a complex world. They will stand up better as
video technology evolves, and they don't need to be sunsetted.
The FCC's numbers say that cable prices went up 20 percent
between 2006 and 2010, but adjusting for inflation, they went
up only 10 percent. Meanwhile, the number of channels increased
42 percent. Spending on programming went up 30 percent.
Americans spent 20 percent more time watching video, and then
there is an endless range of quality improvements that went
along with it. To say that the current market is in any way
constrained, anti-competitive, or crabbed, seems very difficult
to sustain.
In short, consumers are getting more for their money, more
content, more choices, and higher quality.
If Netflix were regulated like a cable network, it is not
likely that the law would allow it to offer exclusive programs
like House of Cards. Why invest $100 million in a franchise if
it doesn't offer you a leg up on your rivals? Exclusive
programming helps drive competition.
The key to promoting competition in both video and
broadband isn't restricting programming innovation, if we are
looking for rules to change, it is removing local regulatory
impediments to competitive infrastructure, like franchise
licensing and access to rights of way. Allowing more towers to
be built would mean faster 4G wireless service, making 4G
wireless yet another established competitor to legacy cable and
satellite.
And intense competition in some markets can benefit
consumers everywhere. I would just point out when we are
looking at potential problems of the absence of localized
competition, it turns out, of course, that these are all
networks. Competition from Verizon's FIOS in New York City, for
example, has driven Cablevision to enter into a peering
agreement with Netflix's CDN. That means better Netflix
streaming for customers outside New York as well. Competition
need not be local to have local benefits.
So what should Congress do? Again, let STELA sunset. A
clean reauthorization of STELA isn't clean at all. STELA is a
mess. We need rules that minimize error costs but affects
policy goals in a fashion that is least likely to outlaw by
default that which we actually want to encourage, only haven't
discovered yet; that is, regulatory mistakes discovered only in
retrospect, and mistakes have been made. Aereo exploits
imprecise language in the definition of copyrights performance
right to navigate around the overly complex effort to use
compulsory licensing, must carry, et cetera, aimed at
bolstering cable's competitiveness and promoting localism. But
arguably, a simple copyright rule of general applicability,
full performance right protection retained and enforced by the
copyright holder, would have avoided the problem entirely.
While the interest of the dwindling percentage of Americans
who view television programming only on-the-air shouldn't be
ignored, we really have to take seriously the possibility that
serving this segment under the current regulatory regime
carries with it enormous costs that outweigh the benefits.
These cost include, most significantly, retransmission fees
passed on to MVPD viewers, technological and business model
constraints, and most importantly, the enormous opportunity
costs, perhaps as much as $1 trillion of more efficiently
deploying spectrum currently used for broadcasting.
I want to address quickly also the program access and
program carriage rules. These rules eschew antitrust rules to
promote program diversity and competition among providers. By
focusing on the program carriage and program access rules as
they are constructed, we have shifted the terms of the analysis
to a starting point that sort of assumes that all content
should be available everywhere, but that not all content is
available from all distribution channels is not proof of market
failure. Similarly, equating diversity with independence is
inappropriate. If independence means not affiliated with the
distribution network, this amounts to a preference for ABC's
The Bachelor over NBC's The Biggest Loser. Program carriage
rules, in contrast to antitrust, problematically prescribe an
undesirable effect--not an undesirable effect, but a particular
business model, and it is a mistake to try to prescribe a
particular business model when we don't know in the future what
the optimal business model will look like.
Ending the current regulations won't leave consumers
unprotected. There is a role for the law here, but the role for
the right law, which is antitrust and copyright.
Thank you.
[The prepared statement of Mr. Manne follows:]
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Mr. Walden. Thank you very much for your testimony. We
thank all the witnesses for your testimony, and will now go
into our question phase.
Mr. Palkovic, in deciding whether to repeal, reauthorize,
or revise the current satellite law, it is important, I think,
that we understand what the impact of each of these decisions
really would be on the current satellite television
subscribers. How many viewers today actually receive a distant
signal, because that was one of the underlying reasons for this
Act--how many of those viewers would receive a local signal
from their satellite provider, and how many would have no way
of receiving broadcast programming over the air, over
satellite, or from any other source without distant signal? So
who is in that pool today?
Mr. Palkovic. I think the entire pool between us and DISH
is roughly a million and a half customers who are receiving
that. I do not have the breakdown of how many people are
grandfathered. I think it is a fraction of that, maybe a couple
hundred thousand, and I think those are largely on the DIRECTV
side. So it is in that range. It is a small piece of the
million and a half, but if we were to lose that right through
this process, you would basically be taking broadcast
programming not only away from the million and a half
customers, but there would be absolutely no substitute for it.
Because honestly, if they had a substitute, they wouldn't be
paying us to get the distant signals, they would be getting it
a different way.
Mr. Walden. OK. If we could work with you a little bit
going forward just so we get an understanding what that pool
looks like in terms of grandfathering, that would be terrific.
Ms. Burdick and Mr. Pyne, I am interested in helping,
obviously, constituents get the programming they consider truly
local. How can we ensure that they are getting programming from
their state, not out of state programming, merely because they
fall in a DMA assigned to another State? We obviously have that
situation----
Ms. Burdick. I am a living example of that, Mr. Chairman. I
actually live in Niles, Michigan. My front yard is in Michigan
and my back yard is Indiana, and I am part of the South Bend
DMA, but I vote in Chairman Upton's district.
Mr. Walden. And you are, what, in five time zones, too?
That used to be an issue.
Ms. Burdick. We changed that a couple years ago, although
my lawn mower did used to change when I go around the lawn--my
cell phone would change when I go around the lawn.
At any rate, I happen to receive Comcast's Michigan signal
from its Michigan head end, and what Comcast does in that case
is they reserve Channel 3 for--I am a CBS affiliate in South
Bend and I have network non-dup and syndicated exclusivity
protections across the market, but Comcast reserves Channel 3
for the local broadcast of the CBS station in Grand Rapids, so
its programming, local news, and information can be broadcast
in that area.
My point of telling you that is there are ways to resolve
those situations and we have resolved them in the market today.
Mr. Walden. I know we have that problem in Umatilla County.
There is a certain former senator that is really aware of that,
and anyway, it is an issue elsewhere in my district.
Ms. Tykeson, when Congress passed the '92 Cable Act and the
'96 Telecom Act, cable had 98 percent and 89 percent of the
pay-TV market respectively. As of 2010, cable's share dropped
to 59.3 percent as I mentioned in my opening statement of the
pay-TV households, and 51.6 percent of all TV households. Is
there still a justification for imposing on the cable industry
regulations such as must carry, basic tier, buy through,
program carriage, program access, and set top box requirements?
Ms. Tykeson. Chairman Walden----
Mr. Walden. Go ahead and push that microphone, yes.
Ms. Tykeson. Thank you for the question. I think when we
described earlier the shift in how things have changed and
unfolded since 1992, it is a completely different marketplace
today then it was then. Many of the rules that you have just
mentioned are outdated and they need to be repealed. So my
suggestion would be to consider sunsetting the '92 Act and
potentially some of the other requirements in the '96 Act so
there is a way to go back and revisit some of those rules. In
the STELA bill, there is an opportunity for reexamination
because of the sunset clause. We don't have that in the '92 Act
and as a result, we are stuck with a lot of outdated rules that
are harming consumers.
Mr. Walden. All right. Mr. Pyne, do you have any comment on
that issue of these rules that are put on the cable industry?
Should they stay or go?
Mr. Pyne. In terms of STELA?
Mr. Walden. Well no, in terms of the must carry, the basic
tier, the buy through program, carriage program access, set top
box programs from your perspective. We are just trying to get
different perspectives here.
Mr. Pyne. In terms of the broadcast basic buy through, I
think the marketplace in essence has spoken in terms of the
value of local broadcast. For instance, one of the reasons
satellite has shown tremendous growth over the past 12 years
especially is because of their investment in satellite space to
drive local into local, and it is a huge investment on their
part. But clearly, it is because of the value of the local--
each local broadcast community or each community in this
country that has allowed their investment. So in essence, even
though they did have the option to just have national
programming, they actually decided as a matter of course to
deliver local programming.
