[Federal Register: April 30, 1997 (Volume 62, Number 83)]
[Rules and Regulations]               
[Page 23360-23362]


Copyright Office

37 CFR Part 201

[Docket Nos. RM 89-2, RM 89-2A]

Cable Compulsory License: Merger of Cable Systems and Individual 
Pricing of Broadcast Signals

AGENCY: Copyright Office, Library of Congress.

ACTION: Final rule and termination of proceeding.


SUMMARY: The Copyright Office is amending its rules to permit cable 
systems to calculate the 3.75% rate fee for distant signals on a 
``partially permitted signal'' basis where applicable. In addition, due 
to a Congressional request that the Office consider revision of the 
cable compulsory license, among other things, the Office is terminating 
Docket Nos. RM 89-2 and 89-2A until further notice.

EFFECTIVE DATE: May 30, 1997.

FOR ADDITIONAL INFORMATION CONTACT: Nanette Petruzzelli, Acting General 
Counsel, or William Roberts, Senior Attorney for Compulsory Licenses, 
Copyright GC/IR, P.O. Box 70400, Southwest Station, Washington, DC 
20024. Telephone (202) 707-8380. Telefax: (202) 707-8366.


I. Background

    Section 111 of the Copyright Act, 17 U.S.C. 111, establishes a 
compulsory license which authorizes cable systems to make secondary 
transmissions of copyrighted works embodied in broadcast signals 
provided that they pay a royalty calculated on a formula set out in 
sec. 111,<SUP>1</SUP> and meet all other conditions contained in sec. 

    \1\ The formula is set out in 17 U.S.C. 111, but the rates and 
the gross receipts thresholds were amended by the former Copyright 
Royalty Tribunal and could be further amended by a future Copyright 
Arbitration Royalty Panel. 37 CFR 251.2; 37 CFR 256.2.

    On September 18, 1989, the Copyright Office published a Notice of 
Inquiry (NOI) in Docket No. RM 89-2 asking the public to comment on how 
mergers and acquisitions of cable systems that result in contiguous 
systems under common ownership or control should affect the calculation 
of royalties under 17 U.S.C. 111. 54 FR 38930 (Sept. 18, 1989).
    Specifically, the NOI asked for comments on the following provision 
of 17 U.S.C. 111(f),

(f)or purposes of determining the royalty fee under subsection 
(d)(1), two or more cable

[[Page 23361]]

systems in contiguous communities under common ownership or control 
or operating from one head-end shall be considered as one cable 

    Since this provision became effective in 1978, the Copyright Office 
has interpreted it to mean that when two or more cable systems are in 
contiguous communities and under common ownership or control, or 
operating from one head-end, they are to be considered as one system 
for all purposes. That is,
    (1) they are to file a single Statement of Account with the 
Copyright Office;
    (2) all of the distant signals that the two or more cable systems 
carry are to be added together to arrive at the combined DSEs (distant 
signal equivalent); and
    (3) the combined DSEs must be applied against the combined gross 
receipts for the two or more cable systems to arrive at the amount in 
royalties due.
37 CFR 201.17(b)(2); 43 FR 27827 (June 27, 1978).
    The 1989 NOI noted that the growing expansion of cable system 
coverage and recent trends toward economic concentration in the 
industry created several difficulties with respect to this method of 
calculating the royalty. 54 FR 38930 (Sept. 18, 1989).
    First, there is the ``phantom signal'' problem which occurs when 
two or more cable systems are considered as one system by operation of 
17 U.S.C. 111(f), but each system retransmits different distant signals 
to its subscribers. Under the method described above, the resulting 
royalty payment would be calculated on a part of the subscriber base 
that did not receive the signal.
    Second, there is the ``partially permitted/partially non-permitted 
signal'' problem. Cable systems have asserted that the rule considering 
two or more commonly owned contiguous systems as one system can result 
in signals being paid for at the 3.75% rate--the rate adopted by the 
Copyright Royalty Tribunal when the Federal Communications Commission 
(FCC) abolished the quotas on the number of permitted distant signals 
in 1981--even though in some communities it is a signal that would have 
been permitted by the FCC before 1981 and, ordinarily, would be paid 
for at the lower base rate.
    While Docket No. RM 89-2 was pending, Congress passed the Cable 
Television Consumer Protection and Competition Act of 1992 (The 1992 
Cable Act). This Act, among other things, placed basic and higher tier 
cable service under rate regulation, but left a la carte signals--those 
signals offered individually to the subscriber--unregulated on the 
theory that unbundled program offerings did not give the cable operator 
undue market power to set prices.
    As a result, some cable operators sought to restructure their 
services to provide for more a la carte signals. However, under the 
current method of payments prescribed by 17 U.S.C. 111, carriage of an 
a la carte signal can result in a very high copyright royalty payment 
if the subscriber base is extensive and the subscribers choosing to 
receive the a la carte signal are few.
    The remedy sought by many cable operators was to make payments for 
a la carte signals based on the subscriber group that actually received 
the signal, rather than the entire subscriber base. This remedy was 
similar to the one proposed by cable operators in Docket No. RM 89-2 
concerning mergers and acquisitions: to have the cable systems pay only 
for those subscribers who receive a distant signal.
    This remedy has been generally called the creation of subscriber 
groups. Because the same remedy was proposed for each issue, the 
Copyright Office chose to reopen Docket No. RM 89-2 to receive comments 
on what the proper payment of a la carte signals should be, and the 
added issue was numbered Docket No. RM 89-2A. 60 FR 2365 (Jan. 9, 

