SPEAKERS CONTENTS INSERTS
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62–508
2000
COPYRIGHT COMPULSORY LICENSE
IMPROVEMENT ACT
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS AND INTELLECTUAL
PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
ON
H.R. 768
FEBRUARY 25, 1999
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Serial No. 23
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 S. SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
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CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
MARY BONO, California
SPENCER BACHUS, Alabama
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
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
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
THOMAS E. MOONEY, SR., General Counsel-Chief of Staff
JULIAN EPSTEIN, Minority Chief Counsel and Staff Director
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Subcommittee on Courts and Intellectual Property
HOWARD COBLE, North Carolina, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
WILLIAM L. JENKINS, Tennessee
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
MARY BONO, California
HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
RICK BOUCHER, Virginia
ZOE LOFGREN, California
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
MITCH GLAZIER, Chief Counsel
BLAINE MERRITT, Counsel
VINCE GARLOCK, Counsel
DEBBIE K. LAMAN, Counsel
ROBERT RABEN, Minority Counsel
EUNICE GOLDRING, Staff Assistant
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C O N T E N T S
HEARING DATE
February 25, 1999
OPENING STATEMENT
Coble, Hon. Howard, a Representative in Congress from the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property
WITNESSES
Attaway, Fritz E., Senior Vice President for Congressional Affairs and General Counsel, Motion Picture Association of America
Hutchinson, John H., Executive Vice President, CEO, Local TV On Satellite
Moskowitz, David, Senior Vice President and General Counsel, EchoStar Communications Corporation
Mountford, Michael R., Executive Vice President, DSI Systems, Inc.
Ostertag, Thomas J., General Counsel, Office of the Commissioner of Baseball
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Roberts William J., Jr., Senior Attorney, Office of the General Counsel, Copyright Office of the United States, The Library of Congress
Tarleton, Cullie M., General Manager, WCCB–TV, on behalf of The National Association of Broadcasters
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Attaway, Fritz E., Senior Vice President for Congressional Affairs and General Counsel, Motion Picture Association of America: Prepared statement
Hutchinson, John H., Executive Vice President, CEO, Local TV On Satellite: Prepared statement
Moskowitz, David, Senior Vice President and General Counsel, EchoStar Communications Corporation: Prepared statement
Mountford, Michael R., Executive Vice President, DSI Systems, Inc.: Prepared statement
Ostertag, Thomas J., General Counsel, Office of the Commissioner of Baseball: Prepared statement
The Register of Copyrights-
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Tarleton, Cullie M., General Manager, WCCB–TV, on behalf of The National Association of Broadcasters: Prepared statement
Taylor, Hon. Charles H., a Representative in Congress from the State of North Carolina: Prepared statement
Watts, Carolyn Herr, Vice President of Corporate Relations, North Carolina Association of Electric Cooperatives, Inc.: Prepared statement
COPYRIGHT COMPULSORY LICENSE IMPROVEMENT ACT
THURSDAY, FEBRUARY 25, 1999
House of Representatives,
Subcommittee on Courts and
Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The subcommittee met, pursuant to call, at 10 a.m., in Room 2237, Rayburn House Office Building, Hon. Howard Coble [chairman of the subcommittee] presiding.
Present: Representatives Howard Coble, William L. Jenkins, Mary Bono, Howard L. Berman, John Conyers, Jr., Rick Boucher, Zoe Lofgren, William D. Delahunt, and Robert Wexler.
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Staff Present: Mitch Glazier, Chief Counsel; Blaine Merritt, Counsel; Vince Garlock, Counsel; Eunice Goldring, Staff Assistant.
OPENING STATEMENT OF CHAIRMAN COBLE
Mr. COBLE. Good morning, ladies and gentlemen and members of the subcommittee. Welcome to our initial subcommittee hearing for this session of the Congress. It appears that there will be a Journal vote, but why don't we get underway here until the whistle sounds and let me make an opening statement and then I will recognize Mr. Berman.
To paraphrase from Ronald Reagan, ''Here we go again.''
Today we are continuing in our efforts to update the copyright licensing regimes covering the retransmission of broadcast signals. Since it was first adopted in 1988 the Satellite Home Viewers Act has provided a framework for the dramatic growth of the satellite television industry. Now customers throughout the country can receive a tremendous array of programming of the highest technical quality. The satellite industry has grown from the thousands of large C-band dish customers serving mostly rural areas to large and small dishes, or KU-band, serving millions of subscribers in rural and urban America.
The provisions of the Satellite Home Viewers Act allow satellite carriers access to copyrighted programming, without obtaining permission from copyright owners, and to retransmit that programming for a set fee to customers. This government imposed regime obviates the need for satellite companies to negotiate with every individual copyright owner over the rate charged for their programming.
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With this compulsory license comes a host of contentious issues and legislative provisions. We spent a good deal of time and energy last session attempting to address the challenges facing the satellite industry. Almost all of us agree that it is important to look at this statute with a goal towards making the satellite industry more competitive with cable television. With competition comes better service, hopefully at lower prices, which makes our constituents the real winners.
With this competition in mind, the legislation that we have introduced makes the following changes to the Satellite Home Viewers Act:
It reauthorizes the satellite copyright compulsory license for 5 years.
It allows new satellite customers who have received a network signal from a cable system within the past 3 months to sign up immediately for satellite service for those signals. This, as you know, is not allowed today.
It provides a discount for the copyright fees paid by the satellite carriers.
It allows satellite carriers to retransmit a local television station to households within that station's local market, just like cable does.
It allows satellite carriers to rebroadcast a national signal of the public broadcasting service.
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The key to this legislation is the authorization of local-to-local, which will be the focus of much of the discussion today. I think one thing most all of us can agree on is that local-to-local will go a long way to solving the problem of distant network signals.
I don't want anybody to take what I am about to say personally but I would be remiss if I didn't say it. Although it is not the primary focus of today's hearing, let me say a word about the ''white area'' problem. I have displeasure with the current situation. It is apparent, and at least two courts have found that some in the satellite industry have purposely and deliberately violated the Copyright Act in selling these distant network signal packages to customers who are obviously unqualified. It is not lost on us that there is obviously a profit issue at hand. I understand you don't like the ''Grade B'' standard and that some of you think the law needs to be changed. I do not understand, however, how this entitles those of you who are doing so to disregard the law. This current crisis was caused by some in the industry, not the Congress. Now, we as Members of Congress are asked to fix it, and we will do our best to fashion a fair resolution. We hear from constituents who without any warning are being disconnected from these distant signals. I do not blame them for their anger and frustration.
I think it is crucial, folks, that the Copyright Act, title 17, remains strong, viable, and enforceable; otherwise we have no weapon against piracy.
The subcommittee must also consider at the appropriate time legislation that addresses other important issues such as must-carry obligations for local-to-local transmissions, white area, retransmission consent, syndicated exclusivity, sports blackout and network nonduplication. I want to recognize the contribution of Senator Orrin Hatch has made in addressing the issue as one of his highest priorities during this Congress. His leadership and cooperation are sincerely appreciated. As you all know, we have worked very closely with him and Senator Leahy.
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These are very difficult and complicated issues and I look forward to the testimony of all of our witnesses in informing the members of this subcommittee of their various perspectives.
As you all know—Howard, you probably know this, too—I take pride in brevity with my opening statements. This is longer than usual, but I feel like this issue demanded some detailed opening statement. I am now pleased to recognize the gentleman from California, the Ranking Member, Mr. Berman.
Mr. BERMAN. Thank you, very much Mr. Chairman. I am aware that we are now hearing the 10-minute bells for the vote that is pending. I don't have a prepared opening statement. This is my first opportunity to serve as Ranking Member with you. As chairman of the subcommittee, I just want to say how much I look forward to working with you. I think we will be able to do a great amount of work on a bipartisan and nonpartisan basis. I think the issues before the subcommittee lend themselves to those kinds of resolutions, and I agree with what you have said in your opening statement.
We have a number of issues involved here: the issue of appropriate fees for the importing of distant signals, I think the compelling argument for providing local-to-local compulsory license; and then the question of how to deal with the people who are now hooked up to satellite, importing a distant network signal, not for purposes of better reception but for purposes of time-shifting, much to the detriment of many local broadcasters who thought they had an exclusive right to deliver that network signal to the people in their area.
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I look forward to a hearing which it looks to me will cover the whole ballpark in terms of the issues that we want to investigate. Thank you, Mr. Chairman.
Mr. COBLE. Good to have you aboard, Mr. Berman.
Mr. Delahunt, do you have an opening statement?
Mr. DELAHUNT. No, I don't, Mr. Chairman. It is good to be back and it is good to hear your dulcet tones once more.
Mr. COBLE. He is a charmer.
You all stand easy. We will go vote and return imminently.
[Recess.]
Mr. COBLE. Folks, I think we are ready to go. It appears that there will not be another vote for at least a couple of hours. Our first witness this morning is Bill Roberts who is the senior attorney for compulsory licenses at the Copyright Office. Mr. Roberts has held the position since the establishment of the Copyright Arbitration Royalty Panel System in 1994.
Previously he was an attorney adviser in the Office of General Counsel at the Copyright Office, and Mr. Roberts is also an adjunct faculty member at the Columbus School of Law at Catholic University of America where he teaches copyright law. He is a graduate of the University of Virginia School of Law and was previously associated with the law firm of Arter & Hadden before coming to the Copyright Office in 1987.
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Let me remind all of the witness, as you know, we try to comply with the 5-minute rule. No one will be assaulted if you violate that rule. When your red light appears, if you can wrap it up we would be appreciative.
STATEMENT OF WILLIAM J. ROBERTS JR., SENIOR ATTORNEY, OFFICE OF THE GENERAL COUNSEL, COPYRIGHT OFFICE OF THE UNITED STATES, THE LIBRARY OF CONGRESS
Mr. ROBERTS. Thank you, Mr. Chairman and members of the subcommittee. Before I begin my testimony, I would like to bring the regrets of the Register of Copyrights, Mary Beth Peters, and the General Counsel, David Carson, who were not able to appear before you today. However, I am pleased to offer the Copyright Office's testimony on H.R. 768, the Copyright Compulsory License Improvement Act.
Mr. Chairman, we at the Copyright Office feel this is very important legislation. As you may recall, in 1997 Senator Hatch asked the Copyright Office for its recommendations and suggested legislative amendments to both the cable and satellite compulsory licenses. At that time we made a number of recommendations regarding both licenses, and in particular with respect to the satellite license, we looked at the issues of the continued need for a satellite compulsory license, as well as the issues surrounding the delivery of network signals by satellite carriers, what is often referred to as the ''unserved household restriction.'' Or probably it is more commonly known as the ''white area restriction.''