Ms. Tykeson. If I may just add one quick point, though.
Mr. Walden. Sure.
Ms. Tykeson. I think the problem now is that we have
competitors in markets like Mike's company, and say,
BendBroadband, that have different rules, and so the playing
field isn't level. So I think we need to--for example, on the
must buy, that has got to go.
Mr. Walden. Yes, Marci, go ahead.
Ms. Burdick. Mr. Chairman, could I speak about must carry
for just a second? I think many members of this committee have
rightly been concerned about diversity. One of the values of
must carry is that these are stations in a local community that
are sprung up by service to that local community. Of the
stations that are must carry stations today, 69 percent of them
carry some religious broadcasting. Thirty-nine percent of them
carry some directed ethnic program to those communities they
serve, and must carry--as a result of must carry today,
networks like--channels like FOX, Univision, and others like
that began as must carry stations, got traction, and then
developed a business model of their own, but they are extremely
important today in localism.
Mr. Walden. Thank you. I actually have gone like a minute
41 over my time and the committee has been indulgent, so I will
now defer to the ranking member of the subcommittee, Ms. Eshoo,
for 5 minutes.
Ms. Eshoo. Thank you, Mr. Chairman. I never mind listening
to you, so that is fine. Thank you.
Well, the title of today's hearing is ``The Satellite
Television Law: Repeal, Reauthorize, or Revise?'' and in some
way, shape, or form each one of you have taken up one of those
words, so it really fits with what the title of the hearing is.
I am also mindful that, you know, as you make your
recommendations to us, that these are really some huge rewrites
of business plans, and those are gigantic lobbies, most
frankly, around here but we are going to do our best to come up
with the best, and I thank you, because we really have a mix of
views which is very healthy here today.
The questions that I want to ask, and I am going to have to
submit some for the record for you to respond to because I
won't have enough time to ask all of them, are a little beyond,
I think, just STELA, but since you are here, I still want to
ask them.
Mr. Palkovic, I now understand why it is called DIRECTV,
because you are very direct in your approach. In Ms. Burdick's
testimony, she stated that the retransmission consent system
under which local broadcast stations negotiate with pay
television providers for the retransmission of their signal is
working just as Congress intended. Do you agree with the
assertion, and if not, what would you propose changing? Try to
be as brief as possible.
Mr. Palkovic. Yes, I will make a quick distinction is
working as intended versus working well, because I think from
the broadcaster's standpoint it is working fantastic, because
they have all the protection and the rights of the laws that
were in place in the '92 Cable Act. What I don't think was
intended is that they would go from four cable channels to 104
with regional sports networks and use the retrans process to
leverage us into paying exorbitant amounts on the cable
channels because we risk them blacking out channels as part of
the renegotiation.
So what we want to address here is the unintended part of
the combination of those laws, OK, and what is different today
than in 1992 was we were in a situation where we were dealing
directly with broadcasters. Now we are dealing with huge
conglomerates that own both sides of the equation, including
cable MSOs that if they raise the rates exorbitantly, a lot of
cases they are just paying themselves.
Ms. Eshoo. Great, thank you.
Mr. Pyne, welcome. Nice to have you here. Should Aereo
prevail in court, some network executives have been quoted as
saying there would be a radical shift away from the free over-
the-air broadcast signal that consumers have enjoyed for more
than half a century. If broadcasters began offering programming
on a subscription only basis, do you think they would still be
in compliance with the public interest terms of their FCC
licenses?
Mr. Pyne. As it relates to the Aereo case, I mean, I know
there are other network executives who have said certain
things. Our company's position is that--and as I think is
evident, we are in pending litigation with Aereo. We will
always do everything we can to protect our content and the
copyright and the illegal appropriation of our content.
Ms. Eshoo. Very carefully crafted response. Very good.
Mr. Pyne. Our focus is on the prevailing litigation.
Ms. Eshoo. I understand. Thank you.
To Mr. Singer, do you think our current law is sufficient
in ensuring the availability of diverse independent programming
like Ovation, Hallmark, and the Tennis Channel, and if not, why
do you think the Cable Act is failing to accomplish its
intended goal? Should we modernize the program access in the
carriage laws, and if so, how? How many if so, how, is too--and
I don't have very much time, but you have 36 seconds for a big
question.
Mr. Singer. I think that the laws as written with respect
to program carriage, program access are fine. The problem is in
the details of the implementation, and I actually think that
the FCC has done a nice job here in implementing the rules, but
of course, once they come to a decision, their decisions can
be--well, the judge's decision can be overturned by the FCC and
then there is a period again where the decision by the FCC can
be overturned by the district court--D.C. Court of Appeals. And
I think the problem now, very shortly, is that they have--the
court has layered on certain burdens that will make it all but
impossible for complainants to prevail. And so I do fear that
at the current moment, we are in a position where there might
not be any future program carriage complaints brought, and that
would be certainly inconsistent with the interests of Congress.
Ms. Eshoo. Thank you very much.
Mr. Chairman, I am going to submit my other questions to
the witnesses, and I am especially interested in the whole
issue of copyrighted material deserving competition--I mean,
compensation. I think it is a very important area for us to
explore, especially when it comes to radio fairly compensating
artists for their copyrighted materials.
So with that, I yield back.
Mr. Walden. Thank the gentlelady, and we will now go to the
vice chair of the full committee, the gentlewoman from
Tennessee, Ms. Blackburn, for 5 minutes.
Mrs. Blackburn. Thank you, Mr. Chairman, and Ms. Eshoo and
I, I think, have some of the same questions. I am going to go
right to the copyright issue.
Ms. Burdick, let me come to you. I appreciate your
comments, and how you express for property rights and I am
quoting, ``recognizing local broadcaster's property interest in
their over-the-air signal, permitting them to seek
compensation'', and I agree. Content deserves to be paid for
and incentivized, but I am curious if you think the position
the broadcasters have taken on the radio side, refusing to
recognize a performance right for sound recordings, if that
undermines your position before us as we look at the video
framework and the retransmission rights, because as you know,
radio broadcasters say that they shouldn't have to pay
performance royalties, because they help distribute an artist's
music. So square that up for me. Where is the contradiction in
that?
Ms. Burdick. Sure. Just by way of background, our company
has been in the radio business for 90 years, 18 months after
the first commercial station was launched. We have been at it
for a long time.
Mrs. Blackburn. That is fine. Quickly.
Ms. Burdick. There has been a symbiotic relationship
between radio and artists--I think I am on--radio and artists
during that period of time, and the substantive difference is
that when my radio stations play the artist's music, the
listeners are getting it for free. In this case, we are talking
about providers who are taking the local television broadcast
signal, repackaging it, and selling it to consumers, and in
that case, I am saying, in the latter case, if you are charging
for it I should be compensated, but on the radio side--and I
recognize this is a healthy debate in the industry--we are
providing that as broadcasters for free.
Mrs. Blackburn. OK, but you know, you can look at it and
say that they are helping to distribute your signal which helps
to increase your ad revenues, and so maybe broadcasters--radio
broadcasters should be distributing or should be paying that
performance right for those entertainers.
Mr. Manne, you had a little bit to say about this. Do you
want to weigh in on this side?
Mr. Manne. Just briefly, I would just say I think the
distinction is a distinction without a difference. I don't
think that you can really square the rejection of the
compulsory right in one case and not in the other, except other
than to recognize that the broadcasters are net beneficiaries
in one regime and they are net payers in the other, and so it
makes perfect sense that they would prefer one over the other,
but I don't think that squares with the public interest.
Mrs. Blackburn. OK, thank you for that.
I think that this is one of those points that we will
continue to look at, because content does deserve to be
compensated and the creator and the holder of that content
deserves to be compensated.
Ms. Tykeson, given how government granted retransmission
consent fees have grown from $216 million in '06 to what will
be over $3 billion this year, who is benefitting and what is
driving that growth?
