May 6, 2003
Full Committee hearing scheduled for Tuesday in room 253 of the Russell Senate Office Building. Members will discuss pricing and competition in the video programming and distribution markets. Senator McCain will preside
Mr. William B. Shear
Click here for a PDF version of Mr. Shear's testimony.
Witness Panel 2
Mr. Leo Hindery, Jr.Managing DirectorInterMedia Partners
Senate Commerce Committee May 6, 2003 Good morning to you, Mr. Chairman, and to your fellow Senators. I am Leo Hindery, and I am Chairman and CEO of the YES Network, which is a regional sports network that I formed in September 2001 to serve New York, Connecticut, and parts of New Jersey and Pennsylvania. YES has acquired, as its most notable programming, the long-term broadcast rights of the New York Yankees, the New Jersey Nets and the English football club Manchester United, together with Big East and Ivy League conference sports. At its launch in March 2002, YES had negotiated long-term carriage agreements with DirecTV and with 36 of the region’s 37 cable operators. The only cable operator which did not agree to carry YES was the company Cablevision, the largest cable operator in our region which also, notably, owns the area’s only other regional sports networks and which previously owned the broadcast rights of the Yankees and the Nets. It took a federal antitrust suit, legislative initiatives throughout the area, especially in New Jersey, and several consumer lawsuits to finally convince Cablevision to carry YES, after a year of saying “no way” to us and to its customers. I am honored to have testified in front of this Committee numerous times over the past 15 years, on the subjects of cable industry regulation, cable rates, programming issues, and industry consolidation. Prior to founding YES, I was, as some of you may recall, CEO of AT&T Broadband and of its predecessor company, TCI. When I testified here in the past, I commented to the Senators that additional cable industry regulation would probably not be required. Notably, I also promised, at least for the companies I managed, that customers should expect cable rate increases which would approximate general inflation, that consolidation would bring noticeable benefits to consumers, and that my company would never abuse its enormous market powers to the detriment of independent programmers. I believe the record will show that when I was around, TCI and later AT&T kept those promises. Sadly, however, I find myself today deeply concerned about the future of independent programmers which do not have ready access to multi-channel distribution simply because they are not vertically integrated. And I find it beyond irresponsible for cable industry leaders to blame programmers for their often excessive rate increases, when the facts clearly believe this contention and especially when more than half of the channels available to consumers are actually owned by cable companies. In 1974, thirty years ago, President Gerald Ford appointed a high-level Cabinet Committee to develop proposals “for a new policy that [would] allow cable to be integrated into our nation’s communications media”. Recommendation number 1 from the Committee concluded that (quote) “control of cable distribution should be separated from control of programming and other services provided over the channels on those distribution facilities” (unquote). Notably, this Recommendation was made fully a decade before the dramatic proliferation of cable industry-owned programming services. And after reading the Committee’s background materials, it is certainly clear that no one on the Committee contemplated a world like we have today, where every day independent programmers are held hostage by large multi-channel operators which either own numerous and significant competing programming services or which through consolidation have accumulated extraordinary amounts of market power. And they certainly did not envision a world where only seven cable companies would control access to more than 90% of the nation’s homes and the largest would alone access 40%. I have testified often in support of vertical integration and in support of cable industry consolidation, and I would do so again today if asked. And my testimony would reiterate the economies of scale which consumers should realize from consolidation, and it would reiterate that vertical integration can be a very positive force in the launch of new programming services. However, I no longer believe that additional regulation is uncalled for. Rather, I request that you pass, in the form of a short amendment to Section 616 of the Communications Act, legislation which will assure the vitality of independent programmers and assure that vertical integration will cease to be a discrimination tool for the nation’s larger cable operators. Much like the unwanted spam which Senators Burns and Wyden have taken bold steps to eliminate, every day viewers in America are forced to watch programming owned by the distributor which brings them the programming, rather than receiving programming which is not influenced by who owns it. The issues are substantially the same. The cable industry consolidation genie is out of the bottle, and he isn’t going back in. Nor do I believe he should. However, I do believe, that as first contemplated by the Ford Committee thirty years ago, “program access” must now be embedded, by legislation and by regulation, into the operating practices of the cable industry. The reason I do not include the satellite broadcast industry in this recommendation is that, with prescient sensitivity, News Corp. has already committed to full “program access” as a precondition to its pending acquisition of DirecTV. But now, it truly is the cable industry’s turn to fully embrace “program access”. Specifically, I am requesting that this Committee preserve the existence of independent, unaffiliated programmers and assure the vitality of all programming by incorporating three principles into Section 616 of the Communications Act. Those principles, which can be addressed with only a handful of additional words, are: First, there must be “parity”, or non-discrimination, in the way programming services are treated, regardless of ownership. This extends to wholesale prices, packaging to consumers and positioning on the dial. In other words, as first raised by the Ford Committee and later codified in part in the Communications Act, a multichannel video programming distributor should not be able to engage “in conduct the effect of which is to restrain the ability of an unaffiliated video programming vendor to compete fairly”. Second, all programmers should receive the fair market value of their programming, regardless of whether or not the programming service is affiliated or unaffiliated. Nothing more, but certainly nothing less. Third, cable operators must make decisions related to program acquisitions, to pricing of programming to customers, and to packaging in a truly content neutral manner. Content neutrality is, of course, a basic First Amendment principle in media, but if it is not made part of the proposed amendment to the Communications Act, then the reality is that any large cable operator, vertically integrated or not, can use the existing state of play, wherein so very many of the existing channels are already owned by companies in the cable industry, to thwart opportunities for independent, non-affiliated programmers. In closing, I would comment that no one really knows the way multi-channel television will continue to evolve, which is why the continuing oversight of this Committee and of the FCC is so vital. But we do know that today only a handful of cable companies control access to more than 90% of the nation’s television households, that today more than half of the channels available on the dial are owned by a company affiliated with the cable industry, and that every day independent, non-affiliated programmers, small and big alike, are discriminated against. We also know from early first-hand experiences that some of the cable industry’s recent undertakings in the areas of packaging and bundling actually conspire to significantly restrict consumer choice and access to unaffiliated, independent video and Internet services. It is time, I believe, for the content playing field to be leveled, as first commented on by the Ford Committee, and for vertical integration to cease to be an opportunity for discrimination. Thank you for your courtesy.
