Section 109 Report to Congress, 19039-19055 [E7-7207]

Agencies

• Library of Congress
• Copyright Office
• Copyright Office, Library of Congress

[Federal Register Volume 72, Number 72 (Monday, April 16, 2007)]
[Notices]
[Pages 19039-19055]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-7207]


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LIBRARY OF CONGRESS

Copyright Office

[Docket No. 2007-1]


Section 109 Report to Congress

AGENCY: Copyright Office, Library of Congress.

ACTION: Notice of Inquiry.

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SUMMARY: Pursuant to statute, the Copyright Office is seeking comment 
on issues related to the operation of, and continued necessity for, the 
cable and satellite statutory licenses under the Copyright Act.

DATES: Written comments are due July 2, 2007. Reply comments are due 
September 13, 2007. April 16, 2007.

ADDRESSES: If hand delivered by a private party, an original and five 
copies of a comment or reply comment should be brought to the Library 
of Congress, U.S. Copyright Office, Public and Information Office, 101 
Independence Ave, SE, Washington, DC 20559, between 8:30 a.m. and 5 
p.m. The envelope should be addressed as follows: Office of the General 
Counsel, U.S. Copyright Office.
    If delivered by a commercial courier, an original and five copies 
of a comment or reply comment must be delivered to the Congressional 
Courier Acceptance Site (``CCAS'') located at 2nd and D Streets, NE, 
Washington, D.C. between 8:30 a.m. and 4 p.m. The envelope should be 
addressed as follows: Office of the General Counsel, U.S. Copyright 
Office, LM 430, James Madison Building, 101 Independence Avenue, SE, 
Washington, DC. Please note that CCAS will not accept delivery by means 
of overnight delivery services such as Federal Express, United Parcel 
Service or DHL.
    If sent by mail (including overnight delivery using U.S. Postal 
Service Express Mail), an original and five copies of a comment or 
reply comment should be addressed to U.S. Copyright Office, Copyright 
GC/I&R, P.O. Box 70400, Southwest Station, Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Ben Golant, Senior Attorney, and Tanya 
M. Sandros, Acting General Counsel, Copyright GC/I&R, P.O. Box 70400, 
Southwest Station, Washington, DC 20024. Telephone: (202) 707-8380. 
Telefax: (202) 707-8366.

SUPPLEMENTARY INFORMATION:

I. BACKGROUND

    Overview. There are three statutory licenses in the Copyright Act 
(``Act'') governing the retransmission of distant and local broadcast 
station signals. A statutory license is a codified licensing scheme 
whereby copyright owners are required to license their works at a 
regulated price and under government-set terms and conditions. There is 
one statutory license applicable to cable television systems and two 
statutory licenses applicable to satellite carriers. The cable 
statutory license, enacted in 1976 and codified in Section 111 of the 
Act, permits a cable operator to retransmit both local and distant 
radio and television signals to its subscribers who pay a fee for such 
service. The satellite carrier statutory license, enacted in 1988 and 
codified in Section 119 of the Act, permits a satellite carrier to 
retransmit distant television signals (but not radio signals) to its 
subscribers

[[Page 19040]]

for private home viewing as well as to commercial establishments.\1\
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    \1\ We note that, unlike Section 111, Section 119 does not use 
the term ``distant'' to refer to those broadcast station signals 
retransmitted under the statutory license. For the purposes of this 
NOI, however, the term ``distant'' may be used in the Section 119 
context to describe a television station signal retransmitted by a 
satellite carrier.
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    The royalties collected under the Section 111 and Section 119 
licenses are paid to the copyright owners or their representatives, 
such as the Motion Picture Association of America (``MPAA''), the 
professional sports leagues (i.e., MLB, NFL, NHL, and the NBA, et. 
al.), performance rights groups (i.e., BMI and ASCAP), commercial 
broadcasters, noncommercial broadcasters, religious broadcasters, and 
Canadian broadcasters for the public performance of the programs 
carried on the retransmitted station signal. Under Chapter 8 of the 
Copyright Act, the Copyright Royalty Judges are charged with 
adjudicating royalty claim disputes arising under Sections 111 and 119 
of the Act. See 17 U.S.C. 801.
    The Section 122 statutory license, enacted in 1999, permits 
satellite carriers to retransmit local television signals (but not 
radio) into the stations' local market on a royalty-free basis. The 
license is contingent upon the satellite carrier complying with the 
rules, regulations, and authorizations established by the Federal 
Communications Commission (``FCC'') governing the carriage of 
television broadcast signals. Section 338 of the Communications Act of 
1934 (``Communications Act''), a corollary statutory provision to 
Section 122 and also enacted in 1999, required satellite carriers, by 
January 1, 2002, ``to carry upon request all local television broadcast 
stations' signals in local markets in which the satellite carriers 
carry at least one television broadcast station signal,'' subject to 
the other carriage provisions contained in the Communications Act. The 
FCC implemented this provision in 2000 and codified the ``carry-one 
carry-all'' rules in 47 CFR 76.66. The carriage of such signals is not 
mandatory, however, because satellite carriers may choose not to 
retransmit a local television signal to subscribers in a station's 
local market.
    Section 109. On December 8, 2004, the President signed the 
Satellite Home Viewer Extension and Reauthorization Act of 2004, a part 
of the Consolidated Appropriations Act of 2004. See Pub. L. No. 108-
447, 118 Stat. 3394 (2004) (hereinafter ``SHVERA''). Section 109 of the 
SHVERA requires the Copyright Office to examine and compare the 
statutory licensing systems for the cable and satellite television 
industries under Sections 111, 119, and 122 of the Act and recommend 
any necessary legislative changes no later than June 30, 2008. The 
Copyright Office has conducted similar analyses of the Section 111 and 
119 statutory licenses at the request of Congress in 1992 and 1997. See 
The Cable and Satellite Compulsory Licenses: An Overview and Analysis 
(March 1992); A Review of the Copyright Licensing Regimes Covering 
Retransmission of Broadcast Signals (August 1997).
    Under Section 109, Congress indicated that the report shall 
include, but not be limited to, the following: (1) a comparison of the 
royalties paid by licensees under such sections [111, 119, and 122], 
including historical rates of increases in these royalties, a 
comparison between the royalties under each such section and the prices 
paid in the marketplace for comparable programming; (2) an analysis of 
the differences in the terms and conditions of the licenses under such 
sections, an analysis of whether these differences are required or 
justified by historical, technological, or regulatory differences that 
affect the satellite and cable industries, and an analysis of whether 
the cable or satellite industry is placed in a competitive disadvantage 
due to these terms and conditions; (3) an analysis of whether the 
licenses under such sections are still justified by the bases upon 
which they were originally created; (4) an analysis of the correlation, 
if any, between the royalties, or lack thereof, under such sections and 
the fees charged to cable and satellite subscribers, addressing whether 
cable and satellite companies have passed to subscribers any savings 
realized as a result of the royalty structure and amounts under such 
sections; and (5) an analysis of issues that may arise with respect to 
the application of the licenses under such sections to the secondary 
transmissions of the primary transmissions of network stations and 
superstations that originate as digital signals, including issues that 
relate to the application of the unserved household limitations under 
Section 119 and to the determination of royalties of cable systems and 
satellite carriers.\2\
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    \2\ Aside from the requirement to issue a report under Section 
109, the SHVERA also required the Copyright Office to examine select 
portions of the Section 119 license and to determine what, if any, 
effect Sections 119 and 122 have had on copyright owners whose 
programming is retransmitted by satellite carriers. Specifically, 
Section 110 of the SHVERA required the Register of Copyrights to 
report her findings and recommendations on: (1) the extent to which 
the unserved household limitation for network stations contained in 
Section 119 has operated efficiently and effectively; and (2) the 
extent to which secondary transmissions of primary transmissions of 
network stations and superstations under Section 119 harm copyright 
owners of broadcast programming and the effect, if any, of Section 
122 in reducing such harm. The Section 110 report was released in 
2006. See Satellite Home Viewer Extension and Reauthorization Act 
Sec.  110 Report, A Report of the Register of Copyrights (February 
2006).
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    According to Section 109's legislative history, the Copyright 
Office shall conduct a study of the Section 119 and Section 122 
licenses for satellite, and the Section 111 license for cable, and make 
recommendations for improvements to Congress no later than June 30, 
2008. The legislative history further instructs that the Copyright 
Office must analyze the differences among the three licenses and 
consider whether they should be eliminated, changed, or maintained with 
the goal of harmonizing their operation. See H.R. Rep. No. 108-660, 
108th Cong., 2d Sess., at 19 (2004).
    This Notice of Inquiry (``NOI'') commences our efforts to collect 
information necessary to address the issues posed to us by Congress in 
Section 109 of the SHVERA. We plan to hold hearings on matters raised 
in this NOI later this year to further supplement the record. A 
separate Federal Register notice will be issued announcing the dates 
and procedures associated with those hearings. Interested parties will 
be provided an opportunity to testify at the hearings and respond to 
testimony submitted at those hearings.