Ms. Tykeson. Congresswoman, thank you for the question.
There are two groups that are benefitting from the
retransmission consent fees. Originally those fees were
designed to allow--to help level the playing field between the
local broadcaster and the cable company, and of course, back in
1992 it was a very different circumstance than it is today.
What is happening now is the national broadcasters are
requiring fees be paid through the local affiliates, and that
is increasing the fees at huge rates, as you mentioned. So that
all those fees are going to--they are accruing to the large
conglomerate broadcast companies that control 60 percent of the
top 50 networks on the backs of my customers.
Mrs. Blackburn. OK. You also stated in your testimony that
there exist barriers to creating programming packages that are
responsive to consumer need, so what has led to your business's
hands being tied in meeting the needs of your consumers?
Ms. Tykeson. Congresswoman, there are three things that are
happening that affect my customers in Bend, Oregon. The first
is the size of the increases that we are asked to pay by all of
these programming channels on an annual basis, which range
between 8 and 10 percent, roughly, for every channel. In
addition, with these large bundles of programming there is
always a must-have channel in there, but there are a lot of
other channels that maybe my customers wouldn't want, and what
is happening is the large programming companies are forcing
those channels into certain packages. I used to be able to have
a special sports package that could meet the needs of customers
that wanted sports, but now in many cases those expensive
channels are being pushed down into the more popular packages
that is increasing the prices for my customers.
Mrs. Blackburn. OK, my time is expired. Mr. Chairman, I
have got a question I will submit to all witnesses and ask for
their response in writing, and I yield back.
Mr. Walden. Thank the gentlelady from Tennessee, the vice
chair of the committee. We will now go to the former chairman
of the committee, the gentleman from Michigan, Mr. Dingell, for
5 minutes.
Mr. Dingell. Thank you, Mr. Chairman, and I commend you for
this hearing. I appreciate your kindness and courtesy to me.
To the surprise of all, I probably won't be asking
questions today, but I have got some brief cautionary remarks.
I am somewhat alarmed by the prevalence of comments in the
testimony of our witnesses today that are extraneous to the
basic issue that we seek to address. Successive iterations of
the 1988 Satellite Home Viewer Act, SHVA, were enacted by
Congress in order to extend the principle of localism to the
greatest degree possible to unserved viewers. I note that
thanks to SHVA and with subsequent reauthorization, DIRECTV and
DISH are now the second and third largest pay television
providers in the country and are able to compete on a more
level footing with the traditionally dominant cable companies.
These facts tell me that SHVA and its successor legislation
have well nigh fulfilled their intended effect.
Now the committee last considered the satellite television
reauthorization legislation in October of 2009. That bill was
comprised of nine titles, but it had only 30 pages or
thereabouts. Its main provisions extended Section 325(b) of the
Communications Act with respect to distant signal carriage and
good faith negotiations, as well as addressed problems related
to significantly viewed stations, and the after effects of the
transition to digital television. Now to put this in simple
terms, the committee's work on satellite television legislation
has been predicated on the simple principle of localism, and it
should continue to do so.
In closing, I recognize the landscape for video has changed
significantly in the past 25 years. If the Cable Act or other
laws related to the video marketplace are to be amended, they
should be amended on the sound basis of a thorough record
established by the committee's diligent record--diligent
efforts to achieve such record. At present, the committee has
not established such record, and I have to confess that I don't
think that most of my colleagues, including me, understand full
well what the situation is or what it is we should do about
these matters. And so without those kinds of things and without
a record to define what are efforts should be, I think we would
be well served to confine our efforts here to a clean
reauthorization of the Satellite Television Extension and
Localism Act. I would observe that to fail to do this is
probably going to project the committee into one of the
doggonest donnybrooks in recent history and I would hope that
for the benefit of all of us and for the need to do other
things that we would keep that thought in mind.
With that, Mr. Chairman, I return with my thanks and
gratitude a minute and 44 seconds, and I appreciate your
courtesy toward me. Thank you.
Ms. Eshoo. Would the gentleman yield?
Mr. Dingell. If I have some time, of course.
Mr. Walden. Gentleman yields.
Ms. Eshoo. Thank you, Mr. Dingell.
I can't help but jump in here, given what the gentleman
from Michigan has said. I think everyone here knows, and if you
don't, you are going to be reading about it, that Mr. Dingell
is now the single longest serving member of the United States
Congress in the history of our Nation, and he has spoken again
very, very wisely and prudently today. So we not only
congratulate him and celebrate the work that he has done at
this committee. Every major law that we can point to has his
imprimatur on it. So thank you, Mr. Dingell, and thank you for
what you said today, and bravo.
Mr. Dingell. Mr. Chairman, I want to express my respect for
the gentlewoman from California, and my thanks to her for those
kind words. My old daddy used to say to me, son, he would say,
it ain't how long you took, but how well you did and how hard
you tried. I have tried to concentrate on the second part of
that comment. Thank you very much, Ms. Eshoo, and Mr. Chairman,
I thank you for your courtesy again.
Mr. Latta [presiding]. The chairman emeritus yields back,
and at this time, the chairman recognizes himself for 5
minutes. Again, I want to thank all of the panelists for
appearing before us today, and it is a very important hearing
and where we are going to be going in the next year and a half
with the reauthorization.
If I could start with Ms. Tykeson, and ask you a couple
questions. First, again, congratulations on your award. I
represent a very interesting area, one that is south of Mr.
Dingell's area in Ohio, and it goes from an urban area to a
very rural area. And so it is served by very many smaller
operators like BendBroadband. I want to ask you about set top
boxes, if I could. You have called on Congress to repeal the
band on integrated security on these set top boxes, but you
note in your written testimony that your company was granted a
waiver of that rule. Why is this rule relevant in today's role,
given all the devices that folks out there are able to get
video programming from? And do we still need the 629 rule as a
follow up?
Ms. Tykeson. Thank you for your question, Congressman.
We were successful in receiving a waiver from the separable
security ban back in 2008, so we were able to go all digital.
We were the first company in a traditional cable company to go
all digital and reclaim all of our analog spectrum. What has
changed even since then is the plethora of devices that are
available and so determining how people receive their signals
using hardware in today's world where applications or software
can do the job is a much more efficient way to do that. A lot
of companies can't do--put together a waiver because they are
too small, and having this rule on the books that is outdated
and no longer relevant is costing billions of dollars and
preventing technology from moving forward. Thank you.
Mr. Latta. Let me just follow up. You just said some of the
companies out there can't do it because they are too small. How
small is too small?
Ms. Tykeson. Well, I am a member of the ACA, which
represents small operators, and there are companies out there
with a couple of hundred cable customers.
Mr. Latta. OK. Let me follow up with you on that. I
understand that the FCC has admitted that their cable card
rules have not been successful at ensuring a retail market for
set top boxes as Section 629 of the '96 Act intended. However,
the FCC has been encouraged to adopt all vid rules that apply
to all pay-TV providers to remedy this situation. What is your
position on that?
Ms. Tykeson. Well, I think the problem with the rules
that--with regards to the--excuse me, I am a little bit
nervous.
Mr. Latta. Go right ahead.
Ms. Tykeson. Some of these rules are only applying to cable
companies, and they are only applying in the United States. And
so we are artificially impacting the cost of hardware, and I am
not in favor of trying to regulate who should be doing what
with technology that is changing fast and rules like we have in
the '92 Act become outdated and they are impacting the
marketplace and how it unfolds.
Mr. Latta. Thank you very much.
Mr. Pyne, if I could ask you just a couple questions. I
find it kind of interesting in your testimony you stated that
in cooperation with our MVPDs, for example, cable, satellite,
and telco distributors, you now have--you make live streaming
of many of our channels available to subscribers on their
tablets and smartphones, and having heard, you know, through
the testimony today and we hear all the time is how things are
really changing out there, how people from, you know, across
the country are getting their information.
I am just kind of curious, when you talk about, you know,
making that live streaming available, you know, on all these
different channels of subscribers, do you have any breakdown of
like the ages of individuals or the regions? Is it particular
or is this across the Nation on the age groups, just out of
curiosity, for one?
