Above-Entitled Matter Convened, Pursuant to Adjournment, in the Offices of the Copyright Royalty Tribunal, in Room 92Lg 1825

rI . r, I 821

BEFORE THE COPYRIGHT ROYALTY TRIBUNAL WASHINGTON, D.C.

In the Matter of

1990 CABLE COPYRIGHT ROYALTY DOCKET NO. CRT 92-1-90CD DISTRIBUTION PROCEEDING

(This volume contains pages 821 through 949)

Washington, D.C. Friday, September 17, 1993

The above-entitled matter convened, pursuant to adjournment, in the Offices of the Copyright Royalty Tribunal, in Room 92lg 1825

Connecticut Avenue, N.M., Mashingtoni D AC g at 10:00 a.m.

BEFORE:

CINDY DAUB Chairperson

BRUCE D. GOODMAN Commissioner

EDWARD J. DAMICH Commissioner

LINDA R. BOCCHI General Counsel NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 822

APPEARANCES:

PROGRAM SUPPLIERS:

On behalf of MPAA:

DENNIS LANE, ESQUIRE JANE SAUNDERS'SQUIRE BRIAN HOLLAND, ESQUIRE Morrison R Hecker 1150 18th street, N.TI(t. Suite 800 Washington, D.C. 20036-3816 (202) 785-9100 Music Claimants:

On behalf of ASCAP:

I. FRED KOENIGSBERG, ESQUIRE White 6 Case 1155 Avenue of the Americas New York, New York 10036-2787 (212) 819-8200

BENNETT M. LINCOFF, ESQUIRE Senior Attorney, ASCAP One Lincoln Plaza New York, New York 10023 (212) 621-6270

On behalf of BMI:

CHARLES T. DUNCAN, ESQUIRE MICHAEL FABER, ESQUIRE MARC A. LURIE, ESQUIRE Reid R Priest 701 Pennsylvania Avenue, N.W., Market Square Washington, D.C. 20004 (202) 508-4081

On behalf of SESAC:

LAURIE HUGHES, ESQUIRE SESAC, Inc. 55 Music Square East Nashville, Tennessee 37203 (615) 320-0055

NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 823

APPEARANCES: (Continued)

On behalf of Multimedia:

ARNOLD LUTZKER, ESQUIRE CARY ANN EURE, ESQUIRE Dow, Lohnes and Albertson 1255 23rd Streeet, N.W. Washington, D.C. 20037 (202) 857-2941

NATIONAL ASSOCIATION OF BROADCASTERS:

JOHN I ~ STEWART I JR i ESQUIRE KATHERINE WHITE, ESQUIRE Crowell & Moring 1001 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2505 (202) 624-2500

JOINT SPORTS CLAIMANTS:

ROBERT A. GARRETT, ESQUIRE JAMES S. PORTNOY, ESQUIRE KITTY BEHAN, ESQUIRE Arnold & Porter 1200 New Hampshire Avenue, N.W. Washington, D.C. 20036 (202) 872-6700

PUBLIC BROADCASTING SERVICE:

TIMOTHY C. HESTER, ESQUIRE MICHELE J. WOODS, ESQUIRE Covington & Burling

1201 Pennsylvania Avenues N W g PION Box 7566 Washington, D.C. 20044 (202) 662-6000

DEVOTIONAL CLAIMANTS:

JOHN H ~ MIDLEN i JR ~ i ESQUIRE Midlen & Guillot, Chartered 3238 Prospect Street, N.W. Washington, D.C. 20007-3214 (202) 333-1500

MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 APPEARANCES: (Continued)

BARRY H. GOTTFRIED, ESQUIRE Fisher, Wayland, Cooper & Leader 1255 23rd Street, N.W. Suite 800 Washington, D.C. 20037 (202) 659-3494

RICHARD M. CAMPANELLI, ESQUIRE Gammon & Grange 8280 Greensboro Drive, 7th Floor McLean, Virginia 22102 (703) 761-5000

MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234~33 825 CONTENTS

EXAMINATION NITNESSES DIR CROSS REDIR RECROSS Proaram Suooliers Howard Green

By Mr. Lane 826 By Mr. Garrett 853 By Mr. Stewart 903 By Mr. Hester 922 By Mr. Midlen 940 EXHIBITS FOR NUMBER IDENTIFICATION RECEIVED Joint Snorts

12-X (FCC RRO) 858

13-X (MPAA comments in Syndex 862 Proceeding) 14-X (MPM Reply Com in Syndex 862 Proceeding) 15-X (Printout CDC FM 3 90-2) 869

16-X (SOA 90-1 Intn'l Cbl) 872

17-X (Com of Coal to Presv Fin 888 Int & Syn Rules)

NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 826 PROCEED I NGS (10:03 a.m.)

CHAIRPERSON DAUB: On the record. This

morning we will continue the 1990 Cable Royalty Distribution Proceeding, with the witness Mr. Howard Green for Program Suppliers. Whereupon,

HOWARD GREEN was called as a witness and, having first been duly 10 sworn, was examined and testified as follows:

DIRECT EXAMINATION

12 BY MR. LANE:

13 Q Please state your name for the record.

14 A Howard Green.

15 Q Did you prepare or have prepared under your 16 direction and supervision the Testimony of Howard

17 Green, Senior Vice President of Sales Operation, 18 Twentieth Television, that has been previously 19 exchanged in this case?

20 A Yes, I did.

21 Q Do you have any corrections to that 22 testimony?

23 A Yes. If you would turn to page 4 of the testimony, there is a mathematical error. In the 25 first inset paragraph under Costs of Network Program NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 827 Production, the fourth line down, "50%" shoudl be

ll ] 8gll

Q Did you also prepare or have prepared under your direction and supervision the two exhibits that are attached to your testimony?

A Yes, I did.

Q Do you have any corrections to those exhibits?

A Yes. On the second exhibiit, which is the 10 Comparison of Distant and Spill-in Signals on the Local Market, first page at the bottom, in the Atlanta and Macon comparison. If you look at the second to 13 last entry, People's Court which plays in Atlanta at 5:30, if you look at the next box to it, the spill-in signal is actually measured between 4:00 and 6:00, so that, should be "4-6P", the same as the Oprah number 17 above it.

18 Q By whom are you employed, Mr. Green?

19 A By Twentieth Century Fox Film Corporation.

20 Q What is your position?

21 A I'm Senior Vice President, Sales Operation.

22 Q What are your duties and responsibilities 23 in that position?

24 A I supervise three departments, two of which 25 are Contract. Administration and Sales Administration, MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234~33 WASHINGTON, D.C. 20005 (202) 234-4433 828 which support domestic television and international television in the licensing of programs to stations worldwide.

Q How long have you been in that position?

A A little over 18 months.

Q And prior to that, what position did you hold?

A I was Vice President of Sales Contract and Systems Administration for Paramount Pictures 10 Corporation.

Q Shat were your duties and responsibilities'

12 A They were substantially the same as they 13 are at Fox.

Q And how long were you with Paramount?

15 A Ten years.

16 Q What did you do before you were with

17 Paramount?

18 A Before that, for 20 years I was a 19 professional actor, director, and artistic director in 20 the New York theater.

21 MR. LANE: At this time, Madam Chairmani I 22 would make Mr. Green available for voir dire.

23 CHAIRPERSON DAUB: Thank you, Mr. Lane. 24 Any voir dire?

25 MR. GARRETT: I have no questions. MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 829

CHAIRPERSON DAUB: Mr. Stewart?

MR. STEWART: No questions.

MR. HESTER: No questions.

MR. MIDLEN: No questions.

CHAIRPERSON DAUB: Thank you. Mr. Lane, please continue.

MR. LANE: Thank you.

BY MR. LANE:

Q What is the purpose of your testimony, Mr. 10 Green?

A What I'd like to do is to provide an 12 overview of the trends in syndicated television from 13 1980 to the present day, and I'd like to describe, if 14 I can, the impact of the importation of distant 15 signals on the program suppliers who supply the 16 programs on a market-by-market basis.

17 Q Would you define "syndication"?

18 A Syndication is generally taken to mean the 19 licensing of programs nationwide, on a market-by- 20 market basis, sold to each individual local station as 21 opposed to a network.

22 Q What form does syndication take'?

23 A Currently, the syndication is three-fold. 24 Originally, syndication was off-network programming, 25 in the early part of the period that I'm talking NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 2344433 830 about, and product was licensed on a straight-cash basis -- the station paid a license fee -- and it was immaterial to the program supplier if the program was played at all. How it performed in the market was only important in the sense that they wanted to continue to be able to license that program, but the license fee meant that the station bore the entire risk of failure or success in that market. Toward 1982, there began a phenomenon 10 called "barter". What barter is is that part of the compensation to the program supplier is in the form of 12 time in the program in an individual market. That 13 time is sold by the program supplier to national advertisers, which requires a national clearance of 15 the program simultaneously across a substantial part 16 of the United States, it requires that the program be 17 played during substantially the same time frame 18 everywhere in the United States because that's the 19 only way the advertiser will get the benefit of his 20 bargain. 21 There was, to some degree, "straight 22 barter", which meant there was no cash portion, no 23 license fee and, later, or at the same time actually, 24 there was also what is called "cash/barter" where the 25 license fee that is paid is a lower license fee than MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234%433 831 it would be if it were straight cash, and the barter is fewer minutes to the national distributor than it would be if it was a straight barter. The hybrid allows a balance to be struck between the two. That is quite common today, as is a straight barter common today.

Q Are programs produced specifically for syndication?

A Yes. Xn addition to the off-network 10 programs that we'e familiar with, like Cheers and Family Ties and so on. Thexe are also programs that are produced for what we call "first-xun", which means 13 that its initial airing is going to be "in 14 syndication", the market-by-market sale, and that 15 would be programs that are in the magazine format,

like Entertainment Tonight or A Current Affair, talk shows, reality-based programs. Xt also includes as a 18 kind of anomaly, scripted programs like Star Trek: 19 The Sext Generation which would, in prior times, have 20 been produced for a network, it was produced for what 21 is sometimes called an "ad hoc network", which is a 22 group of syndicated stations that purchase it at the 23 same time.

24 Q The programs that you have been talking 25 about are all series programs, is that correct? MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 2344433 832

A Yes, they are.

Q I want to turn to the network programs that go into syndication. Are there risks associated with producing a program for a network?

A Yes, there are. The risk, of course, and most, prominent risk, is the failure to recoup the deficits inherent in producing all television and, in particular, producing television for network, and that is because network fees do not compensate the program 10 supplier for the cost of production. And over the period that we'e talking about, the cost of 12 production has risen phenomenally and, while there has 13 been increase in the network fees, the gap has been widening because the increase in the network fees has 15 not been in proportion to the increase in costs. 16 In addition to that, there are more 17 programs available now, competing for fewer time 18 slots. And the more shows that are successful, the 19 fewer time slots are available, which increases the 20 competition and makes it more difficult and makes the 21 risk of failure greater. 22 In addition to that, the networks are ordering fewer episodes. At the beginning of this period, it was common for the networks to order 26 25 episodes. They played them twice in the year they NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 833 ordered them, which made 52 weeks -- they played them

once-a-week. They gradually reduced that number. A show that is believed to be very successful and not a high-risk program may get an order for 22 episodes, or 24. I remember when Family Ties even had an order for 30, but it was in its third or fourth season that it got that many. But the trend has been down. So, nowadays, there is a phenomenon which is referred to by the networks as the "short order", and the short 10 order is 13 episodes, sometimes even six episodes, sometimes they will put together a six-episode order 12 to be inserted into their schedule in mid-season if 13 they think that something is going to fail. 14 So, we don't get the kinds of orders that 15 we used to get, and it's much more difficult to reach 16 100 episodes, which commonly held wisdom has held to

17 believe is the minimum number desirable to be able to 18 enter syndication.

19 Q The risks that you'e been talking about, 20 did they increase in the period in the '80s through 21 1990?

22 A Yes, they have, partly because costs have 23 gone up, partly because of the shorter orders, and partly because of fewer available time periods.

25 Q Is it difficult to get an idea into the NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 834 network and then to get a network program into syndication?

A It's notoriously difficult. In my testimony on page 4, I describe part of the phenomenon for programs that. were surveyed between 1980 and 1982.

Q Is that page 5 of your testimony?

A Sorry -- it is page 5. If you look toward the center of the page, there were several thousand ideas that were "pitched" to the network. They gave 10 people appointments, they came in, they described them, they tried to sell them as an "idea", that had 12 existed basically in an idea form. And at that stage, 13 a lot depends on who was presenting the idea. If it' 14 Gary David Goldberg, for example, who has a record of 15 success, or someone else of a similar stature, they 16 are much more apt to be heard, and may not even have 17 to pitch, but someone who is new and unknown is going 18 to compete with them at that stage. 19 In this period of 12 years, only 549 20 situation comedy pilots were selected. Now, for this 21 example, I am not discussing hour-long action series, 22 I'm only talking about situation comedies. Of the 549 23 situation comedy pilots, 236 -- fewer than half were ever broadcast and, of that same 549 pilots that, 25 were ordered, only 14 reached 100 episodes, in 12 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 835 years.

Q You earlier alluded to the 100 episodes. Could you describe what makes that sort of a magic number for syndication?

A The local programmers are interested in buying off-Network programs in order to play them

five-nights-a-week at the same time period, which is

referred to as "stripping". In order to be able to play over a period of six yeaxs, let's say, a eeriest'nd 10 play it five-nights-a-week, without repeating the same episode too soon to diminish its value to the 12 public, common wisdom is that they need at least 100 13 episodes'here 14 have been recently some risks taken with fewer than 100 episodes, but not far fewer, and it's still really necessary to get four seasons of production in.

18 Q Are there more failures in the programs 19 that go to the network than become successes in 20 syndication?

21 A There are infinitely more failures. If 22 only 14 get to 100 episodes, that means that there are 23 535 that didn't get there, and that doesn't count the 24 costs in developing the ideas that didn't even get to 25 be pilots. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 836

Q Mho bears the risk of those costs all the way through the network production?

A The entire risk is borne by the program supplier. That's the person who invests in the program itself.

Q Is it fair to say that the successes in syndication not only have to pay for themselves, but they have to pay for the failures?

A I think the only program suppliers that 10 will suxvive are those who are going to be able to recoup their deficits. The only avenue for them to be able to recoup their deficits is out of a viable 13 after-life to what it is they are producing.

14 Q Are there risks associated with first-run production?

A There are. First-run production also has a high cost per pxogram and, although that cost is 18 lower than for a network, the risks still are great 19 because, if we look at a reality series format, or a 20 magazine format -- something like Entertainment 21 Tonight -- they are producing 312 programs every 52 22 weeks, because they are not repeated. 23 There are similar numbers that affect other 24 programs in the genre. The programs are also sold on 25 a barter basis, or a cash/barter. That means that NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 837 while there is some license fee on some programs but not all, that license fee is paid over a 12-month period for those 260 or 312 programs, and the rest of the money comes in quarterly in the form of money from the advertisers, and it is definitely based on performance, so that some of the risk that in the early part of this period was borne entirely by the stations, is now borne by the program supplier. If the show does not perform well in the ratings, if 10 people don't choose to watch it, there will be less money coming in. In addition to that, more money is 12 spent on launching a program. If you are selling 13 advertising, it's very critical that you build that 14 audience immediately and create a following, because 15 you need people to watch on a regular basis. They 16 can't drop in once a week and have you make the kind 17 of rating that you need to make to be able to satisfy 18 the advertisers. 19 So, a lot of money is spent in the first 20 year at the launch, and a lot of money is spent in the 21 sweeps periods four times a year -- the rating book

22 periods in July and November and May -- in order to 23 boost the program in the eyes of viewers so that those numbers will be made. 25 Those costs are amortized over several MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 838 years so that, when a series is launched in first-run syndication, frequently the money is not. recouped until the third year, that was spent on the launch. At that point, there is a potential for fairly high profj.to There are other series. The anomaly I mentioned earlier was Star Trek: The Next Generation. That was produced for first-run syndication, but it replicated a network production, in that it was 10 produced for once-a-week television, 26 episodes, to be repeated to make 52 weeks, and sold on a straight 12 barter basis, but the money that was received did not, 13 make the deficit. The deficit was recouped because in the second year, the same station began to pay a 15 license fee for it, for the reruns, where they could 16 play them at-will.

17 Q So, would it be fair to say that it takes, 18 for a first-run program, two, three, four years to 19 recover the deficits earned in the first and second 20 year?

21 A I think while it varies from program-to- 22 program, it's fair to say that. easily two to three 23 years would be required.

Q Is it difficult to have a success in first- 25 run syndication? NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 839

A It's very difficult. In fact, the first exhibit. that I had prepared demonstrates how difficult it has been for the last five years. If you could turn to the first page of the first exhibit, there is a three-column list of programs, strip programs, that were promoted during the last five years, and most of these I don't recognize the titles. I doubt whether many people in this room will. I see things like Dancin'n The Air. I 10 had never seen that before this study was done, or Triple Threat, or Trivial Pursuit. I remember the

12 failure of USA Today very well, but the majority of 13 them don't ring a bell for me, and I read this all the time. 15 If you look at the second page, those in 16 the boxes are the only ones that were ever put on-the-

17 air. And all of those that are not in the boxes, 18 which is almost half, never saw the air, including 19 Dancin'n The Air. 20 And the third page shows the number that. 21 have survived today, and that is ten of that original 22 128, that are still on the air, and those we do 23 recognize.

Q And who bears the risk of the costs that 25 were incurred in making the 128 programs? NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 840

A The actual production costs are borne by the program supplier.

Q Have Basic cable programming services become a player in the syndication market?

A Yes, they have. When I started in the early '80s, 1982, Basic cable was a relatively minor part of the customer base, and they were not able to pay very high fees, there weren't very many program services and, over that period, programming services

10 like Nick at Nite, Nickelodeon, Lifetime, USA Network, and others, have proliferated. They are now very 12 heavy competitors. They pay very good license fees. 13 The other day on the street I saw a bus ad that said that "Major Dad and Wings are landing on 15 USA". So, those are two off-network programs that

16 will be seen soon. USA has created an identity for 17 itself pretty much, with programs like Murder She

18 Wrote. LA Law, which is an Emmy-winning series and is 19 still running on-network, has been sold to Lifetime 20 and Lifetime plays the reruns. So, this kind of 21 phenomenon has gone on.

22 In earlier stages, WTBS bought some older series to mix with the movies -- Happy Days, Laverne and Shirley, and Brady Bunch -- and I was involved in 25 those sales as well. So, the Basic cable networks are MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 841 definitely becoming major players.

Q And the series that. you'e been discussing with them were all network programming, what you'e called "off-network" syndication?

A Yes.

Q And in your judgment, those series have helped them, the programming services, to attract and keep subscribers'?

A There's no question that part of the 10 identity that some of these cable services have adopted for themselves, to distinguish themselves from

12 other cable services and also from other program 13 exhibitors, has involved purchase of these programs. Nick at Nite is very keen to play some of the old 15 comedies, which are finding new audiences and younger 16 audiences.

17 I think that Lifetime, for example, has 18 sought to find a particular type of series in LA Law, 19 in the Days and Nights of Molly Dodd, and similar 20 programs that have a very well defined following, and 21 they are attracting them to that service as opposed to 22 other services.

23 Q Are these the same types of off-network 24 series that are available on distant signals?

25 A In some -- let's see -- sometimes they are, NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 842 but not always because, first of all, if you have sold to TBS, it is on a distant signal. If you have sold to Lifetime, for example -- that is, a series which may still be running on a network station -- but it' only if the network is spilled in, then it would be available.

Q How do distant signals affect the syndication marketplace?

A Nowadays, distant signals have a very 10 immediate effect on the program suppliers of off- network and first-run programming. The second exhibit 12 that I had prepared demonstrates a comparison of 13 distant market and local market spill-in, and the most 14 obvious example is the Macon market, which is the last 15 example--

16 Q Excuse me for a minute -- would you just 17 explain what you mean by "spill-in"?

18 A To use that as an example, WSB broadcasts 19 in Atlanta and it is received on cable systems in 20 certain counties in the Macon market. And the 21 exhibition by those cable systems of the Atlanta 22 market on the local cable system is what we call 23 "spill-in" signal. And if we look at Macon, in the bottom line at 7:30, the Atlanta station is playing 25 Entertainment Tonight, and so is the Macon station. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 And if we look at the two center boxes, we can see what the Macon market. for Entertainment Tonight is. It is a total of a 13 rating, which means that 13 percent of the homes that have television sets are

watching Entertainment. Tonight, but only 9 percent, or two-thirds, of the Macon market is watching it on the Macon station.

Now, the importance of this is that Entertainment Tonight is sold on a cash/barter basis, 10 which means that Monday through Friday -- on Mondays, Paramount receives three commercials in that program 12 which it sells nationally. On each of Tuesday, 13 Wednesday, Thursday and Friday, it has two commercials 14 and, on Saturday, when the weekend program plays, or 15 Sunday possibly, in that market, it has six 16 commercials. Each one of those commercials is paid

17 for on the numbers of thousands of homes that watch 18 the show. That's measured in the ratings. And the 19 Uncredited column shows the number of homes in the 20 Macon market that are not credited because the 21 advertiser receives no credit for the spilled in 22 signal. They only count the Macon signal for the 23 Macon homes, and the Atlanta market for the Atlanta homes. So, we'e looking at almost 7,000 homes and, 25 since advertising is sold on a cost-per-thousand basis NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 which means, let's say, for example, it's $ 10 for every 1,000 homes, that means if you lose 70,000

homes, that's $ 70 times each commercial times each program times each week times every market in which it occurs -- so it becomes a substantial amount of money.

Q Let me just see if I understand this. The "4" that you show in the second box for Entertainment Tonight in Macon, is not counted in the Macon market as part of its audience? 10 No, it's not. And its not counted in the Atlanta market, 12 correct?

13 A No, it isn', that's correct.

Q And the reason that there's an immediate 15 concern is because of the barter situation where the syndicator gets the advertising revenues directly?

17 A Actually, there are two points at which the 18 program supplier is injured. It doesn't encourage the 19 Macon station to pay the same license fee because they 20 will not. derive the same revenue that they otherwise 21 would either, but the immediate injury is the injury 22 in barter because that is paid at the end of that 23 quarter by the advertiser, and it's only for the homes that are actually delivered.

25 Q Would you turn to the second page of your NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 845 exhibit.

A Yes. The second page looks at this kind of phenomenon in a slightly different way. The page as a whole represents 100 percent of the Bakersfield television station market. The large box on the right shows the four television stations located in Bakersfield, the box on the left shows the Bakersfield spillover signal that comes from Los Angeles. And by way of example, if we look at the

10 7:30 time period, we find that A Current Affair is spilled into Bakersfield and deprives advertisers of

7 percent of the Bakersfield market, which means that 13 the program suppliers of Jeopardy, Mama's Family, Entertainment Tonight, and Growing Pains are dividing 15 only 93 percent of the audience watching television

16 stations because 7 percent are watching the Los Angeles signal and are not. being counted. 18 And, again, to the extent that these are 19 advertiser-supported, it means that the seller of the 20 national advertisements is not deriving any revenue, 21 or is, in this case, really deprived of the 22 opportunity to compete for those homes that have

23 chosen to watch A Current Affair. And there's no

24 benefit to the supplier of A Current Affair either.

25 Q And so -- just, again, to back up a little MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 846

bit -- A Current Affair doesn't get credit in the Los Angeles market, for the

A For the Bakersfield homes.

Q -- for the Bakersfield audience, and the Bakersfield stations, in effect, don't have an opportunity to capture that market because it's being

A That's correct. They do not have 100 percent of their own market.

10 Q And these are barter programs so that the effect is direct to the program--

12 A There is some element to bartering.

13 COMMISSIONER GOODMAN: Mr. Lane, may I interrupt for a minute? I need to clarify, I'm having 15 a little difficulty with it.

16 MR. LANE: Certainly.

17 COMMISSIONER GOODMAN: Using the A Current 18 Affair Bakersfield example, assuming that's going to 19 be sold on an all barter basis, just for simplicity, 20 to figure out the loss. If the syndicator is selling 21 just to national advertisers, just selling on a national basis, why doesn't the syndicator, in his 23 negotiation with Anheuser Busch, for example, simply state "here are the numbers you are going to get, you'e going to get not only the numbers that we'e NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 847 going to get as a distant signal, but you'e also going to get spill-over numbers"?

THE WITNESS: First of all, it's extremely difficult to measure. It took many days to put these examples together. In order to find the occurrences, you have to identify every county in the market. You have to identify every program. You have to find out every cable system that is actually paying a fee, to begin to quantify them. 10 If you look at the numbers on the previous page, the reason why many of these programs are listed 12 in the spill-in signal as 4-6, with an average rating 13 for that period, is because the ratings companies don't measure the way. They don't measure those

15 distant signals the same way. They don't report them 16 the same way. 17 All they'e really telling us -- if you 18 look at the People's Court example in Atlanta, which 19 is the one that I corrected -- is that. between 4:00

20 and 6:00, that signal achieved an average 2 rating. 21 And it's not, really telling you -- I mean, there's a 22 certain margin of error. It isn't done with 23 precision. That's the way the ratings have been 24 reported historically, and I don't see any inclination 25 in the business to change that. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 848

COMMISSIONER GOODMAN: It seems, and maybe what you'e saying to us is, that if you were to multiply this out, assuming that this same situation happens as a spill-in problem throughout the country—

— I think you said this -- for all these stations, for all these programs, there's an enormous amount of unaccounted for -- well, not unaccounted for ignored audience.

THE WITNESS: I'm not sure the extent to 10 which people have sought to quantify this but, in preparing for this hearing, it seemed to me that this 12 was significant, and we started to do the work on it 13 just for the purposes of trying to create examples. I think it would probably require the 15 creation of new staffs for the purposes of performing 16 the analysis because the analysis would have to be 17 performed on a continuing basis. I mean, you would 18 have to find these ratings for every show every time 19 it played. You would then have to correlate that 20 information. And what happens in reality is that 21 Nielsen, for example, reports its figures -- it, 22 reports them to the advertiser, as well a to the 23 program supplier, as well as to the station -- and it doesn't perform this kind of analysis beyond what we 25 see here. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 849 I think that probably they would be better able to tell us what, the cost would be of doing that kind of analysis. For me, this was just an exercise in trying to describe something which I knew to exist.

COMMISSIONER GOODMAN: Thank you.

BY MR. LANE:

Q Mr. Green, what conclusions would you have the Tribunal draw from your testimony about the relative value of syndicated programming in 19907

10 A Well, I think that there are really two ideas that I had hoped to get across. One of them is 12 that the harm that the program suppliers experience, 13 and the copyright holders whom they either are or represent experience, is very real. The harm from 15 distant signals is very real. And it, is very 16 immediate, and it has become even more immediate in 17 this period where so many programs are licensed on a 18 barter basis than there ever was before. 19 And I believe that, the congressional 20 mandate for the copyright royalty itself, and the 21 Copyright Royalty Tribunal, was meant to ameliorate the damage that was done to the copyright holders by 23 the creation of the compulsory copyright license. 24 The compulsory copyright license was, I 25 think, an extraordinary and necessary phenomenon that NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 2344433 850 helped to create the growth of the cable industry which is now very competitive, but it was partly at the expense of the copyright holder, the traditional rewards to the creators of ideas, for example. And I think Congress meant to try to help to ameliorate that damage. And it seems to me that the best way, and the fairest way, to ameliorate that damage is to replicate the marketplace itself, and the only way I 10 know to replicate the marketplace itself is to look at the ratings, to look at what the public chooses to 12 watch, because the ratings are an independent source. 13 It's a source created by Nielsen, who could care less 14 about which program succeeds or which type of program 15 succeeds, it simply tries to report, as best it can, 16 the facts. I know of no other source.

17 MR. HESTER: Let me object. I think the 18 witness, in that last comment, has gone beyond the 19 scope of his written testimony. I don't see any 20 reference to Nielsen in his written testimony.

21 MR. LANE: I think, Madam Chairman, if you 22 look at the last few paragraphs, he talks about the 23 ratings and the selection by audiences

CHAIRPERSON DAUB: On page 10?

25 MR. LANE: Yes, it's on page 10. We'e NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 851 been trying to shorten it so we don't go through the entire written direct, and I think that was just a shorthand way of saying it.

CHAIRPERSON DAUB: Mr. Hester, you were

referencing Nielsen? MR. HESTER: I hadn't read the witness'irect testimony to be discussing the Nielsen ratings, or specifically to be discussing the question of whether the Tribunal should place reliance on the 10 Nielsen studies as a basis for allocating the awards in this case. I don't see any reference specifically 12 to Nielsen, and I don't see any discussion of the 13 point that the witness just addressed. I think it' beyond the scope of his written testimony.

15 CHAIRPERSON DAUB: Thank you. Mr. Stewart?

16 MR. STENART: I don't want to prolong it 17 any further.

18 CHAIRPERSON DAUB: The objection is 19 overruled. Please proceed.

20 MR. LANE: I have no further questions, 21 Madam Chairman, on direct. 22 MS. BOCCHI: I just have a brief question 23 following on Commissioner Goodman's question, and I'm trying to get a grasp of this also. I understood 25 spill-in as being a situation where the distant signal MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 852 and local signal are carrying the same program.

THE NITNESS: That's the conventional view,

and that was, indeed, my first. view when I first started to do the comparisons. I was looking to try to match the programs and, in looking at it, I realized that there are several different forms of competition here between the spilled in signal, and it's not just with the same program. It's taking up homes in the local market, and those homes are no 10 longer available to the local stations that are also carrying in these time periods, nationally distributed 12 programs. And so there is a second kind of harm done. 13 If Entertainment Tonight, for example, 14 plays at 7:30 in a market, on a distant signal, a 15 spilled in signal, and it's playing at 6:30 in the 16 local market, and some people watch it on the spilled 17 in signal, it means that not only does the producer of 18 Entertainment Tonight not receive those homes, but 19 that signal, which is not compensated for -- the only 20 person that gets any revenue from that signal is the 21 cable operator -- is also competing with the other 22 program suppliers. And, indeed, when Entertainment 23 Tonight plays at 6:30, it's competing with whatever else is on the spilled in signal, and being damaged by 25 that program. So, it's extremely complicated. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 853

MS. BOCCHI: So, your numbers in your exhibit, do they include both types of spill-in, both where it's duplicated and where it's carried2

THE WITNESS: They do, they are examples of both.

MS. BOCCHI: So then that would probably help to explain why it wouldn't be totally possible to just use those numbers, even if you could get. them, to present them to an advertiser.

10 THE WITNESS: Yes.

MS. BOCCHI: That resolves my confusion. Thank you.

13 CHAIRPERSON DAUB: Thank you. Mr. Garrett, would you like to proceed with your cross-examination2

15 MR. GARRETT: Thank you, Madam Chairman.

Good morning, Mr. Green. My name is Bob Garrett. I represent, the Joint Sports Claimants in 18 this proceeding.

19 CROSS-EXAMINATION

20 BY MR. GARRETT:

21 Q I'd just like to follow up on the 22 Tribunal's question here, and use as an illustration 23 the Bakersfield example.

24 Mr. Green, as I understand your Exhibit 2 25 here, cable systems in Bakersfield import at least NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 2344433 854

KTTV from Los Angeles, is that correct?

A That's correct.

Q And on KTTV, particular programs that you'e identified are the Plintstones, correct?

A Yes.

Q And the second one is the Andy Griffith Show, correct?

A Yes.

Q The third one is Third Degree, correct?

10 A Correct.

Q The fourth is Muppet Babies?

12 A Yes.

13 Q Is that Jim Henson's program?

A I presume so, yes.

15 Q And the fifth was A Current Affair, 16 correct?

17 A No, the fifth is Real Ghostbusters and the

18 sixth is A Current Affair.

19 Q Real Ghostbusters and A Current Affair, 20 right? 21 Correct.

22 Q Now, all of these programs from KTTV are 23 imported into the Bakersfield market, correct?

A Correct.

25 Q Now, are any of these programs also MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 855 available locally, or were they available locally in 1990, in the Bakersfield market?

A In the example, which was prepared from 1990 data, all of them were being sold in Bakersfield.

Q Okay. And is it correct that Flintstones was actually broadcast by station KDOB?

A That's correct.

Q And the Andy Griffith Show was also being

broadcast locally by KDOB, correct? 10 That's correct. And Third Degree was being broadcast

12 locally in Bakersfield by KERO, correct? 13 Correct. And Muppet Babies was being broadcast

15 locally in Bakersfield by both KDOB and KERO, is that 16 r1ght~

17 A No, I have in my example KDOB, unless

18 somebody made a mistake. Muppet Babies, KDOB.

19 Q You have KDOB?

20 A Right.

21 Q Let me hand you a copy of the February 1990 22 edition of the Nielsen Standard Report, NSI Standard Report, these portions of it that were produced in discovery. You see a reference to Muppet Babies

25 A One and two, yes, I do. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 856

Q -- on ZERO. Looks like--

A It's possible -- no, it's possible that in the preparation of the exhibit, someone made a typo that I didn't catch, and it should be KERO, but it doesn't really alter the impact.

Q No, I wasn't suggesting that it did. I also found it on KDOB, too, correct? The Nielsen shows that it was on both stations? A It seems to show that it showed at 8:30 on 10 KDOB, 8:30 in the morning, which is right.

Q That's what you have in your exhibit.

12 A Not 8:30 in the morning, no. That's why I think somebody made a mistake. It shows the time 14 period for Muppet Babies as being 5:30.

15 Q It's probably Nielsen's fault.

16 A No -- I don't know.

17 Q For our analysis, it really doesn't make

18 any difference, Mr. Green. Real Ghostbusters, KDOB again?

20 A Right.

21 Q And A Current Affair on KBAK, correct?

22 A That's correct.

23 Q Is it fair to say that each of the programs 24 that you'e identified here as being imported into the 25 Bakersfield market, were also available locally off- MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 2344433 857 the-air in the Bakersfield market?

A Yes, that's true.

Q And so a resident of Bakersfield would not have to subscribe to cable in order to get any of the six particular programs that you'e just identified?

A Assuming that they had no problem receiving those signals over-the-air, they could.

Q And another way of saying it is that the cable operators in Bakersfield -- and there are more 10 than one, correct?

A I'm sure there are.

12 Q There's a Cox system and Warner system in 13 Bakersfield, is that right?

14 A I don't know of my own knowledge, but I'l 15 certainly take your word for it.

16 Q Those cable systems would not have to

17 import KTTV in order to get any of the six programs 18 that you identified, they could simply pick them up 19 off the local signal.

20 A I would assume that the local cable systems 21 are playing the local signal as well as the imported 22 signal.

23 Q Now, you are familiar with the PCC syndicated exclusivity rules, are you not?

25 A Yes, I am. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 858

Q And, in fact, you reference them in your testimony, do you not?

A Yes.

Q Are you aware that the current rules were

adopted by the FCC effective January 1, 1990?

A That's what I remember.

MR. GARRETT: Madam Chairman, let me at this time have marked as Sports Exhibit 12-X, and ask the Tribunal to take official notice of the Report and 10 Order of the FCC in which it adopted the current version of the syndicated exclusivity rules.

12 (Nhereupon, the document 13 was marked for identification as Exh.

15 No. JSC 12-X)

16 Madam Chairman, will the Tribunal take 17 official notice of this document so it can be included 18 in the record?

CHAIRPERSON DAUB: Ne will take official 20 notice of it.

21 BY MR. GARRETT:

22 Q Now, Mr. Green, my understanding of the 23 rules that were adopted in this Report and Order, it

would allow station KDOB to require the Bakersfield

25 cable system to black out the Flintstones if KDOB had NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 859 bargained for exclusivity protection, is that not right?

A I believe that's true.

Q And the same would be true for KDOB, had it bargained for exclusivity protection of the FCC rules, to black out the importation of Andy Griffith on KTTV, correct?

A It could.

Q And I could say the same thing about each 10 of the different programs, correct?

A Yes.

12 Q Now, when I look at your Exhibit 2, you 13 indicate there that -- on the first page, do you see that, up at the top under the Bakersfield example, 15 over on the right-hand side, do you see that?

A Um-hmm.

17 Q The pick of stations you show being 18 affected by the spillover problem that you identified

19 on the first page of your Exhibit 2 are stations KDOB, 20 correct?

21 A Yes.

22 Q KERO, correct?

23 A Yes.

24 Q And KBAK, correct?

25 A Yes. MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 23~3 WASHINGTON, D.C. 20005 (202) 234-4433 860

Q Now, each of those stations could certainly have eliminated the problem caused by one version of this spillover that you identified? Theoretically, they could, yes, if they had the right to do that in the contract. And that was a right, that they gained for the first time in 1990, correct? They gained the right to bargain for that right, yes.

10 Q They did not have that, right in 1989, correct'?

12 A No.

13 Q And you are aware there are, of course 14 there was a version of the syndicated exclusivity 15 rules that were in effect up until 1981, correct?

A Yes, that's true.

17 Q And under those rules, however, a station 18 in Bakersfield would not have been able to bargain for 19 exclusivity, is that not correct?

20 A I believe that's true.

21 Q And that's because Bakersfield is located 22 in a -- Bakersfield is a smaller market, correct?

23 A That is a smaller market.

Q And cable systems in the smaller markets, 25 under the old rules, did not have to black out any NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 861 programming pursuant to syndicated exclusivity, isn' that right?

A I think I will accept that.

Q You'e not certain?

A That's a period before my entry into the business.

Q Okay. I was just a young lad at the time. The Motion Picture Association was very active, was it not, in the mid '80s, trying to 10 persuade the FCC to adopt the syndicated exclusivity rules?

12 A I actually don't know that of my own 13 knowledge.

14 Q Are you aware that the FCC had initiated a 15 proceeding in 1987?

16 A Yes, I'm aware of that.

17 Q And that, proceeding was intended to 18 reinstitute the syndicated exclusivity rules, correct?

19 A Yes.

20 Q And is it your understanding that the 21 Motion Picture Association participated in that 22 proceeding, urging the FCC--

23 A I would

24 Q Let me just finish. I know it's a problem, 25 you just have to trust me -- that the Motion Picture NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 862 Association actually participated in that proceeding that commenced in 1987, urging the FCC to adopt syndicated exclusivity rules?

A Yes, that may very well be.

MR. GARRETT: Madam Chairman, at this time let me just have marked as Sports Exhibits 13-X and 14-X, extracts of comments filed by the Motion Picture

Association of America, in the FCC Syndex proceeding. Thirteen-X will be the comments filed on July 22, 10 1987, and 14-X will be the Reply Comments filed in that proceeding by the Motion Picture Association and,

12 more precisely, they are extracts of the comments. 1: 13 do have a complete set of comments if anyone wants to look at them.

15 (Whereupon, the document 16 was marked for 17 identification as Exh.

18 No. JSC 13-X and 14-X

19 respectively)

20 BY MR. GARRETT:

21 Q Mr. Green, let me just ask you to refer for 22 a moment to Sports Exhibit 13-X, which are the

23 original comments filed by the MPAA in the Syndex proceeding, do you have that before you'?

25 A Yes. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 863

Q Let me just direct your attention to pages 42 through 47, and ask that you review those for a moment.

A (Perusing document.) Okay.

Q Have you had an opportunity to review the document?

A Yes, I have, just the 42 through 47.

Q Good, very obedient. Had you seen the comments filed by the 10 Notion Picture Association in that proceeding before today?

12 A No, I haven'. Probably read about them in 13 the trade papers.

14 Q Would it be fair to say that the Motion 15 Picture Association, in the passages that you'e just 16 looked at here, was also concerned about the impact of 17 audience fractionalization coming from distant 18 signals?

19 A Yes.

20 Q And they were very concerned about the 21 spillover we'e been talking about this morning?

22 A Yes.

23 Q And, in fact, if you take a look at Sports 24 Exhibit 14-X, the Reply Comments -- and just focus on 25 page 32, for example — is it fair to say that there, NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 2344433 864 again, the Motion Picture Association discusses the spillover problem?

A (Perusing document.)

Q Do you want me to repeat the question?

A Yes.

Q Is it fair to say, in the Reply Comments

which MPAA filed and which I'e just shown you in

Sports Exhibit 14-X, that MPAA also exhibited a concern there with the spill-in problem -- I'm sorry, 10 was it. spill-in or spillover?

A Spill-in.

12 Q -- spill-in problem that you'e discussed 13 here this morning?

A Yes, it's true.

15 Q And is it fair to say that n response to

16 the concerns expressed by the MPAA, and others, the

17 FCC adopted the syndicated exclusivity rules?

18 A Yes, it may well be.

19 Q That the FCC's response to the types of 20 problems that. you'e discussed here this morning was

21 to allow stations like KDOB to bargain for exclusive 22 rights, with the syndicators you represent, correct?

23 A That's correct.

24 Q And had they bargained for those rights, 25 they would have a complete remedy against the problems NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 865 that you'e identified here as well?

A They would.

Q How, you'e identified that as one of the differences from the old rules that existed back in the late '70s and early '80s, was the small market, do you recall that?

A Yes.

Q One other difference was the way "grandfathered" signals were treated, right?

10 A Yes.

Q Nhat is your understanding of a 12 "grandfathered" signal?

A Nell, it's difficult because I don't recall exactly what happened in that. period but, genexally, 15 a grandfathered signal would mean a signal that is 16 already received, has been received at the point that 17 the rule was passed, could continue to be received 18 sometimes for a limited period, or permanently, and 19 would not be subjected to syndicated exclusivity.

20 Q If they had been carrying the signal prior 21 to a certain date, then they wouldn't have to -- the 22 cable system wouldn't have to black it out under the 23 syndicated exclusivity rules?

24 A Correct.

25 Q As I look at the -- are you familiar with NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 866 the Statements of Accounts that cable operators file with the Copyright Office'

A Mo, I'm not.

Q Well, as I view the Statements of Account for the two cable systems in Bakersfield, Cox and

Warner, KTTV was a grandfathered signal. Assume that for the moment.

A Okay.

Q So, only apart from the small market

10 exception under the old rules, KDOB would not have

been able to get any kind of exclusivity against KTTV because of the grandfathering exception, correct?

13 A Okay.

Q Now, the FCC's syndicated exclusivity rules 15 apply not only in the smaller markets, but in the larger markets, too, correct?

A Yes, they do.

18 Q In the top 50 markets you have syndicated 19 exclusivity protection?

20 A It's available.

21 Q And it's also available in the second 50 22 markets, correct? 23 A Yes, it is.

Q The only place it's not available today is 25 the outside markets somewhere between Topeka and NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 867 Kansas City, correct?

A There are exceptions to the applicability of syndicated exclusivity. Certain kinds of signals cannot be excluded„ that's true.

Q But if you'e a cable system that's located outside-of-all-TV-markets, then you don't have to afford any kind of syndicated exclusivity.

A That's correct, yes.

Q And that's because you'e not selling 10 the syndicator is not selling to any station in those

markets. By definition, it's outside-of-all-markets, 12 correct?

13 A That's correct.

Q So, we don't have a spillover, or spill-in, 15 or whatever you call it, problem in outside markets, 16 do we?

17 A That's correct.

18 Q Do you know in--

19 A Mell, you have a problem, but you can't do 20 anything about it. 21 Mell, there's no broadcaster, right? 22 Actually, if Dennis or I had been-- It's outside the protected zone. 24 It's outside the protected zone. 25 It doesn't mean there's no broadcaster. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 868

Q If Dennis or I had been better on our geography, we would know that Topeka is so close to Kansas City that their zones actually overlap.

A But is that the protected zone, or is that simply the zone of the signals?

Q I think it's the specified zone -- it's the 35-mile--

A They are actually within 35 miles of one another? Oh, the 35-mile zones overlap. I see what 10 you'e saying.

Q Have you ever been to Topeka?

12 A No.

13 Q I haven't either.

A I'e been to Kansas City, but I'e never been to Topeka.

16 Q Let me just--

17 COMMISSIONER GOODMAN: I think you also

18 characterized those as market A and market B just in 19 case we were on a spot that Topeka and Kansas City--

20 MR. GARRETT: I wasn't certain how familiar 21 you all were with Topeka. I did protect myself. 22 Let me just put into the record at this 23 point, another exhibit which I'l mark as Sports 24 Exhibit 15-X. This is a printout that I obtained from

25 Cable Data Corporation, the MPAA consultants, a couple NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 2344433 869 of months ago, and it contains data -- a breakdown of

Form 3 systems in the second accounting period of 1990. (Whereupon, the document was marked for identification as Exh. No. JSC 15-X) Dennis, I would ask if, when you'e had a chance to check with Cable Data, if we couldn'0 just 10 stipulate to the accuracy of the data that's contained in this exhibit.

BY MR. GARRETT:

Q According to Mr. Larson, Mr. Green -- that is, according to Cable Data Corporation -- in the second half of 1990, there were approximately 302 Form

3 cable systems located outside-of-all-TV-markets.

18 Q Out of a total of about 2,115 Form 3 19 systems. Does that sound about right to you?

20 A I have no knowledge of that.

21 Q And Mr. Larson also indicates that those

22 302 systems were responsible for, I guess, about 5

23 percent of the total royalties paid by all Form 3 systems during the second accounting period of 1990.

25 Do you have any other data? MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 870

A No, I have no other data.

Q Mr. Green, let's go back to the Bakersfield example. Is it, your understanding of the PCC rules that had the local stations bargained for exclusivity and insisted that cable systems black out the imported

A Had they bargained for syndicated exclusivity?

10 A And had they gone through the entire protocol that, is required to exercise those rigbts--

Q Right. They have to notify the cable system to black out. the different, programs, right.'?

A Right.

Q In order to enforce their right, they'e actually got, to send the letters to the cable systems 17 telling them that they own the exclusive rights to 18 this programming and, therefore, they'd better not 19 carry it, right? 20 A Correct.

21 Q And had they done that, then the cable 22 system would have been legally obligated to black out,

23 the programming on KTTV'?

A Right, although I thought -- in this particular example, I thought, you mentioned that KTTV NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 871 was grandfathered.

Q Nell, let me make that

A In other markets, you could interpolate this, where there isn'0 a grandfathered signal.

Q Nell, that's true, and this is really intended to be an example, but I'm glad you brought that up because I forgot to ask you the other question. It's true, is it not, that under the new 10 FCC Syndex rules, the ones that went into effect in 1990, there was no grandfathering exception?

12 A I believe that's true.

Q So, it doesn't make any difference if KTTV was grandfathered under the old rules?

15 A Correct.

16 Q Under the new rules, the cable system would 17 still be obligated to black it out, correct?

18 A I guess that's true.

19 Q Mow, if they do black it out, they are then 20 entitled to substitute other programs, are they not?

21 A The cable operator?

22 Q Yes.

23 A Yes.

Q And they could substitute programming from 25 any source, correct? MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 872

A Yes, they could.

Q All right. Let's mark as Sports Exhibit 16-X, portions of a Statement Account for the first half of 1990, for a cable system located in Lackawanna, New York. I'm going to move to the other side of the country. (Whereupon, the document was marked for identification as Exh.

10 No. JSC 16-X) I just want to use this as an example here, 12 Mr. Green. If you take a look at the third page of 13 this Statement of Account -- you said you are not familiar with the Statements of Account?

15 A No, I'm not.

16 Q It says there that this particular cable 17 system carried certain substitute programs, do you see 18 that?

19 A It's labeled page 5?

20 Q Yes, I'm sorry.

21 A The attachment.

22 Q Okay. And it appears that all of the 23 substitute programming in this case happen to be Yankees telecast on WPIX, except for the St. Patrick'

25 Day Parade, also on WPIX, correct? NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 873

A Yes.

Q And if you go to actually the final page of this exhibit, which consists of a letter from the cable operator to the Copyright Office, it. indicates there that the reason those substitute programs were carried was because they are required to black out syndicated programming on some other distant signals that they carried. To be precise, it actually says, "comprised largely of syndicated programming required 10 to be blacked out", do you see that?

A I'm not. finding it.

12 Q It's the very last page on Sports Exhibit 16-X.

A Oh, I see, in the second to last paragraph?

15 Q Yes.

16 A Right.

17 Q So, at least in this particular case, we 18 have a cable operator who, in order to provide the

19 protection that MPAA requested from the PCC, would

20 black out. syndicated programs and bring in some of my 21 clients'rograms, correct?

22 A Yes.

23 Q And in that particular case, their copyright. fee doesn'. change one bit, does it?

25 A I don't believe so. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 874

Q The cable system pays the same even though it is now bringing in these Yankee telecasts on WPIX in order to protect your exclusivity.

A Right.

MR. LANE: Madam Chairman, I'm going to object to this line of questioning because when one looks at the station carriage complement, which is the second page of this Statement of Account, to the extent, you can read it, which is another problem, it 10 appears there are four distant signals on this station. The first two are Canadians, as you can tell 12 by reading the first call letter, being "C" in both

13 cases, and the last two stations, which are WWOR and

WTBS.

15 Now, the only blackout stations under the 16 Syndex rules could be one of those four stations. And 17 the last page of this exhibit says that they 18 substituted from the Canadian station, so we have to 19 surmise that they'e not substituting programming on

20 the Canadian stations, which leaves WWOR and WTBS, and 21 those are both blackout-proof stations. 22 So, I would question the whole basis for 23 this line of examination, unless there is further 24 explanation by Mr. Garrett of what was really going on 25 here. I would see a lot of problems with this MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 875 statement, just reading it -- and only having had it for two minutes.

MR. GARRETT: Are you not claiming for syndicated programming that might appear on those Canadian signals?

MR. LANE: I'm saying that the letter says they substituted programming from Canadian stations, so I'm assuming they are not substituting on those Canadian stations, but I don't really know what they 10 are doing. It's difficult for me to understand what' going on here, without some further explanation. 12 I also note the last page refers to an 13 August 6th letter as giving a fuller explanation, 14 which we don'. have in this exhibit. So, I think this 15 is an incomplete exhibit, and I would object to its introduction and any questions based on it.

17 BY MR. GARRETT:

18 Q Let me ask you this, Mr. Green.

19 MR. LANE: Nell, I would like a ruling on

20 my objection, Madam Chairman, before we continue.

21 MR. GARRETT: I'm going to move off the 22 exhibit, and I'l try to avoid the issues that he' 23 raised, unless you'd like me to respond to them. I will respond to them. I mean, I think it's self- 25 explanatory here. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 876 This particular cable system is blacking out programming under the syndicated exclusivity rules. It says precisely that in this letter. Once they black out the programming under the syndicated exclusivity rules, they are substituting other programming. It happens to be programming from WPIX. It happens to be Yankees games. It happens to be

telecasts of my clients here. And the only point that we'e establishing

10 here is simply that, under the PCC rules, cable systems could do precisely that. They could black out, the

syndicated programming, for which MPAA claims, and substitute other programming, and that's it. And it'

simply an example ~

COMMISSIONER GOODMAN: So far, we haven', had a problem with it, but I think a potential problem of our hearing is that when each of you submits or 18 identifies a document. as an exhibit, obviously you are 19 presenting it for a particular purpose, and rarely, if 20 ever, has anybody specifically stated the particular 21 purpose. Generally, people just mark something and 22 say it's marked and we talk about it, which is a good 23 shorthand way of getting into it. The problem with that, though, is that it 25 always makes possible an objection similar to the one NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 877 that Mr. Lane has just raised, namely, an objection which goes to an issue which you may or may not be interested in introducing the exhibit for. As I understand in this case, it sounds like you'e distinguishing the purpose of this exhibit from the purpose that Mr. Lane, I guess, has spawned his objecti'on. I don't quite have a suggestion as to how we avoid it happening in the future, without having 10 you have to specify particularly what the exhibits are introduced for.

