# Joint Appendix — Turner Broadcasting System, Inc. v. FCC > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0682%3A15 ## Record - **Collection:** Supreme Court brief - **Document type:** Joint Appendix - **Published:** January 1, 1997 - **Citation:** 520 U.S. 180 ## Text m “FILED No. bode JUL 19 1996 SSE Orne Cn In THE Supreme Court of the United State OCTOBER TERM, 1995 TURNER BROADCASTING SYSTEM, INC., et al., Appellants, FEDERAL COMMUNICATIONS COMMISSION, et al., Appellees. Appeal from the United States District Court for the District of Columbia JOINT APPENDIX Volume III H. BARTOW FArg, III * RICHARD G. TARANTO FARR & TARANTO 2445 M Street, NW Suite 225 Washington, DC 20037 (202) 775-0184 Counsel for National Cable Television Association, Inc. ROBERT D. JOFFE STUART W. GOLD ROWAN D. WILSON CRAVATH, SWAINE & MOORE Worldwide Plaza 825 Eighth Avenue New York, NY 10019 (212) 474-1000 Counsel for Time Warner Entertainment Company, L.P. (Additional Counsel for Parties Listed on Inside Cover) * Counsel of Record Drew S. Days, III * Solicitor General FRANK W. HUNGER Assistant Attorney General LAWRENCE G. WALLACE Deputy Solicitor General PAUL R.Q. WOLFSON Assistant to the Solicitor General DOUGLAS N. LETTER BRUCE G. FORREST JOHN R. TYLER JAMES J. GILLIGAN Attorneys DEPARTMENT OF JUSTICE Washington, DC 20530 (202) 514-2217 WILLIAM E. KENNARD General Counsel CHRISTOPHER J. WRIGHT Deputy General Counsel Federal Communications Commission Washington, DC 20544 nn =e APPEAL DOCKETED DECEMBER 21, 1995 PROBABLE JURISDICTION NOTED FEBRUARY 20, 1996 a BRIAN CONBOY THEODORE CASE WHITEHOUSE WILLKIE FARR & GALLAGHER Three Lafayette Center 1155 21st Street, NW Suite 6000 Washington, DC 20036-3384 (202) 328-8000 Counsel for Time Warner Entertainment Company, L.P. Bruce D. SOKLER CHRISTOPHER A. HOLT TARA M. Corvo MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND PopeEo, P.C. 701 Pennsylvania Ave., NW Washington, DC 20004-2608 (202) 434-7300 Counsel for Turner Broadcasting System, Inc., et al. ALBERT G. LAUBER PETER VAN N. LocKWooD CAPLIN & DRYSDALE, CHTD. One Thomas Circle, NW Washington, DC 20005 (202) 862-5000 Counsel for Discovery Communications, Inc. and The Learning Channel BRUCE J. ENNIS, JR. Kit A. PIERSON DONALD B. VERRILLI, JR. THOMAS J. PERRELLI JENNER & BLOCK 601 Thirteenth Street, NW Washington, DC 20005 (202) 639-6000 Counsel for National , Association of Broadcasters and Association of Local Television Stations CAROLYN F.. CORWIN MARK H. LYNCH CAROLINE M. BROWN COVINGTON & BURLING 1201 Pennsylvania Ave., NW P.O. Box 7566 Washington, DC 20044 (202) 662-6000 Counsel for the Association of America’s Public Television Stations, Public Broadcasting Service, and Corporation for Public Broadcasting li EDITOR'S NOTE THE FOLLOWING PAGES WERE POOR HARD COPY AT THE TIME OF FILMING. IF AND WHEN A BETTER COPY CAN BE OBTAINED, A NEW FICHE WILL BE ISSUED. TABLE OF CONTENTS VOLUME I Order, Turner Broadcasting Sys., Inc. v. FCC, Civ. Docket No. 92-2247 (and consolidated cases) (D.D.C. Mar. 6, 1996) (amending judgment of Dec. 20, 1995) .... Memorandum Of Discovery Communications, Inc. In Support Of Plaintiffs’ Motion For Summary Judgment, App. A (May 26, 1995) (ELRA Group, Inc., Outdoor Antennas, Reception of Local Television Signals and Cable Television (Jan. 28, 1986) ) ............cccc00cccc0cccceecceem Defendants’ Joint Submission Of Congressional Record In Support Of Motion For Summary Judgment (“DCR”), Vol. I.CC, Exh. 170 (May 26, 1995) (Com- ments of the NAB in FCC Docket No. 85-349 (Apr. 25, ETE a ae DCR, Vol. IL.DD, Exh. 183 (Joint Petition For Reconsid- eration of National Cable Television Association, Inc. in FCC Docket No. 85-849 (Dec. 17, 1986)) ....000000000.... Exhibits Cited In Time Warner Entertainment Com- pany, L.P.’s Memorandum Of Law In Opposition To Defendants’ And Intervenors’ Summary Judgment Motions And In Further Support Of Its Summary Judgment Motion (“TWE Opp. Exhs.”), Vol. I, Exh. 4 (June 16, 1995) (Memorandum from John Abel to Dick Hollands (Feb. 12, 1987) ) ...0...........0000000000000000.... DCR, Vol. I.P, Exh. 52 (FCC Cable Carriage Survey Report (Sept. 1, 1988) ) 2... cccccccccccececccceeeeenseneeeneeeeenes Exhibits To Affidavit Of Gregory M. Loss In Support Of Time Warner Entertainment Company, L.P.’s Motion For Summary Judgment (“LAX”), Vol. I, Exh. 11 (May 26, 1995) (NAB, Advertising Revenues Per Tele- vision Household: A Market By Market Analysis LAX, Vol. I, Exh. 6 (Research and Planning Memo- randum From Rick Ducey To Jeff Baumann, attaching Television In Transition: The Values of Broadcast Television In A Changing Marketplace (Jan. 30, 1990) ) .. LES 17 19 36 ii TABLE OF CONTENTS—Continued TWE Opp. Exhs., Vol. I, Exh. 20 (Memorandum from Rick Ducey to Jeff Baumann, et al. Re: Cable Drops And Repositions Survey (Jan. 30, 1990)) -........------------. LAX, Vol. I, Exh. 12 (NAB, Advertising Revenues Per Television Household: A Market by Market Analysis (10B1) ) ----.2-----0-.-.c--cenennenrapsonenssnsnneneees -_ LAX, Vol. I, Exh. 13 (TV Digest (Jan. 7, 1991)) -...... Defendants’ Joint Submission Of Additional Evidence In Support Of Motion For Summary Judgment (“DAE”), Vol. VII.M. Exh. 288 (May 26, 1995) (OPP Working Paper Series: Broadcast Television In A Multichannel Marketplace (June 1991) ) ......-------------------ese-seennennnnennnees LAX, Vol. I, Exh. 14 (Research & Planning Memoran- dum From Mark Fratrik To Jim May Re: Results From Television Financial Survey (July 19, 1991)) -............-.. TWE . Exhs., Vol. III, Exh. 42 (APTS, Harm To PTV pa a From Cable System Shifts and Drops (Ag. 1901) ) -...---...----ce-n-neerensnennenseneneseneseensecees pe ee es DCR, Vol. I.Q. Exh. 71 (Comments of the NAB, attach- ing A/B Switch Availability And Use (Sept. 25, 1991) .. DAE, Vol. VII.K, Exh. 239 (Larry Zipin, Local Cable Advertising Sales: 1992 and Beyond (Nov. 20, 1991) ).. LAX, Vol. II, Exh. 18 (FTC Staff Study, Carriage of Television Broadcast Signals By Cable Television Sys- tems (Nov. 26, 1991) ) ......-----------------cseeenennnnrennennnnnnnees ~ LAX, Vol. II, Exh. 18 (NAB, Advertising Revenues er Television Household: A Market By Market Analysis | ) anne One Affidavits In Must Carry Proceedings (Feb. 12, 1993) (Affidavit of Edward J. Weiss, Exh. 2 (Paul Kagan Assocs., Cable TV Investor (June 23, 1992))) -............. Page 116 120 126 134 192 iii TABLE OF CONTENTS—Continued LAX, Vol. II, Exh. 19 (CPB, Viewer and Listener Mem- bership Income for Public Television and Radio Grant- ees: Fiscal Year 1991 (Sept. 1992)) DAE, Vol. VII.G, Exh. 157 (Time Warner, Memoran- dum from T. Bigelow to E. Hamowy (Oct. 20, 1992) ) . LAX, Vol. II, Exh. 21 (1998 NAB Cable System Elec- tion Survey Charts (1998)) ... LAX, Vol. II, Exh. 22 (TV & Cable Fact Book (1993) ) . Affidavits In Must Carry Proceedings (Feb. 12, 1993) (Affidavit of Joseph J. Collins (Feb. 11, 1998) _..... DAE, Vol. VII.K, Exh. 282 (The Cable Television In- dustry: New Technologies, New Opportunities And New Competition (Mar. 8, 1998)) DAE, Vol. VILK, Exh. 247 (Paul Kagan Assocs., Cable TV Advertising (June 22, 1998) ) DAE, Vol. VII.M, Exh. 292 (Memorandum from Ww. Ciciora to L. Yaeger, et al. Re: A/B Switches (June 25, OA) Eee LAX, Vol. II, Exh. 25 (NAB, TV Today (July 19, SIDUTEY ) eyep dryssequiey 98/T/L :9yep are-uQ ‘TI “w0yse]784D “TS/NITM 26/1/L :eyep dryssequiey, 16/91/8 :27ep aye-uO MO ‘AHO eMOYRPIO ‘h/TLA S661 Ut SsaQueay MIN 86/1/6 :278p diysiequiey TL/T/9 +9}8p 418-uO VO ‘oostouviy UBS ‘Z8/dL N+ S66T Ut StOQuia yy MON 06/1/L :e7ep drysiequiey Z9/81/ZL = @}8p a18-uD Ty ‘Astowoszu0W “92/OIVM T66T Ut Ssoquiay NIN SUaadnan ¢ >JHN S&d-NON 9z1 :dHA Sad 61z :-4HO Sad I -JHA S&d-Uon sve SUBLLINSNVUL Sdd JO UAAWON 202 (Sad-uou puke Sad) SLNAIdIOgdU DSO 40 AAAWON SLI SAASNAOM1 004 AO UAAWOAN 861 SNOLLVLS UYAAWNAW Sdd AO HARWON S661 ay AYVARKAS ADIAUAS ONILSVOAVOUg OITaNg WALSAS SHL AO SOLVLS (> LIGtHxd) 1083 1082 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] ENTERTAINMENT COMPANY, L.P.’S MOTION FOR SUMMARY JUDGMENT * 7” AFFIDAVITS IN SUPPORT OF TIME WARNER a) S vo} N > os = a 166‘0IT PeAleg suossdd [HOL z suey a/qB) rid BUOTZEIS UOISTAG]a,|, I2MOg-MOT g swBis0ig Sd Sujsuspey suoyjeg sequIeW Said :AOOd SDO4Y paasosUul) Sqd ey) spun Suswwosborg Sqd Surpraosd 8019;uq SAd-VON SVd4aV GZAXASN| OL ADIAXAS 26/LI/T + @98p 418-UO CI ‘%H UAL “ST/ Ld 36/Z1/@ + OFep 1}8-ugQ, GN ‘orepuct” ‘61/aury 26/ L3/6 + 848P 418-UGQ CI ‘Oue[y,P 4N90D ‘9Z/ LGD S66] Us S407; MoUDLT MON S66 Us sso}; MsUDs] MON ON T66T Ut 84a; jrmsUDL, MAN ON SYA LLINSNVAL ‘Z66I ‘AINE Ul OSWH.0F 840990] [SO 894 peSuvGo esowese8[H ‘gp/ NOX quetdioed HSO 1equieul-u0N ‘gosuect| AjJUNWIWOD B ‘UOTZBIOd10) SuUTyseOPBOIg I[qQNq SUTBA Peulios Ajmau OY} 0} peiiejsuBsy UsEq savy UOISIATT] ‘OL/AAOM 40J C8UGdI| OY} PUY YIOMION SuPSwOPBOIg IB/QNd CULE, 4} JO SUOTZBIS 94} JO} SosUBd}| OUL S661 us se6uDYD 208u0017] 1084 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] STATE OF NEw YORK ) ) ss.: CouNTY OF NEW YORK ) AFFIDAVIT OF FRED DRESSLER FRED DRESSLER, being duly sworn, deposes and states as follows: 1. I am Senior Vice President of Programming for Time Warner Cable (“TWC”) a division of Time Warner Entertainment Company, L.P. (“TWE”). I have held that position since 1987. The facts set forth below are personally known to me to be true. 2. TWC has been injured by the must-carry provisions of the 1992 Cable Act. The must-carry rules infringe upon TWC’s First Amendment rights by forcing cable systems owned and/or operated by TWC and its Divisions, as well as those in which TWC has an interest (“TWC systems”) to carry certain broadcast stations at the ex- pense of programming that TWC might otherwise desire to deliver to its subscribers. 3. As Senior Vice President in charge of Program- ming, I regularly deal with programming services desir- ing to obtain or expand carriage on TWC systems or alter the terms of that carriage. As part of my responsibilities, I am in charge of evaluating the value and desirability of programming services, of contracting for carriage of such programming, and of advising individual Divisions as to 1085 the desirability of carrying particular types of program- ming on their systems and the optimal mix of program- ming each system carries. There are currently approxi- mately 128 national and 40 regional satellite-delivered cable services available for carriage to TWC and its Di- visions. TWC and its Divisions choose among those com- peting programmers, and programmers considering the launch of new programming, as well as broadcasters and distant signals. In evaluating the wide variety of pro- gramming available to TWC cable systems, I consider the content of various programming services, the price of the services and other terms of a possible affiliation agree- ment. Choosing the content of the speech available to TWC systems and advising local systems about that con- tent is one of the most important elements of my job. The must-carry provisions of the 1992 Cable Act hamper my ability to do my job both by interfering with the abil- ity of TWC and its Divisions to speak using the content they desire and by limiting the content available for car- riage on TWC systems. 4. To acquire programming for TWC systems, TWC often guarantees a certain level of carriage in exchange for the delivery of that programming at specified rates and conditions. Thus, the price of the programming may de- pend on the level of carriage reached on TWC systems and may vary accordingly during the course of the agree- ment. Because a significant portion of TWC channel ca- pacity is occupied by must-carry broadcasters, TWC’s ability to guarantee higher levels of carriage has been im- paired, and TWC’s ability to meet its existing contractual commitments has likewise been endangered. 5. The must-carry rules have interfered with launches of new cable programmers. Cable programmers derive revenue from license fees paid by distributors such as cable operators for the right to exhibit programming to their subscribers and from fees paid by advertisers who 1086 sponsor programming on their service. Because license fees and advertising revenues depend upon the carriage of the service, it is crucial to the viability of a new serv- ice that it persuades as many operators as possible to offer the service to their subscribers. 6. New national cable programming services need to attract millions of subscribers in order to attain economic viability. Even new regional services may need to reach a million or more subscribers to survive. By requiring cable operators to devote substantial channel capacity to must-carry broadcast stations, the 1992 Cable Act de- prives such services of vital opportunities to gain dis- tribution. 7. The 1992 Cable Act’s requirement that cable op- erators devote a substantial share of their channel capac- ity to must-carry broadcasters leaves less channel capacity for new cable programmers to compete for. On TWC systems, must-carry broadcasters occupy approximately 10% of channel capacity on average, and on specific individual systems, the percentage is often greater. Par- ticularly when considered along with channels occupied by government-mandated leased access programming and PEG channels, all government-mandated programming takes up a significant proportion of channel space. The ability of these stations to tie up channel capacity without having to compete for it on the basis of that program- ming has caused many potential new cable programmers to fail (such as the Americana Cable Network) or to put off their launches of new services until such time as more channel capacity is available. 8. Because of the must-carry provisions, if TWC wishes to add new programming of its own choosing that does not qualify for must-carry status on systems where must- carry broadcasters have filled its channel capacity, it would have to increase its channel capacity at great expense, which would ultimately have to be borne by our 1087 customers, thus requiring them to pay more without get- ting any additional programming that they truly desire. 9. TWC is injured when new cable programmers fail to launch. TWC seeks to deliver wide varieties of speech and ideas suitable to each community it serves. To per- suade subscribers to purchase its product, TWC depends on its ability to offer a variety of programming. When new programming fails to launch, TWC loses its ability to add that programming to its lineups and likewise loses an opportunity to become more attractive to potential consumers. 