Mr. Pyne. On the specific--with our Watch services, I don't
have the breakdown. We can certainly look into that. Just to be
clear, part of the reason we call this TV Everywhere, the
industry calls it TV Everywhere, and it is really--it is part
of the industry's effort to continue to find ways to provide an
incredible value package to consumers. Just quickly, this week,
Michael Powell, who is the head of the NCTA, said on stage, you
know, the average cost per hour of viewing entertainment
content is 23 cents. So 23 cents is the average cost of
viewing, which in terms of entertainment options, he was saying
is a very great bargain. I mean, I commend companies like Bend,
DIRECTV, and others for the great job that they have done in
creating that value.
I will tell you that ABC.com, in 2004 when we had such
great hits as Lost, Desperate Housewives, and Grey's Anatomy,
we found that 15 minutes they were off the air, they were
pirated around the world, so we created a service called
ABC.com, which is live streaming at that point, and the
statistics we found in that is that the average age of a linear
television was in the earlier 40s, but the average age of
someone who watched ABC.com was in his or her early 30s. So I
think that that may give you some indication.
Mr. Latta. Well thank you very much, and my time has
expired. At this time, I recognize the gentleman from
Pennsylvania, Mr. Doyle, for 5 minutes.
Mr. Doyle. Thank you, Mr. Chairman.
Ms. Burdick and Ms. Tykeson, both of your companies deal
with retransmission consent as small cable providers, yet you
seem to have a disagreement on the effectiveness of the regime.
Why do you think that is?
Ms. Burdick. Well as I said, I am the small broadcaster,
small cable company at either side of the table. There have
been some remarks today about consolidation of broadcasters. We
are small fries compared to the consolidation of the video
provider world. The top four video providers control 62 percent
of the market. The top 10 control 91 percent, so in my
negotiations as a broadcaster, I will start with a major MVPD
with millions of subscribers that says you cover in your six
markets 1.8 percent of the country. I can afford that churn. So
it is a tough business negotiation either way. If I spoke as a
cable operator, which I am not today, I am speaking on behalf
of NAB, but the negotiation is equally as tough on that side of
the table and I think what it proves is that the marketplace
works. There are thousands----
Mr. Doyle. So as a small cable operator, though, you think
it works?
Ms. Burdick. Yes, we made it work.
Mr. Doyle. Ms. Tykeson, you have a different view?
Ms. Tykeson. I don't think it works because it is not a
free market, so I have a choice of one affiliate in my market,
you know, and in some cases it is a great affiliate because
they provide local news. But if we have an impasse, for
example, I am given a price I have to pay, I don't have any
recourse. I can maybe negotiate a little bit, but at the end of
the day, that broadcaster can take the channel off of my
system. So my customers either have to pay the price or we go--
have to go black with the channel. We can't bring in another
signal during that interim period.
The other point I wanted to make, in some markets, about 48
markets around the country, there are broadcasters working
together to negotiate with the MVPD or the local operator, and
that collusion is driving up prices by about 20 percent and
making it very challenging to negotiate. I don't think there is
any other industry where competitors could work together to
collude to come up with a solution. I know Ms. Burdick in her
testimony said that in her market she is not doing that, but my
smaller cable constituents around the country have had those
circumstances that are very disruptive to their customers.
Mr. Doyle. Thank you.
Mr. Pyne, has Disney ever commissioned the purchase of your
most popular channels on the purchase of your least popular
channels?
Mr. Pyne. No, we have not. In fact, I have signed three
affidavits attesting to that fact that we do not employ what is
commonly known as tying.
Mr. Doyle. So has anyone ever requested price quotes from
you for just your most popular channels only?
Mr. Pyne. Excuse me?
Mr. Doyle. Has anyone ever requested price quotes from you
for just your most popular channels?
Mr. Pyne. Yes, they have, and in fact, ESPN and ESPN-2,
which are two of our most popular channels, 15 percent of our
cable systems out there only carry ESPN and ESPN-2.
Mr. Doyle. Very good, thank you.
Ms. Tykeson and Mr. Palkovic, how does channel bundling
affect the types of packages that your companies can offer, and
how does it affect the prices you charge your consumers?
Mr. Palkovic. Well, with DIRECTV, it is simple. We are
offered a price for all of the channels with a particular
program, including retrans. Any offers that would break that
down into individual pieces are just economic. I think that is
intended, so that usually doesn't go anywhere, and you know,
you end up with situations where even if we could create a
package for consumers that was affordable that only had in that
package enough programming to support a price point that they
would want, it will run afoul of penetration obligations in
those agreements. So you can do it, but you end up either
having to stop selling that package or you have to pay through
the nose to the programmers for violating those terms. So it is
not just a tie-in involving channels, there are penetration
obligations on the more popular channels that accrue to the
rest of the suite of services. So it is a tough situation today
to deal with.
Mr. Doyle. Thank you. Ms. Tykeson?
Ms. Tykeson. So what that means is if we wanted to have a
channel down in a lower level--well, usually we don't, but if
say, for example, with the basic cable, limited cable, we would
be prevented from moving those channels to a higher tier if
they are too expensive. So we are forcing our customers
through--unfortunately, the programmers are--to put these
channels in tiers where customers don't want them, and if we
pierce the floor, and I think that is what Mike is saying, now
we are in breach of contract. So I have to put these channels
in these wide penetrated tiers and customers don't want them.
My packages are becoming way too expensive, and it is just not
fair for my customers.
Mr. Doyle. Thank you, Mr. Chairman. I see my time is up so
I will submit the rest of my questions for the record.
Mr. Latta. Thank you very much. The gentleman yields back,
and the chair now recognizes the chairman emeritus, Mr. Barton
from Texas, for 5 minutes.
Mr. Barton. Thank you, Mr. Chairman.
Before I go into my questions, I have a commercial.
Tomorrow night at I think 7 o'clock, Mr. Doyle's behemoth of a
team, the Ragtag Republicans, and I am scrounging a team
together this afternoon to make sure that we can get nine folks
to show up, but the game is at 7 o'clock and there are a lot of
Energy and Commerce Members. Mr. Doyle is the manager on the
Democrats and I am the manager on the Republicans. Mr. Scalise
he is our second baseman, so we are hoping----
Mr. Doyle. We will be gentle, Mr. Chairman.
Mr. Barton. You what?
Mr. Doyle. I said we will be gentle.
Mr. Barton. Yes, well we want you to be very gentle. Now if
you will start the clock I will get into my comments.
I have three homes, which is unusual: two in Texas and one
up here. One of them is covered by DIRECTV, one is covered by
Comcast, and one is covered by Charter Communications. The two
that are covered by cable, you know, also includes an internet
package. DIRECTV is just TV. All of those I am paying in the
neighborhood of $200 a month each. I am really looking at going
back to the old free TV. I mean, I think it is illustrative
when you are having commercials show up on cable television
that you can get an antenna and the government requires free
over-the-air broadcast. You know, we have got a whole
generation of Americans who don't realize that they can get
free over-the-air TV. It is like it is a new product, and I am
about to rejoin going back to the future, because of the cost.
Now, the last time we did a major cable bill, there was a
Republican Congressman named Nathan Deal, and he was hot to
trot on ala carte pricing. And I discouraged him and--but
anyway, we got him--we let him have a vote on his amendment. I
think he got two or three votes. Well he is now Governor of
Georgia, but if he were still a member of this committee, I
think he would get a lot more votes. I am not real happy--I
understand that I can get 1,000 channels, but I only watch two
or three, and my friends at DIRECTV--I know it is not fair to
pick on you, but one of the channels that I really, really like
to watch is FOX Southwest. It is the regional sports channel in
Texas. In order to get it, I had to pay about 70 bucks for a
package, a tiered package of which out of all of those the
really only one I want to watch is FOX Southwest.
So I am not sure--I haven't talked to Mr. Walden or Mr.
