[Senate Hearing 111-949]
[From the U.S. Government Publishing Office]
S. Hrg. 111-949
CONSUMERS, COMPETITION, AND CONSOLIDATION IN THE VIDEO AND BROADBAND
MARKET
=======================================================================
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
__________
MARCH 11, 2010
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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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 March 11, 2010................................... 1
Statement of Senator Rockefeller................................. 1
Statement of Senator Inouye...................................... 2
Statement of Senator Hutchison................................... 3
Prepared statement........................................... 4
Statement of Senator Dorgan...................................... 6
Statement of Senator Kerry....................................... 18
Statement of Senator Ensign...................................... 20
Letter, dated March 9, 2010 to Hon. John D. Rockefeller IV
and Hon. Kay Bailey Hutchison, from Charles Segars, Chief
Executive Officer, Ovation................................. 29
Letter, dated March 10, 2010 to Hon. Jay D. Rockefeller IV
and Hon. Kay Bailey Hutchison, from Roger L. Werner,
President and Chief Executive Officer, Outdoor Channel..... 30
Letter, dated March 10, 2010 to Hon. Jay D. Rockefeller IV
and Hon. Kay Bailey Hutchison, from Stanley E. Hubbard,
President and CEO, REELZCHANNEL............................ 32
Statement of Senator Cantwell.................................... 22
Statement of Senator Snowe....................................... 23
Statement of Senator Thune....................................... 25
Statement of Senator Begich...................................... 27
Statement of Senator Johanns..................................... 97
Statement of Senator Klobuchar................................... 99
Statement of Senator LeMieux..................................... 104
Statement of Senator Wicker...................................... 107
Statement of Senator McCaskill................................... 109
Statement of Senator Lautenberg.................................. 111
Witnesses
Hon. Julius Genachowski, Chairman, Federal Communications
Commission..................................................... 6
Prepared statement........................................... 8
Hon. Christine A. Varney, Assistant Attorney General, Antitrust
Division, U.S. Department of Justice........................... 10
Prepared statement........................................... 11
Brian L. Roberts, Chairman and Chief Executive Officer, Comcast
Corporation.................................................... 34
Prepared statement........................................... 36
John Wells, President, Writers Guild of America, West............ 54
Prepared statement........................................... 57
Dr. Mark Cooper, Director of Research, Consumer Federation of
America on behalf of Consumer Federation of America, Free
Press, and Consumers Union..................................... 60
Prepared statement........................................... 61
Colleen Abdoulah, President and Chief Executive Officer, WOW!;
Board Member, American Cable Association....................... 72
Prepared statement........................................... 74
Christopher S. Yoo, Professor of Law and Communication, and
Founding Director, Center for Technology, Innovation, and
Competition, University of Pennsylvania........................ 81
Prepared statement........................................... 83
Appendix
Gregory Babyak, Head, Government Relations, Bloomberg TV,
prepared statement............................................. 123
Response to written questions submitted to Hon. Julius
Genachowski by:
Hon. John D. Rockefeller IV.................................. 125
Hon. Daniel K. Inouye........................................ 125
Hon. Frank R. Lautenberg..................................... 126
Hon. Mark Warner............................................. 126
Hon. Mark Begich............................................. 128
Hon. Jim DeMint.............................................. 129
Hon. David Vitter............................................ 130
Hon. Sam Brownback........................................... 130
Hon. George S. Lemieux....................................... 131
Response to written question submitted to Hon. Christine A.
Varney by:
Hon. Jim DeMint.............................................. 132
Hon. David Vitter............................................ 132
Response to written questions submitted to Brian L. Roberts by:
Hon. John Ensign............................................. 133
Hon. Sam Brownback........................................... 133
Hon. George S. LeMieux....................................... 135
Response to written questions submitted to Dr. Mark Cooper by:
Hon. Jim DeMint.............................................. 139
Hon. David Vitter............................................ 139
Hon. George S. LeMieux....................................... 139
Hon. John Ensign............................................. 140
Response to written questions submitted to Colleen Abdoulah by:
Hon. Mark Begich............................................. 140
Hon. John Ensign............................................. 142
Response to written questions submitted to Christopher S. Yoo by:
Hon. John Ensign............................................. 143
Hon. George S. LeMieux....................................... 145
Letter, dated March 24, 2010, to Hon. John D. Rockefeller IV from
Mark C. Ellison, Esq., Patton Boggs LLP, for the FACT Coalition 146
Letter, dated March 25, 2010, to Hon. John D. (Jay) Rockefeller
IV and Hon. Kay Bailey Hutchison, from Jose Luis Rodriguez,
President and CEO, HITN........................................ 153
CONSUMERS, COMPETITION,
AND CONSOLIDATION IN THE VIDEO
AND BROADBAND MARKET
----------
THURSDAY, MARCH 11, 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 10:02 a.m. in
room SR-253, Russell Senate Office Building, Hon. John D.
Rockefeller IV, presiding.
OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
The Chairman. Good morning. This hearing will come to
order. And we welcome all. I notice there are a few people in
the room.
We are here today to discuss consumers--They are the good
guys, right? The people we try to protect--and competition and
consolidation in the video and broadband markets. These are
services that are vital to our democracy, in fact. What kind of
content do they get? How much do they have to pay for it? Can
they get it in all cases?
They shape the way we communicate. They shape the way we
share news and information. They shape the way we entertain
ourselves or dumb down ourselves, whichever you look at it, and
the way we spend our free time.
When consolidation occurs in these markets, we need to pay
attention, therefore. We need to pay attention. When companies
swell to include both content and distribution, we need to pay
attention because it is vitally important that when we have
mergers in these markets, consumers cannot be left with lesser
programming and higher rates.
So, today, we are going to talk about these issues. This
hearing is an opportunity to have a serious discussion about
consumers, how consolidation affects their lives directly and
what we can do to make sure that they are absolutely protected.
We begin our first panel with authorities from the Federal
Communications Commission and the Department of Justice, two
top-of-the-line people in our country, much less the Federal
Government.
We know they take their jobs seriously. So we respect that
while the Comcast-NBC merger as a concept is pending, they are
limited to what they can discuss, and that is only the process
rather than the substance of the merger. Otherwise--I am not a
lawyer, but they would be doing something bad.
But we look to frame our discussion, which we will continue
with the private sector witnesses on our second panel. And I
need to apologize because we are doing the FAA bill on the
floor, and Byron Dorgan, who is a committee member, is managing
it for an hour. Then I have to go down at 11 o'clock. So I
apologize for that.
So I thank you all very much, and we shall get started.
Senator Hutchison is not here. So I will call upon Senator
Inouye.
STATEMENT OF HON. DANIEL K. INOUYE,
U.S. SENATOR FROM HAWAII
Senator Inouye. Thank you very much.
There is no question that a proposed merger between
Comcast, the Nation's largest video programming distributor,
which also happens to be the Nation's largest residential
broadband provider, and NBC Universal, the fourth-largest media
and entertainment company, deserves our scrutiny, vigorous
scrutiny.
However, size alone should not be the basis for approving
or disapproving mergers. If that is the standard, then many
previously approved mergers should have been denied. The key
factor is how the merger will impact the quality and
affordability of services available to consumers and whether
the merger will be in the public interest.
Today's hearing will hopefully provide the members of this
committee with a better understanding of the impacts of this
proposal based upon the facts. Further, the merits of the
proposed joint venture should not be judged based on extraneous
issues, such as personality or parties.
I have known Mr. Brian Roberts and his father, Ralph
Roberts, the founder of Comcast, for many years. And both of
the men are of unquestionable integrity, and under their
leadership and guidance, I have no doubt that Comcast will live
up to the commitments it made as part of the proposed joint
venture with NBC Universal.
The question before us is whether, even with the
commitments that have been made, this is a good deal for
consumers. There have been significant changes in the
communications and entertainment marketplace. It is in this
context that the proposed merger must be evaluated with the
public interest at heart. The changing marketplace should also
serve as the basis for reviewing policies that may need
updating due to developments.
For example, as one of the authors of the 1992 statute that
established retransmission consent, I believe the time is ripe
for the Federal Communications Commission to exercise its
oversight responsibilities on matters of this nature that
impact consumers and the general well-being of the Nation.
While I believe the FCC has the necessary authority to
resolve retransmission consent disputes, I will be interested
to hear from the Chairman whether there are any additional
tools that would be helpful in the FCC's oversight efforts. So
I look forward to working with my colleagues on the Committee
and the FCC on these important issues. And I thank you very
much, Mr. Chairman.
And I, too, will have to leave early. And I have a couple
of questions for the FCC, if you will submit them for me?
The Chairman. Of course.
Senator Inouye. Thank you, Mr. Chairman.
The Chairman. The Honorable Kay Bailey Hutchison with the
great State of Texas.
STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM TEXAS
Senator Hutchison. Well, thank you very much, Mr. Chairman.
Welcome to our distinguished FCC panel. And I am pleased
that we are holding this hearing.
We are going to have to grapple with evolving technology
and the convergence between traditionally distinct businesses
like telecommunications and video program distribution. We want
to look at this type of consolidation's impact on consumers and
competitors, but we also want to make sure that policy
determinations about this deal do not impact innovation and
investment in this rapidly moving area.
In my judgment, the FCC's review of this transaction should
be limited to the transfer of the relevant licenses between the
parties and whether that is consistent with the public
interest. Merger reviews at the Commission have not always
stayed as narrow as I believe they should.
Frequently, parties have used merger review proceedings as
a proxy policymaking forum to pursue conditions that reach well
beyond the merger itself. In a number of cases, previous FCCs
have imposed some of these conditions.
While I hope that the current Commission will thoughtfully
conduct its public interest analysis, I also hope they avoid
imposing conditions that will require a significant ongoing
involvement of the Government in monitoring and policing the
market.
In that context, Mr. Chairman, I would like to note that we
have seen some recent disputes between programmers,
broadcasters, and cable providers about the terms for
retransmission of signals on cable systems, mainly in the
sports arena, and that has led some to suggest that we need
more Government involvement in these marketplace negotiations,
such as through FCC-managed arbitration.
Again, I think Congress and the regulators need to tread
very carefully and make sure that the policies we discuss take
account of the evolving nature of the marketplace, the
competition between providers, and the growing number of
choices consumers have to access content. What we do not want
to do is intervene in private market negotiations in a way that
disrupts what is going on in the marketplace or leads to
advantages for one stakeholder or technology.
With respect to the Comcast-NBC transaction, Mr. Chairman,
I do have a number of questions, particularly how a combined
entity would deal with independently-owned broadcast stations.
In a number of cases, non-NBC owned stations will have to
negotiate the terms for retransmission of their broadcast
signal with the very same company that provides its
programming. How Comcast will deal with those stations from a
transparency perspective is important for us to understand how
this transaction could impact one segment of the industry.
Texas has 14 Telemundo stations, 3 of which Comcast will
own and operate. We also have 21 NBC stations, 1 of which will
be owned and operated by Comcast. Consumers in Texas want to
know how programming and availability of all these stations
will be impacted, but they particularly want to know whether
Comcast will continue to invest in and develop programming for
the stations, and that NBC and Telemundo will remain available
as free over-the-air stations.
Now I understand that the Chairman of Comcast has made
commitments in this area, which I think are very positive.
Preserving free over-the-air stations is an essential component
of this transaction, in my opinion.
Transparency will be important in this area, but it will
also be critical to assessing how Comcast will deal with
competitors who want access to NBC programming, as well as
affiliated programming developed by Comcast, such as its sports
programming.
I have heard from a number of smaller cable systems
representing primarily rural areas of my state. Although
bundling or ``tying'' arrangements are prohibited, there are
concerns that the combined company may wish, through pricing
arrangements, to strongly encourage the smaller systems to
accept multiple streams of programming. I will be interested in
hearing Mr. Roberts's thoughts on how Comcast will address
those concerns.
I am also interested to hear how he and other witnesses
view the 16 voluntary commitments that Comcast has made, some
of which I have heard personally, and whether those conditions
adequately ensure transparency and availability of content to
consumers and competitors.
So, Mr. Chairman, thank you for holding this hearing. Thank
you for appearing. I think it is important that we look at all
of this, and I just hope that we don't overdo it, but that we
do just the right amount of regulatory and Congressional
action.
Thank you very much.
[The prepared statement of Senator Hutchison follows:]
Prepared Statement of Hon. Kay Bailey Hutchison, U.S. Senator from
Texas
Mr. Chairman, thank you for holding this hearing today. The pending
transaction between Comcast Corporation and NBC Universal is a
significant development in the programming and video distribution
markets.
The scale of the transaction, the changing technology landscape,
will make it challenging to Members of Congress and regulators to fully
understand and appreciate all of the implications of this deal.
We will need to grapple with evolving technology and convergence
between traditionally distinct businesses like telecommunications and
video program distribution, and appreciate that there are shifting
business models and evolving demands by consumers for choices in
content and ways to access that content.
Viewing this deal in context, and working to make sure that it
satisfies the public interest, will require us to challenge some of the
assumptions and regulatory models of the past and to look forward.
That type of forward-looking analysis is not a common occurrence in
Washington, but I believe it is essential as we discuss this deal and
the future marketplace. We want to make sure the deal does not pose
dangers to consumers and competitors, but we also want to make sure
that policy determinations about this deal do not impact innovation and
investment in this rapidly moving area.
In my judgment, the Federal Communications Commission's review of
this transaction should be limited to the transfer of the relevant
licenses between the parties and whether that is consistent with the
public interest. Merger reviews at the Commission have not always
stayed as narrow as they should, however.
Frequently, parties have used merger review proceedings as a proxy
policy-making forum to pursue conditions that reach well beyond the
merger itself. In a number of cases, previous FCC's have imposed some
of those conditions.
While I hope that the current Commission will thoughtfully conduct
its public interest analysis, I also hope that they avoid imposing
conditions that will require a significant ongoing involvement of the
government in monitoring and policing the market.
In that context Mr. Chairman, I would like to note that we have
seen some recent disputes between programmers, broadcasters, and cable
providers about the terms for retransmission of signals on cable
systems. That has led some to suggest that we need more government
involvement in these marketplace negotiations such as through FCC
managed arbitration.
Again, I think Congress and the regulators need to tread very
carefully and make sure that the policies we discuss take account of
the evolving nature of the marketplace, the competition between
providers, and the growing number of choices consumers have to access
content. What we do not want to do is intervene in private market
negotiations in a way that disrupts what's going on in the marketplace
or leads to advantages for one stakeholder or technology.
With respect to the Comcast/NBC deal, Mr. Chairman, I do have a
number of questions, particularly how a combined entity would deal with
independently owned broadcast stations. In a number of cases, non-NBC
owned stations will have to negotiate the terms for retransmission of
their broadcast signal with the very same company that provides its
programming.
How Comcast will deal with those stations, from a transparency
perspective is important for us to understand how this transaction
could impact one segment of the industry.
Texas has 14 Telemundo stations, three of which Comcast will own
and operate. We also have 21 NBC stations, one of which (Dallas/Fort
Worth) will be owned and operated by Comcast. Consumers in Texas want
to know how programming and availability of all of these stations will
be impacted, but they particularly want to know whether Comcast will
continue to invest and develop programming for the stations, and that
NBC and Telemundo will remain available as free over-the-air stations.
Transparency will be important in this area, but it will also be
critical to assessing how Comcast will deal with competitors who want
access to NBC programming, as well as affiliated programming developed
by Comcast such as its sports programming.
I have heard from a number of smaller cable systems representing
primarily rural areas of my state. Although bundling or ``tying''
arrangements are prohibited, there are concerns that the combined
company may wish, through pricing arrangements, to strongly encourage
the smaller systems to accept multiple streams of programming. I am
interested to hear Mr. Roberts' thoughts on how Comcast will address
those concerns and the thoughts of our other witnesses.
I am also interested to hear how Mr. Roberts and our other
witnesses view the 16 voluntary commitments Comcast has made to date,
and whether those conditions adequately ensure transparency and the
availability of content to consumers and competitors.
Mr. Chairman, I want to thank you again for having this hearing. I
look forward to hearing from our witnesses.
The Chairman. Thank you, Senator Hutchison.
Senator Hutchison, like myself, has to go do the FAA thing,
but that is not for a while. Senator Dorgan will be taking my
place for a while, and he is also going to chair the second
panel, which I won't be able to because I will be on the floor.
And so, you can give your statement then, or you can give it
now.
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, I will go to the floor when
we start the FAA reauthorization discussion over there. Then I
will come back and be happy to chair for the second panel. I
will be glad to make a statement at that point in time if you
want to go to the witnesses now.
The Chairman. I thank you very much.
So, as I said, we really have two of the most important
people in Government and two of the smartest people in
Government and anywhere, and I really mean that. This is a
perfect first panel. And Julius Genachowski, of course, is head
of this little agency called the Federal Communications
Commission, and Christine Varney does antitrust at a very high
level for the Department of Justice.
So, Mr. Genachowski, we turn to you, sir.
STATEMENT OF HON. JULIUS GENACHOWSKI, CHAIRMAN, FEDERAL
COMMUNICATIONS COMMISSION
Chairman Genachowski. Thank you, Mr. Chairman and members
of the Committee.
Thank you for the opportunity to address the role of the
FCC in reviewing proposed mergers in the communications
industry, including the contemplated transaction involving
Comcast and NBC.
The Commission approaches these matters mindful that
maintaining a vibrant, innovative, consumer-friendly, and
competitive communications sector is essential for our economy,
our society, and our democracy. Communications policy affects
the lives of all Americans and is becoming ever more important.
Communications represents a major sector of our economy and
plays a vital role in addressing many of the challenges our
Nation faces.
Congress has set the basic framework for our review of
mergers and transactions. Sections 214 and 310 of the
Communications Act require that before FCC licenses or
authorizations may be transferred from one holder to another,
the FCC must find affirmatively that the transfer is in the
public interest. This is a statutory requirement to protect and
promote the interests of all Americans.
In exercising our statutory responsibilities in the context
of reviewing transactions, the Commission is focused on several
important and interrelated principles. These include protecting
and advancing the interests of consumers, as well as those of
children and families; ensuring effective competition;
promoting innovation; and encouraging investment in the broad
and rapid deployment of broadband and other advanced services
throughout the United States.
Specifically with respect to television programming, the
Commission's goals include a vibrant and healthy marketplace,
guided by the well-settled Communications Act values of
competition, diversity, localism, and a deep respect for the
First Amendment. In the review of any particular transaction,
some of these considerations may be more centrally at issue
than others. Additional factors, such as spectrum, universal
service, or foreign ownership, or national security may also be
important in specific cases.
The law further requires that the Commission analyze these
issues through an open process. The Administrative Procedures
Act provides for a record-based agency review, with a full
opportunity for all interested persons to file their facts and
arguments and, ultimately, a decision supported by the
evidence.
In my written comments, I describe in more detail the
Commission process, including our coordination with our
colleagues at the Department of Justice. The Commission's
review of communications transactions fills a unique role that
complements the important role played by the Department of
Justice.
Of course, the FCC's review of transactions must be
thorough, efficient, timely, and transparent. It must have the
appearance as well as the reality of objectivity, fairness, and
reliance on the best available data and analysis. In the past,
some have expressed some concerns about FCC reviews of
transactions. I am committed to working with my fellow
Commissioners to ensure that the agency's review meets the
highest standards of openness, transparency, rigor, and
fairness, that it minimize costs and delay while fully
protecting the public interest.
In general, the FCC begins its transaction review process
once a complete and compliant transfer application has been
received from the parties. At that point, we ask for public
comment.
In the Comcast-NBC proceeding, the companies filed an
initial application in late January, and at the request of the
parties, the Commission awaited the filing of a supplemental
economic report, which we received last Friday. The Commission
now will soon issue a notice that begins the public comment
period.
To promote a thorough and efficient process, a dedicated
team at the FCC has already begun work on staff-level review of
the proposed transaction. Reflecting the scope of the
transaction, the team members come from a number of the
agency's bureaus and offices and bring to bear years of
expertise.
I have directed the team to learn from experience--to
examine past similar transactions and see, with the benefits of
hindsight, what the FCC did right and where the agency could
have done better. Our staff has also begun the process of
consultation and cooperation with our colleagues at the Justice
Department.
As you indicated, Mr. Chairman, the legal requirements of
record-based decisionmaking prevent me from commenting in any
way on the merits of pending transactions, including the
Comcast-NBC transaction. Our decisions on mergers are made only
after we compile and review a full record. The FCC will, of
course, thoroughly consider all of the important issues that
have been raised or will be raised in the context of the
transaction.
As the Committee is aware, the communications and media
landscape is rapidly evolving. New media and new communications
technologies are an increasingly important part of the
landscape, even as millions of Americans continue to rely on
traditional forms of media and communications. The landscape
today is very different from 5 and 10 years ago and will be
very different 5 and 10 years from now.
While the changing landscape must, of course, inform the
FCC's decisionmaking, certain core values remain constant.
Robust and healthy competition is essential to producing
consumer benefits, better services and lower prices. An
important part of our responsibility at the Commission is to
ensure that communications industry transactions do not enable
firms to frustrate innovations or raise prices ultimately paid
by consumers.
We must ensure that American consumers enjoy all the
benefits of competition and choice, in a vibrant and diverse
communications and media landscape that upholds vital First
Amendment values.
Finally, investment, innovation, and employment are key
objectives, as is the rapid and widespread deployment of
advanced communications services. These and other traditional
goals and values will inform our review of transactions.
Thank you for the opportunity to appear before you today.
And of course, I would be happy to address any questions.
[The prepared statement of Chairman Genachowski follows:]
Prepared Statement of Hon. Julius Genachowski, Chairman,
Federal Communications Commission
Mr. Chairman and members of the Committee, thank you for this
opportunity to address the role of the Federal Communications
Commission in reviewing proposed mergers in the communications
industry, including the contemplated transaction involving Comcast and
NBC Universal.
The Commission approaches these matters mindful that maintaining a
vibrant, innovative, consumer-friendly, and competitive communications
sector is essential for our economy, our society, and our democracy.
Communications policy affects the lives of all Americans--and is
becoming ever more important. Communications represents a major sector
of our economy and plays a vital role in addressing many of the
challenges our Nation faces.
Congress has set the basic framework for our review of mergers and
transactions in the communications industry. Sections 214 and 310 of
the Communications Act require that before FCC licenses or
authorizations may be transferred from one holder to another, the FCC
must find affirmatively that the transfer is in the public interest.
This is a statutory requirement to protect and promote the interests of
all Americans.
In exercising our statutory responsibilities in the context of
reviewing transactions, the Commission is focused on several important
and interrelated principles. These include protecting and advancing the
interests of consumers, as well as those of children, and families;
ensuring effective competition; promoting innovation; and encouraging
investment and the broad and rapid deployment of broadband and other
advanced communications services throughout the United States.
Specifically with respect to television programming, the Commission's
goals include a vibrant and healthy marketplace, guided by the well-
settled Communications Act values of competition, diversity, localism,
and a deep respect for the First Amendment.
In the review of any particular transaction, some of these
considerations may be more centrally at issue than others. Additional
factors, such as spectrum, universal service, or foreign ownership and
national security, may also be important in specific cases.
The law further requires that the Commission analyze these issues
through an open process. The Administrative Procedure Act provides for
a record-based agency review, with a full opportunity for interested
persons to file their facts and arguments, and a decision supported by
the evidence. The Commission's staff reviews and analyzes the record,
issues information requests when appropriate for additional necessary
data, meets with the applicants, opponents, and others to understand
and discuss positions on all sides, and reaches out to affected parties
to obtain various perspectives on the proposed transaction. The staff
then prepares a draft order addressing the record and reaching
tentative conclusions. Ultimately the five-member Commission votes on
whether to approve the transfer, with or without specific conditions,
or to reject it. Our decision can be challenged in court, like any
other administrative order.
Consistently over many years, the FCC and the Federal antitrust
agencies reviewing particular transactions have worked out procedures
that allow the agencies to cooperate, taking advantage of the
respective expertise of their staffs. This cooperation includes sharing
information and analysis; identifying issues; avoiding conflict
regarding any necessary remedies; and making the review process as
efficient as possible for all concerned. At the same time, each
reviewing agency must make its own decisions, under its own governing
statutes and standards.
The FCC's public interest standard and procedures are different
from the ones the Department of Justice applies when it reviews
transactions. Unlike the FCC's review standard, the Department of
Justice determines whether the transaction may ``substantially lessen
competition'' under the antitrust laws and, when appropriate, fashions
antitrust remedies. The Department of Justice's investigations are not
focused on issuance of an administrative order, but instead primarily
on whether or not to challenge the transaction in court. The Hart-
Scott-Rodino Act, which is its governing statute, requires strict
confidentiality concerning the investigative process, allowing public
disclosure only under limited circumstances.
In terms of remedies, in the Communications Act, Congress granted
the FCC flexibility to address potential harms and reinforce promised
benefits by using tailored remedies requiring or prohibiting particular
conduct. Accordingly, the Commission's review of communications
transactions fills a unique role that complements the role played by
the Department of Justice.
Especially given its unique function, the FCC's review of
communications industry transactions must be thorough, efficient,
timely, and transparent. It must have the appearance as well as the
reality of objectivity, fairness, and reliance on the best available
data and analysis. In the past, some have expressed concerns about
whether FCC review of some transactions has taken longer than the
circumstances warranted. Some have also questioned in particular cases
whether the Commission's processes were sufficiently open and reflected
a sufficiently thorough analysis of the relevant data and issues. I am
committed to working with my fellow Commissioners to ensure that the
agency's review procedures meet the highest standards of openness,
transparency, rigor, and fairness, and minimize costs and delay while
fully protecting the public interest.
In general, the FCC begins its transaction-review process once a
complete and compliant transfer application has been received from the
parties. At that point, we ask for public comment.
In the Comcast/NBC Universal proceeding, for example, the companies
filed an initial Application and Public Interest Statement on January
28, 2010. At the request of the applicants, the Commission awaited the
filing of a supplemental economic report, which we received last
Friday, March 5. The Commission will soon issue a notice that begins
the public comment period and informs interested persons how they can
address the applicants' submissions and participate in the FCC
proceeding.
To promote a thorough and efficient process, a dedicated team has
already begun work on staff-level review of the proposed transaction.
Reflecting the scope of the transaction, the team members come from a
number of the agency's bureaus and offices and bring to bear years of
expertise. I have directed the team to learn from experience--to
examine past similar transactions and see, with the benefit of
hindsight, what the FCC did right, and where the agency could have done
better. Our staff has also begun the process of consultation and
cooperation with our colleagues at the Department of Justice.
The legal requirements of record-based decision-making prevent me
from commenting in any way on the merits of pending transactions,
including the Comcast/NBC Universal transaction. Our decisions on
mergers are made only after we compile and review a full record. The
FCC will of course thoroughly consider all of the important issues that
have been raised or will be raised in the context of the transaction.
As the Committee is aware, the communications and media landscape
is rapidly evolving. New media and new communications technologies are
an increasingly important part of the landscape, even as millions of
Americans continue to rely on traditional forms of media and
communications. The landscape today is very different from 5 and 10
years ago, and will be very different 5 and 10 years from now.
While the changing landscape must of course inform the FCC's
decision-making, certain core values remain constant. Robust and
healthy competition is essential to producing consumer benefits--better
services, and lower prices. An important part of our responsibility at
the Commission is to ensure that communications industry transactions
do not enable firms to frustrate innovation or raise prices ultimately
paid by consumers. We must ensure that American consumers continue to
enjoy all the benefits of competition and choice, in a vibrant and
diverse communications and media environment that upholds vital First
Amendment values.
Investment, innovation, and employment are key objectives, as is
the rapid and widespread deployment of advanced communications
services. These and other traditional goals and values will inform our
review of transactions.
Thank you for the opportunity to appear before you today. I look
forward to working with the Committee, and I would be happy to address
any questions the Committee may have.
The Chairman. Thank you, sir.
Ms. Varney?
STATEMENT OF HON. CHRISTINE A. VARNEY,
ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION,
U.S. DEPARTMENT OF JUSTICE
Ms. Varney. Good morning, Mr. Chairman and members of the
Committee. I am delighted to be here today to talk with you and
Chairman Genachowski about how the Justice Department analyzes
mergers.
Our Nation's antitrust laws play a vitally important role
in ensuring U.S. markets remain vibrant and competitive.
Marketplace competition benefits American businesses and
consumers by assuring that the market provides price
competition and product innovations that increase our standard
of living. I take seriously the need for vigorous review of
transactions and judicious enforcement of the antitrust laws.
Over the course of many years and many investigations, the
Antitrust Division has developed significant expertise in both
the telecommunications and media industries. Both industries
have seen dramatic technological innovation that has brought
incredible benefits to our society. We look forward to bringing
our expertise to the review of the proposed transaction between
Comcast and NBC. We also look forward to working closely with
the Federal Communications Commission during both our agencies'
reviews of the transaction.
Although the Justice Department and the FCC have different
missions--ours is to protect competition while the FCC's is to
promote the public interest--we share similar concerns and
intend to collaborate effectively.
I am precluded, as is the Chairman, from discussing the
specifics of the proposed Comcast-NBC transaction because the
matter is currently under investigation, and our authorizing
statutes prohibit discussion of pending matters. I hope,
however, that a review of some of the Antitrust Division's work
over the past year will provide useful insight to you regarding
our approach to antitrust enforcement.
As the Assistant Attorney General for antitrust, I have
sought to take a measured and responsible approach to
enforcement, using well-established antitrust principles,
evaluating each matter carefully, thoroughly, and in light of
the particular facts of the transaction. Some matters involving
large, significant companies have proceeded unchallenged
because they were unlikely to result in anticompetitive harm.
As Senator Inouye pointed out, size cannot be the
determining factor in an antitrust evaluation. For instance,
the Justice Department did not challenge either the combination
of Oracle and Sun or the collaboration between Microsoft and
Yahoo!.
Some proposed mergers have been approved under conditions
designed to protect competition. For instance, the combination
of Ticketmaster and Live Nation, as well as that of Bemis and
Rio Tinto, proceeded only after we obtained decrees resolving
our competitive concerns.
In Ticketmaster, for instance, we required divestiture of
ticketing assets, licensing of ticketing software, and
prohibited retaliation and anticompetitive bundling.
We have also been ready to litigate when we need to. For
instance, we are currently challenging a transaction involving
Dean Foods, the Nation's largest dairy processor, because we
believe the transaction harms competition and will inflate milk
prices.
Additionally, just this week, the parties to a proposed
transaction involving the two largest health insurers in
Lansing, Michigan, announced they were abandoning their merger
after being informed by me that we intended to sue to stop
their transaction because it would have harmed competition for
health insurance.
The Justice Department also uses its expertise to advocate
on behalf of competition and consumers. For instance, we
recently provided the FCC with a detailed market analysis of
broadband competition as part of the Commission's ongoing
preparation of a national broadband plan. We provide similar
analyses to other agencies and policymakers, sharing our
industry expertise and understanding of market dynamics in
transportation, agriculture, finance, and many other sectors.
In my prepared statement, I describe in some detail the
procedural framework that governs the Justice Department's
review of transactions such as Comcast and NBC. One point in
that discussion worth emphasizing is that the Justice
Department's review is confidential.
Customers and industry participants with views about the
transaction must know that the law places significant
meaningful restrictions on our ability to disseminate
information provided to us during our merger investigations.
However, with appropriate waivers from the parties, we may
share confidential information with the Commission.
In the course of our review of the proposed Comcast-NBC
merger, we will also use our analytical skills and tools to
determine the competitive effects of the transaction. We will
work closely with the Federal Communications Commission to
ensure consistency in the Government's review of the
transaction, to protect competition, and promote consumer
welfare in a vibrant telecommunications and media market.
Mr. Chairman, this concludes my remarks, and I look forward
to your questions.
[The prepared statement of Ms. Varney follows:]
Prepared Statement of Hon. Christine A. Varney,
Assistant Attorney General, Antitrust Division, U.S. Department of
Justice
Good morning Mr. Chairman and members of the Committee. I am
pleased to present this statement addressing how the Justice Department
analyzes mergers in the telecommunications industry, a vitally
important part of our economy.
Mergers can allow businesses to grow in ways that help consumers.
They can combine complementary assets and enable firms to get new and
better products to consumers more quickly and more cheaply.
On the other hand, mergers can harm consumers by, for example,
eliminating competition that would have resulted in lower prices or
product innovation. Those potential consumer harms have been a central
concern of the Justice Department since the Sherman Act's enactment.
Since its passage in 1976, the Justice Department has reviewed
mergers within the framework of the Hart-Scott-Rodino Antitrust
Improvements Act. Under that statute, parties to proposed transactions
over a certain size must provide to us information regarding their
businesses before consummating their transaction. If a transaction
falls outside the statute's reporting thresholds, the Justice
Department can still investigate under its Civil Investigative Demand
authority, which allows us to review both pending and consummated
transactions.
Although our review of the vast majority of transactions subject to
the Hart-Scott-Rodino Act's pre-merger filing requirement is
accomplished within 30 days of the parties' initial filing, some
transactions require a closer look for us to make an informed judgment
about their likely competitive effects. In those instances, we issue
what is called a second request, which is essentially a request for a
more complete set of party documents and data. Until they comply with
the second request and provide us time to review their materials,
parties are not allowed to consummate their proposed deal.
During the period of time when the parties are complying with a
second request, we typically conduct interviews with customers and
competitors, and often request documents and data from industry
participants. Working together, the Antitrust Division's economists and
lawyers examine the transaction's likely competitive effects based on
the facts as they present themselves.
An important point worth emphasizing is that the Justice
Department's review during this second request phase is confidential.
Under the law, even the fact that a company has filed a notification
cannot be disclosed. Customers and industry participants with views
about a transaction should know that the law places significant,
meaningful restrictions on our ability to disseminate information
provided to us during our merger investigations. I noted at the outset
of this testimony that we cannot discuss the details of an active
investigation. Indeed, absent an explicit waiver, we are even
restricted in our ability to share confidential information with the
Federal Communications Commission, which, as I will describe below,
also reviews transactions in the telecommunications field.
Turning back to the second request, we try to minimize costs and
delay, recognizing that second requests can not only impose significant
burdens on merging parties but also harm consumers by delaying a
transaction, thus denying them the benefits of procompetitive mergers.
At the same time, however, we often need to conduct a thorough inquiry
to assess adequately how a proposed transaction will affect the
consumers we are charged with protecting. That may necessitate a
particularly detailed review in instances involving significant
transactions that have the potential to transform markets because there
is typically no going back once that transformation occurs.
For those transactions requiring a second request, it often takes
the parties several months to comply with our requests. At the end of
our review, if we believe that the transaction is likely to violate the
antitrust laws, the Department must file a lawsuit asking a court to
enjoin the parties from completing their transaction. Courts adjudicate
our merger challenges under the well-established standards of the
Clayton Act, which is not specific to the telecommunications industry
and prohibits transactions that result in a substantial lessening of
competition.
After learning that the Department intends to file suit to block a
deal, parties frequently will seek to negotiate a settlement that will
remedy the competitive harms of the transaction while simultaneously
allowing the procompetitive aspects of the merger to go forward.
Indeed, it has been the case for many years that the majority of the
transactions challenged by the Justice Department have resulted in
negotiated settlements. Accordingly, our investigations are conducted
not only with an eye toward litigating, but also in light of the
reality that we often obtain a solution that protects competition
without resort to a contested litigation. Thus, the contours of any
potential consent decree can be the subjects of our confidential
discussions with industry participants during our investigation.
In the telecommunications field, we conduct our merger reviews
alongside the Federal Communications Commission. The FCC has
jurisdiction to review transactions involving the transfer of FCC
licenses, and it has the power to impose conditions on those transfers.
Unlike the Justice Department's inquiry, which is conducted under the
antitrust laws and thus focuses on competition, the FCC's review is
typically conducted under the Communications Act of 1934 and that
statute's mandate to protect the public interest. Unlike the Antitrust
Division, which must persuade a court to enjoin a transaction, the FCC
may condition license transfers under its own authority.
Under the public-interest standard, the FCC focuses not only on
competition concerns but also other considerations, including universal
service, spectrum allocation, diversity of news and content,
technological standards, and national security. Even though the
standards are different, the Justice Department and the FCC often focus
on similar issues and review similar facts, and both agencies seek to
cooperate during their investigations. That cooperation allows us to
share expertise about market structure and industry trends, and also to
make sure that any necessary remedies are consistent.
In terms of process, the Justice Department and FCC coordinate
during investigations to minimize the parties' costs. For instance,
merging parties typically grant waivers that permit the FCC and
Antitrust Division to coordinate document productions, thereby
minimizing party burdens. Another procedural point worth mentioning is
that, unlike the typical merger reviewed by the Justice Department,
where the parties are free to close their transaction 30 days after
substantially complying with a second request, merging parties in the
telecommunications field may be required to wait for the FCC to
affirmatively approve the transfer of a license before closing, thus
displacing, at least as a practical matter, the time constraints
normally imposed by the Hart-Scott-Rodino Act. In all cases, however,
we do our best to review transactions closely and, at the same time,
not delay the closing of procompetitive transactions unnecessarily.
A review of the Antitrust Division's general work over the past
year will, I hope, provide useful insight into our priorities and
approach to antitrust enforcement.
In short, antitrust enforcement helps keep markets competitive,
protecting consumers and spurring innovation. In the merger context,
this approach means ensuring that we either go to court to block those
mergers that will substantially reduce competition or negotiate a
settlement agreement that simultaneously enables the procompetitive
aspects of a deal to go forward yet also prevents mergers from having
anticompetitive effects on consumers. Our review of likely competitive
effects considers both vertical and horizontal issues, and we publicly
set forth our enforcement standards in a number of ways, including
competitive impact statements, litigation pleadings, closing
statements, and other policy documents. When we investigate the
unilateral conduct of a firm with market power or the coordinated
conduct of firms, this approach means ensuring that firms do not engage
in behavior that harms consumers and competition. In the criminal
context, this approach means working to detect cartels and prosecuting
the firms and individuals who fix prices.
As Assistant Attorney General for Antitrust, I have sought to take
a measured approach to enforcement using sound antitrust principles,
evaluating each matter carefully, thoroughly, and in light of its
particular facts. Some matters involving large, significant companies
have proceeded unchallenged because they were unlikely to result in
anticompetitive harm. For instance, the Justice Department did not
challenge either the combination of Oracle and Sun or the collaboration
between Microsoft and Yahoo!.
Some proposed mergers have been altered through settlement
agreements designed to ensure that competition would be preserved. For
instance, the combination of Ticketmaster and Live Nation, as well as
that of Bemis and Rio Tinto, proceeded only after we obtained decrees
resolving our competitive concerns. Some aspects of our Ticketmaster
decree are worth pointing out. The proposed settlement requires
Ticketmaster to license its ticketing software and divest ticketing
assets to two different companies, allowing both to compete head-to-
head with Ticketmaster in the provision of primary ticketing services.
In addition, the proposed consent decree also subjects Ticketmaster to
court-ordered behavioral restrictions including, among other things,
provisions that preclude Ticketmaster from retaliating against any
venue that chooses to use another company's ticketing services or
another company's promotional services. As we explained in our
competitive impact statement accompanying the proposed settlement, our
conclusion that Live Nation was a ``disruptive entrant'' that was
positioned potentially to challenge Ticketmaster's dominance in
ticketing constituted the core of our competitive concerns regarding
the merger and triggered our judgment that a strong remedy was
necessary. By enabling the entry and repositioning of other
competitors, the Division concluded that the agreed-upon remedies
preserved the competition that would have existed but for the merger.
We are ready to litigate when we need to. We are currently
challenging a transaction involving Dean Foods, the Nation's largest
dairy processor, in the United States District Court for the Eastern
District of Wisconsin. We are seeking a court order requiring Dean to
divest the milk processing plants it acquired from a close competitor
in Wisconsin on the ground that the merger will increase the price of
both the fluid milk bought in the grocery stores and other similar
retail outlets and the school milk drunk by students in Wisconsin and
the Upper Peninsula of Michigan.
In addition to our work involving mergers, the other aspects of our
civil-enforcement program are active. For instance, in a series of
court filings and court appearances, the Justice Department articulated
a number of concerns about the business arrangements negotiated,
through the construct of a proposed class-action settlement, between
Google and the Nation's largest book publishers. In the same vein, we
have articulated to the United States Court of Appeals for the Second
Circuit our competitive concerns about so-called reverse payments in
the pharmaceutical arena, whereby firms agree to delay the entry of
generic-drug competition through settlement of a patent dispute.
Finally, we recently announced a proposed settlement resolving our
concerns about anticompetitive conduct that thwarted regulatory
incentives to lower electricity prices in New York City.
On the criminal side, our cartel enforcement is very active. Our
ongoing investigation of price fixing in the liquid-crystal-display and
cathode-ray-tube industries continues to result in plea agreements and
significant criminal fines and jail time. In October, a jury also
returned the first indictment in our ongoing investigation of
anticompetitive conduct in the municipal bond industry.
The Justice Department has also taken an active role advocating on
behalf of competition and consumers. For instance, in coordination with
the National Telecommunications and Information Administration, we
recently provided to the Federal Communications Commission a submission
addressing broadband competition as part of the FCC's ongoing
preparation of a national broadband plan as requested by the Congress.
That submission was part of a broader effort to share our industry
expertise and understanding of how competitive behavior affects
consumers.
Finally, I would like to conclude by mentioning a policy that has
been of particular importance to me. Within the confines of our
confidentiality obligations, the Antitrust Division seeks to be as
transparent as possible regarding our enforcement intentions. I have
made this point a policy priority, particularly in the international
arena, because the burgeoning of antitrust enforcement around the world
has the potential to harm U.S. business interests in those places where
enforcement intentions are unclear. Transparency is good for business,
and it is also good for consumers. Among other virtues, transparency
enables businesses to better predict enforcement actions. From my prior
work in private practice and service on corporate boards of directors,
I know firsthand that predictability is of crucial importance to the
business community.
To sum up, with the Division's excellent career staff and my very
experienced Front Office team, the Antitrust Division is proceeding in
the direction that I outlined in my first public remarks as Assistant
Attorney General: ``vigorous antitrust enforcement in this challenging
era.'' In reviewing proposed transactions, we use our analytical skills
and tools to determine the appropriate competitive analysis. In
reviewing proposed mergers in the telecommunications industry, we work
closely with the Federal Communications Commission to ensure that any
antitrust remedy is synchronized with their public-interest analysis to
yield the appropriate marketplace result that best promotes consumer
welfare and a vibrant telecommunications market.
Mr. Chairman, this concludes my prepared statement. I am happy to
address any questions that you or the other members of the Committee
may have.
The Chairman. Thank you very much, and I will start with
the questioning.
You have both gone to great lengths to explain your
separate roles and where you can, with waivers, talk to each
other. And I want to sort of make that clear because the FCC
assesses the ``public interest standard'' in the Communications
Act, and the DOJ considers mergers under the Clayton Act, which
is a different matter. They are looking for substantially
lessened competition or a tendency to create monopoly.
And frankly, I started thinking back after 9/11, the first
bill that the Congress passed was allowing the CIA and the FBI
to talk to each other. And it was embarrassing that we had to
do that because it was embarrassing that they couldn't talk to
each other. And just all of a sudden, everything changed.
Can you explain how and why this works? How the overlap
works and how it helps and how it hurts, how it is frustrating,
or whatever? We are having a hearing. We are only going to be
able to hear part of what we want to hear. And if you were CIA
or FBI, you would just talk to us openly.
Ms. Varney. I think we will both give some insight into
that, Senator.
Under the current framework, much of the information that
the Department of Justice receives is confidential. So we like
to protect the business proprietary information and the
confidential information we need to do merger reviews. I think
that the companies that come before us have very sensitive
information that should not be publicly disclosed.
However, what we can do and will likely do in any
significant transaction that involves multiple agencies is we
seek the party's waiver to provide the pertinent information to
another reviewing agency. And generally, parties provide that
waiver because they are interested in an expeditious Government
review.
So, within the framework of the confidentiality that we
work in, we are actually able to work fairly collaboratively
with our sister agencies throughout the Government. So, on the
process side, I think we have a mechanism in place that
generally works. I will let you know if that process ever does
not work.
On the substantive side, the Chairman will speak to it. But
I think competition is a very important input into his broader
analysis. And although they have great competition analysts at
the FCC, we have a long history here, and I think we complement
the piece of their review, which is the public interest based
on competition, consumer welfare, investment, and innovation.
Ours is more focused on the narrower competition question.
Chairman Genachowski. I think I agree with that. We have
just started to collaborate together, largely as a result of
this transaction, and I think we are both committed to having a
process that is efficient, that serves the public, and that has
benefits for everyone involved.
Our agencies have staffed with complementary expertise, and
it is helpful to everyone involved in the process to have them
speaking with each other, sharing data and information where it
is appropriate, testing analysis on each other, and
coordinating in a way that increases the chances of a better
decision for the public and also reduce the costs on the
parties by not duplicating where duplicating isn't necessary.
So there are opportunities, as I said, for both improved
decisionmaking and more efficient decisionmaking by effective
collaboration, and that is something that we are both committed
to.
The Chairman. OK. Obviously, video markets are evolving.
Consumers today have access to video content in more places
than ever before. And I was arguing with my wife last night.
She is in a different kind of television, superior television.
And viewers can go, they can watch TV. They can watch the
Internet screen.
Now how do your analyses take into account--this is to both
of you--the evolving nature of video markets, and does the
Internet video really compete today with traditional cable
programming?
Chairman Genachowski. Let me field that first.
The first thing that I would note is that at least since
the early 1990s, the Cable Act of 1992 and the Telecom Act of
1996, there has been a commitment on the part of Congress and
the FCC to promote competition in this area as the best
strategy to protect and empower consumers and to be very
serious about it. And in fact, in the video marketplace, there
have been, as you pointed out, many changes since the early
1990s, a lot of good news and also some issues of concern.
We have a satellite industry, a competitor that didn't
exist before. We have telcos now providing multichannel video
programming in some markets, hopefully more, that didn't exist
before. Those are good news increases in competition.
There are also issues of concern. We certainly hear from
consumers regularly about their rates and concerns that
whatever the competition is, it is not constraining rates. That
is something we have to take very seriously. And we hear from
consumers and also operators in rural areas saying that the
competitive dynamics in smaller markets are very different and
the FCC's policy should take those into account. And in fact,
over time, both Congress and the FCC have taken into account
the differences in rural areas.
Now, with respect to the Internet, an evolving story, we
are in the early chapters of it. There's a lot of hope that it
leads to more competition, more innovation, more consumer
benefits, and lower prices for consumers. But this story
continues to play out, and there are issues of concern.
I don't want to touch on items that will come up directly
in the Comcast-NBC transaction, but there are issues that
certainly we need to pay attention to with respect to
competition in the overall broadband marketplace and with
respect to developments on the Internet itself.
But if I could say one more word, the enduring values to me
remain what they were--promoting effective competition,
protecting and empowering consumers, ensuring that there is
innovation, promoting investment, and even as the technologies
and the landscapes change, our focus will be on making sure
that those values, those goals are achieved.
The Chairman. Thank you, sir.
Ms. Varney, my time is up. And I apologize for that, and I
call upon Senator Hutchison.
Senator Hutchison. In my previous life, I was general
counsel of a bank holding company, and I have found that
sometimes the regulators that had to approve mergers and
acquisitions had no sense of timing. And a contract would
expire and then be renegotiated at detriment to one party or
the other.
So I would ask you, since this is going on two tracks, are
you talking about timing and process? Is it going to be going
together at the same time that you would be having your public
comment period at the FCC and you would be doing your due
diligence? Is that an issue or a factor in the way you are
going to proceed, or were you looking at one and then the
other, which I think could really make a difference in just the
real world of contracts and also business?
I am sure when there is a limbo, that there probably is
also a limbo in investment, and a limbo in decisions that
probably ought to be made in the best interest of both
companies. So I would just ask you what you are looking at?
Chairman Genachowski. First of all, we have already started
and our staffs have started talking about how to ensure there
is a process that takes place that is as efficient as possible
while tackling the important issues that any transaction
raises. In some cases--we found this is true of both of our
agencies--sometimes the delays in the process are due to
understandable issues that the parties have in pulling together
the information that is required.
I mentioned that in our case we are just now able to put
out our public notice really beginning the process because, for
completely understandable reasons, it took the parties some
time to assemble the information they need. But I would say
that we have already spoken. We will continue to speak about
how we can best, most efficiently run these processes in a way
that delivers on our important responsibility as reviewing
agencies but recognizes that needless delay doesn't do anyone
any good, and we have an objective to move as quickly as we
can.
Ms. Varney. And Senator, they are parallel proceedings. One
doesn't go first, one review and then the second. They go
together at the same time. And that is why we are trying very
hard to collaborate effectively. Our staffs are investigating
innovative ways where they may be able to share documents in a
manner consistent with the law and all the requirements, but
that would be expeditious and would benefit both the review,
the parties, the consumers, everyone.
Senator Hutchison. Thank you.
Let me just, in my final minute or so, ask you if you are
of the opinion that I stated in my opening statement that--and
everything you have said so far would indicate that you are.
But, basically, do you believe you should stick to your
Congressional responsibilities, as opposed to being creative
and putting new issues in that maybe are not in your purview.
How do you feel about that?
Especially the FCC, which has been a little more creative.
[Laughter.]
Chairman Genachowski. Yes. The public interest standard is
obviously broad. I mentioned in my opening statement a series
of important values and factors that we will take into account
in reviewing transactions. We also are obliged to be open to
issues that are raised with us as part of our public process,
to analyze those, to take those seriously. That is our mandate.
Now, any decisions that we make in any transaction need to
be tied to the issues that arise in that transaction. That is
our focus. We have rulemaking processes to deal with broad
issues of general applicability, but we also have very serious
obligations to consider all the issues that arise. Any actions
that the FCC would take, and I am sure the Assistant Attorney
General will answer for herself, will be tied to issues raised
in the transaction that are appropriate for decision and action
in the transaction.
Ms. Varney. Senator, the same standard applies to merger
review at the Department of Justice. Every merger is considered
on the merits of the transaction and that alone.
We essentially on every merger have three courses of
action. We can determine that the merger creates no
anticompetitive effect, and we do nothing. We can determine
that the merger is anticompetitive and cannot be remedied, and
we would have to litigate that. So our view would be subject to
judicial review. And finally, if we determine a transaction has
anticompetitive effect but can be remedied, that remedy itself
is subject to judicial review under the Tunney Act proceedings.
So we stick to our knitting.
Senator Hutchison. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator, very much.
I am going to use my prerogative because telecommunications
is a massive subcommittee. So, I am going to ask Senator Kerry
and Senator Ensign, Chairman and Ranking Member, to ask their
questions now.
STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. Thank you, Mr. Chairman.
Obviously, the proposed merger that we are discussing today
would create an interesting and a unique company. I have
confidence that the Chairman of the FCC and the Assistant
Attorney General for antitrust are going to conduct a fair
review and, if needed, impose sensible conditions on it.
Let me say at the outset, though, that I have immense
respect for Brian Roberts and for his father, Ralph. They have
been terrific corporate citizens. I think that everybody in the
industry would acknowledge that, and we begin sort of there as
a starting point in this. They have taken a small cable company
and turned it into a communications giant, and I think that
kind of success is admirable.
I have an open mind on this. I have met with Mr. Roberts. I
have asked questions and listened to him explain some of the
concerns that we might have about price increase, access,
different things that obviously are on the table here. Clearly,
your scrutiny is important to this, and I think they
acknowledge that and welcome it.
We all know that without that, big mergers can distort a
market. They can reduce consumer choice, drive up prices. But
they can also provide and promote efficiencies and innovation
if they are done properly.
My advocacy during the recent retransmission consent
disputes, I think, has accented the fact that I try to focus on
the consumers and encourage the market to maximize consumer
access to content and to try to discourage prices from
escalating without commensurate consumer benefits--I think that
is sort of the principle that ought to guide us here--and have
competition between cable, satellite, and television providers.
I also am a big believer in localism, diversity in
programming, and the continued growth of the Internet as a tool
for communication. So these are the principles that guide me in
thinking about this.
And I would like to ask you, Mr. Chairman, if you would
just comment quickly. I know you can't speak specifically to
the case, but with respect to a merger of this scope, what are
your considerations with respect to the retransmission consent
negotiations and their impact on consumers as you have seen
them?
Chairman Genachowski. I shouldn't and can't speak
specifically to this transaction, but certainly, the topic of
retransmission consent has been a topic of active consideration
at the FCC, at least since Christmas week and New Year's Day,
when we all were on the cusp of some stations shutting down. We
saw it again last week.
There is a lot of consumer concern. A lot of consumers
wonder why their lives should be affected because of business
disputes between two different media companies. At the same
time, media companies have a right to engage in transactions
and determine the terms of those transactions. We have heard
more increasingly recent arguments from various people who
follow this closely, or are involved in it, that the framework
that is in place, and that has been in place for a long time,
may have lost pace with the changes in the marketplace, maybe
changes in technology. And I think we are beginning the process
of reviewing whether there are improvements to the framework
that make sense.
We look forward to working with you and the Committee on
that. It is a statutory framework. But certainly, it is
something that we will be looking into and that we would like
to be a resource to the Committee as we look at retransmission
consent and whether the framework continues to make sense or
whether reforms are sensible.
Senator Kerry. Fair enough. Ms. Varney, should we consider
the Internet as a possible standalone alternative for
multichannel television service delivery? And if so, how can
standalone Internet video services be guaranteed access to the
content that the other distributors have?
Ms. Varney. Senator, I think, as the Chairman has pointed
out, the Internet is still in its early chapters, and we don't
know where it is going yet. We at the department are committed
to preserving competition, whether it is potential competition
or incipient competition. So we are in many transactions in
telecommunications and media very concerned about the role that
the Internet can play as an effective competitor to increase
output, to bring more diverse quantity and quality to consumers
at hopefully lower prices.
So I am hesitant to say at this point what the Internet can
and can't do to promote or inhibit competition. But in any
transaction where there is an aspect of the Internet providing
a competitive effect, it will be seriously evaluated.
Senator Kerry. Which means, obviously, that is one of the
things you will look at in the context of this?
Ms. Varney. Without commenting on the specific merger, we
will look at anything that is relevant in any transaction.
Senator Kerry. And Mr. Chairman, how do we ensure that
independent programmers who have competing content have some
effective redress under the nondiscriminatory protections in
the Cable Act? And perhaps you might share with us how many
complaints have you resolved, and how many carriage complaints
are currently pending?
Chairman Genachowski. The issue of independent programmers
having access to multichannel video providers, the issue of
diversity of programming, independent voices has been a long-
standing issue for Congress and the FCC. And as you mentioned,
there are provisions of the statute in the FCC rules that
provides the mechanisms for enforcement.
I can't tell you the specific number of complaints that we
have had. We will get that to you separately. We have had some.
We have also heard complaints that the existing framework can
be improved to give independent programmers who believe they
have a complaint under the statute a more efficient process to
have those complaints resolved.
But this is one of those areas where the values remain
constant, and I think both the FCC and, I assume, the Committee
will remain vigilant in thinking about how those values can be
and should be applied in a changing marketplace and changing
technology landscape.
Senator Kerry. And can you share with me, just as a matter
of principle, do you think that consumers should lose access to
broadcast programming when the broadcasters and the cable
providers fail to reach an agreement?
Chairman Genachowski. I think that is certainly an issue.
One of the things that concerns me the most in situations like
that is when consumers are surprised. This was, I think, one of
the biggest issues around the New Year's Day potential
shutdown, the idea that a consumer could find out on December
30 that they might lose their TV signal on January 1 and have
to figure out their options so that they can just have
constancy of viewing. It is hard to explain to a consumer why
that makes sense.
So without drawing a general rule about whether there are
circumstances where----
Senator Kerry. Do you have a perception of what mechanism,
if any, might be used to resolve this? Obviously, some people
are now pushing for some kind of arbitration thing or something
else. Others, there is a lot floating around on this issue. Do
you have any thoughts about it?
Chairman Genachowski. The only thought I would say now is
that I think the events of the last 2 or 3 months confirm that
this is a subject that should be looked at seriously. All ideas
should be looked at with the goal of coming up with a framework
that works for consumers and that is fair for the parties
involved, for the businesses involved.
Senator Kerry. That was avoided with skill.
[Laughter.]
Chairman Genachowski. Thank you.
Senator Kerry. Mr. Chairman?
The Chairman. That is it? OK.
Senator Ensign?
STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA
Senator Ensign. Thank you, Mr. Chairman.
Chairman Genachowski, I appreciated earlier when you were
talking about wanting the Government to continue promoting
investment in the expansion of broadband and encouraging more
competition, all of those good principles that I think that we
all share. Sometimes we have disagreements on exactly the best
way to get there, but I think that we certainly all agree on
those kind of guiding principles, and I know we have talked
about that.
I want to turn just a little to deal with Title I, Title II
issues--Title I being a much lighter regulatory touch, and
Title II giving the FCC potentially much more heavy-handedness
when it comes to regulation. So I would like to touch on that.
We have heard recently that some groups have called on the
FCC to regulate the Internet under Title II of the
Communications Act. I believe that this would reverse the
successful deregulation that has helped lead to explosive
growth in the broadband age that we have seen over the last
several years.
Broadly speaking, we know that regulation has costs. At
stake would be the tens of billions of dollars invested
annually by the private sector in broadband. I would like to
ask you, what would the impact on the private sector investment
be if the FCC were to reclassify the Internet under Title II?
Chairman Genachowski. The first thing I would say, Senator,
is that job number one right now at the FCC, our focus is on
developing the policies that will promote universal broadband
in America, rural America and urban America, so that we can
have a world-class infrastructure that is an engine for job
creation, for ongoing investment, for innovation, for helping
improve our education. This is, to me, a major issue of global
competitiveness for the United States. And we are working very
hard, as you know, looking at what are the policies we need to
do to promote those interests, to protect and empower consumers
with a 21st century world-class infrastructure.
On the technical issue that you mentioned, as you know, the
FCC has in the past relied on Title I as its authority to
promote the interests of consumers, rural Americans, others, in
and around broadband. Right now, we are arguing in court
defending the position that Title I gives us the authority we
need to do the right things for American communities, American
businesses, American consumers.
We will continue to assert that position, and we will hope
that we get a favorable decision from the court that is looking
at it right now. Until then, our focus is on the issues that I
mentioned. If the court does something that requires us to
assess, consider issues, we will do that. But right now, I
think there is nothing more important that we could do than to
make sure we move forward on a national broadband plan that
drives forward U.S. global competitiveness on our
communications infrastructure.
Senator Ensign. Well, I appreciate that because, as I
mentioned, I think that there is a real cost to heavier
regulation, and we have to be so careful with this almost
miracle of investment in the Internet that we have seen in
America and across the world, that we want to continue to see
that, that investment with 4G wireless broadband coming out,
along with all of the other various exciting things that we are
seeing. We know a lot of job creation and a lot of our
economy's future lies in broadband investment.
And I just think that whether you get the favorable court
decision or not, if the FCC decides or considers moving
broadband from Title I to Title II, I think it could be a
major, major mistake. And I think that that is why this issue
needs to be aired out and discussed so that we consider all the
ramifications if that does happen.
So I appreciate both of your service and both of you being
here today, though.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Ensign.
Unfortunately, I have to go to the floor to do the Federal
Aviation Administration. Senator Kerry will chair, and Senator
Cantwell is next up.
STATEMENT OF HON. MARIA CANTWELL,
U.S. SENATOR FROM WASHINGTON
Senator Cantwell. Thank you, Mr. Chairman.
And thank you for your discussion this morning. It is
challenging, because of your oversight review, to really get
into some substance here.
So I do have a question, but I guess I would like to say at
this point in time, I can't support this merger. Now maybe you
will provide some facts on oversight and some qualifications
that will help with this. But from the Seattle perspective, I
see a lot of consumer groups are already very concerned about
this.
And obviously, we like media diversity in the Northwest. If
you have ever been there, you see that. We can turn out at less
than 24 hours' notice for any FCC Chairman who ever wants to
come there and discuss it.
