[Federal Register Volume 69, Number 16 (Monday, January 26, 2004)]
[Notices]
[Pages 3606-3620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-1567]


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LIBRARY OF CONGRESS

Copyright Office

[Docket No. 2001-8 CARP CD 98-99]


Distribution of 1998 and 1999 Cable Royalty Funds

AGENCY: Copyright Office, Library of Congress.

ACTION: Final order.

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SUMMARY: The Librarian of Congress, upon the recommendation of Register 
of Copyrights, is accepting in full the determination of the Copyright 
Arbitration Royalty Panel and is announcing the final Phase I 
distribution of cable royalties for 1998 and 1999.

EFFECTIVE DATE: January 26, 2004.

ADDRESSES: The full text of the CARP's report to the Librarian of 
Congress is available for inspection and copying during normal business 
hours in the Office of the General Counsel, James Madison Memorial 
Building, Room LM-403, First and Independence Avenue, SE., Washington, 
DC 20559-6000.

FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or 
William J. Roberts, Jr., Senior Attorney, P.O. Box 70977, Southwest 
Station, Washington, DC 20024. Telephone: (202) 707-8380. Telefax: 
(202) 252-3423.

SUPPLEMENTARY INFORMATION:

Background

    In 1976, Congress adopted a statutory license for cable television 
operators to enable them to clear the copyrights to over-the-air 
television and radio broadcast programming which they retransmit to 
their subscribers. Codified at 17 U.S.C. 111, the section 111 license 
allows cable operators to submit semiannual royalty payments, along 
with accompanying statements of account, to the Copyright Office for 
subsequent distribution to copyright owners of broadcast programming 
retransmitted by those cable operators. In order to determine how the 
collected royalties are to be distributed amongst the many copyright 
owners filing claims

[[Page 3607]]

for them, the Copyright Office, under the auspices of the Librarian of 
Congress, conducts a distribution proceeding under chapter 8 of the 
Copyright Act. Distribution of cable license royalties are conducted in 
two phases. In Phase I, the royalties are divided among eight 
categories or groups of copyright owners that represent all of the 
kinds of copyrighted broadcast programming carried by cable systems: 
movies and syndicated television programs; \1\ sports programming; \2\ 
commercial broadcast programming; \3\ religious broadcast programming; 
\4\ public television broadcast programming; \5\ Canadian broadcast 
programming; \6\ public radio broadcast programming; \7\ and music.\8\ 
In Phase II the money allotted each category is subdivided among the 
various copyright owners within that category. Today's proceeding is a 
Phase I proceeding for royalties collected from cable operators for the 
years 1998 and 1999.
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    \1\ This category is known as ``Program Suppliers'' and is 
represented by the Motion Picture Association of America, Inc.
    \2\ This category comprises sports programming belonging to the 
National Football League, the National Hockey League, the National 
Basketball Association, Major League Baseball and the National 
Collegiate Athletic Association. The category is referred to as 
``Joint Sports Claimants'' or ``JSC.''
    \3\ Commercial broadcast programming consists of copyright 
owners of commercial radio and television programming that are 
represented in this proceeding by the National Association of 
Broadcasters, Inc. The category is referred to as ``NAB'' in this 
document.
    \4\ Religious broadcast programming consists of various 
copyright owners of religious programming, and the category is 
referred to as ``Devotional Claimants'' in this document.
    \5\ Public television broadcast programming consists of various 
copyright owners of television programs broadcast by the Public 
Broadcasting Service. The category is referred to as ``PBS'' in this 
document.
    \6\ Canadian broadcast programming consists of various Canadian 
copyright owners whose programs are retransmitted by cable systems 
located near the U.S./Canada border. The category is referred to as 
``Canadian Claimants'' in this document.
    \7\ Public radio broadcast programming consists of various 
copyright owners of radio programs transmitted by National Public 
Radio. The category is referred to as ``NPR'' in this document.
    \8\ Music is the copyrighted programming belonging to 
songwriters and music publishers and are represented by the American 
Society of Composers, Authors and Publishers (``ASCAP''), 
Broadcaster Music, Inc. (``BMI'') and SESAC, Inc. This category is 
referred to as ``Music Claimants'' in this proceeding.
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    The royalty payment scheme of the cable statutory license is 
technical, complex and, many would say, antiquated. The license places 
cable systems into three categories based upon the amount of money they 
receive from their subscribers for over-the-air broadcast stations. 
Small and medium-sized systems pay a flat fee. Large cable systems--
whose royalty payments comprise the lion's share of the royalties to be 
distributed in this proceeding--pay a percentage of the gross receipts 
they receive from their subscribers for each distant over-the-air 
broadcast station they retransmit.\9\ How much they pay for each 
broadcast station depends upon how the carriage of that station would 
have been regulated by the Federal Communications Commission (``FCC'') 
in 1976, the year the current Copyright Act was enacted. The royalty 
scheme for large cable systems employs the statutory device known as 
the distant signal equivalent (``DSE''). Distant signals are determined 
in accordance with two sets of FCC regulations: the ``must carry'' 
rules for broadcast stations in effect on April 15, 1976, and a 
station's television market as currently defined by the FCC. 17 U.S.C. 
111(f). 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 1976 ``must carry'' rules and the system is not located within 
the station's local market.
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    \9\ The cable license is premised upon the Congressional 
judgment that cable systems should only pay royalties for the 
distant broadcast stations they bring to their subscribers and not 
for the local broadcast stations they provide. However, cable 
systems which carry only local stations and no distant ones (a 
rarity) are still required to submit a statement of account and pay 
a basic minimum fee.
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    Large cable systems pay for carriage of distant signals based upon 
the number of 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 the primary transmitter of such 
programming.'' 17 U.S.C. 111(f). A DSE is computed by assigning a value 
of one to a distant independent broadcast station, and a value of one-
quarter to distant noncommercial educational and network stations, 
which do have a certain amount of nonnetwork programming during a 
typical broadcast day. Large cable systems pay royalties based upon a 
sliding scale of percentages of their gross receipts depending upon the 
number of DSE's they incur. The greater the number of DSEs, the greater 
the total percentage of gross receipts and, consequently, the larger 
the total royalty payment. The monies collected under this payment 
scheme are received by the Copyright Office and identified as the Basic 
Fund.
    The complexity of the royalty payment mechanism does not, however, 
end with the Basic Fund. As noted above, the operation of the cable 
license is intricately linked with how the FCC regulated the cable 
industry in 1976. The Commission restricted the number of distant 
signals that cable systems could carry in 1976 (the distant signal 
carriage rules), and required them to black-out programming contained 
on a distant signal where the local broadcaster had purchased the 
exclusive right to that programming (the syndicated exclusivity rules). 
However, in 1980, the Commission took a decidedly deregulatory stance 
towards the cable industry and eliminated the distant signal carriage 
rules and the syndicated exclusivity (``syndex'') rules. Malrite T.V. 
v. FCC, 652 F.2d 1140 (2d Cir. 1981), cert. denied sub. nom., National 
Football League, Inc. v. FCC, 454 U.S. 1143 (1982). Cable systems were 
now free to import as many distant signals as they desired without 
worry of restrictions.
    Pursuant to its statutory authority and in reaction to the FCC's 
action, the Copyright Royalty Tribunal (``CRT'') initiated a rate 
adjustment proceeding for the cable license to compensate copyright 
owners for the loss of the distant signal carriage rules and the syndex 
rules. This rate adjustment proceeding produced two new rates 
applicable to large cable systems making section 111 royalty payments. 
47 FR 52146 (November 19, 1982). The first, to compensate for the 
elimination of the distant signal carriage rules, was the adoption of a 
royalty rate of 3.75% of a cable system's gross receipts for carriage 
of each distant signal that would not have been previously permitted 
under the former distant signal carriage rules. Distant signal 
royalties which are paid at the 3.75%--known as the ``penalty fee'' in 
cable circles--are identified by the Copyright Office as the ``3.75% 
Fund'' and are separate from royalties placed in the Basic Fund.
    The second rate adopted by the CRT, to compensate for the 
elimination of the syndex rules, is known as the syndex surcharge. 
Large cable operators must pay this additional fee when the programming 
appearing on a distant signal imported by a cable system would have 
been subject to black-out protection under the FCC's former syndex 
rules.\10\ Royalties comprising the syndex surcharge are identified by 
the Copyright Office as the ``Syndex Fund''

[[Page 3608]]

and are separate from royalties placed in the Basic Fund and the 3.75% 
Fund.
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    \10\ Royalties collected from the syndex surcharge have 
decreased from previous levels because the FCC has reimposed 
syndicated exclusivity protection in certain circumstances.
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    The royalties in these three funds--Basic, 3.75% and Syndex--are 
the royalties that are eligible for distribution to copyright owners of 
nonnetwork broadcast programming in a section 111 cable license 
distribution proceeding.

This Proceeding

    On November 20, 2001, the Library of Congress opened Docket No. 
2001-8 CARP CD98-99, a consolidated Phase I distribution proceeding for 
cable license royalties collected from cable operators for the years 
1998 and 1999. Of the eight Phase I categories or ``parties'' \11\ 
filing Notices of Intent to Participate in this distribution 
proceeding, two parties--Devotional Claimants and NPR--settled with the 
others as to the amount of their distribution and voluntarily withdrew 
their claims. The Library turned to the task of scheduling a Copyright 
Arbitration Royalty Panel (``CARP'') proceeding for the remaining six 
parties and, after several requests for postponement from these 
parties, a final schedule was issued on October 28, 2002. Order in 
Docket No. 2001-8 CARP CD 98-99 (October 28, 2002). The six parties 
filed their written direct cases on December 2, 2002, and the Library 
conducted discovery and motions practice throughout the winter. On 
April 24, 2003, the Library convened the three-person CARP who 
conducted hearings on the written direct cases, received rebuttal 
testimony and considered each party's written proposed findings of fact 
and conclusions of law. The Panel reviewed and analyzed nearly 20,000 
pages of testimony and issued a 94-page determination, complete with an 
appendix of the mathematical calculations performed by the CARP to 
arrive at the distribution percentages for each of the six parties for 
1998 and 1999, and another appendix identifying all exhibits submitted 
during the proceeding and whether or not they were admitted into 
evidence. The CARP report represents six months of intensive work. 
Following is a summary.
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    \11\ These categories are referred to as ``parties'' hereafter 
because the copyright owners within each category agree, for Phase I 
purposes, to hire counsel to represent them collectively as a 
category throughout this distribution proceeding.
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The CARP Report

