SPEAKERS       CONTENTS       INSERTS    Tables

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59–918

1999
COPYRIGHT LICENSING REGIMES COVERING RETRANSMISSION OF BROADCAST SIGNALS (PART II)

HEARING

BEFORE THE

SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY

OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

ON

COPYRIGHT LICENSING REGIMES COVERING
RETRANSMISSION OF BROADCAST SIGNALS

FEBRUARY 4, 1998
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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
STEPHEN E. BUYER, Indiana
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
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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

THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director

Subcommittee on Courts and Intellectual Property
HOWARD COBLE, North Carolina, Chairman
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F. JAMES SENSENBRENNER, Jr., Wisconsin
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
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
DEBBIE K. LAMAN, Counsel
ROBERT RABEN, Minority Counsel

C O N T E N T S

HEARING DATE
    February 4, 1998
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OPENING STATEMENT

    Coble, Hon. Howard, a Representative in Congress from the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property

WITNESSES

    Boylan, Peter C., III, President and CEO, United Video Satellite Group

    Casey, H. Thomas, CEO and President, PrimeTime 24

    Ergen, Charles W., President and CEO, EchoStar Communications Corp.

    Kessler, Marsha E., Vice President, Copyright Royalty Distribution, Motion Picture Association of America

    Phillips, Bob, CEO, National Rural Telecommunications Cooperative

    Polka, Matthew M., President, Small Cable Business Association

    Popham, James J., Vice President and General Counsel, Association of Local Television Stations

    Sullivan, William, Board of Directors, National Association of Broadcasters
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LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE RECORD

    Boylan, Peter C., III, President and CEO, United Video Satellite Group: Prepared statement

    Casey, H. Thomas, CEO and President, PrimeTime 24: Prepared statement

    Ergen, Charles W., President and CEO, EchoStar Communications Corp.: Prepared statement

    Kessler, Marsha E., Vice President, Copyright Royalty Distribution, Motion Picture Association of America: Prepared statement

    Phillips, Bob, CEO, National Rural Telecommunications Cooperative: Prepared statement

    Polka, Matthew M., President, Small Cable Business Association: Prepared statement

    Popham, James J., Vice President and General Counsel, Association of Local Television Stations: Prepared statement

    Sullivan, William, Board of Directors, National Association of Broadcasters: Prepared statement
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APPENDIX

    Material submitted for the record

COPYRIGHT LICENSING REGIMES COVERING RETRANSMISSION OF BROADCAST SIGNALS, PART II

WEDNESDAY, FEBRUARY 4, 1998
House of Representatives,
Subcommittee on Courts and
Intellectual Property,
Committee on the Judiciary,
Washington, DC.

    The subcommittee met, pursuant to notice, at 10:00 a.m., in room 2141, Rayburn House Office Building, Hon. Howard Coble (chairman of the subcommittee) presiding.

    Present: Representatives Howard Coble, Edward A. Pease, Chris Cannon, Barney Frank, John Conyers, Jr., Howard L. Berman, Rick Boucher, and William D. Delahunt.

    Staff Present: Mitch Glazier, chief counsel; Vince Garlock, counsel; Blaine Merritt, counsel; Veronica Eligan, staff assistant; and Robert Raben, minority counsel.

OPENING STATEMENT OF CHAIRMAN COBLE
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    Mr. COBLE. Good morning, ladies and gentlemen. Welcome to the full committee room. The subcommittee will come to order.

    Since we last met as a subcommittee, we have all suffered a great loss with the passing of our colleague, Sonny Bono, and I think it would be appropriate today prior to commencing today's hearing that we engage in a few moments of silence in memory of Sonny, who was a valued member of this subcommittee and a good friend to all of us.

    [Moment of silence.]

    Mr. COBLE. The subcommittee will come to order. I think the gentleman from Massachusetts will agree with me that we will, indeed, miss him. Sonny was a valued member of this subcommittee. It is good to have you with us, Mr. Delahunt.

    Mr. DELAHUNT. Thank you, Mr. Chairman. I just want to echo your sentiments. Sonny Bono, I only met about a year ago, but like for many of us who served with him and worked with him, he left an indelible mark on us. I always remember bantering with Sonny Bono. He would be very self-deprecating in terms of his role on this committee, but as you know and I know and other members know, he certainly contributed more than his share as far as the work of this particular subcommittee.

    He was an extraordinary human being and I know that I and others on this side, and I am sure you would acknowledge on your side of the aisle, we learned much from Sonny Bono, not just about his industry and where he came from, but we learned about the kind of humanity, I think, that he brought, not just to the subcommittee but to the United States Congress.
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    Mr. COBLE. I thank the gentleman for his comments.

    As you all know, this is a continuing hearing of our oversight hearing concerning the copyright licensing regimes covering retransmission of broadcast signals. It is a second hearing because of the obvious interest in the subject matter. We simply could not do the business of the good of the order in one hearing, so we called for two separate hearings.

    At the earlier hearing in October, you will recall we heard from representatives from the Satellite Broadcasting and Communications Association, the National Cable Television Association, the Motion Picture Association of America, Major League Baseball, the Public Broadcasting Service, DirecTV, Capital Broadcasting Corporation, Starpath Communications, and the United States Copyright Office. In general, these representatives expressed a variety of views concerning how this subcommittee should respond to the challenges presented in a report issued by the Copyright Office last August.

    Since that hearing, a number of events have underlined the importance of the issues we grapple with today. The Copyright Office is in the midst of a rulemaking proceeding at the request of EchoStar Communications addressing the issue of whether a satellite carrier may retransmit a network station signal to households within that station's local market area, better known as the local-to-local issue. Comments on the proposed rule are to be submitted to the Copyright Office by February 28 of this year. EchoStar has announced it will begin offering the local-to-local service in six markets beginning later this month and will eventually offer the service in 20 markets nationwide.

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    Also, the Federal Communications Commission has recently underlined the need for satellite to be a viable competitor to cable television in the face of continually rising cable rates.

    These are difficult and complicated issues and I look forward to the testimony of our witnesses in informing the members of this subcommittee of their various perspectives.

    The gentleman from Massachusetts, did you have an opening statement?

    Mr. DELAHUNT. No.

    Mr. COBLE. The gentleman from California.

    Mr. BERMAN. Thank you very much, Mr. Chairman.

    Because I have a scheduling conflict with the International Relations Committee, which is meeting at this point in time, I just wanted to be able to make a few comments now and hopefully be able to come back a little bit later to the hearing.

    As we consider the Satellite Home Viewer Act and its operation since the 1994 reauthorization, I have to note the loss of one of our colleagues who did so much to remind us all of the needs of underserved communities, the late Mike Synar. He helped us to understand that public interest in a flourishing satellite industry, and that is exactly what we have today.

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    In 1994, as part and parcel of our extension of the satellite compulsory license, we resolved that royalty rates under that license should be adjusted based on a fair market value standard. I am no particular fan of compulsory licenses, but at the very least, we rejected price controls and achieved a legislative commitment to compulsory license royalty rates that were to reflect marketplace values. That is exactly what the CARP achieved last August and I am pleased that the Library has upheld its decision.

    Now that the result we sought in 1994 has been achieved, we face an outcry by the satellite industry. What is worse, the satellite companies are using classic scare tactics to rally consumers to their side. What is new, at least in my experience, is that we received letters from satellite companies alerting us to the fact that we would soon be receiving form letters from consumers. Maybe this notice was extended to us as a courtesy, but for me, it underscored the somewhat bogus nature of this so-called consumer uprising.

    More to the point, given the figures I have seen indicating that current consumer prices for satellite service are at a 1,000 to 2,000 percent markup over current satellite costs, I know that the CARP rate would still result in markups in the range of 160 to 450 percent. In fairness to consumers, if not to this subcommittee, I think that poor-mouthing by the industry should cease. Consumers do not have to be gouged in order to achieve our 1994 objective of fair market compensation to program suppliers and other copyright owners.

    What the CARP did is exactly what we sought in 1994. We determined then that market rates were in the public interest, and I certainly urge my colleagues not to retreat from that principle. Thank you, Mr. Chairman.

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    Mr. COBLE. I thank the gentleman.

    We welcome our first panel today. Our first witness is Charlie Ergen, founder, Chairman, and Chief Executive Officer of EchoStar Communications Corporation. EchoStar has evolved from a small retail purveyor of satellite television systems into a leader in the direct-to-home, DTH, TV industry, with operations in over 15 countries. Mr. Ergen received his Bachelor of Science from the University of Tennessee and his MBA from Wake Forest University. Mr. Ergen, I did not know you studied in Tobacco Row. I am glad to hear that.

    Next, we have Peter C. Boylan, III, President and Chief Operating Officer of United Video Satellite Group, or UVSG. UVSG relies on both the cable and satellite compulsory licenses to retransmit the signal of WGN-Chicago nationwide. Mr. Boylan is a graduate of Southern Methodist University with a degree in finance.

    The third witness for today is Thomas Casey. Mr. Casey, as of just last week, is the new President and CEO of PrimeTime 24, replacing Sid Amira. PrimeTime is the largest and only independent satellite provider of network programming to the direct-to-home market. Mr. Casey, congratulations are extended to you.

    Our final witness for this panel is Matthew Polka, President of the Small Cable Business Association. The Small Cable Business Association is a 285-member association dedicated to serving the needs of the small, rural cable television operators all across the United States. Mr. Polka earned his B.S. in journalism at West Virginia University and his law degree from Duquesne University.

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    We have copies of your written statements, which will be submitted into the record in their entirety without objection.

    Gentlemen, as you all have previously been advised, we try to adhere to the 5-minute rule here. We are not ornery about it, but we will be appreciative if you can comply with that and I will ask the members of the Subcommittee to likewise comply in our questioning. The 5 minutes will have elapsed when you see the red light illuminate. As I have said before, you will not be keelhauled if you do not abruptly stop at that instant, but if you could wind down at that point.

    Mr. Ergen, we will begin with you, sir.

STATEMENT OF CHARLES W. ERGEN, PRESIDENT AND CEO, ECHOSTAR COMMUNICATIONS CORPORATION

    Mr. ERGEN. Thank you, Mr. Chairman and distinguished committee members for giving me the opportunity to testify today. I am CEO and co-founder of EchoStar Corporation, which was founded in 1980.

    For 18 years, we have had kind of a sole purpose, which is to go out and provide competition to other video providers, specifically cable, and offer customers a choice, an alternative, for a way to receive video. Our industry has been able to get over eight million homes with satellite dishes in the last 18 years. In fact, 75 percent of those homes have been installed with the advent of the small pizza-size dishes and DBS.

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    While our home satellite industry has achieved some success, it has not provided meaningful competition to dominant cable providers. The recent FCC report on competition in video markets points out how far we have to go. A few highlights from that report show that cable still monopolizes the multi-channel video marketplace, with over 87 percent of all subscribers.

    Cable rates are rising at four times the rate of inflation and cable is blaming programming costs for the rise. Yet those same cable providers own a majority of the popular programming and control whether those rates rise or not. The report goes on to state that DBS offers the best short-term solution for competition but suffers from its inability to broadcast local signals to local markets.

    At EchoStar, this report comes as no surprise. We have long realized that without true competition, cable rates will go up forever. We also understand, in the last 3 years, 40 million Americans have looked at satellite television, small dishes, and DBS and decided not to purchase when they realized they could not receive their local broadcast signals.

    We realized this long enough ago that we were willing to go out and invest $500 million to manufacture and launch two satellites specifically to broadcast local stations. It was the 1988 Satellite Home Viewer Act and the compulsory license that allowed us to do this.

    We are fortunate to announce that we are broadcasting in six markets which cover about 15 percent of the homes in the United States today. We are in New York, Chicago, Boston, Dallas, Atlanta, and here in Washington. We now offer a true alternative to cable in about 15 percent of the homes, and with the launch of our fourth satellite this spring, by sometime this summer, we hope to broadcast in over 20 markets and reach about 40 percent of the United States.
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    Our competitors have called our plan foolhardy, non-economic, and destined to fail. They have even tried to burden us with must-carry laws that are not statutory at this point in time before we even get started. But none of our competitors has labeled us as anti-consumer.

    But our plan has a serious flaw and the deck is stacked against us. This committee can go a long way to help improve the current copyright law that does not treat satellite broadcasters like EchoStar anywhere close to equal footing with cable. Let me give you some examples.

    Cable has a compulsory license which allows cable to serve 100 percent of all the homes in the United States. The satellite compulsory license only allows satellite broadcasters like EchoStar to serve so-called unserved homes, those people who do not get a Grade B intensity signal, whatever that is. Estimates vary that as low as five percent of the American homes are all that EchoStar can broadcast to from satellites. Whatever the real number is, it is certainly only a fraction of the homes that cable is allowed to broadcast to.

    In addition, cable has a statutory permanent compulsory license. Our satellite license has a de facto sunset in 1999, thus eliminating our ability to sell local channels and network stations after that period of time or forcing us to renegotiate, perhaps with some burdens placed on us to renegotiate that license.

    Cable can sell programs to all viewing areas, including commercial establishments in all local areas. Satellite broadcasters can only sell to private homes. In fact, I have noticed in this very hall that we have cable TV and yet I could not broadcast the Washington stations under current copyright law in this very room here.
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    Cable has no waiting period to sell their local signals. They can go into satellite broadcasters subscribers homes tomorrow and sell them local channels. However, satellite companies, under our compulsory license, have to wait 90 days before we can sell a cable subscriber the local channels. This has the effect of holding 65 million Americans hostage to the cable monopoly without a true choice.

    Cable also has a license for networks and independent channels, where satellite can only rebroadcast network signals. And maybe worst of all, cable rates for networks are only about 2.5 cents per channel and the satellite compulsory license is now 27 cents, over ten times for broadcast stations, and for superstations we are at three times the rate.

    Mr. COBLE. Mr. Ergen, if you can begin to wind down, the red light appears.

    Mr. ERGEN. Okay. So we are at a crossroads. We have a choice of more regulation or competition. At EchoStar, we vote for competition and we believe we can provide competitive forces to the marketplace.

    We need to do several simple things. Make the satellite compulsory law statutory and permanent and expand the license to cover all broadcasts of networks and independents and include all viewing areas, including commercial establishments.

    We need to roll back the present copyright increases for networks and superstations. These rates must be technology-neutral and on a fair and level playing field with cable.
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    We must eliminate the 90-day waiting period before cable customers can subscribe to all local channels. No law is more anti-consumer than this.

    And we need to clarify and confirm once and for all the satellite—

    Mr. COBLE. Mr. Ergen, I am an easy dog to hunt with, but you are making it difficult for me. I am going to have to impose the time limit. If I am going to give you 10 minutes, I am going to have to give the others 10 minutes.

    Mr. ERGEN. I have one more sentence.

    Mr. COBLE. All right.

    Mr. ERGEN. Once and for all, we need to clarify and confirm that satellite broadcasters have the right to deliver local signals to local markets in 100 percent of the locations. Thank you very much.

    [The prepared statement of Mr. Ergen follows:]

PREPARED STATEMENT OF CHARLES W. ERGEN, PRESIDENT AND CEO, ECHOSTAR COMMUNICATIONS CORP.

    EchoStar Communications Corporation appreciates the opportunity to testify and the work that this Committee has undertaken to examine the Copyright laws governing Cable and Satellite companies providing video to the marketplace. EchoStar is a Direct Broadcast Satellite (DBS) company that began service in March of 1996 and has over 1 million subscribers. The company has led the way to bringing down the price of the DBS dish to under $200, and has just recently begun to make DBS truly competitive with cable by offering qualified subscribers their local network affiliates in six television markets. By this summer, EchoStar intends to expand its effort to include 20 of the largest U.S. Metropolitan areas, serving over 40% of the U.S. population.
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    EchoStar's testimony comes at a time when cable rates are rising at several times the rate of inflation and consumers have little choice but to suffer the increases because they see no acceptable competitive alternative. We believe this Committee has an important role to play in creating a competitive choice to cable by reform of the compulsory copyright license provisions of the Satellite Home Viewer Act. such reform would pave the way to create competition for consumers. It will also benefit copyright owners who are subject to the continuing pressure of cable interests to attain ownership interests in programmers and to drive below market pricing for content.

    Specifically, EchoStar suggests that Congress act into law a permanent, statutory, compulsory license for satellite providers that unambiguously declares the satellite provider's right to retransmit local signals to the same full extent that cable operators have that right today. Consumer surveys and EchoStar's own experience as a company, show that the single greatest barrier to choosing DBS is the lack of local programming. The compulsory license should cover both local network affiliates and independents and show allow satellite delivery of local channels to all homes in the Designated Market Area (DMA) served by that station. EchoStar also believes that the amount DBS companies pay for the license should be equal to that paid by cable and that the license should include commercial and other establishments. The licenses should also permit the importation of distant signals for a reasonable fee. Finally, we urge you to work with your colleagues on the Commerce Committee to ensure that any consideration of a 'must carry' provision for satellite be technology appropriate and include a market penetration test. Must carry requirements for cable were imposed because of their market power and satellite carriers currently have no such power. At the same time, we need a retransmission consent mechanism that balances the right of a local broadcaster to its signal with the need to assure the availability of that signal to the satellite provider.
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    EchoStar's testimony today on the role that copyright reform can play in making DBS more competitive with cable is part of its overall effort to have access on fair and equal terms to all of the programming cable offers its customers. We believe that anything less than a true alternative to cable with mean copyright holders are held hostage to an ever more powerful industry and consumers are held hostage to higher prices and poor service.

    Mr. Chairman and distinguished members of this Subcommittee, thank you for providing me the opportunity to testify before you today. This hearing is particularly timely and important given the mountain of recent evidence that the reforms you are considering are crucial to assuring protection and a fair return to copyright owners, while creating more effective competition to cable. During 1997, cable rates rose 400% faster than the rate of inflation, continuing a troubling pattern that has proven difficult to control. The disparate treatment of cable and satellite retransmissions under the existing copyright laws is a significant factor hampering effective competition to cable monopolies from satellite distributors like my company. Only with your help can crucial programming, including superstations and local network channels, be delivered to consumers at competitive rates. Only with your help can the otherwise inevitable road towards significantly increased regulation and oversight of the cable industry be avoided. These efforts are equally important to protect copyright owners from the continuing pressure cable interests assert to obtain ownership interests in programmers, and to drive below market pricing for content.

    My name is Charlie Ergen. I am the founder and Chief Executive Officer of EchoStar Communications Corporation, a Direct Broadcast Satellite (''DBS'') company based in Colorado. I started EchoStar in 1980 as a manufacturer and distributor of C-band satellite dishes and grew the company, by the mid–1980's, into the largest supplier of C-band dishes in the world. I realized, however, that my vision of a dish in every home, school and business in the United States, and true effective competition to cable, could not be realized with large dishes.
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    Consequently, during 1987, EchoStar filed with the Federal Communications Commission (the FCC) for a DBS license. EchoStar launched its first DBS satellite during December 1995, its second satellite during September 1996, and its third DBS satellite in October 1997. We will launch a fourth satellite this spring. By the middle of this year, we will have invested approximately $2 billion in DBS, working to provide consumers the programming they desire, and create true, effective competition to cable.

    With over a million customers to date, EchoStar's Dish Network is doing well. Our growth would not have been possible without the key legislation that Congress has passed to date, which has begun to open the door for entrepreneurial companies like EchoStar to compete. For example:

    The first steps towards the creation of competition to cable would not have been possible absent the Cable Television Consumer Protection and Competition Act of 1992, which attempts to provide competitors at least a minimum level of access to popular television programming. Members of the cable cartel have direct or indirect ownership interests in over 50% of those popular programming channels.(see footnote 1) Then, the Telecommunications Act of 1996 helped strike down certain cable-sponsored state, local and municipal zoning ordinances that prevented subscribers from installing satellite dishes. Finally, the compulsory copyright license provisions of the Satellite Home Viewer Act enables at least some consumers to receive crucial network programming by satellite.

    The common purpose of each of these Congressional actions has been to try to force open the door for new companies that want to compete with the incumbent cable monopolies. As a result of these Congressional efforts, a number of companies have attempted to enter the subscription television market, including EchoStar and other DBS players.
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    Despite the promising start of the DBS industry, most attempts by other nacsent competitors to cable have met with more limited success. Cable still occupies ''the dominant position in the Multi–Channel Video Distribution'' (MVPD) market, as the FCC details in its recently released Fourth Annual Report on the state of video competition.(see footnote 2) The report confirmed the incessant complaints of victimized consumers, that cable operators increased their rates at nearly four times the rate of inflation (CPI) last year, and continue to fleece the public. The FCC report concludes that the monopoly status of cable reflects an ''inability of consumers to switch to a comparable source of video programming''.(see footnote 3) This power also enables cable companies to assert undue influence on content providers. The Commission also found that 26 of the 50 most subscribed-to cable programming networks, and 8 of the top 15 cable programming networks, were vertically integrated with cable systems in 1992.(see footnote 4) In addition, the report shows that the cable industry is becoming more concentrated than ever, with the top four companies now serving over 62% of subscribers, as opposed to 47% in 1993.(see footnote 5) I believe the best way to prevent the cable companies from increasing rates and asserting improper influence, is to create robust competition in the market.

    To truly break the cable stranglehold over the video subscription market, we need help from Congress. There are two choices. Significant additional cable regulation, or more limited regulation combined with a more level playing field for cable competition, with real choice for consumers.

    Consumer surveys show that when customers interested in satellite television go into a store, eight out of ten walk out without making a purchase. Why? Most often because they have learned they cannot get network programming by satellite.(see footnote 6)
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    EchoStar plans to provide consumers a true alternative to cable.

    Three weeks ago, EchoStar took the first small steps toward offering viewers the stations they spend three fifths of their time watching when they have their TV's turned on—their local network affiliates. EchoStar now offers certain consumers in Washington, D.C., New York, Atlanta, Dallas, Boston and Chicago, who qualify as ''unserved households'' under current law, the opportunity to receive their local network channels by satellite, instead of by cable. We are still severely limited by a number of laws which provide huge advantages to cable. However, for the first time, at least some consumers in these six metropolitan areas now have the option to pull the plug on cable altogether. By this summer, EchoStar intends to expand its effort to include 20 of the largest U.S. metropolitan areas, serving over 40% of the U.S. population.

    But without Congressional action, we will only be able to offer true choice to a fraction of the total number of consumers in these areas. Most will continue to have no alternative to cable until the law is changed.

    For example, not even the cable industry can plausibly defend the law today, which prohibits EchoStar from selling local programming to any consumer who receives local programming by cable, until that consumer disconnects from cable for 90 days. This law has the effect of placing EchoStar at a competitive disadvantage in its attempts to rescue the 70 million consumers being fleeced by the cable cartel today. Tens of thousands of consumers have tried to pull the plug on cable and subscribe to DBS programming, but continue to be hampered by this law, which makes it practically impossible for most to switch to satellite without great sacrifice and difficulty. The law should make it easy to switch, not difficult. Consumers, not cable lobbyists, should make the choice of how consumers receive programming.
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    As another example, while some parties read the law so as to prohibit EchoStar, due to current Section 119 copyright restrictions, from providing local programming to most U.S. households, cable is specifically permitted under Section 111 to provide local programming to 100% of the households passed by cable. Similarly, Section 111 specifically permits cable to provide local programming to commercial establishments. EchoStar is prohibited under Section 119 from doing so.

    The cost of this programming is another glaring example of the challenges faced by EchoStar in its effort to provide competition to cable. Cable companies are the beneficiaries of a law permitting them to pay on average 9.7 cents and 2.5 cents respectively, per month, for copyright licenses for superstations and network channels. At the same time, EchoStar is required by law to pay $.27 per month for that same superstation or network channel. A serious disparity exists for superstation retransmissions, where the role applicable to satellite carriers is again 27 cents.

    In enacting the unserved household legislation, Congress intended to protect the network-local affiliate relationship. While EchoStar has asked the Copyright Office to confirm that consistent with this intent EchoStar can serve a larger number of households than the cable interests would like, even with a favorable ruling by the Copyright office EchoStar and the DBS industry need Congress to make several changes to the Satellite Home Viewer Act to promote competition:

  1. As you know, the current statutory license for satellite providers, first enacted in 1988, is not permanent but has been renegotiated every five years since then. We need Congress to institute a permanent, statutory, compulsory license that unambiguously declares that satellite providers have the right to retransmit local signals.
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  2. The license should cover both local network affiliates and independent stations. Cable benefits from a compulsory license for both network affiliates and independent stations. Satellite cannot compete without similar rights. The additional fees collected can only benefit copyright owners.

  3. The recent recommendation of the Copyright Arbitration Royalty Panel or ''CARP'' to raise the fees that satellite providers pay for superstation and distant network signals-and the Librarian of Congress' subsequent decision to uphold those rates, has created an inequality between what cable pays and what satellite must pay for the same product. As I have mentioned, effective the first of this year, satellite broadcasters must pay 27 cents per subscriber per month for every superstation and network signal carried. That is ten times what cable pays for network signal and three times what they pay for a superstation. In its recently released competition report, the FCC recommends that as Congress implements copyright changes: ''existing differences between the copyright treatment of cable transmissions and of satellite retransmissions or broadcast signals should be removed where possible so that the compulsory licenses do not affect the competitive balance between the satellite carrier and cable industries.''(see footnote 7) The license should provide a satellite rate equal to the rate paid by cable. Satellite can not create effective competition to cable with such a cost differential.

  4. The license should include commercial and other establishments, and not be limited to private homes as is the case today. How can it be justified that cable can sell to these customers but satellite can not.

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  5. The license should allow satellite delivery of local channels to all homes in the Designated Market Area (DMA) served by that station. The broadcasters have all agreed that DMAs reflect the economic realities of their interrelationships. There can be no plausible argument that this should not also be the basis on which EchoStar is permitted to transmit local stations.

  6. The license should permit distant signals to be brought into a local area for a reasonable surcharge, unless and until the local broadcaster begins using the digital HDTV spectrum Congress gave to the broadcasters without charge for that purpose. Broadcasters should not complain when the means to protect their exclusivity privilege lies squarely within their control merely by fulfilling their promise to Congress. The Copyright Office of the Library of Congress was the first to formally recommend the surcharge solution and we wholeheartedly endorse it over the current system, together with a path for the local station to fulfill its promise to Congress.

  7. Work with your colleagues on the Commerce Committee to enact a law that includes a retransmission consent mechanism that balances the right of the local bradcaster to its signals with the need to mandate that all network signals are made available to satellite providers on reasonable terms, including parity with cable retransmission consent regimes.

  8. Working with your colleagues on the Commerce Committee the law must also address the disingenuous arguments being circulated by cable and other special interests that a must carry requirement be applied to satellite providers. It is understood by all that the cable must carry requirement was imposed because cable is a monopoly in its local markets, and that some small local stations could not survive without cable carriage. The must carry rule was not applied to MMDS, which was broadcasting local channels at the time must carry was enacted, because MMDS does not have monopoly power to crush small local broadcasters denied carriage. Similarly, EchoStar's penetration in any given local market today is typically less than one percent. EchoStar would be pleased to submit to a technology appropriate must carry if its penetration percentages ever approach those of cable.
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    Working with your colleagues on the House Commerce Committee, and the excellent staff of the Federal Communications Commission, we are confident you can devise appropriate guidelines expeditiously. Without these changes, cable influence and rates will only be controlled through continuing and greatly increased regulation. With these changes, and moderated cable regulation, true, full competition to cable can be created. Only then can cable rates and service be controlled by market forces rather than Congressional action.

    Copyright holders will further benefit because the superior digital picture and sound of satellite will reach more viewers than was previously possible. Topographical and technical interference have always severely restricted the already limited quality of analog broadcasts. In his recent decision modifying the CARP recommendation, the Librarian of Congress recognized this benefit to copyright holders in determining a zero rate for local into local.(see footnote 8)

    Access to local programming is only one of two crucial elements necessary to allow DBS to be fully competitive in the market. The other is access to the popular channels controlled, produced or otherwise heavily influenced by members of the cable cartel. Access to all programming on fair and consistent terms is essential to the creation of real competition in the market for distribution of video and audio to the home.

    The Cable Act of 1992 and the Primestar federal and the now expired state antitrust consent decrees entered into by the largest cable companies all include attempts to address this problem. Recently, your colleagues on the Commerce Committee have been making significant inquiries into the effectiveness of the Program Access laws and we applaud that inquiry. But the restrictions imposed by these laws and decrees are eroding. Further, cable companies have devised , and continue to devise, ways to circumvent the language and the intent of Congress and other regulatory agencies.
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    EchoStar is opposed to all exclusive programming arrangements in the US video marketplace. Such arrangements thwart competition provided by entrepreneurial companies like EchoStar. We believe all programming should be made available to all video distributors on a fair and equal basis. Only then can and will lower prices, better customer service and other signs of rigorous competition develop.

    The major problems which must be addressed in the Program Access area in order to allow for the opportunity for full competition include:

  1. The terrestrial delivery and other creative cable loopholes. Until recently, it was widely believed that program access laws and antitrust consent decrees were at least adequate to assure satellite companies minimal access to programming owned by cable operators. Satellite companies have suffered repeated schemes by the cable companies to avoid or outright ignore those laws and decrees. Perhaps the recent brazen action of one of the largest U.S. cable companies will result in meaningful action. I refer to Comcast, which recently purchased Philadelphia area professional sports teams and promptly canceled the traditional satellite ''back haul'' of those events in an apparent attempt to evade the obligation to make that programming available to satellite companies. Comcast is, of course, the owner of the Philadelphia cable franchise, and logically concludes that it can avoid subscriber loses to DBS, and can perpetuate its monopoly, if the Philadelphia consumer has no satellite access to local professional sports. A program access complaint has been filed with the FCC against Comcast, but more is needed. We call for legislation to shut the door on this loophole. We also call for regulatory sanctions against Comcast for its attempts to evade the law, including re-examination of Comcast's regulatory filings in connection with acquisition of the Philadelphia sports teams to determine whether full disclosure of its plans was made, as is required by law.
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  2. Price discrimination. Cable companies systematically engage in price discrimination, which defeats the purpose of the program access rules. For instance, EchoStar has filed an FCC complaint against Cablevision for refusing to provide its sports channel programming to EchoStar on the same terms it provides that programming to cable operators. We have been forced to file program access complaints against Fox Sports and fX. Cablevision has already lost similar access complaints filed by Ameritech, Bell Atlantic and CellularVision. Equally egregious, fX has flatly refused to provide its programming to EchoStar even though it is 50% owned by the largest cable operator in the country. Absent additional enforcement mechanisms, it is clear that cable companies will continue to flout the law. We call for the recovery of actual damages, and punitive damages against repeat offenders. Consumers should also have a specific right to sue for violations, since they ultimately pay for these violations through higher prices.

  3. Pressure on non-vertically integrated programmers. The increasing concentration of the cable industry makes it easier for an already incestuous industry to ensure that even the programming it does not directly own is subject to its control. For instance, in an FCC filing, the Outdoor Life Channel recently asked the FCC to permit it to provide an exclusive to cable, arguing that without offering that exclusivity, cable would not carry its programming and it could not realistically launch its service. One unaffiliated programmer told the FCC in a 1995 filing that if it had to provide all operators the same pricing as offered to TCI, it would be out of business. Virtually all non-vertically integrated channels are subject to the same pressures. Until the effective local monopoly enjoyed by cable ends, the pressure on unaffiliated programmers to provide non-market rates to cable MSOs will continue. After all, the decision by TCI or Time Warner to cease carrying a channel is the kiss of death for any channel today. We call for legislation assuring all MVPD providers the same rates for programming, with total direct and indirect discounts limited to actual, clearly verifiable cost savings. The days of the volume discount rate applicable only to the large cable MSOs should come to an end, especially where the cost to deliver that programming to DBS providers is less.
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  4. Limit cable programming/cross ownership. It is virtually impossible for a new programming service to launch today without support from TCI, Time Warner and other large cable monopolists. Hence many programmers now grant ownership interests to the largest members of the cable cartel as a condition to the launch of new channels. The days of these pressures must come to an end. That will only happen if programming/cable cross ownership is outlawed or at least moderated. Certainly, the regulatory authorities must act to prevent further concentration, such as that which would result if News Corp. is permitted to combine its programming with that of the five largest U.S. cable operator members of Primestar. When Congress authorized the FCC to allocate U.S. DBS spectrum, its only direction was that the spectrum be used to create effective competition to cable. When the FCC first promulgated rules governing DBS, its first directive was that the spectrum be used to create effective competition to cable. It defies logic to expect that competition will be created, or that the consumer will be better off, if the five largest cable companies in the world, including many of the largest programming content providers, are permitted to combine with one of the few remaining large non-cable affiliated programmers, to control the single most valuable piece of DBS real estate capable of use to create competition to cable. The Primestar/News Corp. unholy alliance to control the 110 degree orbital slot must not be permitted to proceed. If the Primestar/ News Corp. transaction were to be approved by the Justice Department and the FCC, cable influence would expand to include four of the major studios in the United States, the in market rights to virtually all professional football, baseball, hockey and basketball games, plus the out of market rights to professional baseball. Further, the reach would include three of the top five television networks in the United States and a growing number of sports teams. This must not be permitted.

Conclusion
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    The American people should not have to wait any longer for a serious competitive choice to their local cable monopoly. Congress has the power in its hands to ensure that competition can occur; not to choose winners and losers but simply to allow companies to have a chance to get into the game. I urge you to work with your colleagues on the Commerce Committee to extend the copyright laws in a manner that fosters competition and does not squelch the growth of this promising young industry. Access to local broadcast signals and to popular cable programming is key to the success of such an effort.

    Thank you again for allowing me to testify before you today, I look forward to answering your questions.

BIOGRAPHY

      Charlie Ergen, who founded Echosphere in 1980, is currently responsible for the direction of EchoStar Communications Corporation, the parent company of Echosphere, HTS, Satelliet Source, Echo Acceptance Corporation, Echonet Business, Inc., and EchoStar International Corporation, HT Ventures, Inc., and EchoStar satellite Corporation. Under Mr. Ergen's leadership, EchoStar has evolved from a small retail purveyor of satellite television systems into a leader in the direct-to-home (DTH) TV industry, with operations in over 15 countries.

      As a leader in the DTH satellite TV industry, Ergen co-founded the Satellite Broadcasting Communications Association (SBCA) and served on its first board of directors. In 1988, he was the recipient of the Home Satellite TV Association Star Award. Ergen has testified before Congress regarding DTH satellite TV industry issues. In June 1991, Ergen received INC. magazine's Master Entrepreneur of the Year for the rocky Mountain region.
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      Ergen received his B.S. in General Business and Accounting from University of Tennessee and his M.B.A. from the Babcock Graduate School of Management at Wake Forest University.

    In accordance with House Rule XI, clause 2(g)(4), we hereby state that EchoStar Communications has not received:

  1. Any Federal grant, or subgrant thereof, by any agency or program

  2. Any Federal contract, or subcontract thereof, during the current fiscal year or either of the two preceding fiscal years

    Mr. COBLE. Mr. Casey.

STATEMENT OF H. THOMAS CASEY, CEO AND PRESIDENT, PRIMETIME 24

    Mr. CASEY. Thank you, Mr. Chairman. I want to apologize right up front on the untimely laryngitis attack. I will try to give a short and sweet presentation.

    I am Tom Casey. I am the new President and CEO of PrimeTime 24. PrimeTime 24 is by far the largest satellite carrier of network TV programming to the direct-to-home market. We also happen to be the only truly independent provider of that service. Our two competitors are both owned by cable interests.
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    I am pleased today to come before this committee to comment on the Copyright Office report on the retransmission of broadcast signals. More specifically, I wish to direct my comments to the discussion in that report regarding the Satellite Home Viewer Act and the unserved household dispute.

    Under SHVA, an unserved household is one that cannot receive signals of Grade B intensity over the air from local affiliates. I believe that the Grade B intensity signal was intended by Congress to incorporate the concept of picture quality. Unfortunately, despite Congress' best intentions, this standard has proven confusing and completely unworkable for a variety of reasons, including the fact that, as the Copyright Office report states, over-the-air delivery of a signal of Grade B intensity does not guarantee a quality picture.

    Further, the Copyright Office found that individual determinations of subscriber eligibility cannot be made in a statutory provision. We agree with the Copyright Office findings that in the absence of a workable standard, the only equitable solution for consumers is a surcharge option or some similar mechanism to provide compensation to the local affiliates. PrimeTime has sought for over a year to negotiate with the broadcasters a commercial solution to the unserved household problem. That involves a compensation proposal similar in many respects to the surcharge concept proposed by the Copyright Office.

    We feel that the arguments for a compensation proposal are compelling. It is very pro-consumer. It will permit households that do not have adequate over-the-air reception from local affiliates to receive that network programming. It is very easy to administer. The broadcasters will be compensated for any loss in advertising revenue.
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    We do not believe localism will be undermined. Competition with cable will be enhanced. The ability of multi-channel satellite services, such as DirecTV, that compete against cable operators is now hampered by their inability to offer network programming without restriction. An affiliate compensation mechanism would reduce such obstacles, give consumers more power over their viewing decisions and be responsive to the growing public policy consensus.

    Let me talk for a second on local-to-local service. Much has been stated in recent days and in the last few minutes about local-to-local signals in the market by means of spot beaming as a solution to the unserved household controversy. While we believe spot beaming may become available to some households in the future, it will not solve the eligibility controversy at any time in the near future. By year-end 1988, local signals provided by EchoStar will be available to some number—maybe 20 out of the 200 markets in the country. It is unlikely that it will be cost-effective in the next several years to provide the signal to local affiliates in all markets.

    Therefore, although the local-to-local technological solution, which should clear up the white area issue seems to be on the horizon, in the absence of a commercial solution among the parties, which we, of course, would welcome, Congress must provide a solution to this problem, at least on a temporary basis, and the surcharge proposal contained in the Copyright Office report or a similar affiliate compensation mechanism is clearly the best solution available.

    If I can just say one other thing, Mr. Chairman, I noticed this morning in reading the testimony of Mr. Sullivan regarding the NAB, I noticed he will provide a one-sided presentation of evidence involved in various litigation, much of which we have refuted. I think it is inappropriate for him to introduce as fact this one-sided evidence before this committee. I also hope that we can move beyond this and cooperate in a more constructive way to resolve this problem.
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    I apologize again for my voice and thank you for your time.

    Mr. COBLE. Thank you, Mr. Casey.

    [The prepared statement of Mr. Casey follows:]

PREPARED STATEMENT OF H. THOMAS CASEY, CEO AND PRESIDENT, PRIMETIME 24

SUMMARY

    My name is Thomas Casey and I am the new President and Chief Executive Officer of PrimeTime 24, the largest and only independent satellite provider of network programming to the direct-to-home market.

    PrimeTime 24 strongly agrees in several major respects with the U.S. Copyright Office Report on the retransmissions of broadcast signals.

    First, PrimeTime 24 agrees with the conclusion of the Copyright Office Report that the current definition of the ''unserved household'' under the Satellite Home Viewer Act is confusing, ''does not guarantee a quality picture,'' and is ultimately unworkable. The Copyright Office further concluded, and PrimeTime 24 agrees, that ''workable individual determination of subscriber eligibility for network service'' via satellite ''cannot be made in a statutory provision.''

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    As a consequence of this, the Report recommends, and PrimeTime 24 strongly endorses, a temporary surcharge option or a similar compensation mechanism. The arguments for a compensation mechanism are compelling; it is pro-consumer, permitting households that do not have adequate over-the-air reception from local affiliates to receive network programming; it is easy to administer; it will compensate broadcasters for any loss in advertising revenues; it will have no adverse impact on localism and the network affiliate system; and it will enhance competition with cable in the multiple video program distribution market.

    PrimeTime 24 also strongly supports the Report's recommendation that the satellite compulsory license be extended and made permanent (as the cable license is) and that the ''90-day waiting period'' (before ''unserved households'' with cable can subscribe) be eliminated.

    Finally, PrimeTime 24 believes that while the advent of local-to-local retransmission of network programming will benefit some consumers, it is neither sufficiently developed technologically nor financially to serve more than a fraction of the market. Until that situation changes, the Copyright Office's surcharge option is the most practical and equitable solution.

STATEMENT

    My name is Thomas Casey and I am the new President and Chief Executive Officer of the much beleaguered and much maligned PrimeTime 24. PrimeTime 24 is by far the largest satellite carrier of network television programming to the direct-to-home market. PrimeTime 24 also happens to be the only truly independent provider of such programming; that is, unlike our two competitors, PrimeTime 24 is not controlled by cable interests.
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    I am pleased today to come before this Committee to comment on the Copyright Office Report(see footnote 9) on the retransmission of broadcast signals. More specifically, I wish to direct my comments to the discussion in that report regarding the Satellite Home Viewer Act and the ''unserved household'' dispute. Before I do, however, let me put those comments in context.

Background

    In 1988, and again in 1994, Congress recognized that many consumers need the alternative of satellite-delivered network programming because of the weak signal that they receive over the air by means of a conventional rooftop antenna. For a variety of reasons—terrain, interference caused by buildings, bounced signals, other stations, power lines and other sources—many other consumers cannot receive network television programming of viewable quality through the use of a conventional rooftop antenna. Satellite, on the other hand, can deliver a high-quality picture virtually anywhere in the continental United States, and in recent years, millions of consumers have chosen to receive programming via satellite.

    A heated dispute between satellite providers like PrimeTime 24 and the networks and affiliates over the meaning of the definition of an ''unserved household'' under SHVA threatens the delivery of network programming to a great many consumers.