But my concern today is that we are talking about one of
the largest carriers of both Internet provider and phone
service and cable and the merger with content. And
specifically, right now Seattle is very upset about what
happened with the Olympics. The fact that access was not
provided to the Canadian Broadcast System--or the CTV in this
case, which would have always provided an alternative
coverage--was a great frustration. And then there was a lot of
criticism and critique that basically online access was also
blocked by various authentication measures, making it difficult
for people to gain access.
And I know that my colleague Senator Kohl, who chairs the
Antitrust Subcommittee, in his hearing said, ``I fear that this
practice of locking up certain content only for pay TV
subscribers may be a preview of what is to come in respect to
TV programming on the Internet, particularly in the context of
the proposed Comcast-NBC merger.''
So, or as I think the Seattle Times said it in their
opposition to this merger, ``It just leads to mischief.'' Now I
am not sure we are going to be able to uncover all of the
mischief that might happen and protect against it. That is my
concern. How are we going to do that? But those two examples of
how Seattle viewers were shortchanged on what is a digital age
of content access is very frustrating.
But my question is this. As it relates to Chairman
Genachowski, it is my understanding that Comcast is challenging
the FCC's most recent extension of its program access rules,
and so I am interested in what parts they are challenging. And
if Comcast prevails, wouldn't this mortally wound one of the
protections that we have in place to say you have to meet these
programming requirements? And if we get rid of that rule, then
aren't we going to see even more mischief in this process?
Chairman Genachowski. Senator, two things. On your first
point, while I can't comment on the merits of the transaction
and I shouldn't comment on the specifics that you mentioned, I
can let you know that the interests of consumers will be heard
in our review of this transaction. They have to be. That is our
obligation. A core principle for us is to protect and empower
consumers, and we will be looking at all issues relevant to
consumers as we review the transaction.
With respect to program access rules, certainly all the
competitors in the video programming marketplace will tell you
that over the last 10, 15, 20 years since those rules were
adopted, they have been a force to promote competition in the
marketplace, even though they may not have worked perfectly at
times. And that has been our experience at the FCC as well.
In fact, recently, we improved those rules by closing what
is called a ``terrestrial loophole'' and providing a better
mechanism for competitors to get access to regional sports
programming. So we take the program access rules very
seriously. It is in court, as you mentioned. I am optimistic,
and I think if issues arise there out of the litigation that we
have to work on together, I would look forward to that because
we have seen that rules like that in this landscape can promote
competition.
Senator Cantwell. Well, wouldn't you have to take--say that
Comcast won on that, wouldn't you have to take that into
consideration on this merger?
Chairman Genachowski. Well, we will take into
consideration--I want to be careful, just given that it is a
pending review. We will take into consideration in this merger
all relevant issues, all issues that are raised by the parties
in our proceeding. I imagine this issue will come up in the
context of our proceeding, and you can be assured that we will
review it very carefully.
Senator Cantwell. Well, I think that we--I didn't agree
with Mr. Martin on a lot of things. But I think this just begs
the question for us to review a la carte because I just think
we can't hold consumers hostage because we are building a
vertical integration, and that is going to be my main concern
about this.
Thank you.
Senator Kerry [presiding]. Thank you, Senator Cantwell.
Senator Snowe?
STATEMENT OF HON. OLYMPIA J. SNOWE,
U.S. SENATOR FROM MAINE
Senator Snowe. Thank you, Mr. Chairman.
Chairman Genachowski and Ms. Varney, with respect to some
of the procedures involved in what has occurred even since the
last mergers that have been considered by both the Justice
Department and the FCC, I was wondering whether or not there
have been any internal changes in both agencies with respect to
the merger review process? Obviously, there has been a
perception in the past that some of these mergers have been
rubberstamped among media-related mergers.
If you are looking at some of the charts with respect to
consolidation, which has been media consolidation, ownership,
and cross-ownership issues, certainly they have been a central
focus of this committee for an extended period of time, as
these mergers have become more and more frequent.
It speaks volumes that the number of independent radio
owners have plunged in the last 11 years by more than 39
percent, and between 1995 and 2003, ownership of the top 10
largest television stations has increased their ownership of
the stations from 104 to 299, more than 187 percent increase.
So, obviously, it is a major source of our consideration.
So, I would be interested in knowing with your respective
agencies, what has changed in terms of the review process that
you will apply, given the fact when you are seeing the number
of corporations that now control the majority of broadcasters?
And I have talked to Mr. Roberts, and he has made a number of
commitments to the future because, obviously, it is going to be
important, given this vertical integration that is going to
occur between distribution and content.
But the number of corporations that control, it has gone
from 50 entities to relatively a few. So the Department of
Justice didn't apply any conditions to the XM-Sirius or AT&T-
BellSouth. And the FCC provided nominal and temporary
conditions on various mergers, XM-Sirius, Tribune-News Corp.,
and Dow Jones.
So starting with you, Chairman Genachowski, can you tell us
what is going to change? You mentioned in your statement, as I
noticed, that some have questioned in particular cases whether
the Commission's processes were sufficiently open and reflected
a sufficiently thorough analysis of relevant data and issues.
So what is going to counter that perception beyond that it
is just a rubberstamp? Given the increasing consolidation that
is occurring, it could affect diversity. It could affect
competition. It could affect localism. It could affect
independents, not negotiating fair deals for those who are not
connected with Comcast.
Chairman Genachowski. Let me speak first about the FCC and
then about our coordination because they are all relevant to
your question.
At the FCC itself, we have set up an empowered cross-bureau
team to make sure that we fully meet our mandate with respect
to this merger and all other mergers. One of the first
instructions that I gave the team was to go back and look at
relevant transactions and do an honest assessment of what went
right, what went wrong, what can we learn from what happened in
the past so that we can do our job on behalf of the public and
do it efficiently.
We are also looking very hard at the issues of openness and
transparency in the context of merger reviews at the FCC. In
this case, we have very different ground rules. The DOJ has to
stay confidential. Ours should be an on-the-record, open
process, and we are exploring the best ways to conduct a
process to do that.
As you know, in other proceedings that we have managed over
the last few months, we have revolutionized the way the FCC
does business, over 50 public workshops around broadband. We
are reforming our ex parte rules. So we take this very
seriously.
With respect to coordination, we have each empowered our
staffs to start coordinating, start collaborating, to both
honor and respect our separate missions, but to make sure that
we are helping each other achieve the goals that in each case
the relevant statute has given us.
Senator Snowe. Ms. Varney?
Ms. Varney. Senator, I can assure you there is no
rubberstamp at the Department of Justice. I won't speak to the
past, but I can tell you since I have been there, we have sued
Dean Foods over its acquisition in Wisconsin, Illinois, and
Michigan over milk consolidation. We are very troubled by that.
We announced we were going to sue Blue Cross Blue Shield
over its acquisition in Lansing, Michigan. They abandoned the
transaction. We are on the record in the court in the Southern
District of New York with our concerns about the proposed
Google book settlement.
We have approved some big transactions with conditions. We
conditioned the Ticketmaster approval of Live Nation. We
conditioned the voting machines acquisition, which has been in
the press quite a bit lately. We conditioned the AT&T
acquisition of Centennial, which is in the telecommunications
space, and we put significant conditions on that. We have
recently fined KeySpan, a major electric provider in New York
for the way it was doing business.
So we are very, very active. We view every transaction on
the merits of the transaction, and you can be sure we will do
the same here.
Senator Snowe. I know that in the Department of Justice
instance that you have to review this transaction based on
substantially lessening competition. But yet we have seen--I
mean, it is just increased consolidation. Obviously, we have to
evaluate these trends that are occurring not just on the short
term, but also on the long term and what is going to occur.
Chairman Genachowski, one other question. On program access
rules, what has changed in that regard?
Chairman Genachowski. I am not sure what you are getting
at, Senator. What has changed in terms of----
Senator Snowe. Yes, is there anything that has changed in
terms of program access rules?
Chairman Genachowski. Well, the goal of program access
rules, I believe, remains as important as it was. We have been
reviewing the program access rules to make sure they are as
effective as possible. A couple of months ago, we closed the
so-called terrestrial loophole so that the rules could work
more effectively for competitors, and we will continue to look
at ways to make sure that rules designed to promote competition
actually promote competition in practice.
Senator Snowe. Yes. Because, obviously, in this instance,
that will become even exponentially greater. I mean in terms of
magnifying the problem in competition and making sure that
there is fair competition and the incentive to negotiate fair
deals or allowing their own programs that they have developed
to be offered to nonaffiliated stations.
Thank you.
Senator Kerry. Thank you, Senator Snowe.
Senator Thune?
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman.
I want to thank our panelists for being with us today. This
is an important subject and one that we obviously want answers
on.
I know that you are limited in some of the things that you
can say today, but I want to ask you, in South Dakota, we have
a number of small, rural telecom companies that provide high-
quality multi-program video distribution. To the extent that
you can comment, I would direct this to you, Mr. Genachowski,
how might these entities be impacted by this merger? And how
much will that be a factor in your deliberations as you
evaluate this?
Chairman Genachowski. Without addressing the specific
transaction, I can tell you that the concerns and unique needs
of rural multichannel video providers is something of real
interest to the FCC. It has been to this committee for quite
some time. Action has been taken in the past, for example, by
enabling those companies to combine and by collectively trying
to balance out the leverage as best as possible.
I can't talk about it in the context of this transaction
other than to say that promoting the kinds of interests that
have been pursued by Congress and the FCC in this area
concerning rural providers are the kinds of objectives, the
kinds of principles that are appropriate for review in this
transaction. And assuming they are raised in our record as part
of the proceeding, it is something that we would take very
seriously.
Senator Thune. Good. When you say ``appropriate to
review,'' my question gets at how much will that be a factor in
your deliberations? Obviously, you have a public interest
requirement that you have to look into, and I am trying to get
at the issue with respect to this merger how the FCC might
define the public interest standard. Would that include how
this particular merger might impact the situation I just
described in rural areas?
Chairman Genachowski. Traditionally, the public interest
standard has included those kinds of interests, and so, without
commenting on this transaction, it is safe to assume that it
will here. Exactly how much, if any, action the Commission
would take, that would have to be based on the record that is
built in the proceeding. We will encourage the broadest
possible participation and the submission of real facts and
data because our responsibility is to get our arms around the
actual facts in the marketplace and then to review the
transaction against those facts and data.
Senator Thune. OK. Without beating a dead horse, how would
you define a public interest standard? You talked about all the
various things that would be appropriate to, as you said,
review as part of the public interest standard. But could you
perhaps shed a little bit more light on that?
Chairman Genachowski. Our starting point is the core
principles and objectives that the FCC has relied on in the
past and that I have spoken about: promoting competition,
protecting and empowering consumers, promoting investment and
innovation, ensuring the widespread deployment of broadband and
advanced communications, and to the extent it is a media
transaction, promoting competition, localism, diversity, well-
established principles under the public interest standard at
the FCC and in Congress.
Senator Thune. In your testimony, you noted that the FCC
has not made decisions on past mergers in a timely and
transparent manner. What specific actions do you plan to take
to remedy that observation?
Chairman Genachowski. I noted that the FCC has been
criticized for that, and we do have a staff at the FCC that
works very hard, is very committed to this, and they are very
expert.
But I think an agency can always improve, and I have
instructed the staff to identify the ways in which we can learn
from past experiences, develop, improve processes that are
efficient, that meet our obligations under the Communications
Act, that maximize all appropriate coordination and cooperation
with the Justice Department, and that specifically look at ways
that we can have an open and transparent process that everyone
understands, that is fair to everyone who has an interest in
the transaction.
Senator Thune. Let me ask you, because one of the things
that critics argue is that the transaction is going to allow a
single company to control the content that consumers receive
and how they are permitted to access it. Do you agree with that
statement, and are you concerned about that possibility?
Chairman Genachowski. I wouldn't comment specifically on
this transaction and what the results might be. I think
promoting competition is, as I said, a core principle. And so,
transactions that have any element of consolidation require us
under the public interest standard to ask hard questions about
what effect does this have on competition? What effect does it
have on consumers in terms of the provision of services and
prices and innovation?
So those are exactly the kinds of questions we are obliged
to ask in the context of reviews of this sort.
Senator Thune. I am not trying to ignore you, Ms. Varney.
Ms. Varney. I associate myself----
[Laughter.]
Senator Thune. If there is anything you would care to add
to that, please do so.
I thank you, Mr. Chairman. I appreciate it.
Senator Kerry. Thank you very much, Senator Thune.
Senator Begich, coming from Alaska, I know you are used to
being far away.
[Laughter.]
Senator Kerry. This annex is taking it to a new extreme.
STATEMENT OF HON. MARK BEGICH,
U.S. SENATOR FROM ALASKA
Senator Begich. I sometimes feel like a witness.
[Laughter.]
Ms. Varney. We can ask him questions.
Senator Kerry. Actually, you are in the penalty box.
[Laughter.]
Senator Begich. That is right, the penalty box. This is
what happens when you are new and you cause trouble.
Let me--obviously, I am going to leave my questions really
for the next panel. I just want to first say that my interests
are going to be how local aspects are dealt with, how in the
sense of intellectual rights and so forth are dealt with. The
next panel is really going to be my Q&A.
I have to be very frank with you. Many people have already
asked the questions I was interested in. I have faith that you
will go through a process. It is a new organization over there,
new people, and that is what I am banking on.
I wasn't here for the history of what has happened in the
past with the organization. There have been some concerns over
the past, but I have a feeling that the new folks, you guys
included, are going to do the right thing over time and make
sure consumers are heard. I have heard that over and over
again.
So I am really not going to ask you questions because the
next panel is a big panel, and my worry, the way the system
works here, is everyone will have opening statements and
because I am at the tail end here, it may never get to me for
my questions.
So thank you all for being here.
Senator Kerry. Well, Senator Begich, that won't happen
because there are not very many of us here right now.
[Laughter.]
Senator Begich. I am banking that they won't know we are
doing this, so they won't come back.
Senator Kerry. In fact, I invite you to even move up, if
you would like? Delusions of grandeur.
[Laughter.]
Senator Kerry. Mr. Chairman, thank you very much for coming
and not commenting on any of the specifics.
[Laughter.]
Senator Kerry. We appreciate that. And the attorney general
also. If I can just ask you quickly, can you give us a sense of
timing? How long is this going to take?
Chairman Genachowski. I think it is actually that we are
just going to put out our public notice in the next few days,
and I think we will know more about what realistic timing is
once we see what kind of record comes in. We are committed to
doing this as fast and as efficiently as possible, but also
honoring our obligations under the Communications Act to be
thorough and look at all the issues.
Senator Kerry. Well, we want you to be thorough. We want
you to do that, but I think many of us are frustrated by the
length of time it takes to get business decisions out of
Government. And I think that faster, more expeditiously we can
do it, the better our reputation will be. So I hope you will do
that.
Thank you. We will welcome----
Senator Ensign. Mr. Chairman?
Senator Kerry. Yes?
Senator Ensign. Could I--before you leave this panel, I
have got some letters here from independent programmers that,
if I could, I would like to submit for the record?
Senator Kerry. Without objection, they will be put in the
record.
[The information referred to follows:]
Ovation
Santa Monica, CA, March 9, 2010
Hon. John D. Rockefeller IV,
Washington, DC.
Hon. Kay Bailey Hutchison,
Washington, DC.
Dear Senators Rockefeller and Hutchison,
At the heart of American democracy is our commitment to free speech
and expression. Therefore it is vital to our freedom that Americans
enjoy unrestricted access to that same free speech and expression.
Since 1996, Ovation TV, a privately funded, independent cable
television network, has dedicated itself to providing viewers the best
in creative expression through arts and culture programming. Ovation is
one of a kind. No other national network offers viewers this type of
content day after day. And having provided over $5 million in cash and
in-kind support over the past 3 years, Ovation is also a key partner of
America's cultural institutions and arts education initiatives in
cities and towns nationwide.
Since acquiring and re-launching Ovation in 2007, the network has
grown from 5 million to 38 million homes. Much of this success is in
part due to our outstanding business relationship with Comcast Cable.
Comcast has become an outstanding distributor of our unique
programming, adding over 3 million homes to our distribution base. Most
importantly, they have become a key partner in numerous local arts
education initiatives; including assistance in providing access to free
museum visits and building awareness of cultural events.
While critics are fast to point out that these 3 million homes
represent a small portion of the Comcast foot print, the relationship
with the ``new'' Ovation is a young one. As we continue to deliver on
our promise of providing a unique Arts service to their customers, we
believe Comcast will continue to roll us out and make us available in
all of their digital homes. We also believe that a NBCU/Comcast merger
will not affect that rollout.
It is has been our experience that Comcast pays competitive rates
to independent programmers. Those rates enable us and other programmers
to invest in even greater programming for their viewers and more
marketing to reach them, all the while creating lasting jobs in a
variety of communities. We are hopeful that an NBCU/Comcast merger will
not affect the rates that Comcast pays to us nor to any other
independent programmers.
Comcast has a strong record of launching viable, independent
channels. Viable is the key term here. Not everyone with an idea for a
channel deserves carriage nor can Comcast be expected to accept every
idea that comes through their door. As in the case of Ovation, Comcast
has been responsive to those channels with solid plans to meet the
interests of viewers not currently being served in the marketplace, the
right team with proven expertise, solid financial backing and a
compelling value proposition that includes fair and competitive rates.
Comcast has also stated they will continue to create more
opportunities for viable, independent programmers. They have committed,
upon completing their digital migration companywide in 2011, to add two
new independently owned and operated channels to their line up each
year for the next 3 years under customary terms and conditions.
Comcast has recognized Ovation's many attributes, including its
service in the community, and has provided us with growing distribution
on their platform at competitive rates. We enjoy a relationship that
has required good faith negotiations and we are confident that
relationship will continue to grow stronger after the merger.
The issues facing independent programmers like Ovation relative to
large distributors can be summarized in two words, carriage and rates.
In our experience, Comcast has been a fair partner in both of these
areas. Thank you for your commitment to supporting independent
programmers and ensuring that our voices be heard.
Sincerely,
Charles Segars,
Chief Executive Officer.
CC: Hon. John Kerry
Hon. John Ensign
______
Outdoor Channel
Temecula, CA, March 10, 2010
Jay D. Rockefeller IV,
Chairman,
Committee on Commerce, Science, and Transportation,
U.S. Senate,
Washington, DC.
Kay Bailey Hutchison,
Ranking Member,
Committee on Commerce, Science, and Transportation,
U.S. Senate,
Washington, DC.
Dear Chairman Rockefeller and Ranking Member Hutchison:
I am writing as the President and Chief Executive Officer of
Outdoor Channel, an independent cable network focused on hunting,
fishing, and outdoor adventure. We appreciate the opportunity to share
our perspective on the pending merger between Comcast and NBC
Universal--and to tell you why we believe that Comcast has been a good
partner--and why the dynamics of the video business, in our opinion,
will encourage Comcast to continue to be a good partner following its
merger.
First, to give you some perspective on what it means to be an
independent content provider in today's cable landscape, and some
perspective on the audience we uniquely serve, let me provide you with
some background on Outdoor Channel. Our network is the quintessential
independent programmer. We were originally founded in 1994 by a family
of outdoor enthusiasts as a programming service for other enthusiasts.
In the last 16 years, we have grown into a profitable, financially
stable publicly traded company (NASDAQ: OUTD) with annual revenue in
excess of $75 million.
Outdoor Channel features quality programming designed to educate
and entertain outdoor enthusiasts of all skill levels. We promote the
traditional outdoor activities that are a vital part of our national
heritage including fishing, hunting, shooting sports and other outdoor
adventures. Our programs are designed to appeal to enthusiasts of all
ages with a focus on activities that the entire family can enjoy in the
great outdoors. Outdoor Channel promotes the spirit of conservation in
all of our programs, emphasizing responsible hunting, fishing and
habitat maintenance. We also broadcast programs that highlight
conservation and preservation initiatives, helping outdoor enthusiasts
understand the importance of maintaining and improving our lands.
According to Nielsen Media Research, we serve approximately 36 million
cable, satellite and telco subscribers in both rural and urban
communities around the country.
It is important to emphasize that the key to our success as an
independent network is that we have continued to invest heavily in our
business. Our ongoing investments in compelling programming that
includes the best and brightest celebrity talent, innovative formats
like High Definition (HD) and Video on Demand (VOD) and building a
robust digital presence has made our growth possible and enabled us to
maintain our leadership position. We have also heavily invested in
branding, marketing and research to support our sales and marketing
efforts.
Against that background, let me turn to Outdoor Channel's
relationship with Comcast. Comcast has been an important partner for
us, and our relationship has been mutually beneficial. Given my
experience in the cable television industry, I can attest that with
Comcast, our carriage negotiations, back office functions and day to
day dealings have always been reasonable and forthright.
Outdoor Channel relies on cable distributors like Comcast to
provide household delivery in two ways. First, we look for Comcast to
carry our network in the greatest number of cable systems possible.
Comcast evaluates the fit for each network on a market specific basis
and is under no obligation to carry Outdoor Channel in every market it
serves. With that carriage flexibility in mind, we are pleased to be
carried in most of Comcast's markets around the country. In the markets
where Outdoor Channel is available on Comcast's channel line-up,
Outdoor Channel reaches approximately 30 percent of the total potential
subscribers.
Second, Outdoor Channel provides Comcast the latitude to package
Outdoor Channel in ways that best serve their markets and business
objectives. Over the past 2 years, in recognition of Outdoor Channel's
broad appeal and program quality improvements, Comcast has repackaged
our network to more highly penetrated packages that reach substantially
greater numbers of potential viewers.
Comcast, like other distributors, has seen the value of Outdoor
Channel increase over time. They have recognized that our network is
more than a concept--it's a proven, sustainable entity. As we've grown
our business, we've proven that we are filling a critical content void
in the market, and we have staying power. Considering Outdoor Channel's
growing base of viewers, high-quality programming and innovative
formats like HD, Comcast has continued to give us additional
opportunities to bring our network to new markets.
We were particularly pleased to see the interest we were receiving
for upgraded packaging at the local system level supported at Comcast's
corporate office where these decisions are ultimately approved. We have
invested in staffing a professional field sales force and we were
gratified to see the benefit of this investment, coupled with our
commitment to best in class programming, paying dividends in the form
of increased subscriber growth. We are encouraged that continued
investment in first-rate content, advanced technology such as HD, and
innovative marketing partnerships will continue to be recognized with
additional growth opportunities for our networks throughout Comcast's
systems.
Additionally, Outdoor Channel looks toward distributors like
Comcast to be strong marketing partners. Each year, we run two network
consumer promotions: Spring Fever and Gear Up & Go. The purpose of
these sweepstakes-based promotions is to enhance our brand's awareness
and increase viewership and consumer engagement. During these
promotions, we partner with cable affiliates, asking them to run
promotional television spots on their systems to increase sweepstakes
enrollment and programming tune-in. Historically, Comcast systems have
participated heavily in these promotions. For the 2009 Gear Up & Go
promotion, Comcast systems representing over 4 million subscriber
households participated. These Comcast systems ran promotional
television spots valued in excess of $1.5 million which in turn helps
us to increase viewing which drives our advertising sales business.
In line with our belief in the compelling logic of thoughtful,
sustainable independent programming, we have taken note of the
``Commitments'' Comcast and NBCU have made in their testimony to
legislators as guarantees of their post merger intentions. We are
especially encouraged by Commitment #13--``Carriage for Independent
Programmers.'' We applaud the concept behind that commitment of adding
new independently owned and operated channels to Comcast's digital
lineup. At the same time, as one of the few true independents operating
today, we frankly would like to see that commitment modified to include
granting broader distribution to proven independents whose programming
capabilities and financial stability are already established.
In closing, I would like to draw the Chairman's attention to
another aspect of our relationship with Comcast that we believe speaks
to a larger sense of that company's progressive attitude toward
programmers and to its role as a supporter of the social responsibility
initiatives that are dear to us and our viewers. Outdoor Channel
participates in dozens of community initiatives each year. Together
with our local distribution partners in markets across the country, we
organize events to highlight and benefit conservation-related causes
and mobilize outdoor enthusiasts to make a positive impact on their
communities.
Comcast has become a major partner for us in local markets as we
develop, organize and participate in community campaigns in their
systems' territories. One recent example was in Chattanooga, Tennessee
where Outdoor Channel, Comcast Chattanooga and the Chattanooga Chapter
of Safari Club International (SCI), teamed up with the Chattanooga
Community Kitchen for the area's first annual ``Sportsmen Against
Hunger'' event. This event was held this past October when local
outdoor enthusiasts joined together to serve meals to the hungry.
Together, we fed more than 300 people with donated food from local area
residents. We can cite dozens of other similar local community
examples, including our sponsorship with Comcast for the Eastern Sports
& Outdoor Show, which attracted more than 800,000 outdoor enthusiasts
and provided a significant economic boost for the host City of
Harrisburg, Pennsylvania as well as the thousands of retailers
associated with the event.
With our long history working with Comcast, we have no doubts about
its commitment to serving the public interest and working with
independent programmers like Outdoor Channel. We've negotiated with
Comcast for carriage in the past and expect that under this combined
company, our carriage relationship will remain intact and unobstructed,
and in no way impact any potential future negotiations. We expect the
same as it relates to our community service initiatives and only hope
that under a merged entity there will be additional new opportunities
to develop and distribute Outdoor Channel content on Comcast Systems.
Sincerely,
Roger L. Werner,
President and Chief Executive Officer,
Outdoor Channel.
cc: Senator John F. Kerry, Chairman, Subcommittee on Communications and
Technology
Senator John Ensign, Ranking Member, Subcommittee on Communications and
Technology
______
REELZCHANNEL
Albuquerque, NM, March 10, 2010
Hon. Jay D. Rockefeller IV,
Chairman,
Committee on Commerce, Science, and Transportation,
U.S. Senate,
Washington, DC.
Hon. Kay Bailey Hutchison,
Ranking Member,
Committee on Commerce, Science, and Transportation,
U.S. Senate,
Washington, DC.
Re: Testimony of Stanley E. Hubbard Before the Commerce Committee of
the U.S. Senate
Dear Chairman Rockefeller and Ranking Member Hutchison:
I appreciate this opportunity to share my perspective on the impact
Comcast has had on independent cable and satellite networks attempting
to gain acceptance and distribution in an increasingly crowded and
competitive environment. Quite simply, without Comcast's support,
REELZCHANNEL would probably never have been launched and would
certainly not be approaching its fourth anniversary and the critical 50
million subscriber mark.
REELZCHANNEL is an independent cable and satellite network that is
all about movies, the way Food Network, for example, is all about food.
In fact, our tagline is TV ABOUT MOVIES* Hubbard Broadcasting,
REELZCHANNEL's parent company, developed the channel's concept starting
in 2000, refining the underlying idea, business premise and focus for
more than a year before introducing the channel concept to the
distribution marketplace, which includes cable and satellite.
By way of background, Hubbard pioneered the Direct Broadcasting
Satellite (DBS) industry in 1994, when it introduced the Digital
Satellite System, in cooperation with DIRECTV, through its subsidiary
U.S. Satellite Broadcasting (USSB). With USSB, we were a distributor of
movie-driven services such as HBO and Showtime, and experienced first
hand our subscribers' love affair with movies and the need for a
service that would help viewers learn about and find more movies (in
all windows of release) that would match their interests.
Our business strategy with REELZCHANNEL was simple: we knew it was
a difficult environment for new channels--especially independent
channels not associated with large programming companies that have the
ability to leverage their existing channels and business relationships
into new channel launches of their own. We felt that, unlike other
independents that had launched and failed over the years, it was
important to get as many distribution agreements completed as possible
PRIOR to committing to the massive expenditures required to launch and
operate a national television network.
To that end, in the summer of 2001, we first reached out to
Comcast, then a recent and former competitor to our USSB, for an
initial meeting with their top programming executives who welcomed us
to their Philadelphia headquarters within weeks of our request. At that
initial meeting, to a person, they were respectful of us as individuals
and, in fact, enthusiastic about our ideas for REELZCHANNEL. They were
also clear that since this was a first meeting it would take some time
for us to prove our viability and to get to the point of entering into
an actual distribution agreement, especially since we weren't launched
yet and didn't yet have a target date for launch. But they did make
specific suggestions on how to keep the process in forward motion:
First, they encouraged us to present our ideas to some of their key
people at systems and divisions in the field so that those folks could
feed back their thoughts and ideas to the corporate programming
department; and second, they asked us to keep them informed as we got
closer to establishing an actual launch date, as well as our status in
getting agreements done with other distributors around the country.
We followed their advice, kept them informed of our progress toward
launch, and did our diligence in the field. Over a period of 24 months
we visited all of their key systems and divisions, and without
exception we were met with helpful, interested people who encouraged us
to press for a distribution agreement at the corporate level. Further,
the Comcast people in the field provided detailed feedback to their
corporate programming department about REELZCHANNEL.
In 2004, Comcast programming executives orally agreed to enter into
a distribution agreement with REELZCHANNEL and, over the following
months, both sides negotiated in good faith, and executed a final
agreement in September of 2005. Our agreement with Comcast was
completed more than a year in advance of our actual launch, and proved
to be a critical milestone for REELZCHANNEL because it demonstrated to
the rest of the industry that Comcast was behind us and had vetted us
as being viable. It is important to note that, as is the usual case, no
specific commitments were made by Comcast in terms of distribution of
our channel. Instead, we were granted what is known as a ``hunting
license,'' essentially a ``right'' for us to approach their systems one
by one, and, if those systems were truly interested, they could go
ahead and launch us pending the approval of the division and corporate
office that oversaw them.
The Comcast agreement was also very important to the Hubbard
Broadcasting board of directors in deciding whether to authorize the
new business investment needed to launch REELZCHANNEL. Our financial
model required distribution from both cable and satellite in order to
be successful and an early distribution agreement with Comcast added
significantly to our board's confidence in our ability to secure mass
cable distribution as an important part of our business imperatives.
Comcast has continued to play an important and straightforward role
in REELZCHANNEL's development. The Comcast system in Minneapolis/Saint
Paul became the first major metropolitan cable system to launch
REELZCHANNEL coincidental with our launch in September, 2006. Today
almost five million Comcast subscribers receive REELZCHANNEL as part of
their subscription, including those located in large cities such as
Chicago, Detroit, Boston, Atlanta, Houston and Miami, to name a few. We
continue to work with Comcast's division and system management and are
hopeful that in the next 12 to 24 months we will launch our service in
systems in Seattle, Portland, Denver, Washington, D.C., and the San
Francisco Bay area, among others. To date, in every instance of a local
system wanting to launch REELZCHANNEL, Comcast corporate programming
executives have approved the launch request.
Comcast continues to support the independent REELZCHANNEL by adding
us to more and more of their systems, even though the demands on
bandwidth for both cable and satellite have continued to increase
substantially since our initial meeting in 2001. The increasing demands
on bandwidth are due to the rapid evolution of HDTV, high speed
Internet services, telephony, expanded business services, the broadcast
digital transition and more channels being introduced by large
programming companies with the ability to leverage even the largest
operators into launch commitments for their new channels. Comcast
officials have always been clear on the realities of the changing
environment and also clear on how we need to sharpen and shape our
vision for our network so that REELZCHANNEL could become an even more
compelling proposition. Accordingly, today, we are engaged in
discussions with Comcast on a number of fronts. At their urging we have
developed video-on-demand content for Comcast, and other distributors,
that ties into and promotes our brand. They are also working with us on
a 2010 roll-out of a high definition version of REELZCHANNEL and
Comcast systems are enthusiastic participants in our big summer
consumer promotion: The Guaranteed Movie Recommendation.
In summary, we could not be more appreciative of the advice and
support we have received from Comcast for the launch and development of
our independent cable network, REELZCHANNEL. We have found the people
at Comcast to be universally supportive of REELZCHANNEL ever since our
initial conversations almost 9 years ago. Comcast personnel at the
corporate headquarters and in the field across the Nation are
consistently accessible, openly communicative to us and organized in a
way that provides guidance, creative suggestions and committed follow-
up to help our business grow with them. We truly feel there is a
commitment to our growth and economic well-being that is built on a
sense of overall fairness and continuing mutual respect.
The strength of our relationship is demonstrated by the steady
stream of Comcast systems which continue to launch REELZCHANNEL. We
believe that this relationship will remain strong in the future and we
do not believe that the NBCU/Comcast merger will in any way affect that
relationship or commitment to success of our independent network,
REELZCHANNEL.
Thank you for the opportunity to provide these insights. If you
have any other questions, please contact me directly.
Yours most respectfully,
Stanley E. Hubbard,
President and CEO.
Senator Kerry. And we thank you very much for coming today.
We would like to have a seamless transition. If we could
ask the next panel just to come up very quickly?
We welcome Mr. Brian Roberts, Chairman, CEO of Comcast
Corporation; Mr. John Wells, President of the Writers Guild of
America, West; Dr. Mark Cooper, Director of Research, Consumer
Federation of America; Ms. Colleen Abdoulah, President and CEO
of WOW! Internet, Cable and Phone; and Mr. Christopher Yoo,
Professor of Law and Communication at the University of
Pennsylvania.
Could we have order, please? And everybody take their seats
rapidly.
Senator Dorgan, or who is going to be--Senator Dorgan is
going to chair.
Senator Dorgan [presiding]. Why don't we begin? First of
all, apologies to you. We have the FAA bill that this committee
has written on the floor of the Senate, and so, a number of us
are there and in other hearings as well. But I appreciate very
much the witnesses on this panel coming to the Committee to
testify.
We have Mr. Brian Roberts, Chairman and CEO of Comcast
Corporation. I believe that Senator Rockefeller has properly
identified all of those on this panel. So I will not do that
again.
Why don't we begin, Mr. Roberts, with you? And as has been
the case with all witnesses, the full statement will be made a
part of the permanent record, and we would ask the witnesses to
summarize.
Mr. Roberts, you may proceed.
STATEMENT OF BRIAN L. ROBERTS, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER, COMCAST CORPORATION
Mr. Roberts. Thank you, Mr. Chairman.
It is a privilege to come here today and talk about
Comcast's planned joint venture with GE regarding NBC
Universal. My father, Ralph, seated behind me, started Comcast,
as we heard, almost half a century ago with a single small
cable system in Tupelo, Mississippi. And together, we have been
able to build a national cable broadband and communications
company, employing nearly 100,000 people.
So in proposing to combine with NBC Universal, we are
taking the next step in our improbable journey. I am proud of
what we have been able to accomplish and especially pleased
that my father is here with me today to share this important
moment in Comcast history.
Let me first briefly summarize the transaction. Under our
agreement, Comcast will become the 51 percent owner and manager
of NBC Universal. GE will still own 49 percent. We will create
a new venture that combines NBCU's broadcast TV, cable
programming, movie studio, and theme park businesses with
Comcast limited video programming channels.
The transaction puts two great American media and
entertainment companies under one roof. It will help to deliver
more diverse programming to millions of households, and it will
also help to accelerate a truly amazing digital future for
consumers.
Together, Comcast and NBCU can help accelerate the delivery
of anytime, anywhere multiplatform video experience Americans
want. In combination, we will be a more creative and innovative
company, and our success will stimulate our competitors to be
more innovative, too. So this joint venture will be good for
consumers, innovation, and competition.
To leave no doubt about the benefits of the new NBCU, we
have made a series of public interest commitments in writing,
detailing how we will bring more local programming, more
children's programming, and more diverse programming on more
platforms. We have also made commitments to reassure our
competitors that we will compete fairly in the marketplace. Let
me offer two quick examples.
First, we volunteer to have the key components of the
program access rules apply to our retransmission negotiations
for NBC stations, even though those rules have never applied to
retransmission consent negotiations.
Second, we want independent programmers with quality and
diverse content to know we are committed to help them reach an
audience. So we have committed to add at least two new
independently owned cable channels to our system every year
beginning in 2011.
Bringing NBCU and Comcast together is primarily a vertical
combination. There is no significant overlap between the assets
of the two companies. A vertical combination generally poses
fewer competitive concerns. That also means no massive lay-
offs, no closure of facilities, nothing to produce hundreds of
millions of dollars of ``synergies.''
This is why some on Wall Street did not fall in love with
this deal right away, but it is also why we believe Washington
can. Because we will grow these great American businesses over
the long term and make them more successful, not cut them.
Congress has recognized the benefits of vertical
integration before and adopted rules in 1992 to address
potential risks. At that time, there was almost no competition
to cable. More than half the channels were owned by cable
companies. So Congress created program access and program
carriage rules to ensure that a company which owns both cable
content and distribution cannot treat competitors unfairly.
Those rules have worked in the past and will work in the
future, and we are willing to discuss with the FCC having the
program access rules bind us even if they were to be overturned
by the courts.
In the past decade, Comcast has come to Washington twice to
seek merger approvals, when we acquired cable systems from AT&T
and Adelphia. Each time, we explained how consumers would
benefit, and in each case, I believe we have delivered.
We have spent billions of dollars upgrading cable systems
to make them state-of-the-art. We created On Demand, which our
customers have used 14 billion times. And from a standing start
4 years ago, we now give millions of Americans their first real
phone choice. We have created thousands of jobs and promoted
diversity in our workforce. Once again, we have described how
consumers will benefit, and I want to assure you that we will
deliver.
Mr. Chairman, we are asking for the opportunity to make one
of the great icons of American broadcasting and communications
part of the Comcast family. We promise to be reliable stewards
for the national treasures of NBC and NBC News. It is a
breathtaking and humbling moment in our history, and we hope to
have your support.
Thank you very much.
[The prepared statement of Mr. Roberts follows:]
Prepared Statement of Brian L. Roberts, Chairman
and Chief Executive Officer, Comcast Corporation
Mr. Chairman, and members of the Committee, I am pleased to appear
before you today to discuss Comcast Corporation's (``Comcast'') planned
joint venture with General Electric Company (``GE''), under which
Comcast will acquire a majority interest in and management of NBC
Universal (``NBCU''). The proposed transaction will combine in a new
joint venture the broadcast, cable programming, movie studio, theme
park, and online content businesses of NBCU with the cable programming
and certain online content businesses of Comcast. This content-focused
joint venture will retain the NBCU name. And I believe the new NBCU
will benefit consumers and will encourage much-needed investment and
innovation in the important media sector.
How will it benefit consumers?
First, the new venture will lead to increased investment in NBCU by
putting these important content assets under the control of a company
that is focused exclusively on the communication and entertainment
industry. This will foster enhanced investment in both content
development and delivery, enabling the new NBCU to become a more
competitive and innovative player in the turbulent and ever-changing
media world. Investment and innovation will also preserve and create
sustainable media and technology jobs in the U.S.
Second, the transaction will promote the innovation, content, and
delivery that consumers want and demand. The parties have made
significant commitments in the areas of local news and information
programming, enhanced programming for diverse audiences, and more
quality educational and other content for children and families.
And finally, Comcast's commitment to preserve NBCU's journalistic
independence and to sustain and invest in the NBC broadcast network
will promote the quality news, sports, and diverse programming that
have made this network great over the last 50 years. I discuss these
specific and verifiable public interest commitments later in this
testimony; for a summary of all voluntary commitments, see Attachment
1.
The new NBCU will advance key communications policy goals of
Congress: diversity, localism, innovation, and competition. With
Comcast's demonstrated commitment to investment and innovation in
communications, entertainment, and information, the new NBCU will be
able to increase the quantity, quality, diversity, and local focus of
its content, and accelerate the arrival of the multiplatform,
``anytime, anywhere'' future of video programming that Americans want.
Given the intensely competitive markets in which Comcast and NBCU
operate, as well as existing law and regulations, this essentially
vertical transaction will benefit consumers and spur competition, and
will not present any potential harm in any marketplace.
NBCU, currently majority-owned and controlled by GE, is an American
icon--a media, entertainment, and communications company with a storied
past and a promising future. At the heart of NBCU's content production
is the National Broadcasting Company (``NBC''), the Nation's first
television broadcast network and home of one of the crown jewels of
NBCU, NBC News. NBCU also has two highly regarded cable news networks,
CNBC and MSNBC. In addition, NBCU owns Telemundo, the Nation's second-
largest Spanish-language broadcast network, with substantial Spanish-
language production facilities located in the U.S. NBCU's other assets
include 26 local broadcast stations (10 NBC owned-and-operated stations
(``O&Os''), 15 Telemundo O&Os, and one independent Spanish-language
station), numerous national cable programming networks, a motion
picture studio with a library of several thousand films, a TV
production studio with a library of television series, and an
international theme park business.
Comcast, a leading provider of cable television, high-speed
Internet, digital voice, and other communications services to millions
of customers, is a pioneer in enabling consumers to watch what they
want, when they want, where they want, and on the devices they want.
Comcast is primarily a distributor, offering its customers multiple
delivery platforms for content and services. Although Comcast owns and
produces some cable programming channels and online content, Comcast
owns relatively few national cable networks, none of which is among the
30 most highly rated, and, even including its local and regional
networks, Comcast accounts for a tiny percentage of the content
industry. The majority of these content businesses will be contributed
to the joint venture. The distribution side of Comcast (referred to as
``Comcast Cable'') is not being contributed to the new NBCU and will
remain under Comcast's ownership and control.
The proposed transaction is primarily a vertical combination of
NBCU's content with Comcast's multiple distribution platforms.
Antitrust law, competition experts, and the FCC have long recognized
that vertical combinations can produce significant benefits. They also
have found that vertical combinations with limited horizontal overlaps
generally do not threaten competition.
The transaction takes place against the backdrop of a
communications and entertainment marketplace that is highly dynamic and
competitive, and becoming more so every day. NBCU--today and post-
transaction--faces competition from a large and growing roster of
content providers. There are literally hundreds of national television
networks and scores of regional networks. These cable networks compete
for programming, for viewer attention, and for distribution on various
video platforms, not only with each other but also with countless other
video choices.
In addition, content producers increasingly have alternative
outlets available to distribute their works, free from any purported
``gatekeeping'' networks or distributors. Today, NBCU has powerful
marketplace incentives to purchase the best available programming,
regardless of source. NBCU's programming schedule bears this out. Last
week, third parties accounted for well over half of the 47 primetime
(8-11pm) programs on NBC and its major cable channels (USA, Bravo,
Oxygen, and SyFy). Post-transaction, the new NBCU will have the
incentive and the financial resources to compete effectively with other
leading content providers such as Disney/ABC, Time Warner, Viacom, and
News Corp. by providing consumers the high-quality programming they
want, and it will have no incentive--or ability--to restrict
competition or otherwise harm the public interest.
Competition is fierce among distributors as well. Today, consumers
in every geographic area have multiple choices of multichannel video
programming distributors (``MVPDs'') and can also obtain video content
from many non-MVPDs. In addition to the local cable operator, consumers
can choose from two MVPDs offering direct broadcast satellite (``DBS'')
service--DirecTV and Dish Network--which are now the second and third
largest MVPDs in America, respectively. Verizon and AT&T, along with
other wireline overbuilders, are strong, credible competitors, offering
a fourth MVPD choice to tens of millions of American households and a
fifth choice to some. Indeed, as competition among MVPDs has grown,
Comcast's nationwide share of MVPD subscribers has steadily decreased
(it is now less than 25 percent, a share that the FCC has repeatedly
said is insufficient to allow an MVPD to engage in anticompetitive
conduct). Moreover, current market dynamics are more telling than
static measures of market shares; over the past 2 years, Comcast lost
more than 1.2 million net video subscribers while its competitors
continued to add subscribers--DirecTV, Dish Network, AT&T, and Verizon
added more than 7.6 million net video customers over the same time
period.
Consumers can also access high-quality video content from myriad
other sources. Some households continue to receive their video through
over-the-air broadcast signals, which have improved in quality and
increased in quantity as a result of the broadcast digital television
transition. Millions of households purchase or rent digital video discs
(``DVDs'') from one of thousands of national, regional, or local retail
outlets, including Walmart, Blockbuster, and Hollywood Video, as well
as Netflix, MovieCrazy, Cafe DVD, and others who provide DVDs by mail.
High-quality video content also is increasingly available from a
rapidly growing number of online sources that include: Amazon, Apple
TV, Blinkx, Blip.tv, Boxee, Clicker.com, Crackle, Eclectus, Hulu,
iReel, iTunes, Netflix, Sezmi, SlashControl, Sling, Vevo, Vimeo, VUDU,
Vuze, Xbox, YouTube--and many more. These sites offer consumers
historically unprecedented quantities of professionally-produced
content and user-generated content that can be accessed from a variety
of devices, including computers, Internet-equipped televisions,
videogame boxes, Blu-ray DVD players, and mobile devices. In addition,
there is a huge supply of user-generated video content, including
professional and quasi-professional content. YouTube, for example,
which is by far the leader in the nascent online video distribution
business, currently receives and stores virtually an entire day's worth
of video content for its viewers every minute. And there are no
significant barriers to entry to online video distribution. Thus,
consumers have a staggering variety of sources of video content beyond
Comcast and its rival MVPDs.
The video marketplace truly has no gatekeepers. As the United
States Court of Appeals for the D.C. Circuit observed last year,
``[T]he record is replete with evidence of ever increasing competition
among video providers: Satellite and fiber optic video providers have
entered the market and grown in market share since the Congress passed
the 1992 [Cable] Act, and particularly in recent years. Cable
operators, therefore, no longer have the bottleneck power over
programming that concerned the Congress in 1992. Second, over the same
period there has been a dramatic increase both in the number of cable
networks and in the programming available to subscribers.''
The combination of NBCU and Comcast's content assets under the new
NBCU--coupled with management of the new NBCU by Comcast, an
experienced, committed distribution innovator--will enable the creation
of new pathways for delivery of content to consumers on a wide range of
screens and platforms. The companies' limited shares in all relevant
markets, fierce competition at all levels of the distribution chain,
and ease of entry for cable and online programming ensure that the risk
of competitive harm is insignificant. Moreover, the FCC's rules
governing program access, program carriage, and retransmission consent
provide further safeguards for consumers, as do the additional public
interest commitments the companies have made to the FCC.
At the same time, the transaction's public interest benefits--
particularly for the public interest goals of diversity, localism,
competition, and innovation--are substantial. Through expanded access
to outlets, increased investment in outlets, and lower costs, the new
venture will be able to increase the amount, quality, variety, and
availability of content, thus promoting diversity. This includes
content of specific interest to diverse audiences, children and
families, women, and other key audience segments. While NBCU and
Comcast both already have solid records in creating and distributing
diverse programming, the transaction will enable the new NBCU to expand
the amount, quality, variety, and availability of content more than
either company could do on its own. The new venture will also be able
to provide more and better local programming, including local news and
information programming, thereby advancing localism. The new NBCU and
Comcast will be more innovative and effective players in video
programming and distribution, spurring other content producers and
distributors to improve their own services, thus enhancing competition.
Marrying NBCU's programming assets with Comcast's multiple distribution
platforms will make it easier for the combined entity to experiment
with new business models that will better serve consumers, thus
promoting innovation.
In addition, Comcast and NBCU have publicly affirmed their
continuing commitment to free, over-the-air broadcasting. Despite a
challenging business and technological environment, the proposed
transaction has significant potential to invigorate NBCU's broadcasting
business and expand the important public interest benefits it provides
to consumers across this country. NBC, Telemundo, their local O&Os, and
their local broadcast affiliates will benefit by having the full
support of Comcast, a company that is focused entirely on
entertainment, information, and communications and that has strong
incentives--and the ability--to invest in and grow the broadcast
businesses it is acquiring, in partnership with the local affiliates.
Moreover, combining Comcast's expertise in multiplatform content
distribution with NBCU's extensive content creation capabilities and
video libraries will not only result in the creation of more and better
programming, but will also encourage investment and innovation,
accelerating the arrival of the multiplatform, ``anytime, anywhere''
future of video programming that Americans want. This is because the
proposed transaction will remove negotiation friction that currently
inhibits the ability of Comcast to implement its pro-consumer vision of
multiplatform access to quality video programming. Post-transaction,
Comcast will have access to more content that it can make available on
a wider range of platforms, including the new NBCU's national and
regional networks and Comcast's cable systems and video-on-demand
(``VOD'') platform, and online. This increase in the value of services
offered to consumers by the new company will stimulate competitors--
including non-affiliated networks, nonaffiliated MVPDs, and the large
and growing roster of participants in the video marketplace--to improve
what they offer to consumers.
The past is prologue: Comcast sought for years to develop the VOD
business, but it could not convince studio distributors--who were
reluctant to permit their movies to be distributed on an emerging,
unproven platform--to provide compelling content for VOD. This caution,
though understandable in light of marketplace uncertainty, slowed the
growth of an innovative and extremely consumer-friendly service.
Comcast finally was able to overcome the contractual wrangling and
other industry reluctance to participate in an innovative business
model when it joined with Sony to acquire an ownership interest in
Metro-Goldwyn-Mayer (``MGM''). This allowed Comcast to ``break the
ice'' and obtain access to hundreds of studio movies that Comcast could
offer for free on VOD. Thanks to Comcast's extensive efforts to foster
the growth of this new technology, VOD has become very popular with
consumers since it was invented in 2003--the same year Apple unveiled
the iTunes Music Store. Comcast customers have now used Comcast's VOD
service more than 14 billion times--that's over 40 percent more than
the number of downloads that consumers have made from the iTunes Store
since 2003. By championing the growth of VOD, Comcast has been able to
benefit not only its customers but also program producers, and it has
stimulated other MVPDs to embrace the VOD model.
Similarly, there is every reason to believe that the transaction
proposed here will create a pro-consumer impetus for making major
motion pictures available sooner for in-home, on-demand viewing and for
sustainable online video distribution--which, as the FCC has observed,
will help to drive broadband adoption, another key Congressional goal.
Comcast and the new NBCU will also be well positioned to help lead
constructive efforts to develop consensus solutions to the problem of
content piracy. NBCU has been a leading voice in the effort to reduce
piracy in all its forms because it costs American jobs and trade
opportunities. Comcast has consistently supported voluntary industry
initiatives to deter piracy, educate consumers about copyright, and
redirect them to legitimate sources of content. Together, the companies
will redouble their efforts to persuade all stakeholders to work
together on the problem, while ensuring that consumer privacy and due
process are always respected.
As noted above, the risk of competitive harm in this transaction is
insignificant. Viewed from every angle, the transaction is pro-
competitive:
First, combining Comcast's and NBCU's programming assets will give
rise to no cognizable competitive harm. Even after the transaction,
approximately six out of every seven channels carried by Comcast Cable
will be unaffiliated with Comcast or the new NBCU. Comcast's national
cable programming networks account for only about 3 percent of total
national cable network advertising and affiliate revenues. While NBCU
owns a larger number of networks, those assets account for only about 9
percent of overall national cable network advertising and affiliate
revenues. Therefore, in total, the new NBCU will account for only about
12 percent of total national cable network advertising and affiliate
revenues. The new NBCU will rank as the fourth largest owner of
national cable networks (measured by total revenues), behind Disney/
ABC, Time Warner, and Viacom--which is the same rank that NBCU has
today. Because both the cable programming market and the broader video
programming market will remain highly competitive, the proposed
transaction will not reduce competition or diversity, nor will it lead
to higher programming prices to MVPDs, higher advertising prices to
advertisers, or higher retail prices to consumers.
Second, Comcast's management and ownership interests in NBCU's
broadcast properties raise no regulatory or competitive concern. While
Comcast will own both cable systems and a stake in NBC owned-and-
operated broadcast stations in a small number of Designated Market
Areas (``DMAs''), the FCC's rules do not prohibit such cross-ownership,
nor is there any policy rationale to disallow such relationships.
Cross-ownership prohibitions that had been put in place decades ago
have been repealed by actions of Congress, the courts, and the FCC. The
case for any new prohibition, or any transaction-specific restriction,
on cable/broadcast cross-ownership is even weaker today, given the
increasingly competitive market for the distribution of video
programming and robust competition in local advertising. And,
importantly, each of the major DMAs in question has a significant
number of media outlets, with at least seven non-NBCU over-the-air
television stations in each DMA, as well as other media outlets,
including radio. Thus, numerous diverse voices and a vibrantly
competitive local advertising environment will remain following the
combination of NBCU's broadcast stations and Comcast cable systems in
each of the overlap DMAs. Indeed, as Professor Matthew Spitzer of the
University of Southern California noted in expert testimony submitted
to the FCC, ``[t]here is nothing in the fundamentally vertical
structure of this transaction that would reduce the number of
independent broadcast voices in any local market. After the
transaction, all of NBCU's O&O broadcast stations will continue to
operate and provide local news and other local programming. There is no
consolidation of broadcast assets within any local markets as a
consequence of this transaction.'' See Attachment 2, ``Expert
Declaration of Matthew L. Spitzer Concerning Diversity and Localism
Issues Associated with the Proposed Comcast-NBCU Transaction,'' January
26, 2010, at 8.
Third, the combination of Comcast's and NBCU's Internet properties
similarly poses no threat to competition. There is abundant and growing
competition for online video content. The dominant leader in online
viewing (by far) is Google (through YouTube and other sites it has
built or acquired), with nearly 55 percent of online video viewing.
This puts Google well ahead of Microsoft, Viacom, and Hulu (a service
in which NBCU holds a 32 percent, non-controlling interest), and even
farther ahead of Fancast (operated by Comcast, and currently at well
below one percent). All of these services competing with Google have
low- or mid-single digits shares of online video viewing. There are
countless other sites that provide robust competition and near-infinite
consumer choice. Even if one restricts the analysis to ``professional''
online video content, the combined entity will still have a small share
and face many competitors. On the Internet, content providers
essentially control their own destinies since there are many third-
party portals as well as self-distribution options. Entry is easy.
Thus, the transaction will not harm the marketplace for online video.
Finally, a vertical combination cannot have anticompetitive effects
unless the combined company has substantial market power in the
upstream (programming) or downstream (distribution) market, and such
circumstances do not exist here. As noted, the video programming, video
distribution, and Internet businesses are fiercely competitive, and the
proposed transaction does not reduce that competition. The recent
history of technology demonstrates that distribution platforms are
multiplying, diversifying, and increasingly rivalrous. Wired services
have been challenged by both satellite and terrestrial wireless
services. Cable has brought voice competition to the telephone
companies; the telephone companies have added to the video competition
that cable already faced; and both cable and phone companies are racing
to deploy and improve broadband Internet. Static descriptions of
markets have consistently failed to capture advances in distribution
technologies. In this highly dynamic and increasingly competitive
environment, speculative claims about theoretical problems arising from
any particular combination should be subject to searching and skeptical
scrutiny, given the accelerating power of technology to disrupt,
continuously, all existing market structures.
In any event, there is a comprehensive regulatory structure already
in place, comprising the FCC's program access, program carriage, and
retransmission consent rules, as well as an established body of
antitrust law that provides further safeguards against any conceivable
vertical harms that might be presented by this transaction. The program
access and program carriage rules address different aspects of the
relationship between networks and MVPDs, and the retransmission consent
rules address aspects of the relationship between MVPDs and
broadcasters.
In a nutshell, the program access rules govern the process by which
a satellite-delivered cable programming network that is affiliated with
a cable operator sells its programming to MVPDs. These rules generally
prohibit a cable operator from: (i) unreasonably influencing whether an
affiliated network sells its programming to an unaffiliated MVPD (or
the terms on which it does so), (ii) unreasonably discriminating in the
prices, terms, and conditions of carriage arrangements among competing
MVPDs, and (iii) establishing exclusive contracts between satellite-
delivered cable-affiliated programming networks and any cable operator.
The program carriage rules apply to the process by which a cable
operator--or any other MVPD--buys cable programming from unaffiliated
programmers. These rules generally prohibit MVPDs from: (i) requiring
an equity interest in a program network as a condition of carriage;
(ii) coercing an unaffiliated program network to provide (or punishing
an unaffiliated program network for not providing) exclusive rights as
a condition of carriage; and (iii) unreasonably restraining the ability
of an unaffiliated program network to compete fairly by discriminating
on the basis of affiliation in the selection, terms, or conditions for
carriage.
The retransmission consent rules generally require that
broadcasters and MVPDs bargain in good faith over retransmission
consent (i.e., the right to retransmit a broadcaster's signal). Like
the program access rules, the good-faith bargaining rules generally ban
exclusivity and unreasonable discrimination.
Although the competitive marketplace and regulatory safeguards
protect against the risk of anticompetitive conduct, the companies have
offered an unprecedented set of commitments to provide assurances that
competition will remain vibrant. Comcast will commit voluntarily to
extend the key components of the FCC's program access rules to
negotiations with MVPDs for retransmission rights to the signals of NBC
and Telemundo O&O broadcast stations for as long as the FCC's current
program access rules remain in place (and Comcast has expressed a
willingness to discuss with the FCC making the program access rules
binding on it even if the rules were to be overturned by the
courts).\1\ Of particular note, Comcast will be prohibited in
retransmission consent negotiations from unduly or improperly
influencing the NBC and Telemundo stations' decisions about whether to
sell their programming, or the terms and conditions of sale, to non-
affiliated distributors. It would also shift to NBCU the burden of
justifying any differential pricing between competing MVPDs. And the
companies would accept the five-month ``shot clock'' that the
Commission applies to program access adjudications that is intended to
expedite resolution.
---------------------------------------------------------------------------
\1\ In October 2007, the FCC released an Order extending for an
additional 5 years the ban on exclusive contracts between vertically
integrated programmers and cable operators--the one portion of the
program access rules that Congress had slated to sunset in 2002. On
appeal, Cablevision and Comcast have argued that the FCC applied an
incorrect standard governing the circumstances under which the FCC may
prevent the exclusivity rule from sunsetting automatically; and that
the FCC was required to let the rule sunset, or at least narrow it.
Comcast was motivated in large part by the inequity of applying an
anti-exclusivity rule to cable, while our satellite competitors are
able to use exclusive programming contracts against us. Oral argument
was held on September 22, 2009. Contrary to the claims of some outside
parties, Comcast has not challenged all of the features of the program
access rules in this litigation or asserted that the exclusivity ban,
or any other portion of the program access rules, is unconstitutional.
Rather, we have challenged only the extension of the exclusivity ban,
and have reminded the FCC and the courts that they must take the First
Amendment into account when they make, review, or apply the program
access rules.
---------------------------------------------------------------------------
Moreover, the companies have offered concrete and verifiable
commitments to ensure certain pro-consumer benefits of the transaction.
In addition to the commitment to continue to provide free, over-
the-air broadcasting, mentioned previously, the companies have
committed that following the transaction, the NBC O&O broadcast
stations will maintain the same amount of local news and information
programming they currently provide for 3 years following the closing of
the transaction and will produce an additional 1,000 hours per year of
local news and information programming for distribution on various
platforms. The combined entity will maintain NBCU's tradition of
independent news and public affairs programming and its commitment to
promoting a diversity of viewpoints, maintaining the journalistic
integrity and independence of NBCU's news operations.
The companies also have committed that, within 12 months of closing
the transaction, Telemundo will launch a new Spanish language digital
broadcast channel drawing on programming from Telemundo's library.
Additionally, Comcast will use its On Demand and On Demand Online
platforms to increase programming choices available to children and
families, as well as to audiences for Spanish-language programming.
Within 3 years of closing the transaction, Comcast has committed to add
1,500 additional programming choices appealing to children and families
and 300 additional programming choices from Telemundo and mun2 to its
VOD platforms. Comcast also will continue to provide free or at no
additional charge the same number of VOD choices that it now provides,
and will make available within 3 years of closing an additional 5,000
VOD choices over the course of each month that are available free or at
no additional charge.
As Comcast makes rapid advances in video delivery technologies,
more channel capacity will become available. So Comcast will commit
that, once it has completed its digital migration company-wide
(anticipated to be no later than 2011), it will add two new
independently-owned and -operated channels to its digital line-up each
year for the next 3 years on customary terms and conditions.
Independent programmers would be defined as networks that: (i) are not
currently carried by Comcast Cable, and (ii) are unaffiliated with
Comcast, NBCU, or any of the top 15 owners of cable networks, as
measured by revenues.
With respect to public, educational, and governmental (``PEG'')
channels, Comcast has affirmatively committed not to migrate PEG
channels to digital delivery on any Comcast cable system until the
system has converted to all-digital distribution, or until a community
otherwise agrees to digital PEG channels, whichever comes first.
Comcast has also committed to innovate in the delivery of PEG content
On Demand and On Demand Online.
