[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
REAUTHORIZATION OF THE SATELLITE
HOME VIEWER IMPROVEMENT ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
FEBRUARY 24, 2004
__________
Serial No. 69
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://www.house.gov/judiciary
______
U.S. GOVERNMENT PRINTING OFFICE
92-119 WASHINGTON : 2004
_____________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
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COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
WILLIAM L. JENKINS, Tennessee ZOE LOFGREN, California
CHRIS CANNON, Utah SHEILA JACKSON LEE, Texas
SPENCER BACHUS, Alabama MAXINE WATERS, California
JOHN N. HOSTETTLER, Indiana MARTIN T. MEEHAN, Massachusetts
MARK GREEN, Wisconsin WILLIAM D. DELAHUNT, Massachusetts
RIC KELLER, Florida ROBERT WEXLER, Florida
MELISSA A. HART, Pennsylvania TAMMY BALDWIN, Wisconsin
JEFF FLAKE, Arizona ANTHONY D. WEINER, New York
MIKE PENCE, Indiana ADAM B. SCHIFF, California
J. RANDY FORBES, Virginia LINDA T. SANCHEZ, California
STEVE KING, Iowa
JOHN R. CARTER, Texas
TOM FEENEY, Florida
MARSHA BLACKBURN, Tennessee
Philip G. Kiko, Chief of Staff-General Counsel
Perry H. Apelbaum, Minority Chief Counsel
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Subcommittee on Courts, the Internet, and Intellectual Property
LAMAR SMITH, Texas, Chairman
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
ELTON GALLEGLY, California JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee ZOE LOFGREN, California
SPENCER BACHUS, Alabama MAXINE WATERS, California
MARK GREEN, Wisconsin MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida WILLIAM D. DELAHUNT, Massachusetts
MELISSA A. HART, Pennsylvania ROBERT WEXLER, Florida
MIKE PENCE, Indiana TAMMY BALDWIN, Wisconsin
J. RANDY FORBES, Virginia ANTHONY D. WEINER, New York
JOHN R. CARTER, Texas
Blaine Merritt, Chief Counsel
David Whitney, Counsel
Joe Keeley, Counsel
Melissa L. McDonald, Full Committee Counsel
Alec French, Minority Counsel
C O N T E N T S
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FEBRUARY 24, 2004
OPENING STATEMENT
Page
The Honorable Lamar Smith, a Representative in Congress From the
State of Texas, and Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property............................ 1
The Honorable Howard L. Berman, a Representative in Congress From
the State of California, and Ranking Member, Subcommittee on
Courts, the Internet, and Intellectual Property................ 3
WITNESSES
Honorable Marybeth Peters, Register of Copyrights, Copyright
Office of the United States, The Library of Congress
Oral Testimony................................................. 5
Prepared Statement............................................. 7
Mr. Fritz Attaway, Executive Vice President for Government
Relations and Washington General Counsel, Motion Picture
Association of America (MPAA)
Oral Testimony................................................. 12
Prepared Statement............................................. 14
Mr. David K. Moskowitz, Board Chairman, Senior Vice President and
General Counsel, EchoStar Communications Corporation, on behalf
of Satellite Broadcasting and Communications Association (SBCA)
Oral Testimony................................................. 16
Prepared Statement............................................. 18
Mr. Robert G. Lee, President and General Manager, WDBJ
Television, Inc., on behalf of National Association of
Broadcasters (NAB)
Oral Testimony................................................. 21
Prepared Statement............................................. 23
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a
Representative in Congress From the State of California........ 55
Prepared Statement of the Honorable Bob Goodlatte, a
Representative in Congress From the State of Virginia.......... 56
Letter to the Honorable Lamar Smith from Marilyn Bergman, the
American Society of Composers, Authors and Publishers (ASCAP),
and Frances W. Preston, Broadcast Music, Inc. (BMI)............ 57
Letter to the Honorable Lamar Smith from Patricia Schroeder,
President and CEO, Association of American Publishers (AAP),
and Ken Wasch, Software & Information Industry Association
(SIIA)......................................................... 59
Prepared Statement of the Association of Public Television
Stations (APTS)................................................ 61
REAUTHORIZATION OF THE SATELLITE
HOME VIEWER IMPROVEMENT ACT
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TUESDAY, FEBRUARY 24, 2004
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 4:05 p.m., in
Room 2141, Rayburn House Office Building, Hon. Lamar Smith
(Chair of the Subcommittee) presiding.
Mr. Smith. The Subcommittee on Courts, the Internet, and
Intellectual Property will come to order. Today's hearing is on
the reauthorization of the Satellite Home Viewer Improvement
Act.
I am going to recognize myself and the Ranking Member for
opening statements, and then we will look forward to the
testimony of our witnesses today.
The purpose of today's hearing is to assess the Satellite
Home Viewer Improvement Act, SHVIA, to begin formal
consideration of what changes, if any, Congress should make to
this law as we evaluate how and whether to reauthorize the act.
Since its enactment in 1999, the Satellite Home Viewer
Improvement Act has provided consumers greater access to
broadcast network programming using their satellite dishes.
Today's hearing will mark the first serious reexamination by
this Congress of the many issues and interests that were
involved in the enactment of the original legislation 5 years
ago.
The Satellite Home Viewer Improvement Act and its
predecessor, the Satellite Home Viewer Act, have clearly
succeeded in helping direct broadcast satellite providers
deliver multi-channel video programming to millions of American
consumers.
Barely a decade old, the direct broadcast satellite
industry has experienced remarkable growth. Over the last 5
years, the industry has more than doubled its number of
customers and now serves in excess of 20 million households.
Although a cable company remains the largest distributor of
multi-channel video programming in the U.S., two satellite
providers, DirecTV and EchoStar, now serve as the second and
fourth largest distributors of television programming.
While there are a number of significant provisions to the
Satellite Home Viewer Improvement Act, two provisions of the
law will expire on December 31, 2004, unless Congress acts to
provide an extension. These provisions are known as the distant
network signal compulsory license, sometimes referred to as the
grade B grandfathering provision, and the copyright compulsory
license.
By providing a distant network signal license, Congress
intended to ensure that Americans who were not able to receive
an acceptable over-the-air local network signal would have
access to network programming by satellite. As part of this
license, Congress agreed to grandfather certain satellite
customers who had been receiving distant network signals
illegally, so long as the satellite company could demonstrate
that their customer was unable to receive a strong local
signal.
Satellite industry proponents insist that the distant
signal provision ought to be extended and that a decision not
to do so could cause several hundred thousand satellite
customers to lose programming they have been receiving.
Local broadcasters who serve communities with free over-
the-air and digital programming believe the distant signal
provision undermines the value of their licensing arrangement
with networks. Further, they believe that any justification for
the provision 5 years ago has been eliminated by the satellite
provider's rapid rollout of local into local programming, that
will soon be available by satellite delivery in all 210 U.S.
Television markets.
The copyright compulsory license provision that is also due
to end December 31, 2004, governs the amount and payment of
compensation to copyright owners of the television programming
that satellite companies retransmit to their customers.
Content providers, such as the Motion Picture Association
of America, advocate letting this license expire or,
alternatively, a royalty rate increase to more fully compensate
them for the use of their works. Not surprisingly, the
satellite industry takes the opposite tack, supporting an
extension of the license and a reduction in their payments to
copyright owners.
Members of this Subcommittee recognize that the use of a
compulsory license is an exception to the general rule that the
owner of an intellectual property right should be allowed to
negotiate and receive fair value in the open market for the use
of their work.
Where Government does determine that a compulsory license
is in the public interest, it is imperative that its use be
circumscribed and exercised only when absolutely necessary. As
the original House report that accompanied the 1988 Satellite
Home Viewer Act stated, these provisions sunset because of the
``assumption that Congress should issue a compulsory license
only when the marketplace cannot suffice.''
There is no disputing that the copyright compulsory
licenses that apply to the cable and satellite industries have
benefited consumers, copyright owners, local stations,
networks, and cable and satellite distributors. One thing that
parties will dispute is the necessity of extending the
compulsory licenses and the terms of those licenses.
The Subcommittee will also need to address other issues
such as a request to create parity between the cable and
satellite licenses, as well as a request by the satellite
industry to create a so-called digital white area that would
enable satellite companies to broadcast a national digital
network signal to communities where no local signal exists.
As we commence this process, I am committed to the
proposition that any legislation must strike an appropriate
balance between the interests of intellectual property owners
and the interests of those who distribute copyrighted
programming.
Now, that concludes my opening statement; and I will
recognize the gentleman from California, Mr. Berman, for his.
Mr. Berman. Thank you very much, Mr. Chairman.
Around 5 years ago, I had my first hearing as Ranking
Member of this Subcommittee, involving the reauthorization of
the section 119 satellite license; and a lot has changed since
then but, unfortunately, a lot has stayed the same.
The changes have been, for the most part, positive. While
relevant stakeholders will air a wide variety of differences
today, they appear to be united in the praise of section 122,
the local to local license Congress created in 1999.
Five years ago, local-into-local satellite TV service
functionally didn't exist. Today, 87 percent of U.S. TV
households can receive local broadcast stations via satellite.
What is more, it appears most households have a choice between
satellite TV providers. I understand that EchoStar provides
local-into-local service to more than 83 percent of all U.S. TV
households. By end of this year, DirecTV will provide local-
into-local service to 92 percent of all U.S. TV households.
The current availability of local into local satellite
service is a pretty dramatic development in 5 years' time. The
growth in the satellite industry has been equally dramatic over
the last 5 years. Satellite TV subscribership has nearly
doubled in the last 5 years, from 13 million in 1999 to 22
million today.
With 25 percent of multi-channel video subscribers,
satellite has become a truly formidable competitor to cable.
These dramatic changes show that the Government subsidies
embodied in the sections 122 and 119 licenses have conveyed
tremendous benefits to satellite TV providers and to their
consumers.
The situation isn't so bright for those on whose backs
these subsidies are levied. For copyright owners, much remains
unhappily the same. Royalties paid under the section 119
license for retransmission of distant broadcast signals have
remained frozen for 5 years. In fact, they have remained frozen
at deep discounts to 1999 marketplace rates.
The statutory inflexibility of these rates is unique and
uniquely unfair. Virtually every other compulsory license that
requires royalty payments includes a mechanism for increasing
those payments.
Furthermore, the inflexibility of section 119 rates is
totally inconsistent with marketplace realities. In voluntary
negotiations over the past 5 years, satellite TV providers have
agreed to provide markedly increased compensation to owners of
copyrights in non-broadcast programming.
If the section 119 is to be reauthorized, and it appears a
virtual certainty it will be, owners of copyrighted broadcast
programming should be more fairly compensated.
In another example of how things remain the same, some
satellite subscribers continue to receive a distant signal of a
broadcast station despite the fact that they now receive a
local signal of that broadcast via satellite.
During our hearing nearly 5 years ago, I noted that such
situations might arise and wondered whether there was any
justification for allowing them to exist. I continue to believe
that compulsory licenses, including the section 119 license,
should only count against the minimal abrogation of copyright
in order to accomplish their goals. If a satellite subscriber
can receive a local broadcast via satellite, there appears to
be no justification for abrogating copyright protection in
order to provide that subscriber with a distant signal under
the section 119 license.
While some of the problems we face today are identical to
those we discussed 5 years ago, our witnesses will identify
many entirely new issues.
One issue of particular concern to me is the two-dish
system in play by EchoStar. I understand that EchoStar
relegates certain stations, like Univision, to a second dish,
which may violate the requirement that it carry all stations in
a non-discriminatory manner.
Another new issue involves subscribers in one State who,
due to the vagaries of the DMA definition, receive their local
broadcast signal from another State. And there is the issue
whether the grade B signal intensity standard will be useless
in a future world of all-digital broadcasts. I don't mean to
opine here and now on the appropriate resolution of these new
issues. This hearing is only the first step in educating
ourselves about them.
However, I do believe the emergence of these new issues
indicates the wisdom of reauthorizing section 119 on a
temporary basis. New problems with the satellite licenses are
bound to come up again; and, as it does today, the looming
expiration of the 119 license gives us an opportunity to
address them.
Thank you, Mr. Chairman.
Mr. Smith. Thank you Mr. Berman.
Our first witness is the Honorable Marybeth Peters, who has
served as Register of Copyrights since August 1994. Prior to
assuming this office, Ms. Peters served as the Policy Planning
Adviser to the Register Acting General Counsel of the Copyright
Office and as Chief of both the Examining and Information
Reference Divisions.
As the Register of Copyrights, Ms. Peters is a frequent
witness before our Subcommittee. Her duties require her to
administer the copyright law, prepare technical studies,
provide advice to Congress, and draft legislation. Ms. Peters
received her law degree from the George Washington University
Law School. She received her undergraduate degree from Rhode
Island College.
Our second witness is Fritz Attaway, the Executive Vice
President for Government Relations and Washington General
Counsel for the Motion Picture Association of America, who he
is representing today.
Mr. Attaway has served MPAA and its member companies since
1976. Currently, his responsibilities include the direction of
all Federal public policy activities of the Association,
including congressional and Federal Agency affairs. In
addition, he participates in the management of world-wide
public policy interests for the Association.
Mr. Attaway is a graduate of The College of Idaho where he
received a B.A. in political science and business
administration. He received his J.D. From the University of
Chicago.
Our third witness is David K. Moskowitz, who is the Senior
Vice President and General Counsel For EchoStar Communications
Corporation, a satellite distributor that serves over nine
million subscribers. He is the current chairman of the
Satellite Broadcasting and Communications Association, an
organization that represents the satellite service industry;
and he testifies on their behalf.
Mr. Moskowitz received his J.D. From the George Washington
University Law School and his B.A. From Western Maryland
College.
Our final witness is Robert G. Lee, President and General
Manager of WDBJ Television, a CBS affiliate that, according to
Nielsen, is the leading station in the Roanoke/Lynchburg,
Virginia, market.
Mr. Lee also serves as chairman of the CBS Television
Network Affiliates Association, an organization that advocates
the interests of nearly 200 local community-based CBS
affiliates.
Mr. Lee's testimony will be presented on behalf of the
National Association of Broadcasters, an organization whose
principal goal is to represent the interests of free over-the-
air radio and television broadcasters.
Welcome to you all. I thank you for participating in
today's hearing. Without objection, your written testimony will
be made a part of the record; and again we look forward to your
comments.
Mr. Smith. We will start with Ms. Peters.
STATEMENT OF THE HONORABLE MARYBETH PETERS, REGISTER OF
COPYRIGHTS, COPYRIGHT OFFICE OF THE UNITED STATES, THE LIBRARY
OF CONGRESS
Ms. Peters. Mr. Chairman, Mr. Berman, Mr. Boucher, I am
pleased to appear before you today to testify on the extension
or reauthorization of the satellite carrier section 119
statutory license. Statutory licenses represent a complex,
detailed area of the law.
In my written testimony, I have laid out the history and
operation of the statutory licenses dealing with the
retransmission of local and distant over-the-air broadcast
signal by cable operators, section 111, the section 122 local,
and the section 119 distant statutory licenses covering the
retransmission of over-the-air broadcast signals by satellite
carriers.
Today, the focus is on section 119, which is scheduled to
expire at the end of this year. The question is, should this
license be allowed to expire?
The Office faced this question in 1994 and again in 1999.
Our position remains the same. In principle, the Copyright
Office disfavors statutory licenses. A statutory license should
be a last resort. We favor marketplace solutions.
Having said that, the cable compulsory license has been
part of the law since 1978. It is not scheduled for
elimination. Believing in parity among providers, the Office
supports reauthorization of the section 119 license for
satellite carriers.
While I believe that, in principle, the satellite license
should continue for as long as the cable license is in place,
the written testimony of other participants in this hearing has
persuaded me that we are in an area and a period of transition.
Issues such as transition from analog to digital broadcast and
the projected expansion of local-into-local service to
virtually all households that in only a few years from now will
make it necessary to reexamine the terms and conditions of the
satellite license. Therefore, at this point, I would favor a 5-
year extension of the section 119 license.
I recommend that, during this 5-year period, issues
relating to digital technology and the impact of other changes
that affect the license be examined. During that 5-year period,
the section 111 cable operator license should also be subject
to the same examination, because many of the same issues will
affect the cable industry as well.
As I stated in my 1997 report to the Chairman of the Senate
Committee on the Judiciary, the cable and satellite licenses
should, where possible, be harmonized to avoid unduly affecting
the competitive balance between the industries.
During this legislative session, this Subcommittee should,
however, consider several amendments to the section 119
license.
First, several existing provisions should be removed. They
are the provision concerning the public broadcasting satellite
feed which expired on January 1 of 2002; second, the provisions
related to the copyright arbitration royalty panel proceeding
to adjust the rates, which was concluded in 1997 and which was
superseded by the 1999 extension; and, last, the provision
establishing an interim home subscriber testing regime for
satellite service of network signals, which expired in 1996.
Second, with respect to distant signals, the Office
believes Congress will have to reexamine how to determine what
is an unserved household; that is, a household that cannot
receive an adequate network signal as a transition from digital
to analog broadcast takes place.
The time will come when television stations broadcast only
digital signals, and as analog signals become a thing of the
past, the current unserved household definition based on
reception of a signal of grade B intensity will become
irrelevant. As you consider the reauthorization of the section
119 license, you will need to determine whether that issue
needs to be addressed now or whether it can wait.
A related issue has been identified in the testimony of the
National Association of Broadcasters. Should a satellite
carrier be permitted to transmit a distant network signal to a
household that cannot receive an acceptable over-the-air
signal, but that can receive the local network affiliate signal
from the satellite carrier using the section 122 statutory
license?
I am inclined to believe that there is no justification for
permitting delivery of the distant signal under those
circumstances.
We look forward to working with you, Mr. Chairman and
Members of the Subcommittee, as well as staff, to resolve these
and other matters involving the reauthorization of section 119.
Thank you.
Mr. Smith. Thank you, Ms. Peters.
[The prepared statement of Ms. Peters follows:]
Prepared Statement of Marybeth Peters
Mr. Chairman, Mr. Berman, and distinguished members of the
Subcommittee, I appreciate the opportunity to appear before you to
testify on the extension of the Satellite Home Viewer Improvement Act
of 1999 and the statutory license contained in section 119 of the
Copyright Act. As you know, the section 119 license enables satellite
carriers to retransmit over-the-air television broadcast stations to
their subscribers for private home viewing upon semi-annual payment of
royalty fees to the Copyright Office. Since its enactment in 1988, the
Office has collected over $500 million in royalties and distributed
them to copyright owners of the over-the-air television broadcast
programming retransmitted by satellite carriers. The section 119
license, along with its counterpart for the cable television industry,
the section 111 license, have provided the means for licensing
copyrighted works to broadcast programming in the television
retransmission marketplace.
background
There are currently three statutory licenses in the Copyright Act,
title 17 of the United States Code, governing the retransmission of
over-the-air broadcast signals. A statutory copyright license is a
codified licensing scheme whereby copyright owners are required to
license their works to a specified class of users at a government-fixed
price and under government-set terms and conditions. There is one
statutory license applicable to cable television systems and two
statutory licenses applicable to satellite carriers. The cable
statutory license, 17 U.S.C. Sec. 111, allows a cable system to
retransmit both local and distant over-the-air radio and television
broadcast stations to its subscribers who pay a fee for such service.
The satellite carrier statutory license in section 119 of the Copyright
Act, 17 U.S.C. Sec. 119, permits a satellite carrier to retransmit
distant over-the-air television broadcast stations (but not radio
stations) to its subscribers for private home viewing, while the
statutory license in section 122 permits satellite carriers to
retransmit local over-the-air television broadcast stations (but not
radio) stations to its subscribers for commercial and private home
viewing. The section 111 cable license and the section 122 satellite
license are permanent. The section 119 satellite license, however, will
expire at the end of this year.
It is difficult to appreciate the reasons for and issues relating
to the satellite license without first understanding the cable license
that preceded it. Therefore, I will describe the background of the
cable license before addressing the satellite license.
1. The section 111 cable statutory license.
The cable statutory license, enacted as part of the Copyright Act
of 1976, applies to any cable televison system that carries over-the-
air radio and television broadcast signals in accordance with the rules
and regulations of the Federal Communications Commission (FCC). These
systems are required to submit royalties for carriage of their signals
on a semi-annual basis in accordance with prescribed statutory royalty
rates. The royalties are submitted to the Copyright Office, along with
a statement of account reflecting the number and identity of the over-
the-air broadcast signals carried, the gross receipts from subscribers
for those signals, and other relevant filing information. The Copyright
Office deposits the collected funds in interest-bearing accounts with
the United States Treasury for later distribution to copyright owners
of the over-the-air broadcast programming through the procedure
described in chapter 8 of the Copyright Act.
The development of the cable television industry in the second half
of the twentieth century presented unique copyright licensing concerns.
Cable operators typically carried multiple over-the-air broadcast
signals containing programming owned by scores of copyright owners. It
was not realistic for cable operators to negotiate individual licenses
with numerous copyright owners and a practical mechanism for clearing
rights was needed. As a result, Congress created a statutory copyright
license for cable systems to retransmit over-the-air broadcast signals.
The structure of the cable statutory license was premised on two
prominent congressional considerations: first, the perceived need to
differentiate between the impact on copyright owners of local versus
distant over-the-air broadcast signals carried by cable operators; and,
second, the need to categorize cable systems by size based upon the
dollar amount of receipts a system receives from subscribers for the
carriage of broadcast signals. These two considerations played a
significant role in evaluating what economic effect cable systems have
on the value of copyrighted works shown on over-the-air broadcast
stations. Congress concluded that a cable operator's carriage of local
over-the-air broadcast signals did not affect the value of the
copyrighted works broadcast because the signal is already available to
the public for free through over-the-air broadcasting. Therefore, the
cable statutory license essentially allows cable systems to carry local
signals for free. \1\ Congress also determined that distant signals do
affect the value of copyrighted over-the-air broadcast programming
because the programming is reaching larger audiences. The increased
viewership is not compensated because local advertisers, who provide
the principal remuneration to broadcasters enabling broadcasters to pay
for programming, are not willing to pay increased advertising rates for
cable viewers in distant markets who cannot be reasonably expected to
purchase their goods. As a result, broadcasters have no reason or
incentive to pay greater sums to compensate copyright owners for the
receipt of their signals by distant viewers on cable systems. The
classification of a cable system by size, based on the income from its
subscribers, assumes that only the larger systems which import distant
signals have any significant economic impact on copyrighted works.
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\1\ It should be noted, however, that cable systems that carry only
local signals and no distant signals (a rarity) are still required to
submit a statement of account and pay a basic minimum royalty fee. All
cable systems must pay at least a minimum fee for the privilege of
using the section 111 license.
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The royalty payment scheme for the section 111 license is
complicated. It stands in sharp contrast to the royalty payment scheme
for the section 119 satellite carrier license which uses a
straightforward flat rate payment mechanism. To better understand the
marked differences between the two licenses, it is necessary to explain
how royalties are paid under the section 111 cable license.
Section 111 distinguishes among three sizes of cable systems
according to the amount of money a system receives from subscribers for
the carriage of broadcast signals. The first two classifications are
small to medium-sized cable systems--Form SA-1's and Form SA-2's--named
after the statement of account forms provided by the Copyright Office.
Semiannually, Form SA-1's pay a flat rate (currently $37) for carriage
of all local and distant over-the-air broadcast signals, while Form SA-
2's pay a fixed percentage of gross receipts received from subscribers
for carriage of broadcast signals irrespective of the number of distant
signals they carry. The large systems, Form SA-3's, pay in accordance
with a highly complex and technical formula, based in large part on
regulations adopted by the FCC that governed the operation of cable
systems in 1976, the year that section 111 was enacted. This formula
requires systems to distinguish between carriage of local and distant
signals and to pay accordingly. The vast majority of royalties paid
under the cable statutory license come from Form SA-3 systems.