12 MR. GARRETT: Well, Commissioner, my 13 understanding of the FCC's rules is that we are 14 entitled to introduce on cross-examination--

15 MR. LANE: CRT.

16 MR. GARRETT: I'm sorry?

17 MR. LANE: CRT rules.

18 MR. GARRETT: Whatever. 19 (Laughter.) 20 I know under somebody's rules we can do

21 this. We can introduce an exhibit and the Tribunal 22 distinguishes between doing it for "impeachment" 23 purposes and doing it to actually put into the record as substantive evidence. Impeachment purposes -- and, 25 again, I don't think that's quite the right word MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 2344433 878 because it's not always impeachment, I'm not trying to impeach the testimony here of Mr. Green, I'm simply trying to illustrate a point using specific facts that are found in a document that's on public file with the Copyright Office. I don't intend to submit a Proposed Finding here, you know, that our award ought to be based on the fact that this system here is substituting this particular programming for syndicated programming, and 10 I think I'm allowed to discuss with the witness the general issue of substitution, how it fits in with the 12 FCC's rules, how it impacts upon Sports interests and other parties, so that the Tribunal can get a better understanding of how these rules operate, and then we

15 can make our own arguments and our Proposed Findings 16 based on that, later on. That's the only purpose for 17 this at this point, and I certainly think that that is 18 something that is consistent with the Tribunal's rules 19 and has been allowed in the past.

20 COMMISSIONER DAMICH: I guess my problem 21 here is that. -- and I understand the point of the 22 substitution of your kind of program for the blacked 23 out signal, and that is what this says. But the problem is that if you are introducing this to prove 25 that a station has done this, then what Mr. Lane says NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 879

bothers me -- and it makes your point, but Mr. Lane raises a question of the fact of whether or not it truthfully stated the actual state of events in this form. If you can explain that, then I would have no problem with it.

MR. GARRETT: I certainly think that' exactly what happened here, and I thought that a fair reading of the documents that I provided substantiated

that. But my interest in going on to another question 10 here in order to avoid this argument, was that, that, particular fac't is not important. I't's no't tha,t "this cable system did it with this particular signal", it' how it all fits in with the FCC's overall rules. And I'm glad to keep arguing about this

particular system or what it. did with NPIX, but. my intent was to simply get, back to the PCC's rules and generally what, happened in this area. This is simply an example of how it all happens.

19 COMMISSIONER DAMICH: But that's my 20 problem. How can it be an example unless you answer 21 Mr. Lane's criticisms? It's an example of a station 22 that thinks it did what you said it did but, because of Mr. Lane's problem here -- and I have a problem as

well -- it may not be actual factual proof that this 25 station, in fact, did this. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 880 So, I suppose I would allow it to be admitted for an illustration of a station that thinks it did this, but not for the fact that it actually did

MR. LANE: Nell, I'm not, objecting because they may have actually done this, I'm just, questioning whether it has anything to do with the Syndex rules or the cable system was actually just using the Syndex rule as smoke to hide something that they were doing

10 illegally which, in my judgment and experience, is something that happens quite frequently with cable 12 systems. And I have no objection -- indeed, we have 13 put in testimony -- that there are substituted programs for programs that are blacked out because of 15 the syndicated exclusivity rule, but this particular 16 exhibit, is attempting to show that baseball games were 17 substituted.

18 Now, there are a lot of problems. You 19 start off, a baseball game is three hours long. There 20 are very few syndicated programs that are three hours 21 long. And we'e have to figure out, is there a string 22 of syndicated programs that happens to fit the same 23 time periods that are listed here.

MR. GARRETT: Mr. Lane's understanding of

25 the PCC rules is incorrect. The PCC rules provide NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 881 that if they are required to black out a program for a half an hour and they substitute another program, they may then carry that substituted programming to its completion, even though the programs following the syndicated program may not be ones that are required to be blacked out. That, I think, is exactly what the

FCC rules provide, and why this particular exhibit is certainly not inconsistent.

COMMISSIONER GOODMAN: Mr. Garrett, would 10 you restate the purpose fox'hich you are introducing this exhibits

MR. GARRETT: Simply to illustrate -- to 13 give a factual situation to help illustrate what the impact was of the syndicated exclusivity rules.

COMMISSIONER GOODMAN: Are you issuing as 16 evidence that, in fact, that's what they did, ox as an illustration of what they—

18 MR. GARRETT: I'm perfectly comfortable in 19 limiting this evidence here to the limitation 20 Commissioner Damich suggested -- that is, what the 21 cable operator thought he was doing as opposed to what 22 he actually did. The purpose that I think that I'm 23 dealing with this, whether the cable operator thought 24 he was doing something, or whether he, in fact, was 25 correct in what he thought, or whether he was, as MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 882 Dennis suggest, violating the law here somehow, is irrelevant. The important point is that he was making these substitutions, or he thought he was making these substitutions and so advised the Copyright Office that he made these substitutions.

MR. LANE: Well, I don't agree with that because the importance is -- what Mr. Garrett is trying to say to you is that the Syndex rules required 10 this, and what I'm saying to you is that, you cannot tell from this document that the cable system was 12 required by the Syndex rules to do what it did but, in fact, may be using the Syndex rules as a smokescreen to hide something that it's doing illegally. I have no doubt that there was substituted programming during these periods. What I question is whether it was required to do that by the Syndex 18 rules, which is what Mr. Garrett is attempting to 19 prove with this exhibit.

20 COMMISSIONER GOODMAN: Can we just look on 21 this for illustrative purposes only, because I will 22 suggest to you that the end result of the proceeding 23 probably will not depend on what a cable operator did in Lackawanna. So, if you would simply limit this 25 just as illustration, not dissimilar to walking over MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 2344433 883 to the easel and just writing cable system A.

COMMISSIONER DAMICH: Let me ask this one

question, Mr. Lane. What you'e saying is that WWOR

and TBS are not affected by Syndex, right?

MR. LANE: That's correct.

COMMISSIONER DAMICH: And what about the Canadian stations?

MR. LANE: I am confused what they are saying about the Canadian stations, quite frankly, 10 because the last sentence -- if you look at the last page, the last sentence of the last full paragraph states: "Additionally, all programming deletions were made from Canadian stations which carried Canadian- oriented programming even in Prime Time". So, one 15 would suspect that if they were substituting on the 16 Canadian stations where they have to carry Canadian 17 programming, it's not programs that are carried on 18 United States stations that could be blacked out. In 19 other words, it would not be a program like Cheers, 20 just as an example, it would be some Canadian program 21 that might not be subject. 22 So, I'm very confused, is the best answer 23 I can give you, about what was going on, but you are

correct, OR and TBS were blackout-proof on the distant 25 signal basis. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 884

MR. GARRETT: Nell, that's not necessarily

true, Dennis. If NOR was being carried via microwave system, then it wouldn't be. MR. LMIE: Nell, I don't know whether that's true. You'e saying Eastern Microwave did not change the feed on the microwave system, but on the satellite system? I don't know whether that's true or not true.

MR. GARRETT: I'm happy just to talk in 10 general terms here, and move away from Lackawanna, New York, if that's the Txibunal's preference.

CHAIRPERSON DAUB: Thank you. Please

13 continue.

BY MR. GARRETT:

Q Mr. Green, is it, in fact, the case that if 16 a program is blacked out pursuant to the syndicated 17 exclusivity xules and a substituted program put in its 18 place, the substituted program may be carried to its 19 completion?

20 A I believe that's true.

21 Q And, in fact, if you look at Sports Exhibit 22 12-X, the FCC's Report and Order, on page 5332, do you 23 have that before you?

24 A Yes.

25 Q Section 76.161 of the FCC's rules. Do you NEAL R. GROSS COURT REPORTERS AND TRANSCRISERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 885 see that, Mr. Green?

A Yes, I do.

Q And do you see the final sentence there says, "A program substituted may be carried to its completion, and the community unit need not return to its regularly carried signal until it can do so without interrupting a program already in progress"? Yes, I do. Is that your understanding of the FCC's 10 rules?

A Yes.

12 Q Mr. Green, is it your understanding that if 13 the cable system substitutes a non-broadcast program 14 for one blacked out under the syndicated exclusivity 15 rules, that. it is not required to report that fact to 16 the Copyright Office?

17 A I don't know, I'm not familiar with that.

18 Q Are you familiar with the substitution

19 rules that existed under the old FCC rules, the ones 20 that were in effect prior to 1981?

21 A Ho, I'm not.

22 Q Do you know how they differed, if at alii 23 from the rules adopted by the FCC effective in 1990?

24 A No. I'm sure I read them at the time, but 25 I don't deal with them on a daily basis, so it's not NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234~3 WASHINGTON, D.C. 20005 (202) 2344433 886 something I recall easily.

Q Now, Mr. Green, let me just ask you to turn

again to the comments that were filed by the MPAA in the Syndex proceeding, Sports Exhibit 13-X.

A I have it.

Q And you told me before that you dutifully stopped at page 47, correct?

A I did, yes.

Q Let me ask you to pick up again with page 10 48, and ask that you just read it through generally to the end.

12 A (Perusing document.) Okay. My exhibit 13 stops at the bottom of page 52. Is there more?

Q Yes. Well, that's all I need you to read, 15 but I do have the whole exhibit here. Would you like the rest of it?

17 A No.

18 Q Now, in your earlier testimony, you 19 described the risks associated with syndication, 20 correct?

21 A Correct.

22 Q And you talked about the deficit financing 23 problems.

A Yes.

25 Q And the need to recoup your expenses in NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 887 syndication, do you recall that testimony?

A Yes, I do.

Q Is that essentially the same point that is

being made here by the MPAA?

A Yes, it is.

Q Mow, the MPAA also talked about the problems inherent with syndication and deficit financing and all that in its comments before the FCC, correct?

10 A Yes.

Q And that was an argument they also made in order to get the PCC to reimpose the syndicated exclusivity rules, correct?

A I believe that's true.

Q And that argument i.s the same one you are 16 advancing here this morning as well, correct?

17 A It is.

18 Q And has that argument been used by the 19 Notion Picture Association in any other proceedings in 20 order to obtain particular types of--

21 A I don'0 know, of my own knowledge.

22 Q Mell, what about the financial interest and 23 syndication rules, are you familiar with those rules.

A I'm somewhat familiar with them. I'd be 25 surprised if they didn't make that argument. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 888

Q Let me just have marked as Sports Exhibit 17-X a couple of extracts of the filing made by the Coalition To Preserve the Financial Interest and Syndication Rule before the FCC, dated June 14, 1990. (Whereupon, the document was marked for identification as Exh. No. JSC 17-X) Are you familiax with the Coalition To 10 Preserve the Financial Interest and Syndication Rule?

A Somewhat familiar.

12 Q Could you identify who that group is? 13 A I believe it is primarily producers of pxogramming who have an interest in the syndication 15 market.

MR. LANE: Madam Chairman, might I ask Mx. Garrett if the fixst page of this states who are 18 members of the Coalition, the first page of these 19 comments, which we only have starting with page 20.

20 CHAIRPERSON DAUB: Mr. Garrett, could you 21 provide the list of members of this Coalition' 22 MR. GARRETT: The list actually goes on for 23 several pages, Madam Chairman.

COMMISSIONER GOODMAN: Couldn't we just 25 have a stipulation that. the members of the Coalition- NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 889 as to a list of the members? Do we need a list of the members at all?

MR. LANE: I don't think so, but I'd like it noted for the record.

COMMISSIONER GOODMAN: Could Mr. Garrett give some representation and see if Mr. Lane agrees?

MR. GARRETT: Attached to the comments

filed with the FCC are four pages of entities who are all identified as being the Coalition To Preserve the 10 Financial Interest and Syndication Rule. I don't know whether you want me to read all four pages into the 12 record, Dennis, or what, but there's the whole set of

13 comments.

MR. LANE: I'd like you to show it to the 15 witness so that when you ask a question if he knew--

MR. GARRETT: Okay. (Handing document..)

BY MR. GARRETT:

18 Q By giving you those pages, Mr. Green, does 19 that give you a better understanding of who the 20 Coalition is?

21 A Yes, it does.

22 Q And could you, for the record, just 23 describe generally who the Coalition consists of?

A It seems to be a very broad spectrum of 25 people who have interests in various aspects of the MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 890 television business, including industry organizations that represent producers and directors, labor unions and guilds who represent, people who work on productions, independent stations in various markets, producers themselves who produce programs for networks I recognize those -- and who would benefit from syndication. There's quite a large number of those. That seems to be the greatest number.

Q Any individuals who would be members of the 10 Motion Picture Association?

A I'm not familiar with the membership of the 12 Association itself, beyond the major studios, so I 13 don't know. I know they represent many more people than the major studios. I'm probably not qualified to 15 comment on it. At first glance, I didn't see the major studios on the Coalition. Lorimar Television 17 probably would be connected at least through Warner, 18 Time-Warner. I would suggest that probably some of 19 the others are, too. Bueno Vista Pictures is.

20 CHAIRPERSON DAUB: Mr. Garrett, just to

21 refresh my memory, the opposing parties on this issue, 22 on the Coalition list that was just cited, were they 23 the networks?

24 MR. GARRETT: I believe that's correct, 25 Madam Chairman. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 891

BY MR. GARRETT:

Q Is that right, Mr. Green, the networks are the ones who wanted to change or abolish the Financial Interest and Syndication Rules, is that correct?

A That's correct.

Q Now, let me just ask you to turn to page 23 of Sports Exhibit 17-X.

A (Complying.)

Q That paragraph there again, the fist full 10 paragraph, do you usee that?

A Yes.

12 Q There's reference there again to the 13 deficit issue that we'e discussed here this morning?

A Right.

15 Q Then you go on and you see where it' 16 underscored -- do you see the underscoring?

17 A Yes, I do.

18 Q It says there that "syndication revenues 19 have dropped sharply in recent years, especially for 20 one-hour shows". Is that a fair statement by the 21 Coalition?

22 A It's fair, but not complete. I think that, for one thing, it's not, clear to me what they base their information on, but in most of the discussions 25 that I'e seen of revenue reduction, they'e talking NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 892 about license fees. They are not accounting the shift to barter during this period, which was enormous. Barter grew at an extraordinary rate in the same period. And I think that the shift to barter from fees was partly a result of the economic difficulties that a lot of stations experienced in the mid '80s, with the recession, and local market conditions within a soft advertising market and, indeed, off-network is bought on the expectation that inflation will 10 continue, and a lot of stations were caught. short. because it didn'. Inflation stopped. And they had 12 paid prices in the expectation of a cextain level of revenue. That revenue wasn't there. And we had a whole flurry of bankruptcies in 1986 and 1987 and, as 15 a result, the stations tended to be less willing to spend actual dollars and more willing to provide time 17 and share the risk with producers. Most of these 18 statements don't take that into account.

19 Q The statements by the Coalition here don' 20 take that into accounts

21 A Things that I'e read in the trade papers 22 that, are similar to this as well.

23 Q I'l have to point that out to the networks 24 but, so that I understand that, the two forms of 25 revenue from the syndicator is barter and cash, NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 2344433 893 correct?

A Correct.

Q And what you see is the barter revenues kind of going up during this period?

A Yes.

Q And the cash fees are staying flat or maybe declining, is that correct?

A For certain types of programming. Now, a successful program, a smash hit. on the network, is 10 going to draw very, very large cash fees as well. An example is Cosby, which skewed the whole comparison.

12 TI(then it came out, it was so phenomenally successful on

13 NBC that the stations went to great lengths to spend money to purchase it, even though it also contained 15 some element of barter in it. I don't think it 16 performed as well in syndication as their expectation 17 from the network was, that's one example. 18 Currently, the Simpsons is being marketed 19 now, and it is drawing very high license fees as well 20 as containing barter. So, this fluctuation goes on.

21 Q They say also on pages 23 and 24 here, the 22 Coalition, that even for half-hour shows, the market 23 has softened that accumulated enough episodes but. were 24 not big network hits. Is that statement really only 25 confined to barter programming as opposed to that sold NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 894 on a cash license basis'2

A When they talk about -- now, I didn' prepare the exhibit, and I wasn't involved in it, but when they talk about market softening in this kind of context, I think they are talking primarily about how much money a station is willing to pay. Generally, discussions of the barter side are discussions of the advertising market. And in the earlier period, in the early mid '80s, '83, '84, the advertising industry 10 declined to give the recognition to the syndication marketplace that it now gives it. It is now highly 12 competitive with network itself.

13 Q Nould it be fair to say that you get sort of a different picture of the syndication business, 15 depending on whether you'e focusing on the barter side as opposed to the cash license fee side?

17 A Nell, what I do is constantly to deal with

18 those and, in my earlier days at Paramount, barter was 19 sold by one of the sales people. And I was 20 responsible for administering the barter sales as well 21 as the cash sales. And it grew so phenomenally in the 22 period of the mid '80s and toward the late '80s, that 23 Paramount had to form a separate company called Premier Advertiser Sales, that has its own staff and 25 does nothing but sell barter in its own programs MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 895

and it's a partnership, I think, with MCA at Pox. There is a separate sales staff that deals only with advertisers. And the component that advertising represents in first-run programming, in particular, and now, indeed, in off-network -- Doogie Howser was sold for two seasons that included barter and then a cash fee after that. Star Trek was a phenomenon the Next Generation -- that really pushed that to the fore. It was a pure barter sale.

10 Q Ne had an exhibit that was introduced yesterday, Mr. Green, that pxovides the revenue figuxes, I undex'stand, for barter programming. I'm 13 referring now to Exhibit P attached to Mr. Thrall's

testimony. Do you have that befoxe you2' Q AndYes'7 this appears to show the growth of barter revenues during the period 1986 through 1993, 18 is that corrects

19 A That's correct.

20 Q This growth is limited just to the barter 21 revenues, is it not'? 22 A That's what it appears to be.

23 Q Do you have any understanding, if we looked 24 at the cash license fees, what the chart would look 25 like? NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 2344433 896

A Mo -- what the chart would look like if you added it in, or what—

Q If you had a separate chart for what

A Cash license.

Q -- yes, what broadcasters were actually paying to syndicators for syndicated programming.

A I'm not familiar because I don't follow

that. My experience is basically with what I see

coming across my desk in the way of contract and 10 license fees. And, basically, a show that is looked upon as being very successful will draw higher license 12 fees than one which is being purchased to fill a time 13 period and is considered high risk will not draw 14 higher license fees. If it's a first-run pxogram and it does well in its first season, it will draw highex 16 license fees in its second season. So, it's a complete mix. 18 I know that people keep statistics on that, but I'm not one of them.

20 Q If we take all of the successful and not so 21 successful shows and put them all

22 A You could get an average. I couldn't tell 23 you now what it would look like.

Q Okay. That's fine. Let me just also ask 25 you to turn to — strike that. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 2344433 897

CHAIRPERSON DAUB: Incidentally, that exhibit was introduced day before yesterday.

MR. GARRETT: Was it that long ago? (Laughter.) Madam Chairman, I don't know what the Tribunal's pleasure is, but I'e got another area that I was going to move into and it may take a while.

CHAIRPERSON DAUB: A while means?

MR. GARRETT: Forty-five minutes. 10 (Discussion off the record.)

CHAIRPERSON DAUB: Ne will take our lunch

12 break now, and we'l be back at 1:30. (tI(thereupon, at 12:05 p.m., the luncheon 14 recess was taken.)

25 MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 898

AFTERNOON SESSION (2:05 p.m.)

CHAIRPERSON DAUB: Back on the record. Mr. Garrett, please proceed.

BY MR. GARRETT:

Q Mr. Green, let me just ask you to turn to Sports Exhibit 17-X, the comments of the Coalition to Preserve Financial Interest and Syndication Rule. It's the second page of the document, page 20 at the 10 bottom, do you see that?

A Yes.

12 Q There's a statement there -- "Since the mid 13 1980s, the networks have essentially frozen license 14 fees for new programs, permitting a standard increase

15 of approximately 2 percent each year as compared to 8 to 10 percent previously for new series programs", do

17 you see that?

18 A Yes, I do.

19 Q There's a footnote that references the 20 source of that information, and there's an attachment 21 which is the last page of this document, do you see 22 that?

23 A Right.

Q It's a graphic that depicts that statement.

25 A Right. MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 899

Q To the best of your knowledge, is that an accurate statement made by the Coalition?

A It certainly is supportive of my own testimony, which is that the network fees have not grown in proportion to the costs.

MR. GARRETT: Thank you, Mr. Green. That' all that, I have on cross-examination. I do want to just correct something for the record here.

In my debate with Mr. Lane, I had cited, 10 and actually quoted from, Section 76.161 of the FCC's rules dealing with substitutions. The portion that I 12 quoted was subsequently amended by the FCC so that it 13 now reads: "A program substituted may be carried to its completion", and the final clause was deleted. I 15 had read the entire clause into the record earlier. The Commission, in explaining what it did-

— and I'm quoting now from a document. released March

18 2 1 I 1 9 8 9 i FCC Record, page 2 7 1 1, stated in Footnote 19 209: "Ne are modifying the language of this section 20 to clarify that a cable system may carry a substituted 21 program until completion, and need not return to the 22 regularly carried signal until it can do so without 23 interrupting the substituted program". I don't think 24 it changes the substance of what I said, but I didn' 25 want to leave the incorrect impression in the record NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 900 that the language I quoted was, in fact, still the law.

CHAIRPERSON DAUB: Thank you, Mr. Garrett.

MR. GARRETT: Thank you.

CHAIRPERSON DAUB: Mr. Stewart'

COMMISSIONER GOODMAN: Could I ask one question of the witness? Maybe Commissioner Damich could help me out. I picked up the tail-end of a comment that 10 somebody had made, and I don't know if you made it, or your agreed with it, but at least you'e the focal

point for my trying to trace it down -- that WWOR and

13 WTBS were, at least in one instance, Syndex-proof?

THE WITNESS: That, was a comment that was 15 made during the exchange over the -- between counsel.

COMMISSIONER DAMICH: That was Exhibit 16- 17 X. I was simply x'epeating what I thought I heard Mr. 18 Lane say.

19 MR. LANE: That's what I said.

20 COMMISSIONER GOODMAN: You said that?

21 MR. LANE: Yes.

22 COMMISSIONER GOODMAN: Could you explain 23 that a little bit? MR. LANE: It's two different situations.

25 WTBS is Syndex-proof because it has national broadcast NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 901 rights for all its programming, so it is able -- as

you know, under the FCC rules, you can get national broadcast rights, and TBS has that for all the programming it carries.

WWOR, in essence, has two feeds. What is

shown over-the-air may be protected by the blackout rules, but Eastern Microwave, the common carrier, substitutes programs, and so what. goes out on the satellite as a distant signal is a different set of 10 programs from what is seen in the New York City area. And that's called "blackout-proof" but, as I say, it'

12 different. from the way that WTBS is blackout-proof.

13 MR. GARRETT: Commissioner, on the record,

I believe what. Mr. Lane said is accurate. It's my understanding of the situation as well. You will 16 recall that we had a number of questions of an earlier

17 witness dealing with WGN. Again, my understanding is

18 that WGN and WWOR operate in the same way, they become 19 Syndex-proof by substituting certain programming that 20 goes out in place of that that. would otherwise have to be blacked out. 22 One issue that Dennis and I had colloquy 23 on, and I frankly don't know the answer to, is that

24 WWOR is also delivered via microwave to some cable 25 systems, probably far fewer now than it was years ago, NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 902 but there are probably some that still pick it up via microwave. And I'm not certain, and I don't know whether Dennis is certain, as to whether or not that substitution takes place on the microwave feed as well as the satellite signal.

COMMISSIONER GOODMAN: It can't be very different signals if -- you mean there's no uplink involved, it's just all microwave?

MR. LANE: Right.

10 COMMISSIONER GOODMAN: It can't be very different signals. One hill and

12 MR. STEWART: No, the microwave links are 13 all the way up. MR. LANE: It's all through New England and 15 upstate New York.

16 COMMISSIONER GOODMAN: WWOR used to be 17 carried all the way up into New England via microwave 18 before the satellite was in place.

19 MR. LANE: Relays. It's a network.

20 MR. GARRETT: Were we sworn in on that?

21 MR. STEWART: I think so. It goes without 22 saying, I think, is the right answer.

23 Good afternoon, my name is John Stewart, 24 and I'm representing the National Association of 25 Broadcasters here. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 903

CROSS-EXAMINATION

BY MR. STEWART:

Would you turn to page 5 of your testimony, please?

A Right.

Q This is where you describe, if you recall, that of the 549 sitcom pilots, some 535 fell by the wayside over this period of time that you looked at, do you recall that?

10 A Yes.

Q So, the 535 programs did not. make it into syndication, corxect?

13 A Five hundred thirty-five were broadcast, but didn't make it, yes.

15 Q Some of those 535 were bxoadcast?

16 A Yes, at least once by the network.

17 Q And others of those 535 were never 18 broadcast even by the network? 19 A That's right, 236 were broadcast once.

20 Q But none of those 535 made it into the 21 syndication market?

22 A Not to my knowledge, no.

23 Q So, none of them was ever broadcast as a syndicated program?

25 A No, no, no, wait a minute. They could have NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 2344433 904 gotten -- they didn't get to the syndication market, that's correct. They may have been broadcast more than once. In other words, they may have gotten orders that weren't long enough to get to the syndicated market.

Q So, they weren't broadcast ultimately as syndicated programs?

A Right.

Q And they never were retxansmitted on 10 distant signals as syndicated programs?

A No. Not as syndicated programs, no.

12 Q So, the net losses for those 535 programs 13 you'e talking about here, if there vere net losses on 14 all of them, don't relate to any specific program that 15 was actually retransmitted on a distant signal basis as a syndicated pxogram?

A Ne're talking about two different kinds of 18 loss, though.

19 Q Yes, indeed.

20 A %hat the example is meant to show is the 21 risk relating to deficit financing as opposed to what 22 happens when a show finally makes it into syndication, 23 how well you can recoup that deficit.

24 Q But your point, in part, is that when 25 laying those 535 to one side -- when some of the other NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 905 programs get into the syndication market, the revenues that the syndicator earns from them not only cover the deficit financing for those specific programs, but. also covers some of the loses that occur

A If the show is very, very successful and very profitable, the revenue that's derived, much of it. has to go to make up for those loses, yes.

Q For the, in effect, 535 that aren' syndicated programs.

10 A That's correct.

Q And a company that has disproportionately 12 more failures than another has a higher need to try to 13 collect -- to try to offset those net losses when it does get a hit, is that right?

15 A I'm not sure I quite follow that. A 16 company that has disproportionately more failures is 17 probably going to go out of business.

18 Q So, the companies that are in business and 19 are profitable are able to cover their net losses from 20 these programs that don't make it into the syndication 21 market.

22 A They may not, however, be covering their 23 deficits entirely from the revenues from syndication. They stand a better chance. Yes, it's fair to say 25 that. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 906

Q Okay. Going back to being clear about this one point, the 535 programs as to which there are net losses because they are failures, they never make it to the syndication market or, by definition, never broadcast as syndicated programs and never retransmitted on distant signals as syndicated programs, correct?

A Right.

Q Would you turn to your Exhibit 2, please.

10 A (Complying.)

Q Tell me, how were the markets selected, the 12 four markets that are analyzed here?

13 A The markets that are here -- if you'l 14 forgive me for being a little bit anecdotal -- I 15 suggested the Washington market. Now, the reason why 16 I suggested the Washington market is because I got 17 into a controversy while at Paramount, with a station 18 -- I don't believe it was the Charlottesville station, 19 but it was one of the stations surrounding Washington 20 over whether it was going to exercise its Syndex 21 rights if we granted them to them.

22 We did grant, them Syndex rights, and 23 Paramount, indeed, had in its contract when it grants Syndex rights, that they must be exercised. However, 25 this station objected to having to exercise them NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 907 because they felt there were so many cable systems in their area of dominant influence that it was a burden to them, and they really couldn't do it, and they couldn't promise, and they didn't want to be in breach of contract, so we reached some sort of a compromise with them because we wanted to continue to do business with them.

That drew my attention to the fact that this phenomenon occurred around washington. So, I 10 gave this max'ket to Marsha Kessler, who has done the review of the markets and who has actually reviewed 12 all of the cable systems, and she helped us, over time, arrive at the figures. In the Detroit example, it happens that 15 thexe is a station in Lansing that repudiated a contract. Now, in the couxse of examining what 17 happened to that contract, it was fixst-run 18 syndication, in that market, this was a station who 19 stepped in and took the program by outfitting another 20 station, a station which had done very well, but the 21 program had not done the same ratings on the station 22 that was repudiating its contract. And in looking at 23 the market, we discovered that the Detroit signal was 24 having a greater effect on that station than it did on 25 the prior station which was making a very good return NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234~3 WASHINGTON, D.C. 20005 (202) 2344433 908 on the same program. The Atlanta example and the Los Angeles example and Bakersfield, I think, came wholly from Marsha Kessler.

Q So, did you suggest any other markets for Marsha to look at besides Nashington and Detroit?

A No, I didn'. Those just happened to be things that I knew about, but the rest of them came from her.

10 Q So, what did you ask Marsha to do with respect to the rest of the markets that produced 12 Bakersfield and Macon?

13 A Ne were just trying to find examples of markets where Syndex had not been exercised, so then 15 we eliminated from consideration, first of all, any 16 signal that could not be subjected to syndicated 17 exclusivity, and tried to create some kind of a pure 18 example, something where it would have a stronger 19 validity.

20 Q So, what specifically did you ask Marsha to 21 do?

22 A Nell, she works in this area. She also participated in the selection process. And she said 24 we won't look at signals that have been made subject 25 to Syndex because, obviously, they'e not good NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 909 examples for what we'e trying to show. So, you have to look at cable systems on a county-by-county basis, to find cable systems that are paying the royalty fee, and then to find the programming that they are paying the royalty fee for. So, that necessitates the elimination from consideration of other situations, and that's how she came up with these markets. She spent a lot of time trying to find these, but we didn't attempt to go through the entire 10 United States. Actually, we tried to select one from each region of the United States.

Q Now, would you look at, the first page of your Exhibit 2, over in the far, right-hand column, in 14 the Bakersfield market. Do you see those Numbex of 15 Household numbers there'

16 A Yes.

Q Where did they come fromm

18 A The rating of householdsg 4I805 for A 19 Current Affair, came from the Nielsen report of the

20 performance in Bakersfield of the KTTV signal, or what 21 was on-the-air on that signal at 7:30, and it 22 corresponds to the 3 rating, which you will see in the 23 second box.

24 Q So, you actually got the numbers 4@805 25 households, from Nielsen? NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 910

A Nell, we got it from applying the rating of

3 to the number of households in Bakersfield.

Q So, that number was not from Nielsen, but was calculated by you?

A The actual multiplication -- I mean, the number of households in Bakersfield is supplied by Nielsen, the rating is supplied by Nielsen, the mathematics was done by Fox Research Department.

Q And with respect to A Current Affair, I 10 believe you testified previously that for some of these programs Nielsen only reports an average rating 12 within a time block. Nhether or not that's true for

13 A Current Affair, how did you discern whether there was any viewing to the particular program within that 15 time block?

16 A If they are estimating a rating -- what I

17 was talking about. was, if you look above A Current

18 Affair -- A Current Affair they actually measured at 19 7:30. They will measure the 7:30 time period. But if 20 you look at the spill-in signal above it, 3-5 for 21 Nuppet Babies and Real Ghostbusters in the same market. Between those hours, they don't give you a 23 half-hourly rating. They estimate what the rating is, and that rating is deemed to be accurate, plus-or-

25 minus a small margin of error, and it comes to a 1 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 911

rating. They'e saying 1 percent of the households were watching whatever was shown on KTTV, but in Bakersfield.

Q Between 3:00 and 5:00?

A Between 3:00 and 5:00.

Q So, that may represent zero viewing to Real Ghostbusters?

A It could represent -- I would doubt that it

would be zero viewing, but it could be less than 1 10 percent or it could be more than 1 percent.

Q Well, if it's an average -- there are four 12 programs between 3:00 and 5:00 p.m.?

13 A Right.

14 Q And if any of those programs 15 A If nobody watched them, it would be zero.

16 Q If nobody watched any of them.

17 A If no one watched any of them, I don' 18 think you would see anything.

19 Q If one got a rating of 4, wouldn't that

20 time period have an average household rating of 1 for 21 the period?

22 A Yes, but they can't measure it, that's the 23 problem.

Q So that you don't know whether Flintstones, Andy Griffith, Third Degree, Muppet Babies, or Real NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234~33 WASHINGTON, D.C. 20005 (202) 2344433 912 Ghostbusters had any viewing at all, isn't that right?

A Not for certain. I took the rating as an accurate given and used their estimates. It could be a little bit more, it could be less. I don't think that the margin of error is 100 percent, however.

Q Well, it may be a correct number for the time block because that's all Nielsen reports, isn' that right?

A That's right.

10 Q Nielsen doesn't say that each program within that time block received viewing, do they?

12 A I don't believe they do.

13 Q Are you familiar with Nielsen weightings in its diary studies?

15 A No, I'm not.

Q Do you know whether 1600 households in the 17 Bakersfield maxket would repxesent more than one diary 18 entry?

19 A No, I have no idea how that works.

20 Q So, it's conceivable that even if those 21 programs -- even if -- let's take the Plintstones

22 did actually receive a 1 rating in that 7-9A time

23 block, that might have resulted from only 1 diary entry? 25 A Mell, except that -- what I don't know is, NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 913 I don't know what the ratio is between the diary entry and what it represents i terms of a percentage of the marketplace. I do know that Nielsen has a representation which is referred to in the industry as "bash marks", which they will put into their report when it's too small to measure.

Q That's for an individual program, correct?

A Correct, or they could have hash marks for a 3-5 time period, too.

10 Q If, in fact, it had a 1 rating, that

program had a 1 rating, which you don't know, and if

12 that 1 rating represented 1600 households, do you know 13 whether, given Nielsen s weighting of diaries, that could have resulted from one single diary entry?

15 A No, I don't know.

16 Q You don't know that.

17 Q Furthermore, do you know where in the 18 market Nielsen drew the diary from?

19 A No, I don'.

20 Q Do you know whether it was a cable diary?

21 A Noi I don'to

22 Q Do you know whether, if it were a cable diary, it's on a cable system where the station from 24 the distant market is actually carried as a distant 25 signal? NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 914

A Could you rephrase the question, please?

Q Is it conceivable that within some -- let' take the Macon market -- within some cable systems in the Macon market, the Atlanta station carrying those programs is actually not a distant, signal?

A I think -- I don't know that for certain. I don't really know quite how to answer that. I know that when Marsha came up with the examples, she looked to find cable systems to use as examples, that were 10 paying royalties for programs, and those were the programs selected.

12 Q Assuming that she found that there was a 13 cable system where the station was carried as a distant signal, do you know whether the Nielsen 15 diaries came from that cable system?

16 A No, of course not.

17 Q And how about off-air viewership? Do you 18 know whether any of this viewing resulted from off-air 19 viewership as opposed to cable viewership?

20 A No, I can't tell that.

21 Q If you look at the next page of Exhibit 2, 22 this was a question raised by the General Counsel, 23 about head-to-head competition. Here you give not the 24 ratings for the same program on the distant signal and 25 the local station, but the actual simultaneous NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 915 competition within the market, is that right. That is, the programs that were being broadcast within Bakersfield at the time the programs you selected were coming in from Los Angeles?

A Right.

Q And if you look at the Flintstones, for example, there is no Flintstones being broadcast by any local station at the time it was being broadcast by KTTV, right?

10 A That's correct.

Q So, it's conceivable, is it, not, that the 12 1600 households estimate, which could be a few diary entries, represented viewers who also viewed Flintstones on a local basis?

15 A You mean at some other time?

Q Yes.

17 A I don't know whether Flintstones plays that 18 market, that wasn't really the point of this exhibit.

19 Q Well, it was the point, wasn't it? Didn' 20 you say--

21 A Not this exhibit. This exhibit was meant 22 to show the competition of different program suppliers 23 with a signal that was bleeding some of the viewers out of the market.

25 Q I want to get to that, but each and every NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 916

one of these programs on KTTV was also broadcast in Bakersfield, correct?

A I wouldn't know that from looking at this— from looking at this exhibit.

Q Mhy not?

A I don't see Flintstones anywhere else

except, on KTTV when I look at this exhibit.

Q Mell, try flipping to the first page of this exhibit. Isn't that the whole point of this 10 exhibit, that Flintstones came in--

A That was the point of the first exhibit.

Q I see. Mell, these are the same--

A That's right. So, it's true, yes, it did play on KDOB. I thought you were talking about this exhibit. This exhibit deals with what s playing in a time period. Mhat's common to this is the time period+

18 Q Yes. Okay. That's exactly what I'm after. 19 So, you do know that Flintstones played in Bakersfield 20 at a different time than 8:00 a.m.

A One hour prior to the exhibition on KTTV.

22 Q And got a 1 rating, correct?

23 A Correct.

24 Q And you don't know whether that 1 rating 25 represents the same people viewing it on the NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2~33 WASHINGTON, D.C. 20005 (202) 2344433 917 Bakersfield station, who also viewed it on the KTTV signal, do you? A That they watched it twice?

Q Right.

A No, I don't know that.

Q So, you don't know whether, with respect to Flintstones, any of the viewership to Flintstones which you think may be viewership to the distant signal, actually represents a loss of viewing to the 10 local Flintstones broadcast?

A I'm not sure I quite follow. You'e mixing 12 the two.

13 Q You don't know whether anybody who watched

it on KTTV, watched it instead of watching it on KDOBg 15 correct?

16 A I don't know that for certain, I didn' 17 interview anybody.

18 Q Right. And you can't know that when there 19 isn't head-to-head competition.

20 A You can't know that for certain, no.

21 Q It's arguable you don't even know -- well, 22 there isn't any head-to-head competition in any of the 23 examples you selected in this market, correct?

24 A No, there are not. I don't think so.

25 Q Now, if you look at Flintstones -- the NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 2344433 918 point of this page of your exhibit is that whenever a distant signal draws any viewing, there's harm to the local stations in the market, is that what the point 1s?

A No, although I think there is harm to the

local stations, my point is that there is harm to the distributors of the programs that are being exhibited at the same time because they are competing for a smaller share of the television household audience, 10 the people watching television.

Q I want to get to that. in a moment but, if 12 you look at Flintstones, the first station if

broadcasting Good Morning, AM, do you see that?

14 A Yes.

15 Q Is that a syndicated program?

16 A I don't think so, I think it's a network 17 program.

18 Q So, your point is that the fact that the 19 Flintstones is drawing viewing at 8:00 a.m. on a 20 distant signal harms the owner of the program Good

21 Morning, AM?

22 A It possibly harms the owner of the program

23 Good Morning, AM, but the reason why network 24 programming was included here was in the interest of 25 giving a complete exhibit, and not distorting it. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 919

Q Well, when you attract viewers to the distant signal, you have people who aren' simultaneously watching whatever programs are on the local stations, correct?

A That's correct.

Q That means that the local station has less viewership and, therefore, potentially lower advertising revenues, correct?

A If a station is broadcasting a local 10 program at the same time that there is a distant signal coming in, and some people choose to watch the 12 distant signal, there is some harm definitely to the 13 people who would otherwise benefit from the local program.

15 Q And stations sell advertising time in all programs?

17 A They do, indeed.

18 Q Sports programs, network programs, 19 syndicated programs, and station-produced programs, 20 correct?

21 A Yes, they do.

Q So, the first effect that you see from this 23 exhibit is that if there is distant signal viewing, 24 then there's harm to the local station?

25 A There is harm to the local station that' NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234~33 920 selling its own advertisements, yes.

Q And if the station is broadcasting a station-produced program, then the copyright owner of the program being broadcast locally is harmed because of the viewing to the distant signal'

A It suffers some harm, yes.

Q And, in fact, it doesn't matter who the copyright owner is on the station, given this exhibit, you'e shown that there's harm to every copyright, 10 owner, every potential copyright owner, in the same way, isn't that right'?

12 A In the say, though not possibly to the same 13 degree.

14 Q And, in fact, this harm to the station is 15 more severe than the harm to any syndicator, isn' 16 that right?

17 A Well, if you look at, it on a single market 18 basis, and if it is true that the local -- I'm not sure how you measure harm. If you look at the single 20 market in isolation, the single program in isolation, 21 the amount of money that is paid for a local spot in that market may or may not exceed the amount of money 23 that would be payable for those homes on a national level. I don't know what the local stations cost per 25 thousand -- that's what it would depend on, how much MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 921 is advertising. It also would depend on the proportion of the barter split.

Q Is the barter split typically 50 percent or less for the syndicator?

A I would say that's typical, yes. It unlikely would be more than 50 percent.

Q So, if you look at A Current Affair, is the

owner of A Current Affair the same as the owner of the Jeopardy program?

10 A No, definitely not.

Q So, your suggestion here is that besides 12 the local station harm we just talked about, the owner 13 of Jeopardy is somehow harmed by the fact that somebody else's syndicated program is also viewed in 15 the market

16 A A signal that normally would not. be there.

17 Q Nell, if you just put your hand over the 18 spillover column on the left and look at. the box on the right, is the owner of Jeopardy harmed because 20 Mama's Family got a 12 rating in that market?

21 A It's competing with Mama's Family, no 22 question.

23 Q Straight competition.

A That's right.

25 MR. STEWART: I have no further questions. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 922 Thank you.

CHAIRPERSON DAUB: Thank you, Mr. Stewart. Mr. Hester?

MR. HESTER: Mr. Green, my name is Tim Hester, I represent PBS. I'l try to be as brief as I can.

CROSS-EXAMINATION

BY MR. HESTER:

Q Let me ask you, please, to turn to page 9 10 of your testimony.

A (Complying.)

12 Q I'd like to direct your attention to the last sentence of the first full paragraph on that. page. There you say that the "program supplier cannot 15 bargain with the local station for a fee based on all 16 the homes watching", do you see that?

17 A Yes.

18 Q And your point is that when you'e got a 19 distant signal being imported into a given market, the 20 program supplier can't negotiate with the local 21 station for all of that viewership because not. all of 22 that viewership is to the local station, right? Some 23 of it is to the distant signal?

24 A That's correct. If it's a license fee 25 basis, license fees are also calculated on potential NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 923 number of homes because the local station is going to pay a fee that proportionately reflects what they are going to be able to get. And if they are competing with a signal that is going to drain their resources, they are not going to pay a high license fee. g But isn't it also true that the program supplier can negotiate with the station whose signal is being imported into that market, for the benefits that that station is receiving in terms of extra 10 advertising from the distant retransmission?

A Nell, theoretically, that's true, but in 12 the practical world, the only place you see anything 13 like that, that even comes close to that, going on, is

when WTBS offers a price that is not reflective of the 15 Atlanta market, but is greater than the Atlanta market 16 would be, and extracts a promise from the syndicator 17 that they won't exercise Syndex, or won't enter into 18 a Syndex agreement, in return for that price. But it 19 really isn't based on a scientific correlation of what 20 their exposure is on a distant signal basis.

21 Q But with WTBS as an example, the program

22 supplier negotiating with WTBS, you'e taking account 23 of the fact that there is distant retransmission all over the country, in negotiating the price for selling 25 that NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 924

A Nobody really thinks about that. They try to get the best price they can possibly get. And the Turner organization simply says, "I'm not even going to buy it if I can't be Syndex-proof".

Q Let's take another example. Let's take the Los Angeles station that we'e been talking about. The negotiations with that Los Angeles station will be based in part on its reach, right -- the number of households that that station reaches?

10 A I think, first of all, negotiation is for price and, remember, what we are doing in this 12 particular part of the discussion is ignoring barter, 13 which we can lay aside for the moment, but it is really very important. 15 The negotiation for the price is done by a 16 salesperson who is coming into the market, is looking 17 to get the best price they can get. I don't think 18 they discuss the number of homes that the station is 19 going to reach. The only place a salesman gets 20 involved with numbers of homes is when they take the 21 published numbers of homes available to the home 22 market. They look at the rate card of the station, 23 and they try to figure out what is a workable proportion of the revenue, and that negotiation that 25 takes place has so many different factors in it NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 925 because the station is saying, "Well, I don't think I can play this program at 7:00, I'e got something else I want to put in there, so I'm going to play it in a place where there are fewer homes watching television, so I can't pay you that license fee". And the salesman is trying to tell them, "Well, I think you'e got to play it at 7:00 because that's where it's going to do best, and you can put something else in at. 3:00 in the afternoon", or something like that. And that' 10 the kind of consideration -- or the station will argue, "I don', think it's going to get the rating 12 you'e telling me you think it's going to get". And 13 the salesman says, "Look what it did on the network", or he's going to say, "Look what it did last year for 15 your competitor". 16 So, there are so many of those factors that 17 go into that argument over whether or not -- how much 18 the license fee ought to be, that there is a 19 connection with the number of homes, definitely, but 20 it's not a 1-to-1 correlation. 21 g And, for instance, the licensing fees are 22 going to be higher for a television station in a major 23 market, than they would be in a small market, right.?

A In general, yes, but. on specific instances, 25 not necessarily. For example, Los Angeles will pay a NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 926 higher license fee for a motion picture package than

Mew York will, at least that's been the history fairly recently.

Q But just as a general--

A As a general rule across the country, you'e not going to get a license fee in Macon that' appropriate to Los Angeles.

Q Right. And you might well get a higher license fee from an Atlanta station in negotiations, 10 than you would from a station in Macon, right?

A You may very well.

12 Q And at least part of that is reflective of 13 the fact that you know that that Atlanta station is 14 going to be generating more advertising revenues out of the programming it buys from you'?

16 A That's correct.

Q So that there is, at least in part, a way 18 to negotiate with a station that you know is being 19 carried on a distant basis because, when it's being 20 carried on a distant basis, it's reaching more homes, 21 which affects the kind of advertising revenue it can 22 generate?

23 A It would be, theoretically, if you had all 24 those measurements, but generally we don't have the 25 measurements of every market in which any given NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 927 station is carried as a distant signal, and so sales people are not really trained to consider that. In addition, you have to go back to the consideration of barter where you'e not getting credit with the advertiser who is paying perhaps 50 percent of your revenue. You'e not getting any credit for those homes in the other market, and the advertiser doesn', care.

Q Well, let's go back to that. If you'e 10 selling advertising on a national basis, you need to be able to clear a certain number of homes, right?

12 A That's correct.

13 Q So, if you'e reaching a given number of homes through distant signal, that adds to the total 15 number that you'e trying to clear to sell a national 16 advertising package, correct,?

17 A No, actually they don't count. What they 18 do is, they have a number of homes that is established 19 in the industry as a norm -- it's something like 94 20 million in the entire United States. No advertiser 21 will buy an ad on a national basis for less than 70 22 percent clearance. That doesn't mean that 70 percent 23 of those homes are going to watch, it means that 70 percent of those homes have to be able to watch. And 25 the measurement is all done on the basis of individual MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 928 market, measurements, which are then accumulated to make the rating that the advertiser will pay on.

Q Right. So, if you'e got a Los Angeles station, you come up with a figure on the number of households that reaches, right?

A The figure is a published figure.

Q And doesn't that published figure take into account the fact that there are various ways that. households xeceive that. signal'? Some households 10 receive it. by cable, some households receive it, over- the-aix?

A Households in tbe market, yes.

Q But you'l have a count. for that, station, won t you?

A You'l have a count. -- you can get. a count.

fox'be stat1on ~ That's basically tbe people that they'xe capable of xeaching. But. I think the numbers 18 that are published, while we know that. there are a lot 19 of people who watch on a cable system -- I watch on a 20 cable system -- we know that's true. I believe that 21 the numbers that are published are based on over-the- 22 air numbers.

23 Q Nho publishes those numbers you'are talking 24 about?

25 A You see the numbers published by the rating NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 929 companies, Nielsen, is standard accepted in the industry. They are usually repeated in publications like the FactBook, which is frequently used.

Q Now, let me ask you to turn again to everybody's favorite exhibit, Number 2, and the first page of this. Is it fair to say that the harm you are talking about here, that you'e described in this exhibit, arises when you have essentially a duplication of the schedule from the distant signal 10 and the local?

A You mean at the same time2

12 Q Yes.

13 A No, I don't think I would limit it to coming in at the same time.

15 Q But the examples you cited here are roughly 16 in the same time periods of the day, right?

A Mell, they are fairly close. If you look 18 at Lansing, it plays Facts of Life at 4:30, and it' 6:30 in Detroit. So, that is not head-to-head. Quite 20 a number of them are not head-to-head.

Q Would you agree that you wouldn't really 22 see the harm that you'e talking about in terms of 23 audience diversion, for instance, if you add a program 24 coming in at 8:00 in the morning on a distant basis, 25 and another program being shown in the local market at NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 930 4:00 in the afternoon?

A You mean the same program being shown on a spilled in signal, or vice-versa?

Q Right.

A I think that if somebody has watched a show at 8:30 in the morning, it's not likely they are going to watch it again at 4:30 in the afternoon, no matter which signal started it. I think that's just human nature.

10 Q So you point is that to the extent that you'e seeing on a distant basis a show coming into a 12 local market that's also available locally, it may be 13 less attractive to the people watching that cable 14 system?

15 A It may be less attractive to people who 16 have the opportunity to see the same show, and that 17 people who are using the television at the same time 18 that show is on, it may divert from other shows in 19 that market which also may be supplied by program 20 suppliers, both things are going on.

21 Q Let me ask you, you cite in a number of 22 places in your testimony, reports from Paul Kagan 23 Associates, is that right?

24 A Yes.

25 Q Do you consider Paul Eagan Associates a MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 931 reliable source of information?

A Generally deemed to be a reliable source of information.

Q And when you say generally deemed to be reliable--

A In the industry, their reputation is for taking care in the gathering of information.

Q Now, you haven't done any nationwide study of harm arising from distant signal retxansmission?

10 A No, I haven'.

Q You'e pulled out, these four examples, but you haven't done a broader study of the point?

13 A No, I haven'.

14 Q Mould you agree that the kind of distant signal retxansmission you ve identified here is, in 16 fact, a small portion of the kind of distant signal retxansmission that takes place in this country with 18 respect to the program suppliers programs?

19 A Mell, I'm not quite sure of the context. 20 It isn't the only one, that's for certain. It' 21 something that we were looking at with some care 22 because we felt that it was an area where there was 23 some specific harm being done, but it is also true 24 that if you consider the TBS signal, certainly that' 25 a much larger signal, it's a much more frequently NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 932 watched signal.

Q And it's a different kind of distant signal from the ones you'e focused on here.

A Right, these are much more signals from nearby markets, which are ones that are more likely to go unnoticed.

Q Let me show you an exhibit we had

previously marked as PBS Exhibit 3-X. This is the one that we had the other day that had the 30 programs on 10 it that I had listed. Just so you understand what this is, Mr. Green, it's a list of programs that are 12 set forth in Mr. Cooper's testimony based on the

13 household viewing study that MPAA has included in its case, and this is ranked by household viewing hours. 15 Now, Mr. Green, in your testimony, you'e 16 talked a fair amount about the difficulty of recouping 17 the investment that's made in a particular program, is 18 that. right?

19 A Yes, it is.

20 Q And am I right that looking at this list, 21 many of the programs that are on this exhibit have 22 long ago recouped any investment?

23 A Their initial investment? Quite a few appear to me to have been likely to have recouped.

25 Q Because they have been in circulation for NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 933 many, many years, and so these are programs that have been able to recoup whatever initial investment was made in the programming, is that right?

A Some of those that are more familiar looking, it's very likely.

Q And could you just give me some examples from the list, of ones that would

A Oh, I would expect the Brady Bunch to have recouped.