Mr. Chairman, I am pleased to report that your bill, H.R. 768, implements a number of the recommendations that we made in our 1997 report. First, the bill extends the current satellite carrier compulsory license found in section 119 of the Copyright Act for an additional period of 5 years. This will allow the satellite industry to continue to have guaranteed access to over-the-air television broadcast signals just as their competitors, the cable industry, continue to have access to these same signals through their compulsory license, the cable compulsory license.
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In addition to this 5-year extension, your bill eliminates the restriction placed on satellite subscribers who have to wait a period of 90 days from termination of their network service from their cable operator before they are eligible to receive service from a satellite provider of those network signals. We feel at the Copyright Office that this has always been something of an anticompetitive provision and it is good to see that subscribers will no longer have to be without their network signals for a period of 3 months, provided they reside in an unserved household.
Second, Mr. Chairman, your bill creates a new compulsory license for local retransmission of satellite signals, both network and superstation signals. As I think you and the members of the subcommittee are well aware, the white area restriction of the current 119 license has caused a considerable amount of difficulties and problems, because local broadcasters justifiably wish to protect the integrity and the exclusivity of their signals to the viewers that reside in the market in which they broadcast their particular signal. By granting the satellite industry a local-to-local license, as it is often referred to, this will allow the carriers to provide these subscribers with the signals that they really want and that is their local network television stations. We feel that this is probably the best and the most important solution to this white area difficulty.
The other thing the bill does of significance, Mr. Coble, is that it requires those carriers who continue to use the section 119 license to retransmit distant signals to inform their subscribers at the point of sale—at the time the subscriber intends to sign up—that he or she may or may not be eligible to receive over-the-air network service of distant network stations.
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A lot of the consumer confusion and anger that we have experienced through our conversations with subscribers at the Copyright Office, and I am sure that you have experienced through phone calls and letters to your offices, surrounds the fact that an expectation is created that when somebody signs up for satellite service, they must reasonably expect to receive all of the programs that the particular satellite carrier offers. They don't have any expectation that they may or may not be eligible to receive their network service or that they may be able to get network service for a limited period of time, and then subsequently it might be turned off.
Your bill requires disclosure of the unserved household limitation to the subscriber ahead of time so they can make informed decisions.
Mr. Chairman, we believe your legislation is very important. I welcome—I see that my time has expired, and I welcome any questions from any of the members of the subcommittee. Thank you.
[The statement of the Copyright Office follows:]
PREPARED STATEMENT OF THE REGISTER OF COPYRIGHTS
The Copyright Office is pleased to present its views on H.R. 768, the ''Copyright Compulsory License Improvement Act.'' This is important legislation designed to address important issues that have arisen relating to the Satellite Home Viewer Act in recent years and to provide the satellite industry with the necessary copyright clearances to allow it to compete equally in the multichannel video marketplace.
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In 1997, Senator Hatch, Chairman of the Senate Judiciary Committee, requested that the Copyright Office present him with recommendations and suggested revisions to the cable and satellite compulsory licenses. After seeking the comments of the affected industries through written submissions and public hearings, the Office submitted a report recommending a comprehensive revision of the Satellite Home Viewer Act. H.R. 768 incorporates the most important recommendations that we made in our 1997 report.
BACKGROUND
The Satellite Home Viewer Act was enacted in 1988 as a means of allowing Americans access to broadcast television programming that they were not receiving through other conventional means. The Act created a copyright compulsory license for the then-fledgling satellite industry modeled after the compulsory license for the cable television industry enacted in 1976. Satellite carriers could retransmit the signals of broadcast television stations to their subscribers upon semi-annual submission of royalty fees to the Copyright Office for later distribution to copyright owners of the programs contained on those signals. Although similar to the cable license in many respects, there were two significant differences between the new satellite license and the prior cable license.
First, rather than pay royalties based upon a complex calculation method contingent upon outdated Federal Communications Commission cable rules, as is the case with the cable license, the new satellite license instituted a flat, per-subscriber-per-month royalty fee for carriage of each broadcast station. The statute initially prescribed a 12-cent per-subscriber-per-month fee for independent television stations (known as superstations), and a 3-cent per-subscriber-per-month fee for network signals. The rates are currently 27 cents per subscriber per month for both superstations and network stations, respectively.
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Second, satellite carriers can make use of the satellite license for retransmission of network stations only to subscribers who reside in unserved households. An ''unserved household'' is one that cannot receive a signal of Grade B intensity (as defined by the FCC) from a local network station using a conventional outdoor rooftop antenna, and has not subscribed to cable within the previous 90 days. If a satellite carrier provides a network signal to a subscriber who is not an unserved household, then the carrier is liable for copyright infringement and must terminate the service of that signal.
The reason that the unserved household limitation on network signals is in the Copyright Act is largely historical. Unlike the cable industry, which was heavily regulated by the FCC at the time of passage of the cable license in 1976, the satellite industry was virtually unregulated by the Commission in 1988. Cable was long subjected to regulations—known as the network nonduplication rules—which prevented a cable operator from importing distant network stations to its subscribers when the subscribers were already receiving their local network signals. The reason for network nonduplication protection was to allow both network broadcasters and copyright owners to enjoy the benefits of exclusive licensing. Copyright owners/licensors could grant exclusive licenses to local broadcasters to perform their programs in the broadcasters' local markets without concern that a cable operator could negatively affect the value of these licenses by importing the same programming shown on a distant network station.
The satellite industry in 1988 did not possess the technology to provide local signals to subscribers, and consequently in virtually all markets all of the retransmitted network signals were distant signals. Copyright owners could not license their programs to local network broadcasters on a truly exclusive basis if satellite carriers were allowed to import distant network signals into those markets. Because the FCC's network nonduplication rules did not apply to satellite (and still do not), Congress included the unserved household limitation in the satellite license as a means of protecting the exclusivity rights of copyright owners/licensors and broadcasters. Only those households that cannot receive an over-the-air signal from their local network station, and are not subscribing to cable, can receive a network station from a satellite carrier.
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In the first years after its enactment, the Satellite Home Viewer Act worked well. However, as the expiration of the license approached in 1994, it became apparent to some that large numbers of subscribers who did not reside in unserved households were nevertheless receiving network signals from their satellite carrier. In order to preserve the integrity of the unserved household limitation, Congress reauthorized the Satellite Home Viewer Act in 1994 for an additional five years, but implemented a two-year testing regime designed to weed out ineligible subscribers of network signals. Under this testing regime, a local network broadcaster could issue written challenges to subscribers in its local market that it suspected were not unserved households. Upon receipt of the written challenge, the satellite carrier had two options: either terminate service of the network station immediately, or conduct a test at the subscriber's household to determine whether the subscriber was receiving an over-the-air signal of Grade B intensity from the local network broadcaster. If the test revealed that the subscriber was unserved, satellite service could continue and the broadcaster was required to pay the cost of the test. If the subscriber was not unserved, satellite service was required to be terminated and the carrier absorbed the cost of the test. Though it was not written into law, satellite and broadcaster representatives offered assurances in 1994 that the standards and parameters of a correct household test would be worked out by the industries.
Unfortunately, the two-year signal testing regime was a complete failure. The satellite carriers and broadcasters could never agree to a test, and the practical result for most subscribers was termination of their service upon written challenge whether or not they were an unserved household. Both the Copyright Office and the FCC were flooded with angry calls from subscribers who had no means to prove that they were not receiving one or more local network signals and had no recourse for the loss of the challenged signals from their satellite service.
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The expiration of the signal testing regime at the end of 1996 led to the filing of lawsuits by broadcasters against a single satellite carrier, PrimeTime 24, alleging massive violations of the unserved household limitation. To date, two federal district courts, in Florida and North Carolina, have issued injunctions against carriage of network signals by PrimeTime 24; and large numbers of subscribers will lose their network service at the end of this month and again at the end of April. A third lawsuit in federal district court in Texas is still pending.
H.R. 768
H.R. 768 attacks the heart of the problems surrounding the satellite compulsory copyright license. Specifically, by creating a new, permanent license for the retransmission of local network signals by satellite to subscribers who reside in the local markets of those signals, the bill protects the integrity of the exclusivity rights of copyright owners/licensors and local broadcasters while affording satellite carriers a means of providing network service to all their subscribers. The Copyright Office submits the following comments regarding the new section 122 license for local-into-local retransmissions, as well as other key elements of the legislation.
1. Local-into-local retransmissions. When the Copyright Office considered revisions of the satellite license in 1997, it considered a number of possible solutions to the problems associated with the unserved household limitation. The Office's conclusion was
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[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. The subscriber would be served with the local network affiliate, and the satellite carrier would no longer be required to import a distant network affiliate in order to provide network service to the subscriber. The Copyright Office, therefore, recommends that retransmission of any broadcast station, network or independent, within that station's local market be permissible. . . .
A Review of the Copyright Licensing Regimes Covering Retransmission of Broadcast Signals, Report of the Register of Copyrights at 119–120 (August 1, 1997) (footnote omitted).
H.R. 768 sets into law that recommendation by creating a new and separate compulsory license for the retransmission by satellite of television broadcast stations to subscribers who reside within the local markets of those stations. There are several advantages to this provision. First, it provides satellite carriers with a license that allows them to compete directly with the cable industry. Under current law, it is unclear whether satellite carriers have a compulsory license to retransmit local signals. Cable has enjoyed such a license since 1976.
Second, by retransmitting local signals, satellite carriers will no longer have the need to import distant signals to these subscribers; and the local broadcasters will enjoy the benefits of having their local viewers watch their signals on digital quality satellite.
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Third, the new license is royalty free. This should provide a strong incentive to satellite carriers considering implementation of local service, and places the satellite industry on par with the cable industry which likewise does not pay royalties for retransmission of local signals.
Fourth, the new license will allow satellite carriers to provide their subscribers with the programming they want most: their local broadcast stations.
Finally, the new license presents the opportunity to eliminate most of the consumer acrimony surrounding the unserved household limitation. When a subscriber signs up with a satellite carrier that provides local service, there is no testing associated with the subscriber's eligibility for network service and no angst about the possibility that such service may be terminated at a future date. In short, the section 122 license is a win/win situation for consumers and the satellite and broadcaster industries.