The parties have proposed that these commitments be included in any
FCC order approving the transaction and become binding on the parties
upon completion of the transaction. A summary of the companies'
commitments is attached to this testimony.
In the end, the proposed transaction simply transfers ownership and
control of NBCU from GE, a company with a very diverse portfolio of
interests, to Comcast, a company with an exclusive focus on, and a
commitment to investing its resources in, its communications,
entertainment, and information assets. This transfer of control, along
with the contribution of Comcast's complementary content assets, will
enable the new NBCU to better serve consumers. The new NBCU will
advance key public policy goals: diversity, localism, competition, and
innovation. Competition, which is already pervasive in every one of the
businesses in which the new NBCU--and Comcast Cable--will operate,
provides abundant assurance that consumer welfare not just be
safeguarded, but increased. Comcast and NBCU will succeed by competing
vigorously and fairly.
We intend to use the combined assets to accelerate and improve the
range of choices that American consumers enjoy for entertainment,
information, and communications. We would welcome your support.
______
Attachment 1
Comcast/NBCU Transaction--Public Interest Commitments
Comcast, GE, and NBC Universal take seriously their
responsibilities as corporate citizens and share a commitment to
operating the proposed venture in a way that serves the pubic interest.
To demonstrate their commitment to consumers and to other media
partners, the parties have made a set of specific, written commitments
as part of their public interest filing with the Federal Communications
Commission. Comcast, GE, and NBCU are committed to expanding consumer
choice, ensuring the future of over-the-air broadcasting, enhancing
programming opportunities, ensuring that today's highly competitive
marketplace remains so, and maintaining journalistic independence for
NBC's news properties. The parties' commitment to these principles will
ensure that consumers are the ultimate beneficiaries of the proposed
Comcast/NBCU transaction.
Applicants' Voluntary Public Interest Commitments
Local Programming
Commitment #1. The combined entity remains committed to continuing
to provide free over-the-air television through its O&O broadcast
stations and through local broadcast affiliates across the Nation. As
Comcast negotiates and renews agreements with its broadcast affiliates,
Comcast will continue its cooperative dialogue with its affiliates
toward a business model to sustain free over-the-air service that can
be workable in the evolving economic and technological environment.
Commitment #2. Comcast intends to preserve and enrich the output of
local news, local public affairs and other public interest programming
on NBC O&O stations. Through the use of Comcast's On Demand and On
Demand Online platforms, time slots on cable channels, and use of
certain windows on the O&O schedules, Comcast believes it can expand
the availability of all types of local and public interest programming.
For 3 years following the closing of the transaction, NBC's
O&O stations will maintain the same amount of local news and
information programming that they currently provide.
NBC's O&O stations collectively will produce an additional
1,000 hours a year of local news and information programming.
This additional local content will be made available to
consumers using a combination of distribution platforms.
Children's Programming
Commitment #3. Comcast will use its On Demand and On Demand Online
platforms and a portion of the NBC O&Os' digital broadcast spectrum to
speak to kids. Comcast intends to develop additional opportunities to
feature children's content on all available platforms.
Comcast will add 500 VOD programming choices appealing to
children and families to its central VOD storage facilities
within 12 months of closing and will add an additional 1,000
such VOD choices (for a total of 1,500 additional VOD choices)
within 3 years of closing. (The majority of Comcast's cable
systems will be connected to Comcast's central VOD storage
facilities within 12 months of closing and substantially all
will be connected within 3 years of closing.) Comcast will also
make these additional choices available online to authenticated
subscribers to the extent that Comcast has the requisite online
rights.
For 3 years following closing, each of NBC's O&O stations
will provide one additional hour per week of children's
educational and informational programming utilizing one of the
station's multicast channels.
Commitment #4. Comcast reaffirms its commitment to provide clear
and understandable on-screen TV Ratings information for all covered
programming across all networks (broadcast and cable) of the combined
company, and to apply the cable industry's best-practice standards for
providing on-screen ratings information in terms of size, frequency,
and duration.
NBCU will triple the time that program ratings remain on the
air after each commercial break (from 5 seconds to 15 seconds).
NBCU will make program ratings information more visible to
viewers by using a larger format.
Commitment #5. In an effort to constantly improve the tools and
information available for parents, Comcast will expand its growing
partnership with Common Sense Media (``CSM''), a highly respected
organization offering enhanced information to help guide family viewing
decisions. Comcast will work to creatively incorporate CSM information
it its emerging On Demand and On Demand Online platforms and other
advanced platforms, and will look for more opportunities for CSM to
work with NBCU.
Comcast currently gives CSM content prominent placement on
its VOD menus. Comcast and the new NBCU will work with CSM to
carry across their distribution platforms more extensive
programming information and parental tools as they are
developed by CSM. Comcast and NBCU will explore cooperative
efforts to develop digital literacy and media education
programs that will provide parents, teachers, and children with
the tools and information to help them become smart, safe, and
responsible users of broadband.
Upon closing and pursuant to a plan to be developed with
CSM, Comcast will devote millions of dollars in media
distribution resources to support public awareness efforts over
the next 2 years to further CSM's digital literacy campaign.
The NBCU transaction will create the opportunity for CSM and
Comcast to work with NBCU's broadcast networks, local broadcast
stations, and cable networks to provide a targeted and
effective public education campaign on digital literacy,
targeting underserved areas, those with high concentrations of
low-income residents and communities of color, as well as
target Latino communities with specifically tailored Spanish-
language materials.
Programming for Diverse Audiences
Commitment #6. Comcast intends to expand the availability of over-
the-air programming to the Hispanic community utilizing a portion of
the digital broadcast spectrum of Telemundo's O&Os (as well as offering
it to Telemundo affiliates) to enhance the current programming of
Telemundo and mun2.
Within 12 months of closing the transaction, Telemundo will
launch a new Spanish language channel using programming from
Telemundo's library that has had limited exposure, to be
broadcast by each of the Telemundo O&O stations on one of their
multicast channels. The Telemundo network also will make this
new channel available to its affiliated broadcast stations on
reasonable commercial terms.
Commitment #7. Comcast will use its On Demand and On Demand Online
platforms to feature Telemundo programming.
Commitment #8. Comcast intends to continue expanding the
availability of mun2 on the Comcast Cable, On Demand, and On Demand
Online platforms.
Comcast will increase the number of VOD choices from
Telemundo and mun2 available on its central VOD storage
facilities from approximately 35 today, first to 100 choices
within 12 months of closing and then to a total of 300
additional choices within 3 years of closing. Comcast will also
make these additional choices available online to its
subscribers to the extent that it has the requisite online
rights.
Expanded Video On Demand Offerings At No Additional Charge
Commitment #9. Comcast currently provides approximately 15,000 VOD
programming choices free or at no additional charge over the course of
a month. Comcast commits that it will continue to provide at least that
number of VOD choices free or at no additional charge. In addition,
within 3 years of closing the proposed transaction, Comcast will make
available over the course of a month an additional 5,000 VOD choices
via its central VOD storage facilities for free or at no additional
charge.
Commitment #10. NBCU broadcast content of the kind previously made
available at a per-episode charge on Comcast's On Demand service and
currently made available at no additional charge to the consumer will
continue to be made available at no additional charge for the three-
year period after closing.
Public, Educational, and Governmental (``PEG'') Channels
Commitment #11. With respect to PEG channels, Comcast will not
migrate PEG channels to digital delivery on any Comcast cable system
until the system has converted to all-digital distribution (i.e., until
all analog channels have been eliminated), or until a community
otherwise agrees to digital PEG channels, whichever comes first.
Commitment #12. To enhance localism and strengthen educational and
governmental access programming, Comcast will also develop a platform
to host PEG content On Demand and On Demand Online within 3 years of
closing.
Comcast will select five locations in its service area to
test various approaches to placing PEG content on VOD and
online. Comcast will select these locations to ensure
geographic, economic and ethnic diversity, with a mix of rural
and urban communities, and will consult with community leaders
to determine which programming--public, educational and/or
governmental--would most benefit local residents by being
placed on VOD and online.
Comcast will file annual reports to inform the Commission of
progress on the trial and implementation of this initiative.
Carriage for Independent Programmers
Commitment #13. As Comcast makes rapid advances in video delivery
technologies, more channel capacity will become available. So Comcast
will commit that, once it has completed its digital migration company-
wide (anticipated to be no later than 2011), it will add two new
independently-owned and -operated channels to its digital line-up each
year for the next 3 years on customary terms and conditions.
New channels are channels not currently carried on any
Comcast Cable system.
Independent programmers are entities that are not affiliated
with Comcast, NBCU, or any of the top 15 owners of cable
networks (measured by revenue).
Expanded Application of the Program Access Rule Protections
Commitment #14. Comcast will commit to voluntarily accept the
application of program access rules to the high definition (HD) feeds
of any network whose standard definition (SD) feed is subject to the
program access rules for as long as the Commission's current program
access rules remain in place.
Commitment #15. Comcast will commit to voluntarily extend the key
components of the FCC's program access rules to negotiations with MVPDs
for retransmission rights to the signals of NBC and Telemundo O&O
stations for as long as the Commission's current program access rules
remain in place.
Comcast will be prohibited in retransmission consent
negotiations from unduly or improperly influencing the NBC and
Telemundo O&O stations' decisions about the price or other
terms and conditions on which the stations make their
programming available to unaffiliated MVPDs.
The ``burden shifting'' approach to proof of discriminatory
pricing in the program access rules will be applied to
complaints regarding retransmission consent negotiations
involving the NBC and Telemundo O&O stations.
The five-month ``shot clock'' applied to program access
adjudications would apply to retransmission consent
negotiations involving the NBC and Telemundo O&O stations.
Journalistic Independence
Commitment #16. The combined entity will continue the policy of
journalistic independence with respect to the news programming
organizations of all NBCU networks and stations, and will extend these
policies to the potential influence of each of the owners. To ensure
such independence, the combined entity will continue in effect the
position and authority of the NBC News ombudsman to address any issues
that may arise.
Labor-Management Relations
Commitment #17. Comcast respects NBCU's existing labor-management
relationships and expects them to continue following the closing of the
transaction. Comcast plans to honor all of NBCU's collective bargaining
agreements.
______
Attachment 2
Expert Declaration of Matthew L. Spitzer
Concerning Diversity and Localism Issues Associated with the Proposed
Comcast-NBCU Transaction--January 26, 2010
I. Introduction
1. At the request of Comcast Corporation (``Comcast''), I have
reviewed the proposed Comcast/General Electric (``GE'') transaction
relating to NBC Universal (``NBCU'') with a focus on the core public
interest concerns of diversity and localism that underlie the Federal
Communications Commission's (the ``Commission'') broadcast ownership
regulations.
2. Some critical commentary already surrounds the proposed
transaction, casting it as everything from a ``mega-merger'' \1\ to a
``juggernaut'' \2\ to a ``train wreck.'' \3\ Such discourse rings
hollow; familiar refrains and the automatic equation of ``big'' with
``bad'' media provide little insight into the Commission's
appropriately nuanced public interest inquiry. Instead, conceptualizing
the proposed transaction in the modern media marketplace requires
considered thought, and such an analysis shows that this transaction is
not the type of transaction that implicates the Commission's core
concern about a reduction in the diversity of voices. Thus, amidst
alarmist claims that the proposed transaction ``poses a genuine threat
to free expression and diversity of speech in our democratic society,''
\4\ I will calmly focus on the framework and core concerns of the
Commission's traditional public interest inquiry.
---------------------------------------------------------------------------
\1\ Press Release, Free Press, Comcast/NBC Universal Merger Bad for
the Public Interest (Oct. 13, 2009).
\2\ Id.
\3\ Josh Silver, Too Big to Block? Why Obama Must Stop the Comcast-
NBC Merger, the Huffington Post, Nov. 13, 2009, http://
www.huffingtonpost.com/josh-silver/too-big-to-block-why-
obam_b_356826.html.
\4\ The Editors, Should Consumers Fear the Comcast Deal?, N.Y.
Times, Dec. 8, 2009 (quoting Andrew Jay Schwartzman, President, Media
Access Project), http://roomfordebate.blogs.
nytimes.com/2009/12/08/should-consumers-fear-the-comcast-deal/
?pagemode=print.
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3. As discussed in detail below, I conclude that the proposed
transaction, representing a fundamentally vertical combination of a
content producer and a distributor, does not raise the traditional
diversity and localism concerns regarding media consolidation and the
reduction of local broadcast voices. As demonstrated herein, the
Commission has been very concerned about mergers that reduce diversity
of voices, such as the combination of two competing broadcast outlets,
two cross-service broadcast outlets, or a newspaper and broadcaster in
the same market.\5\ This is not that type of transaction.\6\
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\5\ See infra Part III.
\6\ I base my analysis on information provided to me by Comcast and
NBCU, from the Commission and other government agencies, and from
academic, journalistic, and foundation sources. Where I rely on such
information, I cite it here.
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II. Qualifications
4. I am a lawyer and an economist. I have a J.D. from the
University of Southern California (``USC'') and a Ph.D. in Social
Science from the California Institute of Technology (``Caltech''). I
currently hold joint appointments at USC, where I am a Professor of
Political Science and hold the Robert C. Packard Trustee Chair in Law,
and at Caltech, where I am a Professor of Law and Social Science.
Previously, from July 2000 through June 2006, I was Dean of the Gould
School of Law at USC.
5. Over the past 30 years, I have studied, taught, hosted
conferences, and written about the Commission's regulation of
broadcasting and cable television, including its regulation of media
ownership and concentration. I was the founding director of the USC
Center for Communication Law and Policy (http://cclp.usc.edu/) and in
that capacity I created and hosted many conferences and roundtables on
broadcasting and cable regulation. The topics ranged from a
retrospective on the deregulation of cable television to an evaluation
of sex and violence on television. In this capacity, I followed closely
the Commission, Congress, and the broadcasting and cable industries,
and categorized and evaluated the various arguments about media
ownership.
6. I currently teach Regulatory Policy and Administrative Law (at
USC), Introduction to Law (at Caltech), and a graduate course in Law
and Politics (at Caltech).
Previously during my academic career, I have taught Broadcasting
Regulation, Telecommunications Regulation, Antitrust Policy, Law and
Economics, Torts, Property, and Administrative Law.
7. I have published numerous books and articles on a variety of
legal and economic issues associated with Broadcast and Cable
Regulation.\7\ These include Public Policy Toward Cable Television
(1997, AEI/MIT Press, with Thomas Hazlett) and ``Television Mergers and
Diversity in Small Markets'' in the Journal of Competition Law and
Economics (forthcoming 2010). Finally, I have attached my curriculum
vitae, which includes a more formal list of my background, experience
and publications.
---------------------------------------------------------------------------
\7\ Seven Dirty Words and Six Other Stories: Controlling the
Content of Print and Broadcast (1986). Public Policy Toward Cable
Television (1997) (with Thomas Hazlett). Multicriteria Choice
Processes: An Application of Public Choice Theory to Bakke, the FCC,
and the Courts, 88 Yale L.J. 717 (1979). Radio Formats by
Administrative Choice, 47 U. Chi. L. Rev. 647 (1980). Controlling the
Content of Print and Broadcast, 58 S. Cal. L. Rev. 1349 (1985).
Broadcasting and the First Amendment, in 1 New Directions IN
Telecommunications Policy 155 (Paula R. Newberg ed., 1989). The
Constitutionality of Licensing Broadcasters, 64 N.Y.U. L. Rev. 990
(1989). Justifying Minority Preferences in Broadcasting, 64 S. Cal. L.
Rev. 293 (1990). Testing Minority Preferences in Broadcasting, 68 S.
CAL. L. REV. 841 (1995) (with Jeff Dubin). Dean Krattenmaker's Road Not
Taken: The Political Economy of Broadcasting in the Telecommunications
Act of 1996, 29 Conn. L. Rev. 353 (1996). An Introduction to the Law
and Economics of the V-Chip, 15 Cardozo Arts & Ent. L.J. 429 (1997). A
First Glance at the Constitutionality of the V-Chip Ratings System, in
Television Violende and Public Policy [*page range*] (James T. Hamilton
ed., 1998). Turner, Denver and Reno, in A Communications Cornucopia:
Markle Foundation Essays on Information Policy 172-217 (Roger Noll &
Monroe Price eds., 1998). Digital Television and the Quid Pro Quo, 2
Bus. & Pol. 115 (2000) (with Thomas Hazlett). Advanced Wireless
Technologies and Public Policy, 79 S. Cal. L. Rev. 595 (2006) (with
Thomas W. Hazlett). Television Mergers and Diversity in Small Markets,
J. Comp. L. & Econ. (forthcoming 2010).
---------------------------------------------------------------------------
III. Summary of Transaction Structure
8. On December 3, 2009, Comcast and GE announced an agreement
pursuant to which Comcast would acquire a majority interest in NBCU and
its affiliated broadcast licensee companies from GE.\8\ The transaction
will create a joint venture that combines, inter alia, NBCU's national
broadcast networks (NBC and Telemundo), NBCU's owned and operated
(``O&O'') broadcast television stations, cable programming networks,
theme parks, and a motion picture studio (Universal), with Comcast's
cable programming and regional sports networks, as well as certain
online content businesses of Comcast. Upon closing, Comcast and GE will
own 51-percent and 49-percent shares in the joint venture,
respectively. Thus, the transaction is fundamentally a vertical
integration of content (in the joint venture) with distribution
(Comcast's cable systems held outside the joint venture).
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\8\ Comcast and GE to Create Leading Entertainment Company, Joint
Announcement by Comcast Corporation and General Electric Company (Dec.
3, 2009) available at http://www.genewscenter.com/content/
detaiLaspx?ReleaseID=9206&NewsAreaID=2.
Accompanying the announcement, the applicants set forth certain
voluntary Public Interest Commitments that build on their strengths and
histories of service to the public, particularly in the areas of
diversity and local programming. Of note, the applicants have committed
to ``continuing to provide free over-the-air television through [NBCU's
0&0] stations and through local broadcast affiliates across the
nation,'' to ``using the combined resources of NBC and Comcast to
strengthen localism,'' to ``ensuring that the content of NBC's news and
public affairs programming [will] not be influenced by the non-media
interests of [its corporate parents],'' to ``mak[ing] an expanded
commitment to meeting the viewing needs of children, and the needs of
parents to better control their family's viewing,'' and to
``expand[ing] the availability of over-the-air programming to the
Hispanic community.'' Letter from David L. Cohen, Executive Vice
President, Comcast Corporation, Comcast/ GE Announcement Regarding NBC
Universal (Dec. 3, 2009) (``December 3 Cohen Letter'').
---------------------------------------------------------------------------
9. This transaction is not the sort of horizontal merger that has
been at the core of the concerns about localism and diversity over the
past several decades. The Commission has been very concerned about
mergers that combine two or more broadcasters within the same service
in the same market. The Commission has also been concerned about
mergers of broadcasters in different services within the same
market.\9\ These concerns, in fact, led the Commission decades ago to
adopt numerous structural rules that control the ability of
broadcasters to merge in the same market.\10\ These rules are founded
on the concepts that having a healthy and robust marketplace of ideas
requires independent voices, that the public benefits from having many
types of programs from which to choose, and that a broadcaster must
address the needs, interests, and issues of concern of the community
that it is licensed to serve. And, of course, horizontal mergers
between television stations and daily newspapers in the same market
have generally been prohibited by structural ownership rules adopted in
1975.\11\
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\9\ See, e.g., Rules and Policies Concerning Multiple Ownership of
Radio Broadcast Stations in Local Markets, Notice of Proposed
Rulemaking and Further Notice of Proposed Rulemaking, 16 FCC Rcd 19861,
19863 6 (2001) (``In the early 1970s, the Commission briefly
restricted local radio ownership further by prohibiting, with certain
exceptions, common ownership of different service broadcast stations in
the same market. These limits were designed to advance diversity by
maximizing the number of independent owners of broadcast media in a
market.'') (internal citation omitted).
\10\ Id. at 19899 (``The effects of a proposed transaction on the
diversity of voices and economic competition in a given market have
long been core considerations in making this public interest
determination. The Commission's concern for diversity and competition
in broadcast markets has prompted us to adopt and maintain structural
ownership rules intended to vindicate these interests.'').
\11\ See 2006 Quadrennial Regulatory Review--Review of the
Commissions Broadcast Ownership Rules and Other Rules Adopted Pursuant
to Section 202 of the Telecommunications Act of 1996, 23 FCC Rcd 2010,
2018-19 1111 13-14 (2008) (``2006 Quadrennial Review Order'')
(adopting a presumption that ``certain limited combinations in the of
newspaper and broadcast facilities in the largest markets are in the
public interest''), appeal pending, Prometheus Radio Project v. FCC,
Nos. 08-3078 et al., (3d. Cir. Apr. 14, 2009); See generally Chancellor
Media/Shamrock Radio Licenses, L.L.C. and Cox Radio, Inc., 15 FCC Rcd
17053, 17055 6 (2000) (``In adopting the 1975 rule that generally
prohibited the common ownership of a newspaper and broadcast station
serving the same community, the Commission made it clear that fostering
diverse viewpoints from antagonistic sources is at the heart of our
licensing responsibility.'').
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10. But this transaction has none of these elements. It is, from
the standpoint of traditional Commission concerns, almost entirely a
vertical transaction. Comcast does not have a broadcast network (or a
daily newspaper) and has modest cable programming assets, and NBCU is
bringing a pair of broadcast networks and a number of local
broadcasting stations. Conversely, NBCU does not provide cable, high-
speed Internet, or digital voice services, which form the bulk of
Comcast's business. Thus, in terms of traditional considerations,
combining the NBCU content with Comcast distribution does not result in
the sort of reduction in the number of local broadcast voices that has
prompted Commission concern.\12\ Instead, at its core, it is much more
a vertical combination, putting together a company which produces
popular content (NBCU) with a company that distributes content over
cable television systems (Comcast).
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\12\ There are some possible horizontal elements in the combination
of cable networks, but these do not represent the traditional, core
concerns of the Commission. Because the horizontal aspects of this
merger involving cable networks are very unlikely to have any
significant effect on over-the-air broadcast diversity and localism, I
will not discuss them in this Declaration. In addition, there are
vertical aspects of the transaction that will be examined, particularly
under the competition prong of the public interest standard. Others
will examine pricing issues within the vertical aspects of the
transaction. In terms of diversity and localism, the vertical aspects
of the transaction are extremely unlikely to be troublesome. Creation
of a problem in diversity or localism in the broadcast markets, as a
result of the vertical elements of this transaction, would require a
very convoluted and improbable mechanism.
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IV. Public Interest Concerns of Diversity and Localism
11. The Commission must determine whether the proposed transaction
would comply with the Communications Act of 1934 (``Communications
Act''), other applicable statutes, and its own rules.\13\ As part of
this inquiry, the Commission must determine whether the applicants for
transfer or assignment of broadcast licenses have shown that the public
interest, convenience, and necessity will be served by the proposed
transaction.\14\
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\13\ See Clear Channel Communications, Inc., 23 FCC Rcd 1421, 1423
3 (2008); Citadel Broadcasting Corp. and The Walt Disney Co., 22 FCC
Red 7083, 7104 50 (2007).
\14\ 47 U.S.C. 310(d).
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12. There are a number of rules that control directly the ownership
structure and market behavior of broadcasters, cable systems, and cable
networks.\15\ The Commission's structural rules, notably its media
ownership rules, include limitations on newspaper/broadcast cross-
ownership in a single market,\16\ radio/television cross-ownership in
particular markets,\17\ ownership of multiple television stations in a
single market,\18\ ownership of multiple radio stations in a single
market,\19\ national reach of television stations owned by a single
entity,\20\ and dual broadcast network rules.\21\ These media ownership
rules are designed to foster the Commission's longstanding public
interest policies of competition, diversity, and localism.\22\ And more
specifically, as further described below, each of these rules is
intended to protect against reduction in the number of independent
broadcast voices in a local market. Indeed, with respect to
transactions involving broadcast licenses, the Commission's central
theory has been that maintaining a sufficient number of independent
voices is crucial to supporting the core concerns of diversity and
localism.\23\
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\15\ Also relevant to the proposed transaction is the lack of
applicable rule. The DC Circuit vacated the once-extant cable/broadcast
cross-ownership rule, opining ``that the Commission's diversity
rationale for retaining the [Cable/Broadcast Cross-Ownership] Rule is
woefully inadequate.'' Fox Television Stations, Inc. v. FCC, 280 F.3d
1027 (D.C. Cir. 2002), rehearing granted, 293 F.3d 537 (D.C. Cir. 2002)
(vacating cable-broadcast cross-ownership rule); 1998 Biennial
Regulatory Review--Review of the Commission`s Broadcast Ownership Rules
and Other Rules Adopted Pursuant to Section 202 of the
Telecommunications Act of 1996, 18 FCC Rcd 3002 (2003) (repealing
cable/broadcast cross-ownership rule)). The DC Circuit also has
remanded the horizontal ownership rule adopted by the Commission for
further consideration. The Commission's Cable Horizontal and Vertical
Ownership Limits, Fourth Report & Order and Further Notice of Proposed
Rulemaking, 23 FCC Rcd 2134, 2187-92 125-34 (2008) (``2008 Cable
Ownership Order''), vacated Comcast Corp. v. FCC, 579 F.3d 1, 23 (D.C.
Cir. 2009) (holding the [horizontal] 30 percent subscribership limit as
arbitrary and capricious because ``the Commission failed adequately to
take account of the substantial competition cable operators face from
non-cable video programming distributors.'').
\16\ 2006 Quadrennial Review Order, 23 FCC Rcd at 2018-57 13-79.
\17\ Id. at 2057-60 80-86.
\18\ Id. at 2060-69 87-109.
\19\ Id. at 2069-82 IN 110-38.
\20\ See id. at 2084 142 n.454 (noting that Section 6290) of the
2004 Consolidated Appropriations Act ``amends Section 202(c) of the
1996 Act to direct the Commission to modify the national television
ownership limit, contained in section 73.3555 of the Commission's
rules, to specify 39 percent as the maximum aggregate national audience
reach of any single television station owner.'') (citing 47 U.S.C.
202(c)(1)).
\21\ Id. at 2082-84 139-41.
\22\ 2006 Quadrennial Review Order, 23 FCC Rcd at 2016-17 9
(``The media ownership rules are designed to foster the Commission's
longstanding policies of competition, diversity, and localism. We set
these policies out in detail in the 2002 Biennial Review Order, and we
reaffirm those goals.'') (citing 2002 Biennial Regulatory Review--
Review of the Commission's Broadcast Ownership and Other Rules Adopted
Pursuant to Section 202 of the Telecommunications Act of 1996, 18 FCC
Rcd 13620, 13627-45 17-79 (2003) (``2002 Biennial Review Order''),
aff'd in part and remanded in part, Prometheus Radio Project v. FCC,
373 F.3d 372 (3d. Cir. 2004)).
\23\ UTV of San Francisco Inc. et al, and Fox Television Stations,
Inc., 16 FCC Rcd 14975, 14977 8 (2001) (``Where broadcast licenses
are concerned, the effects of a proposed transaction on the diversity
of voices and economic competition in a given market have long been
core considerations in determining whether a transaction serves the
public interest, convenience, and necessity.'').
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13. Throughout the last decade, the Commission has consistently
applied a corresponding public interest framework to media
transactions.\24\ In this Declaration, I will address the public
interest concerns of diversity and localism as they relate to the
proposed transaction.
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\24\ Applications for Consent to the Transfer of Control of
Licenses from XM Satellite Radio Holdings Inc. to Sirius Satellite
Radio Inc., 23 FCC Red 12348, 12364 30 (2008); News Corp. and DIRECTV
Group, Inc. and Liberty Media Corp. for Authority to Transfer Control,
23 FCC Rcd 3265, 3276-77 22 (2008); Applications for Consent of
Assignment and/or Transfer of Control of Licenses from Adelphia
Communications Corporation to Time Warner Cable Inc., and from Adelphia
Communications Corporation to Comcast Corporation, 21 FCC Rcd 8203,
8217-18 23 (2006); General Motors Corporation and Hughes Electronics
Corporation, Transferors, and The News Corporation Limited, Transferee,
19 FCC Rcd 473, 483 15 (2004); Applications for Consent to the
Transfer of Control of Licenses from Comcast Corporation and AT&T
Corp., Transferors, to AT&T Comcast Corporation, Transferee, 17 FCC Rcd
23246, 23255 26 (2002).
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A. Diversity
14. Diversity has long been considered by the Commission to be a
guiding principle for its regulation of the media marketplace because
it resonates with values implicit in the First Amendment.\25\ The two
crucial aspects of diversity for purposes of evaluating this
transaction are viewpoint diversity and program diversity.
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\25\ 2002 Biennial Regulatory Review--Review of the Commission's
Broadcast Ownership Rules and Other Rules adopted Pursuant to Section
202 of the Telecommunications Act of 1996, Cross-Ownership of Broadcast
Stations and Newspapers, Rules and Policies Concerning Multiple
Ownership of Radio Broadcast Stations in Local Markets, Definition of
Radio Markets, 17 FCC Rcd 18503, 18516 33 (2002) (``2002 Biennial
Review Notice'') (``It advances the values of the First Amendment,
which, as the Supreme Court stated, `rests on the assumption that the
widest possible dissemination of information from diverse and
antagonistic sources is essential to the welfare of the public.''')
(quoting Associated Press v. United States, 326 U.S. 1, 20 (1945)).
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15. Viewpoint diversity, defined as ``the availability of media
content reflecting a variety of perspectives,'' \26\ is of central
importance to the Commission. The Commission has stated that viewpoint
diversity helps to ensure an informed citizenry in our democratic
society.\27\ Accordingly, having independent voices in the media
marketplace is needed for a healthy and robust marketplace of ideas,
particularly with respect to news and public affairs.\28\ The basic
idea is that if a single person were to gain control of a substantial
amount or all of the media in a market, he or she could tilt the
discussion of news and public affairs in a way that would mold public
opinion to resemble his or her own, even if the facts and arguments
would not support such a result. On the other hand, if there is a large
number of independent voices in the media marketplace, any attempt to
tilt coverage of news and public affairs will be counterbalanced by
others, who can be counted on to point out the tilt and correct it.
Thus, preventing concentrated political influence provides the
strongest justification for viewpoint diversity and the maintenance of
a large number of independent voices in news and public affairs
programming.\29\
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\26\ 2002 Biennial Review Order, 18 FCC Rcd at 13627 19.
\27\ Id. (citing Richard Brown, Early American Origins of the
Information Age, A Nation Transformed by Info.: How Information Has
Shaped U.S. from Colonial Times to the Present (Oxford Univ. Press, New
York, NY, 2000) at 44-49 passim (``Because people widely believed that
their republican government required an informed citizenry, they
scrambled to make sure that they, and often their neighbors, were
properly informed.'')).
\28\ While the most important influence on our civic life comes
from local news and public affairs, the Commission has acknowledged
that entertainment programming may have significant public affairs
content. Id. at 13631 33.
\29\ See, e.g., 2006 Quadrennial Review Order, 23 FCC Rcd at 2038
49 (``[O]ur new rule is designed to promote diversity by presumptively
prohibiting combinations in the markets with the fewest number of
voices, while presumptively permitting certain combinations in the
largest markets where the loss of diversity is not a significant
risk.''). See generally, 2002 Biennial Review Order, 18 FCC Rcd at
13630 28 (``[O]wners of media outlets clearly have the ability to
affect public discourse, including political and governmental affairs,
through their coverage of news and public affairs. Even if our inquiry
were to find that media outlets exhibited no apparent `slant' or
viewpoint in their news coverage, media outlets possess significant
potential power in our system of government.'').
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16. The main focus of concern for viewpoint diversity is local
broadcast news, public affairs, and other local programming. Applying
this insight, the Commission has stated that ``the greater the
diversity of ownership in a particular area, the less chance there is
that a single person or group can have an inordinate effect, in a
political, editorial, or similar programming sense, on public opinion
at the regional level.'' \30\ There is nothing in the fundamentally
vertical structure of this transaction that would reduce the number of
independent broadcast voices in any local market. After the
transaction, all of NBCU's O&O broadcast stations will continue to
operate and provide local news and other local programming. There is no
consolidation of broadcast assets within any local market as a
consequence of this transaction. Instead, this transaction transfers
broadcast licenses from the control of GE to the control of Comcast. In
no way does this combination of content with distribution impinge on
the Commission's core concern--the reduction in the number of
independent voices in local broadcast markets. Nor does the transaction
impact national viewpoint diversity in any way.\31\
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\30\ Id. at 13632 38 (quoting Amendment of Sections 73.35,
73.240, and 73.636 of the Commission's Rules Relating to Multiple
Ownership of Standard, FM and Television Broadcast Stations, 45 F.C.C.
1476, 1477 3 (1964)).
\31\ In any event, the Commission has clearly concluded that there
is a very robust market in national news and public affairs. Id. at
13631 35.
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17. Program diversity refers to providing a large number of types
of programs (dramas, sitcoms, ``reality'' a.k.a. nonscripted, science
fiction, sports, news, children's, etc.) to viewers.\32\ The Commission
clearly prefers to rely, in general, on competition in the video
marketplace to ensure diversity of programming, rather than try to
regulate the provision of program types directly.\33\
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\32\ Id. at 13631 36.
\33\ The Commission restated this preference within the last
decade. Id. at 13632 37. This is a long-running preference of the
Commission. See FCC v. WNCN Listener's Guild, 450 U.S. 582, 590 (1981)
(``[T]he Commission explained why it believed that market forces were
the best available means of producing diversity in entertainment
formats. First, in large markets, competition among broadcasters had
already produced `an almost bewildering array of diversity' in
entertainment formats. Second, format allocation by market forces
accommodates listeners' desires for diversity within a given format,
and also produces a variety of formats. Third, the market is far more
flexible than governmental regulation and responds more quickly to
changing public tastes. Therefore, the Commission concluded that `the
market is the allocation mechanism of preference for entertainment
formats, and . . . Commission supervision in this area will not be
conducive either to producing program diversity [or] satisfied radio
listeners.'') (citing Development of Policy re: Changes in the
Entertainment Formats of Broadcast Stations, Memorandum Opinion and
Order, 60 F.C.C.2d 858, 863-866 (1976)).
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18. There is no basis to anticipate that NBC, Telemundo, or any of
their O&Os will alter programming in a way that would decrease the
diversity of programming. The slight horizontal aspects of the merger
(Comcast is contributing no over-the-air broadcast assets to the joint
venture) indicate that there will be no significant, transaction-
specific incentive to change or reduce programming for the NBC or
Telemundo networks, or in the programming of their O&Os. All program
types that are currently represented will continue to be represented--
there is simply no credible incentive for the new entity to reduce
program diversity, and no apparent reason to expect that such a
reduction will take place. Thus, we should anticipate no reduction in
program diversity in broadcast outlets. In addition, the December 3
Cohen Letter demonstrates that the companies intend to increase the
diversity of content available on multiple platforms as well as adding
programming targeted to children and the Hispanic community.\34\ This
provides further assurance that the public interest concern of
diversity will be served by the transaction.
---------------------------------------------------------------------------
\34\ Supra note 8.
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19. Of course, individual programs may be replaced as they lose
popularity, as is the nature of series programming But the public
interest goal--diversity of programming--is not about preserving
individual shows. Rather, it is about ensuring a broad menu of types of
programs for viewers. In this case, the types of programming that are
supplied by the networks will almost certainly continue to be supplied;
sports programming, comedies, dramas, science fiction, food, fashion,
celebrity gossip, and so forth will continue to be available in
abundance. In short, there is no significant probability that diversity
of programming in broadcasting will be adversely affected by this
transaction due to horizontal integration. The transaction is
predominantly vertical in nature, and such combinations do not tend to
induce the parties to eliminate program types that would otherwise be
profitable to produce and distribute.
B. Localism
20. The phrase ``localism'' covers many different topics,\35\
linked by the concern that a broadcaster must address the needs,
interests, and issues of concern of the community that it is licensed
to serve.\36\ The Comcast and NBCU transaction is irrelevant to most of
these topics, and does not threaten, and in some cases may aid, the
remainder. This result is reinforced by the applicants' voluntary
public interest commitments in the December 3 Cohen Letter to
strengthen localism through their owned-and-operated broadcast
stations, On Demand and On Demand Online Programming platforms, and
public, educational, and government (``PEG'') access programming.\37\
Putting more local content on more platforms will directly promote
localism.
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\35\ There is a set of issues, usually addressed with fairly
precise regulations, that is often addressed under the banner of
localism. However, they are all quite tangential to evaluating the
transaction in this case. These include disaster warnings, In the
Matter of Broadcast Localism, Report and Notice of Proposed Rulemaking,
MB Docket No. 04-233, 23 FCC Red 1324, 1358-61 81-87 (2008) (``2008
Broadcast Localism Report''), Network Affiliation Rules, id. at 1361-64
88-96, payola and sponsorship identification, id. at 1364-69 97-
112, and license renewal procedures, id. at 1370-73 113-124. Because
this transaction raises no genuine issue as to any of these concerns, I
will not discuss them in text.
\36\ Id. at 1326 2.
\37\ Supra note 8.
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21. There is a significant overlap between localism and diversity
because one of the central concerns of each goal is the extent to which
broadcasters provide local news, public affairs, and other local
programming Localism differs slightly because diversity focuses on the
number of different types of local programs, while localism focuses
more on the amount and source of local programs.\38\
---------------------------------------------------------------------------
\38\ Typical community-responsive content includes local news
stories, investigative features, consumer advocacy issues, politics,
sports, community events, cultural offerings, weather, and emergency
notices. 2008 Broadcast Localism Report, 23 FCC Rcd at 1338 31.
---------------------------------------------------------------------------
22. The Commission has long been interested in whether broadcasters
provide ``enough'' community-responsive programming.\39\ Because there
is no reduction in the number of independent voices in any broadcast
market in this transaction, there is nothing about the transaction that
would lead us to expect any reduction in local news or public affairs
programming, or similar community-responsive broadcast programming.\40\
In addition, the December 3 Cohen Letter demonstrates that the
companies plan to increase locally-oriented programming.
---------------------------------------------------------------------------
\39\ See id. at 30 (``Having recognized that certain groups have
long complained that broadcasters do not air enough community-
responsive programming, the Commission sought comment on the nature and
amount of such programming in the NOL The Commission inquired as to how
broadcasters were serving the needs of their communities, whether they
were providing enough community-responsive programming, whether the
Commission could or should take action to ensure that broadcasters
aired programming that served their communities' needs and interests,
and whether non-entertainment or non-locally originated programming
should constitute local programming.''). This, in turn, raises
questions about what ``counts'' as community-responsive, how to combine
time allocated to different categories (such as local public affairs
and public service announcements), and whether the same rules should
apply in all markets and to all classes of service.
\40\ Thus, for example, regardless of how one views the studies
cited by the Commission in its 2008 Broadcast Localism Report, 23 FCC
Rcd at 1341-42 38 (citations omitted), and regardless of whether one
thinks the amount of local news and public affairs increases with
network ownership, all of the broadcast stations in this transaction
were part of a network before the transaction, and will be part of a
network after the transaction. In short, there is no change.
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23. Similarly, there is nothing about this transaction that would
lead the applicants to reduce service to underserved audiences. The
Commission has pursued policies directed at ensuring that ``enough''
programming is provided to underserved audiences, primarily women and
racial and ethnic minorities.\41\ The Commission's theory is that all
significant groups in the community of a licensee should get some level
of service.\42\ This requires the Commission to walk a very fine line;
intervening too far to require particular content threatens First
Amendment values, while only issuing hortatory declarations may produce
no action at all. The Commission's most recent approach to this subject
relied on several structural responses. The Commission is proposing
that broadcasters form community advisory boards that help to inform
the broadcaster about the needs and issues of underserved
audiences.\43\ Further, the Commission is considering ways to increase
ownership of broadcast outlets by ``Eligible Entities,'' which may
include minority- and women-owned businesses.\44\ No matter how the
Commission resolves the question of underserved audiences, there is
nothing in this fundamentally vertical transaction that reduces
incentives to serve underserved audiences. There is no consolidation of
broadcast assets at the local market level. Hence, the broadcast
outlets will continue to have every incentive to appeal to and retain
as wide and diverse an audience as possible.
---------------------------------------------------------------------------
\41\ 2008 Broadcast Localism Report, 23 FCC Rcd at 1354-55 70.
\42\ Id. at 1354 69.
\43\ Id. at 1336-37 25-27, 1356 73. Note, this requirement is
not yet effective.
\44\ Id. at 1356-57 74-76.
---------------------------------------------------------------------------
24. Within the localism sphere, the Commission also has expressed
concern with the process of engagement among broadcasters, viewers, and
community leaders. In the 1970s, the Commission promulgated a highly
detailed set of regulations to govern the process of communication.\45\
In the 1980s these regulations were relaxed,\46\ but recently the
Commission has proposed making them more formal for television.\47\
Nothing about this transaction will produce any significant change in
the O&Os' interactions with viewers and community leaders. The stations
can be expected to continue to comply with applicable regulations, will
continue to learn about the needs and interests of their local
communities, and will continue to air programming that responds to
these needs and interests. There is no reason why the structure of the
proposed transaction would affect the merging entities' incentives to
continue to comply with, or indeed exceed, regulations in this area.
Moreover, as outlined in the December 3 Cohen Letter, the companies are
undertaking additional efforts to promote localism, which will further
enhance the public interest benefits of the transaction.
---------------------------------------------------------------------------
\45\ Primer on Ascertainment of Community Problems by Broadcast
Applicants, Report and Order, 27 F.C.C.2d 650 (1971); Ascertainment of
Community Problems by Broadcast Applicants, First Report and Order, 57
F.C.C.2d 418 (1976).
\46\ Deregulation of Radio, Report and Order, 84 F.C.C.2d 968
(1981); Revision of Programming and Commercialization Policies,
Ascertainment Requirements and Program Log Requirements for Commercial
Television Stations, Report and Order, 98 F.C.C.2d 1076, 1099 (1984).
\47\ 2008 Broadcast Localism Report, 23 FCC Rcd at 1333-37 16-
27.
---------------------------------------------------------------------------
V. Conclusion
25. Based on public information provided to me by Comcast and NBCU,
together with my analysis of publicly available information cited here,
I have evaluated the consequences of the proposed transaction in terms
of diversity and localism--two areas that have been at the center of
the Commission's previous regulatory reviews with regard to the public
interest. In my opinion, this transaction does not represent the sort
of horizontal merger that has been at the core of the Commission's
diversity and localism concerns over the past several decades.
Notwithstanding the rhetoric of some, this transaction will not result
in any reduction in the diversity of broadcast voices in a local market
or any reduction in localism.
26. In summary, this transaction is, from the standpoint of
traditional Commission diversity and localism concerns, almost entirely
a vertical transaction. I conclude that the proposed transaction will
have no adverse effect on localism and diversity and thus is fully
consistent with the Commission's the public interest approach along
these dimensions. It is not the type of transaction that implicates the
core concern of reduction in the diversity of voices in a local market.
I, Matthew L. Spitzer, declare under penalty of perjury that the
foregoing declaration is true and correct.
Executed on January 26, 2010
______
Matthew L. Spitzer
Gould School of Law
University of Southern California
Los Angeles, California 90089-0071
California Institute of Technology
Division of Humanities and Social Science
Baxter Hall 228-77
1200 E. California Boulevard
Pasadena, CA 91125
Education
Ph.D. (Social Science) California Institute of Technology, 1979
J.D. University of Southern California, 1977
B.A. (Mathematics)University of California, Los Angeles, 1973
Professional Associations and Service Positions
Member, KUSC University Advisory Board, July 2000 to October 2001.
Member, USC Budget Steering Group, August 2000 to July 2001.
Member, USC Capital Planning Committee Radisson Subcommittee,
August 2000 to August 2001.
Member, USC Urban Deans Council, July 2000 to March 2004.
Member, USC Provost's Council, August 2000 to June 2006.
Member, Executive Committee, USC Provost's Council, August 2001 to
June 2005.
Member, Board of Directors, American Law and Economics Association,
1997 to 2000.
Member, Board of Editors, American Law & Economics Review, 1998 to
2000.
Director, American Law Deans Association, September 2000 to 2002.
Member, American Law Deans Association, September 2000 to June
2006.
Member, The American Law Institute, 2000 to present.
Member, The Fellows of the American Bar Foundation, 2003 to
present.
Member, Board of Governors, Beverly Hills Bar Association, 2005 to
2006.
Member, Law School Council, The Committee of Bar Examiners of The
State Bar of California, 2005 to 2006.
Member, Board of Directors, Telecommunications Policy Research
Conference, 1993 to 1995.
Organizing Committee for Telecommunications Policy Research
Conference, 1991 to 1994.
Appointments
Litigator with Nossaman, Krueger & Marsh, Los Angeles, California,
from January 1977 to July 1979.
Assistant Professor of Law at the Northwestern University School of
Law, July 1979 to August 1981.
Associate Professor of Law at the University of Southern California
Law School, August 1981 to May 1984.
Professor of Law at the University of Southern California Law
School, May 1984 to July 1987.
William T. Dalessi Professor of Law at the University of Southern
California, August 1987 to June 2000.
Visiting Professor of Law and Social Science in Division of
Humanities and Social Sciences at California Institute of Technology,
Pasadena, California, January 1988 to June 1988; January 1990 to June
1990; January 1991 to June 1991; and January 1992 to June 1992.
Professor of Law and Social Science in Division of Humanities and
Social Sciences at California Institute of Technology, Pasadena,
California, July 1992 to June 2001 and July 2006 to present.
Visiting Associate in Division of Humanities and Social Sciences at
California Institute of Technology, Pasadena, California, July 2001 to
June 2006.
Visiting Professor of Law at University of Chicago, October 1996 to
December 1996.
Visiting Professor of Law at Stanford University, September 1997 to
December 1997.
Director, Olin Program in Law and Rational Choice at the University
of Southern California Law School, July 1990 to June 2000.
Director, USC Center for Communications Law and Policy, August 1998
to June 2005.
Dean and Carl Mason Franklin Chair in Law at the University of
Southern California Law School, July 2000 to June 2006.
Dean and Carl Mason Franklin Chair in Law and Professor of
Political Science at the University of Southern California Law School,
November 2002 to June 2006.
Robert C. Packard Trustee Chair in Law and Professor of Political
Science at the University of Southern California Gould School of Law,
July 2006 to present.
Publications--Books
Seven Dirty Words and Six Other Stories: Controlling the Content of
Print and Broadcast (1986, Yale University Press).
Public Policy Toward Cable Television (1997, AEI/MIT Press)(with
Thomas Hazlett).
Administrative Law and Regulatory Policy: Problems, Text, and Cases
(5th Edition, 2002, Aspen Law & Business)(with Stephen Breyer, Richard
Stewart, and Cass Sunstein).
Publications--Articles
1. An Economic Analysis of Sovereign Immunity in Tort, 50 S. Cal.
L. Rev. 515 (1977).
2. Multicriteria Choice Processes: An Application of Public Choice
Theory to Bakke, the FCC, and the Courts, 88 Yale L.J. 717 (1979).
3. A Reply to Consumption Theory, Production Theory, and Ideology
in the Coase Theorem, 53 S. Cal. L. Rev. 1187 (1980) (with Elizabeth
Hoffman).
4. Radio Formats by Administrative Choice, 47 U. Chi. L. Rev. 647
(1980).
5. The Coase Theorem: Some Experimental Tests, 25 J. Law & Econ. 73
(1982) (with Elizabeth Hoffman).
6. Unions, Fairness, and the Conundrums of Collective Choice, 56 S.
Cal. L. Rev. 465 (1983) (with Mayer Freed and Daniel Polsby).
7. A Reply to Hyde, Can Judges Identify Fair Bargaining Procedures?
57 S. Cal. L. Rev. 425 (1984) (with Mayer Freed and Daniel Polsby).
8. Entitlements, Rights and Fairness: An Experimental Examination
of Subjects' Concepts of Distributive Justice, 14 J. Legal Studies 259
(1985) (with Elizabeth Hoffman). [Reprinted in Fall/Winter USC Cites at
10-23; reprinted in Economic Justice (G. Brosio and H. Hockman Eds.
1998).]
9. Experimental Law & Economics: An Introduction, 85 Colum. L. Rev.
991 (1985) (with Elizabeth Hoffman).
10. Controlling the Content of Print and Broadcast, 58 So. Cal. L.
Rev. 1349 (1985).
11. Experimental Tests of the Coase Theorem with Large Bargaining
Groups, 15 J. Legal Studies 149 (1986) (with Elizabeth Hoffman).
12. Fear and Loathing in the Coase Theorem: Experimental Tests
Involving Physical Discomfort, 16 J. Legal Studies 217 (1987) (with Don
L. Coursey and Elizabeth Hoffman).
13. Coasian Solutions to the Externality Problem in Experimental
Markets, 97 Economic J. 388 (1987) (with Glenn W. Harrison, Elizabeth
Hoffman and E. E. Rutstrom).
14. Antitrust federalism and Rational Choice Political Economy: A
Critique of Capture Theory, 61 So. Cal. L. Rev. 1293 (1988).
15. Broadcasting and the First Amendment in Volume 1 of New
Directions In Telecommunications Policy (1989, Duke Univ. Press).
16. The Constitutionality of Licensing Broadcasters, 64 N.Y.U.L.
Rev. 990 (1989).
17. Comment on Noll and Krier's Some Implications of Cognitive
Psychology for Risk Regulation, 19 J. Leg. Stud. 801 (1990).
18. Justifying Minority Preferences in Broadcasting, 64 S. Cal. L.
Rev. 293 (1990).
19. Extensions of Ferejohn and Shipan's Model of Administrative
Agency Behavior, 6 J.L. Econ. & Organization 29 (1990).
20. Judicial Choice of Legal Doctrines, 8 J.L. Econ. & Organization
8 (1992)(with Pablo Spiller).
21. Term Limits, 80 Georgetown L.J. 477 (1992)(with Linda Cohen).
[Reprinted in Maxwell Stearns, Public Choice and Public Law (1996).]
22. Willingness-to-Pay versus Willingness-to-Accept: Legal and
Economic Implications, 71 Washington University L.Q. 59 (1993)(with
Elizabeth Hoffman).
23. Solving the Chevron Puzzle, 57 Journal of Law & Contemporary
Problems 65 (1994)(with Linda Cohen).
24. Testing Minority Preferences in Broadcasting, 68 Southern
California Law Review 841 (1995)(with Jeff Dubin).
25. Judicial Deference to Agency Action, 69 Southern California Law
Review 431 (1995)(with Linda Cohen).
26. Framing the Jury, 81 Virginia Law Review 1342 (1995)(with Ed
McCaffery and Dan Kahneman).
27. Where is the Sin in Sincere? Sophisticated Exploitation of
Naive Judges, 11 Journal of Law, Economics & Organization 32
(1995)(with Pablo Spiller).
28. Dean Krattenmaker's Road Not Taken: The Political Economy of
Broadcasting in the Telecommunications Act of 1996, 29 Conn. L. Rev.
353 (1996).
29. An Introduction, to the Law and Economics of the V-Chip, 15
Cardozo Arts & Entertainment Law Journal 429 (1997).
30. Evaluating Direct Democracy: A Response, 4 University of
Chicago Law School Roundtable 37 (1997).
31. A First Glance at the Constitutionality of the V-Chip Ratings
System, in Television Violence and Public Policy, Edited by James T.
Hamilton (U. Mich. Press, 1998).
32. Turner, Denver and Reno, pages 172-217 in A Communications
Cornucopia: Markle Foundation Essays on Information Policy (1998, Roger
Noll and Monroe Price, Eds.).
33. Judicial Auditing, 29 Journal of Legal Studies 649 (2000) (with
Eric Talley).
34. The Government Litigant Advantage: Implications for the Law, 28
Florida State Univ. L. Rev. 391 (2000) (with Linda R. Cohen).
35. Digital Television and the Quid Pro Quo, 2 Business and
Politics 115 (2000) (with Thomas Hazlett).
36. Endowment Effects within Corporate Agency Relationships, 31
Journal of Legal Studies 1 (2002) (with Jennifer H. Arlen and Eric L.
Talley).
37. Advanced Wireless Technologies and Public Policy, 79 Southern
California Law Review 595 (2006)(with Thomas W. Hazlett).
38. Television Mergers and Diversity in Small Markets, __ Journal
of Competition Law And Economics __ (2010)(forthcoming).
Other Publications
1. Book Review (of Human Inference by Richard Nisbett and Lee
Ross), 9 Hofstra L. Rev. 1621 (1981).
2. Book Review (of Misregulating Television by Stanley M. Besen,
Thomas G. Krattenmaker, A. Richard Metzger, and John R. Woodbury), 2
Information Econ. and Policy 91 (1986).
3. Editor of Discussion in Symposium: Punitive Damages, 56 S. Cal.
L. Rev. 1, 155 (1982).
4. Bargaining Solutions to Environmental Problems, Neue Zurcher
Zeitung, pg. 66, Sept. 16, 1987, (with R. S. Radford).
5. Jurisprudence and Formal Models, 12 Int'l Rev. L. and Econ. 284
(1992).
6. Freedom of Expression, in The New Palgrave Dictionary of
Economics and the Law, Edited by Peter Newman (Stockton Press, 1998).
7. Book Review (of J. Gregory Sidak, Foreign Investment in
Telecommunications), 59 Journal of Economic History 1124 (1999).
8. Taking Over, 33 University of Toledo Law Review 213 (Fall 2001).
9. Evaluating Valuing Empiricism (at Law Schools), 53 Journal of
Legal Education 3 (September 2003).
10. Diamonds and Deep Breathing, 36 University of Toledo Law Review
191 (Fall 2004).
11. Memorial Tribute to Dave Carroll, 78 Southern California Law
Review 13 (2004).
Prize
Ronald H. Coase Prize for excellence in law and economics
Senator Dorgan. Mr. Roberts, thank you very much.
Mr. Wells, nice to see you. You may proceed.
STATEMENT OF JOHN WELLS, PRESIDENT,
WRITERS GUILD OF AMERICA, WEST
Mr. Wells. Thank you. Thank you, Mr. Chairman.
I am honored to represent the 8,000 Writers Guild of
America, West, WGAW, members working in film, television, and
emerging media markets, including online video content.
Virtually all of the entertainment programming and a
significant portion of news programming seen on television and
in film is written by our members and the members of our
affiliate, Writers Guild of America, East.
The WGAW has had a long association with NBC Universal. I
have written and produced successful primetime television over
the last few decades, including ER, The West Wing, and most
recently, Southland. The WGAW is concerned that the impact of
the proposed merger of NBC Universal and Comcast, what that
merger will have on WGA content creators, entertainment
industry workers, and U.S. consumers.
Over the past several decades, our industry has
consolidated from literally dozens of independent entrepreneurs
and suppliers to a handful of large media conglomerates
controlling content from start to finish. This has not been
good for writers, who face fewer creative and economic
opportunities, which, in turn, has a negative effect on job
creation for other entertainment workers.
The industry may point to the growth of channels and
distribution platforms as evidence of opportunities for
independent and diverse content, but the reality is that a
handful of multinational companies control what viewers watch.
WGAW analysis of primetime series on the Fall 2009 network
schedule found that only 16 percent of series were
independently produced across the 5 broadcast networks, with
only 10 percent independently produced on NBC. Twenty years
ago, under the financial syndication regulation, 78 percent of
primetime lineup was independently produced, including ``Doogie
Howser,'' ``The Wonder Years,'' ``Cosby Show,'' ``Who's The
Boss?,'' and ``Designing Women.''
With the integration of NBC Universal's cable networks,
Comcast will have the incentive to bump other channels out of
the most popular tiers in favor of its newly acquired networks.
This new media superpower could, in effect, deny consumers the
ability to select channels through its marketing practices of
bundling channel position and tier placement.
This proposed media consolidation also promises to have a
significant impact on news programming. Diverse news sources
are necessary for our democracy, and this merger will
concentrate a significant amount of local, national, and online
news programming within one company. We do not want to see a
repeat of Clear Channel's consolidation of the radio industry.
While Comcast has said it plans to preserve NBC local news, we
fear this is a promise that could easily be forgotten in
pursuit of corporate cost efficiencies.
The greatest danger posed by the merger of the Comcast-NBC
Universal is its effect on the developing online Internet video
market. We believe Comcast may be tempted to use its position
as the largest provider of residential Internet services to
favor its newly acquired content and the content provided by
other entertainment companies in reciprocal or monetary
arrangements. This could come in the form of faster access to
Comcast-NBC Universal content or other content that it chooses
to favor, to the detriment of all other content now available
to consumers over their Comcast-supplied Internet connections.
Comcast's Xfinity service, in conjunction with the proposed
merger, raises horizontal competition concerns as Comcast
attempts to leverage its dominance of the cable market to
control online Internet video. It could stifle competition
between online video providers and strengthen the company's
market control of video distribution by requiring a consumer to
have a costly cable subscription to access online video.
Most recently, we have seen NBC embracing this practice,
restricting online access to some 2010 Winter Olympics content
only to authenticated subscribers of a cable, satellite, or
IPTV service. Comcast control over NBC Universal content will
only enhance these anticompetitive efforts. The WGAW has
serious concerns about Comcast-NBC Universal serving as the
gatekeeper for video content online.
In addition, Comcast would acquire 30 percent of Hulu and
would likely put it behind an authentication wall. Consumers
will no longer be able to watch TV episodes online without a
cable subscription, which will reduce viewing of this content
and, potentially, residual payments for writers and other
talent.
The Internet is quickly becoming our town square. To ensure
a free and open Internet, we must require companies like
Comcast to remain neutral in the delivery of content through
its online service, both in the speed of delivery and the cost
of delivery. As the creators of intellectual property, we
believe in strong copyright protection and that piracy must be
addressed through a combination of new technology and a strong
enforcement regime, all the while maintaining a free Internet.
Comcast has also said it would like to use its control over
NBC Universal content to establish a model that can be
replicated with other third parties. We are concerned that
below-market transfer prices may become standards for pricing
content from third-party suppliers. It is imperative that the
interests of content creators and the entertainment industry
workers not be sacrificed to enhance the value of Comcast's
distribution business.
The Guild shares the concerns about labor practices that
have been voiced by the Communication Workers of America, the
CWA. The CWA's experience with Comcast has demonstrated a poor
track record of respecting worker rights. If approved, the
merger of Comcast and NBC Universal will lead to a further
consolidation of distribution and programming. The WGA believes
that any public interest commitments should be made legally
binding and enforceable by regulators.
In the online space, regulators must require that Comcast-
NBC Universal not discriminate in favor of or against content
on the Internet by agreeing to network neutrality rules on its
Internet access service. This merged entity should also not be
allowed to use its market power to deny distribution of
programming on alternative services on the Internet that might
compete with Comcast-NBC Universal's various platforms or video
on demand services.
To promote independent programming, Comcast must go beyond
their offer of 2 independent channels, which will have little
impact in a market of 500-plus channels, and be required to
allocate 25 percent of primetime programming on its broadcast
and cable networks to independent programming.
The definition of independent programming should be crafted
in such a way as to ensure maximum diversity of voices and
artists on such programming, not to just provide more
programming space for other media conglomerates. Local news and
public broadcasting must be preserved to ensure community
voices and diversity of opinions. And Comcast should be
required to promote these programs through subsidized
advertising campaigns.
Thank you again for the opportunity to testify today. I
look forward to answering any questions.
[The prepared statement of Mr. Wells follows:]
Prepared Statement of John Wells, President,
Writers Guild of America, West
Thank you, Chairman Rockefeller, Ranking Member Hutchison and
members of the Committee for the opportunity to testify today. I am
honored to represent the 8,000 Writers Guild of America, West (WGAW)
members working in film, television and emerging new media markets
including online video content. Virtually all of the entertainment
programming and a significant portion of news programming seen on
television and in film is written by our members and the members of our
affiliate Writers Guild of America, East. WGAW has had a long
association with NBC Universal (NBCU). As Chairman Rockefeller noted in
his introduction, I have written and produced successful prime-time
television over the last few decades including ER, The West Wing and
most recently, Southland.
