CITY OF Los ANGELES STEVE RENEKER CALIFORNIA INFORMATION TECHNOLOGY GENERAL MANAGER AGENCY CHIEF TECHNOLOGY OFFICER
ROOM 1400, CITY HAl-I.. EAST 200 NORTH MAIN STREET MARK P. WOLF L.OS ANGEL.ES, CA 90012 EXECUTIVE OFFICER (2.13) 978-3311 FAX (2.13) 978·3310 ASSISTANT GENERAL MANAGERS TED M. Ross ITA.LACITY.ORG G·REG R. STODDARD
ERIC GARCETTI MAYOR June 2; 2014 REF: EXE-141-14
Honorable Members of the City Council City of Los Angeles Room 395, City Hall Los Angeles, CA 90012
Subject: UPLINK FACILITY FOR SATELLITE CARRIAGE OF LA CITYVIEW 35 (CF NO. 14-0517 - LABONGE-ENGLANDER MOTION)
Dear Councilmembers:
The information provided herein is in response to Los Angeles City Council motion - CF No. 14-0517 (LaBonge- Englander) - instructing the Information Technology Agency (ITA) to report on the feasibility of installing a satellite up-link facility for LA CityView 35 (Channel 35) to enable satellite dish customers to receive City cablecasts. This report addresses Los Angeles City (City) options and the financial impact along with the ITA's recommendations on obtaining distribution for the City's Governmental Access channel, Channel 35, on Direct Broadcast Satellite (DBS) systems, in particular DirecTV and DISH Network. The feasibility of installing as a satellite up-link facility for Channel 35 has been explored by ITA since 1999 on four separate occasions with findings on each occasion that such a possibility was economically and legally infeasible. A unique opportunity has recently arisen for the City that may produce a different result through the proposed and pending AT&T-DirecTV cable-satellite systems merger that may allow the City to obtain satellite carriage of Channel 35 ..
Background and ITA Recommendation The satellite broadcast marketplace is subject to a number of technological, legal and financial constraints. There are a few ways in which Channel 35 may be carried on Digital Broadcast Satellite (DBS) systems, ranging from direct purchase of airtime to attempting to become a "must carry" channel on an existing satellite network. All but one of the various options discussed below are likely to be economically and legally infeasible for the City to implement due to significant financial and/or legal obstacles and the City's continued strained budgetary and economic situation. However, the recent announcement by AT&T and DirecTV of their proposed merger may present a unique opportunity for the City's elected officials to seek air time on the newly proposed system that will arise from the AT&T and DirecTV merger. ITA recommends that the City Council and Mayor seek approval of the AT&T-DirecTV merger by resolution and letter filing to the Federal Communications Commission and Department of Justice
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COST NEUTRAL OPTION No.1 Pending Merger of ComcastiTime Warner Cable/Charter And Proposed Merger Of AT&T1DirecTV It should be noted that the pending merger of Comcast, Time Warner Cable and Charter would not affect whether Channel 35 can be carried by DirecTV and Dish networks. However, AT&T and DirecTV have announced that they will seek merger approval from the federal government to better compete with the companies that will develop from the pending merger of Comcast, Time Warner Cable and Charter. Although it is quite possible that AT&T may seek to provide all of its current Uverse video TV services through DirecTV if that model makes economic sense to AT&T, AT&T CEO Randall Stephenson recently stated that AT&T has no plans to shut down its Uverse video TV system after the merger. Since AT&T now carries the City's Public, Educational and Governmental Access (PEG) channels on its Uverse video TV system on Channel 99 and soon-to-be launched custom Channel 35, ITA recommends that the City Council and Mayor seek approval of the AT&T-DirecTV merger conditioned upon AT&T/DirecTV carriage of the City's PEG channels or alternatively only Channel 35, on both its Uverse and DirecTV systems. The recommended manner for the Council and Mayor to proceed, if this option is adopted, is for the City Council to adopt a resolution, with Mayoral consent, setting forth such a merger condition. Thereafter a supporting letter, along with the resolution, should be issued by the Mayor directed to the Federal Communications Commission and Department of Justice, the two federal agencies most likely to have approval authority over the merger. In addition, City representatives should meet with those two federal agencies requesting that approval of the merger should be subject to the carriage of the City's PEG channels, or at the very minimum Channel 35 on Uverse and DirecTV. As part of the process, ITA further recommends that City representatives contact AT&T and DirecTV to request that AT&T and DirecTV agree to such a condition or informally agree to carry Channel 35 on an on-going basis.
