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COPYRIGHT LICENSING REGIMES COVERING RETRANSMISSION OF BROADCAST SIGNALS
THURSDAY, OCTOBER 30, 1997
House of Representatives,
Subcommittee on Courts and
Committee on the Judiciary,
The subcommittee met, pursuant to notice, at 10:02 a.m., in room 2237, Rayburn House Office Building, Hon. Howard Coble (chairman of the subcommittee) presiding.
Present: Representatives Howard Coble, Elton Gallegly, Edward A. Pease, Christopher B. Cannon, Barney Frank, Rick Boucher, Zoe Lofgren and William D. Delahunt.
Staff Present: Mitch Glazier, chief counsel; Vince Garlock, counsel; Blaine Merritt, counsel; Robert Raben, minority counsel; and Veronica Eligan, staff assistant.
OPENING STATEMENT OF CHAIRMAN COBLE
Mr. COBLE. Good morning, ladies and gentlemen. As you all know, we like to start on time. I don't like to penalize those of you who have responded to the time of record, and 10 o'clock is the time of record.
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The subcommittee will come to order. Today we are conducting an oversight hearing concerning the copyright licensing regimes covering retransmission of broadcast signals. In summary, these regimes have developed from provisions of the Copyright Act which allow both cable and satellite carriers access to copyrighted programming without obtaining permission from the copyright owners, and then retransmitting the programming for a set fee to customers. These government-imposed regimes obviate the need for both satellite and cable companies to negotiate with every individual copyright owner over the rate charged for their programming.
But with these compulsory licenses come a host of complicated and somewhat contentious issues, including, but not limited to, the white areas, those areas in which the retransmission of a distant network signal is allowed; ''must carry,'' which programming a satellite or cable programmer must make available to its customers; and any extension of compulsory license for satellite retransmissions.
On August first of this year, the Registrar of Copyrights released a review of the licensing regimes, which contained a number of recommendations for both cable and satellite. It is this report which will be the focus of the witnesses' testimony before us this morning.
In addition, on August 28 of this year, a Copyright Arbitration Royalty Panel, or CARP, as it is affectionately known, sometimes affectionately known, handed down a ruling which, among other things, increased the royalty fee which satellite carriers must pay to copyright owners for the rights to retransmit television broadcast signals to 27 cents per subscriber per month for all distant broadcast retransmissions. Just this past Monday, the Librarian of Congress affirmed most of the CARP's decision, including the rate increase, although the effective date was changed from July 1st, 1997, to January 1st, 1998. I suspect these latest developments will also be a prime subject of today's testimony.
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Let me also say to you, while making clear I am not passing judgment on the actions of the latest CARP, I am committed to working with the Copyright Office to improve the process by which royalties are calculated and distributed. It is my belief that the current system may well be too cumbersome, too costly, and maybe not the most efficient way of tackling these issues. I look forward to our panelists' thoughts on this issue as our hearing today progresses.
These are difficult and complicated issues, as each of you know, and I look forward to the testimony of our witnesses in informing the Members of this subcommittee of their various perspectives.
[The prepared statement of Mr. Coble follows:]
PREPARED STATEMENT OF HON. HOWARD COBLE, CHAIRMAN
Good morning. The Subcommittee will come to order. Today we are conducting an oversight hearing concerning the copyright licensing regimes covering retransmission of broadcast signals. In summary, these regimes have developed from provisions of the Copyright Act which allow both cable and satellite carriers access to copyrighted programming without obtaining permission from the copyright owners, and retransmitting that programming for a set fee to customers. These government-imposed regimes obviate the need for both satellite and cable companies to negotiate with every individual copyright owner over the rate charged for their programming.
Page 4 PREV PAGE TOP OF DOC But with these compulsory licences come a host of complicated and somewhat contentious issues including, but certainly not limited to, ''white areas'' (those areas in which the retransmission of a distant network signal is allowed), ''must carry'' (which programming a satellite or cable programmer must make available to its customers), and any extension of the compulsory license for satellite retransmissions.
On August 1st of this year, the Register of Copyrights released a review of the licensing regimes which contained a number of recommendations for both cable and satellite. It is this Report which will be the focus of the witnesses' testimony before us this morning.
In addition, on August 28th of this year a Copyright Arbitration Royalty Panel, or CARP, handed down a ruling which, among other things, increased the royalty fee which satellite carriers must pay to copyright owners for the rights to retransmit television broadcast signals to 27 cents per subscriber per month for all distant broadcast retransmissions. Just this Monday, the Librarian of Congress affirmed most of the CARP's decision, including the rate increase, although the effective date was changed from July 1, 1997 to January 1, 1998. I expect these latest developments will also be a prime subject of today's testimony.
Let me also say, while making clear I am not passing judgment on the actions ofthe latest CARP, I am committed to working with the Copyright Office to improve the process by which royalties are calculated and distributed. It is my belief the current system is too cumbersome, too costly, and not the most efficient way of tackling these issues. I look forward to our panelists' thoughts on this issue.
These are very difficult and complicated issues and I look forward to the testimony of all our witnesses in informing the Members of this Subcommittee of their various perspectives.
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Mr. COBLE. Now the gentleman from Massachusetts is not here. I see the gentleman from southwest Virginia is here.
Mr. Boucher, did you have an opening statement?
Mr. BOUCHER. Thank you very much, Mr. Chairman.
First of all, I want to commend you for organizing the hearing this morning on what is a very important set of issues primarily for people who live in rural areas, but as these licenses evolve and the opportunities to offer local service back into the local market combined with satellite-delivered programming matures, then for viewers across the entire United States.
Unlike the issues that are surrounding OSP liability, and the implementation of the WIPO treaty, which I think will take the subcommittee some time to resolve, I would hope, Mr. Chairman, that you could draft and move forward very quickly legislation that addresses the range of changes that are needed in the cable and satellite compulsory licenses, and as you begin that process, Mr. Chairman, I have a couple of recommendations to make, and I would hope that our witnesses this morning, on all of the three panels, would consider these and perhaps make comments with regard to them.
First of all, we will hear today from Mr. Jim Goodmon, who is the chief executive officer of Capitol Broadcasting in North Carolina, of a proposal of a plan that his company has to build and launch satellites that would enable the uplink of local broadcast signals and then the retransmission of those signals back into the market from which they originate. That plan of his potentially could come to the American market as soon as 3 years from now, and so potentially, by the year 2000, we would have that very valuable service in existence, which would solve a range of problems. First of all, it would eliminate the last major advantage that the cable industry has over the direct home satellite industry by enabling the satellite carriers to provide local signals, and that would provide a tremendous amount of competition in the multichannel video market, something that this Congress has been strongly encouraging, and that would, I think, help to ameliorate the ever-increasing cable rates that consumers are complaining of today. And so I think it is a very valuable plan for American consumers.
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It also, incidentally, solves another problem that will be addressed today, which is the white area challenge, because once local signals are delivered back into the local market, the presence of a mountain simply doesn't matter when you have a satellite dish.
In order for this plan to come to fruition, however, it is important that we change the copyright law and that we change the current regime, which essentially gives any affiliate of the network station that is uplinked, that happens to lie within the Grade B contour of that uplinked affiliate, the opportunity to object to the retransmission back into that market of the local affiliate. That creates opportunities for mischief. It also stands as an impediment to the launch of this service, and it seems to be, Mr. Chairman, appropriate that we find another measure of that radius. The Grade B contour is quite large, and perhaps some measure, such as the area of dominant influence, a smaller radius and a well-defined measure put forth in FCC standards, would be more appropriate and would enable this service to become a reality.
I think it is appropriate, Mr. Chairman, that we try to amend the law as quickly as we can in order to give Mr. Goodmon and perhaps Mr. Ergen and others who have plans to launch this kind of service the assurance that they can do so with a firm foundation on the copyright law.
Secondly, Mr. Chairman, you mentioned in your opening statement, and I will simply add comments, with regard to the recent, I think very unfortunate, decision of the Copyright Office that has now imposed upon satellite carriers copyright liabilities that are now nine times greater than the copyright liability imposed on cable providers for the distribution of exactly the same programming. That very unfortunate decision ignores the statutory requirement that the Copyright Office look at the competitive environments in which the services are delivered when rendering their decisions, and I think, Mr. Chairman, calls for this committee to strongly consider having a new approach to determining these royalty liabilities by setting a statutory standard, setting a rate in the statute, and then providing for automatic increases in that rate over a period of time, using factors that are market-based that we would identify in the statute. I think that is a sounder approach. We should override this very unfortunate decision and move forward on that basis.
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Third, I support, and I would hope this committee would support, the recommendation that has been made by the Copyright Office to change the basis for the imposition of royalty liability with regard to the section 111 cable compulsory license. Today that is based on the gross receipts that are received on certain tiers of service by the cable company. It is an awkward and cumbersome approach, which is not only hard to administer, but offers opportunity for gamesmanship, and some of that has been engaged in, and I think it is much better we eliminate that approach and simply impose the copyright fee based on a per-subscriber foundation. The Copyright Office has recommended that. I think that is a sound recommendation. I would hope this committee would accept that.
And finally, Mr. Chairman, I will make some comments with respect to an issue that concerns us greatly in rural America, and that is the ability of people who live in mountainous areas and cannot get local broadcast signals from the local station to receive the network programming by means of satellite. In 1998, we created the section 119 satellite license just to address this problem, and in doing so, we established what we call a wide area test and basically said if you can't get the signal from the local station, then you can get it off the satellite. And for the last decade we have had a whole range of problems in trying to determine who is eligible to get the signal and who is not.
This is a problem, by the way, which will go away in the not too distant future and will be resolved with the advent of either digital television, in which case you either get a crystal clear signal or no signal at all, or with the advent of the local-to-local retransmission plans of Mr. Goodmon, Mr. Ergen and others. Either way we will not have this problem perhaps 3 or 4 years from now. So the challenge that we have is the transition over the next 3 or 4 years.
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We are going to hear today from Mr. Wade Hargrove, who has labored in this vineyard for a long time, representing the broadcast industry. He has done his work well. I have frequently disagreed with him, and I still do to some extent, but I admire the work he has done, and I know the Members of this committee admire his professionalism.
He will tell you that his industry now has an agreement with two cable industry affiliates that are providing satellite-delivered services, retransmitting network signals, and I would ask the committee just to bear in mind as they hear this testimony that the cable industry doesn't have any particular incentive to expand the services available by satellite delivery.
The satellite industry is a cable competitor, and it is not surprising that this agreement has been reached with two cable affiliates, but the agreement doesn't quite go far enough to solve the existing set of problems, and if the red zone/green zone approach that is recommended in this agreement is adopted, there are going to be a lot of people who are eligible to receive the network signal today who will no longer get it. They live behind a mountain, they might well be in what is tagged as a red zone, their zip code just comes up wrong, and they are going to be disqualified from getting the signal.
So I have a proposal. It is easy to state. I think it would be easy to apply, I think it would be fair, and I would ask that those who will be testifying on the subject of white areas today consider this and be prepared to offer a response. First of all, let's do the red zone/green zone approach. I think as a foundation that makes a rough amount of sense, but let's grandfather the existing base of subscribers. After all, the broadcast industry has always said it is the dramatic growth of digital television which is expected in the future and the direct home business which will grow in the future, particularly when the local-to-local service is added, that has concerned them. So the existing base should be less of a problem, so let's grandfather the existing base.
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With regard to new subscribers, here is a proposed test. Let's allow the loser to pay. Let the test be made to determine whether or not an adequate signal is received. Let the standard for the receipt of that signal be signal quality. There is a card that shows various depictions of signal quality. Simply put that up against the set and determine if the minimum standard is received in that household. If it is, then the satellite signal could not be delivered, and the local signal would predominate. Let the loser pay. If the household is eligible to get the satellite signal, the TV station would pay for the test; if it goes the other way, the satellite carrier would pay.
And most importantly of all, the question of who would perform this test. When we have proposed the issue of signal quality in the past, as a substitute for the current standard, which is whether or not a signal of Grade B intensity is received at the rooftop, the broadcast industry has always said, well, that is too subjective, and we simply don't think that that kind of subjective decision ought to be made. So here is an idea, a way to break the logjam and move forward. I think the satellite industry should trust the broadcast industry to make this test itself. So let the broadcast station send someone who is employed on the staff of the station to make this test. That can be an engineer, or it could be the receptionist. It is easy enough to do if you have a card that simply depicts various gradations of signal quality. Put that up next to the set and determine whether or not a signal of that quality is being received.
The TV industry is honest. The people who work for the stations will be honest. They will make a fair judgment. So to get by the objection that the signal quality test is too subjective, let's allow the station itself to perform that test, and then the loser will pay.
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If, in fact, the household is not eligible to get a satellite-delivered signal, let the bill for that person's time, however long that might be, be sent to the satellite carrier and have the satellite carrier be required to pay in that circumstance. It is a way to move us forward, it is a way to solve the problem for the next 3 or 4 years, until the local-to-local service is put into effect, and I hope our witnesses will look at that with some seriousness and comment upon its workability.
Mr. Chairman, you have been very patient with this lengthy statement. I thank you for that, and with you I will look forward to hearing from our witnesses.
Mr. COBLE. I thank the gentleman.
Mr. COBLE. The gentleman from Utah.
Mr. CANNON. Mr. Chairman, I would just like to submit a statement for the record. I ask unanimous consent for that.
Mr. COBLE. Without objection.
[The prepared statement of Mr. Cannon follows:]
PREPARED STATEMENT OF HON. CHRIS CANNON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF UTAH
Mr. Chairman, I am grateful for the opportunity today to discuss the issue of copyright licensing of television signals.
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I am pleased to have the Register of Copyrights, Ms. Peters, here today.
Today we will be tackling many issues of long-term import. But, I would like to focus on an issue of immediate concern.
This past week, the Librarian of Congress adopted the recommendations of the Copyright Arbitration Rate Panel, or CARP, to boost the cost of superstation and network signals for home satellite viewers to 27 cents per signal.
I opposed the increase as failing to comply with the directive of the Satellite Home Viewer Act that rates for programming, distributed both by satellite and through cable systems, will pay particular consideration to ''the competitive environment in which programming is distributed . . .'' (emphasis added).
I believe the new satellite rates fail to adequately consider the impact on the television viewing market of creating an enormous disparity between cable rates and satellite rates for programming. With telecommunications deregulation, both the Congress and the Administration are on record supporting increased competition for television programming. It is a mistake to undermine competition for consumers by tilting the pricing structure against one segment of the market.
The new rates will force satellite viewers to absorb steep increases in rates of nearly 93% for superstations and 350% for networks. More disturbing, overall, satellite users will pay a total rate that is 270% higher than fees paid by cable customers for superstations and 900% more for network signals.
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These substantial increases will surely hurt America's 7 1/2 million satellite subscribers, either in the pocketbook or through reducing the number of programming options offered. More broadly, by reducing the competitiveness of the home satellite industry, the CARP decision will have the long-term impact of lessening the competitive pressures on cable operators, likely resulting in higher prices for millions of cable subscribers over the long run.
Worse, the impact would be disproportionately felt in rural areas. In my home state of Utah, nearly 68,000 households, many in less populated areas, will feel the sting of this decision.
America's consumers deserve a full menu of television programming choices. That's why I will support revisions in the Copyright Act to modify the arbitration panel system. While I am open to alternatives, I believe that replacing the current system with a less cumbersome, less burdensome mechanism that allows for true marketplace pricing is the prudent course. Such action will protect consumers, expand competition and preserve the intent of the Satellite Home Viewer Act.
I look forward to consideration of this issue in today's hearing.
Mr. COBLE. Folks, as you all know, I don't like to be rude, for want of a better way of saying this, but we have conveniently placed at the witness table a light, and when that red light illuminates, that is the warning to the witness that your 5 minutes have expired. You will not be hanged from the yardarm if you violate that rule, but I would like for you to begin to wind down when that red light burns in your eyes, for obvious reasons. We have three panels today. We are going to be interrupted inevitably by votes from the floor, and I will also ask the Members of the subcommittee if they will comply with the 5-minute rule as well.
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Mr. COBLE. Our first witness today is not unknown to most of us in this room. Marybeth Peters is the Register of Copyrights for the United States. I said to her earlier, I think she could negotiate the path from her office to this hearing room blindfolded because she has made several trips over here in recent days.
For the benefit of the uninformed, and there may be one or two who do not know her, Marybeth has served as acting general counsel for the Copyright Office and as Chief of both the Examining and Information and Reference Divisions. Ms. Peters has served as a consultant on copyright law to the World Intellectual Property Organization and authored the General Guide to the Copyright Act of 1976.
She is accompanied this morning by David Carson, the general counsel for the Copyright Office, and by Bill Roberts, a senior counsel. Good to have you gentlemen with us as well.
We have copies of your statement, Ms. Peters, written copies, and they will be submitted into the record, in its entirety, without objection, and I look forward to hearing from you in your 5-minute segment, Ms. Peters.
STATEMENT OF MARYBETH PETERS, REGISTER OF COPYRIGHTS, COPYRIGHT OFFICE OF THE UNITED STATES
Ms. PETERS. Thank you very much, Mr. Chairman.
Page 14 PREV PAGE TOP OF DOC Good morning, and I am pleased to appear before you to offer the views of the Copyright Office on the compulsory licenses covering cable and satellite retransmission of over-the-air broadcast signals. You referred to the report that we have prepared, and in that report we analyzed the topic that is before you, identified problem areas and offered possible solutions. That report, of course, is our testimony, the written testimony for this morning, and my oral statement focuses on the recommendations that we made in that report.
A compulsory license is a statutory license whereby copyright owners are required to license their works to users under terms and conditions set forth in the law. This includes the rate to be paid. The cable compulsory license allows a cable system to intercept over-the-air television and radio broadcast signals containing copyrighted programing and to retransmit the signals to its subscribers who pay a fee for such service. The satellite carrier compulsory license permits a satellite carrier to intercept televisionbut not radiosignals and retransmit the signals to satellite home dish owners for their private home viewing. The cable compulsory license does not have an expiration date; the satellite carrier compulsory license is scheduled to expire on December 31, 1999.
The cable and satellite compulsory licenses are two of the most complex provisions of the law, and they involve two very competitive industries. There are, in addition to copyright issues, issues of communications policy and competition in the marketplace. My comments are confined to the retransmission of broadcast signals and how they should be dealt with only under the copyright law.
The satellite compulsory license has been the subject of much criticism, and Mr. Boucher certainly outlined a number of those problems, so I will address that license first. We have already heard of the problems. Obviously, the issue that has generated the most controversy centers on who is entitled to receive network signals from their satellite providers. A satellite carrier can use the satellite compulsory license to deliver network signals only to subscribers who reside in what the statute calls an ''unserved household,'' which is defined as a household that can't get an over-the-air signal of Grade B intensity using a rooftop antenna, and which hasn't subscribed to a cable service in the previous 90 days.
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There were numerous complaints about the failure of satellite carriers to comply with the unserved household restriction, and in 1994, Congress attempted to increase compliance by allowing network affiliate stations to issue written challenges against subscribers they believed were not eligible to receive network service. Upon receipt of the challenge, the satellite carrier had two options: Turn off the network signal to the subscriber or conduct a signal intensity test at the subscriber's home to determine if he or she was eligible for continued service.
The Copyright Office believes the signal testing regime of the 1994 amendments failed to accomplish Congress's goal. Few, if any, tests were conductedthe expense of the tests outweighed the benefit of providing network service, and broadcasters and satellite carriers were unable to agree upon engineering standards for conducting the test. As a result, many subscribers lost their satellite network service, with no means of recourse to determine if they are truly ineligible for continued service.
There is no easy answer to the problems caused by unserved households restrictions. However, technology, as Mr. Boucher mentioned, may provide an answer. If satellite carriers can provide subscribers with their local network signals, the need for the restriction to unserved households will disappear. We are aware of at least one satellite company, and maybe now two, that are poised to provide local retransmissions, and there are others with plans on the drawing boards. We therefore urge you to amend 119 to expressly permit such retransmissions.
Another issue is the temporary status of the license, which is slated, as I mentioned, to expire on December 31, 1999. We recommend that the satellite license be extended for as long as the cable compulsory license remains in the law.
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Now let me turn to the cable compulsory license and our recommendations to make it more effective and efficient. The cable compulsory license was enacted as part of the general revision of the copyright law in 1976, and it was created to reflect the realities at that time. Needless to say, the cable marketplace and the regulatory framework is considerably different in 1997 than it was in 1976. We believe the cable compulsory needs serious revision.
Our principal concern with the license is the payment mechanism. Royalties are paid under a highly complicated formula that is based upon regulations of the Federal Communications Commission of 1976. Many of those regulations do not exist anymore, and the increasing changes in the marketplace make application of those regulations illogical and unworkable.
We strongly recommend simplification of the royalty payment formula to fatto a flat, not fat, a pointed misstatementto a flat per-subscriber fee. We also believe that rates paid by cable systems should reflect the fair market value of the broadcast programming that is being retransmitted by cable systems. The combination of a flat per-subscriber fee set at fair market value would, (1) eliminate many of the administrative costs and uncertainties created by the present royalty mechanism; (2) eliminate undercompensation to authors and other copyright owners; and (3) treat cable systems similarly to satellite carriers.
I understand that recommending cable pay fair market value may not be popular or may be economically difficult, particularly with small cable operators with tight budgets and slim profit margins, and we recommend that Congress consider lower rates for small cable systems. However, the fee for small systems should be something above the de minimis rate currently paid.
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In recommending fair market values for both cable and satellite, we recognize that these two industries operate under different regulatory frameworks and technical realities. What might necessarily be a fair market rate for cable might not be a fair market rate for satellite. We therefore recommend that in adjusting the cable and satellite rates, a single Copyright Arbitration Royalty Panel, CARP, handle the proceeding so the relative differences between the two industries can be compared at the same time, producing a fairer result.
In conclusion, the cable and satellite compulsory licenses present many challenging issues. We would be pleased to work with you and the subcommittee and affected parties in trying to come up with an acceptable solution. Thank you.
Mr. COBLE. Thank you, Ms. Peters.
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Mr. COBLE. Today's hearing has the trappings of a forum where distinct and sharp differences will likely be aired, but after all, that is one of the purposes for hearings, and then hopefully we may be able to resolve some of those differences of opinion.
Ms. Peters, my question will be aired more thoroughly during one of the subsequent panels, but let me ask you this: A, How difficult would it be for the affected industries to adjust to a marketplace that did not include the compulsory licenses, and, B, do you envision this being a reality in the not too distant future?
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Ms. PETERS. I brought my colleagues with me. This is a very difficult, complicated area. David Carson is our new general counsel, and Bill Roberts is our expert on compulsory licenses, so either of them may jump in.
We had 3 days of hearings, and we got comments for our study about going to no compulsory licensingi.e. having the market place take over. We didn't get a lot of support for that. I also asked about going to collective licensing in place of statutory licensing; we didn't get support for that either.
What we were told was that people are not still ready to take on the clearance of all of the rights that are involved. I know that that was the goal on the satellite license; it was to be temporary so the marketplace could take over. So we haven't heard anything that suggests that people are ready to be there; Bill, do you want to add anything?
Mr. ROBERTS. I would agree with that, Marybeth. We did ask the question during the course of our hearings as to what type of system could copyright owners and copyright users recommend that would replace the current compulsory license regime, and we never really got very definitive and clear answers as to what we felt was a practicable solution. So there seems to be, for better or for worse, some contentment with the current reality of having a compulsory license out there, and that is why we have not recommended its immediate repeal.
Mr. COBLE. Did you want to be heard, Mr. Carson?
Mr. CARSON. No.
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Mr. COBLE. You mentioned in your oral testimony the cable compulsory license is considerably out of date. In what ways can the license be amended to bring it up to date and make it operate more efficiently.
Ms. PETERS. In our report, we have a number of recommendations; I will start and let Bill finish.
Clearly, as we stated, the royalty payment mechanism needs to be changed. It has to be much simpler. It is a very, very complicated formula based on gross receipts for the large systems. With regard to small systems, it is a flat fee, $28 per half a year.
The mention of the 1976 FCC regulations is really a problem, and in our study, we recommend getting rid of those references and having a substitute test for distant signals.
What have I left out?
Mr. ROBERTS. We just might say that even among cable operators, there is a disparity between two cable systems operating under like circumstances, in the royalty rates that they pay. You may hear some testimony today from small cable interests who point out that typically a newer cable system may not enjoy the benefit of lower rates paid for the compulsory license that an older system does. If you go to a flat per-subscriber fee, you would eliminate those problems and those inequalities.
Page 20 PREV PAGE TOP OF DOC Mr. COBLE. What are the advantages of a red zone/green zone approach to solving the white area controversy under section 119 as opposed to the current Grade B contour test? I think you touched on that a little bit, Marybeth.
Ms. PETERS. I am going to let Bill answer that one.
Mr. COBLE. All right, fine.
Mr. ROBERTS. Well, sir, with the red zone/green zone, really what we are advocating is a way to identify, as best as possible, those subscribers who are eligible and those who are not eligible. You can use a Grade B contour test under a red zone/green zone approach, and that would be that any subscriber who resided within the Grade B contour of the local affiliate would be in the red zone; anybody who was outside of that Grade B contour would be the green zone.
We recommended, rather than using the Grade B contour, that the regime of ADI, or Area of Dominant Influence, be used instead, and the reason we did that is because, in no small part, that is the way the cable systems calculate what signals are local to them and what signals are distant. So we felt that it would be better if there was a parity between the two licenses as to how that was resolved.
Mr. COBLE. And speaking of the red zone, my red light has illuminated. You all will notice, I adhere to the red light as well. We have a vote on, but let me recognize the gentleman from Massachusetts for his questioning.
Page 21 PREV PAGE TOP OF DOC Mr. DELAHUNT. I have no questions.
Mr. COBLE. The gentleman from Utah, Chris, can you do it in 5 minutes?
Mr. CANNON. Yes. Thank you, Mr. Chairman.
I have said this often, Ms. Peters, but it is a pleasure to have you here. I have been going through a lot of hearings and people not expressing themselves very clearly. You are a real pleasure because you get issues out in the clear.
I would like to talk briefly about the recent CARP decision to raise the cost of programming for satellite viewers. First about the arbitration process, it is my understanding that currently members of the CARP panel are primarily picked on the basis of their backgrounds in the field of arbitration. Would it make sense to create a pool of possible participants who have a background in the television programming industry?
Ms. PETERS. When the Copyright Office was implementing the system, we had open meetings, and we had proposed regulations. We asked what should be the criteria used in selecting arbitrators. The overwhelming response was that everybody preferred lawyers who had at least 10 years of experience, and who had some experience in arbitration or in deciding cases, for example, judges. There were discussions about the inclusion of economists and others. Our regulations require that arbitrators be lawyers with experience in settling disputes. It is possible to revisit that.
Page 22 PREV PAGE TOP OF DOC Arbitration associations submit names; those included in our list go through a financial conflict test before they are selected. Additionally, we check to see if they are available for a particular proceeding. We try to select peopleand we don't have total controlwho are local and who charge less. Then the two selected arbitrators choose the chairman. Every person who has been chosen has either been a former judge or an administrative law judge. We saw this as an advantage in marshaling evidence and dealing with economic factors, but we are certainly open to relooking at that.
Mr. CANNON. So there is a possibility of including in the criteria some experience in the industry.
Mr. ROBERTS. We have one difficulty with that, Mr. Cannon, and that is that the statute requires us to select people from professional arbitration associations. That is the only source we can look at, and, unfortunately, there are few to no people out there with expertise in this very specific area that we can draw from. So even though we ask the arbitration associations, can you please identify for us people who have copyright experience and people who might even have experience in this particular area. Our search has proved to be unfruitful, so we haven't been able to get some people.
Mr. CANNON. Would you suggest a statutory change that would allow a broader pool, Mr. Roberts?
Mr. ROBERTS. I might defer to the Register on that, because we do have a number of suggestions for change to that statute, and that might be one of them.