    Under SHVA, an ''unserved household'' is one that cannot receive signals of Grade B intensity over the air from local affiliates using a conventional rooftop antenna. The ''Grade B intensity signal'' was intended by Congress to incorporate the concept of picture quality. Unfortunately, despite Congress' best intentions, this standard has proven confusing and completely unworkable for a variety of reasons, including the fact that, as the Copyright Office Report states: ''over-the-air delivery of a signal of Grade B intensity does not guarantee a quality picture.''(see footnote 10)
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    The Copyright Office found that ''[B]ecause the 1994 signal measurement provisions did not establish a well defined, cost efficient testing regime, they could not operate as intended. . .(see footnote 11) [T]he Office seriously questions whether section 119 can be drafted as to permit workable individual determinations of subscriber eligibility for network service. Individual determination typically requires examination of individual facts, and a determination as to whether a particular household receives adequate network coverage requires consideration of topographical features, weather conditions, availability, location and sufficiency of the household's receiving equipment, access to other program providers, and other special circumstances. These determinations cannot be made in a statutory provision.''(see footnote 12)

The Surcharge Option Concept

    We agree with the Copyright Office that in the absence of a workable standard, the only equitable solution for consumers is a surcharge option. The surcharge option put forward by the Copyright Office contemplates a temporary surcharge on subscribers located in a ''red zone'' (defined by the Copyright Office as the local station's Area of Dominant Influence) with the monies from the surcharge distributed to local network affiliates to compensate them for any possible loss of viewers and, hence, advertising income. Because many of the viewing households in the red zone are, in fact, ''unserved,'' this surcharge option would permit them to receive network programming via satellite.

    PrimeTime 24 has sought for a over a year to negotiate with the broadcasters a solution to the unserved household problem that involves a compensation proposal similar in many respects to the surcharge concept proposed by the Copyright Office. Indeed, PrimeTime 24 made an independent offer to pay any network station (or network) for the right to serve households in a station's local market. Up to now, the affiliates have not been willing to negotiate with PrimeTime 24 in response to this offer. Perhaps the fact that the Copyright Office has put forward its own version of this proposal will lead the affiliates to consider some form of affiliate compensation more seriously. In the absence of such a positive development, Congressional action is required.
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The Arguments for a Compensation Proposal

    The arguments for a compensation proposal are compelling:

 It is pro-consumer. As suggested above, it would permit households that do not have adequate over-the-air reception from local affiliates to receive network programming. Furthermore, it frees these consumers from the cumbersome and confusing burdens imposed by the present requirements for receiving satellite delivery of network programming.

 It is easy to administer. Unlike the current SHVA, which is costly, if not impossible, to implement, an affiliate comensation proposal would be practical and simple. As the Copyright Office pointed out, the surcharge ''eliminates the need for individual subscriber eligibility by allowing any subscriber within the 'red zone' for a particular network signal, if he or she wishes to incur the additional cost, to receive satellite service of that network.''

 The broadcasters will be compensated for any loss in advertising revenues. Allowing satellite carriers to provide distant network signals in the local markets of broadcasters is unlikely to have a significant impact on local advertising revenues. Satellite penetration for the foreseeable future is likely to be relatively modest and include numerous households that do not (or cannot) view their local station in any event. Those who value local programming and can receive it over the air will continue to do so. The most likely reason for a loss in viewership would be viewers' preferences for clearer reception which leads them to watch their favorite network programming via satellite rather than on their local station. The surcharge proposal or some other compensation fee mechanism will fully compensate the broadcasters for any resulting loss in advertising revenues.
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 Localism will not be undermined. As with all technological advances over the past 50 years, the networks' response both to satellite TV and the Copyright Office's surcharge proposal is to raise the spectre of the demise of free over the air television which is provided by the network affiliate system. This was the networks' battle cry against cable. Yet history has repeatedly shown that advances in telecommunications technology do not, in fact, signal the death knell of ''free television''; they only foster greater competition between the mediums of television delivery, including broadcast, cable, and satellite. The localism argument put forward by the broadcasters is, in reality, a club they use to limit their competition. Localism thrives today and will continue to do so even in a surcharge world.

 Competition with cable will be enhanced. The issue of competition with cable in the multiple video program distribution (MVPD) market is of central concern to the Federal Communications Commission, as evidenced by their recent Fourth Annual Report on the status of Competition in Markets for Video Programming.(see footnote 13) In addition, many members of Congress have been outspoken advocates of greater competition to cable. The ability of multichannel satellite services, such as DirecTV, to compete against cable operators, is now hampered by their inability to offer network programming without restriction. In fact, the FCC Annual Report states ''DTH [Direct To Home] satellite service, while it has certain advantages over traditional cable services, is not, by itself, a direct substitute for cable service given the continued popularity of broadcast television programming and the absence of local broadcast signals from satellite distribution.''(see footnote 14) ''Among consumers' main concerns regarding DBS [Direct Broadcast Satellite] are . . . (b) the inability to receive local broadcast stations. . .''(see footnote 15) An affiliate compensation mechanism would reduce such obstacles, give consumers more power over their viewing decisions, and be responsive to the growing public policy consensus on cable competition.
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 Mobile homes and recreational vehicles will have greater access to network programming. As the Copyright Office points out, a surcharge is a means of addressing the unique situation of owners of mobile homes and recreational vehicles who desire satellite network service. Under SHVA, a satellite carrier that can provide network service to a mobile home or recreational vehicle one day, because that home or vehicle is an ''unserved household'', can be liable for copyright infringement the next day, because it has moved into a served area. An affiliate compensation mechanism would alleviate this problem by enabling these consumers to obtain satellite services, regardless of their location, by paying the additional fee.

Other Issues in the Copyright Office Report

    In addition to the ''unserved household'' recommendations, the Copyright Office Report made other recommendations on which PrimeTime 24 wishes to briefly comment.

 Extension of the Satellite Compulsory License. The Copyright Office recommends that the satellite license contained in Section 119 be extended beyond the current sunset date of December 31, 1999; and that it be made permanent (as the cable license is) rather than merely extended on a temporary basis. PrimeTime 24 strongly supports the proposed permanent extension of the satellite license. This endorsement of the compulsory license by the agency most identified with protecting the interests of copyright owners is a powerful argument in support of that change.

 The 90-day Waiting Period. The Copyright Office recommends the removal of the 90-day waiting period before unserved households with cable can subscribe to satellite. PrimeTime 24 strongly supports this recommendation to remove this artificial barrier in SHVA to effective competition to cable from satellite delivered television.
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Effect of Local to Local Service

    Much has been heard in recent days concerning the provision of local signals in the local market by means of ''spot beaming'' as the solution to the ''unserved household'' controversy. While spot beaming may become available to some households in the future it is a myth to suggest that it will solve the eligibility controversy any time soon. This is so because as the Copyright Office recognizes, ''The satellite industry remains a nationwide retransmission service, capable of providing a limited number of broadcast signals on a national basis.''(see footnote 16) By year end 1998, local signals provided by Echostar Communications, even by Echostar's own accounts, will be available by satellite to eighteen of the largest selected local markets (out of over 200 markets around the country). Charles Ergen, Chairman of Echostar has publicly confirmed that the economics of satellite don't permit local retransmission in all markets.

    It is unlikely that it will be cost-effective at any point to provide the signals of local affiliates in all markets. While Capitol Broadcasting presently is proposing an $800 million plan to provide satellite coverage of all 1,600 full power local television stations, under the company's own plan (and assuming it is able to raise the massive capital funding amounts necessary), it would not start providing local signals until mid–2000, at the earliest.

    As a result, Congress must provide a solution to this problem, at least on a temporary basis, and the surcharge proposal contained in the Copyright Office Report or a similar affiliate compensation mechanism is clearly the best solution currently available.

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    Mr. COBLE. Mr. Boylan.

STATEMENT OF PETER C. BOYLAN, III, PRESIDENT AND CEO, UNITED VIDEO SATELLITE GROUP

    Mr. BOYLAN. Mr. Chairman and members of the committee, thank you for the opportunity to come before you today. My name is Peter C. Boylan, III, and I represent the United Video Satellite Group of Tulsa, Oklahoma. I am President and Chief Operating Officer of UVSG, a 33-year-old company with a unique perspective on the current compulsory license debate.

    The United Video Satellite Group consists of five companies, two of which are directly affected by the compulsory license. UVTV markets via satellite three superstations, WGN-Chicago, KTLA-Los Angeles, and WPIX-New York. Our Superstar satellite entertainment company is the nation's largest C-band programming packager and provides various programming services, including superstations, to the direct-to-home market, principally in rural areas around the country.

    In total, United Video provides entertainment services to over 50 million households in every State in the union. UVSG's long record of service to both the cable and satellite industries gives us unique insight into both markets. We welcome the opportunity to participate in this review of the compulsory license.

    The compulsory license contained in Sections 111 and 119 of the Copyright Act must be continued to ensure both fair compensation for copyright holders while maintaining the full viewing choice for the American public. The fact is that the compulsory license has worked as intended by Congress and nothing should undermine this efficient and successful program distribution mechanism.
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    Copyright laws strive to meet two important but conflicting objectives, first, to ensure access to the creative product to as many people as possible, and second, to encourage the continued development of creative work in intellectual property. Proof of the licenses' success is seen every day in the market. It is clear that creative product continues to be developed and copyright holders are being compensated with contracts being valued into the billions of dollars.

    Since the inception of cable television, superstations have been a staple in the viewing public's diet for programming choices. A.C. Nielsen ratings and other surveys document the viewing appeal of superstations. With unique combinations of syndicated programming, movies, kids, teen offerings, sports, news, specials, superstations have long been highly popular, with TBS and WGN consistently ranking in the top ten of all cable networks. The public votes every time they turn on their television and they vote vocally and frequently to keep their superstations. If past history is an indication, any loss of superstations will then likely result in angry subscribers demanding the return of their favorite programming.

    It is important to note that the so-called superstations are just a few of the broadcast stations carried as distant signals by cable operators. In fact, over 500 broadcast stations are made available to the cable subscribers, thanks to the compulsory license. This diverse group of stations includes over 100 educational stations, which are largely dependent upon view contributions for their continued success and viability.

    The licenses also currently provide an orderly nationwide system for copyright licensing and royalty fee collection. Without this proven payment mechanism, each local cable system would be required to separately negotiate an estimated 200 contracts per superstation carried. Small and rural stations, in particular, have benefitted from the licenses' simplified reporting system.
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    That is not to say that the licenses are perfect, but in spite of some perceived imperfections, no one has yet to offer an alternative which meets the requirements of Congress' initial intent better than the licenses we have today. The licenses ensure that program choice will not be arbitrarily restricted.

    UVSG's delivery of superstation has been under constant attack by those wishing to restrict access to television programming for most of our corporate history. However, having continually failed to provide a convincing enough argument for the elimination, the opposition is now attempting to convince Congress to price superstations out of existence.

    Increased license fees disguised as reform should not be mandated by Congress. Rather, the burden of proof should be placed on those who wish to increase cost and restrict access. The copyright owner should show that they have specifically been harmed and how elimination of these licenses is in the public interest. A variety of regulations are in place specifically designed to protect the rights of copyright holders. Congress enacted syndicated exclusivity, network non-dupe, sports blackout rules, and other regulations that work in conjunction with the compulsory license.

    I would like to take 1 minute to close to comment on the Copyright Office report. In the interest of fairness and competition, UVSG believes that satellite rates should be comparable to cable rates. However, we do not believe that a combined license would be fair to both industries because of the different business economics.

    UVSG also feels very strongly that the satellite license should be made permanent. The current 1999 sunset provision puts the satellite industry at a competitive disadvantage in planning and marketing programming options for their customers.
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    Finally, UVSG is on record indicating that the recent satellite rate increase as implemented by the Librarian of Congress is anti-competitive, contrary to the Congressional intent, and does not reflect the so-called market value increase and it should be rolled back.

    Mr. Chairman, UVSG works very hard to provide consumers with the services envisioned by Congress in the creation of the compulsory license and we have complied not just with the letter but also with the spirit of the law in fulfilling this role.

    Thank you for the opportunity to come before this subcommittee. I will be glad to respond to any questions.

    Mr. COBLE. Thank you, Mr. Boylan.

    [The prepared statement of Mr. Boylan follows:]

PREPARED STATEMENT OF PETER C. BOYLAN, III, PRESIDENT AND CEO, UNITED VIDEO SATELLITE GROUP

SUMMARY

    The United Video Satellite Group (UVSG) provides satellite delivered television programming services to over 50 million households in every state of the union. UVSG's long-standing service to both the satellite and cable industries gives it a unique insight into both markets. Copyright law strives to meet two important but conflicting objectives, 1) ensuring that the general public has access to creative product while, at the same time, 2) encouraging the development of creative works and intellectual property through the payment of fair copyright royalty payments. Also implemented, in concert with the compulsory licenses, were a variety of rules and regulations (including syndicated exclusivity and network nonduplication rules) specifically designed to protect the financial investments of copyright holders. These protections and the compulsory licenses have worked as intended by Congress for over twenty years. It is clear that the licenses have not inhibited copyright holders from marketing their creative product elsewhere.
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    UVSG believes both compulsory licenses should continue to exist and American viewers should retain access to their favorite programming. In addition, there should be pricing parity between the cable and satellite licenses and the satellite license should be made permanent. UVSG further believes that the recent Copyright Arbitration Royalty Panel increase in satellite fees is unjustified and should be rescinded. Although national ratings rank the two most widely distributed superstations (TBS and WGN) consistently high, carriage does not guarantee success. The compulsory license has not led to an explosion of superstations, nor has it restricted copyright holders' ability to receive full value for their property.

    The cable compulsory license actually allows over 500 broadcast stations throughout the country to be delivered as regional ''distant signals'', thereby providing cable viewers with unique local and regional programming offerings of news, movies and sports and local broadcasters with additional viewers. PBS stations in particular benefit from increased audience size during fundraising campaigns. Cable compulsory license royalty rates are based on gross revenues of the cable operator and, as operators revenues increase, copyright holder payments increase as well. This has resulted in a more than fair compensation scheme for copyright owners.

    UVSG works hard to provide consumers with the services envisioned by Congress. American viewers deserve to retain the programming they have ''voted'' to keep available every time they turn on their television sets. Congress should proceed with caution before enacting ''reforms'' which could result in tens of millions of television households losing access to a favorite viewing option.

INTRODUCTION
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    Mr. Chairman and members of the Subcommittee, thank you for the opportunity to appear before you. My name is Peter C. Boylan III and I represent United Video Satellite Group (UVSG). I am President and chief operating officer of UVSG, a 33-year-old company with a unique perspective on the current compulsory license debate.

    The United Video Satellite Group consists of five companies, two of which are directly affected by the compulsory license. UVTV, a programming provider company, markets via satellite three superstations, WGN—Chicago, KTLA—Los Angeles and WPIX—New York to facilities-based multichannel video program distributors including cable. Our Superstar Satellite Entertainment company is the nation's largest C–Band programming packager and provides various programming services, including superstation signals, to the direct to home (DTH) market. In total, UVSG provides entertainment services to over 50 million households in every state of the union. UVSG's long record of service to both the cable and satellite industries gives us unique insights into both markets. We welcome the opportunity to participate in this process and to provide you with input in your review of the compulsory licenses.

    Both the cable and satellite compulsory licenses must be maintained to ensure a fair compensation system for copyright holders while assuring continued full viewing choices for the American public. The fact is the compulsory licenses have worked—as intended by Congress—and nothing should undermine this efficient and successful program distribution process. Copyright law strives to meet two important but conflicting objectives. First, ensure that the general public has access to creative product and second, encourage the continued development of creative works and intellectual property through the payment of fair copyright royalty payments.
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HISTORICAL BACKGROUND

    As the cable industry began to blossom in the 1960's, cable operators began to ''import'' existing broadcast stations to increase viewing options for their new subscribers. These increased viewing options were a godsend especially to small towns in rural areas as well as larger communities that did not have a full complement of local stations. In 1968, the U. S. Supreme Court ruled that cable retransmission of broadcast television stations did not constitute copyright infringement. However, in 1971, after years of continuous legal battling, program producers, the broadcast industry and the cable industry worked together and reached a compromise acceptable to all parties and agreed to support proposed FCC rules governing these ''distant'' signals. In 1972, as a result of this compromise, the FCC enacted distant signal rules and gave local broadcasters and program suppliers protections in the form of programming exclusivity rights—specifically, syndicated exclusivity (syndex) and network non-duplication protection. Additionally, in 1975, the FCC provided further protection for sports teams by enacting special sports blackout rules designed to protect revenues at the gate of live sporting events.

    With these rules and programmer protections in place, Congress then passed the Copyright Act of 1976, which enacted the cable compulsory license and set rates for payment of royalties for the retransmission of distant signals. The Copyright Act of 1976 also gave the Copyright Royalty Tribunal (CRT) the power to adjust compulsory license rates to compensate for 1) inflation, 2) changes in average cable rates, and 3) changes in FCC rules governing distant signal carriage and program exclusivity rules. After enactment of the Copyright Act of 1976, United Video, responding to public demand for more programming alternatives, decided to uplink WGN and make it available for carriage on cable systems.
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    In 1980, the FCC repealed its rules limiting the number of distant signals and deleted its syndex rules. The CRT then established a schedule of royalty fees to compensate broadcasters and imposed a penalty rate of 3.75% for carriage of each distant signal that would not have been permitted under FCC distant signal rules in effect on June 24, 1981. Generally, this prohibits a cable system from carrying more than two superstations in large television markets and more than one superstation in smaller television markets. The CRT also imposed a costly syndex surcharge for carriage of programs that would have had syndex protection under the ''old'' rules.

    In 1988, the FCC expanded its protection for local broadcasters carrying network programming and re-instituted and expanded the syndex rules. Because of this new, increased protection, the syndex surcharge to cable operators was dropped.

    The Satellite Compulsory License was implemented by the Satellite Home Viewer Act of 1988 (with a 5-year sunset provision). In 1994, the satellite license was extended another 5 years. The cable license has no sunset provision.

CONGRESSIONAL INTENT

    The licenses were originally established to provide 1) maximum access to creative product for the public, and 2) fair payment to copyright owners so as to encourage production of further creative work. In addition, the cable license was established to limit administrative burdens on smaller cable systems.

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    This mechanism has worked as intended for over twenty years. Congress has enacted a variety of copyright holder protections and has been especially successful in its original intent to improve program choice and diversity to American viewers. The compulsory licenses have more than admirably met both of the chief initial objectives. Therefore, UVSG believes that the compulsory licenses should continue to exist and American viewers should be allowed to retain access to some of their favorite programming options.

THE COMPULSORY LICENSES

    The cable license has been successful in helping provide access to programming to the masses, it has eased bureaucratic and administrative burdens, reduced transaction costs, and provided fair financial compensation to copyright holders. Further, the licenses have NOT inhibited copyright holders from marketing their creative product elsewhere. In other words, UVSG fails to see how copyright holders have been harmed by the compulsory licenses.

    The license actually serves as vehicle to encourage marketplace negotiations. Just because a station is delivered outside its area of license, doesn't mean that the station will be successful in gaining, or retaining high viewership. Carriage of broadcast stations outside their markets of license does not automatically guarantee popularity with viewers.

    The marketplace is alive and well and is the ultimate determiner of the survivors. For example, former New York superstation WWOR was available via microwave and satellite for years and featured, among other programming, live sporting events (in particular New York Mets baseball). Yet, because of unpopular programming selection and scheduling, WWOR lost market share and ultimately ceased being a superstation in December, 1996 after years of decline. It's clear that the compulsory license is not a guarantee of superstation success.
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    This point is further demonstrated by the fact that the number of superstations available of satellite has actually declined, not grown. Today, after the recent conversion of TBS to cable network status, WGN is the most widely distributed ''national'' superstation, with less than 50% coverage in the cable marketplace.

    UVSG also believes that the compulsory license does not thwart competition. The contracts which Major League Baseball, the National Basketball Association and others have recently secured for television licensing rights and the new sports packages offered on satellite and cable is proof that the delivery of sporting events on superstations has not harmed the ability of the leagues to market their creative product for ever greater financial rewards.

    UVSG believes superstations provide cable operators with a popular, broadly appealing channel to offer on basic cable program packages, assuring virtually all cable subscribers quality programming without being required to upgrade to higher, and more expensive programming tiers.

    In fact, the volume of sports has declined on superstations in the 1990s. And yet, superstations monitored by A.C. Nielsen have still consistently been rated in the top 10 viewed of all cable offerings throughout all dayparts and throughout the calendar year (see Exhibit 1). For example, the current annual superstation WGN schedule features a programming lineup consisting of:

Syndicated Series 40%
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Movies 22%
Kids and Teens 11%
Sports 10%
News and Specials 10%
Other 07%

    (See Exhibit 2)

    Viewers nationwide clearly love the variety of programming available on superstations, principally because it offers families a wide range of viewing choice within one channel. There is literally something for everyone to watch on Superstation WGN.

    UVSG has worked hard to provide a high quality, beneficial programming network to the cable and satellite industries. But we have done more than ''just'' provide a wonderful programming choice. UVSG has a full-time commitment to state-of-the-art transmission services and support. In addition, UVSG actively supports its customers with not only technical support but with public service support as well, including the offer of the turn-key, award winning public service campaign ''Find Yourself in a Book'', a teen literacy campaign which recently won the Cable Television Public Affairs Association's prestigious Golden Beacon Award. This and other community affairs programs are provided to customers at no charge as part of UVSG's ongoing commitment to the common good.

ACCESS TO PROGRAMMING

    One of the principle functions of the compulsory licenses is to ensure that cable and satellite subscribers have access to some of the most popular programming available. UVSG is convinced that without the compulsory licenses some rights holders would simply refuse to negotiate or grant distribution rights at any cost. Our views are supported by the long standing efforts of the sports leagues to eliminate superstations as viewing options. Both in public statements and in litigation, the sports leagues have made it clear that they want to deny consumers access to superstations. UVSG urges Congress to think twice before enacting ''reforms'' that, through the law of unintended consequences, would make distribution of superstations uneconomic. Superstations provide the American public with a popular alternative to premium movie and sports channels.
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USE AND SCOPE OF THE LICENSES

    Although satellite-delivered superstations are often first thought of when the compulsory license is discussed, the fact is that over 500 television stations are currently carried by cable systems as ''distant signals''. In particular, PBS stations benefit from the extended coverage because, as their viewing coverage is increased, their ability to raise funds from viewers is also enhanced. This is especially beneficial while the government considers limitations on government support of public television.

    The American public, ''voting'' every time they turn on the TV, strongly supports the licenses by watching superstations often and enthusiastically. Superstations and broadcast stations, which are carried just outside the fringes of their markets of license, are highly popular viewing choices and consumers want to keep them as viewing options. The unique local and regional programming offerings of these stations, including news and public affairs, would be significant losses to the viewers currently enjoying these special offerings. Nielsen ratings and other independent surveys further confirm that national superstations are highly viewed. Throughout the 1990's, TBS frequently rated as cable's preferred viewing choice and WGN 24-hour ratings ranged from .5 to .8. These ratings are consistently high enough to rank WGN within the top 10, usually in the top 5, of all cable network alternatives. Other independent studies confirm that superstations are consistently listed as ''channels that would be missed most'' if dropped from a channel lineup.

EASING THE ADMINISTRATIVE BURDEN
(COPYRIGHT EXCHANGE FUNCTION)
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    The compulsory licenses established a relatively simple system to pay copyright—a flat fee for small cable systems and a formula based on gross revenues earned for larger systems (earning about $76,000 or more in gross revenues semi-annually). Small systems are thereby provided with a clearinghouse enabling them to select programming and pay copyright fees quickly and easily without undue bureaucratic entanglements. In fact, without the license, an estimated 8.5 million contracts would have to be negotiated by the 511 broadcast stations (and 14,636 cable systems) currently providing viewing alternatives to their viewers.

COPYRIGHT PAYMENTS

    The compulsory license has met the goal of ensuring fair compensation to rights holders. In fact, the cable compulsory license provided over $171 million in copyright payments in 1996 (the last year for which full figures are available) to copyright holders. Because the cable license is based, for most systems, on gross revenues collected from subscribers, copyright payments to copyright holders have increased significantly over time. In fact, from 1983 through 1996, copyright collections grew 204.1% (to a total of $171.8 million in annual collections in 1996.) (See exhibit 3)

    It is worth noting that over 80% of the 1995 cable compulsory license payments were shared by the Motion Picture Association of America (52%) and the Joint Sports Interests (29%). Nevertheless, these copyright holders have consistently stated their demands for higher fees. UVSG suggests that perhaps a different sharing of the current ''royalty pie'' would be a more equitable and direct way to resolve their concerns. In short, compulsory license reform should NOT be used as an excuse to increase rates without more substantial evidence that the current royalty scheme is unfair and fails to consider other provisions in the law designed to protect rights holders.
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COPYRIGHT HOLDER PROTECTIONS

    There are a variety of regulations now in place that are specifically designed to protect the creative product of copyright holders. For example, copyright holders can negotiate syndicated exclusivity and/or network non-duplication agreements for any or all of their programming. In other words, any owner of creative product can include a syndex clause in their broadcast contracts and thereby guarantee that a cable superstation will not be able to carry that particular program on the superstation thereby preserving the copyright holders' and the broadcasters' exclusive right to a particular program in an individual market. UVTV guarantees that all syndex-affected programs will be covered on its WGN satellite feed. Syndex therefore provides both copyright protection and revenue opportunity to copyright holders.

    Indeed, UVSG believes that syndex-proof stations (like WGN which does not include any programming that violates exclusivity rights) should be considered in a separate category and have a different royalty fee. This is because at any given time, 50% or more of the programming aired on Superstation WGN has national cable clearance and therefore not subject to the compulsory license. Cable operators however, continue to pay for the service as if the compulsory license was needed to compensate rights holders for out-of-market distribution of 100% of the programming on the signal. The sports leagues are additionally protected by sports blackout rules, which require operators within a 35-mile radius of a sporting event to blackout that game if the game is not sold out. Furthermore, the Congress established strict limitations on the number of superstations allowed into a market via a cable system. This ''quota'' on superstations, which is contrary to traditional principle of supply and demand, serves to restrict output of programming and increased its value to rights holders.
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CABLE/SATELLITE LICENSE PARITY

    UVSG believes that the current average cable compulsory license royalty rate reflects a fair copyright rate. To ensure a fair and competitive marketplace in the delivery of video programming, UVSG believes that the satellite rate should be comparable to the cable rate. However, UVSG does not believe a combined license could be fair to both industries. The cable and satellite industries are different businesses and have different business economics, therefore it would be very difficult to combine the licenses into one license fair to all. Proper investigation and analysis of the entire television marketplace is essential to assure fairness both to cable and its most aggressive current competitor, satellite and DBS.

    In addition, the satellite industry, in order to compete effectively, should not have to market its services with a compulsory license, which has (unlike the cable license) a sunset deadline. The satellite license should become permanent. The current December 31, 1999 sunset provision puts the satellite industry at a competitive disadvantage in planning and marketing entertainment services to the American public.

    UVSG believes the increase in satellite copyright royalty fees as recommended by the Copyright Arbitration Royalty Panel (CARP) and implemented by the Librarian of Congress, is unjustified and should be rescinded. The CARP convened in 1997 to arbitrate satellite license payment changes after voluntary negotiations between copyright holders and users failed, submitted its findings to the Librarian of Congress who for the most part accepted the CARPs recommendations.

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    The CARP, in its report, noted that the judges comprising the panel made their recommendations with the understanding that they reviewed only the satellite industry. They specifically indicated they had no power to attempt to provide competitive parity with the cable industry. They noted that Congress had directed them to find ''fair market value'' without taking cable competition into consideration. UVSG maintains that the new royalty fees bear no relationship to a ''fair market value'' as alleged. Congress must step in to correct this matter.

THE LICENSES AND THE MARKETPLACE

    The television marketplace—broadcast, cable and satellite—has all been affected by changes which have resulted in adjustments to accommodate the compulsory licenses. Copyright rates have been raised, sometimes indiscriminately. Programming contracts can include specific references to ''syndex'' and ''network non-duplication'' thereby limiting superstation carriage of the designated programming. Programming contracts can contain special, delayed-broadcast criteria, again limiting superstation programming options. Surcharges on superstations in addition to the royalty rates paid by copyright users have been levied for the right to retransmit programming to viewers. Sports interests enjoy other government ''protections'' of their industry, such as exemption from the antitrust laws. UVSG sees both compulsory licenses as beneficial to the American viewer and essential to the continued existence America's favorite programming choices.

CONCLUSION

    In conclusion, UVSG welcomes the opportunity to participate in the comprehensive review of the compulsory licenses. We respectfully urge the Subcommittee to proceed with caution in this area. The Subcommittee should be mindful of the impact any changes in the compulsory licensing regimes could have on consumers. Should the compulsory licenses be reformed in such a way as to make distribution of superstations uneconomic, tens of millions of television viewers will lose access to a vital source of news, entertainment and sports programming. The Subcommittee should adopt as its principle objectives in this legislative exercise (1) to preserve the careful balance between rights holders and users and (2) to leave consumers no worse off.
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    On behalf of UVSG, I look forward to working with you and your staff to craft such a proposal. I am happy to entertain any questions you may have.

020498a.eps

020498b.eps

020498c.eps

    Mr. COBLE. Mr. Polka.

STATEMENT OF MATTHEW M. POLKA, PRESIDENT, SMALL CABLE BUSINESS ASSOCIATION

    Mr. POLKA. Mr. Chairman and members of the subcommittee, good morning. My name is Matt Polka and I am President of the Small Cable Business Association. Thank you for the opportunity today to tell you about the impact of proposed copyright changes on the 7,000 small independently owned cable systems that provide service to much of rural America.

    These small businesses, which are often family owned and operated, face many challenges, which include much higher costs of providing service due to lower population densities. This year, many of these small businesses have faced double-and triple-digit increases in satellite delivered programming costs, and I would like to note that these small businesses are not owners of cable programming.
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    As a result, you can imagine the concern that is being felt now by these small independent cable businesses. They are concerned every time they see proceedings like this one or hear talk about significantly increased copyright costs, not to mention wholesale changes in the Satellite Home Viewer Act.

    The recent rate hike imposed on satellite carriers by the CARP raises a number of issues and SCBA understands this. In fact, we think the decision ought to be reversed and lowered. Congress must, however, exercise caution in considering changes to cable's, especially small cable's, copyright rates and rules all in the name of parity. A knee-jerk reaction to raise cable's copyright rates will likely trigger something far worse, and that is the application of the law of unintended consequences.

    SCBA appreciates the position of satellite carriers. In fact, in a report issued by the Copyright Office last year, one proposal would have raised small cable's copyright costs by more than 2,300 percent. Such proposed increases will cause harm to consumers through higher rates and lost broadcast programming on cable.

    If Congress revisits the copyright treatment received by small cable businesses, it should examine the unique aspects of small cable markets that cause Congress to act as it did in 1976. When compared to current markets, Congress will find that little has changed. More than 26 percent of this nation's population still lives in markets not served by a full complement of off-air signals. That is because they live in rural America.

    Further, many small cable businesses operate in the fringe areas of television markets, often placing cable subscribers on the wrong side of a State border or market determination. Ironically, to provide customers with relevant State, local, and regional news, small cable businesses must often import and pay for ''distance signals'' from truly local in-State stations which are located closer to the cable systems and the subscribers.
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    Factors such as these gave rise to the lower copyright rate for small cable in 1976 and these factors still exist today. Likewise, the policy reasons behind SHVA also remain valid. SHVA's distance signal importation restrictions represent a critical line of defense for the preservation and promotion of localism. Congress must not only uphold localism but also reinforce it. Without the white area restriction, local broadcasters would face losing significant market share to national distribution of a handful of major market broadcast stations over DBS. Local communities and citizens would also lose important local programming.

    SCBA has no objection to allowing DBS the right to retransmit local-to-local signals. True parity, however, and fair, realistic competition between the industries are the keys to the solution.

    Last month, EchoStar began local-to-local transmissions in six major cities and plans to make local signals available to 50 percent of television households. Last week, the Copyright Office, at EchoStar's urging, opened a rulemaking to permit local-to-local retransmissions. Unilateral changes through an end-around at the Copyright Office will undermine more than 20 years of Congressional communications policy that has benefitted consumers in small towns and rural America.

    To preserve localism, Congress and the FCC have established a comprehensive framework to promote the viability of local signals. DBS providers have no similar framework. Rather, the EchoStar plan merely cherry-picks the most popular programming. EchoStar's plan only covers about 80 stations, leaving approximately over 1,500 stations without DBS carriage. That is about 95 percent of this country's local broadcast stations.
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    To protect the interests of 95 percent of the nation's broadcast signals and the viewers and communities who rely on them, Congress must ensure that any DBS plan to retransmit local-to-local programming includes a comprehensive revision of the DBS regulatory framework. This revision must include, like cable, requiring DBS to abide by must-carry, retransmission consent, and sports blackout requirements, among others.

    Let me sum up in two paragraphs, please. Congress should apply the CARP's decision on satellite copyright fees separately without changing the current copyright scheme for small independent cable. Congress should not simply raise cable's copyright rates to meet satellite's all in the name of parity.

    Second, the current copyright structure that applies to small independent cable and rural America should be upheld and there is no reason to change the current copyright rate or compulsory license.

    Finally, any changes in the SHVA should provide for fair and even competition between the industries. Thank you, Mr. Chairman.

    Mr. COBLE. Thank you, Mr. Polka.

    [The prepared statement of Mr. Polka follows:]

PREPARED STATEMENT OF MATTHEW M. POLKA, PRESIDENT, SMALL CABLE BUSINESS ASSOCIATION

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SUMMARY

    As Congress assesses an appropriate response to the recent significant increase in satellite copyright fees, the Small Cable Business Association (''SCBA''), the voice of independent small cable businesses, strongly urges Congress to avoid a knee-jerk reaction that will only replicate the dilemma faced by satellite carriers. Each delivery system for multichannel video programming requires independent analysis.

    More than twenty-one years ago, after significant analysis of the impact on cable customers in rural America, Congress established a differentiated copyright system for small cable systems. Nothing has changed. Small, independent cable businesses still serve rural America. Small, independent cable businesses still must import distant signals more often. Small cable remains the only significant multichannel video programming provider that delivers local programming to rural America. SCBA urges this Subcommittee to carefully examine these critical factors before recommending any changes to small cable's copyright structure.

    Congress also faces the unrelenting persistence of direct-to-home satellite providers who seek approval of various local-to-local broadcast schemes. Last year it was Rupert Murdoch with a short-lived plan. This year, EchoStar appears before Congress with the same request after already commencing a Copyright Office proceeding to implement the change without an act of Congress. This Copyright Office action threatens to undermine 65 years of communications law policy.

    SCBA does not object to local-to-local satellite retransmission as long as it does not undermine localism and local programming. To promote localism and local programming, Congress and the Federal Communications Commission must mirror the current regulatory scheme governing cable retransmission of local-to-local signals. This includes must-carry, retransmission consent, network non-duplication, syndicated exclusivity and sports blackouts. Without comparable requirements, the EchoStar plan will benefit only 120 broadcast stations, leaving 92% of the nation's broadcast television stations without carriage on its direct-to-home satellite service. Local-to-local retransmission can only be effectively implemented by an act of Congress and concurrent rulemakings at the Federal Communications Commission.
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I. INTRODUCTION

    Recent changes in satellite copyright fees as well as EchoStar's commencement of local-to-local delivery has increased the pressure to modify the current copyright framework, a framework already under siege by numerous factions. The Small Cable Business Association, in its role as the voice exclusively dedicated to the interests of small, independent cable businesses, urges this Congress to consider carefully the impact of any statutory or regulatory changes on these small, often family-owned and family-run businesses and their customers. In SCBA's representation of its nearly 300 members that serve nearly 2 million customers, SCBA has witnessed numerous instances where proposed changes would have rendered dramatic and undesirable consequences for many residents of rural America, whether or not they subscribed to small cable.

II. RECENT CARP SATELLITE ACTION DOES NOT JUSTIFY CHANGES TO CABLE COPYRIGHT PROVISIONS

    The recent significant rate hike imposed on satellite carriers by the Copyright Arbitration Royalty Panel (''CARP'') raises a number of critical issues and triggers calls for change from various stakeholders as well as Congress. SCBA understands the concern that a rate increase of this magnitude causes. Congress must, however, exercise caution as it examines how to remedy this situation. A knee-jerk reaction will likely trigger something far worse—application of the law of unintended consequences.

    SCBA has a particular appreciation for the position of satellite carriers. In a report issued by the Copyright Office last year, one proposal would have raised small cable copyright costs by over 2,300%!(see footnote 17) Such increases would result in adverse consequences for consumers and local broadcasters.
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    The copyright system must function in a way that balances the needs of all stakeholders—the intellectual property owners, the primary transmitters, the secondary retransmitters and the ultimate consumers. Any system that allows for radical and unpredictable changes in copyright costs apparently does not balance these interests in a consistent fashion. Congress should look carefully at alternatives to CARP, such as having rates established in proceedings before an administrative law judge, or having base rates set by statute and adjusted formulaically.

A. Small Cable Does not Support the Recent Hike in Satellite Copyright Rates

    SCBA has great concerns when the costs of doing business— particularly costs associated with legislation or regulation—change dramatically and unpredictably, with little recourse. A system that functions in such an unpredictable manner introduces unnecessary instability into the fundamental economics of any business. The consequences of this conduct can range from discouraging capital investment to causing dramatic and reactionary changes in retail services and pricing.

    That's why SCBA understands the satellite industry's and Congress' concerns regarding the new satellite copyright rate structure. In fact, we think—like the satellite industry—that the rate is too high. If Congress is going to do something about it, it should reasonably and appropriately lower the rate.

    However, what we at SCBA are also saying, in clear terms, is that Congress should not give in to its first tendency, as some in the satellite industry are encouraging, which is to raise everyone else's copyright cost—including small, independent cable's—to the same level as the current rate for DBS. This will only replicate the problem the satellite industry is now facing.
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    Congress must examine the satellite industry and determine the appropriate rate structure, or at least the parameters that should establish the current structure. Similarly, Congress must examine the cable industry, including the unique attributes of small cable, before it can declare the need for any changes in cable's current rate structure.

    There are many issues that this Subcommittee will address—cable's copyright rate structure, Satellite Home Viewer Act violations and ''white area'' restrictions, and the cable compulsory license to name a few. However, this Subcommittee and Congress need to address the satellite industry's copyright rate structure and the CARP decision separately, without tying it to cable's copyright structure and without making changes to cable's structure as a direct result of it.

    The CARP decision was a bad one. That decision needs to be addressed and fixed, But Congress should avoid making another bad decision by increasing cable's copyright rates—particularly small, independent cable's—as a knee-jerk reaction to the CARP decision.

    Two bad decisions don't make a right one. They just make two bad decisions.

B. The Remedy for Satellite Rates Does not Lie in Changing Small Cable Copyright Treatment

    If Congress revisits the copyright treatment received by small cable businesses, it should begin by examining the unique attributes of small cable markets that caused Congress to act as it did in 1976. When contrasted to current market attributes, Congress will find that little has changed. We review these policy considerations briefly.
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1. Current Policy Fosters Delivery of Local Programming

    For more than 60 years, Congress has held paramount the principal promoting and preserving local programming when establishing communications law policy. The principal of localism has carried over into copyright law policy as well. When Congress engineered a copyright framework for cable in 1976, it carefully evaluated the needs of those who lived in rural America and who relied on small cable businesses for receipt of multi-channel video programming that delivered local programming to them. Nothing has changed. Small cable businesses remain, and will likely remain, the sole multi-channel video programming provider offering local programming.

    In 1976, Congress recognized that cable businesses in many small communities had to import a significant number of distant broadcast signals to provide viewers in rural America with a full complement of network, PBS and independent broadcast signals. In October 30, 1996, testimony before this Subcommittee, a representative of the Motion Picture Association of America (''MPAA'') claimed that the proliferation of broadcast signals since 1976 has alleviated this situation. MPAA's analysis misses the mark.

    MPAA failed to provide a distribution of these signals by market size. Most of these licenses were awarded to broadcasters in major markets. These broadcasters provide religious, specialty, home shopping or other independent broadcast services, as well as affiliates of new broadcast networks, including Fox and Warner Brothers. Statistics placed on the record by the National Cable Television Association (''NCTA'') support this. More than 26% of cable households exist in markets not served by all of the established networks, at least one educational station and at least one independent station.(see footnote 18) Small cable serves 12% of the nation's cable subscribers. The same markets under served by broadcasters are the markets served by small cable. Consider the following examples:
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  Brookland, Arkansas—a small town in northeast Arkansas served by Friendship Cable of Arkansas. Friendship provides service to just over 300 homes outside the reach of television stations in Memphis and Little Rock. To provide a full complement of signals, Friendship carries the two local signals from Jonesboro, Arkansas, but imports five signals from Memphis and one from Little Rock, in addition to other independent stations from Chicago and Atlanta. Without the ability to import these distant signals at low cost, the residents of Brookland would receive service from only one network and one PBS station.

  Almira, Washington—a small town nestled in between mountains in central Washington has a cable system providing 63 local homes with their only source of ''local'' off-air programming. To provide these homes with viewable signals, Sun Country Cable brings in certain Spokane stations and microwaves other Seattle stations over the Cascade Mountain Range to citizens of Almira.

  Chelan County, Washington—a county in the Seattle Area of Dominant Influence, but located within the Cascade Mountain Range between Seattle and the antennas of local residents. To compensate, Sun Country Cable brings in four Seattle stations, one Tacoma station, two Spokane stations and one station each from Chicago and Atlanta. Geographic features prohibit off-air reception of most signals. The only way the 245 subscribers can receive these signals is through the efforts of a small cable operator.

