```

[Senate Hearing 111-1094]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 111-1094

  TELEVISION VIEWERS, RETRANSMISSION CONSENT, AND THE PUBLIC INTEREST

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

                                HEARING

                               before the

      SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           NOVEMBER 17, 2010

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation

                  U.S. GOVERNMENT PRINTING OFFICE
70-970 PDF                WASHINGTON : 2011
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California            JOHN ENSIGN, Nevada
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 GEOGE S. LeMIEUX, Florida
CLAIRE McCASKILL, Missouri           JOHNNY ISAKSON, Georgia
AMY KLOBUCHAR, Minnesota             DAVID VITTER, Louisiana
TOM UDALL, New Mexico                SAM BROWNBACK, Kansas
MARK WARNER, Virginia                MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                   Bruce H. Andrews, General Counsel
                 Ann Begeman, Republican Staff Director
             Brian M. Hendricks, Republican General Counsel
                  Nick Rossi, Republican Chief Counsel
                                 ------                                

      SUBCOMMITTEE ON COMMUNICATIONS, TECHNOLOGY, AND THE INTERNET

JOHN F. KERRY, Massachusetts,        JOHN ENSIGN, Nevada, Ranking
    Chairman                         OLYMPIA J. SNOWE, Maine
DANIEL K. INOUYE, Hawaii             JIM DeMINT, South Carolina
BYRON L. DORGAN, North Dakota        JOHN THUNE, South Dakota
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           GEORGE S. LeMIEUX, Florida
FRANK R. LAUTENBERG, New Jersey      JOHNNY ISAKSON, Georgia
MARK PRYOR, Arkansas                 DAVID VITTER, Louisiana
CLAIRE McCASKILL, Missouri           SAM BROWNBACK, Kansas
AMY KLOBUCHAR, Minnesota             MIKE JOHANNS, Nebraska
TOM UDALL, New Mexico
MARK WARNER, Virginia
MARK BEGICH, Alaska

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on November 17, 2010................................     1
Statement of Senator Kerry.......................................     1
Statement of Senator Ensign......................................     2
Statement of Senator Rockefeller.................................     4
Statement of Senator Nelson......................................     5
Statement of Senator Lautenberg..................................     5
Statement of Senator LeMieux.....................................    29
Statement of Senator Pryor.......................................    32
Statement of Senator Klobuchar...................................    39

                               Witnesses

Glenn A. Britt, Chairman, President, and CEO, Time Warner Cable..     6
    Prepared statement...........................................     8
Joseph Uva, Chief Executive Officer and President, Univision 
  Communications Inc.............................................     9
    Prepared statement...........................................    11
Thomas Rutledge, Chief Operating Officer, Cablevision Systems 
  Corporation....................................................    12
    Prepared statement...........................................    14
Chase Carey, Deputy Chairman, President, and Chief Operating 
  Officer, The News Corporation..................................    16
    Prepared statement...........................................    18
Charles Segars, CEO, Ovation.....................................    20
    Prepared statement...........................................    21

                                Appendix

Letter, dated November 22, 2010 to Hon. John F. Kerry, from 
  Shirley Bloomfield, Chief Executive Officer, National 
  Telecommunications Cooperative Association (NTCA)..............    47
David Zaslav, President and CEO, Discovery Communications, Inc., 
  prepared statement.............................................    48

 
  TELEVISION VIEWERS, RETRANSMISSION CONSENT, AND THE PUBLIC INTEREST

                              ----------                              

                      WEDNESDAY, NOVEMBER 17, 2010

                               U.S. Senate,
Subcommittee on Communications, Technology, and the 
                                          Internet,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 3:07 p.m. in 
room SR-253, Russell Senate Office Building, Hon. John F. 
Kerry, Chairman of the Subcommittee, presiding.

           OPENING STATEMENT OF HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. The hearing will come to order.
    Good afternoon, all of you. I apologize for being a little 
late. We have one too many caucuses in the course of these few 
days, but we appreciate the opportunity to have this hearing, 
and I thank you for your patience and also for bearing with us 
as we moved it back just a little bit to accommodate the Senate 
schedule.
    We're here today with a group of senior industry officials 
to examine the recent disputes between video distributors and 
broadcasters. And I thank all for being here. And, given the 
truncated time, I'm going to try to summarize my statement, and 
we'll try to move as rapidly as we can to the testimonies.
    At issue in these disputes are the fees that broadcasters 
charge distributors for retransmitting the broadcast signal 
that's sent over the public airwaves. Now, too often the 
negotiations over those fees lead to both sides putting up 
websites and ads calling each other greedy, urging consumers to 
take a side, and warning those consumers about the loss of 
service. That's typically followed by tense last-minute 
negotiations and, in some cases, the pulling of the signal and 
continued recriminations until one side or the other bends or 
breaks, as the case may be. At the end of the process, after 
that period of consumer uncertainty, there is no transparency 
in the price reached or the nature of the agreement.
    The New York Times now characterizes retransmission consent 
confrontations as a ``regular event''. And Bloomberg News says, 
``TV blackouts in the U.S. have reached the highest level in a 
decade and may climb as pay TV operators fight higher fees 
sought by content producers.''
    During the most recent of these disputes, millions of 
Cablevision subscribers interested in watching Fox had to find 
a place other than their home to do so. One couple ended up 
having to watch the Giants game in a bar instead of in their 
living room. The wife, Marilyn Odell, told The New York Times, 
``We're too old to be in this place.'' And, on the other hand, 
bar owners who subscribed to Cablevision lost business. An AP 
story quoted one saying, ``This is ridiculous. I'm relying on 
people to come in who are Giants fans, and they're walking out 
even though I pay for the football package.'' And he went on to 
say that, ``Regular everyday people get caught in the middle.'' 
And that's precisely what brings us here today.
    Our goal is to discuss alternative ways to resolve these 
disagreements and to protect the consumers. That's what brings 
us to the table. Our predilection is not to get involved, not 
to sort of try to, you know, somehow manage the marketplace in 
ways that, you know, are inappropriate. And our first, I think, 
instinct for everybody here is to want that marketplace to work 
effectively. But, when the consumers keep getting crunched in 
the middle and keep coming back to us and saying, ``We feel 
powerless, and we seem to get screwed. We're tired of it.'' 
That's when we come to the table.
    Our constituents should not be the pawns in these corporate 
negotiations, and I'm concerned that, without a better, more 
transparent process for dealing with impasses in negotiations 
and adequate FCC oversight, more fights and disruptions of 
service are what people have to look forward to. Prices for 
consumers will rise, and independent programming will get 
crowded out.
    During the recess, I circulated an alternative process for 
resolving an impasse. It would still allow a broadcaster to 
pull the signal, wouldn't take away any market power, but it 
would limit it to a last resort, after the FCC had executed 
some oversight over negotiations to ensure that the parties are 
acting in good faith. Hopefully, we could encourage greater 
cooperation by staving off the pulling of the signal and 
imposing transparency on offers in case of a true impasse. 
Ultimately, if parties are going to ask consumers to take sides 
and deny them service, then, frankly, consumers deserve to know 
why. And the Commission needs to know exactly what is happening 
in the market.
    My commitment in this is not to any one alternative. I want 
to make sure that's clear today. My commitment--and I think my 
colleagues'--is to protecting consumers and finding the best 
way to do that. I still believe the FCC can and should use its 
existing authority to draft new rules. And I remind the agency 
that its role is to protect those consumers.
    So, I look forward to working with my colleagues and the 
FCC, to hearing from the witnesses today with that purpose in 
mind. And let me turn to my Ranking Member and then the Chair 
of the full Committee, who would like to make a comment. And 
then, if colleagues don't mind, we'll go right on into the 
testimony.
    Thank you.
    Senator Ensign.

                STATEMENT OF HON. JOHN ENSIGN, 
                    U.S. SENATOR FROM NEVADA

    Senator Ensign. Thank you, Mr. Chairman.
    The video programming marketplace in America today is 
incredibly robust and diverse. Video content owners negotiate 
dozens, maybe hundreds, of deals each year with their 
distributors. Most get done quietly, with little fanfare, but 
occasionally, as we've seen lately, negotiations are more 
difficult and lead to these public disputes. And a handful of 
high-profile retransmission consent disputes this year have 
captured the attention of the press and policymakers, alike. 
And in the case of Cablevision's negotiations with both ABC and 
Fox, millions of cable subscribers lost network programming 
while deals were being worked out.
    In light of these unfortunate disruptions, it makes sense 
for the Subcommittee to hold a hearing on retransmission 
consent and other Federal laws that impact broadcaster/
distributor negotiations.
    There have been extraordinary changes in the TV marketplace 
since Congress first created the retrans rules back in 1992. 
Thanks to last year's successful DTV transition, Americans can 
watch high-definition digital broadcasts of network television 
over the air for free. Americans can also choose from hundreds 
of TV channels carried on pay-TV services offered by cable 
companies, satellite companies, and now even telephone 
companies.
    Back in 1992, there were far less cable channels available. 
Satellite was not a robust competitor to cable, and telephone 
companies weren't even in the pay-TV picture. Consumers today 
also have access to a remarkable array of online video content 
that they can watch from their computer, their TV, their cell 
phone, or even their MP3 player. The video marketplace has 
never been more competitive, and it may be time to consider 
revising our retrans regulations.
    My colleague Senator Kerry has proposed reforming the 
current rules by giving the FCC additional authority to 
intervene during retrans disputes. While I appreciate the 
thoughtful work Senator Kerry has done on this issue, I do have 
some concerns on the idea of putting the FCC in the middle of 
carriage negotiations.
    We should take a holistic look at the retransmission and 
copyright rules to see if we need to move them toward a more 
free-market system where consumer interests, rather than 
government regulations, drive competition. Indeed, Congress, 
this year, directed the GAO and the Copyright Office to study 
exactly that part of STELA, the Satellite Television Extension 
and Localism Act. And, during a hearing last year on STELA, I 
called for revisiting the compulsory copyright license, which 
is one of several Federal provisions that impact the 
broadcaster/distributor negotiations. Like I did during that 
hearing, I urge my colleagues today to really think about 
whether our cable, satellite, broadcast regulations fit today's 
marketplace. This hearing is part of the process to review the 
appropriateness of those regulations.
    And I want to thank the Chairman for holding today's 
hearing.
    I would also like to thank the panel of witnesses before 
us. We know that you all are busy executives, and we appreciate 
your time that you've taken today.
    Thank you, Mr. Chairman.
    Senator Kerry. Thank you very much, Senator Ensign.
    Senator Rockefeller.

           STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    The Chairman. Thank you, Mr. Chairman.
    I welcome all of you and recognize that you are very busy 
folks.
    Television obviously is a very powerful force, but I 
believe the system we have for developing television content, 
packaging that content, and distributing that content is 
broken. It may serve companies well, but it does not serve us 
well, as consumers, and, probably more importantly, as 
citizens. Let me explain why.
    When it comes to developing content, our entertainment 
machine is too often in a race to the bottom; in fact, it is in 
a race to the bottom, getting close. Even worse, our news media 
has all but surrendered to the forces of entertainment, and 
much of our news media is entertainment, as opposed to news. 
Instead of a watchdog that is a check on the excesses of 
government and business, we have the endless barking of a 24-
hour news cycle. We have journalism that is always ravenous for 
the next rumor, but insufficiently hungry for the facts that 
can nourish something called our democracy.
    As citizens, we are paying one heck of a price in the 
dumbing-down of America. You're partly responsible for that. 
When it comes to packaging content, why do consumers have to 
order so many channels? Why do they have to pay so much, when 
households watch so few channels? The old adage of ``500 
channels and nothing on'' has never been as true as it is 
today.
    When it comes to delivering content, why do we pay so much? 
The Federal Communications Commission tells us, from 1995 to 
2008, the average monthly price of popular cable service 
increased more than three times the rate of inflation. That's 
agony for a lot of citizens and customers.
    No wonder consumers are cutting the pay-television cord in 
record numbers. No wonder they are turning back to over-the-air 
television and turning on to programming over the Internet and 
other sources. They are tired of paying rates that go up so 
much every single year, every year.
    In our hearing today, we do not get at the root of these 
problems. And I'm only here to make this statement. That is a 
broader discussion that we will need to have and we will have; 
indeed, it is a conversation that we owe to the citizens of 
this country. But, today's hearing is important and timely 
because we make a good-faith effort to address one of the 
symptoms of these broader concerns.
    Now, we're talking about retransmission consent. This is a 
policy that allows local broadcasters to negotiate with cable 
and satellite companies for the carriage of their local 
stations. When it works, consumers see the local broadcast 
stations on cable and satellite systems. When it fails, 
consumers are saddled with the dark screens and denied access 
to local news and sports programming. That's what happened, 
obviously, to millions of television viewers in New York who 
turned on their sets to watch the World Series but didn't quite 
get to see that.
    So, let me caution our witnesses today. If you fail to fix 
this situation, all three parts of it, we're going to fix it 
for you. But, when we do that, we will seek to do more than 
referee your corporate money disputes, because more than just 
retransmission consent ails our television markets.
    We need new catalysts for quality news and entertainment 
programming. I hunger for quality news. I'm tired of the 
``right'' and the ``left.'' There's a little bug inside of me 
which wants to get the FCC to say to Fox and to MSNBC, ``Out, 
off, end, goodbye.'' It would be a big favor to political 
discourse, our ability to do our work here in Congress, and to 
the American people to be able to talk with each other and have 
some faith in their government and, more importantly, in their 
future.
    We need slimmed-down channel packages that better respect 
what we really want to watch, and we need to find ways to 
provide greater value for television viewers at lower cost 
because people are tired of always-escalating rates.
    Again, I thank you for being here today, and I greatly 
respect Senator Kerry and the interest he's shown in this whole 
area in which he is most expert.
    I thank you.
    Senator Kerry. Senator Rockefeller, thank you. Thank you 
for an important and, I think, a courageous statement. And I 
appreciate it.
    Senator Lautenberg has asked, because of the people who 
were affected in his region, if he could have an opening 
statement. Can I ask for that indulgence? Would people agree to 
that? I'll do it by consensus and----
    Yes, Senator Nelson.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Bill Nelson. Mr. Chairman, I just want to say that 
I am very proud of our Chairman, with that statement, which 
articulates what so many of us have been feeling about the slow 
decline of bringing news to the consumer, and the consumer 
having available packages that they want to see and that they 
don't have to buy something that they don't want to see, and 
that they are not threatened, as you pointed out, by the screen 
going dark. You pointed out, in the Northeast. It happened, a 
year ago, in the Sugar Bowl, when the University of Florida was 
playing, and there was this big dispute between Fox and one of 
the cable companies. And, of course, that was the threat, up 
until the 11th hour. The 11th hour and 59 minutes, as a matter 
of fact. So, let's put the consumer first.
    And I'm delighted that Mr. Uva is here, from Univision.
    Senator Kerry. Senator Lautenberg?

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thanks very much, Mr. Chairman.
    We're here today to make sure that the American people are 
no longer forgotten in the fight between the cable companies 
and the broadcasters. And this isn't about taking the side of 
the broadcasters or taking the side of the cable company; this 
is about taking the side of what I'll call ``the customers,'' 
who need us to look out for them. The big media corporations 
believe that it's good business to leave consumers in the dark 
while they haggle over their latest retransmission gain. That's 
exactly what happened during a recent battle between Fox and 
Cablevision, when 3 million subscribers--it was already 
mentioned--including one million New Jerseyans, were unable to 
see either their favorite programs or anything that they're 
interested in including part of this year's baseball playoffs.
    But, make no mistake, this is about much more than simply 
being able to watch sports on TV. Television remains a lifeline 
for millions of Americans, even in this age of iPads and 
YouTubes. More than 80 percent of viewers receive television by 
subscribing to cable or a multichannel video service. The 
public relies on this resource for local news and cultural 
programming. Seniors rely on television as a source of critical 
information, like emergencies in their community that may 
affect their safety.
    And many parents depend on educational programming to help 
their children get ready for school. And it's wrong to hold 
viewers like these hostage during the retransmission 
negotiation. It's wrong to treat them like chess pieces in the 
high-stakes face-off between giant media corporations. It's 
wrong to deny viewers the ability to see programming that they 
want, need and pay for.
    We've got to put a stop to these programming blackouts once 
and for all, and that's why I'm pleased to work with Chairman 
John Kerry on retransmission consent legislation that'll put 
the focus back where it belongs: on the consumers.
    Our proposal would require a cooling-off period so 
programming must be kept on the air during an impasse in 
negotiations. And, Mr. Chairman, my willingness to work with 
you is unbounded. We're going to get this done.
    I look forward to hearing from our witnesses, seeking ways 
to work together to make sure Americans and television viewers 
are never again left in the dark.
    Senator Kerry. Thanks very much, Senator Lautenberg.
    Thank you, folks, for your patience.
    We're delighted to welcome Mr. Glenn Britt, the Chairman, 
President, and CEO of Time Warner Cable; Mr. Joe Uva, President 
and CEO of Univision Communications--I understand you're not 
feeling that well and may have to leave a little early, so we, 
again, appreciate your hanging in here; Mr. Tom Rutledge, Chief 
Operating Officer, Cablevision Systems; Mr. Chase Carey, the 
Deputy Chairman, President, and Chief Operating Officer of News 
Corporation; and Mr. Charles Segars, Chief Executive Officer of 
Ovation.