The royalty scheme for Form SA-3 systems employs the statutory
device of the distant signal equivalent (DSE). Distant over-the-air
broadcast stations are determined in accordance with two sets of FCC
regulations: the ``must-carry'' rules for over-the-air broadcast
stations in effect on April 15, 1976, and a station's television market
as currently defined by the FCC. A signal is distant for a particular
cable system when that system would not have been required to carry the
station under the FCC's must-carry rules, and the system is not located
within the station's local television market.
Cable systems pay for carriage of distant signals based upon the
number of distant signal equivalents (DSE's) they carry. The statute
defines a DSE as ``the value assigned to the secondary transmission of
any nonnetwork television programming carried by a cable system in
whole or in part beyond the local service area of a primary transmitter
of such programming.'' 17 U.S.C. Sec. 111(f). A DSE is computed by
assigning a value of one to a distant independent over-the-air
broadcast station, and a value of one-quarter to distant noncommercial
educational and network stations, which have a certain amount of
nonnetwork programming in their broadcast days. A cable system pays
royalties based upon a sliding scale of percentages of its gross
receipts depending upon the number of DSE's it carries. The greater the
number of DSE's, the higher the total percentage of gross receipts and,
consequently, the larger the total royalty payment.
As noted above, operation of the cable statutory license is
intricately linked with how the FCC regulated the cable industry in
1976. The FCC regulated cable systems extensively, limiting them in the
number of distant signals they could carry (the distant signal carriage
rules), and requiring them to black-out programming on a distant signal
where a local broadcaster had purchased the exclusive rights to that
same programming (the syndicated exclusivity rules). In 1980, the FCC
deregulated the cable industry and eliminated both the distant signal
carriage and syndicated exclusivity (``syndex'') rules. Cable systems
were now free to import as many distant signals as they desired.
The Copyright Royalty Tribunal, pursuant to its statutory
authority, and in reaction to the FCC's deregulation, conducted a rate
adjustment proceeding for the cable statutory license to compensate
copyright owners for the loss of the distant signal carriage and the
syndex rules. This rate adjustment proceeding established two new rates
applicable only to Form SA-3 systems. 47 Fed. Reg. 52,146 (1982). The
first new rate, to compensate for the loss of the distant signal
carriage rules, was the adoption of a royalty fee of 3.75% of a cable
system's gross receipts from subscribers, for over-the-air broadcast
programming for carriage of each distant signal that would not have
previously been permitted under the former distant signal carriage
rules.
The second rate, adopted by the Copyright Royalty Tribunal to
compensate for the loss of the syndex rules, is known as the syndex
surcharge. Form SA-3 cable systems must pay this additional fee when
the programming appearing on a distant signal imported by the cable
system would have been subject to black-out protection under the FCC's
former syndex rules. \2\
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\2\ Royalties collected from the syndex surcharge later decreased
considerably when the FCC reimposed syndicated exclusivity protection
in certain circumstances.
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Since the Tribunal's action in 1982, the royalties collected from
cable systems have been divided into three categories to reflect their
origin: 1) the ``Basic Fund,'' which includes all royalties collected
from Form SA-1 and Form SA-2 systems, and the royalties collected from
Form SA-3 systems for the carriage of distant signals that would have
been permitted under the FCC's former distant carriage rules; 2) the
``3.75% Fund,'' which includes royalties collected from Form SA-3
systems for distant signals whose carriage would not have been
permitted under the FCC's former distant signal carriage rules; and 3)
the ``Syndex Fund,'' which includes royalties collected from Form SA-3
systems for carriage of distant signals containing programming that
would have been subject to black-out protection under the FCC's former
syndex rules.
In order to be eligible for a distribution of royalties, a
copyright owner of over-the-air broadcast programming retransmitted by
one or more cable systems on a distant basis must submit a written
claim to the Copyright Office. Only copyright owners of nonnetwork
over-the-air broadcast programming are eligible for a royalty
distribution. Eligible copyright owners must submit their claims in
July for royalties collected from cable systems during the previous
year. Once claims have been processed, the Librarian of Congress
determines whether there are controversies among the parties filing
claims as to the proper division of the royalties. If there are no
controversies--meaning that the claimants have settled among themselves
as to the amount of royalties each claimant is due--then the Librarian
distributes the royalties in accordance with the claimants'
agreement(s) and the proceeding is concluded. The Librarian must
initiate a Copyright Arbitration Royalty Panel (CARP) proceeding in
accordance with the provisions of chapter 8 of the Copyright Act for
those claimants who do not agree.
The section 111 statutory license is not the only means for
licensing programming on over-the-air broadcast stations. Copyright
owners and cable operators are free to enter into private licensing
agreements for the retransmission of over-the-air broadcast
programming. Private licensing most frequently occurs in the context of
particular sporting events, where a cable operator wishes to retransmit
a sporting event carried on a distant broadcast station, but does not
wish to carry the station on a full-time basis. \3\ The practice of
private licensing is not widespread and most cable operators rely
exclusively on the cable statutory license to clear the rights to over-
the-air broadcast programming.
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\3\ Under the cable statutory license, a cable operator that
carries any part of an over-the-air broadcast signal, no matter how
momentary, must pay royalties for the signal as if it had been carried
for the full six months of the accounting period.
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2. The section 119 satellite carrier statutory license.
The cable statutory license was enacted as part of the Copyright
Act of 1976 and is a permanent license. In the mid-1980's, the home
satellite dish industry grew significantly, and satellite carriers had
the ability to retransmit over-the-air broadcast programming to home
dish owners. In order to facilitate this business and provide rural
America with access to television programming, Congress passed the
Satellite Home Viewer Act of 1988, Pub. L. No. 100-667 (1988), which
created the satellite carrier statutory license found in 17 U.S.C.
Sec. 119.
The section 119 license is similar to the cable statutory license
in that it provides a means for satellite carriers to clear the rights
to over-the-air television broadcast programming (but not radio) upon
semi-annual payment of royalty fees to the Copyright Office. The
section 119 license differs from the cable statutory license, however,
in several important aspects. First, the section 119 license was
enacted to cover only distant over-the-air television broadcast
signals. In 1988, and for many years thereafter, satellite carriers
lacked the technical ability to deliver subscribers their local
television stations. Local signals are not covered by the section 119
license. Second, the calculation of royalty fees under the section 119
license is significantly different from the cable statutory license.
Rather than determine royalties based upon the complicated formula of
gross receipts and application of outdated FCC rules, royalties under
the section 119 license are calculated on a flat, per subscriber per
signal basis. Over-the-air broadcast stations are divided into two
categories: superstation signals (i.e., commercial independent over-
the-air television broadcast stations), and network signals (i.e.,
commercial televison network stations and noncommercial educational
stations); each with its own attendant royalty rates. Satellite
carriers multiply the respective royalty rate for each signal by the
number of subscribers who receive the signal during the six-month
accounting period to calculate their total royalty payment.
Third, while satellite carriers may use the section 119 license to
retransmit superstation signals to subscribers located anywhere in the
United States, they can retransmit only network signals to subscribers
who reside in ``unserved households.'' An unserved household is defined
as one that cannot receive an over-the-air signal of Grade B intensity
of a network station using a conventional rooftop antenna. 17 U.S.C.
Sec. 119(d). \4\ The purpose of the unserved household limitation is to
protect local network broadcasters whose station is not provided by a
satellite carrier from having their viewers watch another affiliate of
the same network on their satellite television service, rather than the
local network affiliate.
---------------------------------------------------------------------------
\4\ Certain exemptions to the unserved household limitation were
added by the Satellite Home Viewer Improvement Act of 1999, including
recreational vehicles and commercial trucks, certain grandfathered
subscribers, subscribers with outdated C-band satellite dishes and
subscribers obtaining waivers from local network broadcasters.
---------------------------------------------------------------------------
The section 119 satellite carrier statutory license created by the
Satellite Home Viewer Act of 1988 was scheduled to expire at the end of
1994 at which time satellite carriers were expected to be able to
license the rights to all over-the-air broadcast programming that they
retransmitted to their subscribers. However, in 1994 Congress
reauthorized the section 119 license for an additional five years. In
order to assist the process of ultimately eliminating the section 119
license, Congress provided for a Copyright Arbitration Royalty Panel
(CARP) proceeding to adjust the royalty rates paid by satellite
carriers for network stations and superstations. Unlike cable systems
which pay fixed royalty rates adjusted only for inflation, Congress
mandated that satellite carrier rates should be adjusted to reflect
marketplace value. It was thought that by compelling satellite carriers
to pay statutory royalty rates that equaled the rates they would most
likely pay in the open marketplace, there would be no need to further
renew the section 119 license and it could expire in 1999.
The period from 1994 to 1999 was the most tumultuous in the history
of the section 119 license. The satellite industry expanded its
subscriber base considerably during this time and provided many of
these subscribers with network stations in violation of the unserved
household limitation. Broadcasters issued challenges, lawsuits were
brought, and many satellite customers had their network service
terminated. Angry subscribers wrote their congressmen and senators
protesting the loss of their satellite-delivered network stations,
focusing attention on the fairness and application of the unserved
household limitation. In the meantime, the Library of Congress
conducted a CARP proceeding to adjust the royalty rates paid by
satellite carriers. Applying the new marketplace value standard as it
was required to do, the CARP not surprisingly raised the rates
considerably. The satellite industry, with less than 10 million
subscribers, was required to pay more in statutory royalty fees than
the cable industry, which had nine times the number of subscribers. The
satellite industry and its customers were irate.
Congress's response to the furor over the section 119 license was
the Satellite Home Viewer Improvement Act of 1999. The Act codified a
new vision for the statutory licensing of the retransmission of over-
the-air broadcast signals by satellite carriers. The heart of the
conflict over the unserved household limitation--indeed the reason for
its creation--was the inability of satellite carriers (unlike cable
operators) early on to provide their subscribers with their local
television stations. By 1999, satellite carriers were beginning to
implement local service in some of the major television markets in the
United States. In order to further encourage this development, Congress
created a new, royalty-free license. \5\ Congress also made several
changes to the unserved household limitation itself. The FCC was
directed to conduct a rulemaking to set specific standards whereby a
satellite subscriber's eligibility to receive service of a network
station could accurately be predicted. \6\ For those subscribers that
were not eligible for network service, a process was codified whereby
they could seek a waiver of the unserved household limitation from
their local network broadcaster. In addition, three categories of
subscribers were exempted from the unserved household limitation:
owners of recreational vehicles and commercial trucks, provided that
they supplied certain required documentation; subscribers receiving
network service which was terminated after July 11, 1998, but before
October 31, 1999, and did not receive a strong (Grade A) over-the-air
signal from their local network broadcaster; and subscribers using the
old-style large C-band satellite dishes.
---------------------------------------------------------------------------
\5\ The section 122 statutory license is discussed infra.
\6\ The Commission confirmed that the Grade B signal intensity
standard provided an adequate television picture when received with a
conventional rooftop receiving antenna, and adopted a predictive model
to determine when subscribers likely received an over-the-air signal of
Grade B intensity. Report, 15 FCC Rcd 24321 (Nov. 29, 2000)(Grade B
intensity); First Report and Order, 15 FCC Rcd 12118 (May 26,
2000)(predictive model).
---------------------------------------------------------------------------
In reaction to complaints about the 1997 CARP proceeding that
raised the section 119 royalty rates, Congress abandoned the concept of
marketplace value royalty rates and reduced the CARP-established
royalty fee for network stations by 45 percent and the royalty fee for
superstations by 30 percent. Finally, the Satellite Home Viewer
Improvement Act of 1999 extended the revised section 119 statutory
license for five years until midnight on December 31 of this year.
3. The section 122 satellite carrier statutory license.
The section 122 satellite carrier statutory license completes the
regime for satellite retransmission of over-the-air television
broadcast stations. While the section 111 license permits cable systems
to retransmit both local and distant over-the-air television broadcast
signals, such a privilege is parsed among two statutory licenses for
the satellite industry. As discussed above, the section 119 license
covers retransmissions of distant signals. The section 122 license
covers the retransmission of local signals and, unlike the section 119
license, is permanent. The section 122 license is royalty free, and is
conditioned on a satellite carrier carrying all local over-the-air
television stations within a given market. In other words, a satellite
carrier may not pick and choose which stations in a given local market
it wishes to provide to its subscribers residing in that market.
should the section 119 license be extended?
The Copyright Office has traditionally opposed statutory licensing
for copyrighted works, preferring instead that licensing be determined
in the marketplace by copyright owners through the exercise of their
exclusive rights. However, in my report to the Senate and House
Judiciary Committees before to the passage of the Satellite Home Viewer
Improvement Act of 1999, I stated that ``the satellite carrier industry
should have a compulsory [statutory] license to retransmit broadcast
signals as long at the cable industry has one.'' A Review of the
Copyright Licensing Regimes Covering Retransmission of Broadcast
Signals (Report of the Register of Copyrights, August 1, 1997) at 33.
Nothing has changed since 1997 to alter this point of view, and I can
think of no reason that would justify retaining the section 111 cable
statutory license while abandoning the section 119 satellite carrier
statutory license. Consequently, the Copyright Office supports
extension of section 119.
should there be other amendments to the section 119 license?
Today's hearing marks the start of a process whereby this
Subcommittee will be presented with many ideas for changes to the
existing terms and conditions of the section 119 license. We look
forward to working with you, Mr. Chairman, and, if requested, will
offer our analysis and views on any proposed amendments to section 119.
However, I would like to call your attention to two issues.
First, there are some outdated provisions in section 119.
Specifically, there are provisions governing the licensing of the PBS
satellite feed which expired in 2003. There are also a number of
provisions regarding the 1997 Copyright Arbitration Royalty Panel
(CARP) rate adjustment. The rates established by that proceeding were
superseded by the Satellite Home Viewer Improvement Act of 1999 and are
no longer relevant. Further, the Grade B signal testing regime, created
by the Satellite Home Viewer Act of 1994, expired in 1996. These
outdated sections should be deleted from section 119.
Second, there are matters related to the transition by the
broadcast industry from over-the-air analog television signals to
digital signals. The FCC has directed that the conversion to digital
should take place by 2006. While this date may ultimately change, the
conversion to digital nonetheless raises some questions with respect to
statutory licensing. The Copyright Office strongly supports a formal
Congressional recognition that the section 119 license, and the section
122 license, apply to satellite carriers of over-the-air digital
broadcast television stations. In so recognizing this application, it
will be necessary to address the unserved household limitation set
forth in the section 119 license.
As described earlier in this testimony, the unserved household
limitation restricts satellite carriers from making use of the section
119 license for network television stations to subscribers that do not
reside in unserved households. An ``unserved household'' is defined as
one that ``cannot receive, through the use of a conventional,
stationary, outdoor rooftop receiving antenna, an over-the-air signal
of a primary network station affiliated with that network of Grade B
intensity as defined by the Federal Communications Commission. . . .''
17 U.S.C. Sec. 119(d)(10)(A). The Grade B standard applies to
television stations that broadcast in analog format, not digital.
Consequently, there will be no standard to determine when a household
receives an adequate over-the-air signal of a network station that is
broadcast in digital. The unserved household limitation will not
function in the era of digital television unless it is amended.
It is reasonable to assume that a new signal strength standard for
digital broadcasting might mirror the Grade B standard applicable to
analog broadcasting. In establishing a new standard, I offer a word of
caution. A television signal of Grade B intensity received by a
household does not always guarantee a perfect television picture, but
it virtually always guarantees a watchable picture. Atmospheric
conditions, terrain features and background noise can sometimes make an
analog television picture fuzzy or snowy, but there is still a
receivable signal. Such is not the case, however, with digital
broadcasting, which is an all or nothing proposition. If a digital
signal is too weak at any given time, the household will not receive a
fuzzy or snowy picture; it will receive nothing. Therefore, the signal
intensity strength standard for digital television must be sufficiently
strong to assure that a household receiving an over-the-air digital
broadcast station can receive it twenty-four hours a day, seven days a
week.
We look forward to working with you, Mr. Chairman and members of
the Subcommittee, to resolve these and other matters regarding the
extension of the section 119 license. Thank you.
Mr. Smith. Mr. Attaway.
STATEMENT OF FRITZ ATTAWAY, EXECUTIVE VICE PRESIDENT FOR
GOVERNMENT RELATIONS AND WASHINGTON GENERAL COUNSEL, MOTION
PICTURE ASSOCIATION OF AMERICA (MPAA)
Mr. Attaway. Thank you, Chairman Smith, Mr. Berman, Mr.
Boucher, Mr. Meehan.
I appreciate this opportunity today to present the views of
television content owners on extension of the Satellite Home
Viewer Act. Although I speak today only on behalf of the member
companies of the Motion Picture Association, I am authorized to
tell you that my statement is endorsed by the Office of the
Commissioner of Baseball, the National Football League, the
National Basketball Association, the National Hockey League,
the National Collegiate Athletic Association, and Broadcast
Music, Inc.
The Satellite Home Viewer Act of 1988 created in section
119 of the Copyright Act, for a 5-year period, a compulsory
license that allows satellite program distributors, such as
EchoStar and DirecTV, to retransmit broadcast television
programming from distant markets without the permission of
copyright owners of that programming. This satellite compulsory
license forces copyright owners to make their copyrighted
programs available without their consent and without any
ability to negotiate with the satellite companies for, among
other things, marketplace compensation.
The SHVA was extended for 5-year periods in 1994 and 1999.
In 1999, in response to fierce lobbying by the satellite
industry, Congress imposed a substantial discount on market-
based compulsory license rates set a year earlier by an
independent arbitration panel and approved by the Copyright
Office and the Librarian of Congress. These discounts, 30
percent for superstation programming and 45 percent for network
and PBS programming, went into effect in July 1999.
Since the reduction in royalty rates in 1999, there have
been no further adjustments to the compulsory license rates.
In the 5 years since the last extension of the satellite
compulsory license, the cost of programming that satellite
companies license in the free market for resale to their
subscribers has increased substantially, as have the fees
charged by satellite companies to their subscribers. The only
financial figure that has not increased is the compensation
provided to owners of retransmitted broadcast programming.
Satellite carriers now pay only 18.9 cents per subscriber
per month for all the programming on a distant independent
broadcast station like WGN in Chicago and KTLA in Los Angeles.
They pay only 14.85 cents for network stations. The satellite
carriers then sell this programming to their subscribers for
many times that amount.
Let me put this in perspective. This bag of pinto beans
cost $0.69 at the Safeway store. A satellite carrier, under the
Government-imposed compulsory license, pays 18.9 cents a month
for movies, series, sporting events, local news shows, and
other programming broadcast 24 hours a day.
Mr. Chairman, it is a fact that, for all of this
programming, which costs millions of dollars to produce,
satellite carriers don't pay beans.
Mr. Smith. I thought that phrase was coming myself, yes.
Mr. Attaway. The landscape has changed dramatically since
the first satellite compulsory license was enacted in 1988. It
has been 14 years. It is time for Congress to reexamine the
need for a wealth transfer from content owners to satellite
carriers. At the very least, Congress should demand from
proponents of the satellite compulsory license clear and
convincing evidence that an extension of the license is
necessary to serve the public interest.
These carriers provide hundreds of channels of programming
for which they negotiate in the free market. It is only this
handful of distant broadcast stations that use a compulsory
license. There is no justification for that in my mind. But if
you decide to continue to subsidize the satellite industry, I
urge you to provide some semblance of fairness to the content
owners who pay for this subsidy, by making three changes in
law.
First, the royalty rates for the year 2004 should be
increased to reflect increases that satellite companies have
paid in the marketplace for comparable programming; second,
starting in 2005, the royalty rates should be adjusted annually
to keep pace with the license fees paid by satellite companies
in the free market for comparable programming; and, third,
copyright owners should have the right to audit satellite
companies to ensure that they are accurately reporting and
paying their royalties.
Mr. Chairman, these are not radical changes. They are
reasonable. They would inject some degree of fairness in the
compulsory license by bringing compensation to program owners
closer to market levels.
I respectfully urge the Committee to make these changes if
it decides to extend the compulsory license, and thank you very
much for your time.
Mr. Smith. Thank you, Mr. Attaway.
[The prepared statement of Mr. Attaway follows:]
Prepared Statement of Fritz Attaway
Chairman Smith, ranking minority member Berman, members of the
Subcommittee, thank you for giving me this opportunity to present the
views of owners of television programming, and representatives of
authors whose works appear in that programming, on extension of the
Satellite Home Viewer Act. Although I speak only for the member
companies of the Motion Picture Association of America, I am authorized
to tell you that the following organizations endorse the views set
forth in this statement: the Office of the Commissioner of Baseball,
the National Football League, the National Basketball Association, the
National Hockey League, the National Collegiate Athletic Association,
and Broadcast Music, Inc.
background
The Satellite Home Viewer Act (SHVA) of 1988 created in Section 119
of the Copyright Act, for a five-year period, a ``compulsory license''
that allows satellite program distributors (such as EchoStar and
DirecTV) to retransmit broadcast television programming from distant
markets without the permission of the copyright owners of that
programming. This satellite compulsory license forces copyright owners
to make their copyrighted programs available without their consent and
without any ability to negotiate with the satellite companies for,
among other things, marketplace compensation.
The SHVA was extended for five-year periods in 1994 and 1999. The
1994 renewal provided for a royalty rate adjustment procedure aimed at
providing copyright owners with market value compensation for the use
of their programming by satellite companies. This procedure was in fact
exercised, which resulted in the assessment of market-based royalty
rates in 1998 by a panel of independent arbitrators appointed by the
Copyright Office.
Although satellite companies pay market based license fees for
scores of program services that they sell to their subscribers, they
strongly objected to paying market based royalty rates for the
retransmitted broadcast programming they sell to their subscribers, and
successfully petitioned Congress to impose a substantial discount on
the market based rates. These discounts--30 percent for
``superstation'' programming and 45 percent for network and PBS
programming--went into effect in July of 1999.
Since the reduction of royalty rates in 1999, there have been no
further adjustments to the compulsory license rates. If the SHVA were
simply extended for another five years, at the end of that period the
satellite royalty rates will have been frozen for a period of ten
years. In the five years since the last extension of the satellite
compulsory license, the cost of programming that satellite companies
license in the free market for resale to their subscribers has
increased substantially, as have the fees charged by satellite
companies to their subscribers. The only fiscal measure that has not
increased is the compensation provided owners of retransmitted
broadcast programming.
copyright owners' position
1. Compulsory licenses are a serious derogation of the rights of
copyright owners. They substitute the heavy hand of government for the
efficient operation of the marketplace and arbitrarily transfer wealth
from copyright owners to privileged users. Compulsory licenses should
be imposed only as a last resort when marketplace forces clearly are
incapable of operating in the public interest. It has been 14 years
since the satellite compulsory license was first imposed. Congress
should demand from proponents of the satellite compulsory license clear
and convincing evidence that an extension of the license is necessary
to serve the public interest.
2. If Congress reauthorizes the satellite compulsory license, the
royalty rates for the year 2004 should be increased to reflect
increases that satellite companies have paid in the marketplace for
comparable programming.
3. Starting in 2005, the royalty rates should be adjusted annually to
keep pace with the license fees paid by satellite companies in the free
market for comparable programming services.
4. Copyright owners should have the right to audit satellite companies
to ensure that they are accurately reporting and paying their
royalties.
bases for copyright owners' position
There is no equitable justification for freezing the satellite
compulsory license royalty rates for a period of ten years.
The rate freeze that has been in effect since 1999 is
unique among the compulsory licenses. All of the other
compulsory licenses in the Copyright Act have procedures for
increasing the royalty rates, either automatically or through
rate adjustment proceedings. Satellite companies have
unjustifiably received special treatment by not having their
royalty rates subject to periodic adjustments.
