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Access to Television Programming and Consumer Prices Are Unclear'
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United States Government Accountability Office:
GAO:
Report to Congressional Committees:
November 2011:
Statutory Copyright Licensing:
Implications of a Phaseout on Access to Television Programming and
Consumer Prices Are Unclear:
GAO-12-75:
GAO Highlights:
Highlights of GAO-12-75, a report to congressional committees.
Why GAO Did This Study:
Most U.S. households have access to television broadcast programming
through cable or satellite services. Cable and satellite operators
offer this programming by providing a secondary transmission of the
over-the-air programming from television broadcast stations. Three
statutory licenses permit operators to offer copyrighted broadcast
programming in return for paying a government-set royalty fee.
Although Congress created the licenses as a cost-effective way for
operators to clear the copyrights to the programming, some
policymakers and others believe the licenses should be phased out and
a market-based approach adopted.
The Satellite Television Extension and Localism Act of 2010 directed
GAO to study and evaluate possible effects if Congress phased out the
statutory licenses. This report addresses (1) the potential
implications for the Federal Communications Commission’s (FCC)
regulations if such a phaseout were enacted; as well as how such a
phaseout might affect (2) the market and regulatory environment and
(3) consumer prices for cable and satellite television service and
access to television programming. To address these objectives, GAO
analyzed price, carriage, and royalty data; reviewed relevant laws;
and interviewed industry stakeholders.
GAO provided FCC and the U.S. Copyright Office with a draft of this
report. In response, both provided technical comments that were
incorporated where appropriate.
What GAO Found:
If Congress phased out the statutory licenses for broadcast
programming, FCC’s must carry and carry-one carry-all rules-—which
require cable and satellite operators, respectively, to carry the
signals of qualified television broadcast stations upon request—-could
become impractical. The licenses allow operators to carry copyrighted
programming without negotiating with individual copyright owners.
Removing the licenses could leave operators in the paradoxical
position of being required to transmit broadcast signals with
copyrighted content for which they may be unable to acquire the
rights. Industry stakeholders identified transaction costs and
holdouts—which occur when certain copyright owners delay negotiations
by demanding high compensation—as key factors that would make
acquiring such rights impractical for operators absent the licenses.
However, we identified a number of actions to mitigate these problems,
such as requiring stations to act as copyright clearance agents for
all the content on their broadcasts-—a method known as sublicensing-—
as a condition of invoking the must carry and carry-one carry-all
rules.
The effect of a phaseout on the market and regulatory environment is
uncertain. Among other things, it is uncertain which timeline would be
used to conduct a phaseout, and which method(s) for clearing
copyrights for secondary transmissions of programming would replace
the statutory licenses. For example, alternatives for clearing
copyrights include sublicensing; collective licensing—where
negotiations are conducted between organizations representing the
copyright owners on one side and operators on the other; and direct
licensing—where operators and copyright owners negotiate with each
other. A phaseout could also provide an opportunity for other
regulatory changes to the structure of the television industry through
the modification of FCC regulations. For example, some stakeholders
support the elimination of the network non-duplication rules, which
protect a station’s right to be the exclusive distributor of network
programming within a specified zone, asserting that this would help
move the distribution of copyright protected works toward a more free
market setting.
The effect of a phaseout on consumer prices for cable and satellite
television and consumer access to programming is unclear, because the
post-phaseout market and regulatory environment is unclear. Several
factors could impact consumer prices, including whether copyright
royalty payments and transaction costs increase, and whether such cost
increases would in turn lead to higher prices. Some stakeholders
argued that any increases in operators’ costs could increase consumer
prices, but others argued that the cost increases would not be
sufficient to impact prices. A phaseout could increase programming
disruptions for consumers, but the overall impact on the nature and
availability of programming is unclear. Under some scenarios, the
effect on programming could be minimal, such as one where must carry
and carry-one carry-all rules were modified and sublicensing were
required; this would limit increases in transaction costs and
holdouts, both of which would affect the availability of programming
if unaddressed. However, other scenarios could have more dramatic
effects. If all FCC regulations related to secondary transmissions of
broadcast programming were eliminated, operators could bypass stations
and acquire programming directly from copyright owners, which could
decrease stations’ advertising revenues and threaten their financial
viability.
View [hyperlink, http://www.gao.gov/products/GAO-12-75] or key
components. For more information, contact Mark Goldstein at
goldsteinm@gao.gov or (202) 512-2834.
[End of section]
Contents:
Letter:
Background:
A Phaseout of the Statutory Licenses Could Render Must Carry and Carry-
one Carry-all Requirements Impractical, but Not Directly Affect Other
Requirements:
The Effects of a Phaseout on the Market and Regulatory Environment Are
Uncertain:
The Effect of a Phaseout of the Statutory Licenses on Prices for Cable
and Satellite Television and Consumer Access to Programming Is Unclear:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Average Distribution of Channels on Cable Service Tiers
in 2009:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Partial Distribution of 2009 Cable Royalty Funds by Claimant
Group:
Table 2: Copyright Royalties for Secondary Transmission as a
Percentage of Programming Costs and Gross Receipts in Calendar Year
2008:
Table 3: Experts and Industry Stakeholders We Interviewed:
Table 4: Average Distribution of Channels on Cable Service Tiers in
2009:
Figures:
Figure 1: Content Flow of Television Programming:
Figure 2: Revenue Flows in the Television Industry:
Figure 3: Revenue and Content Flows Using the Statutory Licenses:
Abbreviations:
FCC: Federal Communications Commission:
STELA: Satellite Television Extension and Localism Act of 2010:
TBS: Turner Broadcasting System:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
November 23, 2011:
Congressional Committees:
The television broadcast industry provides free over-the-air
programming to the public through local television stations--this is
the primary transmission of the programming. However, over 85 percent
of U.S. households have access to television broadcast programming
through subscriptions to cable or satellite services. When the cable
and satellite operators provide their subscribers with access to
broadcast programming, they are providing a secondary transmission of
the programming. Because the broadcast programming is copyright
protected, a license is required to secure the public performance
rights[Footnote 1] for the secondary transmission of these works.
Under existing law, three statutory licenses permit cable and
satellite operators, such as Time Warner Cable and DirecTV, to "clear"
these copyrights, allowing them to offer secondary transmissions of
radio and television broadcast programming.[Footnote 2] To take
advantage of the statutory licenses, cable and satellite operators
must deposit with the U.S. Copyright Office a government-set royalty,
which is later distributed to copyright owners.[Footnote 3] Using
these licenses, cable and satellite operators transmit a variety of
copyright-protected works, including network and syndicated
programming, movies, sports programming, local news broadcasts,
noncommercial shows, religious material, and music of all types.
[Footnote 4] In 2010, the U.S. Copyright Office collected
approximately $299 million in copyright royalty fees from cable and
satellite operators.
The cable industry was still developing when, in 1976, Congress
rewrote U.S. copyright law and extended copyright protection to the
secondary transmission of broadcast programming, creating the Section
111 statutory license as a cost-effective means to enable the nascent
cable industry to clear rights to this programming. Likewise, the
satellite industry expanded as licensing structures (Sections 119 and
122) were created to allow cost-effective mechanisms to clear rights
to the content on out-of-local market (so-called "distant-into-local")
and local market ("local-into-local") broadcast stations. However,
some copyright owners believe that these statutory licenses do not
provide them with fair compensation. Further, some industry
representatives as well as policymakers are opposed to government
involvement in setting royalties and argue that a market-based
approach should be adopted instead. Pointing to the maturation of the
cable and satellite television industries, they assert that the
statutory licensing of secondary transmissions was meant to be an
interim measure which should be eliminated.[Footnote 5] Congress,
through section 303(a) of the Satellite Television Extension and
Localism Act of 2010 (STELA),[Footnote 6] directed GAO to study and
evaluate possible effects of phasing out statutory licensing of
secondary transmissions of television broadcast programming.[Footnote
7],[Footnote 8] This report responds to that mandate and addresses the
following questions:
1. What are the potential implications for the Federal Communications
Commission's (FCC) regulations and carriage requirements if Congress
were to phase out statutory licensing?
2. How would a phaseout of statutory licensing affect the market and
regulatory environment?
3. How would a phaseout of statutory licensing affect consumer prices
for cable and satellite television service and access to television
programming?
To address these questions, we reviewed laws, including relevant
portions of the Communications Act of 1934, as amended,[Footnote 9]
reports, and related documentation to determine how the statutory
licenses work, the economic rationale for the licenses and the
copyright royalty fee structure, and statutory licensing alternatives
and potential approaches for conducting a phaseout. We also analyzed
FCC's price and carriage data and its regulations and decisions to
determine the potential implications and the post-phaseout market and
regulatory environment if the statutory licenses were eliminated. We
conducted interviews with relevant individuals and organizations to
discuss the potential implications for FCC's rules if a phaseout of
the statutory licenses were implemented and to assess the potential
impact on the post-phaseout market and regulatory environment and
consumer prices and access to programming.[Footnote 10] Finally, we
analyzed FCC and Copyright Office data to describe the relationships
between the number and type of broadcast stations carried, copyright
royalty fees, programming costs, and consumer prices. We assessed the
reliability of the data used in this report by reviewing existing
information about the data and the system that produced them, and
interviewing officials from FCC and the Copyright Office about
measures taken to ensure the reliability of the data. We determined
the data were sufficiently reliable for our purposes.
We conducted this performance audit from November 2010 through
November 2011 in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives. See appendix I for more information about our scope and
methodology.
Background:
Television Programming:
Various entities and groups are involved in the development and
distribution of television programming. Content producers, such as
Sony Pictures Entertainment,[Footnote 11] produce programming and sell
the right to use that content to a variety of users, such as broadcast
networks, cable networks, or broadcast television stations. The
process of content producers selling the rights to use their content
is sometimes referred to as copyright licensing, since the producers
are selling users a license to perform their copyright-protected
works. The financial compensation received by content producers for
the use of their copyright-protected content is a licensing fee or
royalty.
Broadcast and cable networks produce and aggregate programming from
other content producers for distribution to the public. Broadcast
networks consist mainly of four major networks (ABC, CBS, FOX, and
NBC), and several smaller networks, such as the CW Television Network,
MyNetworkTV, and ION Television. Content is produced by the major
networks' affiliated production companies and by independent
producers. Cable networks aggregate programming from content producers
and some also produce programming, which can include niche
programming--that is, programming that targets specific demographics.
For instance, Lifetime Network offers programming that specifically
targets women, while MTV Network offers programming targeted to the 18-
to-34 age group.