    Another problem faced by small cable businesses arises because small cable systems often serve the fringes of television markets. Consequently, the channels designated as ''local'' by Copyright law do not always meet the notion of ''local'' in the eyes of customers. For example, consider the small family-owned system located in Rensellaer, Indiana. The system falls on the outside edge of the Chicago Area of Dominant Influence (''ADI''), a measure of the popularity of programming in a community. Under copyright law, all Chicago signals qualify as local. Citizens of Rensellaer want news and programming about Indiana, however. Consequently, Rensellaer Cable must import signals from South Bend and Indianapolis to provide news and public affairs programming relevant to citizens of Indiana.(see footnote 19) To the citizens of Rensellaer, programming relevant to the state where they live is local regardless of the legal definition for copyright purposes. Many small systems like Rensellaer Cable must import a greater number of ''distant'' signals to offer a full complement of truly local programming.
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2. Small cable's low copyright rate must continue

    Small cable still serves rural America. Because of the size and location of markets served, small cable must still import a relatively greater number of signals to provide the same level of programming found in larger markets. Consequently, any significant copyright increase in the small cable rate based on the number of distant signals imported will unfairly burden viewers in rural America and/or discourage small cable from providing maximum diversity in program line-ups.

    If Congress raises small cable's copyright rates, there will be definite, harmful results.

    First, without doubt, cable rates will go up. Cable operators—particularly small, independent cable operators—will have no choice in the matter. At a time when small, independent cable operators are taking hits with double- and triple-digit satellite-programming rate increases, among other cost increases, the only option would be to raise rates to cover the increased costs. Given the increased sensitivity in Washington right now over cable rates, Congress should think twice about making a change in the current copyright structure that will cause cable rates to increase in rural America.

    The second definite and harmful result would be that many small cable businesses might have to drop important local broadcasters and local programming because they cannot afford the increased copyright costs. This outcome would also be in no one's best interest—not the local citizen's, the local community's, the local business advertiser, the local broadcaster's nor the local independent cable business'. There may, however, be little choice.
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    Finally, this lack of carriage will also hurt the financial health, and in some cases, the viability of local broadcast stations. Important local programming sources and outlets would be gone. No local news, no local advertising, no local political advertising, and no local information.

    MPAA attempts to dissuade this Subcommittee from recommending continuation of reduced cost treatment for small cable by attributing misuse of small cable copyright rates by some to small cable operators. MPAA asserts that because the reduced-rate short-form copyright filings comprise half of all filings in large markets, small cable must have infiltrated major markets where the attributes justifying lower small cable rates do not exist. This conclusion misses the mark. MPAA's assertion regarding a proliferation of short-form filings is true, but MPAA fails to disclose the identity of the filers. They are not small cable operators.

    Other multi-channel video programming providers have made use of the compulsory licensing scheme. These other providers include principally satellite master antenna television (''SMATV'') providers. A SMATV provider is not a cable operator. A SMATV provider typically provides service to a limited group of high-density subscribers located solely on private property. These properties include apartment and condominium complexes, hotels and private residential subdivisions.

    SCBA has reviewed the copyright statement filings in 12 of the largest markets. Virtually all short-form filers in these communities were SMATV providers. Only in a few instances did a small cable business file in a major market. These systems typically represent fringe or pocket areas that have characteristics of rural America (e.g., low population densities).
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    Small cable still serves rural America. The public policy reasons to limit copyright costs on cable businesses that serve rural America remain valid.

3. Small cable's compulsory license must continue

    Elimination of the compulsory license would have a devastating financial impact on small cable. Small, often family-run cable businesses, lack the personnel and financial resources to procure copyright clearances from all programmers. The smallest cable systems serve tiny pockets of rural populations, many times operated out of the owner's home. These systems, which sometimes serve 25 to 100 or more customers, simply cannot negotiate with the likes of major league sports or MPAA.

    SCBA estimates the cost of procuring clearances would average at least $10,000 per cable system annually. This imposes significantly greater burdens on small cable compared to larger systems. For example, for a system with 200,000 subscribers, this results in a cost of $0.05 per subscriber. For a system with 250 subscribers (one-third of all cable systems have fewer than 250 subscribers)(see footnote 20)—$40 per subscriber. For a system with 40 subscribers—$200 per subscriber. Small cable and its customers cannot afford this type of administrative cost.

III. CHANGES TO SATELLITE HOME VIEWER ACT (''SHVA'') REQUIRE CAREFUL AND COMPREHENSIVE LEGISLATIVE ACTION

    If Congress considers changes to the compulsory license scheme for satellite carriers, Congress must decide to either support or cast aside the principle of localism. If Congress seeks to continue support of localism, it must consider carefully the impact of changes to regulation of a national programming service that currently not only does not deliver local signals or serve any local programming needs but also by escaping those requirements competes unfairly with providers of local programming. If Congress permits changes that allow these national services to transmit local-to-local programming, as requested recently by EchoStar(see footnote 21), then it must do so in a way that fosters, not harms localism.
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A. SHVA Continues to Play a Vital Role to Preserve Local Programming

    SHVA represents the principal barrier to the wrongful destruction of local programming by nationally-oriented DBS programmers. SHVA was designed to prevent the importation of a duplicative network signal into a local market where a local viewer can readily obtain the local signal off-the-air. Without this so-called ''white area restriction,'' local broadcasters would face the prospect of losing significant market share to national distribution of a handful of major-market network broadcast stations over DBS.

    Today, critical provisions of the SHVA have been gutted by the cavalier attitude taken and illegal activities engaged in by many DBS operators to deliver duplicative network systems into non-white areas. In the recent Copyright Office Proceedings, the results of which were presented to this Subcommittee on October 30, 1997, the National Association of Broadcasters presented evidence of widespread violations of SHVA's signal importation restrictions.(see footnote 22) SCBA members have witnessed numerous cases of widespread, illegal abuses where DBS providers import distant network signals into markets where their subscribers could easily receive the broadcast off-the-air. Even Mr. Rupert Murdoch, while attempting last year to blame the problem solely on unscrupulous subscribers, admitted how easily anyone can violate the law:

  So that if you're living in Washington and you have direct television, you've only got to tell a little fib that you can't get the local stations, and they'll turn on stations from Atlanta and New York and so on and the local broadcasters are extremely upset by this . . .(see footnote 23)
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An example of how DBS providers solicit information from their viewers once a local broadcaster complains is attached as Exhibit ''B.'' In that form, which notifies a DBS subscriber that it will lose a distant NBC signal, the DBS provider literally ''fishes'' for information in a leading fashion in a desperate attempt to keep the customer who can readily receive the local signal off-the-air.

    In addition, the rush to hook up new DBS customers all in the name of ''competition'' has been well documented with case after case of misleading advertising, false representation and the promise of being able to provide something DBS knows it legally can't deliver.

    SHVA's distant signal importation restrictions, under siege by DBS operators, represent a critical line of defense for the preservation and promotion of localism that Congress must not only retain, but reinforce.

B. Changes to Permit Local-to-Local Retransmissions Require Coordinated Changes to the Communications Act

    Contrasted to its strong objection to wrongful importation of duplicative distant network signals, SCBA has no objection to allowing DBS parity regarding retransmission of local-to-local signals. True parity, however, and fair, realistic competition between the industries remains the key.

    Last month, EchoStar began local-to-local transmissions in New York, Boston, Washington, D.C., Chicago, Atlanta and Dallas.(see footnote 24) EchoStar plans to make local-to-local signals available to 50% of television households.(see footnote 25) On December 23, 1997, EchoStar asked the U.S. Copyright Office to reinterpret the SHVA definition of an ''unserved household'' so that local markets would be open to DBS retransmission of local-network signals.(see footnote 26) On January 26, 1998, the Copyright Office published a notice asking comment on whether Congress intended the ''white area'' restriction to restrict the importation of only distant broadcast signals or all broadcast signals.(see footnote 27) SCBA urges extreme caution with respect to the ultimate impact of any changes resulting from this Copyright Office rulemaking.
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    Unilateral changes at the Copyright Office level will undermine the Congressionally established national communications regulatory scheme. SCBA does not object to local-to-local transmission so long as DBS providers perform those transmissions pursuant to the same rules and regulations that govern cable's local-to-local program carriage.

    To preserve and promote localism, Congress and the Federal Communications Commission have established a comprehensive framework designed to preserve the financial viability of local broadcasters. This regulatory framework includes must-carry, retransmission consent, network non-duplication, syndicated exclusivity and sports blackout requirements. DBS providers have no similar framework. Rather, the EchoStar plan merely cherry-picks the most popular programming (ABC, CBS, NBC and Fox, a plan that affects only about 100 stations(see footnote 28), leaving approximately 1,485 stations without DBS carriage). The EchoStar plan denies carriage of 94% of this country's local broadcast stations. Another DBS provider who also owns broadcast properties summed up the impact when ASkyB announced similar plans almost one year ago:

  I will tell you this as a local broadcaster, if Sky were to come to a market in which we operate a TV station, and were to carry the TV stations from that market and our station for some reason were to be left out, I think we'd be in deep, deep trouble.(see footnote 29)

    Further, without restrictions, EchoStar could carry the signals of the popular networks and require signals with less popular programming to pay for carriage. For public policy reasons, Congress outlawed the ability of cable television operators to require payment for carriage. For identical public policy reasons, Congress should place identical restrictions on DBS providers seeking to transmit local-to-local programming.
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    To protect the interests of 94% of the nation's broadcast signals, and the viewers and communities who rely on them, Congress cannot allow the Copyright Office to make unilateral changes to allow this carriage. The action necessary to permit local-to-local programming must include a comprehensive revision of the DBS regulatory framework to avoid undermining the long-standing communications policy objectives of Congress.

IV. CONCLUSION

    As Congress and this Subcommittee consider changes to current copyright laws and regulations, it should address the CARP's decision on satellite copyright fees separately, without changing the current copyright scheme for small, independent cable businesses and without simply increasing cable's copyright rate to meet satellite's all in the name of ''parity.'' That's not parity, but two bad decisions that will hurt rural cable consumers all across the country.

    Second, the current copyright structure that applies to small, independent cable remains just as sound as it did more than 20 years ago. It should be upheld. There is no reason to change the current copyright rate or the compulsory license because both encourage and allow small, independent cable to provide the local signals and programming that their customers want. The current copyright scheme for small, independent cable helps preserve localism and benefits small communities and rural areas.

    Finally, changes in the SHVA should be examined very carefully. Any changes should provide for fair and even competition between competing industries, which means that the same local carriage obligations placed on cable (must-carry, retransmission consent, network non-duplication, syndicated exclusivity and sports blackouts, among others) should apply to DBS.
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    Small, independent cable businesses are not afraid of competition. They are confident in their abilities, because they have been providing telecommunications services to rural America for decades. They know their customers and they know their communities.

    All small, independent cable businesses want is a chance—a fair, chance to compete evenly with whomever. Given that chance, small, independent cable businesses will continue to play the important and vital telecommunications role they have played in rural America for years.

    They will deliver. Thank you for this opportunity to present the views of small, independent cable businesses.

Exhibit A

IDENTITY OF SHORT-FORM ''CABLE'' COMPULSORY LICENSE FILERS

SAMPLE MAJOR MARKETS

Philadelphia Cable Operator(see footnote 30)

Mid-Atlantic Cable Development Co.         No
West-Corp Communications, Inc.         No
Maxtel         No
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Comsat Video Enterprises, Inc.         No
On Command Corp.         No
Lamont TV Systems, Inc.         No
Hospitality Network         No
Spectradyne, Inc.         No
Suburban Cable TV Co., Inc.         No

Dallas-Fort Worth Cable Operator
Dallas

B&H Antenna Systems         No
On Command Corp.         No
Spectradyne, Inc.         No
TV Max Telecommunications         No
Missim Cable Co., L.P.         No
Telecom Dallas         No
IRPC Texas Ventana, Inc.         No
Bird Antenna Systems         No
Telecom Masters, L.P.         No
Telecom Satellite Country, L.P.         No
Comsat Video Enterprises         No
Telecom South, L.P.         No
Nationwide Communications, Inc.         No
Omega Communications         Yes

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Fort Worth

Telecom Dallas, L.P.         No
Telecom Masters         No
TV Max Comm.         No
IRPC Texas, Inc.         No
Millisat, Inc.         No
Comsat Video Entertainment Inc.         No
Maxtel Assoc.         No
Interactive Cable Systems, Inc.         No
Telecom Satellite Systems         No

Detroit Cable Operator

Cable Plus Management Co         No
Comsat Video Enterprises         No
On Command Corp.         No
Spectradyne, Inc.         No
MW1 Cablesystems, Inc.         Yes
Regional Cable TV, Inc.         Yes
Correctional Cable TV         Yes(see footnote 31)

Minneapolis-St. Paul Cable Operator

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Minneapolis

Comsat Video Enterprises, Inc.         No
On Command Corp.         No
Spectradyne, Inc.         No

St. Paul

Comsat Video Enterprises, Inc.         No
On Command Corp.         No

Phoenix Cable Operator

Gulf American Cable Group IV         Yes(see footnote 32)

IRPC–AX, Inc.         No
TV Max Communications         No
Spectradyne, Inc.         No
IRPZ–AZ, Inc.         No
Cable Plus Management Co.         No
Hospitality Network         No
Comsat Video Enterprises, Inc.         No
On Command Corp.         No
Homestead Land Development Co.         No
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ICS Communications, Inc.         No
Interactive Cable Systems, Inc.         No

Denver Cable Operator

OPTEL, Inc.         No
Quincy Park Condominiums         No
Comsat Video Enterprises, Inc.         No
On Command Corp.         No
Hospitality Network         No
Albion Corp.         No
Maxtel Associates, L.P.         No
Interactive Cable Systems, Inc.         No
MGH Cable I         No
Garden Court Cable Assoc.         No
Hunter's Run I LTD         No
Interface Communications         No
Spectradyne, Inc.         No
Cook Street Cable         No

Indianapolis Cable Operator

Omega Satellite Products         No
Wireless Cable of Indianapolis, Inc.         No
Maxtel Assoc. LP         No
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Telemedia Communications, Inc.         No
Hospitality Network         No
Comsat Video Enterprises, Inc.         No
On Command Corp.         No
Edward Rose of Indiana         No
Spectradyne, Inc.         No
ICS Communications, Inc.         No
Interactive Cable Systems, Inc.         No

Charlotte Cable Operator

Comfort Woodlawn         No
Comsat Video Enterprises, Inc.         No
On Command Corp.         No
Spectradyne, Inc.         No
Maxtel Associates, L.P         No
Hospitality Network         No

Cincinnati Cable Operator

Howard Johnson Motor Lodge         No
Coaxial Communications of Southern OH         Yes
Comm One, Inc.         No
Comsat Video Enterprises, Inc.         No
Spectradyne, Inc.         No
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On Command Corp.         No
Telemedia Communications, Inc.         No

Kansas City Cable Operator

Comsat Video Ent., Inc.         No
On Command Corp.         No
Douglas Cable Communications, L.P.         No
Galaxy Telecom L.P.         No
Maxtel Associates L.P.         No
Spectradyne         No
Hospitality Network         No
Interactive Cable Systems, Inc.         No

020498d.eps

020498e.eps

EXHIBIT C
BIOGRAPHY

    Matthew M. Polka is responsible for the daily operations and affairs of the Small Cable Business Association (''SCBA''), a 285-member association dedicated to serving the needs of small, rural cable television operators across the United States. SCBA, whose members serve more than 2 million cable television subscribers, is the only association of its kind solely representing the concerns of small, rural cable operators before Congress, the Federal Communications Commission, other federal agencies and in the 50 states. Mr. Polka frequently travels to Washington, D.C., for the SCBA to meet with members of Congress, the FCC and other federal agencies, including the Federal Trade Commission and Small Business Administration, on telecommunications issues that affect small, rural cable television operators. The primary purpose of SCBA is to help small cable operators stay competitive through a legislative and regulatory framework that recognizes the unique economic circumstances of small cable businesses, provides for regulatory and financial parity with potential competitors and encourages access to financial markets for capital needs. In addition, SCBA is also dedicated to educating its members through informational seminars, publications and workshops in order to help them meet the telecommunications needs of small towns and rural America into the 21st Century.
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    SCBA formed in May 1993 in response to the 1992 reregulation of the cable industry by Congress and the massive, burdensome regulations that followed, crippling small cable businesses and cutting off much-needed sources of capital. The Association members realized then that no other group was representing their interests, and that if anybody would they would have to do it themselves. Since then, based on the dedicated grassroots efforts and personal contacts of its members, SCBA has been successful in Congress and at the FCC to win significant relief for small cable operators in numerous matters and proceedings.

    Mr. Polka joined SCBA as its first president on May 1, 1997. Prior to that, SCBA had been an all-volunteer organization, chaired very successfully for its first four years by David D. Kinley, president of Pacific Sun Cable Partners and Sun Country Cable in Pleasanton, Cal. Mr. Polka is joined on SCBA's full-time staff by Lynette J. Simpson, Director of Member Services, and Karen D. Yochum, Executive Assistant. SCBA's main office is located in Pittsburgh, Pa.

    Prior to joining SCBA, Mr. Polka was the Vice President and General Counsel of Star Cable Associates, one of the nation's top-100 multiple-system cable companies, which specializes in the construction, operation and management of small, rural cable television systems. Mr. Polka was responsible for overseeing and managing Star's compliance with all federal, state and local laws that affected its 37 cable systems in four states. His specific responsibilities included, among other things, federal, state and local regulatory compliance; managing all legal matters that arose during the regular course of business; managing or handling any litigation involving Star; handling franchise renewals and negotiating necessary leases, agreements and easements for the operation of Star's systems; preparing all required federal compliance filings, in addition to required state and local corporate filings; negotiating and preparing sales or acquisition transactions; handling personnel matters and preparing personnel policies; and ensuring equal employment opportunity compliance throughout the company.
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    While at Star, which he joined in 1990, Mr. Polka first became involved with SCBA in advocating the unique concerns of small cable operators. He served on SCBA's Board of Directors for three years and on the Association's Executive Committee for two years prior to being named president of SCBA.

    Mr. Polka is a 1982 honors graduate of West Virginia University in Morgantown, W.Va., where he received an undergraduate degree in journalism, magna cum laude, and was named Outstanding Graduate in Journalism by the Society of Professional Journalists. He is also a 1986 graduate of Pittsburgh's Duquesne University School of Law, where he was editor of the Law School Newsmagazine, JURIS, a member of the Order of the Barrister, and recipient of the Law School's Most Distinguished Graduate award.

    In five years of private legal practice from 1986 through 1990, Mr. Polka specialized in civil litigation and corporate practice with the Pittsburgh law firms of Buchanan Ingersoll Professional Corporation and Thorp, Reed & Armstrong. In particular, since 1986 Mr. Polka has represented a number of cable television clients in a variety of corporate transactions, contract negotiations and litigation matters. Prior to law school and his legal practice, Mr. Polka was a Staff Reporter for the publication SOUNDINGS, a national monthly boating and marine industry newsmagazine based in Essex, Connecticut.

    Mr. Polka, a Pittsburgh native, lives in the Pittsburgh area with his wife, Sharman, and their two daughters, 7-year-old Molly Ann, and 3-year-old Ann Kathryn. When not at home with wife and family, Mr. Polka (a baritone) can usually be found singing barbershop music with fellow members of the Steel City Harmonizers/Pittsburgh Metro Chapter of S.P.E.B.S.Q.S.A. (the Society for the Preservation and Encouragement of Barbershop Quartet Singing in America) and his barbershop quartet, ''Steel City Blend.''
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EXHIBIT D
DISCLOSURE STATEMENT

    During the current and prior two fiscal years, neither I nor the association I represent, the Small Cable Business Association, have received any federal grants, contracts or subcontracts.

    Mr. COBLE. Thank you, gentleman. Keep in mind the 5-minute rule applies to us, as well, so I will be appreciative if you can respond tersely to the questions.

    Messrs. Boylan, Casey, and Ergen, 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? I will start with you, Mr. Boylan.

    Mr. BOYLAN. Yes, I believe we would.

    Mr. COBLE. Mr. Casey.

    Mr. CASEY. I would have to review that in detail, but on the face of it, I would say that we would.

    Mr. COBLE. Mr. Ergen.

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    Mr. ERGEN. Well, without knowing the specifics, it is hard to comment, other than to say that we have a tough time with local, since we are a national service through the satellite, we have a tough time with local taxes in terms of being able to bill and collect that, and we do not have a franchise or a regulated monopoly, so we are a little bit different animal as it relates to taxes.

    Mr. COBLE. Mr. Ergen, your company has initiated a rulemaking proceeding with the Copyright Office concerning the local-to-local issue. In fact, we have discussed that, as well. You have gone ahead and offered this service in selected cities throughout the country, I think six markets now and I think that will be extended by six, will it not, eminently, and then—

    Mr. ERGEN. Four more.

    Mr. COBLE [continuing]. And then finally terminating at 19 or 20?

    Mr. ERGEN. Yes, sir.

    Mr. COBLE. Let me put this question to you, Mr. Ergen. A) What will you do if the rulemaking proceeding prohibits such service, and B) what role do you see for this subcommittee in the interim?

    Mr. ERGEN. Well, if not permitted to provide local channels, we would cease, obviously, that service; and I think we would obviously at that point not become an effective competitor to cable. In the interim, we think that it is critical that this committee recognize the right of the satellite operator to provide a local channel to a local market. We are not disenfranchising anybody. We are trying to protect the local broadcaster with the same signal. That was Congress' intent under SHVA and we are trying to abide by that.
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    Mr. COBLE. Mr. Polka, can you present us with a good argument for maintaining the current restriction that prevents satellite companies from providing local programming to any customer until that customer disconnects from cable for a period of 90 days?

    Mr. POLKA. Sir, under current law under SHVA, the 90-day period is designed, I think, to preserve specifically the concept of localism that Congress has endorsed for the last 65 years. Under current plans that we have now today, and by the way, I think that that plan and that concept under SHVA is a good one, it has stood the test of time for 65 years and I think needs to be endorsed and reinforced today, because again, by obtaining local broadcast signals—again, the 90-day rule, as I see it, is not something that is benefitting cable operators. It is benefitting local broadcasters as Congress in its policy has determined it wanted to do for the last 20, 30 years.

    Going forward, as we look at some of these plans today in terms of local-to-local, I think that if Congress does ultimately come up with a plan that allows DBS providers to provide local-to-local signals with the same communications policy restrictions and public interest obligations that cable operators have, must-carry, retransmission consent, et cetera, I think at that point, then, Congress can consider phasing out the 90-day period.

    Mr. COBLE. My first trio, this final question. How would you all respond to the elimination of CARPs in favor of a system in which rate and distribution disputes were settled by administrative law judges, or ALJs, with expertise in copyright law? Mr. Boylan.

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    Mr. BOYLAN. I would like to better understand that, sir, but I think that might be a very effective mechanism.

    Mr. CASEY. I would also have to say I would have to better understand it, and especially being a new kid on the block, I would have to really understand it a lot more, and to talk to the people with a lot more industry experience.

    Mr. COBLE. Fair enough. Mr. Ergen.

    Mr. ERGEN. We are okay with anything that would provide fair and equitable rates across all distribution paths, whether it be cable, small cable, or satellite.

    Mr. COBLE. Thank you, gentlemen.

    In order of appearance, let me recognize the gentleman from Massachusetts. You have no questions?

    The gentleman from Virginia is recognized for 5 minutes.

    Mr. BOUCHER. Thank you very much, Mr. Chairman.

    Mr. Ergen, let me begin with you. I share your enthusiasm for the local-to-local service because I think in having a broad implementation of that, we have the best opportunity to create real competition for cable, and I want to commend you for the steps that you are taking to make that kind of service available. But I have a couple of questions about the way you are proceeding and where you think your particular service will go.
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    Can you give us a sense of where you think you will be a year from now? Let us assume that you do not face any legal impediments that you do not presently face in terms of expanding your service. Let us assume for the sake of the question that neither this Congress nor the Copyright Office acts to reform the existing law. So given the existing law as it is, and assume that it is in place a year from now, where will you be in deployment of your local-to-local service? How many markets will you serve? What percent of the U.S. population do you think you will cover? And how many local stations will you be uplinking?

    Mr. ERGEN. Well, if I thought that a year from now I was going to be under the same regulation I am today, I probably would not start at all. Maybe I am naive about it, but I have confidence that the Congress and the FCC are going to recognize that competition to cable is essential.

    But under given law today, we probably could get one-tenth of one percent of the American homes to subscribe to a local signal through satellite, given the fact that we only go to unserved homes today, and even I do not understand what an unserved home is today. There are several legal cases going on.

    Mr. BOUCHER. That actually was my next question. The Section 119 license says that these network signals may be delivered only into unserved households, meaning that they do not get that signal from a local TV station. At least, that is the meaning that we have always imparted to that phrase, and as one of those who helped draft the 1988 statute, I can tell you that that is what we had in mind.

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    Can you give us a sense of the definition that you are imparting to that phrase in terms of offering the service that you are currently offering? What does unserved household mean to you?

    Mr. ERGEN. We think there are two prongs to the unserved household. One is the one that you just mentioned, which is clearly a customer who cannot receive a signal without their antenna.

    But there is a second prong that we think was the legislative intent of the law, and the Copyright Office has ruled that the law is silent on this issue, but the second prong is those homes who can receive only one network signal, and that is, in fact, the exact same network signal that we are broadcasting.

    So, for example, in Washington, where a customer can only receive the Washington NBC, ABC, CBS, FOX affiliates, say, and those are the same—those are the only stations that we are, in turn, broadcasting, we believe that person is also defined as unserved under the law.

    Mr. BOUCHER. What scholarship do you rely on for that creative and somewhat imaginative approach? I am curious. Is there a legal precedent? Is there an order of the Copyright Office or the FCC or any other body that lends any credence to the notion that unserved means that you do not get two signals from the same network?

    Mr. ERGEN. There are two things. One, there was a letter from the Copyright Office to, I believe, Newscorp or Sky Television several years ago that talked about this particular issue, and the second was a copyright ruling itself that delved into the issue and said that the law was silent. It is my understanding that when a law is silent on the issue, you would go back to legislative intent, and when you read the Copyright Act and go through the legislative intent, it was primarily, as you know, to protect the local affiliate relationship with their local customer.
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    That is exactly what EchoStar is doing. When we broadcast ABC-Washington to Washington, we are not taking a local eyeball away from that customer. We are not taking a local commercial or any revenue away from that local affiliate. So that is exactly what we are doing.

    Mr. BOUCHER. Well, I will give you credit for creativity, and it will be interesting to see how the Copyright Office responds to that suggestion for a definition of unserved.

    The other question I have on this score is would you encourage this Congress to go forward and amend the Satellite Home Viewer Act clearly to sanction the local-to-local service, or would you prefer at this point to rely on your proceeding at the Copyright Office?

    Mr. ERGEN. No, I would prefer that the Congress clear up everything so it is very definitive because I think that the broadcasters and the satellite industry have to provide competition to cable. It is imperative. I think it is a national interest with rates going up four times the rate of inflation, and so I would encourage that—we do not need a series of 3 or 4 years of lawsuits to determine what the law is and what the law is not. It is up to this Congress to provide competition.

    Mr. BOUCHER. Mr. Chairman, with your indulgence, I would like to ask one additional question, if I may.

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    Mr. COBLE. Yes.

    Mr. BOUCHER. Mr. Ergen, there is a substantial question about the application of must-carry and retransmission consent to the uplinking and downlinking of local signals into the local market. The broadcasters, for obvious reasons, very strongly support the application of both must-carry and retransmission consent, and my question to you is this.

    I would assume that, for the moment, you have some rough test for deciding what local stations within a given market that you are serving you are uplinking and then making available to your customers. That test probably does not include all local stations within that market, probably not low-power TV, probably not stations that have a fairly low penetration rate in terms of their viewership.

    So my question to you is this. Let us suppose that we could fashion a definition of must-carry for purposes of the local-to-local service, add to that the same kind of retransmission consent that presently applies with regard to cable TV, and apply that, then, to local-to-local. Within that reach would be obviously the network affiliates, the strong independent stations in the market, in other words, the TV stations that have a substantial viewership, and that could be based on actual viewership numbers, it could be based on wattage, there might be other measures.

    Would you have any objection to us applying that kind of requirement to the local-to-local provision, assuming that it was applied on a market-to-market basis? So, for example, if you begin to serve the market in St. Louis, that must-carry requirement with regard to that group of stations in St. Louis would then apply to you. Is there any problem with that?
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    Mr. ERGEN. In general, I can support that kind of concept. I would add one thing to must-carry. I think anything with must-carry would have to have a penetration test. In fact, the broadcasters set a precedent for that themselves when they got free digital spectrum. They are not broadcasting digitally everywhere in the United States today, yet they have already gotten the spectrum. Rome was not built in a day, and, in fact, they are not required to give back their spectrum until there is a penetration of digital TV sets. So I think what is good for the goose is good for the gander, but the solution is workable with the broadcasters.

    Mr. BOUCHER. Mr. Ergen, thank you.

    Mr. Chairman, I am going to have some questions for Mr. Casey. I assume we will have a second round.

    Mr. COBLE. I had not planned to have a second round. Let me recognize the gentleman from Indiana right now and I will think about that.

    Mr. BOUCHER. They are pretty important questions. If you are not going to have a second round, I am going to ask unanimous consent to have an additional 3 minutes.

    Mr. COBLE. I will go to the gentleman from Indiana and I will come back to you for 3 minutes. The gentleman from Indiana.

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    Mr. PEASE. Thank you, Mr. Chairman. I apologize to the panel. We had another subcommittee of Judiciary meeting simultaneously with this one, and since I did not hear your testimony, though I appreciate your written comments, I will yield 3 minutes of my time to my colleague from Virginia.

    Mr. COBLE. And I say to the gentleman, if you can make it 3 minutes, Rick, I would appreciate that because several of us are on a short leash today.

    Mr. BOUCHER. Thank you very much, Mr. Chairman. I will do my best. These are somewhat complicated subjects, and since we are having the hearing, I think they deserve a reasonable airing.

    Mr. Casey, I am going to ask you a question about some testimony that we will hear from the NAB very shortly and that relates to the subscribership to your service in the core cities, within what is known as the Grade A contour of the local broadcast stations. All of us have attached to the testimony we have received these two maps. One of these is a map of the Washington, D.C., area, and this is with respect to the PrimeTime 24 signal, and it shows that in the Grade A contour of, I guess it is the Fox affiliate, WTTG in Washington, D.C., there are something on the order of 5,000 subscribers to the PrimeTime 24 signal. You can see it here, and it is this yellow area. It is the city of Washington, D.C., and just a little area beyond that.

    My question to you is this. Fully understanding that your Section 119 license only authorizes you to deliver that signal where the subscriber cannot get it off the air from the local broadcast station, how do you explain this? I want to give you an opportunity to have your statement concerning it, because I know we are going to hear about it on the next panel.
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    Mr. CASEY. Our subscribers are asked if they qualify to be an unserved household in various ways by the distributors and they are asked the question—they are not asked, I do not believe, the question, do you receive a Grade B intensity signal, because obviously a subscriber would not know what a Grade B intensity signal is. Our subscribers are asked by the distributors questions to try to determine whether they receive an acceptable picture.

    There are definitely distributors out there who do not follow the script properly and, therefore, sign up subscribers that should not be subscribers. We go through in our compliance effort and we go and review those challenges and we have already turned off in excess of 300,000 subscribers. There are also, I am sure, subscribers somewhere in a Grade A and Grade B intensity where, because of a building or some other interference that do not receive an acceptable picture. That is why we are talking about here in testimony to try to come up with a short-term solution to what we believe is the unworkable interpretation of the SHVA legislation.

    Mr. BOUCHER. When you get a challenge from the local broadcast station with respect to the receipt of your signal within its Grade A contour, the area that is very close to the station, what is your normal response? Do you basically concede that the station is right when it says, these are people who can get our local signal, or do you carry that discussion on to some other level?

    Mr. CASEY. When we receive challenges from the local affiliates, and we received hundreds and hundreds of thousands of those back, I believe, in the last 2 years and we are trying to work through those hundreds of thousands of challenges—and by the way, some of the affiliates challenge every single subscriber just by rote—we then contact the subscriber and put the burden on the subscriber to justify that they should maintain the signal. There is a questionnaire. There are various questions to try to determine whether that person should be eligible to receive a signal, and in the questionnaire we tell them, if you do not respond within, I believe it is 21 days, then their signal will be terminated.
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    Mr. BOUCHER. Let me just simply conclude, because my time is about expired again, by asking you this. I am concerned when I see this map that shows 5,000 subscribers to your signal within what amounts to the Washington, D.C., metropolitan area, because I rather suspect that the vast majority of those households can get that signal over the air. Do you disagree with that? Do you think that these 5,000 subscribers are somehow uniquely situated so that they cannot get the local signal?

    Mr. CASEY. Two comments on that. One is, obviously, picture quality, let us call it, is subjective in the eye of the beholder. And two is, I believe that Washington, that a map like that, or whatever measurement that was, is not indicative of the rest of the population of PrimeTime subscribers.

    Mr. BOUCHER. Well, of course they are going to, Congressman, they are going to pick whichever ones serve their argument best in the litigation.

    Mr. BOUCHER. I wanted you to have a chance to respond because we are going to hear about that from the next panel.

    Mr. Chairman, thank you for your indulgence.

    Mr. COBLE. I thank the gentleman.

    The gentleman from Michigan, the ranking member of the full committee has joined us.
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    Mr. CONYERS. Good morning, Mr. Coble. As chairman, I want to commend you for holding this oversight hearing. We have got an issue on our hands for sure.

    Can we continue to restrict direct broadcast satellite carriers from rebroadcasting local network signals in some areas? I think this is an important issue. At home and abroad, competition is replacing years of government-sanctioned local monopoly, and so we are trying to get to the new era of competition. How do we do it? How do we crate fair competition and level playing fields? To that end, I think the Chairman of EchoStar has been doing a good job for pioneering the so-called spot beam technology which allows signal rebroadcast.

    We are 2 years after the Telecommunication Act's passage and we are still trying to get meaningful competition. It is slow coming. It is not as easy as some people thought it would be. Cable rates are going up and the FCC pointed out that lack of competition is probably one of the reasons, if not the main. So I am concerned that other competitors cannot get competitive access to programming and I think there ought to be more.

    Should we not lift the retransmission restriction if they are willing to bear the obligations? I think a case can be made for that. I think the incumbent wired cable operators are required under the Cable Act to bear obligations. Whether the royalty rates should be similar to the Section 111 compulsory license or Section 119, I guess that is something we will have to study. But at any rate, I side with the competition crowd and that we make sure that we get a level playing field.

    I thank you very much for bringing this hearing.
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    Mr. COBLE. Thank you, Mr. Conyers.

    Mr. Frank, you will be heard at this moment.

    Mr. FRANK. I do not have any questions.

    Mr. COBLE. It is good to have the gentleman from Massachusetts with us nonetheless.

    Gentlemen, thank you for joining us. We will welcome the second panel.

    Mr. FRANK. Let me just say, this is one of those mornings when I have had some meetings involving the pending International Monetary Fund proposal and the housing subcommittee on which I serve is in the midst of a markup, so I apologize for my sporadic attendance, although sometimes witnesses think I should apologize for my constant attendance, so maybe you are better off.

    Mr. COBLE. Before the first panel adjourns, I must say this to my friend from Massachusetts. I read it in the paper recently, that he is going to be one of the featured speakers at an event here in Washington, and my scheduler saw that and she said, ''Will you ask Mr. Frank when he gives that speech if he will talk slowly enough so folks will know what he is saying?''

    Mr. FRANK. Mr. Chairman, I know that sometimes we are on different time horizons, but that happened last night.
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    Mr. COBLE. I stand corrected. I did not know it had come and gone. Did you talk slowly enough?

    Mr. FRANK. Apparently, there was enough confusion for the photo of Dick Armey in this morning's Style section to have my name under it as the caption, if you look at the Style section. [Laughter.]

    Mr. FRANK. So something did not go quite as one might have hoped.

    Mr. COBLE. Now I know why Barney is running late this morning.

    Gentlemen, thank you, and we will call the second panel up and as they come forward, I will introduce them.

    Mr. COBLE. Our first witness for the second panel is William Sullivan. Mr. Sullivan is a member of the Board of Directors of the National Association of Broadcasters. He began his career in television as a sales person, worked his way up to station manager, then general manager. Mr. Sullivan currently serves as Vice President of the Cordillera Communications in Missoula, Montana. I doubt that I pronounced that correctly.

    Our next witness for the second panel is James Popham. Mr. Popham is Vice President and General Counsel for the Association of Local Television Stations. He has testified before this committee on various copyright issues, such as off-air taping of copyrighted works for educational use. He has served as a speaker and panelist at numerous State and national broadcast industry associations throughout the country.
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    Next is Mr. Bob Phillips, the Chief Executive Officer of the National Rural Telecommunications Cooperative. Under Mr. Phillips' leadership, the National Rural Telecommunications Cooperative has grown from a start-up to become a leading national satellite television distributor, with nearly 800 member utilities and affiliated companies serving over 700,000 rural consumers and revenues approaching $200 million. NRTC teams with DirecTV to bring satellite packages to its constituents.

    Our final witness for this panel is Marsha E. Kessler, who is Vice President in charge of copyright royalty distribution of the Motion Picture Association of America. Ms. Kessler has 16 years' experience in the allocation of a multi-million dollar royalty fund to some 100 motion picture producers and distributers.

    Lady and gentlemen, it is good to have you all with us. I will again remind you of that intimidating red light. As it illuminates, that will be your 5-minute warning. Ms. Kessler, we will start with you.

STATEMENT OF MARSHA E. KESSLER, VICE PRESIDENT, COPYRIGHT ROYALTY DISTRIBUTION, MOTION PICTURE ASSOCIATION OF AMERICA

    Ms. KESSLER. Thank you, Mr. Chairman. My name is Marsha Kessler and I am Vice President of Copyright Royalty Distribution for the Motion Picture Association of America.

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    If you add up my time both at MPAA and at the Copyright Office, I have over 20 years of experience in allocating compulsory license royalties to copyright owners. I am here to provide you with MPAA's position on the Copyright Office's report on compulsory licensing of broadcast signals. I also want to comment on the increase in the satellite carrier royalty rate.

    The 100 large and small companies that MPAA represents produce entertainment programming for television. Television programming is our company's stock and trade. However, once we license our product to a television station, our companies lose control of what happens to their product insofar as retransmission compensation is concerned. Cable systems and satellite carriers can pick up the station and retransmit all the programming on it to subscribers who pay a fee for that service.

    We copyright owners have no say in how much we receive for our product. We cannot even prevent the exploitation of our work. We are forced to part with our product and then accept a fee to which others say we are entitled.

    Last year, the Copyright Office produced a report regarding the compulsory license of broadcast stations. They did a very good job, and I can tell you I would rather be on the commenting end of that report than on the producing end of it. That notwithstanding, there is one critical area with which we disagree with the Copyright Office. We want to get rid of the compulsory license. We believe it can be phased out over a period of several years. There is no good reason to retain the license and there are plenty of reasons to get rid of it.

    Cable and satellite are mega-industries. They are financial giants who do not need artificially-set prices to be competitive in the marketplace. They routinely bargain for plant and equipment, personnel, office furniture, health insurance, and non-broadcast programming. There is nothing sacred about broadcast television programming. It is a commodity and it can be negotiated like any other product.
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    Nearly all areas have access to five and a half local television stations. Presumably, these stations are a mix of network affiliates, one or two independents, and a non-commercial station. There is no program gap waiting to be filled by cable television.

    Most rural areas are served by large multi-system operators. These companies have financial resources and market clout and they routinely bargain in the marketplace for non-broadcast programming. The perceived burden of negotiating for broadcast programming is just that, it is a perception. Cable operators and satellite carriers do, on a regular basis, bargain for programming. That is how they obtain the rights to programming on HBO, C-SPAN, CNN, ESPN, and so forth.

    If there ever was a reason to keep the compulsory license, that time certainly has passed. Please give us back control on our own property so that we can sell it for a competitive marketplace rate.

    I also want to talk about the recent increase in satellite carrier rates. Satellite carriers are not small-time businesses. They are competitive, financially resourceful, powerful companies who, like cable systems, negotiate programming deals every day with non-broadcast outlets. They would have you believe that the 27-cent rate, which would run about $1 per sub per month, or about $12 for the entire year, is outrageous.

    Consider that a postage stamp costs 32 cents, a candy bar costs 50 cents, and a cup of Senate bean soup costs $1.10. I do not know if there is House bean soup, but my guess is that it is competitive in the marketplace with bean soup. All of these commodities cost more than the fee for 30 days of network and syndicated series and movies, sports, news, religious, and educational programming for one station. I would say that you get a pretty good value for your 27 cents. All of that programming, which is available 24 hours a day, seven days a week, costs less than a stamp or a candy bar or a cup of soup.
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    In closing, I would like to reflect on the concept of copyrights themselves. You cannot see a copyright. You cannot hold one. It is intangible. It is an intangible whose power depends on its being nourished and exercised, and when need be, protected.

    This is the Subcommittee on Courts and Intellectual Property. To copyright owners, this means two things. One is that we believe you understand—

    Mr. COBLE. Ms. Kessler, if you can begin to wrap it up.

    Ms. KESSLER. I am in my last paragraph, sir. One is that we believe you understand the dual nature of a copyright, that it can be powerful and vulnerable at the same time. The second is that we copyright owners look to this subcommittee as our champion. The satellite carriers seek through disinformation and malicious campaigns aimed at our lawmakers to exploit copyright owners' lack of negotiation rights in the retransmission marketplace. They want to use our very real vulnerability for their own gain.

    We are dependent on you to see that our rights remain vigorous and not vulnerable and that we are fairly compensated for the use of our work. Thank you for your time.

    Mr. COBLE. Thank you, Ms. Kessler.

    [The prepared statement of Ms. Kessler follows:]

PREPARED STATEMENT OF MARSHA E. KESSLER, VICE PRESIDENT, COPYRIGHT ROYALTY DISTRIBUTION, MOTION PICTURE ASSOCIATION OF AMERICA
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    Good morning. My name is Marsha Kessler and I am Vice President, Copyright Royalty Distribution for Motion Picture Association of America. For 16 years, I have been the individual directly responsible for receiving the cable and satellite compulsory license fees and distributing them to our represented claimants—some 100 syndicators and producers of television entertainment programming.