Our entertainment industry is a shining example of the remarkable
fruits that came come from the collaborative efforts between working
people. As writers, the content we create results in hundreds, if not
thousands of good paying jobs for electricians, caterers, truck
drivers, technicians, actors, directors, and other skilled and
unskilled workers. Our product is embraced by the public, as evidenced
by the numbers at the box office and viewership of broadcast and cable
television programming both here in America and abroad. We are also
just beginning to unlock the potential of the online, Internet video
market. Our workers are what make the American entertainment industry
the envy of the world.
That is why, the WGAW is extremely concerned about the impact the
proposed merger of NBC Universal and Comcast will have on WGA content
creators, entertainment industry workers and U.S. consumers. Over the
past several decades, our industry has consolidated from literally
dozens of independent entrepreneurs and suppliers, including many
writer-owners making innovative and ground-breaking programming, to a
handful of large media conglomerates most often controlling content
from start to finish.
This has not been good for writers who face fewer creative and
economic opportunities, which in turn has a negative effect on job
creation for other entertainment industry workers. Viewers are offered
increasingly homogenized content driven by corporate decisionmaking and
at higher and higher costs to the consumer.
WGAW analysis of primetime series on the Fall 2009 network schedule
found that only 16 percent of series were independently produced across
the five broadcast networks, with only 10 percent independently
produced on NBC. By way of contrast, twenty years ago under the
Financial-Syndication regulations, 78 percent of the primetime lineup
was independently produced including Doogie Howser, M.D., The Wonder
Years, Cosby Show, Who's the Boss and Designing Women.
The industry may point to the growth of channels and distribution
platforms as evidence of opportunities for independent and diverse
content, but the reality is that a handful of multinational companies
control what viewers watch.
The combined entity being discussed today will control 20 percent
of television viewing hours. Control of both content and distribution
provide ample opportunity for abuses of power in the pursuit of
corporate self-interest. In this case, we are concerned that bigger
won't be better.
The vertical leverage created by this proposed merger will have a
significant impact on competition in both the cable network and online
video markets. In cable, there are now more than 500 channels for
consumers to choose from. But the sheer number of channels means that
cable network success is increasingly dependent upon cable tier
placement, bundling and channel positioning. ``500 channels and still
nothing to watch,'' we have all heard that lament.
Comcast, as the largest provider of video services, is in a unique
position to determine the fate of cable networks. With the integration
of NBCU's cable networks, Comcast has an opportunity to abuse its
dominant position to bump other channels out of the most popular tiers
in favor of its newly acquired networks. This new media superpower
could in effect deny consumers the ability to select channels, through
its marketing practices of bundling channels, channel positioning and
tier placement. With little transparency in pricing or rate increases,
consumers will increasingly be at the mercy of dominant cable and
Internet providers, with little or no competition to ensure reasonable
access fees.
The trend away from vertical integration between cable operators
and cable networks, which includes separations by Viacom, News Corp and
most recently Time Warner, has been a positive development for content
creators and consumers. In order to attract viewers, cable channels
have invested heavily in original content. The original dramas and
comedies that once were only found on network television can now be
seen on multiple cable channels including AMC, TNT, Lifetime, FX and
many others. I have personally benefited from the rise of original
programming on cable. When NBC Universal canceled Southland in a cost-
saving decision to move Jay Leno to the 10 p.m. time slot, my series
found a home on TNT. This trend has benefited content creators and
entertainment industry workers who have found new outlets for their
work. Thus the WGAW has serious concerns about the proposed increase in
vertical integration, which could threaten to undermine progress made
in this area and lead to increased cost for consumers.
This proposed media consolidation also promises to have a
significant impact on news programming. Diverse news sources are
necessary for our democracy and this merger will concentrate a
significant amount of local, national and online news programming
within one company. In pursuit of corporate profits, this merged entity
may be tempted to cut costs and consolidate news programming, to the
detriment of our vibrant democracy. We have witnessed this happen time
and time again with media consolidation. We do not want to see a repeat
of Clear Channel's consolidation of the radio industry, where cost-
cutting jeopardized public safety when a train containing hundreds of
thousands of gallons of toxic ammonia derailed in Minot, North Dakota.
Six of the seven local radio stations had recently been purchased by
Clear Channel Communications and were operated by computer, including
the station designated for emergency announcements. Instead of
emergency announcements alerting the public, music played uninterrupted
across the Clear Channel stations, beamed in from out of state. While
Comcast has said it plans to preserve NBC local news we fear this is a
hollow promise that could easily be forgotten in pursuit of corporate
cost efficiencies.
The greatest danger we see posed by the merger of Comcast-NBC
Universal is it's possible effect on the developing online Internet,
video market. A free and open Internet offers unforeseen possibilities
for competitive and independent production and distribution of content
free of traditional corporate controls.
Comcast's Xfinity service, in conjunction with the proposed merger
raises horizontal competition concerns as Comcast attempts to leverage
its dominance of the cable market to control online Internet video. It
could stifle competition between online video providers and strengthen
the company's market control of video distribution by requiring a
consumer to have a costly cable subscription to access online video.
Most recently, we've seen NBC embracing this practice, restricting
online access to some 2010 Winter Olympics content only to
authenticated subscribers of a cable, satellite or IPTV service.
Comcast control over NBC Universal content will only enhance these
anti-competitive efforts. The WGAW has serious concerns about Comcast-
NBC Universal serving as the gatekeeper for video content online.
In addition, Comcast would acquire 30 percent of Hulu and would
likely put it behind an authentication wall. Consumers will no longer
be able to watch TV episodes online without a cable subscription, which
will reduce viewing of this content and, potentially, residual payments
for writers and other talent.
Comcast's desire to stifle competition on the Internet is not new
or merely hypothetical. In October 2007, the Associated Press reported
that Comcast was unilaterally blocking access to the Web application
BitTorrent. This violation was pursued by the Federal Communications
Commission and in 2008 the FCC ordered a ``cease and desist.'' Comcast
is appealing the order in court.
In light of these actions, we believe Comcast may be tempted to use
its position as the largest provider of residential Internet services
to in favor its newly acquired content and the content provided by
other multinational entertainment companies in reciprocal or monetary
arrangements, and authentication walls that favor other deep-pocketed
providers, not consumers. This could come in the form of faster access
to Comcast-NBC Universal content or other content that it chooses to
favor--to the detriment of all other content now available to consumers
over their Comcast-supplied Internet connections. This proposed merger
is very much linked to the discussion of network neutrality, more
properly called ``Net Freedom.'' The Internet is quickly becoming our
town square, with access available to all Americans for the discussion
of ideas, the viewing of news, commentary and entertainment, and for
social networking. To ensure a free and open Internet, we must require
companies like Comcast to remain neutral in the delivery of content
through its online service, both in the speed of delivery and the cost
of delivery. As the creators of intellectual property we believe in
strong copyright protection and that piracy must be addressed, through
a combination of new technology and a strong enforcement regime, all
the while maintaining a free Internet.
A real concern for talent including the writers I represent is the
potential devaluation of content resulting from the combination of a
major content producer and one of the country's largest content
distributors. Comcast, which is primarily a distribution company will
now have control over a large amount of content, much of which is
written and produced by WGAW members. In documents filed with the FCC,
Comcast has stated that a key rationale for the merger has been its
inability to reach ``optimal agreements'' with producers that allow
Comcast to distribute content as it sees fit. We are troubled by this
statement.
The consolidation of such a major producer and distributor creates
a scenario where the transfer prices imputed to content created by the
joint venture may well understate its value for competitive advantage
and deprive talent of the fair market payments they are due under our
contracts. Comcast and its shareholders may realize the benefits of
bringing this content in-house but talent is likely to be left behind
in the process, and consumers will certainly pay higher subscription
costs as competition is further reduced and consumer delivery choices
are narrowed. The combination of these companies may permit Comcast to
operate in a more efficient economic marketplace, but the marketplace
of ideas and consumer choice will be diminished in the process.
Comcast has also said it would like to use its control over NBC
Universal content to establish a model that can be replicated with
other third-parties. We are concerned that these below-market transfer
prices may become standards for pricing content from third-party
suppliers. It is imperative that the interests of content creators and
entertainment industry workers within the merged company and elsewhere
not be sacrificed to enhance the value of Comcast's distribution
business.
Writers and other members of the Hollywood community depend on
residual payments derived from the reuse of content in order to sustain
their careers and support their Health and Pension Plans. Writers and
other entertainment industry workers receive initial compensation for
their work but also subsequently receive residual payments when their
product is aired in syndication, sold on DVD, or purchased online.
These payments essentially serve as R&D for the entertainment industry,
allowing writers to develop new material while waiting for their next
employment opportunity. Any devaluation of content could significantly
impact the ability of writers to spend time developing original content
and entertainment industry workers to remain available for their next
job. To protect the value of content, regulators should require
transparency and fair market valuation of all transactions between
commonly owned or controlled parties.
The Guild, shares the concerns about labor practices that have been
voiced by the Communication Workers of America (CWA). The CWA's
experience with Comcast has demonstrated a poor track record of
respecting worker rights. Where Comcast has inherited union contracts
through business acquisitions it has failed to abide by promises to
respect employee's rights and collective bargaining. The entertainment
industry including NBC Universal has a long and honored tradition of
cooperative labor relations, which has produced quality employment for
every person working on a project I have had the privilege to be
associated with as a WGAW member. Our entertainment industry is the
envy of the world because we have been able to maintain and support a
talented union workforce for decades. This workforce stability is what
keeps our industry strong and has made our product one of America's
leading exports.
If approved, the merger of Comcast and NBC Universal will lead to a
further consolidation of distribution and programming, which will
result in a decrease in the number of alternative, independent, and
diverse programs. Such an outcome hurts the culture of the United
States and results in fewer job opportunities for writers and all
entertainment industry workers. While we are encouraged by the public
interest commitments made by Comcast and NBC Universal, we believe that
the concerns we have outlined are not sufficiently addressed by these
proposed voluntary measures.
If approved, the proposed public interest commitments should be
made legally binding and enforceable by regulators. To promote
independent programming Comcast must go beyond their offer of 2
independent channels, which will have little impact in a market of 500
plus channels. A merged Comcast NBC Universal should be required to
allocate 25 percent of primetime programming on its broadcast and cable
networks to independent programming. The definition of independent
programming should be crafted in such a way as to ensure maximum
diversity of voices and artists on such programming, not to just
provide more programming space for other media conglomerates. Local
news and public broadcasting must be preserved to ensure community
voices and a diversity of opinions. Further, Comcast should be required
to promote these programs through subsidized advertising campaigns.
In the online space, regulators must require that Comcast-NBC
Universal not discriminate in favor of or against content on the
Internet by agreeing to network neutrality rules on its Internet access
service. The merged entity should also not be allowed to use its market
power to deny distribution of programming on alternative services on
the Internet that might compete with Comcast--NBC Universal's various
platforms or Video On Demand services.
Without additional binding enforceable mandates--WGAW has grave
concerns that the voluntary commitments offered will fail to protect
consumers and content creators from the negative impact of this merger.
Thank you, again for the opportunity to testify today. I look
forward to answering any questions.
Senator Dorgan. Mr. Wells, thank you very much.
Dr. Cooper, welcome. You may proceed.
STATEMENT OF DR. MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER
FEDERATION OF AMERICA ON BEHALF OF
CONSUMER FEDERATION OF AMERICA, FREE PRESS, AND CONSUMERS UNION
Dr. Cooper. Thank you, Mr. Chairman, members of the
Committee.
When Comcast claims that there is a little for antitrust
authorities to look at in this merger, they must think we are
still living in the ``don't worry, be happy, do nothing'' era
of antitrust and regulation. Thankfully for consumers, as you
heard this morning, that is not the case.
Officials who understand that concentration and vertical
integration can be bad for consumers and the economy, who
understand that public interest principles are good for
citizens and civic discourse, are in office, and not a moment
too soon. This merger is uniquely anticompetitive across a
number of markets and threatens to restrict consumer choice,
reduce programming diversity, and raise prices.
Comcast and NBC compete head-to-head in local distribution
of video content in a dozen of the Nation's most important
local markets. They compete head-to-head in the production of
video content for multichannel distribution with Comcast sports
and news lined up against NBC's sports and news. They compete
head-to-head in the distribution of video content online.
Indeed, NBC is a major partner in Hulu, an Internet-based,
multichannel video distribution platform.
In addition to the outright elimination of direct
competition between NBC and Comcast in these markets, the
marriage of the Nation's largest cable operator with one of the
Nation's premier video content producers will give Comcast an
immense amount of vertical leverage to use against competing
video programmers and distributors favoring its own content
with access to cable systems that reach one quarter of the MVPD
market and denying competing programmers access to those cable
systems places a very heavy thumb on the scale of competition
in the video content market.
Withholding must-have content from competing distributors
undermines competition for eyeballs in distribution. The merged
entity will also have the incentive and ability to raise prices
for its large suite of programming or to force that programming
on cable systems, which raises consumers' prices as the bundles
get larger and more expensive.
The history of the cable industry since the passage of the
1996 Act has been a history of consolidation and higher prices.
We are all familiar with the fact that cable prices have
increased twice as fast as the rate of inflation since 1996. It
is less widely known but equally important to note that the
operating cash-flow of the cable operators--that is the cash
left over after all operating expenses, including programming--
has increased four times at the rate of inflation. That is
where Comcast gets $6.5 billion in cash during the worst
recession since the Great Depression to buy a 51 percent
interest in NBC.
Many of these processes have operated to push up prices
over the last decade. This merger will reinforce all of those
processes, perpetuating the problem of rising prices.
But the most ominous threat to future competition is to the
Internet as a platform for video competition. Comcast has
already signaled its intention to extend the ugly cable
business model to the Internet by proposing a market division
scheme with the second-largest cable operator, Time Warner.
Comcast is seeking to prevent local sports teams from making
their content available online. NBC moved its Olympic coverage
behind an Internet pay wall.
The marriage of the Nation's largest broadband service
provider with one of the Nation's premier video content
producers heightens the dangers of these threats dramatically.
Geography is not supposed to matter on the Internet. There
are no franchises, no rights-of-way, no regulatory impediments
to entry, few, if any, construction course. There is no reason
that cable operators don't compete head-to-head on the Internet
for every eyeball, no matter where they are located. But their
proposal, called ``TV Everywhere,'' would actually restrict
that competition, tying the Internet product to their physical
cable product. In the lexicon of the cable industry, TV
Everywhere means competition nowhere.
Federal authorities must do more than just preserve the
current industry structure, which is riddled with
anticompetitive and anti-consumer institutions and practices.
They should seize this moment to implement the long-overdue
reform across the six areas that I mentioned in my testimony--
local markets, affiliate relations, cable program access, cable
carriage, Internet distribution, and independent programming.
If policymakers allow this merger to go forward without
fundamental reform of the underlying industry structure, the
prospects for a more competitive, consumer-friendly,
competition-friendly, multichannel video marketplace will be
dealt a severe blow.
Thank you.
[The prepared statement of Dr. Cooper follows:]
Prepared Statement of Dr. Mark Cooper, Director of Research, Consumer
Federation of America on behalf of Consumer Federation of America, Free
Press, and Consumers Union
Mr. Chairman and members of the Committee,
My name is Dr. Mark Cooper. I am the Director of Research at the
Consumer Federation of America. I appear before you today on behalf of
the Consumer Federation of America, Free Press and Consumers Union. We
appreciate the opportunity to share our views on media markets and a
merger that is unique in the history of the video market, one that will
go a long way toward determining whether or not the future of video
viewing in America is more competitive and consumer-friendly than the
past.
The merger of Comcast and the National Broadcasting Company (NBC)
is a hugely complex undertaking, unlike any other in the history of the
video marketplace. Allowing the largest cable operator in history to
acquire one of the Nation's premier video content producers will
radically alter the structure of the video marketplace and result in
higher prices and fewer choices for consumers. The merging parties are
already among the dominant players in the current video market. This
merger will give them the incentive and ability to not only preserve
and exploit the worst aspects of the current market, but to extend them
to the future market.
Comcast has sought to downplay the impact of the merger by claiming
that it is a small player in comparison to the vast video universe in
which it exists. It has also glossed-over the fact that this merger
involves the elimination of actual head-to-head competition. Finally,
it has argued that existing protections and public interest promises
will prevent any harms that might result from the merger. All three
claims are wrong.
Neither Comcast's regurgitation of market shares and counts of
outlets and products, nor its public interest commitments begin to
address the fundamental public policy questions and competitive issues
at stake in this merger. Nor can the merger of these companies be
viewed separately from the products they sell. NBC and Comcast do not
sell widgets. They sell news and information and access to the primary
platforms American use to receive this news and information. Control
over production and distribution of information has critical
implications for society and democracy. As a consequence, the merger of
these two media giants reaches far beyond the economic size of the
merging parties to the very content consumers receive, and how they are
permitted to access it.
Finally, if the size and scope of this merger is not sufficient to
give you pause, the past actions of the acquiring party should. Comcast
has raised cable rates for consumers every year, and is among the
lowest ranked companies in terms of customer service. Comcast is the
frequent subject of program access complaints of competing video
providers, as well as of discriminatory carriage complaints by
independent programmers. Finally, Comcast is on record lying to a
Federal agency regarding whether they blocked Internet users' access to
a competing a video application for anti-competitive purposes. These
past practices do not bode well for future competition if Comcast is
allowed to acquire NBC. Further, Comcast's lack of candor in past
proceedings cast doubt on the prudence of relying on Comcast's
voluntary public interest commitments as a means of addressing the
anti-consumer impacts of this merger.
The goal of mega-mergers such as this is to cut costs and increase
revenues. The most direct path to those outcomes are firing workers and
raising prices. Cutting jobs is hardly a laudable goal in the current
environment, but the primary ``synergy'' that mergers produce is the
ability to reduce employment by sharing resources between the commonly-
held companies. To expect the opposite to happen here based on the
evidence-free assertions of Comcast would be foolhardy. Simply put,
this merger is about higher prices, fewer choices, and lost jobs.
The Biggest Gets Bigger (And Stronger)
Comcast is the Nation's largest cable operator, largest broadband
service provider and one of the leading providers of regional cable
sports and news networks. NBC is one of only four major national
broadcast networks, the third largest major owner of local TV stations
in terms of audience reach, an icon of local and national news
production and the owner of one of a handful of major movies studios.
As large as Comcast is nationally, it is even more important as a
local provider of video services. Comcast is a huge entity in specific
product markets. It is the dominant multi-channel video programming
distributor (MVPD) in those areas where it holds a cable franchise,
accounting, on average for over half of the MVPD market. It is the
dominant broadband access provider in the areas where it has a cable
franchise, accounting for over half of that market. This dominance of
local market distribution platforms is the source of its market power.
The merger will eliminate competing distribution platforms in some of
its markets and will give Comcast control over strategic assets to
preserve and expand its market power in all of its markets.
Broadcasters and cable operators are producers of goods and
services that compete head-to-head, including local news, sports, and
advertising. In addition, NBC and Comcast are also suppliers of content
and distribution platforms, which are goods and services that
complement one another. In both roles there is a clear competitive
rivalry between them. For example, in providing complementary services,
broadcasters and cable operators argue about the price, channel
location and carriage of content. The merger will eliminate this
natural rivalry between two of the most important players in the multi-
channel video space, a space in which there are only a handful of large
players.
These anticompetitive effects of the merger are primarily what
antitrust practice refers to as horizontal effects, as shown in Exhibit
1. They are likely to reduce competition in specific local markets--
head-to-head competition in local video markets, head-to-head
competition for programming viewers, head-to-head competition for
distributions platforms. The merger will raise barriers to entry even
higher through denial and manipulation of access to programming and the
need to engage in two-stage entry. The merger will increase the
likelihood of the exercise of existing market power within specific
markets, and will increase the incentive and ability to raise prices or
profits.
The fact that some of the leverage is brought to bear because of
the link to complementary products (i.e., is vertical in antitrust
terms), should not obscure the reality that the ultimate effects are on
horizontal competition in both the distribution and programming
markets. The merger would dramatically increase the incentive and
ability of Comcast to raise prices, discriminate in carriage, foreclose
and block competitive entry and force bundles on other cable systems.
The merger enhances the ability of Comcast to preserve its position as
the dominant local MVPD, reinforce its ability to exercise market power
in specific cable or programming markets and extend its business model
to the Internet.
We raise these concerns about the merger based on eight specific
anti-competitive effects that the merger will have on the video market.
The attached exhibit presents the list of distribution and content
assets owned in whole or in part by these two companies. The exhibit
makes it crystal clear that they do compete head-to-head across a
number of product and geographic markets and the assets represent an
arsenal of complements that would be powerful ammunition to use as
leverage against existing competitors and new entrants.
Higher Prices, Fewer Choices, less Competition
The history of the cable industry since the passage of the
Telecommunications Act of 1996 has been a history of consolidation and
higher prices. We are all familiar with the fact that cable prices have
increase twice as fast as the rate of inflation since the 1996 (as
shown Exhibit 2, cable rates increased approximately 100 percent, while
Consumer Price Index increased about 50 percent). It is less widely
known, but equally important to note that the operating cash-flow of
the cable operators--that is the cash left over after all operating
expenses, including programming costs--has increased four times faster
than the rate of inflation. That is how during the worst recession
since the Great Depression, Comcast has secured the $6.5 billion in
cash necessary to pay General Electric for 51 percent of NBC-Universal.
Many of the processes that have operated in the cable market to enable
cable to push up prices and cash-flow in the decade and a half since
the telecommunications Act of 1996 will be reinforced and perpetuated
by this merger.
1. This merger will reduce choice and competition in local markets.
The merging parties currently compete head-to-head as distributors of
video content, in local markets. Because broadcasters own TV stations,
they compete with cable in local markets for audiences and
advertisers--especially in the production and distribution of local
news, and local and political advertising. This merger eliminates this
head-to-head competition in 11 major markets where NBC owns broadcast
stations and Comcast operates a cable franchise. These 11 markets
account for nearly a quarter of U.S. TV households.
This merger also eliminates a competitor for local and political
advertising. In fact, in 2006 NBC told the Federal Communications
Commission that local cable operators present the single biggest threat
to broadcasters in terms of securing local and political
advertising.\1\ The concentration of local markets and increase in
concentration created by this merger, as measured by local advertising
vastly exceed the level that should trigger close antitrust scrutiny
under the DOJ/FTC Merger Guidelines. Now that NBC is looking to merge
with Comcast, the potential elimination of this local competition has
been conveniently ignored. But Federal authorities cannot and should
not ignore the fact that a merger between Comcast and NBC is likely to
cause a significant decline in competition in local advertising markets
and excessive domination by the merged company. Not only will
advertisers lose an important option, but also the merger will be to
the detriment of other local broadcasters--particularly smaller,
independent ones--who are already facing ad revenue declines in an
economic downturn. A stand-alone broadcaster will not be able to offer
package deals and volume discounts for advertising across multiple
channels the way that Comcast/NBC will be able to do post-merger. That
means other local broadcasters will have less money to produce local
news and hire staff. To compete, rival broadcasters will have two
options: fire staff and reduce production of local news and
information; or consolidate in order to compensate for market share
lost to the new media mammoth.
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\1\ NBC Media Ownership Comments, FCC Docket 06-121 (filed Oct.
2006).
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2. This merger removes an independent outlet and an independent
source of news and information. These two companies compete in the
video programming market, where Comcast's regional sports and news
production compete with NBC's local news and sports production. By
acquiring NBC, Comcast's incentive to develop new programming would be
reduced. Instead of continuing to compete to win audience, it just buys
NBC's viewers. Where two important entities were producing programming,
there will now be one.
3. The merger will eliminate competition between Comcast and NBC in
cyberspace. NBC content is available online in a variety of forms and
on different websites and services. Most prominently, of course, NBC is
a stakeholder in Hulu--an online video distribution portal that draws
millions of viewers. Comcast has put resources into developing its own
online video site--``Fancast''--where consumers can find content owned
by the cable operator. The merger eliminates this nascent, head-to-head
competition.
Moreover, Comcast is the driving force behind the new ``TV
Everywhere'' initiative. This collusive venture--which we believe
merits its own antitrust investigation--would tie online video
distribution of cable content to a cable subscription and pressure
content providers to restrict or refrain from online distribution
outside of the portal. This is a disaster for video competition. The
proposed merger strengthens Comcast's hand in this scheme by increasing
their market power in both traditional and online video distribution.
Comcast is clearly attempting to control the distribution of the video
content it makes available on the web by restricting sales exclusively
to Comcast cable customers. It does not sell that content to non-
Comcast customers. By contrast, NBC has exactly the opposite
philosophy--or at least it did. Through Hulu, NBC is competing for both
Comcast and non-Comcast customers by selling video online that is not
tied to cable. NBC also has incentives to make its programming
available in as many points of sale as possible. Merger with Comcast
will put an end that pro-competitive practice. ``TV Everywhere'' is a
blatant market division scheme intended to extend the cable ``non-
compete'' regimen from physical space to cyberspace.
4. The merger will provide Comcast with greater means to deny
rivals access to Comcast controlled programming. Comcast already has
incentive to undermine competing cable and satellite TV distributors by
denying them access to critical, non-substitutable programming, or by
extracting higher prices from competitors to induce subscribers to
switch to Comcast. Post-merger it will have a great deal more content
to use as an anticompetitive tool. Comcast has engaged in these
anticompetitive acts in the past and by becoming a major programmer it
will have a much larger tool to wield against potential competitors.
Moreover, Comcast has opposed, and is currently challenging in court,
the few rules in place that would prevent it from withholding its
programming from competing services. Strangely enough, Comcast's CEO
promised Members of Congress in a previous hearing that the company
would continue to abide by these rules even if they were successful in
getting the court to throw them out. Yet Comcast continues to spend
shareholder dollars trying to overturn an FCC regulation that it
promises to follow regardless of the case's outcome. As a show of good
faith, we have asked Comcast to withdraw its suit. In response Comcast
has equivocated. Now it claims it made no such promise.
5. The merger will provide greater incentive for Comcast to
discriminate against competing independent programmers. Comcast already
has a strong incentive to, and significant track record of, favoring
its own programming over the content produced by others with
preferential carriage deals. Post-merger it will have a lot more
content to favor. The current regulatory structure does not appear
sufficient to remedy the existing problem and cannot be expected to
address the resulting post-merger threat to independent programmers.
The econometric analysis of program carriage indicates there is a great
deal of discrimination occurring already. The fact that the FCC is
continually trying to catch up with complaints of program carriage
discrimination is testimony to the existence of the problem and the
inability of the existing rules to correct it.
6. The merger will stimulate a domino effect of concentration
between distributors and programmers. The new combination will create a
major asymmetry in the current cartel model in the cable industry. It
brings together a large cable provider with a huge stable of must-have
programming and the largest wireline broadband platform in America.
Very likely, this will trigger more mergers and acquisitions because it
changes the dynamics of the market. But there will be no positive
competitive outcomes resulting from this change.
This merger signals that the old, anticompetitive game is still
on--but with a twist. Like all other cable operators, Comcast has never
entered the service territory of a competing multi-channel video
program provider, allowing everyone to preserve market power and
relentlessly raise prices. But Comcast's expanded assets and especially
its new leverage over the online video market will give it a
substantial edge against its direct competitors in its service
territory. The likely effect of the merger will be for other cable
distribution and broadband companies to muscle up with their own
content holdings to try and offset Comcast's huge advantage. In other
words, there is only one way to deal with a vertically integrated giant
that has must-have content and control over two distribution
platforms--you have to vertically integrate yourself. This merger would
send a signal to the industry that the decades old game of mutual
forbearance from competition will be repeated but at the next level of
vertical integration that spills over into the online market. Watch for
AT&T and Verizon to be next in line for major content acquisitions.
When that happens, it will be extremely difficult for any company that
is merely a programmer or merely a distributor to get into the market.
Barriers to entry to challenge vertically integrated incumbents will be
nearly unassailable. The only option may be a two-stage entry into both
markets at the same time--which is an errand reserved only for the
brave and the foolish.
7. By undermining competition this merger will result in higher
prices for consumers. Comcast already raises its rates every year for
its cable subscribers, and prices are likely to rise further after the
merger. By weakening competition, Comcast's market power over price is
strengthened, but there are also direct ways the merger will push the
price to consumers up. Comcast will have the opportunity and incentive
to charge its competitors more for NBC programs and force competitors
to pay for less desirable Comcast cable channels in order to get NBC
programming--those added costs will mean bigger bills for cable
subscribers. Furthermore, the lack of competitive pressure that has
failed to produce any appreciable downward pressure on cable rates
since 1983, will not discipline Comcast from raising its own rates.
8. This merger will result in higher prices for consumers through
the leveraging of ``retransmission rights.'' Recently, disputes over
retransmission consent payments between broadcasters and cable TV
providers have escalated to the point where local television stations
have pulled their broadcast signals from cable operators--leaving
consumers without access to important local news and entertainment
programming. Comcast's takeover of NBC will exacerbate this trend.
Through its takeover of local NBC broadcast stations, Comcast will gain
the retransmission consent rights to negotiate fees for cable carriage
of NBC's broadcast signals. These rights will enable Comcast to
leverage control over must-have local programming and larger bundles of
cable channels to charge competing cable, telco and satellite TV
providers more money for content. Once Comcast acquires NBC, it will a
two-fold incentive to drive-up retransmission rates for NBC broadcast
stations: first, higher rates mean more revenues for Comcast. Even if
Comcast also pays those higher rates, it is essentially charging
itself. Second, Comcast has a strong incentive to raise rates on
competitive MVPDs to force them to either absorb these extra costs, or
to pass them through to consumers who will then have an incentive to
switch to Comcast. Moreover, if retransmission consent negations reach
a stalemate, Comcast has additional incentive to pull NBC's signal from
competing pay TV operators as a way to induce customers to switch to
Comcast. Either way Comcast wins, but consumers and competition are
caught in the crosshairs.
Empirically Grounded, Responsible Merger Analysis v. ``Do Nothing
Theory''
In response to my February 4, 2010 testimony in the House Commerce
Committee and the Senate Judiciary Committees, the Free State
Foundation has posted a rebuttal by Richard Epstein, a law professor at
the University of Chicago and a Senior Fellow at the Hoover
Institution.\2\ His response to my testimony is an example of the
predictable chorus of free market ideologues who inevitably parrot the
claims of the merging parties that new efficiencies will benefit
consumers and that there is more than enough competition to prevent
abuses.
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\2\ Richard Epstein, ``The Comcast and NBCU Merger: The Upside Down
Analysis of Dr. Mark Cooper,'' Perspectives from FSF Scholars, 5:4,
February 12, 2010.
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Thankfully, the era of ``don't worry, be happy'' antitrust
enforcement in America is over.\3\ Professor Epstein's approach to
merger analysis reflects all of the worst weaknesses of the Chicago
School approach that he espouses. It is based on pure theory, no
facts.\4\ Moreover, it is premised on a theory that is biased toward
the approval of mergers \5\ because it favors the creation of monopoly
rents \6\ by dominant firms \7\ and ignores the importance of dynamic
efficiency and disruptive entrants and mavericks.\8\
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\3\ This critique of the Chicago School is amply documented in
Robert Pitfosky (Ed.), How the Chicago School Overshot the Mark: The
Effects of Conservative Economic Analysis on U.S. Antitrust (Oxford:
Oxford University Press, 2008). On the under enforcement that results
from the Chicago school approach see 6, 36, 244-247.
\4\ Id., at 5, 42, 57, 82.
\5\ Id., at 48, 52, 123.
\6\ Id., at 6, 37-38, 85, 183.
\7\ Id., at 86, 127, 165.
\8\ Id., 79-81.
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Professor Epstein ignores the mountain of evidence that there are
numerous clearly defined markets in which Comcast and NBC compete head-
to-head. In part this stems from the fact that he never attempts to
define product and geographic markets. This failure is rooted
conceptual and empirical flaws in his approach. On the one hand, the
Chicago School approach assumes that self-correcting markets will
automatically respond to the market power created by mergers,\9\
because entry is easy.\10\ One the other hand, the approach defines
markets too broadly \11\ and underestimates the importance of
horizontal market power.\12\
---------------------------------------------------------------------------
\9\ Id., at 5.
\10\ Id., at 42, 236.
\11\ Id., 243.
\12\ Id., 27, 57, 80, 126.
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Efficiency gains and benefits are overblown in the Chicago School
approach. Indeed, they are used as an excuse to justify market power,
rather than an empirically demonstrated fact.\13\ All merging parties
claim efficiency gains and ``synergies'', though few actually deliver
on those promises. Nevertheless, the Chicago School treats those claims
as a bona fide magic wand that blesses every merger that comes
along.\14\ Professor Epstein provides no evidence of efficiency gains
or that the assumed benefits will be passed on to consumers and ignores
the importance of wealth transfers as a consumer harm that can result
from mergers, weaknesses that are endemic to this school of
thought.\15\
---------------------------------------------------------------------------
\13\ Id., at 5, 18, 42, 263.
\14\ Id., at 5.
\15\ Id., at 90, 263.
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The theoretically induced blindness to horizontal problems of this
merger is matched by the utter ignorance of the vertical problems that
it poses.\16\ Abuse of vertical leverage has long been recognized as a
critical problem that is ignored by Chicago School theory.\17\ The
cable industry has long been afflicted by the use of vertical leverage
to undermine horizontal competition and Comcast has been in the
forefront of that practice.\18\ Empirical studies have repeatedly shown
that by discriminating against independent programmers in affording
carriage, cable operators have advanced the interest of their own
programming and undermined the prospect for independent programming,
impairing competition in content markets. By denying competing
distribution platforms access to video content, cable operator have
retarded competition in the distribution market, a practice that has
led to repeated disputes at the Federal Communications Commission.
---------------------------------------------------------------------------
\16\ Id., at 52, 127, 141.
\17\ Id., at 148-149.
\18\ Mark Cooper, Cable Mergers and Monopolies: Market Power in
Digital Media and Communications Markets (Washington, D.C.: Economic
Policy Institute, 2002).
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The bitter fruit of lax, ``don't worry, be happy'' antitrust
enforcement has been tasted by the public in the approval of a string
of mergers that have allowed the MVPD market to become concentrated and
sustained the constant increase in prices in the cable industry.
Professor Epstein asks us to ignore this central fact of life in the
MVPD market because Chicago School Theory pays little attention to
consumer welfare.\19\ Responsible antitrust authorities cannot do so.
---------------------------------------------------------------------------
\19\ Id., at 93-97.
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The track record of past mergers and merger conditions has become a
bone of contention in the Comcast NBC case. In a thin attempt to soothe
worries regarding the merger, merger supporters have listed a number of
recent media and communications mergers, which they claim, did not
result in the sky falling-in on consumers (to wit, AT&T-SBC, Verizon-
MCI, News Corp.-DirecTV, AOL-Time Warner, XM-Sirius). However, in
referencing past mergers as a defense, supporters of the present merger
draw the wrong conclusions in four crucial respects.
First, these mergers pale in comparison to consolidation of control
over both programming production and distribution that would occur as a
result of a Comcast takeover of NBC. The Comcast-NBC merger is much
larger and involves uniquely anticompetitive threats resulting from the
marriage of a major video content producer to the Nation's largest
cable television provider and broadband service provider.
Second, many of these past mergers were prevented from doing their
worst because, in every case, antitrust authorities imposed important
conditions to prevent the anticompetitive, anti-consumer harms that the
consolidation would have produced. These conditions were, of course,
opposed by the Chicago School ideologues, just as they now oppose the
imposition of any conditions on the current merger.
Third, virtually all of these mergers all resulted in consumer
harm, even in spite of conditions that helped to mitigate the damage to
some extent. The telecom mergers, in particular were disastrous for
consumers. They eliminated major competitors in the marketplace for
wireline broadband service, reversed the outcomes of the pro-
competitive breakup of AT&T and the pro-competitive 1996
Telecommunications Act, and delivered a wireline duopoly that has
resisted meaningful price competition ever since. These mergers also
resulted in massive consolidation in the wireless industry (by virtue
of granting huge market power to these wireline companies that also had
wireless services)--pushing AT&T and Verizon into dominant positions
that are quickly giving us the same problems in mobile communications.
Finally, these mergers did not produce the synergies and
efficiencies that these companies promised. Instead, the claims of
efficiency, that were used to justify mergers in the past decade, were
vastly overblown or failed to materialize at all. The ``efficient
market hypothesis'' at the center of the Chicago School analytic
framework, which allowed companies to wave a magic efficiency wand and
blind the antitrust authorities to the anticompetitive impact of
merger, was the cornerstone of the ``don't' worry, be happy'' era. The
``efficient market hypothesis'' is crumbling; buried, if not dead,
beneath the rubble of the financial system.\20\
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\20\ The charge that set off the implosion of the theory was
ignited by Allan Greenspan's admission that there is a fundamental flaw
in the theory. ``Those of us who looked to the self-interest of lending
institutions to protect shareholders' equity, myself included, are in a
state of shocked disbelief. Such counterparty surveillance is a central
pillar of our financial markets state of balance. . . . If it fails, as
occurred this year, market stability is undermined . . . ``I made a
mistake in presuming that the self-interests of organizations,
specifically banks and others, were such that they were best capable of
protecting their own shareholders and their equity in the firms (U.S.
House of Representatives, Committee on Oversight and Government Reform,
October 23, 2008) This has set off a series of analyses on all sides
that retrospectively examine the cracks and weaknesses in the
intellectual structure that should have been recognized (see for
example Justin Fox, The Myth of the Rational Market: A History of Risk,
Reward and Delusion on Wall Street (New York: Harper Collins, 2009);
Richard Posner, A Failure of Capitalism: The Crisis of and the Decent
Into Depression (Cambridge: Harvard University Press, 2009); John
Cassidy, How Markets Fail: the Logic of Economic Calamities; New York:
Farrar, Straus and Giroux, 2009). There were, of course, critics who
recognized the problems much earlier, but whose warnings went unheeded
(see for example, Joseph E. Stiglitz, The Roaring Nineties (New York:
Norton, 2003); Robert Pollin, Contours of Descent: U.S. Economic
Fractures and the Landscape of Austerity (Verso, 2005); Frank Portnoy,
Infectious Greed (New York Holt, 2003); Robert Schiller, Irrational
Exuberance (New York: Currency/Doublday, 2005); Pitofsky, op. cit.;
George Cooper, The Origin of Financial Crises: Central Banks, Credit
Bubbles and the Efficiency Market Fallacy (New York: Vintage, 2008).
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A Comcast/NBC Merger Should Not Be Allowed to Proceed Without Major
Structural Reforms of the Video Market
The merger has so many anti-competitive, anti-consumer, and anti-
social effects that it cannot be fixed. Comcast's claim that FCC
oversight will protect the public is absurd. Moreover, such claims are
undercut by the fact that Comcast is presently opposing the very rules
it says will prevent it from anticompetitive conduct. The challenges
that this merger poses to the future of video competition cannot be
ignored, or brushed aside by reliance on FCC rules that have yet to
remedy current problems and, thus, are ill-equipped to attend to the
increased anticompetitive means and incentives that will result from
Comcast's acquisition of NBC. The FCC rules have failed to break the
stranglehold of cable to-date. There is no reason to believe they will
be better able to tame the video giant that will result from this
merger.
Further, any suggestion that the public interest commitments
Comcast has made will solve these problems is misguided. Temporary
band-aids cannot cure long-term structural injuries. Comcast's promises
lack substance and accountability. More importantly, the commitments do
not begin to address the anticompetitive effects of the merger. Many of
Comcast's commitments amount to little more that a promise to obey the
law. Where they go beyond current law, they largely fall within the
company's existing business plans. Anything beyond that is meager at
best, and in no way substitutes for the localism and diversity that a
vigorously competitive industry would produce.
We recognize that the company has made some promises that address
some specific concerns of Members of the Congress and this committee.
We appreciate the fact that everyone recognizes that those special
interest promises are far from adequate to protect the interests of the
broader public. So in my remarks today I will take up the challenge
that some members of the Committee have laid down in terms of
identifying the conditions that would begin to address the broader
problems with this merger and in this industry. I emphasize the
structure and process of enforcement of conditions, rather than the
details.
First, all of the major areas of competitive concern should be
addressed, in addition to the localism and diversity areas that Comcast
has admitted are a problem--local markets/affiliate relations, cable
program access, cable carriage, Internet distribution, independent
programming in broadcast and prime time. If Federal authorities allow
this merger to go forward, they should not merely impose conditions on
the merger, they should reform the regulatory structure of the industry
to address the underlying problems that this merger will make much
worse. The only way to address the harm that this merger will do to
competition and consumers is to address the underlying problems that
afflict video consumers in America.
To ensure that the conditions are enforceable, we believe that the
Federal authorities with oversight over this merger should complete
industry-wide proceedings that address the underlying problems before
the merger is approved. In every one of the areas where we believe that
broad public interest is at risk, there is a pending proceeding or
complaint that provides the opportunity to address the underlying
problems in the industry that would be made so much worse by this
merger. When it comes to relations between the networks and their
affiliates, cable program access, cable program carriage, and
independent programming on broadcast networks, the FCC has available
vehicles to move quickly to adopt strong rules to protect the public.
The antitrust authorities have been asked to examine the anti-consumer,
anticompetitive market division scheme Comcast is pushing for Internet
distribution of video content. These agencies should act to outline the
rules of the road and create the institutional structures that will
prevent the abuse of market power and promote competition in the MVPD
market.
Once these industry-wide mechanisms are in place, the agencies
should then consider whether additional conditions are necessary to
meet the unique threat to competition and the public interest embodied
in this merger.
Finally, Federal authorities must not only impose meaningful
conditions with enforceable sanctions, but Comcast should also agree
not to challenge the legality of the conditions or render aid and
comfort to those who do. If they challenge the legality of the
regulatory mechanisms that underlie any of the major conditions imposed
on the merger that should immediately trigger a reconsideration of the
merger and a reconsideration of the transfer of the broadcast licenses
in a proceeding that is treated as a de novo review of the merger.
Since Comcast has volunteered to give up its right to stop obeying a
law in the event it is declared illegal or unconstitutional, it should
have no problem giving up it right to challenge such a law.
Fundamental Reform Is Long Overdue, Federal Authorities Should Seize
the Moment of the Largest Merger in History to Jump Start the
Reform Process
Over the past quarter century there have been a few moments when a
technology comes along that holds the possibility of breaking the
chokehold that cable has on the multi-channel video programming market,
but on each occasion policy mistakes were made that allowed the cable
industry to strangle competition. This is the first big policy moment
for determining whether the Internet will function as an alternative
platform to compete with cable. We all hope the Internet will change
everything in the video product space, but it has not yet. According to
the Nielsen ``Three Screen Report,'' 95 percent of TV viewing and 90
percent of the time spent with the media is still the traditional
media. If policymakers allow this merger to go forward without
fundamental reform of the underlying industry structure, the prospects
for a more competition-friendly, consumer-friendly multi-channel video
marketplace will be dealt a severe setback.
It is only by taking the approach I have outlined that Federal
authorities can do more than just preserve the current industry
structure, which is riddled with anticompetitive and anti-consumer
institutions and practices, that they can improve the terrain of the
American video marketplace. This merger is an opportunity to jump-start
the industry reform process.
I urge policymakers to think long and hard before they allow a
merger that gives the parties incentives to harm competition and
consumers, while increasing their ability to act on those incentives.
This hearing should be the opening round in what must be a long and
rigorous inquiry into a huge complex merger of immense importance to
the American people. It should be the first step in a review process
that concludes the merger is not in the public interest and should not
be allowed to close.
Senator Dorgan. Dr. Cooper, thank you very much.
Ms. Abdoulah, you may proceed. Thank you.
STATEMENT OF COLLEEN ABDOULAH, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, WOW!; BOARD MEMBER, AMERICAN CABLE ASSOCIATION
Ms. Abdoulah. Hi. I appreciate the opportunity to represent
WOW! and the 900 small and medium-sized companies who are
members of the ACA.
WOW! is a broadband competitive provider in five Midwest
markets. One million of our households compete directly with
Comcast in Michigan and Illinois. We differentiate ourselves
through the customer experience that we provide, and customers
appreciate having a choice.
They recently recognized us as the number-one cable,
Internet, and phone provider in last month's Consumer Reports.
They have recognized us with 10 J.D. Power awards.
Our customer-centric approach really works. We know how to
compete. We are not here today to ask for favors from you, or
Government assistance, or special advantages. We are here as a
buyer of content, both cable and online.
The prospect of having Comcast-NBCU combining their
programming, much of which has been deemed by the FCC as
``must-have,'' will give them significantly more market power.
And I believe that should concern you on behalf of consumers.
We are going to pay substantially more for the programming that
we distribute today if this merger is approved without
conditions, and we will have no other choice but to pass that
on to consumers.
And let me explain specifically why they will have more
market power after the deal goes through. Comcast, as you know,
is not just a large cable operator. It is also a significant
owner of programming, including 10 must-have regional sports
networks. And you can imagine how hard it would be to compete
in our markets without local sports.
Then NBC has 10 broadcast networks, also must-have. NBC
owns popular cable networks that we need in order to compete.
Comcast owns cable channels. You combine all that together,
that is increased market power. And, post-merger, we will be
negotiating with one consolidated entity with much greater
leverage to extract higher prices and broader distribution of
their programming. And I know this because it happens today.
In a filing with the FCC, Suddenlink, another cable
provider, demonstrated when they had to negotiate with one
company for two must-have broadcast stations in their same
market, their rates were 20 percent higher than in markets
where Suddenlink negotiated on a station-by-station basis. And
our experience at WOW! validates this experience, these kind of
fees, and higher. And I am told that the DOJ finds a proposed
transaction is anticompetitive if prices are likely to go up by
more than 5 percent after a deal closes.
So here are the harms that will result from the merger if
it is not conditioned. Operators like WOW! are charged higher
prices. As a result, consumers will pay more. Comcast will use
its increased market power to demand that operators like WOW!
carry additional networks not watched or wanted by customers.
Mr. Roberts himself was quoted a few weeks ago that
services like Comcast's G4 channel would ``enjoy the benefit of
NBCU's scale.'' To me, that means more bundling, more tying of
low-value networks with high-value networks, and charging more.
And for direct competitors to Comcast, they will have every
incentive to deny us both online content and advanced services.
And in defense of my concerns, Comcast has offered to abide
by little more than the existing program access rules. These
concessions are meaningless since the program access rules fail
to remedy abuses today and will continue to be meaningless if
the merger is approved without conditions and reform.
Here are the problems that need to be addressed
specifically. Program access rules provide no automatic right
to continued carriage of the network while the case is pending,
and we all know the impact that has on customers. Program
access rules are rife with loopholes that allow for
discriminatory pricing. There is no price transparency to allow
the FCC to resolve program access disputes. And finally, the
current arbitration process is limited only to must-have sports
programming and broadcast stations, and it is time-consuming
and costly. So much so that it is beyond the means of any ACA
member to utilize.
So, in closing, I believe companies like WOW! are just the
kind of competitors sought in the 1992 and 1996 Acts. I am not
here to suggest that the merger not be approved. However, I am
here to say that the FCC and DOJ need to consider structural
and behavioral relief such as stronger, more effective program
access requirements. The goal has to be to prevent increased
consumer pricing, preserve competition, and most of all, set a
positive precedent for future mergers of this type.
Thank you for having me.
[The prepared statement of Ms. Abdoulah follows:]
Prepared Statement of Colleen Abdoulah, President and Chief Executive
Officer, WOW!; Board Member, American Cable Association
Chairman Rockefeller, Ranking Member Hutchison, and members of the
Committee, thank you for inviting me to appear today to testify on the
proposed combination of Comcast and NBC Universal. My name is Colleen
Abdoulah, President and CEO of WOW!, a terrestrial-based, mid-sized
competitive provider of cable television and other broadband-related
services operating in Illinois, Indiana, Michigan and Ohio.\1\ In those
markets, we face some of the most intense competition in the United
States, going toe-to-toe with multiple providers of video, Internet,
and voice service. We also, by the very nature of our business, are a
major consumer of programming on behalf of our subscribers. WOW!
negotiates programming deals with some of the largest media
conglomerates to secure rights to distribute broadcast stations and
cable networks that are essential to our company's viability in the
market.
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\1\ WOW! began operations in March 2000 in the Denver market, and
in 2001 it acquired Ameritech's extensive competitive cable television
systems in the Midwest. Today, it serves approximately 465,000
customers.
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I am here today both in WOW!'s capacity as a consumer of
programming and competitive MVPD (Multichannel Video Programming
Distributor) to tell the Committee that the proposed combination of
Comcast and NBC Universal is a major transaction--bringing together key
programming assets from both companies as well as joining that
programming with Comcast's extensive cable assets--that would cause
significant horizontal and vertical harms, threatening both consumers
and competition. The Federal Communications Commission (FCC) or the
Department of Justice (DOJ) must impose robust relief to remedy these
harms.
I. Introduction to WOW! and the American Cable Association
Customers appreciate having a choice of communications providers,
and when they choose WOW!, it is because we offer great value at a fair
price. Our true differentiation is the customer experience we provide,
from the products we offer to how we sell, install, and service our
customers. It is for that reason that I am especially proud that
Consumer Reports just ranked WOW! as the ``Number 1'' provider of
video, Internet, and voice services in the United States, outperforming
AT&T, Verizon, Comcast, and satellite providers. In addition, in 2009,
we were ranked highest by J.D. Power and Associates for overall
customer satisfaction among television, Internet, and residential phone
providers in the North Central Region. WOW! has received 10 of these
awards in the past 5 years. These awards are not serendipitous. Since
our inception, WOW! has been dedicated to caring for and respecting our
customers, and it is heartening that in turn our customers appreciate
what we do for them.
WOW! is a major consumer of content from Comcast and NBC Universal.
It carries the majority of NBC Universal's 14 national cable networks
on all of its systems, and the NBC and Telemundo Owned & Operated (O&O)
stations in the relevant markets we serve. We also distribute most of
Comcast's 5 national cable networks and its Regional Sports Networks
(RSNs) in their relevant markets.\2\
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\2\ The Federal Communications Commission (FCC) classifies some of
this content as ``must have'' programming, and we know that other
content is much in-demand by our customers. In reviewing this proposed
combination, it is not critical that content be ``non-replicable'' or
``must have''--only that the content be sufficiently desirable to
enable the entity owning or controlling it to possess market power as a
result. Moreover, once an entity has ``market power content,'' it can,
and many do today, leverage it in a number of ways, many of which are
discussed in this testimony. For instance, television network owners
with market power today, bundle their low-value content with higher-
value networks, which in essence compels WOW! to carry non-consumer
requested programming.
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In addition to being a consumer of programming, in our Chicago and
Detroit markets, covering approximately 1 million households, WOW!
competes directly with Comcast's cable systems. It also competes with
both Comcast and NBC's television stations in the local advertising
market and now with their Internet distribution platforms. In sum, WOW!
has a major vested interest in the Federal Government's review of the
proposed combination to ensure that it neither harm consumers nor a
vibrant competitive marketplace.
I am also here on behalf of the American Cable Association (ACA),
which represents approximately 900 smaller MVPDs that operate in every
state. Just like WOW!, all of these providers are consumers of content
controlled by Comcast and NBC Universal, and many of them compete as
described above. More specifically, all ACA members purchase national
programming from Comcast and NBC Universal; more than 100 purchase
programming from Comcast's RSNs; and, more than 20 purchase programming
both from a Comcast RSN and a NBC Universal O&O television station in
the same market. Moreover, in addition to WOW!, more than 35 ACA
members compete directly against Comcast's cable systems, including in
West Virginia, California, Maryland, and Washington. So, harms caused
by the proposed combination will be felt across the country.
II. Overview of Harms from the Proposed Combination and Focus of Relief
In addressing the proposed combination of Comcast and NBC
Universal, it is important for the Committee to understand at the
outset that Comcast and NBC Universal have already admitted that the
deal raises competitive concerns and have proffered a series of
voluntary, albeit insufficient, commitments to address these
concerns.\3\ Of course, Comcast and NBC Universal have greatly
understated both the type and extent of harms that would result should
this proposed combination be approved by the FCC and the DOJ. Let me
summarize our concerns with the transaction:
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\3\ While on their face the Comcast-NBC Universal ``commitments''
may superficially reflect access to programming (broadcasting and
otherwise) concessions, in reality they provide neither material
certitude of program access nor assurance of a level playing field with
regard to terms and conditions for access. For example, using the same
methodology for resolution of discriminatory pricing and terms in
future Comcast-NBC Universal retransmission agreements as exists under
the FCC's Program Access Rules (which are slated to expire in 2012) is
a remedy without a solution given the time and cost of seeking a
resolution and discontinuance of program access during the pendency of
a complaint.
First, the harms. This is an unprecedented deal, which, if
consummated, would substantially increase the market power of
Comcast, threatening consumers and competition in the
traditional, and the rapidly evolving Internet, content and
distribution arenas. Contrary to the claims of Comcast and NBC
Universal, the proposed combination is not a mere vertical
integration of Comcast's distribution assets with NBC
Universal's programming assets--which by itself would raise
competitive concerns.\4\ Rather, the deal is also a horizontal
combination of key content assets of the two firms, giving
Comcast substantially increased market power that it would
employ either to withhold content or extract additional fees
and impose unreasonable carriage requirements from video
distributors across the country. The harm would be especially
great for video distributors that compete directly with
Comcast's cable systems. The harm also would extend to the
evolving online marketplace where Comcast could either withhold
content from competitors or impose higher-fees and
discriminatory or other unreasonable conditions for carriage.
In the end, should this proposed combination be approved, as
programming fees ratchet-up and MVPDs are forced to carry low-
value networks, consumers across the country will see
significant increases in prices to access video programming,
both via traditional cable services and online.
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\4\ The vertical integration issues raised by the proposed
combination, of course, raise anticompetitive concerns that the FCC and
Department of Justice must address.
Second, the relief. In fashioning relief to address the
anticompetitive harms caused by the proposed combination, it
would be a grave error to rely on the current Program Access
statute and rules or upon conditions, including arbitration,
agreed to in previous mergers with programmers and
distributors. Both are riddled with so many loopholes and flaws
and are so costly and resource-intensive that they are simply
ineffective in remedying access to programming issues,
particularly for smaller operators most vulnerable to market
power abuses. Rather, the FCC and the DOJ need to develop both
robust structural relief, including divestitures, and
behavioral relief, including much stronger program access
requirements, if the severe harms are to be remedied.
III. The Proposed Combination is Unprecedented and Will Greatly Enhance
Comcast's Market Power
I have been in the cable industry for more than 25 years and have
tremendous respect for Comcast and Brian Roberts and for NBC Universal
and Jeffrey Zucker and their employees. Over the past decade, these
gentlemen and their two firms have amassed a series of impressive
assets.
Through strategic acquisitions, Comcast has become the country's
largest cable operator with 23.8 million subscribers, and the largest
residential broadband access provider with 15.7 million customers. In
recent years, Comcast also has emerged as a major cable content owner,
including its 10 highly powerful Regional Sports Networks, or RSNs--
which MVPDs must carry to compete effectively. It also owns such cable
networks as the Golf Channel, E! Entertainment Television, Style
Network, Versus, and G4. Moreover, it has a robust video-on-demand
platform, and has developed a TV Everywhere type of service (Fancast
Xfinity TV) where cable programming is streamed over the Internet only
for its cable customers.
NBC Universal also controls key assets in the broadcast and cable
programming markets, including the NBC network, 10 NBC O&O broadcast
stations, 15 Telemundo O&O broadcast stations, and 14 popular cable
networks, including the #1 rated USA Network, and others, like Syfy,
Bravo, CNBC, MSNBC, and Oxygen. For MVPDs, most of this programming
also is considered ``must have.'' The company also is an owner of the
Internet-provided Hulu platform.
As I indicated at the outset of my testimony, WOW! competes
directly with Comcast and NBC Universal, and we have more than held our
own in competing against other MVPDs despite having fewer customers and
resources. WOW! has no problem with robust competition.
However, when the programmers from whom you purchase content all of
sudden acquire substantial additional key programming assets, problems
are certain to ensue. Moreover, when your competitor also is a major
vendor, supplying video content essential or important for any
competitive provider to access, issues constantly arise.
Over the years, WOW!, like most of us in the cable industry, has
wrestled with each of these two firms individually to obtain content,
and there is little doubt they have used their market power in these
negotiations to extract additional value and obtain an advantage in the
distribution market. What concerns me and I believe should concern the
FCC, DOJ, and you about this proposed combination is that the problems
WOW! sees in the current market are surely going to be exacerbated when
the two firms come together. Those problems harm the consumer and the
overall marketplace in many ways, including by abnormally inflating
prices, reducing distributors' ability to tailor program offerings to
consumer interests, and ultimately limiting advanced broadband services
as distributors are forced to expend bandwidth for services consumers
do not want.
A. Current (Pre-Combination) Problems Faced by WOW! and Smaller MVPDs
in
Accessing Content
To understand the harms that will occur post-combination, it is
first essential to understand the anticompetitive acts that occur in
the industry today. Because I am forbidden by confidentiality clauses
in agreements with Comcast and NBC Universal from disclosing specific
terms and conditions, I will describe for the Committee general and
frequent problems that MVPDs have encountered and currently face when
negotiating content deals.\5\ These should provide you with a more
complete understanding of why today's system is not as consumer-centric
as it could and should be and why, after this combination, consumers
and non-vertically integrated competitive providers such as WOW! will
be even more disadvantaged. Anticompetitive behavior such as the
following regularly occur:
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\5\ Confidentiality clauses are important to preserve the integrity
of the negotiation process and relations between firms. However,
government entities are entitled to receive agreements despite these
clauses if they issue a subpoena or make a similar demand. WOW! and ACA
members intend to cooperate fully with the FCC and the Department of
Justice as they review the proposed combination and will respond
promptly to all demands for information.
1. In negotiations for retransmission consent agreements, major
owned-and-operated television network stations have conditioned
any agreement with MVPDs upon carriage of infrequently-viewed
networks because it drives their advertising revenues. As a
result, the MVPDs were unable to carry networks with greater
viewership or niche networks requested by their subscribers,
and, because these ``extra'' networks used valuable bandwidth,
the MVPDs were constrained in dedicating increased bandwidth
---------------------------------------------------------------------------
for advanced, higher-speed broadband services.
2. An MVPD attempted to negotiate a carriage agreement with a
network that is partially owned by a large content provider.
The network refused to grant the MVPD carriage rights for
advanced platform content it was thinking about deploying--HD,
VOD, and online. However, the network reserved the right to
provide this advanced content on an exclusive basis, or simply
at more favorable terms, to larger competing providers
operating in the same markets. This would have the effect of
making the MVPD's product offerings less competitive with these
larger providers, thus limiting consumers' traditional and
online choices.
3. Content providers with market power are increasingly
demanding ``take it or leave it'' rate ``resets'' during
contract renewal negotiations, enabling them to automatically
pass-through increased content costs. Consumers are harmed by
the pass-through of some of these inflated costs; the competing
MVPD is harmed when it must absorb the remaining costs, thereby
diminishing the resources needed to offer content from smaller
providers as well as implement advanced services.
4. Content providers with significant market power sometimes
demand a higher penetration of distribution for their video
services from smaller operators than they do from larger
distributors. If even a relatively small number of new or
existing video subscribers choose the lower-cost ``broadcast
basic'' tier, the penetration of the higher-cost ``expanded
basic'' tier could fall below the required penetration floor.
The only remedy in that case would be to migrate the cable
network(s) in question to the Limited Basic tier of service,
forcing additional programming cost on those subscribers who
may least be able to afford it--and, in the process, causing
the entry-level video offering to become less competitive from
a retail pricing perspective than that offered by large
competitors who may not have equivalent penetration
requirements.
B. Horizontal and Vertical Harms to Competition Arising from the
Proposed Comcast-NBC Universal Combination
With the proposed combination, the issue is whether post-
combination Comcast is able to use the newly aggregated assets and
market power to engage in substantially enhanced anticompetitive
activities, including by raising prices significantly, withholding or
discriminating in providing access, mandating uneconomic tiering or
minimum penetration requirements, or forcing unreasonable tying or
bundling arrangements. The readily proven response is that of course it
does given the assets that the combined entity will control post-
combination and given the current anticompetitive behavior of the two
firms.
