Federal Communications Commission WASHINGTON, D.C

BEFORE THE Federal Communications Commission WASHINGTON, D.C.

In the Matter of ) ) Notice of Inquiry on A La Carte ) MB Docket No. 04-207 and Themed-Tier Programming ) and Pricing Options for Programming ) Distribution on Cable Television and ) Direct Broadcast Satellite Systems )

COMMENTS OF BLOOMBERG TELEVISION

Willkie Farr & Gallagher LLP 1875 K Street, N.W. Washington, D.C. 20006-1238 (202) 303-1000

July 15, 2004

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Table of Contents

Page

I. INTRODUCTION AND SUMMARY...... 1

II. THE CURRENT PROGRAM PACKAGING MODEL IN THE CABLE AND DBS INDUSTRIES HAS BEEN CRITICAL TO THE GROWTH AND DEVELOPMENT OF THE BTV SERVICE...... 4

A. The Current Program Packaging Model Has Provided The Necessary Financial Base For BTV To Thrive...... 4

B. The Current Packaging Model Has Allowed BTV to Develop New And Innovative Program Services In Response To Consumer Demand...... 6

III. IMPOSING AN A LA CARTE OR THEMED-TIER REQUIREMENT ON CABLE AND DBS PROVIDERS, EVEN AS AN ADDITIONAL ALTERNATIVE TO EXISTING TIERS, WOULD HAVE A DEVASTATING EFFECT ON BTV...... 7

A. Mandatory A La Carte Or Themed Tiering Would Sharply Limit BTV’s Ability To Generate Advertising And License Fees...... 9

B. Mandatory A La Carte Or Themed Tiering Would Impose Higher Marketing and Other Costs On BTV...... 10

C. Mandatory A La Carte Or Themed Tiering Would Ultimately Compromise BTV’s Ability To Distribute A Viable Program Service...... 11

IV. TO THE EXTENT THE COMMISSION AND CONGRESS ARE CONCERNED ABOUT INDUSTRY PRACTICES THAT AFFECT PROGRAM DIVERSITY, IT WOULD BE MORE PRODUCTIVE TO FOCUS THEIR ATTENTION ON THE CARRIAGE RIGHTS AND PRACTICES OF TELEVISION BROADCAST STATIONS...... 14

V. CONCLUSION...... 16

Appendix A, Description of BTV

BEFORE THE Federal Communications Commission WASHINGTON, D.C.

COMMENTS OF BLOOMBERG TELEVISION

Bloomberg Television (“BTV”), by its attorneys, hereby submits these comments on the

Notice of Inquiry (“NOI”) in the above-captioned proceeding.1

I. INTRODUCTION AND SUMMARY

Proponents of mandatory a la carte or themed tiering claim that such regulations will deliver more consumer choice and lower prices. In reality, such regulations would deliver neither. Once these regulatory proposals are scrutinized, the more accurate bumper sticker slogan is revealed: “Less Choice, Higher Prices.” BTV respectfully urges the Commission to advise Congress not to adopt such regulations.

BTV is a 24-hour business and financial news programming service that has been in operation since 1994. It is currently distributed to over 32 million MVPD subscribers in the U.S. via cable and DBS services, and is also available to more than 200 million households worldwide. Certain BTV programming is also carried on a syndicated basis for three hours each

1 See In the Matter of A La Carte and Themed Tier Programming and Pricing Options for Programming Distribution on Cable Television and Direct Broadcast Satellite Systems, Notice of Inquiry, 19 FCC Rcd. 9291 (2004) (“NOI”).

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morning on E! Entertainment Network. The BTV service provides a full slate of original video

programming content on U.S. and global business and financial markets as well as BTV’s

trademark data screen. The data screen, which overlays the video portion of the BTV signal on

two sides, delivers textual and graphical information on the latest stock indices, individual stock quotes, and leading news stories, as well as supplementary materials about the company or issue being discussed in the video screen area. BTV also offers interactive services and on-demand content to MVPD customers here and abroad.2

Virtually all BTV viewers receive the service through traditional MVPD program

packages. BTV is carried by most U.S. cable systems on their most highly penetrated tiers of

digital cable service. Cablevision, for example, offers BTV as part of its iO digital cable

package, while Cox includes BTV in its “Sports & Information Package,” a digital tier that also

includes the ESPN and CNN multiplexes, among other services.3 As for satellite carriage,

DirecTV distributes BTV on its Total Choice package, while EchoStar includes the service in its

America’s Top 180 package.4 In addition, BTV content that is distributed on E! Entertainment

from 5-8 a.m. each morning is available on the most highly-penetrated program tiers to 86

million MVPD customers.

As detailed below, BTV distribution on traditional MVPD program packages has been

critical to the growth and development of the service. BTV generates revenues from two main

2 Insight offers on-demand BTV content to its digital subscribers. Likewise, EchoStar provides BTV’s interactive service to over 7 million subscribers. A detailed description of the BTV service is attached at Appendix A to these comments. 3 Cox’s Sports & Information Package includes, among other services: CNNfn, ESPNews, Fox Sports World, G4, ESPN Classic, the International Channel, and NBA TV. Cox gives digital customers the option of buying this package on a standalone basis or with one or more other digital packages. See http://www.cox.com/ Fairfax/Rates.asp (detailing digital service options for Fairfax, Virginia customers). 4 EchoStar customers can also subscribe to BTV on an a la carte basis. See http://www.dishnetwork.com/ content/programming/channels/index.asp?NetwID=50172.

