Let the Free Market Work and Reject Government Intervention In the Local Television Market

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Doris Jennings
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1 Let the Free Market Work and Reject Government Intervention In the Local Television Market Cable s Monopoly May be Broken But the System Isn t From 1992 until the mid-2000s, cable companies were the only distributors providing local broadcast TV signals in most markets, and, as the monopoly provider, refused to pay local television stations cash compensation for retransmission consent rights. Early on, cable tycoon John Malone stated publicly that his company would never pay for broadcast channels. If broadcasters were to ask for payment for their channels, he said it would be a bloodlet on both sides He went on to say that it s a risky proposition for a broadcaster to test our will. John Malone, Tele-Communications, Inc., 1993

retransmission consent rights. Early on, cable tycoon John Malone stated publicly that his company would never pay for broadcast channels.

2 While cable companies were paying nothing to local television stations, they had no issue with the retransmission consent process, or with raising consumer bills more than twice the rate of inflation each year. With the emergence of competition among distributors (satellite and telcos), local stations now have the ability to obtain fair market value for their signals. Not surprisingly, the distributors miss the good ole days and are now claiming that the process is broken and fees for broadcast programming are unfairly driving up consumer rates. Nothing could be further from the truth. First, the cable companies have offered no evidence to back up their claim. In fact, all evidence suggests that cable prices are rising at the same rate as they have in the past. For the past 30 years, cable companies have raised prices on average 6.1 percent each year no different from the rate increases we see today. In fact, companies like Time Warner Cable, DISH and DirecTV are seeing year-overyear gains in their revenues per subscriber. If Congress were to step in and make the changes pay-tv companies are demanding, consumers would not see lower rates, but cable companies would certainly see higher profits. Second, there is no demonstrated need for reform. More than 99 percent of the time, distributors and broadcasters reach agreements in private with no fanfare or viewer awareness of the negotiation. In the handful of instances where agreements are not easily reached, there is a distinctive and troubling pattern. Since 2012: More than 90 percent of programming disputes involve only three companies: Time Warner Cable, DirecTV or DISH...And DISH alone is responsible for over 50 percent of the disruptions!

Not surprisingly, the distributors miss the good ole days and are now claiming that the process is broken and fees for broadcast programming are unfairly driving up consumer rates.

3 Interestingly, the other major distributors that are not seeking changes to the system (e.g. Comcast and Cox) have not forced impasses on their customers. The facts suggest these three pay-tv companies are manufacturing a crisis so they can ask Congress to fix it. There is not a problem with the process, but a problem with the players who appear to be more interested in waging a publicity campaign on Capitol Hill than serving their viewers. Finally, even while these companies are whining and complaining to Congress, they are telling a very different story to Wall Street. To that audience, they continue to demonstrate significant profits. In 2012: Time Warner Cable had revenues totaling $21.3 billion, and in the past year, has seen a 28 percent increase in its stock value; DirecTV s revenues were $29.7 billion, up 9 percent from 2011, and the company has seen a 12 percent increase in its stock value; and DISH s revenues were $14.2 billion, and the company has seen a 48 percent increase in stock value. Since March 2009, Time Warner Cable, DirecTV and DISH have had 378 percent, 398 percent and 197 percent increases in their stock values, respectively. Time Warner Cable, DirecTV and DISH stock growth $ $90.00 $95.18 $80.00 $70.00 $60.00 $66.03 $63.57 $50.00 $40.00 $30.00 $42.14 $33.04 $39.93 $42.76 $ % $49.42 $34.43 $20.00 $20.96 $19.66 $ Time Warner Cable DirecTV DISH

There is not a problem with the process, but a problem with the players who appear to be more interested in waging a publicity campaign on Capitol Hill than serving their viewers.

4 Despite these soaring revenues, cable and satellite companies are begging Congress to pick winners and losers by intervening in the marketplace. At the end of the day, these companies simply refuse to pay a fair market rate for programming. Broadcast Programming is the Most Watched, but Least Compensated Consumer preferences and value to advertisers should dictate the prices for programming. The more popular the programming, the more it should be able to command in the marketplace. Broadcast content is by far the most popular programming available and one of the biggest draws to cable and satellite distributors. Broadcast program ratings are significantly higher than programming offered by nearly every other cable network. In fact, during the television season, broadcast programming dominated the primetime rankings, accounting for 96 of the top 100 programs. Ironically, lesser-watched cable channels are in many cases paid far more than broadcast channels, despite having only a fraction of the ratings $ BILLIONS $ $2.36 YEAR Top 100 Primetime Shows Fees Received from MVPDs Broadcast Programming Cable Programming

Broadcast Programming is the Most Watched, but Least Compensated Consumer preferences and value to advertisers should dictate the prices for programming.

