Congressional Hearings
STATE OF THE MEDIA MARKETPLACE
Congressional Hearings
SuDoc ClassNumber: Y 4.C 73/8
Congress: House of Representatives
CHRG-115hhrg36757
| AUTHORITYID | CHAMBER | TYPE | COMMITTEENAME |
|---|---|---|---|
| hsif00 | H | S | Committee on Energy and Commerce |
[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
STATE OF THE MEDIA MARKETPLACE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 27, 2018
__________
Serial No. 115-171
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
________
U.S. GOVERNMENT PUBLISHING OFFICE
36-757 PDF WASHINGTON: 2019
COMMITTEE ON ENERGY AND COMMERCE
GREG WALDEN, Oregon
Chairman
JOE BARTON, Texas FRANK PALLONE, Jr., New Jersey
Vice Chairman Ranking Member
FRED UPTON, Michigan BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
MICHAEL C. BURGESS, Texas ELIOT L. ENGEL, New York
MARSHA BLACKBURN, Tennessee GENE GREEN, Texas
STEVE SCALISE, Louisiana DIANA DeGETTE, Colorado
ROBERT E. LATTA, Ohio MICHAEL F. DOYLE, Pennsylvania
CATHY McMORRIS RODGERS, Washington JANICE D. SCHAKOWSKY, Illinois
GREGG HARPER, Mississippi G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey DORIS O. MATSUI, California
BRETT GUTHRIE, Kentucky KATHY CASTOR, Florida
PETE OLSON, Texas JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia JERRY McNERNEY, California
ADAM KINZINGER, Illinois PETER WELCH, Vermont
H. MORGAN GRIFFITH, Virginia BEN RAY LUJAN, New Mexico
GUS M. BILIRAKIS, Florida PAUL TONKO, New York
BILL JOHNSON, Ohio YVETTE D. CLARKE, New York
BILLY LONG, Missouri DAVID LOEBSACK, Iowa
LARRY BUCSHON, Indiana KURT SCHRADER, Oregon
BILL FLORES, Texas JOSEPH P. KENNEDY, III,
SUSAN W. BROOKS, Indiana Massachusetts
MARKWAYNE MULLIN, Oklahoma TONY CARDENAS, California
RICHARD HUDSON, North Carolina RAUL RUIZ, California
KEVIN CRAMER, North Dakota SCOTT H. PETERS, California
TIM WALBERG, Michigan DEBBIE DINGELL, Michigan
MIMI WALTERS, California
RYAN A. COSTELLO, Pennsylvania
EARL L. ``BUDDY'' CARTER, Georgia
JEFF DUNCAN, South Carolina
______
Subcommittee on Communications and Technology
MARSHA BLACKBURN, Tennessee
Chairman
LEONARD LANCE, New Jersey MICHAEL F. DOYLE, Pennsylvania
Vice Chairman Ranking Member
JOHN SHIMKUS, Illinois PETER WELCH, Vermont
STEVE SCALISE, Louisiana YVETTE D. CLARKE, New York
ROBERT E. LATTA, Ohio DAVID LOEBSACK, Iowa
BRETT GUTHRIE, Kentucky RAUL RUIZ, California
PETE OLSON, Texas DEBBIE DINGELL, Michigan
ADAM KINZINGER, Illinois BOBBY L. RUSH, Illinois
GUS M. BILIRAKIS, Florida ANNA G. ESHOO, California
BILL JOHNSON, Ohio ELIOT L. ENGEL, New York
BILLY LONG, Missouri G.K. BUTTERFIELD, North Carolina
BILL FLORES, Texas DORIS O. MATSUI, California
SUSAN W. BROOKS, Tennessee JERRY McNERNEY, California
KEVIN CRAMER, North Dakota FRANK PALLONE, Jr., New Jersey (ex
MIMI WALTERS, California officio)
RYAN A. COSTELLO, Pennsylvania
GREG WALDEN, Oregon (ex officio)
(ii)
C O N T E N T S
----------
Page
Hon. Gus M. Bilirakis, a Representative in Congress from the
State of Florida, opening statement............................ 2
Prepared statement........................................... 2
Hon. Michael F. Doyle, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 3
Prepared statement........................................... 5
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 6
Prepared statement........................................... 7
Hon. Frank Pallone, Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 8
Prepared statement........................................... 10
Witnesses
Craig Moffett, Cofounder and Senior Research Analyst,
MoffettNathanson............................................... 12
Prepared statement........................................... 14
Answers to submitted questions............................... 133
Ian Olgeirson, Research Director, S&P Global Market Intelligence. 24
Prepared statement........................................... 26
Answers to submitted questions............................... 138
Jeff Corwin, Wildlife Biologist, Executive Producer and Host of
ABC's ``Ocean Treks,'' on behalf of Litton Entertainment....... 37
Prepared statement........................................... 39
Answers to submitted questions............................... 141
Submitted Material
Letter of September 26, 2018, from Matthew M. Polka, President
and Chief Executive Officer, American Cable Association, to
Mrs. Blackburn and Mr. Doyle, submitted by Mr. Bilirakis....... 74
Statement of the Motion Picture Association of America, Inc.,
September 27, 2018, submitted by Mr. Bilirakis................. 78
Article of February 8, 2018, ``Silicon Valley's Tax-Avoiding,
Job-Killing, Soul-Sucking Machine,'' by Scott Galloway,
Esquire, submitted by Mr. Bilirakis............................ 84
Letter of September 26, 2018, from Jonathan Schwantes, Senior
Policy Counsel, Consumers Union, to Mrs. Blackburn and Mr.
Doyle, submitted by Mr. Bilirakis.............................. 114
Letter of September 26, 2018, from Michael Fletcher, Chief
Executive Officer, RIDE Television Network, et al., to Mr.
Walden, et al., submitted by Mr. Bilirakis..................... 117
Letter, undated, from Mitch Glazier, President, Recording
Industry Association of America, to Mrs. Blackburn and Mr.
Doyle, submitted by Mr. Bilirakis.............................. 120
Letter of May 29, 2018, from Timothy Lee, Senior Vice President
of Legal and Public Affairs, Center for Individual Freedom, to
Douglas Rathbun, Competition Policy and Advocacy Section,
Antitrust Division, Department of Justice, submitted by Mr.
Scalise........................................................ 125
Letter of September 27, 2018, from Thomas A. Schatz, President,
Council for Citizens Against Government Waste, to subcommittee
chairman and ranking member, submitted by Mr. Scalise.......... 129
Statement of the National Taxpayers Union, September 27, 2018,
submitted by Mr. Scalise....................................... 131
STATE OF THE MEDIA MARKETPLACE
----------
THURSDAY, SEPTEMBER 27, 2018
House of Representatives,
Subcommittee on Communications and Technology,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to notice, at 3:02 p.m., in
room 2123, Rayburn House Office Building, Hon. Gus M. Bilirakis
presiding.
Members present: Representatives Bilirakis, Lance, Shimkus,
Scalise, Latta, Guthrie, Johnson, Long, Walden (ex officio),
Doyle, Welch, Clarke, Engel, McNerney, and Pallone (ex
officio).
Staff present: Jon Adame, Policy Coordinator,
Communications and Technology; Samantha Bopp, Staff Assistant;
Karen Christian, General Counsel; Robin Colwell, Chief Counsel,
Communications and Technology; Kristine Fargotstein, Detailee,
Communications and Technology; Sean Farrell, Professional Staff
Member, Communications and Technology; Margaret Tucker Fogarty,
Staff Assistant; Adam Fromm, Director of Outreach and
Coalitions; Elena Hernandez, Press Secretary; Tim Kurth, Deputy
Chief Counsel, Communications and Technology; Lauren McCarty,
Counsel, Communications and Technology; Brannon Rains, Staff
Assistant; Austin Stonebraker, Press Assistant; Evan Viau,
Legislative Clerk, Communications and Technology; Jeff Carroll,
Minority Staff Director; Jennifer Epperson, Minority FCC
Detailee; Alex Hoehn-Saric, Minority Chief Counsel,
Communications and Technology; Jerry Leverich III, Minority
Counsel; Jourdan Lewis, Minority Staff Assistant; Dan Miller,
Minority Policy Analyst; Kaitlyn Peel, Minority Digital
Director; and C.J. Young, Minority Press Secretary.
Mr. Bilirakis. The Subcommittee on Communications and
Technology will now come to order.
I would like to thank all our witnesses for being here.
Before recognizing myself for an opening statement, I would
like to ask unanimous consent to enter the following documents
into the record, and they are a letter from the American Cable
Association, a letter from the MPAA, an article by Scott
Galloway in Esquire, a letter from the Consumers Union, a
letter from Ride TV, and also a letter from the Recording
Industry Association of America. Thank you.
There is no objection, so ordered.
[The information appears at the conclusion of the hearing.]
OPENING STATEMENT OF HON. GUS M. BILIRAKIS, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Mr. Bilirakis. Good afternoon and welcome to today's
hearing on modern media marketplace. The goal of today's
hearing is to develop a factual record so we can be informed on
the state of the dynamic media market. The ways the consumers
interact with media and the types of content available have
changed significantly in a relatively short amount of time.
As we have worked to bring broadband to more Americans, we
have seen consumers increasingly use digital devices to enjoy
unprecedented access to a variety of content. Not only has this
resulted in more choices for consumers, but it also has led to
innovation in the media market, specifically in the digital
space.
Traditional media providers and new entrants alike have
invested heavily in digital media platforms, offering new
distribution channels to content creators. This innovation has
also led to increased competition. This helps keep prices for
content affordable for consumers. It is critical that the
committee be informed on this important topic.
And with that, I welcome all of our witnesses here today,
and I look forward to your testimony.
At this time, I yield 2 minutes to Mr. Scalise.
[The prepared statement of Mr. Bilirakis follows:]
Prepared statement of Hon. Gus M. Bilirakis
Good afternoon and welcome to today's hearing on the modern
media marketplace.
The goal of today's hearing is to develop a factual record
for the committee so we can be informed on the state of the
dynamic media market. The ways that consumers interact with
media and the types of content available to them have changed
significantly in a relatively short amount of time. As we have
worked to bring broadband to more Americans, we have seen
consumers increasingly use digital devices to enjoy
unprecedented access to a variety of content.
Not only has this resulted in more choices for consumers,
but it has also led to innovation in the media market--
specifically in the digital space. Traditional media providers
and new entrants alike have invested heavily in digital media
platforms, offering new distribution channels to content
creators. This innovation has also led to increased competition
across the board, which helps keep prices for content
affordable across a variety of platforms.
It is critical that the committee be informed on this
important topic and with that I welcome all of our witnesses
and I look forward to your testimony.
At this time, I yield 2 minutes to Mr. Scalise.
Mr. Scalise. Thank you, Mr. Chairman.
Mr. Bilirakis. My pleasure.
Mr. Scalise. I appreciate you yielding to me.
And I want to also thank Chair Blackburn for putting this
hearing together on the video marketplace.
I also want to thank our panelists for being with us today.
While this hearing will cover the media landscape as a
whole, I look forward to hearing from the panel about their
viewpoints about the video marketplace. I don't think anyone
here would disagree with the fact that the way American
families watch television has changed. The question is, do our
current laws and regulations match up with the modern
marketplace? I would argue that they don't.
Much of the legacy paid TV industry that we use today is
governed by the 1992 Cable Act when this was the smartphone.
And I think if you look at this device, it might have worked as
a smartphone back in 1992. I can't even get it to connect to a
local provider today, because things have changed. In fact, if
you compare your smartphone of 1992 when the current laws that
we are operating under were written, this is the smartphone of
today. This can do a lot more than an entire room of
microprocessors could have done in 1992.