2. Extension of the section 119 license. H.R. 768 extends the current section 119 license for a period of five years. In principle, the Copyright Office believes that the licensing of secondary transmissions of broadcast signals should be left to the marketplace. However, the Office took the position in its 1997 report to Senator Hatch that the section 119 satellite license should remain in effect for as long as the cable compulsory license does (the cable license is currently permanent). The Office recognizes and supports Congress's desire to maintain oversight of the satellite license, and agrees that a five-year extension would permit assessment of the continuing function of the license and allow for legislative amendment, if necessary, at the expiration of the period.
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3. Notice requirements. Section 7 of the bill amends section 119(a)(2) by requiring satellite carriers who make use of the section 119 license for retransmission of distant network stations to disclose to their potential subscribers prior to the point of sale that they may not be able to receive network service from the carrier. For those subscribers currently receiving network service, carriers are given 60 days from the date of enactment to provide such notification. The Copyright Office believes this is an important amendment.
Much of the consumer confusion and anger directed at the unserved household limitation comes from subscribers' lack of information. Many subscribers sign up without being informed that they may be ineligible to receive network signals, and are only made aware of the law at the time their service is terminated. If satellite carriers are required to disclose to potential subscribers the provisions of the unserved household limitation, then these potential subscribers can make more informed choices about their purchase of satellite service and will not be suddenly surprised that their network service is being terminated due to enforcement of the unserved household limitation.
4. Royalty rate reduction. As described above, Congress initially set the royalty rates in the Satellite Home Viewer Act of 1988 at 12 cents per subscriber per month for superstations, and 3 cents per subscriber per month for network stations. These figures were based upon a rough approximation of what cable paid at that time under its compulsory license for retransmission of the same signals. The satellite rates were adjusted by an independent arbitration panel in 1991 to either 14 cents or 17.5 cents for superstations (depending upon syndicated exclusivity protection) and 6 cents for network signals. These rates were subsequently approved by the Copyright Royalty Tribunal.
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When Congress extended the Satellite Home Viewer Act in 1994, it provided for another rate adjustment and changed the standard for adjusting rates. Rather than hinge the adjustment on the fee that cable paid under its license, the new standard required an adjustment of the rates to reflect the fair market value of the programming retransmitted on network and superstations. The Librarian of Congress empaneled a Copyright Arbitration Royalty Panel (CARP) to adjust the rates in 1997, and the CARP determined that a fee of 27 cents per subscriber per month represented the fair market value of a network and superstation signal, respectively. The Librarian approved the CARP's determination because it was neither arbitrary nor contrary to the Copyright Act.
Neither the Librarian nor the Copyright Office have a stake in the royalty fee charged under the section 119 license for the retransmission of broadcast stations. The Court of Appeals for the District of Columbia Circuit has recently affirmed the Librarian's decision accepting the 27-cent fee, confirming that the Librarian correctly performed his duties under the section 119 license. H.R. 768 reduces the 27-cent fee by 30 percent for superstations, and 45 percent for network stations. The reduction is in the interest of bringing the fee for the section 119 license more in line with the fee for the section 111 cable license. Because this is more a matter of competition in the video retransmission marketplace than copyright policy, the Office expresses no opinion as to the advisability of the reduction.
The Copyright Office looks forward to working with the Subcommittee on this important legislation.
Mr. COBLE. As I said at the outset, nobody is going to be cut off in the middle of a sentence, but I appreciate you recognizing the red light. Thank you for your testimony.
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Mr. Roberts, the legislation reduces the royalty fee for network stations by 45 percent and superstations by 30 percent. This rate reduction, as you know, was in reaction to the Librarian of Congress 1997 rate adjustment decision that raised the fee from 14 or 17 cents for superstations and 6 cents for networks to 27 cents each. That is per subscriber, per signal, per month, which I think is correct.
How much in the amount of royalties has the Copyright Office collected under the 27-cent fee relative to the prior rates?
Mr. ROBERTS. Mr. Chairman, we collect royalty fees twice a year. There are two accounting periods for each year. The new 27-cent rate went into effect on January 1 of last year, 1998. For the first 6 months of the year, the first accounting period, we collected $55 million from the satellite carriers.
For the second accounting period of 1998 we collected approximately $46 million, so there has been something of a drop. We attribute that drop to the likelihood of the effectiveness of the recent lawsuits brought by broadcasters and the turnoffs of a number of subscribers of network service.
Mr. COBLE. Mr. Roberts, although not addressed by the legislation before us, some have suggested that in lieu of a Grade B signal intensity test, that the law be amended to substitute a picture quality test. Is this appropriate, A, and, B, how would it work logistically?
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Mr. ROBERTS. Mr. Chairman, we are not opposed in concept to a picture quality test, but we have serious reservations about how a picture quality test might be implemented in practice.
First off, in order to measure picture quality, there has to be a standardization of the equipment that is present in a subscriber's household, so there needs to be someone to advise as to whether the television set is of a certain quality that can receive a clear over-the-air signal. The wiring in the house, the location of the antenna, the position of the antenna and also external factors such as the atmospheric conditions and the topography surrounding the household, all of these factors must be taken into consideration before you can attempt to really do a serious signal quality measurement. And we have experience with the transitional measurement provisions of the 1994 Satellite Home Viewer Act where tests were supposed to be conducted at individual households. Virtually no tests were conducted because the tests were too expensive. The costs were too high vis-a-vis what the satellite carriers received in revenues for the sale of network signals. By having to send somebody out and advise as to changes that a consumer has to make in their particular equipment, we see that the costs to that will be significant.
We also question as to whom is going to conduct the test even once the equipment is standardized and the conditions are set for a picture quality test. If it is somebody from the satellite carriers, obviously there is an inclination to say it is not a good picture. That is just the way that it is.
If it is somebody from the broadcasters, there is certainly potential for conflict between a representative coming into a subscriber's home or a potential subscriber's home and then expressing an opinion about what the quality of the particular picture is, since it is essentially a subjective test. I can envision there being a lot of anger and confusion amongst subscribers for that.
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So again while we think that it is good idea in principle, we don't know exactly how you could carry it out in practice, but we are open to suggestions.
Mr. COBLE. Let me try one more question before my red light illuminates in my face. You touched on this somewhat, Mr. Roberts, but do you want to say anything additionally regarding the FCC rulemaking concerning the white area issue? Is there anything that you want to add to that?
Mr. ROBERTS. Well, the Commission did a very good job with what they were given. I think that the Commission perhaps might have liked to have gone a bit further to refine perhaps in some respects the Grade B signal intensity, but they were constrained by the current provisions of the law as well as how Grade B relates to other provisions that the Commission has to administer where Grade B is the standard.
The Commission made a determination and I think this is accurate that Grade B is Grade B. There are not two different sets of Grade B, at least as currently provided in the law. So I appreciate that they were constrained in what they could do. However, they have come up with some useful items, particularly the household test. At long last we have at least the basic parameters of how you conduct a household test, plus they made improvements to what a predictive model would be so you can look at a map and make a determination as to where a signal of a particular station is likely to go and where it is not likely to go.
Mr. COBLE. Thank you, Mr. Roberts.
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The gentleman from California.
Mr. BERMAN. Thank you very much, Mr. Chairman.
You spoke about the compulsory license, you talked about a compulsory license to import distant license signals and a compulsory license to import superstation signals. In reality is this all one compulsory license and two different types of fee structures? What is included in the existing satellite compulsory license?
Mr. ROBERTS. The existing satellite compulsory license allows a carrier to take a superstation, an independent station, retransmit it anywhere in the United States, and pay a royalty fee for it.
For network signals, they can retransmit them to just the subscribers in the unserved households. The license does not currently make clear as to whether local signals can be carried by satellite carriers, which is what the new legislation would do.
Mr. BERMAN. So there are two separate compulsory licenses; there is the superstation compulsory license and the network compulsory license?
Mr. ROBERTS. Yes. We view it as a single compulsory license for retransmitting those two types of signals.
Mr. BERMAN. One on an unlimited basis and one on a conditional limited basis?
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Mr. ROBERTS. Yes.
Mr. BERMAN. When you say ''network,'' you mean ABC, NBC, CBS, Fox.
Mr. ROBERTS. It would also include PBS. It would include Warner Brothers, the WB network; Paramount as well, I suppose.
Mr. BERMAN. So seven different network signals. And when you say ''superstation,'' what do you mean?
Mr. ROBERTS. Well, interestingly enough, when the legislation was passed, there were several superstations. WTBS was a superstation. WGN in Chicago was a superstation. Now WTBS is a pay cable service so it is no longer considered a superstation. WGN belongs to the WB network so they are no longer a superstation.
To my immediate knowledge, there are no longer any superstations retransmitted by satellite carriers; they are now all networks.
Mr. BERMAN. If I were to buy a dish and subscribe to one of the services, would I be able to get some of the stations that now one gets through cable, the Discovery Channel, the Lifetime Channel, some of these other programmings? How is that done?
Mr. ROBERTS. Yes. That is done through private licensing. Any of what are referred to as cable networks like A&E, ESPN, that is direct licensing; and if you sign up for satellite, you can get that from satellite and you can also get it from cable, assuming that your cable operator offers that station.
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Mr. BERMAN. We neither mandate those programmers to provide that license nor mandate the fee that is to be charged?
Mr. ROBERTS. No.
Mr. BERMAN. Okay, that is totally private.
There was talk yesterday in the Commerce Committee of a moratorium. I assume that is not a moratorium on fees because people who were talking about it would not want a moratorium on fees. They may want a moratorium on fees, but they want a moratorium on fee changes.
Mr. ROBERTS. Yes, on turning off the subscribers who have been receiving network signals, satellite subscribers receiving satellite signals in violation of the recent court decisions.
Mr. BERMAN. I haven't seen and I don't know if any legislation to do that has been introduced, but is that not in effect legislation to suspend the conditions for the distant network compulsory license?
Mr. ROBERTS. Yes.
Mr. BERMAN. And that is a copyright issue, is that not right?
Mr. ROBERTS. It is indeed.
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Mr. BERMAN. So one would assume that such legislation would come to the Judiciary Committee?
Mr. ROBERTS. Well, I don't feel exactly qualified to comment on that, Mr. Berman.
Mr. DELAHUNT. But you are right, Mr. Berman.
Mr. BERMAN. There has been some talk that once local-to-local license is provided—let me step back. Why wasn't a local-to-local license provided with the original compulsory license legislation?
Mr. ROBERTS. Because at that time, Mr. Berman, nobody envisioned that the satellite industry was going to have the technological capability to provide local signals.
Mr. BERMAN. What is their capability now, if I may pursue this for just one more minute?
