[Federal Register: April 16, 2007 (Volume 72, Number 72)]
[Notices]
[Page 19039-19055]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16ap07-137]
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LIBRARY OF CONGRESS
Copyright Office
[Docket No. 2007-1]
Section 109 Report to Congress
AGENCY: Copyright Office, Library of Congress.
ACTION: Notice of Inquiry.
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SUMMARY: Pursuant to statute, the Copyright Office is seeking comment
on issues related to the operation of, and continued necessity for, the
cable and satellite statutory licenses under the Copyright Act.
DATES: Written comments are due July 2, 2007. Reply comments are due
September 13, 2007. April 16, 2007.
ADDRESSES: If hand delivered by a private party, an original and five
copies of a comment or reply comment should be brought to the Library
of Congress, U.S. Copyright Office, Public and Information Office, 101
Independence Ave, SE, Washington, DC 20559, between 8:30 a.m. and 5
p.m. The envelope should be addressed as follows: Office of the General
Counsel, U.S. Copyright Office.
If delivered by a commercial courier, an original and five copies
of a comment or reply comment must be delivered to the Congressional
Courier Acceptance Site (``CCAS'') located at 2nd and D Streets, NE,
Washington, D.C. between 8:30 a.m. and 4 p.m. The envelope should be
addressed as follows: Office of the General Counsel, U.S. Copyright
Office, LM 430, James Madison Building, 101 Independence Avenue, SE,
Washington, DC. Please note that CCAS will not accept delivery by means
of overnight delivery services such as Federal Express, United Parcel
Service or DHL.
If sent by mail (including overnight delivery using U.S. Postal
Service Express Mail), an original and five copies of a comment or
reply comment should be addressed to U.S. Copyright Office, Copyright
GC/I&R, P.O. Box 70400, Southwest Station, Washington, DC 20024.
FOR FURTHER INFORMATION CONTACT: Ben Golant, Senior Attorney, and Tanya
M. Sandros, Acting General Counsel, Copyright GC/I&R, P.O. Box 70400,
Southwest Station, Washington, DC 20024. Telephone: (202) 707-8380.
Telefax: (202) 707-8366.
SUPPLEMENTARY INFORMATION:
I. BACKGROUND
Overview. There are three statutory licenses in the Copyright Act
(``Act'') governing the retransmission of distant and local broadcast
station signals. A statutory license is a codified licensing scheme
whereby copyright owners are required to license their works at a
regulated price and under government-set terms and conditions. There is
one statutory license applicable to cable television systems and two
statutory licenses applicable to satellite carriers. The cable
statutory license, enacted in 1976 and codified in Section 111 of the
Act, permits a cable operator to retransmit both local and distant
radio and television signals to its subscribers who pay a fee for such
service. The satellite carrier statutory license, enacted in 1988 and
codified in Section 119 of the Act, permits a satellite carrier to
retransmit distant television signals (but not radio signals) to its
subscribers
[[Page 19040]]
for private home viewing as well as to commercial establishments.\1\
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\1\ We note that, unlike Section 111, Section 119 does not use
the term ``distant'' to refer to those broadcast station signals
retransmitted under the statutory license. For the purposes of this
NOI, however, the term ``distant'' may be used in the Section 119
context to describe a television station signal retransmitted by a
satellite carrier.
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The royalties collected under the Section 111 and Section 119
licenses are paid to the copyright owners or their representatives,
such as the Motion Picture Association of America (``MPAA''), the
professional sports leagues (i.e., MLB, NFL, NHL, and the NBA, et.
al.), performance rights groups (i.e., BMI and ASCAP), commercial
broadcasters, noncommercial broadcasters, religious broadcasters, and
Canadian broadcasters for the public performance of the programs
carried on the retransmitted station signal. Under Chapter 8 of the
Copyright Act, the Copyright Royalty Judges are charged with
adjudicating royalty claim disputes arising under Sections 111 and 119
of the Act. See 17 U.S.C. 801.
The Section 122 statutory license, enacted in 1999, permits
satellite carriers to retransmit local television signals (but not
radio) into the stations' local market on a royalty-free basis. The
license is contingent upon the satellite carrier complying with the
rules, regulations, and authorizations established by the Federal
Communications Commission (``FCC'') governing the carriage of
television broadcast signals. Section 338 of the Communications Act of
1934 (``Communications Act''), a corollary statutory provision to
Section 122 and also enacted in 1999, required satellite carriers, by
January 1, 2002, ``to carry upon request all local television broadcast
stations' signals in local markets in which the satellite carriers
carry at least one television broadcast station signal,'' subject to
the other carriage provisions contained in the Communications Act. The
FCC implemented this provision in 2000 and codified the ``carry-one
carry-all'' rules in 47 CFR 76.66. The carriage of such signals is not
mandatory, however, because satellite carriers may choose not to
retransmit a local television signal to subscribers in a station's
local market.
Section 109. On December 8, 2004, the President signed the
Satellite Home Viewer Extension and Reauthorization Act of 2004, a part
of the Consolidated Appropriations Act of 2004. See Pub. L. No. 108-
447, 118 Stat. 3394 (2004) (hereinafter ``SHVERA''). Section 109 of the
SHVERA requires the Copyright Office to examine and compare the
statutory licensing systems for the cable and satellite television
industries under Sections 111, 119, and 122 of the Act and recommend
any necessary legislative changes no later than June 30, 2008. The
Copyright Office has conducted similar analyses of the Section 111 and
119 statutory licenses at the request of Congress in 1992 and 1997. See
The Cable and Satellite Compulsory Licenses: An Overview and Analysis
(March 1992); A Review of the Copyright Licensing Regimes Covering
Retransmission of Broadcast Signals (August 1997).
Under Section 109, Congress indicated that the report shall
include, but not be limited to, the following: (1) a comparison of the
royalties paid by licensees under such sections [111, 119, and 122],
including historical rates of increases in these royalties, a
comparison between the royalties under each such section and the prices
paid in the marketplace for comparable programming; (2) an analysis of
the differences in the terms and conditions of the licenses under such
sections, an analysis of whether these differences are required or
justified by historical, technological, or regulatory differences that
affect the satellite and cable industries, and an analysis of whether
the cable or satellite industry is placed in a competitive disadvantage
due to these terms and conditions; (3) an analysis of whether the
licenses under such sections are still justified by the bases upon
which they were originally created; (4) an analysis of the correlation,
if any, between the royalties, or lack thereof, under such sections and
the fees charged to cable and satellite subscribers, addressing whether
cable and satellite companies have passed to subscribers any savings
realized as a result of the royalty structure and amounts under such
sections; and (5) an analysis of issues that may arise with respect to
the application of the licenses under such sections to the secondary
transmissions of the primary transmissions of network stations and
superstations that originate as digital signals, including issues that
relate to the application of the unserved household limitations under
Section 119 and to the determination of royalties of cable systems and
satellite carriers.\2\
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\2\ Aside from the requirement to issue a report under Section
109, the SHVERA also required the Copyright Office to examine select
portions of the Section 119 license and to determine what, if any,
effect Sections 119 and 122 have had on copyright owners whose
programming is retransmitted by satellite carriers. Specifically,
Section 110 of the SHVERA required the Register of Copyrights to
report her findings and recommendations on: (1) the extent to which
the unserved household limitation for network stations contained in
Section 119 has operated efficiently and effectively; and (2) the
extent to which secondary transmissions of primary transmissions of
network stations and superstations under Section 119 harm copyright
owners of broadcast programming and the effect, if any, of Section
122 in reducing such harm. The Section 110 report was released in
2006. See Satellite Home Viewer Extension and Reauthorization Act
Sec. 110 Report, A Report of the Register of Copyrights (February
2006).
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According to Section 109's legislative history, the Copyright
Office shall conduct a study of the Section 119 and Section 122
licenses for satellite, and the Section 111 license for cable, and make
recommendations for improvements to Congress no later than June 30,
2008. The legislative history further instructs that the Copyright
Office must analyze the differences among the three licenses and
consider whether they should be eliminated, changed, or maintained with
the goal of harmonizing their operation. See H.R. Rep. No. 108-660,
108th Cong., 2d Sess., at 19 (2004).
This Notice of Inquiry (``NOI'') commences our efforts to collect
information necessary to address the issues posed to us by Congress in
Section 109 of the SHVERA. We plan to hold hearings on matters raised
in this NOI later this year to further supplement the record. A
separate Federal Register notice will be issued announcing the dates
and procedures associated with those hearings. Interested parties will
be provided an opportunity to testify at the hearings and respond to
testimony submitted at those hearings.
II. DISCUSSION
We hereby seek comment on Sections 111, 119, and 122 of the
Copyright Act. We analyze the rates, terms, and conditions found in the
three licenses at issue. We also examine how multichannel video
competition has been affected by the licenses and whether cable and
satellite subscribers have benefitted from them. In addition, we
explore the application of the licenses to new digital video
technologies. We conclude our inquiry by seeking comment on whether the
licenses should be maintained, modified, expanded, or eliminated.
A. Comparison of Royalties
1. Background
Section 111. The royalty payment scheme for the Section 111 license
is complex and is based, in large part, on broadcast signal carriage
regulations adopted by the FCC over thirty years ago. Cable operators
pay royalties based on mathematical formulas established in Section
111(d)(1)(B), (C), and (D) of the Copyright Act. Section 111 segregates
[[Page 19041]]
cable systems into three separate categories according to the amount of
revenue, or ``gross receipts,'' a cable system receives from
subscribers for the retransmission of distant broadcast station
signals. For purposes of calculating the royalty fee cable operators
must pay under Section 111, gross receipts include the full amount of
monthly (or other periodic) service fees for any and all services (or
tiers) which include one or more secondary transmissions of television
or radio broadcast stations, for additional set fees, and for converter
(``set top box'') fees. Gross receipts are not defined in Section 111,
but are defined in the Copyright Office's rules. See 37 CFR
201.17(b)(1). These categories are: (1) systems with gross receipts
between $0-$263,800 (under Section 111(d)(1)(C)); (2) systems with
gross receipts more than $263,800 but less than $527,600 (under Section
111(d)(1)(D)); and (3) systems with gross receipts of$527,600 and above
(under Section 111(d)(1)(B)). This revenue-based classification system
reveals Congress' belief that larger cable systems have a significant
economic impact on copyrighted works.
The Copyright Office has developed Statement of Account (``SOA'')
forms that must be submitted by cable operators on a semi-annual basis
for the purpose of paying statutory royalties under Section 111. There
are two types of cable system SOAs currently in use. The SA1-2 Short
Form is used for cable systems whose semi-annual gross receipts are
less than $527,600.00. There are three levels of royalty fees for cable
operators using the SA1-2 Short Form: (1) a system with gross receipts
of $137,000.00 or less pays a flat fee of $52.00 for the retransmission
of all local and distant broadcast station signals; (2) a system with
gross receipts greater than $137,000.00 and equal to or less than
$263,000.00, pays between $52.00 to $1,319.00; and (3) a system
grossing more than $263,800.00, but less than $527,600.00 pays between
$1,319.00 to $3,957.00. Cable systems falling under the latter two
categories pay royalties based upon a fixed percentage of gross
receipts notwithstanding the number of distant station signals they
retransmit. The SA-3 Long Form is used by larger cable systems grossing
$527,600.00 or more semi-annually. The vast majority of royalties paid
under Section 111 come from Form SA-3 systems.
A key element in calculating the appropriate royalty fee involves
identifying subscribers of the cable system located outside the local
service area of a primary transmitter. See 17 U.S.C. 111(d)(1)(B); see
also 17 U.S.C. 111(f) (definition of ``local service area of a primary
transmitter''). This determination is predicated upon two sets of FCC
regulations: the broadcast signal carriage rules in effect on April 15,
1976, and a station's television market as currently defined by the
FCC. In general, a broadcast station is considered distant vis-a-vis a
particular cable system where subscribers served by that system are
located outside that broadcast station's specified 35 mile zone (a
market definition concept arising under the FCC's old rules), its Area
of Dominant Influence (``ADI'') (under Arbitron's defunct television
market system), or Designated Market Area (``DMA'') (under Nielsen's
current television market system). However, there are other sets of
rules and criteria (e.g., Grade B contour coverage or ``significantly
viewed'' status) that also apply in certain situations when assessing
the local or distant status of a station-even when subscribers are
located outside its zone, ADI and DMA for copyright purposes. A cable
system pays a ``base rate fee'' if it carries any distant signals
regardless of whether or not the system is located in an FCC-defined
television market area. Form SA-3 cable systems that carry only local
signals do not pay the base rate fee, but do pay the minimum fee of
$5,344.59 (i.e. 1.013% x $527, 600.00).
