Program Suppliers' Proposed Phase 1 Findings of Fact and Conclusions Of
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Before the COP%'RIGICT OFFICE I.I BRAR~ii'F CONGRI=.SS Q'ashington. D.C. In the illattcr of Distribution of the 1998 and 1999 Docket iso. 2001-8 CARP CD 98-99 Cable Royalh Funds PROGRAM SUPPI.II;RS'ROPOSFD PHASF. I FINDING&GS OF I ACT AND COI'CI.USIONS OF I Al%'lichael F. Tucci Gregory O. Olaniran Robert L. Eskay, Jr. Sarah K..Johnson Stinson i11orrison Hccker LLP 1150 18" Street, FV', Suite 800 l%'ashington, DC 20036 (207) 785-9100 Attorneys for PROGRAAI SU PPI.IFRS August 20, 2003 TABLE OF CONTENTS PROPOSED FINDING OF FACTS PrograIn Suppliers .1 Jack Valenti. .1 Babe Winkelman.. 3 Marsha Kessler.. .6 Howard Green.. 1S Carl V. Carey 21 Robert Sieber 31 Jonda Martin. 26 Paul Lindstrom 32 Paul Donato.. .40 Dr. Arthur Gruen. .44 Dr. Robert J. Thompson. .81 Dr. Martin Frankel. 91 Alan Whitt.. .81 Robert Sieber (Testimony &om 1990-92CARP Proceeding . 91 National Association ofBroadcasters. 102 Gregory L Rosston. 102 Marcellus Alexander, Jr. 104 Dr. Mark R. Fratrik 105 Laurence J. DePranco .... .. ........... 1 07 Dr. Richard Ducey. ......... .... ... 1 07 Dr. Andrew Joskow .............. ... 1 14 Public Television Claimants ...... ........... 1 1 6 John F. Wilson .................. 1 1 6 John W. Puller 120 Dr. Leland Johnson. Dr. William Pairley. .................. 127 Canadian Television Claimants 128 Andrea Wood. Lucy Medeiros ............................. ....... 1 30 David Bennett Debra Ringold . ... 132 Music Claimants. .... .... .......... ............... 1 36 Dr. Peter Boyle.. Frank Krupit...... ..... 139 Jeffrey Lyons . 141 Seth Salzman. W.G. "SnuQy" Walden . 144 Twmx oF CoNTEr Ts Jco]vCLV81[oN'8 oIl LAW PROCEDURAL HISTORY 145 THE DISTRIBLtTION CRITJERA ESTABLISHED IN PRIOR CASES HAVE CONTINUING VALIDITY UN3ER THE STATUTORY PLAN..........147 SIMULATING A MAJMETPLACE FOR DISTANT SIGNAL PROGE4QAMNG 'EQUIRES DETEIMINLNG THE APPROPRIATE COMPARABLE MARKET. .149 A. Basic Cable Networks Provide Comparable Seance To Distant Signals.....,.......149 B. A Free Dist mt Signal Market Would Not Be Subject................„......151 C. What Factors Would Guide Program Purchase Decisions )n A Distant Signal Market? .J.. J .J......I....J .. J....J......., .153 THE NIELSEN VIEWING STUDIES PROVIDE THE PANEL %XIH THE BEST EVIDENCE OF M Iua'.KETPLACE VALUE...... ....,.. 156 A. The Nielsen Viewing Studies..........,..157 B. The NAB Regressi.on Model. ..... ...158 C. The Bortz Study. 159 MARI&TPLACE VALUE CAN BE DETERMINED BY LOOKING TO CABLE OPERATOR AND SUBSCRIBER BEHAVIOR.... I, I 160 A. The Nielsen Study Measures How Subscribers Use Distant S:ignal Programjming.. ... 160 B. Viewing in the 18-49 Age Group Should be Affbrded More Weight than Household Viewing. 161 '. C. Viewling Defines Value in all Aspects ofthe Television Industry and Would Define Value in a Distant Signal Marketplace...................163 D. The Nielsen Viewing Studies Accurately Measure Distant Viewing..................1i64 E. What The Viewing Resullts Show.....l....l,....J J..........i.................. 167 F. Dr. Gruen's avidity analysis refines the viewing numbers.,i. i, ...1i69 G. The Nielsen Results, as Adjusted, f)ernonstrate the Marketplace value ofthe Claimant Categories. „......................1'74 CABLE OPERATOR BE!HAVIOR DEMONSTRATES THAT HIGHER RATED PROGRAlM1VIING HAS THE GREATEST VALUE IN THE CABLE NETWORK h.uQUCETPLACE. 1'76 PROGRAM SUPPLIERS'ON-QUALITATIVE EVIDENCE CORROBOPWTES TIM HIGH IUGQUMTPLACE VALUE OF SYNDICATED MOVIES MK) SE]RIES. J l J I J ........ 178 A. An Overvie w of S yndicated Programzning......„.......,.....,... l....]...178 B. The Program Owner/Syndicator Perspective....180 Actual, Real-Li.fe Syndication Sales show the Value ofProgram. Supplier Programming.............., .....,.......182 D. The Buyer's Perspective.......................................................,.....,........183 E. The C:ultural Importance ofProgram Supplier Progrannning.. l l .188 VIII. CONCLUSIONS A8 TO PROGRAM 'SUPPI IERS,....„................,........,...190 THE PANEL CANNOT RELY ON NAB'S REGRESSION ANALYSIS TO ALLOCATE ROYALTIES BECAUSE IT IS INVALID BOTH AS A STATISTICAL MODEL AND AN ECONOMIC MODEL. 191 A. The NAB Regression Model Is An Invalid Statistical Model. 191 1. A regression model must be properly specified Model ...........................191 2. The NAB Regression Model does a poorjob ofpredicting royalties '. because it places undue reliance on Programming Minutes variables which explain very little ofthe variation in royalties..................192 a. Dr. Rosston has no basis for using program minutes as the key group ofvariables...................................................................193 b. Programming Minutes explain little or none ofthe variations in royalty payments...................................................194 3. The Highly Volatile Nature OfThe Coefficients Associated With The Program Minutes Make The NAB Regression Model Results Unreliable.............................................................196 4. NAB's Regression Analysis Relies on a Flawed Time Study .................198 a. Programming Minutes is an improper measurement ofvalue.....198 b. The Fratrik Study is flawed because the study uses an invalid sample......................................................... 