Television programming is distributed to households by television
broadcast stations and through cable and satellite systems. Each of
the four major networks owns and operates some broadcast stations;
other stations may be affiliated with one of the major networks or, as
is the case with noncommercial educational television, unaffiliated
with any major broadcast network.[Footnote 12] Television broadcast
stations that are affiliated with a broadcast network negotiate
licensing agreements with their network for the right to air network-
furnished content, including prime time shows, afternoon soap operas,
and national news programs.[Footnote 13] In addition to this network
programming, the local station may fill in the rest of the week's
programming time with syndicated shows (including reruns, game shows,
and daytime talk shows), local sports coverage, movies, and local
news. Television broadcast stations are licensed by FCC and have the
right to transmit a video broadcast signal on a specific radio
frequency in a particular area and at a particular strength. These
characteristics define the geographic reach of the signal.
Cable and satellite operators obtain a variety of programming from
both local stations and cable networks.[Footnote 14] The operators
seek to increase the scope of the potential appeal of the channel
lineups they offer by adding national or regional programming that is
not otherwise available in the areas they serve. In addition, these
operators may also import distant over-the-air programming into local
markets (secondary transmission of distant programming), particularly
for those cable and satellite subscribers missing a particular major
network affiliate or lacking desirable regional broadcast content.
[Footnote 15] For example, as part of its cable package, a cable
operator in the Indianapolis market might offer its subscribers a
distant network or independent channels from the nearby Chicago market
(see figure 1 for the content flow of programming).
Figure 1: Content Flow of Television Programming:
[Refer to PDF for image: illustration]
Content Producers (e.g., Sony, Disney):
to:
Broadcast networks (e.g., CBS, FOX);
Broadcast stations;
Cable networks (e.g., ESPN, HBO).
Broadcast networks:
to:
Broadcast stations.
Cable networks:
to:
Cable and satellite operators (e.g., Comcast, DirecTV).
Broadcast stations:
to:
Households (10-15% of households exclusively view these stations over
the air).
Cable and satellite operators:
to:
Households (85-90% of households are subscribers).
Source: GAO.
[End of figure]
Copyrights and the Statutory Licenses:
A copyright is an intellectual property interest in an original work
of authorship fixed in any tangible medium of expression, including
books, movies, photographs, and music, from which the work can be
perceived, reproduced, or otherwise communicated either directly or
with the aid of a machine or device.[Footnote 16] The Copyright Act
[Footnote 17] grants public performance rights, among others, to
copyright owners.[Footnote 18] Under the public performance right, a
copyright owner is usually allowed to control when the work is
performed publicly, such as performance through transmission over
television and radio, and may sell that right or license others to
exercise it. Many different types of television industry participants
can be copyright owners for television programming, and the specifics
of the program largely determine which entities hold the copyrights.
For example, if a program's producers work for a network then the
network is likely the copyright owner. In another example, a
television broadcast station could be a copyright owner for the non-
network programming that it produces. In fact, it is common for one
program to have multiple copyright owners, each with rights to
specific pieces of content within the program. In a 1-hour television
program made up of several short documentaries, each documentary could
have separate production groups with each owning its respective
segment. Generally, any potential user (other than the copyright
owner) intending to transmit copyright-protected content must obtain
permission from the copyright owner beforehand. A statutory license
permits the use of copyright-protected material without the express
permission of the copyright owner under specific circumstances, as
long as the licensee meets the requirements of the statute through
which the license was created.
In revising U.S. copyright law, the Copyright Act of 1976 extended
copyright protection to cover the secondary distribution of broadcast
transmissions. To facilitate this change, the act added a provision
codified at section 111, of title 17, United States Code, providing
statutory licensing to compensate copyright owners for the public
distribution of their works by cable operators.[Footnote 19] Congress
determined that it would be very difficult for operators in the
nascent cable industry to clear copyrights for all the broadcast
programming available in their local markets before offering secondary
transmissions of that programming. The Section 111 license effectively
allowed the cable operator to provide secondary transmissions of all
broadcast programs on a specific television broadcast station's signal
without needing to negotiate with the copyright owners of the
programming content embedded in the signal, thereby eliminating the
transaction costs associated with marketplace negotiations.[Footnote
20]
The Sections 119 and 122 licenses[Footnote 21] allow satellite
operators to clear rights for the secondary transmission of
programming embedded in distant and local broadcast signals,
respectively. The Section 119 license was created by Congress in the
Satellite Home Viewer Act of 1988.[Footnote 22] The license provides
satellite operators with an efficient way of licensing copyright-
protected works contained in a broadcast signal, which allow satellite
systems to offer non-network stations to home satellite receivers
anywhere in the United States and to offer network programming to
those households that could not receive adequate over-the-air
television broadcast signals. Through the Satellite Home Viewer
Improvement Act of 1999,[Footnote 23] Congress created the Section 122
statutory license for satellite operators, which facilitates allowing
satellite operators to offer secondary transmission of local broadcast
signals to subscribers in a local market, also known as "local-into-
local" service.
Localism and FCC Carriage Requirements:
Localism is a policy which encourages local over-the-air broadcasting
and ensures that some programming is produced at the local level with
the local audience in mind. The concept of localism derives from title
III of the Communications Act, which instructs FCC to regulate
broadcasting in the public interest by, among other things, licensing
broadcast stations among communities as to provide a fair, efficient,
and equitable distribution around the country.[Footnote 24] Congress
has viewed localism as a primary legislative objective with television
broadcast stations serving as important sources of local news and
public affairs programming.[Footnote 25] As a result, FCC has long
required broadcast stations to air programming that is responsive to
the interests and needs of the communities to which they are licensed.
FCC has several carriage and programming rules which are designed to
support the provision of local content by television broadcast
stations and help ensure the survival of over-the-air
broadcasting.[Footnote 26] These rules set forth the conditions under
which cable and satellite operators carry television broadcast station
content. Some key rules that affect carriage and programming are
summarized below.
* Must carry and carry-one carry-all. The must carry and carry-one
carry-all rules address the right of local television broadcast
stations to have their signals carried by cable and satellite carriers
serving their markets. The must carry rule enables each commercial
television broadcast station to require each cable operator in its
local market to carry its signal.[Footnote 27] The choice to use must
carry is made every 3 years by commercial television broadcast
stations and applies to carriage within designated market
areas.[Footnote 28] Qualified noncommercial educational broadcast
television stations also may require mandatory carriage.[Footnote 29]
The carriage rights for qualified noncommercial television broadcast
stations apply within a statutorily designated mileage zone.[Footnote
30] Cable operators carrying stations under the must carry rule may
not accept or request any fee in exchange for coverage.[Footnote 31]
The "carry-one carry-all" rule is similar to the must carry rule but
reflects the fact that satellite operators provide a nationwide
service and were not required historically to provide secondary
transmission of local stations. Each satellite operator who chooses to
serve a particular local area (by offering local-into-local carriage
for any television broadcast station within a specific local market),
must also carry upon request the signal of all television broadcast
stations located within the same local market.[Footnote 32] Commercial
television broadcast stations may make these requests on the 3-year
cycle; noncommercial stations are included upon request. Generally, a
satellite carrier carrying a station under the carry-one carry-all
requirement may not accept or request any fee for carriage.[Footnote
33]
* Retransmission consent. Retransmission consent, which applies only
to commercial television broadcast stations, refers to permission
given by stations which do not choose must carry or carry-one carry-
all to allow a cable or satellite operator to make a secondary
transmission of their signals. Retransmission rights are negotiated
directly between a station and a cable or satellite operator and are
distinct from the right to perform copyright-protected programming
embodied in the signal. Prior to the 1992 Cable Act, cable operators
could retransmit local broadcast stations' signals without the
approval of the broadcasters and without compensating them. In 1992,
Congress determined that cable operators obtained great benefit from
the broadcast signals that they were able to carry without broadcaster
consent, which resulted in an effective subsidy to cable operators.
[Footnote 34] Retransmission consent recognizes the value of the
secondary transmission of local broadcasting signals as an important
property right of broadcast stations. By opting for retransmission
consent, commercial television broadcast stations give up the
guarantee of carriage with must carry in exchange for the right to
negotiate compensation for carriage. We have previously reported that
after the 1992 Act passed, negotiations for retransmission consent
generally involved "in kind" compensation to local broadcasters, such
as carriage of new, affiliated cable networks.[Footnote 35] However,
in recent years, financial compensation has become more common and
retransmission fees received by local stations have increased. SNL
Kagen, a media research firm, has projected these fees to increase
from $762 million in 2009 to more than $2.6 billion in 2016.[Footnote
36] FCC is reexamining its rules relating to retransmission consent
and has sought comment on a series of proposals to streamline and
clarify rules relating to retransmission consent negotiations.
[Footnote 37]
* Syndicated exclusivity. The syndicated exclusivity rule protects the
exclusive distribution rights of a commercial broadcast television
station or a distributor of syndicated programming[Footnote 38] within
a designated zone.[Footnote 39] Copyright owners of television
programming sell exclusive rights to air their programs to television
broadcast stations in each television market. For example, a program
could be licensed exclusively to one local station in New York, one
station in Los Angeles, one in Seattle, etc. However, because a cable
or satellite operator can provide its subscribers with broadcast
programming from other markets (the secondary transmission of distant
programming), the same program may be viewed on multiple channels,
which would threaten to dilute the value of the rights the television
broadcast station acquired to exclusively distribute the program in
its local area. The syndicated exclusivity requirements allow local
stations, which have purchased exclusive rights to a certain program,
to require a cable or satellite system to "black out" that program
when carried on a distant signal imported into the local station's
zone of protection.[Footnote 40] As part of its examination of
retransmission consent rules, FCC has sought comments on the potential
benefits and harms of eliminating its rules on syndicated exclusivity.
[Footnote 41]
* Network nonduplication. The network nonduplication rules protect a
local commercial or noncommercial broadcast television station's right
to be the exclusive distributor of network programming within a
specified area, and require programming subject to the rules to be
blacked out when carried on a distant signal imported by a cable or
satellite operator into the local station's zone of
protection.[Footnote 42] For example, if an NBC affiliate station
operates in the television market served by the cable system, the
cable system may not duplicate the network programming by importing
another NBC station (whether network owned or affiliated) carried on a
distant signal into that television market. FCC has also sought
comment on the potential benefits and harms of eliminating its rules
on network nonduplication.[Footnote 43]
* Sports blackout. These requirements protect a sport league's
distribution rights to live sporting events taking place in a local
market which, subject to appropriate notice, is not permitted to be
broadcast locally.[Footnote 44] If a local station does not have
permission to broadcast the local game, then no other broadcaster's
signal displaying the game can be carried by a cable or satellite
operator to subscribers in the protected local blackout zone.[Footnote
45] FCC adopted these rules based on its concern that sporting events
would be available to fewer viewers if sports teams refused to sell
their rights to local games to television stations serving distant
markets based on a fear of losing gate receipts if the local cable
operator imported the event on a distant station.[Footnote 46]
Financial Arrangements between Industry Participants:
There are multiple revenue sources that arise out of the financial
arrangements between television broadcast industry participants. Some
key revenue sources are summarized below.