The royalty scheme for Form SA-3 cable systems employs the
statutory device known as the distant signal equivalent (``DSE'').
Section 111 defines a DSE as ``the value assigned to the secondary
transmission of any non-network television programming carried by a
cable system in whole or in part beyond the local service area of a
primary transmitter of such programming.'' 17 U.S.C. 111(f). A DSE is
computed by assigning a value of one (1.0) to a distant independent
broadcast station (as that term is defined in the Copyright Act), and a
value of one-quarter (.25) to distant noncommercial educational
stations and network stations (as those terms are defined in the
Copyright Act).
A Form SA-3 cable system pays royalties based upon a sliding scale
of percentages of its gross receipts depending upon the number of DSEs
it carries. The greater the number of DSEs, the higher the total
percentage of gross receipts and, consequently, the larger the total
royalty payment. For example: (1) 1st DSE = 1.013% of gross
receipts; (2) 2, 3 & 4th DSE = .668% of gross receipts; and
(3) 5th, etc., DSE = .314% of gross receipts. Cable systems
carrying distant television station signals after June 24, 1981, that
would not have been permitted under the FCC's former rules in effect on
that date, must pay a royalty fee of 3.75% of gross receipts
using a formula based on the number of relevant DSEs. The cable
operator would pay either the sum of the base rate fee and the
3.75% fee, or the minimum fee, whichever is higher. Cable
systems located in whole or in part within a major television market
(as defined by the FCC), must calculate a syndicated exclusivity
surcharge (``SES'') for the retransmission of any commercial VHF
station signal that places a Grade B contour, in whole or in part, over
the cable system which would have been subject to the FCC's syndicated
exclusivity rules in effect on June 24, 1981. If any signals are
subject to the SES, an SES fee is added to the foregoing larger amount
to determine the system's total royalty fee.\3\
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\3\ In 1980, the FCC eliminated its distant signal carriage and
syndicated exclusivity rules. The Copyright Royalty Tribunal
(``CRT''), in response to the FCC's actions, conducted a rate
adjustment proceeding to establish two new rates applicable only to
Form SA-3 systems: (1) to compensate for the loss of the distant
signal carriage rules, the CRT adopted the 3.75% fee; and
(2) to compensate for the loss of the syndex rules, the CRT adopted
the SES fee. See 47 FR 52146 (1982). The FCC reinstituted its
syndicated exclusivity rules in the late 1980s.
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At this juncture, it is important to note that the FCC does not
currently restrict the kind and quantity of distant signals a cable
operator may retransmit. Nevertheless, the FCC's former market quota
rules, which did limit the number of distant station signals carried
and were part of the FCC's local and distant broadcast carriage rules
in 1976, are still relevant for Section111 purposes. These rules are
integral in determining: (1) whether broadcast signals are permitted or
non-permitted; (2) the applicable royalty fee category; and (3) a
station's local or distant status for copyright purposes. Broadcast
station signals retransmitted pursuant to the former market quota rules
are considered permitted stations and are not subject to a higher
royalty rate. To put these rules in context, a cable system in a
smaller television market (as defined by the FCC) was permitted to
carry only one independent television station signal under the FCC's
former market quota rules. Currently, a cable system in a smaller
market is permitted to retransmit one independent station signal. A
cable system located in the top 50 television market or second 50
market (as defined by the FCC), was permitted to carry more independent
station signals under the former market quota rules; a cable system in
these markets is currently permitted under Section 111 to retransmit
more independent station signals than a cable system in a smaller
market. The former market quota rules did not apply to
[[Page 19042]]
cable systems located ``outside of all markets'' and these systems
under Section 111 are currently permitted to retransmit an unlimited
number of television station signals without incurring the 3.75%
fee (although these systems still pay at least a minimum copyright fee
or base rate fee for those signals).
There are other bases of permitted carriage under the current
copyright scheme that are tied to the FCC's former carriage
requirements. They include: (1) specialty stations; (2) grandfathered
stations; (3) commercial UHF stations placing a Grade B contour over a
cable system; (4) noncommercial educational stations; (5) part time or
substitute carriage; and (6) a station carried pursuant to an
individual waiver of FCC rules. If none of these permitted bases of
carriage are applicable, then the cable system pays a relatively higher
royalty fee for the retransmission of that station's signal.
The Copyright Office has divided the royalties collected from cable
operators into three categories to reflect their origin: (1) the
``Basic Fund,'' which includes all royalties collected from Form SA-1
and Form SA-2 systems, and the royalties collected from Form SA-3
systems for the retransmission of distant signals that would have been
permitted under the FCC's former distant carriage rules; (2) the
``3.75% Fund,'' which includes royalties collected from Form
SA-3 systems for distant signals whose carriage would not have been
permitted under the FCC's former distant signal carriage rules; and 3)
the ``Syndex Fund,'' which includes royalties collected from Form SA-3
systems for the retransmission of distant signals carrying programming
that would have been subject to black-out protection under the FCC's
old syndicated exclusivity rules. We note that royalties collected from
the syndex surcharge decreased considerably after the FCC reimposed
syndicated exclusivity protection in 1988.
In order to be eligible for a distribution of royalties, a
copyright owner of broadcast programming retransmitted by one or more
cable systems under Section 111 must submit a written claim to the
Copyright Royalty Judges. Only copyright owners of non-network
broadcast programming are eligible for a royalty distribution. Eligible
copyright owners must submit their claims in July for royalties
collected from cable systems during the previous year. If there are no
controversies, meaning that the claimants have settled among themselves
as to the amount of royalties each claimant is due, then the Copyright
Royalty Judges distribute the royalties in accordance with the
claimants' agreement(s) and the proceeding is concluded.\4\
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\4\ The Copyright Royalty and Distribution Reform Act of 2004
(Pub. L. No. 108-419) eliminated the Copyright Arbitration Royalty
Panel (``CARP'') system that had been part of the Copyright Office
since 1993. The Act replaced CARP (which itself replaced the
Copyright Royalty Tribunal in 1993) with a system of three Copyright
Royalty Judges (``CRJs''), who now determine rates and terms for the
copyright statutory licenses and make determinations on distribution
of statutory license royalties collected by the Copyright Office.
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Section 119. The satellite carrier statutory license, first enacted
through the Satellite Home Viewer Act (``SHVA'') of 1988, and codified
in Section 119 of the Act, establishes a statutory copyright licensing
scheme for satellite carriers that retransmit the signals of distant
television network stations and superstations to satellite dish owners
for their private home viewing and for viewing in commercial
establishments. Satellite carriers may use the Section 119 license to
retransmit the signals of superstations to subscribers located anywhere
in the United States. However, the Section 119 statutory license limits
the secondary transmissions of network station signals to no more than
two such stations in a single day to persons who reside in unserved
households. An ``unserved household'' is defined as one that cannot
receive an over-the-air signal of Grade B intensity of a network
station using a conventional rooftop antenna. 17 U.S.C. 119(d).
Congress created the unserved household provision to protect the
historic network-affiliate relationship as well as the program
exclusivity enjoyed by television broadcast stations in their local
markets.
The Section 119 license is similar to the cable statutory license
in that it provides a means for satellite carriers to clear the rights
to television broadcast programming upon semi-annual payment of royalty
fees to the Copyright Office. However, the calculation of royalty fees
under the Section 119 license is significantly different from the cable
statutory license. Rather than determine royalties based upon old FCC
rules, royalties under the Section 119 license are calculated on a
flat, per subscriber per station basis. Television broadcasts are
divided into two categories: superstations (i.e., commercial
independent television broadcast stations), and network stations (i.e.,
commercial televison network stations and noncommercial educational
stations); each with its own attendant royalty rates. Satellite
carriers multiply the respective royalty rate for each station by the
number of subscribers, on a monthly basis, who receive the station's
signal during the six-month accounting period to calculate their total
royalty payment. Each year, satellite carriers submit royalties to the
Copyright Office which are, in turn, distributed to copyright owners
whose works were included in a retransmission of a broadcast station
signal and for whom a claim for royalties was timely filed with the
Copyright Royalty Judges.
Section 122. The Section 122 license allows satellite carriers to
retransmit local television signals. Because there are no royalty fees
or carriage restrictions for local signals retransmitted under Section
122, there is no need to distinguish between network stations and
superstations as is the case in Section 119. The Section 122 statutory
copyright license, permits, but does not require, satellite carriers to
engage in the satellite retransmission of a local television station
signal into the station's own market (DMA) without the need to identify
and obtain authorization from copyright owners to retransmit the
owners' programs. See 17 U.S.C. 122.
2. Payments and Rate Increases
Congress has asked us to compare the royalties paid by licensees
under Sections 111, 119, and 122, and report on the historical rates of
increases in these royalties.
Royalties Paid. Cable operators have paid, on average,
$125,000,000.00 in royalties annually since the implementation of
Section 111 by the Copyright Office in 1978. While royalty payments
under the cable statutory license have increased over the past seven
years, there have been periods of fluctuation in the past 29 years. For
example, royalties decreased 30% in 1998 from the year
before partly because WTBS changed its status from a distant
superstation to a basic cable network. Royalties also decreased by
13% in 1994 from the year before likely because cable
operators dropped distant signals in order to accommodate the carriage
of local signals mandated by Sections 614 and 615 of the 1992 Cable
Act. See Cable Television Consumer Protection and Competition Act of
1992, Pub. L. No. 102-385, 106 Stat. 1460.
We estimate that smaller cable operators (SA-1/SA-2 systems) pay,
on average, .4% of their gross receipts into the royalty
pool. In comparison, larger cable operators (SA-3 systems) pay, on
average, 1.2% of their gross receipts into the royalty pool.
These figures, based on the 2001/1 and 2001/2 accounting periods (as
typical periods), are derived by dividing a system's royalty fees by
its
[[Page 19043]]
gross receipts. \5\ These percentages are generally consistent over
other accounting periods as well.
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\5\ We note that in the 2001/1 accounting period, for example,
there were: (1) 5,517 SA-1 form filers paying $202,193.37 in cable
royalties; (2) 2,117 SA-2 form filers paying $2,186,554.15 in cable
royalties; and (3) 1,844 SA-3 form filers paying $57,773, 352.29 in
royalties. This figure was calculated by adding the base fee
($51,497,381.75) + 3.75% fee ($6,020,168.47) + SES fee
($$48,369.30) + interest ($207,432.77).
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In comparison, satellite carriers have paid, on average, nearly
$50,000,000.00 in royalties annually, since the Copyright Office began
implementing the Section 119 license in 1989. Like the Section 111
royalties described above, there have been fluctuations due to changed
circumstances. For example, satellite royalties decreased by over
26% in 1999 from the year before likely because satellite
carriers began offering local-into-local service under Section 122 of
the Copyright Act and Section 338 of the Communications Act and because
of a royalty rate decrease announced in December 1999. See http://www.copyright.gov/fedreg/1999/64fr71659.pdf.
We cannot determine how
much satellite carriers paid in royalties as a percentage of revenue
because Section 119 royalties are based on a flat fee per subscriber
and not on a gross receipt basis as is the case under Section 111.
However, Copyright Office records do indicate that DirecTV has paid
more than $326 million in royalty fees between the second half of 1997
through the end of 2006, while Echostar has paid more than $158 million
during the same period. Other (existing and defunct) satellite
carriers, such as Primetime 24, Primestar Partners, and Satellite
Communications, have also paid royalties under Section 119 over the
last ten years. The payment of royalties by these and other companies
are included in the average total discussed above.
As for Section 122, we reiterate that satellite carriers may carry
local broadcast station signals on a royalty-free basis as long as they
abide by the carry-one carry-all requirements of Section 338 of the
Communications Act. Therefore, there are no royalty data to examine for
our purposes here.