COST PROHIBITIVE AND/OR LEGALLY INFEASIBLE OPTIONS No.2 Satellite Uplink~~Direct Purchase On A DBS Network In a report, dated December 8, 1999, ITA first explored the issue of installing a satellite uplink facility for Channel 35. In that report, ITA staff concluded that it was potentially feasible for the City to provide Channel 35 programming to a satellite uplink provider in order to permit City residents with satellite receivers the ability to receive Channel 35. However, it was determined at that time that uplink capability alone would not automatically permit subscribers of DBS services such as DISH Network or DirecTV to receive Channel 35, because a separate carriage contract with one or more of these providers would be required. ITA had concluded that an individual contract for carriage of Channel 35 on a satellite network would not be financially cost-effective. (See Attachment 1 - PPE-685-99.) ITA currently believes the same to be true as set forth herein. Honorable Members of the City Council June 2,2014 Page 3
No.3 Satellite Uplink- Individual Subscribers Even without a satellite carriage contract on a network, the Channel 35 signal would in theory be viewable by individual owners of C-band satellite receivers who subscribe to a service allowing them to downlink directly from a satellite carrying the City's signal. This option, however, does not appear to be feasible from a financial standpoint, and there are few owners of C-band equipment. In 1999, for example, the reported cost of satellite time was approximately $850 per hour. The City would also need to pay for a satellite uplink facility, which would be required to transmit the City's signal to an orbiting satellite. In 1999, the daily cost of such services would have been at least $20,000 per day given that Channel 35 operates twenty four hours per day, and annual costs would have exceeded $7 million.
ITA staff researched this issue again in 2008 and had received a similarly cost- prohibitive estimate from PSSI Global Services as follows: The monthly rate for space on a C-band satellite transponder (6 MHz path) would have been $50,000 per month while the one-time cost of a C-band fixed uplink facility would have cost $400,000. In May 2014, ITA staff once again obtained an updated quote from PSSI Global Services and the monthly rate for space on a C-band satellite transponder (6 MHz path) is now $42,500 per month/$504,000 per year, while the one-time cost of a C-band fixed uplink facility remains the same at approximately $400,000. It should again be noted that, even with this expense, Channel 35 would not be carried on DBS networks such as DISH Network and DirectTV, but instead would only be available to individuals or businesses paying for direct downlink capability.
No.4 Must-Carry Status Pursuant to federal law, the Satellite Home Viewer Improvement Act ("SHVIA") mandates that once a satellite carrier exercises its editorial discretion to provide the programming of any local television broadcast station, also referred to as an "over-the- air station," within that station's local market, the satellite carrier must, upon request, carry without compensation the signals of every television broadcast station located within that local market.
Both DirectTV and DISH Network are currently providing programming from local television broadcast stations in Los Angeles. Thus both are required to carry the signals of all over-the-air television broadcast stations located within the Los Angeles market. Unfortunately, Channel 35 does not broadcast its Signal over the airwaves and is not considered a television broadcast station. Rather, LA Channel 35 is a "cablecast" station and does not qualify as a "must carry" channel for DBS providers. In order to become a television broadcast station, Channel 35 would need to apply to the FCC to acquire a broadcast license and an allocation of broadcast spectrum. ITA's earlier report to Council in December 1999 outlined this possibility and concluded that it would be expensive and that the receipt of available broadcast spectrum was far from certain. It should be noted that in 2009, ITA staff along with the assistance of outside legal counsel, estimated that the cost for an over-the-air FCC broadcast license and allocation of broadcast spectrum in the Los Angeles area would have been somewhere Honorable Members of the City Council June 2, 2014 Page 4 in the area of $400 million. A more recent estimate provided by the Los Angeles Unified School District is in the area between $80-120 million for the channel spectrum and FCC license. Adding to the uncertainty of available spectrum is the pending auction and sale of spectrum by the FCC which for the most part, will be highly sought after and bid on by the mobile phone providers.
