Allocation Hearing Exhibit 1061 Electronically Filed Docket: 14-CRB-0010-CD (2010-2013) Filing Date: 02/12/2018 09:29:15 PM EST STATEl\IBNT OF DR RICHARD V. DUCEY TABLE OF CONTENTS I. BACKGROUND ............................................ 1 II. OVERVIEW ............................................... 2 III. SUBSCRIBER PREFERENCES ARE NOT A PROPER MEASURE OF MARKETPLACE VALUE ................. 5 IV. VIEWING DATA DO NOT MEASURE SUBSCRIBER PREFERENCES ........................................... 6 V. THE EVIDENCE ABOUT SUBSCRIBER PREFERENCES CORROBORATES THE CABLE OPERATORS' VALUATION OF STATION-PRODUCED PROGRAMMING ..................... 8 A. The 1983 Cable Subscriber and Cable Operator Surveys Provide Strong Evidence of the Kind of "Viewer Avidity" that the Tribunal Has Said Will Justify an Award Higher than Viewing Share ........................................ 8 B. News Programming in Particular Has Special Value to Viewers ..................................... 10 C. Specific Examples Illustrate Why Subscribers and Cable Operators Place a High Value on Station-Produced Programming ........................................ 16 1. Superstation Programming ......................... 17 2. Non-Superstation Programming ..................... 21 D. Again in 1990, 1991 and 1992, the Great Majority of Distant Signal Carriage of Non-Superstations Was Clustered Within a Close-in Region .................... 34 VI. THE HARM CRITERION .................................... 37 JSC WRITTEN REBUTTAL STATEMENT STATEMENT OF DR RICHARD V. DUCEY I. BACKGROUND. I am the Senior Vice President of the NAB 's Research and Information Group. I participated in Copyright Royalty Tribunal proceedings twice, testifying on behalf of NAB during Phase II of the 1986 cable royalty distribution proceeding and again during Phase I of the 1989 proceeding. My testimony from those proceedings has been incorporated into the record of this proceeding, but for ease of reference I repeat the summary of my qualifications here. My background and qualifications are described further in an attachment to this Statement. Before joining NAB in September 1983, I was on the faculty of the Department of Telecommunication at Michigan State University. Prior to my stint.at Michigan State, I worked as a cable system programmer and at radio stations as an announcer. Since coming to Washington, I have served as an adjunct faculty member for the University of Maryland and George Washington University. I have also done some independent consulting over the years. I received my Ph.D. from Michigan State University in mass media, specializing in telecommunication marketing and research. I authored or co-authored over forty published research articles and papers in these areas, including work on explaining market segments in the cable industry. I serve on JSC WRITTEN REBUTTAL STATEMENT the editorial and review boards of several journals and organizations. I have taught both undergraduate and graduate courses and have conducted industry panels and seminars on research methodology, telecommunication technology and strategic marketing. My work as a cable system programmer was at a system with approximately 13,000 subscribers in upstate New York. I held this position in 1978 and 1979 while the old syndicated exclusivity rules were still in effect. Part of my job was to black out certain syndicated programs on distant signals and to select programming from other distant signals as replacements. This earned me first hand experience in evaluating distant signal programs for the purpose of maximizing the appeal of our cable service to the system's subscribers. My current understanding about what is appealing to cable subscribers comes from talking directly with the system's subscribers and reviewing subscriber surveys, as well as from my later academic research and my general familiarity with other studies. II. OVERVIEW. NAB is making the claim for royalties for the "U.S. Commercial Television" category, which covers all of the station-produced programs broadcast by U.S. commercial stations that were carried as distant signals. Station-produced programs are ones produced by or for the station which were not broadcast on any -2- JSC WRITTEN REBUTTAL STATEMENT other commercial television station during the year in question. Typical station­ produced programs include daily newscasts, public affairs talk shows, children's programs, news magazine and interview shows, sports programs, specials, documentaries, and other programs. They are retransmitted along with syndicated shows, movies, sports games, and/or devotional programs when the station is retransmitted by a distant cable system. In this case, I understand that the Joint Sports Claimants will be submitting the results of cable operator