Statement by David O. Carson
General Counsel, United States Copyright Office
Committee on the Judiciary
United States Senate
108th Congress, 2nd Session
May 12, 2004
Satellite Home Viewer Extension Act
Mr. Chairman, Senator Leahy, and distinguished members of
the Committee, I appreciate the opportunity to appear before you to testify
on the extension of the Satellite Home Viewer Improvement Act of 1999 and the
statutory license contained in section 119 of the Copyright Act. As you know,
the section 119 license enables satellite carriers to retransmit the signals
of over-the-air television broadcast stations to their subscribers for private
home viewing upon semi-annual payment of royalty fees to the Copyright Office.
Since its enactment in 1988, the Office has collected over $500 million in
royalties and distributed them to copyright owners of the over-the-air television
broadcast programming retransmitted by satellite carriers. The section 119
license, along with its counterpart for the cable television industry, the
section 111 license, have provided the means for licensing copyrighted works
to broadcast programming in the television retransmission marketplace.
The Statutory Licensing Regimes for Over-the-Air Broadcast Signals
There are currently three statutory licenses in the Copyright Act, title 17
of the United States Code, governing the retransmission of over-the-air broadcast
signals. A statutory copyright license is a codified licensing scheme whereby
copyright owners are required to license their works to a specified class of
users at a government-fixed price and under government-set terms and conditions.
There are one statutory license applicable to cable television systems and
two statutory licenses applicable to satellite carriers. The cable statutory
license, 17 U.S.C. § 111, allows a cable system to retransmit both local
and distant over-the-air radio and television broadcast stations to its subscribers
who pay a fee for such service. The satellite carrier statutory license in
section 119 of the Copyright Act, 17 U.S.C. § 119, permits a satellite
carrier to retransmit distant over-the-air television broadcast stations (but
not radio stations) to its subscribers for private home viewing, while the
statutory license in section 122 permits satellite carriers to retransmit local
over-the-air television broadcast (but not radio) stations to its subscribers
for commercial and private home viewing. The section 111 cable license and
the section 122 satellite license are permanent. The section 119 satellite
license, however, will expire at the end of this year.
It is difficult to appreciate the reasons for and issues relating to the satellite
license without first understanding the cable license that preceded it. Therefore,
I will describe the background of the cable license before addressing the satellite
1. The section 111 cable statutory license.
The cable statutory license, enacted as part of the Copyright Act of 1976,
applies to any cable televison system that carries over-the-air radio and television
broadcast signals in accordance with the rules and regulations of the Federal
Communications Commission (FCC). These systems are required to submit royalties
for carriage of their signals on a semi-annual basis in accordance with prescribed
statutory royalty rates. The royalties are submitted to the Copyright Office,
along with a statement of account reflecting the number and identity of the
over-the-air broadcast signals carried, the gross receipts from subscribers
for those signals, and other relevant filing information. The Copyright Office
deposits the collected funds in interest-bearing accounts with the United States
Treasury for later distribution to copyright owners of the over-the-air broadcast
programming through the procedure described in chapter 8 of the Copyright Act.
The development of the cable television industry in the second half of the
twentieth century presented unique copyright licensing concerns. Cable operators
typically carried multiple over-the-air broadcast signals containing programming
owned by scores of copyright owners. It was not realistic for cable operators
to negotiate individual licenses with numerous copyright owners and a practical
mechanism for clearing rights was needed. As a result, Congress created a statutory
copyright license for cable systems to retransmit over-the-air broadcast signals.
The structure of the cable statutory license was premised on two prominent
congressional considerations: first, the perceived need to differentiate between
the impact on copyright owners of local versus distant over-the-air broadcast
signals carried by cable operators; and, second, the need to categorize cable
systems by size based upon the dollar amount of receipts a system receives
from subscribers for the carriage of broadcast signals. These two considerations
played a significant role in evaluating what economic effect cable systems
have on the value of copyrighted works shown on over-the-air broadcast stations.
