Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of Annual Assessment of the Status of MB Docket No. 07-269 Competition in the Market for the Delivery of Video Programming COMMENTS OF DIRECTV, INC. William M. Wiltshire Susan Eid Michael Nilsson Senior Vice President, Government Affairs S. Roberts Carter Stacy R. Fuller WILTSHIRE & GRANNIS LLP Vice President, Regulatory Affairs 1200 Eighteenth Street, NW DIRECTV, INC. Washington DC 20036 901 F Street, Suite 600 (202) 730-1300 Washington, DC 20004 (202) 383-6300 Counsel for DIRECTV, Inc. May 20, 2009 TABLE OF CONTENTS I. INTRODUCTION AND SUMMARY....................................................................... 1 II. DIRECTV CONTINUES TO EXPAND ITS SUBSCRIBERSHIP, SYSTEM CAPACITY, AND PROGRAMMING OPTIONS..................................................... 2 A. DIRECTV’s Subscribership Has Increased........................................................ 2 B. DIRECTV Has Expanded System Capacity and Increased Innovative Service Offerings. ............................................................................................................ 4 C. DIRECTV Offers Compelling National Programming at Competitive Prices... 6 1. DIRECTV Programming Packages ................................................................ 6 2. DIRECTV FAMILY™................................................................................... 9 3. Foreign Language Programming .................................................................... 9 4. Public Interest Programming ........................................................................ 10 D. DIRECTV Continues to Expand Local-Into-Local Service. ............................ 10 1. Carriage in Local Markets ............................................................................ 10 2. HD Local Carriage........................................................................................ 11 3. Alaska and Hawaii ........................................................................................ 12 E. DIRECTV’s Equipment Options Benefit Consumers. ..................................... 13 III. DIRECTV FACES SIGNIFICANT COMPETITION IN THE VIDEO DISTRIBUTION MARKETPLACE........................................................................ 14 A. DIRECTV is Subject to Competition from Multiple Providers........................ 14 B. Cable-Affiliated Programmers Continue to Abuse Their Market Power. ........ 17 C. Network-Affiliated Broadcasters Increasingly Abuse Their Market Power..... 17 D. Broadband Bundling......................................................................................... 20 IV. THE COMMISSION SHOULD ENSURE THAT FEDERAL AND LOCAL REGULATIONS FACILITATE COMPETITION BETWEEN CABLE AND DBS. ................................................................................................................ 20 A. DBS Carriage of Significantly Viewed Signals Is Limited by the Commission’s Overly Restrictive Interpretations of SHVERA. ...................... 21 B. Local Restrictions May Deter Consumers from Choosing DBS. ..................... 22 C. The Commission Should Close the Terrestrial Loophole and Consider the Use of Other Tools to Increase Competition with Cable.................................. 25 V. DIRECTV HAS INCREASED CONSUMER AWARENESS OF THE DTV TRANSITION........................................................................................................... 25 VI. CONCLUSION......................................................................................................... 28 ii I. INTRODUCTION AND SUMMARY. DIRECTV, Inc. submits these comments in response to the Commission’s Notices of Inquiry soliciting data and information for its annual report on the status of competition in the market for delivery of video programming.1 DIRECTV prides itself on offering the best television experience anywhere. Since its last report to the Commission, DIRECTV has provided service to more subscribers, expanded its satellite fleet, and increased its programming and other service offerings. DIRECTV’s programming now includes more local-into-local, high definition (“HD”), foreign language, and public interest channels. It also includes more “on demand” programming and better advanced features. DIRECTV offers its subscribers these expanded entertainment options while keeping subscription and equipment fees low and maintaining an extremely competitive price structure. DIRECTV faces substantial competition from other multichannel video programming distributors (“MVPDs”), particularly incumbent cable operators that continue to hold a disproportionate share of subscribers in local markets. In most cases, these cable operators are able to offer video, audio, interactive