```

[Senate Hearing 113-544]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 113-544
 
                             STATE OF VIDEO

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

                                HEARING

                               before the

      SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 14, 2013

                               __________

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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California            JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           ROY BLUNT, Missouri
FRANK R. LAUTENBERG, New Jersey      MARCO RUBIO, Florida
MARK PRYOR, Arkansas                 KELLY AYOTTE, New Hampshire
CLAIRE McCASKILL, Missouri           DEAN HELLER, Nevada
AMY KLOBUCHAR, Minnesota             DAN COATS, Indiana
MARK WARNER, Virginia                TIM SCOTT, South Carolina
MARK BEGICH, Alaska                  TED CRUZ, Texas
RICHARD BLUMENTHAL, Connecticut      DEB FISCHER, Nebraska
BRIAN SCHATZ, Hawaii                 RON JOHNSON, Wisconsin
WILLIAM COWAN, Massachusetts
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
              David Schwietert, Republican Staff Director
              Nick Rossi, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
                                 ------                                

              SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, 
                            AND THE INTERNET

MARK PRYOR, Arkansas, Chairman       ROGER F. WICKER, Mississippi, 
BARBARA BOXER, California                Ranking Member
BILL NELSON, Florida                 ROY BLUNT, Missouri
MARIA CANTWELL, Washington           MARCO RUBIO, Florida
FRANK R. LAUTENBERG, New Jersey      KELLY AYOTTE, New Hampshire,
CLAIRE McCASKILL, Missouri           DEAN HELLER, Nevada
AMY KLOBUCHAR, Minnesota             DAN COATS, Indiana
MARK WARNER, Virginia                TIM SCOTT, South Carolina
MARK BEGICH, Alaska                  TED CRUZ, Texas
RICHARD BLUMENTHAL, Connecticut      DEB FISCHER, Nebraska
BRIAN SCHATZ, Hawaii                 RON JOHNSON, Wisconsin
WILLIAM COWAN, Massachusetts
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 14, 2013.....................................     1
Statement of Senator Pryor.......................................     1
Statement of Senator Wicker......................................     2
Statement of Senator Thune.......................................    35
Statement of Senator Fischer.....................................    35
Statement of Senator Johnson.....................................    37
Statement of Senator Warner......................................    39
Statement of Senator Begich......................................    42

                               Witnesses

Hon. John McCain, U.S. Senator from Arizona......................     3
Hon. Gordon H. Smith, President and Chief Executive Officer, 
  National Association of Broadcasters...........................     6
    Prepared statement...........................................     8
Hon. Michael K. Powell, President and Chief Executive Officer, 
  National Cable & Telecommunications Association................     9
    Prepared statement...........................................    11
R. Stanton Dodge, Executive Vice President and General Counsel, 
  DISH Network L.L.C.............................................    15
    Prepared statement...........................................    16
John Bergmayer, Senior Staff Attorney, Public Knowledge..........    19
    Prepared statement...........................................    21

                                Appendix

Response to written questions submitted to Hon. Gordon H. Smith 
  by:
    Hon. Mark Pryor..............................................    55
    Hon. Barbara Boxer...........................................    55
    Hon. Amy Klobuchar...........................................    55
Response to written questions submitted to Hon. Michael K. Powell 
  by:
    Hon. Mark Pryor..............................................    56
    Hon. Barbara Boxer...........................................    57
    Hon. Amy Klobuchar...........................................    57
    Hon. Marco Rubio.............................................    58
    Hon. Dean Heller.............................................    61
Response to written questions submitted to R. Stanton Dodge by:
    Hon. Mark Pryor..............................................    61
    Hon. Barbara Boxer...........................................    61
    Hon. Amy Klobuchar...........................................    62
    Hon. Dean Heller.............................................    62
Response to written questions submitted to John Bergmayer by:
    Hon. Barbara Boxer...........................................    63
    Hon. Amy Klobuchar...........................................    64
    Hon. Marco Rubio.............................................    64
    Hon. Dean Heller.............................................    64

                             STATE OF VIDEO

                              ----------                              

                         TUESDAY, MAY 14, 2013

                               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 10:32 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Mark Pryor, 
presiding.

             OPENING STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. I would like to call our hearing to order, 
and I want to say good morning and want to thank everyone for 
being here this morning.
    And we have two panels today. I want to thank all of our 
panelists for being here.
    And this morning, this Communications Subcommittee's 
hearing is going to be on the ``State of Video.'' Again, I want 
to thank everyone for their participation and their input 
today.
    This is the second in a series of hearings on the state of 
communications in the United States. It is my hope that it will 
help subcommittee members and the public have a better 
understanding of the current policy issues that people in the 
communications sector face.
    Today we are focused on issues of importance to consumers 
on video services. As we all know, the video industry has 
changed dramatically in the last decade, particularly in light 
of two things: Internet video and wireless video.
    The increased adoption of broadband has changed the manner 
in which Americans watch video programming, bringing both 
opportunities and challenges to consumers and companies in the 
video marketplace. Wireless video continues to put pressure on 
the use and availability of spectrum.
    Our witnesses today will tell us how consumers are 
navigating and taking advantage of this ever-changing 
environment. We will also hear from panelists about their 
concerns and views on a number of policy issues, including some 
that have been in place since the Cable Act was enacted over 20 
years ago and others even longer than that.
    Many of these issues were discussed last summer before a 
full committee hearing, and I think it is helpful that, with 
our new and returning members, we hear from witnesses on their 
views on this matter. Most importantly, we want to hear about 
our current policies and the dynamic market that is affecting 
the consumer. Is the consumer receiving the services, channels, 
and shows that he or she wants, and are these products 
affordable?
    Before we go to our panel discussions, I would like to ask 
Senator Wicker to say a few words.

              STATEMENT OF HON. ROGER F. WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Wicker. Thank you very much, Chairman Pryor, and 
thank you for holding this hearing on the state of video. This 
is the second in our Subcommittee's ``state of'' communications 
hearings. This is a good time to examine the truly vibrant, 
growing, and multifaceted video marketplace.
    Today's video marketplace is radically different from the 
one that existed two decades ago, when the only options for 
consumers were over-the-air broadcasting and cable television. 
The advent of the World Wide Web has given consumers a 
seemingly endless host of avenues to receive video content. 
There are cable and satellite services, there are Verizon's 
FIOS and AT&T's U-verse services, as well as so-called over-
the-top options, such as Netflix, YouTube, iTunes, and Hulu, 
which grow in popularity each day.
    The unregulated video media marketplace has truly thrived. 
As a member of this subcommittee, I am eager to learn how 
policymakers can ensure that the video delivery ecosystem 
continues on this path of exponential growth, fostering 
policies that encourage innovation rather than hindering it.
    We need to focus not only on the current marketplace but, 
more importantly, on the future of video. We need to identify 
not only where the market has been but where it is going.
    To that end, I would like to thank our witnesses for 
testifying today. These industry and consumer representatives 
are able to bring diverse experience and expertise on the 
current state of video, and I look forward to hearing from 
them.
    I am particularly interested in hearing their perspectives 
on the state of video in rural America. Out of 22 members on 
this Communications Subcommittee, at least 17 represent what 
would be considered rural states. So viewpoints on the unique 
challenge of these areas would be appreciated.
    I would also like to recognize the tangible presence each 
of the three industries represented today have in rural 
America, particularly in my home state of Mississippi.
    First, broadcasting. From forecasting storm coverage and 
issuing tornado and hurricane alerts to helping first 
responders, broadcasters have been an invaluable resource to 
Mississippians during times of natural disasters. One example 
occurred in February, when tornadoes devastated Petal, 
Mississippi. In March, a major hailstorm caused major damage in 
Jackson, Mississippi. In each case, local radio and television 
stations were the lifeline when cable and cell towers were 
down. I would like to publicly thank them for their service to 
my constituents.
    And, actually, I misspoke, Mr. Chairman. It was not just 
Petal, Mississippi. It was vast portions of Hattiesburg as well 
as Lamar County, Mississippi, with that devastating tornado.
    As with Arkansas and West Virginia, Mississippi has a 
number of rural, remote areas that make it difficult to reach 
via traditional infrastructure. There, satellite providers, 
such as DISH and DIRECTV, have stepped up, providing access to 
competitive, quality video and broadband resources. The 
satellite industry serves approximately 450,000 households and 
businesses in my state. Many of its dishes are prominently 
visible at football tailgate parties during the autumn in 
Mississippi.
    And, finally, cable has demonstrated a strong commitment to 
broadband adoption, investing $200 billion since 1996 to build 
broadband infrastructure across the country. Cable has created 
partnerships with the Federal Government and private sector to 
increase broadband delivery to low-income households that need 
it most. This includes a company called Comcast, which started 
with one small cable system in Tupelo, Mississippi, in 1963. 
They wandered off to Pennsylvania. They are celebrating their 
50th anniversary this year. And we want you back in Tupelo.
    [Laughter.]
    Senator Wicker. Again, thank you, Mr. Chairman, for holding 
this timely hearing. I think the attendance we already have 
testifies to the importance of it. And I look forward to 
hearing from all of our witnesses and having a healthy debate 
on video marketplace issues.
    Finally, I would like to welcome my friend, colleague, and 
a former Chairman of this committee, the warm and cuddly senior 
Senator----
    [Laughter.]
    Senator Wicker.--from Arizona, John McCain, who is here to 
give a statement on legislation he recently introduced 
regarding the pay-TV market.
    So welcome back, Senator McCain.
    And thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Before we hear from our industry panel, we would like to 
extend a very special welcome to Senator McCain. As a former 
Chairman of the full Commerce Committee and longstanding member 
of this committee, he has long expressed his interest in these 
issues.
    And we are happy to hear your thoughts on the current state 
of the video marketplace. Senator McCain?

                STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    Senator McCain. Thank you very much, Chairman Pryor and 
Ranking Member Colonel Wicker. I thank you for your warm words 
of welcome. And it is great to be back in a Committee that I 
enjoyed as much or more than any that I was ever privileged to 
be part of, with a myriad of incredible and fascinating issues 
that are part of an ever-changing world that we live in.
    As you know, I introduced the Television Consumer Freedom 
Act, and the bill would give consumers the option to purchase--
and I emphasize ``option''--to purchase television channels on 
a per-channel basis, which is also known as ``aa la carte,'' 
rather than tiers of programming that are currently offered by 
satellite and cable companies.
    Basically, I support aa la carte and I believe most 
Americans do for the basic reason that consumers shouldn't have 
to pay for television channels they don't watch and have no 
interest in watching. The Television Consumer Freedom Act uses 
existing statute and regulations as incentives to encourage the 
retail and wholesale distribution of television channels on an 
aa la carte basis.
    Opponents will say that Government should stay out of the 
television industry, but obviously that overlooks the 
Government's existing presence throughout the market in the 
form of legal benefits like the compulsory copyright license, 
indicated exclusivity, and network nonduplication, which is 
rife with government involvement.
    It is time to restore the proper operation of the market by 
empowering American consumers. It has already garnered the 
support of the Consumers Union and Free Press.
    They recognize that aa la carte channel options are the 
right thing to do and popular with consumers, in large part 
because, as we all know, of dramatically rising cable prices, 
which are dramatically exceeding the cost of living.
    According to the most recent FCC pricing survey, since 1995 
the average monthly cable bill for expanded basic service--that 
is the most popular tier--has gone up from about $25 a month to 
$54 a month today. That is a 6.1 percent annual increase, a 
more than 100 percent total price hike over the past 16 years.
    Considering the following story offered by a cable 
executive on the significance of aa la carte. He says, quote, 
``My next door neighbor is 74, a widow. She says to me, `Why do 
I have to get all that sports programming?' She has no idea 
that in the course of the year, just for ESPN and ESPN2, she is 
sending a check to Disney for about $70 even though she doesn't 
watch it. She would be apoplectic if she knew.''
    Particularly in today's challenging economy, $70 is an 
amount of money for a lot of Americans. I am a sports fanatic, 
and I love ESPN. I stay awake many nights watching games back 
in Arizona with a horrible three hour time change. And while I 
would never go without ESPN, the fact is that the majority of 
TV consumers have no interest in sports programming and 
shouldn't be forced to purchase it.
    Many of these Americans are beginning to realize that 
included in their cable bill is a charge of about $10 a month 
just to carry sports programming like ESPN, which costs nearly 
$5 a month, far more expensive than any other cable, and even 
less popular channels like regional sports networks, which can 
be almost as expensive.
    Also, we address bundling, which is when individual 
channels are tied together by a television programmer and sold 
to a pay-TV company in packages. Once again, do consumers 
actually want bundles? The answer is obviously no.
    According to Nielsen statistics, in 1995 the average cable 
household was sold 41 channels and tuned in to 11. In 2008, the 
last year that these statistics were compiled, the average 
cable household was sold 130 channels but tuned in to only 18. 
These excess channels are obviously driving up cable bills.
    Companies like Viacom don't sell channels like MTV and VH1 
individually but rather bundle them together, which then leaves 
pay-TV companies with little choice but to do the same thing to 
consumers.
    This bill says if you bundle your programming on the 
wholesale level, then you must unbundle, that is, distribute 
your programming aa la carte, too. So the choice remains with 
the programmer, and the outcome for the consumer is aa la carte 
and a lower cable bill.
    In addition to aa la carte, it also ensures that the public 
spectrum resources are used in the most efficient and publicly 
beneficial ways possible.
    Finally, we want to end blackouts for teams that play in 
publicly financed stadiums. Those stadiums are publicly 
financed by the taxpayer. And today the practice of the NFL is 
that if they don't sell out the stadium, then all the people in 
that area don't get to see the game. I think that is 
outrageous.
    Now, if that stadium is not taxpayer-financed, then that 
owner can do anything they want to with it. But if the 
taxpayers pay for it, then, by God, I think that the taxpayers 
ought to be able to see the game, whether they sell out the 
stadium or not.
    Obviously, I am a sports fan, as you can easily tell.
    [Laughter.]
    Senator McCain. So I believe the consumers are at a tipping 
point when it comes to their monthly pay-TV bill. In my view, 
the aa la carte option is a nonregulatory and consumer-friendly 
way to provide consumers with the freedom to lower their bills 
and pay only for what they watch.
    I hope that this committee will examine this issue. I truly 
believe that a lot of Americans are fed up with the size of 
their cable bill. And they ought to be able to do the same 
thing we are able to do when we walk into a restaurant and not 
have to buy everything on the menu in a bundle. We can pick out 
what we want and choose it.
    And I thank my colleagues for allowing me to appear, and I 
look forward, if you choose, to any questions, comments, or 
insults that you might have for me.
    [Laughter.]
    Senator McCain. Thank you very much.
    Senator Pryor. Thank you, Senator McCain. And you are 
certainly welcome to join us and ask questions of the next 
panel if you would like. Thank you for being here today.
    Senator McCain. I am sure they look forward to that.
    [Laughter.]
    Senator Pryor. Well, we do. I don't know if they do, but we 
do. Thank you.
    Senator McCain. Thank you.
    Senator Pryor. You are welcome.
    And if I could ask the next panel to come up, please, and 
take your seat at the table. We appreciate that.
    As they get situated here, I will just go ahead and 
introduce them in order to save some time.
    First, we have Senator Gordon Smith, President and CEO of 
the National Association of Broadcasters. Next, we are going to 
have former FCC Chairman Michael Powell, President and CEO of 
the National Cable and Telecommunications Association. Next, we 
will have R. Stanton Dodge, Executive Vice President and 
General Counsel of DISH Network. And then we will have John 
Bergmayer, Senior Staff Attorney for Public Knowledge.
    Now, with all of these, we would ask them to give an 
opening statement. We have their written statements in the 
record. We would ask that each would, if possible, keep their 
opening statements to 5 minutes.
    First, Senator Smith.

    STATEMENT OF HON. GORDON H. SMITH, PRESIDENT AND CHIEF 
    EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF BROADCASTERS

    Mr. Smith. Good morning, Chairman Pryor, Ranking Member 
Wicker, members of the Committee. It is always a privilege to 
be in this room, whether on your side of the dais or mine. It 
is nice to be back.
    As you know, I have the great honor of advocating on behalf 
of America's local radio and television stations. Stations play 
a vital role in informing, protecting, and entertaining every 
local community across this great nation. And that is never 
more apparent than when a disaster strikes, as Senator Wicker 
noted, reminding us of broadcasters' important role as first 
informers.
    We have seen this time and again. In Arkansas, in 
Mississippi, you saw the largest tornado outbreak that took 
hundreds of lives across the South. Whether an earthquake in 
Washington, D.C., a hurricane in New York, or a terrorist 
attack in Boston, I have no doubt that each of you can tell a 
similar tragic story from your own state.
    But I am also confident that each story involves a response 
by your local broadcast stations. These stations kept residents 
safe. And when there was no cable, no satellite, no broadband, 
no cell, no phone service, broadcasters were there to provide a 
lifeline to their communities. When it was time to rebuild, 
local stations were there for their neighbors in need, holding 
fundraisers and food drives to help them get through the 
hardest of times.
    So I ask you, is this not a public good? Isn't this a role 
that should be supported? Because if broadcasters are not there 
to serve in this role as first informers, who will?
    Even with all the spectrum in the universe, the wireless 
industry's one-to-one delivery system could never match our 
unique architecture and our ability to broadcast to masses for 
large events. It is crucial that broadcasting and broadband 
work hand-in-hand to offload congested wireless systems and 
deliver the content consumers want and the emergency 
information they need.
    In this regard, it is also critical that Congress 
implemented the necessary safeguards in the legislation 
granting voluntary incentive auction authority. While these 
auctions will present an enormous challenge to the FCC, to your 
constituents, and to local broadcasters, we stand ready to roll 
up our sleeves and conclude this auction in a successful and 
timely fashion.
    Broadcasters not only inform, we entertain. As content 
producers, we create the most watched shows on TV. In fact, 96 
of the top 100 shows were on broadcast television last year. 
This content is valuable to viewers, to stations that supply 
it, and to the companies that retransmit it.
    Broadcasters' ability to serve our local communities, to 
produce the best shows on television, and to deliver that 
content free to over-the-air viewers is sustained by two 
revenue streams: one, paid advertising; and the other, fees 
paid to us by those who rent our signals and sell our content 
to paying subscribers.
    Without this economic foundation, we could not do what we 
do. This revenue enables stations to meet their primary goal: 
serving the public interest. And policy decisions that threaten 
this economic foundation could cripple an industry that 
provides an indispensable, even irreplaceable, lifeline service 
to Americans.
    I am always surprised when some of our competitors try to 
describe broadcasters as ``yesterday,'' as part of a bygone 
era. I have to ask these critics, what is it about free and 
live and local that you don't like?
    Our communities not only like broadcasting, they depend on 
it. And despite a changing media landscape, broadcast 
television is as relevant today as ever. When TV stations 
transitioned from analog to digital transmissions in 2009, it 
revolutionized free and local TV, providing viewers more 
choices than ever before.
    Most stations offer extra channels called multicast 
channels that deliver diverse and hyper-local content. It is 
coverage of local sports and community events, your local 
weather and traffic matched to your ZIP code, and programs 
reflecting vast languages and cultures and amplifying the 
voices of women and minorities in our communities.
    Broadcasters continue to innovate and deliver the content 
viewers want when and where they want it, including interactive 
TV customized to your needs that we are sending to tablets, 
cars, and smartphones. The future of TV is mobile and on the go 
and more vibrant than ever. In the past month alone, we have 
seen new services rolling out to viewers. Networks are 
investing in and launching mobile services to provide viewers 
with live local and national TV on all their devices and even 
on demand.
    We also saw just last month at the NAB show--and I 
encourage you all to see this when you can--ultra-high-
definition broadcasting, which to my eyes was literally 3-D 
without glasses. The picture is simply astonishing.
    Consumers have limitless options for content and countless 
ways to access programming, and yet they continue to turn to 
broadcasting more than any other medium. That is an enduring 
value we provide.
    I would ask you that as you consider public policy that 
impacts the future of this great industry, remember the unique 
and critical services local stations deliver and consider the 
consequences of decisions that could impact broadcasters' 
ability to serve our communities and to serve your 
constituents.
    I thank you very much.
    [The prepared statement of Mr. Smith follows:]

    Prepared Statement of Hon. Gordon H. Smith, President and Chief 
        Executive Officer, National Association of Broadcasters
    Good morning, Chairman Pryor, Ranking Member Wicker and members of 
the Subcommittee. Thank you for inviting me back to my former committee 
to testify before you today. Though I cherished my time in the U.S. 
Senate, it is an honor for me to now advocate on behalf of our 
country's local radio and television stations as the President and CEO 
of the National Association of Broadcasters.
    In my view, the state of broadcast video services is very bright. 
In fact, recent data show that the number of viewers accessing 
television over-the-air has dramatically increased in recent years. 
Today 54 million American's rely solely on over-the-air television. 
Nearly 18 percent of households are watching television with an 
antenna.
    These new over-the-air viewers include young people, low-income 
families and minorities. A GfK Media report from last year shows that 
the effects of the economic downturn, increasing subscriber fees for 
cable and satellite TV, and the plethora of new broadcast options in 
the digital age have led consumers to embrace broadcast television.
    Some of this resurgence can also be attributed to technological 
advances in broadcast TV. The television industry is approaching the 
fourth anniversary of the transition to all-digital distribution. By 
almost any measure, the transition and broadcasters' embrace of digital 
technology have been an enormous success. Nearly every major television 
broadcaster now provides its content to viewers in crystal-clear high 
definition over-the-air for free. Most stations also offer anywhere 
from one to up to three additional ``multicast channels.'' These extra 
channels contain new and diverse program content, much of which is 
local in nature or specific to niche audiences. These stations provide 
all of this within the same 6 MHz of spectrum that previously held just 
one analog channel. In fact, today there are 660 multicast stations now 
offering niche, richly diverse and hyper-local programming to viewers. 
These new, free, digital over-the-air services actually double, and, in 
some cases, more than triples, the number of channels available.
    Indeed, broadcasters' ability to multicast has led to the rise of 
new national networks, including many that specialize in delivering 
diverse content to ethnic and niche audiences, such as Bounce TV, 
Estrella, Live Well and MeTV. I anticipate continued growth as new 
networks expand their audiences with increasingly diverse and 
compelling programming. Multicasting also offers the added benefit of 
lowering barriers to broadcast ownership, offering new opportunities 
for women and minorities.
    With these exciting developments in mind, the continued growth and 
evolution of our platform relies on access to the valuable commodity of 
spectrum. We thank this Committee for the necessary safeguards included 
for television broadcasters in the legislation granting voluntary 
incentive auction authority. While this auction will present a 
challenge, not only to the FCC but also to local broadcasters, we stand 
ready to roll up our sleeves and help in any way possible to conclude 
the auction in a successful and timely fashion to the benefit of 
consumers and the public's safety. To that end, NAB urges the Senate 
Commerce Committee to be vigilant in its oversight of the broadcast 
incentive auctions. Incentive auctions themselves are unprecedented, 
and the television spectrum auction will have a direct impact on 
millions of viewers, very likely exceeding that of the digital TV 
transition.
    Beyond the auctions, we are focused on the future of broadcasting 
and how it can, and should, continue to play a vital role in our 
Nation's communications system moving forward. Beyond continuing to 
serve viewing audiences and local communities as we always have, the 
broadcast industry's evolving technology will be a critical complement 
to wireless broadband. Just as wireless companies are upgrading their 
technology, from 3G to LTE and beyond, broadcasters will also be 
upgrading, and the results will have an extraordinary impact on how 
viewers consume broadcast television.
    Broadcasters are innovating and working to find new and different 
ways to serve our audiences. From offering live over-the-air content to 
smartphones, tablets and the next generation of devices, our goal is 
offering the highest quality programming and local content everywhere 
the viewer is watching.
    The television broadcast industry is aware of some calls from pay-
TV companies to dismantle the legal framework for video programming 
distribution. These companies want Congress to change the laws and 
regulations that have successfully governed the video marketplace. 
These laws have a single purpose. They are designed to ensure fair 
competition in a highly competitive media market and maximize the 
diversity, quality and affordability of television service to the 
American people. This legal framework works because it serves the needs 
of television viewers and reflects the actual business relationships 
between broadcasters and pay-TV providers. The system is not broken, 
which leads me to question the calls to fix what is successfully 
working in practice every day. I would argue that changing these laws 
is not in the public's best interest and will do nothing more than pick 
winners and losers in what is today a very competitive marketplace.
    Ironically, calls for ``reform'' are in the midst of what I'd 
consider the ``Golden Age'' of television. Consumers have been the 
beneficiary of what is the most competitive video landscape we have 
ever seen. There are platforms and programming options available that 
did not exist just a few years ago. Viewers are able to access content 
when and where they want. Congress has helped to successfully unleash 
competition, and in turn, it has created the most robust, vibrant video 
landscape in history.
    For broadcasters, as video distributors and as content creators, 
that means we must continue to offer free high-quality, over-the-air, 
locally-oriented service that competes head-to-head with nationally-
oriented pay-TV platforms, hundreds of non-broadcast subscription 
networks, and other numerous programming sources. And we are doing just 
that. As I said above, as a video distribution platform, reliance on 
over-the-air antenna reception continues to grow. As content creators, 
an average of 96 of the top 100 television shows every week are 
consistently on broadcast television.
    Lastly and most importantly, broadcasters are committed to 
providing a valuable public service to every community--big and small--
across our great nation. This localism is at the heart of what 
broadcasters provide each day to their listeners and viewers. Localism 
is keeping communities informed of the news that matters most to them, 
such as severe weather and emergency alerts, school closings, high 
school sports, local elections and public affairs. Localism is 
supporting local charities, civic organizations and community events. 
Local broadcasters help create a sense of community.
