Frequently Asked Questions on the Satellite Television Extension and Localism Act of 2010
What is the Satellite Television Extension and Localism Act of 2010?
Congress recently passed the Satellite Television Extension and Localism Act of 2010 (“STELA”). This law updates and reauthorizes the satellite carrier distant broadcast signal license, found in Section 119 of the Copyright Act, for another five years. STELA also amends the cable statutory license, found in Section 111 of the Copyright Act, in several respects. These two licenses were amended in part to take into account the recent digital broadcast television transition. While the President signed the legislation into law on May 27, 2010, its effective date is February 27, 2010.
What is digital television?
For more than six decades, hundreds of stations in the United States had broadcast in an analog television format. In the 1990s, the Federal Communications Commission (“FCC”) authorized television stations to begin broadcasting in a digital format. Digital television stations are able to broadcast in both a high-definition format or in a lower quality standard-definition format. In fact, a digital television station has the ability to segment its assigned digital bandwidth and transmit several separate streams of video programming at the same time (See multicasting, below). Since June 12, 2009, all full power television stations have been transmitting only in a digital format. The switch from analog to digital broadcast television is referred to as the digital television (DTV) transition. It is important to note that low power television stations were not part of the digital transition, and, for the most part, still broadcast in an analog format.
What is multicasting?
“Multicasting” is the process by which multiple streams of digital television programming are transmitted at the same time over a single broadcast channel by a single broadcast licensee. Currently, television broadcast stations offer multicast streams that carry news, weather, sports, movies, religious content, and foreign-language programming. A station can also transmit one network on its primary digital signal (ABC, for example) and another network on a multicast stream (such as Fox).
How will the Copyright Office implement the new law?
The Copyright Office has begun implementing changes in the law affecting the section 111 and section 119 statutory licenses. Title 37 of the Code of Federal Regulations, which contains the rules governing the licenses, will be updated in the weeks ahead to make it conform to the relevant STELA provisions. In addition, the Office is revising statement of account forms for both cable operators and satellite carriers to ensure they are consistent with the law as amended. Finally, the Office will take the steps necessary to implement the audit and filing fee provisions of STELA, explained below.
How does the new law affect the section 111 license?
STELA establishes new rates for the carriage of distant broadcast signals and revises the method for calculating royalty fees. Cable operators can now pay royalties on a “community-by-community” basis (that is, according to “subscriber groups”) rather than on a system-wide basis as had been required for 30 years previously. Section 111 is also amended to take into account the recent digital television transition. For example, users of the license will have to pay to retransmit distant multicast streams. In addition, STELA broadens the definition of “local service area” to accommodate a digital television station’s technical service area. These and other changes in the law are highlighted below.
How does the new law affect royalty rates for cable operators?
STELA adjusts the rates that larger cable systems (those grossing more than $527,600 and filing Statement of Account Form 3) pay under the section 111 license. The “base” royalty rates that apply to Form 3 systems, starting with the first accounting period of 2010, are as follows: (1) the fee for the first “distant signal equivalent” (DSE) will increase from 1.013 percent to 1.064 percent; (2) for each of the second through fourth DSEs, the fee will increase from 0.668 percent to 0.701 percent; and (3) for the fifth DSE and each additional DSE beyond the fifth DSE, the fee will increase from 0.314 percent to 0.330 percent.
Do smaller cable operators have to pay more?
No. There is no change to the royalty fee structure for those cable systems that file the Form 1-2.
Yes. Subject to certain limitations, cable operators must now pay royalties to retransmit a distant multicast stream carried for the first time on or after February 27, 2010. The DSE values assigned to distant multicasts are as follows: 1.0 for a multicast that is an “independent station” and .25 for a multicast that is either a “network station” or a “noncommercial educational station.”
Cable operators are not required to pay any royalties in the 2010/1 accounting period for the retransmission of a multicast stream carried in the first accounting period of 2010, provided that carriage of the stream began before February 27, 2010. Moreover, cable operators do not have to pay royalties to retransmit a multicast stream that is the subject of a written agreement entered into on or before June 30, 2009, between a cable system or an association representing a cable system and a primary transmitter or an association representing a primary transmitter. However, royalties will have to be paid for these multicast streams if they are still being retransmitted after the expiration of such written agreements.
The following points about retransmitting multicast streams are important to keep in mind:
- No royalties payments need to be made for a distant multicast stream that “simulcasts” (that is, duplicates) a primary stream or another multicast stream of the same station that the cable system is carrying.
- Distant multicast streams are not subject to the 3.75 percent fee or the syndicated exclusivity surcharge.
- Cable operators are not entitled to refunds, or offsets, for retransmitting any distant multicast stream carried before the 2010/1 accounting period.
How does the new law address “phantom signals”?
