Majority Statement

• Ted Stevens

  Senator
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  Majority Statement

  Ted Stevens

  OPENING STATEMENT OF CHAIRMAN TED STEVENS
  HEARING ON VIDEO CONTENT

  Retransmission consent allows broadcasters to negotiate compensation for their popular over-the-air content.

  The big four broadcasters – ABC, NBC, CBS and FOX – have used their retransmission consent to negotiate carriage for both their over-the-air programming and programming of cable channels in which they have invested.

  Some small cable companies contend that the broadcasters use retransmission consent to go further than Congress intended. And, some of the small cable companies want to offer family tiers, but they’ve said that they cannot because the contracts the programmers offer would require them to air content not appropriate for children to the majority of their viewers.

  Other rural providers have told us that the price they are asked to pay programmers for content is substantially higher than their urban counterparts.

  And, we’ve been asked to hear from an independent programmer who states that his ability to get carried on cable is affected by this concept. We want to give cable and satellite providers a chance to respond and detail how they carry out this retransmission concept.

  Some satellite carriers have argued that the so-called “terrestrial loophole” allows large cable companies to lock up exclusive rights to sports programs, and we want to listen to comments about whether or not these lead to anti-competitive rates for those programs. I’m told that exclusive contracts are not allowed for any sports delivered by satellite but that rule does not apply to content delivered by cable. And, I expect we’ll hear from both sides of that issue today.

  We’re well aware of the FCC’s consideration of the Adelphia merger. It’s not our goal to focus on that transaction here today, but, of course, you’re free to comment if you wish.

  We postponed the hearing on video franchise this morning. And, I’m sorry that we felt compelled to do that, but the hearing will be rescheduled for February 15 at 10:00 am. We’ve invited the FCC to appear that day, but we have not yet received the nomination for the fifth Commissioner. So, we decided to reschedule that hearing and take up the one we postponed from this morning. I apologize for that inconvenience to those people affected by this change.

  We really are trying, as I said, to proceed as rapidly as we can with the Committee’s agenda of hearings that have been requested in order that we can get to the legislation that is pending before us to update our communications laws.

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  Questions and Answers with Witnesses

  Chairman Stevens: Mr. Polka, one part of your statement you did not read that pertained to the past discussions on this Committee, the problem of decency on television. And you mentioned the question of putting together packages that included items that had high sexual content when you were trying to put together children’s programming. What was the outcome of that negotiation?

  Mr. Polka: Well, sir, the outcome is that the program services that you were referring to were carried and that’s the nature and the function of the contracts today when we talk about cable programming and how it’s packaged and priced and dictated in terms of contract. The wholesale programming practices that we referred to, that is what is causing the problem, where you have situations where family-oriented programs that we want to carry, we want to carry programming like that, is often time bundled and required to be carried with other program services. The fact is that at the end of the day, in most cases, those services are carried because that is the best way to carry that family-oriented programming at the cheapest price.

  Chairman Stevens: Do you use the rating system in your programming?

  Mr. Polka: We do not. We do not use a rating system, but I can tell you that our customers tell us about what they think about the programs on television. I can think of cable systems where more than half of our subscribers walk into our cable systems month after month to pay their bills and I can tell you based on their rating system that they’re not happy. And, they’re telling us and we are here to say that we would like to provide more choices to our customers and that means programs that we could package in tiers of service that we could do today. It’s not a mandated a la carte system, but tiers and packages of services that we could put together in our marketplaces today that would meet our local communities’ needs, working with our customers to provide them more family-oriented programming. The problem is that the contracts that we have to take from the major media conglomerates force us to carry those services, their services, on either the basic or the expanded basic level of service.

  Chairman Stevens: Ok, thank you very much. Mr. Pyne, do you charge the smaller cable companies more for programming? When you say that you charge the price, is the price for smaller cable larger than the price for the larger cable company?

  Mr. Pyne: Mr. Chairman, there is something known as the National Cable Television Cooperative, which conglomerates or is a co-op of systems that represent roughly eight million subscribers. And, through that co-op we license smaller cable operators and we treat that group as if it were an eight million subscriber MSO (Multiple Systems Operators) in an effort to bring price parity to the smaller cable operators. And, we do that across our networks from the ESPN side, to the Disney Channel, ABC Family and so forth.