So what you have to look at is how are consumers getting
their video. And the choices that they have have to be viewed
against the regulations in the laws that are out there. An
entirely new universe of choices for consumers has been
unlocked thanks to advances in technology and agreements
reached by companies through free-market negotiations.
So rather than continuing to settle for predetermined
outcomes based on decades-old rules, I have introduced my
legislation called the Next Generation Television Marketplace
Act, which will empower consumers by enabling a truly free
market approach to video content and leveling the playing field
across the market instead of government picking winners and
losers, which is what the case is today.
This hearing is a good starting point, Mr. Chairman, as the
committee begins its work to reauthorize STELA, which expires
at the end of next year. I will look forward to continuing my
conversations with all the relevant stakeholders in support of
a more free market and consumer-driven approach to the video
marketplace.
I look forward to the questions later, and, Mr. Chairman, I
yield back the balance of my time.
Mr. Bilirakis. I thank the gentleman from Louisiana.
And the Chair now recognizes Subcommittee Ranking Member
Mr. Doyle for 5 minutes for his opening statement.
OPENING STATEMENT OF HON. MICHAEL F. DOYLE, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Doyle. Thank you, Mr., Chairman for holding this
hearing.
And thank you to the witnesses for your testimony today.
Before I start, Mr. Chairman, I am concerned that more than
a year and a half into this Congress we are just now talking
about the state of media marketplace, and we are doing so with
a very broad brush stroke.
I don't believe that this hearing or the panel before us
will give our Members sufficient opportunity to address the
multitude of changes that have occurred since the last time we
held such a hearing. I sincerely hope that this hearing is just
the beginning of a much broader and deeper investigation into
these changes.
That issue aside, I have many concerns about the state of
the media marketplace. It seems that the only constant in the
media marketplace is change. In the video market this year, we
have seen both vertical and horizontal consolidation in the
forms of the AT&T-Time Warner, and Disney-21st Century Fox
mergers.
We have also seen the continued trend of consumers cutting
the cord on traditional paid TV options as they embrace the
over-the-top options, such as Netflix, Amazon Prime, as well as
virtual MVPD options, such as Sling TV, PlayStation Vue, and
others. These new options often provide consumers with greater
choice and lower prices.
Virtual MVPDs offer the added benefit of finally letting
consumers provide their own set-top box, freeing consumers from
hundreds of dollars a year in fees and eliminating a
particularly annoying paying point for video subscribers.
However, the advances in this market are threatened by the
FCC's repeal of net neutrality rules. ISP slowed over-the-top
services such as Netflix in the run-up to the 2015 rules. And
it was only due to the public outcry and the rules that were
put in place under Chairman Wheeler that enabled Netflix and
other streaming players to end the slowdowns they were
experiencing.
These rules provided the regulatory certainty for other
players, such as PlayStation Vue, to enter this market knowing
full well they would be competing directly with MVPDs over
their own broadband connections. Since Chairman Pai took over
at the FCC, he has repealed the Commission's net neutrality
rules and ended the investigation into anticompetitive zero
rating practices by ISPs.
In the wake of these decisions, multiple ISPs have taken to
zero rating their own video streaming products while forcing
consumers to use data from their limited data plans. As Mr.
Moffett points out in his testimony, many of these new players
operate at a loss. These new entrants are then forced to
compete against ISPs that are giving their own services an
unfair advantage. These practices by ISPs do not incentivize
innovation or competition, and they are not in the public
interest.
While I am encouraged by this nascent market, I believe
that Congress should be examining how these markets have been
affected by the regulatory vacuum created by the FCC's actions
in far more depth and with the affected stakeholders.
I would like to shift to the market for over-the-air
television, including a slew of harmful regulatory changes by
the FCC. From reinstating the UHF discount, to eliminating the
main studio role, these changes undercut our commitment to
localism and only serve to circumvent congressionally set
broadcast ownership limits. I fear that despite Sinclair's
failed merger that these changes will continue to negatively
affect the broadcast market for years to come.
Now, the Commission is contemplating making changes to
broadcasters' obligations under the Children's Television Act.
These rules, otherwise known as Kid Vid, require broadcasters
to air children's programming weekly. The Commission is
claiming that these rules that have led to the creation of
thousands of hours of high-quality, safe, educational
programming can be tossed out the window without harmful
consequences.
I am glad that we have Jeff Corwin here testifying
regarding these proposed changes. It seems to me that the
Commission's proposal could have a devastating affect on the
creation of new children's television content and should be
looked at with great skepticism. I believe that much more
examination of these issues is warranted by this committee.
Mr. Chairman, I thank you and I look forward to the
testimony of our witnesses. And I yield back.
[The prepared statement of Mr. Doyle follows:]
Prepared statement of Hon. Michael F. Doyle
Thank you, Mr. Chairman, for holding this hearing, and
thank you to the witnesses for your testimony today.
Before I start, Mr. Chairman, I'm concerned that more than
a year and a half into this Congress we are just now talking
about the state of the media marketplace, and we are doing so
with a very broad brush stroke. I don't believe that this
hearing or the panel before us will give our Members sufficient
opportunity to address the multitude of changes that have
occurred since the last time we held such a hearing. I
sincerely hope that this hearing is just the beginning of a
much broader and deeper investigation into these changes.
That issue aside, I have many concerns about the state of
the media marketplace
It seems that the only constant in the is change.
In the video market, this year we have seen both vertical
and horizontal consolidation in the forms of the AT&T-Time
Warner and Disney-21st Fox mergers. We have also seen a
continued trend of consumers cutting the cord on traditional
pay TV options as they embrace over the top options such as
Netflix, Amazon Prime, as well as virtual MVPD options such as
Sling TV, PlayStation Vue, and others.
These new options often provide consumers with greater
choice and lower prices. Virtual MVPDs offer the added benefit
of finally letting consumers provide their own set top box,
freeing consumers from hundreds of dollars a year in fees, and
eliminating a particularly annoying pain point for video
subscribers.
However, the advances in this market are threatened by the
FCC's repeal of Net Neutrality rules.
ISPs slowed over the top services such as Netflix in the
run up to the 2015 rules, and it was only due to the public
outcry and the rules that were put in place under Chairman
Wheeler that enabled Netflix and other streaming players to end
the slow downs they were experiencing.
These rules provided the regulatory certainty for other
players, such as PlayStation Vue, to enter this market, knowing
full well they would be competing directly with MVPDs over
their own broadband connections.
Since Chairman Pai took over at the FCC, he has repealed
the Commission's Net Neutrality rules and ended the
investigation into anti-competitive zero-rating practices by
ISPs. In the wake of these decisions multiple ISPs have taken
to zero-rating their own video streaming products while forcing
consumers to use data from their limited data plans.
As Mr. Moffet points out in his testimony, many of these
new players operate at a loss. These new entrants are then
forced to compete against ISPs that are giving their own
services an unfair advantage. These practices by ISPs do not
incentivize innovation or competition and are not in the public
interest.
While I am encouraged by this nascent market, I believe
that Congress should be examining how these markets have been
affected by the regulatory vacuum created the FCC's actions in
far more depth and with the affected stakeholders.
I'd like to shift to the market for over the air
television, including a slew of harmful regulatory changes by
the FCC. From reinstating the UHF discount to eliminating the
main studio rule, these changes under cut our commitment to
localism and only serve to circumvent Congressionally set
broadcast ownership limits. I fear that despite Sinclair's
failed merger, that these changes will continue to negatively
affect the broadcast market for years to come.
Now, the Commission is contemplating making changes to
broadcaster's obligations under the Children's Television Act.
These rules, otherwise known as Kid Vid, require
broadcasters to air children's programming weekly.
The Commission is claiming that these rules, that have led
to the creation of thousands of hours of highly quality safe
educational programing, can be tossed out the window, without
harmful consequences.
I'm glad that we have Jeff Corwin here testifying regarding
these proposed changes. It seems to me that the Commission's
proposal could have a devastating effect on the creation of new
children's television content and should be looked at with
great skepticism.
I believe that much more examination of these issue is
warranted by this committee.
Thank you and I look forward to the testimony of our
witnesses.
Mr. Bilirakis. I thank the gentleman from Pennsylvania.
I now recognize the chairman of the full committee, Mr.
Walden, for 5 minutes for his opening statement.
OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Walden. Well, thank you, Mr. Chairman. Thanks for
having this hearing.
I want to welcome our witnesses as well to talk to us about
the rapidly changing state of the media marketplace. It goes
without saying, the consumers in 2018 have unprecedented access
to high-quality media content. From the smartphones in their
pockets Americans can watch hours of television programming and
YouTube videos, stream millions of songs and podcasts, and
pursue endless hours of content all over social media. My, how
things have changed.
New platforms in variety and content have changed the way
consumers spend their time and money, and the industry is
responding to those consumers accordingly. The Energy and
Commerce Committee has long conducted oversight on this topic,
and a lot has changed over the years.
In fact, in 2007, this committee held a media marketplace
hearing, and the topics of discussion were the DTV transition
and traditional media platforms transitioning to access on the
internet. I think we also talked about coupons then too, so you
could buy that little box.
That same year Netflix announced the launch of a streaming
service to compete with Blockbuster. That was the Nation's
largest provider of video rentals at the time. Well, fast
forward to 2018. More people watch Netflix than any other cable
network, and Blockbuster has closed nearly every one of its
stores.
I say nearly every one of its stores, because there is one
remaining Blockbuster store in America, and it happens to be in
my district in Bend, Oregon. But wait, it could be pure
coincidence--I will defer to our expert witnesses--but this
Blockbuster store also brews beer. So talk about a new business
model in the video marketplace.
So and it is not just the video marketplace that has
transformed. In the early 2000s, revenue from online music
streaming was just a few million dollars. In 2017 Spotify alone
reported almost $5 billion in revenue and on-demand audio
streaming now accounts for 54 percent of total audio
consumption.
Ten years ago smartphones were new to the market, and
Americans largely used their mobile devices for calling and
texting. I wasn't here, but you have still got your brick
phone, right. It is kind of amazing Scalise still uses that and
hasn't gone to one of these.
The deployment of modern wireless technology revolutionized
the smartphone market, and today Americans spend on average
about 3 hours a day on these mobile devices. Nearly every
network, national newspaper, major radio station has an app,
and consumers have access to content anywhere anytime.
Changes in how we interact with media have caused a ripple
effect on other industries as well. For example, the rise of
over-the-top video streaming services has resulted in dramatic
increases in demand for both fixed and mobile high-speed
broadband. Online video consumption made up 69 percent of
global internet traffic in 2017, and that number is expected to
increase to 80 percent by next year.
Changing consumer habits have also had a profound effect on
the advertising industry. Ten years ago marketers used digital
platforms to interact with potential customers, but advertising
dollars were primarily spent on traditional platforms.
Today brands are investing more than a third of their
advertising budgets in the digital space, while print and radio
account for less than 10 percent of total ads spent. Much of
this shift can be attributed to mobile and social media ads.
Nonexistent 15 years ago, combined advertising through
these mediums are expected to reach $55 billion in 2019. Now,
we have seen unprecedented concentration in this ad space. In
2017 Google and Facebook dominated the U.S. digital market,
taking a combined 63 percent of total ad investment. In the
U.S. no other digital ad platform has a market share above 5
percent. All signs indicate this duopoly will continue to
dominate this market.