surveys that show that, in 1990 through 1992, the value to cable operators of the news and public affairs programs they retransmitted on distant signals was between 11.9 percent and 14.8 percent of the value of all their non-network distant signal programming, in terms of attracting and retaining subscribers. This cable operator study is a direct measure of the relative value of the distant signal programs cable operators actually purchased in 1990 through 1992. In the 1989 case, the Tribunal had similar evidence showing that the relative value of news and public affairs programs was 11.8 percent. Nevertheless, the Tribunal awarded NAB only 5.7 percent of the Basic and 3.75 funds for 1989. The Tribunal's award was not even as high as the level shown in MPAA's viewing study, as corrected. The Tribunal explained that "in relative terms, we still find that the viewer intensity is higher for the other Phase I -3- JSC WRITTEN REBUTTAL STATEMENT claimants than for any that exist for NAB." It said that it awarded shares higher than viewing percentages for claimant groups that had shown "the intensity or avidity of [their] viewers." And it said that it gave greater weight to the cable operator survey results for program categories for which there was "corroborating evidence" of "intense viewership" or "valuable license fees." My testimony in this case is focused on the Tribunal's reasoning. First, I address some of the reasons why the Panel, when it determines distant signal marketplace value for 1990-1992, should not rely on supposed "viewer intensity" and ignore the results of the cable operator valuation survey. It is, after all, the cable operators who make signal carriage decisions, not the subscribers. Second, even if the role of subscribers should somehow be factored into distant signal marketplace value determinations, a study reporting the gross amounts of viewing done by subscribers would not be the right way to do so. Such a study does not measure viewer avidity or intensity. Ratings are a measure of exposure to or consumption of television, and do not tell us anything about intensity of preference. Third, the evidence clearly shows a higher viewer intensity or preference for station-produced programs than its viewing percentage. -4- JSC WRITTEN REBUTTAL STATEMENT ill. SUBSCRIBER PREFERENCES ARE NOT A PROPER MEASURE OF MARKETPIACE VALUE. The key element for valuation in the cable distant signal marketplace is that it is the cable operator, not the cable subscriber, who is the decisionmaker. This marketplace has both wholesale (sales of programming channels to cable operators) and retail (sales of channel packages to cable subscribers) elements. As in any whobsale market, the reseller will consider the demand for certain types of services at the retail level. This is reflected, along with other factors, in his or her decisions about what to purchase at the wholesale level of the marketing chain. But the judgments of cable operators will determine which distant signals they purchase, regardless of the extent to which they have accurately gauged their subscribers' ultimate preferences or have weighed other factors in addition to those preferences. Ignoring the cable operators' judgments and replacing them with supposed evidence about the preferences of subscribers would move the analysis one step further from the wholesale marketplace value the Panel is seeking to measure. Subscriber preferences are only one factor that cable operators consider in making their decisions about distant signals. To the extent subscriber preferences are relevant, they are like an indicator rather than a final measure. For example, the weather in a farming region is an important indicator of crop yields, and -5- JSC WRITTEN REBUTTAL STATEMENT knowing the weather, along with other factors, may allow a relatively good advance estimate of the ultimate yields. But if one is seeking to determine crop yields after the fact, the best measure will always be the direct measure of the actual yields, not a review of the weather patterns. By the same token, a direct measure of the relative values cable operators attach to the distant signal programs they actually carried is the best measure of their relative value, and evidence or beliefs about relative viewer avidity cannot improve on the cable operator survey results. In the judgment of cable operators actually operating in the distant signal marketplace, station-produced news and public affairs programs do have significant value in terms of attracting and retaining subscribers. The Panel should not reject that essential judgment based on assumed differences in "viewer avidity." IV. VIEWING DATA DO NOT MEASURE SUBSCRIBER PREFERENCES. Everi. if subscriber preferences were relevant, viewing studies