Page 23 PREV PAGE TOP OF DOC Ms. PETERS. We have been concerned about the CARP system since it was put in place. We have been noting where we think that there are inefficiencies or where changes could be made. We have been evaluating the whole system, and we have talked to the subcommittee staff about working on ways to improve it or to look at alternative ways to do things.
Mr. CANNON. Thank you.
Would you outline possible methods of refining or modifying the CARP process that would create a more streamlined, market-oriented approach?
Ms. PETERS. We are only at the beginning of figuring out what way to go. One of the things that we have learned involves disputes where the money that is in controversy is very small, like less than $1,000. Having three arbitrators come in with face-to-face proceedings is not necessarily the best, way to go. Also, we have recognized that the time frame, 180 days, is not necessarily an adequate amount of time.
We have thought about whether or not you should have a system of copyright administrative law judges, as opposed to a panel of arbitrators whose decision every time is ad hoc and which doesn't build up a pool of expertise. But we are really in the exploratory mode right nowtrying to identify what the best solution might be. We would be interested in your views, and in your helping us work it out.
Mr. CANNON. We would like to work with you. Well, my time is up.
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Mr. COBLE. Folks, we will stand in recess, and we will return imminently. We have one vote, so we will be back in a matter of a few minutes.
Mr. COBLE. Well, I say to the Register, it looks like you have dodged any subsequent bullets because no one else is here, Marybeth. We appreciate your having come here with your 2 experts, accompanying the expert. Good to have you all with us and I presume you are invited to hang around, Marybeth, if you want to do so, and we again thank you all for being here.
As the Register leaves, I will introduce the second panel as you make your way to the table. Our first witness for this panel is Charles ''Chuck'' Hewitt. Mr. Hewitt is the president of the Satellite Broadcasting and Communications Association of America, a national trade association representing all segments of the satellite broadcasting industry.
Our second witness is Mr. William ''Rik'' Hawkins, president and founder of Starpath of Hardin County, a small retail satellite company in rural Kentucky.
Third, we have Steven J. Cox. Mr. Cox is senior vice president of New Ventures for DIRECTV, Incorporated, a unit of Hughes Electronics Corporation. Mr. Cox oversees the company's regulatory and legislative affairs and is responsible for the company's signal integrity unit.
Page 25 PREV PAGE TOP OF DOC Fourth, we have Mr. James Goodmon, who is the president and chief executive officer of Capitol Broadcasting Company. Capitol owns several radio and TV stations in the Raleigh and Charlotte, North Carolina areas. Capitol Broadcasting Company also owns the Durham Bulls Baseball Club and Microspace Communications Corporation.
Our final witness on this panel is Mr. Tom Howe. Mr. Howe is director and general manager of the University of North Carolina Center for Public Television and is here on behalf of the Public Broadcasting Service, of which he serves on their board of directors. Mr. Howe has created projects such as rebuilding 3 of the university's TV transmission facilities, and a new transmission facility is currently under construction to serve the southeastern area of our State.
I will try not to extend preferential treatment to our 2 North Carolinians, gentlemen. It is good to have all of you here.
I again want to admonish you on the red light. I hate to have to do this, but I think you all agree that with this many people here and with the active floor activity ongoing as it does, I think we have to adhere as close to the 5-minute rule as we can. I assure you all that your written testimony will be carefully, thoroughly, and deliberately examined.
Mr. Howe, for want of a better way of doing it, why don't we start from my left and we'll move to my right.
STATEMENT OF TOM HOWE, DIRECTOR AND GENERAL MANAGER, UNIVERSITY OF NORTH CAROLINA CENTER FOR PUBLIC TELEVISION, ON BEHALF OF THE PUBLIC BROADCASTING SERVICE
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Mr. HOWE. Thank you Congressman. Good morning. I am Tom Howe, director and general manager of the University of North Carolina Center for Public Television. I am also a member of the board of directors of the Public Broadcasting Service. I am here to ask you, on behalf of PBS and on behalf of your constituents, to amend the Copyright Act to permit distribution of PBS programs by satellites to homes whether or not they receive broadcast service.
PBS stations support the PBS proposal and favor immediate action. Just last week the PBS proposal was put to a formal vote at the PBS annual membership meeting in Washington, D.C. The official tally showed that 114 of 121 station representatives present, 94 percent, voted in support of PBS' effort in this area.
PBS is a nonprofit membership corporation whose 173 members are licensed to operate the Nation's public television stations. Additionally, PBS represents public television in compulsory license rate-setting and royalty distribution proceedings before the Library of Congress. However, and most importantly, public television is unique in its noncommercial status and in its public service mission to make educational and cultural programming available to everyone.
The medium through which we fulfill that mission has changed dramatically. For the past 40 years most viewers received television in 2 ways, either by broadcast TV via an antenna or through cable. In North Carolina, for example, we operate 11 TV transmitters and 23 translators, and the UNC TV signal is carried by over 260 cable systems.
Page 27 PREV PAGE TOP OF DOC Of late, the direct broadcast satellite industry has dramatically changed. At first the dishes were large and unwieldy, suitable only for the most remote locations. Now satellite dishes are compact, offering a wide range of programming. These dishes have been gaining in popularity. But there is an irony at work here. While satellite viewers can get over 150 channels on their satellite system, if they live in an area where they can receive broadcast systems, then they are blocked from receiving PBS national service on their satellite system.
I am in front of you today to emphasize the importance of a very simple vision. Any American who wishes to receive public television via satellite should be able to do so.
My fellow PBS managers and I support PBS' proposal to amend the Copyright Act in order to provide a nationwide compulsory license to permit use of PBS' national satellite services by DBS providers. This would enable all satellite subscribers to get programming services offered by PBS via their satellite dish. It would also enable PBS to use the 4 to 7 percent of DBS channels set aside for educational purposes to provide several channels of service to viewers.
In view of the unique nature and mission of public broadcasting, passage of this proposal would not constitute a precedent for similar treatment of commercial programming.
In August the Copyright Office endorsed PBS' proposal to make a national feed available to all satellite users, even those users who are in areas covered by broadcast TV. I cannot reinforce the importance of this proposal enough because of the impact it will have on the public we serve. A satellite dish owner who cannot get PBS services because of legal restrictions gets very angry with public broadcasters, with the satellite service provider and ultimately with Congress.
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Congress has consistently passed laws to ensure public television services are universally available to the American public. It is time to do so again. An amendment to the Copyright Act this year to ensure these set-aside channels are put to good use is consistent with that longstanding policy.
In proposing to expand the existing satellite compulsory license to permit nationwide retransmission by DBS providers, PBS could offer satellite feeds nationwide while insuring appropriate compensation for rights holders. Those served and unserved households under the Copyright Act could obtain the PBS services without the need for PBS to engage in costly and difficult renegotiations of existing program agreements.
Congress should extend this compulsory license to permit the retransmission of new PBS programming services by DBS, services such as ''ready to learn'' services for preschool children, telecourses for adults and other services. There is a wealth of material that PBS and public television can provide to viewers, to all its viewers.
DBS is a technology that could have an enormous impact in helping the nation reach its educational goals by ensuring that viewers, teachers and students, have convenient and affordable access to new and improved learning opportunities in educational programming. I am here to ask you to create the synergy between PBS and DBS so we can recognize their full potential.
Let me leave you with this thought. The average American household watches 7 hours of television every day. Most children spend 25 hours a week in the classroom and 20 hours a week in front of a television set. I know that we all want some of that time to enrich, educate and enlighten those who watch television, regardless of how they choose to receive their service. Your support of this proposal will help make that happen.
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[The prepared statement of Mr. Howe follows:]
PREPARED STATEMENT OF TOM HOWE, DIRECTOR AND GENERAL MANAGER, UNIVERSITY OF NORTH CAROLINA CENTER FOR PUBLIC TELEVISION, ON BEHALF OF THE PUBLIC BROADCASTING SERVICE
Good morning. I am Tom Howe, Director and General Manager, University of North Carolina Center for Public Television and member of the Board of Directors of the Public Broadcasting Service. I appreciate the opportunity to participate at this hearing and to express my views on the critical issues that are currently before the Congress. I will provide a brief overview of public broadcasting, and then highlight PBS's proposals for compulsory licenses relating to direct broadcast satellite (DBS) technology.
II. OVERVIEW OF PUBLIC BROADCASTING
PBS is a nonprofit membership corporation whose 173 members are licensed to operate virtually all of the nation's public television stations. PBS also represents all public broadcasting claimants in compulsory license rate-setting and royalty distribution proceedings before the Library of Congress.
Public broadcasting was created with two missions in mindone focused on programming services, the other focused on using technology to advance education. More than 40 years ago the nation's policy makers realized that television was the most powerful communications medium yet devised. Building on the tradition of a nationwide system of land grants dedicated to public education, which led to land grant colleges and universities, a third of the country's broadcast spectrum was reserved for noncommercial educational purposes in the 1950's. Public broadcasters were entrusted with the responsibility of adapting this then-new and potent technologytelevisionto educational purposes. Their mandate was to serve communities across the country by providing informational, educational and cultural programming not available on commercial media.
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Public broadcasting is unique in its noncommercial status and its corporate and public service mission to make educational and cultural programs available to a wide audience. Congress has repeatedly found this programming important because the economic realities of commercial broadcasting do not permit widespread commercial production and distribution of educational and cultural programs.
Today, PBS and its member stations distribute a rich variety of educational programming to the public and to educational institutions using several distribution means. The core service is PBS's National Program Service, which is distributed by satellite for broadcast by PBS member stations, as well as directly by DBS services to areas unserved by local broadcast stations. A related broadcast offering is PBS's Ready to Learn Service, an educational service offered in day care centers across the country that helps prepare preschoolers to enter kindergarten ''ready to learn.''
But public broadcasting is more than a broadcast service. The nation's number one source of classroom programming, PBS reaches 30 million students in kindergarten through 12th grade and 2 million teachers in 70,000 schools, offering a diverse mix of programming designed with specific learning objectives in mind. PBS is the world's leader in college telecourses; over 2.6 million adults have earned college credit through the PBS Adult Learning Service. PBS's popular distance learning courses are offered by broadcast, cable, satellite and video-cassette and disc, and through the PBS ONLINE Website. PBS is now developing a number of professional development services for teachers using a mix of distribution media. PBS ONLINE, PBS's award-winning Internet service, is widely recognized for its superlative educational depth and ease of use.
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A technical leader, PBS was the first to develop closed captioning for the hearing impaired, descriptive video services for the visually impaired, stereo television services, and to transmit television programming by satellite. PBS is now at the forefront of the development of advanced digital television.
III. PUBLIC POLICY RELATING TO PBS
Over the years, Congress, various Administrations, the Copyright Office and the Federal Communications Commission have recognized the unique mission of public broadcasting by enacting many existing laws and regulations, including preferences, exemptions and compulsory licenses still in place today. These include:
Compulsory copyright licenses to use published nondramatic musical and pictorial, graphic and sculptural works, and exemptions for various educational uses, such as transmission of sound recordings and copies embodying performance of nondramatic literary works (17 USC 118(d), 114(b) and 112(d)).
Must-carry requirements for cable services to carry public television signals.
The Cable Act requirement that DBS providers set aside 47% of channels for noncommercial educational and informational programming.
A requirement that PBS maintain an unencrypted feed of its National Program Service so that it can be received by satellite home dish owners (without regard to any ''served'' versus ''unserved'' household distinction. See 47 U.S.C. 605(c)).
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Continued reservation of noncommercial educational spectrum for DTV.
Continued congressional funding of public broadcasting.
IV. PBS'S SATELLITE COMPULSORY LICENSE PROPOSAL
A. Background on Rights Clearances
Even those with a passing familiarity with the entertainment industry will understand why it is so difficult for PBS and its producers to clear the rights necessary to extend PBS's services to the public through new media and means of distribution. Every program includes a variety of separate elements, usually owned by differing interests. For example, there are rights in the script, in the music, in visual arts included in the program, in stock footage, in music composition and in music recordings. PBS is continuing the difficult process of clearing all of the rights to each of its programs for DBS use, but PBS believes that a carefully-crafted compulsory license is the best way to assure that public television programming is distributed, under the FCC's set-aside rules, to all DBS subscribers. PBS estimates that it will take an additional two to three years to clear all the rights to its National Program Service without such a mechanism.
PBS and its member stations understand why commercial entities prefer to negotiate licenses in the commercial marketplace it provides perhaps the most efficient means of establishing the value of a property and is apt to produce the greatest financial return. Public broadcasters, however, by definition, do not operate in that marketplace. They are nonprofit, educational institutions with a public service mission. Compulsory licenses are best suited to address just this kind of situation while assuring appropriate compensation to rights holders.
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B. Existing Cable and Satellite Retransmission Licenses
In PBS's view, the existing cable and satellite compulsory license schemes should be retained; they are efficient, and facilitate both the distribution of programming and the full development of these technologies. In the absence of a compulsory license, each retransmission by cable and satellite of PBS programs would require expensive, time-consuming, multi-party negotiations, undoubtedly eliminating some programming because the cost of clearing the rights would be too high.
The compulsory licenses are particularly important to PBS in view of Congress's goal of universal access to public broadcasting services, which these compulsory licenses facilitate.
C. Congress Should Expand or Create a Compulsory License to Apply to PBS's National Program Satellite Service
As further described in Attachment A, ''Proposal of PBS to Amend the Copyright Act to Permit Further Distribution of PBS Programs by Satellite,'' PBS proposes to expand the existing satellite compulsory license to permit nationwide retransmission by DBS providers of PBS's National Program Service.
This proposal would permit PBS to offer a DBS provider a PBS satellite feed that could be retransmitted nationwide, while ensuring appropriate compensation for rights holders. As a result, both served and unserved households could obtain the PBS service from their DBS provider without the need for PBS to engage in costly and difficult renegotiations of existing program agreements.
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One method to accomplish this would be to amend current Section 118, which already provides a compulsory license for the use of certain works by public broadcasters. Alternatively, Congress could amend Section 119 to cover these services.(see footnote 1)
In its Report to the Senate Judiciary Committee dated August 1, 1997, the U.S. Copyright Office recommended that the PBS national satellite service be exempt from the ''unserved household'' restrictions of Section 119 as one means of accomplishing this same goal. PBS participated fully in the Copyright Office proceedings that led to this Report. PBS's proposals to the Copyright Office attracted virtually no comment from other interested parties and appear non-controversial.
Revision of the satellite compulsory license will help ensure that DBS providers can comply with their set-aside obligation under the Communications Act for noncommercial educational and informational programming and provide access to PBS's services to DBS viewers. In view of the unique nature and mission of public broadcasting, passage of the proposal would not constitute a precedent for similar treatment of commercial programming.
D. Expand Compulsory Licensing to Other PBS DBS Services
To further facilitate the FCC set-aside obligations of DBS providers, Congress should also extend the compulsory license regime to permit DBS providers to retransmit new PBS DBS programming services (e.g., Ready to Learn service for pre-school children, instructional programs intended for teachers and students at school and home), as well as programming from other public broadcasting sources.
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Improving education is a top priority of national and state policy makers, parents and businesses. DBS is a technology that could have an enormous impact in helping the nation reach its educational goals by ensuring that teachers and students have convenient and affordable access to new and improved learning opportunities. Public broadcasting has tremendous expertise in distance learning and extensive curriculum resources that could be made more accessible to millions of learners through DBS.
Access to these pioneering services could be extended significantly through DBS. Establishing a compulsory license to permit retransmission of this and similar programming is particularly important because it would help fulfill PBS's mission to make educational content available to a wide audience while also ensuring that DBS providers can comply with their new set-aside obligations.
E. Station Support
The Copyright Office's recommendation concerning the PBS proposal relied upon an assumption that PBS members would support such a change. Since that time, PBS has taken several steps to confirm that support. First, PBS sponsored a detailed survey of all 178 public television licensees. The survey revealed that approximately two-thirds of the membership supported the immediate expansion of compulsory licensing to national PBS DBS services (about 10% of the membership was undecided and a minority was opposed). Then, just last week, the PBS proposal was put to a formal vote at the PBS annual membership meeting in Washington, D.C. The official tally showed 114 of 121 station representatives voted in support of PBS's efforts in this area. Thus, 94% of stations now support the PBS proposal and favor immediate action.
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PBS recognizes that the interests of rights holders must be protected in order to encourage the continued creation of programming for television. It is likewise important to ensure that the public has the benefit of noncommercial applications of new technologies, particularly for educational purposes. A limited expansion of compulsory licenses directed specifically at enabling widespread distribution of public broadcasting programming through DBS technologies, and subject to compensation for such distribution, reflects an appropriate balance of the interests of rights holders and the public interest.
Thank you for your time. I would be happy to answer any questions you may have.
Proposal of the Public Broadcasting Service To Amend the Copyright Act To Permit Further Distribution of PBS Programs by Satellite
The Public Broadcasting Service (''PBS'') is seeking an amendment to the Copyright Act that is of major importance to public television and its viewers. The proposed change would permit public television to offer additional direct broadcast satellite (''DBS'') services on a national basis, thereby preserving public television's universal reach, earning new revenues for its member stations, and preserving local and national services. As discussed below, it is essential that the amendment be enacted this year in order for public television to be in a position to offer programming to satisfy the congressionally mandated DBS set-aside.
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A. PBS Initiative to Provide a DBS Service. The Satellite Home Viewer Act of 1988 requires PBS to maintain an unencrypted ''feed'' of its National Program Service (''NPS'') to satellite home dish owners. 47 U.S.C. §605(c). For many years, PBS maintained this free service on a single C-band satellite transponder, but in 1995, partly in response to the uncertainty over continued federal funding, PBS began to explore the possibility of offering it to the new generation of DBS operators. PBS first reached agreement with DIRECTV, the industry leader, to provide such a service and has since reached similar agreements with other DBS providers. Each of these agreements authorizes DBS providers to offer the PBS national feed to ''unserved households'' only (as defined in the Satellite Home Viewer Act, 17 U.S.C. §119). The service has proved very popular with satellite viewers.
B. The DBS Noncommercial Reservation. In 1992, at the request of public television, Congress reserved 47% of DBS channel capacity exclusively for noncommercial educational and informational programming. In 1996after four years of litigationthe Court of Appeals upheld this noncommercial reservation on DBS. In April, 1997, public television filed comments at the FCC to assure maximum access to the reserved DBS capacity. The FCC is expected to issue rules to implement the set-aside later this year.
II. THE PBS/DBS PROPOSAL
At the end of the last legislative session, PBS sought an amendment to Section 119 of the Copyright Act to provide a nationwide compulsory license to permit the use of PBS's national satellite service by DBS providers. Although raised too late in the session for consideration, the amendment gained broad support.
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PBS subsequently filed extensive comments at the Copyright Office proceeding instituted by Senator Hatch reiterating the 1996 proposal and advocating further that a compulsory license be created to cover new satellite ''feeds,'' including distance learning programs, that could be used to ''program'' the DBS set-aside channels. The DBS medium, through the set-aside, offers exciting new opportunities to distribute instructional and educational materials, programming that has for the most part been previously unavailable to the general public. Although PBS continues to ''clear'' DBS rights to individual programs, a compulsory license is the most efficient way to provide a full complement of services to the public.
The Copyright Office, in its report dated August 1, 1997, acknowledged PBS's 1996 legislative proposal by recommending that the PBS national satellite service be exempt from the ''unserved household'' restrictions of Section 119. PBS's proposals before the Copyright Office attracted virtually no comment from other interested parties and appear non-controversial.
III. REASONS FOR THE PROPOSAL
PBS wishes to provide public television programming services that could be redistributed by DBS providers to all households in the United States. Such services would be structured in a way that would benefit both local stations and public television's producers (many of which are also member stations). The amendment would thus implement a simple vision that any American who wishes to receive television signals via satellite should be guaranteed ready access to the best programming public television has to offer.
Other major reasons for this proposal are as follows:
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A. FCC Action. PBS must act promptly to provide the educational satellite program services contemplated by the set-aside provision of the Communications Act; the set-aside is of limited practical value without the ability to clear all the necessary program rights. Without further action, an important opportunity for public television could be lost.
B. Universal Access. Universal access to public television, regardless of distribution technology, remains central to PBS's mission. A PBS/DBS service would ensure that every U.S. television household retains easy access to public television programs. (Once a viewer subscribes to a DBS service, they may be effectively lost to their local pubic television station because viewers often drop their cable service and then must go back to their conventional antennas to receive them.)
C. Revenue Potential. New and expanded services would provide much needed revenue to public television, while steps would be taken to protect local stations from any lost revenues, such as through re-distribution of any national ''on air'' pledge dollars.
D. ''White Area'' Problem. As indicated by the Copyright Office, a PBS/DBS service would eliminate the need for local stations to engage in expensive, time-consuming enforcement procedures to ensure carrier compliance with current ''white area'' restrictions of the Copyright Act.
E. National v. Local Identities. A PBS-branded national service has broader national appeal than nationally retransmitted local services. Local stations also prefer a national feed to the re-transmission of other local stations into their markets. If the DBS industry ever evolves so that re-transmission of local stations within their own market becomes technically and commercially possible (e.g., ASkyB), PBS agrees with the Copyright Office that this would eliminate certain problems under current law, but DBS program rights issues with respect to public television would still require Congressional action.
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IV. THE PROPOSED CHANGE IS CONSISTENT WITH EXISTING LAW
Over the years, Congress has enacted many laws that demonstrate its longstanding commitment toward ensuring that public broadcasting services are universally accessible to the American public. These include, most recently, cable ''must carry'' legislation and the DBS set-aside. When Congress adopted the Public Broadcasting Act of 1967, it declared that ''it is in the public interest [both] to encourage the growth and development of nonbroadcast telecommunications technologies for the delivery of public telecommunications services . . . [and] for the Federal Government to ensure that all citizens of the United States have access to public telecommunications services through all appropriate available telecommunications distribution technologies.'' 47 U.S.C. §396(a) (2) and (9). Enactment of this amendment to the Copyright Act would complement that ongoing commitment in the Communications Act.
Congress also acknowledged the benefit of the services provided by public broadcasters in the copyright laws when it enacted various existing preferences, exemptions and compulsory licenses. These provisions include, for example, Section 114(b) (creating a right of public broadcasting entitles to transmit sound recordings) and Section 118(d) (creating a compulsory license for public broadcasting entities to perform nondramatic musical works). These provisions remain critically important to the public broadcasters, but have not been updated for over 20 years.
Page 41 PREV PAGE TOP OF DOC PBS is continuing the process of clearing all of the rights for national satellite services, but PBS believes that a compulsory license under the copyright law is the best way to provide public television programming to DBS providers. Without such a license, it will be very difficult for public television to take full advantage of the set-aside for DBS noncommercial channels; we estimate it will take an additional three years before the National Program Service would be available. PBS seeks limited copyright protection that would enable it to offer DBS services to all Americans.
Mr. COBLE. Thank you, Mr. Howe.
STATEMENT OF JAMES F. GOODMON, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CAPITOL BROADCASTING COMPANY, INC.
Mr. GOODMON. Good morning. I am Jim Goodmon, president of Capitol Broadcasting Company, headquartered in Raleigh, North Carolina. We operate television stations in Raleigh and in Charlotte, and I am pleased to say that we put on the air in Raleigh the first high definition television station in the United States, and you are looking at the biggest supporter of HD in the country. Doesn't have anything to do with what we are talking about, but I wanted to say that.
I am also proud to say I am a member of the Gore Commission, and I am looking forward to looking at the public interest responsibilities of broadcasters, digital broadcasters, as we move ahead into the digital future.
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I wanted to expand on 2 or 3 points in my written submission. We are a broadcasting company, and we were looking at the notion of putting local signals on satellites, to be retransmitted on satellite for reception in the local markets. We said to ourselves, if everything could happen like we wanted it to happen, what would the criteria be for this system? And we established four. This is from the broadcaster's perspective. We are a broadcasting company.
First and very importantly, all stations. It just would not be right for someone to come in and pick one or two stations in the market. I mean, if a satellite provider is in the market, it should be all stations including the public stations. The Public Broadcasting System is a very important part of our free over-the-air system, so our notion is it should be all stations.
The second notion is all markets. The concept of just picking some markets here and there to do that doesn't make much sense to us, so that is the second one.
The third notion is that our service should be available to all DBS providers. In other words, we don't think it is going to work for each provider to have their own local DBS retransmission. We are talking about 1,600 stations. So the notion is that our service would be made available to all the DBS providersall stations, all markets, all DBS providers.
And then the fourth issue is that the local stations will be compensated for their signals. Now this doesn't happen very often, but we set our design criteria for the system and we have been able to do it. So what we have is the technical plan to do just what I said: all stations, all markets, available to all DBS providers. The technical details are in the system. In the presentation I would be glad to talk about them.
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I wanted to mention our timetable. There is about a 30-month construction cycle on satellites. Our notion is we would like to order these satellites in May.
In order for this project to move forward, we need compulsory copyright. Our notion about that is that it should be very much like ''must carry,'' in that the notion is, any satellite retransmission of a local signal in the market, you got to do all the stations in the market. So we need ''must carry'' to do that, and I think we can move ahead with our project.
We have talked to the DBS providers, we talked to the stations, we met with the NAB, the MSTV, we have talked with the networks. It is not often you get a win-win-win. This is win for consumers.
Now remember, the biggest problem the DBS providers have is, they don't have local stations. Eighty-five percent of the people that don't buy DBS say they didn't buy it because there are no local stations. So what we are doing is creating real competition for cable, so this I think is a significant consumer issue; this is good for the consumer, it is good for broadcasters. We would like to have our signals in those homes on a digital basis, and this is really good for the DBS providers. So I put this in the win-win-win column.
Thank you very much. Did I go too fast?
[The prepared statement of Mr. Goodmon follows:]
PREPARED STATEMENT OF JAMES F. GOODMON, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CAPITOL BROADCASTING COMPANY, INC.
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Good morning, and thank you for inviting me to appear at today's hearing. I am James F. Goodmon, President of Capitol Broadcasting Company, Inc., and I have recently been appointed to President Clinton's Advisory Committee on Public Interest Obligations of Digital Broadcasters. My family has been in the broadcast business since 1937. Capitol Broadcasting Company is proud to be a part of the broadcasting industry, and has grown over the years along with the industry. Last year, we were the first broadcaster in the nation to receive an authorization for an experimental high definition television station from the Federal Communications Commission. The high definition television station operates as WRALHDTV.
Today, Capitol Broadcasting Company is a diversified communications company that owns and operates broadcast stations WRALTV and WRALFM in Raleigh, North Carolina, and WJZYTV in the Charlotte, North Carolina market. In addition to its radio and television stations, Capitol Broadcasting Company also has a number of subsidiaries that are engaged in other innovative communications services. Our subsidiary, Microspace Communications Corporation, is the largest provider of broadcast data and audio satellite services in the world. Other subsidiaries include Capitol Information Services, Inc., which provides high-speed connections to the Internet and graphic design services for Internet sites, and Capitol Sports Network, which provides play-by-play coverage of college football and basketball games, coaches' shows, and NFL and NASCAR coverage. Capitol Broadcasting Company also owns two minor league baseball teams. One of the teams, the Durham Bulls Baseball Club, Inc., will become a AAA affiliate of the Tampa Bay Devilrays in 1998. On September 6, 1997, WRALHDTV broadcast the first college football game in digital television via satellite.
With Capitol's experience in broadcasting and satellite services, we have recognized the need to provide DBS subscribers with local television stations on their DBS reception systems. In its Report on Retransmission of Broadcast Signals (August 1, 1997), the Copyright Office stated that it ''recogniz[ed] . . . that the technology for retransmitting local signals via satellite is not widely available.'' My primary purpose today is to inform you that the technology is here. ''Local TV on Satellite'' is our plan to distribute via satellite all over-the-air, full power, commercial and noncommercial television stations within a given station's designated market area (''DMA''), as defined by Nielsen.