    Prior to working for MPAA,I served on the very first staff of the Copyright Officers Licensing Division—the Division responsible for processing compulsory license royalty payments. So you can see that my entire professional career has been devoted to seeing that Copyright owners have been fairly compensated under the terms of the cable and satellite compulsory licenses.

    I appear today on behalf of the Association to express MPAA'S position regarding The Copyright Office Report on Compulsory Licensing of Broadcast signals and in particular to comment on the recent increase in the rates satellite carriers pay for the use of television broadcast programming.

    At the outset, let me say that the Register and her staff must have had a difficult time of it, trying to find a reasonable plan that accommodates the interests of such divergent groups as copyright owners, satellite carriers and cable operators. The resulting Report Is very thorough and comprehensive, and MPAA appreciates the time, energy and consideration that that went into its formulation.

    As we have indicated In other fore, MPAA agrees with some of the Reports recommendations and disagrees With others.
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    Our primary point of disagreement is a significant one—the continuation of the compulsory license scheme. The Report advocates continuing the compulsory licenses. MPAA's position is, and always has been, that the license should be terminated in favor of market place negotiations.

    Movies and series are our members' stock in trade. That is what we do for a living. Unlike other product or service industries who put their product in a marketplace and haggle over the price, copyright owners do not have that right with respect to cable and satellite retransmission. once a copyright owner licenses a movie or a series to a television station, he in effect loses control of what happens to his product. Cable systems and satellite carriers are allowed to pick up and deliver to their subscribers for an unregulated fee, all the programming broadcast by that television station. The owner cannot bar the system or carriers use of that program. The owner cannot negotiate the fee for that programming. we are forced to take what the law gives us.

    For all the 16 years I have been in this field, I have heard numerous justifications for continuing the compulsory license. one was to foster the fledgling cable industry. There was a perception that without some control on programming prices, the industry might fold. While that may have been true a quarter of a century ago, that was then and this is now. The cable industry is alive and thriving—a multi-billion dollar industry. Cable television no longer needs at it ever did) a government subsidy in the form of the compulsory license fee.

    Another justification for continuing the compulsory license was the perceived difficulty in the buying and selling of television programming. we know that the buyers (cable systems and satellite carriers) and sellers of television programming can and do meet in the marketplace. This is how cable systems and satellite carriers secure programming from outlets such as HBO, Showtime, A&E, ESPN, CNN, etc.
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    Still another argument for continuing the compulsory license addresses the misconception that if cable systems drop signals, households in rural areas will have no access to television programming. While that may have been true 20 or 25 years ago, it is not true today. Most rural areas are served by large, resourceful, multi-system operators. Most rural areas have a wide range of local network and independent stations available to them. They do not need programming from distant signals to fill in ''program gaps.''

    We understand that an abrupt cessation of the compulsory license would create difficulties for some parties. MPAA therefore advocates the gradual phasing out of the compulsory license.

    MPM supports the Copyright Office Report suggestion that the fee be simplified and set at marketplace rates. The current methodology for calculating cable royalty fees is impossibly complex. We advocate a fee structure based on a flat fee per subscriber per signal on a upwardly sliding scale that discourages the carriage of multiple broadcast signals. Rather than a government subsidized fee, we urge that this fee be one that provides marketplace level compensation to copyright owners for the use of our product.

    Likewise, we support the Reports recommendation that the current, ridiculously low, S28 flat rate paid by smaller ( 'Form 1n) cable systems, be significantly increased. Finally, because we believe every use of a copyright word should be compensated, we believe the use of both local and network programming should generate a royalty payment.

    These concepts—an increased fee for smaller cable systems, a flat fee rate commensurate with marketplace value, and compensation for the use of local and network programming are structures that can be incorporated into the compulsory licenses on an interim basis while the licenses themselves are being phased out.
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    I indicated at the opening that I wish to address the recently imposed increase in satellite carrier fees. We believe that the new rate reflects the marketplace value of retransmitted televisions programming.

    The satellite industry has complained that this rate increase will harm consumers and impair the ability of satellite carriers to compete with the cable industry. The carriers want Congress to impose below-market prices for broadcast programs they sell to subscribers. This request might reduce the carriers' program costs, but would have no direct Impact on consumers or competition among program delivery services.

    The proposal is unfair, unjustified and unnecessary: Consider

—whether nine satellite companies with multi-million dollar revenues should receive a statutory subsidy for a statutory compulsory license that permits them to resell television broadcast programs without owner permission.

—whether consumers will see lower rates if Congress reduces the royalty fees. Subscriber rates are unregulated, which means any reduction in royalty fees by Congress will go into the pockets of satellite carriers, rather than be passed on to consumers.

—a postage stamp costs 32 cents. A candy bar costs 50 cents. A Cup of Senate bean soup costs $1.10. All cost more than the new monthly 27-cent rate that carriers now pay for 24-hours a day, 7 days a week worth of series, movies, sporting events, news, local and educational programming and music on a single station.
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    The new marketplace rate will amount to an increase of S12 per year per subscriber, on average, or $1 a month—a tiny fraction of the S50 monthly average these companies charge their subscribers. NO persuasive evidence has been shown that payment of marketplace royalty rates would harm carriers' ability to compete with cable operators.

    We ask that Congress not change the recently-enacted 1994 law simply because the carriers do not like the result of the arbitration process. Cable system may pay higher, lower or about the same per subscriber rates as carriers, depending on the number and type of stations carried. Moreover, cable systems operate under a much different regulatory structure, including regulation of subscriber charges and Imitations on carriage of programs from distant television stations.

    I appreciate the opportunity to speak with you and welcome your questions.

    Mr. COBLE. Mr. Phillips.

STATEMENT OF BOB PHILLIPS, CEO, NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE

    Mr. PHILLIPS. Thank you, Mr. Chairman. It is a pleasure to be here. I am the Chief Executive Officer of the National Rural Telecommunications Cooperative. I am here today on behalf of NRTC's members. There are hundreds of them who provide video programming services to more than 800,000 rural Americans with C-band and DBS technology. I appreciate the opportunity to express what I consider are some critical concerns regarding several key aspects of the copyright law and the future of our satellite industry. These concerns, I believe, go to the very heart of fundamental fairness.
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    NRTC and I were here in Congress back in 1988 when the Satellite Home Viewer Act was adopted, and, in fact, we have been here since this industry was born. I would have to say in the beginning that I think Ms. Kessler has been unduly impressed by both the stature of our industry and our bargaining power, particularly since she mentions HBO. I was here 11 years ago negotiating to get access to HBO in the halls of Congress and that is the only way we got it. Today, DirecTV still does not have access to HBO because of exclusive arrangements. So the satellite industry is in quite a different position than she suggested to you a moment ago.

    I would say to you that, on behalf of the satellite industry and myself, we were and we have been willing to pay twice as much to copyright owners as they are receiving from cable for the same network and superstation signals beginning back in 1988. But we have been willing to do this because we have had no market power and no influence here on the Hill like cable and the broadcasters and Hollywood.

    Frankly, we did accept a market-based solution, as Mr. Berman suggested this morning in opening the hearing, but we believed that the fair market value would, in fact, be fair. Mr. Chairman and members of the committee, with this latest action of the CARP, we have been forced to pay 27 cents for every signal, and that is ten times more than cable pays and we say that is too much, you have gone too far, and that has got to stop.

    We are not here today as enemies of the copyright owners and we do not have a particular beef with the cable industry or the broadcasters in this debate, but we are and we remain respectful of Congress and we are not threatening, but if we are to thrive and if we are to become the competitors to cable that some here on the Hill hope, we do need your immediate assistance.
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    We respectfully ask that you recognize that as it is currently written, the copyright laws unfairly discriminate against satellite industry participants and against rural Americans who rely on satellite technology to receive basic information and entertainment services that perhaps those of us who live in the city take for granted.

    From rural America's perspective, Mr. Chairman, these copyright rules are, in a word, ridiculous, and they cannot stand any test of reasonable scrutiny. Cable subscribers who want to take satellite service have to wait 90 days before they can sign up. Network signals may be provided by satellite only to subscribers who reside in homes that do not receive an over-the-air Grade B signal intensity, even though consumers have no idea what that means and the people who we send to test that do not even understand the test parameters.

    The satellite license, of course, for satellite is only temporary, while cable's has been long held permanent, and now to add salt to the wounds, we are being asked to pay ten times as much as the cable operators are required to pay for the exact same signal.

    Mr. Chairman, in a word, it is unfair, and as I said, we have worked on this from day one. I participated this summer in the copyright panel's inquiry and we support that panel's recommendations in total with one exception and that relates to the surcharge issue. In fact, we proposed the surcharge and we stand behind it, but the panel recommended that it extend across the entire ADI, and in some cases, for example, here into Washington, that would extend clear into Pennsylvania. We think that is too far. The license that the broadcasters grant to the affiliates is really only within a range of about 35 miles and we think that would be more appropriate.
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    We also believe that these laws should make sense to consumers and they should be consistent with pro-competitive telecommunications policies. Competition is really about choice. It is not about telling your satellite customers, ''I am sorry. We cannot offer you that. You will have to subscribe to cable.''

    Mr. Chairman, in closing—I see the red light is on—I would just like to say that rural America has not been lining its pockets, nor have satellite distributors or the industry been lining their pockets as those from Hollywood would suggest. In fact, we have been paying more since the beginning and I say that this time the ante has gone up too far.

    Mr. Chairman, I am not advocating this, but I would tell you that we feel so strongly about this that if we cannot get the rate that we are paying down to something closer to what cable is paying, then perhaps the best way to do this is to raise cable's rate to 27 cents and let us put everybody on a level playing field.

    I appreciate the opportunity to be here and I look forward to your questions.

    Mr. COBLE. Thank you, Mr. Phillips.

    [The prepared statement of Mr. Phillips follows:]

PREPARED STATEMENT OF BOB PHILLIPS, CEO, NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE

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SUMMARY OF STATEMENT

    On behalf of the hundreds of NRTC's members and affiliates who provide video programming services to more than 800,000 rural Americans via C–Band and DBS satellite technology, NRTC urges the Subcommittee to revise the country's outdated, anticompetitive copyright laws. As currently written, they unfairly discriminate against rural Americans who rely on satellite technology to participate in the modern Information Age.

    NRTC recommends that:

  Satellite copyright laws should be ''consumer friendly,'' consistent with telecommunications policy and competitively neutral with cable.

  Satellite carriers should not be required to pay higher royalty fees than cable operators for the same programming.

  The decision of the Librarian of Congress to increase the satellite fees from $0.14 or $0.175 (superstations) and $0.06 (network) to $0.27 per subscriber per month (1000% more than the average cable system pays for distant network signals) is anticompetitive and unfair to satellite subscribers.

  The copyright laws should be amended to allow for the nationwide retransmission of network signals by satellite with payment of a surcharge to network affiliates for subscribers located within 35 miles of a network affiliate.

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  ''Grade B signal strength''—the ''white area'' rule—is unworkable and should be eliminated as a standard for authorizing receipt of distant network signals by satellite:

  The ''90 day waiting period'' before cable subscribers may receive programming by satellite is grossly anticompetitive and should be eliminated.

  The satellite carrier license should be made permanent.

INTRODUCTION

    1. My name is Bob Phillips, and I am Chief Executive Officer of the National Rural Telecommunications Cooperative (''NRTC''). On behalf of the hundreds of NRTC's members and affiliates who provide video programming services to more than 800,000 rural Americans via satellite, I appreciate this opportunity to discuss our concerns regarding several key copyright issues affecting rural satellite consumers. To continue providing state-of-the-art video programming services to rural America,in areas often not served by the cable industry,we need better, fairer copyright laws.

    2. Mr.Chairman, as you know, rural America needs access to programming—especially popular network and superstation programming—to be a part of the modern Information Age. And ''access to programming'' means access at fair rates and on fair terms and conditions—without unfair discrimination built into the copyright laws. When satellite carriers serving rural America have to pay up to 10 times more than urban cable operators are required to pay in copyright royalties for the same network and superstation programming, that's unfair and discriminatory. When some rural consumers may not even legally receive distant network signals by satellite because they live within some theoretical ''Grade B'' contour of the local network affiliate, that too is unfair and discriminatory. Yet, that is exactly what the current copyright laws require.
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    3. These types of unfair, discriminatory copyright laws are clearly running afoul of the nation's pro-competitive telecommunications policies, and rural America is paying the price. To better serve rural America, Mr.Chairman, we need better, fairer copyright laws for the satellite industry.

    4. NRTC is a not-for-profit cooperative made up of nearly 800 rural electric and telephone utilities, and affiliated organizations located throughout 48 states. Our primary mission is to ensure that the benefits of modern telecommunications technology are extended to rural Americans. NRTC's first major effort toward fulfilling this goal was the creation in 1987 of Rural TV, a package of 85 channels of television programming provided to homes equipped with C-band satellite receiving dishes. Nearly 200 of NRTC's members deliver RuralTV services to more than 61,000 homes.

    5. In 1993, NRTC entered into an agreement with Hughes Communications Galaxy, the predecessor-in-interest to DirecTV, Inc. to launch high-powered Direct Broadcast Satellite (''DBS'') service. NRTC members and affiliates invested more than $100 million to capitalize the launch of the first DBS service in America and in return received distribution rights for DirecTV programming in specific regions of the country. Less than four years after satellite launch, these NRTC members and affiliates already provide local service to more than 750,000 subscribers in rural America, representing nearly 25% of DirecTV's total subscribership nationwide.

    6. NRTC and its members and affiliates have a keen interest in ensuring that the copyright laws facilitate the wide distribution of programming services via satellite throughout rural America. We are committed to our local communities and dedicated to ensuring that rural consumers are not disenfranchised as second class video programming citizens.
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    7. Mr.Chairman, we applaud the work that Congress has done over the years to ensure that rural America remains a part of the modern age of telecommunications. We are especially appreciative of recent Congressional inquiries to the Librarian of Congress regarding the competitive posture of the satellite industry relative to cable in the copyright arena.

    8. Congress has repeatedly called for competition in the provision of video services to consumers: first, by enacting the Satellite Home Viewer Act of 1988 (renewed and amended in 1994) (''SHVA''), second, by enacting the Cable Television Consumer Protection and Competition Act of 1992, and, most recently, by enacting the Telecommunications Act of 1996. All three of these laws were designed to create new, competitive markets for telecommunications services. One of their common purposes is to ensure that established competitors do not exercise undue market power over new entrants. That problem of undue market power, however, remains unabated in the video programming world, and it is compounded by recent developments in copyright law.

    9. Mr. Chairman, in our view the best legislative response to soaring cable rates is not cable rate regulation. Rather, Congress needs to level the playing field for cable's competitors. At a minimum, we need copyright laws that are on par with cable and that make sense to the average consumer.

SUMMARY

    10. To address the problems created by the current copyright scheme, my comments today will make the following recommendations:
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  Satellite copyright laws should be ''consumer friendly,'' consistent with telecommunications policy and competitively neutral with cable.

  Satellite carriers should not be required to pay higher royalty fees than cable operators for the same programming.

  The decision of the Librarian of Congress to increase the satellite fees from $0.14 or $0.175 (superstations) and $0.06 (network) to $0.27 per subscriber per month (1000% more than the average cable system pays for distant network signals) is anticompetitive and unfair to satellite subscribers.

  The copyright laws should be amended to allow for the nationwide retransmission of network signals by satellite with payment of a surcharge to network affiliates for subscribers located within 35 miles of a network affiliate.

  ''Grade B signal strength''—the ''white area'' rule—is unworkable and should be eliminated as a standard for authorizing receipt of distant network signals by satellite.

  The ''90 day waiting period'' before cable subscribers may receive programming by satellite is grossly anticompetitive and should be eliminated.

  The satellite carrier license should be made permanent.

The Copyright Law Should be ''Consumer Friendly,'' Consistent with Telecommunications Policy, and Competitively Neutral.
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    11. Mr. Chairman, the nation's copyright laws should make sense to consumers, and they should be consistent with our nation's pro-competitive telecommunications policy. Satellite carriers should not be required to pay higher royalty fees than cable operators for the same programming. Nor should satellite carriers be blocked unnecessarily from providing programming to subscribers who wish to receive it.

The Librarian of Congress.

    12. Last fall, the Librarian of Congress decided to impose outrageous increases in the royalty fees for satellite carriers—far, far beyond what cable is required to pay. Effective January 1, 1998, satellite carriers must pay 27 cents per subscriber per month for every superstation and network signal carried. According to the Satellite Broadcasting and Communications Association, cable operators on average pay only 9.8 cents per subscriber per month for retransmission of superstation signals and 2.45 cents for network signals. Under the new decision of the Librarian of Congress, satellite carriers will pay up to ten times more than cable operators for network signals, and almost three times as much for superstations.

    13. Mr.Chairman, network and superstation signals are the lifeblood of the program distribution market. They represent the most popular programming services available today over satellite. There is no doubt that the satellite industry needs access to that programming—at reasonable prices—to compete on a level playing field with cable.

    14. NRTC serves consumers primarily located in rural areas. Many of these consumers have chosen to receive DBS service because no cable operator serves the area and they cannot receive over-the-air television signals of acceptable quality from local broadcasters. Unlike many other Americans, these consumers have no choice but to receive programming through satellite delivery technology if they want to be a part of the modern Information Age.
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    15. The Librarian's precipitous increase in the satellite copyright fees for this popular programming threatens to harm the millions of American consumers who have chosen satellite TV as their medium to watch video programming. This is especially crippling to NRTC's effort to deliver modern information, education and entertainment programming throughout rural America. We expect that the rate increase will cost NRTC, its member and affiliates and subscribers more than $10 million in 1998. It will force NRTC, its members and affiliates to absorb the increase for all prepaid, annual subscriptions entered into in 1997. We also will be required eventually to pass on the fees to all of our new satellite consumers as well as those renewing their subscriptions, including those that cannot receive off-air television from local stations.

    16. Mr.Chairman, NRTC was organized ten years ago as a not-for-profit cooperative to bring television and other new telecommunications services to unserved areas, just like rural electric cooperatives were organized in the 1930's to bring electric service to areas unserved by investor-owned utilities. We have a 98% rural subscriber base. Frankly, we resent charges brought by Hollywood lobbyists that we are somehow ''lining our pockets'' with unpaid copyright fees. It's not true. If these copyright inequities aren't fixed, it's rural America that will pay the price.

The CARP.

    17. The decision of the Librarian of Congress to raise satellite copyright rates so wildly was based on a recommendation of the Copyright Arbitration Royalty Panel, or ''CARP.'' CARP was charged by Congress with establishing ''fees for the retransmission of network stations and superstations that most clearly represent the fair market value of secondary transmissions.'' 17 U.S.C. §119(c)(3)(D). In accomplishing that task, Congress directed CARP to base its decision of the fair market value on ''economic, competitive, and programming information presented by the parties, including . . . any special features and conditions of the retransmission marketplace . . . the economic impact of such fees on . . . satellite carriers . . . and the impact on the continued availability of secondary transmissions to the public.'' 17 U.S.C. §119(c)(3)(D)(i), (ii), (iii). CARP failed miserably to meet these Congressional mandates. It did not consider in any meaningful way the competitive impact of such a drastic price increase on consumers, on satellite carriers, or on the retransmission marketplace. Somehow, Mr.Chairman, rural consumers relying on satellite technology were left out in the cold by CARP.
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    18. Rather than fixing CARP's recommendation and setting a fair rate for the satellite copyright license, the Librarian of Congress simply delayed imposing the new rates until January1, 1998. We appreciated the delay, Mr.Chairman, but the rate itself is the main problem. It's up to 10 times more than cable pays for the same programming. This copyright inequity is a competitive disadvantage for satellite distributors and is unfair to rural America. Rural satellite consumers should not be punished by charging them more to receive video programming than their urban counterparts who subscribe to cable.

    19. In its most recent Cable Competition Report, released just a few weeks ago, the FCC found that 87% of Multichannel Video Programming Distribution (MVPD) subscribers received video programming service from their local cable operator in 1997. Although DBS service constituted the most significant alternative to cable, DBS and other satellite providers served only 9.8% of all MVPD subscribers. As the FCC concluded, cable clearly continues to dominate the MVPD market.

    20. Competition in the MVPD industry has been widely and repeatedly recognized by the FCC and Congress as benefitting consumers, but true competition cannot be achieved if DBS providers are burdened with disproportionately higher copyright fees than cable. As an emerging competitor in the MVPD market, NRTC will be unjustifiably handicapped in its efforts to offer consumers a better choice in video programming delivery if we are faced with copyright fees ten times higher than cable compulsory copyright fees for the same programming.

    21. This type of price discrimination is unfair to rural America, and it runs counter to the long-standing efforts of Congress to promote competition in the delivery of video programming. The CARP process simply does not work. It has resulted in an anticompetitive, anti-satellite, anti-rural decision to discriminate in copyright rates in favor of the entrenched cable monopolists. Parity in copyright rates between the satellite and cable industries requires a legislative solution. We urge the Committee's focused attention on this important issue.
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The Copyright Office Report.

    22. On April 28, 1997, I had the opportunity to testify before the Copyright Office (''CRO'') of the Library of Congress concerning the revision of the Cable and Satellite Carrier Compulsory Licenses. The CRO, I am very pleased to say, embraced many of our suggestions. In particular, the CRO recommended to Congress that network signals should be available nationwide by satellite; that a surcharge should be used to compensate local network affiliates for the importation of distant network signals by satellite; that the 90-day waiting period for cable subscribers to switch to satellite should be eliminated; and that the satellite compulsory license should be extended indefinitely, just like cable. As discussed below, we support these recommendations. They are important to rural America.

The ''White Area'' Restrictions Should be Eliminated.

    23. Under the current copyright rules, network signals may be provided via satellite only to subscribers residing in ''white areas'' (i.e., homes that do not receive an over-the-air local signal of ''Grade B intensity''). ''Grade B signal intensity,'' however, has absolutely no meaning to consumers. They do not understand it; it is difficult to measure and impossible to administer; and it often has little or no bearing on whether the signal actually received is acceptable to any given consumer. Even local broadcasters and satellite distributors have disagreed on how to test a signal and what constitutes an ''acceptable'' signal of Grade B intensity.

    24. Frankly, Mr.Chairman, from the rural consumer's standpoint, ''GradeB'' is simply a ridiculous, inside-the–Beltway, Washington, D.C. standard unrealistically forced upon the rest of the country. It is widely perceived in rural America as having no basis in the real world.
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    25. Mr.Chairman, ''Grade B'' does not even reflect in any meaningful way the geographic area of exclusivity obtained by the affiliate from the network. Pursuant to their network affiliation agreements, network affiliates typically buy network exclusivity for defined geographic areas of 35 miles—not ''Grade B'' contours or signal strengths. It is unfair and inappropriate to give the affiliates protection that exceeds in large measure the actual exclusivity they have received by contract from the networks.

Network Signals Should be Available by Satellite Nationwide, with Payment of an Appropriate Surcharge to Network Affiliates.

    26. We support wholeheartedly the CRO's recommendation that network signals be available by satellite on a nationwide basis, coupled with payment of an appropriate surcharge to network affiliates as compensation. In endorsing NRTC's surcharge concept, however, the CRO has recommended that the surcharge apply throughout the affiliate's ''Area of Dominant Influence,'' or ''ADI.'' In our view, ADI is far too large an area to use as the basis for the surcharge. It often extends far beyond the actual area of exclusivity purchased by affiliates under their network exclusivity agreements. The ADI for Washington, D.C., for example, extends well into Pennsylvania. There is no reason—legal, public policy or otherwise—to provide Washington, D.C. network affiliates with surcharge revenues generated by the satellite delivery of signals into Pennsylvania.

    27. The surcharge should compensate affiliates for the exclusivity rights they have purchased from the networks—no more, no less. Typically, the exclusivity area reflected in the network affiliation agreements is 35 miles—not ''ADI.'' The 35-mile zone makes far more sense than ADI for applying the surcharge. Anything beyond 35 miles would give the affiliates a ''free ride'' on a surcharge they are not entitled to receive under their network exclusivity agreements.
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    28. Mr.Chairman, we know that many consumers would prefer to receive network signals from their local affiliates. In many cases, however, the importation of distant network signals via DBS offers a more costeffective, convenient solution with a higher quality signal than is available over-the-air from local broadcasters. Elimination of all white area restrictions coupled with an appropriate surcharge would serve the needs of consumers, would compensate the affiliates, and would enable the satellite industry to compete fairly with cable and other delivery technologies.

    29. Because the ''Grade B'' and ''white area'' rules have been so confusing, we believe that consumers currently purchasing distant network signals from satellite carriers and distributors should be ''grandfathered.'' They should be permitted to continue purchasing the signals. There is no reason for consumers to be branded as ''video criminals'' as a result of flawed, incomprehensible copyright rules.

The 90-day Rule Should be Eliminated.

    30. In the same vein, it is absurd to prohibit potential satellite subscribers who receive network programming by cable to wait 90 days before they are eligible to receive satellite service, as is currently required by the copyright law. This is a pure, unadulterated anticompetitive provision designed solely to protect the incumbent cable operator. There is no place for this kind of rule in a pro-competitive environment. The CRO recommends that this provision be abolished, and we support its abolition. It is long overdue.

The Satellite Copyright License Should be Made Permanent.
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    31. Another copyright problem deals with the duration of the satellite license. Currently, the cable compulsory license is permanent, while the satellite license operates under a de-facto 5-year sunset. The satellite license was first enacted in 1988 and was set to expire in 1993. In the 1994 amendments to the SHVA, Congress renewed the license and again set another 5-year expiration date.

    32. The 5-year expiration cycle of the SHVA is a competitive impediment to further penetration of satellite into the home viewing market. It creates uncertainty. It forces the satellite industry to spend significant amounts of time, money and energy every few years asking Congress for an extension, and it forces Congress into an arbitrary and unnecessary review cycle.

    33. The CRO recommends that the satellite carrier license be extended indefinitely, and we agree. An indefinite extension of the satellite license would better enable the satellite industry to compete with the cable industry, without interfering with cable's license. Such a change would ensure that copyright law is competitively neutral with regard to video program distribution and would foster competition without interfering with the rights of copyright owners to fair compensation for their product.

Local Signal Retransmission.

    34. On the question of whether the local retransmission of a network affiliate's signals by satellite to subscribers located within the affiliate's local market should be permitted, we have one overriding concern. Mr.Chairman, there is no way in the world that all local affiliates will be retransmitted by satellite into their local markets. Satellites do not have enough capacity to handle all of those signals. How will DBS operators who plan on retransmitting local signals pick-and-choose which signals to retransmit?
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    35. Based on experience, Mr.Chairman, the affiliates serving populated areas will be the ones that are retransmitted locally. Once again, the decision will be made based on population and advertising dollars, and local stations in rural America will be left out. This is yet another reason, Mr.Chairman, why we need the ability to retransmit distant network signals into an affiliate's viewing area, with payment of an appropriate surcharge to the local affiliate. At least that way, our rural subscribers will have access to network programming, albeit from a distant source.

CONCLUSION

    36. Mr.Chairman, the Copyright Office recommendations make a great deal of sense from NRTC's perspective—and, more importantly, from the rural consumer's perspective. The 90-day waiting period currently required before cable subscribers may receive network programming by satellite should be eliminated. The satellite license should be made permanent. The ''white area'' rules should be eliminated, and network signals should be available nationwide by satellite coupled with payment of an appropriate surcharge to reimburse local network affiliates for the importation of distant network signals. With the exception of using a more realistic 35 mile zone rather than the huge ADI as the basis for the surcharge, we recommend adoption of the CRO's recommendations by Congress.

    37. Lastly, Mr.Chairman, it is important for the Subcommittee to appreciate that the CARP process is fatally flawed. It has resulted in an anticompetitive, anti-satellite, anti-rural decision to discriminate in copyright rates in favor of the entrenched cable monopolists. The CARP problem requires a legislative solution. Satellite copyright rates need to be statutory, and they need to be comparable to cable.
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    38. I appreciate the opportunity to discuss with the Subcommittee rural America's concerns regarding these key copyright issues. We commend you and the many other members of Congress who have done so much over the years to ensure that rural America remains a part of the modern age of telecommunications. To that end, on behalf of rural America, we urge that you revise the country's outdated, anticompetitive satellite copyright laws.

BIOGRAPHY

    Bob Phillips was appointed Chief Executive Officer of the National Rural Telecommunications Cooperative (NRTC) in March 1987. Under his leadership, NRTC has grown from start-up to become a leading national satellite television distributor, with nearly 800 member utilities and affiliated companies serving over 700,000 rural consumers, and revenues approaching $200 million.

    As CEO, Mr. Phillips guided NRTC into a partnership with DIRECTV, Inc., a unit of Hughes Electronic Corp., and Thomson Consumer Electronics, the maker of RCA products. DIRECTV is the nation's first and most successful high power direct broadcast satellite (DBS) television delivery system. It offers more than 175 channels of digital quality audio and video over an 18-inch digital satellite system (DSSTM).

    Mr. Phillips was instrumental in the March 1997 launch of Channel EarthTM, a new television channel devoted exclusively to serving farmers, ranchers and other rural residents. He serves as a member of the Channel Earth Communications, Inc. Board of Directors, representing NRTC's founding ownership interest.
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    Also in 1997, under Mr. Phillips' strategic leadership, NRTC and two other founding partners of Util-LINK L.L.C. introduced a unique, digital automated meter reading and power quality monitoring device: the LINK. Mr. Phillips is a member of the Util-LINK L.L.C. Management Committee.

    Mr. Phillips has extensive experience before Congress and with electric and telecommunications regulatory matters. He represented utility companies for nearly ten years as an attorney in general business matters, legislative and regulatory affairs, rate proceedings, engineering and environmental issues.

    While directing the successful business start-up of NRTC, Mr. Philips led an intensive rural utility campaign before Congress to obtain access to television programming at fair rates for the satellite industry. This legislative initiative was accomplished when Congress overrode a presidential veto to pass the 1992 Cable Act.

    Mr. Phillips graduated from the Washburn University School of Law in Topeka, Kansas, He serves on the Board of Directors of the satellite Broadcasting and Communications Association of America (SBCA). He is active with the Boy Scouts of America as a troop leader and a member of the Board of Directors of the National Capital Area Council.

    Mr. Phillips is a native of Kansas. He and his wife, Nancy, have three sons, Bernard IV, Brent and Barrett.

    In compliance with XI, clause 2(g)(4) of the House rules the undersigned hereby declares that, during the current fiscal year or either of the two preceding fiscal years, the National Rural Telecommunications Cooperative has not received any federal grants, subgrant, contract or subcontract relevant to the subject matter of the hearing on February 4, 1998, at which testimony is being presented on NRTC's behalf.
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Signed,
B.R. Phillips, III, Chief Executive Officer
National Rural Telecommunications Cooperative
February 2, 1998


    Mr. COBLE. Mr. Popham.

STATEMENT OF JAMES J. POPHAM, VICE PRESIDENT AND GENERAL COUNSEL, ASSOCIATION OF LOCAL TELEVISION STATIONS

    Mr. POPHAM. Good morning, Mr. Chairman, and thank you—only broadcasters would leave the mike off. Again, Mr. Chairman, thank you. We are very grateful for the opportunity to testify here this morning.

    ALTV represents the interests of the competitive edge in the broadcast television industry and that is the full-service local television stations affiliated with the established FOX network, the rapidly emerging UPN and WB networks, and the Pax Net network, which is scheduled to commence operation in August. Our membership also includes independent stations, which often provide innovative and unique program services to their communities.

    More than any of the popular cable networks, these stations have stimulated competition and have enhanced the program diversity for all viewers, not just those able or willing to pay for a subscription multi-channel service. At the same time, they have expanded the market for original and syndicated programming consistent with the basic goals of copyright.
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    You know, only a few years ago, anyone speaking of the possibility of seven television networks would have been subject to tests for ingestion of mind-altering substances of dubious legality. Now, the prospect of seven successful competitive broadcast networks is very real.

    Mr. Chairman, we have submitted an extensive written statement. Suffice it to say for the moment, we think the compulsory licenses are sound in concept and I want to spend most of this statement this morning looking to the one urgent and deep concern we have, which arises from the commencement of EchoStar's dish network digital local network service, which will offer digital satellite transmission of selected local network affiliate signals in major markets around the country.

    As their promotional materials reveal, only the affiliates of the ABC, CBS, FOX, and NBC networks will be offered. Left out of their lineups are the local affiliates of the WB and UPN networks, as well as independent stations, many of which will become affiliates of Pax Net.

    Consequently, literally having been rescued by the cable must-carry rules and having struggled to establish a beachhead in their assault on the three entrenched networks' dominance, these independents and emerging network affiliates again find the sand eroding beneath them as they are placed by EchoStar at a distinct competitive disadvantage in their local markets. They will enjoy none of the benefits of digital picture quality, none of the benefits of inclusion in the dish network on-screen program guide, and none of the benefits of seamless surfing. Ironically, they likely also will be subject to competition from a distant affiliate of their own network which will enjoy all the benefits of picture quality and tuning ease on the satellite system.
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    Nothing could more surely dull the cutting edge of competition from new networks, their local affiliates, and innovative independent stations in local markets. Nothing could more seriously threaten the ability of local television stations to offer an expanded range of program diversity to all local viewers gratis. Nothing could more effectively undermine the continued expansion of the market for high-quality television programming. Indeed, nothing could more substantially mock fundamental communications and copyright public policy goals and flout the longstanding interrelationship between copyright and communications policies with respect to the use of broadcast television signals.

    More to the point, Mr. Chairman, when all is said and done, consumers will bear the loss in quality and quantity of free broadcast television service. Therefore, we today place special emphasis on our position favoring amendment of the satellite carrier compulsory license to cover satellite retransmission of local signals in their home markets, but only if mechanisms are in place to ensure that the compulsory license is not used for discriminatory or selective carriage of local signals. No compulsory license should become the vehicle for inherently anti-competitive discrimination among local stations or other actions which undermine the integrity of the nationwide system of free local broadcasting.

    Therefore, we urge extension of the satellite compulsory license to local signals only if and when complementary rules are adopted requiring that all local stations be carried in any market where the satellite carrier elects to provide the signals of any local station.

    Thank you, Mr. Chairman.
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    Mr. COBLE. Thank you, Mr. Popham.

    [The prepared statement of Mr. Popham follows:]

PREPARED STATEMENT OF JAMES J. POPHAM, VICE PRESIDENT AND GENERAL COUNSEL, ASSOCIATION OF LOCAL TELEVISION STATIONS

SUMMARY

ALTV favors amending the satellite compulsory license to permit satellite retransmission of local television station signals in their home markets only if accompanied by rules:

 Assuring nondiscriminatory carriage of all full service local television stations in all markets where a satellite carrier elects to provide local station signals to its subscribers;

 Setting the royalty for local retransmission at zero;

 Defining the local market area of a station as its DMA; and

 Maintaining existing retransmission consent rights for all local television stations retransmitted locally by satellite carriers.

ALTV otherwise submits that:

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 Any rewrite of the cable and satellite compulsory licenses must be comprehensive, rather than piecemeal.

 Revision of the cable and satellite compulsory licenses must be undertaken only with a keen appreciation of the longstanding interrelationship of the compulsory licenses and the ongoing regulation of cable, satellite, and other emerging media by the Federal Communications Commission.

 Limited compulsory licenses should be retained for existing multichannel video providers which elect to retransmit the signals of broadcast television stations to their subscribers.

 The compulsory licenses should permit retransmission of the signals of local television stations within their local market areas, provided mechanisms are in place to assure that the compulsory license is not used for discriminatory or selective carriage of local signals.

 No fee should be charged for the compulsory licenses to retransmit local signals, again, provided mechanisms are in place to assure that the compulsory license is not used for discriminatory or selective carriage of local signals.

 The compulsory license should facilitate carriage of a limited number of distant signals to accommodate the expectations of viewers who traditionally have enjoyed the programming offered by distant stations on their cable or satellite systems.

 Fees for distant signals should be set to preserve the current patterns of distant signal carriage and avoid invoking the law of unintended consequences.
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 The distant signal compulsory license must be accompanied by provisions preserving local stations' exclusive rights to their network and syndicated programming.

 The compulsory license should be structured to establish functional parity among the various competitive multichannel video providers.

 The availability of the compulsory license should be limited to specific multichannel media.

INTRODUCTION

    We greatly appreciate this opportunity to make our views known to the subcommittee. The Association of Local Television Stations, Inc. (''ALTV'') represents the interests of full service local broadcast television stations not affiliated with ABC, CBS, or NBC. Most of our member stations are affiliates of either the Fox, UPN, or WB network. Some remain traditional ''independent'' stations, which continue to offer innovative programming to their communities.(see footnote 33) One of our members, Paxson Communications, recently announced the formation of a seventh broadcast network, ''Pax Net.''ALTV's membership includes stations from every region of the country. Their ownership spans the continuum from local single station owners to large media conglomerates. Their interests range from those of nationally distributed ''superstations'' to those of small home shopping and ''infomercial'' stations. Thus, the perspective of our membership is wide-ranging, but unique, and we respectfully submit that consideration of their concerns will add materially to the debate and discussion of possible legislation in this area.

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    ALTV respectfully submits that no need exists for consideration of either elimination or wholesale restructuring of either compulsory license.(see footnote 34) Nonetheless, ALTV well understands the need for review of the satellite and cable compulsory licenses and commends your conducting hearings and initiating consideration of possible legislation. Whereas the cable compulsory license generally is considered satisfactory in most respects, troubling issues have arisen with respect to the satellite license. Most recently, EchoStar has announced the addition of selected local affiliate signals to its service and has sought contemporaneously to gain approval for its new service from the Copyright Office. This is a matter of grave and immediate concern to ALTV. In addition, the scheduled termination of the satellite license in 1999, the proposed carriage of local broadcast signals, the recent CARP decision raising the satellite royalty fees, and the ongoing dispute over satellite transmission of network signals under the ''white area'' limitation invite Congressional inquiry and review. Also pertinent for Congressional consideration is the extension of the cable compulsory license to open video systems (''OVS''). These issues, as well as relatively minor concerns about the cable compulsory license, certainly demand Congressional attention. ALTV, therefore, sets forth below its views on the issues of greatest concern to local television stations regarding modifications of the compulsory license.

ECHOSTAR

    Whereas ALTV's position is multifaceted, we address at the outset an imminent issue which looms large for many of ALTV's member stations. Last month EchoStar began retransmitting the signals of selected local network affiliates in several markets to its subscribers in the affiliates' home market areas. However, EchoStar has elected to provide only the signals of the local ABC, CBS, NBC, and Fox affiliates.(see footnote 35) Left out of their offering are the signals of WB and UPN affiliates, as well as the signals of soon-to-be affiliates of PaxNet and many independent stations.(see footnote 36)
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    Much more than so-called competitive parity between cable television and satellite carriers is involved. Blatantly discriminatory signal selection by satellite carriers like EchoStar ultimately would undermine the ability of new networks, their affiliates, and innovative independent stations to compete toe-to-toe not only with the ever expanding array of nonbroadcast program networks and services, but also with their entrenched big three network competitors in their local markets.(see footnote 37) Placed in jeopardy will be the promise of enhanced competition and greater program diversity these new networks and independent stations furnish all viewers, not just those able and willing to subscribe to a multichannel program service like cable television or DBS. EchoStar's proposal mocks the long standing interrelationship between copyright and communications policies with respect to the use of broadcast television signals, flouts the fundamental public policies that prompted application of so-called ''must carry'' rules to cable television in conjunction with the cable compulsory license, and affronts sound notions of competitive parity.(see footnote 38) ALTV submits that no compulsory license should become a vehicle for inherently anticompetitive discrimination among local stations or other actions which undermine the integrity of the nationwide system of local broadcasting engendered by the Communications Act.

    Furthermore, from the perspective of copyright owners, maintaining a thriving local television industry and promoting development of new broadcast networks is a compelling consideration. Broadcast stations and networks remain the major buyers of new and syndicated programming. They continue to provide the major economic incentive to create new programming through substantial demand for new programming, as well as a substantial aftermarket for syndicated programming. Weakening this market would put a heavy damper on the creation and production of new, diverse programming for all media—much to the detriment of program producers and syndicators and to the fundamental goal of the copyright law to promote creation of new works. Again, the copyright law never ought be burdened by self-defeating provisions which diminish the market for creative works.
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    Satellite carriers may complain that requiring nondiscriminatory carriage of local signals might overtax their capacity and impose additional unwanted costs on their operations. ALTV respectfully suggests that these concerns are overblown and myopic. The practical effect of imposing such a requirement on satellite providers would be marginal. Like cable systems, satellite carriers would be likely to carry some local stations voluntarily. Therefore, such a requirement typically might require a satellite carrier to provide only a few additional local signals, such as those of newer stations or stations affiliated with newer networks like UPN, WB, and PaxNet. Thus, the practical effect often would be not a ''carry one, so carry seven,'' but a ''carry four, so carry six or seven'' rule. At worst, under current technological limits on capacity, compliance might require a satellite carrier to forego local signal carriage in a few markets in order to accommodate all local signals in other markets. ALTV submits that this result is preferable to a regime which invited and tolerated discrimination among local stations in the same market.

    Whereas this may require the satellite carrier to absorb some additional costs, those costs are a small price to pay in comparison with the significant benefits which the satellite compulsory license confers on satellite carriers. If amended or interpreted to suit EchoStar's plans, the satellite carrier compulsory license would provide satellite carriers the ability to retransmit the signals of local television stations to their subscribers in their local markets without paying copyright license fees and in a manner which avoids the prohibitive transaction costs of negotiating license agreements with numerous individual copyright owners. Additionally, a compulsory license covering local signals would enable satellite carriers to compete more effectively for customers among cable subscribers by offering a more directly competitive array of program services. The inability to provide local signals has hindered satellite carriers' efforts to compete head-on with cable systems because cable systems may carry local signals under the cable compulsory license.(see footnote 39) Therefore, amending the compulsory license to permit so-called ''local-into-local'' retransmission of local television stations would place satellite carriers in the same advantageous position as cable operators.(see footnote 40)
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    Therefore, as stated below, ALTV favors amending the satellite carrier compulsory license to cover satellite retransmission of local television station signals in their home markets only if mechanisms are in place to assure that the compulsory license is not used for discriminatory or selective carriage of local signals.