While couched in terms of synergies and growth opportunities, at
its heart, the Comcast-NBC Universal deal is principally driven by the
aim to lock up a wider array of key content (a horizontal combination)
and use that enhanced power to extract higher prices from purchasers
and also to use that power vertically to reduce or eliminate
competition, in either traditional or Internet-based markets. Let me
elaborate.
Horizontal Harms
The DOJ and Federal Trade Commission have adopted policies to
govern mergers with horizontal effects, the Horizontal Merger
Guidelines. These policies contain a rigorous framework the agencies
use to determine whether a merger is ``likely substantially to lessen
competition'' and the focus is on whether the merger will enable the
entity to enhance its market power or facilitate its exercise. The key
is to focus on the overlap of assets between the two merging entities
to determine if, when combined, it will result in the entity possessing
sufficiently greater power in the market.
As discussed at the outset of my testimony, setting aside the fact
that Comcast is the largest cable operator in the United States, it
owns or controls significant programming assets, including 10 RSNs and
a variety of national programming networks. NBC Universal also owns or
controls the NBC O&O stations and a great array of cable programming
networks. As I will discuss below, by combining these overlapping
assets, Comcast will significantly increase the market power of the
combined entity in programming markets across the country. As a result,
pay television providers that purchase programming from the entity will
pay higher prices and be burdened with more restrictive terms and
conditions for this programming which will be passed on to subscribers.
In a series of rulings over the past 5 years--one just recently
\6\--the FCC has determined that sports programming was ``non-
replicable'' or ``must have.'' In other words, a video distributor such
as WOW! or another ACA member could not succeed if it could not give
customers access to such programming. The Commission has reached a
similar conclusion for television network programming, which combines
the value of prime-time content with extensive sports content. It also
should be noted that a bundle of cable programming, which is how such
programming is normally sold, can become similar to ``must have''
individual programming depending on its overall ratings. A main driver
of the proposed combination is to ``lever'' the market power of these
``must have'' content anchors--Comcast's RSNs, NBC's O&O stations, and
NBC's extensive cable programming networks--and squeeze unaffiliated
downstream multi-channel video providers to extract appreciably higher
fees.\7\
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\6\ In the Matter of Review of the Commission's Program Access
Rules and Examination of Programming Tying Arrangements, First Report
and Order, MB Docket No. 07-198 (rel. Jan. 20, 2010) at 8.
\7\ In their application to transfer control filed Jan. 28, 2010
with the FCC, Comcast-NBC Universal contend there is not an issue with
regard to RSNs arising from the proposed combination. However, they
only arrive at this contention by artificially pigeon-holing RSNs into
their own submarket. In this testimony, WOW! has provided one example
of how RSNs and local television networks compete directly, which
demonstrates the fallacy of Comcast-NBC Universal's market definition,
and other distributors and WOW! can provide additional evidence
supporting a conclusion that a more expansive market definition is
justified.
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In the post-combination world Comcast will have sufficient
additional market power that it can create its own economic reality and
make one plus one equal five. This makes all distributors in the United
States quake as they will be forced to pay more for the content so
essential to their businesses. Further, it means that American
consumers will pay more as well. This is the antithesis of a pro-
competitive deal.
An example will help make this point clearly. In Chicago today,
WOW! carries 19 networks from Comcast and NBC Universal, including both
Comcast's RSN and NBC's O&O television station. We negotiate separately
with the two firms, and I know firsthand that each firm leverages its
existing ``market power content'' to the maximum extent. But, at least,
Comcast and NBC Universal bargain independently, not knowing what the
other would do. In other words, neither is completely certain of the
effect on WOW! if all of this ``must have'' programming were withheld.
Obviously, post-combination, that all changes. It will be as if Comcast
and NBC Universal could collude today with each knowing how the other
will bargain with WOW!. In the end, WOW! will pay more for programming,
and it will have little choice but to pass this on to consumers.
WOW!'s concern is not imaginary or merely academic. There are
numerous instances of programmers combining or colluding to extract
additional rents. The DOJ, for instance, filed a civil antitrust
complaint against several broadcasters in a market for engaging in a
combination and conspiracy to increase the price of retransmission
rights to cable operators. The consent decree ending this litigation
found that the broadcasters had restrained competition and enjoined
them from agreeing to bargain jointly with cable operators.\8\
---------------------------------------------------------------------------
\8\ United States v. Texas Television et al., Competitive Impact
Statement, U.S. District Court, Southern District of Texas, Corpus
Christi Division, 1996.
---------------------------------------------------------------------------
More recently, the MVPD, Suddenlink, in a filing to the FCC stated:
``Suddenlink has examined its own retransmission consent
agreements and has concluded that, where a single entity
controls retransmission consent negotiations for more than one
Big 4 station in a single market, the average retransmission
consent fees Suddenlink pays for such entity's Big 4 stations
(in all Suddenlink markets where the entity represents one or
more stations) is 21.6 percent higher than the average
retransmission consent fees Suddenlink pays for other `Big 4'
stations in those same markets. This is compelling evidence
that an entity combining the retransmission consent efforts of
two `Big 4' stations in the same market is able to secure a
substantial premium by leveraging its ability to withhold
programming from multiple stations.''
WOW! has been told by the ACA that various members have had
experiences similar to Suddenlink, and, based on its own experience,
WOW! can verify the increase in retransmission fees documented by
Suddenlink.
The harm resulting from these horizontal effects will be felt by
consumers of all MVPDs that must negotiate for Comcast RSN
programming.\9\ Because satellite television subscription prices are
uniform across the country, this means that consumers nationwide will
be effected by Comcast's leverage to extract higher programming fees in
select markets. In the 7 television markets where there is both a
Comcast RSN and an NBC O&O, Comcast will be able to exercise enormous
newfound market power over local MVPDs who operate in only one market.
In the most extreme case--the San Francisco-Oakland-San Jose television
market--the combined company would own an NBC broadcast station, two
Spanish-language broadcast stations, and two Comcast Regional Sports
Networks.
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\9\ Comcast's RSN are available in 53 television markets across the
country or 38 percent of all television homes.
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Vertical Harms
The Comcast-NBC Universal transaction is also a vertical
integration of broadcast, cable-programming, and online content with
distribution that will result in significant harms to consumers and
competition across the country. By adding NBC Universal's vast array of
``must have'' programming with its own cable distribution assets,
Comcast will have increased abilities to raise cable and satellite
rates for providers, like WOW!, that rely on access to key content--
such as Comcast's Chicago RSN and NBC's ``O&O'' station in Chicago--and
that are competing directly with Comcast's Chicago cable systems.
Numerous studies, including from the U.S. Office of Government
Accountability,\10\ have demonstrated that competitors like WOW!
provide real competition to incumbent cable providers and tangible
benefits for consumers. As I discussed at the outset, WOW! has received
an unprecedented number of awards for providing an exceptional service
experience compared to incumbent providers. However, if WOW! is forced
to either forgo access to content or pay supra-competitive prices or
face anticompetitive terms and conditions for it, all of this is placed
in jeopardy.
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\10\ Wire-Based Competition Benefited Consumers in Selected
Markets, U.S. General Accountability Office, Report to the Subcommittee
on Antitrust, Competition Policy and Consumer Rights, Committee on the
Judiciary, U.S. Senate, GAO-04-241, Feb. 2004.
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Moreover, WOW! is not the only competing video distributor in an
extremely vulnerable position. In 69 television markets across the
country, Comcast competes against DirecTV, Dish Network, Verizon's
FiOS, AT&T U-Verse and more than three dozen small and medium-sized
cable and telephone companies retailing video programming. As discussed
above, because satellite subscription prices are uniform across the
country, Comcast's increased leverage in certain regions of the country
will result in increased prices nationwide. When satellite companies
raise their prices, this will also reduce competitive pressures on
cable companies that compete with satellite companies.
Harms in the Online Distribution Market
WOW! urges the Committee to pay particular attention to the harms
that would be felt by online distributors of content and broadband
users. WOW! recently experienced problems with initiating its own
version of Comcast's Fancast XFINITY TV service because it was unable
to obtain content from Comcast and other content providers with whom
Comcast had struck deals. This despite the fact that Comcast claims the
content used in its online service is non-exclusive. We're pleased to
note that since raising this issue as a witness at other Congressional
hearings on the Comcast-NBCU deal last month, Comcast has been willing
to engage in talks for the online rights to their content. However, it
is far from certain that these rights will ultimately be made available
to WOW!.
With the advent of Internet-delivered video content, the hundreds
of ACA members who currently do not compete with Comcast's cable
systems may become new targets. Comcast will be able to present them
with the simple proposition: if you want your customers to have access
to our content, you will now pay supra-competitive prices both to
acquire Comcast-NBC Universal's ``must have'' content for traditional
cable customers and to allow your customers to access this content as
an Internet-delivered service.
We also have concerns about the ability of Comcast-NBCU to use its
market power to force cable and broadband providers to adopt the
ESPN360 model, where an Internet service provider is foreclosed from
having its users access online content unless it pays a fee for every
user regardless of whether the user ever accesses that content. It is
evident to us that Comcast wants to combine this business model with
all the ``must have'' content it will control post-combination to
extract additional fees from consumers.
Finally, if WOW! must pay the combined Comcast-NBC Universal supra-
competitive prices for content or must accept anticompetitive terms and
conditions, such as unreasonable tying, tiering, or penetration
requirements, it will have little choice but to either raise prices for
its customers far above what would occur in competitive markets or
limit the content it acquires from other suppliers, including smaller,
independent providers. Moreover, WOW! can envision that the combined
entity will make demands much greater than today and that are so
onerous that we will have to continue to shrink the bandwidth we would
dedicate for advanced services and broadband offerings. This runs
directly counter to the Federal Government's vision of expanding and
enhancing next-generation Internet access services for all users.
IV. The FCC and DOJ Must Adopt Relief Sufficient to Address Both the
Horizontal and Vertical Harms Caused Post-Combination;
Traditional Behavioral Remedies are Insufficient to Remedy the
Vertical Harms
The FCC and DOJ need to fashion relief that addresses both the
horizontal and vertical harms caused post-combination. As noted above,
the horizontal harms are most substantial and troubling for consumers
and competition. The agencies thus must seriously consider structural
relief, including divestitures of assets that are the cause of these
harms. The great value of structural relief is that it creates the
proper, pro-competitive market dynamic and minimizes any regulatory
gaming that can occur. WOW! and the ACA were most heartened to see the
Department of Justice rely on structural relief (a divestiture) in the
recently negotiated Ticketmaster consent decree.
As for dealing with the vertical effects, the Committee should
understand that the program access statute and rules and related past
merger conditions have serious flaws, which if not corrected will be
inadequate to remedy harms arising from the combination of Comcast and
NBC Universal. (It also should be noted that Comcast, which contends
that the program access rules will remedy any harms from the proposed
combination, has decided to challenge the FCC's 2007 extension of the
rules in court.) WOW! is particularly concerned that the processes
associated with pursuing a program access complaint (or any similar
matter before the FCC or an arbitrator) are so burdensome and resource-
intensive that any rights we might have are effectively nullified. For
instance, without an automatic ``standstill'' provision, enabling
carriage during the many months while the dispute is pending, any
program access rights are rendered meaningless.
The program access statute, passed as part of the 1992 cable
legislation, sought to address the market power that large cable
operators had acquired and which they used frequently to squeeze
programmers not affiliated with them and to refuse to sell (or
otherwise discriminate in the sale of) affiliated programming product
to competing distributors. The FCC promptly implemented the statute by
adopting rules, but it became quickly apparent that there were so many
loopholes in the rules that incumbent cable operators and their
affiliated programmers could readily avoid them. The following are the
major problems with the rules:
The program access rules place no restriction on quantity
discounts. So long as a competing MVPD has fewer subscribers
than Comcast cable, Comcast has practically unlimited freedom
to charge the MVPD higher programming prices per subscriber
than it charges itself. Since the inception of the program
access rules in 1992, the ACA is aware of only two instances in
which the FCC has ruled in favor of a complaint alleging price
discrimination,\11\ and none since 1998.
---------------------------------------------------------------------------
\11\ Corporate Media Partners v. Rainbow, 12 FCC Red. 15209, 1997;
Turner Vision et al., v. CNN, 12 FCC Red. 12610, 1998.
Even with very large MVPDs, Comcast can avoid any constraint
on the prices it charges its competitors simply by raising the
---------------------------------------------------------------------------
internal transfer price that it charges itself for programming.
There are long delays in deciding cases with no automatic
right to continued carriage of programming while the case is
pending.
It is uncertain that the program access rules apply to an
MVPD seeking to obtain rights for provision of online ``TV
Everywhere'' type services.
As a result of these many flaws, the ACA estimates that its members
are paying at least 20-30 percent more for programming that the larger
cable operators.
The FCC sought to tighten these loopholes in subsequent mergers
between content providers and distributors, for instance, by permitting
complainants to use third-party arbitration or collectively bargain for
rights. But, here again, programmers affiliated with larger cable
operators quickly found how to beat the system:
The arbitration process is very costly because, while the
costs of arbitration are fixed, the benefits vary with the size
of the subscriber based. It is thus not feasible for small
operators to participate in their own individual arbitration,
and it is uncertain under what circumstances operators could
join together in a single arbitration. Finally, the terms
resulting from arbitrations undertaken by larger operators are
not available to smaller operators.
Arbitration applies only to RSNs and retransmission consent
but not to national cable networks.
The ``quantity discounts'' loophole is not clearly blocked.
As a result, the ACA is aware of only one completed arbitration
involving its members.\12\
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\12\ See, http://www.multichannel.com/article/131183-
Massillon_Cable_Wins_Its_Case.php.
---------------------------------------------------------------------------
WOW! and the ACA are committed to addressing problems with
behavioral relief and devising enhanced measures. They expect to
present their proposals shortly.
V. Conclusion
The proposed combination of Comcast and NBC Universal places
Federal decision-makers at a crossroads: Will the agencies have
sufficient foresight to adopt the necessary robust relief that will
enable them to get ahead of anticompetitive problems caused by the
proposed combination, or will they proceed cautiously waiting first to
see if prices rise, jobs are lost, and firms go under? If the FCC and
Department of Justice ignore or treat lightly the potential harms or
provide inadequate relief, the already disturbing trend of big content
and distribution mergers will only accelerate, all riding on the
precedent of this deal. As a result, consumer hopes for greater choice
will be dashed. On the other hand, if the Federal agencies address the
grave potential harms with robust relief as described above, incumbent
entrepreneurs will expand their businesses and new ones will rush into
the market--all to the benefit of American consumers. The consequences
of these choices make this proposed combination a ``big deal.'' WOW!
and the ACA look forward to working with the Congress and the agencies
as the review proceeds and as the agencies fashion relief to address
anticompetitive harms.
Senator Dorgan. Ms. Abdoulah, thank you very much.
And finally, we will hear from Professor Yoo. You may
proceed.
STATEMENT OF CHRISTOPHER S. YOO, PROFESSOR OF LAW AND
COMMUNICATION, AND FOUNDING DIRECTOR, CENTER FOR TECHNOLOGY,
INNOVATION, AND COMPETITION,
UNIVERSITY OF PENNSYLVANIA
Mr. Yoo. Thank you to the Committee for inviting me here to
testify on how consolidation in the video and broadband markets
will affect consumers.
My written testimony contains a complete analysis of the
likely consumer impact the proposed merger between Comcast and
NBC Universal will have. Rather than rehearse those arguments
here, I would like to use my time to emphasize two basic
points.
First, any antitrust analysis begins with the principles
embodied by the decisions of the Supreme Court, this Congress,
the antitrust regulatory agencies, and the FCC. And the
starting point for the merger analysis is typically the merger
guidelines issued by the Federal Trade Commission and the
Justice Department.
Those merger guidelines and the analysis that it lays out
indicates that the proposed merger is unlikely to harm
consumers. The guidelines also indicate that the markets
affected by these mergers are competitive enough to protect
consumers against anticompetitive effects.
On the issues of horizontal integration, the decisions by
this Congress, the courts, and the FCC recognize that local
broadcasting and local cable operators constitute separate
markets. Despite repeated attempts by the FCC to enact measures
to prohibit combining television stations and cable operators
under the same corporate umbrella, those rules were invariably
struck down by the courts as arbitrary, capricious, and
inconsistent with the statutory obligations established by this
Congress.
The FCC has now abandoned all efforts to reinstate these
rules. Merger conditions limiting this type of cross-ownership
would constitute a form of back door regulation that would
allow the FCC to impose restrictions through the merger process
that it was unable to enact through regular administrative
processes.
On vertical integration, the decisions of the Supreme Court
and the merger guidelines establish that the proposed merger is
unlikely to have any anticompetitive vertical effects. Any
arguments about likely vertical effects must also take into
account that the industry has undergone massive vertical
disintegration over the past 15 years. During that time, the
level of vertical integration has plummeted from a high of 56
percent in 1994 to a mere 6 percent in 2009. This effect
becomes even starker if one focuses only on the most highly-
rated television networks.
The lateral or vertical concentration among the most
highly-rated networks has plummeted from a high of 93 percent
in 1994 to a low of 13 percent today. Moreover, the past 2
years have witnessed the dissolution of the two largest
vertically integrated companies operating in this sector.
In 2008, News Corp., the owner of the Fox Television
properties, reversed its 2004 acquisition of DirecTV. In 2009,
Time Warner, the owner of such leading networks as TBS, CNN,
and HBO, spun off its cable operations into a separate company.
In short, while vertical integration may arguably have once
been a concern at some point in the past, it is hard to make
this case in the current business environment.
Anyone suggesting that this merger will harm consumers,
thus, bears a heavy burden. They must justify deviating from
the standards established by this Congress, the Supreme Court,
the FCC, and the antitrust authorities. They must then refute
the facts indicating that the merger is so unlikely to hurt
consumers that it should be approved under the merger
guidelines without further analysis.
Rebutting these arguments requires more than just opinions
and conjecture. It requires reasoned analysis and empirical
research. This makes the FCC's recent commitment to fact-based
decisionmaking particularly welcome.
The second point I would like to make is to focus attention
on the recognized problems associated with using merger reviews
to make regulatory policy. Traditional regulatory processes
address problems on an industry-wide basis, guarantee public
participation, and are subject to meaningful judicial review.
Each of these features leads to better decisions and ensures
that policies that are enacted remain fair.
The same cannot be said of conditions imposed during the
merger review process. Opportunities for public participation
are more limited, and even when public participation is
permitted, they tend to focus narrowly on the issues raised by
a particular transaction instead of on how those issues affect
the entire industry. Merger conditions are also less likely to
yield clear statements of regulatory policy and are immune from
scrutiny by the courts.
Conditions on this merger also would necessarily only
address 26 percent of the industry and would leave the vast
majority of the problem unaddressed. The use of company-
specific adjudications to address issues that confront the
entire industry threatens to skew the competitive landscape and
raises serious issues of fairness.
This is not to say that the current regulatory regime is
perfect. Many industry participants have identified what they
see as flaws in the process and have suggested possible
reforms. The best course of action, when confronted with
regulations that are imperfect, is not to jerry-rig a company-
specific solution simply because a particular party happens to
be seeking clearance of a merger. The best practice is to open
a general proceeding to address any problems that may exist on
an industry-wide basis.
As Chairman Genachowski said, the FCC has exercised ongoing
oversight authority in this matter in the past and stands ready
to do so in the future. In the wake of an era where the FCC was
criticized by this Congress for failing to follow good
administrative practices, maintaining the integrity of
regulatory process would appear to be particularly important.
Any other solution risks turning merger review into a source of
back door regulation that hurts consumers, creates bad policy,
skews the competitive landscape, and undermines democratic
values, as well as the integrity of agency processes.
Thank you.
[The prepared statement of Mr. Yoo follows:]
Prepared Statement of Christopher S. Yoo, Professor of Law and
Communication, and Founding Director, Center for Technology,
Innovation, and Competition, University of Pennsylvania
Mr. Chairman, Ranking Member Hutchinson, and members of the
Committee, I am grateful for the opportunity to testify on the proposed
merger between Comcast and NBC Universal. I am happy to offer my
analysis of how the merger will affect consumers.
Anyone who examines Title 47 of the U.S. Code can attest to the
fact that broadcast and cable television are governed by a complex and
elaborate array of regulatory requirements and restrictions. As a
result, when two media companies in these sectors merge, they typically
have to divest themselves of a number of assets and request a variety
of waivers before they can complete their merger. When a merger
violates one of these rules or creates market conditions likely to harm
consumers, it is entirely appropriate to include conditions in the
order clearing the transaction requiring that the merging parties bring
themselves into compliance.
One of the most striking aspects of the proposed transaction is how
clean the combination of Comcast and NBC Universal would be in this
regard. The transaction does not create any new compliance issues,\1\
and as I will discuss in greater detail later in my testimony,
conventional antitrust analysis indicates that the relevant markets are
structured in a way that makes it unlikely that the merger will harm
consumers.
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\1\ NBC Universal and its parent company, General Electric, are
addressing two minor, preexisting compliance issues. Applications and
Public Interest Statement by Comcast Corp. General Electric Co., and
NBC Universal, Inc., at 73-75 (filed Jan. 28, 2010), Applications for
Consent to the Transfer of Control of Licenses, General Electric Co.,
Transferor, to Comcast Corp., Transferee (MB Dkt No. 10-56). NBC's
acquisition of Telemundo gave it control of three television stations
in the Los Angeles market. Because the Los Angeles broadcast television
market is home to more independent ownership groups than any city in
the Nation and because forced sales reduce the value of stations and
artificially limit the range of potential buyers, the FCC ruled that it
was in the public interest to grant NBC a temporary waiver of its
duopoly rule. Telemundo Communications Group, Inc. Transferor, and TN
Acquisition Corp., Transferee, Memorandum Opinion and Order, 17
F.C.C.R. 6968-79 46-53 (2002). In addition, the bankruptcy of
American Community Newspapers caused debt owned by General Electric to
be converted into nonvoting equity, which under the FCC's rules turned
General Electric into a partial owner of two small community newspapers
in Fort Worth, Texas, whose communities of service fall within the
contour of one of its television stations. Given the involuntary nature
of such changes, FCC policy usually accords parties subject to such a
change in status a reasonable time to come into compliance with these
rules. The Public Interest Statement reaffirmed the merging parties'
commitment to resolving these issues in a reasonable timeframe.
It bears noting that neither of these compliance issues is the
result of the proposed merger. They are preexisting issues that are
independent of the merger and would exist even if this merger had never
been contemplated.
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Despite the fact that consummation of this merger would not create
any violation any of the existing rules or any anticompetitive harms,
opponents of the transaction are asking regulatory authorities to use
the merger clearance process to impose additional conditions on the
merging parties.
Commissioners of the Federal Communications Commission (FCC) and
commentators have long criticized the use of merger conditions as a
mechanism for making policy.\2\ Traditional notice-and-comment
rulemaking promotes public participation. By their nature, merger
conditions restrict conduct permitted by the existing rules (otherwise
the restriction would be imposed by general regulation rather than by
the order clearing the merger). The problem is that they are imposed
outside of the normal regulatory processes, and even when orders
clearing the merger are subject to notice and comment, the resolution
of the issues is more likely to be driven by the issues raised by a
particular transaction and less likely to yield a clear statement of
agency policy.
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\2\ For FCC Commissioner's criticisms of the merger conditions, see
Verizon Communications Inc. and MCI, Inc., Memorandum Opinion and
Order, 20 F.C.C.R. 18433, 18573 (2005) (separate statement of
Abernathy, Comm'r); Applications for Consent to the Transfer of Control
of Licenses and Section 214 Authorizations by Time Warner Inc. and
America Online, Inc., Transferors, to AOL Time Warner Inc., Transferee,
Memorandum Report and Order, 16 F.C.C.R. 6547, 6713 (2001) (Powell,
Comm'r, concurring in part and dissenting in part); Applications of
Ameritech Corp., Transferor, and SBC Communications Inc., Transferee,
Memorandum Opinion and Order, 14 F.C.C.R. 14712, 15197-200 (1999)
(Powell, Comm'r, concurring in part and dissenting in part); id. at
15174-96 (Furchtgott-Roth, Comm'r, concurring in part and dissenting in
part); Application of Worldcom, Inc. and MCI Communications Corp. for
Transfer of Control of MCI Communications Corp. to Worldcom, Inc.,
Memorandum Report and Order, 13 F.C.C.R. 18025, 18166 (1998) (separate
statement of Powell, Comm'r); id. at 18159 (separate statement of
Furchtgott-Roth, Comm'r).
For commentators' criticisms of the merger conditions, see Rachel
Barkow & Peter Huber, A Tale of Two Agencies: A Comparative Analysis of
FCC and DOJ Review of Telecommunications Mergers, 2000 U. Chi. Legal F.
29, 54, 62-66, 69-81; Harold Furchtgott-Roth, The FCC Racket, Wall St.
J., Nov. 5, 1999, at A18; Bryan Tramont, Too Much Power, Too Little
Restraint: How the FCC Expands Its Reach Through Unenforceable and
Unwieldy ``Voluntary Agreements,'' 53 Fed. Comm. L.J. 49, 51-59 (2000);
Daniel E. Troy, Advice to the New President on the FCC and
Communications Policy, 24 Harv. J.L. & Pub. Pol'y 503, 505-09 (2001);
Philip J. Weiser, Institutional Design FCC Reform and the Hidden Side
of the Administrative State, 61 Admin. L. Rev. 675, 708-11 (2009);
Christopher S. Yoo, New Models of Regulation and Interagency
Governance, 2003 Mich. St. Dcl L. Rev. 701, 704.
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In many cases, merger conditions address conduct that is not the
result of the merger, and in most, if not all, cases, these issues
addressed by the merger conditions are the subject of ongoing
proceedings before the FCC. The use of company-specific adjudications
to address issues that confront the entire industry threatens to skew
the competitive landscape and raises serious issues of fairness.
Moreover, merger conditions cannot be appealed, because the
voluntariness of the commitment may well immunize it from meaningful
judicial review.
At best, the use of the merger review process to impose conditions
represents a source of delay and uncertainty that reduces the
industry's ability to adjust to a rapidly changing and increasingly
challenging technological and economic landscape. At worst, it
represents a form of backdoor regulation that hurts consumers, singles
out individual companies for restrictions that could not necessarily
withstand the rigors of normal regulatory processes, and undermines
democratic values as well as the integrity of agency processes.
It is no doubt tempting to use company-specific measures to address
industry-wide problems. Even if the existing regulatory regime is not
perfect, the better and fairer course is to address these shortcomings
through the standard administrative processes. Consistent with these
concerns, the current Commission has expressed reluctance to impose
merger conditions that ``are not narrowly tailored to prevent a
transaction-specific harm'' and has admonished that for harms that
``apply broadly across the industry,'' it is ``more appropriate for a
Commission proceeding where all interested industry parties have an
opportunity to file comments.'' \3\ Particularly given Congress's
recent criticisms of the FCC for its failure to adhere to sound
regulatory practices,\4\ such commitments are particularly welcome.
---------------------------------------------------------------------------
\3\ Applications of AT&T Inc. and Centennial Communications Corp.,
Memorandum Opinion and Order, 48 Communications Reg. (P & F) 1186 141
(Nov. 5, 2009).
\4\ Staff of H. Comm. on Energy And Commerce, 110TH Cong.,
Deception and Distrust: The FCC Under Chairman Kevin J. Martin (Dec.
2008), available at http://energy
commerce.house.gov/images/stories/Documents/PDF/Newsroom/
fcc%20majority%20staff%20re
port%20081209.pdf.
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The Standard Framework for Analyzing the Consumer Impact of Mergers
The standard framework for evaluating the consumer impact of any
merger is enshrined in the Merger Guidelines jointly promulgated by the
Federal Trade Commission and the Antitrust Division of the U.S.
Department of Justice.\5\ Recent studies conducted by Federal Trade
Commission and the Justice Department reveal that actual enforcement
policy is even more permissive.\6\ The thresholds contained in the
Merger Guidelines should thus be considered a safe harbor within which
parties should not expect to be challenged. Conversely, the fact that a
merger may exceed the relevant thresholds by a small amount should not
be regarded as inherently problematic.
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\5\ First promulgated in 1968, the portion of the guidelines
governing horizontal mergers was last revised in 1997. U.S. Dep't of
Justice & Fed. Trade Comm'n, Horizontal Merger Guidelines (revised Apr.
8, 1997), available at http://www.justice.gov/atr/public/guidelines/
hmg.pdf [hereinafter Horizontal Merger Guidelines]. That revision left
in place the existing guidelines governing nonhorizontal (including
vertical) mergers, which were last revised in 1984. U.S. Dep't of
Justice, Merger Guidelines (revised June 14, 1984), available at http:/
/www.justice.gov/atr/public/guidelines/2614.pdf [hereinafter Non-
horizontal Merger Guidelines].
\6\ Fed. Trade Comm'n, Horizontal Merger Investigation Data, Fiscal
Years 1996-2005 tbl. 3.1 (Jan. 25, 2007), available at http://
www.ftc.gov/os/2007/01/P035603horizmerger
investigationdata1996-2005.pdf; Fed. Trade Comm'n & U.S. Dep't of
Justice, Merger Challenges Data, Fiscal Years 1999-2003 tbl. 1(Dec. 18,
2003), available at http://www.justice.gov/atr/public/201898.htm.
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The Merger Guidelines draw a distinction between horizontal mergers
and vertical mergers. A merger is horizontal if it is between two firms
that sell products that substitute for one another. In short, consumers
are likely to buy one or the other, but not both, which makes the firms
selling these products direct competitors. A merger is vertical if it
is between firms that sell products that complement one another, in
that they are consumed together. In these cases, the fact that
consumers typically have to buy both products if they are to enjoy them
means that these parties to a vertical merger do not compete directly
with one another.
To use a concrete example, consider the difference between
computers and the software that runs on them. Suppose there were two
computer manufacturers that made devices with similar capabilities and
vie to sell their goods to the same consumers. To the extent that
consumers regard the decision between these two computers as an either-
or choice, these products are considered substitutes, and a combination
between those two computer manufacturers would be a horizontal merger.
Consumers do not regard the choice between software and hardware as
an either-or choice. On the contrary, a computer that has no software
is useless, as is software without a computer on which to run it. As a
result, consumers must buy both types of products and use them together
to gain any benefit from the products. Rather than being an either-or
choice, a consumer buying a computer is more likely to buy software and
vice versa. Software and hardware are thus considered complements, and
a merger between a software and hardware manufacturer would be
considered a vertical merger.
Vertical mergers raise fewer competitive concerns than horizontal
mergers.\7\ Consequently, the Merger Guidelines incorporate more
permissive standards for vertical mergers than for horizontal mergers.
---------------------------------------------------------------------------
\7\ Non-Horizontal Merger Guidelines, supra note 5, 4.0, at 23.
---------------------------------------------------------------------------
The proposed Comcast-NBC Universal merger has both horizontal and
vertical aspects. Both firms provide two distinct products. Both serve
as a source of video programming through broadcast networks (such as
NBC and Telemundo) and cable networks (such as the USA Network and the
Golf Channel). Both also provide retail distribution of video
programming through broadcast television stations owned and operated by
NBC or through cable operators owned by Comcast.
The merging firms predominantly operate in one or the other product
market. NBC Universal predominantly provides television network
programming. Comcast's primary business is in retail distribution. The
focus of the inquiry into this merger should be on vertical combination
of these two adjacent levels of production. The merger does have
potential horizontal effects as well, although these are very likely to
be quite small. For completeness, I will analyze each issue in turn,
beginning with the horizontal effects.
Horizontal Integration in the Market for Retail Video Distribution
The proposed Comcast-NBC Universal merger does raise issues of
horizontal concentration in the market for retail video distribution.
That said, these issues are relatively minor. Simply put, while Comcast
is a major player in the market for retail video distribution, NBC
Universal is not.
The analytical framework laid out in the Merger Guidelines turns on
a measure of concentration known as the Herfindhal-Hirschman Index
(HHI), which measures the degree of market concentration by ranking it
on a scale from 0 to 10,000.\8\ Markets with HHIs below 1,000 are
considered unconcentrated. Markets with HHIs between 1,000 and 1,800
are considered moderately concentrated. Markets with HHIs above 1,800
are considered highly concentrated. The degree of market concentration
in turn determines the degree of antitrust scrutiny:
---------------------------------------------------------------------------
\8\ According to the Merger Guidelines, HHI is calculated by
summing the squares of the individual market shares of all the
participants. For example, a market consisting of four firms with
market shares of 30 percent, 30 percent, 20 percent and 20 percent has
an HHI of 302 + 302 + 202 +
202 = 2,600. Horizontal Merger Guidelines, supra note 5,
1.5, at 15 & n.17.
Figure 1: HHI Thresholds Under the Merger Guidelines
------------------------------------------------------------------------
Increase in HHI Caused
Post-Merger HHI by Merger Outcome
------------------------------------------------------------------------
Less than 1,000 N/a Approved w/o further
analysis
1,000-1,800 Less than 100 Approved w/o further
analysis
1,000-1,800 More than 100 Further analysis required
More than 1,800 Less than 50 Approved w/o further
analysis
More than 1,800 More than 50 Further analysis required
More than 1,800 More than 100 Presumed anticompetitive
------------------------------------------------------------------------
Source: , supra note 5, 1.51, at 16.
When one looks at actual enforcement policy, the numbers become
even more striking. During the decade under study (which spanned both
Democratic and Republican Administrations), neither the Federal Trade
Commission nor the Justice Department ever brought an enforcement
action when the HHI was less than 2000 and the post-merger increase in
HHI was less than 100.\9\ Actual enforcement practice in the
telecommunications industry appears to be even more permissive,\10\
which is understandable given the scale economies inherent in the
industry.
---------------------------------------------------------------------------
\9\ Fed. Trade Comm'n, supra note 6, tbl. 3.1; Fed. Trade Comm'n &
U.S. Dep't of Justice, supra note 6, tbl. 1.
\10\ Fed. Trade Comm'n & U.S. Dep't of Justice, supra note 6, tbl.
6.
---------------------------------------------------------------------------
In the market for retail distribution, competition policy has
traditionally drawn a distinction between single-channel television
providers (such as broadcasters) and multichannel television providers
(such as cable operators like Comcast, satellite television providers
like DirecTV, and similar offerings provided by telephone companies,
such as Verizon's FiOS or AT&T's U-verse), which the statute calls
multichannel video programming distributors (MVPDs).
MVPDs participate in multiple markets. First, they serve household
subscribers, who consume video programming. Second, they sell
advertising. Third, they obtain programs from various programming
sources. The geographic scope of these markets differs substantially.
The first two markets are local in scope. The third is national.
The FCC's Annual Assessments of the Status of Competition in the
Market for the Delivery of Video Programming (Video Competition
Reports) routinely report HHI numbers for the MVPD market. Because the
FCC has not released data since 2006, I have attempted to reconstruct
their calculation from similar sources.
Figure 2: HHI in the National Market for MVPDs (as of June 2009)
------------------------------------------------------------------------
Company Subscribers Share HHI
------------------------------------------------------------------------
Comcast 23,891,000 23.3% 541
DirecTV 18,304,999 17.8% 317
DISH Network 13,610,000 13.2% 176
Time Warner Cable 13,048,000 12.7% 161
Cox 5,316,055 5.2% 27
Charter 4,929,900 4.8% 23
Cablevision 3,093,000 3.0% 9
Verizon FiOS 2,515,551 2.4% 6
Bright House 2,301,320 2.2% 5
AT&T U-verse 1,585,470 1.5% 2
Other 14,139,493 13.8% 5
------------------------------------------------------------------------
Total 102,734,788 100.0% 1,272
------------------------------------------------------------------------
Sources: SNL Kagan, Top Cable MSOs, June 2009; SNL Kagan, Basic & HD
Cable Economics, 2009-2018; Media Business Corp., Media Census: All
Video by DMA, 2Q2009.
I calculate that as of the end of 2009, the HHI in the national
MVPD market was 1,272. This represents a drop of 75 points from the
year before. This implies that the national market for MVPDs is
moderately competitive. Moreover, because NBC Universal does not
control any MVPD assets, the post-merger increase in HHI is zero. Thus,
under the approach described in the Merger Guidelines, which represents
the starting point for all antitrust analyses, the Comcast-NBC
Universal merger is unlikely to have any adverse effect on consumers.
Under the Merger Guidelines, policymakers may thus set aside without
any further analysis any concerns about the impact on horizontal
concentration in the national market in which MVPDs bargain with
sources of television programming.
National numbers fail to capture conditions in the local market in
which MVPDs provide service to subscribers and advertisers. Clearly,
many consumers do not have as many MVPD options as they would like.
That fact should not overshadow the ever-increasing competitiveness of
local markets for MVPDs. Congress has established a threshold for
determining when an MVPD faces sufficiently effective competition to
justify exempting it from rate regulation. Under this standard, an MVPD
faces effective competition if another MVPD offers service to at least
50 percent of households in the service area and the unaffiliated MVPDs
together capture more than 15 percent of the market. An MVPD also faces
effective competition if the local exchange carrier offers multichannel
service regardless of how many subscribers they have.\11\
---------------------------------------------------------------------------
\11\ 47 U.S.C. 543(l)(1)(B) & (D).
---------------------------------------------------------------------------
Studies show that direct broadcast satellite (DBS) providers, such
as DirecTV and the DISH Network, have emerged as direct competitors to
cable companies.\12\ DBS is available to any household with a clear
view of the southern sky and thus should be available in well over 50
percent of every service area. Moreover, as of the end of 2009,
DirecTV's national market share is now 18 percent, and the DISH
Network's market share is now 13 percent. Published reports indicate
that as of mid-2009, DirecTV's share of video subscribers exceeded 15
percent in 181 out of 211 DMAs, and the DISH Network's share exceeded
15 percent in 132 out of 211 DMAs. When DBS subscribership is combined
with the new offering by telephone companies discussed below, the
market share of unaffiliated MVPDs exceeds the 15 percent threshold in
virtually every DMA in the country.\13\
---------------------------------------------------------------------------
\12\ See Implementation of Section 3 of the Cable Television
Consumer Protection and Competition Act of 1992, Report on Cable
Industry Prices, 16 F.C.C.R. 4346, 4364-65 53 (2001); Austin Goolsbee
& Amil Petrin, The Consumer Gains from Direct Broadcast Satellites and
the Competition with Cable TV, 72 Econometrica 351 (2004).
\13\ Media Business Corp., Media Census: All Video by DMA, 2Q2009.
---------------------------------------------------------------------------
At the same time, telephone companies are investing billions to
increase the capacity of their networks and are actively competing with
cable operators in the market for distributing multichannel video.
Verizon has committed approximately $24 billion to build out its fiber-
based FiOS network. AT&T is investing $7 billion in its U-verse
network. This competition should intensify further as the buildout of
these networks continues. As noted earlier, the fact that the local
telephone company is offering MVPD services in these service areas
automatically indicates that these areas should be considered as
subject to effective competition.
Because NBC Universal does not possess any MVPD properties, the
proposed merger would neither increase nor decrease concentration in
the MVPD market. As a result, the merger would have no horizontal
effects on the 87 percent of U.S. households that depend on an MVPD for
their television service.\14\ Although many subscribers complain about
cable prices, these subscribers are also receiving significantly larger
numbers of channels. Empirical studies indicate that when adjusted for
the number of channels, rate regulation caused quality-adjusted cable
rates to rise, while deregulation caused quality-adjusted cable rates
to fall.\15\ Although I am certain that these consumers could wish for
more options and more competition, the evidence suggests that the
market is already quite competitive and becoming more so.
---------------------------------------------------------------------------
\14\ SNL Kagan, Basic & HD Cable Economics, 2009-2018.
\15\ See Thomas W. Hazlett & Matthew L. Spitzer, Public Policy
Toward Cable Television (1997); Gregory S. Crawford, The Impact of the
Household Demand and Welfare, 31 Rand J. Econ. 422 (2000).
---------------------------------------------------------------------------
At the same time, Comcast possesses no broadcast television
stations. The proposed merger will thus have no effect on the remaining
13 percent of U.S. households that rely solely on over-the-air service
for the television needs. An analysis of the number of over-the-air
channels available in these markets suggests that the broadcast-only
portions of these markets remain relatively competitive. Moreover,
where competition is lacking, it is the result of the FCC's spectrum
allocation properties and would remain whether or not the merger is
allowed to proceed.
Figure 3: Number of Commercial Over-the-Air Channels Available in Overlap DMAs
----------------------------------------------------------------------------------------------------------------
Market Total Channels Channels Owned by NBC
----------------------------------------------------------------------------------------------------------------
Chicago 40 5
San Francisco 31 3
Washington 32 3
Miami 27 4
Philadelphia 30 2
Hartford-New Haven 21 1
----------------------------------------------------------------------------------------------------------------
Source: BIA Media Access Pro 4.5 Television Analyzer Data base, 2009 data.
Although the FCC has previously considered treating broadcast
stations and MVPDs as being in the same product market, subsequent
congressional action foreclosed this possibility.\16\ Moreover, the FCC
addressed precisely this issue when determining whether combining
DirecTV with the Fox television stations owned by News Corp. raised any
horizontal issues. The FCC concluded that a merger combining broadcast
stations with an MVPD ``does not present horizontal concentration
issues'' because the FCC has already determined that MVPDs and
broadcast television are not sufficiently substitutable to fall within
the same product market.\17\
---------------------------------------------------------------------------
\16\ For the regulatory history examining the circumstances under
which broadcasting could be regarded as a substitute for cable, see
Christopher S. Yoo, Vertical Integration and Media Regulation in the
New Economy, 19 Yale J. on Reg. 171, 228 & n.218 (2002).
\17\ General Motors Corp. and Hughes Electronics Corp.,
Transferors, and News Corp., Ltd., Transferee, Memorandum Opinion and
Order, 19 F.C.C.R. 473 (2004) (citing Competition, Rate Deregulation,
and the Commission's Policies Relating to the Provision of Cable
Services, Report 5 F.C.C.R. 4962, 5001 62 (1990); EchoStar
Communications Corp., General Motors Corp., Hughes Electronics Corp.
(Transferors) and EchoStar Communications Corp. (Transferees), Hearing
Designation Order, 17 F.C.C.R. 20559, 20607-09 109-115 (2002)).
---------------------------------------------------------------------------
Equally importantly, the FCC once imposed a rule preventing a
single entity from owning both a cable operator and a television
station in the same market. The court reviewing this rule concluded
that it was inconsistent with the FCC's statutory obligations and
ordered the FCC to vacate it.\18\ The FCC subsequently did so and
appears to have abandoned all efforts to reinstate it.\19\
---------------------------------------------------------------------------
\18\ Fox Television Stations, Inc. v. FCC, 280 F.3d 1027, 1049-53
(D.C. Cir. 2002).
\19\ 1998 Biennial Regulatory Review--Review of the Commission's
Broadcast Ownership Rules and Other Rules Pursuant to Section 202 of
the Telecommunications Act of 1996, Order, 18 F.C.C.R. 3002 (2003).
---------------------------------------------------------------------------
Any attempt to impose merger conditions treating the cross-
ownership of a television station and cable operator serving the same
area as problematic would amount to ad hoc, company-specific regulation
of the type that would raise both fairness and procedural concerns. The
fact that the courts overturned the rule because of the FCC's inability
to offer a principled basis for it dictates that any attempt to
penalize the merging parties for such a cross-ownership arrangement
would raise concerns under the rule of law. Even if these
considerations are taken for all they are worth, it bears noting that
with 26 stations, the merged entity would control less than 2 percent
of the nearly 1400 commercial broadcast television stations in the
U.S., and only 6 of those stations (representing roughly 0.6 percent of
the total number of commercial stations) operate in areas also
predominantly served by Comcast.\20\
---------------------------------------------------------------------------
\20\ Comcast also has a relatively small presence in the New York
DMA, in which it serves less than 10 percent of the area.
---------------------------------------------------------------------------
That said, the decisions ruling that broadcasting and MVPDs
constitute distinct product markets antedated the digital television
transition. As I have noted in my previous work, digital broadcasters
have the option to use their channels to transmit multiple streams of
standard-definition television.\21\ The result is a dramatic increase
in the number of channels available. For example, Los Angeles residents
can now receive nearly 70 over-the-air television stations. News
reports indicate that the increase is so dramatic that some viewers are
considering dropping their MVPD service and instead simply relying on
broadcasting.\22\ Including broadcasters and MVPDs in the same product
market would radically deconcentrate the market for local television
distribution and make them more competitive.
---------------------------------------------------------------------------
\21\ Yoo, supra note 12, at 213.
\22\ After Digital Switch, Basic TV Offers Cable Alternative, NPR
Weekend Edition, Feb. 27, 2010, available at http://www.npr.org/
templates/story/story.php?storyId=124056416; David Sarno, In the
Digital TV Era, Rabbit Ears Multiply, L.A. Times, Dec. 25, 2009, at 1.
---------------------------------------------------------------------------
But perhaps the most dramatic development of recent years is the
emergence of the Internet as an important means for distributing video
programming, demonstrated most forcefully by the growing importance of
properties such as YouTube and Hulu. The proliferation of new last-mile
broadband technologies has made determining the level of horizontal
concentration in the market for high speed data more difficult.
Figure 4: HHI in the National Market for High Speed Data (as of
September 2009)
------------------------------------------------------------------------
Company Subscribers Share HHI
------------------------------------------------------------------------
Comcast 15,684,000 21.4% 459
AT&T 15,638,000 21.4% 456
Verizon 9,174,000 12.5% 157
Time Warner Cable 9,167,000 12.5% 157
Cox 4,150,000 5.7% 32
Charter 3,010,100 4.1% 17
Qwest 2,951,000 4.0% 16
Cablevision 2,522,000 3.4% 12
CenturyLink 2,189,000 3.0% 9
Bright House 1,441,384 2.0% 4
Other 7,310,768 10.0 7
Total 73,237,252 100.0% 1,326
------------------------------------------------------------------------
Sources: SNL Kagan, Top Cable MSOs, September 2009; Press Release,
Leichtman Research Group, Over 900,000 Add Broadband in the Third
Quarter of 2009 (Nov. 13, 2009), available at http://
www.leichtmanresearch.com/press/111309release.html.
The calculation is further complicated by the advent of wireless
broadband technologies. The most recent data reported by the FCC
indicate that wireless broadband has already captured nearly 25 percent
of the market for high-speed lines (defined as connections providing
200 kbps in at least one direction) and nearly 17 percent of the market
for advanced service lines (defined as connections providing 200 kbps
in both directions).\23\ Because the market for wireless broadband
services are even more competitive than the market for wireline
broadband services, the addition of wireless broadband services would
probably deconcentrate the market still further and make it even more
price competitive.
---------------------------------------------------------------------------
\23\ Fed. Commc'ns Comm'n, High-Speed Services for Internet Access:
Status as of December 31, 2008, at 8-9 (Feb. 2010), available at http:/
/hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-296239A1.pdf.
---------------------------------------------------------------------------
As a result, the market for high speed data is moderately
unconcentrated. Again, it bears emphasizing that only one of the
merging parties (Comcast) offers high-speed broadband services. The
level of competitiveness is determined by the economics of the
industry, which typically involves significant fixed costs, not the
merger. Thus, permitting the merger to proceed would not alter the
level of concentration in this market one iota. Conversely, to the
extent that the concern is too few options in last-mile broadband
services, blocking the merger would not address this concern in any
way.
Horizontal Integration in the Market for Television Networks
The horizontal issues in the market for video programming are the
converse of those raised in the market for retail video distribution.
In the case of retail video distribution, NBC Universal has a miniscule
presence, while Comcast has a significant share of the market. In the
market for television networks, it is the other way around.
It is obvious that NBC Universal is a significant player in the
market for television networks. If one considers only cable networks
(and ignores broadcast networks) and measures market share in terms of
total industry revenue, NBC Universal, led by USA Network, SyFy, CNBC,
and Bravo, has earned an 8.8 percent share of the market revenue, good
for 4th place among all cable programmers. Comcast in comparison is a
relatively minor provider of cable programming. Its highest ranked
channel is E! Entertainment Television, which checks in as the 34th-
highest grossing channel.\24\ Altogether, Comcast's cable programming
properties account for only 3.3 percent of overall market revenues. The
combined company would control only 12.1 percent of the market, which
would leave the merged company in 4th place among cable programming
companies. Most importantly, post-merger HHIs would only be 1,202, and
the merger would lead to an increase of only 58 points. Under the
thresholds provided by the Merger Guidelines, regulatory authorities
should conclude without further analysis that the horizontal impact of
this merger on the market for television networks will not adversely
affect consumers.
---------------------------------------------------------------------------
\24\ Estimates by SNL Kagan 2009 (combining advertising and
affiliate revenue).
Figure 5: HHI in the Market for National Cable Networks as Measured by Total Revenue
(as of April 2009)
----------------------------------------------------------------------------------------------------------------
Revenue Pre-Merger Post-Merger
Company (millions) Share HHI Share HHI
----------------------------------------------------------------------------------------------------------------
Walt Disney $9,388 20.6% 426 20.6% 426
Time Warner Inc. $8,471 18.6% 347 18.6% 347
Viacom $5,528 12.2% 148 12.2% 148
NBC Universal $4,003 8.8% 77 12.1% 147
News Corp. (Fox) $3,260 7.2% 51 7.2% 51
A&E Networks $2,504 5.5% 30 5.5% 30
Discovery $1,944 4.3% 18 4.3% 18
Comcast $1,505 3.3% 11 N/A N/A
Liberty Media $1,371 3.0% 9 3.0% 9
Scripps $1,251 2.7% 8 2.7% 8
Other $6,265 13.8% 19 13.8% 19
Total $45,491 100.0% 1,144 100.0% 1,202
----------------------------------------------------------------------------------------------------------------
Source: SNL Kagan, SNL Kagan Cable Network Ownership Data, Economics of Basic Cable Networks (2009 ed.).
Evaluating the market power in terms of primetime Nielsen ratings
instead of total revenue tells a similar story. NBC is again in 4th
place, with a market share of 11.5 percent, while Comcast controls a
mere 2.4 percent of the market for cable television networks. The post-
merger HHI would be 1249, and the merger would lead to an increase of
only 55 points. Calculating market shares based on total-day Nielsen
ratings instead of primetime Nielsen ratings yields similar results.
Again, under the Merger Guidelines, this data also supports the
conclusion that the horizontal effects of this merger on the market for
television networks will not adversely affect consumers.
Figure 6: HHI in the Market for National Cable Networks as Measured by Primetime Nielsen Ratings
(Full-Year Average for 2009)
----------------------------------------------------------------------------------------------------------------
Pre-Merger Post-Merger
Owner Nielsen Rating Share HHI Share HHI
----------------------------------------------------------------------------------------------------------------
Viacom 7.0 19.9% 396 19.9% 396
Time Warner Inc. 6.0 17.1% 291 17.1% 291
Walt Disney 4.6 13.1% 171 13.1% 171
NBC Universal 4.0 11.5% 132 13.9% 192
A&E Networks 3.0 8.5% 72 8.5% 72
News Corp. (Fox) 2.7 7.5% 57 7.5% 57
Discovery 2.2 6.2% 38 6.2% 38
Scripps 1.5 4.4% 19 4.4% 19
Cablevision 0.9 2.4% 6 2.4% 6
Comcast 0.8 2.4% 6 N/A N/A
Other 2.5 7.1% 7 7.1% 8
Total 35.1 100.0% 1,194 100.0% 1,249
----------------------------------------------------------------------------------------------------------------
Sources: Nielsen Media Research National MIT; SNL Kagan, Economics of Basic Cable Networks (2009 ed.).
This basic conclusion does not change if one expands the analysis
to include broadcast television networks as well as cable networks.
Beginning again by measuring markets in terms of total revenue, the
post-merger HHI is 1186, and the merger would lead to an increase of
only 67 points.
Figure 7: HHI in the Market for All National Television Networks as Measured by Total Revenue
(as of April 2009)
----------------------------------------------------------------------------------------------------------------
Revenue Pre-Merger Post-Merger
Company (millions) Share HHI Share HHI
----------------------------------------------------------------------------------------------------------------
Walt Disney $12,638 20.7% 428 20.7% 428
Time Warner Inc. $8,766 14.3% 206 14.3% 206
General Electric $8,260 13.5% 183 16.0% 255
News Corp. (Fox) $5,724 9.4% 88 9.4% 88
CBS Corp. $5,546 9.1% 82 9.1% 82
Viacom $5,528 9.0% 82 9.0% 82
A&E Networks $2,504 4.1% 17 4.1% 17
Discovery $1,944 3.2% 10 3.2% 10
Comcast $1,505 2.5% 6 N/A N/A
Liberty Media $1,371 2.2% 5 2.2% 5
Other $7,328 12.0% 13 12.0% 13
Total $61,114 100.0% 1,119 100.0% 1,186
----------------------------------------------------------------------------------------------------------------
Sources: SNL Kagan, SNL Kagan Cable Network Ownership Data, Economics of Basic Cable Networks (2009 ed.).
The same is true if one includes both broadcast and cable networks
and measure market share in terms of primetime Nielsen rating. The
post-merger HHI is 1,114, and the merger would lead to an increase of
only 42 points. Similar results hold if one uses total day Nielsen
ratings instead of primetime ratings.
Figure 8: HHI in the Market for All National Television Networks as Measured by Primetime Nielsen Ratings
(Full-Year Average for 2009)
----------------------------------------------------------------------------------------------------------------
Pre-Merger Post-Merger
Company Nielsen Rating Share HHI Share HHI
----------------------------------------------------------------------------------------------------------------
Walt Disney 8.8 15.0% 225 15.0% 225
NBC Universal 8.7 14.7% 217 16.2% 261
News Corp. (Fox) 8.0 13.6% 184 13.6% 184
Viacom 7.0 11.9% 141 11.9% 141
Time Warner Inc. 6.5 11.0% 121 11.0% 121
CBS Corp. 6.3 10.8% 116 10.8% 116
A&E Networks 3.0 5.1% 26 5.1% 26
Univision 2.2 3.7% 14 3.7% 14
Discovery 2.2 3.7% 13 3.7% 13
Scripps 1.5 2.6% 7 2.6% 7
Cablevision 0.9 1.4% 2 1.4% 2
Comcast 0.8 1.4% 2 N/A N/A
Other 3.0 5.1% 4 5.1% 4
Total 58.8 100.0% 1,072 100.0% 1,114
----------------------------------------------------------------------------------------------------------------
Sources: Nielsen Media Research National MIT; SNL Kagan, Economics of Basic Cable Networks (2009 ed.); Company
websites and Form 10-K filings.
As noted earlier, the Internet has become an increasingly important
source of video programming. In this market, the amounts controlled by
the merging parties are trivial. NBC Universal controls only 0.7
percent of online video properties as measured by videos viewed.
Comcast is even smaller at 0.3 percent.\25\ As a result, the merger
would only cause HHI to increase by 3. NBC Universal holds a 32 percent
stake interest in Hulu. It is not clear whether this holding is
sufficient to attribute an ownership interest to NBC Universal. Hulu
operates independently of both companies and has its own management. In
any event, Hulu controls only 4.0 percent of the online video market.
Even if it is included and all nonprofessional video content is
omitted, the merger would only cause HHI to increase by 19.
---------------------------------------------------------------------------
\25\ comScore, Media Matrix Report, Nov. 209, available at http://
www.comscore.com.
---------------------------------------------------------------------------
No matter how one frames the issue, the level of horizontal
concentration in the market for video programming resulting from this
merger is sufficiently low to justify clearing the merger without any
serious inquiry. In one respect, however, the advent of Internet video
serves as a cautionary tale. One of the major differences between
Internet distribution and conventional distribution of video
programming is that advertising rates are much lower on the Internet.
As a result, producers of video programming are facing much the same
quandary as newspapers, another great source of high-quality content.
As the shift to online distribution caused advertising revenue to
dwindle, newspapers were forced to change their business model. Either
they needed to find new sources of revenue, or they needed to
drastically reduce their costs. Newspapers also sought repeal of the
newspaper-broadcast cross-ownership rule, only to see these efforts
blocked by opponents. Many of those who initially opposed these reform
efforts have since changed course and are now looking for ways to
bolster the newspaper industry.
Producers of video programming face the same challenge. They are
responding to the reduction in advertising revenue by exploring new
pricing models, even those that may require consumers to pay for
content that they received for free during the early, exploratory days
of Internet video. In addition, they are exploring new forms of cross-
ownership to reduce costs and to better leverage their programming
properties. The path followed by the newspaper industry should serve as
a reminder of the dramatic changes that are transforming media
industries and the potential costs of limiting companies' ability to
respond to those changes.
Vertical Integration Between the Market for Television Networks and the
Market for Retail Video Distribution
The preceding discussion established that the horizontal aspects of
the proposed Comcast-NBC Universal merger do not exceed the thresholds
generally used to evaluate when such a merger might potentially harm
consumers. Whatever potential harms that may result from the merger
must thus lie in the vertical integration between video programming and
distribution.
Vertical integration theory has long been a source of tremendous
controversy in antitrust law.\26\ Some basic points of consensus have
emerged and are now reflected in the Non-Horizontal Merger Guidelines.
---------------------------------------------------------------------------
\26\ See Yoo, supra note 12, at 187-205 (tracing the longstanding
debate between the Chicago and post-Chicago schools of antitrust law
and economics).
---------------------------------------------------------------------------
First, the firm must have market power in one market (typically
called the primary market). Without market power in the primary market,
the merging firm would have nothing to use as leverage over the other
market. Market power in the primary market is assessed according to
HHI. Because, as noted earlier, vertical mergers raise fewer
anticompetitive concerns than horizontal mergers, the guidelines
indicate that antitrust authorities are unlikely to challenge a
vertical merger unless HHI in the primary market exceeds 1,800.\27\
---------------------------------------------------------------------------
\27\ Non-Horizontal Merger Guidelines, supra note 5, 4.213, at
28.
---------------------------------------------------------------------------
Second, the other, vertically related market (typically called the
secondary market), must be structured in a way that makes it vulnerable
to monopolization. Otherwise, any attempt by the merging firm to use
its control over the primary market to exert pressure on the secondary
market would simply cause consumers to shift their purchases to other
producers. This typically requires that the secondary market be
concentrated and protected by entry barriers.\28\
---------------------------------------------------------------------------
\28\ Id. 4.212, at 27-28.
---------------------------------------------------------------------------
Third, even if these structural preconditions are met, the Merger
Guidelines recognize that the presence of offsetting efficiencies might
nonetheless justify permitting a merger to go forward even when the
market is structured in such a manner as to raise the possibility that
the merger might have some anticompetitive effects.\29\
---------------------------------------------------------------------------
\29\ Id. 4.24, at 30.
---------------------------------------------------------------------------
In the case of the proposed Comcast-NBC Universal merger, the
primary market is presumably the market for retail video distribution,
which is to be used as leverage over the programming market. Although
television networks would, of course, like to have the broadest reach
possible, they do not care if they can reach viewers in any particular
location so long as they can reach a sufficient number of viewers
nationwide to achieve minimum efficient scale. The market in which
networks contract with MVPDs is thus a national one. To programmers, it
is national reach, not local reach, that matters.
The foregoing discussion of the potential horizontal issues reveals
that the national market for retail video distribution is not even
remotely close to the 1800 HHI level of concentration needed for
vertical integration to even plausibly pose an anticompetitive threat.
Moreover, as of 2006, there were 565 cable networks already on the air,
with another 83 in the planning stages.\30\ Given this level of
deconcentration and the ease of entry, it is hard to see how anyone
could credibly argue that the merger poses a threat to consumers.
---------------------------------------------------------------------------
\30\ Annual Assessment of the Status of Competition in the Market
for the Delivery of Video Programming, Thirteenth Annual Report, 24
F.C.C.R. 542, 550 20, 635 193 (2009).
---------------------------------------------------------------------------
In addition, over the past decade, the level of vertical
integration between cable networks and MVPDs has been dropping like a
stone. For example, in 2008, News Corp. divested itself of its 2004
acquisition of DirecTV. Furthermore, in early 2009, Time Warner
separated its programming and retail distribution assets when it spun
off its cable operations into a separate company known as Time Warner
Cable. As a result, vertical integration in the cable industry has
never been lower.
