The purpose of my testimony is to describe some of the successes the Hallmark Channel has enjoyed in its first year of operation, to outline some of our plans for growing the channel in the future, and to express our deep concern that our past successes and future plans will be seriously jeopardized if the government-mandated carriage preference already accorded the broadcast industry is expanded through heavy-handed digital must carry regulation.  I should note that while my testimony draws on the experience of the Hallmark Channel, it is my belief that the views I express today are shared by dozens of other cable program networks.

First, let me tell you a little about Hallmark Channel’s achievements over the past year.  Since commencing operations in August 2001, Hallmark Channel has obtained carriage on DBS and cable systems serving nearly 48 million subscribers, making it one of the industry’s fastest growing services.  And independent research indicates that where Hallmark Channel is not yet offered, it is one of the channels most desired by viewers and cable operators.

The successful launch of the Hallmark Channel is attributable to our commitment to satisfying the public’s demand for compelling, family friendly programming through a mixture of high quality archival programming and original productions featuring some of Hollywood’s top performers.  Some of the programming highlights of the past year include our 25th Anniversary encore presentation of Alex Haley’s “Roots”; the four-hour original miniseries “Mark Twain’s Roughing It” starring James Garner and an all-star cast; and the original epic western movie “Johnson County War” starring Tom Berenger, Burt Reynolds, and Luke Perry.  In addition, in June, Hallmark Channel launched its first original series, the critically acclaimed and award-winning “Adoption.”  Our concentration on masterful storytelling and compelling entertainment has resonated with viewers.  Hallmark Channel finished first among all cable networks in growth for primetime and total household viewership this past summer.

Moreover, like many cable programmers, Hallmark Channel does not regard the presentation of top drawer programming as its sole mission.  As much as any broadcaster, Hallmark Channel believes that there are a variety of ways that it can and should serve the public interest.  For example, last year, Hallmark Channel, together with the Jim Henson Company, made a gift to the FCC of a license to use the Kermit the Frog image in the agency’s literature promoting the V-Chip.  And this year, we have been working with local cable operators and other businesses to sponsor community outreach initiatives centered on the issue of adoption, in conjunction with our new “Adoption” series.  One such outreach initiative partnered Hallmark Channel with Cox Communications and other local merchants to sponsor an event benefiting Raintree House, a New Orleans foster care facility.

Looking ahead, Hallmark Channel continues to invest millions of dollars in new productions, commissioning 24 new original movies for presentation over the next two years.  Even more significantly, we are actively seeking to be a leader in the use of digital technology.  For example, we currently are demonstrating a Hallmark-branded interactive suite of services that includes video-on-demand programming, an interactive “arts and crafts” service (called “Crayola Kids”) for children and their parents, and digital video greeting cards.  Hallmark Channel also is engaged in discussions regarding the presentation of high definition programming for cable and satellite customers.

At Hallmark Channel, we are proud of our accomplishments and optimistic about our future.  Our success has come despite the existing regime of must carry regulation that creates a governmental preference for broadcast signals over cable networks.  But we are very concerned that our ability to continue to grow our service and to launch new ventures will be compromised if, as a result of additional government interference with the free market, broadcasters are given expanded must carry rights with respect to their digital signal, thereby exacerbating a regulatory scheme that effectively relegates all non-broadcast programmers to second-class status. 

One such form of government interference would be the adoption of a “dual must carry” requirement mandating simultaneous carriage of broadcasters’ analog and digital signals during the digital “transition” period.  Notwithstanding our impressive growth, Hallmark Channel still is not available in over 42 million cable and satellite homes.  The reality is that as much as many cable operators would like to add Hallmark Channel to their line-ups, they are unable to do so because of channel capacity limitations.  Simply put, even as systems upgrade to add capacity, the demands on that capacity, including demands for broadband and other advanced services, are growing even faster.  A “dual carriage” requirement, that would essentially double the number of channels dedicated to broadcast signal carriage, would place carriage opportunities on many systems out of our reach for the foreseeable future, particularly in larger markets that are critical to the success of a national program service.  Such a requirement could even threaten our existing level of carriage.  I commend Chairman Tauzin for indicating that dual must carry will not be required under his proposal, but believe clarification is needed in the staff draft to accomplish that goal. 

Just as threatening to our future plans as dual must carry is the broadcast industry’s demand for “multicast” digital carriage rights after the transition is completed.  What broadcasters want is a guarantee that if they choose to transmit multiple channels of standard definition programming, cable operators will carry all of those channels without regard to consumer demand.  In contrast, cable networks like Hallmark Channel have no guaranteed carriage of even a single channel of programming, much less multiple programming streams and, in fact, we incur a substantial financial cost in the form of launch fees and other marketing expenses associated with our carriage.

Like other independent, satellite-delivered program networks, Hallmark Channel does not have over-the-air access to viewers nor do we have any mandatory carriage rights.  But we are not looking for any government handouts.  When it comes to convincing cable operators to carry our new services, we are willing to make our case at the bargaining table based on the merits of what we are offering and consumer demand.  Broadcasters should be willing to do the same.

We are prepared to compete for carriage not only against more than 300 other national and regional cable networks and a host of new services such as high speed Internet and cable telephony, but also against nearly 1700 broadcast stations.  All we ask is that the government not place its thumb on the scale in a way that favors carriage of additional broadcast programming above everything else.

We’re all interested in the success of the digital transition.  Digital is the wave of the future.  But consumer demand is created and met more efficiently by the operation of market forces than by government dictates.  Thus, without any guarantee of carriage, it is cable programmers who have taken the lead in developing digital product.  I previously mentioned Hallmark Channel’s work in developing interactive and high definition programming.  Other cable programmers are taking similar steps. For example, HBO, Showtime, Discovery and the Madison Square Garden Network are among the programmers already producing high definition programming.  But the progress that we are making will be stymied if we are not allowed to compete for carriage on an equal footing with broadcasters.

I will leave it to the lawyers to cite chapter and verse as to why multicast must carry regulations would be unconstitutional.  I understand the policy rationale for the government’s desire to protect existing broadcast stations.  But to help them each launch a half dozen new channels is inexplicable to me.  Protecting existing broadcast stations does not justify, in a world in which hundreds of cable program networks are investing heavily in original programming and are competing for access to viewers, expanding must carry into a vehicle to launch or guarantee the success of new business ventures for broadcasters over other content providers. 

The fact is that giving broadcasters multicast carriage rights will disadvantage cable networks (who once again will be put at the “back of the line” when it comes to seeking carriage of their new services) and interfere with the editorial independence of cable operators who are seeking to provide a diverse choice of programming to their customers.  Such carriage of standard definition programming won’t do anything to advance the digital transition, nor will it preserve or promote the availability of over the air programming from diverse sources.

In the end, if broadcasters are given yet another advantage over cable networks in the competitive struggle to reach the viewing public, it will be the public that will suffer.  Consumer choice will be reduced as duplicative or time-shifted broadcast programming displaces high quality, diverse, and original cable programming.  It is compelling digital programming that ultimately will motivate consumers to buy new digital television sets.  And as a former broadcaster, I can assure you that the broadcast industry will have a much greater incentive to produce compelling programming if they have to compete with all other programmers for carriage.

I urge you to be wary of the potential unintended consequences of the broadcasters’ demands.  While the highly competitive programming marketplace already is skewed against cable networks by analog must carry, I believe Hallmark Channel can succeed if the best ideas and the best programming are allowed to flourish.  But if we are not given a fair chance to compete due the adoption of dual or multiple must carry regulation, the potential offered by digital technology may never be fulfilled.

Thank you again for inviting me to testify today.