    The six parties who litigated division of the 1998 and 1999 cable 
royalties have a long history in the distribution of section 111 
royalties. When Congress created the cable license and the distribution 
process in the 1976 Copyright Act, it did not provide any criteria or 
guidelines for how the royalties should be divided amongst the various 
copyright owners. Consequently, in the first cable distribution 
proceeding for cable royalties collected in 1978, the Copyright Royalty 
Tribunal \12\ identified five factors that would guide its distribution 
decisions. The primary factors were: (1) The harm caused to copyright 
owners by distant retransmissions; (2) the benefit derived by cable 
systems from distant retransmissions; and (3) the marketplace value of 
the works retransmitted. 45 FR 63026, 63035 (September 23, 1980). The 
Tribunal also identified two secondary factors for consideration: (1) 
The quality of the retransmitted programs; and (2) time-related 
considerations. Id.
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    \12\ The Copyright Royalty Tribunal (``CRT''), abolished in 
1993, was the predecessor administrative body to the CARP system.
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    As the years passed and subsequent distribution years were 
litigated, the Tribunal refined these criteria. Time-related 
considerations were given little weight in dividing the royalty pool 
and in the 1989 distribution determination, the Tribunal announced that 
program quality would no longer be considered. 57 FR 15287, 153303 
(April 27, 1992) (``[Q]uality will no longer be a criterion in the 
Tribunal's distribution because it conflicts with the First 
Amendment''). When the Tribunal was replaced by the CARP system, the 
first, and until this proceeding only, CARP to conduct a Phase I cable 
distribution chose to focus solely on the marketplace value criterion 
and exclude all the others. The current CARP has chosen to embrace 
relative marketplace value of the programming retransmitted as the sole 
criterion governing distribution of the 1998 and 1999 royalties because 
the previous CARP's decision on this point was upheld by the Librarian 
and on appeal, and all six parties in this proceeding accepted that 
relative marketplace value is the sole relevant criterion.
    Having decided that the relative marketplace value of broadcast 
programming retransmitted by cable systems during 1998 and 1999 will 
govern how the royalties will be divided among the six parties, the 
CARP considered how to evaluate it. Given that the cable license 
substitutes for marketplace negotiations in the buying and selling of 
broadcast programming, there is no real marketplace for those broadcast 
programs retransmitted by cable systems. Thus, the CARP determined that 
it must `` `simulate [relative] market valuation' as if no compulsory 
license existed.'' CARP Report at 10. Forecasting a hypothetical 
marketplace absent the existence of the cable license is a difficult 
task. The Panel concluded, after considering several options, that 
marketplace negotiations for broadcast programming would most likely 
occur between individual cable operators (or perhaps multiple system 
operators or a collective that they might form) and individual 
broadcast stations that would act as intermediaries for copyright 
owners and that would license all the copyrighted programming broadcast 
by each station. As a result of this conclusion, the Panel observed 
that cable system operators (or multiple system operators or a 
collective) would face a fixed quantity of distant broadcast station 
programming in the hypothetical marketplace. The supply curve for each 
type of programming (movies, sports, music, etc.) would remain 
vertical, meaning that the supply of programming would remain the same 
irrespective of the price. Because of this, the Panel determined that 
in ``the hypothetical marketplace structure that we envisage [it is] 
the `demand side' that will determine relative values of each type of 
programming.'' Id. at 13 (footnote and citations omitted). This is an 
important conclusion of the CARP because it governs how the Panel 
evaluated each of the six parties' evidentiary submissions.
    As with previous cable distribution proceedings, the two principal 
evidentiary offerings of the parties that attempt to determine the 
value of the six program categories are the Bortz survey and the 
Nielsen study. The Bortz survey, offered by the Joint Sports Claimants, 
is a statistical survey of a selected group of cable operators that 
asks those with programming responsibilities at the chosen cable 
systems what value they place on the six categories of programming 
involved in this proceeding. The responses to the inquiries posed by 
the survey are then distilled in an effort to attach the relative 
marketplace value to each program category. The Nielsen study, offered 
by Program Suppliers, takes a decidedly different approach by utilizing 
the data supplied by Nielsen Media Research measuring television 
viewing during 1998 and 1999. The purpose of the Nielsen study is to 
show the amount of viewing of distant signal programming by households 
and persons that are in the Nielsen People Meter sample. Both the Bortz 
survey and the Nielsen study have been used by the CRT and the prior 
cable distribution CARP in determining the

[[Page 3609]]

division of cable royalties, although both have received criticisms as 
to methodology and application. See, e.g. 57 FR 15287 (April 27, 1992) 
(1989 cable distribution); 61 FR 55653 (October 28, 1996) (1990-92 
cable distribution).
    After considering both the Bortz survey and the Nielsen study and 
examining their results, the CARP arrived at a significant conclusion. 
Unlike the CRT and the CARP in prior proceedings, the Panel determined 
that the Bortz survey best projected the value of broadcast programming 
in the hypothetical marketplace whereas the Nielsen study ``does not 
afford an independent basis for determining relative value.'' CARP 
Report at 44. The Panel arrived at this conclusion because it 
determined that the Nielsen study did ``not directly address the 
criterion of relevance to the Panel,'' to wit: ``[t]he value of distant 
signals to [cable system operators] * * * in attracting and retaining 
subscribers.'' Id. at 38. ``The Nielsen study reveals what viewers 
actually watched but nothing about whether those programs motivated 
them to subscribe or remain subscribed to cable.'' Id. The Panel did 
not discard the Nielsen study completely, however, and found that it 
could be a useful tool in those circumstances when the Bortz survey 
could not be used.\13\
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    \13\ While finding that the Nielsen study could be useful for 
determining royalty shares where the Bortz survey did not yield 
complete or any results, the Panel expressly rejected the prior 
practice of the CRT and the 1990-1992 cable CARP of combining Bortz 
results with Nielsen results. See, id. 52-53 listing eight reasons 
why the practice is inappropriate.
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    Having chosen the Bortz survey as the most ``robust'' and reliably 
predictive model for determining value, the Panel considered its 
application to each of the six Phase I parties. With respect to Joint 
Sports Claimants, Program Suppliers and NAB, the Panel determined that 
``the Bortz survey is more reliable than any other methodology 
presented in this proceeding for determining the relative marketplace 
value of these three claimant groups'' for the Basic Fund and the 3.75% 
Fund. Id. at 31. Consequently, these three parties received the royalty 
shares of the Basic Fund and the 3.75% Fund as determined by the Bortz 
survey,\14\ adjusted for the settlement distribution percentages of NPR 
and the Devotional Claimants.\15\
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    \14\ The shares of these parties yielded by the Bortz survey are 
adjusted slightly downward to account for allocation of the Music 
Claimants' award, since music is used in all programming categories.
    \15\ The Panel's approach for determining net royalty 
distribution percentages for all eight Phase I parties is as 
follows. Beginning with 100% of the royalty pools for 1998 and 1999 
(all three funds for both years combined), the Panel removed NPR's 
settled distribution percentage-which is the subject of a privately 
negotiated deal between NPR and the seven other parties--off the 
top'' of these monies. The Devotional Claimants' distribution 
percentage is stipulated for the Basic Fund and the 3.75% Fund for 
each year of the funds remaining after the NPR deduction. Next, the 
Panel determined net distribution percentages for PBS and Music (no 
Bortz results). Finally, the Panel adjusted the Bortz results for 
JSC, Program Suppliers, and NAB to reflect 100% of the royalties 
remaining after deduction of the NPR award.
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    The Bortz survey was not so ``robust'' with respect to PBS, 
Canadian Claimants and the Music Claimants. The Panel found that the 
Bortz survey undervalued PBS programming because it removed from its 
sample cable systems who carried a PBS station as their only distant 
signal and assigned a value of zero to PBS for those cable systems that 
carried commercial stations on a distant basis but not a PBS station. 
The ``result is an exclusion of the category of cable operators that 
would be expected to give the highest relative value to a [PBS] distant 
signal,'' and the ``exclusion of the [PBS]-only systems artificially 
depresses the [PBS] Bortz score. A consistent application of the Bortz 
methodology would arguably mean that if a CSO carries a [PBS] signal as 
its only distant signal, all other categories should automatically be 
assigned zeroes.'' Id. at 23. Despite these flaws, the Panel concluded 
that PBS's Bortz share of 3.2% for both 1998 and 1999 established a 
minimum or ``floor'' from which to determine PBS's net distribution 
percentages. The Panel then turned to PBS's principal evidentiary 
presentation as to its marketplace value--a study sponsored by Dr. 
Leland Johnson designed to show the number of subscribers receiving 
distant PBS signals during 1998 and 1999--and rejected it because it 
``attempt[s] to equate relative programming volume with relative 
programming value.'' Id. at 56 (emphasis in original). Instead, the 
Panel accorded weight to a fee generation approach (considering the 
royalties paid by cable systems into the 1998 and 1999 Basic Funds for 
carriage of PBS distant signals) along with the Bortz results because 
unlike other program categories such as sports or movies, PBS signals 
are retransmitted by cable systems as discrete, intact distant signals 
containing only PBS programming. The Panel also examined PBS's claims 
of ``changed circumstances'' \16\ and found ``no persuasive evidence 
that [PBS's] relative value has significantly either increased or 
decreased since 1990-92.'' Id. at 69. As a result, the Panel awarded 
PBS the same distribution percentage for the 1998 and 1999 Basic Funds 
that it received in the 1990-92 cable distribution proceeding. PBS did 
not receive a percentage of the 3.75% Fund or the Syndex Fund because 
it does not participate in those funds.
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    \16\ The doctrine of ``changed circumstances'' was created by 
the CRT as a way of determining a royalty distribution for a party 
by examining how that party's circumstances had changed from the 
last litigated proceeding. Nat'l Ass'n of Broadcasters v. Copyright 
Royalty Tribunal, 772 F.2d 922, 932 (D.C. Cir. 1985).
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    The Bortz survey is not designed to include Canadian Claimants and 
Music Claimants. With respect to Canadian Claimants, the Panel adopted 
a combination of the fee generation approach and changed circumstances. 
The Panel mostly, though not completely, accepted Canadian Claimants' 
proposed fee generation approach and determined that there were no 
significant changed circumstances that would significantly impact their 
award. As a result, Canadian Claimants received the distribution 
percentages yielded by the fee generation approach for the Basic Fund 
and the 3.75% Fund, adjusted to yield for net awards. Canadian 
Claimants do not share in the Syndex Fund.
    Finally, with respect to the Music Claimants, the Bortz survey was 
not relevant because it does not measure music as a category of 
programming, and the fee generation approach is not applicable. The 
Panel rejected Music Claimants' arguments for using the 4.5% settled 
distribution percentage from the 1990-1992 cable proceeding as the base 
measurement of the relative value because the settlement by its terms 
had no precedential value and does not reflect how cable system 
operators would value music. Instead, the Panel accepted the testimony 
of Joint Sports Claimants' witness Dr. George Schink, who estimated a 
range for Music Claimants' award by comparing the amounts that Music 
Claimants receive in licensing fees from broadcasters and cable 
networks with the total programming expenses of those broadcasters and 
cable networks, as establishing the minimum of an award (2.3%), and 
used the 4.5% settled award from the 1990-1992 proceeding as the 
maximum. The Panel selected an award of 4.0% as falling within this 
``zone of reasonableness'' as applied to the Basic Fund, 3.75% Fund, 
and the Syndex Fund for both 1998 and 1999. The remaining 96% of the 
Syndex Fund was awarded to Program Suppliers, consistent with prior 
rulings of the CRT.
    The final distribution percentages are as follows:

[[Page 3610]]



                                  1998
------------------------------------------------------------------------
                                              Basic     3.75%    Syndex
                 Claimant                     fund      fund      fund
------------------------------------------------------------------------
Devotional Claimants......................   1.19375   0.90725   0
Program Suppliers.........................  37.80114  41.18124  96.00000
Joint Sports Claimants....................  35.78076  38.42541   0
NAB.......................................  13.96836  15.34209   0
PBS.......................................   5.49125   0         0
Music Claimants...........................   4.00000   4.00000   4.00000
Canadian Claimants........................   1.76476   0.14401   0
------------------------------------------------------------------------


                                  1999
------------------------------------------------------------------------
                                              Basic     3.75%    Syndex
                 Category                     fund      fund      fund
------------------------------------------------------------------------
Devotional Claimants......................   1.19375   0.90725   0
Program Suppliers.........................  36.00037  39.13977  96.00000
Joint Sports Claimants....................  37.62758  40.47418   0
NAB.......................................  13.77736  15.12731   0
PBS.......................................   5.49125   0         0
Music Claimants...........................   4.00000   4.00000   4.00000
Canadian Claimants........................   1.90971   0.35151   0
------------------------------------------------------------------------

