Section 109 Report to Congress

\8\ Pursuant to SHVERA, satellite carriers were granted the right to retransmit out-of-market significantly viewed station signals to subscribers in the community in which the station is deemed significantly viewed, provided the local station affiliated with the same network as the significantly viewed station is offered to subscribers. Satellite carriers are not required to carry out-of-market significantly viewed signals, and, if they do carry them, retransmission consent is required. ---------------------------------------------------------------------------

Moreover, for the first time, the law distinguished between the retransmission of signals in an analog format and those transmitted in a digital format. SHVERA expanded the copyright license to make express provision for digital signals. In general, if a satellite carrier offers local-into-local digital signals in a market, it is not allowed to provide distant digital signals to subscribers in that market, unless it was offering such digital signals prior to commencing local-into-local digital service. If a household is predicted to be unserved by the analog signals of a network station, it can qualify for the digital signal of the distant network station with which the station is affiliated if it is offered by the subscriber's satellite carrier. If the satellite carrier offers local-into-local analog service, a subscriber must receive that service in order to qualify for distant digital signals. A household that qualifies for distant digital signal service can receive only signals from stations located in the same time zone or in a later time zone, not in an earlier time zone. SHVERA also provides for signal testing at a household to determine if it is ``served'' by a digital signal over-the-air. In some cases, if a household is shown to be unserved, it would be eligible for distant digital signals, provided the household subscribes to local-into-local analog service, if it is offered. However, this digital testing option was not available until April 30, 2006, in the top 100 television markets, and will be available by July 15, 2007, in all other television markets. Such digital tests also are subject to waivers that the FCC may issue for stations that meet specified statutory criteria. Unlike SHVIA, SHVERA did not determine the royalty rates during the five-year extension because representatives of satellite carriers and copyright owners of broadcast programming negotiated new rates for the retransmission of analog and digital broadcast station signals. See infra. A procedure was created to implement these negotiated rates and they were adopted by the Librarian of Congress in 2005. Section 122. The Section 122 license was enacted eleven years after the Section 119 license and was intended to make the satellite industry more competitive by permitting the retransmission of local television signals on a royalty-free basis. The license is permanent and its history is relatively non-controversial. In fact, satellite carriers have increasingly relied upon the license in the last seven years to provide local television signals to their subscribers in over 150 local markets. See n. 8, supra. Issues. As illustrated above, the statutory licenses were enacted by Congress, at various times, to respond to historical events and in response to technological developments. The key difference between the licenses is the relative rigidity of the applicable statutory language. Section 111 has effectively locked the cable industry into a royalty scheme tied to antiquated FCC rules (i.e. the local and distant signal carriage regulations in effect in 1976, but later repealed). On the other hand, Congress has been able to modify Section 119 to reflect current marketplace and legal developments because the license must be renewed every five years. We seek comment on the accuracy of our historical overview and ask if there are any other historical differences among the licenses that merit discussion.

b. Technological Differences

Cable systems and satellite carriers are technologically and functionally very different. Cable systems deliver video and audio (in analog, digital, and high definition formats), voice, and broadband services through fiber and coaxial cable to households, apartment buildings, hotels, mobile home parks, and local businesses. The cable industry has invested billions of dollars to upgrade transmission facilities over the last ten years so that cable systems are able to provide the services described above. Currently, cable operators offer separate tiers of traditional analog channels and newer digital channels to their subscribers, as well as premium services and video-on-demand. Despite system upgrades, some cable systems still lack channel capacity to offer all of the new programming services available. Although there are many large cable operators, each system is franchised to a discrete geographical area. Local or state franchise authorities have authority to condition a franchise grant on the operator's offering, see 47 U.S.C. 541, and most cable headends serve specific geographic regions. A cable system's terrestrial-based technology has allowed cable operators to specifically tailor delivery of distant broadcast signals to the needs of their subscriber base. Satellite carriers use satellites to transmit video programming to subscribers, who must buy or rent a small parabolic ``dish'' antenna and pay a subscription fee to receive the programming service. Satellite carriers digitally compress each signal they carry and do not sell separate analog and digital tiers as most cable operators now do. They have nationwide footprints and a finite amount of transponder space which currently limits the number of program services carried. To make the most use of available channel capacity, satellite carriers have begun to use spot beam technology to deliver local television signals into local markets, but they do not have the level of technical sophistication to provide distant station

Page 19048

signals on the same basis as cable operators. In any event, satellite carriers have recently launched, or plan to launch, new satellites in order to increase channel capacity and to offer much more high definition television programming to subscribers across the country. Because satellite television is a space-based technology, carriers are technically unable to provide the bundle of video, voice, and data in the same manner as cable systems. We seek comment on these and other technological differences relevant to this discussion.