10. Given the opportunity (including available chan- nel capacity), TWC would have launched or seriously considered launching the following new cable services on some of its systems, at least on a test basis to evaluate their content and performance: BET on Jazz Home Shopping /Horizon Cable Discovery Network Time Mood on Demand Traveler Encore/Starz Discovery Network/Living 8S: The Shopping Channel/Fingerhut Discovery Network/Quark Z Music Adventure Channel Lottery Channel America’s Health Network National Health Network Arts and Antiques TV Muchmuasic BBC/Reuters/Telemondo News Ole T.V. Service Booknet Outdoor Life Channel! Campus Television Network Ovation Classic Sports Network Recovery Net Collectors Channel SCOLA/Satellite Communications for Learning Fitness Interactive T.V. Macy’s Television Fox Movie Studio Newstalk TV Game Show Channel The Health Channel 1088 Game Channel Univision Gaming and Entertainment Viva Television Network Channel GEMS Television Women's Sports Network Golden American Network World African Network Golf Network How To Channel Kaleidoscope/ America’s Disability Channel Las Vegas Television Network 11. TWC also would have considered carrying the Americana Television Network on more of its systems if more channel capacity had been available. The Ameri- cana Television Network launched and went dark within the space of twelve months, due in part to lack of avail- able channel capacity for which it could compete for carriage. 12. Because subscribers provide the bulk of cable rev- enues through subscription fees, programming is the mainstay of the cable business. When making program- ming decisions at TWC, the ability to sell advertising on cable services is not usually a consideration and has never been a deciding factor. Advertising is viewed as an in- cremental opportunity to be taken advantage of when and where possible. * * * 2 May 26, 1995 ; /s/ Fred Dressler FRED DRESSLER [Jurat Omitted] 1089 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] AFFIDAVITS IN SUPPORT OF TIME WARNER ENTERTAINMENT COMPANY, L.P’S MOTION FOR SUMMARY JUDGMENT May 26, 1995 1090 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] STATE OF New YORK ) ae = COUNTY OF WESTCHESTER ) AFFIDAVIT OF CHARLES W. ELLIS CHARLES W. ELLIS, being duly sworn, deposes and states as follows: 1. I am Executive Vice President for Time Warner Cable, a division of Time Warner Entertainment Com- pany, L.P., a position I have held since September 1986. I submit this affidavit to show the injury to Time Warner from the must-carry provisions of 1992 Cable Act. 2. I supervise operations in the following Divisions of Time Warner Cable: Greater Boston, Cincinnati, Colum- bus, Memphis, Northeast Ohio, New England, Reading/ Eastern Pennsylvania, Western Ohio and Western Penn- sylvania. I have personal knowledge of the injury to the Divisions from the must-carry provisions of the 1992 Cable Act. 3. The must-carry provisions of the 1992 Cable Act have injured TWC. The must-carry provisions have re- quired (and continue to require) TWC systeis to use valuable channel space to carry certain broadcast stations that those systems did not and would not choose to carry. This mandatory carriage has resulted in a number of problems for TWC beyond the obvious First Amendment problems in being forced to provide certain speech and being barred from providing other speech in its place. 1091 Customers on many TWC systems strongly objected to the loss of cable programming on their systems and its replacement with broadcasters who did not interest TWC customers. In other systems, customers objected to the removal of cable programming from basic tiers in order to add broadcasters customers did not want or could easily receive over the air. These incidents created con- siderable customer dissatisfaction that often reached the local franchising board, jeopardizing the TWC Division’s status not only with individual subscribers but with en- tire franchises. By forcing TWC systems to carry broad- casters customers do not want at the expense of program- ming they want to see, the must-carry laws force TWC to allow its subscribers to believe TWC is not responsive to their needs and desires. Historically, one of the most important problems faced by cable systems, including TWC systems, has been (and still is) convincing con- sumers that the cable system is responsive to them and their needs. Customer satisfaction with programming and service is the most important goal of our business; any slippage in that area has dire con tion rates to cable. sequences for subscrip- 4. The must-carry provisions of the 1992 Ca have also harmed TWC by causing TWC cae reposition programming they want to carry on their head- ends in order to make room for broadcasters they are required to carry. On the simplest level, repositioning in- jures TWC systems because it requires them to invest time and money in notifying subscribers of changed line- ups and in making the technological changes a reposition- ing requires. More importantly, repositioning injures TWC systems because it creates customer dissatisfaction. When a cable programmer is removed from the basic tier in order to add yet another home shopping station or a broadcaster providing local programming for an entirely different locality, customers object. They also ob- ject when cable programmers are moved to part-time Status, or when a repositioning makes programming more 1092 difficult to find. All of this adds to customer dissatisfac- tion and the perception of TWE systems as unresponsive to their customers. That dissatisfaction is substantially heightened when the system cannot explain the reposition- ing or other changes by pointing to the significant en- hancement in programming quality that caused it, but instead has undertaken to displace desirable cable pro- grammers with additional unwanted programming readily available over-the-air. * * * May 25, 1995 /s/ Charles W. Ellis CHARLES W. ELLIS [Jurat Omitted] 1093 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] AFFIDAVITS IN SUPPORT OF TIME WARNER ENTERTAINMENT COMPANY, L.P’S MOTION FOR SUMMARY JUDGMENT May 26, 1995 1094 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] STATE OF NEw YORK ) > COUNTY OF WESTCHESTER ) AFFIDAVIT OF JOHN F. GAULT JOHN F. GAULT, being duly sworn, deposes and states as follows: 1. I am Executive Vice President for Time Warner Cable (“TWC”), a division of Time Warner Entertain- ment Company, L.P. (“TWE”). I submit this affidavit to show the injury to plaintiffs from the must-carry provi- sions of the 1992 Cable Act. The facts set forth below are personally known to me. 2. In 1994, TWE through TWC and affiliated com- panies, owned and operated cable systems in approxi- mately 2,100 franchise areas throughout the United States, which reached approximately 9 million subscribers. TWE built, acquired and renovated these costly assets to enable it to deliver the speech of its choosing to all those interested in hearing it. 3. I supervise operations in the following Divisions of Time Warner Cable: Appleton/Green Bay, Indiana/ Illinois, Jackson/Monroe, Kansas City, Milwaukee, Na- tional, Oceanic and Shreveport. I have personal knowl- edge of the injury to the Divisions from the must-carry provisions of the 1992 cable act. 4. TWC and its local divisions exercise editorial dis- cretion in determining which program services should be offered to subscribers. In making such determinations, 1095 TWC personnel choose from among the entire array of programming services that are available. They take into account such factors as local tastes; local demographic characteristics, including such variables as age, household size and composition, income levels, occupational char- acteristics and education attainments; the quality of pro- gramming; the needs and interests of identifiable segments of the local population, including minority and ethnic groups and the availability of news, information and en- tertainment to cable subscribers from non-cable sources, including broadcast television stations, movie theaters, cultural and sporting events and non-electronic media. The content of programming services is often decisive in making such determinations. For example, a TWC cable system located in a conservative “middle American” com- munity may choose to offer subscribers a greater array of Christian religious programming, while a TWC sys- tem located in a more ethnically diverse urban center might place greater emphasis upon program services, in- cluding those oriented to persons who speak languages other than English, that would have appeal to those audiences. For example, TWC’s cable system in Queens, New York, a community rich in ethnic diversity, offers Greek, Korean and Hindi channels, among others. 5. TWC takes its programming decisions very serious! and exercises | the same type of editorial ‘Senltion that newspaper editors employ in determining the content of the daily newspapers. In addition to individual systems discerning the best way to maximize customer satisfac- tion, TWwC conducts numerous subscriber preference and satisfaction projects. 6. TwC cable operators try to continually refine their channel line-ups (now within the confines of the 1992 Cable Act) So as to increase subscriber satisfaction and appeal. The diversity of services offered can be quickly ascertained simply by comparing the channel line-ups of systems across the country. Where a particular program service is carried in all or virtually all TWC systems, it is because that service has demonstrated broad appeal to 1096 United States television audiences and is an economically attractive choice. 9. Even bandwidth which is AEs technically — of use for analog channels cannot always be programmed For example, some traps may trap too broadly to be confined to a single channel. A trap of a channel on channel 58 may also trap portions of channels 57 and 59, making those channels unprogrammable. There may also be unusable channels on a system because of interference, or because the channels are on an aeronautical frequency, or for other technical reasons within a system. For ex- ample, although the bandwidth from 0-54 MHz might theoretically be usable for the delivery of video program- ming, equipment manufacturers do not supply equipment to use that bandwidth. 16. The must-carry provisions of the 1992 Cable Act have injured TWC. The must-carry provisions have re- quired (and continue to require) TWE systems to use valuable channel space to carry certain broadcast stations that those systems did not and would not choose to carry. This mandatory carriage has resulted in a number of problems for TWC beyond the obvious First Amend- ment problems in being forced to provide certain speech and being barred from providing other speech in its place. Customers on many TWC systems strongly ob- jected to the loss of cable programming on their systems and its replacement with broadcasters who did not in- terest TWC customers. In their systems, customers ob- jected to the removal of cable programming from basic tiers in order to add broadcasters customers did not want or could receive over the air. These incidents created considerable customer dissatisfaction that often reached the local franchising board, jeopardizing the TWC Divi- sion’s status not only with individual subscribers but with entire franchises. By forcing TWC systems to carry broadcasters customers do not want at the expense of programming they want to see, the must-carry laws force 1097 TWC to allow its subscribers to believe TWC is not re- sponsive to their needs and desires. Historically one of the most important problems faced by cable systems, in- cluding TWC systems, has been (and still is) convinc- ing consumers that the cable system is responsive to them and their needs. Customer satisfaction with program- ming and service is the most important goal of our busi- ness; any slippage in that area has dire consequences for subscription rates to cable. 17. The must-carry provisions of the 1992 Cable Act have also harmed TWC by causing TWC systems to re- position programming they want to carry on their head- ends in order to make room for broadcasters they are required to carry. On the simplest level, repositioning in- jures TWC systems because it requires them to invest time and money in notifying subscribers of changed line-ups and in making the technological changes a repositioning requires. More importantly, repositioning injures TWC systems because it creates customer dissatisfaction. When a cable programmer is removed from basic in order to add yet another home shopping Station or a broadcaster providing local programming for an entirely different lo- cality, customers object. They also object when cable programmers are moved to part-time, or when a reposi- tioning makes programming more difficult to find. All of this adds to customer dissatisfaction and the perception of TWE systems as unresponsive to their customers. That dissatisfaction is substantially heightened when the system cannot explain the repositioning or other changes by pointing to the significant enhancement in programming quality that caused it, but instead has undertaken to dis- place desirable cable programmers with additional un- wanted programming readily available over-the-air. as * * a May 25, 1995 /s/ John F. Gault Joun F. GAULT [Jurat Omitted] 1098 FOR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] DEFENDANTS’ JOINT SUBMISSION OF EXPERT AFFIDAVITS AND REPORTS IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT VOLUME ILA Dated: May 26, 1995 1099 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] EXPERT DECLARATION OF JOHN R. HARING I, John R. Haring, depose and say as follows: 1. I am submitting this Declaration in support of the motion for summary judgment made by defendants in the above captioned proceeding. 