II. Congressional Request

    On February 6, 1997, Senator Orrin Hatch, Chairman of the Senate 
Judiciary Committee, requested the Copyright Office, among other 
things, to examine and report upon possible statutory revision of the 
cable compulsory license. In making this request, Senator Hatch urged 
the Copyright Office to solicit the views of the industries affected by 
the license, and, after appropriate consideration and analysis, 
recommend specific legislative amendments. The Office has already begun 
the process of its examination, and has announced open public meetings 
beginning on May 6, 1997, to gather information and testimony in order 
to make a report to Congress by August 1, 1997. See 62 FR 13396 (March 
20, 1997).
    In considering revision of the cable compulsory license, the 
Copyright Office envisions that its task will necessarily involve 
contact and discussion with the parties affected by this rulemaking 
proceeding. Indeed, the very issues of merger and acquisition of cable 
systems involved in this proceeding will likely be discussed and 
analyzed, and the Copyright Office may ultimately propose legislative 
solutions to solve the problems addressed in this proceeding. The 
Office believes that it is not appropriate or advisable to keep this 
rulemaking proceeding open. Accordingly, the Copyright Office is 
resolving one issue presented in Docket No. 89-2 and terminating the 
remainder of the Docket until further notice.

III. Closing of Docket No. RM 89-2A

    The impetus for initiating Docket No. RM 89-2A was the 1992 Cable 
Act. In the Telecommunications Act of 1996, Congress made a number of 
revisions to the 1992 Cable Act, the impact of which will not be known 
for some time. Rate regulation has already ended for smaller cable 
systems, and upper tier regulation for larger cable systems will end in 
1999. In light of these changes, there no longer appears to be the 
strong Congressional policy favoring the offering of a la carte 
    Finally, in meetings the Office held with cable industry 
representatives, those representatives acknowledged the uncertainty of 
the current regulatory environment, and stated that they were more 
concerned with a resolution of the issue of the proper payments for 
commonly owned contiguous cable systems than with a resolution of the a 
la carte signal issue.
    Consequently, the Office has decided to terminate Docket No. RM 89-

Final Rule and Closing of Docket No. RM 89-2

    In resolving the status of Docket No. RM 89-2, the Copyright Office 
has determined that it is appropriate to issue a final rule with 
respect to the reporting of partially permitted/partially non-permitted 
distant signals. The remainder of the issues presented in the Docket--
i.e. the reporting and payment of royalties for merged and acquired 
cable systems--cannot be resolved at this time. For the reasons stated 
above, the Office is closing Docket No. RM 89-2 until further notice.

IV. Final Rule

    The Copyright Office is amending its rules with respect to the 
application of the Copyright Royalty Tribunal's 3.75% rate decision to 
partially permitted/partially non-permitted distant signals.
    When the Office first adopted regulations in 1984 to implement the 
3.75% rate decision of the Tribunal, the proper treatment of signals 
that were partially permitted/non-permitted was raised, and the Office 
deferred giving guidance. Compulsory License for Cable Systems, Docket 
No. RM 83-3A, 49 FR 26722, 26726 (June 29, 1984). As a result, some 
filers have reported those signals as entirely permitted and have paid 
the current base rates. Others have

[[Page 23362]]

reported those signals as entirely non-permitted and have paid the 
3.75% rate.
    The Office has decided that where a signal is partially permitted/
partially non-permitted, the current base rates will apply to those 
subscribers in communities where the signal would have been permitted 
on or before June 24, 1981; and the 3.75% rate will apply to those 
subscribers in communities where the signal would not have been 
permitted before 1981.
    The effect of this decision is that cable systems will no longer be 
able to elect whether to consider the signal entirely permitted or 
entirely non-permitted. The amendment of the regulations is prospective 
only and, in order to allow sufficient time to implement the new 
procedure, will begin with the first semi-annual accounting period of 
1998 (1998/1).

List of Subjects in 37 CFR Part 201

    Cable television, Copyright, Jukeboxes, Literary works, Satellites.

Final Regulation

    In consideration of the foregoing, part 201 of title 37 of the Code 
of Federal Regulations, is amended as follows:


    1. The authority citation for part 201 continues to read as 

    Authority: 17 U.S.C. 702.

    2. Section 201.17 is amended by adding paragraph (h)(2)(iv) to read 
as follows:

Sec. 201.17  Statements of Account covering compulsory licenses for 
secondary transmissions by cable systems.

* * * * *
    (h) * * *
    (2) * * *
    (iv) Commencing with the semiannual accounting period of January 1, 
1998, through June 30, 1998, the 3.75% rate applies to certain DSE's 
with respect to the communities within the cable system where carriage 
would not have been permitted under the rules and regulations of the 
Federal Communications Commission in effect on June 24, 1981, but in 
all other communities within the cable system, the current base rate 
shall apply. Such computation shall be made as provided for on Form 
* * * * *
    Dated: April 21, 1997.
Marybeth Peters,
Register of Copyrights.
James H. Billington,
The Librarian of Congress.
[FR Doc. 97-11140 Filed 4-29-97; 8:45 am]