Petitions to Modify

    As provided by the CARP rules, the parties to the proceeding were 
given 14 days to submit their petitions to modify the CARP report and 
an additional 14 days for a reply. Petitions to modify were received 
from Program Suppliers, PBS, Music Claimants and Canadian 
Claimants.\17\ Replies were submitted by all parties.\18\ Following is 
a synopsis of these petitions.
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    \17\ NAB submitted a petition to modify but later voluntarily 
withdrew it.
    \18\ Joint Sports Claimants requested an additional two days to 
submit their reply. No other party objected. That request is 
granted.
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1. Program Suppliers

    Program Suppliers received the largest reduction in their royalty 
award from the percentages set in the 1990-1992 distribution proceeding 
and, not surprisingly, therefore strongly contest the CARP's 
determination in this proceeding. Program Suppliers' arguments are made 
along three principal lines. First, they contend that the Panel 
improperly abandoned precedent by rejecting the Nielsen study and 
favoring the Bortz survey. Second, they charge that the Panel 
completely ignored compelling evidence presented by Program Suppliers 
regarding the relevance of viewing in determining program value. And 
third, Program Suppliers argue that rationales accepted by the Panel 
for setting the awards for PBS, Canadian Claimants and Music underscore 
the Panel's arbitrary decision making.
    Program Suppliers submit that the CARP abandoned the precedent 
established by the CRT and the 1990-1992 cable distribution CARP which 
accorded value to the Nielsen study. Citing 17 U.S.C. 802(c), which 
provides that a CARP ``shall act on the basis of a fully documented 
written record, prior decisions of the Copyright Royalty Tribunal, 
prior copyright arbitration royalty panel determinations, and rulings 
by the Librarian of Congress * * *,'' and Nat'l Ass'n of Broadcasters 
v. Copyright Royalty Tribunal, 772 F.2d 922, 932 (D.C. Cir. 1985), 
Program Suppliers argue that the CARP in this proceeding was required 
to begin with the distribution percentages from the 1990-1992 
proceeding. Given that those numbers must be the starting point, the 
Panel could then ``only depart from the existing allocation methodology 
where it either finds `changed circumstances' or that the earlier 
methodology was wrong. It cannot, therefore, adopt `one or more 
methodologies that provide reliable estimates of current * * * relative 
valuations.'' Program Suppliers' Petition to Modify at 9 (citing CARP 
Report at 14). Program Suppliers argue that the CARP has failed to find 
that changed circumstances warranted departure from the Nielsen study. 
To the contrary, the CRT as well as the 1990-1992 cable distribution 
CARP recognized the value of the Nielsen study. Program Suppliers admit 
that there have been criticisms of the Nielsen study in the past, but 
there have been criticisms of the Bortz survey as well. Program 
Suppliers assert that improvements were made in this proceeding to the 
Nielsen study and the Bortz survey, yet ``the Panel recognizes, and 
even praises, the methodological improvements made to the Bortz Study, 
but maintains virtual silence regarding those made to the Nielsen 
Studies.'' Id. at 11. Nevertheless, criticisms of the Bortz survey 
remain, which the Panel acknowledged, thereby precluding the Panel from 
accepting the survey wholesale. Precedent has long established that 
actual viewing to programming is relevant to programming value, and it 
is arbitrary for the Panel to conclude otherwise.
    Program Suppliers charge that the CARP ignored the compelling 
evidence that it submitted relevant to marketplace value. Contrary to 
the CARP's conclusion that cable operators only care about signing up 
and keeping subscribers and not about what they watch, Program 
Suppliers state that they presented considerable evidence demonstrating 
that cable operators do care about what their subscribers watch and 
will pay more for programming that receives high Nielsen viewing 
numbers.\19\ Program Suppliers argue that evidence from the cable 
network marketplace demonstrates that viewing plays a critical role in 
determining the licensing fees paid by cable systems for these 
networks, yet the CARP completely ignored this evidence. They contend 
that the witness testimony they

[[Page 3611]]

presented demonstrating the importance of viewing to establishing 
licensing fees is not even discussed by the Panel, underscoring the 
arbitrary nature of their decision making.
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    \19\ Program Suppliers also note that the 1990-1992 CARP 
rejected the notion that viewing was immaterial to cable operators: 
``It is disingenuous to say that the cable system is interested in 
only attracting subscribers but is totally unconcerned with whether 
or not the subscriber, in fact, watches the programming.'' Program 
Suppliers' Petition to Modify at 15, citing CARP Report in Docket 
No. 94-3 CARP CD 90-92 at 44 (emphasis omitted).
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    Program Suppliers also charge that inconsistent treatment of 
similarly situated parties highlights the arbitrary nature of the 
Panel's approach. For example, the Panel relied on a fee generation 
approach in determining Canadian Claimants' award, but did not use it 
for similarly situated PBS. With respect to NAB, whose award nearly 
doubled from the 1990-1992 proceeding despite the fact that its Bortz 
numbers did not change substantially from that proceeding to the 
present one, ``the Panel relied on the Nielsen viewing data to justify 
increasing NAB's share but ignored viewing when making other parties' 
allocations.'' Id. at 49. Likewise, the Panel announced that Dr. 
Gregory Rosston's regression analysis was useful in corroborating the 
results of the Bortz survey but did not analyze whether that same 
regression analysis corroborated the results of the Nielsen study.
    Finally, Program Suppliers allege that Music Claimants' 
distribution percentages for 1998 and 1999 are arbitrary and should be 
no more than 2.3%--the floor to the zone of reasonableness taken from 
the study done by Dr. George Schink. ``[T]he Panel articulated no 
reasoning or determinations of fact in its findings regarding Dr. 
Schink's license fee analysis that indicated a lack of reliability in 
the results.'' Id. at 53. Furthermore, the Panel never articulated a 
precise reason as to why it chose the distribution figure (4%) that it 
did.

2. PBS

    Although PBS has asked for an award of 12% of the Basic Fund for 
1998 and 1999, the CARP gave it the same award it received in the 1990-
1992 cable distribution proceeding. PBS offers two principal arguments 
as to why the Panel's determination with respect to PBS is arbitrary 
and must be set aside. First, PBS submits that the Panel's logic is 
internally inconsistent. Second, the Panel acted arbitrarily by nearly 
doubling NAB's award from the 1990-1992 distribution proceeding while 
holding PBS's award constant. PBS then offers an evidentiary basis for 
the Librarian to increase its award.
    PBS submits that the Panel's logic is internally inconsistent in 
two fundamental ways. First, after examining the Bortz survey and 
determining that it was inherently biased in its results against PBS 
(and therefore could only be used to establish the minimum award for 
PBS), the Panel then relied on those biased results to dismiss other 
methodologies for determining PBS's award. The Panel dismissed the 
quadrupling in PBS's Nielsen viewing share and the near doubling in 
PBS's subscriber instances share \20\ from 1992 to 1998 by pointing to 
the lack of increase in PBS's Bortz share during that same period. 
``The biases in the Bortz results that made them unusable in 
determining [PBS's] share also make them unusable as a measure of 
changed circumstances * * *.'' PBS Petition to Modify at 6.
---------------------------------------------------------------------------

    \20\ ``A `subscriber instance' is defined as one subscriber 
having access to one distant signal.'' PBS Petition to Modify at 6 
n.4.
---------------------------------------------------------------------------

    Second, PBS asserts that the Panel stated that it would rely on the 
Nielsen viewing data to assess PBS's changed circumstances since the 
1990-1992 distribution proceeding, but then failed to do so.

    [T]he Panel did not do what it said it would do. Contrary to its 
own express statement, the Panel did not ``rel[y] upon the Nielsen 
study'' to assess changed circumstances as to [PBS]. The Panel did 
not adhere to its own statement that ``Nielsen studies can serve as 
a tool for assessing changed circumstances whenever the Bortz survey 
cannot be used.'' To the contrary, the Panel completely disregarded 
and did not rely on the Nielsen viewing study as to [PBS] despite 
its own express ruling that the Bortz survey could not be used as to 
[PBS]. . . . The Panel's reasoning thus failed to adhere to the 
logical framework that it had established in the opinion.

Id. at 9 (emphasis in original; citations omitted).
    PBS also charges that the Panel used NAB's increase in viewing 
share from the 1990-1992 distribution proceeding as corroboration that 
its award should nearly double from the prior proceeding, but then 
refused to use PBS's quadrupled viewing share as grounds to increase 
PBS's award from the prior proceeding. PBS contends that the Panel's 
refusal to credit its increased viewing share because its Bortz survey 
numbers had not significantly increased from 1992 to 1998 is wholly 
illogical when the Panel had already determined the Bortz survey was 
inherently biased against PBS.\21\ If such ``major bias'' in the Bortz 
survey numbers for PBS was not present in the 1990-1992 proceeding but 
is present in this proceeding, then PBS's award from the prior 
proceeding relative to its Bortz share at the time must go up in this 
proceeding given the increase in its Bortz share in this proceeding. 
``In short, both [PBS] and NAB experienced sizeable increases in their 
``true'' Bortz shares and Nielsen viewing shares between 1990-92 and 
1998-99, yet the Panel decided to nearly double NAB's award while 
holding [PBS's] award constant.'' Id. at 12.
---------------------------------------------------------------------------

    \21\ The 1990-1992 CARP, unlike the present CARP, did not find 
the Bortz survey to be inherently biased against PBS. That CARP did, 
however, give PBS an award in excess of its Bortz numbers.
---------------------------------------------------------------------------

3. Canadian Claimants

    The Canadian Claimants submit that the CARP made a mathematical 
miscalculation in Appendix B of its report that creates a computational 
side effect and results in a loss of its Basic Fund award. 
Specifically, Canadian Claimants argue that they should receive the 
share yielded by the fee generation approach adopted by the Panel 
reduced only for net awards to Music, the Devotional Claimants, and 
NPR, and not the net share awarded to PBS.
    The CARP's award to Canadian Claimants is part of a four-step 
process. First, the Panel adopted the Bortz shares of Program 
Suppliers, Joint Sports Claimants and NAB and adjusted them to equal 
100%. Next, the Panel focused on Canadian Claimants using the fee 
generation approach \22\ and determined the amount of the Basic Fund 
for 1998 and 1999 that was generated by cable systems paying for 
distant Canadian signals. Within the percentage for each year, the 
Panel identified the amount of fees attributable to Canadian Claimants' 
programming, Program Suppliers' programming and Joint Sports Claimants' 
programming based upon a survey presented by Dr. Debra Ringold. Since 
Dr. Ringold did not analyze the fees generated by the other parties in 
this proceeding, the Panel excluded them and adjusted her numbers to 
equal 100%. Third, the Panel took the adjusted Canadian numbers and 
added them to the Bortz-generated numbers for Program Suppliers, JSC 
and NAB, and adjusted those to 100%. Finally, the Panel combined the 
numbers for these four parties with the net awards determined for PBS, 
Devotional Claimants and NPR and adjusted them so all final 
distribution percentages would equal 100%.
---------------------------------------------------------------------------

    \22\ Once again, the ``fee generation'' approach examines the 
royalty fees actually paid by cable systems for Canadian programming 
carried on distant broadcast signals.
---------------------------------------------------------------------------

    The Panel's approach, according to Canadian Claimants, is flawed in 
several respects. First, Canadian Claimants charge that the combination 
process in step four should not have included PBS since, unlike the 
other categories, PBS programming does not appear on Canadian signals. 
Including PBS programming is inconsistent with the

[[Page 3612]]

fee generation approach that the Panel said it was using. Second, by 
combining Canadian Claimants' fee generated numbers in step three with 
the Bortz numbers of Program Suppliers, JSC and NAB, the effect of the 
adjustment in step four is not the same for Canadian Claimants as it is 
for Program Suppliers, JSC and NAB. In step one, the Panel adjusted the 
Bortz numbers for Program Suppliers, JSC and NAB to equal 100% which 
meant they received a ``bump up'' in their actual numbers. Canadian 
Claimants received no such increase, meaning that when the Music, 
Devotional and PBS awards are deducted in step four, Canadians bear a 
higher pro rata loss to their Basic Fund award than do Program 
Suppliers, JSC, and NAB. ``The effect of the Panel's approach is that 
the [Canadian Claimants] give[ ] up more of [their] initial award 
towards the `net' claimants than does (sic) NAB, PS, or JSC, even 
though based on the rational (sic) behind the fee gen approach--the 
[Canadian Claimants] should give up none of its award to [PBS].'' 
Canadian Claimants' Petition to Modify at 8. What the Panel should have 
done, according to Canadian Claimants, was to combine the Program 
Suppliers', JSC's, NAB's, Canadian Claimants' and PBS's awards before 
deducting the net awards to Music and Devotional Claimants.