c. Regulatory Differences

Copyright Act. There are a host of regulatory differences between the cable and satellite statutory licenses. As stated elsewhere in this NOI, Section 111 is grounded in old FCC rules while the regulatory structure of Section 119 has evolved every time it has been renewed. Cable operators are required to pay royalties based on gross receipts while satellite carriers pay a flat fee on a per subscriber basis. Also important to consider is that Section 119 does not make any distinction based on the size of the satellite carrier. Section 111, on the other hand, purposefully differentiates between large and small cable systems based upon the dollar amount of receipts a cable operator receives from subscribers for the carriage of broadcast signals. In 1976, Congress determined that the retransmission of copyrighted works by smaller cable systems whose gross receipts from subscribers were below a certain dollar amount deserved special consideration because they provide broadcast retransmissions to more rural areas. Therefore, in effect, the cable statutory license subsidizes smaller systems and allows them to follow a different, lower-cost royalty computation. Large systems, on the other hand, pay in accordance with a highly technical formula, principally dependent on how the FCC regulated the cable industry in 1976. Aside from these differences, and those noted elsewhere in this NOI, we seek input on other notable variations which are integral in this analysis. Communications Act and FCC Rules. At this juncture, it is important to note the differences between Section 122 of the Copyright Act and Section 338 of the Communications Act (the local-into-local regulatory paradigm) and the local broadcast signal carriage requirement for cable operators under the Communications Act. A satellite carrier has a general obligation to carry all television station signals in a market, if it carries one station signal in that market through reliance on the statutory license, without reference to a channel capacity cap. In contrast, a cable system with more than 12 usable activated channels is required to devote no more than one-third of the aggregate number of usable activated channels to local commercial television stations that may elect mandatory carriage rights. See 47 U.S.C. 534(b)(1)(B). A cable system is also obligated to carry a certain number of qualified local noncommercial educational television stations above the one-third cap. See 47 U.S.C. 535(a). Further, only cable operators, and not satellite carriers, have a legal obligation to have a basic service tier that all subscribers must purchase. See 47 U.S.C. 543(b)(7).\9\ But, Section 338(d) does requires satellite carriers to position local broadcast station signals on contiguous channels and are permitted to sell local television station signals on an a la carte basis. ---------------------------------------------------------------------------

\9\ In the context of analog broadcast signal carriage, it has been the FCC's view that the Communications Act contemplates there be one basic service tier. In the context of digital carriage, the FCC found that it is consistent with Section 623 of the Communications Act to require that a broadcaster's digital signal must be available on a basic tier such that all broadcast signals are available to all cable subscribers at the lowest priced tier of service, as Congress envisioned. According to the FCC, the basic service tier, including any broadcast signals carried, will continue to be under the jurisdiction of the local franchising authority, and as such, will be rate regulated if the local franchising authority has been certified under Section 623 of the Act. The FCC noted, however, that if a cable system faces effective competition under one of the four statutory tests found in Section 623, and is deregulated pursuant to an FCC order, the cable operator is free to place a broadcaster's digital signal on upper tiers of service or on a separate digital service tier. See Carriage of Digital Television Broadcast Signals, 16 FCC Rcd 2598, 2643 (2001). ---------------------------------------------------------------------------

The FCC has adopted a host of rules governing the exclusivity of programming carried by television broadcast stations. For example, the FCC's network non-duplication rules protect a local commercial or non-commercial broadcast television station's right to be the exclusive distributor of network programming within a specified zone, and require programming subject to the rules to be blacked out when carried on another station's signal imported by an MVPD into the local station's zone of protection. The FCC's syndicated exclusivity rules are similar in operation to the network non-duplication rules, but they apply to exclusive contracts for syndicated programming, rather than for network programming. The 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 non-duplication and syndicated exclusivity rules, the sports blackout rule applies only to the extent the rights holder has contractual rights to limit viewing of sports events. The SHVIA required the FCC to extend its cable exclusivity rules, including syndicated exclusivity, to satellite carriers but only with respect to the retransmission of nationally distributed superstations; however, the sports blackout rules apply to both superstations and network stations. See SHVIA Sec. 1008, creating 17 U.S.C. 339(b). We note that in the Copyright Office's Section 110 Report, there was considerable discussion concerning the fact that the syndicated exclusivity rules, sports blackout rules, and network non-duplication rules, do not apply to the retransmission of network station signals to unserved households by satellite carriers under Section 119. The Copyright Office found that a copyright owner's right to license its programming in a local market is threatened in the absence of these requirements. For this reason, the Copyright Office proposed that these rules extend beyond just superstations to also include the retransmission of network station signals to unserved households. See Satellite Home Viewer Extension and Reauthorization Act Sec. 110 Report, A Report of the Register of Copyrights (February 2006) at vii. We seek comment on these and other regulatory differences between cable operators and satellite carriers regarding the retransmission of broadcast station signals. How do these communications law-related requirements affect the royalties collected under the Sections 111 and 119 statutory licenses? Copyright Office. The Copyright Office has implemented the royalty fee structures of Sections 111 and 119 by adopting substantive and procedural rules in the Code of Federal Regulations. Section 201.11 of title 37 contains the licensing requirements for satellite carriers while Section 201.17 of title 37 contains the licensing requirements for cable operators. The Copyright Office has also adopted separate statement of account forms for satellite carriers and cable operators that comport with its rules. While Congress did not specifically request an analysis of the Copyright Office's rules and statement of account forms under Section 109, we seek comment on the structure and substance of the requirements and their effect on the competition between satellite carriers and cable operators.

3. Competitive Disadvantages

Congress asked for an analysis of whether the cable or satellite industry is placed in a competitive disadvantage

