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Speech by
Chairman Reed E. Hundt

National Cable Television Association
New Orleans, Louisiana
March 18, 1997

"Broadcasting, Cable, and The Franchise"

It's a great pleasure to be back with you.

Yours is the only industry convention that I've attended every one of my four years as Chairman of the FCC.

You might be saying to yourself: to what do we owe this honor?

The basic reason is the fascinating personalities in your industry.

And I came to see if we could borrow some of you.

My friend and fellow commissioner Jim Quello has announced that he's retiring this year.

So at the FCC we need someone who has completed a successful business career and is at loose ends right now, someone who can cope with Washington, someone who is willing to be Democrat at least from here on out, and someone who can get our hearings on CSpan.

Commissioner Ted Turner, how does that sound?

Whaddyasay, Ted?

After all, if broadcasters can have a commissioner, why not cable?

So, Ted, whaddyasay?

The heck with Ted, we wouldn't get covered on just CSpan; we'd be on all the major networks ---except Fox.

We also need to fill the Andy Barrett seat.

If cable gets a commissioner, why shouldn't programmers?

How about Steve Brill?

I admit it would be great for me personally for Steve to be on the Commission.

He would make me look like the meek, humble, quiet person that you know I really am.

Andy's seat is a Republican seat and I know some say Steve's not a Republican.

But I heard he just got paid about $20 million.

So if he isn't a Republican, he soon will be.

Whoever joins our Commission, filling the seats ably occupied by Andy and Jim, will find that we have a wonderfully hardworking and able staff.

Meredith Jones has done a fantastic job running the Cable Bureau.

And Brill's American Lawyer recently ranked three FCC lawyers as among the best public sector lawyers in the country: Common Carrier Bureau chief Gina Keeney, General Counsel Bill Kennard,and my Chief Counsel Julius Genachowski.

I deny that Steve was kissing up to us just to get Andy's seat.

Speaking of staff, I'd like to apologize for the absence of my Chief of Staff Blair Levin . He's off talking to the National League of Cities. They're unhappy with our policies on rights of ways, franchise fees, and open video systems.

Blair's nostalgic for last year's NCTA.

You remember that when I was with you last year I really didn't say anything. Then I got a standing ovation.

After the speech, Blair asked Amos Hostetter:"He didn't say anything, why the applause?"

With your record, Amos explained, silence is golden.

I'm reminded of the Gridiron dinner I was at the other night where I was introduced along with Alan Greenspan.

I distinctly heard someone at the next table say, "Gag them both before they kill again."

Besides, your stocks --as I predicted last fall -- are heading up. TCI just ended a week up 9%. Time Warner recently posted a 12-month high. Some project Comcast's stock to increase 45% this year, and U S West Media is now a buy recommendation.

I'd like to talk to you today about how these trends will continue on a long run basis.

In the long run the sky's the limit for cable if you can grab what I call the Franchise.

The Franchise consists of the core package of the most popular TV channels and the most popular way to deliver them.

This is the Franchise to deliver to the American public the TV that it watches 50 hours a week. This is the Franchise that makes broadcast channels as familiar in every American home as a telephone or a refrigerator.

As you all know, the content side of the Franchise consists of a package of 5, 6 or 7 channels of local and national news, sports, general entertainment, and kids programming. For the most part, broadcasters still own this part of the Franchise.

And although cable has made huge inroads on the delivery side, broadcasters' analog TV transmission business is still regarded as the other side of the Franchise.

Because broadcasters have the Franchise, they attract the advertising and they wield the political, social, and economic power that you all know well.

But things change. Revolutions in programming and in delivery technology -- both driven by digitization -- mean that the content and conduit parts of the Franchise are up for grabs.

In the future, Americans may get the core package of programs through any one of three very different and new means of transmission: wire; satellite; or antenna towers transmitting digitally -- whether digital wireless cable, digital LMDS or digital over-the-air TV.

All will rely on digital technology.

And the core programming package may or may not be possessed by local broadcasters in the future.

Broadcasters know times are changing. And they know that tremendous distance seems to be opening between the interests of networks and the interests of affiliates.

Affiliates are alarmed by the networks' threats against affiliate exclusivity. They are worried that networks seem, like Judy Garland, to be wishing upon a star -- the so-called Death Star. When you wish upon that star, it makes a lot of difference who you are.

And that's why the networks' interest, or lack of interest, in terrestrial digital television (DTV) is troubling to affiliates.