Satellite companies themselves have raised the prices
that consumers pay to receive distant broadcast signals. For
example, according to the web site ``Echostar Knowledge Base,''
which states that it is not affiliated with Echostar
Communications, the EchoStar satellite service raised the
monthly price of its package of distant ``superstation''
signals from $4.99 per subscriber in 1998 to $5.99 in 2002--
despite the fact that the royalty cost of distant signal
programming was reduced by Congress in 1999. In other words,
since 1998 this satellite service has increased its charges for
distant broadcast programming by 20 percent, while its
copyright royalty payment for that programming has been reduced
by 30 percent!! Copyright owners of retransmitted broadcast
programming should not be forced to accept freezes in the
satellite compulsory license royalty rates when all other costs
to satellite carriers are increasing and the fees charged by
satellite carriers to their subscribers are increasing as well.
The fees that satellite companies pay for comparable
programming not subject to compulsory licensing have steadily
increased. For example, in 1998, a panel of independent
arbitrators determined that broadcast programming transmitted
pursuant to the satellite compulsory license was most
comparable to the programming on the 12 most widely carried
cable networks, such as TNT, CNN, ESPN, USA and Nickelodeon.
The license fees for those twelve networks have increased by
approximately 60 percent since 1998. A report issued by the
General Accounting Office last year found that cable and
satellite service programming costs had risen 34 percent in the
previous three years. These increases reflect substantial
increases in the production costs of entertainment programming.
For instance, the average production cost of network half-hour
sitcoms increased from $994,000 to $1,227,000 per episode, or
23.4 percent, between 2000 and 2003 alone.
There is well-established precedent for allowing
copyright owners some royalty rate increases over the years.
When Congress first extended the satellite compulsory license
in 1994, it adopted rates that represented an increase over the
rates in the original satellite compulsory license, and
provided a mechanism for adjusting those rates in the future to
reflect the market value of programming. In the 1999 extension
legislation, Congress again adopted rates that represented an
increase over those put in place in 1994, even though those
rates were less than those that were set by an independent
arbitration panel.
Annual adjustments should be built into the royalty rates so that
those rates reflect increases in payments for programming made by
satellite companies in the free market.
A provision to allow annual royalty rate adjustments
will eliminate the unfairness of discriminatory rate freezes
for long periods of time. Building in annual rate adjustments
tied to an objective marketplace benchmark will ensure some
measure of fair compensation to copyright owners over the life
of the compulsory license.
Periodic royalty fee adjustments will simplify the
royalty rate process. With a built-in annual adjustment based
on a known benchmark, there will be less potential for dramatic
rate changes necessary to make up for long periods without
adjustments and greater certainty for copyright owners and
satellite companies as well.
Other compulsory licenses have provisions for
periodic royalty rate increases. Section 119 is alone among the
royalty-based compulsory licenses in not providing a mechanism
for royalty rate increases on a periodic basis.
Copyright owners should have a reasonable opportunity to ensure
that satellite companies are properly reporting and calculating the
royalties due under the satellite compulsory license.
Under the current law, copyright owners have no means
of verifying royalty payments short of initiating copyright
infringement lawsuits. Copyright owners have no ability under
the compulsory license to resolve unexplained discrepancies
between satellite companies' public statements concerning
subscribership and their compulsory license royalty payments.
The only current avenue available to copyright owners is to
institute wasteful and expensive copyright infringement
litigation over what may be honest or simple errors in
reporting and calculating royalties.
Other compulsory licenses have provisions for
verifying royalty payments. Other compulsory licenses in the
Copyright Act, including Sections 112 and 114, allow copyright
owners to inspect the records of the compulsory licensees to
ensure compliance with the compulsory license.
Licensing agreements that satellite companies enter
into for other programming routinely contain audit provisions.
Inclusion of an audit provision in the satellite compulsory
license would not add any new burden on satellite companies,
and is a provision that they have been willing to accept in the
marketplace.
Again, I thank you for this opportunity to present the views of
television program copyright owners, and I look forward to responding
to your questions.
Mr. Smith. Mr. Moskowitz.
STATEMENT OF DAVID K. MOSKOWITZ, BOARD CHAIRMAN, SENIOR VICE
PRESIDENT AND GENERAL COUNSEL, ECHOSTAR COMMUNICATIONS
CORPORATION, ON BEHALF OF SATELLITE BROADCASTING AND
COMMUNICATIONS ASSOCIATION (SBCA)
Mr. Moskowitz. Thank you, Chairman Smith, Ranking Member
Berman, Congressman Boucher and Congressman Meehan.
My name is David Moskowitz, and I am chairman of the board
of the Satellite Broadcasting and Communications Association.
Our members include satellite TV, radio, and broadband
platforms. We also include programmers, distributors,
retailers, manufacturers, and others. We work to represent the
interests of more than 22 million U.S. households that receive
programming direct by satellite today.
When consumers are left behind by local network stations
whose off-air signal does not reach a household, section 119 of
the Copyright Act allows satellite to offer other network
channels. We urge the Committee to allow these millions of
underserved consumers, most of whom live in rural America, to
continue receiving distant network channels and superstations
through permanent extension of the Satellite Home Viewer
Improvement Act.
Cable enjoys a permanent statutory license. A permanent
satellite license, together with the following modifications to
the SHVIA, would allow satellite to compete on a more level
playing field against cable.
Consumers also rely on the congressionally provided
grandfather clause of section 119 to continue receiving the
channels they have watched for over 5 years. It has been
suggested by some that Congress should take away distant
network channels from grandfathered consumers. We urge
continued protection of the rights of these consumers.
Despite progress, satellite carriers are still saddled with
regulations that are not imposed on cable. For example, cable
pays lower per subscriber royalties than satellite for the
exact same programming. Without taking a position with respect
to the level for the specific rate and without fierce lobbying,
we think it fair that Congress establish equivalent rates for
satellite and cable; and, of course, the beans can be purchased
at your local store and don't need to be launched into space at
a cost of hundreds of millions of dollars.
Additionally, there are at least 50 communities that do not
have local affiliates of all major networks. Cable routinely
fills these holes by adding additional network channels from
other markets. DBS is prohibited from doing so.
Further, cable is permitted to include significantly viewed
channels in their offerings. DBS is not. For example, in
Washington, D.C., as in dozens of other DMAs across the
country, Comcast customers watch both Baltimore and Washington
NBC network channels. DBS cannot offer the Baltimore NBC
station in Washington. These disparities, we believe, should be
rectified.
Turning to technology innovation, currently only about 600
of the 1,600 broadcasters across the U.S. have fully complied
with their digital obligations. The DBS industry is uniquely
positioned to be a catalyst to Congress' goal that digital
television become available to all Americans.
We would ask that you to consider allowing consumers who
cannot receive digital signals from their local station to
receive them by satellite. Satellite can make distant network
HD programming available to every household in America today,
while continuing to provide all of the analog channels
consumers have come to rely on. A clear license to offer
digital network channels in digitally unserved areas would
provide the encouragement these stations need to fulfill their
promises to Congress.
Addressing corrections to the SHVIA, consumers do not
understand why they should be prohibited from getting network
channels by satellite when they can't get their local channels
off air. They are angry when told they cannot purchase network
channels by satellite if stations in neighboring markets are
predicted by a computer to offer a channel off air. We would
ask Congress to make clear that only stations in the consumer's
home market can grant or deny a waiver.
Finally, consumers should only be permitted to request
signal strength tests at their home if they are predicted to
receive a weak signal. Consumers living near the local
station's tower are uniformly frustrated when they request a
test and find that they clearly do not meet the standard.
The answer for these millions of consumers to get the
choice they deserve can only be found in revisions to the
antiquated grade B standard to take into account changes in
technology and consumer expectations over the past 50 years and
to take into account ghosting and other factors which cause
poor reception, even in areas receiving a strong off-air
signal. Please direct the FCC to revise the standard to meet
today's consumer expectations.
Mr. Chairman, the SBCA and the satellite industry
appreciate the efforts of Congress to ensure that DBS is a more
effective competitor to cable.
Thank you for allowing me to testify, and I would look
forward to your questions.
Mr. Smith. Thank you, Mr. Moskowitz.
[The prepared statement of Mr. Moskowitz follows:]
Prepared Statement of David K. Moskowitz
Thank you Chairman Smith, Representative Berman, and members of the
Subcommittee, my name is David Moskowitz, and I am Chairman of the
Board of the Satellite Broadcasting and Communications Association
(SBCA). SBCA is the national trade association that represents the
satellite services industry. Our members include satellite television,
radio and broadband providers, launch vehicle operators, programmers,
equipment manufacturers, distributors and retailers.
Thank you to the members of this Subcommittee and to Congress for
recognizing early on the potential of satellites to provide consumers
with an alternative source for news, information and entertainment
programming. The current Chairman of the Judiciary Committee, Mr.
Sensenbrenner, was one of the original sponsors of the first Satellite
Home Viewer Act (SHVA) in 1988. Much of the industry's success can be
attributed to the actions of Congress in general, and this Committee in
particular, in fostering satellite as an effective competitor in the
multichannel video programming marketplace.
On behalf of the SBCA member companies, I urge the Committee to
reauthorize the Satellite Home Viewer Improvement Act (SHVIA) and
extend the satellite distant network signal and superstation compulsory
license permanently. I would also like to recommend a handful of
modifications to the SHVA that will ensure satellite television
providers can continue to meet consumer expectations and compete
effectively with other multichannel video programming distributors.
overview
The satellite operators that SBCA represents provide the most
advanced television choices in the multichannel video market, including
high-definition television, personal video recorders and interactive
services. The benefit of satellite-delivered technology like DBS is
that it can reach consumers across the country without discriminating
between rural and urban, sparsely or densely populated areas.
Currently, nearly 22 million U.S. households receive television
programming via satellite, from both direct broadcast satellite (DBS)
and C-Band operators. To illustrate the tremendous growth of satellite
television and DBS in particular, the last time this Subcommittee met
to discuss the reauthorization of the SHVA, in 1999, there were 13
million satellite subscribers, over 10 million of whom subscribed to
DBS. In five years, that number has more than doubled. Despite the
emergence and continuing growth of DBS in the multichannel video
marketplace, cable operators still serve 75% of multichannel video
subscribers. Many factors have contributed to the growth of DBS in the
multichannel video market, including the superior customer service,
competitive pricing and the wide range of programming offered by DBS
operators.
local-into-local
The growth that DBS has experienced, and the resulting benefit to
consumers, is due in large part to the support the industry has
received from Congress. Throughout the 16-year SHVA reauthorization
process, Congress has recognized satellite's potential and the need to
amend the Act to accommodate our technological innovations and new
marketplace realities. The 1999 Satellite Home Viewer Improvement Act
(SHVIA) was no exception. The provision allowing DBS providers for the
first time to retransmit local broadcast stations was certainly a
catalyst for the industry's recent growth.
Congress' decision to allow DBS providers to offer local-into-local
service, and the subsequent roll out of that service by DBS providers,
continues to be a principal reason that customers subscribe to DBS.
This permanent statutory provision has given DBS providers the ability
to compete with cable head-to-head, on a level playing field, in many
markets.
Currently, consumers in 112 designated market areas (DMAs),
reaching 87 percent of U.S. television households, are able to receive
local broadcast stations via satellite from one or both of the DBS
operators. In 2000, the first year that DBS providers were allowed to
retransmit local broadcast stations into local markets, only 19 percent
of DBS subscribers had local signals available to them via DBS.
Satellite television providers have invested significant capital to
improve the technology used to offer local-into-local service and to
expand their satellite fleets, which has resulted in the ability to
offer local broadcast stations to an increasing portion of the country,
thereby creating a more competitive multichannel video programming
distribution (MVPD) market.
reauthorization of shvia
Reauthorization of the Satellite Home Viewer Improvement Act
provides Congress with an excellent opportunity to further improve the
environment for providing advanced services and true competition in the
MVPD market, in addition to continuing many of the established and
proven provisions of the Act. In many critical respects, satellite
carriers are saddled with regulatory provisions that are not imposed
upon their competitors, and that makes satellite a less attractive
option for many potential subscribers. One of the SBCA's principle
objectives is to ensure that the satellite industry is able to compete
more effectively with other MVPD providers.
Section 119 of the Copyright Act, which expires on December 31,
2004, allows satellite carriers to make network programming available
to viewers unable to receive the over-the-air signals of their local
network affiliates. Although this important provision does not affect
many households in urban and suburban areas, the service is critical to
consumers in rural areas. It is imperative that satellite providers be
able to make network programming available to all of its subscribers
when they are unable to receive their local broadcast channels over-
the-air. Without distant network signals, many subscribers would be
left with no alternative for network programming.
Additionally, section 119 permits satellite carriers to retransmit
non-network broadcast stations to satellite subscribers. These so-
called ``superstations,'' such as WGN, have been a staple of cable
system lineups since cable first began making its service available to
consumers in the 1970's, and helped drive the growth of the satellite
television industry. They continue to be among the most popular program
offerings. The compulsory license ensures that satellite carriers have
the same legal authority as cable to make this popular programming
available to satellite subscribers.
Section 119 also allows certain eligible households to continue
receiving distant network signals if they subscribed to these signals
prior to October 31, 1999. The SBCA strongly supports extension of the
distant network ``grandfather'' clause. This group of satisfied, long-
term customers has come to rely upon this service for at least the last
five years, and much longer in some cases. It makes no sense from a
public policy standpoint to tell consumers that they can no longer
receive this programming.
In order for both DBS and C-Band consumers to continue receiving
this programming, the satellite compulsory license must be extended
beyond its current expiration date of December 31, 2004. Our industry
is still dependent upon the compulsory license to legally retransmit
distant network signals and superstations. There is no private sector
mechanism for the licensing of copyrighted programming carried on a
distant network signal or superstation, and there have been no efforts
that SBCA is aware of to establish such a rights clearing organization
for either satellite or cable providers. The Subcommittee has aptly
recognized in the past that clearing the rights to the hundreds of
programs that make up a retransmitted broadcast signal would be
administratively and economically burdensome. The compulsory license--
while not perfect--makes clearing these rights possible. Moreover, as
long as the satellite industry's chief competitor--cable--continues to
enjoy a permanent, statutorily-granted compulsory license, both equity
and the Congressional desire to promote competition in the MVPD
marketplace dictate that satellite carriers be permitted to avail
themselves of a compulsory license under the same terms as cable.
regulatory parity
One of the SBCA's principle objectives in the legislative process
this year is to ensure that all MVPD providers can compete on a level
playing field, which means establishing some degree of regulatory
parity with cable when it comes to regulations governing carriage of
broadcast channels. As I noted earlier, the SHVIA saddles the satellite
industry with a number of affirmative obligations and prohibitions that
make it difficult for DBS providers to offer programming comparable to
that offered by cable. For example, while the cable industry enjoys
virtually unlimited ability to provide broadcast signals--both network
and non-network, and distant or local--to its subscribers, satellite
providers face strict restrictions on the broadcast signals they can
provide to subscribers.
royalty rates
Another area of concern for satellite providers is the lack of
parity between royalty rates paid under the satellite compulsory
license and the cable compulsory license. In addition to enjoying a
permanent license that never expires, the statutory licensing fees that
cable pays are calculated differently. The result is that cable pays
far lower per-subscriber royalty fees for distant network stations and
superstations than do satellite providers for the exact same
programming. Cable royalty rates are calculated using a formula based
on the size in both subscribers and revenue of the cable system.
Satellite royalty rates were last calculated by a Copyright Arbitration
Royalty Panel (CARP) based on a set of factors designed to arrive at
royalty rates that was as close to ``fair market value'' as possible.
The rate that the CARP arrived at was so far in excess of the royalty
rates paid by other MVPDs that Congress overturned the CARP decision
and established its own statutory rates. And, as this Subcommittee
knows, the whole CARP process has now been abandoned for an alternative
approach. The disproportion between royalty rates paid by competing
MVPDs remains a major issue for the satellite industry. In
reauthorizing the SHVIA, Congress should take care to ensure that the
rates are equivalent for both satellite and cable so that neither
service provider enjoys an advantage over the other. In other words,
the royalty rates for DBS should be adjusted downward so as to equal
cable's rates.
carriage of broadcast signals
The first issue of carriage of broadcast signals that I would like
to address involves DBS providers' ability to offer a full complement
of broadcast station programming. As DBS providers continue to offer
more and more local-into-local services farther down the list of the
210 DMAs, there are at least 50 markets that do not have a full
complement of local affiliates of the major networks. Current law does
not allow DBS providers to make available to subscribers a broadcast
station from a neighboring DMA to ensure that they get the whole
complement of broadcast stations. This is because the local-into-local
license contained in Section 122 of the Copyright Act only allows DBS
operators to retransmit local stations back into the DMA to which they
are assigned. Cable, on the other hand, can fill in holes in local
station affiliate offerings with neighboring stations and routinely
adds network affiliates and other broadcast stations so that its
subscribers have the full line up of major network and other popular
stations. The inability of DBS providers to offer subscribers a full
complement of broadcast signals leaves them at a serious disadvantage
vis-a-vis cable in competing for customers and is inconsistent with the
FCC's policy objective of ensuring that consumers have access to all
network programming.
Similarly, DBS operators are not permitted to tailor their local
channel offerings to respond to local community needs or interests.
Cable, on the other hand, is permitted to include broadcast channels
that do not originate in their local markets if those signals are
``significantly viewed'' by the community. There is no such provision
for DBS. As a result, DBS providers must adhere to DMA market
designations that do not conform to a local community's viewing habits.
For example, Comcast in New Haven, Connecticut, which is in the
Hartford-New Haven DMA, offers CBS, NBC and FOX affiliates from both
Hartford and New York City and ABC affiliates from both New Haven and
New York City. DBS providers in New Haven cannot offer the New York
City stations at all, and are thus at a serious competitive
disadvantage.
transition to digital television
There is a new matter that I ask you to consider relating to the
Section119 compulsory copyright license for distant network signals
offered by DBS. As you are aware, the transition to digital television
(DTV) is mired by many technical and legal complexities. At this point,
more than 1,000 broadcasters have not met their obligations to
broadcast their programming in DTV. Of these stations, 252 TV stations
are not broadcasting HDTV service and 749 are broadcasting at low
power.1 They continue to hoard this analog spectrum worth hundreds of
billions of dollars that could be auctioned by the FCC to wireless
companies eager to offer new advanced services. The DBS industry is
uniquely positioned to make good on Congress' goal that digital
television become available to all Americans. By amending SHVIA,
Congress can advance the digital transition.
Our proposal is simple. Allow households that cannot receive their
local affiliates' digital signals to receive network DTV signals from
their satellite TV provider. This can be done by broadening the
existing compulsory license to permit DBS providers to offer network
digital service in unserved areas. The expanded license would limit DBS
service to only those households that cannot receive an over-the-air
digital network signal. The availability of distant digital signals
would have no real impact on the roll out of analog local-into-local
service to additional markets by DBS operators. It would simply afford
consumers nationwide new digital services currently unavailable.
waiver and signal strength testing process
Although waivers represent a small portion of the issues DBS
providers must deal with, we believe the current waiver and signal
strength testing process for the receipt of distant network signals by
those who are predicted to receive a Grade B over-the-air signal but
who nonetheless do not receive a clear picture, as spelled out in
SHVIA, needs to be revisited. The waiver process is not functioning as
Congress envisioned when the law was enacted. After five years of
experience working with the waiver process, we can testify that the
current process often leads to a bad customer experience. In some cases
the law is unclear; in other cases consumers have unrealistic
expectations; still in other cases DBS providers and their customers
are subject to the whims of broadcasters. We recommend only permitting
consumers receiving a weak Grade B signal to request a signal strength
test and prohibiting broadcasters from revoking waivers once given as
long as the subscriber receives continuous service from their DBS
provider. Further, the rules should be clarified to eliminate consumer
confusion when a subscriber lives in an area that borders on another
DMA by limiting the Grade B contour to a broadcaster's DMA for the
purposes of securing waivers for a DBS subscriber to receive distant
network signals. This will eliminate the need for customers to get
multiple waivers from affiliates of the same network.
conclusion
Mr. Chairman, in closing I'd like to reiterate that the SBCA and
the satellite industry appreciate the efforts of Congress to ensure
that DBS is a true competitor in the MVPD marketplace. With few
exceptions, our experience under the SHVIA has been a positive one.
While the DBS industry is growing, it is still necessary for Congress
to reauthorize the extension of the satellite compulsory license and to
ensure that the DBS industry is able to compete on a level playing
field. To that end, this Committee should pay special attention to the
royalty rates paid by satellite carriers and should endeavor to
eliminate any competitive regulatory disadvantages faced by the DBS
industry as it considers legislation to reauthorize the SHVIA.
1 FCC, ``Summary of DTV Applications Filed and DTV Build Out
Status, January 28, 2004.
Mr. Smith. Mr. Lee.
STATEMENT OF ROBERT G. LEE, PRESIDENT AND GENERAL MANAGER, WDBJ
TELEVISION, INC., ON BEHALF OF NATIONAL ASSOCIATION OF
BROADCASTERS (NAB)
Mr. Lee. Thank you, Mr. Smith, Ranking Member Berman, Mr.
Boucher, and Mr. Meehan.
I appreciate your having a small-market broadcaster appear
today to talk about the real-world impact of SHVIA. As someone
who has been in the television business for more than 30 years,
I can tell you that our business is built on serving local
viewers' needs with free, compelling, over-the-air local
programming. As SHVIA affects how we reach local viewers, I am
pleased to have an opportunity to comment on its
reauthorization as well.
As you know and we've heard today, SHVIA contains two
compulsory licenses. The first, the local into local license,
has been a win/win for local broadcasters, for the satellite
industry, and most importantly, I think, for the American
television viewer. Tens of millions of your constituents now
have an additional option of receiving their local stations via
satellite; and, as Mr. Moskowitz concedes, carriage of these
local stations is one of the primary reasons viewers subscribe
for satellite service. So our hope is that soon local
television stations in all 210 local markets will be delivered
by satellite. Clearly, the satellite industry is capable of
doing so.
By year end, DirecTV expects to serve at least 130 markets,
covering 92 percent of U.S. Television households. EchoStar
already serves 107. Unfortunately, in our opinion, this service
is marred by EchoStar's use of a discriminatory two-dish
scheme, requiring subscribers in many markets to obtain a
second dish to receive certain stations, especially religious
and Spanish language stations.
The second compulsory license, the distant signal license,
as we all know, has been plagued by satellite industry abuse.
There is no other way to characterize it.
For 10 years, DBS ignored the standard that determines
eligibility of a subscriber for distant signals by signing up
almost anyone willing to say they were unhappy with their over-
the-air picture. When this service was rightfully terminated,
there was a firestorm of outrage and confusion, and you know
who they pointed it at. Congress.
Even today, EchoStar continues providing illegal service to
hundreds of thousands of subscribers. In fact, a Federal
district judge recently found that EchoStar broke a sworn
promise to a Federal court by failing to disconnect them.
With this sordid record, EchoStar and DirecTV today ask you
to expand the digital signal license by creating this so-called
digital white area. This proposal is a recipe for mischief.
If Members of the Committee are concerned about preserving
free local over-the-air broadcasting in the digital age, you
must reject it. A digital white area would undercut what would
otherwise be a market-driven race between DirecTV, EchoStar and
cable to deliver digital high-definition signals on a local-to-
local basis. And when stations later sought to reclaim their
own local viewers, there would be that same consumer uproar
that would dwarf the outrage of 1999. In short, EchoStar and
DirecTV are proposing a loophole big enough to drive a DISH
network installation truck through.
The DBS industry suggests a digital white area will
stimulate the DTV transition. Mr. Chairman, that is complete
and total bunk as far as I am concerned.
The facts are television broadcasters have spent billions
of dollars bringing digital television to consumers. To date,
1,155 stations are on the air in digital; and despite claims
that stations are not transmitting at full power, 92 percent of
households with access to an analog television signal also have
access to a digital local signal. In those instances where
stations have not powered up, there are tangible regulatory and
technical obstacles beyond their control in many cases. Some
stations have not received FCC authorization to go to full
power. Some stations are experiencing tower location delays.