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due to the above-stated terms, conditions or circumstances. We first ask whether there are certain provisions found in Section 119, and not in Section 111, that affect competition between satellite carriers and cable operators. For example, cable operators, but not satellite carriers, may retransmit distant station signals without regard to whether its subscribers are able to receive local broadcast stations over-the-air. Does Section 119's unserved household limitation competitively disadvantage satellite carriers against cable operators? If so, should Congress correct this imbalance? We also note that Section 119's unserved household limitation has given rise to significant litigation between Echostar and the broadcast television networks. The case began nearly nine years ago and arose out of claims that Echostar was delivering network station signals to subscribers who were not eligible to receive such stations under Section 119. In May 2006, the United States Court of Appeals for the Eleventh Circuit upheld the district court's determination that Echostar had engaged in a ``pattern or practice'' of violating the unserved household limitation and found that, as a matter of law, it was required to issue a permanent injunction barring Echostar from delivering network station signals to any subscribers (served or unserved) pursuant to the Section 119 license. CBS v. Echostar, 450 F.3d 505 (11th Cir. 2006). The appellate court's decision specifically directed the district court to issue the required injunction. In August, 2006, after its efforts to appeal the Eleventh Circuit's ruling were rejected (but before the district court had implemented the appellate court's order), Echostar entered into a $100 million post-judgment settlement agreement with the affiliates of ABC, NBC, and CBS under which Echostar would, notwithstanding the appellate court's decision, be permitted to continue to provide network station signals to legitimately ``unserved'' customers. However, Fox did not join in the settlement and filed a motion with the district court demanding that it reject the settlement and implement the injunction as directed by the Court of Appeals. The district court agreed with Fox and rejected the post-judgment settlement. The court stated that it was bound by the Eleventh Circuit's decision and lacked the discretion to alter that court's clear mandate. The court emphasized the fact that, as the Eleventh Circuit found, Section 119 requires the issuance of a permanent nationwide injunction where it has been determined that a satellite carrier engaged in a ``pattern or practice''of statutory violations. The court also rejected Echostar's claim that the issuance of a permanent nationwide injunction preventing the delivery of distant affiliates of any of the Big Four networks (ABC, CBS, NBC, and Fox), even to households that could not receive over-the-air network station signals, would ``work a manifest injustice on consumers.'' According to the court, Congress made the determination in Section 119 that a permanent injunction is the appropriate remedy for the illegal acts committed by Echostar. The district court issued an order directing Echostar to cease all retransmissions of distant broadcast station signals affiliated with ABC, CBS, NBC, and Fox, effective December 1, 2006. See CBS v. Echostar, ---- F.Supp. 2d ----, 2006 WL 4012199 (S.D. Fla. Oct. 20, 2006). We seek comment on the effect that the court's injunction has had on Echostar and its subscribers. For example, how many subscribers has Echostar lost to a competing satellite carrier or to a local cable operator because it can no longer provide distant network station signals to its subscribers? Do any Echostar subscribers currently receive distant network station signals through a third party provider? Are subscribers disadvantaged because of the Echostar injunction or are there other options? We seek comment on other significant court cases, or pending litigation, that are relevant to our inquiry here. There are certain provisions found in Section 111, and not Section 119, that disadvantage satellite carriers. For example, are satellite carriers disadvantaged because they are unable to carry radio station signals under the Section 119 statutory license? Would it be appropriate for Congress to establish a satellite carrier statutory license for the retransmission of terrestrial radio station signals? Who would be harmed if Congress amended Section 119 to include the retransmission of local radio station signals? Alternatively, is there a continuing need for Section 111 to cover the retransmission of radio station signals? Are there any other provisions in Section 111, but not in Section 119, that create a competitive disparity between cable operators and satellite carriers? We ask whether cable operators are hobbled by the terms of Section 111 that are not found in, or are different from, Section 119. As noted elsewhere, Section 111 contains definitions, terms, and conditions that are based on the FCC's old carriage requirements. The term ``network station'' under Section 111, for example, is part of a regulatory construct from 30 years ago when ABC, CBS, and NBC were the only networks, while the ``network station'' definition found in Section 119 is more current and comparable to the FCC's current definitions.\10\ Fox, for example, is considered a network station for Section 119 purposes, but it is unclear whether it can be considered a network station for Section 111 purposes. Cable operators currently have to pay higher royalties for the retransmission of distant Fox station signals, as ``independent stations,'' than it would for distant ABC, NBC, or CBS station signals, that are ``network stations.'' Does this result disadvantage cable operators? Are there other terms in Section 111, and not Section 119, that competitively burden cable operators? ---------------------------------------------------------------------------

\10\ We note that both Paxson Communications and the NCTA have filed separate requests for clarification and rulemaking, respectively, on the scope of the network station definition under Section 111(f) of the Act. The Copyright Office has opened a proceeding to address Paxson's petition. See 65 FR 6946 (Feb. 11, 2000). The Copyright Office will soon be issuing a new NOI to elicit comment on NCTA's petition and to update the record on this subject.

--------------------------------------------------------------------------- C. Necessity of the Licenses

Congress has asked us to analyze whether the statutory licenses are still justified by their initial purposes. In this section, we describe the different purposes behind each license and ask if they are still valid today. We also seek comment on whether the licenses have been successful in furthering the goals they were designed to achieve. Section 111. As discussed earlier, before the Copyright Act was amended in 1976, cable operators had no copyright liability, and paid no fees at all, for the retransmission of either local or distant broadcast station signals. At the time, the FCC, the courts, and Congress, recognized the public benefits inherent in the delivery of distant signals by cable systems, but also recognized the property rights of the owners of content transmitted by broadcast stations. As such, the 1976 Copyright Act imposed liability for the first time, but it also provided cable operators an important and limited right to retransmit broadcast station signals without requiring the consent of copyright owners. Section 111 was enacted to respond to the needs of cable operators, who were much smaller at the time, and their subscribers, who valued the content transmitted by distant broadcast stations. In so doing, Congress recognized ``that it would be impractical and unduly burdensome to require every cable system to negotiate with every copyright owner whose work was transmitted by a cable system.''