It's troubling to me, too.

We're in the last stages of implementing the Congressional mandate to give the DTV licenses to today's analog broadcasters.

Every objective observer would agree that the most market oriented, deregulatory approach to DTV would have been to auction the DTV licenses.

But Congress told us not to sell the licenses.

Instead, today's broadcasters are supposed to get the licenses, and build 1500 new DTV transmitters in 200 markets.

The total cost of the dirt and the tower will average less than a million dollars a station, making DTV one of the cheapest ways to deliver digital TV in local markets that anyone can imagine.

So why do we have to push broadcasters to push the build-out?

And why are the networks pushing back?

Bob Iger of ABC said a fast buildout was "ludicrous and dangerous."

"Ludicrous and dangerous" is a combination that applies, as far as I know, only to the George Lucas character Jabba the Hutt.

How did Bob know that Jabba was my role model?

I love that part where Jabba says to Carrie Fisher, "Soon you will learn to appreciate me."

And Bob Wright of NBC said the idea of a rapid construction of DTV stations made him think I was like Colombo, always asking for one more little thing.

Peter Falk and I have the same trenchcoat.

How did NBC know that?

The networks know everything.

That's why the slow mo approach to DTV that the networks favor makes me think they know something the rest of us don't know.

A couple of weeks ago broadcasters said that the build out schedule should have no rule requiring construction before six years but should involve voluntary commitments.

And even though the commitments would have no force of law, broadcasters would only commit to have one market in the top ten with more than two networks transmitting a signal before the year 2003.

Then last week UHF broadcasters suggested we pretend to adopt a plan allotting channels to all broadcasters but then tell everyone it's not final until we do another two years of testing.

Meanwhile, according to yesterday's New York Times, manufacturers are "surprised and dismayed by the broadcasting industry's new, slow-paced schedule" for introducing DTV and are giving up on their plans to have DTV sets in stores by Christmas 1998.

If broadcasters won't launch digital television quickly, then DTV is going to be a failure. Before long a huge majority of TV sets will definitely be receiving digital TV. Satellite is there. Cable is on its way -- moving to digital faster as DBS poses more of a threat. If broadcasters wait, it'll be too late.

And today's broadcasters will have lost the delivery side of the Franchise.

True, one network announced it would spend $3 billion on digitizing their TV transmission.

But the digital TV they're talking about is from a satellite.

The amount that Sky proposes to spend on exploiting the DTV licenses in the next three years is probably less than one months interest payment on what it's spending on the satellite.

I'm beginning to wonder if broadcasters really want these DTV licenses.

A cynic would think that broadcasters just don't want someone else to have them.

But I think that if broadcasters don't pursue with speed and zeal the DTV business they risk losing the Franchise.

The key to broadcasters' lock on the Franchise is that they've been able to deliver potentially a hundred million homes all day and night to advertisers.

Cable doesn't do that, at least not now. So far cable seems stuck at about 2/3 the homes and half the TV sets.

The country -- and certainly advertisers -- want someone to deliver the Franchise. It is invaluable for many reasons, including promoting the public interest in delivering to everyone everywhere news, information, political debate, educational TV and other public goods.

As long as broadcasters think this Franchise is analog TV transmission and forever will be, they are putting the Franchise up for grabs.

So: What an opportunity cable has to grab the Franchise away.

It creates an opening for you to establish and then extend your franchise as the provider of the half-dozen most important channels and the means of delivery to everyone, everywhere.

To become the true Franchisee for TV in America, with the political and economic and cultural significance that comes with it, you already have a lot going for you: many popular channels with lots of sports, kids programming, and national news; courage and entrepreneurial skill; the pipe that delivers plenty of niche programming; and the potential for interactivity.

What more do you need? I think three things.

First, universal access.

Shouldn't cable's goal be to be as everywhere present as, say, telephone service, with 94% penetration per household, jacks in every room, and an average bill of $27 a month, onto which base many add many more levels of consumption of other services.

Certainly, the FCC's rules should encourage cable to become a ubiquitous service.

Maybe the right FCC policy is to say that so long as a basic package that serves the public interest achieves 80% penetration, no further regulation is needed.

We're discussing tier flexibility at the Commission right now. And last week we allowed geographic rate averaging, so you can advertise more cost effectively.

Second, cable needs to be recognized as offering the country the most family-friendly platform.

For many years, broadcasters were known this way in every home -- their channels were the place where parents could tune in without worrying about uninvited and unwelcome guests showing up unannounced.

