Media Ownership Hearing Committee on Commerce
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S. HRG. 108–889 MEDIA OWNERSHIP HEARING BEFORE THE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION UNITED STATES SENATE ONE HUNDRED EIGHTH CONGRESS FIRST SESSION MAY 6, 2003 Printed for the use of the Committee on Commerce, Science, and Transportation ( U.S. GOVERNMENT PRINTING OFFICE 22–587 PDF WASHINGTON : 2006 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 VerDate 0ct 09 2002 09:37 May 05, 2006 Jkt 022587 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\WPSHR\GPO\DOCS\22587.TXT JACKF PsN: JACKF SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION ONE HUNDRED EIGHTH CONGRESS FIRST SESSION JOHN MCCAIN, Arizona, Chairman TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West Virginia KAY BAILEY HUTCHISON, Texas JOHN F. KERRY, Massachusetts OLYMPIA J. SNOWE, Maine JOHN B. BREAUX, Louisiana SAM BROWNBACK, Kansas BYRON L. DORGAN, North Dakota GORDON SMITH, Oregon RON WYDEN, Oregon PETER G. FITZGERALD, Illinois BARBARA BOXER, California JOHN ENSIGN, Nevada BILL NELSON, Florida GEORGE ALLEN, Virginia MARIA CANTWELL, Washington JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey JEANNE BUMPUS, Republican Staff Director and General Counsel ROBERT W. CHAMBERLIN, Republican Chief Counsel KEVIN D. KAYES, Democratic Staff Director and Chief Counsel GREGG ELIAS, Democratic General Counsel (II) VerDate 0ct 09 2002 09:37 May 05, 2006 Jkt 022587 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 S:\WPSHR\GPO\DOCS\22587.TXT JACKF PsN: JACKF C O N T E N T S Page Hearing held on May 6, 2003 ................................................................................. 1 Statement of Senator Allen ..................................................................................... 21 Statement of Senator Burns ................................................................................... 4 Prepared statement .......................................................................................... 4 Statement of Senator Dorgan ................................................................................. 23 Statement of Senator Lautenberg .......................................................................... 5 Prepared statement .......................................................................................... 6 Statement of Senator Lott ...................................................................................... 7 Prepared statement .......................................................................................... 8 Statement of Senator McCain ................................................................................. 1 Prepared statement of George Bodenheimer, President, ESPN and ABC Sports ............................................................................................................. 24 Statement of Senator Nelson .................................................................................. 7 Statement of Senator Smith ................................................................................... 7 Statement of Senator Stevens ................................................................................ 2 Statement of Senator Sununu ................................................................................ 85 Statement of Senator Wyden .................................................................................. 3 WITNESSES Dolan, Charles F., Chairman, Cablevision Systems Corporation ........................ 30 Prepared statement .......................................................................................... 32 Gleason, James M., President and COO, CableDirect .......................................... 47 Prepared statement .......................................................................................... 49 Hindery, Jr., Leo, Chairman and CEO, YES Network ......................................... 63 Prepared statement .......................................................................................... 65 Kimmelman, Gene, Director, Consumers Union ................................................... 34 Prepared statement .......................................................................................... 36 Robbins, James O., President and CEO, Cox Communications ........................... 26 Prepared statement .......................................................................................... 28 Shear, William B., Acting Director, Physical Infrastructure, U.S. General Accounting Office; Accompanied by Amy Abramowitz, Assistant Director ..... 8 Prepared statement .......................................................................................... 9 APPENDIX Bodenheimer, George, President, ESPN and ABC Sports, letter, dated May 27, 2003, to Hon. John McCain ........................................................................... 92 Hollings, Hon. Ernest F., U.S. Senator from South Carolina, prepared state- ment ...................................................................................................................... 91 Inouye, Hon. Daniel K., U.S. Senator from Hawaii, prepared statement ........... 91 (III) VerDate 0ct 09 2002 09:37 May 05, 2006 Jkt 022587 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\WPSHR\GPO\DOCS\22587.TXT JACKF PsN: JACKF VerDate 0ct 09 2002 09:37 May 05, 2006 Jkt 022587 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\WPSHR\GPO\DOCS\22587.TXT JACKF PsN: JACKF MEDIA OWNERSHIP TUESDAY, MAY 6, 2003 U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. The Committee met, pursuant to notice, at 9:33 a.m. in room SR– 253, Russell Senate Office Building, Hon. John McCain, Chairman of the Committee, presiding. OPENING STATEMENT OF HON. JOHN MCCAIN, U.S. SENATOR FROM ARIZONA The CHAIRMAN. Good morning. Today we will be examining media ownership. In particular, we will examine competition in the market for video programming and distribution. Cable companies remain the dominant providers of subscription- video services. According to the Federal Communications Commis- sion, these companies have more than 75 percent of the market for delivering programming to consumers. Satellite companies and oth- ers have made some inroads over the past decade, but the market still belongs to cable. Consolidation in the market has resulted in a few very large cable companies with the lion’s share of the subscribers. Likewise, a few content companies, including cable operators and broadcast networks, own a substantial number of cable channels. I do not subscribe to the notion that big is always bad in a corporate envi- ronment, but along the way to significant consolidation in the cable industry we have seen a pattern of annual rate increases imposed on consumers that greatly outpace the rate of inflation. Since 1996, cable rates have increased 50 percent, almost three times the rate of inflation. In its annual report on cable rates, the FCC last year found that, ‘‘The overall average monthly rate for cable programming, services, and equipment increased by 7.5 percent for the 12-month period ending July 1st, 2001.’’ The FCC is expected to release its next re- port any day now, but given the announcement of 6 to 7 percent increases by many of the largest cable companies, I do not expect much to change. Perennial price hikes are not the hallmarks of a competitive in- dustry. In fact, the FCC report suggests that cable operators that face effective competition offer rates that are more than 6 percent lower than those companies that do not face effective competition. A subsequent GAO study suggests that even this number may be too conservative. (1) VerDate 0ct 09 2002 09:37 May 05, 2006 Jkt 022587 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\22587.TXT JACKF PsN: JACKF 2 Last year, the GAO found that, ‘‘in franchise areas with a second cable provider, cable prices are 17 percent lower than in com- parable areas without a second cable provider.’’ Clearly, competi- tion affects rates, but most cable companies face little competition. That is why I was disappointed last year when the FCC rejected the proposed merger of EchoStar and DirecTV. I thought the com- bined company would have been a better competitor to cable. Re- cently, Rupert Murdoch’s News Corporation entered an agreement to acquire a significant interest in DirecTV. If approved, the com- bined company will control a multinational satellite distribution system, multiple film and television studios, several Major League sports teams, a national television broadcast network, more than 30 broadcast television stations, the most watched cable news channel, a national sports programming network, including mul- tiple regional sports networks, multiple other cable channels, the national broadcast rights to Major League Baseball, half of the NASCAR racing season, every third Super Bowl, regional rights to 67 of 80 teams in the NBA, NHL, and Major League Baseball, and significant publishing outlets. I think the latest proposal raises in- teresting questions that I hope to discuss today. A common refrain from cable companies is that rate increases are largely attributable to the cost of programming, especially sports programming. Last week, the Wall Street Journal reported, ‘‘Some events always cause pain, like going to the dentist and pay- ing taxes. For cable and