10 Q Andy Griffith'

A Andy Griffith perhaps, sure.

12 Q The Flintstones?

13 A I would imagine. I have no way of knowing. I have some experience with Brady Bunch, so I know 15 that one.

16 Q And your experience was in licensing it a 17 long time ago?

18 A Yes, at Paramount.

19 Q And Beverly Hillbillies also would have 20 recouped its investment a long time ago?

21 A I would assume so, although -- I can' 22 ignore the fact that there are also after-production 23 cost,s. There are ongoing expenses of distribution which you hope to make back and which, theoretically, 25 you would make back out of sales to the local NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 934 stations, but it's not that the costs stop happening, and the obligation to share portions of the revenue-- for the program supplier to pay a portion of the revenue to the participants. That's ongoing as well.

Q I had gotten the impression from your testimony that after about two or three years in syndication, one could realistically expect to recoup

A Two or three years of first-run 10 syndication, you could then begin to hope to get that money that you spent in the up-front costs of doing

12 the launch. There are also ongoing costs of 13 servicing, which are not quite as large in proportion, but I can't -- I would say Happy Days has probably 15 recouped certainly its production costs -- but these 16 look familiar enough so that it wouldn't surprise me.

17 Q And so these are not really the kinds of 18 shows you were talking about when you were talking 19 about the need to recoup one's initial investment?

20 A Nell, they were at one time, certainly, 21 their initial risk.

22 Q But not in 1990.

23 A Hot necessarily, no. Although the Joan Rivers Show, I would say, would have its problems, 25 from this list. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 935

Q Any others on the list,?

COMMISSIONER GOODMAN: Was the Joan Rivers Show first-run or off-network?

THE WITNESS: That was first-run. It's a daytime talk show which is produced by the Tribune Company.

COMMISSIONER GOODMAN: It isn't the nighttime

THE WITNESS: I'm assuming that that's what 10 this is. The Geraldo Show is also coming from the

same source. But -- I'e lost my train of thought.

12 BY MR. HESTER:

13 Q The question was whether there are any others on this list that have not already recouped 15 their initial investment.

16 A I don't know as a fact, with regard to any 17 of them. I can surmise with regard to those that I'e 18 had experience with. That's about as close as I can

20 Q But it would be a reasonable assumption, if 21 something has been out in the marketplace for 15 or 20 22 years, that there's not a recoupment going on, that 23 there's profit at that point.

24 A I think that it's probably more reasonable 25 to assume that if something has been out for years, NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 936 that it's closer to recoupment than if it hadn't been out for years.

Q And plus the fact that costs at the time of production vere much less than costs would be now.

A Yeah, but if you didn't recoup them fairly early on, you owe that money, and the cost of money is a factor in it as well.

Q But let's just take an example, the Beverly Hillbillies. You would agree with me that, that, has 10 recouped its investment'

A I don't know of my own knowledge, but. I would probably join you in your suspicion.

Q And Brady Bunch, you know for a fact it has?

A I believe that to be true.

Q And that's been out for less time, for instance, than the Bever'ly Hillbillies?

18 A That may be, I don't know.

19 Q Nov, let me ask you to turn back to your

20 Exhibit 2 and the second page where you have the Bakersfield example.

22 A (Complying.)

Q And am I right in understanding that what 24 you'e describing here is the adverse effect on the 25 station that has the local signal, when it has to face NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 937 competition from a distant signal'

A That's fair.

Q And your point is, it loses some of its audience to the distant signal?

A Some of its potential audience, yes.

COMMISSIONER GOODMAN: Excuse me -- is that, in fact, your point? Maybe I'e missed it. I thought your point was that the harm here was to the syndicator.

10 THE WITNESS: Well, it is. When you say harm to the station, I'm talking about the performance 12 of that program on the station. I'm acknowledging the 13 fact that there is some harm to the local station, but

14 the point of my testimony is really the homes that are 15 lost in counting the national advertisements that were 16 sold by the producer of Entertainment. Tonight. They 17 would have sold something like 13 or 14 commercial 18 positions a week for 52 weeks on a national level, and 19 the market that it would compete in the absence of a

20 distant signal has been diminished by 7 percent their 21 opportunity. Particularly that show might have been

22 very well damaged by the presence of A Current Affair 23 because it's a similar type of program, it's a magazine type program.

25 CHAIRPERSON DAUB: There would be no recoup MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 2344433 938 from even a substitution program?

THE WITNESS: From substitution programs on a signal. If there was a program substituted on the signal and it were watched, that also would deprive them, that's true. Or have I not understood correctly what you asked?

CHAIRPERSON DAUB: From national advertisement.

THE WITNESS: Right.

10 CHAIRPERSON DAUB: Thank you.

BY MR. HESTER:

12 Q So, you'e talking about the harm to the 13 supplier of the local

14 A Specifically, I'm talking about Paramount 15 Pictures Corporation with Entertainment Tonight, 16 cannot compete for 100 percent of the market because

17 7 percent of the market is being drained by Twentieth

18 Century Fox and A Current Affair, but Twentieth 19 Century Fox isn't getting those households either. 20 They are, in fact, going into whatever revenue 21 whatever benefit is being derived is being derived by 22 the cable operator.

23 Q But the math you ran before, when you said 24 it's depriving the local program supplier of a given

25 amount of audience that is watching A Current Affair, MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 939 that assumes that all that audience would have watched the local programs if they hadn't watched the distant signal, right?

A It assumes that of the available programs, just looking in the context of the television station, yes, that they made a choice to watch Jeopardy, or Entertainment Tonight, that instead of watching those

programs they watched A Current Affair.

Q But, they might, hav'e chosen not. to watch the 10 local stations anyway, even if they had--

A You mean the A Current Affair audience might not?

Q Right.

A Or some of them might, not.

Q Right.. The harm you'e talking about, is really not harm to the distant signal program supplrex' is j t? It's harm to the local program 18 supplier?

19 A Well, in this particular instance, there 20 might be some harm to the program supplier because

21 let's not forget that A Current Affair plays in this 22 market, and it's not on this list because this was a 23 comparison of time periods. And to the extent that somebody watches it on KTTV, they are not watching it

25 on the local station, which I think is KBAK, they are NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 940 not watching it there, so homes are not being counting, so it's hurting both.

Q But here you are talking about the impact on Entertainment Tonight or Jeopardy or Mama's Family or Growing Pains? That's all impact on the local signal?

A Right, that's what this -- yes.

Q That's not harm to the owner of the distant signal, in this case?

10 A Of A Current Affair?

Q Right.

12 A No, this particular chart doesn' 13 illustrate that.

14 MR. HESTER: Those are all the questions I 15 have. Thank you.

16 CHAIRPERSON DAUB: Thank you, Mr. Hester. 17 Mr. Midlen?

18 MR. MIDLEN: I have just a few questions. 19 Good afternoon, Mr. Green, I'm John Midleng 20 and I represent the Devotional Claimants.

21 CROSS-EXAMINATION

22 BY MR. MIDLEN:

23 Q Mould you turn to page 10 of your 24 testimony, the second paragraph, third line. I'm 25 interested in the portion after the colon where you NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 941 recite: "The right of program suppliers and stations to agree to prohibit the importation of certain distant signals". Would that be more accurate if you were talking about the right to prohibit the importation of certain programs on distant signals?

A That would be an accurate of saying it.

Q The programs

A Usually, you exercise it against the program. That's the way you grant it, that's correct.

10 Q Would the same apply with the next sentence, you'e talking about programs on distant 12 signals rather than distant signals themselves?

13 A I think that's probably true, the focus, right. That's the say Syndex is generally exercised.

15 Q As I understood it when you were answering 16 some questions by Mr. Garrett, when you were talking 17 about the substitution of the Yankees for something 18 that had been blacked out, as I recall your testimony, 19 it was to the effect that his client, the Yankees, or 20 for that matter, any substituted programming copyright 21 owner didn't get any copyright royalties as a result 22 of being substituted.

23 A Actually, I never said anything about that. I don't think that question was put to me, at least I 25 don't recall it. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 942

Q But isn't it true that one pays royalties on the basis of a signal, not on the basis of specific programs that may be on the signal?

A I suspect that's true.

Q And that is what I'm interested in with respect to the next sentence that starts, "To the extent", and then ends with "the pool that concerns us here". I don't understand exactly what you'e talking about, or how you

10 A I think the reference is that to the extent that syndicated exclusivity is used—

Q Is exercised.

13 A -- is actually exercised, that does not result, for the supplier of that program, in the

15 payment of any revenues. In other words -- I think my 16 point is in agreement with yours -- in other words, 17 that -- what I'm addressing is what happens when 18 Syndex is either not bargained for or is not exercised 19 even though it was bargained for. And under those 20 circumstances, there is a pool of money that was 21 intended to compensate those copyright holders. I'm 22 not urging them to be compensated for exhibition when 23 Syndex is exercised. I was trying to make a 24 distinction of that. 25 NR. NIDLEN: Thank you, that's all the NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234~3 943 questions I have.

CHAIRPERSON DAUB: Thank you, Mr. Midlen. Any questions from Commissioners?

COMMISSIONER GOODMAN: I do have one question. Still on page 10, second and third paragraph, Mr. Green, in stating that in the examples provided, the signals spilled in were not being subject to Syndex. Is the reasoning for that what appears in the following paragraph? Are you saying 10 that--

THE WITNESS: What I'm saying is that we 12 deliberately selected situations in which there was no 13 Syndex exercised because it would have been fallacious and unfair to have done otherwise. And what I'm meaning to get at, what I meant to comment on earlier, 16 was that the exercise of syndicated exclusivity even when granted, is extraordinarily imperfect. 18 I gave an example in Washington where the 19 station said, "I can't exercise against all cable 20 systems. Don't make me do it. Don't make a breach of 21 contract. For me to do it, I have to have a 22 compromise. I'l do it for the bigger ones, or I'l 23 do it for some of them" and, indeed, both companies 24 that I'e worked for wanted to make the sale to them, 25 so they did agree to make that compromise from what is NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 (202) 234-4433 944 normal for them. But in addition to that, if a station does not exercise the right, there is no way the distributor knows if they have or they haven'. Ne don', have the ability to go out and examine what happens in every county of the 3,000

counties in the United States. We just can't do it. And it isn't even cost-effective for us to do it, the kind of staff we'd have to have.

COMMISSIONER GOODMAN: I understand your 10 point to be that even though it may be to the interest of the program supplier, the syndicator, for Syndex to 12 be exercised, it might not anomalously be to the 13 advantage of the local station to exercise it. In 14 other words, the syndicator doesn't get to exercise 15 it, the local station THE NITNESS: The local station has to be 17 the one that exercises it. I think that the 18 syndicator has some rights, and certainly one would 19 assume that the local station wouldn't ask for 20 syndicated exclusivity if -- I mean, we assume that if 21 they ask for syndicated exclusivity, they are going to 22 exercise it. But what I'e discovered, as a practical 23 matter, is that they don'. Sometimes they do and 24 sometimes they don'. And so there's some very bizarre twists that have been happening lately. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 945 I was called just before I came east, by the vice president of WPIX who wanted syndicated exclusivity on a motion picture package that we do not grant syndicated exclusivity, just haven't done it. And she wanted it. And I said, "Well, you know we haven', done this", and that's a station that's owned

by the same people that own WGN. And she said, "Well, what's happening is, because of the must-carry rules, we'e now getting in New York City part of -- not in 10 the city itself, but in part of our protected area-- certainly not in Manhattan -- we'e getting signals 12 coming from Kingston, New York, because they are being carried on a must-carry basis, and we want to be able to exercise syndicated exclusivity against them". 15 And different distributors have reacted in 16 different ways. At one point, at least, there was at 17 least one distributor, I believe, who I was told was 18 selling syndicated exclusivity for an extra license 19 fee. I don't think that lasted. That's not a very 20 practical way to try to boost your license fees. 21 So, in practice, syndicated exclusivity has 22 not quite worked as well as we all thought it would.

23 CHAIRPERSON DAUB: Mr. Green, at the time of the contract, at the time of the licensing sale 25 that occurs with a station and a syndicator, and if MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 946 the station requests that they would like to have the protection, Syndex protection, don', you, at least the syndicators, get to charge more for that protection as such? What is the loss to the syndicator if stations decide not to exercise that.

THE WITNESS: If we were able to get more money, that presumably would compensate for it. I have never, ever, seen us get a license fee that. was— I'e seen stations say "If we don't get Syndex, 10 we'e not buying this program", but I have never seen a situation where a station gave me one price with 12 Syndex and one price without Syndex. 13 CHAIRPERSON DAUB: Is it because syndicators are anxious for the station to carry?

15 THE WITNESS: Absolutely. If there' 16 barter in the program, they must have carriage in that

17 market because they must clear 70 percent of the 18 United States in order for their series to survive. 19 If there is no barter in the program, then it doesn' 20 really matter.

21 CHAIRPERSON DAUB: I was always under the 22 impression that in order for a station to have that 23 protection, that they should pay a little more, or at 24 least usually the practice is

25 THE WITNESS: As a practical matter, they NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 947 don', and it's the same thing with cable retransmission. It was thought that stations were going to have this windfall, and they were going to make all this money, and the standard contracts require that any money that is collected by the station for something like cable retransmission, be paid over to the program supplier because the theory of licensing, stemming from the days when it was all license fees, was that this is the license fee for 10 these homes in this market, and the station could not increase its strength by raising its tower without 12 renegotiating its contract. It could not use 13 translators without renegotiating the contract. And what happened was that all of that got 15 watered down. Stations have translators that are in 16 use far beyond their own markets. And now all we seek 17 to do is to prevent them from invading the zone of 18 protection of another market so that we can continue 19 to sell, but there is no increase in license fee. It 20 may have to do with whether you can sell that station, 21 who may or may not be bidding against another station 22 in the market. But the consideration is not based in terms of money or license fee, on granting or not 24 granting syndicated exclusivity.

25 CHAIRPERSON DAUB: Thank you. NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 948 Mr. Lane, would you like to go ahead with redirect?

MR. LANE: I have no questions on redirect.

CHAIRPERSON DAUB: Thank you. (Whereupon, the witness was excused.) (Discussion off the record.)

CHAIRPERSON DAUB: That concludes our

hearing for today. We will reconvene on Monday, September 27th, at 10:00 a.m. 10 (Whereupon, at 3:10 p.m., the hearing was adjourned, to reconvene Monday, September 27, 1993, at

12 10:00 a.m.)

25 MEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 234-4433 WASHINGTON, D.C. 20005 (202) 234-4433 949

CERT I F I CATE

This is to certify that the foregoing transcript jn the matter of..1990 CABLE COPYRIGHT ROYALTY DISTRIBUTION PROCEEDING DOCKET NO. CRT 92-1-90CD

Before: COPYRIGHT ROYALTY TRIBUNAL

Date: AUGUST 17, 1993

Place: WASHINGTON, D.C.

represents the full and complete proceedings of the aforementioned matter, as reported and reduced to type- writing.

NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVENUE, N.W. (202) 2344433 WASHINGTON, D.C. 20005 3 FCC Rcd Vo. 18 Federal Communications Commission Record PCC 88-180

I. INTRODUCTION Before the l. In this Report and Order, the Commission adopts Federal Communications Commission changes to its rules regarding program exclusivity io re. Washington, D.C. 20554 move anticompetitive restrictions on the ability of broad. casters to serve their viewers. Today's video marketplace calls for an impartial regulatory referee and a common set of fairly-enforced ground rules. This will provide proper GEN. Docket No. 87-24 market incentives for video outlets to deliver the program. ming that will maximize consumer benefits rather In the Matter of foster the economically wasteful duplication of program. ming that is all too likely under our current rules. Amendment of Parts 73 and 76 2. This proceeding is a direct outgrowth of concerns we of the Commission's Rules expressed in our 1986 "must~rry" decision.'e stated "the maturation of the relating to program exclusivity there that progressive cable in. dustry and the tensions created by the development of the in the cable and broadcast industries. video distribution market during the last several years» required that we (1) reexamine policies and legislation that, while furthering important public policy concerns, REPORT AND ORDER may have created distortions in that market and (2) re. assess whether those policies and legislation continued Released: 1988 to Adopted: May 18, 1988; July 15, "truly maximize consumer choice in programming options or to otherwise serve our public interest objectives.» By the Commission: Commissioner Quello concurring Among the governmental actions that we explicitly iden. and issuing a statement; Commissioner Dennis concurring tified in the must-carry proceeding as requiring reexamina- in part, dissenting in part and issuing a statement. tion were the compulsory copyright law and our decision in 1980 to repeal our syndicated exclusivity rules. We directed Commission staff to initiate inquiries to study the TABLE OP CONTENTS effect of the compulsory licensing scheme, our network non&uplication rulesi and the absence of syndicated ex. Paragraphs clusivity rules on consumer welfare. In order to isolate copyright issues from the communications issues presented L Introduction I - 6 in this docket, we decided that copyright issues should be studied separately. In Gen. Docket 87-25, which we ini. adopted on February II. Syndicated Programming Exclusivity 7- 109 tiated by a Nouce of lnqtury 12, 1987,'e have been examining in particular whether to A. Background 7- 23 recommend to Congress that it revise the compulsory - I Market Regulation Before 1980 9 17 licensinqscheme prescribed by the Copyright Revision Act 2. The Syndicated Exclusivity Report 18 of 1976. In this docket, however, we have restricted our 3. The 1979 Notice of Proposed Rule Making 19 attention to the effects on the television distribution mar- imbalance resulting from our 4. The and 20- 23 ket and the competitive 1980 Report Order rules. Because 24- current cable-broadcast exclusivity changes B. Discussion 89 to those rules could affect or be affected by our territorial 1. Changed Circumstances 24- 48 exclusivity rules,'e also sought comment on our territo- 2. The Purpose and Function of rial exclusivity rules. Program Exclusivity 49 - 89 3. We opened this proceeding in February, 1987, with C. Rules 90- 109 the adoption of a Notice of Inquiry arid Notice of Proposed Rule Maftirtg.s That Notice posed three major questions: whether we should amend our program exclusivity IIL Network Programming 110- 123 (1) rules to reinstitute some form of syndicated exclusivity rules that would permit broadcasters to negotiate for en- IV. Authority 124- 162 forceable exclusive exhibition rights with respect to syndi- A. The Copyright Revisions cated programming; (2) whether we should modify our Act of 1976 125 - 131 network non-duplication rules which currently permit net- B. The Cable Act of 1984 132- 158 work affiliates to show network programming on an exclusive basis; and whether we should relax or eliminate

C. Constitutional Considerations 159 - 161 (3) the territorial exclusivity rules which delineate the maxi- '. Conclusion 162 mum amount of geographic exclusivity a broadcaster may

obtain vis-a-vis other broadcasters. The Nouce tentatively V. Territorial Exclusivtty 163 - 170 concluded that such action would be in the public interest. Comments responding to the Notice were filed1987.'. on July 22, VI. Procedural Matters 171- 178 l 987. snd replies fo'lowed on September 22, After fuIJ and careful review of those comments, we answer the first two questions posed in the Notice in the affirmative. In recent years we have recognized that, for those markets in which conditions are conducive to its development, competition is a far more effective instru-

5299 Federal Communications Commission Record 3 FCC Rcd No. 18 FCC 88-180

achieving the public inter- II. SYNDICATED PROGRAMMIVC EXCLI;SIVITY ihant a direct regulation for ment Communications Act. 10 An important «st goaoais of the over regulation is that there is A. Background advantagd antage of coinpetition which suppliers or which the course of no 'edne» to forecast or prejudge Over the past thirty years, regulatory ticular methods of supply will best serve the public the local distribution market for video programming has partlcu custom- intereterest. Different program suppliers compete for been ful! of twists and turns. These peregrinations reflect skills and advantages, and our ers on the basis of their particular both unanticipated developments in that market success in meet- would and success in the marketplace is tied to evolving understanding of which regulatorv policies otherwise competitive con- facilities operate ;ng consumer demands. Under best assure that both cable and broadcast a regulatory framework that limits the ability of in a way that maximizes consumer welfare and thus, the ditions, other some competitors to compete on the same terms as public interest. The actions we take today are only the competitors introduces a bias into the market process. latest of many corrections to our regulatory course. Like With this bias, success in the marketplace becomes an those preceding them. these changes are prompted by both afufact of regulation rather than an indicator that the market and analytical developments and follow from our successful competitor is meeting consumer demands effi- close reexamination of whether, in light of those develop- ciently. ments, our current market rules still best serve the public 5. Our current regulatory regime governing program interest." exclusivity introduces such a bias. Although the ability to 8. In this section we briefly review our past efforts to show programs on an exclusive basis is generally recog- regulate the local video distribution market. This summary nized as a valuable and legitimate business practice in the will not only discuss how we came to abandon the syndi- television and cable industries, broadcasters of syndicated cated exclusivity rules in 1980. but will also show that the programs are prevented by the current lack of rules from action we take today is only part of our continuing effort obtaining exclusivity against duplication of their programs to reexamine our communications policies and to revise through cable retransmission of distant broadcast signals. or. if necessary, eliminate policies that, under current Only broadcasters of syndicated programming are denied market conditions. no longer serve the public interest. this ability in the delivery of video product. All others, network programming, enjoy the iz including broadcasters of 1. Marker Regufarion Before f980 to obtain exclusivity. Our current network non- ability 9. Although the first cable system began retransmission duplication rules also limit the ability of broadcasters to was initially would of broadcast signals in 1948. the Commission obtain the degree of program exclusivity that they But concern about the and that would be hesitant to regulate such systems. like with respect to cable systems systems upon local broad- market efficiency. Ca- impact of unregulated cable appropriate to promote competitive the Cominission's initial reluc- obtain any and all casters gradually overcame ble operators. in contrast. can directly " and Order in Docket 14895 in distribution on an exclusive basis. In tance. In the First Report programming for 1965." the Commission expressed its belief that. because addition, they can acquire broadcast signals for retransmis- for both tech- the broad- cable would never be available to everyone sion regardless of any exclusivity agreements could not be a technol- from the producer. nical and practical reasons, cable casters may have purportedly obtained Commission could rely to discharge interest argument that ogy upon which the We find no compelling public to maximize the diversity of video asymmetric treatment of competitors its statutory obligation would justify such an available to the public. The Commission had we see many reasons to think that programming and, more importantly, determined that this obligation could best be mei the public interest are being poorly served by already viewers and through reliance on the allocation schemes for VHF and these arrangements. VHF television. Thus, at this stage of cable's development we make two 6. Therefore, in this Report and Order, the Commission was principally concerned that cable's exclusivity in the changes to our rules relating to program growth not endanger these allocation schesnes and ihe cable and broadcast industries. First, w» extend exclusivity of local broadcast television. In order io pro- economic viability protection to broadcasters who purchase syndicated these schemes, the Commission concluded that the exclusivity protect gramming, by adopting simplified syndicated public interest required more than mediation among those rules that should promote fair and efficient competition provide service to the public. Rather. it re- from desiring to among all the video programming delivery systems quired, in the Commission's view, exercising a firm ad- which viewers may select. We emphasize that our actions ministrative on the development of cable. This on broad- grip herein do not directly bestow exclusivity rights outlook led to a regulatory regime the first part of «htch casters. These rules will simply permit, but not require, of loca! signals. In the second prong of dis- required carriage broadcasters to obtain the same enforceable exclusive the Commission sought to identify those signals that all other its policy, tribution rights in syndicated programming a cable system could carry without threatening the contin- video programming distributors already enjoy. Second, we viability of individual local broadcasting sta- their ued financial modify our network non&upfication rules, extending tions within the system's service area. The Commission scope to any retransmissions of network programming. had concluded that cable systems'mportation of distant Part II of this Order presents the basis for our decision such programming was an unfair net- signals to duplicate concerning syndicated exclusivity. Part III addresses method of competition. Thus, among the rules adopted ai work n'on&upficatlon. Part IV deals with our authority to were uniform non&uplication rules to proieci territo- this time undertake the actions herein, and Part V addresses both network programming and syndicated programming rial exclusivity issues. for which local broadcasters had negotiated exclusive «x- hibition rights. The basic principle applied was that non- duplication benefits were "something to which a station is entitled, without a showing of special need, within iis basic market area."'s The Commission explained: 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

Our aim... is not to take any programs away from 12. Throughout this period the Commission encouraged any CATV subscriber, but to preserve to local sta- the major stakeholders in the copyright controversy to tions the credit to which they are entitled — in the work toward some kind of compromise that would facili-

eyes of the advertisers and the public — for present- tate the efforts of both Congress and the Commission to

ing programs for which they had bargained and paid fulfill their respective responsibilities to set copyright and

in the competitive program market.'0. communications policy. In late 1971. under the auspices of

the Office of Telecommunications Policy in the White The Second Repon and Order in Docket l489S,'dopted House, these groups were able to reach a "consensus in 1966, extended this regulatory regime, which agreement" on the content of both copyright legislation had at first applied only to cable systems using microwave and regulatory policy for cable television. While the Com- facilities, to reach all cable systems. All cable systems were mission had already expressed its intent to follow much of thus obligated to notify the Commission before they could the regulatory course that these groups endorsed," the carry any broadcast signal. Concerns about the effects of consensus agreement proposed that the Commission adopt signal importation on local broadcasters led the Commis- specific syndicated exclusivity rules that would afford at sion to require a hearing and Commission authorization least those broadcasters in major markets an enforceable before a cable operator in one of the top 100 local mar- right to exclusive exhibition of syndicated programming. kets could import any distant signals. In smaller markets, a Shortly afterward, in the 1972 Cable Television Report and hearing was not required unless there were objections to Order, the Commission adopted as Commission policy the

the proposed signal importation. The standard for deter- major terms of the consensus agreement relating to regula- mining whether the cable system should be authorized to tion of cable television.'3. the carry distant signal was whether its carriage was con- That Order presented a comprehensive scheme sistent with "the for establishment and healthy maintenance regulating signal carriage and retransmission, origination, of television broadcast area."'s service in the The Second technical standards, ownership diversity, channel capacity, Report also modified the non-duplication rules. Conclud- imeractive services. and allocation of that regulatory authority ing sameMay protection was sufficient for network among federal, state and local regulators. The 1972 Cable programming because it was aired simultaneously, except Television Report and Order included mustwarry rules for time that zone differences, the protection afforded this were designed to ensure a local broadcaster's access to programming was reduced from a thirty day period to cable subscribers.'s Distant signal rules limiting the num- same&ay protection. In addition, despite the acknowledg- ber of signals that cable mem systems operating within recog-

that the non&uplication rules adopted the preceding nized television markets could import were also adopted

afforded "at year best minimal" protection of broadcasters'ontractual to ensure the competitive posture of local broadcasters.ts right to exclusive exhibition of syndicated pro- "Leapfrogging" rules further limited the selection of dis- gramming, the Second Report refused to expand the pro- tant station signals that these systems could import.~ The

tection afforded to syndicated programming under the Commission amended its network non&uplication rule non&uplication rules.'1. provisions to reduce the period of protection from same By 1968, it was clear that, by deciding to review day to simultaneous broadcasts because it found that cable essentially every decision of a cable operator to import a subscribers'nterest in time diversity outweighed broadcast distant signal, the Coinmission had assumed an impossible licensees'nterests in retaining the more extensive protec- task. The resulting administrative problems were harming tion.i'4. rather than enhancing the development of the local dis- It also adopted the syndicated exclusivity tribution rule provi- market for video programming. The Commission sions proposed in the industry consensus agreement. froze almost all processing of requests for permission to Those rule provisions authorized local stations which had carry distant signals, and began a series of Rule Makings purchased exclusive exhibition and rights to syndicated pro- inquiries to determine a workable, comprehensive gramming to demand that cable systems located in the regulatory scheme that would address all the communica- station's service area delete such from im- tions programming policy issues raised by cable's entq into the local ported distant signals. Copyright holders were also given television market for video programming. The Commis- certain rights to request deletion. sion's The scope of these rights efforts were'complicated by the lack of legislation to varied by market size and type of programming. In the clarify top the relationship among copyright holders, broad- fifty markets, cable systems were required to delete all casters to whom they had conveyed at least some of their programs under exclusive contract to the local broad- rights in the copyrighted programming, and cable oper- caster, upon request. In addition, program owners could ators. In Fortnlghdy Corp. v Unl ted Artists Television, require deletion of their programs from distant signals for Inc., 'he Supreme Court had held that retransmission of a period of one year after the programs were first licensed local broadcast signals did not constitute a "performance" for exhibition anywhere in the country, in order to permit to which copyright liability should anach, but the status of orderly marketing of syndicated product. Similar protec- retransmissions of distant signals remained uncertain." tion was given to stations in the second fifty markets, with While the Commission believed that the two matters— certain limitations. For instance, if the imported program cable regulation and copyright — could and should be appeared during prime time, no deletion was required considered separately,'s it believed that the absence of unless the local broadcaster was also showing. the program congressional action on the copyright issue limited the during prime time. The rules also prescribed the duration options for addressing the significant communications poli- of exclusivity in the second fifty markets. For off-network cy issues raised by cable's ent~into the local television series, a local broadcast station could request deletion market for video programming. In particular, requiring from th» date of first showing to completion of the first- retransmission consent as a solution to the distant signal run of the series, but for no longer than one year. Broad- issue seemed ~roblematic in the absence of clear Congres- casters 'had deletion rights for first-run syndicated series sional intent.i for a period of two years from the date of first showing;

5301 *

Federal Communications Commission Record 3 FCC Rcd No. 18 FCC 88-180 review the films for two years from new copyright law. it began an inquiry to «ir first-run. non-series feature exclu- date: and for other product. for "purpose, effem. and desirability of'he syndicated thehe program's availability a from the date of purchase or the sivitv rules.i The next year, the Commission began ihe shorter of one year rules.'" The inquiry

The rule provisions did not afford any related inquiry into the distant signal „„d of the first-run. vitality led in markets outside the top 100. into the syndicated exclusivity rules'ontinued

prorotectc ion to stations on Cable Tel«i tston required to notify affected cable systems in 1979 to adoption of the R«pon Broadcasters were Economic Inqutrv R«- Rules," The inquiry."'as of the requested deletion at least six calendar Svndi«ared Exclusivuy of all details result of the distant signal advance. pon. which was the davs in same time. Conclusions reached in the not developed by adopted at the 15. Because the marketplace had fully of a %otic«of Proposed confident than we are today two reports led to the adoption 1972 the Cominission was less which effectively merged the distant signal forces to shape the local distribu- Rule Making. ;n the ability of market exclusivity proceedings and proposed the in ways that would and syndicated tion market for video programming both sets of rules." Because the Syndi«ai«d interest. maximizing hoth the diver- elimination of further 'the public by and the f979 douce of Propos«d Rule and delivery media available to the view- Exclusivity R«pon sity of programs Making laid the foundation for the 1980 decision to repeal As a result, the Commission then believed that ing public. the syndicated exclusivity rules. we discuss the reasoning uas necessary to impose the comprehensive regulatory it Or- and the conclusions reached in both. scheme embodied in the Cable T«I«vision Repon and d«r, As our information about and exPerience with the of cable's entry on local television markets in- 2. Fhe Syndicated Ex«fusiviry Report. effects the creased, however. the Commission grew more confident of 18. The Syndicated Exclusivity Repon characterized s ability to assure that our public interest syndicated exclusivity rules adopted in 1972 as restrictions competition tele- concerns would be met. Finding some of the signal car- designed to protect the non-network programming of It correctly rejected riage rules no longer necessary to protect the public inter- vision stations in the major markets. local distribution est, the Commission began to relax and even to repeal this model of regulation for program The first significant revision to reflect this new markets: it failed. however, to analyze fully the role played them, arrange- found confidence occurred in 1976. with the elimination by enforceable. privately negotiated exclusivity competitive market for of the "leapfrogging" rules. The Commission explained; mems in the operation of a fully such program distribution.'nstead. the report performed the retention restrictions a cost-benefit analysis to determine whether [Ijt is our judgment that the leapfrogging would be in the public rules and the of our syndicated exclusivity rules generally should be deleted from our associated with their retention was are selected for carriage interest. The benefit decision as to which signals their positive effect on broadcasters'inan- marketplace. the judgment of the cable identified to be left to the serve the viewing public. This benefit was and the desires of the cable system cial ability to system operator. counterbalanced against the reduction in video services subscribers....ii which the rules impose upon the subscribers and potential cable television." The Commission found importa- subscribers of The Commission also relaxed the rules governing that the elimination of the rules v,ould have negligible tion of signals carrying certain categories of programming effects on the size of local station audiences," and con- increase the diver- because it found that relaxation would sequently would not significantly harm any broadcaster. available to cable subscribers without the sity of programming is Since audience sizes would be largely unaffected in any adverse effect on standard television service. Finally, the Commission concluded that the near-term were short run, cable systems with fewer than 1000 subscribers on supply would also be minimal. While nonduplication effect program exempted from compliance with our the Commission predicted that the long-term effect of the rules. rules'limination would be mor» significant,"s it believed 16. On October 19. 1976, Congress addressed the status that any deleterious effects would be more than offset by of cable under the Copyright Act.is The Copyright Revi- growth in population and demand for advertising expo- sion Act of 1976 granted cable systems a compulsory sure. The Commission could not determine the long-term license to retransmit all effect on program supply and the competitive imbalance in local television markets. With regard to the benefits if deleted. the Commis- transmissions to the public... of a the syndicated exclusivity rules were secondary sentences that viewers transmission made a broadcast station sion concluded in a few short primary by and that the devel- the Federal Communications Commis- would benefit from increased diversity licensed by would increase. Thus. it sion... and embodying a performance or display of opment of new cable systems of the signals com- concluded that when weighed against the minimal nega- a work... where the carriage the in- transmission is permissible un- tive impact on broadcasters and program supply. piising the secondary that or authorizations of the .. crease in diversity and number of new cable systems der the rules, regulations. their repeal. Commission. the rules'limination would allow supported Nan'c«af Proposed Rule .Making. The legislation also prescribed a statutory formula for 3. The 1919

calculating the royalties owed by a cable system for ex- 19. The 1979 Ãonce of Proposed Rule Making proposed distant

ercising its compulsory license and established an admin- to eliminate both the rules limiting the number of for compensating copyright holders signals a cable system could import and the syndicated istrative mechanism system.'7. in the whose work was retransmiued by the cable exclusivity rules. It highlighted the reasons given that cable operators Once again. changing circumstances caused the past for heavily regulating the signals assure that cable would not undermine Commission to reexamine the rules governing the local could carry: (1) to and thereby deprive the poor television marltet.'ne month after enactment of the over-the-air broadcasting

5302 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

and those not living in cabled areas of video service; (2) to 22. This cost-benefit analysis was based on certain [ac- ensure the provision of local service; (3) to limit what was tual premises, which, with the benefit of hindsight, have be from perceived to unfair competition cable; and (4) to proven to be understated or untrue. In the next section we protect the production of programming.'t did not distin- review the assumptions underlying the 1980 Rrpor( a~ guish between the effects of the distant signal importation Order in light of today's marketPlace realiues. We con rules and the syndicated exclusivity rules on the operation elude that using the same analysis as that used by of the local distribution market. Consistent with the analy- Commission in 1980 leads to a different balance of cons sis of syndicated exclusivity presented in the Syndicated and benefits in today's marketplace. Were the Commiss,on Pxclusivuy Repon,~ in which the Commission had re- to ask the same questions as in 1980, today's answers jected a protectionist perspective toward local broadcast- would clearly justify a reimposition of the syndicated ex ers, the 1979 Notice of Proposed Rulc Making focused on clusivity rules. the effects of exclusivity arrangements on the program 23. Further analysis leads us to conclude, moreover. production market. that In focusing on the production market, the reasoning that shaped the 1980 decision to repeal however, it failed consider th» to adequately the competitive syndicated exclusivity rules was flawed in two significant

posture in which local broadcasters would be left in the respects. First, the iCommission justified the rules'epeal absence exclusivity rules."

of syndicated For instance, in based on an analysis of how their repeal or retemion considering the issue of "unfair competition." the notice would affect particular competitors, rather than market.'ow compet, simply concluded that the 1976 copyright legislation had tion itself, in the local television distribution cured the problem. As we discuss below, however, the recognize that the focus of our inquiry was misdirec copyright legislation addressed only the basic relationship ted to the extent that it examined the effects of repeai or between copyright holders and cable operators retransmit- retention on individual competitors rather than on the ting their copyrighted works; it contemplated that the manner in which the competitive process operates. Commission would its Sec continue responsibility for deter- ond, the Commission failed to analyze the effects on mining whether to modify the the regulatory treatment of loca! television market of denying broadcasters the ability exclusivity arrangements between broadcasters and copy- to enter into contracts with enforceable exclusive right holders.~ exhibi. tion rights when they had to compete with cable operators who could enter into such contracts. Virtually neglected 4. The 1980 Report and Order. were such issues as the effects on promotional incentives 20. Consistent with the reasoning and findings presented of broadcasters, the tendency of cable's reliance on broad. in the Syndicated Excfusivuy Report and the 1979 Nouce cast product to reduce incentives to produce original prod- of Proposed Rule Makfng, the 1980 Repon and Order in uct. and most importantly, the harm to viewers as a result Dockels 20988 and 21284 s'oncluded that the benefits of of withholding, from one group of competitors. an impor- repealing the syndicated exclusivity rules adopted in 1972 tant and widely used tool available to others." We have outweighed any negative consequences. The 1980 Repute only recently come to understand fully the extent to which and Orrfer reflected the Commission's realization that it broadcasting and cable are in competition with each oth- could reiy on cable to play an important role in increasing er.'" The incomplete l980 analysis led the Commission to viewers'elfare, and that unnecessary regulatory impedi- mischaracterize the role that exclusivity rules play in the ments to its growth should be eliminated. The removal of functioning of the local television market. Equally impor- the distant signal and syndicated exclusivity rules repre- tant, this mischaracterization caused it to ignore the effec. sented the culmination of a sweeping package of intended on that market of the assymmetry introduced when broad- reforms, most of which properly removed restrictions on casters'nforceable exclusivity rights in syndicated pro- the ability of cable to compete effectively in meeting gramming were abolished while both cable operators and viewer demand. The removal of restrictions on the num- network affiliates providing network programming contin- ber of distant signals a cable system could carry, for ued to enjoy such enforceable rights. In paragraphs 49-89 example, allowed cable to expand the range of program- below, we examine the iinportance of enforceable exclu- ining available to its subscribers. Thus, consumers were sivity to the competitive process, the local television dis- afforded a true increase in program diversity. tribution market and, in particular. television viewers. We 21. The benefits of eliminating syndicated exclusivity conclude that, under this analysis as well. the benefits io protection, previously identified in the earlier report and the public of extending exclusivity protection to syndicated ihe 1979 Notice of Proposed Rule Making, were to (I) programs outweigh any associated costs. increase programming and time diversity for cable subscribers and (2) foster the development of new cable B. Discussion systems. The potential negative consequences identified were a reduction in program production and harm to the 1. Changed Circuntsrances fundamental viability of local broadcasters. Repeating the 24. As discussed above, the 1980 decision~'o repeal the analysis presented in the Syndicated Excturivuy Report, the rules'epeal syndicated exclusivity rules was based on certain assump- 1980 Repon and Order found that the effects of the tions. First, the Commission at that time had only just on broadcasters and on program supply would be begun to change its view of cable as a supplement to minimal because the growth in demand for advertising over-the-air broadcasting, and it still failed to appreciate would increase the revenues of all participants in the local fully the role that cable would come to play as a full distribution market, with or without syndicated exclusivity competitor in the video marketplace. Second, in analyzing rules. There was no indication, however, that the Commis- the costs and benefits of syndicated exclusivity, the Com- sion foresaw that cable itself would become an important mission found that the absence of such rules would cause competitor for local advertising revenues. Nor did the little ht)rm to the fundamental viability of broadcasting. Commission discuss the competitive function of exclusive The Commission predicted little harm from cable's im- arrangements in the broadcast~ble marketplace. portation of duplicate distant signals which would divert

8303 Federal Communications Commission Record 3 FCC Rcd No. 18 FCC 88-180

broadcasters. And. it found that the effects At the end of 1979, 24 video program services — many of , iewerers from would be slight because the demand for them part-time — v'ere distributed by satellite t» cable f any diversion , was expected io increase so tha( advertising systems;" by the end of 1987. this number had risen io adverd eftisingi more 85 cable programming services."'xcept for i he even»enues for all participants in the distribution market than I syndicated exclusivity rules. cable channels like HBO. most of these cable net- wouujd increase, even absent pay the Commission asserted that significant benefits to works are financed hy both national and. increasingly, 1 hifd small per-subscnher fees je'Qfers would result from the time diversity afforded by local advertising and monthly duplicative signals. In other words, paid to programmers by cable operators. The vast range of cabieeiimportation of 1980 decision was based on a particular cost-benefit cable programming today in comparison with eight years ihehe alliances release ajcujuscu derived from one set of assumptions about how ago reflects new industry and program ca &'hatever technical merits of patterns. Even more importantly, it reflects the fact that hee wworld vould unfold. the analysis or its suitability for deciding issues relating to cable, throughout this period. has been successful in ob-

,hat basis.'" yndicated exclusivity at that time. there is little question taining significant programming on an exclusive tj,at the development of the television marketplace has 28. Growth in cable programming choices has been been different from what was anticipated whenrules.'5. the de- accompanied by growth in cable audiences. which in 1979 cjsjon was made to rescind syndicated exclusivity were too small to be measured by the national television Cub(e as Competitor. Among other key assumptions ratings serviceszw Although the three-network primetime underlying the 1980 decision, the Commission Predicted audience share was beginning to slip even then. it never-

cable would not become as universally available as theless stood at 92 percent in November 1979;" by No- over-the-air broadcasting. even if the artificial restraints vember 1987. however. it had fallen to 75 percent. 'able had hindered its development were removed. For competition has caused much of this loss; indeed. the drop instance, the Commission believed that cable was unlikely has been even greater in cable households and in other io make substantial inroads into metropolitan markets dayparts. In April 1987. for example. network affiliates 'ime v v, here a large number of off-the-air signals were available. had only 52 percent of the eekly viewing audience in and that not even half the households in the United States cable households. while advertising-supported cable net- would have access to cable in the foreseeable future. works (including superstations) had a 2'ercent share, has proved these predictions inaccurate. In fact. pay cable services had an I I percent share. local indepen- cable has emerged as a major competitor for program- dents had a 13 percent share, and public television vtatinns mjng, audiences. and advertising revenues More than 80 had a 3 percent share.- percent of television households in the United States cur- 29. This audience increase has been reflected in a rently have access to cable. More than half the television growth in cable revenues which has been explosive. In households in the United States, including many in metro- 1979, when the Commission was considering changes in its politan areas.ss are already cable subscribers, and the num- syndicated exclusivity rules. cable operating revenues were ber continues to rise rapidly. $ 1.8 billion, of which $334 million came from pa) pro- 26. Over the past eight years. the number of cable gramming and less than $5 million came from loca! ad- s systems has nearly doubled. from 4079 systems serving vertising. In 1980. the first full year of national cable about eight thousand communities at the end of 1979 to network advertising sales. revenues were about $45.5 mil- more than 7,800 svstems serving about 21,600 commu- lion. 'n contrast, the 1979 advertjsjng revenue of broad- nities in mid-1987. s Most of the systems in existence in casters was $8.9 billion ($4.0 billion to the networks and 1979 had 12 channels, but by 1987, 91 percent of all cable $4.9 billion to local broadcasters). 'n 1987. cable operat- subscribers had access to 20 or more channels; systems ing revenues had grown to $ 11.4 billion. including $3.7 serving 77 percent of all subscribers had 30 or more billion in pay cable revenue, $833 million in national channels.~ In 1979 there were 76.3 million television advertising revenue, and $264 million in local advertising in the United States (98.7 percent of all house- revenue, with these lauer increases in advertising revenues households " holds); 27 million of these households had access to cable, representing substantial jumps over their 1986 levels. and of these. 14.8 million actually subscribed to cable During this same period, broadcast revenues grew to $23.3 (19.4 percent of all TV households and 54.8 percent of all billion, of which $8.8 billion comprised network advertis- homes passed by cable)." By the end of 1987. more than ing revenue. while local broadcasters'hare of advertising 81 percent of the approximately 89 million televison revenue (including barter) totalled $ 14.5 billion. Thus. households in the United States had access to cable. and cable television's share of the television advertising rev- nearly 45 million of these were cable subscribers (50.5 enue climbed by almost $ 1 billion from less than one-half percent of all television households and 62 percent of of one percent in 1979 to more than 6 percent in 1987, households with access to cable). Moreover, much of the and it is expected to keep rising. growth in the number of cable systems and cable subscrib- 30. To summarize. in 1980 cable peneiration stood at ers between 1979 and 1987 took place in major urban only 19% and was expected to reach, at most. 48%. markets not yet wired for cable in 1979. Today, penetration is 51% and is expected to reach 60% 27. A significant reason for the increase in cable sub- by 1996. s In 1980. program choices for cable subscribers, scribers and penetration has been the growth of program- except for the retransmission of broadcast signals. were ming options available to cable subscribers. In 1979. few and expected to remain so. 'oday there are 85 cable satellite network distribution of cable programming was program services in operation and more planned each relatively new. Indeed. two of the most popular cable day. In 1980, the cable industry collected only $ 45.5 networks — Cable News Network (CNN), and USA Cable million in advertising revenues. In 1987 annual advertising Network — did not begin service until Spring 1980; and a revenues were $ 997 million. By 1990 alone. these revenues third, MTV, did not begin until summer 1981.ss Of the are expected to increase to $ 1.9 billion. In short. cable top 20 satellite cable services (including superstations) in television is clearly no longer the community antenna 1987, only six had begun operating by the end of 1979.s~

5304 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

that we once it supplement thought was: it is a full player plicated."" Vo commenters present evidence suggesting video marketplace. a in the and vigorous competitor for that iheie is not substantial duplication.'aken as a programming, audiences, and advertising revenues." uhole, the filings in this proceeding demonstrate beyond 31. This conclusion is accepted by cable. broadcasters. any reasonable doubt that a substantial percentage of the and outside observers alike. Our own rules implementing programming imported via distant signals simply dupli- the deregulation provisions of the 1984 Cable Act simi- cates alreai!y aiailabie programming. larly recognize that broadcast stations may effectively limit 35. While the comments basically agree on the fact of cable's market power; and therefore that broadcasting and substantial duplication. there is much controversy as to cable are rompetitors in the same market." Our reliance v'hether broadcasters have been harmed by that duplica- on the broadcasting industry to serv'e as an effective com- tion and whether viewers have been harmed or bene- petitor to cable underscores the importance to viewers and fited." Cable and other interests opposed to reinstituting to the overall public interest that the competitive frame- sindicated exclusivity argue that broadcasters work be balanced. have thrived in the years since 1980"independentindependent broad- 32. Largely as a consequence of these changes, the casters. program suppliers. and others favoring the rein- potential for duplicating broadcasters'rograms, diverting stitution of some form of syndicated exclusivity rules, in broadcasters'udiences and advertising as a result of an contrast, argue that broadcasters. advertisers, and program unbalanced regulatory regime is far greater than we ex- suppliers have suffered substantial economic harm, from pected it to be when we rescinded our syndicated exclusiv- the diversion of their audiences to imported duplicative ity rules. Thus, even if we were to rely on the analytical signals, relative to what they would have experienced had framework used by the Commission in 1980 when deleting syndicated exclusivity rules been in place. syndicated exclusivity. we would today reach a different 36. It is clear from the evidence that substantial diver- result. Because the of significantly changed circumstances sion occurssu Estimates of iieu er diversion range between detailed above, the 1980 cost-benefit analysis conducted 5 percent and 80 percent of the leads audiences broadcasters are today to the conciusion that the benefits of syndi- able io achieve. with most of the estimates cated exclusivity lying in the 25 outweigh any costs. to 45 percent range.'he strongest evidence of diversion 33. Cost of Vo Syndicated Exclusivity Rules. The Com- is ratings information for programming that is simulta-

mission in 1980 believed that cable's importation of neously duplicated. Here. information contained in the

duplicate distant signals would not divert a significant record evidences as much as 50 percent of some programs'udiences number of viewers from the local broadcaster. In addition. being diverted to the simultaneously duplicating the Commission believed that any audience diversion that imported signal.'or example. TVX presents data for five might occur would nevertheless be harmless because ad- markets in uhich broadcast stations experience same time vertising revenues were expected to increase for all partici- duplication of syndicated programming. in some cases by pants in the distribution market (which did not at that more than one imported signal. Losses in Philadelphia time include cable in any meaningful way). The comments range from 7-18% in ADI Households and 16-38% in submitted in the current proceeding provide an analysis of Cable Households. Similar figures for Washington, D.C. duplication, diversion. and economic harm to broadcasters are 2% and 6%o: for Norfolk 13-14%%uo and 20-22%. and for demonstrating that there are such negative effects. and Raleigh, V.C.. 5-11% and 11-20%. INTV reports that that in some instances they are substantial. WTVZ in Norfolk, Va. experiences losses ranging from 47 34. Duplication and diversion. There is substantial evi- -73%o of audience for simultaneously aired childrens'ro- dence in the record that local off-air programming is gramming. Smail Market UHF Stations note that when duplicated by cable systems'arriage of distant signals. KTKA goes head to head with an imported signal for NCTA. for example, presents a survey indicating that MASH, the audience splits evenly between the two sta- more than a third of the broadcast television signals car- tions. Broadcaster Respondents demonstrate that WTXX ried by the "average" cable system are distant signals that in Waterbury. Ct. loses from 22-67%%uo of its viewers when might duplicate local broadcasters'rogramming.~ NCTA its programming is simultaneously duplicated. Arch Com- also provides a case study suggesting that as many as 199 munications station WGBS in Philadelphia was able to weekly hours of programming, representing 25 percent of achieve only a 55% share of the viewers of "Charles in the total programming provided via distant signal carriage Charge" when it was simultaneously available on the on the cable system in question. were duplicative of pro- WPIX superstation via cable, and achieved only 60% in gramming available from local broadcasters in that sys- the case of "Voyagers", against WOR, another supersta- tem's market.ss VCTA asserts that as many as 43 million tion. We recognize that duplication does not translate viewers have duplicate programming available to them, a directly into diversion of audience from broadcasting. statistic cited by INTV as evidence of the "enormous Some of the audience for duplicate programming on cable breadth" of duplication.~ Drawing on a study of the may represent audience over and above what the local Washington, D.C., and Baltimore markets, CATA suggests broadcaster would be able to attract with that program that as much as 50 percent of programming on imported even without cable duplication; a significant amount how- signals is duplicative. Times Mirror estimates that ever, is undoubtedly diverted from the local broadcaster.

duplicative programming on two of its systems accounts particularly as the airing times for the programming be- for 40 to 50 percent of its distant signal programming.'PAA come closer or. in the clearest case, simultaneous.

notes that KOKI-TV, Tulsa, Oklahoma has about 37. Argi ing the other side. NCTA presents a case study 25 percent of its total syndicated program schedule du- of the Boston market showing that local station ratings for plicated, and that 80 percent of the syndicated program- syndicated programs are higher for those programsnot.'hile that ming of WHCT-TV in Hartford, CT is duplicated on cable are duplicated than for those programs that are systems in its service area.sv Finally, TVX submits, as a narrowly true. this argument is misleading. These result of four market studies, that more than 50 percent of results starkly reflect ihe fact that duplication is much each TVX station's programming in each market is du- more probable for popular programs that ar» particularly