    Locally-based broadcast stations are also the means through which 
local businesses educate and inform the public about their goods and 
services, and in turn, create jobs and support local economies. They 
address the needs of their communities, based on a familiarity with and 
commitment to the cities and towns where they do
    business. Television broadcasters do all of this every day. We 
reinvest in our communities and are there when our viewers need us 
most. It is a public good that cannot be replaced. I would ask that 
you, as policymakers, ensure that changes to laws and regulations do 
not harm this unique and crucial local television broadcasting system.
    Thank you for inviting me here today, and I look forward to 
answering your questions.

    Senator Pryor. Thank you.
    Chairman Powell?

         STATEMENT OF HON. MICHAEL K. POWELL, PRESIDENT

         AND CHIEF EXECUTIVE OFFICER, NATIONAL CABLE & 
                 TELECOMMUNICATIONS ASSOCIATION

    Mr. Powell. Good morning, Mr. Chairman and members of the 
Subcommittee. My name is Michael Powell, and I am the President 
and CEO of the National Cable and Telecommunications 
Association. Thank you for inviting me to testify on the state 
of video.
    The video world is undergoing exceptional transformation. 
The power of technology and the insatiable consumer appetite 
for video content are remodeling the video marketplace. It is 
both exciting and challenging for companies working to deliver 
value to the American consumer.
    Gazing into the future is always hazardous, but a few 
critical trends paint a picture of what is possible in the 
emerging video landscape.
    Video is flooding into every crevice of American life. From 
the moment video content could be digitized, the rise of 
streams of video anywhere and everywhere was inevitable. Video 
will be as ubiquitous as the Web itself. In fact, today, as of 
this morning, nearly 68 percent of all Internet traffic today 
is video. And as one CEO recently described it, ``The Internet 
has not invaded the TV as much as the TV has invaded the 
Internet.''
    And as Internet traffic is able to crawl across the Web and 
Internet protocols, it can surface on nearly any screen with an 
Internet connection. This is why we have seen such a great 
renaissance in video on devices like iPads and smartphones.
    Now, diversity has long been a paramount public policy 
objective in this country. In the world we are stepping into, 
we will see content of every conceivable stripe--every genre, 
short clips and long series, programming from every ethnic and 
racial community, and every political viewpoint with a voice, 
individuals who make videos in their basements, while large 
studios produce some of the most compelling stories in visually 
arresting formats.
    But the video story will not just be about more of 
everything. It will also become a more dimensional experience. 
TV was the original social network, driving water cooler 
conversations about a favorite show. But social network 
platforms will expand TV conversation and make it much more 
contemporaneous. We see growing second screen TV watching as 
consumers post and tweet along with their viewing.
    Now, my kids have grown up digital and have come to expect 
highly personalized products and the ability to interact with 
them. As the video model evolves, expect to see channel lineups 
that are personalized and recommendation engines that modify 
content choices to your preferences.
    Choice is good. But we sometimes hear from consumers the 
frustration of finding something to watch. Curating consumer 
retail offerings in a simple and useful way will still have 
value to many families navigating their options.
    As Reed Hastings of Netflix recently noted, ``Instead of 
trying to have everything, we should strive to have the best in 
each category.''
    The cable industry has long been an innovative force in the 
TV landscape and is working hard to bring much of this vision 
into reality. The industry has unveiled applications to move 
content out of the TV set and into portable devices.
    Our companies have worked to shrink the aggravation of the 
set-top box by offering cable service over devices consumers 
already own or may prefer, like an Xbox or a Roku. New 
platforms are emerging that will put program guides and other 
consumer tools and services in the cloud, thereby vastly 
improving the pace and quality of innovation.
    It is critical to note that, as broadband providers, we 
continue to invest massively in the networks that make so much 
of this vision possible. We have invested over $200 billion 
since 1996 and invest $13 million per year continuously. As a 
result of this investment, we are increasingly pushing Internet 
speeds over 50 percent a year, just a 1,000 percent increase in 
the last decade.
    Beyond the confines of the home, we are opening up the 
airwaves to video and Internet access by deploying major wifi 
networks across our markets. This transition will be chaotic 
and convulsive at times. As the market remodels itself, it will 
put a strain on the existing video models that we will all have 
to work through.
    The cable industry is highly focused on meeting several key 
challenges: First, we need to innovate faster to meet the 
changing habits of consumers. Second, we need to continue 
working on greater flexibility for consumers in channel 
offerings while continuing to deliver the content they love. 
And, third, we need to manage the costs of our service to 
ensure that we are attentive to the affordable constraints of 
consumers.
    Senator, the 1992 Act that currently governs the video 
marketplace for incumbent providers is frayed, increasingly 
incomplete, and out of sync with the realities of the 
marketplace. But knowing that something is broken doesn't tell 
you what should replace it. We are not presently calling for a 
comprehensive rewrite of the video laws because we believe that 
in this fast-moving period it is difficult to try and ink an 
effective, full-scale comprehensive regime.
    But this is not to say everything is fine with the existing 
law, however. Rather, we believe it more prudent to evaluate 
changes more surgically and deliberately as they arrive.
    The state of video is a critical topic worthy of 
discussion. I thank you for holding this hearing and for your 
attention. I look forward to your questions.
    [The prepared statement of Mr. Powell follows:]

Prepared Statement of Michael K. Powell, President and Chief Executive 
        Officer, National Cable & Telecommunications Association
    Good morning Mr. Chairman and Members of the Subcommittee. My name 
is Michael Powell and I am the President and Chief Executive Officer of 
the National Cable & Telecommunications Association. Thank you for 
inviting me today to testify on the state of video. We welcome this 
important hearing.
Cable Always Has Been an Innovative Force in Video
    From its beginning, cable has driven innovation and transformation 
in the video business. Cable was founded to make broadcasting better--
bringing it to suburban and rural areas outside the reach of over-the-
air reception. We made programming better--breaking the lock of the 
three channel universe by investing billions in original content that 
appeals to specialized audiences as well as the mass market, and 
building award-winning iconic brands like CNN, ESPN, HBO, CNBC, C-SPAN, 
History and Discovery. We were first to unshackle consumers from 
``appointment TV'' with video on demand and the wide deployment of 
DVRs.
    When we turned to areas other than video, the results were similar. 
In 1996, Congress wanted telephone competition and cable delivered it. 
Today, one in three households that have wireline phone service receive 
it from a cable operator.
    And then there is broadband. Where high-speed data service was once 
the purview only of businesses, cable operators brought broadband 
Internet service to residential subscribers. This was not serendipity. 
The industry borrowed heavily and took enormous risk by ripping out its 
one-way analog network and replacing it with a higher capacity, two-way 
digital platform that made broadband possible. Cable broadband speeds 
have increased at a 50 percent annual rate \1\ since being introduced 
in 1996 and are projected to continue on that arc for the foreseeable 
future. Cable operators have also extended the reach of their broadband 
service through extensive Wi-Fi networks, offering more than 150,000 
hotspots at present and that figure has been growing rapidly. To put 
that footprint in perspective, AT&T's Wi-Fi network, which can be found 
in Starbucks, McDonald's, Barnes & Noble, FedEx offices and other 
locations, includes 32,000 hotspots.\2\ All of that in turn has enabled 
consumers to receive high-quality video over the Internet and on mobile 
devices.
---------------------------------------------------------------------------
    \1\ ARRIS Group Inc. 2012 Investor & Analyst Conference, Aug. 8, 
2012, slide 29, available at http://phx.corporate-ir.net/
External.File?item=UGFyZW50SUQ9NDc2MTUwfENoaWxkSUQ9N
TA4NTk3fFR5cGU9MQ==&t=1.
    \2\ See AT&T Wi-Fi Hotspots, AT&T, http://www.att.com/shop/
wireless/wifi.html#fbid=xu0Ri
NIAQ3F.
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Today's Golden Age of Video
    From the consumer's standpoint, the state of video has never been 
stronger. Consumers today enjoy (1) more content, (2) higher quality 
programs, (3) more variety and diversity in video content, (4) more 
sources for video content, offering different types of content in a 
variety of packages and at a variety of price points, (5) a greatly 
enhanced capacity to select, manipulate and record video content; and 
(6) the ability to access video on an increasingly wider range of 
devices.
    There are hundreds of video programming networks, presented in 
brilliant HD quality. This is an enormous expansion from just 20 years 
ago. Artists and creators are producing some of the most compelling 
programs ever and cable is their preferred palette. In the most recent 
award seasons, cable programming won 10 of the 11 TV Golden Globes and 
57 percent of Primetime Emmys. Acclaimed series such as ``Game of 
Thrones,'' ``Breaking Bad,'' and ``Homeland'' are some of the most 
accomplished dramas ever.
    Public policy has always been concerned about diversity of 
viewpoints and niche programs for smaller yet passionate audiences. The 
cable model brought that ambition to fruition. The cable dial runs the 
gamut--from compelling scripted dramas, situation comedies, educational 
content, and kids programming, to sports, cooking shows, and news and 
public affairs. Simply put, if you fish, cook, workout, love music, 
crave sports, gorge on politics, admire dance, have a thing for duck 
hunting, or want programming in your native language or reflective of 
your community, you will find it on cable.
    If you are itching to watch video, the number of sources you can 
turn to has grown exponentially as different providers compete for your 
business. You may subscribe to cable television and get 150 or more HD 
channels, the latest premium content and live events, video on demand 
and the ability to record and watch at your convenience on a DVR. You 
can get a very similar experience from DIRECTV and Dish. In many 
markets, you can also choose service from AT&T U-verse, Verizon FiOS, 
or CenturyLink's nascent Prism TV. And Google Fiber is expanding to 
more cities.
    Cable also is working to bring better video experiences to 
consumers wherever and whenever they want, offering, for example, 
applications that allow subscribers to watch their cable service on 
their iPads. Cable's ``TV Everywhere'' initiative makes it possible for 
our customers to watch video content they have already paid for on 
their laptops, tablets, smartphones and other portable devices--no 
matter where they are. And many cable networks allow viewers to access 
their programming outside their multichannel video programming 
distributor (``MVPD'') subscription. Sprint, for example, offers its 
mobile subscribers access to a wide variety of popular full-length 
video programs from networks like MTV, Nickelodeon, Comedy Central, 
Style, Discovery Channel and many more.
    If that were not exciting enough, Internet-delivered video has 
ushered in an even greater explosion of choice. By one estimate, real-
time video streaming represents 65.2 percent of downstream Internet 
traffic in North America during prime time evening hours.\3\ The U.S. 
online video market attracts an average of 75 million viewers every day 
and streams nearly 40 billion videos per month.\4\ Revenue from video 
content delivered over the Internet to televisions ``is expected to 
grow from $2 billion in 2009 to over $17 billion in 2014.'' \5\ The 
largest subscription video provider in the country today is Netflix--
not Comcast, Time Warner Cable, DIRECTV or any other MVPD.
---------------------------------------------------------------------------
    \3\ Global Internet Phenomena Spotlight 2H 2012 North America, 
Fixed Access, Sandvine Incorporated, Nov. 6, 2012.
    \4\ US Digital Future in Focus, Comscore (Feb. 2012).
    \5\ U.S. Dep't of Justice, Competitive Impact Statement, United 
States v. Comcast Corp., No. 1:11-cv-00106 (D.D.C. Jan. 18, 2011), 
available at http://www.justice.gov/atr/cases/f266100/266158.htm.
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    If market failure is characterized by a lack of new entry, there is 
clearly no failure in the video marketplace. Companies that stream 
content are proliferating: Netflix, Hulu, Amazon, iTunes, CinemaNow, 
Network websites, HBOGo, Apple TV, and user-generated or special 
interest sites like YouTube, Vimeo, and TED.com are a few. In fact, 
YouTube recently announced a subscription video service.\6\ Some of 
these services offer multichannel programming like an MVPD; others 
specialize in entertainment programming, movies, or on-demand content. 
With their smaller array of programming and emphasis on older content, 
they generally offer consumers a lower priced option than cable and 
other MVPDs. And many more offerings are anticipated from the likes of 
Intel and Sony.
---------------------------------------------------------------------------
    \6\ New Ways to Support Great Content on YouTube, YouTube (May 9, 
2013), http://youtube-global.blogspot.com/.
---------------------------------------------------------------------------
    And web video is not limited to a PC screen any more. Analysis of 
data from Nielsen suggests that 65 percent of Netflix streaming is 
viewed on television sets.\7\ Computers can connect to big screen 
televisions; content can be beamed to sets using functions like Apple 
Airplay; box companies like Roku, TiVo and Boxee can deliver web video 
to the TV set; and manufacturers like Samsung are making the Flat Panel 
TV web enabled, with apps incorporated for accessing video content. One 
study estimates that at least 44 percent of U.S. households have a 
television set connected to the Internet, through an Internet-ready TV, 
game console, standalone Blu-ray player or smart set-top box connected 
to their home network.\8\ Smartphones and iPads have proliferated as 
compelling devices for consuming video content and enjoying second-
screen experiences. Of note, when measured together, the share of all 
hours spent watching streaming video on tablets and mobile phones 
increased 100 percent in 2012.\9\
---------------------------------------------------------------------------
    \7\ NCTA analysis of data from The Cross-Platform Report, Quarter 
2, 2012-US, Nielsen (Nov 2012).
    \8\ Over Half of Adults Watch Video on Non-TV Devices Weekly, 
Leichtman Research Group, Inc. (May 2, 2013), available at http://
www.leichtmanresearch.com/press/050213release.html.
    \9\ Global Video Index, 2012 Year in Review, Ooyla, available at 
http://go.ooyala.com/rs/OOYALA/images/Ooyala-Global-Video-Index-Q4-
2012.pdf.
---------------------------------------------------------------------------
    For some consumers, online video offerings are good enough to cut 
or shave the cord. According to one report, ``3.74 million (3.7 
percent) U.S. TV subscribers cut their TV subscriptions 2008-12 to rely 
solely on'' online video and over-the-air for their video 
entertainment.\10\ Yet for most consumers, online video has developed 
as a supplement to their broadly diverse MVPD service. It enables them 
to add even more of a particular type of video content--whether it be 
movies or music--to the live events and new programming available from 
the MVPD. There are still millions of new customers subscribing to our 
service for the first time--or returning to us--because of the HD, on-
demand, multi-screen and other advanced video offerings we make 
available.
---------------------------------------------------------------------------
    \10\ The Battle for the AmericanCouch Potato: Online &Traditional 
TV and Movie Distribution, The Convergence Consulting Group Ltd. (Apr. 
2013), available at http://convergenceonline.com/downloads/
USNewContent2013.pdf.
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    As always, the cable industry is responding to changes in 
technology and in the marketplace in order to stay ahead of the curve 
and provide leading-edge services to its subscribers. The opportunities 
presented by broadband are great. While there are some challenges--any 
network that is shared by many users must cope with congestion and 
ensure all users get quality service--we continue to see great 
potential in our networks. We are investing billions annually to ensure 
that this potential can be realized by keeping pace with the dynamic 
marketplace and consumers' changing needs and interests.
    Cable's business incentives in today's marketplace are fully 
aligned with the interests of consumers. The path to continued growth 
for cable is to enhance and expand its customers' use and enjoyment of 
the broadband platform we offer. If consumers want to access video 
content via their laptop, their Xbox, their iPad, or their mobile 
device, it's our job to make that possible for them. If they want to 
obtain video content from Netflix, Amazon, Hulu, YouTube, Apple or any 
other online provider, it's our business to make that possible as well 
and we are. Cable has a strong broadband business and benefits from 
greater Internet consumption generated by streaming video services. So 
while cable operators are developing new services and features that 
enable their subscribers to access video online and on-the-go, they are 
also ensuring that other providers of content, services or devices in 
the online video ecosystem can flourish.
The Future of Video
    Gazing into the distance through the eyes of consumers, the future 
of video shines extraordinarily bright. It will be a great time to be a 
TV lover. John Malone once talked of a future of 500 channels, but 
tomorrow's reality will be exponentially greater. The Internet has 
opened a floodgate to new content creation, produced by individuals and 
top network studios alike. Combined with the continually expanding 
traditional television sources, consumers will be swimming in content 
choices. The expansion of distribution platforms is also fueling a 
continuing renaissance of creative work. Anyone with a story idea has 
the venue and the tools to produce compelling video narratives.
    Importantly, the video renaissance is expanding the diversity of 
content. Diverse communities are finding greater voice. Every genre 
imaginable is being explored. Top studios are producing award winning 
long form series. News is being revolutionized. Video is rapidly 
becoming the central force in all of electronic media and will only 
grow.
    Where will we watch video? Everywhere humans dwell. The ubiquity of 
broadband networks and devices that connect to the Internet mean 
content will envelope consumers. The living rooms and family dens will 
still matter, but video experiences will not be tethered to our walls. 
Portable screens will only further burrow into our lives. Cable's 
investment in interoperable Wi-Fi networks will provide consumers with 
unprecedented levels of portability and flexibility for consuming video 
and other broadband service offerings.
    This ever-present second screen will unleash a plethora of 
interactive applications that give television a new dimension that 
never existed before. Live stats during the game, user-controlled 
camera angles, and social conversation embedded in programming are just 
a few ways the experience will grow. Additionally, the ``TV'' will 
increasingly become personal. Channel guides will be personal to the 
user. Program line-ups and recording preferences may change for 
different viewers. This personally tailored-experience is well in 
motion.
    In this world of bottomless content and near endless choice, 
curating content well will be more valuable, not less. Meaningfully 
combining programming into useful groupings will be important for 
simplifying the viewing experience. Technology will play a bigger role, 
too, empowering recommendation engines and crowd sourcing to bring 
relevant content to the consumer. A good content editor remains 
essential. As Reed Hastings recently explained, Netflix is ``actively 
curating our service rather than carrying as many titles as we can'' so 
they can ``have the best [content] in each category rather than the 
most.'' \11\
---------------------------------------------------------------------------
    \11\ Reed Hasting, Long Term View, Netflix (Apr. 25, 2013), 
available at http://ir.netflix.com/long-term-view.cfm.
---------------------------------------------------------------------------
    In this exciting new world, we believe private platforms--like 
cable and DBS--will peacefully coexist with the public Internet 
platform. Among other reasons, the private platforms are more highly 
optimized for quality and reliability and deliver video content more 
efficiently than the public Internet. Additionally, the continuous 
challenges of piracy, malware and cyber-threats on the public web will 
keep the value of private platforms high. Most importantly, the cable 
model is critically important for monetizing and delivering the highest 
premium content to consumers--including sports, live news, and premium 
series. Indeed, without cable subscribers paying to watch shows like 
``Mad Men,'' those shows would never even be available to run later 
through online services.
    This is an exciting future, and cable is working to be an important 
part of it. Cable companies have been rapidly exporting the viewing 
experience to iPads and other portable devices to let consumers watch 
our services on any device they choose. Programming guides are being 
redesigned by many companies to provide richer and more personal 
experiences. Smartphone apps are being deployed to replace remote 
controls. And cable companies continue to empower consumer choice with 
on demand viewing and advanced DVRs that allow you to watch what you 
want when you want.
    We also are working to de-clutter the home of set-top boxes. The 
marketplace of the future is apt to move from being hardware-centric to 
software-centric, which will accelerate the pace of innovation and 
adaptation to new features and capabilities. A vast array of cloud-
based services and applications will make available a new generation of 
interactive offerings, and dissolve the lines between video, data, 
graphics, voice, and text. Today, set-top box-based services cannot be 
deployed until the boxes are tested and glitch-free; by contrast, 
software-based services can be released more rapidly and upgraded more 
easily. Cable companies have also been working constructively with 
services like Roku and Xbox to integrate cable video services into 
those platforms--allowing consumers to consolidate boxes and integrate 
their cable services with online services.
    Importantly, all of the innovation that is taking place to bring 
both today's and tomorrow's advanced services is occurring and 
continues to occur with only limited regulatory intervention. Cable, 
satellite, phone, and online video providers are competing in the arena 
that benefits consumers--the marketplace--and not before this Committee 
or the FCC. The cable industry is prepared to meet the future in that 
arena.
What is the Role for Policymakers?
    The future looks bright, but a natural question for this Committee 
is what type of regulatory framework will best promote consumer choice. 
Do you need to take action to preserve and strengthen the incentives of 
programmers and distributors to invest aggressively to bring new 
services, features and capabilities to consumers? I think the answer is 
generally no, at least not right now. While some surgical changes to 
the law may be appropriate, a broad ``rewrite'' is not necessary and 
could even be counterproductive by introducing uncertainty and 
displacing or skewing the marketplace rivalries that are providing 
today's consumers with the unparalleled choice I described earlier.
    There is no doubt that the transformation underway will not be 
problem-free. It will be chaotic at times as consumer expectations and 
demands outpace changes in the underlying marketplace. As market 
participants seek to realign their business strategies with the new 
reality, many questions of law and policy may arise. In this dynamic 
market, it is difficult to know what type of statutory or regulatory 
changes will promote rather than hinder competition and investment. For 
that reason, it is better to exercise caution rather than rush to 
rewrite laws that will, in any event, be obsolete almost as soon as 
they are enacted.
    As the new video market develops, there may be limited, targeted 
changes to the Act that are appropriate to address specific issues that 
arise--and the FCC should have the tools it needs to adjust its rules 
as the market changes--but the basic framework of the Act can remain in 
place throughout this transition period, without causing any delay or 
hindrance to the exciting changes that are occurring in the video 
marketplace. The time may come when adjustments to the current law can 
no longer suffice, but that time is not now.
    Thank you again for the opportunity to appear today. Cable is proud 
of the products and services it offers customers today and is excited 
about the dynamic future before us. We look forward to being a key 
player in this vibrant marketplace.

    Senator Pryor. Thank you.
    Mr. Dodge?

  STATEMENT OF R. STANTON DODGE, EXECUTIVE VICE PRESIDENT AND 
              GENERAL COUNSEL, DISH NETWORK L.L.C.

    Mr. Dodge. Chairman Pryor, Ranking Member Wicker, and 
members of the Subcommittee, I appreciate the opportunity to 
testify today, although I am a bit under the weather. And I 
apologize in advance if I cough on occasion.
    My name is Stanton Dodge, and I am the Executive Vice 
President and General Counsel of DISH Network. DISH is the 
nation's third largest pay-TV provider, with more than 14 
million subscribers and over 25,000 employees. We are the only 
provider of local TV service in all 210 markets.
    DISH's award-winning innovations include the Hopper DVR and 
TV Everywhere features that consumers can use to have greater 
choice and control over their viewing experience. Our dishNET 
service offers affordable, high-speed broadband via satellite 
throughout the country. And DISH's recent offer to merge with 
Sprint would allow us, among other things, to extend cable-
quality fixed wireless broadband service to more than 40 
million underserved and unserved rural households.
    For this Congress, we believe that outdated laws need to be 
updated to reflect changes in the market and changes in how 
consumers view their content. Public policy should support the 
preservation and expansion of consumer video choices.
    Unfortunately, as distributors like DISH offer advances in 
technology, some programmers are again crying wolf, saying that 
this time the threat is real and they won't be able to survive 
the onslaught of innovation. The challenges to our Hopper DVR 
are a perfect example. The networks are accusing millions of 
subscribers of being copyright infringers merely because they 
want to skip commercials more easily or watch TV on their 
iPads.
    We believe in consumer choice, and to preserve and expand 
that, I want to make three points.
    First, we believe Congress should protect consumers against 
the growing problem of blackouts caused by retrans disputes. 
The proof is in the numbers. In 2010 there were 12 blackouts, 
and by 2012 the number soared to almost 100, impacting millions 
of viewers. The consumers are the victims of these one-sided 
negotiations. Their programming gets pulled by the 
broadcasters, and their monthly bills go up and up.
    As part of a STELA reauthorization, we propose that when a 
local station is pulled from a consumer due to a retrans 
dispute that video distributors should be able to provide 
another market's network signal. This reform will at least 
allow consumers to keep their network programming while 
negotiations continue.
    Second, Americans living in remote, underserved areas have 
especially benefited from STELA and its predecessors. Among 
other things, STELA allows Americans residing in predominantly 
rural areas to receive distant network signals for any missing 
local big-four stations in their market. The distant signal 
license sunsets at the end of 2014, and, without 
reauthorization, approximately 1.5 million American households 
will be left without access to a full complement of network 
channels.
    Third, in the 3 years since STELA was enacted, the video 
industry has not been sitting still. Consumers can and 
increasingly want to watch news, sports, and entertainment on 
the go, using increasingly high-resolution screens available on 
their smartphones and tablets.
    Over the years, DISH has done much to respond to changing 
consumer preferences. Now, DISH stands ready to make a 
significant investment to satiate consumers' growing appetite 
for increased mobility and flexibility in consuming video. 
DISH's recent $25.5 billion offer for Sprint would create game-
changing services and capabilities by offering for the first 
time a nationwide fixed and mobile service for voice, video, 
and data in and outside of the home.
    In summary, we believe government should work to ensure its 
laws mirror today's competitive realities, consumer 
expectations, and advances in technology.
    Thank you, and I look forward to answering any questions 
you may have.
    [The prepared statement of Mr. Dodge follows:]

 Prepared Statement of R. Stanton Dodge, Executive Vice President and 
                  General Counsel, DISH Network L.L.C.
    Chairman Rockefeller, Chairman Pryor, Ranking Member Thune, Ranking 
Member Wicker, and members of the Subcommittee, I appreciate the 
opportunity to testify today. My name is Stanton Dodge, and I am the 
Executive Vice President and General Counsel of DISH Network.
Background on DISH
    DISH is the Nation's third largest pay-TV provider with more than 
14 million subscribers and over 25,000 employees across the country. It 
is the only provider of local broadcast television service in all 210 
TV markets. Considered an industry leader in technology, DISH's award-
winning innovations include the Hopper Whole-Home HD DVR and TV 
Everywhere devices and functionality that consumers can use to watch 
their TV on smartphones, tablets, and computers. Additionally, our 
dishNET satellite broadband service offers affordable high-speed 
broadband Internet access, which can be bundled with DISH's satellite 
TV service. DishNET enables data speeds of 10-15 Mbps, which is fast 
enough to support high-definition video, voice-over-IP telephony, and 
other applications previously unavailable to Americans living in 
unserved and underserved areas. The dishNET satellite broadband service 
is operated by our corporate affiliate, Hughes Network Systems, which 
altogether serves approximately 700,000 U.S. customers who tend to be 
located in rural areas outside the reach of traditional terrestrial 
broadband networks. DISH's recent offer to merge with Sprint would 
allow us to extend cable-quality fixed wireless broadband service to 
more than 40 million underserved and unserved rural households.