II. DISCUSSION

    We hereby seek comment on Sections 111, 119, and 122 of the 
Copyright Act. We analyze the rates, terms, and conditions found in the 
three licenses at issue. We also examine how multichannel video 
competition has been affected by the licenses and whether cable and 
satellite subscribers have benefitted from them. In addition, we 
explore the application of the licenses to new digital video 
technologies. We conclude our inquiry by seeking comment on whether the 
licenses should be maintained, modified, expanded, or eliminated.

    A. Comparison of Royalties

     1. Background

    Section 111. The royalty payment scheme for the Section 111 license 
is complex and is based, in large part, on broadcast signal carriage 
regulations adopted by the FCC over thirty years ago. Cable operators 
pay royalties based on mathematical formulas established in Section 
111(d)(1)(B), (C), and (D) of the Copyright Act. Section 111 segregates

[[Page 19041]]

cable systems into three separate categories according to the amount of 
revenue, or ``gross receipts,'' a cable system receives from 
subscribers for the retransmission of distant broadcast station 
signals. For purposes of calculating the royalty fee cable operators 
must pay under Section 111, gross receipts include the full amount of 
monthly (or other periodic) service fees for any and all services (or 
tiers) which include one or more secondary transmissions of television 
or radio broadcast stations, for additional set fees, and for converter 
(``set top box'') fees. Gross receipts are not defined in Section 111, 
but are defined in the Copyright Office's rules. See 37 CFR 
201.17(b)(1). These categories are: (1) systems with gross receipts 
between $0-$263,800 (under Section 111(d)(1)(C)); (2) systems with 
gross receipts more than $263,800 but less than $527,600 (under Section 
111(d)(1)(D)); and (3) systems with gross receipts of$527,600 and above 
(under Section 111(d)(1)(B)). This revenue-based classification system 
reveals Congress' belief that larger cable systems have a significant 
economic impact on copyrighted works.
    The Copyright Office has developed Statement of Account (``SOA'') 
forms that must be submitted by cable operators on a semi-annual basis 
for the purpose of paying statutory royalties under Section 111. There 
are two types of cable system SOAs currently in use. The SA1-2 Short 
Form is used for cable systems whose semi-annual gross receipts are 
less than $527,600.00. There are three levels of royalty fees for cable 
operators using the SA1-2 Short Form: (1) a system with gross receipts 
of $137,000.00 or less pays a flat fee of $52.00 for the retransmission 
of all local and distant broadcast station signals; (2) a system with 
gross receipts greater than $137,000.00 and equal to or less than 
$263,000.00, pays between $52.00 to $1,319.00; and (3) a system 
grossing more than $263,800.00, but less than $527,600.00 pays between 
$1,319.00 to $3,957.00. Cable systems falling under the latter two 
categories pay royalties based upon a fixed percentage of gross 
receipts notwithstanding the number of distant station signals they 
retransmit. The SA-3 Long Form is used by larger cable systems grossing 
$527,600.00 or more semi-annually. The vast majority of royalties paid 
under Section 111 come from Form SA-3 systems.
    A key element in calculating the appropriate royalty fee involves 
identifying subscribers of the cable system located outside the local 
service area of a primary transmitter. See 17 U.S.C. 111(d)(1)(B); see 
also 17 U.S.C. 111(f) (definition of ``local service area of a primary 
transmitter''). This determination is predicated upon two sets of FCC 
regulations: the broadcast signal carriage rules in effect on April 15, 
1976, and a station's television market as currently defined by the 
FCC. In general, a broadcast station is considered distant vis-a-vis a 
particular cable system where subscribers served by that system are 
located outside that broadcast station's specified 35 mile zone (a 
market definition concept arising under the FCC's old rules), its Area 
of Dominant Influence (``ADI'') (under Arbitron's defunct television 
market system), or Designated Market Area (``DMA'') (under Nielsen's 
current television market system). However, there are other sets of 
rules and criteria (e.g., Grade B contour coverage or ``significantly 
viewed'' status) that also apply in certain situations when assessing 
the local or distant status of a station-even when subscribers are 
located outside its zone, ADI and DMA for copyright purposes. A cable 
system pays a ``base rate fee'' if it carries any distant signals 
regardless of whether or not the system is located in an FCC-defined 
television market area. Form SA-3 cable systems that carry only local 
signals do not pay the base rate fee, but do pay the minimum fee of 
$5,344.59 (i.e. 1.013% x $527, 600.00).
    The royalty scheme for Form SA-3 cable systems employs the 
statutory device known as the distant signal equivalent (``DSE''). 
Section 111 defines a DSE as ``the value assigned to the secondary 
transmission of any non-network television programming carried by a 
cable system in whole or in part beyond the local service area of a 
primary transmitter of such programming.'' 17 U.S.C. 111(f). A DSE is 
computed by assigning a value of one (1.0) to a distant independent 
broadcast station (as that term is defined in the Copyright Act), and a 
value of one-quarter (.25) to distant noncommercial educational 
stations and network stations (as those terms are defined in the 
Copyright Act).
    A Form SA-3 cable system pays royalties based upon a sliding scale 
of percentages of its gross receipts depending upon the number of DSEs 
it carries. The greater the number of DSEs, the higher the total 
percentage of gross receipts and, consequently, the larger the total 
royalty payment. For example: (1) 1st DSE = 1.013% of gross 
receipts; (2) 2, 3 & 4th DSE = .668% of gross receipts; and 
(3) 5th, etc., DSE = .314% of gross receipts. Cable systems 
carrying distant television station signals after June 24, 1981, that 
would not have been permitted under the FCC's former rules in effect on 
that date, must pay a royalty fee of 3.75% of gross receipts 
using a formula based on the number of relevant DSEs. The cable 
operator would pay either the sum of the base rate fee and the 
3.75% fee, or the minimum fee, whichever is higher. Cable 
systems located in whole or in part within a major television market 
(as defined by the FCC), must calculate a syndicated exclusivity 
surcharge (``SES'') for the retransmission of any commercial VHF 
station signal that places a Grade B contour, in whole or in part, over 
the cable system which would have been subject to the FCC's syndicated 
exclusivity rules in effect on June 24, 1981. If any signals are 
subject to the SES, an SES fee is added to the foregoing larger amount 
to determine the system's total royalty fee.\3\
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    \3\ In 1980, the FCC eliminated its distant signal carriage and 
syndicated exclusivity rules. The Copyright Royalty Tribunal 
(``CRT''), in response to the FCC's actions, conducted a rate 
adjustment proceeding to establish two new rates applicable only to 
Form SA-3 systems: (1) to compensate for the loss of the distant 
signal carriage rules, the CRT adopted the 3.75% fee; and 
(2) to compensate for the loss of the syndex rules, the CRT adopted 
the SES fee. See 47 FR 52146 (1982). The FCC reinstituted its 
syndicated exclusivity rules in the late 1980s.
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    At this juncture, it is important to note that the FCC does not 
currently restrict the kind and quantity of distant signals a cable 
operator may retransmit. Nevertheless, the FCC's former market quota 
