NOTEBOOK

Television Digest with Consumer Electronics, March 22, 1999

In attempt to protect online consumers, some state officials have created separate agencies to handle matters arising in unique context of Internet. N.Y. and Pa. attorneys gen. have established separate agencies to handle Internet issues and Fla. is just beginning to think about it, officials said.

Spokesman for Internet lobbying group said most people recognize that existing consumer protection statutes apply to Internet transactions, so there's no need for new laws, but he conceded there are "bad actors" online taking advantage of public. Meanwhile, FTC created new unit to examine online advertising. Also, new Better Business Bureaus (BBB) Online privacy program could qualify as safe harbor under negotiations with European Union (EU), but it won't know for certain until those talks have concluded, BBB Online Gen. Counsel Steve Cole said. BBB Online also will distribute Internet privacy information and model policies through its local affiliates. BBB runs reliability seal program allowing consumers to access information about company and its services. Leaders of Internet, long distance and RBOCs stressed optimism for future of high-speed digital subscriber line (DSL) access, which has come under new pressure to carve market niche with advent of cable modem offerings, particularly plans by newly combined AT&T and TCI. AOL expects to pair with DSL providers in agreements similar to those reached with SBC and Bell Atlantic to offer high-speed access, AOL Chmn. Steve Case said at Merrill Lynch telecom conference in N.Y. He declined to speculate on timing of such agreement or potential partners among RBOCs and other companies. WB head Garth Ancier will move to NBC as entertainment pres. in May, as expected, NBC confirmed. Ancier had refused to renew WB contract in Dec. but was forbidden from immediately negotiating with competitors and can't begin working for them until May. NBC said Ancier will handle creative end of programming, with Scott Sassa overseeing business aspects. Among media, broadcasters are most likely to have material subpoenaed in court cases and most likely to comply with court orders, with newspapers less likely to receive subpoenas and more likely to fight them successfully, according to report by Reporters Committee for Freedom of the Press. Committee said broadcasters received 71% of all subpoenas in 1997 and complied with 73% of them. Newspapers, in contrast, negotiated agreements to have half of all subpoenas withdrawn and fully complied with only 23%. Broadcasters are more likely to receive subpoenas because they're more visible, Committee Exec. Dir. Jane Kirtley said, but "fighting subpoenas doesn't have to mean a full-court battle. Broadcasters could learn a lesson from their print colleagues -- never underestimate the power of persuasion." Both broadcasters and newspapers were successful in avoiding complying 75% of time when they fully appealed issues in court, report said. Other findings: (1) More than half of news organizations surveyed received subpoena in 1997. (2) 23% said they changed newsroom policies as result of subpoenas. (3) Criminal cases accounted for 52% of subpoenas. (4) Only 3% demanded identity of confidential news source. FCC Chmn. Kennard and at least 3 other commissioners will speak at FCBA annual seminar May 8, Hotel Hershey, Hershey, Pa. FCC Comr. Tristani has been invited but hasn't confirmed, but others said they will speak at 9-11:30 a.m. session. Other speakers beginning at 3:30 p.m. May 7 are FCC Chief of Staff Kathryn Brown, Cable Bureau Chief Deborah Lathen, Mass Media Bureau Chief Roy Stewart, Common Carrier Bureau Chief Lawrence Strickling, Wireless Bureau Chief Thomas Sugrue -- 202-293-4000. Harris Corp. said it will provide 25 HDTV encoder systems to Hearst-Argyle stations, based on master purchase agreement, terms not announced. U.S. Dist. Court, Wilmington, turned down attempt by Justice Dept. to limit only to Playboy court ruling overturning signal- scrambling provisions of Telecom Act. Special 3-judge court panel late last year in case brought by Playboy held that Sec. 505 of Act requiring scrambling of adult channels was unconstitutional because it wasn't "least restrictive means" of limiting distribution. In decision March 18, court ruled that Justice filed its notice to appeal decision to U.S. Supreme Court before it had asked Wilmington court to alter scope of its original ruling. As result, notice of appeal gave jurisdiction of case to U.S. Supreme Court, Wilmington court said. Under special Telecom Act procedures, special panel at Dist. Court level decides case, with appeal directly to U.S. Supreme Court. DoJ has until April 19 to file its first brief with Supreme Court. Key congressional leaders, including House Majority Leader Armey (R-Tex.), Senate Commerce Committee Chmn. McCain (R-Ariz.) and Rep. Cox (R-Cal.), said they will back legislation to clarify that FCC won't regulate Internet. In March 18 letter to FCC Chmn. Kennard, lawmakers asked his help "to work with us on legislation to clarify the 1934 Communications Act to make it clear that the FCC won't regulate the Internet or impose access charges on Internet service." They have no draft bills prepared, Hill sources said. Letter signers said they agree with Kennard's March 11 statement that FCC won't regulate Internet as long as he's chairman but said they continue to hear from constituents about possibility that Commission intends to impose per-min. access charges on Internet services. In part, leaders were acting in self-defense. They said legislation may be needed to "stop the thousands of e-mails and phone calls from concerned Internet users" they have been receiving. Messages have circulated on Internet for weeks that either FCC's action would have effect of imposing access charges or that Congress was about to vote to do so. Messages poured in even when Congress wasn't in session. Lawmakers said that without new bill, "there will always be a reason for Internet users to suspect that FCC regulation could be right around the corner." NBC Interactive Neighborhood and 24/7 Media signed 3-year agreement to create nationwide sales force focused on PC-TV convergence, companies said. Program will build integrated multimedia sponsorship programs for local advertisers. Initial markets will be NBC-owned stations in N.Y.C., L.A., Chicago, Washington, Dallas. Test begins immediately in those markets and then in 14 more markets in 3rd quarter. NBC Interactive will take undisclosed stake in 24/7 Media. Rather than working to "tweak" broadcast regulation, industry should agree to seek removal of essentially all broadcast regulations, Fox TV Chmn. Chase Carey told Media Institute lunch March 17. "Our survival depends on our ability to meet the competition unimpeded," he said, referring to cable, satellites, Internet, other new media. He said he's aware of regulatory concerns about "irreversible course of increasing consolidation" in broadcasting, but said new media competitors will mean that "for consumers the result will be more, not less, competition." Carey said there's "romantic notion" among regulators that broadcasting will remain "mom-and-pop business, but mom and pop can't compete against AOL and Microsoft." Citing claims that broadcasters may switch to pay-TV services, he said Fox "wants to stay in the broadcast business" but is "gravely serious" about possibility of pay TV: "We cannot and will not stand by and see our investment whittled away." Total combined market value of all 4 networks is "dwarfed" by value of individual competitors such as TCI, AOL and Microsoft, Carey said. He also said several cable networks individually have more profit than total of all 4 major broadcast networks. Despite decline in network domination, he said, "today's rules for broadcasting are only slightly modified from the era of 3 networks." Carey specifically referred to changing ownership and content rules, saying they could violate First Amendment. He said he was speaking to broadcasters as much as to regulators, saying that divisions within industry on such things as ownership caps and saying that divisions are based on "parochial, short-term interests... the pursuit of individual goals dooms us all." He referred particularly to regulations such as ownership caps, duopoly, cross-ownership. Ownership caps "shouldn't exist at all," he said, but he agreed that increasing them to at least 50% of national households would help. Statements that allowing PTV to use part of DTV capacity for ad-supported services would ruin public broadcasting "are hyperbole," APTS told FCC in replies March 16. Responding to Media Access Project (MAP) filing on behalf of United Church of Christ and other public interest groups, APTS said PTV station "can completely disassociate itself from any advertiser-supported service it may provide on its excess digital capacity." MAP countered that PTV's argument boils down to "trust us, we are public broadcasters." MAP said there's already "widespread noncompliance" with rules against commercialism, and "even if it were legal" for Commission to grant APTS relief it seeks, doing so would encourage "those 'bad actors' to push the line even farther towards a service that is barely distinguishable from commercial broadcasting." Former Gen. Colin Powell will be opening speaker at NAB Service to America summit June 21 in Washington, Assn. said -- 202-775-2559. Despite lack of final agreement on DTV antenna sites in Chicago, stations are scrambling to find interim solutions to meet FCC's May 1 deadline for starting DTV service there. Meanwhile, 6-month confidentiality agreement among stations makes unclear status of long-term solution, although Chuck McCourt, WBBM-TV dir.