* Advertising revenues. Both broadcast networks and television
broadcast stations earn the majority of their revenue selling
advertising time.[Footnote 47] Each 30 minutes of television
programming typically has about 7.5 minutes set aside for ads, which
are usually broken up into 30-second spots. That ad time is shared
between the network and the television broadcast station in terms of
which entity has the right to sell that ad time. The price for a 30-
second spot varies greatly. For example, a spot during a major
sporting event would be expensive, while spots at off-times of the day
might be inexpensive.
* Retransmission fees. In addition to revenues from advertising,
retransmission fees--paid by cable and satellite operators to
television broadcast stations that choose retransmission consent for
the right to retransmit their signals--have been a rising source of
revenue for television broadcast stations in recent years, as
discussed earlier. These fees are paid to the broadcast network in
cases where the television broadcast station is network owned and
operated. In cases where the television broadcast station is network
affiliated, the network can request that the station provide the
network with part of the retransmission fees received as part of the
negotiated affiliation agreement between the station and the network.
Retransmission fees are predicted to continue to grow, although they
are still a relatively minor source of broadcast station revenue
compared to advertising revenue.[Footnote 48]
* Copyright royalty fees. Copyright owners receive financial
compensation in exchange for the right to use their television
programming content, which may also be referred to as licensing fees.
When copyright owners negotiate with networks (or with television
broadcast stations) to grant the right to broadcast their content,
copyright royalty fees are a part of that negotiation. The level of
compensation depends on a number of factors such as, among others, the
potential or actual popularity of the program in question, and the
method in which the content will be aired. When copyright owners
negotiate with a broadcast network for the public performance rights
on television, the copyright negotiation typically only covers the
initial over-the-air broadcast, or primary transmission, of that show
by the television broadcast stations that are owned by or affiliated
with that network. The negotiation does not cover the secondary
transmission of the show by cable and satellite operators, even though
most of the show's viewers will in fact view the show through such a
subscription television service. However, the expected advertising
revenues that the network earns from the show airing will be based on
the combined audience that includes both viewers watching the station
over-the-air and cable and satellite subscribers. Therefore, the
larger audience will be the basis of the copyright owners'
negotiations for payment with the network. When cable or satellite
operators offer a secondary transmission of the show in the local
market, they do not need to also directly negotiate with the show's
underlying copyright owners, by virtue of the statutory license. On
the other hand, when copyright owners negotiate with a cable network
for the rights to perform and distribute their programming, the
negotiation covers all distribution rights of that programming by all
cable operators who will show it because cable is its primary
transmission medium. Figure 2 provides an illustration of the revenue
flows between the industry participants.
Figure 2: Revenue Flows in the Television Industry:
[Refer to PDF for image: illustration]
Content producers (e.g. Sony, Disney):
from:
* Broadcast networks (e.g. CBS, FOX) (Licensing fees ($) paid to
producers for rights to air content on broadcast TV;
* ($ to producers in exchange for rights to air syndicated programming
in respective local market areas;
* Cable and satellite operators (e.g. Comcast, DirecTV) (Copyright
royalty fees ($) to producers through the statutory licenses);
* Cable networks (e.g. ESPN, HBO) ($ to producers in exchange for
rights to distribute programming.
Broadcast networks (e.g. CBS, FOX):
from:
* Advertisers ($ to networks in exchange for advertising spots);
* Broadcast stations (Affiliated local TV stations compensate the
network in exchange for the right to air network programming in the
specific market area. In some instances the network may compensate the
local TV station for airing the programming).
Cable networks (e.g. ESPN, HBO):
from:
* Cable and satellite operators (e.g. Comcast, DirecTV) ($ to network
in exchange for right to carry the signal, includes the programming. In
some instances the network may compensate the cable and satellite
operators for carrying the signal);
* Advertisers ($ to networks in exchange for advertising spots).
Broadcast stations:
from:
* Cable and satellite operators (e.g. Comcast, DirecTV)
(Retransmission consent fees ($) for stations could be negotiated
(except must carry) for the right to carry the signal;
* Advertisers.
Cable and satellite operators (e.g. Comcast, DirecTV):
from:
* Advertisers ($ to cable and satellite operators in exchange for
advertising spots);
* Households (Subscription fees).
Advertisers:
from:
* Households (Households buy products from the clients of the ad
companies, which in turn pay the advertisers).
Source: GAO.
[End of figure]
Under Section 111, today, cable operators are required to pay
royalties for the secondary transmission of programming carried on
distant signals while paying very little for the secondary
transmission of programming carried on local signals.[Footnote 49]
Twice a year, cable operators submit to the Copyright Office
information about the local and distant broadcast channels that they
retransmit, along with set fees for the distant signals. Figure 3
shows the flows of programming content and revenues under the
statutory licenses.
Figure 3: Revenue and Content Flows Using the Statutory Licenses:
[Refer to PDF for image: illustration]
Nonlocal broadcaster/non-network station:
Fee: to Content producer;
Content: from Content producer;
Fee: Negotiations with Cable operator in local market.
Content producer:
Fee: Section 111 fee[A] to Cable operator in local market.
Local market[B]:
Cable operator:
Content: from local commercial broadcaster (must carry or
retransmission consent);
Fee: to local commercial broadcaster (if retransmission consent);
Content: from local noncommercial educational broadcasters (must
carry);
Fee: to content producer (Section 111 minimal fee)[A].
Local commercial broadcaster:
Content: from content producer;
Fees: to content producer.
Local noncommercial educational broadcasters:
Content: from content producer;
Fees: to content producer.
Source: GAO.
[A] Section 111 transactions flow through the U.S. Copyright Office,
not directly between the parties as illustrated here.
[B] Satellite operates in a similar manner, but operates under two
statutory licenses. The Section 122 license addresses local market
transactions and the Section 119 license addresses distant market
transactions.
[End of figure]
Under the statutory licenses, the copyright royalty fees are collected
by the Copyright Office and invested in government securities until
copyright owners can seek and participate in the process of allocating
the fees. Under the Copyright Act, the Copyright Royalty Judges are
responsible for determining the distribution of royalties and
adjudicating royalty claim disputes.[Footnote 50] Copyright owners
have historically submitted copyright claims through the following
claimant groups, who then allocate their share of the distribution to
their group members:
* program suppliers (commercial entertainment programming);
* joint sports claimants (professional and college sports programming);
* commercial television claimants (local commercial television
programming);
* public television claimants (national and local noncommercial
television programming);
* National Public Radio (noncommercial radio programming);
* devotional claimants (religious television programming);
* music claimants (musical works included in television programming);
and:
* Canadian claimants (Canadian television programming).
The most recent distribution order of cable royalty funds was issued
on October 13, 2011, when the Copyright Royalty Judges granted a
partial distribution of 50 percent of the 2009 cable royalty funds.
[Footnote 51] The distribution was granted to the claimant groups, as
shown table 1.
Table 1: Partial Distribution of 2009 Cable Royalty Funds by Claimant
Group:
Claimant group: Joint Sports Claimants;
Approximate distribution amount: $29,488,002.
Claimant group: Program suppliers;
Approximate distribution amount: $29,412,383.
Claimant group: U.S. commercial TV (National Association of
Broadcasters);
Approximate distribution amount: $14,039,260.
Claimant group: Public television claimants;
Approximate distribution amount: $5,661,501.
Claimant group: Music claimants;
Approximate distribution amount: $3,284,719.
Claimant group: Devotional claimants;
Approximate distribution amount: $2,965,199.
Claimant group: Canadian claimants;
Approximate distribution amount: $1,588,902.
Claimant group: National Public Radio;
Approximate distribution amount: $155,873.
Claimant group: Total[A];
Approximate distribution amount: $86,595,839.
Source: U.S. Copyright Office.
[A] The total does not match the actual distribution amount due to
rounding.
[End of table]
A Phaseout of the Statutory Licenses Could Render Must Carry and Carry-
one Carry-all Requirements Impractical, but Not Directly Affect Other
Requirements:
Absent the Statutory Licenses, Must Carry and Carry-one Carry-all
Requirements, as Currently Implemented, Would Not Be Practical:
If Congress phases out statutory licensing, cable and satellite
operators may have difficulty complying with the must carry and carry-
one carry-all rules. As previously mentioned, the must carry
requirements allow a qualified local station to require all cable
operators within its designated market area to carry its signal.
Somewhat similarly, the carry-one carry-all rules require satellite
operators to carry all local stations in a local market if they carry
any local station in that local market.[Footnote 52] The statutory
licenses facilitate this by allowing cable and satellite operators to
carry local programming without requiring them to negotiate with
individual copyright owners to clear copyrights. Eliminating statutory
licensing would remove this means of clearing copyrights and, unless
the must carry and carry-one carry-all rules were at least revised,
would leave cable and satellite operators in the seemingly paradoxical
situation where they would be required to transmit signals containing
copyrighted content that they might not be able to clear, or clear
only at a potentially significant burden and cost.
Based on comments of industry officials and experts we met with, we
identified two factors that would make acquiring rights to programming
impractical for cable or satellite operators.
* Transaction costs. One key factor is a potential for increases in
transaction costs. As mentioned previously, it is common for each
television program to have multiple copyright owners; these copyright
owners include, among others, network studios, independent producers,
songwriters and publishers, and professional and college sports
leagues. Since a typical programming day of a local television station
would likely include 20 or more programs, hundreds of copyright owners
may have claims for royalties for programs broadcast on any typical
day. Thus, for a cable operator to clear the copyright authorizations
for multiple local stations, the cable operator would likely need to
first identify and then negotiate licenses with thousands of copyright
owners. In the words of representatives of a public broadcasting
network, "... it would be impractical and unduly burdensome to require
every cable system to negotiate with every copyright owner whose work
was retransmitted by a cable system..."[Footnote 53]
* Holdouts. Several of the industry stakeholders we met with also told
us that, if cable and satellite operators had to directly clear the
copyrights for the underlying programming on the broadcast networks
they carry, the cost of doing so might be high because of the so-
called "holdout" problem. The holdout problem is a well-recognized
phenomenon in economic literature, which is usually discussed in the
context of real estate development. In the real estate scenario, this
problem can arise when a project requires a developer to acquire many
parcels of land from numerous owners. Because the success of the
entire project requires the acquisition of all the land parcels,
individual owners may recognize that "holding out" on the sale of
their own land will enable them to extract a price that is higher than
the stand-alone value of their land. If numerous owners of the needed
land parcels choose to hold out hoping to negotiate a high price, the
cost of the land for the project can be driven up substantially and
may even render the project financially unviable.