4. Music Claimants

    In determining the award to the Music Claimants, the CARP placed 
enough evidentiary weight on a study conducted by Sports Claimants' 
witness Dr. George Schink to use his distribution percentage as a 
``floor'' in establishing the zone of reasonableness for Music 
Claimants' distribution percentage. Music Claimants argue that the CARP 
should have disregarded his testimony altogether. Additionally, Music 
Claimants charge that the Panel failed to give proper weight to the 
study it presented concerning music use from 1991/1992 to 1998/1999 and 
the witnesses it presented regarding increases in the use of music on 
broadcast programming from 1983 through 1999.
    Music Claimants' main bone of contention with Dr. Schink's study is 
that he did not tailor it to the ``unique characteristics of the 
distant signal market.'' Music Claimants' Petition to Modify at 6. 
Instead, he used data concerning music licensing fees in the broadcast 
television industry that included television networks and local 
stations, both of which are not relevant under the section 111 license. 
According to Music Claimants, the network music licensing data 
dramatically and unfairly lowers their distribution percentages for 
1998 and 1999. Moreover, Dr. Schink's study also varies considerably 
from the approach adopted by the Copyright Royalty Tribunal in the 1978 
and 1979 distribution proceedings--comparing music licensing fees to 
broadcast television expenditures--which did exclude network licensing 
data. The CARP failed to ``explain adequately why, after some twenty 
years, it has become appropriate to use Network data to determine 
Music's share in a market in which Network programming is not 
compensable.'' Id. at 10.
    Music Claimants also charge that the CARP acted arbitrarily by 
failing to recognize that music licensing fees are often paid on an 
interim basis while litigation in a rate court is pending and therefore 
do not reflect marketplace value. Dr. Schink should have used the fees 
that result from rate court proceedings, which he did not. The CARP did 
not determine this aspect of Dr. Schink's testimony to be defective 
because interim fees ``might well exceed final fees.'' Id. at 11, 
citing CARP Report at 87 n.58 (emphasis in original). Music Claimants 
submit that this conclusion is erroneous and not supported by the 
record. Further, Dr. Schink's study did not present any 1999 data. In 
sum, his entire study should have been disregarded.\23\
---------------------------------------------------------------------------

    \23\ Music Claimants also assert that Dr. Schink's study was 
improperly presented during the rebuttal phase of this proceeding 
and Music Claimants could not present rebuttal testimony to his 
assertions.
---------------------------------------------------------------------------

    Music Claimants also assert that the CARP failed to accord any 
weight to the testimony it presented regarding increased music use 
which is contrary to precedent from the 1983 distribution proceeding, 
the last litigated music award. ``[T]he value of music is, at least in 
significant part, determined by the density of use [and] is consistent 
with the uncontradicted evidence before the CARP in this proceeding of 
how music license fees are set in the marketplace.'' Id. at 15.

Scope of the Librarian's Review

    Section 802(f) of the Copyright Act directs the Librarian of 
Congress, on the recommendation of the Register of Copyrights, to 
either accept the determination of a CARP or, if he rejects it, to 
substitute his own determination after a full examination of the record 
created in the proceeding. 17 U.S.C. 802(f). The Librarian can only 
reject a CARP's determination if he finds that it is arbitrary or 
contrary to one or more provisions of the Copyright Act. Id.
    The standard of review of a CARP determination by the Librarian has 
been thoroughly discussed in prior proceedings for both royalty 
distributions and rate adjustments and will not be repeated here. See 
Distribution of 1990-92 Cable Royalty Funds, 61 FR 55653 (October 28, 
1996); Rate Adjustment for the Satellite Carrier Compulsory License, 62 
FR 55742 (October 28, 1997); Distribution of 1993-97 Cable Royalty 
Funds, 66 FR 66433 (December 26, 2001); Determination of Rates and 
Terms for the Digital Performance Right in Sound Recordings and 
Ephemeral Recordings, 67 FR 45240 (July 8, 2002). Suffice to say, the 
scope of review is limited and is highly deferential to the panel 
members who serve as factfinders in a proceeding and are in the best 
position to judge the credibility of testimony and weigh the evidence. 
The Librarian will ``not second guess a CARP's balance and 
consideration of the evidence, unless its decision runs completely 
counter to the evidence presented to it.'' 62 FR 55742, 55757 (October 
28, 1997), citing 61 FR 55653 (October 28, 1996) (1990-92 Cable Royalty 
Fund Distribution Proceeding). Even if the Register and the Librarian 
would have reached different conclusions, the determination of the CARP 
will stand if it is not arbitrary or contrary to the Copyright Act. 63 
FR 49823, 49828 (September 18, 1998) (Noncommercial Broadcasting Rate 
Adjustment Proceeding). In sum, if a CARP's determination falls within 
a ``zone of reasonableness'' the Librarian will not disturb it. 
National Cable Television Ass'n v. Copyright Royalty Tribunal, 734 F.2d 
176, 182 (D.C. Cir. 1983).

The Program Suppliers' Award

1. The CARP's Approach

    For almost 25 years, the distant signal viewing study (the Nielsen 
study) presented by the Program Suppliers has been credited by the CRT 
and the CARPs in determining royalty distributions in cable 
proceedings. In the early cable proceedings, the Nielsen study was the 
premier piece of evidence used to determine distributions. The CARP in 
this proceeding, however, noted an historical trend that has 
significantly decreased the preeminence of the Nielsen study. CARP 
Report at 33 (``Over the years, however, the CRT placed less reliance 
on the Nielsen study''). Indeed, it remarked that in the 1990-92 cable 
distribution ``[f]or the first time, the Bortz survey was given greater 
weight than the Nielsen study.'' Id. As a result of this observation, 
its construct of the hypothetical

[[Page 3613]]

marketplace and its thorough examination of the Nielsen study and Bortz 
survey, ``the Panel conclude[d] that the Nielsen study provides 
relevant viewing information but, as tacitly conceded by the [Program 
Suppliers] for the first time, without a means of translating viewing 
shares to value, the study does not afford an independent basis for 
determining relative value.'' Id. at 44.
    The devaluation of the Nielsen study is a result of the Panel's 
consideration of the hypothetical marketplace. In deciding how to 
determine the relative marketplace value, the only relevant criterion, 
of the six programming categories in this proceeding, the Panel 
hypothesized how the distant signal marketplace for cable operators 
would function in the absence of the section 111 license. The Panel 
concluded that in the traditional supply and demand paradigm, the 
supply side facing cable operators (i.e., the amount of distant 
broadcast programming available) is fixed, meaning that the supply of 
programming remains the same irrespective of the price. As a result of 
this, it is the demand side (i.e., cable operators) that will determine 
the relative value of programming. Consequently, evidence that 
demonstrated how cable operators valued each program category was, in 
the Panel's view, the best evidence of marketplace value.
    After considering both the Bortz survey and the Nielsen study, the 
Panel concluded that the Bortz survey best measured the value of 
programming. The Nielsen study was not useful because it measured the 
wrong thing.

    [T]he Nielsen study does not directly address the criterion of 
relevance to the Panel. The value of distant signals to [cable 
system operators] is in attracting and retaining subscribers, and 
not contributing to supplemental advertising revenue. Because the 
Nielsen study ``fails to measure the value of the retransmitted 
programming in terms of its ability to attract and retain 
subscribers,'' it cannot be used to measure directly relative value 
to [cable system operators]. The Nielsen study reveals what viewers 
actually watched but nothing about whether those programs motivated 
them to subscribe or remain subscribed to cable.

Id. at 38 (citations omitted). The Panel observed that apparently 
Program Suppliers themselves did not believe that raw Nielsen viewing 
data \24\ was determinative of marketplace value since they offered the 
testimony of Dr. Arthur Gruen who performed an ``avidity'' adjustment 
in an effort to show how a sample demographic of 18 to 49 year olds 
favored certain types of programs over others. The Panel analyzed Dr. 
Gruen's avidity adjustments and concluded that, due to conceptual and 
methodological flaws, it failed to provide the needed conversion from 
raw Nielsen viewing numbers to relative value.
---------------------------------------------------------------------------

    \24\ ``Raw'' Nielsen viewing data are the numbers of quarter-
hour of programming viewed by cable system subscribers on distant 
broadcast stations as measured by the so-called ``People Meters'' 
that Nielsen places in the homes of those who participate in its 
surveys.
---------------------------------------------------------------------------

    However, unlike the Nielsen study, the Panel found the Bortz survey 
to be ``an extremely robust (powerful and reliably predictive) model 
for determining [the] relative value'' of Program Suppliers, Joint 
Sports Claimants and NAB for both the Basic Funds and the 3.75% Funds. 
Id. at 31. First, the survey addressed the correct question in the 
Panel's view: What is the relative value of different programming 
categories to cable operators? Second, the Panel considered and 
rejected the three conceptual limitations of the Bortz survey expressed 
by the 1990-92 CARP Panel. The Panel determined that the relative 
brevity of the interviews conducted by Bortz Media with cable system 
programmers did not seriously jeopardize the results or skew them in 
favor of one or more parties. The concern that the Bortz survey only 
measures the attitudes of cable system programmers rather than the 
actual behavior of cable systems was alleviated by the regression 
analyses conducted by Dr. Gregory Rosston \25\ which corroborated the 
Bortz survey results. And the concern that the Bortz survey did not 
take into account the supply side of programming in the supply and 
demand equation was not problematic because the Panel determined that 
the demand side of the equation dictated marketplace value. Finally, 
the Panel rejected the contention that the removal of broadcast 
superstation WTBS from the Bortz survey \26\ should have resulted in a 
considerable change in Bortz numbers from the 1990-92 proceeding 
thereby undermining the validity of the survey.
---------------------------------------------------------------------------

    \25\ Dr. Rosston, an NAB witness, analyzes the relationship 
between royalties paid by cable operators for the carriage of 
distant signals in 1998 and 1999 and the quantity of programming 
minutes by programming category on those distant signals.
    \26\ Superstation WTBS accounted for a considerable amount of 
royalties paid by cable operators under section 111 during previous 
cable proceedings. However, in 1998 WTBS converted from a 
superstation to a cable network, meaning that cable systems no 
longer license the programming on WTBS under the section 111 
license.
---------------------------------------------------------------------------

2. Program Suppliers' Arguments

    Program Suppliers offer a host of arguments in opposition to the 
CARP's report, criticizing the Panel's awards to all parties with the 
exception of the Canadian Claimants. The heart of Program Suppliers' 
Petition to Modify is a fierce attack on the Panel's decision to accept 
the Bortz survey as a better determinative of marketplace value than 
the Nielsen study. Program Suppliers offer several reasons why the 
Panel's decision is arbitrary.
    First, Program Suppliers charge that the Panel improperly abandoned 
long-established precedent that recognizes the Nielsen study to be 
indicative of the marketplace value of programming. According to 
Program Suppliers, the Panel only could deviate from precedent if it 
found changed circumstances or new evidence in this proceeding and 
neither of those conditions existed. Second, Program Suppliers argue 
that the Panel's determination to consider the marketplace value of 
distant broadcast signal programming from cable systems' perspective is 
contrary to precedent and the legislative intent of section 111.
    Third, Program Suppliers submit that the Panel was wholly precluded 
from relying on the Bortz survey because of the short duration of the 
interviews conducted by Bortz Media, the attitudinal nature of the 
survey, the lack of the supply side perspective and the 
miscategorization of programs. Finally, Program Suppliers charge that 
the Panel simply ignored much of the testimony presented by its 
witnesses and improperly discredited Dr. Gruen's adjustments to the raw 
Nielsen data.