Many stations have not received their final channel assignment.
And, as stations increase power levels, interference issues
have arisen.
At the end of the day, Congress may elect to simply
reauthorize SHVIA in its current form for another 5 years.
Should you, however, take a broader approach, we would urge a
couple of improvements to SHVIA:
First, amend the definition of unserved household. If a
household is in a market where the satellite companies offer
local stations, there is no reason to bring in a distant
signal; and, secondly, outlaw EchoStar's two-dish practice.
I strongly urge Congress to reauthorize a SHVIA that
preserves and advances localism in television and does not harm
it, and I thank you.
Mr. Smith. Thank you, Mr. Lee.
[The prepared statement of Mr. Lee follows:]
Prepared Statement of Robert G. Lee
introduction and summary
Ever since this Committee took the lead in crafting the Satellite
Home Viewer Act of 1988 (``SHVA''), Congress has worked to ensure both
(1) that free, over-the-air network broadcast television programming
will be widely available to American television households, and (2)
that satellite retransmission of television broadcast stations will not
jeopardize the strong public interest in maintaining free, over-the-air
local television broadcasting. Those two goals remain paramount today.
There can be no doubt that delivery of local stations by satellite
is the best way to meet these twin objectives. The first two times this
Committee considered the topic--in 1988 and 1994--delivery of local
stations by satellite seemed far-fetched. Congress therefore resorted
to a considerably less desirable solution: permitting importation of
distant television stations, although only to households that could not
receive their local network stations over the air.
When Congress revisited this area in 1999, the world had changed:
local-to-local satellite transmission had gone from pipe dream to
technological reality. And in response, in the 1999 Satellite Home
Viewer Improvement Act (``SHVIA''), Congress took an historic step,
creating a new ``local-to-local'' compulsory license to encourage
satellite carriers to deliver local television stations by satellite to
their viewers. At the same time, Congress knew that allowing satellite
carriers to use the new license to ``cherry-pick'' only certain
stations would be very harmful to free, over-the-air broadcasting and
to competition within local television markets. Congress therefore made
the new ``local-to-local'' license available only to satellite carriers
that deliver all qualified local stations.
Congress' decision to create a carefully-designed local-to-local
compulsory license has proven to be a smashing success. Despite gloomy
predictions by satellite carriers before enactment of SHVIA that the
``carry-one-carry-all'' principle would sharply limit their ability to
offer local-to-local service, the nation's two major DBS companies,
DirecTV and EchoStar, today deliver local stations by satellite to the
overwhelming majority of American television households.
Thanks to the wise decision by the FCC and the Department of
Justice to block the proposed horizontal merger of DirecTV and
EchoStar, the two DBS firms continue to compete vigorously against one
another in expanding their delivery of local stations. While EchoStar
predicted when it sought to acquire DirecTV that it would never be able
to serve more than 70 markets without the merger, EchoStar now serves
107 Designated Local Markets (``DMA's'') that collectively cover more
than 83% of all U.S. TV households. Nor is there any sign that
EchoStar's expansion of local-to-local service has stopped.
The story with DirecTV is even more dramatic. With the launch of a
new satellite this spring, DirecTV expects to serve 100 DMAs covering
85% of all U.S. TV households. By the end of 2004, DirecTV has
committed to providing local-to-local in an additional 30 markets, for
a total of at least 130 DMAs covering 92% of all TV households. And as
early as 2006 and no later than 2008, ``DirecTV will offer a seamless,
integrated local channel package in all 210 DMAs.'' In Re General
Motors Corporation and Hughes Electronics Corporation, Transferors and
The News Corporation Limited, Transferee, for Authority to Transfer
Control, 332, MB Docket No. 03-124 (released Jan. 14, 2004) (emphasis
added).
The local-to-local compulsory license is the right way--and the
distant-signal compulsory license is the wrong way--to address delivery
of over-the-air television stations to satellite subscribers. If
Congress wishes to do anything other than briefly extend the expiration
date of Section 119, it should--as a matter of simple logic--limit the
distant-signal compulsory license to markets in which the satellite
carrier does not offer local-to-local service. It makes no sense, for
example, to treat a satellite subscriber as ``unserved'' by its local
CBS station when the subscriber's DBS firm offers that station as part
of its satellite-delivered package, with what the satellite industry
describes as ``a 100 percent, crystal-clear digital audio and video
signal.''
Although the rapid rollout of DBS local-to-local service has
vindicated the actions that Congress took in SHVIA in 1999, there is
one major blemish on the success story: an outrageous form of
discrimination that EchoStar has inflicted on some local stations.
EchoStar's method of discrimination is simple, but devastating. While
placing what it considers the most ``popular'' stations in a market on
its main satellites, EchoStar relegates certain stations (particularly
Hispanic and foreign-language stations) to a form of satellite
Siberia--placing them on remote ``wing satellites'' far over the
Atlantic or Pacific, which can be seen only if one obtains a second
satellite dish. Very few subscribers actually do acquire a second dish,
thereby rendering many local stations invisible to their own local
viewers. As even DirecTV has acknowledged, this practice violates the
``carry one, carry all'' principle of the SHVIA. The FCC has thus far
tolerated this grossly improper practice, imposing only minor
restrictions on this form of discrimination. If the Commission fails to
take prompt and decisive steps to halt this misconduct, Congress will
need to step in to do so.
While the local-to-local compulsory license has (with the exception
of EchoStar's two-dish abuse) generally worked well, the history of the
distant-signal compulsory license (codified in Section 119 of the
Copyright Act) has been just the opposite. For the first ten years
after this law was enacted, satellite carriers systematically ignored
the clear, objective definition of ``unserved household'' and instead
delivered distant signals to anyone willing to say that they did not
like their over-the-air picture quality. Only through costly
litigation--culminating in a 1998 ruling against PrimeTime 24 and a
1999 ruling against DirecTV--were broadcasters able to bring a halt to
most of this lawlessness. Even after those rulings, however, EchoStar
has continued to serve hundreds of thousands of illegal subscribers,
forcing broadcasters to spend years chasing it through the courts to
obtain relief. Last June, a United States District Court found (after a
ten-day trial) that EchoStar willfully or repeatedly violated the
distant-signal provisions of the Copyright Act--and, in the process,
broke a sworn promise to the court to turn off large numbers of illegal
subscribers.
Startlingly, having been content to violate the distant-signal
license until ordered by a court to stop breaking the law, the DBS
firms now urge Congress to radically expand the distant-signal
compulsory license. In particular, EchoStar and DirecTV now ask that
they be allowed to import ABC, CBS, Fox, and NBC programming from New
York and Los Angeles stations to millions of households that can
receive the same programming from their local stations over the air--
and in most cases, can also get their local stations in superb quality,
by satellite, from EchoStar and DirecTV as part of their local-to-local
package. Although these homes are unquestionably ``served'' by their
local stations, the DBS industry proposes to be allowed to deliver the
same programming from New York or Los Angeles if the household is--in
their view--``digitally unserved.''
The DBS industry proposal--by an industry with a long track record
of lawlessness--is a recipe for mischief. As this Committee has
repeatedly recognized, the distant-signal compulsory license is a
departure from marketplace principles that is appropriate only as a
``lifeline'' for households that otherwise cannot view network
programming. It would make no sense to override normal copyright
principles for households that can readily view their own local
stations. It would give the DBS firms a government-provided crutch that
would set back for years what would otherwise be a market-driven race
between DirecTV and EchoStar--further spurred by competition with
cable--to deliver digital signals on a local-to-local basis. And when
local stations later sought to reclaim their own local viewers from the
distant digital transmissions, there would be a consumer firestorm much
like what occurred when two major satellite carriers were required to
turn off (illegally-delivered) distant analog signals to millions of
households in 1999.
Finally, given the rapid pace of technological and economic change,
Congress should again specify that Section 119 will sunset after a
limited, five-year period, so that Congress can decide then if there is
any reason to continue this government intervention in the free market
for copyrighted television programming.
I. THE PRINCIPLES OF LOCALISM AND OF RESPECT FOR LOCAL STATION
EXCLUSIVITY ARE FUNDAMENTAL TO AMERICA'S EXTRAORDINARILY
SUCCESSFUL TELEVISION DELIVERY SYSTEM
As this Committee has consistently recognized--going back to 1988,
when it took the lead in crafting the first satellite compulsory
license in the SHVA--the principles of localism and of local station
exclusivity have been pivotal to the success of American television.
A. The Principle of Localism is Critical To America's
Extraordinary Television Broadcast System
Unlike many other countries that offer only national television
channels, the United States has succeeded in creating a rich and varied
mix of local television outlets through which more than 200
communities--including towns as small as Glendive, Montana, which has
fewer than 4,000 television households--can have their own local
voices. But over-the-air local TV stations--particularly those in
smaller markets such as Glendive--can survive only if they can generate
advertising revenue based on local viewership. If satellite carriers
can override the copyright interests of local stations by offering the
same programs on stations imported from other markets, the viability of
local TV stations--and their ability to serve their communities with
the highest-quality programming--is put at risk.
The ``unserved household'' limitation is simply the latest way in
which the Congress and the FCC have implemented the fundamental policy
of localism, which has been embedded in federal law since the Radio Act
of 1927.\1\ In particular, the ``unserved household'' limitation in the
SHVA implements a longstanding communications policy of ensuring that
local network affiliates--which provide free television and local news
to virtually all Americans--do not face importation of duplicative
network programming.
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\1\ First Report and Order, 14 FCC Rcd 2654, 11 (1999); see SHVA
Notice of Proposed Rule Making, 3 (``The network station compulsory
licenses created by the Satellite Home Viewer Act are limited because
Congress recognized the importance that the network-affiliate
relationship plays in delivering free, over-the-air broadcasts to
American families, and because of the value of localism in
broadcasting. Localism, a principle underlying the broadcast service
since the Radio Act of 1927, serves the public interest by making
available to local citizens information of interest to the local
community (e.g., local news, information on local weather, and
information on community events). Congress was concerned that without
copyright protection, the economic viability of local stations,
specifically those affiliated with national broadcast network[s], might
be jeopardized, thus undermining one important source of local
information.'')
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The objective of localism in the broadcast industry is ``to afford
each community of appreciable size an over-the-air source of
information and an outlet for exchange on matters of local concern.''
Turner Broadcasting Sys. v. FCC, 512 U.S. 622, 663 (1994) (Turner I);
see United States v. Southwestern Cable Co., 392 U.S. 157, 174 & n.39
(1968) (same). That policy has provided crucial public interest
benefits. Just a few years ago, the Supreme Court declared that
Broadcast television is an important source of information to
many Americans. Though it is but one of many means for
communication, by tradition and use for decades now it has been
an essential part of the national discourse on subjects across
the whole broad spectrum of speech, thought, and expression.
Turner Broadcasting Sys. v. FCC, 117 S. Ct. 1174, 1188 (1997).
Thanks to the vigilance of Congress and the Commission over the
past 50 years in protecting the rights of local stations, over-the-air
television stations today serve more than 200 local markets across the
United States, including markets as small as Presque Isle, Maine (with
only 28,000 television households), North Platte, Nebraska (with fewer
than 15,000 television households), and Glendive, Montana (with only
3,900 television households).
This success is largely the result of the partnership between
broadcast networks and affiliated television stations in markets across
the country. The programming offered by network affiliated stations is,
of course, available over-the-air for free to local viewers, unlike
cable or satellite services, which require substantial payments by the
viewer. See Turner I, 512 U.S. 622, 663; Satellite Broadcasting &
Communications Ass'n v. FCC, 275 F.3d 337, 350 (4th Cir. 2001) (``SHVIA
. . . was designed to preserve a rich mix of broadcast outlets for
consumers who do not (or cannot) pay for subscription television
services.''); Communications Act of 1934, Sec. 307(b), 48 Stat. 1083,
47 U.S.C. Sec. 307(b). Although cable, satellite, and other
technologies offer alternative ways to obtain television programming,
tens of millions of Americans still rely on broadcast stations as their
exclusive source of television programming, Turner I, 512 U.S. at 663,
and broadcast stations continue to offer most of the top-rated
programming on television.
The network/affiliate system provides a service that is very
different from nonbroadcast networks. Each network affiliated station
offers a unique mix of national programming provided by its network,
local programming produced by the station itself, and syndicated
programs acquired by the station from third parties. H.R. Rep. 100-887,
pt. 2, at 19-20 (1988) (describing network/affiliate system, and
concluding that ``historically and currently the network-affiliate
partnership serves the broad public interest.'') Unlike nonbroadcast
networks such as Nickelodeon or USA Network, which telecast the same
material to all viewers nationally, each network affiliate provides a
customized blend of programming suited to its community--in the Supreme
Court's words, a ``local voice.''
The local voices of America's local television broadcast stations
make an enormous contribution to their communities. In Appendix A, we
list just a few examples of television broadcasters' commitment to
localism in the form of help to local citizens--and local charities--in
need. It is through local broadcasters that local citizens and
charities raise awareness and educate members of the community.
Community service programming--along with day-to-day local news,
weather, and public affairs programs--is made possible, in substantial
part, by the sale of local advertising time during and adjacent to
network programs. These programs (such as ``Alias,'' ``CSI,''
``American Idol,'' and ``Friends'') often command large audiences, and
the sale of local advertising slots during and adjacent to these
programs is therefore a crucial revenue source for local stations.
A variety of technologies have been developed or planned--including
cable, satellite, open video systems, and the Internet--that, as a
technological matter, enable third parties to retransmit distant
network stations into the homes of local viewers. Whenever those
technologies posed a risk to the network/affiliate system, Congress or
the Commission (or both) have acted to ensure that the retransmission
system does not import duplicative network programming from distant
markets. A recent example is the threat of unauthorized Internet
retransmissions of television stations, which was quickly halted by the
courts (applying the Copyright Act) and condemned by Congress as
outside the scope of any existing compulsory license.\2\
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\2\ See National Football League v. TVRadioNow Corp. (d/b/a
iCraveTV), 53 U.S.P.Q.2d (BNA) 1831 (W.D. Pa. 2000); 145 Cong. Rec.
S14990 (Nov. 19, 1999) (statements by Senators Leahy and Hatch that no
compulsory license permits Internet retransmission of TV broadcast
programming).
---------------------------------------------------------------------------
In the case of cable television, for example, the FCC has since the
mid-1960's imposed ``network nonduplication'' rules on cable systems.
47 C.F.R. Sec. Sec. 76.92-76.97 (1996). As the Commission explained
when it strengthened the network nonduplication rules in 1988:
[I]mportation of duplicating network signals can have severe
adverse effects on a station's audience. In 1982, network non-
duplication protection was temporarily withdrawn from station
KMIR-TV, Palm Springs. The local cable system imported another
network signal from a larger market, with the result that KMIR-
TV lost about one-half of its sign-on to sign-off audience.
Loss of audience by affiliates undermines the value of network
programming both to the affiliate and to the network. Thus, an
effective non-duplication rule continues to be necessary.\3\
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\3\ Report and Order, In Re Amendment of Parts 73 and 76 of the
Commission's Rules Relating to Program Exclusivity in the Cable and
Broadcast Industries, 3 FCC Rcd 5299, 5319 (1988), aff'd, 890 F.2d 1173
(D.C. Cir. 1989); see also Southwestern Cable Co., 392 U.S. at 165;
Wheeling Antenna Co. v. WTRF-TV, Inc., 391 F.2d 179, 183 (4th Cir.
1968).
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2. Protecting the Rights of Copyright Owners to
License Their Works in the Marketplace is Another
Principle Supporting a Highly Circumscribed
Distant-Signal Compulsory License
By definition, the Copyright Act is designed to limit unauthorized
marketing of works as to which the owners enjoy exclusive rights. See
U.S. Constitution, art. I, Sec. 8, cl. 8 (``The Congress shall have
Power . . . To promote the Progress of Science and useful Arts, by
securing for limited Times to Authors and Inventors the exclusive Right
to their respective Writings and Discoveries''); Mazer v. Stein, 347
U.S. 201, 219 (1954) (``The economic philosophy behind the clause
empowering Congress to grant patents and copyrights is the conviction
that encouragement of individual effort by personal gain is the best
way to advance public welfare through the talents of authors and
inventors in `Science and useful Arts.' '').
While Congress has determined that compulsory licenses are needed
in certain circumstances, the courts have emphasized that such licenses
must be construed narrowly, ``lest the exception destroy, rather than
prove, the rule.'' Fame Publ'g Co. v. Alabama Custom Tape, Inc., 507
F.2d 667, 670 (5th Cir. 1975); see also Cable Compulsory License;
Definition of Cable Systems, 56 Fed. Reg. 31,580, 31,590 (1991) (same).
The principle of narrow application and construction of compulsory
licenses is particularly important as applied to the distant-signal
compulsory license, because that license not only interferes with free
market copyright transactions but also threatens localism.
3. In Enacting the SHVA and the SHVIA, Congress
Reaffirmed the Central Role of Localism and of
Local Program Exclusivity
When Congress (led by this Committee) crafted the original
Satellite Home Viewer Act in 1988, it emphasized that the legislation
``respects the network/affiliate relationship and promotes localism.''
H.R. Rep. No. 100-887, pt. 1, at 20 (1988). And when Congress
temporarily extended the distant-signal compulsory license in 1999, it
reaffirmed the importance of localism as fundamental to the American
television system. For example, the 1999 SHVIA Conference Report says
this:
``[T]he Conference Committee reasserts the importance of
protecting and fostering the system of television networks as
they relate to the concept of localism. . . . [T]elevision
broadcast stations provide valuable programming tailored to
local needs, such as news, weather, special announcements and
information related to local activities. To that end, the
Committee has structured the copyright licensing regime for
satellite to encourage and promote retransmissions by satellite
of local television broadcast stations to subscribers who
reside in the local markets of those stations.''
SHVIA Conference Report, 145 Cong. Rec. H11792 (daily ed. Nov.
9, 1999) (emphasis added).
The SHVIA Conferees also stressed the need to interfere only
minimally with marketplace arrangements--premised on protection of
copyrights--in the distribution of television programming:
``[T]he Conference Committee is aware that in creating
compulsory licenses . . . [it] needs to act as narrowly as
possible to minimize the effects of the government's intrusion
on the broader market in which the affected property rights and
industries operate. . . . [A]llowing the importation of distant
or out-of-market network stations in derogation of the local
stations' exclusive right--bought and paid for in market-
negotiated arrangements--to show the works in question
undermines those market arrangements.''
Id. The Conference Report also emphasized that ``the specific goal
of the 119 license, which is to allow for a life-line network
television service to those homes beyond the reach of their local
television stations, must be met by only allowing distant network
service to those homes which cannot receive the local network
television stations. Hence, the `unserved household' limitation that
has been in the license since its inception.'' Id. (emphasis added).
Finally, the SHVIA Conferees highlighted ``the continued need to
monitor the effects of distant signal importation by satellite,'' and
made clear that Congress would need to re-evaluate after five years
whether there is any ``continuing need'' for the distant signal
license. Id. That time, of course, is now.
II. PROPERLY IMPLEMENTED, THE LOCAL-TO-LOCAL COMPULSORY LICENSE IS A
WIN-WIN-WIN FOR CONSUMERS, BROADCASTERS, AND SATELLITE
COMPANIES
Unlike the importation of distant network stations, which can do
grave damage to the network/affiliate relationship, delivery of local
stations to the stations' own local viewers--e.g., San Antonio stations
to viewers in the San Antonio area--is a win-win-win for consumers,
local broadcasters, and DBS firms alike. As Congress explained in 1999
when it created a new local-to-local compulsory license in Section 122
of the Copyright Act, the new Act ``structures the copyright licensing
regime for satellite to encourage and promote retransmissions by
satellite of local television broadcast stations to subscribers who
reside in the local markets of those stations.'' 145 Cong. Rec. H11792
(daily ed. Nov. 9, 1999) (emphasis added).
A. Satellite Firms Have Enjoyed Extraordinary Growth,
Thanks In Major Part To the Local-to-Local
Compulsory License
As the FCC recognized in its January 2004 Annual Assessment of the
Status of Competition in Markets for the Delivery of Video Programming,
the Direct Broadcast Satellite (``DBS'') industry is thriving--and
offering potent competition to cable. The DBS industry, which signed up
its first customer only decade ago, grew to more than 20 million
subscribers as of June 2003. Annual Assessment, MB Dkt. No. 03-172, 8
(released Jan. 28, 2004). The growth rate for DBS ``exceeded the growth
of cable by double digits'' in every year between 1994 and 2002, and in
2003 exceeded the cable growth rate by 9.2%. Id. Just in the 12 months
between June 2002 and June 2003, the DBS industry added 2.2 million net
new subscribers, surging from 18.2 million to 20.4 million households.
Id.
DirecTV is currently the second-largest multichannel video
programming distributor (``MVPD''), behind only Comcast, while EchoStar
is the fourth-largest MVPD. Id., 67. The DBS firms take many
subscribers away from cable: ``according to [DirecTV] internal data,
approximately 70% of its customers were cable subscribers at the time
that they first subscribed to DirecTV.'' Id., 65.
The growth of the DBS industry has far outstripped even optimistic
predictions made just a few years ago. In its January 2000 Annual
Assessment, for example, the FCC quoted bullish industry analysts who
predicted that ``DBS will have nearly 21 million subscribers by 2007.''
2000 Annual Assessment, 15 FCC Rcd. 978, 70. As the statistics quoted
above show, DBS reached that level not in 2007, but in 2003--four years
earlier than predicted.
As the FCC has repeatedly pointed out, delivery of local stations
by satellite has been a major spur to this explosive growth. E.g., 2004
Annual Assessment, 8. In June 1999, just before the enactment of the
new local-to-local compulsory license in the SHVIA, the DBS industry
had 10.1 million subscribers. 2000 Annual Assessment, 8. Only four
years later, the industry had more than doubled that figure to 20.4
million subscribers. 2004 Annual Assessment, 8. That this growth has
been spurred by the availability of local-to-local is beyond doubt: the
DBS industry's own trade association, the Satellite Broadcasting &
Communications Association, stressed just a few months ago that ``[t]he
expansion of local-into-local service by DBS providers continues to be
a principal reason that customers subscribe to DBS.'' SBCA Comments at
4, Dkt. No. 03-172 (filed Sept. 11, 2003) (emphasis added).
B. Contrary to the DBS Industry's Pessimistic Predictions,
Satellite Local-to-Local Service is Now Available
to the Overwhelming Majority of American Television
Households
Over the past few years, EchoStar and DirecTV have repeatedly
claimed that capacity constraints will severely limit their ability to
offer local-to-local service to more than a small number of markets.
The DBS firms used that argument--unsuccessfully--in 1999 in attempting
to persuade Congress that it should permit DBS companies to use a new
compulsory license to ``cherry-pick'' only the most heavily-watched
stations in each market. They used it again in arguing--again
unsuccessfully--in 2000 and 2001 that the courts should strike down
SHVIA's ``carry one, carry all'' principle as somehow unconstitutional.
And they trotted out the same claims as a justification for the
proposed horizontal merger of the nation's only two major DBS firms,
DirecTV and EchoStar. As recently as 2002, for example, the two DBS
firms claimed that unless they were permitted to merge, neither firm
could offer local-to-local in more than about 50 to 70 markets.
EchoStar, DirecTV CEOs Testify On Benefits of Pending Merger Before
U.S. Senate Antitrust Subcommittee, www.spacedaily.com/news/satellite-
biz-02p.html (``Without the merger, the most markets that each company
would serve with local channels as a standalone provider, both for
technical and economic reasons, would be about 50 to 70.'') (quoting
DirecTV executive).