rules, which did limit the number of distant station signals carried 
and were part of the FCC's local and distant broadcast carriage rules 
in 1976, are still relevant for Section111 purposes. These rules are 
integral in determining: (1) whether broadcast signals are permitted or 
non-permitted; (2) the applicable royalty fee category; and (3) a 
station's local or distant status for copyright purposes. Broadcast 
station signals retransmitted pursuant to the former market quota rules 
are considered permitted stations and are not subject to a higher 
royalty rate. To put these rules in context, a cable system in a 
smaller television market (as defined by the FCC) was permitted to 
carry only one independent television station signal under the FCC's 
former market quota rules. Currently, a cable system in a smaller 
market is permitted to retransmit one independent station signal. A 
cable system located in the top 50 television market or second 50 
market (as defined by the FCC), was permitted to carry more independent 
station signals under the former market quota rules; a cable system in 
these markets is currently permitted under Section 111 to retransmit 
more independent station signals than a cable system in a smaller 
market. The former market quota rules did not apply to

[[Page 19042]]

cable systems located ``outside of all markets'' and these systems 
under Section 111 are currently permitted to retransmit an unlimited 
number of television station signals without incurring the 3.75% 
fee (although these systems still pay at least a minimum copyright fee 
or base rate fee for those signals).
    There are other bases of permitted carriage under the current 
copyright scheme that are tied to the FCC's former carriage 
requirements. They include: (1) specialty stations; (2) grandfathered 
stations; (3) commercial UHF stations placing a Grade B contour over a 
cable system; (4) noncommercial educational stations; (5) part time or 
substitute carriage; and (6) a station carried pursuant to an 
individual waiver of FCC rules. If none of these permitted bases of 
carriage are applicable, then the cable system pays a relatively higher 
royalty fee for the retransmission of that station's signal.
    The Copyright Office has divided the royalties collected from cable 
operators into three categories to reflect their origin: (1) the 
``Basic Fund,'' which includes all royalties collected from Form SA-1 
and Form SA-2 systems, and the royalties collected from Form SA-3 
systems for the retransmission of distant signals that would have been 
permitted under the FCC's former distant carriage rules; (2) the 
``3.75% Fund,'' which includes royalties collected from Form 
SA-3 systems for distant signals whose carriage would not have been 
permitted under the FCC's former distant signal carriage rules; and 3) 
the ``Syndex Fund,'' which includes royalties collected from Form SA-3 
systems for the retransmission of distant signals carrying programming 
that would have been subject to black-out protection under the FCC's 
old syndicated exclusivity rules. We note that royalties collected from 
the syndex surcharge decreased considerably after the FCC reimposed 
syndicated exclusivity protection in 1988.
    In order to be eligible for a distribution of royalties, a 
copyright owner of broadcast programming retransmitted by one or more 
cable systems under Section 111 must submit a written claim to the 
Copyright Royalty Judges. Only copyright owners of non-network 
broadcast programming are eligible for a royalty distribution. Eligible 
copyright owners must submit their claims in July for royalties 
collected from cable systems during the previous year. If there are no 
controversies, meaning that the claimants have settled among themselves 
as to the amount of royalties each claimant is due, then the Copyright 
Royalty Judges distribute the royalties in accordance with the 
claimants' agreement(s) and the proceeding is concluded.\4\
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    \4\ The Copyright Royalty and Distribution Reform Act of 2004 
(Pub. L. No. 108-419) eliminated the Copyright Arbitration Royalty 
Panel (``CARP'') system that had been part of the Copyright Office 
since 1993. The Act replaced CARP (which itself replaced the 
Copyright Royalty Tribunal in 1993) with a system of three Copyright 
Royalty Judges (``CRJs''), who now determine rates and terms for the 
copyright statutory licenses and make determinations on distribution 
of statutory license royalties collected by the Copyright Office.
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    Section 119. The satellite carrier statutory license, first enacted 
through the Satellite Home Viewer Act (``SHVA'') of 1988, and codified 
in Section 119 of the Act, establishes a statutory copyright licensing 
scheme for satellite carriers that retransmit the signals of distant 
television network stations and superstations to satellite dish owners 
for their private home viewing and for viewing in commercial 
establishments. Satellite carriers may use the Section 119 license to 
retransmit the signals of superstations to subscribers located anywhere 
in the United States. However, the Section 119 statutory license limits 
the secondary transmissions of network station signals to no more than 
two such stations in a single day to persons who reside in unserved 
households. An ``unserved household'' is defined as one that cannot 
receive an over-the-air signal of Grade B intensity of a network 
station using a conventional rooftop antenna. 17 U.S.C. 119(d). 
Congress created the unserved household provision to protect the 
historic network-affiliate relationship as well as the program 
exclusivity enjoyed by television broadcast stations in their local 
markets.
    The Section 119 license is similar to the cable statutory license 
in that it provides a means for satellite carriers to clear the rights 
to television broadcast programming upon semi-annual payment of royalty 
fees to the Copyright Office. However, the calculation of royalty fees 
under the Section 119 license is significantly different from the cable 
statutory license. Rather than determine royalties based upon old FCC 
rules, royalties under the Section 119 license are calculated on a 
flat, per subscriber per station basis. Television broadcasts are 
divided into two categories: superstations (i.e., commercial 
independent television broadcast stations), and network stations (i.e., 
commercial televison network stations and noncommercial educational 
stations); each with its own attendant royalty rates. Satellite 
carriers multiply the respective royalty rate for each station by the 
number of subscribers, on a monthly basis, who receive the station's 
signal during the six-month accounting period to calculate their total 
royalty payment. Each year, satellite carriers submit royalties to the 
Copyright Office which are, in turn, distributed to copyright owners 
whose works were included in a retransmission of a broadcast station 
signal and for whom a claim for royalties was timely filed with the 
Copyright Royalty Judges.
    Section 122. The Section 122 license allows satellite carriers to 
retransmit local television signals. Because there are no royalty fees 
or carriage restrictions for local signals retransmitted under Section 
122, there is no need to distinguish between network stations and 
superstations as is the case in Section 119. The Section 122 statutory 
copyright license, permits, but does not require, satellite carriers to 
engage in the satellite retransmission of a local television station 
signal into the station's own market (DMA) without the need to identify 
and obtain authorization from copyright owners to retransmit the 
owners' programs. See 17 U.S.C. 122.

