[ Text Version]

January 13, 1998

Commissioner Susan Ness

Re: Video Competition Report

The Fourth Report to Congress provides both good news and bad news for advocates of robust multichannel video competition. It concludes that competition is developing but is not as vibrant as we had hoped it would be by now. Direct Broadcast Service (DBS) and other competitors have made solid gains in subscribership, but their presence has not been felt broadly enough to hold the line on cable television rates.

Where telephone companies have overbuilt cable systems, prices generally have been driven down. The emergence of wire-based competitors is important since DBS is not a perfect substitute to cable service, limited by its present inability to deliver local signals, significant fees for service to additional TV sets, and upfront equipment costs.

Consumers continue to be pinched by double digit rate increases in many -- but not all -- systems. Some cable rate hikes may legitimately be attributed to added channels that viewers want, infrastructure upgrades, and improvements in customer service. But cable companies imposing major rate increases need to be sensitive to the value customers place on additional channels or upgrades, weighed against the additional cost of service.

The skyrocketing cost of programming -- especially sports programming -- poses a new set of issues.

First, I am increasingly concerned about the lack of program packaging choices available to subscribers. Today, all subscribers who want more than a basic package are forced to share the high cost of sports programming whether they watch it or not. It is time to weigh the pros and cons of cable tiering, with a view towards increasing the options without diminishing the ability of new networks to gain critical exposure. Second, since networks have the dual revenue stream of advertising support and distribution fees, are advertisers bearing at least the same proportion of increased programming costs as are captive subscribers? Third, the substantial interlocking collaborations among a handful of giant media companies, characterized so vividly as "American Keiretsu" by Ken Auletta,(1) warrant attention to ensure that market power does not result in abuse.

The marketplace of ideas should function just as other competitive product markets do. Market failure may occur when consumers do not have an effective alternative to their cable provider, or it may occur when a bottleneck develops in the programming distribution chain so that viewers are denied access to independent voices that would be heard in a competitive market. Cable television and other multichannel video systems provide enormous service to the American public. We must be vigilant, however, to ensure that market power does not impair consumer access to these valued services.

1. Auletta, The Next Corporate Order: American Keiretsu, The New Yorker, October 20 and 27, 1997, at 225.