Stations Carried. According to data obtained from the SA-3 forms
filed with the Copyright Office, there has been a slow, but steady,
increase in the number of unique distant broadcast station signals
retransmitted by cable operators across the United States over the last
15 years. For example, during the 1992/1 accounting period, cable
operators retransmitted 822 unique distant signals. During the 2000/1
accounting period, that number increased to 918. And, during the 2005-1
accounting period, the number of unique distant signals retransmitted
by cable operators reached 1,029. This increase is partly attributable
to the retransmission of new distant analog television signals as well
as new digital television signals (see infra) which are counted
separately from their analog counterparts. This increase could also be
due to the increased retransmission of distant low power television
signals over the past decade.
However, there has been a decrease in the average number of distant
station signals retransmitted by cable operators over the same time
period. Copyright Office data gleaned from the SA-3 forms suggests that
during the 1992-1 accounting period, a cable system retransmitted an
average of 2.74 distant signals (2,256 SA3s divided by 822 distant
signals). During the 2000/1 accounting period, the average number of
distant signals retransmitted by cable operators dropped to 2.52. And,
during the recent 2005/1 accounting period, records show that a cable
system retransmitted an average of 1.5 distant signals. There were, of
course, some SA-3 systems that reported retransmitting more than four
distant signals, and some that reported no distant signals being
retransmitted at all, but these types of systems are atypical.
The average decrease reflected in these accounting periods can be
attributed to various factors, such as: (1) WTBS no longer being
carried as a distant television signal since its conversion to a basic
cable network in the late 1990s; (2) cable operators being required to
carry local television signals, per Sections 614 and 615 of the
Communications Act, and having had to drop distant signals to
accommodate the carriage of such stations; (3) fewer SA-3 forms being
filed with the Copyright Office because of cable system mergers and
acquisitions; and (4) statutory changes to the definition of ``local
service area'' in the early 1990s.
As for the retransmission of distant television signals under
Section 119, we note that the type and number of signals retransmitted
varies from carrier to carrier. For example, Echostar's SOA for the
2006/2 accounting period shows that it retransmitted six superstation
signals (KTLA, KWGN, WGN, WPIX, WSBK, and WWOR) and paid royalties in
excess of $13 million for service to residential subscribers for
private home viewing over the six month period. Echostar paid an
additional $21,000.00 in royalties for service to commercial
establishments for the retransmission of these same superstation
signals in the 2006/2 period. Echostar also reported that it
retransmitted network station signals to subscribers in 168 DMAs in the
first five months of the 2006/2 accounting period, and paid nearly $3
million in royalties, before it had to terminate such service per a
Federal court injunction issued in December, 2006. See infra. Satellite
carriers do not have to report on the number of local television
signals carried under Section 122, but Echostar states on its website
that it provides local-into-local service in all but the smallest 36
DMAs in the nation.\6\
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\6\ Echostar reports that it serves 174 DMAs (out of 210) with
the signals of local television stations. See https://customersupport.dishnetwork.com/customernetqual/prepAddress.do.
DirecTV reports that it serves 142 DMAs (out of 210) with the
signals of local television stations (and notes that this number
accounts for more than 94% of the nation's television
households). See http://www.directv.com/DTVAPP/packProg/localChannel.jsp?assetId=900018.
However, the number of signals
carried in each market is not specifically listed on either website.
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Questions. We seek comment on the accuracy of the above-stated
figures and ask for further explanation for the historic trends
described above. Are there different reasons, other than the ones
stated, explaining why royalties have fluctuated in the periods
examined? We ask commenters to provide a granular analysis of the
trends in royalty payments so that we may provide Congress with the
information it seeks. On this point, we note that the Copyright Office
periodically releases data showing the royalty amounts paid by cable
operators and satellite carriers under their respective licenses. See
http://www.copyright.gov/licensing/lic-receipts.pdf. These data should
be used by commenters when responding to this request.
We also seek comment on current distant signal trends under Section
111. For example, are distant television signals mainly retransmitted
by cable operators serving smaller markets who are underserved by local
television programming? Alternatively, are they retransmitted to
subscribers who live on the fringes of television markets and are in
need of valued broadcast programming unavailable from their local
market stations? For example, do cable operators serving the
Springfield-Holyoke DMA retransmit signals from the adjacent Boston
(Manchester) DMA so that their subscribers have access to state
government news from Boston as well as popular sports programming
carried by Boston television stations?
We also seek comment on the number of distant and local signals
retransmitted by satellite carriers. For example, are the six
superstations listed
[[Page 19044]]
above typically retransmitted under Section 119? If so, why? How does a
satellite carrier decide which superstation and network station signals
it will retransmit? Does it decide based on the amount of royalties it
has to pay or does the satellite carrier retransmit signals based on
subscriber demand? Are there certain ``must-have'' distant television
signals, including superstation signals, that satellite carriers
retransmit to remain competitive with cable operators? What factors
will likely affect the retransmission of distant television signals,
and the concomitant royalties paid, by satellite carriers in the
future? On average, does a subscriber to a cable service receive the
same broadcast signal channel line-up as a subscriber to a satellite
service? If not, what are the differences and why do they exist?
3. Marketplace Rates Compared
Congress has also asked us to compare the royalties under Sections
111, 119, and 122 and the prices paid in the marketplace for comparable
programming. The difficult issue here is parsing the term ``comparable
programming'' so that the analysis is clear. The inquiry assuredly
includes an examination of the local broadcast station market, but the
term could be read more expansively to include an analysis of the
prices (license fees) paid by cable operators and satellite carriers to
carry non-broadcast programmers, such as basic cable networks. Given
the ambiguous wording in the statute, we shall consider both local
broadcast stations and basic cable networks in the analysis. With
regard to broadcast stations, we will analyze the rates, terms, and
conditions of carriage privately negotiated by cable operators,
satellite carriers, and broadcast stations under the retransmission
consent provisions found in Section 325 of the Communications Act of
1934, as amended by the 1992 Cable Act.
A brief history of broadcast-cable carriage negotiations is
necessary here. Prior to 1992, cable operators were not required to
seek the permission of a local broadcast station before carrying its
signal nor were they required to compensate the broadcaster for the
value of its signal. Congress found that a broadcaster's lack of
control over its signal created a ``distortion in the video marketplace
which threatens the future of over-the-air broadcasting.'' See S. Rep.
No. 102-92, 102d Cong., 1st Sess. (1991) at 35. In 1992, Congress acted
to remedy the situation by giving a commercial broadcast station
control over the use of its signal through statutorily-granted
retransmission consent rights. Retransmission consent effectively
permits a commercial broadcast station to seek compensation from a
cable operator for carriage of its signal. Congress noted that some
broadcasters might find that carriage itself was sufficient
compensation for the use of their signal by an MVPD while other
broadcasters might seek monetary compensation, and still others might
negotiate for in-kind consideration such as joint marketing efforts,
the opportunity to provide news inserts on cable channels, or the right
to program an additional channel on a cable system. Congress emphasized
that it intended ``to establish a marketplace for the disposition of
the rights to retransmit broadcast signals'' but did not intend ``to
dictate the outcome of the ensuing marketplace negotiations.'' Id. at
36.
With regard to copyright issues, the legislative history indicates
that Congress was concerned with the effect retransmission consent may
have on the Section 111 license stating that ``the Committee recognizes
that the environment in which the compulsory copyright [sic] operates
may change because of the authority granted broadcasters by section
325(b)(1).'' Id. The legislative history later stated that cable
operators would continue to have the authority to retransmit programs
carried by broadcast stations under Section 111. Id.
During the first round of retransmission consent negotiations in
the early 1990s, broadcasters initially sought cash compensation in
return for retransmission consent. However, most cable operators,
particularly the largest multiple system operators, were not willing to
enter into agreements for cash, and instead sought to compensate
broadcasters through the purchase of advertising time, cross-
promotions, and carriage of affiliated non-broadcast networks. Many
broadcasters were able to reach agreements that involved in-kind
compensation by affiliating with an existing non-broadcast network or
by securing carriage of their own newly-formed, non-broadcast networks.
See FCC, Retransmission Consent and Exclusivity Rules: Report to
Congress Pursuant to Section 208 of the Satellite Home Viewer Extension
and Reauthorization Act of 2004 (Sept. 8, 2005)(noting that the new
broadcast-affiliated MVPD networks included Fox's FX, ABC's ESPN2, and
NBC's America's Talking, which later became MSNBC). Broadcast stations
that insisted on cash compensation were forced to either lose cable
carriage or grant extensions allowing cable operators to carry their
signals at no charge until negotiations were complete. Fourteen years
later, cash still has not emerged as the sole form of consideration for
retransmission consent, but the request and receipt involving such
compensation is increasing. See Peter Grant and Brooks Barnes,
Television's Power Shift: Cable Pays For Free Shows, Wall Street
Journal, Feb. 5, 2007, at A1, A14 (noting that broadcast television
station owners may be able to collect almost $400 million in
retransmission fees from cable by 2010, increasing each subscriber's
bill by $2.00 per month).
Under Section 325 of the Communications Act, as amended,
retransmission consent for the carriage of commercial broadcast signals
applies not only to cable operators, but also to other multichannel
video programming distributors (``MVPDs''), such as satellite carriers
and multichannel multipoint distribution services (``MMDS'' or
``Wireless Cable'').
Cable operators generally do not need to obtain retransmission
consent for the carriage of established superstations under the
Communications Act. Satellite carriers generally do not need to obtain
retransmission consent to retransmit established superstations or
network stations (if the subscriber is located in an area outside the
local market of such stations and resides in an unserved household.)
See 47 U.S.C. 325(b)(1).
We also must point out that retransmission consent is a right given
to commercial broadcast stations. Copyright owners of the programs
carried on such stations do not necessarily benefit financially from
agreements between broadcasters and cable operators or satellite
carriers.
We seek comment on how the prices, terms, and conditions of
retransmission consent agreements between local broadcast stations and
MVPDs relates to the statutory licenses at issue here. Specifically, we
seek comment on how retransmission consent agreements reflect
marketplace value for broadcast programming and how this value compares
with the royalties collected under the statutory licenses. As noted
above, it may be difficult to analyze these two variables because the
benefits of retransmission consent inures to broadcast stations while
the statutory royalty fees are paid to copyright owners (which include,
but are not limited to, broadcast stations). In any event, we believe
that the compensation paid for retransmission consent for local
stations may serve as a proxy for prices paid for the carriage of
distant broadcast stations and the programs retransmitted
[[Page 19045]]
therein. We seek comment on whether this approach is correct.
We also seek comment on what the marketplace rate for distant
signals would be if a basic cable network was used as a surrogate.
There are hundreds of basic cable networks that may be used as a point
of comparison. Which ones should we select for our analysis? We could
use the TBS license fee structure (i.e., as dictated in the affiliation
agreement between the network and the MVPD) as a model since it was
formerly a superstation carried under the Section 111 and Section 119
licenses, but is now paid a per subscriber licensing fee as a basic
cable network. Is this an appropriate comparison? We understand that it
may be easier for cable operators and satellite carriers to license
basic cable networks, like TBS and CNN, than it would be for distant
broadcast signals. To wit, a non-broadcast program network obtains
licenses from each copyright owner for all of the works in its line-up
to enable a cable operator or satellite carrier to retransmit the
network, but there is no equivalent conveyance of rights where cable or
satellite retransmission of a broadcast station signal is concerned. Is
this difference relevant to the analysis? What are the similarities
between basic cable networks and distant broadcast stations that we
should be aware of? Are there other ways to determine the value of
copyrighted content carried by distant signals?
B. Differences in the Licenses
1. Terms and Conditions.
Congress has asked us to analyze the differences in the terms and
conditions of the statutory licenses. First, there is a difference in
how royalties are based. Satellite carriers pay a flat royalty fee on a
per subscriber basis while cable operators pay royalties based on a
complex system tied to cable system size and old FCC carriage rules.
Compare 17 U.S.C. 119(b) with 17 U.S.C. 111(d). Second, satellite
carriers are permitted to market and sell distant network station
signals only to unserved households (i.e., those customers who are
unable to receive the signals of local broadcast stations) while cable
operators are not so restricted. Compare 17 U.S.C. 119(a)(2)(B) with 17
U.S.C. 111(c). Third, satellite carriers cannot provide the signals of
more than two network stations in a single day to its subscribers in
unserved households while cable operators may carry as many distant
network station signals as they wish so long as they pay the
appropriate royalty fee for each signal carried. Compare 17 U.S.C.
