[Senate Hearing 111-1094]
[From the U.S. Government Publishing Office]
S. Hrg. 111-1094
TELEVISION VIEWERS, RETRANSMISSION CONSENT, AND THE PUBLIC INTEREST
=======================================================================
HEARING
before the
SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET
of the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
NOVEMBER 17, 2010
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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70-970 PDF WASHINGTON : 2011
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii KAY BAILEY HUTCHISON, Texas,
JOHN F. KERRY, Massachusetts Ranking
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California JOHN ENSIGN, Nevada
BILL NELSON, Florida JIM DeMINT, South Carolina
MARIA CANTWELL, Washington JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas GEOGE S. LeMIEUX, Florida
CLAIRE McCASKILL, Missouri JOHNNY ISAKSON, Georgia
AMY KLOBUCHAR, Minnesota DAVID VITTER, Louisiana
TOM UDALL, New Mexico SAM BROWNBACK, Kansas
MARK WARNER, Virginia MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska
Ellen L. Doneski, Staff Director
James Reid, Deputy Staff Director
Bruce H. Andrews, General Counsel
Ann Begeman, Republican Staff Director
Brian M. Hendricks, Republican General Counsel
Nick Rossi, Republican Chief Counsel
------
SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET
JOHN F. KERRY, Massachusetts, JOHN ENSIGN, Nevada, Ranking
Chairman OLYMPIA J. SNOWE, Maine
DANIEL K. INOUYE, Hawaii JIM DeMINT, South Carolina
BYRON L. DORGAN, North Dakota JOHN THUNE, South Dakota
BILL NELSON, Florida ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington GEORGE S. LeMIEUX, Florida
FRANK R. LAUTENBERG, New Jersey JOHNNY ISAKSON, Georgia
MARK PRYOR, Arkansas DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri SAM BROWNBACK, Kansas
AMY KLOBUCHAR, Minnesota MIKE JOHANNS, Nebraska
TOM UDALL, New Mexico
MARK WARNER, Virginia
MARK BEGICH, Alaska
C O N T E N T S
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Page
Hearing held on November 17, 2010................................ 1
Statement of Senator Kerry....................................... 1
Statement of Senator Ensign...................................... 2
Statement of Senator Rockefeller................................. 4
Statement of Senator Nelson...................................... 5
Statement of Senator Lautenberg.................................. 5
Statement of Senator LeMieux..................................... 29
Statement of Senator Pryor....................................... 32
Statement of Senator Klobuchar................................... 39
Witnesses
Glenn A. Britt, Chairman, President, and CEO, Time Warner Cable.. 6
Prepared statement........................................... 8
Joseph Uva, Chief Executive Officer and President, Univision
Communications Inc............................................. 9
Prepared statement........................................... 11
Thomas Rutledge, Chief Operating Officer, Cablevision Systems
Corporation.................................................... 12
Prepared statement........................................... 14
Chase Carey, Deputy Chairman, President, and Chief Operating
Officer, The News Corporation.................................. 16
Prepared statement........................................... 18
Charles Segars, CEO, Ovation..................................... 20
Prepared statement........................................... 21
Appendix
Letter, dated November 22, 2010 to Hon. John F. Kerry, from
Shirley Bloomfield, Chief Executive Officer, National
Telecommunications Cooperative Association (NTCA).............. 47
David Zaslav, President and CEO, Discovery Communications, Inc.,
prepared statement............................................. 48
TELEVISION VIEWERS, RETRANSMISSION CONSENT, AND THE PUBLIC INTEREST
----------
WEDNESDAY, NOVEMBER 17, 2010
U.S. Senate,
Subcommittee on Communications, Technology, and the
Internet,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittee met, pursuant to notice, at 3:07 p.m. in
room SR-253, Russell Senate Office Building, Hon. John F.
Kerry, Chairman of the Subcommittee, presiding.
OPENING STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. The hearing will come to order.
Good afternoon, all of you. I apologize for being a little
late. We have one too many caucuses in the course of these few
days, but we appreciate the opportunity to have this hearing,
and I thank you for your patience and also for bearing with us
as we moved it back just a little bit to accommodate the Senate
schedule.
We're here today with a group of senior industry officials
to examine the recent disputes between video distributors and
broadcasters. And I thank all for being here. And, given the
truncated time, I'm going to try to summarize my statement, and
we'll try to move as rapidly as we can to the testimonies.
At issue in these disputes are the fees that broadcasters
charge distributors for retransmitting the broadcast signal
that's sent over the public airwaves. Now, too often the
negotiations over those fees lead to both sides putting up
websites and ads calling each other greedy, urging consumers to
take a side, and warning those consumers about the loss of
service. That's typically followed by tense last-minute
negotiations and, in some cases, the pulling of the signal and
continued recriminations until one side or the other bends or
breaks, as the case may be. At the end of the process, after
that period of consumer uncertainty, there is no transparency
in the price reached or the nature of the agreement.
The New York Times now characterizes retransmission consent
confrontations as a ``regular event''. And Bloomberg News says,
``TV blackouts in the U.S. have reached the highest level in a
decade and may climb as pay TV operators fight higher fees
sought by content producers.''
During the most recent of these disputes, millions of
Cablevision subscribers interested in watching Fox had to find
a place other than their home to do so. One couple ended up
having to watch the Giants game in a bar instead of in their
living room. The wife, Marilyn Odell, told The New York Times,
``We're too old to be in this place.'' And, on the other hand,
bar owners who subscribed to Cablevision lost business. An AP
story quoted one saying, ``This is ridiculous. I'm relying on
people to come in who are Giants fans, and they're walking out
even though I pay for the football package.'' And he went on to
say that, ``Regular everyday people get caught in the middle.''
And that's precisely what brings us here today.
Our goal is to discuss alternative ways to resolve these
disagreements and to protect the consumers. That's what brings
us to the table. Our predilection is not to get involved, not
to sort of try to, you know, somehow manage the marketplace in
ways that, you know, are inappropriate. And our first, I think,
instinct for everybody here is to want that marketplace to work
effectively. But, when the consumers keep getting crunched in
the middle and keep coming back to us and saying, ``We feel
powerless, and we seem to get screwed. We're tired of it.''
That's when we come to the table.
Our constituents should not be the pawns in these corporate
negotiations, and I'm concerned that, without a better, more
transparent process for dealing with impasses in negotiations
and adequate FCC oversight, more fights and disruptions of
service are what people have to look forward to. Prices for
consumers will rise, and independent programming will get
crowded out.
During the recess, I circulated an alternative process for
resolving an impasse. It would still allow a broadcaster to
pull the signal, wouldn't take away any market power, but it
would limit it to a last resort, after the FCC had executed
some oversight over negotiations to ensure that the parties are
acting in good faith. Hopefully, we could encourage greater
cooperation by staving off the pulling of the signal and
imposing transparency on offers in case of a true impasse.
Ultimately, if parties are going to ask consumers to take sides
and deny them service, then, frankly, consumers deserve to know
why. And the Commission needs to know exactly what is happening
in the market.
My commitment in this is not to any one alternative. I want
to make sure that's clear today. My commitment--and I think my
colleagues'--is to protecting consumers and finding the best
way to do that. I still believe the FCC can and should use its
existing authority to draft new rules. And I remind the agency
that its role is to protect those consumers.
So, I look forward to working with my colleagues and the
FCC, to hearing from the witnesses today with that purpose in
mind. And let me turn to my Ranking Member and then the Chair
of the full Committee, who would like to make a comment. And
then, if colleagues don't mind, we'll go right on into the
testimony.
Thank you.
Senator Ensign.
STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA
Senator Ensign. Thank you, Mr. Chairman.
The video programming marketplace in America today is
incredibly robust and diverse. Video content owners negotiate
dozens, maybe hundreds, of deals each year with their
distributors. Most get done quietly, with little fanfare, but
occasionally, as we've seen lately, negotiations are more
difficult and lead to these public disputes. And a handful of
high-profile retransmission consent disputes this year have
captured the attention of the press and policymakers, alike.
And in the case of Cablevision's negotiations with both ABC and
Fox, millions of cable subscribers lost network programming
while deals were being worked out.
In light of these unfortunate disruptions, it makes sense
for the Subcommittee to hold a hearing on retransmission
consent and other Federal laws that impact broadcaster/
distributor negotiations.
There have been extraordinary changes in the TV marketplace
since Congress first created the retrans rules back in 1992.
Thanks to last year's successful DTV transition, Americans can
watch high-definition digital broadcasts of network television
over the air for free. Americans can also choose from hundreds
of TV channels carried on pay-TV services offered by cable
companies, satellite companies, and now even telephone
companies.
Back in 1992, there were far less cable channels available.
Satellite was not a robust competitor to cable, and telephone
companies weren't even in the pay-TV picture. Consumers today
also have access to a remarkable array of online video content
that they can watch from their computer, their TV, their cell
phone, or even their MP3 player. The video marketplace has
never been more competitive, and it may be time to consider
revising our retrans regulations.
My colleague Senator Kerry has proposed reforming the
current rules by giving the FCC additional authority to
intervene during retrans disputes. While I appreciate the
thoughtful work Senator Kerry has done on this issue, I do have
some concerns on the idea of putting the FCC in the middle of
carriage negotiations.
We should take a holistic look at the retransmission and
copyright rules to see if we need to move them toward a more
free-market system where consumer interests, rather than
government regulations, drive competition. Indeed, Congress,
this year, directed the GAO and the Copyright Office to study
exactly that part of STELA, the Satellite Television Extension
and Localism Act. And, during a hearing last year on STELA, I
called for revisiting the compulsory copyright license, which
is one of several Federal provisions that impact the
broadcaster/distributor negotiations. Like I did during that
hearing, I urge my colleagues today to really think about
whether our cable, satellite, broadcast regulations fit today's
marketplace. This hearing is part of the process to review the
appropriateness of those regulations.
And I want to thank the Chairman for holding today's
hearing.
I would also like to thank the panel of witnesses before
us. We know that you all are busy executives, and we appreciate
your time that you've taken today.
Thank you, Mr. Chairman.
Senator Kerry. Thank you very much, Senator Ensign.
Senator Rockefeller.
STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
The Chairman. Thank you, Mr. Chairman.
I welcome all of you and recognize that you are very busy
folks.
Television obviously is a very powerful force, but I
believe the system we have for developing television content,
packaging that content, and distributing that content is
broken. It may serve companies well, but it does not serve us
well, as consumers, and, probably more importantly, as
citizens. Let me explain why.
When it comes to developing content, our entertainment
machine is too often in a race to the bottom; in fact, it is in
a race to the bottom, getting close. Even worse, our news media
has all but surrendered to the forces of entertainment, and
much of our news media is entertainment, as opposed to news.
Instead of a watchdog that is a check on the excesses of
government and business, we have the endless barking of a 24-
hour news cycle. We have journalism that is always ravenous for
the next rumor, but insufficiently hungry for the facts that
can nourish something called our democracy.
As citizens, we are paying one heck of a price in the
dumbing-down of America. You're partly responsible for that.
When it comes to packaging content, why do consumers have to
order so many channels? Why do they have to pay so much, when
households watch so few channels? The old adage of ``500
channels and nothing on'' has never been as true as it is
today.
When it comes to delivering content, why do we pay so much?
The Federal Communications Commission tells us, from 1995 to
2008, the average monthly price of popular cable service
increased more than three times the rate of inflation. That's
agony for a lot of citizens and customers.
No wonder consumers are cutting the pay-television cord in
record numbers. No wonder they are turning back to over-the-air
television and turning on to programming over the Internet and
other sources. They are tired of paying rates that go up so
much every single year, every year.
In our hearing today, we do not get at the root of these
problems. And I'm only here to make this statement. That is a
broader discussion that we will need to have and we will have;
indeed, it is a conversation that we owe to the citizens of
this country. But, today's hearing is important and timely
because we make a good-faith effort to address one of the
symptoms of these broader concerns.
Now, we're talking about retransmission consent. This is a
policy that allows local broadcasters to negotiate with cable
and satellite companies for the carriage of their local
stations. When it works, consumers see the local broadcast
stations on cable and satellite systems. When it fails,
consumers are saddled with the dark screens and denied access
to local news and sports programming. That's what happened,
obviously, to millions of television viewers in New York who
turned on their sets to watch the World Series but didn't quite
get to see that.
So, let me caution our witnesses today. If you fail to fix
this situation, all three parts of it, we're going to fix it
for you. But, when we do that, we will seek to do more than
referee your corporate money disputes, because more than just
retransmission consent ails our television markets.
We need new catalysts for quality news and entertainment
programming. I hunger for quality news. I'm tired of the
``right'' and the ``left.'' There's a little bug inside of me
which wants to get the FCC to say to Fox and to MSNBC, ``Out,
off, end, goodbye.'' It would be a big favor to political
discourse, our ability to do our work here in Congress, and to
the American people to be able to talk with each other and have
some faith in their government and, more importantly, in their
future.
We need slimmed-down channel packages that better respect
what we really want to watch, and we need to find ways to
provide greater value for television viewers at lower cost
because people are tired of always-escalating rates.
Again, I thank you for being here today, and I greatly
respect Senator Kerry and the interest he's shown in this whole
area in which he is most expert.
I thank you.
Senator Kerry. Senator Rockefeller, thank you. Thank you
for an important and, I think, a courageous statement. And I
appreciate it.
Senator Lautenberg has asked, because of the people who
were affected in his region, if he could have an opening
statement. Can I ask for that indulgence? Would people agree to
that? I'll do it by consensus and----
Yes, Senator Nelson.
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Bill Nelson. Mr. Chairman, I just want to say that
I am very proud of our Chairman, with that statement, which
articulates what so many of us have been feeling about the slow
decline of bringing news to the consumer, and the consumer
having available packages that they want to see and that they
don't have to buy something that they don't want to see, and
that they are not threatened, as you pointed out, by the screen
going dark. You pointed out, in the Northeast. It happened, a
year ago, in the Sugar Bowl, when the University of Florida was
playing, and there was this big dispute between Fox and one of
the cable companies. And, of course, that was the threat, up
until the 11th hour. The 11th hour and 59 minutes, as a matter
of fact. So, let's put the consumer first.
And I'm delighted that Mr. Uva is here, from Univision.
Senator Kerry. Senator Lautenberg?
STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY
Senator Lautenberg. Thanks very much, Mr. Chairman.
We're here today to make sure that the American people are
no longer forgotten in the fight between the cable companies
and the broadcasters. And this isn't about taking the side of
the broadcasters or taking the side of the cable company; this
is about taking the side of what I'll call ``the customers,''
who need us to look out for them. The big media corporations
believe that it's good business to leave consumers in the dark
while they haggle over their latest retransmission gain. That's
exactly what happened during a recent battle between Fox and
Cablevision, when 3 million subscribers--it was already
mentioned--including one million New Jerseyans, were unable to
see either their favorite programs or anything that they're
interested in including part of this year's baseball playoffs.
But, make no mistake, this is about much more than simply
being able to watch sports on TV. Television remains a lifeline
for millions of Americans, even in this age of iPads and
YouTubes. More than 80 percent of viewers receive television by
subscribing to cable or a multichannel video service. The
public relies on this resource for local news and cultural
programming. Seniors rely on television as a source of critical
information, like emergencies in their community that may
affect their safety.
And many parents depend on educational programming to help
their children get ready for school. And it's wrong to hold
viewers like these hostage during the retransmission
negotiation. It's wrong to treat them like chess pieces in the
high-stakes face-off between giant media corporations. It's
wrong to deny viewers the ability to see programming that they
want, need and pay for.
We've got to put a stop to these programming blackouts once
and for all, and that's why I'm pleased to work with Chairman
John Kerry on retransmission consent legislation that'll put
the focus back where it belongs: on the consumers.
Our proposal would require a cooling-off period so
programming must be kept on the air during an impasse in
negotiations. And, Mr. Chairman, my willingness to work with
you is unbounded. We're going to get this done.
I look forward to hearing from our witnesses, seeking ways
to work together to make sure Americans and television viewers
are never again left in the dark.
Senator Kerry. Thanks very much, Senator Lautenberg.
Thank you, folks, for your patience.