Mr. Gene KimmelmanVice President for Federal and International AffairsConsumers Union
Click here for a PDF version of Mr.Kimmelman's testimony.
Mr. James Robbins
Mr. Chairman and distinguished members of the Commerce Committee, thank you for the opportunity to testify about cable rates. On behalf of my customers and your constituents, I know you share my concern about this important subject. Today, I’d like to address three related issues of great concern: first, rising programming costs and the consumer benefits of tiering expensive channels; second, network broadcasters’ abuse of Retransmission Consent rules; and third, vertical integration, coupled with horizontal media consolidation, and its harm for consumers. First, soaring programming costs are driving up cable prices. Providing high value, affordable services to customers is hugely important to me. Cox Communications is proud to be fulfilling the promise of the 1996 Telecommunications Act by delivering the convenience and flexibility of a full-service array of video, high-speed Internet and telephone services from one provider via a single network. Unfortunately, however, cable prices are rising, and soaring programming costs are largely to blame. Any business that retails a wholesale product is subject to market forces. Gas prices go up at the pump when the cost of a barrel of oil rises. Likewise, cable prices increase when programming costs escalate. It would be shortsighted to regulate gas prices at the pump without addressing the influences that drive them. Likewise, it’s perilous to regulate cable prices without a thorough examination of the programming side of the business, and the supply chain that drives our rates. Sports programming prices, in particular, are skyrocketing. Today, some sports networks demand 20% annual rate hikes. When A-Rod signs a baseball contract for $25 million a year, the team and league hike their TV broadcast rights fees. Networks bid aggressively to obtain these rights, and seek to recoup their investment through hefty programming fees charged to cable distributors. I believe that the only people making money in the sports business are sports programmers, like ESPN, and ball players – at the expense of American consumers. The Federal Government has recognized the right of cable operators to pass through the entire cost of programming to its customers. In 1992, our expanded basic cable programming costs were 12% of basic revenue. Today, video programming is our single largest expense, aside from salaries and labor, comprising about 30% of total costs. Emboldened by the operators’ lawful ability to pass programming costs through to consumers, some programmers are seeking outrageous fees for carriage of their networks. Last year alone, Cox’s programming costs were up 12% -- exceeding $1 billion. But with two robust satellite competitors adding a combined 40,000 new customers a week, no cable provider can afford to hike prices by double digits year over year. Last year, Cox’s average cable price increase was 5.3%, less than the 6.4% national average. Meanwhile, our video margins are collapsing. Over the last five years Cox’s average programming cost per subscriber has grown twice as much as average revenue per subscriber. Since 1996, Cox has invested $12 billion in its network to provide advanced video, Internet and telephone services. This network was built with private risk capital – not customer subsidies. Today, Internet and telephone services are fueling our growth. Had we lacked the foresight to invest in our platform and operations to deploy new products, we’d be a dying business today. Cable providers are contractually obligated to sell most programming in broad service packages, which include a wide variety of programming. Our research shows that less than 20% of our customers are avid TV sports viewers. But sports programming is disproportionately driving up cable prices for everyone. Tiering presents an intriguing solution to restore an acceptable price value proposition for the most expensive networks – perhaps those that charge Cox a wholesale price of more than $1 per subscriber. If operators had the flexibility to sell these networks -- sports channels or others -- on a separate tier, consumers would gain an opportunity to manage their cable expenditures by choosing whether or not to buy certain programming. Likewise, programmers would be motivated to keep their prices reasonable to remain on expanded basic cable line-ups. Second, Network Broadcasters’ Retransmission Consent abuses are harming cable consumers. Congress established the Retransmission Consent process to protect and benefit local broadcasters’ local programming presence. Today, as media consolidation proliferates, networks owning broadcast stations and cable channels manipulate Retransmission Consent negotiations out of the local market to leverage nationwide carriage of new, unproven cable networks in exchange for Retransmission Consent in a few markets. In early 2000, Cox experienced a nasty public Retransmission Consent battle with NewsCorp, which demanded nationwide digital carriage of Fox Movie Channel and Fox Sports World, in exchange for Retransmission Consent for its television stations in four Cox markets, including WTTG, the Washington, D.C., Fox station. Not only did our customers lose by going without Fox on their cable lineups for six days during college bowl season and the NFL play-offs before Fox provided its signal to Cox, but Cox customers nationwide were forced to pay more for new, untested cable channels. Clearly, unreasonable network demands cost consumers dearly in the form of inflated cable bills and diminished capacity for local cable operations and local broadcasters to tailor their programming line-ups to suit local communities. Additionally, forced carriage of unproven cable channels consumes scarce network bandwidth that could impede the availability of such nascent services as high definition television. Cox Communications provides significant value to broadcasters in the form of favorable channel position, improved reach and more. Policy makers have expressed the strong preference that life-line basic cable prices should not increase faster than the rate of inflation. Thus, it is critical that Cox oppose excessive Retransmission Consent demands for carriage of free over-the-air television signals. 