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sources: license fees from MVPDs that distribute the service, and advertising fees from commercials sold on BTV programming.5 Both revenue streams are tied to the potential and actual audience reach of the service. Thus, to the extent BTV content is offered on highly penetrated tiers, it can draw on stable sources of license and advertising fees to support, improve upon, and build subscriber interest in the service. BTV would not have been able to increase its subscribership tenfold over the last seven years or introduce new interactive services without this packaging model.

In contrast, imposing an a la carte or themed-tier requirement on programmers and/or

MVPDs -- even as an additional alternative to existing traditional program tiers -- would have a devastating impact on BTV. Such requirements would mean a substantial decline in BTV’s license and advertising revenue since its subscribership would shrink dramatically. Such requirements would also impose high marketing and other costs on BTV as it tried to compete with dozens, if not hundreds, of other programming services vying for new subscribers. It would be difficult for BTV to survive in such an environment. BTV does not have the leverage with

MVPDs to demand higher license fees to make up for lost revenues and higher costs, nor could it cut back its programming budget without compromising the quality of its service and undermining its ability to attract viewers and MVPD distribution. The net effect of mandatory a la carte or themed tiering would then be to drive BTV and similarly situated programmers out- of-business, thereby harming program diversity and consumers.

BTV asks that the Commission prepare a report to Congress that: (1) underscores the significant harmful effects on BTV and similarly situated programmers that would be caused by

5 As a relatively new programming service, BTV can command only modest license fees. Consequently, as noted below, most of its revenues are generated from advertising sales, particularly on its 5-8 a.m. programming distributed on E! Entertainment.

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mandatory a la carte or themed tiering; and (2) urges Congress to refrain from imposing such

requirements on programmers and/or cable and DBS operators.

II. THE CURRENT PROGRAM PACKAGING MODEL IN THE CABLE AND DBS INDUSTRIES HAS BEEN CRITICAL TO THE GROWTH AND DEVELOPMENT OF THE BTV SERVICE.

With 24 hours per day of original, first-run programming, BTV is highly valued by

millions of viewers in the U.S. and around the world. BTV’s success is the result of the reliability and timeliness of its business and financial news, and the unique way in which such information is presented. BTV continues to build on the network’s popularity by augmenting its programming with additional value-added services, such as Bloomberg Interactive Television and Bloomberg On Demand. It is highly doubtful that BTV would have thrived in this manner if not for the current program packaging model in the cable and DBS industries. Indeed, without the opportunities afforded by the current packaging model, there is a strong likelihood that BTV

might never have been launched or, if launched, might have subsequently failed.

A. The Current Program Packaging Model Has Provided The Necessary Financial Base For BTV To Thrive.

The key to the success of any new national programming network is to build a critical

mass of viewers to support the long-term growth of the service. As noted, the two principal sources of revenue for most programmers -- license and advertising fees -- are both tied to audience reach. In fact, Nielsen, whose ratings are critical to a programmer’s advertising sales, will not typically measure a programmer’s audience share until the programmer reaches approximately 40 million subscribers. Thus, the more “eyeballs” a programmer can reach through broad distribution on cable, DBS, and other MVPDs, the greater license and advertising fees the programmer can generate and the better the odds that the programmer will succeed in a highly competitive marketplace.

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BTV has taken a two-step approach to building its audience share. First, it distributes a

24-hour national network that has steadily built its viewership through carriage deals with

leading MVPDs, including DirecTV, EchoStar, Cox, and Cablevision. Launched in 1994, the

BTV national network has seen viewership rise from 3.5 million in 1997 to more than 32 million today. Still, given the relatively limited level of distribution, BTV can command only modest license fees from its distributors and advertising fees from its advertisers. BTV’s expectation is that once the service reaches 40 million subscribers, it will be able to generate higher license and advertising fees to sustain the service over the long-term.

Second, BTV distributes certain content on E! Entertainment. As noted, this programming consists of a three-hour business segment that is telecast from 5 a.m. to 8 a.m. every morning, Monday through Friday, and is distributed as part of the E! service to approximately 86 million households. This arrangement helps BTV build its brand among viewers and potential MVPD distributors and also generates most of BTV’s advertising revenues.6 BTV would eventually like to transition away from this distribution method once its

24-hour service becomes fully self-sustaining.

The essential point here is that BTV’s business strategy hinges on widespread MVPD

distribution. BTV will only be able to achieve a critical threshold of MVPD viewers if it

continues to be distributed on widely penetrated MVPD service tiers. That is how BTV, like any

other new service, first built its audience.7 That is how the service has achieved 32 million

6 Advertising sold on BTV’s E!-distributed programming is “scattered” over BTV’s 24-hour digital programming network, as well. 7 See Economists Inc., Consumer, Operator, and Programmer Benefits from Bundling Cable Network, at 5 (July 2002) (“In many respects, bundling enables the launch of new and previously unsampled programming services, contributing to the diversity of programming available to the public. New and niche programming services benefit greatly from their association with well-established networks. Through that association, these services have the greatest opportunity to be sampled and hence to find an audience.”).