    Echostar in an impatient effort to finesse the comprehensive review of the compulsory licenses now underway in this subcommittee (as well as in the Senate) has asked the Copyright Office to adopt a rule which would lend the Copyright Office's imprimatur to EchoStar's self-serving, but tortured interpretation of the current satellite compulsory license. EchoStar urges the Copyright Office to interpret ''unserved household'' as meaning ''households that are unserved by another affiliate of the same network, and not unserved by the local network affiliate.''(see footnote 41) Such an interpretation is intended to permit EchoStar to retransmit the signals of network affiliates in the affiliates' home market areas even where households receive off-air service from that affiliate. Moreover, it would sanction EchoStar's commencing service immediately, prior to full consideration of the issue by Congress. ALTV strongly argued to the Register of Copyrights that she should leave this critical question to Congress.(see footnote 42) Nonetheless, the Copyright Office has issued a Notice of Inquiry looking toward possible adoption of the rule urged by EchoStar.(see footnote 43)

    In the wake of these actions, ALTV must urge Congress to rein in the Copyright Office—the very same office which previously refused to issue an interpretation of the Act like that requested by EchoStar, stating that it was not its role to ''determine or resolve the substantive rights and liabilities of individual parties under the Copyright Act.''(see footnote 44) First, substantial public policy judgments portending enormous effects on copyright owners, consumers, and the entire array of competing video program providers, including local television stations, are involved. In this context, resolution of core issues like application of §119 to local retransmission of local television station signals should not turn on an isolated administrative ruling interpreting a statute which the register has concluded is ''silent on this issue.''(see footnote 45) More to the point, no basis exists for the interpretation of Section 119 urged by EchoStar. Satellite retransmission of local signals never was contemplated by Congress.(see footnote 46)
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    Second, the issue is ill-suited for ''express lane'' treatment by the Copyright Office. If the Copyright Office adopted the rule sought by EchoStar, the rule would be incomplete and impossible to implement. Whereas the Copyright Office believes it has authority to address the narrow issue posed by EchoStar, it is powerless to address numerous closely-related and highly significant issues which must be resolved before any satellite carrier may initiate ''local retransmission of network signals of local network affiliates.''(see footnote 47) For example, no royalty fee has been established (or even considered) for retransmission of the signals of network affiliates within their local markets. The recent decision establishing new royalty fees effective January 1, 1998, set no fee for retransmission of network affiliate signals to other than unserved households in their markets.(see footnote 48) Furthermore, the Copyright Office has no authority to establish rates under Section 119. Therefore, with no rate established for retransmission of network affiliate signals within their local markets, the Copyright Office would have no ability to revise statement of account forms or collect royalties for such retransmissions.(see footnote 49) Similarly, the Copyright Office has no authority to adopt or revise the current definition of a station's local market for purposes of a rule permitting ''local retransmission of network signals of local network affiliates.''(see footnote 50) As the register observed in her report, to implement the recommendation that ''retransmission of any broadcast station, network or independent, within that station's local market be permissible under section 119. . . . [a]ny amendment must include a definition of a station's local market, both for commercial and noncommercial stations.''(see footnote 51) Only Congress may modify (or even clarify) Section 119 in a comprehensive fashion which would address all pertinent issues. EchoStar's petition, therefore, necessarily raises issues hardly amenable to a sound and complete resolution by the Copyright Office.
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    Third, only Congress contemporaneously may resolve related communications policy issues involving appropriate use of broadcast television signals and regulatory parity among competing media. Again, retransmission of local signals pursuant to the compulsory license in §119 unaccompanied by rules requiring nondiscriminatory carriage of local stations and protection of local television station's exclusive local exhibition rights not only would jeopardize free broadcast television service, but also would place cable systems, which are subject to such regulatory safeguards, at a distinct competitive disadvantage vis-a-vis satellite carriers. Congress should be permitted to address these inextricably intertwined issues contemporaneously and with due regard for the interplay of copyright and communications policy. Therefore, ALTV requests that Congress direct the Copyright Office to leave the matter where it properly resides—in Congress, where a comprehensive amendment of §119 may be pursued unencumbered by the added burden of stuffing a genie loosed by the Copyright Office back into its bottle.(see footnote 52)

    Having addressed this most immediate and pressing concern, ALTV below states its position on the broad range of issues involved in the subcommittee's efforts to revise the current cable and satellite compulsory licenses.

COMPREHENSIVE REVIEW

    First, any rewrite of the cable and satellite compulsory licenses must be comprehensive, rather than piecemeal. In particular, Congress must not succumb to EchoStar, which seeks a quick fix of its parochial concerns, no matter how strident or urgent its pleas. Amendments to the Act designed to resolve particular issues outside the context of a comprehensive revision inevitably complicate and unbalance the process. As in the case of today's home music systems, altering one component without regard for compatibility with other parts of the system usually produces a discordant result. Such one issue fixes would drag the process of a comprehensive review back to square one. They also would tend to deflate the imperative for comprehensive legislation. ALTV, therefore, urges the subcommittee to resist legislation which offered only resolution of selected issues at the expense of a more comprehensive review of the compulsory licenses. For similar reasons, as noted above, the Congress should assert its proper prerogatives and dissuade the Copyright Office from adopting a rule interpreting the current satellite compulsory license to permit satellite carriers to retransmit the signals of network affiliates in their home markets.
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INTERRELATIONSHIP WITH FCC RULES

    Second, revision of the cable and satellite compulsory licenses must be undertaken only with a keen appreciation of the longstanding interrelationship of the compulsory licenses and the ongoing regulation of cable, satellite, and other emerging media by the Federal Communications Commission.(see footnote 53) Congress hardly may neglect, for example, that cable systems and open video systems (''OVS'') are subject to provisions of the Communications Act and FCC regulations designed specifically to assure that their use of broadcast signals pursuant to the compulsory license poses no threat to the integrity and viability of our system of local broadcast television.(see footnote 54) As anticipated, the cable compulsory license has meshed comfortably with complementary FCC rules governing broadcast signal carriage by cable television systems. This has been no accident. The copyright and communications policy aspects of cable carriage of broadcast television signals were pursued in tandem in the late sixties and early seventies. Ultimately, a White House initiative produced the so-called Consensus Agreement in 1971. Parties to the agreement included the Motion Picture Association of America, the National Cable Television Association, and the National Association of Broadcasters. The Consensus Agreement provided for FCC adoption of a specific package of rules governing broadcast signal carriage by cable systems and contemporaneous Congressional passage of copyright provisions providing cable television systems with a compulsory license.(see footnote 55) This interrelationship has remained intact. Modifications to the FCC rules have prompted appropriate adjustments in the cable compulsory license.(see footnote 56)

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    The FCC rules governing use of broadcast signals by cable television systems contrast sharply with the lack of such regulations in the case of satellite carriers which retransmit broadcast signals under Section 119 of the Act.(see footnote 57) A compulsory license scheme for any multichannel video provider unbalanced by limitations designed to attenuate harm to local television service would draw especially staunch opposition from ALTV.(see footnote 58)

RETENTION OF LIMITED COMPULSORY LICENSE

    Third, ALTV submits that a limited compulsory license should be retained for existing multichannel video providers which elect to retransmit the signals of broadcast television stations to their subscribers. Both the cable compulsory license in Section 111 of the Copyright Act and the satellite carrier compulsory license in Section 119 of the Act are conceptually sound. They have enabled cable television systems and satellite carriers to avoid the extraordinary burden of licensing each and every program broadcast by the television stations they retransmit to their subscribers. They, thus, have enabled cable systems and satellite carriers to provide popular broadcast programming to their subscribers with a minimum of transactional fuss.

    At the same time, they have assured that the copyright owners of broadcast programming retransmitted by cable systems and satellite carriers are compensated for use of their works.(see footnote 59) Furthermore, the ultimate reward to copyright owners has been even more substantial. Primed by its use of local and distant broadcast signals, the flow of program options from cable systems—which now includes over one hundred cable networks—reaches over 60 per cent of television households.(see footnote 60) The number of broadcast stations and networks has increased. These new stations, networks, and cable systems (now supplemented by satellite carriers) have created an enormous and expanding market for original and syndicated programming, a development which redounds handsomely to the benefit of program producers and copyright owners.
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    Moreover, maintaining the compulsory licenses would preserve consumers' access to the signals of broadcast television stations via cable, DBS, MMDS, and OVS. Elimination of the compulsory licenses, on the other hand, would jeopardize the continued availability of popular broadcast programs to consumers who have come to rely on cable and other multichannel media for access to broadcast television service.(see footnote 61) For example, professional sports leagues never have made a secret of their disdain for the compulsory license.(see footnote 62) Whereas widespread retransmission of sports telecasts via carriage of numerous distant broadcast signals well might pose some threat to the value of local and national sports rights, the now very limited carriage of distant broadcast signals which ALTV seeks to preserve never has been shown to have a significant effect on the value of sports broadcast, satellite, or cablecast rights.(see footnote 63) Nonetheless, in the absence of a compulsory license, major professional sports leagues would seek to shut down distant carriage of sports event programming which has been a source of enjoyment to the public for years.(see footnote 64) The so-called superstations no longer would be superstations.(see footnote 65) Cable and satellite subscribers who have enjoyed, for example, broadcasts of Chicago Cubs, Chicago White Sox, and Chicago Bulls games on WGN–TV, no longer would have access to those games or other popular programs on WGN–TV.(see footnote 66) Consequently, the viewing public, which has enjoyed distant signal programming in the 20 years since the cable compulsory license became effective, would be deprived of programming to which they have become accustomed.(see footnote 67)

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  Furthermore, parties attempting to quantify harm attributable to the compulsory license have met with a notable lack of success. For example, the Copyright Arbitration Royalty Panels and their predecessor agency, the Copyright Royalty Tribunal, have been unable to quantify the harm alleged by parties to their distribution proceedings. As recently observed in the Copyright Office's recommendations concerning the 1990–92 royalty distribution:

The Tribunal was not itself consistent in application of the harm criterion, and never quantified the value of a ''harm credit.'' The panel in this proceeding took full account of the harm criterion—i.e., acted on the basis of it—and concluded consistent with its authority to make distribution determinations, that the criterion was not useful to deciding distribution percentages.

Distribution Order, Docket No. 94–3 CARP CD–90–92, 61 Fed. Reg. 55653, 55659 (October 28, 1996). Even before the recent reduction in superstation carriage by cable systems, the United States District Court in Chicago, in a case involving attempts by the National Basketball Association to limit the number of Chicago Bulls games on superstation WGN–TV found that:

The NBA produced no credible evidence, statistical or anecdotal, to suggest that superstation broadcasts of the Bulls, the Hawks, or the Nets on WGN, WTBS, and WWOR steal viewers away from any other team's local broadcasts or limit the number of games the teams have been able to sell in their local markets . . . [N]o data showing any adverse effect on local ratings ever was introduced.

Chicago Professional Sports Partnership and WGN v. National Basketball Association, 754 F.Supp. 1336 (1991) [subsequent history omitted].
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  The antitrust exemption has enabled sports leagues to maintain a choke hold on local teams licensing of telecast rights to their games. Thus, even though individual teams may be the copyright owners of their game telecasts, they are subject to league rules which rigidly control their abilities to license telecast rights to their games. The league also extracts extra payments from clubs which license their games for exhibition on superstations. Chicago Professional Sports Partnership and WGN v. National Basketball Association, 754 F.Supp.at 1343. Indeed, The ongoing dispute and litigation focusing on the number of games which the Chicago Bulls may license to WGN–TV (a superstation) illustrates the lengths a league like the NBA will go to enforce its will on a member club.

    For those who continue to long for a true marketplace, ALTV respectfully suggests no such true marketplace ever could exist. No one may argue seriously that every individual cable system, satellite carrier, or other multichannel video provider efficiently could clear the rights to every broadcast program shown on stations they retransmit. A true marketplace would involve thousands, if not millions, of transactions. The demand for efficiency in this process—notably the same demand which engendered the compulsory license—would prompt creation of some private collective mechanism for licensing. Many have referred to the music licensing societies as examples of the sort of mechanism which might develop. However, history has shown such collective licensing mechanisms to be antitrust time bombs, which may tend to undermine competition and stifle the true marketplace sought by those who disfavor compulsory licenses. Indeed, the long history of contention and litigation over broadcast music licensing suggests that transaction costs would be ongoing and substantial.(see footnote 68) The proffered benefits of a private licensing mechanism, therefore, would be elusive.

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    Thus, ALTV would urge the committee to focus on the few problem areas that have emerged in the two compulsory licenses, rather than on the underlying desirability of the compulsory licenses per se.(see footnote 69)

RETRANSMISSION OF LOCAL SIGNALS

    Fourth, the compulsory license should permit retransmission of the signals of local television stations within their local market areas, provided mechanisms are in place to assure that the compulsory license is not used for discriminatory or selective carriage of local signals.(see footnote 70) Such mechanisms already exist with respect to cable television and open video systems. The FCC's must carry rules generally require cable systems to carry all local signals or, at least, to devote a specific amount of their channel capacity to carriage of local signals.(see footnote 71) Identical rules apply to OVS.(see footnote 72) In the case of satellite retransmission of local television stations within their home markets, no rules exist at the FCC or in the Communications Act.(see footnote 73) The satellite carrier compulsory license, as currently written, does not contemplate retransmission of local broadcast television station signals within their home markets.(see footnote 74) ALTV submits that the satellite carrier compulsory license should be amended to permit satellite carriers to retransmit signals of local stations in their home markets, but only if satellite carriers are first subject to ''must carry'' rules akin to the current cable ''must carry'' rules.(see footnote 75)

  Even from the perspective of copyright owners of video programming, as well as the copyright law which protects their private economic interests (for the public good), maintaining a thriving local television industry and promoting development of new broadcast networks is a compelling justification. Broadcast stations and networks remain the major buyers of new and syndicated programming. They continue to provide the major economic incentive to create new programming through substantial demand for new programming and through creating a substantial aftermarket for such programming via extensive reliance on syndicated programming. Weakening this market would put a heavy damper on the creation and production of new, diverse programming for all media—much to the detriment of program producers and syndicators.
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    No compulsory license should become a vehicle for inherently anticompetitive discrimination among local stations or other actions the effect of which is to undermine the integrity of the nationwide system of local broadcasting engendered by the Communications Act.(see footnote 76) Therefore, in considering modifications to Section 119, Congress should extend the compulsory license to local signals only if and when complementary rules are adopted requiring that all local stations be carried in any market where the satellite carrier elects to provide the signals of any local station.(see footnote 77)

    Satellite carriers' access to local signals under the compulsory license also must come only with the assurance that sound technologies exist to prevent out-of-market access to such signals. Under some plans to provide local signals (e.g., EchoStar), most (if not all) local signals will be available throughout the nationwide footprint of the satellite retransmitting the signals. The potential for mischief is great—as evidenced by the contretemps which has erupted over provision of network signals outside unserved areas.(see footnote 78) Adequate legal sanctions must exist to penalize and deter effectively unauthorized out-of-market access to the signals of retransmitted broadcast signals.

[T]he best solution to the issue of subscriber eligibility for satellite service of network signals is a technological one. If satellite carriers were to provide subscribers who reside within the local market of a network affiliate the signal of that affiliate, the need for the unserved household restriction with respect to that affiliate would be eliminated.

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Register's Report at 119. In that regard, ALTV has not addressed herein the unserved household problem which has preoccupied the legislative debate. Suffice it to say, ALTV and its members affiliated with emerging networks join wholeheartedly in the position expressed by the National Association of Broadcasters.).

FREE CARRIAGE OF LOCAL SIGNALS

    Fifth, no fee should be charged for the compulsory license to retransmit local signals, again, provided mechanisms are in place to assure that the compulsory license is not used for discriminatory or selective carriage of local signals. The copyright owners of programs broadcast on the local stations are not harmed by local retransmission of the station's signal. As long ago recognized, stations are licensed to broadcast programs within their local geographic markets.(see footnote 79) Whether the program is received by a viewer directly off air or via the conduit of a multichannel video provider serving the market, the effect on the station is the same.(see footnote 80) The station still is credited with the viewing of its programming in the local ratings. The station's advertising base suffers no erosion, and its ability to pay for programming is undiminished. Consequently, as a program buyer, the station stands in a position no worse than it would in the absence of retransmission by multichannel video providers in the market. The copyright owner seeking to sell its program to the station faces no diminished market as a result of the retransmission of programming licensed to local television stations by multichannel video providers serving the local market. Thus, copyright owners suffer no harm from local retransmission of programming licensed to local television stations, and no fee is required to offset any such harm.(see footnote 81)
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    Furthermore, charging a fee for the compulsory license to retransmit local television station signals would collide headlong with the rules requiring cable systems to carry the signals of local television stations.(see footnote 82) Thus, to the extent that a multichannel video provider simply serves as an open conduit for all local signals, it should not be required to pay for the use of those signals.(see footnote 83) On the other hand, if a multichannel video provider selects among local signals and excludes some local signals, it should be entitled to no compulsory license, much less a free compulsory license, for the use of local signals.

RETRANSMISSION OF DISTANT SIGNALS

    Sixth, the compulsory license should facilitate carriage of a limited number of distant signals to accommodate the expectations of viewers who traditionally have enjoyed the programming offered by distant stations on their cable or satellite systems and avoid disruption of local broadcast markets. On major cable systems, this historically has included two superstations and in some instances a station or stations from an adjacent market with programming of some interest to local viewers. These minimal—but also legitimate and undoubtedly heartfelt—expectations should not be frustrated by any modifications to the cable or satellite compulsory licenses.

    On the other hand, no reason exists to facilitate via a compulsory license increased carriage of distant signals. Local broadcast markets should not be flooded with a multiplicity of additional distant signals which defeat their exclusive local program rights, have no obligation to serve the local community, offer little or nothing of local interest, and draw away their audiences. Nothing would be more inimical to maintenance of a healthy system of local broadcast stations focused on serving their local communities.
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    Furthermore, cable systems, satellite carriers, and other video providers now offer consumers much more numerous nonbroadcast programming channels. In 1971, cable systems may have needed a ''jump start'' from the ability to provide distant signals. Indeed, that was all they did provide. However, as cable networks have proliferated, broadcast signals have represented an increasingly diminished proportion of the total number of services offered by cable systems (and, more recently, satellite carriers). Furthermore, as stations affiliated with UPN, WB, and Pax Net fall under the definition of network affiliate, their retransmission by satellite carriers will be restricted to unserved areas, thereby limiting the number of signals eligible for retransmission outside their markets. Thus, both the supply of and demand for distant signals will diminish. Under such circumstances the compulsory license for distant signal retransmission ought remain limited.

    ALTV understands that defining the scope of the license may be a complex task. However, alternative approaches might involve ''grandfathering,'' which has been employed in just such situations to preserve service to consumers while otherwise limiting the scope of signal carriage.(see footnote 84) Another time tested approach looks to the royalty rates to provide disincentives to carriage of excessive numbers of distant signals. (See below.) In any event, the compulsory license should remain limited in scope so as to satisfy the legitimate expectations of consumers without undermining the system of locally-oriented free broadcast service—which consumers also have come to rely on for news, information, and entertainment.(see footnote 85)

DISTANT SIGNAL FEE STRUCTURE
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    Seventh, in the absence of outright limits on distant signal carriage, fees for distant signals should be structured to preserve the current patterns of distant signal carriage and avoid invoking the law of unintended consequences. Again, this will serve not only to prevent disruption of consumer viewing options, but also to avoid disruption of the current video production and distribution markets. Notably, the fee structure in the cable compulsory license has functioned as anticipated to prevent widespread carriage of numerous distant signals, thereby preventing distortions in local video markets and attenuating the potential harm to local stations. Local television stations traditionally and rightly have feared that retransmission of distant signals in their markets would draw away their audiences, reduce their advertising revenues, and sap their vitality, if not threaten their viability. This concern originally propelled the FCC to adopt rules limiting the number of distant signals which cable systems could carry. The Commission later repealed the rule, but, as noted above, the CRT established a premium rate for cable retransmission of distant signals in excess of the number permitted under the FCC's defunct rules.(see footnote 86) This higher rate created an economic disincentive to carry additional distant signals, and the practical effect of that ruling was to prevent a significant expansion in the number of distant signals carried by cable systems.(see footnote 87) Thus, cable systems continued to carry only a limited number of distant signals, typically in the form of either nationally distributed superstations or signals from adjacent or nearby markets which have programming of interest to local viewers.(see footnote 88)

    With respect to satellite carrier retransmission of distant signals, enforcement of the unserved household restriction on network affiliate retransmission will resolve the most pressing concern. Indeed, as noted above, as stations affiliated with emerging networks become network affiliates under the satellite compulsory license definition, few superstations are likely to remain eligible for nationwide carriage by satellite carriers.(see footnote 89) Nonetheless, satellite rates should not be structured to encourage widespread retransmission of additional distant, nonnetwork signals by satellite carriers.(see footnote 90) No less than in the case of cable, such carriage would pose a menace to local television service. Considerations of parity between satellite carriers and cable systems also dictate similar approaches to cable and the satellite rates. Therefore, satellite carrier rates under the compulsory license also should serve the same basic goals as cable rates. Ultimately, neither rate structure should threaten to topple the delicate balance between the need to preserve existing consumer choices and the need to prevent damage to local broadcast service—and copyright owners.
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EXCLUSIVE PROGRAM RIGHTS

    Eighth, the distant signal compulsory license must be accompanied by provisions preserving local stations' exclusive rights to their network and syndicated programming.(see footnote 91) Presently, cable television systems are subject to FCC rules which protect the exclusive rights of local stations to exhibit network and syndicated programming in their markets. These rules generally prohibit a cable system from retransmitting a program broadcast by a station carried by the system if a local station has exclusive rights to the program in the geographic area served by the cable system.(see footnote 92) This rule now ought be applied to satellite carriers as well.(see footnote 93) No reason exists to provide stations the ability to secure exclusive rights in one portion of the copyright law, but negate that right in another. Indeed, in an ever more competitive marketplace, any video provider's ability to maintain its exclusive rights becomes even more valuable and critical to its ability to offer a distinctive, competitive program schedule. Although the FCC found application of a ''syndex'' rule technically unfeasible in 1989, the question of feasibility deserves another look. Technology has advanced on numerous fronts. Satellite carriers already protect local sports blackout requirements. Provision of syndicated program exclusivity would add only bulk, but no additional complexity to the process.(see footnote 94) Thus, the matter of ''satellite syndex'' is ripe for a hard look from Congress and the Commission.(see footnote 95)

COMPETITIVE PARITY

    Ninth, the compulsory license should be structured to establish functional parity among the various competitive multichannel video providers. This hardly is to say that every multichannel video provider be subject to precisely identical provisions.(see footnote 96) However, no compulsory license should confer an advantage on one among several competing video providers.(see footnote 97) Denying one multichannel video provider access to local television station signals on the same basis as the entrenched cable industry would raise the ante for new competition and entrench cable more deeply.(see footnote 98) In that regard, parity is essential in the scope of the compulsory license and the fees charged. Thus, for example, to the extent that cable systems enjoy a more modest rate for the first few distant signals they carry, satellite carriers and other eligible multichannel video providers should enjoy the same basic rate structure. Similarly, any video provider eligible for the compulsory license must be subject to appropriately similar limitations designed to prevent damage to local broadcast service at the hands of the compulsory license.
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[T]he Office does agree with the goal of removing differences between the licenses where possible, so that the compulsory licenses should have the least possible impact on the competitive balance between satellite carriers and cable systems, while, at the same time, retaining differences that are justified by the regulatory and technological contexts of the two industries.

Register's Report at 35.

ELIGIBILITY FOR A COMPULSORY LICENSE

    Tenth, the availability of the compulsory license should be limited to specific multichannel media. ALTV fully supports the availability of a compulsory license to cable television systems, satellite carriers, wireless cable systems, and open video systems (provided the use of broadcast signals by such systems remain subject to regulations applicable to broadcast signal carriage by cable systems).(see footnote 99) However, establishment of a ''generic'' compulsory license applicable to any video program provider which wishes to retransmit the signals of local television stations would invite unforeseeable problems. Unless and until the ramifications and consequences of a compulsory license for a particular medium are fully explored, no new communications medium should be granted a compulsory license for retransmission of broadcast television station signals.(see footnote 100)

CONCLUSION

    Thus, ALTV submits that the compulsory licenses for retransmission of broadcast signals play a vital role in the provision of the best possible television service to consumers and urges their retention. At the same time, they should be limited in scope and conditioned on provisions which insure that free, broadcast service to the public is in no way imperiled.
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    ALTV very much looks forward to working with the subcommittee on legislation to modify the compulsory licenses. If you are in need of any particular information which might be at our disposal, we would happy to compile and provide it to you. Again, we greatly appreciate this opportunity to make our views known to you and the committee.

Appendix One

020498f.eps

020498g.eps

020498h.eps

020498i.eps

020498j.eps

020498k.eps

020498l.eps

Appendix Two


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Association of Local
Television Stations (ALTV),
Washington, DC, January 9, 1998.
Hon. MARYBETH PETERS,
Register of Copyrights,
Library of Congress, Washington, DC.

Re: EchoStar Petition

    DEAR MS. PETERS: On December 23, 1997, EchoStar Corporation petitioned the Copyright Office ''to initiate a rulemaking proceeding and to promulgate a rule confirming that local retransmission of network signals of local network affiliates is permissible'' under Section 119 of the Copyright Act, 17 U.S.C. §119.(see footnote 101)

    Whereas we harbor no fear that the Copyright Office would act with less than due caution on the EchoStar petition, we respectfully submit that this is a matter best resolved by the Congress. First, as you are well aware, Congress already has begun consideration of legislative proposals to revise Section 119. Prominent among those proposals is your recommendation that the law be modified to ''permit the retransmission of a network affiliate to subscribers located within that affiliate's local market.''(see footnote 102) This, of course, is precisely the rule sought by EchoStar in its petition. Therefore, EchoStar may be assured that its position will be thoroughly evaluated in the course of Congress's ongoing deliberations. Moreover, any action by the Copyright Office would at best duplicate and at worst pre-empt Congressional action.

    Second, the issue is ill-suited for ''express lane'' treatment by the Copyright Office. If the Copyright Office adopted the rule sought by EchoStar, the rule would be incomplete and impossible to implement. Whereas the Copyright Office believes it has authority to address the narrow issue posed by EchoStar, it is powerless to address numerous closely-related and highly significant issues which must be resolved before any satellite carrier may initiate ''local retransmission of-network signals of local network affiliates.''(see footnote 103) For example, no royalty fee has been established (or even considered) for retransmission of the signals of network affiliates within their local markets. The recent decision establishing new royalty fees effective January 1, 1998, set no fee for retransmission of network affiliate signals to other than unserved households In their markets.(see footnote 104) Furthermore, the Copyright Office has no authority to establish rates under Section 119. Therefore, with no rate established for retransmission of network affiliate signals within their local markets, the Copyright Office would have no ability to revise statement of account forms or collect royalties for such retransmissions.(see footnote 105)
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    Similarly, the Copyright Office has no authority to adopt or revise the current definition of a station's local market for purposes of a rule permitting ''local retransmission of network signals of local network affiliates.''(see footnote 106) As you observed in your report, to implement your recommendation that ''retransmission of any broadcast station, network or independent, within that station's local market be permissible under section 119. . . . rainy amendment must include a definition of a station's local market, both for commercial and noncommercial stations.''(see footnote 107) Only Congress may modify (or even clarify) Section 119 in a comprehensive fashion which would address all pertinent issues. EchoStar's petition, therefore, necessarily raises issues hardly amenable to a sound and complete resolution by the Copyright Office.

    Third, only Congress contemporaneously may resolve related communications policy issues involving appropriate use of broadcast television signals and regulatory parity among competing media. Retransmission of local signals pursuant to the compulsory license in §119 unaccompanied by rules requiring nondiscriminatory carriage of local stations and protection of local television station's exclusive local exhibition rights not only would jeopardize free broadcast television service, but also would place cable systems, which are subject to such regulatory safeguards, at a distinct competitive disadvantage vis-a-vis satellite carriers. Congress should be permitted to address these inextricably intertwined issues contemporaneously and with due regard for the interplay of copyright and communications policy.

    Fourth, the Copyright Office once already—and rightly—has refused to issue a declaratory ruling on the very same issue which EchoStar has placed before it in different clothing.(see footnote 108) Promulgation of the rule urged by EchoStar would ''determine or resolve the substantive rights and liabilities of individual parties under the Copyright Act'' in a manner no less definitive than the issuance of the declaratory ruling requested by ASkyB.(see footnote 109) As much as the Copyright Office may be convinced that §119 should be ''clarified'' to permit satellite carriers to retransmit local stations in their local markets, the wisdom of its previous refusal to determine the substantive rights of copyright owners and users under the existing law remains inviolately.(see footnote 110) Indeed, as both you and EchoStar acknowledge, the issue laid at the feet of the Copyright Office by EchoStar is controversially.(see footnote 111) Substantial public policy judgments portending enormous effects on copyright owners, consumers, and the entire array of competing video program providers, including local television stations, are involved. In this context, resolution of core issues like application of §119 to local retransmission of local television station signals should not turn on an isolated administrative ruling interpreting a statute which you have concluded is ''silent on this issue.''(see footnote 112)
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    In view of the above, ALTV urges the Copyright Office to leave the matter where it properly resides—in Congress, where a comprehensive amendment of §119 may be pursued unencumbered by the added burden of stuffing a genie loosed by the Copyright Office back into its bottle.

Very truly yours,
James J. Popham,    Vice President, General Counsel

cc: Maureen O'Keefe Ward, Esq.
David K. Moskowitz, Esq.
Karen E. Watson

    Mr. COBLE. Mr. Sullivan.

STATEMENT OF WILLIAM SULLIVAN, BOARD OF DIRECTORS, NATIONAL ASSOCIATION OF BROADCASTERS

    Mr. SULLIVAN. Thank you very much, Mr. Chairman. I appreciate the opportunity to be with you this morning and to address these issues. As you noted, I am Bill Sullivan. I am Vice President of Cordillera Communications of Missoula, Montana. I am a member of the NAB Board of Directors and I am also a member of the NAB negotiating team on the white issue.

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    I would like to address two major issues this subcommittee is focusing on today, the prospect of local-to-local satellite delivery of broadcast signals and compliance with the Satellite Home Viewer Act.

    At our January meeting, the NAB Board strongly endorsed the concept of local-to-local, which involves legally adding local stations to the offering that satellite carriers provide the subscribers. We believe this is one step that could enhance some satellite carriers' ability to compete with cable and provide some competition for broadcasters' retransmission consent among the multi-channel service providers.

    However, our Board was clear that any retransmission of station signals in its market must be accompanied by certain conditions. These conditions are critical to ensure that local-to-local enhances rather than undermines local over-the-air broadcasting. These conditions include must-carry for all full-power stations, retransmission consent, network non-duplication rules, and syndicated exclusivity. In addition, if a satellite carrier offers local network stations in a particular market, it should not be permitted to offer distant network signals in that market.

    Despite the claims that EchoStar has made before the Copyright Office, current law does not permit delivery of local signals to dish subscribers capable of receiving those signals inside a station's local market. We believe it is Congress' role to determine the public policy framework for local-to-local deployment and it is not the Copyright Office. We also believe that the local market should generally be defined by the designated market and that there should be no copyright fee for local-to-local transmission.

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    I would add that we also are working on a parallel track to improve the technology and marketing of over-the-air antennas for use with satellite dishes.

    I would urge Congress to please approve legislation legalizing local-to-local this year, but with the appropriate conditions. It would be a great pro-consumer bill.

    Let me now turn to the issue of the Satellite Home Viewer Act and an ongoing battle we have faced in getting the Act enforced since 1988. As you know, the Act currently limits the sale of distant network signals only to those locations that are, among other things, unable to receive a Grade B intensity signal from local network affiliates. This was supposed to assure that stations like mine in Missoula, Montana, are not undermined by the importation of distant network signals. Unfortunately, satellite carriers have repeatedly, willfully, and illegally ignored the restrictions on providing distant network signals.

    In 1996, NAB opened negotiations with all the satellite carriers. Ultimately, two of the carriers, PrimeStar Partners and Net Link, agreed to try to resolve the issue of white area protections for local network affiliates. As one of NAB's negotiators, I can tell you we worked hard for over a year to try to come up with a reasonable solution. I am pleased to report that we reached an agreement in December. The NAB at our Board meeting last month unanimously approved this agreement.

    Under the agreement, zip codes will be used to determine which viewers live within scientifically designed Grade B signal pattern areas and which do not. Both sides think this system is enforceable, understandable, and will go a long way toward eliminating the controversies that have existed.
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    Unfortunately, one major satellite carrier, PrimeTime 24, continues to defy the law, and as a result, there are some court cases that have been filed in North Carolina, Florida, and Texas, and a Federal magistrate judge in Florida has recommended a national preliminary injunction against PrimeTime 24.

    Now, this chart shows my TV market in Missoula, Montana. Each dot in these colored areas represents a household that PrimeTime 24 illegally signed up for network programming just during 1996. Some are just a few miles from my tower. Some can watch my tower lights blink. And these thousands of dots are only a fraction of PrimeTime 24's illegal subscribers today.

    The second chart shows the Washington, D.C., market, which may be more familiar to you, and you will see the pattern is the same.

    To wrap this up, I would tell you that hemorrhaging of markets like ours must stop. PrimeTime 24 has sold 2.5 million subscribers nationally. I estimate from the reports I get from CBS affiliates that over 80 percent are illegally getting distant network signals, and every time satellite carriers sign up illegal households, local stations like mine become less able to do the things we need to do to serve our local communities.

    So as you consider extending the Satellite Home Viewer Act beyond this year, I would ask you please to remember these gross violations of the law that have occurred. We need to have tougher penalties for satellite carriers who pretend that the Satellite Home Viewer Act does not apply to them. As for a surcharge idea, it has been mentioned before and we agree that it will destroy the network affiliate relationship and bring about the ultimate demise of localism.
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    We look forward to continue to serving our areas for many years to come, our communities, but that will only happen if this subcommittee insists on tough enforcement of the law and creates a system of local-to-local that preserves over-the-air broadcasting for all viewers.

    I appreciate your consideration of my views on these matters this morning. Thank you.

    Mr. COBLE. Thank you, Mr. Sullivan.

    [The prepared statement of Mr. Sullivan follows:]

PREPARED STATEMENT OF WILLIAM SULLIVAN, BOARD OF DIRECTORS, NATIONAL ASSOCIATION OF BROADCASTERS

EXECUTIVE SUMMARY

    Over the past ten years, the satellite industry has egregiously violated the Satellite Home Viewer Act by unlawfully delivering distant ABC, CBS, Fox, and NBC stations to millions of households that receive a Grade B intensity signal from their local network stations. Broadcasters have been forced to go to court against one of the satellite carriers, Prime Time 24, which has completely ignored the legal standards established by Congress. A federal Magistrate Judge has found that Prime Time 24 has engaged in willful and repeated violations of the law by providing illegal service to hundreds of thousands of ineligible subscribers month after month. Final resolution of a settlement agreement with the other two carriers that deliver distant network signals (Primestar and Netlink), however, hopefully is imminent. The NAB Board approved the settlement on January 13th; Netlink approved the agreement last week; and we are awaiting action from Primestar's board. The agreement will be sent out to individual network affiliates for signing this month. The agreement relies on a ''red light/green light'' system using zip codes to determine eligibility of receiving distant network signals. Those living in red light areas are presumed ineligible to receive such signals; those in green light areas are presumed eligible.
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    In the meantime, the delivery of local television stations by satellite—for years considered technically infeasible—may soon be a realistic option for millions of American households. But it is crucial that ''local-to-local'' be carried out lawfully, and under a regulatory system crafted by Congress. Contrary to claims made by Echostar, current law does not permit delivery of network stations by satellite to ''served'' homes in a station's local television market. NAB supports legislation to authorize such transmissions, provided it also imposes on the satellite industry obligations—such as must-carry, retransmission consent and various program exclusivity rules—that will promote localism and competition among broadcasts within each market.

A. DELIVERY OF DISTANT NETWORK STATIONS BY SATELLITE

    Virtually since passage of the Satellite Home Viewer Act, satellite carriers have flagrantly violated its provisions by selling ABC, CBS, Fox, and NBC programming to large numbers of customers who are clearly ineligible to receive it. With the explosive growth in the satellite-to-home business since 1994, the carriers' indifference to the ''unserved household'' limitation imposed by Section 119 has posed an increasingly grave threat to the network/affiliate system.

    It is essential that the hemorrhaging being caused to broadcasters by Prime Time 24's illegal activities be stopped soon. Prime Time 24 is currently estimated to have 2.5 million subscribers and is adding them at the rate of 3,000 per day. Some 27 states now have satellite dish penetration exceeding 10 percent, with Montana at 22 percent and Vermont at 21. Satellite subscribership overall is generally estimated at 7.6 million, and grew at a rate of 84 percent for the year ending May, 1997. Because a large percentage of these subscribers are receiving distant network signals, it will continue to have a major adverse effect on viewing local market affiliates.
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    To address this threat, broadcasters have been working with two of the three satellite carriers that deliver distant network stations to develop procedures for enforcing the requirements of Section 119. Those efforts are on the verge of reaching fruition. On January 13, 1998, the NAB Television Board approved a detailed agreement that implements a balanced set of procedures to enforce the ''unserved household'' limitation. One of the two carriers, Netlink, has already endorsed the agreement, and we await action this week on the agreement from the other carrier, Primestar. The agreement will be sent to individual network affiliates this month for signing.

    The third carrier that delivers network signals—PrimeTime 24—has refused to join this industry agreement. The reason for PrimeTime 24's refusal to join the settlement is obvious: PrimeTime 24 and its distributors (including DirecTV and Echostar) are reaping enormous profits by selling network programming on demand to large numbers of new (unlawful) subscribers every month.

    Congress defined ''unserved household'' in Section 119 (with the carriers' approval) in 1988, and reaffirmed that definition (again with the carriers' approval) in 1994. Congress chose that definition because (1) it was the best objective test available, and (2) only an objective test could possibly be administered in practice. Both of those points are equally true today.

    The radical legislative changes that have been advocated by some—abandoning any ''unserved household'' limitation in return for imposition of some government-set ''surcharge,'' or replacement of an objective standard by a subjective, ''picture quality'' standard—would be a grave mistake. First, as discussed below, the satellite industry is today rapidly moving towards marketplace solutions to the problem of making local network stations available to dish owners—a ''win/win'' development for viewers, satellite companies, and broadcasters alike. To expand a government-imposed compulsory license for distant stations would directly undercut these marketplace efforts. Second, the ''surcharge'' approach—which would mean total abandonment of the ''unserved household'' limitation—would be a direct attack on the network/affiliate system that has successfully provided network programming via local outlets to nearly all American households. Nor, contrary to a suggestion made by the Copyright Office in its report to Congress, is there any reason to think that the surcharge approach could be merely a ''temporary'' solution until local-to-local is fully implemented. Once American households come to view network programming from distant cities (including other time zones) as an entitlement, it would be very difficult to take it away from them. Finally, as the Copyright Office correctly recognized, a compulsory license based on a subjective ''picture quality'' standard would be virtually impossible to enforce: it would literally make a federal case out of every individual subscriber's ability to receive a subjectively ''acceptable'' quality picture.
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1. The Network/Affiliate Broadcast System and the ''Unserved Household'' Limitation

    Over the past 50 years, Congress and the FCC have worked to foster the development of a national system of over-the-air broadcast stations to serve local communities around the country. In particular, Congress has long directed the FCC to promote ''localism'' in the broadcast industry to ensure that ''all communities of appreciable size'' have their own voice ''as an outlet for local self-expression.'' United States v. Southwestern Cable Co., 392 U.S. 157, 173–74 (1968).

    That policy has been extremely successful, largely because of the success of the partnership between broadcast networks—ABC, CBS, NBC, and more recently Fox—and affiliated television stations in markets across the country.

    This partnership enables local affiliate stations to offer a unique mix of national programming provided by networks, local programming produced by many stations, and syndicated programs acquired by stations from third parties.

    A key source of revenues for local network affiliates is the sale of local advertising time during network programs such as ''60 Minutes,'' ''Dharma & Greg,'' ''Ally McBeal,'' or ''ER.'' Because network programs often command large audiences, the sale of local advertising slots during these programs is one of the most important ways in which stations earn revenues to stay in business and fund their local news, weather, and public affairs programming. Network programs also provide important ''lead-in'' audiences to local news shows (such as ''11 O'clock News'') and other non-network programs.
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    A variety of technologies have been developed or planned—including cable, satellite, and open video systems (''OVS'')—that, as a technical matter, enable third parties to retransmit distant network stations into the homes of local viewers. Whenever those technologies posed a risk to the network/affiliate system, Congress or the FCC (or both) has acted to ensure that the retransmission system does not import duplicative network programming from distant markets.

    In the case of cable television, for example, the FCC has long imposed ''network non-duplication'' rules on cable systems. 47 C.F.R. §76.92–76.97 (1996). As the Commission explained when it strengthened the network non-duplication rules in 1988:

''[I]mportation of duplicating network signals can have severe adverse effects on a station's audience. In 1982, network non-duplication protection was temporarily withdrawn from station KMIR–TV, Palm Springs. The local cable system imported another network signal from a larger market, with the result that KMIR–TV lost about one-half of its sign-on to sign-off audience. Loss of audience by affiliates undermines the value of network programming both to the affiliate and to the network. Thus, an effective non-duplication rule continues to be necessary.''