5305 Federal Communications Commission Record 3 FCC Rcd No. 18 FCC gs-180

duplica- 41 Diversion imposes economic harm iin local broad- to dra» large audiences. with or»ithout like 7 tendency to casters that is the result of inequuable conlpellilve rules than ir is for less popular programs. This i ionn. maximizes the eco- rather than an inability io provide a good iersice respon- port the most popular programs impor This is borne sive to viewers «ishes.' A drop of even a single rating ,m,c damage done by virtue of duplication. noinic 1 1 2 of a hroadca»er'i MPAA's reply comments. which show that. despite point may represent a loss of 3 to outt by Audience diversion translaies diretxly strong absolute ratings. programs that are duplicated potential audience. iheifhalf of the into lost revenue for local broadcaster~. Nor are the broad- ihe Boston market achieve less than 80 percem ,„ whereas programs that casters of distant signals likely io gain «hen they are

raonstings they achieve nationwide, market achieve a retransmined on a distant cable system. unless they are afe noi duplicated in the Boston rating higher in Boston than they do nationwide. able to achieve superstation status and begin io anraa five percent Generallv. local adver-

addition. INT'V provides ratings data for 27 markets national and regional advertising. ln tisers will little or nothing for the audiences thai lie» that indicate the extent to which duplicative superstation pay garners significant ratings. In some markets them on cable in distant markets: consequently. prozram progralnming '4PAA, signal earns ratings in the 4-6 range. suppliers will not receive direct payments from hroad- imported audience. in its comments. demonstrates that the percentage casters commensurate with the true size of their of superstation viewing of popular syndicated programs 42. The main importance of evidence on duplication ranges as high as 44% for some Iirograms. and averages as and diversion to this proceeding is not that particular m al- high as 17% in 6 major markets. broadcasters are economically disadvantaged thereby. be true. and is of course 38. NiCTA also argues that in some cases distant signals though this will in general the broadcasters. Rather. it is that afe available off-the-air in the local market and that there- viewed as a problem by all diversion should be attributed to cable. How- broadcasters suffer diversion when they choose to exhibit fore not viewers. ever, they provide no quantitative assessment of this programming that is particularly demanded by and we are unable to give it much weight in Such programming is the most likely to be duplicated. phenomenon, flefinirion. vill the absence of any evidence that it is important. In gen- simply because popular programming. hy we note that. for the most part. signals defined as be bought by stations in sirtually all marketv. many of eral, markets. vormally. distant are ftot in fact available off the air and therefore whom will be imported into distant competitors «hen are likely to be of liule consequence in identifying the firms suffer their most severe losses to determinanis of diversion.' Finally. NCTA notes certain they fail to offer the services most desired hy the public. extensive duplica- factual errors in the comments of MPAA and INTV.'e We In the absence of syndicated exclusivity. - they suf- have calefully examined these errors and conclude that tion reverses this relationship for broadcasters when ihey offer they do not substantiall~ change the picture these com- fer their most severe loss precisely have presented.' programming most desired by audienceic thus diler»on is menters resultv from like us to restore an indication of a competitive imbalance that 39. We befleve that those «ho would exhihii have made a good case that there the absence of the rule. Firms that choo'o syndicated exclusivity exclusile hasiv te.g,. substantial diversion.'~ As we have just noted, programming on an enforceable has been not face the problem of au- audience for prograins appearing simulta- cablecasters) generally do most of the produm. The fact that only on cable and over the air locally represents a dience diversion to duplicative neously kind of diver»on is stark elidence. from the audience of the local broadcaster; and broadcasters suffer this diversion he responsive to lie»erv'ref- have provided a number of examples of not of inferior ability to broadcasters fact that hroadcasterv operate same-time duplication and diversion.' In addition. the erences. but rather of the duplication documented in under a different set of competitive rules. All program- quantity of non-simultaneous sources of pro- taken as a whole. presents mers (ace competition from ahernanse the record in this proceeding. and are pov;erless io evidence thai substantial diversion is raking gramming. Only broadcasters face. compelling competition from the programming they them- place. prevent. selves offer to viewers. 40. As to the quantitative importance of this harm. above. »hen the Commission repealed advertisers will generally. depending on audience demo- 43. As»e noted the syndicated exclusivity rules in i9afl. ii noted that graphics. be «illing to pay more to advenise on broadcast Conversely. because of projemed population and economic gro«th. any programming «hich auracts a large audience. broad- that adver- decline in advertising revenues received by local as audiences are diverted from programming, diversion»ould likely he tl s Butter- casting stations as a result of tisers will pay less. INTV presents a study by adveniving that takes the INTV offset in whole or in part by overall grov,ih in field Communications Group advertising of audience diversion measured in ratings points expenditures. An analysis of expendiiures.ince estimates unfortunately. indicates that this predu:lifln was and translates them into dollar losses.'hese range from that time. somewhat inaccurate. The Commission did not. in 1960. under $5000 per year for a bartered children's show to fully anticipate the increase in the number of competitors 1 for "Facts of Life" in the San Diego almost $ million stations which has occurred since NCTA replies that the study is flawed because it to local broadcasting market. these competitors iv cable tele- an audience diversion factor and there- that date. Foremost among assumes too high Advertising on cable TV. also. according to a re- fore overstates the ratings the program would achieve if it vision. estimate Paul Kagan Associates, has risen were to be shown exclusively by the local broadcaster.' cent by substantially. In 1987 local and national advertising on Although the exact dollar costs of diversion estimated in 1 in revenues.'hile are subject to some margin of error, cable generated almost $ billion the Butterfield study on cable represent advertising of studies of this kind, we agree with its some of the advertising may as is typical not previously aired on local television stations. overall contention that broadcasters have demonstrated that has some fraction of it undoubtedly «siuld have been placed that they experience losses from diversion. on loca! stations if it had not been placed on the cable system." The essential point here is that both broad-

5306 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

casters and cable systems compete for the same advertising true program variety that result from the "rule of reruns" dollars, and use the same programming tools in doing so. that is implicit in extensive duplication. in order to deter- Because this development was not anticipated by the 1980 mine the net increase in diversity. Further. to the extent Commission, we can fairly conclude that the emergence of cable subscribers do value a distant station highly, whether cable as s competitor for local. well as as national, ad- for news, time diversity. or some other reason. the cable vertising casts doubt on the predictions made by the Com- operator has an incentive to overcome. either negotia- mission in 1980 concerning by advertising revenues available tion, or the insertion of substitute programming. ob- to television stations. any stacles that a local broadcaster's purchase of exclusivity 44. Finally, the 1980 Report found in its cost analysis may pose. Syndicated exclusivity rules, by requiring the that program supply should not be'ffected, in the short cable operator to consider all the alternatives explicitly. term, by the lack of syndicated exclusivity. Many commen- increase the likelihood that the cable operator's choice in ters have documented the strong growth in syndicated this matter refl'ects the value placed on distant dupiicauve programming that has taken place in recent years and signals by his subscribers. some have provided examples where the lack of syndi- 47. Moreover, the increasing cated exclusivity has availability of VCR! re- i kept down the price broadcasters duces the need to achieve time diversity cable's have been willing through to pay for such programs.'" No one, importation of distant signals." The however, has provided evidence rapid increase in regarding the impact of VCR penetration, especially in cable households, was com- the rescinding of syndicated exclusivity rules on th» long run pletely unanticipated in 1980 when the Commission put a supply of syndicated programming. We note that as a heavy weigh! on the matter of advantages of time diversity that basic economics, the supply of programming will cable transmission of duplicate be less than programming could pro- it would otherwise be when thc price suppli- vide. The ability to increase time ers can expect to receive diversity by recording is less than ii would otherwise television programming for later viewing be, but it is an has grown sig- impossible task to identify the programs nificantly since the Commission studied that people have not created these issues in because they lack the incen- 1979. At that time. only about one snd one half tives syndicated exclusivity percent of would provide. We are, there- TV households had VCRs." Today, VCR penetration fore, no longer prepared to conclude, has as we did in 1980, grown to 58.1% of TV households and is even higher for that the impact of repealing syndicated exclusivity rules on households that subscribe to cable.'" Importantly, time program supply would be small; we believe instead that, diversity in viewing while that obtained by thc use of a VCR can be impact cannot be precisely ascertained, it could planned and made to fit thc viewer's be quite significant. convenience, while The consequence for broadcasters and reliance on duplicative imported viewers alike from signals may only fortu- any such effects on incentives to pro- itously meet such needs." Second, note duce original cable we that in 1980 programming, and real diversity for there were fsr fewer alternatives to broadcast viewers that may occur are clearly harmful."s signals than there are today, For that reason alone, time diversity is 45, Benefits of .Yo Syndicated Erclusivuy. In 1980, the likely to be of less importance today than it was in 1980. Commission perceived the benefits to viewers from repeal- Therefore, we have gready reduced the weight we attach ing the syndex rules in terms of increased program diver- to any off-the-air time diversity benefits that duplicative sity through time snd episode diversity, to outweigh any signals may provide. However. even under syndicated ex-

negative effects on broadcasters'evenues and program clusivity rules, time snd episode diversity will be provided supply. A major argument for allowing the Importation of if it is valuable to consumers. First. to the extent viewers duplicative viewers'hoices programming was that it added to in a market value such diversity, the local broadcaster will with respect to time of viewing or additional seek the right to carry more than one episodes." episode per day. Some consumer benefit may indeed arise in Second, to the extent cable subscribers value such diver- cases where viewers value thc time or episode diversity sity, cable operators may negotiate with the local broad- afforded by the importation of distant signals. Some com- caster to forebear from enforcement of his syndicated menters argue, however, that consumers have been poorly exclusivity rights, thus allowing importation of the du- served ' by cable operators who have relied excessively on plicating programming. Reimposition of ex- distant syndicated signals for their programming rather than develop- clusivity rules will simply subject the issue of time and ing the original programming alternatives that cable csn episode diversity to a market test. provide.'" If broadcast or cable They argue that such duplication does not viewers value such diversity, the market will work to provide the true diversity in programming that cable has provide it. the capacity to provide." Nevertheless, cable operators 48. In summary, we find ample evidence argue st length that time in the record and episode diversity remain that the cable snd broadcast industries have important to viewers snd that cable grown in subscribers frequently ways quite different from what we expected when we become patrons in part so that they can enjoy these rescinded syndicated exclusivity rules in 1980. As a result, options. Survey results and affidavits to this effect have the costs of no syndicated been submitted exclusivity protection to broad- by parties opposing the reimposition of casters and program suppliers in terms of lost syndicated exclusivity."s Cable revenues, operators also argue that and the public in terms of foregone program diversity, are viewers benefit from the additional news and public affairs far greater than anticipated in 1980. while the benefit to that a distant station may make — available to them, and the public time and episode diversity — can that syndicated exclusivity will be satis.ied deny them access to this by other methods. Even using the 1980 cost-benefit programming forcing cable analy- by operators to drop distant sis, we must find that the benefits of syndicated exclusivity signals that contain an overabundance of duplicative syn- outweigh its associated costs. dicated programming. 46. While some viewers undoubtedly value time and 2. The Purpose and Function of Program Exclusivisy episode diversity, any such diversity benefits should, in principle, be weighed in some manner against the losses in Communications Commission Record 3 FCC Rcd No. 18 FCC 88-180 Federal

cable the strong evidence that cable has become a cated exclusivity "would cause millions of 49 Given shown on dis- and substantial competitor in the television mar- subscribers to lose access to programming igorous well cause subscribers to lose ,etpiace, we can find no economic justification for de- tant stations. and might very of syndicated programs the same rights access to the stations altogether."'ther commenters nying broadcasters broad- exciusivity that both cable and broadcast net- similarly claim that massive disruptions to local to program occur,'" while Turner charges that already enioy. Virtually every commenter support- casters are bound to v,oiks we know it."'~ exclusivitv rules auests to the critical importance of the rules "would destroy the world as ing in 1980, the as a competitive strategy or tool that should be Similarly, by repealing syndicated exclusivity exclusivity the argument in terms of available. Broadcasters, cablecasters and other delivery Commission mistakenly cast could survive in an environment in media must be able to differentiate their product from whether broadcasters others if they are to attract and maintain an which they could not enforce exclusive contracts. Perhaps of whether broad- audience. The importance of exclusivity has also been they can, but the proper question is not highlighted in the trade press-both for broadcasters can survive. The proper question is: how does the frequently affect the the casters and cable operators," presence or absence of syndicated exclusivity of competition, and through this, More importantly, the limitations our current rules viability and strength 50, achieve various consumer benefits, including program impose on broadcasters prevent television viewers from best possible mix of programs across different choice? getting the com- of video outlets. That is, some programs that broad- 53. When examining the value of exclusivity as a ivpes we casters could acquire if they could enforce exclusivity are petitive tool in the distribution of video programming, currently likely to be unobtainable. Such programs are must first consider the nature of the video programming to a class of goods econo- provided by other outlets, or perhaps not at al!. As dis- market, Broadcast signals belong more fully below, because local viewers may be mists call "public goods," an essential characteristic of cussed does diverted to distant stations, the ability of local advertisers which is that enjoyment of the good by one person to another person.' The as a group to make the best use of all available advertising not reduce the value of the good was the syndicated media is reduced. Thus, diversion and the failure of local Commission's judgment in 1980 that advertisers to ~slue distant viewers reduces the market exclusivity rules made consumers worse off by violating a economics, value of syndicated programs. As a consequence. suppliers basic efficiency criterion of modern welfare programs do not produce as rich and diverse namely, that public goods, like all other goods, should be of syndicated broad- programs as they would produce if the local priced at their cost. Because consumers can view a mix of this broadcasters who bought their programs had the same cast signals at no marginal cost to the broadcaster. the to enforce exclusive contracts that cable and broad- efficiency criterion would lead to the conclusion that rights at no cast networks already enjoy.'" Further, given broadcast- signals should be distributed as widely as possible ing's greater household penetration in local markets and cost. The Commission thus concluded that the syndicated consequent advantage over cable «s an advertiser-based exclusivity rules should be repealed, As most economists its dilemma in medium, it appears likely that broadcasters and their view- recognize, however. the essential public policy efficient con- ers might well be particularly harmed by the current, pricing public goods in order to achieve reduced incentives to produce programming intended to sumption is that there vould be no incentive to produce funded advertiser support. Ultimately, and in a and distribute them in a ~rivate enterprise economy if a be by distribution of variety of ways, the television viewer, whose options are zero price were charged.'roduction and that reduced. sulfers as a result of the absence of exclusivity. programming require the use of scarce resources could be used for other purposes, even if viewing does 51. The restoration of syndicated exclusivity protection of with our policy of relying on competi- not. Thus, the conditions yielding optimal consumption is also consistent inherently conflict with those yielding option, whenever feasible, to accomplish our goals under the programming Communications Act." Competition is generally far more timal production. than regulation for fostering fair and efficient use 54. In order for television programming to be produced, reliable compensated ) of the means of mass communication!'-'e believe that program producers and distributors must be will have incentives to produce as long as those conditions are met and we can also in such a way that they meet all of our responsibilities under the the amount and types of programming that viewers desire. I continue to pro- Communications Act, we should not favor one delivery Various techniques have been used to compensate television and mode over another. To do so may predetermine the com- gram producers. Over-the-air subscription outcome, and eliminate any presumption that the cable television, particularly pay-per-view systems, allow petitive These ap- occurs is the one most beneficial to soci- viewers to pay for the programs they want. outcome that but ety." Similarly, in considering the competitive relation- proaches more accurately reflect audiences'astes, "efficient" level because a ship between broadcast and non-broadcast media, we they restrict viewing below the the public interest is enhanced by promoting price is cha-ged.' Advertiser support provides programs believe that audience framework that interferes as little as possible with mar- at zero price to the viewer, but uses imperfect a audience prefer- ket incentives to meet viewer preferences. The fundamen- measurement techniques to determine in programming tal reason is that this approach will lead to better service ences. It also results in underinvestment discussed further below, syndicated ex- because advertisers value viewers'xposure to commer- to the public. As some rules should be part of such a prowompetitive cials less than the viewers value programming. In clusivity and fi- regulatory framework. countries the government chooses programming its production with a tax on television receivers or 52. Exclusivity as Competitive Tool. Commenters op- nances even from general revenues. Again, viewing of existing posed to restoring syndicated exclusivity, including every

is priced efficiently, but viewers have still less and superstation interest, but most notably NCTA, programs

cable influence on the programming that is produced than they argued that syndicated exclusivity is harmful to the inter- have with advertiser-supported or pay television.'308 ests of viewers."'CTA argues that reimposition of syndi- 3 FCC'Rcd No. 18 Federal Communications Commission Record FCC 88-180

55. Clearly, none of these outcomes is ideal. The market cable systems for daptication rights, and will receive mar- imperfection created by a public good inherently requires ket signals that reflect the demands of all, not just some, balancing of the conflicting requirements of efficient pro- viewers. duction and efficient consumption. None of the comments 60. Effect on Competition. As already noted, all com- in this proceeding directly addresses this conflict in these menters agree that the ability to enter into exclusive con- terms; but, as we demonstrate in this Order. the absence tracts is a widely used competitive tool that is important of syndicated exclusivity rules both hurts the supply of to program suppliers, cable operators, and broadcasters.t~ programs and unfairly handicaps competition to meet And, as just discussed in the previous section. the program viewers'references in the distribution of existing pro- supplier is interested in reaching as large an audience as gramming. possible with its program, as long as increasing the size of 56. Effects on Program Supply. Program suppliers, like the audience increases the amount the supplier will be other business people, respond to incentives. The greater paid for the program. By granting an exhibitor the exclu- the total number of programs and the quality and diversity sive right to show a particular program in its market, the of programs that are produced, the greater are the finan- program supplier maximizes the incentives of the exhibitor cial incentives facing program suppliers; and these incen- to promote the program and its ability to compete with tives are greater with syndicated exclusivity rules than other exhibitors. Any additional audience generated by the they are without them. promotional efforts of an exhibitor translates into larger 57. Incentives to develop new programs are greatest revenues for the exhibitor and larger payments to the

when program suppliers are able to sell their programs program supplier.'1. wherever there are viewers (or advertisers) willing to pay Apart from its direct effect on station revenues and for them. Moreover, price information from all relevant the ability to obtain programming, program exclusivity markets is needed to guide program suppliers in their may have a further value to broadcasters if it allows them efforts to develop the kinds of programs viewers most to create a distinctive public image in order to attract want to st„as well as to decide how best to reach them. viewers. For example, exclusivity may allow thc broad- Without syndicated exclusivity rules. program suppiiers caster to acquire a reputation as the only source of certain are likely to receive less than the full market value of valued types of programming, which may alert viewers to programs broadcast on distant signals that are retransmit-. the general attractiveness of the broadcaster's whole range ted by cable, and therefore will not get good price in- of programming selections.t~ formation about the value of such programs to cable 62. When the same program a broadcaster is showing is viewers. available via cable transmission of a duplicative signal. the 58. The reason, explained below, is that viewers are broadcaster will attract a smaller audience. reducing the diverted from the broadcasters with whom the program ainount of advertising revenue it can garner and, as al- suppliers have contracted for exhibition. The revenues ready noted. reducing the amount it will be willing to pay earned by the producer of a program depend upon the for the program. In addition, however, because some of advertising revenue the broadcaster of the program is able the broadcaster's promotional effort is likely to attract to garner on the basis of the program's anractiveness to viewers to the cable transmission rather than to its own viewers. Duplication of programming through cable re- broadcast, the broadcaster will not invest as much in transmission of distant signals breaks this link between the promotion as it would if it were able to capture the full attractiveness of the program to viewers and the amount benefits of its promotional expenditure." Networks and the program producer gets paid. When a cable operator in cable operators, in contrast, are able under current rules market B retransmits thc signal of a broadcaster in distant to negotiate exclusive contracts; and they do so regularly. market A, the total audience for the program may even Thus, if cable operators served the identical market, they grow, because there will be some new viewers to supple- would be able regularly to outbid independent broad- ment the audience that has simply been diverted from casters for desirable programming. Of course, their mar- local broadcaster B. As explained below this audience kets do not overlap perfectly; independent broadcasters growth will not, however. translate into greater revenues have a distinctive place in the market that kccps them for the program producer: it will be more likely to result from bein~ entirely foreclosed from competing for pro- in reduced fevciilles. gramming. ~ Nevertheless, their inability to enforce exclu- 59. This reduction in revenues will occur because the sive contracts puts them at a competitive disadvantage loss of audience by broadcaster B will reduce the amount relative to their rivals who can enforce exclusive contracts: it is profitably able to pay for the program, while at the their advertisers'bilities to reach as wide an audience as same time, advertisers in distant market A will attach little possible are impaired; and consumers are denied the bene- importance to the newly-attracted viewers in local market fits of full and fair competition: higher quality and more B. The result is too small an increase in revenues from diverse programming, delivered to them in the most effi- distant broadcaster A to offset the loss of revenue from cient possible way. local broadcaster B.' Thus, program suppliers face re- 63. Moreover, in the absence of must carry rules, the duced incentives to expand and improve the supply of ability to obtain exclusive rights to programming may be programming under our current rules. With syndicated an important tool in winning cable carriage. Because exexclusivity, however, cable operators will be able to du- clusive programming makes a program service more at- plicate locally available programming only if they are tractive to viewers, it will also be more attractive to the willing to pay local broadcasters for the right to do so. In cable operator, who has an incentive to provide his cus- those situations where consumers value such duplication tomers with the most desirable programming in order to cable operators will have an incentive to enter into such increase subscribership. arrangements with local broadcasters; program producers, 64. When there is a diverse set of program sources and in turn, should be able to charge local broadcasters a fee outlets, as there increasingly is in the current television that reflects both advertising revenue and payments from marketplace, the net effect of allowing exclusive arrange-

5309 Federal Communications Commission 3 FCC gg-tgg Record FCC Rcd No. 18

and jsls ipio jncreasei the kinds of competition program those cases where the programming offered via transmis- ments l el d»ersity r e tile sion of distant signals is more valuable to viewers than the y Fox televjsjon examp e. programming offered by focal broadcasters. In other effectively with the 3 net- ining serviceervice that can compete words. any diversion of audience from broadcasters to wolrks dePends uPon the exPeciation that cable oPerators cable is an important aspect of the consumer- Fox's affiliates'rogramming exclusivity v ill1] not destroy welfare-enhancing effects of expanding the availabiliiy of imported Fox programming distributed by a byb carrycarrying programming outlets. ~tellite carrier. A broadcaster will find it profitable lo 68. Unfortunately. the positive effects of removing re- exclusive contract only for programs that he will 'ign an strictions on distant-signal carriage v'ere weakened by the effectively, and the broadcaster best be able to promote simultaneous removal of syndicated exclusivity By elimi- viewers will be in a able to attract position to pav the nating the ability of broadcasters to secure exclusive rights mpsi fpi'hat exclusivity. Competition among program to syndicated programs. the removal of syndicated exclu- exclusive suppliers ensures that contracts will be sought sivity lessened the ability of independent broadcasters that will benefit io poly fpr programs from the extra promp- compete for the best programming and hence reduced allows. iipn exclusivity Naturally, many of these will be their ability to meet their viewers'emands." Thus. rath- with substantial mass but programs appeal, some may also er than expanding the richness and diversity of programs that would not be produced or broadcast be programs at available to viewers. as the elimination of distant signal ail wjihout the Protection afforded by excluSivity. As long limitations clearly did. the elimination of exclu- reasonable competition syndicated as there is among suppliers and sivity protection increased the likelihood that program- exclusivity is a competitive distributors, tool that fosters ming less valued by viewers would be substituted for more the efficient channelling of programming to its most ap- highly valued programming." In the absence of enforce- outlets. thereby di- propriate maximizing the extent and able syndicated exclusivity rules, no objective market available test versity of programming to viewers."'n this can exist to indicate the value viewers place on ihe antitrust laws are context the the appropriate vehicle for duplicative programming they are receiving. with those relatively rare situations in which ex- rlealing 69. Although cable clusivity can be used to hinder competition. systems pay compulsory license fees svhen they carry distant signals, these fees bear no direc~ We also take cognizance of the 65. fact that broadcast- relationship to the value of specific programs carried on ing has greater household penetration than cable in most markets.'"'ith specific distant signals. Thus distant stations will be car- local the restoration of their ability to ried as long as their value to the cable contract for exclusive exhibition operator exceeds rights. broadcasters. the compulsory license fee. even if the value of these therefore, will again be able to realize any inherent effi- distant signals to vievers is less than the value of the ciencies they may possess lis a ils cable as an advertiser- alternative programs that cablecasters would carry if based medium. Thus. if availability of exclusivity for broadcasters could exercise exclusive rights. so that cable broadcasters fosters more production. of especially pro- operators would hase to negotiate to obtain the right io gramming targeted for distribution by advertiser-supported show duplicative programming. media.'"'hen broadcasters and their viewers could be the 70, Consider. for primary or greatest beneficiaries. This may be particularly example, a syndicator especially skilled beneficial to viewers in the case of those ar develOping prOgramS that independent StatiOnS wOuld program suppli- find useful in establishing ers producing primarily for the advertiser supported mar- a competitive position in their ket. markets. If some of the stations to which the syndicator would sell the program are also carried cable systems. 66. As a result of our analysis by here. and our review of other stations will less than they would if there were the record evidence in this pay proceeding, we conclude in no risk of audience diversion;"" and it is possible thai the this Order that exclusivity is a normal competitive tool, difference between what stations would if they could useful and appropriate for all sectors pay of the industry, enforce exclusivity and what they would if they could including cable as well pay as broadcasting. Exclusivity en- nor is the difference between the syndicator's willingness hances the ability of the market to meet consumer de- to offer the program and his deciding that it is too risky a mands in the most efficient, way: this is a sufficient reason project to underrake.'"" Such effects operate directii in the for allowing al! media the same rights tp enter into and case of first run syndication product. but also enforce exclusive contracts.'" indireruly on programming first offered to networks that is expected 67. Accpmplisltrnenr of Sraruiprv Goals. One good in- eventually to move into syndication. dicator of whether a enhances policy the objective of using 71. Thus, the absence of syndicated exclusivity can cre- competition to out carry the Commission's goals under the ate a process in which the inability of broadcasters or Communications Act is whether that policy increases the syndicated program suppliers to capture the full value of supply and diversity of programming demanded by view- programs tends to cause a decline ers. this in the quality and By standard, the removal of restrictions on the diversity of syndicated available number of distant programs to broadcasters. signals a cable station could carry was a which in turn reduces the quality and diversity desirable of the audience-expanding policy, even though it may programs that are available to be imported via distant have had a as side effect a diversion of audience from signal retransmission. Consumer welfare broadcasters is reduced m ibis to cable. Hitherto unavailable programming case because less valued programming crowds out more became available to viewers for first the time. New tech- valued programming and viewers are subject to a "rule nologies that Iowwost of permit retransmission of distant sig- re-runs" as a direct result of the absence of nals new syndicated containing program options for viewers also exclusivity, Moreover, we don't optimize the mix of pro- represent a clear benefit to those viewers, even though grams delivered across media, e.g., loca! broadcast. cable they also cause diversion of audience from existing broad- and so forth. casters. However, when "real" program alternatives are being offered, such diversion should only take place in

5310 3 FCC Itcd No. 18 Federal Communications Commission Record FCC 88-180

in- 72. It is logically possible that, despite the perverse ing patterns and costs of compliance which will be incentives created by artificial restrictions on the ability of curred by cable operators, including costs of equipment, broadcasters to compete for syndicated programs, viewers substitute programming and consumer education. do indeed value the existing mix of programs more than 77. We believe that these charges are substantially over- any other mix that might be produced and that there are stated for several reasons. First, these commenters assume no new or different programs that they would value more that broadcasters will choose to purchase, and that syn- highly than the existing programming on the distant sig- dicators will choose to sell to them. syndicated exclusivity nals and local stations they are now watching. It is much in each and every instance. When syndicated product is more likely, however, that the reimposition of syndicated distributed, however, this is simpiy one of at least four exclusivity would lead to the development of new pro- options available to the distributors."'ertainly there will grams to take the place of those for which broadcasters be instances in which a distributor chooses to sell, and enforce exclusivity. The central-and critical-point here is local broadcasters choose to buy, programming with syndi- that these programming choices would be made in re- cated exclusivity protection. In that event, the distributor sponse to viewers'references in a television marketplace ma~ choose to refrain from selling to the superstations at with as full and fair competition as possible. The rein- all. si Second, the distributor may choose to sell to both stituting of syndicated exclusivity, as a part of our exclu- local broadcasters and superstations, on a nonexclusive sivity rules, is an important element in such a basis.'hird, as discussed below, pares. 163-170, the pro-competitive policy. distributor may choose to sell to a superstation and not 73. The Commission, pursuant to Section 307(b) of the local broadcasters. Finally, a distributor may sell program- Communications Act, has been charged with the respon- ming on an exclusive basis to local broadcasters, and also sibiligt of developing an orderly system of local broadcast- sell it to a superstation. Only this fourth scenario may lead ing.'ur country has made a substantial investment in to deletions. It seems very likely, however, that a super- free, local, over-the-air service that has and continues station will not purchase such programming unless, de- substantially to promote the public interest. From a regu- spite the potential for deletion, the programming has latory standpoint, broadcasters are governed by unique sufficient value to consumers in whatever markets remain. regulatory mechanisms that are designed to ensure they If the superstation is concerned that a cable system would wifi serve their communities of license. In short, the Com- discontinue its carriage, however, the superstation will munications Act and our regulations have held broad- have an incentive to purchase only, or at least primarily, casters to a standard of operating in the public interest, programming not subject to deletion by the local systems. convenience and necessity, with obligations to serve their 78. But even if a superstation does choose to purchase local communities. programming that may be subject to deletion in certain 74. In fulfilling our responsibility under Sections 301, markets, cable operators retain several options. The cable 307(b), and 309, we believe the public interest requires operator and the relevant broadcaster may find it in their that free, local, over-the-air broadcasting be given full mutual interest to work out an arrangement whereby the opportunity to meet its public interest obligations. An duplicative distant signal can be carried despite the local essential element of this responsibility is to create a local broadcaster's exclusivity right. If cable subscribers truly television market that allows local broadcasters to compete value the opportunity to view a particular syndicated pro- fully and fairly with other marketplace participants. Pro- gram on a distant signal when it is also being shown by a moting fair competition between free, over-the-air broad- local broadcaster. and if they value this opportunity more casting and cable helps ensure that local communities will than any other program the cable operator might show, be presented with the most attractive and diverse pro- the cable operator has an incentive to pay the broadcaster gramming, possible. Local broadcast signals make a signifi- for the right to duplicate its program and the broadcaster cant contribution to this diverse mix. As we documented has an incentive to accept a payment rather than show the previously, the absence of syndicated exclusivity places program exclusively as long as the payment more than local broadcasters at a competitive disadvantage. Lack of makes up for any revenue declines as a result of diversion. exclusivity protection distorts the local television market In other words, when the overail market for the program to the detriment of the viewing public, especially those would be larger if it were shown on a nonwxclusive basis, who do not subscribe to cable. Our regulatory scheme and if both the cable operator and the broadcaster can should not be structured so as to impair a local broad- make more money showing the program rather than caster's ability to compete, thereby hindering its ability to showing the next best alternative programming, there is serve its community of license. Restoration of our syndi- room for negotiation between the cable operator and the cated exclusivity rules will provide more balance to the broadcaster to tap this larger market.'s Thus, even with marketplace and assist broadcasters in meeting the needs syndicated exclusivity rules in place, cable retains its full of the communities they are licensed to serve. ability to compete with other industry groups for the use 75. Our analysis demonstrates that syndicated exclusivity of exclusive programming. rules are an important component of a sound communica- 79. Only in those instances where the imported signals tions policy designed to foster full and fair competition are of little or no value would the cable system choose to among competing television media. Without syndicated drop them.'ss In such a case, replacement by a more exclusivity, there is a likelihood that programs will not be highly valued signal is highly likely. Far from-representing distributed efficiently among alternative outlets and that a loss in consumer welfare, this substitution of alternative viewers will not get the most efficient quantity and diver- programming for duplicative programming would repre- sity of programming. sent a gain in consumer welfare, and in such a case, a gain than Costs Reimposition. The costs involved in any in true program diversity. Now that there are more 76. of free reimposition of syndicated exclusivity rules fall into two 85 cable services, many of which may be picked up is no categories: Near-term disruption of cable subscriber view- by cabie operators on an occasional use basis, there reason to believe. as may have been more true in 1980,

5311 Federal Communications Commission Record 3 FCC Rcd Ne. 18 FCC 88-180 two Michigan systems would be over no good alternatives to iluplicanon Such argues thai costs in there are "Coalition" costs ranging from $ 10,000 also may be obtained by "cherrypicking" $63.000 and posits progfainming for manual equipment with $40.000 for labor to $ 100.000 other broadcast signals. Or u may be obtained from tiom for fully automated. computerized eqmpmem. Cole- nonbroadcast sources. As Tempo. one of the commemers has ni)ted: "There are a Rapvid and United Video also present cost estimates on a syndicated exclusivity rang- opposing wteliite channels which occupy the per subscriber basis. Cole-Raywid presents estimates m;ried of cablewnly subscriber per momh while network status below CNN. kSPN. Nickelodeon ing fmm $.254 io 54 per secondary uni- United Video claims first year costs of $4.98 per cable the like. These program sourcex. which are not and as well as household and $3.98 thereafter. To this. cable commenters versally carried. include ihe Tempo Companies Network and numerous other argue. must be added the costs of complaints. handling ihe Black Entertainmem argue that Programming from these channels could consumer education and the like. Finally. they ~able channels. are fixed, will fall particu- be carried in place of the protected syndi- these costs. to the extent they easily clear to smaller cable systems. and have a dis- b~~~dc~~~ programs larly heavily on cated large effect on their subscribers. program supply services stand ready to proportionately 80. Moreover, systems will incur substitute nationally cleared programming to 84. While we recognize that cable provide with our rules. and in conducting their any need for blackouts or holes. For instance, costs in complying eliminate the new regulatory environment. we have United Video has stated that it will provide programming. businesses in substitute concluded that the equipment and operating costs. as well utilizing an alternate programming feed, to com- would otherwise delete the primary as the likely amount of consumer confusion and when cable systems overstated the parties signal (WON) delivered by United Video.' plaints. have been substantially by broadcast these rules. First. commen- Video envisions the provision of a centralized opposed to the imposition of United separate costs necessarily incurred to comply switching function so that subsutution of the secondary ters fail to with our rules from costs that may be required in any case feed would be done by United Video, thereby enabling continue providing subscribers for other business purposes.tss For example, equipment cable system operators to syndicated distant signal programing. used for advertising insertions can also serve with uninterrupted switching functions. Such equip- will not be required programming deletion or 81. As stated above. cable operators and being used by cable operators ment is already inglace insertion."'nd every duplicated program they choose to import, to delete for ad insertions' local weather information even if a local broadcaster holds exclusive rights to that require- oper- compliance with existing sports blackout program. A number of options are available to the the entire cost of such the and sub- ments. It is inappropriate to assign ator. including negotiation to carry program regulations. According to the Cable TV Clearly, cable viewers equipmem to our stitution of other programming. Bureau, approximately 2300 cable systems to blank screens unless the cable Advertising need not be subjected currently insert local advertising availabilities into satellite operators chooses to disregard these options. We do recog-

pursued and effected only if delivered programming.'5. nize that such options may be not sufficient time to negotiate with ihe We recognize that many cable systems may cable opeators have However, or to obtain alternative programming. As currently have appropriate switching equipment. local broadcaster s~itch automatically among var- discussed infra at paragraph 97, we have provided for such the cost of equipment to ious program sources has become quite reasonable. One time. recently announced a seven that. even if viewers are manuhcturer. for example. 82. Some commenters argue can be programmed to turn on or off screens in the long run. the day controller that not faced with blacked out and feed eight individually programmed will cause great consumer dissatis- up to 100 times short-term disruption The cost of the controllers. which are standard In order to allow industry adjustments. so as to outputs. faction. stock items, begins at $850.tss A survey condutned by minimize viewer disruption. we have provided for a suffi- to be broadcast, INTV shows the price range of switching equipment cient period of time within which the cable. 12,000.t~ believes that equip- themselves between $ 1.000 and $ INTV and program supply industries may accustom will be sufficient in program- ment in the lower end of this price range to our new rules and anicipate any changes switching to comply with syndi- See infra at para- to handle the required ming distribution to their customers. United Video estimates such costs at

believe that short-term viewer cated exclusivity. graph 106. Thus. we same equipment may be used for compliance

will mimmai. $2,000. The disruption be with our network nonduplication and sports blackout A number of commenters argue that syndicated 83. rules.'ss We also note that some cable systemssources.'he already exclusivity rules will impose substantial compliance costs "mix and match" programming from several on cable operators and. therefore, cable viewers.'able technology for doing this is not only available, it is to operators argue they will be required to buy equipment in use. In many cases, therefore, additional costs of hire new already perform program deletion and substitution, to providing exclusivity protection to broadcasters of syndi- personnel to keep track of exclusivity requirements would be minimal, and in any event. the cated programming (including last minute schedule changes) and program not to be prohibitively large for even smaller will rise do appear equipment. Moreover. some argue that expenses cable systems. Finally. equipment is likely to be in place because of the need to conduct consumer education pro- more than one year; it is therefore inappropriate to deletions and/or for grams to explain the reasons for program treat its (nonrecurring) cost as falling entirely in one year to handle the customer complaints from substitutions, and 86. We do believe that the cable commenters make a those viewers who will not understand the new program- obtaining ex- valid point in their argument that the costs of ming environment. Estimates of the compliance costs smaller systems. number such equipment fall more heavily on tend over a wide range, and vary according to the subscriber basis. As discussed and the number of when examined on a per of channels subject to deletion below, we intend to exempt systems serving Time estimates costs for blackout more fully headends in a system. fewer than 1,000 subscribers from the requirements of equipment ranging from about $5.500-7,500, while Centel

5312 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

syndicated exclusivity rules. These sisiems are not now dicated programs and there may be situations in which the subject to the network nonduplication or sports blackout cable operator substitutes alternative programming. The rules, nor is it likely that these systems perform advertis- important point about competition with clearly defined ing insertions. Because such systems serve only 5.i%% of all property rights is that arrangements will differ with cir- cable households, the per subscriber cost of compliance is cumstances, but the arrangement that is reached in any clearly somewhat higher than for other systems. Systems particular circumstance is likely to be the one that best serving fewer than 1,000 subscribers represent 60%%uo (or meets the demands of viewers. The restoration of syndi- about 5700) of all cable systems. Thus. we believe that cated exclusivity protection will enhance competition in approximately 1500 cable systems that may not currently the video marketplace by eliminating unfairness to broad- have switching equipment will need to acquire some form casters. It will increase incentives to supply the programs of equipment. viewers want to see and it will encourage the development 87. An extensive report submitted by MPAA notes that of a pattern of distribution that makes the best use of the cable industry estimates are based on the assumption that particular advantages of different distribution outlets. It every cable system will perform, individually, and man- will encourage promotion of programming. Although ca- ually, at each head end, the deletion,'substitution function. ble operators may have to make some changes to the way In fact, much of this could be done centrally by the they do business, compliance costs will not be burdensome uplinker, rather than each cable system. using electronic and, in any event, are outweighed by benefits. Specifically, control and automated switching equipment. Central con- television viewers generally will be exposed to richer and trol (perhaps by the common carriers who provide super- more diverse programming. stations with their uplink) would require substantially less labor than decentralized approaches, as weil as fairly mod- C. Rules est equipment costs." Other centralized control ap- 90. In this section we address the specific content of our proaches might use the Videocipher II technology or amended program exclusivity rules. Many commenters auxiliary data channels.t~ According to Tempo, have objected that the old rules, as they relate to syndicated exclusivity. were misunderstood, difficult to invoke Every satellite distribution system has the capacity or enforce, and complicated in form to the point of being to implement a nationwide syndicated exclusivity baroque. We believe these criticisms of the specific form program substitution network that would not only of the old rules are not without merit; therefore, the n'w ensure exclusivity for the subject program but would regulations we are adopting constitute the simplest and also provide the program diversity not feasible most straightforward rules that will allow the marketplace through system-by-system negotiation and imple- for video programming to function evenhandedly, at low mentation. Southern Satellite as a nationwide sat- cost. and in a manner that is fully responsive to viewers. ellite common carrier which addresses over twelve Our new rules are presented in Appendix B to this Order. thousand cable systems serving forty-five million 91. Programnting. Our former rules distinguished among subscribers. has the capacity and capability of im- several categories of syndicated programming: off-network, plementing syndicated exclusivity on a nationwide first run syndicated. movies, non-series programs, etc.'" basis. Southern Satellite has the capability of pro- Each category was subject to varying provisions, governing gram switching programmed for every cable televi- the scope of protection and the duration of exclusivity. We sion system in the United States having an earth do not believe there is any public interest basis for this satellite receivin~ station, not just those actually re- Commission to distinguish among the various classes of ceiving WTBS." progra~.tt2 Each type of prog amming B to some degree a substitute for all the others, any one of which may at a United Video has offered a detailed description of a cen- particular time be an important element of a broadcast tralized approach to switching. While this may not be station's or cable system's competitive strategy." We operational immediately. we would anticipate its develop- therefore treat all types of syndicated product as a unit. ment in response to cable operator demand — thus draw- making no distinctions among them for this purpose. tor ing compliance costs down even more.' will we distinguish among programs by age. Older pro- 88. While cable systems may therefore be obliged to grams or movies may well have substantial value to a purchase some switching equipment, we believe such broadcaster or cable system, and each competitor should equipment may be had for a reasonable cost. Equipment b» able to negotiate for whatever degree of exclusivity cost may be amortized over a number of years and it may protection it deems desirable. be used for nonregulatory revenue-producing functions 92. Lengtft of Protection. Several commenters suggest such as ad insertion as well. In addition, we fully expect that the term of program exclusivity should simply run centralized switching to be developed in order to further with the contract the broadcaster has signed with the compliance costs. program supplier.' Our earlier rules placed a variety of 89. Conclusion: We conclude. based on the record. time limits on the exercise of exclusivity, depending both therefore, that despite what opponems to the rule would on market size and type of programming. The apparent have us believe, reinstituiing syndicated exclusivity protec- purpose of such limitations was to prevent programming tion does not preordain any particular programming out- from being locked-up or "warehoused" by broadcasters. some commenters come. There may be many syndicated programs for which Similarly, in this proceeding allege that the syndicator or the local broadcaster does not find ii broadcasters will "warehouse" programs for anti- worthwhile to negotiate for exclusivity. There be competitive purposes, thereby injuring both viewers and may itself.' situations in which the broadcaster chooses not to exercise the competitive process For such a strategy to be exclusivity for which he has negotiated. There may be effectlve. however. the broadcaster would have io be able to limit alternative sources to situations in which cable operators pay broadcasters who programming competitors, have purchased exclusivity for tne ri: ht to retransmit syn- something we find highly unlikely. Moreover, the fact that

5313 4 Federal Communications Commission Record 3 FCC Rcd No. 18 FCC gg-180 ol honoring exctusrsity conn acts, and of in almost all hfuadcait markers means must «ahie system ihefehefe i'i competition obtaining alternause programming. if that should prove v,arehouser pays the entire cust of withholding ihar rhe necessary or desirable. shuuld he more modest For these while ail of the competing broadcasters «ourJ pin„duct. reasons. «e hase decided that. the amended rules should the unlikely eVent that SuCh a strategy reiulted benefit in fesinc- io all .yndicated piogramming covered by exctusrs- advertising rates In ~hurt. as «ith output apply market. ,„higher cirnrracr . «hareser the size of the hroadcasi other forms of attempied predanon in comperinse uy iion of ulti- A substantial number of cable this would in general be expensive and. 94 Cable rysrenr sire I irlngs, our Verwork Inquiry. the commenters have urged us. if we adopt rules, to make an nrately, a fruitless tactic. In con- "[biecause program supply is exemption for smaller cable systems.'heir primary special staff concluded that operational structured and exhibits high entry rates. ex- cern is rhat for small systems. the fixed and competitively be rela- suppliers will not be able to forestall new costs of providing exclusivity protection will large ;sting program viewers in these markets. Commen- entry by withholding programming. For the same tive to the benefits to network exemption propose. variously. a cut-off it is unlikely thai the exisung dominant three ters suggesting this reasons, to 10,000 subscribers. Certain com- networks will be able to adopt contractual arrangemems ranging from 1,000 limit the ability of broadcast interests state that a 1,000 with program suppliers that materially menters representing Programming."' In Particu- subscriber cut off would be acceptable to them. although additional networks to obtain in- called "block booking" praaices some note that any exemption should apply only to iaf we do not regard so MSO's. While is likely to be a problem. dependent cable systems. not small units of as evidence that warehousing marketing device arising out of we think that rhe cost estimates for compliance suggested Block booking mainly is a nev- transactions costs between program some commenters are substantially overstated, we rhe need to reduce by for average pricing where there is sub- ertheless agree that an exemption should be adopted suppliers. to enforce that the in quality within a block of programs or, very small cable systems. Although we expect sranrial variation as a result take advantage of the fact that different pur- compliance costs that cable systems must incur possibly, to protection to syndicated of product place differing relative values on the of the extension of exclusivity chasers any expenses will necessar- programs wirhin a block. In none of these cases is block programming will not be large. of «arehousing as that have a greater impact. on a per subscriber basis. on booking pursued for the purpose ily serv- expressed a similar view of the small systems.' Therefore. we will exempt systems term is used here.'e from compliance with likelihood of warehousing in our 1983 proceeding regarding fewer than 1.000 subscribers as they were exempt from our former . ing our syndication and financial interest rules.'ecause these rules, just normally charge a significant price for rules. program suppliers ar- programming they make available. failure by broad- 95. Panies entitled io exclnsl vlry. Some commenters the invokable casters to show such programming themselves, or to make gue that syndicated exclusivity should be by expensive based on it available to others. is likely to prove a very either the broadcaster or the program supplier, antiwompetitive tactic. We have also seen no evidence in whatever agreement the two parties reach with respect ro svstems. in the record in this proceeding or elsewhere that persuades this issue.'hey express the fear that cable to withhold us that warehousing is an antiwompetitive problem requir- the absence of must carry rules. will threaten to wish to exercise their ex- ing our attention. Therefore, we shall permit exclusivity carriage from broadcasters who

run for the length of time specified in the contract grant- clusivity rights. No party. however. has offered convincing such exclusivity ro the broadcasrer.'3. support for this position. However, a station's right to ing will not depend Broadcast Station and Cable Sysrein Coverage. The exercise its syndicated exclusivity rights of rules for broad- on its carriage by the cable system If broarlcasters obrain prior rules laid down separate sets mar- the 50 markets. second exclusive rights to imporrant programming in their casters and cable operators in top more the 100 markets. The most ket, they will be in a position to make themselves 50 markets. and below top should have protection was provided in the top 50 markets. anractive to cable systems. A cable system extensive broadcast signai when ii will vast majority of programming revenues accrued. liule incentive ro drop a where the that broadcaster's exclu- Broadcasters in the second 50 markets received less pro- nevertheless be required to honor the signal. lose programming tection, and, below the top 100 markets. no pro(ection sivity rights. and by dropping cable sy«tem's subscribers. We are also v hatsoever. It was this particular structure of protection valuable to the earlier proceedings io charge concerned that broadcasters be free to enter into mmually that led the Commission in permir rules were designed primarily to pro- beneficial agreements with cable operators to that the exclusivity broadcaster has As we have made abundantly clear showings of programming to which the tect programmers. rights.rss Allowing program- throughout this Order. however. our interest in this pro- previouslv acquired exclusive exclusive rights independemly lies in promoting rhe equitable and efficient func- ming suppliers to exercise ceeding with this process.'~ As noted tioning of the video marketplace. particularly with respect might well interfere Order. syndicated exclusivity is imended to broadcast and cable. so as to maximize viewers'nter- throughout this an equal footing with cable sys- ests. Competition. especially with cable, is pervasive and to put broadcasters on and exclusivity may well tems. not to enhance the ability of program suppliers ro vigorous in all broadcast markets, for competitive tool in the medium and control distribution of their programming. We provide be as important a rule. A program sup- smaller markets, which generate only modest advertising only one exception to this general where millions of dollars may plier or syndicator may enforce exclusive rights to a pro- revenues, as in the largasr. that program to In short, the ability to purchase exclusive gram, against cable operators importing be at stake. syndicator has not yet be critically important to any broadcaster. Fur- markets in which the supplier or rights may period of one year from the ther, rules that also promote the availability of alternative sold distribution rights. for a important in smaller mar- first sale of that program to any broadcast station in the programming may be especiaily will allow an where there are fewer broadcast outlets. We note U.S. The ability to enforce such rights kets, initial distribution of programming ro also that in smaller markets, fewer stations exist to seek orderly and efficient syndication exclusivity proiection. Thus. the burden on

5314 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

broadcasters throughout the country without any fear that cable operator may substitute any alternative program- the program will enter the market via distant signal before ming to which it has rights for the programming that is s contract agreement can be reached in the markets where subject to deletion under the syndicated exclusivity rule. negotiations are not yet concluded. This third option necessitates two further steps: obtaining 96. Geographical Extenr of Exclusivity. Commenters alternative programming and then promoting it to viewers.