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MVPD customers over the last decade. And that is how it intends to grow to over 40 million

subscribers in coming years. Likewise, BTV is only able to generate advertising revenues from

the part-time distribution of BTV content on E! because E! is available as a basic service on

every major MSO and DBS system. In short, program packaging has been critical to the success

of the BTV service. It is highly unlikely that the service would ever have been launched, let

alone grown as it has, in the absence of this distribution model.8

B. The Current Packaging Model Has Allowed BTV to Develop New And Innovative Program Services In Response To Consumer Demand.

Programming services sold as part of larger program service tiers typically can avoid the

substantial costs associated with marketing standalone premium services to subscribers.9 This fact has important consequences for the growth and development of new programming services, such as BTV. In particular, it has enabled BTV to invest more of its budget in new and innovative services that respond to changing consumer preferences.10

For example, BTV has been able to budget more resources for expanding its coverage of

world financial news. The BTV audience is very interested in real-time reports on developments

in key financial markets in Europe and Asia.11 In response, BTV has opened news centers in

8 Other programmers have similarly noted that program packaging has been essential to their decisions to launch new services. See, e.g., Ted Hearn, A La Carte Lives, Up North, Multichannel News (June 14, 2004) (noting that A&E would not have invested in Canada’s The Biography Channel if it had known that the service would be offered on an a la carte basis). 9 HBO, Showtime, and other premium services, for example, have to expend considerable resources promoting their services to retain and attract subscribers. See John M. Higgins, Premium Networks Take A Hit, Broadcasting & Cable (Feb. 9, 2004) (noting that “pay networks have to replace 40%-60% of their customers every year just to stay even”). HBO, for example, spent $10-$15 million promoting the Band of Brothers mini-series, which is only “slightly less than the marketing budget for a Hollywood movie.” See Allison Romano, On HBO, War Is Hype, Broadcasting & Cable (Aug. 13, 2001). 10 Overall, cable programmers have invested over $12.6 billion in programming during 2003. See NCTA 2004 Mid-Year Industry Overview at 12 (July 6, 2004), available at http://www.ncta.com/pdf_files/Overview.pdf. 11 BTV programming attracts a unique audience of senior executives and decision-makers, professional investors, and consumers, and according to Nielsen data associated with BTV’s syndication on E!, outperforms competing programmers with its early morning business news viewers aged 25-54.

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London, Hong Kong, and Tokyo, among other places. It has also added programming segments covering the European Markets, such as “European Market Report” and “Bloomberg European

Market Countdown,” as well as world markets more broadly, such as “World Financial Report” and “Bloomberg Morning Markets.”12

In addition, BTV has invested in new interactive applications for digital cable and satellite customers. Many BTV viewers are accustomed to the interactive features and functions of the BLOOMBERG PROFESSIONAL service, an online subscription service that provides market data and analytical tools for traders and others working in the financial markets. BTV has been working to introduce similar interactivity into its video programming service. For example, the Bloomberg Enhanced Channel enables viewers to watch BTV while utilizing an interactive data screen. Likewise, the Bloomberg Virtual Channel, another interactive service, allows viewers to access breaking financial information on demand while watching BTV or the programming of their choice. Few, if any, of these innovative products could have been developed and introduced if BTV was required to extensively self-promote its network under an a la carte regulatory model.13

III. IMPOSING AN A LA CARTE OR THEMED-TIER REQUIREMENT ON CABLE AND DBS PROVIDERS, EVEN AS AN ADDITIONAL ALTERNATIVE TO EXISTING TIERS, WOULD HAVE A DEVASTATING EFFECT ON BTV.

BTV is a prime example of how the current packaging model fosters the development of superior quality programming and adds to the rich diversity of today’s cable and DBS channel

12 BTV has also changed the “look-and-feel” of its service in response to audience input. For example, the information detailed on the data screen has evolved from including very basic news and weather information to the detailed financial news information provided today. Likewise, BTV utilizes different coloring and fonts to make the service more viewer-friendly. 13 The current packaging model has also nurtured the development of some of today’s leading basic programming networks. For example, when the Disney Channel launched, its programming consisted primarily of Disney’s older feature films. Today, the Disney Channel offers a full slate of original programming, including many popular series and made-for-TV movies.

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lineups. The introduction of a la carte or themed-tier requirements would significantly disrupt

the business and revenue models upon which BTV and other programming networks have been

developed.

In particular, mandatory a la carte or themed tiering would sharply reduce the number of

BTV subscribers. HBO, the most successful a la carte service in the history of cable television,

has approximately 27 million subscribers.14 BTV would likely be fortunate to receive a fraction

of this subscribership level, particularly given its experience with a la carte and themed tiering

thus far. For example, Dish Network makes BTV available on an a la carte basis (in addition to

offering the service as part of a larger program package), and approximately 7,000 subscribers

have elected to take the service.15 Likewise, BTV’s experience with themed tiers is that MVPDs

offering such packages grow digital subscribership at a much slower pace than those offering a

much broader package. For example, Comcast’s basic digital tier offerings (which typically

include 30 or more channels) have been far more successful than the themed tiers made available

under the old AT&T Broadband cable systems.

The bottom line is that, under mandatory a la carte or themed tiering, BTV would lose

subscribers. As a result, BTV’s license and advertising fees -- which are linked to its overall

subscribership -- would decline, while the costs it would have to incur to market its service

against dozens or perhaps hundreds of other a la carte services would dramatically increase.