Mr. ROBERTS. One particular DSS operator, EchoStar, has begun to provide local signals. They have done this through additional space, spectrum space that they have obtained from the FCC. They have also done it through digital compression of their signals and they are able to offer the local signals to a limited number of markets at this point in time. There are others who have announced plans to provide extensive local-to-local service.
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Mr. BERMAN. Is there any reason to have a distant network compulsory license once legislation has passed to grant local-to-local compulsory license in markets that are served by satellite?
Mr. ROBERTS. I believe there will always be a need for a distant license for subscribers who reside in rural areas of the country or in markets where they can't get a full complement of their network signals. However, if your question is do you believe that once a particular satellite carrier begins to offer local service, if they should be able to continue to offer distant service in that market—is that your question?
Mr. BERMAN. Well, that is a good one.
Mr. ROBERTS. I think we would take the position that if that particular carrier is offering local service, it should not provide additional distant network service as well. This would follow the cable model where a cable system, if you sign up for cable, cable gives you your local network stations. They are prohibited by FCC regulation from giving you distant network stations, Los Angeles, Denver, et cetera. I think that would be an applicable model for the satellite industry.
Mr. BERMAN. Thank you very much, Mr. Chairman.
Mr. COBLE. Mr. Delahunt, the gentleman from Massachusetts.
Mr. DELAHUNT. Just to follow the line of questioning by Mr. Berman, I concur with your conclusion. I think what we are attempting to do is create parity here in terms of a level playing field between satellite and the cable market. But what would be the demand for distant network signals? I would think that it would be minimal.
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I am from a part of the country that is urban, the Boston area, and with all due respect to Los Angeles and Mr. Berman, I have a very, very minimal desire—although I might want to watch the Lakers.
Mr. BERMAN. If the gentleman would yield.
Mr. DELAHUNT. I yield.
Mr. BERMAN. After a night of carousing, now you can come home at 1 a.m. and get the Los Angeles local signal and watch them.
Mr. DELAHUNT. That is true. I don't think that I will pursue that any further.
I have trouble making this distinction and I am not really conversant with the technology and the language, but a Grade B test versus a picture quality test, are they both really subjective determinations and decisions?
Mr. ROBERTS. Well, the picture quality test has more subjectivity than the Grade B test does. The broadcasters——
Mr. DELAHUNT. But if I am a consumer and I am watching a particular program, maybe my conclusion is that it is a Grade C or a Grade A or whatever, and I would think that—and correct me if I'm wrong because I simply don't know the process—but I would think that the costs attendant to making those determinations are significant in terms of the industry. Is that a fair statement?
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Mr. ROBERTS. They would be, yes. Particularly with picture quality, it is different things to different people.
Mr. DELAHUNT. Am I right when I say the legislation and the authorization of a local-to-local license would eliminate the Grade B test?
Mr. ROBERTS. It would for the most part, yes.
Mr. DELAHUNT. It would for the most part.
Mr. ROBERTS. Provided that the carriers are actually offering the local signals.
Mr. DELAHUNT. Once a carrier subscribes or is authorized to this local-to-local license, then that eliminates this requirement or this unserved consumer test; am I correct?
Mr. ROBERTS. The way that the legislation is currently drafted—I reside in Fairfax. If I am an unserved household in Fairfax because maybe there is a big building that blocks my television signals, I can sign up for a satellite carrier who offers local-to-local service and I can get my local stations. I can also subscribe and get the distant network stations that are offered from that same carrier or from a different carrier. However, if I can get my signals off the air under the legislation, I sign up for satellite, I could only get from satellite my local television signals. I could not get the distant signals.
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Mr. DELAHUNT. But you can still get the array, the large numbers of options that satellite provides?
Mr. ROBERTS. Right. And I can watch them on a digital quality satellite picture as opposed to having to watch it over the air.
Mr. DELAHUNT. I would just like to comment on the moratorium issue that Mr. Berman has raised a moratorium, as I understand it, pending congressional action—is that right—to resolve these issues?
Mr. ROBERTS. I only heard about the proposed moratorium at yesterday's Commerce Committee hearing. I am not familiar with the details of it.
My understanding is that its intention is to stop the turnoffs that are going to occur this Sunday and perhaps those that are going to occur on April 30 as a result of the court-ordered injunctions.
Mr. DELAHUNT. I just want to indicate that I do concur and share the annoyance expressed by the Chair regarding the disregard for the copyright statute. Are you aware whether the Department of Justice has initiated any action, any investigation into this matter?
Mr. ROBERTS. Not that I am aware of, no.
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Mr. DELAHUNT. Because I wonder, Mr. Chairman, if at some point in time we should communicate with the Justice Department to determine whether they have the resources to take a very hard look at what has occurred here to determine whether there have been any Federal criminal statutes violated, because I think you are right. If we don't protect the Copyright Act, we are opening the door to piracy, whether it concerns domestic corporations or whether it be at the international level.
I think it is time—this might be the appropriate time for this subcommittee to make that request and make a very loud statement and send a message to the industry.
Mr. COBLE. That may well be in order, Mr. Delahunt. This subcommittee has been very vocal and adamant in taking a stand against piracy, and I think if we turn a blind eye to what appears to be an obvious violation of the law——
Mr. DELAHUNT. We can rail about piracy in China, but if we don't deal with it domestically, I think we are sending a mixed signal.
Thank you, Mr. Chairman.
Mr. COBLE. You are welcome.
Mr. Berman has one more question, but let me ask first, to be sure that I have it right, Mr. Roberts, the proposed shutoff, that applies only to CBS and Fox; is that correct?
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Mr. ROBERTS. That is correct.
Mr. COBLE. Thank you. Mr. Berman.
Mr. BERMAN. I am told that a very substantial number of satellite television subscribers in the Grade A area, not the Grade B area, the Grade A area, are now importing distant network signals. I am wondering, first of all, whether you have any information on that; and, secondly, whether you are aware of the way that it is priced?
When someone gets the dish and hooks up to a satellite television, do they have a package of options to buy the distant network signal separately or is it you subscribe and this is what you get?
Mr. ROBERTS. For most satellite carriers and most distributors, you do have a package of signals that you can subscribe to. Some of them are grouped together and some are broken out individually. Typically you can sign up for network service and that will give you a full complement of your signals in ABC, CBS, NBC and Fox.
Because we are not an enforcement agency, we are not aware that subscribers located in the Grade A area are in fact receiving signals, satellite network signals. I am sure that the broadcasters would be glad to provide you with that information.
Mr. BERMAN. Well, that is for sure. They are glad to. I was wondering if someone else had independent verification of this.
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Mr. ROBERTS. Mr. Berman, I only have anecdotal evidence, and just based on my own personal experience, and so I would be loath to offer it to you because it certainly is not concrete evidence.
Mr. BERMAN. Thank you.
Mr. COBLE. Thank you, Mr. Berman. Mr. Delahunt, any further questions?
Mr. DELAHUNT. No.
Mr. COBLE. Thank you, Mr. Roberts. We will be in touch.
Mr. ROBERTS. Thank you. I look forward to continue working with you and your excellent staff.
Mr. COBLE. We are sorry Ms. Peters couldn't be here, but it was a pleasure to have you.
If the second panel will come forward, I will introduce them as they make their way to the table.
Prior to doing that, let me explain to you the absence of one of our witnesses. Carolyn Herr Watts was scheduled to testify this morning on behalf of the North Carolina Association of Electric Cooperatives. Unfortunately some health issues arose which called for prompt attention, and I know that she is disappointed in not being able to be here, but we will make her written testimony part of the record and wish for her a speedy recovery. And we appreciate Michael Mountford pinch-hitting at the last moment at the request of the Satellite Broadcast and Communications Association.
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Our first witness on our second panel will be Cullie Tarleton who is Vice President of Television for Bahakel Communications which owns numerous television and radio stations in various States throughout the country. In addition to his responsibilities at Bahakel, he is General Manager of WCCB in Charlotte, North Carolina. Mr. Tarleton is past Chairman of the National Association of Broadcasters, past President of the North Carolina Association of Broadcasters, and served as a member of the Television Board of the National Association of Broadcasters. He is a member of the Fox Affiliate Board of Governors and served as Vice Chairman of that board.
Our second witness will be Mr. David Moskowitz who is the Senior Vice President and General Counsel at EchoStar. He joined EchoStar in 1990 and David is responsible for legal and business affairs for EchoStar and its subsidiaries. From 1986 to 1990 he was corporate counsel for MDC Holdings, Inc., a national home building and mortgage banking company. Previously he practiced in the general corporate and security law areas with a prominent Denver law firm.
Mr. Moskowitz received his J.D. With honors from the National Law Center at George Washington University in 1983 and his B.A., summa cum laude, from Western Maryland College in 1980. He is a member of the American Corporate Counsel Association, the Denver and Colorado Bar Associations and a variety of civic organizations.
Our third witness is Michael Mountford who is Vice President of the National Programming Service, the second largest C-band satellite packager in the country. Michael is also an owner of and served on the board of directors of DSI Systems, Inc., a leading satellite hardware distributor in North America.
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Michael is a 1977 graduate of Notre Dame University. After working for an electronics supply firm in Chicago for several years after graduating, he started his own satellite electronics hardware company, Earth Terminal TV, in Bow, New Hampshire in 1983. Then in 1986 with the advent of C-band satellite scrambling, he started American Programming Service, APS, offering C-band programming to a nationwide customer.
Our next witness is John Hutchinson who is the Executive Vice President and Chief Operating Officer at Local TV on Satellite. He was a broadcaster for almost 30 years and has served in almost that many different roles, relating from creative production and business and management. Immediately prior to joining Local TV on Satellite for Capital Broadcasting this past summer, Mr. Hutchinson served as television group for Jefferson pilot stations in the Southeast. During his first 6 months at Local TV on Satellite, Mr. Hutchinson has recruited an experienced team of veterans from both the satellite and broadcasting industries.
Our next witness is Fritz Attaway, who is the Senior Vice President for Congressional Affairs and General Counsel at the Motion Picture Association of America. Before joining MPAA, Mr. Attaway served as attorney adviser in the Cable Television Bureau of the Federal Communications Commission where he was involved in numerous rulemaking proceedings concerning cable television and pay TV. He was also responsible for the training of new Cable Bureau attorneys. Fritz received his primary and secondary degrees in Caldwell, Idaho and attended the College of Idaho where he received a B.A. with honors in 1968.