Upton. I don't know what their personal views are on
reauthorization, whether they want to reopen it or they just
want a so-called clean bill. But if they want to go beyond a
clean reauthorization, I am very willing to look at the basic
tenets and revisit it, because to the average American family,
200 bucks a month is a significant amount of money and it is--
that is about--in three locations. Now that does, in two of the
three, includes an internet package. It doesn't in the TV
package for DIRECTV. So that is just something as an
observation.
My question I am going to go to Mr. Singer here, because he
seems to be the economist neutral man here. Retransmission
consent was meant to be a level playing negotiation between a
local broadcaster and a local cable operator. And in many
cases, the local cable operator was a national cable operator.
It wasn't somebody like Mrs. Tykeson, who has a local system.
But apparently now, retransmission is becoming a national
negotiation between a broadcast network where the local
affiliate yields to the national network, who then gets a fair
amount of the retransmission package if there is compensation.
That was not the intent of the Congress, at least, that is not
my recollection. So I would like Mr. Singer's comments on this,
how retransmission has evolved and if he has a solution, if he
thinks it needs to be changed, what would he go to?
Mr. Singer. Sure. Thanks for putting that to me, and I will
try to be fairer than them all. But the point is that economics
or the way that economists think about things, is there a
market problem? Is there, say, vertical integration that can
distort incentives relative to an independent in this
situation? When I look at this problem, I see two behemoths on
both sides of the bargaining table. And in this situation, you
will get some failures in a sense that deals won't be struck.
But there isn't a very solid basis, at least in economics, for
regulatory intervention in those circumstances. It seems to me
that--and this is an important caveat--so long as the copyright
is protected on the broadcaster's side, we should just let
those guys basically beat each other over the heads until they
come to the right price.
Mr. Barton. So you don't see a problem with the current
law?
Mr. Singer. I think that there is--again, what I have seen
put on the table, I think, in Mr. Manne's testimony is that if
we fix the copyright issue we can repeal the law and let market
forces dictate the outcomes.
I do see problems, I just want to say, in terms of the size
of the package that you mentioned before and I am sympathetic
to that, but on this issue of whether or not government should
lean in and put their hand on the scale of a negotiation
between two large players on both sides of the equation, that
doesn't have a very strong basis in economics.
Mr. Barton. OK. Thank you, Mr. Chairman.
Mr. Latta. Thank you very much. The gentleman yields back,
and at this time the chair recognizes the gentleman from New
Mexico, Mr. Lujan, for 5 minutes.
Mr. Lujan. Thank you very much, Mr. Chairman.
Mr. Barton, I almost want to yield you more time to get to
some of those questions as well, sharing some of those
concerns, especially with the rural district that I represent.
I guess a question to Mr. Palkovic, Mr. Pyne, and Ms.
Tykeson, along the same lines, last year the FCC released its
annual survey of cable industry rates and found that prices
from 1995 to 2011 time period increased by an annual rate of
6.1 percent, compared to only 2.4 percent increases in the
overall consumer price index. To what factors do you attribute
those causes, especially as we talk about the impact of
programming to many of our consumers?
Mr. Palkovic. Sure. I think DIRECTV in recent years has
been going up annually about 4 percent with our customers all
in, and just to kind of put it in some context, over 40 percent
of our costs are costs paid directly to the programmers, to the
content holders, and their prices have gone up double digits,
so you know, when 40 percent of your costs are going up 10
percent and we can only get 4 percent from our consumers,
because we still have to operate in a competitive environment,
we are not making any money on this. So all the other operating
costs we have for satellite and broadcast centers and overhead
and customer service--and we are a huge believer in providing,
you know, the best customer experience, we are eating those
costs because all the money that we are getting annually is
going directly to the content holders. So if people think that
we are, you know, out there making money on these increases, we
are not.
Mr. Pyne. I think----
Ms. Tykeson. So in our case, programming is the number one
cost for my company. Our expenses for programming are going up
twice as fast as our revenue from video product. I wanted to
also just comment on Congressman Barton's point, because what
we have now is this shifting in the power. We are negotiating--
MVPDs like Mike's company and my company are negotiating with a
single broadcaster in a market, so this is the only example I
can think of where you have more competition and higher prices,
and it is because I don't have any place to go besides to those
broadcasters or programmers to get that particular content.
Mr. Lujan. Mr. Pyne?
Mr. Pyne. If I may just say something on programming costs.
First of all, I want to make one point clear is that at the
Walt Disney Company, we only own eight television stations so
when we negotiate retransmission consent, we only negotiate for
those eight stations. It sounds like there is a belief that all
the local broadcasters are puppets in some way. Believe me,
there is a great exchange of dialog between local broadcasters
who are affiliates and us in terms of whatever the appropriate
exchange of value, but you know, they are the ones that drive
that local decision and that local negotiation.
You know, we at the Walt Disney Company spend billions of
dollars every year in creating great content. I said earlier
that, you know, for ABC alone it is $3 billion a year, but we
always--whatever the service, we always are looking to make our
networks must-have. I wish it were as easy to call down to the
local store and say here, I would like to order two hits, but
the investment and the risk in developing that content is huge
for us, and ultimately, we are looking, in terms of our
negotiations, to find, you know, a fair way of reaching terms
with whomever our distributor is.
You know, one of the advantages that small rural cable
systems have is something called the National Cable Television
Cooperative, or NCTC, and in that case for all of our cable
networks, ESPN, Disney Channel, ABC Family, we negotiate--and
BendBroadband is a member, you may be a member, too--we
negotiate as if they are the fifth--eight million subs, they
represent eight million subscribers, and we negotiate as if
they are the fifth largest MVPD.
Mr. Lujan. Mr. Pyne, I am sorry, I am going to have to just
jump in here because I am going to lose all my time here.
Mr. Pyne. Sorry.
Mr. Lujan. But I would love to get that maybe in a written
way and we will get that resubmitted.
Ms. Burdick, I am sympathetic to a comment that you made in
your prepared testimony that you are concerned that local
communities could lose access to local programming. I think
that we would both agree that access to local news, local
programming is critically important. But I want to talk to you
about something that is broken. I represent a district where
many of my constituents can't receive local programming because
of the DMA that they are in, and I would like your opinion on
what we can do to make sure that we are including orphan
counties to get this done, because if not, I want to work with
my colleagues to find a way to fix this. Since I have been in
Congress I have been asking for help in this area and I have
not found anyone willing to help me out to get this fixed.
Ms. Burdick. Well, I can tell you the head of the NAB,
former Senator Smith, was successful on the Senate side in
finding some fixes there, and we will be glad to work with you.
Broadcasters want local citizens to have local programming, and
we would be glad to work with you.
May I take just a minute to address a couple of the
comments here? I think you raised something that was really
important where you quoted cable rates from 1995 on. The fact
of the matter is broadcast retransmission consent has only
existed since 1992, and from a practical basis, it was really
not until the late '90s or 2000 that most broadcasters began
successfully negotiating for pennies of every programming
dollar to support local news and information. The cable rates
have been going up in a larger percentage long before
broadcasters were being paid for the most popular content on
cable systems.
Mr. Lujan. Mr. Chairman, I know my time is right now, but
as I look for some assistance to get this done, some of my
savvy consumers, all they do is they go and get a post office
box out of a metropolitan area in the middle part of the State,
the largest city of Albuquerque and then once they send that
bill to their satellite provider, then I will be darned, they
get local programming. You know, if it is not against the law,
we need to make this work somehow. This is just ridiculous.
These are farmers and ranchers that are in isolated areas that
want local programming, want to know what is happening in the
State that they are proud to belong to, and we've got to get
this thing fixed.
Thank you very much, Mr. Chairman.
Mr. Latta. The gentleman yields back his time, and at this
time the chair recognizes the gentleman from Louisiana, Mr.
Scalise, for 5 minutes.
Mr. Scalise. Thank you, Mr. Chairman. I appreciate that and
enjoy the testimony.