have offered a number of suggestions with respect to the As we have already noted. it will be in viewers'nterests, desirable extent of exclusivity. Some have suggested that snd consistent with our goal of assuring that the optimal

no geographic limit should be imposed on exclusivity, on amount of diversity in programming options is provided, if the ground that in competitive markets it would generally cable systems are able to obtain, and consumers are made be uneconomic for a firm to purchase more exclusivity aware of, new program offerings. To advance these objec- than it could effectively use. Others suggest makingrule.'till the tives, cable systems must be able to prepare program limit co-extensive with our territorial exclusivity guides and/or notify newspapers and general publications others suggest the Area of Dominant Influence (ADI), of their forthcoming schedules.'~ or even 50 miles surrounding all named communities in 99. Based on the foregoing considerations, it seems ap- the station's ADL Pending further exploration of these parent that viewer interests will be served by allowing a geograhical issues as discussed below,'e have deter- reasonable period of notification before signals must be mined that the geographical limits of available syndicated deleted. Broadcaster interests suggest essentially a one exclusivity protection should be no greater than the ter- week notification, similar to that in the 1972 rules. Tempo ritorial exclusivity purchased.'his limit is currently 35 suggests 60 days.' We have concluded that a longer miles (or the hyphenated market), and therefore a broad- period than that specified in our former rules would be caster currently has no reasonable expectation of exclusiv- desirable. A period of one week does not afford a cable ity as against either broadcasting or cable, beyond that. In operator a reasonable opportunity either to negotiate for addition, where a cable system's viewers can receive, off possible carriage rights with the broadcaster or, if those the air, the signals of two or more broadcast stations, each negotiations are not successfully concluded, to obtain al- of which has nominally exclusive exhibition rights in its ternative offerings and make the public aware of them. area, neither station will be permitted to invoke syndi- Because a broadcaster will know what exclusivity it is cated exclusivity rights against the programming of the obtaining as of the date it enters into a programming other, but either or both may invoke exclusivity against contract, we see no reason that this information should be any other imported broadcast signal. Thus, a broadcaster withheld from the affected cable operator. We thus will cannot contract for exclusive rights when it has no reason- require broadcasters to notify cable systems, within sixty able expectation of exclusivity in any case. Moreover, this days of entering into an exclusive contract. As broad- exception should temper considerably any adjustments casters enter into program contracts up to two years prior that are required of cable operators and viewers as a result to the commencement of their rights thereunder, such of these rules. Therefore. when a cable community unit advance notification should give cable operators ample falls, in whole or in part, within the grade B contour of a time to comply with our rules. In any event, however, we broadcast signal, or the signal is significantly viewed in believe that cable operators should be afforded no less that area, pursuant to 47 C.F.R. Section 76.54, the cable than sixty days advance notice prior to the time a broad- community unit cannot be required to delete the signal. caster intends to exercise its exclusivity rights. A sixty day 97. /tlouficatiort Issttes."s Commenters suggest a range of requireinent should accommodate the normal program appropriate notification procedures. At one extreme is guide notification period. and foster cable operators'lexi- NAB's proposal that there be a simple one-time notifica- bility to make last minute adjustments in their schedules tion to cable systems by the broadcaster that it holds in response to competitive forces, newly available pro- exclusive rights to a certain syndicated program.'ther gramming, or other factors. We will therefore require at proposals suggest increasingly elaborate procedures, re- least 60 calendar days notice of an intent to exercise quiring transfer of a considerable amount of information. exclusivity rights. We expect that this will accommodate The purpose of our rules is to assure that all competitors normal planning practices in the cable and broadcast in- are able to bargain for and enforce reasonable syndicated dustries. We will require broadcasters to provide in their program exclusivity, because we have concluded that such notification to cable operators the names of the series or a framework will best serve viewers. We are concerned specific programs to which the broadcaster holds syndi- that our notification procedures be consistent with the cated exclusivity rights and the starting and ending dates achievement of efficient operations in both the broadcast of exclusivity protection. No other contract terms need be and cable industries, and therefore. be no more burden- disclosed. Broadcasters need only provide notification once some on either party than is necessary. with respect to each programming contract, at the re- 98. We first consider the amount of advance notification quired time and prior to commencement of exclusivity. that should be afforded to a cable operator before it may Notificatio may be made directly by the broadcaster or be required to delete a program for which a local broad- by sn authorized agent, such as an information clearing- caster has obtained exclusive rights. As explained earlier, a house, at the broadcaster's option. cable operator against whom the exclusivity rules are in- 100. Contract Terms. In order to facilitate compliance by voked has three options. =irst, it may simply blank out the cable operators, we have determined to require that pro- signal for the necessary period of time. Since this reduces gramming contracts contain certain language before broad- the value of the signai to zero during this time period casters may avail themselves of our rules. At 'a minimum, (and perhaps beyond), this is an unlikely response over contracts must specifically state that "the licensee shall, by the long term. Second, the cable operator may negotiate the terms of this contract, be entitled to invoke protection with the broadcaster and gain from it the right to carry against the duplication of programming imported under the signal. We recognize, however, that some time may be the Compulsory Copyright License, as provided in the required for such an agreement to be reached. Finally, the FCC's syndicated exclusivity rules." Obviously, contracts

5315 Federal Communications Commission Record 3 FCC Rcd Np. 18 FCC 88-180

that were intended to be a part of a specify the scope of such protection in terms of exclusivitv rights may gp oon to contract. and for which broadcasters bar- product to be protected, the duration of protection, program supply pf t hee Pr and paid. At the same time, we wish to be per- request by the cable operator. the broadcaster gained etc Cppn of the fectly clear that we will not provide exclusivity protection furnishur the syndicated exclusivity provisions mustt contract, executed or otherwise at- to those who, for whatever reason. did not bargain for it. ieievant programming thousands of contracts for programming the parties thereto. There are many tested to by in effect, some of which may have syndicated exclusivity Status Existing Contracts. In their 101, Regulatory of of which may not. and some which may be broadcasters and program suppliers have clauses. some cpmments, some written an ambiguous fashion, For contractual pur- rules applicable to all existing in us to make the essential element determining whether a con- urged syndicated exclusivity clauses. For ex- poses, the contracts containing syndicated exclusivity clause is v hether we npi adopt a clause withhold- tract contains a ample. MPAA urges that meeting of the minds to that effect. Only those whose outstanding contracts there has been a ;ng exclusivity from know this. and it can be deter- but were signed during the the contracting parties can contain exclusivity clauses, the parties'oint express which effective syndicated exclu- mined by others only through ppst-1980 period, during that effect. or the determina- reason that such a and specific statement to by sivity rights were unavailable. They later disagreement between

Commission's support of tion of a court in the event of course would conflict with the to on the determined rely parties'nderstanding and thwart achievement of the im- the parties. We have freedom of contract, whether or not syndicated exclusivity benefits to be gained from allowing as to ppitant public interest for in outstanding contract. for exclusivity. MPAA and INTV protection is provided any broadcasters to bargain into contracts dated on or after the eight years, some broadcasters Clearly, parties entering argue that, over past the specific language set and for syndicated exclu- May 18, 1988, which contain have sought, bargained for, paid above will be able to enforce their on the contingency that they might some day forth in paragraph 100 sivity rights, syndicated exclusivity rights. In addition, where a contract enforceable. A provision limiting the rules'pplication be already existing on the effective date of this Order con- to new contracts would nullify these provisions that were licensee's au- parties.'" note tains a clear and specific reference to the contracted for in good faith by the They the specific rules were repealed thority to exercise exclusivity rights as to that no provision was made when th» broadcast signal car- had negotiated and programming against cable television in 1980 for the fact that broadcasters that the government reimposes that would no longer be enforce- riage upon the contingency paid for exclusive rights exclusivity protection. that contract will be- &evertheless. they argue, broadcasters continued ac- syndicated able. A contrart phrase specifying that "if the for such rights on the possibility that they come enforceable. tively to bargain syndicated exclusivity rules. syndicated exclu- be enforceable if syndicated exclusivity were FCC adopts would again sivity applies" is an example of such a reference. We thus readopted by the Commission. or if Congress were to license.'hey further disagree with those who would characterize this action as repeal the compulsory copvright exclusivity rights. By there was a reasonable "retroactively" creating syndicated argue that throughout this period effect to exclusivity for exclusivity rights in these rules we only give prospective basis for broadcasters to negotiate that were already negotiated for and in «xis- enforceability would become possible. Thus, arrangements the hope that the effective date of this Order. parties new exclusivity rules should be fully ap- tence on or before they claim. any who did not obtain syndicated exclusivity rights prior to to all existing exclusive contracts. Finally, they plicable our action today will not gain such rights as a result of note that if exclusivity is available only on a prospective meaningful exclusivity will not be available generally that action. basis, contract not well into the 1990's, given the time lag between 105. Broadcasters who believe an existing until them with syn- contract execution and program exhibition. containing such explicit language provides protection, and who wish to invoke on the other hand, argue that dicated exclusivity 102. Cable interests, will be required to notify the program until very recently, had no legitimate ex- such protection, broadcasters, that they believe they have enforceable syndicated that syndicated exclusivity rules might be adopt- supplier pectation rights in their program contract, and would like that broadcasters could not have meaningfully exclusivity ed, so exercise those rights. If the program supplier agrees contracted for exclusive rights.ts'o allow enforcement of to contracts, with the broadcaster, he may affirm, using the specific syndicated exclusivity for existing programming the rules, that the broadcaster has confer an unwarranted windfall on language provided in they argue„would exclusivity rights to the programming in ques- In addition, cable and superstation interests syndicated broadcasters. Alternatively, the broadcaster and the program sup- that considerable disruption will occur if the bulk of tion. stress plier may amend the existing contract to provide syndicated programming now imported on distant signals syndicated exclusivity, in the form required by the rules. were suddenly to become subject to syndicated exclusivity In either instance, we will regard the matter as settled for protection.'03. our purposes. Broadcasters may then exercise their exclu- here. The first is the Two distinct issues are raised sivity rights giving proper notification, as outlined contracts provide for syn- by extent to which already existing above, and. upon request by the cable operator, furnishing dicated exclusivity protection. The second is when such writing pursuant to which they are claiming certain con- a copy of the provisions, should they be found to exist in protection. tracts, become enforceable. Each issue is discussed in the 106. Effective Dates. For contracts entered into after the following paragraphs. effective date of this Order our amended rules provide 104. Exclusiviiy Detrrmtnattpn in Ensnng Contracts. We protection will become enforceable upon broadcasters that exclusivity have concluded in this proceeding that giving proper advance notice. Such protection will not become the right to contract for effective syndicated exclusivity however, until August 18, 1989. see 47 C.F.R. with operative. rights is in the public interest. Therefore, we agree that cable operators and others will have inconsistent with Section 1.4, so broadcaster commenters that it would be sufficient time to comply with the requirements of this the purposes of this proceeding to deny the enforcement

5316 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

Order, Similarily. broadcasters who have established. in providing a marketplace environment. wiihin the current either manner set forth above. that they possess enforce- copyright framework, through which consumers'emands able exclusivity rights in pre-existing contracts shall not be for programming may be efficiently met. If consumers entitled to actual protection until the later of (1) 60 days desire another distant program that may be imported in after such notification or (2) August 18, 1989. We believe preference to original programming, we have no quarrel that such a transition period will allow cable systems and v ith that choice. Therefore. we will not discourage sub-

others sufficient time to respond to the requirements stitution. On the contrary. we note that the Copyright Act

placed upon them by syndicated exclusivity, in whatever specificalty addresses this issue. Section 111(f) of the manner they deem in their own best interest, and reduce Copyright Act, 17 U.S.C. Section ill(f). in defining the or prevent sudden disruptions that might disserve viev ers'nterests. term "distant signal equivalent." provides that As previously discussed, cable systems must obtain switching or make equipment other arrangements in where the rules and order to with regulations of the Federal Com- comply the provisions of our amended rules. munications Commission A one-y«ar should require a cable system to period allow sufficient time for the omit the transmission purchase, installation and new further of a particular pro- testing of equipment, for and and the adaptation of existing gram such rules regulations also permit the equipment or for the possible substitution of another creation, in certain circumstances, of centralized switching. program embodying a performance or of a work in In addition, this one year period should allow broadcasters display place of the omitted to clarify or confirm the exclusivity provisions of transmission... no value shall be assigned for the existing substituted or additional contracts and to begin the use of the language required program. herein with regard to new contracts. We would expect that, as broadcasters do confirm their rights during this The concept of distant signal equivalent, and the royalty one-year period, they will provide prompt notice to cable payments flowing thereform, are based upon cable's utili- operators in order to provide a smooth transition to the zation of an entire distant signal. (17 U.S.C. 111(f)(1976)) new regulatory regime. As our syndicated exclusivity regime may require the deletion of portions of such signals. unless w» 107. Turner Broadcasting has argued that because of its permit substitution. cable will be full special circumstances it should be insulated from ad- operators paying for importation any pursuant to the verse impacts arising from of exclusiv- compulsory license without receiving the adoption syndicated benefit thereof. Section ity rules.'+ It that "retroactive Il 1(fl of the Copyright Act fore- argues reimposition" of saw this eventuality and such rules would cause Turner severe economic harm. made provision therefor. We atread) vpecifiically permit substitution when cable since it has acquired rights to a substantial amount of operators are required to delete syndicated programming a( prices several times the local programming pursuant to our .ports blackout rule. Under our prior syndicated exclusiv- Atlanta rate. Turner further argues that for the last eight years it has been ity rules. we also permitted substitution.'n order to acquiring programming in reliance on allow the FCC's framework of rules cable systems the greatest flexibility in obtaining existing ie.g., no syndicated alternative and exclusivity rule).' We condude that no equitable or pub- programming, easing cost of compliance, we have determined to permit substitution, lic interest basis has been presented that is sufficient to Cable operators may substitute other distant outweigh the public interest in effect to new signals because of our giving our syndicated exclusivity rules. Such rules after the 12 month transition period. In substituted program may negotiating be carried long-term contracts, who have them- until its completion. We do not contemplate parties no( protected that selves through adequate contingencies cable systems will, or will even be able to, assume the risk that "cherrypick" distant circumstances may change. Turner has, throughout this programming in order to create a composite signai of sports or other product as con- period, had the option of negotiating for protection against a sequence of our decision herein. This exclusivity by Iiurchasing explicit national (albeit nonex- would clearly lie clusive) rights. v Turner outside the contemplation of our intent to permit only notes that it has paid prices substitution. above the Atlanta rate for its programming.' If it believes it has, thereby, acquired such rights, the issue should be 109. MPAA has also urged the inclusion of a sunset resolved, in the first instance, by the contracting parties. provision for syndicated exclusiviiy protection should Con- The procedures outlined and the time period provided in gress enact legislation providing full copyright protection the previous paragraphs should afford Turner sufficient for syndicated programming.' We also sought comment opportunity to determine the nature of its contractual on this question in our .Votice in this proceeding. W«have rights to programming, and to take whatever actions it concluded that we will not enact such a provision, but will act on this matter if and v hen it becomes necessary to do deems to be in its best interest. Therefore, we decline to il)4 adopt any special provisions in this Order for Turner. 108. Other matters. MPAA and Major League Baseball have urged us to formulate rules our to discourage the III. NETWORK PROGRAMMING substitution of one distant signal program by another (cherrypicking).z~ MPAA argues that we should encour- 110. In our notice in this proceeding we observed that age the acquisition of original programming. Major League the network non-duplication rules,ias like syndicated ex- Baseball argues that permitted substitution would enhance clusivity rules, allow a network affiliate to prevent a cable cable's "unfair competitive advantage under the compul- system from simultaneously importing another affiliate

sory license" at the expense of program suppliers, includ- network program signal into its market. Thus each affiliate

ing Major League Baseball, who will receive no benefit is normally the exdusive distributor of network program- from syndicated exclusivity.' While the Commission is ming in its own market except where network affiliates'ignals separately examining the continued wisdom of the cable pverlap.' Our analysis suggested that because the compulsory license, our interest in this docket is solely in network programming material is identical, the rules actually protect the local advertising and the public service

5317 Federal Communications Commission Record 3 FCC Rcd No. 18 FCC 88.180

«nhin and adjacent to network program- 4BC also agrees «ith vui Ac.tice that the rule really ennnuncvuncements »ation'~ advertning retenues '" Com- do not. however. allo« the network to in- protects ihe lncal ming They LI I veer «me in revenues. nor «as this their intent. -'e menters note that there has heen nv change .iease its fni prvieinivn Virtuallv ail ihvve in favor of that broadcasters who are network affiliates this rationale ..«ggesteggested netv,vrk nvn-Juplicativn pivtecnvn. how- have the same nght to contract for exciusivity «,ith strengthening ,nouid broad- ever. note that circum»an«e haie changed dra»ically in to their principal programming as other iespecspeci concerns recent years. Vihile ~vttt.eding that. in the past. the Com- - We argued that many of the same policy casters.stere. mission weil have been coiretu ihat »multaneous fair competition. and enhancing diversity of pro- may boutou with respect to protection sufficed to permit the network-affiliate relation grainming and efficient distribution raised here as well. Finally. we to function. they note that satellite distnbutton of selected syndicated programming apply insuffi- the difference between the network non- affiliates'ignals nov'enders this protecnon observed that across time rules and the former syndicated exclusivity cient.-'holesale importation of »gnals ,iuplication net«ork sta- to be one more of degree than of kind. Both zones is now possible. transforming distant rules appear origination services. hut permit the broadcaster to negotiate for and enforce tions irio competitive program simply zoe same progiaiiw. Same day pivteaioi hey aigue. exclusivity provisions in their program contracts. with the y BC also out that nv Copyright We have recounted the history of the is now necessary. points 111. Background. for net«ork dietam signals. which to 1972 subsumed network Royalty Tribunal fee is paid exclusivity rules, prior the net«vrk exists even if rules. in earlier sections of this Order. since a payment mechanism fm non&upllcation are duplicated.-'" They note in particular that not repeat that history here. By 1972, the non- the signals We shall the basis for noi including their signah in the cvpvright duplication protection afforded to network programming wuh protection (I.e.,ls days royalty system was that the copyright o«ner contracts had been reduced from a 3(@lay in ques- exhibition) to same4ay protection. the broadcaster on the basis of the programming before to 15 days after markets throughout the 1;nited States Order we further reduced the protection. tion reaching all In our 1972 simultaneously. As circumstances have changed. this is no requiring cable systems to refrain only from simuhaneous desir- " On reconsider- longer the case. CBS and others also argue that the iluplication of network programming the net~ork- protection was reinstituted for ability of preserving the efficiencies of ation, however. same4ay time diversity concerns. located in the Mountain Time Zone." affiliate system outweighs any broadcast stations event are iuhetantially arne'u|rated hv in- protection vas finally eliminated for Mountam «hich in any Same day VCR penetration.-'" Zone stations in 1975.ili Reasoning that even in the creasing Time who should Mountain Time Zone the simultaneous»inly rule afforded 114 Commenters addressing the question of stations about the same degree of protection as the have etanding to invoke non-duplication protection agree most retain that right '-" Commenters day-long rule. we adopted a single nationwide standard of that rhe affiliate ~hvukl vf an affiliate»ignal on the cable protection'" I he vverall theory appesre to have been one also argue that carnage fvi enfvrcemem a of protection against time zone shifts. and because such ti nvt an appropriate precvndituin by rights. We agree with shifting was rare. no more stringent degree of regulation broadcaster of his non-duplication The 1980 Repon and Order eliminating the this view. for the reasons discussed above with respect to was necessary. com- distant sigrial carriage and syndicated exclusivity rules did the syndicated exclusivity rule protection:e'everal view that our current not change the network non-duplication rules in any wsy. menters have also expressed the While making little distinction between the network non- waiver policy mivplaces the huiden of proof of harm on sia- duplication rules and the syndicated exclusivity rules, the broadcasters, and unduly limits the presumption of a « ithin the .'4otice of Proposed Rule Making had simply stated that tion's right to exercise reasonable exclusivity with the the network non&uplication rules "may «arrant review limits of the station's contractual arrangements on their own merits but since different considerations are network.-z involved we believe it administratively efficient to consider 115. NCTA. TCI. CATA. and "Coalition" v ere the only these rules [referring to the network nonduplication, man-" commenters opposing changes in the non&upi(cation datory carriage and sports blackout rules) separately." rules. with only the laner two commenting in detail. Thus, the rules have remained unchanged since 1975. "Coalition" desires to keep exemptions for small systems as veil 112. In the .Voiice. we sought comment on how. if at sll. (fewer than 1.UUU subscrihers). and is concerned network non&upllcation rules should be changed. We that its members not be required to delete transistors. the that. sought comment on whether we should return to same- CATA opposes changes in the rules on the grounds who should be able to invoke the rule. when coupled «ith syndicated exclusivity protection. an day protection, ofl'er. whether the network is in essentially the same position ss imported network affiliate would have linle left to the copyright holder. whether there might be instances 116. Discussioii. We continue tv believe that the private where the interests of the network and the station in organization of networks is an efficient method of doing invoking the rule might diverge. and whether a network's business. and that it is in the public interest to allow invoking the rule might cause the public harm. We asked enforcement of reasonable exclusivity to support that whether one rule might suffice for both network and method of distribution. As CBS says: "In a v,ord. tne syndicated product, and whether changes in our waiver or relationship bet« een a broadcast net«vrk and its affiliates other procedures might be warranted. is one of intense symbiosis. It iv fundamemally premised network'e exclusive rights 113. Summary of Comments. We have received com- both on the ability to acquire. ments and/or comments from thirteen parties, nine from its suppliers. and on the affiliated stations'bility to reply marketplaces. of whom favor changes in our rules that would strengthen enjoy program exclusivity in theii respective over-the-air televi- network non-duplication protection. NBC and CBS Affili- This vital feature of the system of free that protecting a broadcaster'e sion has been true fvr eivei fnity years."" Xetworkmg ates. among others. argue au- exclusivity in its local market is essential to the network- spreads the cost of prograin production over a large to affiliate relationship. and hence to networking itself-'s dience (as does syndication. of course). but also acts

5318 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

reduce the number of distribution links between the distri- area, in which arrangements are still evolving; and we are butor and the broadcasters. This is accomplished by dis- continuing to monitor it closely. Because these issues do tributing the programming simultaneously over a large not izx directly affect. and are not affected by. program exclu- area sivity protection, however, we will continue to consider 117. Our network non-duplication rule was originally these issues separately. designed to permit the formation and continuation of 120. Extent of non-duplication protection Network nonbroadcast networks. There is evidence that importation of duplication protection has a purpose analogous to that of duplicating network signals can have severe adverse effects syndicated exclusivity; namely, to allow all participants in on a station's audience. In 1982, network non-duplication the marketplace to determine, based on their own best protection was temporarily withdrawn from station KMIR- business judgment, what degree of programming exclusiv- TV, Palm Springs. The local cable system imported an- ity will best allow them to compete in the marketplace other network signal from a larger market, with the result and most effectively serve their viewers. For this reason, that KMIR-TV lost about one-half of its sign-on to sign-off we have determined that, where non- audience.izs possible, network Loss of audience by affiliates undermines the duplication protection should conform as closely as value possi- of network programming both to the affiliate and to ble to our other programming exclusivity provisions. the network. 4 Thus, an effective non-duplication rule 121. We shall retain the current

continues to be necessary. geographic limits, including the priorities set forth in 47 C.F.R. Section 76.92

118. Technological changes. primarily satellite distribu- and the exceptions thereto as set forth in 47 C.F.R. Sec- tion of signals, affiliates'ignals that permit easy movement of tion 76.92(f) and (g) on (he extent of non-duplication across time zones now necessitate a change in the protection, pending further exploration in the purifier No- existing rule. The problems that have long arisen in cer- tice of Proposed Rule Making on tain geographical issues. Net- portions of the Mountain Time Zone have the poten- works and their broadcaster affiliates currently enter into tial to spread more generafiy and severely disrupt contractual arrangements that determine network-affiliate the effective ex- relations. This potential has already be- clusivity held by a broadcast station as it transmits gun to be realized, as nine network affiliate broadcast network generated programming. Moreover, stations very impor- are being distributed via satellite. In the United tantly, a network is free to decide with which States, stations it two satellite delivery companies, Netlink and Sat- will or will not enter into affiliate agreements. The net- ellite Broadcast Networks. have been formed to distribute work is thereby enabled to control the network geographic dis- signals across time zones. In Canada, Cancom is tribution of its programming. Any conflicts, or potential engaged in the same business, 27 using U,S. network sig- conflicts between stations. are currently built into the nals. Because technological changes have seriously in- system at the outset through the contractual creased process„since the potential for disruption, we have concluded the network is a party to each and every The that an contract. increase in network programming exclusivity pro- same contractual process, involving the same tection is parties,

necessary to allow network arrangements that should also serve to apportion non-dupiication rights vis-

provide important benefits to viewers to continue to func- a-vis cable retransmissions. In short, affiliate broadcasters'easonable tion efficiently.'z'e have also determined that, similar to expectation of exclusivity syndicated against other broad- programming, the contractual relationship be- casters and cable systems alike is determined tween when they a network and its affiliates, rather than the Com- enter into their affiliate relationship. "s mission's The network incen- rules„ is the appropriate determinant of the tives to reach as many viewers as possible. coupled with extent of non&up!ication protection. Therefore, we shall the fact that rights to such non&uplication not protection (e. limit network non&upiication protection to any par- g., exclusivity rights) will be costly. should ensure ticular that the period of time, leaving it to the parties to deter- availability of network signals to viewers will be maxi- mine a mutually agreeable arrangement. mized under these rules. Finally, for reasons analogous to 119. We are also aware of the concerns of some parties those discussed in connection with our syndicated exclu-

that expanded network non-duplication rules would dis- sivity rules, cable systems serving fewer than 1.000 sub-

courage carriage of these signals via satellite, thereby de- scribers will continue to be exempt from these rules, as priving home satellite dish users, and particularly those in currently provided in 47 C.F.R. Section 76.95(b)."'22. areas without any access to network signals (so~lied "white" As suggested by most of the commenters who areas) of network service. To the extent this is a addressed this "white" issue, we shall leave enforcetnent of net- area issue, we agree that it is desirable that view- work non&uplication to the local broadcaster. Broadcast- ers have these signals available. NBC points out that it ers and networks generally agree that their interests are agrees with this view, and has undertaken arrangements similar, and therefore that confiict between which them on this should make this possible in the near future.' It issue is unlikely.'i'here a broadcaster and cable also system points out that it is not necessary or desirable to have a good relationship. anth'or are able to enter into an undermine the basic network-affiliate relationship to ac- agreement not to invoke exclusivity protection. we see no complish this goaL We agree with this view. and are reason to interfere with such arrangements. Coalition of encouraged by the fact that private arrangements are be- Small Cable Operators agrees on this point.' how- made CBS. ing to serve these viewers.'M We also note that ever. argues that the network also should be able expanded control to by broadcasters of cable systems'se of invoke exclusivity."'n particular. it argues it should be network programming may actually facilitate the develop- able to invoke protection directly against the entities who ment of service to white areas, by allaying fears that such are marketing "involuntary" network superstations, which signals will be used to dilute an affiliate's effective degree may have only a small effect in any one market, but a of program exclusivity. More broadly, we have recognized large effect nationwide. We are not persuaded that the that such retransmission of broadcast signals directly to harm is likely, or that network intervention is required home dish to owners raises significant copyright and commu- prevent't. Broadcasters themselves have a strong interest nications issues."'his is policy a sensitive and complex in preserving the network-affiliate relationship. and in any

5319 Record 3 FCC Rcd No. 18 FCC 88-180 Federal Communications Commission

adoption of contractually determined protection AUTHORITY ,gould suffice to eliminate the problem of duplication by 124, We now turn our attention to whether our action network superstations. Thus, as in the general case of herein is within the authority delegated to us through the syndicated exclusivity rules. standing to invoke exclusivity Communications Act and consistent with the first amend- protection will lie solely with the broadcaster. We also ment. In the Notice we expressed our belief that pro- affirm that a broadcaster need not be carried on a cable mulgation of these exclusivity rules lay within our system in order to enforce network non-duplication pro- authority and that there was no statutory or constitutional tection for which it has negotiated. It is sufficient that impediment to our taking the proposed action. While the broadcaster holds non-duplication rights as an element many commenting parties shared our belief, those opposed of its affiliate contractual arrangements.'-" Finally, we most particularly to syndicated exclusivity asserted that the adopt notification procedures, whereby affiliates enforce Cable Act of 1984, the Copyright Revision Act of 1976, or ihe non-duplication protection for which they have bar- the first amendment impose legal barriers to our reim- gained, that are the same as those we have adopted for position of these rules." We have examined carefully the syndicated exclusivity.-" We emphasize that under the arguments of those commenters claiming that we lack provisions adopted herein broadcasters need give notifica- authority, These arguments have failed to persuade us that tion to affected cable systems only once for each contract, our initial assessment of our statutory authority was in- whether for syndicated or network programming, as pro- correct. Accordingly, we reaffirm our belief that our ac- «ided in the rules. We note that because of the simulta- tion amending and extending our exclusivity provisions neous nature of most network programming, notice and with respect to network and syndicated programming is compliance procedures should be relatively straightfor- within the scope of our authority under the Communica- ward. tions Act and is consistent with the first amendment. 123. Several broadcaster commenters have requested that we review our policy of granting cable systems waiv- A, The Copyright Revision Act of 1976 of compliance with the network non&upiication 125. We turn first to the issues raised most particularly rules.'" Our practice has been to allow a cable operator to with respect to our statutory authority to extend our demonstrate that no significant harm would befall the exclusivity rules to syndicated programming. As we have broadcast station by virtue of his duplicating the network already explained. reinstating syndicated exclusivity pro- signal. The burden is then shifted to the broadcaster to tection represents an effort to achieve full and fair com- demonstrate that he will suffer harm if the waiver is " petition among providers of syndicated programming to granted. Because we are retaining and strengthening our the public. Those provisions of the rules will assure that network nonduplication r nd placing greater reli- broadcasters enjoy the ability to negotiate for exclusive the i«g I qi 44L aLLh 4llda rights to exhibit such programming that cable operators no longer believe this is a proper criterion for granting now enjoy. In the Notice, we observed that our general waivers. Our concern in this proceeding is that broad- authority to regulate the relationships of broadcasters and casters and program suppliers be free to enter into effec- program suppliers is wellwstabllshed. See National Broad- tively exclusive arrangements, because we have concluded casting Co. v. U, S.. 319 V.S. 190 (1943); see also United that th» effect of such arrangements is to increase the States v. Southwestern Cable Co., 392 V.S. 157 (1968) supply or quality of programming to viewers and to pro. (upholding Commission's authority to apply signal car- mote efficient arrangements for the delivery of network riage rules, including nonduplication rules. to cable sys- product. We have concluded that our current waiver poli- tems). We also found express authority for these rule

cy with respect to the network non-duplication inappro- provisions in section 624(f)(2) of the Cable Act." Never- priately interferes with such contractual arrangements."'oreover, theless, some parties have asserted that the Copyright by placing the burden of proof of showing Revision Act of 1976 precludes our taking this action. harm on the affiliate broadcaster, it makes the same These parties concede that if we demonstrate "legitimate "wrong question" mistake as the Commission did in 1980 communications policy objectives," the Copyright Act with respect to syndicated exclusivity.i"z The relevant would impose no legal barrier to our adoption of syndi- question is whether such exclusive arrangements ultimate- cated exclusivity rules. They insist, however, that our con- ly operate to foster competition among the various pro- cerns in this proceeding are with copyright, not gram providers and promote a greater diversity of communications, issues. programming for viewers. By providing an underpinning communica« network non- 126. In particular, those parties believe that for efficient network arrangements, the are implicated if the rules are based duplication rules promote such an outcome.carriage."'V.Therefore, tions objectives only on concerns for the survival of over-the-air broadcasting with this Order we eliminate our existing waiver policy. or if there is an insufficient amount of local or other With existing waivers. notification respect to upon proper available. i's In contrast, they believe that the broadcast television station requesting non- programming by matters relating to "unfair competition" between cable duplication protection, the cable television system shall li- after and broadcasters as a consequence of the compulsory comply therewith by August 18, 1989. or sixty days the Com- later.i44 however that, cense, are exclusively copyright issues beyond notification, whichever is We note, mission's jurisdiction. as in the case of syndicated exclusivity, cable systems remain free to negotiate with the local broadcast affiliates 127. We have examined their claims and find no of networks for the right to continue such support for a conclusion that these rules are precluded by the Copyright Act. In Mair(re T. V. of N. Y. v. FCC, 652 F.2d 1140 (2d Cir. 1981), cert. denied, 454 U.S. 1143 (1982), the court addressed the limits imposed on this agency by the compulsory license scheme and concluded only that the Copyright Act bars FCC rules that are inconsistent with the "basic arrangement" of that legisia-

5320 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88.180 tion. In particular, retransmission consent was found to be authority to adjust royalty payments for the compulsory beyond the Commission's authority because it would func- license in order to reflect any subsequent changes in the tion no differently from full copyright liability. which Commission's 1972 syndicated exclusivity rules. The Congress had expressly rejected. Id. at 1148. The court House Report explained that "(Ijf these rules are changed thus upheld the Commission's decision not to impose a in the future io relax or increase the exclusivity restric- retransmission consent requirement on cable systems. tions, the royalty rates paid by cable systems should be 128. The instant rules are, of course, far different from adjusted to reflect such changes." s'he Copyright Act rules requiring retransmission consent. As MPAA points thus did not supplant FCC authority over program exclu- retransmission consent requirement would extend to sivity provisions; rather, it accommodated our authority out, a Act.iss nfl programming (syndicated, networkwriginated, or lo- within the statutory scheme of the Copyright In cally originated), broadcast by all television stations, local short. the Copyright Act forecloses only FCC rules, like and distant. In contrast. the syndicated exclusivity rule retransmission 'onsent proposals. that fundamentally provisions extend only to a specific. limited type of pro- change the compulsory license scheme. Congress recog- gramming; namely that syndicated programming for which nized. however, that communications policy makers have copyright owners and local broadcasters have bargained a legitimate interest in program exclusivity arrangements. for exclusive rights."v It is thus a far more limited pro- Therefore, it expressly permitted modifications to the posal and does not upset the basic structure of the com- compulsory license scheme through amendments to the pulsory license scheme.'~ FCC's program rules. 129. Moreover, as the MaVite court observed, the 131. Finally, nothing in the Copyright Act or the Com- Copyright Act expressly recognizes the "legitimacy within munications Act suggests that communications policy is- the statutory plan" of FCC modifications to the compul- sues must be limited to those matters that affect the very sory licensing system through revisions to its program "survival" of broadcast stations. The ability of broadcasters exclusivity rules. Id. at 1147. Thus, prior to passage of the to compete at optimum leven, free of unfair competitive Copyright Act, the Commission urged that a revised copy- burdens, is a proper concern of this agency insofar as such right law leave detailed regulation of cable television policies are desiped to improve communications services signal carriage to administrative control, because to the public." We need not demonstrate that the very "[e]xclusivity is a complex, dynamic subject that is most survival of broadcasting is at risk in the absence of syndi- appropriately a matter for agency action."" 'n response. cated exclusivity rules in order to conclude that the com- Congress deliberately chose to leave regulatory responsibil- petitive well-being of broadcasters, a concern certainly ity over matters like program exclusivity to this agency. within our jurisdiction, will be enhanced by the adoption Thus, section 111(c)(1) of the Copyright Act grants cable of such rules, We have already explained why adoption of systems a compulsory license to retransmit broadcast sig. these rules will eliminate a competitive advantage held by nels the carriage of which is "permissible under the rules. cable that undermines our reliance on full and fair com- regulations or authorization of the Federal Communica- petition to achieve our statutorily mandated goals.'»'e tions Commission," 17 U.S.C, Section 1 I 1(c)(1), In discus- have also explained why elimination of that imbalance sing this provision, the House Report explained that should lead to greater diversity in the programming avaII- able to the viewing public - whether that public does its video viewing on cable or broadcasting stations. Accord- scheme any statutory that imposes copyright liability ingly. we think the matters addressed in these rules are on cable television systems must take account of the squarely within our jurisdiction. intricate and complicated rules and regulation adopted by the Federal Communications Commission to govern the cable television industry. While the Com- B. The Cable Act of 1984 mittee has carefully avoided including in the bill any 132. As discussed above, we think the Copyright Act provisions which would interfere with the FCC's clearly permits the extension of our exclusivity rules to rules or which might be characterized as affecting include syndicated programming. Indeed, the Copyright "communications policy," the Comminee has been Act expressly contemplates that the FCC may adjust the cognizant of the interplay between the copyright and scope of the Copyright Act's compulsory license by per- communications elements of the legislation." mitting or disallowing cable carriage of certain signals or programming within those signals to which a broadcaster exclusive second issue Congress was thus aware that there is close interplay has exhibition rights. A legal in this between communications policy and the intellectual prop- proceeding concerns the effect of section 624(f)(1) of the rules. The commenters have erty issues addressed in the Copyright Act, concluding, in Cable Am on these debated effect, that cable operators should not receive the benefits at length whether that provision was intended to foreclose of a compulsory license for the carriage of signals that the FCC rules that enable program exclusivity rights to be Commission deems impermissible for communications enforced against cable systems. Section 624(f) provides: policy purposes.zss Apart from the basic compulsory license scheme, however, Congress did not statutorily deFine (f)(1) Any Federal agency, State, or franchising au- the boundaries of intellectual property issues and commu- thority may not impose requirements regarding the nications policy concerns. Instead, recognizing our legiti- provision or content of cable services, except as mate interest in this area, Congress removed itself from expressly provided in this title. this arena and left enactment of exclusivity any program (2) Paragraph (1) shall not apply to— rules to our future discretion. 130. Furthermore, Congress was aware of the Commis- sion's syndicated exclusivity rules and expressly accom- (A) any rule, regulation, or order issued under any modated them within the new Copyright law. Thus, Federal law, es such rule, regulation, or order (i) was in effect on September 21, 1983, or be section 801(b)(2)(c) gives the Copyright Royalty Tribunal (ii) may

SS21 Federal Communications Commission Record 3 FCC Rcd s o. 18 FCC gg 180

624(b)t I): " requirenients comained «iihin the amended after such date if the rule. regulation. or (section amended is not inconsistent with the ex- franchise .. for broad categories of video programming order as " " mquiremenis provisions of this title; and or other services (secuon 624(b)(2): and press v ithin the franchise for the prosision of services under title 17. contained (B) any rule. regulation. or order " (.ection 624(c)). Finally. in section 624(f)(1). the provi- patted States Code. sion .(frectly at issue. Congress again speaks of Federal and state or franchising authonttes' requirements regard- view that. " 133. In the Soace we expressed our tentative ing the provision or content of cable services. (Emphasis exclusiv- bv permiuing broadcasters to enforce contractual added.) we would not be imposing a ity provisions against cable, 138. In interpreting semion 624. i; is reasonable to as- cable systems within the programming requirement on sume that Congress used the teim requirements in the 624. We recognized that broad- contemplation of section throughout. It is also apparem that the first enforce contractual exc(usisity same sense casters currently cannot three times the term is used in N'.ctton 624. Cungiess wa. against cable systems r;ghts for syndicated programming referring to the types of programming sersices that fran- unless the FCC extends its exclusivity rules contemplated could require of cable systems during syndicated exclu- chising authorities herein. But the net effect of reinstating In particular. in the first three pro- enable unrestricted contractual relation- the franchise process. sivity is merely to visions Congress «as concerned with the extern to which ships among the parties involved: it does not impose a authorities could dictate the program services or requirement on cable franchising programming service obligation that cable systems must provide for their subscribers. understood, or as envisioned by systems, as commonly Logically, therefore, Congress used the term Congress in section 624. "requirements" in essentially the same sense in section 134. Parties opposing syndicated exclusivity protection 624(f)(l), when it referred to program services that may vigorously dispute our interpretation of section 624. In not be required by this Commission. a state or a franchis- their judgment. the use of the word "requirements" in ing authority. that provision has only one plausible explanation: namely, is supported the )egis(attse from 139. This interpretation by it was intended. in their view, to preclude the FCC describing the purpose and scope of wc(ion whatsoever that directly or in- history. In enacting any regulation 624. the House Report explicitly recognized that cable of cable includ- directly affects the content programming, is regulated. not 'nly state and local rules. Indeed. franchising by ing provisions like syndicated exclusivity but the FCC as «ell. Thus. the pertinent that the authorities. by they say, section 624 is so clear on its face notes that ")t)he FCC has a(Ns exerc(sed accomplished legislative history statute's interpretation can, and must. be some control over cable franchising." and observes that history. without resorting to the legislative the Cable Act will establish "national standards «hich 135. Proponents of the rule are just as convinced that clarify the authority of Federal. state and local govern- we possess the necessary authority. They think that the ment to regulate cable through the franchise process." term "requirements" in section 624 was only intended to H.R. Rep. No. 934. supra. at 23. affirmative ob- preclude the imposition of programming )40. The general purpose of section 624 was thus to ligations on cable systems. As evidence. they point to the "franchising authorities." including. potential)s. word "requirements" prevent difference in meaning between the the FCC. from imposing various types of program service used in section 624 and words such as "regulate" and House Report noted that Con- obligations. In particular. the "restrict," which vere not used in that section. Had in effect today specify.. the limitations on ")m)any franchise agreements gress intended to forbid any restrictions or the must provide (e.g.. Cable fcews have used services that operator cable programming, they argue, Congress would HBO, The Health Channel).... However. the the legisla- network. such words. These parties also discuss at length Comm(ace does not believe it is appropriate for government which. in their view. supports tive history of section 624. nfficials io d(zzate the specific programming to be proi idrd their imerpretation. over a cable system. and H.R. 4103 reflects this determina- 136. We think the term "requirements" used by Con- tion." Id. at 26 (emphasis adiled): see also id. at ba-bv tin gress in section 624(f)(1) is susceptible to more than one a request for proposals. cable operator "may not he re- reasonable interpretation. Indeed, the divergence of opin- quired to provide particular stdeo oi other information ion of the commenting parties supports this conclusion. In services.. )and) )t)he Committee does not intend hy this some contexts, "requirements" may be used in a broad provision to giie franchising authorities .. the amhoriiy sense to connote any command or direction. whether the to require the cable operator m offer certain program requirement is affirmative or negative. However, the word services or service packages"). connote of a positive is also commonly used to qualities 141. After an extensive discussion of these concerns. the Because the word nature that are wanted or needed. House Report speaks of subsection 624(f)(l) in particular accepted meaning, ex- "requirements" has more than one and states simply that the provision "limits the authority of section 624 is jus- amination of the legislative history of the FCC and other Federal. state or franchising author- determine the congressional intent. tified in order to ity to regulate the provision or content of cable serstces 137. Before examining that history. however. it is other than as provided in this nev title...." Id. at ii appropriate to analyze carefully the statutory language The Report also notes that existing FCC programming itself. Section 624 is generally concerned with the program service obligations. like the must carry rules. would be service and facility "requirements" that franchising grandfathered. Id. Absent any additional explanation. ii authorities are permitted to impose on cable systems dur- thus is reasonable to assume that the purposes underlying ing the franchising process. The term requirements is thus section 624(A(1) were t)o different than the concerns used in three places in that section, as Congress speaks of: pres)ous)y discussed at length in the Commiuee Repori. authority's to establish " requirements 624 ln a franchising power " that motivated the other provisions of iect)on for video programming or other information services

5322 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180 particular, the government should not "dictate the specific tion contend that Congress programming to be could have intended to fore provided over a cable system." H.R. close not only program Rep. No. 934. supra, at 26. requirements. but any program restrictions — both direct and indirect — as well. In 142. We thus conclude that a consid- fair reading of the actual ering our authority to adopt these rules, wc have language of section 624, particularly when examined examined therefore in a number of additional factors that bear conjunction with the legislative history, supports an inter- congressional intent. on pretatio'n that Congress intended to foreclose any franchis- 147. We first ing authority (federal observe that Congress expressly excluded or state) from requiring cable from thc ambit of section systems to provide particular 624(f)(l) matters pertaining to program services. Readop- the copyright laws. Congress tion of syndicated exclusivity protection does not, there- provided, in section fore, fall under 624(f)(2)(B) that section 624(f)(l) "shall not the prohibition. By rcwstablishing rule, apply to any syndicated exclusivity, the regulation, or order under title 17." The legislative Commission is not dictating the history explains this program services that a cable provision, stating that the new la system must carry, either Ndoes not affect the directly or indirectly. Rather, the Copyright Act nor rules, regulations Commission is permit- and and orders issued thereto. ting broadcasters to enforce their contracts, It is not intended to affect where they Federal statutes or regulations, including have bargained for exclusivity rights.z's Permitting con- those related to tracting parties to enforce copyright..." H.R. Rep. No. 934, supra, at 70. The the provision of their contracts adopted in rule is entirely different from this proceeding is enacted pursuant to our expressly requiring that cable authority under

carry certain program services. the Communications Act and not under

the Copyright Act. Nevertheless, as previously 143. Further support for our interpretation section discussed, of section Congress'ntention 624(fl(1) can 111(c)(1) of the Copyright Act reflects be found in the division created by the Act that the regarding the treatment parameters of the compulsory license of affirmative content require- not be codified into law; the ments on cable speech versus scope of the compulso negative content restrictions license would instead be subject to on such speech. As discussed refinement and adjust- above, section 624(f)(1) dis- ment by thc FCC. as changing circumstances cusses limitations on the ability of federal, state quire. might re- and local Thus, Congress provided that the compulsory authorities to impose "requirements" on the "content license shall cable services." of apply to signals that the Commission deter- Our interpretation that this provision ad- mines are permissible for dresses only the cable system to carry. 17 affirmative requirements on programming is U.S.C. section bolstered the 111(c)i ll(1981). And, because it envisioned by fact that the Act addresses "negative" that the Commission would restrictions on the redefine the category of per- content of cable services separately in missible signals, sz Congress other sections of the Act. gave the CRT power to adj ust the copyright royalties accordingly. 17 U.S.C. 144. For example, ss section section 638 permits the imposition by 801(b)(2)(C)(1981). federal, state and local authorities of criminal or civil 148. The expansive interpretation of section liability on cable operators through laws restricting proferred 624(fl(1) slander, "libel, by opponents of syndicated exclusivity would, obscenity, incitement, invasion of privacy. false however, misleading or foreclose the Commission's ability to take advertising, or other similar laws." 47 U.S,C. ' action or any 638. ra adopt any rules that would narrow the scope of Congress, in fact, imposes such a restriction sepa- the compulsory rately in section license as it is now codified. A broad 639 of the Act, prohibiting, under federal interpretation thus would law, the provision of upset the balance struck by cable speech that is "obscene or Congress when it set forth the otherwise unprotected. the appropriate relationship by Constitution." Likewise, sec- between the Copyright Act's compulsory tion 624(d)(1) of the Act addresses license and com- negative restrictions on munications policy. In so concluding, we fully cable speech by permitting franchising authorities recognize hibit to pro- that the Copyright Act did not resolve specific commu- cable services that are "obscene or are otherwise nications unprotected policy issues relating to "pay cable regulation or by the Constitution of the United States," increased use U.S.C. 47 of imported distant signals." H.R. Rcp. No. '24(d)(1), In explaining the purposes underlying 1476, supra, at 89: see sections 638 and Malriie, supra, at 1148. The Copy- 624(d)(1), the House Rcport observed right Act, however, does assume that that "the Committee does not the definition of intend to affect liability "permissible signal" (that is, the use of from other speech which may be held imported distant by the courts to be signals and program exclusivity arrangements with unentitled to constitutional protection .." H.R. regard Rep. No. thereto) will be subject to continuing regulatory oversight 934, supra, at 95. Thus, whereas most of this section 624 by agency, and enactment of the compulsory license (except subsection 624(d)(1)) addresses aiifrmauve rcqut'rc- was menis predicated on that assumption. Therefore, because to provide programming on cable systems, section addressed Congress 624(f)(1) was not intended to affect the Copyright separately (most particularly in sections 638 and Act, including, presumably, 639) the issue of all of thc policies reflected negative rcstricuons on the provision of therein, we think it such programming. especially unlikely that Congress intended to prohibit the particular rules at issue.'~ 145. The dichotomy between affirmative requirements 149. At a minimum, had Congress intended such and negative restrictions on the content of cable wholesale a services revision of the copyright scheme, we think established by the Act lends additional would have it support to our been explicit in effectuating such a change. In conclusion that Congress'se of the word "requirements" interpreting in section another provision of section 624, relating to 624(f)(1) was intended to apply only to affu- FCC authority over cable mauve program requirements. technical standards. the Su- 'or these reasons, we are preme Court refused to infer that not persuaded that section Congress intended to 624(f)(1) was intended to pro- work a change in the regulatory scheme hibit these amendments to our that existed prior program exclusivity rules. to the Cable Act by withdrawing power from 146. We are not the FCC. unmindful, however, that subsection See City of Vew York v. FCC 108 S. Ct. 624(f)(1) might 1637 (1988). The conceivably be read more expansively by Court observed that Congress in the Cable Act had some. Commenters who acted argue for such a wide interpreta- against a background of pervasive federal regulation over

5323 Federal Communications Commission Record 3 FCC Rcd .'vp. 18 FCC 88-180 are and that the Commission's longstan- syndicated programs from the signals that carried... technica I stanstandards, " Rule Making, 71 FCC 2d ai therefore should not be disturbed without See l979 Notice of Proposed ding autthprityofl his- evidence of such an intent in the legislative 1005 express ex- network non-duplication rules and &yn- at 4417-18. Similarly, section 624(fl(2)(B) 153. In addition, &or)', scheme rules are designed for the identical leaves intact the pre-existing regulatory dicated exclusivity press y including, we believe. the enhance a broadcaster's competitive posture d'edie in the Copyright Act, purpose: to ambo exclusivit) arrangements, vis-a-vis cable systems allowing the exercise of exclusive FCC's authority over program by with the copyright scheme, to programming. See also No&lee at para. 44. More- is uniquely intertwined rights which of section 624(f)(2) contains network non-duplication rules and amendments Because the legislative history over, the whatsoever that the FCC's wellwstablished enacted herein are uniquely tied by their relationship to no suggesuggestion exclusiv- congressionally recognized authority over exclusivity the Copyright Act's compulsory license: program and Commis- ngements was to be modifiied by the Cable Act. we do ity rules are the only means through which the arrange enforce exclusivity infer that Congress intended such a result. sion may permit broadcasters to npt Consistent with our previous determination We believe that yet additional support for our provisions. 150, that the Cable Act does not modify the general regulatory cpnclusion that we have the authority to adopt the rule issue here is expressly derived from sub- scheme established by Congress in the Copyright Act, we amendments at further amendments to 624(f)(2)(A)(ii) of the Cable Act, which Permits think Congress intended to permit sectipn exclusivity rules. FCC to regulate cable by amending any rule in exis- our program the the rules are not amendments tence on the effective date of the Cable Act, so long as 154. Parties who assert these amendment "is not inconsistent with the express provi- authorized under section 624(f)(2) point to several state- its recognized that there sipns pf [tile Cable Act]...." As MPAA notes in ments in which the Commission comments, Congress provided no specific guidelines in were differences under our former rules between the pro- subsection 624(f)(2)(A)(ii) for determining the scope of an gram exclusivity protection afforded to network pro~ram- We appropriate amendment. In analogous settings. MPAA ob- ming and that afforded to syndicated programming.- serves. the scope of an appropriate amendment ordinarily have examined these statements and are not persuaded "germaneness." For exam- fundamental difference in kind is determined by the concept of that they demonstrate any matter and purposes underlying ple, v;hen a specific section of a bill is to be amended, between the basic subject "the matter embodied in the amendment must be germane our network non-duplication rules and these amended sections." C. Suther- tss &o the subject matter of other Sands, rules land Statutory Construction Sec. 22.08, at 120 (4th ed. 155. Moreover. the applicability of subsection 624(fl(2) i982); see 99th Congress. Rules of ihe House of Repre- does not turn on whether network programming and syn- senrauves. Sec. 795, at 524. Further, the germaneness of an dicated programming must be treated iden&ically un&ter amendinent to a bill is determined by examining the our program exclusivity provisions. We believe it is suffii- amendment's fundamental purpose: "[t]he fundamental cient to establish that the matters at issue are generically purpose of an amendment must be germane to the fun- related to the concerns underlying our network non- damental purpose of the bill." MPAA Comments, at 104, duplication rules. We note, for example, that section quoting 99th Congress, Rules of ihe House of Representa- 624(f)(2) expressly contemplates that the Commission tives section 798(b), at 529. might amend its former "must carry" rules to add or 151. We agree that germaneness is an appropriate test delete the classes or types of broadcast stations required to for determining whether rule amendments are authorized be carried on cable systems. Depending upon the type of under section 624(f)(2)(A)(ii). We also conclude that these station involved, different facts and policies might be rel- rules meet that test. As set forth in the Notice, we think evant in determining how, and whether, must carry rules the rule amendments are appropriate amendments to our should apply to a particular type of station. However, network non-duplication rules. which prevent a cable sys- amendments to the must carry rules would not for that tem from simultaneously importin~pther network pro- reason be treated as impermissible under section 624(f)(2), gram signal into its mark~et. The purpose of the network Similarly, we think Congress did not intend to prohibit on ffcsttpn-raTes is to preserve a broadcast affiiliate'si broadening the scope of our program exclusivity rules rights to be e exclusive distr'if a netwpckls-peony merely because there might be some differences in how grammin . he ru e amendments adopted herein merely those rules apply to network and syndicated programming. exercise of those same rights when a broadcaster 156. Parties also dispute whether our former syndicated (whether a network affiliate or an "independent" station) exclusivity rules were designed to enhance the position o( airs syndicated programming for which it has negotiated loca! broadcasters, as are the network non-duplication exclusive distribution rights. rules."'hatever the purposes of our former rules, the~ 152. Moreover, as we observed in the Notice, the Com- instant amendments, like the network non&up!ication mission has historically considered syndicated exclusivity rules, are expressly designed to improve the competitive rules as part of the penumbra of rules governing program posture of broadcasters by allowing them to exercise exexclusivity rights. The Commission thus originally adopted clusive rights to programming. syndicated exclusivity rules as "an extension of our exist- 157. Finally, opponents of the rules make much of ing program exclusivity rules to provide more effective fact that section 801(b)(2)(c) of the Copyright Act singles protection of syndicated programming." C&tbie Television out syndicated programming for special treatment by au- Report an&f Order, 36 FCC 2d at 181. Subsequently, the thorizing changes in the compulsory license rates in the Commission reemphasized the singular relationship of the event the Commission changes its syndicated exclusivity program exclusivity provisions when it classified its set of rules. There is, they note, no parallel provision for the signal carriage rules into four "types," one of which was network non&uplication rules. Although these parties of- "rules that require the deletion of particular network or fer no explanation for this different treatment of syndicated and network programming in the Copyright Act,