2. I received M.Ph. and Ph.D. degrees in economics from Yale University. Between 1983 and 1990 I worked t the Federal Communications Commission, where I was the Chief of the Office of Plans and Policy, and then the Chief Economist of the FCC. I am currently a Principal of Strategic Policy Research, Inc., an economics and public policy consulting firm, where I provide consulting services to a variety of clients in the mass media and telecommunications industries. Additional details regard- ing my qualifications as an expert in this proceeding can be found in Exhibit A, hereto. * * * * 21. Loss of cable carriage can reasonably be expected to cause a broadcast station’s advertising revenues to decline, and that loss of revenue-producing potential will, in turn, likely cause a reduction in profits, program expenditures, and the quantity and quality of over-the-air broadcast programming. In 1991, two FCC (Yale Ph.D.) economists prepared an extensive analysis of the plight of broadcast television in the current video marketplace. See Florence Setzer and Jonathan Levy, “Broadcast Television in a Multichannel Marketplace,” Office of Plans and 1100 Policy Working Paper Series No. 26, FCC, Washington, D.C., June 1991. They conclude that: Broadcast television . . . has suffered an irreversible long-term decline in audience and revenue share, which will continue throughout the current decade. In the next ten years, broadcasters will face inten- sified competition as alternative media, financed not only by advertising but also by subscription revenues, and offering multiple channels of programming, ex- pand their reach and their audience. Television broadcasting will be a smaller and far less profitable business in the year 2000 than it is now. Although broadcasting will remain an important component of the video mix, small-market stations will find it par- ticularly difficult to compete, and some are likely to go dark. These authors note (/bid., p. 3) that their “study shows that a reduction in the quantity and quality of broadcast service is highly likely.” Owen and Wildman, Video Economics, Harvard University Press, 1992, p. 255, note that: “Ultimately, of course, the disadvantages of over- the-air broadcast stations (limited channels, single chan- nels, and no practical means to charge viewers) may lead them to be superseded entirely, either by cable or by some different technology. But not in the 1990s.” 22. A station’s advertising revenue depends in part on the number of commercial exposures it can supply, and the number of exposures a station produces depends on the fraction of its potential audience it can attract with its programming. Loss of carriage reduces potential audi- ence size and thus the actual audience size (number of exposures) any given fraction can produce. The empirical work of Mr. Meek and Dr. Rohlfs confirms the existence of this relationship between potential and actual audience size. See Expert’s Report of Tom Meek and Expert’s Report of Jeffrey H. Rohilfs. 1101 23. The relationship between cable carriage, audience size, and advertising revenues for a broadcast station, is widely recognized and forthrightly acknowledged by the cable industry in cable industry documents produced as a result of discovery in this case. For example, in June of 1993 the Times Mirror Company, a large MSO, con- ducted “A Study to Assess the Impact of the Loss of Cable Carriage for a Broadcast Television Station.” This study, and related documents, are appended hereto as Exhibit B. (pages TM 000222—-TM 000234) 24. This study concluded that “the ability of a broad- cast television station to easily reach its audience through cable television is crucial. ... If the number of viewers (as measured by ratings) changes then advertising rev- enues will also change. . . . The loss of cable carriage could cause a significant decrease in a station’s ratings and a resulting loss in advertising revenues.” Exhibit B, at p. TM 000224. 25. The study examined the impact of loss of all cable carriage on an actual broadcast station in a market that had only 47% cable penetration, and concluded that “a drop as small as 10% in the number of cable viewers could result in a decline of $3.0 million in advertising revenues. ... In a market with higher penetration, the impact would be even greater.” Exhibit B, at p. TM 000225. 26. As its revenue-producing potential declines, a sta- tion’s derived demand for programming also declines, likely resulting in a reduction in the quality and/or quan- tity of its programming and the audience fraction it can expect to attract. Reductions in the quantity and quality of broadcast programming will reduce the economic wel- fare of viewers, especially those who rely on over-the-air reception, but potentially others as well (viz., subscribers 1102 to cable systems on which dropped or uncarried stations retain carriage). 27. Cable carriage has been a significant factor ex- plaining growth in the number of UHF television stations, and the loss of carriage may reasonably be anticipated to speed their decline. In the past, UHF suffered from well- known problems with over-the-air reception that limited the potential size of the audience for UHF stations. This, in turn, inhibited UHF stations’ ability to program com- petitively. Noll, Peck and McGowan, Economic Aspects of Television Regulation, Washington, D.C.: Brookings Institution, 1973, p. 103, observe that: “The funda- mental problems of UHF stations are small audiences and low revenues, and, hence, the inability to provide better than low-budget programming.” These problems inhib- ited the growth of UHF service for many years. Cable carriage improved the quality of UHF reception and helped foster a significant expansion of the service. A recent economic study (see Economists, Inc., An Eco- nomic Analysis of the Prime Time Access Rule, March 7, 1995) presents evidence indicating that carriage of UHF stations on cable into a rising number of cable house- holds has served to eliminate or reduce greatly the so- called “UHF handicap.” . * * * 31. Cable system operators have equity positions in many cable program services. In its Annual Assessment of the Status of Competition in the Market for the Deliv- ery of Video Programming (September 28, 1994), the FCC reports that the number of vertically-integrated na- tional programming services has grown substantially since 1990, and that approximately 53 percent of program- ming services were integrated with cable operators in 1994. These equity positions give cable system operators an opportunity to share in the earnings of such services, which typically reflect sales of national advertising and 1103 payments from system operators. A cable system oper- ator therefore has a rational economic incentive to drop a broadcast station and substitute a cable program service in which the operator has a financial interest, whenever the operator expects the gains from increased carriage of the cable program service, including the benefits from equity participation, will exceed any losses from dropping the broadcast station. 32. Cable advertising revenues are growing and are expected to increase rapidly, and cable system operators are aggressively pursuing opportunities to increase their advertising revenues. Cable TV Advertising reports that gross cable television advertising billings had reached nearly $4 billion by the end of 1993 and forecasts gross billings in excess of $10 billion by 2001. The large mul- tiple cable system operators (who serve the bulk of sub- scribers) are implementing programs to upgrade advertis- ing hardware and software, improve employee skills, and supply closer substitutcs for broadcast national spot adver- tising through greater clustering of systems and utilization of interconnects. See, inter alia, Paul Kagan Associates, The 1993 Cable TV Advertising Report; Paul Kagan Associates, The Cable Interconnect Report (various num- bers); Paul Kagan Associates, Cable TV Advertising; Larry Zipin, “Local Cable Advertising Sales: 1992 and Beyond: Revised”; Comcast Cable Advertising: National Sales Meeting; Tele-Communications, Inc., Cable Adver- tising, March 1994; TCI Advertising Sales Executive Summary, January 11, 1993; TCI Advertising Strategic White Paper, January 1, 1992; Times Mirror Cable Tele- vision, Strategic Plan, 1991-1995; Cable Advertising Bu- reau Five-Year Strategic Plan, Local Advertising Develop- ment, February 1, 1993; American Television and Com- munications Corporation, Strategic Plan for the 1990s, November 29, 1988; Time Warner Cable, 1994 Business Plan; Time Warner Cable, Ad Sales Status Report 1993; Time Warner Cable, Presentation to the Time Warner 1104 Board of Directors, July 18, 1991; Cable Advertising Bureau Report, Regional Networks (undated). 33. Additional documents supporting my conclusions regarding the relevance and increasing importance of local advertising revenues, as an increasingly important component of total cable system revenues, can be found in Defendants’ Joint Volume VII, at Exhibits 216, 218, 223, 229, 230, 232, 233, 242, 243, 244, 245, 246, 247, 248, 249, and 257. Because of the volume of those documents, they are not separately attached to this Declaration. 34. A cable system operator possesses a rational eco- nomic incentive to drop a broadcast station and substitute a cable program service on which the operator can sell local or national spot advertising, whenever the operator expects the gains from carriage of the cable program service will exceed any losses from dropping the broadcast station. In a Time Warner document appended hereto as Exhibit C (pages TWS 0163 - TWS 0181), Larry Zipin, Vice President—Advertising Sales, Warner Cable Com- munications, Inc., “Local Cable Advertising Sales: 1992 and Beyond,” November 20, 1991, p. 6, states that: “As a result, anything that places a limitation on the size, composition, and accessibility to the Cable Advertising Audience, diminishes Ad Sales’ revenue potential; and, conversely, anything that increases the size, composition and accessibility to the Cable Advertising Audience in- creases Ad Sales’ revenue potential.” Zipin (p. 6) notes that: “Since viewership requires converting the subscriber base into a Basic Cable Audience, then an MSO impacts viewership with every decision regarding channel carriage, dial position, tiering/packaging and most specifically tune-in advertising/cross channel promotions (emphasis added).” Zipin (p. 8) states that: “Eliminating video tape and moving towards computer processing should 1105 overcome the obstacles that currently place limits on com- mercial insertion accessibility. It is estimated that proto- types will be available in 1992; with 1993/1994 as a probable horizon that would make a company-wide con- version of technology possible.” Zipin (p. 11) states that: “It is anticipated that this software will be available for industry-wide proliferation by mid-1992. Since these designs include interactivity with existing hardware and multi-headend configurations, it represents the type of revolutionary technological advance that will raise the revenue potential of the entire business to new levels.” Finally, Zipin (p. 14) notes that: “It is important to point out, that even when the capacity to access this inventory improves, this inventory is, nonetheless, finite. Unlike local TV and Radio—but more like Newspapers—Cable Systems may be in a position to create ‘as much inventory as they can sell’. This relates to the issues of Cable Op- erators becoming programmers of their own local chan- nels, regional/local news channels, etc. To whatever ex- tent these ventures are successful in attracting an audience; Cable Advertising Sales potential also increases propor- tionately with its ability to reach these audiences with com- mercial messages.” In a Time Warner Cable Memo- randum from Don Stone to Bill Grimstead, dated May 25, 1994, Mr. Stone worries that competition from a low- power transmitter would lower cable advertising sales and inquires whether: “To deal with this competitive threat, could we refuse to carry this low power feed and continue to carry KMPH like we are now. This would keep Bakers- field advertisers from having access to the Time Warner homes through KMPH’s low power signal and force them to buy in Fresno to reach Bakersfield. It would also be more difficult for KMPH to sell in Bakersfield without the Time Warner homes.” * * * « 1106 37. Generally, the only potential loss to a cable pro- grammer of dropping a local broadcast station is the possibility that a station will be so highly valued by cable subscribers that a substantial number of those subscribers would cancel (or be willing to pay significantly less for) their cable subscriptions if that station were dropped. Thus, in general, a cable operator is likely to drop lower valued, lesser viewed broadcast stations before dropping more highly valued stations with more substantial viewer- ship.’ This suggests that in the near future, absent a must carry requirement, cable operators would be more likely to drop independent stations, particularly UHF stations, than they would be to drop network affiliate stations. Over time, however, as the incentives and opportunities to sub- stitute cable programming for broadcast programming increase, cable operators would be increasingly likely to drop even network affiliate stations. * * * * 44. I want to emphasize the importance of a trend that will both make it more likely that local broadcast stations will be dropped, and will increase the impact of a drop 1 The strength of the demand for a local broadcast station, as for a cable program service, is not accurately gauged simply by the number of viewers who watch that program once a week or more. A particular station may have 20,000 viewers, but most of those viewers may have only slight interest in the programming of that station, and would not cancel their cable subscriptions (or be willing to pay substantially less) if that station were dropped. Conversely, a particular station—say, a foreign language station—- may have only 5,000 viewers, but they may care passionately about that station, and would cancel their cable subscriptions (or be willing to pay significantly less) if that station were dropped. Thus, from the perspective of the cable operator, the demand for a particular broadcast station (or for a particular cable program- mer), cannot be measured simply by the ratings of that station or cable programmer. For example, many of the premium or pay TV cable programmers have modest ratings, but they are nevertheless carried because there is obvious demand for those programmers by cable subscribers who are willing to pay an additional fee to receive them. | | | | 1107 should one occur. This is the marked trend towards in- creasing horizontal concentration, clustering, and inter- connects, that is, greater effective economic integration, among cable operators. If there are 25 independent cable operators in a particular television market, each serving the same number of subscribers, if one of those cable operators substitutes a cable programmer for a local broad- cast station, the broadcast station will still have access to 24/25ths of its potential cable household audience, and the local ad availabilities made available to the cable operator by the substituted cable programmer will only reach 1/25th of the potential cable households in that television market. But if one MSO owns or controls all of the cable systems within a particular television market, and decides to substitute a cable programmer for a local broadcast station on all of the cable systems in that market, the broadcast station will have lost all of its potential cable household audience, and the local ad avails made available to the cable operator by the cable pro- grammer will be able to reach 100% of the potential cable households in that television market. 