We're delighted to welcome Mr. Glenn Britt, the Chairman,
President, and CEO of Time Warner Cable; Mr. Joe Uva, President
and CEO of Univision Communications--I understand you're not
feeling that well and may have to leave a little early, so we,
again, appreciate your hanging in here; Mr. Tom Rutledge, Chief
Operating Officer, Cablevision Systems; Mr. Chase Carey, the
Deputy Chairman, President, and Chief Operating Officer of News
Corporation; and Mr. Charles Segars, Chief Executive Officer of
Ovation.
Thank you all very much for being here.
Mr. Britt, would you lead off? And we'll run down that
line.
STATEMENT OF GLENN A. BRITT, CHAIRMAN, PRESIDENT,
AND CEO, TIME WARNER CABLE
Mr. Britt. Good afternoon, Mr. Chairman, Ranking Member
Ensign, and members of the Subcommittee. I want to thank you
for inviting me here today. And I also want to express my
appreciation to Chairman Kerry and other Members of Congress
who have recognized that the current retransmission consent
regime is fundamentally broken and in need of reform.
In my testimony, I will focus on three points to
demonstrate why reform is needed.
First, Congress created retransmission consent 18 years ago
as a new property right to subsidize free over-the-air
broadcasting, but much has changed since that time. When
retransmission consent was first created, broadcasters and
cable operators each enjoyed local monopolies. As a result, the
parties negotiated from relatively equal positions of strength
and with a shared interest in reaching an agreement on mutually
beneficial terms. This produced a process that was essentially
invisible to the public.
But, retransmission consent negotiations now occur in a
vastly different environment. Today, the pay-TV industry is
robustly competitive, while local broadcasters retain the
government-granted monopolies and other benefits that now
distort carriage negotiations. This has allowed broadcasters to
play competing distributors off of each other and has
encouraged broadcasters to take more extreme disruptive
positions instead of seeking compromise. Consumers, caught in
the middle, are the ones getting hurt.
Unfortunately, this imbalance in negotiating power is
exacerbated by the FCC's rules, which take a hands-off approach
based on the outdated assumption that broadcasters have neither
the incentive nor the ability to disrupt viewers' access to
their signals. The FCC has broad statutory authority over
broadcasters and their retransmission consent rights. Time
Warner Cable and an unprecedented coalition of diverse
interests have asked the FCC to exercise its authority by
adopting new rules to protect consumers--such as interim
carriage and dispute resolution measures. Despite wide support
for these and other reform proposals and the growing number of
disruptive retransmission consent disputes, the FCC has failed
to act. Instead, the FCC insists its hands are tied when it
comes to protecting the public from the consequences of
retransmission consent fights.
My second point focuses on the impact on consumers who are
bearing the brunt of the FCC's inaction. Broadcasters have both
the incentive and the ability to put consumers in harm's way
during negotiations. As we have now seen on several occasions,
broadcasters clearly are willing to hold consumers hostage by
pulling their signals as a negotiating tactic. Even when a
service interruption is avoided, consumers are still needlessly
subjected to weeks, and even months, of misleading advertising
designed not to inform them but to exert pressure on pay-TV
providers to give in to demands for higher fees that ultimately
will be paid by consumers.
Finally, I'd like to put to rest one of the arguments often
made by those opposing reasonable reforms; namely, that the
government should not interfere with free market negotiations.
Time Warner Cable agrees that free markets are preferable to
regulated markets.
Retransmission consent, however, is not a free market.
Rather, it is one of a number of special privileges given to
broadcasters by the government as part of a thicket of outdated
regulations. These special privileges, which also include must-
carry rights, territorial exclusivity protection, a guaranteed
right to basic tier carriage, and, of course, the broadcasters'
free use of the public airwaves, are supposed to safeguard, not
threaten, the public's access to broadcast programming.
Time Warner Cable does not object to paying broadcasters to
retransmit their signals. Our objection is to a government-
sanctioned process that allows broadcasters to put consumers at
risk. In order to protect consumers, Congress should encourage
the FCC to exercise its existing authority and to initiate a
rulemaking to explore proposed changes in its rules. In
addition, Congress should continue to explore legislative
changes.
If broadcasters truly want to operate in a free market,
then they should not be allowed to keep their special
privileges; but, if broadcasters want to retain their special
privileges, then Congress and the FCC should update the rules
to prevent broadcasters from using consumers to gain leverage
in negotiations.
We'll look forward to continuing to work with Senator Kerry
and the other members of the Committee on this important issue,
and I'd be happy to answer any questions you might have.
Thank you.
[The prepared statement of Mr. Britt follows:]
Prepared Statement of Glenn A. Britt, Chairman, President, and CEO,
Time Warner Cable
Good afternoon Mr. Chairman, Ranking Member Ensign, and members of
the Subcommittee. I am Glenn Britt, Chairman, President and CEO of Time
Warner Cable.
I want to thank you for inviting me to be here today and to express
my appreciation to Senator Kerry and other Members of Congress who have
recognized that the current retransmission consent regime is
fundamentally broken and in need of common sense reforms. Congress
created retransmission consent 18 years ago as a new property right to
subsidize free, over-the-air broadcasting. Much has changed since that
time.
In my testimony, I will focus on three points to demonstrate why
reform is needed:
First--and somewhat ironic--is the fact that greater competition in
the pay TV industry from satellite and telco providers has had the
unintended effect of dramatically increasing the power of broadcasters
in retransmission consent negotiations. When retransmission consent was
first created, broadcasters and cable operators each had monopolies in
the local market. As a result, for a number of years the parties
negotiated from relatively equal positions of strength and with a
shared interest in reaching an agreement on mutually beneficial terms.
This produced a retransmission consent process that was essentially
invisible to the public.
But retransmission consent negotiations occur in a vastly different
environment today. The pay TV industry has become robustly competitive,
while local broadcasters have retained their government-granted
monopolies and other benefits that now distort carriage negotiations.
Under these rules, pay TV providers are limited to dealing with only
one broadcast supplier in a local market. This has allowed broadcasters
to play multiple distributors off of each other and has encouraged
broadcasters to take more extreme, disruptive positions rather than to
seek compromise. Consumers, caught in the middle, are the ones getting
hurt.
Unfortunately, this imbalance in negotiating power is exacerbated
by the FCC's current rules which take a hands-off approach based on the
outdated assumption that broadcasters have neither the incentive nor
the ability to disrupt viewers' access to their signals. In 1992,
Congress gave the FCC broad authority to govern the exercise of
retransmission consent. Time Warner Cable has joined with an
unprecedented coalition of diverse interests in asking the FCC to
exercise that authority by initiating a proceeding to update its rules
with new measures that would protect consumers, such as interim
carriage and dispute resolution procedures. Despite an outpouring of
support for this request and the continued occurrence of disruptive
retransmission consent disputes, the FCC has failed to act. Instead,
the FCC has repeatedly signaled--incorrectly, we believe--that its
hands are tied when it comes to protecting the public from the
consequences of retransmission consent fights.
My second point focuses on the impact on consumers, who are bearing
the brunt of the FCC's inaction. Broadcasters have both the incentive
and ability to put consumers in harm's way during negotiations. As we
have now seen on several occasions, broadcasters clearly are willing to
hold consumers hostage by pulling their signals as a negotiating tactic
when discussions are ongoing. Even when a service interruption is
avoided, consumers still needlessly suffer from weeks and even months
of misleading advertising designed not to inform them, but to exert
pressure on pay TV providers to give in to demands for higher fees that
ultimately will be paid by consumers.
Finally, I would like to put to rest one of the arguments often
made by those opposing reasonable reforms--namely that the government
should not ``interfere'' with ``free market'' negotiations. Time Warner
Cable agrees with the principle that free markets are preferable to
regulated markets. Retransmission consent, however, is not a free
market. Retransmission consent negotiations are conducted under a
thicket of outdated regulations that have not kept pace with the
dramatic changes in this dynamic industry. Retransmission consent is
only one of a number of special privileges that the government has
given to broadcasters. These special privileges, which include must
carry rights, territorial exclusivity protection, a guaranteed right to
basic tier carriage and, of course, the broadcasters' free use of the
public airwaves, were meant to safeguard, not threaten the public's
access to broadcast programming.
If the broadcasters truly want to operate in a ``free market,''
then they should give up these special privileges. But if broadcasters
want to retain their special privileges, then the retransmission
consent rules need to be updated to prevent broadcasters from using
consumers to gain leverage in negotiations. Time Warner Cable does not
object to paying broadcasters to retransmit their signals; we pay them
today. Our objection is to a government sanctioned process that favors
broadcasters by allowing them to put consumers at risk.
We look forward to working with Senator Kerry and other members of
this Committee on legislation to fix the problems with retransmission
consent. Moreover, the time has come for the FCC to fulfill its duty to
protect the public interest.
I would be happy to answer any questions you might have.
Senator Kerry. Thank you very much, Mr. Britt.
Mr. Uva.
STATEMENT OF JOSEPH UVA, CHIEF EXECUTIVE OFFICER AND PRESIDENT,
UNIVISION COMMUNICATIONS INC.
Mr. Uva. Good afternoon. Thank you, Chairman Kerry,
Chairman Rockefeller, Ranking Member Ensign, and members of the
Subcommittee.
My name is Joe Uva, and I am the President and CEO of
Univision Communications. Univision is the leading Spanish-
language media company in the United States. In addition to our
broadcast and cable networks, our program production business,
our radio stations, and our online services, we own and operate
62 television stations across the United States and in Puerto
Rico, making us one of the top five TV station groups.
Today, I'd like to share Univision's experience in
negotiating retransmission consent agreements for our
television stations with distribution partners across the
country. I think our experience powerfully demonstrates the
importance of the RTC system to the future of Univision's local
broadcast platform and the communities we serve.
Traditionally, Univision's stations relied upon the must-
carry rules in order to obtain cable carriage, and received no
compensation from multichannel video distributors for carriage
of our programming. At the same time, our programming, like
that of other broadcasters, was helping propel the growth of
those distributors.
In 2008, Univision took the historic step of announcing
that we would embark on RTC negotiations, with our distribution
partners, seeking, for the first time, fair compensation for
the valuable programming our stations offer. Over the next 18
months, Univision successfully negotiated over 150 carriage
agreements with cable, satellite, and telephone companies,
including distributors who are represented on this panel. These
deals were reached without disruption in signal carriage to
Univision stations and their viewers during the negotiations.
We decided to elect retransmission consent for several
reasons:
First, Univision recognized that, in order to meet the
changing needs of the rapidly growing U.S. Hispanic community,
we needed the additional resources that come from a dual
revenue stream.
Second, Univision believed it would be fair and appropriate
to participate with our distribution partners in the value of
our high-quality programming. Indeed, the audience for
Univision's broadcast programming is larger than that of many
cable programming services for which multichannel distributors
have been paying carriage fees for years.
Finally, Univision elected retransmission consent because
we saw an opportunity to establish long-term value-creating
partnerships with our multichannel distributors, such as the
leading Spanish-language video-on-demand service.
Revenue from retransmission consent has enabled Univision
to expand its mission of informing, entertaining, and
empowering Hispanics in the United States. For example, we
recently launched campaigns to promote the value of education
in the Hispanic community, encouraged Hispanics to participate
in the U.S. Census, and promote financial awareness and
planning in our community. We created Univision Studios, which
is producing high-quality Spanish-language programming for
distribution on our stations. We launched a nationwide voter
education drive to help boost Hispanic voter turnout to
unprecedented levels for a midterm election, invested in the
most robust and comprehensive election coverage that we have
ever offered, and hosted historic candidate debates.
Listening to all the recent rhetoric about retransmission
consent, one might have thought that Univision would never have
been able to reach RTC agreements without conflict and carriage
disruption. As a direct participant in the negotiation of
Univision's deals, I can personally attest that we were able to
do so because, in every retransmission consent negotiation,
there are natural incentives for the parties to reach an
agreement. From Univision's perspective, the desire to reach a
deal and avoid a service disruption is a powerful motivator.
Signal disruption could undermine the trust of the U.S.
Hispanic community, perhaps our most valuable asset, and damage
our relationship with advertisers.
We believe that our distribution partners face similarly
compelling motivations to reach a deal. They understood that a
signal disruption created the risk of subscriber attrition as
well as severe customer dissatisfaction.
I certainly understand the concerns by elected officials
that their constituents not have to face even the temporary
loss of a favorite station's signal on cable or satellite, but
we are very concerned that government mandates, such as
requiring Univision to keep providing our programming to a
distributor, even where we've failed to reach a deal, would
distort the market by removing our distributors' primary
incentive to reach agreement.
We are also concerned that even the threat of government
intervention will have a negative impact on our business.
Investors know that mandated interim carriage standstills and
the like only benefit cable operators. This is precisely the
wrong time to do anything that will further depress investor
confidence in broadcasting and local program services.
Thank you, Mr. Chairman, for allowing Univision to join
this conversation today. I look forward to any questions you
may have.
[The prepared statement of Mr. Uva follows:]
Prepared Statement of Joseph Uva, Chief Executive Officer and
President, Univision Communications Inc.
Good afternoon. Thank you Chairman Kerry, Ranking Member Ensign and
members of the Subcommittee. My name is Joe Uva and I am the President
and CEO of Univision Communications. Univision is the leading Spanish
language media company in the United States. Our operations include the
Univision and TeleFutura Television Networks; the Galavision Cable
Network; our newly-created production arm, Univision Studios; Univision
Radio; Univision Interactive Media; and the Univision Television Group.
We own and operate 62 television stations across the United States and
in Puerto Rico, making us one of the top five TV station groups.
Today I'd like to share Univision's experience in negotiating
retransmission consent (``RTC'') agreements for our television stations
with distribution partners across the country. I think our experience
powerfully demonstrates the importance of the RTC system to the future
of Univision's local broadcast platform and the communities we serve.
Traditionally, Univision stations relied upon the ``must carry''
rules in order to obtain cable carriage.\1\ As a result, most of our
stations received no compensation from multichannel video distributors
for carriage of our programming, and had to rely upon only advertising
revenue to reinvest in our service to the public. At the same time, our
programming, like that of other broadcasters, was helping propel the
growth of those distributors.
---------------------------------------------------------------------------
\1\ Before the current election cycle, Univision had elected
retransmission consent only once, in the prior cycle, with respect to
its Puerto Rico television stations.
---------------------------------------------------------------------------
In 2008, Univision took the historic step of announcing that we
would embark on RTC negotiations with our distribution partners,
seeking, for the first time, fair compensation for the valuable
programming our stations offer. Over the next eighteen months,
Univision successfully negotiated over 150 carriage agreements with
cable, satellite and telephone companies, including distributors who
are represented on this panel. These deals were reached without
disruption in signal carriage to Univision's stations and their viewers
during the negotiations.
We decided to elect RTC for several reasons. First, Univision
recognized that in order to meet the changing needs of the U.S.
Hispanic community, we needed the additional resources that come from a
dual revenue stream. The community we serve is the fastest growing
segment of the U.S. population.
Second, Univision believed it would be fair and appropriate to
participate with our distribution partners in the value of our high
quality programming. Indeed, the audience for Univision's broadcast
programming is larger than that of many cable programming services for
which multichannel distributors have been paying carriage fees for
years. The Univision Network is one of the top five broadcast networks
in this country--regardless of language. Our station KMEX in Los
Angeles is ranked as the number one station in the entire United
States, regardless of language, among Adults 18-34. In a number of
markets, Univision's stations have the top-rated early and late
newscasts among Adults 18-49--in any language.\2\
---------------------------------------------------------------------------
\2\ The Nielsen Company, NSI Ratings (09/30/10-10/27/2010). Number
one station in the U.S. ranking based on Total Day viewership
impressions, Mon-Sun 6A-2A for all stations. Early Evening Local News
is defined as newscasts with 6 p.m. ET/PT start time; 5 p.m. CT. Late
Local News is defined as newscasts with 10/11 p.m. ET/PT start time; 9/
10 p.m. CT (includes regular newscasts only). Live+7 day viewing.
---------------------------------------------------------------------------
Finally, Univision elected RTC because we saw an opportunity to
establish long-term, value-creating partnerships with our multichannel
distributors. Together with our distribution partners, Univision has
been able to launch major new initiatives, such as a video-on-demand
(``VOD'') service consisting of 50 hours of content that is refreshed
every month--more content than any other Spanish-language broadcast or
cable network currently offers on VOD.
