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Congressional Testimony before the House Subcommittee on Communications regarding Competition in the Video Marketplace

Submission Date: 
Congressional Testimony on Competition in the Video Marketplace before the House Subcommittee on Communications, Technology and the Internet

United States House of Representatives
Before the Subcommittee on Communications, Technology and the Internet
Committee on Energy and Commerce
Thursday, October 22, 2009
Hearing on Competition in the Video Marketplace
Chief Operating Officer - SUNFLOWER BROADBAND

Thank you, Mr. Chairman and members of the Committee. My name is Patrick Knorr, and I am the Chief Operating Officer of Sunflower Broadband and immediate past Chairman of the American Cable Association (ACA). ACA represents nearly 1,000 smaller and medium‐sized cable companies providing advanced video, high‐speed Internet access and telephone service in predominantly rural and smaller markets in every state.

As small and medium‐sized independent cable operators, we represent a unique perspective on the pay‐television marketplace. Our members often invest in communities where the ‘big guys' find it unattractive to provide service, whether that is in rural communities such as Onaway, Michigan, and Stowe, Vermont, or in more urban markets such as Springfield, Illinois, and Boise, Idaho. ACA members have built these networks in the most rural areas of our country without any direct federal subsidy and in the face of federal rules that make negotiations for select services extremely difficult.

But what should concern you today as you look forward is the following. First, while all of our costs
to expand our service offerings continue to grow, one cost has grown exponentially over the past
few years, and that's the cost of programming. It is also the primary reason that the cost of video
services continues to rise. Consumers are unaware of the underlying cost of programming, and they do not understand why they have so few options in how programming is packaged.

Right now there is no way for you as Members of this Committee, or for the Federal
Communications Commission ‐‐ or even the public for that matter, to see what we pay for the
content we carry. That, too, is a problem. The non‐disclosure terms of our contracts, added at the
behest of the programmers, prohibit that information from being shared. This veil of secrecy
ensures consumers are confused, policymakers are left in the dark and programmers are free to
charge whatever they like with little regard or fear from competition. You would be shocked to
know what we have to bill our consumers for some channels; and the discrepancy in cost of carriage between small and large operators would be more alarming.

The most illuminating example of this is sports programming. The amount our customers pay for
sports programming, whether they watch it or not, is a significant percentage of their overall cable
bill. For this reason, I think you should require transparency for the cost of carriage on a perchannel basis of sports programming channels so consumers are aware of what they are paying for these channels and to expose disparities between small and large distributors. We also believe some competition needs to be injected into the marketplace. Currently, there are no market forces that set the rate for content.

Second, flaws in the subscriber‐television model are being transferred to the Internet and will be
too difficult to undo if they are hard‐baked into the building blocks of that distribution environment as well.

The best example of how the marketplace has evolved in distributing content involves following the trail of a single show. In this case, I would highlight ABC's "Lost." This popular program is
distributed a number of ways: (1) via cable and satellite distributors whose consumers have paid a subscription for service; (2) via iTunes where consumers can purchase an episode or an entire
season uninterrupted by advertisements and "own" the programming; and (3) via the Internet
where they can watch it over a streaming service on ABC's Web site. The Communications Act was
developed to address the first scenario, but has yet to be updated to address the issues raised by the collision of these new distribution models.

What confronts us is the basic public policy discussion of what happens now? As consumers watch
more and more video via iPods and the Internet, should I as a cable operator have to pay nonmarket‐
based rates for a product that was originally supposed to be exclusively distributed by my
local broadcaster and is protected by federal laws because of that exclusivity? What happens to
localism when my local broadcaster is also being by‐passed by the network that is now offering that valuable prime time signal directly to consumers at any time of the day and ensuring that they will not see the local advertisements that the local broadcaster depends upon to stay viable?

Should I care about whether someone has watched the show as a cable stream versus as a Web
stream or should I just bill them for whatever amount of bits they have used to view that program?
In short, I believe that the rules created in 1992 and 1996 to govern the television market are
antiquated and long overdue for reform. They are inadequate and do not reflect the realities of the Internet and the impact of pervasive consolidation in the media industry that has occurred since those rules were put in place.

As you can see, there are profound issues at play. Congress needs to consider how to protect and
promote localism, expand the varieties of television offerings consumers can purchase, increase
transparency in the process, and help companies like mine understand how to stay in business in
order to offer the cable and broadband service in rural America that Congress so desperately wants deployed. (This is just the first two pages of the testimony to read the full testimony please click on the pdf below).

knorr_testimony.pdf103.7 KB

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