45. Others have noted the clear and undisputed trend toward increased horizontal concentration, clustering and interconnects. I note that as of June 1993, in almost half of the ADIs in this country (94 out of 200), one MSO controlled 50% or more of the cable subscribers. Memo- randum from Jay L. Kriegel to Jim May, June 10, 1993 (DAE VOL. VII, EXH. 213). Data produced by Time Warner, which provides information on the fifty largest ADIs, indicates that as of June 1992, even before the Cable Act was enacted, in twenty of these ADIs a single MSO already controlled 50% or more of the subscribers. and in eleven of these ADIs a single MSO already con- trolled 40% or more of the subscribers. And in ten of the remaining ADIs, a single MSO already controlled be- tween 30-40% of the cable subscribers. “MSO Consoli- dated Analysis,” June 2, 1992 (TWS 0011 1752: DAE VOL. VII, EXH. 207). Additional documents support- 1108 ing my conclusions regarding the relevance and increas- ing importance of clustering and horizontal concentration can be found in DAE VOL. VII, EXH. 213, 214 and 237. Because of the volume of the exhibits referred to in this paragraph, they are not separately attached to this Declaration. 46. In summary, it is my opinion, as an economist familiar with these industries, that there was a reasonable basis for Congress to conclude that, absent a must carry requirement, the economic health of local broadcast tele- vision would be in genuine jeopardy. Given the increasing incentives and opportunities for cable operators to sub- stitute cable programming for broadcast programming, Congress had a reasonable basis to make the predictive judgment that, absent must carry, an increasing number of local broadcast stations would be dropped, not carried, or otherwise disadvantaged by cable operators acting in their own economic self-interest. 47. It is also my opinion, as an economist, that local broadcast stations who were dropped or denied carriage by cable operators would suffer significant financial injury and would be compelled to reduce the quantity and/or quality of their programming. As a consequence, over time a significant number of them would be likely to go off the air, resulting in an absolute decline in the number of local broadcast stations. Decreases in the quantity and quality of over-the-air viewing options will harm con- sumers who do not subscribe to cable, with adverse dis- tributional consequences to the extent that nonsubscribers have low incomes. 48. Finally, it is also my opinion, as an economist, that the must carry requirement is rationally and coher- ently related to the Congressional goals, and will directly and materially further those goals. May 25, 1995 /s/ John Haring JOHN HARING 1109 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] AFFIDAVITS IN SUPPORT OF TIME WARNER ENTERTAINMENT COMPANY, L.P.’S MOTION FOR SUMMARY JUDGMENT May 26, 1995 1110 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted ! AFFIDAVIT OF ROBERT A. HILLYER, JR. ROBERT A. HILLYER, JR., being duly sworn, de- poses and says: * te ® * 9 On the 9 systems we operate, we are carrying | or 2 commercial broadcast channels subject to must carry rules and 2 to 4 commercial broadcast channels subject to retransmission consent. We are also carrying | or 2 PBS channels subject to the educational television must carry rules. Between 29% and 46°% of the basic service channe's we offer are commercial and PBS channels sub- ject to must-carry or retransmission consent. Although Hillcom’s cable systems are very small, represent an in- significant market, and are barely economically viable, we are not considered small cable systems under must- carry because we offer more than 12 channels per system. Thus we can be required to carry up to 7 qualifying com- mercial and 3 qualifying PBS broadcast channels out of a maximum capacity potential of 18 to 21 channels. This is extremely prejudicial to other existing or potential pro- grammers, and limits our ability to provide the most attractive service possible with our limited resources. — a * %* May 25, 1995 s/ Robert A. Hillyer, Jr. Rospert A. HILLyverR, Jr. [Jurat Omitted] 1111 FOR THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] DEFENDANTS’ JOINT SUBMISSION OF EXPERT AFFIDAVITS AND REPORTS IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT VOLUME ILB Dated: May 26, 1995 1112 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA (Caption Omitted] EXPERT DECLARATION OF CHARLES L. JACKSON I, Charles L. Jackson, depose and say as follows: 1. My name is Charles L. Jackson. I am a Principal of Strategic Policy Research, Inc. (Strategic Policy Re- search), an economics and public policy consulting firm located in Bethesda, Maryland I provide consulting serv- ices to a variety of clients in the mass media and telecom- munications industries. Before co-founding Strategic Policy Research in 1992, I was a Vice President of Na- tional Economic Research Associates, Inc. (NERA) and, prior to that, co-founded the consulting firm of Shooshan & Jackson Inc. which merged its practice with that of NERA Before beginning consulting, I served on the staff of the Communications Subcommittee of the US. House of Representatives and was on the staff of the Federal Communications Commission. I have authored or co- authored numerous studies on public policy issues in tele- communications and have testified before Congress on issues of technology and telecommunications policy. I earned the B.A. degree from Harvard College in Applied Mathematics and the degrees of M.S., E.E. and Ph.D. in Electrical Engineering from the Massachusetts Insti- tute of Technology. My full curriculum vita, including publications and prior testimony, is attached as Exhibit A. 2. The capacity of cable systems—the number of channels delivered to subscribers has—grown from a few channels in the early days of cable to more than a hundred in state-of-the-art systems and will continue to grow for many years to come Improvements in tech- nology, primarily improved amplifiers and fiber optics, have permitted this capacity expansion in the past Im- them make more money, (2) franchise requirements or franchise-related political decisions dictate such an expan- sion, and (3) as equipment wears out it is replaced with higher-capacity equipment. My view of the future of cable capacity is quite conventional It was widely held in 1992 and could be found in journal articles, trade press articles, equipment manufacturers’ advertisements and statements by cable firms. Credible witnesses, including the Chairman of the FCC and the spokesman for the National Cable Television Association, testified before Congress in 1992 supporting such a vision of the future. 3. The capacity of a cable ssytem is normally meas- ured in channels. There are different measures of capac- ity. One is the number of channels of television program service a consumer can chose among at one time. This is the activated capacity of the cable system. Another measure is the total number of channels in a system that the cable operator could activate without extensive invest- ment—I call this the actual capacity of a system. For example, a system may have an actual capacity of 60 channels but an activated capacity of only 55 channels. At any time the activated capacity can be easily measured with little dispute. The actual capacity is, of course, always larger but is a softer number There are channels, for example the two known as A-1 and A-2, which many cable system managers prefer not to use because of the potential for interference from the cable system to aero- 1114 nautical navigational systems. If a cable system chooses to use channels with potential to interfere with aeronauti- cal communications, they must be more vigilant in guard- ing against signal leakage from the cable system. In many systems adding additional channels results in a slight degradation of the quality of the existing channels on the system. Hence, the limit on the number of channels that can be added is set, in part, by the acceptable quality loss on the other channels. Finally, there is the capacity of state-of-the-art systems. Cable systems are built with a variety of vintages of plant and equipment. One addi- tional useful measure of capacity is the actual capacity of a brand-new, top-of-the-line cable system built with current technology. I call this the state-of-the-art capacity. In the discussion below I show how the state-of-the-art capacity has improved over time. 4. Cable capacity, however measured, has grown enor- mously over time. Early state of the art cable systems had 12 or fewer channels. Today, start-of-the-art cable sys- tems can carry about 160 analog channels or a thousand digital channels. A comprehensive 1971 study described the state-of-the-art as 25 or 26 channels [See On the Cable: The Television of Abundance, Report of the Sloan Commission on Cable Communications, McGraw-Hill, 1971 (DAE VOL. VILR, EXH. 430), p. 192.] Today cable operators run systems with a capacity of 160 chan- nels. This is an increase in the capacity of state-of-the- are systems of 135 channels or slightly more than 600 percent over 24 years. On an annual basis, this is an increase of about five channels per year in the state of the art or a compound growth rate of cable capacity of about eight percent per year. Another way to view the historical growth of capacity is to consider the activated capacity available to the average cable subscriber over time. Paul Kagan Associates provided estimates of this quantity in their publication The Kagan Media Index {September 30, capacity in 1984 to have been 23.4 channels and the 1994, p. 2]. Kagan shows the average cable channel 1115 capacity in 1994 to be 43.6 channels. By these numbers, the average subscriber gained access to 20.2 additional channels in ten years—a growth rate of about two chan- nels per year. These two estimates of annual cable capac- ity growth are roughly consonant—with state-of-the-art capacity growing at five channels per year and operational capacity growing at two channels per year. Clearly one would expect the possible to grow faster than the realized. The limits of the possible have grown and cable has been implementing the improved technology. 5. Several forces drive cable operators to increase their system capacity. First, of course, is the added oppor- tunity to carry additional services and thus justify higher rates to consumers made possible by increases in channel capacity. Second, local franchise authorities frequently request or require capacity upgrades at the time of a franchise renewal or transfer. Third, cable systems, like trucks or air conditioning systems, degrade over time and ultimately have to be refurbished—a process that is called a “rebuild” in the cable industry. Such system rebuilds typically occur once every 10 or 15 years. At the time of a rebuild, it is natural to upgrade the system to current technology—a step that expands channel capacity. Thus, just the wear and tear of the elements combined with the changes in the available technology would cause cable systems to expand capacity over time. 6. I expect the substantial expansion of channel capac- ity throughout the cable industry to continue over the next several years. The historical trends of the last quarter century will continue—although growth, measured in sheer channel numbers, will be greater in the future than in the past. The future will bring enormous expansion of cable capacity. Further, the basis for my belief in fu- ture capacity expansion is so strong and broad that I believe that it would be unreasonable for any similarly informed person to believe otherwise. Moreover, it was reasonable in 1992 to anticipate that these expansions would occur. My view is based upon consideration of 1116 (1) the state and trends in the basic underlying technolo- gies, (2) product announcements, and advertisements by manufacturers, (3) statements by cable executives about plans to adopt new technologies, (4) reports from the cable industry research consortium, CableLabs, on new technology, (5) congressional testimony by representa- tives of the cable industry, (6) examination of planning documents, capacity surveys and other documents pro- vided by the plaintiffs as part of the discovery process, and (7) my experience and familiarity with the industry. 7. One route to capacity expansion has been improve- ments in cable electronics—most notably cable system amplifiers, but also modulators, converters, passive devices and cable itself. Modern cable electronics permit building or upgrading cable systems to 550 MHz or even 1000 MHz (1 GHz) capacity. A 550 MHz cable system can carry about 80 channels of programming, a 750 MHz system can carry about 110 channels and a 1 GHz system can carry 160 channels of traditional analog television signals. As a result, expanding capacity to 1 GHz (or 160 channels) of information capacity in an alluring way for cable operators to position themselves to offer the many anticipated video and information services to the home. Upgrades are becoming cheaper over time—TCI recently announced implementation of a new network architecture that would allow it to upgrade from 300 MHz to 750 MHz with only a 10 to 15 percent increase in extra cable placement. [See “TCI Details New Archi- tecture,” Multichannel News, April 3, 1995 (DAE VOL. VILR, EXH. 431), p. 43.] 8. Fiber optic transmission offers a second route to capacity expansion. Fiber optic cables have thousands of times more carrying capacity than the earlier coaxial cable technology. Today’s practical fiber systems exploit only a small fraction of fiber’s capacity. Even so, they provide cable system operators with valuable building blocks. Installation of fiber optic systems offer cable systems effi- ciencies. Fiber systems provide greater reliability than 1117 the older coaxial cable and carry signals longer distances without amplification, reducing service costs. Installing fiber backbone in a cable system reduces the number of amplifiers in cascade between the headend and the average consumer substantially increasing the reliability of cable service. Fiber backbone also permits either an expansion of the cable system’s capacity, an increase in picture quality at the residence, or some combination of channel expansion and picture quality improvement. Additionally, installing fiber prepares cable companies to compete in other telecommunications markets such as voice telephony and mobile communications. I believe that the cost of installing fiber backbone in a cable system is affordable. The costs of fiber upgrades vary depending upon the density of the cable system, the number of households served by each fiber node and other factors. I understand that the costs of such upgrades can be as low as $40 or $50 per subscriber and range up from that point depend- ing upon how deep fiber is put into the cable system. [See “Evolving from FSA to passive cable networks,” CED: Communications Engineering & Design, September 1994, p. 60.] The adoption of fiber by many cable oper- ators indicates that fiber is affordable. Industry analysts also recognize this affordability. For example, one study shows a fiber upgrade cost of $90-225 of capital expendi- tures per subscriber. [See “The Cable Television Indus- try: New Technologies, New Opportunities and New Com- petition,” March 8, 1993 (DAE VOL. VII.R, EXH. 426), at 1.] 