Revenue from RTC has enabled Univision to further expand its
program service to the Hispanic community and invest in important
initiatives, helping us to meet our mission of informing, entertaining
and empowering Hispanics in the U.S. For example, we recently launched
campaigns to promote the value of education in the Hispanic community,
encourage Hispanics to participate in the U.S. Census, and promote
financial awareness and planning in our community. We created Univision
Studios, which is producing high quality Spanish language programming
for distribution on our stations. We launched a nationwide voter
education drive to help boost Hispanic voter turnout to unprecedented
levels for a mid-term election, invested in the most robust and
comprehensive election coverage that we have ever offered, and hosted
historic candidate debates.
Listening to all the recent rhetoric about RTC, one might have
thought that Univision would never have been able to reach RTC
agreements without conflict and carriage disruption. Indeed, Univision
had never before elected RTC for most of its stations--yet we
successfully negotiated carriage agreements with distributors across
the country, almost simultaneously. As a direct participant in the
negotiation of Univision's deals, I can personally attest that we were
able to do so because in every RTC negotiation there are natural
incentives for the parties to reach an agreement. These natural
incentives ensure a more efficient and ultimately pro-competitive
outcome than any government intervention could possibly achieve.
To be sure, many of our negotiations were hard-nosed bargaining
sessions. Naturally, our distribution partners sought to minimize their
RTC fees and to extract the greatest value from our partnership.
Univision, of course, wanted to ensure that our fees were reflective of
the value we believe we bring to our distribution partners. Finding a
reasonable middle ground was not always an easy task.
From Univision's perspective, the desire to reach a deal and avoid
a service disruption is a powerful motivator. If carriage of
Univision's broadcast signal were ever disrupted, our company could
lose the trust of the U.S. Hispanic community, perhaps our most
valuable asset, and damage our relationship with advertisers.
We believe that our distribution partners faced similarly
compelling motivations to reach a deal. Univision's viewers are
intensely loyal. As a result, our distributors understood that a signal
disruption created the risk of subscriber attrition, as well as severe
customer dissatisfaction.
I certainly understand concerns by elected officials that their
constituents not have to face the loss of a favorite station's signal
on cable or satellite, even if temporarily. But we are very concerned
that government mandates--such as requiring Univision to keep providing
our programming to a distributor even where we failed to reach a deal--
would distort the market by removing our distributors' primary
incentive to reach agreement: the fear of lost subscribers or customer
dissatisfaction.
We also are concerned that even the threat that the playing field
will be tilted in favor of distributors will have a negative impact on
our business. Investors already know that government-mandated ``interim
carriage,'' standstills and the like only benefit cable operators. So
if the government imposes those kinds of requirements, investors are
going to react accordingly. This is precisely the wrong time to do
anything that will further depress investor confidence in broadcasting
and local program services.
Thank you, Mr. Chairman, for allowing Univision to join this
conversation today. I look forward to any questions you may have.
Senator Kerry. Thank you very much, Mr. Uva.
Mr. Rutledge.
STATEMENT OF THOMAS RUTLEDGE, CHIEF OPERATING OFFICER,
CABLEVISION SYSTEMS CORPORATION
Mr. Rutledge. Thank you, Senators.
I'm Tom Rutledge, Chief Operating Officer of Cablevision
Systems Corporation. Let me begin, Mr. Chairman, by commending
you for the leadership you've shown in this area.
As you have rightly noted, broadcast retransmission
disputes are wreaking havoc on consumers, and we ought to find
a way to resolve them without holding customers hostage. Your
draft legislation is a good framework for advancing this goal,
and we look forward to working with you and others to take
consumers out of the middle.
I would like to make two central points today:
First, retransmission consent negotiations take place
within a highly regulated environment that heavily favors
broadcasters over distributors and hurts consumers. It is not a
free market. Plain and simple, the rules create the potential
for network television blackouts and raise prices for
consumers.
Second, because the government laws created the problem,
only the government, the FCC or Congress, can fix it. We've
proposed a few modest changes to stop blackouts and protect
consumers.
Here is why retransmission consent is broken. FCC rules
give local broadcasters a government-sanctioned monopoly on
national network programming in local markets. If a cable or
satellite provider wants to carry that network programming, but
thinks the local broadcaster's monopoly price is too high, too
bad. FCC rules prevent that provider from negotiating with any
of the hundreds of other stations across the country that have
the same network content.
Government rules also require that our subscribers buy the
broadcast channels before they're allowed to buy any other
cable service, regardless of whether the consumer wants that
station and regardless of the prices charged by the
broadcaster.
The government gives the broadcasters free distribution, in
the form of free spectrum, and gives them an extraordinary
guarantee of carriage through must-carry.
Finally, cable operators are prohibited by law from
dropping a broadcaster during sweeps week, which is what
determines the advertising rates for broadcasters, yet nothing
prevents the broadcaster from pulling the signal from the cable
operator before big televised events, such as Academy Awards or
a Super Bowl.
Last month, Fox pulled its network programming from 3
million New York-area households for 15 days, blacking out
Major League Baseball playoffs, NFL football, and the World
Series. The rules that allowed this blackout were created by
the Congress and administered by the FCC, but the FCC claimed
it had no power to restore the programming.
Any claim that broadcasters have not been paid for their
broadcast channels is false. Broadcasters have used existing
rules to force other cable networks, that they now own, onto
cable and satellite systems, charging billions of dollars for
these cable networks in return for permission to carry their
broadcast stations. Through these government-blessed tying
arrangements, broadcaster-owned and -affiliated cable channels
have grown from just eight in 1993 to over 90 channels today.
In fact, the driving force behind the rate increases in cable
is the ability of broadcasters to demand we take and pay for
these 90 channels by tying them to retransmission consent for
their broadcast stations.
Government laws created the problem; and so, only
government, the FCC or Congress, can fix it. We have proposed
to the FCC a few modest changes that it can begin implementing
now to take consumers out of the middle:
First, forbid tying. Limit retransmission consent
agreements to the carriage of broadcast channels so that the
actual cost to broadcast stations are clear.
Second, require transparency. There's no reason why the
cost of carrying broadcast networks needs to be secret.
Retransmission fees should be public.
And third, forbid discrimination. Broadcasters may set the
price of carriage, but they should not discriminate among cable
and satellite providers.
If we make these simple changes and disputes still threaten
to disrupt consumers, the FCC already has authority to impose
standstill requirements and mandatory arbitration. The FCC
should use this authority to protect consumers when necessary
and Chairman Kerry's proposed legislation would make this
authority explicit.
In conclusion, if this committee wants retransmission
consent negotiations to occur in a truly free market, we would
welcome that. This would mean having the government eliminate
all the unfair advantages broadcasters enjoy under the current
law. Until that day, the FCC should exercise its authority to
ensure that millions of consumers never find themselves with
the World Series blacked out.
Thank you.
[The prepared statement of Mr. Rutledge follows:]
Prepared Statement of Thomas Rutledge, Chief Operating Officer,
Cablevision Systems Corporation
I am Tom Rutledge, Chief Operating Officer of Cablevision Systems
Corporation. We are a cable and media company that serves 3 million
residential households in New York, New Jersey and Connecticut. I
appreciate the opportunity to present our perspective on retransmission
consent.
Let me begin by thanking Chairman Kerry for the leadership he has
shown in this area. These disputes are wreaking havoc on consumers and
we should find a way to resolve them without holding consumers hostage.
Senator Kerry's draft legislation is a good framework for advancing
this goal.
In my testimony, I would like to make two overarching points today.
First, retransmission consent negotiations do not take place in a
free market but rather under an umbrella of statutory provisions and
FCC rules that heavily favor the broadcaster over the cable operator or
multi-channel video programming distributor (MVPD). It is a scheme
based on a perception of the video marketplace that is 20 years out of
date. As a result, consumers are increasingly faced with broadcast
blackouts, threats of blackouts, and spiraling fee increases. This is
because of outdated laws and regulations that literally put the
government at the negotiating table. These laws reward brinksmanship
and blackout threats with higher fees, undermining the very public
interest that the law is intended to support.
Second, because government laws and regulations created the
problem, only the government--the FCC or Congress--can fix it. We have
proposed a few changes that, though modest, will restore balance to
this regime. The FCC already has the authority to adopt these rules
and, at the very least, should issue a notice of proposed rulemaking to
engage the parties and begin the process of fixing a broken government
mandate system. Alternatively, Congress could adopt legislation that
repeals the outdated laws that distort the relationship among
broadcasters, MVPDs, and consumers in favor of a free market, a longer
term solution.
What is clear is that the status quo is hurting consumers and must
be changed now.
Government-Granted Advantages For Broadcasters Means That
Retransmission Consent Is Not A Marketplace Negotiation
The relationship between broadcasters and MVPDs has largely been
established by government action. It does not resemble a free market in
any meaningful sense. In a true market, sellers do not have monopolies
and buyers have a choice of suppliers. Whatever value they had in 1992,
the laws that govern the relationship between broadcasters and MVPDs
today encourage broadcasters to threaten to withhold broadcast
programming and block availability of marquee events to force increases
in the cost of their broadcasts against the interests of our customers.
First, FCC rules give every broadcaster in the country an exclusive
franchise for its network--in other words, a government-sanctioned,
local monopoly in its local market. If an MVPD thinks the local
broadcaster's (monopoly) price is too high but still wants to carry the
must-have programming from other affiliates--too bad--FCC rules prevent
the MVPD from negotiating with any other broadcast station that has
that content, leaving them at the mercy of the local broadcast
monopoly.
Second, government rules require that every one of our subscribers
buy and pay for the broadcast channels as part of any cable service-
even if the subscriber doesn't want them and no matter how much money
the broadcaster charges us to carry their signal. This shields
broadcasters from the consequences of their pricing decisions, since
everyone is required to buy the product no matter the price.
Third, when a broadcaster and MVPD cannot reach a retransmission
agreement, government rules prohibit the MVPD from dropping the
broadcast channel during ``sweeps''--periods of time when TV ratings
are set--because it would be costly to the broadcaster. Yet nothing
prevents the broadcaster from pulling the signal from the MVPD before
marquee events--such as the Super Bowl or the World Series--even though
doing so would be costly to the MVPD and harm consumers.
Over the years, broadcasters have used these rules to expand their
presence on cable, primarily by requiring operators to carry and pay
for other cable networks as a condition of carrying the broadcasts.
Every three years, broadcast contracts are renewed on condition that
cable operators agree to carry other cable networks owned by the
broadcaster--often for terms of 10 years or more. Cycle after cycle,
broadcasters have sought carriage of their affiliated programming
networks, increasing the cost of expanded basic service, displacing
independent programmers and exacting enormous compensation from cable
operators. As a result, broadcaster-affiliated cable networks have
grown exponentially--from 8 in 1993, to 19 in 1996, to more than 90
today. And broadcasters have enjoyed billions in compensation through
these affiliation deals, negotiated on the strength of their powerful
broadcast rights.
Further, as competition among distributors has increased
exponentially in recent years, broadcasters' leverage has increased
even more, because in a fiercely competitive distribution market even a
temporary loss of broadcast programming, especially during a marquee
event like the World Series, can do damage to a cable or satellite
business and its customers. The rules encourage a vicious spiral of
inconvenience and price increases: Broadcasters rotate through their
contract cycle--from one distributor to the next -threatening blackouts
and demanding higher fees in addition to what they already receive for
their cable channels. Broadcast retransmission contracts are timed to
expire during popular events to increase consumer anxiety and inflict
maximum cost on distributors, yielding more price concessions. Every
three years it is repeated.
Since 2000, there have been more than 30 threatened blackouts by
broadcasters, all possible because of the distortions caused by
government regulation of the broadcast and cable television business.
Recent events suggest that this is getting worse. Broadcasters are
demanding carriage fees that are multiples of their fair value, and
insisting on contracts that fix increases of more than 30 percent a
year, putting enormous pressure on cable prices and consumers. And with
government rules that protect broadcasters from the consequences of
their pricing decisions, this may be a rational negotiating strategy,
but over time it leads to substantially increased programming costs to
the detriment of customers and other programmers without the legal
leverage granted to broadcasters.
Calls to fix or scrap the regime have grown insistent, and FCC
action is imperative.
The Retransmission Consent Regime Can Be Improved
Given that wholesale elimination of the retransmission consent
regime is a longer-term goal, we have proposed, and believe that the
Commission can readily adopt, a few changes to the retransmission
consent rules that will reduce the likelihood of blackouts and threats
of blackouts by addressing the kind of tactics that hurt consumers
most, and that will restore a rational process to broadcast carriage
negotiations.
The FCC can begin the process of reform by issuing a notice of
proposed rulemaking, and considering the following reforms:
Forbid tying. Require that all retransmission consent contracts be
limited to carriage of the broadcast channel, and not conditioned on
the carriage and payment for unrelated but affiliated programming
networks. This will eliminate historic abuse and create opportunities
for cable networks to compete on merit and value, rather than based on
ownership.
Require transparency. Carriage terms between broadcasters and
cable, satellite and other distributors in a given market should be
disclosed so that the demands of the parties are fully understood.
Forbid discrimination. Broadcasters should be free to set the price
for carriage of their broadcast signals, but should not be able to
discriminate among MVPDs. This will eliminate the brinksmanship and
drama that too often characterizes these negotiations.
Where these simple requirements fail to stem disputes that threaten
to disrupt customers, the FCC has authority to impose standstill
requirements and mandatory arbitration when negotiations have reached
an impasse. The FCC has adopted these measures in the program access
context. And Senator Kerry's proposed legislation would make this
authority explicit.
We believe that the Commission can pass these rules and enforce
them today under its existing authority. A coalition of 35 parties--
consumer groups, cable operators, phone companies, and others--have
urged the FCC to publish these proposals and seek comment about
adopting them. The Commission has not done so, but should do so
immediately.
Ensure A Truly Free Market For Retransmission Consent
Broadcasters sometimes say that they want to get fees ``just like
cable programmers,'' and that their tactics--blackouts, threats, and ad
campaigns--are nothing more than attempts to get a foothold in a free
market.
As should be apparent, broadcasters do not, and have never,
operated in a free market. They enjoy unparalleled government-granted
protections over the programming networks that they compete with. They
enjoy carriage mandates, local monopolies, and free use of public
assets that give them substantial advantages, and they have used those
advantages to create vast media conglomerates that increasingly
dominate the cable television lineup.
We welcome calls to allow a free market, free of this heavy
government intervention, to flourish in the broadcast, cable and
satellite space. This would mean eliminating free spectrum and special
privileges for broadcast, rolling back retransmission consent and must
carry, permitting broadcasters to compete, free of rules on
``syndicated exclusivity,'' ``network non-duplication,'' and ``must
buy.'' Eliminating these laws would allow a free market to exist, where
programming content, distributors and consumers can choose among
options without the weight of government intervention.
But until that market is restored, the Government--the FCC in
particular, which is charged with implementing the 1992 Cable Act and
the retransmission consent regime to protect consumers--must recognize
its role and take action to address the imbalances and consumer harm
that has resulted from its neglect.
Senator Kerry. Thank you, Mr. Rutledge.
Mr. Carey.
STATEMENT OF CHASE CAREY, DEPUTY CHAIRMAN,
PRESIDENT, AND CHIEF OPERATING OFFICER,
THE NEWS CORPORATION
Mr. Carey. Good afternoon, Chairman Kerry, Ranking Member
Ensign, and members of the Subcommittee, and thank you for the
invitation to testify.
I'd like to address two issues in my comments today. First,
our proposed rates in recent retransmission consent
negotiations have been more than fair. We have the most
valuable programming on television, with more viewers in prime
time than the top three cable channels combined. Yet, what we
were asking for is a small fraction of the rate paid for the
most expensive basic cable channels on television.
Without reasonable revenues, broadcasters will simply not
be able to compete with cable channels. We have already seen an
increase in sports migrating to cable, such as college
football's bowl championship series and other major events in
Major League Baseball, the NFL, the NBA, and college
basketball. Local news, which is very expensive to produce,
could be eliminated entirely or become less local in nature.
Ultimately, this result would be devastating for the more
than 30 million Americans who rely exclusively on over-the-air
television because they don't have cable, satellite, or telco
video service. Moreover, in a digital world of increasing
fragmentation, where advertisers have ever-expanding choices,
it is simply unrealistic to believe broadcasters can compete
with cable channels without a dual revenue stream. To argue
that broadcast rules put in place to support localism somehow
replace access to dual revenues defies economic reality.