No.5 Mandatory Carriage Similar To Cable Peg Structure Under the laws governing terrestrial cable systems, cable and video TV operators must set aside channel space for Public, Educational, and Government access ("PEG") channels. In a report dated October 27, 2003, to Council, ITA explored the option of instituting policies in Los Angeles to require setting aside channel capacity for public use on satellite networks in a manner similar to the PEG requirements applicable to cable franchises, including a requirement to broadcast Channel 35. (See Attachment 2 - OPP-674-03.)
In the 2003 report, ITA outlined the regulatory structure and environment surrounding the provision of satellite television and required channel set-aside for public use which remains unchanged through today. The obligation of cable operators to provide financial support and channel capacity for PEG use is not required in the DBS landscape. Federal law imposes a separate and distinct obligation for DBS providers, known as the Public Interest Obligation ("PIO"). The PIO requires DBS providers to reserve four percent of their channel capacity for non-commercial programming of an educational or informational nature. Programmers wishing to qualify for DBS carriage as a PIO channel are required to submit applications to the DBS providers. The FCC has specified criteria that the DBS providers are entitled to consider when selecting eligible applicants.
Under the FCC's criteria, the DBS provider selects among the applications and negotiates the details of any agreement, including the cost of carriage for those selected programmers. Requiring a DBS provider to set aside channel capacity for public use in a manner similar to PEG requirements of the City's cable operators does not appear possible within today's regulatory structure, as both DISH Network and DirecTV have met their four percent PIO threshold nationwide. In 2013, ITA staff reached out to representatives of DISH Network and DirecTV to explore the possibility of carriage of Channel 35. Those representatives indicated that they didn't have the bandwidth capacity to add to current satellite operations on a no-cost basis. However, the City could theoretically request a quote for carriage of the channel on a commercial contractual basis, which ITA staff would also indicate will be extremely costly to the City at this time.
No.6 The Purchase of Satellite Air Time from Independent Broadcasters In a follow-up report to Council dated March 15, 2004, ITA staff explored the possibility of purchasing air time from an independent broadcaster that had an existing carriage contract with a Direct Broadcast Satellite system. Both DirecTV and DISH Network have maintained a practice of carrying programming from local television broadcast Honorable Members of the City Council June 2,2014 Page 5 stations in Los Angeles. Some of these broadcast stations sell airtime to third party content producers via a timeshare agreement so it would be possible for the City to enter into a timeshare agreement with one or more of the broadcast stations. (See Attachment 3 - OAP-132-04.)
DirecTV and DISH Network retransmit major broadcast networks such as CBS, NBC, ABC, and Fox as well as local independent broadcast television stations such as KXLA, KAZA, KJLA, and KLCS. While it is certainly possible for Channel 35 to enter into a carriage agreement with one of the major networks to gain DBS distribution, there is a greater possibility of entering into this type of agreement with one of the local independent broadcasters carried by the DBS providers.
In an ITA report dated April 25, 2005, ITA identified independent broadcasters that expressed interest in selling airtime to the City to air Channel 35 programming. (See Attachment 4 - OPA-224-05.) Attached to that report were the timeslots and rates of those independent broadcasters. ITA summarized the 2005 air-time rates of the independent local broadcasters as follows:
Broadcaster Range KLCS $400 -$650 per hour timeslot KRCA $400 - $7500 per 30 minute timeslot KJLA $450 - $1800 per 30 minute timeslot KVMD 10% below the lowest quote submitted
These rates would probably become a significant burden to the City if it attempted to purchase substantial blocks of time from independent broadcasters to transmit Channel 35 programming. ITA staff did not update the quotes from these stations as it is unlikely that these costs are substantially lower at this time given the current rate quotes of KLCS as detailed below.