  Chairman Stevens: Mr. Lee, how would you be affected if retransmission consent was changed to prohibit requiring bundling of programming in the case of small cable with few subscibers?

  Mr. Lee: Mr. Chairman, in our world, the world of a local television station, there’s very little bundling involved. In my negotiations with the MVPDs (Multi-channel Video Program Distributors) there are companies that pay us cash because that’s what they prefer. There are companies that take one extra channel. There are companies that take one extra channel. There are companies that take two extra channels. And, in that case, they do so because that works better for them. In our part of the world, satellite subscription is at almost 40 percent of television households and suddenly the cable operators have become my new best friend. They want programming, they tell me, that is unique to them. A cable operator will often say to me, “What can you produce for us that our subscribers won’t be able to get on DirecTV or DISH Network?” So, I think the marketplace is solving this question rather efficiently.

  Chairman Stevens: Let me go to you, Mr. Waz, exclusive contracts are forbidden for satellite-delivered programming only. Now, why should you not remove that and make the concepts that are applied by the FCC, apply across the board.

  Mr. Waz: Senator, again, when the 1992 Cable Act passed Congress did not apply even these rules to all satellite-delivered programming. If a program network is owned by a Disney or a Viacom or NBC Universal or another company that is not in the cable business, it’s not reached by these rules. And, terrestrial programming, as you suggested, is not reached by these rules. There were about a dozen terrestrial networks in operation when Congress passed this bill in 1992, so we think Congress knew exactly what it was doing in exempting terrestrially-delivered programming.

  Chairman Stevens: Well, that’s just because we didn’t have a crystal ball.

  Mr. Waz: Well, I think the crystal ball worked sir, because I think you were trying to place predominant reliance on the marketplace. You said, we’re not going to try to turn every program into something that has to be given away, that no one can have any exclusivity. And, frankly, I think some amount of exclusivity in programming is what permits us and DirecTV and EchoStar and the phone companies to distinguish ourselves from one another. The terrestrially-delivered programming in particular tends to be local programming. It can be news; it can be public affairs; it can be sports. And, Congress said at the time you did not want to chill investment in better local programming.

  Chairman Stevens: What difference does it make if they’re bundled, when you get the programming out?

  Mr. Waz: Senator, I know there has been a lot of discussion of how programming is sold in bundles this morning with retransmission consent. We’re not a broadcaster, so we don’t have a bundling issue.

  Chairman Stevens: Don’t you, when you really, this is the so-called terrestrial loophole as I understand it, does that not affect cable-delivered programming?

  Mr. Waz: It does, terrestrially-delivered programming that is created by a cable operator or a phone company or anyone else would be exempt from those.

  Chairman Stevens: You oppose eliminating this difference between the satellite-delivered programming and all other programming?

  Mr. Waz: Senator, with so much competition in the programming marketplace today, with DirecTV having access to so much programming that we do and all the other competitors do, I think there’s less reason for expanding regulation and more reason to reduce it.

  Chairman Stevens: Let me go back to the statement that you made, Mr. Gorshein. You said, “We’ve secured distribution with no less than 6 telcos, close to 90 percent of the projected telco video space, including Verizon, AT&T and others. Channels that have 90 percent of the cable space, have been around for 25 years. In telco, we did it in 5 months. In contrast to our success in telco, after close to 3 years, we’ve had virtually no progress getting carriage from the dominant cable operators.” Now, my question to you is why do you need it if you’ve got all that other type of access?

  Mr. Gorshein: The telcos have big names and lots of customers. The problem is they’re not video customers today. Our fate is inextricably linked to theirs. So that if they can penetrate local markets quickly, that certainly helps us, and so we’re very much in favor of telco relief. That will give us more outlets and independent competitors like us more outlets. Statistically, empirically, if you look at the data, there are 92 channels which hit the critical viability threshold of 20 million. That’s the minimum you need to hit Nielsen’s. And the cable operators and the broadcasters have gone on record at the FCC to say 50 million is actually the bare minimum you need to have a profitable venture. Of the 92 channels that hit 20 million, 91 of them had to secure carriage at Comcast and Time Warner, one secured carriage at one of Comcast or Time Warner, but also secured Adelphia, which suggests that post-transaction it will be empirically impossible for a new channel to succeed without the transacting parties. I will also say that there’s no precedent for a satellite only channel reaching that viability threshold.