Figure 9: Vertical Integration Between Cable Networks and MVPDs
Sources: FCC Annual Video Competition Reports; Nielsen Media
Research National MIT, Annual Prime HH 2005-2009; SNL Kagan, Economics
of Basic Cable Networks 2008, pp. 88-90, 117, 161; SNL Kagan, TV
Network Summary; SNL Kagan, Economics of Basic Cable Networks 2009,
Section VII.
The belief that vertical integration is unlikely to harm consumers
unless the structural preconditions specified in the Merger Guidelines
are met is based on more than just theory. Recent years have witnessed
numerous vertical mergers in relevant industries, including News
Corp.'s 2004 acquisition (and subsequent spinoff) of DirecTV, America
Online's 2001 acquisition (and subsequent spinoff) of Time Warner, as
well as Time Warner's 1996 acquisition of Turner Broadcasting. In each
case, the vertical aspects of the merger did not pose a threat to
consumers.
The likelihood that vertical integration will not harm consumers
draws further support from the empirical studies on vertical
restraints. For example, a recent study conducted by four members of
the FTC's staff surveying twenty-two published empirical studies
(including four studies of vertical integration in the cable industry)
found ``a paucity of support for the proposition that vertical
restraints/vertical integration are likely to harm consumers.'' Indeed,
only one study unambiguously found that vertical integration harmed
consumers, and ``in this instance, the losses are miniscule ($0.60 per
cable subscriber per year).'' On the other hand, ``a far greater number
of studies found that the use of vertical restraints in the particular
context studied improved welfare unambiguously,'' including at least
one study in the cable industry. The survey thus concluded that
``[m]ost studies find evidence that vertical restraints/vertical
integration are pro-competitive.'' The weight of the evidence thus
``suggests that vertical restraints are likely to be benign or welfare
enhancing.'' \31\
---------------------------------------------------------------------------
\31\ James C. Cooper et al., Vertical Antitrust Policy as a Problem
of Inference, 123 Int'l J. Indus. Org. 1639, 648, 658, 662 (2005).
---------------------------------------------------------------------------
Another survey published in the Handbook of Antitrust Economics
similarly reviewed twenty-three published empirical studies of vertical
restraints. Despite the relatively small sample size, the authors found
the empirical evidence to be ``quite striking,'' ``surprisingly
consistent,'' ``consistent and convincing,'' and even ``compelling.''
As a general matter, ``privately imposed vertical restraints benefit
consumers or at least do not harm them,'' while government mandates or
prohibitions of vertical restraints ``systematically reduce consumer
welfare or at least do not improve it.'' Together ``[t]he evidence . .
. supports the conclusion that in these markets, manufacturer and
consumer interests are apt to be aligned, while interference in the
market [by the government] is accomplished at the expense of consumers
(and of course manufacturers).'' The authors conclude that ``the
empirical evidence suggests that in fact a relaxed antitrust attitude
toward [vertical] restraints may well be warranted.'' \32\
---------------------------------------------------------------------------
\32\ Francine Lafontaine and Margaret Slade, Exclusive Contracts
and Vertical Restraints: Empirical Evidence and Public Policy, in
Handbook of Antitrust Economics 392, 408-09 (Paolo Buccirossi ed.,
2008).
---------------------------------------------------------------------------
In the absence of structural considerations that make it likely
that the proposed merger will harm consumers and in light of the strong
empirical evidence that vertical integration typically does not harm
and often benefits consumers, there seems little justification for
imposing additional conditions on this merger.
Conclusion
In evaluating the proposed merger between Comcast and NBC
Universal, one should recall that this process began when General
Electric decided to divest its media assets in order to refocus
management attention on its core businesses. At this point, then, the
question is not if NBC Universal will be sold, but rather to whom. In a
perfect world, General Electric would sell NBC Universal to a merging
party that would not increase horizontal concentration in any market
and for whom the merger would not create any violations of FCC rules.
Although the elaborate nature of the regulatory regime makes finding
such merger partners exceedingly difficult, General Electric has found
just such a merger partner in Comcast. Regulators considering whether
to approve this transaction must not only evaluate this merger on its
own terms. They must also evaluate it in comparison to who else that
General Electric would sell NBC Universal if not Comcast. They should
move to block the merger only if they believe that the next potential
transaction would pose fewer problems under competition policy as the
transaction under review today.
The conventional benchmarks associated with antitrust law strongly
suggest that the proposed Comcast-NBC Universal merger is very unlikely
to harm consumers. The markets are not structured in a way that the
combination of these two firms will have any anticompetitive horizontal
or vertical effects. Suggestions that regulatory authorities subject
the merger to additional conditions before clearing it thus seem
unjustified. To the extent that vertical concerns exist, regulatory
provisions such as the program access and leased access rules are
already in place to address the problem.
One need not believe that the existing regulatory regimes are
perfect in order to oppose imposing conditions on this merger. At best,
such conditions would apply to only one cable operator without
addressing what is an industry-wide problem. The correct course of
action when confronted with regulations that are imperfect is not to
jury rig a company-specific solution simply because a particular party
happens to be seeking clearance of a merger. Instead, the best practice
is to open a general proceeding to address any problems that may exist
on an industry-wide basis. In the wake of an era during which the FCC
was often criticized for failing to follow good administrative
practices, insisting on the integrity of regulatory processes would
appear to be particularly important.
Senator Dorgan. Professor Yoo, thank you very much for your
testimony.
I indicated to Senator Rockefeller that I would come back
and chair the second panel. And I would just make a very brief
statement, and then I will ask some questions.
You know, I have a history on this committee with Senator
Lott, the Dorgan-Lott provision. I think we were the first to
exercise what was a legislative veto on the media ownership
rules of the FCC some years ago.
I have long been concerned about concentration,
particularly in media ownership. I don't think big is always
bad or small is always good, but I do think that we should
always ask the question what does this mean to the free market?
The free market works best when you have robust competitors
competing around price and product differential.
And so, the question is--I would have some disagreement
perhaps with you, Professor Yoo. I think the burden is on those
who come to us with a proposal to combine, for them to describe
why this combination is not going to harm the free market
system, why it is not going to be destructive of the public
interest, and why it is not going to retard competition. I
think that burden exists, and I would expect Mr. Roberts
probably also agrees that he has that burden.
There are a smaller number of interests in the country--I
agree with Mr. Wells--that really determine what we see and
hear and read each day. And so, we should be cognizant of that
and understand what that means in terms of future
concentrations.
I mean, I have been here long enough so that I have watched
Mr. Levin and Mr. Case sit at that table and tell us what an
unbelievably wonderful idea it was to combine Time Warner and
AOL. I am telling you, they were missionaries on a mission,
absolutely completely convinced it was not only in the public
interest, but in their interest. Of course, it turns out
history answers a lot of those questions, and it certainly
answered that in a very aggressive way.
I am concerned about a number of things, which I will ask
questions about. And I think what we want to do here is learn.
We have differences of opinion on this panel.
The independent programming issue is one that I am
interested in. I am concerned that we have seen such diminished
activity and opportunity for independent programming, and I
fear more of that. And I think Mr. Wells raised the question.
It is a very important question I am going to ask Mr. Roberts
about that.
Mr. Yoo, I will ask you, I didn't quite understand whether
you were saying that the FCC should decide yes or no, but in
any event should not establish conditions because you don't
think conditions are appropriate. Either this merger should be
approved or not approved, but you don't support conditions on
the merger. That is kind of a fair piece from where I think
most of us would expect. I mean, we have seen conditions
attached to a fair number of mergers recently.
Let me begin to ask just a few questions, and then I will
turn to my colleagues, and we will all have an ample
opportunity to ask these questions.
Mr. Roberts, you have heard a lot of testimony about what
you are trying to do and the testimony about Ms. Abdoulah's
issue of how she has to--she is a smaller enterprise. So she
has to deal with you, and you have more leverage. Mr. Wells's
contention that he is worried about what you might do to Hulu.
Give us your response and your retort to some of the questions
that have been asked about what kind of leverage Comcast will
have and what it will mean for the consumer.
Mr. Roberts. Thank you very much.
I think I would start with your point about AOL-Time
Warner, that people who sit where I am sitting may have
aspirations. At the time, there were many fears about that
transaction. And as history, as you pointed out, proved, they
made a mistake and they paid a very heavy price.
And so, many have said, as we heard in Professor Yoo's
testimony and as I have pointed out before, Time Warner and
Time Warner Cable have separated, News Corp. and DirecTV, both
deals that were approved through a similar process. But it
didn't prove to be right for them as they wanted to operate
their businesses.
So I think I began by saying it is not a sure thing, and
you start with what is your principal motivation? My opinion,
principal motivation is an opportunity, at a time when our
economy has really suffered in the last year or so, to make a
bet that we are going to see a rebound and that this is a good
time to bet on America, on advertising coming back, and on
consumers wanting more and more content.
And one of my answers to Mr. Wells is you don't buy the
fourth-place network that was once, for my formative years, the
number-one network and want to do harm, but rather, you want to
invest and grow it and restore it to its grandeur.
One of the reasons General Electric has chosen us to pick
us to partner with in a 51/49 transaction is that they think we
will be more focused and more committed to wanting to see
innovation and investment. We know--as was discussed with the
Internet, we know consumers are looking for more ways to get
content on more devices. This is a very nascent market. I have
said repeatedly I think video over the Internet is our friend,
and we are trying to find ways to accelerate that.
We have just invested billions of dollars to upgrade the
speeds of our Internet capacity so that we can find more
applications, be they, 3-D, high-definition, or whatever the
great engineers will dream up next. So I have no desire to want
to see that trend not continue to flourish. It is what is a big
part of our growth of our company is broadband.
To Ms. Abdoulah's points, I think that our company has been
in the content business. She, I believe, carries a lot of our
programming. Some of the things that are being talked about, as
was pointed out, are industry wide. If the FCC process for
program access has frustrated her in the past, I am not aware
of any specific complaints that she has ever had about Comcast
up until this transaction. But to me, the Chairman has an
opportunity to do reform at the FCC, to look at that on an
industry-wide basis. And I certainly would welcome a process
like that, but I don't see how it relates specifically to this
merger.
Senator Dorgan. You have nearly exhausted my time.
Mr. Roberts. Oh, I am sorry.
Senator Dorgan. No, that is all right. What we want to do--
and I will have plenty of time to answer questions when
everybody else has left, I guess.
[Laughter.]
Senator Dorgan. But let me ask this question again of you,
Mr. Roberts. Because I think if this merger is approved--I have
no idea whether it will be or not. I have no idea whether it is
worthy. I have no idea whether it retards competition or is
violative of the public interest. I think that is something
that is going to be investigated substantially by Justice and
the FCC.
If it is subsequently approved, it is going to be approved
with conditions. But I believe Comcast is actually even now
contesting the FCC's authority with respect to certain
conditions, the net neutrality issues and so on. So, tell me,
is that a conflict for you?
Mr. Roberts. You know, that has been raised, and I want
to--I appreciate the chance to try to address it, and I will do
it as quickly as I can. So I don't want to exhaust time, but I
think it is an important issue.
The certain parts of some of the rules that have been
placed do get reviewed. The past FCC had some policies that I
think have been overturned against the industry and about our
company in specifics. So I think there is always that issue.
What we tried to address here is we made voluntary
commitments that we would be prepared to sign in a binding way
with the FCC such as the program access, such as free broadcast
television remaining free over-the-air, some of the issues that
have been discussed in the prior panel and have been discussed
previously. So, no, I don't believe--and in the event that they
were overturned by the courts, we are prepared to have them
apply to us and have that conversation with the FCC.
Senator Dorgan. I have other questions for you, and I will
ask a question of you when we are all done. Why should this
merger be allowed? So, but don't answer that at the moment.
Let me say this. I am going to ask all of you some
questions because you have all raised a lot of really
interesting issues that I think the purpose of this hearing is
to explore those issues, and you have all contributed something
substantial. But I want to have my colleagues have the
opportunity to ask questions, and then I will continue when
they are completed.
Senator Johanns, in order of arrival?
[Laughter.]
STATEMENT OF HON. MIKE JOHANNS,
U.S. SENATOR FROM NEBRASKA
Senator Johanns. Yes, way back when. Thank you very much,
Mr. Chairman.
I appreciate you all being here. You all have, I guess, a
different view of the world. So let me, if I might, zero in on
some things.
Mr. Wells, at various points in your testimony, you
reference a free Internet. I was just curious what you meant by
``free Internet?''
Mr. Wells. I think that content creators have concern, both
on the news side and on the entertainment side and also just on
the community discussion side, that the companies that are
providing Internet service to many, many of the homes in this
country continue to provide that in an equal access fashion to
everyone who wants to come through that pipe, through that
Internet connection.
I think we have concerns that there will be preferential
financial treatment given to the speeds with which or with the
costs which are associated with the difference between bundled
content that might come from an NBC Universal-Comcast company
together and also arrangement where others would be required to
get that higher-speed delivery. And so, I think we have real
concerns that there be an equal access in the speeds and in the
cost of everything that is available through Internet
connections.
Senator Johanns. OK. Let me dig a little deeper on that. I
don't use the Internet a lot. I maybe turn on the computer. I
look at half a dozen sites because I am interested in what they
are doing there. If I spend an hour a day on the Internet, that
would be a lot for me.
There are other people that spend most of their day. They
download things, and they are watching movies or whatever they
are doing. Should the two of us pay the same for that?
Mr. Wells. Well, I think that everyone who wants to access
material should be paying the same amount. So my question isn't
so much exactly what the consumer is paying, although I think
that is a concern. I think the concern is, will the speeds with
which things that move through the Internet because video use
and the band that video uses, which is why there was such a
substantial amount of investment that has been made, require
larger and larger amounts?
And the problem with that is that people who do not have
the financial resources to give that preferential treatment but
may be very important to the way in which we actually receive
everything that we get, particularly as I think we are seeing a
diminution in local news, whether that be through the
diminishment of local newspapers, whether that be through the
diminishment of what will actually--I think many of us believe
will end up happening with local news or a lot of local news
and local broadcasting, that everyone have that same
opportunity and through entertainment as well.
So, I am just saying that we are concerned that if it takes
when you sit down at the computer, that you get a very quick
connection and an immediate feed on, let us say, NBC News. But
that if you want to see a Huffington Post or another blog or
something, that that comes through much more slowly. I think
there are real concerns about that, and there are questions
about this when we get into pirated materials, too, when we
start talking about copyright and intellectual property.
Senator Johanns. Mr. Roberts, let me turn to you, if I
might? Your family kind of epitomizes what has happened in this
arena. I am old enough where I remember the first TV being
walked into the living room. I grew up in northern Iowa on a
farm, and our method of changing channels was somebody had to
be out back. We had a 2-x-4 wrapped around a pole with an
antenna at the top, and then somebody inside would scream,
``Too far, too far.'' And then you would constantly adjust so
you could get that picture.
[Laughter.]
Senator Johanns. So, if you wanted to change channels in
the dead of winter, somebody had to run around to the back of
the house while somebody was screaming inside.
Now I look at what we have done, and I have to tell you,
there is probably a cost difference between the old system that
I grew up with and today's system. But it is remarkable what we
have the ability to access.
So, I want to ask you, with the criticism that you have
gotten here, how do you anticipate you will serve your
consumers better, and what about this merger will allow you to
take yet the next step and the next step and the next step?
I read that pretty soon I will be able to sit in front of
my TV and have a conversation in a video link with my
grandchildren back in Nebraska. Tell me how you think you can
benefit consumers because there are some here that are raising
criticisms about what you are heading out to do.
Mr. Roberts. Senator, I appreciate really putting it in
historical concept because--in historical context. As I think
about what my father's generation of entrepreneurs and what I
have been doing for 30 years now is all about, people forget
where we were, and we have liberated the viewer viewing
experience.
Not always for the better, you know? Some of the points
that have been made, not all content is perfect. But in
reality, it is breathtaking what has changed in such a short
period of time, and what will happen in the next 5 or 10 years
I dare try to guess.
What I am trying to do for our company and for our
customers is to, in this transaction, try to associate
ourselves with some of the most creative and talented creators,
try to find the technological ways to create successful
businesses for them and to make it great for the consumer, to
take this technology like wideband, which is beyond broadband,
so that you could do the video conference in high-definition
back home, and it is tremendous risk. There is absolutely no
assurance that this is right or that this will work, but that
is what American business is all about.
And what I would suggest to some of the criticism is, sure,
there is always a potential you might do this, you might do
that. First of all, it is a very visible industry. There are
many regulatory oversight agencies, and we have a track record
of wanting to innovate. Our goal was not to get into cable to
slow down innovation, but to speed it up.
And as I look at this merger, I see that as a once-in-a-
lifetime opportunity, really, to try to associate ourselves
with the best content that isn't doing quite as well, that is
inside a company like General Electric that today has other
business opportunities unique to them all over the world. And
for us, this will be a defining opportunity.
Senator Johanns. My time has expired. Thank you, Mr.
Chairman.
Senator Dorgan. Senator Johanns, your description makes us
sound like fossils. But we didn't have individual television
sets. In my town of 300, we had only one, and that was at the
car dealership.
And since it was 125 miles from the nearest television
station, the only television we got was what were called
``skips,'' and occasionally, we would get a skip signal from
somebody broadcasting professional--I guess wrestling, not
professional wrestling. And the whole town would come down to
see that skip and watch wrestling from West Virginia for about
8 minutes and then snow.
[Laughter.]
Senator Dorgan. Senator Isakson has gone. Senator Begich?
Or Senator Klobuchar, I am sorry.
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. You can see why they are so productive
in North Dakota. There is not much time to mess around.
It is good to see all of you again. I feel like Groundhog
Day. I am the only Senator on both Judiciary and Commerce, and
we all remember that Judiciary hearing well.
So I thought I would start with you, Mr. Roberts. I
actually did some follow-up questions after that hearing, and I
raised this issue at the Judiciary hearing about the price of
expanded basic cable that has gone up faster than the rate of
inflation since 1995, four times faster. And customers are
concerned in these tough economic times with their cable bills.
And what assurances can you give that this merger won't result
in higher fees for customers?
Mr. Roberts. Well, first of all, we are always focused on
that question. I don't think anything specific to this merger
would incentivize us or cause us to want to raise cable rates.
We are in a competitive business. We compete against Ms.
Abdoulah. We compete against DirecTV. We compete against Dish.
We compete against Verizon, FiOS, U-verse. It is a very
different business than it has ever been, and it is very much
on customers' minds.
Today, for instance, in Washington, D.C., we start as low
as $15. We have 14 different levels of service. We are much
more competitively sensitive. We are trying to improve our
programming with On Demand and other technologies. And you
know, I still believe digital video, for which Comcast, by the
way, is not the highest cost. I think there are many providers
who charge more than we do.
But as a group, the number of hours and what you get versus
just going to a movie continues to be starkly different for the
number of hours, of 300 hours a month that the average cable
household watches, in excess of that. It turns out to be 33
cents per viewing hour versus $15 to go to a movie for an hour
for a family of four.
So I think we still have a great value. It is why the
industry has been healthy, been able to reinvest, and create
jobs. But I am very mindful of that question. I don't believe
this deal will cause that to change, and we have got to stay
focused. And it is competitive.
Senator Klobuchar. And I know there will be a lot of
lawyers looking at this deal, but I just thought I would run
through a few things that I have heard, that people have raised
with me about concerns.
One is that NBC and its affiliates have succeeded by
getting its programming to as many viewers as possible and
providing this content--we talked about this at Judiciary--for
free over-the-air or over the Internet. Will Comcast use NBC's
30 percent stake in Hulu.com to restrict the selection of NBC
programming that is available on Hulu.com or NBC.com?
Mr. Roberts. I have never even personally met with the Hulu
team. We will own about 30 percent, 31 percent. It is a non-
controlling stake. We have no intention of changing NBC's
relationship with Hulu.
And Hulu itself, from what I have read in the trade press,
is going through business model reviews and how to fund it and
what its future will be. We are not at that table, and I look
forward to learning more about that business once we get
together, if we do get together.
Senator Klobuchar. And do you expect Comcast to block any
NBC content from the Internet, and what about charging
subscriber fees?
Mr. Roberts. I don't. Comcast does not want to block NBC
content or, frankly, block any content on the Internet. And I
don't think that--as I said, I think that there is--my vision
is the content creator in different windows has different
business models. Sometimes they want to be pay-per-view, like
going to a movie in a movie theater. Sometimes you do that in
your home. Sometimes it is ad-supported only. Sometimes it is
part of a subscription. And who knows what other business
models will come out in the future?
From a Comcast perspective, my vision is to technologically
try to create platforms and making sure that the content is not
pirated--you know, that it is authentic--and finding a way to
let the content companies create their own business models that
work for their businesses into the future.
Senator Klobuchar. OK. Now, Ms. Abdoulah has raised this
issue about small and mid-sized cable operators, and they have
long objected to how they are compelled to negotiate
programming contracts, both with cable channels and with
broadcast affiliates. Concerns about the leverage that you
would have over both your video distributor competitors, your
program distributor competitors--and I am going to ask her
this, too--but what protections do you think should be in place
to make sure Comcast doesn't have unfair advantage over its
competitors in these negotiations?
Mr. Roberts. Well, I believe that we have had an ability to
resolve because we want her carriage and we want other
competitors' carriage. You don't go spend what has been
written, a $30 billion overall transaction value potentially,
or some number that is very substantial, to not want--when you
are about 24 percent of the distribution marketplace, you are
hoping to get the other 76.
So it is very much in our interest as a business matter. As
was referenced in some of the other testimonies, there are
antitrust laws. But in addition to that, there is the
competitive reality that we all--you won't have a very vibrant
channel if you are not distributed.
And then you go to the program access rules, which we have
talked about. And if there is not complete satisfaction with
those, there is hopefully an opportunity for the FCC to make it
more attractive across all companies, not just our own.
We have also seen other video distributors, DirecTV and
Time Warner Cable, be separated from their parent companies who
were making content because they didn't see that there was some
advantage. So I think there is a lot of answers to that
question, but----
Senator Klobuchar. Could I just get--I am running out of
time here?
Mr. Roberts. Please.
Senator Klobuchar. Thank you very much.
Ms. Abdoulah, what protections--and Dr. Cooper--do you
think would most help with this issue here?
Ms. Abdoulah. Well, you asked the great question about will
prices go up for Comcast customers? And Mr. Roberts answered
that. I would like to answer it. I can say it might not for
Comcast, but I can tell you it will for us because of the
reasons that I mentioned in my testimony.
The issues for us are cost and carriage as a competitor and
all people who compete for the product. In essence, your
wholesaler is also your retailer. And so, here I am buying
product now from these two large companies, and the remedies
that you talk about, where do we go if we can't get what we
need, if we can't represent our consumers' wants
appropriately----
Senator Klobuchar. So what protections would help with
that?
Ms. Abdoulah. And it is the access rules. Let us get them
revised and reformed because----
Senator Klobuchar. And they are set to expire 2012, right?
Ms. Abdoulah. Yes.
Senator Klobuchar. And you find them inadequate?
Ms. Abdoulah. And I am saying if we are going to approve
this merger before that, that is inadequate. To say that we
will--for Comcast to say we will adhere to the current access
rules, which are not effectual--if they don't help protect us
in the ways that we need to from a competitive standpoint, then
that is meaningless.
So we would ask that the conditions be placed especially--
very specifically, if we have an issue, give us the right to
make sure that that network stays on the air while we are
negotiating. Put a ``time sensitive'' on it, which I noticed
Comcast put in their conditions they would be willing to put a
time on it.
But also make sure that the network has to stay on during
the time of the negotiation. Otherwise, we see what happens to
customers. We witnessed that with the Academy Awards recently.
Senator Klobuchar. What happened with the----
Senator Dorgan. Senator Begich?
Senator Klobuchar. Oh, I wanted to know what happened with
the Academy Awards. I will ask her later. And Dr. Cooper--and I
am going way over my time. And so, could you and I talk about
this later?
Senator Dorgan. Senator Begich, please?
Senator Klobuchar. I will call you, and then, one, you
could put the answer in writing for me. Thank you.
Senator Begich. Thank you very much, Mr. Chairman.
Just some very quick questions, if I can? Mr. Roberts, if I
can just walk through, just so I understand the magnitude. What
is your current Comcast gross revenues?
Mr. Roberts. About $35 billion.
Senator Begich. And with NBC, what will it be?
Mr. Roberts. About $50 billion.
Senator Begich. And what is your customer base for Comcast?
Mr. Roberts. About 24 million.
Senator Begich. About 24 million?
Mr. Roberts. Customers, cable customers.
Senator Begich. Let me, if I can walk through just a couple
questions that I have? In the purchase, in the agreement, are
you personally financing it through equity and debt? Is it a
combo or is it----
Mr. Roberts. It is a joint venture, 51 percent Comcast, 49
percent GE. We are contributing some assets of some of our
cable programming assets, as well as somewhere around $6.5
billion in cash. We will borrow that cash, plus cash that we
already have on hand. So the equity----
Senator Begich. That gives me a sense.
Mr. Roberts.--is GE remains 49 percent of the equity.
Senator Begich. So it is a combo?
Mr. Roberts. Combo.
Senator Begich. In your investment, expected--can I ask the
rate of return that you are expecting?
Mr. Roberts. What we hope--we don't, haven't made a public
forecast. What we said is we are hopeful to have a positive and
hopefully double-digit rate of return.
Senator Begich. Low, high?
Mr. Roberts. It is----
Senator Begich. Twelve, 13, or 17, 18?
Mr. Roberts. No. High single, low double digits. Maybe mid
double. It depends, your view of the economy and the strength
of----
Senator Begich. I have your faith that we are in the right
mood, and that is why you are moving down this path.
Mr. Roberts. We are also long term. We are looking--so it
depends what time period you would ask that question. I want to
clarify that.
Senator Begich. Now, with that information, are you
anticipating that to be all recovered through your rate
structure both for residential and commercial rates?
Mr. Roberts. No.
Senator Begich. Do you anticipate more than 50 percent of
it to be recovered?
Mr. Roberts. The rate of return for this would be not
related to our cable. What I was referring to was NBC
Universal----
Senator Begich. Understood.
Mr. Roberts.--and their businesses, which don't--for the
most part don't directly touch our rates.
Senator Begich. But your investment that you are making
into your ownership, are you expecting that to be partially
repaid by users who are Comcast. And I am calling--I am from a
state that doesn't have Comcast.
Mr. Roberts. Right.
Senator Begich. Great NBC affiliates, and I will get into
that in a second. But are you expecting a rate of return from
those customers, both residential--the users of Comcast, but
also commercial users who put product in. And if so, how much
of that volume of dollars----
Mr. Roberts. Well, I think more than half or some
percentage of NBC cable and NBC broadcast is an advertising-
supported business. So a large part of the answer is
advertising. A second part of the answer would be improved
quality. So you get higher ratings. Then you get higher
advertising not just from a healthier market, but from a better
product.
Senator Begich. You moved from 4 to 3 to 2 to 1?
Mr. Roberts. Correct. And same goes for their cable
channels, and then there are subscription fees that the cable
channels have. And traditionally, NBC has been a fairly priced,
widely distributed group of cable channels like USA, Syfy, and
we are counting on sort of business as usual in that regard.
Senator Begich. OK. Let me ask you--and again, I am new to
this process, and I am watching my time very quickly. So the
question has come up on union contracts, or there has been some
commentary that Comcast hasn't been as fair. And I am not
saying those are my words. I am just repeating what I have
heard and so forth.
So here is the question. How many of your employees
currently are under union contract in Comcast, in any form, any
kind of union?
Mr. Roberts. Understood. We have two basic businesses. In
the cable business, it is around 2 to 3 percent. That is pretty
normal for cable operators. And you will find that that is not
an outlier, in my opinion. In our programming business, it is
north of 10 to 14 percent, in that range, which is maybe in
some of our business a little bit higher--in our regional
sports business--which is also, I think, inside the norms.
We have tried to stress that we intend to honor and support
all of the agreements with the guilds and the trades that NBC
has. It is a very different business than cable distribution.
But we are very proud of what we have built at Comcast with
100,000 employees and a company a lot of people would like to
work for, and I am very proud of that.
Senator Begich. No problem. Let me get to one quick
question. And then, Mr. Wells, I have a quick one. Then I will
submit the rest for the record because of time.
Do you agree that conditions could potentially be placed on
you during the agreement, and why not just not wait for
Congress, because if you wait for Congress to do something on
access rules, I may be dead and gone by then. But why not just
work it out, insert it into the conditions, and move forward?
Mr. Roberts. Well, in some ways, I think we have suggested
that. On day one, we acknowledged that there were certain
areas--how we compete, how we invest, how we feel about
localism, how we feel about free over-the-air broadcasts, and
how we feel about some of the union issues. In all of those
instances, we made upfront commitments. One of the commitments
that we have clarified that we are also prepared to talk to the
FCC and make binding is if the court case were to overturn some
of the access conditions. They tended to be focused on
exclusivity and some of the issues like Sunday Ticket or
NASCAR.
Senator Begich. Let me in there. I apologize. My time is
up.
Mr. Wells, I have some questions. I will submit them to you
for the record. But again, on the conditions issues because I
think the Chairman asked an interesting question, and that is
let us assume--I guess here is the question.
Would you allow and work to make sure the conditions are in
whatever agreement without the argument that, well, Congress
will do it later? In other words, forget about what we are
going to do. Because if you wait, you will never do this
transaction.
Mr. Roberts. No, the conditions we made have--the
conditions that we have suggested and that we are prepared to
further talk about and try to clarify would not premise
themselves on Congress.
Senator Begich. Great. Thank you, Mr. Chairman.
Senator Dorgan. Senator LeMieux?
STATEMENT OF HON. GEORGE S. LeMIEUX,
U.S. SENATOR FROM FLORIDA
Senator LeMieux. Thank you, Mr. Chairman.
Professor Yoo, I want to start with you. My memory of
antitrust analysis, and it has been some time, is that one of
the first things you talk about is the market. What is the
relevant market here in determining whether or not this
transaction meets antitrust standards?
Mr. Yoo. I really appreciate focusing on this. We have
heard many dire warnings, a little discussion of law, a little
discussion of facts, a little discussion of markets. There is
basically two markets here.
One is the market for distributing video programming
locally, typically done by a local broadcast television station
or a local cable operator. The second is the market for
television networks, either broadcast television networks or
cable networks. And in general, these are considered to be
completely independent markets.
There is a well-established framework by the merger
guidelines for analyzing these mergers and the setting of
concentration levels. It measures through the Hirschman-
Herfindahl Index, called HHI. The guidelines set up benchmarks
for each kind of merger. There are some mergers which require
strict scrutiny. Some get a light look, and some are approved
without any extensive analysis at all.
What is most interesting is when you define these markets
properly, by actually looking at the facts, it falls into the
category of things that should be approved without any
significant scrutiny at all. And in fact, if you look at actual
enforcement policy over the decade of about 1996 to 2005,
spanning both Democratic and Republican administrations, no
antitrust authority has ever challenged a merger at the low
levels of concentration that are here.
I think that there are real concerns that people have and
mergers do--change is disruptive to a lot of people, and it is
going to create different patterns. But that is an inevitable
part of the business.
Senator LeMieux. And when you say the relatively low
concentrations, I am looking at your testimony on pages 14 and
15, and you say that NBC Universal has 8.8 percent share of the
market revenue, which makes them fourth place among cable
programmers. The combined company, 12.1 percent of the market,
fourth place among cable programming companies.
So even in these markets--and it is also my sense that
these markets are changing so quickly. I mean, the way that we
get programming, you know, we are getting it on our BlackBerry.
We are getting it on the Internet. Who knows what the next
thing is going to be? It seems like it is a very dynamic
changing. But even within the marketplace as it is now, which
won't stay static, but even if it did, it seems like it is
pretty low concentration.
Mr. Yoo. Absolutely. And if you look at the trends, they
are becoming less concentrated with every passing year.
You also bring up the fact that the traditional models are
changing. In a very real sense, there is an archaic aspect to
this discussion. If you look at the way our kids access video,
it bears no resemblance to any of the markets we are talking
about now. And in those markets, the parties that are merging
here have 0.7 percent of the market and 0.3 percent of the
market, and the merger will yield an entity of 1 percent.
We have heard much discussion about Hulu, which is run--
independently managed, independently financed. Even Hulu, as
important as it is in people's minds, has 4 percent of the
market. And so, we are talking about a very different landscape
and very, very small players.
Senator LeMieux. Mr. Roberts, one thing that occurred to me
is, as you acquire more content, I guess one concern would be
whether or not you would seek to charge more for other content
to come on your cable network or whether you would give
preferential pricing to your content so that it would be
anticompetitive. Can you address those concerns?
Mr. Roberts. You know, I have heard the concern, and it has
been referenced a little bit. First of all, if that was such an
achievable objective, why did News Corp. get out of DirecTV?
Why did Time Warner spin off Time Warner Cable?
Because it is such a competitive market, as you were just
discussing with the professor, that I don't think that is
really the motivation, nor do I really think that is truly
viable. And there are--it is a very visible industry, and there
are these program access opportunities at the FCC if that were
one's behavior.
What our motivation is, is to try to make these channels
better, more relevant. Invest in them, be more focused on them
than their current situation, and that we think they are good
businesses, as you describe, as the next generation wants them
on more platforms.
And I don't know how we can state it that that is really
what our goal is. And I think if we do all that, we will have a
successful deal here.
Senator LeMieux. Can you speak to what is going to happen
to employees of NBC, and specifically, as you may expect, being
a Senator from Florida, I am concerned about NBC Universal.
They are headquartered--the theme park operation, I guess, is
headquartered there. I expect that you are going to commit that
there are no plans to move that to Philadelphia?
[Laughter.]
Mr. Roberts. People would love to be in the snow that we
have had in Philadelphia all winter long and here in
Washington.
Yes, we are excited about other businesses that we haven't
talked about at all today, NBC Universal and what have you, and
the investment that is being made in Universal theme parks with
Harry Potter. That is, in my opinion, under talked about is GE
decided to sell. And in all likelihood, it was going to sell to
somebody, and most of those somebodies that I can see would
have had duplicative businesses, and there would have been real
job reductions.
The fact is Comcast doesn't own a theme park, doesn't own a
news channel, doesn't own a broadcast, doesn't own a film
studio, and doesn't own many of those cable type of news
channels. So we don't anticipate any reductions and movements
and all the disruption to people's lives at this really
sensitive time in the economy.
And I think that is maybe not the sole determinant factor,
but a reality that GE had chosen to sell. And if they sold to
somebody with more ``synergy,'' Wall Street would have liked
it. Washington perhaps would have had more dislike.
Senator LeMieux. And if you would like to move the general
headquarters down to Florida, we would welcome that.
Thank you, Mr. Chairman.
Senator Dorgan. Senator Wicker?
STATEMENT OF HON. ROGER F. WICKER,
U.S. SENATOR FROM MISSISSIPPI
Senator Wicker. Well, speaking of headquarters, I think
members of the panel might be interested to know that this
giant of Comcast actually had its beginnings in my hometown of
Tupelo, Mississippi. And Mr. Roberts's father, Mr. Ralph
Roberts, is sitting right behind him, if you would wave to the
audience, Mr. Roberts?
He is not from Mississippi, but he chose the City of
Tupelo, Mississippi, in 1963 to start American Cable Systems,
which has now grown into Comcast. I did not want this
opportunity to pass without giving the members that little
history lesson and to give our welcome on behalf of the
Committee to Mr. Ralph Roberts.
But to our witness Mr. Roberts, what do I tell my folks,
regardless of where they get their signal, give me some
specific benefits they are going to get. You are going to get
this, this, and this that you haven't had, and it is going to
be better if this gets approved.
Mr. Roberts. First of all, thank you on behalf of the
Roberts family. Somehow he gets the nice part, and I get the
tough questions.
[Laughter.]
Mr. Roberts. But I have been living with that for a long
time, and I am very comfortable.
Senator Wicker. By the way, it occurs to me you might want
to hasten to add that you really do love Philadelphia, snowy
though it may be.
Mr. Roberts. Yes. But I have been to Tupelo, and we are
very proud of the Mississippi heritage in the company.
Senator Wicker. And we are proud of it.
Mr. Robert. So let me, right off the bat, I would tell your
constituents I hope we are going to make better programs, and I
hope that we are going to invest in localism because we are a
local company. And whether that is the TV station or the cable
station, there has been a trend to cut back on local public
affairs programming, local news programming.
Take something like On Demand. We today have 14 billion On
Demand shows that have been downloaded on Comcast systems in
the last several years, more than anybody else. That is as many
as iTunes, more than iTunes across the whole United States.
These are half an hour approximately, on average. That is a
technology we sort of helped invent. The number-one criticism I
get when I talk to customers about On Demand is, ``Why can't I
get more movies? Why can't I get more TV shows On Demand?''
Well, we have 4,000 movies in a library and 3,000
television shows in a library. I certainly hope that we can
hasten consumers' access to older content, newer content, on
more distribution platforms than ever before.
We are at heart a technology company that is embracing
change, and I think both from the product itself side and from
the availability and changing nature of how consumers at
different ages want to consume, that is one of the goals I
have. So more On Demand content, and I hope more content
available over the Internet, not, as has been described, less
content available over the Internet. That is not in keeping
with what our goal would be for this transaction.
Senator Wicker. OK. So more local programming, quicker
access to On Demand, and more content over the Internet.
Mr. Cooper or Ms. Abdoulah, would either of you care to
challenge that?
Dr. Cooper. Well, the economic interest of Comcast is to
maximize its profit. And if it, in doing so----
Senator Wicker. You don't object to that, do you?
Dr. Cooper. Oh, no. I don't object to that at all.
Senator Wicker. Neither do I.
Dr. Cooper. But the antitrust laws believe that competition
is the way to accomplish that. So here is an example of the
math that Mr. Roberts might discover. If he can deny Ms.
Abdoulah access to must-have regional sports programming, and
thereby, he shrunk his audience, but undermine her right to
steal eyeballs from him, he makes more money that way.
He uses his control of access to this programming to reduce
competition in the local distribution of video programming and
increases his profit. And in all the numbers you heard about
market shares, one number was left out. In almost every market
where he said this is a local business, of the multichannel
video market, he has at least a 50 percent market share. In
many of his markets, he might have a 60 percent market share.
That is local market power. That is the one number you
didn't hear at all in this ocean of numbers. That is the heart
of his market power. That gives him the ability. That is the
business he is protecting. That is how he exercises market
power there.
Now you can take that arithmetic and apply it across the
board. With NBC programming, he has guaranteed them access to
24 percent of the market because now he owns them, right?
Senator Wicker. Ms. Abdoulah wants to jump in, and we only
have a minute left. And then maybe Mr. Roberts would like to
have a rebuttal?
Ms. Abdoulah. Well, and it is similar points. I mean,
again, I am not here to debate whether it should be approved or
not. If and when it is approved, it is critical that it has
conditions for the very reasons that Mr. Cooper was saying. The
numbers here, you can talk national numbers all you want. The
concern competitively comes down to the local level. In
Illinois----
Senator Wicker. OK. But you are reiterating your previous
points. What I was asking is, are my folks going to get more
local shows, more access to On Demand, and more content over
the Internet?
Ms. Abdoulah. Well, if they are from Comcast, yes. If they
are from a competitor, it depends whether they can negotiate
for that content at a reasonable price, at reasonable carriage,
and reasonable terms and conditions. And if they are not
reasonable, right now the program access rules do not give us
clear opportunity to resolve them.
Senator Wicker. Can we ask Mr. Roberts to give a 30- second
rebuttal?
Mr. Roberts. I will do it in less than 30, I hope, because
I think you are talking around all the issues, and I think
there will be a thorough review. And the program access, the
FCC said maybe they can do reform.
NBC content today is not subject to those program access
rules. So by combining with Comcast, there is now an additional
governmental review process for any dealings on that content
with Ms. Abdoulah's company that doesn't exist if GE kept the
business.
Senator Wicker. Thank you, Mr. Chairman.
Senator Dorgan. All right. Senator McCaskill?
STATEMENT OF HON. CLAIRE McCASKILL,
U.S. SENATOR FROM MISSOURI
Senator McCaskill. Thank you, Mr. Chairman.
Dr. Cooper discussed the obvious, and I do want to make
sure, Mr. Roberts, there is absolutely nothing wrong with your
company making a profit. Obviously, your job is to make sure
that your company makes a profit. You would be in big trouble
if your company wasn't making a profit.
So I think I want to ask the basic question. I am assuming
you want this merger because you think you can make more money?
Mr. Roberts. I think we--I stated earlier we hope to have a
positive return on our investment. But as the chairman pointed
out at the start, not all mergers have worked for shareholders.
Others, like AOL-Time Warner or like DirecTV and News Corp. or
Time Warner and Time Warner Cable----
Senator McCaskill. You keep using those as examples, but I
am assuming that you are only going forward because you believe
you are going to make money?
Mr. Roberts. I think we made a--I hope we have made a good
deal.
Senator McCaskill. You figured out something that Time
Warner and AOL didn't figure out or what DirecTV and News Corp.
didn't figure out, I am assuming, and you are telling your
shareholders you have figured something out because you plan on
making money on this deal.
Mr. Roberts. We hope that the economy, perhaps the biggest
difference is the moment in time--you have to, you know, AOL
was at the peak of the Internet bubble, and we are hoping that
we are at the bottom of the U.S. economy.
Senator McCaskill. And let us assume that you do make money
on it. Let us assume that this is a risk which is part of the
fabric of American business, and it is a great part of the
fabric of American business. It is one we should all relish.
All of us in this room are in our hearts risk takers, or we
wouldn't be here. There is a lot of risks in coming to this
place, too.
So let us assume your risk is a solid risk, and you make
great money. I am assuming you have no problem with other
consolidations that are similar to this, and let me ask you a
hypothetical question. If, in fact, a year from now or 2 years
from now, and you have been very successful at this, I would
assume you would have no problem with Time Warner buying ABC?
Mr. Roberts. If I might, which Time Warner--Time Warner or
Time Warner Cable?
Senator McCaskill. Time Warner Cable, your competitor.
Mr. Roberts. Thank you. I would have no problem.
Senator McCaskill. And you would have no problem with Dish
buying CBS?
Mr. Roberts. You know, again, the only comment I would
make--I don't think so. But the only comment I would make is in
the world of hypothetical, what are the facts at that time? I
just want to caveat that answer.
But I think the market the way I see it, it is more
competitive than ever. There are new technologies, and we
compete. And I think for the most part, what you are positing--
I don't think that is where the market will go, by the way,
because the trend has been the other way.
Senator McCaskill. But you are bucking that trend, and you
wouldn't be doing it if you didn't think there was a money-
making opportunity there.
Mr. Roberts. The CEOs of the companies you have just
referenced have publicly come out and said they are not sure
they like the trend we are on.
Senator McCaskill. Well, the CEOs have a way of coming and
going. I imagine----
Mr. Roberts. Well, they have both been there a long time,
but I understand your point.
Senator McCaskill. And I guess what I am saying here is we
are going down a road with this merger, and I want to make
sure, since you may be the first one down the road, that you
are perfectly fine with saying, ``Come on, everybody. Follow
me. Let us do the same thing.''
Mr. Roberts. You know, if we are successful, as I hope we
are, and people want to follow that road, under the right
circumstances, depending on what the conditions are, what the
facts are at the time, one of the points I would use the chance
to make is I am not sure that is what the trend will be, if you
ask my opinion. But hypothetically, I don't think we own any
media voices in the market. So different hypotheticals have
different realities. We don't happen to own a news channel--we
are a broadcast network--or a movie studio or a theme park.
Senator McCaskill. OK. Do you charge yourself a lower rate
for your regional sports network than you charge other
operators?
Mr. Roberts. We are in 10 different cities, hundreds of
different agreements. We have more scale in some markets than
some distributors. So I don't know off the top of my head every
deal, every rate. I think for the most part, there is a
transparent process.
Senator McCaskill. Well, if you would get us that
information, I think that would be helpful to know.
Mr. Roberts. Well, some of those agreements are--I will
have our team follow up with the best they can, given our
confidentiality agreements. But we can try to summarize or
generalize.
Senator McCaskill. OK. I think it is important that we get
a handle on whether or not you are, if there is a price premium
to others for what you own. Because I think it is a good
indicator of what may come in the future.
Mr. Roberts. I would point out also that our regional
sports business, the question you specifically asked, are
subject to a condition we had on a previous deal that anyone
who is not happy can complain to the FCC and go through a
process.
Senator McCaskill. That is good. That is good.
OK, finally, I know there has been a lot of talk about
program access rules and how they are going to be protective.
And here is my question about that. And this is pointed, but
that is kind of my job here.
If you are relying on the program access rules to reassure
people that there won't be problems associated with this, isn't
it true that you are in court challenging those very program
access rules as we speak?
Mr. Roberts. Well, let me say, I said earlier in the
testimony up front that previous to this transaction, there was
a challenge made by, I think, it was Cablevision that we joined
in on the exclusivity--primarily the exclusivity provision
because those rules were written 20 years ago. In the last 20
years, things like Sunday Ticket and NASCAR are exclusively on
our competitor, DirecTV. Dish Network has something like 50 or
60 or 80 ethnic channels that are exclusive.
And so, the question was should the rules apply to these
new platforms that are now way more successful than they were
20 years ago when they didn't exist, or should the rules
sunset? But what we have volunteered is that even if we were to
win that case, we would want the program access rules to apply
to us, and we are prepared to talk to the FCC about how to do
that as part of this review.
Senator McCaskill. Thank you.
Mr. Chairman, I think that the Committee should take a look
at those program access rules and see if there is something
that we could be helpful on in making sure that they are tight
enough and broad enough in this day and age. Because anything
that is 20 years old in this current market obviously has huge
issues with applicability today. So I would suggest that it is
something we might want to take a look at.
Thank you, Mr. Chairman. Thank you.
Senator Dorgan. Thank you, Senator McCaskill.
Senator Lautenberg?
STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY
Senator Lautenberg. Thanks, Mr. Chairman, and welcome all
of you. While I wasn't in the room, I was able to listen to
your testimony, all of it was very helpful.
Mr. Roberts, in the promotion of the Comcast-NBC merger,
you have committed to expanding local broadcast news and public
interest programming. Now, New Jersey, though its size would
make it the fourth-largest media market in the country, lacks
its own market, and the only commercial high-power station in
New Jersey, WWOR, in my view, has not adequately served the
people of New Jersey.
Now what ways might a combined Comcast and NBC expand and
improve and give us some assurance that our local coverage of
New Jersey issues and events will be a major thing as a result
of this?
Mr. Roberts. Well, I am not sure I can completely change
the broadcast business the way it has historically operated. So
I don't want to create a false answer.
But NBC Universal has 30,000 creative people and folks and
talent that Comcast today doesn't have. And what we have
committed to is trying to figure a way to take some of the news
talent, the news gathering, rather than cut it back try, to
find ways to have more airtime and more on demand for news,
minority programming, diverse programming, and public affairs
programming. So we will have more expertise in the company than
we do if we don't do this deal.
We are certainly not going in the other direction. And you
know, as you know, we have many cable systems in New Jersey
that now will have the resources of an NBC in New York, an NBC
in Philadelphia. Whether that gets to New Jersey, I have got
to--I know, sir, I have got to work on.
Senator Lautenberg. Well, if we can be a little more
specific? With the multicast, multiple channels, might Comcast
and NBC seriously consider devoting a broadcast channel
exclusively to the issues and needs of the people in New
Jersey, as opposed to us reaching to New York or Philadelphia
to get that?
Mr. Roberts. I think it is something we should look at.
There is an opportunity and a talent and a company looking to
do more. We have New Jersey. I don't--I just don't know the
answer as to why it hasn't happened before, and I am not an
expert in broadcast news.
Senator Lautenberg. But you will have a significant
increase in the number of channels that are available. And we
are--I am asking for some degree of comfort to be offered in
terms of making sure that New Jersey, 9 million people, 9th
largest state in the country, can get the attention it
rightfully deserves.
Mr. Roberts. So what I would like to do, Senator, is talk
with NBC about that and, if we can, get back to you. And I
would like to give a thoughtful response to that. It sounds
like a market that is underserved and there is an opportunity
there, and I don't know why we wouldn't want to focus on it.
Senator Lautenberg. You mean these haven't been thoughtful
things that we have been talking about here?
Mr. Roberts. I am saying NBC----
Senator Lautenberg. I am kidding you, obviously.
Mr. Roberts. OK. Fair enough.
Senator Lautenberg. What about new technologies? I had a
chance to meet with your colleagues and your senior partner
yesterday, and we discussed--unless the alliances have changed
somewhat, but I thought Ralph was the senior partner.
Mr. Roberts. Without a doubt.
Senator Lautenberg. But talking about the advent of new
technologies, the 3-D and so forth, what might this merger
produce by way of acceleration to these new technologies and
availability, would you think? What kind of pricing might be
out there for people who want to use that technology, see the
technology?
Mr. Roberts. I think we are seeing an extraordinary moment
right now with technology and its change, and it is
generational in part. So if you look at the two largest movies
in recent memory, one of which of all time, Avatar, and now
Disney's latest movie with Johnny Depp, Alice in Wonderland,
incredible response by the consumer to 3-D.
How to bring that, you are seeing in the next couple of
weeks or right now several television set manufacturers
announced they are going to put 3-D into TVs. That is a great
new consumer experience. I personally don't believe people want
to watch with glasses 8 hours-a-day. But for events and for
special high well-produced content, it can be a whole new
business.
By the way, I think if you speed up your Internet
connections, you are going to be able to enjoy 3-D over the
Internet. And we are going to do some demonstrations of that in
the near future.
So, I think that is what gets me most energized about this
transaction is to work with--and that is sort of what I was
saying before is certainly on a national basis, can you take
this content and, by the way, export it around the world? And
Comcast really transforms ourselves from a local company to a
national and an international company and uses our technology
roots and our historical roots and tries to now say can we put
more energy and aggressiveness around this than, frankly, GE
can or others are doing in this space?
I don't know that it will all be perfect, all be simple.
But that is really what motivates me.
Senator Lautenberg. We had, as everyone is aware, a recent
breakdown in negotiations between ABC-TV and Cablevision.
Suggest that FCC's rules governing such negotiation may no
longer be--and really, Professor Yoo, I would like your comment
on it--sufficient to protect consumers. Might you suggest a
change in the rules for retransmission consent and negotiation
so that consumers are not constantly caught in the middle?
This was a series of embarrassments, a feeling that too
much muscle was being exercised over the viewing audience, and
it was disturbing. And we jumped in, other people jumped in. I
wasn't the lifeguard, the sole lifeguard in this. But a last-
minute change was finally induced.
Is there something that you might suggest, Professor Yoo?
Mr. Yoo. Can I think of something that will make it so that
every bargain goes to completion successfully when you have two
people bargain over money? The answer is no. There are times in
every bargain where one party has to walk away from the table.
It happens in union bargaining. It happened when I bought my
house.
If two sides have a different sense of their value, there
is going to be deadlock. And if we are going to have a system
built around arm's length bargaining, that is going to be the
case. Can we do things that will help the process, start things
earlier? Absolutely. Ms. Abdoulah has raised a number of
concerns. I think they are all valid.
The point I was trying to make, I am not opposed to merger
conditions. I misspoke. I apologize to the Committee. I think
that if a merger raises issues, it is, of course, entirely
appropriate to impose conditions.
What I am concerned about is, to take a general problem
that affects the entire industry and to put that into a merger
review process where the parties will do anything to consummate
the merger and agree to anything gives short shrift to the
issues.
Network neutrality has been mentioned here today. We have
an open proceeding since October, lots of filings. Comments are
due, reply comments are due April 8. We have a proceeding that
is going to consider every aspect of that decision. We should
allow that proceeding to go run its course because that is how
we make good policy, subject to judicial review, subject to
public participation.
The danger is if we do it ad hoc, we have a 21 percent part
of the market in high-speed data. And to do it piecemeal
through merger review processes actually hurts the process and
leads to bad policy.
Senator Lautenberg. And one can agree with you, as you
review this. The question is, who is in charge? Are the people
who use TV as a commodity in their lives today, and you know
that certainly, Mr. Roberts. People consider that TV is
rightfully an opportunity for them to learn and amuse, all of
the things that occupy time. It is a wonderful addition to life
for people who are in their later years, can seek
communications from real-live situations.
And so, the question is, who is the determination to be
made by? And I am not suggesting that we impose rules there,
except that I think there ought to be some sense of loyalty to
the viewing public that says, OK, if you act to suspend or
continue your negotiation, but don't grab a whole bunch,
millions of people and say we are going to keep you from seeing
something that is really important as part of this.
Ms. Abdoulah. And if I may answer that, that is a great
question, who is in charge? The programmers who provide the
content have all the leverage. I can tell you a very quick
story.
We were negotiating with a programmer who had a suite of
services. We took off one of the services because it wasn't
viewed. We never wanted it in the first place. Two weeks later,
not one customer complaint. I get a call saying that if we
don't put it back on, their other service, which was highly
viewed, would be taken off by midnight.
Now it wasn't a Comcast-NBC programmer that I am talking
about, but it is that kind of leverage that they have on
operators, who are representing consumers. That wasn't going to
be good for our consumers, and I had very little leverage
because I could go and file a complaint. But even while I file
a complaint, they can pull the network.
Senator Lautenberg. Mr. Chairman, will the record--the
record, I assume, will be kept open for a bit of time?
Senator Dorgan. It will. It will. Yes.
Senator Lautenberg. Thanks for your indulgence for my
overrun here.
Senator Dorgan. Let me ask some questions, following which
I will turn it over to Senator Cantwell. Senator Cantwell,
welcome.
There are so many questions here.
[Laughter.]
Senator Dorgan. Ms. Abdoulah?
Ms. Abdoulah. Yes?
Senator Dorgan. The thing you have just described to this
committee goes on all the time, and we hear about it all the
time.
Ms. Abdoulah. Yes, sir.
Senator Dorgan. A provider saying we have four channels
here, and you have to take all four of them despite the fact
you don't want all four. And if you don't take two of them,
they are going to yank the most popular. I mean, that is
leverage, and there is a lot of leverage.
Ms. Abdoulah. Yes, sir.
Senator Dorgan. That is part of what we are talking about
here. How is leverage used? Who is going to have the leverage?
How will it affect what the consumer gets in the end? So that
is important.
Ms. Abdoulah. That is it.
Senator Dorgan. Professor Yoo, I think you have at least
resolved one question. You seemed to start in your testimony
suggesting this is a slam dunk, yes or no--in your case, yes--
and no conditions. I think you have just disabused us of that.
There is no problem with conditions. Right?
Mr. Yoo. No problems with conditions.
Senator Dorgan. OK. And let me just tell you that the ATT-
BellSouth merger included a condition of network neutrality,
which I strongly support and, by the way, which, in my
judgment, was very constructive in leading us to more progress
at the FCC on network neutrality. Now that is not complete,
thanks to a whole lot of folks that are fighting it tooth and
nail. But I mean, I think things like network neutrality or
Internet freedom, as I call it, are really important, and I
would not want to have big interests decide to get married
without a requirement.
And famously, Mr. Whitaker, as you know--and he and I talk
about it every time I see him--said, look, these wires belong
to me, and I intend to--I don't want Google or somebody using
my wires free of charge. So that set off, of course, exactly
what the basic issue is with respect to Internet freedom and
gatekeepers and tollbooths and so on.
So, anyway, having said all that, you have no problem with
conditions. I don't have a problem with conditions. And if in
the future this is approved, there are going to be conditions.
Mr. Yoo. If I may, I have no problem with the conditions
that are implicated by the merger. If people use the
opportunity of merger review to expand beyond the scope of what
is implicated by the merger, I think that should go back to a
normal regulatory process.
To give you an example, the network neutrality example you
gave leads to this very peculiar order. If you actually read
the AT&T-BellSouth order, it says we as a Commission do not
decide that network neutrality is not required. But they have
voluntarily offered to do it, and we accept their voluntary
condition as in the public interest. And it has created a very,
very strange policy posture for the FCC.
Senator Dorgan. A perfect public policy, in my judgment.
[Laughter.]
Senator Dorgan. Mr. Cooper, you wanted to comment?
Dr. Cooper. Well, I mean, the interesting thing is that I
actually agree with Professor Yoo, a fairly rare occurrence,
about how we ought to deal with the fundamental problems. And
Mr. Roberts has said these are fundamental problems in the
industry.
In my testimony, I suggest that the way to really handle
this is to insist that the FCC and the other relevant agencies
do the industry-wide rulemakings first so that we have the
basic structure of protection that we need and then consider
whether because of this merger there are additional things that
need to be done. So I am agreeing with----
Senator Dorgan. Dr. Cooper, you understand that some of the
biggest interests in the country are doing all they can to
prevent the FCC from moving. So I guess you can say that, but
the fact is some of the biggest interests spend all of their
time trying to prevent action being taken industry wide.
So I understand your point, but I understand also why we
have not made progress.
Dr. Cooper. The dockets have been open for years. They
simply need to be finished, and then we will have a base for
understanding how market power can be controlled.
Senator Dorgan. Let me ask Mr. Wells. Independent
programming, I said earlier it is very important, and it is
diminished and continues to be diminished. And so, how do you
see us making progress on this?
And I have, by the way, there is--who is doing the
investigation? The GAO is doing the investigation at my request
on independent programming. It is a very important area, and I
would like to understand, between you and Mr. Roberts, how what
is being proposed with respect to this merger will affect or
can affect independent programming and the quantity of it.
Mr. Wells. I think they are two separate issues. One, of
course, is on the broadcast network itself, which is NBC, which
has been very aggressive in attempting internally to produce
things for themselves, and I think anything that could be done
in what is now voluntary to compel some more independent
programming would be terrific.
And in the cable world, again, they control a great deal of
it, and there is very little that is actually going on that
they are not actually doing for themselves. And that has
changed in a way that has made it very difficult for
independent producers to bring things to the marketplace
without conditions.
Senator Dorgan. And why is that the case? I mean, why has
it changed?
Mr. Wells. It has changed----
Senator Dorgan. Mr. Roberts can answer that as well
perhaps?
Mr. Wells. Yes, it has changed historically because the
companies that have used the leverage of it is going to go on
the air or not go on the air to either insist that it be
produced through their own entity or to insist that it be a co-
production in some fashion before it goes on the air. There are
numerous examples of that that could be brought forward.
Senator Dorgan. Do--I am sorry.
Mr. Wells. Yes. And I was just going to say that--and
again, this is why we have tremendous concerns about the net
neutrality acts because we believe that independent producers
may be able to get some sort of leg up on doing things
independently if they actually have another distribution
outlet, which we might be able to use for people to produce
independently, assuming that we won't end up having the exact
same kinds of financial restrictions to getting that material
on, particularly since it is going to require greater speed
with which to put on that video content.
Senator Dorgan. Mr. Roberts, for those of us that believe
that more independent programming, rather than dramatically
less independent programming, is good for the country, what can
we take from this, from the recent history and from your
proposal to get larger through this acquisition?
Mr. Roberts. First of all, I put it in the context that the
previous Senator mentioned. Let us go back in time. There were
three TV channels, and today, there are hundreds. So I think,
Comcast has helped totally open up choice, as have other cable
companies. I think many independent producers exist and many
have been--sold their company, chosen to consolidate into other
providers.
I think we should separate some of these issues that we are
talking about. We have never really made broadcast television
programming. So, first of all, whatever NBC has done to be in
fourth place, we hope we can do better in the future. So I come
with an open mind on how to do better. I don't know that I
would support a Government quota that would apply to us that is
an X percentage should be this and Y percentage should be that,
and it doesn't apply to anybody else.
So there are other rules in the past that seem to affect
this area, like fin-syn, and if there should be an industry
review, I am sure NBC will have a point of view on that matter,
but I don't think this merger changes that trend or that
existence. If anything, we come with an open mind not to just
want to make it ourselves. Our history with our Comcast
networks is not to do that.
A substantial percentage of our programming is from
independent producers. Six out of every seven cable channels we
carry after the merger we will have no financial interest in.
And we have got to compete with other carriers and the programs
they want to carry. So whatever has been happening inside this
industry, we come and want to try to see how to get the best
programming possible in the future.
Senator Dorgan. You will inherit through this acquisition,
I believe, 10 NBC television stations?
Mr. Roberts. Yes.
Senator Dorgan. And 17 Telemundo stations?