This part of the Franchise is also up for grabs. In millions of homes, parents are coming to believe that as far as broadcast channels are concerned, prime time is the wrong time for kids and families.

The national discussion about the V-chip ratings system, it seems to me, is a discussion about whether broadcast TV will again become a family-friendly platform.

Everyone knows that cable invented content-based ratings even before Congress passed the V-chip legislation.

The question of carrying hard liquor ads is another chance to define who has the Franchise. Last week the hard liquor industry bragged that they had seduced hundreds of broadcast stations to carry their ads, even during hours and shows when millions of under-age youths are in the audience. This is another opportunity for cable. Just keep saying no to liquor's money.

The third important element of the Franchise is localism. And your growing local ties might be your secret weapon in trying to seize the Franchise.

It may be that one of the least reported but most important trends in the video world is the introduction of local news channels on more and more cable systems. In cities like New York and Washington, you can get local news, traffic and weather on a strictly cable channel. This is a service to your markets -- and perhaps a very shrewd business move.

If you achieve universal access, create a family-friendly platform and offer local programming, you'll have a real chance at grabbing the Franchise, especially if broadcasters continue to wonder whether they really want it.

One of your allies might well be advertisers.

We are rapidly approaching a day when the number of eyeballs is not as important as the information about the eyeballs who are watching. With your huge and interactive pipe, you will be able to help advertisers target and interact with their customers in ways that will make advertising on cable the most effective anywhere.

Another important ally might be the computer industry.

I'm hearing reports that by the time TV manufacturers hope to have sold a million televisions capable of receiving a digital signal, the computer industry will have already sold 40 million computers capable of receiving such a signal.

This could be very good news for the cable industry. It's hard to see why the computer industry should care whether digital television comes into the home over the air or through a cable.

I believe the computer industry's growing interest in the family room is real. It will lead to a whole new type of product that we will receive on computers, wherever they are in our houses or apartments. You, with your wondrous cable modems, may be best able to capitalize on those products.

Your existing coax network to the home is up to 180 times faster than analog telephone-line connections. The data transport and cable modem business is surely one of the sharpest arrows in your quiver. If you continue to push the technology into the market, and take full advantage of your superior networks, some predict that you will capture a sizeable share of the data delivery market, adding more than $1.6 billion to your revenues by the year 2000. Others are predicting the market could top $5 billion in 2004.

Part of holding a Franchise on American homes and in American hearts consists of taking leadership on public issues.

I see cable as taking the lead among all others in education and in fixing our out-of-whack political campaign system.

In talking about this, I would like to give a very special thanks to Decker Anstrom, a true visionary and a great leader.

Decker is well known in Washington, and increasingly, around the country, for his leadership on both education and political reform.

Two weeks ago Decker spent two days fighting for kids in a series of meetings with major foundations. The result was an announcement by the Packard Foundation that it will prepare a business plan outlining a new foundation that will give advice and counsel to every school in the country on how to install modern computer networks in every classroom. I honor Julie Packard and Col Wilbur for their leadership, and I respect Decker and the industry he represents for your continuing, creative and substantial commitment to bringing communications technology in every classroom.

I also acknowledge your commitment to quality children's television programming. Your pledge to provide high-quality educational programs for our children has never wavered.

You have a chance now to insist that the FCC fund communications technology in every classroom, and that you have a chance to compete for these funds to do the job.

We should spend under the new telcom law $2.25 billion a year, funded by all telecommunications providers, and I hope you insist that this rule be written by the FCC.

And if you saw the front page of the Wall Street Journal yesterday or the New York Times last week you observed that a movement is underway to have the FCC inquire into the set-aside of a billion dollars of broadcast airtime to give candidates access to the airwaves as part of a deal to reform campaign finance. Senator John McCain and President Clinton have both called on the FCC to commence this inquiry, make a public record, and propose such rules as may be wise. This would be a two track process: an inquiry at the Commission and a finance law such as McCain-Feingold in Congress.

Here again you have a chance to show leadership. You have already done a great deal to advance the cause of political reform by your various offers of media access to candidates in the last election. I believe that this country is on the path to major campaign reform and that cable can show the way. There's no question that the American people know that what's at stake is the future of democracy in an information age.

From educating kids to educating voters, from providing internet access to providing an essential product in every home, cable has a great past and a terrifically important future for itself and for our country.

- FCC -