    Thank you all very much for being here.
    Mr. Britt, would you lead off? And we'll run down that 
line.

       STATEMENT OF GLENN A. BRITT, CHAIRMAN, PRESIDENT, 
                   AND CEO, TIME WARNER CABLE

    Mr. Britt. Good afternoon, Mr. Chairman, Ranking Member 
Ensign, and members of the Subcommittee. I want to thank you 
for inviting me here today. And I also want to express my 
appreciation to Chairman Kerry and other Members of Congress 
who have recognized that the current retransmission consent 
regime is fundamentally broken and in need of reform.
    In my testimony, I will focus on three points to 
demonstrate why reform is needed.
    First, Congress created retransmission consent 18 years ago 
as a new property right to subsidize free over-the-air 
broadcasting, but much has changed since that time. When 
retransmission consent was first created, broadcasters and 
cable operators each enjoyed local monopolies. As a result, the 
parties negotiated from relatively equal positions of strength 
and with a shared interest in reaching an agreement on mutually 
beneficial terms. This produced a process that was essentially 
invisible to the public.
    But, retransmission consent negotiations now occur in a 
vastly different environment. Today, the pay-TV industry is 
robustly competitive, while local broadcasters retain the 
government-granted monopolies and other benefits that now 
distort carriage negotiations. This has allowed broadcasters to 
play competing distributors off of each other and has 
encouraged broadcasters to take more extreme disruptive 
positions instead of seeking compromise. Consumers, caught in 
the middle, are the ones getting hurt.
    Unfortunately, this imbalance in negotiating power is 
exacerbated by the FCC's rules, which take a hands-off approach 
based on the outdated assumption that broadcasters have neither 
the incentive nor the ability to disrupt viewers' access to 
their signals. The FCC has broad statutory authority over 
broadcasters and their retransmission consent rights. Time 
Warner Cable and an unprecedented coalition of diverse 
interests have asked the FCC to exercise its authority by 
adopting new rules to protect consumers--such as interim 
carriage and dispute resolution measures. Despite wide support 
for these and other reform proposals and the growing number of 
disruptive retransmission consent disputes, the FCC has failed 
to act. Instead, the FCC insists its hands are tied when it 
comes to protecting the public from the consequences of 
retransmission consent fights.
    My second point focuses on the impact on consumers who are 
bearing the brunt of the FCC's inaction. Broadcasters have both 
the incentive and the ability to put consumers in harm's way 
during negotiations. As we have now seen on several occasions, 
broadcasters clearly are willing to hold consumers hostage by 
pulling their signals as a negotiating tactic. Even when a 
service interruption is avoided, consumers are still needlessly 
subjected to weeks, and even months, of misleading advertising 
designed not to inform them but to exert pressure on pay-TV 
providers to give in to demands for higher fees that ultimately 
will be paid by consumers.
    Finally, I'd like to put to rest one of the arguments often 
made by those opposing reasonable reforms; namely, that the 
government should not interfere with free market negotiations. 
Time Warner Cable agrees that free markets are preferable to 
regulated markets.
    Retransmission consent, however, is not a free market. 
Rather, it is one of a number of special privileges given to 
broadcasters by the government as part of a thicket of outdated 
regulations. These special privileges, which also include must-
carry rights, territorial exclusivity protection, a guaranteed 
right to basic tier carriage, and, of course, the broadcasters' 
free use of the public airwaves, are supposed to safeguard, not 
threaten, the public's access to broadcast programming.
    Time Warner Cable does not object to paying broadcasters to 
retransmit their signals. Our objection is to a government-
sanctioned process that allows broadcasters to put consumers at 
risk. In order to protect consumers, Congress should encourage 
the FCC to exercise its existing authority and to initiate a 
rulemaking to explore proposed changes in its rules. In 
addition, Congress should continue to explore legislative 
changes.
    If broadcasters truly want to operate in a free market, 
then they should not be allowed to keep their special 
privileges; but, if broadcasters want to retain their special 
privileges, then Congress and the FCC should update the rules 
to prevent broadcasters from using consumers to gain leverage 
in negotiations.
    We'll look forward to continuing to work with Senator Kerry 
and the other members of the Committee on this important issue, 
and I'd be happy to answer any questions you might have.
    Thank you.
    [The prepared statement of Mr. Britt follows:]

  Prepared Statement of Glenn A. Britt, Chairman, President, and CEO, 
                           Time Warner Cable
    Good afternoon Mr. Chairman, Ranking Member Ensign, and members of 
the Subcommittee. I am Glenn Britt, Chairman, President and CEO of Time 
Warner Cable.
    I want to thank you for inviting me to be here today and to express 
my appreciation to Senator Kerry and other Members of Congress who have 
recognized that the current retransmission consent regime is 
fundamentally broken and in need of common sense reforms. Congress 
created retransmission consent 18 years ago as a new property right to 
subsidize free, over-the-air broadcasting. Much has changed since that 
time.
    In my testimony, I will focus on three points to demonstrate why 
reform is needed:
    First--and somewhat ironic--is the fact that greater competition in 
the pay TV industry from satellite and telco providers has had the 
unintended effect of dramatically increasing the power of broadcasters 
in retransmission consent negotiations. When retransmission consent was 
first created, broadcasters and cable operators each had monopolies in 
the local market. As a result, for a number of years the parties 
negotiated from relatively equal positions of strength and with a 
shared interest in reaching an agreement on mutually beneficial terms. 
This produced a retransmission consent process that was essentially 
invisible to the public.
    But retransmission consent negotiations occur in a vastly different 
environment today. The pay TV industry has become robustly competitive, 
while local broadcasters have retained their government-granted 
monopolies and other benefits that now distort carriage negotiations. 
Under these rules, pay TV providers are limited to dealing with only 
one broadcast supplier in a local market. This has allowed broadcasters 
to play multiple distributors off of each other and has encouraged 
broadcasters to take more extreme, disruptive positions rather than to 
seek compromise. Consumers, caught in the middle, are the ones getting 
hurt.
    Unfortunately, this imbalance in negotiating power is exacerbated 
by the FCC's current rules which take a hands-off approach based on the 
outdated assumption that broadcasters have neither the incentive nor 
the ability to disrupt viewers' access to their signals. In 1992, 
Congress gave the FCC broad authority to govern the exercise of 
retransmission consent. Time Warner Cable has joined with an 
unprecedented coalition of diverse interests in asking the FCC to 
exercise that authority by initiating a proceeding to update its rules 
with new measures that would protect consumers, such as interim 
carriage and dispute resolution procedures. Despite an outpouring of 
support for this request and the continued occurrence of disruptive 
retransmission consent disputes, the FCC has failed to act. Instead, 
the FCC has repeatedly signaled--incorrectly, we believe--that its 
hands are tied when it comes to protecting the public from the 
consequences of retransmission consent fights.
    My second point focuses on the impact on consumers, who are bearing 
the brunt of the FCC's inaction. Broadcasters have both the incentive 
and ability to put consumers in harm's way during negotiations. As we 
have now seen on several occasions, broadcasters clearly are willing to 
hold consumers hostage by pulling their signals as a negotiating tactic 
when discussions are ongoing. Even when a service interruption is 
avoided, consumers still needlessly suffer from weeks and even months 
of misleading advertising designed not to inform them, but to exert 
pressure on pay TV providers to give in to demands for higher fees that 
ultimately will be paid by consumers.
    Finally, I would like to put to rest one of the arguments often 
made by those opposing reasonable reforms--namely that the government 
should not ``interfere'' with ``free market'' negotiations. Time Warner 
Cable agrees with the principle that free markets are preferable to 
regulated markets. Retransmission consent, however, is not a free 
market. Retransmission consent negotiations are conducted under a 
thicket of outdated regulations that have not kept pace with the 
dramatic changes in this dynamic industry. Retransmission consent is 
only one of a number of special privileges that the government has 
given to broadcasters. These special privileges, which include must 
carry rights, territorial exclusivity protection, a guaranteed right to 
basic tier carriage and, of course, the broadcasters' free use of the 
public airwaves, were meant to safeguard, not threaten the public's 
access to broadcast programming.
    If the broadcasters truly want to operate in a ``free market,'' 
then they should give up these special privileges. But if broadcasters 
want to retain their special privileges, then the retransmission 
consent rules need to be updated to prevent broadcasters from using 
consumers to gain leverage in negotiations. Time Warner Cable does not 
object to paying broadcasters to retransmit their signals; we pay them 
today. Our objection is to a government sanctioned process that favors 
broadcasters by allowing them to put consumers at risk.
    We look forward to working with Senator Kerry and other members of 
this Committee on legislation to fix the problems with retransmission 
consent. Moreover, the time has come for the FCC to fulfill its duty to 
protect the public interest.
    I would be happy to answer any questions you might have.

    Senator Kerry. Thank you very much, Mr. Britt.
    Mr. Uva.

STATEMENT OF JOSEPH UVA, CHIEF EXECUTIVE OFFICER AND PRESIDENT, 
                 UNIVISION COMMUNICATIONS INC.

    Mr. Uva. Good afternoon. Thank you, Chairman Kerry, 
Chairman Rockefeller, Ranking Member Ensign, and members of the 
Subcommittee.
    My name is Joe Uva, and I am the President and CEO of 
Univision Communications. Univision is the leading Spanish-
language media company in the United States. In addition to our 
broadcast and cable networks, our program production business, 
our radio stations, and our online services, we own and operate 
62 television stations across the United States and in Puerto 
Rico, making us one of the top five TV station groups.
    Today, I'd like to share Univision's experience in 
negotiating retransmission consent agreements for our 
television stations with distribution partners across the 
country. I think our experience powerfully demonstrates the 
importance of the RTC system to the future of Univision's local 
broadcast platform and the communities we serve.
    Traditionally, Univision's stations relied upon the must-
carry rules in order to obtain cable carriage, and received no 
compensation from multichannel video distributors for carriage 
of our programming. At the same time, our programming, like 
that of other broadcasters, was helping propel the growth of 
those distributors.
    In 2008, Univision took the historic step of announcing 
that we would embark on RTC negotiations, with our distribution 
partners, seeking, for the first time, fair compensation for 
the valuable programming our stations offer. Over the next 18 
months, Univision successfully negotiated over 150 carriage 
agreements with cable, satellite, and telephone companies, 
including distributors who are represented on this panel. These 
deals were reached without disruption in signal carriage to 
Univision stations and their viewers during the negotiations.
    We decided to elect retransmission consent for several 
reasons:
    First, Univision recognized that, in order to meet the 
changing needs of the rapidly growing U.S. Hispanic community, 
we needed the additional resources that come from a dual 
revenue stream.
    Second, Univision believed it would be fair and appropriate 
to participate with our distribution partners in the value of 
our high-quality programming. Indeed, the audience for 
Univision's broadcast programming is larger than that of many 
cable programming services for which multichannel distributors 
have been paying carriage fees for years.
    Finally, Univision elected retransmission consent because 
we saw an opportunity to establish long-term value-creating 
partnerships with our multichannel distributors, such as the 
leading Spanish-language video-on-demand service.
    Revenue from retransmission consent has enabled Univision 
to expand its mission of informing, entertaining, and 
empowering Hispanics in the United States. For example, we 
recently launched campaigns to promote the value of education 
in the Hispanic community, encouraged Hispanics to participate 
in the U.S. Census, and promote financial awareness and 
planning in our community. We created Univision Studios, which 
is producing high-quality Spanish-language programming for 
distribution on our stations. We launched a nationwide voter 
education drive to help boost Hispanic voter turnout to 
unprecedented levels for a midterm election, invested in the 
most robust and comprehensive election coverage that we have 
ever offered, and hosted historic candidate debates.
    Listening to all the recent rhetoric about retransmission 
consent, one might have thought that Univision would never have 
been able to reach RTC agreements without conflict and carriage 
disruption. As a direct participant in the negotiation of 
Univision's deals, I can personally attest that we were able to 
do so because, in every retransmission consent negotiation, 
there are natural incentives for the parties to reach an 
agreement. From Univision's perspective, the desire to reach a 
deal and avoid a service disruption is a powerful motivator. 
Signal disruption could undermine the trust of the U.S. 
Hispanic community, perhaps our most valuable asset, and damage 
our relationship with advertisers.
    We believe that our distribution partners face similarly 
compelling motivations to reach a deal. They understood that a 
signal disruption created the risk of subscriber attrition as 
well as severe customer dissatisfaction.
    I certainly understand the concerns by elected officials 
that their constituents not have to face even the temporary 
loss of a favorite station's signal on cable or satellite, but 
we are very concerned that government mandates, such as 
requiring Univision to keep providing our programming to a 
distributor, even where we've failed to reach a deal, would 
distort the market by removing our distributors' primary 
incentive to reach agreement.
    We are also concerned that even the threat of government 
intervention will have a negative impact on our business. 
Investors know that mandated interim carriage standstills and 
the like only benefit cable operators. This is precisely the 
wrong time to do anything that will further depress investor 
confidence in broadcasting and local program services.
    Thank you, Mr. Chairman, for allowing Univision to join 
this conversation today. I look forward to any questions you 
may have.
    [The prepared statement of Mr. Uva follows:]

     Prepared Statement of Joseph Uva, Chief Executive Officer and 
                President, Univision Communications Inc.
    Good afternoon. Thank you Chairman Kerry, Ranking Member Ensign and 
members of the Subcommittee. My name is Joe Uva and I am the President 
and CEO of Univision Communications. Univision is the leading Spanish 
language media company in the United States. Our operations include the 
Univision and TeleFutura Television Networks; the Galavision Cable 
Network; our newly-created production arm, Univision Studios; Univision 
Radio; Univision Interactive Media; and the Univision Television Group. 
We own and operate 62 television stations across the United States and 
in Puerto Rico, making us one of the top five TV station groups.
    Today I'd like to share Univision's experience in negotiating 
retransmission consent (``RTC'') agreements for our television stations 
with distribution partners across the country. I think our experience 
powerfully demonstrates the importance of the RTC system to the future 
of Univision's local broadcast platform and the communities we serve.
    Traditionally, Univision stations relied upon the ``must carry'' 
rules in order to obtain cable carriage.\1\ As a result, most of our 
stations received no compensation from multichannel video distributors 
for carriage of our programming, and had to rely upon only advertising 
revenue to reinvest in our service to the public. At the same time, our 
programming, like that of other broadcasters, was helping propel the 
growth of those distributors.
---------------------------------------------------------------------------
    \1\ Before the current election cycle, Univision had elected 
retransmission consent only once, in the prior cycle, with respect to 
its Puerto Rico television stations.
---------------------------------------------------------------------------
    In 2008, Univision took the historic step of announcing that we 
would embark on RTC negotiations with our distribution partners, 
seeking, for the first time, fair compensation for the valuable 
programming our stations offer. Over the next eighteen months, 
Univision successfully negotiated over 150 carriage agreements with 
cable, satellite and telephone companies, including distributors who 
are represented on this panel. These deals were reached without 
disruption in signal carriage to Univision's stations and their viewers 
during the negotiations.
    We decided to elect RTC for several reasons. First, Univision 
recognized that in order to meet the changing needs of the U.S. 
Hispanic community, we needed the additional resources that come from a 
dual revenue stream. The community we serve is the fastest growing 
segment of the U.S. population.
    Second, Univision believed it would be fair and appropriate to 
participate with our distribution partners in the value of our high 
quality programming. Indeed, the audience for Univision's broadcast 
programming is larger than that of many cable programming services for 
which multichannel distributors have been paying carriage fees for 
years. The Univision Network is one of the top five broadcast networks 
in this country--regardless of language. Our station KMEX in Los 
Angeles is ranked as the number one station in the entire United 
States, regardless of language, among Adults 18-34. In a number of 
markets, Univision's stations have the top-rated early and late 
newscasts among Adults 18-49--in any language.\2\
---------------------------------------------------------------------------
    \2\ The Nielsen Company, NSI Ratings (09/30/10-10/27/2010). Number 
one station in the U.S. ranking based on Total Day viewership 
impressions, Mon-Sun 6A-2A for all stations. Early Evening Local News 
is defined as newscasts with 6 p.m. ET/PT start time; 5 p.m. CT. Late 
Local News is defined as newscasts with 10/11 p.m. ET/PT start time; 9/
10 p.m. CT (includes regular newscasts only). Live+7 day viewing.
---------------------------------------------------------------------------
    Finally, Univision elected RTC because we saw an opportunity to 
establish long-term, value-creating partnerships with our multichannel 
distributors. Together with our distribution partners, Univision has 
been able to launch major new initiatives, such as a video-on-demand 
(``VOD'') service consisting of 50 hours of content that is refreshed 
every month--more content than any other Spanish-language broadcast or 
cable network currently offers on VOD.
