SATELLITE HOME VIEWER EXTENSION AND REAUTHORIZATION ACT SECTION 109 REPORT _______________________________________________________________________ A Report of the Register of Copyrights • June 2008 Library of Congress Cataloging-in-Publication Data Library of Congress. Copyright Office Satellite Home Viewer Extension and Reauthorization Act section 109 report: a report of the Register of Copyrights, June 2008/U.S. Copyright Office. p. cm. 1. Copyright licenses–United States. 2. Copyright–Broadcasting rights–United States. 3. Direct broadcast satellite television–Law and legislation–United States. 4. Cable Television–Law and legislation–United States. 5. Copyright-Royalties-United States I. Title. KF3002.L524 2008 346.7304'82–dc22 2008063100 Revised version June 30, 2008 ACKNOWLEDGMENTS This Report is the result of the efforts of several people. Tanya Sandros, Copyright Office General Counsel, and Ben Golant, Assistant General Counsel, composed the team that coordinated the hearings, met with the parties, and explored the issues developed in this Report. Ben Golant was the principal drafter of the Report and, thanks to his years of experience at the Federal Communications Commission, he provided practical insights into the interplay between the copyright law and the communication law. Tanya Sandros was the program manager and assisted me in framing the policy issues and developing the recommendations. Mark DiNapoli, Vince Murzinski, and Yvette Barnes of the Licensing Division, also provided valuable assistance in gathering background information on the reporting practices and the royalty fees collected over the years. My thanks goes also to the Office of General Counsel interns, Nicole Sparks and Eugene Hertzberg, Attorney-Advisor Chris Weston and Writer Editor Sandy Jones, for their assistance in proofreading the Report, to Denise Prince for her assistance in formatting the Report, and to Helen Hester-Ossa and Teresa McCall for their assistance in printing and publishing the Report. Marybeth Peters Register of Copyrights TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................................... -i- CHAPTER I – A HISTORICAL INTRODUCTION TO THE STATUTORY LICENSES . 1 A. Overview ............................................................. 1 B. A Brief History ........................................................ 2 1. Section 111 ..................................................... 2 2. Section 119 ..................................................... 8 3. Section 122 .................................................... 13 C. Section 109 of the 2004 SHVERA ........................................ 14 D. Past Reports .......................................................... 16 CHAPTER II – THEN AND NOW ..................................................... 19 A. Changes In The Video Distribution Market . 20 B. The Internet Video Market .............................................. 23 1. New Media Outlets for Broadcast Station Content ........................... 24 2. Types of Content Available ........................................ 29 3. New Video Technologies .......................................... 30 4. Trends ........................................................ 31 5. Broadband Penetration .......................................... 33 C. New Video Distribution Technologies and Market Entrants . 34 D. Digital Television ..................................................... 36 E. Royalty Payments and Distant Signal Retransmission Trends . 38 1. Section 111 .................................................... 38 2. Section 119 .................................................... 44 3. Section 122 .................................................... 46 F. Stations Carried ....................................................... 46 1. Section 111 .................................................... 46 2. Section 119 .................................................... 51 G. Conclusions .......................................................... 54 CHAPTER III – LICENSING, PROGRAMMING, AND THE MARKETPLACE . 56 A. Comparison Mechanisms................................................ 56 1. Affiliation Agreements ........................................... 56 2. Retransmission Consent .......................................... 62 B. Statutory Rates v. Marketplace Rates ...................................... 67 C. Subscribers........................................................... 71 1. Rate Increases .................................................. 71 2. Rate Savings ................................................... 74 D. Statutory Licenses–Disfavored Exceptions Under the Copyright Act . 76 E. Necessity of the Distant Signal Licenses . 81 1. Section 111 .................................................... 81 2. Section 119 .................................................... 83 3. The Principal Recommendations ................................... 85 F. Statutory Licensing Alternatives .......................................... 85 1. The Statutory Licenses and Private Contracts ......................... 86 2. The Internet Video Marketplace and Private Contracts ................. 87 3. Collective Licensing ............................................. 87 4. Sublicensing ................................................... 90 CHAPTER IV – DISPARITIES AND SOLUTIONS ....................................... 94 A. Differences........................................................... 94 1. Legal Differences ............................................... 94 a. Copyright Office ......................................... 96 b. FCC ................................................... 99 2. Historical Differences .......................................... 100 3. Technical Differences .......................................... 101 B. Harmonization ....................................................... 102 C. Statutory Modifications ............................................... 105 1. Section 111 ................................................... 105 a. Generally .............................................. 105 b. Digital Signals .......................................... 107 c. Royalty Fee Structure .................................... 115 d. Small Cable Systems ..................................... 119 e. Statutory Licensing Rates, Terms and Conditions . 121 f. Distant Signal Equivalents................................. 124 g. Minimum Fee........................................... 125 h. Market Quotas .......................................... 126 i. Cable System Definition .................................. 129 j. Cable Industry Horizontal Growth . 135 k. Television Market Definition .............................. 136 l. Network Station Definition ................................ 139 m. Sports Blackout ......................................... 142 n. Administrative Processes, Costs and Fees . 143 o. License Renewal ........................................ 144 2. Section 119 ................................................... 146 a. Digital Signals .......................................... 147 b. Unserved Households .................................... 150 c. Unserved Household Litigation . 155 d. Predictive Models and Signal Testing . 157 e. Timing Gap ............................................ 162 f. Network Nonduplication, Syndicated Exclusivity, Sports Blackout ...................................................... 164 g. Retransmission Consent................................... 168 h. Missing Affiliates and Out-of-Beam Proposals . 169 i. Statutory Licensing Rates, Terms, and Conditions . 171 j. Public Safety ........................................... 172 3. Section 122 ................................................... 174 a. Digital Signals .......................................... 174 b. New “Local” Definition For Satellite Retransmission Purposes . 176 c. Significantly Viewed Signals .............................. 178 d. Radio Signals........................................... 179 CHAPTER V – NEW DISTRIBUTION TECHNOLOGIES . 181 A. Internet Distribution................................................... 181 B. The Capitol Broadcasting Proposal ....................................... 189 C. IP Distribution ....................................................... 194 D. Wireless Distribution ................................................. 200 CHAPTER VI – A NEW UNIFIED LICENSE ........................................... 201 CHAPTER VII – THE CURRENT LICENSES .......................................... 209 A. Section 111 ......................................................... 210 B. Section 119 ......................................................... 214 C. Section 122 ......................................................... 216 CHAPTER VIII - RECOMMENDATIONS ............................................. 219 UNITED STATES COPYRIGHT OFFICE SHVERA § 109 REPORT EXECUTIVE SUMMARY CHAPTER I – A HISTORICAL INTRODUCTION TO THE STATUTORY LICENSES This Chapter provides an overview of the statutory licenses, a brief history of their creation and purpose, the mission of this Report, and similar reporting efforts made by the Copyright Office (“Office”) and the Federal Communications Commission (“FCC”) in the past. The main points of this Chapter are as follows: • Three statutory licenses in the Copyright Act (“Act”) govern the retransmission of distant and local over-the-air broadcast station signals. There is one statutory license applicable to cable television systems and two statutory licenses