Summary
    For Congress, the convergence of video, mobile, and broadband 
services has two major implications. First, outdated laws and 
regulations need to be updated to reflect changes in the market and 
changes in how consumers view their content. Second, and more broadly, 
public policy should preserve and expand consumer video choices, which 
are repeatedly under attack. As distributors like DISH offer advances 
in technology that allow consumers to have greater choice and control 
over their content, content providers again and again cry wolf, saying 
that this time the threat is real and they will not be able to survive 
the onslaught of innovation.
    We believe Congress should safeguard viewer choice in the 
increasingly frequent and highly unfortunate phenomenon of 
retransmission consent disputes and ``blackouts.'' When a local 
broadcast station is pulled from a consumer due to a retransmission 
dispute, video distributors should be able to temporarily provide 
another market's network signal and prevent the total 
disenfranchisement of the consumer. The reauthorization of the 
Satellite Television Extension and Localism Act of 2010 (``STELA'') 
gives Congress the opportunity to enact this important reform.
    In the three years since STELA was enacted, the video industry has 
not been sitting still. Consumers can, and increasingly want to, watch 
news, sports and entertainment on the go, using increasingly high-
resolution screens available on their smartphones and tablets. Over the 
years, DISH has done much to respond to changing consumer preferences. 
Now, DISH stands ready to make a significant investment to satiate 
consumers' growing appetite for increased mobility and flexibility in 
consuming video. DISH's recent $25.5 billion dollar offer for Sprint 
would create game-changing services and capabilities by offering, for 
the first time, a nationwide fixed and mobile service for voice, video, 
and data, in the home and out of the home.
STELA Has Been a Success
    DISH is a company dedicated to giving its customers what they want, 
and STELA has been a big part of DISH's ability to deliver upon those 
customer needs. The satellite licenses established and reauthorized by 
STELA and its predecessors were instrumental in opening the video 
industry to competition by placing satellite distribution on a more 
level playing field with cable. The 1999 reauthorization, for example, 
created the first satellite ``local-into-local'' license allowing 
satellite distributors to retransmit local broadcast stations to their 
subscribers. In 2004, Congress took the opportunity to update the law 
for the digital transition. STELA built on these successes by giving 
DISH an opportunity to earn back its distant signal license--an 
opportunity that DISH seized to expand its local-into-local service 
into all 210 of the country's local TV markets.
    STELA and its predecessors have been especially important for 
Americans living in remote, underserved areas. Among other things, 
STELA allows more than 1.5 million Americans residing in predominantly 
rural areas to receive distant network signals for any missing local 
Big 4 stations in their market. The distant signal license sunsets at 
the end of 2014, and without reauthorization, these 1.5 million 
American households will be left without access to a full complement of 
network channels.
The Video Industry Is Changing Dramatically
    Consumers expect to be in control of what they watch as well as 
where, when, and how they watch it. Rapid innovations in the device and 
distribution marketplaces have now made that degree of choice and 
control possible. Every day, more and more consumers watch video on 
smartphones, tablet computers, and other portable wireless devices. 
Online video streaming services grow in popularity, and startups like 
Aereo are challenging the status quo by giving consumers greater 
freedom to watch their local broadcast stations whenever and wherever 
they want. Consumers can use DISH's innovative Hopper DVR with Sling 
place-shifting technology, which won ``Best of CES'' at this year's 
Consumer Electronics Show, to exercise unprecedented control over their 
own TV viewing choices. This is good for consumers and good for 
competition.
    Although evolution stands to benefit all players in the video 
marketplace, incumbents are often resistant--if not hostile--to that 
change. Rather than embracing consumers' evolving expectations and 
tastes, entrenched incumbents are fighting to preserve the status quo. 
The broadcasters' lawsuits against DISH's Hopper DVR are a perfect 
example. The networks are accusing millions of subscribers of being 
copyright infringers just because they want to skip commercials more 
easily or watch TV on iPads in their bedroom. Fortunately, the Supreme 
Court's landmark decision in the Sony-Betamax case protects the right 
of consumers to record their favorite shows and watch them later, 
skipping through commercials if they want. Congress has also repeatedly 
chosen to protect consumers' fair use and private performance rights. 
Two examples are the Audio Home Recording Act and the Family Movie Act. 
Congress should continue to protect consumer control over viewing 
choices.
    Congress passed the Cable Act in 1992. Remember how you watched TV 
then? How disappointing it was to miss your favorite show and have to 
wait for it to rerun or get the highlights around the water cooler the 
next day? You likely only had one choice for a cable company from which 
to get service, as most markets were served by a single operator. You 
likely had never heard of the Internet, as it was in its infancy. If 
you had a mobile device, it was probably the size of a brick. All these 
years of progress later, with increased competitive forces now at play 
in the video marketplace, it is difficult to look at the laws on the 
books and tell that much has changed. Nowhere does the Cable Act 
mention the Internet, wireless, or online video.
Congress Should Fix the Broken Retransmission Consent System to Protect 
        Consumers
    A key area where the law has not been updated to reflect a growing 
imbalance in market power is retransmission consent. This is the system 
whereby video distributors must negotiate with the broadcasters for the 
ability to transmit the broadcasters' signals. The laws remain largely 
unchanged, and yet, in most markets, there are now a growing number of 
distributors (one or more cable companies, two satellite providers, one 
or more telcos, an over the top provider, etc.) that network stations 
can play against one another. By contrast, the local broadcast stations 
still enjoy a government-created monopoly where all of the video 
distributors have only one door to knock on in order to transmit each 
of the four networks in almost all local markets. Consequently, the 
broadcasters have the luxury of threatening to withhold their 
programming altogether in order to extract higher and higher 
retransmission consent fees. We are seeing increased fee demands of 
several hundred percent.
    The result: more impasses and more blackouts interrupting 
consumers' services. The proof is in the numbers. In 2010, there were 
12 instances where a broadcast signal was blacked out in a local TV 
market. In 2011, there were 51. In 2012, the number soared to almost 
100. These numbers do not even include all of the near-misses, which 
are almost equally disruptive. Adding insult to injury, the timing of 
many blackouts coincides with marquee events like the World Series or 
the Oscars. Ultimately, the losers in these one-sided contests are the 
consumers who get their programming pulled from them by the 
broadcasters and see their bills on the rise. Some broadcasters have 
floated the idea of becoming a cable channel, thus stopping the 
broadcast of their channels over the air. If the broadcasters choose to 
do that, they should give back all of their government-granted 
broadcast spectrum.
The STELA Reauthorization Is an Opportunity to Protect Consumers and 
        Further Support Video Competition
    In the retransmission consent context, Congress can restore balance 
to the negotiating table by allowing cable and satellite carriers to 
substitute a network signal from a non-local market during an impasse 
in retransmission consent negotiations with a local market affiliate of 
that same network. For example, if a broadcaster blacks out the local 
Denver FOX station, the video distributor will be able to temporarily 
bring in an out-of-market station, such as the Cheyenne FOX station. 
The replacement station will not be a perfect substitute for the 
blacked-out local station, since consumers won't have their local 
content, but at least some measure of protection will be extended to 
affected consumers. Additionally, this fix will introduce some fairness 
into the negotiating process and make it more likely that the 
broadcaster won't pull its signal in the first place. Broadcasters will 
be introduced to some of the same competitive pressures that satellite 
carriers and cable operators face every day, and consumers will benefit 
as a result.
The State of Video Will Continue to Evolve to Include More Wireless 
        Services--Consumers Will Demand It
    As I've mentioned, the video industry is a place where the marvels 
of yesterday have become commonplace today. The needs and desires of 
consumers are evolving as technological innovations continue to be 
deployed in the marketplace. We should give American consumers what 
they want. They want to watch programming on their television sets, on 
their phones and on their tablets--no matter where they are. They also 
want to surf the web or make a phone call--again, no matter where they 
are. Consumers want choice and control. They want mobile video. They 
want mobile voice. They want mobile data. When we look at the 
marketplace for video, we need to be able to provide all of those 
communications options to every one of our customers, and we need to do 
it anywhere and anytime, on any device.
    At DISH today, I submit that we have done a fine job of efficiently 
providing fixed video to the home. But customers increasingly want more 
than just home video. As consumers seek to utilize wireless devices and 
connectivity to view their content, the future of video relies more and 
more on wireless providers. The explosion in wireless data usage rates 
is due almost entirely to video consumption.
    Our company is moving in that direction. By rolling out 
technological innovations like the Hopper with Sling, our customers can 
use a smartphone or tablet from any location in a controlled and 
private manner to enjoy the video content for which they have already 
paid. Our new PrimeTime Anytime and AutoHop technologies take the DVR 
to a new level. Consumers can, at their option, enable these features 
to more easily view their preferred programming when they want, while 
skipping what they don't want to see.
    These are some of the ways in which we have responded to our 
customers' changing needs. But we have further to go. In the past, we 
haven't shrunk from ``betting the company,'' so to speak, in order to 
stay competitive. We went from selling big dishes to launching our own 
small-dish DBS business. To give customers what they want, including 
mobile video, voice, and data, we are taking a risk again. Recognizing 
the evolution in video, DISH is on its way to becoming a wireless 
service provider. We acquired satellite spectrum and, after almost two 
years, secured FCC approval to use that spectrum for terrestrial mobile 
broadband services. We now want to compete against the established 
players by offering video, voice, and data inside and outside the home, 
from a single platform.
    To that end, we have made an offer valued at $25.5 billion dollars 
to acquire Sprint. Our offer is better for American consumers, Sprint 
shareholders, and the national security of this country than the 
competing offer for Sprint made by SoftBank, a foreign company. A 
combined DISH/Sprint would establish more competition in the wireless 
marketplace. It will lead to less expensive options for consumers to 
watch their video content using wireless broadband--either fixed or 
mobile. Particularly for rural areas, a combined DISH/Sprint will be 
able to offer a never-before-seen integrated fixed broadband/video 
service that will place rural Americans on the same footing as New 
Yorkers and Los Angelinos.
    DISH is driven to provide consumers with all that they want, 
including the choice in services and providers that they seek. If we 
are successful, we will fuel billions of dollars in investment and 
create tens of thousands of new jobs throughout the United States. Just 
as businesses must foster change in a rapidly evolving video 
marketplace to keep pace with what consumers want, government should 
work to ensure its regulations mirror today's competitive realities, 
consumer expectations, and advances in technology.
    Thank you. I look forward to answering any questions you may have.

    Senator Pryor. Thank you.
    Mr. Bergmayer?

  STATEMENT OF JOHN BERGMAYER, SENIOR STAFF ATTORNEY, PUBLIC 
                           KNOWLEDGE

    Mr. Bergmayer. Good morning, Chairman Pryor, Ranking Member 
Wicker, and members of the Subcommittee. Thank you for the 
opportunity to participate in today's hearing.
    Today, I am going to talk about two things. First, I have a 
few remarks on the state of the video marketplace today. Then I 
will present a few ideas that will make the video marketplace 
more competitive and affordable.
    New technology and new services have given people more ways 
to watch TV. In fact, they are changing what it means to watch 
TV. People watch TV on smartphones, tablets, and computers. 
People watch more on-demand video from online services. They 
use DVRs to control what they watch and how they watch it.
    But there is still a lot of must-see programming, and it is 
available only through traditional pay-TV services. To keep up 
with ``Game of Thrones'' or ``NCIS'' or live sports, viewers 
have to subscribe to the traditional expensive bundle of 
channels. One study has found that the cost of a cable 
subscription is approaching $90 per month. That is just for 
video, not broadband.
    Content prices keep rising, and they are passed along to 
consumers. The retransmission fees that broadcasters demand of 
cable and satellite providers keep going up. NBC estimates that 
it will collect 400 percent more in retransmission fees in 2013 
than in 2012. Retransmission disputes lead to viewer blackouts, 
as well.
    Sports fees are going up. The average cable subscriber pays 
almost $80 a year just for the NFL.
    Large content companies do everything they can to make sure 
that their cable channels are carried, and this can drive out 
independent programmers. But they are only able to do this 
because cable companies have been able to pass along the cost 
to viewers. These problems are interrelated.
    Congress and the FCC have been involved with the video 
marketplace for decades. Sometimes they protected incumbents; 
sometimes they promoted competition. The 1992 Cable Act created 
policies that allowed satellite providers like DISH and telecom 
companies like Verizon to start offering video services. These 
policies protected smaller cable operators, too.
    However, in a market where you have to string wires through 
a town or launch satellites into space, competition will be 
limited. But broadband technology changes that. It is no longer 
necessary to operate a dedicated network to deliver many kinds 
of video content. Public policy should reflect this 
technological shift.
    The Internet is changing the video marketplace, just as it 
changed the market for other media. But there is a difference: 
dominant players in video have control over the content their 
nascent online competitors need for their service and the pipes 
they need to reach consumers.
    It is inevitable that new technology will play a large part 
of video delivery, but it is not inevitable that the market 
will reach its full competitive potential. Consumers will still 
suffer from a lack of choice, and independent content producers 
will still struggle to reach viewers.
    But there is a solution at hand: Congress should make sure 
that its pro-competition video policies are technology neutral. 
If it does this while protecting Internet openness, it can 
ensure that viewers have more choices.
    Now, online video is a success story, but it can be much 
more than it is now. It is not driving down cable prices. For 
most users, it is a supplement to cable, not a replacement. But 
video services that offer a full range of content should be as 
competitive and open as e-mail services.
    Congress and the FCC can help online video develop into a 
full competitor in three easy ways. First, they can clear away 
some of the outdated rules that slow down the evolution of the 
video marketplace. Second, they can extend the successful 
policies that protect providers from anticompetitive conduct to 
certain online providers. Third, they can protect Internet 
openness and prevent discriminatory billing practices that 
could hold back online video. This will increase competition, 
meaning lower prices, better services, and more flexibility and 
control for consumers.
    To be sure, many of the regulations that permeate the video 
marketplace can be repealed today. Some of them exist only to 
protect the business models of local broadcasting or even to 
enhance the revenues of major sports leagues. These rules 
include the sports blackout rule and prohibitions on distant 
signal importation.
    Some other rules, like the compulsory copyright license, 
are outdated but part of an interwoven fabric of regulatory and 
business expectations. They should be reformed but cautiously.
    At the same time, measures that are designed to mitigate 
the market power of certain large video providers should not be 
repealed until effective competition develops. Examples of 
these kinds of rules include the program access and program 
carriage rules.
    In some respects, they should be extended. For example, 
online video providers that wish to voluntarily operate as 
multichannel video programming distributors should be able to 
do so. This would ensure that consumers have more choices for 
high-value content than they do today and would eliminate the 
incentives that keep certain content from being licensed 
widely.
    Finally, the Senate can help ensure that the Internet 
remains competitive and open to creators of all sizes by 
working to prevent the anticompetitive use of data caps and 
other open Internet violations.
    Senators, my brief testimony today can only touch on a few 
subjects. My written testimony contains more detailed analysis 
and recommendations. Thank you for inviting me to speak, and I 
look forward to your questions.
    [The prepared statement of Mr. Bergmayer follows:]

     Prepared Statement of John Bergmayer, Senior Staff Attorney, 
                            Public Knowledge
    Good morning Chairman Pryor, Ranking Member Wicker, and members of 
the Subcommittee. Thank you for the opportunity to participate in 
today's hearing. My name is John Bergmayer, and I work for Public 
Knowledge, a non-profit public interest organization that seeks to 
ensure that the public benefits from a media ecosystem that is open, 
competitive and affordable. Today, I am going to recommend that the 
Senate consider re-aligning some of the rules that govern the video 
marketplace so that they better serve the public interest, allowing all 
creators to be fairly compensated while bringing down bills and 
increasing the choices available to viewers.
Introduction
    There is widespread agreement that we are living in a golden age of 
television. Technology has increased people's choices so they can watch 
just the shows and movies they are interested in. Digital technology 
allows cable and satellite services to fit more channels in the same 
bandwidth. DVRs give people control over how they watch broadcast and 
cable programming, and online streaming services provide access to a 
large back catalog of movies and TV shows. Computers, smartphones, 
tablets, and connected devices are changing what it means to ``watch 
TV.''
    These new choices have allowed people to watch more specialized 
programming that fits their individual tastes. But while some 
pessimists have predicted that new technology would create a ``filter 
bubble'' that isolates people from each other and deprives them of 
common cultural reference points, this has not happened with video. 
Programs like House of Cards, Mad Men, Game of Thrones, Dancing with 
the Stars, NCIS, and (of course) live sports are still part of our 
cultural landscape. Even in this era of 500 channels, these kinds of 
programs still inspire discussions around the water cooler and on 
Twitter.
    But despite all of the great programming and groundbreaking 
devices, many Americans are locked into a television business model 
that limits competition and choice: the expensive bundle of channels. 
Most of the most popular programming is not available except through 
traditional subscription TV services, and these grow more expensive 
year after year. Two years ago, the monthly fee for cable TV (not 
including broadband) hit $86 per month, and is projected to rise to 
$200 per month by 2020--that is, unless Congress does something about 
it.\1\ By contrast an online video-on-demand service like Netflix or 
Amazon Instant Video costs less than $10 per month.
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    \1\ NDP Group, Pay-TV bills continue to increase by 6 percent, 
year-over-year, as consumer-spending power remains flat, Apr. 10, 2012, 
https://www.npd.com/wps/portal/npd/us/news/press-releases/pr_120410.
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    While cable and satellite companies have improved some of their 
offerings to match the convenience of what is available online, they 
have a long way to go, and do not come close to matching the value 
those services offer. This is because most Americans do not have a 
meaningful choice when it comes to selecting their video provider, so 
market forces have not been able to keep prices low. Often, if 
consumers want an affordable broadband and a video subscription that 
gives them access to must-see content, they can only turn to their 
local cable company. This is a legacy of a time when subscription video 
service required a specialized network, and simple economics did not 
allow for much competition. But this is no longer the case; the 
technology exists to allow people to have as many choices of video 
provider as they have of e-mail providers, or of restaurants. While 
there may be a continuing place for specialized technology or networks 
to deliver live programming, in a largely on-demand world there should 
be many more video providers than we currently see.
    The ongoing dominance of the MVPD model is made possible largely by 
an outdated regulatory structure created by broadcast, MVPD, and 
content incumbents to gain competitive advantages and to cement their 
place in the video ecosystem. Moreover, most people get their broadband 
through Internet service providers that also are video distributors, 
and who have the motivation and the means to discriminate against 
online video services. It is time for Congress and the FCC to revamp 
the rules of the video industry to promote the public interest. A video 
marketplace that served the public interest would give viewers more 
choice of providers and the ability to watch any programming whenever 
they want on the device of their choosing. At the same time it would 
ensure that creators and distributors could continue to get paid a fair 
price. A video marketplace that served the public interest would align 
the interests of viewers, creators, and distributors, not set one 
against the other.
    The Senate and other policymakers can achieve this ambitious goal 
in three ways. First, they can clear away or update some of the 
outdated rules that slow down the evolution of the video marketplace. 
For example, protectionist policies like the sports blackout rules 
should be repealed, and the dysfunctional retransmission consent system 
should be updated. Second, they can extend the successful policies that 
protect smaller video competitors. For example, if a large cable system 
would be prohibited by law from acting anti-competitively toward a 
satellite provider, there is no reason why it should be able to take 
the same actions against an online video provider. Third, they can 
protect Internet openness and prevent discriminatory billing practices 
that hold back online video. In addition to supporting the FCC's Open 
Internet rules, Senators and other policymakers should examine whether 
discriminatory data caps hold back online video competition. By doing 
this they will increase competition, which will mean lower prices, 
better services, and more flexibility and control for consumers.
Background
    For nearly a century the Federal Government has shaped the 
development of electronic media. In the 1920s the Federal Radio 
Commission brought order to the chaotic and experimental landscape that 
characterized early broadcasting. In doing so it set the conditions 
that allowed radio and then television broadcasting to develop into 
what it was in its heyday, and what it is today. In the 1960s and 1970s 
the FCC took steps to protect broadcasting from the disorganized and 
innovative early cable industry.\2\ By doing this it made sure that 
cable became an adjunct to rather than a replacement for established 
broadcasting.\3\
---------------------------------------------------------------------------
    \2\ See United States v. Southwestern Cable Co., 392 U.S. 157 
(1968). This case, in addition to being an important case setting out 
the bounds of FCC authority, contains a summary of the FCC's early 
efforts at cable regulation. In 1976, the House Subcommittee on 
Communications issued a staff report titled ``Cable Television: Promise 
Versus Regulatory Performance'' that stated that the FCC ``has chosen 
to interpret its mandate from Congress as requiring primary concern for 
individual broadcasters rather than the needs of the audience being 
served.'' 94th Cong., 2d sess., 1976, Subcomm. Print. See also Office 
of Telecommunications Policy, Cable: Report to the President (1974) 
(OSTP Report), which contains an early history of the cable industry 
and attempts at cable regulation, as well as policy recommendations.
    \3\ The OSTP Report said that ``cable is not merely an extension or 
improvement of broadcast television. It has the potential to become an 
important and entirely new communications medium, open while and 
available to all.'' OSTP Report at 13. But while cable did succeed in 
providing viewers with more content it fell short of this early 
promise, and the regulatory system that developed ensured that cable 
extended the reach of broadcasting instead of developing into a 
competitor to it.
---------------------------------------------------------------------------
    After Congress passed the Cable Act of 1984, the tables turned and 
cable became the monopoly. Cable operators controlled who did and 
didn't get on the new medium, using their power to require cable 
programmers, such as the fledgling CNN and Discovery, to provide ``pay 
for play'' equity interests to cable operators, or sign exclusive 
agreements prohibiting programmers like MTV from appearing on potential 
competitors such as Direct Broadcast Satellite (DBS). At the same time, 
cable operators received access to needed inputs such as pole 
attachment rights and broadcast programming. The lack of effective 
competition led to high prices and poor service, but the cable 
incumbents' control over ``must have'' programming made it impossible 
for any competing services to emerge.
    It was not until the 1992 Cable Act \4\ that Congress embarked on 
an express policy of promoting competition in the television market. It 
realized that potential competitors needed access to the same content 
as large cable systems with market power. New requirements such as 
program access rules that gave competitors access to programming owned 
by the cable operators, and program carriage rules that prevented cable 
operators from demanding an equity share as a condition of carriage 
(``pay for play''), helped make it possible for new ``multi-channel 
video programming distributors'' (MVPDs) to compete with cable 
operators, as did changes to the law to make it easier for competitors 
to get access to broadcast programming. (The remainder of this 
testimony will use the term ``MVPD'' to refer to cable, satellite, and 
telco video services such as U-Verse and FiOS generically.)
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    \4\ Cable Television Consumer Protection and Competition Act of 
1992, Pub. L. No. 102-385, 106 Stat. 1460 (1992).
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    These policies of promoting competition were somewhat successful 
but their promise was not entirely fulfilled.\5\ They enabled some new 
competitors to operate but these new competitors did not change the 
fundamental shape of the market. They did not slow the increasing power 
of cable generally and a few large cable companies in particular.\6\ 
And they did little or nothing to keep the market from consolidating in 
ways detrimental to consumers and independent content producers alike. 
To an extent, this result was brought about by the technology of the 
time. However, broadband now gives policymakers the chance to promote 
true competition in video.
---------------------------------------------------------------------------
    \5\ See Annual Assessment of the Status of Competition in the 
Market for the Delivery of Video Programming, Fourteenth Report, MB 
Docket No. 07-269 (rel. Jul. 20, 2012), http://hraunfoss.fcc.gov/
edocs_public/attachmatch/FCC-912-981A1.pdf. See also Comments of Public 
Knowledge in Annual Assessment of the Status of Competition in the 
Market for the Delivery of Video Programming, MB Docket No. 07-269 
(June 8, 2011), available at http://www.publicknowledge.org/files/docs/
PK_Comments_MVPD-Competition-Report.pdf.
    \6\ For example, Adelphia's cable assets were sold to Time Warner 
Cable and Comcast. See Adelphia Sold to Time Warner, Comcast, Buffalo 
Business First (Apr. 21, 2005), http://www.bizjournals.com/buffalo/
stories/2005/04/18/daily37.html?page=all. Comcast's cable assets and 
NBC Universal have been combined in a joint venture that is controlled 
by, and 51 percent owned by Comcast. See General Electric, New NBCU, 
http://www.ge.com/newnbcu.
---------------------------------------------------------------------------
    The Internet is beginning to change the video marketplace just as 
it changed the market for music, news, books, and other forms of media. 
Consumers have new options and incumbents are responding. But it is not 
a foregone conclusion that the Internet will fundamentally alter the 
video marketplace. Because they are missing so much of the most popular 
programming, and because fast broadband is not yet sufficiently 
deployed, online video providers are more complements to, than 
replacements for, an MVPD subscription. While Netflix and Amazon have 
proved fatal to most video rental shops, they do not directly compete 
with MVPDs, which have shown themselves to be considerably more robust.
    This is because cable and media incumbents have control both over 
the content their nascent online competitors need for their service 
(either through direct ownership, or through contracts that limit 
online distribution), and over the pipes they must use to reach 
consumers. As a result much high-value programming is not available 
online, and online video providers have to contend with artificially 
low bandwidth caps and other discriminatory practices that keep them 
from reaching their full potential.