The potential for holdouts in negotiations for cable and satellite
carriage of broadcast programming is largely driven by the legal
requirement that, when must carry and carry-one carry-all apply, the
signal to be carried must be passed through the carrier's system
without modification.[Footnote 54],[Footnote 55] This means that the
cable or satellite operator has no option to delete any of the
programming that is aired on the local television station's signal,
and thus, all the copyrights must be cleared. As such, some
stakeholders we spoke with expressed concern that copyright owners
might have an incentive to hold out in an attempt to extract a
relatively high price for this secondary copyright clearance. More
specifically, a group representing rural cable and satellite operators
reported that if a cable or satellite operator has cleared some, but
not all, required copyrights, then any remaining copyright owners'
bargaining power increases, because, absent their consent, the cable
or satellite operator cannot distribute the signal's entire
programming lineup without risking copyright infringement.
Based on our work, we identified several options that might mitigate
the must carry, carry-one carry-all paradox. These options include
sublicensing, encouraging collective licensing, or allowing blackouts.
Other options include eliminating the must carry and carry-one carry-
all rules or taking no action at all, although these options could
have unintended consequences.
* Sublicensing. As part of the phaseout of statutory licenses,
Congress could require that broadcasters, at their expense,[Footnote
56] acquire copyright licenses sufficient to permit secondary
transmissions of their signals and to sublicense cable or satellite
operators as a condition for electing must carry or carry-one carry-
all carriage. Under this approach, broadcast stations would act as
copyright clearance agents. FCC, in an early study, stated that in the
absence of Section 111 (cable statutory license), television stations
would be able to acquire cable retransmission rights to "packages" of
the programming that they broadcast. It further stated that cable
operators could then negotiate with a single entity--the television
broadcast station--for carriage rights to each package.[Footnote 57]
Thus, cable and satellite operators would not have to go through the
process of identifying and negotiating with copyright owners,
minimizing the number of negotiations and subsequently the transaction
costs. While broadcasters would need to negotiate with copyright
owners for the additional rights needed for sublicensing, broadcasters
already negotiate with copyright owners for the primary transmission
rights and are less susceptible to holdouts, since the broadcaster is
not required to carry a copyright owner's content.
* Collective licensing. As part of a phaseout, Congress could choose
to facilitate the formation of collective-licensing agreements. Under
this approach, copyright owners would authorize one or more third-
party organizations to administer the public performance rights in
their respective works. The organizations representing the copyright
owners would negotiate licenses with cable and satellite operators and
collect and distribute the royalties among the copyright owners. This
type of collective licensing is currently used to administer copyright
licensing of musical works.
* Blackouts. As part of the phaseout of the statutory licenses,
Congress could choose to allow cable and satellite operators to black
out (not carry) programs on a station's program schedule if, after
making a good faith effort, they are unable to clear the secondary
copyrights to the programming. Allowing program-level blackouts would
mitigate the holdout risk for cable and satellite operators because
they could continue to carry the television broadcast signal while
electing not to carry specific programs in the station's channel
lineup if they are unable to negotiate an agreement with the secondary
copyright owners.[Footnote 58],[Footnote 59]
* Elimination of must carry and carry-one carry-all. As part of a
phaseout, Congress has the option to repeal the must carry and carry-
one carry-all statutes, and effectively allow cable and satellite
operators to carry or not carry local programming. However, repealing
the must carry and carry-one carry-all rules could undermine Congress'
policy of supporting localism in broadcasting because cable operators
and satellite operators could choose which, if any, stations to carry
in any market. As a result, cable and satellite operators might
discontinue carriage of some local stations, which would experience a
decline in advertising revenue since most households view stations
through cable or satellite service. This diminished advertising
revenue could affect these stations' long-term financial viability--
which could further affect the localism policy if viewers were to lose
access to local television news outlets. Additionally, certain niche
stations, such as stations broadcasting religious-oriented programming
as well as foreign language stations that appeal to fairly narrow but
diverse audiences in a market, might also be dropped.
In the past, Congress has relied on FCC to implement the must carry
and carry-one carry-all rules, and it could do so again. Depending on
how Congress decides to act, FCC might use its rulemaking authority to
adjust application of the must carry and carry-one carry-all rules.
For example, it can prescribe how stations will choose must carry and
might conclude that stations should be allowed to avail themselves of
must carry only if their choice includes an offer to sublicense
required performance rights and assume financial responsibility for
any inadvertent infringement. Comparable regulatory changes might be
considered in the case of satellite operators, creating a precondition
limiting automatic enforcement of carry-one carry-all rights unless
the local television station first offered similar protection to the
satellite carrier. Of course, generally, FCC rulemaking is subject to
possible judicial review.
In this regard, if Congress phased out the statutory licenses without
modifying existing requirements, cable or satellite operators might
seek to avoid involuntary copyright infringement by seeking
declaratory or injunctive judicial relief. The courts would have to
interpret and apply the law as Congress has modified it; relying on
the courts to handle issues Congress has not resolved raises the
possibility that there may be unforeseen consequences.
A Phaseout of Statutory Licenses Would Not Require FCC to Modify Other
Carriage Requirements:
FCC has a variety of other carriage requirements that our analysis
indicates would not require direct modification as a result of a
phaseout of statutory licenses. Specifically, retransmission consent
and exclusivity rules would not require any changes, as discussed
below.
* Retransmission consent. Commercial television broadcast stations can
pursue this option, discussed earlier, when they do not choose must
carry. The phaseout of the statutory copyright would not have as great
an impact on the functioning of retransmission consent, and thus this
element of the carriage requirements does not require attention by
Congress or FCC. When a commercial television broadcast station
chooses retransmission, a variety of issues may need to be negotiated
between the station and the cable or satellite operator. As part of
that negotiation, cable and satellite operators would likely attempt
to address any copyright clearance hurdles they might face. For
example, they might negotiate for the local broadcast station to
sublicense, so that all the copyrights for the secondary broadcast are
pre-cleared. If direct licensing (cable and satellite operators
negotiate with copyright owners) were used, the retransmission
agreement could include stipulations designed to reduce the likelihood
of any holdout problems. For example, stations and cable and satellite
operators could pre-agree that, if after a good-faith effort at
negotiations, a cable or satellite operator was unable to clear a
particular copyright, the operator could black out the television
program in question when the local station's signal is rebroadcast on
the operator's platform. While this would likely be viewed as
undesirable by the station and the cable and satellite operators, a
predetermined agreement of using a blackout as a possible solution to
a holdout problem would mitigate the chances of such problems arising.
Thus, the negotiating process between cable and satellite operators
and local commercial television broadcast stations under
retransmission consent agreements reduces the potential for severe
problems with holdouts.
* Exclusivity rules. These include network nonduplication, syndicated
exclusivity, and sports blackout[Footnote 60] that, as mentioned
earlier, were designed to protect local broadcasters from competition
with cable or satellite carriers importing distant signals which could
impact local broadcasters' advertising revenues. Also, network
nonduplication and syndicated exclusivity provide assurance to local
broadcasters that they can provide network or syndicated programming
in their community without having to compete with other stations
offering the same programming to a common audience. There is no causal
connection between statutory licensing and the exclusivity rules, or
the sports blackout rules, which have separate statutory origins.
Also, transaction costs and holdouts are not a factor with exclusivity
rules because these rules address which party can transmit a specific
program in a specific geographic area after the program rights have
been cleared.
The Effects of a Phaseout on the Market and Regulatory Environment Are
Uncertain:
Timeline for Conducting a Phaseout Is Uncertain:
In addition to deciding how to address issues we discussed in the
previous section, Congress may need to decide the approach to adopt
for phasing out the statutory licenses. The Copyright Office has
identified several potential approaches,[Footnote 61] but it is
uncertain which approach Congress would use if it were to phase out
the statutory licenses.
* Per-station approach. The per-station approach refers to a policy
that would sunset use of statutory licenses on a station-by-station
basis as each station achieved the ability to clear the public
performance rights for all of its programs. Under this approach, the
statutory licenses would become unavailable to cable and satellite
operators as stations obtained all the necessary rights to sublicense
their programming for secondary transmission as part of the
retransmission consent process. This approach leaves the existing
licenses in place for those stations that, in the short term, cannot
easily obtain the rights to the programming contained on their signal
and may be drawn out indefinitely if local stations are not willing to
participate by seeking the ability to clear all rights to their
programming. However, this approach is based on a negotiated consent
model (retransmission consent under current law) that does not apply
to noncommercial stations.
* Staggered approach. This approach would involve Congress
incrementally phasing out statutory licensing over a period of time.
For example, Congress could choose a date for eliminating the distant
signal licenses[Footnote 62] and choose a second date a few years
later for repealing the local licenses. This method would allow the
cable and satellite industries time to plan ahead and develop a
strategy for clearing the hundreds of potential public performance
rights daily with copyright owners of programming transmitted by
television broadcast stations in particular local markets.
* Statutory sunset approach. This approach would involve Congress
setting a hard date to simultaneously repeal all three statutory
licenses. For example, Congress could enact legislation that would
repeal the licenses effective as of January 1, 2015. However, the
Copyright Office has cautioned that terminating all licenses at the
same time could lead to large-scale channel lineup disruptions because
broadcast signals would likely be dropped by cable and satellite
operators unless a workable marketplace solution for clearing the
copyrights for secondary transmission were in place beforehand.
Method for Clearing Copyrights in a Post-Phaseout Market Is Uncertain:
The Copyright Office has also identified three possible alternatives
for clearing copyrights in a post-phaseout market.[Footnote 63]
* Sublicensing. In a sublicensing system, as we previously described,
television broadcast stations would obtain licenses for secondary
transmission performance rights on their programming lineup and
sublicense those rights to the cable and satellite operators through
retransmission consent or other negotiations, or by implication, if
the station chooses must carry or carry-one carry-all. As previously
mentioned, television broadcast stations currently ensure that the
primary copyrights are cleared for over-the-air transmission in the
respective local markets. If a sublicensing alternative were chosen,
then the stations would also ensure that copyrights are cleared for
the secondary transmission by cable and satellite operators in local
and possibly also in distant markets.
* Collective licensing. In a collective-licensing system, negotiations
about compensation for the secondary transmission of copyright-
protected programming would be conducted between organizations
representing the copyright owners on one side and the users of the
content, such as cable and satellite operators on the other. This type
of collective licensing is currently used to administer copyright
licensing of musical works. The American Society of Composers, Authors
and Publishers, Broadcast Music, Inc., and SESAC, Inc., represent
composers, songwriters, lyricists, and music publishers in
negotiations with users such as television and radio broadcasters,
cable systems and programming services, hotels, nightclubs,
universities, municipalities, libraries, and museums.
* Direct licensing. In a direct-licensing system, cable and satellite
operators would negotiate directly with the numerous copyright owners
for the right to perform the work publicly through the secondary
transmission of stations' programming.
If a phaseout were undertaken, Congress could require that industry
participants begin using a specific or combination of alternative
methods for clearing copyrights in secondary transmissions. On the
other hand, it could simply allow a new method or methods to emerge.