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We intend to make available to Direct Broadcast Satellite (''DBS'') providers, such as DirecTV, USSB, PrimeStar, and EchoStar, the opportunity to market a local station package to consumers located within those stations' DMAs. Local television stations that choose to participate in our plan will be compensated for making their broadcast signals available for rebroadcast. Local TV on Satellite will combine local television stations into a market-by-market package for distribution to the DBS providers. The DBS providers will include individual market packages within their programming services and the particular local station signals made available to a subscriber will be determined by the subscriber's address.
Our engineers have developed a technical plan, using spotbeam technology, that will enable Local TV on Satellite to be operational in the year 2000. We would operate a satellite in the Ka-band which would provide coverage to the continental United States, Hawaii, and Alaska, and would be served by 61 spot beams, each spot beam being directed to a different part of the United States. We intend to locate the satellite at an as yet undefined orbital slot between 101 and 119 and we anticipate a satellite with a 12-year life. We plan for 159 regional sites from which stations located in the same geographic area would be uplinked. Under our plan, consumers will be able to receive all of the current DBS signals, as well as, the local television signals with one 24-inch dish.
We have issued our Request for Quotations (''RFQs'') to manufacturers for construction of the satellite and its sub-systems, and are currently reviewing the responsive RFQs with our selection expected to be made in early 1998. In addition, at the same time, we are directing significant attention to developing a sound business plan to permit this project to be brought to fruition in the most expedient manner. Again, we expect Local TV on Satellite to be operational by the year 2000. At that time, Phase I of Local TV is expected to accommodate 1700 NTSC signals and HDTV prime time and special event network feeds.
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I would like to note at this time that while we will need legislation to get this project ''off the ground,'' I am not here today for the purpose of presenting legislation or seeking legislation. We are developing the specific legislation that we believe to be necessary and intend to submit the proposed legislation at the commencement of the next Congressional session in January 1998. We are mindful of your busy schedules but will seek passage of the legislation at that time.
We have shared our plan with the DBS and broadcast industries in order to confirm the need for our project, as well as to determine that we could achieve sufficient interest by broadcasters in making their signals available for this purpose and DBS providers in marketing local signals. We have discussed our project with each of the current high-powered DBS providers. And, we have made presentations to The Association for Maximum Service Television, Inc. (''MSTV'') and The National Association of Broadcasters (''NAB''), as well as many television group owners.
We believe our project is unique because we plan to carry ALL full-powered television stations in ALL markets. We, as well as, many other broadcasters believe it is imperative that, if one station within a market is carried by a satellite provider, then all stations within that market must be carried. Our plan to carry ALL television stations in ALL markets is consistent with the comments submitted by The Network Affiliated Stations Alliance (''NASA'') and the NAB in the proceedings on retransmission of broadcast signals before the Copyright Office. In its comments, NASA stated ''no changes should be made in the copyright statute for extension of the compulsory license to satellite companies unless it is accompanied by a statutory must carry requirement.'' NASA Comments at 27. Similarly, NAB said ''Congress could condition the availability of a compulsory license for the satellite retransmission of television stations into their local markets on the carriage of all stations licensed to the market.'' NAB Comments at 11.
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Finally, from a public policy standpoint our plan is good for consumers because it will give them more choices in the multichannel video programming distributors' (''MVPD'') marketplace. Our plan, in keeping with Congress' intention, will make DBS fully competitive with cable on a nationwide basis because we intend to provide ALL local television stations in ALL markets. Indeed, market research shows that the primary obstacle for DBS in competition with cable is the lack of local television signals on DBS. Our plan solves this problem. Furthermore, our plan will enable DBS subscribers to receive local originated programming such as local weather, local news, local sporting and charity events, and public affairs programming, all of which serve the public interest.
I thank you for having given me the opportunity to tell you about Local TV on Satellite and I would be pleased to answer any questions at this time.
Mr. COBLE. You beat the red light. I commend you for that.
STATEMENT OF STEVEN J. COX, SENIOR VICE PRESIDENT, DIRECTV, INC.
Mr. COX. Good morning, Mr. Chairman. Thank you for inviting DIRECTV to participate in today's hearing. The subcommittee's review of the copyright licensing regimes for the retransmission of over-the-air broadcast signals is of extreme importance to DIRECTV and the entire DBS industry. It is particularly timely in light of the Librarian of Congress' order on Monday adopting a startling increase in copyright fees paid by satellite carriers to distribute superstation and network programming.
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On Monday, despite the opposition of more than 60 Members of Congress, including some members of this subcommittee, the Librarian of Congress adopted an arbitration panel's recommendation that these fees be increased to 27 cents. As Congressman Boucher indicated in his opening remarks, this rate is 9 times more than cable's rate for the same programming. Unless overturned by Congress, this action will result in a rate increase for 7.5 million U.S. households who subscribe to satellite television, in direct contradiction of the intent of Congress to give consumers a choice of video providers at competitive rates.
The satellite carriers will file today with the Librarian of Congress a motion for a stay of the order, in order to give Congress sufficient time to examine the effect on video competition which will result from this truly stunning increase. Ultimately, we hope that Congress will intervene and impose rates comparable to those paid by cable operators.
This recent decision confirms that the current royalty-setting process does not work. Again consistent with Congressman Boucher's opening statement, DIRECTV recommends that satellite royalty rates be calculated according to a straightforward statutorily imposed rate, as is the case with the cable compulsory license.
While the Library of Congress' order adopting this rate increase clearly has created a critical situation, there are other issues in which we wish to bring to the subcommittee's attention.
We would urge Congress to make the satellite carrier license permanent, like cable's, by eliminating the sunset day of December 31, 1999. In addition, the satellite license needs to be revised so as to place DBS providers on a more equal footing with their cable competitors, who currently drive competitive advantages from the terms of the cable compulsory license.
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Much controversy has surrounded the current ''white area'' restriction. It has become increasingly clear that this has resulted in significant frustration and confusion for satellite carriers, local network affiliates and, most importantly, satellite consumers. As a result, we believe that the ''white area'' restrictions must be modified, and while there may be a reasonable debate about the extent and nature of the modifications required, we would urge Congress in considering this important issue to be guided by 3 overriding objectives.
First, to perhaps state the obvious, the law must be fair. That is, it must strike a fair balance between the legitimate economic interests of satellite carriers and network affiliates.
Second, it must be simplified. Subscriber eligibility to receive network programming must be both easily understood by consumers and easily applied and monitored by carriers and networks.
Third and most importantly, it must be pro-consumer. The law must recognize the right of all consumers to receive network programming, ideally as delivered by their local broadcast affiliate, but ultimately through a distant network signal as required to ensure broad access to this critical segment of information and entertainment.
We do support the surcharge concept recommended by the Copyright Office, pursuant to which the ''white area'' restriction would be eliminated and replaced by a system providing for a differentiated copyright fee designed to compensate local network affiliate broadcasters for the limited loss of viewership distant network signals. While we believe this approach addresses each of the 3 criteria I outlinedfairness, simplicity and assured access to network programmingthere may well be other approaches which adequately advance these same objectives. DIRECTV remains open to working with the broadcast community and Congress to find an appropriate pro-consumer accommodation of all interests at stake.
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If the ''white area'' restriction is maintained, DIRECTV has a number of suggestions that will make that provision less anticompetitive and more consumer friendly.
First, the definition of ''unserved household'' should be changed to eliminate the provision requiring a cable subscriber to drop a subscription and wait 90 days before subscribing to a DBS program package offering distant network signals. This provision is anticompetitive, and merely delays service to consumers in rural and other unserved areas.
Second, regardless of any changes made to the ''white area'' restriction, existing satellite service subscribers should be permitted to continue receiving distant network signals for as long as they remain at their current residence. Such a grandfathering of existing subscribers would have negligible economic impact on broadcast network affiliates, and would alleviate significant customer service and public relations problems for local broadcast affiliates and satellite carriers alike.
Finally, to the extent that the ''white area'' restriction remains in place, DIRECTV believes that it must be re-addressed with the introduction of digital broadcast television. Because of the ''cliff effect'' that characterizes the digital signal, there will be no issue with respect to picture quality or Grade B contour measurement in the digital environment. This signal either will be received clearly by a subscriber or it will not be received at all.
The revisions I have outlined are extremely important for continuing the vibrant growth of the still emerging DBS industry and will advance the public interest in the development of robust video competition. Finally, I hope we can count on your support to prevent the implementation of the inequitable satellite copyright fee increase.
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[The prepared statement of Mr. Cox follows:]
PREPARED STATEMENT OF STEVEN J. COX, SENIOR VICE PRESIDENT, DIRECTV, INC.
The Subcommittee's review of the copyright licensing regimes for the retransmission of over-the-air broadcast signals is of extreme importance to DIRECTV and the entire DBS industry. It is particularly appropriate and timely in light of the Librarian of Congress' decision to uphold an arbitration panel's recommendation of a startling and wholly unjustified increase in copyright fees for the retransmission of superstation and broadcast network affiliate signals to satellite television homes.
The satellite compulsory license has been enormously significant to DBS providers such as DIRECTV. The license remains necessary to alleviate the enormous copyright clearance burden that otherwise would be experienced by DBS providers in its absencea particularly onerous burden for start-up competitors to cable incumbents.
However, Section 119 also has been responsible for disadvantaging DBS providers in the MVPD marketplace: First, since the license's creation, satellite carriers have paid copyright fees significantly higher than those paid by cable operators and other MVPD competitors for the exact same broadcast signals. Second, unlike cable operators, which have no restrictions on their ability to offer broadcast signals to their subscribers, DBS providers are precluded from offering network affiliate signals to their subscribers in most areas of the country. These unfair and anti-consumer disparities should be remedied so as to place DBS operators on a more equal footing with their entrenched cable competitors.
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Despite the opposition of more than 60 Members of Congress, the Librarian of Congress adopted a recommendation that satellite carriers pay 27 cents per subscriber/per month for superstation and network signals. At the 27 cent rate, satellite will be paying almost 270% more than cable for the exact same superstations and 900% more than cable for the exact same network signals. Unless overturned by Congress, this action will result in a rate increase for 7.5 million U.S. households who subscribe to satellite television and have a detrimental effect on the ability of DBS operators to compete with cable.
DIRECTV also recommends that:
the current royalty-setting process be replaced by a statutory provision which sets rates for satellite carriers at the same level as those paid by cable operators;
the satellite compulsory license remain separate, but be made permanent;
the ''white area'' restriction be modified to make it fairer, simpler and assure consumers' access to network programming;
Section 119 be changed to eliminate the provision requiring a cable subscriber to drop his or her cable subscription and wait 90 days before he or she can subscribe to a DBS program package offering distant network signals;
Page 53 PREV PAGE TOP OF DOC existing satellite subscribers be permitted to continue receiving distant network signals for as long as they continue to reside at the residences they occupy regardless of any statutory change; and
the ''private home viewing'' qualification be deleted from Section 119.
Thank you for inviting DIRECTV to participate in today's hearing. The President of DIRECTV, Eddy Hartenstein, asked me to apologize to you for his inability to be here today. I appreciate you allowing me to pinch hit.
The Subcommittee's review of the copyright licensing regimes for the retransmission of over-the-air broadcast signals is of extreme importance to DIRECTV and the entire direct broadcast satellite (''DBS'') industry. It is particularly appropriate and timely in light of the Librarian of Congress' decision on Monday to uphold an arbitration panel's recommendation of a startling and wholly unjustified increase in copyright fees for the retransmission of superstation and broadcast network affiliate signals to satellite television homes.
DIRECTV is the leading provider of DBS services in the United States. DIRECTV initiated its DBS service in late 1994, and currently delivers more than 175 channels of all-digital, quality entertainment, educational and informational programming to homes and businesses equipped with the DSS system, which features an 18-inch satellite dish antenna. With the additional programming available from U.S. Satellite Broadcasting SM (USSB), another DBS provider utilizing the same satellite platform, consumers using the DSS system have a choice of more than 200 channels of programming.
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Although the multichannel video programming distributor (''MVPD'') industry in which DIRECTV competes continues to be dominated by cable operators in most local markets,(see footnote 2) DIRECTV nevertheless has experienced tremendous growth since its inception, and currently serves in excess of 2.9 million subscribers nationwide. The Federal Communications Commission recently determined that DBS providers have a higher combined subscribership than any other MVPD alternative to incumbent cable systems.(see footnote 3)
The compulsory copyright license created by Congress in the Satellite Home Viewer Act (''SHVA'') of 1988, and renewed in 1994,(see footnote 4) has been enormously significant to DBS providers such as DIRECTV. The license has been and remains absolutely necessary to alleviate the enormous copyright clearance burden that otherwise would be experienced by DBS providers in its absencea particularly onerous burden for start-up competitors to cable incumbents.
However, Section 119 also has been responsible for disadvantaging DBS providers in the MVPD marketplace: First, since the license's creation, satellite carriers have paid copyright fees significantly higher than those paid by cable operators and other MVPD competitors for the exact same broadcast signals.(see footnote 5) Second, unlike cable operators, which have no restrictions on their ability to offer broadcast signals to their subscribers, DBS providers are precluded from offering network affiliate signals to their subscribers in most areas of the country. These unfair and anti-consumer disparities should be remedied so as to place DBS operators on a more equal footing with their entrenched cable competitors.
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The CARP Decision Must Be Overturned
A Copyright Arbitration Royalty Panel (''CARP'') recommended in late August a precipitous and wholly unjustified increase in satellite copyright fees for the retransmission of superstation and broadcast network affiliate signals to satellite television homes. On Monday, despite the opposition of more than 60 Members of Congress, the Librarian of Congress adopted this recommendation. Unless stayed or overturned by Congress, this action will result in a rate increase for 7.5 million U.S. households who subscribe to satellite television and have a detrimental effect on the ability of DBS operators to compete with cable.
In accordance with the SHVA, satellite carriers pay copyright fees to a royalty pool maintained by the U.S. Copyright Office for the right to retransmit superstation and network affiliate signals to consumers. The fees are used to compensate owners of the copyrighted programming carried on those retransmitted signals.
The SHVA stipulates that satellite copyright rates are to be determined through negotiations between the satellite carriers and the copyright owners. If negotiations are not successful, as in this case, a CARP is convened to conduct a mandatory arbitration. The satellite carriers' current rates are 14 cents per subscriber/per month for each superstation signal, and 6 cents per subscriber/per month for each network signal. The CARP recommended that the new satellite fees should be 27 cents for all signals, and the Librarian of Congress has adopted that recommendation.
Cable operators also pay copyright fees to a royalty pool, but those rates are determined by statute rather than by arbitration. Cable's rates are dramatically lower than satellite's, an average of 9.7 cents for superstations and 2.7 cents for network signals. At the 27-cent rate, satellite will be paying almost 270% more than cable for the exact same superstations and 900% more than cable for the exact same network signals. This enormous disparity in the copyright fees paid for the same signals will result in rate increases to satellite subscribers, which in turn will have a negative impact on competition between cable and satellite. This result directly conflicts with the intent of Congress to give consumers a choice of video providers at competitive rates.
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Although we are gratified that the Librarian rejected the CARP's recommendation that the fee increase be retroactive to July 1, 1997 and instead set a January 1, 1998 effective date, the satellite carriers intend to file with the Librarian of Congress a motion for a stay of the Order adopting the fee increase. We will ask the Librarian to delay the effective date of the rate increase so as to give Congress sufficient time to examine the effect on video competition which will result from this outrageous fee increase and to consider changes to the SHVA that would ensure a less arbitrary and more consumer friendly result. Ultimately, we hope that Congress will act to overturn this inequitable rate increase and impose instead rates comparable to those paid by cable operators.
The Royalty-Setting Process Should Be Reformed
This recent CARP decision confirms that the current royalty-setting process does not work, and should be replaced by a statutory provision which sets rates for satellite carriers at the same level as those paid by cable operators. There simply is no justification for establishing different fees for satellite carriers and cable operators to distribute the exact same programming.
The present system of voluntary negotiation and subsequent arbitration is time-consuming, costly, inefficient and unpredictable. Subjecting copyright royalty rates to the uncertainty of the arbitration process has had a real impact on the business planning of satellite carriers, which must rely on the rates to make decisions concerning the programming they can and will carry, as well as the prices they will charge for that programming. To date, rates have never been successfully negotiated within the time periods set forth in the statute, and carriers have ended up in costly, time-consuming arbitration proceedings.
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Because the current Section 119 approach to rate-setting hinders competition, DIRECTV believes that a simpler, statutory solution should be implemented. DIRECTV recommends that Section 119 royalty rates be calculated according to a straightforward statutorily-imposed rate, as is the case with the cable compulsory license under Section 111. In any event, in extending and making permanent the Section 119 license, Congress should end the cycle of periodic review and adjustment of royalty rates that has accompanied the two previous Congressional extensions of the license, which, as mentioned, have been a hindrance to efficient business planning by DBS operators. To the extent that rates must be adjusted, Congress can provide appropriate adjustments in the statutory fee calculation.
While this recent CARP decision and the Librarian of Congress' Order upholding it clearly have created an urgent situation, there are many other SHVA-related issues which we wish to bring to the Subcommittee's attention.
The Need For A Satellite Carrier Compulsory Copyright License
A fundamental issue is whether there continues to be a need for a system of compulsory copyright licensing at alleither one resembling the current regime, featuring separate licenses for cable and satellite providers, or a new consolidated mechanism that would apply to all MVPDs. DIRECTV believes that the preservation and permanent extension of a Section 119 compulsory license is vital to the continued growth of the DBS segment of the MVPD industry.
All of the programming carried by local broadcast stations today is subject to U.S. copyright laws and requires the permission of the copyright holder for any retransmission. For the ''network'' programming portions of the broadcast day, the local broadcast affiliate obtains the requisite copyright clearances from the network (e.g., NBC for ''Seinfeld''), but the grant from the network to the affiliate is limited to broadcastand not satellitetelevision rights; in fact, in most instances, the networks have not obtained satellite rights from program producers, and could not grant them to the affiliate even if the network wished to do so. For the local syndicated programming portion, the affiliate again generally has not obtained satellite distribution rights from the syndicator (e.g., King World for ''Wheel of Fortune'').
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Section 119 currently provides satellite carriers with a license to retransmit programming broadcast by U.S. television stations for ''private home viewing'' by satellite subscribers without violating the copyrights of the owners of the programming.(see footnote 6) For purposes of Section 119, broadcast stations are broken down into two categories: ''superstations'' and ''network stations.'' The primary impact of this distinction is that the Section 119 license for network stations covers service only to so-called ''white areas,'' i.e., areas where subscribers cannot receive local broadcast signals using a conventional rooftop antenna and are not receiving local signals through subscription to a local cable affiliate.(see footnote 7)
To the extent that a satellite carrier wishes to carry broadcast
signals, there would be an enormous copyright clearance burden placed on that carrier in the absence of a compulsory license. The satellite carrier theoretically could be forced to negotiate with literally thousands of copyright holders for rights to retransmit copyrighted programming. In short, market conditions warrant preservation of compulsory copyright licensing now more than ever.
The Satellite Carrier Compulsory License Should Be Made Permanent
As stated previously, DIRECTV believes that the continued existence of a compulsory license for satellite carriers is essential to the continued development of DBS as the most promising MVPD competitive alternative to cable television. To this end, DIRECTV urges Congress to make the Section 119 satellite carrier license of indefinite duration, and cease to subject the license to repeated five-year sunsets and renewals. The Section 111 compulsory license for cable operators is a permanent license, and stands as an implicit recognition that no suitable alternative licensing mechanism exists or has been proposed to alleviate copyright clearance burdens while also accommodating the underlying rights of copyright holders. The satellite carrier compulsory license should be made permanent as well by eliminating the sunset date of December 31, 1999.(see footnote 8)
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The Satellite Carrier Compulsory License Should Remain Separate And Distinct
DIRECTV advocates the preservation of a separate compulsory licensing structure for satellite carriers. Satellite provision of video programming always has been fundamentally different from terrestrial delivery, primarily due to technological differences and the inherently national scope of satellite-based service. The present Section 119 compulsory licensing structure was created in recognition of this fact. Congress has recognized the distinction between cable systems and DBS providers elsewhere. Section 335 of the Communications Act,(see footnote 9) for example, imposes public interest obligations on DBS providers that are quite different from the requirements placed on cable operators and are tailored to the unique configuration of DBS service.
While it might be possible to create a single compulsory license for all MVPDs, DIRECTV believes that the public will be better served by the maintenance of a distinct compulsory licensing regime for satellite carriers. The present dual licensing structure has been in place for some time, and while it is in need of revision, DIRECTV does not believe that it should be displaced entirely. Congress should not apply a ''one-size-fits-all'' approach to compulsory licensing, given the important differences between satellite and terrestrial delivery systems.
Although the two licenses should remain separate, DIRECTV believes that the satellite license needs to be revised significantly so as to place DBS providers on a more equal footing with their cable competitors, who currently derive competitive advantages from the structure and terms of the Section 111 license.
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The ''White Area'' Restriction Should Be Modified
Much controversy has surrounded the network territorial provisions of the Section 119 regime, commonly known as the ''white area'' restriction. The satellite carrier compulsory license permits satellite carriers to retransmit network programming to the public for private home viewing. The geographic scope of the compulsory license, however, is quite limited. The current satellite carrier compulsory license allows satellite carriers to retransmit broadcast network signals only to subscribers who reside in unserved households. An ''unserved household'' is defined as one that cannot receive a signal of grade B intensity, using a conventional rooftop antenna, and has not subscribed within the previous ninety days to a cable system that carries the local network affiliate.(see footnote 10)
At the outset, it is important to note that the vast majority of MVPD consumers want their local news, sports and weather, as provided by their local network affiliate. Thus, DIRECTV strongly believes that the winning combination for consumers, network affiliates and DBS providers is the free receipt of off-air signals via the use of conventional rooftop antennas. Stated simply, DIRECTV's long-term objective is to re-populate American homes with rooftop antennas and re-introduce consumers to one of the last truly free, high-quality entertainment opportunities. This fundamental philosophy is reflected in the design of the DSS receiving system, which facilitates the seamless integration of off-air broadcast signals. In addition, several DSS manufacturers offer dishes with embedded broadcast antennas.
Regardless of DIRECTV's success in promoting the off-air solution, there will remain some limited number of consumers that cannot receive an acceptable picture using an off-air antenna and will choose to receive a distant network signal. DIRECTV is sensitive to the concerns of local network affiliates that led initially to the enactment of the ''white area'' restriction, i.e., a desire to preserve the exclusivity of their programming within local markets so as to maintain their ratings, and in turn, their advertising rates. However, it has become increasingly clear that the current statutory solution to protecting the local broadcasters' interests has resulted in significant frustration and confusion for satellite carriers, local network affiliates and, most importantly, satellite consumers. As a result, DIRECTV believes that the white area restrictions must be modified. And while there may be a reasonable debate about the extent and nature of the modification required, we would urge Congress in considering this important issue to be guided by three overriding objectives. First, to perhaps state the obvious, the law must be fairthat is, it must strike a fair balance between the legitimate economic interests of satellite carriers and network affiliates. Second, it must be simplifiedsubscriber eligibility to receive network programming must be both easily understood by consumers and, in practice, easily applied and monitored by carriers and networks. Third, and most importantly, it must be pro-consumerthe law must recognize the right of all consumers to have access to network programming, ideally as delivered by their local broadcast affiliate, but ultimately through a distant network signal as required to ensure broad access to this critical segment of news, information, and entertainment.
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DIRECTV has previously articulated its support for a ''surcharge'' concept, pursuant to which the white area restriction would be eliminated in its entirety and replaced by a system providing for a differentiated copyright fee designed to compensate local network affiliate broadcasters for the limited loss of viewership to distant network signals. Under this proposal, subscribers who reside within the service area of a network affiliate who for some reason desire to receive a distant network signal could pay a surcharge for that privilege.(see footnote 11) The moneys generated by the surcharge could be collected and in turn paid to network affiliates through an administrative mechanism similar to the current compulsory license payment process.(see footnote 12)
While we believe that the surcharge approach addresses each of the three criteria outlined abovefairness, simplicity and assured access to network programmingthere may well be other approaches which adequately advance these same objectives. DIRECTV remains open to working with the broadcast community and Congress to find an appropriate pro-consumer accommodation of all interests at stake. I want to emphasize that in no way are we attempting to undermine the current broadcast network affiliate system.
If The ''White Area'' Restriction Is Maintained, It Should Be Revised
If the white area restriction is maintained, DIRECTV has a number of suggestions that will make that provision less anticompetitive and more consumer friendly. DIRECTV believes that there must be a simplified procedure established to protect the rights of consumers to receive some network programming if they cannot receive local signals using a rooftop antenna. Customers that are precluded under the white area restriction from receiving packages of distant network signals should be given an easier method of challenging that exclusion, based on an inability to receive a picture of acceptable quality. For example, if a customer can provide a reliable statement (i.e., via a sworn affidavit) that he or she is unable to receive an acceptable picture, a DBS provider should be permitted to allow that customer to receive network signals. Local affiliates, of course, should retain the right to challenge the eligibility of any such customer receiving service (and if unsuccessful, should pay for the testing necessary to determine that the customer was correct). However, DIRECTV believes that once the customer has established in good faith that he or she suffers poor picture quality, that customer should be given the benefit of the doubtthe burden of ''white area'' challenges should not be borne by consumers.
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Whatever other modifications are made to Section 119, the definition of an ''unserved household'' in Section 119(d)(10) should be changed to eliminate the provision requiring a cable subscriber to drop his or her cable subscription and wait 90 days before he or she can subscribe to a DBS program package offering distant network signals. This aspect of the''unserved household'' definition has no rational basis, serves no useful purpose, is anticompetitive and merely delays service to consumers in rural and other unserved areas.(see footnote 13) DIRECTV therefore urges that Section 119(d)(10)(B) be eliminated entirely from the statute so that subscribership to cable is irrelevant to a consumer's ability to subscribe to satellite-delivered network signals. This will have a significant, positive impact on the marketing of DBS service.
DIRECTV also urges that, regardless of any changes made to the ''white area'' restriction, existing satellite service subscribers be permitted to continue receiving distant network signals for as long as they continue to reside at the residences they occupy as of the effective date of any statutory change. Based on the very limited number of ''challengeable'' subscribers currently receiving distant network signals (as compared to the total number of television households), such a ''grandfathering'' of existing subscribers would have a negligible economic impact on broadcast network affiliates, and would alleviate significant customer service and public relations problems for local broadcast affiliates and satellite carriers alike.(see footnote 14)
Finally, as the broadcasters begin to offer digital television, they should be encouraged to work together with emerging MVPDs to ensure that consumers reap the maximum public interest benefits. Indeed, it is in the interest of broadcasters to do so. When broadcasters begin to offer multiple channels of digital programming, it is all but certain that cable operators will carry no more than one or two of the five or six channels that broadcasters will be capable of offering. Creative solutions which enable cable-competitive MVPDs to distribute broadcast signals will only give broadcasters more carriage options.
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As a final word on the subject of broadcast's digital transition, DIRECTV notes that Section 119's use of Grade B signals to determine ''local'' markets and ''unserved households'' will become meaningless once digital television has been introduced into the marketplace. First, because of the ''cliff effect'' that characterizes a digital signal, there will be no issue with respect to picture quality or Grade B contour measurementthe signal either will be received clearly by a subscriber or will not be received at all.(see footnote 15) Second, and correspondingly, the transition to digital will eliminate that class of consumers that prefer the picture quality of distant network signals to fuzzier, local analog signals; if they receive a signal at all, it will be of top quality. Thus, to the extent that the white area restriction remains in place, DIRECTV believes that it must be readdressed with the introduction of digital television into the multichannel video marketplace.