    Thus while it is inevitable that IP technologies and the Internet 
will play an ever-larger role in video delivery, it remains an open 
question whether consumers or incumbent MVPDs will benefit most from 
this technological transition. Consumers will still suffer from a lack 
of choice and independent content producers will still struggle to 
reach viewers if existing incumbents in the content and MVPD industries 
continue to thwart disruptive change and control the transition for 
their own benefit. Congress should once again take the necessary steps 
to ensure that incumbents cannot throttle (literally as well as 
figuratively) the legions of potential competitors trying to reach 
willing consumers.
    MVPDs and content companies are operating in their own self-
interest under a framework that Congress and the FCC designed. Congress 
can address some of the challenges the future development of the video 
marketplace faces by pruning away the needless overgrowth of older 
rules, like syndicated exclusivity, the sports blackout rule and the 
network non-duplication rule, that exist only to protect the business 
model of local broadcasters and other incumbents. Some other rules, 
like retransmission consent and the compulsory copyright license, are 
outdated, but part of an interwoven fabric of regulatory and business 
expectations. They should be reformed, but cautiously.
    At the same time, measures that are designed to mitigate the market 
power of certain large video providers should not be repealed until 
effective competition develops. In some respects they should be 
extended. For example, online video providers that wish to voluntarily 
operate as MVPDs should be able to do so, as this would enable them to 
access certain valuable content and protect them against anti-
competitive actions by incumbents.\7\ This would ensure that consumers 
had more choices for high-value content than they do today and would 
eliminate the incentives that keep certain content from being licensed 
widely.
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    \7\ See Comments of Public Knowledge in Interpretation of the Terms 
``Multichannel Video Programming Distributor'' and ``Channel'' as 
Raised in Pending Program Access Proceeding, MB Docket No. 12-83 (filed 
May 14, 2012) (Sky Angel Comments), available at http://
www.publicknowledge.org/interpretation-mvpd.
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    Finally, the fact that the largest residential broadband Internet 
service providers (ISPs) are also MVPDs invested in the existing video 
distribution models raises concerns. These ISP/MVPD combinations can 
impose a variety of policies that prevent genuinely disruptive 
competition. For example, the ability to control how much data 
subscribers may access through data caps, the ability to privilege some 
content over others through prioritization or exemption from data caps, 
and the ability to control what devices can connect to the network, 
give cable operators (and other broadband providers like FiOS) the 
ability to pick winners and losers just as cable operators did from 
1984 to 1992.
Detailed Analysis and Recommendations
    The video marketplace is unique, not only because of its 
complicated business and regulatory structures, but because some cable 
incumbents are better placed to counter the challenge the Internet 
poses to their business models in varied ways. The structure and 
practices of large media companies, copyright policy, and even spectrum 
policy can directly affect the video marketplace.
Threats to Internet Openness
    For a long time it looked as though ISPs would continue doing what 
Comcast did when it started degrading BitTorrent traffic--picking and 
choosing which Internet protocols and services got preferential or 
discriminatory treatment. But recently ISPs have found that it is more 
effective to discriminate via billing practices. Some ISPs have set 
their bandwidth caps so low as to make it financially unattractive to 
switch over entirely to online video, as this would put viewers over 
their caps and perhaps subject them to overage charges.\8\ At the same 
time, at least one ISP exempts its own video services that are 
delivered over the same infrastructure from its caps.\9\ To top it off, 
some ISPs cannot even accurately measure their subscribers' usage.\10\ 
These practices disadvantage services like Netflix and Amazon Instant 
Video and relegate most online video to the role of a supplement to, 
rather than replacement for, traditional MVPD services.
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    \8\ Andrew Odlyzko, Bill St. Arnaud, Erik Stallman, & Michael 
Weinberg, Know Your Limits: Considering the Role of Data Caps and Usage 
Based Billing in Internet Access Service 48 (Public Knowledge 2012) 
(``Comcast's own estimate for the amount of data required to replace 
its pay-television offering with an over the top competitor is 288 GB 
per month. In light of this, it may come as no surprise that Comcast's 
data cap is set at 250 GB per month.''). Comcast has since raised its 
cap, but it is worth observing that the 288 GB per month figure is 
based on an unknown mix of standard and high-definition content; 
presumably, a higher percentage of high-definition video would lead to 
a higher figure. See Mark Israel and Michael L. Katz, The Comcast/NBCU 
Transaction and Online Video Distribution, Submitted by Comcast 
Corporation, MB Docket No. 10-56 (May 4, 2010) at 33, available at 
http://apps.fcc.gov/ecfs/document/view?id=7020448237.
    \9\ Michael Weinberg, Comcast Exempts Itself From Its Data Cap, 
Violates (at least the) Spirit of Net Neutrality, Public Knowledge 
(March 26, 2012), http://www.publicknowledge.org/blog/comcast-exempts-
itself-its-data-cap-violates-.
    \10\ Stacey Higginbotham, More Bad News About Broadband Caps: Many 
Meters Are Inaccurate, GigaOm (Feb. 7, 2013), http://gigaom.com/2013/
02/07/more-bad-news-about-broadband-caps-many-meters-are-inaccurate.
---------------------------------------------------------------------------
    To counter this, Congress needs to stand behind the FCC's attempts 
to protect Internet openness,\11\ and it needs to find out more about 
why wireless and wireline providers set data caps at the levels they 
do.\12\ At the same time these protections need to be strengthened, 
their loopholes need to be closed, and they need to take into account 
the fact that discrimination can happen through billing, as well as 
through Internet ``fast lanes'' that prioritize one service's traffic 
over another's, and other forms of technological discrimination.
---------------------------------------------------------------------------
    \11\ Preserving the Open Internet, Report & Order, GN Docket No. 
09-191, FCC 10-201, (rel. Dec. 23, 2010), available at http://
fjallfoss.fcc.gov/edocs_public/attachmatch/FCC-10-201A1.pdf.
    \12\ For example, Representative Anna G. Eshoo, Ranking Member of 
the Communications and Technology Subcommittee of the House Energy and 
Commerce Committee, has recently asked the GAO to investigate data 
caps. Letter from Representative Anna G. Eshoo to The Honorable Gene L. 
Dodaro, Comptroller General of the U.S. Government Accountability 
Office (May 9, 2013).
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Restrictions on the Availability of Content and Rising Content Costs
    The current regulatory system is based around the relationship of 
broadcasters and MVPDs,\13\ and this system makes it easy for 
incumbents to share content with each other while keeping it out of the 
hands of potential new competitors.\14\ And while it's unlawful for 
incumbent providers to behave anti-competitively towards each other, 
they are free to keep their content away from online services, and to 
use exclusionary contracts and ``most favored nation'' clauses to limit 
the online distribution of independent programming.\15\
---------------------------------------------------------------------------
    \13\ 47 U.S.C. Sec. 325; 47 C.F.R. Sec. 76.64.
    \14\ 47 U.S.C. Sec. 548 provides that,

    It shall be unlawful for a cable operator, a satellite cable 
programming vendor in which a cable operator has an attributable 
interest, or a satellite broadcast programming vendor to engage in 
unfair methods of competition or unfair or deceptive acts or practices, 
the purpose or effect of which is to hinder significantly or to prevent 
any multichannel video programming distributor from providing satellite 
cable programming or satellite broadcast programming to subscribers or 
consumers.

    These baseline statutory requirements still apply even though the 
Commission has recently modified its program access rules. See Revision 
of the Commission's Program Access Rules, Report & Order, MB Docket 12-
86 (rel. Oct. 5, 2012), http://hraunfoss.fcc.gov/edocs_public/
attachmatch/FCC-12-123A1.pdf.
    \15\ Jon Brodkin, DOJ Probing Big Cable Over Online Video 
Competition, Ars Technica, (June 13, 2012), http://arstechnica.com/
tech-policy/2012/06/doj-probing-big-cable-over-online-video-competition 
(noting that ``[t]he DOJ is also investigating contracts programmers 
sign to be distributed on cable systems, which include `most-favored 
nation clauses' that may favor cable companies over online video 
distributors.'')
---------------------------------------------------------------------------
    As a result, while a lot of very good video programming is 
available online, the most popular programming is not.\16\ Most popular 
broadcast and cable channels are not available online. Many popular 
shows are not available online at all or are only made available after 
a ``windowing'' period. Some programs are put online reasonably 
promptly, but are only viewable in inconvenient ways. Some of the best 
online content is only available to viewers who also have cable 
subscriptions, through TV Everywhere and similar efforts. Live local 
sports are generally not available online at all. Thus, while online 
services make it easy to watch great documentaries, classic movies, and 
old sitcoms, the kinds of culturally-current programming that people 
talk about at the office and online are often not available without a 
cable or satellite subscription.
---------------------------------------------------------------------------
    \16\ See Carlos Kirjner, Internet TV (or Why It Is So Hard to Go 
Over the Top), Bernstein Research (June 15, 2012).
---------------------------------------------------------------------------
    This problem would be largely abated if online providers like Sky 
Angel and Ivi \17\ were permitted to operate as MVPDs, like they want 
to.\18\ The rules that protect MVPDs from anti-competitive conduct 
would then protect them as well as incumbents. At the same time, the 
FCC should find that the current rules that prohibit incumbents from 
behaving anti-competitively toward each other also prohibit them from 
taking anti-competitive acts against online video providers, including 
those that choose not to operate as MVPDs.\19\ But even short of that, 
if more content were available from online services that might choose 
to operate as MVPDs, the incentive to keep content offline would 
evaporate to the benefit of the entire video marketplace.
---------------------------------------------------------------------------
    \17\ See Ryan Lawler, Court Rules Ivi.tv Not a Cable System, Issues 
Injunction, GigaOm (Feb. 22, 2011), http://gigaom.com/2011/02/22/ivitv-
injunction.
    \18\ See Public Knowledge Sky Angel Comments.
    \19\ As Public Knowledge has argued,

    The [FCC] should use its authority over the video programming 
distribution market to protect online video distribution generally, by 
prohibiting MVPDs from behaving anti-competitively in ways that harm 
any video distributor, whether or not it is an MVPD. Section 628 of the 
Communications Act provides authority for this. This Section bans any 
actions ``the purpose or effect of which is to hinder significantly or 
to prevent any multichannel video programming distributor from 
providing . . . programming to subscribers or consumers.'' The close 
connection between the markets for MVPD and non-MVPD video distribution 
mean that anti-competitive actions taken against an non-MVPD would 
likely have a deleterious effect on the ability of a competitive MVPD 
to offer programming--for example, by increasing its costs, or 
inhibiting the ability of an MVPD to offer programming on demand or 
online.

    Sky Angel Comments at 24-25 (quoting 47 U.S.C. Sec. 548).
---------------------------------------------------------------------------
    The current pay TV MVPD model is very lucrative for some creators 
and distributors because it forces viewers to pay for large bundles of 
cable channels even if they only want to watch a few.\20\ In fact, 
every cable subscriber has to pay for broadcast channels, even though 
they are available over the air for free. This is why some studies have 
shown that current monthly cable bills are approaching $90 per 
month,\21\ and the FCC has shown that cable rates continue to rise at a 
faster rate than inflation.\22\ If these practices were to be lessened, 
not only would bills shrink, but also more content might become 
available to new online providers.
---------------------------------------------------------------------------
    \20\ Peter Kafka, Hate Paying for Cable? Here's Why, AllThingsD, 
March 10, 2010, http://allthingsd.com/20100308/hate-paying-for-cable-
heres-the-reason-why.
    \21\ NDP Group, Pay-TV Bills Continue to Increase by 6 Percent, 
Year-Over-Year, As Consumer-Spending Power Remains Flat, Apr. 10, 2012, 
https://www.npd.com/wps/portal/npd/us/news/press-releases/pr_120410.
    \22\ The FCC measures the expanded basic tier, which is ``the 
combined price of basic service and the most subscribed cable 
programming service tier excluding taxes, fees and equipment charges.'' 
Statistical Report on Average Rates for Basic Service, Cable 
Programming Service, and Equipment, MM Docket No. 92-266, Report on 
Cable Industry Prices  2 (rel. Aug. 13, 2012), http://
hraunfoss.fcc.gov/edocs_public/attachmatch/DA-12-1322A1.pdf. This is 
not the same as the average or median cable bill, measures which 
reflect what subscribers actually pay. The Commission found that this 
specialized measure of rates ``increased by 5.4 percent over the 12 
months ending January 1, 2011, to $57.46, compared to an increase of 
1.6 percent in the Consumer Price Index (CPI). The price of expanded 
basic service increased at a compound average annual growth rate of 6.1 
percent during the period 1995-2011. The CPI increased at a compound 
average annual growth rate of 2.4 percent over the same period.'' Id.
---------------------------------------------------------------------------
    But it is important to understand exactly what causes these 
problems. Input costs--the fees MVPDs pay to content companies--
certainly contribute. Rising fees paid by MVPDs to content companies 
are one of the main drivers of rising cable bills.\23\ MVPDs are often 
forced to pay for, and pass along to their consumers, less-popular 
channels in exchange for access to the popular ones. Sports fees are a 
huge portion of viewers' bills. Derek Thompson has calculated that ``if 
you pay $90 a month for cable, you are paying about $76 a year (about 7 
percent of the total cost of cable TV) just for the NFL.'' \24\ A 
typical MVPD subscriber might pay about $60 per year just for ESPN, 
whether or not she watches it.\25\
---------------------------------------------------------------------------
    \23\ In fact, Cablevision has recently sued Viacom for bundling 
channels, ``a practice that's led to rising cable bills and ballooning 
channel lineups.'' Alex Sherman & Edmund Lee, Cablevision-Viacom Suit 
Aims to Shake Up $170B Industry, Bloomberg (Feb. 27, 2013), http://www
.bloomberg.com/news/2013-02-27/cablevision-viacom-suit-aims-to-shake-
up-170b-industry.html.
    \24\ Derek Thompson, Mad About the Cost of TV? Blame Sports, The 
Atlantic (Apr. 2, 2013), http://www.theatlantic.com/business/archive/
2013/04/mad-about-the-cost-of-tv-blame-sports/274575.
    \25\ See Daniel Frankel, By the Numbers: The Spiraling Cost of 
Sports Programming, paidContent (Apr. 8, 2012), http://paidcontent.org/
2012/04/06/by-the-numbers-the-spiraling-cost-of-sports-programming.
---------------------------------------------------------------------------
    Retransmission fees for broadcast networks keep rising--NBC expects 
to collect $200 million in such fees this year, an increase of about 
400 percent from 2012.\26\ What's more, retransmission agreements often 
require that MVPDs carry certain cable networks, limiting the ability 
of MVPDs to offer more flexible price plans. Content companies are able 
to do this because of media consolidation. The most popular programming 
is controlled by a handful of companies like Viacom and Disney. When 
they make offers, they are hard to refuse. Even the broadcast industry 
is consolidating as companies like Sinclair scoop up local broadcaster 
after local broadcaster, contributing to the ongoing problem of 
different local broadcasters coordinating their retransmission consent 
negotiations and driving up rates.\27\
---------------------------------------------------------------------------
    \26\ Steve Donohue, Comcast CFO: NBC Will Collect $200 Million in 
Retrans Fees in 2013, FierceCable (Feb. 26, 2013), http://
www.fiercecable.com/story/comcast-cfo-nbc-will-collect-200-million-
retransmission-consent-fees-2013/2013-02-26.
    \27\ Among other things, so-called ``Joint Services Agreements'' 
allow different broadcasters to collude on retransmission negotiations. 
As Public Knowledge argued earlier this year,

    Media pluralism does not only ensure that citizens have access to a 
diversity of viewpoints and sources of information; it creates a 
baseline level of competition between media companies that helps keep 
markets competitive and prices low for consumers. Because of the joint 
negotiations between ostensible competitors, television stations are 
better able to create a ``united front'' in demanding higher fees, 
which are ultimately passed along to consumers. If competing companies 
worked together on other aspects of their business--for example, in 
colluding to raise advertising rates--most observers would identify a 
plain violation of antitrust laws. But under current policies stations 
feel free to collaborate on this other important aspect of their 
business operations. This harms consumers and contributes to ever-
rising subscription TV bills.

    Letter from John Bergmayer to Ms. Marlene H. Dortch, Secretary, 
Federal Communications Commission, in Promoting Diversification of 
Ownership in the Broadcasting, MB Docket No. 07-294; Review of the 
Commission's Broadcast Ownership Rules and Other Rules Adopted Pursuant 
to Section 202 of the Telecommunications Act of 1996, MB Docket No. 09-
182; and Amendment of the Commission's Rules Related to Retransmission 
Consent, MB Docket No. 10-71 (filed Jan. 22, 2013).
---------------------------------------------------------------------------
    But content companies have grown accustomed to these practices for 
a good reason: in a concentrated market for video distribution, it is 
easier to pass along increased input costs.\28\ MVPDs have never liked 
having to pay more for content, but it has historically been the cost 
of doing business. They have traditionally resisted calls to move to an 
aa la carte model. But bills have reached a point where a notable 
number of viewers (especially younger and more tech-savvy ones) are 
``cutting the cord'' (or never getting a cord to begin with) and doing 
without MVPD subscriptions. Cable executives like Time Warner Cable CEO 
Glenn Britt have started talking about offering consumers more flexible 
packages and greater control over the bundles they subscribe to.\29\ 
This would be a positive development for consumers. It is an open 
question, however, whether a market that remains concentrated both on 
the content and distribution side can evolve to a lower cost model on 
its own.
---------------------------------------------------------------------------
    \28\ It is important to note that not all MVPDs have equal 
bargaining power with respect to content suppliers. A very large cable 
company with its own content interests like Comcast is in a different 
position than DISH, Cablevision, or a rural cable system. These smaller 
MVPDs may not be able to pass along increased prices to their 
customers, or internalize them through acquisitions. Also, larger MVPDs 
may be able to negotiate around certain non-price restrictions, such as 
limitations on the functionality of cable-supplied set-top boxes and 
other equipment, or the ability to make programming available on 
tablets or smartphones within the home. By contrast, smaller cable 
systems may not be able to overcome these kinds of restrictions.
    \29\ Cecilia Kang, Time Warner Cable CEO Wants to Slim Cable 
Bundles, Eyes Aereo's Technology, Wash. Post (May 2, 2013),  http://
www.washingtonpost.com/business/technology/want-to-cut-the-cable-cord-
time-warner-cable-may-help-you/2013/05/02/f6b43b84-b27b-11e2-baf7-5bc
2a9dc6f44_story.html.
---------------------------------------------------------------------------
    One quick way to fix this would be to scrap the rules that require 
that cable systems carry broadcast stations as part of their basic tier 
(``basic tier buy-through'')--customers should be able to choose what 
they pay for. Policymakers should also look very closely at the 
practice some media companies have of bundling their programming 
together and requiring that cable operators buy it all and put even 
less-popular channels on lower programming tiers. Bundles can make 
economic sense for buyers and sellers but they can be abused when there 
are imbalances in bargaining power or a lack of competitive 
alternatives. If MVPDs themselves had more flexibility in the 
programming they purchase, they might become more willing to offer that 
flexibility to viewers. At the same time, MVPDs should be encouraged to 
offer more flexible programming packages. Consumers do not object to 
``bundles'' per se--popular online services like Spotify and Amazon 
Instant Video work on a bundled approach that is quickly surpassing the 
pay-per-download iTunes model. What they object to is expensive bundles 
that feel like a rip-off. They simply want to get good value for their 
monthly bill. For some consumers who only watch a few programs, this 
might mean channel-by-channel aa la carte subscription, perhaps coupled 
with over-the-air TV and online services. For others, it might just 
mean better bundles--for example, a cheaper sports-free programming 
package, or a kid-friendly package.
    One solution to the problem of rising input costs that would not be 
good for consumers is further consolidation, allowing distributers to 
internalize content costs and profits. The merger between Comcast and 
NBC Universal brought a large amount of programming under the control 
of a cable system that has an incentive to limit its distribution 
online. While it is true that both the Department of Justice and the 
FCC conditioned their transaction on Comcast's commitment to make 
certain programming available to online distributors and to deal with 
independent programmers fairly,\30\ such time-limited behavioral 
remedies are insufficient to overcome all the anti-competitive effects 
of mergers, joint ventures, and other structural changes that create 
incentives to limit distribution and innovation.\31\ Furthermore, 
without an agency that is willing to hold companies to the letter and 
spirit of their merger conditions, they can simply be ignored, 
requiring that affected parties undertake expensive legal proceedings 
to enforce them. Just this has happened with the Comcast merger, where 
Bloomberg has maintained since 2011 that Comcast has not met its 
``neighborhooding'' requirements, and Internet video provider Project 
Concord had alleged that Comcast was not meeting its online video 
requirements.\32\
---------------------------------------------------------------------------
    \30\ Applications of Comcast Corporation, General Electric Company 
and NBC Universal, Inc., for Consent to Assign Licenses and Transfer 
Control of Licenses, Memorandum Opinion & Order, 26 FCC Rcd. 4238 
(2011); Final Judgment in United States v. Comcast, United States 
District Court for the District of Columbia, Case No. 1:II-cv-00l06 
(Sept. 1, 2011).
    \31\ Petition to Deny of Public Knowledge and Future of Music 
Coalition in WT Docket No. 11-65 (filed May 31, 2011), at 62-70, 
available at http://www.publicknowledge.org/files/docs/pk_fmc-att_tmo-
petition_to_deny.pdf.
    \32\ See Letter from Senator Al Franken to FCC Chairman 
Genachowski, FCC Commissioners, and Assistant Attorney General Varney, 
Aug. 4, 2011, http://www.franken.senate.gov/files/letter/
110804_Letter_to_DOJ_and_FCC_Comcast_conditions_and_Bloomberg.pdf. 
While there has been some activity on this matter at the FCC the 
dispute is ongoing. See John Eggerton, Parties Continue to Tussle over 
News Neighborhooding Condition in NBCU Deal, Multichannel News (Oct. 1, 
2012), http://www.multichannel.com/distribution/bloomberg-comcast-
trade-fcc-filings/139564.
---------------------------------------------------------------------------
    Similarly, horizontal collaboration between different video 
distributors (such as the ``TV Everywhere'' authentication system) may 
seem to provide new options to some viewers in the short term, but only 
at the long-term cost of preventing the marketplace from evolving to a 
more competitive state. Likewise, arrangements between large content 
companies like ESPN where some content gets preferential treatment, 
such as an exemption from data caps, would not benefit either consumers 
or creators.\33\ Large and small creators might find that they have to 
negotiate with many different ISPs just to reach viewers, and viewers 
might only have access to the programming of companies that have paid 
up. Smaller competitors might not be able to reach viewers at all. This 
would be counterproductive, anti-competitive, and a violation of Open 
Internet principles.
---------------------------------------------------------------------------
    \33\ Anton Troianovski, ESPN Eyes Subsidizing Wireless-Data Plans, 
Wall St. J. (May 9, 2013), http://online.wsj.com/article/
SB10001424127887324059704578473400083982568.html.
---------------------------------------------------------------------------
Outdated Rules That Protect Incumbent Business Models
    Finally, there are some rules on the books today that seem designed 
to prop up legacy business models and have long outlived any functions 
they may once have served. Many of them can and should be repealed 
today. Examples of these include sports blackout rules, network non-
duplication, and syndicated exclusivity provisions,\34\ and the 
previously mentioned basic tier buy-through rule that requires that all 
cable subscribers pay for free over-the-air television.\35\ Some of 
these rules were passed to protect aspects of the video distribution 
system from disruption before Internet video was a possibility, and 
when it seemed that if local broadcasters lost revenue nothing could 
replace them. Exclusivity rules not only keep cable systems from 
carrying signals from ``distant'' markets but they prevent networks 
from distributing content on a non-exclusive basis. The world these 
rules were written for is gone now and they have outlived their 
purpose. Some local broadcasters never provided unique local 
programming, and the various public goals that they provide can be 
achieved more effectively through other means. Traditional models of 
video distribution are still valuable, and local broadcasters who serve 
their communities will continue to thrive after any regulatory reform. 
Viewers will still have access to local news, weather, and locally 
relevant programming because they demand it. Reforms should reward 
local broadcasters and other media outlets for creating their own 
content rather than for distributing national programming. Simply put, 
the broadcasting industry no longer needs extraordinary protection 
against changes in technology, business models, and viewer behavior.
---------------------------------------------------------------------------
    \34\ 47 C.F.R. Sec. Sec. 76.92(f), 76.106(a), 76.111, 76.120, and 
76.127-130.
    \35\ 47 U.S.C. Sec. 543(7); 47 C.F.R. Sec. 76.901(a) (``The basic 
service tier shall, at a minimum, include all signals of domestic 
television broadcast stations provided to any subscriber''); 47 C.F.R. 
Sec. 76.920 (``Every subscriber of a cable system must subscribe to the 
basic tier in order to subscribe to any other tier of video programming 
or to purchase any other video programming.'').
---------------------------------------------------------------------------
    Some other rules are outdated, but so interconnected with other 
rules and marketplace expectations that they need to be approached 
carefully. Among these are the compulsory copyright license,\36\ 
retransmission consent,\37\ and must-carry.\38\ The compulsory license 
cannot be reformed unless video providers are given assurance that they 
never have to stop carrying programming just because they do not know 
who to call for a license, and to make sure that they can cope with any 
potential holdout problems. It would make no sense to embark on a 
comprehensive reform of the laws governing video carriage in a way that 
replicated the problems that afflict the retransmission consent process 
today, while introducing new ones.
---------------------------------------------------------------------------
    \36\ 17 U.S.C. Sec. Sec. 111, 119, 122.
    \37\ 47 U.S.C. Sec. 325; 47 C.F.R. Sec. 76.64.
    \38\ 47 U.S.C. Sec. 534; 47 C.F.R. Sec. 76.55.