* A statutory phaseout could also create an opportunity for regulatory
changes to address not only the must carry, carry-one carry-all issue
raised earlier, but other issues as well. Ten out of 33 stakeholders
we interviewed--five cable and satellite operators and one related
industry association, one network, one copyright owner and two
academics--think the elimination of the statutory licenses creates an
opportunity for more sweeping changes to the structure of the industry
by moving most, if not all, negotiations to a free-market setting. In
their opinion, this would better reflect the new environment created
by a phaseout. Although their suggestions varied, the suggestions most
commonly presented by the stakeholders in our review fit into three
broad categories: modify or eliminate retransmission consent
requirements, modify or eliminate the exclusivity rules, and eliminate
all of the carriage requirements. Representatives from DirecTV told us
and noted in their recent comments to the Copyright Office that if a
phaseout were implemented, Congress should revisit the entire
regulatory structure governing broadcast programming, including all of
the broadcast carriage rules. They reasoned that the impetus for
phasing out the licenses is to transition toward an "open" market for
the distribution of copyright-protected works, but eliminating only
the licenses does not accomplish that goal. Specifically, in the
absence of the licenses, DirecTV advocates, at a minimum, the
elimination of the retransmission consent, must carry, carry-one carry-
all, and exclusivity rules, and network-affiliate arrangements to
reach an open market. They argue that in an open market, copyright
owners, distributors, and consumers would determine, through private
agreements, what programming would be available.[Footnote 64]
Potential Regulatory Changes in a Post-Phaseout Market Are Uncertain:
While some stakeholders advocated eliminating or modifying carriage
requirements, other stakeholders we met emphasized the importance of
maintaining the carriage requirements, even if a phaseout of the
licenses were implemented. Specifically, the majority of the
television broadcast networks and affiliated stations and related
industry associations we spoke with (five out of six) opposed the
elimination of the FCC carriage rules. Representatives from one of
these entities told us that the elimination of retransmission consent
would be extremely detrimental to television broadcast stations. They
explained that retransmission consent fees have become an important
revenue source for these stations given that network contributions to
stations have been declining. Further, they told us that the money a
station is able to keep from retransmission consent fees helps
support, among other things, local news and other local programming.
In addition to broadcasters, two of the six copyright owners in our
review also advocated for maintaining the exclusivity rules to help
protect the value of and access to their programming. In recent
comments to FCC, Sony Pictures Television explained that the
exclusivity rules provide broadcasters the option to negotiate for
enforceable programming rights in their markets, help ensure that
syndicators receive the appropriate market price for conveying
performance rights to broadcasters, and ultimately benefit consumers
by giving them access to diverse programming options. In the opinion
of representatives of Sony, without this mechanism for broadcasters
and syndicators to enforce exclusivity, the established system of
local broadcast programming distribution would be disrupted. The value
of television programming to a broadcaster is based on the amount of
advertising revenue it can generate, and if the same programming could
be viewed on an imported station from a distant market, the television
broadcast station could lose audience and advertising revenue. This
could reduce compensation to content producers and reduce the supply
of programming.[Footnote 65]
It is possible that Congress may deem other regulatory changes
desirable if the statutory licenses are phased out, but it is
difficult to determine which, due to the uncertainty of how the market
would develop without the statutory licenses.
The Effect of a Phaseout of the Statutory Licenses on Prices for Cable
and Satellite Television and Consumer Access to Programming Is Unclear:
The Effect of a Phaseout of Statutory Licenses on Consumer Prices Is
Unclear, as Several Factors Could Play a Role:
The effect of a phaseout on consumer prices for cable and satellite
television is unclear because the uncertainty about the post-phaseout
market and regulatory environment discussed above, and factors such as
whether copyright royalty payments increase, whether transaction costs
increase, and whether higher copyright royalty payments and
transaction costs ultimately lead to higher prices for cable and
satellite television.
Copyright Royalty Payments:
Five of the six copyright owners we interviewed believe that they are
not receiving the full market value of their copyright-protected
material in secondary transmissions in the current environment. To the
extent they may be correct, the phaseout of statutory licenses could
lead to an increase in overall copyright royalty payments.
Representatives of a major sports league told us they would be better
compensated for their content if Congress eliminated the statutory
licenses, because then compensation would be at market rates.
Additionally, representatives of two organizations that manage the
copyrights of musical works told us they believe that over the years
their copyright owners have been negatively impacted by the system of
statutory licensing. Further, they asserted that the copyright royalty
fees under the statutory licenses were initially set low by Congress
and the fees have never been fully renegotiated to reflect the
marketplace value of the copyright-protected works. Similar arguments
have been made by some copyright owners in Copyright Office
proceedings. An entity that represents owners of syndicated series,
movies, specials, and non-team sports broadcasts noted that the
statutory licenses harm copyright owners because they limit copyright
owners' control over their works and deny them fair-market value for
those works.[Footnote 66]
According to the Copyright Office, the 1998 conversion of Turner
Broadcasting System (TBS) from a superstation to a cable network may
provide some support for copyright owners' belief that their work is
undervalued.[Footnote 67] TBS was formerly a superstation carried
under the Section 111 (cable statutory license) and Section 119
(satellite statutory license for distant-into-local programming)
statutory licenses, but is now paid a per-subscriber licensing fee as
a basic cable network. After its transition to private licensing
thirteen years ago, TBS was able to negotiate higher per-subscriber
fees with cable operators, resulting in a marked increase in the value
of the underlying programming as evidenced by the higher subscriber
fees when unconstrained by the statutory licenses. Based on this and
other evidence, the Copyright Office has noted that secondary
copyright royalties would increase if the statutory licenses were
phased out.[Footnote 68] However, a cable association told us that
comparing TBS to other broadcast stations is inappropriate since
television stations and cable networks use very different business
models. For example, unlike the case with broadcast stations, cable
operators are able to obtain time slots on basic cable networks like
TBS to sell local advertisements, which can help offset the cost of
the cable networks to the operators.
Moreover, there is evidence that some copyright owners could be
receiving compensation closer to what they assert would be the fair-
market value of their content in secondary transmissions through other
payment flows, such as retransmission consent, in addition to the
statutory licenses. As previously mentioned, in recent years, some
local television stations have begun to receive financial compensation
in retransmission consent negotiations with cable operators. According
to industry stakeholders, some networks--which often are copyright
owners for the programming they produce--have also begun to request
that their affiliated television broadcast stations provide the
network with a portion of these retransmission fees, which may
ultimately flow back to the copyright owners.[Footnote 69]
Representatives of a broadcast network, representatives of an
association of cable and satellite operators, two copyright owners, an
industry expert, and an academic noted that at least some portion of
retransmission fees eventually flows to the copyright owners as an
additional form of compensation. In addition, in their recent comments
to the Copyright Office, the performance rights organizations
Broadcast Music, Inc. and the American Society of Composers, Authors
and Publishers reasoned that copyright owners, including networks that
supply some programming, are free to negotiate with broadcasters for a
share of the retransmission fees.[Footnote 70] Therefore, to the
extent the copyright royalty payment from the statutory licenses might
be below market value, the total payment that some copyright owners
receive could be comparable to market value, and overall copyright
royalty payments might not increase with a phaseout of the statutory
licenses.
Transaction Costs:
Depending on the market and regulatory environment that emerges after
the statutory licenses are phased out, transaction costs could
increase substantially. Transaction costs would likely be higher in a
direct-licensing system than in a collective-licensing or sublicensing
system, because cable and satellite operators would need to identify
and negotiate with all the relevant copyright owners, both of which
entail a transaction cost. Cable and satellite operators we spoke with
believe that transaction costs could increase substantially if direct
licensing emerges as the method of clearing copyrights in secondary
transmissions. In their recent comments to the Copyright Office, AT&T,
DirecTV, and Verizon asserted that because cable and satellite
operators do not control the broadcast content that they retransmit,
this would make it extremely difficult for them to identify all of the
copyright owners needed to clear copyrights under a direct-licensing
system, which would result in significant increases in transaction
costs for operators.[Footnote 71] Reflecting similar thoughts,
representatives of a cable operator told us that in a direct-licensing
system, operators would need to engage in individual negotiations for
each copyright-protected work contained in a program, representing a
significant increase in transaction costs. Finally, the Independent
Film and Television Alliance also noted in its recent comments to the
Copyright Office that direct licensing would increase its members'
transaction costs due to the increased number of negotiations that
would be required for licensing their content to users, many of whom
will not be able to expend the requisite additional resources to
completely or effectively administer the transactions.[Footnote 72]
Some stakeholders we interviewed--two cable and satellite operators,
one network, and one industry association--said that a sublicensing
system could help limit increases in transaction costs under a
phaseout because the television broadcast station or network would
identify and clear the primary and secondary copyrights with all the
copyright owners affected by their programming lineup before
negotiating with cable and satellite operators for carriage. A cable
operator told us that it would be possible for networks to establish
contracts that would encompass the copyrights associated with all
primary and secondary transmission of their programming. This would
decrease the extent of negotiations needed and the transaction costs
incurred. In addition, officials at a major broadcast network told us
that there is no market-based reason why broadcasters could not
negotiate with their copyright owners to clear all copyrights,
including the public performance rights for secondary transmission,
for all programming in their daily lineup. Further, they noted that
cable networks already sublicense all of their copyrighted content and
secure all the rights necessary for distributing cable programming.
However, other stakeholders we spoke with representing noncommercial
radio and television entities have reported that it is not reasonable
to expect local public television stations or their program providers
(such as Public Broadcasting Service, National Education
Telecommunications Association, and American Public Television) to
license cable and satellite secondary transmission rights from
copyright owners given their limited resources.[Footnote 73]
Similarly, representatives from a noncommercial broadcast entity told
us that if the Section 111 (cable statutory license) license were
phased out, its member stations would not have the administrative and
financial resources to manage the increased transaction costs, and
this would likely disrupt the secondary transmission of public radio
stations by cable operators.[Footnote 74]
Other stakeholders we spoke with--three representatives of copyright
owners and one cable operator--reported that a collective-licensing
system could also help limit increases in transaction costs.
Representatives of organizations administering copyrights for
musicians said that certain groups of copyright owners could form
their own licensing organizations for their content in the secondary
transmissions. They believe that such a system would reduce
transaction costs through the use of a blanket license, which would be
negotiated with entire industry groups and provide unlimited access to
content. The organizations would then distribute the secondary
copyright royalties based on their own distribution rules.