Our final witness is Thomas Ostertag who is General Counsel in the Office of the Commissioner of Baseball. He was named General Counsel in 1990 and was placed in charge of the Commissioner's Office 4 years later in the absence of a New York-based commissioner.
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We have written statements from each of the witnesses on this panel, and I ask unanimous consent to submit them in the record in their entirety. Without objection, Congressman Charles Taylor has requested that his statement be made a part of the record as well.
[The statement of Mr. Taylor follows:]
PREPARED STATEMENT OF HON. CHARLES H. TAYLOR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA
Mr. Chairman, thank you for the opportunity to come before you today on behalf of thousands of my constituents in Western North Carolina. They, and I fully support a consumer friendly revision of the Satellite Home Viewers Act, specifically a reevaluation of the definition of ''Grade B intensity'' developed by the FCC. Thousands of satellite customers in the 11th District of North Carolina have written me requesting my help in maintaining the right of satellite television viewers to receive network affiliate station service in our mountains. It seems as though the bureaucrats at the Federal Communications Commission do not understand that interference due to the mountains in Western North Carolina, prevent thousands of ''Grade B intensity'' customers from receiving locally broadcast network television signals. These ''unserved households'' are the result of an arbitrary evaluation process of ''Grade B intensity'' areas upheld by federal courts in Georgia and Florida. Time is running out for thousands of my constituents, and millions nationwide who will lose network service in the next few weeks if the Congress does not act, and act now. This crisis, created by the Congress and the courts, is not natural and only harms the consumers. Technology now allows satellite transmission of literally scores of network affiliates. Congress should not allow petty bureaucrats or the courts to stand in the way of access to network signals. Thank you.
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Mr. COBLE. Gentleman, I will again remind you, if you will, to be ever diligent about the red light and we will begin. Let's start with you, Mr. Hutchinson.
STATEMENT OF JOHN H. HUTCHINSON, EXECUTIVE VICE PRESIDENT, CEO, LOCAL TV ON SATELLITE
Mr. HUTCHINSON. Thank you, because I am excited to bring you good news this morning of a solution to the dilemma that we find ourselves in.
I represent Local Television on Satellite, LTVS, and our mission is to address the number one obstacle that limits direct broadcast, a truly competitive alternative to cable, the lack of local TV stations. LTVS has innovated a means of using the new KA-band satellites with spot beams focused on individual U.S. cities, which makes our system at least 20 times more efficient for the carriage of local television signals. That means for the first time, most U.S. satellite homes can get all of their own local stations on the dish.
We have integrated this new technology with a business plan to deliver the entire signal of all full service local stations in each market that we can serve upon initial launch. That should address initially 75 percent of all U.S. households as soon as possible, alleviating most of today's SHVA problems.
By entire signal we mean the full new digital bandwidth that delivers the highest definition television standard that is the future of America. As you know, all commercial TV stations are to be digital by mid-2002, and we must be ready to retransmit their services.
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Two bidding satellite builders have our designs ready to begin construction this July 1. However, we cannot begin practically moving forward on this 30-month project until Congress passes the enabling legislation.
Therefore, my primary purpose today is to seek passage of legislation to make local-to-local TV by satellite a reality. In order to move the LTVS plan, or for that matter a similar solution by any other entity, we first need a compulsory copyright license. Cable presently has a compulsory license like satellite needs to compete.
The legislation we seek would match cable being subject to retransmission consent and must-carry. Such parity provisions mean broadcasters maintain control of their signals and no qualifying stations are denied access to their viewers. The broadcast economics that support over-the-air television and localism are preserved.
Thanks to you, 2 days ago, chairman Coble introduced a bill that will work: H.R. 768. I want you to know that LTVS appreciates that initiative and certainly supports the Coble bill. Thank you.
As to the must-carry issue, any legislation that will permit transitional must-carry until the year 2002, as some have suggested, must explicitly provide that the ''all stations in a market'' requirement be mandatory at the end of the transition period; and to ensure timely compliance, DBS providers who choose to carry local stations must file a report with the Federal Communications Commission on January 2, 2001, a year ahead, demonstrating that they will be in compliance by 2002, a date certain for must-carry.
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Our business plan is aggressive but realistic; if passage occurs now or early in this second quarter, that timetable will allow local service to be available by January 2002.
Turning briefly now to the technical plan, two high-powered satellites are to be launched in the fall of 2001. They will be collated in the same orbital arc as where the direct broadcast satellites operate today, DirecTV and EchoStar. What that means is that a single dish at the subscriber's home would see both all of the national DBS channels and all of that markets's own local channels, including their broadcast networks. LTVS is the most cost-effective wholesaler of two DBS providers because it provides a uniform platform for all of them to use.
Now, we do have a higher digital standard, and it does require more transponder capacity than analog television that we have known in the past, but our high definition full design will be required or this 15-year system would very quickly become obsolete, and we can't get up there and change the satellites.
Hence, the evolution of our plan to stretch to 75 percent of America and a standard that will survive the useful life of two of the largest satellites ever launched. Now, while we do have a technical phase 2 plan for the remaining 25 percent and more satellites, we invite your ideas for a viable business plan to support this very different economics. But without timely passage of this enabling legislation, neither LTVS nor any other company can begin to develop any local-to-local satellite solutions. This is a giant first step, and we need the critical lead time.
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Finally, from a public policy perspective, I believe LTVS is good for consumers, good for the DBS industry, good for broadcasters. The plan furthers the goal of making DBS more competitive with cable.
So with your enactment of the legislation, LTVS can level the playing field by in effect becoming basic ''cable in the sky'' with a simple one dish, one box, one bill, long-term quality solution for subscribers who just want change.
Thank you for this opportunity to talk about it, and I would be happy to answer any questions.
[The statement of Mr. Hutchinson follows:]
PREPARED STATEMENT OF JOHN H. HUTCHINSON, EXECUTIVE VICE PRESIDENT, CEO, LOCAL TV ON SATELLITE
Good morning, and thank you for inviting me to appear at today's hearing. I am John Hutchinson, Executive Vice President and Chief Operating Officer of Local TV on Satellite, LLC (''LTVS''). I have been a broadcaster for almost thirty years and have served in almost that number of different roles, ranging from creative production to business management. Immediately prior to joining LTVS this past summer, I served as television group head for Jefferson-Pilot's stations in the Southeast. In addition to myself, the full-time officers of LTVS include Jeff McIntyre, Vice President of Broadcasting, Jerry Parker, Vice President of DBS Distribution, and Teresa Artis, General Counsel and Vice President of Business Affairs. LTVS is a Delaware limited liability company founded in 1997 by Capitol Broadcasting Co., Inc., its subsidiary, Microspace Communications Corporation (''Microspace''), and certain shareholders. Microspace is the largest provider of transponder capacity for broadcast data and audio satellite services in the world.
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LTVS was founded to develop a basic local television station satellite delivery service, like basic cable, that will deliver via Direct Broadcast Satellite (''DBS'') all local television stations in a given market. I am pleased to inform you that LTVS has developed a local-to-local solution for DBS. LTVS has developed a business plan and the technology to distribute via satellite all over-the-air, full power, commercial and noncommercial television stations within a given station's television market, known as Nielsen's Designated Market Areas (''DMA''). LTVS will provide service to all stations in approximately the top 70 markets in the United States and reach approximately 75% of the U.S. television households. Our intent is to deliver individual local station packages to all DBS providers, who will then retail these packages to their subscribers. We are very excited about our ALL STATIONS IN A MARKET plan that will enable consumers to receive their local broadcast programming through their DBS provider. This assumes satellite parity with existing cable must carry.
MY PRIMARY PURPOSE TODAY, HOWEVER, IS TO SEEK PASSAGE OF THE LEGISLATION NECESSARY TO MAKE LOCAL-TO-LOCAL A REALITY. IN ORDER TO MOVE THE LTVS PLAN OR A SIMILAR PLAN BY ANY OTHER ENTITY FORWARD, WE NEED A COMPULSORY COPYRIGHT LICENSE FOR LOCAL-TO-LOCAL.
That is, in order for LTVS to become a reality we need legislation that would grant a compulsory copyright license to satellite carriers for the retransmission of local television signals in their DMAs subject to retransmission consent. Satellite carriers whose retransmissions are subject to the compulsory license would have to offer to carry all full-service television stations in any local market served. Satellite carriers would have to obtain retransmission consent from local stations prior to retransmitting their signals. In addition, LTVS supports legislation to require satellite carriers to comply with limitations on sports broadcasts, network nonduplication, and syndicated exclusivity, similar to cable's rules.
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Two days ago, Chairman Howard Coble (R-NC) introduced the Copyright Compulsory License Improvement Act (H.R. 768). The Coble bill would amend the Copyright Act of 1976 to provide a statutory license, not subject to any royalty fees, since the stations' signals are not extended beyond their present coverage area, for the retransmission of television stations into a given station's local market by satellite carriers. The bill would grant satellite carriers a compulsory copyright license for local-to-local as provided to cable under Section 111 of the Copyright Act and to satellite carriers for unserved households under Section 119 of the Copyright Act. The legislation would enable consumers to receive via satellite all over-the-air, commercial and noncommercial television stations within a given station's local market. LTVS supports the passage of the Coble bill either as part of a comprehensive satellite bill or as a stand-alone bill.
As to the must carry issue, any legislation that would permit interim or transitional must carry until the year 2002 must explicitly provide that the full must carry requirement will be mandatory at the end of the transition period. To assure such compliance, a satellite carrier must file a report with the Federal Communications Commission (''FCC'') on January 2, 2001 demonstrating that it will be in compliance in 2002.
In addition to the passage of the necessary legislation, LTVS also needs changes at the FCC. Earlier, I mentioned that LTVS would cover approximately 70 markets. LTVS is seeking several changes in proposed FCC rules that may increase the number of markets we can serve. Briefly, the FCC's proposed rules limit the number of transponders to 420 with a corresponding limitation on the number of markets covered. Under the FCC's proposed rules, LTVS will be able to provide a maximum of 420 transponders, which limits the number of markets served. The FCC's proposed rules regarding the possible sharing of 250 MHz in the 18 GHz band and maximum operating power impose coverage limitations.
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Now, I would like to turn to the specifics of our business plan. Under our ALL STATIONS IN A MARKET plan, LTVS will deliver individual local station packages to all DBS providers, who will then retail a local station package to their subscribers. The DBS industry has long recognized that the lack of local stations in their program offerings is a primary reason that consumers who consider DBS do not buy. LTVS's local station product will overcome that competitive barrier.