3. Increasing the 35% television ownership cap will further bolster the leverage of programmers and broadcasters at consumers’ expense. As I’ve noted, massive vertically integrated media companies owning broadcast stations and cable networks already wield tremendous leverage in programming and Retransmission Consent negotiations. Allowing big media conglomerates to acquire even more TV stations nationwide will strengthen already outrageous Retransmission Consent demands, driving up cable prices, reducing consumer choice and limiting bandwidth for future advanced services. The vertical ownership threat posed by NewsCorp’s recent purchase of a controlling stake in DirectTV could also be fraught with peril for consumers, if NewsCorp is allowed to flex its programming and distribution muscle to dramatically inflate prices for its programming while giving preferential treatment to its own networks. This tactic, combined with its already formidable leverage over cable operators for Retransmission Consent for its broadcast stations reaching 41% of the market, could further reduce the localism that the 35% television ownership cap is intended to protect. I urge all of you to carefully consider these important issues and to thoroughly examine and address the myriad powerful forces that influence cable prices before concluding how best to keep cable services diverse, accessible and affordable for American consumers.
Mr. Charles F. Dolan
Good morning, Mr. Chairman, and members of the Committee. I am Charles Dolan, Chairman of Cablevision Systems Corporation. We are a cable and programming company. Our cable company serves a market of 4 million homes in New York, Connecticut and New Jersey. Our programming company produces sports, news and entertainment programming for the New York City area. We also originate six regional sports channels for areas outside of New York, and we operate national cable networks such as American Movie Classics and Independent Film Channel. I appreciate this opportunity to present our perspective on the issues before the Committee. Capital spending has long been a way of life for the cable industry. Operating a cable system involves continuous investment to extend and upgrade facilities, especially of late. In the last few years, the cable industry has invested close to $70 billion to bring advanced digital services to its customers. Cablevision, like other companies, has introduced total addressability, HDTV, VOD, high-speed Internet access and IP telephony. Of course, this investment is intended to make our services more attractive to our customers and more competitive in the marketplace. Particularly, the new technology that our industry is installing gives our customers greater choice, the power to create the menu they want on the television screens in their home. Cablevision wishes to offer more for less to everyone. Cablevision wants its customers to be able to pick and choose among its services, selecting what appeals to them, rejecting what doesn't, determining for themselves how much they will spend, just as they do everyday in the supermarket or the shopping mall. Unfortunately, our customers' shopping carts face a littered road ahead. Debris left over from our industry's long technological and legislative history. Unwanted programming is being forced into the home, particularly sports programming. The cable bill at the end of the month is increasing against the customer's wishes. It may be time to address some of the industry rules and practices that have had these unintended consequences. Three of these are in particular need of reconsideration: · Government Mandated "Must Buy" - the customer cannot buy what he wants until after he has bought what the government tells him he must buy; · Expanded Basic - after the customer buys what the government tells him he must, then before he is permitted any choices of his own he is required to buy the programming that the industry tells him comes first; and · Retransmission Consent - this is government granted authority exercised by network owned and operated broadcast stations, or network affiliates. Retransmission consent gives these stations the power to deny the national broadcast networks to local cable audiences. To carry the networks, the cable operator often must agree to compel his customers to buy cable programming owned by the broadcast stations whether they want it or not. Government must buy through mandatory basic! Industry must buy through expanded basic! Network must buy through retransmission consent! These three are the building blocks of ever-escalating cable prices. Like any tower made of such unwieldy blocks, when built too high, it must inevitably come tumbling down. What customers want today, what they are beginning to insist upon, is the right to select. The customer objects to being told that he must pay for programming he doesn't want in order to be permitted the programming he prefers. Cablevision's recent dispute with the YES network is a case in point. When the YES Network came into existence, it demanded from Cablevision nearly four times more than we had paid the year before for the same programming. YES insisted that every expanded basic subscriber pay for this programming whether or not they had any interest in the Yankees or baseball or sports. Cablevision believes that it is the right of the Yankees to set any price they wish for their programming. Cablevision believes also that it is the right of each subscriber to accept or reject that price. Accordingly, Cablevision offered to carry the Yankees and let YES set its own price. YES blacked out the Yankees on Cablevision for a year and a half before they grudgingly accepted the principle of that offer. What has happened since? Of 2 million Cablevision subscribers offered the opportunity to