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Posted September 13, 2013 | comments Leave a comment

Shentel exec testifies on Hill

Cable TV industry laws need to be reformed, Earle MacKenzie of Shentel told a House subcommittee

By Ryan Cornell

Shentel Executive Vice President and Chief Operating Officer Earle MacKenzie testified before the House Judiciary Committee's Subcommittee on Courts, Intellectual Property and the Internet on Tuesday. The hearing was on "Satellite Television Laws in Title 17." Representing the American Cable Association, he urged a revision in the rules governing the cable industry and called an end to broadcast blackouts.

Unlike the Satellite Television Extension and Localism Act of 2010 regulating the satellite TV industry, which is regularly reviewed by the committee and lasts until 2014, he said the last time Congress made broad legislative changes to the rules governing the cable industry was in the 1990s. He said the cable industry has evolved since then and its laws are in need of reform.

Speaking on Section 111, he said it would be appropriate for the statutory license to remain unchanged. He said it serves a goal in compensating copyright holders for the retransmission of their work.

"For some smaller MVPDs [multichannel video programming distributors] and broadcasters, the harms would threaten their viability," MacKenzie said in a written statement. "For rural consumers, the proposals could result in fewer choices and higher costs."

He said the license protects smaller providers such as Shentel from price discrimination by establishing uniform license fees based on gross revenues and other variables. Without it, broadcasters and programmers would charge the smaller cable companies much higher fees than companies that serve urban areas.

"A copyright holder doesn't have the same incentive to reach individual deals with hundreds of small cable operators who each serve only a few thousand subscribers," he stated. "The cost of conducting all of these transactions is far greater, and the amount of money that would be lost as a result of not entering each deal is significantly lower."

MacKenzie proceeded in his statement to point out higher cable rates as a result of collusion between separately owned, same-market broadcasters. He said these broadcasters are flouting antitrust laws by coordinating their negotiations in their sale of retransmission consent.

"Available evidence submitted by large and small cable operators to the FCC shows that when broadcasters engage in this anticompetitive conduct, they can extract at least 22 percent higher fees than if they negotiate separately," he stated. "One cable operator presented evidence showing that its rates were more than 160 percent higher...These price increases are passed along to consumers, who end up paying for them in higher costs."

The Shentel executive warned that blackouts, such as the one that prevented millions of Time Warner Cable and Brighthouse Networks subscribers from accessing CBS programming, were harming cable consumers.

"Congress should prevent broadcasters from pulling signals from cable operators if retransmission consent agreements expire before new agreements have been signed," he stated, adding that legislation should be adopted soon to make sure the mentioned blackout is the last of its kind.

Cable TV subscribers have often complained about forced bundling, the practice of wrapping a number of channels that might be undesirable in different tiers. MacKenzie said that Congress should not require the inclusion of retransmission consent stations on the cable basic service tier and that subscribers should be able to opt out of channels they might not want on the basic service tier.

"By providing broadcasters that elect transmission consent an automatic right to appear on the basic service tier and obtain 100 percent cable subscriber penetration, Congress has taken off the table a critical term of negotiation that cable operators could leverage with broadcasters to obtain lower rates," he said in his statement.

He said another factor in the high cable rates passed to consumers are the rapidly escalating fees associated with airing sports programming. He said national sports networks and "the big four" -- ABC, NBC, CBS and FOX -- bid extraordinary amounts, knowing they can pass their costs on to pay-TV providers.

"Not surprisingly, ESPN is the most expensive cable network at $5.54 per subscriber per month," he stated, citing TV network data researcher SNL Kagan. "The fee is expected to grow to $6.95 in 2016."

As satellite TV providers have taken over 60 percent of the video market in the rural areas that Shentel serves and over-the-top video distributors such as Netflix, Amazon and Hulu have been introduced, MacKenzie said the cable industry is far different from the market in the 1990s.

"Given the significant changes in the marketplace, we believe the time has come for Congress to conduct such a review and we hope that some of the issues addressed above would be under consideration for reform," he stated.

Witnesses at the hearing also included DISH Network Executive Vice President Stanton Dodge, CenturyLink Vice President James Campbell, Nielsen Company Senior Vice President Don Lowery, Robert Garrett from Major League Baseball and Gerard Waldron from the National Association of Broadcasters.

Contact staff writer Ryan Cornell at 540-465-5137 ext. 164, or rcornell@nvdaily.com


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