While the rise of digital platforms will threaten
traditional business models, there is no denying that evolving
consumer habits and new market entrants have fueled a fiercely
competitive media market. The largest traditional TV networks
invest up to 10 billion a year in nonsports programming, and
billions of dollars of venture capital have been invested in
content creation for online platforms. So it is an exciting
time as a consumer. It can be an uncertain time if you are in
the business. We have an excellent panel of witnesses, and I
appreciate you being here.
You know, I was talking to some people the other day and
they were asking about what time some show came on television.
And for their kids, there is no such thing as a time something
comes on. They just click on their iPad and there it is. And I
remember going to a video conference, a video futures
conference the NAB had back in 2004, I believe, and they talked
about time shifting and how Walter Cronkite may not come on
just at, you know, dinner time. You could get him anytime. And
that was sort of out of the realm of possibility to our
thinking then, and now we just get the news whenever we want
it, on whatever platform we happen to have with us.
So lots has changed. Our job is to make sure that internet
works and that people have connectivity, and we have done a lot
in this committee to make that happen as well.
Mr. Chairman, thank you for having this hearing. I yield
back.
[The prepared statement of Mr. Walden follows:]
Prepared statement of Hon. Greg Walden
Good afternoon, and thank you to our witnesses for joining
us today to talk about the rapidly changing state of the media
marketplace. It goes without saying that consumers in 2018 have
unprecedented access to high-quality media content. From the
smartphones in their pockets, Americans can watch hours of TV
programming and YouTube videos, stream millions of songs and
podcasts, and peruse endless hours of content on social media.
New platforms and variety in content have changed the way
consumers spend their time and money, and the industry is
responding accordingly.
The Energy and Commerce Committee has long conducted
oversight on this topic, and a lot has changed over the years.
In 2007, this committee held a media marketplace hearing and
the topics of discussion were the DTV transition and
traditional media platforms transitioning to access on the
internet. That same year, Netflix announced the launch of its
streaming service to compete with Blockbuster, the Nation's
largest provider of video rentals at the time.
Fast forward to 2018, more people watch Netflix than any
other cable network, and Blockbuster has closed nearly every
one of its stores. I say nearly every one of its stores because
there is one remaining Blockbuster in America and it happens to
be in my district in Bend, OR. It could be pure coincidence,
I'll defer to our expert witnesses, but this Blockbuster also
brews its own beer. Talk about new business models in the video
marketplace.
And it's not just the video market that has transformed. In
the early 2000s, revenue from online music streaming was just a
few million dollars. In 2017, Spotify alone reported almost $5
billion in revenue. On-demand audio streaming now accounts for
54 percent of total audio consumption.
Ten years ago, smartphones were new to the market and
Americans largely used their mobile devices for calling and
texting. The deployment of modern wireless technology
revolutionized the smartphone market, and today Americans spend
on average about 3 hours a day on their mobile devices. Nearly
every network, national newspaper, and major radio station has
an app, and consumers have access to content anywhere, anytime.
Changes in how we interact with media has caused a ripple
effect that impacts other industries. For example, the rise of
over-the-top video streaming services have resulted in dramatic
increases in demand for both fixed and mobile high-speed
broadband. Online video consumption made up 69 percent of
global internet traffic in 2017, and that number is expected to
increase to 80 percent by the end of 2019.
Changing consumer habits have also had a profound effect on
the advertising industry. Ten years ago, marketers used digital
platforms to interact with potential customers, but advertising
dollars were primarily spent on traditional platforms. Today,
brands are investing more than a third of their advertising
budgets in the digital space, while print and radio account for
less than 10 percent of total ad spend. Much of this shift can
be attributed to mobile and social media ads. Nonexistent 15
years ago, combined advertising through these mediums are
expected to reach $55 billion in 2019.
We have also seen unprecedented concentration in the ad
space. In 2017, Google and Facebook dominated the U.S. digital
market, taking in a combined 63 percent of total ad investment.
In the U.S., no other digital ad platform has market share
above 5 percent, and all signs indicate that this duopoly will
continue to dominate the market.
While the rise of digital platforms have threatened
traditional business models, there is no denying that evolving
consumer habits and new market entrants have fueled a fiercely
competitive media market. The largest traditional TV networks
invest upwards of $10 billion per year in nonsports
programming. And billions of dollars of venture capital have
been invested in content creation for online platforms.
While this is an exciting time for consumers, it can be an
uncertain time for traditional media. We have an excellent
panel of witnesses today who have followed the media market for
decades, and I look forward to hearing their testimony.
Mr. Bilirakis. Thank you, Mr. Chairman.
And I will now recognize the ranking member of the full
committee, Mr. Pallone, for 5 minutes for his opening
statements.
OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Mr. Chairman.
The way Americans consume media and the variety of content
available to them has grown significantly over the past decade.
In addition to traditional television and radio, consumers are
using their phones, computers, smart speakers, and tablets to
access a variety of programs, podcasts, and videos. And today
anyone can become a producer of content. Over 400 hours of
video are uploaded to YouTube every minute, and over 1 billion
hours are viewed every day.
Last week a woman in DC posted on Twitter a short video of
Marines running to help residents in an apartment fire a few
blocks from here. News organizations quickly started using the
clip in their on-air stories, and 2 days later the footage was
used by the Marines in a tweet about the heroic efforts. And
this is the dynamic world that we live in today.
But at the same time, it is important to remember that not
everyone has equal access to the latest technology. It is too
easy to focus on the benefits of broadband new media and
multitude of cable and satellite TV channels and forget how
many people lack access to such opportunities, and this
includes lower-income families and seniors.
According to the FCC Commission's 2017 media industry
report, 11 percent of television households relied exclusively
on over-the-air broadcast service. That is 12.4 million
households, 1 million more than the year before. According to
the National Association of Broadcasters, over-the-air reliance
is higher among low-income families, and for these families
paying for cable may take a backseat to feeding their kids.
Meanwhile, broadband, which is necessary to access a
growing wealth of educational, social, and entertainment
content, also faces an economic and age divide. According to
Pew Research Center, only 45 percent of people making less than
$30,000 and 50 percent of people 65 and over are home broadband
users. Even when you add mobile broadband users the significant
device still exists both in adoption and the quality of the
experience.
So as good as smartphones are, they don't provide the same
functionality or experience as a large screen divide. The
Communications Act focuses on certain timeless principles when
it comes to media, and those are localism, diversity, and
competition.
In the modern age, broadband access should be added to that
list. Whether it is watching videos for school projects, taking
educational courses at home, engaging with friends and family,
applying for a job, or utilizing government resources,
broadband is becoming a necessity for all Americans. And having
broadband available in your neighborhood isn't enough.
Consumers should be able to afford the cost of the service and
equipment necessary to use the tools of the 21st century.
Unfortunately, the current FCC has been actively
undermining these principles for Americans. Chairman Pai
eliminated the FCC net neutrality rules which protected
consumers, small businesses, and free speech. Net neutrality
protected competition and access to the media content which is
the focus of this hearing.
But those protections are gone now. Chairman Pai also
proposed to roll back the Lifeline program in a way that could
cut phone or internet service for approximately 8.3 million
people. And Chairman Pai's actions are not the way to promote
access, localism, diversity, and competition.
In the area of media ownership Chairman Pai sided with
corporations over consumers and loosened TV ownership rules in
ways that undermined competition. The changes encourage more
consolidation and less local and diverse viewpoints. And I
encourage the FCC to change course and focus on what is
important to consumers.
For example, the FCC should rethink its bizarre--and I say
bizarre--proposal to unwind its safeguards designed to protect
children watching broadcast television known as the Kid Vid
rules. The rules require that broadcasters provide 3 hours of
quality education program per week on their free over-the-air
service. And 3 hours out of the 105 hours of core program in a
week, I mean, is that too much to ask? Apparently Chairman Pai
and Commissioner O'Rielly think so.
For the 12 million over-the-air households without access
to cable programming, I don't think so. For the millions of
low-income families without access to broadband alternatives, I
don't think so. And I appreciate Jeff Corwin being here today
to discuss his experience producing children's programming and
the impact the elimination of the Kid Vid rules would have on
broadcast children's programming.
And I also want to thank our other witnesses for appearing
before us to discuss the changing media market.
And I yield back at this point, Mr. Chairman.
[The prepared statement of Mr. Pallone follows:]
Prepared statement of Hon. Frank Pallone, Jr.
The way Americans consume media and the variety of content
available to them has grown significantly over the past decade.
In addition to traditional televisions and radios, consumers
are using their phones, computers, smart speakers, and tablets
to access a variety of programs, podcasts, and videos.
And today anyone can become a producer of content. Over 400
hours of video are uploaded to YouTube every minute and over 1
billion hours are viewed every day.
Last week, a woman in DC posted on Twitter a short video of
Marines running to help residents in an apartment fire a few
blocks from here. News organizations quickly started using the
clip in their on-air stories, and two days later, the footage
was used by the Marines in a tweet about their heroic efforts.
This is the dynamic world that we live in today.
At the same time, it is important to remember that not
everyone has equal access to the latest technology. It is too
easy to focus on the benefits of broadband, new media, and
multitude of cable and satellite TV channels and forget how
many people lack access to such opportunities. This includes
lower income families and seniors.
According to the Federal Communications Commission's 2017
media industry report, 11 percent of television households
relied exclusively on over-the-air broadcast service. That is
12.4 million households, a million more than the year before.
According to the National Association of Broadcasters, over-
the-air reliance is higher among lower-income homes. For these
families, paying for cable may take a backseat to feeding their
kids.
Meanwhile, broadband, which is necessary to access a
growing wealth of educational, social, and entertainment
content, also faces an economic and age divide. According to
Pew Research Center, only 45 percent of people making less than
$30,000 and 50 percent of people 65 and over are home broadband
users. Even when you add mobile broadband users, a significant
divide still exists both in adoption and the quality of the
experience.
As good as smartphones are, they don't provide the same
functionality or experience as a large screen device.
The Communications Act focuses on certain timeless
principles when it comes to media: localism, diversity and
competition. In the modern age, broadband access should be
added to that list. Whether it is watching videos for school
projects, taking educational courses at home, engaging with
friends and family, applying for a job, or utilizing government
resources, broadband is becoming a necessity for all Americans.
And having broadband available in your neighborhood isn't
enough. Consumers should be able to afford the cost of the
service and equipment necessary to use the tools of the 21st
century.
Unfortunately, the current FCC has been actively
undermining these principles for Americans.
Chairman Pai eliminated the FCC net neutrality rules, which
protected consumers, small businesses and free speech. Net
neutrality protected competition and access to the media
content at the focus of this hearing. But those protections are
gone now. Chairman Pai also proposed to rollback the Lifeline
program in a way that could cut phone or internet service for
approximately 8.3 million people. Chairman Pai's actions are
not the way to promote access, localism, diversity, and
competition.
In the area of media ownership, Chairman Pai sided with
corporations over consumers and loosened television ownership
rules in ways that undermine competition. The changes encourage
more consolidation and less local and diverse viewpoints. I
encourage the FCC to change course and focus on what is
important to consumers.
For example, the FCC should rethink its bizarre proposal to
unwind its safeguards designed to protect children watching
broadcast television, known as the Kid Vid rules. The rules
require that broadcasters provide three hours of quality,
educational programming per week on their free, over-the-air
service. Three hours out of the 105 hours of core programming
in a week. Is that too much to ask? Apparently, Chairman Pai
and Commissioner O'Rielly think it is.
For the 12 million over-the-air households without access
to cable programming, I don't think so. For the millions of
low-income families without access to broadband alternatives, I
don't think so.
I appreciate Jeff Corwin being here today to discuss his
experience producing children's programming and the impact the
elimination of the Kid Vid rules would have on broadcast
children's programming.