---------------------------------------------------------------------------
    Short of dealing with the compulsory license and retransmission 
consent together, several reforms could improve the current 
retransmission consent process. Many of the rules that have already 
been mentioned give an unfair advantage to broadcasters and drive up 
the rates they can charge. Some broadcasters have engaged in 
brinksmanship tactics that harm viewers, where they pull their signals 
from MVPDs right before high-profile events.\39\ These problems can at 
least be alleviated with meaningful ``good faith'' standards that 
discourage unfair negotiation tactics, and interim carriage 
requirements that minimize disruption to viewers.\40\ Finally, while 
the must-carry system is used by many low-value broadcasters in ways 
that Congress never intended, public and non-commercial stations 
continue to serve a valuable role and policymakers should find ways to 
protect the good that they do.
---------------------------------------------------------------------------
    \39\ Some of these incidents were cataloged in Amendment of the 
Commission's Rules Related to Retransmission Consent, Notice of 
Proposed Rulemaking, 26 FCC Rcd. 2718,  15 (2011).
    \40\ See Comments of Public Knowledge and New America Foundation in 
MB Docket No. 10-71 (filed May 27, 2011), available at http://
www.publicknowledge.org/files/docs/11-05-27PK-NAF_retrans_comments.pdf.
---------------------------------------------------------------------------
    Still other rules serve a function and should be maintained, at 
least until effective competition develops. These include the program 
access, program carriage rules, as well as rules that promote choice in 
set-top boxes and other video devices. The program access rules prevent 
MVPDs from taking certain anti-competitive actions toward each other. 
Although the video market is not as competitive as it can be in the 
Internet age, the fact remains that the American video distribution 
market is more competitive than that of many other countries.\41\ The 
program access rules have contributed to that, and they should be 
extended to all services that wish to operate as MVPDs, even ones that 
are exclusively online. Similarly, the program carriage system, which 
protects independent programmers from the negative effects of 
bottleneck control by some MVPDs, still serves a role in ensuring that 
viewers can enjoy content from diverse sources. Finally, the FCC has 
not done enough to fulfill Congress's directive to promote set-top box 
competition--in fact, the FCC's Media Bureau has recently imperiled 
\42\ the Commission's CableCARD program which, though far from perfect, 
at least gives some cable subscribers more options when it comes to 
video devices. Until Internet-delivered video becomes a true 
substitution, preserving the FCC's authority to promote set-top box 
choice will remain necessary.\43\
---------------------------------------------------------------------------
    \41\ For example, ``Free-to-air television in Mexico is a stale 
duopoly in which 70 percent of viewers tune in to channels broadcast by 
Televisa, the biggest media company in the Spanish-speaking world. 
Televisa dominates pay-TV as well, with about 45 percent of Mexico's 
cable market and 60 percent of the satellite market.'' Let Mexico's 
Moguls Battle, The Economist (Feb. 4th, 2012), http://
www.economist.com/node/21546028.
    \42\ Charter Communications had asked for a waiver of some of the 
Commission's rules, but the Bureau went far beyond what Charter asked 
for and decided, based on a misapplication of the recent EchoStar 
Satellite L.L.C. v. FCC decision, 704 F.3d 992 (D.C. Cir. 2013), to 
effectively eliminate most CableCARD requirements.
    \43\ For example, by implementing AllVid or a similar technology-
neutral solution. See AllVid, http://www.publicknowledge.org/issues/
allvid.
---------------------------------------------------------------------------
Copyright and Spectrum Policy
    There are two other kinds of regulations that can hold back the 
development of online video. Policymakers who are steeped in media 
issues do not always see them as ``regulations'' in the same sense as 
things like syndicated exclusivity. But copyright and spectrum laws are 
regulations nonetheless, and they have profound effects on the shape of 
the market.
    Copyright law should not be misused to hold back the evolution of 
the video marketplace. Broadcasters are suing DISH for making a DVR 
that is too sophisticated and easy to use. But it is not illegal to 
skip commercials or for users to take full advantage of their home 
recording rights.\44\ And as the Second Circuit Court of Appeals 
recently found, Aereo's remote antenna is legal just as Cablevision's 
remote DVR is.\45\ Copyrights are limited monopolies granted by the 
government, and they come with a series of limitations and exceptions 
designed to protect users as well as creators. They should not be a 
weapon used to limit experimentation with business models and services.
---------------------------------------------------------------------------
    \44\ See Fox Broadcasting v. Dish, 2012 U.S. Dist. LEXIS 169112 
(C.D. Cal. 2012).
    \45\ WNET et al., v. Aereo, No. 12-2786-cv (2d Cir. Apr. 1, 2013), 
available at http://www
.publicknowledge.org/files/aereo_decision_2d_circuit.pdf
---------------------------------------------------------------------------
    Nor should misplaced fears of piracy keep content offline. Some 
content industry executives have a view of technology and the Internet 
that can only be described as superstitious, and they think that if 
they give people access to content they will lose control of it. But 
recent history shows that many people only turn to piracy when content 
is not available online though other means. Indeed, Netflix has 
recently provided data that show that as its online service is adopted, 
unlawful file-sharing decreases.\46\ From the perspective of reducing 
copyright infringement, limiting online distribution is simply 
counterproductive. Creators will benefit most from an open marketplace 
that allows different services and voices to reach viewer's homes.\47\
---------------------------------------------------------------------------
    \46\ See Netflix's Ted Sarandos Talks Arrested Development, 4K and 
Reviving Old Shows, Stuff, May 1, 2013, http://www.stuff.tv/news/apps-
and-games/news-nugget/netflixs-ted-sarandos-tal
ks-arrested-development-4k-and-reviving-old (quoting the Netflix Chief 
Content Officer as saying ``when we launch in a territory the 
BitTorrent traffic drops as the Netflix traffic grows.''). It is true, 
as BitTorrent, Inc. states, that BitTorrent has many lawful uses and 
that BitTorrent, Inc. is not associated with copyright infringement. 
See BitTorrent Blog, Reports Of Our Death Have Been Greatly Exaggerated 
(May 6, 2013), http://blog.bittorrent.com/2013/05/06/reports-of-our-
death-have-been-greatly-exaggerated. However, Sarandos appears to have 
been referring to all files that are exchanged using the BitTorrent 
protocol (which BitTorrent, Inc. does not control), not just the 
minority of those associated with BitTorrent, Inc. While BitTorrent is 
a general-purpose tool with lawful and unlawful uses, it is also true 
that many viewers use BitTorrent to unlawfully access content that is 
not otherwise available online.
    \47\ For this reason, trade and other agreements negotiated on 
behalf of the United States should not include provisions that could 
expand the scope of copyrights or copyright enforcement (as many trade 
agreements do, even though copyright law is already handled 
internationally by a series of treaties), create new kinds of 
intellectual property rights (as the proposed WIPO Broadcast Treaty 
would), or attempt to limit the online distribution of broadcast 
content. See John Bergmayer, The US-Colombia Free Trade Agreement: 
Policy Laundering in Action, Public Knowledge (Apr. 20, 2012), http://
www.publicknowledge.org/blog/us-colombia-laundering (arguing that 
language in some free trade agreements could be read as limiting online 
video distribution). But see Comments of ABC, CBS, and NBC Television 
Affiliates in MB Docket No. 12-83 (filed June 13, 2012), available at 
http://apps.fcc.gov/ecfs/document/view?id=702
1922660 (arguing that it would be consistent with such agreements if 
online systems were categorized as MVPDs and subsequently followed 
standard retransmission consent procedures).
---------------------------------------------------------------------------
    A service like Aereo's raises issues of spectrum policy as well as 
copyright. Broadcasters are given free use of the public's airwaves in 
exchange for certain public obligations, such as the obligation to 
provide free programming to the public. While it is true that Aereo 
does not pay retransmission fees like MVPDs do, it is also true that 
Aereo, unlike MVPDs, only provides people with access to the free local 
signals they are already entitled to view. As Congress found in 1976,

        The Committee determined . . . that there was no evidence that 
        the retransmission of ``local'' broadcast signals by a cable 
        operator threatens the existing market for copyright program 
        owners. Similarly, the retransmission of network programming, 
        including network programming that is broadcast in `distant' 
        markets, does not injure the copyright owner. The copyright 
        owner contracts with the network on the basis of his 
        programming reaching all markets served by the network and is 
        compensated accordingly.\48\
---------------------------------------------------------------------------
    \48\ Copyright Law Revision, House Report No. 94-1476 (1976).

    The majority of viewers do not watch over-the-air broadcasters 
directly, but only as those stations are carried by MVPDs. This leads 
some to question whether the allocation of spectrum to broadcasting 
makes sense at all.\49\ Certainly, the broadcasters who have said they 
may no longer want to continue broadcasting should feel free to return 
their spectrum to the public so that it can be put to other uses.\50\ 
However, broadcast content is still important to many viewers and, 
driven to cut the cord because of rising MVPD subscription costs, a new 
generation of viewers is becoming more familiar with rabbit ears and 
over-the-air viewing.\51\ Aereo and services like it should be part of 
this. If Aereo ultimately wins the court challenges against it and the 
Senate decides to revisit the law, it should consider creating a path 
where online video services can choose to operate as online MVPDs, 
which would increase the opportunity for content creators to get paid 
for their work and to reach new viewers. However, making an antenna 
rental service illegal would not benefit the public, would provide no 
benefit to creators, and would be contrary to the public purpose of 
broadcasting.
---------------------------------------------------------------------------
    \49\ For example, Economist Thomas Hazlett has observed that 
``[t]oday, the social opportunity cost of using the TV Band for 
television broadcasting--294 MHz of spectrum with excellent propagation 
characteristics for mobile voice and data networks, including 4G 
technologies--is conservatively estimated to exceed $1 trillion (in 
present value).'' Comment of Thomas Hazlett, in A National Broadband 
Plan for Our Future, GN Dckt. No. 09-51, Federal Communications 
Commission (filed Dec. 18. 2009), available at http://mason.gmu.edu/
thazlett/pubs/NBP
_PublicNotice26_DTVBand.pdf.
    \50\ See John Bergmayer, As Broadcasters ``Threaten'' to Shut Down, 
They're Not Getting the Reaction They Were Looking For, Public 
Knowledge (Apr. 10, 2013), http://publicknowledge.org/not-the-reaction.
    \51\ Christopher S. Stewart, Over-the-Air TV Catches Second Wind, 
Aided by the Web, Wall Street Journal (Feb. 21, 2012), http://
online.wsj.com/article/SB1000142405297020405980
4577229451364593094.html (``It's cool to have rabbit ears again.'').
---------------------------------------------------------------------------
Conclusion
    As they have in the past, policymakers are starting to consider the 
implications of increasing change in the market for video distribution. 
History provides examples both of protectionist regulations that should 
be avoided today, and of pro-competitive measures that enable new 
entrants to reach viewers. But today is different in one way: Finally, 
the technology exists that could eliminate the physical, bottleneck 
control of video distribution that has existed in various forms for 
decades.
    If policymakers take some simple steps to facilitate the 
development of competitive online video now, later they can begin to 
disengage from regulations that were designed to counter the effects of 
this bottleneck control. However, if they fail to do this, it is likely 
that incumbents will be able to continue to shape the development of 
the video market and extend their current dominance indefinitely. While 
the Internet provides grounds for hoping that the future of video will 
be better for consumers, policymakers have a lot of work to do to help 
make that happen.

    Senator Pryor. Thank you.
    I will go ahead and start the questions with Senator Smith.
    Senator Smith, I know that broadcasters have obligations, 
which I like and I think are based on good public policy, and 
we have seen decades of good results as a result of that. But 
these same obligations do not exist on the Internet.
    So could you tell the Subcommittee here what might happen 
if, you know, for some reason those obligations went away?
    Mr. Smith. Mr. Chairman, broadcasting is in competition 
with everyone else providing video. Obviously, we believe we 
earn our licenses every day, with all the public service that 
we do, the decency rules that we observe, the children's 
programming we provide, the local news, weather, sports, 
information, emergency information. These are the values that 
broadcasting represents, and they are valuable still.
    I think I infer from your question that if you take 
broadcaster spectrum away, will those same regulations of 
public service apply to the Internet? And I would simply say, 
my experience is that that would be a real steep climb in the 
U.S. Senate.
    But the question is, if you compromise broadcasting, who 
serves those interests? And the answer is, no one steps up to 
those kinds of obligations. If you imposed indecency 
regulations on the Internet, you would collapse the business 
model of many of the people involved in that.
    But notwithstanding an episodic, fleeting expletive or a 
wardrobe malfunction, I am very proud of the fact that 
broadcasters work hard to make sure that we are not purveyors 
of indecency and that families have a place to go where they 
can have some confidence that their families can view what is 
on the television.
    But we compete with the lowest common denominators of 
production, and that is the other pressure on the other side of 
us. But the best I can tell you, our spectrum comes with public 
service obligations that only we deliver.
    Senator Pryor. And can you tell the Subcommittee what your 
industry is doing to increase consumers' access to your 
programming for online and mobile platforms?
    Mr. Smith. Well, just recently, ABC announced that they are 
putting through a streamed process their programming.
    I am pushing very hard on my members to deploy in more 
stations mobile facility, so that the 130 stations that now 
provide--or 130 cities that now have mobile, that that can 
expand all over the country. That is the very best way you can 
get video through the broadcast architecture.
    It is one-to-everyone in a locality. It is local, and it is 
free. And it is live; it is big-event. And those are the 
qualities that I think make, as I said in my testimony, when it 
comes to video, we are indispensable, even irreplaceable. There 
is not enough spectrum in the universe to do all video one-to-
one. So you have to preserve broadcasting if you want those big 
events, particularly those emergency events, available to the 
American people.
    Senator Pryor. Mr. Powell, let me ask you, I wanted to give 
you a chance to respond to Senator McCain's opening statement 
and the bill that he has filed.
    You know, on one level, it may seem very commonsense that 
all consumers would have a choice and be able to go aa la carte 
and pick out their programming. And, you know, that is kind of 
intuitive, that, yes, that makes sense. But I would like to 
hear your response from the industry's perspective on what 
problems that presents.
    Mr. Powell. Sure. Thanks for the question.
    First of all, Senator McCain has a longstanding and deep 
interest in this. And I had the privilege when I was Chairman 
of the FCC to work with him on this issue and many more quite 
extensively.
    As you point out, Mr. Chairman, the objective seems 
entirely reasonable and noble and quite intuitively right, that 
somehow if you bought less, you would pay less. That seems 
logical.
    But many independent, third party studies that have looked 
at this very carefully have concluded that is not likely to be 
the case, including the GAO in 2003, the FCC again in 2004, and 
the Congressional Research Service again in 2006, as well as a 
bunch of academic reports, have concluded that it is a very 
serious question mark whether consumers would actually have 
lower bills or cheaper services as a consequence of aa la 
carte.
    The reasons are relatively clear when you think about it 
for a moment. If you take a channel that is accustomed to a 
large audience size and allocating its services across a big 
base and the advertising revenue and subscription revenue that 
go with it and have it sold directly to the consumer aa la 
carte, a couple of things happen.
    One, their audience size has shrunk dramatically. And so to 
make up for the revenue loss associated with advertising and 
their revenue base, they are very likely to have to raise the 
individual price of that programming quite substantially than 
the $4 or $5 that Senator McCain was referencing when it is 
provided in a bundle.
    It doesn't take long for consumers, putting those pieces 
together, to quickly get to a package that costs something very 
similar to what they were paying before, if not more. It is not 
a good deal for consumers if you pay $10 for 10 channels and 
you were paying $10 for 100. And I think that there has been 
some quite serious academic work to show that that is a 
possibility, a very likely possibility.
    And so, while the concern is respectable and noble and one 
that we should continue to work on, I think we have our 
profound doubts that aa la carte would actually deliver a 
lower-cost product to the American consumer.
    Senator Pryor. Senator Wicker?
    Senator Wicker. Mr. Powell, let me start with you. I 
believe you testified that the current statute is frayed, needs 
some work, but you don't think this is a good time for an 
overhaul of the Act; we need to do something surgical because 
the state of the industry is fast-moving, we are in a period of 
transition.
    When will it ever be less fast-moving than it is now? And 
when will we ever not be in a transition era?
    Mr. Powell. It is a very good question, because we may 
never. That is a fair enough question.
    But I am a big believer that you can migrate existing 
regulatory regimes as well as just throw them out and try to 
replace them with a grand scheme. And I think by tackling the 
problems as they surface, you have demonstrable evidence, very 
specific fact patterns, understandable technology that you can 
directly address, that I think is very, very challenging to try 
to do in a big, comprehensive rewrite.
    So, again, I would emphasize, we are not saying we are 
enamored with every aspect of the 1992 Act and that no change 
over time is necessary. But I think it is a more prudent and 
deliberate approach to try to address specifics as they arise, 
in which fact patterns and demonstrable evidence are available 
for us to address.
    It is dated, as you note, in the sense that it was based on 
a lot of factual premises that are simply no longer true. I 
would be the first to admit that in 1992 the cable industry was 
unquestionably a monopoly provider. We had 98 percent of the 
multichannel video market. Today, that percentage is under 60 
percent. At the time the 1992 Act was written, the industry was 
vertically integrated with program providers, closer to 57 to 
60 percent. Today, that number is down to 14 percent.
    But many of the rules that underlie the 1992 Act are meant 
to address those concentrated considerations, and I think those 
rules over time will have to be modified to reflect reality.
    Senator Wicker. OK. What specifics have recently arisen 
that would be the target of your so-called surgical changes?
    Mr. Powell. Well, I would say, among our members, there is 
a difference of opinion on that. And we, as an association, are 
not particularly prepared to present a list of specifics for 
you.
    Senator Wicker. So you are not advocating an overhaul of 
the Act, nor are you coming before us even suggesting the sort 
of surgical limit to changes that your testimony seems to 
advocate.
    Mr. Powell. I would only suggest that any surgical 
proposals we might make or those of our members might make will 
be done, if at all, subsequently to this hearing.
    Senator Wicker. All right. Well, tell me this. For the 
overall industry, for the consumer, what do you fear might go 
wrong with an overhaul, a general overhaul, of the act?
    Mr. Powell. I think we could easily retard or disincent the 
enormous revolution we see taking place. Number one, a 
comprehensive rewrite is a long, complicated, and uncertain 
exercise. That uncertainty that hangs over the industry while 
it is rewritten tends to retard taking risk, making business 
model changes, because you are awaiting the understanding of 
what the rules will be.
    I have been through, as a regulator, many major 
transformational rewrites. I would say that the 1996 telephone 
provisions took almost a decade to settle down, with multiple 
trips to the Supreme Court for resolution of clarity. And I 
think the country underinvested and underinvested in taking 
risks and innovation during that period. I think that is a real 
risk.
    And I don't think some of the problems that some refer to 
are necessarily clear enough for a government response.
    Now, that said, I think we have members, to be perfectly 
honest, who are very concerned about consumer affordability, 
and we will also often be talking about ways to manage cost to 
deal with that.
    Senator Wicker. Mr. Bergmayer, would you like to briefly 
comment on Senator McCain's proposal, the aa la carte proposal?
    Mr. Bergmayer. Yes, Senator.
    I support Senator McCain's bill as a first step toward 
broader reform. The Senator, like so many Americans, is clearly 
outraged by ever-increasing cable bills. And the bill promotes 
his pro-consumer goals by taking note of the various regulatory 
advantages that broadcasters and cable already get, and it 
requires that these companies serve the public interest to 
qualify for them.
    Notably, as I read it--you know, the bill came out 
recently, but I don't think that the bill outlaws the practice 
of bundling. It simply requires that viewers have a choice.
    I would especially like to single out the bill's response 
to broadcaster threats to take high-value content off the air. 
This would clearly be an abrogation of the public trust. And 
Senator McCain is right to require that broadcasters serve the 
public if they wish to use the public's airwaves.
    And as just a general observation, I would say the aa la 
carte bundle tends to polarize people because they think it is 
a choice between buying a bundle that has every channel or 
simply assembling your entire subscription on a channel-by-
channel basis.
    Now, there is room in the marketplace for bundles of 
content. Something like Netflix, that is a bundle. You 
subscribe and you get access to everything at once. And many 
online services are like that. And, frankly, I prefer the 
Netflix model of just a single flat rate to get access to 
everything to, you know, the iTunes model of buying every show 
or every series episode by episode.
    That said, what I think people want is a lot more choice. 
It is not bundles per se; it is that they don't like feeling 
like they are getting ripped off. And I think that a lot of 
people today feel like they are getting ripped off. So I 
support Senator McCain's bill because it is aimed at giving 
consumers a lot more choice and flexibility.
    Senator Wicker. Thank you.
    Senator Pryor. Thank you.
    We have been joined by Senator Thune, the Ranking Member of 
the full committee.
    Senator Thune, you are recognized.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Well, thank you, Mr. Chairman. I don't have 
a lot to add. I thank you and Ranking Member Wicker for having 
this hearing.
    And I want to thank our former colleague, Senator Smith, 
for coming back and joining us here.
    And, Chairman Powell, thank you for being here, and Mr. 
Dodge and Mr. Bergmayer.
    We had, earlier this year, an FCC oversight hearing, and I 
mentioned at that time that we needed to focus on establishing 
a 21st century legal and regulatory structure that meets the 
realities of our 21st century economy.
    And as we move forward this year and continue looking at 
various aspects of our communications marketplace, I want to 
learn where our current laws need to be modernized. Every law 
that we pass is based on assumptions, and tends to address 
issues of a given moment in time. And a great deal has changed, 
obviously, in the video market in just the past 5 years, not to 
mention since 1992.
    So, as we look at these issues and think about them, I 
think there are some basic questions that need to be asked:
    Do our laws work? Are they still relevant? And do they 
provide the foundation for innovation and consumer choice?
    And so I appreciate all of you and your testimony and your 
good work.
    And thank you, Mr. Chairman, again, for holding this 
hearing and for the opportunity to just share those comments. I 
look forward to addressing these issues and moving forward in a 
way that will reflect a 21st century economy and the amazing 
changes over the years and technologies that have really given 
the American people higher quality and more choices. And those 
are all good things, so we want to continue in that direction.
    Thank you.
    Senator Pryor. Thank you.
    Senator Fischer?

                STATEMENT OF HON. DEB FISCHER, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Fischer. Thank you, Mr. Chairman.
    And thank you, Ranking Member Wicker.
    In Nebraska, the way that the Nielsen DMA map is currently 
drawn, many people don't get in-state news, especially those 
living around the borders of our state. And as I understand it, 
the map was developed years ago for the purpose of assessing 
advertising revenue, and then Congress codified it and now 
determines where those broadcast signals for cable and 
satellite can be.
    If I can watch Nebraska broadcasts on my computer over the 
Internet, I can tell you, the Internet doesn't represent those 
boundaries, but I can get them. But I can't get them on TV.
    So my question is, to Senator Smith and Mr. Bergmayer, does 
this law make any sense in the current era? Because my 
neighbors in north-central Nebraska, we love our neighbors to 
the north, but we would also like to see Nebraska news.
    Mr. Smith. Senator, I remember vividly sitting in a seat in 
the Commerce Committee and being very frustrated by the very 
issue that you raise, and I introduced a bill to fix it. The 
NAB that I now am employed by fortunately didn't remember when 
they hired me that I did that.
    [Laughter.]
    Senator Fischer. But you thought it was a good idea at the 
time.
    Mr. Smith. Well, I understand exactly what you are saying 
and the frustration. Unfortunately, when the state boundaries 
were drawn, the advice of Thomas Jefferson was not followed, 
that state boundaries be drawn on the basis of irrigation 
basins--in other words, groups of economics. And the Nielsen 
ratings, which we do not control, reflect those economic 
basins, if you will. And yet, if you go to Oregon, they don't 
want to listen to the Cougars and the Huskies; they want the 
Ducks and the Beavers and they want their local news.
    So what I did, with NAB's help, was to work with cable and 
satellite providers to--in one case, one of the satellite 
providers was willing to add a Portland station. It relieved a 
little bit of the pressure, but it did not solve the problem.
    But what we have done and what we will do with you is, if 
you have a particular situation, such as the chairman did in 
Arkansas, we work to try to resolve specific problems.
    But I understand the problem. I am entirely sympathetic. I 
don't have a legal, statutory recommendation for you because 
the statute can't change where the money is, the advertising 
goes. People in Pendleton, Oregon, don't necessarily buy Chevys 
in Portland; they buy them in Pasco, Washington. And this is 
the problem.
    And I wish I had an easier answer, but we will work with 
you and your office to see if we can't get some of the other 
providers to help solve that problem.
    Senator Fischer. I appreciate that.
    Mr. Bergmayer. Yes, Senator, I think that the rules that 
really limit the ability of cable or satellite and VPD 
providers to carry broadcast signals really should be reformed, 
because they demonstrate how the current regulatory system sort 
of freezes relationships and it freezes the status quo and it 
prevents the industry from flexibly evolving to, you know, 
match our technology and to match expectations.
    And I think, for the most part, the broadcast industry 
should be able to control most of its relationships with cable 
providers or satellite providers, you know, with a lot of 
exceptions, as is in my testimony, through voluntary contracts 
and not necessarily--I don't think that those should be backed 
up by FCC rules that sort of set those contracts in the form of 
law.
    Senator Fischer. Would you try to reconfigure the way the 
formula is drawn now?
    Mr. Bergmayer. Sure, that might be a very----
    Senator Fischer. And what would you do? Do you have 
examples right off the top of your head?
    Mr. Bergmayer. For the technical, you know, reformulating 
the boundaries, I don't have any examples off the top of my 
head. That is extremely technical, and, you know, I am sure 
there are people out there who can better assess that than me.
    I would reconsider the basic idea of things like distant 
signal protections, where if a signal in another market is 
willing to be carried by a cable system in another market, I 
don't see why those two businesses can't reach an arrangement 
to do so, and I don't see what the FCC should have to say about 
it one way or the other.
    So I would attack issues like that probably at a more 
fundamental level. However, I certainly acknowledge in the 
short term simply just, you know, revisiting the formula and 
changing boundaries might make a lot of sense.
    Senator Fischer. Good. Thank you.
    Thank you, Mr. Chair.
    Senator Pryor. Thank you.