    Revenue from RTC has enabled Univision to further expand its 
program service to the Hispanic community and invest in important 
initiatives, helping us to meet our mission of informing, entertaining 
and empowering Hispanics in the U.S. For example, we recently launched 
campaigns to promote the value of education in the Hispanic community, 
encourage Hispanics to participate in the U.S. Census, and promote 
financial awareness and planning in our community. We created Univision 
Studios, which is producing high quality Spanish language programming 
for distribution on our stations. We launched a nationwide voter 
education drive to help boost Hispanic voter turnout to unprecedented 
levels for a mid-term election, invested in the most robust and 
comprehensive election coverage that we have ever offered, and hosted 
historic candidate debates.
    Listening to all the recent rhetoric about RTC, one might have 
thought that Univision would never have been able to reach RTC 
agreements without conflict and carriage disruption. Indeed, Univision 
had never before elected RTC for most of its stations--yet we 
successfully negotiated carriage agreements with distributors across 
the country, almost simultaneously. As a direct participant in the 
negotiation of Univision's deals, I can personally attest that we were 
able to do so because in every RTC negotiation there are natural 
incentives for the parties to reach an agreement. These natural 
incentives ensure a more efficient and ultimately pro-competitive 
outcome than any government intervention could possibly achieve.
    To be sure, many of our negotiations were hard-nosed bargaining 
sessions. Naturally, our distribution partners sought to minimize their 
RTC fees and to extract the greatest value from our partnership. 
Univision, of course, wanted to ensure that our fees were reflective of 
the value we believe we bring to our distribution partners. Finding a 
reasonable middle ground was not always an easy task.
    From Univision's perspective, the desire to reach a deal and avoid 
a service disruption is a powerful motivator. If carriage of 
Univision's broadcast signal were ever disrupted, our company could 
lose the trust of the U.S. Hispanic community, perhaps our most 
valuable asset, and damage our relationship with advertisers.
    We believe that our distribution partners faced similarly 
compelling motivations to reach a deal. Univision's viewers are 
intensely loyal. As a result, our distributors understood that a signal 
disruption created the risk of subscriber attrition, as well as severe 
customer dissatisfaction.
    I certainly understand concerns by elected officials that their 
constituents not have to face the loss of a favorite station's signal 
on cable or satellite, even if temporarily. But we are very concerned 
that government mandates--such as requiring Univision to keep providing 
our programming to a distributor even where we failed to reach a deal--
would distort the market by removing our distributors' primary 
incentive to reach agreement: the fear of lost subscribers or customer 
dissatisfaction.
    We also are concerned that even the threat that the playing field 
will be tilted in favor of distributors will have a negative impact on 
our business. Investors already know that government-mandated ``interim 
carriage,'' standstills and the like only benefit cable operators. So 
if the government imposes those kinds of requirements, investors are 
going to react accordingly. This is precisely the wrong time to do 
anything that will further depress investor confidence in broadcasting 
and local program services.
    Thank you, Mr. Chairman, for allowing Univision to join this 
conversation today. I look forward to any questions you may have.

    Senator Kerry. Thank you very much, Mr. Uva.
    Mr. Rutledge.

    STATEMENT OF THOMAS RUTLEDGE, CHIEF OPERATING OFFICER, 
                CABLEVISION SYSTEMS CORPORATION

    Mr. Rutledge. Thank you, Senators.
    I'm Tom Rutledge, Chief Operating Officer of Cablevision 
Systems Corporation. Let me begin, Mr. Chairman, by commending 
you for the leadership you've shown in this area.
    As you have rightly noted, broadcast retransmission 
disputes are wreaking havoc on consumers, and we ought to find 
a way to resolve them without holding customers hostage. Your 
draft legislation is a good framework for advancing this goal, 
and we look forward to working with you and others to take 
consumers out of the middle.
    I would like to make two central points today:
    First, retransmission consent negotiations take place 
within a highly regulated environment that heavily favors 
broadcasters over distributors and hurts consumers. It is not a 
free market. Plain and simple, the rules create the potential 
for network television blackouts and raise prices for 
consumers.
    Second, because the government laws created the problem, 
only the government, the FCC or Congress, can fix it. We've 
proposed a few modest changes to stop blackouts and protect 
consumers.
    Here is why retransmission consent is broken. FCC rules 
give local broadcasters a government-sanctioned monopoly on 
national network programming in local markets. If a cable or 
satellite provider wants to carry that network programming, but 
thinks the local broadcaster's monopoly price is too high, too 
bad. FCC rules prevent that provider from negotiating with any 
of the hundreds of other stations across the country that have 
the same network content.
    Government rules also require that our subscribers buy the 
broadcast channels before they're allowed to buy any other 
cable service, regardless of whether the consumer wants that 
station and regardless of the prices charged by the 
broadcaster.
    The government gives the broadcasters free distribution, in 
the form of free spectrum, and gives them an extraordinary 
guarantee of carriage through must-carry.
    Finally, cable operators are prohibited by law from 
dropping a broadcaster during sweeps week, which is what 
determines the advertising rates for broadcasters, yet nothing 
prevents the broadcaster from pulling the signal from the cable 
operator before big televised events, such as Academy Awards or 
a Super Bowl.
    Last month, Fox pulled its network programming from 3 
million New York-area households for 15 days, blacking out 
Major League Baseball playoffs, NFL football, and the World 
Series. The rules that allowed this blackout were created by 
the Congress and administered by the FCC, but the FCC claimed 
it had no power to restore the programming.
    Any claim that broadcasters have not been paid for their 
broadcast channels is false. Broadcasters have used existing 
rules to force other cable networks, that they now own, onto 
cable and satellite systems, charging billions of dollars for 
these cable networks in return for permission to carry their 
broadcast stations. Through these government-blessed tying 
arrangements, broadcaster-owned and -affiliated cable channels 
have grown from just eight in 1993 to over 90 channels today. 
In fact, the driving force behind the rate increases in cable 
is the ability of broadcasters to demand we take and pay for 
these 90 channels by tying them to retransmission consent for 
their broadcast stations.
    Government laws created the problem; and so, only 
government, the FCC or Congress, can fix it. We have proposed 
to the FCC a few modest changes that it can begin implementing 
now to take consumers out of the middle:
    First, forbid tying. Limit retransmission consent 
agreements to the carriage of broadcast channels so that the 
actual cost to broadcast stations are clear.
    Second, require transparency. There's no reason why the 
cost of carrying broadcast networks needs to be secret. 
Retransmission fees should be public.
    And third, forbid discrimination. Broadcasters may set the 
price of carriage, but they should not discriminate among cable 
and satellite providers.
    If we make these simple changes and disputes still threaten 
to disrupt consumers, the FCC already has authority to impose 
standstill requirements and mandatory arbitration. The FCC 
should use this authority to protect consumers when necessary 
and Chairman Kerry's proposed legislation would make this 
authority explicit.
    In conclusion, if this committee wants retransmission 
consent negotiations to occur in a truly free market, we would 
welcome that. This would mean having the government eliminate 
all the unfair advantages broadcasters enjoy under the current 
law. Until that day, the FCC should exercise its authority to 
ensure that millions of consumers never find themselves with 
the World Series blacked out.
    Thank you.
    [The prepared statement of Mr. Rutledge follows:]

    Prepared Statement of Thomas Rutledge, Chief Operating Officer, 
                    Cablevision Systems Corporation
    I am Tom Rutledge, Chief Operating Officer of Cablevision Systems 
Corporation. We are a cable and media company that serves 3 million 
residential households in New York, New Jersey and Connecticut. I 
appreciate the opportunity to present our perspective on retransmission 
consent.
    Let me begin by thanking Chairman Kerry for the leadership he has 
shown in this area. These disputes are wreaking havoc on consumers and 
we should find a way to resolve them without holding consumers hostage. 
Senator Kerry's draft legislation is a good framework for advancing 
this goal.
    In my testimony, I would like to make two overarching points today.
    First, retransmission consent negotiations do not take place in a 
free market but rather under an umbrella of statutory provisions and 
FCC rules that heavily favor the broadcaster over the cable operator or 
multi-channel video programming distributor (MVPD). It is a scheme 
based on a perception of the video marketplace that is 20 years out of 
date. As a result, consumers are increasingly faced with broadcast 
blackouts, threats of blackouts, and spiraling fee increases. This is 
because of outdated laws and regulations that literally put the 
government at the negotiating table. These laws reward brinksmanship 
and blackout threats with higher fees, undermining the very public 
interest that the law is intended to support.
    Second, because government laws and regulations created the 
problem, only the government--the FCC or Congress--can fix it. We have 
proposed a few changes that, though modest, will restore balance to 
this regime. The FCC already has the authority to adopt these rules 
and, at the very least, should issue a notice of proposed rulemaking to 
engage the parties and begin the process of fixing a broken government 
mandate system. Alternatively, Congress could adopt legislation that 
repeals the outdated laws that distort the relationship among 
broadcasters, MVPDs, and consumers in favor of a free market, a longer 
term solution.
    What is clear is that the status quo is hurting consumers and must 
be changed now.
Government-Granted Advantages For Broadcasters Means That 
        Retransmission Consent Is Not A Marketplace Negotiation
     The relationship between broadcasters and MVPDs has largely been 
established by government action. It does not resemble a free market in 
any meaningful sense. In a true market, sellers do not have monopolies 
and buyers have a choice of suppliers. Whatever value they had in 1992, 
the laws that govern the relationship between broadcasters and MVPDs 
today encourage broadcasters to threaten to withhold broadcast 
programming and block availability of marquee events to force increases 
in the cost of their broadcasts against the interests of our customers.
    First, FCC rules give every broadcaster in the country an exclusive 
franchise for its network--in other words, a government-sanctioned, 
local monopoly in its local market. If an MVPD thinks the local 
broadcaster's (monopoly) price is too high but still wants to carry the 
must-have programming from other affiliates--too bad--FCC rules prevent 
the MVPD from negotiating with any other broadcast station that has 
that content, leaving them at the mercy of the local broadcast 
monopoly.
    Second, government rules require that every one of our subscribers 
buy and pay for the broadcast channels as part of any cable service-
even if the subscriber doesn't want them and no matter how much money 
the broadcaster charges us to carry their signal. This shields 
broadcasters from the consequences of their pricing decisions, since 
everyone is required to buy the product no matter the price.
    Third, when a broadcaster and MVPD cannot reach a retransmission 
agreement, government rules prohibit the MVPD from dropping the 
broadcast channel during ``sweeps''--periods of time when TV ratings 
are set--because it would be costly to the broadcaster. Yet nothing 
prevents the broadcaster from pulling the signal from the MVPD before 
marquee events--such as the Super Bowl or the World Series--even though 
doing so would be costly to the MVPD and harm consumers.
    Over the years, broadcasters have used these rules to expand their 
presence on cable, primarily by requiring operators to carry and pay 
for other cable networks as a condition of carrying the broadcasts. 
Every three years, broadcast contracts are renewed on condition that 
cable operators agree to carry other cable networks owned by the 
broadcaster--often for terms of 10 years or more. Cycle after cycle, 
broadcasters have sought carriage of their affiliated programming 
networks, increasing the cost of expanded basic service, displacing 
independent programmers and exacting enormous compensation from cable 
operators. As a result, broadcaster-affiliated cable networks have 
grown exponentially--from 8 in 1993, to 19 in 1996, to more than 90 
today. And broadcasters have enjoyed billions in compensation through 
these affiliation deals, negotiated on the strength of their powerful 
broadcast rights.
    Further, as competition among distributors has increased 
exponentially in recent years, broadcasters' leverage has increased 
even more, because in a fiercely competitive distribution market even a 
temporary loss of broadcast programming, especially during a marquee 
event like the World Series, can do damage to a cable or satellite 
business and its customers. The rules encourage a vicious spiral of 
inconvenience and price increases: Broadcasters rotate through their 
contract cycle--from one distributor to the next -threatening blackouts 
and demanding higher fees in addition to what they already receive for 
their cable channels. Broadcast retransmission contracts are timed to 
expire during popular events to increase consumer anxiety and inflict 
maximum cost on distributors, yielding more price concessions. Every 
three years it is repeated.
    Since 2000, there have been more than 30 threatened blackouts by 
broadcasters, all possible because of the distortions caused by 
government regulation of the broadcast and cable television business.
    Recent events suggest that this is getting worse. Broadcasters are 
demanding carriage fees that are multiples of their fair value, and 
insisting on contracts that fix increases of more than 30 percent a 
year, putting enormous pressure on cable prices and consumers. And with 
government rules that protect broadcasters from the consequences of 
their pricing decisions, this may be a rational negotiating strategy, 
but over time it leads to substantially increased programming costs to 
the detriment of customers and other programmers without the legal 
leverage granted to broadcasters.
    Calls to fix or scrap the regime have grown insistent, and FCC 
action is imperative.
The Retransmission Consent Regime Can Be Improved
    Given that wholesale elimination of the retransmission consent 
regime is a longer-term goal, we have proposed, and believe that the 
Commission can readily adopt, a few changes to the retransmission 
consent rules that will reduce the likelihood of blackouts and threats 
of blackouts by addressing the kind of tactics that hurt consumers 
most, and that will restore a rational process to broadcast carriage 
negotiations.
    The FCC can begin the process of reform by issuing a notice of 
proposed rulemaking, and considering the following reforms:
    Forbid tying. Require that all retransmission consent contracts be 
limited to carriage of the broadcast channel, and not conditioned on 
the carriage and payment for unrelated but affiliated programming 
networks. This will eliminate historic abuse and create opportunities 
for cable networks to compete on merit and value, rather than based on 
ownership.
    Require transparency. Carriage terms between broadcasters and 
cable, satellite and other distributors in a given market should be 
disclosed so that the demands of the parties are fully understood.
    Forbid discrimination. Broadcasters should be free to set the price 
for carriage of their broadcast signals, but should not be able to 
discriminate among MVPDs. This will eliminate the brinksmanship and 
drama that too often characterizes these negotiations.
    Where these simple requirements fail to stem disputes that threaten 
to disrupt customers, the FCC has authority to impose standstill 
requirements and mandatory arbitration when negotiations have reached 
an impasse. The FCC has adopted these measures in the program access 
context. And Senator Kerry's proposed legislation would make this 
authority explicit.
    We believe that the Commission can pass these rules and enforce 
them today under its existing authority. A coalition of 35 parties--
consumer groups, cable operators, phone companies, and others--have 
urged the FCC to publish these proposals and seek comment about 
adopting them. The Commission has not done so, but should do so 
immediately.
Ensure A Truly Free Market For Retransmission Consent
     Broadcasters sometimes say that they want to get fees ``just like 
cable programmers,'' and that their tactics--blackouts, threats, and ad 
campaigns--are nothing more than attempts to get a foothold in a free 
market.
    As should be apparent, broadcasters do not, and have never, 
operated in a free market. They enjoy unparalleled government-granted 
protections over the programming networks that they compete with. They 
enjoy carriage mandates, local monopolies, and free use of public 
assets that give them substantial advantages, and they have used those 
advantages to create vast media conglomerates that increasingly 
dominate the cable television lineup.
    We welcome calls to allow a free market, free of this heavy 
government intervention, to flourish in the broadcast, cable and 
satellite space. This would mean eliminating free spectrum and special 
privileges for broadcast, rolling back retransmission consent and must 
carry, permitting broadcasters to compete, free of rules on 
``syndicated exclusivity,'' ``network non-duplication,'' and ``must 
buy.'' Eliminating these laws would allow a free market to exist, where 
programming content, distributors and consumers can choose among 
options without the weight of government intervention.
    But until that market is restored, the Government--the FCC in 
particular, which is charged with implementing the 1992 Cable Act and 
the retransmission consent regime to protect consumers--must recognize 
its role and take action to address the imbalances and consumer harm 
that has resulted from its neglect.

    Senator Kerry. Thank you, Mr. Rutledge.
    Mr. Carey.

           STATEMENT OF CHASE CAREY, DEPUTY CHAIRMAN,

            PRESIDENT, AND CHIEF OPERATING OFFICER,

                      THE NEWS CORPORATION

    Mr. Carey. Good afternoon, Chairman Kerry, Ranking Member 
Ensign, and members of the Subcommittee, and thank you for the 
invitation to testify.
    I'd like to address two issues in my comments today. First, 
our proposed rates in recent retransmission consent 
negotiations have been more than fair. We have the most 
valuable programming on television, with more viewers in prime 
time than the top three cable channels combined. Yet, what we 
were asking for is a small fraction of the rate paid for the 
most expensive basic cable channels on television.
    Without reasonable revenues, broadcasters will simply not 
be able to compete with cable channels. We have already seen an 
increase in sports migrating to cable, such as college 
football's bowl championship series and other major events in 
Major League Baseball, the NFL, the NBA, and college 
basketball. Local news, which is very expensive to produce, 
could be eliminated entirely or become less local in nature.
    Ultimately, this result would be devastating for the more 
than 30 million Americans who rely exclusively on over-the-air 
television because they don't have cable, satellite, or telco 
video service. Moreover, in a digital world of increasing 
fragmentation, where advertisers have ever-expanding choices, 
it is simply unrealistic to believe broadcasters can compete 
with cable channels without a dual revenue stream. To argue 
that broadcast rules put in place to support localism somehow 
replace access to dual revenues defies economic reality.
    Second, some claim that the retransmission consent process 
is broken. The definition of broken is not when one party 
doesn't want to pay a fair price. At issue is a rate 
negotiation for carriage of a channel. Channel owners and 
distributors have negotiated thousands of agreements over the 
years. If we were asking for an unprecedented rate, then maybe 
one could say this process is broken. But, we are asking for 
one that puts us well below ESPN, MSG, TNT, and others--all 
channels with a fraction of our audience.