LTVS's goal is to become the unified platform that allows DBS as an industry to compete more effectively with cable television and other competitors in the multichannel video programming market. Further, viewing of local stations in satellite homes is lower than in cable homes and the LTVS plan will assist in protecting local stations' economics and, in turn, service. Our business plan is aggressive in that, with the passage of the necessary legislation by the second quarter of this year, we intend to have the receivers in the stores by December 2001 and begin LTVS service in 2002. To date, in addition to having developed the technical plan for our project, which I will describe in greater detail momentarily, we have (1) shared our plan with the DBS and broadcast industries in order to confirm the need for our project and to assess their interest, (2) retained Babcock & Brown, an international investment firm with particular financing expertise in the satellite and DBS industries, (3) obtained a design for the satellites from two satellite manufacturers, and (4) fostered the introduction of the necessary legislation.
Our priority now is to obtain passage of the necessary legislation. It will take approximately 30 months to build and launch the satellites needed for the LTVS service. Therefore, if LTVS is to begin service in 2002, the necessary legislation must be passed now so that the order for the satellites can be placed. Once this is accomplished, we will enter into formal negotiations with DBS providers for the delivery of the local station packages and with local television stations for retransmission consent. I will turn now to the technology behind our plan.
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In the past, one of the obstacles to DBS providing local television signals was the lack of an efficient technology. That technology is now available with spot beams. We plan to operate two satellites in the Ka-band at an orbital slot between 101 and 119, which would provide coverage to the continental United States. Consumers will be able to receive the current high power DBS signals and the local television signals from one dish and with one receiver box containing the encoders for both DBS and the local signal service. Also, consumers will receive only one bill for both the DBS service and the local television service.
Last year, LTVS reported that it intended to carry all stations in all markets. That plan was based on the satellites' carriage of analog signals at 4 megabits (Mbps) per station. Our intention now is to carry the entire signal of a station. In other words, every station can be carried in full HDTV at 19.4 Mbps. Because these digital signals require much more bandwidth than analog signals, the two LTVS satellites will be unable to carry all stations in all markets. Nevertheless, we think this is a better plan. As mentioned earlier, the satellites will take more than two years to build and will last approximately 15 years. Thus, they must be designed for the future digital environment. LTVS will be able to accommodate the DTV/HDTV rollout as well as multiplexing which is the future of television. Also, it would be impractical to build satellites to carry analog signals now and then be unable to efficiently modify the satellites to carry HDTV signals in the future. Further, the ability to carry digital signals will enable DBS to be competitive with cablc in the future. Currently, cable operators are equipping their systems to carry digital signals. In fact, it has been reported that CBS and Time Warner have reached an agreement for Time Warner to carry all of the CBS-owned stations' full digital signals on their respective systems in those markets served by Time Warner.
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As I mentioned earlier, our two Ka-band spot beam satellites will have the capacity to carry the entire signal (full HDTV) of all stations in approximately the top 70 markets. The satellites have been designed and LTVS is in a position to move forward with the satellite manufacturers to begin building the satellites as soon as the necessary legislation is passed. While LTVS has also developed a technical plan that would require another orbital location and two additional satellites for carriage of stations in smaller markets, LTVS has been unable to develop a viable economic plan. However, without timely passage of enabling legislation, neither LTVS nor any other company can provide this service.
The stations carried will be uplinked from regional uplink sites. In early April 1998, we invited vendors to respond to a Request for Proposal (''RFP'') for the equipment and services needed for the uplinks, as well as receivers, dishes and master control center. These vendors were selected from those responding to our original Request for Quotations (''RFQs'') issued in mid-1997. Worldwide Satellite Broadcasting, Doctor Design and several other manufacturers are assisting in the continued development of our receiver design.
Finally, from a public policy standpoint, LTVS is good for consumers, DBS providers, and broadcasters, and our plan furthers Congress' and the FCC's common goal of making DBS more competitive with cable on a nationwide basis. However, to be competitive, legislation such as the Coble bill needs to be enacted.
LTVS provides consumers with a one stop shopping alternative to higher priced cable television. LTVS responds directly to consumers who want more choice in the multichannel video programming market, but also want their local television stations delivered in the same medium and quality in which they receive other channels. Our plan provides consumers with the convenience of receiving their DBS signals and local television signals with ONE-DISH-ONE BOX-ONE-BILL.
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For DBS providers, LTVS is the long-awaited and much needed solution to their prior inability to deliver local television signals to their subscribers. LTVS will make a significant contribution to leveling the playing field by enabling DBS to offer a basic satellite service like basic cable. Our ALL STATIONS IN A MARKET plan should spur the development of the DBS industry and increase DBS competition with cable. For DBS providers, LTVS provides a convenient and seamless local solution for 75% of the U.S. television households. That's 3 out of 4 Americans served from day one. DBS providers will be able to attract new subscribers by offering a one stop shopping entertainment package including all local broadcast stations in a given market.
Broadcasters too will benefit from our plan because LTVS will enable distribution of local television stations within their DMAs. Under our plan, every full power station in the covered markets will have the opportunity to be carried because we propose to carry all local stations that consent to be carried. Local stations will continue to control the distribution of their signals. The LTVS plan should help stop the television ratings erosion in DBS homes. Finally, LTVS should help facilitate and accelerate the HDTV rollout.
The time has come for the DBS industry to take a giant leap forward in its development. The DBS industry served its first customer in 1994. Since that time, DBS has provided some competition for cable, but the lack of local television signals within the DBS programming package has placed DBS at a competitive disadvantage and stifled its growth rate. Today, more than 67.4% of U.S. television households subscribe to cable compared to only 7.9% for DBS. Indeed, market research shows that the primary obstacle for DBS in competition with cable is the lack of local television signals. LTVS solves this problem by providing DBS with the local station packages in the full 19.4 Mbps that they need to compete long term with cable. Furthermore, our plan will enable DBS subscribers to receive local originated programming such as local weather, local news, local sporting and charity events, and public affairs programming, all of which serve the public interest.
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I thank you for having given me the opportunity to tell you about Local TV on Satellite and I would be pleased to answer any questions.
Mr. COBLE. Thank you, Mr. Hutchinson. Mr. Tarleton.
STATEMENT OF CULLIE M. TARLETON, GENERAL MANAGER, WCCB-TV, ON BEHALF OF THE NATIONAL ASSOCIATION OF BROADCASTERS
Mr. TARLETON. Thank you, Mr. Chairman. Before I speak specifically about your bill, let me say that broadcasters are deeply concerned about the impact of the enforcement of the recent court order scheduled to begin this weekend.
It is clear that the satellite industry willfully and repeatedly broke the law. I was grateful to hear that many members of this subcommittee are seriously concerned about these violations of the copyright laws, but it is also clear that hundreds of thousands of consumers were duped by that illegal activity.
The issue is who has the responsibility for solving the problem. I can tell you that broadcasters are doing all we can to provide waivers for all viewers who qualify. We also have embraced the fine-tuning done by the FCC to make predicting who qualifies for distant network service under the Satellite Home Viewer Act more consumer friendly, but there also needs to be a role played by the lawbreakers. We have suggested that they use part of the half billion dollars that they have collected in illegal revenues to provide antennas to help reconnect viewers with their local stations. Given all of the problems their behavior has caused, it is the least that industry can do to try to rectify the situation.
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As for your bill, Mr. Chairman, let me congratulate you on sponsoring H.R. 768, the legislation before us this morning. Along with similar legislation offered in the Senate, your bill will provide the changes needed to give the satellite industry the copyright to carry local signals into local markets.
As local broadcasters, our job is to serve as many of the local viewers in our area as possible with local news, weather and emergency information, public affairs and local advertising. Your legislation will grant the satellite industry the copyright to carry our signals to all of their customers in our local market, strengthening both our ability to serve that market and their ability to market themselves as a viable option to cable service. Only when satellites provide local channels will they truly be competitive with cable. That is a goal you and I both share and we endorse your legislation.
Local-to-local legislation will also address a serious problem that exists in the current marketplace; that is, the illegal sale of distant network signals to subscribers who have access to local affiliates over the air. From the very beginning, the Satellite Home Viewer Act was designed to allow for the retransmission of network signals from distant markets only for those viewers who are unable to get a strong signal from their local stations. The other intent of the law was to preserve the network affiliate relationship and ensure that local service was maintained for all viewers.
However, as you and your committee are aware, PrimeTime 24 and its distributors, including DirecTV and EchoStar have been systematically violating the Satellite Home Viewer Act ever since this committee passed it in 1988.
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As I said earlier, literally hundreds of thousands of viewers have been sold distant network signals in clear violation of the law. As the evidence shows, the vast majority of viewers was clearly in areas where they could get the local stations and therefore should never have been sold the distant signals to begin with.
For purposes of the February 28 cutoff date, 78 percent of the CBS subscribers and 83 percent of the Fox subscribers live in the Grade A coverage of their local station. High percentages.
Two Federal courts, including one in our home State, Mr. Chairman——
Mr. COBLE. Give me those percentages again, Mr. Tarleton.
Mr. TARLETON. Seventy-eight percent of the CBS and 83 percent of the Fox.
Mr. COBLE. Thank you.
Mr. TARLETON. Two Federal courts, including one in our home State, have now issued injunctions against PrimeTime 24 and its distributors for that activity.
Further, the FCC undertook a review of the Grade B standard that you established in the act and came to two conclusions. First, the basic definition of Grade B is sound and provides wonderful picture quality.
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Second, today's technology provides ways to improve upon how we predict such things as terrain and interference as well as provides better ways to test for those factors. We as an industry have endorsed those changes.
In the end, local-to-local will be the ultimate answer to all of these concerns. By providing local signals as part of the satellite package, viewers will be able to get what they truly want, both the national network programming as well as the local programs that they depend on from their local network affiliates.
Given that reality, we would ask that you modify your legislation so when local signals are available in the market, the importation of distant signals ends. There is no reason for these competing signals, providing nearly identical programming, to continue to come into distant markets. Their continued presence will simply undermine the negotiated program contracts and exclusive rights that local stations own in their markets.
We also would ask you to change your legislation to have lists of subscribers sent to local stations and not to those stations being carried as distant signals. The local marketplace is the best way to make sure that there is compliance with the law. Localism, Mr. Chairman, has been the watch word of the broadcast industry since its very inception. The FCC has always licensed stations to serve in the local public interest and those licenses were predicated on our ability to reach the local audience.