119(a)(2)(B)(i) with 17 U.S.C. 111(c) and (d). Fourth, cable operators
are permitted to retransmit radio station signals under Section 111
while satellite carriers do not have such a right. See 17 U.S.C.
111(f). Fifth, Congress specifically accounted for the retransmission
of digital television station signals by satellite carriers in the last
revision of Section 119 in 2004, but has not yet addressed the
retransmission of digital television signals by cable operators under
Section 111. Finally, the Section 119 statutory license expires after a
five year period, unless renewed by Congress, while the Section 111
statutory license, as well as the Section 122 license, are permanent.
We seek comment on other differences between the statutory licenses,
that are not noted above, that are relevant to this proceeding.
2. Justifications for Differences.
Congress also asked for an analysis of whether these differences
are required or justified by historical, technological, or regulatory
differences that affect the satellite and cable industries. We provide
a broad overview to put this inquiry into perspective.
a. Historical Differences.
Section 111. The years leading up to the enactment of the Copyright
Act of 1976 were marked by controversy over the issue of cable
television. Through a series of court decisions, cable systems were
allowed under the Copyright Act of 1909 to retransmit the signals of
broadcast television stations without incurring any copyright liability
for the copyrighted programs carried on those signals. See Fortnightly
Corp. v. United Artists Television, 392 U.S. 390 (1968) (pertaining to
the retransmission of local television station signals), Teleprompter
Corp. v. Columbia Broadcasting System, Inc., 415 U.S. 394 (1974)
(pertaining to the retransmission of distant television station
signals). The question, at that time, was whether copyright liability
should attach to cable transmissions under the proposed Copyright Act,
and if so, how to provide a cost-effective means of enabling cable
operators to clear rights in all broadcasting programming that they
retransmitted.
In the mid-1970s, cable operators typically carried multiple
broadcast signals containing programming owned by dozens of copyright
owners. At the time, it was not realistic for hundreds of cable
operators to negotiate individual licenses with dozens of copyright
owners, so a practical mechanism for clearing rights was needed. As a
result, Congress created the Section 111 statutory license for cable
systems to retransmit broadcast signals. Congress enacted Section 111
after years of industry input and in light of (1) FCC regulations that
inextricably linked the cable and broadcast industries and (2) the need
to preserve the nationwide system of local broadcasting. See H.R. Rep.
No. 1476 at 88-91; see also, Cable Compulsory Licenses: Definition of
Cable Systems, 62 FR 18705, 18707 (Apr. 17, 1997) (``The Office notes
that at the time Congress created the cable compulsory license, the FCC
regulated the cable industry as a highly localized medium of limited
availability, suggesting that Congress, cognizant of the FCC's
regulations and market realities, fashioned a compulsory license with a
local rather than a national scope. This being so, the Office retains
the position that a provider of broadcast signals be an inherently
localized transmission media of limited availability to qualify as a
cable system.''). It is important to note that at the time Section 111
was enacted, there were few local media outlets and virtually no
competition to the Big 3 television networks (ABC, CBS, and NBC).
The structure of the cable statutory license was premised on two
prominent congressional considerations: (1) the perceived need to
differentiate between the impact on copyright owners of local versus
distant signals carried by cable operators; and (2) the need to
categorize cable systems by size based upon the dollar amount of
receipts a system receives from subscribers for the carriage of distant
signals. These two considerations played a significant role in
determining what economic effect cable systems had on the value of
copyrighted works carried on broadcast stations. Congress concluded
that a cable operator's retransmission of local signals did not affect
the value of the copyrighted works broadcast because the signal is
already available to the public for free through over-the-air
broadcasting. Therefore, the cable statutory license permits cable
systems to retransmit local television signals without a significant
royalty obligation. Congress did determine, however, that the
retransmission of distant signals affected the value of copyrighted
broadcast programming because the programming was reaching larger
audiences. The increased viewership was not compensated because local
advertisers, who provide the principal remuneration to broadcasters,
were not willing to pay increased advertising rates for cable viewers
in distant markets who could not be reasonably expected to purchase
their goods. As a result, Congress believed that
[[Page 19046]]
broadcasters had no reason or incentive to pay greater sums to
compensate copyright owners for the receipt of their signals by viewers
outside their local service area.
The Section 111 statutory license has not been the only means for
licensing programming carried on distant broadcast signals. Copyright
owners and cable operators have been free to enter into private
licensing agreements for the retransmission of broadcast programming.
Private licensing most frequently occurs in the context of particular
sporting events, when a cable operator wants to retransmit a sporting
event carried on a distant broadcast signal, but does not want to carry
the signal on a full-time basis. The practice of private licensing has
not been widespread and most cable operators have relied exclusively on
the cable statutory license to clear the rights to broadcast
programming. Section 111 has been lightly amended since enacted in
1976.
Section 119. From the time of passage of the Copyright Act of 1976
through the mid-1980s, the developing satellite television industry
operated without incurring copyright liability under the passive
carrier exemption of Section 111(a)(3) of the Act. That subsection
provides an exemption for secondary transmissions of copyrighted works
where the carrier has no direct or indirect control over the content or
selection of the primary transmission or over the particular recipients
of the secondary transmission, and the carrier's activities with
respect to the secondary transmission consist solely of providing
wires, cables, or other communications channels for the use of others.
In the mid-1980s, however, many resale carriers and copyright
holders began scrambling their satellite signals to safeguard against
the unauthorized reception of copyrighted works. Only authorized
subscribers were able to descramble the encrypted signals. Scrambling
presented several concerns, including whether it would impede the free
flow of copyrighted works and whether it took satellite carriers out of
the passive carrier exemption since it represented direct control over
the receipt of signals. At the same time, several lawsuits were pending
against certain satellite carriers who claimed to operate under Section
111. In 1992, the Copyright Office decided that satellite carriers were
not cable systems within the meaning of Section 111, notwithstanding an
11th Circuit Court of Appeals decision holding otherwise. See 57 FR
3284 (1992), citing National Broadcasting Company, Inc. v. Satellite
Broadcast Networks, 940 F.2d 1467 (11th Cir. 1991).
The satellite statutory license under Section 119 was enacted in
1988 to respond to these concerns and to ensure the availability of
programming comparable to that offered by cable systems (i.e., an
affiliate of each of the broadcast television networks, superstations,
and non-broadcast programming services) to satellite subscribers until
a market developed for that distribution medium. See Satellite Home
Viewer Act (``SHVA''), Pub. L. No. 100-667 (1988); H.R. Rep. No. 887,
Part I, 100th Cong., 2d Sess. 8-14 (1988). Section 119 was created at a
time when there was no competition to cable operators in the provision
of multichannel video programming and there were no rules in effect
mandating the cable carriage of local broadcast signals.\7\
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\7\ The United States Court of Appeals for the District of
Columbia Circuit struck down, as unconstitutional under the First
Amendment, two different sets of must carry rules promulgated by the
FCC. See Quincy Cable TV, Inc. v. FCC, 768 F.2d 1434 (D.C. Cir.
1985); Century Communications Corp. v. FCC, 835 F.2d 292 (D.C. Cir.
1987). Congress did not enact Sections 614 and 615 of the
Communications Act until 1992.
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The Section 119 statutory license created by the SHVA was scheduled
to expire at the end of 1994 at which time satellite carriers were
expected to be able to license the rights to all broadcast programming
that they retransmitted to their subscribers. However, in 1994,
Congress decided to reauthorize Section 119 for an additional five
years and made two significant changes to the terms of the license. See
Pub. L. No. 103-369, 108 Stat. 3477 (1994). First, in reaction to
complaints against satellite carriers concerning wholesale violations
of the unserved household provision, the 1994 Act instituted a
transitional signal strength testing regime in an effort to identify
and terminate the network service of subscribers who did not reside in
unserved households. Second, in order to assist the process of
ultimately eliminating the Section 119 license, Congress provided for a
Copyright Arbitration Royalty Panel proceeding to adjust the royalty
rates paid by satellite carriers for the retransmission of network
station and superstation signals. Unlike cable systems which pay
royalty rates adjusted only for inflation, Congress mandated that
satellite carrier rates should be adjusted to reflect marketplace
value. It was thought that by compelling satellite carriers to pay
statutory royalty rates that equaled the rates they would most likely
pay in the open marketplace, there would be no need to further renew
the Section 119 license and it could expire in 1999.
The period from 1994 to 1999, however, was the most eventful in the
history of the Section 119 license. The satellite industry grew
considerably during this time and certain satellite carriers provided
thousands of subscribers with network station signals in violation of
the unserved household limitation. Broadcasters sued certain satellite
carriers and many satellite subscribers lost access to the signals of
distant network stations. These aggrieved subscribers, in turn,
complained to Congress about the unfairness of the unserved household
limitation. In the meantime, the Library of Congress conducted a CARP
proceeding to adjust the royalty rates paid by satellite carriers.
Applying the new marketplace value standard as it was required to do,
the CARP raised the rates considerably.
To address these events, Congress enacted the Satellite Home Viewer
Improvement Act of 1999 (``SHVIA''). Pub. L. No. 106-113, 113 Stat.
1501 (1999). The SHVIA, inter alia, permitted satellite carriers to
retransmit non-network signals to all served and unserved households in
all markets. In reaction to industry complaints about the 1997 CARP
proceeding that raised the Section 119 royalty rates, Congress
abandoned the concept of marketplace-value royalty rates and reduced
the CARP-established royalty fee for the retransmission of network
station signals by 45 percent and the royalty fee for superstation
signals by 30 percent. More importantly, the SHVIA instituted a new
statutory licensing regime for the retransmission of local broadcast
station signals by satellite carriers. By 1999, satellite carriers were
beginning to implement local service in some of the major television
markets in the United States. In order to further encourage this
development, Congress created a new, royalty-free license under Section
122 of the Copyright Act permitting the retransmission of local
television signals. The SHVIA extended the revised Section 119
statutory license for five years until the end of 2004.
Congress also made several changes to the unserved household
limitation itself. The FCC was directed to conduct a rulemaking to set
specific standards whereby a satellite subscriber's eligibility to
receive service of a network station could accurately be predicted
(based on new signal strength measurements). For those subscribers that
were not eligible for distant network service, a process was codified
whereby they could seek a waiver of the unserved household limitation
from
[[Page 19047]]
their local network station. In addition, three categories of
subscribers were exempted from the unserved household limitation: (1)
owners of recreational vehicles and commercial trucks, provided that
they supplied certain required documentation; (2) subscribers receiving
network service which was terminated after July 11, 1998, but before
October 31, 1999, and did not receive a strong (Grade A) over-the-air
signal from their local network broadcaster; and (3) subscribers using
large C-band satellite dishes.
The most recent authorization of Section 119 occurred in 2004 with
the enactment of the SHVERA. Until the end of 2009, satellite carriers
are authorized to retransmit distant network station signals to
unserved households and superstation signals to all households, without
retransmission consent, but with the requirement to pay royalties. In
the SHVERA, Congress adopted a complex set of rules to further limit
the importation of distant network station signals into local
television markets. For example, the law requires satellite carriers to
phase out the retransmission of distant signals in markets where they
offer local-into-local service. Generally, a satellite carrier will be
required to terminate distant station service to any subscriber that
elected to receive local-into-local service and would be precluded from
providing distant network station signals to new subscribers in markets
where local-into-local service is available. It also provided for the
delivery of superstation signals to commercial establishments and for
the delivery of television station signals from adjacent markets that
have been determined by the FCC to be ``significantly viewed'' in the
local market (so long as the satellite carrier provides local-into-
local service to those subscribers under the Section 122 statutory
license).\8\
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\8\ Pursuant to SHVERA, satellite carriers were granted the
right to retransmit out-of-market significantly viewed station
signals to subscribers in the community in which the station is
deemed significantly viewed, provided the local station affiliated
with the same network as the significantly viewed station is offered
to subscribers. Satellite carriers are not required to carry out-of-
market significantly viewed signals, and, if they do carry them,
retransmission consent is required.