I want to start with Mr. Palkovic. In your testimony you
had stated that competition normally drives down prices, but
here the Congressional Research Service recently put it that
``Ironically the market consequence of greater competition in
the distribution of video programming appears to be greater
negotiating leverage for the programmers with popular and
especially must-have programming, resulting in higher
programming prices that MVPDs tend to pass through at least
partially to subscribers.'' How do you believe government
regulation has contributed, if at all, to the findings that we
saw from the Congressional Research Service?
Mr. Palkovic. Well, I think it gets back to the tying and
bundling of the retransmission consent rights that broadcasters
have that are tied to the 1992 Cable Act, coupled with the
consolidation of programming that has taken place since that
time. Right now, there are six major companies that control the
majority of programming. They are not all broadcasters, but
four of them are broadcasters, and they behave somewhat
differently depending on who they are. But when they bundle all
of their content together, even the content that is less
desirable that people should be allowed to choose in more niche
packages, in exchange for a very much high in demand
programming, they really just point the gun at your head and
say you got to take it or leave it. What makes it even worse is
when they throw blackouts on top of that, so it sounds like it
is a free market situation, but underlying that are all the
protections they have for the local broadcast channels. And it
may not be the smaller mom and pops, that may be a more direct
kind of traditionally fair discussion, but these large
conglomerates are basically using all the rights they have with
the Cable Act and leveraging that against distributors and
driving the prices up.
Mr. Scalise. Let me ask Mr. Pyne, I know when you talk
about the different services that your company provides, you
know, my kids would probably have a revolt if the Disney
Channel or Disney Junior went off the air. I would probably
have a revolt if ESPN went off the air. If there was a repeal
of retransmission consent, but also tied in with the repeal of
compulsory copyright license, which I know legislation I
brought forward would do--and usually the compulsory copyright
components are often left out of the conversation. Wouldn't you
just revert back to a normal, as Mr. Manne described it, a
normal copyright negotiation where you would have two parties
that would still be sitting at a table negotiating, but in this
case the consumer demand would be driving a negotiation that
would still be based on a mutually agreed upon price?
Mr. Pyne. We don't support the repeal of both the retrans
and compulsory copyright. Clearly in that discussion there are
some things of interest to us in terms of the economic
discussion, but we don't support the repeal of retransmission
consent for the reasons I cited. I think in full candor, one of
the reasons is the potential uncertainty we view that could
take place in the marketplace. You know, from our perspective
and certainly from other broadcast perspective, we believe the
system is working in terms of the negotiations. Yes, there are
disruptions. There are not officially blackouts because
broadcasters are still broadcasting their signal, and as in any
negotiation in the current system--I have personally been
involved in two. One is when Time Warner dropped ABC in 2000,
and then in 2010 when we dropped Cablevision. In the first case
it was resolved in 36 hours, in the latter--and that was just
ABC, by the way, it was not other networks--and the latter
resulted in 20 hours of ABC being off the air and we reached a
resolution.
Mr. Scalise. Thanks. One of the earlier--when I did my
opening, the reason I held up the brick phone, you can find
these on the Internet still, which we were able to do--it
doesn't work. I can't get it to work. But the laws that were
written during the time when this was the technology--and I
brought up the Aereo case earlier and I appreciate that there
is ongoing litigation, you can't talk about it here. But if you
look just a few weeks ago, the head of CBS actually did chime
in on his and indicated that they are right now in talks with
pulling CBS down and going to a cable format. Now, probably
unlikely that it gets to that, but the fact that CBS, one of
the major broadcasters, is right now talking about the
possibility that if this court case goes a different way, that
they could pull down their local broadcast signals and just go
to a pure cable format tells you the marketplace has changed
dramatically because of technology, and yet the laws don't
cover that. So I want to finish with a question to Mr. Manne,
how do you view this marketplace as it is evolving in the
context of laws that were written in 1992 that really haven't
been updated, though the technology has changed dramatically?
Mr. Manne. We had amazing progress in this market, despite
the fact, as I pointed out in my testimony, but clearly
suboptimal rules here. I think in particular when I hear all
this discussion about high prices for must-have content and all
the talk about bundles, I think Hal and I seem to substantially
disagree about this. What I hear is that there are pieces of
the existing regime--we have talked about them, starting as you
and I both agree with the compulsory license, but going through
all of the many we have mentioned today, that do dramatically,
I think, impair the free contracting among the various parties
here and probably do affect price, but it is also really
important that at the end of the day, you do have to pay a
price for things like things that you must have. If you really
want something, you usually have to pay more for it, and
especially when it comes to the availability of content, and
that means both the production of the content and the
distribution of it, you know, I see this incredibly vibrant
market with more content than we have ever had, more avenues of
distribution than are imaginable, and the fact that the
particular business model by which they are distributed, in
some cases, for example, bundled, that doesn't foreclose access
to all of this wonderful content. That is not how it works. And
because it doesn't work that way, I see it as a valid business
decision that these content owners and the distributors that
they negotiate with have made to actually maximize the
production of that content. That may cost a little bit more--
seem like it costs more, because you have to pay more, for
example, the bundle, but that has generated such a
proliferation of content and again, distribution mechanisms for
it that we have this really remarkable market that could be
even better, because there are such easily identifiable
problems with the regulation of it that we could dispense with
it.
Mr. Scalise. Thank you. Appreciate it, Mr. Chairman, and I
yield back the balance of my time.
Mr. Latta. Thank you very much. The gentleman yields back.
At this time now, the chair recognizes the gentleman from Utah,
Mr. Matheson, for 5 minutes.
Mr. Matheson. Thanks, Mr. Chairman, and I do appreciate the
panel today. I find this to be a rather thoughtful and
informative hearing, which I wish that was always the case, but
this is a really good one today. So I appreciate all of your
input.
I had a couple of questions. There are so many issues out
there, but Ms. Burdick, I wanted to ask you, there is a
suggestion that has been put out by some folks that there is a
situation where out-of-market programming could be allowed
during retransmission consent disputes. If that happened, could
you tell me what the impact would be on your company if that
happened during a retransmission dispute?
Ms. Burdick. Sure. I will give you one line and then I will
elaborate. Imagine what it would have been like in Moore,
Oklahoma, had distant signals been broadcast the day of the
tornadoes. Imagine what it would have been like.
We as local broadcasters are providing local news, weather,
and sports services that are not duplicated by anyone else, and
the fact of the matter, as the panelists have alluded to us is
must-have programming because it is watched more on their cable
systems or satellite systems than any of the channels that they
provide. You have to go to a CW, a My Network station, over-
the-air that even gets close to the top-rated cable network, so
we are providing important content. If a local signal--if a
distant signal was allowed to be imported, a couple things
would happen. There will be more disputes, not less, that will
last longer because there is no incentive for the cable or
satellite operator to solve that dispute. They are bringing in
a signal they are not paying for, so why would you reach a
resolution with a local content provider to pay for that
content, number one. At the second time, they would be
shrinking my market area. I would be losing eyeballs. When I
lose eyeballs, I lose advertisers. When I lose advertisers, I
lose dollars. The only place, as Ms. Tykeson rightly refers to,
cable's highest programming cost--cable's highest cost is
programming. Mine, as a local broadcaster, is people doing news
and local information. When I lose revenue, that is the only
place I have to go to control my cost, and that would be the
impact. Less news, less local information.
Mr. Matheson. Thank you.
Ms. Tykeson, you talked about in your testimony how your
costs for your consent fees have gone up over the last few
years. Roughly how much of your--what is your breakdown of how
much your programming dollar breaks down between what is
broadcast and what is not?
Ms. Tykeson. So the--I would say----
Mr. Matheson. Sorry, could you turn your mike on?
Ms. Tykeson. Sorry.
Mr. Matheson. Thank you.
Ms. Tykeson. The prices for retransmission consent are
growing at a faster rate than the costs for my other kinds of
programming, but both are going up by significant amounts. I
would say with these recent rounds of retransmission consent
negotiation, probably doubling and tripling each cycle. And
then in addition, with the large bundles of programming that I
am required to offer because there is not a system that allows
me to offer smaller packages to my customers, each time those
negotiations come around, my costs are going up, in some cases,
by 20 to 30 or even more, depending on what is being required
of me in terms of moving some of those channels down, offering
more channels, and then also taking double or triple the cost
of inflation increases on each one of those channels that we
provide to our customers, and we have to, in accordance with
those agreements.