    Senator Johnson?

                STATEMENT OF HON. RON JOHNSON, 
                  U.S. SENATOR FROM WISCONSIN

    Senator Johnson. Thank you, Mr. Chairman.
    There is either a breakdown in the competitive model or 
there is not. And I guess what I would like to do, just--and I 
don't know who I should ask this of, but whoever has an 
opinion, chime in.
    If we have sufficient competition, describe it. If we don't 
have sufficient competition, describe that. In other words, 
what is preventing the competitive model from offering aa la 
carte? I mean, where is the breakdown occurring?
    Mr. Smith. Senator Johnson, if I might offer my perspective 
from my experience on this committee. I served here when 
Senator McCain was the Chairman. I remember wrestling with the 
issue of aa la carte.
    I will tell you that I have members in broadcasting who are 
for aa la carte and I have members who are against aa la carte. 
And I am with my members.
    [Laughter.]
    Senator Johnson. But, again, why don't we have aa la carte?
    Mr. Smith. What I concluded at the time--I did not vote for 
it, despite Senator McCain's considerable pressure, because I 
saw it as a new market, and, as Michael just indicated in his 
testimony, there are tremendous market forces anyway that are 
creating kinds of adjustments. I foresaw a market developing 
that would keep pressure on this issue.
    And I believe--I can't speak for Michael, but I believe 
there are some cable offerings now and satellite offerings that 
are beginning to offer different kinds of packages.
    Senator Johnson. I mean, is there simply not enough 
competition? Is there collusion? Or is there a law or 
regulation that prevents aa la carte pricing? That is really 
what I am asking.
    Mr. Bergmayer. In terms of specific laws, in fact, I 
believe there are. For example, there are certain provisions 
such as the basic tier buy-through, where even if a cable 
operator wanted to offer, say, their subscribers a broadcast-
free cable package--because, after all, you can access over-
the-air broadcast TV just with an antenna; what do you need to 
pay your cable provider for? However, they can't do that 
because there are rules passed by Congress and the FCC that 
prevent that flexibility.
    So I certainly, you know, support repealing those because I 
don't think they make a lot of sense anymore.
    On the broader point, I believe that online video is 
showing a lot of promise as the potential, the technological 
potential and the business model potential, for online 
competition to MVPDs, to cable, satellite, and the teleco video 
services.
    However, I don't think that they are directly competing 
with each other. You can see that just by looking at the 
prices. I think online video more competes with the video 
rental store. And we have seen what happens. You know, we saw 
what happened to Blockbuster. I think that is much more of what 
that model approach is, as opposed to cable. And that is what 
competition looks like. You know, Blockbuster really had to 
change and is almost out of business. I am not sure exactly 
what their business status is right now.
    But I don't see online video directly competing with cable 
right now, and I think that is why you don't see the cable 
providers really lowering their prices and offering as much 
flexibility. I have seen some improvement, as we would like.
    Senator Johnson. But it has the potential, and there is 
really no legal impediment from the Internet to be able to do 
that?
    Mr. Bergmayer. Well, the Internet market right now, it 
can't get access to the same kinds of content, partly in 
response to the overall regulatory system. And most of the 
really must-see content is still available only on cable. So I 
think that is really--that and, plus, particular challenges 
like data caps and other things are preventing online video 
from becoming the full competitor.
    So, right now, it is simply not a full competitor. But, 
yes, in the unregulated online space, there is nothing stopping 
them. In fact, some online services, like iTunes I mentioned 
before, I would characterize those as aa la carte.
    Senator Johnson. Mr. Powell, I get your point that just by 
going aa la carte doesn't necessarily mean the service is going 
to be reduced. By the way, consumers are actually voluntarily 
paying these prices. So, you know, there is the marketplace 
actually working.
    But is it fair for some content to subsidize the other 
content, which is basically what you are doing as you bundle? I 
mean, why not let each individual program stand on its own and 
fight for its own audience?
    Mr. Powell. Sure. A couple of things that I think might be 
informative.
    One, I would say the way the market is evolving, consumers 
have aa la carte depending on the window and timing that they 
want to watch it. There is a distinction between I want to 
watch it in its live, current, premium window aa la carte 
versus your willingness to wait sometimes the next day, 
sometimes a few days before it is available on iTunes or 
Netflix or many other services that offer those programming 
offerings just as a show bundle.
    Second, one of the big challenges in our market is the 
economics of funding high-value content. So the average 
television show today is $3 million to $4 million an episode to 
produce. When it runs in the first window, it often runs on 
cable in an effort to recoup some of that expense----
    Senator Johnson. But, again, if it is so good, won't people 
pay for that? If it is not quite so good, they won't pay for 
the price.
    Mr. Powell. I think the challenge is, in a country 
committed to diversity of content, there would be a whole host 
of content that we would say collectively we value that 
probably would not survive being sold aa la carte. This is one 
of the challenges of the television economic business.
    If you are standing alone, you are depending 100 percent on 
the subscriber base that you can attract, the advertising you 
can attract. The challenge is for niche audiences or minority 
audiences that have a high-intensity love for a particular kind 
of content or programming, that programming potentially would 
not be able to survive economically being distributed and sold 
solo as opposed to a model in which the whole subscription 
model allows it to be sold in a bundle.
    Senator Johnson. So, in other words, your association does 
support subsidizing certain programs over others?
    Mr. Powell. Well, I think an aspect of the cable model is 
it supports a wide range of diverse choices of channels that 
would be difficult to survive on their own. I do think that is 
a beneficial part of the cable model.
    Senator Johnson. OK. Thank you.
    Senator Pryor. Senator Warner?

                STATEMENT OF HON. MARK WARNER, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Warner. Thank you, Mr. Chairman.
    It is great to see you all.
    I guess, you know, as we think about here broadcast, cable, 
satellite, you know, each along the way have been in periods of 
dominance, and now each of you kind of being evidence of the 
status quo of content distribution, I guess, one, I would 
love--and I know this is a hot topic, but, you know, as we see 
the next wave of disruptive technology come along, whether it 
is the Aereo circumstance and some of the litigation that has 
been talked about, and the other members have mentioned Netflix 
and some of the others, you know, how do you all see these--
what role, if any, that government should play as these new 
disruptive technologies come in and really, basically, 
potentially threaten each of your core business models?
    And I would like to hear Mr. Bergmayer's comments on that, 
as well.
    And then maybe a subset of that question being, you know, 
how do we factor in kind of the new revenue stream around 
digital rights, which is basically a whole new revenue stream 
that doesn't fit within our existing legal structure?
    Mr. Smith. Senator Warner, I think the thing that Congress 
can do is to be faithful to what is as old as our country, and 
that is our Constitution, which includes copyright. If you have 
copyrighted material, rights go with that that deserve 
compensation when others use it. I think that that is a 
principle that was valuable in the beginning and is important, 
hugely important, today.
    Senator Warner. That goes to the Aereo question, I guess.
    Mr. Smith. Well, I would just simply say I have members who 
are in litigation, and I can't speak to the facts of it or the 
technical details of it. But it seems to me that if someone 
takes copyrighted material, distributes it, and charges for it, 
and does not do what other MVPDs do, that that is called 
piracy.
    And I think if you are faithful to the principle of 
copyright, the constitutional principle--ultimately, the courts 
will settle this and see if there is an exception. I don't 
believe there should be, because I think that begins to undo 
the creative community.
    Senator Warner. I would like to hear from everybody else.
    Mr. Dodge. That said, I think copyright law also needs to 
keep pace with the times.
    And so, for example, are there any devices out there today 
that don't have buffers, for example, and does a buffer make a 
copy, and should that copy be entitled to a royalty. And I 
guess it all depends on the facts and circumstances of a 
particular case, but, you know, our set-top boxes today are 
really computers. And if we make a transitory buffer copy, 
should that be an additional royalty to the copyright owner? I 
would put forth not. If you pay one royalty at the beginning, 
then the consumer, through fair-use principles, should really 
be able to do what they would like with the content.
    Mr. Powell. Senator, I would just say that the arrival of 
the Internet as a genuine and viable distribution platform will 
shake up the marketplace. I read it in articles, every week. 
One week, they are the greatest threat to our industry ever 
seen; the next week, they are a complement; and some of that 
language coming from the various CEOs who said the one comment 
last week and are saying a different comment this week. It is 
really in convulsive change.
    The best part about it, I would observe, is that it is 
creating economic competitive stimulus to force companies to 
continue to innovate at a much more rapid pace, try to provide 
much higher-value services to consumers, and to compete with 
the pressures of content for nearly free that exist in the 
Internet space. It puts an even better punctuation mark on our 
need to continue to find ways to provide flexible channel 
offerings and to provide affordable services.
    So I think, on balance, all of these things are exciting 
and positive, and I think they are going to continue.
    I think it is very typical, sort of like a spinning jump 
rope, to say to Congress comprehensively that we know enough to 
step into that and write an entirely new, responsive, 
effective, comprehensive regime. And I still think it is 
prudent to try to evaluate issues on a very specific basis as 
they arrive.
    But I think if you just sit here from the perspective of 
consumers, what is not to like about the future that is 
emerging? And I think it is very, very exciting, generally, 
and, you know, I think it is something we should be excited 
about.
    Senator Warner. Mr. Bergmayer? And then I have just one 
other quick question, if I could.
    Mr. Bergmayer. Yes, I mean, sure, on the Aereo topic, two 
courts have now found that Aereo is an antenna rental service 
that does not require a license, and I think that both of those 
courts were correct. And I think it would be a very bad idea to 
change copyright law to make it so that services like Aereo 
would require a license. You don't need a license to put an 
antenna on the roof of your house, or rabbit ears, and it is 
hard to see why all of a sudden now you do need a license 
because you rent an individual antenna which happens to be 
located in another building in town.
    And if you were to change copyright law to make services 
like that unlawful, there could be all sorts of unintended 
consequences for the Internet economy. And I think that is such 
a growing part of our economy today, I think it would be a bad 
idea. All kinds of services that can exist today without having 
to separately negotiate licenses, for example, services that 
allow you to access your own content that you store online, 
like Dropbox, would they suddenly need to get public 
performance licenses because they allow people to access their 
own individual content? I think that would be disastrous.
    So, you know, for that reason, I don't think that the law 
needs to change to match Aereo.
    And in broadly answering your original question, which was, 
you know, how should regulations cope with the rise of new 
technology, I think one of the primary ways is ensuring that 
these innovative online services are able to reach consumers 
over the broadband pipe and that they are not discriminated 
against and there are not data caps or other measures that, you 
know, prevent the next Netflix from offering innovative service 
to viewers.
    Senator Warner. I guess the only--and I appreciate that.
    And I know my time has expired. I just want to ask Senator 
Smith one last question, though.
    You know, I am struggling with this because on one hand I 
absolutely understand your concern about piracy and the notions 
about content. But I also have to say, when I heard, I believe, 
Mr. Carey from Fox say recently that, you know, if this 
continues, Fox or others may start taking content off 
broadcast, simply putting it on cable, I have to tell you, that 
raises a real concern for me. Because your broadcasters, unlike 
some of the others, actually have public spectrum you got for 
free, unlike, you know--I think if we were looking backward, 
those of us who used to be in the wireless industry, finally 
the government got smart and said, let's go ahead and auction 
this spectrum; it is a public good.
    If you all have had this spectrum, which is an enormous 
value, for free and you are threatening to withdraw content 
because of these other challenges, then it really raises, to 
me, the question of whether you ought to be able to keep that 
spectrum for free, which is a public good and maybe could be 
utilized for better public purposes.
    Mr. Smith. Senator Warner, I don't speak for Mr. Carey. Fox 
is an esteemed member of the NAB. I think he was speaking of 
hypotheticals or potentials. I think Fox produces enormously 
valuable content that gets huge viewership, and they have to 
figure out how to pay for it.
    I understand the concerns you raised, but I would also 
simply say that we don't feel like we got our licenses for 
free. Those licenses come with significant public policy 
choices of the Congress that those airwaves should be used for 
localism, to produce news, weather, sports, and particularly 
emergency information that literally is the lifeline in either 
manmade or natural disasters. So broadcasters earn those 
licenses every day by obeying and observing, being faithful to 
the conditions of those licenses.
    But I won't speak for Mr. Carey. I understand what you are 
saying. I think he is simply saying, we are not going to sit 
still for piracy.
    Senator Warner. And I would only simply say, sir, that I 
would imagine if we were to take this spectrum and say, let's 
go ahead and put a requirement out there, since we are losing a 
lot of that local content as broadcasters move more and more 
content upstream into national bases, and say, we are going to 
sell off some more digital component of that spectrum to 
entities that will provide that very local content, that 
emergency response, all those very valuable items, that there 
still would be a lot of excess, additional value that could 
perhaps be better utilized for the public.
    And, candidly, the Government could receive a lot of 
revenues from that, as well.
    But thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Senator Begich?

                STATEMENT OF HON. MARK BEGICH, 
                    U.S. SENATOR FROM ALASKA

    Senator Begich. Thank you very much, Mr. Chairman.
    And let me, if I can, I want to follow up, Mr. Powell, in 
the discussion you had with Senator Johnson, if I could.
    And when you talk about the subscription or the packaging, 
is the thought that there may be some that are new entries of 
product that--because people don't know they exist but, by 
putting them into a package, that people like me that surf 
channels might stumble across it and say, wow, I didn't know 
this existed, where did this content come from, and suddenly 
become someone who wants that content? Is that the thought 
behind it?
    Because I want to follow up, because----
    Mr. Powell. Yes, sir.
    Senator Begich. Is that what you are thinking there?
    Mr. Powell. I think there are two versions of the thought: 
the one that you have described very well, that there is an 
element of the television experience that is about discovery. 
It is about stumbling on something you didn't know you loved or 
wanted. I can certainly list a long string of shows that I 
discovered that I don't know that I would have thought to buy 
in advance with full knowledge of what I am buying.
    Moreover, I am not so sure in the course of the year my 
interests or patterns wouldn't change, that I got tired of that 
program or that program went off the air and now there is some 
other program on another channel that I haven't subscribed to 
that seems interesting. That is just a complicated movement of 
the way consumers consume television.
    I think the second point, the one I was making earlier too, 
is, let's say you are interested in launching a brand-new 
network. And a brand-new network to survive has to audience, it 
has to have subscription. Right now in the model, you still 
have to convince cable operators to carry you. You still have 
to convince them that it is worth paying the price that you are 
asking for for carriage. But if you get on that system, you are 
being accessed by everyone in that subscription household.
    If it was aa la carte and you basically had to go 
essentially knock on doors and convince people to buy something 
they had never seen, something they have never experienced, I 
think there really would be a challenge for new and diverse 
networks to----
    Senator Begich. Yes. And I guess I am following--as you 
were talking, I am thinking about from a network standpoint, it 
is like a pilot. You know, if someone had a pilot--in this 
case, a pilot channel--to go out and market, to get the share 
they need, to get their customer base would be very expensive. 
But if they have to just convince a company to carry something, 
it is a little bit easier. Is that a fair statement?
    Mr. Powell. Yes, sir. And if you think about it----
    Senator Begich. That is what your thought is, right----
    Mr. Powell. Yes.
    Senator Begich.--and that is how you are doing that?
    Mr. Powell. Another dimension of it, you understand, is 
that all the marketing, all the sales, all that work is done by 
the cable operator. If you had to sell aa la carte, you would 
have to absorb the cost and expenses of doing all of that 
yourself.
    Senator Begich. Right.
    I am going to come back to one more issue on cable, but I 
am going to go to Mr. Dodge, if I can.
    And you may not want to answer this because it is regarding 
your company's effort to merge with Sprint, and also SoftBank, 
I think, is also considering or in the process of going through 
a process. And SoftBank, which is predominantly foreign-owned 
or a foreign process--can you--I don't understand the process 
of if you are a domestic company and they are a foreign company 
and they are buying into a domestic company in this business, 
how that process works, in the sense of ensuring that we 
understand, when a foreign company buys some of our network, 
what happens.
    And is there a difference between what you have to go 
through and what they have to go through? And what are the 
risks--and this may be unfair because you obviously would 
prefer the company, you, to buy it, not them. I am guessing 
that; I may be wrong, but----
    Mr. Dodge. That is true.
    Senator Begich. OK.
    [Laughter.]
    Senator Begich. I am just guessing here. So I am going to 
try to ask you to be as nonbiased as possible, which I know is 
going to be difficult, but I just want to understand the 
process.
    So you come and you buy a company like Sprint, or SoftBank, 
which is foreign-owned, wants to buy Sprint. Don't they have to 
go through a whole other process? Or help me understand that a 
little bit.
    Mr. Dodge. They do. For a foreign company to acquire FCC 
licenses in this case, they have to go through a CFIUS process, 
and the FCC also----
    Senator Begich. Say that process again.
    Mr. Dodge. CFIUS, C-F-I-U-S, which is the Committee for 
Foreign Investment in U.S. Companies, I believe.
    Senator Begich. Yes. OK. I am with you now.
    Mr. Dodge. Which takes a look at the national security 
concerns that may be associated with a foreign company owning 
broadcast or FCC authorizations generally.
    And we do think that, you know, there is a difference 
between us and SoftBank acquiring Sprint, really for two 
primary reasons, one of which is, you know, we think a wireless 
nationwide network today is an asset that has, you know, 
important national strategic significance. And all things being 
equal, you know, we think it is better to keep it in U.S. 
hands.
    And, specifically, assuming that the Clearwire spectrum is 
rolled up into Sprint or if Sprint keeps its controlling 
interest in Clearwire, the 2.5 gigahertz spectrum that they 
hold is evolving as the global standard for LTE mobile 
deployment. So we think it is preferable for a U.S. company to 
own that huge swath of spectrum in the United States.
    And, similarly, Sprint has an enormous fiber backhaul 
network with numerous government contracts that rely on that 
for national security reasons. So we think, again, all things 
being equal, it is better for an American company to hold 
those.
    Senator Begich. Very good.
    Let me ask you one last question on that. Obviously, my 
state is a very rural state, and I mean extremely rural. The 
description you just gave, I mean, what gives--and, again, this 
is probably self-serving to you, so, again, try to be as 
nonbiased as possible here. But, you know, obviously, my end 
issue is, how much can we provide to rural communities and what 
would give the most access to rural communities? At the end of 
the day, that is what I look for. And so give me your thoughts 
on that.
    Mr. Dodge. Yes, well, I think our proposal is to use that 
2.5 gigahertz spectrum to actually increase broadband 
capability in rural areas for unserved and underserved 
households, which we estimate is about 40 million people today.
    And we are uniquely positioned to do that because we 
actually have an installation network. We are largely a rural-
based satellite TV provider today, and we have installers in 
every square inch of the country who could actually go and put 
outdoor antennas on the sides of people's houses, which allows 
the propagation of the 2.5 gigahertz spectrum to go much 
further and reach, as I said, you know, the 40 million unserved 
and underserved households in rural America for broadband.
    Senator Begich. Very good.
    Mr. Chairman, if I could ask one last question of Mr. 
Powell.
    Mr. Powell, thank you very much, again, for that answer, 
but I have another question. I have a 10\1/2\-year-old, and so 
I am always wondering what he is watching.
    [Laughter.]
    Senator Begich. But I have a--and I won't say the company 
name, but I do love this system, and I want to just suggest one 
piece added to it. And that is, I literally was flying, I was 
on Gogo Internet on the plane, sending a note to my wife 
saying, what is the channel my son is watching right now, and 
she says--I said, great. I literally went on and changed it 
online, and it changed it. And I said, did he notice it 
changed? And she said, yes, but he flipped it back. I said, I 
am going to change it again.
    [Laughter.]
    Senator Begich. And I literally used my iPad, obviously, 
and I was doing that, and I changed it again. And I was really 
testing the system. I mean, I was flying back to Alaska, 
changing his channel to a more educational channel, in my view. 
But what I wanted to do is, at that moment, also lock him out.
    So I am just giving you a little--I think from a parent's 
standpoint, it is an incredible tool. I mean, literally, 
anywhere I am, I can see what he is up to, and if I don't like 
the channel he is on, at that moment, I can lock him out. That 
is what I would love to go to the next stage.
    So I am just giving you that from a parent of a 10\1/2\-, 
11-year-old. Give me a couple more extra tools, because, you 
know, as a parent, you always--you know, there are a lot of 
channel choices. You know, we have the ability on the mechanism 
there to lock out channels, but sometimes there are channels 
that have some really good content and you want that show but 
you may not want the whole channel because later in the evening 
they may have content you don't want them to see, or limit his 
content.
    So I am just giving you a thought to the industry. I think 
it is amazing that I was able--my wife was very impressed, so 
now it is on her, you know. I think she will lock me out of 
channels or something, I don't know.
    [Laughter.]
    Senator Begich. ``No, you can't be watching any more 
movies,'' or something. But it is really--I found it very 
impressive. So I just want to throw that----
    Mr. Powell. Well, thank you. I will definitely take the 
suggestion back. I can tell you, I try to lock out my 24-year-
old, too, mostly because he is running up the cable bill.
    Senator Begich. That is exactly--you just said why I do it, 
too.
    Mr. Powell. And, by the way, I would love to work with you, 
because there actually may be ways to do what you are trying to 
do in some of our systems. So----
    Senator Begich. I would be game.
    Mr. Powell.--I could look at yours.
    Senator Begich. I think it would be great. From a parent 
standpoint, it is great, because so much is mobile now. If you 
can make that access point----
    Mr. Powell. Well, we have worked hard to move interfaces 
and channel-changing capacity into devices like iPads so you 
can do just what you said, as well as really invigorate the 
parental controls in our set-top boxes. So anything we can do 
to make those two things work together better we will happily 
pursue.
    Senator Begich. Great. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    I have a few more questions.
    Senator Johnson, do you have other questions? Let me go 
ahead and recognize you, Senator Johnson. My understanding is 
we are going to have a vote on the floor at noon. So go ahead 
and ask a few questions, and I will ask a few questions before 
we----
    Senator Johnson. OK.
    Again, I just want to follow up on the competitive model.
    Mr. Powell, you used the term ``convulsive change.'' I got 
in trouble using the word ``great obstruction,'' but that is 
really how economies move forward.
    Mr. Powell. It is a good trumpeter word. That is good.
    Senator Johnson. What I am getting a sense out of a lot of 
people on the panel here is that we really need to proceed 
cautiously. I understand Senator Begich's concern with 
something like a lockout, but I think that is something the 
private market ought to institute, not a government solution.
    So I think that is--you know, obviously, a hearing like 
this is about legislation. And I guess I am asking, the 
competitive model works, the competitive marketplace is a 
marvel; we don't want to screw it up. So are there things that 
government needs to do to get out of the way? Are there 
legitimate governmental roadblocks to that competition versus 
roadblocks that will just be taken care of over the course of 
time through market competition? Maybe they are not here quite 
yet because of technology, but over the course of time. Let's 
not have government step in and screw it up.
    So I will start with--I guess just kind of work down the 
list, or the table.
    Mr. Smith. Senator Johnson, I think, philosophically, I am 
a big proponent of markets.
    I also know that many of the rules that sometimes you hear 
complaints about where government regulates--a comment was made 
earlier that there is a lot of rural representation on this 
panel. A lot of these rules are to try to protect rural 
residents in Wisconsin. If you get rid of nonduplication, 
compulsory license, things like this, what are you really 
getting rid of? You are getting rid of the congressional intent 
to foster localism. Because if you just go where the money is, 
you are going to go to New York, Chicago, Los Angeles, a few 
other big cities, and rural folks get left out.
    And so Congress made a decision, with all of these rules--
compulsory license, whatever--how do we foster this marvel that 
we have in this country that is actually unique to this 
country, where you have local broadcasting in this big, vast 
country that serves so many public values that are valuable 
still?
    And so, always ask yourself when it comes up, I don't like 
this, why? Well, the answer is localism.
    Senator Johnson. OK.
    Mr. Powell?
    Mr. Powell. I would concur that I think we are in a 
tumultuous and competitive market that is generally operating 
well. But I would say, as I am obligated to, particularly on 
the behalf of some of our members, a lot of rules, a lot of 
aspects of the market have government at the table. They shape 
the terms and conditions under which certain things can be 
done.
    And so, while I am not in a position to say which ones we 
would eliminate and in what way or even if we ever will, I 
would preserve the discussion that, where government is a party 
to how market conditions unfold, there can always be a question 
about whether that would be a productive place for government 
involvement.
    But, you know, we reserve what that might be----
    Senator Johnson. OK.
    Mr. Powell.--to a time in which it is----
    Senator Johnson. And I would love to follow up with you 
when you have those issues. I would also love to hear what 
rules and regulations your members disagree on and the reason, 
but we can do that offline.
    Mr. Dodge?
    Mr. Dodge. So I would say, you know, we at DISH love 
competition and a free market figuring out the right answer 
for, you know, all manner of business questions.
    There is one area today where there is not competition, and 
it is largely government-created, which is the retransmission 
consent system that I mentioned in my opening remarks.
    And that is because, when this all started, there was one 
local broadcaster, say, an ABC affiliate, and one cable 
company. It was a pretty fair fight, you know, either called a 
symbiotic relationship or mutual assured destruction, but they 
both needed each other.
    Today you have one broadcaster who is playing three or four 
distributors off against each other, and the result being 
prices are going up by hundreds of percent every time 
retransmission consent comes up for renewal. Consumers, in many 
cases, lose their programming. And it is just not a fair fight.
    So that is why we suggested in those cases allowing us to 
import additional signal to level the playing field just a 
little bit so that the broadcaster has an incentive to actually 
be fair.
    Senator Johnson. But you don't have a problem in paying for 
the retransmission. You just want more competition so that you 
are not pretty well forced to negotiate with just one supplier.
    Mr. Dodge. Correct.
    Senator Johnson. You would like multiple suppliers, 
potentially.
    OK, Mr. Bergmayer?