The ''Private Home Viewing'' Restriction Should Be Eliminated
The compulsory license currently applies only to ''private home viewing.'' On its face, that definition protects only the retransmission of broadcast signals for ''private use'' in ''households'' via ''individuals'' in such households.(see footnote 16) Yet, DBS providers are often placed in the uncertain position of ascertaining whether this definition applies to a variety of special markets that desire to obtain DBS service. Such markets include: naval vessels; oil rigs; common areas of dormitories or fraternity houses; firehouses; prisons; remote ranger stations; and airplanes. These are not insignificant constituencies, and the ''private home viewing'' aspect of the compulsory license has led to some unnecessary and unfortunate results from a consumer standpoint.
Page 64 PREV PAGE TOP OF DOC For example, during the Olympics, DIRECTV was able to offer airline travelers live NBC coverage of the Olympicsa tremendous boon to travelers during that timebut was only able to secure copyright consent from NBC (which had obtained full retransmission rights from the Olympics producers) for that programming; DIRECTV was unable to secure consent from any other underlying copyright holdersa virtually impossible task given the deadlines involvedand therefore was forced to black out the network programming for which it could not obtain consent. There would have been no problem had the compulsory license been available. In that scenario, however, DIRECTV concluded that airplanes probably would not be considered ''private homes'' for purposes of the current compulsory license. As a result, consumers were needlessly deprived of the ability to watch other network programming in a situation that in no way affected the viewership of local affiliates.
The ''private home viewing'' limitation is not present in the Section 111 license, and DIRECTV believes that it should be eliminated in its present form from Section 119. The sparse legislative history of Section 119 indicates that the present compulsory license is not intended to apply to transmissions to commercial establishments, such as sports bars, hotels or motels, or to gathering places where more than a small number of individuals comprising a family and its social acquaintances gather. Yet even this guidance does not resolve the ambiguity in many cases. Are firehouses private homes? Mobile homes?(see footnote 17) DIRECTV believes that such ambiguity can and should be eliminated by eliminating the ''private home viewing'' qualification from Section 119.
DIRECTV appreciates the opportunity to testify on the critical issues surrounding compulsory copyright licensing. DIRECTV believes that the revisions I have outlined are extremely important for continuing the vibrant growth of the still-emerging DBS industry, and will advance the public interest in the development of robust MVPD competition. Finally, I hope we can count on your support of our efforts to prevent the implementation of the inequitable satellite copyright fee increase.
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Steven J. Cox is senior vice president of new ventures for DIRECTV, Inc., a unit of Hughes Electronics Corporation. He is responsible for structuring and negotiating strategic partnerships, acquisitions and investments, as well as developing new business opportunities. Cox also oversees the company's regulatory and legislative affairs and is responsible for the company's signal integrity unit. DIRECTV is the nation's leading direct broadcast satellite (DBS) service, delivering 175 channels of entertainment programming to 18-inch DSS dishes.
Prior to his current position at DIRECTV, he served as corporate counsel for Science Applications International Corporation (SAIC). His primary responsibilities included acquisitions and divestitures, strategic alliances and joint ventures. Before joining SAIC, Cox was an associate with the law firm of Latham and Watkins and a Law Clerk to Judge Herbert Y.C. Choy of the United States Court of appeals for the Ninth Circuit.
Cox received a Bachelor of Science degree in business administration and marketing in May, 1983 from the University of Illinois, champaign Urbana. He also received his J.D. at Stanford Law School and was admitted to practice law in the State of California in June, 1987.
HOUSE RULE XI, CLAUSE 2(g)(4) STATEMENT
DIRECTV, Inc. (''DIRECTV'') has received no Federal grants or contracts during the current fiscal year (FY98) or in either of the two preceding fiscal years (FY96 and FY97).
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DIRECTV may from time to time provide programming services to locations such as military bases, naval vessels and military aircraft. These services generally are provided pursuant to a standardized customer agreement, and it is DIRECTV's assumption that such agreements are not intended to come within the scope of the disclosure required under House Rule XI, clause 2(g)(4).
Mr. COBLE. Thank you, Mr. Cox.
STATEMENT OF WILLIAM R. (RIK) HAWKINS, PRESIDENT, STARPATH OF HARDIN COUNTY, KY
Mr. HAWKINS. Good morning, Mr. Chairman and members of the subcommittee. It is with great pleasure that I have the opportunity to speak to you today about the home satellite industry and hopefully show you a snapshot of the rural marketplace that I come from.
My name is Rik Hawkins, and I founded Starpath Communications some 16 years ago as a result of the inability of the cable TV industry to reach rural homes desiring the same programming choices as those in the cities. Our business has grown to a staff of 6 people, and sometimes swells to more as we pull in additional family members for those hectic moments that most small businesses experience. All of our capitalization over the years has come with the same risk as any small business, such as second mortgages on our home and the liberal use of our family savings account at times.
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From our first day of business our philosophy has tried to incorporate 3 areas where we hope to achieve: One, to offer competition to cable TV; two, to offer a local presence in the marketplace for hardware and programming that is consumer friendly, with qualified people to answer questions; and, three, to be fair to the people who own the programming rights by paying our fair share.
In 1994 we purchased the rights to distribute DIRECTV programming in Hardin County, Kentucky, through the National Rural Telecommunications Cooperative, as this plan exemplified everything we philosophically believed in, building a competitor to cable TV on a local basis, which basically meant local people serving local subscribers.
There are two areas today I would like to point out to you that are becoming extremely difficult for us to achieve our original goals of providing choice for rural Americans. One, the recently announced rate increases for networks and superstations clearly create an economic imbalance between satellite and cable TV. Rural Americans have no understanding of the complexities of copyright and probably could not properly describe the Library of Congress' function. They just want to watch TV. These rate increases widen the gap in my ability to compete with cable TV. And frankly. From trying to be a competitor. I found them discriminatory and unfair.
Number two, the fact that satellite television does not deliver local channels is being used against us by the cable industry many times in an unfair way. The confusion caused by the network situation is my number one local marketplace concern in growing my business. The current laws make for an almost impossible environment to explain the options to consumers.
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Imagine, if you will, you are a current satellite subscriber or a potential subscriber looking for an option to cable TV, and you call our company and ask about networks. After I explain the qualifications to receive the networks which include, number one, have you had cable TV in the last 90 days and, number two, can you receive local stations with a conventional rooftop antenna, it is at this point that you can sense the confusion setting in.
Then imagine, if you will, that I must convince them to put back up the local antenna they took down 20 years ago to adopt a struggling new technology at that time called cable TV; and even worse, I might even try to convince them to keep cable TV and downgrade to lifeline for local channels when they are wanting to cut the cable line. Most young consumers starting households today grew up with cable and, amazingly, have no idea what a rooftop antenna even looks like, much less what it can bring into their homes.
To add insult to injury, the cable industry advertising to consumers is at times very misleading pertaining to their position on local channel carriage. As a matter of fact, my company is prohibited from advertising at all on the cable systems in my area because we are a competitor. This means I can't even answer their commercial attacks by spending advertising dollars through them.
The confusion that is caused by the network situation is devastating in attracting new consumers to satellite. I feel I am fully capable of competing with cable one-on-one because I am convinced of the superiority of the DBS product. However, subscribers want to watch Seinfeld and Monday Night Football, and if my only options are to deliver them a snowy picture at best, as is the case in many situations, or convince them to spend hundreds of dollars to rewire their home and install a quality rooftop antenna, or have them keep basic cable, then I truly have limited my ability to compete.
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I cannot stress too heavily how important it is that the local station issue be resolved quickly. The NRTC has advocated an approach to dealing with consumers living within a Grade B contour. That approach would work well where I do business because of the poor quality of some local TV signals into my consumers' homes. Other means have also been proposed, and while I am not an expert in this area, I would urge you to consider all of them seriously so we can overcome once and for all the obstacles to competition which have been placed in our way.
In conclusion, I am prepared to go forward into the next century to achieve the goals I outlined for you at the beginning of my testimony. Our efforts, even with a superior delivery system, to deliver a viable alternative to cable TV are hindered by what I feel are artificial barriers over which we have no control. From the prices we contend with, from increases in copyright fees, to the disadvantages we are handed in supplying network stations to consumers, DBS is still making excellent inroads in the marketplace. I am not asking you to make any special advantages for the satellite industry, but simply give us the same tools as our competitors so we can go about our business on a equal footing with them.
Thank you for the opportunity to be here today.
[The prepared statement of Mr. Hawkins follows:]
PREPARED STATEMENT OF WILLIAM R. (RIK) HAWKINS, PRESIDENT, STARPATH OF HARDIN COUNTY, KY
Mr. Chairman and members of the Subcommittee, my name is Rik Hawkins. I am the president and founder of Starpath of Hardin County, a small retail satellite company in rural Kentucky which I started with my family about 15 years ago. I have been in the home satellite business for most of my adult life, having always had an active interest in the fields of electronics, hardware, and consumer service. I have also been very active in the Satellite Broadcasting and Communications Association, the organization which represents my industry, and I have been chairman of the SBCA's Retail Council and currently serve as Secretary of the Association.
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It is a great pleasure for me to be here today. I appreciate the opportunity to testify before this Subcommittee and to describe for you what it is like to sell satellite systems to consumers in the current environment of intense competition between satellite and cable. I will address my remarks in particular to the effects of the Satellite Home Viewer Act because some of its provisions play a very important part in how a local satellite dealer like myself does business.
I founded Starpath of Hardin County in the Fall of 1982 with little more than a dream and a desire to succeed. At that time, home satellite was just getting off the ground, and where I live in rural Kentucky it is the only way for many families to get the television programs that viewers in the non-rural areas take for granted. Cable was already making big inroads where I live, and we felt that owning a satellite system gave the consumers we wanted to serve greater control over the quality and choice of programming they wanted to watch.
Our dream in starting from scratch was to accomplish certain goals in order to make the business work. First of all, we wanted more than anything for satellite to become a competitor to cable. Not just any competitor, but one that could truly make a difference and offer consumers something more than just a wire into their homes. Because of the previous experience I have had in the consumer electronics field, I also knew how important it was to run a business on a consumer-friendly basis. So we made sure that the systems and services we were offering on a local level were designed with the consumer in mind because we wanted our customers to think of the satellite business as a people business, and not just an impersonal head-end like cable.
Page 71 PREV PAGE TOP OF DOC One of the most important things I had to learn about satellite was that it isn't the hardware that draws the consumers to our industry. It is the programming that the hardware is able to deliver to the home. That made the consumer orientation of our business even more important because once the hardware side had been settled, I realized that the right program selection at the right price was what would make that consumer a loyal satellite customer for many years to come. We also recognized as business people that the creators of television programming were entitled to a fair return on their investment, just as we were trying to accomplish in our much smaller way. So, in deciding to make the consumer our principal focus, we worked hard to make sure that our customers got the program package of their choice at the right price, and we offered to them a personalized service that they couldn't get anywhere else.
Since that pioneering start in 1982, our company has gone through extraordinary changes in order to keep up with what was taking place in the satellite industry. We have watched our focus change from that of a satellite hardware retailer and installer to that of a local program provider. This was dramatically brought to life in 1994 with the launch of DBS. Starpath purchased the rights from the National Rural Telecommunications Cooperative to sell and market DIRECTV programming in the Hardin County, KY, area. The NRTC, as you may know, was created especially to serve rural satellite television viewers and now has over 650,000 DBS subscribers, many in areas where previously there has been no TV service at all.
The purchase of those rights seemed then, and still is to this day, a viable and tremendous opportunity to marry the skills we had developed in the hardware business with our ability to serve consumers on a local level with a national DBS product. We see this as a win-win for both ourselves as a rural satellite business, and specifically for consumers who now have a local place and a face to go with it which represents their television service.
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I should add that the stakes to run our business are quite high for me and my family. The capitalization for our business comes from a second mortgage on my home along with most of the savings we have accumulated along the way. We felt the risk was justifiable in view of the strong commitment we had from day one to build a company which would compete with cable for the trust of consumers. Notwithstanding some of the roadblocks which I would like to address with you today I am still willing to take the risks.
As I stated before, I realized very early in the game that the satellite business, when all is said and done, is a programming business. Sure, a lot of attention has been paid to dish size and technology, but in the final analysis, if consumers can't get the programming they want to see on a satellite system, then they are going to go to some other technology to watch it. In the rural areas I serve, program choice and availability is a very important factor because the consumers who live there either have no other choice to turn to, or take cable instead if it is available.
It is very important that I pay a great deal of attention to programming and the cost to consumers for the various program packages that we sell. That's why even in rural Kentucky something as arcane as copyright fees for superstations and networks takes on new meaning. This is especially true when I see that the fees will be increased significantly because of the Satellite Home Viewer Act.
To be honest, I was thrilled when the Act was passed in 1988. For the first time, it enabled us to provide once and for all to all the rural consumers we were serving the superstations and the networks which they could not have viewed any other way. The network stations in particular, even though they weren't close by and came from New York, Chicago or Atlanta, at least gave rural households the chance to watch the same prime time programming and sports that most other homes in the U.S. were watching for free. So the 1988 legislation helped to put rural viewers into the television mainstream.
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At that time I didn't pay much attention to the copyright rates for the programming. I understood that it was at the same level that cable was paying, and that seemed fair to me because it gave me the chance to compete for viewers on the same basis. But then the copyright fees were raised in 1992 through the actions of a copyright panel which, I am told, was charged with reviewing the satellite rates in accordance with the 1988 legislation. While I was mildly surprised that the superstation rates were raised slightly above those for cable, I was even more taken aback when I learned that the rate for networks had been doubled. Remember, many of my customers aren't able to receive any network signals with a regular antenna and so the only way they can watch them is by subscribing to them by satellite. But as I have already mentioned, I believe in fair compensation for a person s creative work so, not knowing anything more, I simply chalked up the increase to perhaps better program investment on the part of the networks. But if I had known then what I know now about how the copyright fees are charged, I would not have been so understanding.
More recently, I was literally shocked when I learned from the SBCA last month that a copyright panel reviewing satellite rates for the next two years had recommended that they be raised again, this time to 27 cents per station and now the Librarian of Congress has approved the recommendation. To be perfectly honest my immediate reaction was, does this panel sitting in Washington, DC, have any idea what effect a rate increase of that size can do to the ability of companies like mine to market satellite? As a local program provider I know that satellite program packagers have to be competitively priced in order to be competitive to cable. Having to factor in cost increases such as this panel's recommendation can help tip the marketplace toward the side of my competitor, even though I know that I deliver better products and services than he does.
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What is even more important however is the gross unfairness of charging satellite such a substantially higher rate when my chief competitor's rates will continue on well below mine. It is inconceivable to me that rural consumers who can watch networks only by owning a satellite system should have such an enormous burden placed on the channels that everyone else in this country watches for free. As I said before, I accepted the previous increases, in spite of my better judgment when I learned about them, even though I knew at the time they were pulling away from cable copyright rates for the same broadcast channels. But I am not willing to stand by this time and watch satellite fees escalate out of sight, and that is why I am appearing before you today. If you want competition to cable, and if you desire rural consumersand there are millions of them in this countryto enjoy the same programming as their brethren in the suburbs and cities, then I would urge you very strongly to fix the Satellite Home Viewer Act in order to prevent rate escalations such as this one from happening again. I would hope any new legislation takes into consideration the fact that, in the end, satellite distribution is for the benefit of consumers who often live in rural areas like Hardin County, KY.
My growth as a small, rural satellite retailer and my ability to market satellite to consumers is also dramatically affected by our current situation with respect to network station subscriptions. Many existing as well as prospective DBS subscribers call to ask us about ''network stations.'' Keep in mind that a majority of them are homeowners who took down local antennas years ago to adopt a new technology called cable TV and now want to try satellite. I have to explain to them that the current law says that if they live in a house passed by cable, and have subscribed to cable in the last 90 days, or can get local stations with a conventional rooftop antenna, I am legally prohibited from selling them the network package I have available.
Page 75 PREV PAGE TOP OF DOC The reaction of many consumers is to wonder if it is illegal for them to watch satellite TV, or if the anti-DBS cable ads they have been seeing might really be true after all. In order to convince them to subscribe to satellite I have to advise them to either put back up the conventional rooftop antenna they took down 1520 years ago when they took cable, or suggest that they downgrade their cable service to simple basic which contains the broadcast stations.
At that point, consumers want to know why it is so downright complicated to get a satellite system, and many of them elect simply to keep cable. Therefore I ask you to consider here the question which we must deal with on a daily basis in our business in Kentucky: why should we send consumers back to the cable company as a practical matter when the Congress is trying to build a competitive television environment? We are reasonably good at building a picture of an exciting product and industry until we get to the ''local station'' issue, and then we admittedly stumble because often we can't offer consumers a true one-stop service.
The confusion that is caused by the network situation is my number one local marketplace concern in attracting new consumers to satellite. I am fully capable of competing with cable one-on-one because I am convinced of the superiority of the DBS product. However, subscribers want to watch Seinfeld and Monday Night Football, and if my only options are to deliver them a snowy picture at best (as is the case in many situations), or convince them to spend hundreds of dollars to rewire their home and install a quality rooftop antenna, or have them keep basic cable, then I have truly limited my ability to compete. I cannot stress too heavily how important it is that the local station issue be resolved quickly. The NRTC has advocated a local area surcharge for satellite viewers inside a station's Grade B contour. That approach would work well where I live because of the poor quality of TV signals within the Grade B in my area. Other means have also been proposed, and while I am not an expert in this area, I would urge that you consider all of them seriously so we can overcome once and for all the obstacles to competition which have been placed in our way.
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In conclusion, I am prepared to go forward into the next century to try to achieve the goals I outlined for you at the beginning of my testimony. Our efforts, even with a superior delivery system, to deliver a viable alternative to cable TV are hindered by artificial barriers over which we have no control. From the prices we contend with from increases in copyright fees, to the disadvantages we are handed in supplying network stations to consumers, DBS is still making excellent inroads in the marketplace. I am not asking you to make any special advantages for the satellite industry, but simply give us the same tools as our competitors so we can go about our business on an equal footing with them. Thank you for the opportunity to appear here today.
Mr. COBLE. Thank you, Mr. Hawkins.
STATEMENT OF CHARLES C. HEWITT, PRESIDENT, SATELLITE BROADCASTING AND COMMUNICATIONS ASSOCIATION OF AMERICA
Mr. HEWITT. Mr. Chairman, members of the subcommittee, I am Chuck Hewitt. I represent the satellite industry, the direct-to-home DBS platform providers, C-Band programmers, retailers and distributors. We appreciate the opportunity to come here at a very critical period in the history of our industry.
Before I get into what I primarily want to say, I would like to make two comments. One is that on the ''white area'' situation, which is not going to be the thrust of my discussion, we have been strong proponents for a negotiated settlement between the broadcasters and the DBS platform providers and satellite carriers. Those negotiations are still going on, so therefore we have not taken a specific position.
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We have urged them both to consider all options that are being put on the table, regardless of where those options are coming from. We are hoping that will come to fruition because in the long run the broadcasters are going to be strong allies of satellite. We do not provide or create local programming, we do not have local advertising, and so it is a natural thing for two wireless companies to work together when we don't directly compete as cable operators do.
Secondly, the Librarian has changed the effective date from July 1 to January 1, and for that we are very appreciative. On the other hand, even at January 1, because we take annual subcriptions you have to remember someone who is subscribing today might not get the higher rate for another three-quarters of a year. That means that DBS companies who are right now not making a profit, who are competing, who have not even a positive cash flow, are going to somehow have to eat millions and millions of dollars or charge consumers up front to make up for those lost millions of dollars.
So, as the Librarian has confirmed the CARP recommendation, it has created a crisis. We think it is outrageous. We believe that two classes of citizens have been created. Congress did not intend for the SHVA to create a noncompetitive environment, nor did it intend to create two different payments for the same service.
But what we have is government setting a price, an average price, to a cable subscriber of 2.7 cents for network broadcast signal, 9.7 cents for superstation; and another agency of government through a convoluted procedure called the CARPhas set a price of 27 cents for those very same services. If government was under the standard of the 1992 Cable Act on price, terms and conditions, the government would be in violation, clear violation in terms of discriminatory pricing.
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This has to change. We need relief and we need it quickly. We need your help. We have to have this change and we have to have it as early as possible. We are going to have one opportunity. As you know, the Act comes due in 1999. Mr. Goodmon has testified that he needs his clearance by May. We need all this prior to May. We need four primary things.
We need a permanent license. Part of the reason we are in the present fix is that the SHVA license renewal in 1994 came three months before the license was going to expire, which means that there were all sorts of compromises made that really handicapped us as competitors. Secondly, we have to have a statutory rate. There should be a statutory rate that is equal to or comparable to cable, and that is the easiest, less controversial and less expensive than any kind of CARP proceeding.
And, while I am on this whole CARP procedure, I might add I notice baseball is testifying next, and I would like you to ask a question. They receive copyright funds from us, in which they have urged this not be 27 cents but even higher than 27 cents.
At the same time, they go to a superstation and they increase the payment to them by the superstation even though those are the same viewers that they have now reached through satellite. So the same consumer who is paying us for copyright, is paying a higher fee for a superstation because more dollars are coming out of the superstation and going to baseball so they are actually double-dipping from the same consumer.
Next, the 90-day waiting period is the most anticompetitive provision in law that I think I have ever seen. This, in essence, says that if you are a cable subscriber and you want to switch to satellite, before you can get a distant network signal that you are qualified for, you have to wait 90 days. The analogy to that is if I walk into a Chevy dealer and I have been driving a Ford, the dealer has to say, ''Well, we'll take your Ford, but you can't drive a Chevy yet because we can't sell it to you for 90 days.'' It is really an outrageous anticompetitive provision.
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And, last, we need ''local into local'' laws to support the rebroadcast, retransmission broadcast of local signals. Now this is an area that creates a lot of confusion.
First of all, many of our members believe that the off-air antenna, especially with new technologythere has been more research in the last 12 months on off-air antennas than the previous 30 yearsis an important part of this. Also, when digital comes, the off-air antenna is going to be enhanced geometrically in terms of its ability to receive a quality signal. Many of our members believe for the majority of the United States customers that the off-air antenna will be the primary answer.
Nevertheless, cable and our other competitors, MMDS and LMDS, have the right to retransmit local broadcast signals. We believe other DBS providers should have those same rights. The issue needs to be debated. For example, there is a difference between a small cable system and a large cable system. Cable has 120 channels in Fairfax, has 60 channels in D.C.; we have 200 channels nationwide. So we recognize that ''must carry'' has to be part of any kind of statutory agreement, but basically its application has to be reviewed, because we are a national service, not a local service.
In closing, we have a situation where 7-1/2 million present satellite subscribers will pay $80 million into the copyright pool in 1998. Sixty-five million cable subscribers will pay $170 million into the cable pool. It doesn't take a mathematical genius to know the satellite consumers and rural America are being harmed by government's two-standard fee for retransmission of superstations and broadcast. Thank you.
Page 80 PREV PAGE TOP OF DOC [The prepared statement of Mr. Hewitt follows:]
PREPARED STATEMENT OF CHARLES C. HEWITT, PRESIDENT, SATELLITE BROADCASTING AND COMMUNICATIONS ASSOCIATION
Mr. Chairman and members of the Subcommittee, I am Chuck Hewitt, President of the Satellite Broadcasting and Communications Association (SBCA). I am very pleased to be here today to give you the views of the Direct-To-Home satellite industry regarding the importance of the satellite copyright license which is contained in the Satellite Home- Viewer Act (Section 119 of the Copyright Act).
The SBCA is the national trade association for the Direct-To-Home satellite industry. The membership consists of the major companies comprising the various segments of the industry. They include the DBS service providers and satellite carriers who utilize the copyright license to deliver broadcast signals to satellite consumers; the leading programming networks and premium video services; manufacturers and distributors of DTH receiving equipment of all types; program packagers for C-Band services; and approximately 2,500 satellite dealers of all sizes who are the point of sale for consumers.
The breadth of the SBCA membership is a strong indication of just how important copyright licensing is to the industry as a whole. It is critical at this juncture that Congress comes to the assistance of the satellite industry, if, for no other reason than to protect from uncontrollable rate increase. As I will describe, the industry is here today to ask that Congress make the following changes in the SHVA:
Page 81 PREV PAGE TOP OF DOC (1) Make the satellite license permanent.
(2) Fix copyright rates in the statute to make them comparable to cable once again.
(3) Eliminate the 90-day waiting period for satellite subscribers to network service if they have previously subscribed to cable.
(4) Authorize the retransmission by satellite of local network stations within their Dominant Market Areas (DMA's).
My testimony will give you a clearer picture as to why these changes are so necessary in order to correct the imbalance in the video marketplace which has been created by the impracticalities of the SHVA.
Your decision to hold this hearing is very timely because, as you know, there are some very significant events which have recently occurred concerning the satellite copyright license which seriously call in to question how and on what basis satellite royalty rates are determined. That has become a very important matter in view of the Librarian's decision this week to uphold the CARP's recommended rate increase. It means that satellite providers will now be paying 27 cents per subscriber/per month for both superstations and distant network signals while cable pays 9.7 cents and 2.5 cents respectively for the same programming. Thus it has become highly opportune and appropriate that we discuss these issues today under the present circumstances.
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The recommendation of the Copyright Arbitration Rate Panel (CARP) to the Librarian of Congress on August 28th to raise DTH copyright fees across the board to 27 cents should be a signal that something is very wrong with the rate determination process espoused by the SHVA. That such a rate could have been arrived at in the first place is a serious matter which should be examined because of the vast ramifications which it has for our industry. While we are gratified that the Librarian saw fit to move the effective date of the fee increase to January 1, 1998, from the retroactive July 1, 1997, date recommended by the CARP, he upheld the 27-cent rate. In other words, the Librarian simply delayed the execution but didn't grant a pardon.
By way of background, this is the tenth year that I have served as SBCA president, dating back to 1987 when the Association was first formed. I participated actively in the negotiations leading to enactment of the SHVA of 1988 at a time when the DTH industry comprised about 2 million viewers, all of them using the larger C-band antennas. So at the time, it would be fair to characterize DTH service as having been a niche industry serving a relatively small base of subscribers primarily located in rural areas. Many of these viewers had no other way to watch the popular sports, news and entertainment programming which the rest of America either watched on cable or received for free off-air, and so they chose satellite as their preferred means of watching television.
That was the marketplace context in which the Section 119 license was first created. Many of the principals involved could not have foreseen that the DTH industry would be what it is today, serving almost 8 million subscribers and promising to be the principal competitor to cable.
Page 83 PREV PAGE TOP OF DOC But in 1988, the satellite license constituted a brave experiment in several respects. First, the license was made temporary and set to expire December 31, 1994. On the other hand, the cable license, established in Section 111 of the Copyright Act, is permanent. This is an important factor distinguishing the two licenses. For, as we shall see, the temporary nature of the satellite license makes our industry vulnerable to economic demands imposed by the copyright owners in return for extension of the license. The permanency of cable's license, however, insulates it, as a competitor to DTH, from any significant change which could affect the workings of program delivery.
Another unique aspect of the satellite license are the rates which were mandated by the SHVA to be paid into the Copyright Office royalty pool by the satellite carriers. They are computed on a per subscriber/per month basisas they still are today. The cable rate was then, and still is, calculated as a statutory percentage of gross receipts.
Congress initially determined that satellite rates should equal the same average per subscriber/per month rate as the cable rate, which at the time was deemed to be 12 for superstations and 3 for distant network stations. The rationale for that decision is contained in House Report 100887 which states that, ''These fees approximate the same royalty fees paid by cable households for receipt of similar copyrighted signals and are modeled on those contained in the 1976 Copyright Act'' (Part 2, page 22. Emphasis ours), i.e., Section 111 which delineates the statutory cable rates. So, from the start, Congress foresaw too, that DTH had a role in the video marketplace and decided to equate satellite copyright rates with existing cable rates.
But the SHVA also called for a rate negotiation between the copyright owners and the satellite carriers in 1992 in order to determine new fees. Should the negotiations fail (and they did), the parties were then directed by statute to submit to compulsory arbitration under the auspices of the now defunct Copyright Royalty Tribunal. This consisted of another new feature attributable to the Section 119 license.