Congress concluded that a cable operator’s carriage of local over-the-air
broadcast signals did not affect the value of the copyrighted works broadcast
because the signal is already available to the public for free through over-the-air
broadcasting. Therefore, the cable statutory license essentially allows cable
systems to carry local signals for free. Congress also determined that distant
signals do affect the value of copyrighted over-the-air broadcast programming
because the programming is reaching larger audiences. The increased viewership
is not compensated because local advertisers, who provide the principal remuneration
to broadcasters enabling broadcasters to pay for programming, are not willing
to pay increased advertising rates for cable viewers in distant markets who
cannot be reasonably expected to purchase their goods and services. As a result,
broadcasters have no reason or incentive to pay greater sums to compensate
copyright owners for the receipt of their signals by distant viewers on cable
systems. The classification of a cable system by size, based on the income
from its subscribers, assumes that only the larger systems which import distant
signals have any significant economic impact on copyrighted works.
The royalty payment scheme for the section 111 license is complicated. It
stands in sharp contrast to the royalty payment scheme for the section 119
satellite carrier license which uses a straightforward flat rate payment mechanism.
To better understand the marked differences between the two licenses, it is
necessary to explain how royalties are paid under the section 111 cable license.
Section 111 distinguishes among three sizes of cable systems according to
the amount of money a system receives from subscribers for the carriage of
broadcast signals. The first two classifications are small to medium-sized
cable systems–Form SA-1's and Form SA-2's–named after the statement
of account forms provided by the Copyright Office. Semiannually, Form SA-1's
pay a flat rate (currently $37) for carriage of all local and distant over-the-air
broadcast signals, while Form SA-2's pay a fixed percentage of gross receipts
received from subscribers for carriage of broadcast signals irrespective of
the number of distant signals they carry. The large systems, Form SA-3's, pay
in accordance with a highly complex and technical formula, based in large part
on regulations adopted by the FCC that governed the operation of cable systems
in 1976, the year that section 111 was enacted. This formula requires systems
to distinguish between carriage of local and distant signals and to pay accordingly.
The vast majority of royalties paid under the cable statutory license come
from Form SA-3 systems.
The royalty scheme for Form SA-3 systems employs the statutory device of the
distant signal equivalent (DSE). The status of an over-the-air broadcast station
as either local or distant to a cable system is determined by application of
two sets of FCC regulations: the “must-carry” rules for over-the-air
broadcast stations in effect on April 15, 1976, and a station’s television
market as currently defined by the FCC. A signal is distant for a particular
cable system when that system would not have been required to carry the station
under the FCC’s 1976 must-carry rules and the system is not located within
the station’s local television market.
Cable systems pay for carriage of distant signals based upon the number of
distant signal equivalents (DSE’s) they carry. The statute defines a
DSE as “the value assigned to the secondary transmission of any nonnetwork
television programming carried by a cable system in whole or in part beyond
the local service area of a primary transmitter of such programming.” 17
U.S.C. § 111(f). A DSE is computed by assigning a value of one to a distant
independent over-the-air broadcast station, and a value of one-quarter to distant
noncommercial educational and network stations, which have a certain amount
of nonnetwork programming in their broadcast days. A cable system pays royalties
based upon a sliding scale of percentages of its gross receipts depending upon
the number of DSE’s it carries. The greater the number of DSE’s,
the higher the total percentage of gross receipts and, consequently, the larger
the total royalty payment.
As noted above, operation of the cable statutory license is intricately linked
with how the FCC regulated the cable industry in 1976. The FCC regulated cable
systems extensively, limiting them in the number of distant signals they could
carry (the distant signal carriage rules), and requiring them to black-out
programming on a distant signal where a local broadcaster had purchased the
exclusive rights to that same programming (the syndicated exclusivity rules).
In 1980, the FCC deregulated the cable industry and eliminated both the distant
signal carriage and syndicated exclusivity (“syndex”) rules. Cable
systems were now free to import as many distant signals as they desired.
The Copyright Royalty Tribunal, pursuant to its statutory authority, and in
reaction to the FCC’s deregulation, conducted a rate adjustment proceeding
for the cable statutory license to compensate copyright owners for the loss
of the distant signal carriage and syndex rules. This rate adjustment proceeding
established two new rates applicable only to Form SA-3 systems. 47 Fed. Reg.
