Witness Testimony

Mr. Martin D. Franks
Executive Vice President
CBS Television
51 West 52nd St
New York, NY, 10019

Oversight of the Satellite Home Viewer Improvement Act
Subcommittee on Telecommunications and the Internet
March 10, 2004
10:00 AM

CBS appreciates the invitation to present to the Subcommittee its views about the implementation of the Satellite Home Viewer Improvement Act and about possible amendments to that Act. 

Localism and the Network/Affiliate Relationship

The United States boasts a large number of purely national program services, such as ESPN, USA Network, Fox News Channel, as well as the nonbroadcast channels offered by Viacom, including Nickelodeon, TV Land, BET, Showtime and others.  But a vital part of our national television system is the presence, in 210 different communities across the United States, of free, over-the-air local television broadcast stations.  Thanks to Congress’ (and the FCC’s) strong commitment to localism over the past 55 years, towns as small as Twin Falls, Idaho (with fewer than 59,000 television households) and Alpena, Michigan (with fewer than 20,000 television households)  enjoy the benefits of a local television outlet offering local news, weather, public affairs, and emergency programming. 

The network/affiliate relationship has long played, and continues to play, a vital role in making the policy objective of localism work in markets both large (such as Detroit) and small (such as Mankato, Minnesota).  The reason is simple:  by serving as the local outlet for popular network programming (such as the primetime offerings of the CBS Television Network), local network affiliates are able to obtain advertising dollars that enable them to stay afloat -- and to supplement the network offerings with local news and weather and with syndicated programs (such as Oprah Winfrey) obtained from third parties.  As this Committee aptly observed when it reported out the original Satellite Home Viewer Act in 1988, “historically and currently the network-affiliate partnership serves the broad public interest.”  H.R. Rep. 100-887, pt. 2, at 19-20 (1988).

Both Congress and the FCC have consistently recognized that if cable systems and satellite carriers were allowed to import duplicative network programming from other markets, that importation would weaken, if not destroy, the economic underpinnings of local broadcasting.  Since the 1960s, therefore, the Commission has imposed “network nonduplication” rules on cable systems that generally bar importation of distant network stations.  The “unserved household” limitation in Section 119, which has been part of the Satellite Home Viewer Act since it was created in 1988, plays the same role with regard to satellite carriers. 

The Sorry Saga of Distant Signal Retransmission

Back in 1988, when this Subcommittee first addressed the issue of retransmission of broadcast TV stations by satellite carriers, no one discussed “local-to-local” retransmissions because the technology to do so was so far away.  Instead, the Subcommittee (and this Committee as a whole), working in cooperation with the Judiciary Committee, helped to craft – in the Satellite Home Viewer Act of 1988 -- a set of rules about retransmission of distant broadcast television stations.  The same was true in 1994, when Congress extended the Satellite Home Viewer Act for five additional years. 

As this Subcommittee has consistently recognized, delivery of distant network stations, like salt in a soup, works well only if used in small amounts, and quickly spoils the broth if overused.  Making distant ABC, CBS, Fox, and NBC stations available by satellite to the very small number of households that have no other method of receiving network programming, for example, is sound public policy.  But when satellite carriers deliver distant network stations to households that can receive their own local network stations, without permission from the local affiliate(s) in the viewer’s area, distant signals quickly become a destructive force, undermining localism and subverting the economics of local broadcasters

Unfortunately, the experience with implementation of the distant-signal compulsory license by satellite carriers has been a dismal one.  For the first ten years after the compulsory license went into effect, satellite carriers treated the “unserved household” limitation as a joke:  they illegally signed up anyone who was willing to answer “no” to the question “are you satisfied with your over-the-air reception?”  The result was that satellite carriers signed up millions of urban and suburban customers who were ineligible to receive distant signals. 

Only by pursuing costly litigation have broadcasters, including CBS, been able to obtain any relief from this lawbreaking.  Starting in 1998, the courts have consistently condemned the satellite industry’s misuse of the distant-signal license.[1] EchoStar has been the most abusive of all:  thanks to a variety of stalling tactics, EchoStar continues today to deliver distant stations (including CBS stations) illegally to large numbers of ineligible subscribers.  As a federal District Court in Florida found after a 10-day trial last year, EchoStar has continuously broken the law since it started delivering distant network stations in 1998.  CBS Broadcasting Inc. v. EchoStar Communications Corp., 276 F. Supp. 2d 1237 (S.D. Fla. 2003).   Most shockingly of all, EchoStar’s CEO made – and then broke – a solemn, sworn promise to the Court to turn off large numbers of EchoStar’s illegal distant signal customers.  As the Court found,

“EchoStar executives . . . when confronted with the prospect of cutting off network programming to hundreds of thousands of subscribers, elected instead to break [EchoStar’s] promise to the Court.”  Id., ¶ 46 (emphasis added). 