accept the Yankees at $1.95 or less per month, fewer than 9% have accepted to date, 91% so far have said "no thanks." With the YES experience as context, I respectfully urge you to consider a few specific statutory changes. These would remove impediments to greater customer choice and give customers more control over their cable costs. First, the statutory "must buy" in the Cable Act must be eliminated. The must-carry provisions of the Cable Act already compel cable operators to carry all local broadcast stations within a market, even those that may be of marginal interest. The "must buy" provisions go a step further. They require consumers to purchase that tier of programming as a prerequisite to the purchase of programming they want. Because of "must buy", our customers are required to purchase all of our broadcast basic tier, adding about $13.00 to their monthly bill, regardless of whether or not they wish to receive this government mandated tier. To help the dairy industry, for example, would the government insist that all customers entering a supermarket to buy a loaf of bread be required to buy a dozen eggs and a quart of milk before they can purchase their bread? Second, Congress should establish as a goal that no program vendor may demand as a condition of affiliation that the cable operator require all his customers to buy that vendor's programming. Let the customer decide! Third, retransmission consent for broadcast signals must be reevaluated. Commercial broadcast networks and their affiliates are using a valuable government resource - free broadcast spectrum - to leverage carriage of an increasing number of their own cable program channels as a condition of access to the national broadcast networks. As a result, cable operators are forced to carry - and consumers forced to purchase more and more broadcaster-owned cable programming as part of their expanded basic package regardless of consumer interest in that programming. These unfair "tying" practices are being employed in negotiations over digital carriage as well. They have had the perverse effect of making it increasingly difficult for cable or independent programmers without such leverage to launch new services. It is not surprising that retransmission consent has led to a dramatic expansion of control of cable programming by national broadcasters, from 8 channels before the '92 Cable Act, to 54 today. Overall, all broadcasters now control 63 cable networks. In this vein, the Committee should note that News Corporation's announced acquisition of DirecTV will seriously compound this problem. In New York, for example, where News Corp. owns two VHF broadcast stations, a daily newspaper, a broadcast network, a movie studio, a satellite service and four cable networks, woe be to the cable operator who hesitates to accept News Corp.'s retransmission demands. In closing, I appreciate the opportunity provided by the Committee to review adjustments to federal policies. Such adjustments will, in my view, facilitate the beneficial transition to more customer choice. They will reduce the pressure to raise cable rates. Thank you.
Mr. James M. Gleason
BEFORE THE SENATE COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION TUESDAY, MAY 6, 2003 MEDIA OWNERSHIP AND CONCENTRATION TESTIMONY OF JAMES M. GLEASON CHAIRMAN – AMERICAN CABLE ASSOCIATION PRESIDENT and CHIEF OPERATING OFFICER – CABLEDIRECT SIKESTON, MO I. INTRODUCTION Thank you, Mr. Chairman. My name is Jim Gleason, and I am the president and chief operating officer of CableDirect, an independent cable business currently serving 40,000 customers in more than 250 rural communities in nine states – Alabama, Colorado, Illinois, Indiana, Iowa, Mississippi, Missouri, Oklahoma and Texas. I also serve as the chairman of the American Cable Association, which represents more than 1,000 independent cable businesses serving almost 8 million customers primarily in smaller markets and rural areas across the United States. In fact, our American Cable Association members serve customers in every state and U.S. territory and also in nearly every congressional district. Unlike big companies you hear about, ACA members are not affiliated with programming suppliers, television networks, big cable, broadcast, satellite and telephone companies, major ISPs or other media conglomerates. We focus on smaller market cable and communications services, often in markets that the bigger companies chose not to serve. Because we live and work in these rural communities, we know how important it is to have advanced telecommunications services available and to be a provider of choice in these communities. ACA members are leading the industry in delivering advanced services in smaller markets. Far from living on the wrong side of the digital divide, millions of customers served by independent cable companies enjoy access to digital cable and broadband Internet services that are not available in some urban areas. Some ACA member systems have begun to deliver DTV broadcast signals as well, doing our part to move the transition forward. We also look forward to providing newer, advanced services to our customers in rural America too. Advanced services like digital broadcast television, high definition television, video-on-demand and cable and Internet telephony, to name a few. As you know, most of today’s headlines in the communications world are about the large companies, such as the Fox/News Corp./DirecTV merger and the media giants created by the mergers of the 1990s and beyond. Just for the record, my small company is not the “giant entrenched cable monopoly” that others talk about so frequently. Rather, being on this panel makes me feel like a David among many Goliaths. The American Cable Association represents no Goliaths. We’re simply small businesses in cable that happen to serve customers in rural America. We’re here to speak for the millions of small-town customers and thousands of small-town businesses that are represented by every member of this committee. Quite frankly and ironically, we’re the smaller-market and rural competitor