52,146 (1982). The first new rate, to compensate for the loss of the distant
signal carriage rules, was the adoption of a royalty fee of 3.75% of a cable
system’s gross receipts from subscribers, for over-the-air broadcast
programming for carriage of each distant signal that would not have previously
been permitted under the former distant signal carriage rules.
The second rate, adopted by the Copyright Royalty Tribunal to compensate for
the loss of the syndex rules, is known as the syndex surcharge. Form SA-3 cable
systems must pay this additional fee when the programming appearing on a distant
signal imported by the cable system would have been subject to black-out protection
under the FCC’s former syndex rules.
Since the Tribunal’s action in 1982, the royalties collected from cable
systems have been divided into three categories to reflect their origin: 1)
the “Basic Fund,” which includes all royalties collected from Form
SA-1 and Form SA-2 systems, and the royalties collected from Form SA-3 systems
for the carriage of distant signals that would have been permitted under the
FCC’s former distant carriage rules; 2) the “3.75% Fund,” which
includes royalties collected from Form SA-3 systems for distant signals whose
carriage would not have been permitted under the FCC’s former distant
signal carriage rules; and 3) the “Syndex Fund,” which includes
royalties collected from Form SA-3 systems for carriage of distant signals
containing programming that would have been subject to black-out protection
under the FCC’s former syndex rules.
In order to be eligible for a distribution of royalties, a copyright owner
of over-the-air broadcast programming retransmitted by one or more cable systems
on a distant basis must submit a written claim to the Copyright Office. Only
copyright owners of nonnetwork over-the-air broadcast programming are eligible
for a royalty distribution. Eligible copyright owners must submit their claims
in July for royalties collected from cable systems during the previous year.
Once claims have been processed, the Librarian of Congress determines whether
there are controversies among the parties filing claims as to the proper division
of the royalties. If there are no controversies–meaning that the claimants
have settled among themselves as to the amount of royalties each claimant is
due–then the Librarian distributes the royalties in accordance with the
claimants’ agreement(s) and the proceeding is concluded. The Librarian
must initiate a Copyright Arbitration Royalty Panel (CARP) proceeding in accordance
with the provisions of chapter 8 of the Copyright Act for those claimants who
do not agree.
The section 111 statutory license is not the only means for licensing programming
on over-the-air broadcast stations. Copyright owners and cable operators are
free to enter into private licensing agreements for the retransmission of over-the-air
broadcast programming. Private licensing most frequently occurs in the context
of particular sporting events, where a cable operator wishes to retransmit
a sporting event carried on a distant broadcast station, but does not wish
to carry the station on a full-time basis. The practice of private licensing
is not widespread and most cable operators rely exclusively on the cable statutory
license to clear the rights to over-the-air broadcast programming.
2. The section 119 satellite carrier statutory license.
The cable statutory license was enacted as part of the Copyright Act of 1976
and is a permanent license. In the mid-1980's, the home satellite dish industry
grew significantly, and satellite carriers had the ability to retransmit over-the-air
broadcast programming to home dish owners. In order to facilitate this business
and provide rural America with access to television programming, Congress passed
the Satellite Home Viewer Act of 1988, Pub. L. No. 100-667 (1988), which created
the satellite carrier statutory license found in 17 U.S.C. § 119.
The section 119 license is similar to the cable statutory license in that
it provides a means for satellite carriers to clear the rights to over-the-air
television broadcast programming (but not radio) upon semi-annual payment of
royalty fees to the Copyright Office. The section 119 license differs from
the cable statutory license, however, in several important aspects. First,
the section 119 license was enacted to cover only distant over-the-air television
broadcast signals. In 1988, and for many years thereafter, satellite carriers
lacked the technical ability to deliver subscribers their local television
stations. Local signals are not covered by the section 119 license. Second,
the calculation of royalty fees under the section 119 license is significantly
different – and much simpler – than it is under the cable statutory
license. Rather than determine royalties based upon the complicated formula
of gross receipts and application of outdated FCC rules, royalties under the
section 119 license are calculated on a flat, per subscriber per signal basis.