Mr. Roberts. Yes.
Senator Dorgan. Are there communities in which you would
have two NBC stations or two stations and also in which you are
the dominant cable provider? And then, is that an issue, or
should it be an issue?
Mr. Roberts. There are some markets where both Telemundo
and NBC are there, and Comcast is the cable operator. I don't
believe so because one of the conditions we voluntarily started
with was retransmission consent for those broadcast stations
that would have program access apply to it, where heretofore
program access has never applied to retransmission consent.
Senator Dorgan. Well, I mean, I think--Ms. Abdoulah, do you
want to----
Ms. Abdoulah. Well, applying a meaningless rule to
something is still meaningless. And it is an issue. In
Illinois, we would negotiate for the regional sports network.
We have the O&O NBC network, and we have Telemundo. So now we
are going to be--instead of negotiating with two different
providers, now we negotiate with one for all of the suite of
those services. And that is intense leverage that they are
going to have on us today, increasing from today.
Senator Dorgan. I am going to call on Senator Cantwell. Let
me say that I think this is a significant issue. We should
think through it carefully, understand the consequences, pro
and con, and then make judgments.
If it is approved, it would have to be approved with the
conditions, in my judgment. But it is not for us. I mean, it is
for the two regulatory agencies, and my hope is from this
hearing, they will take a good look at this and understand the
consequences.
I think there are two different views here. One is at what
level are you talking about competition, the local level or a
national level? And these are always difficult and interesting
issues. And I--as I said, my background on the issue of media
concentration and the media ownership rules at the FCC have
caused me to have a substantial amount of concern about
concentration.
On the other hand, I don't think that in every
circumstance, big is bad and small is beautiful. I mean, I
think that there are circumstances where concentration can
provide benefits to consumers.
But I will tell you something, I think concentration and
leverage has to be tempered with rules and regulations and
conditions. We have seen many examples where they were not
tempered in such a way, and it turned out much, much different
than was suggested.
Mr. Roberts, you, Mr. Wells, Dr. Cooper, and Ms. Abdoulah,
and Professor Yoo have spent almost 3 hours with this committee
and answered all of the questions. I say to all five of you we
appreciate that very much.
I am going to call on Senator Cantwell and ask Senator
Cantwell, would you mind finishing the questioning and then
just adjourn the hearing? I have to be at the Capitol. Our FAA
bill is on the floor, and so I have to be on the Senate floor.
Senator Cantwell. Thank you.
Senator Dorgan. Thank you. I thank all of the witnesses.
Senator Cantwell, why don't you proceed?
Senator Cantwell [presiding]. Thank you, Mr. Chairman. And
I want to recognize your long leadership in media consolidation
issues and the importance of that. And not that you are going
anywhere today or tomorrow, but we certainly will miss that
voice at the end of this Congress. And it has been a critically
important one, and we in the Pacific Northwest value it. So
thank you for your leadership on that.
I am not going to keep you here. I only have two questions.
I am sure that you have been through many questions from my
colleagues here, and I have watched most of it.
So I wanted to ask, Mr. Roberts, one of the reasons I think
that people think cable rates keep going up. And I know my
colleague Senator Klobuchar alluded to the fact I think it is
something like between 1995 and 2008, basic services increased
122 percent, which is--you know, CPI only grew by 38 percent.
But one reason why people think that this growth in cable
rate has been the cable networks' willingness to bid up rights
to broadcast sports programming because they know that they can
pass that through to the subscriber base. And a number of my
Washington State broadcasters have expressed a concern that
they--at the crux of this is this rabbit ear world of
advertising eyeball content as a business model versus your
business model.
And I am sure there are some people who are wishing we
could go back because of the costs, and the networks are
worried that they are going to be eventually priced out of
major sporting events because their business model and
inability to pass those costs on to advertisers is going to be
challenged. So some people have even said that we in the not-
too-distant future will be watching the Super Bowl on cable,
which means that we will be paying for the Super Bowl, as
opposed to having an advertising model, which would give access
to a broader number of people.
So do you share those concerns, and Mr. Cooper, Ms.
Abdoulah, do you want to comment on that?
Mr. Roberts. Thanks, Senator Cantwell.
I think there are some industry trends that have been going
on. Just pick two examples, the BCS game is going from Fox to
ESPN in the future, and Monday Night Football went from ABC to
ESPN. So I don't think this merger actually changes that
potential in a way--we wouldn't be buying NBC if we didn't want
to find ways to make NBC vibrant, valuable, great, and sort of
back to some of the glory of what it did in the past and,
hopefully, what it can do in the future.
So I think some of the questions that get raised by that
are retransmission consent that we have been talking about
today on the panel, and I think our industry--and I think we
can now perhaps play a constructive role. We will be basically
80 percent a cable operator, 20 percent a content company after
the transaction.
So, in a sense, we are going to look at it from both sides
and say are there creative and good for consumer solutions that
we can propose that apply to the whole industry, not just to
one company, that address some of the things that I think are
very real that you have raised.
Senator Cantwell. Dr. Cooper, do you worry that we are
going to have to pay for the Super Bowl in the future?
Dr. Cooper. Yes. The only reason that the cable operators
are able to pass through the outrageous costs for sports
programming is because they force consumers to buy bundles, and
deny consumers per-channel choice. One study done of those
channels was that three-quarters of the American people would
not pay the price that they are being charged.
So the answer is that the market power they have at the
local level and the changed incentives NBC today has an
incentive to be on every TV set. Once they are owned by
Comcast, they have a different incentive because now they are
on 24 percent of the Nation's TV sets. And so, all of their
incentives will change. Their willingness to maximize profits
will change.
TV Everywhere is a perfect example of tying the cable fee
to another service. That is another bundle. So that is the way
we must address this. There is a real incentive here to extract
from consumers what is called surplus. By tying those products
together, they will have that incentive. So it is a very real
concern.
Senator Cantwell. Ms. Abdoulah, did you have----
Ms. Abdoulah. Yes, from our perspective, the content
providers have such leverage during negotiation. Not only do
they make sure we take the product that they want us to take
and not necessarily what consumers want or want to pay for, but
also how we carry it.
For a long time, I have wished that our programming
agreements allowed us to tier the service appropriately. So
that when I got customer complaints--I have a direct e-mail and
a direct 800 number for customers to call me directly. And they
will say, ``Why do I have to pay for this sports programming?
Why is my bill continuing to go up?''
I can't tier that because I am not allowed to. I would love
to be able to offer services in a way that if we have sports
fanatics, they can buy it and pay extra for it. But that is not
how our program agreements are currently structured.
Senator Cantwell. Thank you. I have one more question I
wanted to ask Mr. Roberts about customer service.
When I think about the vertical integration, and I think
this whole area we have some barriers to entry here, and we
have challenges even for the consumers in switching from one
competitor to another. It isn't as easy as people might think
to just do that. And if we are only talking about two or three
or we are going to continue to see integration, to me, customer
service is very important.
And when you think about the amount of money that Comcast
has been able to make, how much are you pouring into increased
quality on customer service?
Mr. Roberts. Well, let me first give a bad statistic, which
is we have lost 1.2 million cable customers in the last couple
of years. So there is real competition that is hurting us, and
some of that is self-inflicted with mistakes we have made on
customer service.
So I have made it a top priority for our company to improve
customer service and the customer experience because it is not
just when you call. It is how well the entire experience is
defined.
Senator Cantwell. What grade would you give your----
Mr. Roberts. I think we have improved. I would say we
were--I don't know. This is--we spent over $2 billion in the
last 2 years more to improve the customer experience. And the
number-one thing that we are rolling out and we rolled out in
the last 6 months all across the Nation, including in your
market, is a guarantee to our customers. If we mess up, we fess
up.
And that is a huge change. So if we are late for an
appointment, it is on us. We will pay your bill. We will give
you free premium service. We will pay $25. There is on-the-
spot----
Senator Cantwell. You will get free premium service?
Mr. Roberts. For that month, a couple of months. Different
markets have different specifics, but if we are late, here is
$25. Here is a free install. Here is a guarantee. If you don't
like the product, give it back to us at the end of the first
month. The kinds of things you have seen in other businesses
that back up their claims is now something that we have across
the entire footprint.
We are upgrading the speeds of the Internet, but we know
that it has to work. And we know that even if we have more
choices than we have ever had before, the TV, if it breaks,
there is a car crash and the cable goes out because the pole
got knocked down. Sometimes it is not our fault. You, the
consumer, don't want to hear that. You want to know how fast am
I back up, and can you text me a message that the cable is out
and you are on it, and you know about it?
So we are building diagnostics into the system so that we
know there is a problem. Maybe you are not even home watching,
and we are already on it before you call us. All sorts of
improvements along those nature because of competition, because
it is the right thing to do, because it is good business.
And I think we have made progress. I would say the grade is
improving, but it is still not perfect.
Senator Cantwell. I think it is probably far from perfect,
and I think really the issue, from my perspective, is that you
are taking this revenue that you are making off of this
consumer base and trying to consolidate in a more vertical way,
which is going to leave the market with even less choice. And
it would be one thing if the consumer experience continued to
get great customer service.
So, I would just encourage you to go back and look at your
business from that perspective and I think there are some
interesting things out there. But saying to people that you are
going to come within a 4-hour window and then not showing up
and saying, well, here is $20, I think that hardly helps the
consumer, and when they have to spend the time to change to
another service.
So we are making--this vertical integration makes it even
more challenging. And we want to see that the consumer
definitely has choice, definitely has competition, but is also
going to have a good experience and can easily move toward
other competitors if that experience isn't delivered.
Mr. Roberts. If I might, just to that point. I agree with
you, and just to demonstrate a couple of points of progress. We
had 2 million, 2.2 million fewer customer-reported problems in
the last quarter or in the last month from a year prior. We
had--we went from 87 or 84 percent on-time by putting the
guarantee in place.
Our employees, even if it is not--it doesn't completely
compensate the consumer, to your point, our system, nobody
wants to report that they spent that money. So we have gotten
to 95 percent on-time from 87 percent just by putting that
insurance in place and that guarantee in place. So there is
momentum in this direction.
I take your constructive points that this should be the
main focus of what we have to do well. We just recruited a new
head of Comcast Cable, and this is the number-one thing in
recruiting him that I suggested that we focus on, which is
continually improving the customer experience.
Senator Cantwell. Thank you.
Thank you. Well, I want to thank all the panelists. I know
that we are going to leave the record open for 2 weeks, and if
you can help respond to any questions from members or any
additional statements that they put in for the record.
And again, thank you for your time today. I am sure that
this is going to be a continued discussion. As you can see from
my colleagues, we will be following it closely.
So the hearing is adjourned.
[Whereupon, at 1:07 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Gregory Babyak, Head, Government Relations,
Bloomberg TV
Bloomberg TV (``BTV'' or ``Bloomberg'') appreciates the opportunity
to express its views and concerns about the proposed combination of
Comcast and NBC-Universal (``NBCU'') and respectfully requests that the
testimony be entered into the written record. BTV, which is wholly
owned by Bloomberg, L.P., an internationally recognized provider of
financial news and information, is an independent news channel that
provides 24 hour business news programming. BTV has been in existence
for nearly 15 years. In the past two years, Bloomberg has invested
substantially to revitalize BTV to be a stronger provider of news and
information. These investments have included the hiring of Andrew Lack,
the former chairman and CEO of Sony Music Entertainment and president
and COO of NBC, and an entirely new management team. As a result, BTV
is fast becoming a formidable competitor to CNBC, the dominant provider
of televised business news, as well as Fox Business News. As BTV's new
business strategy evolves, it will become even more competitive.
BTV is the principal news and information channel not affiliated
with any national programming network or other national producer of
video programming, including programming channels affiliated with
multichannel video programming distributors (``MVPDs''). Congress, in
particular the Senate Commerce Committee, has historically been very
concerned about preserving and advancing independent sources of news
and information. In an era of increased media consolidation, ensuring
that the public maintains access to independent sources of news and
information, such as Bloomberg, is critically important to the public
interest. A robust marketplace of ideas is by necessity one that
reflects varied perspectives and viewpoints. Indeed, the opportunity to
express diverse viewpoints lies at the heart of our democracy.
The Comcast-NBCU merger will join together the country's largest
cable operator with the country's oldest broadcast network. The
combined company will be the largest cable operator, own outright 26
television stations in the largest markets, own the NBC network which
reaches nearly every designated market area (``DMA'') in the United
States, own several of the highest rated cable television networks and
the Universal film library, and be one of the largest broadband
providers in the country. The NBCU networks include such ``must-haves''
as NBC, The Weather Channel, MSNBC, NBC Sports and, of course, CNBC.
CNBC is far and away the dominant business news network in the United
States with more than 75 percent of viewership and revenue in the
business news programming market. Comcast also owns a number of ``must-
have'' networks in these markets including principally its regional
sports networks. In addition, Comcast is already the largest cable
operator in the United States with market shares in excess of 50
percent in such important DMAs as Chicago, Philadelphia, San Francisco,
Boston, Detroit, Seattle-Tacoma, Miami-Ft. Lauderdale, Denver,
Pittsburgh, Baltimore, West Palm Beach, Harrisburg and Jacksonville and
in excess of 45 percent in Washington, D.C., and other major markets.
This horizontal and vertical combination will create a powerhouse,
which could have the incentive and ability to eliminate consumer and
advertiser choice and to deprive competing independent programmers,
such as Bloomberg, from access to a level playing field in the market
for viewers and advertisers.
Bloomberg does not oppose the merger per se. In fact, Bloomberg
looks forward to Comcast continuing to be an important distributor of
BTV, right alongside CNBC, MSNBC, and any other Comcast-owned or -
controlled news programming. Indeed, our goal is to ensure that
Comcast-NBCU plays a critical role as an unbiased and nondiscriminatory
distributor.
Bloomberg is seeking, however, to ensure that the merger will not
impede Bloomberg's mission as an independent source of news. Bloomberg
is seeking voluntary commitments by Comcast or, in the alternative,
conditions required by the Federal Communications Commission (``FCC'')
and the Department of Justice on the merger that will protect the
ability of it and other independent providers, and particularly
independent news providers, to continue to serve the public interest by
being an important source of news and information for the entire
country.
Let me outline some of the more significant steps that the merged
entity could take that would significantly harm BTV's competitiveness.
1. Discriminatory Channel Placement--As an independent news
channel, it is important for Bloomberg's programming to be
placed in the channel line-up near other news channels.
``Neighborhooding'' refers to an industry practice of putting
all program channels in the same genre adjacent to one another
in the channel line-up. Thus, for example, on modern
distribution systems such as DirectTV, Dish, Fios and U-Verse,
children's programs, shopping, cooking and, most important,
business news and 24 hour cable news channels are clustered
together. Neighborhooding is especially preferred by viewers
because it allows them to easily scroll between programs within
the genre that interests them.
BTV's concern is that Comcast will place CNBC and MSNBC in more
favorable positions. This is already the case, for example, on
Comcast's Washington, D.C. area systems, where CNN, CNN
Headline News, Fox News, MSNBC and CNBC are clustered together,
but BTV is located on a much higher channel number.
Although other MVPDs are expected to transition to
neighborhooding as they transition to fully digital technology,
as a result of the transaction, Comcast will have a strong
incentive to hinder this pro-consumer development on its
systems and disadvantage networks like Bloomberg that compete
with its ``owned'' networks like CNBC. This issue will be
presented immediately upon consummation of the merger, as
Comcast has stated in a public earnings call on Feb. 3, 2010
that ``by the end of 2010'' it expects to have ``80 percent of
its systems to have made the conversion to All-Digital.''
Comcast could also decrease viewership of BTV relative to CNBC
by placing BTV on a higher, more expensive tier, while keeping
CNBC on the basic non-premium tier.
2. Discriminatory Payment Terms--As BTV increases viewership,
any license fees it gets paid by Comcast should be raised
accordingly. Following the merger, Comcast would have an
incentive to pay BTV less than marketplace rates relative to
CNBC.
3. Disadvantaging BTV's Ability to Obtain Advertisers--
Comcast's carriage agreements frequently require programmers
like BTV to provide Comcast with free advertising time on the
BTV network. As a result, after the merger Comcast will be able
to bundle ads on BTV with slots on its own news networks in a
way that would deprive BTV of a fair opportunity to sell
advertising to advertisers who prefer the BTV network.
4. Limiting or Degrading Internet Access--As a news provider
who simultaneously distributes all its content over the
Internet, BTV is concerned that Comcast-NBCU could unreasonably
inhibit users' access to Bloomberg TV video on the Internet.
Comcast could pressure alternative content providers into
removing or limiting content availability on the Internet by
offering them discriminatory or unfavorable terms if the
provider used other platforms such as the Internet to
distribute their content.
To address these potential harms we hope that Congress will work
with the Department of Justice and the Federal Communications
Commission to find ways to protect important independent sources of
news and information. For example, the FCC and the Department of
Justice could insist on a judicial decree or conditions that require
Comcast to provide Bloomberg and other similarly situated independent
programmers with at least the following protections, which correspond
by number to the potential harms outlined above:
1. Neighborhooding of independent business news programming
with Comcast-owned business news programming by channel
position and programming tier.
2. Most favored and non-discriminatory terms and conditions of
carriage for independent business programming networks on all
Comcast platforms so that they obtain the same terms as CNBC.
3. Prohibition against the offering by Comcast of advertising
time on competing business networks combined with the purchase
of advertising time on Comcast-owned networks.
4. Prohibition of any restriction, limitation or disincentive
on the ability of alternative business news networks to offer
their content on other platforms, including the Internet.
We look forward to any assistance that the Committee can provide in
ensuring ComcastNBC does not engage in the foregoing activities or any
others that will harm the public by unfairly diminishing the ability of
independent programmers, including BTV, to compete on the merits with
CNBC.
______
Response to Written Questions Submitted by Hon. John D. Rockefeller IV
to Hon. Julius Genachowski
In the Cable Television and Consumer Protection Act of 1992,
Congress expressed concern about discrimination that can result from
the vertical integration of multichannel video programming distributors
and video programming vendors. Pursuant to this law, the FCC set up a
regulatory regime to govern program carriage disputes. These rules are
an important part of making sure that independent programmers have a
fair chance of securing carriage on multichannel video programming
distributors, like cable companies and satellite companies. It is my
impression, however, that the FCC rarely resolves carriage disputes in
a timely way.
These concerns, which I have previously expressed to you in
questions for the record, rise anew in the context of the proposed
combination of Comcast and NBC-Universal.
To this end, I have several questions:
Question 1. Has the FCC ever taken an enforcement action involving
a carriage complaint against a multichannel video programming
distributor?
Answer. In eight program carriage cases, the Commission staff has
found that the complainant met its initial burden of establishing a
prima facie case of a violation of the program carriage rules. The
Commission staff referred these matters to an Administrative Law Judge
(``ALJ'') to conduct further fact finding. In four of the eight cases,
the parties settled their dispute before a decision was reached on the
merits of the dispute. In the remaining four cases, the ALJ's decision
on the merits is currently under review by the Commission.
Question 2. Are there existing complaints pending at the FCC
involving carriage under either FCC rules or merger-specific carriage
complaint procedures? If so, how long have they been pending and when
will the agency resolve them?
Answer. There are six pending program carriage cases, one of which
involves an appeal of an arbitrator's ruling pursuant to merger-
specific carriage complaint procedures. Five of these cases have
already been ruled upon by either Commission staff or an ALJ, and these
initial decisions are currently on appeal to the Commission. Of these
appeals, four have been pending for 5 months since the appeal was filed
with Commission and the remaining case has been pending for 16 months
since the appeal was filed. The pleading cycle on the remaining pending
complaint closed in late March 2010 and is awaiting an initial decision
by the Commission staff The Commission intends to resolve all of these
matters as quickly as possible.
Question 3. How can the FCC be a more efficient forum for the
resolution of these disputes?
Answer. In the Commission's recent program access order dealing
with the so-called ``terrestrial loophole,'' the Commission took an
approach that will expedite proceedings by establishing a presumption
that will resolve the case unless factually rebutted. We will explore
whether similar rules or presumptions can expedite decisions in program
carriage disputes.
______
Response to Written Questions Submitted by Hon. Daniel K. Inouye to
Hon. Julius Genachowski
Question 1. This past weekend, more than 3 million subscribers in
New York, New Jersey and Connecticut lost access to the New York City
ABC affiliate only to have service suddenly restored fifteen minutes
into the Oscar telecast. In the context of these recent disputes while
the FCC has urged the parties to resolve their differences, it seems
clear to me that the Commission needs to do more to protect innocent
consumers.
During the debate over the retransmission consent provision in
1992, we anticipated the possibility of what we hoped would be rare
instances when negotiations might breakdown and provided the authority
to address these situations.
In light of this legislative history, and the fact that changes in
the marketplace are leading to more disruptions what, if anything, will
the FCC do to ensure that consumers are not harmed as a result of
retransmission consent disputes. Do you need any assistance from the
Congress?
Answer. First, I share your concern about the effect on consumers
of programming disruptions. It is not fair to consumers that they
suffer loss of service and are needlessly inconvenienced when two
private sector entities fail to agree on carriage arrangements.
There are legitimate questions about whether to update the 20-year
old framework for retransmission consent and must carry. While it is
understandable that broadcasters desire cash compensation for their
programming from cable operators and other multichannel providers,
commercial negotiations affect third parties who aren't at the table,
namely consumers. As we move forward, we will be reviewing
retransmission consent rules and I will be focused on making sure we
have a framework that is fair to consumers, as well as each of the
businesses involved.
To that end, on March 19, 2010, the Commission released a Public
Notice seeking comment on a petition for rulemaking. The petition
requests that the Commission amend and supplement its retransmission
consent rules and was filed by 14 entities, including small, medium and
large cable companies, satellite operators, and consumer groups.
Comments are due on May 18, 2010, and reply comments are due on June 3,
2010. The staff will evaluate the record developed in the proceeding in
order to determine how to proceed. I look forward to working with you
on this matter.
Question 2. Over the course of the past few months, we have
witnessed some very high-profile retransmission consent disputes,
including Cablevision-Disney and Time Warner Cable-FOX. Consumers are
clearly caught in the middle of these fights. Is it appropriate for the
FCC to intervene in these disputes when the public interest is harmed?
Answer. The FCC becomes formally involved in these disputes when
one or both parties files a complaint alleging that the good faith
retransmission consent rules have been violated. In 2006 and again last
year, Mediacom brought such a complaint to the Commission involving its
negotiations with Sinclair Broadcasting. In 2006, the Commission's
Media Bureau determined that, based on the totality of the
circumstances, Sinclair had not breached its good faith duty. Mediacom
appealed that decision to the full Commission; however, the parties
settled their dispute while that appeal was pending. In the 2009
dispute, the Commission was involved in attempting to bring the parties
to resolution. I was pleased that the parties ultimately agreed to a
short term extension that allowed Mediacom's subscribers to view the
New Years bowl games and enabled the parties to complete their
negotiations. Even when the parties do not bring a formal complaint to
the Commission, if agency staff become aware that negotiations are
reaching a standstill, Commission staff have reached out to the
parties, requested status updates and encouraged retransmission consent
extensions so that subscribers are not subjected to a service
disruption. The petition for rulemaking on retransmission consent rules
that was put on public notice includes a request for comment on the
issue of whether and to what extent the Commission should intervene and
has authority to intervene in retransmission consent disputes. The
record developed in the proceeding will be evaluated and a
determination on how to proceed will soon follow.
______
Response to Written Question Submitted by Hon. Frank R. Lautenberg to
Hon. Julius Genachowski
Question. While we work to bring new communications services to
more Americans, New Jerseyans still lack basic TV coverage of local
news and events. WWOR, New Jersey's only high-power commercial TV
station, has not adequately served the people of New Jersey and is
operating under a license that expired almost three years ago. When
will the FCC be in a position to act on WWOR's renewal application and
concerns about its local news coverage?
Answer. As of course you are aware, a petition to deny was filed
against the renewal application of WWOR questioning the quantity and
quality of New Jersey specific news provided by the station. Recently
the petitioner submitted new information into the docket in this
proceeding which could bear on the course of action taken regarding the
renewal application, currently are under review in the Media Bureau. I
am hopeful this matter can be concluded expeditiously.
______
Response to Written Questions Submitted by Hon. Mark Warner to
Hon. Julius Genachowski
Question 1. Content negotiations seem to be getting tougher over
time. This past December's carriage negotiations between Fox and Time
Warner Cable almost resulted in loss of service to subscribers. If the
Comcast-NBCU merger is approved, how do we find a balance between
marketplace negotiations between distributors and content providers and
a process that unfairly gives advantage to one party? Should the merger
have standstill protections for consumers or binding arbitration if
parties reach an impasse? If not, why not?
Answer. Among the commitments that Comcast Corporation, General
Electric Company and NBC Universal, Inc. (the ``Applicants'') have made
is to commit to the ``key components'' of the Commission's program
access rules in negotiations with MVPDs for retransmission rights to
the signals of the NBC and Telemundo owned-and-operated television
stations for as long as the Commission's current program access rules
remain in place. While the transaction is pending before the agency,
and until we have compiled and reviewed the full record in the
proceeding, it would be premature for me to comment on the specifics of
the Comcast/NBCU transaction, including the sufficiency of this
commitment. However, generally speaking, I remain concerned about
recent retransmission disputes that have left consumers stranded with
the threat of--and in some cases the actual loss of--their favorite
programming while the parties work out their differences. For that
reason, we have played an active role in trying to facilitate agreement
among the parties in those retransmission disputes that have occurred
during the past several months. The Commission also recently sought
public comment on a Petition for Rulemaking filed by various
multichannel video programming distributors (``MVPDs'') and public
interest organizations, asking the Commission to amend its
retransmission consent rules. By seeking comment on the Petition, the
Commission will be in a better position to assess any possible next
steps in this area.
Question 2. Rising cable prices over the past decade have been a
big issue for consumers. One of the concerns expressed about the merger
is that it may lead to higher prices for both Comcast subscribers and
for other consumers because their distribution company (satellite or a
smaller cable provider) may have to pay more for content sold by the
merged company. What are your thoughts about this contention?
Answer. At this time, it would be inappropriate for me to comment
on the specifics of any possible impact of the proposed Comcast/NBCU
transaction, including that on MVPD rates, while the transaction is
pending before the agency. We are proceeding with an open and
transparent review of the proposed merger, and encourage public comment
on all issues of concern, including the potential impact of the merger
on the rates that consumers will pay for video content. We will
carefully review the record on this and any other issues regarding the
proposed transaction.
Question 3. Does a la carte pricing of cable makes sense as a
possible way to provide content to consumers at a more affordable
price? If not, why not?
Answer. There has been much debate regarding the potential benefits
and harms if cable television system operators and other MVPDs were to
market their service on an a la carte basis, rather than by requiring
fees based upon a bundled group of channels. On the one hand,
proponents of a la carte maintain that it would provide subscribers
more choice in the programming channels that they receive and allow
them to pay only for those channels that they select. Opponents argue
that the a la carte model would threaten the economic viability of less
popular or niche channels, particularly those that program for the
benefit of smaller audiences, including some targeted to minorities or
women. While the Commission does not have the explicit authority to
require MVPDs to provide service on an a la carte basis, there is no
legal impediment to the provision of most services on that basis.
Question 4. There has been much discussion about the gatekeeper
role of broadband providers. Both in terms of net neutrality
protections, and also because the nascent Internet TV sector may depend
on consumers being able to access content either through a distribution
agreement (such as cable) or directly through an ISP, some consumer
groups have expressed concerns about the merger because of these
issues. What are your thoughts about these concerns?
Answer. I believe that the Commission's role in promoting
competition in the video marketplace is essential. The Commission is
charged under the Communications Act with ensuring effective
competition; promoting innovation; and encouraging investment and the
broad and rapid deployment of broadband and other advanced
communications services throughout the United States. Specifically with
respect to video programming, the Commission's goals include protecting
and advancing the interests of consumers while fostering a vibrant
marketplace. In the Comcast-NBCU proceeding, Commission staff
specifically requested that the Applicants submit an economic report on
the potential impact of the proposed merger on the Internet video
sector. In anticipation of that filing, in order to allow all
interested parties sufficient time to comment on that submission,
earlier this month, we suspended the public comment deadlines, and will
allow a full 45 days for the filing of petitions and comments, once the
Applicants have filed that report and another addressing the benefits
that they have claimed will accrue from their merger.
Question 5. How do we ensure that all content will be available to
all distributors in the marketplace on the same terms and conditions?
Answer. At the outset, the Commission's program access rules, which
are intended to ensure that the content of certain cable-affiliated
programming networks is available on non-discriminatory terms to all
MVPDs, will apply to the merged Comcast-NBCU entity and its affiliates.
Among the commitments that the Applicants have made is to accept the
application of those rules to the high definition feeds of any network
whose standard definition feeds are subject to the program access rules
for as long as those rules remain in place. While the transaction is
pending before the agency, and until we have compiled and reviewed the
full record in the proceeding, it would be premature for me to comment
on the specifics of the Comcast/NBCU transaction, including the
sufficiency of this commitment.
Question 6. Comcast made a voluntary commitment to add at least 2
independent programming channels to its line up for the next 3 years.
Some independent programmers have expressed concerns about this level
of commitment. What do you think is a reasonable level of independent,
unaffiliated content?
Answer. The Commission is charged with ensuring that any proposed
transfer or assignment of FCC licenses or authorizations is in the
public interest. Thus, as we review the transaction that is before us,
we will consider the complete record, including all comments that we
receive on this commitment, in evaluating its sufficiency, as well as
the possibility of imposing other conditions that serve the public
interest as conditions on the merger. It would be premature for me to
comment on the specifics of the Comcast/NBCU transaction while it is
pending before the agency, including the adequacy of this or any of the
applicants' other commitments.
______
Response to Written Questions Submitted by Hon. Mark Begich to
Hon. Julius Genachowski
Question 1. The Washington Post, CNN and other news sources
continue to talk about the existing and future disputes between
broadcasters and distributors. I know the market continues to evolve,
but no matter the dispute, consumers continue to be put in the middle.
What process would you favor to protect consumers?
Answer. First, I share your concern about the effect on consumers
of programming disruptions. It is not fair to consumers that they
suffer loss of service and are needlessly inconvenienced when two
private sector entities fail to agree on carriage arrangements.
There are legitimate questions about whether to update the 20-year
old framework for retransmission consent and must carry. While it is
understandable that broadcasters desire cash compensation for their
programming from cable operators and other multichannel providers,
commercial negotiations affect third parties who aren't at the table,
namely consumers. As we move forward, we will be reviewing
retransmission consent rules and I will be focused on making sure we
have a framework that is fair to consumers, as well as each of the
businesses involved.
To that end, on March 19, 2010, the Commission released a Public
Notice seeking comment on a petition for rulemaking. The petition
requests that the Commission amend and supplement its retransmission
consent rules and was filed by 14 entities, including small, medium and
large cable companies, satellite operators, and consumer groups.
Comments are due on May 18, 2010, and reply comments are due on June 3,
2010. The staff will evaluate the record developed in the proceeding in
order to determine how to proceed. I look forward to working with you
on this matter.
Question 2. The head of tech policy research at Stifel Nichols,
Rebecca Arbogast, is quoted as saying that the retransmission ``spat
will increase policy maker interest in reviewing the legal framework
governing negotiations.'' Given the recent filing by a number of key
players in the industry, is it appropriate for the Commission to
consider ways to provide a process that protects consumers during the
negotiations, and uses the sword of arbitration as a mechanism to force
compromise?
Answer. The above-mentioned proposes arbitration as a potential
reform to the retransmission consent process. We will evaluate this and
other reforms to ensure that viewers are fully protected. If after
reviewing the record developed in the petition for rulemaking, we
determine that assistance from Congress is necessary to correct any
problems with the retransmission consent regime, we will promptly
inform Congress.
______
Response to Written Questions Submitted by Hon. Jim DeMint to
Hon. Julius Genachowski
Question 1. You have testified that the scope of the FCC's review
of a potential merger, such as that between Comcast and NBC, is based
on an FCC finding that transaction is in the public interest. You
detailed a number of considerations that the FCC utilizes in reaching
this decision, including: ``protecting and advancing the interests of
consumers, as well as those of children, and families; ensuring
effective competition; promoting innovation; and encouraging investment
and the broad and rapid deployment of broadband and other advanced
communications services throughout the United States.'' You further
testified that ``some of these considerations may be more centrally at
issue than others''--in your opinion, which of these factors, whether
among those you listed or not, are more centrally at issue in the
present case than others? If the FCC resolves these considerations to
its affirmative satisfaction, are there any other reasons that the FCC
would not pursue a final decision on this proposed merger in an
expeditious and timely fashion?
Answer. It would be inappropriate to comment on the specifics of
the Comcast/NBCU transaction while it is pending before the agency.
Moreover, speculating about which considerations might be centrally at
issue before the Commission has received and reviewed all public
comments and completed a full and thorough investigation would not only
be premature, it could adversely affect the fairness of the
Commission's review process under the Communications Act and the
Administrative Procedure Act. The Commission is dedicated to providing
a thorough, efficient, and transparent review of the proposed
transaction as quickly as possible. On March 18, 2010 (after the
parties had submitted their economic study), we sought public comment
on the proposed transaction. Initial comments are due on May 3, with
the formal pleading cycle ending on June 17. After the record is
complete and the Commission has concluded its investigation, the
Commission will issue its decision in a timely manner.
Question 2. At recent speech to the Media Institute, NTIA
Administrator Strickling stated that a hands-off approach to the
Internet was the right call in the 1990s but suggested this is no
longer the right policy. I see the Internet as even more competitive
now then in the `90s--do you agree with his belief that greater
government regulation of the Internet is necessary? Are you concerned
that such an approach would chill the additional investment in
broadband network infrastructure that is critical to the Internet's
continued explosive growth? In comparison to the last 5 years, do you
feel that there is currently more competition in the broadband market
or less?
Answer. Competition is crucial for promoting consumer welfare and
spurring innovation and investment in broadband access networks. The
FCC's recently-released National Broadband Plan, quoting the Department
of Justice, noted that the critical question is not an abstract notion
of whether or not broadband markets are ``competitive,'' but rather
whether there are policy levers around competition policy that can be
used to produce the best possible level of competition. The National
Broadband Plan did not look backward and attempt to compare the
competitiveness of today's broadband market with that of broadband
markets earlier in the decade.
Question 3. In its previous decisions, the FCC has determined that
broadband services contain two ``inextricably intertwine[d]''
components--one that involves information processing, retrieval, and
storage, and another that provides the transmission of information from
the consumer to the Internet. This factual determination has been
based, in part, upon the manner in which consumers obtain broadband
service--through the purchase of a single, integrated offering rather
than two separate services. Do you disagree that broadband services
contain these two ``inextricably intertwine[d]'' components, or that
consumers obtain broadband through the purchase of a single, integrated
offering?
Answer. As your question points out, the FCC's determination in
2002 and in later follow-on orders concerning the classification of
broadband services were based on the facts and market conditions that
existed then, the facts and market conditions that were expected to
develop in the future, assessments of the Commission's legal authority
under the existing case law, and policy judgments by the Commission.
With respect to cable modem service, a majority of the Supreme Court
upheld the Commission's conclusions as ``a reasonable policy choice for
the Commission to make.'' NCTA v. Brand X Internet Servs., Inc., 545
U.S. 967, 997 (2005) (brackets omitted). The Commission has not
undertaken any recent reexamination of these questions. If such a
proceeding were commenced, it would involve notice, a full opportunity
for comment, and a record-driven inquiry. I will not prejudge the facts
or predictive judgments the Commission might develop through such a
proceeding, nor its ultimate outcome. Moreover, Commission's Office of
General Counsel is currently reviewing the U.S. Court of Appeals for
the District of Columbia's opinion in Comcast Corporation vs. FCC and
is assessing its implications for Commission authority and policies.
Question 4. Recent statements by high-ranking FCC officials
indicate that the FCC is contemplating a reclassification of broadband
services from ``information services'' to ``telecommunications
services.'' Do you believe that such a reclassification would comport
with the definitions of each service under the Communications Act? Do
you believe that such a reclassification is justified, and if so, could
you please explain your rationale in detail?
Answer. See answer to Question 3, above.
______
Response to Written Question Submitted by Hon. David Vitter to
Hon. Julius Genachowski
Question. Do you believe your agency currently has adequate
authority to exercise responsibility to review certain transactions? If
not, can you cite examples where you feel more government invention
into private market decisions and negotiations is warranted in the
video and broadband market?
Answer. I believe the Commission's current authority to review
transactions is adequate to allow us to consider the effect of those
proposed transactions under the broad public interest mandate
established by the Communications Act, which includes, among other
things, protecting and advancing the interests of consumers, as well as
those of children and families; ensuring effective competition;
promoting innovation; and encouraging investment and the broad and
rapid deployment of broadband and other advanced communications
services throughout the United States. The Commission has a unique
statutory role that complements the Department of Justice's/Federal
Trade Commission's review of transactions, which focuses on the impact
of the transaction on competition.
______
Response to Written Questions Submitted by Hon. Sam Brownback to
Hon. Julius Genachowski
Question 1. If broadband services are reclassified as
telecommunications services, and thus subject to more regulation, do
you think that broadband providers would increase or decrease
investment in broadband networks?
Answer. The FCC's determinations in 2002 and in later follow-on
orders concerning the classification of broadband services were based
on the facts and market conditions that existed then, the facts and
market conditions that were expected to develop in the future,
assessments of the Commission's legal authority under the existing case
law, and policy judgments by the Commission. With respect to cable
modem service, a majority of the Supreme Court upheld the Commission's
conclusions as ``a reasonable policy choice for the Commission to
make.'' NCTA v. Brand X Internet Servs., Inc., 545 U.S. 967, 997
(2005). The Commission has not undertaken any recent reexamination of
these questions. If such a proceeding were commenced, it would involve
notice, a full opportunity for comment, and a record-driven inquiry. I
will not prejudge the facts or predictive judgments the Commission
might develop through such a proceeding, nor its ultimate outcome.
Moreover, Commission's Office of General Counsel is currently reviewing
the U.S. Court of Appeals for the District of Columbia's opinion in
Comcast Corporation vs. FCC and is assessing its implications for
Commission authority and policies.
Question 2. If broadband services are reclassified as
telecommunications services, would such an outcome increase or decrease
innovation in network management?
Answer. See answer to Question 1, above.
Question 3. The FCC concluded in 2002, 2005, 2006, and 2007 that
broadband competition was robust, negating the need for stringent
regulation of broadband services. Do you believe that there is more
broadband competition in 2010, or less broadband competition than in
previous years?
Answer. Competition is crucial for promoting consumer welfare and
spurring innovation and investment in broadband access networks. I
agree with the Broadband Plan, quoting the Department of Justice, that
the critical question is not some abstract notion of whether or not
broadband markets are ``competitive,'' but rather whether there are
policy levers around competition policy that can be used to produce the
best level of competition. The Broadband Plan did not look backward and
attempt to compare the competitiveness of today's broadband market with
that of broadband markets earlier in the decade.
Question 4. In its previous decisions, the FCC has determined that
broadband services contain two ``inextricably intertwine[d]''
components--one that involves information processing, retrieval, and
storage, and another that provides the transmission of information from
the consumer to the Internet. This factual determination has been
based, in part, upon on the manner in which consumers obtain broadband
service--through the purchase of a single, integrated offering rather
than two separate services. Do you disagree that broadband services
contain these two ``inextricably intertwine[d]'' components, or that
consumers obtain broadband through the purchase of a single, integrated
offering?
Answer. See answer to Question 1, above.
Question 5. The Supreme Court has accepted the FCC's factual
conclusion that broadband service is a unified service: ``the high-
speed transmission used to provide cable modem service is a
functionally integrated component of that service because it transmits
data only in connection with further processing of information and is
necessary to provide Internet service.'' Do you disagree with the
Supreme Court's view that broadband service is a single, unified
service?
Answer. See answer to Question 1, above.
Question 6. As the Supreme Court articulated, ``classif[ying] as
telecommunications carriers all entities that use telecommunications
inputs to provide information services, . . . would subject to
mandatory common-carrier regulation all information-service providers
that use telecommunications as an input to provide information
service.'' Do you agree that, if the FCC classified broadband providers
as telecommunications carriers, Internet applications providers would
also have to be classified as telecommunications carriers?
Answer. No. The quoted passage is from the Supreme Court's decision
in NCTA v. Brand X Internet Servs., Inc., 545 U.S. 967, 994 (2005). The
Court was there rejecting a statutory argument ``that the
Communications Act unambiguously classifies as telecommunications
carriers all entities that use telecommunications inputs to provide
information service.'' The Commission has never held that view of the
Communications Act and I do not believe it is correct.
______
Response to Written Questions Submitted by Hon. George S. LeMieux to
Hon. Julius Genachowski
Question 1. The video marketplace is currently going through a
tremendous phase of growth and evolution as content becomes
increasingly available through multiple mediums. With some change
occurring, how do you view the role of the FCC in ensuring competition
and promoting innovation in this environment? Are there particular
challenges facing the FCC that are of concern to you as monitor this
marketplace?
Answer. The Commission is charged under the Communications Act with
ensuring effective competition; promoting innovation; and encouraging
investment and the broad and rapid deployment of broadband and other
advanced communications services throughout the United States.
Specifically with respect to video programming, the Commission's goals
include fostering a vibrant and healthy marketplace. In this regard,
the Commission is guided by well-settled public policies grounded in
the Communications Act, including promotion of the values of
competition, diversity, localism, and the importance of the First
Amendment. Thus, the Commission's role is essential. The Commission is
dedicated to fulfilling its statutory mandates of ensuring effective
competition and the unfettered flow of video programming to consumers.
Question 2. It is my understanding that some cable and satellite
companies have weighed in with Congress and the FCC regarding the
retransmission consent process. By statute, retransmission consent
requires cable and satellite companies to obtain the consent of a
television station before carrying the station's signal. While these
negotiations have historically been conducted privately, some are now
suggesting that the Federal government needs to have a greater role in
mediating these negotiations with the broadcasters. As a principle, I
am not so sure involving the Federal government more deeply in yet
another industry is such a good idea at this time, especially when so
many changes are going on within the industry. I am concerned about any
efforts that put the government in a position of choosing winners and
losers in this market place. Could you please share with us some
possible unintended consequences of greater government intervention in
the marketplace, in particular with regards to the retransmission
consent process?
Answer. It is difficult to speculate on any impact to the
marketplace with regard to retransmission consent process. I am
concerned about recent disputes that have left consumers stranded with
the threat of--and actual loss of--their favorite programming while the
parties work out their differences. For that reason, we have played an
active role in trying to facilitate agreement in each of the
retransmission disputes that have occurred in recent months. The
Commission also recently put out for public comment a Petition for
Rulemaking filed by various multichannel video programming
distributors, asking the Commission to amend its retransmission consent
rules. By asking for public comment on the Petition, the Commission
will be in a better position to assess any possible next steps in this
area. I also am happy to work with the Committee to further discuss the
issue and what role the Commission can constructively play.
______
Response to Written Question Submitted by Hon. Jim DeMint to
Hon. Christine A. Varney
Question. The approval process for this potential merger is shared
by the Federal Communications Commission and the Department of Justice.
Chairman Genachowski has testified that the FCC's review is based on it
finding affirmatively ``that the transfer is in the public interest.''
Since the DOJ reviews a potential merger on a different standard, can
you please outline what that standard is and list the specific
considerations that will govern DOJ's review in this particular case?
In your opinion, is the scope of this standard of review a broader
inquiry than that the FCC uses, or is it a more narrow test?
Answer. Section 7 of the Clayton Act (15 U.S.C. 18) makes illegal
mergers and acquisitions when the effect of such merger or acquisition
``may be substantially to lessen competition, or tend to create a
monopoly.'' This is a different standard than that of the FCC, and
focuses specifically on the merger or acquisition's competitive effect,
not other regulatory issues that could be encompassed in a public
interest determination.
The specific considerations that the Department has applied to
reviews of proposed mergers are described in detail in the Horizontal
Merger Guidelines and the Commentary to the Horizontal Merger
Guidelines, available on the Department's website at www.justice.gov/
atr/public/premerger.htm. These documents were developed and issued
jointly with the Federal Trade Commission, with which the Department
shares antitrust enforcement authority. The Guidelines set forth the
analytical framework and standards, consistent with the law and with
economic learning, that the agencies use to assess whether an
anticompetitive outcome is likely.
______
Response to Written Question Submitted by Hon. David Vitter to
Hon. Christine A. Varney
Question. Do you believe your agency currently has adequate
authority to exercise responsibility to review certain transactions? If
not, can you cite examples where you feel more government invention
into private market decisions and negotiations is warranted in the
video and broadband market?
Answer. Since the passage of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (HSR Act), the Department typically reviews
mergers within the HSR Act's framework. Under the HSR Act, parties to
proposed transactions in 2010 valued at over $63.4 million typically
must provide to us information regarding their proposed merger or
acquisition and businesses before consummating their transaction. For
those transactions that require a closer look for us to make an
informed judgment about their likely competitive effects, the HSR Act
provides the Department the authority to issue what is called a second
request, which is essentially a request for a more complete set of
party documents and data. Until they comply with the second request and
provide us time to review their materials, parties are not allowed to
consummate their proposed deal. During the period of time when the
parties are complying with a second request, we typically conduct
interviews with customers and competitors, and often request documents
and data from industry participants. Working together, the Antitrust
Division's economists and lawyers examine the transaction's likely
competitive effects based on the facts as they present themselves, and
the Division pursues enforcement actions when appropriate. If a
transaction falls outside the statute's reporting thresholds, any
review can be more difficult, however, the Department can still
investigate under its Civil Investigative Demand authority.
______
Response to Written Question Submitted by Hon. John Ensign to
Brian L. Roberts
Question. Mr. Roberts, many people have expressed concern about the
possibility that Comcast might move all of NBC's and Telemundo's good
broadcast content to your cable properties, and thus starving your
broadcast properties. Are those fears justified, or is Comcast
committed to NBC Universal's free over-the-air broadcast networks?
Answer. Comcast and NBCU remain committed to continuing to provide
free, over-the-air broadcast television, through NBC's owned and
operated stations, and through local broadcast affiliates throughout
the Nation. Comcast wants to invest in the broadcast industry and help
it grow. Broadcasting is so important to us that it topped our list of
voluntary public interest commitments. Consistent with this commitment,
we intend to continue to invest in high-quality programming for
broadcast on the NBC Television Network. We have no intention of
removing attractive NBC network content from the broadcast platform,
and viewers will continue to find their favorite shows like The Office,
Meet the Press, and Saturday Night Live on their local NBC station.
This is not to say that no show will ever be moved from a broadcast
network to a cable network; such moves have happened in the past and
may happen again in the future. For example, Law & Order: Criminal
Intent originally aired on the NBC Television Network, and has since
migrated to USA. And on occasion, shows have migrated from cable to
broadcast and syndication, such as Monk. But our intention is to
strengthen the NBC Television Network. We are acquiring a network that
is often fourth in prime-time ratings and we want to work toward making
it number one again.
______
Response to Written Questions Submitted by Hon. Sam Brownback to
Brian L. Roberts
Question 1. Many of my fellow members of this committee are
concerned about jobs. Mergers aren't always so friendly to the workers
at affected companies--what will this deal mean for jobs at NBC and
Universal?
Answer. For over 45 years, Comcast has been a job creator. When we
started Comcast in Tupelo Mississippi in 1963, we had 12 employees, and
today we have over 100,000. As recently reported in Fortune Magazine,
despite massive layoffs nationwide, Comcast is one of 28 major U.S.
companies creating jobs. In addition to this internal job growth,
NBCU's 33,000 employees will join the Comcast family.
Because the proposed combination between Comcast and NBCU is
largely a vertical combination, we do not expect that the proposed
synergies of this combination will include job losses. Comcast is
primarily a distribution company, and NBCU is primarily a content and
production company. As a result, there is very little overlapping
employment of the sort you would typically find with horizontal mergers
(and which typically is the cause of job reductions in a merged
entity).
Question 2. How would Comcast be willing to ensure that the new
entity does not have the incentive to deny carriage to competitors'
networks on Comcast Cable?
Answer. Competition in the video marketplace requires us to supply
the attractive, compelling programming that our customers demand. The
need to meet competition is the principal driver of our carriage
decisions; we need to provide the programming our customers want, or we
will risk losing customers to competing MVPDs that do so. In a
competitive marketplace, we need to offer our customers attractive
packages of programming at attractive prices, and this inevitably
requires that we carry scores of unaffiliated networks. That's why the
vast majority of the networks we carry today are unaffiliated--and,
even post-transaction, approximately six out of seven channels we carry
will be unaffiliated with Comcast. Thus, intense competition provides a
powerful discipline against anticompetitive behavior in the buying of
programming.
Beyond the competitive incentive, the program carriage rules
provide further assurance against our ability to discriminate against
programmers based on affiliation. The program carriage rules generally
require that MVPDs act fairly in selecting the programming that they
assemble in packages for sale to consumers. Parties who believe that
they have been treated unfairly have available to them a complaint
process at the FCC through which claims of violations can be
adjudicated. Comcast has always conducted its business in full
accordance with these rules and has never been found to have violated
them.
Question 3. Comcast has one of the largest broadband footprints in
the country. How much has Comcast invested in its network, and how many
Americans are able to access the network?
Answer. Since 1996, Comcast and its predecessors-in-ownership have
invested nearly $60 billion to upgrade network infrastructure by
installing fiber optics and other technological enhancements like
DOCSIS 1.0, 2.0, and most recently, 3.0. Comcast's network has
approximately 140,000 miles of fiber optic plant, enough to crisscross
the country more than 45 times. As a result of these investments,
Comcast now provides access to our state-of-the-art, two-way network to
nearly 51 million people, or over 99 percent of the homes passed by
Comcast.
Question 4. You have said in the past that you believe that an open
Internet is important. How involved do you think the government should
be in keeping the Internet open--and what steps has Comcast taken to
keep the Internet open?
Answer. Comcast was one of the very first companies to deliver on
the promise of broadband to American homes. Ever since we first started
offering our High-Speed Internet service in 1996, we have operated it
in a manner consistent with the principles of openness embodied by the
FCC in its 2005 Internet Policy Statement. Our commitment to doing so
in the future is unwavering, regardless of whether the FCC chooses to
adopt any of the open Internet rules currently under consideration.
In the comments we've filed in the FCC's ``Open Internet''
proceeding, we made three major points. First, we believe the FCC still
needs to clearly articulate its statutory authority to adopt the
specific rules proposed. Second, we believe the record still lacks any
evidence or data demonstrating a problem in the marketplace that these
rules would help to address, and it may be that adopting rules in the
absence of a clearly identifiable problem might present more risks than
benefits. Third, we said that if the FCC can establish both that it has
the necessary authority and that there is a need for rules to achieve
the core goal of ``preserving a free and open Internet'' (as Chairman
Genachowski has put it), the FCC's proposed rules should be amended in
several respects to minimize the potential for unintended consequences
that may hurt consumers.
In particular, we noted that the FCC would be better served by a
prohibition on unreasonable and anticompetitive discrimination, rather
than an absolute prohibition on discrimination, as this would allow
broadband Internet service providers and content and application
providers to experiment with various technologies and business models
that may lead to socially-beneficial differentiation. We also urged the
FCC to ensure that any rules it may adopt apply to all players in and
all layers of the Internet ecosystem, because that is the only way to
ensure that the potential risks to the open Internet are addressed no
matter where they may occur or who causes them--otherwise, the
Commission's concerns about potential threats to a ``free and open
Internet'' cannot be effectively addressed.
For further elaboration on some of the points made above, I am
attaching a blog posting from our Executive Vice President, David
Cohen, earlier this year.
______
Comcast, the FCC, and ``Open Internet'' Rules: Where We Stand
Posted by David L. Cohen, Executive Vice President, January 11, 2010
On Friday, Comcast presented oral argument before the U.S. Court of
Appeals for the D.C. Circuit in the company's challenge to the FCC's
``Bit Torrent'' Order. Comcast has challenged the FCC's 2008 Order
which found, in the absence of any applicable Federal law, that Comcast
violated ``Federal Internet policy'' in the way it chose to manage
congestion on its network--engineering decisions designed in good faith
to provide the best possible Internet experience to as many of our
customers as possible. In March 2008, while the FCC was considering the
matter, Comcast announced that it had chosen to move to a different
technique for managing network congestion. Unfortunately, the FCC
proceeded to issue an order against Comcast in August 2008. We and many
others (including two FCC Commissioners) thought the order was simply
wrong, both legally and factually.
A little history: In 2005, the FCC had adopted a very short, four-
point ``Internet Policy Statement'' that, among other things, described
what consumers should be able to expect from their Internet service
provider, including ``reasonable network management.'' But policy
statements are not law. They are not the same thing as enforceable
rules. Members of the FCC and even advocates of ``net neutrality''
regulation made that very point at the time. When that Statement was
issued, Comcast made it clear that we supported the four principles. We
served (and still serve) our customers consistent with those
principles.
When in 2007 the FCC instituted proceedings based on a complaint
against Comcast's network management and told us we needed to show why
we had not violated ``Federal Internet policy,'' we were surprised. And
when the FCC ultimately issued an order telling us what they thought we
had done wrong--and telling the world for the first time how the FCC
intended to interpret and enforce this ``policy''--we were very
disappointed. We felt our network management practices were reasonable
and consistent with the Internet Policy Statement. Perhaps more
importantly, from a legal standpoint, we felt the FCC had not given us
(or anyone else) fair notice of what its standard was for determining
whether conduct (including network management) was permissible. It also
didn't give fair notice that it would try to directly enforce the
aspirational Policy Statement regarding consumer expectations against
us (or anyone else).
When the FCC issued its Order finding of a violation of Federal
standards based on our network management practices that we believed in
good faith were reasonable, we had no choice but to challenge it in
court.
It remains our hope that the court will tell the FCC to vacate
(withdraw) the Comcast order, and thereby set the record straight and
clear our name. In the meantime, last fall the new FCC began doing what
the previous FCC should have done in the first place--FCC Chairman
Julius Genachowski asked the agency to start a proceeding to adopt
rules to ``preserve an open Internet'' that are based, in significant
part, on the FCC's 2005 Internet Policy Statement. In other words, the
FCC is now determining whether there is a need for enforceable rules
and, if so, to properly establish them and to decide what guidance
those rules should give to Internet Service Providers and others in the
Internet ecosystem. The current rulemaking proceeding will also create
a proper record for the FCC to consider its legal authority to proceed
with any rules it ultimately decides to adopt. And Comcast, in turn,
has been supportive of this FCC's actions to bring some clarity to this
unsettled area.
Some activists insist that Comcast's challenge to the FCC is ``a
fight about net neutrality.'' That's simply not true. The primary basis
for our challenge, and the basis on which we hope the court will decide
this case, is that no Federal agency can subject any company or
individual to sanctions for violation of Federal standards when there
was no law in the first place. This is a basic issue of fair notice,
regardless of the issue at stake. So it shouldn't matter whether you
are for or against ``net neutrality'' regulation--this is simply not
the way the government should conduct its business. If the FCC--or any
agency--wants to regulate in an area, it needs first to establish
binding regulations and apply them properly, consistent with the
process that Chairman Genachowski has now proposed.
So where does Comcast stand on whether rules are needed? As I've
noted before, we support the Chairman's commitment to an ``open,
transparent, fact-based and data-driven'' rulemaking proceeding on this
topic. In an interview on CNBC last Friday, our Chairman and CEO Brian
Roberts also endorsed the FCC trying to make clear what the rules of
the road are moving forward. He noted our support of the Chairman's
process, and pledged our constructive participation.
And while, as we will make clear in our comments, we continue to
question whether the record will show a need for new rules--because
broadband competition and consumer demand will ensure that the Internet
remain open as it has always been--the FCC may decide otherwise. If
that is the result, we are obviously better off having ``clear rules,''
as Brian stated, than with the confusion of having the FCC try to
enforce an unenforceable and vague ``policy statement.''
It's truly sad that the debate around ``net neutrality,'' or the
need to regulate to ``preserve an open Internet,'' has been filled with
so much rhetoric, vituperation, and confusion. That's gone on long
enough. It is time to move on, and for the FCC to decide, in a clear
and reasoned way, whether and what rules are needed to ``preserve an
open Internet,'' and to whom they should apply and how. In launching
the rulemaking, the FCC said that greater clarity is required, and we
agree. Comcast will join many other interested parties in making
comments to the FCC this week regarding its proposed open Internet
rules. Our goal is to move past the rhetoric and to provide thoughtful,
constructive, and fact-based guidance as the FCC looks for a way
forward that will be lawful and that will effectively balance all the
important interests at stake.
______
Response to Written Questions Submitted by Hon. George S. LeMieux to
Brian L. Roberts
Question 1. Mergers aren't always so friendly to the workers at
affected companies--what will this deal mean for jobs at NBC and
Universal? I have a significant number of constituents who work for
Universal and NBC. What will this deal mean for them?
Answer. For over 45 years, Comcast has been a job creator. When we
started Comcast in Tupelo Mississippi in 1963, we had 12 employees, and
today we have over 100,000. As recently reported in Fortune Magazine,
despite massive layoffs nationwide, Comcast is one of 28 major U.S.
companies creating jobs. In addition to this internal job growth,
NBCU's 33,000 employees will join the Comcast family.
Because the proposed combination between Comcast and NBCU is
largely a vertical combination, we do not expect that the proposed
synergies of this combination will include job losses. Comcast is
primarily a distribution company, and NBCU is primarily a content and
production company. As a result, there is very little overlapping
employment of the sort you would typically find with horizontal mergers
(and which typically is the cause of job reductions in a merged
entity).
Question 2. Online video is an emerging market. What is the amount
of online content already available, and where does Comcast fit in? How
sizable do you foresee Comcast's presence becoming in the online video
market? How will the new entity's market share compare to the rest of
the current providers in the online video market?
Answer. The amount of online content today is vast and growing.
High-quality video content is increasingly available from a rapidly
growing number of online sources including but not limited to Amazon,
Apple TV, Blinkx, Blip.tv, Blockbuster, Boxee, Clicker.com, Crackle,
Electus, Hulu, iReel, iTunes, Netflix, Sezmi, SlashControl, Sling,
Vevo, Vimeo, VUDU, Vuze, Wal-Mart, Xbox, Yahoo, and YouTube, and there
are new entrants all the time. These sites offer significant quantities
of professionally-produced content that can be accessed from a variety
of devices, including computers, Internet-equipped televisions,
videogame boxes, Blu-ray DVD players, and mobile devices. In addition,
there is a huge supply of user-generated video content, including
professional and quasi-professional content. YouTube, for example,
which is by far the leader in the nascent online distribution business,
currently receives and stores an entire day's worth of video content
for its viewers every minute.
Comcast and NBCU are both relatively small players in both the
production and distribution of online video content. Online video
distribution sites owned by Comcast (e.g., Fancast) account for less
than one-half of one percent of online video views, and sites owned by
NBCU account for less than one percent of online video views. Hulu, in
which NBCU owns a minority interest, accounts for only 4 percent of
online video views. Even if NBCU's minority, non-controlling interest
in Hulu meant that Hulu viewing was 100 percent attributed to NBCU, the
combined company's share of online video views would total
approximately 5 percent. The combined company will therefore have no
market power, either as a provider or distributor of online video
content, and no ability to limit competition in this dynamic
marketplace. The competitive dynamics of this nascent business will be
determined by the interplay of many, many actors on the Internet,
including Google (which accounts for 55 percent of all online video
views) and countless other web-based providers large and small.
Question 3. Some of the concerns about the merger have focused on
potential anti-competitive behavior. How would Comcast be willing to
ensure that the new entity does not have the incentive to deny carriage
to competitors' networks on Comcast Cable?
Answer. Competition in the video marketplace requires us to supply
the attractive, compelling programming that our customers demand. The
need to meet competition is the principal driver of our carriage
decisions; we need to provide the programming our customers want, or we
will risk losing customers to competing MVPDs that do so. In a
competitive marketplace, we need to offer our customers attractive
packages of programming at attractive prices, and this inevitably
requires that we carry scores of unaffiliated networks. That's why the
vast majority of the networks we carry today are unaffiliated--and,
even post-transaction, approximately six out of seven channels we carry
will be unaffiliated with Comcast. Thus, intense competition provides a
powerful discipline against anticompetitive behavior in the buying of
programming.
