Hearing on Loan Guarantees and Rural Television Service

Prepared Testimony of Mr. William Roberts
Senior Attorney
United States Copyright Office

10:00 a.m., Tuesday, February 1, 2000 - Dirksen 628

Mr. Chairman and members of the Committee, the Copyright Office thanks you for this opportunity to appear before the Committee to discuss the provisions of the recently enacted Satellite Home Viewer Improvement Act. Before discussing the provisions of that Act, it is useful to provide a brief background on the legal regime governing copyright licensing for satellite retransmissions of over-the-air television broadcast signals.

The satellite home dish industry had humble beginnings with the introduction in 1980 of the home satellite dish. These large C-band dishes, which originally cost thousands of dollars, were initially marketed to people in rural areas of the country who did not have access to cable television and who could receive few, if any, over-the-air television signals. Owners of these dishes were not required to pay programming fees because satellite signals at that time could be received for free. However, as broadcasters became aware of the C-band dishes, they began to scramble their satellite signals, forcing dish owners to program packagers who would sell them the programming they desired in the same way that cable operators sell programming to their subscribers. These program packagers, who were typically the same concerns that sold the dishes as well, needed to clear the copyrights to the broadcast signals that they were delivering to their customers. In 1986, satellite providers first approached the Congress seeking creation of a compulsory license under the copyright law, similar to that enjoyed by the cable television industry, that would allow them to easily license broadcast programming without engaging in costly face-to-face negotiations with the copyright holders of each and every broadcast program.

In 1988, Congress responded to satellite providers' request by passing the Satellite Home Viewer Act of 1988. The 1988 Satellite Act created a six-year statutory compulsory copyright license, codified at section 119 of title 17, United States Code, that allowed satellite providers to clear all copyrights to programming contained on over-the-air television broadcast stations. This was accomplished through a semiannual submission of royalty fees and statements of account to the Copyright Office. Royalty fees were calculated on a per subscriber, per month basis. The Office took the deposited fees and distributed them to copyright holders of the programming retransmitted by the satellite providers.

While the section 119 satellite license provided satellite carriers with a simple mechanism for clearing copyrights, it did place restrictions on satellite's ability to deliver network signals to their subscribers. Because the satellite industry lacked the technological capability of providing subscribers with their local network affiliates, satellite carriers were forced to provide their subscribers with network stations taken from distant markets. Thus, for example, a satellite subscriber residing in Montana would receive the network affiliates from Los Angeles and New York, as opposed to network stations from Montana.

This did not please the local network affiliate where satellite subscribers resided, because such subscribers would watch the signals of distant affiliates rather than the local signal. As a result, Congress limited the section 119 compulsory license for network signals to only those subscribers who resided in "unserved households." If a subscriber did not reside in an "unserved household" with respect to a particular network, then a satellite carrier providing a distant station of that same network was liable for copyright infringement. An "unserved household" was a subscriber who, through the use of a conventional outdoor rooftop receiving antenna, could not receive an over-the-air signal of Grade B intensity from the local network station. "Grade B" is a measurement of the strength of a television signal as it arrives at a subscriber's rooftop antenna.

As the satellite industry grew throughout the late 1980's and the early 1990's, satellite began to move from rural areas of the country and into the cities. Several factors brought about this occurrence, including reduction of the costs of satellite service, the greater numbers of potential subscribers in urban areas, and the introduction of the Direct Broadcast Satellite service (or DBS). With DBS, which provides digital quality service using small, dinner plate-sized dishes, consumers in urban areas could subscribe to satellite without the attendant difficulties associated with placement of a large C-band dish. Unfortunately, with the migration of satellite from rural into urban areas, the potential increased for violations of the "unserved household" restriction of the section 119 license.

Congress addressed this problem in the Satellite Home Viewer Act of 1994. In addition to extending the section 119 compulsory license for an additional five years, Congress implemented a transitional challenge scheme designed to weed out subscribers who did not reside in "unserved households," yet nevertheless were receiving satellite network service. For a two-year period (1995-1996), local network broadcasters could issue written challenges to satellite carriers who were serving subscribers with distant network stations inside the local broadcaster's Grade B contour. A "Grade B contour" is the geographic area in which it is predicted that a consumer with an outdoor rooftop receiving antenna can pick up a signal of Grade B intensity from the local network broadcast station.

When a satellite carrier received a written challenge with respect to a particular subscriber, the carrier had two options under the 1994 amendments. The carrier could turn off the subscriber's network service, or it could conduct a test at the subscriber's household to determine if the subscriber did in fact receive a signal of Grade B intensity. The cost of the test would be allocated to the satellite carrier or the local broadcaster, depending upon the outcome (a "loser pays" provision). Unfortunately, because of the up-front costs associated with conducting household tests, virtually none were performed, and many subscribers lost their satellite network service whether or not they resided within an "unserved household." And many satellite carriers continued to sign-up urban subscribers and provide them with network signals regardless of their "unserved household" status. These activities prompted certain broadcasters to file copyright infringement lawsuits against certain satellite carriers. Broadcasters were successful in these suits across the board (there is still one pending), and many satellite subscribers lost their network service as a result of injunctions handed down by the courts.