Over-the-air broadcast stations are divided into two categories: superstation
signals (i.e., commercial independent over-the-air television broadcast stations),
and network signals (i.e., commercial televison network stations and noncommercial
educational stations); each with its own attendant royalty rates. Satellite
carriers multiply the respective royalty rate for each signal by the number
of subscribers who receive the signal during the six-month accounting period
to calculate their total royalty payment. Congress set the rate for a superstation
in 1988 at 12 cents per subscriber per month and the rate for a network station
at 3 cents per subscriber per month. These rates were based on an approximation
of what large Form SA-3 cable systems paid for these signals in the mid-1980's.
Third, while satellite carriers may use the section 119 license to retransmit
superstation signals to subscribers located anywhere in the United States,
they can retransmit network signals only to subscribers who reside in “unserved
households.” An unserved household is defined as one that cannot receive
an over-the-air signal of Grade B intensity of a network station using a conventional
rooftop antenna. 17 U.S.C. § 119(d). The purpose of the unserved household
limitation is to protect a local network broadcaster whose station is not provided
by a satellite carrier from having its viewers watch another affiliate of the
same network on their satellite television service, rather than watch the local
The section 119 satellite carrier statutory license created by the Satellite
Home Viewer Act of 1988 was scheduled to expire at the end of 1994, at which
time satellite carriers were expected to be able to license the rights to all
over-the-air broadcast programming that they retransmitted to their subscribers.
However, in 1994 Congress reauthorized the section 119 license for an additional
five years. In order to assist the process of ultimately eliminating the section
119 license, Congress provided for a Copyright Arbitration Royalty Panel (CARP)
proceeding to adjust the royalty rates paid by satellite carriers for network
stations and superstations. Congress also changed the standard for setting
the satellite royalty. Unlike the original standard, and unlike the royalties
for cable systems, which pay fixed royalty rates adjusted only for inflation,
the standard set by Congress in 1994 mandated that satellite carrier rates
should be adjusted to reflect marketplace value. It was thought that by compelling
satellite carriers to pay statutory royalty rates that equaled the rates they
would most likely pay in the open marketplace, there would be no need to further
renew the section 119 license and it could expire in 1999.
The period from 1994 to 1999 was the most tumultuous in the history of the
section 119 license. The satellite industry expanded its subscriber base considerably
during this time and provided many of these subscribers with network stations
in violation of the unserved household limitation. Broadcasters issued challenges,
lawsuits were brought, and many satellite customers had their network service
terminated. Angry subscribers wrote their congressmen and senators protesting
the loss of their satellite-delivered network stations, focusing attention
on the fairness and application of the unserved household limitation. In the
meantime, the Library of Congress conducted a CARP proceeding to adjust the
royalty rates paid by satellite carriers. Applying the new marketplace value
standard as it was required to do, the CARP not surprisingly raised the rates
considerably. The satellite industry, with less than 10 million subscribers,
was required to pay more in statutory royalty fees than the cable industry,
which had nine times the number of subscribers. The satellite industry and
its customers were irate.
Congress’s response to the furor over the section 119 license was the
Satellite Home Viewer Improvement Act of 1999. The Act codified a new vision
for the statutory licensing of the retransmission of over-the-air broadcast
signals by satellite carriers. The heart of the conflict over the unserved
household limitation – indeed, the reason for its creation – was
the inability of satellite carriers (unlike cable operators) early on to provide
their subscribers with their local television stations. By 1999, satellite
carriers were beginning to implement local service in some of the major television
markets in the United States. In order to further encourage this development,
Congress created a new, royalty-free license. Congress also made several changes
to the unserved household limitation itself. The FCC was directed to conduct
a rulemaking to set specific standards whereby a satellite subscriber’s
eligibility to receive service of a network station could accurately be predicted.
For those subscribers that were not eligible for network service, a process
was codified whereby they could seek a waiver of the unserved household limitation
from their local network broadcaster. In addition, three categories of subscribers
were exempted from the unserved household limitation: owners of recreational
vehicles and commercial trucks, provided that they supplied certain required
documentation; subscribers receiving network service which was terminated after
July 11, 1998, but before October 31, 1999, and did not receive a strong (Grade
A) over-the-air signal from their local network broadcaster; and subscribers
using the old-style large C-band satellite dishes.