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In determining the new fees, the arbitration panel was specifically directed by the statute to ''consider the approximate average cost to a cable system for the right to secondarily transmit to the public a primary transmission made by a broadcast station. . . .'' (Sec. 119(c)(3)(D)) in determining the new satellite rate. The panel raised those fees to 14 cents or 17.5 cents for superstations, depending on their syndicated exclusivity status (i.e., whether they were nationally cleared or not), and doubled the network rate to 6 centshardly in keeping with the guideline of considering ''the approximate average cost to a cable system.'' And, as we all know now, the fees will go up again January 1st to 27 cents for all broadcast stations delivered to viewers under the terms of the SHVA license.
Mr. Chairman, the concept of compulsory licensing is a very necessary tool given the complexities of clearing programming in broadcast signals with copyright owners. An objective of the SHVA was originally to facilitate a market-based approach to licensing. But almost 10 years following enactment of SHVA there is still no sign that such a result is possible. The copyright owners have given no indication whatsoever that they are interested in creating a copyright clearing house, so we must assume that it is more profitable for them to have a compulsory licensing arrangement and statutorily set fees than to clear the rights directly and sell them to the satellite carriers.
By the same token, the copyright owners are entitled to their full and fair share of royalties for the video products which they create. In fact, the studios represented by the MPAA command approximately 70 percent of the royalties contained in both the cable and satellite pools. So they receive the lion's share of the tens of millions of dollars which these video distribution industries pay into their respective royalty pools every year. In fact, the per subscriber fee applied to satellite by the SHVA provides for true incremental expansion of the pool as each new subscriber is added by satellite companies. The potential for the pool to grow is limited only by the ability of our industry to attract new viewers, and our members are working very hard to accomplish that goal.
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In any event, it was the year 1994 which was truly pivotal for DTH. It marked the advent of DBS service which gives consumers a high quality, affordable receiving system, including a small receiving antenna (anywhere from one meter to 18 inches), subscription packages at prices at or below prevailing cable rates but with many more channels to choose from, and digitally transmitted video and audio. It was the promise and potential of DBS which led the Congress and the Federal Communications Commission to put into place new rules and regulations in the Cable Act of 1992 and the Telecommunication Act of 1996 to enhance competition in the video marketplace. In that regard, we are hopeful that early in 1998, barring any other rate mishaps, some of our DBS service providers will begin showing a profit. So we have been looking to the end of 1997 for some light at the end of the tunnel.
But 1994 also contained some ill winds for the satellite industry with the passage of the extension of the satellite copyright license through the SHVA of 1994. Its principal feature was to change the judgment criteria for the arbitration panel deciding on new satellite rates through December 31, 1999, when the current license is due to expire. That the criteria could be changed at all to the disadvantage of DTH satellite was due to the urgency of having to renew the then expiring license. Changing the criteria to suit more favorably the demands of the copyright owners was the price SBCA and its member companies had to pay in order to gain a legislative extension of the Section 119 license through the end of 1999. It is those criteria which resulted in the recent CARP deciding on a new fee of 27 cents for all broadcast signals. This finding, moreover, contrasts sharply with existing cable copyright fees which average 9.7 cents for superstations and 2.5 cents for distant network signals. The Librarian has now upheld the CARP, with the minor consolation of moving the effective date up to January 1, 1998, rather than July 1, 1997, as the CARP had recommended.
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That such an egregious rate, and the accompanying wide differential with cable, could even by reached by a CARP is a clear indication that the license sunset and rate determination scheme in the 1988 SHVA does not work. It is time for major reconsideration of the impact of the satellite license as currently written and reshaping it to more closely conform to the workings of the cable license.
It is possible by utilizing rate examples at the extreme end of the spectrum to show that in some circumstances cable royalties for a selected system for certain distant signals could actually be higher than satellite's under a 27-cent copyright regime. Conversely, we have shown in the enclosed exhibit that using the same sort of rate extremes will show some cable operators paying an average of less than .03 cents per subscriber because of the number of subscribers they serve, and the number of broadcast signals against which they pay copyright. For the fact is that no matter how the differential is portrayed between satellite and cable, the real, average cable rate is still 9.7 cents for superstations, 2.5 cents for network signals, and zero for local broadcast signals. At a DTH rate of 27 cents, the satellite service providers will be paying 275 percent and 900 percent more respectively for the very same signals.
I do not raise this issue because our industry does not believe that copyright owners should not receive fair recompense for their programming. They do from the copyright royalty pools, superstation fees, and higher ad revenues. We do object, however, to any type of math that so twists the facts so as to provide a distorted picture of what both satellite providers and subscribing consumers will have to contend with from the CARP's recommendation. In fact, some Members of Congress have taken the satellite industry to task for supposedly not providing sufficient competition to cable operators whose rates have been rising steadily. Yet, some copyright owners seem perfectly content to allow rates to rise without constraint because it is apparently in their interest to fatten the copyright royalty pools. This approach is extremely short-sighted.
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As SBCA stated in its comments to the Copyright Office as part of that body's review of compulsory licensing, it is important that the satellite license be reformed so that there is competitive neutrality between the satellite and cable licensing regimes. I have described for you the significant competitive disadvantages which the SHVA imposes on the DTH industry, and I would now like to recommend to you how they can be fixed. The features of a revised SHVA are delineated below and should be considered as an overall package if they are to be effective. I have saved for last my discussion of the ''white area'' issue because that deserves special treatment in view of the many factors surrounding the delivery of distant network signals to eligible DTH households.
What we have shown so far is that, first, the royalty rates that DTH pays for the retransmission of broadcast signals are significantly higher than what cable pays for the same programming, even at the rates in existence before the CARP made its recommendation. Furthermore, the current process through which new satellite rates are determinednamely by CARP proceeding coupled with the criteria it is instructed to utilize to determine new ratesvirtually guarantees that rates will continue to rise unchecked.
The temporary nature of the satellite license, the ensuing lack of control which the industry has over the automatic sunset, and the process by which rates are established all result in great business uncertainty on the part of the satellite carriers. For example, the CARP recommended on August 28th that the 27-cent rate be effective, retroactive to July 1, 1997. Thankfully the Librarian saw fit to push the effective date back to January 1, 1998. However, the 60-day lag between the CARP's recommendation and the Librarian's affirmation of the new rate created sufficient uncertainty among some smaller satellite program packagers (particularly in the C-Band) that they had no choice but to start raising consumer subscription fees immediately.
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That some packagers had to react so quickly was due to the fact that if they had not passed on these new costs right away, they would have been forced to absorb them in order to pay into the royalty pool whatever amounts would have been due in arrears. But even with the new effective date, satellite companies will still have to absorb the fees for those annual subscriptions which are not due to be re-upped until some time in 1998. Such uncertainty, particularly for smaller businesses, does not bode well for an industry which is striving to make its mark in a highly competitive marketplace, and simply creates confusion both within the industry and among the consumers our industry serves.
A. The Satellite License Should Be Permanent.
To the extent that satellite's chief competitor, the cable industry, has a permanent license, then so, too, should the Section 119 license be permanent so as to put both video delivery technologies on an equal footing. It is the temporary nature of the satellite license which has been the root of many of the problems which I have raised today, and, as I have stated, it places the DTH industry at a competitive and political disadvantage.
The satellite carriers paid dearly in 1994 for an extension of the Section 119 license. Literally held hostage by the copyright owners, we were forced to accept new arbitration criteria which directed the CARP to consider ''fair market value'' as the principal factor in determining new satellite copyright rates. Cable, on the other hand, has no criteria at all in guiding any of its rate reviews, and its rates have changed little since 1976.
The recent CARP recommendation to raise DTH fees to 27 cents was based, in the judge's minds, solely on the ''fair market value'' approach insisted upon by the copyright holders. They ignored any other factors such as the price for similar signals in other video distribution marketplaces. Consequently they arrived at a dramatic and substantial increase in the copyright fee. To add insult to injury, the same rate was applied to all signals, including distant networks, when the cable license continues to value them at one-quarter Distant Signal Equivalent (DSE). So we attribute the current situation in which we find ourselves directly related to any real political and economic marketplace factors which we must forego in order to gain a license extension in exchange.
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B. Satellite Royalty Rates Should Be Set in the Statute.
The existing compulsory licensing regime hardly provides an appropriate copyright framework if its net result is the implementation of two vastly different rates for virtually the same programming between two competing technologies. Furthermore, it serves no useful purpose in the video marketplace if it also promotes such high comparative fees as the 27 cents and the subsequent increase of consumer subscription rates. Thus by 1999, satellite royalty rates will have increased over the original rates by anywhere from 125 to 900 percent. This is well over the rate of inflation for that time period. We do not believe that this is what the Congress had in mind when it enacted the SHVA.
The DTH industry will suffer competitively if the present rate of royalty increases continues, especially when our competitors who are covered by the benefits of the Section 111 license enjoy stable rates. It is clear that the process for setting satellite rates which Congress envisioned in 1988 is not working and must be revised. No marketplace approach to rate determination has emerged, as the Congress hoped for in 1988. The voluntary negotiations which the parties have undergone under the provisions of the SHVA have not produced the desired objective, largely for reasons beyond the control of the satellite service providers.
The arbitration process which serves as the back-up to voluntary negotiations is extremely costly and time consuming. The recommendations which have emerged from the arbitration panels of 1992 and 1997 bore little relation to the competitive concerns of the Congress to develop a video marketplace where consumers have diversity and choice. As SBCA stated in its comments to the Copyright Office, it appears that while the overarching goals of the 1988 SHVA were set with all good intentions, both the Congress and the interested parties to the satellite license vastly underestimated the difficulties of developing such a system.
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The SBCA urges the Congress to replace the current royalty rate determination scheme under Section 119 with a regime that more closely resembles that contained in Section 111the license which applies to all wireline competitors of DTH satellite. The two-step process of negotiations followed by compulsory arbitration for satellite providers should be scrapped. In its place, Congress should set the satellite rate in the statute at a realistic and competitive level, and subject the rate to periodic review based on criteria which are no greater or less than those to which DTH competitors are subject.
C. The 90-Day Restriction on Network Subscriptions Should Be Repealed.
The SHVA restricts reception of distant network signals to those households which cannot receive an off-air signal of Grade B intensity (''white areas'') and have not subscribed to cable in the 90 days preceding. This peculiar provision was inserted to protect local broadcasters from the importation of distant network signals by satellite consumers if the latter qualified as ''white area'' households but were also able to receive cable. This section of the SHVA unfairly penalizes their decision to subscribe to satellite by inadvertently setting an ''industrial policy'' which favors one distribution technology over another. It is anti-competitive and should be repealed.
The SHVA already prohibits satellite households from subscribing to distant network signals if they can receive local signals over-the-air. On the other hand, if potential DTH subscribers are unable to receive a network signal of a Grade B intensity, they should not be forced to wait 90 days after dropping cable service. The restriction directly encourages DTH households not to drop cable service and thus favors the incumbent technology.
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Denying network service to consumers under these circumstances is an undue deterrent to potential DTH subscribers by directly promoting a competing technology. Moreover, it subjects satellite consumers to a burdensome restriction not imposed on any other multichannel video technology. For these reasons, it is vital that the provision be repealed.
D. Local Retransmission of Broadcast Signals
A competitive difference between cable and satellite is the ability of the former to provide local broadcast signals to its subscribers. Our member companies have been utilizing or examining various approaches to this issue, including the development of state-of-the-art, off-air antennas, studying the potential effect of digital broadcasting, or even suggesting basic cable service to satellite subscribers.
Some companies believe that in certain markets the best answer will be ''local into local'' retransmissions of these signals. There have been a number of proposals for implementing ''local into local,'' including that made by the now defunct AskyB, and more recently by both Echostar and a broadcast enterprise, Capitol Broadcasting/Local TV. While the technological and financial aspects of this satellite concept have yet to be determined, we support the ability of satellite providers and others to have the same market access rights as the competition. Therefore we urge that, as part of the overall revision of the Satellite Home Viewer Act, local-into-local be included as part of the entire legislative effort.
The implementation of ''local into local'' also raises some interesting regulatory issues, particularly regarding ''must-carry.'' While some satellite companies have shown an interest in offering ''local into local'' on a limited basis, the mechanics of how ''must-carry'' should be applied needs further study. For example, consideration must be given to the differences between cable as a local distribution medium and satellite which is a national service.
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To make ''local into local'' a reality, however, will require some change to the SHVA in order to authorize the distribution of local signals under the satellite license, as well as establish a copyright rate of zero cents similar to cable. In that regard, we urge you to write ''local into local'' into the statute so as to enable the initiation of that service by those companies which have shown the willingness and have the satellite capacity to do so.
I have saved for the end a discussion of the ''white area'' situation because it is such a highly contentious and volatile issue. The concept was written into the 1988 SHVA to ensure that households which could not receive a local network signal at a Grade B intensity could do so by satellite. Its purpose was to preserve the marketing area and audience viewing base of the local broadcaster. As a consequence, satellite reception of network signals was limited to what the statute refers to as ''unserved households.''
While seemingly practical on paper, administering the ''white area'' concept has proved to be a nightmare for broadcasters, satellite carriers, and most of all for the consumers for whom the rule was intended to benefit. Indeed, as we have learned the hard way, the approach has been flawed from the very start and since has resulted in extreme controversy and dispute on both sides.
In the first place, the Grade B field strength criterion seemed reasonable enough, given the local interest of the broadcaster, even though it is really a predictive rather than a definitive measure. (The layman's definition is a field strength providing 90 percent of the households with an adequate signal 50 percent of the time.) Unfortunately, a DTH consumer has no effective way, short of paying for an expensive engineering measurement, of knowing whether or not the signal at the rooftop antenna is of Grade B quality. Thus the test, in reality, became a consumer interpretation of picture qualityhow good is the signal at the premises?
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The process by which a DTH subscriber's eligibility is determined is also fraught with pitfalls and only serves to add to consumer confusion. The consumer and satellite carrier must make an initial determination of that subscriber's eligibility for network service as an ''unserved household.'' The network is subsequently notified and in turn supplies its affiliates with lists of new DTH network subscribers in their areas. Each affiliate then makes its own determination as to subscriber eligibility and has the right to challenge any household which it believes is in violation of the SHVA ''white area'' rule, i.e., is able to receive a Grade B strength signal with a conventional rooftop antenna.
This entire sequence of events can often take from 68 months. If a consumer is notified by a local affiliate that he or she is ineligible for DTH network service, then the satellite carrier must ''turn off'' that subscriber to comply with the law. So there is pain on both sides. Consumers become confused and angry if their network service is terminated, and broadcasters certainly don't enjoy the role of ''enforcer'' within the communities they are trying to serve.
Important and hopefully fruitful negotiations have been taking place between some of the satellite carriers and broadcast affiliates with the goal of arriving at a mutually acceptable working arrangement regarding the selection of ''white area'' eligible consumer households. The plan under consideration entails the creation of ''red light/green light'' zones, determined by topographical maps and broadcast transmission plots within each DMA. The zones would demarcate areas of subscriber eligibility on a ''bright line'' basis. We have encouraged any of our member companies who are interested in the approach to work with the broadcasters in finding common ground to the resolution of this thorny problem.
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In conclusion, there is no doubt that compulsory licensing is the most efficient way to bring broadcast signals to both the cable and satellite video marketplace, while at the same time affording a fair return to copyright holders in the programming those signals carry. Barring the establishment of an organized clearinghouse by the copyright community for clearing those signalsand the program owners have shown little initiative in that regardthe license will be the sole means in the future if consumers are to continue enjoying superstation and distant network signal programming.
However, there is also an obligation to create a system of competitive neutrality so no one video competitor gains a more favorable copyright rate over another simply by virtue of unwieldy or impractical licensing regimes. As I have stated, we believe that a neutral environment can be created by,
(1) Making the satellite license permanent;
(2) Making satellite rates comparable to cable by statute;
(3) Eliminating the 90-day waiting period for satellite subscribers to network service; and,
(4) Authorizing ''local into local'' retransmissions.
Page 95 PREV PAGE TOP OF DOC Such a framework does not exist under today's satellite licensing scheme, and consequently fosters a competitive environment which continues to favor satellite's competitors. It is our fervent plea that this Subcommittee will take it upon itself to help create a more practical copyright system which not only evens the marketplace but also offers consumers the competitive video choices they deserve at subscription rates they can afford.
Thank you for the opportunity to present our views.
INSERT OFFSET FOLIOS 20 TO 26 HERE
Mr. COBLE. Thank you, gentlemen. I failed to say this earlier, but for the information of all the attendees, this will not be the concluding hearing on this matter. We will have a second hearing on this subject matter, probably in February, so keep your powder dry for that one as well.
Mr. Hewitt, negotiations are underway between the broadcasters and certain satellite companies over settling the ''white area'' problem. Much has been said about that today. My concern, and perhaps the concern of others on this subcommittee is, if and when these negotiations prove fruitful, there may be members of your association unwilling to accede to the agreement. What are your thoughts on my conclusion, and what would you suggest is the best course of action for this committee to pursue if resistance is ongoing?
Mr. HEWITT. Well, I think that again, as I said earlier, right now you have two companies that I think very are close to agreement. You have several other companies that are in dialogue and negotiations. As long as those negotiations are continuing, we would encourage that, because we think a marketplace solution between the industries is the best solution.
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However, if we reached a point where there was not going to be an agreement between the primary industriesin this case it won't be one or two companies, it would have to be many more companies; the satellite and the broadcast side would have to reach agreement. If that does not happen, then we will have to come to Congress for legislative action.
First of all, if that doesn't happen, we allourselves, the broadcasters, and everyone here on Capitol Hillare going to start receiving hundred of thousands of phone calls from consumers who will not be able to understand why they are not going to be able to get these signals.
So I think it is important that the broadcast industry and the satellite industry continue these negotiations. However, there is a critical point in time in which those negotiations have to become fruitful or we are going to have to come to Congress for action.
Mr. COBLE. Mr. Goodmon, how have the broadcasters received your proposal to provide local-to-local service?
Mr. GOODMON. We have met with the NAB board, we met with MSTV, we met with the network affiliate groups and many broadcasters, and this notion of all stations, all markets, all DBS providers, and the stations are compensated, has been very well received. Frankly, the answer is, ''Yeah, but you can't do that.'' ''That is great, Jim, but you can't do that technically, can't put up 1,600 stations.'' But we do have the technology now to do that. The concept of doing it and our approach to it has very strong support, and now that we have the technology, I think we are ready.
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Mr. COBLE. Mr. Howe, would your desire for a special compulsory license for PBS include one in which the rates would be statutorily fixed or one in which rates would be measured by a fair market value standard?
Mr. HOWE. Statutorily fixed.
Mr. COBLE. I figured that would be your answer but I wanted to get it on record. Do you want to elaborate on your answer?
Mr. HOWE. No, but I would like to say, Mr. Chairman, that I think that Jim Goodmon's plan is the ideal, but we are dealing with a very immediate situation of trying to get public television services and use the set-aside of channels. So we are very supportive, and PBS would obviously change their desire to offer national services by DBS if the Goodmon proposal went forward. The Goodmon proposal is the absolute ideal for all local broadcasters.
Mr. COBLE. Mr. Cox and Mr. Hawkins and Mr. Hewitt, you can insert your oar into these waters, too. Would you all be willing to comply with all Federal, State and local regulatory and tax constraints that apply to cable in exchange for a license that treats you identically to cable?
Mr. COX. I can answer that, Mr. Chairman. I don't believe at all that it would be appropriate to impose those types of regulations on DBS. DBS by its very definition and nature is a nationally based service, as compared to cable which is a local service in the local community. There is a significant impact from a cable operator on the local infrastructure, rights-of-way, use of streets, a number of matters and issues relating to the manner in which that signal is delivered that are completely unrelated to how the DBS industry delivers its signals. I think Congress has recognized that in the past.
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We have recently had public service obligations imposed on the DBS industry. The FCC is in the process of going forward with them. It is a different statutory scheme than that which is set forth with cable, which recognizes the national distribution rights and the need to address the issues separately.
Mr. COBLE. Mr. Hawkins.
Mr. HAWKINS. Mr. Chairman, I really can't add anything to that, but I would pretty much echo the same thoughts.
Mr. HEWITT. I think generally, even though we are competitors, there is a major difference between local distribution and national distribution, as Steve Cox has mentioned. I think that is why we don't see a merger of sections 111 and 119, because the same rules don't equally apply to the different types of distribution. We have just had one DBS provider pay $682 million for spectrum, we have different tax situations, but certainly there is a difference between how we and cable do business and those differences take into account different laws.
Mr. COBLE. I thank the gentlemen.
The gentleman from southwest Virginia, Mr. Boucher, is recognized for 5 minutes.
Mr. BOUCHER. Thank you very much, Mr. Chairman. Every time the chairman introduces me as the gentleman from southwest Virginia I think he is introducing someone else, the gentleman from South Carolina or the gentleman from South Dakota. Thank you, Mr. Chairman. I have a couple of questions for Mr. Goodmon, with whom I would like to begin.
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Mr. Goodmon, assuming that this Congress passes the copyright changes that you have recommended to us that give you the legal foundation fully to operate your local-to-local service, how quickly do you believe that local-to-local service could become operational?
Mr. GOODMON. If we order in May or June of next year, we are 24 to 30 months from operation. We are hoping mid-2000, two years.
Mr. BOUCHER. That is really excellent news, and you would obviously encourage this subcommittee to move forward as quickly as we can to make the changes in copyright law that you need. And with regard to those changes, let me be sure that we fully comprehend what you are recommending.
Under the law as interpreted by the Copyright Office today, an affiliate of one of your uplinked local stations that is an affiliate of the same network, an affiliate of the same network would have the opportunity to object to that uplink if it happens to lie within the Grade B contour of the affiliate that is uplinked, and that creates a lot of opportunities for mischief, which we fully understand. You are recommending that we have a narrower radius within which that objection could lie. Do you have a precise recommendation as to what radius we should use?
Mr. GOODMON. Yes, our notion is that every broadcast station has a DMA, has a ADI DMA, and our notion is that if you live in the DMA, that you will be able to receive the stations that are licensed to that DMA. That is a good marketplace definition on what is the station's market, so it would be a DMA definition.
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Mr. BOUCHER. Okay, what does DMA stand for?
Mr. GOODMON. Designated Market Area. ADI comes out of ARB and they don't do it any more, and so it is DMA, Designated Market Area, and every station has a market, has a certain number of counties in that market. It is by counties, so we will have a good way to know whether or not we can turn the receiver on by which county it is in.
Mr. BOUCHER. And this is a test the FCC has adopted, and so it is a standard that everyone knows; is that right? The DMA?
Mr. GOODMON. It is a standard that everybody knows.
Mr. BOUCHER. Okay. Good.
Mr. Cox and Mr. Hewitt, Mr. Hawkins, I would direct this set of questions to you. I am very troubled, as I said at the outset, by the decision the Copyright Office has just made that effectively imposes copyright royalties on the satellite industry 900 percent higher than those that are imposed on the cable industry when it delivers the same programming. I am persuaded that the Copyright Office badly misread the statutory law in reaching that decision, because the statutory law says that in making its determinations, the competitive environment in which the services are delivered must be considered, and it is very clear that the Copyright Office simply did not consider the competitive environment.
So my first question to you is, do you see further legal remedies here? Are you thinking about going to court to challenge this obviously wrongful decision?
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Mr. HEWITT. This morning, we have filed first for a stay with the Librarian, and we have also filed in the U.S. Court of Appeals. However, I think the handwriting is on the wall. The CARP process just doesn't work. It is unfair, it is irrational, it is expensive, time consuming, and I think we have to change from the CARP system.
Mr. BOUCHER. Well, that very nicely leads into my next question. What change should we enact? Should Congress establish a statutory rate and then provide an automatic mechanism for increases in that rate over time based upon market factors that we insert in the statute?
Mr. COX. We certainly believe that the statutory rate which resembles the way the fee is currently set for cable operators is the appropriate direction to go. If nothing else, it does assure that from a regulatory neutrality standpoint, which I know is the congressional objective, you will end up with rates that reflect the equal nature of the signals.
Mr. BOUCHER. Mr. Hawkins, Mr. Hewitt, do you agree with that?
Mr. HAWKINS. Yes I do. I think it will help to bring about some parity in the marketplace.
Mr. HEWITT. Absolutely.
Mr. BOUCHER. And you would urgeI am asking a lot of leading questions today. When I used to do this in court the other side always objected. There is nobody on this panel objecting. And you would urge, I am sure, that as we do that, that we overturn the Copyright Office's most recent decision statutorily.
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Mr. HEWITT. We think that is really a necessity. I mean, these differential pricesI mean, we are certainly not we don't think it is a fair market value. We think it was a poor process.
Mr. BOUCHER. Tell me, if you would, what effect that decision, if it remains standing, is going to have on your ability to compete. As a practical matter, how does a 900 percent differential in copyright liability between you and cable adversely affect you?
Mr. HAWKINS. I can tell you that since we started the DBS business in 1994, we would anticipate at least a 30 percent drop in our number of subscribers. They are just not going to do it. A lot of people switch to DBS as a alternative to cable, and now with something like this they are going to return. In fact, in calling the office yesterday, you know this is already getting out, people are beginning to talk about it, and we are beginning to get calls of concern to our consumer representatives. So I think it will have a very negative impact on the growth of our business.
Mr. BOUCHER. Mr. Hewitt, Mr. Cox, would you agree that that is about the order of magnitude of the problem?
Mr. COX. It certainly is, I think, just from a real dollar standpoint. You will have monthly bills for a number of these consumers raised by as much as $2, and if you are talking about a $30-a-month bill, that is obviously a fairly dramatic percentage increase. It makes them begin to think they are dealing with the cable industry and not the DBS industry.
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Mr. HEWITT. Some smaller satellite distributors have already raised their rates because they are the most threatened by this increase. They have very small margins. They are very competitive. Some of them decided they may pull these stations out and sell them separately because it is raising the price of their basic package so much, so now they no longer have a comparable package to their competitors, whether or not the competitor is another satellite system. So it has a major effect when you are talking about these kinds of dollars. You know, $2 a month is $24 a year; that is a lot.
Mr. BOUCHER. I would assume that each of the three of you would enthusiastically endorse the plan of Mr. Goodmon to have a local-to-local retransmission service. That would obviously fill out the package of programs you could offer and eliminate the major advantage that cable has over your industry today. Am I correct in assuming that?
Mr. COX. We have had a number of meetings with Jim and with his group, talking both about what their process is going to be and how they are going to get there. We have looked at some of the technical information regarding whether or not it can be implemented, including the satellite studies they have done, and the request for proposal that they have put out to analyze this further.
The technical issues are a challenge, as they were for all of us when we launched these businesses, but I can tell you from DIRECTV's perspective. Frankly, the idea of sharing that type of cost, which involves space segment and acquiring retransmission consent and all the other things that may be required, makes a tremendous amount of sense.
Page 104 PREV PAGE TOP OF DOC Mr. BOUCHER. I noticed in Mr. Hewitt's statement earlier that he is content to allow the negotiation process between broadcasters and those companies that uplink network signals for redistribution into ''white areas'' to continue and that we should let that process go forward for some time. I would gather, however, that Mr. Hewitt and others would also encourage that this subcommittee not wait for that to come to its conclusion; that we move forward on authorizing the local-to-local and amending the compulsory license to make that fully effective. Am I correct in making that assumption, Mr. Hewitt, or what is your advice?
Mr. HEWITT. First of all, I think the whole thing is a package. I think that we have to have the permanent license, the 90-day requirement removed, I think we have to have a statutory rate and we have to have local-to-local. Our whole industry will be fully behind Capitol's proposal, you know, assuming that it is technically and economically feasible, but we need this whole package. That means that the ''white area'' solution has to be done by that time, or else that would be a piece that would be missing. So we would hope by the time we move in that direction, and sooner is better than later, that that has come to a conclusion.