    Distributors point to large percentage increases, but Fox 
received no cash compensation before, so any increase over zero 
is going to appear large.
    The statement--this statement that the process is broken is 
also puzzling, given that we have successfully concluded 
agreements with three of the largest distributors in the last 
year, without interruption. Unfortunately, our deal with 
Cablevision did result in a disruption to viewers, despite the 
fact that we began our negotiations with them more than a year 
before our contract expired. Yet, we still found ourselves, in 
October, facing a company that had consciously decided it did 
not want to reach a deal. This, despite the fact that 
Cablevision was offered the exact same rate for the broadcast 
stations we had already negotiated, with much larger 
distributors. Cablevision even agreed that the rate we were 
asking for was fair; they simply did not want to pay it. They 
made it clear to us that their goal, instead, was to politicize 
the issue and interject the government into our private 
negotiations. No one should miss the fact that four of the 
disruptions that occurred in the programming marketplace this 
year involved one company: Cablevision.
    Everyone in this room cares about viewers. However, it is 
critically important that the government not let a sector of 
private industry manipulate an honest process to gain 
advantage. Instead, we believe there are steps that can and 
should be taken to protect consumers.
    First, we can educate consumers on their options for 
getting broadcast signals elsewhere by simply hooking up to an 
over-the-air antenna or by switching to another distributor.
    Second, we can require that consumers get a rebate, credit, 
or decrease in their bills if channels are removed from their 
lineup.
    In conclusion, the retransmission consent law is 
experiencing growing pains because broadcasters like Fox are, 
for the first time, seeking cash compensation. The good news is 
that the actual interruptions in service are few and far 
between, and this period of adjustment will be short-lived once 
distributors accept that they have to pay a fair price for the 
right to resell broadcast content, just like the other content 
they distribute.
    Keeping the focus on consumer education and protection is 
the most effective and efficient way to help consumers weather 
this temporary and short-lived unrest.
    Thank you.
    [The prepared statement of Mr. Carey follows:]

     Prepared Statement of Chase Carey, Deputy Chairman, President 
           and Chief Operating Officer, The News Corporation
    Good morning Chairman Kerry, Chairman Rockefeller, Ranking Members 
Hutchison and Ensign, and members of the Subcommittee, and thank you 
for the invitation to testify.
    The retransmission consent law was established almost twenty years 
ago to provide a mechanism for carriage negotiations between 
broadcasters and video programming distributors. Yet distributors for 
the first time are claiming that the law is broken. No one--not even 
distributors--object to the notion that broadcasters should be paid for 
the very popular and expensive content we air. And any reasonable 
examination of how much broadcasters are asking for--compared to the 
rates distributors pay for other channels--can conclude only that the 
broadcast rates are more than fair. In light of this fact, we find it 
hard to believe that the negotiations for broadcast channels should be 
different, in structure or form, from the negotiations for the 100s of 
other channels carried by multichannel distributors. Let me elaborate.
    In the nearly two decades since the retransmission consent law was 
enacted, there have been thousands of deals negotiated. Less than one 
percent--a small handful--of these thousands of deals has resulted in 
service disruptions. The few disruptions that did occur typically 
lasted for a very short amount of time: most only minutes, hours, or 
days. Some of those disruptions have been high profile, leading some to 
overlook the fact that 99.9 percent of retransmission consent deals get 
done without incident. But let me emphasize again: in the overall 
scheme of retransmission consent, actual disruptions are few. In fact, 
an American household is about 10 times more likely to experience a 
complete cable system outage than to be deprived of a television 
channel because of a retransmission consent dispute.
    Those disruptions that did occur were because a few distributors 
have been unwilling initially to pay fair cash value for broadcast 
channels. Why? Two reasons: first, until recently, cable operators have 
not paid a single penny in cash compensation to Fox for our incredibly 
valuable broadcast programming. Second, some cable operators have made 
it clear that their goal is to politicize this process by dragging the 
government into negotiations that should be settled at the bargaining 
table, presumably in the hope that they can get our broadcast stations 
for a lower rate. Thus, dramatic claims by some cable operators that 
broadcasters are seeking a 100 percent increase in rates are in fact 
true. Any increase over zero is a 100 percent increase.
    The amount of compensation that Fox is seeking for its broadcast 
stations is well below what they are worth when compared to cable 
channels that command as much as $4 and $5 per subscriber per month. 
This includes any comparison based on the quality and quantity of 
unique programming offered, the amount invested in programming, or the 
ratings of that programming. Fox has, on average, 8 million viewers in 
prime time, more than the top three cable channels combined. Our 
programming lineup includes the top sporting events on television such 
as the World Series and the Super Bowl, and the top prime time 
entertainment shows such as American Idol, Glee, House, and The 
Simpsons. And, of course, we offer the local programming that makes 
broadcasting unique: the local news, sports, weather, and traffic that 
viewers rely on every day.
    We find it hard to understand why some distributors are so opposed 
to paying a fair rate for broadcast programming when it is the most 
valuable and most viewed programming in the bundle of services they 
sell their customers. These protestations are particularly ironic 
coming from companies that until recently were a monopoly in their 
markets, and even today in many markets serve well over 50 percent of 
households. At its core, retransmission consent is about negotiations 
over rates, and the fact that we are asking several times LESS than 
cable channels that boast a fraction of broadcast station ratings is 
proof that we are seeking a fair rate.
    Take Cablevision for example. More than a year ago, Fox began 
negotiations with Cablevision over the carriage of its local television 
stations in the New York and Philadelphia markets. Despite a 
significant investment of time and resources, and a one-year agreement 
that delayed the onset of cash payments by Cablevision, we still found 
ourselves in October of this year facing the imminent expiration of our 
carriage agreement. This was a surprise to us given that we were 
seeking from Cablevision the exact same rate we had just negotiated 
with other large video distributors. Cablevision even acknowledged that 
the rate we asked for Fox was fair. Most frustrating was Cablevision's 
admission that its ``negotiating'' objective was to get the government 
to step in and change the law, thereby giving cable operators an 
advantage going forward.
    Our stations came off of Cablevision for more than two weeks, 
causing pain primarily to viewers, but also to both companies. In the 
end, a deal with Cablevision was reached after it became clear that the 
government was not going to step in to ``rescue'' Cablevision from a 
free market negotiation with Fox. Once Cablevision came back to the 
bargaining table, we were able to negotiate a deal quickly.
    Had the government modified the retransmission consent law, 
Cablevision would not have come back to the bargaining table, and we 
likely would still not have a contract in place. So-called ``reforms,'' 
if adopted, would clearly tip the balance of negotiations toward 
distributors. If broadcasters aren't able to negotiate on a level 
playing field for a fair carriage rate then we would be relegated to 
second class status, and our future viability would be threatened.
    In other words, if we can't sell our content for a price that 
allows us a fair return on our investment, we will no longer be able to 
invest in the high quality content that viewers enjoy. The most 
expensive--and highest quality--sports and entertainment content would 
migrate to a cable channel where it would have a better chance of 
securing a fair market rate. In fact, this migration has already begun. 
When Fox attempted to renew our contract for college football's Bowl 
Championship Series, we were outbid by a cable channel offering 100 
million dollars more than we offered. Fox could not justify the price 
for the BCS because we did not have a second revenue stream. This is 
just one example among many, as we have been watching the migration of 
major events in the MLB, NFL, NBA and college football and college 
basketball to subscription channels because broadcasters have been 
unable to compete for the rights.
    Additionally, local news, which is very expensive to produce, could 
be eliminated entirely or become less local in nature, as advertising 
alone can no longer cover the hefty production costs. Broadcast 
channels would become much less desirable, and broadcasters and the 
people they employ and the viewers they serve, would be irreparably 
harmed. Ultimately, this result would be devastating for the more than 
30 million Americans who rely exclusively on over-the-air television 
because they do not have cable, satellite, or telco video service.
    We understand how difficult it is to ignore these disputes and stay 
out of them when you hear from frustrated viewers who have lost their 
service. We all care about viewers. After all, without viewers, we have 
no business. However, it is critically important that the government 
not let a sector of the industry manipulate an honest process to gain 
advantage. Instead, we believe there are steps that can be taken to 
protect consumers that keep the government out of private business 
negotiations.
    First, we can educate them on their options for getting broadcast 
signals elsewhere. This is something Fox started doing nearly 30 days 
before our contract with Cablevision expired. We informed viewers that 
they can get their broadcast signals by simply hooking up an over-the-
air antenna. Or, they can switch to another content distributor.
    Second, we can protect viewers by requiring that consumers get a 
rebate, credit, or decrease in their bill if channels are removed from 
their line-up. Distributors are quick to raise rates when they add 
channels; likewise, they should be quick to lower rates when they 
delete channels.
    In conclusion, the retransmission consent law is experiencing 
growing pains because broadcasters like Fox are, for the first time, 
seeking cash compensation for their content. But the good news is, the 
actual interruptions in service are few and far between, and this 
period of adjustment will be short-lived once distributors accept that 
they have to pay a fair price for the right to re-sell broadcast 
content just like they have to pay for all the other content they 
provide to their customers. Keeping the focus on consumer education and 
protection is the most effective and efficient way to help consumers 
weather this temporary and short-lived unrest.

    Senator Kerry. Thank you, Mr. Carey.
    Mr. Segars.

           STATEMENT OF CHARLES SEGARS, CEO, OVATION

    Mr. Segars. Mr. Chairman, Committee members, on behalf of 
Ovation, the only national network dedicated to arts and 
culture, thank you for inviting us to testify today.
    My name is Charles Segars. I am the CEO of Ovation, a 
viable, independently owned television network that has earned 
carriage in 43 million homes, is paid a fair rate, market-based 
rate, from distributors who are committed to providing a unique 
programming service to their customers. They include Time 
Warner--Mr. Britt was the first to see the power of the arts; 
DIRECTV--Chase, when you were running DIRECT, you launched our 
service; Verizon; FiOS; DISH; Charter Communications; and even, 
today, Comcast Cable, who is rolling us out.
    Mr. Chairman, the detrimental effect of retransmission 
consent threatens the very existence of independent networks 
like Ovation. I am here supporting reform of these regulations 
to ensure consumers have access to a diversity of voices in 
television.
    Senator Kerry, in a recent editorial, you quite aptly 
pointed out that the old rules are outdated, and to continue 
with the status quo is bad for consumers, competition, and 
democratic participation. As an independent programmer trying 
to remain competitive, your words definitely ring true. This 
regulatory structure restricts our ability to grow our 
distribution, maintain fair subscriber fees comparable to those 
other networks, and reinvest those fees into local and national 
arts programming for an underserved consumer. Retransmission 
has enabled primarily the largest broadcast companies to bundle 
an excess of channels, eating up valuable bandwidth, and taking 
more than their fair share of fees that would otherwise be 
available in a free-market system.
    Now, standing, moments ago, with these media executives, I 
fully grasp the meaning of being between a rock and a hard 
place. It's illustrative of the predicament that Ovation and 
all independent programmers find themselves in today:
    On one side was an extraordinary well-operated vertically 
integrated media company who, since 1992, traded retransmission 
consent to gain carriage and fees to launch all new networks. 
Now they are seeking, effectively, to get paid twice; once 
through a direct payment of retransmission fees for their 
broadcast programming, and again through fee increases on the 
very cable channels their retransmission consent enabled them 
to launch.
    On the other side are a couple of major distributors who 
believe they have already been forced to carry and pay for 
networks they did not want. And now they must pay for a 
retransmission of free over-the-air broadcast signals, at a 
cost that adversely affects their ability to affordably provide 
TV to their subscribers.
    And in between these fiercely competitive companies are the 
last remaining independent television networks. With 
retransmission fees likely to top $1.3 billion in 2012, 
distributors will have to look to their customers to make up 
the difference, and they will have to aggressively cut 
programming costs. Independent networks with no service-
bundling advantage through retransmission and little leverage, 
despite delivering underserved categories like the arts, will 
be targeted. As a result, diversity in programming, one of the 
very reasons retransmission consent and must-carry was created 
in the first place, will vanish.
    This is a call for a level playing field. If large 
broadcasters are allowed to use their airwaves, owned by all 
Americans, to extract payment for historically free TV 
services, then let's not allow them to bundle all their 
services with it. If an alternative dispute resolution process 
for distributors and programmers is to be considered, please do 
not limit it only to those programmers who are trading on 
retransmission consent, but open that dispute process to all 
programmers, including the few remaining independent ones.
    The greatest measurement of our democracy, sir, is the 
freedom it gives to people to express their views and ideas and 
information. You can mandate an examination of retransmission 
consent and recommend an adjustment of these regulations to 
better safeguard our freedom by ensuring the survival of 
diversity of independent networks in the media.
    On behalf of Ovation, the only arts network in America, 
thank you for your time today.
    [The prepared statement of Mr. Segars follows:]

           Prepared Statement of Charles Segars, CEO, Ovation
    Mr. Chairman and Committee members, on behalf of Ovation, the only 
national television network dedicated to Arts and Culture in America, 
thank you for inviting us to testify today. My name is Charles Segars. 
I am the CEO of Ovation, a viable, independently-owned television 
network that has earned carriage to 43 million homes, and is paid a 
fair, market-based rate from distributors who are committed to 
providing a unique programming service to their customers. They 
include: Time Warner Cable, DIRECTV, Verizon FiOS, Dish, Charter 
Communications and Comcast Cable, who, as I speak with you today, 
continues our roll out.
    Mr. Chairman, the detrimental effect of retransmission consent 
threatens the very existence of independent networks like Ovation. I am 
here supporting reform of these regulations to ensure consumers have 
access to a diversity of voices on television.
    Senator Kerry, in a recent editorial you quite aptly pointed out 
that the old rules are outdated and to continue with the status quo is 
bad for consumers, competition and democratic participation. As an 
independent programmer, trying to remain competitive, your words ring 
true. This regulatory structure restricts our ability to grow our 
distribution, maintain fair subscriber fees comparable to those of 
other networks, and reinvest those fees into local and national arts 
programming for an under-served consumer. Retransmission has enabled 
primarily the largest broadcast companies to bundle an excess of 
channels, eating up valuable bandwidth and taking more than their fair 
share of fees that would otherwise be available in a free market 
system.
    Seated here amongst these media executives, I fully grasp the 
meaning of the phrase ``between a rock and a hard place.'' It is 
illustrative of the predicament that Ovation and all independent 
programmers find themselves in today. On one side is an extraordinarily 
well-operated, vertically integrated media company, who, like most 
since 1992, astutely traded retransmission consent to gain carriage and 
fees to launch new networks. Now, they are seeking to effectively get 
paid twice. Once through a direct payment of retransmission fees for 
their broadcast programming and again through fee increases on the very 
cable channels their retransmission consent enabled them to launch.
    On the other side are a couple of major distributors, who believe 
they have already been forced to carry and pay for networks they didn't 
want. And, now they must pay for the transmission of free over-the-air 
broadcast signals at a cost that adversely affects their ability to 
affordably provide TV to their subscribers.
    And, in between these fiercely competitive companies are the last 
remaining independent networks.
    With retransmission fees likely to top 1.3 billion dollars by 2012, 
distributors will have to look to their customers to make up some of 
the difference. And they will have to aggressively cut programming 
costs too. Independent networks, with no service bundling advantage 
through retransmission, and little leverage, despite delivering under-
served categories like the Arts, will be targeted.
    As a result, diversity in programming, one of the very reasons 
retransmission consent and must carry was created in the first place, 
will vanish.
    This is a call for a level playing field. If large broadcasters are 
allowed to use the airwaves owned by all Americans to extract payment 
for historically free TV service, then let's not allow them to bundle 
all their other services with it. If an alternative dispute resolution 
process for distributors and programmers is to be considered, do not 
limit it only to those programmers who are trading on retransmission 
consent, but open that dispute process to all programmers, including 
the few remaining independent ones.
    The greatest measurement of our democracy is the freedom it gives 
its people to express their views and have access to a myriad of ideas 
and information. You can mandate an examination of the retransmission 
consent regime and recommend adjustment of these regulations to better 
safeguard our freedom by ensuring the survival of a diversity of 
independent voices in media. On behalf of Ovation, the only arts 
network in America, we greatly look forward to the day when we can 
compete in a free market with a level playing field for all 
participants. Thank you.

    Senator Kerry. Well, thank you for your time.
    Thank you, all of you, for taking time to come in.
    Let me, first of all, begin, just as a matter of a 
framework within which I like to have this kind of hearing. I 
know sometimes Congress summons the executives and we have 
these kinds of show-and-tell deals. That's not my way of 
approaching this. I'd like to have a thoughtful dialogue with 
you folks to really try to understand this tension in the 
marketplace; that obviously has an impact. And I think, you 
know, our predilection, as I said earlier, is for the market to 
be the market and to let pricing be determined by the 
legitimate forces of the marketplace. The problem is that what 
we have here, I think, is a situation where a lot of the 
participants in that market are expressing the view that, as 
Mr. Segars just said, the playing field is inherently unfair, 
that there is an inability for them to have a normal kind of 
market relationship.