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H.R. Rep. No. 1476, 94th Cong., 2d Sess. 89 (1976). Section 119. The satellite statutory license, adopted by Congress in the 1988 SHVA, was created to facilitate the delivery of broadcast network programming by satellite to (mostly rural) subscribers who, because of distance or terrain, were unable to receive a signal of at least Grade B intensity from a local television station affiliated with a particular television network. See, e.g., 134 Cong. Rec. 28,582 (1988) (``The goal of the bill...is to place rural households on a more or less equal footing with their urban counterparts.'') (remarks of Rep. Kastenmeier); 134 Cong. Rec. 28,585 (1988) (``This legislation will increase television viewing choices for many rural Americans.'') (remarks of Rep. Slattery). Section 119 of the Act had the dual purpose of: (1) enabling households located beyond the reach of a local affiliate to obtain access to broadcast network programming by satellite and (2) protecting the existing network/affiliate distribution system. H.R. Rep. No. 100- 887, Part 1 on H.R. 2848, 100th Cong., 2d Sess., at 8 (Aug. 18, 1988). Congressional intent, as expressed in the House Judiciary Committee Report on the 1988 bill, stated, ``The bill rests on the assumption that Congress should impose a compulsory license only when the marketplace cannot suffice.'' Id. at 15. Similarly, the House Energy and Commerce Committee Report called the satellite carrier license ``a temporary, transitional statutory license to bridge the gap until the marketplace can function effectively.'' H.R. Rep. No. 887, Part 2, 100th Cong. 2d Sess. 15 (1988). In 1994, the satellite carrier license was extended for another five years on the basis that ``a marketplace solution for clearing copyrights in broadcast programming retransmitted by satellite carriers is still not available.'' S. Rep. No. 407, 103d Cong. 2d Sess. 8 (1994). Section 119 was extended in 1999 and 2004 through the SHVIA and SHVERA, respectively, as described above. Section 122, which was enacted as part of the 1999 SHVIA, created a royalty-free statutory license for satellite carriers who wanted to carry the signals of local television stations. The provision was designed to promote competition among multichannel video programming distributors (i.e., satellite carriers and cable operators) while, at the same time, increase the programming choices available to consumers. See 145 Cong. Rec. H11811 (Nov. 9, 1999). Statutory licenses are an exception to the copyright principle of exclusive rights for authors of creative works, and, historically, the Copyright Office has only supported the creation of statutory licenses when warranted by special circumstances. With respect to the cable license, the special circumstance was initially the apparent difficulty and expense of clearing the rights to all program content carried by distant television stations. We seek comment on whether the circumstances that warranted creation of Section 111, as reflected in its legislative history, still exist. If so, how? With regard to the Section 119 satellite carrier license, we note that the special circumstance warranting its creation was to provide rural and unserved households with valuable broadcast service. Has this goal been met? If so, how? As for Section 122, its primary mission was to strengthen satellite's competitive position against the incumbent cable industry. Has this goal been met? If so, how? If the licenses are no longer justified upon the bases for which they were created, what should Congress do with them? Alternatively, are there any new justifications for the retention of the statutory licenses for cable and satellite carriers?

D. Effect on Subscribers

1. Rate Increases

Section 109 of the SHVERA requires us to analyze the correlation, if any, between the royalties, or lack thereof, under Sections 111, 119, and 122 and the fees charged to cable and satellite subscribers. This is an area that we have not fully explored in any of our past reports on the statutory licenses. Thus, the novel threshold issue is how to properly gauge subscriber rate increases if any, due to Sections 111, 119, and 122. We therefore seek comment on the appropriate methodologies to perform this type of analysis. As noted above, cable operators, depending on size, generally pay anywhere between .4% and 1.5% of their gross receipts as royalties to copyright owners. We seek comment on whether cable operators are passing off these costs to subscribers as programming cost increases. While we do not have specific cost figures for satellite carriers, we similarly ask whether they too are passing off the royalties paid under Section 119 to their subscribers. We reiterate here that all broadcast station signals must be carried on a cable system's basic service tier that must be purchased by all cable subscribers. Satellite subscribers, on the other hand, are not required by law to purchase a package of local or distant station signals. How does this circumstance affect the analysis here? We also seek comment on whether cable operators or satellite carriers are offering any distant broadcast station signals on an a la carte basis so that only those subscribers who wish to purchase them bear the cost of any possible rate increase arising under the royalty fee structure.

2. Rate Savings

Section 109 also requires us to address whether cable and satellite companies have passed to subscribers any savings realized as a result of the royalty structure and amounts under such sections. On this point, we note that our endeavor here is a difficult one because neither cable operators nor satellite carriers have been required to provide the Copyright Office with information regarding the costs of retransmitting distant broadcast station signals. Without such information, a determination as to whether ``savings'' are passed onto subscribers is hard to quantify. Further, the concept of ``savings'' is nonspecific and assumes a difference between actual and perceived cost. If what is meant by ``savings'' is the lesser fees that the cable and satellite industry pay by virtue of enjoying statutory licenses as opposed to negotiating private licenses, it must be remembered there are no private licenses precisely because of these licenses. In other words, it is difficult for us to determine what satellite carriers and cable operators might be paying for distant broadcast signals if they did not have statutory licensing. Without knowing the current marketplace rates for the retransmission of distant broadcast signals for cable and satellite, it is difficult to measure the value of ``savings'' that these industries enjoy as a result of statutory licensing. We do know, however, that any increases in the cost of local signals delivered by satellite carriers cannot be due to Section 122 because it is a royalty-free license. Given these circumstances, we seek comment on how to define the term ``savings'' and how to calculate if any ``savings'' have occurred under the existing regulatory structure, or may occur, through any proposed change in the licenses at issue. On this point, we seek comment on whether cable subscribers may realize ``savings'' if Congress were to adopt a flat fee structure or other change in the way royalties are calculated under Section 111. Further, is there any way to change the Section 119 license so that satellite subscribers may see a cost savings, if such are not evident today?