In reaction to complaints about the outcome of the 1997 CARP proceeding that
raised the section 119 royalty rates, Congress abandoned the concept of marketplace
value royalty rates and reduced the CARP-established royalty fee for network
stations by 45 percent and the royalty fee for superstations by 30 percent.
Finally, the Satellite Home Viewer Improvement Act of 1999 extended the revised
section 119 statutory license for five years – until midnight on December
31 of this year.
3. The section 122 satellite carrier statutory license.
The section 122 satellite carrier statutory license completes the regime for
satellite retransmission of over-the-air television broadcast stations. While
the section 111 license permits cable systems to retransmit both local and
distant over-the-air television broadcast signals, such a privilege is parsed
among two statutory licenses for the satellite industry. As discussed above,
the section 119 license covers retransmissions of distant signals. The section
122 license, first enacted in 1999, covers the retransmission of local signals
and, unlike the section 119 license, is permanent. The section 122 license
is royalty free, and is conditioned on a satellite carrier carrying all local
over-the-air television stations within a given market. In other words, a satellite
carrier may not pick and choose which stations in a given local market it wishes
to provide to its subscribers residing in that market.
Should the Section 119 License be Extended?
The Copyright Office has traditionally opposed statutory licensing for copyrighted
works, preferring instead that licensing be determined in the marketplace by
copyright owners through the exercise of their exclusive rights. However, in
the Office’s report to the Senate and House Judiciary Committees before
to the passage of the Satellite Home Viewer Improvement Act of 1999, we stated
that “the satellite carrier industry should have a compulsory [statutory]
license to retransmit broadcast signals as long at the cable industry has one.” A
Review of the Copyright Licensing Regimes Covering Retransmission of Broadcast
Signals (Report of the Register of Copyrights, August 1, 1997) at 33. Nothing
has changed since 1997 to alter this point of view, and there is no reason
that would justify retaining the section 111 cable statutory license while
abandoning the section 119 satellite carrier statutory license. Consequently,
the Copyright Office supports extension of section 119 at this time.
Should There be a Royalty Adjustment?
A statutory license is an abrogation of the exclusive rights granted to copyright
owners under section 106 of the Copyright Act. When, in the view of the Congress,
it is necessary to enact a statutory license, the Copyright Office is of the
firm position that copyright owners whose works are subject to the license
should be compensated fairly for their use. Fair compensation is, in our view,
the price of a license that a willing buyer and a willing seller would negotiate
in the open marketplace – i.e., fair market value.
The Copyright Arbitration Royalty Panel (CARP) that adjusted the section 119
satellite rates in 1999 applied the fair market value standard then set forth
in the law and determined the royalty fee for a superstation and a network
station to be 27 cents per subscriber per month for each signal. The Librarian
of Congress and the United States Court of Appeals for the District of Columbia
Circuit upheld this determination, but satellite carriers and many of their
subscribers objected, and when Congress reauthorized the section 119 license
in 1999, the fair market value rates determined by the CARP were reduced by
45 percent for network stations and 30 percent for superstations. These rates
have remained in effect for the last five years without any adjustment.
One proposal for adjustment of the section 119 rates is to provide for a cost
of living adjustment over the last five years, followed by an annual cost of
living adjustment. We believe that such an adjustment by itself is advisable
and fair. However, a cost of living adjustment will not raise the section 119
rates to a level commensurate with fair market value, which should be the effective
standard for adjusting section 119 royalty rates. Consequently, the Office
supports inclusion of a provision to permit a new determination of the fair
market value of broadcast programming retransmitted by satellite carriers and
to set new royalty rates based on that fair market value.
Should Satellite Carriers be Permitted to Provide Subscribers with their Significantly
Viewed Television Broadcast Stations?
One issue that has received particular attention during this session involves
satellite delivery of “significantly viewed” over-the-air television
broadcast stations. Before addressing the merits of permitting carriers to
deliver such signals, a brief discussion of the history and concept of significantly
viewed stations is in order.