     2. Payments and Rate Increases

    Congress has asked us to compare the royalties paid by licensees 
under Sections 111, 119, and 122, and report on the historical rates of 
increases in these royalties.
    Royalties Paid. Cable operators have paid, on average, 
$125,000,000.00 in royalties annually since the implementation of 
Section 111 by the Copyright Office in 1978. While royalty payments 
under the cable statutory license have increased over the past seven 
years, there have been periods of fluctuation in the past 29 years. For 
example, royalties decreased 30% in 1998 from the year 
before partly because WTBS changed its status from a distant 
superstation to a basic cable network. Royalties also decreased by 
13% in 1994 from the year before likely because cable 
operators dropped distant signals in order to accommodate the carriage 
of local signals mandated by Sections 614 and 615 of the 1992 Cable 
Act. See Cable Television Consumer Protection and Competition Act of 
1992, Pub. L. No. 102-385, 106 Stat. 1460.
    We estimate that smaller cable operators (SA-1/SA-2 systems) pay, 
on average, .4% of their gross receipts into the royalty 
pool. In comparison, larger cable operators (SA-3 systems) pay, on 
average, 1.2% of their gross receipts into the royalty pool. 
These figures, based on the 2001/1 and 2001/2 accounting periods (as 
typical periods), are derived by dividing a system's royalty fees by 
its

[[Page 19043]]

gross receipts. \5\ These percentages are generally consistent over 
other accounting periods as well.
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    \5\ We note that in the 2001/1 accounting period, for example, 
there were: (1) 5,517 SA-1 form filers paying $202,193.37 in cable 
royalties; (2) 2,117 SA-2 form filers paying $2,186,554.15 in cable 
royalties; and (3) 1,844 SA-3 form filers paying $57,773, 352.29 in 
royalties. This figure was calculated by adding the base fee 
($51,497,381.75) + 3.75% fee ($6,020,168.47) + SES fee 
($$48,369.30) + interest ($207,432.77).
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    In comparison, satellite carriers have paid, on average, nearly 
$50,000,000.00 in royalties annually, since the Copyright Office began 
implementing the Section 119 license in 1989. Like the Section 111 
royalties described above, there have been fluctuations due to changed 
circumstances. For example, satellite royalties decreased by over 
26% in 1999 from the year before likely because satellite 
carriers began offering local-into-local service under Section 122 of 
the Copyright Act and Section 338 of the Communications Act and because 
of a royalty rate decrease announced in December 1999. See https://
www.copyright.gov/fedreg/1999/64fr71659.pdf. We cannot determine how 
much satellite carriers paid in royalties as a percentage of revenue 
because Section 119 royalties are based on a flat fee per subscriber 
and not on a gross receipt basis as is the case under Section 111. 
However, Copyright Office records do indicate that DirecTV has paid 
more than $326 million in royalty fees between the second half of 1997 
through the end of 2006, while Echostar has paid more than $158 million 
during the same period. Other (existing and defunct) satellite 
carriers, such as Primetime 24, Primestar Partners, and Satellite 
Communications, have also paid royalties under Section 119 over the 
last ten years. The payment of royalties by these and other companies 
are included in the average total discussed above.
    As for Section 122, we reiterate that satellite carriers may carry 
local broadcast station signals on a royalty-free basis as long as they 
abide by the carry-one carry-all requirements of Section 338 of the 
Communications Act. Therefore, there are no royalty data to examine for 
our purposes here.
    Stations Carried. According to data obtained from the SA-3 forms 
filed with the Copyright Office, there has been a slow, but steady, 
increase in the number of unique distant broadcast station signals 
retransmitted by cable operators across the United States over the last 
15 years. For example, during the 1992/1 accounting period, cable 
operators retransmitted 822 unique distant signals. During the 2000/1 
accounting period, that number increased to 918. And, during the 2005-1 
accounting period, the number of unique distant signals retransmitted 
by cable operators reached 1,029. This increase is partly attributable 
to the retransmission of new distant analog television signals as well 
as new digital television signals (see infra) which are counted 
separately from their analog counterparts. This increase could also be 
due to the increased retransmission of distant low power television 
signals over the past decade.
    However, there has been a decrease in the average number of distant 
station signals retransmitted by cable operators over the same time 
period. Copyright Office data gleaned from the SA-3 forms suggests that 
during the 1992-1 accounting period, a cable system retransmitted an 
average of 2.74 distant signals (2,256 SA3s divided by 822 distant 
signals). During the 2000/1 accounting period, the average number of 
distant signals retransmitted by cable operators dropped to 2.52. And, 
during the recent 2005/1 accounting period, records show that a cable 
system retransmitted an average of 1.5 distant signals. There were, of 
course, some SA-3 systems that reported retransmitting more than four 
distant signals, and some that reported no distant signals being 
retransmitted at all, but these types of systems are atypical.
    The average decrease reflected in these accounting periods can be 
attributed to various factors, such as: (1) WTBS no longer being 
carried as a distant television signal since its conversion to a basic 
cable network in the late 1990s; (2) cable operators being required to 
carry local television signals, per Sections 614 and 615 of the 
Communications Act, and having had to drop distant signals to 
accommodate the carriage of such stations; (3) fewer SA-3 forms being 
filed with the Copyright Office because of cable system mergers and 
acquisitions; and (4) statutory changes to the definition of ``local 
service area'' in the early 1990s.
    As for the retransmission of distant television signals under 
Section 119, we note that the type and number of signals retransmitted 
varies from carrier to carrier. For example, Echostar's SOA for the 
2006/2 accounting period shows that it retransmitted six superstation 
signals (KTLA, KWGN, WGN, WPIX, WSBK, and WWOR) and paid royalties in 
excess of $13 million for service to residential subscribers for 
private home viewing over the six month period. Echostar paid an 
additional $21,000.00 in royalties for service to commercial 
establishments for the retransmission of these same superstation 
signals in the 2006/2 period. Echostar also reported that it 
retransmitted network station signals to subscribers in 168 DMAs in the 
first five months of the 2006/2 accounting period, and paid nearly $3 
million in royalties, before it had to terminate such service per a 
Federal court injunction issued in December, 2006. See infra. Satellite 
carriers do not have to report on the number of local television 
signals carried under Section 122, but Echostar states on its website 
that it provides local-into-local service in all but the smallest 36 
DMAs in the nation.\6\
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    \6\ Echostar reports that it serves 174 DMAs (out of 210) with 
the signals of local television stations. See https://
customersupport.dishnetwork.com/customernetqual/prepAddress.do. 
DirecTV reports that it serves 142 DMAs (out of 210) with the 
signals of local television stations (and notes that this number 
accounts for more than 94% of the nation's television 
households).  See https://www.directv.com/DTVAPP/packProg/
localChannel.jsp?assetId=900018. However, the number of signals 
carried in each market is not specifically listed on either website.
---------------------------------------------------------------------------