E. Application to Digital Signals

Page 19051

Section 109 of the SHVERA requires us to analyze issues that may arise with respect to the application of the licenses to the secondary transmissions of the primary transmissions of network stations and superstations that originate as digital signals, including issues that relate to the application of the unserved household limitations under Section 119, and to the determination of royalties of cable systems and satellite carriers. At this juncture, it is important to recognize the differences between analog television and digital television. Analog television technology, which has been available to consumers for over sixty years, essentially permits a television broadcast station to transmit a single stream of video programming and accompanying audio. Digital television technology, on the other hand, enables a television station to broadcast an array of quality high-definition digital television signals (``HD''), standard-definition digital television signals (``SD''), and many different types of ancillary programming and data services. In 1997, the FCC adopted its initial rules governing the transition of the broadcast television industry from analog to digital technology, and authorized each individual television station licensee to broadcast in a digital format. Advanced Television Systems and Their Impact on Existing Television Broadcast Service, 12 FCC Rcd. 12809 (1997). Since that time, hundreds of television stations have been transmitting both analog and digital signals from their broadcast facilities, and television stations may choose to broadcast in a ``digital-only'' mode of operation, pursuant to FCC authorization. See, e.g., Second Periodic Review of the Commission's Rules and Policies Affecting the Conversion to Digital Television, 19 FCC Rcd 18279, 18321-22 (2004). This dual mode of broadcast television operation will soon end as Congress has established February 17, 2009 as the date for the completion of the transition from analog to digital broadcast television. See Pub. L. No. 109-171, Section 3002(a), 120 Stat. 4 (2006). In 2006, the Copyright Office sought comment on several issues associated with the secondary transmission of digital television signals by cable operators under Section 111 of the Copyright Act. The Copyright Office initiated a Notice of Inquiry to address matters raised in a Petition for Rulemaking, filed jointly by several copyright owner groups, including the Motion Picture Association of America and sports rights holders. See 71 FR 54948 (Sept. 20, 2006) (``Digital Signals NOI''). Specifically, the copyright owners requested that the Copyright Office address recordkeeping and royalty calculation issues that have arisen in connection with the simultaneous retransmission of the signals of digital and analog broadcast stations by cable operators and whether and how cable operators should report the carriage of digital multicast programming streams on their SOAs. For example, they urged the Copyright Office to clarify that, if a cable operator chooses to carry a television broadcast station's analog and digital signals (either in high definition or as a multicast) that the cable operator should identify those signals separately in Space G on its SOA The Digital Signal NOI also sought comment on cable operator marketing and sales practices and equipment issues associated with the retransmission of digital broadcast signals that may result in possible changes to the Copyright Office's existing rules and the cable statements of account forms. For example, copyright owners requested that the Copyright Office clarify that a cable operator must include in its gross receipts any revenues from the tiers of service consumers must purchase in order to receive HDTV or other digital broadcast signals notwithstanding that the operator may market its offering of such digital signals as ``free.'' Comments and reply comments have been filed in the Digital Signals proceeding and the Copyright Office is currently analyzing the facts and legal arguments raised and addressed by the parties. In the Digital Signal NOI, the Copyright Office did conclude however, without relying on input from the parties, that there is nothing in the Copyright Act, its legislative history, or the Office's implementing rules, which expressly limits the cable statutory license to only analog broadcast signals. We find that the issues discussed in this proceeding, regarding the retransmission of distant digital signals by cable operators, are essentially the same type of issues Congress has directed us to address in the Section 109 Report. As such, we do not believe it is necessary to seek comment on those same issues here. Rather, we will incorporate by reference the issues and arguments raised by the parties in the pending proceeding as we move forward with the Report. However, if any party, for any reason, missed the opportunity to file comments in response to the Digital Signals NOI, or would like to clarify certain points already raised, they may do so in this proceeding or in response to any further notices that the Copyright Office may issue in the future pertaining to the retransmission of digital television signals. There are, however, some new questions we would like to raise here. For example, are digital television signals worth more or less in the marketplace? If so, how much and why? How should Congress treat the retransmission of digital low power and digital translator television station signals under Section 111? Should the language of Section 111 be substantially modified to take the retransmission of digital signals into account? Are there any other associated issues not yet addressed? With regard to Section 119, we note that in 2005, the Copyright Office codified an agreement reached between satellite carriers and copyright owners setting rates for the secondary transmission of digital television broadcast station signals under Section 119 of the Copyright Act. The agreement set rates for the private home viewing of distant superstation and network station signals for the 2005-2009 period, as well as the viewing of superstations in commercial establishments. See 37 CFR 258.4. The agreement specified that distant superstations and network stations that are significantly viewed, as determined by the FCC, do not require a royalty payment under certain conditions, in compliance with 17 U.S.C. 119(a)(3), as amended. In addition, the agreement proposed that, in the case of multicasting of digital superstations and network stations, each digital stream that is retransmitted by a satellite carrier must be paid for at the prescribed rate but no royalty payment is due for any program-related material contained in the stream within the meaning of WGN v. United Video, Inc., 693 F.2d 622, 626 (7th Cir. 1982) and Carriage of Digital Television Broadcast Signals, 20 FCC Rcd 4516 (2005) at 44 & n.158. See 70 FR 39178 (July 7, 2005). We seek comment on whether there are any new issues that we should be aware of regarding Section 119 and the retransmission of digital television signals. For example, how is the unserved household provision affected by the above agreement? What affect has the Echostar litigation had on the retransmission of distant digital television signals. What affect will the end of the digital transition in 2009 have on satellite carriers and the Section 119 statutory license? Given that Section 119 will expire about eleven months after the digital transition is scheduled to end, should the current version of the license be repealed in its entirety and replaced with one focusing only on the retransmission of distant digital television signals?