3. Recommendation of the Register

a. The role of Precedent With Respect to the Nielsen Study
    Section 802(c) of the Copyright Act states that CARPs ``shall act 
on the basis of * * * prior decisions of the Copyright Royalty 
Tribunal, prior copyright arbitration panel determinations, and rulings 
by the Librarian * * *'' 17 U.S.C. 802(c). The concept of ``precedent'' 
therefore plays an important role in CARP proceedings. The CARP in this 
proceeding recognized that, devoting a lengthy discussion to it, and 
acknowledged that it ``must accord precedential value to prior 
awards.'' CARP Report at 13. Nonetheless, the Panel observed that prior 
decisions are not cast in stone and can be varied from when there are 
(1) changed circumstances from a prior proceeding or; (2) evidence on 
the record before it that requires prior conclusions to be

[[Page 3614]]

modified regardless of whether there are changed circumstances. Id. at 
14.
    The Register agrees with the Panel's analysis of the role of 
precedent. As we stated in the 1990-92 cable distribution proceeding, 
while a Panel must take account of precedent it ``may deviate from it 
if the Panel provides a reasoned explanation of its decision to vary 
from precedent.* * * It would make little sense to require the CARPs to 
apply Tribunal [and CARP] precedent in all circumstances, and allow no 
deviation, especially in the area of determining the relevant factors 
for distributing royalties.'' 61 FR 55653, 55659 (October 28, 1996).
    The Register disagrees with Program Suppliers' assertion that the 
CARP abandoned wholesale the role of the Nielsen study without adequate 
explanation. To the contrary, the Panel plainly articulated that the 
Copyright Royalty Tribunal placed less and less reliance on the 
importance of the Nielsen study over time and correctly observed that 
the CARP in the 1990-92 proceeding could not quantify the Nielsen data 
as evidence of market value. See 1990-92 Cable Royalty Distribution 
Proceeding, CARP Report at 44. It is the view of the Register that 
Program Suppliers overstate the precedential value of the Nielsen 
study. An examination of prior Phase I cable royalty distributions 
reveals that it is difficult, if not impossible, to determine precisely 
what evidentiary weight was given the Nielsen studies. It is clear, 
however, that the role of the Nielsen study, almost preeminent in the 
beginning, has eroded considerably through the years. See 47 FR 9879, 
9892 (March 8, 1982) (1979 royalty distribution); 48 FR 9552, 9564 
(March 7, 1983) (1980 royalty distribution); 51 FR 12792, 12808 (April 
15, 1986) (1983 royalty distribution); 57 FR 15286, 15300 (April 27, 
1992) (1989 royalty distribution). The Panel in this proceeding did 
nothing more than continue this trend and did so with a full 
explanation of its reasons.
    Furthermore, the Panel did not completely disregard the Nielsen 
study. The Panel observed that ``the Nielsen study provides relevant 
viewing information,'' and held that it can ``serve as a tool for 
assessing changed circumstances whenever the Bortz survey cannot be 
used.'' CARP Report at 44 (footnote omitted). The Panel also noted that 
while raw Nielsen data is not indicative of marketplace value,\27\ it 
might be converted into such evidence through proper adjustments. That 
Dr. Gruen's adjustments failed to make that conversion does not rule 
out the possibility that it could be made appropriately in the future. 
Clearly, the rejection of the Gruen testimony does not amount to 
wholesale abandonment of the Nielsen study.
---------------------------------------------------------------------------

    \27\ A point which Program Suppliers apparently now agree with, 
since they supplied Dr. Gruen's avidity adjustment approach to 
convert the raw Nielsen data into evidence of marketplace value. 
Program Suppliers did not make such adjustments in prior cable 
distribution proceedings and relied instead on raw Nielsen data as 
evidence of marketplace value.
---------------------------------------------------------------------------

    Finally, the Nielsen study in the record in this proceeding is not 
like the Nielsen study in prior proceedings. Contrary to Program 
Suppliers' assertion, there are changed circumstances from prior 
proceedings and this Nielsen study as adjusted by Dr. Gruen is arguably 
new evidence. The Panel thoroughly examined it and more than adequately 
explained its reasons why it did not find this Nielsen study to be 
persuasive evidence of marketplace value. Consequently, it is the 
Register's view that the Panel was not arbitrary in its application of 
precedent in this proceeding.
b. The hypothetical marketplace
    To assist in determining the relative marketplace value of 
programming in this proceeding, the CARP posited a hypothetical 
marketplace in which no statutory license exists and examined the 
factors that would likely control the valuation of programming. 
Applying traditional supply and demand analysis to the hypothetical 
marketplace, the Panel determined, based on record testimony, that the 
supply side of distant broadcast programming would remain fixed. 
Written Rebuttal Testimony of Dr. Andrew Joskow at 8. Because the 
supply of programming in such a market would remain fixed, value would 
be determined by the buyer side, i.e., cable operators purchasing 
distant broadcast signals. According to the Panel, programming is 
significant to cable operators for its ability to attract and retain 
subscribers. In the Program Suppliers' view, this description of the 
hypothetical marketplace is fundamentally flawed, produces absurd 
results, and must be rejected. The Register does not agree.
    While this is the first cable distribution CARP to describe in 
detail its construct for determining marketplace value, it is not the 
first time the economic factors comprising the discussion of the 
hypothetical marketplace have been addressed. The Bortz survey, a 
longtime mainstay of cable distribution proceedings, has always 
attempted to quantify how cable operators would buy programming in a 
marketplace in which the cable license did not exist. By deeming the 
Bortz survey as relevant to the value of distant signal programming, 
the 1990-92 cable distribution CARP and the CRT were necessarily 
accepting the assumptions of its construct. Neither the prior CARP nor 
the Tribunal ever concluded that the Bortz survey operated from false 
assumptions or asked the wrong questions. It therefore cannot be said 
that the CARP in this proceeding manufactured an economic theory out of 
thin air. While Program Suppliers may disagree with the Panel's 
consideration of the hypothetical marketplace and in particular its 
conclusion that it is the perspective of cable operators that best 
determines how much different categories of programming would be worth, 
the Panel's actions are based on prior decisions.
    The Register also recommends rejection of Program Suppliers' 
contention that determining marketplace value from cable operators' 
perspective runs counter to the legislative intent of the cable 
license. While it is accurate to observe that the section 111 license 
is intended to compensate copyright owners for the use of their works, 
Program Suppliers erroneously assert that the use of copyrighted works 
must be determined by their viewing. Other methods may, and have, been 
appropriately employed. As the CRT has stated ``viewing per se [does] 
not necessarily correspond to marketplace value.'' 57 FR 15286, 15301 
(April 27, 1992). The Panel's decision to give greater weight to 
methodologies that quantify marketplace value other than from the 
perspective of viewing is not contrary to legislative intent.
c. Consideration of the Bortz Survey
    Program Suppliers contend that the Bortz survey should have been 
rejected outright by the Panel because of four fundamental flaws: the 
interviews Bortz Media conducted with cable operator programmers were 
too short; the Bortz survey measures attitudes about programming and 
not actual behavior in the buying of programming; the survey fails to 
consider the supply side of distant broadcast programming; and the 
survey contains numerous program miscategorizations that render its 
results useless. For the reasons described below, none of these 
arguments preclude the Panel from accepting the results of the Bortz 
survey.
    1. Short duration of interviews. The CARP in this proceeding 
addressed the criticism of the Bortz survey leveled by the 1990-92 
cable distribution CARP that the interviews conducted by Bortz

[[Page 3615]]

Media with cable system programmers were too short to be accurate and 
concluded that ``[t]hough the interviews are relatively brief, the 
Panel does not believe the execution of the survey seriously 
jeopardizes the integrity of the Bortz survey results.'' CARP Report at 
20. This conclusion is specifically grounded by the Panel in record 
evidence. See, id. (testimony of witnesses Egan, Crandall, Fuller and 
Allen).\28\ When a CARP's determination with respect to a particular 
point is grounded in record evidence, the Register will not second 
guess it. 67 FR 45239, 45253 (July 8, 2002) (``Where such 
determinations are based on testimony and evidence found in the record, 
the Register and the Librarian must accept the Panel's weighing of the 
evidence and its determination * * * '').
---------------------------------------------------------------------------

    \28\ These witnesses testified that the recipients of the Bortz 
survey are typically experienced cable system programmers, aware of 
the kinds of programming that will increase subscriptions and can 
fully and accurately respond to the Bortz survey questions without 
advance preparation. Written Direct Testimony of Michael Egan at 4 
n.1; Written Direct Testimony of Richard Crandall at 8-9; 1990-92 
Cable Distribution Tr. at 5209 (John Fuller); Written Direct 
Testimony of Judith Allen at 4.
---------------------------------------------------------------------------