    Questions. We seek comment on the accuracy of the above-stated 
figures and ask for further explanation for the historic trends 
described above. Are there different reasons, other than the ones 
stated, explaining why royalties have fluctuated in the periods 
examined? We ask commenters to provide a granular analysis of the 
trends in royalty payments so that we may provide Congress with the 
information it seeks. On this point, we note that the Copyright Office 
periodically releases data showing the royalty amounts paid by cable 
operators and satellite carriers under their respective licenses. See 
https://www.copyright.gov/licensing/lic-receipts.pdf. These data should 
be used by commenters when responding to this request.
    We also seek comment on current distant signal trends under Section 
111. For example, are distant television signals mainly retransmitted 
by cable operators serving smaller markets who are underserved by local 
television programming? Alternatively, are they retransmitted to 
subscribers who live on the fringes of television markets and are in 
need of valued broadcast programming unavailable from their local 
market stations? For example, do cable operators serving the 
Springfield-Holyoke DMA retransmit signals from the adjacent Boston 
(Manchester) DMA so that their subscribers have access to state 
government news from Boston as well as popular sports programming 
carried by Boston television stations?
    We also seek comment on the number of distant and local signals 
retransmitted by satellite carriers. For example, are the six 
superstations listed

[[Page 19044]]

above typically retransmitted under Section 119? If so, why? How does a 
satellite carrier decide which superstation and network station signals 
it will retransmit? Does it decide based on the amount of royalties it 
has to pay or does the satellite carrier retransmit signals based on 
subscriber demand? Are there certain ``must-have'' distant television 
signals, including superstation signals, that satellite carriers 
retransmit to remain competitive with cable operators? What factors 
will likely affect the retransmission of distant television signals, 
and the concomitant royalties paid, by satellite carriers in the 
future? On average, does a subscriber to a cable service receive the 
same broadcast signal channel line-up as a subscriber to a satellite 
service? If not, what are the differences and why do they exist?