Contrary to these pessimistic predictions, the two DBS firms
already offer local-to-local programming to the overwhelming majority
of U.S. television households. Although the DBS firms claimed they
would never be able to serve more than 70 markets unless they merged,
EchoStar already serves 107 Designated Local Markets (``DMA's''), which
collectively cover more than 83% of all U.S. TV households.\4\ Nor is
there any sign that EchoStar's expansion of local-to-local service has
stopped.
---------------------------------------------------------------------------
\4\ EchoStar Press Release, www.dishnetwork.com, DISH Network
Satellite Television Brings Local TV Channels to Tri-Cities, Tenn.--Va.
(Feb. 19, 2004) (EchoStar now serving 107 DMAs); EchoStar Press
Release, www.newstream.com/us/story--pub.shtml?story--id=11738 &user--
ip=208.197.234.126, DISH Network Celebrates Availability of Local
Channels in 100 Markets (Dec. 2003) (EchoStar serving more than 83% of
U.S. television households through service to 100 markets).
---------------------------------------------------------------------------
DirecTV's plans are still more ambitious. As of November 2003,
DirecTV offered local-to-local to 64 markets covering more than 72% of
all U.S. television households. With the launch of a new satellite in
the next few months, DirecTV expects to serve 100 DMAs covering 85% of
all U.S. TV households. By the end of 2004, DirecTV has committed to
providing local-to-local in an additional 30 markets, for a total of at
least 130 DMAs that collectively include 92% of all U.S. TV
households.\5\ And as early as 2006 and no later than 2008, ``DirecTV
will offer a seamless, integrated local channel package in all 210
DMAs.' \6\/ In other words, DirecTV alone will soon offer local-to-
local service to virtually all American television households--even
though DirecTV told Congress and the FCC just two years ago that this
result was unthinkable unless it merged with EchoStar.
---------------------------------------------------------------------------
\5\ Press Release, DIRECTV Names 18 New Local Channel Markets to
Launch in 2004 (Jan. 8, 2004), www.directv.com/DTVAPP/aboutus/
headline.dsp?id=01--08--2004B.
\6\ In the Matter of General Motors Corporation and Hughes
Electronics Corporation, Transferors and The News Corporation Limited,
Transferee, for Authority to Transfer Control, 332, MB Docket No. 03-
124 (released Jan. 14, 2004) (emphasis added).
---------------------------------------------------------------------------
C. Echostar And DirecTV Boast About The Excellent
Technical Quality Of Their Current Local-To-Local
Service--Which Retransmits ``Digitized'' Analog
Signals
As discussed below, the satellite industry now demands that
Congress expand the distant-signal compulsory license--which EchoStar
has systematically abused over the past eight years--by creating a new
category of households that are ``digitally unserved.'' But any
suggestion that EchoStar and DirecTV have difficulty attracting
customers under the current law is belied by the following facts.
First, both DirecTV and EchoStar can now--or will within a few
months--each be able to deliver local television stations by satellite
to nearly 90% of U.S. television households. Second, both DBS firms
obtain excellent-quality analog signals from the stations, often
working with the stations themselves to obtain a direct feed from the
station's studios. Third, after receiving a high-quality analog signal,
the DBS firms then ``digitize'' the signals and retransmit them in
digital format to their customers. See www.dishnetwork.com/content/
programming/ index.shtml (``DISH Network now has your digital local
channels.'') (emphasis added). While these
signals do not equal the quality of a signal originating from a digital
broadcast, or particularly of a high-definition broadcast, the result,
according to the DBS industry's trade association, is that DBS ``always
delivers a 100 percent, crystal-clear digital audio and video signal,''
even if the original source is an analog broadcast. SBCA Web site,
www.sbca.com/mediaguide/faq.htm (emphasis
added).
In other words, consumers who receive an excellent-quality
``digitized'' analog signal from a local station from a DBS firm--as
opposed to an imported digital station--are scarcely in a ``hardship''
position. Of course, it has never been the case that ``obtaining the
best-quality signal'' would justify abandoning the principles of
localism and free market competition. The principle behind the long-
standing ``Grade B intensity'' standard for determining which
households are ``unserved'' is that Grade B intensity is an objective
proxy for an acceptable signal, not for the optimal signal. If localism
could be so easily sacrificed, Congress would not have adopted--and
twice reaffirmed--the Grade B intensity standard.\7\
---------------------------------------------------------------------------
\7\ In the SHVIA, Congress directed the FCC to prepare a report
about whether Grade B intensity--or instead some other standard--should
be used for determining whether households are ``unserved'' by their
local stations. In its report, the FCC recommended retaining the Grade
B intensity standard. See In Re Technical Standards for Determining
Eligibility For Satellite-Delivered Network Signals Pursuant To the
Satellite Home Viewer Improvement Act, ET Docket No. 00-90 (released
Nov. 29, 2000).
---------------------------------------------------------------------------
Finally, these local channel offerings have made DBS so attractive
to consumers that it is gaining millions of new subscribers every year
while the number of cable subscribers is actually shrinking. 2004
Annual Assessment, 8 (``In the last several years . . . cable
subscribership has declined such that as of June 2003, there were
approximately the same number of cable subscribers as there were at
year-end 1999.'') While delivery of local digital signals by DirecTV
and EchoStar would be a highly desirable development, there is no basis
for suggesting that DirecTV and EchoStar need to import distant digital
signals to serve their customers.
D. DirecTV and EchoStar Have Many Options For Continuing
To Expand Their Ability To Deliver Local Signals,
Including Local Digital Signals
As discussed above, DirecTV and EchoStar have brilliant engineers
who constantly find ways to deliver more programming in the same
spectrum. Nevertheless, in policy debates in Washington, the two firms
regularly assure Congress (and the FCC) that no further technological
improvement can be achieved. To mention one other example: even as
DirecTV was doubling its ``compression ratio'' between 1998 and 2001--
enabling it to carry twice as many channels in the same amount of
spectrum--it repeatedly told the FCC that it had hit a brick wall as
far as any further progress in compression technology:
July 31, 1998: ``DIRECTV has substantially reached
current limits on digital compression with respect to the
capacity on its existing satellites. Therefore, the addition of
more channels will necessitate expanding to additional
satellites. . . .''
Aug. 6, 1999: ``DIRECTV has substantially reached
current limits on digital compression with respect to the
capacity on its existing satellites.''
Sept. 8, 2000: ``DIRECTV has substantially reached
current technological limits on digital compression with
respect to capacity on its existing satellites. Although there
are potentially very small gains still possible through the use
of advanced algorithms, such technological developments can
neither be predicted nor relied upon as a means of increasing
system channel capacity.''
Aug. 3, 2001: ``DIRECTV has offered digitally
compressed signals from its inception, and has substantially
reached current technological limits on digital compression
with respect to capacity on its existing satellites. Although
there are potentially very small gains still possible through
the use of advanced algorithms, such technological developments
can neither be predicted nor relied upon as a means of
increasing system channel capacity.'' \8\
---------------------------------------------------------------------------
\8\ See, e.g., Comments of DIRECTV, Inc., [1998] Annual Assessment
of the Status of Competition in the Markets for the Delivery of Video
Programming, CS Docket No. 98-102, at 5 (filed July 31, 1998); Comments
of DIRECTV, Inc., [1999] Annual Assessment of the Status of Competition
in the Markets for the Delivery of Video Programming, CS Docket No. 99-
230, at 9 (filed Aug. 6, 1999); Comments of DIRECTV, Inc. [2000] Annual
Assessment of the Status of Competition in the Markets for the Delivery
of Video Programming, CS Docket No. 00-132, at 16 (filed Sept. 8,
2000); Comments of DIRECTV, Inc. [2001] Annual Assessment of the Status
of Competition in the Markets for the Delivery of Video Programming, CS
Docket No. 01-129, at 16 (filed Aug. 3, 2001) (emphasis added in all
cases).
This year, the Committee can expect to hear from the DBS firms yet
again that they have no hope of significantly expanding their capacity.
For example, we can expect to hear from DirecTV and EchoStar that they
will never be able to carry the digital signals of local television
stations, and that they should instead be given a crutch by Congress to
help them compete with cable. In fact, the satellite firms have
available to them a wide range of potential new techniques for
---------------------------------------------------------------------------
massively expanding their capacity, including:
pectrum-sharing between DirecTV and EchoStar;
use of Ka-band as well as Ku-band spectrum;
higher-order modulation and coding;
closer spacing of Ku-band satellites;
satellite dishes pointed at multiple orbital slots;
use of a second dish to obtain all local stations;
\9\ and
---------------------------------------------------------------------------
\9\ The SHVIA permits a satellite carrier to offer all local
stations via a second dish, but not to split local channels into a
``favored'' group (available with one dish) and a ``disfavored'' group
(available only with a second dish).
---------------------------------------------------------------------------
improved signal compression techniques.
If Congress allows the power of American technical ingenuity to
continue to move forward, we can expect to see DirecTV and EchoStar
continue to make tremendous progress in doing more with the same
resources. Just as today's desktop computers are unimaginably more
powerful than those available just a few years ago, we can expect
similar quantum improvements from America's satellite engineers--if
Congress leaves the free market to do its magic, and leaves necessity
to continue to be the mother of invention.
E. If The FCC Does Not Act, Congress Will Need To Step In
To Correct A Major Abuse Of Local-To-Local By
Echostar
In crafting the SHVIA, Congress was well aware that if a DBS firm
were permitting to select only some--but not all--local stations for
retransmission, the stations left off the service would have little
chance of reaching viewers who obtain their TV service from the
satellite company. In the same spirit as the requirement in the 1992
Cable Act that cable systems carry all qualified local stations in each
market in which they operate, the SHVIA specifies that if a satellite
carrier chooses to use the local-to-local license to carry signals in a
particular market, it must carry all qualified local stations. 47
U.S.C. Sec. 338(a)(1). That requirement has been upheld against
constitutional attack by EchoStar, DirecTV, and their trade
association. Satellite Broadcasting and Communications Ass'n v. FCC,
275 F.3d 337 (4th Cir. 2001). The purpose of the ``carry one, carry
all'' principle is, of course, to ensure the continued availability of
a wide variety of different over-the-air channels, and to prevent the
local-to-local compulsory license from interfering with existing
vigorous competition among all of the broadcast stations in each local
market.
Since late 2001, EchoStar has egregiously violated the requirement
that it carry all stations in a nondiscriminatory manner: in many
markets, EchoStar forces consumers to acquire a second satellite dish
to receive some--but not all--local stations. Here in the Washington,
D.C. area, for example, EchoStar enables its customers to see the ABC,
CBS, Fox, and NBC stations (and a handful of other local stations) with
a single satellite dish, pointed at EchoStar's main satellites. See
EchoStar web site, www.dishnetwork.com/content/programming/ locals/
index.shtml. On the other hand, viewers wishing to see Channel 14
(Univision), Channel 32 (WHUT--PBS), Channel 53 (WNVT--International),
Channel 56 (WNVC--International), or WJAL (Channel 68--Independent) are
forced to obtain a second satellite dish aimed at a satellite far over
the Atlantic. Id. (In this and other markets, EchoStar targets public
television, Hispanic, and other foreign-language stations for this
discrimination.) Because few viewers will go to the time and trouble of
obtaining a second dish--e.g., a long wait at home for an installer--
the net result is that only a tiny percentage of EchoStar subscribers
can actually view all of their local stations. To date, the FCC has
taken only ineffective steps to address this egregious form of
discrimination,\10\ even though EchoStar's fellow DBS company, DirecTV,
has told the FCC that EchoStar's two-dish ploy ``is inconsistent with
the language of the Satellite Home Viewer Improvement Act.'' See Letter
from Merrill S. Spiegel to Marlene H. Dortch, Dkt. No. 00-196 (Jan. 16,
2003).
---------------------------------------------------------------------------
\10\ Declaratory Ruling & Order, In re National Association of
Broadcasters and Association of Local Television Stations Request for
Modification or Clarification of Broadcast Carriage Rules for Satellite
Carriers, Dkt. No. CSR-5865-Z (Media Bureau Apr. 4, 2002). The
Commission has to date required only that EchoStar fully disclose its
discriminatory treatment and that it pay for the installation of the
second dish. Not surprisingly, these requirements have not solved the
fundamental problem that acquiring a second dish requires a major
expenditure of time and effort on the part of the subscriber, with the
result that--just as EchoStar hopes--few viewers ever actually acquire
a second dish.
---------------------------------------------------------------------------
Moreover, EchoStar has, on many occasions, violated even the minimal
requirements of the Ruling & Order by failing adequately to notify
subscribers about the need for a second dish, actively discouraging
subscribers from obtaining a second dish, falsely telling them they
would have to pay for the second dish, or falsely stating that they
could not have a second dish installed at the time of their original
installation. In re University Broadcasting, Inc. v. EchoStar
Communications Corp., Mem. Op. & Order, Dkt. No CSR-6007-M (Feb. 20,
2003); In Re Entravision Holdings, LLC, Mem. Order & Op., Dkt. No. CSC-
389 (April 15, 2002); In Re Tri-State Christian, Inc., Mem. Op. &
Order, Dkt. No. CSR-5751 (Feb. 5, 2004).
The Commission has recently indicated that it plans to take action
soon to address EchoStar's two-dish practices,\11\ but it remains
uncertain when it will act on pending petitions for review. Should the
Commission fail to take prompt action, Congress should step in to
ensure that EchoStar can no longer thumb its nose at Congress'
unmistakable directive that DBS firms that local-to-local means
carriage of all local stations, without relegating many of the stations
to an inaccessible electronic ghetto.
---------------------------------------------------------------------------
\11\ See Separate Statement of Chairman Michael K. Powell, at 2
n.3, In Re General Motors Corporation and Hughes Electronics
Corporation, Transferors and The News Corporation Limited, Transferee,
for Authority to Transfer Control, MB Docket No. 03-124 (released Jan.
14, 2004).
---------------------------------------------------------------------------
III. THE DISTANT-SIGNAL COMPULSORY LICENSE HAS BEEN EGREGIOUSLY ABUSED
BY SATELLITE CARRIERS, AND THE NEED FOR IT IS RAPIDLY
DIMINISHING WITH THE GROWTH OF LOCAL-TO-LOCAL
America's free, over-the-air television system is based on local
stations providing programming to local viewers. When satellite
carriers began delivering television programming in the 1980's,
however, retransmission of local television stations by satellite was
not yet technologically feasible. In 1988, Congress therefore fashioned
a stopgap remedy: a compulsory license that allows satellite carriers
to retransmit distant network stations, but only to ``unserved
households.'' 17 U.S.C. Sec. 119. The heart of the definition of
``unserved household'' is whether the residence can receive an over-
the-air signal of a certain objective strength, called ``Grade B
intensity,'' from an affiliate of the relevant network. Id.,
Sec. 119(d)(10) (definition of ``unserved household''). In 1994,
Congress extended the distant-signal license for another five years,
although it expressly placed on satellite carriers the burden of
proving that each of their customers is ``unserved.'' 17 U.S.C.
Sec. 119(a)(5)(D).
In 1999, Congress again extended the distant-signal license as part
of the SHVIA, and statutorily mandated use of the FCC-endorsed computer
model (called the ``Individual Location Longley-Rice'' model, or
``ILLR'') for predicting which households are able to receive signals
of Grade B intensity from local network stations. 17 U.S.C.
Sec. 119(a)(2)(B)(ii). In the SHVIA, Congress also classified certain
very limited new categories of viewers as ``unserved,'' including (1)
certain subscribers who had been illegally served by satellite carriers
but whom Congress elected to ``grandfather'' temporarily, see 17 U.S.C.
Sec. 119(e), and (2) qualified owners of recreational vehicles and
commercial trucks, see id., Sec. 119(a)(11).
By its terms, grandfathering will expire at the end of 2004. 17
U.S.C. Sec. 119(e). Unlike in 1999, when Congress saw grandfathering as
a way to reduce consumer complaints by allowing certain ineligible
subscribers to continue receiving distant signals, the end of
grandfathering will have little impact in the marketplace. This special
exception should therefore be allowed to expire routinely.\12\
---------------------------------------------------------------------------
\12\ First, by the end of the year, DirecTV will offer local-to-
local in no fewer than 130 DMAs, which collectively cover more than 90%
of U.S. television households. EchoStar already offers local-to-local
in 107 DMAs, and that figure is constantly growing. All of the
subscribers in these markets (including subscribers claimed to be
grandfathered) will be able to receive their local channels by
satellite, making the availability of distant signals irrelevant.
Second, a federal judge found in 2003 that EchoStar forfeited the right
to rely on grandfathering by defaulting at trial in proving that any of
its subscribers actually satisfy the requirements for grandfathering.
Third, because of ordinary subscriber churn and relocation, many
grandfathered subscribers are no longer DBS customers or are no longer
grandfathered. Fourth, for the small number of subscribers in non-
local-to-local markets that they might claim are currently
grandfathered, DirecTV and EchoStar are free to seek (and may already
have obtained) waivers from the affected stations. Finally, any
grandfathered subscriber is (by definition) predicted to receive at
least Grade B intensity signals over the air from their local network
stations, and thus to be able to view their own stations even if they
obtain no network stations by satellite.
---------------------------------------------------------------------------
A. Delivery Of Distant Signals Is A Poor Substitute For
Delivery Of Local Television Stations
From a policy perspective, there is no benefit--and many
drawbacks--to satellite delivery of distant, as opposed to local,
network stations. Unlike local stations, distant stations do not
provide viewers with their own local news, weather, emergency, and
public service programming. Nor does viewership of distant stations
provide any financial benefit to local stations to help fund their
free, over-the-air service. To the contrary, distant signals, when
delivered to any household that can receive local over-the-air
stations, simply siphon off audiences and diminish the revenues that
would otherwise go to support free, over-the-air programming.
Members of Congress and other candidates for election are uniquely
injured by distant signals: a viewer in Phoenix, for example, will
never see political advertisements running on local Phoenix stations if
he or she is watching New York or Los Angeles stations from EchoStar or
DirecTV instead. Such viewers become virtually unreachable by political
advertising, unless (for example) a candidate in Phoenix wishes to
purchase advertising on stations in the costliest media markets in the
United States--New York and Los Angeles.
B. Satellite Carriers Have Grievously Abused the Distant-
Signal Compulsory License
Satellite carriers--most egregiously EchoStar--have systematically
abused the distant-signal compulsory license since its creation. To the
extent that satellite carriers have complied with the limitations
placed by Congress on the distant-signal license, it is solely as a
result of litigation that broadcasters were forced to undertake to halt
satellite carrier lawbreaking.
From 1988 until 1998, satellite carriers simply ignored the
objective ``Grade B intensity'' standard and instead signed up anyone
willing to say that they were dissatisfied with their over-the-air
picture. Starting in the mid-1990s, when the large ``C-band'' dishes
began to be replaced by the hot-selling 18-inch dishes offered by
DirecTV and EchoStar, the carriers' distant-signal lawbreaking quickly
became a crisis.
When DirecTV went into business in 1994, and when EchoStar did so
in 1996, they immediately began abusing the narrow distant-signal
compulsory license to illegally deliver distant ABC, CBS, Fox, and NBC
stations to ineligible subscribers. In essence, the DBS companies
pretended that a narrow license that could legally be used only with
remote rural viewers was in fact a blanket license to deliver distant
network stations to viewers in cities and suburbs.\13\
---------------------------------------------------------------------------
\13\ For the first few years, DirecTV and EchoStar hid behind a
small, foreign-owned company called PrimeTime 24. See CBS Broadcasting
Inc. v. PrimeTime 24, 48 F. Supp. 2d 1342, 1348 (S.D. Fla. 1998)
(``PrimeTime 24 sells its service through distributors, such as DIRECTV
and EchoStar . . . [M]ost of PrimeTime's growth is through customer
sales to owners of small dishes who purchase programming from packagers
such as DirecTV or EchoStar.''). Starting in 1998 (for EchoStar) and
1999 (for DirecTV), the two companies fired PrimeTime 24 in an effort
to dodge court orders to obey the Copyright Act.
---------------------------------------------------------------------------
As a result of EchoStar's and DirecTV's lawbreaking, viewers in
markets such as Meridian, Mississippi, Lafayette, Louisiana, Traverse
City, Michigan, Santa Barbara, California, Springfield, Massachusetts,
Peoria, Illinois, and Lima, Ohio were watching their favorite network
shows not from their local stations but from stations in distant cities
such as New York. Since local viewers are the lifeblood of local
stations, EchoStar's and DirecTV's copyright infringements were a
direct assault on free, over-the-air local television.
When broadcasters complained about this flagrant lawbreaking, the
satellite industry effectively said: if you want me to obey the law,
you're going to have to sue me. Broadcasters were finally forced to do
just that, starting in 1996, when they sued the distributor (PrimeTime
24) that both DirecTV and EchoStar used as their supplier of distant
signals. But even a lawsuit for copyright infringement was not enough
to get the DBS firms to obey the law: both EchoStar and DirecTV decided
that they would continue delivering distant stations illegally until
the moment a court ordered them to stop.
The courts recognized--and condemned--the satellite industry's
lawbreaking. See, e.g., CBS Broadcasting Inc. v. PrimeTime 24, 9 F.
Supp. 2d 1333 (S.D. Fla. 1998) (entering preliminary injunction against
DirecTV's and EchoStar's distributor, PrimeTime 24); CBS Broadcasting
Inc. v. PrimeTime 24 Joint Venture, 48 F. Supp. 2d 1342 (S.D. Fla.
1998) (permanent injunction); CBS Broadcasting Inc. v. DIRECTV, Inc.,
No. 99-0565-CIV-NESBITT (S.D. Fla. Sept. 17, 1999) (permanent
injunction after entry of contested preliminary injunction); ABC, Inc.
v. PrimeTime 24, 184 F.3d 348 (4th Cir. 1999) (affirming issuance of
permanent injunction).
By the time the courts began putting a halt to this lawlessness,
however, satellite carriers were delivering distant ABC, CBS, Fox, and
NBC stations to millions and millions of subscribers, the vast majority
of whom were ineligible urban and suburban households. See CBS
Broadcasting, 9 F. Supp. 2d 1333.
By getting so many subscribers accustomed to an illegal service,
DirecTV and EchoStar put both the courts and Congress in a terrible
box: putting a complete stop to the DBS firms' lawbreaking meant
irritating millions of consumers. Any member of Congress who was around
in 1999 will remember the storm of protest that DirecTV and EchoStar
stirred up from the subscribers they had illegally signed up for
distant network stations.
Even when the courts ordered EchoStar and DirecTV to stop their
massive violations of the Copyright Act, they took further evasive
action to enable them to continue their lawbreaking. In particular,
when their vendor (PrimeTime 24) was ordered to stop breaking the law,
both DBS firms fired their supplier in an effort to continue their
lawbreaking.
When DirecTV tried this in February 1999, a United States District
Judge found that DirecTV's claims were ``a little disingenuous'' and
promptly squelched its scheme. CBS Broadcasting Inc. et al v.
DirecTV,No. 99-565-CIV-Nesbitt (S.D. Fla. Feb. 25, 1999); see id. (S.D.
Fla. Sept. 17, 1999) (stipulated permanent injunction).
EchoStar has played the game of ``catch me if you can'' with
greater success, thanks to a series of stalling tactics in court. But
in 2003, a United States District Court judge for the Southern District
of Florida held a 10-day trial in a copyright infringement case brought
by broadcast television networks, and trade associations representing
local network affiliates, originally filed against EchoStar in
1998.\14\ In June 2003, the District Court issued a meticulously-
documented 32-page final judgment, holding EchoStar liable for
nationwide, willful or repeated copyright infringement by violating the
distant-signal compulsory license. CBS Broad., Inc. v. EchoStar
Communications Corp., 276 F. Supp. 2d 1237 (S.D. Fla. 2003).
---------------------------------------------------------------------------
\14\ The trial was conducted by the Hon. William Dimitrouleas, who
took over the case after the original District Court judge, the Hon.