    Now, to try to understand that we need to sort of bear down 
on a number of things. I mean, first of all, I think we ought 
to dispel ourselves of the myth that this is just a free market 
and we ought to bug out and we don't have an interest, because 
it seems to me that the case is fairly strong that, when you 
have the several elements that were laid out earlier by Mr. 
Britt, you've got the retransmission consent, you've got 
spectrum itself, you've got the sweeps week, safe harbor. Those 
are all government-granted privileges. Your access to the 
American consumer is fundamentally a government-granted 
privilege, based on a certain set of standards, which we don't 
always measure very effectively. I can remember when we wrote 
the 1996 Telecom bill, you know, we tried hard to sort of do 
that. And, frankly, we were totally behind the curve because, 
within 6 months of the ink signed on the bill, it was 
completely outdated by virtue of data information, which hadn't 
been sufficiently taken into account; it was sort of a 
telephony debate in a new age of information, and everybody got 
left behind. And that's kind of the world we're operating in 
now, in many ways, with huge transformational impacts.
    So, let me begin by sort of, you know, trying to figure out 
a few things, if we can.
    First of all, I accept that there are thousands of these 
agreements in which you all reach agreement. Is there something 
particular that distinguishes those cases where you can reach 
agreement from these sort of celebrated cases that wind up with 
a pulled signal?
    Anybody want to tackle that? Is there a way to frame why 
you can reach the agreement easily in some of those other 
cases, and the fees seem to be fair?
    Mr. Rutledge. Sure.
    Senator Kerry. Mr. Rutledge.
    Mr. Rutledge. Senator, I think that the easiest answer is 
that if the fee--if the rate of fee increase to the distributor 
is proportional to the kinds of general cost increases that are 
occurring in an economy, it--it's a reasonable expectation that 
a deal gets done. When someone comes in and asks for a very 
disruptive price, and, in our case, says, ``Somebody else paid 
the price; therefore, you must pay the price, regardless of 
what your particular conditions are or what your market is,'' 
then you have a very big rate-increase potential, or a big 
cost-increase potential, to your business.
    And so, I think it's really a question of degree, and how 
exploitative the request is.
    Senator Kerry. Basically what you're saying is that, in the 
most recent case, with respect to the World Series, et cetera, 
those fees were excessive. Is that correct?
    Mr. Rutledge. That's--well, yes, from our point of view, we 
had done deals, over the last 18 months, with CBS, with NBC, 
with Univision and ABC, and all of those deals, combined, were 
less money than what we were being asked for, for the 
particular service in question, that had the World Series. So, 
that was--we thought that was a lot, and we thought it was 
irrational, and we thought that we should say no to that. You 
know, ultimately----
    Senator Kerry. But, to what degree might there be a 
legitimacy to someone's belief that you're somehow saying, 
``OK, let's go get Washington to get involved in this and, you 
know, we'll make this a case so that we don't get beat up in 
the future in the market, just in terms of those normal market 
forces''?
    Mr. Rutledge. Right. Well, what we really wanted was--we 
would rather have a price similar to what the other stations 
that we were--had already done deals with had agreed to. Absent 
that--and we had, basically, a take-it-or-leave-it offer. We 
thought that binding arbitration would make sense. We thought 
that, in a binding arbitration, that if anybody looked at the 
marketplace for New York and what TV stations cost, look at 
what we were paying, that that would work to our benefit.
    Senator Kerry. What about what I've suggested, which is 
even short of a binding arbitration, where we're not getting 
into sort of forcing people away from the market decision, but 
we're at least creating a judgment about the negotiation 
process itself being in good faith and also making a judgment 
about the transparency----
    Mr. Rutledge. Right.
    Senator Kerry.--so that people know what's going on? If 
that sunshine existed in that way, would that not create a 
greater fairness in the bargaining process?
    Mr. Rutledge. I believe it would. And, in fact, that's what 
we had proposed, that--to the FCC, previously, we had requested 
that they do three things: that they prohibit tying, that they 
be transparent--and the reason you prohibit tying is, there are 
13 agreements between Fox and Cablevision, for numerous 
channels--13 channels, I believe. And so, how you allocate the 
costs of all of those services is questionable. We think that 
you--in order to look at that and to really have transparency, 
you need to segregate what people are charging for 
broadcasting; it has to be public; it shouldn't be connected to 
other services, so the actual cost is legitimate; and, finally, 
that you not discriminate.
    You know, the broadcaster has power over a small cable 
operator versus a large cable operator. They can extract a 
different rate in the same marketplace for the same product.
    Senator Kerry. Do they?
    Mr. Rutledge. They do, yes. And our competitors pay 
different rates than we do. DISH TV or DIRECTV or FiOS TV may 
pay more in some cases, may pay less in some cases, but because 
of your position and lack of transparency, you have the same 
customers living next door to each other paying a different 
rate for the same product.
    Senator Kerry. What do you say to that, Mr. Carey?
    Mr. Carey. I guess I'd like to answer--I'm going to address 
a number of the points that were brought up.
    You know, first, you know, was the issue, in terms of the 
increase asked on retransmission. And I guess I said in--as 
my--as I said in my opening comments, we were getting zero 
before. So, yes, it was an increase, but any increase from zero 
is going to be significant. And I do think you have to look at, 
sort of, what we were asking for in the context of the quality 
of what we're providing, and look at it competitively against 
what other channels, you know, are asking for.
    And when you look at other top-rated--you know, top-rated 
cable channels, we were asking for a small fraction of it. So, 
while we were asking for an increase--and in some ways, you 
could say the broadcast business was probably negligent in past 
years; it may have been the economic euphoria of leading up--
before 2007, before the market crashed in 2008 and really 
brought home the issues of being a one-revenue business. But, 
what became clear is, as a one-revenue business, broadcasters 
were going to have deep problems. And, our network today, for 
each of the last few years, has lost hundreds of millions of 
dollars, you know, while the cable channels we compete with 
make hundreds of millions, if not, in some cases, billions, of 
dollars, you know. We have seen product that is moving. We, up 
until a year ago, the college football championships existed on 
Fox. They're now going to move to cable because cable had a set 
of economics that enabled them to compete.
    So, we need to have a viable dual-revenue business to be 
able to compete, you know----
    Senator Kerry. I don't----
    Mr. Carey.--in this marketplace.
    Senator Kerry.--disagree. I can remember, frankly, the 
broadcasters' arrogance, in the early years, as cable first 
came out, and they wouldn't deign to talk to them. And----
    Mr. Carey. They, excuse me?
    Senator Kerry. In the very beginning, when cable started to 
come online in the early years of Warner, I can remember when 
they first came to Boston, and there were all those 
negotiations going on, and, in the subsequent years, they had a 
helluva time getting broadcasters to even talk to them and to 
work out a deal and get carried and so forth. That's how must-
carry came about.
    So, the tables have turned, and now, indeed, there is a 
very significant revenue issue. I don't disagree with that at 
all.
    Mr. Carey. OK.
    Senator Kerry. But that doesn't necessarily license a 
discriminatory relationship or a completely unbalanced 
relationship in the marketplace so that the consumer winds up 
not knowing what's going on, not knowing what the price is 
related to, and, in fact, paying, conceivably, much more than 
their neighbor may be paying, because of those different 
relationships and absence of that transparency.
    I know there's a revenue issue, but shouldn't there be a 
fair balance in how you negotiate that revenue stream?
    Mr. Carey. We actually negotiate--I mean, I would actually 
say, we take great pride in how we negotiate our agreements. 
And we negotiate our agreements, you know, with consistency in 
the marketplace, you know, I think, as we've said. We----
    Senator Kerry. Is it not----
    Mr. Carey.--actually, for----
    Senator Kerry. Is it not possible to negotiate those 
agreements without taking signals off the air?
    Mr. Carey. Yup, that's our goal. We got three large 
agreements done in the last year, without signals going off the 
air.
    Senator Kerry. And what's the distinction between those 
negotiations?
    Mr. Carey. The one that did go off the air?
    Senator Kerry. Yes.
    Mr. Carey. I don't--I think we had an entity that believed 
they wanted to politicize the issue and have the government 
come in and mandate a solution, and they didn't want to pay the 
rate increase, even though the rate increase we were asking 
for--you know, we think we went beyond any judgment of reason 
to be reasonable about it. When you look at the quality of what 
we're putting forth and the rate we were asking, it's a 
fraction of what that channel would be worth on any competitive 
basis.
    Senator Kerry. I'll come back, perhaps, and examine the 
transparency issue.
    Let me recognize Senator Lautenberg.
    Senator Lautenberg. Thanks, Mr. Chairman.
    And thank all of you for your testimony.
    We're stuck in not just the middle of a muddle. But, the 
fact is that it's very hard to understand how Mr. Casey, you 
described your rate increase as ``fair.'' How do you define 
``fair''? Do you have costs escalating for the transmission 
that you make to the cable company?
    Mr. Carey. Well, I guess, when you look at ``fair,'' we 
first look at the market and what our channels--I mean, we're 
competing today with hundreds of channels. I mean, we are in a 
marketplace that, you know, is, from our perspective, for 
channels as robustly competitive as any we've been in. We 
compete with them for audiences; we compete with them for 
content. So, certainly one measure of ``fair,'' you know, is, 
what is--what are we being--receiving for compensation compared 
to other channels we're competing with receiving? And, we are, 
in fact--our request in this case, you know, has us receiving a 
small fraction of what others receive who have a rating that is 
a small fraction of ours.
    Senator Lautenberg. And, Mr. Rutledge, during the past 
year, Cablevision's been involved in the two retransmission 
consent disputes resulting in blackouts, where many others were 
able to negotiate agreements without any blackouts. Why are 
Cablevision's competitors able to negotiate agreements without 
a blackout when Cablevision can't?
    Mr. Rutledge. Well, Cablevision is trying to hold its rates 
as low as it can and offer as valuable a product as it can to 
its customers. Our objective in all of these discussions is to 
come out with the lowest rate as possible so that we have the 
lowest price for our cable service as possible, because we're 
competing against other providers. And so, we have tried to 
hold the line, and we've looked at our marketplace. And we've 
actually been successful at holding the line. And we've had 
very low rates of increase, on a relative basis.
    But, we're fighting for our customers, we're fighting for 
our product and trying to keep our product as competitive as 
possible in a very competitive environment. We have the largest 
telephone overbuild in the country against Cablevision with--in 
the form of FiOS, in terms of percentage of our business that's 
overbuilt by a phone company. We have robust competition with 
satellite--two satellite providers. AT&T has overbuilt our 
Connecticut facilities.
    So, we have a very competitive distribution market. And 
price matters. Cablevision's actually very successful in the 
marketplace as a cable operator. We have the highest 
penetration of video of any company in the industry. We have 
the highest data penetration and the highest voice. So, we have 
served our customers well, and we want to continue to do that. 
So, that's our objective, and that fixates us on cost.
    Senator Lautenberg. Mr. Carey, do you want to respond?
    Mr. Carey. Yes. I guess what--I mean, I do think it's 
important--and Chairman Rockefeller addressed the cost of 
content. The cost of content--and I agree with what he--it is a 
holistic issue. There are hundreds of channels, and that's--the 
cost of content is the compilation of hundreds of channels. And 
I don't think one can look to is say somehow broadcast networks 
are going to be relegated to second-class-citizen status and 
not be fairly compensated in order to deal with the cost of 
content. If you're going to deal with--look at the cost of 
content, then I agree with what was said up front, you've got 
to look at it holistically, not somehow expect broadcasters to 
carry a unique burden in that regard and not have the 
opportunity to be fairly compensated.
    Senator Lautenberg. What happens during a blackout? Your 
advertisers aren't getting what they're paying for?
    Mr. Carey. No.
    Senator Lautenberg. Do you lose revenues when you're out 
for a few days?
    Mr. Carey. Yes.
    Senator Lautenberg. Yes.
    Mr. Carey. Yes. There's--there are clearly financial 
consequences----
    Senator Lautenberg. Is it charged by the day or----
    Mr. Carey. We usually--they pay--essentially pay on 
ratings, so if we're not delivering an audience because we're 
not--because the signal's not--channel's not being received----
    Senator Lautenberg. So, are the rates calculated daily or--
--
    Mr. Carey. You know, essentially, pretty much every--you 
know, every ad is based on the ratings for that--that we 
receive----
    Senator Lautenberg. Right.
    Mr. Carey.--for the show in which that ad----
    Senator Lautenberg. So, the advertiser----
    Mr. Carey.--exists.
    Senator Lautenberg.--does not get the exposure. But, is the 
calculation for those few days reduced to the advertisers?
    Mr. Carey. Yes. I mean, if it's a broadcast station, where 
we're not receiving--and, historically, we haven't received 
cash-free transmission--then the lost revenue would be 
advertising dollars while we're not delivering the audience, 
because we're not reaching the customer.
    Senator Lautenberg. What has been the rate of increase that 
you've received over the last several years? In the case of 
Cablevision, in particular. Do you have an idea?
    Mr. Carey. Well, in retransmission we've received nothing, 
so we've had--until, you know, this last year, we've received 
zero. And----
    Senator Lautenberg. So----
    Mr. Carey.--that is----
    Senator Lautenberg.--that's----
    Mr. Carey.--that is essentially----
    Senator Lautenberg.--a recent phenomenon.
    Mr. Carey. And--yes. And, as they said, I mean, really, in 
some ways, you could just say broadcasters should have realized 
this one-revenue business model was not going to survive and be 
competitive in the world of dual-revenue cable networks. I 
think the economic, you know, sort of, strength of the market 
through 2007 masked it a bit and didn't--you know, and probably 
made broadcasters, if anything----
    Senator Lautenberg. Yes.
    Mr. Carey.--delinquent in recognizing the problem. I think 
it hit home. And I think it became quite apparent that a 
single-revenue, you know, advertising-based business was not 
going to be viable, long term. And hence, in the last 12 
months, we've moved to----
    Senator Lautenberg. Well----
    Mr. Carey.--to become a dual-revenue business.
    Senator Lautenberg. Mr. Chairman, I think the hostage here 
is, of course, the consumer. And they're paying a price, and 
they're not being charged less for the month or the week or 
whatever it is that they're out. And the consumer is left 
outside, in my view, like a spectator. They're not part of the 
negotiation. They're a victim of an agreement between the 
parties.
    And there is a really special place that all of you occupy, 
because TV-watching is now an integral part of life, almost 
like gas and electric or things of that nature. You know, I 
come from the business community. And so, I know you're in 
business to earn a profit, to get a return on your investments, 
and so forth. But, I wonder what kind of a special obligation 
you feel to deliver this ``precious commodity'' that is now 
part of daily life for the American people.
    Mr. Carey. We consider it a tremendously important 
obligation and a privilege, in reality, to deliver, you know, 
that content. But, we need to have, you know, a business model 
that enables us to continue to invest and create great content. 
I mean, the last few years we've lost $2 to $300 million a year 
on a broadcast network. That's not a sustainable model. You 
know, we need to move to a place, you know, where we have a 
business model that enables us to invest in keeping product 
like, you know, the NFL on Fox--to continue to produce the 
local news we do. And I do think, in fact, it is why you've 
seen a continued migration of product away from broadcasting, 
and broadcasting which has this encumbered, you know, business 
model, to cable channels, that have a much healthier business 
model. And for us to continue to invest and deliver great 
content--I mean, that is our goal, is to create great shows, 
like American Idol and Glee, and deliver them, you know, to the 
American public. But, we need to have business model that 
enables us, you know, to do so.
    Senator Lautenberg. Thank you.
    Thanks, Mr. Chairman.
    Senator Kerry. Let me just point out, though, when you say, 
``We were paying nothing,'' we paid nothing, at that point, but 
we got nothing because you bundled your cable and broadcast, 
and that was sort of a quid pro quo for your access, correct?
    Mr. Carey. Yes, we do--I mean, we negotiate----
    Senator Kerry. You were getting a huge value.
    Mr. Carey. We were getting value----
    Senator Kerry. It wasn't like you weren't----
    Mr. Carey. I mean, I actually believe----
    Senator Kerry. It wasn't like----
    Mr. Carey.--the bundling----
    Senator Kerry.--you weren't collecting anything. I mean, 
it's not----
    Mr. Carey. No, we were building cable channels. And, I 
actually believe that's a win/win proposition. It enabled us to 
build cable channels. We built channels recently, like National 
Geographic Wild. We've built, like, Fox Sports----
    Senator Kerry. But, it was in-kind----
    Mr. Carey.--Deportes.
    Senator Kerry.--it was an ``in-kind'' proposition, not a 
``nothing'' proposition.
    Mr. Carey. Yes, but it's not different than--I mean, there 
are--the same thing happens with companies that don't have 
broadcast stations. I mean----
    Senator Kerry. I'm not arguing. I'm just----
    Mr. Carey.--the Time Warner group--you know, group is a 
bundle, the Viacom group is a bundle, the Discovery group is a 
bundle.
    Senator Kerry. I'm not arguing about that. I just want to--
--
    Mr. Carey. That's the nature of the business.