I also thank our other witnesses for appearing before us to
discuss the changing media marketplace, and I yield back.
Mr. Bilirakis. The Chair thanks the ranking member.
That concludes Member opening statements.
The Chair would like to remind Members that, pursuant to
the committee rules, all Members' opening statements will be
made part of the record.
So we want to thank all of our witnesses here today for
being here. We appreciate you taking the time to testify before
the subcommittee.
Today's witnesses will have the opportunity to give opening
statements followed by a round of questioning from the Members.
Our panel for today's hearing will include Mr. Craig
Moffett, who is the founder and senior research analyst at
MoffettNathanson Research. Welcome, sir.
Next we have Mr. Ian Olgeirson, research director at Kagan,
a media research group, within S&P Global Market Intelligence.
Welcome, sir.
And next we have Mr. Jeff Corwin, wildlife biologist and
executive producer of ABC's ``Ocean Treks,'' here on behalf of
Litton Entertainment. Welcome, sir.
We appreciate you all being here today and for preparing
testimony for the committee.
We will begin with you, Mr. Moffett, and you are recognized
for 5 minutes for purposes of an opening statement. Thank you.
STATEMENTS OF CRAIG MOFFETT, COFOUNDER AND SENIOR RESEARCH
ANALYST, MOFFETTNATHANSON; IAN OLGEIRSON, RESEARCH DIRECTOR,
S&P GLOBAL MARKET INTELLIGENCE; AND JEFF CORWIN, WILDLIFE
BIOLOGIST, EXECUTIVE PRODUCER AND HOST OF ABC'S ``OCEAN
TREKS,'' ON BEHALF OF LITTON ENTERTAINMENT
STATEMENT OF CRAIG MOFFETT
Mr. Moffett. Thank you. And thank you, Chairwoman Blackburn
and Ranking Member Doyle and members of the subcommittee, for
the opportunity to appear today.
My name is Craig Moffett. I am the founder of
MoffettNathanson. It is a media and telecommunications research
firm. I want to emphasize, my personal focus is the physical
distribution side of media, that is cable operators, satellite
operators, and telephone companies that operate the physical
infrastructure for media distribution. I have spent 30 years in
those industries. I won't go through my bio, but it is
appended.
One of the most popular aphorisms in media is that the
media industry has seen more change in the past 5 years than it
had in the previous 50. Never mind whether that is accurate, it
is a call to action, and as a call to action it is a pretty
good one. The argument being change or be left behind.
But before getting too breathless about how revolutionary
all of this is, I want to focus my remarks on two of the most
important trends: The emergence of so-called virtual MVPDs, and
also the trend toward vertical integration like AT&T and Time
Warner through a decidedly less revolutionary lens, and that is
microeconomics.
I want to start with the emergence of the MVPDs. The appeal
of cord cutting is simple: It is cheaper. And some might argue
that it is also about greater consumer control or a step toward
a la carte, but the real appeal is simpler than that. A bundle
of cable networks from an MVPD with a handful of set-top--or
from a traditional cable operator with a handful of set-top
boxes can typically cost about $100 a month, and the most
popular MVPD packages are typically about 40.
The problem here is that the programming itself doesn't
cost any less to produce just because it is being delivered
over the internet, nor is it any cheaper for the aggregator, in
this case a virtual MVPD, to buy the content from the content
creator. In fact, virtual MVPDs usually pay more for their
content, nor is it any cheaper to deliver by virtue of being
delivered over the internet instead of so-called linear cable.
Remember, the underlying infrastructure remains precisely
the same. And in most cases it doesn't even avoid the need for
a set-top box. It simply shifts the set-top box from the
traditional provider to someone like Apple or Roku.
When there is no underlying technology or business model
reason why the new service is cost advantage relative to an old
one, it pays to be wary. But that said, services themselves are
actually cheaper, so the obvious question is why. Partly it is
because the packages are smaller, but mostly it is because
these services are being sold to the consumer at zero or
negative profit margin.
There is an old saying among economists that when something
is unsustainable it will eventually stop, and I guess the real
question as we observe this as economists is whether the
practice of selling these services for a loss will actually
turn out to be sustainable.
But it is clear that all of this is about keeping pace with
Google and Facebook. Their modernization model for these new
services is not to make money on selling video but to make
money on selling advertising.
It suggests that we are likely to see one of two outcomes:
Either Google and Facebook will come to dominate video
distribution in a model that is based on highly targeted
advertising, and that raises obvious questions about privacy;
or the prices of virtual MVPDs will rise significantly to
become self-sustaining, and in the process these distinctions
between old and new won't look at significant.
A few remarks on the other trend that I mentioned shaking
the media business, and that is vertical integration. There has
been widespread speculation that we will see a wave of vertical
integration to follow Comcast acquisition of NBCU in 2010, and
that speculation has obviously only grown with AT&T's
acquisition of DirecTV in 2015 and now, of course, Time Warner.
It is important to view the trend toward vertical
integration through the lens of broader migration of what I
would refer to as--to closed-media systems and consider where
that is likely to take us. Closed systems dominate almost every
important aspect of digital life today. Apple is a closed
system once written off for dead versus PCs, but it is now an
IOS universe. Facebook is a closed system, so is Uber and
Google.
And what we are seeing in the media business is a migration
toward closed systems where someone like Facebook produces--
sorry, someone like Netflix produces all their own content and
sells it to their own consumers and in the process requires
enormous scale to advertise risk.
I would suggest that that appears to be where we are headed
with the digital platforms. And the real question will become
for the traditional media companies, are they forced to go in
the same direction, and if so, these ideas where every cable
network, for example, is made available to every distribution
platform will be very difficult to sustain in the face of the
emergence of these kind of very large closed systems like
Netflix, like what could potentially be Amazon and others.
I will leave my remarks there given the time.
[The prepared statement of Mr. Moffett follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Bilirakis. Thank you. I appreciate that very much. So
thank you, Mr. Moffett.
And now I will recognize Mr. Ian Olgeirson for 5 minutes
for your opening statement.
STATEMENT OF IAN OLGEIRSON
Mr. Olgeirson. Thank you.
Chairman Bilirakis and Ranking Member Doyle, thank you for
inviting me to speak today. I am grateful for the opportunity
to share information for this hearing. My name is Ian
Olgeirson, and I am an industry analyst with Kagan, a media
research group within S&P Global Market Intelligence. We
provide market commentary, industry benchmarks, and analysis
with a particular focus on the changing media landscape.
I have been analyzing the U.S. multichannel market for
nearly 20 years. In that period we have seen online
distribution fundamentally alter how consumers access content.
Alternatives to legacy distribution for video and audio have
clearly altered business models as well, and the corporate
landscape is shifting in pursuit of increased scale.
A pair of recent events nicely illustrate the movement.
Comcast's premium bid for Sky in the U.K. and Amazon's much
more subtle enhancement of its Fire TV recast streaming media
player in very different ways offer insight into the direction
of media. Legacy providers like Comcast and AT&T are doubling
down for increased scale on delivery and content, while
innovators are giving consumers greater access and control of
programming outside of those traditional subscription offers.
While the majority of U.S. households still maintain a
traditional multichannel subscription through a cable, telco,
or satellite service, often referred to as MVPDs, online
alternatives have eroded the value of the classic, big
subscription package driving declines in overall subscribers.
Traditional multichannel subscriptions have fallen from their
peak levels of nearly 102 million in 2012 to fewer than 94
million at the end of 2017. Those figures have continued to
decline in the first half of 2018.
The percentage of occupied households with a traditional
subscription have declined to less than 72 percent, down from a
high point of 85 percent recorded in 2009. Virtual multichannel
services, sometimes referred to as vMVPDs have risen
considerably since 2015 offering a thinner package of channels.
These services, including DirecTV Now, Sling TV, and Hulu with
live TV blur the lines between online and traditional services.
But it is clear that consumers looking for alternatives have
never had more options.
At the fore is the programming muscle of Netflix and Amazon
Prime video and the swelling investment in original and
acquired content. The investment paves the way for consumers to
find alternatives with increasingly fewer sacrifices.
However, the legacy providers do have substantial
fortifications, including size and reach. There are significant
interdependencies with networks and other content, including
outright ownership. And in the case of wire line services, they
own critical broadband infrastructure. As a result the video
market is still in the early to mid stages of a complex process
that shouldn't be over simplified.
Thank you for the opportunity to provide this statement. I
welcome any questions you might have.
[The prepared statement of Mr. Olgeirson follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Bilirakis. Thank you very much, Mr. Olgeirson.
Now we will hear from Mr. Jeff Corwin. You are recognized
for 5 minutes, sir, for your opening statement.
STATEMENT OF JEFF CORWIN
Mr. Corwin. Thank you for having more. I truly appreciate
it.
Millions of parents, educators, and children rely on the
content protected by the Children's Television Act as their
most trusted outlet for educational and informational
programming. There is an effort underway to dismantle one of
the most important public service obligations Congress placed
on broadcasters as a condition for their license serving the
needs of children.
I speak today not just as a biologist, as a
conservationist, explorer, and a father, but also as one of
those kids who has benefited from those programs. When I was
growing up my dad worked as a printer by day, delivered Dunkin'
Donuts at night, and took classes to become a Boston police
officer, for which he served proudly for more than 35 years.
My mom worked as a registered nurse at Quincy City Hospital
putting herself through school as well. So my sister and I, we
spent a lot of our time in our triple decker with our black and
white TV becoming a bit of a de facto babysitter. Shows like
``Wild Kingdom'' with Marlin Perkins had a powerful impact on
introducing me to the natural world and influencing my own
life's journey.
The TV programs that we make are loaded with that same
inspiration germinating the next generation of innovators,
educators, engineers, entrepreneurs, and leaders like
yourselves.
I have had the good fortune to spend the last 20 years
working on shows around the world for Disney, Discovery, Food
Network, Animal Planet, CNN. But I am most proud of the work
that I have done with CTA.
As we know, our children are naturally curious. They thirst
for learning. And our mission is to feed that innate passion,
thus inspiring these children to have rewarding and productive
futures, which ultimately contributes to our society.
Litton's educational programs received more than 1.5
billion views just last year, and this motivates future leaders
and visionaries, and many of these begin as children in rural
America or in urban environments, often without access to
internet technologies. Some of them are, of course, kids that
are at-risk teens.
The CTA has spurred a virtual classroom filled with a
credible teachers and experts that engage millions of children
every week, and we do so with enthusiasm, compassion, humor,
and this deepens the learning experience. We choose, we intend
our mission is to produce television for teens. We believe
providing teens and their families with safe, educational, and
inspirational content is vital.
Today when social media and celebrity are often considered
more valuable than education and innovation and when teens are
only a single click away from the digital unknown, this
programming is more critical than ever. We fear that if the Kid
Vid NPRM is not rectified, stations will no longer dedicate
time serving our children and shows like mine, ``Ocean Treks''
on ABC, will be replaced with infomercials such as My Pillow
dot com.
However, we are confident that there is a way for the FCC
to provide flexibility for broadcasters without diminishing the
quality of programming and Congress'--your commitment to our
children.
While we support efforts that lessen the burdens on
television stations, we strongly oppose broadcasters move to
take the EI programming multicast channel as our primary mode
of distribution and rolling back the 3-hour rule. Multicast
viewership is 95 percent less programming carried compared to
the primary program stream. Without those viewers, we offer no
value to our sponsors and to our advertisers.
For example, on the main screen primary format a commercial
would sell for $2,500. On the multicast channel that commercial
is reduced to $25. Congress charge broadcasters with offering
educational content for children. In order to stay true to this
mission, we must keep our program current. Simple, but if we
move the educational program to multicast, original programming
will come to an end. It will cease to exist. Our virtual
classroom will be obsolete.