  Chairman Stevens: As you know, we’ve been exploring the concept of having some means to have a family-tier offered no matter what the source of the programming. And, to have in connection with that family-tier a ratings system so that whether you’re using the V-chip or whatever kind of thing that’s available to you, the family has a way to check what they do not want their children to view. Now, if we did that, tell me right down the line, how would that type of legislation affect your business. Mr. Pyne, how would it affect you?

  Mr. Pyne: Well, all of our, I think we have come out to say that we support the decency standards for broadcast across all of our networks, whether that’s ABC Family, Disney Channel, ESPN and so forth. Currently, sports and news are generally not rated, and we support not rating sports.

  Chairman Stevens: It won’t really affect the way you do business?

  Mr. Pyne: No, sir.

  Chairman Stevens: Mr. Polka?

  Mr. Polka: Thank you, Mr. Chairman. The more information, the better. That’s very helpful to myself as a parent who makes decisions for my children as well as for our customers. However, at the end of the day, even with a different ratings system, the channels still would be coming into the home and they would have to be blocked, they would have to be kept away from those that parents might want to keep it from, whether its their children or otherwise. So, the point is that the programming that you find most objectionable is still coming into the home. The only way that we can actually make changes, to actually give consumers more choices is to get them into the process. They are actually not in this process of deciding what’s on their television today and if they were in conjunction with their operators then packages of programming services would be developed in local communities that they would take and pay for.

  Chairman Stevens: Well, as far as this Senator is concerned, I don’t think we should mandate what happens. I think we should mandate that there should be a system where parents can control what their children have access to. Now, having said that, the difficulty is, I don’t know if you went down to see this, when we went down to see the ratings system, and guess what was left out? Sports. Sports aren’t rated. History concepts, they weren’t rated. Now, how do we get into the system so somehow or other we achieve the objective we all want and that is, I don’t want my grandchildren watching some sort of smut, but I don’t object to it being out there if someone else wants it. I just want my children to have the right to block it. Ok? Now, why can’t we get together and find some way to do that? There seems to be a resistance to the ratings system. There is general agreement on blocking, we haven’t had a witness, well we did have one. He represented the people who are providing programming with a highly sexual content. But, he also agreed it should be rated. What’s your solution for that? You say you’d like to do it, but you don’t want us to do it, right?

  Mr. Polka: That’s right. We don’t think Congress needs to. We think, again, just as you said, you can look at content and you can make a decision. You can determine whether or not you find it objectionable or not and whether or not you would like to pay for it on this particular tier or not. And, that’s essentially what we’re suggesting. Rather than allowing the content to continue to come into the home without any accountability or change whatsoever, basically giving consumers more choices working with their operators to be able to say, as they say to us month after month, “We would prefer not to have this channel on expanded basic. Can you please sell us that, or not sell it to us so we don’t have to take it?”

  Chairman Stevens: What do you think, Mr. Lee?

  Mr. Lee: Mr. Chairman, I’ll speak to this more as a parent than as the operator of a local television station, I think a solution may be in place already. We have a daughter who is now 24-years-old, but in her youth there were a couple of cable channels I found objectionable. And, to the credit of the local cable company, when I called and made that observation they had by the following day come out to the house and taught me how to block it on the set-top box and then trapped it on the pole, so the channels I found objectionable were within 24 hours gone.

  Chairman Stevens: That required you to know in advance what channels were bad, right?

  Mr. Lee: Yes, but I could tell pretty readily.

  Chairman Stevens: Well then you’re better than I am, because I remember sitting there watching Rome and I thought it would be a great historical program and suddenly I found out to the contrary. I enjoyed the program, but I would not have wanted my granddaughter sitting next to me. Mr. Waz?