    Senator Kerry.--I just wanted the record to reflect the 
value transferred and the reality of this new negotiation. And 
it's not exactly going from zero up to here, it's----
    Mr. Carey. I guess I--I mean, I would not--yes, it has been 
negotiated as a bundle. I'm not sure I'd agree with the 
characterization that it has a value transfer, because we've 
built channels that have value to customers. The amount we get 
for those channels, you know, is competitive, if not against--
you know, when you compare rates to National Geographic 
Channel, which we own, you know, we get less than Discovery we 
compete with. We have a channel----
    Senator Kerry. Well, let me----
    Mr. Carey.--FX----
    Senator Kerry. Let me come back to the comparatives in a 
minute. I want to recognize Senator LeMieux and Senator Pryor 
and then we'll come back.

             STATEMENT OF HON. GEORGE S. LeMIEUX, 
                   U.S. SENATOR FROM FLORIDA

    Senator LeMieux. Thank you, Mr. Chairman. Thank you for 
having this hearing, and thank you for the way you're 
approaching it, where we can have a discussion about these 
issues.
    Sitting here listening to this, it occurs to me that 
there's a lot of regulation of this industry, and perhaps it's 
the regulation that's causing the problem. While I agree that 
television's important, and certainly I want to be able to 
watch football and baseball, I've heard words like 
``devastating'' and ``crisis'' applied to these things, and, in 
light of the other things that we're addressing here in 
Congress, I'm not sure that they are.
    But, let me say that with all of these regulations, perhaps 
the view should not be that we should create more regulation, 
but maybe we should unpack some of the regulations we already 
have. The world is changing. Television is important, but there 
are so many alternate ways to receive content. We're watching 
television and movies and other forms of communication through 
various different sources; not just the TV, but on the 
computer. And, how this will be transformed in the next few 
years is hard to even anticipate. It's going to be a very 
different world in which we receive content.
    I understand the importance of protecting content. You have 
to value it. We have copyright laws in this country. We have to 
value those copyright laws. But, it occurs to me that if we're 
going to get more involved in this discussion about 
retransmission consent, and bring Congress and the Federal 
Government more into that process, we're going to create more 
unintended problems. I think if you look back 20 years ago, 
when this legislation was put in place, it has probably caused 
many of the problems that we have here today.
    Now, perhaps I'm naive. And I'm still new here, although 
I'm about to leave----
    [Laughter.]
    Senator LeMieux.--but it looks like the regulation has 
caused a lot of these problems. So, I want to ask the folks 
here at the table, instead of adding more regulation, is there 
a way that we can unpack some of the regulation we can have so 
that this marketplace can work?
    Mr. Britt?
    Mr. Britt. Yes, I think that clearly is a different way to 
go. If you think about what Chase was saying, he was saying 
that he thinks broadcast networks are not viable as this--as a 
different thing, and they really need to look and act like 
cable networks, and have two revenue streams.
    The heart of the issue about retransmission consent is that 
there are a whole set of rules and regulations and laws that 
treat broadcasting different than the rest of this television 
industry. So, I would say in response that, if we got rid of 
all those special privileges and what have you for 
broadcasting, and if Chase wanted Fox to look like a cable 
network, that would be perfectly fine with us, and I think you 
would see----
    Senator Kerry. So, you're suggesting----
    Mr. Britt.--a different setup.
    Senator Kerry.--we'd only have pay-TV.
    Mr. Britt. That's an alternative.
    Senator Kerry. That's the only one we'd have.
    Mr. Britt. That is an alternative.
    Senator Kerry. You think that would please the American 
people?
    Mr. Britt. I think the 80-some-odd percent who are 
subsidizing the rest probably would be happy.
    Alternatively, the question is, How do you figure out the 
amount of the subsidy? So, rather than--and I've said before--I 
said in my testimony--we're not protesting the idea of paying. 
We're just saying the mechanism for figuring out the amount is 
broken. And actually having a debate about whose channel is 
worth more, or whatever, is kind of irrelevant. So, if we're 
going to treat broadcasting as a special thing, and think it 
valuable that some of our citizens get it for free, which is 
certainly what was intended originally, and if we're going to 
have other people subsidize that, then we need to figure out 
what the mechanism is for deciding that amount. And that's 
what's broken. It's that process of figuring out the amounts.
    Senator LeMieux. Mr. Uva?
    Mr. Uva. Thank you, Senator.
    Senator LeMieux. Thank you for being here today.
    Mr. Uva. Thank you.
    I believe that what is special and unique about 
broadcasters is the way we serve the local community, in a 
variety of ways. And localism is fundamentally important to--in 
making sure that the citizens of this country are informed each 
and every day, not just by a CNN or a Fox News on global and 
international news issues, or by a network newscast, although 
we do network newscasts, just as Fox does. We are very 
committed, and we believe very strongly in the ability to stay 
relevant to the local communities. And that is an incentive for 
us to make sure that we deliver those newscasts and 
information, that we participate in the community in ways that 
are empowering members of the community through public and 
community service, and that costs money. And that is where a 
great deal of the funding that goes to the local broadcasters, 
particularly at Univision, is reinvested into the community. 
And that's why I think broadcasting is special. And it cannot 
be treated and looked at on a neutral basis, compared to what 
cable networks are.
    Senator LeMieux. Mr. Carey?
    Mr. Carey. Yes. I--I mean, and I guess I want to first say 
that retransmission, you know, clearly has a unique level of 
importance. And we need a dual-revenue stream. So--and we've 
had these other, you know, provisions, and we end up with a 
business that, again, is not competitive. So, that's not a--
it's not a trade.
    In reality, most of the provisions that exist, you know, 
are ones we could achieve contractually. And we're not--you 
know, I think the spectrum is different. I think the spectrum's 
important for us to provide our service for free to 30-plus 
million Americans, and actually have the ability of every 
American to get it for free. So, I think, you know, the 
spectrum I'd put in a different place. It has a different role, 
and I think it provides a unique value that we--you know, we 
think it's important to provide the opportunity for every 
American to get a level of broadcasting.
    The other provisions, I think they have importance to the 
broadcast industry, as a whole. I think they're at the heart, 
as Mr. Uva said, in terms of the localism that exists. But, 
realistically for us, you know, retransmission is at a whole 
different level of importance, because it provides an economic 
foundation for us to have a competitive business, going 
forward.
    The others are largely things, you know, we could 
competitively compete for in the marketplace. But, I do, in 
respect the broadcast industry, recognize, you know, they are 
important in the foundations of the localism, you know, that 
has been so important for local broadcasters in their local 
communities.
    Senator LeMieux. Mr. Chairman, Mr. Rutledge wants to finish 
up.
    Mr. Rutledge. Yes, thank you, Senator.
    I just wanted to say that, you know, I think it's a policy 
question: Does the United States want to have a broadcasting 
business? And, if it does, what are the objectives of that?
    And, you know, historically, you've got a broadcast 
license, you got some spectrum, you had to operate in the 
public interest, and you had an obligation to your community to 
serve your community, and you had--you came up for renewals, 
and you were subject to question as to whether or not you 
actually met those obligations. So, the power that has been 
entrusted to these organizations is enormous.
    That--the reason the World Series exists on a broadcast 
network is because of the public trust that was granted to 
those entities to serve their communities and they amassed the 
audiences that they did, and had the power to buy the World 
Series and create the kind of conflicts that exist today.
    So, it really is a policy question: What do you want from 
broadcasters? And how do they fulfill their obligations to the 
community? And if you're going to give them valuable spectrum--
because I could turn that spectrum into a broadband wireless 
network very effectively, I think, and serve a different part 
of the community--we're--you know, it's a valuable resource to 
the country, and it's being used in a way that's actually 
abusing the consumers of the country.
    Mr. Carey. Can I just add? I mean, every household in 
America did have the opportunity, including everyone living in 
Cablevision, to get the World Series over the air for free.
    Mr. Rutledge. Which makes the notion of charging for it 
ridiculous.
    [Laughter.]
    Mr. Carey. It does not make--we treasure the opportunity--
--
    Mr. Rutledge. I was trying to get the----
    Mr. Carey. We treasure the opportunity to provide a signal 
for free, but when others are retransmitting our signal and 
building a business based on it, we feel we have a right to be 
fairly compensated, if somebody else is building a business 
based on the retransmission of our signal and our content that 
we pay a lot of money for and invest a lot of money in.
    Senator Kerry. Senator Pryor.

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

    Senator Pryor. Thank you, Mr. Chairman. When I think of all 
the changes in the industry and technology and society since 
1992, I do feel like it is time for us to try to draft some 
legislation that embraces all those changes in the past but 
also paves the way for more innovation and to be smart about 
how we do things in the future. So, I appreciate your drafting 
this piece of legislation, Mr. Chairman.
    And one thing I like about it, as I understand it, is there 
is a revision where the signal stays on the air when there is a 
breakdown in negotiations. Now, that makes sense to me, but 
what I would like to ask all the panelists is: Is that good 
public policy? Or, what's wrong with that policy of allowing 
the signal to stay on the system when there's a breakdown in 
negotiation?
    Mr. Britt, you want to take that?
    Mr. Britt. I think it's one of the very good ideas that are 
around. Again, I think it relates to everything that's been 
said, because broadcasting occupies a unique and privileged 
place in our society. And depriving consumers of that is a 
problem.
    Again, some people will say, ``Oh, that will tilt the scale 
in the favor of the distributors,'' some other people will say 
other things. But, it is the consumer that's being held 
hostage. And that isn't a good thing. So, we are, again, 
advocating some sort of better process for settling this. 
Again, we're not denying the value of the networks or whether 
there should be payment. There should, and there is value. But, 
how do we decide the amount without disrupting the public?
    Senator Pryor. Mr. Uva, did you want to----
    Mr. Uva. Yes, I--Senator, thank you--I believe that the 
government needs to tread very carefully in this area. And I do 
believe that you remove one of the primary incentives for both 
parties to get a deal done if during negotiations you force a 
signal to remain up through the negotiations. There doesn't 
seem to be any motivation on behalf of the distributor to, in a 
timely fashion, come to an agreement.
    Furthermore, I think that the rules, as currently exist 
under the communications acts and certainly the FCC rules, the 
FCC is empowered to oversee this. And if one party has a 
dispute or believes the other is not negotiating in good 
faith--and, in fact, in bad faith--the FCC should rule on that. 
But, during that time, there should not necessarily be a 
requirement for those signals to----
    Senator Pryor. That's a good point. On that issue, though, 
has the FCC ever found bad faith? Or have they ever found that 
a party's not proceeding in good faith?
    Mr. Uva. I'm unaware.
    Senator Pryor. Yes. I don't think they have, as far as I 
know.
    Mr. Rutledge?
    Mr. Rutledge. No, I think that broadcasting has a special 
place and a social obligation to its community. And I think 
that the FCC, or through other policy means, should intervene 
when--rather than let signals go off. It does have some 
disruption. You know, nobody wants to pay higher rates. And so, 
I agree it would make negotiations more complex for 
broadcasters, but I still it's better than allowing people to 
be held hostage. And so, I think it's inappropriate for 
broadcasters to be allowed to drop their signals, which are 
free over-the-air signals in unlicensed spectrum being used for 
the public good.
    Senator Pryor. Mr. Uva?
    Mr. Uva. Yes, Senator. Thank you.
    I also believe that there is a very important role for both 
sides to play in educating the consumer about choice, because, 
at the end of the day, the consumer does have choice to opt 
for--to receive that signal free or over the air, to buy it 
from a multiple-system cable operator, to buy it from a 
satellite provider or from a telephone company. And we believe 
very strongly that educating consumers about the choices they 
have and the remedies available to them is also an equally 
important and vitally important part of this----
    Senator Pryor. Mr. Carey, did you want to add anything?
    Mr. Carey. Yes, I guess--I mean, I'd add a couple of 
things, because I agree with Mr. Uva's points.
    I mean, first, in terms of time, you know, we provided a 
lot of time for the actual negotiations we had. Our process 
with Cablevision was 13 to 14 months. I think we were engaged 
with Time Warner, you know, for the better part of 6 months. 
So, it's not like these have come up and somehow there isn't 
time to address them. There's a lot of time. We've--you know, 
we've provided a lot of time to get there. And, realistically, 
most agreements get done with a deadline. I mean, that seems to 
be the way the world works. When you--you know, when you have a 
deadline, they'll get done and at the point of the deadline; if 
you don't, they'll go along. And I'm not sure what--if the--I 
mean, we've acknowledged we were getting zero; you know, we 
were trying to get a fair rate. If one is just going along 
open-endedly, I'm not sure why the incentive isn't for the 
cable operator to just keep it going open-endedly and us to 
keep getting zero. You know, that, you know, seems to benefit 
them.
    Or, as has happened in some cases, push it to a point in 
time when--which happened in some other cases, this summer, 
where the broadcaster has a particularly--you know, 
disadvantageous time of year, like the summer, when you're in 
reruns, and then all of the sudden decide that's a good time to 
bring it to a head, you know, and--you know, and drop it, 
because your viewership is at the lowest point in time.
    So, I think a deadline's important to get a deal done. 
We've provided a lot time in it. And I do think that's 
generally--you know, it works. You know, it's just that we have 
a lot of channel negotiations. We do this in a lot of cases. 
You know, I still struggle why this negotiation is so unique. 
We're not asking for a rate that is, you know, precedential.
    Senator Pryor. Yes. You know, I've never done one of these 
negotiations. I have no idea how complex they are. But you said 
that time usually is not a major factor, but a deadline is 
helpful. And I understand that. But aren't you mostly just 
negotiating about the number of channels and the price per 
viewer? I don't know exactly how you evaluate it, but it seems 
like----
    Mr. Carey. Yes. I mean----
    Senator Pryor.--a fairly straightforward set of 
negotiations----
    Mr. Carey. Yes. That's why I don't know what--if you just 
extended what's going to--what's going to--what that extension 
is going to achieve, other than just----
    Senator Pryor. I see.
    Mr. Carey.--drift. I mean, it's--you know, I agree with 
you. You know, I mean, that's why I said what--when you've been 
talking for 13 months, you probably have every fact on the 
table----
    Senator Pryor. Yes.
    Mr. Carey.--and it just becomes a point in time, you know, 
to----
    Senator Pryor. It's just about money.
    Mr. Carey.--to make a decision, and then--you know, and 
we've had thousands of times when we have channels and 
distributors, and you get to a point of decision, and you reach 
an agreement.
    Senator Pryor. Yes.
    Mr. Carey. The process has worked. You know, this just 
happens to be a case, you know, where the distribution industry 
wants to politicize this, and try and change the rules and how 
these are done. Yet, this isn't that different a process, and 
what we've been asking for, as I've said before, you know, 
really is on any comparative basis, more than fair.
    Senator Pryor. Mr. Segars, would you like to----
    Mr. Segars. No, I--I just want to make sure that any 
reexamination or reform look at retransmission includes the 
independent programmer. We need to participate in that dispute 
process, if one is put into place.
    I will say that I don't want any of Senator Kerry's 
comments to get lost, when he mentioned--Chase certainly is 
sitting here saying that the broadcast network has not gotten 
paid, but in reality he's also launched a number of different 
cable channels based on that retransmission, and has built 
extraordinary value for his company, and, many of those 
channels, extraordinary value for the consumer. So, there are 
billions of dollars that are being generated by that real 
estate that retransmission allows.
    Cable also has good to do. And they're launching an arts 
network. They wake up every day and--saying they have a 
responsibility; it's not just broadcasters. And they reach down 
to a small independent arts network, that's privately funded, 
no government handout, and they are putting an arts network on, 
on cable television, but it gets very complicated when 
retransmission takes up, not only valuable bandwidth, but these 
very public arguments ensue.
    Senator Pryor. OK.
    Chairman Kerry, I do have a closing comment. It has always 
bothered me, in these negotiations, the total lack of 
transparency, where John Q. Viewer doesn't have any idea what 
Comcast has paid. When I travel and I stay with my in-laws, and 
they're on Time Warner or whatever it is, I have no idea what 
they paid for that. I cannot imagine any good public policy 
reason for that total lack of transparency. Is there a good 
public policy reason that I'm missing here?
    Senator Kerry. Anybody want to comment on that?
    Mr. Carey. Yes, I guess I'd say--I mean, I--realistically, 
to--I can't think of any real business where you negotiate in a 
public forum--negotiate business agreements in a public forum. 
I think the competitive complications will be really damaging 
as you try to continue to do deals to the degree you were 
putting, you know, in a public forum----
    Senator Kerry. Well, let me----
    Mr. Carey.--you know, the
    Senator Kerry.--let me----
    Mr. Carey.--the provisions of private negotiations.
    And I can't really think of--as I said, I'm trying to think 
of an industry that----
    Senator Pryor. I'm sure that happens all the time. I mean, 
it happens all the time, where one party knows what the market 
value is for something, and they go out and negotiate it and--
--
    Mr. Carey. We have a pretty good----
    Senator Pryor.--maybe pay a little more----
    Mr. Carey. To be realistic, we have a pretty good 
understanding. And there's industry research out there that, in 
a range, will tell you pretty much what most of these channels 
get. I mean, they may not be accurate to--with precision, but 
there's--there are certainly industry experts and--you know, 
and the industry has covered in many ways--that that 
information, you know, is there. And it's----
    Senator Kerry. But, here's what----
    Mr. Carey.--it's publicly available.
