On November 15, 2013 KTUU-TV president and general manager Andy MacLeod sent the following letter to rural Alaska Caucus members. It included the release of KTUU-TV's last offer to GCI prior to the rural Alaska blackout on November 8th.
Re: Rural Alaska Access on GCI to KTUU-TV
Dear Rural Caucus Member:
I said I would keep you updated and informed on our attempts to get KTUU-TV restored to rural Alaska GCI cable systems. KTUU-TV was recently contacted by GCI about resuming discussions. We quickly agreed to set up a meeting.
It’s important you know it was GCI that ended negotiations Nov. 8 and chose to cut KTUU-TV off to customers. Unfortunately, GCI is not telling you or the public the truth about that fact, instead stating that KTUU-TV left the table.
As such, I thought it important to share my last exchange1 with GCI at 11:48 p.m. Nov. 8 before GCI’s midnight deadline and following a stream of offers that day, so you can judge for yourself:
Economics are not what seem to separate us.
The issues that separate us -- exclusivity, tiering, parity and D2 -- are all issues that do not affect carriage or customer service, and are based on scenarios that are not before us today. As such, we do not believe they should be a reason for GCI to pull KTUU-TV and Channel 2 News from rural Alaska, which has the least amount of video choice and news sources in this country.
We are happy to provide a carriage grant to rural Alaska for free through 2014 and continue discussions at your convenience. Please advise if you accept or reject such.
1 Italics added for emphasis.
It was rejected by GCI. At the end of the day, I’m sure you and your constituents are frustrated and wonder why the two companies cannot just work this out. In short, it takes two willing partners. KTUU-TV has demonstrated its desire to reach an agreement. We hope GCI will do the same. Your input is helpful.
Thank you. If you have any questions, please contact me. As GCI made several false misleading allegations in their Nov. 12 letter to you, I have attached below a point by point response.
Andrew MacLeod, KTUU-TV President and General Manager
To: Rural Caucus Members
Fm: Andy MacLeod Re: Attachment to Nov 15 correspondence
Here is the background on the blackout:
• GCI’s blackout is aimed squarely at the smallest and most vulnerable part of GCI’s estimated 150,000 statewide subscribers. Simply put, they have targeted 7,000 rural residents who have the fewest alternatives for cable, broadband and phone in Alaska.
• It is an unprecedented action to pull a station with a year left of free carriage, and we can find no other occurrence in the United States taken by a cable system against consumers.
GCI denies that KTUU could offer “free” carriage since it claims it must pay to transport the KTUU signal to its rural Alaska systems. This argument is a red herring. GCI has to pay the costs of getting any signal – including the signals of its owned stations – to these rural systems. And the same infrastructure is used by GCI to transport communications services for the Trans Alaska Pipeline and other purposes. So, the actual net cost to GCI – which they have declined to specify – is immaterial. And what is even more important, GCI charges its rural customers to receive the KTUU signal, payments which more than make up for GCI’s costs.
GCI argues its “massive investment in long-haul transport and cable infrastructure2 “ is the corner stone on which “KTUU’s prosperity is largely built …” and it goes on to say GCI delivers more households than any other distributor. While we differ that GCI’s infrastructure is the key to KTUU-TV’s success, it is part of it and more than balanced by the high quality of our NBC and Channel 2 News products – the most watched programming on GCI. It also is correct that GCI controls most of the pay video and broadband distribution in urban Alaska, and rural Alaska, where it also controls the bulk of the wireless.
GCI has built $720 million in annual revenues, much it from bundled services for cable, broadband and wireless. GCI revenues breakdown to $115 million in pay TV and it receives an estimated $134 million in federal subsidies through the Universal Service Fund – roughly 19 percent of its revenue – to provide communication services to the public. The area it is subsidized to serve with this infrastructure it cites are some of the same areas in which it has blacked out KTUU-TV and whose residents report they are reluctant to cancel GCI cable out of fear their GCI telephone and internet access rates will skyrocket.
GCI demanded that KTUU-TV renounce its NBC traditional service area in rural Alaska – which it first entered in 1977 -- in a clear attempt to clear the path for GCI’s owned NBC stations, KATH in Juneau and KSCT in Sitka. It also demanded KTUU-TV give up any signal parity in rural Alaska with KTVA in Anchorage, which GCI also owns3.
By clearing the way for GCI to put its stations in our traditional service area, GCI is attempting to perfect a distribution and content monopoly that would eliminate an independent news source, Channel 2 News, from rural cable. Indeed, rural Alaska would likely be left with the GCI news on KTVA and also on KATH – two GCI owned station choices -- one newscast, or a slightly modified version of the same.
The constraints GCI sought for a carriage agreement from KTUU-TV focus on speculative potential future developments and regulatory changes, and had nothing to do with the economics the two parties worked to bring within pennies of each other.
GCI’s attempts to distract the issue with rhetoric4 and pivot the table by accusing KTUU-TV of monopolistic behavior for standing up for its rights and seeking fair compensation for its product belies its intent.
By definition, a monopoly is an entity that controls distribution and price. That is GCI’s bundled business model as it basically stated in its Nov. 12 letter when it touted its transport and infrastructure. KTUU-TV has a powerful brand and wide and loyal news audience, but no ability to decide what viewers tune it in versus watch another news or entertainment option.
We compete every day to be the viewers’ choice for an independent news source and also for entertainment. That’s competition.
I wanted to share our response and position as we will be messaging your constituents on these facts.
KTUU-TV President and General Manager
2 GCI Nov. 12 letter states: “KTUU’s prosperity is largely built on GCI’s massive investment in long-haul transport and cable infrastructure throughout Alaska. GCI delivers KTUU programming to more households than any other programming distributor.”
3 In addition to renouncing its historic exclusivity in rural Alaska through NBC, these constraints included blindly agreeing to Tiering of KTUU-TV on GCI cable, a concession that would allow the cable operator to force consumers to “buy up” to get KTUU and limit its availability to higher paying tiers. Tiering of broadcast signals is not legal now for cable operators, nor is there any action before the FCC to allow it. GCI also denied signal parity – insuring KTUU would have the same HD quality if GCI chose to put one of its owned stations out to rural Alaska in HD.
4 GCI attacks KTUU-TV for being owned by “outsiders” in its advertising campaigns. As a point of fact, three families have owned and operated KTUU-TV during its 60 year history. Pioneer broadcaster Al Bramstedt Sr. sold the station to Zaser-Longston, a family run business from Washington state in 1981. Schurz Communications, a family run, 143-year-old media business purchased it in 2008. GCI somehow sees a material difference between the telecom/cable company being publicly traded and answering to Wall Street and privately run family owned business headquartered outside Alaska.