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Moreover, for the first time, the law distinguished between the
retransmission of signals in an analog format and those transmitted in
a digital format. SHVERA expanded the copyright license to make express
provision for digital signals. In general, if a satellite carrier
offers local-into-local digital signals in a market, it is not allowed
to provide distant digital signals to subscribers in that market,
unless it was offering such digital signals prior to commencing local-
into-local digital service. If a household is predicted to be unserved
by the analog signals of a network station, it can qualify for the
digital signal of the distant network station with which the station is
affiliated if it is offered by the subscriber's satellite carrier. If
the satellite carrier offers local-into-local analog service, a
subscriber must receive that service in order to qualify for distant
digital signals. A household that qualifies for distant digital signal
service can receive only signals from stations located in the same time
zone or in a later time zone, not in an earlier time zone.
SHVERA also provides for signal testing at a household to determine
if it is ``served'' by a digital signal over-the-air. In some cases, if
a household is shown to be unserved, it would be eligible for distant
digital signals, provided the household subscribes to local-into-local
analog service, if it is offered. However, this digital testing option
was not available until April 30, 2006, in the top 100 television
markets, and will be available by July 15, 2007, in all other
television markets. Such digital tests also are subject to waivers that
the FCC may issue for stations that meet specified statutory criteria.
Unlike SHVIA, SHVERA did not determine the royalty rates during the
five-year extension because representatives of satellite carriers and
copyright owners of broadcast programming negotiated new rates for the
retransmission of analog and digital broadcast station signals. See
infra. A procedure was created to implement these negotiated rates and
they were adopted by the Librarian of Congress in 2005.
Section 122. The Section 122 license was enacted eleven years after
the Section 119 license and was intended to make the satellite industry
more competitive by permitting the retransmission of local television
signals on a royalty-free basis. The license is permanent and its
history is relatively non-controversial. In fact, satellite carriers
have increasingly relied upon the license in the last seven years to
provide local television signals to their subscribers in over 150 local
markets. See n. 8, supra.
Issues. As illustrated above, the statutory licenses were enacted
by Congress, at various times, to respond to historical events and in
response to technological developments. The key difference between the
licenses is the relative rigidity of the applicable statutory language.
Section 111 has effectively locked the cable industry into a royalty
scheme tied to antiquated FCC rules (i.e. the local and distant signal
carriage regulations in effect in 1976, but later repealed). On the
other hand, Congress has been able to modify Section 119 to reflect
current marketplace and legal developments because the license must be
renewed every five years. We seek comment on the accuracy of our
historical overview and ask if there are any other historical
differences among the licenses that merit discussion.
b. Technological Differences
Cable systems and satellite carriers are technologically and
functionally very different. Cable systems deliver video and audio (in
analog, digital, and high definition formats), voice, and broadband
services through fiber and coaxial cable to households, apartment
buildings, hotels, mobile home parks, and local businesses. The cable
industry has invested billions of dollars to upgrade transmission
facilities over the last ten years so that cable systems are able to
provide the services described above. Currently, cable operators offer
separate tiers of traditional analog channels and newer digital
channels to their subscribers, as well as premium services and video-
on-demand. Despite system upgrades, some cable systems still lack
channel capacity to offer all of the new programming services
available. Although there are many large cable operators, each system
is franchised to a discrete geographical area. Local or state franchise
authorities have authority to condition a franchise grant on the
operator's offering, see 47 U.S.C. 541, and most cable headends serve
specific geographic regions. A cable system's terrestrial-based
technology has allowed cable operators to specifically tailor delivery
of distant broadcast signals to the needs of their subscriber base.
Satellite carriers use satellites to transmit video programming to
subscribers, who must buy or rent a small parabolic ``dish'' antenna
and pay a subscription fee to receive the programming service.
Satellite carriers digitally compress each signal they carry and do not
sell separate analog and digital tiers as most cable operators now do.
They have nationwide footprints and a finite amount of transponder
space which currently limits the number of program services carried. To
make the most use of available channel capacity, satellite carriers
have begun to use spot beam technology to deliver local television
signals into local markets, but they do not have the level of technical
sophistication to provide distant station
[[Page 19048]]
signals on the same basis as cable operators. In any event, satellite
carriers have recently launched, or plan to launch, new satellites in
order to increase channel capacity and to offer much more high
definition television programming to subscribers across the country.
Because satellite television is a space-based technology, carriers are
technically unable to provide the bundle of video, voice, and data in
the same manner as cable systems. We seek comment on these and other
technological differences relevant to this discussion.
c. Regulatory Differences
Copyright Act. There are a host of regulatory differences between
the cable and satellite statutory licenses. As stated elsewhere in this
NOI, Section 111 is grounded in old FCC rules while the regulatory
structure of Section 119 has evolved every time it has been renewed.
Cable operators are required to pay royalties based on gross receipts
while satellite carriers pay a flat fee on a per subscriber basis. Also
important to consider is that Section 119 does not make any distinction
based on the size of the satellite carrier. Section 111, on the other
hand, purposefully differentiates between large and small cable systems
based upon the dollar amount of receipts a cable operator receives from
subscribers for the carriage of broadcast signals. In 1976, Congress
determined that the retransmission of copyrighted works by smaller
cable systems whose gross receipts from subscribers were below a
certain dollar amount deserved special consideration because they
provide broadcast retransmissions to more rural areas. Therefore, in
effect, the cable statutory license subsidizes smaller systems and
allows them to follow a different, lower-cost royalty computation.
Large systems, on the other hand, pay in accordance with a highly
technical formula, principally dependent on how the FCC regulated the
cable industry in 1976. Aside from these differences, and those noted
elsewhere in this NOI, we seek input on other notable variations which
are integral in this analysis.
Communications Act and FCC Rules. At this juncture, it is important
to note the differences between Section 122 of the Copyright Act and
Section 338 of the Communications Act (the local-into-local regulatory
paradigm) and the local broadcast signal carriage requirement for cable
operators under the Communications Act. A satellite carrier has a
general obligation to carry all television station signals in a market,
if it carries one station signal in that market through reliance on the
statutory license, without reference to a channel capacity cap. In
contrast, a cable system with more than 12 usable activated channels is
required to devote no more than one-third of the aggregate number of
usable activated channels to local commercial television stations that
may elect mandatory carriage rights. See 47 U.S.C. 534(b)(1)(B). A
cable system is also obligated to carry a certain number of qualified
local noncommercial educational television stations above the one-third
cap. See 47 U.S.C. 535(a). Further, only cable operators, and not
satellite carriers, have a legal obligation to have a basic service
tier that all subscribers must purchase. See 47 U.S.C. 543(b)(7).\9\
But, Section 338(d) does requires satellite carriers to position local
broadcast station signals on contiguous channels and are permitted to
sell local television station signals on an a la carte basis.
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\9\ In the context of analog broadcast signal carriage, it has
been the FCC's view that the Communications Act contemplates there
be one basic service tier. In the context of digital carriage, the
FCC found that it is consistent with Section 623 of the
Communications Act to require that a broadcaster's digital signal
must be available on a basic tier such that all broadcast signals
are available to all cable subscribers at the lowest priced tier of
service, as Congress envisioned. According to the FCC, the basic
service tier, including any broadcast signals carried, will continue
to be under the jurisdiction of the local franchising authority, and
as such, will be rate regulated if the local franchising authority
has been certified under Section 623 of the Act. The FCC noted,
however, that if a cable system faces effective competition under
one of the four statutory tests found in Section 623, and is
deregulated pursuant to an FCC order, the cable operator is free to
place a broadcaster's digital signal on upper tiers of service or on
a separate digital service tier. See Carriage of Digital Television
Broadcast Signals, 16 FCC Rcd 2598, 2643 (2001).
---------------------------------------------------------------------------
The FCC has adopted a host of rules governing the exclusivity of
programming carried by television broadcast stations. For example, the
FCC's network non-duplication rules protect a local commercial or non-
commercial broadcast television station's right to be the exclusive
distributor of network programming within a specified zone, and require
programming subject to the rules to be blacked out when carried on
another station's signal imported by an MVPD into the local station's
zone of protection. The FCC's syndicated exclusivity rules are similar
in operation to the network non-duplication rules, but they apply to
exclusive contracts for syndicated programming, rather than for network
programming. The FCC's sports blackout rule protects a sports team's or
sports league's distribution rights to a live sporting event taking
place in a local market. As with the network non-duplication and
syndicated exclusivity rules, the sports blackout rule applies only to
the extent the rights holder has contractual rights to limit viewing of
sports events. The SHVIA required the FCC to extend its cable
exclusivity rules, including syndicated exclusivity, to satellite
carriers but only with respect to the retransmission of nationally
distributed superstations; however, the sports blackout rules apply to
both superstations and network stations. See SHVIA Sec. 1008, creating
17 U.S.C. 339(b).
We note that in the Copyright Office's Section 110 Report, there
was considerable discussion concerning the fact that the syndicated
exclusivity rules, sports blackout rules, and network non-duplication
rules, do not apply to the retransmission of network station signals to
unserved households by satellite carriers under Section 119. The
Copyright Office found that a copyright owner's right to license its
programming in a local market is threatened in the absence of these
requirements. For this reason, the Copyright Office proposed that these
rules extend beyond just superstations to also include the
retransmission of network station signals to unserved households. See
Satellite Home Viewer Extension and Reauthorization Act Sec. 110
Report, A Report of the Register of Copyrights (February 2006) at vii.
We seek comment on these and other regulatory differences between
cable operators and satellite carriers regarding the retransmission of
broadcast station signals. How do these communications law-related
requirements affect the royalties collected under the Sections 111 and
119 statutory licenses?
Copyright Office. The Copyright Office has implemented the royalty
fee structures of Sections 111 and 119 by adopting substantive and
procedural rules in the Code of Federal Regulations. Section 201.11 of
title 37 contains the licensing requirements for satellite carriers
while Section 201.17 of title 37 contains the licensing requirements
for cable operators. The Copyright Office has also adopted separate
statement of account forms for satellite carriers and cable operators
that comport with its rules. While Congress did not specifically
request an analysis of the Copyright Office's rules and statement of
account forms under Section 109, we seek comment on the structure and
substance of the requirements and their effect on the competition
between satellite carriers and cable operators.
3. Competitive Disadvantages
Congress asked for an analysis of whether the cable or satellite
industry is placed in a competitive disadvantage
[[Page 19049]]
due to the above-stated terms, conditions or circumstances. We first
ask whether there are certain provisions found in Section 119, and not
in Section 111, that affect competition between satellite carriers and
cable operators. For example, cable operators, but not satellite
carriers, may retransmit distant station signals without regard to
whether its subscribers are able to receive local broadcast stations
over-the-air. Does Section 119's unserved household limitation
competitively disadvantage satellite carriers against cable operators?
If so, should Congress correct this imbalance?
We also note that Section 119's unserved household limitation has
given rise to significant litigation between Echostar and the broadcast
television networks. The case began nearly nine years ago and arose out
of claims that Echostar was delivering network station signals to
subscribers who were not eligible to receive such stations under
Section 119. In May 2006, the United States Court of Appeals for the
Eleventh Circuit upheld the district court's determination that
Echostar had engaged in a ``pattern or practice'' of violating the
unserved household limitation and found that, as a matter of law, it
was required to issue a permanent injunction barring Echostar from
delivering network station signals to any subscribers (served or
unserved) pursuant to the Section 119 license. CBS v. Echostar, 450
F.3d 505 (11th Cir. 2006). The appellate court's decision specifically
directed the district court to issue the required injunction.
In August, 2006, after its efforts to appeal the Eleventh Circuit's
ruling were rejected (but before the district court had implemented the
appellate court's order), Echostar entered into a $100 million post-
judgment settlement agreement with the affiliates of ABC, NBC, and CBS
under which Echostar would, notwithstanding the appellate court's
decision, be permitted to continue to provide network station signals
to legitimately ``unserved'' customers. However, Fox did not join in
the settlement and filed a motion with the district court demanding
that it reject the settlement and implement the injunction as directed
by the Court of Appeals.
The district court agreed with Fox and rejected the post-judgment
settlement. The court stated that it was bound by the Eleventh
Circuit's decision and lacked the discretion to alter that court's
clear mandate. The court emphasized the fact that, as the Eleventh
Circuit found, Section 119 requires the issuance of a permanent
nationwide injunction where it has been determined that a satellite
carrier engaged in a ``pattern or practice''of statutory violations.