to what may soon become the “giant entrenched, vertically integrated satellite conglomerate” – Fox, News Corp., and DirecTV. I hope my testimony here today will help you serve your constituents by understanding the critical issues facing the multichannel video programming and distribution industry and the negative effects that continue to occur as a result of increasing media consolidation. These issues will have a significant impact on all Americans and could have a devastating effect on smaller markets and rural communities where our ACA members employ thousands and serve millions. I therefore ask for your consideration and hope you will agree that the industry is in need of congressional and regulatory review. II. Competition and Choice are the Victims of Increasing Concentration of Media Ownership. To me, the real benefit of this hearing is the opportunity to highlight the current status of customer choice in the multi-video services market, because competition really means customer choice. No choice, no competition. However, the irony here is that the status of competition and customer choice today, especially in rural areas and small towns, is already significantly limited because it is governed by an unlikely cast of players that do not live in rural America, do not focus on rural Americans’ needs, and who have found anti-competitive means to extract enormous wealth from the pockets of rural consumers and businesses. Unless there is significant congressional and regulatory review of these issues, the situation is sure to get worse. Consumer choice and competition may be wiped out in the wake of the mergers creating these mighty communications giants. Let me tell you why. There are three very important issues that threaten consumer choice in smaller markets and rural America and that will derail the progress to provide advanced services in smaller markets: · 1. The abusive conduct of a handful of media conglomerates toward smaller market distributors and their customers. The media giants are using their vastly increasing control of content, pricing, terms, conditions and placement requirements to control what the consumer sees and how much he or she pays. The News/Corp. Fox team is near the top of this short list. Congress must act to address the worsening structural programming problems that are forcing consumers to pay more while taking away any choice. · 2. The adverse effect of the proposed Fox-News Corp.-DirecTV merger, which will limit current competition in U.S. markets – particularly in smaller and rural markets – by consolidating enormous, vertically-integrated content and control in the hands of one company – the merged Fox/News Corp./DirecTV empire. If this merger is ultimately approved, then at the very least the Federal Communications Commission and Department of Justice must place significant conditions on this merger to ensure fair access to News Corp. affiliated satellite and broadcast programming. The conditions News Corp. have proposed in their first FCC filing fall far short of what is required. But even beyond strict conditions, Congress should also extend and apply current program access laws covering vertically integrated cable operators to vertically integrated satellite operators. · 3. The disproportionate burden of regulation on smaller, independent cable companies, like mine in rural America, compared to the free regulatory ride enjoyed by a giant multinational satellite powerhouse. Congress and the FCC must reduce or balance these regulatory burdens with DBS to foster and protect full and fair competition in smaller markets and rural areas. III. Key Issues 1. The abusive conduct of a handful of media conglomerates is threatening the ability of cable systems, particularly in smaller markets, to compete. More importantly, these abuses are driving consumer costs up while taking away choice. Congress must act to address the worsening structural programming problems caused by increasing media concentration. From our standpoint, this hearing provides an important and appropriate opportunity to highlight how little customer choice exists today in the multichannel video services market, especially in rural America. The fact is that the status of competition and customer choice today, especially in rural areas and small towns, is already significantly diminished because it is governed by an unlikely cast of players who neither live in rural America, nor focus on its needs. This unlikely cast includes several major media conglomerates that are mandating the cost and content of most of the services we provide in smaller markets. These include Disney/ABC/ESPN, Fox/News Corp.(DirecTV), General Electric/NBC, CBS Viacom/UPN, and AOL/Time Warner/WB. For smaller markets cable systems, this is a fundamental problem that directly impacts our ability to provide a viable, competitive service to our customers. These major media conglomerates, which we call OPEC, the Organization of Programming Extortion Companies, have found through media consolidation the means to use market power to extract ever-increasing profits from consumers and businesses in smaller markets. Unless there is significant congressional and regulatory action to address these issues, the situation will only worsen. Without your intervention, consumer choice and competition, not to mention the deployment of advanced telecommunications services in rural areas, will disappear in the wake of this merger frenzy. A vitally important question here: Who controls what your constituents see on their TV sets? Not a small cable business like mine or any one of our ACA members. Customers and local franchise authorities are unaware of this, but their television choices are controlled by the five OPEC companies. Over the past five years we have seen an explosive consolidation in the programming industry that has led to sharply increased prices, less freedom to offer popular content, and little customer awareness as to why they are forced to buy the channels they do. For example, ESPN’s fifth 20% increase in five years was announced just this past