    2. Attitudes v. behavior. Another criticism of the Bortz survey by 
the 1990-92 cable distribution CARP was that the Bortz survey measured 
the attitudes of cable system programmers as opposed to their actual 
behavior in purchasing distant broadcast signals. The Panel in this 
proceeding, however, concluded that such a criticism was not valid, 
stating that ``uncontroverted testimony and years of research indicate 
rather conclusively that constant sum methodology, as utilized in the 
Bortz survey, is highly predictive of actual marketplace behavior.'' 
Id. at 21. This statement is based on the testimony of Dr. Debra 
Ringold, a Canadian Claimants' witness who testified on the use of 
constant sum methodologies. In addition, the regression analysis 
conducted by Dr. Rosston, which did measure actual behavior, 
corroborated the results of the Bortz survey. Because the CARP's 
determination is record based, there are no grounds to disturb it.
    3. The supply side perspective. Regarding the 1990-92 CARP's 
criticism of the lack of a supply side perspective, the CARP in this 
proceeding acknowledged that while the Bortz survey does not take into 
consideration the supply side of the supply and demand paradigm, the 
supply side perspective was not important because the Panel determined 
that in the hypothetical marketplace it was considering, the supply of 
distant broadcast programming is fixed and therefore does not determine 
the value of the programming (programming is determined from the demand 
side, i.e., the cable system side). As discussed above, the Panel's 
discussion of the hypothetical marketplace is not arbitrary. Further, 
its conclusion that the supply side of distant broadcast programming 
remains fixed is based on record testimony. See Written Rebuttal 
Testimony of Dr. Andrew Joskow at 8.
    4. Program miscategorization. Unlike its first three criticisms of 
the Bortz survey, program miscategorization was not identified by the 
1990-92 cable distribution CARP as a potential limitation to the 
accuracy or usefulness of the Bortz survey. Program miscategorization, 
according to Program Suppliers, is the failure by cable system 
programmers to accurately identify the correct program categories 
(syndicated series and movies, sports, devotional programming, etc.) 
for individual programs when completing their Bortz Media surveys. 
Program Suppliers point to the testimony of JSC witness Michael Egan 
who, though he could not remember having completed a Bortz Media survey 
in the past, was questioned by Arbitrator Michael Young as to how he 
would categorize certain types of programs. Egan Tr. at 1334. Program 
Suppliers categorize two of his responses as incorrect thereby 
conclusively demonstrating, in Program Suppliers' view, that 
miscategorization of programs by respondents to Bortz Media surveys is 
considerable and invalidates the results.
    The Panel did not specifically address the matter of 
miscategorization of specific programs, apparently determining that it 
was not an impairment to the results yielded by the Bortz survey. This 
is not surprising for two reasons. First, the Panel was not presented 
with evidence that demonstrated sufficiently widespread 
miscategorization of programs by Bortz Media respondents that would 
likely affect the survey results. Mr. Egan's responses to Arbitrator 
Young reflect only how he might respond and were offered by someone who 
could not recall if he had ever completed a Bortz Media survey. Second, 
and more importantly, the Bortz Media surveys do not question cable 
operators as to individual programs, but rather question them as to the 
value they attach to categories of programs. See Trautman Tr. at 324-25 
(Respondent are ``not thinking about each and every program that is 
aired on that signal. They are thinking about the general categories of 
program.''). If Program Suppliers pointed to evidence that demonstrated 
that Bortz Media respondents misapprehended entire categories of 
programs when assigning them value, then the Panel might have been 
required to address such contentions. That is not the case here, and 
consequently the Panel did not act arbitrarily in considering the 
evidence presented regarding program miscategorization.
d. Consideration of the Nielsen Study
    Program Suppliers contend that the CARP improperly ignored the 
weight to be given the Nielsen study contrary to precedent, unfairly 
criticized Dr. Gruen's adjustments to the raw Nielsen viewing data, and 
ignored most of the evidence that Program Suppliers put forth regarding 
the marketplace value of distant broadcast signal programming. None of 
these contentions require rejection of the CARP Report.
    The role of precedent in CARP proceedings is discussed above. There 
is no requirement that automatic weight must be assigned to the Nielsen 
study. The Panel is required to examine the evidence on the record 
before it and may deviate from what the CRT or prior CARPs have done 
provided that it provides a reasoned explanation. This CARP did provide 
a reasoned and detailed explanation as to why the Bortz survey was more 
persuasive evidence of marketplace value than the Nielsen study. The 
Panel did not ``abandon'' the Nielsen study but instead continued a 
trend from prior decisions that placed less and less reliance on the 
weight to be accorded the Nielsen study. That Nielsen is less 
persuasive than Bortz is undoubtedly upsetting to Program Suppliers, 
but that result is supported by the evidence. Whether the Register or 
the Librarian might have attached greater evidentiary weight to the 
Nielsen study is irrelevant where the Panel's weighing of the evidence 
is supported by the record.
    The Nielsen study presented in this proceeding is also not the same 
as in prior proceedings. This Nielsen study contains the adjustments 
performed by Dr. Gruen in an effort to convert raw viewing data into 
direct evidence of marketplace value. In performing his adjustments, 
Dr. Gruen focused on the viewing data for the 18-49 age demographic 
because he believed that this age group of cable subscribers was the 
most likely to buy the new ancillary and digital services offered by 
cable systems. Gruen Written Direct Testimony at 16-22. The Panel 
disagreed with Dr. Gruen's testimony on this point, agreeing instead 
with the testimony presented by several other witnesses that additional 
demographic categories are relevant. Once again, the CARP is in the 
best position to weigh the testimony of witnesses, and neither

[[Page 3616]]

the Register nor the Librarian should second guess it. 62 FR 55742, 
55757 (October 28, 1997). The Panel also disagreed with the mechanics 
of Dr. Gruen's avidity adjustment which attempted to show the loyalty 
of viewers to particular types of programs as an indication of their 
marketplace value. The Panel found the avidity adjustment to be flawed 
``both conceptually and methodologically'' and rejected it based on its 
own analysis and the testimony of other witnesses. CARP Report at 42. 
There is nothing arbitrary about the Panel's approach or its 
conclusions.
    Finally, Program Suppliers argue that the Panel ignored altogether 
the evidence they presented in this proceeding on marketplace value and 
evaded its responsibility to evaluate the testimony of each of their 
witnesses in the Report. Program Suppliers point to the following 
statement of the CARP as evidence of arbitrary decision making:

    [I]n this Report the Panel attempts to articulate only the 
principal grounds upon which our determinations are based. Of 
course, at arriving at these determinations, the Panel has carefully 
reviewed and considered all of the parties' evidence and arguments. 
To the extent this Report comports with a particular contention of a 
party, we accept that contention. To the extent that it does not, we 
reject that contention.

CARP Report at 7. The Register rejects Program Suppliers' contention 
that a CARP must articulate its consideration of every piece of 
evidence presented to it. To the contrary, the Copyright Act requires 
that the Panel set forth the facts it found relevant to its 
determination, not all the facts that were presented to it. 17 U.S.C. 
802(e). Indeed, the cases cited by Program Suppliers in its Petition to 
Modify, Permian Basin Area Rate Cases, 390 U.S. 747 (1968), City of New 
York v. FCC, 814 F.2d 720 (D.C. Cir. 1987), and Motor Vehicle Mfrs. 
Ass'n et al. v. State Farm Mutual, 463 U.S. (1983), require that a 
decision-making body must consider the pertinent factors and the 
important aspects of the problem it is facing, not that it consider and 
resolve (much less articulate) all the evidence presented to it.\29\ 
The CARP in this proceeding fulfilled its obligation by carefully and 
precisely describing its rationale for preferring the Bortz survey over 
the Nielsen study and did not arbitrarily disregard relevant evidence.
---------------------------------------------------------------------------

    \29\ If a CARP were required to consider and articulate its 
resolution of every piece of evidence presented to it, then in a 
large proceeding such as this, the CARP Report might be, as this 
Panel observed, ``thousands of pages.'' CARP Report at 7. We agree 
with the CARP's observation that such a requirement would be 
undesirable and not in line with the six-month time limitation 
placed by the Copyright Act on the length of proceedings before a 
CARP.
---------------------------------------------------------------------------

The PBS's Award

1. The CARP's Approach

    PBS requested a distribution of 12% of the Basic Fund for the 1998 
and the 1999 cable royalties. PBS Proposed Findings of Fact and 
Conclusions of Law at 138-139. In support of its claim, PBS attempted 
to demonstrate to the CARP that circumstances had changed considerably 
in its favor from the 1990-1992 CARP proceeding wherein it received 
5.5% of the Basic Funds for those three years.\30\ PBS presented a 
study conducted by Dr. Leland Johnson which attempted to show a 
relationship between the relative number of ``distant subscriber 
instances'' \31\ to PBS signals and the relative marketplace value of 
the programming carried on those signals. Dr. Johnson's original study 
sought to compare the number of distant subscriber instances of PBS 
programming in 1989 with those in 1999 but later adjusted his study to 
focus on observations for 1998 and 1999 without reliance on changes 
from earlier periods. Dr. Johnson concluded that if it is assumed that 
cable operators valued all distant subscriber instances equally, PBS 
would be entitled to an award of royalties equal to its share of 
distant subscriber instances. Id. at 4; Tr. 9196 (Johnson).
---------------------------------------------------------------------------

    \30\ For 1990, PBS received 5.5049750% of the Basic Fund, and 
for 1991 and 1992 it received 5.4912500% of those Basic Funds. 61 FR 
55653, 55669 (October 28, 1996).
    \31\ A ``distant subscriber instance'' is a cable television 
subscriber receiving a distant PBS station. Written Direct testimony 
of Leland Johnson at 12.
---------------------------------------------------------------------------

    The CARP rejected Dr. Johnson's studies:

    Both subscriber instances studies offered by Dr. Johnson suffer 
from the same fundamental infirmity-they attempt to equate relative 
programming volume with relative programming value. Furthermore, Dr. 
Johnson's fundamental premise that [PBS] signals are at a level of 
``parity'' with other signals is contradicted by substantial record 
evidence, including the Rosston regression analyses. * * *
    We view Dr. Johnson's change in subscriber instances theory as 
relatively unuseful because it is based on a measure of time, not 
value.

CARP Report at 56-57 (emphasis in original). Instead, the CARP looked 
to alternative methods to establish PBS's distribution awards. It 
considered the Bortz survey numbers for PBS but, unlike for Program 
Suppliers, JSC and NAB, found some methodological flaws that 
disadvantaged PBS. Specifically, it found that PBS programming was 
undervalued in the Bortz survey because cable systems that carried PBS 
as their only distant signal were removed from the survey and because 
cable systems that did not carry any PBS stations on a distant basis 
automatically assigned a zero value for PBS programming. Id. at 22-23. 
The CARP therefore determined that PBS's Bortz number of 3.2% for 1998 
and 1999 established the ``floor'' to a PBS award and that the value of 
PBS programming ``is somewhere above 3.2%.'' Id. at 26. The CARP then 
examined the royalty fees actually paid by cable operators in 1998 and 
1999 for distant PBS signals--the fee generation approach--and 
attributed ``some weight [to it], along with the Bortz floor and 
changed circumstances,'' in determining PBS's award. Id. at 64. The 
Panel then considered the evidence regarding changed circumstances from 
the 1990-92 CARP proceeding and concluded that ``there is no persuasive 
evidence that [PBS's] relative value has significantly either increased 
or decreased since 1990-92.'' Id. at 69. Consequently, the Panel 
awarded PBS the same distribution percentage it received for 1991 and 
1992 from the 1990-92 proceeding for both 1998 and 1999.\32\
---------------------------------------------------------------------------

    \32\ Again, that number is 5.4912500%. 61 FR at 55669.
---------------------------------------------------------------------------

2. PBS's Arguments

    PBS finds three fundamental errors with the CARP report: it uses 
discredited evidence to refute Dr. Johnson's studies; it treats PBS 
differently from NAB; and it violates precedent by placing ``some 
weight'' on the fee generation method.
    PBS's discredited evidence argument is centered on the Panel's 
analysis and use of the Bortz survey with respect to PBS. The Panel 
correctly determined, in PBS's view, that the Bortz survey results were 
inherently biased against PBS and understated the value of PBS 
programming. However, ``in flat contradiction of its own ruling that 
the Bortz results were ``inherently biased'' and could not be used to 
value [PBS], the Panel then relied on those very same Bortz results to 
dismiss the relevance of the dramatic four-fold increase in [PBS's] 
viewing share.'' PBS Petition to Modify at 3. Specifically, PBS points 
to the Panel's consideration of changed circumstances for PBS from 
1990-92 to this proceeding wherein the Panel observed that while PBS's 
distant subscriber instances share had gone up, its Bortz survey share 
remained the same, in contrast to NAB whose distant subscriber 
instances share and Bortz survey share had both gone up. CARP

[[Page 3617]]

Report at 66. PBS charges that it was illogical and inconsistent for 
the Panel to make this observation, particularly where the Panel had 
previously concluded that the Bortz survey was more biased against PBS 
during the 1998-99 period than it was during the 1990-92 period. Id. at 
22-23. PBS also submits that the Panel failed to consider PBS's Nielsen 
viewing data at all despite the fact that it had ruled that the 
``Nielsen studies can serve as a tool for assessing changed 
circumstances whenever the Bortz survey can not be used.'' Id. at 44.
    PBS argues that the Panel treated PBS disparately relative to NAB. 
Specifically, the Panel found that the increase of NAB's viewing share 
from 8 percent to 14.7 percent between the 1990-92 and 1998-99 
proceedings ``was apparently perceived as increased value by [cable 
operators] as confirmed by their responses to the Bortz study,'' which 
also reflected significant increases. However, ``[i]n sharp contrast to 
its treatment of NAB, the Panel found that the quadrupling of [PBS's] 
viewing share did not establish any increase in [PBS's] relative 
value.'' PBS Petition to Modify at 11. ``Such ``disparate treatment of 
similarly situated parties'' is a classic example of arbitrary action 
that demands a remedy.'' Id. at 12.
    Finally, PBS submits that the Panel's decision to afford ``some 
weight'' to the fee generation approach is ``contrary to 20 years of 
precedent, logic, and the record in this case-all of which established 
that ``fees generated'' are not a proper measure of market value.'' Id. 
at 13.