Representatives from the organizations stated that this process would
reduce transaction costs for both copyright owners and users of the
content. In contrast, the National Association of Broadcasters has
noted that the music organizations operate pursuant to consent decrees
that govern some core aspects of their licensing practices. In their
opinion, the process of establishing and operating such a system for
copyrights in secondary transmissions would undoubtedly lead to
litigation in federal courts, increasing transaction costs for the
copyright owners and users as this alternative licensing model
developed.[Footnote 75]
Relationship between Costs to Operators and Consumer Prices for Cable
and Satellite Television:
In general, an increase in costs to providers of a service will lead
to higher consumer prices for that service. The cable and satellite
operators we spoke with told us that any increases in their
transaction costs or costs for copyright royalty payments might be
passed on to consumers through higher subscription rates. However, two
of the three broadcast networks we interviewed said that consumer
prices may not increase or may increase only minimally if the costs to
cable and satellite operators increase. Representatives at a major
broadcast network told us that the overall amount of secondary royalty
payments and transaction costs to clear the secondary copyrights is
small compared to overall programming costs for cable and satellite
operators, and thus any increases in those would not be sufficient to
impact consumer prices. In another example, representatives at another
major network told us that secondary royalty payments are not a large
cost for cable operators and any increases do not necessarily need to
be passed on to consumers--instead, the cable operators could accept
lower margins. Based on empirical evidence, secondary royalty payments
overall appear to be a small portion of total programming costs to
cable operators. Using data we obtained from FCC and the Copyright
Office, we found that secondary copyright royalty payments as a
percentage of programming costs and gross receipts averaged one-tenth
of 1 percent or less for our selection of cable systems. Similarly,
using publicly available data and data we obtained from the Copyright
Office, we found that secondary copyright royalties for satellite
operators averaged less than one-half of 1 percent of programming
costs and gross receipts (see table 2)[Footnote 76]. Therefore,
depending on the size, increases in these payments would not
necessarily lead to significant increases in consumer prices.
Table 2: Copyright Royalties for Secondary Transmission as a
Percentage of Programming Costs and Gross Receipts in Calendar Year
2008:
Royalties as a percentage of programming cost;
Cable operators: .10%;
Satellite operators[A]: .34%.
Royalties as a percentage of gross receipts;
Cable operators: .01%;
Satellite operators[A]: .29%.
Source: GAO analysis of FCC, Copyright Office, and publicly available
data.
[A] The satellite operators include DirecTV and DISH Network.
[End of table]
The Phaseout of the Statutory Licenses Has the Potential to Increase
Programming Disruptions for Consumers, but the Overall Impact on the
Nature and Availability of Programming Is Unclear:
Programming Disruptions Could Increase:
In recent years, a number of instances have occurred where
broadcasters and cable operators were unable to reach agreement on the
carriage of the station's signal, resulting in a brief programming
disruption. For example, in March 2010, Walt Disney Co. and
Cablevision were unable to reach agreement on the carriage of WABC-
TV's signal in New York for almost 21 hours after a previous agreement
expired. As a result of this carriage impasse, the affected
Cablevision subscribers were unable to view the first 14 minutes of
the Academy Awards through their cable operator. Similarly,
Cablevision and News Corporation were involved in a retransmission
consent dispute that resulted in discontinued carriage for two FOX-
owned stations in New York (WNYW and WWOR), and one FOX-owned station
in Philadelphia (WTXF) from October 15, 2010, through October 30,
2010. This carriage impasse affected Cablevision subscribers, who were
unable to view on cable the baseball National League Championship
Series, the first two games of the World Series, a number of National
Football League regular season games, and other regularly scheduled
programming.
With a phaseout of the statutory licenses, the number of programming
disruptions like these could increase. This is because of the
potential for additional negotiations, both in number and the number
of parties involved, which could create more opportunities for lack of
agreement. Several stakeholders we spoke with--one broadcast network,
one local broadcast station, all cable and satellite operators and
related trade associations, and all noncommercial radio and television
entities--warned of increased program disruptions. Representatives
from a broadcast network told us that without the statutory licenses,
programming disruptions are likely to occur in greater numbers than
past disruptions--which resulted from failed retransmission consent
negotiations--given the additional number of negotiations. Similarly,
a satellite operator and trade association agreed that, without the
statutory licenses, negotiating impasses are likely, which could lead
to programming disruptions.
Overall Impact on Nature and Availability of Programming Is Unclear:
Some stakeholders we interviewed--representatives for a group of
copyright owners and an academic--said that a phaseout could increase
the quantity and quality of available programming. Representatives for
a group of copyright owners told us that if the statutory licenses
were phased out, copyright owners would have an opportunity to
increase their copyright revenues because these would now be privately
negotiated rather than set by the government. They further asserted
that in light of these additional financial incentives, copyright
owners would be more likely to create new and innovative programming.
Additionally, we identified several scenarios where the phaseout of
statutory licenses might affect the nature of programming:
* Under some scenarios, the phaseout of the licenses could have a
minimal effect on the nature and availability of programming. If must
carry requirements are modified through legislative or regulatory
changes and sublicensing became the mechanism used to clear secondary
transmission rights, the impact on consumer access to programming
could be minimal. As previously discussed, the modification of must
carry requirements and the use of sublicensing could limit the number
of holdouts and any potential increases to transaction costs, both of
which could affect the availability of programming if they are not
addressed. This scenario also assumes that the exclusivity rules would
be in place as an enforcement mechanism and continue to help protect
local programming by limiting the importation of distant signals.
* Under some scenarios, the phaseout could have a moderate effect on
consumer access to programming. For example, under a direct-licensing
system, transaction costs may increase, which may affect the
availability of some programming. Representatives from a public
interest group told us smaller copyright owners or those with less
popular programming would have limited leverage in negotiations with
cable and satellite operators, in part, because of increased
transaction costs. This could lead to a decrease in secondary
copyright royalty payments to these smaller copyright owners, which
could threaten their financial viability and result in a decrease of
programming diversity.
Should FCC modify its exclusivity requirements for carriage, cable
operators could be able to more freely import similar content from
outside the local market.[Footnote 77] Television broadcast stations
and a related trade association we spoke with are concerned about
maintaining FCC's exclusivity rules and preventing the importation of
distant signals if a phaseout occurs because television broadcast
stations are particularly reliant on advertising revenues.
Representatives from a television broadcast station told us that
without exclusivity requirements, some television broadcast stations
are likely to go out of business due to the loss of advertising
revenue. As a result, the policy of localism would be harder to
achieve because national networks or out-of-market stations are
unlikely to invest in local content, such as news coverage of mayoral
races.
* Finally, some other scenarios that may arise from the phaseout could
result in more dramatic effects. If a phaseout of the statutory
licenses were implemented and all carriage requirements were
eliminated, cable and satellite operators could bypass television
broadcast stations and acquire programming directly from broadcast
networks or directly from the producer (e.g., Comcast could negotiate
directly with the National Football League for content). Over half (18
of 33) of the stakeholders we spoke with--all five noncommercial radio
and television entities, three trade associations, two public interest
groups, four cable and satellite operators, two television broadcast
stations, one network, and one academic--noted that this could limit
the viability of television broadcast stations and their ability to
serve the interests of localism.[Footnote 78] Television broadcast
stations are not only heavily dependent on advertising revenue, but in
particular on the revenue generated from their more popular
programming. Thus, if broadcast networks were to license their most
popular content, such as prime-time television shows, directly to
cable and satellite operators, instead of television broadcast
stations, these stations could experience a precipitous drop in
advertising revenue if potential replacement programming is not as
popular.[Footnote 79] Representatives from a television broadcast
station and related trade association noted that the loss of
advertising revenue would increase the financial pressure on these
stations and threaten not only their ability to provide local news and
public service programming, but also their financial viability.
Agency Comments:
We provided a draft of this report to FCC and the U.S. Copyright
Office of the Library of Congress for comment. FCC and the U.S.
Copyright Office provided technical comments that we incorporated
where appropriate.
We are sending copies of this report to the Chairman of FCC, the
Register of Copyrights at the Library of Congress, and appropriate
congressional committees. In addition, the report will be available at
no charge on the GAO website at [hyperlink, http://www.gao.gov].
If you have any questions about this report, please contact me at
(202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. Major contributors to this report are listed in
appendix III.
Signed by:
Mark L. Goldstein:
Director, Physical Infrastructure Issues:
List of Committees:
The Honorable John D. Rockefeller IV:
Chairman:
The Honorable Kay Bailey Hutchison:
Ranking Member:
Committee on Commerce, Science, and Transportation:
United States Senate:
The Honorable Patrick J. Leahy:
Chairman:
The Honorable Chuck Grassley:
Ranking Member:
Committee on the Judiciary:
United States Senate:
The Honorable Fred Upton:
Chairman:
The Honorable Henry A. Waxman:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Lamar Smith:
Chairman:
The Honorable John Conyers, Jr.
Ranking Member:
Committee on the Judiciary:
House of Representatives:
[End of section]
Appendix I: Scope and Methodology:
To determine the potential implications to the Federal Communications
Commission's (FCC) regulations and the market and regulatory
environment if Congress were to phase out statutory licensing, we
reviewed laws, relevant reports, and related documentation to identify
the relevant FCC regulations and carriage requirements and goals
articulated in the Communications Act of 1934 (as amended),[Footnote
80] such as localism. We also conducted an economic and legal analysis
to determine how the statutory licenses interact with the relevant FCC
regulations and carriage requirements (such as must carry,
retransmission consent, syndicated exclusivity, network
nonduplication, and sports blackout), the economic rationale for the
licenses and copyright royalty fee structure, how the marketplace
would function without the statutory licenses, how a phaseout of the
licenses would affect carriage arrangements, and the implications for
FCC regulations and carriage requirements and related goals in the
Communications Act if Congress were to phase out the statutory
licenses.
To determine how a phaseout of the statutory licenses could impact
consumer prices for cable and satellite television service and access
to television programming, we analyzed FCC and U.S. Copyright Office
data to describe the relationships between the number and type of
broadcast stations carried, copyright royalty fees, programming costs,
and consumer prices. To generate descriptive statistics, we used
selected data elements from FCC's 2009 cable price survey data (as of
January 1, 2009), FCC's 2008 carriage data (as of the last week of
2008) from its cable television system report (also known as FCC Form
325), and the U.S. Copyright Office's 2008 Statements of Account Data
(as of December 31, 2008). Because the Copyright Office data were not
available in electronic format and limited resources, we took the
following steps to develop a sample for manual data collection. We
matched data records from FCC's cable price survey data with records
from FCC's 2008 carriage data (as of the last week of 2008) and
divided the matched dataset into thirds by the empirical distribution
of the number of subscribers (to the particular cable system in the
matched community). For each of the small, medium, and large
subscriber size categories, we selected the first 30 records from a
random sort of the matched data within this size category to use for
our data collection. We then reviewed the statements of account at the
Copyright Office and created our own database of copyright data.
Because FCC does not collect price and carriage information for
satellite operators, we obtained related price and carriage data from
the operators themselves and from their annual reports. We also
manually reviewed hardcopy files at the Copyright Office to obtain the
relevant data. We assessed the reliability of the data elements we
used from each data source by reviewing existing information about the
data and the system that produced them, and interviewing officials
from FCC and the Copyright Office about measures taken to ensure the
reliability of the information. On the basis of our review, we
determined that the data were sufficiently reliable for the purposes
of this report.
