Retrans Agreements Merit More Scrutiny, Says Pryor

Dodge told lawmakers the retransmission consent system is “not a fair fight” and represents “one area where there is not competition,” he said. “When this all started it was broadcasters and cable companies, it was a pretty fair fight ... today you have broadcasters playing three or four distributors off against one another and the result is prices going up.” He suggested lawmakers permit cable and satellite carriers to substitute a network signal from a non-local market for a local market affiliate of that same network when retrans disputes come to an impasse.

Smith sought to defend retrans fees: “We represent a few pennies per dollar of a subscription bill,” he said. “We are not the driver of what is driving up the cost. We are one piece of it in, literally, cents per dollar. Somehow if you want to support localism please remember the two revenue streams that pay those costs: advertising and retransmission consent,” he said. Smith’s opening remarks emphasized what he called broadcasters’ “important role as first informers,” by providing local, real time, free information about weather emergencies, news and other public interest transmissions. He warned lawmakers against making any policy changes that would undermine the economic foundation that supports the “indispensable public service” broadcasters offer.

Smith slammed Dish’s AutoHop technology, which he said “gets rid of broadcast ads. ... If we are going to do business with them, we need to be paid for the value of what we provide.” CBS, ABC, Fox and NBC have sued Dish in federal court seeking injunctions that would bar the AutoHop feature based on their claims that it amounts to contributory copyright infringement (CD Dec 5 p19). Dodge said Dish’s AutoHop technology “doesn’t get rid of the ads” but rather provides consumers with the “functionality to skip ads.” Dodge said lawmakers should be skeptical of Smith’s statement that retrans fees support localism because “an increasing proportion” of those fees are being “sent back to the networks in Los Angeles and New York.”

Sen. Mark Warner, D-Va., asked the witnesses what role the government has in regulating “the next wave of disruptive technologies” like Netflix and online-TV startup Aereo, which streams broadcast-TV signals to consumers via the Web. Smith said that with regard to Aereo, Congress should be “faithful” to the constitutional principle of copyright protections. “It seems to me if someone takes copyright material, distributes it and charges for it and does not do what other multichannel video program distributors do, that’s called piracy,” he said. Warner said he has a “real concern” about recent comments from executives at several networks who threatened to take their programming off the air to thwart Aereo’s business model. “Broadcasters have public spectrum. You got it for free. ... If you have this spectrum, which is of enormous value, and are threatening to withdraw content because of these other challenges, it really raises for me the question of whether you ought to be able to keep that spectrum for free,” he said.

Sen. John McCain, R-Ariz., said “a lot of consumers are fed up with the size of their cable bill.” In his opening remarks at the hearing, McCain, who is not a member of the Commerce Committee but was invited to testify, stumped for his recently introduced Television Consumer Freedom Act (S-912). “It is time to restore the proper operation of the maintenance of the market by empowering American consumers,” he said. “A la carte options are the right thing to do.”

McCain’s bill aims to encourage video programmers and distributors to offer a la carte video to consumers, deter broadcasters from downgrading their over-the-air services and amend the sports blackout rules (CD May 10 p2). McCain said consumers are paying too much for cable programming and don’t want their video content bundled. “This bill says that if you bundle your programming on the wholesale level, then you also must unbundle too. So, the choice remains with the programmer. And, the outcome for the consumer is a la carte -- and a lower cable bill.” The legislation was supported by PK’s Bergmayer, who told lawmakers that “a lot of people today feel like they are getting ripped off” by their cable companies. “The bill does not outlaw the practice of bundling, it simply requires that consumers have a choice,” he said.

Pryor said McCain’s bill “is very intuitive and makes a lot of sense” and asked NCTA President Michael Powell why cable companies don’t offer a la carte programming. Powell said cable companies have “profound doubts that a la carte would actually decrease the costs to American consumers.” He cited a 2003 GAO study (http://1.usa.gov/13ZBLmS) and a 2004 FCC study (http://fcc.us/12y97rj), which he said revealed the “question mark” on whether consumers would have lower bills as a result of a la carte. Changing the industry’s business model would diminish the size of channel audiences, thus forcing channels to raise their program costs, which will subsequently increase costs for consumers to view fewer options, he said. “It’s not a good deal for consumers if you are paying $10 for 10 channels rather than $10 for 100 channels,” Powell said.

Powell said lawmakers should not pursue a comprehensive rewrite of the 1992 Cable Act and said it would be “more prudent to evaluate changes more surgically as they arrive.” Subcommittee Ranking Member Roger Wicker, R-Miss., asked Powell what he fears would happen if Congress pursued a “general overhaul” of the 1992 Act. Powell said such an overhaul “could easily retard or disincent the revolution that has taken place” in the video market. When pressed by Sen. Ron Johnson, R-Wis., to identify which “surgical” changes to the regulations that govern the video market, Powell declined to offer any and agreed to discuss the matter with the senator offline.