The court also rejected Echostar's claim that the issuance of a
permanent nationwide injunction preventing the delivery of distant
affiliates of any of the Big Four networks (ABC, CBS, NBC, and Fox),
even to households that could not receive over-the-air network station
signals, would ``work a manifest injustice on consumers.'' According to
the court, Congress made the determination in Section 119 that a
permanent injunction is the appropriate remedy for the illegal acts
committed by Echostar. The district court issued an order directing
Echostar to cease all retransmissions of distant broadcast station
signals affiliated with ABC, CBS, NBC, and Fox, effective December 1,
2006. See CBS v. Echostar, ---- F.Supp. 2d ----, 2006 WL 4012199 (S.D.
Fla. Oct. 20, 2006). We seek comment on the effect that the court's
injunction has had on Echostar and its subscribers. For example, how
many subscribers has Echostar lost to a competing satellite carrier or
to a local cable operator because it can no longer provide distant
network station signals to its subscribers? Do any Echostar subscribers
currently receive distant network station signals through a third party
provider? Are subscribers disadvantaged because of the Echostar
injunction or are there other options? We seek comment on other
significant court cases, or pending litigation, that are relevant to
our inquiry here.
There are certain provisions found in Section 111, and not Section
119, that disadvantage satellite carriers. For example, are satellite
carriers disadvantaged because they are unable to carry radio station
signals under the Section 119 statutory license? Would it be
appropriate for Congress to establish a satellite carrier statutory
license for the retransmission of terrestrial radio station signals?
Who would be harmed if Congress amended Section 119 to include the
retransmission of local radio station signals? Alternatively, is there
a continuing need for Section 111 to cover the retransmission of radio
station signals? Are there any other provisions in Section 111, but not
in Section 119, that create a competitive disparity between cable
operators and satellite carriers?
We ask whether cable operators are hobbled by the terms of Section
111 that are not found in, or are different from, Section 119. As noted
elsewhere, Section 111 contains definitions, terms, and conditions that
are based on the FCC's old carriage requirements. The term ``network
station'' under Section 111, for example, is part of a regulatory
construct from 30 years ago when ABC, CBS, and NBC were the only
networks, while the ``network station'' definition found in Section 119
is more current and comparable to the FCC's current definitions.\10\
Fox, for example, is considered a network station for Section 119
purposes, but it is unclear whether it can be considered a network
station for Section 111 purposes. Cable operators currently have to pay
higher royalties for the retransmission of distant Fox station signals,
as ``independent stations,'' than it would for distant ABC, NBC, or CBS
station signals, that are ``network stations.'' Does this result
disadvantage cable operators? Are there other terms in Section 111, and
not Section 119, that competitively burden cable operators?
---------------------------------------------------------------------------
\10\ We note that both Paxson Communications and the NCTA have
filed separate requests for clarification and rulemaking,
respectively, on the scope of the network station definition under
Section 111(f) of the Act. The Copyright Office has opened a
proceeding to address Paxson's petition. See 65 FR 6946 (Feb. 11,
2000). The Copyright Office will soon be issuing a new NOI to elicit
comment on NCTA's petition and to update the record on this subject.
---------------------------------------------------------------------------
C. Necessity of the Licenses
Congress has asked us to analyze whether the statutory licenses are
still justified by their initial purposes. In this section, we describe
the different purposes behind each license and ask if they are still
valid today. We also seek comment on whether the licenses have been
successful in furthering the goals they were designed to achieve.
Section 111. As discussed earlier, before the Copyright Act was
amended in 1976, cable operators had no copyright liability, and paid
no fees at all, for the retransmission of either local or distant
broadcast station signals. At the time, the FCC, the courts, and
Congress, recognized the public benefits inherent in the delivery of
distant signals by cable systems, but also recognized the property
rights of the owners of content transmitted by broadcast stations. As
such, the 1976 Copyright Act imposed liability for the first time, but
it also provided cable operators an important and limited right to
retransmit broadcast station signals without requiring the consent of
copyright owners. Section 111 was enacted to respond to the needs of
cable operators, who were much smaller at the time, and their
subscribers, who valued the content transmitted by distant broadcast
stations. In so doing, Congress recognized ``that it would be
impractical and unduly burdensome to require every cable system to
negotiate with every copyright owner whose work was transmitted by a
cable system.''
[[Page 19050]]
H.R. Rep. No. 1476, 94th Cong., 2d Sess. 89 (1976).
Section 119. The satellite statutory license, adopted by Congress
in the 1988 SHVA, was created to facilitate the delivery of broadcast
network programming by satellite to (mostly rural) subscribers who,
because of distance or terrain, were unable to receive a signal of at
least Grade B intensity from a local television station affiliated with
a particular television network. See, e.g., 134 Cong. Rec. 28,582
(1988) (``The goal of the bill...is to place rural households on a more
or less equal footing with their urban counterparts.'') (remarks of
Rep. Kastenmeier); 134 Cong. Rec. 28,585 (1988) (``This legislation
will increase television viewing choices for many rural Americans.'')
(remarks of Rep. Slattery).
Section 119 of the Act had the dual purpose of: (1) enabling
households located beyond the reach of a local affiliate to obtain
access to broadcast network programming by satellite and (2) protecting
the existing network/affiliate distribution system. H.R. Rep. No. 100-
887, Part 1 on H.R. 2848, 100th Cong., 2d Sess., at 8 (Aug. 18, 1988).
Congressional intent, as expressed in the House Judiciary Committee
Report on the 1988 bill, stated, ``The bill rests on the assumption
that Congress should impose a compulsory license only when the
marketplace cannot suffice.'' Id. at 15. Similarly, the House Energy
and Commerce Committee Report called the satellite carrier license ``a
temporary, transitional statutory license to bridge the gap until the
marketplace can function effectively.'' H.R. Rep. No. 887, Part 2,
100th Cong. 2d Sess. 15 (1988). In 1994, the satellite carrier license
was extended for another five years on the basis that ``a marketplace
solution for clearing copyrights in broadcast programming retransmitted
by satellite carriers is still not available.'' S. Rep. No. 407, 103d
Cong. 2d Sess. 8 (1994). Section 119 was extended in 1999 and 2004
through the SHVIA and SHVERA, respectively, as described above.
Section 122, which was enacted as part of the 1999 SHVIA, created a
royalty-free statutory license for satellite carriers who wanted to
carry the signals of local television stations. The provision was
designed to promote competition among multichannel video programming
distributors (i.e., satellite carriers and cable operators) while, at
the same time, increase the programming choices available to consumers.
See 145 Cong. Rec. H11811 (Nov. 9, 1999).
Statutory licenses are an exception to the copyright principle of
exclusive rights for authors of creative works, and, historically, the
Copyright Office has only supported the creation of statutory licenses
when warranted by special circumstances. With respect to the cable
license, the special circumstance was initially the apparent difficulty
and expense of clearing the rights to all program content carried by
distant television stations. We seek comment on whether the
circumstances that warranted creation of Section 111, as reflected in
its legislative history, still exist. If so, how? With regard to the
Section 119 satellite carrier license, we note that the special
circumstance warranting its creation was to provide rural and unserved
households with valuable broadcast service. Has this goal been met? If
so, how? As for Section 122, its primary mission was to strengthen
satellite's competitive position against the incumbent cable industry.
Has this goal been met? If so, how? If the licenses are no longer
justified upon the bases for which they were created, what should
Congress do with them? Alternatively, are there any new justifications
for the retention of the statutory licenses for cable and satellite
carriers?
D. Effect on Subscribers
1. Rate Increases
Section 109 of the SHVERA requires us to analyze the correlation,
if any, between the royalties, or lack thereof, under Sections 111,
119, and 122 and the fees charged to cable and satellite subscribers.
This is an area that we have not fully explored in any of our past
reports on the statutory licenses. Thus, the novel threshold issue is
how to properly gauge subscriber rate increases if any, due to Sections
111, 119, and 122. We therefore seek comment on the appropriate
methodologies to perform this type of analysis. As noted above, cable
operators, depending on size, generally pay anywhere between .4%
and 1.5% of their gross receipts as royalties to copyright
owners. We seek comment on whether cable operators are passing off
these costs to subscribers as programming cost increases. While we do
not have specific cost figures for satellite carriers, we similarly ask
whether they too are passing off the royalties paid under Section 119
to their subscribers. We reiterate here that all broadcast station
signals must be carried on a cable system's basic service tier that
must be purchased by all cable subscribers. Satellite subscribers, on
the other hand, are not required by law to purchase a package of local
or distant station signals. How does this circumstance affect the
analysis here? We also seek comment on whether cable operators or
satellite carriers are offering any distant broadcast station signals
on an a la carte basis so that only those subscribers who wish to
purchase them bear the cost of any possible rate increase arising under
the royalty fee structure.
2. Rate Savings
Section 109 also requires us to address whether cable and satellite
companies have passed to subscribers any savings realized as a result
of the royalty structure and amounts under such sections.
On this point, we note that our endeavor here is a difficult one
because neither cable operators nor satellite carriers have been
required to provide the Copyright Office with information regarding the
costs of retransmitting distant broadcast station signals. Without such
information, a determination as to whether ``savings'' are passed onto
subscribers is hard to quantify. Further, the concept of ``savings'' is
nonspecific and assumes a difference between actual and perceived cost.
If what is meant by ``savings'' is the lesser fees that the cable and
satellite industry pay by virtue of enjoying statutory licenses as
opposed to negotiating private licenses, it must be remembered there
are no private licenses precisely because of these licenses. In other
words, it is difficult for us to determine what satellite carriers and
cable operators might be paying for distant broadcast signals if they
did not have statutory licensing. Without knowing the current
marketplace rates for the retransmission of distant broadcast signals
for cable and satellite, it is difficult to measure the value of
``savings'' that these industries enjoy as a result of statutory
licensing. We do know, however, that any increases in the cost of local
signals delivered by satellite carriers cannot be due to Section 122
because it is a royalty-free license. Given these circumstances, we
seek comment on how to define the term ``savings'' and how to calculate
if any ``savings'' have occurred under the existing regulatory
structure, or may occur, through any proposed change in the licenses at
issue. On this point, we seek comment on whether cable subscribers may
realize ``savings'' if Congress were to adopt a flat fee structure or
other change in the way royalties are calculated under Section 111.
Further, is there any way to change the Section 119 license so that
satellite subscribers may see a cost savings, if such are not evident
today?
E. Application to Digital Signals
[[Page 19051]]
Section 109 of the SHVERA requires us to analyze issues that may
arise with respect to the application of the licenses to the secondary
transmissions of the primary transmissions of network stations and
superstations that originate as digital signals, including issues that
relate to the application of the unserved household limitations under
Section 119, and to the determination of royalties of cable systems and
satellite carriers.
At this juncture, it is important to recognize the differences
between analog television and digital television. Analog television
technology, which has been available to consumers for over sixty years,
essentially permits a television broadcast station to transmit a single
stream of video programming and accompanying audio. Digital television
technology, on the other hand, enables a television station to
broadcast an array of quality high-definition digital television
signals (``HD''), standard-definition digital television signals
(``SD''), and many different types of ancillary programming and data
services. In 1997, the FCC adopted its initial rules governing the
transition of the broadcast television industry from analog to digital
technology, and authorized each individual television station licensee
to broadcast in a digital format. Advanced Television Systems and Their
Impact on Existing Television Broadcast Service, 12 FCC Rcd. 12809
(1997). Since that time, hundreds of television stations have been
transmitting both analog and digital signals from their broadcast
facilities, and television stations may choose to broadcast in a
``digital-only'' mode of operation, pursuant to FCC authorization. See,
e.g., Second Periodic Review of the Commission's Rules and Policies
Affecting the Conversion to Digital Television, 19 FCC Rcd 18279,
18321-22 (2004). This dual mode of broadcast television operation will
soon end as Congress has established February 17, 2009 as the date for
the completion of the transition from analog to digital broadcast
television. See Pub. L. No. 109-171, Section 3002(a), 120 Stat. 4
(2006).