Faced with this squeeze of lower revenues and higher costs, BTV would have little choice but to

14 See Higgins, supra note 9 (noting subscribership figures for leading premium services). 15 The Canadian experience with a la carte provides a cautionary tale in this respect, as well. Under the Canadian model, digital programming networks are offered on an a la carte basis, but very few subscribers actually buy individual channels. See Ted Hearn, Canadian ‘Carte’ For Real, Multichannel News (May 31, 2004). See also Remarks of Michael Hennessy, President and CEO, Canadian Cable Television Association, before the Washington Metropolitan Cable Club (June 29, 2004) (describing difficult business prospects of digital networks offered on an a la carte basis).

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reduce its programming budget. This, in turn, would reduce program quality and limit the appeal of the service to MVPDs and potential subscribers. In short, it is difficult envisioning BTV succeeding, or even surviving, in this environment.

A. Mandatory A La Carte Or Themed Tiering Would Sharply Limit BTV’s Ability To Generate Advertising And License Fees.

As noted, BTV generates most of its revenues today from advertising on its morning business news programming. The rates BTV can charge for those advertising spots are dependent on a number of factors, including: the number of potential viewers (i.e., the total number of MVPD subscribers that can watch the programming); the number of actual viewers

(i.e., the number of viewers as measured by Nielsen); the demographics of the average BTV viewer; the length of the advertising buy (i.e., an advertiser that purchases several weeks or months of advertising will generally get a better advertising rate than an advertiser that purchases a day or week’s worth of advertising); and the volume of the advertising buy. Perhaps, the most critical of these factors are the number of actual and potential viewers. Advertisers, of course,

pay close attention to a program’s Nielsen rating, but also value the potential audience reach of

that program.16

An a la carte or themed-tier mandate would, as noted above, reduce the number of subscribers watching BTV programming -- which, in turn, means fewer actual and potential

BTV viewers and fewer advertising dollars.17 For example, E! will almost certainly lose

16 This analysis is based on how advertising is sold on analog networks. Nielsen does not measure audience share for digital networks at this time, which naturally affects the amount of advertising BTV and other programmers can generate for their digital services. Moreover, once Nielsen starts metering digital networks (presumably once digital penetration reaches a certain level), it is difficult to predict how such metering will be done and how it will be viewed by advertisers. For example, it is uncertain whether a 0.2 Nielsen rating for an analog program will be viewed the same as the same rating score for a digital program, all else being equal. 17 There is an added complication with a themed-tier model. BTV anticipates that under themed tiering, it would be grouped with other news and information services, such as CNN, CNBC, and MSNBC. This arrangement (footnote continued …)

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subscribers under an a la carte or themed-tier requirement. Consequently, BTV’s ability to

generate advertising sales on the programming it syndicates on E! will decline. Likewise,

mandatory a la carte or themed tiering will make it impossible for BTV to retain its existing 32

million subscribers to its 24-hour digital service, let alone reach its goal of reaching 40 million

(or more) subscribers. As a result, BTV’s plans to generate significant advertising fees off its

24-hour service will be completely undermined.18

A la carte and themed tiering would also reduce BTV’s license fees. As noted, BTV

generates only modest license fees today. Those fees are generally calculated on a per-

subscriber basis, so any decline in BTV’s audience will translate into lower license fee payments.

B. Mandatory A La Carte Or Themed Tiering Would Impose Higher Marketing and Other Costs On BTV.

Not only would a la carte or themed tiering result in fewer subscribers, and thus lower

advertising and license fees, it would also impose heavy marketing costs on BTV. As noted,

BTV currently has to spend very limited resources promoting its service to subscribers. That

situation would change dramatically under mandatory a la carte or themed tiering. Under such a

regime, BTV would have to budget significantly more resources for marketing the service to

subscribers. BTV would have to sell its service to attract individual subscribers, as well as resell

the service every month to retain existing subscribers. The more that BTV has to spend on these

(… footnote continued) might affect BTV’s ability to attract advertising dollars since every news provider in the news package would essentially be competing for the same sponsors. 18 Some have suggested that while a la carte would result in fewer subscribers and thus a decline in advertising revenue, some of the lost revenue could be offset by the increased value advertisers place on those viewers willing to purchase BTV on an a la carte basis. This argument, however, ignores the realities of television advertising. Advertisers tend to place a higher value on reaching a wider group of viewers (and potential purchasers of their products and services), rather than the same viewers over and over again. Advertisers could probably count on regular BTV viewers seeing their BTV-distributed commercials whether the service is carried a la carte, on a themed tier, or on a standard tier. What the advertiser loses, however, in an a la carte or themed-tier model, are many random viewers that might occasionally sample the service. Advertisers will therefore pay less for commercial spots on programming distributed via a la carte or themed tiers.

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marketing efforts, the less resources that would be available for new programming

development.19

C. Mandatory A La Carte Or Themed Tiering Would Ultimately Compromise BTV’s Ability To Distribute A Viable Program Service.

BTV would have few ways to respond to the budgetary squeeze imposed by mandatory a

la carte or themed tiering. Some programmers might have the leverage with their cable and

satellite distributors to demand higher license fees to offset the drop in advertising revenues and

increase in marketing costs.20 BTV, with only 32 million subscribers, does not have this luxury.