9. Digital compression is a third driving technology behind channel expansion. Compression does not pre- clude—and, in fact, complements—fiber optic technology and analog bandwidth expansion. Digital compression is a way of transmitting video and audio signals by convert- ing a TV picture to a series of “Is” and “Os”, and then eliminating redundant information, thereby reducing the amount of data that needs to be sent. Similar processes are familiar to anyone who has watched a letter go through a fax machine. When the fax scanner moves 1118 beyond the signature line, the page speeds up. This is because fax machines use a simple form of data com- pression—using an abbreviation to indicate an all white region. Typical digital compression systems being de- ployed by the industry can compress typical video pro- gramming by about a factor of 6 to 1. That is, six com- pressed digital signals can fit into a channel that carries only one convention analog signal. The biggest part of the cost of converting a cable systems arises from the digital converter boxes that must go into each household that gains access to the digital signals. Such converter boxes cost about $200 today. Since much of the cost of these boxes arises from their internal digital electronics, the cost of these boxes should fall just as the price of computer memory chips has fallen over the last decade. Notice that it is not necessary to install such boxes in all households to gain additional channel capacity through- out a cable system. Consider a cable system with several pay services. Assume that the lowest penetration pay service is subscribed to by only 10 percent of subscribers. Installing digital converters for that 10 percent and mov- ing the pay service to digital frees up the channel previ- ously carrying the pay channel. More generally, if cable systems use digital capacity to provide pay services, then they can migrate most pay services to digital and free up several channels without having to purchase a digital con- verter for all households. Market analysts consider de- ployment of digital services to be affordable. One group estimated digital compression deployment of digital serv- ices to be affordable. One group estimated digital com- pression deployment costs in the 1994-2000 time frame to be about $170 per subscriber. [See Ibid.] And, like fiber, compression techniques are highly likely to improve and become cheaper over time. 10. Improving technology for traditional cable service as well as the potential to offer additional services in the future will motivate continued and accelerated channel capacity expansion within the cable industry. This view 1119 is supported by results of cable capacity analyses con- ducted for networks interested in the potential for car- riage on cable systems. A November 1994 “State of Cable Operator Survey” conducted by Horowitz/Cohen found that 65 percent of operators surveyed intended to increase capacity to a projected average of 79 channels within the next two years. [See D00985, D001123 (DAE VOL. VIIL.R, EXH. 91).] Kagan’s March 1994 “Cable TV Technology Report” reported that cable operators were focusing on channel capacity to meet competition from DBS and potential 70 to 80 compressed digital channels available through DIRECTV. Kagan interpreted a sample of cable operators to indicate a shift of nearly 3 million subscribers to a higher bandwidth by year end. [See NOO11247 (DAE VOL. VII.R, EXH. 447).] A table of MSO planned upgrades catalogued by Boftz & Company in October 1994 indicated the pervasiveness of upgrade plans. The table below restates the numbers cataloged in the report by Bortz and Company. Upgrade/Rebuild Plans Target Date Subscriber to Complete Base To What MSO Rebuild Affected Level? (1) — @) (3) (4) Time Warner Year-end 1998 95% 750 MHz Continental Year-end 1997 100% 550 or 750 MHz Comcast Mid-year 2000 100% 750 MHz Cablevision Systems Mid-year 1996 50% 750 MHz Cox Cable Year-end 1996 75% 750 MHz MetroVision Year-end 1995 75-80 % 750 MHz Adelphia Year-end 1999 100% 750 MHz Times Mirror Year-end 1999 75-80% 750 MHz Viacom Year-end 1966 75% 750 MHz Colony Year-end 1999 100% 550 or 750 MHz Source: Bortz & Company survey results, prepared for The Travel Channel, (DAE VOL. VILR, EXH. 160). As a guide to interpreting these numbers, a 550 MHz system has a capacity of approximately 80 analog channels, a 750 MHz system has a capacity of approximately 110 analog channels and a 1,000 GHz system has a capacity of approximately 160 analog channels. 1120 11. These survey results are confirmed by the plans of the cable companies. For example, Time-Warner’s Plant Upgrade Guidelines for the 1995 budget year states that a forward bandwidth of 750 MHz is typical and should support 79 analog channels and 33 digital channels. [TWD00010285-00010286 (DAE VOL. VII.R, EXH. 448) (RESTRICTED).] Similarly, cable MSO Cable- vision states “In conjunction with its fiber optic construc- tion program, Cablevision is also upgrading its existing coaxial cable television plant to increase channel capacity for the delivery of additional programming and new serv- ices. All of the Company’s cable television systems haven [sic] minimum capacity of 35 channels and 70% of them are currently offering at least 52 channels to subscribers. As a result of the upgrades, it is anticipated than [sic] by 1995 virtually all Cablevision subscribers will be sewed [sic] by cable television systems having a capacity of at least 52 channels and most will be capable of offering 77 channels.” [See Cablevision WWW site on May 23, 1995 http //moon.cablevision.com/cvchtml.txt] 12. Digital compression is expected to be installed by the cable industry in significant quantity later this year or early next year. The cable industry has already made significant investments in compression technology. For example, TCI, our nation’s largest cable system operator, makes the following statement in its latest SEC Form 10K filed March 31, 1995. Compressed digital video technology converts as many as ten analog signals (now used to transmit video and voice) into a digital format and com- presses such signals (which is accomplished primarily by eliminating the redundancies in television im- agery) into the space normally occupied by one ana- log signals. The digitally compressed signal will be uplinked to a satellite, which will send the signal back down to a customer's satellite dish or to a cable system’s headend to be distributed, via optical fibar 1121 and coaxial cable, to the customers home. At the home, a set-top video terminal will convert the digital signal back into analog channels that can be viewed on a normal television set. The Company intends to begin offering such technology to its cable subscrib- ers as the set-top terminals become available for dis- tribution. The Company has established the Na- tional Digital Television Center in Denver during 1994 to compress, uplink, encrypt and authorize re- ception of digital television signals as well as provide digital television and multimedia production services. Through March 1995, the Center has established long term contracts to provide services to a dozen content providers, digitally compressing and distrbut- ing more than 100 channels of programming. On May 10 of this year, Communications Daily reported Hewlett-Packard’s announcement that it had received 350,000 more orders for its digital set-top. (A 100,000 unit order from Cox and an additional 250,000 from TCI.) (DAE VOL. VIILR, EXH. 429) It appears indis- putable that the cable industry is moving toward the roll- out of compressed digital services. 13. Those who follow the cable industry were, in 1992, well aware of these technological developments. Bandwidth expansion and the advent of digital compres- sion could be foreseen for many years. For example, a 1983 textbook, Cable Communication by Thomas F. Baldwin (DAE VOL. VII.R, EXH. 432), Prentice Hall, 1983, stated that “an increase from 400 to 500 MHz would add 17 more channels at a nominal increase in system cost.” That book also discussed compression and observed that three to one compression would permit a 400 MHz system to carry 150 channels. In 1992, hard- ware vendors were already actively promoting their digital advertisement (unnumbered insert), Cablevision, March 23, 1992 and Scientific-Atlanta advertisement (unnum- bered insert), Multichannel News, November 30, 1992 1122 compression systems in the trade press. [See Magnavox (DAE VOL. VII.R, EXH. 433).] The evaluation and selection process for digital compression standard were well underway by mid-1992. CableLabs planned to test and choose a digital compression delivery system by year’s end, and HBO and PrimeStar Partners held competitions to determine their own digital compression systems. [See “Standards? What Standards?,” Cablevision, May, 4 1992 (DAE VOL. VII.R, EXH. 434), pp. 66-68.] CableLabs, the research and development consortium of cable tele- vision system operators, predicted the transformation of cable systems to hybrid analog-digital systems beginning in about 1994. [See “SPECS News from CableLabs,” October 1992 (DAE VOL. VII.R, EXH. 435), p. 1.] While discord on an industry standard for compression had threatened to delay the technology, 1992 brought convergence between the industry’s compression efforts and the emerging world standard for coded bitstream and decoder requirements known as MPEG (Motion Picture Experts Group). Late in 1992, General Instrument Corp. announced expansion of capacity of its digital-compression system by over 60 percent, yielding between 7-16 video channels per standard analog channel over satellite and cable links. [See GI: We Have 16:1 Compression Ra- tios,” Multichannel News, October 19, 1992 (DAE VOL. VII.LR, EXH. 436), p. 2.] Viacom Inc. announced its selection of the Scientific-Atlanta compression system for delivery of Showtime Networks Inc. and MTV Networks units to hotel and private cable markets by first quarter 1993, and digital delivery to cable TV headends by sec- ond or third quarter of 1993. [See “Viacom Taps S-A’s Open Compression,” Multichannel News, November 16, 1992 (DAE VOL. VII.R, EXH. 437), p. 1.] Discovery Communications Inc. created the “Your Choice TV” re- mote control ordering system to simplify consumers’ ef- forts to choose programming. [See “Discovery Debuts Remote for 500-Channel Universe,” Multichannel News, December 14, 1992 (DAE VOL. VIILR, EXH. 438), p. 1.] 1123 14. By 1992, improvements in cable electronics were permitting capacity upgrades toward | GHz of capacity of analog capacity. Because digital compression could be counted on to expand capacity roughly six-fold, an up- grade to a 1 GHz system carrying only gidital signals would yield a capacity of 1000 channels. In 1992, Time Warner Cable had already upgraded part of its Queens, N.Y. cable system to 1 GHz, carrying 150 channels. [See “The steps to 150+ channels with | GHz,” Communica- tions Technology, September 1992 (DAE VOL. VILR, EXH. 439), p. 46.) Viacom was rebuilding part of its system in Castro Valley, California to | GHz for market- ing testing, and designing the rest to accommodate easily a future upgrade to 1 GHz. [/bid.| Time Warner's Roch- ester, N.Y. system, Adelphia systems, and Rogers systems in Canada were all being designed with capability to up- grade to | GHz. [/bid.| Cable hardware vendors actively encouraged cable providers to upgrade systems to | GHz. [ Viewsonics Inc. advertisement (insert), Communications Technology, December 1992 and Regal Technologies Ltd. advertisement (insert), Communications Technology, De- cember 1992 (DAE VOL.;; VII.R, EXH. 440).} 15. Again, by 1992, many cable companies had begun to integrate fiber into their systems. As cable focused less on expanding into new neighborhoods and more on better programming and cable service, upgrades presented the opportunity to incorporate fiber optic transmission tech- nology. Despite the advent of the 1992 Cable Act, cable operators planned significant increases in fiber and ampli- fier purchases. [See “Operators’ "93 Plans: The Buck Stops Here,” Multichannel News, November 30, 1992 (DAE VOL. VILR, EXH. 441), p. 3.] Suppliers and operators claimed declining fiber costs now made install- ing fiber-to-the-feeder less expensive than installing a straight 500 MHz coaxial build. Cable operators were laying excess fiber in anticipation of future services like personal communications network, telephony or video- 1124 on-demand. [/bid.] By early 1992, Continental Cable- vision had already embarked on a $7 million consolidation and fiber upgrade of cable plant in southern New Hamp- shire. [See “Fiber optics: Shaping cable’s future,” Com- munications Technology, March 1992 (DAE VOL. VILR, EXH. 442), p. 26.] In 1992, Cox Cable expanded the number of systems targeted for fiber-to-the-service-area (FSA) upgrades to 17. Such companies reportedly saw movement toward 500-MHz FSA as a transition point for MSOs who anticipated need for more than 78 channels before digital compresison were viable. [See “Cox Moves More Aggressively on Fiber Optics,” Multichannel News, June 22, 1992 (DAE VOL. VILR, EXH. 443), p. 29.] Vendors promoted fiber system facilities and demonstra- tions. [See Harmonic Lightwaves Advertisement (Insert), Communications Technology, December 1992 (DAE VOL. VILR, EXH. 444.)] 16. In 1992, a poll of the cable industry showed that nearly half of the respondents expected that their rebuild/ upgrade plans would result in an increase in the system bandwidth (and thus in system channel capacity). [See “Building Blocks,” Cablevision, September 21, 1992 (DAE VOL. VILR. EXH. 445), p. 44.] In 1992, CEO Thayer Bigelow of Time Warner Cable Programming anticipated that as many as 90 percent of the roughly 75 percent of the cable industry with 35 to 40 channels would be upgraded to 550 MHz (78 channels) by 1997. [See TWS00141149 (DAE VOL. VILR, EXH. 157) (RESTRICTED).| High cable equipment manufacturer stock performance in 1992 was partly attributable to in- creasing fiber-optic upgrades and developments in digital compression technology. [See “Cable Upgrades Boost Supplier Fortunes,” Broadcasting, December 14, 1992 (DAE VOL. VILR, EXH. 446), p. 51.] 