In 2006, the Copyright Office sought comment on several issues
associated with the secondary transmission of digital television
signals by cable operators under Section 111 of the Copyright Act. The
Copyright Office initiated a Notice of Inquiry to address matters
raised in a Petition for Rulemaking, filed jointly by several copyright
owner groups, including the Motion Picture Association of America and
sports rights holders. See 71 FR 54948 (Sept. 20, 2006) (``Digital
Signals NOI''). Specifically, the copyright owners requested that the
Copyright Office address recordkeeping and royalty calculation issues
that have arisen in connection with the simultaneous retransmission of
the signals of digital and analog broadcast stations by cable operators
and whether and how cable operators should report the carriage of
digital multicast programming streams on their SOAs. For example, they
urged the Copyright Office to clarify that, if a cable operator chooses
to carry a television broadcast station's analog and digital signals
(either in high definition or as a multicast) that the cable operator
should identify those signals separately in Space G on its SOA The
Digital Signal NOI also sought comment on cable operator marketing and
sales practices and equipment issues associated with the retransmission
of digital broadcast signals that may result in possible changes to the
Copyright Office's existing rules and the cable statements of account
forms. For example, copyright owners requested that the Copyright
Office clarify that a cable operator must include in its gross receipts
any revenues from the tiers of service consumers must purchase in order
to receive HDTV or other digital broadcast signals notwithstanding that
the operator may market its offering of such digital signals as
``free.''
Comments and reply comments have been filed in the Digital Signals
proceeding and the Copyright Office is currently analyzing the facts
and legal arguments raised and addressed by the parties. In the Digital
Signal NOI, the Copyright Office did conclude however, without relying
on input from the parties, that there is nothing in the Copyright Act,
its legislative history, or the Office's implementing rules, which
expressly limits the cable statutory license to only analog broadcast
signals.
We find that the issues discussed in this proceeding, regarding the
retransmission of distant digital signals by cable operators, are
essentially the same type of issues Congress has directed us to address
in the Section 109 Report. As such, we do not believe it is necessary
to seek comment on those same issues here. Rather, we will incorporate
by reference the issues and arguments raised by the parties in the
pending proceeding as we move forward with the Report. However, if any
party, for any reason, missed the opportunity to file comments in
response to the Digital Signals NOI, or would like to clarify certain
points already raised, they may do so in this proceeding or in response
to any further notices that the Copyright Office may issue in the
future pertaining to the retransmission of digital television signals.
There are, however, some new questions we would like to raise here.
For example, are digital television signals worth more or less in the
marketplace? If so, how much and why? How should Congress treat the
retransmission of digital low power and digital translator television
station signals under Section 111? Should the language of Section 111
be substantially modified to take the retransmission of digital signals
into account? Are there any other associated issues not yet addressed?
With regard to Section 119, we note that in 2005, the Copyright
Office codified an agreement reached between satellite carriers and
copyright owners setting rates for the secondary transmission of
digital television broadcast station signals under Section 119 of the
Copyright Act. The agreement set rates for the private home viewing of
distant superstation and network station signals for the 2005-2009
period, as well as the viewing of superstations in commercial
establishments. See 37 CFR 258.4. The agreement specified that distant
superstations and network stations that are significantly viewed, as
determined by the FCC, do not require a royalty payment under certain
conditions, in compliance with 17 U.S.C. 119(a)(3), as amended. In
addition, the agreement proposed that, in the case of multicasting of
digital superstations and network stations, each digital stream that is
retransmitted by a satellite carrier must be paid for at the prescribed
rate but no royalty payment is due for any program-related material
contained in the stream within the meaning of WGN v. United Video,
Inc., 693 F.2d 622, 626 (7th Cir. 1982) and Carriage of Digital
Television Broadcast Signals, 20 FCC Rcd 4516 (2005) at 44 & n.158. See
70 FR 39178 (July 7, 2005).
We seek comment on whether there are any new issues that we should
be aware of regarding Section 119 and the retransmission of digital
television signals. For example, how is the unserved household
provision affected by the above agreement? What affect has the Echostar
litigation had on the retransmission of distant digital television
signals. What affect will the end of the digital transition in 2009
have on satellite carriers and the Section 119 statutory license? Given
that Section 119 will expire about eleven months after the digital
transition is scheduled to end, should the current version of the
license be repealed in its entirety and replaced with one focusing only
on the retransmission of distant digital television signals?
[[Page 19052]]
As for Section 122, we believe that the digital transition will not
significantly affect the operation of this license. However, it may
well affect the ``carry-one carry-all'' provisions of Section 338 of
the Communications Act. In January 2001, the FCC sought comment on what
type of digital carriage rules it should apply to satellite carriers
under Section 338. See Carriage of Digital Television Broadcast
Signals, 16 FCC Rcd 2598, 2658 (2001). This matter has been pending
before the FCC for the last six years. We cannot gauge the effect a
digital ``carry-one carry-all'' will have on the Section 122 statutory
licenses until the FCC establishes policy in this area.
F. The Future of the Statutory Licenses
While not specifically enumerated in the language of Section 109,
the statute's legislative history instructs the Copyright Office, based
on an analysis of the differences among the three licenses, to consider
whether they should be eliminated, changed, or maintained with the goal
of harmonizing their operation. We now seek comment on the future of
the statutory licenses. As detailed above, the cable statutory license,
enacted in 1976, represents a number of compromises and requirements
necessitated by the technological and regulatory framework in existence
at that time. Since 1976, it is generally recognized that the cable
industry has grown considerably larger,\11\ and the video marketplace
has evolved. It is also axiomatic that the license is based upon a
defunct regulatory structure promulgated by the FCC in the 1970s. The
Section 119 license, first enacted in 1988, was designed to allow
satellite carriers to provide services comparable to cable to
subscribers on the fringes of television markets. Congress intended for
the license to sunset after a period of five years, but it has been
renewed three times since 1988. Interestingly, rather than being phased
out, the license has been significantly expanded over the years (e.g.,
more restrictions and conditions on the retransmission of network
station signals to unserved households, the retransmission of
significantly viewed signals, application to digital television
signals, etc.) while DirecTV and Echostar have dramatically increased
subscribership in non-rural areas of the country. Based on the
preceding, and taking into consideration the issues outlined below, we
ask whether Section 111 and Section 119 should be retained in their
current state, restructured, or discarded altogether.
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\11\ There are currently 65 million U.S. households that
subscribe to cable television. See http://ncta.com/ncta_com/PDFs/NCTAAnnual
%20Report4-06FINAL.pdf. But see, Steve Donohue,
Cable Penetration Hits 17-Year Low, Multichannel News, March 19,
2007(stating that there are 68.3 million cable television households
according to Nielsen Media Research data). In comparison, there are
about 29 million satellite television households. See http://www.directv.com
(DirecTV has over 16 million subscribers) and http:/
/http://www.dishnetwork.com (Echostar has have 13 million subscribers).
---------------------------------------------------------------------------
Retention. If retention is the proper option, we seek comment on
why this would be the best approach. On this point, we note that while
the cable and satellite industries have grown substantially over the
last decade, neither has any control over the particular programs that
broadcast stations provide to the public or how such programs are
scheduled. Further, there are hundreds more television stations today,
including analog and digital stations (with some splitting their signal
into as many as five individual multicasts) than there were thirty
years ago. In addition, there are now significantly more television
stations and networks targeting the nation's growing Latino population.
Is the public's interest in continued access to a variety of diverse
distant broadcast signals a significant consideration that merits
retention? Are smaller cable operators who serve less populated and/or
lower income households still in need of the license? Are there any
other facts supporting retention? Section 119 requires satellite
carriers to phase out the retransmission of network station signals to
unserved households in markets where they offer local-into-local
service. Generally, a satellite carrier will be required to terminate
network station service (to unserved households) to any subscriber that
elected to receive local-into-local service and would be precluded from
providing network station signals (to unserved households) to new
subscribers in markets where local-into-local service is available. See
17 U.S.C. 119(a)(4). Assuming that Section 122 is retained, does it
make sense to also retain Section 119, when in 2009, most television
markets likely will be provided with local-into-local service by
Echostar and DirecTV?
Modification. If Section 111 were to be amended, we seek comment in
support of this approach and on the scope of the proposed changes. On
this point, we note that in 2006, the Copyright Office sought comment
on several issues associated with cable operator reporting practices
under the Copyright Office's regulations found in 37 CFR 201.17. The
Copyright Office initiated a Notice of Inquiry to address matters
raised in a Petition for Rulemaking filed jointly by several copyright
owner groups. The Notice of Inquiry sought comment on proposals
requiring additional information to be reported on a cable operator's
SOA, particularly information relating to gross receipts, service
tiers, subscribers, headend locations, and cable communities. The
Notice of Inquiry also sought comment on the need for regulatory
clarification regarding the effect of cable operator'' interest
payments that accompany late-filed SOAs or amended SOAs. Finally, the
Notice of Inquiry sought comment on the need to clarify the definition
of the term cable ``community'' in its regulations to comport with the
meaning of ``cable system'' as defined in Section 111. See 71 FR 45749
(Aug. 8, 2006). Comments and reply comments have been filed in response
to this NOI and the docket remains pending.
In this context, we ask whether the entire section should be
amended to reflect the current marketplace (such as the advent of
digital television described above) and the existing regulatory
framework established by the FCC? Alternatively, should the amendments
be limited to certain subject matter, such as the royalty fee
structure? For example, should the royalty payment scheme of the
license, based upon each cable system's gross receipts for the
retransmission of broadcast signals, be simplified so as to remove
reliance upon the old FCC rules? Under the Section 111 license, distant
network station signals are currently paid for at a lower royalty rate
(.25 DSE) than distant independent station signals (1.0 DSE). Should
this disparity be eliminated, so that all stations are paid for at the
same rate? Should Congress enact a flat fee royalty system for cable
operators like that in place for satellite carriers? If so, how could
Congress build into the flat fee structure a surrogate for the 3.75
percent rate for additional non-permitted distant signal
retransmissions? Should the gross receipts requirements in the cable
license be eliminated under a flat fee approach? Would a flat rate
structure for determining royalties under Section 111 have any adverse
consequences for copyright owners? Would such a restructuring be more
disruptive than beneficial?
Small cable operators may experience a significant increase in
royalty payments under a flat fee system. This increase in turn could
lead to a loss of broadcast service for rural cable subscribers that
lack the variety of broadcast stations found in the top 100 television
markets. We ask whether
[[Page 19053]]
these concerns are justified. Are lower rates still needed as an
inducement for small cable systems to retransmit distant signals to
communities unserved or underserved by local broadcast stations? If
not, should Congress eliminate the historical disparities between small
and large cable systems contained within the Section 111 regulatory
structure? For example, should the SA1-2 rate be aligned with the
minimum SA-3 rate? Should the distinction between SA1-2 and SA-3 be
eliminated? Is it possible for Congress to modify the subsidy for small
cable systems under Section 111 in a way that is fair and equitable for
both cable operators and copyright owners?
The cable industry has experienced considerable marketplace change
since 1997. The FCC's examination of the state of the cable industry in
the last several years demonstrates that the cable industry has become
far more concentrated and integrated. See Annual Assessment of the
Status of Competition in the Market for the Delivery of Video
Programming, 21 FCC Rcd 2503 (2006). Given this trend, should the cable
statutory license be amended to address the significant amount of
mergers and acquisitions in the cable industry over the last thirty
years? At the same time, cable franchising authority has become more
concentrated as well. We note that several states, such as California,
have enacted new laws that transfer franchising authority from local
governments to state governments. See Corey Boles, Verizon Gets
California Video Franchise, Wall Street Journal, March 9, 2007, at B4.
We ask whether and how statewide franchises affect the Section 111
license.
Since the implementation of the cable statutory license by the
Copyright Office in 1978, the cable industry has raised concerns about
the ``cable system'' definition found in Section 111(f) of the Act.
Recently, the NCTA petitioned the Copyright Office to commence a
rulemaking proceeding to address cable copyright royalty anomalies
arising from the current ``cable system'' definition as it has been
implemented by the Copyright Office. In its Petition, NCTA states that
where two independently built and operated systems subsequently come
under common ownership due to a corporate acquisition or merger, the
Copyright Office's rules require that the two systems be reported as
one. Similarly, where a system builds a line extension into an area
contiguous to another commonly-owned system, the line extension can
serve as a ``link'' in a chain that combines several commonly-owned
systems into one entity for copyright purposes. NCTA asserts that, in
either of these cases, dramatically increased royalties can result.