programming, telephony, broadband Internet access, and other services in bundled packages. Local Exchange Carriers (“LECs”) are able to offer similar bundles in areas where they have deployed fiber-based networks terminating in residential areas. As in prior years, DIRECTV is hampered in its ability to compete with these larger entities when it cannot obtain key programming at reasonable and nondiscriminatory rates. Cable-affiliated programmers continue to withhold, or overcharge, for critical sports programming, while network- 1 See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Notice of Inquiry, 24 FCC Rcd 750 (2009) (“NOI”); Supplemental Notice of Inquiry, MB Docket No. 07-269 (rel. Apr. 9, 2009) (“Supplemental NOI”). affiliated broadcasters have dramatically raised their asking price for retransmission consent. In addition, DIRECTV continues to face regulatory obstacles not encountered by other providers, such as local ordinances restricting the installation and placement of receive antennas and Commission rules that impede DIRECTV’s ability to carry significantly viewed (“SV”) broadcast signals. Although these regulations hinder DIRECTV’s efforts to compete for subscribers, DIRECTV continues to offer consumers extremely competitive rates and options for services and equipment. II. DIRECTV CONTINUES TO EXPAND ITS SUBSCRIBERSHIP, SYSTEM CAPACITY, AND PROGRAMMING OPTIONS. Since its last report to the Commission, DIRECTV has provided service to more subscribers than ever before, expanded its satellite fleet, and increased programming offerings to subscribers while maintaining an extremely competitive price structure for programming packages and equipment. A. DIRECTV’s Subscribership Has Increased. The NOI seeks updated data and information concerning the number and characteristics of DBS subscribers.2 As of June 30, 2008, DIRECTV served approximately 17.16 million U.S. subscribers.3 This number represents an increase of five percent over the approximately 16.32 million subscribers served as of June 30, 2007, and an increase of 10 percent over the approximately 15.51 million subscribers DIRECTV reported as of June 30, 2006.4 DIRECTV’s subscribership continues to increase notwithstanding the fact that almost all of DIRECTV’s customers reside in one 2 NOI ¶¶ 41-43. See also Supplemental NOI ¶ 2. 3 The DIRECTV Group, Inc., Form 8-K (Aug. 7, 2008). 4 See The DIRECTV Group, Inc., Form 8-K (Aug. 9, 2007). 2 of the over 112 million households now passed by cable.5 Although the percentage of U.S. households that cannot receive DBS service due to line-of-sight problems remains difficult to quantify, line-of-sight continues to affect the availability of DBS service to potential subscribers, particularly for persons living in multiple dwelling units (“MDUs”).6 As the GAO found in 2005, as many as half of MDU residents are unable to receive DBS signals due to line-of-sight problems.7 DIRECTV’s increase in subscribers is attributable, in part, to the high quality customer experience DIRECTV provides.8 In 2008, DIRECTV received the highest scores for customer satisfaction among all cable and satellite TV providers on the American Customer Satisfaction Index.9 This was the eighth straight year that DIRECTV has outscored its cable competitors.10 DIRECTV has also received the highest ranking four times in J.D. Power and Associates’ national customer satisfaction studies and, in 2007, was rated highest in customer satisfaction among satellite/cable TV subscribers for 43 states.11 5 See National Cable & Telecommunications Association, 2007 Industry Overview, at 7 (Apr. 24, 2007), available at http://i.ncta.com/ncta_com/PDFs/NCTA_Annual_Report_04.24.07.pdf (“NCTA Industry Overview”). See also NOI ¶ 43 (noting that new DBS penetration has “grown most rapidly in urban and suburban areas”). 6 See NOI ¶ 43. 7 See United States Government Accountability Office, Telecommunications: Direct Broadcast Satellite Subscribership Has Grown Rapidly, but Varies across Different Types of Markets, GAO-05-257 (Apr. 2005), available at http://www.gao.gov/new.items/d05257.pdf. 8 See NOI ¶ 41 (inquiring as to the “factors contributing to DBS growth in the video programming market”). 9 The American Consumer Satisfaction Index, Scores By Company, The DIRECTV Group, Inc., available at http://www.theacsi.org/index.php?option=com_content&task=view&id=149&Itemid=157&c=DIREC TV. 10 Id. 11 See Press Release, J.D. Power and Associates Reports: DIRECTV and WOW! Lead the Regional Cable and Satellite Customer Satisfaction Rankings (Aug. 15, 2007), available at http://www.jdpower.com/corporate/news/releases/pdf/2007137.pdf. 3 B. DIRECTV Has Expanded System Capacity and Increased Innovative Service Offerings. The