Broadcast television is uniquely powerful and can be a
beacon for inspiration and enlightenment. I ask you just 2
percent of broadcast time. Is that too much to ask to provide
for our children?
When Mr. Rogers was here 50 years ago, he discussed the
impact that media is having on children, way back then in 1969.
Imagine if he was here today what he would witness with the
impact of media, which is why the program we deliver is so
vitally important.
I thank you so much for your time today. And I look forward
to your questions.
[The prepared statement of Mr. Corwin follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Bilirakis. Thank you.
And I thank all the witnesses for their testimony today.
And before I begin questioning, I would like to ask
unanimous consent to enter the following documents into the
record for Mr. Scalise: a letter for the Center for Individual
Freedom, Council for Citizens Against Government Waste, and a
press release from the National Taxpayers Union.
Without objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Bilirakis. Now I would like to begin my questioning.
The first question will be for Mr. Olgeirson. It is very clear
that consumers have many different options to get their video
content. Can you talk a little bit about how the market is
impacted by generational viewing habits? For example, my
district is home to many seniors in retirement. Are there
certain age groups that are deriving subscriber growth or
subscriber losses? I know that the youth is probably number
one, but if you can explain, I would appreciate it very much.
Mr. Olgeirson. Sure. So I think that it is difficult to
ascribe a specific demographic to the people that are leaving
the multichannel environment. The common wisdom is that it is
younger people, and that part of the decline of multichannel
has to do with younger people leaving a multichannel service
and the other part has to do with the fact that they are not
fueling new subscribers as older subscribers turn off.
We have seen certainly evidence, survey evidence of younger
people embracing over-the-top video more frequently than older
people. If we look at a recent survey, it shows that the
seniors sort of over 72 years old tend to be more engaged with
multichannel services. They tend to be less engaged with the
subscriber VOD services like Netflix, and so we certainly have
that evidence.
We have also seen that both younger generations like Gen Z
and Millennials tend to be about the same--have the same
satisfaction rate with their multichannel services as seniors,
which is an interesting fact, an interesting finding. But
seniors seem to find more value within those multichannel
services. So we have seen a senior class that tends to stay
closer to the multichannel services than their younger
demographics.
Mr. Bilirakis. I thank you. A followup here, how are
content creators and video providers adapting to these changes?
Mr. Olgeirson. Are they adapting to the changes?
Mr. Bilirakis. How are they adapting to these changes?
Mr. Olgeirson. Well, I think that we have certainly seen
the multichannel service providers like Comcast, Charter
integrating their own access to over-the-top features. We have
seen them introduce on a limited basis their own skinny
bundles. Comcast has its instant TV initiative, which is meant
to look and feel similar to virtual service like a Hulu with
live TV.
So we have seen that. They have invested in improved user
interfaces to try to match some of the functionality that they
get from Netflix. So we have seen a variety of different
offerings from operators.
Mr. Bilirakis. Thank you.
My next question is for Mr. Moffett. You talked in your
testimony about a transition to closed media with more and more
content owners moving to a closed system like Netflix or Hulu.
But consumers must have individual subscriptions with all of
these providers--that is correct, right?--which leads to the
question of subscription fatigue. Do you have any thoughts on
this, how the industry can respond to the overload of
subscriptions as we move to a closed system?
Mr. Moffett. Mr. Chairman, it is a fantastic question, and
the answer is, I think the entire industry writ large is
grappling with exactly that question. You know, Disney, for
example, has talked about an expectation that they will
increasingly be a direct-to-consumer company. HBO is
increasingly or, in fact, arguably always has been to some
degree a direct-to-consumer company as is to a degree Showtime.
But all of them are, in effect, aiming at becoming direct-
to-consumer platforms that will increasingly look like closed
systems, as, by the way, will Netflix where Netflix is
licensing less content certainly as a share of its total
business from others and producing more and more of it
themselves.
So the question of what the future looks like, it is very
hard for us to get our heads around the idea that we might have
a model where at AT&T, for example, the only way you would be
able to get CNN is if you were a subscriber to an AT&T platform
and you ended up with an exclusivity platform like that.
Or the only way you could get NBC would be to be a
subscriber to Comcast, and that if you had to choose between
the two, it would mean I am either going to have one or the
other, because adding them together may be rather unwieldy.
That is so different than the model that we have all grown
up with that most people find it to be almost unimaginable.
But, in effect, all of the competitors of the traditional
companies are going in that direction, and so what the
traditional companies are struggling with is are we going to be
forced to go in that direction as well. And I don't think
anybody has a good answer yet for what that looks like, how
many subscriptions the average person is likely to be willing
to bear. Those are all very, very open questions at this point.
Mr. Bilirakis. All right. Thank you very much. My time has
expired.
Now I yield 5 minutes to the ranking member, Mr. Doyle.
Mr. Doyle. Mr. Corwin, as I understand it, TV stations
contract Litton, who you are testifying on behalf of, to
provide them with children's television content to meet their
Kid Vid obligations, right?
Mr. Corwin. Correct.
Mr. Doyle. And the way that Litton pays to produce new
content is by selling advertisements during these broadcasts,
right?
Mr. Corwin. Yes.
Mr. Doyle. So now one part of the FCC's proposal regarding
Kid Vid is to allow broadcasters to meet that Kid Vid
obligation by broadcasting this content on one of their
multicast stations. Now, I have heard that there is a pretty
significant difference in value between main station and
multicast advertising revenue. Is that accurate, and if so, how
big of a difference are we talking about?
Mr. Corwin. Well, there is a tremendous challenge with
trying to rely on multicast as a way to broadcast. But, you
know, I could tell you, you know, from my personal experience I
find that people are very excited to be engaged in this
material. And I hope that none of your constituents are
responding to you saying they are getting too much educational
television.
Mr. Doyle. Right. But what I am interested in what is the
difference in the advertising revenues, whether they are
broadcast or----
Mr. Corwin. They are huge. The advertising revenue can be
from $2,000 plus per commercial to $25. Why does that break
down so much? Well, that is because you lose your audience.
Multicast is not available in cable. It is not available in
satellite. It is rarely broadcasted in HD. We lose 98 percent
of the market. My own children, where I live in Massachusetts,
would not be able to watch my television program.
Mr. Doyle. So then my question is, do you think that you
and other content producers could continue to make high-quality
children's television content for broadcasters under Kid Vid if
you were just working with ad revenue for multicast stations?
Mr. Corwin. We could not. In fact, what we do is we
actually generate our own income which the networks do not have
to pay for. We are self-sustaining. But because we would no
longer have the marketplace, we no longer have the viewership,
we would no longer be competitive, and we wouldn't get those ad
dollars. The reason why I get the money to make the TV shows
that we do is by having a strong, robust, highly competitive
viewing audience, and that goes away on multicast.
Mr. Doyle. Well, representing the district where Fred
Rogers lived, I will ask you, do you think there is value in
children having access to safe, educational, original
programming on free, over-the-air broadcast television?
Mr. Corwin. I do. There are millions of children that get
this information. I can tell you, Mr. Doyle, I was filming in
Pennsylvania just a couple of weeks ago filming the hellbender,
which is a remarkable species of salamander that tells us all
about science, technology, and research, both in the ancient
past of evolution and today in modern wildlife management. We
get to tell that story in a compelling way through my TV show
because we have the budget to be able to travel and invest in
these stories. That goes away through multicast.
Mr. Doyle. Yes, I agree. I think there is great benefit to
having that kind of program over the air on free television.
And I just close by saying I am glad the Pirates don't have to
play the Red Sox this year.
So, Mr. Chairman, I know we have votes being called, so I
will yield back.
Mr. Bilirakis. OK. We are going to get one more in. We will
get the--I will recognize the full chairman of the committee,
Mr. Walden, for 5 minutes, please.
Mr. Walden. Well, thank you, Mr. Chairman.
Again, thanks to our witnesses. This is part of a very
vibrant discussion we are going to be having on this committee
in the weeks and months and probably years ahead about the
changing video marketplace and what it looks like, what it can
look like, what it will look like, what we can envision it
should be, and then what are the regulations in place today, do
they make sense for today, do they make sense for tomorrow, who
is covered, who is not. These are always the challenges in
public policy we get confronted with.
I loved ``Wild Kingdom'' too. You know, it was on the air
from I think it was 1963 to 1988, and we always watched it. And
``Mutual of Omaha's Wild Kingdom.'' They had that little
advertising plug in there every time. I think Kid Vid actually
came in 1990, so the law that you reference actually was
enacted in 1990.
And I guess as I look at this marketplace, gosh, there has
never been more opportunities for all kinds of programming at
your fingertips as long as you have connectivity and internet.
So it is a pretty exciting time unless you are stuck on your
brick phone. Yes. Yes.
So, Mr. Moffett, critics have been--yes, he is still paying
for AOL too.
Mr. Moffett, critics of industry--could we have order here,
Mr. Chairman.
Critics of industry consolidation have claimed that the
combination of large firms who provide both content and
distribution platforms is anticompetitive and puts too much
power in the hands of a few. But we don't often talk about the
impact that new entrants are having on the same marketplace.
Google's YouTube platform is the largest video network in
the world, and it is enhanced by 2 billion Android phone
devices that come pre-installed with the YouTube app. Amazon's
Prime reaches two-thirds of American households now, and both
of these companies have market caps several times larger than
the biggest telecom media companies.
Can you comment on big tech's increasing presence in the
video market and how this impacts competition?
Mr. Moffett. Yes. Thank you for the question. Look, it is
very clear that the moves that you have seen from companies
like AT&T and Comcast have been precisely to respond to the
fact that the scale and market power of companies like Google
and Facebook are, in fact, much greater than their own.
And what I described in my witness statement of a model
that--or what an economist would call the modernization theory
based on advertising and, you know, the old adage that if the
product is free, you are the product----
Mr. Walden. Right. Right.
Mr. Moffett [continuing]. In fact, the consumer is the
product that is being sold in most of these models.
Mr. Walden. Right, because it is data.
Mr. Moffett. They may not be entirely free, but all of the
economic value is effectively predicated on the assumption that
there will be a resale of the customer data, what you watch and
what you do. That is extraordinarily difficult for the
traditional companies to respond to.
And what you are seeing is a sort of a different model. The
consolidation is more defensive than offensive among the large
companies. They are trying to respond by doing the traditional
things of getting bigger and cutting cost and hoping, in the
case of AT&T, that there is a path for them to be truly
competitive as an advertising platform. But it is very
difficult for them as a competence to be as successful in the
advertising business as the digital advertisers, Facebook and
Google in particular, are.
Mr. Walden. And you have talked about the rise of virtual
MVPDs and how they are becoming popular with consumers, but you
said the service is losing money so it may not be sustainable.
But yet it seems like Wall Street has supported business models
that lose money as long as they keep growing their user base. I
think about Amazon and Snapchat and the way they leverage their
capital to keep garnering market share. It is phenomenal what
they have done in so many respects.
Do you think Wall Street will give virtual MVPDs the same
benefit, or does a different set of rules apply?
Mr. Moffett. Well, I think for now the--Wall Street is
generally skeptical of the virtual MVPD model, at least the
live version. That is distinct from the Netflix model. So the
Netflix model, which is in Wall Street parlance an SVOD model,
or subscription video on demand, particularly when they are
producing their own content. It is a fixed cost being
advertised across a larger and larger base.
Mr. Walden. Right.