Mr. BOUCHER. So you would encourage us to move forward with the entire package, including the ''white area'' changes that have to be made, whether or not the private parties have reached full agreement on the ''white area'' package.
Mr. HEWITT. We really have no choice. We are in a crisis, yes.
Mr. BOUCHER. I agree with that answer, and the reason is I am not confident that that negotiation process is going to go further very much faster. Prime Time 24 is really not a part of those talks, as you know, and it is a major distributor of network programming throughout the country. Given the fact that it is not at the table and hasn't been for quite some timefor reasons that I think, by the way, are good and sufficientI am not sure we are going to get an agreement to which all the parties of interest are in accord. So I think this subcommittee really has no choice but to address that issue at the same time. I just wanted to clarify that to be sure that we had an understanding.
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Mr. Chairman, thank you for your patience for these questions.
Mr. COBLE. You are indeed welcome. I am told that the gentleman from California, the gentleman from Indiana, have no questions. The gentlelady from California.
Ms. LOFGREN. Thank you, Mr. Chairman. I have been at a Space Subcommittee hearing, and so I will defer questioning at this point and look forward to reading the testimony.
Mr. COBLE. I thank the lady. Good to have you with us.
Gentlemen, let me conclude with this. Some of us on this subcommittee and in the Congress generally have been recipients of letters from constituents who have had a network signal shut off after it was sold and provided to them as a part of their satellite package. What sort of dialogue or educational exposure, for want of a better way of saying it, takes place on ''white area'' issues between your sales people and consumers who walk into your place of business, if you can just tell me that in a brief
Mr. HAWKINS. Yes, sir. First off, we try to be knowledgeable about the area that we work and live in and know the restrictions as far as local signals coming in. I mean, there are specific areas where one house will get a very acceptable picture and two houses down the street will get nothing because a huge metal building happens to block the signal, very specific things, so we have tried to educate ourselves as much as we can about the marketplace.
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Our sales people though have a rough time at this point. When we get to the point that we have sold the technology and people are aggreeable to a change of what they currently have, which is in most cases cable, we have a tough time. When we get to the point of talking about network channels, that is when we would like to crawl under the desk. It becomes very cumbersome. When you enter into any kind of presentation, and we consider ourselves educating consumers, where we have to bring in the law and we have to talk about ''You can do this if you can do this; if you did this, you can't have that,'' it gets so complicated that generally prospective consumers say, ''I think I'll keep cable. It is just a lot simpler. I really just want to watch TV.''
Mr. COX. I would add, just maybe if I could from DIRECTV's perspective on a more national basis, we obviously don't have the insight on a community-by-community basis as to topography and other issues that may affect the ability to receive a signal. We have gone through a very intensive process of training our customer service center, and in fact have localized at our customer service center all network signal qualifications to ensure that we have conformity and consistency in the application of the criteria that we would attempt to apply when a customer called in.
I think the fundamental problem, and you have alluded to it, is that consumers simply don't understand why they can't get this package when their brother down the street or cousin across town or friend in the State next door has gotten it with no problem at all. Trying to explain the nuances of Grade B intensity signals is sometimes a little bit tricky.
Mr. COBLE. Mr. Howe, I saw your hand.
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Mr. HOWE. Thank you Mr. Chairman. With humble apology, I have to, for the record, correct my answer to your earlier question. We at PBS advocate a fair market standard, the current standard, the current fair market standard. And so I apologize and would like to correct that answer for the record.
Mr. COBLE. All right, sir. Gentlemen, thank you all for being with us, and I will ask our second and final panel to wind its way to the witness table and I will introduce you as you do so.
Our second panel today consists of Mr. Thomas Ostertag, who is general counsel of the Office of the Commissioner of Baseball. He was named general counsel in 1990 and was placed in charge of the Commissioner's Office 4 years later in the absence of a New York-based Commissioner.
Our second witness on this panel is Mr. Fritz Attaway, who is senior executive vice president for government relations and general counsel at the Motion Picture Association of America. In addition to his position at the MPAA, Mr. Attaway is an officer of the Motion Picture Association, which represents MPAA member companies abroad.
Next we have Mr. Decker Anstrom, who is the president and chief executive officer of the National Cable Television Association. Before Mr. Anstrom became president and CEO for the National Cable Television Association, he advised trade and membership associations on strategic planning, on organization and management issues, including government relations activities.
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Our final witness is Mr. Wade Hargrove, known to me for a long number of years. Good to see you in town again, Wade. Mr. Hargrove has testified before this subcommittee in the past on matters involving the national broadcast and cable television industries, including issues relating to public broadcasting and broadcast networks, copyright and broadcast licensing and satellite broadcasting. Also, Mr. Hargrove has authored numerous papers on broadcast law and has given countless speeches and lectures on broadcast and cable television law.
We welcome each of you. We have copies of your written statements which will be submitted into the record in their entirety, without objection.
I remind you again, gentlemen, to keep ever mindful of the red light as it appears before you. And Mr. Anstrom, if it is agreeable with you, we will start from my left and work to my right.
STATEMENT OF DECKER ANSTROM, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL CABLE TELEVISION ASSOCIATION
Mr. ANSTROM. Mr. Chairman, thank you for providing the cable TV industry with a chance to comment on the Copyright Office's recommendations.
In general, we would urge this committee to be wary of sweeping proposals developed by technical experts to reform or improve mechanisms that are working. If there is one lesson previous reform efforts have established, it should be ''beware of the law of unintended consequences.'' You have already heard this morning about how one ideato apply so-called ''market rates'' for license fees paid by satellite providersworks in the real world. That experience alone should give some pause about the Copyright Office's broader recommendations for more reform.
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With that overall caution, we would like to emphasize two major points:
One, the copyright compulsory license granted to cable should be maintained. While the license is by no means perfect, it has worked well and no one has proposed a better, proven, workable system. Two, if a compulsory license is extended to a DBS company that provides retransmitted local broadcast signals within that local market, then regulatory parity requires that such DBS providers should have regulatory obligations similar to cable companies'.
First, then, Mr. Chairman, we are pleased that the office has recommended that the cable compulsory license should be maintained. We support that conclusion. We believe that the compulsory license has worked well over these years balancing the dual goals of the copyright law. It compensates copyright holders for the use of their workswe paid $170 million last year; while ensuring the ready availability to the public of local and distant broadcast signals, particularly in small rural communities that do not have full access to a full complement of broadcast TV stations.
Moreover, the reasons for the license remain as compelling today as they were in 1976. Specifically, the license provides a means to avoid significant transaction costs and other difficulties obtaining clearance for every program carried on every broadcast station carried by the cable system. That is why we strongly believe that the cable compulsory license should be maintained.
We are, however, deeply troubled by several of the office's recommendations for changes in the license. In particular, the office proposes to simplify the rate structure by having cable systems pay a fair market value for retransmitted signals. To quote Yogi Berra, we think that is ''deja vu all over again,'' this time for cable, not satellite customers.
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We do not agree that copyright owners are denied fair compensation for their work. And the proposal to revise the rate structure would raise significantly copyright payments, particularly for small and rural cable systems. As a result, we estimate that if, for example, the office concluded that 27 cents per signal per subscriber per month was the right fee, as the CARP just did for satellite providers, customers of small cable systems would face an average rate increase of $6 a year.
The reasons for maintaining the current system that provides special treatment for small cable systems still make sense today. Often located, as you know, in sparsely populated areas with few local television stations, these systems provide customers with a wide array of valuable television signals. MPAA may discount these systems' vulnerability, but there are 5,000 small cable systems serving more than 4 million people located outside the top 100 markets. That is why special treatment for these systems remains appropriate.
So, the proposals to revise cable's copyright payments will have one of only two outcomes: either cable operators' costs will increase and so will cable customers' monthly payments, or cable systems will drop broadcast stations that millions of consumers have enjoyed for years. That, I think, is the law of unintended consequences but that is what will happen.
Finally, let me turn to our second major point, that cable's compulsory license should be viewed in the context of cable's regulatory obligations. When Congress extended the compulsory license to cable operators, the FCC, as you know, had already adopted significant regulatory restrictions on cable's carriage of broadcast stations. These included ''must carry'' rules, distant signal rules, syndicated exclusivity, sports blackout and network nonduplication rules.
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Cable companies are ready to compete, and we do not oppose changing the copyright law to allow DBS companies to retransmit local broadcast stations, but fair is fair and everyone should play by similar rules. Unless cable's regulatory responsibilities are applied to DBS operators that deliver retransmitted local broadcast stations or these restraints are removed from cable, there would be no regulatory parity.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Anstrom follows:]
PREPARED STATEMENT OF DECKER ANSTROM, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL CABLE TELEVISION ASSOCIATION
Hon. HENRY HYDE, Chairman,
|National Cable Television Association,|
|Washington, DC, October 30, 1997.|
Committee on the Judiciary,
DEAR MR. CHAIRMAN: I am pleased to submit advance copies of my written testimony in anticipation of the oversight hearing on the Copyright Licensing Regimes Covering Retransmission of Broadcast Signals issues, to be held on Thursday, October 30, 1997 before the Subcommittee on Courts and Intellectual Property of the Committee on the Judiciary. Also enclosed is a copy of my biography.
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In compliance with the Committee rules, I would report that the National Cable Television Association does not receive any federal Grants, nor are we party to any Federal contracts.
I hope this information will be helpful, and I look forward to working with you and your colleagues.
|Decker Anstrom, President & CEO.|
NCTA supports the Copyright Office's conclusion that the cable copyright compulsory license should be maintained. The copyright compulsory license for cable has worked wellallowing cable systems to provide broadcast programming to the public and compensating copyright owners for the use of their works.
NCTA, however, strongly disagrees with two of the changes to the license proposed in the Copyright Office report. First, the Office proposes that section 111 be amended to ''simplify'' the rate structure and to reflect ''fair market value''. Second, the report recommends changing the definition of a ''local'' signal for copyright purposes. Both changes to cable's compulsory license, if adopted, would trigger the law of unintended consequences. The likely results would be that cable customers would lose access to some television stations over their local cable system that they have enjoyed for years, or face higher prices for maintaining access to those same stations.
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Finally, we do not oppose providing DBS companies a compulsory license to retransmit local broadcast signals within a station's local market, as the Copyright Office's report recommends. However, cable's copyright liability and its entitlement to a compulsory license for retransmitting broadcast signals grew directly out of a series of communications policy decisions defining how cable could carry such signals. Whether a copyright compulsory license should be provided to entities other than cablesuch as DBS operators that retransmit local stations within their local marketscannot be fairly evaluated without reference to the responsibilities that also attach to the license through communications policy decisions. These obligations include carriage of all local broadcast signals, and compliance with other signal carriage obligations such as network non-duplication, syndicated exclusivity, and sports blackout. Considerations of parity also dictate that cable's other obligationssuch as program access and local tax liabilityshould apply to DBS operators that retransmit local signals. Absent attachment of these same regulatory responsibilities, or removal of these restraints on cable, there would be no parity of treatment under communications or copyright law.
Mr. Chairman, members of the subcommittee, my name is Decker Anstrom and I am President of the National Cable Television Association. Thank you for inviting me to testify before you today on behalf of the NCTA, which represents cable companies serving more than 80 percent of the nation's 65 million cable customers and more than 100 cable program networks. I welcome this opportunity to comment on the cable compulsory license, and the recent Copyright Office report that proposes significant changes to the license.
Page 114 PREV PAGE TOP OF DOC We would like to emphasize two major points today.
First, the copyright compulsory license granted to cable should be maintained, with no major modifications. It's worked wellallowing cable companies to provide broadcast programming to the public, and compensating copyright owners for the use of their works.
While the compulsory license is by no means perfect, no one has proposed a better, workable system. Relying on program-by-program negotiations, or changing the existing royalty fee structure, would cause serious disruptions.
Second, any review of the compulsory license must fully consider the license's historyand the context in which Congress established it. These origins lie in communications policies hammered out over 20 years ago and reaffirmed by the Supreme Court in the must carry case. Efforts to extend the terms of the cable compulsory license to other technologiessuch as a DBS company retransmitting local signals within their local marketmust take these communications policies into account.
The Cable Copyright Compulsory License Is Working Well
Let me first then speak to the question: Should the cable compulsory license be modified?
As you know, cable systems retransmit broadcast stations to viewers pursuant to the copyright compulsory license established in Section 111 of the Copyright Act of 1976. Since its effective date in 1978, cable systems have paid copyright owners over $2.3 billion in royalty fees. Last year alone cable operators paid copyright owners over $170 million in royalties.
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We believe that the cable compulsory license has worked well over all these years, balancing the dual goals of the copyright law: it compensates copyright holders for the use of their works while ensuring the ready availability to the public of copyrighted material contained in local and distant broadcast signals.
The reasons for the compulsory license remain as compelling today as they were in 1976. Prior to Congress adopting the cable compulsory license, cable operators had no copyright liabilityand paid no fees at allwhen retransmitting either local or distant broadcast signals. The United States Supreme Court twice confirmed that the property rights granted to copyright holders by the Copyright Act of 1909 didn't include the right to control or be compensated when cable retransmits broadcast programming, either on local or distant television stations. When Congress adopted the 1976 Copyright Act, it imposed liability for the first time. But it provided cable operators an important and limited right to continue to retransmit broadcast stations without requiring the consent of copyright owners. More than 20 years ago, Congress recognized that ''it would be impractical and unduly burdensome to require every cable system to negotiate with every copyright owner whose work was retransmitted by a cable system.''(see footnote 18)
The logistical and transactional problems that gave rise to the compulsory license certainly haven't lessened. Since 1976, the number of cable systems has nearly tripled. Much of that growth has occurred in markets served by small systems: there are more small systems in rural and smaller markets now than when the license was adopted. And the number of commercial television stations has more than doubled.
Page 116 PREV PAGE TOP OF DOC In the absence of the license, negotiations would be required to obtain clearances for all the programs carried on each of these stationsa Herculean task, even for large systems. Every cable system in the United States would be forced to anticipate the programming that would be shown, identify the appropriate owner of the copyrighted works, negotiate for the rights to retransmit those works, and acquire the personnel and equipment to black out programming when rights could not be obtained. And unlike cable networks, which have rights to authorize the nationwide carriage of their entire programming line-up, broadcasters may not have or be able to obtain rights to authorize the retransmission of the works that make up their broadcast day.
Changes Proposed by the Copyright Office's Report Would Harm Our Customers
The Copyright Office agrees that the compulsory license is now firmly part of the video landscape. And the Office's report does not recommend eliminating the license, a conclusion we support.
But the Office proposes certain changes that will do much to disrupt the carefully balanced structure of the license. The likely result of any such changes would be increased rates for customers or loss of television programming that they enjoy, and we urge the Congress to reject these changes.
We acknowledge that the license could be simpler, and if Congress were writing on a clean slate today, it probably would not adopt an approach to royalty calculations that hinged in some cases on out-dated FCC rules as the basis for calculating copyright liability. But the fact remains that government policies from 20 years ago affect which television stations viewers have grown accustomed to having on their cable system. Viewing patterns have been established around the complement of local and distant stations offered on a local cable system. Even minor modifications to the licenseno less the total overhaul of the rate structure that the Office suggestswill trigger the law of unintended consequences and will upset our customers' settled expectations. There is no problem with the license that justifies the dislocations that a change would inevitably create.
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This concern underlies our disagreement with several recommendations made in the Copyright Office's report. First, the Office proposes that Section 111 be amended to ''simplify'' the rate structure and to reflect ''fair market value''. Second, the report recommends changing the definition of what is a ''local'' signal for copyright purposes. Both recommendations could have significant deleterious effects on cable operators and their customers.
First, with respect to the rate issue, we do not agree that copyright owners are denied any value for their work as a result of the royalty fees currently paid under the compulsory license. The rates for distant signal carriage were a result of a compromise among the affected industries forged in 1976. Under that compromise, copyright owners were given the right to seek adjustments in the royalty rates to ensure, among other things, that those rates kept pace with inflation. There is no reason to believe that the royalties paid todaytotaling more than $170 million annuallyno longer fairly compensate copyright owners. Moreover, copyright owners such as the sports leagues receive significant payments from superstations on account of their carriage in distant markets in addition to the royalties paid by cable operators. Increasing the royalty fees now, as the Copyright Office recommends, would merely lead to a windfall for copyright owners, who already are fairly compensated for their works.
The Copyright Office report particularly targets the fees paid by small systems as not reflecting ''fair market value''. But Congress in 1976 specifically decided that small systems should pay only a minimum rate for carriage of distant stations. Rates for small systems do not vary based on the actual number of distant stations that the system carries because of their location in areas where over-the-air television service is sparse, and because the systems were found by Congress to be ''less able to shoulder the burden of copyright payments'' than larger systems.(see footnote 19)
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The reasons for providing special treatment for small systems still make sense today. While the number of television stations available over-the-air has increased since 1976, many cable systems still provide a full range of television stations to areas underserved over-the-air. Today, almost 60 percent of all television markets have fewer than six commercial television stations and are thus incapable of broadcasting a complete complement of the six commercial broadcast networks. Over 26 percent of cable customers live in these underserved markets. Distant signal carriage enables these cable customers to overcome the scarcity of over-the-air signals and helps to ameliorate the effects of FCC allocations of television station licenses from years ago.
The Copyright Office report does not recommend a fee for the retransmission of distant stations by small or large systems, although it proposes that ''fair market value'' be the guiding principle.(see footnote 20) If the recent Copyright Arbitration Royalty Panel fee ''fair market value'' of 27 cents per distant signal per month were to apply to small cable systems, consumers would be confronted with only two choices: pay higher monthly cable rates or lose popular distant television stations. An increase in copyright payments of the magnitude suggested by the CARP decision would translate into an estimated average price increase of roughly $6 per year, or 50 cents each month, for the 6.5 million customers of small systems.
Our second major concern with the Copyright Office's report relates to its proposal to change the definition of a ''local'' signal. Whether a station is ''local'' or ''distant'' for copyright purposes is relevant for determining whether royalties must be paid by a cable system for carrying that station.(see footnote 21) Under the Copyright Act today, a station is ''local'' if it would have been considered a ''must carry'' station under the FCC's rules in effect at the time the 1976 Copyright Act was passed or if it is considered a ''must carry'' station under the FCC's rules now in effect. Current FCC rules require carriage of local television stations throughout their television market (currently based on Arbitron's Area of Dominant Influence (''ADI'')).(see footnote 22) For reasons of administrative convenience, the Office proposes to eliminate any reference to the prior FCC rules. Since those rules differ from the existing must carry standard, that means that stations outside an ADI that have been considered ''local'' for copyright purposes since the compulsory license came into existence would suddenly become ''distant.''
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In many cases, stations carried on a cable system from outside the ADI that are considered local under the existing Copyright Act definition are located nearby to the cable community and may be available over-the-air with merely a roof top antenna. For example, if the Copyright Office's recommendation were adopted, Baltimore stations would no longer be considered ''local'' to parts of Prince George's County, Maryland, which is in a separate ADI. These stations have often been carried on their local cable system since the system was first constructed nearly 20 years ago. Requiring payment for these stations could jeopardize their continued carriage or lead to significant monthly rate increases for customers merely to maintain access to stations that have been carried all along.
In short, the compulsory license has provided a valuable service to the viewing public. Our customers have enjoyed access to a greater diversity of television stations as a result. The interest in simplifying the license, in our view, does not justify upsetting the viewing options of our customers nationwideor raising the price for maintaining those same choices.
Allowing DBS To Retransmit Local Stations by Satellite Within Their Local Market (''Spot Beams'') Raises Serious Regulatory Parity Issues
Let me turn to our second major point: that the cable compulsory license and communications policy are inextricably entwined. Extending the privilege of the compulsory license to cable operators was closely tied to communications policy and judicial decisions. The Copyright Act amendments in 1976 arose only after the FCC, several years earlier, adopted significant regulatory restrictions on cable's carriage of broadcast stations.
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The point is this: cable's copyright liability and its entitlement to a compulsory license for retransmitting signals grew directly out of a series of communications policy decisions defining how cable could carry such signals.
Whether the compulsory copyright license should be provided to entities other than cablesuch as DBS operators that retransmit local signals within their local marketscannot be fairly evaluated without reference to the responsibilities that attach to the cable license through communications policy decisions. These obligations include mandatory carriage of all local broadcast signals, compliance with syndicated exclusivity rules and non-duplication of network programs, and sports blackout requirements. We also believe that considerations of parity dictate that cable's other obligationssuch as program access rules, and local tax liabilityshould also apply to ''local'' DBS. Absent attachment of these same regulatory responsibilities on DBS operators that deliver local broadcast stations, or removal of these restraints on cable, there would be no parity of treatment under either the copyright or communications laws.
For these reasons, we urge the Committee to consider the critical connection between the compulsory license and communications policy. Cable companies are ready to compete with any multichannel video provider, and we don't oppose steps that would allow DBS companies to retransmit local broadcast signals. But everyone should play by similar rules.
Decker Anstrom is President and Chief Executive Officer of the National Cable Television Association. He joined NCTA in November 1987 and served as Executive Vice President until becoming President and CEO in January 1994.
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Prior to coming to NCTA, Mr. Anstrom was President of Public Strategies, a Washington, D.C.-based public policy consulting firm. At Public Strategies, Mr. Anstrom Directed a broad range of public policy and economic analyses and political assessments for investment banking and corporate clients. He also advised trade and membership associations on strategic planning, organization and management issues, and government relations activities.
Previously, Mr. Anstrom has served as a senior staff member at the Office of Management and Budget and as Assistant Director of the White House Office of Presidential Personnel.
Mr. Anstrom is an alumnus of Macalester College and attended the Woodrow Wilson Graduate School of Public and International Affairs at Princeton University. He is married to Sherron Heimstra. They have one son and reside in Alexandria, Virginia.
Mr. COBLE. Thank you, Mr. Anstrom.
STATEMENT OF WADE H. HARGROVE, COUNSEL, NETWORK AFFILIATED STATIONS ALLIANCE
Mr. HARGROVE. Good morning, Mr. Chairman, members of the subcommittee.
Page 122 PREV PAGE TOP OF DOC The Network Affiliated Stations Alliance consists of over 650 local television stations throughout the country that are affiliated either with the ABC, CBS or NBC television networks. Thank you very much for inviting us to testify.
As the Subcommittee is aware, there was broadcast industry support of the Congressional effort in 1988 to create a compulsory license to enable those who reside beyond the reach of a local terrestrial network affiliate to receive network programming by satellite. We believed then, as we do now, that it is in the national interest to assure that all Americans have reasonable access to broadcast network programming. The Satellite Home Viewer Act represented a careful balance on the one hand between the interests of Congress in assuring unserved households access to broadcast network programming, and a Congressional interest on the other in preserving universal free broadcast service from local stations licensed to local communities throughout the Nation. Congress in 1988 and again in 1994 urged the satellite and broadcast industries to work together to reach a voluntary compliance agreement to implement the Act's ''white area'' service provisions.
As was mentioned earlier, an agreement in principle has now been reached with two of the satellite carriers, and under that agreement, the parties will identify by zip codes specific areas in each local market that, based on the most advanced engineering projections, are likely to receive a signal of Grade B intensity from each affiliate. Satellite service of broadcast programming will not be authorized to households in those zip codes without first conducting a signal measurement at the subscriber's household or without conferring with a local affiliate.
In areas within each local market where engineering projections indicate that a Grade B signal cannot be received from a local affiliate, satellite service may be authorized, but the affiliate reserves the right to conduct a signal test. A phaseout transition period will be provided for existing subscribers that are shown to be able to receive the same duplicating network programming from a local affiliate.
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And finally, the parties have agreed that the appropriate viewing standard is, indeed, the Act's present Grade B standard, and an agreement has been reached on a measurement methodology to determine whether a home does or does not receive the signal.
Efforts are continuing as we speak to finalize the agreement, and when that is done, copies, of course, will be provided to Members of the Subcommittee. This agreement has evidence that given a shared commitment between the two industries, the Act and its ''white area'' restrictions can be implemented consistent with the original policy objectives of the Act.
The Copyright Office in its recent report concluded that the transition by terrestrial stations to a digital transmission technology, coupled with the implementation of in-market satellite delivery of local stations, would eventually resolve the ''white area'' issue. I think we are all in agreement with that. In the case of a digital signal, as Congressman Boucher mentioned this morning, unlike an analog signal, a television set basically receives a perfect signal or no signal at all.
As an interim measure, the Copyright Office proposed that the Act's ''white area'' restrictions be replaced with a per-subscriber surcharge on satellite carriers to compensate local stations for loss of their program exclusivity. The amount of that surcharge would be set by Congress or by an arbitration panel. NASA respectfully disagrees with this recommendation. The recommendation is puzzling inasmuch as the Office readily acknowledges that protection against the delivery of duplicating network programming is essential for preservation of the free, over-the-air national network/local affiliate distribution system.
Page 124 PREV PAGE TOP OF DOC Moreover, the notion of a government-mandated surcharge is really fundamentally at odds with the principles of a free market and with traditional protections afforded to intellectual property. We would submit that it is no more appropriate for Congress to impose a mandatory surcharge for the loss of exclusivity here than it would be for Congress to impose a surcharge to compensate copyright holders of printed works for the loss of their exclusivity rights. It is doubtful that the publishers of The Washington Post, or The New York Times, for example, would be supportive of a government-mandated surcharge to compensate them for the unauthorized copying, distribution and resale of their newspapers.
Even so, should a surcharge be adopted, it may reasonably be asked on what rational basis could Congress refuse to require that duplicating network programming be made available to other competing nonnetwork television stations located in the network affiliate's own market, or for that matter the cable systems or the telephone companies or other television program delivery systems.
Thank you very much for your time. I see that the red light is on. We agree with the Office's recommendation against an amendment of the Act that would replace the Act's objective Grade B test with a subjective picture quality test. I will be happy to respond to your questions.
[The prepared statement of Mr. Hargrove follows:]
INSERT OFFSET FOLIOS 27 TO 86 HERE
Mr. COBLE. Thank you, Mr. Hargrove.
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Mr. Ostertag, despite some of the unfavorable reviews, I think major league baseball gave us a pretty decent World Series, and I give you some of the credit for that.
STATEMENT OF THOMAS J. OSTERTAG, GENERAL COUNSEL, OFFICE OF THE COMMISSIONER OF BASEBALL
Mr. OSTERTAG. Thank you, Mr. Chairman, and so do I.
In the interest of brevity, I have here a summary of my testimony. I won't even come close to seeing your red light, but I do have a few important points to make.
Baseball believes that the compulsory licenses for cable operators and satellite carriers should be revoked, reformed and restricted; the three Rs. First, revoked. The time for compulsory licensing has come and gone. Congress should let the markets function and revoke the compulsory license. Permit copyright owners to negotiate directly with sophisticated cable and satellite companies. Don't have government agencies setting rates and terms.
Second, reform. Prior to any phaseout, Congress should adopt the reforms described in my written testimony. Most importantly, as the Copyright Office has recommended, any compulsory royalty rates should reflect the fair market value of the retransmitted programming.
And finally, restrict. Compulsory licenses should not be extended to the Internet or other new technologies. Internet retransmissions can be easily stored, edited and retransmitted anywhere in the world, nearly simultaneously with the original transmission. This poses a serious threat to the rights of copyright owners.
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Please remember that this is not a consumers versus copyright owners debate. This is about wealthy corporate giants enjoying subsidized and below-market royalty rates at the expense of copyright owners.
Thank you for the chance to appear today, and I will answer any questions.
Mr. COBLE. My gosh, you are a speed merchant.
Mr. OSTERTAG. I am here to prove that baseball is not always too long.
Mr. COBLE. As we say in the rural South, you done good.