Report and Order, In the Matter of Amendment of Parts 73 and 76 of the Commission's Rules Relating to Program Exclusivity in the Cable and Broadcast Industries, Gen. Docket No. 87–24, 117, 3 FCC Rcd. 5299, 5319 (released July 15, 1988), aff'd, 890 F.2d 1173 (D.C. Cir. 1989).

    Similarly, when considering the possible entry by telephone companies into the multichannel video business through open video systems, Congress in 1996 specifically directed the FCC to apply its network nonduplication rules to OVS operators. Telecommunications Act of 1996, Pub. L. 104–104, §653(b)(1)(D).
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    In the 1980s, satellites emerged as a new method of retransmitting broadcast stations to viewers. As with cable (and later with OVS), Congress immediately recognized that satellite retransmission, if not narrowly limited, could destroy the network/affiliate system that Congress and the FCC had carefully nurtured over many decades. In crafting a special compulsory license for the satellite carrier industry, therefore, Congress strictly limited the license to ensure that viewers in unserved households—and no one else—would be eligible to receive network stations by satellite. See Satellite Home Viewer[] Act of 1988, H.R. Rep. No. 100–887, pt. 2 at 20 (1988) (''The Committee intends [by Section 119] to . . . bring[] network programming to unserved areas while preserving the exclusivity that is an integral part of today's network-affiliate relationship.'').

    Congress knew that if it established a vague or debatable standard for ''unserved households,'' enforcement of the law would be completely unworkable. (Indeed, Congress specifically considered—and rejected—a subjective, picture quality standard in 1988.) Congress therefore chose a strictly objective definition of which households qualify as ''unserved.'' That objective definition has two parts:

    Only households that do not receive a local signal of Grade B intensity. First, a household qualifies as ''unserved'' with regard to a particular network only if it ''cannot receive, through the use of a conventional outdoor rooftop receiving antenna, an over-the-air signal of grade B intensity (as defined by the Federal Communications Commission) of a primary network station affiliated with that network.'' 17 U.S.C. §119(d)(10). As the 1988 House Judiciary Report makes clear, ''Grade B intensity'' refers to the objective signal strength levels established by the FCC in 47 C.F.R. §73.683(a). H.R. Rep. No. 100–887, at 26 (1988). In that regulation, the FCC has long defined Grade B intensity as a median signal strength level of 47 dBu for TV channels 2–4, 56 dBu for TV channels 7–13, and 64 dBu for TV channels 14–69.
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    In amending Section 119 in 1994, Congress reaffirmed that ''Grade B intensity'' is an objective standard. H.R. Rep. No. 103–703, at 13 (1994) (''This is an objective test, accomplished by actual measurement.'') (emphasis added); S. Rep. No. 103–407, at 9 n.4 (1994) (grade B intensity is an ''objective test'') (emphasis added).

    No cable within previous 90 days. Congress also specified that satellite carriers could serve only households that had not, within the previous 90 days, ''subscribed to a cable system that provides the signal of a primary network station affiliated with that network.'' 17 U.S.C. §119(d)(10)(B). That is, if a household has recently received (say) an ABC station from a cable system, it is ineligible to begin receiving a distant ABC signal from a satellite carrier. Because cable systems offer local network stations, the 90-day rule promotes localism by discouraging viewers from lightly switching to a retransmission system that provides only distant network stations.

    Congress thus imposed clear, objective standards for which households may—and which may not—receive network programming by satellite. Satellite carriers using a properly designed compliance system could easily apply both of these tests. First, it has long been possible to produce sophisticated maps, using the Longley–Rice methodology developed by U.S. Government engineers, that analyze terrain data to predict where a station's signal does (and does not) reach.(see footnote 113) Indeed, these maps form the foundation for the ''red light/green light'' procedures to which the settling satellite carriers have agreed in principle. Under this scenario, subscribers in red light zip codes are presumed ineligible to receive a distant network affiliate signal, and subscribers in green light zip codes are presumed eligible to receive such signals. Second, satellite carriers could readily determine whether their customers are cable subscribers by obtaining privacy waivers from the customers and asking their cable systems whether the customers have recently subscribed. As discussed below, the satellite carriers have (until now) done neither of these things, nor taken any other meaningful steps to comply with the Act.
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  As Mr. Cohen explains, traditional FCC Grade B contour maps show the predicted propagation of a television station assuming that the terrain near the station is at the national average. In these maps, the predicted Grade A and Grade B contours often appear as circles.

2. Satellite Carrier Non-compliance With the ''Unserved Household'' Restriction

    In practice, satellite carriers have effectively ignored the restrictions that Section 119 imposes on their retransmission of network programming. PrimeTime 24, in particular, which today delivers network programming to more than 2.5 million homes nationwide, has demonstrated an extraordinary pattern of infringements.

    There are two simple ways to demonstrate the breadth of PrimeTime 24's violation of the ''unserved household'' limitation:

    a. Maps showing Grade B propagation and subscriber locations. As discussed above, it is possible to produce sophisticated maps that use detailed terrain data to predict the actual propagation of a television station's signal. In addition, readily available ''geocoding'' software makes it possible to pinpoint the locations of subscribers on a map. Combining these technologies provides a simple way to evaluate whether a satellite carrier is complying with the ''Grade B intensity'' standard imposed by Congress.

    PrimeTime 24 completely ignores the Grade B intensity requirement in its actual sales practices. As the maps of Missoula, Montana and Washington, DC (attached) graphically demonstrate(see footnote 114), PrimeTime 24 routinely, and lawlessly, sells distant network stations to households in urban and suburban service areas that obviously receive signals of Grade B intensity. This pattern of abuse by PrimeTime 24 is uniformly replicated in television markets, large and small, across the United States. From Detroit to Denver, from Atlanta to Alpena, the analysis shows that despite the plain requirements of Section 119, PrimeTime 24 has no geographic restriction whatsoever on where it will sell network programming.
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    b. Signal intensity testing. Broadcasters have commissioned professional engineers to perform actual signal intensity tests at the homes of hundreds of randomly selected PrimeTime 24 subscribers in three markets in which litigation is pending. The results are overwhelming. First, in the Miami area, broadcasters tested 100 randomly selected PrimeTime 24 subscribers (among those who had signed up in May 1996) for testing. Every one of these 100 locations got at least a Grade B intensity signal of both the CBS and Fox stations in Miami—in almost all cases, an even stronger, Grade A intensity signal

    Similarly, in Amarillo, Texas, the local NBC station arranged for two sets of signal intensity tests of randomly selected local PrimeTime 24 subscribers. A professional engineer conducted 273 signal intensity measurements—of which 262, or 96%, showed that the customer received a signal of at least Grade B intensity. Again, in almost all cases the household actually received a signal not merely of Grade B intensity but of Grade A intensity. See Expert Report and Supplemental Expert Report of Louis Robert du Treil, Jr. (Dec. 26, 1996 and Feb. 27, 1997), Cannan Communications, Inc. v. PrimeTime 24 Joint Venture, Civ. No. 2–96–CV–086 (N.D. Tex.).

    Finally, in the Raleigh–Durham, North Carolina market, ABC station WTVD recently arranged for signal intensity testing of 100 randomly selected PrimeTime 24 subscribers. As in Miami and Amarillo, the results confirm PrimeTime 24's lawlessness: 91% of the subscribers could receive a Grade B intensity signal from WTVD, and 95% could receive a Grade B intensity signal from either WTVD or another nearby ABC station. See Expert Report of Jules Cohen, January 1998, ABC, Inc. v. PrimeTime 24 No. 1:97CV00090 (M.D.N.C.).

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3. How These Massive Violations Happened

    How did PrimeTime 24 accumulate so many ineligible customers? The answer is simple: PrimeTime 24 does not, and has never, marketed its network package as an ''unserved household'' service. To the contrary, PrimeTime buries in fine print the fact that there are any legal restrictions on its service.

    PrimeTime 24's motivation for selling to ''served'' households—maximizing its (unlawful) profits—is easy to see. From the viewers' perspective, there are a number of reasons—totally unrelated to living in an ''unserved household''—why viewers pay to receive network programs by satellite:

 No need for antenna. Many satellite carrier customers (particularly former (or current) cable subscribers) have had their over-the-air antennas removed, or have allowed them to fall into disrepair. By signing up for PrimeTime 24, a viewer can receive network programming without the need to install (or maintain) a rooftop antenna—or even set-top ''rabbit ears.''

 Seeing programs earlier or later. PrimeTime 24 offers both East Coast and West Coast ABC, CBS, and NBC stations. Viewers can therefore use time zone differences to watch programming hours earlier (or later) than its local broadcast. For example, a PrimeTime 24 subscriber in Colorado can watch ''Seinfeld'' at 7:00 p.m. from WNBC in New York, and a PrimeTime 24 subscriber in California can watch David Letterman from WRAL in Raleigh at 8:30 p.m. PrimeTime 24 aggressively promotes this time-shifting benefit.

 Access to out-of-town sports events. Network stations often broadcast different sports events in different parts of the country. The National Football League, for example, provides each NFL city with the games in which its own team plays, but does not broadcast many of those games elsewhere. Satellite dish owners can obtain access to many out-of-town NFL games by marketplace means by purchasing the ''NFL Sunday Ticket'' package. PrimeTime 24 exploits the Section 119 compulsory license to deliver many of these same out-of-market games to its customers without having to negotiate the relevant rights in the marketplace.
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 Sale of network stations as part of fixed-price package. PrimeTime 24 and several of its distributors offer network stations as an automatic part of a larger package of channels such as CNN, ESPN, and USA Network—with no discount if one does not take the network stations as part of the package. Thus, viewers have no economic incentive not to take the distant network package.

    If it intended to comply with the Copyright Act, PrimeTime 24 would have implemented objective standards to ensure that only true ''unserved households''—not served homes seeking to subscribe for other reasons—could sign up for its service. Instead, PrimeTime 24 markets directly to, and welcomes the business of, hundreds of thousands of plainly ineligible customers. Its ''compliance'' system, which relies entirely on a patently unreliable system of self-reporting, is a sham. Subscribers are well aware that, in order to receive PrimeTime 24's network package, all they need to do is say ''no'' to PrimeTime 24's ''compliance'' questions.(see footnote 115)

    PrimeTime 24 has no objective check whatsoever on the answers it receives from customers (in those cases in which it even asks the questions). Far from representing a genuine effort at compliance, PrimeTime 24's system is simply an attempt to create the appearance of a compliance effort while enrolling as many customers as possible to maximize profits.

    The courts are seeing through PrimeTime 24's sham. In the national infringement lawsuit currently pending in federal district court in Miami, Magistrate Judge Linnea Johnson conducted a four-day hearing in June 1997. Shortly thereafter, Judge Johnson issued a 56-page Report and Recommendation urging the District Court to enter a nationwide preliminary injunction against PrimeTime 24's illegal conduct.
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    Among other things, Judge Johnson concluded that PrimeTime 24's infringements is ''willfully'' and ''repeatedly'' serving ''hundreds of thousands of subscribers for whom the evidence is overwhelming that they receive a signal of Grade B intensity.''

4. A Subjective ''Picture Quality'' Standard Would Be Unworkable and Would Gravely Jeopardize the Network/Affiliate System

    As discussed above, Congress consciously and deliberately chose an objective standard for determining which households are eligible—and which are ineligible—to receive network programming by satellite. Congress knew that to choose a vague, subjective standard, such as ''acceptable picture quality,'' would turn enforcement of the Act into a morass. Instead, Congress chose a two-part standard, both parts of which are strictly objective: a signal of less than Grade B intensity, and no cable subscription in the previous 90 days.

    Neither the ''Grade B intensity'' standard nor any other objective standard is perfect. But this is a case in which the perfect is the enemy of the good. To be enforceable, a standard for eligibility must be clear and objective. A subjective ''picture quality'' standard would turn enforcement of the Satellite Home Viewer Act into a nightmare: it would transform every household claiming to receive an ''unacceptable'' picture over the air into its own federal case. The Copyright Office recognized this point, in firmly rejecting the picture quality approach.

    To apply such an unwieldy standard, an army of neutral ''TV watchers'' across all 50 states—as many as 15 viewers for each household, to overcome the inevitably subjective nature of the picture quality judgment—would need to be assembled. Even PrimeTime 24's own experts acknowledged the need for multiple, neutral observers. See NAB Reply Comments filed with the Copyright Office on June 20, 1997 (quoting PrimeTime 24 experts). There is no possible justification for creating such a hugely burdensome new bureaucracy.
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5. The ''Surcharge'' Approach Would Be a Disaster

    With good intentions—but without appreciation of the real-world consequences—the Copyright Office has invited Congress to consider ''temporarily'' abandoning the unserved household limitation. Instead, satellite carriers would be permitted to sell distant network programming to anyone, but would simply be required to pay a larger monthly fee—still set by the government—for delivering to viewers who can receive local network stations over the air.

    This proposal would have catastrophic consequences if implemented. In the name of giving an unneeded ''benefit'' to satellite carriers—such as the ability to time-shift from the opposite coast—it would jeopardize the viability of over-the-air television delivery. That is no small matter: 40% of American television households still rely on over-the-air reception, and not on cable or satellite, as their sole source of TV programming. But under the surcharge proposal, the stations that today serve them—and provide the entire local community with local news, public affairs, weather, and emergency programming—would be transformed into mere rent collectors with no long-term economic future.

    The surcharge approach would also hand the satellite industry an enormous, and completely unjustified, advantage over the cable industry—which is subject to strict ''network non-duplication'' rules barring the importation of duplicative distant network stations. Indeed, the Copyright Office itself agrees that ''importation of distant network affiliates creates a greater potential for harm for broadcasters and copyright owners in the satellite context than it does in the cable context.'' Copyright Office Report, p. 18 (emphasis added). Nor would a surcharge approach realistically be a ''temporary'' solution: once tens of millions Americans come to view reception of distant network stations as an entitlement, it would be extremely difficult to take that privilege—however damaging to over-the-air broadcasting—away. Finally, adoption of a surcharge approach would undercut what everyone agrees is the preferable, marketplace solution: local-to-local satellite delivery.
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6. The ''Red Light/Green Light'' Solution

    On January 13, 1998, the NAB Board approved an agreement negotiated with two of the three satellite carriers that deliver distant network stations (Primestar and Netlink). A definitive agreement has been reached with Netlink and we are awaiting action by Primestar's board. Under the agreement, 75 percent of ABC, CBS, Fox and NBC affiliates must individually sign on to the agreement, which will be sent to them later this month.

    Under the agreement, the parties will use the terrain-sensitive signal propagation maps discussed above to determine which Zip Codes are likely—or unlikely—to receive a signal of Grade B intensity. If a Zip Code is shown on the maps as likely to receive a signal of Grade B intensity, that Zip Code would be classified as a ''red light'' area into which the carriers would not in the first instance be allowed to sell. In those areas, viewers could ask a station for a waiver; if the waiver request were denied, the viewer could request his or her satellite carrier to conduct a signal intensity test, under the ''loser pays'' system endorsed by Congress in the 1994 amendments to Section 119. Similarly, in ''green light'' (presumptively unserved) areas, a station could decide to perform testing on a loser-pays basis, subject to certain numerical limits, if it believed that a household did in fact receive a signal of Grade B intensity. Existing subscribers in red light areas would be phased out over a period of more than a year.

    The red light/green approach is by far the most sensible way to determine which households are actually eligible to receive distant network stations. By using the best available technology—Longley–Rice maps and (when necessary) actual signal intensity measurements—it provides a practical means for implementing the objective test that Congress correctly chose in 1988 and reaffirmed in 1994.
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    Broadcasters have been working with the satellite carriers to develop the necessary tools—in particular, red light and green light Zip Code lists for each station. Those efforts are proceeding well, and assuming that the expected signoffs are obtained, we expect the agreement to be implemented this spring.

B. DELIVERY OF LOCAL BROADCAST SIGNALS TO DISH OWNERS

    Broadcasters strongly support efforts to make it easier for satellite dish owners to receive their local stations. We discuss here three ways to do that: (a) local-to-local satellite transmissions, (b) combining satellite-delivered nonbroadcast channels with basic cable service, and (c) use of over-the-air antennas as an adjunct to a satellite dish. NAB believes that all three of these options hold promise, and that a combination of all three is likely to work best. The first option, however—local-to-local satellite transmissions—will require congressional approval.

1. Local-to-local.

    Retransmission of local TV broadcast stations by satellite within their local markets is an exciting prospect. If carried out properly within an appropriate regulatory regime, it would enable satellite carriers, like cable systems, to offer local stations to their viewers seamlessly as part of single programming packages. Because current law does not permit retransmission of network stations to ''served'' households, however, a change to the Copyright Act is necessary to permit local-to-local transmissions to be conducted lawfully.

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a. Local-to-local retransmissions under current law.

    Although broadcasters expect to support a legislative modification of the Copyright Act to authorize ''local-to-local'' retransmissions to served households—with appropriate regulatory safeguards—current law plainly does not allow retransmission of network station signals to households that can receive a Grade B intensity signal from their local stations. Although Echostar has advanced a contrary theory, which is the subject of a current Copyright Office proceeding, that theory is wrong, and if adopted by the Copyright Office, it would usurp Congress' policymaking role.

      —The meaning of ''unserved household'' in Section 119. An ''unserved household'' is one that, among other things, ''cannot receive through the use of a conventional outdoor rooftop receiving antenna, an over-the-air signal of grade B intensity (as defined by the Federal Communications Commission) of a primary network station affiliated with that network.'' Echostar contends that this provision means ''nothing other than households that are unserved by another affiliate of the same network, and not unserved by the local network affiliate.'' Petition at 5 (emphasis omitted). But that obscure formulation—whatever it means—is not remotely what the Act says. The pertinent statutory language is very simple: it limits the retransmission of network station signals to households that ''cannot receive . . . a signal of Grade B intensity'' from a local network station. If a household can receive a signal of Grade B intensity from a local network station, it is obviously not an ''unserved household.'' No amount of rhetoric about the supposed ''legislative intent'' behind Section 119 could possibly justify reading the Act to mean the opposite of what it says. Although it is very desirable for Congress to authorize local-to-local retransmissions to served households—as discussed below—those retransmissions are not permissible under Section 119 as now written.
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      —It is not surprising that Section 119 does not authorize local-to-local retransmissions to served households: Congress was not asked to create such a compulsory license when it first enacted Section 119 in 1988, or when it amended that provision in 1994. (The fact that Congress was not asked to create such a license is not surprising, because the technology to offer local-to-local satellite transmissions did not then exist.) Rather, Congress created a narrow compulsory license to enable retransmission of network stations to households that are unserved by any network station—those in so-called white areas. Because Congress was creating a compulsory license for households (usually in remote rural areas) that do not have access to any network station, it had no occasion to consider the complex policy issues that are presented by local-to-local retransmissions to households that do have access to local network stations. Those issues, including must-carry, the definition of a station's local market, syndicated exclusivity, and the like, are discussed below.

    NAB intends to strongly urge the Copyright Office to reject Echostar's bid for endorsement of its patently incorrect reading of existing law. If that erroneous reading were to be accepted, it could cause tremendous disruption in the competition among local stations and the local market allocation of stations, by providing satellite carriers with the ability to cherry-pick which local television stations will be carried to local viewers, and which will be excluded.

b. Enactment of a new regime to permit local-to-local retransmissions to served homes.

    Clearly, one of the solutions to the problems we have discussed is bringing in local signals as part of satellite-delivered multi-channel packages that consumers are offered. The term for doing this is ''local to local.'' It's an apt description, but its simplicity is deceiving.
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    The idea of local to local is one, which NAB fully supports for any number of reasons. It would benefit consumers by allowing them to access local stations as part of a satellite package. It would also be a benefit to broadcasters, in that two different multi-channel providers would now likely be interested in carrying local signals for their subscribers.

    Although delivery of local stations by satellite is potentially a win-win solution to the problem of combining local and satellite-delivered programming, Congress must create an appropriate regulatory environment to ensure that the interests of consumers and broadcasters are properly protected. The NAB Board approved a resolution last month setting forth the principles that should apply to local-to-local retransmissions. The key principles are as follows:

    (i) Must carry. Broadcasters believe that satellite carriers should be subject to must-carry obligations. The new local to local compulsory license should be crafted to provide that if a satellite carrier wishes to carry any of stations in a local market, it must carry all of the stations in that market. A station's local market should generally be defined as its DMA, with some latitude for adjustments based on evidence of substantial viewing of a station outside of its DMA.

    The notion that satellite carriers do not yet have the capacity to carry all of the local stations in a particular market is now being raised by some in the satellite industry. Yet upon further reflection, these concerns do not measure up.

    Capitol Broadcasting has already announced plans to begin local to local service in the year 2000, and has already stated its intention to provide all the local stations in a given market. If another company wishes to begin this service but says it does not have such capacity, the simple solution is to begin such service only a limited number of markets at first. As capacity grows, the local to local option would be made available to more and more markets.
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    This is a similar approach that broadcasters are now taking with the transition to digital high-definition television. Our rollout plan focuses on getting HDTV transmitted in the top 10 markets first, followed swiftly by the top 30. Eventually, over a period of years, all TV markets will make the conversion to digital television. A similar conversion of satellite service to local to local could be played out as satellite capacity increases.

    (ii) Network nonduplication and syndicated exclusivity. Other retransmission systems, including cable systems and open video systems, must comply with detailed rules about network nonduplication and syndicated exclusivity. Those rules should be equally applicable to satellite carriers.

    (iii) Retransmission consent. Retransmission consent should apply fully to local-to-local satellite transmissions, as it does to transmissions of local stations by other multichannel video service providers. See 47 U.S.C. 325.

    (iv) Prohibition against delivery of distant network stations. A satellite carrier that offers local network stations to its customers should be forbidden from offering distant network stations to those customers. The only policy basis for a compulsory license for retransmission of distant network signals (and for an exception from the retransmission consent requirement) was the unavailability of a local network station. If the satellite carrier itself offers local network stations, the compulsory license for distant stations should be unavailable, and retransmission consent should apply with respect to that carrier.

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    (v) No fee for local to local compulsory license. Carriage of local stations into local markets should be permitted without any additional copyright fees.

2. Combining basic cable service with satellite service.

    Another solution that some have suggested is to add a basic-tier cable package—including local TV stations—to the package of nonbroadcast channels (such as CNN, ESPN, and Nickelodeon) offered by satellite providers.

3. Combining over-the-air antennas with satellite dishes.

    While broadcasters have spoken out forcefully on the local to local approach, work is ongoing in an attempt to solve this problem another way—by helping consumers gain better reception of local signals via improved antenna technology and marketing.

    For too long, buying and installing a quality TV antenna has been a forgotten solution to many viewers' difficulties in obtaining local broadcast signals. Often, antenna outlets have simply sold consumers whatever antennas they had without any regard for where the consumer lives or his or her particular needs.

    Now, however, a coalition of parties is working to solve that problem by giving antenna dealers the tools they need to help solve many reception problems.

    Working with United States Satellite Broadcasting (USSB) and DirecTV, special maps using data from Longley–Rice will be made available to DBS and television receiver dealers around the nation. These maps will be color-coded to illustrate the type of antenna that should be used in various parts of particular markets to obtain good local television signals. USSB will also conduct a series of educational seminars with major retailers such as Radio Shack, Circuit City, Montgomery Ward, Sears and Best Buy to train their sales personnel on how to use the maps. Smaller stores will be encouraged to attend regional seminars organized by the Satellite Broadcasting Communication Association.
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    In addition to USSB and DirecTV, this initiative has the support of receiver and antenna manufacturers and retailers. A meeting on this issue was held at the recent Consumer Electronics Show in Las Vegas, and similar promotional efforts will be held at the NAB98 Convention in April.

    We hope this initiative will give consumers a number of choices for local station reception. Combined with local to local, consumers will continue to have access to quality local TV signals whether they use an antenna and or access local stations as part of a satellite-delivered package of programming.

    One recent DBS industry publication has expressed the view that: ''the [satellite] customer . . . probably has been a cable TV subscriber for a long time.(see footnote 116) And there's a good possibility that the last time they watched TV from an antenna was back when Jimmy Carter was President. Or worse, it was using the rabbit ears that came with the TV set. Needless to say, it's understandable that they'd be skeptical about going back to an old antenna for local channel reception.'' Bob Shaw, Customers Get Local Channels Free With Every DSS, DSS Insider, Winter 1997. S

    Since many viewers no longer have antennas—or if they do, the antennas have long since gone out of working order—it is not surprising that some viewers complain that they get a ''bad picture'' over the air. This is not a flaw with the Copyright Act. It is a flaw in the marketing practices of satellite companies, which have not adequately addressed the need to help their customers integrate local broadcast programming with satellite-delivered programming such as ESPN, CNN, or HBO.
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    The satellite industry is now acknowledging the need to solve this problem, and to do so in lawful ways. And contrary to PrimeTime 24's claims about picture quality, the satellite industry has repeatedly stated that obtaining local signals over the air is a simple matter for almost all viewers. The President of DirecTV, Eddy Hartenstein, for example, publicly stated in January 1997 that '' 'all of our subscribers have figured out' how to get local channels.'' Satellite Sales Buoy Lagging Consumer Electronics Market, Communications Daily, Jan. 10, 1997. As DirecTV's Web site explains, ''[a] new generation of off-air antennas can seamlessly deliver high-quality signals from free local TV broadcasters directly to your DSS system with just a push of your remote.'' DirectTV Web site http://www.directv.com/misc/yesyoucan3) (Feb. 2, 1998). And United States Satellite Broadcasting, which shares satellite space with DirecTV, likewise recently assured satellite dealers that ''[t]oday's antennas (you probably sell them in your store) are capable of bringing in a high quality signal for just about every urban or suburban homeowner. And it will almost always be a clearer, more stable, and more reliable signal than cable TV!'' Bob Shaw, Customers Get Local Channels Free With Every DSS (Exhibit C).

    DirecTV is exploring the possibility of providing its customers with both a satellite dish and an over-the-air antenna to make it easy for its customers to enjoy both satellite-delivered channels and local stations. As DirecTV's Mr. Hartenstein has explained, ''We've got to integrate the antenna with the 18-inch satellite dish.'' Stephen Keating, Antennas the Hot News for Satellite TV Denver Post, March 26, 1997, 1997 WL 6068687. Similarly, Echostar offers a seamlessly integrated dish/antenna system. Antenna companies themselves are developing new designs to meet the needs of satellite dish owners(see footnote 117). Reflecting these developments, the integration of satellite dishes and over-the-air antennas has been s a major topic of discussion at satellite industry conventions. Stephen Keating, Antennas the Hot News for Satellite TV,'' supra.
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CONCLUSIONS

    In summary, this subcommittee has before it serious questions about some important issues that relate to American television and its future.

    We have shown the egregious violations of the Satellite Home Viewer Act and how broadcasters have followed your request to negotiate a workable and fair system for resolving that difficulty. We believe the agreement reached late last year accomplishes that goal. We applaud Netlink's formal approval of the agreement and eagerly await the action by Primestar's board.

    In the meantime, broadcasters are also pushing forward with a technology-based solution with issue of local to local. However, we must insist that any local-to-local service be done under a regulatory system crafted by Congress, not by individual satellite carriers willy-nilly. We believe that absent must carry and other rules designed to protect localism and program exclusivity, local to local should not begin in local markets.

    Thank you again for the opportunity to express our views on this issue to the subcommittee.

020498ao.eps

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    Mr. COBLE. We have a vote on the floor, but I think I can get a couple questions before we go over there.

    Messrs. Sullivan and Popham, elaborate, if you will, on your organization's position on the local-to-local proposals of EchoStar and/or Capital Broadcasting. Is one preferable to the other?

    Mr. SULLIVAN. Do you want to go first?

    Mr. POPHAM. I will be happy to start. We have deep concerns about the EchoStar plans, or actually their ongoing service now, because it leaves out many of our member stations, many affiliates, UPN, WB, and what have you. So we are very much opposed to that sort of service.

    Mr. COBLE. How many stations would be left out, if you know, Mr. Popham?

    Mr. POPHAM. I do not know off the top of my head. It would certainly be well into the hundreds and probably would be a minimum of three to four in most markets, more in some of the larger markets, fewer in some of the smaller markets.

    Mr. COBLE. Mr. Sullivan, do you concur?

    Mr. SULLIVAN. Mr. Chairman, our position still is to maintain that must-carry for all full-power stations should be adhered to by either one of the two services. If two services are being offered, hopefully, the one that is superior is going to move forward. But we do believe that all full-power stations must be carried.
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    Mr. COBLE. Mr. Phillips, there has been a great deal of discussion, as evidenced by this panel, regarding the CARP decision. Am I correct when I say that it may be more important to your industry if this committee finds solutions to the compulsory license expiration and the local-to-local issues?

    Mr. PHILLIPS. Those are very important issues. Are you saying they are more important than the CARP decision?

    Mr. COBLE. I am thinking aloud, and it seems to me a good argument could be made that they are more important, but let me hear from you about that.

    Mr. PHILLIPS. Well, sir, I say that we had to give our consumers a notice this January, right around Christmastime, that their rates were going to go up for their programming and we passed through only the amount of the CARP. For somebody who is just taking the network signals that does not have access to them, that is $4 to $5. We just added $1.35 to their bill. That is very distressing to us as competitors and those who would like to enter into a competitive realm, and we believe something needs to be done very quickly about that.

    Mr. COBLE. Let us let John, Rick, Chris, and I go to the floor and vote and you all rest easy. We will return imminently and continue this dialogue.

    [Recess.]

    Mr. PHILLIPS. Mr. Chairman, when we return, I wanted to finish answering the question.
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    Mr. COBLE. Yes. You may proceed, Mr. Phillips.

    Mr. PHILLIPS. Thank you. With respect to your question regarding the importance of the CARP decision, the local-to-local, and the extension of the license, I wanted to comment fully on that.

    Yes, I recognize the continuation of the license is important to our industry, in fact, critical. I do believe that the local-to-local issue that has been discussed here this morning has some significant issues that need further study and I think that is going to take some time to fully understand the impact. I am not prepared to even answer on how we would position that. We have concerns about it.

    I can tell you, though, that the impact of the CARP has already affected the marketplace. We have made some adjustments in our programming lineup to reduce superstations and, in fact, not add some that we had planned to add and other satellite carriers have also dropped superstations because of this tremendous increase. I think that that plays into the hands of the copyright owners. We heard Ms. Kessler very clearly say that they do not believe in the license and would like us to go to the market. I just think that we need to be put on a level playing field with cable or else we are disadvantaged, and, therefore, I see CARP as just a critical first step to be addressed.

    Mr. COBLE. You indicated that you all had to raise your rates as a result of the CARP imposition of their fee. Let us assume that the CARP fee would be reduced. Would you all in turn then reduce the rate that you had to raise?
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    Mr. PHILLIPS. Yes, sir. I came here prepared to answer that question fully today because I know that the Hollywood lobbyists have said that we have been lining our pockets and we will just keep the money. I pledge to you and the other members of Congress, first of all, we only passed through the exact amount of the CARP increases, no margin, and if the rates are reduced back in line or to somewhere that is fair, we will pass through immediately that money to our members. We want to be competitive in the market.

    Mr. COBLE. Ms. Kessler, how efficient and effective are the Copyright Arbitration Royalty Panels, or CARPs? What should be done administratively or legislatively to improve the system of setting rates and distributing fees under the compulsory licenses?

    Ms. KESSLER. Well, first of all, you know that I will say, please abolish the compulsory license. Outside of that—

    Mr. COBLE. That does not surprise me, to hear that response.

    Ms. KESSLER. Outside of that, several things come to mind. One is the composition of the arbitrators. We would like to see panelists who, instead of being solely attorneys, have a mix of backgrounds, for example, statisticians, econometricians. Nothing else comes to my mind right now. It is probably a policy question. I am the gal who doles out the dough and there are probably other folks at MPAA who can give you a better response than I can.

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    Mr. COBLE. Mr. Sullivan, the broadcasters would like for Congress to endorse must-carry and retransmission consent as part of allowing a compulsory license for satellite transmission of local signals to local markets. Will you explain the importance of these policies to you as a local broadcaster?

    Mr. SULLIVAN. Yes, sir, Mr. Chairman. Thank you. I appreciate the opportunity again. This really goes back to your last question to me, and I am sorry, but I am new here, and so the confusion of the buzzers and everything going off kind of interrupted my thoughts at that time.

    As you asked about the local-to-local, two possibilities, I hope that you remember, and we certainly remember that Capital Broadcasting's proposal does include must-carry for all full-power stations and retransmission consent and network non-duplication and all those things. So it is very broadcaster friendly.

    It goes to the root of the question that always comes up and has come up, as earlier said, for 65 years here, and that is the protection of localism. All full-power stations licensed to serve a community should have the fullest opportunity to serve that community, and if there is any delivery method that prevents them from doing that, that works against both their intent and the intent of broadcasting in this country today.

    Mr. COBLE. My red light is on. We are moving along fast enough that I think there will be time for a second round. We are moving in a timely way, so I think if the members want a second round of questioning, I think time will probably permit that. Meanwhile, let me recognize the gentleman from Virginia, Mr. Boucher.
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    Mr. BOUCHER. Thank you very much, Mr. Chairman. I will try to get my questions in in a single round. I appreciate the opportunity to go again if need be.

    Ms. Kessler, let me ask you this. The Copyright Office has recommended that the cable compulsory license, the Section 111 license, be converted from a gross receipts-based license to a fee imposed on the basis of the number of subscribers that every cable system has. Would you support that change?

    Ms. KESSLER. We would support a flat-rate fee as long as it had a good basis in the marketplace.

    Mr. BOUCHER. Would you amplify a bit on the last part of that answer? I am not sure I follow what you mean by a good basis in the marketplace.

    Ms. KESSLER. We certainly want to get a fee that is higher than a candy bar or a bowl of bean soup or a postage stamp. So to the extent that there could be a flat rate that was comparable to what we believe we could receive on a negotiated basis, we would be happy to take that, considering that that might be a phase-in thing while the compulsory license was still being eliminated.

    Mr. BOUCHER. So let me ask the question this way. Assuming that the revenue that is derived is feasible from the fee, from a structural standpoint, would you prefer the flat rate per-subscriber fee to the current gross receipts arrangement?

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    Ms. KESSLER. Without question. It is one of the most complex—it is more difficult than your IRS income tax form and it takes even more than Solomon to figure it out. Anything that would simplify it, we would be grateful for.

    Mr. BOUCHER. All right. Thank you, Ms. Kessler.

    I would like to pose the question to Mr. Popham and to Mr. Sullivan with respect to the sunset on the Section 119 satellite compulsory license. It is presently scheduled to expire at the end of 1999. Would you agree that given the fact that when we have full local-to-local nationwide coverage, we will no longer need this license at all because that would solve the problem, that the appropriate way for this subcommittee to address the question of the sunset is to simply extend the Section 119 license until such time that we have nationwide local-to-local retransmission and then have an automatic termination of the license at that point?

    Mr. SULLIVAN. Senator [sic], I do not feel we have a position on that. I think that is up to Congress. Our main position on the renewal of the Satellite Home Viewer Act is that it be something that we can enforce. So whether it is permanent, whether it is another temporary, the problem that we have today, and as you said, since you worked on this in 1988, that we have had since 1988, is we have not been able to enforce the Act and that is where we need the help.

    Mr. BOUCHER. So you do not have a position on the question of the length of the license?

    Mr. SULLIVAN. No, sir.
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    Mr. BOUCHER. Okay. Mr. Popham, do you agree?

    Mr. POPHAM. Let me just make several observations in response to that.

    Mr. BOUCHER. Mr. Popham, I have several other questions and would kind of like to move along. They are more substantive than this one, so—

    Mr. POPHAM. They are very important. I think—

    Mr. BOUCHER [continuing]. If you could maybe in a word just tell us what you think about the termination of the license.

    Mr. POPHAM. I think if you terminated the license, you could not have local-into-local, so I think—

    Mr. BOUCHER. No, but I am saying we obviously would sanction that. The question is, once we have full local-to-local, we obviously no longer need it. So why do we not peg the termination to the arrival of that event?

    Mr. POPHAM. Well, I think I would disagree with the notion that you no longer need it. There are some distant signals and some superstation signals which the public has come to enjoy, and to eliminate those, I think, may be a problem.

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    Mr. BOUCHER. So assuming that we take into account those needs, we should not anticipate terminating the license earlier? Is that a reasonable statement of your position?

    Mr. POPHAM. I believe it would be.

    Mr. BOUCHER. All right. Thank you.

    Now, let me ask the two of you also about your vision of how must-carry and retransmission consent would operate with respect to the local-to-local retransmission. Mr. Goodman from Capital Broadcasting in Raleigh has, I think, a very forward-looking proposal and he tells us he believes that he has a business in doing this, of uplinking and then rebroadcasting into their market of origin approximately 1,600 local broadcast stations across the country. If you applied full must-carry, I have the sense that you would go well beyond that 1,600 number. I do not know whether I am right or wrong about that, but that is what I have been told. Maybe you could enlighten me.

    I like what Mr. Goodman is proposing because he promises to serve virtually everybody in our nation with the local signals that derive from their market. If we were to burden him, for example, with a must-carry requirement that exceeded his capacity to carry those stations, then he would not have a business at all and nobody would get the benefit of this.

    So I think as we structure a must-carry provision that meets your needs, we have to draw a line somewhere. The low-power stations perhaps should not qualify. What about a station that retransmits the Home Shopping Network or something like that, that has a fairly low number of viewers? Should a station like that qualify? Are you prepared at this point to give us a formula for the application of must-carry in terms of the stations that qualify, based either on viewership or wattage or some other measure?
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    Mr. POPHAM. We would be very opposed to a standard based on viewership, one, because viewership fluctuates and is difficult to administer. Secondly, it is unfair to new stations, to emerging network stations, to stations that are trying to establish a beachhead and get a leg up in a market. And also, I think as a matter of perspective, most of the stations, even the newer broadcast stations, are getting ratings that are higher than the cable networks are getting and it would be somewhat of perverse discrimination there to use a viewership standard which applied only to them.

    Mr. BOUCHER. Okay. So what is the standard we should apply?

    Mr. POPHAM. Our standard is very simple. If a satellite carrier enters a market and provides one local signal, then it should provide all the local signals in that market. Capacity limitations may mean it cannot get into as many markets. That is Mr. Ergen's problem, at least. It does not seem to be a problem with Capital Broadcasting. Indeed, the number of full-service television stations is slightly over 1,500, I believe, so he, as we understand it, would not have a capacity problem.

    Mr. BOUCHER. But you think Mr. Goodman would not have a capacity problem based on your estimate of 1,500 stations?

    Mr. POPHAM. That is correct.

    Mr. BOUCHER. Now, what falls within that group of 1,500 stations? I heard Mr. Sullivan earlier say ''full power''. That was the phrase he used. I am not sure I know what full power means. Can you tell us with a little more specificity?
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    Mr. COBLE. Would the gentleman yield to me, Mr. Boucher?

    Mr. BOUCHER. Sure.

    Mr. COBLE. The red light is on. How about my going to the gentleman from Indiana and then we can start a second round, if you do not object to that.

    Mr. BOUCHER. Thank you.

    Mr. COBLE. The gentleman from Indiana.

    Mr. PEASE. Mr. Chairman, I am willing to yield my time to my colleague from Virginia.

    Mr. BOUCHER. Thank you very much. I appreciate the gentleman yielding.

    Mr. COBLE. I wish you could pick this up because I have questions on the second round, as well.

    Mr. BOUCHER. I am going to finish with this question, Mr. Chairman. I will be glad to surrender back whatever time remains.

    Mr. Sullivan, Mr. Popham, perhaps you could, because this is a very important consideration as we draft the must-carry and retransmission consent provision, just what group of stations would you anticipate falling within the ambits of your phrase ''full power''? What does that mean?
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    Mr. SULLIVAN. As far as my speaking on behalf of the NAB Board, which is who I am representing in a way here today, their endorsement was for full power stations licensed to serve a community. We believe that the difference is pointed out by the FCC license. Our company owns low-power stations as well as full-power stations. So our company would like to see the low-power stations carried, also. We believe and we hope that someday technology may allow that. But currently, only the full-power stations licensed to serve a community and that community's interest should be carried.

    Mr. BOUCHER. So within that ambit of 1,500 stations would fall things like those that retransmit the Home Shopping Network, is that right? I am trying to get a sense of how large this market is. Is your belief that those stations would fall within the ambit of the 1,500 full-power stations?

    Mr. POPHAM. Yes, they would.

    Mr. BOUCHER. They would. All right.

    Mr. SULLIVAN. And I have no knowledge of that.

    Mr. BOUCHER. I think we have to examine it carefully, and we will be consulting, obviously, with you as that is done.

    With regard to retransmission consent, I would assume that your proposal for the application of that would be that it apply identically to the satellite retransmission of local signals as it applies today with regard to cable, the retransmission of local signals, is that correct?
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    Mr. SULLIVAN. We believe so, sir.

    Mr. BOUCHER. It would be the identical application that we have with regard to cable?

    Mr. SULLIVAN. Yes.

    Mr. BOUCHER. All right. Mr. Chairman, I thank you for your indulgence and that concludes my questions.

    Mr. COBLE. You are indeed welcome.

    Mr. Sullivan, let me bring you up to the plate one more time, and this will be the final question. Could you elaborate, if you will, on the agreement between NAB and satellite companies PrimeStar and Net Link regarding the white area issue. Why were there only two satellite companies at the table? What prevents other satellite companies from signing on to the agreement?

    Mr. SULLIVAN. Let me maybe deal with number two and number three first, because I think number one will be a little longer answer.

    Mr. COBLE. All right.

    Mr. SULLIVAN. Number two, those were the only two satellite companies that we were able to continue negotiations with to try to get compliance to the law as it is written today and to try to come to some kind of a settlement. All of the players were invited to the table. All of the players are invited to be part of the agreement. We feel we have crafted an agreement now that is simple, that is enforceable, and that for both sides, and I would tell you, we worked very hard on this and everybody, both sides gave considerably in order to come up with this agreement, it is something that we can live with and that we can work with and try to make the law work as it is written.
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    It might be easier, and I will try to speak loud, if I can go to the map.