17. These views of the future of cable channel capac- ity were not only well known in the industry, they were communicated to the Congress by credible speakers. For 1125 example, FCC Chairman Sikes testified before Congress in 1992 that the cable industry was aggressively investing in fiber and digital technologies. [See S. Hrg. 102-672: Cable-Instructional TV and S. 1200 Communications Competitiveness and Infrastructure Modernization Act of 1991 (CR VOL. LK, EXH. 19), at 49).] Tom Gillet (former vice-president of CableLabs, later consultant to and spokesman for the cable industry) testified in the same proceeding stating “On the cable television fiber/ coaxial hybrid there will also be many enhancements. Capacity is growing to | gigahertz, digital transport is being added, two-way capabilities are expanding and com. pression will soon be deployed.” [/bid. at 72] Phil Ver- veer, Counsel for National Cable Television Association, presented testimony that all 20 of the largest MSOs had begun installation of fiber within their systems, that fiber installed by these companies had increased 400 percent since 1988. and that cable industry fiber deployment was predicted to grow at an annual rate of 25 percent over the subsequent decade. [/bid.] In that testimony, Mr. Verveer, the cable industry, witness, twice refers to cur- rent cable systems as having capacity of more than 150 channels. “The existing coaxial cable to every home is theoretically capable of carrying 160-170 channels of sandard, 6-MHz NTSC television.” [/bid. at 122.] “By combining fiber optic trunking and feeder applications with the coaxial cable currently running from the curb into the home (and which can carry more than 150 video channels) cable systems need not rip out and replace their enitre networks in order to bring consumers the benefits of fiber.” [/bid. at 136.) In this example, Mr. Verveer appears to be speaking of the capacity of the cable itself. His fundamental point is that the capacity of a cable system can be expanded by installing fiber and new electronics but reusing the existing cable plant. No witness contradicted these correct assertions by these wit- nesses about the current and likely future state of cable technology. Cable television technology and the imple- 1126 mentation of that technology has progressed, as shown by my discussion above in paragraphs 4 to 12, along the lines anticipated in 1992. 18. Further in the future, I expect more fundamental changes. Traditionally, cable systems were like broad- casting—the same bundle of signals went to every house- hold and the TV set (or the set-top converter) picked off the specific signal a consumer wanted. Another approach is to dedicate a few channels to each household, and then route onto those channels the programming requested at that house. In essence the cable system would become more like a telephone system or a computer network. The viewer could dial-up the program he or she wished to watch. The limitation on the number of program serv- ices a consumer could choose among would be created by the number of program services available at the cable system’s switching point, not by the capacity of the cable plant to the household. Such a switched architecture would be quite similar to the telephone network which lets users dial calls to millions of destinations—although it permits talking on only one call at a time. The com- bination of high capacity on the cable, small serving areas fed by cable, and switching capabilities at the head- end, yields a network design that can support a virtually unlimited number of channels. Consequently, the long- run vision for cable is not a world of 500 or 1.000 chan- nels, but rather a world where the consumer can pick from a menu of tens of thousands or millions of program choices. The limitation on program services will not be the size of the highway to the home—rather the limitation will be the supply of programming. 19. The driving forces for most of these improvements in cable do not raise from inside the cable industry itself. Rather, the cable industry offers just one more market for improvements in communications technologies. The growth in cable capacity comes from the same roots that drive the growth in the capacity of modern personal com- 1127 puters, of the Internet, and of services such as Direct TV’s digital home satellite service. Almost everyone has, by now, seen an advertisement on network television with “Frank Fontana” touting the merits of compressed digital television. Any one who has regulary used a computer for word processing over the last decade is aware of the vast increases in the capabilities of those systems. The Internet has moved from being a research tool for the computer science community to a tool of everday com- morce. The same technologies—improved electronics and fiber optics—that lie at the heart of these now familiar advances will expand the capacity of cable television sys- tems manyfold. May 25, 1995 /s/ Charles L. Jackson CHARLES L. JACKSON 1128 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] AFFIDAVITS IN SUPPORT OF TIME WARNER ENTERTAINMENT COMPANY, L.P.’S MOTION FOR SUMMARY JUDGMENT May 26, 1995 1129 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] AFFIDAVIT OF DAVID KINLEY DAVID KINLEY, being duly sworn, deposes and says: 1. I am President of Sun Country Cable, Inc. and Sun West Cable, Inc. (d/b/a Sun Country Cable, “Sun”). I have been President of the Company since its formation in 1986. 2. I am also Chairman of the Small Cable Business Association (“SCBA”). I was elected Chairman of the SCBA in May, 1993. SCBA is a trade association with 370 member companies serving over 2 million subscrib- ers. The average member system has about 1,000 sub- scribers and 30-35 channels. I submit this Affidavit in support of Plaintiff's Motion for Summary Judgment. 3. An affidavit has previously been submitted for this litigation on February 12, 1993 by Lynette J. Simpson on behalf of Sun. I hereby incorporate by reference the contents thereof. 4. Sun is composed of 16 systems with an average of 611 subscribers per system. Thirteen of our systems have 35 channels. Two systems have 12 channels and one system has 60 channels. We currently have plans to re- build one of our 35 channel systems to 550 MHz. We have no plans to expand our other systems. None of our systems have unused activated channel-space. 5. Our systems are typical of small independent cable systems. Unused activated channels are extremely rare. Large scale expansion plans are uncommon. The cost of increasing capacity is fixed—it costs the same amount 1130 regardless of the number of subscribers. Since the average small cable operator has less than 1000 subscribers, the cost of expanding is prohibitive when examined on a dollars-per-subscriber level. 6. Since the last affidavit was filed, Sun has suffered significant injury because of must-carry. The Los Altos Hills system has been forced to add the following signals to its line-up: KMTP, KCNS, KFBC, KLXV and KFTY. Yet another station, KBI-TV, has recently demanded car- riage pursuant to must-carry. We had never received a written or verbal request for any of these stations from any subscriber. In fact, since they have been added they have generated complaints. The must-carry stations in- clude a second Asian language station (the system already carried Asian language programming from San Francisco) and 2 religious programming networks. 7. The Tuolomne system, which has 31 channels and approximately 1700 subscribers, has been forced to add KCSO (a Spanish language channel) and KSCH (a sta- tion with a religious format) to its system. Neither of these stations was ever requested by a customer. Because the system did not have enough unactivated capacity to add 2 channels, it had to drop KTVU, an independent broadcaster outside of the ADI, to comply with must- carry requirements. KTVU was the only station on the system carrying news from the San Francisco area. Be- cause many subscribers are people who live in the Bay area and weekend in Tuolomne, dropping KTVU caused a great deal of customer dissatisfaction. 8. Our customers have requested numerous program- ming services, including American Movie Classics, Turner Classic Movies, the Sci-Fi Channel and the Cartoon Net- work. Limited channel capacity and budget constraints make it impossible to meet all such customer requests. Being forced to add must-carry stations has made it even more difficult to satisfy any customer demands. Our 1131 budget allows us to add only one or two signals each year. Because of must-carry, not only is our scarce spectrum taken up by unwanted channels, but also the costs of adding the stations wreak havoc on our capital expendi- ture budget. 9. Adding each station caused us to incur approxi- mately $2,000 in capital costs to rearrange or activate the channels. We have had to buy equipment for the headend to enable the changes to be made. Furthermore, under FCC rules and frequently under local franchise pro- visions, we must notify subscribers of changes in signal carriage and channel position assignments. Additional costs have been incurred providing subscribers with ex- planatory materials and revised channel line-up cards. We would have preferred to spend the capital in more effective ways, such as on programming or equipment upgrades. 10. Must-carry requirements impose incalculable costs in loss of business goodwill. Customers blame changes on the cable system and drop service rather than learn new channel alignments. This is true particularly when, as in Tuolomne County, programming is deleted. Such a loss of goodwill is devastating, particularly for a system with few subscribers. 11. Most of our revenues are derived from subscriber fees. Advertising accounts for only a negligible amount of our revenues. Only 2 of Sun’s systems have advertis- ing at all. The minimal amount of advertising we do have is produced on a character generator. Advertising accounts for a mere .1% of our revenues. Clearly our programming decisions are unaffected by potential adver- tising revenue. 12. We do not have the technology to insert ads on cable programming nor do we have plans to buy equip- ment that would enable us to do so. Cable advertising equipment requires expenditures of at least $10,000- $20,000 per headend. In addition it is very complicated 1132 to install and operate. The logistics of creating, running and selling ads make advertising a very unappealing in- vestment for small operators. Even leaving aside the cost and difficulty of selling ads, advertising would be far more costly than any revenues it could generate. Digital insertion technology is not feasible for us. 13. As chairman of the SCBA, I am aware of very few small operators who have the availability to insert ads into cable programming. It is my experience that for the reasons discussed above, most small systems do not have plans to obtain analog tape equipment to enable them to do so. Even the very few small operators that do have analog tape do not heavily rely on advertising for revenues, Advertising accounts for at most only 1-2% of their revenues. 14. Small cable operators, including Sun, are increas- ingly feeling the effects of RCA/Hughes dishes and other forms of satellite transmission as competition. Must- carry has limited small cable operators’ ability to offer the wide variety of cable programming which subscribers demand. Subscribers have increasingly turned to alterna- tive sources to receive more cable programming. Com- petition from MMDS has been of particular concern to Sun Country. 15. The retransmission consent provisions of the Cable Act have also been a source of concern for small cable operators. The small operator has no leverage against major broadcasters who have elected retransmis- sion consent. Customer demand requires operators to carry the major broadcasters. Broadcasters are fully aware of their leverage so they elect retransmission con- sent and exploit the weak position of the small operator. This depletes the systems’ operating budget and elimi- nates funds that could be used for programming or expansion. 16. In sum, must-carry has deprived Sun and other small operators of their channel space without compensa- 1133 tion. It has forced us to incur costs to rearrange line-ups and add channels to carry stations of dubious quality. For the most part these costs can scarcely be afforded by a small operator. This has had a deleterious effect not only on the financial health of the systems, but also on their ability to offer attractive line-ups. This makes it harder to compete against other forms of satellite trans- mission. Small operators, who themselves are often Struggling to survive, have been forced to subsidize local broadcasters without any corresponding benefit to their own business or their subscribers. May 25, 1995 /s/ David Kinley Davip KINLEY [Jurat Omitted] 1134 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA (Caption Omitted] TELEVISION MEMORANDUM OF NATIONAL CABLE ASSOCIATION, INC. IN SUPPORT OF PLAINTIFFS’ MOTIONS FOR SUMMARY JUDGMENT 1135 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] DECLARATION OF GREGORY L. KLEIN DisTRICT OF COLUMBIA | 8S: GREGORY L. KLEIN makes this declaration and states: 1. Since January 1986, I have held the position of Director of Economic Analysis at the National Cable Television Association, Inc. (“NCTA”). I submit this declaration in support of plaintiff National Cable Tele- vision Association, Inc.'s Motion for Summary Judgment in Civil Action No. 92-2495. 2. I hold a Masters degree in Engineering Economics from Indiana State University in Terre Haute, Indiana and a Masters degree in Economics from Boston College in Chestnut Hill, Massachusetts. I am responsible for collecting, tabulating, and analyzing information that bears on NCTA’s positions before Congress and the Fed- eral Communications Commission. I have testified as an expert witness before the Copyright Royalty Tribunal. I have also submitted numerous affidavits on behalf of the Association. 3. The information contained in this declaration is based on personal knowledge as well as on information found in reports and other professional publications that are generally relied on by experts in the field of cable programming and operations. 4. My declaration primarily discusses the following topics: the constraints on cable channel capacity and the 1136 costs of adding new channels (44 6-12, 41-43); the in- creases both in cable subscribership and in the number of broadcast stations over the same period (44 14, 17, 18); and the current and projected estimates for local advertising revenues for cable systems (44 32-33). In addition, my declaration demonstrates that the burdens imposed by the must carry rules on operators and pro- grammers exceed those imposed under the must carry rules struck down by the Court of Appeals in the Century decision (44 19-27), and that these burdens can be ex- pected to increase due to changes in the Copyright Act and Federal Communications Commission actions with respect to ADI modifications (44 28-31). My declaration also demonstrates the limitations of the data relied upon by defendants’ experts to demonstrate cable system local signal carriage (44 34-40). .Finally, my declaration ex- plains that virtually all broadcast stations that chose re- transmission consent reached carriage agreements with cable operators (44 44-45). 