    Mr. Bergmayer. Now, when you look at the way that people 
watch content, it is created by the network, they lure it to 
the affiliate, the FCC has rules about that. If it goes from 
the affiliate or the local broadcaster to the MVPD, the FCC has 
rules about that. That is retrans and the compulsory copyright 
license.
    So, now, I support localism. However, I think there are 
better ways to foster localism than essentially subsidizing it 
through this baroque regulatory apparatus that holds back 
change and limits choice.
    So I support a lot of the same goals that our broadcaster 
friends support. However, I just think there are better ways to 
accomplish those goals, particularly with the change in 
technology that we have all seen.
    Senator Johnson. OK.
    Thank you, Mr. Chairman.
    Senator Pryor. Thank you, Senator Johnson.
    Let me follow up, if I may. I will start with you, Mr. 
Bergmayer. And that is, you mentioned in your testimony or in 
one of the answers to one of the questions, you mentioned that 
online video distributors are having problems getting access to 
some content. Do you want to explain that a little further?
    Mr. Bergmayer. Sure. I mean, a lot of the online video 
providers we see are very successful, and I don't think they 
really want to change their business model and become 
essentially virtual cable systems. You know, that said, you 
know, we do see that some content that is available through 
more traditional channels simply is not available online. And I 
would imagine that it is not for want of trying but it is just 
not available because the current incumbents, you know, have 
control over the business models and incentives of the content 
creators.
    But, that said, you know, we have seen a number of 
providers--I will just point out Sky Angel, who is a company 
that wanted to offer a family-friendly--they are actually a 
Christian cable system. And they were an online cable system; 
however, you know, they lost access to certain content because 
they were an online system, and for that reason only. So they 
have a dispute at the FCC.
    And I think, you know, that is just a hint of the kinds of, 
you know, competitive services that we might see and choices 
and control for viewers that we might see, you know, if these 
providers were allowed to basically, you know, do the cable 
model except online.
    Senator Pryor. Is that because of copyright considerations?
    Mr. Bergmayer. There are copyright considerations. There 
are telecom considerations. You know, there are ways to handle 
it. I don't think it is an intractable problem, though.
    Senator Pryor. Mr. Dodge, as you know, one of the things 
that we have to do in this committee and the Senate and the 
House have to do is to reauthorize STELA before the end of 
2014. You suggested in your statement that retransmission 
consent is one area that Congress should consider when 
reauthorizing the measure.
    And, you know, I think retransmission consent deserves a 
much longer conversation. I see some heads bobbing back there 
behind you; I think some would agree. But what other issues do 
you think ought to be part of the discussion when it comes to 
STELA reauthorization?
    Mr. Dodge. So an area of potential improvement, I would 
say, is DMA reform or the orphan county issue, which is, you 
know, to use Colorado as the example, there are folks who live 
in the southwest corner of Colorado who are in the Albuquerque 
DMA and every time the fall rolls around ask the question, why 
can't I watch my beloved Denver Broncos?
    Senator Pryor. Which is what Senator Fischer was asking 
about.
    Mr. Dodge. Yes. And so, for that, we proposed a pretty 
simple fix, which is, you know, folks in the ``orphan county,'' 
meaning from a neighboring state, should be able to get some 
in-state programming. We are happy to provide them with the 
programming for the DMA they are in, you know, as, if a will, a 
buy-through requirement, but give them the in-state programming 
to allow them to make a choice, ultimately.
    You know, because, for example, there might be folks in 
southwest Colorado who, to Senator Smith's point, they might 
want to buy their cars in Albuquerque, and if that is the case, 
then they will probably watch Albuquerque stations to see those 
advertisements. But if they are watching Denver, you know, when 
Nielsen calls, they should say, ``I am watching Denver,'' and 
maybe someday those DMAs will flip.
    And then with respect to just STELA reauthorization 
generally, there are several categories of folks that we think 
should still be protected: you know, first and foremost, folks 
in short markets who don't have a network affiliate; folks who 
drive around in RVs; and DIRECTV also has some legacy customers 
who are true DISH Network subscribers that actually live in 
unserved households.
    Senator Pryor. OK.
    Mr. Powell, let me ask you, I know that you offered your 
comments, your response to Senator McCain's proposal. Is there 
something that might give consumers more transparency and more 
choice that might be short of aa la carte?
    Mr. Powell. Well, I think this has been mentioned, you 
know, there is a whole range of product configurations one 
could imagine that would improve the value from the perspective 
of the consumers. And I think all of our companies actually 
believe in that and are working very, very hard to try to 
create much more flexible offerings to give consumers that 
choice.
    I would point to as an example Time Warner Cable's 
offering, in which it attempted to provide a package called, I 
believe, Internet--I mean, Essentials package for a much lower 
price without some of the traditional programming. 
Experimentation like that I think is going on. I think our 
operators would like to have even more flexibility to try to 
make those offerings. And I think that is a positive.
    I also think we shouldn't underestimate the role of the 
cable company as broadband provider and the ability to continue 
to provide an infrastructure that really opens up the world of 
video far beyond what we provide over the proprietary system. 
And in that area, we are working very, very hard to be 
transparent about consumption patterns, usage of meters, 
clarification in billing, better information on the Web. I know 
these are issues you have been focused on.
    So those are some of the things we are doing.
    Senator Pryor. And would some of this desire for more 
flexibility and, you know, pricing structure changes, whatever 
they may be, would that also include more transparency on what 
each channel actually costs the consumer?
    Mr. Powell. Well, interestingly enough, I can only speak to 
it factually; we have operators--there is nothing that prevents 
them--we do have operators who actually break out on the bill 
some of the costs associated with specific programming. Even if 
they are obligated to carry it by contract, I think some of 
them do let the consumer understand what the various consumer 
pieces are.
    Senator Pryor. And let me ask also about rural. This is 
changing gears a little bit, but let me just ask about rural.
    You know, I believe, of course, and I think you all 
mentioned that there are several Senators on the Committee and 
subcommittee that have large areas of rural constituents in 
their states. And, you know, I think it is fair to say we 
believe that they should have the same ability to view the 
programs, not just--you know, I think they should have the same 
access to programs generally.
    So let me ask Mr. Powell, if I can start with you on this, 
is it your experience that customers of small cable companies--
it doesn't have to be rural, but small cable companies--end up 
with the same choices and the same viewing options and 
offerings that folks with the larger cable companies have?
    Mr. Powell. I would say that the small companies, first of 
all, do a very terrific job of providing good service even in 
rural communities. I think they are very proud of that. And 
they work very, very hard to provide a programming lineup that 
is compelling.
    I think it is merely factually true that, being a small 
programmer, buying programming to match what may be provided on 
other cable systems sometimes can be a bigger challenge. Given 
because it is not as large, not as profitable a company, some 
of the premium programming that is understandably relatively 
expensive is a bigger challenge for them to purchase. But they 
work hard at trying to make sure that they can replicate that 
the best that they can.
    Senator Pryor. Senator Smith?
    Mr. Smith. Mr. Chairman, I need to say a word in defense of 
retransmission consent.
    I understand why my friends on this dais don't want to pay 
for broadcast content. We literally represent a few pennies per 
dollar of a subscription-TV bill, but it is the most valuable 
content they have, the stuff that people watch the most.
    Retransmission consent is only a recent, in terms of 
literally years, when we have gotten paid for that value. But 
we are not the driver of what is driving up their costs. We are 
one piece of it, and literally cents per dollar.
    Somehow, if you want to support localism, please remember 
the two revenue streams that provide for it and pay those 
costs: advertising and retransmission consent. Mr. Dodge's 
company now has the technology to get rid of broadcast ads. It 
gets rid of your ads, too, Mr. Chairman.
    It does not get rid of cable or their ads.
    So somehow, if we are going to do business with them, we 
need to be paid for the value of what we provide, because it is 
expensive. And what does it preserve? It preserves localism, 
because I have to tell you, if they bring in a distant signal 
from L.A. into Fort Smith, it is not going to mean a lot to 
them when a hurricane is bearing down or a tornado.
    So these things cost money, and we have only two ways to 
pay for it: advertising and retrans. And they want to eliminate 
our advertising model. It doesn't add up.
    Senator Pryor. Do you want to comment on that, Mr. Dodge?
    Mr. Dodge. Sure, just on a couple points.
    One, you know, Senator Smith is referring to our AutoHop 
technology, and it doesn't get rid of the ads. The entire 
broadcast is actually saved to someone's hard drive, and people 
actually have to enable the functionality to skip ads. So if 
they want to watch them, they are there. If they fast-forward 
into them or rewind, the ads are actually still there.
    Two, it is my understanding that an increasingly increasing 
proportion of retransmission consent fees, which are collected 
ostensibly in the name of localism, are actually being required 
to be sent back to the networks in Los Angeles and New York. So 
I would ask you to view that statement, that retrans 100 
percent supports localism, with a little bit of skepticism.
    Mr. Smith. It does involve both, by the way. Networks and 
local affiliates are actually both hugely important to 
localism.
    Senator Pryor. Mr. Smith, let me ask you, if I may--this is 
a little bit of a change of gears here, but a little bit here 
today but also in other contexts I have heard you talk about 
spectrum and the spectrum crunch that we are in in this 
country, especially when it comes to the most densely populated 
areas.
    And I am wondering if you would share with the Subcommittee 
your thoughts on how the broadcast model helps to alleviate 
some of the spectrum crunch we are seeing around the country.
    Mr. Smith. Let me say as a predicate, if there is any 
misunderstanding, the NAB supports the voluntary spectrum 
auction. We believe it should be done right and not right now. 
It should be done as soon as it can be done right.
    But the uniqueness of the broadcasting signal is that it is 
one-to-everyone, local, free, and live. That is a huge value, 
the architecture of which is not shared by broadband, which is 
one-to-one. As I said earlier, there is not enough spectrum in 
the universe to do all video one-to-one. So when it comes to 
big events and big emergencies, the broadcast signal becomes a 
matter of extreme public safety importance.
    And that is why I think, as you calculate, you know, all of 
the various regulations around it, go back to the original 
intent of Congress as to why they set it up to foster localism. 
If everything is pay on TV now, if you have to go to DISH or 
you have to go to whatever to see television, what does that do 
for the elderly, the shut-ins, the poor, many minority 
communities, who disproportionately rely on broadcast 
television for, in these days, 20, 30 broadcast channels that 
they can access? I think they should be counted too.
    And those are the kinds of things which broadcast spectrum 
uniquely provides to the American people. It was valuable in 
the beginning; it is valuable still. And it is a value that the 
Congress should support.
    Senator Pryor. Senator Johnson, do you have anything else?
    Senator Johnson. Just quickly, as long as we are talking 
about rebroadcasting, the fees that I have--I am looking at a 
schedule right here--about $2 billion last year. Is that 
approximately true? And it has gone from about 1.3 percent in 
2006 to about 7 percent of the total fees paid to cable. So, I 
mean, it has been increasing as a percentage of the cable bill.
    What is the total amount--you said two income streams. What 
is the total value of advertising in the broadcasting----
    Mr. Smith. It would vary with each broadcaster, but I would 
say----
    Senator Johnson. But, I mean, annually.
    Mr. Smith. As a general rule, I would say somewhere between 
15 and 30 percent of their revenue stream is retransmission 
consent. The balance, of course, is advertising.
    Senator Johnson. No, the question I am asking--so, in terms 
of revenue streams coming into broadcasting, you get about $2 
billion per year nationally in terms of rebroadcasting fees. 
What do you get in terms of advertising? I mean, that is 
hundreds of billions of dollars, correct?
    Mr. Smith. It is a lot of money. I can get you an exact----
    Senator Johnson. But, I mean, the retransmission fees, in 
the scheme of things, is a pretty small amount of the revenue 
stream, correct?
    Mr. Smith. Correct. But as telecommunications fractures and 
the advertising model gets smaller, how do you maintain the 
quality, how do you pay the athletes, how do you provide all of 
the content that people demand the most, which comes from 
broadcasting----
    Senator Johnson. And I know that the business model is 
changing dramatically.
    Mr. Smith. Right.
    Senator Johnson. And, again, I just come from the 
standpoint of I don't think government is particularly good at 
trying to redirect that business model very effectively.
    Another quick question, in terms of the total value of the 
spectrum you have right now, I mean, yes, I realize that 
broadcasters are providing the local content and the emergency 
services, all those types of things, but there is a huge value 
locked up----
    Mr. Smith. Right.
    Senator Johnson.--in that spectrum, correct?
    Anybody on the panel have some kind of estimate? Isn't this 
next auction supposed to bring in somewhere around $15 billion? 
And that is still a roughly small sliver of the spectrum, 
correct?
    Mr. Smith. Broadcasting has about 230 megahertz of 
spectrum. Wireless now has, I believe, over 500 megahertz, much 
of it still inventoried. The government has the other half.
    Mr. Dodge. Not all spectrum is created equal.
    Mr. Smith. Not all spectrum is created equal, but the truth 
of the matter is, with the digital technology, digital 
compression technologies, spectrum gets more and more efficient 
all the time.
    Senator Johnson. But broadband providers are paying for 
their spectrum? They have already purchased it? It has been 
auctioned off?
    Mr. Dodge. The wireless providers? Yes.
    Mr. Smith. In some cases, not all.
    Senator Johnson. Do you have any idea how much that has 
cost, whatever the amount you have had?
    Mr. Dodge. We paid $3 billion for 40 megahertz of S band 
spectrum in the bankruptcy auction several years ago.
    Senator Johnson. That was actually probably a pretty good 
deal, right?
    Mr. Dodge. It was an auction. It is fair.
    Senator Johnson. No, I know. I am just saying--I am not--I 
am just saying, that was--again, I am just trying to get some 
sort of feel of overall numbers, overall value. Because it is 
real easy to kind of throw around generalities in terms of, you 
know, local content, but when you start putting a dollar to it, 
that is where competition starts kicking in, and that is what 
we are really talking about here, is dollars going to and from 
different individuals. That is how competition is created.
    I am just trying to get, you know, that basic information 
to tell me what is happening here.
    OK. Well, that is all. Thanks.
    Senator Pryor. Thank you.
    And I want to thank the panel. You guys have been 
outstanding and very informative. We appreciate your time and 
the fact that you were here today.
    What we are going to do is we are going to leave the record 
open for 2 weeks and allow members to ask questions, submit 
questions. We would appreciate you all getting your answers 
back as quickly as possible.
    And since there is no other business before the 
Subcommittee today, we will adjourn. Thank you very much.
    [Whereupon, at 12:15 p.m., the hearing was adjourned.]
                            A P P E N D I X

     Response to Written Question Submitted by Hon. Mark Pryor to 
                          Hon. Gordon H. Smith
    Question. During our hearing, there was much discussion about 
retransmission fees and their effect on consumers' cable bills as well 
as consumers' access to free broadcast television. Could you please 
further describe the amount of revenue that the broadcast networks, as 
well as affiliate stations, receive on a yearly basis from 
retransmission consent fees? Can you provide an average rate that TV 
stations charge pay TV providers for retransmission consent? Could you 
also describe how the amounts generated have changed yearly and the 
reasons for these changes? Finally, can you discuss what benefits this 
added revenue has provided to the networks, affiliate stations, and 
consumers?
    Answer. Retransmission consent negotiations are market by market 
business transactions. Therefore the cost of retransmission consent 
varies widely from market to market and station to station. On average, 
retransmission consent accounts for about 2 percent of a consumer's 
cable bill. SNL Kagan recently estimated that broadcasters' 
retransmission consent fees amount to just 8.9 percent of what cable/
satellite operators pay for the programming of basic cable networks and 
regional sports networks (which receives much lower ratings than 
broadcast programming). Despite the low cost per subscriber, 
retransmission consent offers signification public interest returns. 
Retransmission consent revenues are used to purchase weather radars, 
pay the salaries of journalists and create new and refreshing content 
for viewers.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                          Hon. Gordon H. Smith
    Question 1. In his testimony, Mr. Bergmayer argued that much of the 
most popular video programming is not currently available online 
because the current regulatory system allows broadcasters and other 
media incumbents to decline to make their programming available to 
online video providers. What are the barriers that prevent online video 
providers from making many of the most popular television shows and 
movies available to their customers?
    Answer. Broadcasters have always been committed to offering our 
popular programming directly to consumers for free. In some instances, 
this means cord cutters utilize a digital antenna to view live over the 
air broadcasts. In many other cases, broadcasters have committed to 
putting popular shows online on network websites or via streaming video 
services created by broadcasters such as Hulu.

    Question 1a. What steps can be taken to facilitate online streaming 
of more of the programming that is most popular with consumers?
    Answer. Increasingly, pay -TV providers demand, as a condition of 
carriage, that programmers do not display their content on websites 
other than those available to authenticated cable subscribers. These 
contractual restrictions are designed to curb ``cord cutting'' by 
forcing consumers to subscribe to an MVPD service in order to view 
their favorite programming online. Congress should investigate the 
extent to which MVPDs utilize their market power to coerce programmers 
to restrict access to their content online.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Amy Klobuchar to 
                          Hon. Gordon H. Smith
    Question 1. Improving mobile broadband and emergency communications 
is a key priority of this Committee. This priority led to the call for 
the Federal Communications Commission to design and carry out voluntary 
incentive auctions, a complex auction process allowing television 
broadcasters to voluntarily return spectrum. A key component of these 
auctions is sufficient coordination with Mexico and Canada to ensure 
channel slots remain available at the conclusion of repacking. Can you 
expand on why these negotiations are important for the stations along 
the Canadian and Mexican borders and how your industry is working with 
stakeholders and government officials to ensure effective coordination 
and a successful auction?
    Answer. Organizing television bands to ensure broadcast stations do 
not interfere with one another is an incredibly complex task. Before 
making new interference calculations and assigning broadcasters new 
channel allocations, the FCC needs detailed information and a plan 
prior to repacking. In states that border Canada and Mexico, the FCC 
also needs detailed information on the broadcast television stations in 
these counties before it can effectively reorganize the television 
bands. If the FCC does not coordinate with our neighbors to the north 
and south, broadcast television stations in border states will be left 
with channel allocations that receive harmful interference from Mexican 
and Canadian broadcasters and will prevent U.S. viewers from receiving 
a quality signal. Unfortunately, the Commission has been lacking core 
details on how it plans to treat border stations in the repacked 
television band. It is unfortunate that viewers in Lake of the Woods, 
MN risk losing free television service due to lack of planning and 
information from ongoing negotiations with our partners north and south 
of the border.

    Question 2. The emergence of online video services and the ability 
to send video over multiple internet-enabled devices has changed the 
way viewers expect to access programming. In the hearing last April, we 
spoke about the future of video and how consumers are starting to want 
more and more ``on-demand'' services. They want what they want, when 
they want it, wherever they want it. What are some of the examples of 
how are your members/companies evolving and innovating to these new 
market demands, and do current laws help or hinder these customer-
demanded market evolutions?
    Answer. Broadcasters have made significant investments in Mobile 
DTV technologies that allow subscribers to view free over the air 
television on their choice of mobile device. Unlike other technologies 
that rely on a wireless Internet connection, Mobile DTV utilizes the 
same 6 MHz of spectrum broadcasters use to deliver their over the air 
video to subscribers at home. As a result of Mobile DTV's one-to-many 
architecture, Mobile DTV offers a level of spectral efficiency that is 
unmatched by wireless Internet dependent solutions that rely on a one-
to-one architecture and exacerbate spectrum scarcity concerns.

    Question 3. I understand that 5 local broadcast stations in 
Minneapolis are currently on-the-air with mobile television. Can you 
explain the benefits of this service to my constituents and how it 
speaks to the future of broadcasting?
    Answer. Mobile DTV is a pro-consumer, spectrally efficient way to 
watch television on the go. Unlike other services that rely on wireless 
Internet connections to stream live television, Mobile DTV uses the 
same television architecture as traditional broadcast television. As a 
result, consumers aren't forced to pay for monthly data packages and 
overages, nor are they subjected to quality degradation and streaming 
buffers that delay live news weather and sports. Additionally, because 
Mobile DTV relies on hardened broadcast television transmission 
facilities, rather than cellular towers susceptible to outages in 
severe weather, Mobile DTV is a premiere platform for providing 
emergency alerts and important safety information to viewers who are 
away from a traditional television.
    In a market where wireless providers claim spectrum is at a 
premium, Mobile DTV offers television viewers an affordable option to 
watch TV on the go without compromising quality or wasting precious 
bandwidth.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Mark Pryor to 
                         Hon. Michael K. Powell
    Question. During our hearing, there was much discussion about 
retransmission fees and their effect on consumers' cable bills as well 
as consumers' access to free broadcast television. Could you please 
further describe the amounts being paid to broadcasters and affiliate 
stations annually by your members/company? What percentage do these 
fees represent of your total programming costs and how do they compare 
to non-broadcast access fees? How have these percentages changed 
yearly? How does the amount paid in retransmission consent fees to 
stations compare to the amount paid to non-broadcaster affiliated cable 
networks? Finally, can you discuss the benefits broadcast programming 
provides to your company/companies and consumers, and the challenges 
posed for your operations and for consumers by the retransmission 
consent system?
    Answer. NCTA does not have access to data regarding the individual 
payments made by its members. However, FCC Chairman Wheeler recently 
noted that the costs of retransmission consent agreements have 
increased from $28 million in 2005 to $2.4 billion in 2012--a nearly 
8,600 percent increase in seven years. In 2013 alone, retransmission 
consent fees rose 38 percent, while overall programming expenses rose 
only approximately 13 percent.
    Broadcast programming remains an important part of the cable 
service offering. Therefore, it is important to our member companies 
that negotiations for the carriage of broadcast programming on cable 
are conducted honestly, in a good faith attempt to reach a mutually 
beneficial carriage agreement without demanding unreasonable terms and 
conditions or taking unreasonable negotiating postures.
    The proliferation of video competition from DBS and telephone 
company providers has resulted in increased leverage for broadcasters, 
because broadcasters can withdraw their programming from one MVPD and 
still reach consumers through multiple other MVPDs in the market. 
Certain anticompetitive behavior by broadcasters, such as joint 
retransmission consent negotiations between broadcasters that are not 
co-owned, give broadcasters even more power in retransmission consent 
negotiations, putting consumers at greater risk of losing broadcast 
programming. We believe that the law should be changed to protect 
consumers by addressing such behaviors.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Barbara Boxer to 
                         Hon. Michael K. Powell
    Question. In his testimony, Mr. Bergmayer pointed out that many 
media incumbents control both video content and the infrastructure 
necessary for delivering it to consumers. As a result, he argued, 
online video distributors are subject to practices such as bandwidth 
caps, which some commentators believe may be discriminatory, 
particularly when they exempt video traffic of the incumbent's 
affiliates from the cap. Do data caps disadvantage online video 
distributors such as Netflix and Amazon Instant Video?
    Answer. Far from thwarting the development of online competition to 
its video service, the cable industry's massive and continual 
investments in upgrading and enhancing its broadband service have only 
encouraged and facilitated new online video offerings. Netflix now has 
more than 33 million domestic streaming customers--more than the 
largest cable or satellite operator. We expect and hope that this trend 
continues. Netflix and other online video options have been positive 
for cable. They have driven up consumption and demand for higher 
broadband tiers.
    Bandwidth ``caps'' (largely a misnomer, since subscribers generally 
do not lose access when they reach their plan's ``cap''), or other 
usage-based pricing plans in which subscribers who use the network 
less, pay less, and subscribers who use the network more, pay more, 
allow consumers to select the broadband plan that works best for them, 
rather than requiring them to take a one-size-fits-all approach. Usage-
based pricing is not an effort to discourage broadband use, but rather 
a means of ensuring fairness and economic efficiency. Such pricing 
plans also drive consumer adoption of broadband, as would-be low-volume 
users are able to enjoy lower prices premised on their below-average 
usage. When accompanied by appropriate disclosures (regarding plan 
options and a customer's own usage), usage-based pricing promotes 
consumer choice and empowerment.
    Providing video from an ISP's affiliated MVPD service outside of a 
provider's data cap does not undermine the basic fairness of usage-
based pricing. Cable customers demand and expect value from their 
providers, including the ability to access the MVPD content they 
subscribe to on an anytime, anywhere basis. Exempting an operator's 
authenticated video services from consumption limits is not intended to 
discriminate against online video, but rather to benefit consumers by 
adding value to the video programming package they already pay for.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                         Hon. Michael K. Powell
    Question. The emergence of online video services and the ability to 
send video over multiple internet-enabled devices has changed the way 
viewers expect to access programming. In the hearing last April, we 
spoke about the future of video and how consumers are starting to want 
more and more ``on-demand'' services. They want what they want, when 
they want it, wherever they want it. KWhat are some of the examples of 
how are your members/companies evolving and innovating to these new 
market demands, and do current laws help or hinder these customer-
demanded market evolutions?
    Answer. Consumers increasingly want access to programming on the 
device in their pocket and the tablet on their desk. To meet this 
demand, cable operators have developed apps and services for many 
popular mobile platforms. Of particular note, cable companies are 
streaming live video to their subscribers' mobile devices. Using 
various technologies, subscribers can now access streaming content over 
the Internet on nearly any connected device. Moreover, cable companies 
have adapted to customers' preferences for using a wide variety of 
devices (such as game consoles) and screens (such as smart phones and 
tablets) inside their homes to watch programming that used to be 
available only on their television sets and via cable set-top boxes.
    Cable companies are also enabling their customers to access cable 
programming outside the home. Comcast Xfinity customers can now watch 
more than 50 networks live via the Xfinity TV Go app. Comcast customers 
can also watch more than 25,000 on-demand video choices anywhere on 
mobile devices and download thousands of video choices to watch 
offline. Cablevision has been steadily expanding the channels included 
in its ``Optimum: TV to GO'' service. The service now includes 
everything from ESPN and the Food Network to HGTV. Charter's recently 
launched Cable TV App. provides over 100 channels of live streaming in-
the-home, and a subset outside-the-home.