Mr. Pyne. Can I make one clarification, please, and I have
heard this several times. I think I stated earlier that we
don't employ tying. Like other businesses, we do offer packages
of programming, but I guess I will say three things. Number
one, clearly we spend an inordinate amount of time, energy and
money in developing must-have programming, and that is from the
very top of our company, creative excellence. Two is, you know,
when a channel doesn't do very well, we, in fact, change it, so
recently Soapnet, great channel in the 2000s, its popularity
has waned, so we could have just tacked on another channel and
added more, but in fact, we are switching out Soapnet and
launching Disney Junior, which has incredible programming, and
third, if I may finish, you know, we would love all of our
channels to be 100 percent penetrated. We have a portfolio. We
love them. But in fact, even on BendBroadband, our ESPN news
channel is only penetrated 18 percent, Disney Junior 49
percent, and on DIRECTV, ESPN deportes is only penetrated 6
percent. And finally, we have--and we understand that. That was
a negotiated deal through fair market terms. And finally, you
know, we have done as a company over the last little over 2 \1/
2\ years seven of the top ten deals with major companies, with
smaller companies, ranging from Cox Communications to
Cablevision, to AT&T, and certainly Comcast. We have done deals
that after 30 years of negotiating in the marketplace--and I
have been doing this for 21 years--I think we have established
standard rates and standard terms.
Ms. Tykeson. If I may just add, because my neighbor here
mentioned the National Co-op, which is an opportunity for
companies like BendBroadband to participate, but some of the
problems with the rules that we currently are operating under
is the co-op is not really treated truly like a large
distributor, so the prices that are offered to the co-op
members, and terms in particular, are different and in most
cases, it costs more or there is more stipulations and terms
that are not attractive or as attractive as a large distributor
might be able to get. Thank you.
Mr. Matheson. Thank you. I appreciate everyone's comments.
Mr. Chairman, I yield back.
Mr. Latta. Thank you very much. The gentleman yields back,
and the chair now recognizes the gentleman from Vermont, Mr.
Welch, for 5 minutes.
Mr. Welch. Thank you very much, Mr. Chairman. This is a
great hearing. I was on the committee two Congresses ago and
then I was off last committee, and I am back. And things are
pretty confusing for consumers, anyway. You know, I find this
to be a very excellent hearing and really appreciated your
testimony, and Mr. Chairman and ranking member, it is fabulous
to be here.
But you know, the work that everyone is doing is so
important, and how you do it and what the market requirements
are in order to have the revenue stream in order to do it
obviously is essential, and we are talking about this in the
context of satellite reauthorization, which Congress has
successfully done. But the kind of elephant in the room that
has been alluded to, but not directly addressed, is the Cable
Act of 1992. I mean, the world is totally different. The
revenue models are totally different. The consumer needs and
opportunities are completely different, and it is raising the
question in my mind as to whether or not, in fact, there needs
to be a serious revisit of the Cable Act of 1992.
In my office, I have had many of you or people in your
sectors of the very challenging industry come in and talk about
what they perceive as problems with the status quo, some people
saying the status quo is the right way to go, but that is very
much in contention, and we are even hearing that amongst you.
And the bottom line--and I don't have any answers--is that
somehow, some way we have to figure this out and do it in a
coherent approach where there is an acknowledgment that there
are new tensions. I mean, just think about the things we have
heard tonight--this afternoon. Mr. Lujan talking about the
orphan counties and not being able to make any progress. What I
hear about a lot is from my consumers and the cost of this, and
Mr. Latta, I really appreciate your leadership. We started a
rural caucus to try to figure out how we can help folks in
rural America basically get a fair shake on this. The dilemma
here from my perspective is that the consumers just don't have
any power to affect the outcome, but they are feeling the
pressure of these high bills. They need the services you
provide. They benefit from the content that you create. They
certainly benefit from local broadcasting. We had Tropical
Storm Irene, and the lifeline for us was local radio and local
television. But on the other hand, they have no control over
what that bill is. They get all these channels that they never
watch, you know. They kind of wonder why these baseball players
are getting $230 million contracts and they can't swing a bat
anymore. And you have got a revenue model where basically there
is no liability for the general manager who makes the deal,
because they can just pass it on to the cable subscribers.
People are getting kind of fed up with that, right?
So you know, Mr. Chairman and ranking member, I just wonder
whether it is time for us to not only look at the satellite
STELA, but to look at the Cable Act of 1992 and understand that
it has got to come out in a way where the competing interests
and needs require a solid and stable revenue stream in order to
provide the benefits to consumers, but the consumer has to be
part of the equation.
So I am just going to go down the line and ask whether a
revisit of the Cable Act, in your view, makes some sense, aside
from the fact that everyone always fears that whatever can go
wrong will go wrong if Congress starts trying to change
anything. So I get that part, all right, but let's start with
you, Mr. Palkovic.
Mr. Palkovic. Sure. Obviously we came here to address, you
know, the topic of STELA, but I think it is safe to say that
the common theme here is that the rules are old, they need to
be revisited. It can be a little bit overwhelming to think
about how difficult that would be. We tried to come up with
solutions that were anywhere from, you know, the total
deregulation approach where everybody gives up all their
rights, and quite honestly, including us, we put the good and
bad on the table and start over. Two more targeted approaches
to take care of the things you pointed out that are directly
evasive to the consumer, because that is really the problem we
have is when you use the consumer with blackouts and other
tactics like that to deal with your free marketplace
negotiations, that is where we think they have kind of gone
over the line. But yes, I don't think there is any question of
revisiting----
Mr. Welch. My time is about up, but I just would be
interested in a short reaction to whether revisiting the Cable
Act makes some sense. Go ahead.
Mr. Palkovic. Pardon me?
Ms. Burdick. Do you want us to continue or respond later?
Mr. Welch. Well you can respond later, but a yes or no
might be helpful now, because I am out of time. We have got a
very generous chairman here, but I don't want to wear out his
patience and good will.
Mr. Latta. Well, if you just want to go down the line and
answer a yes or no question, go right ahead.
Mr. Welch. Just yes or no.
Ms. Burdick. I can't answer it yes or no.
Mr. Pyne. Me as well.
Ms. Tykeson. I would say yes, and also provide a written
response, but that will take time, so I would go for some
additional fixes now, some of which I have mentioned. Thank
you.
Mr. Singer. I think that there is still a valid need for
the program access and program carriage protections in the
Cable Act, but aside from those, I think it would be worthwhile
revisiting the larger picture.
Mr. Manne. I think absolutely. In fact, I don't think you
can really address STELA without addressing those other parts.
I would just say that when you do, the most important thing
is--I disagree, of course, with Hal about program access and
program carriage, but the most important thing is to understand
how your regulations can avoid enshrining, you know, the
particular contractual arrangements we may have today as though
those are the only possible revenue models or anything else. I
think that is what has happened and really fundamentally----
Mr. Welch. OK, thank you very much, and Mr. Chairman, thank
you.
Mr. Latta. Thank you very much. The gentleman yields back
and the chair now recognizes the gentleman from Colorado, Mr.
Gardner, for 5 minutes.
Mr. Gardner. Thank you, Mr. Chairman, and thank you to the
witnesses for your testimony today. Listening to the opening
comments, listening to the questions, I think there is no doubt
from the members here, the witnesses here today that the rules
governing today's video marketplace were crafted 21 years ago,
a very long time ago. In fact, none of the rules currently
apply to some of the latest Internet competitors in the video
space. So with these dramatic changes that have occurred in the
video marketplace, I think we have got a great opportunity
before us to examine what has changed and how current laws can
help or hinder advancement of the free market and market
innovation. I know the broadcast industry believes the system
is working, and many others disagree. The rise in programming
costs and retransmission consent disputes indicates that there
are issues that we need to look at.