5324 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

they suggest it must reflect congressional recognition of a fundamental presses no idea or concept by these rules.'v The difference between the exclusivity protection government simply establishes afforded to network and a mechanism whereby a syndicated programming. particular speaker may control and obtain 158. These compensation opponems. however, fail to understand that for the distribution of his or her particular expression of Congress'ifferent treatment of syndicated and network an idea. Cable operators are not enjoined, per se, from programming in the Copyright Aa had little to do with carrying programming for which local broadcasters hold exclusiviiy concerns, but was based primarily on the dif- exclusive distribution rights: they are ference in simply required to distribution schemes for syndicated and net- respect those broadcasters'conomic stakes in that work programming and pro- the implications of that difference gramming. Under exclusivity rules, program suppliers, ca- for compensating copyright holders. 'herefore, we think ble operators and local the broadcasters are free to negotiate Copyright Act provision has liule. if any, relevance to the terms on which such programming the permissibility may be distributed. of these rule amendments under section lf a program supplier chooses to grant, and a local broad- 624 of the Cable Act. caster chooses to retain, sole distribution rights in certain programming, then nothing in the first amendment pre- C. Constitutional Considerations vents the government from recognizing and enforcing that choice.ite 159. Finally, we conclude that the first amendment presents no barrier to our exclusivity rules. At the outset, we observe, as the D.C. Circuit once observed, that "there D. Conclusion is nothing novel or startling about a contract granting the 162. In sum, we conclude that the extension and modi- exclusive right to publish or broadcast." 'or is there fication of our program exclusivity rules relating to syndi- anything startling, from a constitutional perspective, about cated and network the programming are within the statutory authority of government, be it federal or state, to and constitutional authority of the enact laws that Commission. The adop- enforce and protect Individuals'bility to tion of the rules herein is completely negotiate and consistent with the obtain exclusive rights in programming. For Copyright Revision Act of 1976, and nothing in example, the Constitution the Cable expressly authorizes federal laws Act of 1984 restricts the Commission's authority to adopt that grant to authors, lbr a limited "the time, exclusive them. Finally, the first amendment presents no barrier to Right to their respective Writings.~ This authority may the imposition of these exclusivity rules. be exercised coextensively with the federal government's ability to regulate interstate and foreign commerce.i' 160. The courts have consistently held thai federal and V. NON.NETWORK TERRITORIAL EXCLUSIVITY state laws attempting to promote the private distribution 163. In the Notice, we also sought comment on the of material through the effective grant of exclusivity rights possibility of eliminating or modifying Section 73.658(m) do not violate the first amendment.'" In Zaccftfni v. of the rules.~'This rule limits the geographic area in Scripps-Howard Broedcesdng Co.,tts for example, the Su- which a television station preme may obtain exclusivity rights for Court upheld, against a first amendment challenge, non-network programs against other a state's common-law broadcast television recognition of a performer's "right stations. Specifically, the existing rule prohibits a television to the publicity value of his performance" and station from of its creation entering into a contract or arrangement with a cause of action that permitted a performer to recover a non-network program damages producer, distributor, or supplier for the "unlawful appropriation" of that rift.z~ which precludes another television Analogizing the station located more state law to federal copyright law,z the than thirty.five miles away from obtaining the Coun held that the first broadcast amendment did not prevent a rights to the same programming. The only exception is in performer from seeking damages for the the case of entire broadcast of his hyphenated markets Le. multiwity markets, performance by a local news team, which had not where a stadon licensed to a community first obtained his consent: designated part of a hyphenated market may secure non-network territorial exclusivity against a station licensed to another designated There is no doubt that entertainment, as well as community of that market.'" news, enjoys FIrst Amendment protection.... But it 164. In its 1973 decision adopdng Section 73.658(m), the is important to note that neither the public nor Commission concluded that non-network territorial exclu- respondent will be deprived of the benefits of peti- sivity limits were needed to provide administrative cer- tioner's performance as long as his commercial stake tainty with regard to programming and economic in his act is appropriately recognized. Petitioner does judgments for stations seeking to purchase programs being not seek to enjoin the broadcast of his performance; shown on other stations. iss In particular, the non-network he simply wants to be paid for it. territorial exclusivity rule was intended to ensure that stations located in fringe or "overshadowed" markets have access Likewise, lower federal courts have upheld, against to a large pool of non-network programming. The first objective amendment challenges, the constitutionality of exclusive of the rule was to encourage the development of rights conferred by the Copyright Act on the new stations, thus furthering the Comission's allocations "no grounds that restraint [has been[ placed on the use of an idea or plan goal of fostering national television service.™ The collcept Commission also stated that it hoped the rule would enable a 161. Our imposition of exclusivity larger audience to view good non-network pro- rules (whether for grams and network or syndicated programming) would promote program diversity for the many simply accomplishes, "fringe area" station audiences. in the broadcast~ble communications context, the en- 165. forcement of exclusive rights in programming that has Currently before the Commission are several waiv- been recognized to be welt within the constitutional au- er requests addressing the non-network territorial rule and the relationships."'nsofar thority of the federal government. The government sup- limitations it imposes on contractual as the Notice concerned the question of exclusivity Federal CC gg.iggS.188 Communications Commission Record 3 FCC Rcd No. 18

broadcast tection afforded licens es and Program distri- menters. especially Southern Broadcasting of cable context. we also believed Sarasota. butors in„ the it would be subinit that while. in general. more programs are available consisientent to examine the issues raised in these uaiver than in the past. there remains a scarcity of reevaluating our non-network programming ,equestst byy territorial rule. with high audience appeal. u hich vtations claim they need we observed that there have In the Ãonce been significant most. While we observe that all goods and services that the video marketplace and the ges in program supply cannot be provided in unlimited quantities at zero price since the rule was adopted such ndustry that the original are "scarce," we believe that more information is needed pose of the rule appeared to have been fulfilled. We regarding the extent to which that the rule programming with high alsoiso inindicated appeared to infringe on the audience appeal remains limited and is needed stations parties negotiating by ritpus&,ts of contracts for program exhibi- located in fringe or overshadowed markets. In that the competitive addition. tionon andan environment of the market- the record provides little information on the interest We therefore stated that effea that place we were concerned elimination or modification of the rule uouid have ihe rule may be hindering the efficient on thai functioning of populations in the portions of a fringe or osershadoued the marketplace for non-network programs contrary to stations'ervice area of which are not uithin the Grade B our policy promoting program diversity and growth. We contour of the central city station that we did (ce.. populations located also indicated not forsee any market failure in the nonoverlapping fringe area). would necessitate our continued Therefore. in ihe Fur- ~hick intervention into ther Notice, we will ask commenters to contractual relationships between provide additional the television stations information on the effects of a rule change eliminating and program distributors. Finally, we observed be- or that modifying the territorial exclusivity rule on populations in cause the degree of exclusivity desired by stations varies these areas. across programs, markets. and stations, a rule that imposes 168. Until we are specifiic geographic limits on exclusivity able to develop a more complete appears to create record regarding the non-network artificial markets that do not reflect actual competitive territorial exclusivity Thus. we issue. the existing rule will essentially remain in place in relationships. sought comment on three general its that relate to the need for current form. We will. however, modify the rule in one issues the territorial exclusivity important rule: I) competitive market forces; respect. Consistent with our atxion in this de- 2) changes in the mar- cision to reinstitute ket; and 3) impracticality of a general rule. our program exclusivity proteaion to syndicated programs. we believe it is appropriate and de- 166. Although twenty-nine of the parties participating in sirable to relax the territorial proceeding addressed the exclusivity rule to permit this non-network territorial ex- broadcast television stations that are clusivity rule in their comments and four competing with cable parties submit- services for viewers on a national basis to acquire national ted reply comments on this issue, the issue of syndicated exclusivity rights for the has exhibition of non-network pro- exclusivity nonetheless overshadowed our concurrent gramming against all other ss consideration of the territorial stations. This change also rule. The commenting par- will permit broadcast stations to purchase ties generally focused only limited auention cable syndicated on the territo- exclusivity on a national basis whenever have ob- rial exclusivity matter and. in fact, they many simply indicated tained national broadcast exclusivity rights. In particular, either their general support or opposition to our proposal the revised rule eliminate the will permit broadcast "superstations" to to existing rule. Thus, the record does not obtain full exclusivity us with sufficien rights to programs they present to provide information to determine wheth- viewers nationwide through er there is a cable service. Where a station continuing need to maintain some form of determines that it is in this rule. its best interest to bargain for and Accordingly, we will not decide herein whether purchase national exclusivity to retain or eliminate the non-network rights. and v,here the pro- territorial exclusiv- gram supplier agrees to sell such rights, no ity rule. Instead, we will issue a Further other station Notice of Pro- will be able to obtain the rights to exhibit such program- posed Rule Making (Further Notice) in the near future to ming. seek additional comment and information on the geographic limits of all 169. This modification of the territorial exclusivity rule program exclusivity arrangements, will including those established under further our objective of encouraging diversity by al- non-network territorial lowing superstations exclusivity. Separate consideration of the to structure their schedules with pro- issues associated gramming that will not with the territorial exclusivity rule will provide duplicate the programming of us with a broadcast stations in local areas. more comprehensive record on which to base our decision It also is expetxed to whether to retain, contribute to our objective of encouraging program devel- modify, or eliminate this rule. However. opment as discussed below, we are in by providing greater discretion for program sup- this order modifying the pliers to their existing rule in one respect to permit broadcast package products to suit particular markeis. stations to in this case a national cable purchase nationwide exclusivity against other broadcast audience. In addition. since stations. superstations tend to compete with cable networks for the purchase and display of programs, it wili allow super- 167. Among the matters to be considered in the Further stations the Notice are option of bargaining for the same set of rights several specific points raised by commenters that cable networks that we believe warrant may bargain for. Moreover. to the further opportunity for discussion extent that superstations obtain national and presentation of factual information exclusivity for by interested par- their program schedules. or portions thereof. this change ties. For example, we note that MPAA states that the will existence contribute to the avoidance of blackouts and program of the territorial exclusivity rule, in fact, encour- replacements. ages the production of syndicated programming, rather 170. We than limits it as we also find that to permit broadcasters to contram suggested in the lttotice. However, for national MPAA does not provide detailed discussion program exclusivity arrangements against oth- or analysis of er broadcast stations is not this argument, which would seem to inconsistent with the onginai run counter to the intent of the territorial exclusivity argument they made supporting reimposition of rule. The principal pur- syndicated pose of the rule was to ensure the exclusivity protection. We also observe that several com- availability of non- network programming for stations located in

8326 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

overshadowed or f inge markets located near larger televi of superstations all cable sion markets. The limited by systems and would be particu- rule change we are adopting larly harmful to small cable systems. will not impede the ability of Cable parties also such stations to obtain urged that the equipment and manpower programming that is also used costs triggered being by other stations in by syndicated exclusivity would be nearby markets. We also see no reason extremely burdensome to expect that to small cable systems. Broadcasters were concerned desirable syndicated programs would be purchased on with a the potential paperwork burden with respect to the national basis to an extent such that it would affect prep- the aration of notices requesting syndicated exclusivity availability of high audience appeal programming for protec- stations local tion. in either large/central markets or fringe markets. We 173. Assessmenr. The above wish to emphasize that nothing in this modification of two cable-related issues were considered and treated in the rule alters the option that broadcast stations have our Repon, supra. We to there (pares. 77-79) rejected the purchase rights for the exhibition of non-network pro- theory of the demise of gramming on a non-exclusive basis. superstations, and further pointed out the ready availability of substitute-and diverse-programming. With respect to implementation costs, the Repon (Pares. 83-88) concluded that VI. PROCEDURAL MATTERS such costs have been substantially overstated by the parties opposed to the Pursuant to the Regulatory Flexibility imposition of the rules, that Act of 1980, the the cost of switching equipment has Commission's final analysis is as follows: become quite reasonable and can be amortized over a period of time, that new technological developments would substantially I. Need For and purpose of the rules, reduce manpower costs, and that the costs of providing syndicated 171. We opened this proceeding in February, exclusivity protection do not the 1987, with appear to be prohibitively adoption of a Notice of Inquiry rind Nonce of Proposed large, even for smaller cable systems. With Rufe Making. respect to the That Notice posed three questions: (I) concern of broadcasters over the potential paperwork bur- whether we should reinstitute some form of syndicated den in connection with the preparation exclusivity of notices, in protection that would permit broadcasters to response thereto in drafting our rules we have attempted negotiate for enforceable to exclusive exhibition rights with design such procedures in as simplified and efficient a respect to syndicated programming; (2) whether we should manner as possible; further, we note that the modify implementa- our network nonduplication rules which currently tion of new paperwork requirements and burdens permit network will be affiliates to show network programming subject to the approval of the Office of Management and on an exclusive basis; and (3) whether we should relax or Budget. eliminate the territorial exclusivity rules which delineate 174, Any changes rzs the maximum made a resufr of comments. Our amount of geographic exclusivity a broad- final decision in this 'matter caster obtain reflects our consideration of may vis-a-vis other broadcasters. After full these proposals and the effect of and careful review of our policies on small the comments herein„we have business entities in both the broadcast and affirmatively answered all three cable indus- questions posed in the tries. The minor changes in our territorial exclusivity Notice, ln this Report and Order we and make three changes network nonduplication rules do not appear to have to our rules relating to program exclusivity adverse any and in the cable impact upon small entities and, indeed, in some broadcast industries. First, we adopt simplified syndi- instances be cated may of some benefit. With respect to the exclusivity rule provisions that should promote fair syndicated exclusivity and efficient rules, we believe their restoration competition among all the delivery systems will enhance competition in the video for video programming from marketplace, and which viewers may select. although the manner in which cable systems do These rule provisions will permit, but business not require, broad- may in some cases be altered, we believe that compliance casters to obtain the same enforceable exclusive costs will tion distribu- not be unduly burdensome: rights in syndicated programming that all other video programming distributors already We enjoy. also modify III. Significant alternatives considered and our network non&uplication rule provisions rejected. to extend 175. We have their scope to temporally unlimited protection considered all the alternatives presented transmission against in the Notice and those presented of network programming and to simplify in the record in this their administration and enforcement. proceeding. Afler full consideration of all the issues raised Finally, we retain throughout the thirty-five mile limit on territorial the course of this proceeding, we have adopted exciusivity, but rules that we believe are intend to issue a Further Notice on the issue and we the most reasonably fashioned in do light of the facts and issues modify it in one respect - to permit broadcast stations to presented. purchase nationwide exclusivity against other broadcast 176. The rules adopted herein have been analyzed with statIoils. respect to the Paperwork Reduction Act of 1980 and found to impose new or modified requirements or burdens IL on the public. Implementation Summary of Issues raised by public comments in of these new/modified re- response to the initial regulatory quirements and burdens will be subject to approval the flexibility analysis. Com. Office by mission assessment and changes of Management and Budget as prescribed the made as a result. Act. by 172. Issues Raised. Despite the specific request therefor 177. The in our Notice (Par. 83), no comments were Secretary shall cause a copy of this Report and specifically Order, including the Final directed to the initial regulatory flexibility analysis. How- Regulatory Flexibility Analysis, ever, in the general comments to be sent to the Chief Counsel for Advocacy of the Small two matters were raised Business which the parties urged would affect small cable Administration, in accordance with Paragraph systems 603(a) of the Regulatory and one matter was raised with respect to broadcasters. Flexibility Act (Pub. L. No. 96-354,.94 Stat. 1164.5 U.S.C. Several cable parties urged that enactment of syndicated Section 601 et seq., (1981)). exclusivity rules would lead to the demise of the carriage

5327 180 Federal Communications Fcc 88 Commission Record 3 FCC Rcd No. 18

Accordingly. IT IS ORDERED THAT under the Gaylord Broadcasting contained in Sections 4(i), 4(g), 302, authorityhoriiy 303(a) and Henry Geller and Donna Lampert Communications Act of 1934. as amended, Group W 73 and 6 of the Commission's Rules and Regula- tions„s ARF AMENDED as set forth in the attached AP- Home Satellite Television Association subject to aPProval by the Office "Hubbard penendixix B of Management Broadcasting, Pappas Telecasting. Channel 50 to the and Budget pursuant Paperwork Reduction Act of TV Corp. 8c Griffin 1980. Jewell Television Corp rules and regulations ARE These EFFECTIVE August Ka'ikena Lani TV 18, 1988 Kentucky Cable Television Association FEDERAL COMMUNICATIONS COMMISSION KLMG-TV KNTV, Inc. Lafayette Cable Co. Lanford Telecasting Co, "Lorimar H. Walker Feaster Major League Baseball Acting Secretary Maranatha Broadcasting Co. Medstar

APPENDIX A *Meredith Corporation

Mid-Coast Cable Television Parties Filing Comments 'bbeville *Motion Picture Association of America ("MPAA") Cable TV *National Association of Broadcasters ("NAB") :«ABC Television Affiliates Association vNationai Cable Television Association ("NCTA") Adelphia Communications Corp. et al ("Join( Com- iVational Hockey League and National Basketball ments") Association Alert Cable TV of North Carolina *National Rural Telecommunications Cooperatives :"Arch Communications Nationwide Communications ASCAP, BMI. & SESAC. Inc. '"NATPE International :«Association of Independent Television Stations, inc. iVBC ("INTV" ) New Hampshire Atlin Communications New Iberia Cable TV Bloomington. Minnesota CATV Advisory Commission National Telephone Cooperative Association ("NTCA") Bonneville International Corp. National Telecommunications and Information Canadian Broadcasting Corp. Administration ("NTIA") "Capital Cities'ABC. Inc. Oklahoma City Broadcasting Capitol Broadcasting Co. Patterson Cable TV *Community Antenna Television Association Providence Journal Co. ("CATA" ) RamseyWashington Suburban Cable "CBS Communications Rayne Cable TV *CBS Television Affiliates Assn. Ruston Cable TV Centel Communications Co. Sarkes Tarzian, Inc. 'Chris-Craft Industries and United Television Satellite Broadcasting and (" CommunicationsAssociation United Television") ("SBCA") Coalition of Small Cable TV System Operators *Smaller Market UHF Television Stations Group *Cole. Raywid and Braverman i"Cole/Raywid") ("SMU") City of Columbia Heights, Minn. 'Southern Broadcast Corp. Community Broadcasters Association 'Tele-Communications. Inc. Connecticut Cable Television Association Tempo Enterprises Cosmos Broadcasting The Television Operators Caucus, Inc. Corporation for Public Broadcasting & National 'The 97 Television Stations Association of Public *Time, Inc Television Stations Times Mirror Crowley Cable TV "Tribune Broadcasting Dayton Telecasting. Inc. Tulsa 23, Ltd., Channel 24. Ltd., and Franklin Southwest Cable TV Mu!timedia Corp. of City Fridley, Minn. *Turner Broadcasting Gans Systems 'TVX Broadcast Group

5328 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

United Communications Corp. (KEYC-TV) term "community" is defined as the community specified United Communications Corp. (WWNY-TV) in the instrument of authorization as the location of the *United Video station. USA Network (2) Notwithstanding paragraph (I), a television station WMUR-TV may enter into a contract, arrangement. or understanding with a producer. supplier, or distributor of a non-network WSYM-TV program if that contract, arrangement, or understanding (The) World Co. provides that the broadcast station has exclusive nationai rights such that no other television station in the United Parties Filing Replies States may broadcast the program. In addition to those indicated above, the following parties filed replies: 1 ~ 111 Big River Broadcasting Co. California Cable Television Association 3. Section 76.5 is amended by revising paragraph (o) Durham Life Broadcasting, Inc. and adding new paragraph (nn) to read as follows: L.E.O. Broadcasting, Inc. National Basketball Association 76.5 (Definitions)

APPENDIX B 111 ~ *

PROGRAM EXCLUSIVITY RULES (o) A network program is any program delivered si- Parts 73 and 76 of Title 47 of the Code of Federal multaneously to more than one broadcast station.regional Regulations are amended to read as follows: or national, commercial or noncommercial.

1. The authority citations for Parts 73 and 76 continue to read as follows: 11 ~ 11

Authority; 4'7 US,C. 154 and 303. (nn) A "syndicated program" is any program sold, licensed, distributed or offered to television station licensees in more than one market within the United States 2, Section 73.658 is amended by redesignating paragraph other than as network defined (m) as paragraph (m) (I) and adding new paragraph programming as in Section 76,92. (m)(2) to read as follows:

Section 73.658 Affiliation agreements and network program practices; territorial exclusivity in non-network program arrangements. 4. Section 76.92-76.99 of the current rules are removed, and replaced with the following:

Section 76.92 Network Iten ~ duplication; exrertr of prO- tecrfon (m) Territorial exclusivity in non-network arrangements. (a) Upon receiving notification pursuant to Section 76.94, a cable community unit located (I) iNo television station shall enter into any contract, in whole or in part arrangement, or understanding, within the geographic zone for a network program, the expressed or implied; with network a non-network program producer, distributor, or non&uplication rights to which are held by a supplier, commercial television or other person; which prevents or binders another televi- station licensed by the Commission, shall not that sion station located in a community over 56.3 kilometers carry program as broadcast by any other television signal, except as otherwise provided (35 miles) away, as determined by the reference points below. contained in Section 76.53 of this chapter, (if reference (b) For purposes of this section, the order of non- points for a community are not listed in Section 76.53, the duplication priority of television signals carried by a com- location of the main post office will be used) from broad- munity unit is as follows: casting any program purchased by the former station from such non-network program producer, distributor, supplier, l. First, all television broadcast stations within whose or other person, except that a television station may se- specified zone the community of the community unit is cure exclusivity against a television station licensed to located, in whole or in part: another designated community in a hyphenated market 2. Second, all smaller market television broadcast sta- specified in the market listing as contained in Section tions within whose secondary zone the community of the 76.51 of this chapter for those 100 markets listed, and for community unit is located, in whole or in part. markets not listed in Section 76.51 of this chapter, the listing as contained in the ARB Television Market Analy- (c) For purposes of this section, all noncommercial edu- sis for the most recent year at the time that the exclusivity cational television broadcast stations licensed to a commu- contract, arrangement or understanding is complete under nity located in whole or in part within a major television practices of the industry. As used in this paragraph, the

5329 Commission Record 3 FCC Rcd No. 18 yCC 88-180 Federal Communications

on v;hich protection is to begin and tnafket as specified in Section 76.51 shall be treated in the 3. The dates television end. ,.arne manner as a major market commercial broadcast station, and all noncommercial educational tele- „,ston broadcast stations not licensed to a community (bi Broadcasters entering into contracts providing for located in whole or in part within a major television netv;ork non-duplication protection shall notify affected market shall be treated in the same manner as a smaller cable s&stems within sixty calendar days of the signing of market television broadcast station. such a contract. A broadcaster shall be entitled to non- beginningon the later of: (d) Any community unit operating in a community to duplication protection ~hich a 100-watt or higher power translator is located within the predicted Grade B signal contour of the televi- 1. The date specified in its notice to the cable television sion broadcast station that the translator station retrans- system: or mits, and which translator is carried by ihe community 2. The first day of the calendar week (Sunday-Saturday) unit shall, upon request of such translator station licensee that begins 60 days after the cable television system re- of permittee, delete the duplicating network programming ceives notice from the broadcaster: of any television broadcast station whose reference point is more than 55 miles from the com- (See Section 76.53) In determining which programs must be deleted of the community unit. (c) munity from a television signal. a cable television system operator (e) Any community unit which operates in a community may rely on information from any of the following sources located in whole or in part within the secondary zone of a published or otherwise made available. smaller market television broadcast station is not required the network programming of any tti delete duplicating I. iNewspapers or magazines of general circulation: market television broadcast station whose reference major station whose programs may be subject (See Section 76.53) is also within 55 miles of the 2. A television point television system asks a television community of the community unit. to deletion. If a cable station for information about its program schedule. ihe is not required to delete the (f) A community unit television station shall answer the request: duplicating network programming of any television broad- station which is significantly viewed in the cable cast Within ten business days following the television television community pursuant to Section 76.54. li) station's receipt of the request: or the or programs men- NOTE: With respect to network programming, the geo- (ii) Sixty days before program for information v'il! be broadcast. zone within which the television station Is entitled tioned in the request graphic whichever comes later, to enforce network non-duplication protection and prior. exclusivity. lty of shall be that geographic area agreed upon between 3. The television station requesting the network and the television station. In no event shall such rights exceed the area within which the television (d) A television station exercising exclusivity pursuant to station may acquire broadcast territorial exclusivity rights Section 76.92 shall provide to the cable system, upon as defined in Section 73.658(m), except that small market request, an exact copy of those portions of the contracts. television stations shall be entitled to a secondary protec- such portions to be signed by both the network and the tion zone of 20 additional miles. television station. sening forth in full the provisions pertinent to the duration, nature. and extent of the non- Section 76.93 Parties enriried ro network non - duplica- duplication terms concerning broadcast signal exhibiuon tion prorecnon to which the parties have agreed.

(a) Television broadcast station licensees shall be Section 76.95 Exceptions entitled to exercise non-duplication rights pursuam to Sec- tion 76.92 in accordance with the contractual provisions of The provisions of sections 76.92-76.94 shall not apply to the network-affiliate agreement. a cable system serving fewer than 1.000 subscribers. With- in 60 days following the provision of service to 1.000 Section 76.94 Not(ficanon subscribers, the operator of each such system shall file a notice to that effect with the Commission. and serve a of that notice on every television station that would (a) In order to exercise non-duplication rights pursuant copy entitled to exercise network non-duplication protection to Section 76.92, television stations shall notify each cable be television system operator of the non-duplication soughi in against it. accordance with the requirements of this 'Section. Non- duplication protection notices shall include the following Section 76.97 Effective dates. information: The provisions outlined in Sections 76.92-76.95 shall become enforceable on August 18. 1989. The rules in until August 1. The name and address of the party requesting non- effect on May 18, 1988 will remain operative duplication protection and the television broadcast station 18. 1989. holding the non-dupllcatiun right; 5. Section 76 is amended adding Sections 76.151 io 2. The name of the program or series (including by tollows: specific episodes where necessary) for which protec- 76.163 to read as tion is sought; Section 76.151 Syndicated program exclusivity: extent of protection.

5330 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

(a) Upon receiving notification pursuant to Section (c) In determining which programs must be deleted 76.155, a cable community unit located in whole or in from a television broadcast signal, a cable television sys- part within the geographic zone for a syndicated program, tem operator may rely on information from any of the the syndicated exclusivity rights to which are held by a following sources published or otherwise made available. commercial television station licensed by the Commission, shall not carry that program as broadcast by any other 1. Newspapers or magazines of general circulation; television otherwise provided below. signal, except as 2. A television station whose programs may be subject to deletion. If a cable television system asks a television NOTE: With respect to each syndicated program, the station for information about its program schedule, the geographic zone within which the television station ls television station shall answer the request: entitled to enforce syndicated exclusivity rights shall be that area non- geographic agreed upon between the Within ten business following the television network program supplier, producer or distributor (i) days and station's receipt of the request; or the television station. In no event shall such zone exceed the area within which the television station has acquired (ii) Sixty days before the program or programs men- broadcast territorial exclusivity rights as defined in Sec- tioned in the request for information will be broadcast; tion 73.658 (m). whichever comes later.

Section 76.153 Parries enrfded ro syndicated exclusiviry. 3. The distributor or television station requesting exclusivity. (a) Television broadcast station licensees shall be entitled to exercise exclusivity rights pursuant to Section Section 76.156 Exccprfons. 76,151 in accordance with the contractual provisions of their syndicated program license agreements, consistent (i) Notwithstanding the requirements of sections with Section 76.159. 76.151-76.1$5, a broadcast signal is not required to be (b) Distributors of syndicated programming shall be en- deleted from a cable community unit when that cable titled to exercise exclusive rights pursuant to Section community unit falls, in whole or in part, within that 76.151 for a period of one year from the initial broadcast signal's grade B contour, or when the signal is significantly syndication licensing of such programming anywhere in viewed pursuant to section 76.54 in the cable community. the United States; provided, however, that distributors (ii) The provisions of sections 76.151-76.155 shall not shall not be entitled to exercise such rights in areas in apply to a cable system serving fewer than 1,000 subscrib- which the programming has already been licensed, «rs. Within 60 days following the provision of service to 1„000 subscribers, the operator of each such system shall Section '76.1$$ Nodffcadon file a notice to that effect with the Commission, and serve a copy of that notice on every television station that would be entitled to exercise In order to exercise exclusivity syndicated exclusivity protec- (a) rights pursuant to tion against ik Section 76.151, distributors or television stations shall notify each cable television system operator of the exclusivity sought in accordance with the requirements of this Section 76.157 Exclusivity contracts. section. Syndicated program exclusivity notices shall include the following information: A distributor or television station exercising exclusivity pursuant to Section 76.151 shall provide to the cable 1. The name and address of the party requesting exclu- system, upon request, an exact copy of those portions of the sivity and the television broadcast station or other party exclusivity contracts, such portions to be signed by holding the exclusive right; both the distributor and the television station, setting forth in full the provisions pertinent to the duration, 2. The name of the or series nature, program (including specific and extent of the exclusivity, terms concerning broadcast episodes where necessary) for which exclusivity is sought; signal exhibition to which the parties have agreed. 3. The dates on which exclusivity is to begin and end. Section 76.1$9 Reqtdrentents for invocation ofprotection. (b) Broadcasters entering into contracts containing syndicated exclusivity protection shall affected notify cable For a station licensee to be eligible to invoke the provi- systems within sixty calendar days of the signing of such a sions of this subpart, it must have a contract or other contract. A broadcaster shall be entitled to exclusivity written indicia that it holds syndicated exclusivity protection beginning on the later of: rights for the exhibition of the program in question. Contracts entered on or after August 18, 1988, must contain the 1. The date specified in its notice to the cable television following words: "the licensee [or substitute name] shall, system; or by the terms of this contract, be entitled to invoke the 2. The first day of the calendar week (Sunday-Saturday) protection against duplication of programming imported that begins 60 days after the cable television system re- under the Compulsory Copyright License, as provided in ceives notice from the broadcaster; Section 76.151 of the FCC rules." Contracts entered into prior to August 18, 1988, must contain either the foregoing language or a clear and specific reference to the licensee's authority to exercise exclusivity rights as to the specific programming against cable television broadcast

5331 Federal Communications Commission Record 3 FCC Rcd No. 18 FCC 88-180

cable in question upon the s2 FCC Rcd 2393 (1987) (hereinafter cited as ".'Vance"I, ,goal carriage by the system ,ontingency that the government reimposed syndicated Ninety-two parties. including many small cable systems and ~«lusivity protection. In the absence of such a specific broadcast stations, submiued comments or reply comments in this entered into prior to August 18, we do not summarize here the content of iecfcierence in contracts proceeding. Although be invoked only if we have examined each of these submissions 1988, the provisions of these rules may each of these filings, is amended to include the specific lan- and"carefully. A list of commenting parties, and the acro- (a) the contract fully above a specific written acknowl- we refer to them in this Repon and Order, is guaguage referenced or (b) nyms by which edgement is obtained, f om the party from whom the provided in Appendix A. briiadcast exhibition rights were obtained that the existing See, e,g., Deregulation of Radio, 84 FCC 2d968, recon. grani. be construed contract was intended, or should now by ed in pan, 87 FCC 2d 79'7 (1981), aff'd iub nom. Office of agreement of the parties. to include such rights A genera] Commun!rations of the United Church of Christ v. FCC, 707 F. Jd acknouiledgement by a supplier of exhibition rights that 1413 (D.C. Cir. 1983), remanded sub nom. Office of Communize. specific contract language was intended to convey rights iions of the United Chwch Of Chris( v. FCC, 779 F. 2d 702 (D.C, these rules will be accepted with respect to all Cir. 1985), responsive Memorandum Opinion and Order, 101 FCC contracts containing that specific language. Nothing in this 2d 505 (1986); Revision of Programming and Commerizalizarion section shall be construed as a grant of exclusive rights to Policies, Ascenainment Requiremenu, and Program Log Require- to the a broadcaster where such rights are not agreed by ments for Commercial Television Stations, 98 FCC 2d 1076 11984) parties. (hereinafter cited as "Television Deregulation "breton. denied, 104 FCC 2d 357 (1986). aff'd in pari and remanded in pan sub nom, Section 76.161 Substiturions. Action for Children'i Television v. FCC, 821 F. 2d 741 (D.C. Cir. 1987); Policy and Rules Concerning Rates for Compemive Com- .'Vouce VVhenever, pursuant to the requirements of the syndi- mon Carrier Services and Faciliies Auihonzaiion Therefor, exclusivity rules, a community unit is required to of Inquiry and Proposed Rulemaking, 77 FCC 2d 308 (1979); First cated ruonce Pro. delete a television program on a broadcast signal that is Rlport and Order, 85 FCC 2d 1 (1980); Funher of permitted to be carried under the Commission's rules. posed Rutemaking, 84 FCC 2d 445 (1981): Second Report and such community unit may, consistent with these rules and Order, 91 FCC 2d 59 (1982), recon. rlenied, 93 FCC 2d 54 (1983); 47 Fed. the sports blackout rules at 47 C.F.R. Section 76.67, sub- Second Funher !Voice of Proposed Rulemaking. Reg. stitute a program from any other television broadcast sta- 17308 (April 22, 1982); Third Repon and Order, 48 Fed. Reg. Rulemak- tion. A program substituted may be carried to its 46791 (Oct. 14, 1983); Thud Further .'Voiice of Proposed completion,and the community unit need not return to its ing, 47 Fed. Reg. 28292 (June 21, 1983); Fowth Report and regularly carried signal until it can do so without inter- Order, 95 FCC 2d554 (1983); Founh Further,'Vonce of Proposed rupting a program already in progress. Rtdemaking, 49 Fed. Reg. 11856 (March 28, 19ttz): Fifih Report and Order, 98 FCC 2d 1191 (1984k Sixth Report and Order, 99 FCC 2d 1929, rev'd sub nom. MCI Telecommunicanons Corp. v. Section 76.163 Effective dates. FCC. 765 F. 2d 1186 (D.C. Cir. 1985) (forbearing from imposing traditional common carrier regulation on those common carriers shall be to delete program- No cable system required market power in the domestic interstate tele- of Sections 76.151-76.159 found to lack ming pursuant to the provisions communicationsmarket). prior to August 18, 1989. The courts have consistently recognized that ue may change our regulatory course as long as we present a "persuasively eeeae reasoned explanation for modifying )our) earlier position that is itself rationally grounded in the evidence before )us)." Reservation Tet. Coop. v. FCC, 826 F. 2d 1129, 1130 n. 4 (D.C. Cir. 1987). FOOTNOTES 'z For an extensive review of the history of the Commission's including those rules regarding syndicated 'mcndmemof Part 76 of the Commission's Rules Concerning signal carriage rules, Repon and Order in Dkts. 20988 and 21284, 79 Carriage of Television Broadcast Signals by Cable Television Sys- exclusivity,see FCC 2d 663, 816 (1980). (hereinafter cited as "!980 Repon and tems, MM Docket No. 85-349, 1 FCC Rcd 864 (1986) (hcreinaher Order" cited as "Musi Cany Report and Order"), recon. denied. 2 FCC ). ts recon. Rcd 3593 (1987), rev' sub nom. Cennuy Comnuuucaions Corp. Compare Fronuer Broadcasting, 24 FCC 251 11958). Caner Mountain Transmu- v. FCC, 83S F. 2d 292 (D.C. Cir. 1987), clarified, 837 F. 2d 517 denied, 26 FCC 403, 428 (1959), with Trans- (D.C. Cir. 1988), cert. denied, 108 S. Ct. 2014 (1988). sion Corp. 32 FCC 459, aff d sub. nom. Carter Mounurin z mission Corp. v. FCC, 321 F. 2d 359 (D.C. Cir. 1962). ccrc. Must Cany Report and Order, 1 FCC Rcd at 896. At the time denied, 37S U.S. 951 (1963). we concluded we should examine these issues, we adopted new must carry rules. Those rules have subsequently been found un- Amendment of Subpart L. Pan ll to Adopt Rules and constitutionalby the D.C. Circuit. Cennuy Conunwucaiont Corp. Regulations to Govern the Grant of Authorizationin the Business v. FCC, 835 F2d 292 (1987). For the reasons discussed infra at Radio Service for Microwave Stations to Relay Television Signals para 63, the abscncc of must carry makes the need for syndicated to Community Antenna Systems, First Repon and Order, 38 FCC exclusivity protection all the more compelling. 683 (1965). 's s These rules are codified at 47 CFR Section 76.92. Id. at 719. 's 4 Must Cany Repon and Order, FCC Rcd at 897. Id. at 715 (emphasis added). FCC 2d 725 See Norice of Inquiry in Gen. Dkt. 87-25, 2 FCC Rcd 2387 Second Repon and Order in Docket 14895, 2 (1987) (hereinahcr cited as "Cable Compulsory License Inquuy"). (1966) (hereinaher cited as "Second Repon"). Commission's 4 17 U.S.C. Section 101 ei seq. (1981). Amendment of Part 74, Subpart K, of the and Regulations Relative to Community Antenna Televi- These rules are codified at 47 CFR Section 73,658. Rules sion Systems, and Inquiry into thc Development of Communica-

5332 3 FCC acd No. 18 Federal Communications Commission Record FCC 88-180

tions Technology and Services to Formulate Regulatory Policy tions. For cable systems operating outside of and Rulc Making andior Legislative Proposals, 36 all television mar- FCC 2d 141, kets, there were no restrictions on the 148 (hereinafter cited as "Cabk Television number or type of signals Repois and Order"), that could be carried. recon. granted, 36 FCC 2d 326 (1972) (hereinafter cited as 20 Our "leapfrogging" "Reconsideration Order"). rules limited the choice of signals a cable system could import. Under these See Second Report, 2 rules, cable systeins had a FCC 2d at 798, choice as io to th« first two "independent" distant signals selected. If In 1968 we issued a Nonce of Proposed Ruk Making they chose and from stations operating in the top 25 designated Notice of Inquiry in Docket 18397. 15 FCC 2d 417 (1968) markets, however, the signals had to be taken from the one or (hereinafter cited as "Nouce of Proposed Ruk two Making in Dki. geographically closest to that system. If allowed to import (18397"), in which we suggested that cable systems in three the top 100 independent signals, thc system had to give preference local television markets be required for to obtain the prior consent of its third slot to a UHF station located wiihin two broadcast stations whose signals hundred miles. they wished to carry. For further With respect to network affiliates, the cable discussion of the fate of this and system could only subsequent retransmission con- select the distam signal of either the network affiliate sent proposals, see infra para. 80. geographi- In 1970 we issued a Second cally closest to it or the affiliate within the system's Furiker Nodce of Proposed Ruk state that was Making in Docket 18397-A, 24 geographically closest to it. Sce Cabk FCC 2d 580 Tekvirion Report and Or- (1970), in which we proposed that cable systems der, 36 FCC 2d ar I79. carrying distant signals be required to delete the commercials 'ee Cable Television Report and Order, carried on the signal and replace them with local stations'om- 36 FCC 2d at 181; mercials. The Reconsideration Order, 36 FCC 2d at 337-38 (same-day exclusivity last document we issued before our 1972 Cabk Television continued for only Moumain Time Zone broadcasters operating Rcport and Order, supra n. 18, was a letter to the Chairman in markets smaller than the top 50 designated markets). of the Senate Communications Subcommittee. Commission Amendment of Subpart D Proposalsfor Regulation of Cable Tekvision,31 FCC of Part 76 of the Commission's 2d 115 Rules and Regulations with Respect to (1971). There we presented policies on which we had Selection of Television reached Signals for Cable Television agreement and which were designed to be Carriage in Docket No. 20487, 57 part of that FCC 2d single. comprehensive regulatory package that 625 (1976). Our decision to eliminate this rule was still we had been seek- influenced ing to eral since 1968. The issue of in part by our conclusion that this change would not program exclusivity was adversely reserved for further study. See id. at 116. affect the broadcast industry as a whole. individual it broadcasters 392 U S 390 (1968 or broadcast service to the public. Id. 22 Amendment of Part 76. Subparts A The Supreme Court later held that retransmissionof and D ol the Commis- distant sion's Rules and Regulations Relative broadcast signals containing copyrighted material to Adding a New Definition was also not a for "Specialty Stations" and "performance" of such material to which "Spcciahy Format Programming" and copyright liability at- Amending the Appropriate tached. See Tekprompier Corp. v. Signal Carriage Rules in Docket Columbia Broadcasnng System, 20553, 58 Inc., 415 U.S. 394 (1974). FCC 2d 442, modified on recon.. 60 FCC 2d 661 (1976). 22 See infra n. 24. ~ See First Report See and Order in Docket 19995, 52 FCC 2d 519 Conuniision Proposair for Regulation of Cabk Television, (1975). 31 FCC 2d at 116. We discuss the relationshipbetween copyright is General and Revision of the Copyright Law. Pub. L. 94-553, communicationspol icy in greater detail, infra pares. 125-131. 26 codified at 17 U.S.C. 101 et See Notice ieq. (1976) (effective January I, of Proposed Rulc Making in D/u. f8397, 15 FCC 1978). 2d at 432-33. 26 26 17 U.S.C. Section 111 (c)(1) (1981). See Commission Proposals 3v for Regulanon of Cable Television, We discuss 3i FCC 2d 115 (1971). this legislation in greater detail, Infra pares. 22 125-131. The consensus agreement appears as Appendix D of the Report and Order Cabk Television Report and Order, in Dockets 20988 and 21284, 79 FCC 2d 36 FCC 2d at 3K 663 (1980) identified 26 Cable three factors that caused us to begin this operators were generally required to carry the signals reexamination of ol all our syndicated exclusivity rules: commercial television stations within thiny-five miles the of system's community, other stations in the same market. and I) the stations significamlyviewed in the system's community. ( availability of more complete and detailed audience 29 survey data reflecting television viewing patterns Systems operating in the top 50 television markets were in the permitted homes of cable television subscribers,... (2) the to import distant signals to the extent necessary to increasing make financial strength of television broadcasters even available to their viewers broadcast signals from the three in the face networks of increased cable television competition,... and and three independent stations. Systems in the second (3) the 50 resolution in 1976 of the status of cable television markets were permitted to import distant signals in order to under be the copyright laws by passage of the Copyright able to offer to their customers the signals of all three networks Revision. and two independents. Cable systems operating in these 100 markets Id. at 670 (footnotes omitted). that could fill the complement of network and independent signal iv Notice carriage through local broadcast signals were aflowed of Inquiry in Docket 20988, 61 FCC 2d 746 (1976). to This import two "bonus" distant signals from independent stations Notice of Inquiry sought comment on the nature and func- as long as the signals selected complied with our "leapfrogging" tioning of the rules and on six proposals for modifying them. Thc rules. Sec proposals infra n. 30. In the smaller markets, importation was ranged from eliminating the syndicated exclusivity rules permitted only to bring viewers thc three networks'rogramming entirely to substantially expanding their scope. and the signal of one independent station. Unless affected local Nonce of Inquiry in Docket 21284, 65 stations FCC 2d 9 (1977) could show in an adversary proceeding that the additional (hereinaher cited as vDockei 2I284") competition would adversely ru affect their ability to serve thc pub- 71 FCC 2d 951 (1979) (hereinafter lic, a cable system in cited as "Syndicated any of these markets could carry any Exclusivuy Report"). number of distant educational or foreign language television sta-

5333 Federal Communications Commission Record 3 FCC Rcd No. 18 FCC 88-180

"I n. l. See also Cable Tt'. FCC. '-'eport in Docket 21284. FCC 2d 632 (1979) (hereinafter Repon and Order, supra Qutncy RePon"). 768 F. 2d 1434 (D.C. Cir. 1985), cen. denied 106 5. Ct. 2889 i[ed as Economic Inquiry (1986); Century Coinmuniraunns Corp v. FCC, supra n. l. »,g'clice of Proposed Rule &faking in Dockeii 20988 and JI284, "f979,Voiice f980 Report and Order, 79 FCC d 663 (1980), FCC 2d 1004 (1979) (hereinafter cited as of ' rescind stndi- Proposed Rulemaktng"I, bare majority of the Commission voted to 1980 and one Commissioner who voted " The analysis of the purposes and functions of exclusivity is cated exclusivity rules in 't'wo which focused solely on the incentives with the majority expressed serious reservations: "The reason my connfinedine to footnotes i.e., the pro- vote is a concurrence is that I do not fully agree with the heavy s„ch arrangements create for sellers of such rights, more the ana- implication in the Report and Order that for some years into the grain suppliers, to produce programming; Report's effems of such arrangements future the threat of harm to broadcast television is negfligible. lysis however, did not discuss the lelevision distribution in Whether this is true depends in large measure on whether cable on thc coml tilive market for local been: primarily a retransmission mechanism. which the buyers or potential buyers of such rights compete. See remains what it has cable begins to realize its great Syndicated Exclusivity Repon, 71 FCC Zd at 956 nn. 11-12. To the extent, however, that potential as a mechanism for providing diverse programming, as 4s It predicted that, in the shon run. broadcasters would risk well as myriad other services, it may be that our estimates of a ,he loss of no inore than one percent of their current audiences, maximum 48 percent market penetration and 10 percent audience with the actual loss for most stations likely to be substantially less. diversion will prove too modest." Sre f980 Repon and Order.. 9 Id. ai 966. FCC 2d at 899 (separate statemcm of Commissioner Anne P. 44 Commission concluded that for some stations, the long- The Jones.) See also id. at 892-97 (Disseming statements of Commis- of their local station audiences could theoretically ap- term loss sioners James H. Queilo, Robert E. Lee and Abbon Washburn.& proach nine percent. Id, See f980 Repon and Order, 79 FCC 2d at 686. " 1979 Iqorice of ProPosed Rulcmaking, 71 FCC 2d at 1021. sa To the extent not all metropolitan areas arc wired. it appears 4s Syndicated Exrlusiviiy Report, 71 FCC 2d at 965. See to be a function of franchising disputes and delays, rather than ~ lest the organization of this Report cause confusion However, the large number of off-air signals available. A number of large locus of our concern, we emphasize that it is not with about ihe metropolitan areas are now in the process of being wired, e.g., retention, change, or deletion of a rule may have on ,hc impact Washington, D.C4 New York City. the financial I'ortunes or stability of individual firms or industries Federal Communications Commission, "CATV Industry Fi- but with the impact on service to the public." Iif. nancial Data." 46th Annual Repon I Fisrcl 1'ear f980, at 112; "'etention of a focus on the effects on individual broadcasters Ccblevision, January 14, 1980, at 135: 55 Television & Cable considering the well-being of broadcasting as an industry are and Facrbook, Cable & Services. at A-40. A-42 (1987). two separate maners. Under the former perspective, policies are ~ 1979 Broadcasting Cable Sourrebook. at 7, 53 Television & pursued that tend to factor broadcasters'ompetitive posture vis- Cable Faeibook. Cable di Services, at 41 (1987), a-vis other media outlets in order to protect broadcasters from the et sometimes potent effects of vigorous competition. Under the lat- 1987 .Yiclsen Repon on Television, at 3: Siaiisnrcl Abstrucrs of ter approach, however, the effects of vigorous competition are ihe United Stairs, 1985, at 41: and Federal CommunicationsCorn- properly regarded as beneficial. as long as policies are not created mission,edth .4nnucl Report Fiscal Year I vS0, at 112. that place regulatory constraints on the ability of broadcasters to az Scc L. Luchter, "Cable Penetration Hits 50.5% ln Latest A.C. coin pc(a. Nielsen Estimate," Multichannel News, November 30, 198» at 4; sa See infra pares. 125-131. Cablevision, January 19. 1987. at 64; and National Cable Televi. Cable Television Developments, at I (December s'9 FCC 2d 663 (1980) (here(nafter cited as "1980 Report and sion Association, Order"J. 1987). ss service in June 1980. USA Cable Network began sz We note that several parties to this proceeding have seriously CNN began in of that year. National Cable Television Association. criticized the Park study, the major empirical foundation of the April Cable Television Developments, at 8-9. 1980 Report and Order. Sce, e.g.. INTV Comments at 16-17; Joint Cominents at 15-18. We draw no final conclusions about the " Id. strength of this foundation. Because wc find that the principal Liebowitz, Donaldson, Lufkin & Jenreue. "Indusiry focus of the Park study, the failure of, or harm to, particular Viewpoint," November 16, (979 at 20. broadcasters (as opposed to harm to the competitive process) was Cablevision, January 4, 1988. at 64. not a relevant issue, we conclude that the econometric studies Sec, «4(., J. Dempsey, "Cable Influencing Syndic Deals," which we relied in 1980 should play no role in determining upon Variety. January 27, 1988, at I; K. Mitchell. "Cablers Galloping whether syndicated exclusivity rules are in the public interest. Into Production." Variety, January 13, 1988, at 37; W. Friedman, Nevertheless, it should be clearly understood that in addition to "Cable May Feast on Glut of Sitcoms." Cablevision, January 4. the deleterious effects on the competitive process, as outlined in 1988, at 18; P, Ziegler, "NBC in Talks to Produce Series for remainder of this paragraph, individual firms that would have the Disney Channel," Mulnchannel It(ews. December 14, 1987, at I: P. benefited the same rules as their competitors are from playing by Ziegler, "MSOs Join To Back Production Company." Multichan- ncvenheless harmed the absence of syndicated exclusivity pro- by nel News, January 11, 1988, at I; and D. Narrod. "Cable Oper- tection. ators Use Cash To Buy Systems Move I'nto Programming," ss See infra para 68. Mulnchanne! News. December 28, 1987, at l. As recently as 1984 we failed to take any actions on syndi- NCTA President James Mooney has repeatedly emphasized cated exclusivity. See Memorandum Opinion cnd Order, 56 RR 2d the importance of exclusivity to cable in conncmion with NCTA's 625 (1984). Since the Cable Act of 1984 deregulation by Congress opposition to the "Gore" bill (S. 889), and other legislative at- it has been increasingly apparent. however, that broadcasters and tempts to guarantee competing video media access to program- cable operators are serious competitors. Indeed, wc so concluded ming now available only through cable. See Covtrnunicauons in our 1986 Order adopting must carry rules. Sce Must Carry Daily, April 25, 1988, at 3. He has also noted that program

5334 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180 exclusivity has been an important factor in cable's success, and clearly demonstrates that cable is a healthy competitor to broad- that it is "increasingly important in an increasingly competitive casting and is capable of competing without a regulatory "safe world." TV Digest, April 25, 1988, at 2. harbor." "Mastering the Audience Measurement Muddle," Cab/cvisioa, s- Scc Rcpon and Order in MM Docket No. 84-1296, 58 RR 2d March 9, 1981, at 37. I (1985). "Web Shares, HUT Levels Drop." Variety, December 16. ss Scc infra pares. 34-44. 1981, at 31. sz Comments of the National Cable Television Ass'n, Inc., at 68 '. Burns, "Viewers Bail Out Qn Broadcast Nets," Muftichan- (hereinafter cited as "NCTA Commenis). itcf News, November 16, 1987, at 1. This statistic includes a ss Id. at 70. decline of ten percentage points from the previous fall. The Comments of the Association of Independent Television Sta- magnitude of the network's audience decline was unforeseen by tions, Inc., at 32 (hereinaftercited as "INTV Comments"). most industry participants and observers. For example. one ad- Antenna Television Ass'n, Inc., vertising agency's pessimistic prediction that network prime time Comments of the Community at i (hereinafter cited as "CATA Comments"). shares would drop to 75 percent by the 1989-90 television season "4 turned out to be too rosy. "New JWT Unit Calls The Shots on Comments of Times Mirror Co., at 18, 20 (hereinafter cited How the Webs Will Swim Against 'New Waves'y 1990," Variety, as "Times Mirror Comments"). September 24, 1980, at 49. By mid-December 1987, the three- Comments of the Motion Picture Ass'n of America. Inc., at network prime time audience share was estimated by a different 43 (hereinafter cited'as "MPAA Comments"). source to have dropped to 68 percent. L. Luchter. "Basic Cable Comments of the TVX Broadcast Group. at I (hereinafter Nets Sce Jumps in Ratings, Subs, Ad Dollars," Mufichanncl News. cited as "TVX Comments"). December 28, 1987, at 5. 'z 'he information submitted by commenters on both sides of "Cable and Broadcast Audience Shares," Mutnchanncf News, this issue reinforces our conclusion that duplication of syndicated June 8, 1987, at 24. Network viewing in pay cable households was programmingis very substantiaL even lower at 47 percem with satellite distributed cable services cz The "benefits" of duplication are discussed infra at pares. accounting for 45 percent of weekly viewing. The share measure- 45-47. ment methodology employed results in a total of all shares in vs Sce, NCTA Comments, at 45-55. excess of 100 per cent. This occurs because in multi-set house- c41., holds more than one category of program may be being viewed; v'Audience diversion" is that audience viewing duplicating however, the household is only counted once for ratings calcula- programming on cable that would otherwise watch the same tion purposes. programming on the local signal. We also note that. while not s Federal Communications Commission. "CATV Industry Fi- prohibited from so doing by our cx parte rules. 47 C.F.R. section 1.1200 cr we have not. in our decision today, relied nancial Data," Cdrh An/tuel Rcport / Fiscal Year 1980, at 112; and scq., reaching "Mastering the Audience Measurement Muddle," Cablevisioa, upon thc following cx pane filings: Letter from Meredith Cor- March 9. 1981, at 28, 32. poration (by Haley. Bader a Pons) to H. Walker Feaster, dated May 3. 1988: Leuer from Cole, Raywid dt Braverman to Chair- "Mastering the Audience Measuremcnt Muddle," supra n. 73. man Dennis Patrick, dated May 10, 1988; Letter from United at 28. 's Video Inc. to Chairman Dennis Patrick, dated May 9, 1988; Letter Federal Communications Commission, "Television Financial from Tribune Broadcasting Co. Schnader. Harrison. Segal Cc " (by Data -Industry Totals, 1975-1979, 46th Annual Rcpon / Fiscal Lewis) to Chairman Dennis Patrick, dated May 10. 1988; Leuer Year 1980, at 100. from Tribune Broadcasting Company to Chairman Dennis R. 4 Paul Kagan Associates, Inc., 1987 Cable TV Investor, at 12: L. Patrick, dated May 11, 1988; Leuer from Haley, Bader dt Potts to Luchter "Basic Cable Nets Sce Jumps in Ratings, Subs, Ad Dol- Chairman Dennis Patrick, dated May ll, 1988; Letters from lars," Mulichanncl News, December 28, 1987, at 5. James P. Mooney, NCTA to Chairman Dennis Patrick dated May rr Coen, McCann-Erickson, Thc Ouiooh for 1988 Advcrming 10, 1988 and May 11. 1988. vS Expcndintrcs, December 7, 1987. Scc, 441., Joint Comments of Broadcaster Respondents, at ta Paul Kagan Associates, Inc., 1987 Cable TV fttvcsror. The Attachment A (hereinafter cited as "Broadcaster Respondent cable industry itself expects to achieve 65% penetration in the Comments"); INTV Comments, Appendix B; MPAA Comments. next 5 years. Scc Broadcasirtg Magazine May 2, 1988, at 39. at Appendix E; Capital Cities/ABC Comments, at Exhibit A. s Indeed. one of the primary benefits of permitting the im- These raw figures surely represent substamial diversion. although overstated some fail to take portation of distant signals in 1980 was to allow cable consumers they may be to degree because they greater programming choice. Because so Iinle nonbroadcast rna- into account the fact that some of the audience reflected in the terial was available, broadcast signals were indispensable; pro- cable ratings would not be captured by the local broadcaster "Audience enhancement" is that audience viewing duplicate programming from such signals made up a large fraction of the would not watch the local broadcast average cable system's service. Today, the average cable system gramming on cable that carries three distant independent signals. Given the wealth of signal, even if cable duplication were not available. cable programmingavailable, the goal of increased program diver- Sce INTV Comments, at Appendix C, Chart I; leuer dated sity —imponant in 1980 and today — need not be accomplished February 11, 1988, from INTV to Commission's Acting Secrmary by relyingon duplicatingdistant broadcast signals. (hereinafter cited as a "INTV Leuer). Scc also TVX Comments. at Appendix I, Att. I; Appendix 2, Att. 11; Appendix 3, An. 11. For Inatance, 11 cable services began operation in 1987 and Appendix 4, Au. 11; Appendix 5, Att. 11; Broadcaster Respon. 13 more are expected in 1988, most notably, The Turner Network dents Anachment A; Arch Comments. at Attach. Television (TNT). Commems, at ment; Smaller Market UHF Stations'omments, at 14; The 97 at Sce Must and Order, I FCC Rcd 866. For Cany Rcpon at Comments, at Appendix E; and Sarkes Tarzian Comments. this reason, the Commission's second purpose in repealing syndi- st NCTA Comments, at 57-61. cated exclusivity in 1980-to promote the growth of cable-is no n longer a fitctor in our cost-benefit analysis. The foregoing analysis MPAA Reply Comments, at 24-25.