Beyond the competitive incentive, the program carriage rules
provide further assurance against our ability to discriminate against
programmers based on affiliation. The program carriage rules generally
require that MVPDs act fairly in selecting the programming that they
assemble in packages for sale to consumers. Parties who believe that
they have been treated unfairly have available to them a complaint
process at the FCC through which claims of violations can be
adjudicated. Comcast has always conducted its business in full
accordance with these rules and has never been found to have violated
them.
Question 4. The entire media landscape is going through a
transformation right now. The economic recession and the push for
content online have caused many newspapers to lay off staff members, or
fold altogether. Has Comcast made news content a priority in this
transaction and is Comcast working to expand in this area?
Answer. In their Public Interest Statement filed with the FCC in
support of their application for approval, Comcast, GE, and NBCU made
unprecedented commitments to continuing to provide free overthe-air
broadcasting and preserving and enriching valuable content that is
currently broadcast on NBC O&O broadcast stations. We said and I firmly
believe that this transaction will help to preserve and enhance
traditional broadcast television. Our objective is to strengthen the
NBC Television Network and restore its former glory, not weaken it.
The proposed transaction will strengthen the companies' local
content businesses, both by making the existing local news and other
local programming available to consumers at more times and on more
platforms than ever before, and by facilitating and encouraging the
creation of new local programming. For example, the NBC O&Os air their
locally produced, regularly-scheduled news programs in limited time
periods each day. The proposed transaction creates significant
opportunities to extend that local news content to other outlets and
platforms, such as Comcast's local and regional cable networks, VOD,
and online, thereby increasing consumers' access to high-quality local
news and information.
As we said in our Public Interest Statement, we remain committed to
preserving and enriching the output of local news, local public
affairs, and other public interest programming on NBC O&O stations.
Through the use of Comcast's On Demand and On Demand Online platforms,
time slots on cable channels, and use of certain windows on the O&O
schedules, we believe we can expand the availability of all types of
local and public interest programming. Specifically, we committed that
for 3 years following the closing of the transaction, the NBC O&Os will
maintain the same amount of local news and information programming they
currently provide. This is a particularly significant commitment to
promote localism given the economic challenges facing all broadcasters
today. In addition, we also said that the NBC O&Os will collectively
produce an additional 1,000 hours per year of local news and
information programming, consisting of a range of local and regional
content, including general interest news and public affairs
programming, weather, traffic, and other informational programming
focused on community events, local lifestyle, fashion, arts, and
multicultural features. We will use a combination of distribution
platforms to make this new local content available to consumers,
including the NBC O&O stations, Comcast's local and regional networks,
VOD, and online, as appropriate for each local market.
Finally, we are also committed to preserving NBCU's tradition of
independent news and public affairs programming and its commitment to
promoting a diversity of viewpoints. Comcast has committed to continue
the policy of journalistic independence with respect to the news
programming organizations of all NBCU networks and stations, and will
extend these policies to the potential influence of each of the owners.
To ensure such independence, the combined entity will continue to
effect the position and authority of the NBC News ombudsman to address
any issues that may arise.
Question 5. Comcast has a substantial share of the broadband market
and has been involved in the FCC's effort at putting together a
National Broadband Plan. How do you see the acquisition fitting in with
other important priorities like broadband deployment?
Answer. Comcast was one of the very first companies to deliver on
the promise of broadband to American homes. Ever since we first started
offering our High-Speed Internet service in 1996, we have invested and
innovated to remain a leader, deploying high-speed service as broadly
as possible throughout our footprint. We keep providing faster speeds
and greater security, and doing the other things required to
continuously improve the performance of the network. In the past 15
years, we have invested tens of billions of dollars in our network
infrastructure, and we are continuing to invest and innovate. Today,
over 99.5 percent of the homes we pass have access to our High-Speed
Internet service, and about 80 percent (and growing) of the homes we
pass have access to DOCSIS 3.0 technology, which enables us to offer
download speeds of up to 50 Mbps, and soon 100 Mbps and greater.
Comcast is committed to delivering its customers a world-class, state-
of-the-art broadband Internet service.
In the recently released ``National Broadband Plan,'' the FCC's
Omnibus Broadband Initiative staff recognized what they called the
``virtuous cycle'' of innovation that is driven by the relationship
between applications, content, and networks. They also recognized that
lack of ``relevance'' is one of the major reasons why people choose not
to subscribe to broadband. In other words, despite the wonderful array
of content, applications, and services available on the Internet today,
some consumers do not yet see the value in subscribing to a broadband
Internet service. We hope to change their minds.
We at Comcast have always recognized the symbiotic, interdependent
relationship amongst the various stakeholders in the Internet
ecosystem. At a very high level, the development of innovative content,
applications, and services on the Internet drives demand for our
product, while our high-speed Internet service facilitates this
innovation by providing a platform for entrepreneurs to reach millions
of potential customers. A primary reason that Comcast and NBCU have
entered into this joint venture is because, by marrying NBCU's content
with Comcast's multiple distribution platforms, we believe we can
accelerate the creation and adoption of ``new media'' entertainment. In
so doing, we will improve the value proposition of broadband Internet
service, driving demand for the service and, hopefully, improving the
business case for further investment in and deployment of world-class,
state-of-the-art networks by all broadband Internet service providers.
Question 6. A keystone of the FCC's mission is promoting localism
and diversity. How can this transaction--with Comcast's distribution
platforms and NBCU's content--continue to foster these longstanding
policy goals?
Answer. We think that the proposed transaction will foster both
localism and diversity. The new venture will provide more and better
local programming, including local news and information programming,
thereby advancing localism. It will also expand the amount, quality,
variety, and availability of content more than either company could do
on its own, thus promoting diversity. In addition, Comcast and NBCU
have made a number of commitments regarding localism and diversity.
With respect to localism, and as discussed above, Comcast is
committed to maintaining free, over-the-air broadcast television,
through NBC's owned and operated stations, and through local broadcast
affiliates throughout the Nation. The proposed transaction will
strengthen the companies' local content businesses, both by making the
existing local news and other local programming available to consumers
at more time and on more platforms than ever before, and by
facilitating and encouraging the creation of new local programming.
Comcast intends to preserve and enrich the output of local news, local
public affairs, and other public interest programming on NBC O&O
stations. Specifically, we committed that for 3 years following the
closing of the transaction, the NBC O&Os will maintain the same amount
of local news and information programming they currently provide. This
is a particularly significant commitment to promote localism given the
economic challenges facing all broadcasters today. In addition, we also
said that the NBC O&Os will collectively produce an additional 1,000
hours per year of local news and information programming, consisting of
a range of local and regional content, including general interest news
and public affairs programming, weather, traffic, and other
informational programming focused on community events, local lifestyle,
fashion, arts, and multicultural features. We will use a combination of
distribution platforms to make this new local content available to
consumers, including the NBC O&O stations, Comcast's local and regional
networks, VOD, and online, as appropriate for each local market.
With respect to diversity, the proposed transaction will provide
the combined entity with the ability and incentive to make more
programming available for diverse audiences. Comcast has been working
hard to increase the diverse programming options available to its
subscribers for several years.\1\ The combined entity will be able to
explore ways to deliver more diverse programming faster, on top of what
Comcast alone would otherwise achieve. Because the combined entity will
be able to increase the number of platforms on which such programming
can be delivered--in effect expanding the potential audience--it will
have a greater incentive to explore innovative business models to
support the production and distribution of more and higher quality
diverse programming. With NBCU's interest in Telemundo and mun2, and
with Comcast's founding role in TV One and its extensive offerings of
cable channels meeting the needs and interests of diverse viewers, the
combined entity will be second to none in providing and promoting
programming that reflects a wide range of perspectives in a variety of
formats and content, furthering the Commission's goal of viewpoint and
program diversity.
---------------------------------------------------------------------------
\1\ For example, Comcast's digital migration brought Portland
viewers more than 20 new Spanish-language channels (for a total of more
than 45 Spanish-language channels), in addition to 65 new HD channels
(for a total of more than 100 HD channels), four new international
channels, and six new standard-definition channels.
---------------------------------------------------------------------------
Comcast intends to expand the availability of over-the-air
programming to the Hispanic community utilizing a portion of the
digital broadcast spectrum of Telemundo's O&Os (as well as offering it
to Telemundo affiliates) to enhance the current programming of
Telemundo and mun2. Within 12 months of closing the transaction,
Applicants will launch a new multicast channel, using Telemundo's
library of programming. Comcast has also committed to using its On
Demand and On Demand Online platforms to feature Telemundo programming,
and Comcast intends to continue expanding the availability of mun2 on
the Comcast Cable, On Demand, and On Demand Online platforms.
Question 7. Though most consumers pay for cable services, there is
still a substantial segment of the population that relies on free,
over-the-air broadcasts. How will the new entity continue to service
the interests of this group?
Answer. Comcast and NBCU remain committed to continuing to provide
free, over-the-air broadcast television, through NBC's owned and
operated stations, and through local broadcast affiliates throughout
the Nation. Comcast wants to invest in the broadcast industry and help
it grow. Broadcasting is so important to us that it topped our list of
voluntary public interest commitments. Consistent with this commitment,
we intend to continue to invest in high-quality programming for
broadcast on the NBC Television Network. We have no intention of
removing attractive NBC network content from the broadcast platform,
and viewers will continue to find their favorite shows like The Office,
Meet the Press, and Saturday Night Live on their local NBC station.
This is not to say that no show will ever be moved from a broadcast
network to a cable network; such moves have happened in the past and
may happen again in the future. For example, Law & Order: Criminal
Intent originally aired on the NBC Television Network, and has since
migrated to USA. And on occasion, shows have migrated from cable to
broadcast and syndication, such as Monk. But our intention is to
strengthen the NBC Television Network. We are acquiring a network that
is often fourth in prime-time ratings and we want to work toward making
it number one again.
______
Response to Written Question Submitted by Hon. Jim DeMint to
Dr. Mark Cooper
Question. In your written testimony, you expressed concern that, if
the Comcast/NBC merger is successful, the new entity would be able to
offer ``package deals and volume discounts for advertising across
multiple channels.'' Whether in the advertising context or in the
broader context of video and broadband market, aren't lower prices and
greater efficiencies desirable outcomes?
Answer. Short-term lower prices that result in exit from the
industry and ultimately greater concentration can result in higher
prices in the long term. An efficient monopoly in the media is an
unacceptable outcome, as it contradicts the essential goal of media
policy that is the ``widest possible dissemination from diverse and
antagonistic source,'' as defined by the Supreme Court in a number of
media decisions dating back to Associated Press in 1945.
______
Response to Written Question Submitted by Hon. David Vitter to
Dr. Mark Cooper
Question. You've claimed that the only cost savings from the
Comcast-NBCU transaction would come from massive job cuts. Please
provide the Committee with your analysis in support of this assertion.
Answer. The experience in this industry, as well as many others,
has been that the first place merging parties look for cost savings is
labor cuts. The loss of potential new jobs is also a concern. For
example, Comcast's efforts to create regional news operations will
likely be cut back as exiting NBC operations will be repurposed.
______
Response to Written Questions Submitted by Hon. George S. LeMieux to
Dr. Mark Cooper
Question 1. You have expressed concerns that the only cost savings
from this transaction will come from massive job cuts. This is of
serious concern to me since others have claimed that the merger would
not result in job losses. Could you please provide the Committee with
your data and analysis in support of this assertion?
The experience in this industry, as well as many others, has been
that the first place merging parties look for cost savings is labor
cuts. The loss of potential new jobs is also a concern. For example,
Comcast's efforts to create regional news operations will likely be cut
back as exiting NBC operations will be repurposed.
Question 2. In your testimony, you indicated that NBC and Comcast
should be considered competitive rivals because they often disagree and
must negotiate the terms of the services and content they provide each
other. Do antitrust scholars and regulators ordinarily consider
suppliers and distributors to be ``head to head'' competitors, because
they often disagree and must negotiate the price and terms of
distribution?
The local broadcast stations and cable operators are direct
competitors in distribution of video content. NBC and Comcast compete
head-to-head in the distribution of content on the Internet. In merger
review, potential competition is a focal point of attention. In high
tech, platform industries strong complements are frequently an ideal
base from which to launch disruptive competition. The ongoing disputes
between cable and broadcasters demonstrate that they have divergent
interests. The merger would eliminate those divergent interests. This
speaks to the incentives that the firms have. For example, in the
bargaining over retransmission consent, today Comcast has a pure cable
companies incentives. It has no interest in higher retransmission rates
or in being forced to take bigger bundles. After Comcast acquires NBC,
it will have, in part, a broadcaster's view of retransmission and could
use those rights to harm competitors by raising their costs and
squeezing their profits.
______
Response to Written Question Submitted by Hon. John Ensign to
Dr. Mark Cooper
Question. Dr. Cooper, in your testimony you state that the Comcast/
NBCU ``merger will stimulate a domino effect of concentration between
distributors and programmers.'' What was the level of vertical
ownership of distribution and programming in the cable and satellite
industries 10 years ago? What is the level of vertical ownership today?
Please indicate the source of your data. Does the data support your
thesis?
Answer. Viewed in terms of audience, vertical integration in the
video marketplace has increased dramatically since the early 1990s.
Five media corporations have come to dominate the top 30 shows and
expanded basic channels with large bundles of channels (NBC/U,
Newscorp., ABC/Disney, CBS-Viacom, and Time Warner). These same five
corporations own the major movie studios and own all the national
broadcast networks. The NBC-Comcast merger would dramatically increase
vertical integration by joining one of the big five video companies
with the dominant cable operator. The vertical leverage that Comcast
would gain will place the other four video giants at a disadvantage,
giving them a strong incentive to seek a similar union. The data on
which I base this analysis is contained in the attached
paper.*
---------------------------------------------------------------------------
\*\ The Negative Effect of Concentration and Vertical Integration
on Diversity and Quality In Video Entertainment by Mark Cooper, Fellow,
Donald McGannon Center for Communications Research, Fordham University
and Derek Turner, Free Press. This document is retained in Committee
files and can be found at: http://www.policyarchive.org/handle/10207/
bitstreams/8001.pdf.
---------------------------------------------------------------------------
______
Response to Written Questions Submitted by Hon. Mark Begich to
Colleen Abdoulah
Question 1. During your testimony in committee you called on some
conditions to be added to the merger agreements. Can you provide more
detail what you feel would be appropriate conditions?
Answer. The proposed joint venture brings together Comcast's
regional sports networks with NBCU's national programming and local
broadcast signals. It also combines NBCU's programming with Comcast's
cable assets. The transaction will result in significant harms to both
consumers and competition from these proposed combinations unless the
FCC and DOJ impose adequate remedies.
In fashioning relief to address the anticompetitive harms caused by
the proposed combination, it would be a mistake to rely exclusively on
the Program Access statute and rules or upon conditions, such as
arbitration, that were imposed in previous mergers involving
programmers and distributors. Rather, more robust relief is required to
improve upon previous remedies. This relief should include such
conditions as prohibiting Comcast-NBCU from unfairly charging higher
programming fees to other MVPDs, especially those smaller than Comcast,
and denying these operators online distribution rights to all of its
programming.
Question 2. In Alaska, there is a much smaller population that has
access to cable television. I am concerned the impacts this merger will
further harm small cable companies. Can you describe the potential
impact on small cable operators?
Answer. A once functional wholesale programming market is no longer
working for all pay TV operators. Today, smaller operators find
themselves at the mercy of a handful of supersized companies with
market power that unfairly charge these providers significantly higher
fees than larger ones for national and local programming. This price
discrimination harms consumers living in smaller markets and rural
areas by forcing them to pay drastically more for the same programming
as their urban counterparts. Smaller operators prefer market-based
solutions, but the market as it exists today is simply not working.
As highlighted in the previous question, the Comcast-NBCU deal will
combine Comcast's regional sports networks with NBCU's national
programming and local broadcast signals, creating a single entity with
significantly more market power than the companies in aggregate possess
today. The new company will be able extract higher fees and impose more
onerous terms and conditions on all pay TV providers, but smaller
operators and their customers will be impacted the most because the
differences in bargaining power will be the greatest.
Question 3. During the Committee hearing, you seemed as though you
wanted to discuss the negotiation position especially related to
regional sports networks. Do you care to elaborate on any negotiations
you have been a part of?
Answer. Smaller operators have little bargaining power in
negotiations for regional sports programming. The Federal
Communications Commission has deemed these regional sports networks
(RSNs) and network-affiliated broadcast stations ``must have'' because
not carrying this programming would significantly harm an operators'
ability to compete against other MVPDs in the market. As a result,
owners of this content have significant market power during carriage
talks, particularly against smaller operators. In instances where the
programming supplier is also a competing MVPD, the problem is
compounded because the company's programming business has an added
incentive and ability to charge higher fees or withhold the programming
from competing distributors because it will benefit the company's
distribution business.
In the Chicago metro region, Comcast Sports Net Chicago (CSNC) is a
RSN that features four local professional sports teams. The network is
affiliated with Comcast Corporation. In this market, there are also
five video providers serving the same set of households, including
Comcast which is the largest and WOW! which is the smallest.
In our last negotiation with CSNC, the programmer insisted that we
accept a deal that would force us to pay approximately two million
dollars more than what we believed was its fair market value. We were
in a pickle. CSNC wouldn't budge on the price, and dropping the network
from our lineup wasn't an option because we'd lose a large number of
subscribers, the majority of whom would likely become Comcast
subscribers.
We had few regulatory options to address CSNC's exploitation of the
circumstance. Under existing program access rules, we had no viable
relief because of the loophole in the regulations that permit excessive
and discriminatory ``volume discounts.'' Our only choice was to bring
our dispute to arbitration under baseball-style rules which was a
condition imposed on Comcast by the FCC in exchange for the
Commission's approval of the company's purchase of Adelphia cable
systems in 2006. When we told CSNC that we were considering seeking
arbitration, their response was, in effect, ``fine, go ahead.''
We soon learned that the cost of arbitration could easily exceed
one million dollars, and take a year or longer to conclude. For a
smaller operator like WOW!, we just couldn't afford to spend the money
on arbitration. Thus, we had no choice but to accept CSNC's final
offer, knowing that this result would lead to higher cable TV prices
for our subscribers; fewer dollars to devote to independent
programming; and fewer resources to spend on upgrading our systems to
offer more advanced services, including broadband.
The lesson here is that the wholesale programming market is not
working for smaller operators, particularly with respect to ``must
have'' programming. Moreover, the program access rules and the
conditions imposed by the FCC on the past deals to address the harms
that flow from vertical integration, such as arbitration, do not
provide any meaningful relief for smaller operators. Before approving
the Comcast-NBCU deal, we believe the DOJ and the FCC must take these
issues into account in fashioning proper relief.
Question 4. In your testimony, you discussed some of the vertical
and horizontal harms that might occur should this merger be approved.
Can you please compare and contrast the vertical and horizontal harms
in this situation compared with other mergers?
In the last decade, there have been two big deals similar to the
Comcast-NBCU transaction, although neither has the same combination of
significant horizontal and vertical harms as the currently proposed
transaction: News Corp.-DIRECTV and Adelphia-Time Warner-Comcast. As
per your request, I compare and contrast the harms of these deals to
the present one below.
The News Corp.-DIRECTV deal combined the key programming assets of
News Corp., which included national programming networks, regional
sports networks, and local broadcast stations with DIRECTV, a satellite
TV provider who was the second largest MVPD in the country. With
respect to programming matters affecting smaller operators, this deal
was mainly a vertical integration because neither company had competing
programming or distribution assets--there was no significant horizontal
combination.
The Adelphia-Time Warner-Comcast deal integrated Adelphia's cable
distribution assets, which included systems across the country, with
Time Warner and Comcast's distribution and programming assets, which
included national and regional sports networks. Regarding the
programming matters most important to ACA members, this transaction was
both a horizontal combination of the Adelphia's cable systems with Time
Warner and Comcast's systems, and a vertical integration of Time Warner
and Comcast's programming and Adelphia's cable systems.
The Comcast-NBCU deal is similar to News Corp.-DIRECTV and
Adelphia-Time Warner-Comcast concerning the vertical harms. Comcast-
NBCU, like the other companies, will integrate its programming and
distributions assets giving it the incentive and ability after the deal
is completed to increase costs or withhold programming from its direct
MVPD competitors. For this reason, the FCC and DOJ must impose more
robust conditions on the deal to address these vertical harms.
With respect to the horizontal harms, the Comcast-NBCU joint
venture is different. First, there is no horizontal combination of
cable or satellite distribution assets in the Comcast-NBCU deal like
there was in Adelphia-Time Warner-Comcast. In this regard, the deal is
similar to News Corp.-DIRECTV. However, Comcast-NBCU differs from both
Adelphia-Time Warner-Comcast and News Corp.-DIRECTV in that neither one
of those deals combined significant programming assets, like in the
present deal. Comcast-NBCU combines key programming assets from both
companies that will substantially increase the market power of the new
entity allowing the company to extract higher fees and more onerous
carriage requirements from operators in the market, particularly
smaller operators. This is a unique harm, and one that the DOJ and FCC
must specifically remedy before approving this deal. The agencies
should consider both structural and behavioral remedies to address
these significant concerns.
______
Response to Written Question Submitted by Hon. John Ensign to
Colleen Abdoulah
Question. Ms. Abdoulah, my understanding is that small cable
operators often work cooperatively to negotiate collective deals with
content providers in order to take advantage of economies of scale. I
also understand that your company is a member of the National Cable
Television Cooperative (NCTC). In your testimony you talk about the
possibility of having to pay ``supra-competitive prices for content.''
However, as a member of NCTC, don't you have the ability to pool your
resources with other smaller cable operators in order to negotiate
volume discounts and better terms? While it may not be perfect, doesn't
such collective bargaining power offset some of the leverage of major
content providers?
Answer. Wide Open West is a member of the National Cable Television
Cooperative (NCTC) whose principal mission is to reduce its members'
costs through the negotiation and administration of cooperative
purchasing of business goods and services. NCTC's membership consists
of small to medium-sized cable operators--but all of them are small
relative to the size of Comcast.
With regard to programming deals, the NCTC negotiates with major
content and independent programmers for national cable networks, such
as TBS, Discovery, Nickelodeon, USA Network, etc. However, the NCTC
does not bargain on behalf of its members for any regional sports
networks, nor for the local network-affiliated or Owned & Operated
broadcast stations, which are often among the most expensive
programming carried. NCTC's members negotiate these deals directly with
these networks and stations' owners.
By bargaining with NCTC, national programmers can reduce the costly
and time-consuming process of negotiating and administering individual
deals with the NCTC's more than 900 members (e.g., contract management,
single-point billing, subscriber reporting, etc.), and as a result,
they can pass these costs savings along to the Cooperative's members.
However, even though it has a lower cost structure, the Cooperative
still cannot secure programming prices and terms that are equivalent to
other MVPDs with an equivalent number of subscribers as the total
number of customers of all of NCTC's members. As a result, the
Cooperative's members' programming costs are generally not competitive
with those of larger MVPDs, like Comcast.
The existence of the NCTC as a cooperative purchase of programming
for its members does not diminish the anticompetitive harms that will
result from the Comcast-NBCU transaction. First, regardless of the
NCTC, Comcast-NBCU will be able to exercise its increased market power
against any Cooperative member who must negotiate directly with the new
entity for its regional sports networks or its NBCU broadcast stations.
Second, Comcast-NBCU is under no obligation to bargain with the NCTC at
all, or, as the process is now constituted, it could seek to limit the
size or identity of members who can participate in the Cooperative's
master programming agreement. For these reasons, the NCTC is unable to
provide any adequate safeguards to the harms that would result from a
Comcast-NBCU deal that is approved without conditions.
______
Response to Written Questions Submitted by Hon. John Ensign to
Christopher S. Yoo
Question 1. Professor Yoo, since this is a hearing on consumers and
the broadband market, I would like to hear what your thoughts are on
the potential reclassification of Internet services under Title II of
the Communications Act. Is such re-regulation necessary to protect
consumers, and what would the impact of such action be on the broadband
marketplace, particularly in terms of investment?
Answer. Any attempt to subject broadband Internet access to Title
II of the Communications Act faces substantial legal obstacles. In
order to fall within Title II, broadband Internet access must be a
telecommunications service, which the statute defines as the offering
of ``the transmission, between or among points specified by the user,
of information of the user's choosing, without change in the form or
content of the information as sent and received'' for a fee directly to
the public. In NCTA v. Brand X Internet Services, 545 U.S. 967, 998-
1000 (2005), the Supreme Court upheld the FCC's determination that
broadband Internet access services provider end users with access to
the domain name system and caching services that go beyond the simple
transmission necessary to bring it within the ambit of Title II. Any
attempt to reclassify broadband Internet access as a Title II service
must thus overcome a leading Supreme Court precedent pointing in the
other direction.
The history of past efforts to regulate the telephone industry
indicate that reclassifying broadband Internet access as a Title II
service would likely harm consumers. Any regulatory regime mandating
that a network operator provide access to an outside party would
inevitably require two unwilling parties to do business with one
another. Under these circumstances, the regulators must oversee the
terms and conditions of interconnection. Although some commentators
have suggested that all this would require is a simple
nondiscrimination mandate, such a strategy would not provide any
meaningful limitation on vertically integrated enterprises, which would
simply charge both its vertically integrated subsidiary and similarly
situated unaffiliated companies an exorbitantly high price. For the
vertically integrated company, this would simply transfer profits from
the subsidiary to network operations, which would have no adverse
effect on the company whatsoever. It would effectively exclude
unaffiliated companies.
This is why it is generally recognized that any regime of mandated
access must necessarily regulate prices. There is a large body of
research studying how to determine what a fair price is. There is a
question the proper rate of return as well as which costs on which the
network operator should be permitted to earn a rate of return. In an
attempt not to create a system that is inherently inflationary,
regulators typically limit returns to investments that are ``prudent,''
based on whether the assets are ``used and useful.'' This approach
falls into the trap of hindsight bias, in that many investments that
were prudent when they were made turn out not to be after the fact.
Even after determining which assets to include, regulators have also
struggled to determine the best way to value those assets, as reflected
in the more-than-century old fight over whether historical cost or
replacement cost represents the better measure. The standard method for
computing prices induces a well-known bias in the technology used known
as the Averch-Johnson effect. If the same assets are used for more than
one service, regulators must allocate the cost of shared assets to
multiple services. This is a problem to which there is no clear
theoretical answer. Access regimes also only work when the interface is
relatively simple. Alternative approaches, such as price caps, have
failed to resolve all of these problems. On a broader level, price
regulation only works when products are relatively uniform, the
underlying technology is uniform and relatively static, market shares
are relatively stable, and regulators are allocating access to a
network that already exists and thus do not have to worry about
investment incentives.
None of these things are true for the Internet. When that is the
case, imposing Title II regulation on broadband Internet access would
likely harm consumers. Even for telephony, the evidence suggests that
Title II regulation facilitated collusion, raised prices, and stifled
innovation. Such problems would likely be even worse for broadband
Internet access.
Finally, as the Supreme Court recognized in Verizon Communications
Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407-08
(2004), the manner in which compelling access reduces incentives to
invest in telecommunications networks. Empirical studies of both
competitive local telephone service and broadband Internet service have
confirmed this key insight.\1\
---------------------------------------------------------------------------
\1\ For empirical studies of the adverse impact of unbundling on
investment in new telephone facilities, see Robert W. Crandall et al.,
Do Unbundling Policies Discourage CLEC Facilities-Based Investment?, 4
Topics in Econ. Analysis & Pol'y 14 (June 7, 2004), http://
www.bepress.com/bejeap/topics/vol4/iss1/art14/; Jerry A. Hausman & J.
Gregory Sidak, Did Mandatory Unbundling Achieve Its Purpose? Empirical
Evidence from Five Countries, 1 J. Competition L. & Econ. 173 (2005);
Thomas W. Hazlett, Rivalrous Telecommunications Networks With and
Without Mandatory Sharing, 58 Fed. Comm. L.J. 477 (2006); Augustin J.
Ros & Karl McDermott, Are Residential Local Exchange Prices Too Low?,
in Expanding Competition in Regulated Industries 149 (Michael A. Crew
ed., 2000); James Zolnierek et al., An Empirical Examination of Entry
Patterns in Local Telephone Markets, 19 J. Reg. Econ. 143 (2001); James
Eisner & Dale E. Lehman, Regulatory Behavior and Competitive Entry
(2001) (unpublished manuscript presented at the 14th Annual Western
Conference, Center for Research in Regulated Industries), http://
www.aestudies.com/library/elpaper.pdf; Robert S. Pindyck, Mandatory
Unbundling and Irreversible Investment in Telecom Networks (Nat'l
Bureau of Econ. Research, Working Paper No. 10287, 2004), http://
www.nber.org/papers/w10287.pdf.
For empirical studies of the adverse impact of unbundling on
investment in new broadband facilities, see Debra J. Aron & David E.
Burnstein, Broadband Adoption in the United States: An Empirical
Analysis, in Down to the Wire: Studies in the Diffusion and Regulation
of Telecommunications Technologies (Allan L. Shampine ed., 2003);
Bronwyn Howell, Infrastructure Regulation and the Demand for Broadband
Services: Evidence from OECD Countries, 47 Comm. & Strategies 33 (2002)
(employing bivariate analysis to find no detectable positive effect of
unbundling on broadband uptake); see also Johannes M. Bauer et al.,
Broadband Uptake in OECD Countries: Policy Lessons and Unexplained
Patterns (Sept. 20, 2003), (unpublished manuscript), available at
http://userpage.fu-berlin.de/ jmueller/its/conf/helsinki03/abstracts/
Bauer_Kim_Wildman.pdf; Johannes M. Bauer et al., Effects of National
Policy on the Diffusion of Broadband in OECD Countries 15 (Jan. 25,
2005) (unpublished manuscript), available at http://bear.cba.ufl.edu/
centers/purc/docs/presentations/events/0205%20LBS/ paper/Bauer-Kim-
Wildman-UFL-2005.pdf (finding variable representing unbundling and two
other policy attributes not statistically significantly related to
broadband diffusion); Thomas Hazlett & Coleman Bazelon, Regulated
Unbundling of Telecommunications Networks: A Stepping Stone to
Facilities-Based Competition? 16-19 (Oct. 4, 2005) (unpublished
manuscript), available at http://mason.gmu.edu/thazlett/pubs/
Stepping%20stone%20TPRC.10.04.05%20.pdf.
Question 2. Professor Yoo, Dr. Cooper believes that the Comcast/
NBCU merger would make the already uncompetitive video market even less
competitive and that binding merger conditions should be imposed on the
deal. On the other hand, you looked extensively at vertical mergers and
the media marketplace and have found that competition is robust and
that merger conditions would be unjustified. What factors led you to a
conclusion that is so different than Dr. Cooper's?
Answer. My testimony regarding the likely impact of the Comcast-NBC
Universal merger represents an updated version of my earlier work
analyzing the impact of vertical integration in the cable industry
initially published in 2002.\2\ The factors that led me to a conclusion
that is so different from Dr. Cooper's is that my analysis applied the
conventional wisdom on the likely competitive impact of vertical
mergers on competition laid out in the Merger Guidelines promulgated by
the Federal Trade Commission and the Justice Department to the actual
data. This analysis indicated that the relevant markets fall below the
levels of concentration generally thought to give rise to
anticompetitive concern. Dr. Cooper's analysis represents a departure
from these well accepted principles and did not analyze the underlying
data at all.
---------------------------------------------------------------------------
\2\ Christopher S. Yoo, Vertical Integration and Media Regulation
in the New Economy, 19 Yale J. on Reg. 171, 226-43 (2002).
Question 3. Professor Yoo, doesn't the media sector go through
cycles of acquisition and divestiture along with changes in the broader
economy? If Comcast and NBC Universal are right that this deal creates
a stronger competitor that can better serve viewers in this economy,
the joint venture will succeed. If they are wrong, it will fail, just
as the AOL-Time Warner merger did. Does the government need to
intervene here?
Answer. Various industries do go through periods of acquisition
followed by periods of divestiture. Although some mergers are
successful, others are not. Policymakers and business executives have
never been able to reliably predict in advance which mergers will
succeed. In such an environment and absent some definitive showing that
the markets are sufficiently concentrated that the merger is likely to
lead to consumer harm, the government's role is to permit the merger to
proceed. The merger may succeed. If it does so, the shareholders will
enjoy the equity returns that go along with taking those risks.
Conversely, the merger may fail. If so, it is not the government's job
to protect shareholders against such downside risks. Instead,
shareholders should be left free to experiment with different business
models.
Question 4. Professor Yoo, we have heard a lot today about how
vertical mergers can potentially be harmful for consumers and
competition. Are there any instances, however, of vertical transactions
being pro-competitive?
Answer. The economic literature has recognized a wide variety of
ways in which vertical mergers may be procompetitive. As I have
detailed in my previous work, vertical integration may yield lower
prices, reduce transaction costs, and limit cable operators'
vulnerability to strategic behavior.\3\ The FCC's decisions explicitly
recognize how vertical mergers in the cable industry may benefit
consumers.\4\
---------------------------------------------------------------------------
\3\ Id. at 232-38.
\4\ Competition, Rate Deregulation and the Commission's Policies
Relating to the Provision of Cable Television Service, Report, 5
F.C.C.R. 4962, 5009 83-84, 5010 86, 5037, 144(a) (1990).
Question 5. Professor Yoo, Dr. Cooper and Ms. Abdoulah have
suggested that Comcast might use NBC Universal programming as an
anticompetitive tool against competing pay-TV providers by refusing to
license NBC content to them. Having spent billions of dollars to buy
NBCU and its content, do you think it would make economic sense for
Comcast to act in this manner?
Answer. Content owners have strong economic incentives to license
their content to the venue that would generate the most revenue. To
pick one leading example, the highest rated show on television these
days is often CSI. Even though this show is produced by Disney, it is
broadcast on CBS, not ABC (which is owned by Disney). Although the
theoretical literature does identify circumstances under which a
vertically integrated enterprise might operate in an inefficient
manner, these theories require that a number of strict structural
preconditions be satisfied in order for such effects to arise. An
empirical analysis of the cable industry reveals that it is not
structured in a manner to give rise to such concerns.
Even if such concerns were met, regulatory controls such as the
program access rules exist to ensure that competing pay television
providers have adequate access to NBC Universal's programming. To the
extent that these rules are imperfect, such flaws are not the product
of the merger. They are thus more appropriately addressed through a
general regulatory proceeding rather than through merger conditions.
Question 6. Professor Yoo, in Dr. Cooper's testimony, he claims
that the TV Everywhere initiative is ``a disaster for video
competition'' and ``merits its own antitrust investigation.'' It seems
to me, however, that TV Everywhere provides viewers with more online
options, not less, and that it gives cable subscribers more bang for
their buck. Do you agree that TV Everywhere is a disaster for video
competition?
Answer. TV Everywhere represents an innovative approach to online
video distribution that incorporates a different pricing model and
provides greater copy protection than other models. Such innovation
enriches consumers' options and should be encouraged. As I noted in my
written testimony, the market share of these initiatives are
vanishingly small in antitrust terms. NBC Universal controls only 0.7
percent of market for online videos properties as measured by videos
viewed. Comcast is even smaller at 0.3 percent. The merger would thus
create a company that controls only 1 percent of the market, which
would fall well below the thresholds that would justify any further
antitrust scrutiny.
NBC Universal holds a 32 percent stake interest in Hulu. The fact
that Hulu operates independently of both companies and has its own
management makes it unclear whether its share should be attributed to
the merged entity. Even if it is, the merged entity would control only
4.0 percent of the online video market. These market shares are too low
to cause any anticompetitive concerns.
______
Response to Written Questions Submitted by Hon. George S. LeMieux to
Christopher S. Yoo
Question 1. Some experts have suggested that Comcast will use NBCU
content as an anticompetitive tool to exclude rival cable, satellite,
and TV distributors. Comcast would do this by refusing to license NBCU
content to rival distributors. In your opinion, would it make sense for
Comcast to limit the value of that content in this way? If so, why? If
not, why not?
Answer. As noted above in my answer to question 5, it would rarely
make sense for Comcast to refuse to license NBC Universal's content to
rival distributors. To repeat the example given above, the highest-
rated show on television these days is often CSI. Even though this show
is produced by Disney, it is broadcast on CBS, not ABC (which is owned
by Disney). The reason is that content owners have powerful incentives
to license their shows to the distribution outlet that would generate
the most revenue. Although limited circumstances exist when such
problems may arise, the data show that the cable industry is not
structured in a manner to make such concerns plausible. Any remaining
concerns are not the product of the merger and should be addressed
through general regulatory proceedings rather than through merger
conditions.
Question 2. Following the proposed transaction, will Comcast have
an incentive to ``go it alone'' and rely exclusively on NBCU
programming to the detriment of unaffiliated programmers? What would
stop Comcast from following that course of action?
The Comcast-NBC Universal merger would not be the first example of
vertical integration in the pay television industry. Time Warner merged
its cable distribution properties with content when it acquired Turner
Broadcasting and developed such leading pay channels as HBO. Similarly,
News Corp. combined the Fox programming properties with distribution
when it acquired DirecTV. In both cases, the pay television provider
did not ``go it alone.'' Instead, they remained highly motivated to
identify and carry the content that viewers wanted most. Regulatory
regimes, such as leased access and program access, exist to address any
problems that may arise.
Question 3. What impact will this merger likely have on competition
in local advertising?
Answer. Cable operators do not generate significant revenue from
local advertising. As such, merging Comcast's cable distribution
operations with NBC Universal's content is not likely to harm
competition in local advertising.
Question 4. There have been some concerns expressed about the
impact this merger could have on competition in online video. What
would be the combined market share of the new company and how does this
compare with other anti-trust situations that have been of concern in
the past?
Answer. As noted in my answer to question 6 above, the combined
market share of the new company in the market for online video
distribution would only be 1.0 percent. Even if the entirety of Hulu is
attributed to the merged company, the market share would only be 4.0
percent. These market shares are far below the levels that have
historically raised concern under the antitrust laws in the context of
vertical mergers.
______
Patton Boggs LLP, Attorneys At Law
Washington, DC, March 24, 2010
Hon. John D. Rockefeller IV,
Chairman,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.
Dear Chairman Rockefeller:
The Fair Access to Content and Telecommunications (FACT) Coalition
\1\ applauds you and your Committee for recently examining Comcast
Corporation's (Comcast) proposed acquisition of NBC Universal (NBCU)
during the Committee's March 11th hearing on ``Consumers, Competition
and Consolidation in the Video and Broadband Market.'' As the Committee
continues to examine the implications of the proposed merger and its
impact on consumers and competition, FACT offers its views and
respectfully requests that this letter be submitted into the written
record.
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\1\ The FACT Coalition represents smaller telecommunications
carriers that distribute data, voice and video services. The National
Rural Telecommunications Cooperative (NRTC), the Organization for the
Promotion and Advancement of Small Telecommunications Companies
(OPASTCO), and the Rural Independent Competitive Alliance (RICA) formed
FACT out of concern that the proposed Comcast-NBCU combination would
harm the ability of their members to maintain and expand the provision
of innovative broadband and video services to their customers. Many of
the carriers represented by FACT are video competitors in both the
existing television market and the emerging online video market.
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In recent years, rural telecommunications providers have invested
considerable resources building out their broadband networks to improve
voice and broadband services. These robust networks are also capable of
providing consumers with new video services, including both traditional
subscription video and innovative new ``over the top'' broadband video
applications. FACT's founding members are deeply concerned that the
ability of the customers to obtain the video content they desire, and
in the manner of the customers choosing, will be significantly impaired
if the Comcast-NBCU merger is permitted without stringent protective
conditions.
The Federal Communications Commission (FCC) has correctly
recognized that there is an intrinsic link between a provider's ability
to offer video service and to deploy broadband networks.\2\ Indeed,
rural carriers that are able to bundle video with broadband services
have experienced broadband adoption rates that are nearly 24 percent
higher than those carriers that offer broadband alone.\3\ Therefore,
nondiscriminatory access to programming is a vital component to
broadband deployment and adoption, in addition to being necessary to
enable more consumer choice in the video marketplace.
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\2\ Implementation of Section 621 (a)(1) of the Cable
Communications Policy Act of 1984 as amended by the Cable Television
Consumer Protection and Competition Act of 1992, MB Docket No. 05-311,
Report and Order and Further Notice of Proposed Rulemaking, 22 FCC Rcd
5101, 5132-33, 62 (2007).
\3\ See, National Exchange Carrier Association comments, GN Docket
Nos. 09-47, 09-51, 09-137, p. 6 (01. Dec. 7, 2009).
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However, the FCC has also found that, ``. . . absent a prohibition,
cable-affiliated programmers will engage in withholding of programming
from [competitors].'' \4\ Beyond the outright withholding of content,
programmers with this kind of market power also routinely charge
discriminatory rates, and/or provide access to vital content only under
onerous terms and conditions. These circumstances diminish consumer
choice, raise customers' costs, and impede broadband deployment and
adoption.
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\4\ In the Matter of Implementation of the Cable Television
Consumer Protection and Competition Act of 1992; Development of
Competition and Diversity, in Video Programming Distribution; Sunset of
Exclusive Contract Prohibition, Report and Order and Notice of Proposed
Rulemaking, MB Docket 07-29, FCC 07-169, 51 (rel. Oct. 1, 2007).
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Comcast is the Nation's largest cable and broadband operator with
more than 23.6 million cable homes, 15.9 million high-speed broadband
homes, and 7.6 million digital voice customers. If the merger is
consummated, Comcast will control 20 cable channels, have attributable
ownership interests in 24 additional cable channels, own 10 regional
sports networks (RSNs), 2 broadcast networks, 26 owned and operated
broadcast TV stations, 32 online video properties, as well as Universal
Studios and Focus Features.\5\ Comcast also controls iN DEMAND, the
Nation's dominant video-on-demand/pay-per-view provider which
distributes content via satellite to cable and Internet Protocol
television (IPTV) operators across the country.
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\5\ A listing of the media properties that will be owned or
controlled by the proposed merged entity follows this letter. The
listing is published by Comcast and GE and may be accessed at the
following link: http://www.nbcutransaction.com/pdfs/
JointVentureFactSheet.pdf.
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This potential concentration of ownership in content by an entity
that is already the Nation's largest distribution outlet is
unprecedented. Owning or controlling such an enormous interest in TV,
online and theatrical content is real cause for concern for competitive
video distributors and broadband providers.
Comcast's control of the principal video pipes into the home--both
cable and broadband--will give it market power to favor the programming
it owns today and that which it would acquire from NBCU on its cable
system, to block competitors' access to popular and must-have
programming, to raise cable and advertising rates above competitive
levels, and to impede, if not prevent, competition in the nascent
online video market.
In the existing television market, Comcast will have the incentive
and the ability to use its control over sports and other regional
programming to foreclose entry by competitors. In its Eleventh Annual
Report on Video programming, the FCC highlighted the ``strategic
significance'' of sports programming for multichannel video programming
distributors because of its widespread appeal, noting that these
networks are owned in whole or in part by multiple system operators.\6\
Due to the large number of subscribers that Comcast has in many
metropolitan areas, it will have the market power to deny competitors
access to their affiliated programming, particularly must-have regional
sports networks.
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\6\ In the Matter of Annual Assessment of the Status of Competition
in the Market for Delivery of Video Programming, Eleventh Annual
Report, MB Docket No. 04-227, 166-167, Feb. 4, 2005.
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Distributors that have deployed advanced technology, such as
Internet Protocol television (IPTV), often are subject to carriage
conditions and costs imposed by programming rights-holders that are far
more burdensome than those imposed on incumbent cable operators. Often
the practice involves forcing carriage and packaging unpopular and
unwanted programming with programmers' most widely viewed services.
With ownership interests in 44 cable channels and 10 regional sports
networks, there is great potential for the merged Comcast--NBCU entity
to engage in practices that force carriage of more channels and further
drive up costs for competitive distributors and their customers. (FACT
members are constrained by confidentiality clauses in their programming
agreements and cannot reveal specific details, but FACT would urge the
Committee, the Department of Justice, and the FCC to examine the
current practices of programmers, including NBCU, with respect to
licensing of content to incumbent cable systems vis-a-vis to IPTV
distributors.)
The proposed merger's potential effect on the emerging online video
market is perhaps even more significant and daunting. In some cases,
popular cable services have tied licensing of online content for a fee
(with a requirement that the fee not be disclosed to broadband
consumers) to the licensing of the service's mainstream cable
programming, either as a condition of carriage or through punitive
pricing. The Comcast--GE website referenced at footnote 5 reflects that
the merged entity would will have ownership in 32 online (digital)
media properties, including NBC.com, nbcsports.com, nbcolympics.com,
weather.com, and the popular online video platform, Hulu.com. Consumers
recently experienced a rather dubious practice during the 2010 Winter
Olympics when NBCU denied online access to some Olympics coverage
unless the consumer first proved that he or she was a subscriber to the
mainstream NBCU cable services.
Competitive distributors represented by FACT are deeply concerned
that the new Comcast/NBCU entity will either restrict access to online
content the entity controls, or will tie carriage of cable programming
to online distribution at a fee. Neither possibility is good for
consumers, for competition, or for the growth of broadband adoption,
because service providers will have to raise rates and/or divert
resources to content costs, away from infrastructure maintenance,
upgrades, and expansion.
Retransmission consent for carriage of broadcast stations is
another area of concern. There have been cases--and not rare ones--
where content rights owners that own both cable programming services
and broadcast affiliates have conditioned retransmission consent for
the broadcast signal upon carriage of the cable content that is under
common ownership with that broadcaster. With the Comcast--NBCU merger,
the Nation will have an entity with 10 owned and operated NBC broadcast
stations, 234 non-owned NBC affiliates, and 15 owned and operated
Telemundo broadcast stations. Experience indicates that the potential
for tying retransmission rights for broadcast signals to carriage of
cable services will be great.
One additional area of concern--conspicuously absent from any
Comcast-disseminated data regarding the merger--is in the area of pay-
per-view (PPV) and video-on-demand (VOD) distribution. Comcast owns a
majority stake in ``iN DEMAND Networks,'' the Nation's dominant
distributor of VOD content to the cable industry.\7\ (Other owners of
iN DEMAND include subsidiaries of cable giants Time Warner and Cox.)
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\7\ FACT member NRTC owns a minority stake in Avail/TVN, a
competitive VOD and PPV distributor.
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According to the iN DEMAND website, it is the ``world leader in
providing exciting entertainment delivered through television's most
innovative technologies.'' \8\ iN DEMAND reportedly holds exclusive
rights to PPV and VOD distribution of Major League Soccer, the National
Hockey League, and Major League Baseball. With the merger, Comcast will
gain ownership of Universal Studios and Focus Features, key
distributors of theatrical films. For competitive distributors that
rely upon iN DEMAND for their PPV and VOD content, experience again
leads to great fear that this level of market power will result in
discriminatory pricing, withholding of content, or other unfair
practices.
---------------------------------------------------------------------------
\8\ http://www.indemand.com/about/.
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Unless clear and stringent conditions are imposed on Comcast,
should the merger be allowed, the potential consequences will be higher
programming costs for consumers and fewer resources for competitive
video distribution services. These results will disproportionately
impact rural markets where higher costs are least affordable, and
sparse populations make investment more difficult from the outset.
Anticompetitive practices also make it exceedingly difficult for new
market entrants to compete, thereby impacting consumers' access to
affordable cable and online content of their choosing.
While one avenue of recourse exists at the FCC under the program
access rules,\9\ which would be applicable to much of the cable
programming the merged entity would offer, those rules have
historically been of little effect. The financial and time costs of
prosecuting a complaint at the FCC under the rules have deterred
competitive distributors from filing complaints. Also, the broad volume
discount loophole that exists in the rules has been employed by many
programmers to ensure that significant rate disparities continue to
benefit large incumbent distributors while impeding new market
competitors.
---------------------------------------------------------------------------
\9\ 47 C.F.R. 76.1000, et seq.
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Furthermore, there are no similar protections for online video,
broadcast retransmissions, or VOD/PPV services. In short, the existing
program access rules do not afford an adequate shield or sword for
competitive video distributors--in either cable or broadband
operations.
For these reasons, FACT respectfully urges Congress, the Department
of Justice and the FCC to carefully consider the impact pact of the
proposed merger on consumers and competition in video distribution in
cable, broadband (including ``over the top'' video distribution), VOD
and PPV. If the merger is allowed to proceed, Congress should urge the
FCC and, to the extent relevant, DOJ, to impose clear, enforceable
conditions, including:
Prohibit the merged entity from compelling the tying of
multiple channels, including a prohibition against forced tying
via pricing differentials;
Mandate fair, reasonable and non-discriminatory licensing of
all Comcast--NBCU content without a volume-based loophole;
Prohibit the tying of online content to cable subscriptions
or the forced carriage of online content;
Apply provisions of Title 47 CFR Sec. 76.1000, et seq.--the
program access rules--to all Comcast--NBCU-owned channels
retroactively (i.e., contracts entered into pre-and post-
merger);
Compel the divestiture of iN DEMAND or, alternatively,
prohibit the tying of on demand content (e.g., MLB, NHL, and
Comcast/NBCU-owned studios' films) as a condition of licensing
and pricing;
Examine and address anticompetitive concerns with respect to
the distribution of digital media online, including, Comcast's
``Fancast'' (TV Everywhere) and other ``over the top'' delivery
of content; and
Address requirements with respect to NBCU broadcast network
retransmission consent.
More broadly, FACT urges Congress and the reviewing Federal
agencies to:
Address programmers' practice of mandating carriage and
forced tying of channels;
Ensure nondiscriminatory volume discounting to all
distributors;
Apply the FCC's competitive access rules to all programming
regardless of method of distribution, whether by satellite,
terrestrial, cable or broadband;
Conduct a full review of FCC rules with regard to access and
price discrimination and the application of rules to all
programmers (not just those that are vertically integrated with
cable systems) and ensure that volume discounts are truly
justifiable;
Provide a means for the Congress, the FCC, DOJ, and any
other Federal agencies to review programming license terms to
ensure fairness; and
Prohibit the tying of broadband over-the-top content as a
condition of licensing mainstream television content.
FACT greatly appreciates the Committee's consideration of the
aforementioned concerns and conditions and its ongoing attention to the
proposed merger of Comcast-NBCU. FACT looks forward to working with you
and thanks you for your consideration.
Sincerely,
Mark C. Ellison, Esq.,
Patton Boggs LLP,
For the FACT Coalition.
______
HITN
Brooklyn, NY, March 25, 2010
Hon. John D. (Jay) Rockefeller IV,
Chairman,
Committee on Commerce, Science, and Transportation,
U.S. Senate,
Washington, DC.
Hon. Kay Bailey Hutchison,
Ranking Member,
Committee on Commerce, Science, and Transportation,
U.S. Senate,
Washington, DC.
Dear Chairman Rockefeller and Ranking Member Hutchison:
I respectfully submit for your committee's consideration and for
the public record comments on behalf of the Hispanic Information and
Telecommunications Network (HITN). This is being done as a follow-up to
the Committee's Hearing on ``Consumers, Competition, and Consolidation
in the Video and Broadband Market,'' held on Thursday, March 11.
HITN is America's oldest and only Spanish language non-profit
public interest educational television network. It was established in
1983 as a non-profit organization, to use technologies to serve
America's growing Hispanic community and to provide engaging,
educational, and entertaining programming. HITN's mission is dedicated
to using telecommunications technologies for the advancement of
Hispanic Americans and minority audiences. The network invites
individuals and families to live fuller lives and enables them to serve
as an ever-growing engine of intellectual power and economic progress.
As such, we strongly believe that HITN, much like PBS or C-SPAN
should be afforded the opportunity to reach the maximum number of
Hispanic and non-Hispanic viewers through national and basic tier
carriage. HITN is very proud to be associated with and carried
nationally on: DirecTV; Dish Network; AT&T U-verse and Verizon FiOS.
These satellite and Telco providers clearly see the needs and benefits
to providing a national or system-wide viewer link to the expanding
Hispanic community. It is clearly a win-win proposition. In addition,
HITN is carried on TimeWarner Cable (NJ, NY, and TX) and Charter (CA,
GA. NV, and WA).
We are also proud to be carried on Comcast in Colorado and Illinois
However, we have struggled for years to be made available to all
Comcast subscribers with very limited success. We will continue to seek
every opportunity to make the clear business case with Corneas' as to
the benefits of national, basic tier carriage for HITN programming.
HITN is also the largest holder of Educational Broadband Service
(``EBS'') spectrum in the United States, with spectrum in more than 90
markets covering over 100 million people in the U.S. and Puerto Rico.
Through a partnership with Clearwire Corporation. HITN plans to provide
WiMAX 4G wireless services to educational institutions and non-profits
nationwide using this spectrum.
Since its inception. HITN has worked with community-based
organizations serving and representing the Hispanic community. HITN
also has close relationships with Hispanic organizations such as the
Congressional Hispanic Caucus Foundation, National Hispanic Caucus of
State Legislators (NHCSL), and NCLR, U.S. Hispanic Chamber of Commerce,
LULAC, ASPIRA, NALEO, LISTA and other Latino organizations. This
provides HITN a strong audience base from the membership of these
organizations. It also affords an opportunity for Hispanics and non-
Hispanics alike to have a glimpse into what is happening with the
exciting, vibrant and growing Hispanic community.
These relationships allow HITN to produce programming originating
from the conventions, events, and meetings of Latino organizations as
well as showcasing those proceedings on www.hitnonline.tv.
The questions surrounding the proposed merger between NBC-Universal
and Comcast represent a major turning point for the future of U.S.
media policy. If approved, the proposed merger would create the largest
entertainment company in the U.S. if not the world. Additional
consolidations are certain to follow. This transaction represents one
of the first major tests for the Justice Department's Anti-Trust
division under the leadership of Christine Varney and the FCC under
Chairman Julius Genachowski. As both testified at your Committee
Hearing their approach to competition, media diversity and opportunity
is an issue of great importance. Those policies are very important to
HITN as well as the larger Hispanic and minority communities.
The issue of competition and diversity is further heightened by the
FCC's National Broadband Plan which seeks to address the needs of
disadvantaged and minority populations to gain greater access to
broadband across multiple platforms.
The consolidation of media entities over the last twenty years has
had profound effects on our American life, economy and democracy. The
sources of media, whether it be entertainment, news, or education have
rapidly been concentrated in fewer and fewer corporate hands.
Media diversity has long been one of the fundamental tenets of our
communications law. Diversity of voices has, unfortunately, not been a
major component of recent media mergers and acquisitions. If this
merger should proceed, then real diversity must be a pan of the NBC-
Universal and Comcast transaction and all similar transactions going
forward.
In his written testimony, Brian Roberts, Chairman and CEO of
Comcast Corp, stated, that ``. . . the new venture will be able to
increase the amount, quality, variety, and availability of content,
thus promoting diversity. This includes content of specific interest to
diverse audiences, children and families, women, and other key audience
segments.'' HITN applauds efforts to create more programming options
for Latino families. However, in the commitment to expand content and
distribution of a new Telemundo channel; which will be owned by the
merged entity highlights precisely the risks of the merger to
independent and minority viewers, programmers and networks.
Rather than reach out to Latino networks like HITN which itself is
ready, willing and able to provide its popular network to all Comcast
viewers, the merged entity proposes to reach into its own vaults to
grow its own network in the Hispanic market.
There is nothing wrong with Comcast mining its own assets to find
new uses as long as the combined company does not crowd out or put up
barriers to others. Brand extension and consolidation--does not equal
diversity. Diversity is achieved when there arc multiple voices or
speakers; not just one voice speaking on multiple channels even
speaking in multiple languages. The merger gives the new Telemundo
channel instant system-wide access while others not part of the NBC-
Universal Comcast family are held at bay.
HITN fully agrees with Mr. Robert's stated goals of diversity and
service. We believe him to be a man of good character and intention. As
a network carried on Comcast systems in Denver and Chicago, we have
sought and continue to seek to be one of the sources of diverse
programming available to all Comcast viewers.
Recent media consolidations have moved the Nation away from Mr.
Robert's stated goal. If the combined NBC-Universal and Comcast family
use brand extensions to occupy cable capacity on their systems and
others without making room for truly diverse and independent networks
like HITN, this moves things in the opposite direction of diversity.
In the consolidated media environment, diversity of voices
reinternets important as ever, even in the Internet age. Some have
argued that the Internet has reduced the need for diversity policies.
Because broadcast and cable channels so dominate the Internet, and
because of the increasing troubles facing print media, diversity of
voices and policies geared to that end are increasingly critical to our
democracy. Indeed, if the Internet were such a perfect substitute for
broadcast and cable distribution, there would be no business case for a
merger of this size and breadth.
HITN respectfully urges the Senate Committee on Commerce, Science,
and Transportation, as well as other Congressional Committees with
jurisdiction over these matters to be vigilant and aggressive in
assuring that independent, minority, non-profit, unaffiliated and
educational networks are not crushed in this proposed transaction. They
should have a fair opportunity to succeed in the emerging media
environment. Specifically, there should be at least some meaningful
capacity set aside for the nation-wide distribution of non-profit,
educational public interest channels as is done on direct broadcast
satellite.
As the Telemundo announcement illustrates, this proposed
transaction will give NBC-Universal complete and instant access to
Comcast's national distribution network and Comcast access to NBC's
broadcast and interne assets. It will also give the merged entity
extraordinary leverage to secure access for its content on competing
cable systems at very favorable terms.
Our concern with this transaction is how it affects the
underrepresented millions of viewers and audiences that have too often
been left behind. It should be possible for a network which is not
affiliated with the large media conglomerates, or an educational
network which serves minority families such as HITN-TV or an emerging
network to gain national carriage on multi-channel video platforms. For
example, the proposed merged entity should not be allowed to
discriminate in favor of its own content or brand extensions.
Comcast has additionally committed that once the merged entity has
``. . . completed its digital migration company-wide (anticipated no
later than 2011), it will add two new independently-owned and -operated
channels to its digital line-up each year for the next 3 years . . .''
That's six new channels.
The merged company would constitute the largest media and
entertainment entity in the U.S. with a reach and penetration into
literally every television household in the Nation as well as access to
millions of individuals both nationally and globally through multiple
programming platforms. Certainly it can find room for more than six
independent stations over the next several years.
The public record is full of examples of smaller networks
struggling for years to secure access to cable systems while new
channels owned by the large media conglomerates are added quickly with
case.
Comcast CEO Roberts also stated that ``. . . Comcast will commit
voluntarily to extend the key components of the FCC's program access
rules to negotiations with MVPDs for retransmission rights to the
signals of NBC and Telemundo O&O broadcast stations for as long as the
FCC's current program access rules remain in place (and Comcast has
expressed a willingness to discuss with the FCC making the program
access rules binding on it even if the rules were to be overturned by
the courts).''
Comcast clearly changed its position on program access, perhaps
because if the merger proceeds it will be the beneficiary of such
rules. Policymakers should also look to channel access rules from the
perspective of those networks which seek to be carried on Comcast on
other networks.
We respectfully urge Congress as well as the 1301 and FCC to
carefully review this transaction and consider at a minimum mechanisms
that would:
Provide for national system-wide basic-tier access to
independent non-profit educational networks;
Eliminate barriers and ensure opportunities for minority
controlled networks;
Reserve a meaningful amount of capacity exclusively for
independent networks not owned or controlled by media giants;
and
End ``most favored nation'' pricing clauses in carriage
agreements which effectively amount to price fixing among cable
giants.
We understand the desire among merger partners for efficiency,
synergy and productivity; but believe that the American people have an
equal interest in the free flow of information and access to a full
spectrum of opinions. Our media environment should value a diversity of
voices both in fact as well as in spirit and provide an opportunity for
even the smallest network to survive and thrive. We ask you to
carefully scrutinize this transaction.
We realize that due diligence in reviewing a proposed merger of
this size will take time and that this committee session is unlikely to
be the last word on this issue. As such, we look forward to working
closely in the months ahead with your committee as well as with
Congress on these important issues.
Sincerely,
Jose Luis Rodriguez,
President and CEO.