Mr. Moffett. By contrast, the virtual MVPDs are essentially
a variable cost. And so if you lose money on one customer,
having 100 million customers is still going to lose money. You
are losing money on every one----
Mr. Walden. You don't make it up in volume.
Mr. Moffett [continuing]. And so scale doesn't help. And so
Wall Street is quite skeptical, I think, for the moment of any
of the virtual MVPD models. In the context of a company like
Google, YouTube TV is too small for anyone to spend much time
on it.
But a big part of the reason, for example, that AT&T as an
equity has performed so poorly since its DirecTV acquisition
isn't just that DirecTV started to shrink right after they
bought it but because they started to migrate customers into a
virtual MVPD of their own, DirecTV Now, that was hemorrhaging
money. And so the income statement looked frankly quite awful
partly because of that acquisition. So Wall Street has not been
willing to fund the expansion of the traditional companies into
this business.
Mr. Walden. I have gone over my time.
Mr. Moffett. And it hasn't paid much attention to the
digital companies doing it.
Mr. Walden. Thank you, Mr. Chairman. I yield back.
Mr. Bilirakis. Thank you, Mr. Chairman. Appreciate it.
And now we will recognize the ranking member 5 minutes for
questions.
Mr. Pallone. Thank you, Mr. Chairman.
I know that we have a vote on, so I am going to only use
about half the time and I am going to limit my questions to Mr.
Corwin. I want to thank you for your excellent programming that
you provided to America's children over the years. And I agree
with you that my concern that you share is that the FCC in
considering rolling back protections that ensure kids have
access to free, educational, informational TV program is a
serious problem.
So let me just say, if educational children's program
migrated online or to cable channel only, what groups of
children would be the most affected?
Mr. Corwin. Well, the people that would benefit children
would be the ones that have access to--the people most affected
are the ones that do not have access to the technology. And as
we have discovered with the potential opportunities of
multicast is that there is no opportunity for broadcast because
we just wouldn't have our audience. So unless you are in a
public library or you are in school, there are many children in
our country that would not have access to this technology.
Mr. Pallone. And what's the consequence of that? In other
words, children from lower-income homes, as you say, have
access to fewer resources and opportunities than wealthier
families. So in your experience, you know, how does exposure to
educational program mandated by Kid Vid rules actually benefit
the children?
Mr. Corwin. So how does it benefit children? OK. So the
only thing I could say is, in my job I don't wear a suit. This
is the first time I have worn a suit. I always say, you never
want to see me in a suit because you are probably in a casket.
But I needed a suit. I was filming overseas. My wife got a
suit. I came home. It didn't fit. I found a tailer at the last
minute. She was able to do it. I didn't think she knew who I
was.
I got a text from her saying you can pick it up on the 26th
in the afternoon. And she said, by the way, I don't know if
this is inappropriate, but would you provide a correspondence
to my nephew because he serves in special ops, and he wanted
you to know that when he was a teenager he was going through
some tough times and your programming and others inspired him
to focus and he joined the military and now has a very
productive career.
I mean, that is a personal story that I have encountered. I
have met many children--I have met many--unfortunately now that
I am aging, you meet adults that come up to you and say, I
became a veterinarian or I became a scientist because of shows
like yours that I have experienced. So on a personal note, I
have met hundreds, if not thousands of people, that have been
positively impacted.
When it comes to our natural resources, I will tell you
this: You can't protect and you can't wisely use what you do
not love. And if you don't love it--you will never love it if
you never realize it or discover it. And that is what shows
like mine do. We provide a vehicle, a safe, encouraging, rich
environment for young children and young people to make
discoveries that could perhaps set them on their careers of
what they will do in the future.
Mr. Pallone. I think that is so important. You know, the
other thing we realize more and more--at least I do. I think
most people do--is that when you talk about STEM, right, in
other words, you know, science, engineering, the things that--
that kind of education that is so important, you know, for the
future in this sort of innovative technology world, what this
committee deals with, that is where a lot of these kids--we
know that, you know, STEM education is something that low-
income kids often don't have the opportunity, they don't hear
about, don't start, you know, wondering about science and
nature and all that.
And so I think it has a particular impact there because I
worry so much that, you know, if people from low-income
backgrounds will never get into those fields. And the sort of
discovery aspect that you are talking about I think is
particularly important in that respect as well. So thank you
very much.
Mr. Corwin. Thank you.
Mr. Pallone. Thank you, Mr. Chairman.
Mr. Bilirakis. Thank you for yielding back.
I will now recognize the gentleman from Pennsylvania--
excuse me, Louisiana, my good friend, Mr. Scalise, 5 minutes,
please.
Mr. Scalise. Thanks again, Mr. Chairman.
I appreciate the testimony that you all have given and it
really describes just how much things have changed since the
brick was the cellphone. This was the last time our laws were
written. These are the laws. We are literally operating under
1992 laws with this technology. And I show this to show the
importance of why we need to update our laws.
And, you know, obviously I filed a bill, the Next
Generation Television Marketplace, to start this conversation
about how we get beyond these people that want to live in the
dark ages. The number one song, by the way, when the 1992 Cable
Act was written, ironically was ``End of the Road'' by Boyz II
Men. It is the end of the road for the 1992 Cable Act, but we
can't keep living under it because of those companies that are
fighting that change.
Mr. Moffett, you said in your statement earlier, change or
get left behind. And really that is fitting because it seems
like some of the people that think that they are protected by
the 1992 Cable Act that want to hide behind the 1992 Cable Act
and fight to protect it, they are going to fight change while
they are getting left behind because the change is happening.
The problem is you have very different sets of rules that
everybody is playing by. Why is it--and I think, Mr. Olgeirson,
you did some research to look at how many people are really
cutting the cord, what kind of drop there is. And from what I
saw, there is about a 9 percent drop, reduction in people that
are staying within the old MVPD marketplace. In other words,
the cutting of the cord is real and they are doing it, but they
are not just stopping and watching things. They are
transferring over to over the top.
And I think in your studies it was somewhere around 180
percent increase in the number of people going to over the top.
And so there was a revenue study that was done by Convergence
Research Group that showed a revenue change last year. A 1
percent increase in paid TV, the traditional MVPD, and a 41
percent increase in revenues by over the top.
The more alarming part of the traditional revenue, the
traditional MVPD folks, you know, while they may seem to be
saying, hey, you know, we had a 1 percent increase, that is a
decrease in what they were getting before. But they are losing
customers by a rapid, rapid rate.
And so, if you look at where we should be trying to go, we
should be trying to go to a marketplace where everybody has the
same set of rules. One of the reasons that those traditional
MVPDs can't go find ways to get more customers that are getting
better choices--I mean, customers do what they always do. They
look for better choices and they look for lower costs, and they
are finding both in the over-the-top, but they can't get it in
the traditional MVPD because there are laws in the 1992 Cable
Act, like must-carry, like basic tier. There are actual laws
that prevent you from providing the services that customers are
looking for.
So they are cutting the cord because they can go somewhere
else. So, Mr. Moffett, what I want to ask you, is, as I have
described that marketplace, explain to me, maybe, why you see
some of these traditional MVPDs fighting change that--frankly
the change, they are going to be Blockbuster. You know,
Chairman Walden, I know he gave that example of Blockbuster.
Blockbuster died for a reason, because they fought the change
that was happening. It happened anyway. And so as people moved
away, Blockbuster went away because they fought the change. If
they maybe would have said, let's go be like Netflix then maybe
they could be like Netflix today instead of being the dinosaur.
So if you want to maybe touch on that, Mr. Moffett.
Mr. Moffett. Well, thank you for the question. I would say,
in fact, part of the reason that the change has seemed--
particularly to people in the tech community--has seemed a bit
glacial for the traditionals is precisely as you say. There are
very real limitations on their degrees of freedom, right? As a
traditional MVPD, a Comcast or a charter or something, I might
want to, for example, respond to the emergence of so-called
skinny bundles among the OTT players, by saying, ``Well, I have
to have skinnier bundles of my own with fewer networks.'' Well,
your contracts don't allow that, so you probably can't.
Mr. Scalise. And maybe that worked when you were the
monopoly. You know, again, in 1992, you didn't even have
satellite, STELA didn't exist.
Mr. Moffett. That is right.
Mr. Scalise. You surely didn't have Roku and Hulu and all
those other services. You had one place to go. You were the
only game in town, and so it was a great relationship with the
networks. They were a monopoly, you were a monopoly, and
everybody could only go to you. It doesn't exist anymore.
Mr. Moffett. And by the way, the negotiating leverage, as
you can imagine, in those days, was quite different. One of the
challenges for the traditional MVPDs in competing, is, as they
think about the retrans rules, for example, you have a very
clear asymmetry in the negotiating leverage. The media company,
the local--I should say, the local broadcast affiliate,
particularly in NFL markets where they have the rights to--to a
local football game, is dealing with a product that--for which
there is no substitute.
By law, there is no one else allowed to sell that NFL game,
for example, in that market. And they are negotiating with a
player on the--on the multichannel video side, a cable operator
or satellite operator, for whom there are very obvious and
identifiable substitutes. So that is quite different than the
situation in 1992, and not surprisingly----
Mr. Scalise. And I apologize, I know I am out of time, but
just to say--to wrap it up, Mr. Chairman--let's get back to a
free market where everybody is paid for their content. I mean
let's go to pure copyright. We are not talking about somebody
giving away their product for free, but let's not have the
Government tell you that you have to provide content one way,
but this other actor over here, that is going through the
internet can operate in a completely different set of rules and
environment and take your customers away, but you are trapped
in the old system.
Let's have a free market for everybody, where you get fully
compensated for your content, but update the laws, because, my
gosh, why are we still operating under these laws? It is the
end of the road.
Yield back.
Mr. Bilirakis. All right, thank you. Thank you, Mr.
Scalise. And as you know, votes have been called, so we will
take a slight recess. This subcommittee will recess for, well,
a few minutes.
[Recess.]
Mr. Guthrie [presiding]. The subcommittee will reconvene.
At this time I am going to recognize Mr. McNerney for 5 minutes
for questions.
Mr. McNerney. I want to thank the chairman, and I am glad
to be back after votes here today. Mr. Corwin, about 21 percent
of the households in my district have an annual income of less
than $25,000 a year. What types of--why are the types of
educational and informational programming that you describe in
your testimony so important for kids in these households?
Mr. Corwin. Well, I think why it is so important is because
if you can provide anything for young people that are in a
disenfranchised or disadvantaged situation where they may not
have access to technology that allows them to be omnipresent in
the digital universe, I think what we can do is provide those
kids with a sense of hope, that we can inspire them with places
around the world. These kids, when they watch my shows, I
literally imagine in my brain, they are my sidekick companion,
and we are on an adventure together. And we can show them
places around the world. We can show them scientists that are
doing ground-breaking stuff, not just your classic scientists,
but scientists from all walks of life.
Many of them have had moments of adversity in their lives
that are doing groundbreaking, life-changing things to not only
advance science, but to wisely manage our natural resources. So
I think, in the end, that is something we provide. We empower
them with knowledge. We show people like them, who have made
great successes of themselves and are contributing. We give
them hope, and I figure the hope that I got, for example, when
I watched David Attenborough, when I watched Marlin Perkins,
but wanted to be Jim, you know, when I watched all that stuff,
it inspired me, and I hope we can inspire them.
Mr. McNerney. Thank you.
Well, more than 56,000 households in my district
participate in the Lifeline program, which you must be aware
of, and that enables low-income families to stay connected. The
FCC Chairman is currently proposing the changes to the Lifeline
program that will eliminate 70 percent of the households that
participate in Lifeline. Do you think cutting off households
from Lifeline will be harmful?