As a practical matter, BTV’s only realistic option would be to cut its programming

budget.21 As a result, the quality of BTV’s programming, as well as that of the many networks

that exist on the digital tier, would markedly decline. BTV would not have the resources to

innovate and provide new services in response to consumer demand.22 The likely outcome is a

19 See Testimony of George Bodenheimer, President, ESPN Inc. & ABC Sports, before the Senate Commerce Committee (Mar. 25, 2004) (“A la carte will force all channels to expend millions of dollars in marketing and cable providers to spend huge sums on transaction costs to account for churn brought upon by people adding and dropping channels.”). See also Douglas Shapiro, Broadband Brief: Could Cable ‘Rate Regulation’ Benefit Cable Operators, Banc of America, at 7 (Mar. 19, 2003) (“Banc of America Report”) (noting that, under mandatory a la carte, “programmers would lose advertising revenues and suffer much higher marketing costs, possibly driving the marginal programmer out of business”); Raymond Lee Katz, A La Smart, Bear Stearns Equity Research, at 5 (Mar. 29, 2004) (“Bear Stearns Report”) ( “[W]e believe programmers would have to step up their marketing activity to appeal to the consumer directly in an a la carte world. This incremental expense could also eat into their programming investment.”). 20 It is worth noting that those higher license fees would result in higher consumer prices. See General Accounting Office, Issues Related to Competition and Subscriber Rates in the Cable Television Industry, GAO-04- 8, at 36 (Oct. 2003) (“GAO Report”) (“Because increased license fees, to the extent they occur, are likely to be passed on to subscribers, it appears that subscribers’ monthly cable bills would not necessarily decline under an a la carte system.”). 21 See id. (noting that, “if cable networks see advertising revenues decline, they will also likely take steps to reduce production costs, because cable operators might be unwilling to accept increases in license fees to fully offset the decline in advertising revenues”). 22 See Anne Marie Squeo & Joe Flint, Should Cable Be A La Carte, Not Flat Rate?, Wall St. J., at B1 (Mar. 26, 2004) (quoting Susan Packard, president of new ventures for Scripps Networks, as saying that a la carte “would have a dire impact on our ability to generate original programming”). See also Testimony of Paul Fitzpatrick, Executive V.P. of Crown Media Holdings, before the House Commerce Subcommittee on Telecommunications and the Internet (July 14, 2004) (“If [Hallmark Channel’s] subscriber and advertising revenues were reduced, we would have to reduce [Hallmark’s] programming expense substantially.”).

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vicious cycle in which BTV would have a more and more difficult time attracting subscribers

and gaining (or even retaining) distribution on cable and DBS systems. It is difficult envisioning

BTV succeeding in this type of environment.

It is important to stress that such harms to BTV and other programmers would result

regardless of whether a la carte offerings or themed tiers are mandated in lieu of existing cable

tiers or as a supplement to them. This is the case because customers that select services on an a

la carte or themed-tier basis will necessarily not select at least some, and likely most, of the

services offered as part of the operator’s standard tiers. A hypothetical helps illustrate this point.

For example, assume that 100 customers subscribe to a standard programming tier. Now assume

that those customers are given the option of selecting services via a la carte or themed tiers, and

25 of the subscribes elect this option but only five of those 25 take BTV via a la carte or a themed tier. At the end of the day, BTV would have 80 subscribers (i.e., 75 subscribers to the standard program tier plus five a la carte/themed-tier subscribers), 20 fewer than it had under the original standard tier model. That subscriber loss would translate into the same revenue reduction effects discussed above.

The impact of mandatory a la carte or themed tiering on BTV and similarly situated networks would have profound implications for the diversity of programming available to consumers. Many niche services today serve the small but very important interests of consumers in the areas of women’s issues, minority programming, the arts, family programming, and local news. Many of these services, standing alone, would, like BTV, attract only a small number of viewers and would see their license fee and advertising revenues plummet to a point that cannot

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be overcome by raising their license fees.23 As a result, many of them would not survive.24

Likewise, it would be very difficult to launch new services, which are expensive to start, take years to begin to recover their costs, and are already highly risky even under the industry’s existing business model.25 Under a mandatory a la carte or themed-tier scheme, with reduced subscribers from the outset, the prospects that a new service could succeed are very dim. Serious investment analysts agree with these dire predictions:

• Banc of America has noted that the “combination of foregone ad revenue and much higher marketing costs could substantially reduce programmers’ margins” and “probably result in marginal networks shutting down and significantly raise entry barriers for new nets.”26

• Bear Stearns has said that: “We believe [that] many of the smaller, nascent networks would find it difficult to survive in an a la carte environment, reducing consumer choice.”27

BTV respectfully urges the Commission to highlight in its report to Congress the serious

problems associated with mandatory a la carte and themed tiers and to recommend that Congress refrain from pursuing these debilitating regulatory constructs.

23 See Testimony of Alfred Liggins, Chairman of TV One, before the House Commerce Subcommittee on Telecommunications and the Internet (July 14, 2004) (“Less distribution not only means less revenue from subscription fees and advertising, it means less money we can invest in programming. Without the ability to invest in quality programming, networks aimed at a minority audience will undoubtedly be much less attractive to viewers.”). 24 More generally, mandatory a la carte and themed tiering would likely have a homogenizing effect on cable programming services since the only way for programmers to survive would be to offer programming that is appealing to the widest possible audience. Of course, this is not necessarily a recipe for success either. With most programmers following the same business model, it becomes harder for individual networks to distinguish themselves and attract subscribers. 25 See Allison Romano, The Final Frontier, Broadcasting & Cable (May 3, 2004) (“New channels typically need $100 million to $150 million to break even.”). 26 See Banc of America Report at 7. 27 See Bear Stearns Report at 5.