5 Cable rates have grown over the rate of inflation since before retransmission Cable rates consent have payments grown over beganthe rate of inflation before retransmission consent payments 9% 8% 8.2% RATE OF INCREASE 7% 6% 5% 4% 3% 2% 1% 4.6% 2.2% 5.8% 3.4% 7.3% 2.8% 1.6% 5.4% 5.2% 2.3% 2.7% 5.0% 4.6% 3.9% 3.4% 3.2% 2.8% 5.9% 3.8% 3.7% 4.4% 4.8% 1.6% 3.2% 7.3% 2.1% 0% -.4% YEAR Average Cable Rate Rate of Inflation *FCC Cable Industry Price Reports **Bureau of Labor Statistics The Height of Irony: Pay-TV Distributors Want You to Believe They Care About Customers Despite having some of the lowest customer satisfaction ratings, pay-tv providers are trying to convince Congress that they are fighting for their customers, rather than their own profits. But in reality, these companies are known for notoriously poor customer service and have raised rates 5 percent each year for the past 10 years, well above the rate of inflation. For instance: Providers are padding customers bills with excessive equipment charges. For example, in October 2012, Time Warner Cable instituted a $3 per month modem leasing fee, which has since increased to $6 in July 2013.

4% YEAR 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Average Cable Rate Rate of Inflation *FCC Cable Industry Price Reports **Bureau of Labor Statistics The Height of Irony:

6 Cable companies are actually responsible for some of largest increases in programming costs. Time Warner Cable-owned sports channels carrying the Dodgers and Lakers will cost other cable and satellite companies $8 per month far more than what they pay for all five broadcast networks combined. Cablevision charges other distributors $5.43 per month for the MSG sports networks, and pulled its signal from 1.5 million New York consumers in a dispute that lasted 48 days. When it Comes to Regulation, the Cable Companies are Talking Out of Both Sides of Their Mouth While pay-tv companies are arguing under the guise of a deregulatory approach to the video market on Capitol Hill, they are simultaneously supporting legislation and FCC action that would substantially increase government regulation of the marketplace. The cable companies are asking for: Interventionist-mandated government arbitration; Requirements that would mandate broadcasters keep programming on a cable system in the event of a retransmission consent dispute, which is no different than driving a car off a dealer s lot without agreeing on the price; Government-mandated separation of negotiations for various contractual terms; and Regulation of online content. Passing Cable s Wish List Will Increase Cable s Profits and Hurt Viewers These changes will further increase cable company profits, while doing nothing to stop carriage disruptions or reduce consumer bills. They will result, however, in real harm to our nation s core network of local television stations that serve our communities. Such changes will almost certainly result in less local programming and vital services, such as news, weather updates and emergency information, as well as reduce the amount of quality entertainment and sports currently available on free, over-the-air television. While broadcaster retransmission consent costs are a drop in the bucket for cable and satellite providers (only two cents of every dollar), these fees are an invaluable source of funding for television broadcasters.

Cablevision charges other distributors $5.43 per month for the MSG sports networks, and pulled its signal from 1.5 million New York consumers in a dispute that lasted 48 days.

7 Local television stations are reinvesting these revenues in their newsrooms for the benefit of all viewers: In 2011, more than 45 percent of TV stations reported an increase in the amount of news they aired. The number of full-time employees in newsrooms reached 27,605 in 2011 (the third-highest total on record). Jobs in TV newsrooms grew 4.3 percent in 2011 to reach total full-time employment of 27,653. On average, broadcast stations air 5.5 hours of news per weekday. Pay-TV companies cries for government intervention is a game to avoid paying broadcasters for their highly-valued programming. Their greed would only disrupt the marketplace and hurt viewers RTDNA/Hofstra Annual Survey N Street NW Washington DC nab.org

3 percent in 2011 to reach total full-time employment of 27,653. On average, broadcast stations air 5.5 hours of news per weekday.

TESTIMONY OF JEFFREY BLUM SENIOR VICE PRESIDENT & DEPUTY GENERAL COUNSEL DISH NETWORK L.L.C. before the UNITED STATES COPYRIGHT OFFICE June 10, 2011

TESTIMONY OF JEFFREY BLUM SENIOR VICE PRESIDENT & DEPUTY GENERAL COUNSEL DISH NETWORK L.L.C. before the UNITED STATES COPYRIGHT OFFICE June 10, 2011 Ms. Pallante and staff members of the U.S. Copyright