Lenore Nesbitt, passed away in 2002. While Judge Nesbitt also ruled
that EchoStar was committing massive copyright infringements, EchoStar
was able--by making false claims about its supposed compliance
efforts--to obtain a delay in enforcement of that ruling.
---------------------------------------------------------------------------
EchoStar's appeal of this decision is set to be argued before the
11th Circuit in late February 2004.
EchoStar had the burden of proving that each of its subscribers
receiving distant ABC, CBS, Fox, and NBC stations is an ``unserved
household.'' 17 U.S.C. Sec. 119(a)(5)(D). Yet the District Court found
that EchoStar had failed to prove that any of its 1.2 million distant-
signal subscribers is in fact ``unserved.'' That is, EchoStar did not
prove that any of its subscribers is unable to receive a Grade B
signal, is grandfathered, or is eligible on any other basis. Id., 82.
Worst of all, the District Court found that EchoStar had
deliberately sought to mislead the court about what it did with the
vast pool of illegal subscribers it accumulated between 1996 and 1999.
Most important, EchoStar made--and then deliberately broke--a sworn
pledge (in a declaration by its CEO, Charles Ergen) to turn off the
many ineligible subscribers it signed up using the unlawful do-you-
like-your-picture method. Id., 46. Far from turning off its
accumulated illegal subscribers, EchoStar knowingly continued
delivering distant signals to many hundreds of thousands of customers
that it knew--from a study EchoStar itself ordered--to be ineligible.
Id., 38-47.
EchoStar's decision to continue its highly profitable lawbreaking
was the height of cynicism: as the District Court found, ``EchoStar
executives, including Ergen and [General Counsel] David Moskowitz, when
confronted with the prospect of cutting off network programming to
hundreds of thousands of subscribers, elected instead to break Mr.
Ergen's promise to the Court.'' Id., 46 (emphasis added). This is, of
course, the same EchoStar that now asks Congress to expand the distant-
signal compulsory license.
C. With The Widespread Availability Of Local-To-Local
Service, The Number Of Truly ``Unserved''
Households Is Minimal
Unlike the local-to-local compulsory license, the distant-signal
compulsory license threatens localism and interferes with the free
market copyright system. As a result, the only defensible justification
for that compulsory license is as a ``hardship'' exception--to make
network programming available to the small number of households that
otherwise have no access to it. The 1999 SHVIA Conference Report states
that principle eloquently: ``the specific goal of the 119 license . . .
is to allow for a life-line network television service to those homes
beyond the reach of their local television stations.'' 145 Cong. Rec.
at H11792-793. (emphasis added).\15\
---------------------------------------------------------------------------
\15\ See, e.g., Copyright Office Report at 104 (``The legislative
history of the 1988 Satellite Home Viewer Act is replete with
Congressional endorsements of the network-affiliate relationship and
the need for nonduplication protection.'') (emphasis added); Satellite
Home Viewer[] Act of 1988, H.R. Rep. No. 100-887, pt. 2 at 20 (1988)
(``The Committee intends [by Section 119] to . . . bring[] network
programming to unserved areas while preserving the exclusivity that is
an integral part of today's network-affiliate relationship'') (emphasis
added); id. at 26 (``The Committee is concerned that changes in
technology, and accompanying changes in law and regulation, do not
undermine the base of free local television service upon which the
American people continue to rely'') (emphasis added); H.R. Rep. No.
100-887, pt. 1, at 20 (1988) (``Moreover, the bill respects the
network/affiliate relationship and promotes localism.'') (emphasis
added).
---------------------------------------------------------------------------
Today, more than 80% of all U.S. television viewers have the option
of viewing their local network affiliates by satellite--and that number
is growing all the time. Even satellite dish owners in local-to-local
markets who cannot receive Grade B intensity signals over-the-air
(e.g., a household in a remote part of the Washington, D.C. DMA) are
obviously not ``unserved'' by their local stations: they can receive
them, with excellent technical quality, directly from their satellite
carrier, just by picking up the phone.
The widespread availability of local-to-local network affiliate
retransmissions means that, as a real-world matter, there are no
unserved viewers in areas in which local-to-local satellite
transmissions of the relevant network are available, because it is no
more difficult for viewers to obtain their local stations from their
satellite carriers than to obtain distant stations. There is therefore
no policy justification for treating satellite subscribers in local-to-
local markets as ``unserved'' and therefore eligible to receive distant
network stations.
The distant-signal compulsory license is not designed to permit
satellite carriers to sabotage the network/affiliate relationship by
delivering to viewers in served households--who can already watch their
own local ABC, CBS, Fox, and NBC stations--network programming from
another source. Yet satellite carriers have aggressively advertised the
benefits to served households of obtaining distant signal programming,
including most notably:
time-shifting (e.g., Mountain and Pacific Time Zone
viewers watching network programming two or three hours earlier
from East Coast stations)
out-of-town sports: because TV networks often show
different sports events (such as NFL games) in different
cities, a subscription to an out-of-town network station
enables viewers to see sports events that are not televised
locally.
These abuses of the compulsory license damage both the network/
affiliate system and the free market copyright regime. Consider, for
example, a network affiliate in Sacramento, California, a DMA in which
there are today no DBS subscribers who are genuinely ``unserved''
because both DIRECTV and EchoStar offer the local Sacramento ABC, CBS,
Fox, and NBC stations by satellite. Nevertheless, for any Sacramento-
area viewer who is technically ``unserved'' under the Grade B intensity
standard, DIRECTV and EchoStar can scoop the Sacramento stations with
the stations' own programming by offering distant signals from East
Coast stations. The Sacramento station--and every other station in the
Mountain and Pacific Time Zones that has local-to-local service--
therefore loses badly needed local viewers, even though the viewers
have zero need to obtain a distant signal to watch network programming.
Similarly, the ability of satellite carriers to offer distant
stations that carry attractive sports events is a needless infringement
of the rights of copyright owners, who offer the same product--out-of-
town games--on a free market basis. For example, the NFL has for years
offered satellite dish owners (at marketplace rates) a package called
``NFL Sunday Ticket,'' which includes all of the regular season games
played in the NFL. The distant-signal compulsory license creates a
needless ``end-around'' this free-market arrangement by permitting
satellite carriers to retransmit distant network stations for a
pittance through the compulsory license.
IV. THE DBS INDUSTRY'S PROPOSAL TO EXPAND THE DISTANT-SIGNAL
COMPULSORY LICENSE DEFIES LOGIC AND WOULD SET BACK LOCAL-TO-
LOCAL CARRIAGE OF DIGITAL SIGNALS FOR YEARS
Having elected to deliberately violate the limits that Congress
imposed on the existing compulsory license unless and until ordered by
a federal court to obey them, EchoStar and DirecTV now demand that
Congress radically expand the distant-signal license they have abused.
The Committee should reject this irresponsible proposal out of hand.
In essence, the DBS firms ask the Committee to create a brand-new
compulsory license to permit them to deliver the digital broadcasts of
the New York and Los Angeles ABC, CBS, Fox, and NBC stations to
millions of households nationwide, even though (a) the households can
receive the same programming over the air from their local station's
analog signal and (b) in the overwhelming majority of cases, EchoStar
and DirecTV already deliver the same programming via what SBCA
describes as ``a 100 percent, crystal-clear digital audio and video
signal'' retransmitted from the local station's analog broadcasts.
The simple greed behind this DBS industry proposal is clear, and
the tactic is familiar. In the 1990s, the DBS industry sought to offer
network broadcast programming ``on the cheap'' by delivering the analog
broadcasts of New York and Los Angeles stations nationwide--completely
bypassing the network/affiliate system that Congress and the FCC have
worked so hard to foster. (Indeed, in the 1990s satellite companies
urged Congress to eliminate the ``unserved household'' restriction
entirely and to permit universal distribution of New York and Los
Angeles stations in return for payment of a ``surcharge.'') This
Committee, and Congress as a whole, blocked those maneuvers, instead
insisting on localism and on marketplace solutions. By standing its
ground against the ``quick fix'' urged by the DBS industry, Congress
has fostered the win/win/win result described above: DirecTV and
EchoStar (and their contractors) dug deep to find technical solutions
to enable them to offer local-to-local broadcast programming to the
overwhelming majority of U.S. television households--and soon to all of
them. (They found these solutions, of course, only after repeatedly
telling Congress and the FCC that the technical problems were
unsolvable.)
The DBS industry's current proposal is equally self-serving.
EchoStar and DirecTV would enjoy a tremendous financial benefit from
being able--again ``on the cheap''--to deliver the digital broadcasts
of New York and Los Angeles ABC, CBS, Fox, and NBC stations to many
millions of viewers nationwide. Instead of investing in delivering
local digital broadcasts, as cable systems are gradually beginning to
do, DirecTV and EchoStar could use a single, inexpensive national feed
(e.g., of WCBS in New York) to deliver digital programming of a
particular network around the country. Although this gambit would cost
the DBS firms virtually nothing, they would gain enormously, both in
additional customers (at $40, $50 or more per month) and in selling
additional network packages (at $6 per month) to both old and new
customers.
While the ``distant digital'' proposal would be a tremendous
windfall for DirecTV and EchoStar, it would be a disaster for Congress,
the public, and broadcasters. As discussed in detail below, the
supposed ``factual'' basis for this proposal--that the broadcast
television industry has not been diligent in pushing the digital
transition--is palpable nonsense. And as also described below, this
gift to the DBS industry would come at a crippling cost in terms of
Congress' public policy objectives.
A. The Broadcast Industry Has Spent Enormous Sums and
Dedicated Extraordinary Efforts to Implementing the
Transition to Digital Broadcasting--With Tremendous
Success in Rolling Out Digital to the Vast Majority
of American TV Households
Contrary to the satellite industry's ill-informed accusations,
broadcasters have worked tirelessly to implement the transition to
digital broadcasting. Thanks to the expenditure of billions of dollars
and millions of person-hours, broadcasters have built--and are on-air
with--digital television (``DTV'') facilities in 203 markets that serve
99.42% of all U.S. TV households.\16\ Midway through the transition,
almost three-quarters--73.7%--of U.S. television households have access
to at least six free, over-the-air digital television signals.\17\
Nationwide, 1380 television stations in 203 markets are delivering
free, over-the-air digital signals today.\18\ More than 70 million
households receive six or more DTV signals; 49 million households
receive nine or more DTV signals; and a full 30 million households
receive 12 or more DTV signals. More digital stations are resolving
their obstacles and going on the air almost daily. The digital
transition is working and moving ahead quickly, and the claims of the
satellite industry to the contrary are empty rhetoric, not fact.
---------------------------------------------------------------------------
\16\ National Association of Broadcasters, DTV Stations in
Operation, http://www.nab.org/Newsroom/issues/digitaltv/DTVStations.asp
(last checked Feb. 19, 2004).
\17\ See Mark R. Fratrik, Ph.D, Reaching the Audience: An Analysis
of Digital Broadcast Power and Coverage (BIA Financial Network, Oct.
17, 2003) (prepared for the Association for Maximum Service Television,
Inc.) (``MSTV Study'').
\18\ See www.fcc.gov/mb/video/dtvstatus.html (``FCC statistics'').
---------------------------------------------------------------------------
In the top ten markets, covering 30% of U.S. households, all top
four network affiliates are on-air--38 with licensed full-power digital
facilities and two New York city stations with Special Temporary
Authority (``STA'') currently covering a significant chunk of their
service areas and with plans to expand even more. In markets 11-30
(representing another 24% of U.S. households), 77 of 79 top four
affiliated stations are on-air--72 with full-power licensed digital
facilities and five with STAs. Two other stations in that group have
been stymied in their roll-out, but are reporting regularly to the
Commission about their progress in overcoming the obstacles. Thus,
virtually all ABC/CBS/Fox/NBC affiliates in the top 30 markets,
representing 53.5% of all U.S. households, are on-air with DTV--110
stations with full power licensed digital facilities and seven with
STAs.\19\
---------------------------------------------------------------------------
\19\ Id.
---------------------------------------------------------------------------
Even as to smaller stations in these markets and stations in
smaller markets--which have far fewer resources but equally high
costs--1263 of 1569 stations are on air with digital,\20\ having
overcome enormous challenges and in many cases mortgaging their
stations to do so, despite having no immediate prospect of revenues to
offset these huge investments.
---------------------------------------------------------------------------
\20\ Id.
---------------------------------------------------------------------------
Those who do not understand the digital transition sometimes claim
that DTV stations operating with STAs broadcast with very low power.
That is simply wrong. Many stations, particularly those outside the
largest stations in the largest markets, are ``DTV maximizers,'' i.e.,
are maximizing their power to greatly exceed their analog coverage.
Many maximizers need only a fourth or less of their maximum (licensed)
power to cover their entire analog service area. Maximizers operating
at even much reduced power are still covering 70% or more of their
analog service areas. Almost 19% of current DTV stations operating
pursuant to STAs currently serve more than 100% of their analog service
area with a digital signal.\21\ This number will expand exponentially
as the transition continues. This high percentage is particularly
striking given that there are still no FCC rules for digital
translators or booster stations, which will further expand digital
signals in rural areas (at still further cost to local broadcasters).
Free, over-the-air broadcasters take seriously the potential for
expanding their service area and diminishing the very small number of
households nationwide that cannot receive local signals, and the
digital transition will provide an opportunity to increase nationwide
broadcast service.
---------------------------------------------------------------------------
\21\ See MSTV Study, supra, at 16.
---------------------------------------------------------------------------
An authoritative study from last fall shows that on-air DTV
facilities are serving 92.7% of the population served by the
corresponding analog stations.\22\ The small percentage of viewers who
do not yet receive a fully replicated digital signal of their local
television stations is shrinking by the day as broadcasters work hard,
at great expense, to expand the coverage of their digital stations.
---------------------------------------------------------------------------
\22\ MSTV Study, supra, at i.
---------------------------------------------------------------------------
On the programming side, broadcasters, both networks and local
stations, are providing an extraordinary amount of high-quality DTV and
high-definition television (``HDTV'') programming to entice viewers to
join the digital television transition and purchase DTV sets to display
the glory of dazzling HDTV programs and the multiple offerings of the
growing DTV multicasts. Three networks offer virtually all their prime
time programming in HDTV, as well as high-profile specials and sporting
events, such as
The Academy Awards
The Grammys
11 National Hockey League playoff games
The Kentucky Derby
The Super Bowl
The AFC Championship
Masters' Golf
US Open Tennis
College football
NCAA Tournament games
The Stanley Cup
The NBA Finals
The primary NFL games of the week
The entire schedule of Monday Night Football
PBS is launching its HD Channel, in addition to its multicast channels
of educational fare. WB is doubling its amount of HD programming this
fall to account for more than half of its program schedule. PAX is
multicasting on its digital channels, including prime time fare. And
now many special effects, like the first-down marker and graphics, are
also going high definition, to enhance the viewer experience and move
the transition along faster and faster.
While it is local stations that bring these national HDTV programs
to the vast majority of viewers, these local stations also are doing
more and more on the local level to supplement the network HDTV and
multicast fare. Examples abound of local HDTV and multicast broadcasts
(at an enormous cost for full local HD production facilities):
WRAL-TV produces its local news in HDTV
Post-Newsweek's Detroit station broadcast live
America's Thanksgiving Day Parade in HD
WRAZ-TV in Durham NC broadcast 10 Carolina Hurricanes
hockey games in HD last winter
KTLA in LA broadcast last January's Rose Parade in HD
in a commercial-free broadcast simulcast in Spanish and closed
captioned and repeated it throughout the day and distributed it
on many Tribune and other stations
Last April, Belo's Seattle station KING-TV began
producing its award-winning local programs Evening Magazine and
Northwest Backroads in HDTV. Evening Magazine is daily. These
programs are broadcast on Belo's other Seattle and Portland and
Spokane stations
KTLA last March broadcast live LA Clippers and the
Lakers in HD. It was the third sports presentation by KTLA,
which included two Dodgers games
Many public TV stations are providing adult and
children's education, foreign language programming and gavel-
to-gavel coverage of state legislatures
NBC and its affiliates are planning a local weather/
news multicast service
ABC is multicasting news/public affairs and weather
channels at its KFSN station in Fresno, Calif. It plans to
replicate this model at the nine other stations it owns.
WKMG in Orlando plans to broadcast a Web-style screen
with local news, weather maps, headlines and rotating live
traffic views.
This ever-increasing variety of DTV and HDTV programming, being
broadcast to the vast proportion of American households, will attract
consumers to purchase DTV sets. Another major driver of the transition
is the FCC's August 2002 Tuner Order, which requires all new television
sets, on a phased-in basis and starting this summer with the half of
the largest sets, to have a DTV tuner. As a result, DTV tuners will be
available in an ever-increasing number of households, thereby further
hastening the transition.
In short, the suggestion that broadcasters have somehow failed
America in the transition to digital broadcasting is demonstrably
false. And the notion that new compulsory license for ``digital white
areas'' would improve matters is sheer fantasy. In fact, allowing
satellite carriers to deliver distant digital (or HD) signals to so-
called ``digital white areas'' would set the stage for a consumer
nightmare almost identical to what occurred in 1999, when hundreds of
thousands of households had to switch from (illegally-delivered)
distant signals to over-the-air reception of local stations.
The reason is simple: as Congress painfully experienced from
mountains of letters, emails, and phone messages in 1999, viewers who
are accustomed to receiving all of their TV programming (including
network stations) by satellite are often enraged when told that they
must switch to a hybrid system in which they combine satellite
reception with an off-air antenna or cable service. The import of the
``distant digital'' proposal is therefore clear: after the DBS firms
had ``grabbed'' customers with a distant digital signal, the costs to
local broadcast stations of reclaiming those viewers would go sky-high,
since stations would face not only the same financial costs they do now
but also the high costs of confronting thousands of angry local viewers
with the need to change their reception setup. The DBS firms know all
of this, and they fully understand the implication: the ``distant
digital'' plan would not encourage a smooth digital transition, and
would not encourage stations to invest in the digital rollout, but
would simply make it easy for EchoStar and DirecTV to hook customers on
(distant) satellite-delivered digital signals and keep them forever.
If there were any doubt about the DBS firms' tenacity in retaining
distant-signal customers once they begin serving them--regardless of
the legality of doing so--EchoStar's behavior with regard to analog
distant signals would eliminate it. As a District Court found last year
after a 10-day trial, EchoStar was so determined to retain its illegal
distant-signal customers that, ``when confronted with the prospect of
cutting off network programming to hundreds of thousands of
subscribers,'' the key ``EchoStar executives, including [CEO Charles]
Ergen and [General Counsel] David Moskowitz,'' choose instead ``to
break Mr. Ergen's promise to the Court'' that it would turn them off.
CBS Broad., Inc. v. EchoStar Communications Corp., 276 F. Supp. 2d at
1246, 46.
B. The Radical New Compulsory License Demanded by EchoStar
and DirecTV Is Unnecessary and Would Do Lasting
Damage to Localism
At all times since 1988, the purpose of the distant-signal license
has been to make over-the-air broadcast programming available by
satellite solely as a ``lifeline'' to satellite subscribers that had no
other options for viewing network programming.\23\ The EchoStar/DirecTV
proposal would do exactly the opposite: Congress would override normal
copyright principles to permit DBS companies to transmit distant
network stations to many millions of additional households, even though
(1) the households get a strong signal from their local stations over
the air and (2) in most cases, the DBS firm already offers the local
analog broadcasts of the same programming, in crisp, digitized form, as
part of a local-to-local package. The suggestion that Congress needs to
step in to offer a ``lifeline'' under these circumstances is
baffling.\24\
---------------------------------------------------------------------------
\23\ E.g., SHVIA Conference Report, 145 Cong. Rec. H11792 (``the
specific goal of the 119 license, which is to allow for a life-line
network television service to those homes beyond the reach of their
local television stations must be met by only allowing distant network
service to those homes which cannot receive the local network
television stations. Hence, the `unserved household' limitation that
has been in the license since its inception.'' Id. (emphasis added).
\24\ The Committee should be aware that, in the guise of a letter
seeking advice about how to fill out a Copyright Office form, EchoStar
sought last year to obtain from the Copyright Office a statement that
the Copyright Act as now in force already recognizes the ``distant
digital'' concept. See Letter from David Goodfriend, EchoStar
Communications Corp. to David O. Carson, General Counsel, Copyright
Office (June 18, 2003). The Office swiftly, and properly, rebuffed that
back-door effort. Letter from William J. Roberts to David Goodfriend
(Aug. 19, 2003).
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The consequences of this radical proposal, if adopted, would be
likely to be grave. According to EchoStar and DirecTV, for example, if
a station (through no fault of its own, e.g., because of a local zoning
obstacle) has been unable to go on-air with a digital signal , every
household in that station's market would be considered ``unserved''--
and therefore eligible to receive a retransmitted signal from the New
York or Los Angeles ABC, CBS, Fox, and NBC affiliates' digital
broadcasts. In these markets, EchoStar and DirecTV would take us back
to the dark days of the mid-1990s, when, before courts began to
intervene, the DBS firms used national feeds to deliver ABC, CBS, Fox,
and NBC network programming to any subscriber who asked for it.\25\ And
they would do so even though, in most cases, the DBS firms are
themselves already delivering the same programming by satellite from
the local stations. With DBS penetration already at more than 20
million households nationwide, and with the highest levels of DBS
penetration in smaller markets, the impact on the viability of local
broadcasters could be devastating.\26\ Worse yet, based on the
misconduct of EchoStar in their retransmission of distant analog
signals, once EchoStar has begun delivering distant digital stations,
it will take enormous efforts (and years of struggle) to get them to
ever stop doing so, even if they have ``promised'' to do so, and even
if the law squarely requires them to do so.
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\25\ In other markets, while stations have gone on-air with their
digital signals, their coverage area is temporarily reduced for reasons
entirely beyond their control--such as the destruction by terrorists of
the World Trade Center and its broadcasting facilities.
\26\ Of course, the tiny number of genuinely unserved households
(e.g., those unable to receive Grade B intensity analog signals over
the air) can receive either an analog or a digital signal from a
distant affiliate of the same network. See Letter from William J.
Roberts, U.S. Copyright Office, to David Goodfriend (Aug. 19, 2003).
---------------------------------------------------------------------------
Granting this enormous government subsidy to the DBS industry, at
the expense of local broadcasters (and ultimately at the expense of
local over-the-air audiences), would also have profoundly negative
long-term consequences for the continued progress of the satellite
industry. Over-the-air broadcasting is a local phenomenon, and the
right way to deliver local stations is on a local-to-local basis. In
their drive to compete with cable, and with each other, DirecTV and
EchoStar are likely to devise ingenious technical solutions to enable
them to carry digital broadcasts on a local-to-local basis, just as
they have--despite their gloomy predictions--found a way to do so for
analog broadcasts. But rewriting the laws to give EchoStar and DirecTV
a cheap, short-term, government-mandated ``fix'' will take away much of
the incentive that would otherwise exist to continue to find creative
technological solutions. Congress wisely refused to abandon the bedrock
principles of localism and free market competition in the 1990s, when
the satellite industry made similar proposals, and Congress should do
the same now.
The DBS proposal would also sabotage another key objective of the
SHVIA, namely minimizing unnecessary regulatory differences between
cable and satellite. If DirecTV and EchoStar could deliver an out-of-
town digital broadcast to anyone who does not receive a digital
broadcast over the air, they would have a huge (and wholly
unjustifiable) leg up on their cable competitors, which are virtually
always barred by the FCC's network non-duplication rules from any such
conduct. See 47 C.F.R. Sec. Sec. 76.92-76.97 (1996).
Finally, it would be particularly inappropriate to grant EchoStar
and DirecTV a vastly expanded compulsory license when they have shown
no respect for the rules of the road that Congress placed on the
existing license. If Congress were to adopt this ill-conceived
proposal, it can expect more years of controversy, litigation, and--
ultimately--millions of angry consumers complaining to Congress when
their ``distant digital'' service is eventually terminated. This
Committee should rebuff the invitation to participate in such a
reckless folly.