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The NOI asks if and how “the rules governing retransmission consent and must-carry limit consumers’ ability to select their own programming.”28 As BTV and others have noted in other Commission proceedings, current retransmission consent and must-carry policies discourage program diversity in the MVPD marketplace.29

With respect to retransmission consent, it has been well documented how the broadcast networks have leveraged the retransmission consent rights of their affiliated stations to demand

MVPD carriage for their non-broadcast programming networks.30 As a consequence, MVPDs must dedicate scarce channel capacity to network-affiliated content, rather than letting programmers fairly and freely compete for carriage based on consumer choice and demand. The net result is that independent programmers like BTV, which have no network affiliation, have a more difficult time gaining carriage, particularly on the most highly penetrated tiers of service.

28 See NOI at 2. The Commission also invited comment on the harmful effects of retransmission consent tying arrangements in its digital must-carry proceeding. See In the Matter of Carriage of Digital Television Broadcast Signals, First Rept. & Order & Further NPRM, 16 FCC Rcd. 2598, ¶ 121 (2001). In addition, the Commission adopted conditions in its order approving the News Corp.-DirecTV merger to address the potential harms caused by the retransmission consent process. See In the Matter of General Motors Corp. and Hughes Electronics Corp., Transferors, and The News Corp. Limited, Transferee, For Authority to Transfer Control, Mem. Opin. & Order, 19 FCC Rcd. 473, ¶¶ 201-226 (2004). 29 See, e.g., BTV/TechTV Ex Parte, filed in CS Dkt. No. 98-120, Attach. at 1-2 (Oct. 23, 2003) (detailing harmful effects of must-carry); HBO Ex Parte, filed in CS Dkt. No. 98-120 (Jan. 22, 2004) (same). See also American Cable Association (“ACA”), Petition for Inquiry into Retransmission Consent Practices (Oct. 1. 2002) (“ACA Petition”) (describing harmful effects of retransmission consent tying arrangements); Cox Comments, filed in MB Dkt. No. 02-277, at 41-47 (Jan. 2, 2003) (same) (“Cox Comments”); Mediacom Revised Reply Comments, filed in MB Dkt. No. 02-277, at 53-56 (Feb. 10, 2003) (same). 30 See, e.g., Cox Comments at 43-44 (noting that Disney used the retransmission consent process for its ABC affiliates to force Cox to carry SoapNet and that NBC used the same approach to compel carriage of MSNBC and CNBC). See also ACA Petition at 11 n.20 (“News Corp. continually ties retransmission consent for Fox Networks to carriage of Fox Sports, Fox News, FX, National Geographic Channel, and Fox Health Channel[.]”); ACA Comments, filed in MB Dkt. No. 04-207, at 32 (July 12, 2004).

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The must-carry regime imposes similar harms on program diversity. As BTV has noted

in the Commission’s must-carry docket, BTV has been unable to obtain carriage in some of the

most important large markets because of the capacity constraints imposed on cable systems by

must-carry.31 Adoption of proposals to expand broadcasters’ must-carry rights in the digital environment would further harm independent programming services like BTV. For example, under the broadcasters’ multicast must-carry proposal, a digital broadcaster would be entitled to

guaranteed carriage for six or more separate video services (based on today’s compression

technology), rather than the single primary video service allowed under existing must-carry

rules. Moreover, in markets where duopolies are allowed, that broadcaster could control up to 12

video services on the cable system.

Granting such preferential treatment to broadcasters -- when non-broadcast programmers like BTV are forced to compete for audiences in the marketplace -- would, if anything, diminish

program diversity.32 If, however, the Commission rejects multicast must-carry, broadcasters

would, like every other non-broadcast programmer, be forced to develop high-quality digital

programming on its multicast feeds in order to obtain carriage and compete more effectively.

That is the best formula for enhancing program diversity and accelerating the digital TV

transition.

31 See BTV/TechTV Ex Parte, supra note 29, at 1. See also NCTA Ex Parte, filed in CS Dkt. No. 98-120, Attachment: Why the FCC Should Not Adopt a Broad View of the “Primary Video” Carriage Obligations: A Reply to the Broadcast Organizations (Nov. 24, 2003) (constitutional analysis by Professor Laurence H. Tribe); Comcast Ex Parte, filed in CS Dkt. No. 98-120 (Oct. 16, 2003). 32 Broadcasters are also simply wrong in asserting that cable capacity is unlimited and that cable operators will have no difficulty accommodating an extra dose of broadcast must-carry services. HDTV, video-on-demand, and other advanced services are starting to squeeze the capacity of even high-bandwidth cable systems. See Cable Operators Seek to Create Capacity for New Services, Comm. Daily, at 4 (June 21, 2004) (noting that in New York City, “Time Warner Cable doesn’t have enough room for 4 HD channels, including its parent company’s own new TNT HD service”). See also John M. Higgins & Ken Kerschbaumer, Cable Operators; Still No Space 85 Billion Dollars Later, Broadcasting & Cable (June 14, 2004).

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V. CONCLUSION

Based on the foregoing, BTV respectfully requests that the Commission submit a report

to Congress that: (1) highlights the significant harms of mandatory a la carte and themed tiering to BTV and similarly situated networks; and (2) urges Congress to refrain from imposing such requirements on programmers and/or cable and DBS operators.