Second, some claim that the retransmission consent process
is broken. The definition of broken is not when one party
doesn't want to pay a fair price. At issue is a rate
negotiation for carriage of a channel. Channel owners and
distributors have negotiated thousands of agreements over the
years. If we were asking for an unprecedented rate, then maybe
one could say this process is broken. But, we are asking for
one that puts us well below ESPN, MSG, TNT, and others--all
channels with a fraction of our audience.
Distributors point to large percentage increases, but Fox
received no cash compensation before, so any increase over zero
is going to appear large.
The statement--this statement that the process is broken is
also puzzling, given that we have successfully concluded
agreements with three of the largest distributors in the last
year, without interruption. Unfortunately, our deal with
Cablevision did result in a disruption to viewers, despite the
fact that we began our negotiations with them more than a year
before our contract expired. Yet, we still found ourselves, in
October, facing a company that had consciously decided it did
not want to reach a deal. This, despite the fact that
Cablevision was offered the exact same rate for the broadcast
stations we had already negotiated, with much larger
distributors. Cablevision even agreed that the rate we were
asking for was fair; they simply did not want to pay it. They
made it clear to us that their goal, instead, was to politicize
the issue and interject the government into our private
negotiations. No one should miss the fact that four of the
disruptions that occurred in the programming marketplace this
year involved one company: Cablevision.
Everyone in this room cares about viewers. However, it is
critically important that the government not let a sector of
private industry manipulate an honest process to gain
advantage. Instead, we believe there are steps that can and
should be taken to protect consumers.
First, we can educate consumers on their options for
getting broadcast signals elsewhere by simply hooking up to an
over-the-air antenna or by switching to another distributor.
Second, we can require that consumers get a rebate, credit,
or decrease in their bills if channels are removed from their
lineup.
In conclusion, the retransmission consent law is
experiencing growing pains because broadcasters like Fox are,
for the first time, seeking cash compensation. The good news is
that the actual interruptions in service are few and far
between, and this period of adjustment will be short-lived once
distributors accept that they have to pay a fair price for the
right to resell broadcast content, just like the other content
they distribute.
Keeping the focus on consumer education and protection is
the most effective and efficient way to help consumers weather
this temporary and short-lived unrest.
Thank you.
[The prepared statement of Mr. Carey follows:]
Prepared Statement of Chase Carey, Deputy Chairman, President
and Chief Operating Officer, The News Corporation
Good morning Chairman Kerry, Chairman Rockefeller, Ranking Members
Hutchison and Ensign, and members of the Subcommittee, and thank you
for the invitation to testify.
The retransmission consent law was established almost twenty years
ago to provide a mechanism for carriage negotiations between
broadcasters and video programming distributors. Yet distributors for
the first time are claiming that the law is broken. No one--not even
distributors--object to the notion that broadcasters should be paid for
the very popular and expensive content we air. And any reasonable
examination of how much broadcasters are asking for--compared to the
rates distributors pay for other channels--can conclude only that the
broadcast rates are more than fair. In light of this fact, we find it
hard to believe that the negotiations for broadcast channels should be
different, in structure or form, from the negotiations for the 100s of
other channels carried by multichannel distributors. Let me elaborate.
In the nearly two decades since the retransmission consent law was
enacted, there have been thousands of deals negotiated. Less than one
percent--a small handful--of these thousands of deals has resulted in
service disruptions. The few disruptions that did occur typically
lasted for a very short amount of time: most only minutes, hours, or
days. Some of those disruptions have been high profile, leading some to
overlook the fact that 99.9 percent of retransmission consent deals get
done without incident. But let me emphasize again: in the overall
scheme of retransmission consent, actual disruptions are few. In fact,
an American household is about 10 times more likely to experience a
complete cable system outage than to be deprived of a television
channel because of a retransmission consent dispute.
Those disruptions that did occur were because a few distributors
have been unwilling initially to pay fair cash value for broadcast
channels. Why? Two reasons: first, until recently, cable operators have
not paid a single penny in cash compensation to Fox for our incredibly
valuable broadcast programming. Second, some cable operators have made
it clear that their goal is to politicize this process by dragging the
government into negotiations that should be settled at the bargaining
table, presumably in the hope that they can get our broadcast stations
for a lower rate. Thus, dramatic claims by some cable operators that
broadcasters are seeking a 100 percent increase in rates are in fact
true. Any increase over zero is a 100 percent increase.
The amount of compensation that Fox is seeking for its broadcast
stations is well below what they are worth when compared to cable
channels that command as much as $4 and $5 per subscriber per month.
This includes any comparison based on the quality and quantity of
unique programming offered, the amount invested in programming, or the
ratings of that programming. Fox has, on average, 8 million viewers in
prime time, more than the top three cable channels combined. Our
programming lineup includes the top sporting events on television such
as the World Series and the Super Bowl, and the top prime time
entertainment shows such as American Idol, Glee, House, and The
Simpsons. And, of course, we offer the local programming that makes
broadcasting unique: the local news, sports, weather, and traffic that
viewers rely on every day.
We find it hard to understand why some distributors are so opposed
to paying a fair rate for broadcast programming when it is the most
valuable and most viewed programming in the bundle of services they
sell their customers. These protestations are particularly ironic
coming from companies that until recently were a monopoly in their
markets, and even today in many markets serve well over 50 percent of
households. At its core, retransmission consent is about negotiations
over rates, and the fact that we are asking several times LESS than
cable channels that boast a fraction of broadcast station ratings is
proof that we are seeking a fair rate.
Take Cablevision for example. More than a year ago, Fox began
negotiations with Cablevision over the carriage of its local television
stations in the New York and Philadelphia markets. Despite a
significant investment of time and resources, and a one-year agreement
that delayed the onset of cash payments by Cablevision, we still found
ourselves in October of this year facing the imminent expiration of our
carriage agreement. This was a surprise to us given that we were
seeking from Cablevision the exact same rate we had just negotiated
with other large video distributors. Cablevision even acknowledged that
the rate we asked for Fox was fair. Most frustrating was Cablevision's
admission that its ``negotiating'' objective was to get the government
to step in and change the law, thereby giving cable operators an
advantage going forward.
Our stations came off of Cablevision for more than two weeks,
causing pain primarily to viewers, but also to both companies. In the
end, a deal with Cablevision was reached after it became clear that the
government was not going to step in to ``rescue'' Cablevision from a
free market negotiation with Fox. Once Cablevision came back to the
bargaining table, we were able to negotiate a deal quickly.
Had the government modified the retransmission consent law,
Cablevision would not have come back to the bargaining table, and we
likely would still not have a contract in place. So-called ``reforms,''
if adopted, would clearly tip the balance of negotiations toward
distributors. If broadcasters aren't able to negotiate on a level
playing field for a fair carriage rate then we would be relegated to
second class status, and our future viability would be threatened.
In other words, if we can't sell our content for a price that
allows us a fair return on our investment, we will no longer be able to
invest in the high quality content that viewers enjoy. The most
expensive--and highest quality--sports and entertainment content would
migrate to a cable channel where it would have a better chance of
securing a fair market rate. In fact, this migration has already begun.
When Fox attempted to renew our contract for college football's Bowl
Championship Series, we were outbid by a cable channel offering 100
million dollars more than we offered. Fox could not justify the price
for the BCS because we did not have a second revenue stream. This is
just one example among many, as we have been watching the migration of
major events in the MLB, NFL, NBA and college football and college
basketball to subscription channels because broadcasters have been
unable to compete for the rights.
Additionally, local news, which is very expensive to produce, could
be eliminated entirely or become less local in nature, as advertising
alone can no longer cover the hefty production costs. Broadcast
channels would become much less desirable, and broadcasters and the
people they employ and the viewers they serve, would be irreparably
harmed. Ultimately, this result would be devastating for the more than
30 million Americans who rely exclusively on over-the-air television
because they do not have cable, satellite, or telco video service.
We understand how difficult it is to ignore these disputes and stay
out of them when you hear from frustrated viewers who have lost their
service. We all care about viewers. After all, without viewers, we have
no business. However, it is critically important that the government
not let a sector of the industry manipulate an honest process to gain
advantage. Instead, we believe there are steps that can be taken to
protect consumers that keep the government out of private business
negotiations.
First, we can educate them on their options for getting broadcast
signals elsewhere. This is something Fox started doing nearly 30 days
before our contract with Cablevision expired. We informed viewers that
they can get their broadcast signals by simply hooking up an over-the-
air antenna. Or, they can switch to another content distributor.
Second, we can protect viewers by requiring that consumers get a
rebate, credit, or decrease in their bill if channels are removed from
their line-up. Distributors are quick to raise rates when they add
channels; likewise, they should be quick to lower rates when they
delete channels.
In conclusion, the retransmission consent law is experiencing
growing pains because broadcasters like Fox are, for the first time,
seeking cash compensation for their content. But the good news is, the
actual interruptions in service are few and far between, and this
period of adjustment will be short-lived once distributors accept that
they have to pay a fair price for the right to re-sell broadcast
content just like they have to pay for all the other content they
provide to their customers. Keeping the focus on consumer education and
protection is the most effective and efficient way to help consumers
weather this temporary and short-lived unrest.
Senator Kerry. Thank you, Mr. Carey.
Mr. Segars.
STATEMENT OF CHARLES SEGARS, CEO, OVATION
Mr. Segars. Mr. Chairman, Committee members, on behalf of
Ovation, the only national network dedicated to arts and
culture, thank you for inviting us to testify today.
My name is Charles Segars. I am the CEO of Ovation, a
viable, independently owned television network that has earned
carriage in 43 million homes, is paid a fair rate, market-based
rate, from distributors who are committed to providing a unique
programming service to their customers. They include Time
Warner--Mr. Britt was the first to see the power of the arts;
DIRECTV--Chase, when you were running DIRECT, you launched our
service; Verizon; FiOS; DISH; Charter Communications; and even,
today, Comcast Cable, who is rolling us out.
Mr. Chairman, the detrimental effect of retransmission
consent threatens the very existence of independent networks
like Ovation. I am here supporting reform of these regulations
to ensure consumers have access to a diversity of voices in
television.
Senator Kerry, in a recent editorial, you quite aptly
pointed out that the old rules are outdated, and to continue
with the status quo is bad for consumers, competition, and
democratic participation. As an independent programmer trying
to remain competitive, your words definitely ring true. This
regulatory structure restricts our ability to grow our
distribution, maintain fair subscriber fees comparable to those
other networks, and reinvest those fees into local and national
arts programming for an underserved consumer. Retransmission
has enabled primarily the largest broadcast companies to bundle
an excess of channels, eating up valuable bandwidth, and taking
more than their fair share of fees that would otherwise be
available in a free-market system.
Now, standing, moments ago, with these media executives, I
fully grasp the meaning of being between a rock and a hard
place. It's illustrative of the predicament that Ovation and
all independent programmers find themselves in today:
On one side was an extraordinary well-operated vertically
integrated media company who, since 1992, traded retransmission
consent to gain carriage and fees to launch all new networks.
Now they are seeking, effectively, to get paid twice; once
through a direct payment of retransmission fees for their
broadcast programming, and again through fee increases on the
very cable channels their retransmission consent enabled them
to launch.
On the other side are a couple of major distributors who
believe they have already been forced to carry and pay for
networks they did not want. And now they must pay for a
retransmission of free over-the-air broadcast signals, at a
cost that adversely affects their ability to affordably provide
TV to their subscribers.
And in between these fiercely competitive companies are the
last remaining independent television networks. With
retransmission fees likely to top $1.3 billion in 2012,
distributors will have to look to their customers to make up
the difference, and they will have to aggressively cut
programming costs. Independent networks with no service-
bundling advantage through retransmission and little leverage,
despite delivering underserved categories like the arts, will
be targeted. As a result, diversity in programming, one of the
very reasons retransmission consent and must-carry was created
in the first place, will vanish.
This is a call for a level playing field. If large
broadcasters are allowed to use their airwaves, owned by all
Americans, to extract payment for historically free TV
services, then let's not allow them to bundle all their
services with it. If an alternative dispute resolution process
for distributors and programmers is to be considered, please do
not limit it only to those programmers who are trading on
retransmission consent, but open that dispute process to all
programmers, including the few remaining independent ones.
The greatest measurement of our democracy, sir, is the
freedom it gives to people to express their views and ideas and
information. You can mandate an examination of retransmission
consent and recommend an adjustment of these regulations to
better safeguard our freedom by ensuring the survival of
diversity of independent networks in the media.
On behalf of Ovation, the only arts network in America,
thank you for your time today.
[The prepared statement of Mr. Segars follows:]
Prepared Statement of Charles Segars, CEO, Ovation
Mr. Chairman and Committee members, on behalf of Ovation, the only
national television network dedicated to Arts and Culture in America,
thank you for inviting us to testify today. My name is Charles Segars.
I am the CEO of Ovation, a viable, independently-owned television
network that has earned carriage to 43 million homes, and is paid a
fair, market-based rate from distributors who are committed to
providing a unique programming service to their customers. They
include: Time Warner Cable, DIRECTV, Verizon FiOS, Dish, Charter
Communications and Comcast Cable, who, as I speak with you today,
continues our roll out.
Mr. Chairman, the detrimental effect of retransmission consent
threatens the very existence of independent networks like Ovation. I am
here supporting reform of these regulations to ensure consumers have
access to a diversity of voices on television.
Senator Kerry, in a recent editorial you quite aptly pointed out
that the old rules are outdated and to continue with the status quo is
bad for consumers, competition and democratic participation. As an
independent programmer, trying to remain competitive, your words ring
true. This regulatory structure restricts our ability to grow our
distribution, maintain fair subscriber fees comparable to those of
other networks, and reinvest those fees into local and national arts
programming for an under-served consumer. Retransmission has enabled
primarily the largest broadcast companies to bundle an excess of
channels, eating up valuable bandwidth and taking more than their fair
share of fees that would otherwise be available in a free market
system.
Seated here amongst these media executives, I fully grasp the
meaning of the phrase ``between a rock and a hard place.'' It is
illustrative of the predicament that Ovation and all independent
programmers find themselves in today. On one side is an extraordinarily
well-operated, vertically integrated media company, who, like most
since 1992, astutely traded retransmission consent to gain carriage and
fees to launch new networks. Now, they are seeking to effectively get
paid twice. Once through a direct payment of retransmission fees for
their broadcast programming and again through fee increases on the very
cable channels their retransmission consent enabled them to launch.
On the other side are a couple of major distributors, who believe
they have already been forced to carry and pay for networks they didn't
want. And, now they must pay for the transmission of free over-the-air
broadcast signals at a cost that adversely affects their ability to
affordably provide TV to their subscribers.
And, in between these fiercely competitive companies are the last
remaining independent networks.
With retransmission fees likely to top 1.3 billion dollars by 2012,
distributors will have to look to their customers to make up some of
the difference. And they will have to aggressively cut programming
costs too. Independent networks, with no service bundling advantage
through retransmission, and little leverage, despite delivering under-
served categories like the Arts, will be targeted.
As a result, diversity in programming, one of the very reasons
retransmission consent and must carry was created in the first place,
will vanish.
This is a call for a level playing field. If large broadcasters are
allowed to use the airwaves owned by all Americans to extract payment
for historically free TV service, then let's not allow them to bundle
all their other services with it. If an alternative dispute resolution
process for distributors and programmers is to be considered, do not
limit it only to those programmers who are trading on retransmission
consent, but open that dispute process to all programmers, including
the few remaining independent ones.
The greatest measurement of our democracy is the freedom it gives
its people to express their views and have access to a myriad of ideas
and information. You can mandate an examination of the retransmission
consent regime and recommend adjustment of these regulations to better
safeguard our freedom by ensuring the survival of a diversity of
independent voices in media. On behalf of Ovation, the only arts
network in America, we greatly look forward to the day when we can
compete in a free market with a level playing field for all
participants. Thank you.
Senator Kerry. Well, thank you for your time.
Thank you, all of you, for taking time to come in.
Let me, first of all, begin, just as a matter of a
framework within which I like to have this kind of hearing. I
know sometimes Congress summons the executives and we have
these kinds of show-and-tell deals. That's not my way of
approaching this. I'd like to have a thoughtful dialogue with
you folks to really try to understand this tension in the
marketplace; that obviously has an impact. And I think, you
know, our predilection, as I said earlier, is for the market to
be the market and to let pricing be determined by the
legitimate forces of the marketplace. The problem is that what
we have here, I think, is a situation where a lot of the
participants in that market are expressing the view that, as
Mr. Segars just said, the playing field is inherently unfair,
that there is an inability for them to have a normal kind of
market relationship.