    Senator Kerry.--here's what I think Senator Pryor's getting 
at. And I mentioned the transparency earlier. I think 
transparency may be one of the most effective ways to try to 
deal with this without you guys witnessing that so-called 
``heavy hand'' of government coming in and suggesting what 
happens.
    But there really are more than two parties at the table, 
with all due respect. You know, you could say, conceivably, 
there are four parties at the table. You have the consumer, who 
is sort of battered in the middle of this thing on occasion. 
Maybe they're paying a lot, but they're not sure what the 
differentials are. And then you've got us, because the truth is 
that public broadcasting is receiving billions of dollars of 
subsidy through the thing called ``spectrum.'' It's worth 
billions. That's a huge subsidy. I mean, let's be honest about 
it.
    There were standards applied to who gets it and how, which 
I don't think have been rigorously enough thought through. But, 
the fact is that there's a public interest there. There is a 
public interest at the table.
    And so, in many cases, there are people in this country for 
whom emergency lifeline or communication or other kinds of 
information are vital. To the degree that a couple of 
colleagues have called it a ``commodity,'' I think, in modern 
context, a lot of people would sort of commoditize it. And so, 
we have to think about what the implications of that are, which 
is why the FCC has certain authorities.
    What would happen to you guys if retransmission consent was 
taken away? What would happen? Where would your business plan 
go?
    Mr. Carey. If we were----
    Senator Kerry. There's no retransmission consent 
requirement at all.
    Mr. Carey. And we're--so, we're just an advertising-only 
supported business.
    Senator Kerry. And would you survive?
    Mr. Carey. Long term, I think our survival, you know, would 
certainly be threatened. I think you'd continue to find----
    Senator Kerry. What do you think, Mr. Uva?
    Mr. Uva. I think you'd see a dramatic reduction in 
services----
    Senator Kerry. Pretty threatened, correct?
    Mr. Uva.--that would----
    Senator Kerry. So, the fact that the government is 
requiring retransmission consent really creates your business 
plan.
    Mr. Carey. Well, I think it enables us to be competitive. I 
mean, we're competing with hundreds of channels that all have--
--
    Senator Kerry. Well, that's how you have a business plan. 
If you're not competitive, it's not a very good plan.
    Mr. Carey. Correct.
    [Laughter.]
    Senator Kerry. So, you know, we've got to think this 
through carefully. I mean, I do not think any member here wants 
to come leaping in an inappropriate way. But, what has been put 
on the table is a way of engaging us in thinking about 
transparency. Supposing people had a better sense of what those 
costs are in certain places.
    I mean, for instance, Mr. Britt, what's the difference, the 
retransmission consent payments that you pay to carry ESPN 
versus Fox, for instance?
    Mr. Britt. Off the top of my head, I don't know, Senator, 
but we'd be happy to get that and prepare it for you.
    Mr. Britt. We buy many networks from both of those 
companies, so how it all gets allocated is complicated.
    Senator Kerry. Do you know offhand whether----
    Mr. Britt. I don't. But, we can get it to you.
    Senator Kerry.--so, you couldn't tell me whether or not you 
consider it fair, that sort of differential.
    Mr. Britt. It's the result of a negotiation. I'm not sure 
what ``fair'' is, quite honestly, in the sense you're asking.
    Senator Kerry. You've never walked out and said, ``Boy, we 
got screwed in that one''?
    [Laughter.]
    Mr. Britt. I say that all the time.
    [Laughter.]
    Mr. Carey. I--you know, I think there's a fair amount of 
public information. I mean, actually, I used to sit on the 
other side of this, you know, at DIRECTV. And so, I can--I'm 
not going to disclose their numbers, but I think it's widely--
you know, widely known that ESPN would have a rate that is--I 
don't know--five, six times what, you know, we'd be getting in 
retransmission. Unless----
    Mr. Britt. So, if----
    Mr. Carey.--unless they have a very unique deal that looks 
like no----
    Mr. Britt. So, if I----
    Mr. Carey.--looks unlike anybody else's, it's certainly a--
it's a multiple well into, you know----
    Mr. Britt. If I may respond to----
    Senator Kerry. You were the one sitting on the other side 
of that, weren't you?
    Mr. Carey. Yes.
    Senator Kerry. Right? When you sat on the other side, you 
thought it was good to pay zero.
    Mr. Carey. I'm--sure. I mean, I--and if I can----
    [Laughter.]
    Mr. Carey.--you know, that was my job. If I can keep my--
you know, if I can fight that, you know, fight, that's----
    Senator Kerry. So, you understand what my job is.
    [Laughter.]
    Mr. Carey. I do understand. You know, I mean, in reality it 
wasn't that long ago, and I did see it from both sides. And I 
think it is why, in many ways, we've tried to approach it--you 
know, I've said, publicly in some forums, we could've gone in 
and asked for a much higher number, and justified it, based on 
ratings and other things. We didn't try and do that. We tried 
to go in with a request that we thought was manageable--you 
know, was realistic, but enabled broadcasters to have a model 
that would be competitive. And I--if I was sitting on their 
side, I respect--if I was at DIRECTV, still, you know, I would 
be pushing back at that. You know, that's my job. And, you 
know, I'd be trying to manage my costs as aggressively as I 
can.
    The fact of the matter is, you know, DIRECTV, the two 
companies here make a lot of money. This is not--you know, 
they're not fighting for survival. They have very profitable, 
high-margin businesses, you know. And, we recognize, 
nonetheless, they are trying to continue to manage their 
businesses intelligently. I respect that. But, I do think 
broadcasting, you know, has a--you know, I do think 
broadcasting content needs to have an opportunity to continue 
to compete, you know, in this marketplace. I don't think it 
benefits anybody, including the guys here if you find the NFL 
is going to be on a cable network, you know, when our deal 
expires in 3 or 4 years. And that--you know, that's where 
you're--you know, that's where you're headed, because we don't 
have a business model that lets us compete. It's why we don't 
have----
    Senator Kerry. I----
    Mr. Carey.--the BCS anymore.
    Senator Kerry. I totally understand that. And I can 
remember that we've met over the years, 25 years now, many 
times with the broadcasters coming in and complaining about 
their lack of power in the marketplace, which is why I 
commented earlier on the complete reversal from where we were a 
number of years ago.
    But, let me throw a couple of numbers at you quickly, and 
then I want to recognize Senator Klobuchar. In the 2009 report 
on the cable industry prices, it concluded that, from 1995 to 
2008, the average monthly price of expanded basic cable service 
grew from $22.35 to $49.65. It's an increase of 122.1 percent. 
And, going forward, SNL Kagan, the media research firm, 
predicts that retransmission consent revenues for broadcasters 
are going to grow from $762 million in 2009 to $1.36 billion in 
2011, and perhaps more than $2.6 billion in 2016.
    Now, I assume some of these fees could be passed on to 
consumers, in terms of their monthly MVPD. I'm not sure. What 
are we looking at as we go forward here? And what are we going 
to be able to say to consumers, as we go home, as they complain 
about the packaging and what they have to purchase and the 
total amount of money and so forth?
    Mr. Carey. Well, I guess what I'd first say is, you know, 
those numbers still would be a quite small fraction of the 
aggregate programming cost that exists, you know, for that 
universe, you know.
    Senator Kerry. That amount of money?
    Mr. Carey. That amount of money, if you look in aggregate, 
you know, of what the total programming cost is for that--for 
the content, for that same universe, that's a very small part 
of it, you know. And----
    Senator Kerry. What are we----
    Mr. Carey. And at some degree, singling them out----
    Senator Kerry. Share with us what we're talking about. It'd 
be interesting just to hear. What kind of figure are you 
talking about, in terms of global production costs?
    Mr. Carey. Global programming costs?
    Senator Kerry. The costs you're referring to.
    Mr. Carey. And I probably don't have the number, so I'm 
going to spitball it, just--you know, my guess is, it's a $30- 
to $40-billion, you know, number.
    Senator Kerry. $30- to $40-billion.
    Mr. Carey. You know, that--but, I'd have to find out. I'm 
doing that----
    Senator Kerry. OK.
    Mr. Carey.--sort of extrapolating off the top of my head, 
so it may be completely wrong. But----
    Voice: No, you're right.
    Voice: I think that's about----
    Mr. Carey. So, you put those numbers in that context, you 
know--and, again, I guess where I get troubled is sort of--
somehow broadcasters take some unique blame. I mean, and I'm 
not going to--I'm not blaming or vilifying other companies, but 
there are big companies out there that have big, driving 
networks--the Time Warners, the Viacoms, the Discoverys that 
all are largely--you know, they have--what--we talk about 
networks with--you know, that are driving and creating new 
networks around big, powerful networks. You know, it's not just 
broadcasters who are bundling product; it's everybody. And it's 
a--you know, somehow, you know, this issue is putting 
broadcasters in this unique light, like they're doing something 
that the broader industry--or asking for something that is 
outside the norm and practices of the business, you know.
    We're simply looking for a fair rate, like the channels, 
you know, we compete with. You know, we think they're benefits 
for us--and the consumer and the distributors--for us to 
continue to develop programming that is of interest to them, 
you know. And, you know, we're--you know, we do take it--our--
take a responsibility for looking to put prices--you know, ask 
for prices that are fair, you know, that we think are 
reasonable. And when we look at Fox, we think----
    Senator Kerry. How much would you----
    Mr. Carey.--we think it's a fair--you know, we're asking 
for a more than fair price for Fox.
    Senator Kerry. How much did you ask for and receive for 
Cablevision and for Time Warner?
    Mr. Carey. Again, I think specific--you know, I do think 
putting, you know----
    Senator Kerry. You don't want to lay that out?
    Mr. Carey. No, I think it--I don't think it's constructive. 
And I think that's--you know, it's--it is a fraction of what 
channels like ESPN or MSG, which, you know, Cablevision owns--
you know, a small fraction of what other channels like that, 
that are much smaller than us, receive. And we have dealt with 
the distributors--you know, we've now--you know, before 
Cablevision and now with Cablevision, you know, we've dealt 
with four large distributors. We've dealt with them fairly.
    We've dealt with them consistently.
    Senator Kerry. Well, we're going to have to figure out 
whether we need to get at those kinds of numbers in order to 
think through what's the reality of the dislocation in the 
marketplace here. Maybe it isn't. I mean, conceivably, those 
numbers would help you, not hurt you, but we don't know the 
answer to that, as we sit here right now. So, let me mull that 
one over and see how we proceed.
    Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Well, thank you very much, Mr. Chairman. 
Thank you for holding this hearing and for your thought-
provoking questions. And I know a lot of questions have been 
asked, but I will add a few of my own.
    You know, I'm thinking of this, that 86 percent of all 
Americans pay for their television, and that's why 
retransmission consent is an issue that affects most Americans, 
whether they've ever heard of it before or know it or not. And 
so, my primary focus is to make sure the consumer is protected. 
And, whether it's because their cable bills go up or they are 
subject to a blackout, consumers end up being the innocent 
victim. And that just shouldn't happen.
    So, since you were fielding a lot of the questions, Mr. 
Carey, I'll start with you. I've heard from executives from the 
broadcast networks that you should be compensated at least on 
par with cable networks, especially given the fact that the 
audience share is significantly higher for broadcast than 
cable. Do you agree with that statement?
    Mr. Carey. Well, yes. I think we should have fair 
compensation. And I guess I'd say we're actually asking for a 
small fraction of what that math would--you know, sort of, 
would calculate--would lead to as a fee or a rate.
    Senator Klobuchar. And, Mr. Britt, do you want to comment 
on if you think the compensation would be fair?
    Mr. Britt. Yes. I think we're talking about apples and 
oranges and peaches, here. So, broadcast networks were created 
in a certain environment, which was around free over-the-air 
broadcasts. They are--for each station--and we haven't really 
talked about stations; we're talking about networks--they are 
exclusive. So, there's only one Fox station in each market. 
Completely different market.
    Cable networks were invented in a world where they had to 
sell to all these distributors. They were given no privileges. 
They convey copyright with the network. We separately pay for 
copyright for the broadcast networks. So, it's a very 
complicated question.
    One thing left out of all this is that we're talking as 
though the broadcast industry is a monolithic thing. Most 
stations are not part of companies that own networks, and the 
relationship between the stations and the networks has changed 
dramatically since 1992. And I'm not in this business, but my 
understanding is, at that point, the networks used to pay the 
stations, and now they don't. And, in fact, the networks are 
now asking the stations to be paid. So, that's--you don't have 
anybody here who's just a station owner, but I think they ought 
to be here, too, because that relationship is an important part 
of this whole thing.
    Senator Klobuchar. Anyone want to respond to that?
    [No response.]
    Senator Klobuchar. Well, I had one question that----
    Senator Kerry. Mr. Rutledge wanted to----
    Senator Klobuchar. Oh, you do? Very good.
    Mr. Rutledge. I just wanted to say, in terms of fairness, I 
think, you know, we do come out of a long history, in 
broadcasting. And broadcasters have a public obligation, in my 
view, and they get public benefits, including very valuable 
spectrum, to provide that public obligation.
    Over the last 18 years, since retransmission consent has 
been enforced, we've gone from eight channels that are owned by 
broadcasters, that are cable channels, to 90. So, a substantial 
part of America's viewing now is controlled by large network 
broadcast owners and cable owners. They own both. And the 
value's being extracted in various places. And so, it's hard to 
pinpoint what things cost, but the fact is, there is a historic 
public service obligation that broadcasters have.
    And the other thing that I want to say is that in New York 
area, where we primarily operate our cable systems, there are 
over 25 TV stations. Only five look for retransmission consent. 
All the rest of them do what's called ``must-carry,'' which is 
another opportunity for broadcasters, under the law, to be 
carried on a cable system and enjoy all the benefits of channel 
placement and so forth that is included in the law.
    So, the majority of broadcasters aren't even in this 
regime. It's only the powerful network-owned broadcasters or 
broadcast affiliates that are trying to extract these payments 
from customers. Most broadcast stations aren't doing this.
    Senator Klobuchar. Mr. Carey, I thought you might want to 
respond.
    Mr. Carey. OK. Yes, I mean----
    Senator Klobuchar. You look very powerful.
    Mr. Carey. No.
    [Laughter.]
    Mr. Carey. I'm at their mercy. They----
    Senator Klobuchar. I'm just kidding you, Mr.----
    Mr. Carey.--you know, they still the big gorillas in their 
markets.
    Senator Klobuchar. All right, all right, all right.
    Mr. Carey. We have a public-service obligation, and we take 
it seriously, you know, and it's embodied in the local news 
that is--it's, sort of, in many ways, the foundation of what we 
do. You know, I don't think that public-service obligation 
means we're obligated to run loss-making businesses. You know, 
I don't know if you were here; I said before, the last few 
years our network has lost somewhere between $2 and $300 
million.
    So, yes, we do have a public-service obligation. We take it 
seriously. You know, we treasure the ability to bring 
television to every household and American. You know, I don't 
think it means we don't have the right to get compensated when 
somebody else retransmits it and builds a business, you know, 
based on our product. But, we think, for us to remain viable 
and continue to bring programming to America, we need to have 
an ability to have a viable business model, and the world today 
is very different, you know, than it was, you know, in the 
past.
    And clearly, you know, in today's world, with hundreds of 
channels that have dual revenue streams, you just can't expect 
a broadcaster to compete, you know, as an advertiser-supported-
only network, you know. And it will end up, you know, us losing 
money. It will end up having content migrate to cable channels. 
And it will end up with us becoming second-class citizens, you 
know, in the business environment.
    And--you know, and--yes, broadcasters pursue different 
paths. I mean, we pursue a path where we invest in very 
expensive--the reason, you know, the 25 stations in New York, 
20 take must-carry, we pursue retransmission, is because we 
invest billions of dollars in creating great content in order 
to make that business make sense. To bring the NFL, to bring 
the World Series, to bring Glee, to bring American Idol, you 
know, to the American public, you know, we need to have a 
business model that lets us sustain that, you know. The 
channels pursuing must-carry are pursuing a different, you 
know, a different role and a different strategy that pursues a 
different business model. But, the stations, like ours, that 
are pursuing, you know, the quality, exciting, you know, the 
type of television, you know, that I think is--the American 
public cherishes, you know, requires our ability to be 
competitive in the marketplace.
    Senator Klobuchar. OK.
    Mr. Segars, how does retransmission consent impact the 
specialized programming geared to the minority community?
    Mr. Segars. Well, I can say that--first of all, when 
broadcast traded on retransmission to launch networks, I will 
say that some of those networks today brought great value. And 
no one wants to vilify the broadcast networks, by any stretch 
of the imagination, but the small broadcaster does have a 
public--really, a public responsibility. But cable also does--
and I've said this again and again--that cable is reaching down 
and trying to support independent networks. Diversity of 
voices. The arts being one of them. An independent family 
channel called Hallmark, an outdoor channel, a gospel music 
channel. All independent networks, but we are--we're a dying 
breed and retransmission, because of the eating of the 
bandwidth of all of these channels that have been leveraged by 
retransmission and placed onto the cable operator and those 
associate rates and costs, prevent a small independent from 
getting to a critical mass. We cannot find the space or the 
money to move our business forward.
    However, if I had retrans, I could certainly tell you that 
the arts would be in 90 million homes. But, we don't have that 
regulation, we don't have the ability to trade on 
retransmission. So, it does affect us. Many distributors have 
told us that our growth is in jeopardy because of 
retransmission.