As discussed above, the cable statutory license was created at a time when
the Federal Communications Commission heavily regulated the number and character
of television signals that a cable system could carry. Cable systems were required
to carry local stations and, depending upon their particular circumstances,
could carry up to three distant stations. However, additional distant stations
could be carried provided that they were “significantly viewed” in
the communities served by the cable system. The FCC determined when a broadcast
station was significantly viewed in a particular community, relying on measurement
of over-the-air viewing of the signal in the community in combination with
several other factors. The significantly viewed station list was created in
1972 and has been added to throughout the years, most recently in 2000. Both
television broadcasters and cable operators are permitted to petition the FCC
for a determination as to whether a particular broadcast station is significantly
viewed in one or more communities.
The concept of “significantly viewed” has import for the cable
copyright license. Cable systems are permitted to carry significantly viewed
television stations without incurring the royalty fee normally attributable
to distant signals. Cable systems therefore get the added benefit of carrying
additional stations without incurring additional copyright fees.
Satellite carriers have expressed interest in having the concept of “significantly
viewed” stations applied to the section 119 license. The particular attraction
is that it will allow satellite carriers to provide additional network stations
to their subscribers without running afoul of the unserved household restriction
contained in section 119. As with the cable license, satellite carriers would
be allowed to provide subscribers with their significantly viewed stations
without a copyright fee. Satellite carriers would, however, only be allowed
to provide significantly viewed stations to subscribers receiving service of
local signals from that carrier. This would ensure that any subscriber receiving
a “significantly viewed” signal will also be able to receive the
signal of the local network affiliate.
The Copyright Office is not opposed to the inclusion of carriage of significantly
viewed television stations in the section 119 license, particularly in light
of the fact that it has had a long-time application in the cable license. Allowing
carriage of significantly viewed stations, particularly network signals, will
permit many satellite subscribers to receive the stations that they have traditionally
watched over-the-air for free in their respective communities. The concept
of “significantly viewed” is well established at the FCC and the
current significantly viewed station list has remained unchanged since 2000.
It is important to note, however, that the concept of significantly viewed
stations is not a mechanism for expanding the reach of otherwise distant signals
that have not been traditionally viewed in a community. In other words, if
a station – and in particular a network station – has not been
traditionally been able to be watched over-the-air in a community, the satellite
subscribers in that community would not be able to gain access to the station
by virtue of adoption of a rule permitting delivery of a “significantly
A Copyright Office Study of the Statutory Licenses for Cable and Satellite.
The legislation being considered in the House of Representatives would require
the Copyright Office to compare and contrast the statutory licenses for the
retransmission of television broadcast signals and consider whether they should
be harmonized. In addition, the Office would be asked to examine the fees charged
to subscribers of cable systems and satellite carriers for the service of broadcast
signals and compare those fees to the copyright royalty fees paid for the privilege
of carrying such signals to determine whether any “savings” are
passed onto subscribers as a result of statutory licensing. This aspect of
the study is troubling for three reasons.
First, the Copyright Office lacks the means to obtain the necessary information.
We do not have subpoena power or other regulatory authority to demand complete
and accurate information concerning cable and satellite revenues. While cable
systems do submit data on the gross revenues they earn for retransmission of
broadcast stations, satellite carriers do not provide such information because
it is wholly unnecessary to the calculation of their royalty fees. Furthermore,
even though cable systems provide the Copyright Office with information on
gross revenues, they do not provide us with information regarding the costs
of providing broadcast signals. Without such information, a determination as
to whether “savings” are passed onto subscribers is not possible.
Second, 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 not possible for the Copyright Office to determine what satellite,
and in particular cable, might be paying for broadcast stations if they did
not have statutory licensing. Without being able to determine marketplace rates
for broadcast stations for cable and satellite, it is not possible to measure
the value of “savings” that these industries enjoy as a result
of statutory licensing.
Third, matters regarding the rates charged by cable systems are within the
jurisdiction of the Federal Communications Commission, which engages in considerable
regulation of the cable industry. The Office is concerned that its examination
of cable and satellite rates and revenues without involvement of the FCC may
yield results that are not only inaccurate but are inconsistent with FCC policy
or objectives. Consequently, if the “savings” provision of the
study is retained, the Office requests that it work jointly with the FCC in
completing that portion of the study.
We look forward to working with you, Mr. Chairman and members of the Committee,
to resolve these and other matters regarding the extension of the section 119
satellite license. Thank you.