To address all the objectives, we conducted a literature review and
analyzed FCC's past and current regulations to, among other things,
determine how the licenses work, identify the statutory licensing
alternatives and potential approaches for a phaseout, as well as the
post-phaseout market and regulatory environment. Due to the
uncertainty of how the marketplace would function without the
statutory licenses, our analysis focused on potential scenarios and
factors that could impact FCC's rules and consumer prices and access
to programming. In addition, we conducted semi-structured interviews
with or obtained written comments from a variety of experts and
industry stakeholders, including academic, television broadcast
networks, cable and satellite operators, and copyright owners as shown
in table 3.
Table 3: Experts and Industry Stakeholders We Interviewed:
Stakeholder groups: Academics;
Stakeholders:
Bruce Owen, Stanford University.
Steve Wildman, Michigan State University.
Stakeholder groups: Television broadcast networks and affiliated
stations;
Stakeholders:
ABC;
CBS;
FOX;
WFAA.
Stakeholder groups: Cable and satellite operators;
Stakeholders:
AT&T;
Comcast;
DirecTV;
DISH Network;
Time Warner Cable;
Verizon;
Turner Broadcasting System.
Stakeholder groups: Copyright owners and representatives;
Stakeholders:
American Society of Composers, Authors, and Publishers:
Broadcast Music, Inc.
Major League Baseball;
Motion Pictures Association of America/Program Suppliers;
Recording Industry Association of America;
Sony Pictures Entertainment.
Stakeholder groups: Industry analyst;
Stakeholder:
Benjamin Swinburne, Morgan Stanley.
Stakeholder groups: Industry associations;
Stakeholders:
American Cable Association;
National Association of Broadcasters;
National Association of Religious Broadcasters;
National Cable and Telecommunications Association.
Stakeholder groups: Noncommercial radio and television;
Stakeholders:
Association of Public Television Stations;
National Public Radio;
Public Broadcasting Service;
WFYI, Public Radio and Television;
WGBH Educational Foundation.
Stakeholder groups: Public interest, nonprofit groups;
Stakeholders:
Media Access Project;
Public Knowledge;
Technology Policy Institute.
Stakeholder groups: Superstation;
Stakeholder:
WGN Superstation.
Source: GAO.
[End of table]
We selected the experts and stakeholders based on relevant published
literature, including Copyright Office filings and reports, our
previous work, and stakeholders' recognition and affiliation with a
segment of the broadcast industry (i.e., cable and satellite
operators, copyright owners, public interest groups, and so forth),
and recommendations from other stakeholders. We also spoke with
Copyright Office and FCC officials and reviewed the relevant laws,
regulations, literature, comments filed by stakeholders in various
Copyright Office and FCC proceedings, and Copyright Office and FCC
studies.
We conducted this performance audit from November 2010 through
November 2011 in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusion based on our audit
objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
[End of section]
Appendix II: Average Distribution of Channels on Cable Service Tiers
in 2009:
As shown in table 4, according to our analysis of a sample of FCC's
cable price survey, in 2009,[Footnote 81] cable operators offered an
average of 31 channels on the basic service tier and an average of 86
channels on the expanded basic service tier, which generally adds
programming from the most popular national cable networks. The
distribution of channels was similar among the categories except for
the average number of other channels, which is due to the increased
number of cable channels offered on expanded basic cable tiers.
Table 4: Average Distribution of Channels on Cable Service Tiers in
2009A:
Average number of local broadcast stations;
Basic service tier: 14;
Expanded basic service tier: 14.
Average number of public, educational, and government access channels;
Basic service tier: 3;
Expanded basic service tier: 3.
Average number of commercial leased access channels;
Basic service tier: 1;
Expanded basic service tier: 1.
Average number of other channels;
Basic service tier: 13;
Expanded basic service tier: 68.
Average number of channels;
Basic service tier: 31;
Expanded basic service tier: 86.
Source: GAO analysis of FCC data.
[A] FCC's 2009 cable price survey data are as of January 1, 2009.
[End of table]
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Mark Goldstein, (202) 512-2834 or goldsteinm@gao.gov.
Staff Acknowledgments:
In addition to the contact named above, Mike Clements, Assistant
Director, Amy Abramowitz, Carl Barden, Jessica Bryant-Bertail, Derrick
Collins, Bert Japikse, Michele Lockhart, Sara Ann Moessbauer, Josh
Ormand, Amy Rosewarne, and Don Watson made key contributions to this
report.
[End of section]
Footnotes:
[1] This is the right to perform the copyright-protected work in
public. 17 U.S.C. § 106(4).
[2] 17 U.S.C. §§ 111, 119, and 122.
[3] Statutory licenses permit the public performance of the copyright-
protected works in exchange for payment of royalties established using
processes defined by statute.
[4] Copyright claimants (program owners or their representatives)
include entities such as the Motion Picture Association of America,
the professional sports leagues (e.g., Major League Baseball, National
Football League, National Hockey League, and National Basketball
Association), performance rights organizations (American Society of
Composers, Authors and Publishers; Broadcast Music, Inc.; and SESAC,
Inc., formerly known as the Society of European Stage Authors and
Composers), commercial broadcasters, noncommercial broadcasters,
religious broadcasters, and Canadian broadcasters.
[5] In the Matter of Section 302 Report, Comments of Broadcast Music,
Inc. and the American Society of Composers, Authors, and Publishers
(Washington, D.C.: Apr. 25, 2011).
[6] Pub. L. No. 111-175, § 303(a), 124 Stat 1218, 1255-1256 (2010).
[7] Consistent with the requirements in STELA, we include, in
referring to cable and satellite operators, telecommunications
companies such as AT&T that distribute video programming to
subscribers for a fee and would be classified as multichannel video
programming distributors as used in 47 C.F.R. § 76.64(b). See
Communications Act (Act of June 19, 1934, ch. 652, 48 Stat. 1064, as
amended (codified as title 47, United States Code)), § 602, (47 U.S.C.
§ 522).
[8] Congress also required the Register of Copyrights to prepare a
report proposing mechanisms, methods, and recommendations for the
phaseout and eventual repeal of the statutory licensing requirements;
and FCC to prepare a report on in-state broadcast programming. See,
U.S. Copyright Office, Satellite Television Extension and Localism Act
§ 302 Report: A Report of the Register of Copyrights (Washington,
D.C.: Aug. 29, 2011) (Section 302 Report) and FCC, In the Matter of In-
State Broadcast Programming: Report to Congress Pursuant To Section
304 of the Satellite Television Extension and Localism Act of 2010
(Washington D.C.: Aug. 29, 2011).
[9] Act of June 19, 1934, ch. 652, 48 Stat. 1064, as amended (codified
as title 47, United States Code) (Communications Act).
[10] We interviewed a total of 33 stakeholders. Our selection of
stakeholders included 2 academics, 4 television broadcast networks and
affiliated stations, 6 cable or satellite operators, 1 cable network,
6 copyright owners, 1 industry analyst, 4 industry associations, 5
noncommercial radio and television entities, 3 public interest groups,
and 1 non-network station. This was a judgmental selection of
stakeholders and did not constitute a statistically representative
sample. See appendix I for a list of the stakeholders.
[11] Sony Pictures Entertainment is a subsidiary of Sony Corporation
of America, a subsidiary of Tokyo based Sony Corporation.
[12] Affiliated stations are stations not owned by major broadcast
networks, but provide broadcast networks use of specific time periods
for network programming and advertisement. For example, a station that
is affiliated with FOX has an agreement with the network that allows
it to show FOX programs at particular times of the day.
[13] Noncommercial educational television, other independent full
power, Class A, and low-power stations are unaffiliated with any major
network.
[14] Cable operators offer subscribers television programming through
different service tiers. The basic service tier is the lowest level of
cable service. Under the Communications Act, basic cable service means
any service tier which includes the retransmission of local television
broadcast signals. Communications Act, § 602(3) (47 U.S.C. §
522(3)).Cable operators also offer an expanded basic service tier,
which includes non-broadcast cable networks. Additionally, cable
subscribers can purchase digital tiers and premium pay channels, such
as HBO and Showtime, for an additional fee. Satellite carriers, on the
other hand, are not required to offer a basic service tier like cable
operators. Instead, they offer different packages of programming to
their subscribers.
[15] Section 302 Report, 13.
[16] GAO, Telecommunications: The Proposed Performance Rights Act
Would Result in Additional Costs for Broadcast Radio Stations and
Additional Revenue for Record Companies, Musicians, and Performers,
[hyperlink, http://www.gao.gov/products/GAO-10-826] (Washington, D.C.:
Aug. 4, 2010), 5.
[17] Codified as positive law in title 17, United States Code.
[18] In addition to public performance rights, copyright owners have
the right to do and to authorize others to do the following: reproduce
the copyright-protected work, prepare derivative works based upon the
work, distribute copies of the work to the public, and display the
copyright-protected work publicly. See 17 U.S.C. § 106.
[19] Section 111 overturned the result in two Supreme Court decisions,
Fortnightly Corp. v. United Artist Television, Inc., 392 U.S. 390
(1968), rehearing denied 393 U.S. 902, and Teleprompter Corp. v.
Columbia Broadcasting System, Inc., 415 U.S. 394 (1974), which held
that material included in secondary transmissions was not subject to
copyright protection under the 1909 copyright law. H. Rep. No. 94-
1476, 94th Cong., pp. 40-42, 1976 U.S.C.C.A.N. 5659, 5701-5702.
[20] In this context, transaction costs include the cost of
identifying and negotiating agreements with copyright owners.
[21] 17 U.S.C. §§ 119 and 122.
[22] Pub. L. No. 100-667, title II, Nov. 16, 1988, 102 Stat. 3949
(1988).
[23] Pub. L. No. 106-113, Div. B, § 1000(a)(9), Appendix I, title I,
§§ 1001 to 1012, 113 Stat. 1536, 1501A-521-545 (1999).
[24] Communications Act, § 307(b) (47 U.S.C. § 307(b)).
[25] Consumer Protection and Competition Act of 1992, Pub. L. No. 102-
385, § 2(a)(9) 106 Stat. 1460, 1461 (1992) (1992 Cable Act).
[26] FCC, Retransmission Consent and Exclusivity Rules: Report to
Congress Pursuant to Section 208 of the Satellite Home Viewer
Extension and Reauthorization Act of 2004 (Washington, D.C.: Sept. 8,
2005).
[27] Each cable operator's obligation to carry all stations within its
designated market area is dependent upon its total capacity; however,
the capacity of most modern cable systems has rendered these
distinctions largely meaningless.
[28] A designated market area is a geographic area defined by Nielsen
Media Research as a group of counties that make up a particular
television market. These counties comprise the major viewing audience
for the television stations located in their particular metropolitan
area.