5. NCTA is the principal trade association of the cable television industry in the United States. NCTA represents owners and operators of cable systems serving most of the nation’s 61 million cable households, as well as more than 100 national and regional cable program- ming networks. 6. Television signals are electromagnetic impulses that are transmitted to viewers’ television receivers, where they are translated to produce video images and sound. The primary difference between broadcast technology and cable technology is the medium through which these elec- tromagnetic impulses travel. Broadcast transmissions travel through the air in various frequencies, with the sum of all available frequencies being the frequency “spectrum.” This spectrum is physically limited, and can bear only a certain number of television signals. Cable television, by contrast, transmits electromagnetic impulses to viewers through metal wires such as coaxial cable, 1137 with different signals traveling at different frequencies inside the cable. Ensefliect: the debie-nete as a colt contained electromagnetic spectrum; this allows cable tele- vision operators to transmit signals without regard to the specific spectrum limitations that govern broadcast tele- vision. As I explain below, however, the carriage capac- ity of cable television is limited. 7. The number of programming sources available to ae television operators has risen sharply as the number Seas to cable service has increased. In 1976, were 4 national cable programming networks. Cur- rently, 128 national and 40 regional cable networks offer programming and approximately 43 more networks are planned. Cable Programming not available through broadcas t television includes satellite-delivered networks specializing in quality children’s programming, black aa dee a Programming, artistic programming, science = nature documentaries, sports, news, and public af- airs, including coverage of the United States Congress. 8. All cable television systems have a defined cha capacity. As of October 1, 1994, 86 percent of all US. systems for which capacity data was available had a maximum capacity of less than 54 channels. Twenty-two percent had a capacity of less than 30 channels. I am aware of less than half a dozen cable systems in the United States that have channel capacities in excess of a (equal to the number of national net- 9. As the principal trade association f or the cable television industry, we know that available channel ca- pacity is highly constrained in our industry. Our under- standing is consistent with the results in the Arthur D. Little study entitled Availab ; Cable TV Systems. vailability of Channels in U.S. 10. Upgrading or rebuildin : ; g cable systems to increase channel capacity requires large capital investments— 1138 generally in the millions of dollars for any particular local system. Paul Kagan Associates, Inc. estimates that the cable television industry spent $1.12 vm Be ~ building cable systems in 1994, at an average $26,000 per mile. Another $746 million was spent on upgrading cable systems, at an average cost of $9,400 per mile. These costs are not expected to fall; rather, Paul Kagan Associates predicts that the average cost of rebuilding a cable system will increase to $29,000 per mile by the year 2000, while the average cost of upgrad- ing a system will rise to $11,600 per mile. Although emerging technologies such as video compression may provide new ways of expanding capacity, these tech- nologies, too, promise to be expensive. Paul Kagan Associates estimates that delivery of digital converters (an important component in the deployment of digital technology) will be delayed until 1996 and the cost per converter will be around the $600 level. 11. Considering existing channel capacity and the cost of adding new channels, as well as the continuing devel- opment of new sources of programming, it Is clear that. for the foreseeable future, the supply of programming available to cable television operators will exceed the carriage capacity of all but a handful of local cable systems. 12. In the future, emerging technologies such as high definition television (HDTV) and interactive program- ming, as well as innovative services like the presentation of films at staggered starting times on different channels, will compete with traditional sources of programming for available channel capacity. 13. In the course of my work at NCTA, I have had occasion to review most if not all publicly available research regarding carriage of local broadcast television signals by cable television operators. The most compre- hensive study of the incidence of broadcast signal car- riage was conducted by NCTA and Price Waterhouse 1139 during the summer of 1988. This investigation showed that the 3,966 responding cable television systems were carrying 98 percent of all broadcast stations that would have qualified for a carriage preference under the interim must-carry rules invalidated in Century Communications Corp. v. FCC, 835 F.2d 292 (D.C. Cir. 1987). Ninety- four percent of these systems reported carrying all sta- tions qualified for must-carry status under the interim rules, and an additional 3 percent carried enough quali- fied stations to satisfy their carriage obligations under the rules struck down in the Century decision. 14. According to the FCC, the number of operational, full power commercial broadcast television stations in the United States rose from 915 in July 1985 to 1,147 in December 1992 to an all-time high of 1,167 in April 1995. The number of operational, non-commercial edu- cational broadcast television stations in the United States rose from 299 in July 1985 to 362 in December 1992 to 364 in April 1995, a 22 percent increase. As with commercial stations, more educational television stations than ever before were broadcasting in 1995. During this same time period, there was a dramatic growth in the number of low power television stations. In July 1985, the FCC reported 343 operational LPTV stations. By December 1992, there were 1,310 LPTV stations and by April 1995, there were 1,623 LPTV stations opera- tional. 15. Throughout the 1985-1992 period, according to data provided by Cable Data Corporation (“CDC”), those cable systems that are required to report their local signal carriage on average carried over 7 local stations. Precise estimates for any given period are subject to change due to the changing nature of the CDC data. even for historical time periods. 16. Cable television serves about 64 percent of all U.S. households with television. Competing technologies (such as MMDS, SMATV, DBS, and TVRO) provide 1140 service to approximately 5 percent of television homes, while 31 percent of all television households receive only over-the-air broadcast service. In fact, DBS ~~ broadcast satellite), a service using high-powered _— lites to distribute programming received on an 18 ~- dish, already offers significant competition to the ca industry. Although launched less than two years ago, analysts have noted that DBS will have approximately 2.2 million subscribers by year end and is — have over 5 million subscribers by the year 2000. ( Paul Kagan Associates, Inc., Cable TV Investor, May 18, 1994, p. 4.) Indeed at the end of 1994, two of the major companies involved in DBS (USSB and DirecTV ) reporting adding 2,000 subscribers per day. (See The Atlanta Journal and Constitution, November 6, 1994.) 17. Public broadcasting stations have claimed a i tant share of all television viewing oO —* cad they recorded a 4 share during the 1993/ 1994 season, up slightly from a 3 share during the 1985/ 1986 scason. Independent stations have experienced an increase during the same period and currently record a 21 share, up from a 15 share during the 1985/1986 season. The top 3 commercial broadcast networks ex- perienced a decline in their share of viewing from a 66 share during the 1985/86 season to a 52 share during the 1993/94 season, but they remain the most-watched programming on television. Combined, broadcast tele- vision accounted for more than 70 percent of all tele- vision viewing during the 1993/94 season. 18. In 1980, 55 percent ee television actually subscribed and cable penetr 22.6 percent of television households. Today, cable passes over 95 percent of television households and sixty- four percent of homes passed by cable currently sub- scribe. 19. The must carry requirements in the (1992 Cable Act are significantly broader than the regulations adopted 1141 by the FCC in 1987. In order to assess the effects those differences might be having on the extent of the impact of must carry on cable operators and cable programmers, I conducted the analysis described in paragraphs 21-26 below. 20. The recent Arthur D. Little study of carriage of must carry stations indicates that, by December 1994, roughly 30 percent of cable systems added television sta- tions in compliance with the latest set of must carry rules. See Declaration of Peter Shapiro, Exhibit 2. Cable systems required to add stations serve more than 50 percent of the nation’s cable subscribers. 21. I conducted an analysis of the 270 instances of broadcast television stations identified in the Arthur D. Little “Carriage of Must-Carry TV Broadcast Stations” report as being added by cable systems in the Arthur D. Little sample to comply with the must carry rules. The purpose of my analysis was to determine the extent to which broadcast television stations added pursuant to the most recent set of mandatory carriage requirements would have “qualified” as must carry stations under the interim rules adopted by the FCC in 1987 as a result of the Joint Industry Compromise that included defendants NAB and INTV and which were struck down by the Court of Ap- peals for the District of Columbia Circuit in the Century decision. 22. The Century rules differ greatly from the current mandatory carriage rules. The Century rules more nar- rowly defined what constituted a “must carry” station. Under the Century rules, a commercial television station could qualify for mandatory carriage only if the cable system was within a 50 mile zone of the station and the station satisfied a minimum viewership test of a 2 percent share and 5 percent CUME (net weekly circulation) in noncable households in the county in which the cable system is located (stations in operation for less than one year were exempt from the viewing test) and the station 1142 es would not be a distant signal for copyright purposes. This compares to the current rules that grant stations must carry rights throughout their Area of Dominant In- fluence (“ADI”) and impose no viewership test. More- over, the Century rules limited the number of qualified commercial and non-commercial must carry stations which a system was required to carry to 25% of usable activated channels, in contrast to the current rules’ re- quirement to devote up to one-third of a system’s channel capacity to carriage of commercial television stations (and to add noncommercial stations on top of that). 23. Likewise, the Century rules limited the number of noncommercial stations that a cable system was required to carry. Systems with less than 54 activated channels were only required to carry one local noncommercial station and systems with at least 54 activated stations were required to carry two noncommercial stations. By comparison, the current rules do not limit the number of local noncommercial stations which systems are re- quired to carry if they have in excess of 36 channels. 24. Based on my analysis, I have determined that only 37 instances, or 14%, in the ADL sample involved sta- tions that would have been required to be added as must carry signals if the Congress had reinstated the Century rules, rather than using the expanded set of “must carry” requirements. 25. The remaining 232 instances, or 86%, involve situations where, based on available data, the operators would not have had to add stations under the Century rules. Forty-eight of these 232 instances involve commer- cial stations that fail to meet the mileage criteria of the Century rules. The addition of the station in 18 other instances would not have been required because it would have forced carriage to exceed the percentage of activated channels which cable systems were required to devote to carriage of qualified must carry stations. An additional 43 instances involve the carriage of non-commercial sta- 1143 tions added in excess of the maximum number of non- commercial stations required under the Century rules. Moreover, 116 instances involved stations which, based on age on viewing data from November 1994 appear to fail to meet the minimum viewership cluded in the Century rules, The November 19a tame reflects viewing nearly 18 months after the effective date of the must carry rules. See Attachment A for a descrip- tion of methodology used for this analysis. The remaining instances involve low power stations and stations which were distant” signals for copyright purposes, neither of which had carriage rights under the Century rules. In one instance, the data was questionable and so I ex- cluded it from my analysis. ' 26. In sum, my analysis indicates that the vast ma- jority of the new burden of carrying additional Nonettonnt Stations imposed by the must carry statute on the repre- sentative sample of cable operators in the ADL sample was caused by the differences between the statute and the Century rules. 27. These results are not surprising. The use of a eo ADI to determine whether the station is a “local” station for must carry purposes is inherently problematic. Many ADIs extend well beyond the Grade B conan of most stations in a market. (The Grade B contour is a standard measurement of signal strength such that the station’s signal is “viewable” over-the-air.) The Boston ADI, for example, contains counties in New Hampshire and Vermont which are far outside the terrestrial reach of the Boston television stations. The New York ADI, as another example, covers areas of 29 counties in four states, for a total square mileage of 10,957. In other cases, stations located on the edge of an ADI may be closer to cable systems located in adjoining ADIs than to systems located in areas of the station’s ADI. 28. Indeed, it is my understanding that some broad- cast stations have begun to demand carriage by cable 1144 systems located far beyond where the stations are view- able over the air through arranging to transport their stations’ signals by wire to distant cable headends. In the New York ADI, for example, I am aware of numerous broadcast stations proposing to use fiber to reach cable systems located far beyond the reach of their signals off- air, WLIG, an independent station licensed in Riverhead, NY (in the eastern part of Long Island) is demanding carriage via fiber on a cable system located in Jersey City, New Jersey, approximately 75 miles away, even though WLIG’s Grade B contour does not even reach New York City. Likewise, WTZA, an independent station licensed in Kingston, NY, is demanding carriage of its fiber- delivered signal on cable systems operating in Ocean County, NJ, over 125 miles away, and Monmouth County, New Jersey, over 100 miles from the station. 