  Mr. Waz: Senator, David Cohen from Comcast came before this Committee a couple of weeks ago and talked about the family-tier that Comcast was establishing with some great family-friendly brand names like National Geographic and Disney and Discovery, so we are trying to be responsive to those in the marketplace who really want a family-tier alternative. To your broader point, absolutely parents need and need to know about ratings systems. And, parents need to have the tools to be able to act on ratings, and to be able to decide what is appropriate for their families. We are strong supporters of making sure, again, that people know what the rating system is, how it works, and how to use the equipment we can make available to them to make all television in their homes family-friendly.

  Chairman Stevens: My Staff Director reminds me that the contact we had from our State was that it’s not possible to offer a family channel (tier) because the contract with the networks require that the vast majority of the customers, that their customers receive in terms of channels, are aimed at adults. And, unless the programmers agree to change the contract, there’s not going to be a family-tier in Alaska. Now, Mr. Fawcett, you said you go to Alaska, right? Does your programming go to Alaska?

  Mr. Fawcett: Sure. I mean, just on this point, you know, my testimony here in November revolved around the fact that DirecTV since day one, has been 100 percent digital and every subscriber to DirecTV has the power and the ability to block out channels through our Locks and Limits feature, which is not just…

  Chairman Stevens: How do they know that in advance?

  Mr. Fawcett: It is, there’s a channel on DirecTV that shows that information every half-hour. It’s in the owners manual and our installer...

  Chairman Stevens: That’s how they block it. How do they know about the content?

  Mr. Fawcett: Well, there are the ratings that are passed through by the programmers. So each program that is rated, that information is passed through and then through the Locks and Limits feature that would be blocked if that’s what you as a parent chose to do. If it’s not rated, our technology allows you to block not rated programming or programming on any specific channel or at any specific time of the day. So, our subscribers who are parents have full power to block any programming coming through on DirecTV.

  Chairman Stevens: We’re informed that the meeting that our colleagues are at on both sides will not end in time for them to be here. So, I am informed that they would like to have the right, some of them, to offer questions that we would submit to you. I would hope that you would give us the courtesy to responding and I apologize for the problem that is going on right now with regard to these meetings of the two sides of the aisle. My last question would be to you Mr. Fawcett, if Comcast says it maintains a competitive marketplace for video content and its working, why aren’t there enough options for sport programming contracts available to DirecTV to respond to the large cable companies’ regional sports networks? Why aren’t there enough there for you?

  Mr. Fawcett: As I said, we have been able until recently been able to provide local sports programming. It’s what’s been happening in Philadelphia. Obviously, we’ve never had the ability to provide local sports programming and our penetration in Philadelphia is the lowest of any of the top 25 DMAs and contrary to what Mr. Waz says, in San Diego and in New Orleans where we also do not have local sports programming, our penetration in those markets as well as EchoStar’s is much lower than it should be. We have submitted a report to the FCC that has a regression analysis and smooths out the differences in some of the markets that he pointed out we were also low in. In Philadelphia, for example, when it’s adjusted our report shows that our penetration should be twice what it is currently and that’s really because we haven’t been afforded the right to carry the local sports teams. There’s no substitute for local sports programming. And, what they would like to do and what they have done over the past year is not deny us access completely, but give us the Hobson’s choice of a very high rate and if we choose it, great. They make out because they own the network and if we don’t carry it then they have exclusivity and a huge market advantage in a market where they have 70 and 80 percent penetration and market share.

  Chairman Stevens: Your discussion disturbs me a little bit because I’ve been one who believed primarily that the concept of competition would ultimately lead to lower consumer prices and to greater access for consumers. If the net conclusion I get here is because of some of these concepts, which may be exceptions to the rules we that we tried to lay down, are leading to increased control of some entities over the marketplace and denying access to some people who have selected one provider to, as Senator Dorgan mentioned, to ESPN or to some program that they want. Now, I don’t know that we can legislate it, but I certainly would be willing to look at any suggestion that any of you have to level this playing field. How long are these contracts that you all enter into, by the way? How long are retransmission consent contracts?

  Unidentified/Off-camara: In terms of broadcast three years.

  Mr. Polka: It’s three years, the cycle is three years, that’s correct Mr. Chairman. However, in case of the affiliated programming contracts that are often tied to those, those contracts are oftentimes for five years or more and that’s typically a tactic that we see in wholesale programming practices. Where in return for the carriage of the station, we’re required to carry an affiliated channel for more than three years. So, in three years they can come back and ask for another channel. So, more content then results on Expanded Basic that consumers have to take and pay for whether they want it or not.