Local-to-Local:  A Success Beyond All Predictions

Unlike delivery of distant signals, delivery of local signals by satellite carriers has been a tremendous success story. 

In the 1999 Satellite Home Viewer Improvement Act, this Subcommittee helped craft a completely new compulsory license – for local, not distant retransmissions -- along with a variety of new Communications Act provisions to govern those retransmissions.  Unlike retransmission of distant signals, local-to-local retransmission has benefited everyone involved:  satellite carriers, broadcasters, and most importantly, consumers. 

Consider, for example, how customers here in the Washington, D.C. area got CBS network programming a few years ago, and how they get it now.   From 1994 through 1998, satellite carriers illegally offered distant CBS stations by satellite to large numbers of its customers in this area, thereby interfering with the ability of local stations, such as WUSA-TV in Washington (owned by Gannett), to reach their local viewers and to sell those viewers to advertisers.  The distant stations imported by satellite carriers, of course, provided Washington-area subscribers with no local news, no local weather, no local public affairs programs, and no information about local emergencies such as hurricanes. 

Today, by contrast, thanks to Congress’ leadership in crafting the SHVIA, local customers can receive their local CBS station (WUSA-TV) -- in excellent quality -- by satellite.  And what is happening here is happening all over the country.  Thanks to vigorous competition between DirecTV and EchoStar – and between those firms and their cable rivals – more than 85% of U.S. television households can today receive their local channels by satellite from DirecTV, EchoStar, or both.  By the end of this year, that figure will be 92%.  And in just a few years, it will be 100%.

The race to offer local-to-local has far outstripped the DBS industry’s pessimistic predictions.  Less than two years ago, EchoStar predicted that it would never be able to serve more than 70 markets on its own.  Yet today, EchoStar already serves 107 Designated Local Markets (“DMA’s”) that collectively cover more than 85% of all U.S. TV households.  And there is no indication that EchoStar has lost its appetite to continue this expansion, which makes EchoStar an even tougher competitor against local cable systems.   

DirecTV’s plans are even more robust.  With the launch of its D7S satellite this spring, DirecTV plans to serve 100 DMAs covering 85% of all U.S. TV households.  By year’s end, DirecTV has pledged that it will offer local-to-local in an additional 30 markets, for a total of at least 130 DMAs covering 92% of all TV households.  And as soon as 2006 and no later than 2008, DirecTV has committed to offering “a seamless, integrated local channel package in all 210 DMAs.”[2]^/

Offering local-to-local to satellite subscribers is just good business.  As the satellite industry admits, local-to-local has been critical to DBS’ growth from 10 million subscribers in 1999 to more than 20 million subscribers today:  “[t]he expansion of local-into-local service by DBS providers continues to be a principal reason that customers subscribe to DBS.”[3]^/ 

The retransmission consent provisions of the SHVIA have also worked well.  As the FCC recently pointed out in connection with News Corporation’s acquisition of an interest in DirecTV, there is a “balance of terror” between broadcasters and MVPDs that has ensured that public spats over retransmission consent (such as the Disney/Time Warner and Fox/Cox disputes) are few and brief.  Retransmission consent has also helped ensure that broadcasters can share at least some small portion of the enormous benefits that DBS firms enjoy from the ability to offer local-to-local service.

As the Subcommittee is aware, Viacom and EchoStar are currently at odds over the terms of retransmission consent for CBS owned-and-operated systems.  History teaches us, however, that even if a broadcaster and an MVPD are briefly at an impasse, a deal eventually will be struck that will benefit all concerned, most importantly, American viewers.  We have every hope that the same will occur here.  

SBCA’s Outrageous Proposal to Expand the Distant Signal License that EchoStar and Other Satellite Firms Have Egregiously Abused[C1]  

Now that one of the DBS firms (DirecTV) has devised ways to deliver the signals of local analog stations in all 210 markets, there is little doubt that DirecTV and EchoStar will soon tackle the challenge of delivering digital, and high definition, signals on a local-to-local basis.  The DBS firms have many potential tools for doing so, including sharing of spectrum between the two companies, satellite dishes that receive signals from multiple orbital spots, use of Ka-band (in addition to Ku-band) spectrum, improved compression techniques, more sophisticated methods of modulation and coding, and closer spacing of Ku-band satellites.) 