-technical operations and chmn. of stations' committee, said "we are still in dialog." Stations would prefer common antenna site, but that's likely to take at least 2 years even after agreement is reached, officials said. In meantime, Fox affiliate WFLD (Ch. 32) installed its Andrew-manufactured DTV antenna atop Sears Tower last weekend and is in process of installing its Harris transmitter, Vp-Engineering Dwain Schoonover said. He said transmission line still needs to be installed but there's "good possibility" that station will be able to begin DTV broadcasting ahead of May 1 schedule. CBS-owned WBBM-TV is "still trying to determine a short-term solution" to starting DTV, DeCourt said, and isn't completely satisfied with antenna sites atop either of the 2 large Chicago buildings. Despite that, he said, station intends to meet May 1 deadline. Global cable modem revenue will total $17 billion 1998-2003, Strategis Group projected, with nearly 20 million global cable modem subscribers in 2003. World Cable & Satellite Markets estimated that over next 5 years, U.S. cable modem service revenue would be 40-50% as large as cable TV revenue, with numbers nearly equal in Germany, Netherlands, Poland -- 202-530-7500. FCC should reconsider its decision not to require annual rate cuts for Comsat occasional-use satellite service in 142 markets in U.S. and overseas, ABC, CBS, NBC and Turner Bcstg. said in joint petition. Broadcasters use service to relay video, typically for news programs. Referring to "incentive-based price regulation" of Comsat approved by Commission, networks said that's "a step in the right direction," but FCC should require at least 4% annual rate cuts, equal to those for switched voice service, and detail more completely procedure for classifying route as competitive. One- time rate reduction wouldn't give Comsat enough incentive to keep increasing productivity, they said, and relatively small size of occasional-use market doesn't justify unfair regulatory treatment. In major boost for its planned fiber networks on East and West coasts, RCN Corp. received $1.25 billion capital infusion. Hicks, Muse, Tate & Furst agreed to buy $225 million of senior convertible preferred stock. Rest of new capital is coming from $1 billion of senior secured debt arranged by Chase Securities Inc., RCN's first bank agreement since going public in Sept. 1997, spokesman said. By year-end, company had built more than 1,000 route miles in local markets and 100,000 fiber miles, he said. AT&T Broadband & Internet Services CEO Leo Hindery signed new 5-year employment contract upon AT&T's acquisition of TCI March 9, according to TCI 10-K. Hindery gets base salary of $900,000, with possible increases from AT&T board, and if terminated will receive at least 2 years' pay. Hindery joined AT&T with one million in unexercised stock options, which AT&T converted into AT&T common stock options, worth about $83.4 million, with 50% of Hindery's options vesting in last 2 years of contract. Liberty Media Chmn. John Malone also accepted 5-year contract with base salary of $800,000, with all remaining money due immediately if his termination is result of ownership change. Termination of Malone would trigger 20-year payment cycle of $15,000 per month, increasing 12% annually, with money continuing to heirs if he dies. Malone's purchase last year of shares belonging to estate of TCI founder Bob Magness now total more than $624 million in form of AT&T stock, more than double purchase price. TCI posted $59 million loss in 1998, down from $849 million profit in 1997, but 10-K shows financial picture would have been much worse if not for $5.76 billion gain on disposition of assets, vs. $401 million asset gain in 1997. Among contributors were $2.3 billion gain from AT&T acquisition of Teleport, $1.9 billion from Sprint PCS, $898 million from sale of 830,000 subscribers to Cablevision Systems. Sale played key role in advancing TCI's goal of reducing total number of subscribers, with MSO ending 1998 with 11.4 million, according to 10-K. Total puts it in No. 2 position behind Time Warner Cable at 12 million. TCI said it had about one million digital customers at year-end. MSO said it spent $13 million on Y2K problem in 1998 and anticipates total remaining costs preparing for changeover to be at least $113 million. EchoStar reduced net loss to $260.8 million in 1998 from $312.8 million year earlier on increase in Dish Network revenue to $209.7 million from $105.8 million. Revenue for all operations soared to $982.6 million from $477.4 million. DBS operator nearly doubled spending for subscriber promotion subsidies, to $270.5 million from $145 million. EchoStar said it finished year with 1.9 million subscribers. Richmond One agreed to pay $34 million for 7 radio stations in Richmond, Va. Sellers were Sinclair Telecable and Commonwealth Bcstg. TV viewers still can "go hours without seeing on TV the diversity that you see on your street," FCC Chmn. Kennard said March 16 in speech to "Through the Eyes of Children" conference in L.A. Conference was to help program producers find ways to create programming that would benefit children. Kennard said TV executives' attendance at session "shows that the television industry realizes that with the vast opportunities that you enjoy comes a responsibility... to make our communities stronger. You should all be proud."