29. The Federal Communications Commission (FCC) has recently granted numerous petitions by television broadcasters for modification of their ADI’s. These broad- casters have claimed that they should be entitled to man- datory carriage not only in their ADI, but also on cable systems located in communities outside their ADI. The FCC’s actions increase cable operators’ must carry obli- gations by requiring them to carry stations from outside the ADI in addition to those stations within whose ADI the system is located. For example, WTXX, an inde- pendent station licensed to serve Waterbury, CT (part of the Hartford-New Haven ADI) was granted a market modification which gave the station carriage rights on cable systems located in Fairfield County, CT. Fairfield County is part of the New York ADI and the systems which serve this county already have substantial must carry burdens placed by the 22 television stations located within the New York ADI. Nearly a dozen market mod- ifications have been granted by the FCC within the last three months. Roughly 60 additional broadcast station requests for expansion of their market into neighboring ADIs are pending before the FCC as of May 23, 1995. 1145 30. The Satellite Home Viewer Act of 1994, P.L. 103-369, which took effect during the second copyright accounting period for 1994, also has caused an increase in the number of commercial television stations to demand must carry rights. Specifically, Congress in the Satellite Home Viewer Act changed the definition of what con- Stitutes the “local service area” of a television station for Purposes of determining cable operators’ copyright lia- bility. (Cable operators generally pay copyright royalties only for carriage of “distant” television stations outside their “local service area”.) The Copyright Act definition affects must carry rights because under the 1992 Cable Act, a commercial television station is “qualified” for must carry only if it agrees to indemnify the cable operator for any increased copyright liability an operator would face on account of carriage of that “distant” station. 31. A station was “local” or “distant” under the Copy- right Act prior to the 1994 amendments based on whether it would have been entitled to must carry status under the FCC’s rules in effect on April 15, 1976. Under those rules, a station was generally considered “local” if it was located within 35 miles of the cable system or if it was “significantly viewed” in (or in some cases, if its Grade B contour covered) the cable community. When the 1992 Cable Act must carry rules went into effect, there- fore, a station located on the tip of Long Island would not have been considered a “local signal” for copyright purposes on a cable system located 75 miles away in New Jersey, and instead the station would have had to agree to pay the New Jersey operator an amount that could have reached 3.75% of the operator’s gross revenues in order to “qualify” for carriage under the must carry rules. But the 1994 amendments changed the copyright law so that a station now will also be considered “local” if a cable system is within its ADI. 17 U.S.C. § 111(f) (referenc- ing 47 C.F.R. § 76.55(e) definition of television market). Under the new copyright definition of “local service area”, 1146 then, no copyright liability will arise from carrying a __ commercial television station within its ADI. As a con- sequence, more commercial broadcast stations may now assert must carry rights because they no longer will need to pay for the operator’s increased copyright liability. 32. Cable systems primarily generate revenue through subscription fees. However, some small portion of rev- enue is generated by the sale of local/spot advertising on cable network programming by cable system operators. Paul Kagan Associates Inc. estimates that local/spot ad- vertising revenue accounted for only $1.256 billion, or approximately five percent of total system revenues of $23.012 billion in 1994. 33. Moreover, Paul Kagan projects that by 2003, local advertising will still only account for five percent of total cable system revenues ($3.161 billion of $61.7 billion in total system revenue). 34. in reviewing the expert testimonies submitted by defendants, much of their conclusions are based on anal- yses of copyright data compiled by Cable Data Corpora- tion (CDC). For example, Mr. Tom Meek, in his report, states that he has “found Cable Data’s information to have a high level of accuracy and reliability, and is commonly relied upon by the broadcast and cable industries.” I have on many occasions examined the CDC database in the course of my work. The CDC data, however, suffers from several limitations that make it an inappropriate vehicle on which to base an accurate must carry analysis. For that reason, the CDC data was only one of multiple sources of data used in my analysis described in 44 21-26. 35. The CDC data is based on the semi-annual filings made by cable operators with the U.S. Copyright Office. Only the largest cable ssytems (approximately 2,266 sys- tems, or 17 percent, of the 12,831 systems included in the CDC database) are required to indicate on their copyright forms whether broadcast stations carried are local or dis- 1147 tant for copyright purposes. The remaining 10,565 sys- tems, or 83 percent, are required only to list the broadcast television stations carried, and do not identify which sta- tions are local or distant. 36. The primary purpose of the CDC data is to ensure that cable television systems are accurately calculating the amount of copyright royalties paid to the Copyright Office for distribution to owners of copyrighted works contained in distant broadcast stations that are retransmitted by cable systems. Under the copyright compulsory license established by Congress, only copyright owners of works transmitted outside their local service area are entitled to payment from the royalties cable operators submit to the Copyright Office. 17 U.S.C. §111(d)(3). The CDC data, therefore, was designed primarily as a tool for copy- right owners to obtain accurate information about distant signal carriage. There is no impact for copyright royalty purposes at all if the list of local stations on the forms submitted to the Copyright Office is accurate or if it understates or overstates the number of /ocal broadcast stations carried so long as the distant signal carriage in- formation is correct. Because carriage of /ocal television stations does not affect a cable operator’s copyright lia- bility, use of the CDC data for making accurate analyses of local signal carriage has limited utility in this pro- ceeding. 37. The data set has additional problems which, if not accounted for on a case by case basis, can lead to mis- interpretation of the final results. For example, broadcast television stations occasionally change call signs or may go off the air and then resume operations under a differ- ent call sign. The CDC data might count this as a “drop” by a cable system when in fact the system still carries the station (under its new call sign) or if the system carries the station after it resumed operations (under the new call sign). This type of error was apparent in Mr. Meek’s analyses. For example, WCOM, an independent station licensed to Mansfield, OH left the air in 1989 and re- 1148 turned to operations under the call sign WMFD on May 30, 1992. My review of “carriage history” for WCOM included in Meek Exhibit A (dated 3/30/95) shows that Mr. Meek improperly counted that station as not receiv- ing carriage by MultiChannel Cable of Bucyrus, OH be- tween the first half of 1993 and the first half of 1994 when in fact the station (operating under the call sign WMFD) was carried. Moreover, Mr. Meek’s “carriage history” for WMFD indicates that MultiChannel Cable failed to carry the station prior to 1993, when in fact the Station was not in operation under this call sign prior to May 30, 1992 and the station was carried (under a differ- ent call sign) during the second half of 1992 (although improperly listed in Meek exhibit A under the carriage history for WCOM). (See Meek’s Exhibit A pp. 88, 138) Therefore, Mr. Meek double-counts alleged in- stances of non-carriage. 38. Likewise, the CDC database contains information on low power broadcast television stations which were nol granted must carry rights under the former must carry rules. By including these stations in their analysis, de- fendants’ experts improperly overstate the extent to which broadcast stations were allegedly dropped in the absence of must carry rules. (See Meek’s Exhibit B3, pp. 174- 175) 39. The CDC data contains information for numerous satellite master antenna television systems (“SMATV”) that are not cable systems as defincd by the FCC and which are not subject to the mandatory carriage require- ments. Defendants’ experts have failed to exclude all of these systems from their analyses. Indeed, Mr. Meek notes on page 2 of his report that “it is acknowledged that some SMAT’s remain in the sample.” My review of the Meek exhibits confirms that SMATV systems are included in his sample. On just one page alone, Meek includes, among a list of cable systems which have allegedly dropped sta- tions, a Days Inn located in Spartenburg, SC, a Shilo 1149 Inn located in Bremen, GA and four Spectradyne system located in the greater Chicago area, none of which are cable systems. (See Meek’s Exhibit B3, p. 21) 40. Therefore, although the CDC data may be fairly useful for analyzing the carriage of “distant” broadcast television stations, there is no reason in light of the above facts to believe that it is reliable in addressing the issues pertaining to the mandatory carriage of broadcast tele- vision stations. 41. A cable operator incurs costs for activating chan- nels on its system even when channel capacity is tech- nically available. These costs may include charges for new equipment needed to obtain the signal over the air and deliver it to cable viewers, as well as additional mar- keting expenses. 42. For example, an operator may need to purchase and install a new antenna to pick up a broadcast signal off air and a new signal processor. Operators in addition may need to buy and install additional modulators, pro- vide additional rack space in the system headend, repro- gram computers to handle control and accounting changes, revise and expand program guides to list the new channel, provide notice to subscribers of the change in program offerings, and incur other increased marketing and oper- ational expenses. 43. Moreover, in some systems, changes may be needed to the equipment provided to viewers in their home. Subscribers have converter boxes to receive cable service that only provide a specified number of channels. Therefore, a cable system technically may be built to a larger channel capacity than the converters can receive. New converter boxes therefore may be necessary to enable viewers to receive a newly-activated channel. In those cases, an operator would not only be forced to incur the costs previously mentioned, but also to purchase and in- 1150 stall new converters with expanded channels to replace the existing ones in subscribers’ homes. 44. According to a study by Arthur D. Little, 62 percent of local commercial broadcasters elected to nego- tiate for carriage under retransmission consent, rather than ensure their carriage and channel positioning rights under the must carry rules. As the principal trade asso- ciation of the cable industry that closely followed this issue, NCTA is aware of virtually no situation in which a television station that elected retransmission consent was not carried by the cable system. 45. This is confirmed by my review of published reports by trade publications, the broadcasters, and the FCC, all of which demonstrated that virtually every broadcast station choosing retransmission consent ulti- mately reached agreement with the cable operator for carriage. For example, a study conducted by defendant NAB indicated that “91.7 percent of stations continued to reach at least 99 percent of their cable households by cable.” See NAB’s CEO’s Friday Memo from Eddie Fritts, dated October 8, 1993, Bates-Stamped 4002604. Likewise, the FCC reported in November 1994 that “now that the retransmission consent provisions are in effect, there is no evidence that subscribers are being deprived of network programming.” See FCC Must Carry Recon- sideration Order, November 4, 1994, p. 61. See also Broadcasting and Cable, November 1, 1993, p. 14. Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing is true and correct. Executed this 25 of day of May, 1995. /s/ Gregory L. Klein Grecory L. KLEIN 1151 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA [Caption Omitted] DECLARATION I, John L. Peterman, declare as follows: [Exhibit 2] Subscriber Category Greater than $0,000 subscribers: Average Weighted Average Betweer 10.000 and $0,000 subscribers: Av efage Weighted Av erage Less than 10,000 subscribers. Avetage Weighted Average 1152 Summary of FCC Survey Concerning Effects of the “Must-Carry” Requirements Kesponse tu Question Number Percentages __ Ja Number of Added jb Number 4 Number of Percentage of Must-Carry of Added Stations that Percentage of Channe! Percentage of 2. Numberof Stations(Nem- Must-Carry Blected Channel Capacity Capacityused = Channel Capacity 1. Channel Must Carry Commercial Stations Retransmission 5. Open used by Must- by Added MC used by RC Capacity Stanions Educational) (Commercial) Consent Qhannels Carry Stations Stations Stations aw 2) a « oo (o M=Qay°o 8 8—s (ey eI"100—s (9) = (5)40)"100 Se ve 662 on 104 412 1a ne 2% 72 Se 40 728 o- 13 413 is 268 2 733 416 6“ ow 107 455 27” ee 2 aw 5499 658 0.17 1.06 458 250 197 223 6x 33.35 179 on 0a 361 4s 1s Ln 10.63 42.08 4% 0.23 on 4s 267 1.3 222 993 2u,182 138 78 34 1999 6 077 4n 016 065 392 377 1.58 1” 961 54.55 670 02s 1.06 re | 201 us 20 6a «02 4277 55% 45% 1153 Summary of FCC Survey Concerning Number of Carried and Added Must-Carry Stations Averages Numberof Number of Channel Must-Carry Adde [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0682%3A15. Public record. Not legal advice.