    Mr. COBLE. All right, sir.

    Mr. SULLIVAN. Under the red light/green light agreement we have got, if you take this map right here, and this is basically FCC-drawn lines. So this is probably what your A and B signal is. But what we have done is we have gone to a Longley-Rice pattern and to scientific data to say and be able to lay over this, first of all, a pattern that says, this is fairly reliable of where your signal actually reaches, taking into consideration terrain problems and so on and so forth.

    So then let us just say that it still comes up as this map. Then over that we would lay every zip code within this region. So now we break this down into little bitty chunks all over. If a zip code, especially right in here, is 100 percent covered and is reliably, and we do believe through the testing would be reliably a red light zip code, then the satellite carrier cannot sign up somebody for distant network signals without either testing to make sure that they do not get a good signal or asking for a waiver from the station.

    As we move out—and that is really going to take care of probably 90 percent of our problem. I mean, that is the real goal. Let us get rid of all these illegal subscribers being signed up at once and then you hearing from them and us hearing from them and the television industry when we are the bad guys because we are going to get them turned off.

    Then you go to the outside, to the fringes, and you run into zip codes that are partially covered. Well, if the majority of that zip code is covered by the station's signal, then, again, they cannot sign up a subscriber without permission from the station. If the majority of that zip code is not covered with the station's signal, then they can sign those people up immediately and we have a procedure whereby we can still challenge or test that person to see whether they are an illegal subscriber or not.
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    That basically and simply talks about the agreement. There are other provisions in the agreement, many, many of them, and you have a summary, I think, that we have tried to provide you this morning so that you can see what that is.

    Mr. COBLE. Thank you, Mr. Sullivan.

    Mr. Phillips.

    Mr. PHILLIPS. May I comment on his response with some specific information that is directly related to that map?

    Mr. COBLE. If you can do it in a prompt way.

    Mr. PHILLIPS. I will. I live within that second ring out there on the west end and so I would be within his area that is going to be easily decided, and I do not have my satellite system hooked up to receive the Washington signals, but if you tested my home, and I live on a 550-foot knoll, so I am in a pretty good position, today, without leaves on trees, I can get a good signal. But if you come this summer when the leaves are on and there is any interference at all, weather, anything like that, I would fail the test. So am I an illegal customer? I mean, where do I fall within that?

    I say, let us allow me to pay more to reimburse the WTTG affiliate for his loss of advertising revenues and let me have a good quality signal. Otherwise, I just turn it off and go to satellite so I can see the picture.
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    Mr. COBLE. This has been an illuminating meeting, it seems to me.

    Mr. BOUCHER. Mr. Chairman.

    Mr. COBLE. Yes.

    Mr. BOUCHER. Would you mind if I follow up with just a couple of questions?

    Mr. COBLE. Can you do it tersely?

    Mr. BOUCHER. I will do it as tersely as I can, Mr. Chairman.

    Mr. COBLE. Thank you, sir.

    Mr. BOUCHER. Mr. Sullivan, I was not going to get into the red light/green light thing because I sense it may be a little bit premature. I do not think you have really officially released your agreement yet.

    Mr. SULLIVAN. Not officially.

    Mr. BOUCHER. However, now that the subject is opened, I do have a question. I think it is an important one. There are going to be, inevitably, people who fall within the red zone just by the accident of their geography, where they are predicted to be able to get the signal from the local station, but as a matter of fact, they have got a mountain in front of them and they are not going to be able to get it. How does your agreement treat that person? What relief do you have in your agreement for that person?
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    Mr. SULLIVAN. We do have a relief whereby that person can ask for a waiver.

    Mr. BOUCHER. What happens when the waiver is requested?

    Mr. SULLIVAN. When the waiver is requested, it will go to the local affiliate and—

    Mr. BOUCHER. And then what does the local affiliate have to do in response to the waiver?

    Mr. SULLIVAN. I would say the local affiliate, to go to the extreme, may not have to do anything.

    Mr. BOUCHER. Okay. That is the problem.

    Mr. SULLIVAN. But that is the extreme, and I really believe, and I believe this through practice and with the men I worked with in this industry for so many, many years, that none of us want to deny a signal to somebody who cannot get a signal. We have got the Olympics coming up next week. Why would we want to prevent anybody from watching the Olympics? I think we will act very responsibly in addressing that waiver request, and if they absolutely cannot get our signal, we are sure not going to keep them from getting a good viewable signal.

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    Mr. BOUCHER. Let me make a proposal to you for a way that the station could exert good faith, make some effort to determine whether or not the subscriber in the red zone can, in fact, get the local signal, and do so in a way that is inexpensive and leaves the local station as the final decision maker. I think that this would be a fair result, and I can tell you that if the broadcast industry is willing to adopt this, I would be pleased to work with you to try to get your basic arrangement approved.

    Suppose that when the local station gets a challenge from somebody in the red zone, it then has an obligation, a good faith obligation to make the determination as to that person's eligibility, and it does so by sending out to that premise somebody from the station's staff, one of your own employees. It does not have to be an engineer. It could, in fact, be your lowest-paid person. It could be the summer intern. It could be somebody you hired just for the purpose of doing this.

    That person would use a picture quality standard as opposed to an engineering measurement of Grade B signal strength by simply holding a card up next to the TV set and on that card would be depicted a number of different picture qualities, and then that person would simply make a judgment as to whether or not the signal on the set meets the minimum standard as depicted on the card.

    The station is in final control of the decision. There would be no appeal from the judgment that the station makes. And I think that this is a practical way of providing a meaningful and assured relief valves for the person who arbitrarily happens to fall in the red zone but, in fact, cannot get your signals, and I would like to have briefly your response to that idea.
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    Mr. SULLIVAN. I hope I can be brief. That is a difficult question to answer in a brief way, and I say that because, again, as a station operator, I have sent many people out to many homes. The first thing that I would require is that it be a qualified person that goes to the home. I cannot send a secretary out to find out what kind of shape that television set is in, whether it is operating properly, what kind of an antenna they have, whether it is the right antenna for the location, something that should work as a normal rooftop antenna, whether it is really pointed the right way. It takes somebody—it takes an engineer to go out and set up properly and try to measure a signal at the home and then to look at the picture and if there is bad degradation because of a mountain in the way, then to make a judgment on it.

    I believe that in the rare cases, and it should be rare cases, that that occasion would arise once the red light/green light situation goes in, that we will find ways to go out and measure that signal and do that at the few customers' requests that are going to have it. But right now, we have got thousands of people and they are all coming to us from the satellite carrier saying, ''I want you out here measuring my signal because you are going to shut it off and I do not believe I have a good signal.''

    Mr. BOUCHER. Well—

    Mr. SULLIVAN. The other thing—excuse me, Senator. I am sorry, but I want to explain that back in 1988 and again in 1994, the Grade B signal intensity standard, objective instead of subjective, was put into the law because it can work, and I found in my marketplace, which I am sure is not dissimilar to yours, it is a mountainous marketplace, that as we have gone out and measured the Grade B signals, the majority of the people are getting a good, viewable signal if the equipment is set up the right way.
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    Mr. BOUCHER. Mr. Sullivan, I appreciate your answer. Let me just briefly respond by saying that I think it is going to be absolutely essential before this Congress does anything to address the white area problem that we provide an assured measure of relief for that person who falls arbitrarily into the red zone and still cannot get the signal.

    In my particular case, most of the people who are in my Congressional district reside beyond the Grade A contour. They are out in the Grade B or even beyond that. Thousands of them have been challenged in their ability to get the signals when they are way out in the countryside. Now, we have worked out some arrangements with our local stations that are proving to be satisfactory. If we change the law, that all starts from scratch and we have to do it again.

    But I am confident that in rural America, you are going to find a lot of people falling into that red zone who really ought to be able to get the satellite signal, and I am only going to be comfortable supporting your approach once we have written into the law an assured way that a challenge, once it is made, can be responded to in a good faith effort by the station to make some kind of test, and we can talk about what kind of test that ought to be.

    Mr. SULLIVAN. I can only assure you that I believe we are going to be very sensitive, as we have been in the past, to the needs of those viewers and we are going to work in a very responsible way to try to work with them.

    Mr. BOUCHER. All right. Well, we will have further discussions, I am sure.
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    Mr. SULLIVAN. But at the same time, remember, we are trying to run television stations.

    Mr. BOUCHER. Mr. Phillips, you seem to be anxious to say something.

    Mr. PHILLIPS. I hate to be a bother, but I wanted to ask the chair's permission to make one comment regarding his answer. May I?

    Mr. COBLE. Mr. Phillips, I will do that, but I am going to redefine the word ''terse'' one of these days. [Laughter.]

    Mr. PHILLIPS. Sir, I apologize for being terse. I just want to be direct. The gentleman is basically taking credit—Ms. Kessler should be jumping in here, because I am suggesting that there is a party out here who is willing to pay something for those thousands of subscribers who want to view this programming. I believe that the affiliates' contracts that they have with the networks do not give them the license, and that is what we are talking about here, is licenses and rights to distribute and exhibit programming. Those licenses do not extend to that FCC map. He said that is an FCC map of Grade A and Grade B, but his license really extends to something more limited, like 35 miles.

    So I am suggesting that he is overreaching, taking credit for wherever his signal can reach, and asking to not have anybody else exhibit there, and I am offering to pay Ms. Kessler to exhibit inside of there, outside of where his license really takes him. I think that point has been missed in here and I hope the affiliates and the networks go home, and they will probably revise their contracts now, but that is an important point.
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    Mr. SULLIVAN. I would say that my contract does not say that I can only serve 35 miles. We have big territories. I mean, I have a market that is 300 miles from north to south and over 50 miles across. I have another market in Montana that is as large as the State of Pennsylvania. We are licensed to serve our markets and our exclusivity is protected within those markets.

    Mr. COBLE. Ms. Kessler, anxiety appears on your face. Do you want to respond, and then we will begin to wrap this up.

    Ms. KESSLER. I just wanted to respond. I will be more than happy to take whatever cash comes the way of copyright owners.

    Mr. COBLE. Folks, this has been a very illuminating hearing and I apologize if I appeared to hold you on too tight a time frame, but this is, after all, the second public hearing we have had. These issues are unknown to none of us. The problem is, they are complex, they are intricate, they are complicated, and to compound the problem, we have not one but two committees of jurisdiction in this matter.

    We will continue to plow the field. I think today has been a good example of people disagreeing in a fairly agreeable manner, and for that, I thank you. It has been a civil hearing, a little spirited at times, but I think it has been a good hearing and we will continue on the subcommittee.

    Mr. Boucher wears two hats. He sits on each of the two subcommittees of jurisdiction here, and I believe, Rick, you are the only member to make that claim. But folks, stay in touch with us and we will continue to plow ahead here.
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    I want to thank you all. I want to thank the first panel. I want to thank those who were so patient in the audience, as well.

    This concludes the continued oversight hearing on the copyright licensing regimes covering retransmission of satellite broadcast signals. The record will remain open for one week, so if you all have additional information that did not come readily to you today, feel free to subsequently respond. You have one week to do that.

    Thank you again for your cooperation, and the subcommittee stands adjourned.

    [Whereupon, at 12:17 p.m., the subcommittee adjourned.]

A P P E N D I X

Material Submitted for the Hearing Record


The National Rural Telecommunications Cooperative,
Herndon, VA, February 24, 1998.
Hon. HOWARD COBLE,
U.S. Representative Chairman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
Washington, DC 20515.
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    Re: Copyright Laws

    DEAR CHAIRMAN COBLE: Our February 4, 1998, I had the privilege of testifying before the Subcommittee on Courts and Intellectual Property regarding various revisions to the copyright laws. I am writing today after receiving the transcript of the hearing to correct some misinformation provided by one of my co-panelists during the course of our hearing.

    During my testimony, I supported the Copyright Offce's recent recommendation to Congress to eliminate the current ''white area'' restrictions governing retransmission of network signals by satellite. I also agreed with the Copyright Office that a ''surcharge'' should be paid to local network affiliates as compensation for the retransmission of distant network signals. However, the Copyright Office has recommended that the surcharge apply throughout the affiliate's Area of Dominant Influence (''ADI''), and I noted during my testimony that ADI is often far larger than the actual area of exclusivity obtained by affiliates through their contracts with the networks. I recommended that the zone for the surcharge be limited to 35 miles, which more accurately reflects the actual area of exclusivity contained in the affiliates' Network Affiliation Agreements.

    One of my co-panelists, Mr. William Sullivan, who was testifying on behalf of the National Association of Broadcasters, took serious exception to my characterization of a 35 mile zone being representative of the area of network exclusivity actually obtained by affiliates through their agreements with the networks. In rebuttal to my testimony, he claimed that one of his affiliate stations in Montana has ''a market that is 300 miles from north to south and over 50 miles across.'' (Trans. P.96; lines 2052–2058). He said he has another station in Montana with a market that is ''as large as Pennsylvania.'' (Id.). Mr. Sullivan testified that ''we are licensed to serve our markets and our exclusivity is protected within those markets'' (Id.; emphasis added).
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    We contacted Mr. Sullivan following his testimony and requested his assistance in clarifying this issue. We asked for copies of his network affiliation agreements. He declined to provide any copies, and referred us to the FCC's Public Records.

    We searched the FCC's Public Records and obtained copies of the exclusivity agreements for KRTV Communications, Inc., licensee of television station KRTV, Great Falls, Montana, which Mr. Sullivan indicated is one of his Montana stations. A copy of KRTV's most recent Network Affiliation Agreement with CBS, dated January 1, 1995, is enclosed. As you can see, Section 9(a) of the Affiliation Agreement (''Non-Duplication of Network Programs''), provides that Mr. Sullivan's station's ''Network Exclusivity Zone'' is ''the zone within thirty-five (35) miles of the station's reference points, or, in the case of a ''small market television station'' as defined in Section 76.92 of the FCC's rules, the zone within fifty-five miles of said reference points; provided, however, that in no case shall the ''network exclusivity zone'' include an area within the Area of Dominant Influence (ADI) as determined by Arbitron and published in the then-current edition of its television ADI market guide, of another CBS television network affiliate.'' (emphasis added.)

    There is no mention of any 300 mile zone—exclusive or otherwise—in the KRTV network affiliation agreement. Nor is there any mention of any exclusivity covering an area the size of the state of Pennsylvania. We believe Mr. Sullivan's testimony to the contrary was seriously misleading to the Subcommittee. It created the false impression that he had certain exclusive and should be entitled to receive a surcharge or be ceded other rights of exclusivity for the importation of distant network signals by satellite within a huge area. In fact, as I testified, his station's exclusivity extends only 35 miles (or 55 miles, if deemed a ''small market''). He has no network exclusivity beyond that zone.
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    Mr. Chairman, it is unfair and inappropriate to give Mr. Sullivan's affiliate, or any other affiliate, protection through a surcharge that exceeds in large measure the actual exclusivity it has received by contract from the networks. The surcharge should compensate affiliates for the exclusivity rights they have purchased from the networks—no more, no less. Typically, as I testified, the exclusivity area reflected in network affiliation agreements—like Mr. Sullivan's—is 35 miles, not ADI, not 300 miles, and not an area the size of Pennsylvania. Any surcharge or rights of exclusivity benefiting the affiliates should reflect that fact.

    We have furnished copies of Mr. Sullivan's testimony to our members and affiliates in Montana who have previously expressed a strong interest in this issue. We hope that you would allow any responses and/or comments from them to become part of the record at this hearing.

    We appreciate this opportunity to correct the record on this point. Should you have any questions or concerns, please feel free to contact the undersigned. Your attention to this important matter is greatly appreciated.

Respectfully,

B.R. Phillips, III,
Chief Executive Officer.


    Enclosure
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    cc: William Sullivan,
Subcommittee Members.

   

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Association of Local
Television Stations (ALTV),
Washington, DC, February 9, 1998.
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and
Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR MR. CHAIRMAN: Once again, let us express our thanks for the opportunity to testify at last Wednesday's hearing on the compulsory licenses for use of broadcast signals. We appreciate your interest in the concerns of the over 300 UPN, WB, PaxNet, and independent stations, which stand to suffer some very disadvantageous discrimination at the hands of EchoStar. In an effort to remain appropriately terse at the hearing, we refrained from mentioning several matters which we had hoped to emphasize in our oral summary. Inasmuch as you have left the record open for a week, we would like to this opportunity to bring those matters to your attention.
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    First, as you know, ALTV favors extension of the satellite compulsory license to local signals only if and when complementary rules are adopted requiring that all local stations be carried in any market where the satellite carrier elects to provide the signals of any local station. We respectfully submit that this poses no particularly onerous burden for EchoStar or any satellite carrier especially viewed in the light of the benefits which accrue to satellite carriers under the compulsory license. What EchoStar wants is the ability to enhance its service so as to compete more effectively, while avoiding any additional programming cost via a no fee compulsory license. Make no mistake. We hardly disagree with the notion that competition is good . . . but promoting competition in one market while subverting it in another is shortsighted and self-defeating. Historically—and rightly—the cable and satellite compulsory licenses have carried with them the complementary obligation to use broadcast signals in a manner consistent with preserving the many benefits of free broadcast television service. That is all we ask.

    Second, EchoStar attempts to downplay the potential harm to local television stations left off its service by pointing to its relatively small number of subscribers today. Our response is simple. EchoStar is not in the business to stagnate and fail. By offering some local station signals it hopes to become more directly competitive with cable and substantially increase its subscribership. As subscribership grows, particularly in cable-served areas closer to the center of local television markets, the degree of harm will increase. Local television markets in which substantial pluralities of households subscribe to either cable or satellite services—just what EchoStar would like to see—will pose a genuine threat to stations left out of the local mix. Furthermore, establishing the rules before the game begins makes far more sense than forcing competitors to adjust their service offerings in mid-stream. Indeed, the FCC originally applied must carry rules to cable television in the mid-60s, when cable penetration was de minimis. In the gap between 1986 and 1992, when no must carry rules were in effect, many television stations lived on the margin, flirting daily with bankruptcy and providing only the most limited service to their communities. Many stations were rescued from the brink of financial ruin in 1992, when the current cable must carry rules were enacted. We ought not repeat that scenario with satellite carriers. The courts long ago recognized that regulation to prevent predictable harms was perfectly appropriate, if not desirable. Again, that is all we seek.
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    Third, discounting the effect of a satellite carrier's failure to carry the local affiliates of emerging networks like UPN and WB because it will make available national feeds or signals of distant stations affiliated with those networks is myopic. It ignores that broadcast television stations compete in a local television or video market. From the viewer's perspective, critical elements of local service would be lacking. A national feed or the signal of a distant affiliate of the network offers no local programming, whether news, weather, information, or entertainment programming selected because it appeals to local tastes and interests. Indeed, on most emerging network stations, the majority of programming is non-network programming. Moreover, the damage to the local affiliate is compounded. Instead of making any effort to watch the local affiliate, viewers likely will take the path of least resistance and watch the readily available satellite-fed station or national network feed. Finally, networks thrive on the strength of their affiliates. Strong affiliates attract larger audiences for the network. A national network feed or a distant affiliate offers the network none of the boost provided by a popular local and locally-attuned affiliate station. Thus, any suggestion that availability of national feeds of emerging network signals is an adequate substitute for carriage of the local affiliate is specious.

    We also are responding to Congressman Boucher with respect to his concerns about rules requiring carriage of home shopping and other stations which fail to achieve a minimum audience. A copy of our letter to Congressman Boucher is attached. We request that it be included in the record along with this letter.

    We look forward to working with you, the subcommittee, and the subcommittee staff to develop legislation which will enhance competition and promote program diversity for the benefit of all consumers, including those who continue to rely on free local broadcast television service exclusively for their television viewing.
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Sincerely,

James J. Popham,
Vice President, General Counsel.

    cc: Subcommittee on Courts and Intellectual Property,
Vince Garlock, Esq.

     


Association of Local
Television Stations (ALTV),
Washington, DC, February 9, 1998.
Hon. RICK BOUCHER,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR CONGRESSMAN BOUCHER: We appreciate your interest in revision of the compulsory licenses for use of broadcast signals and, in particular, possible modification of the satellite compulsory license to permit satellite retransmission of local affiliate signals in their home markets. As we stated at the hearing last week, ALTV favors extension of the satellite compulsory license to local signals only if and when complementary rules are adopted requiring that all local stations be carried in any market where the satellite carrier elects to provide the signals of any local station.

    In your questions to me, you suggested that rules requiring carriage of all stations in a market may not be practical. You sought information on the number of stations which might be eligible for local retransmission and questioned whether home shopping stations and, perhaps, other stations with low viewing shares, should be included. In response, we pointed out that viewing share criteria were undesirable because (1) viewing levels fluctuate; (2) new stations and stations affiliated with emerging networks would tend to be eliminated from carriage; and (3) a perverse discrimination would result in that most cable networks carried by the satellite carrier also would fail to satisfy such criteria.
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    We would like to take this opportunity to provide the information you requested and elaborate with regard to your concern about home shopping stations. First, we have used the term full service or full power television stations to distinguish between the local television stations we represent and low power television stations, which by definition are secondary services which operate at powers far below those authorized for full power stations. According to the Federal Communications Commission, 1564 full power stations were licensed as of December 31, 1997. This included 1198 commercial stations and 366 noncommercial educational stations. (See attached news release.) Slightly over half of the 1198 commercial stations are affiliated with the ABC, CBS, or NBC networks. The remaining nearly 600 stations are affiliates of Fox, UPN, WB, or PaxNet (which begins operation in August, 1998), or they are independent stations. Except for the Fox affiliates, these are the stations which EchoStar will not provide to its subscribers as part of their local station service.

    Second, the number of full-time home shopping stations will diminish substantially within the next several years. The 70 plus Paxson Communications stations, which now provide home shopping, infomercial, and/or religious programming, will become PaxNet affiliates. As such they will be providing a variety of primarily family-oriented entertainment programming once PaxNet launches in August. Another group of well-known home shopping stations, those owned by Silver King Communications (Barry Diller et al.), are set to drop their home shopping formats in favor of an innovative, heavily local mix of programming, as their affiliation agreements with the Home Shopping Network expire. We have attached some press clippings describing the PaxNet and Silver King plans. Also, regarding home shopping stations, you will recall that the FCC, pursuant to the 1992 Cable Act conducted a special rulemaking proceeding and concluded that as full power stations, home shopping stations were no less entitled to must carry status on cable systems than local television stations with more conventional program formats.
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    Historically, the home shopping format on broadcast stations largely was a product of the lack of must carry rules prior to the 1992 Cable Act. Many new and marginal stations which were refused carriage by local cable systems turned to home shopping as a means of survival. Since the new must carry rules for cable became effective, many of these stations have gained sufficient economic strength to discontinue their home shopping formats. Of these, many have become affiliates of the emerging UPN and WB networks. In short, with their access to audience no longer interdicted by cable systems, they have gained a foothold and begun to provide an increased diversity of informative and entertaining programming to their communities. If they are placed at a competitive disadvantage by lack of carriage on satellite services in their home markets, they will suffer a setback in their ongoing struggle to compete with the affiliates of the three entrenched networks.

    Lastly, you asked me whether Section 119 could be allowed to expire if a new compulsory license were adopted to cover satellite retransmission of television stations in their local markets. In the sense that a compulsory license for retransmission of network affiliate signals in white areas no longer would be necessary, Section 119 would be largely superfluous. However, some provision would have to be made for providing network service to truly unserved households. Some markets are not served by affiliates of all the networks. Viewers in those markets likely would wish to gain access to the unavailable networks, much as they now do on cable television systems. Similarly, consumers have enjoyed programming offered by superstations. Whereas ALTV disfavors a compulsory license or fee structure which permitted or encouraged widespread carriage of numerous distant signals either on cable systems or satellite carriers, the limited distant signal carriage now available to consumers should be maintained to avoid viewer dissatisfaction and market disruption. Thus, any compulsory license which were to replace Section 119 should include some provision for limited use of distant signals by satellite carriers.
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    We hope this information will aid you in consideration of legislative proposals to revise the compulsory licenses, especially with respect to satellite retransmission of affiliate signals in their local markets. If you have any additional questions, please, do not hesitate to contact us.

Sincerely,

James J. Popham,
Vice President, General Counsel.
    cc: Honorable Howard Coble
Vince Garlock, Esq.

     

Copyright 1997 Information Access Company, a Thomson Corporation Company
IAC (SM) Newsletter Database (TM) Cowles-SIMBA Information
Media Daily
November 20, 1997

SECTION: No. 5, Vol. 4
LENGTH: 141 words
HEADLINE: PAXSON TO LAUNCH NEW BROADCAST NETWORK NEXT FALL

BODY:

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    In case anyone was wondering, it's now official: Bud Paxson and his Paxson Communications are launching the seventh U.S. broadcast TV network, to be called ''PaxNet.'' The company had been acquiring both stations and programming as groundwork for the announcement for some time.

    As rumored, the company also acknowledged that the new net will a family-oriented one. However, Wall Street has not reacted so kindly to the move, reducing the value of the company's share almost 25% in the past month. The stock fell $.75 Wednesday to $9.125 per share.

    Separately, the company also announced that its stock symbol would be changing to PAX and that Paxson was building a new 220,000 sq. ft. corporate headquarters in West Palm Beach, FL.
    COPYRIGHT 1997 Cowles-SIMBA Information

LANGUAGE: ENGLISH
IAC-ACC-NO: 03867287 ND
LOAD-DATE: November 22, 1997

     

Copyright 1997 Information Access Company, a Thomson Corporation Company
IAC (SM) Newsletter Database (TM) Simba Information, Inc
Media Daily
April 7, 1997
 Page 217       PREV PAGE       TOP OF DOC

SECTION: No. 5, Vol. 4
LENGTH: 360 words
HEADLINE: BARRY DILLER LAYS OUT PLANS FOR HSN

BODY:

    (Cable World) Barry Diller, the chairman of Home Shopping Network Inc., plans to funnel $175 million into the launch of his new national broadcast network by March 15, 1998.

    Speaking at the Variety-Schroder Wertheim & Co. media conference in New York April 1, Diller said the cash will be used to develop programming for at least 15 of the 18 broadcast stations HSN will own by that time. The rollout will begin on HSN's Miami station.

    Under the HSN Inc. umbrella, Diller has collected complete ownership of 12 UHF stations, minority stakes in seven UHF stations and half-ownership of four Fox-affiliated VHF stations.

    The new network will feature 18 hours of programming, with about 13 of those live, and up to four hours of news, Diller said.

    ''I think eventually we can get 5% to 10% of the audience,'' he said. ''That alone would create a very valuable asset and a new national TV service.''

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    But he added: ''Even if we get 3% of the audience we'll break even and I believe within 18 months of starting we'll have about 5%.''

    The former head of Paramount Pictures who launched the Fox Network also couldn't help gloating about last week's Supreme Court decision upholding must-carry rules for cable operators. That move virtually guarantees the new network major-market distribution across the country, Diller pointed out.

    We will be ''speaking softly but carrying a big stick—20 of them . . . covering or . . . must-covering about 40% of the U.S.,'' he said. ''Economically, it's as good a bet as I've ever seen.''

    Diller told reporters he'll make the network's programming available to DBS operators. But he noted that he expects the must-carry rules to soon apply to satellite providers as well as cable operators.

    ''If DBS operators think they'll be able to pick and choose among local stations, they're smoking what Bill Clinton says he didn't,'' he said.

    Noting that network TV suffers from ''tremendous sameness,'' he said his network will be free and ad-supported and will satisfy consumers' appetite for local news and talk shows. (Regina Matthews) =Cowles/Simba Media Daily 417197=
    COPYRIGHT 1997 Simba Information, Inc

LANGUAGE: ENGLISH
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IAC-ACC-NO: 03616654 ND
LOAD-DATE: April 09, 1997

     

January 23, 1998

Table 1



—FCC—

Source:
    http://www.fcc.gov/Bureaus/Mass_Media/News_Releases/1998/nrmm8002.txt

     


Satellite Broadcasting and
Communications Association (SBCA),
Alexandria, VA, February 9, 1998.
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and
Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR MR. CHAIRMAN: At the hearing on copyright compulsory licensing which your Subcommittee held on February 4, 1998, the witnesses representing the satellite industry were asked if Direct-To-Home satellite companies were willing to be subject to the same federal, state and local regulatory and tax constraints as cable in exchange for a license that treats satellite in a manner identical to cable. While the Satellite Broadcasting and Communications Association was not a witness in this instance, we were a witness at the Subcommittee's previous copyright hearing. For that reason, I would like to take the liberty of responding on behalf of the satellite industry particularly with regard to the question of local taxation, and request that this response be included as part of the official hearing record.
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    It would be inappropriate to apply local taxes and fees to the DTH satellite industry, and Congress recognized this fact when it exempted DTH satellite services from local (not state) taxes and fees in Section 602 of the Telecommunications Act of 1996. As the Conference Committee stated in Report 104–458,

''DTH satellite service is programming delivered via satellite directly to subscribers equipped with satellite receivers at their premises; it does not require the use of public rights-of-way or the physical facilities or services of a community.'' (page 201)

Congress included Section 602 in the Act because it recognized that satellite is a national service which provides video programming directly to subscribers' homes from a central distribution platform, namely the satellite itself. The means of distribution is totally dissimilar to that of cable. Satellite services are authorized and regulated by the Federal Communications Commission and are not subject to local franchising by municipal authorities as are cable systems. Neither do satellite providers utilize rights-of-way, easements or other public facilities in making their service available to consumers, as Report 104–458 appropriately indicated. The national nature of satellite service does not lend itself to a local model along the lines of a cable system, and that is why Congress chose to enact Section 602.

    Congress, however, also made the exemption narrow. It applies only to the actual sale of the programming delivered by the satellite service, and not to the equipment which the consumer must purchase locally in order to receive satellite signals. Nor does the exemption apply to real estate taxes levied on a service provider who owns or leases real estate in a jurisdiction.
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    Mr. Chairman, we appreciate the opportunity to clarify the record on this important provision. As you know, it came under the jurisdiction of the Judiciary Committee during passage of the Act. Congress clearly understood the distinction between DTH satellite and other, local video distribution services, and made sure that Section 602 reflected those substantive differences.

Sincerely yours,

Andrew R. Paul, Senior Vice President.
     


Bienstock & Clark,
A Partnership Including
Professional Associates,
Kalamazoo, MI, February 6, 1998.
VINCENT E. GARLOCK, Counsel,
Subcommittee on Courts and
Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

Re: Rebuttal Testimony of the Small Cable Business Association

    DEAR VINCE: We enclose an original and five copies of the Rebuttal Testimony of the Small Cable Business Association. We will distribute copies to the members on our own. Thank you again for the opportunity to testify.
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    If you have any questions or if we can provide any additional information, please call us.

Sincerely,
Very truly yours,

Bienstock & Clark,
Eric E. Breisach
    cc: Matthew M. Polka

REBUTTAL TESTIMONY OF THE SMALL CABLE BUSINESS ASSOCIATION

Presented by:
Matthew M. Polka, President
Small Cable Business Association

    Several key points made in the written and oral submissions during the Subcommittee's February 4, 1998, hearings cry out for clarification, and in some cases, outright correction. The Small Cable Business Association (''SCBA'') offers this most brief or, to use the Chairman's words, ''terse'' submission for the Subcommittee's consideration.

Issue: Who provides cable service to rural America?

    Myth: ''Most rural areas are served by large, resourceful, multi-system operators.'' Motion Picture Association of America Testimony at 2. No authority cited.
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     Fact: Over 7,000 small and independently owned cable systems provide service to rural America. SCBA Copyright Office Reply Comments, Docket No. 97–1 at 5, citing statistics published by the Federal Communications Commission.

Issue: Do rural markets receive a full complement of off-air signals?

    Myth: ''Most rural areas have a wide range of local network and independent stations available to them. They do not need programming from distant signals to fill in 'program gaps.' '' Motion Picture Association of America Testimony at 2.

     Fact: Twenty-six percent of that nation's households do not receive a full complement of off-air signals (i.e., ABC, CBS, NBC, one independent and one PBS). National Cable Television Association Copyright Office Reply Comments, Docket No. 97–1, citing Warren Publishing Co. data.

Issue: Will imposing must-carry on DBS hurt competition?

    Myth: ''The law must address the disingenuous arguments being circulated by cable and other special interests that a must carry [sic] requirement be applied to satellite providers.'' EchoStar Testimony at 10.

     Fact: By imposing must-carry, the government dictates the composition of the product sold (e.g., up to a certain percentage of shelf space occupied by a particular form of programming). Congress cannot expect full and fair competition if it mandates that cable sell a different product than DBS. Either Congress imposes equal restrictions/obligations or it allows the marketplace to govern program line-ups for everyone.
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Issue: Does EchoStar's failure to carry all stations in a market harm localism?

    Myth: ''It is understood by all that the cable must carry [sic] requirement was imposed because cable is a monopoly in its local markets. . .'' EchoStar Testimony at 10.

     Fact: The FCC first imposed must-carry in 1966 when cable television only had 1.5 million customers nationally, about the number EchoStar alone has today. At that level, the FCC deemed non-carriage by cable a threat to the financial viability of broadcast stations.

Issue: Was must-carry imposed to protect only small stations?

    Myth: ''[S]ome small local stations could not survive without cable carriage.'' EchoStar Testimony at 10.

     Fact: The must-carry requirement has always applied to all stations, not just small stations. Congress cannot ignore that the EchoStar plan will result in carriage of only 80 stations (four network affiliates in 20 markets)—leaving more than 1,500 stations—95% of all stations—without DBS carriage. This threatens to destroy local programming. Further, nothing prevents EchoStar from seeking payment for carriage from any station—conduct that Congress outlawed for cable systems.

Issue: Should Congress impose only a limited must-carry obligation on DBS?
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    Myth: ''EchoStar would be pleased to submit to a technologically appropriate must carry [sic]. . . .'' EchoStar Testimony at 10 (emphasis added). Oral testimony included discussions of only requiring carriage of the most widely viewed (i.e., popular) signals.

     Fact: EchoStar argues that its technology limits the amount of shelf space that it can dedicate to carriage of local signals. Cable argued the same thing in 1992 and lost. Congress decided that cable would have to dedicate well over half its channels to programming it did not choose. For example, Congress required that a 54-channel cable system surrender control over programming on 33 channels (18 to commercial must-carry; 3 to non-commercial must-carry; 3 to public, government and education access (typical number) and 9 to commercial leased access). Merely imposing a must-carry requirement on DBS providers represents only a fraction of the burden imposed on cable.

Issue: Should Congress use a penetration threshold to trigger DBS must-carry obligations?

    Myth: DBS providers will voluntarily implement must-carry when they reach a target market penetration level. EchoStar Testimony at 10.

     Fact: DBS will resist actual implementation of must-carry on two grounds:

1. Establish unrealistically high penetration threshold. EchoStar already revealed its true intentions when it said it would agree to ''a technologically appropriate must carry if its penetration percentages ever approach those of cable.'' EchoStar Testimony at 10. EchoStar will submit to must-carry when it has 65% of the market. Local programmers will long be out of business by then.
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2. Resist channel line-up changes. DBS will, no doubt, call on Congress when they cross the must-carry threshold and plead the political impracticality of wholesale channel line-up changes required to implement must-carry and the resulting consumer backlash.

Issue: What should trigger a phased-in DBS must-carry requirement?

    Myth: A national penetration standard will provide the optimum point of demarcation for commencement of DBS' must-carry requirement. EchoStar Testimony at 10.

     Fact: National penetration standards allow DBS to gain substantial market share in various markets, potentially driving new or emerging broadcasters out of business and weakening others. DBS providers, as discussed above, will attempt to persuade Congress against requiring wholesale changes in their line-ups once they trigger must-carry requirements. A better standard would apply full must-carry obligations on a market by market basis. The DBS operator would choose the markets for local retransmission and then have to retransmit all signals in that market. This represents a workable plan that allows DBS providers to choose their markets.

Issue: Should payment of cash compensation relieve DBS of must-carry requirements?

    Myth: ''The surcharge proposal or some other compensation fee mechanism will fully compensate the broadcasters for any resulting loss in advertising revenues.'' PrimeTime 24 Testimony at 5.

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     Fact: Compensation for loss of carriage must reflect the actual revenue loss from the loss of every viewer. Compensation must flow to all injured parties, including local program providers (e.g., broadcasters, cable operators and PEG program providers).

Issue: How should cable-programmer integration impact DBS regulation?

    Myth: ''The increasing concentration of the cable industry makes it easier for an already incestuous industry to ensure that even the programming it does not directly own is subject to its control.'' EchoStar Testimony at 13.

     Fact: Small cable businesses face the same challenges as DBS providers. Small cable owns no programming services. It has no affiliated programmers. Because DBS competes heavily in rural markets served by small cable, DBS faces no competitive disadvantage in rural America.

Issue: Should cable pay for local retransmissions?

    Myth: Copyright holders receive no compensation for local distribution of their works. Motion Picture Association of America at 3 (''[B]ecause we believe every use of a copyright work should be compensated, we believe the use of both local and network programming should generate a royalty payment.'').

     Fact: Cable merely distributes a local signal into a market where the broadcaster already has compensated the copyright holder for distribution. Further, many broadcasters require retransmission consent payments for carriage of their signal. The copyright holder has received full compensation for local distribution.
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    We thank the Subcommittee for its indulgence in reviewing these ''terse'' supplements that provide information critically important for the Subcommittee to take into consideration as it reviews the copyright structure.

     


United Video Satellite Group,
Tulsa, OK, February 10, 1998.
Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and
Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR MR. CHAIRMAN: Thank you again for giving me the opportunity to testify before your Subcommittee on February 4, 1998 on compulsory licensing and to express the views and concerns of the United Video Satellite Group.

    I am writing to ask that you submit my letter as part of the formal hearing record. I want to clarify my response to the first question you asked of me as well as respond to some statements and questions directed at the witnesses on the second panel. Unfortunately, the way the panels were comprised, I was not able to provide responses during the hearing.

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Clarification of Response to Question

    During the hearing you asked me and several other panelists on the first panel whether the satellite industry would 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.'' I responded, ''generally yes.'' I would like to further clarify my answer by stating that it is the position of WSG (as outlined in our testimony) that the satellite and cable licenses should remain two separate licenses in the statute because there are important technological and economic differences between the two transmission mediums. To this end, it may not be appropriate to impose all federal, state and local regulatory and tax constraints on satellite.

    At the same time, UVSG supports the concept of regulatory parity. Where it is technologically feasible both satellite and cable should assume identical regulatory burdens. Specifically, if the satellite industry is authorized to retransmit local signals then must-carry, syndicated exclusivity, network non-duplication and sports black out rules should apply to the retransmission of those local signals. Similarly, if satellite becomes a locally-based service providing a full complement of local signals through local facilities, then it should be subject to the same state and local regulatory and tax constraints as its competitors.

    By the same token, if a satellite carrier such as UVSG chooses not to provide local signals but continues to operate as an exclusively national service, then it would not be ''regulatory parity'' to extend all federal, state and local regulatory and tax constraints on a satellite provider. Specifically, section 602 of the 1996 Telecommunications Act which exempts the Direct-to-Home satellite industry from local taxes, should be retained.
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    In enacting section 602, Congress recognized that imposing local taxes on satellite providers for the distribution of programming to consumers was improper because satellite providers do not use any local rights-of-way, do not own local facilities and distribute their programming via the airwaves from a central location.

UVSG Legislative Priority

    During the hearing, you asked Mr. Bob Phillips, President and CEO of National Rural Telecommunications Cooperative what his legislative priority was with respect to the many issues facing the satellite industry. Specifically, I think you asked Mr. Phillips whether it was more important to the industry for Congress to address the recently implemented Copyright Arbitration Royalty Panel (CARP) decision increasing satellite royalty fees or to permanently extend the Satellite Home Viewer Act. Regrettably, I was not a member of this panel and could not respond to this question as well.

    Although I do not purport to speak for the entire satellite industry, as a key player in this debate and as the satellite carrier for WGN, I can tell you that UVSG has been directly affected by the increase in satellite royalty rates. We have already seen a reaction in the marketplace to the new, higher royalty fees. Pursuant to contracts with UVSG, all three major DBS companies now make superstation WGN available to their subscribers. We have recently heard from one of those companies informing us that they are seeking to terminate our contract as a direct result of the new copyright fees. Such reaction underscores how important it is for your subcommittee to act in this area.

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    UVSG has also heard informally from another DBS provider that they are unwilling to pay the new royalty rates. We anticipate similar communications from the third DBS company. Within a matter of months, the new royalty fees may result in all DBS carriers dropping WGN. We are also at risk of losing critical distribution with some C-Band packagers. Typically, WGN has been included in the basic package of programming available to satellite subscribers. A large C-Band packager has threatened to drop us from their basic packages as a result of the new copyright fees.

    Moreover, we have noticed that cable operators which were prepared to add superstation WGN to their lineups at the beginning of this year, are reconsidering their plans. Cable operators we talk to are very nervous about the prospect of adding WGN only to have the Congress increase the royalty fee several fold. I have to say that I can't blame them after hearing the testimony of Ms. Kessler who told the subcommittee that the royalty fee for carrying a superstation on cable should be $1.10—over ten times what the average cable operator is now paying.

    Mr. Chairman, if the new royalty fee that the CARP panel established were really reflective of the ''fair market value'', we would anticipate that the DBS providers would be willing to pay the new rates. After all, isn't the definition of ''fair market value'' what a willing buyer would pay a willing seller? It seems to us that the CARP fee does not represent a ''fair market value'' and that your subcommittee must make it its priority to address this situation before all satellite consumers lose access to such popular programming. In short, it does WSG little good to have a permanent copyright license if no satellite carrier is using the license to carry WON. For this reason, I would have responded that the number one legislative priority of the subcommittee should be to address the CARP fee.
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Satellite Industry ''Profits''

    I also want to take this opportunity to supplement the hearing record by responding to the testimony of the Motion Picture Association of America regarding the ''profits'' that satellite providers are allegedly making despite the increase in royalty fees.