No. 7 Possible Carriage of Channel 35 on Los Angeles Unified School District's Over-The-Air Channel - KLCS KLCS is owned and operated by the Los Angeles Unified School District. KLCS is an over-the-air "must carry" channel for DBS operators in Los Angeles. KLCS has four (4) digital channels on which it airs educational content on a 24/7 basis. ITA staff obtained a quote for full-time and part-time carriage of Channel 35 on KLCS' primary and second tier digital channels. Under the direction of the Information Technology Agency, KLCS would provide continuous airtime for LACityview 35 on a KLCS second tier channel (58.2, 58.3 or 58.4) at a cost of $700,000 - $1,000,000 per month. Under the direction of the Information Technology Agency, KLCS would provide a programming block for LACityview 35 on KLCS primary channel (58 and 58.1) during (example: prime time every weeknight) and at other times mutually agreed upon at a cost of approximately $2,000.00 per hour. Under the direction of the Information Technology Agency, KLCS would provide a programming block for LACityview 35 on a KLCS second tier channel Honorable Members of the City Council June 2,2014 Page 6
(58.2, 58.3 or 58.4) during (example: prime time every weeknight) and at other times mutually agreed upon at a cost of approximately $2,000.00 per hour.
Fiscal Impact With the exception of all but one of the options presented above, DBS carriage would represent a significant and ongoing expense to the City. In addition, it should be noted that if the City obtained satellite distribution for Channel 35, it may have an adverse effect on cable/video TV franchise fees paid to the City by incumbent cable/video TV operators, including Time Warner, Cox, Charter, Verizon and AT&T, because the City receives gross revenue franchise fees from cablelvideo TV providers but not DBS providers. The exact financial impact on franchise fee revenue due to subscribers choosing to switch to satellite from cable/video TV if Channel 35 were available on .DirecTV is not known. In addition, with all but one of the options discussed above, the City would potentially incur DBS carriage costs exceeding Channel 35's entire yearly budget.
Recommendations Due to the significant expense and legal/regulatory difficulties, ITA recommends that the City not pursue airing of Channel 35 on DBS at this time unless it can do so through the AT&T/DirecTV merger approval process by actively requesting that the FCC and Department of Justice condition the approval of the AT&T/DirecTV merger upon the· carriage of the City's PEG access channels or at the very minimum, Channel 35 on DirecTV. A formal resolution of the City Council, supported by the Mayor's Office, and accompanying letter from the City Council directed to the FCC and Department of Justice who may approve the merger, in addition to meeting with those federal agencies, is the ITA recommended manner in which the City may obtain satellite carriage of Channel 35. As part of the process, ITA further recommends that City representatives contact AT&T and DirecTV to request that AT&T and DirecTV agree to such a condition or informally agree to carry Channel 35 on an on-going basis.
If you have any questions, please contact Mark Wolf at (213) 978-3311 or William Imperial at (213) 922-8383.
Respectfully submitted,
Steve Reneker General Manager
Attachments
cc: Honorable Mayor Erie Gareetti Richard Llewellyn, Office of the Mayor Honorable Ron Galperin, City Controller Honorable Members of the City Council June 2,2014 Page 7
Rick Cole, Office of the Mayor Dan Carocelli, Office of the Mayor Honorable Councilmember Blumenfield Honorable Councilmember Bonin Honorable Councilmember O'Farrell Laura McLennan, Council District 11 Stephanie Magnien, Council District 3 Harout Semerdjian, Council District 13 Miguel Santana, City Administrative Officer Jody Yoxsimer, Office of the City Administrative Officer Jenny Mach, Office of the City Administrative Officer Mandana Khatabshahidi, Office of the Chief Legislative Analyst Thomas Taitt, LAUSD Sabrina Thomas, LAUSD Mike Dundas, Office of the City Attorney Mark Wolf, Information Technology Agency William Imperial, Information Technology Agency Ted Lin, ITA