Respectfully submitted,

/s/ Francis M. Buono Francis M. Buono Jonathan A. Friedman McLean Sieverding Willkie Farr & Gallagher LLP 1875 K Street, N.W. Washington, D.C. 20006-1238 (202) 303-1000

Attorneys for BTV

July 15, 2004

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APPENDIX A

BLOOMBERG TELEVISION OVERVIEW

DESCRIPTION

A sophisticated 24-hour business and financial news channel, BLOOMBERG TELEVISIONSM delivers power tools for power players and serious investors via 10 networks in seven languages, reaching over 200 million homes around the world. We build on our world-class resources to present up-to-the-minute coverage of financial news and markets, bringing our journalistic expertise to our programming with the best reporters to deliver the news and the best journalists to add perspective and analysis. Our multi-screen format displays information at a glance for investors who need quick, reliable news and data as market conditions change.

DISTRIBUTION

United States

BLOOMBERG TELEVISION is distributed to over 32 million subscribers in the United States (and also 86 million part-time on E! Entertainment Television as part of BLOOMBERG TELEVISION 's morning broadcast from 5-8AM Monday through Friday). Pay television programming distributors carrying BLOOMBERG TELEVISION include Time Warner Cable, Cox, Comcast, Adelphia, Cablevision, Charter, Cequel, DIRECTV, and EchoStar.

International

BLOOMBERG TELEVISION is available to more than 200 million households worldwide. To emphasize financial news of local interest, BLOOMBERG TELEVISION distributes its programming through ten regionally focused networks in seven languages.

BLOOMBERG TELEVISION also provides BLOOMBERG INTERACTIVE TELEVISION, the world's first financial interactive product that allows viewers to access financial information on demand. BLOOMBERG INTERACTIVE TELEVISION reaches over 7 million subscribers on Dish Network. Bloomberg INTERACTIVE TELEVISION operates in affiliation with OpenTV and others. BLOOMBERG TELEVISION also provides Video on Demand (VOD) programming segments from BLOOMBERG TELEVISION available to viewers whenever they want it, through their multichannel operator. No waiting for a scheduled airtime. Viewers simply browse thru a menu of content options and select according to their interests. Bloomberg On Demand now reaches digital cable subscribers via Insight.

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AUDIENCE

BLOOMBERG TELEVISION attracts a unique audience of senior executives and decision- makers, professional investors, and consumers. According to Nielsen Media Research, BLOOMBERG TELEVISION outdelivers CNBC with early morning business news viewers (M-F/5am-8am) aged 25-54. The BLOOMBERG TELEVISION audience also includes early adopters enthusiastic about developing technologies. BLOOMBERG TELEVISION viewers are more likely to subscribe to a digital tier than viewers of other emerging networks, and the number of BLOOMBERG TELEVISION subscribers who have been active Internet users for 5 or more years is substantially higher than the national average.

WEB SITE

BLOOMBERG.COM is one of the top multimedia sites for breaking financial news, investor tools and data. BLOOMBERG.COM is the global information standard for business and finance. Drawing from the extraordinary power of the BLOOMBERG PROFESSIONAL service – the information source that the financial world depends on – visitors get quick, easy access to data and analytical tools available nowhere else. BLOOMBERG.COM provides content in any format our visitors require, including around-the-clock access to live, streaming video.

NETWORK PROGRAM GUIDE

MONDAY-FRIDAY (All times EST)

5:00 AM to 6:00 AM BLOOMBERG Morning Markets Get the first word on what’s going on with your money starting at 5:00 AM. Go live to the world’s financial centers -- London, Hong Kong and Tokyo -- to hear first-hand what’s moving the markets globally and what to expect when the U.S. trading begins. You’ll also get something that no other financial news service can provide: Bloomberg intelligence. Through the power of the BLOOMBERG PROFESSIONALSM service we bring you the market insight and perspective that professional investors use to make trading decisions every moment. The Bloomberg Edge is a powerful tool that can help you make money every day.

6:00 AM to 8:00 AM Morning Call Start your morning with an indispensable rundown of information direct from Wall Street when you watch Morning Call. Find out what traders and money managers are thinking when Bloomberg reporters plug you into the latest buy and sell recommendations, research notes and economic forecasts, hot stocks for the trading day ahead, and interview with leading CEOs and market luminaries. The 6:00-8:00 AM block also spotlights the power of the BLOOMBERG PROFESSIONALSM service. Through sophisticated analytics, you’ll learn about stocks that

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could benefit you during the upcoming trading session. Morning Call is a combination of information and insight that will prove invaluable as you make investment decisions.

8:00 AM to 11:00 AM BLOOMBERG on the Markets Breaking financial news begins now. Tune in every day for an update on where the money is moving – and what’s moving it – starting 90 minutes before the U.S. market opens. We have everything you need - from company news and analyst intelligence, to the latest readings on the economy that sets the tone for the markets. You also get a jump on the U.S. open with a status report on the action in Europe. You get the latest trader talk, interviews with the big portfolio managers, and we take a look at the BLOOMBERG Professional Service to see where the institutional bids and offers stand and deliver. It all happens on BLOOMBERG on the Markets. When the bell rings, we go to the exchange, where we talk with the analysts whose morning research notes move the market. After the bell, we take a look and what’s moving, who’s gaining and who’s losing, plus breaking news that affects the markets. We take you to the Street, the big board, the Nasdaq, the futures pits in Chicago, and inside the BLOOMBERG Professional service to see what traders are doing with their money. BLOOMBERG on the Markets: Your market wakeup call with everything you need to know, everyday.