For the past 30 years, cable operators have paid royalties under section 111 to retransmit non-network programming carried by distant broadcast television signals. Before STELA, the royalties were based on a percentage of gross receipts generated by a cable system. Under the licensing framework established by Congress in 1976, cable operators had to pay for the carriage of distant signals on a system-wide basis, even though each signal was not made available to every subscriber in the cable system. The distant broadcast signals that subscribers could not receive were called “phantom signals.” STELA addresses the phantom-signal issue by amending section 111(d)(1) of the Copyright Act, which sets forth the method by which cable operators can now calculate royalties on a community-by-community, or subscriber-group, basis. Beginning with the 2010/1 accounting period, and all periods thereafter, cable operators will pay royalties based upon where the distant broadcast signal is actually offered rather than on a system-wide basis.
Do cable operators have to pay any other royalties under STELA?
Yes. As a result of discussions among the parties affected by the phantom-signal issue, which helped lead to broad industry support for the STELA amendments, certain cable operators agreed to pay additional royalty amounts directly to the Copyright Office for a five-year period. Section 111(d) provides the authority for the Copyright Office to accept these additional deposits.
Can a copyright owner audit a cable system operating under section 111?
Yes. STELA includes an audit provision that requires the Copyright Office to conduct a rulemaking proceeding to implement a confidential procedure under which a qualified independent auditor working on behalf of all copyright owners can “confirm the correctness of the calculations and royalty payments reported” on a statement of account filed for accounting periods commencing on or after January 1, 2010. The Copyright Office will initiate a rulemaking proceeding in 2010 to implement STELA’s audit language.
How does the new law affect the local-distant criteria in section 111?
Before STELA, section 111(f) defined the “local service area of a primary transmitter” as “comprising the area in which such station is entitled to insist upon its signal being retransmitted by a cable system pursuant to the rules, regulations, and authorizations of the [FCC] in effect on April 15, 1976, or such station’s television market as defined in section 76.55(e) of title 47, Code of Federal Regulations (as in effect on September 18, 1993), or any modifications to such television market made, on or after September 18, 1993, pursuant to section 76.55(e) or 76.59 of title 47 of the Code of Federal Regulations.”
Translating those directives into general terms, a television broadcast station’s local-distant status can be determined by the station’s 35-mile zone (a market-definition concept arising under the FCC’s old rules); its “area of dominant influence” (under Arbitron’s defunct television-market system); or its “designated market area” (under Nielsen’s current television-market system). “Grade B contour coverage,” an FCC technical construct, has also been used to determine the scope of a noncommercial educational television station’s local service area. However, Grade B contours apply only to analog signals, not digital signals, whose service area is now defined by the FCC’s “noise-limited service contour.”
STELA amends the definition of “local service area of a primary transmitter” to include the noise-limited contour as an additional way to determine the local-distant status of a digital television signal and related multicast streams. This change is particularly important to noncommercial television stations.
Does the new law add or change any definitions in section 111?
Yes. The terms “primary transmitter,” “primary stream,” “multicast stream,” “simulcast,” “subscriber,” and “subscribe” have been added to the statute. STELA also amends existing definitions for “distant signal equivalent,” “network station,” “independent station,” “noncommercial educational station,” and “primary transmission.” Most of these changes were necessary to address the retransmission of digital television signals and the carriage of multicast streams.
How does the new law affect the section 119 license?
STELA reauthorized the section 119 license for a new five-year term (through December 31, 2014) and provided a mechanism for adjusting the royalty rates for the new license period. It also updated section 119 to reflect the digital television transition. New statutory terms, such as “primary stream” and “multicast stream,” were added to account for the retransmission of digital television broadcast signals by satellite carriers. The “unserved household” definition was amended for the same reason. On a separate issue, STELA redesignates “superstations” as “non-network stations.” The significance of these changes is discussed below.
How does the new law affect royalty rates for satellite carriers?
STELA permits satellite carriers and copyright owners to negotiate royalty rates. Alternatively, they can be set through a formal rate-making proceeding before the Copyright Royalty Judges. Recently, the judges initiated a rate-setting process by announcing a voluntary negotiation period that concluded on June 17, 2010. In response, satellite carriers and copyright owners submitted a voluntary agreement to the judges.1 The agreement stipulates that the rates for private home viewing in 2010 will be 25 cents for each subscriber each month for private home viewing and 50 cents for each subscriber each month for viewing in commercial establishments. The agreement also specifies that rates will be adjusted for inflation (as measured by the change in the Consumer Price Index for All Urban Consumers) in subsequent years through 2014.
In accordance with the rate-setting process, the satellite carriers and copyright owners have asked the Copyright Royalty Judges to publish the proposed agreement for comment and adopt the rates if no objections are received from a party with a significant interest and intention to participate in the proceeding. The judges recently sought comment on the voluntary agreement.2 The satellite statement of account form will be updated immediately once rates are finalized, and they will be available at www.copyright.gov/licensing.
Do satellite carriers have to pay to retransmit multicast streams?
Yes. STELA specifically states that satellite carriers must pay royalties, on a per-subscriber basis, for both distant primary streams and distant multicast streams.
How does the new law define “unserved household”?
STELA updates the definition of “unserved household” to include a standard for determining when a household is served by a digital signal for section 119 purposes. Specifically, the definition now includes a provision pertaining to the digital noise-limited contour in addition to the existing analog Grade B contour reference. A household falling within the noise-limited contour of the primary stream of a digital network station signal will now be considered “served” under section 119.