week. Imagine how your Committee would react if it were my cable company or any other cable operator that raised its rates 20% a year for five years in a row. Frankly, the same indignation you would feel if my company raised rates like this must be focused on ESPN and other programmers, like Fox Sports, that raise rates like this every year. The fact is that programming rates for 14 of the major cable programming networks have risen 66.6% over the past five years – an increase of more than 5 times the Consumer Price Index (CPI) over the same period. In ESPN’s case, one day after ESPN announced last week its fifth consecutive annual 20% increase, ESPN’s parent company, Disney, announced a $400 million revenue increase for the 2nd Quarter of 2003, largely attributed to revenue growth at ESPN and other Disney programming networks. If you want to know why cable rates are increasing, this is a big reason why. But there’s more. Obviously, some of our customers want ESPN or Fox Sports. But ABC-Disney and Fox/News Corp. will not let us just buy ESPN or Fox Sports. Oftentimes, in order to get the local ABC or Fox affiliate, Disney and Fox will force us through retransmission consent to take and pay for other channels we know our customers don’t want. This abuse of retransmission consent goes farther – in order to get consent to carry a local broadcast station in one market, our members are forced to carry Disney or Fox’s satellite programming in other markets, where Disney and Fox do not even own the broadcast station. For example, is it really in the public interest for all of my customers to pay for recycled soap operas, a programming service for which most of them have absolutely no interest, just so some of my customers can be permitted to watch their ABC affiliate? Adding to the absurdity of the situation, these conditions for carriage often outlive the terms of the retransmission consent period for the local broadcast station by many years. As a result, these mandated conditions clog a cable system’s channel capacity with OPEC programming while denying that capacity to independent, non-OPEC programmers. The end result is that these mandated OPEC conditions increase costs and decrease choice for consumers. It gets worse. One solution might be to offer the expensive services in tiers or a la carte. This would allow consumers to choose whether or not they wish to pay for the expensive services. But all of the OPEC programming companies force their programming onto the lowest, basic levels of service, making our companies and customers pay for all of their programming whether they want it or not. We must ask: Is this good for the consumer? Is this in the public interest? Is this why these companies get exclusive control over valuable spectrum? Consolidation has turned retransmission consent into extortion. Even more appalling is that fact that the OPEC companies embed in their contracts various “non-disclosure” terms. These provisions prohibit cable operators from telling any customer, even the local franchise authority or your Committee, the rates and terms for the distribution of the OPEC programming. Thus, rate increases and unfair bundling practices are kept hidden from the public and even from Congress. That is not the foundation for an open, functional and fully competitive marketplace, or one that is transparent and constructed to best serve consumers. I am sure you all remember the retransmission consent showdown in New York City between Time Warner and Disney over this very issue. After that enormous struggle between industry titans, imagine the odds a small company like mine has when negotiating with these OPEC programmers. The five major OPEC programmers control all broadcast networks and at least 50 other of the most popular stations. More than 90% of cable systems offer 30-to-90 channels, which, as you can see, are dominated by OPEC programmers. In fact, on your own Senate cable system more than 63% of the widely distributed channels on it are controlled by the OPEC media conglomerates. In order to assist your review of this situation, I have attached several charts that depict the realities a member of our association faces with regard to programming and channel capacity. I urge you to review these charts carefully in order to better understand the enormous power held by only a handful of consolidated media conglomerates. The irony here is that at a time when Congress wants our small cable businesses to provide our customers with more choice and greater value, media conglomerates like Disney/ABC/ESPN, Fox/News Corp./DirecTV and the other OPEC companies are restricting choice and raising costs. If our smaller businesses and our customers are ever to regain any measure of control over the spiraling rates imposed by these voracious conglomerates, then Congress must intervene. The members of the American Cable Association and independent cable’s buying group, the National Cable Television Cooperative, have for years sought meaningful dialogue with the OPEC programmers, but to no avail. More than a decade of debate and discussion on these issues with them has led to no positive change in their behavior. To break the stranglehold of control by the OPEC programmers and to give consumers and independent cable businesses any choice and control, Congress should act in three specific areas: · ensure the freedom to unbundle OPEC programming; · revamp the laws dealing with retransmission consent and program access; and, · require the transparency and disclosure of programming costs. Unbundling: Today the OPEC programmers tie and bundle their services in such a way that to obtain one service our customers are forced to pay for other services they don’t want. Congress should act to ensure that the programming conglomerates cannot force consumers and cable businesses to take bundled services or require that these services be carried on the lowest levels of service. If the programming conglomerates had exercised any self-control to stop this conduct, we wouldn’t be here today asking Congress to act. But the abuse goes on. Congress