    Senator Klobuchar. OK.
    Mr. Segars. And----
    Senator Klobuchar. I just have one last question, and do 
you want to just respond in 30 seconds, Mr. Carey?
    Mr. Carey. Yes. I just would say, I mean--you know, there 
are clearly the larger programming groups, you know, to 
distribute a number of channels, but it's not unique to 
broadcasters, you know. And, I've made the point before, you 
know, that when Charles talks about, you know, his--if he was 
owned by Turner, I think the same thing would be true. If he 
was owned----
    Senator Klobuchar. Yes, I think he----
    Mr. Carey.--by Viacom the same thing----
    Senator Klobuchar.--said cable.
    Mr. Carey.--would be true.
    Senator Klobuchar. He was an equal-opportunity----
    Mr. Carey. If he was owned by--if he was owned by 
Discovery, the same thing would be true. It's not a unique--you 
know, I think to put that obligation, sort of, uniquely on 
broadcasters, I think, is not--you know, is not fair in the 
context of, you know, large groups, broadcasting or not. In 
many ways, we're another channel on the dial.
    Senator Klobuchar. Right. OK. Thanks.
    One last question. In a letter to Senator Kerry, Julius 
Genachowski, the FCC Chairman, wrote that the FCC, ``has very 
few tools with which to protect consumers' interests when it 
comes to these issues.'' What do you think? Do you think this 
is true? Do you think they should have more tools?
    Start with you, Mr. Segars.
    Mr. Segars. Well, I think if the FCC is there to help 
protect diversity in media, then they do have a tool, because 
diversity in media and independents are being squashed in the 
current system.
    Senator Klobuchar. Mr. Carey.
    Mr. Carey. Yes. I mean, I really, honestly believe, you 
know--and, as I said, this process has worked for decades. I 
mean, we're negotiating a rate for a channel. And I do think 
it's the--in some ways, the specter of government involvement 
that is--you know, that has sort of distorted the process. And 
I think if people accept they have to go on with business--but, 
we largely--I guess, you know, we largely actually have pretty 
constructive relationships here, you know. Yes, broadcasting 
went from zero. And I understand, we've gone from zero to 
saying we need to get paid, and that's a change. But, I think 
the facts of what broadcasting is facing prove it's a 
reasonable request. But, I think we'll get on to business. I 
think, if we--you know, as we have gone on to business. And, in 
many ways, I think, I'd--you know, I think we can get back to 
focusing on how do we use the Digital Age and other things to 
bring new, exciting things to the consumer, you know. But, I 
don't think this is--this is not some unique, you know, 
complicated process. I mean, you know, I think, you know, there 
has been an attempt, you know, by a segment of the business to 
make it sound, you know, much more unique, much more 
complicated, you know. I think this is a rate negotiation that, 
you know, like all of them that have happened if one accepts 
that it has to happen in the private marketplace, it will go 
forward.
    Senator Klobuchar. OK.
    Mr. Rutledge.
    Mr. Rutledge. Senator. Yes, we think the FCC actually does 
have authority to help here. And----
    Senator Klobuchar. Is your light on there? There you go.
    Mr. Rutledge. We do think the FCC has authority. We know 
what their letter said to the Chairman. But, they've exercised 
broad authority in other ways. They do have obligations to 
watch out for consumer prices and for--to protect the consumer, 
and fairly broad authority, which we pointed out in our written 
testimony. And so, we believe they do have the authority to 
help the consumer in these kinds of disputes.
    Senator Klobuchar. OK. That's good. Thank you.
    Mr. Uva?
    Mr. Uva. I agree that the FCC does have the authority, in 
its rules. And the Communications Act certainly gave them the 
right to monitor and determine whether negotiations were taking 
place in good faith or bad faith, and have the ability to 
enforce it.
    Senator Klobuchar. OK.
    Mr. Britt.
    Mr. Britt. Yes, we think they both have the authority and 
the obligation to oversee and be involved, as appropriate, but 
they have chosen not to exercise that.
    Senator Klobuchar. OK. All right.
    Well, thank you very much. I appreciate all your time.
    Senator Kerry. Thank you, Senator Klobuchar.
    Well, let's try to sort of wrap up here a little bit. A few 
thoughts.
    Mr. Britt, let me just ask a couple more questions, if I 
can, before I sort of wrap it, but----
    Broadcasters argue that, given the amount of profit margin 
that you guys make, you're more than able to pay them the cost 
of the retransmission consent fee without passing that on to 
the consumer. And they've argued further that it's a fair 
sharing, if you will, of the profit that you make off of their 
content, so you ought to be able to pass that on. What do you 
say to that?
    What's your----
    Mr. Britt. I would say that the companies in front of you 
are all very profitable, including News Corp and Disney, who's 
not here. So, the issue we're raising is not about the relative 
profitability of different companies. We're really raising an 
issue that, in the context of this narrow thing called 
``retransmission consent,'' which was set up by the government, 
do we have the right process for deciding the amount of that 
subsidy of the over-the-air viewers? We're not questioning 
whether there should be a subsidy. We're not questioning 
whether there should be a payment. But, the mechanism for 
determining the amount seems broken, and there's a lack of 
transparency. So, that's our focus.
    We have plenty of competition, so what we end up charging 
consumers is very much determined by a competitive marketplace.
    Senator Kerry. I won't disagree that the market hasn't 
provided increased competition, to a lot of people's surprise, 
but it is broad. And with digital and video and download, and 
so forth--capacity, computers, et cetera--it's a big new world 
out there, there's no question about that.
    Well, here's what the Congressional Research Service, which 
is nonpartisan, as you know, has concluded that the 
negotiations between programmers and distributors, although 
private, are strongly affected by statutory and regulatory 
requirements and cannot be properly characterized as just 
``free market.'' So, there's sort of a beginning, threshold 
principle here in which we need to think about this.
    Second, although the NCTA, of which every single one of 
you, I think, is a member, including News Corp, is divided on 
the solution. But, the Association's president has said that he 
wants to debunk the notion that retransmission consent is 
purely and simply a free-market negotiation between a TV 
station and cable company. That, he said, is complete nonsense.
    Third, the disputes that started putting consumers in the 
middle, in about 2007 is when it started, and they seem to be 
escalating since then, and I think we need to take note of 
that; that we went a long time without it, then it started, and 
now it's sort of escalating, and the prospect of this being a 
tool, in the absence of some sort of an other mechanism, seems 
to loom fairly large. The government staying out of it 
certainly hasn't resolved the disputes nor relieved consumers 
of the problem that's come more and more to our attention.
    It's interesting, the most recent dispute really kind of 
hit a significant level of discussion when Fox made the 
decision to pull the signal off the air. Now, I understand your 
desire, and Univision also, to hold on to that right. And I 
think what we've put on the table respects that, but it 
requires a simple level of both transparency and a judgment. 
Are they working in good faith? If you have a good-faith 
argument, based on the marketplace, based on competitors, based 
on the offerings that are available to people, people will step 
back and say, ``OK. This is not our deal,'' and you can still 
pull your signal. So, you're not without a very significant 
lever; it's just that it tries somehow to create a level of 
accountability to the public, if you will, in light of all the 
other benefits that are on the table.
    So, I'd just ask you to think about that. And we're going 
to think about it, in the light of the sort of discussion we've 
had today. And maybe we continue to have a private dialogue on 
this and see if we can't find some way to do something that 
relieves us of the burden. Because, if we just go forward in 
this atmosphere, I suspect, given the nature of competition and 
the nature of the marketplace and where it's sort of going in 
this diversity, that some people may feel even more compelled 
to press for an advantage and pull a signal. And, no one here, 
I think, is going to react very positively to that.
    So, to the degree that you want this to remain a sort of 
hands-off, arm's-length transaction where the marketplace has 
the maximum amount of ability to play itself out--and that 
would be our preference, too--I think you have to think about 
what's the compromise mechanism here, what's the way to try to 
say, ``We're doing something. Let's give it a try, see if it 
creates better balance and a better outcome.'' And I suspect 
that, in the end as somebody said a moment ago, you're all very 
profitable companies. I don't think a lot of people are going 
to be thrilled with the idea that they're becoming the pawns in 
whatever that extra percentage of profitability is going to be, 
measured against the high levels of profitability that you 
already experience, measured against the government's ``gift,'' 
if you will, on behalf of the American people of your right to 
take part in that marketplace.
    So, let's all think about it. I think it has been a healthy 
and good hearing. And, from our point of view, we've aired some 
of these issues; we got a sense of it.
    We'll leave the record open until the end of the week for 
any submissions by additional colleagues.
    And again, we appreciate everybody.
    Mr. Uva, thanks, notwithstanding not feeling well, for 
hanging in here with us. We appreciate it very, very much.
    We stand adjourned. Thank you.
    [Whereupon, at 5:03 p.m., the hearing was adjourned.]
                            A P P E N D I X

       National Telecommunications Cooperative Association,
                                   Arlington, VA, November 22, 2010
Senator John F. Kerry, Chairman
Senate Commerce, Science, and Transportation,
Subcommittee on Communications, Technology and the Internet,
United States Senate,
Washington, DC.

Dear Senator Kerry,

    On behalf of the 560 small business communications providers that 
constitute the membership of the National Telecommunications 
Cooperative Association (NTCA), I wish to thank you for your leadership 
in convening the November 17 hearing titled ``Television Viewers, 
Retransmission Consent and the Public Interest.'' The testimony and 
deliberations expressed during this forum should leave no doubt 
whatsoever regarding the pressing need to reform the outdated 
retransmission provisions of the Cable Act of 1992.
    Clearly there is a need to level the playing field between Multi-
Channel Video Programming Distributors (MVPDs) and broadcasters, and 
consequently benefit all consumers by ensuring greater transparency in 
that marketplace. A primary outcome of this hearing was the vivid 
portrayal of the negotiations, or lack thereof, that have transpired in 
a number of recent retransmission contract renewals between some of the 
Nation's largest MVPDs and broadcasters. Imagine how such difficulties 
are multiplied when retransmission negotiations involve the Nation's 
smallest MVPDs--NTCA's members--and the giant broadcasters.
    The assertions of broadcasters, with respect to the bargaining 
power of large cable companies like Cablevision and Time Warner, do not 
ring true for the reasons discussed at length during the hearing. Yet 
even if such allegations were true for larger cable companies, the same 
certainly cannot be said for small MVPDs such as rural telephone 
companies and cooperatives. With this in mind, we respectfully request 
that that your subcommittee hearing record formally reflects the 
retransmission dilemmas that are faced by rural MVPD under today's 
outmoded model.
    NTCA's membership is comprised of communications providers that 
operate in some of the most rural and economically-challenging-to-serve 
areas of America. These providers are small businesses focused on 
delivering quality telecommunications, information, video and other 
communications-related services to the rural communities in which they 
are based. Without the dedication and continuing commitment of our 
member companies, rural America would not have the same quality and 
choice in digital communications enjoyed by those operating throughout 
the Nation's metropolitan areas.
    Although it is difficult to discern exact rates and fee 
structures--a transparency problem that only further accentuates the 
relative bargaining leverage held by broadcasters--NTCA suspects that 
the average rural telco member company typically pays a higher per-
subscriber rate for both linear cable programming and broadcast 
retransmission fees than rural and non-rural independent cable 
companies in the United States. We further believe that the largest 
Multi-Service Operators in the United States pay just a fraction of the 
total cost small rural telcos pay for the same channels and networks--
although once again, such indications are only anecdotal because of the 
conditions that broadcasters have imposed on the sharing and 
publication of such data.
    While it may be true that many of the larger MVPDs, whether cable, 
telephone, or DBS, are often highly profitable and work with a healthy 
content profit margin, the same cannot be said for small rural 
communications providers. It is widely reported that the profit margin 
for video services is almost always ``paper'' thin if not entirely 
nonexistent. When you consider the higher fees routinely charged to 
rural MVPDs--which grow at unpredictable yet dramatic annual rates--
coupled with bundling and tiering requirements from content providers, 
it's easy to see how small operators are squeezed to the point of 
providing services at a net overall loss.
    As you contemplate the next steps in responding to the market 
failures that are now clearly documented in the area of retransmission 
consent fees, we urge you to give particular consideration to the 
challenges faced by the Nation's small rural communications providers 
in your examination. Resolving the current retransmission consent-
related shortfalls is the only way to ensure rural consumer increased 
choice and affordable rates for video services.
            Sincerely,
                                        Shirley Bloomfield,
                                           Chief Executive Officer.
cc: Sen. John Ensign
                                 ______
                                 
        Prepared Statement of David Zaslav, President and CEO, 
                     Discovery Communications, Inc.
    Chairman Kerry, Ranking Member Ensign, and distinguished members of 
the Subcommittee on Communications and Technology, I am David Zaslav, 
President and Chief Executive Officer of Discovery Communications, Inc. 
I appreciate having the opportunity to provide Discovery's views on 
America's retransmission consent regime.
    Discovery Communications is the world's number one nonfiction media 
company, with 13 television networks in the U.S. and over 120 networks 
in more than 180 countries around the world. Our mission, as set forth 
by our founder John Hendricks over 25 years ago, is to empower people 
to explore their world and satisfy their curiosity with high-quality 
nonfiction video content that entertains, engages and enlightens.
    We applaud Chairman Kerry's continued leadership in taking on this 
critically important issue and believe that his draft legislation is a 
positive step in the right direction.
    As an independent programmer with no affiliation to ``must have'' 
broadcast content, our view is that the current retransmission consent 
process is broken and has become susceptible to abuse by broadcasters 
who, as a result of an outdated regulatory structure that was based on 
market dynamics which no longer exist, today hold overwhelming leverage 
in negotiations with multichannel video program distributors (MVPDs) 
for carriage of local broadcast services.
    And, it is that government-sanctioned leverage that is hindering 
the development and growth of diverse, independent sources of 
programming.
    To fully appreciate how the current system negatively impacts 
programmers that offer an independent voice, it is critical to first 
understand the government's role in creating that system. As this 
subcommittee well knows, in 1992, Congress was concerned that cable 
operators provided broadcasters with their only means of reaching 
subscribers who were not watching television over the air. Congress 
feared that because cable operators had an incentive to refuse to carry 
broadcasters, their ability to continue to offer over-the-air 
broadcasting was at risk without cable carriage. With enactment of the 
Cable Television Consumer Protection and Competition Act of 1992 
(``Act''), broadcast stations were granted the very powerful right to 
bargain for carriage and to withhold services from cable operators when 
their terms were not met.
    Congress expected that despite being given this regulatory 
advantage, broadcasters' demands under this system would nonetheless be 
modest, because they would also benefit from cable carriage. The 
expectation was that the Act would ensure that the mere carriage of 
local broadcast stations on cable systems would be sufficient to 
address the public policy goal of providing fair distribution of 
broadcast services. Congress never contemplated that broadcasters' 
right to consent to the retransmission of signals over the public 
airwaves would be utilized to extract exorbitant fees from cable 
operators--a development that will harm consumers by increasing their 
costs and reducing the amount of independent programming available to 
them.
    Almost two decades after the Act was passed, market dynamics in the 
video programming distribution market have rendered retransmission 
consent, one of the Act's core mandates, null. Broadcasters today have 
far less dependence on cable carriage because there are many other 
means of reaching viewers including through the two national direct 
broadcast satellite (``DBS'') providers, DIRECTV and DISH Network, 
local exchange carriers such as Verizon (FiOS) and AT&T (U-verse), and 
through the quickly emerging platform of video distribution over the 
Internet.
    As was illustrated by the recent and highly contentious 
Cablevision/Fox dispute, the harm to consumers in the form of 
interruptions in service and rising cable bill prices is the direct 
result of the broadcasters' disproportionate leverage in these 
negotiations.
    Equally concerning is the serious harm to consumers that arises 
from the impact broadcasters' rising leverage has on independent 
programmers given that the current economic model makes it more 
difficult for such programmers to contribute diverse, informative 
programming to Americans' channel line-ups.
    The ``must have'' nature of broadcast programming has impeded 
MVPDs' ability to realistically resist broadcaster demands in 
retransmission consent negotiations, even when those demands are 
objectively excessive. Perceiving opportunities to exploit, 
broadcasters have exponentially increased their fee demands and have 
begun to make unfair carriage demands on MVPDs. It is not at all 
uncommon for a cable operator to have faced a 200 percent-400 percent 
increase in its retransmission consent fees since just 2007.
    As a result, cable operators and other MVPDs have greatly decreased 
financial resources and channel capacity to expend on independent 
programmers. Simply put, without adequate assurance of carriage on 
reasonable terms and conditions, Discovery Communications and other 
independent programmers will not be able to continue to create and 
provide the diverse, award-winning, innovative programming that 
consumers have come to expect as part of their MVPD package.
    We appreciate the longstanding emphasis that Congress and the FCC 
have placed on protecting and promoting the greatest possible diversity 
in MVPD services and programming sources. To that end, we fully support 
Chairman Kerry's efforts on this issue.
    Thank you again for the opportunity to submit testimony. We stand 
ready to help you, Chairman Kerry, and this subcommittee, as Congress 
tackles this complex issue.

                                  
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