     3. Marketplace Rates Compared

    Congress has also asked us to compare the royalties under Sections 
111, 119, and 122 and the prices paid in the marketplace for comparable 
programming. The difficult issue here is parsing the term ``comparable 
programming'' so that the analysis is clear. The inquiry assuredly 
includes an examination of the local broadcast station market, but the 
term could be read more expansively to include an analysis of the 
prices (license fees) paid by cable operators and satellite carriers to 
carry non-broadcast programmers, such as basic cable networks. Given 
the ambiguous wording in the statute, we shall consider both local 
broadcast stations and basic cable networks in the analysis. With 
regard to broadcast stations, we will analyze the rates, terms, and 
conditions of carriage privately negotiated by cable operators, 
satellite carriers, and broadcast stations under the retransmission 
consent provisions found in Section 325 of the Communications Act of 
1934, as amended by the 1992 Cable Act.
    A brief history of broadcast-cable carriage negotiations is 
necessary here. Prior to 1992, cable operators were not required to 
seek the permission of a local broadcast station before carrying its 
signal nor were they required to compensate the broadcaster for the 
value of its signal. Congress found that a broadcaster's lack of 
control over its signal created a ``distortion in the video marketplace 
which threatens the future of over-the-air broadcasting.'' See S. Rep. 
No. 102-92, 102d Cong., 1st Sess. (1991) at 35. In 1992, Congress acted 
to remedy the situation by giving a commercial broadcast station 
control over the use of its signal through statutorily-granted 
retransmission consent rights. Retransmission consent effectively 
permits a commercial broadcast station to seek compensation from a 
cable operator for carriage of its signal. Congress noted that some 
broadcasters might find that carriage itself was sufficient 
compensation for the use of their signal by an MVPD while other 
broadcasters might seek monetary compensation, and still others might 
negotiate for in-kind consideration such as joint marketing efforts, 
the opportunity to provide news inserts on cable channels, or the right 
to program an additional channel on a cable system. Congress emphasized 
that it intended ``to establish a marketplace for the disposition of 
the rights to retransmit broadcast signals'' but did not intend ``to 
dictate the outcome of the ensuing marketplace negotiations.'' Id. at 
36.
    With regard to copyright issues, the legislative history indicates 
that Congress was concerned with the effect retransmission consent may 
have on the Section 111 license stating that ``the Committee recognizes 
that the environment in which the compulsory copyright [sic] operates 
may change because of the authority granted broadcasters by section 
325(b)(1).'' Id. The legislative history later stated that cable 
operators would continue to have the authority to retransmit programs 
carried by broadcast stations under Section 111. Id.
    During the first round of retransmission consent negotiations in 
the early 1990s, broadcasters initially sought cash compensation in 
return for retransmission consent. However, most cable operators, 
particularly the largest multiple system operators, were not willing to 
enter into agreements for cash, and instead sought to compensate 
broadcasters through the purchase of advertising time, cross-
promotions, and carriage of affiliated non-broadcast networks. Many 
broadcasters were able to reach agreements that involved in-kind 
compensation by affiliating with an existing non-broadcast network or 
by securing carriage of their own newly-formed, non-broadcast networks. 
See FCC, Retransmission Consent and Exclusivity Rules: Report to 
Congress Pursuant to Section 208 of the Satellite Home Viewer Extension 
and Reauthorization Act of 2004 (Sept. 8, 2005)(noting that the new 
broadcast-affiliated MVPD networks included Fox's FX, ABC's ESPN2, and 
NBC's America's Talking, which later became MSNBC). Broadcast stations 
that insisted on cash compensation were forced to either lose cable 
carriage or grant extensions allowing cable operators to carry their 
signals at no charge until negotiations were complete. Fourteen years 
later, cash still has not emerged as the sole form of consideration for 
retransmission consent, but the request and receipt involving such 
compensation is increasing. See Peter Grant and Brooks Barnes, 
Television's Power Shift: Cable Pays For Free Shows, Wall Street 
Journal, Feb. 5, 2007, at A1, A14 (noting that broadcast television 
station owners may be able to collect almost $400 million in 
retransmission fees from cable by 2010, increasing each subscriber's 
bill by $2.00 per month).
    Under Section 325 of the Communications Act, as amended, 
retransmission consent for the carriage of commercial broadcast signals 
applies not only to cable operators, but also to other multichannel 
video programming distributors (``MVPDs''), such as satellite carriers 
and multichannel multipoint distribution services (``MMDS'' or 
``Wireless Cable'').
    Cable operators generally do not need to obtain retransmission 
consent for the carriage of established superstations under the 
Communications Act. Satellite carriers generally do not need to obtain 
retransmission consent to retransmit established superstations or 
network stations (if the subscriber is located in an area outside the 
local market of such stations and resides in an unserved household.) 
See 47 U.S.C. 325(b)(1).
    We also must point out that retransmission consent is a right given 
to commercial broadcast stations. Copyright owners of the programs 
carried on such stations do not necessarily benefit financially from 
agreements between broadcasters and cable operators or satellite 
carriers.
    We seek comment on how the prices, terms, and conditions of 
retransmission consent agreements between local broadcast stations and 
MVPDs relates to the statutory licenses at issue here. Specifically, we 
seek comment on how retransmission consent agreements reflect 
marketplace value for broadcast programming and how this value compares 
with the royalties collected under the statutory licenses. As noted 
above, it may be difficult to analyze these two variables because the 
benefits of retransmission consent inures to broadcast stations while 
the statutory royalty fees are paid to copyright owners (which include, 
but are not limited to, broadcast stations). In any event, we believe 
that the compensation paid for retransmission consent for local 
stations may serve as a proxy for prices paid for the carriage of 
distant broadcast stations and the programs retransmitted

[[Page 19045]]

therein. We seek comment on whether this approach is correct.
    We also seek comment on what the marketplace rate for distant 
signals would be if a basic cable network was used as a surrogate. 
There are hundreds of basic cable networks that may be used as a point 
of comparison. Which ones should we select for our analysis? We could 
use the TBS license fee structure (i.e., as dictated in the affiliation 
agreement between the network and the MVPD) as a model since it was 
formerly a superstation carried under the Section 111 and Section 119 
licenses, but is now paid a per subscriber licensing fee as a basic 
cable network. Is this an appropriate comparison? We understand that it 
may be easier for cable operators and satellite carriers to license 
basic cable networks, like TBS and CNN, than it would be for distant 
broadcast signals. To wit, a non-broadcast program network obtains 
licenses from each copyright owner for all of the works in its line-up 
to enable a cable operator or satellite carrier to retransmit the 
network, but there is no equivalent conveyance of rights where cable or 
satellite retransmission of a broadcast station signal is concerned. Is 
this difference relevant to the analysis? What are the similarities 
between basic cable networks and distant broadcast stations that we 
should be aware of? Are there other ways to determine the value of 
copyrighted content carried by distant signals?

    B. Differences in the Licenses

     1. Terms and Conditions.

    Congress has asked us to analyze the differences in the terms and 
conditions of the statutory licenses. First, there is a difference in 
how royalties are based. Satellite carriers pay a flat royalty fee on a 
per subscriber basis while cable operators pay royalties based on a 
complex system tied to cable system size and old FCC carriage rules. 
Compare 17 U.S.C. 119(b) with 17 U.S.C. 111(d). Second, satellite 
carriers are permitted to market and sell distant network station 
signals only to unserved households (i.e., those customers who are 
unable to receive the signals of local broadcast stations) while cable 
operators are not so restricted. Compare 17 U.S.C. 119(a)(2)(B) with 17 
U.S.C. 111(c). Third, satellite carriers cannot provide the signals of 
more than two network stations in a single day to its subscribers in 
unserved households while cable operators may carry as many distant 
network station signals as they wish so long as they pay the 
appropriate royalty fee for each signal carried. Compare 17 U.S.C. 
119(a)(2)(B)(i) with 17 U.S.C. 111(c) and (d). Fourth, cable operators 
are permitted to retransmit radio station signals under Section 111 
while satellite carriers do not have such a right. See 17 U.S.C. 
111(f). Fifth, Congress specifically accounted for the retransmission 
of digital television station signals by satellite carriers in the last 
revision of Section 119 in 2004, but has not yet addressed the 
retransmission of digital television signals by cable operators under 
Section 111. Finally, the Section 119 statutory license expires after a 
five year period, unless renewed by Congress, while the Section 111 
statutory license, as well as the Section 122 license, are permanent. 
We seek comment on other differences between the statutory licenses, 
that are not noted above, that are relevant to this proceeding.

     2. Justifications for Differences.

    Congress also asked for an analysis of whether these differences 
are required or justified by historical, technological, or regulatory 
differences that affect the satellite and cable industries. We provide 
a broad overview to put this inquiry into perspective.

     a. Historical Differences.