NCTA states that royalty obligations may increase as a result of the
Copyright Office's policy of attributing carriage of a signal to all
parts of a cable system, whether or not the station is actually carried
throughout the system. In NCTA's view, a ``phantom signal'' event
arises when a cable system pays royalties based on the carriage of the
signals of distant broadcast stations after a cable system merger, even
if those signals are not, and even may not be, delivered to all
subscribers in the communities served by the cable system. Industry
concerns about phantom signals have steadily increased as cable
operators have merged and grown. While we may open an inquiry into this
issue in the future, we nevertheless seek comment on whether Congress
should amend Section 111 and provide a legislative solution to the
problem.
In 1997, the Copyright Office recommended that Congress amend
Section 111(f) to define when two cable systems under common ownership
or control are, in fact, one system for purposes of Section 111 in
light of technological advances in headends and for other reasons. If a
flat, per subscriber fee is not adopted, the same part of Section
111(f) should also be amended to calculate cable rates only on those
subscriber groups that actually receive a particular broadcast signal.
The Copyright Office believed that this recommendation would help
eliminate the ``phantom signal'' problem. See 1997 Report at 46-47.
We ask whether the cable license should be subject to renewal every
certain number of years, perhaps in synchronization with the renewal of
the satellite carrier statutory license. This would allow Congress to
update Section 111 on a periodic basis and examine, in tandem with
Section 119, whether the licenses are serving their intended purposes.
Are there any drawbacks related to this proposal?
With regard to reforming Section 119, we ask what particular
sections should be modified. For example, should the unserved household
provision be amended? Should the provision account for the recent
distant network signal injunction involving Echostar? If so, how? The
current satellite carrier license will expire at the end of 2009.
Assuming that Section 119 remains a standalone provision, should the
license be extended on a permanent basis, or is temporary extension
still an appropriate solution? As discussed above, should the
provisions directed at the retransmission of distant analog signals be
replaced with ones directed at the retransmission of distant digital
signals?
Section 122 is a relatively noncontroversial provision that has
served satellite carriers, broadcasters, and consumers well. In any
event, we seek comment on whether this license should be modified, and
if so, how? For example, does it need to be amended to reflect the
retransmission of digital television signals? Could the license be
improved to function better?
Uniform License. We seek comment on whether Congress should instead
adopt a uniform statutory license encompassing the retransmission of
local and distant signals by both cable operators and satellite
carriers. If such a license is recommended, how should it be
structured? Would a uniform rate for the retransmission of distant
broadcast signals, applicable to both cable operators and satellite
carriers, effectively level competition among the providers? Would
reporting of cable royalties be easier and less intrusive? What are the
barriers regarding the formation of a single license? How would Section
122's provisions fit into a uniform license?
Expansion. Content delivery technology has evolved and changed at
an incredibly rapid pace since 1997 when the Copyright Office last
examined the cable and satellite statutory licenses. Whereas ten years
ago, the Copyright Office was concerned about open video systems and
the Section 111 license, See 1997 Report at 62-76, today that delivery
system and the concerns it generated seems antiquated. Currently, video
programming streamed or downloaded through the Internet to computers,
mobile devices, and digital television sets, are commanding the
attention of the media and content industries. Given that we are
obliged to provide Congress with recommendations based on current
circumstances, we seek comment on whether the current statutory
licensing schemes should be expanded to include the delivery of
broadcast programming over the Internet or through any video delivery
system that uses Internet Protocol. In the alternative, we ask whether
licensing of discrete broadcast programming should be allowed to evolve
in the marketplace. It is important to note here, that unlike cable
systems and satellite carriers, Internet video providers do not own any
transmission facilities; rather, they host and distribute video
programming through software, servers, and computers connected to the
Internet.
There are currently three different technological paradigms for
openly
[[Page 19054]]
distributing video programming, including broadcast content, over the
Internet. One method is to stream video content that may be accessed by
anyone with an Internet connection. Youtube, Yahoo, MSN, AOL are the
most popular distributors of streamed video content. The second method
to deliver video content to end users is through server downloads. This
type of delivery system has been used by such firms' as Apple's iTunes,
CinemaNow, and MovieLink. The last method is peer-to-peer video
delivery. This involves the sharing and delivery of user specified
files among groups of people who are logged on to a file sharing
network. BitTorrent and Joost deliver video content in such a manner.
There are two prevailing business models that reign over these
distribution technologies. Internet video programming distributors may
adopt a download-to-own (or rent) model where users pay a fee to access
content. Alternatively, they may provide content to end users under an
ad-supported model, just like traditional commercial broadcast
television. See Todd Spangler, BitTorrent Goes Legit With Online Store,
Multichannel News, March 12, 2007, at 32.
We recognize that the Internet is not analogous to the technologies
originally licensed under Section 111, 119, and 122, but the move
toward technological convergence and the advent of broadcast quality
video over the Internet during the last five years calls for a close
re-examination of the licenses at issue here. For example, Virtual
Digital Cable (``VDC''), a new Internet video programming provider,
currently offers multiple channels of video programming to subscribers
across the United States and plans to carry local broadcast television
stations as part of its service offerings. See http://www.vdc.com.; see
also Bid to Put Local TV Signals Online Tests Internet Broadcast
Rights, Communications Daily, July 19, 2006, at 6. Given the advent of
VDC, and similar outlets such as TVU Networks (http://www.tvunetworks.co/index.htm
), we seek comment on whether a new
statutory license should be created to cover the delivery of broadcast
signals over the Internet. If so, how could this be achieved? Could the
availability of broadcast content distributed over the Internet be
considered a ``retransmission'' as that term has been used in the
Copyright Act? Would the answer to this question be different if the
owner of the broadcast content, such as the television network, is
delivering the content rather than a third party website? Would the
retransmission of a broadcast station's signal implicate the
reproduction right under Section 106 of the Copyright Act, in addition
to the performance right, given that Internet retransmissions require
the making of temporary copies on servers necessary for retransmission?
Is there any evidence of marketplace failure requiring a statutory
license to ensure the public availability of broadcast programming?
There are also video programming distribution systems that use
Internet Protocol technology (``IPTV'') to deliver video content
through a closed system available only to subscribers for a monthly
fee. AT&T, for example, currently uses IPTV to provide multichannel
video service in competition with incumbent cable operators and
satellite carriers. We seek comment on whether new types of video
retransmission services, such as IPTV-based services offered by AT&T,
may avail themselves of any of the existing statutory licenses. Must a
new license be created, instead? We also seek comment on whether a
statutory license for IPTV-based services, if confined to a closed
system available only to subscribers in the United States, would
violate any international agreements and treaty obligations.
Recent advances in wireless technology have enabled the reception
of video content on mobile telephones and similar devices. For example,
Verizon Wireless, in partnership with MediaFLO USA, has recently
introduced V Cast Mobile TV service in several markets across the
United States. This service features a full complement of eight
channels available to Verizon Wireless voice customers for an
additional fee. Programming on V Cast Mobile TV is provided by CBS,
NBC, Fox, ESPN, and others. AT&T's Cingular Wireless has announced that
it too will offer mobile television service, in addition to wireless
voice service, in the near future. See Rhonda Wickham, V Cast Mobile TV
Goes Live, WirelessWeek, March 1, 2007; see also, Mike Shields, CBS,
NBC and ESPN Unveil Plethora of New Mobile Content, Mediaweek, March
27, 2007. The mobile phone industry, including Verizon and AT&T, have
not announced any plans to retransmit local or distant television
station signals over their wireless networks. Nevertheless, we seek
comment on whether Sections 111, 119, and 122 should be expanded to
include the retransmission of broadcast signals over wireless networks
and to mobile reception devices. Should there be a single new statutory
license that encompasses the retransmission of broadcast signals for
use by cable, satellite, IPTV, the Internet, and wireless networks/
mobile devices? Or, do the examples provided above demonstrate that the
video marketplace is functioning smoothly and there is no need for a
statutory license at all?
Elimination. We seek comment on whether the licenses should be
eliminated rather than expanded. As noted above, the cable industry has
grown significantly since 1976, in terms of horizontal ownership as
well as subscribership, and generally has the market power to negotiate
favorable program carriage agreements. Given these facts, has Section
111 served its purpose and is no longer necessary? Do these factors
alone merit the elimination of the license? DirecTV and Echostar did
not serve any customers in 1988, but now count at least 27 million
subscribers among the both of them. They, too, have the market power
and bargaining strength to negotiate favorable program carriage
agreements. Given these developments, should Section 119 also be phased
out? A year ago, we concluded that the Section 119 license harms
copyright owners because the current statutory rates do not reflect
fair market value of the signals being transmitted. See Satellite Home
Viewer Extension and Reauthorization Act Sec. 110 Report, A Report of
the Register of Copyrights (February 2006) at 44-45. Is this an
additional reason to eliminate Section 119?
On the content side, we note that broadcast television networks,
such as Fox and NBC, have begun to offer streamed network video content
on their owned and operated websites. See Mike Shields, YouTube Faces
Challenge, Mediaweek, March 22, 2007 (describing News Corp. and NBC
Universal's new partnership to launch an Internet video distribution
channel). Moreover, some affiliates of Fox plan to stream network and
local content over the Internet into their local markets. See Harry
Jessell, Affils To Offer Fox Shows On Local Web Sites, TVNEWSDAY, March
1, 2007. We seek comment on whether there are similar streaming
arrangements being planned by other television broadcast networks. Is
there any evidence that this type of video distribution model will
become ubiquitous? If so, we ask whether statutory licenses are
necessary when anyone with an Internet connection may watch broadcast
television content without the need to subscribe to an MVPD.\12\
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\12\ One company recently petitioned the FCC to declare that the
Commission has no authority to regulate the distribution of video
content over the Internet. See Network2 Petition for Declaratory
Ruling That Internet Video is not Subject to Regulation Under Title
III or Title VI of the Communications Act, filed March 20, 2007. The
Petition did not raise for comment whether Internet video
programming distributors may still avail themselves of the statutory
licenses under the Copyright Act.
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[[Page 19055]]
In the absence of the statutory licenses, cable operators,
satellite carriers, and copyright owners would have to negotiate the
rights to carry programs according to marketplace rates, terms, and
conditions. As stated earlier, cable operators and satellite carriers
have successfully negotiated the right to carry local television
broadcast signals of the major broadcast networks under the
retransmission consent provisions found in Section 325 of the
Communications Act. We seek comment on whether we should recommend to
Congress that Sections 111 and 119 be repealed and superceded by
Section 325 so that distant broadcast stations can freely negotiate
signal carriage rights with cable operators and satellite carriers
without reference to a statutory license.\13\ Could retransmission
consent perform the same payment functions as Section 111 and Section
119? In other words, is there any way a retransmission consent
agreement can be structured so that the monetary value of the
underlying content is collected by broadcast stations and then paid to
the copyright owners of the programs that are retransmitted? Is there
any reason why retransmission consent would not work for the
retransmission of distant television signals? Are there any contractual
impediments, such as network-station affiliation arrangements, that
would preclude the retransmission of distant television signals under a
privately negotiated agreement? Are there any legal impediments, such
as the FCC's network non-duplication rules, that would frustrate
private agreements? Is it difficult for small cable operators to
negotiate the rights necessary to carry the signals of distant
television stations? Would the elimination of the statutory licenses
cause harm to cable or satellite subscribers? If so, how?
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\13\ One cable operator appears to advocate the replacement of
retransmission consent with a new statutory license covering the
cable retransmission of local broadcast television signals. See Ted
Hearn, Willner Calls for Tax to Aid TV Stations, Multichannel News,
March 13, 2007 (Insight Communications CEO Michael Willner has
proposed a ``TV tax'' to replace retransmission consent that would
fund a ``federal royalty pool'' ``similar to the one used to
compensate sports leagues and Hollywood studios'').
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III. CONCLUSION
We hereby seek comment from the public on the legal and factual
matters identified herein associated with the retention, reform, or
elimination of Sections 111, 119, and 122 of the Copyright Act. If
there are any additional issues not discussed above, we encourage
interested parties to bring those matters to our attention.
Dated: April 11, 2007
Marybeth Peters,
Register of Copyrights.
[FR Doc. E7-7207 Filed 4-13-07; 8:45 am]
BILLING CODE 1410-30-S