[The prepared statement of Mr. Ostertag follows:]
PREPARED STATEMENT OF THOMAS J. OSTERTAG, GENERAL COUNSEL, OFFICE OF THE COMMISSIONER OF BASEBALL
Mr. Chairman and members of the Subcommittee, I am Thomas J. Ostertag, General Counsel, Office of the Commissioner of Baseball. I appreciate the opportunity to testify before you, on behalf of the thirty clubs engaged in the sport of Major League Baseball, concerning the cable and satellite carrier compulsory licenses.
As you know, Mr. Chairman, these compulsory licenses permit cable operators (Section 111 of the Copyright Act) and satellite carriers (Section 119) to retransmit countless hours of copyrighted broadcast programming to paying subscriberswithout having to negotiate for the right to do so with affected copyright owners. That programming includes thousands of Baseball and other live sports telecasts each year. We welcome your willingness to reexamine Sections 111 and 119.
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Baseball's position is simpleeliminate the compulsory licenses. Allow marketplace negotiations (rather than Government agencies) to set royalty rates and other license terms. Require cable operators and satellite carriers to bargain in the marketplace for the copyrighted programming on broadcast signals, just as they now bargain for the copyrighted programming on non-broadcast signals (i.e., ''cable networks'' such as ESPN, TNT, CNN and USA). There is no justification for continued government involvement or for exempting cable and satellite carrier industries from marketplace transactions and normal copyright liability.
We recognize the political problems inherent in immediately eliminating the compulsory licenses. Therefore, we support a phased elimination over a period of two or three years. However, as the Register of Copyrights concluded in her August 1, 1997 Report, the existing compulsory licenses need substantial reform. For the period that compulsory licensing remains in effect, Sections 111 and 119 should be revised to achieve the following objectives:
1. Fair Market Value Compensation. The Section 111 compulsory license was adopted more than twenty years ago and tailored to a then-embryonic cable industry comprised almost entirely of ''mom-and-pop'' businesses. Cable operators were required to pay only a ''minimal'' below-market royalty, which had no economic basis.
Today, the cable industry is dominated by corporate giants such as TCI and Time-Warner; the industry's annual revenues of over $25 billion dwarf those of Baseball. The same corporate giants (along with the likes of General Motors, AT&T, MCI and The News Corp.) also control the satellite carrier industry and are responsible for the vast majority of royalty payments under Section 119. Those royalty payments, like the Section 111 royalties, amount to less than one percent of the satellite industry's total revenues.
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The Register has concluded that copyright owners should receive compensation that reflects the fair market value of the programming subject to compulsory licensing. We agree. There is simply no policy justification for requiring Baseball and other copyright owners to continue subsidizing commercial enterprises such as TCI, Time-Warner, General Motors, AT&T, MCI, and The News Corp. Currently, however, both cable operators and satellite carriers pay far less than fair market value for the Sections 111 and 119 compulsory licenses.
Indeed, the Copyright Royalty Tribunal (CRT) conducted an extensive evidentiary proceeding to determine what cable operators would pay in a free market for programming subject to Section 111. The CRT, in a decision affirmed by the D.C. Circuit, concluded that market rates would be four to fourteen times higher than the Section 111 rates. Unfortunately, however, the CRT had no authority to require cable operators to pay market rates for the vast majority of the broadcast programming retransmitted under Section 111.
More recently, a panel of three independent arbitrators conducted another evidentiary proceeding to determine the fair market value of the broadcast programming retransmitted by satellite carriers. In a decision affirmed earlier this week by the Librarian of Congress, the arbitrators determined that the fair market rate is 27 cents per signal per subscriber per monthor 150450% higher than the existing Section 119 rates. The Librarian, however, has (improperly, we believe) postponed the effective date of that rate until January 1, 1998, and the rate itself is still subject to judicial appeal.
In our judgment, even the 27-cent rate is below fair market value. Cable operators and satellite carriers alike pay substantially more for comparable programming on cable networks. For example, the USA Network costs, on average, about 35 cents; TNT, 54 cents; ESPN, 68 cents. We do not believe that there is any proper basis for requiring cable operators and satellite carriers alike to pay less than the 27-cent rate for all of the programming subject to compulsory licensing. Rates below those paid for cable networks will simply encourage the migration of sports and other programming from broadcast signals to cable networks.
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2. Compensation for Network Programming. Cable operators do not pay any Section 111 royalty to retransmit broadcast programming supplied by the ABC, CBS and NBC networksalthough they are required to pay compensation for programming distributed by the Fox network. The anomalous result is that Baseball may receive Section 111 compensation for the Fox broadcasts of the World Series but not for the NBC broadcasts of the World Series. In contrast, satellite carriers are required to pay for all programming distributed by all four national broadcast networks.
Cable systems, like satellite carriers, commercially exploit the programming supplied by all of the national broadcast networks. Cable systems, like satellite carriers, should be required to compensate the copyright owners of all network programmingas the Register of Copyrights has recommended.
3. Compensation for Local Programming. The arbitration panel that adopted the 27-cent rate also ruled that satellite carriers should not be required to pay any royalty for retransmitting certain broadcast stations into their local markets. The Librarian affirmed that ruling and expanded the instances where the ''zero rate'' would apply. Baseball disagrees with these determinationsas well as with the provision in Section 111 which permits cable systems to retransmit ''local stations locally'' without increasing their royalty payments.
The ability of a cable system to make such local retransmissions is a major factor enhancing the attractiveness of cable to consumers. Satellite carriers also believe that they must offer local stations locally to gain substantial market penetration. Cable operators and satellite carriers profit off their exploitation of such local retransmissions and should be required to share that profit with the affected copyright owners.
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4. Simplifying the Royalty Calculations. The current royalty rate in Section 111 is calculated from specified percentages of each cable system's ''gross receipts from subscribers . . . for the basic service of providing secondary transmissions of primary broadcast transmitters.'' 17 U.S.C. §111(d)(1)(B). The large (''Form 3'') cable operators pay royalties based on a highly complicated and technical formula derived both from FCC rules that were in place in 1976 when the Copyright Act was passed and from adjustments made by the CRT in the period since 1976. The complexity of the current calculation imposes unnecessary costs and burdens in determining how much cable operators must pay for particular signals.
The current royalty calculation is also subject to manipulation by cable systems through questionable accounting methods, such as ''tiering.'' Through ''tiering'' cable systems can package distant signals subject to the compulsory license in a ''basic service'' that is offered for a very low fee (which few if any subscribers pay). This practice leads to illogical results where some cable systems pay as little as a few cents per subscriber per month to retransmit a distant signal, while others pay as much as 80 cents or more for the same signal.
Baseball agrees with the Register's recommendation that Congress should adopt a flat per subscriber, per signal rate for cable operators, similar to the fee structure already in place for satellite carriers. However, simplification of the rate must ultimately be consistent with the primary goal of ensuring that the rates reflect fair market value.
5. Licensing Terms and Conditions. The existing Sections 111 and 119 compulsory licenses permit copyright owners to receive only a license fee. In the marketplace, however, licensing agreements contain a number of important provisions in addition to a license fee. Cable operators and satellite carriers should be required to not only pay a license fee but also to comply with other terms and conditions that are typically negotiated in marketplace transactions.
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For example, marketplace license agreements generally prohibit the carriage of certain games in certain markets, thereby preserving the exclusivity licensed to local broadcasters or others. Other compulsory licenses in the Copyright Act already allow for the imposition of terms and conditions in addition to royalty payments. Sections 111 and 119 should be amended to permit similar terms and conditions.
6. Transaction Costs. The existing system of compulsory licensing subjects copyright owners to significant and unnecessary transaction costs. To receive their share of royalties, copyright owners must engage annually in negotiations with one another as well as in the development of expensive factual evidence necessary to help determine royalty shares. If negotiations do not produce agreement, copyright owners may then be required to engage in time-consuming litigation before arbitration panels, the Copyright Office and the U.S. Court of Appeals (the extraordinary costs of which are borne entirely by copyright owners). We also must pay for the not insignificant costs of the Copyright Office to collect and to review the statements of account. Throughout this process, complete distribution of royalties is usually delayed for years.
The existing system requires copyright owners to divert enormous resources and to pay literally millions of dollars each year to maintain compulsory licensing. Any revision of the compulsory licenses should have the objective of reducing these costs for copyright owners and having those who insist on compulsory licensing bear a more equitable share. We believe that this objective may best be accomplished by a system of tariffing, which would allow each copyright owner group to define the terms and conditions under which cable operators and satellite carriers may retransmit the works encompassed by each copyright owner group. Such a system would grant copyright owners the flexibility to set rates and terms typically found in the marketplace; it would eliminate the annual disputes among copyright owners over royalty shares; and it would reduce the involvement of the Copyright Office in compulsory licensing. The tariffs could be made subject to some limited form of review to ensure that any statutory objectives are satisfied.
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7. The ''Passive'' Carrier Exemption. The passive carrier exemption (17 U.S.C. §111(a)(3)), which permits satellite carriers to retransmit broadcast stations to cable operators without copyright liability, should be modified so that the satellite carriers pay a royalty fee for this retransmission. The satellite carriers make a separate public performance of the copyrighted programming on superstations and other broadcast stations each time they retransmit these stations to cable operators. They profit from exploiting that programming and should be required to share those profits with the copyright owners whose works they exploit.
8. Retransmissions via the Internet. The Register of Copyrights has concluded that the scope of compulsory licensing should not be broadened to include the retransmission of broadcasts via the Internet. The Administration's Working Group on Intellectual Property Rights has reached the same conclusion. Baseball agrees that compulsory licensing should not be extended to Internet service providers.
The specific nature of the Internet makes compulsory licensing particularly inappropriate. Retransmissions via the Internet are quite different from retransmissions subject to existing compulsory licenses and implicate more than the copyright owner's right of public performance. Internet retransmissions can be easily stored, edited and retransmitted by a recipient to other Internet users virtually anywhere in the world, almost simultaneously with the original retransmission.
This real-time, global aspect of the Internet can be particularly harmful to time-sensitive programming such as sporting events. For example, a compulsory license for Internet retransmissions would ultimately permit real-time broadcasts of sporting events throughout the world. This would significantly impact a growing source of revenue for U.S. sports leagues: the export of sports programming to foreign markets, which often broadcast games on a tape-delay basis and in condensed form due to time zone differences.
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Thank you again, Mr. Chairman, for the opportunity to provide Baseball's views on the Sections 111 and 119 compulsory licenses. By way of summary, Baseball recommends that Congress phase out these compulsory licenses. For the period that compulsory licensing remains in effect, (1) cable operators and satellite carriers should pay fair market value compensation, and comply with other license terms typically found in the marketplace, for all of the copyrighted programming that they retransmit; (2) the substantial costs of compulsory licensing now borne by copyright owners should be significantly reduced; and (3) the scope of the existing compulsory licenses should not be broadened to encompass new retransmission technologies, such as the Internet.
Mr. COBLE. Mr. Attaway.
STATEMENT OF FRITZ E. ATTAWAY, SENIOR EXECUTIVE VICE PRESIDENT FOR GOVERNMENT RELATIONS AND GENERAL COUNSEL, MOTION PICTURE ASSOCIATION OF AMERICA
Mr. ATTAWAY. Chairman Coble, members of the subcommittee, thank you for giving me this opportunity to present the views of the motion picture industry on the copyright licensing regimes covering retransmission of broadcast signals, which is more than a mouthful. I think we are really talking about the cable and satellite carrier compulsory licenses.
You have my written statement. I will briefly summarize here. I don't know if I will be as good or as quick as my colleague here on the right, but I will try my best.
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When I joined the MPAA all the way back in 1976, my first task was to work on the cable compulsory license, which was the most controversial and heavily debated section of the proposed revision of the 1909 Copyright Act. We finally managed to forge enough of a consensus to get the revision act passed, but, in retrospect, we didn't do a very good job of crafting a licensing structure that would work efficiently over time.
In fact, from its effective date in 1978, the cable license proved to be complex, cumbersome, inflexible, and inequitable, and it has become worse over the years. When the satellite carriers sought a similar compulsory license to retransmit television broadcast signals directly to subscribers, a much better compulsory licensing structure was found.
Philosophically, MPAA opposes compulsory licenses, period, all compulsory licenses. We believe that intellectual property should be purchased and sold in a free marketplace, just like tangible property. We see no more justification for Congress to set the terms, conditions, and prices governing the transfer of rights to TV programs than there is for Congress to set the terms, conditions, and prices that govern the transfer of optic fiber, fiber, or satellite transponders. A competitive marketplace is the best mechanism for determining who gets what, on what terms, and at what price.
We believe the ultimate goal of the Congress should be to get out of the program price control business and return the cable and satellite retransmission business to a free market. But alas, we have compulsory licenses, a lot of people are heavily invested in them, and we are not going to get rid of them in the short term. But we can make them better, easier to administer, more simple, and more fair.
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The Registrar of Copyrights has made a number of recommendations that we believe will achieve this goal. In particular, the cable license should be restructured along the lines of the satellite license. First, compulsory license fees should be calculated according to a simple cents-per-signal-per-subscriber-per-month formula.
The current formula for calculating cable royalties based on percentages of subscriber revenues is mind numbingly complex and subject to artful manipulation to avoid liability. If you think the IRS forms are complicated and goofy, take a look at the cable statement of account forms; they are even worse.
Second, there should be marketplace rates determined by industry-to-industry negotiations, backed up by arbitration. Below-market rates are unfair to copyright owners, distort the marketplace, and are not supported by any evidence that they benefit consumers. And even if such evidence existed, why should program owners be forced to give up their property at below-market rates?
Third, although not included in the Copyright Office recommendations, the cable license should have a sunset, as does the satellite license. This does not mean that the compulsory license must be abolished as of a certain date; what it means is, the Congress will review the license at a prescribed time and determine whether it should be renewed, and, if so, whether it should be revised to keep up with an evolving marketplace. This is the way the satellite licenses worked, and it makes sense.
By taking these three steps now, Congress would return some degree of equity and rationality to the TV program marketplace. Specifically, Congress would provide for a reasonable transition to a time when TV program retransmission rights are governed by the same market forces that now govern the vast majority of programming brought into the home by over 100 cable and satellite program services. Notably, these are services that somehow manage to operate and prosper without the heavy hand of government intervention.
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Mr. Chairman, as a final point, I really learned something very interesting today. In the previous panel, Mr. Hewitt said that what is at stake here is $12 a year for the average satellite subscriber. On this panel, Mr. Anstrom said that what is at stake here is $6 a year for the average cable subscriber. I submit to you that $12 a year or $6 a year is not justification for the Congress suspending the laws of supply and demand and imposing price controls on copyright owners.
Thank you very much.
[The prepared statement of Mr. Attaway follows:]
PREPARED STATEMENT OF FRITZ E. ATTAWAY, SENIOR EXECUTIVE VICE PRESIDENT FOR GOVERNMENT RELATIONS AND GENERAL COUNSEL, MOTION PICTURE ASSOCIATION OF AMERICA
MPAA has been vocal in its opposition to the continuation of the current compulsory license regime and has long advocated the ultimate elimination of the entire compulsory licensing system in favor of free market negotiations as the means by which prices for retransmission of all copyrighted programming are determined.
While we applaud the Register of Copyrights and her staff for their very thorough and comprehensive report on this issue, there are significant philosophical and practical differences of opinion that MPAA has with the recommendations and conclusions reached in the Register's Report. Despite those differences the Report is, for the most part, a fair and reasonable compromise of those diverse interests.
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The primary reason for creating the compulsory licenseminimizing allegedly burdensome transaction costshas been overtaken by events. The ability of cable networks to obtain programming via market negotiations demonstrates convincingly that private transactions can effectively and efficiently bring large amounts of programming to the viewing public. MPAA recognizes that abruptly eliminating the licensing system would likely have negative economic ramifications toward certain parties. In consideration of that fact, MPAA proposed a plan that would phase out the licensing regime over a certain number of years.
The current licensing scheme would need to be updated and streamlined during the transition period. A flat fee per subscriber per signal on an upward sliding scale to discourage carriage of multiple signals would be one way to simplify the compulsory license structure for cable systems. Moreover, we would propose that the licensees be required to pay a marketplace royalty fee, not the current below-market price rates that require program owners to subsidize cable operators and satellite carriers.
MPAA is pleased to see that the Register's Report agreed there is no justification for the amounts paid copyright owners to be less than the fair market value of their works. This would be another means for leveling the playing field among all program services offered by retransmitters, rather than having the artificially low statutory rate tilt the field toward taking more broadcast signals at the expense of market-priced and unsubsidized non-broadcast program channels.
Cable and satellite carriers have argued that eliminating, or even altering, the current licensing regime would be catastrophic for rural America. This is nonsense. First of all, rural America is not primarily served by small systems. In fact, most small market subscribers are served by large systems. Further, it is manifestly untrue that rural America will not receive a full complement of stations unless cable systems, for example, are induced by low royalty rates to import needed distance signals. Recent statement of account data show an average of 5.5 local stations are carried by systems in the rural areas. Rather than allowing the government to pick winners and losers by distorting the program marketplace, the better approach would be to allow a level playing field where all programming is priced under the same marketplace conditions. Government imposed rates for the retransmission of copyrighted programming are in reality price controlswhich are an anathema to America's free enterprise system.
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The contention that compulsory licenses are justified because of the transaction cost of clearing rights in the marketplace is patently and demonstrably false. There are well over a hundred of cable networks in existence where the rights to every single one of the thousands of programs has been cleared through the cable network to thousands of cable systems and satellite carriers.
The Register's Report stopped just short of recommending elimination of compulsory license. The Congress should consider taking the next step. The time has come to shelve this relic of the 1970s.
Good Morning. My name is Fritz Attaway and I am the Sr. Vice President for Government Affairs and Washington General Counsel of the Motion Picture Association of America.
I appear before you today on behalf of the Association to express MPAA's position on Copyright Licensing Regimes Covering Retransmission of Broadcast Signals.
As you know, MPAA has been vocal in its opposition to the continuation of the current compulsory license regime and has long advocated the ultimate elimination of the entire compulsory licensing system in favor of free market negotiations as the means by which prices for retransmission of all copyrighted programming are determined. MPAA urges the Congress to provide for a sunset of the compulsory license after a reasonable transition period during which all beneficiaries of the licenses would be required to pay marketplace rates for the programming that they use.
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While we applaud the Register of Copyrights and her staff for their tireless efforts in producing a very thorough and comprehensive report on this issue, there are significant philosophical and practical differences of opinion that MPAA has with the recommendations and conclusions reached in the Register's Report. Despite those differences, MPAA recognizes the competing interests at work in this process and believes that the recommendations in the Report, for the most part, reflect a fair and reasonable compromise of those diverse interests, particularly with respect to the need for fair market value royalty rates.
We are disappointed that the Register of Copyrights has recommended to continue the current compulsory license system as described in her Report. MPAA firmly believes the time has come to provide for the retirement of the compulsory licenses. Free market negotiations, not the compulsory license regimes, should be the means by which all copyrighted programming, including retransmissions of broadcast programming, is made available to program distribution services. Ironically, the Register's report also concludes that free market negotiations are a ''better solution'' than a government administered compulsory license.
The primary reason for creating the compulsory licenseminimizing allegedly burdensome transaction costshas been overtaken by the developments of the last two decades. The ability of cable networks to obtain programming via market negotiations demonstrates convincingly that private transactions can effectively and efficiently bring large amounts of programming to the viewing public. A compulsory license at government-set subsidized rates is no longer needed to shield cable and satellite carriers from the marketplace. These mature industries are entirely capable of negotiating for themselves in the free market.
Page 140 PREV PAGE TOP OF DOC In fact, over the past ten years, cable operators and satellite carriers have experienced unparalleled growth. In the burgeoning subscription television market, for example, one satellite carrier, United Video Satellite Group, Inc., reported revenues for 1995 at $262.9 million, up 34% from 1994. And revenues from 1994 were up 74% from 1993. United Video unabashedly attributes its success primarily to increases in the number of its satellite programming packages offered to subscribers nationwide.
Curiously, the Register contends that parties advocating the elimination of the compulsory licenses have failed to present a clear plan for doing so. With all due respect to the fine efforts of the Register, MPAA did propose a reasonable method of eliminating the licensing system. MPAA recognizes that abruptly eliminating the licensing system would likely have negative economic ramifications toward certain parties. In consideration of that fact, MPAA proposed a plan that would phase out the licensing regime over a certain number of years.
Under MPAA's proposal, the current licensing scheme would need to be updated and streamlined during the transition period leading to a free marketplace. For starters, a flat fee per subscriber per signal on an upward sliding scale to discourage carriage of multiple signals would be one way to simplify the compulsory license structure for cable systems. Moreover, we would propose that the licensees be required to pay a marketplace royalty fee, not the current below-market price rates that require program owners to subsidize cable operators and satellite carriers to the tune of tens of millions of dollars per year. Finally, every use of a copyrighted work should be compensated and that would include retransmission of local as well as network programming. Under this transition scenario, MPAA believes the compulsory license regime could be phased out with minimal disruption.
Page 141 PREV PAGE TOP OF DOC Although the Register rejected any phasing out of the compulsory license at this time, the Register's report did recommend that section 111 be amended to make cable rates as simple as possible and to ''reflect fair market value''much like the current license fee standard for satellite carriage. MPAA is pleased to see that the Register's Report agreed there is no justification for the amounts paid copyright owners to be less than the fair market value of their works. As the Register correctly noted, a flat fee per signal cable compulsory license rate tied to fair market value would eliminate many of the administrative costs and uncertainties created by the present royalty mechanism, eliminate undercompensation to copyright owners and treat cable systems similarly to satellite carriers.
MPAA agrees wholeheartedly with the Register that rates should be based on fair market value. A fair market value standard offers the advantage of having broadcast signal royalty rates for all retransmitters set on similar grounds to the rates charged for non-broadcast services, rather than having the artificially low statutory rate tilt the field toward taking more broadcast signals at the expense of market-priced and unsubsidized nonbroadcast program channels. Government policies should not be designed to pick winners and losers, but, instead, should let all programming services compete fairly by letting the market dictate what prices and coverage should be.
Regrettably, the Register's Report also concluded that setting rates at fair market value would obviate the need for the step-up rate of 3.75% for signals over the number permitted by the old FCC signal carriage limitations. MPAA believes the 3.75% distant signal rate has been an effective deterrent to transmitters wishing to stockpile distant signals on their systems. The Register's recommendation of a flat fee system, which would eliminate the 3.75% rate, is flawed to the extent that it is not graduated upward so as to create a disincentive to carry an indiscriminate number of distant signals which would often occur at the expense of more diverse non-broadcast services.
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The 3.75% royalty liability has served a useful function of making cable operators carefully consider whether to take additional distant signals. If a compulsory license is to exist, continuation of such a mechanism, in the form of a rate step set at a 3.75%-like level, would serve the same useful function. Such a charge should be built into any transition royalty structure to discourage profligate carriage of distant signals.
Cable and satellite carriers portray themselves as the champion for rural America. Cable and satellite carriers would like this body to believe that rural America's access to television hinges solely on below market royalty fees for retransmitted broadcast programming. It does not. The cost of obtaining the right to retransmit broadcast programming is only a small factor in a satellite carrier's or cable operator's decision of what to charge its subscribers. Clearly, other factors, including the margin of profit a satellite carrier or cable operator expects to gain, play a much bigger role. The only effect of capping copyright royalties will be to increase the profits of satellite carriers and cable operators, not to lower rates paid by rural America.
Cable and satellite carriers have argued that eliminating, or even altering, the current licensing regime would be catastrophic for rural America. They suggest that without a continuation of the compulsory licenses, small systems will be unable to serve rural America because they will be unable to negotiate in the marketplace for licenses to obtain broadcast program retransmission rights. Under this theory, rural America would be deprived of broadcast programming without such a continuation. This is nonsense.
First of all, rural America is not primarily served by small systems. Statistics from cable royalty filings show that more than 50 percent of subscribers to the smallest (''Form 1'') systems are located in the Top 100 markets, not in rural America. Most small systems operate in large, not small, markets.
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In fact, most small market subscribers are served by large operators. The largest (''Form 3'') systems serve over 12 million subscribers in smaller markets or outside all markets as compared to only about 1.1 million subscribers served by the smallest systems in these same markets. Moreover, of the 1,649 reporting cable systems with 100 or fewer subscribers, 1,459 or 88 percent are owned by large multiple systems operators (''MSOs''). While the cable and satellite carriers would like to portray rural America as served predominantly by small cable operators, the exact opposite is true.
Further, it is manifestly untrue that rural America will not receive a full complement of stations unless cable systems, for example, are induced by low royalty rates to import needed distance signals. In 1976, there were 701 commercial stations. In 1996, there were 1,174a 67-percent increase. And that increase in stations has resounded strongly in small markets. Recent statement of account data show an average of 5.5 local stations are carried by systems in the rural areas. As a result, viewers in small markets already have a range of local network and independent stations available without the need to import distant stations to fill out a complement of broadcast programming.
The Register recommended that the token royalty fee paid by the smallest cable systems be raised to a meaningful amount. We wholeheartedly agree.
For small Form 1 cable systems, the current royalty fee is $28 every six months, an amount the Register notes does not even meet the administrative costs of processing the fee. A small system is as likely to be an urban system as a rural system, and is much more likely to be a part of a large MSO than an independent ''Mom and Pop'' operation. The need for subsidizing such systems is highly problematic.
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The important point here is that rather than allowing the overnment to pick winners and losers by distorting the program marketplace, the better approach would be to allow a level playing field where all programming is priced under the same marketplace conditions. Government-imposed rates for the retransmission of copyrighted programming are in reality price controlswhich are an anathema to America's free enterprise system. But price controls are precisely what the cable and satellite carriers would like Congress to impose. Under the ruse of preserving affordable television for rural America, cable and satellite carriers want Congress to take the extraordinary step of imposing below-market price levels for the right to retransmit broadcast programming. Imposing such price controls on the backs of copyright owners has less to do with protecting rural America than it does with protecting the margins of profit for cable and satellite carriers.
If the pretext for imposing price controls on copyrighted programming is to ensure television access in rural America, then the absence of price controls across-the-board, which would necessarily include subscription fees charged by satellite carriers, dooms any national effort to make television in rural America affordable. There is no obligation on satellite carriers to pass savings from below-market royalty rates to consumers. In fact, keeping royalties low only serves to widen the profit margins of satellite carriers at the expense of copyright owners. Rural America will continue to pay market rates for its satellite television services, while satellite carriers will pay below-market rates to transmit programming.
As a final point, the contention that compulsory licenses are justified because of the transaction cost of clearing rights in the marketplace is patently and demonstrably false. In fact, the Register's Report says as much. There are well over a hundred cable networks in existence where the rights to every single one of the thousands of programs has been cleared through the cable network to thousands of cable systems and satellite carriers. In this process, each cable operator or satellite carrier gets licenses to publicly perform every single program offered by all these multitudinous cable networks, who, in turn, obtain permission to transmit these programs through licenses with each and every program supplier. In all those cases, the marketplace works as it should. The only place that it doesn't work is for retransmitted broadcast programming, where government has imposed a compulsory license. Abolish the compulsory license and the marketplace will take care of the rest. The Register's Report stopped just short of recommending elimination of compulsory license. The Congress should consider taking the next step. The time has come to shelve this relic of the 1970s.
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Mr. COBLE. Thank you, gentlemen.
In fact, I was going to ask Mr. Anstrom about that. I thought maybe I misunderstood you. I am not suggesting, folksany increase is good when you are paying for it, but I would have concluded that, probably based upon the 27 cents per signal per month per subscriber, probably would have resulted in an increase that exceeded 50 cents per month.
I did hear you correctly, did I not, Mr. Anstrom?
Mr. ANSTROM. That is an average estimate, Mr. Chairman. If you wanted to look at, for example, Carmel Highlands, California, a small community south of Monterrey, that would be $30 a year per cable customer, with 318 subscribers in that community. So the average number is $6 a year.