    Section 111. The years leading up to the enactment of the Copyright 
Act of 1976 were marked by controversy over the issue of cable 
television. Through a series of court decisions, cable systems were 
allowed under the Copyright Act of 1909 to retransmit the signals of 
broadcast television stations without incurring any copyright liability 
for the copyrighted programs carried on those signals. See Fortnightly 
Corp. v. United Artists Television, 392 U.S. 390 (1968) (pertaining to 
the retransmission of local television station signals), Teleprompter 
Corp. v. Columbia Broadcasting System, Inc., 415 U.S. 394 (1974) 
(pertaining to the retransmission of distant television station 
signals). The question, at that time, was whether copyright liability 
should attach to cable transmissions under the proposed Copyright Act, 
and if so, how to provide a cost-effective means of enabling cable 
operators to clear rights in all broadcasting programming that they 
retransmitted.
    In the mid-1970s, cable operators typically carried multiple 
broadcast signals containing programming owned by dozens of copyright 
owners. At the time, it was not realistic for hundreds of cable 
operators to negotiate individual licenses with dozens of copyright 
owners, so a practical mechanism for clearing rights was needed. As a 
result, Congress created the Section 111 statutory license for cable 
systems to retransmit broadcast signals. Congress enacted Section 111 
after years of industry input and in light of (1) FCC regulations that 
inextricably linked the cable and broadcast industries and (2) the need 
to preserve the nationwide system of local broadcasting. See H.R. Rep. 
No. 1476 at 88-91; see also, Cable Compulsory Licenses: Definition of 
Cable Systems, 62 FR 18705, 18707 (Apr. 17, 1997) (``The Office notes 
that at the time Congress created the cable compulsory license, the FCC 
regulated the cable industry as a highly localized medium of limited 
availability, suggesting that Congress, cognizant of the FCC's 
regulations and market realities, fashioned a compulsory license with a 
local rather than a national scope. This being so, the Office retains 
the position that a provider of broadcast signals be an inherently 
localized transmission media of limited availability to qualify as a 
cable system.''). It is important to note that at the time Section 111 
was enacted, there were few local media outlets and virtually no 
competition to the Big 3 television networks (ABC, CBS, and NBC).
    The structure of the cable statutory license was premised on two 
prominent congressional considerations: (1) the perceived need to 
differentiate between the impact on copyright owners of local versus 
distant signals carried by cable operators; and (2) the need to 
categorize cable systems by size based upon the dollar amount of 
receipts a system receives from subscribers for the carriage of distant 
signals. These two considerations played a significant role in 
determining what economic effect cable systems had on the value of 
copyrighted works carried on broadcast stations. Congress concluded 
that a cable operator's retransmission of local signals did not affect 
the value of the copyrighted works broadcast because the signal is 
already available to the public for free through over-the-air 
broadcasting. Therefore, the cable statutory license permits cable 
systems to retransmit local television signals without a significant 
royalty obligation. Congress did determine, however, that the 
retransmission of distant signals affected the value of copyrighted 
broadcast programming because the programming was reaching larger 
audiences. The increased viewership was not compensated because local 
advertisers, who provide the principal remuneration to broadcasters, 
were not willing to pay increased advertising rates for cable viewers 
in distant markets who could not be reasonably expected to purchase 
their goods. As a result, Congress believed that

[[Page 19046]]

broadcasters had no reason or incentive to pay greater sums to 
compensate copyright owners for the receipt of their signals by viewers 
outside their local service area.
    The Section 111 statutory license has not been the only means for 
licensing programming carried on distant broadcast signals. Copyright 
owners and cable operators have been free to enter into private 
licensing agreements for the retransmission of broadcast programming. 
Private licensing most frequently occurs in the context of particular 
sporting events, when a cable operator wants to retransmit a sporting 
event carried on a distant broadcast signal, but does not want to carry 
the signal on a full-time basis. The practice of private licensing has 
not been widespread and most cable operators have relied exclusively on 
the cable statutory license to clear the rights to broadcast 
programming. Section 111 has been lightly amended since enacted in 
1976.
    Section 119. From the time of passage of the Copyright Act of 1976 
through the mid-1980s, the developing satellite television industry 
operated without incurring copyright liability under the passive 
carrier exemption of Section 111(a)(3) of the Act. That subsection 
provides an exemption for secondary transmissions of copyrighted works 
where the carrier has no direct or indirect control over the content or 
selection of the primary transmission or over the particular recipients 
of the secondary transmission, and the carrier's activities with 
respect to the secondary transmission consist solely of providing 
wires, cables, or other communications channels for the use of others.
    In the mid-1980s, however, many resale carriers and copyright 
holders began scrambling their satellite signals to safeguard against 
the unauthorized reception of copyrighted works. Only authorized 
subscribers were able to descramble the encrypted signals. Scrambling 
presented several concerns, including whether it would impede the free 
flow of copyrighted works and whether it took satellite carriers out of 
the passive carrier exemption since it represented direct control over 
the receipt of signals. At the same time, several lawsuits were pending 
against certain satellite carriers who claimed to operate under Section 
111. In 1992, the Copyright Office decided that satellite carriers were 
not cable systems within the meaning of Section 111, notwithstanding an 
11th Circuit Court of Appeals decision holding otherwise. See 57 FR 
3284 (1992), citing National Broadcasting Company, Inc. v. Satellite 
Broadcast Networks, 940 F.2d 1467 (11th Cir. 1991).
    The satellite statutory license under Section 119 was enacted in 
1988 to respond to these concerns and to ensure the availability of 
programming comparable to that offered by cable systems (i.e., an 
affiliate of each of the broadcast television networks, superstations, 
and non-broadcast programming services) to satellite subscribers until 
a market developed for that distribution medium. See Satellite Home 
Viewer Act (``SHVA''), Pub. L. No. 100-667 (1988); H.R. Rep. No. 887, 
Part I, 100th Cong., 2d Sess. 8-14 (1988). Section 119 was created at a 
time when there was no competition to cable operators in the provision 
of multichannel video programming and there were no rules in effect 
mandating the cable carriage of local broadcast signals.\7\
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    \7\ The United States Court of Appeals for the District of 
Columbia Circuit struck down, as unconstitutional under the First 
Amendment, two different sets of must carry rules promulgated by the 
FCC. See Quincy Cable TV, Inc. v. FCC, 768 F.2d 1434 (D.C. Cir. 
1985); Century Communications Corp. v. FCC, 835 F.2d 292 (D.C. Cir. 
1987). Congress did not enact Sections 614 and 615 of the 
Communications Act until 1992.
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    The Section 119 statutory license created by the SHVA was scheduled 
to expire at the end of 1994 at which time satellite carriers were 
expected to be able to license the rights to all broadcast programming 
that they retransmitted to their subscribers. However, in 1994, 
Congress decided to reauthorize Section 119 for an additional five 
years and made two significant changes to the terms of the license. See 
Pub. L. No. 103-369, 108 Stat. 3477 (1994). First, in reaction to 
complaints against satellite carriers concerning wholesale violations 
of the unserved household provision, the 1994 Act instituted a 
transitional signal strength testing regime in an effort to identify 
and terminate the network service of subscribers who did not reside in 
unserved households. Second, in order to assist the process of 
ultimately eliminating the Section 119 license, Congress provided for a 
Copyright Arbitration Royalty Panel proceeding to adjust the royalty 
rates paid by satellite carriers for the retransmission of network 
station and superstation signals. Unlike cable systems which pay 
royalty rates adjusted only for inflation, Congress mandated that 
satellite carrier rates should be adjusted to reflect marketplace 
value. It was thought that by compelling satellite carriers to pay 
statutory royalty rates that equaled the rates they would most likely 
pay in the open marketplace, there would be no need to further renew 
the Section 119 license and it could expire in 1999.
    The period from 1994 to 1999, however, was the most eventful in the 
history of the Section 119 license. The satellite industry grew 
considerably during this time and certain satellite carriers provided 
thousands of subscribers with network station signals in violation of 
the unserved household limitation. Broadcasters sued certain satellite 
carriers and many satellite subscribers lost access to the signals of 
distant network stations. These aggrieved subscribers, in turn, 
complained to Congress about the unfairness of the unserved household 
limitation. In the meantime, the Library of Congress conducted a CARP 
proceeding to adjust the royalty rates paid by satellite carriers. 
Applying the new marketplace value standard as it was required to do, 
the CARP raised the rates considerably.
    To address these events, Congress enacted the Satellite Home Viewer 
Improvement Act of 1999 (``SHVIA''). Pub. L. No. 106-113, 113 Stat. 
1501 (1999). The SHVIA, inter alia, permitted satellite carriers to 
retransmit non-network signals to all served and unserved households in 
all markets. In reaction to industry complaints about the 1997 CARP 
proceeding that raised the Section 119 royalty rates, Congress 
abandoned the concept of marketplace-value royalty rates and reduced 
the CARP-established royalty fee for the retransmission of network 
station signals by 45 percent and the royalty fee for superstation 
signals by 30 percent. More importantly, the SHVIA instituted a new 
statutory licensing regime for the retransmission of local broadcast 
station signals by satellite carriers. By 1999, satellite carriers were 
beginning to implement local service in some of the major television 
markets in the United States. In order to further encourage this 
development, Congress created a new, royalty-free license under Section 
122 of the Copyright Act permitting the retransmission of local 
television signals. The SHVIA extended the revised Section 119 
statutory license for five years until the end of 2004.
    Congress also made several changes to the unserved household 
limitation itself. The FCC was directed to conduct a rulemaking to set 
specific standards whereby a satellite subscriber's eligibility to 
receive service of a network station could accurately be predicted 
(based on new signal strength measurements). For those subscribers that 
were not eligible for distant network service, a process was codified 
whereby they could seek a waiver of the unserved household limitation 
from