[29] Among other things, a noncommercial educational broadcast
television station must serve the same must carry market as the cable
system on which it seeks carriage, deliver a good quality signal, and
not air duplicative programming. See 47 C.F.R. § 76.56(a). Under
specifically enumerated criteria, qualified low-power broadcast
television stations may also be eligible for mandatory carriage on
cable systems. 47 C.F.R. § 76.56(b)(3).
[30] Communications Act, § 615(i)(2)(A) (47 U.S.C. § 338(i)(2)(A)).
[31] Except for costs associated with delivering a good quality signal
for transmission and increased costs relating to distant signal
copyright indemnification. 47 C.F.R. § 76.60.
[32] Communications Act, § 615 (47 U.S.C § 338).
[33] 47 C.F.R. § 76.66(l).
[34] See 1992 Cable Act, § 2(a)(1992).
[35] GAO, Telecommunications: Issues Related to Competition and
Subscriber Rates in the Cable Television Industry, [hyperlink,
http://www.gao.gov/products/GAO-04-8] (Washington, D.C.: Oct. 24,
2003), 43.
[36] SNL Kagan is a research firm specializing in media and
communications. The SNL Kagan estimates were reported in Steven C.
Salop, Tasneem Chipty, Martin DeStefano, Serge X. Moresi, and John R.
Woodbury, "Economic Analysis of Broadcasters' Brinkmanship and
Bargaining Advantage in Retransmission Consent Negotiations," a study
prepared at the request of Time Warner Cable, June 3, 2010, and
included as an appendix In the Matter of Petition for Rulemaking to
Amend the Commission's Rules Governing Retransmission Consent, Reply
Comments of Time Warner Cable Inc., June 3, 2010.
[37] In the Matter of Amendment of the Commission's Rules Related to
Retransmission Consent, 26 F.C.C.R. 2718 (2011).
[38] Syndicated programming is non-network programming or post-network
programming (a rerun) that is licensed directly to individual
broadcast stations in more than one market.
[39] 47 C.F.R. §§ 76.101, 76.103, 76.123(b).
[40] 47 C.F.R. §§ 76.101-110, 76.120, and 76.123-125 and
Communications Act, § 339(b) (47 U.S.C. § 339(b)).
[41] In the Matter of Amendment of the Commission's Rules Related to
Retransmission Consent, supra, p. 2720.
[42] 47 C.F.R. §§ 76.92 and 76.122.
[43] In the Matter of Amendment of the Commission's Rules Related to
Retransmission Consent, supra, p. 2720.
[44] 47 C.F.R. §§ 76.111, 76.127, and 76.128.
[45] 47 C.F.R. § 76.128.
[46] Amendment of Part 76 of the Commission's Rules and Regulations
Relative to Cable Television Systems and the Carriage of Sports
Programs, 54 F.C.C. 2d 265, 281 ¶ 57 (1975).
[47] Ibid.
[48] Congressional Research Service, How Changes in the Economics of
Broadcast Television Are Affecting News and Sports Programming and the
Policy Goals of Localism, Diversity of Voices, and Competition
(Washington, D.C.: Oct. 20, 2010).
[49] Each cable system pays a minimum fee of at least $52, even if it
carries no distant signals.
[50] As provided by law. See 17 U.S.C. chapters 1 and 8.
[51] The distribution of copyright royalties can be delayed if a
proceeding before the Copyright Royalty Judges or other legal action
becomes necessary. In the Matter of Distribution of the 1998 and 1999
Cable Royalty Fund, Sixth Order, Docket No. 2008-1 CRB 98-99
(Copyright Royalty Judges, July 18, 2011).
[52] Carry-one carry-all is required by the Communications Act, §
338(a) (47 U.S.C. § 338(a)), which provides, "Each satellite carrier
providing, under section 122 of Title 17, secondary transmissions to
subscribers located within the local market of a television broadcast
station of a primary transmission made by that station shall carry
upon request the signals of all television broadcast stations located
within that local market …." In the Section 302 Report, the Register
of Copyrights states that section 338 would be effectively "null and
void" if section 122 (satellite license for local into local) is
repealed. Section 302 Report, 60. The Register's interpretation is an
appropriate reading of section 338, if the phrase "under section 122
of Title 17" is read as making section 338 dependent upon the
existence of 17 U.S.C. § 122. On the other hand, this phrase might
also be read as merely meant to bring attention to section 122, and
Congress in deciding to repeal section 122 could easily omit the
specific section 338 references to section 122, thereby clearly
extending the carry-one carry-all mandate. For purposes of this
report, therefore, we consider the possibility that section 338 may
continue to be law even in the absence of section 122.
[53] As quoted in "National Public Radio's Comments", p. 2, submitted
in response to Section 302 Report, Notice of Inquiry, 76 Fed. Reg.
11,816 (2011).
[54] Communications Act, §§ 614(b)(3)(A) and 615(g)(1) (47 U.S.C. §§
534(b)(3)(A) and 535(g)(1)).
[55] In the Matter of Carriage of Digital Television Broadcast
Signals, 16 F.C.C.R. 2598 (2001).
[56] Requiring broadcasters to acquire licensing for secondary
transmission of their programming would align royalty payments with
advertising revenue collection, which is currently not the case.
[57] In the Matter of Compulsory Copyright License for Cable
Retransmission, 4 F.C.C.R. 6711, 6712 (1989).
[58] This option may allow cable and satellite operators to evade
their must carry, carry-one carry-all responsibilities by negotiating
agreements only for programming they deem desirable.
[59] In comments to the Copyright Office, DirecTV asserted that
blacking out programming imposes costs on both the satellite carrier
(in monitoring and implementing such blackouts) and the viewer (who
would have paid for the channel but could not watch all of the
programming on the channel). Additionally, some entities have asserted
that blacking out programming imposes costs and is a difficult task
financially and operationally for smaller cable operators. See In re
Possible Mechanisms, Methods, and Recommendations for Phasing Out the
Statutory Licensing Requirements Set Forth in Sections 111, 119, and
122 of the Copyright Act, Comments of DirecTV (Washington D.C.: Apr.
25, 2011) and In the Matter of Section 302 Report to Congress,
Comments of the Rural MVPD Group (American Cable Association, National
Telecommunications Cooperative Association, Organization for the
Promotion and Advancement of Small Telecommunications Companies,
Western Telecommunications Alliance) (Washington, D.C.: Apr. 25, 2011).
[60] As noted earlier, FCC's sports blackout rule protects a sports
team's or sports league's distribution rights to a live sporting event
taking place in a local market. As with the network nonduplication and
syndicated exclusivity rules, the sports blackout rule applies only to
the extent the team or league has retained the right to limit viewing
of the sports event.
[61] Section 302 of STELA directed the Register of Copyrights to
submit recommendations to Congress to achieve the phaseout and
eventual repeal of Sections 111 (cable statutory license), 119
(satellite statutory license for distant-into-local programming), and
122 (satellite statutory license for local-into-local programming),
including proposals for timing and marketplace alternatives. The
Register recommended that Congress adopt the staggered approach. In
particular, the Register recommended that Congress provide a date-
specific trigger for the phaseout and eventual repeal of the distant
signal licenses (licenses for programming imported from distant
markets), but leave repeal of the local signal licenses (licenses for
local programming) to a later time. See, Section 302 Report, 139-140.
[62] Under current law, the distant statutory license under 17 U.S.C.
§ 119 will sunset on December 31, 2014. Sections 111 and 122 do not
sunset. Previous sunset provisions in section 119 were repealed and
the sunset date extended.
[63] See, Section 302 Report, 8.
[64] In re Possible Mechanisms, Methods, and Recommendations for
Phasing Out the Statutory Licensing Requirements Set Forth in Sections
111, 119, and 122 of the Copyright Act, Comments of DirecTV
(Washington D.C.: Apr. 25, 2011).
[65] In the Matter of Amendment of the Commission's Rules Related to
Retransmission Consent, Comments of Sony Pictures Television, Inc.
(Washington, D.C.: May 27, 2011).
[66] In the Matter of Section 302 Report, Program Suppliers' Comments
(Washington, D.C.: Apr. 25, 2011).
[67] At that time, TBS was categorized as a superstation (i.e., a
station not affiliated with a major network but carried by distant
operators). Superstations are now referred to in copyright law as non-
network stations.
[68] U.S. Copyright Office, Satellite Home Viewer Extension and
Reauthorization Act 109 Report: A Report of the Register of Copyrights
(Washington, D.C.: June 2008), 61-62.
[69] For those local television stations which are network owned and
operated, the network would not need to request the retransmission
fees from stations, as the network would automatically receive such
fees.
[70] In the Matter of Section 302 Report, Comments of Broadcast Music,
Inc. and the American Society of Composers, Authors, and Publishers
(Washington, D.C.: Apr. 25, 2011).
[71] In the Matter of Section 302 Report on Marketplace Alternatives
to Replace Statutory Licenses, Comments of the Independent Film and
Television Alliance (Washington, D.C.: Apr. 18, 2011).
[72] In the Matter of Section 302 Report to Congress, Comments of the
Public Broadcasting Service, Association of Public Television Stations
and WGBH Educational Foundation (Washington, D.C.: Apr. 25, 2011).
[73] In the Matter of Section 302 Report to Congress, Comments of the
Public Broadcasting Service, Association of Public Television Stations
and WGBH Educational Foundation (Washington, D.C.: Apr. 25, 2011).
[74] While the Section 111 license is generally associated with
secondary transmission of local television broadcast stations, the
license also enables the secondary transmission of radio station
signals by local cable television systems to many listeners who
otherwise would not receive them because of distance, terrain, or
other radio broadcast signal coverage issues.
[75] See In re Section 302 Report to Congress, Comments of the
National Association of Broadcasters (Washington D.C.: Apr. 25, 2011).
[76] We derived the results shown in table 2 from a dataset consisting
of secondary copyright royalties and programming costs for 66 cable
systems. Refer to appendix I for more detail on how we assembled this
dataset from FCC, the Copyright Office, and publicly available data.
[77] While FCC has considerable discretion in deciding how to modify
its cable exclusivity rules, adoption of the satellite network
nonduplication, syndicated exclusivity, and sports blackout rules was
mandated by statute, which may restrict FCC's options absent
legislative action.
[78] See appendix II for the distribution of television broadcast
stations and channels by cable programming tier.
[79] Broadcasters and other content providers already license some
content for performance over the Internet, bypassing local television
stations. See, Section 302 Report, supra, 127.
[80] Act of June 19, 1934, ch. 652, 48 Stat. 1064, as amended
(codified as title 47, United States Code).
[81] FCC, In the Matter of Implementation of Section 3 of the Cable
Television Consumer Protection and Competition Act of 1992:
Statistical Report on Average Rates for Basic Service, Cable
Programming Service, and Equipment (Washington, D.C.: Feb. 14, 2011).
[End of section]
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