Cable, DBS Tell Copyright Office to Keep Compulsory License
Cable operators used a Monday Copyright Office hearing to press again for changes (CD Aug 24/05 p6) in compulsory license rules letting pay-TV providers carry broadcast signals without getting each copyright owner’s permission. Lawyers for the National Cable & Telecommunications Association (NCTA) and American Cable Association (ACA) slammed the Office’s so-called phantom signal policy, under which cable companies pay royalties amounting to millions yearly for distant signals for all subscribers served by a headend even when only some get a distant broadcast signal. NCTA Vice President Diane Burstein said the Office has authorization from Congress to fix the situation. But, when Copyright Office officials asked if cable operators should get licenses directly from broadcasters or other content owners, she and Christopher Cinnamon, representing ACA, called wholesale change in compulsory licensing procedures unneeded. DirecTV and EchoStar officials also called compulsory licenses crucial.
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The Office should remedy phantom signals by issuing rules that cable operators must pay license fees only for the parts of headends carrying distant signals, Burstein said. “This issue can be resolved fairly without having to amend” the Copyright Act, she said. Cinnamon said small cable systems should have to pay higher royalties when linking multiple systems together. Instead of using the phantom signal label, Cinnamon said, “I want to call it the ‘non-use license,'” a phrase that “more accurately describes the problem of what is wrong with cable operators paying royalties for signals they don’t use.”
Copyright Office lawyer Ben Golant drew guffaws from spectators when he asked why the cable industry didn’t sue the Office over phantom signals instead of petitioning in 2005 for “another administrative proceeding.” Burstein replied that the industry drew hope from a 1997 Copyright Office promise to make a recommendation to Congress on phantom signals. “I would urge you not to put us in a position to take the Copyright Office to court to get some rationality,” she said. Burstein also pressed the Office to expand a definition dating to 1976 under which only ABC, CBS and NBC stations qualify as affiliated broadcasters. Cable operators pay four times more for imported signals from stations treated as independent than for affiliates’ signals, NCTA said in August 2005, seeking an expansion of the definition of affiliated broadcasters to Fox and others. Cinnamon said it was high time the Office killed a “long supplanted” market quota rule limiting how many independent broadcast signals cable can carry in small markets. The FCC long ago changed the rules; the Copyright Office should do the same, he said, declaring, “It’s time to pull the plug.”
Copyright Office officials seemed receptive to the phantom signal testimony, devoting most of their questions to other compulsory licensing topics. General Counsel Tanya Sandros asked if it would make sense to change procedures so cable systems seek permission from individual broadcasters. Witnesses replied that there is no sense fixing something that is not broken, but Sandros said it remains “worth discussing.” Burstein said in her opening statement that cable operators would have to negotiate for up to 500 million copyrighted performances annually if compulsory licenses vanished. “While a compulsory license is by no means perfect,” she said, no one has devised a better system. Cable operators have paid $3.6 billion in royalties since the 1976 Act, $140 million in 2006 alone, she said. Congress passed the Act “to provide a means to avoid significant transaction costs,” said Burstein. “The logistical and transaction problems that gave rise to the compulsory license certainly haven’t lessened.”
Sandros asked NCTA to estimate how much its members paid in royalty fees to cable channels. The question elicited no specific sum, but did give NCTA Senior Vice President Daniel Brenner a chance to argue that pay-TV customers want cable channels more than they want broadcast stations. Broadcast TV remains “an essential part of the lineup,” but its programming likely has lost market value in recent years, he said. When Sandros asked if copyright license holders should have a right to audit cable systems, Burstein and Cinnamon demurred. “For a smaller company, an audit would be an extraordinary event,” Cinnamon said. Cable operators’ current royalty statements provide plenty of information, Burstein said. “I think it’s a very big thing to ask, to be able to audit,” she added.
Compulsory licenses are a must if EchoStar is to avoid having to cut deals with all copyright holders, General Counsel Stanton Dodge told a separate hearing of satellite providers. “It’s time for uniform digital compulsory licenses,” he added. The digital transition makes it even more important for the Office to recommend distant signal rule changes, said EchoStar executive Eric Sahl. He suggested a complete overhaul of satellite compulsory license rules. “The patient is very sick and requires much more than two aspirin,” he said.
Not so, said Michael Nilsson, representing DirecTV. He said tweaks are needed, not “open heart surgery.” Congress should keep controls letting satellite providers import broadcasts so small town residents can view stations affiliated with all major networks, he said. “Once a satellite carrier provides local service in a market, it ought to be allowed to provide distant signals,” said Nilsson. Sahl of EchoStar agreed. “The idea that satellite is only able to import up to two networks doesn’t seem fair,” he said.
Broadcasters will make their case Tuesday, the second day of the compulsory license hearing. AT&T and Verizon officials will testify Wednesday, said Register of Copyrights Marybeth Peters. Golant asked witnesses to answer questions they could not address at the hearing in reply comments to the office, due Oct. 1.