At the end of last year, the section 119 compulsory license was again slated to expire, and Congress again had to address the quandry of "unserved households" and when a satellite subscriber should be eligible for network service. Fortunately, for the first time, there appeared a technological solution to the problem. Because of advances in the DBS satellite industry, it was now possible for DBS providers (EchoStar and DirecTV) to provide satellite subscribers with the television broadcast signals they most wanted to see: their local TV stations. But such service of local signals is not nationwide. Currently, only those subscribers who reside in large television markets (which, because of their population, represent the greatest number of potential satellite subscribers) can receive their local network signals. While these companies plan to expand their service of local signals in the future, it may be that neither company will serve all 211 television markets across the United States with local signals.

Nevertheless, with the potential of local service as a cure to the headache of the "unserved household" restriction, Congress enacted the Satellite Home Viewer Improvement Act of 1999 and created a new, permanent compulsory license for satellite carriers, codified at section 122 of title 17, United States Code, for the carriage of local television stations. In addition, Congress extended for another five years the section 119 license for the retransmission of distant broadcast signals and amended the communications law to prescribe must-carry and retransmission consent rules for the satellite industry.

Although satellite retransmission of local signals is the long-term solution to the "unserved household" conundrum, it was still necessary to address when a subscriber is eligible to receive distant network stations from a satellite carrier. The Satellite Home Viewer Improvement Act approaches the problem in several ways. First, the Act grandfathers until December 31, 2004, those DBS satellite subscribers who lost their satellite network service between July 11, 1998, and October 31, 1999, as a result of the lawsuits filed by broadcasters against certain satellite carriers. In addition, those subscribers who continued to receive satellite service of distant networks on October 31, 1999, are also grandfathered, regardless of whether they reside in an unserved household. This grandfathering provision, however, only applies to subscribers who reside outside the Grade A contour of the local network station. The "Grade A contour" is a geographic area, within the Grade B contour of a station, where a signal of Grade A intensity can be received by a consumer with a rooftop antenna. A signal of Grade A intensity is more powerful than a signal of Grade B intensity, and typically covers the area in and around the broadcaster's transmitter, as well as the broadcaster's city of license.

Second, the Act grandfathers all satellite network subscribers using the old-style C-band dishes, regardless of their location, provided that the subscriber lost network service prior to October 31, 1999. Third, the Act directs the Federal Communications Commission to deliver a report to Congress by November 29, 2000, recommending any changes to the Grade B signal standard that will improve over-the-air receipt of television broadcast signals. Fourth, the Act provides that the "unserved household" restriction does not apply to recreational vehicles and certain commercial trucks.

Finally, the Satellite Home Viewer Improvement Act provides an avenue of relief for the subscriber who resides in a household that is predicted to receive an over-the-air signal of Grade B intensity, but for some reason does not actually receive such a signal (perhaps a building or stand of trees blocks the subscriber's receipt of a Grade B signal). Such a subscriber may submit a waiver request, through his or her satellite provider, to the local network affiliate asking permission to receive a distant affiliate of that same network from the satellite provider. Upon receipt of the waiver request, the local broadcaster has 30 days in which to grant or reject the request. If the broadcaster does not respond within 30 days, the waiver is deemed granted. If the broadcaster rejects the request, then the subscriber may insist that the satellite provider conduct a test at the subscriber's household to determine if the subscriber does receive a signal of grade B intensity from the local network broadcaster. Like the 1994 Satellite Home Viewer Act transitional provisions, the costs of the test are borne by the loser of the test (either the carrier or the broadcaster). However, unlike the 1994 Act, the subscriber has the right to insist that a test be conducted. It is expected that the waiver provision of the 1999 Satellite Home Viewer

Improvement Act will provide a real mechanism for determining whether a satellite subscriber can receive a distant network station or is required to watch the local over-the-air signal.

The section 119 compulsory license for distant signals, and the section 122 compulsory license for local signals, comprise the copyright licensing scheme for the retransmission of television broadcast stations by satellite carriers. It is important to note that while the Satellite Home Viewer Improvement Act has created this elaborate licensing mechanism, copyright owners and satellite carriers are always free to negotiate their own licensing agreements outside the compulsory license. In fact, the Copyright Office continues to support marketplace negotiation of copyright licenses and opposes compulsory licenses.

We address the other two elements of the Satellite Home Viewer Improvement Act, must-carry and retransmission consent for satellite, but only briefly because they are communications, rather than copyright provisions. The Act imposes a must-carry requirement, similar to that applicable to the cable industry, on all satellite carriers retransmitting local broadcast signals on or after January 1, 2002. Under must-carry, a satellite carrier will be required to retransmit all eligible local stations to subscribers, and not just network stations, as is the current practice. The Federal Communications Commission has until the end of November of this year to adopt regulations implementing the must-carry obligation.

The Act also establishes retransmission consent for certain local broadcasters for satellite retransmissions of their signals. "Retransmission consent" is a right granted to a broadcaster whereby the broadcaster has the option of deciding whether to allow a retransmission provider to carry its station. Retransmission consent has applied to cable operators carrying broadcast signals since 1993 and will become effective against satellite carriers in May of this year. The Federal Communications Commission is currently in the process of fashioning rules governing the terms and conditions under which retransmission consent must be sought and may be granted.

This is the background and regulation of the satellite industry from the copyright perspective. We are pleased to answer any questions.

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