STELA also amends the unserved household definition to take into account the ability of a television broadcast station to transmit multicast streams. Specifically, a subscriber who can receive an in-market, over-the-air signal of a multicast stream affiliated with a particular television broadcast network will be considered “served” starting in October 2010 or January 2011, depending on when the multicast stream first came into existence. For example, a household will be considered served on October 1, 2010, if the multicast stream existed on March 31, 2010. For all other in-market multicast streams, a household will not be considered served until January 1, 2011.
Unrelated to the digital television transition, but nonetheless important to the unserved household definition, STELA clarifies that a particular household’s “unserved” status is determined by the reach of a network station signal in its local television market and is unaffected by the availability of an over-the-air signal from a network station licensed to a community located in an adjacent nonlocal market.
How does the new law affect retransmission of noncommercial educational television station signals?
Many state public television networks, which by statute or charter have a mandate to serve their states’ citizens, have been unable to reach substantial portions of their intended audience by satellite television. In response, STELA explicitly permits the retransmission of “out-of-market” noncommercial educational television station signals that are part of a statewide system of three or more such signals to satellite subscribers located in a county in the state where subscribers would otherwise not be eligible to receive an in-state noncommercial educational station. Even though STELA adds this provision to section 122 (the local-into-local royalty-free license), satellite carriers must still pay royalties to retransmit such signals.
Can a copyright owner audit a satellite carrier operating under section 119?
Yes. STELA directs the Copyright Office to adopt rules to permit “interested parties” to “verify and audit” satellite carrier statements of account and royalty payments. However, the audit provision for satellite carriers differs from that for cable operators. For example, the section 119 provision does not have specific references to confidentiality, prospective application, designation of a single auditor, or remedy and cure.
Have any Section 119 provisions been moved?
Yes. The provisions regarding significantly viewed signals, special market exceptions, and low-power television stations have been moved to section 122 of the Copyright Act. With regard to low-power television stations, STELA changes the local service area of such stations so that a signal can be carried on a royalty-free basis throughout a designated market area.
Can the DISH Network retransmit distant signals again?
Yes, with conditions. In 2006, DISH (nee’ Echostar) was permanently enjoined from delivering distant network signals under section 119 by the U.S. District Court in Florida, which determined that the carrier “willful[ly] or repeated[ly]” violated the terms of the license by retransmitting programming from New York and Los Angeles stations to thousands of households that were considered served by local broadcast stations. DISH appealed the district court decision to the U.S. Court of Appeals for the 11th Circuit, which affirmed the ruling of the district court. STELA restores DISH’s ability to retransmit distant network station signals to unserved households with the stipulation that it provide local-into-local service to all 210 DMAs in the United States under the section 122 license. STELA also establishes a mechanism for appointing a “special master” to examine DISH’s compliance with the unserved household provision. The FCC recently initiated a proceeding seeking comment on DISH’s application for certification as a qualified carrier.3
Will there be new filing fees for cable operators and satellite carriers?
Yes. STELA authorizes the Copyright Office to establish a “reasonable” filing fee to be paid by cable operators and satellite carriers when they submit their statements of account. Fees for filing statements of account will be set in accordance with section 708(b) which, among other things, requires the Copyright Office to conduct a cost study as part of the process of setting a reasonable fee.
Does STELA require the Copyright Office to submit any reports to Congress?
Yes. By the end of August 2011, the Register of Copyrights, in consultation with the FCC, must submit a report on market-based alternatives to statutory licensing to the House and Senate Judiciary and Commerce Committees. STELA states that the Register should report on “proposed mechanisms, methods, and recommendations on how to implement a phase-out” of sections 111, 119 and 122 of the Copyright Act. STELA also states that the report should include recommendations for alternate means to implement a timely and effective phase-out of the statutory licensing requirements and suggest appropriate legislative or administrative actions to achieve this result.
How does the new law affect private licensing agreements?
STELA clarifies that a multichannel video provider (MVPD) can negotiate retransmission rights to programming with a copyright owner outside the statutory licensing framework. STELA also clarifies that this provision does not affect any obligation of an MVPD to obtain retransmission consent under section 325 of the Communications Act.
How does the new law affect the Communications Act and the Federal Communications Commission?
STELA amends several provisions of the Communications Act related to the carriage of local and distant television station signals by satellite carriers. The FCC must conduct a series of rulemakings to implement certain portions of STELA as they relate to the retransmission of digital television signals by satellite carriers. The FCC is also required to submit a report to the House and Senate Commerce Committees by the end of August, 2011 on “in-state broadcast programming.” This report must address (1) the number of households in a state that receive the signals of local broadcast stations assigned to a community of license that is located in a different state; (2) the extent to which consumers in each local market have access to in-state broadcast programming over the air or from a multichannel video programming distributor; and (3) whether there are alternatives to using designated market areas to define local markets that would provide more consumers with in-state programming. For details on these proceedings, check the FCC’s website at www.fcc.gov in the months ahead.