should amend telecommunications laws to provide that no programming provider can require that its services be carried only on the basic or expanded basic level of service. Rather, to give consumers choice and to allow the market to determine what gets on TV, programmers should be required to make their services available as part of a separate programming tier, or even a la carte. The template for this congressional action has already been created. Both Mr. Dolan and Mr. Hindery on this panel and their respective companies, Cablevision Systems and the Yankees Entertainment Service (YES), are now allowing consumers to buy higher-priced programming services on either a tier or as a single, a la carte channel. And the consumers’ call for more choice through tiering and a la carte has been heard by more than just ACA. The Chairman of this Committee has called for such change, which has been supported by several larger cable companies as well. However, this fundamental change to give consumers more choice through tiering and a la carte will not occur without congressional action. In the case of Cablevision and YES, it took the actions and efforts of the New Jersey Senate, U.S. Senator Frank Lautenberg, New York City Mayor Michael Bloomberg and New York State Attorney General Elliott Spitzer to compel this result. If it takes this kind of combined political pressure to force parties of equal bargaining power together, what likelihood do consumers in smaller markets and rural areas have to see the same changes without congressional action. Frankly, none. Therefore, Congress must help us give consumers greater choice by amending the Communications Act to allow us the right to offer all programming on a tiered or a la carte basis. Retransmission Consent: Today, as a result of unprecedented media consolidation, the OPEC programmers abuse retransmission consent laws simply to line their pockets. They do this by forcing your constituents to pay for unwanted programming in exchange for receiving their local, free over-the-air broadcast stations. ACA has provided detailed evidence of these abuses to the Federal Communications Commission and has asked the FCC to undertake an inquiry into these abusive retransmission consent practices. The FCC has so far not acted on this petition. We ask the Congress to urge the FCC to take immediate action on this inquiry. The retransmission consent laws when enacted in 1992 were designed to put local broadcasters on a more equal competitive footing with cable operators. Since then, unforeseen media consolidation has turned this process on its head. Now, the media conglomerates are using the retransmission consent laws to evade market forces in order to artificially inflate the revenues from their satellite programmers. The practical impact of this evasion by the media conglomerates is that rural and smaller market consumers have less choice and higher costs, effectively subsidizing urban markets. Congress should amend the retransmission consent laws to protect our consumers from being forced to pay for unwanted satellite programming just to see their local broadcast stations. Transparency and Disclosure: What consumer, local franchising authority or congressional office knows what it costs to watch TV? The answer is not one. That’s because the OPEC conglomerates resist transparency by hiding their abusive practices under the cloak of confidentiality requirements. Who gets the blame when programmers force unpopular or costly programming on our basic tiers? Not them, but us. As ESPN’s fifth consecutive 20% annual increase shows, programming prices continue to escalate far in excess of the rate of inflation, raking in enormous sums from consumers. It’s greed run amok. One way to rein in the greed of programmers is to require transparency. Congress should amend the Communications Act to require programmers to make annual disclosures to local franchise authorities and the Federal Communications Commission. These disclosures should include what programmers charge cable businesses and how they mandate bundling or placement of their services. Moreover, Congress should direct the FCC to compile every year a comprehensive Programming Price Index to show Congress and consumers how much they are truly being charged to watch television. Every three years the FCC should also compile and publish a Retransmission Consent Index to show consumers what it truly costs them to receive their local network television stations. Until there is transparency in the programming marketplace, consumers and their local providers of service will have little control over what is seen on TV, when it is seen on TV, or how much it will cost. 2. The adverse effect of the proposed Fox-News Corp.-DirecTV merger will limit current competition and choice in U.S. markets – particularly in smaller and rural markets. The Federal Communications Commission and Department of Justice must place significant conditions on this merger, and Congress should also extend and apply current program access laws to vertically integrated satellite operators. Customers will also face less choice as a result of the vertically integrated satellite conglomerate that would be created from a Fox-News Corp.-DirecTV merger. The merger of Fox, News Corp. and DirecTV will create perhaps the world’s largest vertically integrated programming distributor. This multi-national behemoth will possess global reach and control a television broadcast network, scores of broadcast affiliates, a significant number of cable and satellite programming channels, and a complete satellite distribution system with DirecTV’s more than 10 million customers. These facts alone will give Fox the ability to control access to programming, limit customer choice, raise programming prices, and eliminate competition in rural markets. The threat by a merged Fox/News Corp./DirecTV to use its programming leverage against other competitors is not theoretical. Upon completion of the merger, the conglomerate will have exclusive control over certain sporting events, including the NFL’s Sunday Ticket and numerous regional sports networks. Last Friday, News Corp. proposed some “voluntary conditions” in its first FCC filing on the merger. These do not go nearly far enough. Even with the proposed conditions, News Corp. and its many broadcast and programming affiliates will still have an arsenal to increase costs and reduce choice for rural consumers. Because of these concerns, we believe the government must place strict and easily enforceable conditions on any such merger. In addition, Congress should amend the program access laws to extend them to vertically integrated satellite entities, just like these laws are applied to vertically integrated cable entities. 