Now, to try to understand that we need to sort of bear down
on a number of things. I mean, first of all, I think we ought
to dispel ourselves of the myth that this is just a free market
and we ought to bug out and we don't have an interest, because
it seems to me that the case is fairly strong that, when you
have the several elements that were laid out earlier by Mr.
Britt, you've got the retransmission consent, you've got
spectrum itself, you've got the sweeps week, safe harbor. Those
are all government-granted privileges. Your access to the
American consumer is fundamentally a government-granted
privilege, based on a certain set of standards, which we don't
always measure very effectively. I can remember when we wrote
the 1996 Telecom bill, you know, we tried hard to sort of do
that. And, frankly, we were totally behind the curve because,
within 6 months of the ink signed on the bill, it was
completely outdated by virtue of data information, which hadn't
been sufficiently taken into account; it was sort of a
telephony debate in a new age of information, and everybody got
left behind. And that's kind of the world we're operating in
now, in many ways, with huge transformational impacts.
So, let me begin by sort of, you know, trying to figure out
a few things, if we can.
First of all, I accept that there are thousands of these
agreements in which you all reach agreement. Is there something
particular that distinguishes those cases where you can reach
agreement from these sort of celebrated cases that wind up with
a pulled signal?
Anybody want to tackle that? Is there a way to frame why
you can reach the agreement easily in some of those other
cases, and the fees seem to be fair?
Mr. Rutledge. Sure.
Senator Kerry. Mr. Rutledge.
Mr. Rutledge. Senator, I think that the easiest answer is
that if the fee--if the rate of fee increase to the distributor
is proportional to the kinds of general cost increases that are
occurring in an economy, it--it's a reasonable expectation that
a deal gets done. When someone comes in and asks for a very
disruptive price, and, in our case, says, ``Somebody else paid
the price; therefore, you must pay the price, regardless of
what your particular conditions are or what your market is,''
then you have a very big rate-increase potential, or a big
cost-increase potential, to your business.
And so, I think it's really a question of degree, and how
exploitative the request is.
Senator Kerry. Basically what you're saying is that, in the
most recent case, with respect to the World Series, et cetera,
those fees were excessive. Is that correct?
Mr. Rutledge. That's--well, yes, from our point of view, we
had done deals, over the last 18 months, with CBS, with NBC,
with Univision and ABC, and all of those deals, combined, were
less money than what we were being asked for, for the
particular service in question, that had the World Series. So,
that was--we thought that was a lot, and we thought it was
irrational, and we thought that we should say no to that. You
know, ultimately----
Senator Kerry. But, to what degree might there be a
legitimacy to someone's belief that you're somehow saying,
``OK, let's go get Washington to get involved in this and, you
know, we'll make this a case so that we don't get beat up in
the future in the market, just in terms of those normal market
forces''?
Mr. Rutledge. Right. Well, what we really wanted was--we
would rather have a price similar to what the other stations
that we were--had already done deals with had agreed to. Absent
that--and we had, basically, a take-it-or-leave-it offer. We
thought that binding arbitration would make sense. We thought
that, in a binding arbitration, that if anybody looked at the
marketplace for New York and what TV stations cost, look at
what we were paying, that that would work to our benefit.
Senator Kerry. What about what I've suggested, which is
even short of a binding arbitration, where we're not getting
into sort of forcing people away from the market decision, but
we're at least creating a judgment about the negotiation
process itself being in good faith and also making a judgment
about the transparency----
Mr. Rutledge. Right.
Senator Kerry.--so that people know what's going on? If
that sunshine existed in that way, would that not create a
greater fairness in the bargaining process?
Mr. Rutledge. I believe it would. And, in fact, that's what
we had proposed, that--to the FCC, previously, we had requested
that they do three things: that they prohibit tying, that they
be transparent--and the reason you prohibit tying is, there are
13 agreements between Fox and Cablevision, for numerous
channels--13 channels, I believe. And so, how you allocate the
costs of all of those services is questionable. We think that
you--in order to look at that and to really have transparency,
you need to segregate what people are charging for
broadcasting; it has to be public; it shouldn't be connected to
other services, so the actual cost is legitimate; and, finally,
that you not discriminate.
You know, the broadcaster has power over a small cable
operator versus a large cable operator. They can extract a
different rate in the same marketplace for the same product.
Senator Kerry. Do they?
Mr. Rutledge. They do, yes. And our competitors pay
different rates than we do. DISH TV or DIRECTV or FiOS TV may
pay more in some cases, may pay less in some cases, but because
of your position and lack of transparency, you have the same
customers living next door to each other paying a different
rate for the same product.
Senator Kerry. What do you say to that, Mr. Carey?
Mr. Carey. I guess I'd like to answer--I'm going to address
a number of the points that were brought up.
You know, first, you know, was the issue, in terms of the
increase asked on retransmission. And I guess I said in--as
my--as I said in my opening comments, we were getting zero
before. So, yes, it was an increase, but any increase from zero
is going to be significant. And I do think you have to look at,
sort of, what we were asking for in the context of the quality
of what we're providing, and look at it competitively against
what other channels, you know, are asking for.
And when you look at other top-rated--you know, top-rated
cable channels, we were asking for a small fraction of it. So,
while we were asking for an increase--and in some ways, you
could say the broadcast business was probably negligent in past
years; it may have been the economic euphoria of leading up--
before 2007, before the market crashed in 2008 and really
brought home the issues of being a one-revenue business. But,
what became clear is, as a one-revenue business, broadcasters
were going to have deep problems. And, our network today, for
each of the last few years, has lost hundreds of millions of
dollars, you know, while the cable channels we compete with
make hundreds of millions, if not, in some cases, billions, of
dollars, you know. We have seen product that is moving. We, up
until a year ago, the college football championships existed on
Fox. They're now going to move to cable because cable had a set
of economics that enabled them to compete.
So, we need to have a viable dual-revenue business to be
able to compete, you know----
Senator Kerry. I don't----
Mr. Carey.--in this marketplace.
Senator Kerry.--disagree. I can remember, frankly, the
broadcasters' arrogance, in the early years, as cable first
came out, and they wouldn't deign to talk to them. And----
Mr. Carey. They, excuse me?
Senator Kerry. In the very beginning, when cable started to
come online in the early years of Warner, I can remember when
they first came to Boston, and there were all those
negotiations going on, and, in the subsequent years, they had a
helluva time getting broadcasters to even talk to them and to
work out a deal and get carried and so forth. That's how must-
carry came about.
So, the tables have turned, and now, indeed, there is a
very significant revenue issue. I don't disagree with that at
all.
Mr. Carey. OK.
Senator Kerry. But that doesn't necessarily license a
discriminatory relationship or a completely unbalanced
relationship in the marketplace so that the consumer winds up
not knowing what's going on, not knowing what the price is
related to, and, in fact, paying, conceivably, much more than
their neighbor may be paying, because of those different
relationships and absence of that transparency.
I know there's a revenue issue, but shouldn't there be a
fair balance in how you negotiate that revenue stream?
Mr. Carey. We actually negotiate--I mean, I would actually
say, we take great pride in how we negotiate our agreements.
And we negotiate our agreements, you know, with consistency in
the marketplace, you know, I think, as we've said. We----
Senator Kerry. Is it not----
Mr. Carey.--actually, for----
Senator Kerry. Is it not possible to negotiate those
agreements without taking signals off the air?
Mr. Carey. Yup, that's our goal. We got three large
agreements done in the last year, without signals going off the
air.
Senator Kerry. And what's the distinction between those
negotiations?
Mr. Carey. The one that did go off the air?
Senator Kerry. Yes.
Mr. Carey. I don't--I think we had an entity that believed
they wanted to politicize the issue and have the government
come in and mandate a solution, and they didn't want to pay the
rate increase, even though the rate increase we were asking
for--you know, we think we went beyond any judgment of reason
to be reasonable about it. When you look at the quality of what
we're putting forth and the rate we were asking, it's a
fraction of what that channel would be worth on any competitive
basis.
Senator Kerry. I'll come back, perhaps, and examine the
transparency issue.
Let me recognize Senator Lautenberg.
Senator Lautenberg. Thanks, Mr. Chairman.
And thank all of you for your testimony.
We're stuck in not just the middle of a muddle. But, the
fact is that it's very hard to understand how Mr. Casey, you
described your rate increase as ``fair.'' How do you define
``fair''? Do you have costs escalating for the transmission
that you make to the cable company?
Mr. Carey. Well, I guess, when you look at ``fair,'' we
first look at the market and what our channels--I mean, we're
competing today with hundreds of channels. I mean, we are in a
marketplace that, you know, is, from our perspective, for
channels as robustly competitive as any we've been in. We
compete with them for audiences; we compete with them for
content. So, certainly one measure of ``fair,'' you know, is,
what is--what are we being--receiving for compensation compared
to other channels we're competing with receiving? And, we are,
in fact--our request in this case, you know, has us receiving a
small fraction of what others receive who have a rating that is
a small fraction of ours.
Senator Lautenberg. And, Mr. Rutledge, during the past
year, Cablevision's been involved in the two retransmission
consent disputes resulting in blackouts, where many others were
able to negotiate agreements without any blackouts. Why are
Cablevision's competitors able to negotiate agreements without
a blackout when Cablevision can't?
Mr. Rutledge. Well, Cablevision is trying to hold its rates
as low as it can and offer as valuable a product as it can to
its customers. Our objective in all of these discussions is to
come out with the lowest rate as possible so that we have the
lowest price for our cable service as possible, because we're
competing against other providers. And so, we have tried to
hold the line, and we've looked at our marketplace. And we've
actually been successful at holding the line. And we've had
very low rates of increase, on a relative basis.
But, we're fighting for our customers, we're fighting for
our product and trying to keep our product as competitive as
possible in a very competitive environment. We have the largest
telephone overbuild in the country against Cablevision with--in
the form of FiOS, in terms of percentage of our business that's
overbuilt by a phone company. We have robust competition with
satellite--two satellite providers. AT&T has overbuilt our
Connecticut facilities.
So, we have a very competitive distribution market. And
price matters. Cablevision's actually very successful in the
marketplace as a cable operator. We have the highest
penetration of video of any company in the industry. We have
the highest data penetration and the highest voice. So, we have
served our customers well, and we want to continue to do that.
So, that's our objective, and that fixates us on cost.
Senator Lautenberg. Mr. Carey, do you want to respond?
Mr. Carey. Yes. I guess what--I mean, I do think it's
important--and Chairman Rockefeller addressed the cost of
content. The cost of content--and I agree with what he--it is a
holistic issue. There are hundreds of channels, and that's--the
cost of content is the compilation of hundreds of channels. And
I don't think one can look to is say somehow broadcast networks
are going to be relegated to second-class-citizen status and
not be fairly compensated in order to deal with the cost of
content. If you're going to deal with--look at the cost of
content, then I agree with what was said up front, you've got
to look at it holistically, not somehow expect broadcasters to
carry a unique burden in that regard and not have the
opportunity to be fairly compensated.
Senator Lautenberg. What happens during a blackout? Your
advertisers aren't getting what they're paying for?
Mr. Carey. No.
Senator Lautenberg. Do you lose revenues when you're out
for a few days?
Mr. Carey. Yes.
Senator Lautenberg. Yes.
Mr. Carey. Yes. There's--there are clearly financial
consequences----
Senator Lautenberg. Is it charged by the day or----
Mr. Carey. We usually--they pay--essentially pay on
ratings, so if we're not delivering an audience because we're
not--because the signal's not--channel's not being received----
Senator Lautenberg. So, are the rates calculated daily or--
--
Mr. Carey. You know, essentially, pretty much every--you
know, every ad is based on the ratings for that--that we
receive----
Senator Lautenberg. Right.
Mr. Carey.--for the show in which that ad----
Senator Lautenberg. So, the advertiser----
Mr. Carey.--exists.
Senator Lautenberg.--does not get the exposure. But, is the
calculation for those few days reduced to the advertisers?
Mr. Carey. Yes. I mean, if it's a broadcast station, where
we're not receiving--and, historically, we haven't received
cash-free transmission--then the lost revenue would be
advertising dollars while we're not delivering the audience,
because we're not reaching the customer.
Senator Lautenberg. What has been the rate of increase that
you've received over the last several years? In the case of
Cablevision, in particular. Do you have an idea?
Mr. Carey. Well, in retransmission we've received nothing,
so we've had--until, you know, this last year, we've received
zero. And----
Senator Lautenberg. So----
Mr. Carey.--that is----
Senator Lautenberg.--that's----
Mr. Carey.--that is essentially----
Senator Lautenberg.--a recent phenomenon.
Mr. Carey. And--yes. And, as they said, I mean, really, in
some ways, you could just say broadcasters should have realized
this one-revenue business model was not going to survive and be
competitive in the world of dual-revenue cable networks. I
think the economic, you know, sort of, strength of the market
through 2007 masked it a bit and didn't--you know, and probably
made broadcasters, if anything----
Senator Lautenberg. Yes.
Mr. Carey.--delinquent in recognizing the problem. I think
it hit home. And I think it became quite apparent that a
single-revenue, you know, advertising-based business was not
going to be viable, long term. And hence, in the last 12
months, we've moved to----
Senator Lautenberg. Well----
Mr. Carey.--to become a dual-revenue business.
Senator Lautenberg. Mr. Chairman, I think the hostage here
is, of course, the consumer. And they're paying a price, and
they're not being charged less for the month or the week or
whatever it is that they're out. And the consumer is left
outside, in my view, like a spectator. They're not part of the
negotiation. They're a victim of an agreement between the
parties.
And there is a really special place that all of you occupy,
because TV-watching is now an integral part of life, almost
like gas and electric or things of that nature. You know, I
come from the business community. And so, I know you're in
business to earn a profit, to get a return on your investments,
and so forth. But, I wonder what kind of a special obligation
you feel to deliver this ``precious commodity'' that is now
part of daily life for the American people.
Mr. Carey. We consider it a tremendously important
obligation and a privilege, in reality, to deliver, you know,
that content. But, we need to have, you know, a business model
that enables us to continue to invest and create great content.
I mean, the last few years we've lost $2 to $300 million a year
on a broadcast network. That's not a sustainable model. You
know, we need to move to a place, you know, where we have a
business model that enables us to invest in keeping product
like, you know, the NFL on Fox--to continue to produce the
local news we do. And I do think, in fact, it is why you've
seen a continued migration of product away from broadcasting,
and broadcasting which has this encumbered, you know, business
model, to cable channels, that have a much healthier business
model. And for us to continue to invest and deliver great
content--I mean, that is our goal, is to create great shows,
like American Idol and Glee, and deliver them, you know, to the
American public. But, we need to have business model that
enables us, you know, to do so.
Senator Lautenberg. Thank you.
Thanks, Mr. Chairman.
Senator Kerry. Let me just point out, though, when you say,
``We were paying nothing,'' we paid nothing, at that point, but
we got nothing because you bundled your cable and broadcast,
and that was sort of a quid pro quo for your access, correct?
Mr. Carey. Yes, we do--I mean, we negotiate----
Senator Kerry. You were getting a huge value.
Mr. Carey. We were getting value----
Senator Kerry. It wasn't like you weren't----
Mr. Carey. I mean, I actually believe----
Senator Kerry. It wasn't like----
Mr. Carey.--the bundling----
Senator Kerry.--you weren't collecting anything. I mean,
it's not----
Mr. Carey. No, we were building cable channels. And, I
actually believe that's a win/win proposition. It enabled us to
build cable channels. We built channels recently, like National
Geographic Wild. We've built, like, Fox Sports----
Senator Kerry. But, it was in-kind----
Mr. Carey.--Deportes.
Senator Kerry.--it was an ``in-kind'' proposition, not a
``nothing'' proposition.
Mr. Carey. Yes, but it's not different than--I mean, there
are--the same thing happens with companies that don't have
broadcast stations. I mean----
Senator Kerry. I'm not arguing. I'm just----
Mr. Carey.--the Time Warner group--you know, group is a
bundle, the Viacom group is a bundle, the Discovery group is a
bundle.
Senator Kerry. I'm not arguing about that. I just want to--
--
Mr. Carey. That's the nature of the business.