V. WHAT CONGRESS SHOULD DO THIS YEAR
As the Committee is aware, the local-to-local compulsory license is
permanent, but Congress has wisely extended the distant-signal license
(in Section 119 of the Copyright Act) only for five-year increments.
Given the short legislative calendar and the press of other urgent
business, Congress may wish simply to extend Section 119, as now in
force, for another five years.
If Congress wishes to do anything other than a simple extension of
the existing distant-signal compulsory license, NAB urges:
No distant signals where local-to-local is available.
For the reasons discussed above, Congress should amend the
definition of ``unserved household'' to exclude any household
whose satellite carrier offers the household's own network
stations on a local-to-local basis. There is no logic to
interfering with localism--and with basic copyright
principles--under these circumstances. It makes no sense, for
example, to give satellite carriers the right to ``scoop''
local stations on the West Coast (and in the mountain West) by
delivering 8 Simple Rules, Everybody Loves Raymond, 24, or The
Tonight Show two or three hours early, or to permit EchoStar to
evade normal copyright restrictions by delivering out-of-town
NFL games to local-to-local households without ever negotiating
for the rights to do so.
No expansion of the distant-signal compulsory
license. Congress should flatly reject any proposal to expand
the distant-signal compulsory license, such as the
irresponsible ``distant digital'' proposal discussed above.
Since the compulsory license is intended only to address
``hardship'' situations in which viewers have no other means of
viewing network programming, there is no policy basis for
expanding the compulsory license to cover households that
receive can view their local station's analog signals over the
air. Still less would it make any sense to declare a household
to be ``unserved'' when it already receives (or can receive
with a phone call) a crisp, high-quality digitized
retransmission of their local station's analog broadcasts from
DirecTV or EchoStar.
The Committee not take seriously the DBS firms'
predictable claims that they lack the technological capacity
over time to offer local digital signals, since--as discussed
above--EchoStar and DirecTV are notorious for
``underpredicting'' their ability to solve technological
challenges. Moreover, it would be wholly inappropriate to
reward companies such as EchoStar, which have knowingly
violated the existing law and broken sworn promises to courts
about compliance, by broadening the compulsory license they
have abused.\27\
---------------------------------------------------------------------------
\27\ EchoStar's callous disrespect for legal requirements extends
well beyond litigation with broadcasters. In a lawsuit filed by
EchoStar claiming antitrust violations for alleged conspiracy and
boycott, for example, a United States Magistrate Judge recommended Rule
11 sanctions against EchoStar and its in-house counsel. Recommendation
of United States Magistrate Judge, EchoStar Satellite Corp. v.
Brockbank Ins. Servs., Inc., No. 00-N-1513 at 19 (D. Colo. Nov. 6,
2001) (Exhibit A hereto). The court held that ``the complaints filed
[by EchoStar] in this action were nothing but an effort to involve the
insurers in expensive litigation in an attempt to force the insurers to
increase their settlement offers or to pay a total loss on the EchoStar
IV claim.'' Id. at 25. The court also found that ``Echostar acted with
an improper purpose in violation of Rule 11(b)(1)'' and acted ``in bad
faith.'' Id.
Five-year sunset. Congress should again provide that
Section 119 will sunset after a five-year period, to permit it
to evaluate at the end of that period whether there is any
continuing need for a government ``override'' of this type in
---------------------------------------------------------------------------
the free market for copyrighted television programming.
Stopping the ``two-dish'' scam. As discussed above,
Congress should--if the FCC does not do so first--bring a halt
to EchoStar's two-dish gambit, which is thwarting Congress'
intent to make all stations in each local-to-local market
equally available to local viewers.
conclusion
With the perspective available after 16 years of experience with
the Act, the Committee should adhere to the same principles it has
consistently applied: that localism and free-market competition are the
bedrocks of sound policy concerning any proposal to limit the copyright
protection enjoyed by free, over-the-air local broadcast stations.
If the Committee makes any change to the existing distant-signal
license, it should amend the Act to specify that a household that can
receive its own local stations by satellite from the satellite carrier
is not ``unserved.'' The Committee should flatly reject reckless bids
by companies like EchoStar--which have scoffed at the law for years--to
expand the distant-signal license.
Far from rewarding EchoStar for its indifference to congressional
mandates, Congress should--if the FCC does not--make clear that
EchoStar's flouting of ``carry one, carry all'' through its two-dish
gambit must come to an end. And as it has done in the past, Congress
should limit any extension of the distant-signal license to a five-year
period, to enable a fresh review of the appropriateness of continuing
this major governmental intervention in the free marketplace.
__________
APPENDIX A
recent examples of local tv station public service
Helping People In Need
WXYZ `Can Do' Raises 500,000 Pounds of Food for Food Banks
WXYZ-TV Detroit (E.W. Scripps-owned ABC affiliate) undertook its
22nd annual ``Operation Can-Do'' campaign this winter, bringing in more
than 500 thousand pounds of canned and non-perishable food to help feed
families and individuals through soup kitchens and food banks in the
tri-county area. Since it began the program, WXYZ has collected more
than six million pounds of food, providing more than 20 million meals
to the hungry of Metropolitan Detroit. (Jan/Feb 2004)
WHSV-TV Builds a Habitat House
WHSV-TV Harrisonburg, VA (Gray Television-owned ABC affiliate)
decided the best possible way to celebrate its October 2003 50th
Anniversary would be to partner with Habitat for Humanity to raise $50
thousand over the summer to build a house for a needy family. January
2003 marked the first time that the Staunton-Augusta-Waynesboro Habitat
affiliate partnered with a television station to build a house and show
the public the Habitat miracle. WHSV had several fundraisers, including
production and distribution of a Shenandoah Valley cookbook
commemorating the station's 50 years of service and the Habitat
chapter's 10 years of service. In August, WHSV hosted a special benefit
screening of ``From Here to Eternity,'' which won the Academy Award in
the same year WSVA-TV (now WHSV) sent out its first broadcast.
Community members who supported the screening were driven by limousine
to the theater and entered on a red carpet. WHSV sent out calls for and
coordinated volunteers throughout the fundraising and building process.
The station met its goal, the house was built and a grateful family of
four moved in. (Jan/Feb 2004)
Children
WFAA-TV Collects 82,000 Toys in Four-Week Campaign
WFAA-TV Dallas/Fort Worth (Belo-owned ABC affiliate) in 2003 ran
its most successful Santa's Helpers campaign in the 34-year history of
this program. WFAA was able to collect more than 82,000 toys over the
course of the four-week campaign, allowing the station to help more
than 50,000 children in the North Texas area. In 2002 the station
collected 76,000 toys. Santa's Helpers is promoted on air through
numerous promos and PSAs, and also by WFAA's chief weathercaster, Troy
Dungan, who has served as Santa's Helpers spokesman for 28 years. Each
year, the highlight of the campaign is a ``drive-thru'' event that is
held in front of the station, where WFAA anchors and reporters greet
viewers as they drop off toys. After all of the toys have been
collected, they are distributed to needy children by more than 40
nonprofit organizations in the Dallas/Fort Worth area. (Jan/Feb 2004)
Healthy Communities
KTTC-TV: 50 Years On-Air, 50 Years Fighting Cancer
KTTC-TV Rochester, MN (QNI Broadcasting-owned, NBC) celebrated its
50th anniversary in July and nearly 50 years of partnership with the
local Eagles Lodge producing and airing a 20-hour telethon to raise
money for cancer research. Fifty years ago young Rochester television
sportscaster Bernie Lusk was searching for a way to use the powerful
new medium of television to make a difference. At a time when the
battle with polio garnered much attention, Bernie wanted to tackle
another disease that claimed many lives--cancer. Bernie shared his idea
with fellow Eagles Lodge members, and the now 50-year-old, totally
local telethon was born.
In its first year, the 1954 KTTC/Eagles Cancer Telethon raised
$3,777. In 2003, $702,900 was raised for the Mayo Clinic, the
University of Minnesota, and the Hormel Institute of Research. To date
the telethon has raised more than $9 million dollars. (Nov/Dec 2003)
KLAS-TV Promotes Breast Cancer Awareness
KLAS-TV Las Vegas (Landmark Broadcasting, CBS) runs the Buddy Check
8 program asking viewers to call a buddy on the 8th day of the month to
remind her to do a breast self-examination. KBLR-TV (Telemundo) also
produces the same messages in Spanish. (September 2003)
Helping Animals
KEYE Raises $172,000 for Humane Society
KEYE-TV Austin, TX (Viacom, CBS) hosted the Austin Humane Society's
6th Annual Pet Telethon June 20 and 22, raising $172,000 and resulting
in the adoption of 104 animals. The society runs a no-kill shelter,
where animals accepted into the adoption program are kept for as long
as it takes to find them a loving home. The society has saved
approximately 2,700 animals in the past year alone. (July 2003)
Drug Prevention
Hawaii TV Stations Forego New Network Shows to Blanket Islands with
Drug Documentary
Television stations in the Hawaiian Islands simultaneously aired an
unprecedented, commercial-free drug documentary at 7 p.m. on September
24, with network affiliates pre-empting the first hour of primetime
during the networks' debut of their new fall shows. The stations were
honoring their commitment to help battle Hawaii's biggest drug problem.
``Ice: Hawaii's Crystal Meth Epidemic,'' produced by Edgy Lee's
FilmWorks Pacific, details the epic proportions of crystal meth abuse,
with grassroots reaction and views. Originally conceived as a 30-minute
show, it was expanded to an hour because of the magnitude of the
epidemic and originally was to air in August to avoid the fall network
season. The commercial-free airing agreement did not come without a
cost. It meant thousands of dollars in lost ad revenues for the
stations and the canceling or delayed airing of the season premieres of
``Ed,'' ``60 Minutes II,'' ``My Wife and Kids'' and ``Performing As.''
KITV-TV (Hearst Argyle, ABC) general manager Mike Rosenberg estimated
the loss was as much as $10 thousand per station. Stations that
simulcast the program included: Honolulu stations KITV-TV (Hearst
Argyle, ABC), KBFD (Independent), Raycom Media stations KHNL (NBC) and
KFVE (WB), KIKU (International Media Group, Independent), Emmis
Communications stations KHON (Fox) and KGMB (CBS) and KWHE
(Independent). Some stations even added additional ice programming to
follow Lee's film. Among them were KHON, which showed an hour-long
panel including Governor Linda Lingle and Lt. Governor James Aiona; and
KFVE, which aired a half-hour program focusing on teen drug usage.
(October 2003)
Broadcasters Without Borders
Roanoke Station's Viewers Come Through for Troops
A six-day promotion at WDBJ-TV Roanoke, VA (Schurz Communications,
CBS) to gather items such as toiletries and snack foods for American
troops serving in the Iraq war resulted in more than two tons of
welcome supplies. Viewers overwhelmed the station and collection points
at several Roanoke area automobile dealerships with more than 4,000
pounds of Packages from Home to be sent overseas. The American Red
Cross local chapter helped get the goods to the Middle East. ``Thursday
and Friday afternoons, the cars were bumper to bumper at our front
door,'' said WDBJ President and General Manager Bob Lee. ``We filled up
the lobby, and then the packages started to spill over into other areas
of the building.'' Red Cross and station volunteers sorted the DOD-
approved personal items. Said Lee, ``Who would have thought we would
end up with more than two tons of merchandise! We were beginning to
think we'd need our own C-130 for the delivery.'' (April 2003)
Education
KTLA Student Scholarships
KTLA-TV Los Angeles (Tribune-owned WB affiliate) is launching its
sixth Annual Stan Chambers Journalism Awards competition--a partnership
with area county departments of education and member school districts.
The station has invited more than 300 high schools to have their
seniors submit essays on ``What Matters Most,'' for the opportunity to
receive scholarships to further their education. Five winners will
receive $1,000 and a chance to experience work in the KTLA Newsroom.
Winners will produce videos of their entries, with guidance from KTLA
News writers, producers and reporters. The program honors KTLA's
veteran reporter and journalist Stan Chambers for his contributions to
the community. (Jan/Feb 2004)
KRON-TV's `Beating the Odds'
KRON-TV San Francisco's ``Beating the Odds'' is a series of news
stories and specials reported by anchorwoman Wendy Tokuda and other
KRON News reporters. Tokuda's ``Beating the Odds'' series features
extraordinary high school students who are rising above tough
circumstances. Some are growing up without parents, others are homeless
and some are raising siblings. All of them want to go to college. The
stories are tied to a scholarship fund established by KRON and the
Peninsula Community Foundation to help low-income, high-risk Bay Area
high school students pay for college. Following each ``Beating the
Odds'' report, viewers are encouraged to donate to the fund. Since
1997, the fund has raised more than $1.5 million for students profiled
in the series. The Foundation waives all its fees, so 100% of the tax-
deductible donations go to the students. KRON is an independent station
owned by Young Broadcasting. (March 2003)
Belo/Phoenix Launches Statewide Education Initiative
Belo Broadcasting/Phoenix has launched a six-month, statewide
initiative on education to address major issues affecting students and
schools. Running through March, ``Educating Arizona's Families''
involves monthly topics ranging from early brain development and
learning readiness to literacy, accountability, dropout, post-secondary
education, the teaching profession and the economic impact of education
on the state. The stations focus on each initiative for one month,
producing two dozen stories per topic. Weekly public affairs
programming is directed toward the specific issues being covered each
month and guests on mid-day newscasts, three times weekly, offer
insight to parents, caregivers and other viewers. KTVK-TV Phoenix
(Independent) is driving the initiative through news and daily
promotional announcements that also air in Tucson on Belo's KMSB-TV
(Fox) and KTTU-TV (UPN). Promotion spots change monthly and individual
30-second sponsor announcements address education interests of each
sponsor. (Nov/Dec 2003)
Protecting the Environment/Endangered Species
Emmis Makes $90,000 Grant to Indianapolis Zoo For Endangered Species
Radio and television station owner Emmis Communications will donate
$90,000 to the Indianapolis Zoo for a multi-year conservation research
project aimed at saving one of the planet's most endangered species,
the ring-tailed lemur. A portion of the donation will be used to
research potential problems that could occur from the re-introduction
of the animals into the wild from zoos around the world, paving the way
for future reintroduction of the species into their native range.
(January 2002)
Mr. Smith. Ms. Peters, let me direct my first question
toward you but, first of all, preface it by saying that in your
testimony, both written and oral, you suggested two amendments,
both of which I think are non-controversial. One is eliminating
the outdated provisions and the other is coming up with a new
signal intensity standard for TV stations that broadcast in
digital.
Now what that standard is may be controversial, but I think
the idea that we have to come up with a new standard is not. So
what I want to do is ask you a couple of other questions. The
first one is: What do you think of Mr. Moskowitz's suggestion
that there be parity between cable and satellite when it comes
to the statutory licenses?
Ms. Peters. We actually, in general, believe that there
should be parity. There are certain provisions, but, for us, we
were focusing much more when we did our study, and we stayed
there today, with the fact that we believe in marketplace
rates. It is a statutory license. We think that a lot of the
things that are wrong are in the cable license, not the
satellite license.
Mr. Smith. Okay, so you do not think that the historical,
technological, regulatory, and sometimes different tax
treatments would justify something other than parity?
Ms. Peters. No, I think that there are perhaps some
instances where parity may not work, but to the extent that it
is possible, I think there should be parity. But I would aim
toward the satellite standard, rather than to go----
Mr. Smith. Go that direction rather than the other.
Ms. Peters. Yes.
Mr. Smith. Okay, thank you, Ms. Peters.
Mr. Attaway, in both your written and oral testimonies, I
am going to read from your prepared remarks, you made the point
that, since 1998, the satellite services have increased their
charges for distant broadcasting programming by 20 percent, but
copyright royalty payment for that programming has been reduced
by 30 percent. Why do you think that is?
Mr. Attaway. Well, when Congress accepted the statements of
the satellite industry in 1999 and reduced the marketplace
compulsory license rates by 30 or more percent, I think
Congress thought that this savings would be passed on to
consumers. That did not happen.
I have seen no evidence that the prices charged by the
satellite carriers went down in 1999 or any other time. They
keep going up. And what this compulsory license is is simply a
wealth transfer. Congress is taking money out of the pockets of
program owners and putting it in the pockets of the satellite
distributors.
Mr. Smith. Okay. Mr. Moskowitz, you probably anticipated my
question, which is: Why the 20 percent increase in charges and
the 30 percent decrease in royalties?
Mr. Moskowitz. Well, the only time that satellite--and I
guess I can only speak for EchoStar here, because I don't know
about DirecTV's price increases--but the only time EchoStar has
ever raised its prices on distant programming was a couple of
years ago when we added PBS to our line-up, and so we did
increase the price to reflect the fact we were adding an
additional channel to the line-up. Now, so we have kept prices
steady, notwithstanding the fact that our costs are very
significant.
People think: Well, gee, they just get the programming and
that is the beginning and the end of it, but, of course, that
is not the case at all. We have to back-haul it to a facility.
We have to then uplink it to a satellite. We have to pay for
the construction and launch of these satellites at a cost of
$250 million each. We have to comply with very burdensome
regulations, with respect to the SHVIA, which we are
comfortable complying with, but they are not without very
significant costs. And so it is really kind of inaccurate to
say that there aren't significant costs involved in doing this.
Mr. Smith. Okay, fair enough.
Mr. Lee, of all the proposals made by Mr. Moskowitz, which
is the least attractive to the National Association of
Broadcasters?
Mr. Lee. Mr. Chairman, it would have to be this digital
white space----
Mr. Smith. White space.
Mr. Lee.--notion.
The fact is, most of what we know about digital television
was created in a computer simulation. You may recall there was
limited field testing of digital television here in Washington,
I think down in the Charlotte area, and then we all galloped
off to do digital television.
At our station, we've spent about $14 million on equipment.
My power bill alone went up about $72,000 a year to operate the
digital transmitter, and the coverage pattern predicted by the
FCC's computer models was said to replicate the footprint of
our analog NTSC signal. What we found, in fact, is digital
travels much further than anybody expected and it is much more
robust, but it has some holes in it, and, frankly, nobody knows
why yet. There is some testing occurring out West, I think
primarily in the Salt Lake area, to understand how on-channel
translators will work in digital.
We are most eager to see the outcome of that, and--frankly,
I am the only lawyer in the room, I think, so I am not sure I
am able to say this--the broadcaster experience with EchoStar
leaves us so cautious, we just think that once the camel gets
his nose under the tent anything can happen.
It is just a bad idea, and I urge you to forget it.
Mr. Smith. Thank you, Mr. Lee.
The gentleman from California, Mr. Berman, is recognized
for his questions.
Mr. Berman. Thank you, Mr. Chairman.
To Mr. Attaway, you recommend increasing the section 119
royalty rates. Mr. Moskowitz recommends lowering them. Mr.
Moskowitz bases his recommendation on the argument that section
119 rates should equal cable's rates under section 111. Mr.
Moskowitz indicates that cable pays far lower per subscriber
royalty fees than satellite carriers. Do you agree with that
statement?
Mr. Attaway. Absolutely not.
I agree with the statement that there is not parity, but
the parity--the lack of parity is in satellite's failure, at
least according to the research I have done.
The dish superstation package of EchoStar includes five
distant independent stations for which they charge $5.99, and
they pay 94.5 cents in compulsory license royalties. Now the
same package, if it were carried by the San Antonio cable
system, would cost that cable system $1.50 per subscriber per
month. At the Century TCI cable system in Los Angeles, it would
pay $3.53 for that package of distant independent television
stations; and here in Montgomery County, Comcast would pay
$2.12 for that very same package.
Mr. Berman. What about western Virginia?
Mr. Attaway. I am sorry, I didn't look in western--Mr.
Boucher, I do apologize to you. I will go back tonight and look
that up and send it to you tomorrow.
Mr. Boucher. Actually, I think Mr. Berman asked the
question. You should send it to him.
Mr. Attaway. Well, the point is, Mr. Berman, there does not
seem to be parity, but it does seem to work in satellite's
favor. Satellite pays far less for a package of distant
independent television stations than many and I believe most
cable systems would pay.
Mr. Berman. Thank you.
Mr. Moskowitz, when you testified before the Subcommittee 5
years ago, I asked you whether some EchoStar subscribers were
receiving distant signals via satellite even though they could
receive a local signal of grade A intensity by a rooftop
antenna. You replied, quote: I can tell you that EchoStar does
not sign up customers in grade A unless we actually go out and
do a test and find that the consumer does not get a grade B
signal.
In a 2003 decision, the U.S. District Court for the
Southern District of Florida found that EchoStar was delivering
distant network stations to more than 630,000 subscribers who
were predicted to receive a grade A signal from at least one of
the four networks.
The court further found that EchoStar has failed to present
credible evidence, either in the form of an ILLR analysis or
signal intensity measurements, that any of its subscribers are
unserved as defined under the Satellite Home Viewer's Act.
It also found no credible evidence that EchoStar turned off
distant signals to any of these grade A subscribers.
In other words, the court found EchoStar had signed up
hundreds of thousands of customers in grade A areas without
doing any of the tests you assured me it had done. In light of
this, how do you expect us to feel comfortable that your
proposal for addressing digital white areas won't create
another grandfathering problem?
Mr. Moskowitz. Congressman, I think there are several
things to talk about with that. First, I am here in my capacity
as chairman of the SBCA; and with your permission I would
prefer to focus my remarks on those issues that are important
to the entire industry. That said, I think it important to
respond directly to your question. And in doing so----
Mr. Berman. Five years ago, you were representing EchoStar
then?
Mr. Moskowitz. That is correct.
In doing so, I think the first thing to keep in mind is
that this same court found that EchoStar's practices for
signing up new subscribers for the past many years had been in
full compliance with the requirements of the Act.
What we are talking about here are subscribers from a long
time ago, from before EchoStar took this action itself and
relied on third parties, as did everyone in the industry.
The second thing that I think is important to remember is
the statute--the NAB did a great job. They got a statute that
puts the burden of proof on satellite to prove every single one
of its customers comply. And, what is more, it did an even
better job, because they could make you do it, as they did in
that case, more than 5 years after the customer was first
signed up and records no longer existed.
So was the burden very difficult to meet? Absolutely, it
was.
Did that same judge find that EchoStar was complying in its
practices for signing up new subscribers for the past many
years? Absolutely, he did.
So I think that we have shown that--and I think the other
thing to keep in mind is it actually was EchoStar that went to
the court initially and said we think our practices comply, but
we want you to tell us whether they do or not. It wasn't the
broadcasters who went into court initially to do that.
So we are doing our best to comply in an ever-changing
field, and we think we have done a pretty good job of doing
that. There are certainly older subscribers who have in
retrospect become difficult, and we are continuing to work
through that.
Mr. Berman. Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Berman.
The gentleman from Alabama, Mr. Bachus, is recognized for
his questions.
Mr. Bachus. Thank the Chairman. And, Mr. Moskowitz, I am
afraid I am going to ask you some additional questions, as
opposed to other panel members. I almost wish I could ask
somebody else a question.
How many of your subscribers are currently unable to
receive the signal of their local network affiliate, either
through an over-the-air signal or through satellite-provided
digitized local signal? You can answer that as an association
and then as EchoStar.
Mr. Moskowitz. Congressman, I am afraid I do not have the
specific statistics with me. I can look into it and get back to
you with that information.
I can tell you that it is very difficult to determine what
percentage of consumers in the United States get an off-air
signal, most importantly because that standard is so antiquated
as to change and really is in need of serious change.
Certainly, the 1950s standard that was created isn't applicable
in today's marketplace.
I believe that the percentage who have--well, certainly,
the percentage who EchoStar can provide local channels by
satellite is today a little over 85 percent of the entire U.S.
Population; and I think with respect to DirecTV it is lower. We
serve about 108 markets today. They serve about 70. They plan
to increase that this summer to about the same number as us and
perhaps even more.