    The investments cable operators have made in new apps and services 
are beginning to pay off, but current laws sometimes hinder these 
customer-demanded market evolutions. To continue to promote these 
developments, the law should:

  1.  Provide the greatest possible degree of business flexibility. 
        Requiring providers to arrange and offer service in a 
        particular way hinders their ability to create and respond to 
        market demand.

  2.  Contain fewer prescriptive rules. The government needs to resist 
        early and premature entry into the markets based on 
        hypothetical harm, and instead focus on addressing problems if 
        and when they arise. Experimentation in new services and new 
        business models should be encouraged.

  3.  Be applied on a technology-neutral basis. Like services should be 
        treated alike, and all providers of those services should play 
        by the same rules. There is a serious threat to innovation and 
        competition when the law confers any regulatory advantage on 
        particular technologies, or deregulates not when market forces 
        warrant, but when a favored technology is used. Companies 
        facing fierce competition will respond to what consumers want, 
        as providers continuously seek to differentiate themselves and 
        their products and services. Their response should not be 
        driven, or even affected, by a need to fit a service into a 
        particular regulatory box.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Marco Rubio to 
                         Hon. Michael K. Powell
    Question 1. Consumers want their video consumption to fit around 
their lives, giving them greater flexibility and more control and 
choice over the content they watch. As a result, the market is 
responding, and wireless services and capabilities are growing 
substantially: networks are live streaming programming, cable companies 
are providing mobile applications, and WiFi hot spots are expanding. 
Given the expected growth in the wireless video marketplace, how 
important is spectrum to the future of cable companies and video 
distribution?
    Answer. Spectrum, particularly unlicensed spectrum for Wi-Fi use, 
is extremely important to NCTA's member companies and the future of 
video distribution. Our member companies have invested in and deployed 
more than 150,000 Wi-Fi access points, extending their networks to make 
them more flexible, more interoperable, and more convenient for 
customers. These Wi-Fi access points allow subscribers to access fast 
and reliable Internet connections indoors and outdoors when away from 
their home or office, advancing our joint goal of increasing broadband 
access. Americans rely on these access points not only for everyday 
business, education, and entertainment purposes, but also during 
emergencies, such as Hurricane Sandy, Winter Storm Nemo, and the attack 
at the Boston marathon. As Comcast noted in its recent testimony before 
the Subcommittee, ``. . . unlicensed spectrum is an essential input to 
technological innovation, investment, and economic growth. Only with 
access to enough unlicensed spectrum will industry be able to meet 
consumer demand for wireless data services.''

    Question 2. NCTA has stated that cable companies now depend on the 
5 GHz band for their Wi-Fi networks, and that the future of Wi-Fi 
depends on the FCC making more spectrum available in this band and 
adjusting the rules that apply to this band. Why is the 5 GHz band so 
important to the future of consumer Wi-Fi?
    Answer. In the United States, more data is carried over Wi-Fi than 
any other Internet source, and Cisco's Visual Networking Index 
estimates that today's already enormous Wi-Fi traffic will more than 
double by 2015. Wi-Fi has been so successful, in fact, that existing 
spectrum designated for unlicensed use is becoming increasingly 
congested--a trend that will only continue. Indeed, the 2.4 GHz band, 
the primary band used for Wi-Fi, is already reaching exhaustion in 
larger, high-penetration markets. In fact, a recent study suggests that 
Wi-Fi spectrum at 2.4 GHz will be exhausted in many markets by the end 
of 2014. Device manufacturers and service providers are turning to the 
5 GHz band to meet growing demand as the 2.4 GHz band reaches 
exhaustion. The 5 GHz band is particularly attractive for new Wi-Fi 
deployments because it provides a large amount of unlicensed spectrum 
and is compatible with existing Wi-Fi standards, and because 5 GHz 
capability is already built into many consumer devices used worldwide.
    In addition, the next-generation ``gigabit'' Wi-Fi standard--IEEE 
802.11ac--is built exclusively for the 5 GHz band, in large part 
because the 160 MHz channels necessary to deliver gigabit Wi-Fi are not 
available in other unlicensed bands. This new standard is already in 
place and being rolled out in consumer devices. It will allow 
substantially better speed and performance compared with previous 
generations of Wi-Fi. Under current FCC rules, however, American 
consumers do not have access to even a single channel in the 5 GHz band 
where both indoor and outdoor use is allowed that is wide enough to 
accommodate gigabit speeds

    Question 3. NCTA has stated that cable companies are only able to 
use a fraction of the 5 GHz band for their Wi-Fi networks. What 
portions of the band can you use and what portions can you not use? Why 
do the FCC rules make most of the 5 GHz band unusable for cable Wi-Fi 
systems?
    Answer. The FCC divides the 5 GHz band into several different sub-
bands. According to the Commission's current Notice of Proposed 
Rulemaking, these would be: UNII-1, UNII-2A, U-NII-2B (proposed), U-
NII-2C, U-NII-3, and U-NII-4 (proposed). Cable companies overwhelmingly 
use the U-NII-3 band. This band allows outdoor operations, has a 
reasonable maximum power limit, and does not mandate that companies 
employ a difficult listen-before-talk technology called ``Dynamic 
Frequency Selection'' (DFS). The other bands do not support widespread 
operations because FCC rules (1) do not allow unlicensed broadband 
devices, (2) prohibit outdoor Wi-Fi use, (3) mandate a very low power 
level, and/or (4) mandate the use of DFS. I have included a chart that 
explains this visually. The result of these overlapping restrictions is 
that it is technically and economically feasible for widespread Wi-Fi 
networks to use just 100 megahertz of the 555 megahertz potentially 
available for use in the 5 GHz band.

    Question 4. NCTA has stated that it agrees with Congressional 
action in the Spectrum Act to make the ``U-NII-4'' portion of the 5 GHz 
band available for Wi-Fi. Intelligent Transportation Services also will 
use a portion of this band once that technology becomes available in 
the future. Are you seeking to displace ITS or to share with ITS? Given 
the well-understood licensed and unlicensed spectrum crisis, we need to 
make sure every band is used as efficiently and intensively as 
possible. How would sharing improve the efficiency and intensity of use 
of this band?
    Answer. NCTA is committed to sharing the U-NII-4 band with ITS and 
has not sought to displace ITS. The goal must be for the FCC to 
establish a sharing approach that increases the efficiency and the 
intensity of use of the band while also protecting ITS operations when 
companies begin to deploy these technologies. This is critical, because 
today the U-NII-4 band is underutilized. Although fourteen years have 
passed since the Commission authorized ITS to use U-NII-4, there is not 
one commercially available ITS network deployed in the 5 GHz band. The 
ITS industry has only recently begun to coalesce around the IEEE 
802.11p standard, and is now testing a limited number of experimental 
vehicles. The fact that ITS, unlike licensees in almost any other band, 
has not yet deployed presents Congress and the FCC with a golden 
opportunity to make sure that we all build in sharing and efficiency 
from the beginning.

    Question 5. The issue of retransmission consent negotiations has 
garnered the attention of Congress and the Federal Communications 
Commission. In 2011, the FCC issued a Notice of Proposed Rulemaking 
seeking comments on whether the must carry-retransmission consent 
regime should be modified. Last Congress, the Next Generation 
Television Marketplace Act was introduced in the House and Senate to 
reform the must carry-retransmission consent regime. Which entity would 
NCTA rather act on rules for retransmission consent--the FCC or 
Congress, or neither? Why?
    Answer. Retransmission disputes implicate very complex issues, 
which involve both statutes and regulations. NCTA filings at the FCC 
raise concerns about the current trend of broadcasters in the same 
market utilizing local marketing agreements or shared services 
agreements to jointly negotiate retransmission agreements. Cable 
operators in particular have raised concerns about other aspects of the 
current system. We are happy to work constructively with both Congress 
and the FCC as they discuss retransmission consent.

    Question 6. There has been a dramatic increase of programming 
blackouts over the last few years under the current retransmission 
consent regime, from 12 blackouts in 2010 to 91 last year. Why has the 
number of blackouts increased?
    Answer. Inherent in the right to withhold broadcast programming in 
the absence of a distribution agreement is the risk that sometimes the 
parties won't be able to reach agreement. As broadcasters have focused 
in recent years more on retransmission dollars for compensation rather 
than on other issues, business disputes have arisen over differences 
between how the parties value the programming, and the terms and 
conditions of how it is offered.

    Question 7. It seems that, in many respects, it is a good time to 
be a television viewer. Consumers have many choices. The emergence of 
Netflix, Amazon Plus, Hulu, as well as more digital offerings from 
over-the-air from broadcasters has provided a lot of competition to 
cable and satellite providers. Over the years there have been arguments 
that consumers were ``forced'' to buy some cable channels that they did 
not watch, but as best as I can tell, this too has changed in the past 
several years. For example, at least 8 of the largest cable and 
satellite providers offer ``light'' packages that don't include 
channels like ESPN. It seems that the market is working. With renewed 
discussions of the need for aa la carte pricing, would you agree that 
the market is providing consumers choice without the need for 
government intervention?
    Answer. Consumers certainly have a choice among distributors, as 
competition has grown to include satellite providers, telephone 
companies, and Internet-delivered options. Moreover, cable is committed 
to offering a variety of pricing and packaging options to meet 
consumers' needs and desires. As the market evolves, our members will 
continue to work to find compelling and sufficiently flexible 
offerings.
    As policymakers examine the implications of this evolving 
marketplace, including whether to make changes to the existing 
regulatory structure, NCTA looks forward to serving as a resource in 
that discussion.
                               Attachment

                                 ______
                                 
    Response to Written Questions Submitted by Hon. Dean Heller to 
                         Hon. Michael K. Powell
    Question 1. Mr. Powell, cable is a broadband company. Does the cost 
of content slow down broadband deployment or slow down re-investment of 
infrastructure?
    Answer. Cable companies continue to invest vigorously in their 
networks in order to meet growing demand and more broadly to provide 
the advanced high-speed services that consumers want. Since 1996, the 
cable industry has invested over $200 billion in its facilities. These 
investments have also included bringing broadband to previously 
unserved areas.

    Question 2. Is there any reason why an ``aa la carte'' package 
isn't available today? Is there a reason any of the companies 
represented here can't or won't provide it?
    Answer. Numerous studies of retail aa la carte have cautioned that 
consumers would not necessarily enjoy higher value from such a model. 
While it seems intuitive that choosing one's individual channels would 
result in cheaper content, the economic reality strongly suggests that 
may not be the case.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Mark Pryor to 
                            R. Stanton Dodge
    Question. During our hearing, there was much discussion about 
retransmission fees and their effect on consumers' cable bills as well 
as consumers' access to free broadcast television. Could you please 
further describe the amounts being paid to broadcasters and affiliate 
stations annually by your members/company? What percentage do these 
fees represent of your total programming costs and how do they compare 
to non-broadcast access fees? How have these percentages changed 
yearly? How does the amount paid in retransmission consent fees to 
stations compare to the amount paid to non-broadcaster affiliated cable 
networks? Finally, can you discuss the benefits broadcast programming 
provides to your company/companies and consumers, and the challenges 
posed for your operations and for consumers by the retransmission 
consent system?
    Answer. Today, multiple MVPDs negotiate against one monopoly 
broadcaster in a given market, creating an unfair advantage for the 
broadcaster. As a result, the retransmission fees MVPDs pay to 
broadcasters have skyrocketed, leaving customers with higher bills and 
more blackouts. SNL Kagan estimates that MVPDs paid $3.3 billion in 
retransmission consent fees in 2013, and that this figure will soar to 
a staggering $7.6 billion by 2019. DISH is not suggesting that 
broadcasters be denied fair compensation for content, but the multiple 
hundred percent increases that broadcasters are often demanding is 
unsustainable.
    Reforming the retransmission consent regime to address the 
broadcasters' government-sanctioned monopoly could halt the trend in 
rising prices and prevent consumers from suffering blackouts.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Barbara Boxer to 
                            R. Stanton Dodge
    Question. In your written testimony, you propose that cable and 
satellite carriers be permitted to retransmit a non-local market signal 
in situations where a stalled retransmission consent negotiation would 
otherwise result in a blackout for consumers. What legislative or 
regulatory actions are necessary to implement such a change to the 
retransmission consent system?
    Answer. In order to provide blackout relief to consumers, Congress 
could designate those who are caught in a broadcast television blackout 
as ``unserved,'' which would allow DBS providers to import a 
corresponding signal from a different ``distant'' market and pay the 
distant signal copyright royalty fee set forth under Section 119. On 
the cable side, the same result could be achievable by adjusting the 
network non-duplication and syndicated exclusivity rules. MVPDs would 
only be allowed to import a distant signal when the local station has 
refused to keep the in-market signal up while contract negotiations 
continue and viewers have been left in the dark.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                            R. Stanton Dodge
    Question. The emergence of online video services and the ability to 
send video over multiple internet-enabled devices has changed the way 
viewers expect to access programming. In the hearing last April, we 
spoke about the future of video and how consumers are starting to want 
more and more ``on-demand'' services. They want what they want, when 
they want it, wherever they want it. What are some of the examples of 
how are your members/companies evolving and innovating to these new 
market demands, and do current laws help or hinder these customer-
demanded market evolutions?
    Answer. DISH is investing in the emerging Over-the-Top (``OTT'') 
video space to meet consumers' increasing demand for Internet-delivered 
content. For example, DISH today offers a stand-alone OTT service for 
foreign-language consumers, called DISH World. This OTT service 
provides programming in Hindi, Mandarin, and many other foreign 
languages.
    DISH also plans to launch a new domestic OTT video service that 
will distribute live programming. Viewers will be able to access the 
DISH OTT product through any Internet-connected device, and will be 
able to subscribe to a smaller package of channels at a lower price 
than what is currently available under traditional pay-TV packages.
    DISH is focused on responding to its customers' changing needs and 
today's communication laws should reflect the current marketplace. Just 
as DISH is adapting to keep pace with what consumers want, Congress and 
the FCC should work to ensure that all laws and regulations mirror 
today's competitive realities, consumer expectations, and advances in 
technology.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Dean Heller to 
                            R. Stanton Dodge
    Question 1. In the late 1980s and early 1990s, Broadcasters flagged 
that their signal was being taken by Cable for free and repackaged with 
other channels. Congress then provided retransmission consent rules 
which required Cable and then later Satellite television companies to 
secure the permission of a broadcast station before retransmitting the 
programs on its schedule. Cable could only offer the signal from 
stations in their general vicinity and the broadcast station must be on 
the basic tier of channels made available. Is this system still 
working?
    Answer. The system is not working. It was designed at a time when 
Americans basically had two choices for television: over-the-air 
broadcasting or cable TV. When negotiating retransmission consent, the 
``mutually assured destruction'' existing between each local 
broadcaster and the local cable operator established a shared incentive 
for both parties to reach an agreement. If they could not agree upon 
terms, the broadcaster risked losing significant viewership (and 
advertising revenue) and the cable operator risked losing significant 
programming content (and a major hook for securing subscribers).
    Today, the local broadcaster still enjoys the same exclusive 
control over key content, namely the broadcast network programming from 
ABC, CBS, NBC, or FOX. The pay-TV provider, however, faces stiff 
competition from multiple sources. Whereas only one pay-TV company, the 
cable operator, offered service when the 1992 statute originally was 
enacted, at least three companies offer that service today, including 
the original local cable operator (such as Comcast, Time Warner Cable 
or a smaller company like Wide Open West or Bend Broadband), DISH, 
DirecTV, phone companies (such as AT&T and Verizon), and overbuilders 
(such as RCN). The broadcaster in this scenario faces little risk in 
taking down its programming from any one of those providers during a 
retransmission consent dispute because it will still reach audiences 
via the other pay-TV providers.
    The imbalance in bargaining power between the local broadcaster and 
the pay-TV providers in every community has led to a 600 percent 
increase in broadcast programming take-downs over the last three years, 
and a material spike in retransmission consent fees demanded by 
broadcasters.
    In short, the government-created broadcaster monopoly is no longer 
working for the benefit of consumers. The 113th Congress has the power 
to fix this imbalance, and it should.

    Question 2. Mr. Dodge, what are your thoughts on the current video 
marketplace? Are consumers getting a good value?
    Answer. More consumers are watching video in a non-linear, on-
demand fashion on mobile devices such as tablet computers and smart 
phones, computer screens and in-home flat screen HD displays. They 
expect to be able to watch the video they want, where they want, when 
they want.
    Consumers increasingly feel that they pay too much for a collection 
of linear video channels, most of which they do not watch. Costs are 
driven by several factors but programming fees are by far the biggest 
factor. Certain categories of programming increase costs more than 
others. For example, 48 percent of all DISH's programming acquisition 
costs are sports related. Less than 12 percent of DISH subscribers 
regularly watch those channels, however, meaning that the vast majority 
of our subscribers are subsidizing the viewing habits of a tiny 
minority.
    Reforming the retransmission consent regime would help to reverse 
the trend of cost increases because it is, invariably, the broadcast 
network conglomerate that demands significant cost increases across its 
entire suite of broadcast and non-broadcast channels, using 
retransmission consent for local broadcast signals as leverage. If the 
government would take its thumb off the scale and reduce the federally 
subsidized leverage bestowed upon broadcasters, pay-TV companies would 
pay less for programming and have greater flexibility in designing 
programming packages that better fit consumers' tastes and pocket 
books.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Barbara Boxer to 
                             John Bergmayer
    Question 1. In your written testimony, you describe how cable 
incumbents control content and infrastructure vital to online video 
providers and, as a result, sometimes engage in discriminatory 
practices such as artificially-limited data caps that include 
exemptions for an incumbent's affiliates. Does the average consumer 
understand how much data she consumes when performing various types of 
activities online, such as streaming a feature film on Netflix?
    Answer. No, I think that asking consumers to understand technical 
issues like ``data'' and how that relates to video and billing plans is 
asking too much--at least for billing plans where overages or caps are 
not set at extremely high levels to deter abuse but are designed to 
affect ordinary viewer behavior. For that matter, even technical 
experts in the relevant fields might have a hard time estimating how 
much data a given video stream is using. Among other things, the amount 
of data a video stream uses will vary based on resolution (standard 
definition, high-definition 720p, high-definition 1080p, or something 
else), the ``complexity'' of the video (how much change there is frame-
by-frame), the number of channels in the audio track (stereo or 
surround sound), and the compression codec used (MPEG2, MPEG4, WebM).
    Also, if the data usage customers are supposed to keep track of is 
cumulative, it might be hard for them to connect going over the cap at 
the end of the month with watching an HD streaming movie at the 
beginning of the month. By contrast, other ways of differentiating 
service, such as speed (more accurately, bandwidth) are immediately 
obvious to users, since they influence the experience of using the 
Internet at that exact point in time (slower responsiveness, lower-
quality-video, buffering, and so on).

    Question 2. Does a data cap discourage the average consumer from 
watching as much online video as she would in the absence of a cap?
    Answer. A data cap not only has that effect, many of the caps we've 
seen appear designed to have that effect--set, for instance, at just 
below an amount of data that would be at a minimum necessary if you 
were to replace cable TV viewing with online video viewing.
    However, another way that caps can affect online video is by 
exempting certain video services from caps but not others. This could 
distort the online video marketplace in ways that harm consumers by 
encouraging viewers to use inferior services for reasons that have 
nothing to do with their quality, ease of use, or choice of content.

    Question 3. Are there steps Congress could take to address industry 
practices that result in fewer online video choices for consumers?
    Answer. Congress should extent the protections that enabled 
satellite TV providers to access content and gain an audience to 
certain online video providers, and take steps to ensure that dominant 
ISPs and cable companies are not able to restrain or control the 
development of online video through discriminatory data caps or other 
billing practices, discriminatory treatment of online traffic, or 
otherwise leveraging their dominance in the consumer pay TV and 
broadband markets in ways that reduce choices to consumers.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Amy Klobuchar to 
                             John Bergmayer
    Question. The emergence of online video services and the ability to 
send video over multiple internet-enabled devices has changed the way 
viewers expect to access programming. In the hearing last April, we 
spoke about the future of video and how consumers are starting to want 
more and more ``on demand'' services. They want what they want, when 
they want it, wherever they want it. Do you think the current market 
players are doing enough to meet consumer demand?
    Answer. The facts suggest that they are not. Consumers are 
clamoring for more choice and flexibility in their video choices, yet 
most have no option but to purchases an inflated and overpriced bundle 
of content. Many existing online video services are popular, and it is 
likely that if they were able to access more content under reasonable 
terms they would be able to serve even more viewers. Additionally, the 
persistence of online copyright infringement of video content is in 
part attributable to unmet demand.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Marco Rubio to 
                             John Bergmayer
    Question. Your testimony states that the ``broadcasting industry no 
longer needs extraordinary protection against changes in technology, 
business models, and viewer behavior.'' Why is that the case?
    Answer. Over-the-air broadcasting was once the primary way to reach 
the American public. Thus, it is understandable that Congress and the 
FCC have, through time, enacted various rules designed to protect this 
essential medium. However, with the rise cable and satellite TV, not to 
mention the Internet, broadcasting is not as essential as it one was. 
Most people watch broadcast content via MVPDs and not over-the-air. 
Broadcasting is now just one medium among many--one that, like other 
communications media, certainly has its relative advantages. But these 
no longer justify extraordinary treatment, such as protection from 
competition and government-backed exclusives on certain content.
    That said, broadcasters use the public airwaves and it is proper to 
expect them to continue to have public obligations, just as all other 
spectrum licensees do. Notably, broadcasters have a continuing 
obligation to provide free programming to the public that is relevant 
to their respective communities. Broadcasting still has a place in the 
communications landscape, but it should compete on its own merits and 
should not be the lynchpin of video policy. For this reason, Public 
Knowledge has long advocated reform to the retransmission consent, 
distant signal, sports blackout, syndicated exclusivity, and similar 
provisions that grant broadcasters special privileges under the law.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Dean Heller to 
                             John Bergmayer
    Question 1. Is there any reason why an ``aa la carte'' package 
isn't available today? Is there a reason any of the companies 
represented here can't or won't provide it?
    Answer. There are two main reasons, both related to market 
structure (and public policies that contribute to that market 
structure). First, there is not sufficient competition in local MVPD 
markets. Markets with more than just a few competitors--and markets 
that are open to new entry--tend to have a few ``maverick'' players 
that offer more unusual pricing options, or are willing to offer lower-
cost value products. For instance, in a more competitive market one 
could picture an MVPD that chooses not to carry some very popular, but 
high-cost programming, passing along the savings to its customers 
(while explaining the tradeoff). In more competitive markets, in other 
words, it becomes worthwhile for some competitors to differentiate 
themselves through more varied price and service levels (as well as by 
going after niche interests). By contrast, in less competitive markets, 
it makes more sense for each competitor to go for the mainstream 
market. These markets are more prone to parallel pricing and other 
behaviors, and are more likely to leave price-sensitive customers 
behind. The best way policymakers can address this aspect of the 
problem is to adopt policies that promote new entry. In particular, 
providing MVPD service no longer requires (as a technological matter) 
that the provider build out new physical infrastructure. Policies that 
enabled more online video competition would be likely to bring about 
new competitors with new kinds of pricing and service options. Just as 
some MVPDs have responded to competition from online on-demand video 
services by improving their own on-demand offerings, it is likely that 
more online MVPD competition would also encourage existing MVPDs to 
improve their offerings.
    Second, concentration and market power in the content industry 
leave MVPDs themselves with less flexibility. Perhaps in response to 
the threat of ``cord-cutting,'' some MVPDs themselves have been calling 
attention to this obstacle to their providing more flexible service 
offerings. Due to restrictive deals with content providers, MVPDs are 
often required to buy content bundles at the wholesale level, and pass 
them along to viewers. To carry a particular popular cable or broadcast 
channel, an MVPD may be required to devote space in the channel line-up 
to programming a content company is trying to develop. MVPDs would be 
contractually prohibited from offering programming subject to these 
restrictive contracts on an aa la carte basis to viewers, and all the 
viewers who end up with these channels in their cable packages are 
counted as ``subscribers'' to that programming. In addition, the 
``carry one, carry all'' and ``basic tier buy-through'' rules prevent 
MVPDs from offering broadcast programming on an aa la carte basis. 
There are many ways that policymakers and other officials can begin 
addressing these problems: By reforming the retransmission consent 
system, by addressing media consolidation, and by examining whether 
wholesale content bundling practices run afoul of antitrust laws.

    Question 2. Mr. Bergmayer, I have been interested in ensuring that 
robust broadband buildout into residential markets take place by the 
private sector. However, economics are at play here. Most broadband 
providers cannot compete unless they are also providing voice and video 
in addition to a data plan. It is very expensive to enter into a market 
due to the cost of infrastructure and I assume the local municipal 
approval process is also cumbersome. Can you shed any light as to 
whether the cost of content may also weigh on a company being able to 
enter into a market and provide competition for voice video and data?
    Answer. I agree that the cost of infrastructure, regulatory 
clearance, and the cost of acquiring video content can all be obstacles 
in the way of providing new facilities-based broadband competition. 
Most broadband providers (new entrants such as Google Fiber, as well as 
other non-cable broadband providers such as DSL) find that a video 
product is a necessity offering. Unfortunately, the costs of acquiring 
content for a video product are often forgotten when people consider 
issues of broadband competition.
    There are two ways policymakers can address these problems. The 
first is measures designed to bring down the wholesale costs of 
content, as discussed above in response to the question on aa la carte. 
The second is to promote online video, by clarifying the law to 
establish that an MVPD need not be facilities-based itself, and instead 
can offer its service ``over-the-top,'' using a customer's existing 
broadband connection. If broadband customers were able to access high-
value MVPD content online, it would be less important for new broadband 
entrants to offer that service themselves. By way of analogy, there is 
little demand for ISP-provided e-mail or webhosting services, since all 
of these are available through competitive online markets (and can 
easily be used through multiple ISPs, meaning that customers who move 
or change providers do not need to change their e-mail addresses, for 
instance).
```