Senator Kerry.--I just wanted the record to reflect the
value transferred and the reality of this new negotiation. And
it's not exactly going from zero up to here, it's----
Mr. Carey. I guess I--I mean, I would not--yes, it has been
negotiated as a bundle. I'm not sure I'd agree with the
characterization that it has a value transfer, because we've
built channels that have value to customers. The amount we get
for those channels, you know, is competitive, if not against--
you know, when you compare rates to National Geographic
Channel, which we own, you know, we get less than Discovery we
compete with. We have a channel----
Senator Kerry. Well, let me----
Mr. Carey.--FX----
Senator Kerry. Let me come back to the comparatives in a
minute. I want to recognize Senator LeMieux and Senator Pryor
and then we'll come back.
STATEMENT OF HON. GEORGE S. LeMIEUX,
U.S. SENATOR FROM FLORIDA
Senator LeMieux. Thank you, Mr. Chairman. Thank you for
having this hearing, and thank you for the way you're
approaching it, where we can have a discussion about these
issues.
Sitting here listening to this, it occurs to me that
there's a lot of regulation of this industry, and perhaps it's
the regulation that's causing the problem. While I agree that
television's important, and certainly I want to be able to
watch football and baseball, I've heard words like
``devastating'' and ``crisis'' applied to these things, and, in
light of the other things that we're addressing here in
Congress, I'm not sure that they are.
But, let me say that with all of these regulations, perhaps
the view should not be that we should create more regulation,
but maybe we should unpack some of the regulations we already
have. The world is changing. Television is important, but there
are so many alternate ways to receive content. We're watching
television and movies and other forms of communication through
various different sources; not just the TV, but on the
computer. And, how this will be transformed in the next few
years is hard to even anticipate. It's going to be a very
different world in which we receive content.
I understand the importance of protecting content. You have
to value it. We have copyright laws in this country. We have to
value those copyright laws. But, it occurs to me that if we're
going to get more involved in this discussion about
retransmission consent, and bring Congress and the Federal
Government more into that process, we're going to create more
unintended problems. I think if you look back 20 years ago,
when this legislation was put in place, it has probably caused
many of the problems that we have here today.
Now, perhaps I'm naive. And I'm still new here, although
I'm about to leave----
[Laughter.]
Senator LeMieux.--but it looks like the regulation has
caused a lot of these problems. So, I want to ask the folks
here at the table, instead of adding more regulation, is there
a way that we can unpack some of the regulation we can have so
that this marketplace can work?
Mr. Britt?
Mr. Britt. Yes, I think that clearly is a different way to
go. If you think about what Chase was saying, he was saying
that he thinks broadcast networks are not viable as this--as a
different thing, and they really need to look and act like
cable networks, and have two revenue streams.
The heart of the issue about retransmission consent is that
there are a whole set of rules and regulations and laws that
treat broadcasting different than the rest of this television
industry. So, I would say in response that, if we got rid of
all those special privileges and what have you for
broadcasting, and if Chase wanted Fox to look like a cable
network, that would be perfectly fine with us, and I think you
would see----
Senator Kerry. So, you're suggesting----
Mr. Britt.--a different setup.
Senator Kerry.--we'd only have pay-TV.
Mr. Britt. That's an alternative.
Senator Kerry. That's the only one we'd have.
Mr. Britt. That is an alternative.
Senator Kerry. You think that would please the American
people?
Mr. Britt. I think the 80-some-odd percent who are
subsidizing the rest probably would be happy.
Alternatively, the question is, How do you figure out the
amount of the subsidy? So, rather than--and I've said before--I
said in my testimony--we're not protesting the idea of paying.
We're just saying the mechanism for figuring out the amount is
broken. And actually having a debate about whose channel is
worth more, or whatever, is kind of irrelevant. So, if we're
going to treat broadcasting as a special thing, and think it
valuable that some of our citizens get it for free, which is
certainly what was intended originally, and if we're going to
have other people subsidize that, then we need to figure out
what the mechanism is for deciding that amount. And that's
what's broken. It's that process of figuring out the amounts.
Senator LeMieux. Mr. Uva?
Mr. Uva. Thank you, Senator.
Senator LeMieux. Thank you for being here today.
Mr. Uva. Thank you.
I believe that what is special and unique about
broadcasters is the way we serve the local community, in a
variety of ways. And localism is fundamentally important to--in
making sure that the citizens of this country are informed each
and every day, not just by a CNN or a Fox News on global and
international news issues, or by a network newscast, although
we do network newscasts, just as Fox does. We are very
committed, and we believe very strongly in the ability to stay
relevant to the local communities. And that is an incentive for
us to make sure that we deliver those newscasts and
information, that we participate in the community in ways that
are empowering members of the community through public and
community service, and that costs money. And that is where a
great deal of the funding that goes to the local broadcasters,
particularly at Univision, is reinvested into the community.
And that's why I think broadcasting is special. And it cannot
be treated and looked at on a neutral basis, compared to what
cable networks are.
Senator LeMieux. Mr. Carey?
Mr. Carey. Yes. I--I mean, and I guess I want to first say
that retransmission, you know, clearly has a unique level of
importance. And we need a dual-revenue stream. So--and we've
had these other, you know, provisions, and we end up with a
business that, again, is not competitive. So, that's not a--
it's not a trade.
In reality, most of the provisions that exist, you know,
are ones we could achieve contractually. And we're not--you
know, I think the spectrum is different. I think the spectrum's
important for us to provide our service for free to 30-plus
million Americans, and actually have the ability of every
American to get it for free. So, I think, you know, the
spectrum I'd put in a different place. It has a different role,
and I think it provides a unique value that we--you know, we
think it's important to provide the opportunity for every
American to get a level of broadcasting.
The other provisions, I think they have importance to the
broadcast industry, as a whole. I think they're at the heart,
as Mr. Uva said, in terms of the localism that exists. But,
realistically for us, you know, retransmission is at a whole
different level of importance, because it provides an economic
foundation for us to have a competitive business, going
forward.
The others are largely things, you know, we could
competitively compete for in the marketplace. But, I do, in
respect the broadcast industry, recognize, you know, they are
important in the foundations of the localism, you know, that
has been so important for local broadcasters in their local
communities.
Senator LeMieux. Mr. Chairman, Mr. Rutledge wants to finish
up.
Mr. Rutledge. Yes, thank you, Senator.
I just wanted to say that, you know, I think it's a policy
question: Does the United States want to have a broadcasting
business? And, if it does, what are the objectives of that?
And, you know, historically, you've got a broadcast
license, you got some spectrum, you had to operate in the
public interest, and you had an obligation to your community to
serve your community, and you had--you came up for renewals,
and you were subject to question as to whether or not you
actually met those obligations. So, the power that has been
entrusted to these organizations is enormous.
That--the reason the World Series exists on a broadcast
network is because of the public trust that was granted to
those entities to serve their communities and they amassed the
audiences that they did, and had the power to buy the World
Series and create the kind of conflicts that exist today.
So, it really is a policy question: What do you want from
broadcasters? And how do they fulfill their obligations to the
community? And if you're going to give them valuable spectrum--
because I could turn that spectrum into a broadband wireless
network very effectively, I think, and serve a different part
of the community--we're--you know, it's a valuable resource to
the country, and it's being used in a way that's actually
abusing the consumers of the country.
Mr. Carey. Can I just add? I mean, every household in
America did have the opportunity, including everyone living in
Cablevision, to get the World Series over the air for free.
Mr. Rutledge. Which makes the notion of charging for it
ridiculous.
[Laughter.]
Mr. Carey. It does not make--we treasure the opportunity--
--
Mr. Rutledge. I was trying to get the----
Mr. Carey. We treasure the opportunity to provide a signal
for free, but when others are retransmitting our signal and
building a business based on it, we feel we have a right to be
fairly compensated, if somebody else is building a business
based on the retransmission of our signal and our content that
we pay a lot of money for and invest a lot of money in.
Senator Kerry. Senator Pryor.
STATEMENT OF HON. MARK PRYOR,
U.S. SENATOR FROM ARKANSAS
Senator Pryor. Thank you, Mr. Chairman. When I think of all
the changes in the industry and technology and society since
1992, I do feel like it is time for us to try to draft some
legislation that embraces all those changes in the past but
also paves the way for more innovation and to be smart about
how we do things in the future. So, I appreciate your drafting
this piece of legislation, Mr. Chairman.
And one thing I like about it, as I understand it, is there
is a revision where the signal stays on the air when there is a
breakdown in negotiations. Now, that makes sense to me, but
what I would like to ask all the panelists is: Is that good
public policy? Or, what's wrong with that policy of allowing
the signal to stay on the system when there's a breakdown in
negotiation?
Mr. Britt, you want to take that?
Mr. Britt. I think it's one of the very good ideas that are
around. Again, I think it relates to everything that's been
said, because broadcasting occupies a unique and privileged
place in our society. And depriving consumers of that is a
problem.
Again, some people will say, ``Oh, that will tilt the scale
in the favor of the distributors,'' some other people will say
other things. But, it is the consumer that's being held
hostage. And that isn't a good thing. So, we are, again,
advocating some sort of better process for settling this.
Again, we're not denying the value of the networks or whether
there should be payment. There should, and there is value. But,
how do we decide the amount without disrupting the public?
Senator Pryor. Mr. Uva, did you want to----
Mr. Uva. Yes, I--Senator, thank you--I believe that the
government needs to tread very carefully in this area. And I do
believe that you remove one of the primary incentives for both
parties to get a deal done if during negotiations you force a
signal to remain up through the negotiations. There doesn't
seem to be any motivation on behalf of the distributor to, in a
timely fashion, come to an agreement.
Furthermore, I think that the rules, as currently exist
under the communications acts and certainly the FCC rules, the
FCC is empowered to oversee this. And if one party has a
dispute or believes the other is not negotiating in good
faith--and, in fact, in bad faith--the FCC should rule on that.
But, during that time, there should not necessarily be a
requirement for those signals to----
Senator Pryor. That's a good point. On that issue, though,
has the FCC ever found bad faith? Or have they ever found that
a party's not proceeding in good faith?
Mr. Uva. I'm unaware.
Senator Pryor. Yes. I don't think they have, as far as I
know.
Mr. Rutledge?
Mr. Rutledge. No, I think that broadcasting has a special
place and a social obligation to its community. And I think
that the FCC, or through other policy means, should intervene
when--rather than let signals go off. It does have some
disruption. You know, nobody wants to pay higher rates. And so,
I agree it would make negotiations more complex for
broadcasters, but I still it's better than allowing people to
be held hostage. And so, I think it's inappropriate for
broadcasters to be allowed to drop their signals, which are
free over-the-air signals in unlicensed spectrum being used for
the public good.
Senator Pryor. Mr. Uva?
Mr. Uva. Yes, Senator. Thank you.
I also believe that there is a very important role for both
sides to play in educating the consumer about choice, because,
at the end of the day, the consumer does have choice to opt
for--to receive that signal free or over the air, to buy it
from a multiple-system cable operator, to buy it from a
satellite provider or from a telephone company. And we believe
very strongly that educating consumers about the choices they
have and the remedies available to them is also an equally
important and vitally important part of this----
Senator Pryor. Mr. Carey, did you want to add anything?
Mr. Carey. Yes, I guess--I mean, I'd add a couple of
things, because I agree with Mr. Uva's points.
I mean, first, in terms of time, you know, we provided a
lot of time for the actual negotiations we had. Our process
with Cablevision was 13 to 14 months. I think we were engaged
with Time Warner, you know, for the better part of 6 months.
So, it's not like these have come up and somehow there isn't
time to address them. There's a lot of time. We've--you know,
we've provided a lot of time to get there. And, realistically,
most agreements get done with a deadline. I mean, that seems to
be the way the world works. When you--you know, when you have a
deadline, they'll get done and at the point of the deadline; if
you don't, they'll go along. And I'm not sure what--if the--I
mean, we've acknowledged we were getting zero; you know, we
were trying to get a fair rate. If one is just going along
open-endedly, I'm not sure why the incentive isn't for the
cable operator to just keep it going open-endedly and us to
keep getting zero. You know, that, you know, seems to benefit
them.
Or, as has happened in some cases, push it to a point in
time when--which happened in some other cases, this summer,
where the broadcaster has a particularly--you know,
disadvantageous time of year, like the summer, when you're in
reruns, and then all of the sudden decide that's a good time to
bring it to a head, you know, and--you know, and drop it,
because your viewership is at the lowest point in time.
So, I think a deadline's important to get a deal done.
We've provided a lot time in it. And I do think that's
generally--you know, it works. You know, it's just that we have
a lot of channel negotiations. We do this in a lot of cases.
You know, I still struggle why this negotiation is so unique.
We're not asking for a rate that is, you know, precedential.
Senator Pryor. Yes. You know, I've never done one of these
negotiations. I have no idea how complex they are. But you said
that time usually is not a major factor, but a deadline is
helpful. And I understand that. But aren't you mostly just
negotiating about the number of channels and the price per
viewer? I don't know exactly how you evaluate it, but it seems
like----
Mr. Carey. Yes. I mean----
Senator Pryor.--a fairly straightforward set of
negotiations----
Mr. Carey. Yes. That's why I don't know what--if you just
extended what's going to--what's going to--what that extension
is going to achieve, other than just----
Senator Pryor. I see.
Mr. Carey.--drift. I mean, it's--you know, I agree with
you. You know, I mean, that's why I said what--when you've been
talking for 13 months, you probably have every fact on the
table----
Senator Pryor. Yes.
Mr. Carey.--and it just becomes a point in time, you know,
to----
Senator Pryor. It's just about money.
Mr. Carey.--to make a decision, and then--you know, and
we've had thousands of times when we have channels and
distributors, and you get to a point of decision, and you reach
an agreement.
Senator Pryor. Yes.
Mr. Carey. The process has worked. You know, this just
happens to be a case, you know, where the distribution industry
wants to politicize this, and try and change the rules and how
these are done. Yet, this isn't that different a process, and
what we've been asking for, as I've said before, you know,
really is on any comparative basis, more than fair.
Senator Pryor. Mr. Segars, would you like to----
Mr. Segars. No, I--I just want to make sure that any
reexamination or reform look at retransmission includes the
independent programmer. We need to participate in that dispute
process, if one is put into place.
I will say that I don't want any of Senator Kerry's
comments to get lost, when he mentioned--Chase certainly is
sitting here saying that the broadcast network has not gotten
paid, but in reality he's also launched a number of different
cable channels based on that retransmission, and has built
extraordinary value for his company, and, many of those
channels, extraordinary value for the consumer. So, there are
billions of dollars that are being generated by that real
estate that retransmission allows.
Cable also has good to do. And they're launching an arts
network. They wake up every day and--saying they have a
responsibility; it's not just broadcasters. And they reach down
to a small independent arts network, that's privately funded,
no government handout, and they are putting an arts network on,
on cable television, but it gets very complicated when
retransmission takes up, not only valuable bandwidth, but these
very public arguments ensue.
Senator Pryor. OK.
Chairman Kerry, I do have a closing comment. It has always
bothered me, in these negotiations, the total lack of
transparency, where John Q. Viewer doesn't have any idea what
Comcast has paid. When I travel and I stay with my in-laws, and
they're on Time Warner or whatever it is, I have no idea what
they paid for that. I cannot imagine any good public policy
reason for that total lack of transparency. Is there a good
public policy reason that I'm missing here?
Senator Kerry. Anybody want to comment on that?
Mr. Carey. Yes, I guess I'd say--I mean, I--realistically,
to--I can't think of any real business where you negotiate in a
public forum--negotiate business agreements in a public forum.
I think the competitive complications will be really damaging
as you try to continue to do deals to the degree you were
putting, you know, in a public forum----
Senator Kerry. Well, let me----
Mr. Carey.--you know, the
Senator Kerry.--let me----
Mr. Carey.--the provisions of private negotiations.
And I can't really think of--as I said, I'm trying to think
of an industry that----
Senator Pryor. I'm sure that happens all the time. I mean,
it happens all the time, where one party knows what the market
value is for something, and they go out and negotiate it and--
--
Mr. Carey. We have a pretty good----
Senator Pryor.--maybe pay a little more----
Mr. Carey. To be realistic, we have a pretty good
understanding. And there's industry research out there that, in
a range, will tell you pretty much what most of these channels
get. I mean, they may not be accurate to--with precision, but
there's--there are certainly industry experts and--you know,
and the industry has covered in many ways--that that
information, you know, is there. And it's----
Senator Kerry. But, here's what----
Mr. Carey.--it's publicly available.