3. Recommendation of the Register

    Unlike the awards to Program Suppliers, Joint Sports Claimants, 
NAB, and Canadian Claimants which where determined by use of a 
particular distribution methodology, the award to PBS was accomplished 
through consideration of a number of factors: the Bortz survey alone to 
establish a floor of 3.2%; ``some weight'' attributed to the fee 
generation approach which implied an award of 3.9%; and an examination 
of PBS's changed circumstances from the 1990-92 proceeding (wherein it 
received 5.49125%) to 1998-99. PBS asserts in its first argument, 
described above, that once the Panel used the Bortz survey to establish 
the floor value of PBS's award, it was precluded from considering any 
aspects of the survey in evaluating the changed circumstances from the 
1990-92 to 1998-99 proceedings. The Register disagrees with this 
argument and concludes that it does not render the CARP decision 
arbitrary.
    Contrary to PBS's assertion that the Panel did not consider PBS's 
Nielsen viewing shares after stating earlier in its report that it 
would do so, the Panel plainly observed that PBS's and NAB's Nielsen 
viewing shares (and their share of distant subscriber instances) had 
``dramatically'' increased from 1990-92 to 1998-99. CARP Report at 66. 
The Panel then attempted to determine why this might have happened. It 
resolved that these increases were due to the elimination of 
superstations WTBS and WWOR from the cable royalty funds which 
accounted for a large portion of the viewing shares attributable to 
Program Suppliers. Id. at 66. The windfall to NAB and PBS in viewing 
shares did not, of course, automatically mean that the value of PBS's 
and NAB's programs went up as well since the Panel expressly concluded 
that viewing shares (and distant subscriber instances) do not measure 
program value. The Panel then noted that while both NAB's and PBS's 
viewing numbers (and distant subscriber instances) went up, only NAB 
showed a concomitant increase in its Bortz share between 1992 and 1998, 
while PTV did not: NAB's Bortz share increased 19% from 1992 to 1998 
while PBS's went down from 3.0% in 1992 to 2.9% in 1998 and 1999. Id. 
Had the Panel stopped here and concluded that the value of NAB had gone 
up while the value of PBS programming remained the same, then PBS's 
argument that the Panel improperly used the Bortz survey might be 
persuasive. But the Panel did not stop there and undertook an 
examination of why PBS's Bortz numbers did not track the same type of 
path as NAB's given the increased viewing shares and distant subscriber 
instances to both. The Panel considered the two flaws in the Bortz 
survey for PBS-elimination of cable systems carrying only a distant PBS 
station and zero value to PBS programming for cable systems not 
carrying a distant PBS station--and determined that they did not by 
themselves explain the lack of a PBS Bortz survey increase. Id. 
(``While lack of increase in [PBS's] Bortz share might be explained 
partially by the elimination of [PBS]--only systems from the survey 
(which had a real impact for the first time in 1998), that factor 
certainly can not explain it fully''); id. at 66 n.36 (``The other 
anti-[PBS] bias (assignment of automatic zeroes) should not 
differentially affect the studies for either period.''). The Panel then 
went on to consider other factors that might explain PBS's lack of an 
increase in Bortz share from 1992 to 1998 such as fierce competition 
from cable ``look-alike'' networks and increased carriage of distant 
PBS signals due to FCC-mandated must-carry rules as opposed to an 
increase in value of distant PBS stations to cable operators. These 
considerations led the Panel to conclude that ``despite th[e] relative 
growth of [PBS] [in Nielsen viewing share and distant subscriber 
instances share], constancy in the raw Bortz shares from 1992 to 1998 
likely reflects the net marketplace impact of all these 
circumstances.'' Id. at 68 (footnote omitted). This conclusion is 
grounded in record evidence, and the Register will not recommend that 
it be disturbed. See, 62 FR 55742, 55749 (October 28, 1997)(``Because 
this conclusion is grounded in the record, it is not arbitrary.'')
    The Register also recommends that PBS's argument that it is being 
treated disparately vis-a-vis NAB is not persuasive. PBS creates the 
misperception that the Panel used NAB's doubling in Nielsen viewing 
share from 1990-92 to 1998-99 as the justification for increasing NAB's 
award. This is incorrect. NAB received its award based solely on the 
shares it received in the Bortz survey, as corroborated by the Rosston 
regression analysis. See CARP Report at 50-51. It was only after the 
Panel firmly concluded that the Bortz survey was the methodology to 
determine NAB's share that it made the statement that NAB's doubling in 
Nielsen viewing share ``was apparently perceived as increased value by 
[cable system operators] as confirmed by their responses in the Bortz 
study.'' Id. at 51. This anecdotal observation merely confirmed what 
the Panel already determined: NAB would receive its Bortz survey 
shares. PBS's Nielsen viewing share was considered by the Panel but it, 
like the Bortz survey, did not play a decisive role in determining 
PBS's award. PBS and NAB are not similarly situated parties; 
consequently, the Panel did not treat them disparately.
    Finally, the Register concludes the Panel's affording ``some 
weight'' to PBS's fee generation numbers does not fly in the face of 20 
years of precedent, logic and the record. The Panel duly noted that the 
CRT previously took a dim view of using the fee generation method, but 
did use it to exclude PBS from sharing in the 3.75% fund and used it in 
the 1989 cable royalty distribution proceeding to reduce PBS's award. 
Further, the 1990-92 CARP expressly used the fee generation approach in 
determining the Canadian Claimants' award, a point which PBS

[[Page 3618]]

reluctantly admits.\33\ While PBS adamantly opposes using the fee 
generation method for itself and others, there does exist precedent for 
using it. Furthermore, the Panel addressed and rejected PBS's testimony 
as to why the fee generation method was not appropriate, determining 
that while it is true that fees generated do not measure the absolute 
value of programming, it does not mean that they are not capable of 
measuring the relative value of programming between the claimant 
groups. Id. at 63-64. Nevertheless, the Panel elected not to accord 
full weight to the fee generation approach with respect to PBS; this 
clearly was within its discretion. See, Nat'l Ass'n of Broadcasters v. 
Librarian of Congress, 146 F.3d 907, 923 n.13 (The CARP is in the best 
position to weigh evidence and gauge credibility).
---------------------------------------------------------------------------

    \33\ PBS attempts to distinguish the 1990-92 CARP's action by 
arguing that that Panel was essentially trapped into using the fee 
generation method because there was no other evidence presented by 
the parties from which to compute the Canadian Claimants' share. The 
same could potentially be said of this proceeding. As this CARP 
noted, all parties except PBS and Music (which is silent on the 
issue) support use of the fee generation approach in determining the 
Canadian Claimants' award.
---------------------------------------------------------------------------

    In sum, the Panel's treatment of PBS comports with its stated 
approach for determining a party's award that cannot be derived through 
application of a particular distribution methodology: examine that 
party's changed circumstances from its 1990-92 distribution award by 
examining the available record evidence. CARP Report at 16. There is 
nothing arbitrary to the approach or its application to PBS in this 
proceeding.

The Canadian Claimants' Award

1. The CARP's Approach

    The Canadian Claimants requested the following distribution 
percentages: for 1998, 2.25479% of the Basic Fund and 0.17332% of the 
3.75% Fund; for 1999, 2.48141% of the Basic Fund and 0.43023% of the 
3.75% Fund. The Canadian Claimants principally rely on a ``fee 
generation'' approach--the section 111 royalties paid by cable 
operators for distant retransmission of Canadian signals--although they 
cite changed circumstances to corroborate the substantial increase 
requested from their 1990-92 distribution percentages.\34\ Through an 
analysis of the volume of Canadian programming contained on Canadian 
broadcast signals and application of a constant sum survey, similar to 
the Bortz study, the Canadian Claimants' requested distribution 
percentages are based on their conclusion that approximately 70% of all 
programming contained on Canadian broadcast signals belongs to them; 
thus, they request 70% of the fees generated by Canadian signals.
---------------------------------------------------------------------------

    \34\ The Canadian Claimants' award for 1991 and 1992 was 
0.955000% of the Basic Fund and 0.1871800% of the 3.75% Fund. 61 FR 
at 55669 (October 28, 1996).
---------------------------------------------------------------------------

    The CARP generally accepted the Canadian Claimants' fee generation 
approach with some exceptions. Since there are no Bortz survey results 
for Canadian programming, the CARP used the award adopted in the 1990-
92 proceeding as a reference point since it, too, was based on the fee 
generation approach. The Panel did not find any changed circumstances 
that merited an increase in the Canadian Claimants' award, other than 
the fact that Canadian signals generated substantially more revenues in 
1998-99 than they did in 1990-92. As a result, Canadian Claimants 
received their fee generated award.

2. The Canadian Claimants' Arguments

    The Canadian Claimants do not dispute the fee generation approach 
utilized by the CARP. Rather, they dispute the way in which their award 
was incorporated into the CARP's mathematical approach for establishing 
final distribution percentages. As discussed earlier in this Order, the 
CARP was cognizant that each party's distribution award could not be 
determined in a vacuum. Since different distribution methodologies were 
being employed to determine awards, adjustments must be made so that 
all awards when aggregated would equal the total royalty pools 
available. The CARP's mathematical approach to make all awards equal 
100% of the funds is detailed in Appendix A of its report. Canadian 
Claimants' objection comes with respect to how its award was adjusted 
to account for the ``net'' award to PBS, the Music Claimants and the 
Devotional Claimants.
    The gravamen of the Canadian Claimants' petition to modify is this: 
its award should have been combined with Program Suppliers, JSC, NAB 
and PBS before adjusting for the ``net'' awards to Music Claimants and 
Devotional Claimants. The Canadian Claimants submit that such result is 
fair for the following reasons. First, since the Panel adopted a fee 
generation approach for Canadian Claimants, they should receive 
precisely the percentages due them under that approach. The Panel's 
approach robs them of their full fee generation share and is contrary 
to the methodology the Panel stated that it was employing. Second, the 
fact that PBS received a ``net'' award from the Panel is unfair to 
Canadian Claimants particularly where there is no PBS programming on 
Canadian broadcast signals. Third, the Panel's mathematical approach 
described in Appendix A of its report took the Bortz survey results of 
Program Suppliers, JSC and NAB and adjusted them up to 100% before 
applying a pro rata reduction to those awards to account for the 
``net'' awards to PBS, Music Claimants and Devotional Claimants. 
Canadian Claimants are forced to share in the pro rata reduction to 
account for the ``net'' awards, but did not share in the upward 
adjustment enjoyed by Program Suppliers, JSC and NAB.