3. Smaller, independent cable companies face a disproportionate burden of regulation, compared to the free regulatory ride enjoyed by the giant satellite companies. Congress should reduce independent cable’s regulatory burden or balance it with satellite’s. We continually hear representatives of the direct broadcast satellite industry say how Congress should help DBS compete against the “giant, cable monopoly” by reducing or eliminating the DBS regulatory burden. However, contrary to these DBS cries, two facts are clear: First, as we have already outlined, the new Fox/News Corp./DirecTV juggernaut will assemble an unparalleled array of content and distribution assets. Absent clear enforceable restrictions, the conglomerate will expand the use of this massive power to the detriment of choice, competition and consumers in rural America. Second, my company and the nearly 1,000 other small, independent cable businesses in the American Cable Association are obviously not the “cable giants” that DBS says it must compete against. Rather, we are and will be the competitor in smaller markets and rural areas. That’s why preserving competition in rural markets is vital. But it’s more than that. Right now direct broadcast satellite enjoys favored regulatory treatment that gives it a great advantage in the rural marketplace. Consider the following list and ask if this regulatory balance is fair. The average ACA member company serves 8,000 subscribers, more than 9,992,000 fewer subscribers than the post-merger DirecTV. Fox and DirecTV cannot seriously maintain that they need governmental help to compete against smaller market cable companies. REGULATORY BURDENS SMALL CABLE FOX/DIRECTV (Avg. 8,000 Subscribers) (10,000,000 Subscribers) · Must-Carry in all Markets *Must-Carry only in selected markets · Retransmission Consent *Retransmission Consent · Emergency Alert Requirements *Limited Public Interest Obligations · Tier Buy-Through · Franchise Fees · Local Taxes · Signal Leakage/CLI · Rate Regulation · Mandatory Carriage of Broadcast on Basic · Privacy Obligations · Customer Service Obligations · Public Interest Obligations · Service Notice Provisions · Closed Captioning · Billing Requirements · Pole Attachment Fees · Public File Requirements In smaller markets and rural areas, the regulatory disparity that exists between independent cable and DBS must be addressed if Congress and federal policymakers want to ensure that multiple providers of video service are there to provide choice to consumers. This means that Congress should reduce, or at least equalize, the regulatory burdens on smaller cable. IV. CONCLUSION Each one of the foregoing issues directly affects the market’s ability to: (1) provide competition and choice in smaller markets; (2) give consumers control over what they see on television and how much they pay for it; and, (3) deploy advanced new services in rural communities. My company and the members of the American Cable Association are here today alongside the giants of the television, cable, satellite and telecommunications world. Why should anyone here listen to what we have to say? Because the nature of our businesses makes us uniquely sensitive to the needs of small and rural markets. We serve nearly 8 million consumers in nearly all congressional districts and, in fact, every state represented on this Committee. The irony here is that the impact of these media ownership issues, if not addressed by Congress, will have the opposite outcome to what Congress desires. This potential outcome will not provide advanced new services, competition and choice for consumers in the smaller and rural marketplaces. The American Cable Association and its members are committed to working with the Committee to solve these important issues. I would like to sincerely thank the Committee again for allowing me to speak before you today. James M. Gleason James M. Gleason is the President and Chief Operating Officer of CableDirect and has held that position since December 1996. CableDirect is a cable television company managing and serving more than 40,000 subscribers in rural areas and small communities in the Midwest and Southeast United States. He is responsible for overall cable operations for his company. Previously, Mr. Gleason was President of Galaxy Cablevision. He has been in the cable television industry since 1986 and has prior experience in cable television system construction, marketing, customer service and operations. Currently, Mr. Gleason also serves as Chairman of the American Cable Association. In 1992, Mr. Gleason served as Chairman of the Board of the National Cable Television Cooperative, of which CableDirect is a member. He also serves on the Boards of Directors for the Southeast Missouri State University Foundation and Missouri Delta Medical Center. Mr. Gleason holds a Bachelor of Science degree in Business Administration from Southeast Missouri State University. BEFORE THE SENATE COMMITTEE ON COMMERCE, SCIENCE AND TRANSPORTATION TUESDAY, MAY 6, 2003 MEDIA OWNERSHIP AND CONCENTRATION TESTIMONY OF JAMES M. GLEASON CHAIRMAN – AMERICAN CABLE ASSOCIATION PRESIDENT and CHIEF OPERATING OFFICER – CABLEDIRECT SIKESTON, MO EXHIBITS 1. “Who Controls Your TV Set?” 2. U.S. Senate Channel Card 3. ACA Member Programming Pie Chart 4. ACA Member Programming Bar Chart 5. ACA Letter to Sen. McCain on media ownership, cable rates and programming increases; March 19, 2003