[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
Office Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800
Fax: (202) 512-2250  Mail: Stop SSOP, Washington, DC  20402-0001














                       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
                                 ------                                

    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

                              ----------                              

                           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

                              ----------                              


                       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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \2\ Royalties collected from the syndex surcharge later decreased 
considerably when the FCC reimposed syndicated exclusivity protection 
in certain circumstances.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
    \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.'')
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
                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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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






                                   - 