Mr. Corwin. I think not only is it harmful, but it isolates
children. It does not give them access to resources,
pedological and educational and informational opportunities,
that could ultimately be a stepping stone to inspire them to
become engineers, explorers, or scientists. So they lose that
conduit to another world, and they become isolated.
Mr. McNerney. Thank you.
Mr. Olgeirson, in recent years, we have seen a number of
vertical and horizontal mergers in the media marketplace. We
know that most Americans still get their news from local
sources, local broadcasting stations, local radio, and hometown
newspapers, but increasingly many of these outlets are being
consolidated by a handful of companies. Localism is still
important in our Nation's communications policy. It produces
more robust democracy.
Do you think that the FCC's decision to allow a single
broadcaster to own more than one--one top-four stations in a
market could result in less unique local voices in the market?
Mr. Olgeirson. I couldn't speak to the consolidation within
the broadcast markets.
Mr. McNerney. OK.
Mr. Olgeirson. I could offer you a data point on--to your
last point, talking a little bit about where lower income
households come in. We have certainly seen a significant
increase in the average revenue per unit and the cost of a
multichannel subscription, which puts a--which certainly puts
a--the statistics you mentioned about the lower-income
households in your district, would put them outside of the
affordability of a multichannel service and being able to
access that.
Mr. McNerney. OK, thank you for that.
Mr. Moffett, privacy is an area of great concern for me and
a lot of Americans, a lot of people around the world really.
Americans increasingly feel they are losing control of the
information they share online.
I understand the FTC has a general enforcement policy under
Section 5 to go after unfair and deceptive practices. I also
understand the Communications Act has certain privacy
provisions that apply to cable and satellite operators. Do
cable and satellite privacy protections in the Communications
Act apply to online MVPDs?
Mr. Moffett. I think it is generally assumed by most of the
carriers. I think a good example is Verizon. That they are
subject to--to stricter privacy rules than are the edge
providers, as they are referred to, the Googles and Facebooks.
And that asymmetry is problematic. I wouldn't want to--it is a
legislative question, rather than an analytical question, to
say which model is the preferable model. That is, is it more
appropriate--while it is more complicated than this, it boils
down, in many ways, to an opt in versus opt out, but there are
obviously many nuances beyond that.
I wouldn't suggest that--I would suggest that it is a
legislative and--a legislative question to decide whether it
is--whether one is preferable to the other. But there is
certainly a strong economic argument for ensuring that everyone
operates under the same set of rules.
And historically that has been solved to some extent in
that now when the previous net neutrality rules were in place,
it created some additional complexity because--because of the
exemption of--that had come from almost a century ago, about
net neutrality and jurisdiction of the Federal Trade
Commission. At least that has been taken away, so that the
Federal Trade Commission has jurisdiction over both, but the
presumed rules are still different.
And, for example, Verizon is struggling with the
acquisition of AOL and Yahoo, in part because their expectation
is, we have to abide by privacy rules that are stricter than
those rules that are adhered to by a Google or a Facebook.
You have another--one more obviously, you have another very
big challenge, which is, especially the social media companies
are global and are now being asked to respond to different
rules in Europe and different rules in Asia, and in fact,
individual countries in Asia. And it makes it extraordinarily
difficult to think about all these different regimes.
Mr. McNerney. Thank you for your opinion.
I yield back.
Mr. Guthrie. The gentleman's time has expired and he yields
back. And I will recognize myself for 5 minutes for questions.
So, Mr. Olgeirson, this subcommittee has talked a lot in
this country about the importance of winning the race to 5G.
And Doris Matsui of California and I, with the Congressional
Spectrum Caucus, have been looking at the spectrum--the block
phone is coming back--the spectrum questions, which are central
to 5G. And since we are talking about media today, one of the
many uses that 5G will enable is an enhanced mobile broadband
capability, vitally important to high-quality video, among
other things.
I have been told about the incredible amount of bandwidth
that online video consumes on all networks, including the
mobile. My question is, since we are already seeing consumers
transition towards mobile content consumption, do you think the
deployment of 5G will accelerate this trend and, in particular,
when it comes to video?
Mr. Olgeirson. Thank you for the question. I think that,
first of all, when we think about the consumption of video, we
still see the primary location in consumption of video being
the home. So even though consumers may be technically using a
mobile device, and they maybe experience a certain degree of
mobility because they are not tethered to a wire, they are on
the home Wi-Fi. And that is where the majority of usage for
video is at the moment.
We have certainly seen different service providers
targeting a true mobile service and looking to leverage that,
and capacity would certainly increase their ability to put that
out there. Under the current sort of 4G network's mobile video,
in an uncongested 4G network's mobile video is not necessarily
a gating factor. But bandwidth is not necessarily a gating
factor to getting that video. But we do anticipate that a more
robust mobile network would lead to, you know, more data usage,
including video.
Mr. Guthrie. More demand for it.
Mr. Moffett, would you have any comments on that?
Mr. Moffett. No, I would agree with that answer, that the--
I am not sure that video alone--there is obviously a
tremendously--a tremendously rapid growth in consumption of
data, and, therefore, all the wireless operators are applying
all different kinds of strategies to increase the capacity of
their networks. And video is a very large driver of that
growth. But I think it would be a little bit of a stretch to
argue that video consumption will be the economic basis of 5G.
I think there has to be something that is a separate and unique
revenue stream associated with that business. Because video is
already a revenue stream that the 4G network allows them to
capture, as Mr. Olgeirson said, with reasonably good
efficiency.
Mr. Guthrie. OK, thanks.
And this is Mr. Olgeirson's testimony, but anyone can
answer this. I will go to Mr. Olgeirson first, but in today's
testimony we heard about the significant shifts in media
marketplace and how different the industry is now, compared to
even 10 years ago. But you said that we are still in the early
to mid stages of complex transition. If we are only in the
early stages--put on your analyst hat here--and if you are only
in the earliest stages now, what can we expect the marketplace
to look like in the late stages?
Mr. Olgeirson. Well, I think that we see a continued
progression of subscribers moving outside the umbrella of the
big subscription package that is represented by cable, Telco,
and satellite services that we know today. Those services--
those subscribers will be in a position of self-aggregating
their content through different services like a Netflix or a
Hulu.
We will also see an increasing move toward direct-to-
consumer delivery by video conglomerates who are looking to
sort of move beyond having a distributor middle man in that
section. So I think that we see a progression of subscribers
outside of this big package. We see the traditional operators
continue to have significant leverage within that discussion,
because of their wireline networks, and in many cases, because
of the wireless networks that they will develop on top of those
wireline networks. But nonetheless, the video package migrates
outside.
Mr. Guthrie. OK. I have a few seconds, do you want to
comment, Mr. Moffett?
Mr. Moffett. You know, I can--I think the key thing to
focus on is really what is happening to consumption trends, and
while people are watching more and more video, they are
watching less and less what we consider scripted video, and
that sort of thing. So you have got this period where there is
more scripted shows than ever but fewer and fewer people
watching them. And that is not a sustainable model.
I think if you project out forward, you are likely to see
that a lot of what we think of as linear television today just
disappears, to be replaced with much more on demand, and with a
much more limited offering of linear TV, linear news, and
linear sports. But that it may not be--there may not be a need
for any other linear channels. Everything else may eventually
be sold in on-demand packages. And I think younger people are
sort of scratching their head over why are we spending so much
time thinking about linear television and the migration of
linear television because----
One of the better quotes that I heard was from a young
person, who when faced with a virtual MVPD, which is sort of
pitched at people like that, said, why would I want a bunch of
networks that only my father watches? That is not the way they
consume television or consume video. And even the idea of
consuming television is a bit anachronistic.
Mr. Guthrie. Well, thank you. My time has expired. I
appreciate your answers.
Next up is my friend, the gentle lady from New York, Ms.
Clarke.
Ms. Clarke. Thank you very much, Chairman Guthrie, and to
Ranking Member Doyle, for convening this important hearing on
the media marketplace.
Viewpoint diversity is an important principle that has long
informed communications policy in the United States. While
online platforms provide new channels for voices to rise to the
surface, it remains vital that our media outlets and the
content they distribute reflect the diversity of voices and
opinions that make up America. Minority media ownership remains
abysmally low, and I worry that the current FCC's rollback of
media ownership rules meant to promote diversity of voices will
do nothing but make the problem worse.
So, Mr. Moffett and Mr. Olgeirson, does media consolidation
have a negative effect on the number of minority-owned media
outlets?
Mr. Moffett. My focus is not really on the broadcast side,
which I think is, if I understand your question, to some degree
where you are focusing, because those are the places where the
media ownership rules are the most relevant. And so I am afraid
it is outside of my area of expertise.
Mr. Olgeirson. It is also outside of my area of expertise.
I would note that the--that the dynamics that have been
described up here of sort of an increasingly on-demand delivery
of content and sort of the erosion of that big subscription
package have different impacts on people seeing diverse views.
Because you are self-selecting the content, you are less likely
to run into--into a view that might not be your own.
But at the same time, there is an easier path toward
distributing those views, because you don't have the gatekeeper
of a 60-channel lineup from a cable operator that you can't
crack, because your network is really the 61st most popular
one.
Ms. Clarke. Yes, and I just think that with the diversity
of ways in which people are accessing their video or their
content, it still disadvantages those who are not in ownership
positions. So I was wondering whether any of you can speak to
that.
Mr. Olgeirson. I don't think so, but thank you.
Ms. Clarke. Oh, OK, just thought I would ask. Maybe we
should look into it.
Are you aware of any efforts to promote diversity or
increase the number of minority-owned opportunities out there?
Either--anyone?
Mr. Olgeirson. I am not, no.
Ms. Clarke. OK.
Mr. Corwin, you are familiar with diversity in another
sense, the diversity of wildlife inhabitants that populate our
planet. I am interested in hearing from you why you think it is
so important to bring the natural world to children and young
people via television programming.
Mr. Corwin. Well, that is a great question. There are a
number of objectives that we are looking at. One is to not only
inspire a sense of stewardship to make that natural connection,
but ultimately by building that relationship of stewardship, we
encourage the next generation of leaders, of users of resources
to maybe learn from our mistakes, to ensure that we have a
biologically rich and healthy planet.
And as we know today, we face tremendous challenges with
endangered species, habitat loss, and climate change. In
addition, we try to strive and reach out to above and beyond
our audience. Recently we just received a letter from the
Department of Defense and the American Forces Network. And the
American Forces Network commended us in our ability to connect
with our armed servicemembers and to try to be a resource for
them.
So, for example, we reach more than a million soldiers and
their families around the world, a success point so embraced
that they are now using our TV shows in schools that our men
and women who are fighting for our country can educate their
children in a positive way.
We face tremendous challenges. We live in what is called
the six extinction. We lose a species on our planet once every
20 minutes----
Ms. Clarke. So let me ask you something. According to
Nielsen, 45 percent of African Americans and 36 percent of
Hispanic Americans don't own streaming devices. So the FCC has
suggested that Kid Vid rules are not necessary because
educational content for children is available online. How would
this impact those communities?
Mr. Corwin. Well, it will be impacted in a huge and an
almost asteroid-like fashion. What the asteroid did to the
natural history of our planet over 60 million years ago, we are
doing that with communications. The multicast program basically
removes more than 98 percent of our audience. Children and
families that live in the inner cities will not be able to
watch our shows because it is not on multicast, broadcast and
cable, or satellites. Not even in HD. My own children, who I
try to provide a nice life for, will not be able to watch my TV
shows if this continued trend moves forward.