5335 Federal Communications Commission Record 3 FCC Rcd Vo. 18 FCC 88-180

' Scc infra pares. 77-78. aa rcc INTV Comments. ai APPendix B. E. As explained below, in our viev reasonable exclusivity in iixt Src MPAA Comments. ai Appendix the distribution of programming is an appropriaie competitive lel event. under the original rules and in the rules fn any tool for any distributor of video programming, including cable.

hereinerein as well, local broadcasters cannoi enforce syndi- adoPted For example, a senior vice presideni o( HBO has noted that rights against those signals which are in fact cated exclusivity "HBO never licenses the rights to an off-HBO program for Sec also infra para 47 available off-air. is airing on HBO. 'When we exhibition when that program window,'he 3-9. iaz NCTA Reply Comments. at license off-HBO product. it's al~ays for way beyond our ioi Statistical errors have not bee:n confined to one side of this said. 'In the post-VCR universe, original programs are our itself makes an elementary, but fundamental, error "Cable-Syndication's Two-Way Pipe- ddebate. NCTA only exclusive product.'" station profitability when it com- jn its discussion of broadcast line", Broadrasnng .tfagaztac, Feb. 22. I988, at 160. 162. In with median profitability in paresres mean profitability in onc year addition, NCTA president James Mooney has indicated thai pro- is a substantial one and undermines the snotnother.e . The difference gram exclusivity is "increasingly important in an increasingly Comments, po,nt NCTA is attempting to make there. Scc NCTA competitive world." Communications Daily, Apnl 25. 1988. at 3. 11-13, ai Table 7; NAB Reply Comments, at Sec also infra para. 52. tttz Although we recognize that the mere fact that an imported The importance of exclusive control of programming has signal gains ratings points is not, ipso facto, evidence that the been recently affirmed by the Commission in its scrambling rc- locn broadcaster has lost ihose same ratings Points, there is pons. Scc Report in Gen. Docket 86-336. 2 FCC Rcd 1669. pares. we have described. considerable evidence of diversion. as already 59, 64 (1987). Scc also Capital CiiiesABC Comments, at 11.2u. Scc supra para 32; NCTA Comments. at 28. on the importanceof exclusivity(for all competitors). ias Scc supra para. 34; sec also Cap CitiestABC Comments, at We have concluded elsewhere thai substantial reliance on Exhibit A; INTV Lener. market forces to ensure the public interest is appropriate in INTV Comments. ai Appendix ( competitive settings. Sce. e.g.. Television Deregulation, iupra n ln ttt'CTA Reply Comments. at Appendix: "Analysis of Data 'zs Competition is most effective when a sufficient number of Submined by MPAA, NAB and INTV," at 9-15. competitors or potential competitors exists to keep any one sup- Our conclusions are not ahered by the fact that local plier from charging unreasonably high prices and when there are market broadcasters may suffer "audience fractionalization";that is, au- no "externalities" or competitive market failures ihat lead prices. Scc F. diences that would otherwise watch the local broadcast signal who prices to deviate substantially from socially efficient "The of Market Failure." 72 O. J. of Fcon. 351 may now choose to watch the programming a cable operator Bator, Anatomy iubsiinues for a duplicating signaL Under fair competitive rules, (1958). fractionalizaiion will reflect audience choices, leading to a more 'ze Sec J. Haring, "Implications o( Asymmetric Regulation for optimal mix of programming being available to viewers. Competition Policy Analysis" FCC, OPP Working Paper 14 ' Sec supra para. 29. (December 1984). tzr The purchase of the rights to show NFL football games on Scc, c41.. NCTA Commems; NCTA Reply Comments; CATA Inc. ESPN undoubtedly created a situation in which some spot ad- Comments; Comments of Turner Broadcasting System. vertising that would have been sold to TV stations was instead (hereinafter cited as "Turner Comments"); Commems of Time Cable sold to cable TV. Inc. (hereinafter cited as "Time Comments" ): Connecticut "'PAA Comments, at 51. TV Association Comments. ' Scc supra n. 127. NCTA and others also argue thai valuable "z Scc infra para 56. time diversity would be lost. We have discussed the significance of and Order, 79 FCC 2d at 750-51. Sce 1980 Rcpom supra para. 46, and have determined that the "4 this claim already, Sce MPAA Comments, at 28-35; INTV Comments, at 18-22. benefits of true program diversity that could accrue if syndicated The Commission has addressed the Importance of maximiz- exclusivitywere reimposed outweigh any benefits of time diversity ing viewers'hoices on numerous occasions. Sce, c41., Ifusr Carry that occur in the absence thereof. Repose and Order, FCC Rcd at 879, for a recent example. CATA comments, at 3; Comments of Cole. Raywid and Virtually all opposing commenters fall into this category. Braverman, at 25 (hereinafter cited as "Cole/Raywid Comments"). Sce, 44(., NCTA comments at 61-78; Commems of United Video. t~ Turner Comments. at iv. 3-6 (hereinafter cited as "United Video Comments" Scc Inc. at ) ' Scc J. Minasian, "Television Pricing and the Theory of Connecticut Cable Television Association; CATA gcacraffy of Public Goods." 7 J. of Law and Econ. 71 (1984). Scc also 4falnrc Comments. In addition, we have received a number of letters T. V. of N. Y. v FCC., 652 F. 2d 1140, 1151-52 (2d Cir. 1981), making ihe same point. cert. denied. 454 L.S. 1143 (1982). Sce supra para. 45. Ironically, Minasian's article. supra n. Lil, was cited in the 55 Tcievision and Cable Facibook, Cable and Services, at 1980 Rcport and Order, 79 FCC 2d at 749, but without mention- A-14 (1987). ing his conclusion concerning the need to finance the supply of Communicauans Daily, April 27, 1988, at p. 4. public goods and the necessity of positive prices and excluding Even NCTA itself has pointed out, in our signal carriage proceed- potential recipients when the goods are provided privately. with ings, that the increased penetration of VCR's has diminished. if Samuelson, Minasian's opponent in a spirited debate, agrees not eliminated, the value of time diversity. To wit: "The growing this poinu The point he stresses is that the choice of institutional proliferation of video cassene recorders, along with the common arrangemenisto ensure the provision of public goods is a difficuh TV: practice of many noncommercial stations of repeating featured one. Scc P. Samuelson, "Public Goods and Subscription programmingat different times during the week, more than satis- Correction of the Record," 7 J. of Law and Econ. 81 (1984). fies any public interest in "time-shifting" that might be served by "Efficiem" is defincd in terms of the quantity of viewing duplicate carriage." NCTA Comments in MM Docket 85-349, at that will occur if the price equals the marginal cost, namely. zero. 31 n. 50.

5336 FCL lzcQS No 18 Federal Communications Commission Record FCC 88-180 13l For a more detailed treatment of these points, sec Owen, Beche and been paid in lhe presence of exclusivity. hlanning, Television Economics. Chs. 1453 11974): For informauon on Noll, some prices paid for Cosby, see "The Peck and hlcGowan, Econoinic Television 'Cosby'umbers m Syn- Aspeas of Regulanon, dicauon". Broadrasiimg Ch.2 (1973), .5(agactne, Apr. 5"., 198". at 58. IQQ Indeed, in some cases It is logically possible that the fees the program might not be offered to paid to the program station that a producer through the compulsory is carried to other markets at all. Some sixteen license wil! exactly match thc independent value of the program to cable viewers; television stations have been barred from bidding but ihe compulsory license local market for v:as not designed to achieve this rights of ESPN's National Football League goai. and. as a practical matter. it because games, has not (36e, e.g., MPAA Comments th«y are retransmined into areas where ESPN intends in Docket 87-25 (Compulsory market to Copyright License Inqtury/, those games on an exclusive basis. See INTV attachment A. at 38-391 ai Comments, See Appendix D. supra n. 122. 5" ' See mfra Sec, e.g.. Capital n.265. Cities:ABC Comments, at 15: SIPAA Com- ll ments, Alternative responses to at 62: Group W Comments. at 11. the imposition of syndicated exclu- 138 iivity rules HBO are explored in detail by various has been repoaed to be near an exclusive commenters. See, contract e4I., INTV Comments. at 50-52: . IAB with Twentieth Century Fox for rights Reply Comments. at 22-24; to movies. Showtime also MPAA Comments, at 63-69; buys some movies on an exclusive " Capital CIties/ABC Reply Com- basis in order to . ments, at 11-19. differentiate Showtime from HBO" L. Landro, "HBO ls Near an '3 Accord With Fox To See MPAA Comments, at 58. Buy Exclusive Pay-TV Rights," IVa/I Street lournal, 153 ln fact. if the May 6, 1988, at 26. commenters opposed to syndicated exclusivity 139 This is the were correct that duplicating case because some viewers wishing to watch progamming causes little harm io program that a broadcasters and is higly valued has been promoted by their local station by cable viewers, then this optioo indifferent may be would be preferred. Local as to which station they view it on. broadcasters would not be willing to See, e.g., Group W pay for exclusivity Commems, at 11. and cable systems and/or superstations would 130 be able to For example, obtain nonexclusive rights in the same they often serve a large nutnber of viewers Sec Capital programming. who either do not Cities/ABC Comments, at 17; Comments of the subscribe or do not have access to cable. ellite Sat- 161 Broadcasting and Communications Ass'n, Program exclusivity is one at 6 (hereinahcr of several types of vertical ar- cited as "SBCA Comments"). rangements that antitrust 5sc economists and the courts once re- It is garded with concern. tempting to argue that similar negotiations could However. the modern theory of vertical place take contracts, and between cable operators and broadcasters to circumvent increasingly court decisions, recognize that vertical absence of the contracts should syndicated exclusivity under our current rules. generally be presumed to confer consumer bene- example. For fits in industries a broadcaster could offer to pay a cable that are reasonably competitive. A operator not io is leading work show a program that duplicates the broadcaster's Robert Bork. The Aatfrrttsl Paradox. 299-309 programming. (Basic Books. Whatever the economic benefits of 1978). See also "Impact Evaluationsof Federal such a negotiation, however, it Trade Commission would almost surely run afoul of Vertical Restraints Cases", Federal Trade the antitrust laws, which look Commission Report. with considerable disfavor on August 1984; Conriaental TV v. GTE agreemerns among horizontal com- Sy/vania. 433 U.S. 36 (1977). petitors that appear to on remand, 461 F. Supp. 1046 limit competition or reduce options for (N.D. Cal. 1978), aff d, 694 F. 2d consumers. With 1132 (9th Cir. 1982); Business syndicated exclusivity rules, in contrast, negotia- Efcaronics Corp. v. Sharp Elearon- tions among ics Corp, 56 U.S.L.W. cable operators and broadcasters would 4387, 4393 (May 2. 1988). effect have the 132 of expanding the number of outlets showing Indeed, in its 1980 Network a program and Inquiry, the Commission's therefore would not cause antitrust difficulties. Network Inquiry Special Staff See Ralph C. found that "the network Wilson Indus/ries v. Chronicle supply, syndicated program Broadcasting Co., 794 F.2d 1359 program supply,and syndicated program dis- (9th Cir. 1986). tribution markets are competitively structured." Federal Commu- 15$ Unlike nications Commission Network broadcasters, a cable system operator will be con- Inquiry Special Staff, II Report on cerned with the value New Television 5'clworks: of the program to the viewer, since the Entry, lurirdirrion, Ownership, and Rcg- operator is concerned ulanon 787 (1980). about the demand for cable access, not just 533 advertising exposure. Cable penetration is over 50% of television households. See Tempo supra n.62. It follows Comments, at 7. that nearly onc-half of all households receive broadcast television Letter dated April 18, 1988 from United service, but do not subscribe to cable. Video to Chairman See supra para 26. Dennis R. Patrick. t~ 158 See, Sec infra pares. 56-59. e.g., NCTA Comments, at 66 n. 116; Comments of ihe ' Coalition of Small Cable TV Sec supra para. 51 and System Operators, at 3 (hereinafter associated footnotes. cited as "Coalition" 136 Commems; Time Comments at 24; Cole- Diversion of viewers to duplicative Raywid casters'bilities signals reduces broad- Comments, at 33-34; Comments; of Cental Communica- to compete for programming. See tions Co., at 8-9 167 supra para. 41. (hereinafter cited as "Cental Comments) This will Video United be the case as long as the price paid for these Comments, at Exhibit 6. signals via the 139 compulsory copyright fee is less than the market Similarly, commemers offer price. This will, in no basis for their labor cost general. be the case. If the copyright fee werc estimates, which vary widely. above the market price, the signal would not. of course, t~ Jeffrey imported. be Krause, "Technical Approaches to Implementing Syndicated Exclusivity" at 12-13 Ice When the (MPAA Feb. 12. 1988) Cosby show was sold first to superstation WOR, (hereinaher cited as "MPAA February local broadcasters indicated Filing"). they would pay less than they other- '6'd. 16-18. wise would at have. Whether this has occurred 162 is not easily deter- These systems mined, since it requires knowledge of the serve approximately 75% of all subscribers. price that would have Id. at 12113. 163 "Channclmatic Introduces Ad-Insertion Products", Mu/a. channel News, Feb. 8, 1988. at 29.

5337 Federal Communications Commission FCC 88.180 Record 3 FCC Rcd No. 18

lsz tez Lener dateda e Feb. 23, l988 from James B. Hedlund to Lisa Of course, in situations in «hich the program iuppiier Assistant. grants exclusive distribution Hook I.egal rights to a broadcaster outright, v, ith- tss Wr acknowledge that there may occasionally arise problems out reserving any enforcement ability, ihe supplier v,auld, as a contractual „,ih decentrentralized automatic switching, panicularly as a resuh of maner, be unable to invoke our exclustvtt& ri.lcs in event, for it would have sportt eventeve or other special programming "running-over" its any no rights to protect. a will '9 allotte um, We expect cable operators be able to accom Scr infra section Ill. instances where customers demand odate such uninterrupted See infra at para. 166. amming. For example, while the exact length of a sports 18 programmi 'or another reason for this limitation,ree not known. its scheduling. and the possibility of infra n.gtI4. See event is also the discussion of warehousing in connection with "over-ruvcr-fun" are. Thus. the cable operator can plan for such even- the new network non-duplication rules v'e are adopting today. Supra para tuali ties. 92. One additional aspect of this general principle should be tss MPAA Comments. at 84. Sec noted. Although we are convinced that broadcasters normally are estimates total is'pAA equipment costs (for a system carry- unlikely to purchase sigmficamly more exclusivity than they can ing three distant signals) at $3,045.90 and labor costs at $ 1,560 per use, a broadcaster could conceivably thwan the compulsory li- Filing. year. Sce MPAA February cense scheme by obtaining broad syndicated exclusivity rights tss We also note thai Tempo has suggested that a carrier like enforceable against distant cable operators, thereby foreclosing Tempo could perform deletion and insemion services in such a distribution of video product beyond the area the broadcaster way as to reduce compliance costs substantially. Tempo Com- actually intends to serve. By obtaining broad exclusivity.and then ments, at 7-8. requiringdistant cable systems to receive consent before retrans- '49 Tempo Comments, at 6-7. mission, broadcasters could use such exclusivity to extract retransmission payments in addition i 9 td.; sec also supra n. 165. to those payablc under the regulation of the Copyright Royalty Tribunal. Therefore, ihe per- "'ee 47 C F R 76. 151 (1979) (repealed). missible geographic extern of syndicated exclusivity available to a 1972 were Because the rules adopted essemially intact (rom broadcaster as against cable operators 9;ill not be allo«ed "consensus" to the industry agreemem there was no discussion or exceed the extent of the terriiorial exclusivity purchased as against for the rationale presented specific provisions of those rules. other broadcasters. By this limitation we ensure that any rights ' For example, a major movie may be an important tool in purchased bespeak an intention to serve the area in question. and attracting an audience to a station. Typically. a major movie will not simply to extort additional payments from cable operators. its be heavily promoted during the period prior to its showing. If the The following four paragraphs deal v,ith syndicated exclusiv- movie is imported same just prior io the planned showing, not ity comracts signed after this Order goes into effen Existing only may a substantial portion of the audience be lost, but the contracts are treated below in pares. 101-11)5. promotional expenditures are to some degree wasted. Scc INTV NAB Commenuu at 23-24. Comments. at 63 n.88. 190 "4 Several commenters suggest ihat clearinghouses for general t INTV Comments, at 64: MPAA Commems. at 77. programminginformation might be formed to carry out the nec- 's Sce, c.g., Time Comments. 23. at essary notificaiion procedures and record keeping. See, c.g.. INTV Network Inquiry Special Staff, II New Television Nenvarhs: Comments. at 67. While we offer no opinion on the likelihood nf Eniry, Jurisdiction, Ownership aad Regulaiioa 787 (1980). the development of such services. we note that a wide range of Scc R. W. Kcnney and B. Klein, "The Economics of Block information services and data bases have been created to serve a Booking" 26 J. of Law and Econ. 497, 538 (1983); O. E. William- variety of business, government. and other organizational needs. son, The Economic Institutions of Capitalism 19, 372 (Free Press, Tempo Comments, at 8, suggests that 60 days u'ould bc the "A 1985). Sce also G. Stigler, Note on Block Booking". reprinted minimumtime needed for a cable system to respond effectively io in G. Stigler, The Organizarion of Industry 165 (Irwin, 1968). the need to delete a distant signal. Sce also INTV Comments. at Tiniaiive Decision and Request for Funhcr Comments in BC 67; NAB Commems.at 23. '9z Docket No. 82-345, 94 FCC 2d 1019, 1072-87 (1983). MpAA Comments, at 86. "9 Obviously, in the unlikelyevcnt that we are presemed in the Lener dated Feb. 26, 1988 from INTV to Chairman Dennis future with evidence of restrictive block booking or other R. Patrick. warehousing, we can revisit '9 and amend our rule. Letter dated March I l. 1988 from Cole. 'm Raywid to Dennis R. Scc generally Coalition Comments; CATA Comments. Patrick. ' 195 Sce generally supra pares. 76-77. Virtually every cable commenter raises this concern. Src See MPAA Commems. at 78; and INTV Comments. at 64. generally CATA Commems; NCTA Commems. We note that we have seen no systematic evidence Sec supra para 78, (explaining those circumstances where as to the proportion of existing cable operators contracts that contains syndicated exclusivity protection. may negotiate for exhibition rights with local 'm broadcasters who hold syndicated exclusivity rights against im- See generally Turner Comments; Turner Reply Comments. poned programming). In general, we believe that the broad- Scc also leuers dated Mar. 7, Apr. 10. Apr. 20. 1988 from Turner casters. as opposed to the program suppliers. will be the bauer to Chairman Dennis R. Patrick. ' judges of ~bather or not to enter into such arrangements with Sce Malritc TV v. U, S. FCC, 652 F, 2d 1140, 1150 (2d Cir. local cable operators. Wc note, in addition, that broadcasters may 1981), cert. denied, 454 U.S. 1143 (1982) (citing General Tele- obtain exclusivity as against any other broadcast television signal, phone Co. of ihe Southwest v. Unucd Stares, 449 F. 2d 846. 863-64 including those emanating from low power television, translators (5th Cir. 1971)). and boosters, as well as from other full power stations. We do recognize that this option is not and has not been available in the case of that small number of existing coniracts that were signed before 1980. t99 We also note, however, that Turner has charged national advertising rates.

5338

ia' 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

200 MPAA Comments, at Sl. Scc generally Major League Base- CBS Comments. at 6. ball Comments. 222 Scc Owen, Beche, and Manning, Television Economrcs 1S-19 League Baseball Comments, 'ajor at 2. (1974). They note: "A network can exploit transaction economies Scc 47 C.F.R. Section 76.67(d). Scc also 47 CFR Section both in advertising and in program distribution. If there are X 76.61(b)(2)(repealed 1981). stations and Y national advertisers. there must be X times Y MPAA Comments, at 88. contracts wrinen in the absence of networks or collective station rcprcsentation. If the X stations If Congress adopts a regime of full copyright liability for affiliate with a network, then there are X+ Y syndicated programming, then copyright holders would have com- contracts. For realistic values of X and Y, networking cuts costs." plete control over the distribution of programining. Under that Id. at 19. We note that while networking normally invo!ves the simultaneous regime a separate syndicated exclusivity rule would appear to be transmission of programming superfluous. to multiple outlets, non-simultaneousexhibition is also imaginable within a network context. The Corporation for Public Scc infra n. 228; scc aho supra para. Broadcasting (CPB) and the Na- 122. tional Association of Public Television Stations (NAPTS) have s requested in Joint Comments that noncommercial educational Broadcaster Respondent Comments, at 15. stations receive syndicated exclusivity protection. Because they Sec CBS Comments, at 15-16. have never been covered by such rules, and because our Nonce in See NBC Comments, at 16-17; sec also supra 0.217. this docket did not discuss their inclusion, 220 we will not include B«cause most network programming is distributed nationally noncommercial educational stations in the coverage of our rules the same day, and at the same time within time zones (in sharp at this time. We will, however, discuss inclusion of these and contrast to most syndicated programming, which may air at wide- other broadcasters not yet entitled to avail themselves of these ly divergent times), protection beyond one day may at present rules in the Further Nonce of Proposed Rtdcmaking to be issued appear superfiuous. However, as already noted, supra n. 224, in this docket. Scc infra pares. 163-170. networking need not always consist solely of simultaneousexhibi- 20s 47 CFR sections 76.92-76.99. tion. Sce ABC/Capital Cities Comments, at 31, to the 2~ effem that Scc Nodcc, 2 FCC Rcd at 2400. in principle there is no reason to limit network non-ifuplication 202 protection to They do, of course. protect network revenues. since they any panicular time period. Thus, we have decided to increase provide an essential underpinning for the network-affiliate rela- the scope of the rule to allow it to accommodate tionship. decisions by networks to permit the non-simultaneousexhibition of network Sce generally programs. Nome, 2 FCC Rcd at 2400-01. We emphasize 0 that, under this iteration of network nonduplication NBC Comments, at 21, protection, zso local affiliates must negotiate for program exclusivity in their According to NBC. fewer than 800.000 Tt/ Households do program contracts, a change from the existing rules, which essen- not receive its signal. Id. tially grant exclusivity by regulation to network affiliates. Scc 47 'cc Rcporn In the Maucr of Inquiry into ihe Scrambling of CFR Section 76.92. Satcffiic Television Signals and Access io /hose Signals by Owners Scc supra pares. 7-23. of Home Sarclliu Dish Antennas. Gen Dockm 86-366. 62 RR Zd 687, 746 {1987). 'able Television Rcpon and Order, FCC 2d at 141. " 222 Reconsideration Order. 36 FCC 2d at 338. Sce supra para. 94. 2'2 2 2 Capital Cities/ABC Second Rcpon and Order in Docker l9995, 54 FCC 2d 229 Comments. at 33. ( 1975). Coalition Comments, at 6-8. 'ce Comments of CBS Television Network Affiiliates Associ- CBS Comments, at 24. 7-8 224 ation, at (hereinafter cited as "CBS Affiliates Comments"). See supra para. 95, wherein we make the same provision Scc f979 Nonce of Proposed Rule Making, 71 FCC 2d at with regard to syndicated exclusivity. 1006. We note that ahhough it appears to be a very 2'S unlikely NBC Comments, at ll; CBS Affiliates Comments, at 3. eventuality, a network will not be required to offer non- 2 le CBS also notes the importance of the "lead in" duplication rights as a part of its affiliate contract. phenomenon 220 here. If a program is duplicated, "lead-in" may be lost. Scc CBS Scc supra pares. 97-99. 20 Affiliates Comments. at 6. "[Ljead in" refers to the tendency of Scc, c4(., ABC Affiliates Reply Comments, at 33. an audience during one period to zm remain tuned to a station For a discussion of the currem standard, sce Memorandum through the advertising and public service announcements that Opbuon and Order, 64 FCC 2d 589 (1977); and MOckO and follow the program itself. The viewership of any program is thus Order dt Show Cause, 68 FCC 2d 1271 (1978). influenced by the viewership of the preceding program. 222 'cc cqf., Conuruuuiy Tclccommunicadons Inc. d'b'a Scous 'here are currently nine network affiliate broadcast signals Bluf Cable TV, 95 FCC 2d 239 (1983). motffficd, 100 FCC 2d being distributed by satellite: three each by Netlink USA, Satellite 1261 (1985). Broadcast Networks, and Cancom Canadian 2 2 (a firm). Netlink Scc supra pares. 42-44. makes its signals available to home dish owners and cable sys- 222 We note that cable tems, while SBN's principal market is home dish owners. Clearly, systems may continue to avail themselves of the standard waiver however, each has the ability to serve cable systems as well as procedures provided in the Communica- tions Act. others. Scc Broadrasnng Magazuic, Nov. 30, 1987, at 48. '0 NBC Comments, at 10,18. Scc infra, Ordering Clauses at para. 178. 2'0 We also CBS Comments, at 14; scc also supra para. 47. point out that we are deleting Sections 76.92(e). 76.94(b)(1). 76.94(b)(2), 76.95(a), 76.95(b), 76.95(d), and 76.99. Scc, 04(., Capital Cities/ABC Comments, at 33. These provisions are superceded by the changes we are making in 'cc supra para. 95. the rules'by this Order, '22 and so are no longer necessary. Scc, c41., ABC Aifiliates'eply Comments, at 33.

5339 Federal Communications Commission Record 3 FCC Rcd No. 18 FC( g8-18

iss that the in Geller v. FCC, 610 F.2d 973 i» Because most of the commenters focused on our legal We also note coun, that the Act of 1976 to extend our exclusivity provisions to syndicated pro- (D.C. Cir. 1979), did not suggest Copyright Jal hprltyP exclusivity our discussion here will address primarily the syndi- affected our general authority to enact syndicated l atnlrllnmjpg, provisions. We conclude, however, that we rules. In 1972, the Commission had proposed syndicated exclusiv- ;ated exexclusivity rule to amend our exclusivity provisions ity provisions based on "... what from its viewpoint the public possesss amplea legal authority network programming, as well as to extend our interest demanded in several aspects of cable television policy." l h respect to v I syndicated programming. Id. at 979. The coun observed that, in order to facilitate passage existingting exclusivity protemion to include of copyright legislation, the FCC had sacrificed some of those i"'ee infra pares. 150-155. proposals in favor of modifications proposed by the affected zzs See Cole/Raywid Comments, at 25. industries. The court merely required the FCC to reexamine those zm MpAA Comments, at 38-39. We have discussed already why modifications after passage of Copyright Act, to ensure that they eliminatingcarriage pufur rules will not have the practical effect of made "... some discernible contribution to the public interest.. Cole/Raywid and others pf regional or national distant signals that .." Id. at 980-81 n.59. 248. Further, we note that our contempla- predict. See supra n. See supra para. 68. In its 1979 report on the syndicated negotiate with local broad- tipn herein that a cable system may exclusivity rules, the Commission suggested that the Copyright from exercising its syndicated exclusivity rights casters to forebear Act's compulsory license had finally resolved the question of cable systems to negotiate js ('pmpletely dissimilar from requiring "unfair competition" between cable and broadcasting. See Syndi- broadcasters for retransmission consent. The with distant signal cated Excluiiviiy Rcport, 71 FCC 2d at 969. However, the subse- continues to be possible wi//tptu retranslnission of distant signals quent court decision in Malrue T.V. of /s/.Y. v. FCC. discussed broadcaster of that signal under the rules we ihe consent of the above, makes clear that the Copyright Act does not foreclose our adopt today. ability to modify the competitive relationship between cable and ise The retransmissionconsent proposal addressed by the court broadcasting through changes in the program exclusivity rules, so jp bfalrile bad been suggested by NTIA. then directed by Henry long as the basic arrangement of the compulsory license is left Geiler. Subsequently. in thc course of rejecting a petition by undisturbed. Therefore. to the extent thc report may have sug- Commis- nailer to reenact syndicated exclusivity provisions, the gesied that "unfair competition" between cable and broadcasting sion reiierated its earlier conclusion that retransmission consent. is exclusively governed by the Copyright Act, we expressly reject Qejier's ultimaie objective. was beyond the Commission's jurisdic- that view. In addition. we note that thc Commission's view of its ljon, See Syndicated Program Ercluiivily and Spprii Telecaiii, 56 jurisdiction was apparently based in part on a misreading of its deter- RR2d 625. 629(1984). Having also decided not to revisit Home Box Office, Inc. v. FCC. 567 F 2d 9 (D.C. Cir. 1977). cert. mination to repeal the syndicated exclusivity provisions, the Com- den/ed, 434 U.S. 829 (1977) ("HBO"). The Commission suggested mission noted that any adjustment in royalty rates as a that the HBO decision limited FCC jurisdiction over cable sys- consequence of the rules'eletion properly should be sought tems to maners involving "debilitating economic competition" to from thc Copyright Royalty TribunaL The Commission did not, broadcasting and not mere "unfair competition.- HBO, however. however, equate syndicated exclusivity rules with a rctransmission involved the Commission's power to regulate programmingorjgj- consent proposal barred by the Copyright Act. Nor did the Com- nating in the studios of cablecasters, not cable retransmissionsof mission conclude that it was without authority to adopt syndi- broadcast programming. The HBO panel thus made clear thar irs cated exclusivity rules if the public interest so required. Sec also concern as to the FCC's jurisdiction over cable in that case did infra note 256. not extend to circumstances involving cable retransmissions of zs'able Te/evisipn Report and Order, 36 FCC 2d at 166 n.34. broadcast signals. Scc id. at 41, n.28 (Judge Mackinnon's separate This was only one of several occasions during the years that view that FCC jurisdiction over cable is restricted to instances copyright legislation was pending that we expressed our belief where cable systems substantially rely on broadcast signals or that detailed regulation of cable television signal carriage, regula- their activities amount to unfair competition): id. at 61 (Weigel. tion refiemed by rules governing program exclusivity, leap frog- J., concurring). ging and must carry. should bc left to us. Sec, 441., Letter dated See supra para. 68; CommunicationsAct of 1934, 47 U.S.C. March 11. 1970 from Chairman Burch to Senator Magnuson, secs. 301. 307(b) (1981). in Chairman of the Senate Commerce Comminee. quoted IN'/ zse Webster's Third New International Unabridged Dictionary Cpnunissipn Proposals for Regu/a- Comments Appendix E., at 7; contains definitions that use the word in both of these senses. tion pf Cabfe Television, 31 FCC 2d 115, 116 (1971); Letter dated e All the Commission is doing is permitting the contracting January 26, 1972 from Chairman Burch to Senator McClellan. decide on what basis programs are sold and then io Chairman of the Senate Subcomminee on Patents, Trademarks parties to their contracts. If programs are sold non-exclusively,cable and Copyright, reprinted as Appendix E of thc Cable Televisipn enforce will continue to be able to carry duplicative programming on Reppn aruf Order, 36 FCC 2d at 286. imported signals. But where a broadcaster has negotiated exclu- 1476, 94th Cong., 2d Sess. 89 (1976). H.R. Rep. No. sive rights, the broadcaster will be able to enforce that provision The Copyright Office, Library of Congress, which is charged against cable — just as cable can now enforce an exclusive pro- with administering various provisions of The Copyright Act, also gram right against broadcasters. "The television compul- recognizes this imerplay: cable copyright The House Report makes absolutely clear that FCC regula- on a bifurcation of respon- sory license mechanism is premised tions are "federal laws" for purposes of this section, see H.R. Rep. communications and copyright law. Under this sibilities under No. 934, 98th Cong., 2d Sess. at 95. mechanism, the FCC controls signal distribution by cable systems zs'e are not suggesting that the imposition of syndicated as pan of a national allocation policy and protects some exclusive exclusivity is a content-based regulation of speech. as that ter. rights as part of this policy. At the same time, the copyright law is used under a constitutional analysis, see infra n.279; prescribes the degree and nature of cable operators'iability for minology nor are we suggesting that programming subject to exclusivity the use of copyrighted programming that the FCC rules permit is not protected the Constitution. We merely use this them to retransmit." Compulsory License for Cable Systems, 50 rights by analysis to illustrate thc Act's separate treatment of regulations fed. Reg. 9270 (March 7, 1985). that affirmatively require speech and those that negatively restrict s 1476, n. 252 (emphasis added). H.R. Rep. No. infra it. That treatment leads us to conclude that section 624(f)(1)'s use

5340 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

of the term "requirements" applies only io affirmative require- and, . the syndicated protection rules, in contrast ments, regardless of whether those to the requirements are content- network rules. do not necessarily provide insulation neutral or coment-based. agamst audience fractionalization because of the ability of systems Indeed. Congress expressly envisioned that the Commission to insen non-protected programs during those times when might alter its syndicated exclusivity rules. Ser H.R. Rep. No. protected programs must be deleted. 1476, 94th Cong., 2d Sess. 89 (1976). 17v. While it is conceivable that Congress subsequently intended to remove that discretion, 53 FCC 2d 391, 392 (1975) (footnote deleted). when it passed section 624(f) of rhe Cable Acr. we believe it 366 See, e.g., Decision in Docket 18897, 41 FCC 2d unlikely that Congress would have done so in such an oblique 1005, 1006 (1973) in which the Commission stated that "different way. Syndicated exclusivityrules simplydo not fall consider- neatly into the ations" were involved provision of section 624(fl(1). in the syndicated exclusiviry. rules and 363 network nonduplication mandatory carriage and spons The Commission's decision to blackout reimpose syndicated exciusiv- rules, but, in that same proceeding, also expressly ity is completely consistent with recognized that Congress'nderstanding, as ex- syndicated exclusivityand network non-duplicationwere pressed in the legislative history, that the same the Commission can amend type of rule. See ld. at 1005. its rules as to permissible signals for communicationspolicy pur- ln the Syndicated Report, the poses. See H.R. Rep. No. 1476, ntpra, at 89. Congress, of course, Exclusivity Commission, speak- ing of our former syndicated exclusivity recognized that any rul» change could have an effect on provisions. observed that. copyright "[ajlthough the rules described and the compulsory license. As explained above. the Commission are... as 'designed... to protect local broadcasters,'he form of the rules is adopting the rule for communicationspolicy reasons but recog- suggests that they were principally intended as protection nizes its ancillary effect on the compulsory license. for program owners." 71 FCC 2d at 976-77. See alto 366 In supra pares. 34-44, discussing the potemial addition. due to the unique relationship between these for audience rules and diversion in ihe absence of syndicated exclusivity the Copyright Act, a principal effecr of the rules is to rules. enable broadcasters to enforce program exclusivity rights against The House Comminee, for cable systems through civil actions for copyright example. determined that cable's infringement. As rerransmission of network discussed above, section 624(f)(2)(B) makes clear that programming, including nets ork pro- cable sys- gramming imported from tems are not immunized from copyright liability. distant markers, did not injure the 365 copyright holders of that programming, because those holders As indicated supra, para. 125, the Commission's authority to intended for their product to reach a national marker and rhere- adopt these amendments to our regralations is also derived from fore could be adequately compensated in their initial negotiations our general authority to enact regulations that are reasonably for distribution rights Similarly. the Comminee derermined that ancillary to our Title III authority over television broadcasting. the retransmission of local broadcasr signals (be they of syndi- See Capiurl Cities Cable. Inc, v. Crisp, 467 U.S. 691 (1984); United cated or network programming) did not injure those copyright States v. Southwestern Cable Co., 392 U.S, 157 (1968). That holders because they, too, could be compensated in their initial pre-existingauthority, we believe. was not disturbed the by Cable negotiations for distribution rights, knowing that the programming Act. Section 2(a) of the CommunicationsAct. as amended by the would be retransmined over the local cable system. On the other Cable Act, now provides that t[he) provisions "... [of the hand, the Committee found that the retransmissionof syndicated CommunicationsActj shall apply with respect to cable service... programming imponed from a distant market injured as provided in [the Cable Act[." 47 U.S.C. secrion copyright 152(a)(1981). holders because those holders did not imend for their program- The Supreme Coun in Cuy of New York v. FCC, supra. found it ming to reach markets outside of the locality in which they were unnecessary to decide whether this amendment withdrew rhe sold and. therefore. could not be adequately compensated in their Commission's pre-existing general authority over cable service. initial negotiations in those markets. Hence, the Copyright Act The Court did note, however, that the legislative history "suggests imposes a royahy fee only for those syndicated programs im- this language is merely a more explicir grant ol 'exclusive jurisdic- ported from distant markets. See H.R. Rep. No. 1476, supra, at tion'o the Commission over specffied aspects of cable service .. 90; see also 17 U.S.C. Section Ill(l) (1981) (providing that rhe ., which settles matters that had occasionally been in dispute." Id. royahy fee is to be calculated on the basis of a "distant signal at 4418 n.6 (citations omitted). We think thc Supreme Court's equivalent," defined to be "the value assigned to the secondary view of the legislative history accurately refiects the intended transmission of any non-network television programming carried purpose of the Cable Act's amendment to section and 2(a) that by a cable system in whole or in part beyond the local the new language thus does not change service our pre-existing, general area of the primary transmitter of such authority over cable. In any event, as discussed programming"). Not above, we think suprisingly, for it is consistent with the section 624(f)(2)(A)(ii) of the Cable Act compulsory license affords express authority scheme, Congress recognized that the value to adopt these amended regulations. of syndicated programming imported from distant markets would change if Com- '~ The three other "types" of signal carriage rules were rhe mission rules governing the exclusivity rights of that programming must carry rules, rules requiring deletion of sports programs, and also changed and, accordingly. provided for the adjustment of the rules limiting carriage of commercial and noncommercial distant compulsory license royalty fee in the evem of such change. 17 signals. Id. U.S.C. section 801(b)(2)(C)(1981). The differences between the zr'ome rules'cope of applicability, Box Ot(lice, Inc. v. FCC, 587 F.2d 1248, 1253 (D.C. rationale, and operational features were described by the Com- Cir. 1978). mission in a Nonce of Proposed Rule zn Making in Dccket 20482 as U.S.Const., An. I, Sect. 8, cl. 8. follows: zrs Thus, in Autlrors League of America, lnc. v. Oman, 790 F.2d 220 (2d Cir. 1986), the Court of Appeals for the Second Circuit most program schedules ... include far more nerwork upheld that portion of the Copyright Act that denies copyright programs than syndicated programs,... the number of protection to certain foreign-manufacturedpublications as a valid systems now subject to our syndicated program exclusivity economic regulation authorized under the Commerce Clause. rules (due to market location, etc.) is significantly smaller than that number obligated to protect network programs,

5341 Federal Communications Commission Record 3 FCC Rcd No. 18 FCC 88-180

and United Starer r. Albernm, 4 2 U S. 6 5 ' this point in the discussion, our focus is appropriately on 468 U.S. 288 119841. At F. 2d 1484 (9ih Cir. 1986). Neither ihe constitutional authority of the federal government to enforce (1985) on remand, 783 to the authorityof a Supreme Court in Zarchini nor the lower courts in upholding the erclusive rights in programming. as opposed the Commission. to do so, federal copyright laws against first amendment challenges resort pariicuticular institution, be it Congress or constitutional, dimension. to such an analysis. Nevertheless. we believe that our exclusivity The latter issue is one of statutory, not if Congress can confer exclu- rules would survive such a test. For example. having identified From a constitutional perspective. producers without violating the distortioris in the market for the distribution of video program- sive rights in programming on to do so ming, which in turn adversely affect the market's ability to ensure 1'rst amamendment, then it can authorize the Commission irst that maximum diversity of programming. we have adopted rules that well, The issue of whether Congress has. in fact, given as concluded are direcied specifically ai a flaw that has created those distor- authority to the Commission (which we have already tions — namely, the inability of broadcasters to contract for il has) is a statutory malar, not a constitutional one. that enforceable exclusive rights in cenain kinds of programming. The i s S. 562 (1977), on remand, 54 Ohio St. 2d 286 (Ohio, 433 U rules do no more than allow broadcasters to contract for such 1978). rights. ire U.S. at 564-65. 433 'ce 47 CFR Section 73.658(m). »r Supreme Court has never squarely held that exclusive Thc market is one in which two or more commu- distribution afforded under the federal copyright laws do A hyphenated ijghts to nities are considered part of the same market, c.g., Dallas-Fon the first amendment, but in Zacchini the Court cites, not violate Texas. The hyphenated markets recognized for purposes of

lower court decisions that have upheld the federal Worth. with approval, the non-network territorial exclusivity rule are those specified in government's ability to promote exclusive rights in authors'orks Section 76.51 of the Rules. 47 CFR Section 76.51. against first amendment challenges. Id. at 577 n.13, citing, United

Wali Sec Firsr Repon and Order in Docket No. 18179, 42 FCC d Stares v, Bodin, 375 F. Supp. 1265 (W.D. Okla. 1974): Disney productions v..4/r Pirates, 345 F. Supp. 108 (N.D. Cal. 1972); aff 175. 183 (1973). rev' 581 2d 751 (9th Cir. 19I8), cert. 183. In reconsidering its action in this malar, the d ln pari, in pan, F. 0'eilly, Scc id. at serve the denied, 439 U.S. 1132 (1979); Robert Srigwood Group Lid. v, Commission reiterated its belief that the rule would 346 F. SupP. 376 (D. Conn. 1972), rev', 530 F. 2d 1096 public interest by fostering the developmem of additional televi- On/er in Dock- (2nd Cir. 1976), cen. denied. 429 U.S. 848 (1976). Scc also Sid & sion stations. Scc also hfemorandum Opinion and Mariy Kroffi Television Productions, Inc. v. McDonald's Corp., et No. 18179, 46 FCC 2d 892 (1974). 471 562 F.2d 115 (9th Cir. 1977): Schnapper v. Foley, F. Supp. Peritions for v aiver of Section 73.658(m) have been filed by: 102 (D.C. Cir. 1981). cert. 426 (D.D.C. 1979). affd, 667 F,2d 11 Blair Broadcasting of California. inc., licensee of KSBW-TV, pOSitiOn denied, 455 U.S. 948 (1982). Regardleaa Of whether the im Salinas. CA; 21 United Television inc.. licensee of KhlSP-TV. of our exclusivity rules is characterized as a copyright or commu- Minneapolis. MN; 3) Chapman Radio and Television Corp.. li- nications issue. the first amendment analysis is the same. Either censee of WTTO-TV, Homewood-Birmingham, Ah 41 Times the federal government has the authoriiy to impose such rules Southwest Broadcasting, inc., licensee of KFSM-TV. Fort Smith. consistently with the first amendment or it does not. The issue of AR: and. 5) Pappas Telecasting inc.. licenseee of KSIPH-TV. whether the Commission's imposition of such rules is a copyright Visalia, CA. Retlaw Enterprises inc.. licensee of KJOE-TV. Fres- mauer thai is outside of thc Commission's jurisdiction is solely no. CA, and San Soaquin Communications Corp.. licensee of statutory. We have already concluded that the adoption of these KSEE-TV, Fresno, CA. (joint filing). In view of our decision rules is within our statutory authority. herein to posrpone action regarding Section 73.658(m), these United Stares v. Bodin, 375 F. Supp. 1265, 1267 (W.D. Okla. requests for waiver wil! be held in abeyance until we resolve the 1974). ln this regard. the Ninth Circuit has stated: "Ideas which non-network territorial exclusiviiy issue.

may be of public interest are not subjecr to copyright: the specific zaa The revised rule is set forth in Appendix B. form of expression of these ideas are. Thus, ihe politica! views of

Dr. Martin Luther King may be widely disseminated. But the precise expression of these views in a speech may be proiected." STATEMENT OF COMMISSIONER SidFibnarion & Marry Kroffr Tclcv/sion Productions. Inc. v. McDonafd's PATRICIA DIAZ DEVNIS CONCURRING Corp., 562 F.2d 1157. 1170 (9th Cir. 1977). On the basis of this IN PART; DISSENTING IN PART view, courts have also rejected argumems that the Copyright Section 502 (1981). Am's remedy of injunctive relief. 17 U.S.C. In Re: Amendment of Parts 73 and 76 of the Commis- v. Duncan, violates the first amendment. Pacific and Southern Co. sion's Rules Relaring to Program Exclusivity in the Cable U.S. 1004 744 F. 2d 1490 (11th Cir. 1984), ccn, dented, 471 and Broadcast Industries. (1985); Dalai Cowboys Cheerleaders, Inc. v. Scoreboard Posters, Inc., 600 F. 2d 1184 (5th Cir. 1979); Walt Disney Produrrions v. Reluctantly, I concur in the reimposition of syndicated Associate, 628 F. Supp. 871 (C.D. Cal. 1986). exclusivity ("syndex") rules. Many of the reasons the ma- when suggest that syndi- Cole/Raywid are simply wrong they cites to support this action are unconvincing, wrong as that jority cated exclusivity is a content-based regulation of speech, or both. Rather than enumerate my differences and dis- amendment analysis. Rights of terminology is used in a first I write separately to state why I think the regard- agreements, exclusivity can attach to any copyrightable programming, public interest is marginally served by syndex. less of content. zm We need not adopt the arguments advanced by some com- Diversity do not full first amendment menters that cable operators enjoy singular advantage of syndex is that it promotes to reach this conclusion. because we have The protection in order — one of the most important traditional first amendment approach to diversity of programming based our analysis on a interest goals the FCC historically has pursued. Nor do we believe that the constitutionality public this area of thc law. When the Commission repealed the old syndex rules in of exclusivity rules must necessarily be evaluated under the test 1980, it did so, in part, to encourage time and episode Stares v. O'rien, 391 U.S. 367 (1968), as enunciated in United diversity. Only 19% of American homes then subscribed further limited by Clark v. Community for Crearivc Nonviolence,

5342 3 FCC Rcd No. 18 Federal Communications Commission Record FCC 88-180

to cable television services. Because few national program gramming. The transition period will also services were give national available, cable relied heavily on distant and regional superstations the opportunity to run off more signal importation for its programming. By allowing these programming. signals to be carried without deletions caused by syndex Third, we have made the rules, the Commission rules mostly prospective. We hoped to diversify program choices will require cable systems to honor available to cable viewers. Circumstances have exclusivity provisions changed of existing program contracts only if the dramatically since 1980. There are now national contract explicitly 85 cable anticipated the reimposition of a syndex rule. networks. Cable television now serves 45 Otherwise, if million homes a broadcaster wants to assert (compared with 14.8 exclusivity, it will have to million in 1979) and cable services obtain the syndicator's such as ESPN, written consent. This rule ensures, USA, and CNN have vastly expanded their as much reach and their as possible, that broadcasters do not reap a programming efforts. Compared to 1980, windfall at the expense of cable. cable systems are far less dependent on importation of Fourth, our distant signals. The average cable system now carries only notice rules are more favorable to cable three distant independent signals. Cable television has be- systems than the rules we had in place between 1972 and 1980. Under come an important source of original video programming the old syndex rules, broadcasters asserting instead of merely a vehicle for retransmitting broadcast exclusivity gave cable systems only seven days'otice of signals. their obligation to delete a distant signal. Under the new rules, a television station By reimposing syndex, we will must notify cable systems within accelerate cable's liber- sixty days after the ation from dependence on broadcast station signs a program contract. Be- signals. Eventually, cause contracts for most programs are this should give cable viewers more choice. Cable signed a year or oper- two in advance, this will give cable ators will likely respond to syndex carrying more origi- systems more than by ample notice of their obligation to delete. Even for nal programming instead of the duplicated programs pro- deleted under grams acquired with a shorter lead time, broadcasters our rules. This does not necessarily mean must an end to the time give cable systems at least 60 days'otice. These and episode diversity that many view- liberal notice ers value. If a provisions will give cable systems much program is especially popular, a local broad- more opportunity than caster can bargain with the syndicator they had under our old rules to for the right to arrange for substitute progratns and show it twice a day; or a cable company can with to submit accurate bargain program listings to newspapers and magazine;. the local broadcaster for the right to carry the program on a distant signaL This decision ddes mean, however, that our rules will no longer tilt in favor of duplication. Instead Jurisdiction of the so~lied "Rule of Reruns," which the current Several parties argued that the Cable Act of 1984 system encourages, we will instead likely have a balanced stripped us of jurisdiction to reimpose syndex. This is

menu- of time diversity, episode diversity, and true pro- admittedly a close case. I believe, however, the Commis-

sion can make gram diversity- that more accurately reflects viewers'references. a plausible argument that we do have the necessary authority.