3. Recommendation of the Register

    In the 1990-92 cable distribution proceeding, the Librarian was 
called upon to make a ``mathematical adjustment'' to the distribution 
percentages of the Canadian Claimants for the 1991 and 1992 3.75% 
Funds. In that proceeding, the CARP intended to award Canadian 
Claimants its fee generation percentage of the 3.75% Funds, just as 
this CARP has intended to do. However, in the 1990-92 proceeding, the 
CARP failed to account for the fact that there are other program 
categories represented in the 3.75% royalties generated by distant 
Canadian broadcast stations. This omission, which the Panel later 
admitted was an error, necessitated a mathematical adjustment to the 
Canadian Claimants' 3.75% awards for 1991 and 1992 to account for the 
two other program categories (Program Suppliers and JSC) represented on 
Canadian signals. As a result, Canadian Claimants' distribution 
percentages for the two funds decreased slightly. See 61 FR at 55663.
    In this proceeding, another ``mathematical adjustment'' is 
requested--this time in Canadian Claimants' favor. Unlike the previous 
proceeding, however, no adjustment is required here. The Register 
concludes that the Panel did not act arbitrarily in choosing the method 
that it did to reconcile all awards to equal 100% of the royalty pools. 
Some method of reconciliation was necessary because the Panel did not 
employ the same distribution methodology for all parties. Three of the 
parties--PBS, Music Claimants and Devotional Claimants--received 
``net'' distribution awards because the Panel was unable to adopt a 
specific distribution methodology to calculate their awards.\35\ CARP 
Report at 69 n. 42. The remaining parties' shares

[[Page 3619]]

were derived by use of particular methodologies and their shares were 
reduced pro rata to account for the net awards. While the methodology-
based parties do surrender a portion of their award to account for the 
others, it was not impermissible for the Panel to do this. It is true 
that the Panel could have chosen not to give a ``net'' award to either 
PBS or Music Claimants (or both) and made a pro rata reduction in those 
awards as well when it accounted for the entire distribution. Canadian 
Claimants submit that such an approach is particularly applicable to 
PBS since there is no public television programming contained on 
Canadian broadcast signals.\36\ But while the Panel could have adopted 
this approach, it was not compelled to do so. A decisionmaker's choices 
between a number of reasonable alternatives cannot be considered 
arbitrary. Georgia Indus. Group v. FERC, 137 F. 3d 1358, 1364 (D.C. 
Cir. 1998). ``The Register will not consider what the Panel could have 
done or what a party asserts it should have done, even if, had she 
heard th[e] proceeding in the first instance, she would have chosen 
another methodology.'' 63 FR 49823, 49829 (September 18, 1998).
---------------------------------------------------------------------------

    \35\ Devotional Claimants were a ``net'' award because they 
settled out of this proceeding for an agreed-upon percentage.
    \36\ It is interesting to note that NAB's programming is 
likewise not a part of the fee generation approach employed by the 
Panel. Only the programming of Program Suppliers, Joint Sports 
Claimants and Canadian Claimants are considered in the fee 
generation approach. See CARP Report at 73. NAB does not petition 
the Librarian for a similar increase in its award.
---------------------------------------------------------------------------

The Music Claimants' Award

1. The CARP's Approach

    Of all the awards made in this proceeding, it appears that the 
Panel was most troubled in establishing an award for the Music 
Claimants because of a lack of reliable evidence upon which to base the 
distribution. The Music Claimants did not participate in the 1990-92 
distribution proceeding, instead settling for 4.5% of all three Funds. 
In this proceeding, they requested an award of 5.0% of each of the 
Basic Fund, the 3.75% Fund and the Syndex Fund. The Music Claimants' 
request for an increase is premised upon a music use study that 
purports to show an 11% increase in the use of music on distant signals 
between 1991-92 and 1998-99.
    The CARP found the music use study to be unpersuasive and of no 
value. Instead, the CARP considered the study presented by Joint Sports 
Claimants' witness Dr. George Schink who compared the amounts of 
licensing fees that Music Claimants receive from broadcasters and cable 
networks outside of the statutory licensing scheme with the total 
programming expenses of those broadcasters and cable networks. Based on 
his study of broadcasters and cable networks, Dr. Schink concluded that 
the Music Claimants' 1998-99 share should be no higher than 2.33%. The 
Panel used this figure to establish the floor to the zone of 
reasonableness to fixing the Music Claimants' award (similar to the way 
in which the Panel used PBS's Bortz survey share to establish the floor 
for its award) but did not accept it fully because the study included 
fees paid by television networks who are not compensated under the 
section 111 licensing scheme. The Panel then looked to the last 
litigated net award for Music Claimants from the 1983 distribution 
proceeding--4.5%--and used that figure to establish the ceiling to the 
zone of reasonableness for the Music Claimants' award. The Panel then 
concluded that 4.0% of each of the three Funds was the appropriate 
distribution percentage.

2. The Music Claimants' Arguments

    The Music Claimants argue that the CARP failed to properly consider 
the evidence they presented in this proceeding and should have wholly 
discarded the testimony of Dr. Schink. With respect to the music use 
study they presented, Music Claimants argue that ``[t]he CARP gave 
insufficient weight to the testimony of ASCAP's Chief Economist, Dr. 
Peter Boyle, and BMI's witness, Frank Krupit, concerning the value of 
the [music use] study.'' Music Claimants Petition to Modify at 5. Music 
Claimants also charge that the CARP improperly gave no weight to the 
testimony of three of their witnesses who testified that the use of 
music in broadcast programming had dramatically increased from 1983 
through 1999. Music Claimants also charge that the CARP ignored 
established precedent that music use is the way to determine the 
marketplace value of music.
    With respect to Dr. Schink's study, Music Claimants charge that it 
is fatally flawed for three reasons. First, his inclusion of non-
compensable network programming artificially depressed Music Claimants' 
distribution percentage. Second, his calculation was based in part on 
interim music licensing fees that do not reliably reflect the market 
value of music in the relevant years; and third, he presented no data 
for 1999. As a result of these flaws, and coupled with the fact that 
Dr. Schink's testimony was not presented until the rebuttal phase of 
this proceeding, Music Claimants submit that his testimony should have 
been completely disregarded.

3. Recommendation of the Register

    Music Claimants' arguments in their Petition to Modify all suffer 
from the same flaw: they ask the Librarian to re-weigh the evidence. As 
we have made clear in this proceeding and others, the Librarian will 
not second guess a CARP and recast the evidence. ``[T]he Librarian's 
scope of review is very narrow. This limited scope certainly does not 
extend to reconsideration of the relative weight to be accorded 
particular evidence, and the Librarian will not second guess a CARP's 
balance and consideration of the evidence, unless its decision runs 
completely counter to the evidence presented to it.'' 61 FR at 55663 
(October 28, 1996). The CARP, not the Register or the Librarian, ``is 
in the best position to weigh evidence and gauge credibility.'' NAB v. 
Librarian of Congress, 146 F.3d at 923 n.13 (D.C. Cir. 1998). Only if a 
CARP acts in complete contravention of the evidence and with no 
rational basis is the Librarian forced to reconsider the evidence. That 
is not the case here.
    If the CARP in this proceeding had fully credited Dr. Schink's 
study and used it as the basis for determining Music Claimants' award, 
then Music Claimants' protestations might require intervention by the 
Librarian. But the Panel did not fully credit Dr. Schink's study, as 
Music Claimants reluctantly admit, and acknowledged the very flaws in 
the study that Music Claimants discuss in their Petition to Modify. See 
CARP Report at 84-87. Although the Panel explained its reservations 
about the Schink analysis, it found the study to be useful enough in 
establishing the minimum to Music Claimants' award. The Panel was well 
within its discretion to use the Schink study in this fashion.
    Likewise, the CARP was well within its discretion to discount the 
testimony of three of Music Claimants' witnesses: ASCAP's Seth 
Saltzman, television and film critic Jeffrey Lyons and music composer 
W.G. ``Snuffy'' Walden. The testimony of these witnesses centered on 
their personal observations regarding a perceived increase in the use 
of music, particularly theme music, on broadcast television programming 
in recent years. Music Claimants submit that because the testimony of 
these witnesses was (in their opinion) unrebutted by other testimony, 
the CARP was compelled to accord it weight. This is not correct. The 
CARP is vested with discretion to gauge the credibility of witnesses, 
NAB v. Librarian of Congress, 146 F.3d at 923 n.13, regardless of 
whether other parties put forward other witnesses to

[[Page 3620]]

specifically rebut it. The Panel stated that the testimony of these 
witnesses was ``anecdotal and subjective opinion,'' and that ``[a]bsent 
quantitative corroboration, the Panel is unable to credit significantly 
this evidence.'' CARP Report at 75 n.46. This determination is within 
the discretion of the Panel and is not arbitrary. See, also 62 FR 
55742, 55751 (October 28, 1997) (satellite royalty rate adjustment).
    Finally, the Register does not agree with Music Claimants' 
contention that music use is the only way to determine the market value 
of music, and that ``[t]he CARP ruled, contrary to all applicable music 
licensing precedent and without adequate explanation, that changes in 
music use were not relevant to the establishment of Music's award for 
1998-99.'' Music Claimants' Petition to Modify at 5. This is not what 
the Panel said. Rather, the Panel found that Music Claimants' music use 
study failed to accurately demonstrate an increase in the use of music 
from the relevant starting point of 1983 (the time of the last 
litigated Music award) to 1998-99 because the data relied upon by Music 
Claimants ``is too incomplete to provide reliable estimates.'' CARP 
Report at 82. The Panel did not say that music use was irrelevant; it 
accepted Dr. Schink's criticisms of the Music Claimants' study. That 
the CARP did not use data that focused on music use is not a rejection 
of music use per se; rather it was a rejection of the evidence of music 
use presented by Music Claimants.

Order of the Librarian of Congress

    Having duly considered the recommendation of the Register of 
Copyrights regarding the report of the Copyright Arbitration Royalty 
Panel in the Phase I distribution of the 1998 and 1999 cable royalty 
funds, the Librarian of Congress adopts her recommendation to accept in 
full the Panel's determination. For the reasons stated in the 
Register's recommendation, the Librarian is exercising his authority 
under 17 U.S.C. 802(f) and is issuing this order setting forth the 
distribution of royalties. After deducting National Public Radio's 
0.18% share for each year per its agreement with the other parties to 
this proceeding, it is ordered that the 1998 and 1999 cable royalties 
shall be distributed according to the following percentages:

                            1998 Distribution
------------------------------------------------------------------------
                                              Basic     3.75%    Syndex
                 Claimant                     fund      fund      fund
------------------------------------------------------------------------
Devotional Claimants......................   1.19375   0.90725   0
Program Suppliers.........................  37.80114  41.18124  96.00000
Joint Sports Claimants....................  35.78076  38.42541   0
NAB.......................................  13.96836  15.34209   0
PBS.......................................   5.49125   0         0
Music Claimants...........................   4.00000   4.00000   4.00000
Canadian Claimants........................   1.76476   0.14401   0
------------------------------------------------------------------------


                            1999 Distribution
------------------------------------------------------------------------
                                              Basic     3.75%    Syndex
                 Claimant                     fund      fund      fund
------------------------------------------------------------------------
Devotional Claimants......................   1.19375   0.90725   0
Program Suppliers.........................  36.00037  39.13977  96.00000
Joint Sports Claimants....................  37.62758  40.47418   0
NAB.......................................  13.77736  15.12731   0
PBS.......................................   5.49125   0         0
Music Claimants...........................   4.00000   4.00000   4.00000
Canadian Claimants........................   1.90971   0.35151   0
------------------------------------------------------------------------


    Dated: January 20, 2004.

    So Recommended.
Marybeth Peters,
Register of Copyrights.
    So Ordered.
James H. Billington,
Librarian of Congress.
[FR Doc. 04-1567 Filed 1-23-04; 8:45 am]
BILLING CODE 1410-33-P