So to DIRECTV, I would ask this question. Mr. Palkovic, is
that right?
Mr. Palkovic. Palkovic, yes.
Mr. Gardner. Palkovic. Why do you think STELA is the right
vehicle to move forward with the discussion of how to change
regulations in the video industry?
Mr. Palkovic. Well, I think STELA has proven to be a very,
very important and appropriate piece of legislation for us. We
obviously have a number of things that benefit consumers in
that Act. We certainly wouldn't want any of that to change,
particularly taking away programming from a million and a half
customers without really--I don't see any benefit to the
broadcasters of doing that, other than potentially hurting the
satellite industry, but it will disenfranchise those customers.
So since we are in the process of reauthorizing that to the
extent we can have any even minor changes like the blackout
issue addressed, and we thought it was appropriate.
Mr. Gardner. Ms. Burdick or Mr. Pyne, why do you think
STELA is not the right vehicle to move forward with the
discussion of how to change regulations in the video industry,
and could you address Ms. Burdick's question--testimony that
notes that TV stations are underpaid in terms of retransmission
consent dollars?
Ms. Burdick. Well, I think that was evidenced again today
when Representative Matheson asked the question specifically
how much of a cable programming dollar goes to local stations?
It wasn't answered. We continually get this percentage on
retransmission consent, and math was never my strong suit, but
when you start from zero----
Mr. Gardner. Don't work for the IRS.
Ms. Burdick [continuing]. It always looked pretty big. The
fact is that broadcast programming is the single highest viewed
programming on any satellite or cable system, yet the
compensation we receive for producing that program is miniscule
compared to some of the other providers.
I haven't said anything as the term blackout has continued
to be used today, and I would just like to underscore one
issue. These are contractual negotiations and relationships,
and when we reach an impasse, we are still on television. We
never go away. I hope Representative Barton does take a look at
what is available now free over-the-air since he last looked.
It may be 20 or 30 stations, free over-the-air, different
kinds. Cable is not asking you today with STELA that if they
reach an impasse with HBO or AMC to be able to import that from
another cable system, so why should it--why should they be
allowed to import a broadcaster?
Mr. Gardner. Mr. Pyne, do you have anything to add to that?
Mr. Pyne. The only thing I would add is in terms of why we
are comfortable with sunsetting STELA is that we believe the
fraction of affected Americans--and we are trying to understand
the exact number--but it is small enough that through private
contract or private negotiations we could actually find a
solution with the satellite companies.
Mr. Gardner. Thank you. Broadcasters referred to
retransmission consent negotiations as a free market and asked
the government to refrain from intervening, yet many on the
panel have argued today in some questions that there are a
number of government mandates that prevent the market from
being free, such as retransmission consent, compulsory
copyright, basic tier placement, required tier buy through for
cable, network non-duplication, and syndicated exclusivity.
They further argue that broadcasters can decide which MVPDs
carry their content, but MVPDs can't choose which market to get
their programming from. And so if I could just start down the
panel at the end--and I am going to run out of time quickly and
I have some other questions here, but please explain why you
think the regime is or is not a free market.
Mr. Palkovic. Well, I think to be concise here, I think the
broadcasters are combining their rights to carriage in a local
market and they are leveraging those rights with all the other
cable content that they have acquired over time, and they know
that at the end of the day, using tactics like blackouts, bring
the consumer into play and put the onus on the distributors to
deal with the consumers, because they don't deal with the
consumers, we do.
Ms. Burdick. I will let Mr. Pyne answer one of the other
issues. I will take a small chunk of that, and that is in all
of the regulation, whether it was copyright or the Cable Act,
what Congress wisely recognized is the value of localism and
protecting local markets in a marketplace that supports local
news and information. That still has to be recognized, because
if local broadcasters aren't providing those lifeline services
and local news, weather, and sports, who else will do it?
Mr. Pyne. In terms of retransmission consent, we view that
as a mechanism of actually entering into negotiation, and I
think one of the tenets of our business is we spend a lot of
money in creating content, and we want to be able to, you know,
get an appropriate return on that content. Remember, when you
do retransmission consent you only--you enter into negotiation
and you can either reach an agreement or not.
And just to be clear--and I have said this before--and I
know we are--ABC is one of the big four broadcasters, but when
we negotiate retransmission consent, we are not negotiating for
the country, we are negotiating for our eight owned stations
and those local markets only. I just wanted to be clear about
that.
Ms. Tykeson. Although those markets represent a huge
percentage of the United States.
Mr. Pyne. It is actually--to be clear, it is only 23
percent of the United States, which is smaller than any of the
other broadcast groups.
Ms. Tykeson. So I would--to answer your question, I would
say that it is not a free market. In Bend, Oregon, I have one
broadcaster to negotiate with. That is it. If we can't come to
an agreement on the price--and by the way, we have paid in
other ways over the years in terms of launching additional
channels and meeting other demands. So while it is true that
retransmission consent fees have started recently, there were
lots of other demands before that. So we don't have a free
market. I don't consider $6 billion to be miniscule in terms of
what consumers are paying for this programming. If we come to
an impasse, really I have two choices. One is to take--to pay
the price and pass that along to my customers, or the channel
is blacked out.
Mr. Pyne. Can I just address very quickly----
Mr. Gardner. If I could interrupt. Mr. Chairman, I don't
know--I am out of time so I don't know. It is up to you if you
want the----
Mr. Latta. If you can finish up in about 30 seconds.
Mr. Gardner. Yes, so if I could just ask quickly to run
through the rest of the panel members, and Mr. Pyne, we can
catch up after this, but let's finish with the rest, Mr. Singer
and Mr. Manne, if you don't mind quickly? Thank you.
Mr. Singer. Sure. I don't think allowing broadcasters to be
compensated for the signals is what is driving higher prices of
the cable packages. I think it is bundling, and you put your
finger on that. One of the things that you really haven't put
your finger on yet that I just want to draw your attention to
is vertical integration. I just released a study on the review
of network economics showing that when a regional sports
network, an RSN, is owned by a cable operator it charges more
than independents, and the premium increases with the
downstream market share of the vertically affiliated cable
operator. So I just think it is important to focus everyone's
attention on what is driving the prices higher, and the fact
that broadcasters are allowed to seek compensation for their
signals is not one of them.
Mr. Gardner. Mr. Manne?
Mr. Manne. It is not vertical integration, either. Vertical
integration has been decreasing over the relevant time period,
and with all due respect to Hal, we have a pretty substantial
disagreement over how much vertical integration can really
impact the prices like that. And I don't think it is nearly as
substantial as he thinks. I think if there were really a free
market, all of these supposed--and very real, actually,
benefits from local broadcasters wouldn't need to be mandated
by law. The customers and distributors would willingly purchase
them, but that may not happen without a particular mandate
suggests that it is not, indeed, a free market.
Mr. Gardner. Mr. Chairman, thank you for your indulgence.
Mr. Latta. Thank you very much. The gentleman's time has
expired, and I just want to thank on behalf of Chairman Walden
and also Ranking Member Eshoo and myself for all of your
testimony today, and your answers. We really appreciate it. It
is very, very informative, and on behalf of the committee, I
just again say thank you. Seeing no other questions to come
before the committee, this committee stands adjourned.
[Whereupon, at 12:48 p.m., the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared statement of Hon. Fred Upton
Today the Subcommittee on Communications and Technology
continues its examination of the law authorizing satellite
operators to retransmit broadcast television signals. Portions
of the law, first passed a quarter of a century ago, expire at
the end of next year.
I think it is an important exercise to be required to
periodically examine that law. A lot has changed in the video
marketplace since it was first passed in 1988. Satellite
television providers are no longer new kids on the block. And
cable operators, once the commanding presence in the pay-TV
sector, now face competition not just from satellite providers,
but phone companies and the Internet as well.
We have a year and a half before we must decide what action
to take. Let's use that time to make sure we hear from viewers
and stakeholders about the actions we should consider, those we
should not, and the implications of both. Today is our second
of what will be a thoughtful series of hearings as we pursue
the appropriate policies.
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