  Chairman Stevens: Has anyone explored the possibility of a provision in our law that says if you offer a contract to one entity up to your capacity, you must be willing to offer a similar contract to any other entity that seeks the service? Would you oppose that Mr. Waz?

  Mr. Waz: Well, Senator I guess one good example is with the NFL, which DirecTV has exclusively. Comcast cannot get NFL games. Its competitor, DISH Network, cannot get NFL games. One could pass a law that said all the NFL games have to be available to all the competitors. Just as one could pass a law saying all Philadelphia sports has to be available to all competitors. But, I think we’re at a point in the competition among networks here where we’re better off if DirecTV can compete with Comcast by having something unique and Comcast can compete with Verizon by having something unique and so on. The competition among those networks is a better way to make sure consumers are served better because we are differentiating ourselves from one another.

  Chairman Stevens: But, doesn’t it end up as I think Mr. Fawcett indicated, that some communities are shut off from their own team?

  Mr. Waz: No, Senator. In Philadelphia, as I indicated in my prepared testimony, there are over 100 Flyers, Sixers and Phillies games on broadcast television. Games, again, that DirecTV chose not to carry for two years when they were available to them. And, in fact, when we acquired the rights to the Philadelphia 76ers, the previous owner took all the games off broadcast TV. We chose to put them back on because we wanted all fans in Philadelphia to be able to see the hometown teams.

  Chairman Stevens: Mr. Fawcett, do you want to respond to that?

  Mr. Fawcett: I was astounded to see in Comcast’s testimony that we have the right to carry sports events on local broadcast stations. We did not get that right until SHVIA. So, we didn’t have the right before and once we obtained the right, we launched satellites at considerable expense and we carry all the broadcast stations that carry those local sports events in Philadelphia. A lot of those sports events, however, have left the broadcast television stations and have migrated over to Comcast Sportsnet Philadelphia, which is a network they refuse to let us carry. And the distinction between NFL Sunday Ticket is one that shouldn’t go unnoted here. And that is, Sunday Ticket, which is our exclusive service enables you to in addition to getting your local teams’ games or the local games carried on the local broadcast networks, to get every other game played in the NFL. We negotiated that for that right with the NFL. The NFL had open negotiations and Comcast was in there bidding for the same rights and, you know, we have 13 percent market share and the NFL wanted to grant exclusivity to that. But, again, it’s an enhancement to what customers already receive. And, I’m from Pittsburg and if you said, if you’re a fan of a Pittsburg team and you can’t get Pittsburg sports on DirecTV, you’re never going to become a DirecTV subscriber. You’re going to stay with Comcast. So, it’s different, local sports are different than having this enhanced package of all games.

  Chairman Stevens: On behalf of our Committee I thank you very much and I’m sad its taken place on a day when I think many people would have had different questions than I’ve asked you. But, I urge you to give us your response to their questions as quickly as you can and I thank you very much for your courtesy in appearing here today. Thank you.
  

Testimony

• Mr. Ben Pyne

  Vice President

  Disney and ESPN Networks Affiliated Sales and Marketing
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  Testimony

  Mr. Ben Pyne

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• Mr. Matt Polka

  President

  American Cable Association
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  Testimony

  Mr. Matt Polka

  Click here for a copy of Mr. Polka's testimony

• Mr. Robert G. Lee

  President and General Manager

  WDBJ Television
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  Testimony

  Mr. Robert G. Lee

  Click here for a copy of Mr. Lee's testimony

• Mr. Joseph Waz

  vice President External Affairs

  Comcast Corporation
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  Testimony

  Mr. Joseph Waz

  Click here for a copy of Mr. Waz's testimony

• Mr. Dan Fawcett

  Executive Vice President of Programming

  DirecTV
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  Testimony

  Mr. Dan Fawcett

  Click here for a copy of Mr. Fawcett's testimony

• Mr. Doron Gorshein

  Chief Executive Officer and President

  The America Channel, LLC
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  Testimony

  Mr. Doron Gorshein

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