Ms. Clarke. Very well. I thank you very much, gentlemen,
for your feedback. It is a lot to think of and consider there.
And, Mr. Chairman, I yield back the balance of my time.
Mr. Guthrie. Thank you. The gentle lady yields back.
The Chair recognizes Mr. Johnson of Ohio for 5 minutes for
questions.
Mr. Johnson. Thank you, Mr. Chairman.
And this is indeed an important topic, and, Mr. Corwin, for
the record, I enjoy your shows. So I am one of those kids that
you are taking on those journeys in your mind, because I really
enjoy them.
So thanks to all of you for being here today, because it is
such an important topic, the current state of the media
marketplace.
As everyone knows, the media landscape has changed
significantly in the last two decades, even in the last few
years. And I have faith that American innovation will continue
to develop exciting new technologies and platforms that will
continue to change and expand the media marketplace in the
future. So it is important for us to take a look at the media
marketplace more broadly, understand the new ways that people
are listening to or viewing media content, and also the
continued role of traditional over-the-air broadcasting.
This hearing is just the start of a needed conversation to
examine these topics and ensure policy and regulations reflect
the current marketplace and provide a fair playing field for
all the industries involved.
With that as a backdrop, Mr. Moffett, for years, we have
been hearing about a la carte offerings in which viewers could
pay for the programming they want and not pay for programming
they don't want. Yet the cable bundle lives on. Indeed it now
appears that even new online products like Sling and Hulu are
starting to recreate the familiar cable bundle. Why is this
happening?
Mr. Moffett. Well, the first thing--thank you for the
question. I guess the first thing I would say is, when we talk
about a la carte and unbundling, it is important to be
articulate about where in the value chain we are unbundling and
what we are unbundling from what. So today shows are created by
television studios. Those tend to be bundled together into
linear networks. Linear networks are bundled together into
media conglomerates. Media conglomerates are bundled together
into the package that is sold to consumers. And in theory,
unbundling could happen at any one of those levels.
Mr. Johnson. What effect does it have on prices and
broadband offerings----
Mr. Moffett. So right now, the reason--and I think it is
actually lost on many of your constituents, because when I talk
to consumers, they often blame the distributor. But the reason
that you can't do a la carte as a customer, and by most people,
when they say a la carte, what they mean is unbundling cable
networks from each other. Again it is not obvious. That should
be what it means, but that is what most people assume.
The reason you can't do that is because the media
conglomerates don't allow the distributors to buy individual
networks. They require you to take all of them or none of them.
Mr. Johnson. What do you think we do about it?
Mr. Moffett. Well, it is a very difficult problem in some
ways, because at least the legal question, as I understand it,
has always been, on the one hand, anti-trust laws would
suggest--would say that looks a lot like illegal tying. On the
other hand, first amendment rights say that they are first
amendment speakers and that you can no more tell Disney that
they can't bundle their channels together than you can tell The
Washington Post that they can't bundle the business section
with the editorials. And so you have this tension between first
amendment rights and antitrust rules.
Mr. Johnson. So what you are saying, it is not easy?
Mr. Moffett. It is not an easy problem to solve. The
marketplace may eventually solve it but very, very slowly.
Mr. Johnson. OK. Well, earlier this year the FCC relaxed
its local television ownership rule to permit broadcast
television companies to own, within certain limits, two
stations in a single television market. In its decision, the
FCC pointed to the fact that consumers are increasingly
watching video programming from cable and satellite operators
and online content distributors.
Given the rise of these other mediums, do you believe that
free, over-the-air TV broadcasters compete only against other
TV broadcasters in the same geographic market for viewers and
advertising dollars?
Mr. Moffett. Clearly not. And, in fact, I think that speaks
to, while there are perfectly legitimate arguments to be made
about diversity of voices and keeping two--the two-station
rules being problematic in some way, the economic reality is
that these companies are competing against social media and
streaming----
Mr. Johnson. Sure.
Mr. Moffett [continuing]. Models, and so the question is,
can they fund the news-gathering function with the economics
available to them on a single station? Or do they need
synergies? And those are really tough questions.
Mr. Johnson. Yes, we could talk for days about some of
this. I know I have got very limited time, but I want to give
each of you a chance to answer this question.
What suggestions do you have for this committee to ensure
that the marketplace continues to evolve, to innovate, and
provide robust competition?
Mr. Olgeirson. I think boiling it down to a single
suggestion is a daunting task. I think that, you know, at this
point, what we have seen is that consumers are essentially
driving the market. They are making decisions about a la carte.
They have asked for a la carte. Operators have told them that
it is probably not in their best interest, and we look at the
economic models and determine that a la carte is not in their
best interest. And yet they are moving toward a la carte models
already.
So I think that what we will see is--basically the market
is answering those questions.
Mr. Johnson. Mr. Corwin, I know you got to go quickly, but
do you have a response to that?
Mr. Corwin. Well, I can just tell you this, making
children's television programming isn't easy. We are very
limited on the things we can express, the tools we can use
because of the audience we are trying to reach. But if you give
us the platform, we will succeed. We have this great ability to
reach millions and millions of people, and we do so by
providing a competitive, engaging, and entertaining, and
informational product. And you give us that platform, we will
continue to do what we do.
Mr. Johnson. OK. Mr. Chairman, I wish I had more time, but
I yield back.
Thank you, gentlemen.
Mr. Guthrie. Thank you. The gentleman from Ohio yields
back, and the Chair now recognizes Mr. Engel of New York, 5
minutes for the purpose of asking questions.
Mr. Engel. Thank you, Mr. Chairman and Ranking Member
Doyle.
I know and hear regularly from my constituents who complain
about poor cable service, high bills and being forced to pay
for bundled programming that they don't really want. And with
that in mind, I want to start by talking about television
blackouts, which means not showing a particular channel or a
particular show in a given market. It can be extremely
frustrating to consumers who pay their bills and expect to be
able to watch the programming of their choice, and yet we have
seen more and more business disputes that result in a
particular show, channel, or content provider being blacked out
for consumers, sometimes for long periods of time. So let me
ask Mr. Moffett and Mr. Olgeirson, in your opinion, are
consumers likely to see more or fewer blackouts in the future?
Mr. Moffett. I think--and thank you for the question. My
suspicion is that we will see more. And, in fact, not just more
temporary blackouts, but we will start to see more permanent
blackouts. That is, we will start to see more networks,
particularly cable networks, being dropped entirely because the
economic model for them to be distributed by an individual
distributor just doesn't make sense anymore.
And that, again, speaks to the economic tensions are
mounting. And when the economic tensions in a business system
like this one mount, you tend to get more and more of these
kind of extreme examples of dysfunctional economics.
Mr. Engel. Mr. Olgeirson, would you agree?
Mr. Olgeirson. Yes, I agree. I think the only--the only
lever there that wasn't brought up is that consumers do have an
increasing option to move away from--from that service and,
therefore, have a solution to those blackouts.
Mr. Engel. We are seeing content producers, broadcasters,
and multichannel video programming distributors consolidating,
getting larger, the MVPDs. Do these consolidations impact the
likelihood of blackouts? Either one of you--or both.
Mr. Moffett. In theory, they would, particularly, and in
fact, that was the--if you think about the AT&T-Time Warner
case, that was actually the most important theory put forth by
the Department of Justice and, in fact, was why the DOJ
appealed the case, was that they felt that Judge Leon in that
case had failed to acknowledge that that was the likely
outcome. I am slightly spinning that a little differently than
they put it, but that was effectively the argument that they
made.
Now, as it happens, in that particular case, for the time
being, they are bound by a voluntary consent decree like
commitment to make their content available and to--and not have
blackouts. But in theory, yes, the economics of withholding
content from a direct competitor are more attractive, or are
more tenable, if, in fact, you will get some economics back by
virtue of some of their customers leaving them and coming to
you. That is the nature of the economic argument, and it seems
to me, on its face, that it is correct, at least to some
degree.
Mr. Olgeirson. I don't have anything to add to that.
Mr. Engel. OK, well, let me--I would like to address the
cost of traditional cable and satellite service. So let me ask
you again, either one of you who--or both who might want to
answer, do you think that the subscription cost to a
traditional cable or satellite service are likely to increase
or decrease for consumers in the near future?
Mr. Moffett. I think the answer remains, as it has been for
30 years, that the--there are very strong inflationary
pressures. One of the things that is unique about this model, I
used to describe it as--because it is--the wholesale prices are
delivered to the multichannel distributors by the content
owners and are invisible to the consumer.
One of the few models that that looks like is the
healthcare system. If we wonder, you know, why we have runaway
healthcare costs, it is because the end user is not even aware
of the wholesale cost of individual services. The only other
model you can find that looks like that is the media business,
where we have the same model.
And in particular, when you have this--what I described in
response to an earlier question, you have this asymmetry of
negotiating leverage between local broadcasters, in particular,
that own the rights to sports, for which there is no
substitute, and a negotiation with a multichannel provider for
which there is an obvious substitute. That is a recipe for
natural escalation in prices, and that has been the primary
driver for the last, roughly, 10 years. The primary driver of
escalating prices to end users has been that asymmetry.
Mr. Engel. Do you think that the new online streaming
services, where people are watching more of the broadcast, will
lead to lower costs?
Mr. Moffett. Temporarily, I think that it puts pressure on
the multichannel distributors to try to respond to the fact
that there are these low-cost options. But as I described in my
opening remarks, there are very real reasons to be doubtful
about whether the selling that service--those services without
any margin will turn out to be a sustainable model.
It will depend on how successfully they can monetize
advertising and how well they can exploit the customer data for
a very targeted advertising. My suspicion is that that won't be
sufficient to offset the cost of maintaining those services at
no margin, and that you will start to see those prices start to
escalate, and if anything, take some of the downward pressure
off of the pricing of the traditional multichannel providers.
Mr. Engel. Thank you.
I have one final question I would like to address to Mr.
Corwin. You touched on it before when the question was asked.
In the FCC's repeal, if they were to repeal Kid Vid
protections, if that is finalized, people say it is done
because kids don't watch education programs anymore; they have
so many other things to do. How do you answer that?
Mr. Corwin. Well, we know that children and teenagers,
which we target for our audience, do watch this programming. My
ratings are very competitive, 1.6 shares watch, and Nielsen
ratings, which allows us to get the revenue streams to make the
shows we do.
But if we are crippled by the multicast broadcast
situation, we will no longer have that audience, which means we
will not get those resources, which means we can't make the
shows that engage our audience, inspire them to a path forward
in science and technology.
Mr. Engel. Thank you.
Thank you, Mr. Chairman.
Mr. Guthrie. Thank you. The gentleman's time is expired.
Seeing no other Members wishing to ask questions for the
panel, I thank all of our witnesses for being here today. It
has been very informative, and I appreciate it.
Pursuant to committee rules, I remind Members that they
have 10 business days to submit additional questions for the
record and ask that witnesses submit their responses within 10
business days upon receipt of the questions. Seeing no further
business before the subcommittee today and without objection,
the subcommittee is adjourned. Thank you.
[Whereupon, at 5:00 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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| Shimkus, John | S000364 | 7939 | H | R | COMMMEMBER | IL | 115 | 1527 |
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| McNerney, Jerry | M001166 | 7816 | H | D | COMMMEMBER | CA | 115 | 1832 |
| Bilirakis, Gus M. | B001257 | 7881 | H | R | COMMMEMBER | FL | 115 | 1838 |
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| Clarke, Yvette D. | C001067 | 8072 | H | D | COMMMEMBER | NY | 115 | 1864 |
| Welch, Peter | W000800 | 8204 | H | D | COMMMEMBER | VT | 115 | 1879 |
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