11:00 AM to 12:00 PM European Market Report At the end of the trading day in Europe, experienced investors and money professionals need first-class analysis of what moved the markets, and why. We count you down to the close with live reports from the key money centers in Europe. We talk to Europe's top market strategists to get the final word on what happened on the markets.

12:00 PM to 1:00 PM In Focus In Focus is a first-of-its kind program that tackles the major story of the day with a multi-angle approach viewers will find only on BLOOMBERG TELEVISION. In Focus takes you beyond the day's market news and headlines to feature insight, perspective and analysis from newsmakers, opinion leaders, and corporate executives, and all backed by the global strength of the most respected name in financial news journalism: Bloomberg. In Focus is anchored by Erin Burnett.

1:00 PM to 3:00 PM Marketline Other business news programs may give investors lists of stocks that are on the move. Marketline takes a multi-angle approach to two or three stocks per day, and offers news, insight and analysis that take investors beyond the day's headlines. Anchor Ellen Braitman and Stocks Editor Matt Nesto put the power of the BLOOMBERG PROFESSIONAL service to work for investors as they talk with money managers, analysts and executives.

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3:00 PM to 6:00 PM World Financial Report World Financial Report keeps you on top of the global events that can impact your investment decisions. This program provides insight on the U.S. financial markets and a first look at how the trading day is shaping up, from Tokyo to London. Live updates from the New York Stock Exchange, Nasdaq, and BLOOMERG NEWS studios in London and Asia, plus live interviews with leading CEO's, fund managers, money managers and other news-makers. World Financial Report also gives viewers the Bloomberg Edge: reporting that takes investors inside the world's most valuable financial tool: the BLOOMBERG PROFESSIONALSM service.

6:00 PM to 10:00 PM BLOOMBERG Live Need to get to the heart of the news and be part of the action? With BLOOMBERG Live, you can be on top of Asia’s financial and business news when and where it happens. Award-winning presenter Catherine Yang heads a team of more than 200 Bloomberg reporters live and on-the- ground in 20 cities across the Asia-Pacific region, ensuring you’re part of the news as it breaks. BLOOMBERG Live reports live from bureaus in Tokyo, Hong Kong, Sydney, Singapore, Seoul, Taipei, Shanghai, Beijing and beyond. Plus, tune-in for interviews with the day's big newsmakers including CEO's, business analysts and top industry experts, who together give you the inside view from the region and the world’s money centers. BLOOMBERG Live also brings you the overnight business news and market movements from Europe and provides an assessment of how they'll affect local trading - giving you an exclusive preview of the day ahead. BLOOMBERG Live also features the latest updates of world news, weather, and sports, keeping you up-to-date with all the headlines throughout the day.

10:00 PM to 12:00 AM BLOOMBERG Now From news bureaus located throughout the Asia Pacific region, we track the market moving news to keep you updated with the unfolding Asian trading day. In this jam-packed four-hour session, anchor Gene Otani heads a team of over 200 reporters in more than 20 cities in the region who deliver breaking business news headlines and market analysis, plus the latest world news and weather updates.

12:00 AM to 3:00 AM BLOOMBERG European Market Countdown BLOOMBERG TELEVISION sets the stage for the trading day ahead. A full look at how overnight trading in the U.S. and Asia might affect your investment decisions in the day ahead plus all the breaking news that will set the tone of the markets. As the European trading day dawns, Bloomberg also brings the CEOs, the analysts and market movers to bring you all you need to know. We are live from Tokyo, Hong Kong, Paris, Frankfurt and Amsterdam with the latest financial information live to your screen.

3:00 AM to 5:00 AM BLOOMBERG on the Markets Track your investments during the European trading morning on BLOOMBERG TELEVISION Throughout the morning, Bloomberg’s Money Desk keeps you up-to-date on what is moving and

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why on the European equity markets. We also get you ready for the opening of trading on Wall Street. Let Bloomberg take you live to the analysts and market-movers in London, Paris, Frankfurt, Madrid, Milan, Zurich and New York.

SATURDAY-SUNDAY

5:30 AM to 6:00 AM BLOOMBERG® Money Start your Saturday with the latest-breaking world news and a recap of the week on Wall Street. Once you’re up to date, have breakfast with the world’s top Chief Executive Officers. The Bloomberg News Team interviews CEOs whose companies are making news you can use to make money.

6:00 AM to 6:30 AM BLOOMBERG Small Business If you own or work for a small business, or have always wanted to start a business of your own, BLOOMBERG Small Business is the show for you. We speak with successful entrepreneurs, bringing their life lessons to you. Financial experts who specialize in helping small business owners are also featured, along with coverage of the latest political and economic developments of concern to small business. This program also highlights the latest world and national news.

6:30 AM to 7:00 AM BLOOMBERG Personal Finance BLOOMBERG Personal Finance is all about your money! We bring you the latest insights on how to make money, how to save it, how to invest it, and how to spend it. The program includes in-depth coverage of the top news on Wall Street with a recap of the week’s market action. Professional money managers and analysts bring their expertise and commentary to BLOOMBERG Small Business each week. This program also features that latest world and national news every Saturday morning

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