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As for Section 122, we believe that the digital transition will not significantly affect the operation of this license. However, it may well affect the ``carry-one carry-all'' provisions of Section 338 of the Communications Act. In January 2001, the FCC sought comment on what type of digital carriage rules it should apply to satellite carriers under Section 338. See Carriage of Digital Television Broadcast Signals, 16 FCC Rcd 2598, 2658 (2001). This matter has been pending before the FCC for the last six years. We cannot gauge the effect a digital ``carry-one carry-all'' will have on the Section 122 statutory licenses until the FCC establishes policy in this area.

F. The Future of the Statutory Licenses

While not specifically enumerated in the language of Section 109, the statute's legislative history instructs the Copyright Office, based on an analysis of the differences among the three licenses, to consider whether they should be eliminated, changed, or maintained with the goal of harmonizing their operation. We now seek comment on the future of the statutory licenses. As detailed above, the cable statutory license, enacted in 1976, represents a number of compromises and requirements necessitated by the technological and regulatory framework in existence at that time. Since 1976, it is generally recognized that the cable industry has grown considerably larger,\11\ and the video marketplace has evolved. It is also axiomatic that the license is based upon a defunct regulatory structure promulgated by the FCC in the 1970s. The Section 119 license, first enacted in 1988, was designed to allow satellite carriers to provide services comparable to cable to subscribers on the fringes of television markets. Congress intended for the license to sunset after a period of five years, but it has been renewed three times since 1988. Interestingly, rather than being phased out, the license has been significantly expanded over the years (e.g., more restrictions and conditions on the retransmission of network station signals to unserved households, the retransmission of significantly viewed signals, application to digital television signals, etc.) while DirecTV and Echostar have dramatically increased subscribership in non-rural areas of the country. Based on the preceding, and taking into consideration the issues outlined below, we ask whether Section 111 and Section 119 should be retained in their current state, restructured, or discarded altogether. ---------------------------------------------------------------------------

\11\ There are currently 65 million U.S. households that subscribe to cable television. See http://ncta.com/ncta--com/PDFs/ NCTAAnnual%20Report4-06FINAL.pdf. But see, Steve Donohue, Cable Penetration Hits 17-Year Low, Multichannel News, March 19, 2007(stating that there are 68.3 million cable television households according to Nielsen Media Research data). In comparison, there are about 29 million satellite television households. See http://www.directv.com (DirecTV has over 16 million subscribers) and http://www.dishnetwork.com (Echostar has have 13 million subscribers). ---------------------------------------------------------------------------

Retention. If retention is the proper option, we seek comment on why this would be the best approach. On this point, we note that while the cable and satellite industries have grown substantially over the last decade, neither has any control over the particular programs that broadcast stations provide to the public or how such programs are scheduled. Further, there are hundreds more television stations today, including analog and digital stations (with some splitting their signal into as many as five individual multicasts) than there were thirty years ago. In addition, there are now significantly more television stations and networks targeting the nation's growing Latino population. Is the public's interest in continued access to a variety of diverse distant broadcast signals a significant consideration that merits retention? Are smaller cable operators who serve less populated and/or lower income households still in need of the license? Are there any other facts supporting retention? Section 119 requires satellite carriers to phase out the retransmission of network station signals to unserved households in markets where they offer local-into-local service. Generally, a satellite carrier will be required to terminate network station service (to unserved households) to any subscriber that elected to receive local-into-local service and would be precluded from providing network station signals (to unserved households) to new subscribers in markets where local-into-local service is available. See 17 U.S.C. 119(a)(4). Assuming that Section 122 is retained, does it make sense to also retain Section 119, when in 2009, most television markets likely will be provided with local-into-local service by Echostar and DirecTV? Modification. If Section 111 were to be amended, we seek comment in support of this approach and on the scope of the proposed changes. On this point, we note that in 2006, the Copyright Office sought comment on several issues associated with cable operator reporting practices under the Copyright Office's regulations found in 37 CFR 201.17. The Copyright Office initiated a Notice of Inquiry to address matters raised in a Petition for Rulemaking filed jointly by several copyright owner groups. The Notice of Inquiry sought comment on proposals requiring additional information to be reported on a cable operator's SOA, particularly information relating to gross receipts, service tiers, subscribers, headend locations, and cable communities. The Notice of Inquiry also sought comment on the need for regulatory clarification regarding the effect of cable operator'' interest payments that accompany late-filed SOAs or amended SOAs. Finally, the Notice of Inquiry sought comment on the need to clarify the definition of the term cable ``community'' in its regulations to comport with the meaning of ``cable system'' as defined in Section 111. See 71 FR 45749 (Aug. 8, 2006). Comments and reply comments have been filed in response to this NOI and the docket remains pending. In this context, we ask whether the entire section should be amended to reflect the current marketplace (such as the advent of digital television described above) and the existing regulatory framework established by the FCC? Alternatively, should the amendments be limited to certain subject matter, such as the royalty fee structure? For example, should the royalty payment scheme of the license, based upon each cable system's gross receipts for the retransmission of broadcast signals, be simplified so as to remove reliance upon the old FCC rules? Under the Section 111 license, distant network station signals are currently paid for at a lower royalty rate (.25 DSE) than distant independent station signals (1.0 DSE). Should this disparity be eliminated, so that all stations are paid for at the same rate? Should Congress enact a flat fee royalty system for cable operators like that in place for satellite carriers? If so, how could Congress build into the flat fee structure a surrogate for the 3.75 percent rate for additional non-permitted distant signal retransmissions? Should the gross receipts requirements in the cable license be eliminated under a flat fee approach? Would a flat rate structure for determining royalties under Section 111 have any adverse consequences for copyright owners? Would such a restructuring be more disruptive than beneficial? Small cable operators may experience a significant increase in royalty payments under a flat fee system. This increase in turn could lead to a loss of broadcast service for rural cable subscribers that lack the variety of broadcast stations found in the top 100 television markets. We ask whether