Senator Kerry.--here's what I think Senator Pryor's getting
at. And I mentioned the transparency earlier. I think
transparency may be one of the most effective ways to try to
deal with this without you guys witnessing that so-called
``heavy hand'' of government coming in and suggesting what
happens.
But there really are more than two parties at the table,
with all due respect. You know, you could say, conceivably,
there are four parties at the table. You have the consumer, who
is sort of battered in the middle of this thing on occasion.
Maybe they're paying a lot, but they're not sure what the
differentials are. And then you've got us, because the truth is
that public broadcasting is receiving billions of dollars of
subsidy through the thing called ``spectrum.'' It's worth
billions. That's a huge subsidy. I mean, let's be honest about
it.
There were standards applied to who gets it and how, which
I don't think have been rigorously enough thought through. But,
the fact is that there's a public interest there. There is a
public interest at the table.
And so, in many cases, there are people in this country for
whom emergency lifeline or communication or other kinds of
information are vital. To the degree that a couple of
colleagues have called it a ``commodity,'' I think, in modern
context, a lot of people would sort of commoditize it. And so,
we have to think about what the implications of that are, which
is why the FCC has certain authorities.
What would happen to you guys if retransmission consent was
taken away? What would happen? Where would your business plan
go?
Mr. Carey. If we were----
Senator Kerry. There's no retransmission consent
requirement at all.
Mr. Carey. And we're--so, we're just an advertising-only
supported business.
Senator Kerry. And would you survive?
Mr. Carey. Long term, I think our survival, you know, would
certainly be threatened. I think you'd continue to find----
Senator Kerry. What do you think, Mr. Uva?
Mr. Uva. I think you'd see a dramatic reduction in
services----
Senator Kerry. Pretty threatened, correct?
Mr. Uva.--that would----
Senator Kerry. So, the fact that the government is
requiring retransmission consent really creates your business
plan.
Mr. Carey. Well, I think it enables us to be competitive. I
mean, we're competing with hundreds of channels that all have--
--
Senator Kerry. Well, that's how you have a business plan.
If you're not competitive, it's not a very good plan.
Mr. Carey. Correct.
[Laughter.]
Senator Kerry. So, you know, we've got to think this
through carefully. I mean, I do not think any member here wants
to come leaping in an inappropriate way. But, what has been put
on the table is a way of engaging us in thinking about
transparency. Supposing people had a better sense of what those
costs are in certain places.
I mean, for instance, Mr. Britt, what's the difference, the
retransmission consent payments that you pay to carry ESPN
versus Fox, for instance?
Mr. Britt. Off the top of my head, I don't know, Senator,
but we'd be happy to get that and prepare it for you.
Mr. Britt. We buy many networks from both of those
companies, so how it all gets allocated is complicated.
Senator Kerry. Do you know offhand whether----
Mr. Britt. I don't. But, we can get it to you.
Senator Kerry.--so, you couldn't tell me whether or not you
consider it fair, that sort of differential.
Mr. Britt. It's the result of a negotiation. I'm not sure
what ``fair'' is, quite honestly, in the sense you're asking.
Senator Kerry. You've never walked out and said, ``Boy, we
got screwed in that one''?
[Laughter.]
Mr. Britt. I say that all the time.
[Laughter.]
Mr. Carey. I--you know, I think there's a fair amount of
public information. I mean, actually, I used to sit on the
other side of this, you know, at DIRECTV. And so, I can--I'm
not going to disclose their numbers, but I think it's widely--
you know, widely known that ESPN would have a rate that is--I
don't know--five, six times what, you know, we'd be getting in
retransmission. Unless----
Mr. Britt. So, if----
Mr. Carey.--unless they have a very unique deal that looks
like no----
Mr. Britt. So, if I----
Mr. Carey.--looks unlike anybody else's, it's certainly a--
it's a multiple well into, you know----
Mr. Britt. If I may respond to----
Senator Kerry. You were the one sitting on the other side
of that, weren't you?
Mr. Carey. Yes.
Senator Kerry. Right? When you sat on the other side, you
thought it was good to pay zero.
Mr. Carey. I'm--sure. I mean, I--and if I can----
[Laughter.]
Mr. Carey.--you know, that was my job. If I can keep my--
you know, if I can fight that, you know, fight, that's----
Senator Kerry. So, you understand what my job is.
[Laughter.]
Mr. Carey. I do understand. You know, I mean, in reality it
wasn't that long ago, and I did see it from both sides. And I
think it is why, in many ways, we've tried to approach it--you
know, I've said, publicly in some forums, we could've gone in
and asked for a much higher number, and justified it, based on
ratings and other things. We didn't try and do that. We tried
to go in with a request that we thought was manageable--you
know, was realistic, but enabled broadcasters to have a model
that would be competitive. And I--if I was sitting on their
side, I respect--if I was at DIRECTV, still, you know, I would
be pushing back at that. You know, that's my job. And, you
know, I'd be trying to manage my costs as aggressively as I
can.
The fact of the matter is, you know, DIRECTV, the two
companies here make a lot of money. This is not--you know,
they're not fighting for survival. They have very profitable,
high-margin businesses, you know. And, we recognize,
nonetheless, they are trying to continue to manage their
businesses intelligently. I respect that. But, I do think
broadcasting, you know, has a--you know, I do think
broadcasting content needs to have an opportunity to continue
to compete, you know, in this marketplace. I don't think it
benefits anybody, including the guys here if you find the NFL
is going to be on a cable network, you know, when our deal
expires in 3 or 4 years. And that--you know, that's where
you're--you know, that's where you're headed, because we don't
have a business model that lets us compete. It's why we don't
have----
Senator Kerry. I----
Mr. Carey.--the BCS anymore.
Senator Kerry. I totally understand that. And I can
remember that we've met over the years, 25 years now, many
times with the broadcasters coming in and complaining about
their lack of power in the marketplace, which is why I
commented earlier on the complete reversal from where we were a
number of years ago.
But, let me throw a couple of numbers at you quickly, and
then I want to recognize Senator Klobuchar. In the 2009 report
on the cable industry prices, it concluded that, from 1995 to
2008, the average monthly price of expanded basic cable service
grew from $22.35 to $49.65. It's an increase of 122.1 percent.
And, going forward, SNL Kagan, the media research firm,
predicts that retransmission consent revenues for broadcasters
are going to grow from $762 million in 2009 to $1.36 billion in
2011, and perhaps more than $2.6 billion in 2016.
Now, I assume some of these fees could be passed on to
consumers, in terms of their monthly MVPD. I'm not sure. What
are we looking at as we go forward here? And what are we going
to be able to say to consumers, as we go home, as they complain
about the packaging and what they have to purchase and the
total amount of money and so forth?
Mr. Carey. Well, I guess what I'd first say is, you know,
those numbers still would be a quite small fraction of the
aggregate programming cost that exists, you know, for that
universe, you know.
Senator Kerry. That amount of money?
Mr. Carey. That amount of money, if you look in aggregate,
you know, of what the total programming cost is for that--for
the content, for that same universe, that's a very small part
of it, you know. And----
Senator Kerry. What are we----
Mr. Carey. And at some degree, singling them out----
Senator Kerry. Share with us what we're talking about. It'd
be interesting just to hear. What kind of figure are you
talking about, in terms of global production costs?
Mr. Carey. Global programming costs?
Senator Kerry. The costs you're referring to.
Mr. Carey. And I probably don't have the number, so I'm
going to spitball it, just--you know, my guess is, it's a $30-
to $40-billion, you know, number.
Senator Kerry. $30- to $40-billion.
Mr. Carey. You know, that--but, I'd have to find out. I'm
doing that----
Senator Kerry. OK.
Mr. Carey.--sort of extrapolating off the top of my head,
so it may be completely wrong. But----
Voice: No, you're right.
Voice: I think that's about----
Mr. Carey. So, you put those numbers in that context, you
know--and, again, I guess where I get troubled is sort of--
somehow broadcasters take some unique blame. I mean, and I'm
not going to--I'm not blaming or vilifying other companies, but
there are big companies out there that have big, driving
networks--the Time Warners, the Viacoms, the Discoverys that
all are largely--you know, they have--what--we talk about
networks with--you know, that are driving and creating new
networks around big, powerful networks. You know, it's not just
broadcasters who are bundling product; it's everybody. And it's
a--you know, somehow, you know, this issue is putting
broadcasters in this unique light, like they're doing something
that the broader industry--or asking for something that is
outside the norm and practices of the business, you know.
We're simply looking for a fair rate, like the channels,
you know, we compete with. You know, we think they're benefits
for us--and the consumer and the distributors--for us to
continue to develop programming that is of interest to them,
you know. And, you know, we're--you know, we do take it--our--
take a responsibility for looking to put prices--you know, ask
for prices that are fair, you know, that we think are
reasonable. And when we look at Fox, we think----
Senator Kerry. How much would you----
Mr. Carey.--we think it's a fair--you know, we're asking
for a more than fair price for Fox.
Senator Kerry. How much did you ask for and receive for
Cablevision and for Time Warner?
Mr. Carey. Again, I think specific--you know, I do think
putting, you know----
Senator Kerry. You don't want to lay that out?
Mr. Carey. No, I think it--I don't think it's constructive.
And I think that's--you know, it's--it is a fraction of what
channels like ESPN or MSG, which, you know, Cablevision owns--
you know, a small fraction of what other channels like that,
that are much smaller than us, receive. And we have dealt with
the distributors--you know, we've now--you know, before
Cablevision and now with Cablevision, you know, we've dealt
with four large distributors. We've dealt with them fairly.
We've dealt with them consistently.
Senator Kerry. Well, we're going to have to figure out
whether we need to get at those kinds of numbers in order to
think through what's the reality of the dislocation in the
marketplace here. Maybe it isn't. I mean, conceivably, those
numbers would help you, not hurt you, but we don't know the
answer to that, as we sit here right now. So, let me mull that
one over and see how we proceed.
Senator Klobuchar.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Well, thank you very much, Mr. Chairman.
Thank you for holding this hearing and for your thought-
provoking questions. And I know a lot of questions have been
asked, but I will add a few of my own.
You know, I'm thinking of this, that 86 percent of all
Americans pay for their television, and that's why
retransmission consent is an issue that affects most Americans,
whether they've ever heard of it before or know it or not. And
so, my primary focus is to make sure the consumer is protected.
And, whether it's because their cable bills go up or they are
subject to a blackout, consumers end up being the innocent
victim. And that just shouldn't happen.
So, since you were fielding a lot of the questions, Mr.
Carey, I'll start with you. I've heard from executives from the
broadcast networks that you should be compensated at least on
par with cable networks, especially given the fact that the
audience share is significantly higher for broadcast than
cable. Do you agree with that statement?
Mr. Carey. Well, yes. I think we should have fair
compensation. And I guess I'd say we're actually asking for a
small fraction of what that math would--you know, sort of,
would calculate--would lead to as a fee or a rate.
Senator Klobuchar. And, Mr. Britt, do you want to comment
on if you think the compensation would be fair?
Mr. Britt. Yes. I think we're talking about apples and
oranges and peaches, here. So, broadcast networks were created
in a certain environment, which was around free over-the-air
broadcasts. They are--for each station--and we haven't really
talked about stations; we're talking about networks--they are
exclusive. So, there's only one Fox station in each market.
Completely different market.
Cable networks were invented in a world where they had to
sell to all these distributors. They were given no privileges.
They convey copyright with the network. We separately pay for
copyright for the broadcast networks. So, it's a very
complicated question.
One thing left out of all this is that we're talking as
though the broadcast industry is a monolithic thing. Most
stations are not part of companies that own networks, and the
relationship between the stations and the networks has changed
dramatically since 1992. And I'm not in this business, but my
understanding is, at that point, the networks used to pay the
stations, and now they don't. And, in fact, the networks are
now asking the stations to be paid. So, that's--you don't have
anybody here who's just a station owner, but I think they ought
to be here, too, because that relationship is an important part
of this whole thing.
Senator Klobuchar. Anyone want to respond to that?
[No response.]
Senator Klobuchar. Well, I had one question that----
Senator Kerry. Mr. Rutledge wanted to----
Senator Klobuchar. Oh, you do? Very good.
Mr. Rutledge. I just wanted to say, in terms of fairness, I
think, you know, we do come out of a long history, in
broadcasting. And broadcasters have a public obligation, in my
view, and they get public benefits, including very valuable
spectrum, to provide that public obligation.
Over the last 18 years, since retransmission consent has
been enforced, we've gone from eight channels that are owned by
broadcasters, that are cable channels, to 90. So, a substantial
part of America's viewing now is controlled by large network
broadcast owners and cable owners. They own both. And the
value's being extracted in various places. And so, it's hard to
pinpoint what things cost, but the fact is, there is a historic
public service obligation that broadcasters have.
And the other thing that I want to say is that in New York
area, where we primarily operate our cable systems, there are
over 25 TV stations. Only five look for retransmission consent.
All the rest of them do what's called ``must-carry,'' which is
another opportunity for broadcasters, under the law, to be
carried on a cable system and enjoy all the benefits of channel
placement and so forth that is included in the law.
So, the majority of broadcasters aren't even in this
regime. It's only the powerful network-owned broadcasters or
broadcast affiliates that are trying to extract these payments
from customers. Most broadcast stations aren't doing this.
Senator Klobuchar. Mr. Carey, I thought you might want to
respond.
Mr. Carey. OK. Yes, I mean----
Senator Klobuchar. You look very powerful.
Mr. Carey. No.
[Laughter.]
Mr. Carey. I'm at their mercy. They----
Senator Klobuchar. I'm just kidding you, Mr.----
Mr. Carey.--you know, they still the big gorillas in their
markets.
Senator Klobuchar. All right, all right, all right.
Mr. Carey. We have a public-service obligation, and we take
it seriously, you know, and it's embodied in the local news
that is--it's, sort of, in many ways, the foundation of what we
do. You know, I don't think that public-service obligation
means we're obligated to run loss-making businesses. You know,
I don't know if you were here; I said before, the last few
years our network has lost somewhere between $2 and $300
million.
So, yes, we do have a public-service obligation. We take it
seriously. You know, we treasure the ability to bring
television to every household and American. You know, I don't
think it means we don't have the right to get compensated when
somebody else retransmits it and builds a business, you know,
based on our product. But, we think, for us to remain viable
and continue to bring programming to America, we need to have
an ability to have a viable business model, and the world today
is very different, you know, than it was, you know, in the
past.
And clearly, you know, in today's world, with hundreds of
channels that have dual revenue streams, you just can't expect
a broadcaster to compete, you know, as an advertiser-supported-
only network, you know. And it will end up, you know, us losing
money. It will end up having content migrate to cable channels.
And it will end up with us becoming second-class citizens, you
know, in the business environment.
And--you know, and--yes, broadcasters pursue different
paths. I mean, we pursue a path where we invest in very
expensive--the reason, you know, the 25 stations in New York,
20 take must-carry, we pursue retransmission, is because we
invest billions of dollars in creating great content in order
to make that business make sense. To bring the NFL, to bring
the World Series, to bring Glee, to bring American Idol, you
know, to the American public, you know, we need to have a
business model that lets us sustain that, you know. The
channels pursuing must-carry are pursuing a different, you
know, a different role and a different strategy that pursues a
different business model. But, the stations, like ours, that
are pursuing, you know, the quality, exciting, you know, the
type of television, you know, that I think is--the American
public cherishes, you know, requires our ability to be
competitive in the marketplace.
Senator Klobuchar. OK.
Mr. Segars, how does retransmission consent impact the
specialized programming geared to the minority community?
Mr. Segars. Well, I can say that--first of all, when
broadcast traded on retransmission to launch networks, I will
say that some of those networks today brought great value. And
no one wants to vilify the broadcast networks, by any stretch
of the imagination, but the small broadcaster does have a
public--really, a public responsibility. But cable also does--
and I've said this again and again--that cable is reaching down
and trying to support independent networks. Diversity of
voices. The arts being one of them. An independent family
channel called Hallmark, an outdoor channel, a gospel music
channel. All independent networks, but we are--we're a dying
breed and retransmission, because of the eating of the
bandwidth of all of these channels that have been leveraged by
retransmission and placed onto the cable operator and those
associate rates and costs, prevent a small independent from
getting to a critical mass. We cannot find the space or the
money to move our business forward.