    The information that the MPAA has presented to the Subcommittee purports to show that the new copyright fee represents just a small percentage of the overall cost to consumers and therefore, the retail price of a superstation signal results in a tremendous ''profit'' for satellite carriers like WSG. However, this information fails to take into account the enormous costs associated with the retransmission of a superstation. Some of these costs include: syndicated exclusivity compliance, substitute programming, uplink operations, 24-hour customer service, transmission fees, white area enforcement, financial commitment for satellite transponders, sales and marketing operations, return on investment, increased sports licensing fees and administrative and legal costs.

    The MPAA seems to suggest that the satellite industry is not entitled to recover its expenses and that Congress should step in to protect against the industry becoming profitable. The truth is that the rates consumers pay for satellite programming are competitive with other multichannel video program distributors, such as cable. Moreover, competition among satellite providers ensures that the marketplace keeps rates in check. All of the DBS providers compete not only among themselves for subscribers but also with C-Band providers.

    Mr. Chairman, thank you again for giving me the opportunity to testify before the Subcommittee. I hope that the information submitted as part of this letter will help you in your deliberations. I look forward to working with you and your staff on these issues.
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Sincerely,
Pete Boylan












(Footnote 1 return)
In the Matter of Annual Assessment of the Status of Competition in the Markets for the Delivery of Video Programming , CS Docket No. 97–141, Fourth Annual Report, FCC 97–141 (rel. January 13, 1998) (''Fourth Annual Report''),Par. 160 ''In 1997, 26 of the 50 most subscribed to cable programming networks are vertically integrated. Two of the top 50 services (C–SPAN & C–SPAN 2), while not owned by cable operators, were developed with significant involvement by the cable industry. In terms of prime time ratings, eight of the top 15 cable programming networks are vertically integrated, as was the case last year.''


(Footnote 2 return)
See FCC Fourth Annual Report.


(Footnote 3 return)
See FCC Fourth Annual Report at par. 8.


(Footnote 4 return)
See FCC Fourth Annual Report at par. 160.


(Footnote 5 return)
See FCC Fourth Annual Report at Table E–3–1997 Cable MSO Horizontal Concentration Nationwide.


(Footnote 6 return)
S.B.C.A. Home Satellite DISH Owner Report of Findings, March 1997, at pgs. 59, 63–65.


(Footnote 7 return)
Final Annual Report at par. 11, p.14.


(Footnote 8 return)
Library of Congress, Rate Adjustment for the Satellite Carrier Compulsory License, 62 Federal Register 55742, 55753 (Oct. 28, 1997), Copyright Arbitration royalty Panel Reprot (Aug. 28, 1997) at 51–52.


(Footnote 9 return)
U.S. Copyright Office, ''A Review of the Copyright Licensing Regimes Covering Retransmission of Broadcast Signals,'' August 1, 1997 (the ''Copyright Office Report'').


(Footnote 10 return)
Copyright Office Report, page 128.


(Footnote 11 return)
Copyright Office Report, page 123.


(Footnote 12 return)
Copyright Office Report, page 128.


(Footnote 13 return)
Federal Communications Commission, ''In the Matter f Annual Assessment of the Status of the Competition in Markets for the Delivery of Video Programming'', Reseased January 13, 1998 (the ''Annual Report'').


(Footnote 14 return)
FCC Annual Report, p. 8.


(Footnote 15 return)
FCC Annual Report, p. 40.


(Footnote 16 return)
Copyright Office Report, p. 122.


(Footnote 17 return)
The Copyright Office's proposal would increase the cost of a typical small 500 subscriber cable system from $56 to $1,325.


(Footnote 18 return)
Reply Comments of the National Cable Television Association, Copyright Office Docket No. 97–1 at 6.


(Footnote 19 return)
The designation of whether these signals are ''significantly-viewed,'' as determined by the FCC, will determine their copyright classification as local or distant.


(Footnote 20 return)
Written Testimony of the Small Cable Business Association, Before the Library of Congress, Copyright Office, Docket no. 97–1, filed April 28, 1997 at 5–6.


(Footnote 21 return)
Satellite Carrier compulsory License; Definition of Unserved Household; Library of Congress, Copyright Office, Docket No. RM 98–1, 63 Fed. Reg. 3685 (January 26, 1998) (''White-Area Rulemaking'').


(Footnote 22 return)
Comments and Testimony of the National Association of Broadcasters, Library of Congress, Copyright Office, Docket No. 97–1, Exhibit A, filed April 28, 1997.


(Footnote 23 return)
Testimony of Rupert Murdoch, Transcript of testimony before the Senate Committee on Commerce, Science and Transportation, April 10, 1997 at 16.


(Footnote 24 return)
''EchoStar Starts Feeds From Local Broadcast Stations,'' Multichannel News, Vol. 19, No. 2, January 12, 1998 at 1 and 56.


(Footnote 25 return)
Id.


(Footnote 26 return)
Id.


(Footnote 27 return)
White-Area Rulemaking.


(Footnote 28 return)
The largest 25 television markets serve approximately 50% of all television households. EchoStar plans on carrying four signals per market, resulting in carriage of 100 stations.


(Footnote 29 return)
Testimony of Stanley Hubbard, President and CEO, Hubbard Broadcasting, Transcript of Hearings before the Senate Committee on Communications, Science and Technology, April 10, 1997 (''Hearing Transcript'') at 9 (emphasis added).


(Footnote 30 return)
Classification based on cable group ownership listing in Warren's Television and Cable Factbook.


(Footnote 31 return)
This small cable operator provides specialty franchised cable services to correctional facilities. It is not uncommon for Correctional Cable TV to provide service in larger markets because of the location of correctional facilities. This represents an isolated and very minor presence of small cable in larger markets.


(Footnote 32 return)
Serves only a mobile home park.


(Footnote 33 return)
Indeed, ALTV previously was ''INTV,'' the Association of Independent Television Stations.


(Footnote 34 return)
As the Register of Copyrights concluded in her report, ''[T]he elimination of the licenses does not seem feasible at this time.'' Report of the Register of Copyrights, A Review of the Copyright Licensing Regimes Covering Retransmission of Broadcast Signals, U.S. Copyright Office (August 1, 1997) at 33 [hereinafter cited as Register's Report]. An extended discussion of the desirability of retaining the compulsory licenses appears, infra, at 15–21.


(Footnote 35 return)
See promotional material available on EchoStar's DISH network website, attached hereto as Appendix One.


(Footnote 36 return)
ALTV's Fox affiliate members also will find their signals retransmitted without their consent in contravention of §325(b) of the Communications Act, which generally requires that multichannel video providers secure retransmission consent from broadcast stations.


(Footnote 37 return)
Suggestions that availability of national feeds of emerging network signals is an adequate substitute for carriage of the local affiliate are specious. First, from the viewer's perspective, critical elements of local service would be lacking. A national feed or the signal of a distant affiliate of the network offers no local programming, whether news, weather, information, or entertainment programming selected because it appeals to local tastes and interests. Indeed, on most emerging network stations, the majority of programming is non-network programming. Second, the damage to the local affiliate is compounded. Instead of making any effort to watch the local affiliate, viewers likely will take the path of least resistance and watch the readily available satellite-fed station or national network feed. Third, networks thrive on the strength of their affiliates. Strong affiliates attract larger audiences for the network. A national network feed or a distant affiliate offers the network none of the boost provided by a popular local and locally-attuned affiliate station.


(Footnote 38 return)
See, infra at 12–15, 34–35.


(Footnote 39 return)
Fourth Annual Competition Report, supra, at 57. At the same time, local signals will remain only a handful of the increasing number of channels available on DBS systems. Only EchoStar to this point has formulated a business plan which hinges its growth on making local signals available.


(Footnote 40 return)
In this regard, ALTV would favor using the current cable definition of local market for both the cable and satellite compulsory licenses. See n.44, infra.


(Footnote 41 return)
Petition of EchoStar Communications Corporation for Rule Confirming That Local Retransmission of Network Signals of Local Network Affiliates Is Permissible Under 17 U.S.C. §119 (filed December 23, 1997) at 5 [hereinafter cited as ''EchoStar Petition''].


(Footnote 42 return)
Letter to The Honorable Marybeth Peters, Register of Copyrights, from James J. Popham, Vice President, General Counsel, ALTV, of January 9, 1998, a copy of which is attached hereto as Appendix Two.


(Footnote 43 return)
Notice of Inquiry, Docket No. RM 98–1, 63 Fed. Reg. 3685 (January 26, 1998).


(Footnote 44 return)
Letter to William S. Reyner, Jr., Esq., from Marilyn J. Kretsinger, Acting General Counsel, of August 15, 1996, at 4.


(Footnote 45 return)
Rate Adjustment for the Satellite Carrier Compulsory License, supra ,62 Fed. Reg. at 55753. Such a rule also might determine substantive rights and liabilities under §325 of Communications Act, which requires that cable systems and satellite carriers secure retransmission consent from local television stations for use of their signals, except where specific exceptions apply. One such exception involves the retransmission of the signal of a network affiliate to an unserved household. 47 U.S.C. §325(b)(2)(C). If, as EchoStar suggests, the Copyright Office were to interpret ''unserved household'' as meaning ''households that are unserved by another affiliate of the same network, and not unserved by the local network affiliate,'' then the Copyright Office arguably might be writing a key portion of the Communications Act out of existence—and, again, placing cable systems and other multichannel video services, which would remain subject to the retransmission consent requirement, at a competitive disadvantage vis-a-vis satellite carriers.


(Footnote 46 return)
ALTV will argue this strenuously at the Copyright Office and courts, as need be.


(Footnote 47 return)
EchoStar Petition at 1.


(Footnote 48 return)
Rate Adjustment for the Satellite Carrier Compulsory License, 62 Fed. Reg. 55742, 55759 (October 28, 1997). Because the CARP determined that 119 did not permit retransmission of a network station within its local market, it set no rate for such retransmissions. The Librarian did not disturb this conclusion of law. Id., 62 Fed. Reg. At 55752–55753; see also Register's Report at 120 (''. . . [A] decision must be made as to what royalty rate, if any, satellite carriers retransmitting local stations must pay to copyright owners.'').


(Footnote 49 return)
Even a growing consensus that the rate should be ''zero'' in no way imbues that consensus with the force of law.


(Footnote 50 return)
EchoStar Petition at 1.


(Footnote 51 return)
Registers Report at (notably) 119.


(Footnote 52 return)
ALTV respectfully reminds the subcommittee that whereas expressions of Congressional concern are questionable in CARP matters, which involve adjudications, such expressions appear appropriate in agency rulemaking proceedings.


(Footnote 53 return)
The bulk of local television stations' concerns about the cable compulsory license have arisen in the wake of changes in the FCC rules and regulations which were designed to complement the compulsory license. The decade of the eighties saw the FCC and the courts eliminate the FCC's distant signal limitations, the syndicated exclusivity rules, and the must carry rules. Now, however, the syndicated exclusivity rules and the must carry rules have been reinstated. These developments have buoyed ALTV's confidence that the compulsory license for cable can be maintained, and with appropriate safeguards, extended to other multichannel video providers.


(Footnote 54 return)
The secondary transmission of broadcast signals by multichannel video providers raises serious public interest issues absent in the case of exhibition of nonbroadcast programming by multichannel video providers. Unlike other video providers, local television stations are licensed by the federal government to operate in the public interest. They must provide programming dealing with issues of local concern in their communities. Their political programming is subject to strict requirements to assure equitable treatment of opposing candidates. Programming responsive to the educational and informational needs of children must be broadcast in specific amounts during specified portions of the day. Indecent material is confined to late night hours. In recognition of the unique status of local television stations, Congress has enacted a requirement that cable systems carry local stations, and the Court has upheld the requirement in the face of a blistering attack on its constitutionality by the cable industry. As the Court repeatedly and consistently has observed, ''[B]roadcasting is demonstrably a principal source of information and entertainment for a great part of the nation's population.'' Turner Broadcasting System, Inc., v. Federal Communications Commission, XX U.S. XX, 1997 U.S. LEXIS 2078, *19, quoting Turner Broadcasting System, Inc., v. Federal Communications Commission, 512 U.S. 622 (1994), quoting in turn United States v. Southwestern Cable, 392 U.S. 157, 177 (1968).


(Footnote 55 return)
From the perspective of broadcast stations at the time, the seminal provision of the compulsory license was its scope. Only signals carried in compliance with the FCC's signal carriage rules were subject to compulsory licensing. Indeed, the provision embraced in the Consensus Agreement permanently would have limited the compulsory license to the limited number of distant signals permitted by the FCC's distant signal limitations, also adopted pursuant to the Consensus Agreement. In other words, if a cable system was permitted under the FCC's 1972 rules to carry two distant signals and the FCC later amended its rules to permit carriage of four distant signals, only the two previously permissible distant signals would have been subject to the compulsory license. The additional two newly permissible signals could have been carried only if the cable system secured licenses from the copyright owners of the programming in the marketplace. See Cable Television Report and Order, 36 FCC 2d 143, 285 (1972).


(Footnote 56 return)
When Congress finally did pass the Copyright Revision Act in 1976, the permanent limitation on the number of distant signals was not adopted. Instead, the new compulsory license provided only that all signals carried must be permissible under the FCC's rules, whatever they might provide now or in the future. At the same time, the Act authorized the new Copyright Royalty Tribunal to adjust the rates in the compulsory license in the event the FCC did change its rules to permit cable carriage of more or fewer distant signals. Consequently, when the FCC did eliminate the distant signal limitations completely in 1980, the CRT established a higher rate for the newly permissible signals. 1982 Rate Adjustment, supra, n.5. Thus, cable systems still may carry two or three distant signals at the modest rates, but must pay a higher rate for additional signals. More to the point, the cable compulsory license and related FCC rules have functioned as expected in a complementary fashion.


(Footnote 57 return)
No FCC rules complement the current satellite carrier compulsory license, primarily because they have been considered either unnecessary or technically infeasible. For example, no rules requiring satellite carriers to carry the signals of local television stations has been necessary because—notwithstanding EchoStar's contentions to the contrary—the satellite carrier compulsory license generally does not contemplate satellite retransmission of local television station signals in their home markets (although some such carriage of the so-called non-network affiliated ''superstations'' is permitted). Because the signals of network affiliated stations may be provided to subscribers only in areas unserved by another affiliate of the network, no network exclusivity (or nonduplication) rules as apply to cable have been necessary in the case of satellite carriers. The Satellite Home Viewer Act of 1988 did contemplate application of syndicated exclusivity (''syndex'') protection rules (again, like those applicable to cable television systems) to satellite carriers because satellite carriers do retransmit distant signals which often would provide syndicated programming which infringes the exclusive exhibition licenses of local television stations. However, the matter was passed to the FCC for a determination as to the feasibility of implementing such requirements in the case of satellite carriers. Satellite Home Viewer Act of 1988, Pub. L. No. 100–667, Title II, 102 Stat. 3949–3960 (1988). The FCC subsequently concluded that such a requirement at that time would be unfeasible. Report and Order, 6 FCC Rcd 725 (1990). As noted, infra, ALTV posits that the feasibility of satellite syndex requirements deserves revisiting.


(Footnote 58 return)
Whereas the generally accepted model contemplates distinct but complementary copyright and communications policy decisions, ALTV respectfully suggests that limitations on the scope of the compulsory license might be equally effective in assuring that the compulsory license poses no threat to the quantity and quality of free, over-the-air broadcast television service available to the public. Such provisions hardly are unprecedented. The most striking example, of course, is the ''white area'' limitation on satellite retransmission of network affiliated stations. The prohibition on commercial substitution and establishment of a right of action for local television stations in markets where a cable system engaged in prohibited commercial substitution also illustrate that concerns about the effects of a compulsory license on broadcast service to the public may be dealt within the four corners of the compulsory license itself. See 17 U.S.C. §501(d).


(Footnote 59 return)
Little basis exists for complaints that the rates in either compulsory license are woefully low. In the wake of the recent CARP decision setting a fair market value rate for satellite retransmission of broadcast television signals, all satellite retransmission of distant (out-of-market) broadcast station signals will be subject to a fair market value rate. Rate Adjustment for the Satellite Carrier Compulsory License, 62 Fed. Reg. 55742 (October 28, 1997). Under the cable compulsory license, distant signals (other than those permitted by the Federal Communications Commission's 1972 distant signal limits, the so-called pre–Malrite signals) also are subject to a higher rate. Adjustment of the Royalty Rate for Cable Systems, 47 Federal Register 52146 (November 19, 1982) [hereinafter cited as 1982 Rate Adjustment], aff'd. sub nom. National Cable Television Association v. Copyright Royalty Tribunal, 724 F. 2d 176 (D.C. Cir. 1983).


(Footnote 60 return)
Nearly nine million additional television households receive these cable network services via various satellite carriers. See Fourth Annual Competition Report, CS Docket No. 97–141, FCC 97–423 (released January 13, 1998) at 55, 69 [hereinafter cited as Fourth Annual Competition Report].


(Footnote 61 return)
Neither copyright nor communication policy has condoned the removal of available services from consumers. For example, the FCC grandfathered distant signal carriage commenced prior to March 31, 1972, the effective date of its rules limiting the number of distant signals on cable television systems ''[i]n light of the difficulties of withdrawing signals to which the public has become accustomed. . . .'' Cable Television Report and Order, 36 FCC 2d 185 (1972). Similarly, in the Cable Television Consumer Protection and Competition Act of 1992, Congress exempted superstations (as of May 1, 1991) from the retransmission consent requirement. 47 U.S.C. §325(b)(2). Finally, Congress in the Satellite Home Viewer Act of 1994, defined a station's local service area under the compulsory license to include not only the area the FCC considered the station's local market area under the must carry rules in the Cable Act, but also the area in which the stations were considered local under prior rules. 17 U.S.C. §111(f). In both these latter instances, the action by Congress assured that viewers were not deprived of programming which had been available to them in the past.


(Footnote 62 return)
See, e.g., Comments of the Office of the Commissioner of Baseball, Copyright Office Docket No. 97–1 (filed April 28, 1997) at 2 (''There is no justification for continuing to exempt the cable and satellite carrier industries from normal marketplace negotiations.''); Testimony of Ritchie T. Thomas (on behalf of the National Collegiate Athletic Association) before the Copyright Office Hearings on Revision of the Cable and Satellite Carrier Compulsory Licenses (May 8, 1997), Transcript at 630 (''Indeed, the existing cable television and satellite carrier, compulsory of [sic] copyright licenses should be eliminated.'').


(Footnote 63 return)
Recent press reports indicate, for example, that the National Basketball Association has new broadcast and cablecast rights agreements which far exceed the value of their prior license agreements. NBC reportedly will pay $1.5 to 1.6 billion for a four-year agreement for broadcast of NBA regular season, All-star, and playoff games (versus $750 million for the previous four-year deal). Similarly, Time–Warner's Turner Sports license fee for a four year cablecast agreement reportedly will increase from $350 million to $800 million. Both contracts provide telecasts rights for more games. ''NBC Agrees to Pay About $1.5 Billion to Renew Contract to Air NBA Games,'' The Wall Street Journal (November 11, 1997). This hardly suggests that cable and satellite retransmission of NBA games on distant signals is diluting the value of national broadcast rights.


(Footnote 64 return)
None of this is to cast aspersions at the professional sports leagues. They are entitled to pursue their economic best interests within the confines of the law. The point is, however, that the law is not so confining in the case of licensing professional sports telecast rights. Laws which preserve a free marketplace and promote competition by placing constraints on collective behavior have been suspended. See Sports Broadcasting Act, 15 U.S.C. §1291–1295. The free, competitive marketplace normally guaranteed by the antitrust laws does not exist with respect to licensing telecast rights to local professional sports events, for which a special exemption exists under the antitrust laws. This special marketplace defeating provision must not be obscured backstage while the sports leagues place the spotlight on their lust for a free marketplace vis-a-vis the cable and satellite compulsory licenses.


(Footnote 65 return)
ALTV has expressed some confidence that stations could secure local exhibition rights (including the right to license those rights to multichannel video providers which serve the market) to their syndicated programming. The ability of several superstations to secure national rights to some syndicated programming also suggests that stations seeking to maintain their out-of-market carriage could continue to secure such rights in the absence of a compulsory license. However, sports program owners appear very unlikely to license any out-of-market retransmission of broadcasts of their games. Today's superstations, therefore, no longer would be able to offer a complete schedule of programming to multichannel video providers and, thus, would be less attractive candidates for out-of-market retransmission.


(Footnote 66 return)
In another time and place, the ever-thoughtful then Commissioner of Baseball, the late ''Fay'' Vincent observed, ''[Y]ou have to think about the problem I would have if we were able to reduce the number of Cubs games on the superstation. The political furor would be substantial.'' Testimony of Francis D. Vincent, Jr., before the Copyright Royalty Tribunal, Docket No. CRT 91–2–89CD (October 1, 1991) at 1738.


(Footnote 67 return)
Some might suggest that the declining number of superstations would ease the transition out of a compulsory license to full copyright liability. However, other major (formerly independent) local stations are retransmitted extensively on a regional basis by cable systems. The public also has come to expect continued availability of this programming as well as superstation programming.


(Footnote 68 return)
See, e.g., BMI v. CBS, 441 U.S. 1 (1979); United States v. ASCAP, 1940–43 Trade Cas. (CCH) 56, 104 (S.D.N.Y. 1941); United States v. BMI, 1940–43 Trade Cas. (CCH) 56, 098 (S.D.N.Y. 1941).


(Footnote 69 return)
The broad perspective should not be ignored in analyzing the issues arising from continuation of the compulsory licenses. Whereas broadcast television signals remain an integral and popular element of the service offered by cable systems and satellite carriers, they represent an ever decreasing proportion of the total number of channels typically provided by such multichannel video providers today. Often, they make upwards of a hundred channels of programming available to their subscriber as part of their basic, premium, and pay-per-view services. See Register's Report at 22. In such circumstances, radical revisions to or elimination of the compulsory licenses appears hardly worth the effort.


(Footnote 70 return)
No rational doubt may exist that a local station denied access to a portion of its in-market audience is injured. Lack of carriage reduces potential audience and, therefore, actual audience. Reduced audiences translate to reduced revenue. Even where revenue reductions are less than fatal, they still affect a station's ability to provide the best practicable service to the public. See Memorandum Opinion and Order, 8 FCC Rcd 8270, 8294, n.64 (1993), affirmed sub nom. Capital Cities/ABC, Inc., v. FCC, No. 93–3458 et al. (7th. Cir.,decided July 12, 1994) [citations omitted](''[W]e believe that by enhancing the financial well-being of independent stations, the ''fringe hour'' revenue stream inevitably helps to support local programming efforts. . . . [S]uch efforts further enhance program diversity.'') At best, a local station which a satellite carrier refuses to carry would be placed at a demonstrable disadvantage vis-a-vis competing broadcast television stations which are carried. See also Turner Broadcasting System v. Federal Communications Commission, supra, 1997 U.S. LEXIS 2078, *51-*55.


(Footnote 71 return)
Cable systems are required to devote up to one-third of their active channel capacity to carriage of local signals. 47 CFR §76.56(a)(1). Inasmuch as most modern cable systems have a channel capacity of 36 to 54 channels, few instances exist where the number of local stations exceeds the designated capacity of the cable system. See also Turner Broadcasting v. Federal Communications Commission, supra, 1997 U.S. Lexis 2078, *61 (''94.5 percent of the 11,628 cable systems nationwide have not had to drop any programming in order to fulfill their must-carry obligations'').


(Footnote 72 return)
47 CFR §76.1506(d). SMATV systems never have been subject to the must carry rules on the theory that they employ antennas which do not discriminate among incoming signals. In fact, although antennas receive without discrimination, the signal distribution system sometimes does. However, despite the fact that some local signals may not be carried, the number of viewers reliant on SMATV systems for their exclusive access to local television stations is very small, approximating barely over one million households nationwide. Third Annual Report, 12 FCC Rcd 4348, 4403 (1996); see also Fourth Annual Competition Report, supra, at 84.


(Footnote 73 return)
ALTV recognizes that satellite carriers like EchoStar now serve only a small proportion of television households and, for the time being, pose only a marginal threat to any station which they fail to retransmit in its local market. However, the satellite carriers are in business to expand, not stagnate. The Federal Communications Commission's latest annual assessment of competition in the video market notes projections of as many as 15 million DBS subscribers by 2001. Fourth Annual Competition Report at 55. They hope to attract not only noncable households in remote areas, but also cable subscribers in core market areas. Indeed, they would hope to supplant cable as the home's multichannel video provider. The ability to provide local signals may enhance their marketability. See FCC Competition Report at 58. One easily may anticipate the day when nearly all television households are served by a multichannel video provider—and most likely only one such provider, most likely cable or DBS. Together, they will serve the vast majority of television households, and each will have a sufficient market share, such that if either of them failed to carry some local stations, the stations' viability would be threatened. At the very least passed over stations would be placed at a meaningful competitive disadvantage not only against their local broadcast competitors, an especially troublesome prospect for affiliates of emerging networks, but also against the competing multichannel video providers! One also might note historically that the FCC readily imposed must carry requirements on cable systems in 1966—long before cable achieved a material degree of market penetration in most markets. CATV, 2 FCC 2d 725 (1966) [subsequent history omitted]. In essence, 'tis a far better thing that the players know the rules before the games begin!


(Footnote 74 return)
Under Section 119, superstations may be furnished to satellite subscribers within the superstation's home market. Beginning in 1998, no fee will be imposed for such carriage. No provision appears to permit satellite carriers to retransmit the signals of network affiliates to viewers in the affiliates' home markets. But see Letter from Marilyn Kretsinger, Acting General Counsel, Copyright Office, to William S. Reyner, Jr., Hogan & Hartson (August 15, 1996).


(Footnote 75 return)
ALTV does not propose that satellite carriers be forced to carry local signals in every market (as is required of cable systems). However, if a satellite carrier retransmits the signal of one local television station in a market to subscribers in that market, then it should be required to carry all local stations in that market or at least provides a satellite subscriber with the same local signals a comparably situated cable subscriber would have available from its cable system. This would maintain parity between competing media by assuring that the satellite carrier were subject to no more rigorous obligations than a directly competitive cable system.


(Footnote 76 return)
Notably, Congress determined to adopt a compulsory license for cable only in conjunction with FCC rules which defined the scope and prerequisites of the license. Cable Television Report and Order, 36 FCC 2d 143 (1972). Thus, the adoption of FCC rules in 1972 preceded the establishment of the compulsory license in the 1976 Copyright Act. See Letter from The Honorable John L. McClellan, Chairman, Subcommittee on Patents, Trade–Marks, and Copyrights, United States Senate, to the Honorable Dean Burch, Chairman, Federal Communications Commission (January 31, 1972), reprinted at Appendix E, Cable Television Report and Order, supra, 36 FCC 2d at 287 (''[I]t is the intention of the subcommittee to immediately resume active consideration of the copyright legislation upon the implementation of the Commission's new cable rules.''). Had the compulsory license preceded the adoption of the FCC's signal carriage rules, then the rampant unregulated use of broadcast station signals by cable systems would have become impossible to harness. Even in 1972, the FCC grandfathered all existing signal carriage so as to avoid depriving consumers of signals to which they had become accustomed. Cable Television Report and Order, supra, 36 FCC 2d at 185.


(Footnote 77 return)
Fears that such a regime would trample satellite carriers First Amendment rights have no basis. The cable must carry rules survived the cable industry's constitutional assault. Turner Broadcasting v. Federal Communications Commission, supra. Whereas one may attempt to rely on distinctions between cable systems and satellite carriers, such distinctions fade in the wake of the decision of the D.C. Circuit upholding rules requiring satellite providers to set aside a small percentage of capacity for educational programming. Time Warner Entertainment v. Federal Communications Commission, 93 F. 3d. 957 (D.C. Cir. 1996). In any event, satellite carriers gain relief from the normal operation of the marketplace under a compulsory license. Congress may grant such a privilege contingent on nondiscriminatory carriage without infringing the First Amendment rights of the beneficiary.


(Footnote 78 return)
Notably, a provision allowing retransmission of signals locally (with appropriate safeguards) would resolve the continuing controversy over network service to unserved households. As the register observed:


(Footnote 79 return)
Local television stations' markets are defined by their Nielsen Designated Market Areas (DMAs). Every county in the country is assigned to a single DMA based on viewing patterns in the county. Thus, for example, if most viewing in a county goes to stations in Washington, D.C., then the county is assigned to the Washington, D.C., DMA. It also reflects the market definition used within the industry for advertising, rating, and program acquisition purposes. Consequently, the FCC long has relied in the ADI/DMA definitions in many of its rules including most pertinently its rules governing broadcast signal carriage. 47 CFR §76.55(e). The Satellite Home Viewer Act of 1994 conformed the definition of local market for purposes of the cable compulsory license to the FCC definition. See 17 U.S.C. §111(f). The register also has recommended moving to an ADI-based definition for purposes of the compulsory licenses. Register's Report at 51. (N.B. The Federal Communications Commission is transitioning from the use of the Arbitron Area of Dominant Influence (ADI) to the Nielsen DMA. See 47 CFR 76.55(e)(1). Arbitron no longer provides a television ratings service. The underlying concepts of the DMA and ADI are very similar. Only in a few instances were counties listed in one market ADI, but another market DMA. Among the advantages to the ADI/DMA approach to market definition are the lack of overlap and the inclusion of every county in the country.)


(Footnote 80 return)
In 1976, Congress ''concluded that a cable operator's carriage of local broadcast signals did not affect the value of the works broadcast because the signal was already available to the public for free through over-the-air broadcasting.'' Register's Report at 4. In other words, the viewer gets nothing more than what already has been available. Moreover, from the perspective of the copyright owner of programming on the station, no one new is receiving the signal. The station has been licensed to broadcast the program in its market and that is all that is happening. As a practical matter, no new event from which might sprout a need for additional compensation is taking place.


(Footnote 81 return)
ALTV hardly denies that considerable benefit is conferred on multichannel video providers from carriage of local broadcast programming (which includes, of course, national network and syndicated programming, as well as locally-produced programs). However, several considerations dictate against assigning a fee for carriage of local signals. First, copyright owners can derive payment for this benefit under the existing scheme. To the extent retransmission of a local station's signal increases its audience, it increases its revenues and enables the station to pay more to program copyright owners for programming. Moreover, if a station is carried pursuant to the retransmission consent provision of the Communications Act, 47 U.S.C. §325(b), the local station may be able to secure some consideration for carriage of its signal. Again, this may enable the station to pay more for programming.


(Footnote 82 return)
47 CFR §76. 56. These rules were adopted to implement Sections 534 and 535 of the Communications Act of 1934, as amended, 47 U.S.C. §534–535. These so-called ''must carry'' requirements were upheld against a First Amendment challenge in Turner Broadcasting Company, Inc. v. FCC, supra.


(Footnote 83 return)
Ironically, proposals to establish fees for secondary transmission of local television station signals in their local markets would place arbitrary constraints on a functioning marketplace. Under the Communications Act, no multichannel video provider may secondarily transmit the signal of a local television station in its local market area unless the station has elected to be carried as a must carry signal (only in the case of cable television systems and open video systems) or has consented to its retransmission. The ability of a station to grant retransmission consent is subject to limitation by the copyright owners of programs which appear on the station. Broadcast Signal Carriage Issues, 8 FCC Rcd 2965, 3005 (1993). Thus, the retransmission consent regime provides for two negotiations—one between the copyright owner of the program and the station and one between the station and the cable system. Again, the copyright owner may seek terms which condition the station's ability to grant retransmission consent on some additional consideration from the station or a pass through of some part of the consideration received by the station from the cable system. Both negotiations take place unfettered by legal limits. A compulsory license fee for local signals would layer a preset fee over the two negotiations. The cable system would be paying the copyright owner directly. This could reduce the cable system's ability to pay the station for retransmission rights, as well as the copyright owner's incentive to seek compensation from the station. Whether the flow of consideration would return to a market equilibrium hardly could be assured, however. What, for example, would occur if the fee exceeded the price the cable system was willing to pay in an open market? Moreover, why overlay two open market negotiations with a transcendent, but possibly arbitrarily imposed transaction? Nothing could be accomplished beyond what the marketplace negotiations already provide. The only likely result is a more complicated process with the added risk of a result skewed outside of a marketplace equilibrium. Some might say, ''Aha! This argument also undermines the current cable compulsory license for distant signals as well! After all, the compulsory license imposes a set fee over two similar negotiations under the retransmission consent provision.'' Such is not the case, however. First, superstations are excepted from the retransmission consent requirement. Second, even in the case of non-superstation distant signals, the copyright owners of programming on the station rightfully may expect no increased compensation from the station. Stations have little or no ability to gain revenue from audiences outside their local markets. This is particularly the case today because the Copyright Office and the FCC employ a definition of local market area that corresponds with the true commercial market areas of stations.


(Footnote 84 return)
See, e.g., Cable Television Report and Order, supra, 36 FCC 2d at 185; 47 U.S.C. 325(b)(2)(B)(Excepting superstations retransmitted by satellite carriers as of May 1, 1991, from the retransmission consent requirement).


(Footnote 85 return)
The expectations of satellite customers who receive network affiliates notwithstanding the fact they do not reside in an unserved areas hardly are legitimate. Distant signals retransmitted in a legal and proper fashion to subscribers are a far different matter. Therefore, no comparison may be made between the legitimate expectations of continued availability of legal distant signals and the expectations that a satellite carrier will be able to continue to provide affiliate signals which never complied with the law.


(Footnote 86 return)
See n. 24, supra.


(Footnote 87 return)
At the same time, of course, the number of national cable networks was beginning to expand, thereby providing cable systems with many new programming options in addition to distant broadcast signals. This further removed the incentive to carry additional distant signals.


(Footnote 88 return)
For example, even before WPIX–TV, New York, became a superstation, it was carried by many cable systems in New England and the Northeast in considerable part because it then was the flagship station for coverage of New York Yankee games.


(Footnote 89 return)
See p. 16, supra.


(Footnote 90 return)
ALTV recognizes that the satellite compulsory license operate differently and that satellite subscribers may have somewhat different expectations. For example, some satellite services offer superstations on an a la carte basis.


(Footnote 91 return)
ALTV in like vein urges retention of the current prohibitions on commercial substitution, which appear in both the cable and satellite compulsory licenses. 17 U.S.C. §111(c)(3) and 119(a)(4), respectively. Commercial substitution involves far more than a mere secondary retransmission and is inimical to the interests of the station carried, local stations, and copyright owners. As such, this limitation on the compulsory license should remain beyond controversy.


(Footnote 92 return)
Thus, for example, a cable system in Washington, D.C. must delete a broadcast of Home Improvement from a distant signal if a Washington, D.C., station has an exclusive right to exhibit the program in Washington. (N.B. Under §73.658(m) of the FCC rules, a station may secure in its program license agreement geographic exclusivity within a 35-mile radius of its community of license.).


(Footnote 93 return)
This need is recognized implicitly in the Satellite Home Viewer Act of 1994, which imposed a higher fee for satellite retransmission of superstation signals which otherwise would be subject to program deletions under the FCC's syndex rules. See 17 U.S.C. 119(b)(1)(B)(I). This is a poor substitute for the ability of a station to preserve the exclusive rights it bargained and paid for in acquiring local exhibition rights to a syndicated program.


(Footnote 94 return)
Compliance burdens also would be reduced by the fact that some superstations are, indeed, ''syndex-proof'' (i.e., their national satellite feed contain no programming which would infringe the exclusive rights of local stations).


(Footnote 95 return)
The need for similar network exclusivity or nonduplication protection is equally compelling, depending on the ultimate scope of the satellite compulsory license. Under the current satellite compulsory license, network affiliates may be retransmitted only to subscribers without terrestrial access to the network's programming via a local affiliate of the network. Thus, infringement of a local affiliate's exclusive rights to its network programming is unlikely. A network exclusivity or nonduplication rule has no purpose in the context of the current ''white area'' limitation. Similarly, if satellite carriers may secure a compulsory license to retransmit the signals of network affiliates only in their home markets, then such rules would be unnecessary. Again, with the emergence and development of Fox, UPN, WB, and, now, Pax Net, more stations ultimately may fall under the definition of network affiliate for purposes of the satellite compulsory license.


(Footnote 96 return)
The different approaches to carriage of network affiliated stations under the cable and satellite compulsory licenses illustrates this point.


(Footnote 97 return)
The register likewise observed:


(Footnote 98 return)
Additional competition to cable would be beneficial in terms of the goals of copyright by further expanding the market for new and existing works and thereby stimulating their production, distribution, and exhibition to the public. Copyright owners would enjoy not only the royalties collected under the compulsory license, but also the revenue from the additional nonbroadcast use of existing programming and the production and use of new nonbroadcast programming.


(Footnote 99 return)
The register also recommends extension of a compulsory license to OVS. Register's Report at 76.


(Footnote 100 return)
This is a very different issue from the applicability of the compulsory license to the signals of television stations' new digital broadcast facilities, which fall easily within the definitions in the current cable and satellite compulsory licenses. Thus, no issue should arise with respect to the ability of cable systems and satellite carriers to retransmit the new digital transmissions of broadcast television stations pursuant to the existing compulsory licenses.


(Footnote 101 return)
Petition of EchoStar Communications Corporation for Rule Confirming That Local Retransmission of Network Signals of Local Network Affiliates Is Permissible Under 17 U.S.C. §119 (filed December 23, 1997) at 1 [hereinafter cited as ''EchoStar Petition''].


(Footnote 102 return)
Register of Copyrights, A Review of the Copyright Licensing Regimes Covering Retransmission of Broadcast Signals, U.S. Copyright Office (August 1, 1997) at 137 [hereinafter cited as ''Register's Report''].


(Footnote 103 return)
EchoStar Petition at 1.


(Footnote 104 return)
Rate Adjustment for the Satellite Carrier Compulsory License, 62 Fed. Reg. 55742, 55759 (October 28,1997). Because the CARP determined that §119 did not permit retransmission of a network station within its local market, it set no rate for such retransmissions. The Librarian did not disturb this conclusion of law. Id., 62 Fed. Reg. At 55752-55753; see also Register's Report at 120 (''. . . [A] decision must be made as to what royalty rate, if any, satellite carriers retransmitting local stations must pay to copyright owners.'').


(Footnote 105 return)
Even a growing consensus that the rate should be ''zero'' in no way imbues that consensus with the force of law.


(Footnote 106 return)
EchoStar Petition at 1.


(Footnote 107 return)
Registers Report at (notably) 119.


(Footnote 108 return)
Letter to William S. Reyner, Jr., Esq., from Marilyn J. Kretsinger, Acting General Counsel, of August 15,1996.


(Footnote 109 return)
Id. at 4. Such a rule also might determine substantive rights and liabilities under §325 of Communications Act, which requires that cable systems and satellite carriers secure retransmission consent from local television stations for use of their signals, except where specific exceptions apply. One such exception involves the retransmission of the signal of a network affiliate to an unserved household. 47 U.S.C. §325(b)(2)(C). If, as EchoStar suggests, the Copyright Office were to interpret ''unserved household'' as meaning ''households that are unserved by another affiliate of the same network, and not unserved by the local network affiliate,'' then the Copyright Office arguably might be writing a key portion of the Communications Act out of existence—and, again, placing cable systems and other multichannel video services, which would remain subject to the retransmission consent requirement, at a competitive disadvantage vis-a-vis satellite carriers.


(Footnote 110 return)
Notably, the Copyright Office has terminated another proceeding which was examining an issue which Congress now is expected to resolve, i.e., whether the cable compulsory license in §111 of the Act should apply to open video systems. 62 Fed. Reg. 25213 (May 8, 1997).


(Footnote 111 return)
Register's Report at 114; EchoStar Petition at 2.


(Footnote 112 return)
Rate Adjustment for the Satellite Carrier Compulsory License, supra, 62 Fed. Reg. at 55753.


(Footnote 113 return)
The Longley–Rice methodology is explained in a declaration prepared by Jules Cohen, a distinguished broadcast engineer, for use in one of the lawsuits filed against PrimeTime 24. A copy of Mr. Cohen's declaration was submitted to the Copyright Office as part of its proceedings last year. See Comments and Testimony of the National Association of Broadcasters Exhibit A in Dkt. No. 97–1 submitted April 28, 1997.


(Footnote 114 return)
The maps shown indicate only those subscribers who signed up for Prime Time 24 through DirecTV between January 1, 1996 and January 17, 1997. The maps thus depict only a small portion of Prime Time 24's subscribers.


(Footnote 115 return)
See Mark Robichaux and Bryan Gruley, Battle in the Air, Wall Street Journal, Jan. 30, 1997 (''At present, DBS customers in the middle of cities and suburbs, who can easily get strong local signals, are fibbing about 'poor' picture quality to satellite-dish services and retailers so they can get out-of-market signals.''); Rick Redding, Area TV Stations Challenge Thousands of Satellite Users, Business First Of Louisville, Jan. 27, 1997 (''many viewers apparently can't resist the temptation to tell a white lie or two.''); id. (quoting satellite dealer as saying ''It's up to the customer - he can call and lie through his teeth, that's up to the mentality of the customer''); TV's Changing Picture, Consumer Reports, Dec. 1996, at 14 (''You can order broadcast network service on your dish, providing you say you can't receive local channels well with an antenna'') (emphasis added).


(Footnote 116 return)
Nearly 2/3 of all American television households subscribe to cable.


(Footnote 117 return)
See Advertisement, ''The DBS Local Station Solution—The Freedom Antenna from Mito Corporation,'' Satellite Business News, April 23, 1997; Press Release, Antennas America, Inc. Announces a Breakthrough in Local Channel TV Reception for Direct Broadcast Satellite, Dec. 23, 1996; DBS Popularity Revives Novel Broadcast Antenna Designs, Communications Daily, Feb. 25, 1997 at 5.)