Ignoring all of this, the SBCA instead demands a massive new government intervention:  that Congress should expand the distant-signal license to declare households to be “digitally unserved” by a network (such as CBS) if the household cannot receive a digital (or HD) signal over the air from a local station.  In other words, the SBCA asks for an enormous, and wholly unnecessary, expansion of the very license that EchoStar and other satellite carriers have illegally abused for years. 

The Subcommittee should summarily reject the SBCA’s demand.  The reason that the SBCA makes this demand is simple enough:  DBS firms like EchoStar could save a large amount of money if they could uplink a single digital or HD station and retransmit that station to many millions of subscribers across the country, rather than developing the capability to offer digital and HD signals on a local-to-local basis.[4] But the public interest would be grievously disserved by this proposal.  Consider these facts about the SBCA’s proposal:

• The SBCA would treat a household as “unserved” by the CBS network even though a satellite carrier itself delivers by satellite a high-quality digitized signal from the local CBS station’s analog broadcasts, which contains all of the programming (such CSI, Survivor, and Everybody Loves Raymond) that EchoStar proposes to import from a distant station that broadcasts in a digital format.

•  A CBS affiliate in a small market that – for reasons entirely beyond its control – is not yet broadcasting in digital, would see its entire coverage area treated as a “white area” that the DBS firms could invade with a distant CBS station.  Experience teaches us that stations that lose substantial numbers of viewers to the identical programming imported from out of town face devastating economic consequences. [5] But the SBCA does not care, because DBS firms would make more money even if it has to destroy local TV stations to do so. 

• If DBS firms began delivering a distant digital station into a so-called “digitally unserved” area, there would be only two possible approaches – both of which would yield public policy disasters – when a local station began delivering a digital signal over the air to that area:

• Disastrous option # 1:  DBS firms would be allowed to continue delivering distant digital signals to the household indefinitely.  (This is what Mr. Moskowitz of EchoStar testified last week is their preference.)  Far from creating any incentive for the station to expand its digital coverage, the SBCA proposal would sabotage those incentives by making it impossible for the station ever to reclaim the “lost” local audiences.  The station would suffer crushing, permanent losses of viewers -- and hence permanent, large-scale financial losses – which would inevitably translate into lower-quality programming for local viewers.   

• Disastrous option # 2:  The DBS firms would be required to turn off their “distant digital” subscribers after the subscribers had become accustomed to that service.  Congress has gone down precisely this road before -- in 1999, when Congress heard from hundreds of thousands of angry consumers who had grown accustomed to receiving distant signals (illegally) by satellite, and who were unhappy about having to install an over-the-air antenna to view their local stations instead.  In other words, SBCA asks Congress deliberately to spawn a massive consumer disaster virtually identical to the chaos that arose (through no fault of Congress) when the DBS industry was required by the courts to turn off millions of illegal analog distant-signal customers.  

In other words, the SBCA’s  “distant digital” plan is a trap, pure and simple.  This Subcommittee should squarely reject it. 

A Household That Can Receive Local Signals from Its Satellite Company is Not “Unserved”

 Instead of following the SBCA’s advice and engaging in a radical – and foolhardy – expansion of the distant-signal compulsory license, Congress should update the rules relating to delivery of distant signals to reflect the new realities of the DBS business.

Current law provides that a household is “unserved” if it cannot receive a Grade B intensity signal over the air from a local affiliate of the relevant network.  But that definition fails to reflect the reality that by the time Section 119 expires at the end of 2004, at least 85% of EchoStar’s customers will be able to receive their local stations by satellite, and at least 92% of DirecTV customers will be able to do the same.  It makes no sense to say that a satellite subscriber that can receive its own local CBS station from its own satellite carrier is somehow “unserved” by that station:  a subscriber can obtain its local stations by satellite simply by picking up the phone.  Section 119 should therefore be amended to provide that a household is not “unserved” with respect to a particular network if its satellite carrier offers an affiliate of that network on a local-to-local basis.   

Conclusion

Viacom congratulates the Subcommittee on the tremendous success of local-to-local retransmission of television stations by satellite carriers, under the statutory scheme wisely devised by this Subcommittee and the rest of Congress in the SHVIA in 1999.  Congress should encourage the continued expansion of local-to-local, and the future delivery of digital and HD signals on a local-to-local basis, by allowing competition and technological progress to do their magic.  Congress should reject the SBCA’s demand for a new government subsidy permitting it to deliver distant digital stations to areas that it deems “unserved,” a demand that would wreak havoc if granted by Congress.  Instead, Congress should amend the Act to recognize that households to which local-to-local is available are, as a matter of common sense, “served” by their local stations.  Finally, any extension of the distant-signal license should again be subject to a five-year sunset. 

Thank you.

Related Documents