[[Page 19047]]

their local network station. In addition, three categories of 
subscribers were exempted from the unserved household limitation: (1) 
owners of recreational vehicles and commercial trucks, provided that 
they supplied certain required documentation; (2) subscribers receiving 
network service which was terminated after July 11, 1998, but before 
October 31, 1999, and did not receive a strong (Grade A) over-the-air 
signal from their local network broadcaster; and (3) subscribers using 
large C-band satellite dishes.
    The most recent authorization of Section 119 occurred in 2004 with 
the enactment of the SHVERA. Until the end of 2009, satellite carriers 
are authorized to retransmit distant network station signals to 
unserved households and superstation signals to all households, without 
retransmission consent, but with the requirement to pay royalties. In 
the SHVERA, Congress adopted a complex set of rules to further limit 
the importation of distant network station signals into local 
television markets. For example, the law requires satellite carriers to 
phase out the retransmission of distant signals in markets where they 
offer local-into-local service. Generally, a satellite carrier will be 
required to terminate distant station service to any subscriber that 
elected to receive local-into-local service and would be precluded from 
providing distant network station signals to new subscribers in markets 
where local-into-local service is available. It also provided for the 
delivery of superstation signals to commercial establishments and for 
the delivery of television station signals from adjacent markets that 
have been determined by the FCC to be ``significantly viewed'' in the 
local market (so long as the satellite carrier provides local-into-
local service to those subscribers under the Section 122 statutory 
license).\8\
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    \8\ Pursuant to SHVERA, satellite carriers were granted the 
right to retransmit out-of-market significantly viewed station 
signals to subscribers in the community in which the station is 
deemed significantly viewed, provided the local station affiliated 
with the same network as the significantly viewed station is offered 
to subscribers. Satellite carriers are not required to carry out-of-
market significantly viewed signals, and, if they do carry them, 
retransmission consent is required.
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    Moreover, for the first time, the law distinguished between the 
retransmission of signals in an analog format and those transmitted in 
a digital format. SHVERA expanded the copyright license to make express 
provision for digital signals. In general, if a satellite carrier 
offers local-into-local digital signals in a market, it is not allowed 
to provide distant digital signals to subscribers in that market, 
unless it was offering such digital signals prior to commencing local-
into-local digital service. If a household is predicted to be unserved 
by the analog signals of a network station, it can qualify for the 
digital signal of the distant network station with which the station is 
affiliated if it is offered by the subscriber's satellite carrier. If 
the satellite carrier offers local-into-local analog service, a 
subscriber must receive that service in order to qualify for distant 
digital signals. A household that qualifies for distant digital signal 
service can receive only signals from stations located in the same time 
zone or in a later time zone, not in an earlier time zone.
    SHVERA also provides for signal testing at a household to determine 
if it is ``served'' by a digital signal over-the-air. In some cases, if 
a household is shown to be unserved, it would be eligible for distant 
digital signals, provided the household subscribes to local-into-local 
analog service, if it is offered. However, this digital testing option 
was not available until April 30, 2006, in the top 100 television 
markets, and will be available by July 15, 2007, in all other 
television markets. Such digital tests also are subject to waivers that 
the FCC may issue for stations that meet specified statutory criteria. 
Unlike SHVIA, SHVERA did not determine the royalty rates during the 
five-year extension because representatives of satellite carriers and 
copyright owners of broadcast programming negotiated new rates for the 
retransmission of analog and digital broadcast station signals. See 
infra. A procedure was created to implement these negotiated rates and 
they were adopted by the Librarian of Congress in 2005.
    Section 122. The Section 122 license was enacted eleven years after 
the Section 119 license and was intended to make the satellite industry 
more competitive by permitting the retransmission of local television 
signals on a royalty-free basis. The license is permanent and it