Mnimlzing the Costs Territorial Exclusivity My decision in this proceeding was difficult, because the I fully support the decision to amend our territorial mostly long-term benefit of diversity will not come with- exclusivity rules to allow broadcasters to buy exclusive out some significant costs. Many cable systems will have to national rights to programs. Btoadcast networks such as buy new equipment. Viewing habits may be disrupted. ABC, NBC, and CBS, of course, can already buy exclusive Transaction costs will place a burden on everyone- national rights. National cable networks such as USA and -broadcasters, cable systems, and the Commission's own ESPN do the same thing. Under our new rules, individual staff. broadcast stations will have the same privilege. For exam- I am also concerned about the need for stability in ple, WTBS, Atlanta, already competes openly for national the ratings and Commission's rules and policies. We repealed the old advertising. Other stations, such as WWOR, syndex rules just eight years after New York, and WON, Chicago, are also widely circulated ago, imposing them on cable eight years before that. Since then, private parties have systems throughout the country. made investments, acquired programs, and devised busi- By changing our territorial exclusivity rule, we allow ness plans based on the reasonable assumption that we these stations and others to compete, should they choose would not reimpose syndex. to, in the national market for the acquisition of programming. This My concern, however, about the disruption that new change in the territorial exclusivity rule com- rules could create, are eased by the exemptions and quali- plements our action on syndicated exclusivity, since it fications we have built in to minimize the burden gives broadcasters the right to contract for national exclu- of sivity as well compliance. First, we exempt all cable systems with fewer as local exclusivity. In all other respects, we than 1000 subscribers. This exemption covers will leave the territorial exclusivity rule intact for now and 60% of the reexamine country's cable systems, although they serve fewer than it in a Further Notice. 6% of all subscribers. By creating the exemption, we minimize the burden on the cable industry, while ensuring Dissenting, in Part that the vast majority of the viewing public secures the I also write separately to dissent from the part of the benefits of our rules. majority decision which takes a less than solid stand on a Second, we provide for a transition period of one year. sunset for syndex. If Congress adopts full copyright liabil- This will give cable systems time to comply with the new ity for syndicated programming imported on distant sig- rules and also allow them to arrange for substitute pro- nals, syttdex rules would be superfluous — they would not just "appear to be" so. We should then repeal syndex, not just "act on this matter." We owe the affected industries

5343 Commission Record 3 FCC Rcd No. 18 Federal Communications 88-180 FCC their contracts will be forced to renegotiate which to base where they words, they will be more predictability upon with program syndicators. In other the Pupublic' majority does not program syndicators nd and actions. If the to rely on the good graces of own decisionse should say so. forced rights. I beleive heir by repealing it, it the scope of their exclusivity to "act on" syndex to determine interest mean so unequivocally. should not delegate its public does.'oes, it should say the Commission if it responsibilities on this issue. proposed troubled issuing a Further .Voffce of STATEMENT I am also territorial exclu- CONCURRING Rtdemaking concerning the non-network OF essential to ensure that television QUELLO sivity rule. The rule is negotiate for COMlvIISSIONKR JAMES H. overshadowed markets are able to stations in to serve. The in areas they are licensed of the Commis- programming serve their local Amendment of Parts 73 and 76 Commission licenses these stations to RE; Exclusivity in the Cable while I agree that the freedom Rules Relating to Program communities. Accordingly, sion's u is essential to the operation Broadcast Industries. to contract for exclusive rights balanced and it must, nevertheless, be of of the marketplace, in this case vigorous dissent to elimination countervailing communications policy, I registered a against exclusivity, we are ln 1980, rules. At that time, I believed Moreover, unlike syndicated syndicated exclusivity gross localism. imbalance that is at- the these rules would result in a confronted with a marketplace eliminationi of local not that e marketplace to the detriment of to the compulsory license. arity in the carry tributable contradicting disparl y the recent demise our must evidence in the record broadcasting. Given all the There is little or no the need syndicated exclusivity becomes previous conclusions regarding rules, the need for the Commission's regula- current non-network territorial exclusivity more important. protec- for the the distribution of of syndicated exclusivity The rule is essential to ensure As a strong supporter disag- tions. markets that are adja- in the uncomfortable position program product to small I find myself these quality no need to question tion, procedures established to reinstate large television markets. I see reeing with the concur- cent to feel compelled to register a at this time. rights. Accordingly, I the rule issue, rence on this of our revolves primarily on the application My concern When the existing programming contracts. new rules to in 1980, the exclusivity rules were eliminated syndicated of duplicative distant Commission allowed the importation broadcaster s contractual rights notwithstanding the de- signals marketplace. The Commission's to exclusivity in the does not departs from this procedure and cision, however, existing contracts. syndicated exclusivity to all restore various mechanisms to the Commission establishes Rather, contracts have syndicated ex- determine whether existing protection. clusivity whether a the Commission to determine In order for licensee must has exclusivity protection, the broadcaster specific provisions demonstrate that its contract contains parties contemplated a reinstate- stating in effect that the exclusivity rules. I doubt that such ment of the syndicated exist- in a significant majority of precise language appears parties Obviously, there ar» numerous ways ing contracts. intent to afford a draft language evidencing an could protection. I simply do not licensee syndicated exclusivity spe- existing, comracts to contain see the need to require reim- that the parties contemplated cific language stating referencing Rather, if there is language position of rules. sufficient for the exclusivity, then it should be syndicated protection. Giving legal Commission to grant exclusivity created by the Commission effect only to specific language restrictive. the contracts were drafted is unduly years after the Commission's Moreover, this approach substitutes parties as to how to draft syndi- judgment for that of the requiring exclusivity contracts. More importantly, cated the central premise of our such language is antithetical to intent of the parties, not the government, decision that the parties to have govern. It is unreasonable to expect should the language envisioned had the clairvoyance to anticipate ex- after the contracts were by the Commission years ecuted. not believe the decision goes hr Simply stated, I do existing in correcting the gross disparities now enough in procedural hurdles created the broadcast marketplace. The local broadcasters in a position by this decision place 5348 Before the

FEDERAL COMMUNICATIONS COMMISSION E&v&, Washington, D.C. 20554 ~UL ~ yc,—,

In the Matter of ~'".& of ) g» Se=r~ia~ ) Amendment of Parts 73 and 76 ) of the Commission's Rules ) GEM. Dacket No,.B7~ Relating to Program Exclusivity ) in the Cable and Broadcast . ) Industries )

COMMENTS OP THE MOTION PICTURE ASSOCIATION OF AMERICAg INC.

Fritz E. Attaway

Vice President and Counsel

MOTION PICTURE ASSOCIATION OF AMERICA, IN'600 Eye Street, N.W. Washington, D.C. 20006

Of Counsel: Joseph W. Waz, Jr. General Counsel WEXLER~ REYNOLDS, HARRISON & SCHULE~ INC. 1317 F Street, N.W., Suite 600 Washington, D.C. 20004 Richard M. Cooper Thomas J. Murphy WILLIAMS 6 CONNOLLY Hill Building 839 Seventeenth St., N.W. Washington, D.C. 20006 DATE: July 22, 1987 -42-

freedom while cable operators thrive on it. The Commission must correct the competitive balance between the media to the extent possible through appropriate rules.

B. Duylicative Distant Signal Programming Fractionalizes the Audience of Local Broadcasters.

In the absence of syndicated exclusivity, broadcasters are susceptible to invasion of their market-exclusive rights in certain programs by cable operators who import distant signals carrying these very same programs. Marketplace facts show: (1) Cable operators carry large numbers of distant signals—;as/. (2). There are high levels of duplication between distant signal programming and programming of local television stations; (3) Duplication results in high levels of audience diversion or fractionalization. The premise is straightforward. Nhen a local television station in Market X airs "Program Z," and that same program is made available on an imported distant signal to cable subscribers within Market X, some percentage of these subscribers will view "Program Z" on the distant signal, and some percentage of those viewers would have watched "Program Z" on their local station had

88/ During the 1985-2 accounting period, the average larger cable. system carried 3.371 distant signals. Two out of every three distant signals carried were from independent TV stations. Data compiled by Cable Data Corporation. w43~

~ the duplicative program not been imported. The effects of program duplication on a local television station can be devastating. One station that has documented its duplication and audience fractionalization problems is KOKI-TV, a Tulsa, Oklahoma independent. KOKI has estimated that about a quarter of its total syndicated programming schedule is duplicated on distant signals. —/ A recent summary prepared by KOKI management shows that during the seven years that KOKI has been on the air, fortY- nine series and four syndicated monthly movie packages for. which KOKI had acquired market-exclusive rights had been sub)ected to duplication by at least one distant signal — and often as many as three distant signals — carried by cable systems in KOKI's service area.—90/ The. experience of two independent television stations in the highly competitive Hartford-New Haven, Connecticut,—/ market also bears out the point. The general manager of WHCT-TV notes that during the February, 1987 ratings sweeps, "80 percent of the syndicated programs and movies imported from New York and Boston [distant signals for cable systems in the Hartford-New Haven market) were owned and scheduled by Connecticut (home market) stations."~ And the general manager of WTXX(TV) reports that

Patricia Hersch, "Superstation Super Mess," Channels Magazine, January 1987, at 45. 90/ Letter from James U. Lavenstein, General Manager, KOKI, to Preston Padden, President, Association of Independent Television Stations, May 1, 1987. See Section II.D., infra. [Footnote cont'd] -44-

syndicated episodes of M*A*S*Hi his station's highest-rated program, appear on WTXX and on two distant signals imported into the Hartford-New Haven market at 7 p.m. The resulting audience diversion is enormous: 53 percent of all viewers watching M*A*S*H — at 7 p.m. in WTXX's market the market for which WTXX acquired "exclusive" rights — are watching it on the imported distant signals.—93/ Data compiled by the National Cable Television Association (NCTA) demonstrates conclusively the outrageous levels of program duplication that occur in a typical community. An analysis by NCTA of distant signal carriage by the Cardinal Communications cable system in Columbus, Indiana, reveals that 199 hours per week of syndicated programming for which local TV stations serving Columbus have exclusive market rights is duplicated by distant signals imported by the cable system. In several cases, programs that are aired each weekday (Monday-Friday) by local stations serving Columbus also appear four times a daY everv weekdav on four different distant signals carried by the cable system. 94/ Distant signal viewing accounts for very high levels of audience diversion in markets throughout the country. Overall, viewing levels of independent superstations and other independent distant signals in the homes of cable subscribers exceeds

Broadcastipg, June 22, 1987, at 24. 93/ Broadcasting, June 15, 1987, at 30.

NCTA Position Paper on Syndicated Exclusivity, May 1987, at 16, and Tables 14-15. -45-

viewership of local independent station signals. Nielsen Station Index data for April 1987 shows that in all cable homes, total weekly viewership (based on total television usage 24 hours/day . Monday-Sunday): of local independent stations is 5.37 hours, while total weekly viewership of superstations plus distant independent signals equals 5.91 hours. The NCTA Position Paper provides data on the distant signal carriage of 107 "larger" cable systems located in the districts of members of the House Energy and Commerce Committee. These data show that of the 366 distant signals carried by the 107 systems (an average of 3.4 distant signals per system), 266, or 72 percent of these signals, are independent stations.—~ An analysis of program duplication and audience fractionalization in several television markets clearly shows the level of harm local broadcasters may face. APPENDIX E hereto quantifies the diversion of viewership of selected syndicated series from local stations due to importation of superstations in the markets studied. Data drawn from February 1987 Nielsen surveys of six metered television markets (Boston, Philadelphia, Miami, Dallas, Denver and Houston) compares the viewership of certain syndicated programs aired during normal viewing hours (6 a.m. - midnight, local time) by local stations in those markets with the viewership of the same programs on imported superstations, where

NSI April 1987 Index at 8-9. NCTA Position Paper, supra, at Table 13. »46»

the programs are also available on the latter stations during normal viewing hours. The chart shows that, on average, over sixteen percent of all viewing of significant syndicated shows for which stations in these local markets have sought to acquire exclusive zights is diverted to the imported retransmissions of these shows. To take just two of the more dramatic examples of audience diversion, over 68,000 households in the Philadelphia market viewed Charles in Charge when it was retransmitted on Saturday at 7:30 p.m. on WPZX (a distant signal), while 85,000 households in that same market watched the show on Friday at 7:30 p.m. over local station WGSS. When Voyagers was broadcast in Philadelphia by WGBS on Saturday at 9 a.m., and imported at the exact same time by cable on WOR (a distant signal), over forty percent of all viewers watching" Voyagers in the Philadelphia market were watching it on the distant signal. Such levels of audience diversion can cripple. the ability of the local independent station to compete. When, as is often the case, a local station is competing for single-digit audience shares, it cannot readily withstand the loss of nearly half its audience for certain programs to unfair competition by distant signals carrying those same programs. In view of the difficult straits of many local broadcast stations (particularly independents) and the unrestzained competition these broadcasters face from cable television, the Commission cannot permit its zegulatoz'y zegime to continue to t skew the marketplace in cable's favor. It cannot tolerate a regulatory regime that has "moved the marketplace further away from effective freedom of contract." Notice at ff 26. The Commission must. "permit() broadcasters to acquire and enforce the same kinds of exclusive performance rights that competing now suppliers are permitted to exercise." Notice at % 12 ' -48-

IV. THE ABSENCE OF SYNDICATED EXCLUSIVITY RIGHTS HARMS COPYRIGHT

OWNERS AND DIMINISHES PROGRA'& DIVERSITY

A. Program Syndication Is a High-Risk Enterprise.

It is common knowledge that the business of producing and syndicating programs to television stations is filled with high risks. Although the syndication marketplace has grown by leaps and bounds in the past decade, providing new and diverse programming for viewers, the financial stakes of failure are breathtakingly large. Most programming (particularly series, specials, and made- for-television movies) enters the television syndication marketpl'ace from two sources. The programming may have been originally produced for prime-time exhibition on one of the three ma)or television networks (ABC, CBS or NBC); this is known as "off-network syndicated programming." Or the programming may have been produced expressly for the syndication marketplace; this is known as "first-run syndicated programming."—~ The vast bulk of off-network syndicated programming drags along a massive production deficit in its wake. Network license fees for prime-time programming virtually always fall far short

A third significant source of syndicated programming is feature films originally released theatrically. There are, of course, financial risks inherent in their production as well. According to MPAA statistics, six of ten feature films produced and released by MPAA member companies never make back their investment. -49-

of the actual cost of production. Deficits of "up to $ 500,000 per episode& or more"—/ are not uncommon, with an average season running 22-28 episodes. For the prime-time programming on all three networks in fall 1986, over two-thirds of all shows ran a deficit, ranging from $ 50,000 to $ 500,000 per episode (with an average of $ 125,000 per episode) on production costs of $ 350,000 to $ 1.2 million per episode. / In the case of Miami Vice, produced by Michael Mann Productions in association with Universal Television for NBC, the per-episode cost of the series runs $ 1.2 million, and sources say the license fee paid by NBC "does not cover much more than half of that." Consequently, for a one-hour off-network television series, a single season's worth of episodes could produce a deficit of over $ 10 million. The average series needs at least four to five seasons'' worth of episodes "in the can" to be viable in syndication, with the deficits continuing to mount through each season of production. / If the series is not renewed by the network for at least this number of seasons, it may never enter syndication, and the huge built-up deficits will not be recouped.—102/

98/ Broadcasting, February 16, 1987, at 29-30. 99/ Channels Magazine, September 1986, at 58-59. 100/ Broadcasting, February 15, 1987, at 29-30. 101/ It is a rule of thumb that there must be 100 to 120 shows a series entering syndication so the show can be "stripped" in the same time period five days a week by a station without having to repeat episodes too frequently. 102/ In a few instances, following cancellation of a series by a network, producers have made additional episodes for first- run syndication. First-run syndication productions [Footnote cont'd] may -50-

If the series does last long enough to be viable in syndication, the success of the syndicator in recouping his investment can depend on myriad factors, including the number of series in its genre competing for airtime, the changing tastes of viewers, and the willingness of local stations to pay the kind of price needed to turn a profit. In the main, first-run syndicated programming is not deficit-financed. However, as syndicators seek enhanced production values in programming,made for syndication, they now face financial risks at levels comparable to production for the networks. Per-episode production costs for certain first-run shows can approach network levels. For instance, Paramount's new series Star Trek: The Next Generation will cost $ 1.1 million per episode, and Friday the 13th: The Television Series will cost $ 650,000 per episode. ~ Similarly, Lorimar-Telepictures reports that each of the three first-run situation comedies it currently has in production generates deficits of "close to $ 200,000 per episode, or $ 4 million a year," and that such programs must run three years or more before they "start[j to make [economic] sense."—~ Thus, many first-run series face the same after-market risks that off-network series do. If a first-run series stops production, or cannot be sold for future runs to local stations, the

incur financial risks at levels similar to those incurred producing for the networks, as discussed infra. by —~ Broadcasting, February 2, 1987, at 63 ff. ~ Broadcasting, January 12, 1987, at 63. -51-

producer is unlikely to recoup any substantial portion of his investment. Zn the face of these risks, there has been a massive ex- pansion of the syndicated programming marketplace, with billions of dollars in investment and revenues now at stake. Syndication has become a much more diversified marketplace than in previous decades. With the growth in available broadcast outlets, the marketplace has responded with an outpouring of new programming types. The opportunities would appear welcoming. But, coincident with the financial woes of many local outlets, the syndication business today is in difficult straits. When broadcasters are hurt, they seek to cut expenses in every possible way; among the remedies they seek are the renegotiation of their syndicated programming contracts. As"a result of this weakness, it has been estimated that "the difference between the nominal value of the programming now under contract [to television stations] and the actual fees that will be collected on it [is] $ 1 billion." ~ Moreover, the financial weakness of stations has stayed their appetite for new programming, creating a massive glut in many program types and virtually halting sales in some categories of syndicated product. Expanded program production serves the public interest in competitive and diverse programming. But the odds against financial success are enormous. Artificial hindrances to the program producer 's ability to recoup his investment increase

~ Electronic Media, May 4, 1987, at 3 ~ -52-

these unfavorable odds even further, reduce the incentive of current producers to invest, and discourage entry by new producers. The absence of syndicated exclusivity has this effect. As the Copyright Royalty Tribunal has found, "the syndicated television programming market is one of high risks and... although these risks would be present without the phenomenon of cable they are nevertheless somewhat exacerbated by cable."—~ As demonstrated below, and particularly in the current environment, these risks can be significantly exacerbated by audience fractionalization from cable.

B. Audience Diversion Due to Lack of Syndicated Exclusivity Exacerbates These Risks.

As discussed in Section III of these Comments, the local television station is harmed by the loss of enforceable exclusivity rights. Harm results from the loss (or "fractionalization") of local television audience to distant-signal viewing of programs for which the local station has market-exclusive rightsi which rights it is powerless to enforce in the absence of syndicated exclusivity rules. Audience fractionalization inevitably leads to loss of ,advertising revenues to the local broadcaster. The consequences of audience fractionalization on advertising revenues were

106/ 47 Fed. Reg. at 52156. Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554

In the Matter of ) ) Amendment of Parts 73 and 76 ) of the Commission's Rules ) GEN. Docket No. 87-24 Relating to Program Exclusivity ) in the Cable and Broadcast ) Industries ) TO: The Commission

REPLY COMMITS OF MOTION PICTURE ASSOCIATION OF AMERICAi INC.

Fritz E. Attaway Vice President and Counsel MOTION PICTURE ASSOCIATION OF AMERICA~ INC. 1600 Eye Street, N.W. Washington, D.C. 20006

Of Counsel„:. Joseph W. %as, Jr. General Counsel WEXLER~ REYNOLDS'ARRISON SCHULE'NC. 1317 F Street, N.W., Suite 600 Washington, D.C. 20004

DATE: September 22, 1987 -23-

National Cable Television Assn.

NCTA had publicly released the data that appears in its Com- ments at Tables 16-19 prior to its filing with the Commission. As MPAA's Comments indicate, these data persuasively demonstrate the extraordinarily high levels of program duplication that are common on cable systems across the country. High levels of duplication lead to high levels of audience fractionalization, which in turn lead to reduced advertising revenues to stations, reduced fees to copyright holders, and, ultimately, reduced program diversity for viewers.—~ NCTA also offers an analysis of the Boston television market which purports to show, through a comparison of Arbitron ratings for February 1986 and February 1987, that the local-station ratings for syndicated programs that are duplicated by distant signals carried in the market have increased, while the local- station ratings for non-duplicated programs have decreased. —~ This simplistic analysis comes undone when the ratings figures are analyzed more closely. First, it is only logical that the syndicated programs that are duplicated will be among the most "popular" syndicated programs nationwide (and therefore appear on the greatest number of stations, improving the odds of duplication), while those that are not duplicated will generally be among the least popular.

MPAA Comments at 44-5. 46/ NCTA Comments at 59-61 and associated tables. Before the FEDERAL COMMUNICATXONS COMMISSION Washington, D.C. 20554

In the Matter of ) ) Amendment of Parts 73 and 76 ) of the Commission's Rules ) GEN. Docket No. 87-24 Relating to Program Exclusivity ) in the Cable and Broadcast ) Industries ) TO: The Commission

REPLY COMMITS OF MOTION PICTURE ASSOCIATION OF AMERICA XNC

Fritz E. Attaway Vice President and Counsel MOTION PICTURE ASSOCIATION OF AMERICA, XNC. 1600 Eye Street, N.W. Washington, D.C. 20006

Of Counsel,:. Joseph W. %as, Jr. General Counsel WEXLER g REYNOLDS g HARRI SON SCHULE~ INC. 1317 F Street, N.W., Suite 600 Washington, D.C. 20004

DATE: September 22, 1987 -32- basic cable service in which superstations are offered. The assumptions of the United Video "cost-impact" exhibit are specious. Its conclusions have no value.

Tribune Broadcasting Company

The Tribune Comments contain a statistical attachment (Ap- pendix A) which purports to show that distant signal "spill-in" in "typical" television markets is de minimis. But Tribune con- fines its showing to the 13 major markets where Nielsen has audience meters. As MPAA's extension of the Tribune analysis shows, the markets analyzed by Tribune are hardly "typical." In fact, the data demonstrate that distant signal "spill-in," and thus audience fractionalization, are very significant indeed. Data more accurately reflecting "typical" levels of spill-in can be derived from the Nielsen Station Index reports for all "Top 100" markets. The data can be further refined by focussing on those time periods which represent local independents'eak viewing periods: i.e., from 12:00 — 7:30 p.m., Mon.-Fri. in the Eastern and Pacific Time zones, and 12:00-6:30 p.m., Mon;-Fri. in the Central and Mountain Time zones. A comparison of the "metered markets" data with the "Top 100" data yields the followi,".g:

1. While in the "metered markets," distant signal independents (including superstations and others) account for only 3-5 percent of total independent station viewing in these key time periods, distant signal independents fre- -33-

fluently account for at least 50 percent of total independent station viewing in the "Top 100" markets taken as a whole. 2. In over 40 percent of the "Top 100" markets, distant signal independents account for a dominant share of total independent station viewing in on or more of the most critical time periods:

DAYPART MARKETS IN WHICH 504+ OF TOTAL INDEPENDENT STATION VIEWING IS ATTRIBUTED TO DISTANT SIGNAL INDEPENDENTS

Noon — 4 p.m. 41 out of 100 4 p.m. — 6 p.m. 28 out of 100 6 p.m. — 7:30 p.m. 25 out of 100

Local independent stations are operating in 92 of the "Top 100" markets. ~ Thus, these significant "spill-in" levels represent major audience fractionalization for local independents.—~ The Tribune analysis obviously gives an incomplete picture. It is clear that, in "typical" television markets, distant signal "spill-in" is an important source of audience fractionalization, particularly in those dayparts that are critical to local independent stations in those markets.

Community Antenna Television Assn. (CATA)

CATA purports to demonstrate how syndicated exclusivity

52/ Nielsen Station Index Daypart Summaries, February 1987. While the comparative analysis here is limited to independents, network-affiliated stations in local markets also suffer detrimental levels of audience fractionalization, -as demonstrated in MPAA's Comments. DAI c 7 MAR 28 1993 (C) CARL": OATA CORPORATION SYSTEH SU!'&)(ARIES NA JOR LEASU= 9A".5 !ALL

A AVB-OSE II'ARKET T7)TAL ROYALTY A V8 R'OY t( SO/ 8'VBSCRIBERS A V8-"SUB:8 eROSS A Ve-RCP TS AVS;STA Ve-OIST 0ESCR ~ SYSTEBS SYSTEMS RiECK IP TS

90-2 FORN: 3 (TRREF) )Pl 5 g~ 12 ~ 216 2 ~ 67 0 2 ~ 21 7 5 TOP 50 872 38 772 638 44 464 872 2556369452 295400 2326072563711 275929038 2 NO 50 318 123034 321 375843 31 7::. f5687 4771 21 5097 61849875551 159464333 9'~7726 3~057 '. 2454463 )l27 ': BNALLER 623 26&0779306 4138'58 623 "'8594053'86 14+351 84451745200 153855018 908l52 3~9l48 ':-: 246413 OUTSIDE 302 431393384 139707 302 139585082 69484 l9570823282 6451968 10~023 4 ~ 737 3 ~ 351 SUBTOTAL 21115 81702335)7 389309 29114 4392229691 207446 3391635009744 138521649 10 ~ 833 3 ~ 399 2 ~ 541

$ 14 99 .2 FOR7(: 3 (3 ~ 75%) 15 " I 0-7- ——8-r~7- 15 4 3 '1 17 2NO 50 63 27078)777 329996 63 190159947 163126 7012751152 191157479 11 '75 '86 '7)0 13 19 SUBTOTAL 418 2190533550 505387 418 852705088 193785 63133649812 135103442 104868 45172 2+920 21 90-2 FOR14: 3 (SYNOEX) :) 23 9647 9478 13 ~ 313 ! ~ 188 2 ~ 942 24 TOP 50 16 897137 57571 16 380 7545 239784 261551 19659

25 114167 4~%00 285114 45686 6 .1143228 19303i8 991243756 155203793 :, 25780'2+727 "E73 2725490 1&6213655 45.273:. 25898 27 ... SUB TOTA L 1 17 3 2 51 53 330 22 4945 .35j6763403

31 '332:

~ 35

37 IQ 33 39 40 Q 41 42

45 &,4

9 THIS FORM IS EFFECTIVE FOR ACCOUNTING PERIODS BEGINNING JANUARY 1, 1990. If you are filing for a prior accounting period, contact the I icensing Division for the correct form.

STATEMENT OF ACCOUNT FOR COPYRIGHT OFFICE USE ONLY SA3 for Secondary Transmissions by DATE'RECEIVED AMOUNT Long Form Cable Systems Form) Return to: (Long LICENSING DIVISION COPYRIGHT OFFICE LIepN5IIN(2 D)V IS)0)& General Instructions are at the LIBRARY OF CONGRESS WASHINGTON, DC 20557 end of this form [pages (i)-(vii)]. REMITTANCE NUMBER ~UG 2 5 1990 (202) 707-8150 RECElVE 21768

ACCOUNTING PERIOD COVERED BY THIS STATEMENT: (Check one of the boxes and fill in the year date.) Accounting Period january 1-June 30,.... I . I 0 I: July 1-December 31,...... (Yw) (Year)

INSTRUCTIONS: Your file is established under the name on the peel off address label. Please attach this label in the space Indicated below. If there are any changes, draw a line through the incorrect information and print or type the correct intormation beside the labeL IF A LABEL IS NOT ATTACHED, give the tuil legal name of the owner ot the cable system in iine t. If the owner is a subsidiary of another corporation, give the full corporate title of the subsidiary, not that of the parent corporation. In line 2, list any other name or names under which the owner conducts the business of the cable system.

LEGAL NAME OF OWNER OF CABLE SYSTEM:: Check here if this is the system's first filing. ~ r 1 mI 2~(358 90/1 ATTACH I NT ERNAT I ONAL CAB L EV IS ICN INC 3 LABEL ( AR EA: LAC,KAIalANNA 9 NY I HERE EQX 472 CCUCERSPORT e PA 16915 ~ e3mg

(City. Tawn. State, ZIP Code)

INSTRUCTIONS: In line 1, give any business or trade names used to identify the business and operation of the system unless these names already appear in space 8. In line 2, give the mailing address of the system, if different from the address given in space B. System IOENTIFICATION OF CABLE SYSTEM)

MAIUNG ADDRESS OF CABLE SYSTEM )5) ~d.iC)~. Cr,~-Cn ("..=v.- ~.e.~.t ~.r.-c Ca"-,~:i"-i'd%~ (et)I. Town. State. Zip Caae)

, INSTRUCTIONS: List each separate community served by the cable system. A "community" is the same as a "community unit" as 0 defined in FCC rules: "... a separate and distinct community or municipal entity (including unincorporated communmes within Area unincorporated areas and including single, discrete unincorporated areas.") 47 C.F.R. !I76.5(mm). The first community that you list Served will serve as a form of system Identification hereatter known ae the "FIrat Community." Please uee lt ae the Rrat Community on all future Nllngs.

COMMUNITY (CITY OR TOWN) STATE COMMUNITY (CITY OR TOWN) STATE First ~.! a1. o..~+I.'.r '~y a ...~, o..... R,,xj, Community ~0% Q~dcl t-g r~ ~.n,4. Pgn t,Cnc.'..~..,.M.~Q ... 3'..'ace..~..-.....~.: -:.- & .....'.'...... ~e ':...:.. -.,:..m.... sl I Q/ I urY. : M~ (.'I:.&.P.a:~ '.T...... ~~~a g

June 1~,000 oU.S. GOVERNMENT PRINTING OFFICE. 1990-262.3 i 0 55 L FORM SA3. PAGE 3.

opono IL pno I iposo IL sYsTEM: Giw oa nano onocpr oo n oppoao e NAME QF owNER OF GABLE 217683 LEGAL &4~a4~i C'aCiC&,~i -~

0- UCTloNS: powertelevision stations) INSTR station (including translator stations and low In G, identify every television part-time basis under General: space period, except: (1) stations carried only on a your cable system during the accounting network programs [sections camed by June 24, 1981 permitting the carriage of certain FGG rules and regulations in effect on and certain stations cerned on a or 76.63 (referring to 76.61 (e)(2) and (4))]; (2) Primary 76.59(d)(2) and (4), 76.61(e)(2) and (4) explained in the next paragraph. Transmitters: substitute program basis, as stations carriedby your cable system on a substitute program Television Substitute Basis Stations: With respectto any distant or authorizations: specific FGC rules, regulations, Program Log)—if the station basis under I Special Statement in G—but do list it in space (the ~ Do not list the station here space was carried only on a substitute basis. substitute basis and also on some other I, if the station was carriedboth on a ~ here. and also in space Instructions. List the station basis stations, see page (v) of the General basis. For futher information concerning substitute station's call sign. This Column 1: List each station's broadcasts are carried in its own community. Give the number of the channel on which the Column 2: system carried the station. different from the channel on which your cable station, or a noncommer- may be the station is a network station, an independent Column 3: indicate in each case whether "I" or "E (for noncommercial letter "N" (for network), (for independent) cial educational station, by entering the terms, see page (iv) of the General Instructions. educational). For the meaning of these "No." of what a "distant station" is, see "distant" "Yes." lf not. enter For explanation Column 4: If the station is enter of the General Instructions. basis on which your cable page (iv) "Yes" 4. must complete column 5, stating the If have entered in column you "LAG" cable system carried Column 5: you period. Indicate by entering if your carried the the distant station during the accounting carried the channel on any system of lack of activated channel capacity. If you distant station on a part-time basis because of the General Instructions. the of these two categories, see page (iv) basis, enter "0", For a further explanation which the station is licensed by other station. For U.S, stations, list the community to Column 8: Give the location of each with which the statorpis identified. if give the name of the community the FGC. For Mexican or Canadian stations, any, 8. LOGATIONOF STATION 3. TYPE 4. DISTANT? 5. BASISOF 1. GALL 2. 8'GAST CARRIAGE CHANNEL OF (Yes or No) SIGN (If Distant) NUMBER STATION

-"l 7

uCj

x] ( FORM SA3. PAGE 5.

LEGAL NAME QF QwNEA OF GABLE $YsTEM: Qiw ino nano orreal)r se a appears rn space s. line 1 (pape 1). Nellie C,Qf t vi'i WIC. GENERAL: In space I, Identify every nonnetwork television program, broadcast by a distant stat~on, that your cable system carried on a substitute basis during the accounting period, under specific present and former FCC rules, regulations, Substitute or authorizations. Fora futher explanation of the programming that must be included in this log, see page (v) of the General Carriage: Instructions. Special Statement and 1. SPECIAL STATEMENT CONCERNING SUBSTITUTE CARRIAGE: ~ Program Log During the accounting period, did your cable system carry, on a substitute basis, any nonnetwork te vision program broadcast by a distant station? Yes No Note: If is "No", your answer leave the rest of this page blank. If your answer is "Yes", you must co I e the program log in block 2.

2. LOG OF SUBSTITUTE PROGRAMS: In Gineral: List each substitute program on a separate line. Use abbreviations wherever possible, if their meaning is clear. If you need more space, please attach additional pages. Column 1: Give the title of every nonnetwork television program ("substitute program") that. during the accounting period, was broadcast by a distant station and that your cable system substituted for the programming of another station under certain FCC rules, regulations, or authorizations. See page (v) of the General Instructions for further information. Do not use general categories like "movies" or "basketball." List specific program titles, for example, "I Love Lucy" or NBA Basketball: 76ers vs. Bulls". Column 2: If the program was broadcast live, enter "Yes". Otherwise enter "No". Column 3: Give the cail sign of the station broadcasting the substitute program. Column 4: Give the broadcast station's location (the community to which the station is licensed by the FCC or, in the case of Mexican or Canadian stations, if any, the community with which the station is identified). Column 5: Give the month and day when your system carried the substitute program. Use numerals, with the month first. Example: for May 7 give "5/7". Column 6: State the times when the substitute program was carried by your cable system. List the times accurately to the nearest five minutes. Example: a program carried by a system from 6:01:15 p.m. to 6:28:30 p.m. should be stated as "6:00—6:30 p.m." "R" Column 7: Enter the letter if the listed program was substituted for programming that your system was required to delete under FCC rules and regulations in effect during the accounting period; or enter the letter "P if the listed program was substituted for programming that your system was permitted to delete under FCC rules and regulations in effect on October 19, 1976.

SUBSTITUTE PROGRAM WHEN SUBSTITUTE CARRIAGE OCCURRED 7 RFAsoN FOR 2. LIVE? 3. STATION'S OELETION 1. TITLE OF PROGRAM 5. MONTH 6. TIMES Yes or No CALL SIGN 4. STATION'S LOCATION ANO DAY FROM — TO j'rr rrffgrlrfI "f't~ Nlt44k ~

.', A rtj/. Irrrry]grrrrr r ..rvr+c../I vC ADELPHIACABLE

oATE: ~uiy &,

TO Oomonic Petrelli

FRQM: Rick Karnath 1/1/90-6/30/90 SUBJFCT: Baseball Subs Haywood Gus Palmisano, Tom

FROM 3 17 90-6 30 90 BASEBALL AND PROGRAM SUBS Parade (WPIX) 12:00pm-3:00pm St.Patricks SATURDAY 3/17/90 1:30pm-4:40pm Mets vs. Yankees SUNDAY 4/8/90 7:30pm-10:30pm Yankees vs. Tigers TUESDAY 4/17/90 8:30pm-11:30pm Yankees vs. Rangers FRIDAY 4/20/90 8:30pm-11:30pm Yankees vs. Rangers SATURDAY 4/21/90 Mariners vs. Yankees 7:30pm-10:30pm Yankees TUESDAY 4/24/90 1:30pm-4:30pm Calif. vs. SUNDAY 4/29/90 10:30pm-1:30pm Yankees vs. Angels FRIDAY 5/4/90 10:30pm-1:30pm Yankees vs. Seattle &FRIDAY 5/11/90 4:30pm-7:30pm Yankees vs. Seattle SUNDAY 5/13/90 7:30pm-10:30pm Twins vs. Yankees TUESDAY 5/15/90 K. C. vs. Yankees 0 7:30pm-10:30pm FRIDAY 5/18/9 8:30pm-11:30pm Yankees vs. Royals FRIDAY 5/25/90 7:30pm-10:30pm Yankees vs. Orioles FRIDAY 6/1/90 Yankees vs. Red Sox 0 7:30pm-10:30pm Sox TUESDAY 6/5/9 7:30pm-10:30pm Yankees Vs. Red THURSDAY 6/7/90 Yankees vs. Brewers 0 8:30pm-11:30pm Jays MONDAY 6/18/9 7:30pm-10:30pm Yankees vs. Blue . Jays THURSDAY 6/21/90 7:30pm-10:30pm Yankees vs. Blue FRIDAY 6/22/90

'~&

JQRPRIL RIBSuMDOIEIR SZH7. fREMIIIHDolEfR SEM7 &~~~r~'IKE7EAE. September 6, 1991

Mr. Randall D. Fisher Adelphia Cable Communications 5 West Third St. Coudersport, PA 16915

RE: Adelphia Cable Communications Statements of Account Lackawanna, NY

Dear Mr. Fisher:

This letter is in response to your letter of August 6, 1991. In that letter you indicated that there were inaccuracies in some of the Statements of Account filed by International Cablevision serving Lackawanna, New York. Please make the necessary corrections of the above-referenced Statements of Account on the enclosed photocopies. In addition, after reexamining these filings I noticed what appear to be further discrepancies that need to be clarified. First, in all the Statements of Account you indicated that live sports broadcasts were substituted for the programming of a distant station which was of local interest to th4 distant area. Many of these substitutions, however, appear to have been made during prime time when programming of national interest is usually being shown. Please submit evidence that all these substations were in fact made according to the Copyright Office regulations. In addition the 1989/1 Statement of Account did not have an attached list of substitute carriage. Second, on page 12, Part 6, Block B of all the Statements except the 1990/2 you indicated that Canadian stations CFTO and CBLT were carried on an "E" basis of carriage (carried pursuant to an individual waiver of FCC rules). On page 13, Part 7, Block B, however, you indicated that CFTO and CBLT were "grandfathered signals" (carried prior to March 31, 1972). Individual waivers were not available before March 1972 when the FCC carriage rules came into existence. If CFTO and CBLT were not carried as grandfathered signals then the Syndicated Exclusivity Surcharge (SES) must be calculated. l'0 Mr. Randall D. Fisher Page 2

I am enclosing a copy of the Office's final regulations, Assessment of Interest Rezardins the Cable Comoulsorv License, which details implementation of interest on late and underpayment of cable royalty fees. This regulation, effective July 1, 1989 makes every cable system that files a Statement of Account late or underpays the royalty fee liable for an interest assessment. You should submit the interest due plus the underpayment. The amount of interest due is determined by the following formula: amount of the underpayment x interest rate (8 5/8%) x no. of days late x .00274. Please review these matters, and return your response, together with the enclosed carbon copy of this letter. Any additional fees must be in the form of a certified check, ,cashier's check, or money order payable to the Register of Copyrights. If you have any questions, please write or call (202) 707-8160.

Respectfully yours,

Mark A. Lewis Licensing Examiner

MAL/j rk A(C

ADELPHIA LICNSING DIVISION CABLE COMMUNICATIONS JAN 2 9 1992 RECEIVED

January 27, 1992

VIA FEDERAL EXPRESS

Mr. Mark Lewis Licensing Examiner Licensing Division U.S. Copyright Office Library of Congress Washington, DC 20557

RE: International Cablevision Statements of Account Lackawanna, NY

Dear Mr. Lewis: This is in response to your letter dated September 6, 1991, concerning the above-referenced Statements of Account. I apologize for my delay in responding to your letter; however, a number of pressing year-end matters required my immediate attention. Your September 6, 1991, letter raises two issues with respect to the above-referenced Statements of Account. The first issue concerns the proper treatment of two distant Canadian stations — CFTO and CBLT. The second concerns some confusion over the issue of program substitution. I will respond to each of these issues in turn. With respect to carriage of CFTO and CBLT, your letter suggests that there is some inconsistency between designating these two stations as permitted pursuant to an individual waiver and treating them as grandfathered for purposes of exempting them from the syndicated exclusivity surcharge on Part 7, Block B of the Statement of Account. Initially, we agree with your statement that individual waivers of the FCC rules were not available before March, 1972 when the FCC's signal carriage rules came into existence. In the present case, however, the FCC's waiver with respect to CFTO and CBLT was granted for the system in 1976. This waiver did not authorize the system to begin carriage of CFTO and CBLT, but rather Mark Lewis January 27, 1992 Page 2 allowed the system to continue to carry those stations without counting them against the system's market quota of allowable distant independent stations. Thus, although the FCC's waiver specifically applied to stations CBLT and CFTO, the purpose of the FCC's decision was to allow the system to commence carriage of an additional two distant independent stations as market quota signals. From the foregoing, it is clear that there is no inconsistency in treating CBLT and CFTO as permitted signals pursuant to an individual waiver granted by the FCC in Part 6, Block B of the Statement of Account while at the same time treating them as grandfathered in Part 7, Block B of the Statement of Account. Indeed, I'm sure it would also have raised questions had International Cablevision listed the permitted basis of carriage of CBLT and CFTO as "grandfathered" and then listed two other stations as "market quota", since grandfathered stations normally count against the market quota as they would have in this situation had a waiver not been obtained. Likewise, we have already answered your questions concerning this program substitution issue. In your September 6 letter, you question whether programming substituted during prime time was substituted for local interest programming. As I stated in my August 6th letter to you, some of the program deletions listed on the Statements of Account were made on basis "R" (required). In this regard it should be noted that the prime time programming to which you refer is comprised largely of syndicated programming. Additionally, all programming deletions were made from Canadian stations, which carry Canadian-oriented programming even in prime time. I believe the foregoing satisfactorily responds to the questions you raised in your September 6 correspondence. Accordingly, it does not appear that any changes are warranted in the above-referenced Statements of Account. Sincerely,

Randall Fisher Associa General Counsel ~sC &~M j 7-g Rp TE Celrpg FfLE )r()

&op,ni~,~ Before the 0~lh ~C~ FEDERAL COMMUNICATIONS COMMISSION eery~ 'Wig~ Washington, D.C. 20554

In the Matter of ) ) Evaluation of the Syndication ) MM Docket No. 90-162 and Financial Interest Rules )

COMMENTS OF THE

COALITION TO PRESERVE THE FINANCIAL INTEREST AN13-SYNDICATION RL'LE

THE LAW OFFICES OF AK IN ~ GUMP I STRAUSS I HAUER MICHAEL R. GARDNER, P.C. & FELD 1150 Connecticut Avenue, N.W. 1333 New Hampshire Avenue, N.W. Suite 710 Suite 400 Washington, D.C. 20036 Washington, D.C. 20036 (202) 785-2828 (202) 887-4000

Of Counsel:

PAUL~ WEISS~ RIFKINDp MORRISON & FOERSTER WHARTOH & GARR I SON 2000 Pennsylvania Avenue, N.w. 1285 Avenue of the Americas Suite 5500 New York, N.Y. 10019 Washington, D.C. 20006 (212) 373-3000 (202) 887-1500

June 14, 1990 program production. Surrender of these rights forces the producer to operate at a fixed license fee while the network approves most production and financial elements of the program that have an impact on production costs with no contractual recourse available to the producer. All of these approval rights can also heavily influence the success or failure of a program. License fees are also virtually parallel among the networks. Indeed, since the mid-1980s, the networks have 47 essentially frozen license fees for new programs, permitting standard increases of approximately 2% each year (as compared to 8-104 previously) for new series programs. 48 License fees for TV movies have similarly been frozen. As a result of this freeze, production costs have outpaced network license fees forcing producers to absorb growing deficits during the network run of even hit shows. In recent years, the Coalition estimates that the difference between the network license fees and the production costs per episode have ranged from a quarter of a million dollars

47 As discussed infra at 67, this freeze followed a speech by an ABC executive announcing ABC's intention and hope that the other networks would follow suit -- which they did. 48 This information was collected from Coalition members and compiled by Price Waterhouse. Attachment I. 49 Appendix J illustrates the combined effects of the license fee freeze as production costs have increased. Production costs consist. of direct out-of-pocket expenditures (excluding overhead).

-20- for half hour shows to as much as a half million dollars or more for hour shows. 50 At the same time, networks have made hundreds of millions of dollars from advertising. Typically, a network will recover all, or nearly all, of its license fees from advertising revenues during the first network run of the program. 51 The second run is then essentially "free" to the network, except for actual out-of-pocket residuals. These residuals, according to our estimates, range from $ 30,000 on a half hour show to $ 100,000 on an hour show per episode. By comparison, a single 30-second network spot sells for, on 52 average, over $ 100,000, and there are seven to eight on a one half hour show and thirteen to fourteen on a one hour show. Network advertising revenues on those same shows therefore range from $ 700,000 on a half hour show to $ 1.4 million on an hour program. Thus, while the network generally begins to make a substantial profit from the first full season a program is on the air, the producer's only chance to recoup his losses

50 The freeze took place despite the producers'oss of the important economic benefit from the investment tax credit and the fact that the domestic syndication market deteriorated. 51 Networks generally enhance their advertising profits by requiring advertisers to buy "packages" of spots on different programs. 52 .Attachment E.

-21- and begin to make profits is from syndication. While foreign distribution may provide some recoupment, the chance to fully recoup costs and earn a profit is still five to eight years away 54 -- and only then if the program has accumulated enough episodes to be syndicated at all. The longer a show airs, the greater the producer's losses will be unless the program is successfully sold in syndication. This season, the three networks cancelled seven series that were in their second or third season, and Fox cancelled four. But the likelihood of successful syndication is small. For a series to be syndicatable, it must generally run four or more years on a network and accumulate at least 80 to 100 episodes. Relatively few series make it to

53 The D.C. Circuit has acknowledged the fact that producers face "great risks" and "low returns from network licensing makes program producers dependent upon syndication to recoup their costs". National Association of Broadcasters v. Copyright Royalty Tribunal, 675 F.2d 367, 374 (D.C. Cir. 1982).

54 L.A. Times, Mar. 29, 1990 at 1. A domestically syndicated program usually begins to generate positive cash flow no sooner than five to eight years after it first goes on the air. 55 The large number of episodes is required because the economics of off-network syndication require that the program generally be broadcast daily (five times a week) in the same time period, a practice known as "stripping."

-22 syndication. 56 Most programs have network runs of less than two years, so the producer cannot recoup his losses. Indeed, 70% of all series programs fail in their first year, 57 and another 10% are cancelled in the second year. Even if a program is successful on the network and amasses enough episodes for syndication, its producer may not always recover his deficits and earn a profit on some programs. Sometimes this results from the fact that syndication revenues are generated long after the deficits have been incurred, so that their actual value diminishes when discounted for present day value. In other cases, this results from the fact that syndication revenues have dropped sharply in recent years, especially for one-hour shows. Such successful prime time programs as "Miami Vice," "Hill Street Blues," "Spenser for Hire," "Cagney and Lacey," "thirtysomething," "St. Elsewhere," and "Murder She Wrote" all were not successfully licensed in the television syndication market. Most of these programs had to he licensed instead to basic cable at considerably lower prices. Even for half-hour shows, the market has softened

56 "Network Series Survival: Fall 1983 to Spring 1988," Research Frontiers Corporation (Nov. 1988) at 6 (Appendix. K) ~ 57 Id. for programs that accumulated enough episodes hut were not big network hits. 58 The license fee freeze and one year script freeze are only two of the network practices designed to put enormous economic pressure on producers. And producers are feeling the pressure. Strapped with mounting deficits in a lackluster syndication market, they have become more susceptible to the networks'ncreasingly aggressive tactics in recent years. These tactics are designed to coerce independent producers "in-house," thereby permitting the networks to obtain ownership interests in programming, avoid the four-year option limit and, in the words of one network programming chief, create programs «totally in [ their ] own im.age " While the networks are currently able to produce up to five hours per week of their own entertainment programs, those consent decree limits expire in November of this year. The networks have made no secret of their campaign to increase their "in-house" production. Stephen Weiswasser, ABC Senior Vice President and General Counsel, was recently reported to have stated that "certain kinds of shows — the

58 "227" and "Amen" are two relatively successful shows that have had a difficult time being sold in domestic syndication. Broadcasting, Nov. 23, 1987 at 49; May 29, 1989 at 48. 59 "The Man Who Owns Prime Time," N.Y. Times, March 4, 1990, Section 6 (Magazine) at 22. Average License Fees For First Year Series Compound Annual Growth Rates

16"o

---13.0% $ 40/

12o/'0%

8.6%

80/ 7.19o

60/

4% 2.790

20/ -1,09o

0o/o 1/2 Hour 1/2 Hour 1 Hour Film Series Tape Series Series ~ 1978/79 - 1983/84 Q 1983/84 - 1989/90