I would say, Mr. Chairman, as you and I both know, I think, in terms of the concern this committee and others have about cable prices, I would invite Mr. Attaway to go to any of our systems and explain to our customers he would like to raise their prices $6 a year. I think he would have more sensitivity than perhaps he just reflected in his comment.
Mr. COBLE. No one likes an increase when it is coming out of your own hide.
Mr. Hargrove, let me start with you. The issue of the compulsory license of local-to-local carrying of broadcast signals is intertwined with the must-carry obligations. In fact, if a cable operator fails to comply with must-carry rules, the cable operator will lose his or her compulsory license. If DBS providers are permitted to retransmit local signals within their local areas, is it appropriate for them to comply with the must-carry rules?
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Mr. HARGROVE. Well, that is an excellent question. There are a number of policy issues that this Subcommittee is going to have to address to implement Mr. Goodmon's very creative and promising local-to-local proposal.
First there are the carriage and retransmission consent. I think the industry is struggling with that now to try to fashion a policy that would be appropriate. I think most broadcasters feel that they would be poorly served if the satellite carriers were given the option of picking winners and losers within each market or charging stations for carriage or for holding an auction with the result that only the most financially successful stations could pay the fee necessary to be carried. I think that would be a giant step backward in the progress that the Congress has made in trying to preserve local free over-the-air service.
There are the additional issues of nonduplication protection. There is a long regulatory history of affording program exclusivity through nonduplication and syndicated exclusivity protection in the cable context. There is the equally important policy issue of assuring the ability of local stations to monitor compliance by the satellite carrier with the scope of the compulsory license. And, also, an enforcement mechanism must be devised to make sure that to the extent a carrier might not be honoring the scope of its license, a realistic and pragmatic remedy must be available to enable local stations to bring an infringement action.
You know, broadcasters have never really had any serious problem with the cable industry in enforcing the scope of that industry's compulsory license. An ethic has developed without the cable industry over the years of respecting the limits of that compulsory license. So we are hopeful these concerns can be worked out.
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Mr. COBLE. I thank you, sir.
Mr. Ostertag and Mr. Attaway, let me put this question to each of you. If compulsory licenses are eliminated, how will subscriber rates for both cable and satellite service be affected? Either of you.
Mr. ATTAWAY. Mr. Chairman, the honest answer is, I don't know. But I do know that there are 123 cable and satellite services in existence today that are not subject to compulsory licensing. Rates are negotiated in the marketplace, and somehow the services are delivered to subscribers, and the subscribers seem to be happy they subscribe to the services. It is only a handful of television station programming that are subject to compulsory licensing. The marketplace works things out, and they would work out retransmission rights if it were left to the marketplace.
Mr. COBLE. Mr. Ostertag.
Mr. OSTERTAG. I agree, and I think it is important to remember that increases in copyright rates don't necessarily have to be passed along to consumers. They can come out of profits. We are talking here about a subsidy to some of the largest companies in the entire country, and we just don't think that is appropriate.
Mr. COBLE. I thank you, gentlemen.
Did you want to be heard, Mr. Anstrom? Your facial response indicated you might want to say a word.
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Mr. ANSTROM. I just hope major league baseball applies that approach when salaries go up to the ticket prices at Camden Yards next year.
Mr. COBLE. All right, sir.
The gentlelady from California.
Ms. LOFGREN. Thank you, Mr. Chairman.
I don't have a lot of questions. I was just thinking that so much of what we are talking about is where we were and the reasons why the Congress got into this at all and where we are today and, more importantly, where we are going, too.
And as we think about how technology will change the way we receive information with the video streaming and wireless communication of data at the T1 line transmission rates, I am wondering, from Mr. Anstrom and Mr. Hargrove, who recommended licensing continue in some form, how you would envision any licensing scheme being applied to video streaming, Internet communications of the material we currently get, either through broadcast, cable, or your satellites.
Mr. ANSTROM. If I can respond to that, Congresswoman, I think the office appropriately reached a conclusion of sidestepping that question at this point. We are not seeking to extend the compulsory license to other technologies. As I testified, we do not oppose extending it to allow DBS providers to provide local signals.
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Ms. LOFGREN. I know you are not recommending, but I am wondering, how do you envision this as technologies converge? How would the licensing impact your business, and can you foresee in the future this being extended to the Internet video transmission?
Mr. ANSTROM. I think at this point, if we were sort of starting over again from where we were in 1976, now looking at the new Internet technologies, one could make a good case for maintaining effectively the status quo for cable, for satellite, for other technologies, but for learning some more, frankly, of where this phenomenon of the Internet is headed. And I think that our industry would not recommend trying to extend a compulsory license regime to the Internet, because I think, frankly, as you know well, it is still being invented at this point.
Ms. LOFGREN. What about you, Mr. Hargrove?
Mr. HARGROVE. I don't mean to be nonresponsive. This is an issue that Congressman Boucher has been struggling with for some time, and rightly so.
Local broadcasters, frankly, have not focused on the issue. It has been discussed. Broadcasters are preoccupied with the satellite industry and the cable industry at the moment. The Internet issue winds up on the back burner in our policy discussions. But it is a very relevant question and an important issue. Congress is going to have to deal with it.
Broadcasters are concerned with making sure that competitive distribution technologies do not deprive them of the right to enter into exclusive programming arrangements and the right to control the distribution of their programming. I think that is where they begin to analyze the issue. But the Internet, it has characteristics that are entirely different; we are going to have to construct a new model. Perhaps we could learn from the models we now have.
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Ms. LOFGREN. If I can, and perhaps Mr. Attaway has a comment, because these are issues you have been dealing with a lot. Looking backward, I wasn't here in the Congress, but my understanding is, the rationale for this whole licensing scenario was to put in place a scheme that would facilitate the delivery of broadcast programming to places that couldn't get it otherwise, and if that was the rationale, and to the extent that this whole scenario maybe fostered that, is that rationale still present when anybody in America who is near a satellite dish, near a cable, near a phone line, will, by the time the act expires, probably be able to get access to that broadcast through a different technology.
Mr. ATTAWAY. The original rationale for compulsory license was that in the early seventies all cable did was retransmit broadcast signals, mostly in the underserved areas. At the time, it was felt that the transaction cost of clearing rights to all those programs was just too much for the then mostly mom-and-pop cable operators.
The industry is totally different today. The primary function of cable today is not to deliver broadcast signals but to deliver these 123 cable network services in addition to pay-per-view and a whole variety of nonbroadcast services.
Ms. LOFGREN. Let me interrupt, because I would disagree. Hearing from friends, many people are saying that a primary reason for cable now is to facilitate web TV.
Mr. ATTAWAY. Well, you could be right. You could be right. But things have changed, and I think your original question is a very good one: Where do you draw the line on a compulsory license? Is it just with cable and satellite? Is it telephone companies? Congressman Boucher is very legitimately concerned about the position of telephone companies vis-a-vis the compulsory license; does it include the Internet? And you can go on and on. It is a slippery slope. And I submit that the way to deal with that is to eliminate all the compulsory license so everyone can compete on the same level playing field. Otherwise, you are going to be going through this year after year after year after year as new technology develops and new services develop.
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Ms. LOFGREN. Thank you.
I have taken advantage of the chairman. The light is on.
Mr. COBLE. You weren't able to be with us earlier, so if you want to ask questions after Mr. Boucher, we will come back to you.
Mr. GALLEGLY. Mr. Chairman.
Mr. COBLE. Oh, I am sorry. I thought Mr. Gallegly had left.
The gentleman from California.
Mr. GALLEGLY. With all due respect, you can't lose something you didn't have, Mr. Chairman.
Mr. COBLE. Oh, strike that. The truth sometimes is a good defense however. You are on for 5.
Mr. GALLEGLY. When you are in a room with a lot of attorneys, you have to be very careful with comments like that.
Mr. COBLE. You are on for 5.
Page 152 PREV PAGE TOP OF DOC Mr. GALLEGLY. Thank you very much, Mr. Chairman. And I am sure that light will be tightly regulated.
Mr. Anstrom, I wasn't taking real good notes on some of the numbers you threw out. You mentioned the average. Were you basing that on monthly average or an annual average? Where you said the rates would be $6, did you say, or $7?
Mr. ANSTROM. We estimate that the average annual increase would be $6 for customers in smaller, rural cable systems.
Mr. GALLEGLY. That would be an average of 50 cents per month per customer. And then you used Carmel as an example. You used the term ''$37.'' Is that an annual increase?
Mr. ANSTROM. It would be an annual amount of roughly 30 to 35 dollars a month.
Mr. GALLEGLY. So it would be like $3 there as compared to 50 cents somewhere else.
Mr. ANSTROM. Yes, sir.
Mr. GALLEGLY. Mr. Attaway, have the folks over at MPAA made any estimateswould you agree with Mr. Anstrom's assessment, or have you done any kind of an estimation?
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Mr. ATTAWAY. I can't verify those numbers, but they sound reasonable to me. They are in the ball park.
Mr. GALLEGLY. So you haven't done any official type of estimation based on projections and so on?
Mr. ATTAWAY. We have not, to my knowledge, but we certainly could do it very easily, and if you would like that information, I would be glad to provide it for you.
Mr. GALLEGLY. If you can.
Mr. ATTAWAY. Absolutely. I will probably come up with the same number that Mr. Anstrom has.
[The information follows:]
Hon. ELTON GALLEGLY,
|Motion Picture Association of America, Inc.,|
|Washington, DC, November 5, 1997.|
U.S. House of Representatives,
DEAR CONGRESSMAN GALLEGLY: At the hearing last week on Copyright Licensing Regimes Covering Retransmission of Broadcast Signals you asked me whether our data on cable royalty fees supported the statement by NCTA president Decker Anstrom that the difference between the royalties cable systems currently pay and the 27-cent ''fair market'' rate applied to satellite carriers amounts to about $6 per year per cable subscriber, or about 50 cents a month.
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We have reviewed our database of information supplied by cable operators to the Register of Copyrights and it shows that current royalty payments by cable systems amount to $2.77 per year per subscriber. If the current statutory royalty rates were increased to the 27-cent ''fair market'' rate, cable systems would pay an annual royalty of $7.84 per subscribera difference of $5.07, or 42 cents a month. While this is less than the NCTA estimate, it is in the same ''ballpark.''
It should also be noted that this average royalty payment includes small cable systems that pay virtually nothing under the current system. If only the larger systems which serve 89% of all subscribers, are included in the calculation, the difference between the current royalties paid and ''fair market'' royalties would be $4.59 annually, or 38 cents a month.
Whether you accept the NCTA number or our number, either number raises the same question. Does 38 cents, or 50 cents, per month per subscriber, who is paying $20, $30, $40 or even more every month for cable service, require the Congress to suspend the rules of supply and demand; to overrule the marketplace and decree that cable operators need not pay a fair market value for some of the programs they sell to subscribers? Do a few cents per month, which may or may not be passed on to cable consumers, justify Congressional imposition of price controls on program producers for the benefit of the cable industry?
I would hope that the Congress will answer ''no'' to these questions.
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Mr. GALLEGLY. With respect to my chairman, I want a done good, too. So I will yield back to the Chair.
Mr. COBLE. Very good. I thank the gentleman from California.
The gentleman from Virginia.
Mr. BOUCHER. Thank you very much, Mr. Chairman.
I am very tempted to spend this time talking about the last issue that was raised. That is the application of compulsory license to open video platforms and to the Internet. I note the Copyright Office recommends the former and does not recommend the latter.
I am, I guess, a little bit troubled by the latter recommendation because there are video streaming services that, while not particularly efficient today, with the growth of band width, will become more efficient and could offer a high-quality video. And in the absence of the application of the cable compulsory license, my sense is that those services will be stymied. And so I think it is something we have to think about, rather than simply automatically reaching the conclusion that we should not extend the compulsory license to that kind of service.
But I am not going to talk about that; I am going to take this time to instead have a dialogue with Mr. Hargrove about a subject that is of perhaps parochial interest in my district but I think has a national application also, particularly in the mountainous regions of our Nation.
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Mr. Hargrove, I know in the discussions you are having with the satellite uplink services, with respect to the delivery of network signals into unserved areas, that you are recommending that we have a red zone/green zone approach. The Copyright Office also gives its blessing to a version of that as a way to deal with the question of eligibility to receive the network signals.
Where there is a significant difference in your approach and the Copyright Office's approach is, there is no safety valve in the approach that you are recommending and there is one in the approach the Copyright Office recommends, perhaps not the right one but a safety valve nonetheless.
Why do we have to have a safety valve? Well here is the simple answer. The red zone/green zone approach would essentially assign by zip codes or some other kind of measure eligibility to swaths of territory, and you would find in the red zone people not being able to get the satellite delivered signal and in the green zone they could, and that is a fairly arbitrary designation.
In a place like where I live, where there are lots of mountains, there are going to be people inevitably who will wind up, through that arbitrary designation, in the red zone who, in fact, are behind the mountain and cannot get the signal from the local station.
And so what kind of release valve do we put in place in order to meet the needs of that subscriber? And in my district, it is not going to be that subscriber, it is going to be tens of thousands of subscribers who fall into that category, and that will be the condition that affects millions of subscribers across the country.
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I would recommend this, and I would just like to get your thoughts on whether there is any merit in looking at this approach. I don't expect you to endorse this today. I would be shocked if you did. I wish you would, but I would be shocked if you did.
What I would like you to do is tell me if there is enough merit in it for it to become a subject of our discussions between now and the time this subcommittee marks up its legislation dealing with this whole range of license issues, and that would be simply this. First of all, perhaps we could grandfather the existing base of subscribers and just find that they are eligible and apply the red light/green light distinction on a going forward basis.
I see a number of people in the audience shaking their heads already, so I know that that approach is probably not going to meet with unanimously favorable reception. But it is one possible way of providing a safety valve for those who get the signal today and everybody knows they are eligible but, under your approach, could not get it in the future.
If that is not acceptable, why don't we put in place a test, a signal test, and proceed on a whole new basis in terms of the way that we go about requiring that test or providing for it. Today, the test is of the question of whether or not, measured at the rooftop, a signal of grade B intensity is received from the local station.
Now that is a faulty test for a couple reasons. First of all, it is pretty expensive. I am told it would cost a couple hundred dollars to perform that test. Very few, if any, of those are in fact ever performed because of the cost. It is also inappropriate because you might find that, at the rooftop, that meter shows a signal of grade B intensity but in fact the viewer does not get a viewable signal, because in the mountainous areas you have a lot of ghosting and shadows of signals created by the fact that you get an echo effect of the signal of the mountains, and different versions of that signal arrive at the rooftop at different times; that creates ghosts and shadows on the television set. And so it says grade B intensity but, in fact, you don't get a viewable signal. So a picture quality standard, I think, would make a great deal more sense.
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You have a card depicting various levels of picture quality. Put that next to the TV set and determine whether the minimally acceptable level is, in fact, being received.
The real question, I think, comes down to who performs the test, and this has been one of the major stumbling blocks we have had in the past. I know broadcasters have resisted the notion of a picture quality standard because you haven't trusted whoever would wind up performing that test to make what is inherently a somewhat subjective judgment.
So my proposal to you is this, and I am prepared to recommend this to the satellite industry also. Let's let the broadcaster perform the test. Someone from your TV station can go make that test. It could be an engineer on the staff or it could even be the receptionist who answers the phone. Anyone whom you trust, whom you designate, can go perform that test, put the picture quality card up next to the TV set, and make the determination.
And then we would add to that a loser-pays principle, meaning that the cost of the test, presumably what it costs to drive out there and put the card upit wouldn't be a lot, I would not thinkwould be borne by whoever loses. If the household is found to be eligible for the satellite signal, then you would pay, and if the result is the other way, the satellite company pays. And I see this as a way to try to break the logjam.
We have had a problem for 10 years in trying to get through this. We only have to get through it for about 3 years more, until Mr. Goodmon, with our subcommittee's cooperation in changing the law, can put his local-to-local retransmission satellites into orbit, and he says the year 2000 is when he can probably do that.
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So as a way to get us through the next 3 years, what do you think about this? Should we discuss it, and does it have some merit?
Mr. HARGROVE. The short answer, Mr. Boucher
Mr. COBLE. The short answer to an elongated question.
Mr. HARGROVE [continuing]. Is that I very much look forward to it, and other broadcasters do as well, to sitting down and responding in a thoughtful way to your recommendations.
The issue that has, frankly, made it so difficult for us to reach an agreement between the two industries on a way to implement the act, consistent with its goals, has been how to deal with the subscribers at the margin.
There is not any substantive difference, at least with the two carriers with whom we have been negotiating at the core where, clearly, the home can get a good signal from the local affiliate. And I would request you to please encourage the remaining other carrier to join with us in trying to work out an agreement.
The challenge is how to deal with those subscribers at the margin to make sure you are being fair to them and you are being fair to the carrier and you are being fair to the broadcaster. That is what we have been struggling with, and we have made a great deal of progress in recent weeks. I think we will have an up or down answer on whether we can have an agreement within the near term, not the long term.
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Mr. BOUCHER. Well, let me say several things in response to that. First of all, you don't have perhaps the major party at interest on the satellite side of the equation.
Mr. HARGROVE. And we welcome them and encourage them to join with us.
Mr. BOUCHER. And I thinkand I think I got a favorable response to my question, which I was glad to hearif you are willing to embark on the broader discussion that would involve some of the suggestions I have just put forward, then I think you would find the other carrier at the table with a willingness to engage with you on these grounds. And so if you are willing to do that, I think the potential for you to have an industry-wide agreement might be real indeed.
Mr. HARGROVE. Let me say, I don't want the opportunity to go without responding to your recommendation of grandfathering of illegal subscribers. We would be deeply troubled by that. We heard this argument as it was made by some of the carriers in 1994. We hope the Congress will not encourage any party to infringe copyright laws in the hope the Congress may later come along and reward it for having done so.
We are not insensitive to the subscribers who, in good faith, took the service relying upon what they were told by their satellite carrier or dealer. We pledge our efforts to work with those subscribers to make sure that there is an appropriate transition where that is necessary.
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Mr. BOUCHER. Well, thank you.
I would suggest we have some discussions about this, and maybe a private conversation would be appropriate at this point. I think that your red zone/green zone approach has a certain amount of validity as a starting point, but I think it is only a starting point, because if you apply it without any alteration and without any ability for people to challenge who obviously can't get the signal, then I think a real injustice would be worked, and then I think the question for us is, what kind of safety valve do we adopt?
Thank you for your discussion on this. Thank you for your at least decade of hard work on the subject, and perhaps it won't take us a decade more to get it resolved.
Mr. COBLE. The gentlewoman from California, did you have another question?
Ms. LOFGREN. Mr. Chairman, I think it is getting late, and this has been very helpful, but I think there are more questions than there are answers today if you look ahead to where the technology is going.
Mr. COBLE. Let me think aloud with you all for a moment before we conclude. In this city, if Members of Congress don't want to be involved in an issue, they will simply say, oh, I don't have a dog in that fight, and that excuses them. Folks, I ain't got nothing but dogs in this fight. And I suspect the rest of the subcommittee agrees. There is not an adversary at the table, nor has there been today, which, of course, compounds the difficulty. Even friendly dogs, if they are put off in a room for a long enough time, can become unfriendly. And we are going to try to work through this.
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And I say to the gentleman from southwest Virginia, I am just thinking aloud now, Rick. You may want to lead a team of negotiations on the white area issue, and I will work with you on that, and look forward to the result.
But this has been a good hearing, folks. I feel good about this. I look forward to seeing you all. And, meanwhile, Happy Thanksgiving and Happy Christmas. I look forward to seeing you in February, but I am sure we will be talking frequently in the interim.
I would like to thank the witnesses for their testimony. The subcommittee very much appreciates their contribution.
This concludes the oversight hearing on the copyright licensing regime covering retransmission of broadcast signals. We will have a continuation hearing next year, in February. The record will remain open for today's hearing for 10 days.
The subcommittee stands adjourned.
[Whereupon, at 12:30 p.m., the subcommittee adjourned.]
A P P E N D I X
Material Submitted for the Hearing
INSERT OFFSET FOLIO 87 HERE
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INSERT OFFSET FOLIOS 88 to 119 here
[The Appendix is being held in the committee files.]
COPYRIGHT LICENSING REGIMES COVERING RETRANSMISSION OF BROADCAST SIGNALS
SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
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COPYRIGHT LICENSING REGIMES COVERING
RETRANSMISSION OF BROADCAST SIGNALS
OCTOBER 30, 1997
Serial No. 71
Printed for the use of the Committee on the Judiciary
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
Page 165 PREV PAGE TOP OF DOCSTEPHEN E. BUYER, Indiana
SONNY BONO, California
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRISTOPHER B. CANNON, Utah
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
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THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director
Subcommittee on Courts and Intellectual Property
HOWARD COBLE, North Carolina, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
SONNY BONO, California
EDWARD A. PEASE, Indiana
CHRISTOPHER B. CANNON, Utah
BILL McCOLLUM, Florida
CHARLES T. CANADY, Florida
BARNEY FRANK, Massachusetts
JOHN CONYERS, Jr., Michigan
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
ZOE LOFGREN, California
WILLIAM D. DELAHUNT, Massachusetts
MITCH GLAZIER, Chief Counsel
BLAIN MERRITT, Counsel
VINCE GARLOCK, Counsel
Page 167 PREV PAGE TOP OF DOCDEBBIE K. LAMAN, Counsel
ROBERT RABEN, Minority Counsel
C O N T E N T S
October 30, 1997
Coble, Hon. Howard, a Representative in Congress from the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property
Attaway, Fritz E. Senior Executive Vice President for Government Relations and General Counsel, Motion Picture Association of America
Anstrom, Decker, President and Chief Executive Officer, National Cable Television Association
Cox, Steven J., Senior Vice President, DIRECTV, INC.
Goodmon, James F., President and Chief Executive Officer, Capitol Broadcasting Company
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Hargrove, Wade H., Counsel, Network Affiliated Stations Alliance
Hawkins, William R. (Rik), President, Starpath of Hardin County, KY
Hewitt, Charles C., President, Satellite Broadcasting and Communications Association of America
Howe, Tom, Director and General Manager, University of North Carolina Center for Public Television, on Behalf of the Public Broadcasting Service
Ostertag, Thomas J., General Counsel, Office of the Commissioner of Baseball
Peters, Marybeth, Register of Copyrights, Copyright Office of the United States
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE RECORD
Anstrom, Decker, President and Chief Executive Officer, National Cable Television Association: Prepared statement
Attaway, Fritz E. Senior Executive Vice President for Government Relations and General Counsel, Motion Picture Association of America:
Page 169 PREV PAGE TOP OF DOCPrepared statement
Letter from Mr. Attaway to Hon. Elton Gallegly, dated November 5, 1997
Cannon, Hon. Christopher B., a Representative in Congress from the State of Utah: Prepared statement
Coble, Hon. Howard, a Representative in Congress from the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property: Prepared statement
Cox, Steven J., Senior Vice President, DIRECTV, INC.: Prepared statement
Goodmon, James F., President and Chief Executive Officer, Capitol Broadcasting Company: Prepared statement
Hargrove, Wade H., Counsel, Network Affiliated Stations Alliance: Prepared statement
Hawkins, William R. (Rik), President, Starpath of Hardin County, KY: Prepared statement
Hewitt, Charles C., President, Satellite Broadcasting and Communications Association of America: Prepared statement
Howe, Tom, Director and General Manager, University of North Carolina Center for Public Television, on Behalf of the Public Broadcasting Service: Prepared statement
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Ostertag, Thomas J., General Counsel, Office of the Commissioner of Baseball: Prepared statement
Peters, Marybeth, Register of Copyrights, Copyright Office of the United States: Prepared statement
Material submitted for the record
(Footnote 1 return)
We believe the best statutory mechanism is for PBS (or any other ''public telecommunications entity'' (as defiend in 47 U.S.C. 397) that holds all underling national terrestrial broadcast rights) to be the beneficiary of a separate public broadcasting satellite compulsory license, and to control its use. As a technical matter, PBS proposes a provision, worded quite like present Section 118, that effectively creates a compulsory license within the Section 119 compulsory license. DBS providers would license the PBS national feed from PBS, and PBS in turn would be responsible for the compensation of all underlying rights holders.
(Footnote 2 return)
The Federal Communications Commission found in its 1996 Competition Report that local markets for the delivery of video programming ''generally remain highly concentrated, and structural conditions remain in place that could permit the exercise of market power by incumbent cable systems.'' Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, CS Docket No. 96133, Third Annual Report (released Jan. 2, 1997), at 4 (''1996 Cable Competition Report'').
(Footnote 3 return)
Id. at 39.
(Footnote 4 return)
17 U.S.C. §119.
(Footnote 5 return)
See 17 U.S.C. §111.
(Footnote 6 return)
17 U.S.C. §119(a).
(Footnote 7 return)
47 U.S.C. §119 (a)(2), (d)(10). By contrast, the license for superstations covers all U.S. households. ''Superstations'' essentially are all stations other than ''network stations'' secondarily transmitted by the satellite carrier. See 17 U.S.C. §119 (a)(1), (d)(9).
(Footnote 8 return)
The Copyright Office agrees ''that the satellite carrier industry should have a compulsory license to retransmit broadcast signals as long as the cable industry has one.'' A Review of the Copyright Licensing Regime Covering Retransmission of Broadcast Signals, U.S. Copyright Office, at 34 (Aug. 1, 1997) (''Copyright Office Report'').
(Footnote 9 return)
47 U.S.C. §335.
(Footnote 10 return)
See 17 U.S.C. §119(d)(10).
(Footnote 11 return)
In addition, DIRECTV notes that many cable subscribers are unable to receive a low-cost package comprised solely of broadcast network programming, and instead are required to purchase network programming bundled with other cable services. Permitting DBS providers to offer distant network signals to all subscribers thus would provide such subscribers with another option.
(Footnote 12 return)
The Copyright Office has endorsed the surcharge concept, at least as a temporary measure. Copyright Office Report at 13335.
(Footnote 13 return)
The Copyright Office states: ''Clearly, the purpose of the 90-day waiting period is to discourage cable subscribers from terminating their service, thereby making satellite service less attractive. The provision is anti-competitive by favoring one type of video retransmission provider over another.'' Copyright Office Report at 129.
(Footnote 14 return)
DIRECTV also supports an amendment to Section 119 that would encourage the widespread availability of a national Public Broadcasting Service (''PBS'') satellite feed to U.S. subscribers. This could be accomplished under the current license, for example, by exempting a nationally uplinked PBS station from any ''white area'' restriction preserved in the statute, as suggested by the Copyright Office. Copyright Office Report at 131. DIRECTV supports PBS's efforts to develop alternative revenue sources, and believes that a national PBS feed is consistent with the Public Broadcasting Act's mandate to ensure that all citizens have access to the basic public broadcasting service through all appropriate and available telecommunications distribution technologies. See 47 U.S.C. §396(a). DIRECTV also believes that the national PBS feed can and should be an important source of noncommercial educational and informational programming that DBS operators can use to meet their obligations to reserve channel capacity for such programming under Section 335 of the Communications Act. 47 U.S.C. §335(b)(1).
(Footnote 15 return)
This is acknowledged by the Copyright Office. Copyright Office Report at 135.
(Footnote 16 return)
17 U.S.C. §119(d)(5).
(Footnote 17 return)
While DIRECTV believes that mobile homes satisfy the ordinary definition of ''household,'' mobile homes also present the added complication of their ability to travel in and out of white areas.
(Footnote 18 return)
H.R. Rep. No. 941476, 94th Cong. 2d Sess. 89.
(Footnote 19 return)
House Report at 96.
(Footnote 20 return)
The report does suggest, however, that small systems might continue to pay less than large systems, although at a rate higher than current payments.
(Footnote 21 return)
Cable systemseven these that only carry local stationsstill must pay a minimum royalty fee to the Copyright Office for the privilege of being able to carry distant television stations.
(Footnote 22 return)
A new measure of a television station's marketNielsen's Designated Market Area (''DMA'')will be used beginning in 2000.