199 The Fratrik Study weighting methodology is inappropriate........201 d. The Fratrik Study flaws affect the NAB Regression Model........202 B. The NAB Regression Model is a Flawed Economic Model............................203 1. The NAB Regression Analysis Does Not Simulate the Marketplace......203 2. The NAB Regression Analysis Contains Errors That Makes Its Conclusions Unusable for the Purpose ofAllocating Royalties..............204 a. The NAB Regression Model contains specification errors..........204 b. NAB's Regression Analysis suffers Rom interpretational error 205 c. NAB's regression analysis does not fully utilize the regression results. 208 C. NAB'S Share Must be Adjusted Downward No Matter Which Study is Adopted to Determine Royalty Shares for the Parties. 209 PUBLIC TELEVISION SHOULD RECEIVE THE FEES PAID BY CABLE OPERATORS TO CARRY PTV STATIONS AND NO MORE. 213 A. Quality Is Not An Appropriate Criterion On Which To Base An Award...........214 B. PTVs Relatively Low Carriage Reflects Its Relatively Low Value....................215 C. Cable Operators Assign Low Values To PTV, Further Confirming That PTV Programming Is Not Highly Valued. 215 D. Must Carry Legislation Inflates The Amount OfPTV Carriage.........................216 E. PTV's Nielsen Viewing Shares Are Overstated And Must Be Adjusted To Account For PTV's Lack OfAvidity. 218 F. The Fees Paid To Carry PTV Can Be Identified And Are The Appropriate Award To PTV 218 G. The Evidence OfMarketplace Value Submitted By All Phase I Claimants Precludes An Award To PTV In Excess OfThe Fees Paid for PTV...................219 H Dr. Pairley's Adjustments To The Bortz Study Shares And Underlying '. Analysis Are Meaningless And Unwaxranted. i i ..i ................'.....'..221 The so-called WGN Adjustment advocated by Dr. Pairley is not supported by record evidence. 221 2. PTV goes up when there is no retmlsmission even though Progmh ~ Suppliers go down. 223 3. Dr. Fairley's "PTV only" Adjustment is not Supported by the ' ecord ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ e ~ e ~ ~ oooo ~ ~ ~ ~ ~ ~ e J ~ oe ~ oo224 MUSIC CIJdhfANTS SHARE OF CABLE MYAILTIIES SHOULDI BE NO ' MORE THAN 2.33% OF ALL FU1%)S.........'.....'.....'.....'.....'... ~ . ~ ..225 A. The Music Claimants Have Not PrescInteti S~d&t evidence to Jtlstify an ~ ' Increase to their Share ofthe Award..l....J.....'.....l. ' ' 225 1. The Music Use Study does not support an increase in share.....,....,........225 a. The Music Use Study uses unreliable sampling methods, which prohibit projection ofstudy results to the entire '. universe ofdistant signalpro~mi~g........................... l . J 225 l b. The Music Use Study relies on inaccurate data, which fails to '. measure programming content on entire broadcast days for the years vudied . ~ ~ \ ~ ~ ~ ee e ''27 C. The Music Use Study uses a flawed weighting system that does not reflect the actual subject matter ofthis proceeding.......228 2. Attestations about Music Quality do Not Support an Inciease in Share. 229 B. Evidence ofActual Marketplace T13nsactions Supports A Reduction in Music's Share...... 229 ' C. The Music Claimants'hare Should be 'IIak& "bfrlthe top." .'. 230 THE CANADIAN CLAIMANTS SHOULD IB8 A%ARUM FACES PAID TG CARRY CANADIAN SIGNALS DISCOUNTED BY THE VALUES OP THE NON-CANADIAN PROGRAMMING RETIU&ISMITTED ON THOSE SIGNALS. ~ ~ o ~ O ~ J ee ~ o ~ ~ ~ ~ o ~ ~ ~ ~ ee ~232 The Analysis ofthe Canadian Share Shoed Start Prom the Point ofFees ~ g ' Paiddffor Camagee e ~ e o ~ e ~ oo ~ ~ e ~ o'oo ~ eoee ~ oeoeeoe ~ ~ ~ ~ ~ ooo oleo'oo 232 Calculating the Correct Amount ofPees Paid to Carly Canadian Signals.J....l...2I32'. The Fees Paid To Carry Canadian Signals Must Be Adjusted for the Value ofthe Non-Canadian Pm~~i~g On Those Signals....2'33 GLOSSARY 1990-92 tr.: Transcript ofthe 1990-92 CARP Proceedings Bortz Study: Cable Operator Valuation ofDistant Signal Non-Network Programming, JSC Exhibit Canadians: Canadian Claimants CARP: Copyright Arbitration Royalty Panel CDC: Cable Data Corporation Copyright Royalty Tribunal Claimants: Copyright Owners Participating in the 1990-92 Copyright Royalty Distribution Proceeding Devotionals: Devotional Claimants Ex. Direct Testimony Exhibit Ex. -X: Direct Case Cross-Examination Exhibit Ex. -R: Rebuttal Testimony Exhibit Ex. -RX: Cross-Examination Rebuttal Exhibit