Mr. Bachus. But you are not sure--maybe in numbers, is
there a million of those subscribers unable to receive the
local signal from their local affiliate?
Mr. Moskowitz. Right, I am sorry. There are certainly many
millions who cannot receive their local channels by satellite,
and they are probably at least--of EchoStar and DirecTV's
customers today, I would estimate that there are well over a
million who cannot receive their local channels today off air.
Mr. Bachus. Okay. Over-the-air signal.
Mr. Moskowitz. That is correct by today's standard. And if
you updated that standard, the number would grow dramatically.
Mr. Bachus. Now is that over a million, but it could be
less than 2 million?
Mr. Moskowitz. Yes. I believe it would be--again, using the
definitions, not whether a consumer really can, because the
fact of the matter is that a lot of times, while a consumer is
predicted--I am talking about whether they are predicted to be
able to receive the signal--in fact, because of ghosting and
the antiquated standard, if you went to your neighbor's home,
you might well find that they did not think they got an
acceptable picture, but the law says they do. And by that
standard it is probably between a million and two million of
our customers today.
Mr. Bachus. Okay. Assume you have a satellite customer on
the edge of Washington, the Washington DMA, and say they are
too far from D.C. to view our local stations over the air.
Since EchoStar delivers ABC, CBS, Fox, all those channels, and
you deliver those stations by satellite to everyone in the
Washington, D.C., area, those same channels, in what respect is
this household underserved by those networks?
Mr. Moskowitz. I think, Congressman, that the fundamental
issue is an issue of choice for the consumer. When the consumer
can't get their local channels off air and therefore has to pay
to receive them, we believe that the consumer ought to have a
choice as to what they pay for.
Mr. Bachus. A choice between a distant CBS affiliate and
their locals?
Mr. Moskowitz. That is right. Because they are now paying
us for those channels. If the local broadcaster improved its
plant and its power and added repeaters so that the local
broadcaster could provide service, then there would be no
issue.
Mr. Bachus. Okay, let's say, in the Washington area, of
your total charge--what is your average charge, say, in the
Washington area, in an area I have just described, for all your
package?
Mr. Moskowitz. For our whole package, I think the average
consumer pays approximately $50, give or take.
Mr. Bachus. How many channels do they get?
Mr. Moskowitz. For that, I think they probably get 150-
170--about 170-plus channels.
Mr. Bachus. How much are they paying for that ABC, CBS,
Fox, and CBS station for that local?
Mr. Moskowitz. They would be paying $5.99 for not only the
ABC, NBC, CBS and Fox but also for the PBS and all of the
independents. In Washington I think that amounts to 12 or 14
channels.
Mr. Bachus. So maybe 10 or 12 percent of their bill, is
that right?
Mr. Moskowitz. Approximately.
Mr. Bachus. Okay.
Could I ask one----
Mr. Smith. Without objection, the gentleman is recognized
for an additional minute.
Mr. Bachus. Mr. Lee, let me just switch gears, for a
minute. How much money have the broadcasters spent on the
digital rollout?
Mr. Lee. Congressman, I apologize. I do not have a clue. If
our station is average, we are way up on the high side of a
billion dollars.
Mr. Bachus. Okay.
Mr. Lee. Our plant costs for digital so far have been about
$14 million.
Now, we were lucky. We had--Mother Nature gave us a 3,500-
foot mountain to put a 150-foot tower on so we didn't have to
go out and build a 2,000-foot tower, and we had a spare
standing there. So we are two or three million dollars lighter
than a station that would have to put up a 2,000-foot tower.
Mr. Bachus. How effective are you at serving your market
with a digital signal?
Mr. Lee. That is a question better asked our viewers, but I
think we are very effective, and maybe I can get some help from
the distinguished gentleman from southwest Virginia over here.
We operate at full power, have from day one.
The positioning statement of our television station is
``Your hometown station.'' and I just could not see how we
could put a digital signal on the air that served one community
but not another. So we have been high definition from day one,
we are multi-casting, we have HD carriage on cable in our
market, we have, we are about to have multi-casting carriage on
cable in our market. I think we have done it pretty damn well,
if you will pardon me.
Mr. Bachus. I will yield to the gentleman from western
Virginia.
Mr. Smith. The gentleman's time has expired.
The gentleman from Virginia, Mr. Boucher, is recognized for
his questions.
Mr. Boucher. Well, thank you very much, Mr. Chairman. At
the outset, Mr. Lee, I'm going to have to apologize and say I
have yet to purchase a digital set----
Mr. Lee. Shame on you.
Mr. Boucher. --you and I can have a private conversation
about my shortcomings in that respect at a later time.
Mr. Lee. I think Mr. Goodlatte gave himself one for
Christmas.
Mr. Boucher. Well, he is a technological jump ahead of me.
Let me say welcome to each of these witnesses and thank
each of you for your informative and often very spirited
testimony here this afternoon.
I want to direct, first, several questions to Mr.
Moskowitz; and let me begin by commending your particular
company, EchoStar, for its performance in providing local-into-
local services to more than 100 markets around the Nation. You
have done better than the competition in that respect, and I
think that your subscribers are well-pleased with the service
they get.
Having said that, there are a total of 210 television
markets across the country. And I would be interested in your
observations of what now needs to happen in order to expand
dramatically the number of local markets that get local
television signals delivered via satellite and what role is
there for Congress to take additional steps?
A number of years ago Mr. Goodlatte and I partnered
together and passed through the Congress a loan guarantee
program that provides about $1.25 billion in Federal loan
guarantees, a very large part of which has now been funded with
appropriations that would encourage the construction and launch
and operation of satellites, should that prove to be necessary,
in order to extend the number of markets that are served with
local-into-local service. As far as I know, that loan guarantee
hasn't been drawn upon yet.
Just comment, if you would, about what the private sector
intends to do in terms of expanding these services and what
role, if any, there might be for us to take additional steps to
help facilitate it.
Mr. Moskowitz. Congressman, the satellite industry applauds
your efforts to enact legislation that provides for the rural
loan guarantees, and I think that there is an April 1st
deadline for applications to be in, and I hope that we will
find that many of our members attempt to take advantage of that
opportunity. And that is one of the legs of the stool, is
building more satellites, because today's satellites simply
physically cannot handle adding many more local markets.
The second leg of the stool is we need more spectrum. There
simply is not physically enough spectrum that we have been
allocated so far in order to provide many more local markets.
So I think that the thing that Congress can do is work with the
satellite industry and the FCC to free up additional spectrum
and make it available so that that, together with the--so that
the technological questions can be addressed.
And then, of course, there are always the financial issues.
And we are driven to provide competition in as many markets as
is economically feasible and will continue to work hard to
increase that number.
Mr. Boucher. Well, let me just ask you this. Let's suppose
that we resolve whatever spectrum issues there are. Make a
projection, if you would, 2 years from today, how many markets
around the country do you think, you and DirecTV together are
going to be serving?
Mr. Moskowitz. If I had to project, I would say it would
certainly be in excess of 150, and how far in excess of 150 is
very difficult to say.
Mr. Boucher. Okay. Well, that's not the answer I was hoping
to hear. And I think we have to do better. We can have some
conversations about how to do that, but that is a major concern
of mine in particular.
Your two-dish solution that EchoStar has for offering local
signals in some markets has been challenged by the NAB. I think
Mr. Berman had something to say about it also.
Let me ask you this. Is there any cost to the consumer to
obtain that second dish in a market where the second dish is
necessary to get the EchoStar-delivered local signals?
Mr. Moskowitz. Thank you for asking. In fact there is
absolutely no cost whatsoever to the consumer for that second
dish. EchoStar absorbs that cost completely itself, and,
moreover, the existence of the second dish is completely
transparent to the consumer. So other than the fact that there
is a second 18-inch dish up on the roof, when the consumer
turns on his program guide, the channels that are on one dish
or the other all appear contiguous in the program guide, and if
you press a button to get one, you press the same button to get
the other.
And, of course, the other thing we do is that we do inform
all consumers of the availability of this free dish.
So we have chosen to try to serve more markets with local
programming by satellite. And in order to do that, we have had
to put some of these channels out of the wing slot. But we have
done it in a manner which we believe makes it completely
seamless to the consumer. And if they want that channel, it is
absolutely available to them and they know that it is available
to them at no cost.
Mr. Boucher. Thank you very much, Mr. Moskowitz.
Mr. Chairman, may I ask unanimous consent to proceed for
one additional minute?
Mr. Smith. Without objection, the gentleman is recognized
for an additional minute.
Mr. Boucher. Thank you, Mr. Chairman.
Mr. Lee, I want to offer a special welcome to you as
general manager of the television station that provides a
tremendous service in the western part of Virginia. Your
station serves approximately one-half of my district and at
least that much of our Committee colleague, Bob Goodlatte's
district. And we are very pleased to have you here today, and
thank you for your testimony.
Mr. Lee. Thank you, Mr. Boucher.
Mr. Boucher. Let me ask you about two special circumstances
that do prevail in my part of Virginia, the part of Virginia
that you serve, and I know also prevail in a number of other
areas around the Nation.
Circumstance number one is where a particular market has no
affiliate of a given major network. What happens at the present
time when that local market is uplinked to the satellite for
local-into-local service, is that the subscribers to satellite
within that market have the opportunity to subscribe to a
distant network signal under the statutory license with respect
to that particular network. But if there is an adjacent market
that happens to be next door, right there within the same State
that offers that affiliate, under current law there is no
opportunity for that particular subscriber to subscribe to the
network signal that happens to emanate from the adjacent
market.
Should we not amend the law in order to make that adjacent
market signal available through local-into-local uplink?
Mr. Lee. Mr. Boucher, I have wrestled with that question,
and let me emphasize again, I am not an attorney so my reading
of the law may be incorrect. But in studying some of this stuff
last week in preparation for coming here, it occurred to me
that it might be possible, let's say, in the Bluefield DMA,
which would be part of your congressional district, but in
which there is no local-into-local service, I can't find it in
the law--can't find in the law a provision that limits who
DirecTV and EchoStar can import for distant network signals. It
doesn't have to be New York or Los Angeles. If I read the law
correctly, it could just as easily be Richmond or Charleston,
West Virginia, or whatever.
But I would urge the Subcommittee staff to research that
question further. That would be a very elegant solution. But I
think the only downside for the DBS carriers would be they
wouldn't be able to carry the local signals--they wouldn't be
able to treat a Roanoke signal as a section 122 rate base. They
would have to treat it as a section 119; pay distant signal
copyright fees without regard for where it was coming from.
Mr. Boucher. Well, I think the proposal would be to treat
it as a local signal, so that if it comes from an adjacent
market it is treated as a local signal. You wouldn't have any
objection to that, would you?
Mr. Lee. Oh, no, no. They would get a free ride that way,
but I would have no objection at all.
Mr. Boucher. Let me ask about one other circumstance that--
--
Mr. Smith. The gentleman is recognized for an additional
minute.
Mr. Boucher. Thank you, Mr. Chairman. I appreciate your
indulgence.
This situation prevails in one of my counties. It is
Patrick County, Virginia, which has a very interesting natural
geography. There is a very high mountain range that divides
this county. The lower half of the county is where most of the
population is, well below this mountain. And that area is
adjacent to North Carolina. And under the Nielsen ratings, most
of the residents of the county living down below this mountain
are receiving their over-the-air and cable-delivered television
from North Carolina, from Winston-Salem, North Carolina.
However, the station that you operate is actually a little bit
closer in terms of just raw miles to most of this population.
You are also within the same State, your market is adjacent
to the market that, under the Nielsen ratings, most people are
currently looking at in over-the-air TV. I am confident if you
took a poll of the residents of this particular county, the
vast majority would say they would much more prefer to receive
the Roanoke market signals delivered in local fashion. But
under the current law, they have to subscribe to that market
which the Nielsen ratings say is most significantly viewed. And
that is the Winston Salem market.
So I would very much like to see us change the law to say
that in an instance like that, the in-State adjacent market
could be uplinked and provided to a county in that kind of
circumstance. I would welcome your comments about such an
amendment should it be offered.
Mr. Lee. I know there are a number of counties around the
country in which, with each annual Nielsen cycle, a county
flip-flops back and forth between one DMA versus another. I
have heard some talk about that phenomenon as to western
Massachusetts, eastern New York, very much parallel to the
State line phenomenon you and I are discussing. It really
depends on whose ox is being gored.
The NAB does not yet have a position on that. The CBS
Affiliates Group does not have a position on that. We recognize
a solution needs to be found, and I would welcome an
opportunity to work with you on that going forward.
Mr. Boucher. All right. Well, thank you very much Mr. Lee.
I want to thank all the witnesses and, Mr. Chairman, I
particularly thank you for your indulgence this afternoon.
Mr. Smith. Thank you, Mr. Boucher.
The gentleman from Alabama, Mr. Bachus, is recognized for
additional questions.
Mr. Bachus. Thank you.
Mr. Moskowitz talked about this new digital white area
license. Suppose the Congress creates such a license and there
was a satellite provider, your company or one--another--a
satellite provider gives a customer in this area a distant
signal, say, from New York--Fox, NBC, ABC. And let's say at a
local--at a later time, the local stations in Alabama expand
their digital broadcasting and they reach into this area which
you have called the digital white area. What would happen if at
that time the subscriber had to give up his satellite-delivered
digital stations and switch to using the over-the-air antenna
to get the network stations? What do you think his reactions
would be?
Mr. Moskowitz. Well, first, we have tried to address that
in our strategy, because every HD box satellite receiver that
EchoStar builds, and many if not all of the HD receivers built
by DirecTV as well, include an off-air digital tuner; so that
while they could use the box to receive those digital distant
network signals today, they would also have the inherent
capability by putting up what hopefully at some point in time
would be a small and unobtrusive off-air antenna to receive
their local digital channels, when the local provider, the
local station, upgrades its plan. The other very----
Mr. Bachus. Well, what you are saying, at that time--what
you are saying is at that time they wouldn't continue to get
the distant network broadcast over satellite; right? That's--I
am assuming that what you are asking us to do is temporarily
give them that distant signal, but at such time that they get
their local signal, that that service that they were getting
would be withdrawn; right?
Mr. Moskowitz. No, Congressman. We believe that while no
new customer should receive it thereafter, that customers who
get it already should be able to keep it as long as they also
have the capability which we would assure of also receiving
their local network channels.
Mr. Bachus. Wouldn't that mean that a person, say--you
know, on the same street, you would have some people that had--
that could get it, other people that couldn't get it?
Mr. Moskowitz. Yes. That would be a consequence of the fact
that some broadcasters will adopt the technology and upgrade
their plant more expeditiously than others will. We have that
in analog today, where some consumers on the street are
entitled to receive distant networks and others are not. The
interesting thing about the digital is you either get it or
not. So, unlike the analog, we don't expect there would be the
same contentious issues, because you can very simply determine
whether somebody gets the signal or not.
Mr. Bachus. I guess what I am saying, you could see a real
problem with giving a customer a service and, all of a sudden,
telling him he couldn't have it? That's not going to work, is
it?
Mr. Moskowitz. I believe that that would create problems
that we would need to talk and work through.
Mr. Bachus. If Congress created such a scheme, they would
be basically setting themselves up for a firestorm of consumer
protests down the road, wouldn't we?
Mr. Moskowitz. If those channels were subsequently taken
away from the small number of people who would adopt, then,
yes. On the other hand----
Mr. Bachus. You think it would just be a small number.
Mr. Moskowitz. Well, I think it would depend on how quickly
broadcasters met their promise to Congress and actually
implemented the service that they promised when they were given
the digital spectrum for free.
Mr. Bachus. So you anticipate this digital white area just
being a small number of people.
Mr. Moskowitz. I believe that if you give this ability to
satellite, that broadcasters will much more expeditiously meet
their obligations, and therefore that number will be small.
Mr. Bachus. But it will end up being small, but it would
initially have been significant; right?
Mr. Moskowitz. I am not sure I follow, Congressman.
Mr. Bachus. Well, initially, if it were given initially you
are saying, initially there would be a large number of people.
Mr. Moskowitz. Well, the number of adopters early on is not
great because there aren't--we have a chicken and an egg right
now, where, you know, the broadcasters don't want to upgrade
their plant because there aren't a lot of people with the TV
sets to watch, and the manufacturers don't want to produce the
sets in bulk and bring the price down because there is not a
lot of content. Satellites, uniquely positioned, would provide
that transition.
Mr. Bachus. But that is not the fault of the broadcasters.
Mr. Moskowitz. No, no, no. I am not saying it is.
Mr. Bachus. That is really just the customers aren't--that
is not really--I think you kind of cut to the essence of it, is
that it is not the broadcasters' fault that people aren't
receiving that signal now. The fault is that the public just
isn't, you know, they are not investing in the set right now,
as Mr. Boucher was a pretty good example of, or Mr. Bachus. You
know, I mean, until I get all of my kids out of college, I am
not investing in it.
Mr. Moskowitz. But I agree with you completely. I am not
saying that the NAB or the broadcasters are at fault in this
respect. I am just saying that the adoption would occur more
expeditiously.
Mr. Bachus. But you know, of course, and they have also
been required by Congress to come up with this, to do this
expenditure which they are not getting much return for now. And
if we require them to do that, and then at the same time turn
around and let satellite providers provide a service, that is
sort of adding insult to injury; is it not?
Mr. Moskowitz. Well, I don't know. While I think the
broadcasters have many good reasons why they have not, I think
in large part the insult is that so few of them met the promise
they made to meet the standard by 2002 and 2003. I think that
to leave consumers behind when there is an option readily
available to meet that----
Mr. Smith. Would the gentleman like an additional minute?
Mr. Bachus. I will just stop. But again, I think at least
you have acknowledged that the reason the people aren't using
the service is they don't have the TV sets. It is not that the
signals aren't going out.
Mr. Moskowitz. I think it is a combination of factors, and
certainly that is one of them. Without a doubt, that is one of
the big ones.
Mr. Bachus. Thank you.
Mr. Smith. Okay. Thank you, Mr. Bachus.
I thank the Members for their presence and the witnesses
for their testimony today. It has been very informative. It is
a little bit more of a controversial subject than perhaps we
first realized, but we will get there, and there are some areas
I think that we can agree on inevitably. I think we are moving
toward reauthorization perhaps of 5 years, and we will talk
about some of the details later on.
Thank you again, and we stand adjourned.
[Whereupon, at 5:22 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a Representative
in Congress From the State of California
Mr. Chairman,
My very first hearing as Ranking Member of this Subcommittee, which
occurred five years ago tomorrow, involved reauthorization of the
section 119 satellite license. A lot has changed since then, but
unfortunately, a lot has stayed the same.
The changes have been, for the most part, positive. While relevant
stakeholders will air a wide variety of differences today, they appear
to be united in praise of the section 122 local-into-local license
Congress created in 1999. Five years ago, local-into-local satellite TV
service functionally didn't exist. Today, 87% of U.S. TV households can
receive local broadcast stations via satellite.
Whats more, it appears most households also have a choice between
satellite TV providers. I understand that EchoStar provides local-into-
local service to more than 83% of all U.S. TV households. By the end of
this year, DirecTV will provide local-into-local service to 92% of all
U.S. TV households.
The current availability of local-into-local satellite service is a
pretty dramatic development in five year's time.
The growth of the satellite TV industry has been equally dramatic
over the last five years. Satellite TV subscribership has nearly
doubled in the last five years, from 13 million in 1999 to 22 million
today. With 25% of multichannel video subscribers, satellite has become
a truly formidable competitor to cable.
These dramatic changes show that the government subsidies embodied
in the section 122 and 119 licenses have conveyed tremendous benefits
to satellite TV providers and their consumers.
However, the situation is not so bright for those on whose backs
these subsidies are levied. For copyright owners, much remains
unhappily the same.
Royalties paid under the section 119 license for retransmission of
distant broadcast signals have remained frozen for five years. In fact,
they have remained frozen at deep discounts to 1999 marketplace rates.
The statutory inflexibility of these rates is unique, and uniquely
unfair. Virtually every other compulsory license that requires royalty
payments includes a mechanism for increasing those payments.
Furthermore, the inflexibility of section 119 rates is totally
inconsistent with marketplace realities. In voluntary negotiations over
the past five years, satellite TV providers have agreed, often with
vociferous reluctance, to provide markedly increased compensation to
owners of copyrights in non-broadcast programming.
If the section 119 is to be reauthorized--and it appears a virtual
certainly it will be--owners of copyrighted broadcast programming
should be more fairly compensated.
In another example of how things remain the same, some satellite
subscribers continue to receive a distant signal of a broadcast station
despite the fact that they now receive a local signal of that broadcast
via satellite. During our hearing nearly five years ago, I noted that
such situations might arise, and questioned whether there was any
justification for allowing them to exist. I continue to believe that
compulsory licenses, including the section 119 license, should only
countenance the minimal abrogation of copyright in order to accomplish
their goals. If a satellite subscriber can receive a local broadcast
via satellite, there appears to be no justification for abrogating
copyright protection in order to provide that subscriber with a distant
signal under the section 119 license.
While some of the problems we face today are identical to those we
discussed five years ago, our witnesses will identify many entirely new
issues. One issue of particular concern to me is the two-dish system
employed by EchoStar. I understand that EchoStar relegates certain
stations, like Univision, to a second dish, which may violate the
requirement that it carry all stations in a nondiscriminatory manner.
Another new issue involves subscribers in one state who, due to the
vagaries of the DMA definition, receive their local broadcast signal
from another state. And there is the issue of whether the Grade B
signal intensity standard will be useless in a future world of all
digital broadcasts.
I do not mean to opine here and now on the appropriate resolution
of these new issues. This hearing is only the first step in educating
ourselves about these issues. However, I do believe the emergence of
these new issues indicates the wisdom of reauthorizing section 119 on a
temporary basis. New problems with the satellite licenses are bound to
come up again, and as it does today, the looming expiration of the 119
license will give us an opportunity to address them.
Thank you, Mr. Chairman, and I yield back the balance of my time.
----------
Prepared Statement of the Honorable Bob Goodlatte, a Representative in
Congress From the State of Virginia
Mr. Chairman, thank you for holding this important hearing on the
reauthorization of the Satellite Home Viewer Improvement Act.
The reauthorization of this important statute provides Congress
with the opportunity to continue to ensure that consumers in rural
television markets have access to their local television station
signals.
In 1999, Congress passed the Satellite Home Viewer Improvement Act
(SHVIA), which allowed direct broadcast satellite providers to
retransmit local television broadcast signals into the broadcast
station's area. This law eliminated the legal barriers to the delivery
of local TV via satellite. To date, the major satellite carriers have
made significant progress toward offering local television signals via
satellite to local television markets, and they have plans to expand
the number of markets in which they will offer the service.
With this expansion, satellite dish owners, the majority of which
live in rural areas, as well as medium and small cities and towns
across the United States, will have access to their local news, sports
coverage, weather, and emergency information. As this expansion
continues to all 210 television markets, satellite service will
continue to grow as an attractive, fully competitive television
alternative for all Americans.
The reauthorization of SHVIA provides an opportunity for Congress
to look back to the past five years to see what has worked and what has
not. In addition, technological and industry advancements over the past
five years pose new issues regarding the reauthorization, including
whether to create a new quality standard for when a consumer is
considered ``unserved'' for purposes of digital service, whether to
reauthorize the compulsory license in section 119 of the Copyright Act
at what rates and for how long, and many others.
I am eager to hear from the expert witnesses here today regarding
these issues and regarding the progress that satellite carriers are
making toward offering local-into-local service to all 210 markets.
Thank you again Mr. Chairman for holding this important hearing.
Letter from the American Society of Composers, Authors and Publishers
(ASCAP), and Broadcast Music, Inc. (BMI)
Letter from the Association of American Publishers, Inc. (AAP), and the
Software & Information Industry Association (SIIA)
Prepared Statement of the Association of Public Television Stations
-