However, if I had retrans, I could certainly tell you that
the arts would be in 90 million homes. But, we don't have that
regulation, we don't have the ability to trade on
retransmission. So, it does affect us. Many distributors have
told us that our growth is in jeopardy because of
retransmission.
Senator Klobuchar. OK.
Mr. Segars. And----
Senator Klobuchar. I just have one last question, and do
you want to just respond in 30 seconds, Mr. Carey?
Mr. Carey. Yes. I just would say, I mean--you know, there
are clearly the larger programming groups, you know, to
distribute a number of channels, but it's not unique to
broadcasters, you know. And, I've made the point before, you
know, that when Charles talks about, you know, his--if he was
owned by Turner, I think the same thing would be true. If he
was owned----
Senator Klobuchar. Yes, I think he----
Mr. Carey.--by Viacom the same thing----
Senator Klobuchar.--said cable.
Mr. Carey.--would be true.
Senator Klobuchar. He was an equal-opportunity----
Mr. Carey. If he was owned by--if he was owned by
Discovery, the same thing would be true. It's not a unique--you
know, I think to put that obligation, sort of, uniquely on
broadcasters, I think, is not--you know, is not fair in the
context of, you know, large groups, broadcasting or not. In
many ways, we're another channel on the dial.
Senator Klobuchar. Right. OK. Thanks.
One last question. In a letter to Senator Kerry, Julius
Genachowski, the FCC Chairman, wrote that the FCC, ``has very
few tools with which to protect consumers' interests when it
comes to these issues.'' What do you think? Do you think this
is true? Do you think they should have more tools?
Start with you, Mr. Segars.
Mr. Segars. Well, I think if the FCC is there to help
protect diversity in media, then they do have a tool, because
diversity in media and independents are being squashed in the
current system.
Senator Klobuchar. Mr. Carey.
Mr. Carey. Yes. I mean, I really, honestly believe, you
know--and, as I said, this process has worked for decades. I
mean, we're negotiating a rate for a channel. And I do think
it's the--in some ways, the specter of government involvement
that is--you know, that has sort of distorted the process. And
I think if people accept they have to go on with business--but,
we largely--I guess, you know, we largely actually have pretty
constructive relationships here, you know. Yes, broadcasting
went from zero. And I understand, we've gone from zero to
saying we need to get paid, and that's a change. But, I think
the facts of what broadcasting is facing prove it's a
reasonable request. But, I think we'll get on to business. I
think, if we--you know, as we have gone on to business. And, in
many ways, I think, I'd--you know, I think we can get back to
focusing on how do we use the Digital Age and other things to
bring new, exciting things to the consumer, you know. But, I
don't think this is--this is not some unique, you know,
complicated process. I mean, you know, I think, you know, there
has been an attempt, you know, by a segment of the business to
make it sound, you know, much more unique, much more
complicated, you know. I think this is a rate negotiation that,
you know, like all of them that have happened if one accepts
that it has to happen in the private marketplace, it will go
forward.
Senator Klobuchar. OK.
Mr. Rutledge.
Mr. Rutledge. Senator. Yes, we think the FCC actually does
have authority to help here. And----
Senator Klobuchar. Is your light on there? There you go.
Mr. Rutledge. We do think the FCC has authority. We know
what their letter said to the Chairman. But, they've exercised
broad authority in other ways. They do have obligations to
watch out for consumer prices and for--to protect the consumer,
and fairly broad authority, which we pointed out in our written
testimony. And so, we believe they do have the authority to
help the consumer in these kinds of disputes.
Senator Klobuchar. OK. That's good. Thank you.
Mr. Uva?
Mr. Uva. I agree that the FCC does have the authority, in
its rules. And the Communications Act certainly gave them the
right to monitor and determine whether negotiations were taking
place in good faith or bad faith, and have the ability to
enforce it.
Senator Klobuchar. OK.
Mr. Britt.
Mr. Britt. Yes, we think they both have the authority and
the obligation to oversee and be involved, as appropriate, but
they have chosen not to exercise that.
Senator Klobuchar. OK. All right.
Well, thank you very much. I appreciate all your time.
Senator Kerry. Thank you, Senator Klobuchar.
Well, let's try to sort of wrap up here a little bit. A few
thoughts.
Mr. Britt, let me just ask a couple more questions, if I
can, before I sort of wrap it, but----
Broadcasters argue that, given the amount of profit margin
that you guys make, you're more than able to pay them the cost
of the retransmission consent fee without passing that on to
the consumer. And they've argued further that it's a fair
sharing, if you will, of the profit that you make off of their
content, so you ought to be able to pass that on. What do you
say to that?
What's your----
Mr. Britt. I would say that the companies in front of you
are all very profitable, including News Corp and Disney, who's
not here. So, the issue we're raising is not about the relative
profitability of different companies. We're really raising an
issue that, in the context of this narrow thing called
``retransmission consent,'' which was set up by the government,
do we have the right process for deciding the amount of that
subsidy of the over-the-air viewers? We're not questioning
whether there should be a subsidy. We're not questioning
whether there should be a payment. But, the mechanism for
determining the amount seems broken, and there's a lack of
transparency. So, that's our focus.
We have plenty of competition, so what we end up charging
consumers is very much determined by a competitive marketplace.
Senator Kerry. I won't disagree that the market hasn't
provided increased competition, to a lot of people's surprise,
but it is broad. And with digital and video and download, and
so forth--capacity, computers, et cetera--it's a big new world
out there, there's no question about that.
Well, here's what the Congressional Research Service, which
is nonpartisan, as you know, has concluded that the
negotiations between programmers and distributors, although
private, are strongly affected by statutory and regulatory
requirements and cannot be properly characterized as just
``free market.'' So, there's sort of a beginning, threshold
principle here in which we need to think about this.
Second, although the NCTA, of which every single one of
you, I think, is a member, including News Corp, is divided on
the solution. But, the Association's president has said that he
wants to debunk the notion that retransmission consent is
purely and simply a free-market negotiation between a TV
station and cable company. That, he said, is complete nonsense.
Third, the disputes that started putting consumers in the
middle, in about 2007 is when it started, and they seem to be
escalating since then, and I think we need to take note of
that; that we went a long time without it, then it started, and
now it's sort of escalating, and the prospect of this being a
tool, in the absence of some sort of an other mechanism, seems
to loom fairly large. The government staying out of it
certainly hasn't resolved the disputes nor relieved consumers
of the problem that's come more and more to our attention.
It's interesting, the most recent dispute really kind of
hit a significant level of discussion when Fox made the
decision to pull the signal off the air. Now, I understand your
desire, and Univision also, to hold on to that right. And I
think what we've put on the table respects that, but it
requires a simple level of both transparency and a judgment.
Are they working in good faith? If you have a good-faith
argument, based on the marketplace, based on competitors, based
on the offerings that are available to people, people will step
back and say, ``OK. This is not our deal,'' and you can still
pull your signal. So, you're not without a very significant
lever; it's just that it tries somehow to create a level of
accountability to the public, if you will, in light of all the
other benefits that are on the table.
So, I'd just ask you to think about that. And we're going
to think about it, in the light of the sort of discussion we've
had today. And maybe we continue to have a private dialogue on
this and see if we can't find some way to do something that
relieves us of the burden. Because, if we just go forward in
this atmosphere, I suspect, given the nature of competition and
the nature of the marketplace and where it's sort of going in
this diversity, that some people may feel even more compelled
to press for an advantage and pull a signal. And, no one here,
I think, is going to react very positively to that.
So, to the degree that you want this to remain a sort of
hands-off, arm's-length transaction where the marketplace has
the maximum amount of ability to play itself out--and that
would be our preference, too--I think you have to think about
what's the compromise mechanism here, what's the way to try to
say, ``We're doing something. Let's give it a try, see if it
creates better balance and a better outcome.'' And I suspect
that, in the end as somebody said a moment ago, you're all very
profitable companies. I don't think a lot of people are going
to be thrilled with the idea that they're becoming the pawns in
whatever that extra percentage of profitability is going to be,
measured against the high levels of profitability that you
already experience, measured against the government's ``gift,''
if you will, on behalf of the American people of your right to
take part in that marketplace.
So, let's all think about it. I think it has been a healthy
and good hearing. And, from our point of view, we've aired some
of these issues; we got a sense of it.
We'll leave the record open until the end of the week for
any submissions by additional colleagues.
And again, we appreciate everybody.
Mr. Uva, thanks, notwithstanding not feeling well, for
hanging in here with us. We appreciate it very, very much.
We stand adjourned. Thank you.
[Whereupon, at 5:03 p.m., the hearing was adjourned.]
A P P E N D I X
National Telecommunications Cooperative Association,
Arlington, VA, November 22, 2010
Senator John F. Kerry, Chairman
Senate Commerce, Science, and Transportation,
Subcommittee on Communications, Technology and the Internet,
United States Senate,
Washington, DC.
Dear Senator Kerry,
On behalf of the 560 small business communications providers that
constitute the membership of the National Telecommunications
Cooperative Association (NTCA), I wish to thank you for your leadership
in convening the November 17 hearing titled ``Television Viewers,
Retransmission Consent and the Public Interest.'' The testimony and
deliberations expressed during this forum should leave no doubt
whatsoever regarding the pressing need to reform the outdated
retransmission provisions of the Cable Act of 1992.
Clearly there is a need to level the playing field between Multi-
Channel Video Programming Distributors (MVPDs) and broadcasters, and
consequently benefit all consumers by ensuring greater transparency in
that marketplace. A primary outcome of this hearing was the vivid
portrayal of the negotiations, or lack thereof, that have transpired in
a number of recent retransmission contract renewals between some of the
Nation's largest MVPDs and broadcasters. Imagine how such difficulties
are multiplied when retransmission negotiations involve the Nation's
smallest MVPDs--NTCA's members--and the giant broadcasters.
The assertions of broadcasters, with respect to the bargaining
power of large cable companies like Cablevision and Time Warner, do not
ring true for the reasons discussed at length during the hearing. Yet
even if such allegations were true for larger cable companies, the same
certainly cannot be said for small MVPDs such as rural telephone
companies and cooperatives. With this in mind, we respectfully request
that that your subcommittee hearing record formally reflects the
retransmission dilemmas that are faced by rural MVPD under today's
outmoded model.
NTCA's membership is comprised of communications providers that
operate in some of the most rural and economically-challenging-to-serve
areas of America. These providers are small businesses focused on
delivering quality telecommunications, information, video and other
communications-related services to the rural communities in which they
are based. Without the dedication and continuing commitment of our
member companies, rural America would not have the same quality and
choice in digital communications enjoyed by those operating throughout
the Nation's metropolitan areas.
Although it is difficult to discern exact rates and fee
structures--a transparency problem that only further accentuates the
relative bargaining leverage held by broadcasters--NTCA suspects that
the average rural telco member company typically pays a higher per-
subscriber rate for both linear cable programming and broadcast
retransmission fees than rural and non-rural independent cable
companies in the United States. We further believe that the largest
Multi-Service Operators in the United States pay just a fraction of the
total cost small rural telcos pay for the same channels and networks--
although once again, such indications are only anecdotal because of the
conditions that broadcasters have imposed on the sharing and
publication of such data.
While it may be true that many of the larger MVPDs, whether cable,
telephone, or DBS, are often highly profitable and work with a healthy
content profit margin, the same cannot be said for small rural
communications providers. It is widely reported that the profit margin
for video services is almost always ``paper'' thin if not entirely
nonexistent. When you consider the higher fees routinely charged to
rural MVPDs--which grow at unpredictable yet dramatic annual rates--
coupled with bundling and tiering requirements from content providers,
it's easy to see how small operators are squeezed to the point of
providing services at a net overall loss.
As you contemplate the next steps in responding to the market
failures that are now clearly documented in the area of retransmission
consent fees, we urge you to give particular consideration to the
challenges faced by the Nation's small rural communications providers
in your examination. Resolving the current retransmission consent-
related shortfalls is the only way to ensure rural consumer increased
choice and affordable rates for video services.
Sincerely,
Shirley Bloomfield,
Chief Executive Officer.
cc: Sen. John Ensign
______
Prepared Statement of David Zaslav, President and CEO,
Discovery Communications, Inc.
Chairman Kerry, Ranking Member Ensign, and distinguished members of
the Subcommittee on Communications and Technology, I am David Zaslav,
President and Chief Executive Officer of Discovery Communications, Inc.
I appreciate having the opportunity to provide Discovery's views on
America's retransmission consent regime.
Discovery Communications is the world's number one nonfiction media
company, with 13 television networks in the U.S. and over 120 networks
in more than 180 countries around the world. Our mission, as set forth
by our founder John Hendricks over 25 years ago, is to empower people
to explore their world and satisfy their curiosity with high-quality
nonfiction video content that entertains, engages and enlightens.
We applaud Chairman Kerry's continued leadership in taking on this
critically important issue and believe that his draft legislation is a
positive step in the right direction.
As an independent programmer with no affiliation to ``must have''
broadcast content, our view is that the current retransmission consent
process is broken and has become susceptible to abuse by broadcasters
who, as a result of an outdated regulatory structure that was based on
market dynamics which no longer exist, today hold overwhelming leverage
in negotiations with multichannel video program distributors (MVPDs)
for carriage of local broadcast services.
And, it is that government-sanctioned leverage that is hindering
the development and growth of diverse, independent sources of
programming.
To fully appreciate how the current system negatively impacts
programmers that offer an independent voice, it is critical to first
understand the government's role in creating that system. As this
subcommittee well knows, in 1992, Congress was concerned that cable
operators provided broadcasters with their only means of reaching
subscribers who were not watching television over the air. Congress
feared that because cable operators had an incentive to refuse to carry
broadcasters, their ability to continue to offer over-the-air
broadcasting was at risk without cable carriage. With enactment of the
Cable Television Consumer Protection and Competition Act of 1992
(``Act''), broadcast stations were granted the very powerful right to
bargain for carriage and to withhold services from cable operators when
their terms were not met.
Congress expected that despite being given this regulatory
advantage, broadcasters' demands under this system would nonetheless be
modest, because they would also benefit from cable carriage. The
expectation was that the Act would ensure that the mere carriage of
local broadcast stations on cable systems would be sufficient to
address the public policy goal of providing fair distribution of
broadcast services. Congress never contemplated that broadcasters'
right to consent to the retransmission of signals over the public
airwaves would be utilized to extract exorbitant fees from cable
operators--a development that will harm consumers by increasing their
costs and reducing the amount of independent programming available to
them.
Almost two decades after the Act was passed, market dynamics in the
video programming distribution market have rendered retransmission
consent, one of the Act's core mandates, null. Broadcasters today have
far less dependence on cable carriage because there are many other
means of reaching viewers including through the two national direct
broadcast satellite (``DBS'') providers, DIRECTV and DISH Network,
local exchange carriers such as Verizon (FiOS) and AT&T (U-verse), and
through the quickly emerging platform of video distribution over the
Internet.
As was illustrated by the recent and highly contentious
Cablevision/Fox dispute, the harm to consumers in the form of
interruptions in service and rising cable bill prices is the direct
result of the broadcasters' disproportionate leverage in these
negotiations.
Equally concerning is the serious harm to consumers that arises
from the impact broadcasters' rising leverage has on independent
programmers given that the current economic model makes it more
difficult for such programmers to contribute diverse, informative
programming to Americans' channel line-ups.
The ``must have'' nature of broadcast programming has impeded
MVPDs' ability to realistically resist broadcaster demands in
retransmission consent negotiations, even when those demands are
objectively excessive. Perceiving opportunities to exploit,
broadcasters have exponentially increased their fee demands and have
begun to make unfair carriage demands on MVPDs. It is not at all
uncommon for a cable operator to have faced a 200 percent-400 percent
increase in its retransmission consent fees since just 2007.
As a result, cable operators and other MVPDs have greatly decreased
financial resources and channel capacity to expend on independent
programmers. Simply put, without adequate assurance of carriage on
reasonable terms and conditions, Discovery Communications and other
independent programmers will not be able to continue to create and
provide the diverse, award-winning, innovative programming that
consumers have come to expect as part of their MVPD package.
We appreciate the longstanding emphasis that Congress and the FCC
have placed on protecting and promoting the greatest possible diversity
in MVPD services and programming sources. To that end, we fully support
Chairman Kerry's efforts on this issue.
Thank you again for the opportunity to submit testimony. We stand
ready to help you, Chairman Kerry, and this subcommittee, as Congress
tackles this complex issue.