S. HRG. 113–682 AT A TIPPING POINT: CONSUMER CHOICE, CONSOLIDATION AND THE FUTURE VIDEO MARKETPLACE HEARING BEFORE THE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION UNITED STATES SENATE ONE HUNDRED THIRTEENTH CONGRESS SECOND SESSION JULY 16, 2014 Printed for the use of the Committee on Commerce, Science, and Transportation ( U.S. GOVERNMENT PUBLISHING OFFICE 95–652 PDF WASHINGTON : 2015 For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 13:58 Jul 29, 2015 Jkt 075679 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\GPO\DOCS\95652.TXT JACKIE SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION ONE HUNDRED THIRTEENTH CONGRESS SECOND SESSION JOHN D. ROCKEFELLER IV, West Virginia, Chairman BARBARA BOXER, California JOHN THUNE, South Dakota, Ranking BILL NELSON, Florida ROGER F. WICKER, Mississippi MARIA CANTWELL, Washington ROY BLUNT, Missouri MARK PRYOR, Arkansas MARCO RUBIO, Florida CLAIRE MCCASKILL, Missouri KELLY AYOTTE, New Hampshire AMY KLOBUCHAR, Minnesota DEAN HELLER, Nevada MARK BEGICH, Alaska DAN COATS, Indiana RICHARD BLUMENTHAL, Connecticut TIM SCOTT, South Carolina BRIAN SCHATZ, Hawaii TED CRUZ, Texas EDWARD MARKEY, Massachusetts DEB FISCHER, Nebraska CORY BOOKER, New Jersey RON JOHNSON, Wisconsin JOHN E. WALSH, Montana ELLEN L. DONESKI, Staff Director JOHN WILLIAMS, General Counsel DAVID SCHWIETERT, Republican Staff Director NICK ROSSI, Republican Deputy Staff Director REBECCA SEIDEL, Republican General Counsel and Chief Investigator (II) VerDate Nov 24 2008 13:58 Jul 29, 2015 Jkt 075679 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\95652.TXT JACKIE C O N T E N T S Page Hearing held on July 16, 2014 ............................................................................... 1 Statement of Senator Rockefeller ........................................................................... 1 Statement of Senator Thune ................................................................................... 3 Statement of Senator Booker .................................................................................. 48 Statement of Senator Nelson .................................................................................. 51 Statement of Senator Markey ................................................................................. 53 Statement of Senator Heller ................................................................................... 56 Statement of Senator Ayotte ................................................................................... 58 Statement of Senator Blunt .................................................................................... 60 Statement of Senator Blumenthal .......................................................................... 62 Statement of Senator Klobuchar ............................................................................ 65 WITNESSES David L. Cohen, Executive Vice President, Comcast Corporation ...................... 5 Prepared statement .......................................................................................... 6 Justin (Gus) Hurwitz, Assistant Professor of Law, University of Nebraska College of Law ...................................................................................................... 21 Prepared statement .......................................................................................... 23 John T. Stankey, Group President and Chief Strategy Officer, AT&T Inc. ....... 24 Prepared statement .......................................................................................... 26 Jeffrey H. Blum, Senior Vice President and Deputy General Counsel, DISH Network L.L.C. ..................................................................................................... 28 Prepared statement .......................................................................................... 30 Shawn Ryan, Member, on behalf of Writers Guild of America, West ................. 32 Prepared statement .......................................................................................... 34 Gene Kimmelman, President and CEO, Public Knowledge ................................. 39 Prepared statement .......................................................................................... 41 APPENDIX Response to written questions submitted to David L. Cohen by: Hon. John D. Rockefeller IV ............................................................................ 79 Hon. Barbara Boxer ......................................................................................... 80 Hon. Mark Pryor ............................................................................................... 85 Response to written questions submitted by Hon. Mark Pryor to: Justin (Gus) Hurwitz ....................................................................................... 86 John T. Stankey ................................................................................................ 88 Jeffrey H. Blum ................................................................................................ 89 Gene Kimmelman ............................................................................................. 90 (III) VerDate Nov 24 2008 13:58 Jul 29, 2015 Jkt 075679 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\95652.TXT JACKIE VerDate Nov 24 2008 13:58 Jul 29, 2015 Jkt 075679 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\95652.TXT JACKIE AT A TIPPING POINT: CONSUMER CHOICE, CONSOLIDATION AND THE FUTURE VIDEO MARKETPLACE WEDNESDAY, JULY 16, 2014 U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. The Committee met, pursuant to notice, at 2:40 p.m. in room SR–253, Russell Senate Office Building, Hon. John D. Rockefeller IV, Chairman of the Committee, presiding. OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, U.S. SENATOR FROM WEST VIRGINIA The CHAIRMAN. Welcome all. The attendance does not represent on our part so far the interest in this subject. We just were fin- ishing up a vote. Sometimes people tarry just a bit when that hap- pens. But this is a very serious hearing and a very important hearing. So, I am going to make my opening statement and then turn it over to Senator John Thune. Today we are here to discuss the future of the video marketplace. We are continuing a conversation which the Committee began sev- eral years ago, 2 years ago, I think, on an examination of the emer- gence of online video. I produced a bill, which caused some angst on K Street, but obvi- ously opened up a conversation, which we are going to be con- tinuing today. This bill asks whether it has the ability to bring more quality content and more choice to consumers. The past 2 years have confirmed from my perspective the ability of online video to resonate with consumers and to generate critical acclaim. In fact, just last week an online video provider—to be precise, Netflix—whose CEO declined to be here today, which I cannot fig- ure out because I am trying to help him, I think, but he did not want to be here—anyway, the provider got 30 Emmy nominations and produced two online-only TV shows that are generally recog- nized by some to be the best TV shows airing today. Whether that is true or not, I just do not know. It remains an open question whether online video can become the driving force of a consumer-centric revolution in the video market- place, a matter which interests me greatly. While it is true that at least one online video provider, that being Netflix, has more subscribers today than any one cable or satellite (1) VerDate Nov 24 2008 13:58 Jul 29, 2015 Jkt 075679 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\95652.TXT JACKIE 2 provider, combine those two categories together, and they have more. No online video platform has emerged that can compete on equal footing with traditional cable or satellite service. It is important to remember that these online providers are reliant on broadband providers to reach consumers, and hence, the complexity of our dis- cussion. Last November, as I guess I already said, I introduced the ‘‘Con- sumer Choice in Online Video Act.’’ That legislation is designed to start a real conversation about how to foster the growth of online video services. My bill provides them the breathing room necessary to compete on a level playing field with tradition pay TV services. I continue to believe that one of the core policy questions that the Congress must grapple with as it looks to reform video policy is how to nurture new competitive technologies and services, and make sure that incumbents cannot simply perpetuate the status quo of ever increasing pay TV bills rising at a rate faster than in- flation and limited programming choice. This is particularly true when we have real world examples of at least one former cable CEO announcing to the world that his com- pany actively tried to prevent the growth of new competitive online video services. I know everybody says that and you are probably tired of hearing it, but it does kind of make a point because he was head of a cable service. Make no mistake, the video marketplace is at a tipping point. That is why there are so many of you here and that is why this is such a crucial point. The video marketplace—the two proposed mergers could fun- damentally reshape the marketplace. As press reports as recently as today indicate, there could be significant