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these concerns are justified. Are lower rates still needed as an inducement for small cable systems to retransmit distant signals to communities unserved or underserved by local broadcast stations? If not, should Congress eliminate the historical disparities between small and large cable systems contained within the Section 111 regulatory structure? For example, should the SA1-2 rate be aligned with the minimum SA-3 rate? Should the distinction between SA1-2 and SA-3 be eliminated? Is it possible for Congress to modify the subsidy for small cable systems under Section 111 in a way that is fair and equitable for both cable operators and copyright owners? The cable industry has experienced considerable marketplace change since 1997. The FCC's examination of the state of the cable industry in the last several years demonstrates that the cable industry has become far more concentrated and integrated. See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, 21 FCC Rcd 2503 (2006). Given this trend, should the cable statutory license be amended to address the significant amount of mergers and acquisitions in the cable industry over the last thirty years? At the same time, cable franchising authority has become more concentrated as well. We note that several states, such as California, have enacted new laws that transfer franchising authority from local governments to state governments. See Corey Boles, Verizon Gets California Video Franchise, Wall Street Journal, March 9, 2007, at B4. We ask whether and how statewide franchises affect the Section 111 license. Since the implementation of the cable statutory license by the Copyright Office in 1978, the cable industry has raised concerns about the ``cable system'' definition found in Section 111(f) of the Act. Recently, the NCTA petitioned the Copyright Office to commence a rulemaking proceeding to address cable copyright royalty anomalies arising from the current ``cable system'' definition as it has been implemented by the Copyright Office. In its Petition, NCTA states that where two independently built and operated systems subsequently come under common ownership due to a corporate acquisition or merger, the Copyright Office's rules require that the two systems be reported as one. Similarly, where a system builds a line extension into an area contiguous to another commonly-owned system, the line extension can serve as a ``link'' in a chain that combines several commonly-owned systems into one entity for copyright purposes. NCTA asserts that, in either of these cases, dramatically increased royalties can result. NCTA states that royalty obligations may increase as a result of the Copyright Office's policy of attributing carriage of a signal to all parts of a cable system, whether or not the station is actually carried throughout the system. In NCTA's view, a ``phantom signal'' event arises when a cable system pays royalties based on the carriage of the signals of distant broadcast stations after a cable system merger, even if those signals are not, and even may not be, delivered to all subscribers in the communities served by the cable system. Industry concerns about phantom signals have steadily increased as cable operators have merged and grown. While we may open an inquiry into this issue in the future, we nevertheless seek comment on whether Congress should amend Section 111 and provide a legislative solution to the problem. In 1997, the Copyright Office recommended that Congress amend Section 111(f) to define when two cable systems under common ownership or control are, in fact, one system for purposes of Section 111 in light of technological advances in headends and for other reasons. If a flat, per subscriber fee is not adopted, the same part of Section 111(f) should also be amended to calculate cable rates only on those subscriber groups that actually receive a particular broadcast signal. The Copyright Office believed that this recommendation would help eliminate the ``phantom signal'' problem. See 1997 Report at 46-47. We ask whether the cable license should be subject to renewal every certain number of years, perhaps in synchronization with the renewal of the satellite carrier statutory license. This would allow Congress to update Section 111 on a periodic basis and examine, in tandem with Section 119, whether the licenses are serving their intended purposes. Are there any drawbacks related to this proposal? With regard to reforming Section 119, we ask what particular sections should be modified. For example, should the unserved household provision be amended? Should the provision account for the recent distant network signal injunction involving Echostar? If so, how? The current satellite carrier license will expire at the end of 2009. Assuming that Section 119 remains a standalone provision, should the license be extended on a permanent basis, or is temporary extension still an appropriate solution? As discussed above, should the provisions directed at the retransmission of distant analog signals be replaced with ones directed at the retransmission of distant digital signals? Section 122 is a relatively noncontroversial provision that has served satellite carriers, broadcasters, and consumers well. In any event, we seek comment on whether this license should be modified, and if so, how? For example, does it need to be amended to reflect the retransmission of digital television signals? Could the license be improved to function better? Uniform License. We seek comment on whether Congress should instead adopt a uniform statutory license encompassing the retransmission of local and distant signals by both cable operators and satellite carriers. If such a license is recommended, how should it be structured? Would a uniform rate for the retransmission of distant broadcast signals, applicable to both cable operators and satellite carriers, effectively level competition among the providers? Would reporting of cable royalties be easier and less intrusive? What are the barriers regarding the formation of a single license? How would Section 122's provisions fit into a uniform license? Expansion. Content delivery technology has evolved and changed at an incredibly rapid pace since 1997 when the Copyright Office last examined the cable and satellite statutory licenses. Whereas ten years ago, the Copyright Office was concerned about open video systems and the Section 111 license, See 1997 Report at 62-76, today that delivery system and the concerns it generated seems antiquated. Currently, video programming streamed or downloaded through the Internet to computers, mobile devices, and digital television sets, are commanding the attention of the media and content industries. Given that we are obliged to provide Congress with recommendations based on current circumstances, we seek comment on whether the current statutory licensing schemes should be expanded to include the delivery of broadcast programming over the Internet or through any video delivery system that uses Internet Protocol. In the alternative, we ask whether licensing of discrete broadcast programming should be allowed to evolve in the marketplace. It is important to note here, that unlike cable systems and satellite carriers, Internet video providers do not own any transmission facilities; rather, they host and distribute video programming through software, servers, and computers connected to the Internet. There are currently three different technological paradigms for openly