By adopting H.R. 768, you will be creating a framework so those signals can be added to the national programming channels already offered by satellite and thus create a competitive marketplace for consumers. With the other minor changes that I have outlined, broadcasters endorse your legislation and we look forward to making it a reality early this year. Again, I thank for your leadership on this important issue.
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[The statement of Mr. Tarleton follows:]
PREPARED STATEMENT OF CULLIE M. TARLETON, GENERAL MANAGER, WCCB-TV, ON
BEHALF OF THE NATIONAL ASSOCIATION OF BROADCASTERS
Mr. Chairman and distinguished members of this subcommittee, thank you for the opportunity to speak to you today. I am Cullie Tarleton, Vice President of Television for Bahakel Communications. We own 8 TV stations, including one in Charlotte and one in Raleigh, North Carolina, appearing on behalf of the National Association of Broadcasters.
In the months since two courts acted decisively to enforce the Satellite Home Viewer Act (the ''Act''), much attention has been focused on the question of whether satellite carriers should be permitted to continue delivering distant network signals in violation of the Act to subscribers who can receive the signal of a local station over the air. Some have also suggested that the Act should be substantially revised. I am here to emphasize our belief that the Act works and that the modifications proposed in your bill will ensure that satellite carriers can take advantage of technological advances while preserving the network/affiliate system that has successfully pro vided network programming via local outlets to nearly all American households.
It was of course this subcommittee, in connection with the enactment of the Act in 1988 and the 1994 amendments, that carefully examined the impact of the importation by satellite of duplicative network programming on the local broadcast ing system and the programming marketplace. In this subcommittee's sound judgment, legislation was needed to ensure that all consumers have access to network programming. At the same time, this subcommittee recognized that copyright protection for local broadcasters was necessary to preserve their role in serving their communities with local programming. To balance these concerns, this subcommittee created a limited exception to exclusive programming copyrights assigned to television networks and their local affiliates. Based on objective signal intensity measurements, consumers who cannot receive local broadcast signals over the air are eligible to receive network programming from a satellite television company.
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Satellite carriers, however, repeatedly and willfully violated the copyright law by selling network signals from distant cities to subscribers who could receive their local network station's signal free over the air. In the face of this flagrant violation of copyright law, two courts have vigorously enforced the law. Judge Lenore Nesbitt of the U.S. District Court in Miami issued injunctions ordering PrimeTime 24 not to deliver CBS or Fox television network programming to any customer who does not live in an unserved household. The permanent injunction will take effect with respect to certain subscribers on February 28, 1999, and with respect to the remainder on April 30, 1999.
Satellite carriers have ignored the objective signal standard of the SHVA and have ignored broadcasters' copyright protection. Judge Nesbitt wrote:
PrimeTime made a conscious decision to flout the law when it was well aware of what the law required. PrimeTime does not restrict its sale of network programming to locations that local stations have stated are unserved. In fact, PrimeTime places no geographical limits on its sale of CBS or Fox programming.
Judge Nesbitt also concluded that ''a company cannot build a business on infringements and then argue that enforcing the law will cripple that business.''
Judge Bullock of the U.S. District Court in North Carolina, in requiring PrimeTime 24 to terminate distant network service to Raleigh, NC area subscribers, found that, ''PrimeTime has ignored or turned a blind eye to the necessity of objective signal strength testing and thus willfully or repeatedly provides network programming to subscribers that are ineligible under SHVA.'' As a result of these court orders, satellite carriers will once and for all be stopped from delivering network programming from distant cities to subscribers who can receive local network programming over the air.
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At the request of members, the Federal Communications Commission has also examined whether the Act permits consumers who are truly unserved by local television stations to receive distant network signals from a satellite service. In its recent Report and Order, the Commission concluded that the Grade B signal intensity standard, upon which the Act relies to determine whether a household is served, accurately indicates when picture quality is acceptable. The FCC in addition recommended possible improvements to the methodology used to predict a Grade B signal and adopted new on-site measurement procedures.
Regrettably, on the eve of the effective date of the Miami injunction, satellite industry players have devised further schemes to avoid compliance with the SHVA and even the judge's order. Earlier this week, DirecTV announced its intent to continue delivery of distant network signals after February 28 notwithstanding Judge Nesbitt's order.
Today, the four major networks and their affiliate organizations are filing a request for a temporary restraining order and preliminary injunction against DirecTV's willful attempt to evade the injunction. The Judge is expected to hear argument on these motions today. The same organizations have also brought an action against EchoStar's attempts to evade the Act.
Mr. Chairman, we have reviewed your bill and believe that it reflects the correct approach to further tailoring the SHVA to fulfill its purposes. We would suggest two areas in which this otherwise excellent legislative package would benefit from modest improvement. First the bill would require satellite carriers to provide subscriber lists to network stations that are being retransmitted. This notice requirement would be more effective to ensure satellite carrier's compliance, however, if the local network station into whose market a signal is being transmitted were notified. The local network affiliate will have much greater incentive to seek enforcement of the Act.
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Second, the Act should provide that once a carrier avails itself of the new compulsory license provided by your bill, it should no longer deliver distant network signals to any subscriber in the same local market where it delivers a local signal.
Let me conclude by saying that broadcasters applaud this subcommittee's fairness and judgment in supporting the Act and in considering changes that will protect the system of local programming and ensure access to network television for all Americans. Broadcasters will continue to cooperate in this process and work toward fair resolution of these difficult issues.
Thank you for the opportunity to express our views on this issue to this subcommittee.
Mr. COBLE. Thank you, Mr. Tarleton. As I said before when we mentioned the 5-minute rule, be advised that your written testimony has been examined and will be reexamined so you are not getting shorted. Mr. Ostertag.
STATEMENT OF THOMAS J. OSTERTAG, GENERAL COUNSEL, OFFICE OF THE COMMISSIONER OF BASEBALL
Mr. OSTERTAG. I will be brief. I am grateful for the chance to present baseball's views on H.R. 768 and the satellite compulsory license. We appreciate your efforts in dealing with the difficult issues raised by compulsory licensing.
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As you know, Mr. Chairman, this is an area of substantial concern to baseball. The compulsory license permits satellite carriers to take our programming, without our consent, and to sell it to their paying subscribers across the country. Our only recourse is to receive a government-prescribed royalty.
Baseball's position is simple. One, the satellite compulsory license should not be extended beyond its current expiration date of December 31, 1999; and, two, as long as compulsory licensing remains in effect, satellite carriers should continue paying a fair market royalty. The royalty currently in effect should not be reduced.
My prepared testimony discusses the reasons for our position, I will not repeat those reasons here. Let me just emphasize that the marketplace and not the government should set the terms and conditions for licensing all copyrighted telecasts. Congress is increasingly besieged with controversial issues that surround compulsory licensing, such as those involving royalty rates, white area restrictions and local-to-local service. If there is no compulsory license, the market and not the government will resolve these issues. We strongly believe that that is the preferable approach.
Thank you again, Mr. Chairman, for the chance to appear before you and your subcommittee. I will be happy to answer any questions.
[The statement of Mr. Ostertag follows:]
PREPARED STATEMENT OF THOMAS J. OSTERTAG, GENERAL COUNSEL, OFFICE OF THE COMMISSIONER OF BASEBALL
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Mr. Chairman and members of the Subcommittee, I am Thomas J. Ostertag, General Counsel, Office of the Commissioner of Baseball. I appreciate the opportunity to testify before you, on behalf of the thirty clubs engaged in the sport of Major League Baseball, concerning the satellite carrier compulsory license in Section 119 of the Copyright Act.
SUMMARY
A fundamental principle of copyright is that commercial enterprises should not exploit copyrighted works without the consent of the copyright owners. Section 119 represents a significant exception to that principle. It permits satellite carriers to retransmit, to paying subscribers, countless hours of copyrighted programming on broadcast television stations—without obtaining the consent, indeed over the objection, of the copyright owner. That programming includes thousands of Baseball and other live sports telecasts each year. Baseball's only recourse under Section 119 is to receive a royalty, the amount of which is determined in costly and time-consuming governmental proceedings.
Baseball's position is simple: (1) The satellite compulsory license should not be extended beyond its current expiration date of December 31, 1999. There is no justification for continued government involvement in the licensing of programming to satellite carriers; nor is there any legitimate basis for exempting the satellite industry from marketplace transactions and normal copyright liability. The marketplace, and not Congress or government agencies, should set the terms and conditions for licensing of all copyrighted telecasts, including telecasts of Major League Baseball games. (2) Until the marketplace is allowed to function, satellite carriers should pay, and copyright owners should receive, fair market value for copyrighted telecasts, as currently required by Section 119. The fair market value rate set by a panel of independent arbitrators in August 1997 (and affirmed by the Register of Copyrights, Librarian of Congress and United States Court of Appeals for the District of Columbia Circuit) should not be reduced.
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DISCUSSION
As a former Register of Copyrights testified before this Subcommittee, ''A compulsory license mechanism is in derogation of the rights of authors and copyright owners. It should be utilized only if compelling reasons support its existence.'' Hearings On H.R. 1805 et al. Before the Subcomm. On Courts, Civil Liberties and the Admin. Of Justice, Pt. 1, 97th Cong., 1st and 2d Sess. 959-60 (1981) (statement of David Ladd, Register of Copyrights). There are no compelling reasons that support the continuation of the Section 119 compulsory license. To the contrary, there are compelling reasons not to do so.
When the Congress enacted Section 119 over a decade ago, the satellite industry consisted of relatively small and struggling entrepreneurs. Today, that industry is dominated by corporate giants—such as Hughes Electronics (a subsidiary of General Motors), TCI (soon to be acquired by AT&T) and Echostar (in which News Corp. and MCI Worldcom will hold significant interests). These billion dollar conglomerates, which account for the vast bulk of Section 119 royalties, are fully capable of negotiating with copyright owners over program rights. They certainly do not warrant any type of subsidy from copyright owners.
The Section 119 compulsory license has served its purpose. The DBS industry, which now takes primary advantage of Section 119, is enormously successful. From its inception in the mid-1990s, DBS has grown to nearly 9 million subscribers—making DBS the fastest growing consumer electronics product ever. Last year alone (after fair market rates went into effect for the first time) DBS operators enjoyed perhaps their most successful year to date; they increased their customer base by nearly 2.5 million households. That success underscores the point that DBS carriers do not need any exemption from the marketplace or the obligation to pay fair market compensation.
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When the compulsory license was originally enacted, there was very little programming available to satellite carriers other than broadcast programming. Today, the satellite industry has access to a wide variety of programming from more than 100 cable networks, such as TBS, TNT, ESPN, CNN and USA, as well as to a number of program packages provided by Baseball and the other sports interests. Satellite carriers are able to negotiate in the marketplace, and pay fair market rates, to obtain all that programming. There is no reason they cannot do the same to obtain broadcast programming. Indeed, the experience of TBS—which in 1998 successfully converted from a superstation (subject to compulsory licensing) to a cable network (subject to market negotiations)—demonstrates that the marketplace works perfectly well without compulsory licensing.
Compulsory licensing was intended to reduce transaction costs but it has, in fact, significantly increased those costs for copyright owners. To receive their share of royalties, copyright owners must engage annually in negotiations with one another as well as in the development of expensive factual evidence necessary to help determine royalty shares. If negotiations do not produce agreement, copyright owners are then required to engage in time-consuming litigation before arbitration panels, the Copyright Office and the U.S. Court of Appeals (the extraordinary costs of which are borne entirely by copyright owners). We have been required to repeat that process in connection with rate adjustments, which we have been forced to defend, at a great deal of additional expense, before the Congress as well.
The recent explosion of controversies over compulsory licensing provides added justification for not extending Section 119. The Congress and the parties have devoted enormous resources to numerous issues surrounding the satellite compulsory license—including controversies over ''white areas,'' ''local-into-local,;; rate adjustments and extension of the compulsory license. These issues have come before Congress only because of the existence of the compulsory license. Absent compulsory licensing, these issues would be resolved—as they should be—in the market.
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CONCLUSION
Thank you again, Mr. Chairman, for the opportunity to provide Baseball's views on the Section 119 satellite carrier compulsory license. For the reasons set forth above, we believe the time has come to let that compulsory license expire. Until it does, satellite carriers should continue to pay the fair market rate that went into effect on January 1, 1998.
Mr. COBLE. Mr. Ostertag, you have just established a world record. I don't think that you even used 3 minutes. Mr. Attaway.
STATEMENT OF FRITZ E. ATTAWAY, SENIOR VICE PRESIDENT FOR CONGRESSIONAL AFFAIRS AND GENERAL COUNSEL, MOTION PICTURE ASSOCIATION OF AMERICA
Mr. ATTAWAY. Thank you, Mr. Chairman.
MPAA and its member companies enthusiastically support competition among deliverers of multichannel video programming. The competition not only increases viewing options for consumers, it also increases demands for programming, which is good for the companies that I represent.
MPAA supports the extension of the satellite compulsory license to December 31, 2004. This is not to say that we like the compulsory license. In principle, I have to agree with everything Mr. Ostertag said. In a perfect world there would neither be a cable nor a satellite compulsory license. Such abrogations on the rights of copyright owners are not necessary in today's marketplace. In the real world there is a cable compulsory license and it is right and appropriate for the satellite license to be extended for a limited period, during which I hope that Congress will provide for a phasing out of all retransmission compulsory licenses so the marketplace rather than government can determine the proper price to be paid for entertainment programming.
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MPAA also in principle supports the carriage of local signals. Although we would prefer it be done through a marketplace mechanism rather than a compulsory license, we support at least a short-term measure that will provide a compulsory license for carriage of local stations.
MPAA is deeply disappointed that H.R. 768 would discount the market royalty rate determined by an independent arbitration panel made up of three judges. Their decision was confirmed by the Librarian of Congress and the United States Court of Appeals. We have presented evidence, unrebutted by the satellite industry that; this rate is not unfair to the satellite carriers, that in some cases the rate is less than cable operators would pay under similar circumstances; and it is a tiny fraction of what the satellite carriers charge their subscribers for our programming. In assessing the royalty, other factors that give satellite carriers a competitive advantage over cable should be taken into account, like the lack of subscriber rate regulation, the lack of syndicated exclusivity restrictions, the lack of must-carry requirements, and the lack of a local franchise fee.
Nonetheless, Mr. Chairman, you and other reasonable and fair-minded Members of Congress, including Senator Hatch in what I believe you call the other body, believe that a compromise of this issue is appropriate.
If the satellite industry is willing to accept this compromise, MPAA would do so as well. I would like to make some suggestions, however. I believe that it needs to be made more clear that the rate that would go into effect on July 1 would continue in effect until the extended sunset of the compulsory license on December 31, 2004. I believe that is your intent. I am not sure that it is absolutely clear that that will be the case in the statute as presently drafted.
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I would also like you to consider an inflation adjustment which is provided for in other compulsory licenses in the Copyright Act.
Finally, I would urge that the effective date of the royalty discount be the first day of the next accounting period following enactment of the legislation. In that way, should this legislation not be enacted until after July 1, the new law would not take away royalties already accrued for the benefit of copyright owners. Such a taking would be subject to a constitutional challenge under the fifth amendment.
Thank you for providing me this opportunity and I will be glad to answer any questions.
[The statement of Mr. Attaway follows:]
PREPARED STATEMENT OF FRITZ E. ATTAWAY, SENIOR VICE PRESIDENT FOR CONGRESSIONAL AFFAIRS AND GENERAL COUNSEL, MOTION PICTURE ASSOCIATION OF AMERICA
Mr. Chairman, members of the Committee, thank you for giving me this opportunity to express the views of program producers and distributors on H.R. 768.
My name is Fritz Attaway. I am Senior Vice President for Government Relations and Washington General Counsel for the Motion Picture Association of America. MPAA represents seven of the largest American producers and distributors of theatrical feature films, TV programs and home video material.
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MPAA and its member companies enthusiastically support competition among deliverers of multichannel video programming. The existence of multiple competitors not only increases viewing opportunities for consumers, it increases demand for programming, which is good for the companies I represent.
H.R.768 is intended to increase competition between satellite services and cable services by providing a more level playing field. MPAA supports that objective. This is not to say that H.R.768, if enacted, will provide a perfectly level playing field for satellite and cable services. I think virtually everyone would agree that this will not be the case. But, to the extent that it moves the playing field toward a state of balance, it is a good thing.
Adjustments may be needed, particularly with respect to the impact of H.R.768 on broadcasters. Speaking for program suppliers, I think H.R.768 gets it about right.
MPAA supports the extension of the satellite compulsory license to December 31, 2004. This is not to say that we like the compulsory license. In a perfect world, there would be neither a cable nor a satellite compulsory license. Such abrogations of the rights of copyright owners are not necessary in today's marketplace. But, in the real world, there is a cable compulsory license, and it is right and appropriate for the satellite license to be extended for a limited period, during which I hope Congress will provide for the phasing out of all retransmission compulsory licenses so the marketplace rather than government can determine the proper price to be paid for entertainment programming.
MPAA also supports the provisions of H.R.768 that provide for the carriage of local signals. Carriage of local signals is probably the most effective way to stimulate competition between satellite and cable services. Although we would prefer it be done through a marketplace mechanism rather than a compulsory license, we support at least as a short term measure Section 2 of H.R.768.
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MPAA is deeply disappointed that H.R.768 would discount the market royalty rate determined by an independent arbitration panel made up of three judges; a decision confirmed by the Librarian of Congress and a United States Court of Appeals. We have presented evidence, unrebutted by the satellite industry, that this rate is not unfair to satellite carriers; that in some cases it is less than cable operators would pay under similar circumstances; that it is a tiny fraction of what the satellite carriers charge their subscribers for our programming; and that in assessing the royalty rate other factors that give satellite carriers a competitive advantage over cable should be taken into account, like the lack of subscriber rate regulation, the lack of syndicated exclusivity restrictions, the lack of must-carry requirements and the lack of local franchise fee requirements.
Nonetheless, Mr. Chairman, you and other reasonable and fair-minded members of Congress, including Senator Hatch in the Other Body, believe that a compromise of this issue is appropriate. If the satellite industry is willing to accept this compromise, MPAA will do so as well.
I would like to make some suggestions, however. I believe that it needs to be made more clear that the discounted rates that would go into effect on July 1 would continue in effect until the extended sunset of the compulsory license on December 31, 2004.
I would also like to suggest that you consider an inflation adjustment. The cable compulsory license as well as the public broadcasting compulsory license include inflation adjustments, and it is fair and reasonable that the satellite compulsory license include one as well.
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Finally, I would urge that the effective date of the royalty discount be changed to the first day of the next accounting period following enactment of this legislation. In that way, should this legislation not be enacted until after July 1, the new law would not take away royalties already accrued for the benefit of copyright owners. Such a ''taking'' would be subject to Constitutional challenge under the Fifth Amendment.
Thank you again for this opportunity to testify before you today. I look forward to answering any questions.
Mr. COBLE. Thank you, Mr. Attaway. Mr. Moskowitz.
STATEMENT OF DAVID MOSKOWITZ, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, ECHOSTAR COMMUNICATIONS CORPORATION
Mr. MOSKOWITZ. Mr. Chairman and distinguished members of the subcommittee, thank you for inviting me to discuss your proposed legislation. First I want to thank you and your staff for introducing this legislation. Ever since EchoStar launched its DBS business 3 years ago, we have had a single focus: to compete aggressively against cable's poor customer service and constantly increasing rates. But DBS faces many obstacles. Most importantly, DBS needs the full statutory right to provide local channels by satellite. Consumers cite the lack of local channels as the number one reason why they don't switch from cable to DBS. Your legislation is an important step towards creating choice for the consumer.
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EchoStar is the only DBS company that offers local channels by satellite today. With FCC approval of our recently announced deal to acquire an additional DBS slot, EchoStar will launch two more satellites this year. With this additional capacity, we will be able to provide local channels to nearly 50 percent of the U.S. population this year, a crucial time to create fully effective competition to cable. We urge that consumer choice be permitted to begin this year, upon enactment of the legislation rather than in January 2000 as is currently contemplated by the bill.
For 3 years, existing law has handcuffed our ability to vigorously compete. We applaud your efforts to eliminate the 3-month waiting period before cable subscribers can get network channels by satellite. We are also pleased that your bill reduces the disparity between cable and DBS copyright fees and provides a royalty-free license for local-to-local broadcasts.
Current law also specifically entitles cable to deliver network channels to restaurants and apartments, while satellite typically cannot. This should also change if we are to compete with cable and keep residential rates low.
In addition, we would ask that you include in the bill a definition allowing local-to-local to serve its entire DMA. Use of the DMA definition of local markets, which was developed and adopted by the broadcasters, will help remove uncertainty that would otherwise delay swift implementation of local-to-local.
We are concerned that one provision of your legislation would require EchoStar to give stations the names of all of our local consumers. Providing perhaps millions of names to hundreds of stations nationwide would