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distributing video programming, including broadcast content, over the Internet. One method is to stream video content that may be accessed by anyone with an Internet connection. Youtube, Yahoo, MSN, AOL are the most popular distributors of streamed video content. The second method to deliver video content to end users is through server downloads. This type of delivery system has been used by such firms' as Apple's iTunes, CinemaNow, and MovieLink. The last method is peer-to-peer video delivery. This involves the sharing and delivery of user specified files among groups of people who are logged on to a file sharing network. BitTorrent and Joost deliver video content in such a manner. There are two prevailing business models that reign over these distribution technologies. Internet video programming distributors may adopt a download-to-own (or rent) model where users pay a fee to access content. Alternatively, they may provide content to end users under an ad-supported model, just like traditional commercial broadcast television. See Todd Spangler, BitTorrent Goes Legit With Online Store, Multichannel News, March 12, 2007, at 32. We recognize that the Internet is not analogous to the technologies originally licensed under Section 111, 119, and 122, but the move toward technological convergence and the advent of broadcast quality video over the Internet during the last five years calls for a close re-examination of the licenses at issue here. For example, Virtual Digital Cable (``VDC''), a new Internet video programming provider, currently offers multiple channels of video programming to subscribers across the United States and plans to carry local broadcast television stations as part of its service offerings. See http://www.vdc.com.; see also Bid to Put Local TV Signals Online Tests Internet Broadcast Rights, Communications Daily, July 19, 2006, at 6. Given the advent of VDC, and similar outlets such as TVU Networks (http://www.tvunetworks.co/index.htm), we seek comment on whether a new statutory license should be created to cover the delivery of broadcast signals over the Internet. If so, how could this be achieved? Could the availability of broadcast content distributed over the Internet be considered a ``retransmission'' as that term has been used in the Copyright Act? Would the answer to this question be different if the owner of the broadcast content, such as the television network, is delivering the content rather than a third party website? Would the retransmission of a broadcast station's signal implicate the reproduction right under Section 106 of the Copyright Act, in addition to the performance right, given that Internet retransmissions require the making of temporary copies on servers necessary for retransmission? Is there any evidence of marketplace failure requiring a statutory license to ensure the public availability of broadcast programming? There are also video programming distribution systems that use Internet Protocol technology (``IPTV'') to deliver video content through a closed system available only to subscribers for a monthly fee. AT&T, for example, currently uses IPTV to provide multichannel video service in competition with incumbent cable operators and satellite carriers. We seek comment on whether new types of video retransmission services, such as IPTV-based services offered by AT&T, may avail themselves of any of the existing statutory licenses. Must a new license be created, instead? We also seek comment on whether a statutory license for IPTV-based services, if confined to a closed system available only to subscribers in the United States, would violate any international agreements and treaty obligations. Recent advances in wireless technology have enabled the reception of video content on mobile telephones and similar devices. For example, Verizon Wireless, in partnership with MediaFLO USA, has recently introduced V Cast Mobile TV service in several markets across the United States. This service features a full complement of eight channels available to Verizon Wireless voice customers for an additional fee. Programming on V Cast Mobile TV is provided by CBS, NBC, Fox, ESPN, and others. AT&T's Cingular Wireless has announced that it too will offer mobile television service, in addition to wireless voice service, in the near future. See Rhonda Wickham, V Cast Mobile TV Goes Live, WirelessWeek, March 1, 2007; see also, Mike Shields, CBS, NBC and ESPN Unveil Plethora of New Mobile Content, Mediaweek, March 27, 2007. The mobile phone industry, including Verizon and AT&T, have not announced any plans to retransmit local or distant television station signals over their wireless networks. Nevertheless, we seek comment on whether Sections 111, 119, and 122 should be expanded to include the retransmission of broadcast signals over wireless networks and to mobile reception devices. Should there be a single new statutory license that encompasses the retransmission of broadcast signals for use by cable, satellite, IPTV, the Internet, and wireless networks/ mobile devices? Or, do the examples provided above demonstrate that the video marketplace is functioning smoothly and there is no need for a statutory license at all? Elimination. We seek comment on whether the licenses should be eliminated rather than expanded. As noted above, the cable industry has grown significantly since 1976, in terms of horizontal ownership as well as subscribership, and generally has the market power to negotiate favorable program carriage agreements. Given these facts, has Section 111 served its purpose and is no longer necessary? Do these factors alone merit the elimination of the license? DirecTV and Echostar did not serve any customers in 1988, but now count at least 27 million subscribers among the both of them. They, too, have the market power and bargaining strength to negotiate favorable program carriage agreements. Given these developments, should Section 119 also be phased out? A year ago, we concluded that the Section 119 license harms copyright owners because the current statutory rates do not reflect fair market value of the signals being transmitted. See Satellite Home Viewer Extension and Reauthorization Act Sec. 110 Report, A Report of the Register of Copyrights (February 2006) at 44-45. Is this an additional reason to eliminate Section 119? On the content side, we note that broadcast television networks, such as Fox and NBC, have begun to offer streamed network video content on their owned and operated websites. See Mike Shields, YouTube Faces Challenge, Mediaweek, March 22, 2007 (describing News Corp. and NBC Universal's new partnership to launch an Internet video distribution channel). Moreover, some affiliates of Fox plan to stream network and local content over the Internet into their local markets. See Harry Jessell, Affils To Offer Fox Shows On Local Web Sites, TVNEWSDAY, March 1, 2007. We seek comment on whether there are similar streaming arrangements being planned by other television broadcast networks. Is there any evidence that this type of video distribution model will become ubiquitous? If so, we ask whether statutory licenses are necessary when anyone with an Internet connection may watch broadcast television content without the need to subscribe to an MVPD.\12\ ---------------------------------------------------------------------------